Financial Skeptic Bulletin, 2015

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

[Jul 22, 2015]Oil falls, U.S. crude settles below $50 as inventories rise

[Jul 22, 2015] Metals are getting crushed

[Jul 22, 2015] The current "gangbusters" wealth effect on consumption

"...Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation ata level never seen before in history."
.
"...In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect."

Daniel Becker

In the end, the vast majority of citizens of a given economy still need to be able to make the payments. Wealth means nothing to them if they don't have the income to cover the monthly bill.

The liquidity trap was the results of banks having nothing but air under their loan portfolios because the people who were making the payments could not.

That "could not" make the payments part as I've noted and then Kreger noted in is Gatsby Effect that $1.1 trillion in income had shifted to the 1% from the 99% and in his calculations represented $450 billion in consumption.

How stupid was this economic design? Build a money machine that depends on people being able to make payments while the machine works also reduces the money used to make payments by those who need to make payments.

The money boys and girls played both ends against the middle and the ends smacked into each other causing the big crash.

Bruce Webb,

Warren let me disagree on a few points. In two comments.

One it is too reductionist to say that the rich are motivated by accumulation rather than consumption, in part because there are only 24 hours in the day. First of all people like Larry Ellison have proven there ARE ways to consume conspicuously no matter how much money you have. For example you can essentially buy the America Cup competition AND buy 99% of one of the major Hawaiian Islands. But more generally you have omitted the third possibility: which is display. As a medievalist by training I have seen abundant evidence that what motivated chieftains and then kings and emperors was not personal consumption as much as the chance to display wealth and hospitality. Meaning that you could become famed by being KNOWN to be so rich that you could spend without care, and not just on yourself but on your supporters or simply via charity. In this way display has a function in between accumulation and consumption and where a thousand years ago that might manifest itself in palaces and cathedrals today it can happen with the pages of the Forbes 400 issue.

coberly

Well, I agree about the Big LIe, or the Big Befuddlement. You have to reember that these people have been lying to themselves since they were freshmen at Harvard and were let in on the Big Secrets by Famous Men.

On the other hand, you could just as well, or better, tax ONLY corporations. Since the corps would adjust the wages they pay and the prices they charge, the effect on "the economy" would be zero. and since the people would not be paying any tax, they would vote for larger taxes and we could get some work done.

Or, as long as you are not running a system where the rich pay no taxes and the poor pay what the traffic will bear, you could leave things as they are and let the market sort them out.

I don't know anyone who is paying the "double tax" who is going without supper.

[Jul 22, 2015] The Cost of Free [Trades]

The CIO that Eric Peters is quoting above is fortunate that markets aren't a 24/7 affair with wide open access. I believe that most investors are as well.
Silicon Valley is enamored with a slew of new tech startups that offer free and instantaneous trading. The technology is cool and the price is, well, as good as it gets, but the larger question to me is "Why?" If an investment isn't promising enough to justify paying seven dollars to execute the trade, maybe it's not an investment worth making. Maybe there's an unexpected benefit to there being some layer of friction between people and their ability to make moves.

Perhaps the relatively minor gateway of a trade confirmation screen – "Are you sure you'd like to place this order?" – or a small trading commission ends up being the thing that stands between the kind of frivolous transacting that undoubtedly destroys more value than it creates.
Warren Buffett and Charlie Munger say it is very unlikely that they can make hundreds of smart decisions each year. They can get the relatively few big decisions mostly right, which is why their investment process is oriented away from having to make a lot of good calls all the time. Can a guy trading out of boredom from his phone say otherwise with a straight face?
I'm all for efficiency and the trend toward lower investment costs. It's a huge win for investors in the long run. But at what point do lower short-run costs create larger long-run costs by encouraging self-defeating behavior? Investors who are free and unfettered to act on their every impulse and whim are not necessarily being empowered – in many cases they are being endangered. Jack Bogle has made this case in terms of the ETFs that have gradually sucked assets away from traditional '40 act mutual funds. He views them as carrying a built-in incentive to trade rather than invest because they're moving up and down all day. He's partially right – but a tool is only as good or as bad as the end user.

Free is never free; there's always a price. This includes market access.

[Jul 21, 2015] Fat Tails & The Invisible Vulnerability Of Markets

Jul 21, 2015 | Zero Hedge
Authored by Michael Mauboussin, via ValueWalk.com
Fat Tails & Nonlinearity, Dec 2007

Diversity Breakdowns and Invisible Vulnerability

For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more accurately to describe her paths.

Francis Bacon
Novum Organum 1

The Memo Went Out

If you are involved in financial markets, you have gotten the memo about fat tails by now.

But awareness of extreme events is not enough. Thoughtful investors must understand two interrelated aspects of the market. The first is the statistical properties of price movements, including important deviations from the bell-shaped distribution. Academics, risk managers, and quantitative investors have explored this aspect extensively. Researchers recognized decades ago that the distribution of price changes includes fat tails.

The second aspect, and one often overlooked or misunderstood, is the mechanism that leads to the statistical imprint. Much of the work on the market's statistical properties is divorced from the propagating mechanism, while traditional theories of market efficiency assume the mechanisms. Crucially, understanding the mechanism provides insight into how and why markets fail.

Our focus here is on nonlinearity. Many complex systems, including markets, have critical points where small incremental condition changes lead to large-scale effects. Researchers in both the physical and social sciences have known about these critical points for a long time; so much so that terms like phase transition and tipping point have slipped into our day-to-day language. Still, critical points throw a monkey wrench into our mostly linear cause-and-effect thinking.

Critical points help explain our perpetual surprise at fat-tail events: We don't see them coming because the state change is much greater than the perturbation suggests. Water does not undergo a dramatic change as it drops from 35 to 33 degrees Fahrenheit, but two degrees of additional cooling changes its state from liquid to solid. Likewise, large changes can occur in markets without visible manifestation in asset price change, while small additional changes can flip the price switch.

Critical points are also important for proper counterfactual thinking. For every critical point we do see, how many were lurking but never triggered? Like water temperature dropping to 33 degrees and again rising, there are likely many nearmisses in the markets that elude our detection.

We survey three ideas: black swans and why patterns set us up for surprise; the conditions for crowds to be wise and the role of nonlinearity; and, finally, three examples of nonlinearity, including a physical system, an agent-based model, and a recent market dislocation.

Don't Feed the Turkey

Nassim Taleb uses the black swan metaphor to help popularize the fat-tail idea. He defines a black swan as an outlier event that has an extreme impact and that humans seek to explain after the fact. Recent market turmoil fits the definition well.

The black swan reference reflects Karl Popper's criticism of induction. Popper's point is that to understand a phenomenon, we're better off focusing on falsification than on verification. Seeing lots of white swans doesn't prove the theory that all swans are white, but seeing one black swan does disprove it.

Taleb relates the story of a turkey that is fed 1,000 days in a row. The feedings reinforce the turkey's sense of security and well-being, until one day before Thanksgiving an unexpected and uninvited bad event occurs. All of the turkey's experience and feedback is positive until fortune takes a turn for the worse. Recent comments by a senior executive at one of the world's largest banks evoke the turkey story: "Our losses [from instruments based on U.S. subprime mortgages] greatly exceeded the profits we made in this field over several years."

Here's the point: rising asset prices provide investors confirming evidence that their strategy is good and everything is fine. This induction problem lulls investors into a sense of confidence, and sets the stage for the shock when events turn down. That nonlinearity causes sudden change only adds to the confusion.

See full PDF here

[Jul 21, 2015] Take Cover - Wall Street Is Breaking Out The Bubblies

"... After all, what's a 61X trailing PE among today's leading tech growth companies?"

Zerohedge

This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Yelp, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled.

After all, what's a 61X trailing PE among today's leading tech growth companies?

[Jul 20, 2015] The Complete Guide To ETF Phantom Liquidity

Jul 20, 2015 | Zero Hedge
Two months ago, in "ETF Issuers Quietly Prepare For Meltdown With Billions In Emergency Liquidity," we outlined the rather disconcerting circumstances that have led some large fund managers to quietly line up emergency liquidity facilities that can be tapped in the event of a sudden retail exodus from bond funds.
"The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown. Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show," Reuters reported at the time, in a story we suspect did not get the attention it deserved.

At a base level, these precautionary measures are the result of the interplay between central bank policy and the unintended consequences of the post-crisis regulatory regime. ZIRP creates a hunt a for yield and simultaneously incentivizes companies (especially cash strapped companies) to tap the bond market while borrowing costs remain artificially suppressed. Clearly, this is a self-fulfilling prophecy. The longer rates on risk free assets remain near, at, or even below zero, the more demand there is for new corporate issuance (the rationale being that at least corporate credit offers some semblance of yield). More demand means rates on corporate credit are driven still lower, and once yields on high grade issues get close to the lower limit, yield-starved investors are then herded into HY.

All of this supply in the primary market comes at a time when liquidity in the secondary market for corporate credit is non-existent thanks to the shrinking dealer books that resulted from the government's (maybe) well-meaning attempt to crack down on prop trading. The result: a crowded theatre with a tiny exit.

This situation has been exacerbated by the proliferation of bond ETFs which have allowed retail investors to pile into corners of the fixed income world where they might not belong.

All of the above can be summarized as follows.

"MF assets too large versus dealer inventories" (via Citi)...

... clear evidence of "structural damage in corporate bond trading liquidity" (via JP Morgan)...

... and the rapid growth of bond funds in the post-crisis world (via BIS)...

So given the above, the question is this: if something were to spook the market - a rate hike cycle for instance, or an October revolver raid on HY energy names, or an exogenous geopolitical shock - causing an exodus from these funds, what would happen to prices if fund managers were suddenly forced to transact in size in an illiquid secondary market in order to meet redemptions?

"Nothing good", is the answer.

The solution is to avoid selling the underlying bonds - even when investors are selling their shares in the funds.

But how is this possible?

To a certain extent, outflows in one fund can be offset by inflows to another. These "diversifiable flows" are one happy byproduct of the great ETF proliferation. Here's a refresher on how this works courtesy of Barclays.

* * *

Portfolio Products Replace Dealer Inventory

While diversifiable flows limit the risks to portfolio managers in principle, the reality of the high yield market is more complicated. Managers have specific views on tenor, callability, sectors, covenants, and, most importantly, individual credits, such that actually finding buyers for specific bonds can be quite difficult. In the pre-crisis period, dealers ran large inventories that effectively facilitated the netting of flows across funds (Figure 1). A fund with an outflow would sell bonds into the dealer community, and funds with outflows would buy bonds out of the dealer inventory. When inventory is large, the fact that the specific bonds bought and sold did not match was largely irrelevant. Funds with outflows could sell the bonds of their choice, and the funds with inflows could pick investments from the large variety of inventory held by dealers.

The matching problem has become more acute as dealer inventories have declined. Even funds can net flows in principle, dealers are much less willing to warehouse bonds, and are much more likely to buy only when they believe they can quickly offload the risk. Under this scenario, the fact that flows can theoretically be netted is of little practical use to fund managers – actually netting individual bonds is extremely difficult, particularly in the short time frame required by funds offering daily liquidity to end investors.

This is where portfolio products come in. Investors can use portfolio products to fund outflows/invest inflows immediately and execute the necessary single-name bond trades over time as liquidity in the underlying bond market allows (Figure 2). In this scenario, funds with inflows and outflows simply exchange portfolio products, sidestepping the immediate need to trade single-name corporate bonds.

* * *

Ok great, so ETFs provide a kind of "phantom" liquidity if you will. There are two problems with this:

It only works when flows are diversifiable. Once flows become unidirectional, it all goes out the window.

It makes the underlying markets even more illiquid.

Here's how we put it last month in "How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown":

In other words, if I'm a fund manager, the idea that ETFs provide liquidity rests on the assumption that when I experience outflows, someone else will be experiencing inflows and thus I can sell ETFs and avoid offloading my bonds into an illiquid corporate credit market. Put another way: I am depending on new money coming into the market to fund redemptions from previous investors who are exiting the market, all so that I can avoid liquidating assets that are declining in value and that I believe will be difficult to sell. There's a term for that kind of business. It's called a ponzi scheme and just like all other ponzi schemes, when the new money dries up (so, for example, when HY bond ETF flows are all headed in the wrong direction), the only way to meet redemptions is to get what I can for the assets I have and when the market for those assets is thin (as the secondary market for corporate credit most certainly is), I may incur substantial losses.

Note also that the more often ETFs are used as a way of avoiding the underlying bond market, the more illiquid that market becomes, making the situation still more precarious in the event of a panic.

So what is a fund manager to do?

This is where we come full circle to the emergency liquidity lines mentioned at the outset. In order to avoid tapping the underlying illiquid bond market in a situation where flows are unidirectional, fund managers may instead pay out redemptions in borrowed cash.

This is, to quote Citi's Matt King, "creative destruction destroyed."

Only worse.

That is, this represents the willful delay of a long overdue episode of creative destruction layered atop another delay of the much needed Schumpeterian endgame. Stripping out the metaphysics and philosophy references, that can be translated as follows: this strategy is yet another example of delaying the inevitable. If fund managers are forced to tap these liquidity lines it likely means investors have found a reason to sell en masse and if that reason turns out to be something that permanently impairs the value of the underlying bonds (as opposed to a transitory, irrational panic) then all the funds are doing by borrowing to meet redemptions is employing leverage to stave off the recognition of losses, which is ironically the same thing (in principle anyway) that the companies whose bonds they're holding have done to stay in business. It's a delay-and-pray scheme designed to avoid selling the debt of companies whose similar delay-and-pray schemes have run their course.

In closing, it's important to note that no fund manager in the world will be able to line up enough emergency liquidity protection to avoid tapping the corporate credit market in the event of panic selling in the increasingly crowded market for bond funds.

In other words, when the exodus comes, the illiquidity that's been chasing markets for the better part of seven years will finally catch up, and at that point, all bets are officially off.

[Jul 20, 2015] Which Is A Bigger Act Of Faith - Owning Gold Or Stocks?

07/19/2015

The WSJ has released yet another gold hit piece calling it a "pet rock' and gold bugs "subjects of a laboratory experiment on the psychology of cognitive dissonance" just one day after the PBOC reveals it has added the biggest amount of gold in history in order to "ensure security." But the biggest irony is that none other than Citigroup made a far bolder case that it is not the ownership of gold but of stocks that is the ultimate act of faith: "investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display." So who is right?
Financial_skeptic/ Casino_capitalism/ Systemic_instability*/ Stagnation/

[Jul 19, 2015] How The Fed And Wall Street Are Eating Their Seed Corn

Jul 19, 2015 | Zero Hedge
Submitted by Mark St.Cyr,
When it comes to the stock market these days the overriding theme you hear from the financial media is "You've got to get in." Another is, "Buy on the dips and average in." Or, "You can't profit if you aren't in it" and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one's wealth is far more factual than any will let on. Let alone reveal.

I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can't wrap their heads around is: "If the markets are a reflection of the economy. Then how in the world did we get up here?" That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it's off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.

At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one's years. Today, not only in much of that expertise gone – so too is the safety.

There's probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of "a soft opening" to ask…"So, do you have a 401K account elsewhere?" Then the sales pitch is on by some seemingly just out of grad school quota seeking "financial adviser" with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. "Index this… diversify that…dividend paying yields " and on and on. Along with whatever might be the latest tagline from the financial shows.

This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren't even staying, let alone "getting in."

Let's use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I'll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it's not all that great. However, for many entrepreneurs it's an amount easily understood as well as feasible. I also use if because it's a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today's financial morass.

(The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)

The "buy and hold" strategy. Sounds great, makes perfect sense – unless you can't hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn't sell (e.g., their stocks) – there's no money to eat. Better to "stay and hold" in one's business and take their chances rather than try to "cash out" and place their livelihoods (i.e., money) in someone else's hands. Especially what constitutes as today's "investment adviser."

"Buy stocks that pay out dividends!" Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what's the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren't the ones you were sold. Or, you're now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that's what you'll need to remember when there's no food on the table because – there's no "dividend" in the mailbox. I'll also add: it's probably safe to assume in another financial rout, the "financial adviser" that sold you those "dividend" plays is no longer employed themselves. So calling them for further "advice" might be more challenging than it is frustrating.

"Buy the dips!" Sure, there's only one problem. If there is a "dip" doesn't that mean the markets lost value? So if one didn't sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now "buy the f'n dip!"

"A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!" No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of $1,000,000.00 of ones net worth. More than likely a "net worth" that was to be "worth" food to eat, and pay living expenses.

"If you're nervous about the markets just be diversified." This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of '08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I'd love to sell you. Cheap!

Don't like the "markets?" Don't worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it's gonna cost you a plenty if that sooner is at the wrong time. But don't worry. It's not like you need to eat or pay bills anytime sooner or later, right?

Want to keep your money as safe as possible? "Keep it in liquid instruments such as C.D.'s or savings accounts here at our bank." Unless of course it's over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your "cash" is now a hindrance that needs to be protected as well as accounted for. And that's not what a "bank" is in business for any longer. Silly you for thinking "bank" today means anything what "bank" meant in the past.

"Don't like banks? Put you're money in a money market!" Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it's now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your "cash" value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I'll bet you didn't even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it's no longer even clear when you may gain or regain access to it (if there's anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it's written right there in black and white. (Just have your 10X magnifying glass at the ready is all I'll say.)

I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a "Wall St. maven" today and I'll bet dollars to doughnuts you'll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.

What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic "money on the sidelines" has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants "in" to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.

"Buying the right index, diversification, and thinking like a billionaire" is not only nonsensical in today's marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay. All one needs to do is look east to see just how well that type of thinking is doing in China today. For "bubbles" no matter the culture when it comes to one's money "pop" the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!

[Jul 19, 2015] Shell Warns, Oil Price Recovery To Take 5 Years

"...The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel."

"...It will take several years [for oil prices to recover fully], but we do believe fundamentals will return"

Jul 19, 2015 | Zero Hedge
Submitted by Andy Tully via OilPrice.com,
Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn't rebound.

In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it.

"Low prices have big implications for exporting countries like Iran, Russia and Venezuela," he said.

"But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand."

For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. "Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015]," he said. "So global oil demand is expected to grow as well."

But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, "Supply … may even decline." As for Shell itself, though, he said, "We're determined to avoid a start-stop approach to investment."

As for the global market, Van Beurden said that at best, "a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario."

But he pointed to one major snag in that view: U.S. shale oil. A boom in North American production over the past few years helped to create the glut that led to the steep decline in oil prices that began a year ago. OPEC, under the leadership of Saudi Arabia, decided to fight shale producers with a price war, hoping that keeping prices low would make shale extraction, already costly, unprofitable.

But if shale producers cut costs and take other steps to keep producing, van Beurden said, "With moderate economic growth, prices could stay low for longer."

Van Beurden qualified his outlook by stressing that "I can't predict the future," but his director of oil and gas production outside America gave a more specific view of Shell's expectations in a separate interview with Reuters, published July 16.

Andy Brown, a top Shell official, said the Anglo-Dutch oil giant forecasts no quick rebound in the average global price of oil, but only a gradual recovery lasting five years. He attributed this sluggishness to a slowdown in China's economy, leading a drop in demand for fuel, and the continuing oversupply of oil.

The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel.

In fact, he said, that was a key driver for Shell to offer of $70 billion to buy rival BG Group more than three months ago. This not only supports van Beurden's insistence that low oil prices won't cause Shell to trim investments, but also expands Shell's capabilities in deepwater oil production and gives it immediate entree to markets for liquid natural gas (LNG).

"It will take several years [for oil prices to recover fully], but we do believe fundamentals will return," Brown said. "Until such time, we, like other companies, will have to make sure we stay robust."

Paul Krugman: Liberals and Wages

We can do more to encourage firms to raise wages:

Liberals and Wages, by Paul Krugman, Commentary, NY Times: Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton's core message was that the federal government can and should use its influence to push for higher wages. ...

Mrs. Clinton's speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.

Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor - that is, wage rates - fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.

In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend... But the case for "skill-biased technological change" as the main driver of wage stagnation has largely fallen apart. ...

Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution...

The ... market for labor isn't like the market for, say, wheat, because workers are people. And because they're people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn't cost jobs after all.

The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we've learned from minimum-wage studies seriously, you realize that they're not relevant just to the lowest-paid workers.

For employers always face a trade-off between low-wage and higher-wage strategies - between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there's every reason to believe that public policy can, in a variety of ways - including making it easier for workers to organize - encourage more firms to choose the good-wage strategy.

So there was a lot more behind Hillary's speech than I suspect most commentators realized. ...

Posted by Mark Thoma on Friday, July 17, 2015 at 01:08 AM in Economics, Income Distribution, Technology, Unemployment | Permalink Comments (103)

[Jul 16, 2015] It looks like Morgan Stanley absolutely nailed the end of the oil rig plunge

Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (relative in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

JamesB

there is another data set that matters more and that is the rig productivity data. Almost all of he older and smaller rigs have been take off line. One of the aspects of shale work is the huge leap in technology, perhaps the single largest advance ever in the industry. Traditional vertical drilling produced on average only 1 producing well out of every three drilled. The shale producers have almost completely eliminated dry holes with the newer wells which can steer the drill bits to hit tiny pockets. It is a huge change. The second thing is the first shale wells were drilled only 3/4 of a mile and one rig could cover about 2-3 square miles. They are now drilling 15 miles in shallow wells and one rig drilling site covers 150-180 square miles. What is also interesting is it takes only a couple days longer to drill the 15 miles than the 1 mile. The drilling rig count dropped in half, but the feet drilled actually dropped only about 10%. Deep well drillers are also seeing similar leaps forward. A well in the Gulf of Mexico recently hit a record 25 miles of horizontal reach. Morgan Stanley probably nailed it because they were watching the types of rigs.

Dave

These guys can drill all they want but it will just help keep prices down. The demand is simply not going to be there. Oil will remain oversupplied for a long time as long as they keep pumping and squeezing it out of the ground. And OPEC nations are sure not going to slow down. They have social programs to fund to keep their citizens happy. Now, lets get the price for gas in the US down to $2 a gallon where it should be.

LOREN

The rig count is all off, as far as judging how much oil is being discovered. Don't put much stock in rig counts based on past history. New drill bits have been developed and are now in wide us. They can now drill a well in half the time. So the rig count could be half of what it was years ago, but they can drill twice as many wells. This is what happens when you take your advice from bankers who sit in offices in NY. And the effect is clear, even with drastically reduced rig counts, US oil production continues to increase.

southerncomfort

I work in the oil field in Texas and was making over a $100,000 a year will barely make $60,000 this year. I have already secured a job in the healthcare field and will finish my last year to get my BA in Healthcare Administration. Oil field sucks

dan

The real data is the cost of production... We can't compete until the American Oil Companies decide to reduce profits and share revenue...
Period.

I work in the Middle East and I know.

How much money do you need ExxonMobil?...Texaco?

All of the people that you contract to drill your wells by running, non-stop, for 24 hours don't realize that they will be out of work in a few years...

I do... I am 3rd generation of an Oilfield Drilling Contracting family and I know who profits during the "bust" cycles.... You do!!!

ed

The time for claiming something actually happened is maybe a half year to a year after it happened. This is the problem today with everyone thinking that they MUST KNOW everything immediately, and even then, still make foolish mistakes.
Please, someone tell me why we "must know" which idiot won an election, one minute after the polls closed. Thank you in advance.

Steve

The IB's also were calling for oil to sink to $30 or below, which was ludicrous. Their call on rig count vs. actual data was coincidental at best. You can't make legitimate calls when your butt is sitting in a chair in a cubicle in NYC. My experience is most of these guys, while certainly intelligent and well educated, are arrogant and clueless of day-to-day decisions at the field level.

JamesB

The are nothing more than desk jockeys.
Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (realtive in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

[Jul 15, 2015] The Stock Market Is Too Important To Leave To The Vagaries Of An Actual Market by Babar Rafique of Setter Capital

"..."The primacy of politics over markets must be enforced." -Angela Merkel "

"...The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."

"...Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think."

"...Because criticizing a nation's economic ideology is just like declaring its people subhuman."

Jul 15, 2015 | Zero Hedge

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

G.O.O.D

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think.

JustObserving

The stock market is just too important to leave to the vagaries of an actual market now. Levitating the stock market has been happening in the land of the free since at least 2009. Fraud and manipulation is the fastest way to wealth.

KnuckleDragger-X

It's getter harder for the propaganda to work when more and more people are going under and the systems like utilities are becoming less stable. The thing that'll likely start the collapse are things like race baiting the free shit army and destroying the working and middle class lifestyle. There are a lot of people who are giving up, but there are also a lot of people starting to get really pissed and it won't be a big thing but a little thing that starts the avalanche....

DOGGONE

http://showrealhist.com
Q: What is going on?
A: F__k the people!

alphamentalist

yes to 2009. and longer if you consider the discounting effect of ever lower rates that has been happening for decades. but the real damage to the micro structures of the market has happened since 2011/2012. single name stocks stopped effectively discounting information in 2012 (except for discounting that there was a lot of QE happening, with the hope of more to come, that all got discounted properly, of course). nowadays, very, very rarely do you see a stock actually trade off when it becomes obvious its management/model is flawed (maybe you get a -5% move for a situation that should have been a -25% move). aside from the obvious misallocation issues, this is a generation crime: it is forcing younger investors to bailout the boomers by paying 2-3x the fair price for their own retirement assets.

Falling Down

OT:
Poor Kruggers:

http://krugman.blogs.nytimes.com/2015/07/15/angry-germans/?module=BlogPo...

Renfield

hehe - first time I've voluntarily read anything on the NY Times site since - oh, I don't even know how many years.
But I must admit that article was kinda fun, short & sweet.
From the article:
<<Because criticizing a nation's economic ideology is just like declaring its people subhuman.>>
I wonder if he realises what he just said, there?
Thanks for that little snack. I guess you're one of those who reads the NY Times so I don't have to. One of the almost-never times I have any sympathy for a Krugman whine. Krugman's hit his stopped-clock correctness quota with this one.
ETA: First the IMF, now the NY Times. Looks to me like Someone Up There is seizing this opportunity to put Germany firmly in its place. Hmmm... wonder what else is happening behind the scenes, to cause this sudden anti-German sentiment from TPTB? I suspect that whatever it is, it has very little to do with Greece.

Fun Facts

Until the current "financial system" fails, we will have a managed stock market. Just like the Chinese and everyone else.
Why ? If they stopped it would lose 50% or more until it found fair value. Interestingly, more and more inside the establishment see central bank stock market management as the proper course.
"And you may ask yourself, how did I get here ?"

Dr. Engali

It's not that hard to understand. The stawk "market" is a policy tool. The illusion of prosperity must be maintained even if the whole country is slowly going to shit right before our own eyes.

MASTER OF UNIVERSE

The NeoLiberals/NeoConservatives have lost control over the markets since March 10th 2008 @ 11:00am Bear Stearns NYC time. What controls the markets, and the future of all economies throughout the World is a Mandelbrot Set, or fractal, of actual economic destruction that continues to replicate itself each and every successive business quarter. The old 'growth models' that the Wall Street 'Quants' based their projections on was seriously flawed, and now the sand they built the American Economy on has shifted much like the World Trade Centers shifted on their foundations when the USA Military Grade Nano-Thermite cut into the support steel beams to control the demolition of WTC 1 & 2, plus Building #7.

NOTE: The appropriate algorithm to control the Mandelbrot Set that was triggered in 2008 when Bear Stearns was subject to a bear run has not been utilized yet because the 'Quants' do not understand what they did on a Quantum Mechanical level. Nor do they understand how the same fractal has been replicated each successive business quarter. Until they understand what is controlling the markets they will not be able to increase the growth model whatsoever. Each business quarter will be a repeat of the last with an increase in contraction until all the superstructure that was built by the 'Quants' is deconstructed and destroyed outright. In brief, the fractal replication is very aggressive, much like a runaway freight train on a Hegelian Spiral downwards.

moneybots

"The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."

A manipulated market always returns the favor in the opposite direction.

farmboy

"The primacy of politics over markets must be enforced." -Angela Merkel

Clowns on Acid

Fed policy = Stock and Awe !

BoPeople

So, WE are saddled with massively inefficient markets that allocate money to the least deserving and least productive and THEY are saddled with the knowledge that vast numbers of people, not on the inside, now know that the they and those they serve control things ... and when there is the next crisis (and there will be some day) that EVERYONE will quickly know who is responsible (just as the Chinese knew who to blame... and the Greek people know who to blame).
They cannot escape this responsibility and the consequences of that responsibility.

[July 13, 2015] Janet Yellen's Unusual Optimism

Teresa Tritch of the NY Times editorial board:
Janet Yellen's Unusual Optimism: ...To my ears, most of Ms. Yellen's speech expertly laid out why the economy is not ready for interest rate increases anytime soon. Then, toward the end, she said that based on her views, she expected to begin raising rates "at some point later this year." ...

Granted, it takes time for the effects of an interest-rate move to be felt in the economy. So if the Fed thinks the economy is going to start overheating, say, next year, it would choose to raise rates before that. But I didn't hear any good reason in the speech to believe that a full-steam-ahead economy lies ahead. ...

And yet, Ms. Yellen's take is that a gradual process of steady improvement is underway that, if continued, could justify the start of rate hikes this year.

That is guarded optimism. But six years into an economic recovery that has been consistently disappointing, I find it hard to share even guarded optimism. ...

Ms. Yellen stressed, as she always does, that actual economic developments in coming months would determine when to begin raising rates. The question is whether more of the same fitful, inconclusive growth will count as reason to act or reason to wait.

Posted by Mark Thoma on Monday, July 13, 2015 at 10:32 AM in Economics, Monetary Policy | Permalink Comments (25)

[Jul 13, 2015] OPEC expects a more balanced oil market in 2016

This is Reuter interpretation which is by definition slanted toward energy consumers, who are interesting in low prices bonanza to continue. Should be taken with a grain of salt.

"...In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year."

"...Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014."

"...OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016."

"...The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come."

Jul 13, 2015 | Reuters

Group expects world oil demand growth to increase in 2016

U.S. oil output growth to fall sharply next year

Saudi Arabia says it pumped at record high in June (Updates throughout)

The oil market should be more balanced next year as China and the developing world use more oil while supply of fuel from North American shale grows more slowly, OPEC said on Monday.
In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.

World oil demand growth should outpace any increase in oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing consumption of OPEC crude, it said.

"This would imply an improvement towards a more balanced market," OPEC's in-house economists said in the report.

OPEC has increased production sharply over the last year as its most powerful member, Saudi Arabia, and other core producers in the Middle East Gulf attempt to build market share, leading to higher inventories worldwide.

OPEC said Saudi Arabia reported that it pumped 10.56 million bpd last month, up 231,000 bpd from May. According to industry data, that would be a record high.

Higher OPEC production has been a major factor behind a collapse in oil prices, which are now around half their levels of a year ago.

Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014.

Lower prices have squeezed high-cost oil producers and brought a sharp fall in the number of oil exploration rigs in operation, particularly across North America.

OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016.

"Total U.S. liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year," it said.

That should mean more demand for OPEC oil next year.

OPEC said it expected demand for its own crude to rise by 860,000 bpd in 2016 to 30.07 million bpd. But it cut its estimate of demand for its crude this year by 100,000 bpd to 29.21 million bpd.

The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come.

(Editing by Dale Hudson and Jason Neely)

[Jul 12, 2015] The Best Way to End Homelessness Alana Semuels

The first-ever large-scale study on the topic finds that permanent, stable housing can be more cost-effective than shelters.

America has the largest number of homeless women and children in the industrialized world. It's a depressing statistic exacerbated by a housing crisis that forced thousands of families out onto the street. The stories of the 1.6 million children who experience homelessness every year-like that of Dasani, an 11-year-old homeless child profiled by The New York Times last year-are reminiscent of tales from developing countries or disaster zones.

[Jul 12, 2015] Why Investing Is So Complicated, and How to Make It Simpler By SENDHIL MULLAINATHAN

"...Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules."

"...For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win."

"...Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio."

"... The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. "

"...Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite."

"...The take away from my experience is that you simply cannot trust financial advisers. "

"...The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location. "

Jul 11, 2015 | The New York Times

As with the simple advice "buy index funds," this is also imperfect. If everyone starts buying target date funds, or life-cycle funds, how long before these terms attract companies that create expensive and not-so-effective products? In fact, it may have happened already. As Pierluigi Balduzzi and Jonathan Reuter found and reported in a recent paper, some target date funds may already be taking an expansive view of what it means to invest in equities: They seem to produce a wide range of returns and risks across the year. As a result, I was careful to verify a few things about the fund I chose. First, I made sure that the stocks held by the fund were contained in a simple, broad-based index such as the Standard & Poor's 500-stock index or the Russell 2000. Second, I verified that the costs were very low: The annual fees came to less than 0.2 percent. If the fees aren't obvious, or if they are much higher than this, watch out.
Even armed with this knowledge, there were hiccups. First, choosing the retirement date raised existential quandaries. Since these funds come in increments of five years (2025, 2030 and so on) I ended up choosing two dates to leave me with mental wiggle room. ("I'm not that close to retirement," I told myself, choosing one fund. "I might want to retire earlier," I said, choosing another.)
Then I developed a second problem: I was afraid that picking only one kind of fund was imprudent. The economists Shlomo Benartzi at U.C.L.A. and Richard Thaler at the University of Chicago refer to the urge to buy many kinds of funds as "naïve diversification." One fund can be enough if it's diversified: What feels like one basket is really a great many baskets.

The biggest lesson, I realized, was one that faces me all of the time: The biggest cost of fear is paralysis.
It is easy to make a mistake in choosing investments. But in an effort to avoid an error, I had been making an even bigger error. As I procrastinated, my money was uninvested and earning zero returns.
That, surely, is not the path to a happy retirement.

SENDHIL MULLAINATHAN is a professor of economics at Harvard.

David, Nevada Desert 7 minutes ago

Dumb luck, I guess.
I let the folks at New York City Teachers Retirement System lay out the choices for me. You know: you can save more or you can save less. TRS does a good job of keeping costs down.
In retirement, I have moved all my bank and brokerage IRAs to Vanguard because their management fee is about 0.17%. Since I must take RMD each year (to be taxed) and have no need for the extra cash, I have put the money in to Vanguard's 529 college fund for my grandchildren...which should pay for tuition in just about any public or private college in future years.
Some poor investing choice in my lifetime:
1. Buying an ocean front condo in Atlantic City.
2. Thinking the Nikkei was cheap at 20,000 and believing it would quickly go back to 40,000.
A good decision based on rumor:
I overheard from a colleague at work that she was moving out of equities into fixed income investments because Hong Kong investors were jumping out the window in the late 1990's.
Suggestion: Read comments on Bogleheads.com from Vanguard fans.

Yeti, NYC 12 minutes ago

The fact that a professor of economics at Harvard has problems investing his money shows that we should stay away from investing in other businesses at all costs. Investing in businesses we know very little about is not different from playing the slot machine. It's probably best to invest in your own business, assuming it still has a future. You know where the money goes, the fee is 0% and your motivation to succeed is guaranteed.

VSB, San Francisco 27 minutes ago

Good Morning: While I agree that the author has made a few mistakes, commentators should realize that this only confirms (accidentally!) the truth of what this economist has written. Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio.
However, aren't index funds and target date *not* the same thing? The paragraph beginning "As with the simple advice..." seems to indicate some confusion about the nature of these products.

None of my index funds cost more than 25 basis points, and my S&P 500 index fund only costs 4. I suspect that any "index fund" that costs 1% (as written in a different paragraph) is not an index fund at all.

Doug Piranha, Washington, DC 49 minutes ago

I agree with other commenters, who have pointed out how awful this piece is, because of the discussion of index funds. What if there were standards in presentation? Can the professor really be great unaware that these standards exist already?
There is something called an expense ratio for a mutual fund! The SEC requires every fund to publish it in a standard format. It isn't complicated, or difficult to find.
Do domestic index funds really charge 1 percent? Hmmm . . I don know. But you can easily see this, and as others have pointed out, run straight to Vanguard. And thereare other index funds now competitive on fees with Vanguard.
When it comes to index funds, it really isn't that hard. Don't be scared away by this misleading article.

Madeline Conant, Midwest 54 minutes ago

I read through all the comments and Bob Garcia was the only person to get the point. The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. Then the comment column is full of scornful responses about how easy it is to invest if you just try.
No. No, it isn't. This is one more area where our leaders are FAILING in their responsibility to serve the interests of the citizens of our country.
The voracious money-vampires have succeeded in eliminating private pensions, and now the common working man has no other choice than to invest (read: gamble away) his life savings in investment vehicles he cannot comprehend. As Mr. Garcia noted, responsible leaders would develop a government-backed savings option that working people could safely put their money into, that guaranteed a modest return. Instead, our elected leaders collude with Wall Street to let the blood-suckers "feast on investors." Indeed, they want to privatize Social Security so they can rook old people out of their SS checks.
Do we hear our candidates addressing this??

Larry R. , Bay Shore, NY 54 minutes ago

The professor's article really offers no solution about how to make investing simpler, and yet the advice from others on this thread remains sound: choose index funds from a low-cost provider like Vanguard or Fidelity Spartan, diversify among US and international equities as well as bonds, set a target allocation for your age (more aggressive in equities when young, less when older so as to preserve capital), rebalance every year or two to preserve your allocation, and that's that.
On the contrary, stay away from actively managed funds where fees eat into your returns, stay away from individual stocks, and stay away from sectors except possibly real estate. As for target funds, they may be OK so long as you don't pay high fees. All my retirement income is in 6 Vanguard index funds (Total Stock, Total International, Total Bond, REIT, Short-Term Bonds, and TIPS). I once compared my results to what I would have earned from a Vanguard Target fund; I came out ahead with my own allocation, but only slightly.

Neal, NJ 1 hour ago

My second thought was that the essay is a misplaced April Fool's joke.
My first thought was to wonder how a distinguished economist with a specialization in behavioral economics could be so naive about his own behavior.
My third thought was that here we have another example of why economics is known as the dismal science.

Ed Perkins, University of Southern California 1 hour ago

The best answer for persons seeking advice is to select the retirement target date mutual funds offered by Fidelity and Vanguard. In discussing the issue with my history department colleagues at the Univ. of So. California, I usually recommend choosing three target dates. The expected target date fund plus one fund five years earlier and one fund five years later.

njglea, is a trusted commenter Seattle 1 hour ago

Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite.

Bill F., Paducah, KY 1 hour ago

I was fortunate to have a father who was in the retail investment business, first as a stock broker and then working as a bank trust officer. That did not make him rich. He was much too concerned about his fiduciary responsibility to his customers to platy the games that make some advisers rich. But growing up with him meant I learned a lot about the pitfalls of investing when the lessons were cheap. I saw my college fund go from $1700 to $500 during the 73-74 bear market (I was 13). Living through that made it easy not to panic during 2008-9. I read Reminiscences of a Stock Operator and The Money Game (by Adam Smith, aka George Goodman) in high school. Those two books will inoculate you against the latest fads on Wall Street.
Dad could pick stocks, because it was his career. I know I don't have the time to do it successfully, so I don't. The bulk of my money is in very low fee index funds. I re-balance about once a year. Fewer bonds than anyone would recommend (<5%), but dad always said, "Bonds are Boring." It doesn't have to be complicated. Don't pay someone to make it more complicated than it has to be.

bernard, washington, dc 1 hour ago

I agree with lots of other commentators: the only retirement investment problem is to ignore the investment advice noise, buy cheap index funds, and wait. I guess it sounds like advertising to tell people to go to Vanguard and forget the rest. That is what I have done. It has been very easy and the results are good.
The big problem among investors is to resist the urge to try to beat the market by being cute. The key insight is that markets are efficient enough to make up-to-date "investment advice" worth nothing extra.

blgreenie, New Jersey 1 hour ago

This piece is rather wordy, not very helpful, about a subject that is covered more concisely and exhaustively elsewhere. Morningstar is a valuable information source for mutual funds with endless measurements, comparisons and responsible commentary. Read Bogle too. I find him very common sense and easy to understand. Avoid reading the daily internet financial sites which gain clicks by frightening their readers with too much doomsday. When considering both general index and target date funds, I find that Vanguard is the most often mentioned as having an advantage. No matter your source or steps taken, it nonetheless comes down to what you decide to do.

Robert Bradley, USA 1 hour ago

Investing is mysterious only for those who refuse to spend a few hours reading a book on the subject and mastering the modest body of knowledge required (stocks, fixed income, market efficiency, diversification and mutual funds, fees and taxes being the core topics).
For these slackers, a target retirement fund, as the author concludes, is the way to go. Prefer Vanguard funds over for-profit competitors, and avoid financial advisors.
Robert Bradley
Author, Investing in Four Hours

Raj S, Westborough, MA 1 hour ago

The basis for this article is wrong is out of sync with the current scenario. Investing is really simple and the proven method is to invest in Index Equity, Bond funds provided by large entities like Fidelity, Vanguard e.t.c.. We should not indulge in excessive trading and be patient with a long term horizon. The author confuses readers and does a great disservice by providing references that are at-least a decade old. I recommend reading John Bogle's investing theories for all young people in this country and around prior to determining their investing plans.

whatever, nh 1 hour ago

Wow. Talk about a verbose article that creates strawmen, complicates what is rather straightforward topic, and distorts or exaggerates some simple facts.
I could provide many examples, but let me provide just one. The author states, "Consumers have been buying index funds, and the market has responded by providing hundreds of them. Nearly all E.T.F.s are index funds. But the market has also responded by charging high fees for this standardized product" and then he quotes a 2004 study from the University of Chicago supporting this claim.
Leave aside the fact that it's silly to quote a 2004 study in 2015 on a topic like this. The fact is, there are dozens of index funds, offered by such large, well-known, stable, well-managed organizations like Fidelity, Vanguard, etc., whose fees today are in the region of 0.1%, i.e., one-tenth of one percent!
Why doesn't he point this out, instead of scaring a potential investor away from a good index fund!?
(I don't work in anything resembling the investment industry).

james doohan, montana 2 hours ago

The take away from my experience is that you simply cannot trust financial advisers. I was referred by friends to someone affiliated with a major company with a warm and fuzzy advertising campaign featuring Tommy Lee Jones. She recommended transferring our diversified mutual funds into what turned out to be a catastrophic, illiquid mess of REITs involved in resort properties. Then she sent periodic newsletters detailing her vacation travels. When I tried to complain to Ameriprise, and asked them if she was essentially receiving kickbacks, they explained that she was not an employee, but paid Ameriprise to use their name. I have taken over my finances, not because I am confident I know what I'm doing, but because those people who want to make money off us simply cannot be trusted to work in our interests.

Susan Josephs, Boulder, Colorado 2 hours ago

For years and years, and through a series of investment advisors, I thought investing was too complicated and difficult for me to understand. The advisors didn't make it any easier, convincing me that this was best left in their hands. I woke up about ten years ago, thanks to a class I took with a retired engineer whose avocation is investing. He never told us what to buy, just taught the basics of what good investing is and why the buy and hold strategy, that convinced me to do nothing during the 2008 crisis, is a good one. Gradually, the world of investing became less and less complicated to me and I took over our investments myself.

I went to Vanguard because this company seems the most transparent and the fees are the lowest. I find that most people, especially women, are completely intimidated about investing. It's not that complicated, and with a little time spent understanding it, as the author illustrates, one can easily learn enough to make good decisions. The target funds are made up of four indexes, total international stock, total international, bond, total US stock market, and total US bond market. Every five years the managers adjust the ratios among these four holdings. The Target Funds are a no-brainer way to invest, at low cost, and with good returns. If one doesn't want to go any deeper, this is a good solution. Vanguard offers them and the management fees are low.

Martha Pattillo, Illinois 2 hours ago

The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location.
The Prudential website requires me to scroll through multiple pages to get the relevant information and I cannot readily see choices side-by-side.
Fidelity is far superior showing the performance of my portfolio. It shows the sources of change in portfolio value: market value, dividends, deposits or withdrawals. It offers graphs and dynamic analysis. Prudential shows only changes, so it looks as if it's doing well, because I contribute to it every month. I have to download PDF files of each individual fund, so comparison is tedious and incomplete.
Good, clear information can lead to better choices.

skeptonomist, is a trusted commenter Tennessee 2 hours ago

How can small investors hope to beat the market picking stocks? They don't have the knowledge themselves. An advisor who makes a living from small investors is probably not a real expert - if there are real experts, they probably work for real big money, and they may have access to inside information. So, advisors may be better than the many fools who play the market with no expertise at all, but probably no competition for big operators and manipulators. For most people index funds are the answer. Of course you can still try to time the market overall.

**ABC123**, is a trusted commenter USA 2 hours ago

I read this article thinking it was written by a twenty-something fresh out of college. Then at the end, I saw this guy is a professor of economics at Harvard. Dude... purchase "Personal Finance for Dummies" written by Eric Tyson. That will start you off where you need to be- it's well written and even funny/entertaining. And for index investing... VANGUARD! And not sure why you think indexing is so expensive (???). Vanguard charges a fraction of a fraction of a percentage.

SteveD, Marlborough CT 3 hours ago

After all is said and done above average returns depend on finding people with that special and relatively rare skill to beat the market. What is needed is more transparency to check out investment decision records of individuals, not just funds. Maybe trackers like myinvestmentrecord.com will help eventually.

Dan Green, Palm Beach 3 hours ago

For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win. Human nature when you sit across the deak from your advisor, he or she is calculating their cut. If like my spouse and I do , manage our own affairs, she has a MBA in economics, you have to be with it all the time. So so many non related forces, affect many investments, much less all the manipulation that goes on. I have a family member who is a classic Gold Bug, those theories are fascinating. Learned the hard way an segement I stay away from.

Glassyeyed, Indiana 3 hours ago

Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules.

[Jul 11, 2015] Gold Daily and Silver Weekly Charts - Some Group Is Sitting On These Markets

Jul 11, 2015 | jessescrossroadscafe.blogspot.com

"Gold is looking like the dog that just did not bark -- but not uniquely so. Most safe-haven assets are looking distinctly lackluster, including the VIX index. Either 5,000 years of safe-haven buying has just become bunk, or there is a desire to portray what is evidently a financial and economic crisis as nothing to be concerned about."
Ross Norman, Sharps Pixley

"In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."

Aleksandr Solzhenitsyn, The Gulag Archipelago

At least in my judgement, the precious metal markets are being consistently rigged.
I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.

We are just defending what is ours, right? And what is ours is the global dollar hegemony.

This is really just another excuse for looting, picking both the global public pockets and the Treasury's.

This sort of thing seems to happen periodically, at least once per generation, and the system generally has to get washed out badly, and then reform may come. You can see a clear trend back to the early Reagan years for this particular dalliance with the overreach and madness of the moneyed interests.

Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historic imbalance of wealth and power. And the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.

Oh well. Interesting times.

Have a pleasant evening.

[Jul 10, 2015]200PM Water Cooler 7-9-15

Jul 09, 2015 | naked capitalism
Anon July 9, 2015 at 2:18 pm

Maybe there's some formatting goodness still going on behind the scenes, but shouldn't that be New Hampshire? Reading the tweets from the bettermarkets account, brought me to this article by Taibbi:

Eric Holder: Double Agent.

What I especially love about this is that it really makes you realize how milquetoast Holder was during his stint as AG, with moments like this:

One is that he failed to win a single conviction in court for any crimes related to the financial crisis. The only trial of any consequence brought by his Justice Department for crimes related to the crisis involved a pair of Bear Stearns nimrods named Ralph Cioffi and Matthew Tannin, who confided in each other via email that the subprime markets were "toast" but told their clients something very different to keep them invested.

After a jury acquitted both in early 2009, the Holder Justice Department turtled. Sources inside the DOJ told me over the years that both Holder and his deputy, fellow Covington & Burling alum Lanny Breuer, were obsessed with winning and refused to chance any case where they felt a jury might go sideways on them. Thus the Cioffi-Tannin case was the last financial crisis case they dared to bring into to a criminal courtroom – virtually every other case ended in settlements.

It sure must be nice to be rich – I can utterly fail at the main responsibility of my job AND land a cushy job with no real effort on my part! Going on that tangent reminds me of that PBS parody video with Lanny Bruce.

[Jul 10, 2015] Are Big Banks Using Derivatives To Suppress Bullion Prices

Jul 9, 2015 | Zero Hedge
Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,
We have explained on a number of occasions how the Federal Reserves' agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in "paper gold" is created, and this increase in supply drives down the price.

This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts ("open interest') can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.

Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world's reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington's ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.

It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.

OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.

The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.

During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.

If these were long positions hedging the banks' Comex shorts, why did the price of gold and silver decline?

More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.

The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.

If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

Pinto Currency

The price is set in London where they trade 200 million oz spot every day.
It is a paper spot market fraud.
http://www.safehaven.com/article/36534/lbma-data-points-to-gold-and-silver-default

SafelyGraze

supply and demand still set the price as PCR points out, the demand is not for physical hugs,
mark dice and a handful of chocolate bars

"you can't eat chocolate!"

SafelyGraze

spoiler:
https://www.youtube.com/watch?v=bYhTFz_SGw0

Oldwood

I thought Kyle Bass told us that there was no way near enough physical to cover paper gold. This would mean that they are simply printing gold to push "supply" up and prices down. On the other side we have stocks and with exception to splits or IPOs, they aren't making more, but companies are buying them up which decreases supply and with a little QE stimulus, pushes prices up. To me it all looks manipulated, but I'm sure they are only trying to make us all rich.

Captain Debtcrash

As shown in China, manipulation eventually always fails. Any manipulation of gold and silver will too. Those that say zero is the correct allocation to gold and silver these past weeks are using it as evidence that it doesn't even serve as a safe haven, exactly what a manipulator would want.

BaBaBouy

Its A Dirty Stinking Putrid Trading World For GOLD SILVER And Now Also Most Other Commods...

[Jul 09, 2015] Fed Watch: Mediocre Tranquility

"...A huge scam run by Angela the Hun."

"...On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]"

Jul 09, 2015 | economistsview.typepad.com

Tim Duy:

Mediocre Tranquility, by Tim Duy: The US economy is an island of mediocre tranquility in the midst of the stormy sea of the global economy. Tranquil enough to keep the Fed eyeing its first rate hike despite the surrounding storm, but sufficiently mediocre that they feel no reason to rush into that hike. As such, the Fed will remain on the sidelines until the forecast points toward sunnier skies. Uncertainty from Greece and China are likely raising the bar on the domestic conditions that would justify a rate hike

ilsm said in reply to pgl...

A huge scam run by Angela the Hun.

The troika is demanding Greeks take the international version of payday loans, to tighten their belt and need to borrow more at the next payday.
Unlike what US thugs these paydays are paydays to the banksters, the Greek has to go hungry.

New Deal democrat said in reply to pgl...

I agree with this comment. The Troika should allow Greece to meet its target by raising taxes rather than cutting benefits.
But ... here is an argument I don't have a good answer to: Slovakia asks why it should agree to a debt cramdown, and also extend a further bailout, to Greece, when Greece has more generous benefits than Slovakia? I haven't heard any good answer to that at all.
The Eurozone is sometimes contrasted to the USA, in that part of the fiscal union is that prosperous states like NY (analogous to Germany) see their taxes go to help poor states like Alabama (analogous to Greece). But isn't Alabama's state motto "Thank God for Mississippi!" because Mississippi is even poorer? But in the case of the Euro, Mississippi is also being asked for debt forgiveness and a bailout to aid Alabama.

Now I am fully on board with the idea that Germany is failing miserably (to put it politely) in the role of benevolent hegemon. But I just don't see how that can be extended to poorer European states.

pgl said...

Jeb! tells those earning low wages that they need to work more hours. Like this is a full employment economy. Jeb! is an idiot.

ilsm said in reply to pgl...

jeb1 thinks we are.......
As do the rest of the GOPster choir and Hil.
The candidate that insists on thought is Bernie.

pgl said...

The letter to Merkel that Simon Wren Lewis notes:
http://www.thenation.com/article/austerity-has-failed-an-open-letter-from-thomas-piketty-to-angela-merkel/
Message - no more austerity. Nice and the lead signature is Piketty.
Huh - JohnH keeps citing Piketty in his usual cherry picked way to support JohnH's gold bug insanity. But it seems Piketty does not support this gold bug insanity. I wonder if JohnH will finally take note or just find some way to misrepresent what Piketty has written again.

reason said...

Glad to see Robert Waldmann's excellent piece http://rjwaldmann.blogspot.de/2015/07/the-structural-problems-ideology-is-not.html linked to here.
I think Robert Waldmann is massively underappreciated.

RC AKA Darryl, Ron said in reply to Mitch...

"Yeah, I read his piece..."
[Really? Assumes facts not in evidence.]
"...he cited the stock market crash of 87 as the cause of structural employment..."
[Waldman states "the stock market crashed in 1987 and the lady who was not for turning turned to monetary stimulus" which means the reaction was to treat the crash as cyclical unemployment rather than structural. Then Waldman states "This caused increased inflation and an actual shortage of skilled labour" which one can safely assume indicated the counter-cyclical monetary policy was effective and ended the recession.]
"Do Europeans even understand the idea of structural employment?"
[Waldman states "The focus on the structural is free floating ideology" and that after the 1987 recession and recovery "Then the border of the stagnating swamp of structural stupidity shifted from the Atlantic to the English channel. The good tough rigorous market based structure became anglophone not American. The case of an inadvertant shift to excess aggregate demand and the long lasting consequences had no effect on the conviction that Europes problems were structural.
French and German technocrats can ignore aggregate demand, because they have learned to ignore double digit unemployment..."
Do you even understand Waldman? Apparently not.]

RC AKA Darryl, Ron said in reply to reason...

"...I think Robert Waldmann is massively underappreciated."
[I think Robert Waldmann is massively under-understood. TO say Waldmann is often misunderstood would be under-statement. He is not for the lazy casual reader. Now, I like that just fine, but he is really too clever by half for the average reader. I have had that same problem myself at times, but no one pays me anything for my idiosyncratic self-indulgence. Waldmann is less sophisticated than Sandwichman. Paine does not get a pay check for his idiosyncrasies either.
On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]

reason said...

This piece from Robert Waldmann is also excellent: http://angrybearblog.com/2015/07/a-case-for-grexit.html

RC AKA Darryl, Ron said in reply to reason...

Agreed. This Waldmann article was excellent. When he writes for his own blog then it may not be paid, but maybe at Angry Bear he is paid in some way. In any case, it was well written and thorough. Even Mitch should be able to comprehend this Waldmann article.
THANKS!

pgl said in reply to RC AKA Darryl, Ron...

I use to write for Angrybear. I never got paid. But I did enjoy a lot of back and forth discussions including some from the host here.

ilsm said...

From Krugman on Deflation:
Deflation had nothing to do with it, it was "German morals".
In 1932 no one was lending except payday loans like imposed by the ECB on Greece.
The link between Weimar inflation, and Hitler is imagery used to sell pillorying the economic victims, aka austerity.
In 1932 Germany and the rest of the world suffered the "disastrous attempt to stay on gold."
The UE was one of many factors that made "moral Germans" love Hitler.
There was a vast sea of issues beyond the economy: "German morals" favored politicians with brutal para-militaries (the SS was organized in 1933 from standing Nazi thug units) with propaganda organs to spew hatred and illogical blither like we see from Fox News and much more.

[Jul 09, 2015] A Case for Grexit

Jul 09, 2015 | Angry Bear
beene , July 9, 2015 5:19 am

It is a shame that our educators fail to teach during early education period the falsehood of the need for private banks.

"I believe that banking institutions are more dangerous to our liberties than standing armies.

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson said in 1802

Matt McOsker , July 9, 2015 12:05 pm

Robert Writes:
3) Greece will have to be austere - deficits will be impossible if no one wants their bonds.
This requires the typical refusal to believe that the balanced budget multiplier is positive. If Greece can tax the rich (and it certainly can tax wealth) it can stimulate without borrowing.

Long term this might only work in a closed economy with no trade, or with a trade surplus. By accounting identity they must run a government deficit with a trade surplus if they want growth unless the private sector can run up private debt (i doubt they can right now) to offset the negative balance of trade. If the new spending flows externally you will not have declining growth, and you will drain bank reserves.

(I-S) + (G-T) + (X-M) = Change NGDP

Also, they don't need to issue bonds at all. How will they distribute the new currency? Most likely they will spend it into existence with all future government expenditures in the new currency only, they will literally print it up and spend it out there. They functionally don't need borrowing to print (they could implement some combination of TANs tax anticipation notes). This goes to basic chartalism or MMT on why will Greeks demand the new currency? The greek government will demand all tax payments be made in the new currency. A VAT and property tax should accomplish this, and be hard to evade. Plus tourism will automatically cause the selling of other currencies to buy the new one to pay the VAT taxes. Of course, they would need to default on their debts to a large extent under this scenario – or just say they will defer dealing with payments until their economy stabilizes.

Spending without issuing bonds will drive the short term rate to zero as banks get flooded with reserves. Their new central bank can manage short rates with IOR, rather than bond sales to drain reserves. But in reality they should leave rates at near zero. Yes there will be inflation, but employment would be more important initially.

Matt McOsker, July 9, 2015 12:19 pm
Correction to my post above:

By accounting identity they must run a government deficit with a trade DEFICIT (not surplus)

Also here is a good article comparing Argentina to Greece – http://bilbo.economicoutlook.net/blog/?p=24010

[Jul 09, 2015] More Work Hours Jeb Bush, Try Talking to the Employers

It's not Jeb Bush. It's Jeb Romney
.
"...Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs."
.
"...this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out…."

Jul 09, 2015 | Forbes

The economic world is obsessed with growth - bigger revenues, more profits, broader markets (and just not regulation). The bias came across today via Jeb Bush who, in answer to a question from the Manchester, New Hampshire Union Leader, said the following:

My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours" and, through their productivity, gain more income for their families. That's the only way we're going to get out of this rut that we're in.

https://www.youtube.com/watch?feature=player_embedded&v=P5RERORKXNU

Erik Sherman,

I remember once getting into a discussion with a number of corporate executives from public companies. I was giving a talk on some plain-English filing requirements. The executives were complaining roundly about more regulations. "It's killing us - KILLING US!" one literally said. I turned to him and asked, "Did you have higher revenues this year than last?" He said, "Yes." I asked, "Did you have higher profits?" "Yes," he answered. "Then you're not getting killed," I said. Yes, there are costs of regulations and there are times legislators can overdo things because they're either justifying their own existence or trying to position themselves for reelection.
However, costs *have* been reduced. Companies are generally far more profitable now than in the past. Regulations are necessary as companies have proven that without being compelled, they will often do things that are bad for the environment, bad for communities, and bad for the economy. That's why we have environmental legislation, anti-bribery laws, labor laws like overtime requirements, and a host of other things. If companies are finding it too tough, they can raise their prices (and they do that anyway on a regular basis) or make their operations more efficient. If they can't, maybe they shouldn't be in business. If you want to take a market view, then take a full one.

Elarie Rose

Amazing. I never thought to see a business oriented publication like Forbes tell the truth about employers. A few weeks ago I had a casual conversation with a young women that I met casually at a lecture. She was really lovely, well-spoken and intelligent. She works for minimum wage at a supermarket, is trying to afford a few classes at a time at a community college, never expects to own a house and assumes that she will never have children. The most chilling thing about the whole conversation was her calm acceptance that this is just the way the world is, with no expectations that life in America should be any different. She wasn't angry because everyone else in her age group was in the same situation and thought it was normal.

Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs.

wigglwagon

The only reason America ever had the MOST PROSPEROUS economy was because America had the BEST PAID employees and consequently, American businesses had the customers with the most money to spend. American business owners are SO GREEDY that they are using free trade agreements, immigration, and deregulation to drive down wages and destroy benefits. In their quest for short term profits, employers are destroying their own customer base.

Gregory A. Peterson

most of the hourly laborers that I know are more than happy to work a "few" hours of overtime for a few extra bucks….here's the problem….a fair number of employers absolutely refuse to pay overtime and IF an employee happens to get some overtime they are promptly reprimanded or written up (I have actually worked for a couple of those companies)…..

companies want all their income to go into their pockets they seem to have forgotten the old saying that one has to spend money to make money…..

this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out….

apparently it's a genetic issue within the Bush family…..

[Jul 04, 2015] Yanis Varoufakis accuses creditors of terrorism ahead of Greek referendum

Like any neoliberal country Greece is a divided country with 20% of population representing "fifth column of globalization" and benefiting from it and 80% suffering from it.
.
"...Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value."
.
"...Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
"
.
"...The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal."
.
"...The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss."
.
"...The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs."
.
"...Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
"
.
"...Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.
I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down."
.
"...No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks! "

Jul 04, 2015 | The Guardian

Banksterdebtslave -> conor boyle 4 Jul 2015 11:15

Yes it should have been, by letting the banks go under as per Iceland. Or were too many people (living in vacuums ?) unprepared to deal with the short term pain ? Now it seems the world of people must suffer to service the Banks' bad debt.....what good slaves we are! The Emperor has no clothes!

Duncan Frame -> Brasil13 4 Jul 2015 11:10

Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value.

W61212 -> Brasil13 4 Jul 2015 11:08

Careful what you wish for. From the EC
'In 2013 the EU recorded a trade surplus in goods (more than double the surplus registered in 2012). The EU also has a surplus in commercial services trade.
The EU is the biggest foreign investor in Brazil with investments in many sectors of the Brazilian economy. Around 50% of the FDI flows received by Brazil during the last 5 years originated in the EU.'
This debacle with Greece demonstrates the EU can't run itself and yet it has huge holdings with Brazil and has recently reversed to a trade surplus in to Brazil, a nation with huge natural, industrial and human resources of its own. Brazil exports mainly agricultural and mining products to the EU and imports manufactured products. See the imbalance? Brazil exports primary products and imports finished products made elsewhere and those jobs are elsewhere. See the problem?
http://ec.europa.eu/trade/policy/countries-and-regions/countries/brazil/

GordonGecko 4 Jul 2015 11:07

There's only one letter difference but choice for the Greeks is to become either the new Ireland (and suffer self-inflicted austerity for decades to come) or the new Iceland (by tearing up the rule book and starting again).
I hope they watch this before voting;
https://www.youtube.com/watch?v=xu5sTyAXyAo

usufruct -> Laurelei 4 Jul 2015 11:07

Germans (for the most part) are not Nazis or terrorists, and should not have to take the blame for this crisis. They are, however, dupes, like people living under capitalism everywhere. They are willing to let the international banksters and their political cronies in the European parliament run their lives and create whatever mischief they believe is in their interest.

ToddPalant -> Scaff1 4 Jul 2015 11:06

Tell us suckers then, about how Ukraine, a run down country that was just made worse by regime change. From bad Yanukovich to much worse American puppet and idiot Poroshenko plus a catastrophic war. Tell us about Lybia and bad Qaddafi, who in his life time killed 3-4000 people and the much worse UK-France that caused at least a 100000 dead with their pet invasion at the behest of our friends from across the Atlantic.

May be you need to dust your mirror.

Duncan Frame -> Laurelei 4 Jul 2015 11:05

Terrorists primary aim is to promote fear rather than harm. That's far more effective in getting their way. You close the banks you show the public what you're capable of.

Saaywar Montana -> thisisafix 4 Jul 2015 11:04

Their economies are naff. Spain and Italy are the two countries most likely to join Greece in a new union. Portugal and Ireland are too far gone but Ireland has been rebelling. Once people see a progressive union to compete with the rubbish EU then these countries will gain support for joining a new southern European union.
These countries are not out of the water and won't get out of it either. Austerity will do what it does and the people will rise up. It's inevitable. The EU doesn't have a monopoly on unions lol.
Greece, as did every other country, got left with the bill of the private banking sector. Yes, it was their fault for running a deficit but a significant proportion of the debt owed by the Greek gov is bank bailouts.
It's the same here. The UK paid £700bn to private banks to make sure they didn't fail. The deficit has nothing to do with that. so around 50% of the debt is a mixture or deficit spending and capital investments made by the government.

Robape Laurelei 4 Jul 2015 10:57

Financial terrorists, just interested in the bottom line, not countries.

elcomm W61212 4 Jul 2015 10:56

When fascist governments get in trouble at home they start wars to distract people. It's not that far out.

Duncan Frame Laurelei 4 Jul 2015 10:56

Yes everything's exceptional. 2008 was the biggest economic collapse since the great depression. And Greece was the most exposed country. No difference.

Alfie Silva karlmiltonkeynes 4 Jul 2015 10:55

My mistake, I thought you were intelligent.

It is common knowledge that only around 10% of bailout monies went to the real economy. You are correct indeed in that creditors got a haircut, mainly hedgefunds and most foreign banks by 2015 had reduced their exposure to Greece. The issue today is sovereign debt. Do you realise that sovereign debt is the senior collatoral for Eurozone banks?
So we are back to banks again Mr Banker.

Duncan Frame ID13579 4 Jul 2015 10:53

I don't have to excuse giving voice to the victims of those in power to you or anyone else. And it seems to me Tsipras is taking the same line. You confuse the Greek people with the people who actually profited from that debt. Why should they be forced to starve on the back of decisions over which they had influence?

usufruct -> HoorayHenrietta 4 Jul 2015 10:44

Like Americans and most other people around the globe, the German people have allowed the international banks to pull the wool over their eyes. There is no reason for taxpayers to bail out the banks as we are still doing here in the U.S. For the past six years my wife and I have been paying down mortgages on real estate hoping to reestablish equity in properties whose value was gutted by cavalier banksters on Wall Steet. A few clicks to gamble away the hard work of millions! These people should be arrested and tried for their crimes. In a fair court they would be sent away for life.

Chris Hindle 4 Jul 2015 10:42

'Yanis Varoufakis accuses creditors of terrorism.'

So what is wrong with that? Financial terrorism is a much more protracted and painful process to the victims than sudden violence, but the end result is the same.

The Vermin Who Would Be Kings have discovered they no longer need the fuss and expense of maintaining a standing army of occupation, far simpler to get countries/continents/ the world in deep debt (via bent politicians making private bankster debt into sovereign debt - just like they did in Greece ) and exert control through that.

BTW the UK has some £9 trillion in foreign debt (much of which is the bad debts of the City - and the highest of any stand-alone country on earth) So now you know what next months austerity drive is all about

InjunJoe -> degardiyen 4 Jul 2015 10:24

The "slovakian tax payer" will not be paying to maintain the Greek standard of living,
but to shore up the ECB, the IMF and the private lenders to Greek banks, as 90% of the "bail-out" goes to serving interest. Haven't you been reading the news?

Duncan Frame -> karlmiltonkeynes 4 Jul 2015 10:20

That's weird because at the same time the banks collapsed in 2008 the deficit went up from 57% to 82%, lots of people lost their jobs or had to take pay cuts. I'm sure it was just a coincidence.

LeftToWrite -> ID6487190 4 Jul 2015 10:17

Yeah the EU has shown itself to want a compromise. All those nice compromised offers it made. Yep we all remember those.
Compromise means both sides giving ground, not one side accepting everything the other demands. Use a dictionary next time.
For once a nation is standing up to EU bullying and we have ignorant fools like you turning it the other way in an attempt to change the narrative.

LeftToWrite 4 Jul 2015 10:11

How can the Troika have fucked up this badly? It seems they forgot that Greece is actually a construct that represents the people who live there, and you can't just impose misery after misery on a people without expecting them to finally have enough. Even if they vote yes, all it does is postpone that that time when they will have had enough.
Honestly, this has shown the true greed at the hearts of Merkel et al, and by extension the people they represent. Save the French and German banks, fuck over the Greek people. If people think anti German rhetoric in Greece is extreme now, decades of resentment is about to follow.

שוקי גלילי Steve Collins 4 Jul 2015 10:09

You probably meant to say "when you ask for it back from someone ELSE, who didn't actually get your money". Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?

duke_widin -> dniviE 4 Jul 2015 10:06

01

Sorry: its Wednesday 8th, I wrote Tuesday ;-))

email from Green Party Brussels office.
TTIP and ISDS - Call to action by Keith Taylor MEP!

Breaking news! We've just been informed that the postponed vote on the European Parliament resolution on TTIP has been put on the agenda for Wednesday 8th July.

MEPs will be voting on the resolution as a whole, but also on a whole array of amendments to the text.
Among these is a compromise amendment on the investor-state dispute mechanism, or ISDS. The compromise amendment suggests replacing ISDS courts with some kind of 'new' system, but there is no further explanation or details. As long as there is any system in place for investors to sue governments, as the compromise calls for, it is still ISDS. The fact that the Parliament's President is trying to spin this as something different by giving it a new name does not change anything.

The compromise amendment has been agreed by the largest groups in the European Parliament: the centre-left Socialists & Democrats (which includes the UK's Labour MEPs), the centre-right European People's Party, and the European Conservatives and Reformists group (which includes the UK's Conservative MEPs) and the Alliance of Liberals and Democrats (which includes the UK's Liberal Democrat MEP).

On Wednesday, all MEPs will get a chance to vote on this amendment and the resolution as a whole.

The Greens are calling on citizens, trade unions, NGOs, towns and regions and businesses to speak out and contact their elected representatives and hold them to account on this attempt to privatise justice and infringe democratic rights.

How you can help
This is our last chance to make sure that damaging ISDS provisions are not given the green light by the European Parliament. MEPs need to know the full force of public opinion on this threat to our national laws and our democratic rights.
Contact your other MEPs before Wednesday asking them to oppose TTIP and the Investor State Dispute Settlement (ISDS).
- use Write To Them to email your MEPs directly with your own concerns
- use the 38 Degrees campaign to send a quick template email
- call your MEPs in Brussels to let them the reasons you're opposed
- spread the word! Share your concerns on social media, tweet your MEPs, encourage your friends and family to contact their MEPs, use Greens/EFA resources to campaign.
Message from Keith

"I've been extremely heartened to receive so many emails from constituents voicing their opposition to ISDS and the TTIP proposals in the last few weeks. It's clear that there's a powerful and growing democratic movement to protect our laws, our public services and our regulatory standards from potential devastation.

The decision to postpone the vote on TTIP earlier in the month stinks of political parties running scared of the huge public opposition to TTIP.

TTIP represents a monumental power grab by corporations and it must be stopped in its tracks.

The sudden re-scheduling of this vote means we are now short on time to make our voices heard. The Greens need all the help we can get to spread the word and put pressure on other MEPs to do the right thing and represent the views and interests of their constituents."
You can keep up-to-date with the Greens/EFA campaign and what the Greens are doing in the European Parliament via their TTIP campaign website and their twitter feed.

Thank you for your support.
Best wishes,

LeftToWrite ID105467 4 Jul 2015 10:14

To bail out German banks, get your facts straight before posting nonsense.

Kalandar 4 Jul 2015 10:14

Propoganda galore from the mainstream media but its fooling no one, except perhaps themselves.

ID345543 4 Jul 2015 10:04

This Is Why The Euro Is Finished

The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal.

http://www.zerohedge.com/news/2015-07-04/why-euro-finished

Ninetto owl905 4 Jul 2015 10:03

The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss.

NeverNotHereTV gsxsure 4 Jul 2015 09:59

Syriza does not want "free money". They want a fraction put toward economic growth, and then payments as a meaningful fraction of that growth. It is simple enough.

Alfie Silva 4 Jul 2015 09:50

Please can anyone explain to me why we are letting the bankster cabal turn European against European?
The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs.

Finnbolt 4 Jul 2015 09:49

"Debt relief was "politically highly toxic for many eurozone member states"."
Here you have the problem. The creditor state governments are responsible to their voters and many have said that their taxpayers will not finance the Greeks and money lent will be paid back in full.
Syriza says they have a mandate from the Greek people to force other euro countries to continue financing them and take a haircut. In other words, lose most of the money lent to Greece.
EU is a collection of nation states with pretensions of a federation. One of the pretensions about to be busted is a transfer union, meaning taxpayers in richer countries tranferring part of their wealth to poorer countries.

APSAPS 4 Jul 2015 09:49

A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market. Despite the bailout, July 1998 monthly interest payments on Russia's debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.
Sounds very similar.
Oh, wait, maybe some referendum could have helped?

Insomnijazz hertsman 4 Jul 2015 09:48

Nah - these are just lies for the gullible to swallow.
Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.

Instead they chose the worst option: bailing out the bank shareholders by assuming responsibility for their risky lending, but refusing to then pay the price for their political cowardice and shifting the blame onto a largely guiltless Greek population which has already suffered hugely from the economic devastation.

Brent1023 4 Jul 2015 09:46

Debt relief not on the table.
It comes down to the Greek people or the banksters. Who needs a bailout more?
The EU has sided with the banksters.
Not just in Greece but in Ireland, Spain, Portugal.
Only Iceland was able to force banksters to swallow their losses.
Everywhere else bankster fraud was rewarded with a 100% bailout.
Should be renamed the European Bankster Union.
Surprising that the UK does not want it - it also bailed out its banksters.

NWObserver sunnytimes 4 Jul 2015 09:39

The creditors are not looking to get their money back. Debt is the leverage being used to destroy the social and public infrastructure in the country.
So their worst nightmare is Greeks voting 'No', staying in default and surviving or prospering while remaining in the Eurozone. Then they will not be able to use the same fear tactics against another EZ country. They are psychopaths out to destroy, not creditors looking to get their money. So if Greeks vote 'No' , they will spare no effort to destroy Greece, beginning with the continuation of the liquidity freeze. However, there are some simple steps that Greece can take to end the liquidity freeze and I think they have already taken them.

Gottaloveit 4 Jul 2015 09:28

Read this article from 2010 by Michael Lewis and get a glimpse of what a mess Greece is
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010
The people of Greece are not finished paying penance yet

W61212 Fritz72 4 Jul 2015 09:28

Albrecht Ritschl: During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a "haircut" in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990....but we were also extremely reckless -- and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.'
Enough said now?

W61212 hhnheim 4 Jul 2015 09:21

http://www.spiegel.de/international/germany/economic-historian-germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html

North2011 kizbot 4 Jul 2015 09:04

Don't worry. The nappy business is doing well in Brussels...
EU sources: possible extra Eurogroup on Monday and EU leaders Summit on Wednesday #Greferendum via GR media http://www.dimokratiki.gr/04-07-2015/pithano-ektakto-eurogroup-ti-deftera-ke-sinodos-korifis-tin-tetarti/ …
They are pissing in their pants the lot of them...

rafela Bogoas81 4 Jul 2015 09:00

Austerity didnt work. In the last five years the economy shrinked by 19%. Unemployment rose to 27%. Tsipras wanted more debt relief. The IMF report sustain that an improvement is impossible without debt relief.

sunnytimes 4 Jul 2015 08:58

German people are industrious and inventive. They play by the rules. Unfortunately they are also rather naive and believe generally what the state tells them. In history the role of such people has always been to pay the bills.

GuillotinesRUs 4 Jul 2015 08:45

Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.
I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down.

U77777 -> CassiusClay 4 Jul 2015 08:40

Austerity isn't the answer - but when you have put yourself into the situation that the Greeks have, it is part of the solution. A small part and nothing like the media like to portray, but something has got to give.
As for electing Tsipras and varoufakis......Seriously, stop drinking. They're a bunch of cowboys with some well intended principles and a load of rather deluded ideas. Worse still, neither of them have actually come up with anything like a constructive plan how to stimulate the economy and help Greece stand on its own 2 feet again

Dimitris Chloupis -> sylvester 4 Jul 2015 08:39

Any sensible Greek realizes without deep reforms no economy is going forward. This is not even debatable in my country. We already reduced public sector by 500.000 employes thats a juicy 50%. High pensions of the past are long gone. The result is that now it costs 6 billion to pay for wages in public sector and another 5 billion to pay for pension, total 10 billion. But we need another 10 billion for paying back loans each year. This year alone we paid back 25 billion !!!
Tax evasion should be our next focus, its not reasonable for an economy that makes 200 billions per year to need loans . There is a will to fix all that, because the alternative is far worse.
Of course the same can be said about Germany , why a country that make 3.1 trillion euros per year has a 80% debt ? Tax evasion of course ;) Time to open those swish bank accounts , but does Germany want that ? How many vested Greek interest are connected with German vested interest ?
Denying corruption is to deny the foundation of modern economies.

W61212 -> RussBrown 4 Jul 2015 08:39

I made a point earlier about the birth of a new Brussels based dictatorship which controls all EZ 'national governments', which are national governments by name only, ergo Syriza has to go for straying from the script. Brussels has already proven it would rather deal with corrupt Greek politicians by doing so in the past

Continent Renato -> Timotheus 4 Jul 2015 08:37

Inequality of opportunity in the Eurozone is now so great -- young people in Greece have an unemployment level of 60% and the rate is 33% in the austerity "success story" of Portugal

The systems are different. Northern countries have the dual education system, i.e. only about 10 p.c. of the youth go to college/university, and 90 p.c. go through a 3 or 4 year education "learning by doing".
In addition, the "dirty work" in Greece (farming/harvest/construction) is done by temporary migrants from Macedonia, Albania, Romania, Bulgaria because the Greek parents wanted their children to have a better life and sent them to universities without an employment market for so many acdemics. Many of them land in a job with in the bloated govt.

sunnytimes 4 Jul 2015 08:36

The true parasites are the bond markets of London and New York. The create nothing. All they do is swap pieces of paper with ech other all day long, skimming every transaction. The UK and US have run trade deficits or decades, that is by definition they produce less than they consume. Time to tear down this edifice of debt and get back to a capital-based economy.

LeftOrRightSameShite FOARP 4 Jul 2015 08:35

Greece already has been bailed out

No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks!

Bit thick really innit!

RussBrown 4 Jul 2015 08:35

Myth 1 - Greece do nothing to solve the problem (they have had years of austerity)
Myth 2 - Germany is bailing out the Greeks. The money that goes to Greece goes straight back into the German Banks. But by making it impossible for business to run in Greece the businesses move their resources to Germany and pay taxes their in a massive transfer of wealth from a poor EU country to the richest. This is a capitalist scam and all of lot on here shouting their propaganda should be ashamed of yourselves. The rich bankers are using you to justify the destruction of the poor!

[Jul 03, 2015] Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

Jun 30, 2015 | theguardian.com

AGuenther -> sztubacki

"...Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE. "

30 Jun 2015 09:30
Utter nonsense fed to the masses by the current corrupt government.

Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

October 10 2008: http://www.ctvnews.ca/banks-trim-prime-rate-as-ottawa-offers-mortgage-relief-1.332371

September 24 2009: http://www.ctvnews.ca/feds-to-reap-billions-from-mortgage-help-to-banks-1.437280

A couple of years ago this scheme was still going strong at almost $200 billion.. the max for CMHC is $600 billion and was then at something like $565 billion. And yes, this scheme was losing money.

No wonder Flaherty found it necessary to tighten up mortgage rules for ordinary Canadians, making it even more impossible for them to buy a home.

The EIA's Questionable Numbers - Peak Oil BarrelPeak Oil Barrel

"...For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries."

"...Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world. "

"...I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching. "

Jeffrey J. Brown, 07/02/2015 at 6:47 am
The WSJ has discovered "Net Export Math."
WSJ: As Saudis Keep Pumping, Thirst for Domestic Oil Swells
Kingdom is poised to break records for crude output, but its ravenous energy needs threaten its ability to ramp up exports

http://www.wsj.com/articles/as-saudis-keep-pumping-thirst-for-domestic-oil-swells-1435786552

RIYADH-Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports.

Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported.

For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries.

At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. has predicted, a once unthinkable prospect for the linchpin of the world's oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom's state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.

Link to my comment on BP + EIA data on Saudi Arabia's net exports:

http://peakoilbarrel.com/bakken-april-production-data/comment-page-1/#comment-521843

Marcus, 07/02/2015 at 7:21 am
Whilst the Saudi population in common with the rest of the middle east has grown substantially and its consumption with it in recent years I sometimes wonder if we are dealing with a case of Muhammad Saeed al-Sahhaf aka Baghdad Bob or Comical Ali.
What I mean by that is that hyping their production level is such an important part of their bragging rights that they are willing to do so even when it is clearly not in their interest. Well before the US shale boom they were apt to do this even when logic would dictate that they talk down their production (obviously the quota system also plays a significant role). When their production finally nose dives I think they will claim the same or higher production while increasing their consumption estimates more and more in fact this will likely be the message that all the last great net oil exporters will give us towards the end.
Jeffrey J. Brown, 07/02/2015 at 7:28 am
Interesting admission by Khalid al-Falih:
Reuters (January, 2015): Saudi Aramco to renegotiate some contracts on low oil price -CEO

http://www.reuters.com/article/2015/01/27/saudi-oil-aramco-idUSL6N0V60Z320150127

Jan 27 (Reuters) – Saudi Aramco will renegotiate some contracts and postpone some projects due to falling oil prices, the head of Saudi Arabia's state oil company said on Tuesday, stressing the top crude exporter will not single handedly balance the global oil market. . . .

Saudi Aramco Chief Executive Khalid al-Falih, speaking at a conference in Riyadh, did not specify which projects or contracts would be affected by low prices. . . .

Falih said the imbalance in the oil market had nothing to do with Saudi Arabia, and a fair price is what would ultimately balance supply and demand, a sign Riyadh is sticking to its strategy of allowing the market to stabilise itself.

"Saudi Arabia has a policy, the policy is set by the government through the Ministry of Petroleum, and they have said that Saudi Arabia will not single handedly balance the market," he said.

"The math will tell you that our exports are gradually declining. So the reason for the imbalance in the market absolutely has nothing to do with Saudi Arabia."

old farmer mac, 07/02/2015 at 7:48 am
The politics of oil prices are complicated indeed.
While the Saudis have plenty of reasons to want to put the screws to the Russians they can't trust the rest of OPEC to honor the cartel's production sharing decisions.

But it appears they are willing to cut a deal with the Russians who do have at least ONE thing in common with them. They both want a higher price for their oil.

http://finance.yahoo.com/news/saudi-arabia-leaving-u-behind-215428719.html;_ylt=AwrC0F9wMJVVCHUA4SyTmYlQ;_ylu=X3oDMTByMDgyYjJiBGNvbG8DYmYxBHBvcwMyBHZ0aWQDBHNlYwNzYw–

By the way " our" Jeff Brown and host Ron ought to be on the talking head shows. The fact that they aren't proves that the MSM is not really competent, perhaps by choice, when it comes to energy.

I am an hopeless amateur when it comes to oil compared to the pros who hang out here but to the best of my knowledge the Russians have until recently always done what they promised in terms of delivering oil and gas.

I predict that if they cut a deal with the Saudis to cut production they will honor it.

shallow sand, 07/02/2015 at 9:05 am
Jeffrey, are the other Gulf OPEC states similar to KSA, in that their exported oil is also falling due to rising internal consumption?
Jeffrey J. Brown, 07/02/2015 at 10:00 am
I can shoot you the data base for the (2005) Top 33 net exporters. It's only updated through 2013 (still waiting on EIA consumption data), and there have been some revisions since we compiled the data base.
My email: westexas AT aol Dot com.

As I have repeatedly pointed out, what almost everyone is missing is the enormous difference between rates of change in production and CNE (Cumulative Net Exports) depletion*. I estimate that we may have already burned through around 30% of post-2005 Global CNE.

*As combined production from the Six County Case History increased by 2% from 1995 to 1999, they had already shipped 54% of post-1995 CNE (major net exporters, excluding China, that hit or approached zero net exports from 1980 to 2010).

AlexS , 07/02/2015 at 10:24 am
the decline in net exports was largely offset by the drop in US net imports
Jeffrey J. Brown, , 07/02/2015 at 10:42 am
The decline in US net imports certainly affected the demand for Global Net Exports of oil (GNE*). But within OECD countries, we also had some countries with increasing net imports, e.g., the UK.
Of course, on the demand side, the key factor has been the ongoing decline in what I define as Available Net Exports (GNE less Chindia's Net Imports, CNI). ANE fell from 41 MMBPD in 2005 to 34 MMBPD in 2013, and BP/EIA data indicate that the ANE decline probably continued in 2014.

Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world.

Based on current trends (rate of decline in GNE/CNI Ratio), in about 16 years China & India alone would theoretically consume 100% of GNE, leaving no net exports available to about 155 net oil importing countries.

*Combined net exports from top 33 net exporters in 2005 (EIA)

Javier, 07/02/2015 at 6:24 pm
So we have current trends saying that:
– Saudi Arabia will become a net importer in 15 years.
– China & India are to consume 100% of net exports in 16 years.
As those trends become unsustainable, we are going to have lots of interesting things happening during the next decade.

I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching.

Paulo, 07/02/2015 at 8:35 am
Terrific confirmation, Jeffrey. I have sent your comments on to others many times these past few years. Unfortunately, the confirmation by a major MSM publication is what John Q Public needs to see in order to accept reality. I have already sent it on!!

[Jul 03, 2015] Fed Watch Ahead of the Employment Report

Jul 03, 2015 | Economist's View

This is in-line with Fischer's assessment of the economy:

The U.S. economy slowed sharply in the first quarter of this year, with the most recent estimate being that real GDP declined 0.2 percent at an annual rate. Household spending slowed, while both business investment and net exports declined. Much of this slowdown seemed to reflect transitory factors, including harsh winter weather, labor disputes at West Coast ports, and probably statistical noise. Confirming that view, the latest monthly data on real consumption provide welcome evidence that consumer demand is rebounding, and that economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.

What about Greece? St. Louis Federal Reserve President James Bullard dismissed Greece as a reason for concern. Michael Derby at the Wall Street Journal reports:

What's happening in Europe "would not change the timing of any rate hike. I would say September is still very much in play" for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said "every meeting is in play depending on the data," which he said had been "stronger" recently. He also described recent inflation data as being "more lively" and set to rise further over time.

I doubt other Federal Reserve officials are quite as confident, but they have plenty of time between now and September to assess the situation. As I said Monday, they will be looking for evidence of credit market spillovers. If they don't see it, the economic data will rule the day. Bullard also argued the case of a faster pace of rate hikes:

"The Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise" would be the case based on historical norms, Mr. Bullard said. "The benefit would be a longer, more stable economic expansion."
Mr. Bullard warned "my view is that low interest rates tend to feed the bubble process." He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets.

Derby correctly notes, however, that this places Bullard out of the Fed consensus:

Mr. Bullard's suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.

Fischer, for example, still argues for a gradual pace of normalization and is much more sanguine on the financial market excess:

Once we begin to remove policy accommodation, the Committee's assessment is that economic conditions will likely warrant raising the federal funds rate only gradually. Thus, we expect that the target federal funds rate will remain for some time below levels viewed as normal in the longer run. But that is only a forecast, and monetary policy will, in practice, be determined by the data--primarily data on inflation and unemployment.
What about financial stability? We are aware of the possibility that low interest rates maintained for a prolonged period could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. At this point, the evidence does not indicate that such vulnerabilities pose a significant threat, but we are carefully monitoring developments in this area.

Fischer is closer to the FOMC consensus than Bullard on these points.

Bottom Line: Incoming data continues to support the case that the underlying pace of activity is holding, alleviating concerns that kept the Fed on the sidelines in the first half of this year. I anticipate the employment report, or, more accurately, the sum of the next three reports, to say the same. Accelerating wage growth could very well be the trigger for a September rate hike, while Greece could push any rate hike beyond 2015. I myself, however, tend to be optimistic the Greece situation will not spiral out of control.

[Jul 02, 2015] When People Jump In Even Though It's Overpriced, That's A Bubble Shiller Warns

"...Shiller also slams the bull$hit adage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly..."

Jul 02, 2015 | Zero Hedge

Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is "when people jump into stocks even though they know valuations are high... that's a bubble," slamming CNBC's rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically "The US equity market is one of the highest in the world," and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market... warning that mean-reversion is likely with risk for further decline.
Shiller also slams the bull$hit addage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly...

As Shiller explains...

https://youtu.be/Q3MgxKeUoSc

Temerity Trader

Well duh! Another pedestrian article telling us all how the Fed's loose money blows bubbles, and likely benefits the wealthy the most. Yes there is a huge property bubble in N.Y. but it pales in comparison to the Silicon Valley bubble; the largest the world has ever seen. Propelled by 40-years of tech innovation and high pay; culminating in the useless I-watch. They bring in more cheap Indian labor and export the rest. It will be interesting to see how these people will make those $10k/mo mortgage payments working at Wal-Mart. Living in a small house and upside-down $1mil or more. They will walk away in droves! The repo man will snatch the Lexus and the Tesla. The debt-ridden fools will have nothing! Then the banks will fail and demand bailouts…Greece times 1,000. Delay and pray…more debt will fix it all. Just try to take away all the entitlements and watch the riots start. Bankrupt Medicare, Medicaid, Obamacare, 40 million using EBT cards, broke pensions, thousands of veterans claiming every disability known, but never left the U.S. Everyone wants to sit on their asses and collect government handouts. Why work? Sit around and play with a new I-Toy, watch 'Dancing With The Stars. Yes, just try to take it all away…

scatha

Bubbles are credit expansion/contraction, government policy driven monetary intervention cycles well described in "Money Masters" which now are completely divorced from economic cycle, which is stuck in US in depression levels over thirty years now.
In other words boom and bust cycles are only fueled now through credit policy into specific market tradable assets selected and ordered by policy makers.
The world central banking system is trying to moderate bubbles' deflations or collapses through creation bubbles in another asset class just to maintain values of collateral from the initial bubbles.
For example if you overpaid for your house and prices are falling and you cannot sell without massive loss, windfall from another bubble is able to cover your mortgage, losses and/or margin requirements, so you hope and wait for better times. And so you go from one bubble to another and this relates all abstract paper assets and derivatives including, debt, oil and gold etc.
Hence, crash may occur only when CBs run out of bubbly and no more bubbles could be created otherwise party will go on while more and more weaker rats in this rat race are being eliminated via attrition and slide into socio-economic margins like most of us even if we do not know it yet, we are next.
Such practice, in essence denying basic tenet of capitalism namely capital re-production and recycling into productive assets, which is in the first place is labor, was and is widely implemented over last 30 years by world ruling elites and now even in China rendering population obsolete in grand scheme of illustrious progress of civilization.
The real economy is dead so its real economic cycle that included revolving commodity and labor investment assets, recycled in and out economy a classical capitalistic re-production cycle. This type of process is dead and buried.
There is no revitalization of labor power as well as commodity demand due to collapse of labor income and collapse of asset or commodities prices controlled by vast majority of population subjected to deadly deflation spiral due to removal of money from circulation among ordinary people a devastating process, getting stronger and more intense as bubbles become bigger and more numerous.
The only thing that keeps us from massive unrest, hunger and ultimately extinction now is money supply from government social programs such pensions, SS, social welfare, technical/scientific funding, military or security/police non-productive funding which ironically fuel spiral of debt needed to keep it blowing.
It's like on Titanic, party was going on as usual while in lower decks people were slowly drowning. I hope that there would be not enough boats for all those murderous and gluttonous oligarchs when water reaches their noses.

[Jul 02, 2015]Current Oil Price Slump Far From Over

I think the author is wrong. Neither production nor demand drastically changed to justify 50% oil price drop. Cost of production is the most interesting question here; my hypothesis is that it is close to $90 for large part of shale wells as most shale companies issued junk bonds and are heavily in debt even while prices were around $100. In any case it is clearly above $60 for most. So the current prices in three-five years will drastically diminish the role of shale in the USA oil production, if (big if) they can be sustained. They also alreasy started the wave of to bankruptcies and acquisition on minor players by major oil players (aka consolidation of industry). In other word this is destruction of shale industry as a sacrificial pawn in a larger geopolitical game. Destruction, in which, paradoxically, Saudi Arabia is the major player, but not for the reasons published in MSM as it is essentially the kingdom is a Washington vassal on Middle East.
.
The key factor in increasing shale oil production in the USA was the ability of producers to sell junk bonds. This channel is destroyed and might not recover in a decade. Junk bonds from those guys now have a distinct smell of subprime mortgages. That means that as soon as existing and under construction wells production decline (in three years or so let's talk about 2018) many of those companies will be acquired by stronger competitors and losses will be written off.
.
"...$90 per barrel appears to be the empirical threshold price above which demand destruction begins."

Jun 29, 2015 | OilPrice.com
The availability of capital to fund unconventional production is the key to how long low oil prices will last going forward. If the flow of capital continues, then the production surplus and lower oil prices will also continue, assuming that OPEC is able to maintain higher production levels and that demand growth remains relatively low.
Eventually, price will win and unconventional production will fall. The market will rebalance and prices will rise. If oil prices stay low for long enough, demand will increase to support a return to higher prices. I doubt that prices will increase to levels before mid-2014 barring politically driven shock events. $90 per barrel appears to be the empirical threshold price above which demand destruction begins.

It is more difficult to predict how the second- and third-order effects of economic uncertainty and geopolitical risk may affect supply and demand fundamentals and, therefore, price. These are the wild cards that could change the outcome that I describe.

The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.
We have crossed a boundary and things are different now.

*I am indebted to James K. Galbraith for introducing me to the idea of boundaries and phase changes as they may apply to economics and oil prices in The End of Normal: The Great Crisis and The Future of Growth (2014).

Rick on June 30 2015 said:

Art,

You completely ignore data from the states. You appear to have a blind faith in the infallibility of the EIA and IEA. For a guy with the background you claim to possess to believe the Saudis and OPEC can increase maxed out production, or that a decimated economy with badly neglected facilities and fields can so dramatically increase production, is simply astounding. Are you serious?

Jim on June 30 2015 said:

"Low" is a relative term. WTI averaged about $30 in current dollars between 1985-2005. If we see a new normal around $50 over the next decade or two, then it has become much more expensive in real terms. It is important to remind readers that cheap natural gas has allowed US industry to remain competitive and to keep consumers warm in the winter and cool in the summer. Internet technologies and computer-aided logistics also are helping the US economy control demand for driving. Since the 1970's though, oil has become an increasingly expensive building block in our civilization.

[Jul 02, 2015] Shale Drillers About To Be Zero Hedged As Loss Protection Expires

"...access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up. "

"...Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are. "

"...The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014."

"...The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies."

"...In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it. "

Jul 02, 2015 | Zero Hedge
In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous.
As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up.

This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop.

Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are.

Furthermore, the next round of revolver raids for the industry isn't due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does. As a reminder:

As if all of the above weren't enough, there's yet another reason why the shale default cascade has thus far been forestalled, giving many the impression that perhaps a "crude" awakening (pardon the terrible pun) has been averted: hedges.

Here's Bloomberg with more on why some US shale drillers may soon be zero hedged (ahem):

The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

Now the safety net is going away.

The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

"A year ago, you could hedge at $85 to $90, and now it's in the low $60s," said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. "Next year it's really going to come to a head."

The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies.

Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

For SandRidge and other drillers, the hedges, required by some lenders, gave them enough time to cut spending. Costs in shale fields have fallen by 20 to 30 percent and productivity has increased as producers moved rigs to the most prolific regions. Producers were able to raise about $44 billion in equity and debt in the first quarter, according to UBS AG.

"That postponed the day of reckoning," said Carl Tricoli, co-founder of private-equity firm Denham Capital Management.

At Goodrich Petroleum Corp., hedges accounted for 35 percent of revenue in the first three months of 2015. Most of its insurance runs out at the end of the year, company records show.

In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it.

This means October is the expiration date for heavily indebted US drillers and perhaps for HY credit as well, because once the defaults begin in earnest and HY spreads start to blow out, the BTFD-ing retail crowd will head for the exits, triggering a very non-diversifiable, unidirectional flow for bond fund managers who will then be forced to hold their noses and dive into the ever-thinner secondary corporate credit market.

It is precisely at that point when everyone's worst nightmares about shrinking dealer inventories and illiquid credit markets will suddenly be realized.
The Shape

Someone's getting what they want.

http://peakoilbarrel.com/the-eias-questionable-numbers/

[Jul 01, 2015] Continued

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[Jul 01, 2015] Path to Grexit Tragedy Paved by Political Incompetence

"...I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal."

Jul 01, 2015 | Economist's View

Ellis said...

How many austerity plans do the Greek people have to suffer through? How much unemployment? Half the young population? Is the plan to to cut living standards in half?
And for what? To repay a debt that the Greek people had nothing do with! To reimburse usurious interest rates that cut the economy in a trap by the banks!

What a bunch of predators!

djb said in reply to Ellis...

i like how the advocates of austerity get all pissed off at the greek people as if they are just being obstinate
its like someone is trying to punch someone else in the face and they are getting all pissed off at the other guy because he keeps lifting his hands to block the punches

"come cut it out, just let me get good shots in at you , whats a matter with you"

And Greece will not go to the drachma - Greeks are now demanding paper Euro notes, and everyone outside Greece shipping into Greece is demanding paper Euro notes up front. Greeks are now not able to get food and medicine and fuel if they don't have Euro currency.

But let's be clear - the Greeks are to blame because they refuse to pay Greeks to work by buying only Greek production, or by trading Greek produced goods for imported goods.

Charles Carlstrom said...

Strikes at first glance don't seem rational. But they occur. Somestimes you swerve too late to avoid ruin.
But even now it appears Greece is starting to swerve.

DrDick said in reply to Charles Carlstrom...

Only if you are a member of management. For the workers they are the only logical recourse. When management will not provide safe/decent working conditions or pay you what you are worth, your best recourse is to withhold your labor.

anne said...

http://www.nakedcapitalism.com/2015/07/tsipras-accepts-most-terms-as-merkel-insists-on-referendum.html
July 1, 2015

Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum
By Yves Smith

Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn't just that the bailout funds of €7.2 billion are gone; it's that Greece has gone over an event horizon with stringent capital controls on and the European Central Bank ready and able to push the Greek banking system over the brink.

Greece's weak negotiating position is even weaker now. Even with a boost via a "no" vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.

This is a ruthless, brutal power play in progress. Too many key actors are driven by their own narrow imperatives, most important of all, their domestic politics, as well as institutional rigidities. Those constraints work against taking a broader view and recognizing that the immolation of Greece will blow back and damage the European project and their own economies. But that would require much bolder, visionary thinking and action. The current crop of leaders has instead become habituated to incremental patches even though it is widely recognized that the architecture of the Eurozone is incomplete and wobbly. But no one is willing to move to a higher level of integration, in large measure because, particularly for Germany, that entails the loss of power and privilege at the national level.

Tsipras has recognized the weakness of his position too late. Yesterday, he tried making a desperate, last-minute deal to ward off an IMF default and secure the bailout funds before the program expired. But that clearly could never happen. It would require approval from all of the other 18 states in the Eurozone, including parliamentary approval in Germany. There was no way that would occur without German legislators having had Greece pass legislation before they voted on the release of funds; the Greek government had been told that that was a requirement and that needed to be done by the end of last weekend, June 28. *

Moreover, Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt. Given that it was obviously impossible at that late juncture for the other Eurogroup members to release the bailout funds before they went poof (at a bare minimum, there was no way the Germany MPs would approve it), the Tsipras appeal was a sign of utter desperation or delusion. And that in turn was an admission of tremendous weakness. Less than two days of capital controls and a bank holiday, and the ruling coalition was folding....

* Some pundits have depicted these deadlines as artificial. They weren't. There are many areas where the lenders' conduct can correctly be called unreasonable, but the hard deadlines were the result of past agreements and Eurozone procedures make them extremely difficult to change. This is one reason for the current creditor hostility. Greece consumed an enormous amount of time, running up against deadlines in what the other side saw as brinksmanship, which was a bizarre strategy given that Greece had a weak bargaining position. But the lenders felt compelled to accommodate Greece on that front as much as possible because the optics would be terrible if they didn't, particularly if the situation were to devolve into a Grexit. Compounding that problem, an lawyer with considerable knowledge of European practice pointed out by e-mail: "Europeans have a very hidebound and literal view about their EU rules and documents. Americans see a contract as a basis for negotiation."

Fred C. Dobbs said in reply to anne...

'Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt.'
Every country in the EU is angry with Greece.

In Greece's bailout talks, why it's 18 eurozone countries versus one http://on.wsj.com/1B7hOIy via @WSJ

... Some eurozone governments-Ireland, Portugal, Spain and the Baltic states-see themselves as having swallowed tough, politically costly but ultimately successful medicine and see no reason why Greece should be spared such rigor. Some, like Slovakia and the Baltic states, are poorer than Greece and pay their workers a lower minimum wage.

Another element is that further debt relief for Greece in whatever form means losses for governments-Athens owes other eurozone governments €195 billion ($212 billion)-and therefore for eurozone taxpayers. Germany is owed the largest sum-more than €60 billion-followed by France and Italy. But, as a percentage of their gross domestic product, other countries have more on the line than Germany. According to a Bloomberg Brief analysis, Greece's debts to Slovenia exceed 3% of Slovenian GDP, compared with 2.4% for Germany. ...

DeDude said in reply to Fred C. Dobbs...

"see no reason why Greece should be spared such rigor"
Yes their rulers have convinced them that the depression they threw Greece into is no big deal compared to what they themselves have suffered. As long as your corporate media hide the facts from people, you can convince them of all kinds of stuff.

"debt relief for Greece in whatever form means losses for governments"

Yes - and the real story there is that almost all the debt that was held by private banks and plutocrats back when this problem surfaced (and the debt should have been written down) is now owned by governments. But that is not the debate in the corporate media - instead it is about how terribly irresponsible the Greek government is (I guess you can fool the fools every time).

Nathanael said in reply to anne...

Yves has been mis-analyzing the Greek crisis from beginning to end. It's seriously lowered my opinion of her, and I think she's a complete idiot at this point.
Syriza has played this out exactly right, whether intentionally or not.

Given that the Troika will never, ever make a functional offer of major fiscal stransfers to Greece, and has as much as said so, default was inevitable.

Greece doesn't have to leave the euro, of course; Greece could unilaterally print euros (in violation of the Troika's insane deflationary policies) and wait for Germany to leave the euro. But it has the same effect.

GIVEN that default is inevitable, Syriza needs to be seen as:
(1) Trying as hard as it can to offer a deal
(2) Not knuckling under to the foreign powers

They've done this.

The referendum will either go "yes" or "no".

If it's "yes", then Syriza will resign. The new government of Greece will implement stupid policies forced by the Troika which will make their situation even WORSE; they will be blamed for it and will be thrown out. Syriza survives.

If it's "no", Syriza can exit and allow the economy to recover through devaluation.

The worst case scenario for Syriza was that the Troika accepted one of Syriza's overly generous offers of surrender; the economy continued to get worse; Syriza was blamed for this and thrown out of office; and Golden Dawn was elected.

Golden Dawn would, of course, immediately leave the euro and revive the economy. By pressganging, if necessary. :-P Having a glowing example of successful fascist economic management in Europe is the LAST thing the world needs. Thank goodness we seem to be avoiding that.

anne said in reply to anne...

Yves Smith has from my perspective been remarkably sensitive to the needs of the Greek people, thorough in reporting and analysis, and evidently, however sadly, all too correct in analysis compared with other Greek-sympathetic economists.
I am aware that the analysis of Smith has been criticized, but I am also aware and impressed that even leaders of liberal Podemos in Spain have shared in criticisms of Syriza.

paine said in reply to anne...

Just a side comment
The private greek banks can go to hell in a chariot for all I care

The greek government should worry about small dipositors only

paine said in reply to paine...

Eichenberry seems poorly briefed
On the negotiations here
Syriza has not acted incompetently

The troika is out for regime change

Reply Wednesday, July 01, 2015 at 02:24 PM

anne said in reply to paine...

Eichengreen seems poorly briefed
On the negotiations here
Syriza has not acted incompetently

The troika is out for regime change

[ Understood as to what the European leadership is after, but Syriza has puzzled me. ]

ilsm said in reply to paine...

ecb the usa of the europa.
troika deals like nukes.

widespread drone strikes without deflation.....

Chris Herbert said...

I have a problem with the exit=disaster scenario. As a monetary sovereign and with a central bank, both recapitalization and devaluation can be accomplished without the armageddon stuff. China's currency, for example, is not traded on Forex. China's central bank pegs its value by fixing what it will pay in its currency for another currency--and its currency is the only one that can be used in China. Once Greece goes back to the drachma and once they've got a central banker and a currency that is exclusive to domestic commerce (no Forex speculative trading) I think a good central banker can do a lot to help Greece maintain its balance. Even better, said recapitalization can be debt free. I'm not saying it won't cost anything, I'm just saying a monetary sovereign need not issue debt. Greece could put people to work doing infrastructure improvements, which build assets not liabilities. Without issuing debt. Greece has to learn how to collect taxes, obviously. And some reforms to government size is probably in order. But the 'end of days' scare is just that, a scare.

pgl said in reply to Chris Herbert...

I have a similar problem with the criticism is Grexit. Let's roll the tape back to 1967 when Prime Minister Harold Wilson decided to devalue the UK pound:
http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

The UK did not suffer a financial crisis. It did manage to raise its net exports. So why can't the Greeks do the same?

am said in reply to pgl...

Fine, so why do the Greek people want to keep the euro as the official currency. Professor Krugman mentioned as a reason that people like to have a strong currency. They have had the drachma before and it was never very good and neither was the economy. I suggest the reason they want to keep the euro is it is strong in the sense of a stable currency and inflation is kept low in Greece as most of their imports are in euros. With a weak drachma they just get inflation on imports. With the euro they get steady prices. Add in to that payment of salaries and pensions in euros and then you have the advantage of earning in the currency of import purchases. Hohum, I'm probably wrong.

Chris Herbert said in reply to mulp...

Leaving the euro is not cost free. The dollar/drachma after Grexit is set by the central bank. Maybe Greece needs to become more efficient in their use of energy. Maybe Russia will sell oil to them at advantageous prices. A central bank can price the drachma advantageously between different suppliers. And don't forget the Greeks have a primary surplus right now and Grexit will eject its creditors, which is what I think Greece needs to to. The collapse scenarios are scare stories aimed at the Greeks. They should reject them and become independent. Only by being a monetary sovereign can Greece regain control of its economy. Right now they are in debtors prison.

Peter K. said in reply to am...

with the Euro they get humanitarian disaster. You know the economic stats, don't you?

am said in reply to Peter K....

Yes but why do they want to keep the euro, as is reported. They may suddenly change that in the referendum vote but it is reported that the euro is what they want.

foofootos said in reply to am...

easy, the depositors want to keep the euro because they don't have a lender of last resort. They will loose their deposits. That's all, that and scare tactics.

Paine said in reply to foofootos...

Yes that's a good part of it
But I'd like to know the value of euros held on deposit now
by the bottom three quarters of the population

Dan Kervick said in reply to am...

I don't think it's really entirely economic. They view the euro symbolically as a special European club membership, and don't want to be excluded from that club.

anne said in reply to Chris Herbert...

http://www.cepr.net/blogs/beat-the-press/who-uses-the-euro
July 1, 2015

Who Uses the Euro

The Washington Post ran a map * showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they are not have been accepted into the euro zone.

This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.

* https://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/30/7-questions-about-greeces-huge-crisis-you-were-too-embarrassed-to-ask/

-- Dean Baker

John Cummings said in reply to Anonymous...

I never saw the "big" Greece problem before the Euro. The problem is the credit bubble starting in 73 creating a redic surge in consumer products that really took hold in the 80's/90's for the US and spread after that. It created the "look" of growing personal wealth via personal assets, but it was a bubble. Without this borrowing, the US economy probably would have struggled to grow much in the 80's as inflation fighters went on a rampage(which is what partially triggered the bubble to grow faster). They still maintain much of the growth from the bubble, only thanks to the market being scared to live without it. About the only thing it did, was force Russia away from the Stalin era Soviet fast, but now, they are stepping back while no one is watching. This is late capitalism.
The 80's and 90's would have been a lot more Escape from New York rather than Morning in America.

Nathanael said in reply to Anonymous...

Argentina's main problems were US-backed military coups and fascism. Argentina has quite impressively managed to get itself out from under both of those problems -- seemingly permanently.

foofootos said in reply to Anonymous...

Greece only got to comparable trouble after the Balkan wars (they defaulted), during the second world war, and then during civil war. Hardly a counter-example of "drachma troubles". Many a time I see Greece described as a serial defaulter. And then I read the History of the Greek state after it's independence from the Ottoman empire, and I see a war happening every 15-20 years or so. It seems this way of looking the Greek economy just goes with the Greek stereotype.

ilsm said in reply to foofootos...

Greece seems to spend about 150% of the NATO standard war spending for GDP. While the rest of the EU spends <75% of NATO standard.
Still only 3% compared to US' 5 to 7% according to how you count.

US spends more in VA than total of Russia, China and UK for their military.

Darrell in Phoenix said in reply to anne...

Pegging to the Euro will not counter trade imbalances, which is the real source of Greece's troubles.
They need a currency that floats. They need to decrease imports and increase exports (or more likely tourism) to eliminate their trade imbalance, which is the root cause of their debt.

pgl said in reply to Darrell in Phoenix...

Exactly!

foofootos said in reply to Darrell in Phoenix...

Greece currently has a balanced current account.

pgl said in reply to foofootos...

Link? Evidence? Even if this is true, it is mainly because of the imposed austerity and weak economy.

pgl said in reply to foofootos...

Darrell in Phoenix notes:
"Check the CIA world factbook for Greece.

Exports $35B. Imports $62B.

Trade imbalance of $27B compared to GDP of $290B = 9.5%!"

Your source?

am said in reply to anne...

In Simbabwe which has no currency of its own apart from small coins for change shop goods are priced in US dollars. So consumers can buy a basket of goods and then pay the value of the us dollars in us dollars, south African rand, Botswanan pula, euro or pound. These are all calculated up by a routine in the software system operating at the checkout. The tax which is vat is then sent up to the government. The government staff are paid in us dollars. But the government can't do stimulus because they can't print any of these currencies and they don't have one of their own. But for an interim solution it is workable.

Darrell in Phoenix said in reply to am...

And the dollars flow out of the country, and them when there are no dollars left, the economy collapses.
What you need is exactly what Ben Franklin argued for nearly 300 years ago. A government issued script currency that can be used to pay your taxes, and taxes high enough to create sufficient demand for the script to give it value. You then let the value of that government issued script currency to float on the international exchange markets to balance trade.

OH, and NEVER take on debt denominated in a foreign currency.

Nathanael said in reply to Darrell in Phoenix...

That's even a good rule for households, frankly. I never take debt denominated in a currency I can't print. :-)

Peter K. said in reply to Chris Herbert...

What the critics of the Greek fail to mention is that before the Troika began bringing the hammer down on Syriza and refused to negotiate with them, the Greeks were running a primary surplus.
Krugman pointed to this. That is, they were in the black without interest payments. With default and saying no to the bailout packages they are free of the interest payments and free of the onerous austerity measures which killed their economy.

What the critics of defaults say is that the defaulters will never be able to borrow again, but in the real world that hasn't been the case. They're just blowing smoke to bully the Greeks into more, fruitless austerity measures.

Dan Kervick said in reply to Peter K....

Agreed. There will always be attractive economic opportunities in Greece. Even if Greece defaults, there will be new investors willing to gamble that they wont default again.

pgl said...

"Instead, the creditors first calculated the size of the primary budget surpluses that Greece would have to run in order to hypothetically repay its debt. They then required the government to raise taxes and cut spending sufficiently to produce those surpluses.They ignored the fact that, in so doing, they consigned the country to an even deeper depression. By privileging their own balance sheets, they got the Greek government and the outcome they deserved."
This is precisely the problem Keynes warned about after WWI when the French demanded too much from the Germans. Of course the Germans never really did pay all of those cursed repatriations. Modern day European leaders have forgotten everything Keynes tried to teach us.

Darrell in Phoenix said in reply to pgl...

The austerity proponents are following the typical NeoCon mind-set of ignoring macroeconomic principles. "Keynesian hokum" is their preferred name for macroeconomics I believe.

DrDick said in reply to pgl...

This is exactly why Eichengreen's piece is pure garbage. Greece made lots of compromises, too many in fact. It was the creditors who refused to compromise. Every bank that had made irresponsible loans (and their were huge numbers of these) in Greece should have been forced to eat all their losses. After all, they had charged a risk premium to cover this already. Instead the Troika has decided that they should be fully indemnified and only the Greeks should suffer.

Peter K. said in reply to DrDick...

Yeah it's almost as if he criticizes the Greeks so he can criticize the Troika even more.
"Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF."

Nonetheless I agree with you and disagree with Yves Smith and the like. Syriza and the Greeks did the best they could under impossible circumstances.

The Troika's plan didn't work and they refused to negotiate. The problem is Greeks want to stay in the Eurozone nonetheless. Sunday we'll find out if they still do no matter what.

pgl said in reply to DrDick...

This is why I prefer what Krugman wrote.

DrDick said in reply to pgl...

Likewise, and the same for Stiglitz, who is quite good on this.

Paine said in reply to pgl...

Running these nakedly in humane pub sec pruning exercises was the entire project
The debt
A pretext

Let that be a lesson to you long run fiscal space fuss budgets

Paine said in reply to Paine ...

A yes on Sunday simply means
Go back and get the best deal you can

Darrell in Phoenix said...

Exchange rates fluctuate to counter trade imbalances. The concept of a common currency, without controls to ensure no trade imbalances exist, is fundamentally flawed.
Money flows out of Greece. THE ONLY way money can get back into Greece is debt.

Trade imbalances cannot be persisted indefinitely. They result in the buildup of debt on the side with the deficit, and interest on the debt just widens the trade imbalance until the debt collapses.

Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt.

RGC said in reply to Darrell in Phoenix...

"Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt."
Yep. Varoufakis had a "Modest Proposal" to fix this:

4. THE MODEST PROPOSAL – Four crises, four policies

The Modest Proposal introduces no new EU institutions and violates no existing treaty. Instead, we propose that existing institutions be used in ways that remain within the letter of European legislation but allow for new functions and policies.

These institutions are:

· The European Central Bank – ECB

· The European Investment Bank – EIB

· The European Investment Fund – EIF

· The European Stability Mechanism – ESM

Here are the four policies that will re-deploy the above institutions in a manner that deals a decisive blow at, respectively, (1) the banking crisis, (2) the public debt crisis, (3) the under-investment and internal imbalances crisis, and (4) the social emergency crisis afflicting countries were absolute poverty is becoming a major issue...

http://yanisvaroufakis.eu/euro-crisis/modest-proposal/4-the-modest-proposal-four-crises-four-policies/

Chris Herbert said in reply to Darrell in Phoenix...

Darell writes "Money flows out of Greece. THE ONLY way money can get back into Greece is debt." Not so with a monetary sovereign. Euros are worth what the Greek central banks says they are worth, in drachmas. And only drachmas can be used in domestic commerce. You have squirreled away euros in Swiss bank accounts? Fine. Spend them anywhere but in Greece. If you have cheated on taxes, and for sure you have if you are Greek and rich, then face extradition for crimes in Greece. A monetary sovereign does not have to issue debt. It can recapitalize without debt. Look at China, which has used this banking system successfully for more than two decades! China understand the difference between liabilities and assets. It's not the debt that matters it's what you build that matters.

Darrell in Phoenix said in reply to Chris Herbert...

Chris, I was saying now... With Greece on the Euro and unable to print their own currency.
Yes, if they return to drachma, they can issue money. Until then, the only way they have been able to make their economy liquid in the face of large trade deficit is with debt.

Darrell in Phoenix said...

Check the CIA world factbook for Greece.
Exports $35B. Imports $62B.

Trade imbalance of $27B compared to GDP of $290B = 9.5%!

Of, Germany LOVED loaning Greece money so they could buy German products.... but the problem is that the debt can't possibly be repaid unless the trade imbalance is reversed. Germans have the money that Greece needs to repay the debt!

This echos the problems in the USA. The poor go into debt, creating money that they spend, which then flows through into the economy into the hands of billionaires. It is mathematically impossible for the poor to repay the debt unless the rich first spend the money! Oh, we say it is a legal, moral and social obligation to repay the debt, but suggest it is a moral and social obligation (and should be a legal obligation through a steeply progressive income tax code with deductions for most spending and capital investments) and OH HOW THE RICH SCREAM!

pgl said in reply to Darrell in Phoenix...

Good research - and analysis.

RueTheDay said...

I struggle to understand the path forward from the referendum. Putting aside the obvious question of "what exactly are they voting on", there are some serious logistical challenges.
It will likely take a day or two (or three) for the votes to be counted and the result certified. Assuming a best case scenario of a YES vote, Tsipras will likely resign, a snap election will be called, and a new government will have to form. How long will this take? What if Syriza is re-elected? What if there is no clear winner and we're back to having to form a coalition government, which may or may not happen?

Time is one thing this situation does not have. There are significant upcoming dates:
-July 10 €2B Rollover of treasury bills
-July 13 €452M IMF
-July 14 €73M in Japanese Samurai bonds due
-July 17 €1B Rollover of treasury bills
-July 20 €2.1B ECB
-July 20 €1.4B National central banks
-July 20 €25M European Investment Bank

I can't imagine any scenario under which the ECB can avoid having to yank the ELA if the July 20 payments are missed. But there are plenty of opportunities for an accident before then. It is assumed that the treasury bill rollovers will not be an issue since they are almost entirely held by Greek banks. Is it really safe to assume that? I might be thinking about a switch into safer, more liquid assets if I were a Greek banker. Or are they just going to avoid an auction altogether and deem the bills rolled over by fiat? The Samurai bonds are tiny, but they are still a commercial obligation, will require money the Greek government likely will not have, and a default will not be able to be brushed aside as easily as the missed IMF payment. Speaking of which, the IMF will be unable to assist in any way throughout this period, unless the arrears are cleared.

But wait, there's more. With the previous programme having expired, there will need to be a new MoU, a vote by the Greek Parliament, a vote by other European parliaments, including Germany. This is no longer something Finance Ministers can decide at a late night meeting.

Yet, the official position is no more talks until after the referendum.

Darrell in Phoenix said in reply to RueTheDay...

I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal.
A vote of NO to the "Should we accept these terms?" means the Greek people support Tsipras's hardline demand for write downs. This puts the Germans in the position of having to accept his terms or face Greece leaving.

In short, the referendum may take the "well just wait until the Greeks replace you, then deal with the new guy" threat off the table.

Reply Wednesday, July 01, 2015 at 11:53 AM

RueTheDay said in reply to Darrell in Phoenix...

My point is that regardless of which way the vote goes on Sunday, by the time the results are in there simply may not be enough time left to avoid a default. Note well that default does not automatically imply Grexit, but it certainly ratchets things up a notch.

Reply Wednesday, July 01, 2015 at 11:59 AM

Peter K. said in reply to RueTheDay...

It's all up to the ECB and Troika. The money involved is small to them. It's all political. Looks like they want a regime change in Greece. Either that will happen or there will be Grexit.
Syriza caved on austerity but wanted more taxes and less spending cuts. The Troika said no. And the Troika spins it like the Greeks left the negotiation table. The Troika said no and then the ECB refused to back Greek banks as the "deadline" passed causing the bank holiday.

Darrell in Phoenix said in reply to RueTheDay...

Oh, I think default is inevitable. All the referendum does is clarify the options AFTER that.
If it fails, and the Greeks vote that they want to accept the Eurozone offer, then there will be a change in Greek government, a new round of austerity, and a delay of another year before the crisis explodes again.

If it passes with a resounding vote of "NO, we're not paying" then Eurozone will have to take major cuts in the debt or accept Greece leaving the Eurozone.

Nathanael said in reply to Darrell in Phoenix...

Darrell has the analysis correct.
The political key here is that SOME party is going to either leave the euro. (Or massively and permanently default and start printing euros. If they simply ignore all the ECB rules entirely, they may be able to stay in the euro. Same thing; in this case, Germany is the one who leaves the euro.)

If it's Syriza and they do it with public support, there are good things in the future.

If it's Golden Dawn and they do it with public support, there are bad things in the future.

If Syriza does it without public support, Golden Dawn benefits, and there are bad things in the future.

If Golden Dawn does it without public support, they'll just cancel elections to avoid losing power, so they'll again benefit and there will be bad things in the future.

In a sense, the democratic parties are handcuffed in their options relative to the fascist parties, so it's harder for Syriza to succeed than for Golden Dawn.

And it's really REALLY bad if Golden Dawn becomes a big economic success by defaulting or leaving the euro!!!

Paine said in reply to RueTheDay...

Default is a label easily applied and un applied
In arrears delinquent these are objective terms
Use em instead of the Halloween word default

[Jul 01, 2015]Syriza can't just cave in. Europe's elites want regime change in Greece

"...But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms."
.
"...No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union."
.
"...I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong. "
.
"...Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon."
.
"...After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years. "
.
"...we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.
"
.
"...I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order. I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites."
.
"...This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe "
.
"...My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves."
.
"...Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010."
.
"...Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you."
.
"...The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands. "
.
"...This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should."
.
"..."Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project."
.
"...The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt."
.
"...I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??"

Jul 01, 2015 | The Guardian

It's now clear that Germany and Europe's powers that be don't just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

But that the German chancellor Angela Merkel and the troika of Greece's European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. . Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras's government.

They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

There's no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week's "final proposals" and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

That's because, just as the bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

Hence the European Central Bank's decision to switch off emergency funding of Greece's banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece's crisis to a new level this week as it became the first developed country to default on an IMF loan.

The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.

One European leader after another warned Greeks to ignore their government and vote yes – or be forced out of the eurozone, with dire consequences. Already the class nature of the divide between the the wealthier yes and more working-class no camps is stark. The troika's hope seems to be that if Tsipras is defeated by fear of chaos, Syriza will split or be forced from office in short order. The euro elite insists it is representing the interests of Portuguese or Irish taxpayers who have to pick up the bill for bailing out the feckless Greeks – or will be enraged by any debt forgiveness when they have been forced to swallow similar medicine. The reality is the other way round.

... ... ...

Tsipras and Syriza's determination to stay in the eurozone come what may has seriously weakened Greece's hand. The economic dislocation of jumping off the euro train would doubtless be severe in the short term, though the costs of permanent austerity would almost certainly be greater thereafter.

But Syriza insiders say there is little preparation for what anyway may be forced on them. The relentless pressure of the EU bureaucracy demands a strong and clear-headed response. Right now, for example, that means the Athens government immediately taking control of its banks, currently shutting down all transactions.

The worst outcome of this crisis would be for Syriza to implement the austerity it was elected to end. A yes vote in next weekend's referendum, , if it goes ahead, would probably lead to the government's fall, and almost certainly new elections.

Papistpal rredge 1 Jul 2015 21:21

"Implicit in your argument"

Always a ploy of course, when you find implicit, tacit, implied arguments in someone else's thought, and then argue with it. No, I am not saying anything about the money.
No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union. There is NO excuse for your behavior

Ritoras Tijger 1 Jul 2015 20:57

I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong.

As said, because none answers your question that doesn't mean no is the answer.

Be open minded and less emotional. Few of the questions you ask you can google them and share the findings with us. That will be more convincing!

peekaboo -> summicron 1 Jul 2015 20:54

The public in the 18 countries have not been consulted. Critical decisions affecting all other members need direct approval. In fact referendums have almost never been held for EU membership in candidate countries.

ineluctable2u -> tsimshatsui 1 Jul 2015 20:50

That's naive. Merkel is only making the Greek people suffer now in the hope that they will lose their will and vote yes. This is ruthless politics by the troika and Merkel in particular.

martyc73 -> Gearóid Ó Loingsigh 1 Jul 2015 20:49

The North is a diversion - it cant raise taxes and relies on subvention from the British State etc and you know this so don't be using that as an argument. The bank guarantee was also sold in a totally different way to what was rolled out subsequently. And you know this too. Hums and Haws???

Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon.

Ritoras Tijger 1 Jul 2015 20:46

Bud, first of all you repeat you you you, it is very instructional, chill. Bravo to you as well for making so focussed comments. I mean it even though you put all the fault on the Greek gov.. Don't see you challenging yourself enough? Are the rest of stakeholders here perfect?

But, how do you know what Greece has done and what not?

Why the Troika have not reacted the same and with the same persistence as it does now during the last 5 years to correct the direction of travel? You're 100% right about the Lagarde list. The ministers who did not do nothing are in trials now.. However, I was in fact hoping that the Troika could play a more active role in this and exercise influence to clear corruption. After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years.

About the military expenses. I like defense and the military in fact. But! In a recession, the Troika should have first said, save money there to invest in sectors like healthcare, education etc. After all, Greece is very well equipped and supposedly is backed up by NATO allies.

calsation miceonparade 1 Jul 2015 20:43

I must say I enjoyed your takedown of oldships immensely. It seems he doesn't realise we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.

Papistpal 1 Jul 2015 20:40

Never thought I'd agree with you, but I have to say, from this American capitalist perspective, Berlin and Brussels have no sense of fair play and no respect for democracy. How can the EU call itself a democracy if Germany has a veto because it has the big bucks. The US, I admit, would like to do something similar, but we are constrained by maintaining at least some vestige of democratic practice and sensibility. What is with the moralism, anyway. "Greece is wrong, so we get to do whatever we want to them." Moralistic platitudes are not policy statements. Damn Merkel to hell

TheNerveInstitute 1 Jul 2015 20:36

Greeks must not cave in. This is interesting !

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=14132

lawrenceab 1 Jul 2015 20:29

I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order.

I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites. Why for instance did they not impose capital controls the very first weekend after coming to power?? The the country could have put up its defenses at a time of its own choosing, husbanded its resources while negotiating - paid the IMF, keep banks open during this crucial referendum week. You don't negotiate with 17 adversaries who all want to crush you, with one hand tied behind your back and € billions flowing out weekly. In three months you are on the floor.

castalla 1 Jul 2015 20:17

This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe ... let's hope the OXI vote wins the day and Syriza gets a mandate to argue for a restructure of the debt programme.

someoneionceknew -> FactPatrol 1 Jul 2015 20:10

The – European Social Model – is built on the fundamental principles built into Treaty establishing the European Community (TEC):

… promotion of employment, improved living and working conditions … proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion.

It combines with the EU Charter of Fundamental Rights to define an "underlying principle is one of solidarity and cohesion: that economic growth must serve to boost overall social wellbeing, and not take place at the expense of any section of society".

The ILO book says that while "there is no official definition of the European Social Model" there is a long history of practice and dialogue that allows one to map out the main characteristics.

The ILO define "six main pillars":

1. "Increased Minimum Rights on Working Conditions".

2. "Universal and Sustainable Social Protection Systems".

3. "Inclusive Labour Markets".

4. "Strong and Well-Functioning Social Dialogue".

5. "Public Services and Services of General Interest".

6. "Social Inclusion and Social Cohesion".

miceonparade -> Exodus20 1 Jul 2015 20:08

Remember what Greece were like before joining the euro, in the 1990's?

Greece in the 1990s did not have 30% unemployment or 60% youth unemployment or a depression. Things can only begin to get better after exiting the euro and reclaiming fiscal sovereignty which can be used to put Greek people back to work.

someoneionceknew FactPatrol 1 Jul 2015 20:07

The European Social Model in Crisis: Is Europe losing its soul?

PDF 52 page precis.

while the European Social Model may have been called into question here and there before the crisis, the list of changes in most elements and pillars of the European Social Model since the crisis is formidable. While there are a few exceptions … all other trends show a general withdrawal of the state from social policy, first through massive cuts in social expenditure and reduced funding of education, health care and other public services, and second through radical reforms in a number of areas, such as social dialogue, social protection, pensions, labour market and social cohesion in general …

the changes are particularly severe in those countries that implemented an austerity package under the direct influence of the Troika …

Hill0fBeans sjorsnotmine 1 Jul 2015 20:05

There are no poor Greeks in Greece any more...

You're a disgrace. Instead of trolling, read some facts every now and then.

- like the 4 out of 10 Greek children living beneath the poverty line

- or 44.8% of pensioners living on less than 665 euros/month

- or the 27% unemployed

Go crawl back underneath your bridge. This is not a place for trolls.

camerashy 1 Jul 2015 19:56

The closet fascists are all out in force to get rid of a democratically elected government! Rule by corporations and banks is what you deserve and is what you are going to get in next 5 years ... so enjoy it.

deskandchair -> Danny Sheahan 1 Jul 2015 19:56

It can't go any other way, fiscal control means political control. The tragedy is that the EZ was formed in the first place.

Lafcadio1944 1 Jul 2015 19:52

My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves.

xsyfer John Smith 1 Jul 2015 19:51

It has that already. Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010. There will be friends. I reckon UK, us and Sweden might do something bilateral after the mess to keep Greece away from Russia.

Might be too late then though

deskandchair Markdoug1 1 Jul 2015 19:51

You don't live in EZ or EU (although superficial thinking isn't exclusive to those outside EZ) however you're correct, Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you.

Eleutheros 1 Jul 2015 19:46

But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

And that's the essence of the current situation, not just in the EU, but most "western" societies, including Australia, where I live; our present government follows the policies of Thatcher and Reagan and is trying to bring austerity to a rich and prosperous country.

Excellent article Seumas Milne, thank you.

Oscarinho 1 Jul 2015 19:43

Yes, there is a potential danger of a right-wing, if not neo-nazi, turn in Greece (and maybe, only maybe in other places, too). But just tell me why does the author doesn't mention that without the support of the right-wingers and neo-nazis called Anel and Golden Dawn Syriza would not have a majority in their own country??? Syriza does not represent a European leftist alternative (ask Renzi) but mere 2 million Greek voters supported by the far right that are taking their own society hostage playing the nationalistic card.

Yes, we need another haircut and, yes, this radical austerity policies needs to be changed. It's just not sustainable as we learned the hard way- But Syriza is looking for a system change by any means with any partners (Golden Dawn, Putin's Russia, and even Erdogan). No thanks.

Forthestate ID5590609 1 Jul 2015 19:40

you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living...

Just more bollocks! How do you square "this new and vastly improved standard of living" with the reality since the crisis hit? Most analysts agree that the decline has seen Greece lose everything that it acquired during the years you refer to, and more, and I repeat, it is a decline probably unparalleled in peacetime. Where is the recognition of the catastrophe that has hit the Greek people in your ridiculous assertion that they are enjoying a new and vastly improved standard of living?

John Smith 1 Jul 2015 19:32

Looking at the headline photo of Merkel, the caption: Who will rid me of this troublesome Greek
popped into my head.

Then I read the article above.

Nothing would please the Euromeddlers more than a military coup, or a revolt by the coalition partners.

Because what this crisis is exposing is how after five fruitless years, the geniuses at the heart of the EU, couldn't grasp that among their many errors of judgement, it's no good loaning a bankrupt money to pay off debt, the Euro has actually worked against the economic expansion of the Eurozone both before and after the crash, and by failing to spot the dishonesty of previous Greek administrations or act, it has shown the world that their system is weak, cannot tackle a crisis, and despite years of rhetoric will have to do the one thing it said would never ever happen, expel a member state and write off tens of billions of wasted euros.

In my earlier analysis I have already explained why the Euro was a currency launched half cocked, and that without taking into account the needs of individual nations, it is doomed in the long term, to fall to pieces.

I fear that whatever happens now, Greece is going to find itself with few friends, and at least five years of pain and emigration of its youth.

ID5590609 Forthestate 1 Jul 2015 19:26

The level of Greek tax collection from all sectors and classes in Greek society is abysmal. Tspiras and Varoufakis do not deny this is a problem, and other than pride or foolishness, I question why you do. Some economists suggests that as much as 39% of the Greek economy is effectively underground. The other purported statistics are simply red herrings to confuse this simple fact (and also avoid dealing with the rampant other corruption and incompetence inherent in the Greek economy).

The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands.

The fact that Greece's economy has contracted over 25% is also not particularly relevant. The larger GDP since joining the Euro represented a tremendously bloated bubble based on irresponsible public and private debt. The current GPD still has ample room to decrease before it accurately reflects the true size, scope and productivity of the Greek economy (and even reflects Greece's pre-Euro GDP). Also noteworthy is the fact that Greek incomes nearly tripled since it joined the Euro Apparently, you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living (more impressive than some other Eurozone members who are poorer and helped fund Greece's bailout) despite the fact that it was entirely unearned and based on fraud and the largesse of the taxpayers of other nations.

Exodus20 Tijger 1 Jul 2015 19:26

This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should.

JordiLlull neilmack 1 Jul 2015 19:24

Who are "Most people"? I dont think there are polls, but few people in Europe believe that the fault lies exclusively on a government who has been there for 6 months, and is trying to prevent the policies that have led to a 25% loss of GDP. Particularly since the troika has made it damn clear that it does not plan to accept ANY plan. Sure, some have bought Daily Mirror arguments that the Greeks spent the bailouts on Ouzo, but informed people know that the vast majority was used to pay back interests, and that Greek retirement pensions are around 300 euro/month. I would rather argue that "most people" in Europe who have traditionally supported EU are starting to raise questions about what EU's role in this crisis.

"Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project.

deskandchair truecomrade 1 Jul 2015 19:22

Fiscal control = political control, it can be no other way.

FourtyTwo sjorsnotmine 1 Jul 2015 19:21

More than 30% of the population are officially below the poverty line.

http://www.enetenglish.gr/?i=news.en.article&id=2040

FourtyTwo Exodus20 1 Jul 2015 19:17

The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt.

MTSK87 privateindustry44 1 Jul 2015 19:13

You are an ignorant piece of work aren't you Sir? Look at the facts before spreading lies. The Greeks work (the ones still in employment that is) work more hours than any other EU citizen ( http://www.bbc.co.uk/news/magazine-17155304 ), the rich and powerful did not pay taxes no, but your average 20-30 something year old with a wage of 400 euros a month that has to go back to living with his/her parents can barely afford coffee never mind pay taxes. And free money? Please the "creditors" have NEVER given anyone "free" money. Germany never gave away anything for free (see treaties imposed on Greece to buy old German weapons). Greece was manipulated and suffered for that "free money".

emordnilap Mark Riggle 1 Jul 2015 19:10

I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??

[Jul 01, 2015] Massive downward revisions to oil output in Brazil and Iraq

Prediction three years too early...

Massive downward revisions to oil output in Brazil and Iraq have increased the risks for oil markets of going from the current feast to famine within just a few years, leading to a price spike that would give a new boost to the U.S. shale industry…
…"All these project cancellations and deferral and cut backs are setting the world up for tighter oil markets in the medium term (2017-19) unless the record Middle East oil rig count successfully translates into significantly higher production," said Seth Kleinman from Citi.

"Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today," Deutsche Bank said in a note on Tuesday….

…Several oil industry heavyweights, including former BP (BP.L) boss Tony Hayward, have predicted a new bull market could arrive sooner than expected given the scale of capital and workforce withdrawal from the U.S. oil industry.

U.S. oil output growth has indeed stalled in recent months as companies drastically cut the number of drilling rigs following a steep fall in oil prices after OPEC decided against cutting output last November….

[Jun 30, 2015] Russian culture minister calls for tax on Hollywood films

Jun 30, 2015 | The Guardian

DavidEG 30 Jun 2015 00:26

They (Hollywood staple) should be taxed the same way as tobacco or controlled substances. Full of violence, harmful to mental well-being of children an adults alike.

HollyOldDog wereallfuckedboy 29 Jun 2015 18:54

The UK government should have given the Hollywood WWW2 films the the J rating for JUNK.

Doors2distant 29 Jun 2015 18:29

What an excellent idea, the quality can only improve. No car chases, cop porn, war porn or saccharin sentimentality.

Ieuan 29 Jun 2015 17:15

" he wants to introduce a sales tax that will be used to increase funds for local productions."

In just about every market Hollywood films gross the most. But in many markets (fewer and fewer as US companies take over their own local distribution) they are distributed by local distributors, who then invest some of their profits into local productions - hence some of the Hollywood blockbusters' moneymaking gets routed into supporting the local industry.

If (as I suspect) the Russian distributors of Hollywood product are owned by Hollywood studios, and do not produce anything locally, then I think it's fair enough that the government steps in and routes some of the money made into local industry.

olliemaple 29 Jun 2015 16:52

Exceptionally right decision indeed. It's only fair that whoever watches that Hollywood crap should be extra taxed in favor of positive domestic productions. Not unlike cigarette sales.

Alderbaran 29 Jun 2015 10:36

Many Russian films could be considered to be great and to me trump much of what comes out of Hollywood. However, it was a shame that Medinsky saw no merit in Leviathan and I'm probably one of many who see Medinsky's actions as political in nature, especially given the criterea for state funding of films in Russia.

It is a shame to see the state increasingly policing the film industry in Russia but I'm certain that creative directors will still be able to work within the constraints.

Tilipon -> dropthemchammer 29 Jun 2015 08:24

countries who passed through state coup. Look in root but not in a peak...

[Jun 30, 2015] The Limits to Growth and Greece Systemic or Financial collapse

Jun 30, 2015 | resilience.org

The results of the "standard run" (or "base case") scenario of "The Limits to Growth" 1972 study. Could it be that the ongoing Greek collapse is a symptom of the more general collapse that the model generates for the first two decades of the 21st century?
So, we have arrived to an interesting point, to be intended in the Chinese sense of a curse. It is the point where the people of Greece are being asked to choose between starvation and slavery and this is supposed to be a triumph of democracy
As the tragedy unfolds, people take sides, aiming their impotent rage at this or that target; the Euro, the bureaucrats of Brussels, the Greek government, Mr. Tsipras, some international conspiracy, and even Mr. Putin, the usual bugaboo of everything.
But, could it be that all the financial circus that we are seeing dancing in and around Greece is just the effect of much deeper causes? The effect of something that gnaws at the very foundations not only of Greece, but of the whole Western World?
Let's take a step back, and take a look at the 1972 study titled "The Limits to Growth" (LTG). Look at the "base case" scenario, the one which used as input the data that seemed to be the most reliable at the time. Here it is, in the 2004 version of the study, with updated data in input.

[Jun 30, 2015] Greek failure to make IMF payment deals historic blow to eurozone

I can only imagine the intensity of "consultations" between Washington and Berlin now...
.
"...The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika. However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame."
.
"...The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. "
.
"...This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free"."
.
"...The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election."
.
"...Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF. And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard."
.
"...I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for."
.
"...If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece."

Jun 30, 2015 | The Guardian

ShibbyUp -> peter nelson 30 Jun 2015 21:30

The Greek banks and former conservative governments, you mean.
You and plenty of other brainwashed idiots around here seem to think that individual, working class Greeks had something to do with this. Of course, as always, the banks and politicians who actually caused this got off scott free, with taxpayer money, to cause the next big financial crisis.

HaroldP -> Nottodaymate 30 Jun 2015 21:29

Banksters, what did you expect, honesty, morality, humanity, financial expertise? Bailouts from citizens, that's what you expected? The poor darlings can't even run a bank when they can print money. Incompetant scum. Regards, Harry.

Jazzfunk23 -> workingclass2 30 Jun 2015 21:28

In recent years most of this mess was presided over by liberal conservatives...

https://en.wikipedia.org/wiki/New_Democracy_(Greece)

PeregrineSlim 30 Jun 2015 21:25

Germania offers a regime of permanent debt servitude to pay for its failed banks:

The documents, drawn up by the so-called troika of lenders, support Greece's argument that it needs substantial debt relief for a lasting economic recovery.
The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded.

clematlee Danny Sheahan 30 Jun 2015 21:25

What you have in the USA is TENS of millions of people who don't have any US dollars while in Manhattan flats sell for millions.

AlamoSexual 30 Jun 2015 21:20

This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free".

UnevenSurface Danny Sheahan 30 Jun 2015 21:12

Greece will still be here. There will of course be enormous poverty (in various forms) in the short term - but even the FT says that the GDP will bounce up 6% quite quickly. After that, they'll be the cheapest holiday destination in Europe, exporting the cheapest wine and olive oil. The GDP could expand by 25%, up to pre-austerity levels. Excluding macro economic factors out of our control, I would be truly surprised if they aren't better off - overall - within five years.

HaroldP -> owl905 30 Jun 2015 21:12

The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election. Obviously Tsipras did not "wreck his country." His fellow citizens elected his party to fix an existing crisis. He won the election with a proposal of how to do that. He has deviated only slightly from his promises. I find him to be a "hero" in that he could teach the political class of Europe the importance of keeping the agreement between the state and the citizens. It is heroic indeed to be the honest politician of Europe. He has my respect. Regards, Harry.

Paul Collins 30 Jun 2015 21:12

Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF.

And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard.

malenkylitso -> owl905 30 Jun 2015 21:08

Greece was forced into a corner, then took a bailout which less than 10% went to the Greeks. The rest went to the banks.
Sounds like a protection racket.

SystemD 30 Jun 2015 21:07

This is not just about Greece; the impact of a Greek default go much wider. The IMF (and the Troika) has to be seen to be taking a hard line. If they don't, then their credibility with the rest of the world diminishes, particularly in Africa. The Germans are worried about the Euro as a currency; the Deutchmark was given up on the promise of stability, and the 1920's are still - just - within living memory. There is a lot of fear behind their stance. Stock markets generally are worried about the instability the situation is causing. They don't want Greece crushed - they just want a stable situation with predictable outcomes. Volatility is not in their interest. And Greece needs money and help to try to cure the cancer of corruption in its economy.
Greece cannot pay back its debt. Unless the creditors agree to a very long term of repayment (at least 50 years) at reasonable rates, the only real options are for Greece to leave the Euro zone and go back to the drachma, or the debt must be written off, with the proviso that there will be no new loans, and Greece will have to rebuild and finance its economy from its own resources.

Stanley Wallings 30 Jun 2015 21:06

I feel sorry for the Greek people - they've had 5 hard years and for nothing. Grexit will be horrible for those who have to stay in Greece. The 'haves' have already moved their money and can just hop on a flight out. I hope Tsipras isn't driving the bus over a cliff for no reason other than to piss off the Troika. I hope he has a plan C

medicynic RobWilson73 30 Jun 2015 21:06

What a great idea! Let's get rid of pensions worldwide, then no one has any cause for complaint. I'm pleased to see that you are one of those who, when pensions in the UK increase say: "No thanks. I don't need it and don't deserve it. It only makes me fat anyway".
In my experience in British industry, workforces are rife with 'tax-dodging, CSA dodging, mendacious, lazy wankers', a lot of who deserve a cut in wages never mind a pension.

Monkeybus 30 Jun 2015 21:06

SQUEEZE THE GREEKS, WRING THEM OUT, RINSE THEM. Other xenophobic pronouncements are available. SHIFTLESS, LAZY, FECKLESS. Can't they print their own money like more advanced nations?
We are all in this together, err, hang on.
Imagine if Gordon Brown had taken us into the Euro after all?

clematlee FakeyWilson 30 Jun 2015 21:06

and the west arms heart eating loonies in North Africa and invades and kills millions of people in the process, Vietnam, Iraq, Libya, Grenada, Korea, Panama, Syria and the list goes on. Watch the EX USA secetary of state on youtube saying the starvation of 500,000 children was a price worth paying, by the west imposed on Iraq. It was starvation to death. Her name was Madalin Allbrite. Don't worry about losing some so called freedoms to stop Allbite and her ilk.

Tappert Heintz 30 Jun 2015 21:03

"Greek failure to make IMF payment deals historic blow to eurozone"
Sounds like the Daily Mail. Nonsense.

owl905 Iheartbill 30 Jun 2015 21:02

They're not barred from international trade, but it's really scewed to cash and barter. There simply isn't the mechanism to manage the exchange rates. No one outside the country will want rapidly devaluating and 'only-good-in-Greece' drachmas. Greeks don't realize what's coming after 15 years of Euro stability.

One big surprise from them is that pipeline deal with Russia. That needs a lot of capital - Russia is walking into even more problems if it starts forwarding debt financing to Greece to get the pipeline built.

The tourist industry won't be hit by it (except for foreign import items that are part of the industry) - it will be hit by the drachma, that has the profit from the industry shrink to nothing.

Danny Sheahan Justitiadroit 30 Jun 2015 21:01

Look at the Eurozone growth rates for the last 5 years, its a basket case.
The Greeks have messed up over the years but the Euroland is no case study in growth.

rberger ArundelXVI 30 Jun 2015 21:00

Actually there is very little debt servicing involved. The 29 billion actually includes debt repayments (principal, not interest). Greece is not paying any interest for most of its bailout money until after 2020, but of course needs to pay interest on the bonds that it has issued itself.

ScanDiscNow Danny Sheahan 30 Jun 2015 21:00

Pre Euro Greek total production increased by some 600% between 1960 and 2001 while German total production increased by a mere 255%. However, throw in the Euro and the subsequent 15 years has German total production up 20% while Greece total production is down 26%
ZeroHedge.

Anthony Apergis owl905 30 Jun 2015 20:57

And herein lies the issue my friend! The strictly monetary considerations that underpin your rationale betray the disintegration of what started in Rome as a visionary peace project for the peoples of Europe to an economic, neoliberal construct whose only concern is %s and profits. Surely, you must be able to see this. I would strongly advise you to read the preamble to the Treaty of Rome (1957).

MonsieurBoombastic FilthyRichBanker 30 Jun 2015 20:54

The capital controls in Greece apply to cash withdrawals and overseas transfers so this won't affect things like internet banking where cash is transferred within the system. The things you mention are probably still going on in most cases.

moderatextremist 30 Jun 2015 20:51

When Greece joined the EU, the corrupt government went on a spending spree of EU money, and used Goldman Sachs to cover it up. It is those politicians and Goldman Sachs, the vampire squid on the face of the world, that should be put on trial. I fear this development will be hurtful to an awful lot of good people, while the arseholes that created the mess will get away with it...... yet again.

sefertzi7 30 Jun 2015 20:48

The worst possible outcome. Now the crooks who caused the debt mountain in the first place (Papandreou x2, Simitis, Karamanlis, Samaras et al) will come back to power, reluctantly do what they are told with the quid pro quo of a blind eye turned while they carry on in their corrupt old ways.
Call that a revolution? More like crash and burn to me.

raymundlully -> Kaiama 30 Jun 2015 20:45

If the debt is forgiven and goes away.
Greece has in arrears to private pharma companies ,I doubt they'll extend credit orwant paying in toy Drachmas.
Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than 1.1 billion euros ($1.2 billion), a leading industry official said on Wednesday.
The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines.
Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.

MalleusSacerdotum 30 Jun 2015 20:45

If Greece were a private or public company and continued to 're-finance' in the manner proposed by the IMF, its directors would be charged with insolvent trading.
They are getting a lot of stick for admitting that they are effectively bankrupt.
It is at least an honest admission of the state of play.

Omniscience Jazzfunk23 30 Jun 2015 20:42

They turned a primary deficit into a surplus within the last 5 years
Greece have never run a primary surplus.
http://www.forbes.com/sites/timworstall/2015/02/16/greece-still-has-a-vast-problem-it-doesnt-have-a-primary-budget-surplus/

Dannybald George Purcell 30 Jun 2015 20:40

Right wing conservative neo-libs corrupt elitists. The Troika is refusing to allow Greece to tax the wealthy corrupt tax avoider thieves, while forcing more of the workers into poverty.

Vee1984 30 Jun 2015 20:40

It is a well known fact that many Greeks like to avoid paying taxes just as there are many other European countries who avoid paying tax whether on an individual or on a company basis.

The European Union has created this problem over a long period of time by allowing countries to borrow more than required and funds being used to build eg airports in Spain which are unused and unnecessary due ro their geographical location and many speculative projects undertaken throughout the EU. The reason for lending such sums, with a total disregard as to how interest payments can be repaid, never mind repaying the loans, has been done to enrich the lenders who, as we all know, love to gamble on how much money can be made. A risk game, played out every day, and, I suspect, some bets even being placed on the odds of Greece defaulting in some hedge fund offices somewhere in Europe. It should be noted that Spain and Italy have loaned money to Greece. How can this be when both countries have loans via the EU etc? Again, investors after interest on the loans with a total disregard as to their own countries finances. Greece is a democracy and should not give in to the rhetoric coming from the IMF or ECB. Why not? Neither can afford to and neither can Germany. Interesting days ahead. I truly hope that in the name of Democracy, the Greek people will vote NO in the referendum no matter the increasing hardship this will bring. The EU really need to be extremely mindful of the fact that abject poverty and the continuation of austerity gives rise to discontent and a surge in popularity to right-wing extremist views.

Anthony Apergis Justitiadroit 30 Jun 2015 20:39

Indeed, the EU has mutated from a union of the peoples of Europe, into a market-driven transnational institution governed by bankers and solely concerned with GDP growth rates (and I mean this in a strictly non-communist/leftist way).

Dannybald DavidRees 30 Jun 2015 20:36

As a German voter I would never vote for the right wing neo-lib corporatist Fascist scum in government. The hypocrisy of this regime is turning millions of Europeans against Germany and rightly so. The London conference of 1953 halved German debt owed for destroying Europe. Greek debt was 100% of GDP in 2008 and that had nothing to do with Tspiras.
The 'Eurogroup' only cares about a tiny elitist group of Europeans and not about the majority of it's people. Wake up DavidRees and the rest of you indoctrinated half wits.
http://www.theguardian.com/commentisfree/2013/feb/27/greece-spain-helped-germany-recover

Omniscience 30 Jun 2015 20:35

If the EU are the enemy now, imagine the bed wetting and howls of protest if Greece had to make real repayments.
http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628
Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

FlashRat 30 Jun 2015 20:35

I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for.

PennyForYourComment DavidRees 30 Jun 2015 20:35

Which is why the Eurozone concept is fundamentally broken.
Imagine if every time one US went into a bad recession, all the other states had to vote on whether to send them money, with all the governors having to agree... and then trying to post their own conditions on how that States economy be run before the money were delivered. It would be an unworkable mess, especially given acrimony and resentment between states and regions (North vs. Deep south vs. midwest, vs. west coast, etc)... The country would sooner or later fall apart as States started rebelling and quitting. It would be absurd.
But somehow Europe is supposed to run on exactly this system. If you are going to have a single currency, then you need common fiscal mechanism binding the areas together, because these act as automatic financial stabilizers when there's a regional crash. If Florida's economy crashes, money automatically pours in from everywhere else to cover unemployment insurance, etc, via the Federal government. No similar thing happens with Greece in Europe.

BunyipBluegum theoldgreyfox 30 Jun 2015 20:34

The default you are referring to is a recent one (2014) - I was referring to the previous default in 2001, which was followed by a significant period of economic growth and recovery. I am not suggesting that a default is always the best solution in such circumstances, nor that the immediate fallout won't be problematic. However in any case the example of Iceland clearly demonstrates that a default can be the best option economically in some circumstances.
It's the same principle as bankruptcy: if your debts reach a level that can never be paid back, it's better to wipe the slate clean and start again, even though the cost of doing this may be to slide back down the snake to the bottom of the board.

Anthony Apergis 30 Jun 2015 20:33

To sum up:
Roughly €170b initial Greek debt +
Roughly €150b financial aid to Greece aimed at repaying initial creditors (NOT the restructuring of the Greek economy) + austerity measures while doubling an already unsustainable debt = EU solidarity to a member- state.
And the above does not even take into account whose economy did the initial debt prop up. I cannot believe that the people of Europe cannot see what the REAL problem is.
The EU - and by extension Europe - is truly in trouble.

raymundlully Franco87 30 Jun 2015 20:32

UK had third world inflation in the 1970s it took the IMF medicine broke the unions in the 80s and created a home fit for bankers.
www.whatsthecost.com/historic.cpi.aspx

1980, 18.00%. 1979, 13.40%. 1978, 8.30%. 1977, 15.80%. 1976, 16.50%. 1975, 24.20%. 1974, 16.00%. 1973, 9.20%. 1972, 7.10%. 1971, 9.40%. 1970, 6.40%

Danny Sheahan Omniscience 30 Jun 2015 20:31

What about economic slums like Portugal and Italy.
They are much worse off now than Greece was at the start of its crisis. It will not take much to have Italy in crisis.
Portugal is heading for an abandoned state after its crisis so its not much of a threat now, how it will pay its debt in the future is anyone's guess. Though it is safe to presume that a country in such decline will have less people paying tax.
They'll want more than billion.

RGBargie 30 Jun 2015 20:31

It looks like Greece might soon be sailing into uncharted waters.

I can just imagine what the consequences will be for the EZ if Greece goes alone, and then makes a success of their new found freedom. I imagine there might well be others ready to abandon ship if that happens.

Westmorlandia BunyipBluegum 30 Jun 2015 20:31

Point taken, but whatever the Greeks don't pay back to the EFSF will have to be paid by other Eurozone countries, as that's how the EFSF guarantees work. So it isn't just about whether it's fair for Greeks to pay for what their government borrowed, but whether it's more fair for Greeks to pay or for everyone else in the Eurozone to pay for what elected Greek governments borrowed.

Reality has said for some time that Greece can't pay, and therefore some of it should have been written off. But that's more about pragmatism than fairness.

FilthyRichBanker Wily Ways 30 Jun 2015 20:30

He could do what the rest of Europe does and make paying taxes compulsory rather than voluntary for a start.
Cut the bloated Public sector and halve the defence budget in line with the rest of Europe - and sell off the $50bn of assets they previously agreed to.

Bardamux Michael Richard Allen 30 Jun 2015 20:29

Ignorant it is then. So i'll explain it to you step by step.
1) If you deposit money in a bank, you are loaning the bank your money. And in many countries you will get a small interest rate for it.
2) it is considered a short term loan, because you can withdraw it at (almost) any time.
3) Remember Icesave in the UK ? That bank did not pay its depositors
4) Other banks received hundreds of billions of euro's / pounds / dollars
5) Banks could loan money at almost 0% even with terrible collateral to help them survive
6) Greece will pay its debt if they receive half or even less help than the Dutch and UK banks did.
Get it now or do you need more steps to help you out ?

Omniscience Danny Sheahan 30 Jun 2015 20:29

Most of the Debt is dormant thanks to the EU
http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628
Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

Omniscience 30 Jun 2015 20:27

To be fair, they have only been lying about reform since joining the Euro.
2005 : Greece faces up to taxing times
Greece plans to offset a projected shortfall this year in tax revenues with a €2bn securitisation deal, in spite of European Commission strictures against the use of one-off measures to reduce the budget deficit. George Alogoskoufis, finance minister, said in an interview with the Financial Times that the transaction would enable Greece to achieve this year's budget deficit target. He also stressed securitisation was "a temporary measure that will give us time to bring about permanent structural corrections".
Joaquin Almunia, the European Union's budget commissioner, signalled acceptance of this year's planned transaction during a visit to Athens last week but urged Greece to accelerate structural reforms next year.
http://www.ft.com/intl/cms/s/0/0c99809c-3abd-11da-b0d3-00000e2511c8.html

TerryChandler OnTheRobertELee 30 Jun 2015 20:26

The problems of Greece haven't happened since "a radical populist party" was elected. On the contrary, the present government was elected because of the problems.

Danny Sheahan outsiderwithinsight 30 Jun 2015 20:23

Not at all, it means that Italy and Portugal are next.
If Greece leaves and its hard to see how they will not at this stage then the Euro has become a non-permanent currency arrangement that the EU or ECB will not defend its integrity.
That marks it out as different from every other currency in the world. Only currencies that have allowed that in the past went on to be all failed entities.

CambridgeAfterDark 30 Jun 2015 20:25

Splendid, send a message to all banker gangsters everywhere.
Best way to deal with a bully, is hit them back.
Guess the right-wing trolls on here look pretty silly now, all saying last week the FTSE would rally upwards upon a Grexit!

BunyipBluegum robbyevans 30 Jun 2015 20:20

The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika.
However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame.

coxinutant 30 Jun 2015 20:16

A continued austerity programme makes it unlikely that Greece will be able to grow economically. Continued economic pain-> lower ability to repay debt. So all those people who get on their hig horse and demand that Greece repay its debts should keep in mind that debt cannot be repaid when you have 25% unemployment, when wages plummet and people cannot spend to make the economy grow. If austerity had been the miracle cure, it would have worked years ago. So stop bandying about terms like 'communist' and 'marxist' and all that BS. The current government in Greece did not create the crisis, the austerity, the 25% unemployment. The crisis was created by an irresponsible banking sector, which was then bailed out by your money (yeah ordinary Joe, looking at you). Austerity was hatched by The IMF, against the advice of sensible economists...

And it hasn't worked. And I am sure the 'marxist' policies of Syriza did not create the enormous unemployment that Greece faces. Last time that occured in Europe, fascist governments came to power, aided by pro-fascist symptahies in France and the UK...

BunyipBluegum -> peter nelson 30 Jun 2015 20:14

It was the Greek governments of the mid 2000s, who were corrupt and nepotistic. If it was them and their wealthy friends who were going to carry the can for this, then I'd say well deserved.
But the whole reason why Syriza is against the austerity program is that it doesn't greatly affect these people, but it DOES greatly affect ordinary Greeks, especially the working class, elderly and vulnerable.
Also it hasn't worked. If you were prescribed a foul medicine by your doctor that made you feel sick and weak, and then failed to cure your problem, would you be inclined to go back for another dose?

AtomsNest -> echoniner 30 Jun 2015 20:14

If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece.

World Oil Energy Consumption by Sector, 1973-2010

World Oil Energy Consumption by Sector, 1973-2010
Oil can be put to a variety of uses, with transportation accounting for a growing share of the oil consumed. While the transport sector consumed 42% of the oil in in 1973 this share climbed to 61.5% in 2010. The growing level of global motorization is a core component behind this relative growth, particularly the growth of international trade. Non-energy uses mostly relate to the petrochemical industry where petroleum is used to manufacture products such as plastics or fertilizers. Other sectors concern agriculture (powering farm equipment), commercial and public services (power generation) and residential (heating oil).

[Jun 30, 2015] Stiglitz: Troika has Kind of Criminal Responsibility

"...Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
By Ian Traynor - Guardian"
.
"...Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs)."
.
"...For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.
What good is the "will of the people" and democracy when it goes up against the banks?"
.
"...Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts. ...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate. This is the END GAME a perpetual smash-and-grab operation by the plutocrats. "

Jun 30, 2015 | economistsview.typepad.com

From Time:

Joseph Stiglitz to Greece's Creditors: Abandon Austerity Or Face Global Fallout: ... "They have criminal responsibility," he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. "It's a kind of criminal responsibility for causing a major recession," Stiglitz tells TIME in a phone interview.

Along with a growing number of the world's most influential economists, Stiglitz has begun to urge the troika to forgive Greece's debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe's common currency, the euro, and put the global economy at risk of contagion. ...
JohnH said...

Some background on the stakes in Greece AKA why Greece must be made to heel--Aegean gas, banking and oil company profits, and, yes, the Clintons.
http://seekingalpha.com/article/782961-the-u-s-looks-to-exploit-the-greek-re-default

pgl said in reply to JohnH...

Note when Stiglitz writes this:

"Of course, the economics behind the program that the "troika" (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country's GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece's rate of youth unemployment, for example, now exceeds 60%."

The troika economics he is condemning was the refusal of the ECB to do QE earlier. Troika's bad economics is exactly what you have been advocating for the US for a long time. Just in case you missed this.

mulp said in reply to pgl...

Should Congress give Puerto Rico $150 billion to get it out of debt?

Or should Puerto Rico be forced out of the dollar zone and thus face drastic spending cuts.

Larry said in reply to pgl...

Agree on QE. But even that would not have fixed Greece. It doesn't belong in the EZ and never did.

pgl said in reply to Larry...

I agree. Cyprus made a mistake by entering the EZ as well.

Dan Kervick said in reply to pgl...

And yet economists have been extremely slow to react to this massive economic derailment with anything close to the kinds of bold emergency recovery plans they would be ginning up if the same disaster was taking place in their own countries.

Why aren't the kinds of figures Stiglitz just cited the headlines here? Why has the Great Greek Depression been treated by the media, and most economists, as though it is fundamentally just a disagreement between Greece and its creditors?

What is the plan for putting the 20% of the Greek over-15 population that is not working, but should be working, back to work?

Maybe people think that millions and millions of Greek people without jobs is just Greece being Greece? That profound economic dysfunction and failure is a case of "well, what do you expect from those people?"

Economists seem to have been so zombified by the inscrutable bureaucratic rhetoric and psychopathic insanity of the Eurocrats, and the bumbling incoherence of the Greek government, that most of them aren't able to think clearly. The Euros have convinced them all that any outside-the-narrow-box thinking will cause chaos, panic, unraveling, The Unthinkable, the Complete End of Europe as We Know It and the Return of the Satanic Hordes. So they sit on sidelines hoping that someone will make some deal that allows Greece to keep paying forever, grindingly, in a way that isn't too, too, too, too painful.

Part of the problem maybe is that mainstream economists have too many buddies in the Eurocracy. They can't believe that all those nice people they went to graduate school with have gone so bonkers.

The situation with the Eurocrats reminds me a little bit of Alec Guinness in The Bridge on the River Kwai. A noble project (in this case, the Europe project) evolves over time into a demented and fanatical religion whose ultimate purpose is forgotten by its architects, who lose the capacity to adapt to evolving circumstances with common sense.

Larry said in reply to Dan Kervick...

McArdle notes today that US pundits have been more supportive of Greece than the Europeans. Proximity breeds contempt?

Dan Kervick said in reply to Larry...

It's not surprising. European governments own most of the debt now and want to get paid; and they don't want any special deals that weren't available to them.

And the Greeks themselves are in denial. They haven't yet come to grips with what it's going to take to rebuild their collapsed economy.

Dan Kervick said in reply to pgl...

Krugman has been better than most in calling out some of the bad actors, but what is Krugman's plan for ending Greece's depression?

Is it the same plan he would recommend to American leaders if America were in Greece's position?

Would Krugman, an expert on depressions, advocate that the US run a surplus in a depression - just not a very big one - so it can pay its creditors?

Dan Kervick said in reply to Dan Kervick...

His column today on crippling austerity is pretty good though. The problem, as he says, is the grip of the notion that leaving the Euro is "unthinkable".

A lot of Europeans have gotten too tied to the idea that one country leaving the Euro is some kind of continental catastrophe. To read some of the hysteria - such as a recent Guardian piece - Greeks first leave the euro and then its back to Bolsheviks, Nazis, trench warfare slaughter or Mongol invasions or something.

But the euro isn't the UN Charter or the Magna Carta or the Treaty of Versailles. It's just money. The unity of Europe does not stand or fall on whether a country decides to use a particular form of money. There are several EU members, in perfectly good standing, who do not use the euro. Big deal.

I understand that most of the Greeks themselves cannot wrap their heads around this idea. But economists can easily.

Anyway, Greece and the rest of the world have gotten themselve so tangled up in the obsessive attention to the secondary matter of the Greek "debt crisis" that they don't seem to have time to think about the primary crisis - the Nobody has a Job and Our National Output is in the Toilet Crisis.

Benedict@Large said in reply to pgl...

QE? Oh nonsense. The Euro banks knew Goldman had washed Greece's books, and that Greece was not a suitable candidate for the initial loans, much less the subsequent ones. This is onerous debt, and is simply uncollectible. Banks must relearn to live and die by their ability to make good loans. And if the elites get burned in the process? Maybe they'll learn to stop staffing their banks with assclowns.

JohnH said in reply to pgl...

The Troika won't allow Greece to use Aegean gas as collateral precisely because Greece is supposed to hand over its wealth without much if any compensation...

pgl said in reply to JohnH...

I despise this Troika. Whether they are evil or whether they are dumbass liquidionists like you are - it does not matter. They are being very destructive. OK, you are not evil but you are stupid with your fear of using aggregate demand stimulus. Same horrific results.

Sandwichman said...

Joe! Joe! Joe!

(and as for "Chief Economist" Blanchard: M-I-T... I-M-F... M-O... U-S-E: Mickey Mouse).

http://econospeak.blogspot.com/2015/06/m-i-teee-squeeze-you-next-week-i-m-f.html

Sandwichman said in reply to Sandwichman...

No to austerity! Yes to democracy!

http://www.altersummit.eu/accueil/article/no-to-austerity-yes-to-democracy?lang=en

"Europe is at a crossroads. The institutions of the Troika are not only trying to destroy Greece; they are trying to destroy us all. Now is the time to raise our voices against this blackmail by the European elites.

"Next Sunday the Greek people will be able to vote to reject the blackmail that is austerity and vote for dignity – with hope for another Europe. This historic moment requires everyone in Europe to speak up and take a stand.

"We all say NO to austerity, pension cuts, and VAT increases; We all say NO to poverty and privileges; We all say NO to blackmailing and to the dismantling of social rights; We all say NO to fear and the destruction of democracy.

"We all say YES to dignity, sovereignty, democracy, and solidarity with the citizens of Greece.

"This is not a conflict between Greece and Europe. It is about two antagonist visions of Europe: our Europe of solidarity and democracy, created from below and without closed borders; and their vision, which denies social justice, dismantles democracy, opposes the protection of the weakest and the taxation of the wealthy."

Basta -- Enough -- Another Europe is possible !

DrDick said in reply to Sandwichman...

He certainly nailed this one. The Troika are demanding that the Greek people protect the plutocrats (mostly foreign) for paying any price for their reckless and feckless action and democracy (and the "little people" be damned.

mulp said in reply to DrDick...

We should not have expected debt repayment from Mexico in 1994?

More important, all the debt of Puerto Rico should be forgiven and then we should give them all the money they ask for to keep the country afloat?

DrDick said in reply to mulp...

People who cannot pay their debts will not pay them. Everything else is a pipe dream. You cannot privilege capital over human welfare.

Peter K. said in reply to Sandwichman...

Agreed. The IMF research dept had been looking good. (And the IMF asked the Fed not to raise rates this year).

But their behavior regarding Greece is criminal.

anne said in reply to Paine ...

http://time.com/3939621/stiglitz-greece/?xid=tcoshare

If the Greek economy collapses without the euro, "you have on the edge of Europe a failed state," Stiglitz says. "That's when the geopolitics become very ugly."

By providing financial aid, Russia and China would then be able to undermine Greece's allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls "an enemy within."

[ This is xenophobic rubbish, showing a mean-spirited and wrong-headed disdain for China and Russia. ]

anne said in reply to anne...

http://www.theguardian.com/world/2015/jun/29/alexis-tsipras-must-be-stopped-the-underlying-message-of-europes-leaders

June 29, 2015

Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
By Ian Traynor - Guardian

Sandwichman said in reply to anne...

Except that Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs).

mulp said in reply to Sandwichman...

You are saying "yes, the Greece and Puerto Rico can drain my retirement savings because Stiglitz says its democratic"?

I speak as someone who had lots of savings in BofA which bought the bank that bought my local bank listening to people calling for BofA to be liquidated and all the debt it held written off.

Jeffrey Stewart said...

It never ceases to amaze the number of human lives must be destroyed through unemployment and poverty due to "austerity" so that financial capitalists are repaid in full.

JohnH said in reply to Jeffrey Stewart...

It's how they keep the rest of the world under their thumbs...

Ellis said...

For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.

What good is the "will of the people" and democracy when it goes up against the banks?

Sandwichman said in reply to Ellis...

"For finance capital, the stakes in Greece are high."

Yes, the stakes are high for finance capital. The choice is between euthanasia of the rentier and suicide-bomber-style financial terrorism. Finance capital opts for the latter.

We should all be clear on what the choices are and why finance capital chooses the reckless strategy it does. Finance capital CANNOT win this fight to the death. There is no win-win compromise that will enable the continuation of business-as-usual to be sustainable.

'Tis the final conflict. Greece is only an episode but there will be episode after episode based on the same scenario. The "wages-rut system" no longer has the "beautiful" capacity of ensuring the continued accumulation of capital merely through an imbalance in the economic power of labor and capital.

Sandwichman said in reply to Sandwichman...

Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts.

...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate.

This is the END GAME a perpetual smash-and-grab operation by the plutocrats.

Glen said in reply to Ellis...

It's well understood in modern economics that when banks and ultra rich speculators make horrible investments that wreck the world economy, then the innocent must pay. That whole capitalism risk/reward thing is so passe.

Ellis said in reply to Glen...

What's behind the debt? In 2004, the government paid through the nose to host the Summer Olympics. The Greek military sucks up 3 or 4 per cent of GDP buying expensive weapons and ammo from the U.S. Germany and France. When Greece entered the EU, it employed the services of Goldman Sachs to hide their debt -- paying a pretty penny for their services. And when the crisis hit in 2008, the fear that Greece might default boosted interest rates for the Greek government to usurious levels. In other words, it's pillage pure and simple.

And now, the IMF figures that the best way forward is to starve the population even more.

[Jun 30, 2015]Joseph Stiglitz: how I would vote in the Greek referendum

"...Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country."
.
"...So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?"
.
"... Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't."
.
"...Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy. If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.
It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price."
.
"...Tsipras called them "criminals". I guess it is more close to the truth."
.
"...Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution."

Jun 30, 2015 | The Guardian

colin2d -> colin2d 30 Jun 2015 10:10

The big problem right now in Greece is lack of liquidity to operate the economy. There simply is not enough money in circulation.

If newly issued Greek euros are not traded on international markets and they are legal tender in Greece and the Greek government accepts them as tax payments, there is no market value. You have an assigned value, like in other controlled systems. So you can have a high velocity of circulation as people spend them quickly, but no problem of devaluation - unless the Greek government would issue Greek euros to total excess.

Suppose you are a shopkeeper in Greece and your pensioner customers pay you in Greek euros. And suppose, the Greek law says you can pay your suppliers in Greek euros and the supplier can pay his taxes in Greek euros. In that case, the Greek government will need capital controls to ration the supplier's euros to buy imports. But that's likely to stimulate local production and be a plus for the Greek economy.

Local fiat currencies do work.

It is a rather different and probably not very acceptable example, but the Cuban 'CUC', is not backed at 1:1 against the US dollar in an open market. Its value is the fiat of the Cuban government. No open market trading means no devaluation by market forces.

Trumbledon 30 Jun 2015 10:03

We never had an advanced economy actually asking for that kind of thing, delayed payment

They still haven't - Greece is no more an advanced economy than a person who buys a houseful of luxury items using credit cards is a wealthy person.
Greece has virtually no industry worth mentioning and virtually no agriculture; the Greek economy is almost entirely reliant on tourism.
Greece has a smaller GDP than Thailand or Argentina, Greece's economy is roughly half the size of Vietnam's. How on earth can Greece be considered an 'Advanced economy'? That's claptrap.

mikeyk1 Omniscience 30 Jun 2015 10:03

Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country.

Adam Fo 30 Jun 2015 09:57

It's probably worth adding here that Argentina did pay off it's IMF loans in full as well as the modest amount of interest charged. One of the reasons they could do that is they are a more resource based economy than Greece. Increasing commodity prices during that period helped them.
Like Greece holders of Governments bonds saw massive haircuts. 50% (100 billion euro) in the case of Greece in 2012.

Thalia01 ThinBanker 30 Jun 2015 09:55

Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy.
If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.
It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price.

Hottentot 30 Jun 2015 09:40

Sorry, but the Guardian can't compare Argentina, Zimbabwe, Somalia and Sudan, to Greece, as none of them were / are in the Euro. Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't. It's about time others started telling the IMF (interesting that it's referred to as the Washington-based organisation) and the EU who are all about 'protecting' their interests, to sod off.

So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?

bonkthebonk -> Adam Fo 30 Jun 2015 09:50

True, but how many of them are in a flawed currency union that actively contributed to their demise, saw their mainly foreign reckless, speculative lenders' liabilities socialised and how many of these poorer countries have been lent ever more money just to service the their debts and nothing more?

CaptainGrey -> colin2d 30 Jun 2015 09:26

Calling it a Greek Euro as opposed to a new Drachma won't make any difference. It will crash overnight. Greece has no reserves to prop it up.

optimist99 30 Jun 2015 09:24

The Greeks need to look hard at Argentina - once one of the richest countries in the world....

"By 1908 it had surpassed Denmark, Canada and The Netherlands to reach 7th place-behind Switzerland, New Zealand, Australia, the United States, the United Kingdom and Belgium. Argentina's per capita income was 70% higher than Italy's, 90% higher than Spain's, 180% higher than Japan's and 400% higher than Brazil's". (Bolt & Van Zanden 2013)

Now it is number 55....

(At the moment Greece is at 44 - similar to Portugal).

CaptainGrey -> EricthePenguin 30 Jun 2015 09:24

Mexico didn't default, it devalued. Completely different. As I note above/below (depending on your settings)

Argentina was shut out for a decade, but was able to get through it thanks to it's vast natural reserves of mining, farming and forestry, plus strict financial discipline. Greece has none of those things.

Default could be a disaster for a generation of more.

Actually, nobody knows for certain how bad a default will be. But it will not be a walk in the park

ThinBanker -> Gelion 30 Jun 2015 09:24

"But of course that's not debt, that's just a way of lowering currency values to keep your exports competitive and put your citizens into Austerity"
Huh? Without QE, 'austerity' would have been all the greater ...

PeterHG 30 Jun 2015 08:50

It seems inconceivable to me that Greece will leave the Euro. The loss of face to the Brussels European Union bureaucracy would be too great for them to bear . Such a happening is beyond their imagination so they will find some means to keep Greece in. The Greek politicians sense this and that knowledge dictates their actions.

ApfelD -> Johanes 30 Jun 2015 09:13

Tsipras called them "criminals". I guess it is more close to the truth.

optimist99 -> sandywinder 30 Jun 2015 09:15

"is that borrowing and spending too much will always get you in the end. In case people have forgotten, the UK has a £1.5 trillion national debt."

But the folk who lend money to the UK are perfectly happy to continue to do this... So it's not "borrowing and spending too much" in the UK... (HMG can borrow money over 30 years at less than 3% interest...).

kentspur 30 Jun 2015 08:36

It's a default.
This semantic dancing on a pinhead just shows the absurdity of the situation. Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution.

[Jun 30, 2015]Cramer Danger alert-dont buy on the market dip

Beth

The economic recovery of so many countries, especially the U.S. has been fueled by cheap money. Many countries do not have actual assets to support or backup that huge amount of paper. That is why you get problems like Greece, Puerto Rico, etc. These situations were caused by both the creditor and the debtor.

B.O. Stinks

The economy won't recover until the voters decide to put some politicians in office who represent the voters. Right now there's not a one of them that listen to the constituents.
It's all about the super pac campaign contributions and lobbyist pumping up the politicians pockets.

John

Cramer is right on this one this time.
1. Who knows how much of that Greek debt has been pledged as collateral for derivatives trades?
2. Contagion could happen. The total debt of Greece, around $350 billion, isn't that big relative to a lot of other countries or the market capitalization of many world markets, but that isn't the whole story here.
3. Cramer warned about the banks on July 29, 2007 in his now-famous "they know nothing rant." You may think the guy is a tout and pumper, but I would give his words some heed since he proved correct on that significant call.
4. More damage to come? We, the public, don't know all the stuff that is going on under the radar about this general bank default. There could easily be more damage to come.
5. Signaling from top authorities. Christine Lagarde, IMF head, publicly asked the Fed on June 4 not to raise rates until 2016. It's now clear she was signaling rough waters ahead for banking. Ordinarily the heads of major world finance organizations don't engage in such public statements. She could just pick up the phone and call Janet Yellen. Why did she make the public speech? I suggest signaling. We all just witnessed it live on TV.
6. Q2 earnings releases will buoy up the market soon but weaker outlooks in Europe for Q3 and Q4 will drag down earnings projections for US multi nationals. That will serve as a drag on share prices.

7. Unless you're prepared to use inverse ETFs, put options on futures, or more complex options strategies, I would consider keeping some powder dry (i.e. cash). The SP500 was at 1862 on October 14, 2014, only 8 1/2 months ago and could easily retrace most of the current gains back to that level of major support.

jim b

Cramer is a shill for hedge funds and banksters, obviously a few will try and day trade this but think about it, 2007 Dow 7000 today Dow 17000 you know the money will disappear and a 4000 point correction will be an evening out and then interest rates will rise and the market will be on tailspin then flat for 3 years until the next president starts to borrow more money from the fed and the charade will try to start again .

Bat

Summer often sees corrections and while 2% is not a correction it may be the start. The market is overvalued and while it can stay that way for years on occasion it corrects to fairer valuations.

Fish

Japan and US can take heed of Greece. Bailing out Japan and US will be impossible.

James

Keep in mind that Cramer, by virtue of having his own show, is a safety-minded entertainer. The stock market is an overpriced casino and none of the negatives have changed in the last fifteen years. If you feel lucky, go for it. Remember: winners know when to walk away.

James

Cramer is so full of it, just look at what he said about Greece before. They are no impact for us or Europe, it only 2% of Europe, which accounts for only 3/4% for us. He is trying to get a quick trade to the downside to make his options pay off big time, Allegedly.

GJ

"It is important to note that this list of warning signs does not mean that the U.S. is headed into another Lehman Brothers situation. That was systematic"
huh! you mean "systemic' right, Cramer?

Todd

Cramer taught us you always buy the dip! The Federal Reserve is always going to be there! The ECB, the IMF, the JCB are printing money like mad and you always buy the dip!! Don't worry, buy the dip! Buy the dip! All the expert money managers on CNBC buy the DIP!!

Masterblaster 1 hour ago

You should all see the You Tube video of Cramer explaining how they manipulated the market. Priceless. In short He/they would run the futures up and then sell all day. He said it was very satisfying to say the least.

Ed

How about don't buy Cramer. That would be smarter!

[Jun 29, 2015] Top Private Equity Reporter CalPERS is Either Lying or Has a Massive Breakdown in Financial Controls

Jun 29, 2015 | naked capitalism
Tom Stone June 29, 2015 at 7:12 am

These are not mutually exclusive categories, dishonesty and incompetence are frequent companions.

Demeter June 29, 2015 at 7:44 am

plus, it's California. What more does one expect?

Rhondda June 29, 2015 at 7:37 am

"The general partners have managed to convince even powerful investors like CalPERS that they must play nicely with the general partners or they'll be late on the list to be solicited for investment, which in theory could mean they'd miss being in a hot fund (in practice, this theory is absurd since private equity fund outperformance does not persist)."

To my eyes it seems that "play nicely" really just means looks the other way while we skim off your participants' money.

diptherio June 29, 2015 at 8:48 am

Can't you be sued for dereliction of fiduciary duty? Can't someone be held personally accountable for being so willfully stupid? Most of the CalPERS board, for instance, seems liable…

flora June 29, 2015 at 9:15 am

If Yves earlier case is any indication, the CA courts seem CalPERS friendly. So a suit by pensioners would have an extra hill to climb. my opinion. But, yes, this situation does call for remedial action.

Sluggeaux June 29, 2015 at 11:47 am

The California Judicial Retirement System, JRS, is wholly administered by CalPERS. The state judiciary has a powerful incentive to keep CalPERS solvent, and I can assure you that the scores of California judges with whom I am personally acquainted are very aware of where their retirement contributions are going.

TheCatSaid June 29, 2015 at 9:39 am

Yves, the quote from Phalippou in the endnote seems very important. I don't have enough familiarity to understand what the impact would be of the various scenarios he mentions.

Please consider posting a table with worked out simple examples for the sample scenarios, showing how the different fine-print calculation methods impact fees and/or the billed cost & return paid out to investors such as CalPERS. (And also a table showing how the various calculation methods might impact the financials of the PE firm. So we can understand what terms are in their best interest.)

Without understanding the implications of the various fee methods, it's hard to ask questions or read a contract with sharp enough eyes to spot crucial terminology and understand what is or isn't in a pensioner's or investor's best interest.

Such a table could be of immeasurable value to NC readers, allowing people to ask smarter questions and apply pressure more effectively on PE firms, pension fund board members, etc.

Sluggeaux June 29, 2015 at 10:01 am

I just love the phrase so often used here at NC: "It's a feature, not a bug."

I've been a CalPERS contributor for over 30 years, and hope to become an annuitant in a couple of years hence. I also have colleagues who have left government employment to work with firms that place or invest CalPERS money. A dozen years ago I came to the realization that campaign contributions from placement agents and PE firms to the various Governors, Senators, and Assembly-members is the grease that lubricates the wheels at CalPERS. Staff have no intention of answering JJ Jelincic's questions - obscuring the over-paying of fees is how the graft works here in California. Investments always just happen to go to the "friends" of those in political power in Sacramento.

Unfortunately, in the Age of ZIRP there is no more "slop" left in the system like there was during the various bubbles blown by Wall Street's looting of the economy over the past 40 years. Historic rates of return can no longer be realized. I just hope that I can draw my pension for a while before graft gets turned off and those politicians who have been living off of the corruption turn into looters themselves.

[Jun 29, 2015] Greek Tale(s)

"...From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. "
.
"...The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions."
.
"...Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece."
.
"...... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one."

June 27, 2015 | Angry Bear

by Joseph Joyce

No matter what new twist the Greek debt crisis takes, there can be no question that it has been a catastrophe for that country and for the entire Eurozone. The Greek economy contracted by over a quarter during the period of 2007 to 2013, the largest decline of any advanced economy since 1950. The Greek unemployment rate last year was 26.5%, and its youth unemployment rate of 52.4% was matched only by Spain's. But who is responsible for these conditions depends very much on which perspective you take.

From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. The first program, enacted in 2010 in response to Greece's escalating budget deficits, called for fiscal consolidation to be achieved through cuts in government spending and higher taxes. The improvement in the primary budget position (which excludes interest payments) between 2010-11 was 8% of GDP, above its target. But real GDP, which was expected to drop between 2009 and 2012 by 5.5%, actually declined by 17%. The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions.

To address the continuing rise in the debt ratio, a new adjustment program was inaugurated in 2012, which included a writedown of Greek debt by 75%. Further cuts in public spending were to be made, as well as improvements in tax collection. But economic conditions continued to deteriorate, which hindered the country's ability to meet the fiscal goals. The Greek economy began to expand in 2014, and registered growth for the year of 0.8%. The public's disenchantment with the country's economic and political status, however, turned it against the usual ruling parties. The left-wing Syriza party took the lead position in the parliamentary elections held this past January, and the new Prime Minister, Alexis Tsipras, pledged to undo the policies of the troika. He and Finance Minister Yanis Varoufakis have been negotiating with the IMF, the ECB and the other member governments of the Eurozone in an attempt to obtain more debt reduction in return for implementing new adjustment measures.

The macroeconomic record, therefore, seems to support the position of those who view the Greek situation as one of imposed austerity to force payment of debt incurred in the past. But because of the continuing declines in GDP, the improvement in the debt/GDP ratio has remained an elusive (if not unattainable) goal. (For detailed comments on the impact of the macroeconomic policies undertaken in the 2010 and 2012 programs see Krugman here and Wren-Lewis here.) Another perspective, however, brings an additional dimension to the analysis. From a public finance point of view, the successive Greek governments have been unable and/or unwilling to deal with budget positions-and in particular expenditures through the pension system-that are unsustainable.

Pension expenditures as a proportion of GDP have been relatively high when compared to other European countries, and under the pre-2010 system were projected to reach almost 25% of GDP by 2050. Workers were able to receive full benefits after 35 years of contributions, rather than 40 as in most other countries. Those in "strenuous occupations," which were broadly defined, could retire after 25 years with full benefits. The amount that a retiree received was based on the last year of salary rather than career earnings, and there were extra monthly payments at Christmas and Easter. The administration of the system, split among over 100 agencies, was a bureaucratic nightmare.

Much of this has been changed. The minimum retirement age has been raised, the number of years needed for full benefits is now 40, and the calculation of benefits changed so as to be less generous. But some fear that the changes have not been sufficient, particularly if older workers are "sheltered" from the changes.

Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece.

The challenge, therefore, is for the government to establish its finances on a sound footing without further damaging the fragile economy. This will call for some compromises on both sides.

... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one.

cross posted with Capital Ebbs and Flows

[Jun 29, 2015] Capped

Jesse's Café Américain

With the VIX soaring and the US equity markets seeing their first 2% correction in many moons, the capping on the precious metals was determined and obvious.
So much for 'Greek capitulation.'
I think Syriza realized they were being presented an untenable solution, the 'generous offer' of extend and pretend by Merkel and the Eurocrats, with the IMF playing heavy. This bailing out of private creditors while extracting a pound of flesh from the Greek people, facilitated by corporate friendly governments, was exactly how Greece came into this situation in the first place.
I thought forcing of a bank closure on Greece by the EU was a bit tough, and probably senseless. Showing them the lash to get them to fall to heel and all that.
Most economic commentators in the US are completely clueless about money these days, and global economics as well.
More surprises will therefore be coming I am sure.

US equity markets had about a two percent correction, with the SP 500 testing its 200 DMA.

Forget the domestic economic news, it was all geopoliticals and mostly about Greece.

The markets do not like the uncertainty of what will happen in Greece, as well as Puerto Rico and the Ukraine, not to mention the wavering financial assets bubble in China.

I am treading slowly through the commentary and news about Greece. The least helpful are those who are mostly projecting their egos or some ideology.

This is primarily a political problem. Greece has a left wing government that the Western powers find unattractive compared to the puppet governments which have facilitated the bailing out of Greek's private creditors while sustaining an unsustainable economic situation.

I am puzzled by Jeffrey Sachs who suggest that Greek default on their debt, but remain in the Eurozone. I am not quite sure how they might do that, and while Jeff says their is no mechanism to actually kick them out it does seem a bit too cute. The EU does not have a mechanism for forgiving one member's debts ...

[Jun 29, 2015]European Leaders Insist Greek Deal Is Still Possible

The neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.
.
"...Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later."
.
"...Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!" What a rotten, selfish, greedy, antisocial game."
.
"...The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?"

Jun 29, 2015 | NYT

Jerry Harris, Chicago

European bankers can't stand the idea of a democratic vote on economic problems that impact millions of people. Neo-liberalism is a zombie economic policy, alive long after it should be dead. How much more suffering must the Greek people endure before anti-austerity policies are accepted as the only way out of the crisis?

Todge, seattle 36 minutes ago

When Merkel and Juncker say "compromise", it means " do what we tell you" . Tsipras recognizes that the creditor nations have a double standard and is calling it.

The EU leaders are not happy. Unclear why. It's only Greek pensioners who'll have to eke out a misery on $250 a month.

Sherry Jones, Washington 4 minutes ago

Far too little attention has been paid to the darkest cloud on the horizon, the rise of right-wing extremism in Europe. As a result of austerity measures forced on Greek workers, such as reducing the standard minimum wage of $750 by 22 percent, people are increasingly, and quite rightly, bitter and angry. Punishing the working class and ignoring its 25 percent unemployment rate energizes destructive political forces in Greece such as the Golden Dawn party, which channels working class rage into rage against the "other", such as minority citizens and immigrants. This is a particularly bad time for anti-immigrant sentiment to take hold. It is worrisome to watch European leaders in this debt crisis fueling such nationalist and racist extremism.

Tommy, yoopee, michigan

It's unfortunate that the European Union will dissolve simply because European oligarchs refuse to pay higher taxes. This type of sickness that has occurred in the U.S. has apparently spread overseas.
Sad to say, but even the rich are so blind to know that they won't have a pot to urinate in if the earth is burning up and the people are in revolt. Austerity worked in this country, meaning it worked to keep America in a prolonged depression after they first tried it in 1937. Will we ever learn? If history is a guide, the quick answer is 'no'.

george, coastline

Last week the Troika insisted that Greece further cut pension benefits and not raise taxes, If Syriza had agreed to that, they would have been discredited by their own electorate. One wonders if that wasn't the real goal of Europe's leaders- to send a message to the Spanish who vote in November and can express their opinion of austerity by giving power to Podemos.

Now they're shocked and petrified that the Greeks will vote on their own destiny and say they are willing to compromise. But in the end, the neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.

condo, France

I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

Jason, DC 6 minutes ago

""Europe cannot give permanent financial aid with no conditions," he said."
But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

condo, France

I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

Jason, DC

""Europe cannot give permanent financial aid with no conditions," he said."
But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

Bill Appledorf, is a trusted commenter British Columbia

Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later.

American homeowners suckered with teasers to purchase balloon mortgages that cost them their homes; college students roped into lifelong indebtedness with student loans issued by financial institutions that never in a million years would pay their fair share of taxes to fund free public education; third world countries driven to financial ruin by the tried-and-true strategy being employed in Greece: transnational PayDay loans on which interest payments are only made possible by rolling them over in perpetuity and loaning just enough to pay that interest every time another tranche is issued.

Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!"
What a rotten, selfish, greedy, antisocial game.

dolly patterson, silicon valley

I really don't understand what the big deal is about keeping Greece in the Eurozone...their economy only makes up 2%. They can still stay in the EU along with 9 other countries who don't trade the euro dollar.
If the EZ gives in to Greece, it set a precedence for others like Italy and Spain, etc., to not have to pay their dues.

Jason, DC

"If the EZ gives in to Greece..."
Exactly...all those countries should be conquered, not treated like they were part of an equal union.

Matthew, Auckland

At least Merkel gets that berating/telling the Greek people what to vote in their own referendum proooobably won't help. The rich, angry technocrats doing the berating? Er, not so much.

tony silver, Kopenhagen

The Capitalist West lent billions of Dollars, for Greece to realize its Olympic Games, knowing that it was a risk, as Greece is one of the poorest country in EU.
Now they demand their money back? Seems unrealistic.
If Greece has no more money to pay its obligations, then someone should have transferred it to foreign banks. Money cannot evaporate like smoke.
Billions of Dollars were driven by European and American money-men and invested in their banks.

David, Sacramento

Money can evaporate. Recall the Great Depression where stock prices plummeted between 1930 and 1932. That's when people jumped out of high-rise buildings, not 1929-1930.

change, new york, ny 39 minutes ago

Are we that careless and gullible? Greece does not have the money to pay today or at the end of the year. Kicking the can down the road is only for political reasons. Economically nothing will change.
The Europeans are looking for something to stem the fallout, something they themselves created. The best for the Eurozone is for Greece to quietly exit from the group. The fallout will be less damaging for all if the Europeans are willing to make a simple but hard choice.
That Greece will exit, should not be seen as a failure on the part of the Group. That is exactly what they are making this crisis to be.

anon,

Heather, a civil war would add MORE problems! Who wants more problems?
I'm surprised no one has in-depth investigated a population of 11M people has over 350B euro debt in its euro lifespan. I believe savvier crooks have left them with their debts also.
If Cyprus was offshore Asset banking, Greece appears to be offshore Debt banking. Not fair for 11M people to live like they abused the EMU by the decisions of a few. What is the history of Greek financials? Were they solvent before entering the Euro?

What if crooks got Greece into the Euro, performed numerous financial crimes, used Greece, robbed Greece, deposited the money into Cyprus and crooked banks of Greece and Cyprus. In recent years Europe has confiscated illegal money and closed illegal banks. Greek bankers and businessmen look crooked also. So they play the part, while others ran off with over 300B euros.

If you were to balance the funds, where did the 350B euros go? Each Greek should be a rich on the average. Only the average citizen suffers. THIS is a recurring pattern.

KeithNJ, NJ

Greek banks did not 'overlend'. The excessive lending to the Greek government was by non-Greek banks (perhaps the Greek banks knew better?).
The Greek government used the money to double state worker's salaries over less than ten years and greatly expand the headcount. Some money was left over for benefits to the public.
The Greek people, not surprisingly, apparently see their State as hopelessly corrupt and avoid funding it if at all possible. Now, other Europeans have come to the same conclusion.
So the question was, and remains, what will the Greek people do about their State? That question does not go away regardless of whether they stick with the Euro or devalue with the Drachma. Either way the State cannot fund itself and has run our of people willing to plug the gap, whether Greek or non-Greek.

su, ny

As of today, If Greece leaves Eurozone, Greece some part of population will leave Greece permanently too. so Meanwhile EU incompetent bureaucrats couldn't even figure out how to deal with Mediterranean immigrants, now in their hand there is a legitimate prospective millions immigrant Greek people.
EU is showing it's inner workings and that say only one thing :INCOMPETENT.

su, ny

No body in the world can say that 500 billion USD credit is given with under normal banking and financial procedures to 10,815.000 population country.
That is not right.
EU cannot wash its hands, this is entirely Greek's problem, EU and it's lenders are in this game and they did this to Greece knowingly and intentionally and now they are trying to capitulate a nation in pretext of World War one time Europe mentality.
This is a very nasty game and power play, nothing else.
German's bankers and Greek politicians collaborative work nothing else.
P.S: some credit in this scheme also goes to Goldman Sachs.

Carlos, Long Island, NY

Tsipras responded to their 'take it or else' ultimatum with a referendum; what's wrong with it? What are the EU leaders afraid off? I would said that after 5 years of austerity that only shrunk their economy, Greek people have a good reason to say no more.

They will go into a very bad couple of years but even that is better than eternal austerity with no economic growth. After the economy stabilizes, they will start growing and will do better. Just look what happened in Argentina.

Simon, Tampa

The Greeks need to call it a day and reject the Trioka's blackmail.

Jon Davis, NM

The Greeks need to exit the euro, align themselves economically with Russia, and lead NATO but remain neutral. Let the rest of Europe worry about Ukraine, ISIS and the flood of immigrants into southern Europe via Spain and Italy.

NYCLAW, Flushing, New York

Tsipras just called Merkel's bluff. By closing the Greek banks and stock exchange, Tsipras is signaling that he is willing to take great risk to get a deal that he and his voters can live with. Merkel, on the other hand, maybe was assuming that the Greeks would never risk an EU membership and accept further cuts.
Caveat to Merkel: the Chinese have a old saying: "Those wear shoes are better off not stepping on the barefooted ones." Watch out, Ms. Merkel, the Greeks may have been pushed to a point that they have nothing to lose.

Peter Czipott, is a trusted commenter San Diego

It seems that Krugman, in his op-ed today, must be right: it's not about analysis but about power. Analysis of the problem would yield a solution that, while not ideal, minimizes losses for all parties involved -- or, equivalently, maximizes the ultimate payout to creditors over time. That alternative dictates setting up a situation facilitating the eventual regrowth of the Greek economy, to the point where it can (a) provide for its own citizens' well-being, and (b) repay as much as possible of its outside debts.

Instead, Merkel and company, ostensibly representing the interests of their citizens, lay down terms that, as Krugman says, lead to endless Greek austerity and a depression of unforeseeable duration, which also harms the interests of the very citizens Merkel is presuming to protect.

And all for what? To assert the moral upper hand? It's counterproductive to the point of craziness; and Merkel, as a physicist and problem-solver, used to dealing with quantitative data, should know better: perhaps better than some of her economic advisers.

Michael Collins, Oakland

Greece will never be able to pay it's debt with an unemployment rate of 25%. Young Greeks are leaving in droves to find opportunity elsewhere. While it's true that Greek still needs to implement some economic reforms, like cutting down on tax evasion and cutting back on pensions, it's also clear that purpose of austerity is punishment without regard to viability.
Austerity will be the end of the Greek Economy, so why not exit?
If the Europeans are serious about keeping Greece (and Spain, and Portugal) in the EU, they need to temper Austerity with a serious plan to raise employment and give the younger generation a reason to stay in their home country.

John M, is a trusted commenter Oakland, CA

Indeed - Greece has suffered through a full-on depression for 5 years, and all the Troika said in response was "more of the same." To my mind, the whole purpose of this exercise is to force massive social safety net cuts and privatization not only upon Greece, but upon all of Europe - including Germany.
This is not merely a European perspective - look at the way pensioners were treated in Detroit, and how the Governor of Illinois proposes to treat Chicago city workers' pensions: bankruptcy, and then massive pension cuts. The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?

Bob Dobbs, Santa Cruz, CA

In following a politically expedient course that utterly ruins a country considered "expendable," the European Community sowed the wind. And as you suggest, it may reap the whirlwind.
Europe's leaders are apparently no wiser or better than they were in 1919, when they imposed the same sort of austerity on -- Germany. Whose leaders also seem curiously blank on the matter.

[Jun 29, 2015] Shares slide as deepening Greek crisis shakes global markets

Jun 29, 2015 | The Guardian

The commission reiterated on Monday that the door remained open to a deal.
Jean-Claude Juncker, the European commission president, was expected on Monday to appeal to Greece to return to the negotiating table, but would not make any fresh proposals.

On Sunday, the commission took the unusual step of releasing the draft bailout agreement that creditors had been negotiating with Greece before talks broke down.

"We are some centimetres away from an agreement," tweeted Pierre Moscovici, France's European commissioner, adding that there was an open door to further talks. "We must find a compromise. I want a reformed Greece to stay in the eurozone without austerity."

A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions.
A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions. Photograph: Yannis Behrakis/Reuters

Meanwhile, Angela Merkel will hold emergency talks with senior German politicians on Monday afternoon.

The German chancellor spoke to the US president, Barack Obama, on Sunday, with the two leaders agreeing it was "critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone", according to a White House statement.

The US Treasury secretary, Jack Lew, spoke to his counterparts in Germany and France, as well as Tsipras and the head of the IMF, Christine Lagarde. The US is urging all sides to resolve the crisis: it has called for Greece's creditors to discuss debt relief ahead of Sunday's referendum, but is also counselling Athens to adopt "difficult measures to reach a pragmatic compromise".

In a brief, televised address to the nation on Sunday night, Tsipras blamed the eurozone leaders. He did not say how long the banks would remain shut, nor did he give details of how much individuals and companies would be allowed to withdraw once they reopened.

In the early hours of Monday morning, Tsipras published a decree in the official government gazette setting out the capital controls to be imposed. The decree – entitled "Bank Holiday break" – was signed by Tsipras and the Greek president, Prokopis Pavlopoulos.

It said all banks would be kept shut until after the referendum on 5 July and that withdrawals from cash machines would be limited to €60 – about £40. Cash machines were not expected to reopen until later on Monday.

Foreign transfers out of Greece are prohibited, although online transactions between Greek bank accounts are to continue as normal. Tsipras insisted that pensions and wages would be unaffected by the controls.

Greece's finance ministry later announced that the strict ATM withdrawal limits would not apply to holders of credit or debit cards issued in foreign countries. This was viewed as a necessary move as tourists were spotted joining locals in front of ATMs on Sunday. Any similar restriction would hurt tourism, Greece's sole thriving industry, which accounts for at least a fifth of economic activity.

Tsipras said Saturday's move by the eurozone's finance chiefs to halt Greece's bailout programme was unprecedented. He called it "a denial of the Greek public's right to reach a democratic decision".

The commission said on Monday that Greece's capital controls were "necessary and proportionate", but free movement of capital would need to be be reinstated "as soon as possible in the interests of the Greek economy, the eurozone and the European Union's single market as a whole".

Tsipras added that the finance ministers' initiative had prompted the ECB to curb its assistance, forcing the government's hand. The Greek prime minister, who has always insisted the crisis can only be solved at the highest political levels, said he had once again appealed for an extension of the bailout until after the referendum, sending his proposal to the president of the European council, Donald Tusk, the leaders of the other 18 member states of the single currency, the commission and the ECB.

[Jun 29, 2015] Greece crisis: markets begin to tumble as investors flee

Jun 29, 2015 | The Guardian

Markets suffered across Asia on Monday as Greece shut down its banks for a week ahead of an increasingly likely debt default.

Oil prices declined and the euro edged down against the dollar, while Tokyo's Nikkei 225 index fell 2% to 20,283.98 points. The Shanghai Composite Index was off 0.4% at 4,178.56 despite China's surprise weekend interest rate cut.

Hong Kong's Hang Seng lost 1.7% to 29,192.67. Seoul's Kospi shed 1.6% to 2,057.52 and Sydney's S&P/ASX 200 was off 1.8% to 5,447.80. Market benchmarks in Taiwan, Singapore and New Zealand also fell sharply.

Turmoil in Asia had been widely expected after the failure of 11th-hour talks in Europe over the weekend raised the possibility of a Greek exit from the eurozone.

More than $35bn was wiped off the Australian stock market in the first hour of trading on Monday as investors braced for what could become a torrid week.

Earlier the euro dropped more than 3% to 133.80 yen, its lowest level for five weeks. The common currency fell as much as 1.9% to $1.0955, its lowest level in almost a month.

More on this topicGreek debt crisis: the key points of Athens bank controls

The US Treasury secretary, Jack Lew, stressed the need for Greece "to take necessary steps to maintain financial stability" ahead of the referendum.

He told the Greek prime minister, Alexis Tsipras, on Sunday that Athens and its creditors needed to continue working toward a resolution ahead of a Greek referendum on 5 July on the creditors' demands for austerity.

US stock futures dived 1.8%, hitting a three-month low, while US Treasuries futures price gained almost two points.

A cash-strapped Greece looks certain to miss its debt repayment on Tuesday as Greece's European partners shut the door on extending a credit lifeline after Greece's surprise move to hold a referendum on bailout terms.

robtal 29 Jun 2015 08:43

We can print all the money we want all over the world to save every banker, financial wizard, and insurance company . But one little country like Greece is the scape goat these financial criminals use to bring fear and control to the rest of the world. These are evil less than human monsters that run these world banks.

Paul Hawkins 29 Jun 2015 08:31

The World is being run by a group of financial gangsters such as the Rothschilds and 30 to 40 of the richest people in the world: Karen Hudes is a graduate of Yale Law School and she worked in the legal department of the World Bank for more than 20 years. In fact, when she was fired for blowing the whistle on corruption inside the World Bank, she held the position of Senior Counsel.

She was in a unique position to see exactly how the global elite rules the world, and the information that she is now revealing to the public is absolutely stunning. According to Hudes, the elite uses a very tight core of financial institutions and mega-corporations to dominate the planet.

Austerity is a lie as Countries use the Fiat monetary system and can produce money when they want, such as quantitative easing. It is the greed of the banks, that had to be bailed out across the world, that is causing the problem.

The sooner these greedy selfish power hungry bankers are brought to book the sooner the financial markets would recover.

Mark Foster Kenneth Stephen Besig 29 Jun 2015 08:17

A large part of Syriza wanted out of the Euro because they were sure the Troika would not compromise on it's insane 'reforms' which had already destroyed most of the economy. Debtors prison's were abolished years ago in the UK, primarily because creditors realized it meant they would never get any compensation for losses while debtors were in gaol. Yet by insisting on repayments on an odious debt, we effectively put the whole of Greece into a debtors prison, and insisted on all the wrong IMF/ECB reforms that have always failed to resurrect economies in the past. We are still caught up in the idiotic Washington consensus/Jeffrey Sachs/ Hernando de Sotos models of development.

In truth Greece should have left the failed euro project years ago. Iceland had the sense to get out of the Banks clutches, file bankruptcy and impose capital controls and start again. For the most part that as worked very well for them. Some will say Greece isn't Iceland, or nonsense like the Greeks are lazy (they work longer hours than the Germans), Greece has deep problems for sure and i'm not saying I'm confident Syriza have the program to fix them. But I'm 100% confident the demands of the Troika would only cripple them further.

Myrtle7 29 Jun 2015 08:14

Save Greece! A Kind Request to the EU Leaders and Creditors (Myrtle 7)

I am writing this because today we are hours before a bitter end, perhaps, for Greece and the beginning of problems for the EU.
A lot has been said about the Greeks living above their income for a long time or partying for a long time and these may have been true in many cases but the Greeks should not be punished now as they followed the example and attitude of some of their leaders. And, moreover, now, it is the poorer people, those with lower income, that are suffering, those that did not have the right "connections."

The referendum arranged by the government seems like a democratic move but in fact it will be a desperate choice as the Greek people are asked to choose between suicide by drowning and suicide by hanging.

If Greece goes into default it will be a catastrophe for the country; there is no currency to devalue. They have to re-create the drachma (it will take perhaps a year or more) which will be immediately devalued. How would these people, who are suffering already, cope? And if Greece defaults, I am not sure whether the Creditors will get their money within the next 50 years, anyway. Most seriously, the tense situation in the defaulted country, the low morale and possible disorder, would invite & unleash unforeseen dangers for Greece first, for other European countries later and the EU eventually; as we all know such situations can spread to the detriment of the people. Historic recurrence is here: the specifics and the actors change, but the result is similar. Moreover, it is common knowledge that there are forces, (they have their own agenda) which, wish, discuss in conferences, and even envision, the break up of the European Union, even as 'we speak'. If I am aware of this, I am sure the European leaders are aware too, for, as wise leaders, are conscious (or should be) of emerging situations long before they get out of hand. With around 6 million Muslims outside its northern borders, (excluding Turkish territories), Greece, will be an open, unprotected theatre for anyone who wants an easy passage to the west.

The Creditors are part of the leadership or the Hegemony of European Union as they form the powerful financial aspect of it; usually, leaders who push think they facilitate progress; in fact they are blocking it. Yet, there are certain characteristics that wise leaders have and magnanimity is the most important one. They do not expect a poor, proud nation to fall on their knees. They would always offer opportunities for relief and growth. Lawrence Summers, US Treasury Secretary, suggested something which sounds as a good solution: the Creditors can write off a small amount of the debt now and perhaps ask for something that Greece, could, comfortably, add to their plan that would help growth; e. g. taxing certain accounts many Greeks keep in Swiss banks. Such a move by the Creditors would be wise, intelligent and humane.

With this magnanimous act the Greeks would feel uplifted and stronger to face the odds. In my view, the most important attitude of the Leader is to make people feel they mean something within the group, but I may be wrong.

John Kakkos DazzlingKarina 29 Jun 2015 07:04

Lazy Greeks is a very racisti thing to say, espesially since Greeks work-hours exceed that of oher EU countries (including Germany). War reparations agreement was not accepted. Since in 1942, the Greek Central Bank was forced by the occupying Nazi regime to loan 476 million Reichsmarks at 0% interest to Nazi Germany. In 1960, Greece accepted 115 million Marks as compensation for Nazi crimes. Nevertheless, past Greek governments have insisted that this was only a down-payment, not complete reparations. The 300 bn were not given to Greeks but to banks. 30% of Greeks are iving below the povery line. Unemployment is 26% (60% to young) and 16% cant even provide daily food needs. EU is not to blame, nor it is Greece. This financial system is just not working.

Aboutface 29 Jun 2015 06:47

There are "invisible hands" weaving the thread of EU-Euro through the IMF needle in this Greek tradegy. One of the comment here by Steven Tracy on the Rothschilds and Rockerfeller seems about right...a force majeure / fire sale of prime assets and not to dismiss, there are very wealthy Greeks with offshore accounts, like vultures over a soon to be cadaver. Next move, the "Alexis Tsipras surprise" call option.

pauline7883 29 Jun 2015 06:40

the greek people have the right to this referendum they have to decide if the deal is acceptable whether they can cope with the continuing austerity. the financial institutions of europe have acted disgracefully
the greek government should begin an audit of the books looking at the loans/debts owed by greece to see if there was any illegality and prosecutions should follow

SEADADDY 29 Jun 2015 06:35

So, as Greece slips into the financial abyss, it's the common man/woman that gets the pain, the punishment and the price tag of bankers ineptitude, greed and Houdini escapism. The bankers, corporate investors and politicians get away with grand gambling and larceny of incredible scale, without so much as a slap on the wrist. It wasn't the small man in Greece that caused the crisis. It was the Niarchos's and the Onassis's & etc that caused the downfall, with getting away with not paying their fair taxes, flags of convenience, double dealing and tax havens world wide. It's high time that some government agency woke up and
NorthernFella,29 Jun 2015 06:00

They weren't ready to join the EU...

I would say, weren't ready to join the euro. Interesting that you don't mention anything about the role of Goldman Sachs in this big scam.

"Humiliation" - what idiocy.

If accusing all the Greek of the ongoing (bank)crisis, using austerity (cuts directed to the disadvantaged groups mostly) as a medicine and calling them lazy is not humiliating I don't know what is.

And the idea that they were being 'starved by austerity' is ridiculous. They were starved by their corrupt practices.

Let's take measures of that how much the neoliberalist austerity policy has affected those in the most vulnerable position and let's compare it to the times before austerity. Sure the situation has been bad for a long time before the crisis but austerity brought real hell.

Luckyspin marcus_rm 29 Jun 2015 05:34

The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund's own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard.

Objectively, it is acting as an imperialist lackey. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6 % contraction of GDP in 2010 followed by brisk recovery.

What in fact happened was six years of depression, a deflationary spiral, a 26 % fall in GDP, 60 % youth unemployment, mass exodus of the young and the brightest, chronic hysteretic that will blight Greece's prospects for decades to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP.

George Vasilakakos deskandchair 29 Jun 2015 05:27

very poorly served Greece is by its media

That's the key point. You see the Greek media groups are run by the same oligarchs who've been buying our politicians. They owe hundreds of millions to the Greek banks, along with the political parties, between them it must be around a billion. The banks were unwilling to collect on those debts, got bailed out and we are footing the bill...

NorthernFella Phil Murray 29 Jun 2015 05:25
Well, that's why I'm writing about "near-racism". Greece is schizophrenically seemed as the cradle of democracy and the Western culture but as Gerold reveals the opinion of many by the comment:

Nonsense. The Greek nation and people have failed to grow into a modern responsible state. They are still living like an Ottoman Province, trying to short-change the Sultan.

Many are still romanticizing the ancient times and are disappointed as they see the times have changed. Many are wondering (bitterly) how the modern day Greek are so different from the ancient times. In one book (a Finnish version of Traveler's history of Greece, I think) it was written (in introduction) something like this: "are those hot-tempered noisy people really descended from the ancient Greek?".

When adding to it Gerold's views on Greece as a nation that is still living like "an Ottoman Province" it's easy to extend near-racist stereotypes even further. Now we're talking about "lazy Greek who just lie down under the palm trees, waiting for the next bailout". Of course there are stereotypes related to each nation but they get always stronger when we are going to the south and they are told by "harder-working northerners" ...

I'm looking forward to the Greek people correcting their previous election error

Should the Greek vote only for "rationalist", pro-euro, business-oriented right-wing parties who are ready to starve their own people to death? It sounds travesty of democracy and would prove that economy has replaced democracy.

Theo Krom 29 Jun 2015 05:14

The markets. already have lost much more money than if they were agree to restructure, not necessarily write-off, the Greek debt. If we count the profits the markets would gain after such deal would have been announced then it seems that whatever is happening is a clear and utter irrational thinking orchestrated by the allegedly proponents of rational economic thinking...

Policy for the contemporary markets, seems to be much more important than free markets. Free market is an illusion, an excuse for the banks to suffocate democracy, using pseudo-politicians as their most valuable gatekeepers....Well, the actual neo-liberalism has been implemented in a very distorted manner, exactly as happened with socialism... Actually, both lead to utter misery!!!

Steven Tracy 29 Jun 2015 05:12 ;
This is what the private FMI corporation owned by the private federal reserve corporation of USA has planned for ALL our countries. I's the Rothschields, the Rockfellers etc... The 1% that are behind all this.
Can't you see USA is deep in debt and nearly bankrupt, just like most of the western countries and Africa. They lend us money, put us deeper in debt, and we pay them back only the interest of the debt ???

This has all been carefully planned since the creation of the private federal reserve corporation in 1913 to rob our assets and control us.

One example. Watch Karen Hudes, former lawyer of the FMI for 20 years, reveal it all : https://www.youtube.com/watch?v=MhTvsDuP-rg

This is why the BRIC countries have come together to ditch the US dollar.

Better than Eduard Snowden on the NSA.

GRJones Mark Foster 29 Jun 2015 04:51

Iceland is often held up on these pages as a shining example of the wealth and riches that flow to you if you reject austerity. It shouldn't be. Iceland suffered enormous economic contraction after its rejection of bailout conditions, and while the economy is growing, GDP is at about the level it was in 2004, unemployment is still well above pre-crash levels, and prices are 50% higher than they were before the crash. The steep devaluation of the currency by 50% meant that everyone in Iceland took an enormous hit in terms of real wages, and because most Icelandic mortgages are linked to the Euro theses have effectively doubled, while their homes have halved in value, leaving much of the population in negative equity. They have enacted massive austerity, more than any country in Europe bar Greece, slashing their deficit from 15% to less than 1%. The fall in living standards has been severe enough that the Icelandic people voted the parties that came into power after the rejection of bailout terms out of office, and reelected the party that was in power before the crash. The lesson to be learned from Iceland is that economic collapse means pain, no matter what you do.

someoneionceknew ID5590609 29 Jun 2015 04:50

Do you realize that the European rules prevent the ECB from funding member countries, as well as prohibiting national bailouts

Sure. But why aren't you Germans subject to the rules too?

The rules don't work. They can be changed fairly easily. Why not if it stops people starving and otherwise being persecuted through no fault of their own?

ID5590609 mjmizera 29 Jun 2015 04:38

Creditors already took a 50% haircut on Greece debt, and the conditions of Greece's bailout loans were extremely generous, with very low interest rates and exceptionally long payment terms. The terms and conditions were better than what was offered to Spain, Portugal and Ireland, and those countries actually implemented the demanded austerity reforms and are now experiencing growth.

Greeks don't need their debt forgiven. Greeks need to start paying taxes and reforming and managing their economy like a respectable first world nation, not some banana republic. Why should Europeans and others show solidarity with Greeks when Greeks fail to show solidarity with their own people and their democratically elected government?

Overdog81 29 Jun 2015 04:36

The past Greek politicians are responsible for bringing this debt to current levels. There's no doubt about this.

However, the current government found itself at the edge of a cliff. 6 months of negotiations and the issue of restructuring or writing off a non viable debt never came on the table by Greece's creditors. Basically Greece is begging for money that only go towards paying this huge debt and never into the real economy. Austerity measures are applied just to pay the debt's interest which has become huge (twice the size of Ireland's and Portugal's combined) .

What Syriza is doing now is the only option it has in order to make the debt viable and end austerity for its people. The timing of the referendum on friday night and capital controls on Sunday night (banks closed for a week and stock market closed on Monday) point towards this way. Its a huge gamble in order to reach an agreement but possibly the only hand Greece could play in order to shake off the markets and thus its creditors.

I truly hope an agreement is reached before the referendum so that everyone walks out happy especially Varoufakis and the Greek people who would get the best deal they could ever dream of. On the other side, a debt relief decision seems the only road for the imf and eu partners. Its a debt that could never be paid anyway so why risk?

Arthur Buse 29 Jun 2015 04:36

I had thought it was only Samuri that chose harakiri. But Alexis has done the EU a great kindness by throwing the Greek people to the dogs of famine. He has helped the cause of breaking up the Euro and even, dare we hope, the EU. Ever closer union was always a grave danger. It never went well for the USSR and it ended in tragedy. The EU will eventually go the same way. The USA is quite different. They adopted a common language before trying for a common currency and common Federal taxes. The EU will not manage the former and has not got the will to manage the latter. The Euro was therefore always doomed and now the EU needs to return to individual currencies and the EEC.

someoneionceknew -> ID5590609 29 Jun 2015 04:34

Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece.

If Germans bear any loss then it is their own foolishness for trusting their politicians. Why are Germans on the hook for bailing out their own banks?

Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

That's just cut and paste racist cant. Germans should know better given their history.

Your feelings about capitalism

Oh, you still don't understand what mercantilism means? Good lord.

but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma.

Depends on many factors I'd say. But what are you offering?

ID5590609 someoneionceknew 29 Jun 2015 04:23

Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece. That is why the opinion of the Germans is so important when considering any action on Greece.

Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

Your feelings about capitalism notwithstanding, things must drastically change in Greece. You claim to oppose the Eurogroup's and IMF's purportedly cruel demand for austerity and reform. That's fine, but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma. Socialist solidarity is not going to fund imports of food, fuel, medicine and other essentials. There will be austerity in Greece, either organized with their European partners, or resulting from the chaos of financial incompetence. Greece is going to have to continue to painfully adjust to a lifestyle commiserate with their true GDP, earnings and economic value. The good old days are gone.

someoneionceknew -> ID5590609 29 Jun 2015 04:05

They're not asking for money or aid?

They are not asking for Herr Schauble's (or his ilks') money or aid.

major economic reforms

More counterproductive austerity. More poverty, more privation, more labour bashing, more suicides.

"mercantilism" (which I assume is meant as a juvenile reference to capitalism)

So I'm dealing with an idiot.

Germany has generally learned the political and economic lessons from their own unfortunate history, everyone from WW1 reparations and the risks of inflation, the horrors of WWII,

Clearly it has not. Quite the opposite.

Carlo47 29 Jun 2015 04:03

Only the American Treasure understood the gravity of the situation, but it's odd that they don't give appropriate instructions to the IMF and namely to the chauvinist Ms Lagrande, who continues in its absurd hard line more on measures that on the debt.

On the other end Mr Schäuble and Mr Dijsselbloem must be happy that investors flee.

They have only have a bit of patience, until the contagion will arrive in Germany and Holland.

Anyhow, if they are honest, both should resign for clear inability to do their job and to understand the heavy drawbacks of their dummy hard line, as supposed and false financial experts.

The German Government and the EU heads should slap the door in their face and send them away.

CanadaChuck ID9492736 29 Jun 2015 03:53

I had thought that Greece was unimportant overall in the EU. What will happen when Italy and Spain collapse? I guess the UK won't have to bother leaving the EU.

Ian Crowther slingsby1000 29 Jun 2015 03:49

Agreed Slingsby, so a lot depends on the post management of crisis as we see in Argentina and Turkey, its not plain sailing, far from it. But being enslaved is worse, and paying on the never never, feeding German and French income is not the way to go Fault lies on both sides, nobody comes out of this smelling of roses.

The EU construct was a nonsense form the very start, a union of unequals, instabilities and too many externalities to manage that technocrats have little idea on how to manage in complex situations.

Lanceowenmorgan Kompe75 29 Jun 2015 03:42

Ya the Forth Reich is coming and it seems Putin is the only one smart enough to see it

ID9492736 29 Jun 2015 03:40

Barely half an hour after opening, the German Stock Exchange index (DAX) is down almost 5%, which is dangerously close to a system meltdown. The German moneymasters are trying to intervene by pumping money into the exchange, but it's like putting a band-aid on the collapsing levee. The German nuclear reactor is overheating uncontrollably.

Xenkar Stivell 29 Jun 2015 03:34

True, ordinary people in Europe need to stand up and support the people of Greece, but sadly as spiceof so eloquently put it

"These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain."

MrEurope Lupick 29 Jun 2015 03:31

You do realize that what you wrote is beyond ignorance...? While I agree that the way market-news is brought is excessively dramatic, markets ARE for a large part a reflection of human productive activity, and productive activity tends to be... you know... the stuff that makes people money. Jobs. Earnings... roof over your head, and so forth... these things quite obviously matter.

The problem is that humans absolutely suck at understanding the long term consequences and impact of small, tiny little (negative, but also positive) changes that accumulate over time.

You know the famous example that if Jesus would have put one dollar in his bank account, he would (assuming 3% per annum interest) by the year 1000 he would have 7,080,467,438,104.71 dollars. (and more money than ever has or will exist in the history of Earth by 2015...) 3% does not sound like much... but all these small little additions do add up. And so if you're living in a world where every week or two there is a minor crisis here or there.... eventually it starts to matter. A lot. People put off investing. They spend less. There are less jobs... (which in turn compounds the problems...) and on it goes.

Bottom line is - you and I know fuck all about advanced economics, just like the vast majority of posters here.

Stivell 29 Jun 2015 03:28

Lagarde and the European leaders have forced Greece into this corner and really should expect nothing more than the Greeks turning and baring their teeth. Ordinary people in Europe need to stand up and support the people of Greece against these relentless scaremongering money-obsessed bastards. Go Greece, bite that hand!

Kompe75 29 Jun 2015 03:25

If the Schaueble , Merkel and Jean Claude don't resign after the upcoming fiasco , then the investors will fire them.Remember my prediction.They will have a bitter end than DSK.

D9492736 royaldocks 29 Jun 2015 03:16

If you really, seriously believe that EU economy is so competitive that it can turn on the dime and adjust to the coming global economic meldown to its advantage and do so in the current political and economic timespace , I have a BIG surprise for you: you are dangerously delusional.

First of all, the prices of ALL commodities, raw and unprocessed material EU economy needs to keep going are going to get sky-high because EUR will be hemorrhaging value until cows come home. And even if Mario Draghi and the idiots from Eurogroup come back to their senses tomorrow, it will have been too late: they already committed an act of economic suicide, and it is really too late to stop the head exit wound from bleeding to death now. Secondly, with the investors quitting the stock bubble like crazy, the amount of discretionary spending and funded demand is going to go down like a rock: Europe will be hit with AT LEAST a quadruple -whammy: (a) rigid and dogmatic austerity and money-supply strangulation (b) supply chain disruption (c) extremely weak demand and massively negative growth and (d) catastrophic consumer confidence index. Add to this list of nightmares a never-ending flow of migrants and refugees, ever-increasing pressure on social services, cost of funding of wars and military operations in Iraq, Syria, Libya, Aghanistan and elsewhere, the massive losses caused by the American-imposed sanctions against Russia (by most accounts, somewhere between $100 and $150 billion), the cost of containing the situation in Ukraine and bankrolling the bankrupt Ukrainian government and - on top of it all - servicing the sovereign debt, and you get a much clearer picture. There is absolutely no way - not even a hypothetical chance - that European economy can weather out this tsunami unaffected and unharmed. EU should consider itself lucky if they do not lose 20-30% of its entire economy in the next month or so.

If I were a German retiree, I would be queuing up at the local ATMs as we speak. Because, yes, it's the end of the Eurozone as we know it.

spiceof 29 Jun 2015 03:12

Amazing how the Greek subject matter brings forth the establishment sadists out en masse, demanding that punishment, penury and the bubonic plague be visited upon that rebellious country.

These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain.

iruka Lupick 29 Jun 2015 02:56

Important point.

Of course it's worth bearing in mind that people like StrategicVoice213 aren't really concerned with contrasting good people and bad people, lazy people and hard-working people, etc..

Take a closer look, and 99 times out of 100 it's amply clear that their only real interest is in defending the authority and legitimacy of the institutions that they see being threatened or insulted by those they're calumnying.

The actual behaviour or character of this person or that nation is of no real consequence to 213's . Any old lie, projection or blinkered misconstruction will do.

It's the need to preserve sanctified hierarchies of power that engages them.

Or more accurately (since they're clearly all sad little creatures of no importance whatsoever, and no capacity to preserve anything, for whom an identification with power provides them with something clearly lacking in their actual lives) it's the need to glorify power, and all its ways and entitlements.

Lanceowenmorgan slingsby1000 29 Jun 2015 02:55

Who the fuck was the dumb ass(es) who would lend Greece all that money?
€386,000,000,000 to a country with a population of what 6-10 million? That's mathematics son you can argue with me but you can't argue with figures. Apologies to Foghorn Leghorn. But I think all comes down to greed.

truthbetold13 borninthe80s 29 Jun 2015 02:50

Such a pathetic cliche, a real twatcherite/conmoron lie. By bloated public sector you just mean that more things are run by the government instead of by big business. Nobody here being ripped off by utilities/ rail/private landlords etc thinks this is a better arrangement. What you have is higher prices, worse service, less equal pay within those sectors, systemic tax evasion by business and its bosses. Give me a state controlled service any day.

JohnnyMorales 29 Jun 2015 02:45

This should be the quote of the day:

Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group in Tokyo, told Bloomberg News: "In the face of pressure from the eurozone to accept austerity measures, the Greeks answered that it's hard to live just on water."

The Japanese have never been considered softies. If they are describing the EU demands as too much, then they are definitely too much.

FactualEvidence 29 Jun 2015 02:45

The EU needs Britain to stay in the EU for one reason only and its financial.

The EU have ploughed in billions and billions of tax payers money into several different countries bailouts not just Greece, including Portugal, Spain, Cyprus, Ireland, Hungary, Latvia and Romania.
A total amount of 487.75 BILLION Euros has been given to these countries and that's since just 2008.
So rather than the EU getting stronger as united nation's it is getting worse.

The EU Commission, MEP's, LIBLABCON parties and BBC don't tell you that information. You have to research it yourselves on Wikipedia.

So my three questions to all those Europhiles are.
If being in the EU is so great how come so many countries have to rely on hand out?

If so many countries need billions to even provide essential services to survive. Where is this great trading economy?

Why is it not working for so many millions of people?

Go to Wikipedia and see how the monetary crisis is getting worse for all the countries not better.
Google : European Debt Crisis, and check out the chart around the middle of a very long page.

Were would the EU be without the billions we put in to it and on top of that all the VAT tax they get from us, YES VAT. Did you know that it was through EU ruling you pay VAT on your utility bills?

philbo Miamijim 29 Jun 2015 02:36

The IMF is mainly responsible for this mess.

ID9492736 stringvestor 29 Jun 2015 02:36

http://www.reuters.com/article/2015/06/29/markets-global-idUSL4N0ZE0IK20150629

betrynol 29 Jun 2015 02:32

Good thing Europe is ring-fenced to the risk of contagion....

The ECB will have to buy more Spanish and Italian bonds this week than the entire Greek debt, and then bailout these countries so they can buy back the bonds (Greek style). Oh well, if they say they've got it covered, it's fine I suppose... (shakes head in haughty derision).

ID9492736 29 Jun 2015 02:32

A picture worth $60 trillion words:

http://www.allstocks.com/markets/World_Charts/world_charts.html

The only markets still in the black are the markets that haven't opened yet. When DAX and FTSE open, the shit tsunami is REALLY going to hit the austerity fans.

JohnnyMorales 29 Jun 2015 02:29

The loss of value across the world even if most of it is just temporary is many many times more than Greece's entire debt.

Yet because the EU troika wanted to win a moral battle and teach a wayward Greece a moral lesson and make impossible demands and accept the humiliation entailed in caving they opted to create those losses.

Greece only asked for some extra help. They did not make outrageous demands like the troika.

If anything good comes out of this may it be the end of the careers of those who think the financial world is the proper place to stage morality plays devoid of any financial purpose which cost far more than the alternative.

Ian Crowther 29 Jun 2015 02:28

This is the end game, and has been Greece's plan from the new Government taking power. The left want Grexit, and they will get what they wish for now, independence from a failing political and financial EU construct.

This may work well for Greece in the mid term, sure, its going to be tough on the people, but at least the Government will not be debt slaves now, reset the currency, devalue the economy so it can compete again, lower taxation to bring in big business, and begin to build a new economy based on what the Greek people want, rather than 85% of the money Greece leant eventually being paid back to the rentiers from which the cash came. Now zero will be repaid, and EU banks will have to suffer the losses, a drop in recapitalisation, and a hit to the recovery.

Lanceowenmorgan ID9492736 29 Jun 2015 02:24

I agree. FUCK ALL YOU NEOLIBERAL & NEOCON mother fuckers

LeonardPynchon borninthe80s 29 Jun 2015 02:24

Some perspective in the below piece - might help you:

https://theconversation.com/greece-woes-show-how-the-politics-of-debt-failed-europe-42787

The Financial Times' leading commentator Martin Wolf recently argued that "the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors", that is, primarily, European banks and financial institutions. After exposing the futility of austerity, ex-IMF economic advisor Jeffrey Sachs recently declared: "Europe's leaders are hiding behind a mountain of pious, nonsensical rhetoric" risking an economic and social disaster "in order to insist on collecting some crumbs from the country's pensioners".

Describing the treatment of Greece as "the Iraq War of finance", Daily Telegraph's Ambrose Evans-Pritchard wrote: "rarely in modern times have we witnessed such a display of petulance and bad judgement by those supposed to be in charge of global financial stability."

dzogchen 29 Jun 2015 02:23

Five lost years for the Greeks it seems. From the market's perspective those years have been all about maneuvering the banks from out of risk. Now that work is done as the losses are laid squarely in the public lap. The markets of course don't give half a toss about Greek people, empathy isn't part of their nature, so might as well do what should have been done five years ago. All the best to the people who will pay the price for all this shenanigans. Kali tihi!

BeamEcho Tim Roberts 29 Jun 2015 02:21

This is not new for the IMF, their mandate includes providing policy advice to their members. They review the economic policies of their members. When they lend money they require economic policy changes...

Ian Crowther IndependentScott 29 Jun 2015 02:18

Greece will not have to repay the debt, they will walk away, default and never repay. It is the banking system and rehypothecated debt that will suffer, and the banks that have leant the money to France and Germany. European banks have only just been recapitalised, and losing another €300-400bn will hit the Euro recovery hard at a time when QE is being rolled out. The answer will be print more money.

Normin 29 Jun 2015 02:17

The banksters are just waiting for a scapegoat to pin their non sustainable economic system failure on. Meanwhile the elite will profit as the masses bleed. It can't go on like this forever it's just a matter of when.

Kompe75 29 Jun 2015 02:14

Juncker announces a campaign to support "YES" at the greek referendum..

Another sign these people consist the out-of-touch neoliberal elite..

Does he really believe Greeks , who have suffered enormously , will sign a appalling deal that's going to define the misery of generations for the next decades ? Just because he wants to remain President in the dictatorship of Brussels ? I live for the moment Juncker comes in Athens...the whole place will go up in flames.

john4108 29 Jun 2015 02:09

yes all going acording to plan the sacred " markets" are indulging in the usual lemmng like behaviour while the banksrs try to convince everyone that,the have the medicine that we all need . Casino capitalism writ large. Eventually, unless we want endlessly repeated crises and utter destruction on this plant, mankind will have to come up,with a more resilient economic system.

Islam is waiting in the wings and usory is a crime in the Koran. Of course Jesus threw the money lenders out of the temple....but Judeo-christianity has conveniently forgotten that.

[Jun 28, 2015] Former Finance Minister of Cyprus on the Greek Crisis

"...The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals...."
.
"...This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would help build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. "
.
"..."IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece" "Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome." "
.
"...Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins."
.
"...There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago."
.
"...Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds."
.
"...Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time."

Jun 28, 2015 | Economist's View
Peter K.:

Mr Sarris seems a little like a Davos Man.

http://www.nytimes.com/2015/06/29/business/dealbook/panic-among-hedge-fund-investors-in-greece.html

Panic Among Hedge Fund Investors in Greece

By LANDON THOMAS Jr.

JUNE 28, 2015

ATHENS - For investors around the world looking at Greece, there was but one question Sunday: What is going to happen when the markets open on Monday?

That question is particularly acute for the hedge fund investors - including luminaries like David Einhorn and John Paulson - who have collectively poured more than 10 billion euros into Greek government bonds, bank stocks and a slew of other investments.

This weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working around the clock comforting and cajoling his frantic hedge fund clients.

"People are freaking out," said the 32-year-old Mr. Papapolitis, his eyes red and his voice hoarse. "They have made some really big bets on Greece.

But there is no getting around the truth of the matter, he said. Without a deal with its European creditors, the country will default and Greek stocks and bonds will tank when the markets open.

On the ground here, the surprise decision of the Greek prime minister, Alexis Tsipras, to hold a referendum has turned what was a bank jog into more of a sprint with most Greeks now fearing that the country's depleted banks will be closed on Monday.

Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins.

The yields on Greek government bonds, now around 12 percent are expected to soar as investors rush to unload their positions in a market that of late has become extremely hard to trade.

Bank stocks, if the stock market, in fact, opens, will also be hit with a selling wave, as they cannot survive if the European Central Bank withdraws its emergency lending program.

There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago.

When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election.

But a brave, hardy few stayed put - around 40 to 50, local brokers estimate - taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding onto their investments as opposed to selling them in a panic seemed the better course of action.

For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro.

Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds.

The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac and an assortment of other hedge funds like, Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece's four main banks.

Big positions have also been taken in some of Greece's largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece's largest ferry boat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

In 2014, Blackstone's credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

Many of these forays were made during the heady days of 2013 and early 2014 when the view was that, in a rock bottom global interest rate environment, risky Greek assets looked attractive, especially if the reform process continued.

Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time.

But the privatization process is now frozen and the monopoly is struggling to collect payment on its bills from near broke government entities, making it unlikely that Mr. Paulson will get much of his money back.

To be sure, many of these hedge funds are enormous and their Greek investments represent a fairly small slice of their overall portfolio.

Mr. Papapolitis, who used to work at Skadden Arps law firm in New York structuring exotic real estate deals, moved back to Greece in 2008 and has led some of the biggest hedge fund deals in the market.

Of the same age and generation as many of his clients, he feels their pain.

"These guys are my friends," he said. "They invested in Greece when the economy was improving. And now this happens - I feel obliged to be there for them."

He is not the only point man for hedge funds coming to Greece.

Last week, a group of about 12 of the largest remaining hedge funds arrived in Athens to attend a seminar organized by George Linatsas, a founding partner of Axia Ventures, an investment bank that specializes in Greece, Cyprus, Portugal and Italy, as well as shipping.

With all the large investment banks and law firms having largely given up on Greece, Mr. Linatsas and his team of analysts became the main port of call for hedge funds that started buying Greek government bonds in 2012.

Then, the bonds were trading at 12 cents on the euro and they soon shot up to 60 cents, making billions of dollars for those early investors.

"People made their careers on that trade," Mr. Linatsas said. "The problem now is politics and whether there is a government that can take this country to the next stage."

The outlook seems grim.

Indeed, in recent months these investors have spent little time breaking down balance sheets or discounting cash flows. Instead, they have spent every effort trying to figure out what the Syriza government is up to.

Some have tried to get an edge by listening to Greek radio. Others have hired outside firms to study video clips of Mr. Tsipras and his finance minister, Yanis Varoufakis, to try and discern from body movement and voice tone whether they are telling the truth. And an increasing number have resorted to begging journalists for inside scuttlebutt.

Because few Syriza officials will meet with the investors, a large number of them have banded together, an unusual occurrence in an industry that puts the highest of premiums on secrecy. They exchange tips and theories via emails when they are apart and over wine-soaked dinners in Athens during their frequent trips here.

At times the swankiest hotel in town, the Hotel Grande Bretagne (or G.B. as it is commonly known) is so chock full of hedge fund executives (mostly in their 30s) that some have called it the G.G.B. - the acronym for Greek government bonds.

In recent days, as it has become clear that the Syriza government was not going to accept the latest proposal from its creditors, stress and anxiety has, in some cases, turned to outright anger.

"I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email. "They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don't get paid because banks shut - what are they going to do?"

Peter K. -> Peter K....

""I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email."

How ideological do you have to be to not understand that the Troika already torched the country and that the Greeks voted in Syriza becasue 5 years on there was no light at the end of the tunnel.

I hope there's a Grexit even if the Troika forces it because the referendum took place after Monday's deadline. Syriza should really study all of the past defaults of other countries.

Paine -> Peter K....

This Sarris gent suggest the Syriza team should have proposed " bold reforms " early on

List em mr S... List em

He however seems to understands the original sin was
The elites decision to bail the private northern banks out

Of course the people of Greece must pay for that sin.

RGC:

"IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece"

"Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."
http://www.truth-out.org/news/item/31596-imf-and-germany-are-hell-bent-on-finishing-off-even-a-moderate-left-in-greece

pgl:
Real GDP per person in Cyprus:
http://www.tradingeconomics.com/cyprus/gdp-per-capita

The crash has brought this done to where it was in 2000. Why did they join the Euro system in the first place? Why would anyone listen to the finance minister of this nation?

Paine -> pgl...

Precisely put

Only a corporate lackey corrupted stooge or stool pigeon

Peter K. -> Peter K....

Greece's own central banker, Yannis Stournaras said in a statement after the European Central Bank decision on Sunday that the Greek central bank would "take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."

Before negotiations broke off on Saturday between Athens and its creditors, the Tsipras government had been hoping to reach terms that would free up a €7.2 billion allotment of bailout money that the country needs to meet its short-term debt obligations.

Because European officials said on Saturday that Greece's €240 billion bailout program would not be extended, the big question had been whether the central bank's president, Mario Draghi, would continue financing the country's depleted banks.

Guidelines of the European Central Bank dictate that it can keep supporting troubled banks as long as there is a possibility that the country in question will come to terms with its creditors on a bailout - as was the case with Cyprus.

If Athens and its creditors do not resume talks before Tuesday, the promise of European support for Greece may no longer be on the table. But the European Commission, the executive arm of the European Union and a key broker in the debt talks, seemed on Sunday to reach out to the Greek people, unexpectedly publishing the offer made to Greece before Prime Minister Alexis Tsipras ended the negotiations and announced a national referendum.

The publication was designed to show the lengths to which the creditors, including the I.M.F. and the European Central Bank, had gone to satisfy Athens's demands for a deal that avoided hurting ordinary Greeks, said one European Union official with direct knowledge of the decision to publish the offer. The official spoke on condition of anonymity because the institutions had not ruled out a resumption of talks with Mr. Tsipras on the sensitive issue of extending the bailout.

"This is a last bridge we are building for them," said the official. The goal of publishing the document was also to pressure "Mr. Tsipras to change course and choose to mount a 'yes' campaign" in the upcoming referendum, the official said.

The official acknowledged there was a slim chance that Mr. Tsipras would accede to the terms so soon after abandoning the negotiations. But if Mr. Tsipras did change course, that could lead to a meeting of leaders of the eurozone member states on Monday night to try one more time to reach a deal before the expiration of the bailout.

On Saturday, amid intense discussions between Greece and its creditors, officials representing the I.M.F., to which Greece owes €1.6 billion on Tuesday, were trying to persuade European leaders and Mr. Draghi to keep the bank emergency assistance flowing. And on Sunday, the head of the I.M.F., Christine Lagarde, waved an olive branch toward Greece.

In a statement, Ms. Lagarde expressed her "disappointment'' in the "inconclusive outcome of recent discussions on Greece in Brussels.''

"I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities," she said, adding that the I.M.F. would ''continue to carefully monitor developments in Greece and other countries in the vicinity and stands ready to provide assistance as needed.''

Early Sunday, the Greek Parliament approved Mr. Tsipras's request for a public referendum on the proposal offer by Greece's creditors, with the vote to be held next Sunday. Mr. Tsipras and other Greek officials had asked European officials and Mr. Draghi to keep the central bank assistance in place until the vote.

The European Central Bank's decision on Sunday to cap the emergency loan program, as opposed to canceling it, "allows the Greek banks to remain in a sort of coma – not functioning but not dead," said Karl Whelan, an economics professor at University College in Dublin. That way, he said, the Greek financial system might be revived if at some later point if Greece secures a deal with its creditors.

Raoul Ruparel, an economist and co-director of Open Europe, a London-based research group, said the rupture between Greece and its creditors on Saturday was unlikely to mean a definitive end to negotiations, instead becoming "merely a prelude" to yet more talks in a week or so after Greece holds its referendum.

"I think we are just getting started on this merry-go-round," Mr. Ruparel said, predicting that Greek voters would probably vote to endorse proposals put forward by creditors and rejected by the Tsipras government. "We would then be back where we started, only in a worse situation," he added. Because the current program will have expired by then, Greece and its creditors would need to negotiate a new bailout - most likely a short-term deal - in an atmosphere poisoned by even deeper distrust than before.

"The whole thing is absolute nightmare,'' Mr. Ruparel said. ''I have been following this saga for five years, and it is depressingly tedious."

leoFromChicago:

Guy is totally business-as-usual.
I'm hardly an expert on Greece but if you were about to make a difficult decision -- say, exit the Euro -- you might want a dramatic display of public backing say, in the form of a referendum.

Peter K.:

For JohnH and Mr. Roger Fox:
http://www.cepr.net/blogs/beat-the-press/the-warnings-from-the-bank-of-international-settlements-have-been-ignored-because-they-have-been-wrong
The Warnings from the Bank of International Settlements Have Been Ignored Because They Have Been Wrong

by Dean Baker

Published: 28 June 2015
The Wall Street Journal passed along warnings from the Bank of International Settlements (BIS) that central banks should start to curtail monetary expansion and that governments need to reduce their debt levels. The piece tells readers:
"The BIS has issued similar warnings in recent years concerning an overreliance on monetary policy, but its advice has gone largely unheeded."
It is worth noting that the BIS has been consistently wrong in prior years, warning as early as 2011 about the prospects of higher inflation due to expansionary monetary policy:
"But despite the obvious near-term price pressures, break-even inflation expectations at distant horizons remained relatively stable, suggesting that central banks' long-term credibility was intact, at least for the time being.

"But controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy
rates."

Since that date, the major central banks of the world have been struggling with lower than desired inflation and doing whatever they could to raise the rate of inflation. It would have been helpful to readers to point out that the BIS has been hugely wrong in its past warnings, so people in policy positions appear to have been right to ignore them. This is likely still the case.

anne:

http://krugman.blogs.nytimes.com/2015/06/28/grisis/
June 28, 2015
Grisis
By Paul Krugman
OK, this is real: Greek banks closed, capital controls imposed. Grexit isn't a hard stretch from here - the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.
Clearly, though, some decisions now have to wait on the referendum.
I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.
Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals.
A strange logistical note: I'm on semi-vacation this week, doing a bicycle trip in an undisclosed location. It's only a semi-vacation because I didn't negotiate any days off the column; I'll be in tomorrow's paper (hmm, I wonder what the subject is) and have worked the logistics so as to make Friday's column doable too. I was planning to do little if any blogging, and will in any case do less than I might have otherwise given the events.

anne -> anne...
http://krugman.blogs.nytimes.com/2015/06/28/grisis/
June 28, 2015

Grisis
By Paul Krugman

Clearly, though, some decisions now have to wait on the referendum.

I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika * is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals....

* European Union Commission, EuropeanCentral Bank, and International Monetary Fund

Paine -> anne...

Pk has really shown a leadership side here
Not contrarian
Progressive leadership

Vote no !

Praise be to PK

Ben Groves:

This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would hel build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. If Greece wants their fat pension system, that is their choice.
I don't see anything different than post WWI Germany. This is what Libertarianism will bring to the West if implemented. They would dismantle the current power structure and replace it with a privately controlled syndicate dictating wealth much like today. This is not new, it has been going on since the rise of Abrahamic religions in the west.

Fred C. Dobbs -> Lafayette...

Greece is doomed - Matt Yglesias - June 27 http://www.vox.com/2015/6/27/8856297/greece-referendum-euro via @voxdotcom

(Various useful links, at the link.)

... to understand the deeper causes of what's been going on since Tsipras' government swept to power in January, you really need to set the finance and economics aside and focus on the politics. Greece has been drawing dead this whole time, and the future outlook appears bleak for one simple reason - nobody else in Europe who holds power has any interest in making things anything other than painful for Greece.

1) Giving Greece a better deal would be a political disaster

Tsipras' fundamental miscalculation has been that he thought that by cloaking his specific requests for more lenient terms in the larger cause of anti-austerity politics, he could build a coalition of political support throughout Europe for his position. The reality was just the opposite. While politicians in Europe's creditor nations were naturally reluctant to grant Greece a better deal, politicians in Europe's debtor nations were even more opposed.

After all, if electing a bunch of far-left types to parliament so they can demand a better deal actually worked, then voters in Portugal and Spain and Italy and Ireland would take note of that fact. And the last thing the current crop of elected officials in Lisbon and Madrid and Rome and Dublin want is to all be turned out in favor of a bunch of far-left types.

2) Letting Greece default gracefully would be a disaster

Even if Greece's European partners weren't inclined to give Greece a better financial deal, they could have at least smoothed the path to default. A Greece that doesn't pay what it owes would be instantly cut off from credit markets and forced to run a very austere fiscal policy.

It's in Europe's interest to make things as hard as possible for Greece

Things could have been left at that. Instead, throughout the year, the European Central Bank has been saying that it will cut the Greek banking system off from emergency funding if Greece doesn't keep paying its debts. That means default will lead to the collapse of Greek banks, and the end of Greek membership in the euro.

That's a political decision the ECB isn't legally required to make. But politically it's the only possible decision. After all, if a default works out non-disastrously for Greece then other countries could be tempted to default. And international investors might worry that other countries could be tempted to default, raising interest rates and slowing the European economy. Only making default as painful as possible can safeguard the interests of other countries.

3) Letting Greece leave the Eurozone gracefully would be a disaster

Here's where the news gets really bad for Greece. Leaving the Eurozone could, in theory, go better or worse. But Europe needs it to go as badly as possible. After all, if Greece leaving goes pretty well, then other countries might be tempted to leave. And that raises the prospect of debt defaults, higher interest rates, and slowing European growth.

Once again, it's in Europe's interest to make things as hard as possible for Greece.

4) This is the time to fold 'em

The tragic irony, if you are Tsipras, is that his plan very well might have worked back in 2010 when his predecessors originally agreed to the terms of a bailout. Back then, the whole situation was considerably more fluid. Greece could have threatened to default and essentially commit a murder/suicide on the entire European economy unless it got better terms. That would have been a very risky strategy and you can see why the Greek government didn't pursue it. But it might have worked.

Yet as the song says, you need to know when to hold 'em and know when to fold 'em. ...

(Alternatively, persuade various major German
corps to re-locate to Greece, for tax-breaks,
warm weather, great beaches, warm weather,
'right-to-work' labor policies, tax breaks,
warm weather & great beaches, and - voilà - problem solved!)

Fred C. Dobbs:

The Next Few Days Have the Potential to Transform
Greece and Europe http://nyti.ms/1Nr7fbd via @UpshotNYT
NYT - Neil Irwin - June 28

As it turns out, the Greek crisis ends not with a bang, but with a referendum.

It has been easy to ignore the doings in Greece for the last few years, with the perpetual series of summits in Brussels that never seem to resolve anything. But it's time to pay attention. These next few days are shaping up to become a transformational moment in the 60-year project of building a unified Europe. We just don't yet know what sort of transformation it will be.

The immediate headlines that got us to this point are these: After an intractable series of negotiations over a bailout extension with Greece's creditors, the nation's left-wing government left the table Friday and said it would hold a referendum on July 5. Greek leaders think the offer on the table from European governments and the International Monetary Fund is lousy, requiring still more pension cuts and tax increases in a depressed economy, and intend to throw to voters the question of whether to accept it.

Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice:

A "Yes" vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the last five years, in exchange for keeping the euro currency and the monetary stability it provides.

A "No" vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term, but creating the possibility of a rebound in the medium term as the country becomes more competitive with its devalued currency.

The Greek government, led by Alexis Tsipras, disputes this framing, and argues that Greece could in fact reject the creditors' offer to extend the bailout program while sticking with the euro. Events over the weekend show how untenable that is. Thousands of Greeks lined up to withdraw euros from money machines, and the European Central Bank said it would not increase the size of the emergency lending program that Greek banks have been using to secure euros.

Ergo, the Greek banks are, or will soon be, out of money, and the E.C.B. will be disinclined to open the floodgates again in the absence of a bailout deal. That's why the Greek government has effectively frozen its financial system, closing banks and the stock market on Monday. ...

Greece Will Close Banks to Stem Flood of Withdrawals http://nyti.ms/1QXdEB2

LANDON THOMAS Jr. and NIKI KITSANTONIS - JUNE 28

ATHENS - Greece will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

The government's decision to close banks temporarily and impose other so-called capital controls - and to keep the stock market closed on Monday - came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors. ...

[Jun 28, 2015] The Greek Tragedy: Curtain Closes On Most Absurd Act

moonofalabama.org

Nothing was posted here so far on the Greece tragedy. I did not touch the issue as there was excellent coverage elsewhere and what the whole issue produced so far was more absurd theater than serious economic policy. But one act of the drama is now coming to a preliminary end and the tragedy may now unfold into something new with potential serious geopolitical consequences.

Greece took up a lot of debt when banks were giving away money without caring for the ability of the debtor to pay back. When that game ran out, some six years ago, Greece could not no longer take up new credit to pay back its old debts. That is the point where it should have defaulted.

But the Greece government was pressed on to pay back the debt to the commercial banks even when it had no money and not enough income to ever do so. Bank lobbyists pressed other EU governments to raid their taxpayers to indirectly cover the banks' losses. These other governments then pushed Greece to take on "emergency loans" from their states to pay the foreign commercial banks.

Nothing of that money ever reached the people in need in Greece. Here is a gif that explains what happened to all those foreign taxpayer loans treats "given to the Greek".

To get these new loans Greece had to agree to lunatic economic measures, an austerity program and neoliberal "reforms", to fix its balance of payments. But austerity has never worked, does not work and will never work. It crashes economies, lowers tax incomes and thereby further hinders a government to pay back it debts. It creates a vicious cycle that ends in an economic catastrophe.

After six years of austerity nonsense the Greece voted for a new party that promised to end the cycle and stop the austerity measures. But the new Syriza government misjudge the situation and the nastiness and criminal energy of the other governments and organizations it was negotiating with. It early on said it would not default and thereby took away its own best negotiation argument. The negotiations failed. The creditors still demand more and more austerity. Now it will have to default but under circumstances that will make it much more difficult for Greece to get back on its feet.

Yesterday the Syriza prime minister Tsirpas, in a speech to his people, called for an end of the blackmail and for a referendum to decide on the way forward:

Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands.
To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively.

Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world.

Paul Maison of Channel 4 news sees this as a positive and likely successful step. The people will vote no to austerity and the IMF, European Central Bank and various country governments will still keep giving fresh money to Greece. Yves Smith at Naked Capitalism does not believe that this will happen. She calls the referendum a sham. Greece will default and the only thing the referendum will do is to keep Syriza in the political business. She blames Tsirpas for having misjudged the situation and for being unprepared of what is likely to come:

Greek defiance of its creditors will make it more, not less dependent on them in the next year. How badly things turn out for Greece will depend in significant degree on how much they do to ameliorate the impact of the implosion of the banking system, whether they take extreme measures to keep Greece in the Eurozone, and if Greece tumbles out, how much they provide in humanitarian aid and targeted trade financing (most important, for petroleum imports).

Greece should have defaulted six years ago. Tsirpas should have prepared for default immediately after he became premier. He should have used it as a threat during the negotiations. Greece will now have to default in the worst possible situation and with little thought given to the consequences of the default.

But the consequences will not be limited to Greece.There will be consequences for the EU, for NATO and for the political balance in the Mediterranean. Greece may now decide to leave the "western" realm and thereby set an example others could follow.

The German and other European governments promised their taxpayers that Greece will not default and that the austerity program pushed onto it will succeed. They will now rightfully lose some of their political and economic credibility. The Greece default will be a somewhat harsh and expensive lesson for the voters in those countries too. Let's hope that they will draw the right conclusions.

Selected Skeptical Comments

Posted by: madrone | Jun 27, 2015 10:50:12 AM | 2

While there is nothing easy about the path forward I think finance minister Varoufakis has played things pretty well dragging it out letting the people get all those euros out of the banks to help contribute to rebuilding but most of all blocking the ability of the Banksters to "Cyprusize" Greece. The referendum obviously comes from the study of Iceland and anybody that studies Argentina can only come away thinking Syriza is doing the right thing.

Posted by: nmb | Jun 27, 2015 11:33:51 AM | 3

The global financial mafia fully exposed through Greece

[Jun 28, 2015]The Troika pretends to suffocate Greece at all costs

"...Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority"
.
"...Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party."
.
"...Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors."
.
"...There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc."
.
"...Panic would boost interest rates, severely shrinking the financial liquidity between countries."
.
"...Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia."

Jun 28, 2015 | voltairenet.org/RT

the Central Bank of Greece surprised everyone with the publication of their monetary politics for 2014-2015. Besides revealing the consequences of the economic suffocation imposed by Brussels, it concluded that in case of not getting to a prompt deal with its European partners, a crisis of great proportions will be detonated.

"A crisis with a manageable debt as we are currently facing with the help of our partners will transform into an uncontrollable crisis, with great risk for the banking system and for the financial stability", it quoted [1]. It was the first time this institution seriously contemplated Greece's separation from the Eurozone.

The most influencing media immediately began to stress that the majority of Greek's population is against abandoning the Monetary Union. Approximately a 70% according to a recent poll published by the GOP. For keeping the "common currency" the norms in the Maastricht Treaty have to be complied, therefore the occidental media concludes that the Greek citizens are willing to accept the European authorities conditions: Austerity is the price for a membership in the Eurozone.

However, media emporiums omit mentioning that same majority opposes to measures that the Troika (formed by the International Monetary Fund, the European Central Bank and the European Commission) pretends to impose. That same majority is currently convinced that the original 245 billion euros rescue program has only brought economic affliction. The increase of inequality and poverty, lock of housing, mental illness and suicides, are evidence of the "humanitarian crisis" Greeks are daily suffering [2].

A change regarding to economic matters in urgent. In that sense, the Greek government has insisted in solving the more immediate needs (taxes on investment, creation of employment, a better distribution of income, etc.) and less in questioning terms of the debt. Despite this, Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority [3].

Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party.

Disqualifications between the Greek government and the Troika were quite prompt on dates near the meeting with the Eurogroup. Tsipras addressed that the International Monetary Fund (IMF) had "criminal responsibility" for the crisis. He also repeated that his government wouldn't falter before the pressure imposed by the Troika. The objective of this proposal is to "humiliate Greece" and there he committed to reject the adjustment plans at every moment [4].

The finance minister, Yanis Varoufakis, has delivered the same message by declining on presenting proposals that would finally include a list of "credible" commitments for the creditors: raising the primary surplus, additional tax raises, dismantling the pension system, etc [5].

As consequence, the negotiations stalled once again [on July 18th, 2015, Editor's note] The Troika remains intransigent in applying its "structural reforms" no matter what, while Tsipras declines on betraying the Greeks. Therefore this dispute is ones more to be adjourned.

Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors.

Debt and more austerity, in the end impose more debts, this situation puts Greece in a "depressive spiral" that seems not to have an end. How will the resources for complying with these commitments de delivered?

There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc.

Considerably affected by the weak economic growth and the deflation (price breakdown), the Eurozone would loose even more confidence from international investors. The crescent 'aversion to risk' due to Greece's exit would provoke an increase in the performance of sovereign bonds (currently at minimum levels). Panic would boost interest rates, severely shrinking the financial liquidity between countries.

Uncertainty will increase and the capital flows would be victim of a 'butterfly effect': slight increase of volatility in sovereign bond markets, light drops in stock exchanges and any change in the monetary policy, would be enough to detonate huge turbulences in credit circuits.

Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia.

Democracy was born in the ancient Greece and there is where the foundations of a new Europe, free from the 'dictatorship of the creditors' should be built, if there is any alternative…

[Jun 28, 2015] Keynes, The Great Depression And The Coming Great Default

Jun 28, 2015 | Zero Hedge
falak pema

you guys have it ALL wrong.

Keynes was there to check OLIGARCHY neo-feudalism. This crisis is about Oligarchy neofeudalism.

We need a balance between state and private enterprise. Right now we have "inverted totalitarianism" :an alliance between state and private Oligarchs where, unlike Mussolini model; its private enterprise that RUNS THE WORLD; the 1%.

The state is their slave; even FED belongs to its paymasters : the TBTF aka JP Morgan and now GS. Since Glass Steagall revoke; engineered by the GS squid cabal allowing Investment banks to rule the roost to MAXIMISE shareholder returns, the whole shooting match of supply side deregulated Reaganomics; all based on asset hiking based on short term quarterly reports; has morphed capitalism beyond recognition.

The world of capital changed in 1981...the day all that mattered was shareholder value based on short term steroid pumping that the 1971 "our money your problem" had initiated based on petrodollar hegemony fueled on perpetual DEBT.

The cumulative effect of 1971/1981/1991 outsourcing NWO mantra post Iraq 1 and SU default was what we have spawned today: a three step process where petrodollar debt + FIRE economy oligarchy enrichment+ NWO outsourcing based on cheap oil and cheap labour have built this casino capitalism model now compounded by derivative financialisation toxic shenanigans.

Now tell me WHAT has KEYNES got to do with this monetarist construct based on Friedman's 1971 mantra?

You guys deny the time line of facts and its irrefutable logic all based on petrodollar hegemony, and arms bazar supremacy.

[Jun 28, 2015] IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

"...Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."
.
"...Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal."
.
"...as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.""

IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

Jun 28, 2015 | Truthout

...Reflecting a political organization/party that had invited and accepted under the same roof extremely diverse political and ideological groups, the Syriza-led government not only failed to set out a clear strategic vision for getting the country out of its current crisis but walked straight into the trap that the euromasters and the "criminal IMF" were setting up for them throughout the course of the negotiations.

Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome.

Working in collaboration with the IMF (whom Mr. Tsipras has charged with "criminal responsibility" for the economic and social catastrophe of Greece), Germany's plan (a nation that has failed to pay its debts repeatedly in modern times and had the bigger part of its foreign debt wiped off in 1953, yet has the audacity now to try to teach moral lessons to Greece) is to have Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal.

... ... ...

The members of the Greek government negotiation team had submitted a list of proposals for the June 22 Euro summit that were fully in line with the logic of the EU/IMF bailout program for Greece: more austerity and additional structural adjustments. All in all, the proposals they made amounted to over 8 billion euro in additional cuts between 2015 and 2016! The leftist Greek government even proposed a tax increase to incomes above 30,000 euro, thus suggesting that individuals in that income bracket rank among the wealthy! Basic food items and services were to carry a 23 percent VAT. The special VAT rate on Greek islands, which is so crucial for the tourist sector of the economy, was to be removed. The early retirement age was to be increased as of the start of 2016, and a benefit for low-income pensioners was to be gradually substituted, beginning from 2018.

The obvious capitulation on the part of the Syriza-led government to the euromasters and the IMF thugs, which was not the first one, was made just to get a deal done as time was running out for Greece (it has a huge payment to make to the IMF at the end of June in the tune of 1.6 billion euro) and thus to remove the dark clouds of a Grexit that had begun to spread dangerously over Greece, as it had finally become clear that Germany and the IMF were calling Syriza's bluff and were ready for the unthinkable, i.e., the possibility of a Grexit.

But as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.

Thus, the Greek proposals were found to be inadequate, and there were demands for more blood and tears. Germany and the IMF wanted to force the Syriza-led government to cross its last and final "red line," which was over additional antisocial measures in the nation's social security and pension system. Among other things, the Lagarde/Schäuble duo wants the benefit for low-income pensioners to be completed eliminated by 2017. This would mean that a person who receives today a monthly pension for the amount of 500 euro (close to 50 percent of Greek pensioners receive pensions below the official poverty line) would be deprived of about 200 euro, which come as a welfare payment of sorts.

... ... ...

Footnotes:

1. The political babel of Syriza consists of right-wing and ultra-nationalist camps (ie., the Independent Greeks party, Syriza's coalition partner in government) to defunct social democrats and outdated Keynesians who saw primarily the crisis in Greece as a threat to capitalism itself and were suggesting, accordingly, all sort of interventionist schemes to keep Greece in the euro area and the emergence of an alternative socio-economic system at bay, including recycling unemployment schemes with the minimum wage so as not to upset the exploitation rate in the private sector (!) and IOUs, and from remnants of euro-communism and the old communist left to post-leftism, postmodernist tendencies devoid of any true understanding of contemporary political realities and without structured support at the popular, working-class level. Indicative of its political nature, not even one large, mass protest or demonstration has ever been organized or successfully carried out by Syriza. Its official organ Avgi still sells thousands of copies less on a daily and a weekly basis than the official organ of the Greek Communist Party, which in the elections of January 2015 barely got over 5 percent of the popular vote.

2. Syriza had been converted long ago into an utterly confusing, "non-left" left political organization, and the restructuring of the Greek economy and its moribund political culture, the abandonment of outworn, antediluvian modes of political thinking and behaviors, and the transformation of capitalism and its transition to a socialist economy had been completely removed from its political radar. For an argument along those lines, see C. J. Polychroniou, "To Change Greece Requires Changing the Political Culture - and This Could Be a Tall Order, Especially for the Left." Truthout (September 1, 2013).
... ... ...
C.J. Polychroniou is a research associate and policy fellow at the Levy Economics Institute of Bard College and a former columnist for a Greek major national newspaper. His main research interests are in European economic integration, globalization, the political economy of the United States and the deconstruction of neoliberalism's politico-economic project. He has taught for many years at universities in the United States and Europe and is a regular contributor to Truthout as well as a member of Truthout's Public Intellectual Project. He has published several books and his articles have appeared in a variety of journals, magazines, newspapers and popular news websites. Many of his publications have been translated into several foreign languages, including Croatian, French, Greek, Italian, Portuguese, Spanish and Turkish.

[Jun 27, 2015] Greece: Its the Politics, Stupid!

"...The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers."

Jun 27, 2015 | Economist's View

Gloomy European Economist Francesco Saraceno:

It's the Politics, Stupid!: I have been silent on Greece, because scores of excellent economists from all sides commented at length...

But last week has transformed in certainty what had been a fear since the beginning. The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path. No, they were interested in a complete and public defeat of the "radical" Greek government. ...

What happened...? Well, contrary to what is heard in European circles, most of the concessions came from the Greek government. On retirement age, on the size of budget surplus (yes, the Greek government gave up its intention to stop austerity, and just obtained to soften it), on VAT, on privatizations, we are today much closer to the Troika initial positions than to the initial Greek position. Much closer.

The point that the Greek government made repeatedly is that some reforms, like improving the tax collection capacity, actually demanded an increase of resources, and hence of public spending. Reforms need to be disconnected from austerity, to maximize their chance to work. Syriza, precisely like the Papandreou government in 2010 asked for time and possibly money. It got neither.

Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large coroporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.

What the past week made clear is that this, and only this was the objective of the creditors. This has been since the beginning about politics. Creditors cannot afford that an alternative to policies followed since 2010 in Greece and in the rest of the Eurozone materializes.

Austerity and structural reforms need to be the only way to go. Otherwise people could start asking questions; a risk you don't want to run a few months before Spanish elections. Syriza needed to be made an example. You cannot survive in Europe, if you don't embrace the Brussels-Berlin Consensus. Tsipras, like Papandreou, was left with the only option too ask for the Greek people's opinion, because there has been no negotiation, just a huge smoke screen. Those of us who were discussing pros and cons of the different options on the table, well, we were wasting our time.

And if Greece needs to go down to prove it, so be it. If we transform the euro in a club in which countries come and go, so be it.

The darkest moment for the EU.
RGC said...

by MICHAEL HUDSON

Many readers of the European and American press must be confused about what actually is happening in the negotiations between Greece (Alexis Tsipras and Yannis Varoufakis). The European Troika (the IMF, European Central Bank and European Council now object to the name and want to be called simply "the Institutions") have stepped up their demands on Syriza. What is called "negotiation" is in reality a demand for total surrender. The Troika's demand is to force Syriza to go back on the campaign promises that it made to voters who replaced the old right-wing Pasok ("socialist") and Conservative New Democracy coalition, or else simply apply the austerity program to which that coalition had agreed:cutbacks in pensions, deeper austerity, more privatization selloffs, and a tax shift off business onto labor. In short, economic suicide.

Last weekend a group of us met in Delphi to discuss and draft the following Declaration of Support for Greece against the neoliberal Institutions. It is now clear that finance is the new mode of warfare. The creditors' objective is the same as military conquest: they want the land, the natural resource rights and monopolies, and they want tribute (in this case, debt service). And they don't want sovereign Greece to tax the economic rent from these assets. In short, the negotiation between The Institutions and Greece is a bold exercise in rent extraction.

http://www.counterpunch.org/2015/06/26/the-delphi-declaration/

Peter K. said...

I agree with what Saraceno wrote. "The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path."

The austerity program they forced Greece to follow was a failure and the troika doesn't care what Syriza was elected to do. It can overrule democracy.

As good as the IMF research department has been regarding Keynesian policies lately, the IMF is coming off really bad here, just going along with insane policy.

If Greece doesn't pay by the 30th do they get kicked out? If they kicked out will they hold the July 5th referendum anyway?

Maybe the troika don't kick them out immediately and the referendum votes no on the bailout package. Then Greece defaults but possibly stays in the EU on the drachma with capital controls. Possibly Greece can rejoin the EU later on.

anne said in reply to anne...

What still puzzles me is whether and by what authority Greece can be forced to leave the European Union, even if Greece has to abandon the Euro.

As for the leadership of the European Union, no matter the title of the various governing parties, there has been an increasingly conservative political-economic bent to the leadership in domestic, Europe-wide and international affairs.

DeDude said in reply to anne...

They can not be forced to leave the European (political) Union. The may have to abandon the Euro currency, but a number of other EU countries have their own currency (enjoying the free trade and political advantages of being an EU country). They would likely be forced to either back out of the Euro or face a complete collapse of their banks and economy (without banks no business) if the ECB close their banks access to funds. But there is no way that they could be kicked out of the Euro if they refused to leave.

anne said in reply to Larry...

http://www.cepr.net/blogs/beat-the-press/greece-and-the-euro

June 26, 2015

Greece and the Euro

James Stewart has a piece * in the New York Times telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, "imagine Argentina, but much worse." The article includes several assertions that are misleading or false.

First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country's GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina's GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.

[Graph]

Argentina's economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.

At one point the piece refers to the views of Yanis Varoufakis, Greece's finance minister, on the difficulties of leaving the euro. It relies on what it describes as a "recent blogpost." Actually the post * is from 2012.

To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:

"But they've already cut prices and tourism has gone up. But it hasn't really helped because total revenue hasn't gone up."

Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can't increase revenue from fishing the piece tells readers:

"The European Union has strict quotas to prevent overfishing."

However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that's true, the EU limits on fishing would be irrelevant.

The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika's terms.

In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.

* http://www.nytimes.com/2015/06/26/business/an-echo-of-argentina-in-greek-debt-crisis.html

** http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/

-- Dean Baker

anne said in reply to Mel at onin...

Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large corporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.

-- Francesco Saraceno

[ I believe that this passage is wrong. Prime Minister Tsipras, to my understanding, was willing and had offered to increase taxes on the rich or "large corporations."

I will try to find a reference, but I am fairly sure I read this in regard to the offer by Tsipras. I recall the insistence on preserving low pension levels came with an express proposal to increase taxes on those with relatively high incomes. ]

DeDude said...

The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers.

Unfortunately, European tribalistic politics (further inflamed by the second goal) forced such austerity upon the people of Greece that they rebelled and elected a socialist government. Now there is a third goal for the troika (as dictated by their plutocrat masters); to punish the people of Greece (and scare voters in other countries) for electing socialist leaders. Be ready for an all out war of sabotaging any and all Greek economic recovery. They are desperate to set the example and scare away any thought of rebellion against economic tyranny in countries like Portugal, Spain, Ireland (Italy, France). They are not even trying to hide their sabotage of the Syriza government – just compare what they demand to what Syriza is offering. The objectives are for the same goals, it is just that Syriza has a plan that can reach those goals without sinking the Greek economy into an even deeper hole.

Fred C. Dobbs said...

If you owe your bank a million euros
and can't pay, YOU have a problem.

If it's a billion euros, THEY have a problem.

If it's a trillion, *you* are back
to having a problem, as it turns out.

Who knew?
RGC said...

IMF policy re Greece and Ukraine:

Greece: IMF Warns No Leeway on Payment as Merkel Urges Greece to Bow

http://www.bloomberg.com/news/articles/2015-06-18/lagarde-affirms-greece-s-june-30-deadline-to-make-imf-payments

Ukraine: IMF Violates IMF Rules, to Continue Ukraine Bailouts

http://rinf.com/alt-news/editorials/imf-violates-imf-rules-to-continue-ukraine-bailouts/

Sandwichman said...

DS-K weighs in on the IMF not learning from mistakes

http://fr.slideshare.net/DominiqueStraussKahn/150627-tweet-greece?ref=https://fr.slideshare.net/slideshow/embed_code/key/yT0ZJNQMSAStzy

Reply Saturday, June 27, 2015 at 11:51 AM
anne said in reply to Sandwichman...

http://www.nytimes.com/2015/06/25/business/dealbook/businesses-worry-about-shouldering-burden-of-greek-debt.html

June 24, 2015

Businesses Worry About Shouldering Burden of Greek Debt
By LANDON THOMAS Jr.

THESSALONIKI, Greece - From the beginning, officials at the International Monetary Fund, one of the country's creditors, have criticized the proposal's reliance on raising corporate tax, arguing that such increases will only hurt the country's already fragile economy....

[ This is the IMF; sacrifice ordinary already damaged Greek people for the sake of corporate or relatively rich Greeks. ]

Reply Saturday, June 27, 2015 at 11:59 AM
Sandwichman said in reply to Sandwichman...

Unconfirmed rumors that DS-K was originally going to refer to "the IMF's rape of Greece" but decided that might backfire.

Reply Saturday, June 27, 2015 at 12:04 PM
anne said in reply to Sandwichman...

Having read the Dominique Strauss Kahn memo carefully again, I am not sure just what is being argued other than a little more generous debt forgiveness a little earlier.

Reply Saturday, June 27, 2015 at 02:39 PM
Sandwichman said...

"Jeroen Dijsselbloem, president of the eurogroup of finance ministers, said before the meeting he was 'disappointed' by the surprise plans to stage a popular vote on debt financing proposals.

"'It's a very sad decision for Greece because it's closed the door to further talks, a door that was still open in my mind,' he said."

Democracy? Can't have that! This is FINANCE.

Reply Saturday, June 27, 2015 at 12:24 PM
anne said in reply to Sandwichman...
I am reminded of "Yes, Minister" on the EU.

Reply Saturday, June 27, 2015 at 01:53 PM
mrrunangun said...

I think of my dad's friend Phil in these cases of indebtedness. Phil was a successful businessman who functioned as a lender of last resort for a number of his acquaintances. Phil wanted his money first and foremost. When a borrower could not pay on time, Phil gave a brief grace period. If the borrower still could not pay, Phil would counsel the guy to get an honest job if he didn't already have one or get a second job if he had one and only one. If the guy already had two jobs or was ineligible for honest work, he was advised to consult a pawnbroker. If necessary, stealing and fencing outside of Phil's network might be a last resort. If the borrower still could not pay, Phil was not above resorting to strong collection methods that might persuade the borrower to come up with some cash courtesy of friends and family. Like legal collection methods Phil's cost money so was only resorted to in unusual cases. If the borrower still could not come up with the money, Phil had to face the loss. Needless to say, no further credit would be forthcoming.

It may be impossible for Greece to pay its debts because its prospects for growth are inadequate given the nature of its politics, the size of the debt, and relatively small size of its economy. If its lenders have concluded that that is the case, Greece would have to default and take the consequences. Its lenders will have to take the consequences as well. Phil would not have felt obliged to continue to make loans to a customer who had demonstrated an inability to repay his loan after the usual forbearance.

Chris Herbert said...

Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes:

"The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

anne said in reply to Chris Herbert...

http://www.polyarchy.org/enough/texts/keynes.1933.html

1933

National self-sufficiency
By John Maynard Keynes

RC AKA Darryl, Ron said in reply to Chris Herbert...

Terrific!

anne said...

http://krugman.blogs.nytimes.com/2015/06/27/europes-moment-of-truth/

June 27, 2015

Europe's Moment of Truth
By Paul Krugman

Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity - don't let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment.

As a political matter, the big losers from this process have been the parties of the center-left, whose acquiescence in harsh austerity - and hence abandonment of whatever they supposedly stood for - does them far more damage than similar policies do to the center-right.

It seems to me that the troika - I think it's time to stop the pretense that anything changed, and go back to the old name - expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen.

But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he's being irresponsible, but he is, in fact, doing the right thing, for two reasons.

First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn't, we need to know that, too.)

Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it's even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.

If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can't at all blame Tsipras for turning to the voters, instead of turning on them.

RGC said in reply to anne...

"If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point."

The US banks promoted loans that obviously could not be repaid. They committed massive fraud. They caused a horrendous debt deflation and concomitant great recession. Yet they were bailed out by Obama. Why shouldn't the European banks expect the same of their politicians?

[Jun 27, 2015] Breaking Greece

Paul Krugman:

Breaking Greece: I've been staying fairly quiet on Greece... But given reports from the negotiations in Brussels, something must be said...

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren't so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we're still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do - see the chart, which compares the projections in the 2010 standby agreement with reality - are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity. ...

At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.
Sandwichman said...

The class nature of the IMF position is evident to anyone who chooses to see. Olivier Blanchard is the IMF's chief economist. Professor Krugman politely omits mentioning that salient fact. Professional courtesy, I presume.

anne said in reply to Sandwichman...

Olivier Blanchard is the IMF's chief economist.

[ Meaning what exactly? ]

Sandwichman said in reply to anne...

Meaning if "unserious" Olivier (see below) was serious about his unseriousness maybe he would publicly repudiate the economics of the policy of the organization that he is presumably chief economist for.

Sandwichman said in reply to anne...

"The IMF's 'Tough Choices' on Greece," Jamie Galbraith

http://www.project-syndicate.org/commentary/imf-greece-debt-restructuring-by-james-k-galbraith-2015-06#I3bKPImqEIzi2QYu.99

"Blanchard should know better than to persist with this fiasco. Once the link between "reform" and growth is broken – as it has been in Greece – his argument collapses. With no path to growth, the creditors' demand for an eventual 3.5%-of-GDP primary surplus is actually a call for more contraction, beginning with another deep slump this year.

"But, rather than recognizing this reality and adjusting accordingly, Blanchard doubles down on pensions. He writes:

"'Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.'

"Note first the damning admission: apart from pensions and wages, spending has already been "cut to the bone." And remember: the effect of this approach on growth was negative. So, in defiance of overwhelming evidence, the IMF now wants to target the remaining sector, pensions, where massive cuts – more than 40% in many cases – have already been made. The new cuts being demanded would hit the poor very hard."

anne said in reply to Sandwichman...

Understood completely, darn.

Sandwichman said in reply to Sandwichman...

So Galbraith and Krugman basically agree on the stupidity of the policy. Galbraith names the name. Krugman hesitates. Basic social psychology.

Sandwichman said in reply to Sandwichman...

Final paragraph of the Jamie Galbraith piece:

"Blanchard insists that now is the time for "tough choices, and tough commitments to be made on both sides." Indeed it is. But the Greeks have already made tough choices. Now it is the IMF's turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all."

Final two paragraphs of Krugman's:

"Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we're not in high school here. And right now it's the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

"At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen."

Do those "IMF people" have names? I guess not.

anne said in reply to Sandwichman...

Perfectly contrasted and argued, and important.

pgl said in reply to Sandwichman...

This is sounding a lot like our Federal government. Nondefense purchasing is not that high even though we need a lot more infrastructure. Republicans have bitched about Social Security retirement benefits for decades. Cut taxes to hell and then demand a balanced budget even during weak aggregate demand. OK, Greece's problems are enormous but listen to Paul Ryan enough and we will become a banana republic.

[Jun 27, 2015] Tsipras Bailout Referendum Sham naked capitalism

"...not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states."
.
"...He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S. "
.
"...Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies. "
.
"...The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece."

June 27, 2015 | economistsview.typepad.com

Chris Herbert said...

Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes: "The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

anne said in reply to Chris Herbert...

http://www.polyarchy.org/enough/texts/keynes.1933.html

1933

National self-sufficiency
By John Maynard Keynes

RC AKA Darryl, Ron said in reply to Chris Herbert...
Terrific!
Swedish Lex June 27, 2015 at 7:27 am

Thanks for long analysis.

Not sure I agree with all.

While Tsipras, Syriza & Co. certainly are not the team that would win the Super bowl, far from it, they are nevertheless not worse than the Troika in terms of incompetence, internal inconsistencies, having made populistic and crazy promises to voters on false pretenses, etc. Greece is the unruly teenager and the Troika are supposed to be the enlightened and responsible parents, even if it means being harsh. What we have instead is one entirely dysfunctional family.

My point is that even a 24 karat Greek Government would have an impossible task in negociating with the Ayatollahs of the Troika.

This game is therefore (unfortunately) not about acting rationally. Doing the right and responsible thing will not make you win or at least lose less.

Therefore I think that Tsipras move to launch a referendum is not bad. If the ECB shuts off the ELA – a couple of days before the citizens of Greece get to vote on the situation – then the ECB will (again) be confirmed at the Institution that kills democracy.

The Greek referendum has in my view been an option for the Greeks all the time. By doing it now "Ach mein Gott, way too late", the Greeks show that the creditors, and their parliaments, do not own the agenda (and hence cannot use it as pressure point).

What we are witnessing is clearly not a negotiation. It is political warfare with one pygmy state against a totally overwhelming force. I do not expect Greece to win this, in the end, but I hope that they will lose with dignity while the creditors win in infamy. This is not irrelevant since the next generation of Greeks will need to know that their parents refused to surrender to the, objectively, suicidal demands of the creditors....

Swedish Lex, June 27, 2015 at 7:33 am

I also believe that a Greek default would blow a big hole in the ECB's balance sheet, meaning that the euro states would have to inject tens of billions of new equity. Real money. TBC.

Freddo, June 27, 2015 at 7:52 am

I wonder how Merkel is feeling right now. I would interpret telling Tspiras to "shut up" as a sign she sees her legacy disappearing down a drain. Powerful leaders holding all the cards don't talk like that. Maybe she has suddenly realized she doesn't hold all the cards.
ennui, June 27, 2015 at 10:06 am

not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states. the fact that the ECB has conducted a slow bank run in Greece destroys any trust national political leaders might have in a European banking system. you can't have a central bank which is willing to destroy the banking system of a member state to advance the political aims of other member states….

steviefinn, June 27, 2015 at 7:56 am

Swedish Lex

Agreed – & what is the difference in the end result between bowing & scraping & at least putting up some sort of fight ? Strikes me that it would eventually end up in much the same place anyway. Maybe morals don't count in this counting house world anymore, but however it ends, I personally am grateful to Syriza for allowing us more insight into the dealings of the EU Junta – which hopefully others will learn from, leading to a way of destoying this hydra.

Lambert Strether, June 27, 2015 at 1:23 pm
Not sure what mechanism you have in mind. From the post:
[Syriza's] assumption appears to have been that the national governments would find it too politically toxic to recognize losses on the debt they had extended to Greece through the EFSF and the Greek Bailout Fund. But maturities on these facilities have been extended and payments deferred. And the national governments do not have to mark to market. They will recognize losses only if and when Greece fails to make payments, which is years down the road. And even then, the pain is spread out over decades. That means Greece's supposed nuclear weapon turns out to be a pop gun.

Granted, these are country losses (after they were left holding the bag for German banks) but you do't explain how the ECB would lose. Would you, please?

Cugel, June 27, 2015 at 7:42 pm

Varoufakis last year explained everything before Syriza even took power. He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S.

The difference of course is that the U.S. had a sovereign currency and could run deficits and FDR didn't have to answer to the Troika. So, Syriza tried to get the creditors to see reason and see that it was in their long-term best interests to grant debt-relief. They failed because of EU arrogance, blind adherence to dogma, and short-term thinking. But, they certainly didn't have any other choice.

Yves has criticized them severely for not negotiating better. It is impossible to prove she's wrong that Syriza missed opportunities for finding a workable compromise, but I've never seen it as remotely plausible that the creditors would agree to anything Greece could accept.

The attempt at a referendum is obvious political theater and will be rejected by the Troika. It wouldn't work anyway. It is just another political ploy by Tsipras to cast the blame on the Troika by making them look bad, but they are long past the point of caring and just want Greece out of the EU.

Ben Johannson, June 27, 2015 at 3:35 pm

I can see no evidence that eurozone CB's must be in positive territory regarding its balance sheet or that member states must make any "hole" whole. They may demand it anyway given the leaders of the eurogang are likely as stupid as they look but it isn't an inevitability given the ECB does not require balance sheet solvency to conduct its operations.

ennui, June 27, 2015 at 1:15 pm

As Varoufakis notes in his recent statement, an agreement now would leave Syriza with a Greek economy in a deep depression, a banking system that has been strangled by the ECB with no commitment to confidence building, a requirement to create a fiscal surplus and monthly reviews by the IMF culminating in a repeat performance of this whole charade in November.

Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies.

Whether it was intentional or not, Syriza's dogged commitment to this "negotiation" has illustrated just the degree to which the Troika are acting in bad faith. There were just two outcomes that were possible from this process: Syriza signing a deal which would be politically suicidal or Greek exit, and this was by design by the powers of Europe.

The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece.

[Jun 27, 2015] Warmongering vs Economic Progress

Notable quotes:

"... "And you, son of man, will you judge, will you judge the bloody city? Then cause her to know all her abominations." Ezekiel 22:2 ..."

"... See Israel is the Problem ..."

"... See The War on Christianity ..."

"... See The Truth about the Conflict with Russia. ..."

"... "Woe to the bloody city!" Ezekiel 24:9 ..."

Jun 25, 2015 | Biblicism Institute
C H U R C H   R E F O R M    S E R I E S
By Biblicism Institute

"And you, son of man, will you judge, will you judge the bloody city? Then cause her to know all her abominations." Ezekiel 22:2

All Empires throughout history have their foundation in war and blood.

The American Empire is no different.

With more than 1,000 military bases and installations spanning the globe and a foreign policy that causes almost every nation on earth to cower to its will, the United States of America is the most powerful Empire the world has ever known. But instead of being an Empire of benevolence and peace, the US has been at perpetual war and expansion since its creation.

Unfortunately for the imperial citizenry, warmongering and economic progress are anathema to each other. If economic progress leads to empire-building, sooner or later empire-building leads to economic catastrophe and bankruptcy; said woes are usually the upshot of foreign entanglements and unholy alliances that lead to unsustainable expansions and wars.

However, in the absence of such imperialistic formula, the opposite usually takes place.

When WW2 caused the irrevocable dissolution of the Japanese and German Empires, the then emerging American hegemon quickly shackled these defeated countries with the trammel that paralyzed (and eliminated) their military machines which had facilitated their expansions. The happy result was that Japan became the economic power of Asia and Germany that of Europe.

Today these two countries have more robust economies than that of the US. Both are major centers of technological achievements, years ahead of their American jailer.

Even China managed to surpass the US by becoming the No 1 economy in the world. That's because China is not (yet) building an Empire. Its focus is on profit, not war.

As the 21st century dawned, America thought it wise and necessary to embark upon war after war by aiming to destroy the MENA (Middle East and North Africa) region.

The delusional Promised Land of the Israelis

" we're going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran," revealed Gen. Wesley Clark in 2007 referring to America's war plans drawn before the invasion of Iraq.

But why wage war on all these Arab and Muslim countries that wished and caused no harm to the US Empire? To benefit Israel and its plan of conquest (i.e., the delusional Greater Israel or Promised Land). See Israel is the Problem

In order to eliminate all opposition to Israel's Machiavellian design to steal more Arab lands, the more powerful and influential Arab and Muslim countries of the region (not firmly in the US orbit) had to be weakened to the point of exhaustion through war and the so-called Arab Spring's color revolutions (orchestrated by the Jewish neocons in Washington, DC).

Given that the Israelis could not start such an ambitious project by themselves, let alone bring it to fruition in its entirety, the only solution was to wag the American dog to implement most of it. After all, the dog couldn't possibly decline since AIPAC has it by the groin. So far, all these conflicts have drained trillions upon trillions of dollars from the US Treasury, hatched an economic depression, and resulted in over 5 Million refugees and 2 Million dead including Christians. See The War on Christianity

As if that were not enough, the American Eagle swooped down into the Russian Bear's cave and ensnared it into a whole new conflict. Now why did the Eagle that's less than a mouthful to a Bear risk such a move?

When the Imperial tsunami was about to hit Syria's shores, Syria called on its Russian patron for help. Russia of course intervened and halted the American war on Syria which was planned by AIPAC for the benefit of Israel. The end result is the current tug-of-war in Ukraine as payback (and more). See The Truth about the Conflict with Russia. This contrived dispute with Russia, if it were to get out of hand, could start WW3.

So while the American Empire is warmongering overseas, thereby wasting valuable resources that could have been directed toward its depressed and flailing economy, China has been steadily encroaching on and even surpassing America as the world economic hegemon while siphoning every industry that used to call America home.

For such a catastrophe, Americans only have Israel and its whorish minions in Congress to thank.
"Woe to the bloody city!" Ezekiel 24:9

[Jun 27, 2015] The Bankruptcy of Americas Elites naked capitalism

"...The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away."
.
"...What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray."
.
"...modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal. "
.
"...Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host."

June 26, 2015 | nakedcapitalism.com

If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work. But as the 1% and 0.1% amass more and more of total income and wealth, so too have they come to believe their interest diverge from those of the rest of us (and in a literal sense, they often do, since in too many cases, their wealth rests at least in part on predatory conduct). And now that that gap has become obvious, it has reshaped the role of the ruling class, as in the people who are in charge of the administrative apparatus of society. While some members of these top income groups play a direct role in running powerful organizations (CEOs of large an/or strategically important businesses, for instance), it also includes much less affluent individuals, like government officials and those who influence values and collective perceptions, like major publishers and public intellectuals.

Increasingly, these administrators, influencers, and top professionals seek to use their roles as an entry ticket to the top cohort. The prototype is the revolving door regulator, but there are plenty of other embodiments.

A recent example is Raj Date, who was the Deputy Director at the Consumer Financial Protection Bureau after having worked at Deutsche Bank, Capital One, and McKinsey. I'm told consumer groups were never comfortable with him; he was too slick to be seen as trustworthy. And he tried to elbow Elizabeth Warren aside and he grab the directorship of the new agency before Warren put a stop to that by throwing her weight behind Richard Cordray. Date founded Fenway Summer, a "venture investment firm focused on financial services." It sought to compete with Promontory Group, a money and influence machine headed by former Comptroller of the Currency Gene Ludwig. Established readers may recall the prominent role that Promontory played in the Independent Foreclosure Review fiasco, in which Promontory walked away with over $600 million in fees for a job badly performed and never completed (for details, see Regulatory Looting, Promontory-Style: Botched Foreclosure Reviews Alone Generate More than Double Goldman's Revenues per Employee, Bank of America Foreclosure Reviews: Why the OCC Overlooked "Independent" Reviewer Promontory's Keystone Cops Act (Part VB)) and Bank of America Foreclosure Reviews: How Promontory Became a Shadow Regulator (Part VA).

Date just sold Fenway Summer to Promontory. As a well-recognized banking expert said via e-mail:

Not surprised. I read it as a failure of Fenway Summer. It was supposed to be a rival to Promontory, not bought out by it. I sure as hell wouldn't pay for Raj's advice.

But members of the elite like Raj manage to fail upwards, or at worst sideways. And that helps preserve the widening gap between them and everyone else.

This Real News Network interview with Robert Scheer, which is number six in a ten part series, discusses how the self-serving attitudes among the supposed leaders of our society became entrenched.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to Reality Asserts Itself on The Real News Network. We're continuing our discussion with Bob Scheer. Bob is a veteran U.S. journalist, currently the editor-in-chief of the Webby Award-winning online magazine Truthdig. And his whole biography you'll find beneath the video player.

We're just going to pick up where we were.

So here's what I'm accusing you off, that you seem to be suggesting that there's some rationality left in this system within the elites. And I'm not talking–of course there are some individuals that have some rational long-term view. I mean, even people like Soros has been crying about the lack of banking regulation. And there's people in different sectors of the elites who realize this is a train wreck and about go over a cliff. But those voices are actually marginalized. Even somebody who's got as much money as Soros within the banking and financial elite is completely marginalized. Nobody really listens to a word he says–people with power, at any rate. [1:07]

PROF. ROBERT SCHEER, JOURNALIST AND AUTHOR: Well, they listen to–.

JAY: Let me finish the point.

SCHEER: They listen to Buffett.

JAY: Well, maybe. But Buffett doesn't raise as much alarm as Soros does. But within there–they don't even seem to be able to rule in their own interest. It would be in the interest of global capitalism to have more rational banking regulations as they introduced in the 1930s. It would be in the interest of global capitalism to deal with the threat of catastrophic climate change. It would be in the interest of any rationality not to let fossil fuel and the arms industry so dominate U.S. foreign policy, particularly in the Middle East, I mean, this fueling of a Saudi-Iranian conflict. The idea that, you know, could there be a United States without a massive military, yeah, there could, but not this United States, not this economic system, not this elite. These guys aren't going to come around to some kind if view of we could be an equal, modest country.

SCHEER: Well, you're absolutely right that the current configuration of power in America is irrational. We don't have adults watching the store. And we go from one disastrous pursuit to another. I mean, there was no reason whatsoever, if we had adults watching the store, you'd go knock off Saddam Hussein in Iraq, who had nothing to do with al-Qaeda, was a force against Iran, which–you know, we backed him in his war with Iran. So the contradictions are obvious, that we don't have adults watching the store, we don't have rational policy.

However, I think you are not the only person that now knows that.

JAY: Oh, I'm sure lots of–I would say most ordinary people kind of know it.

SCHEER: No, I think even in those circles there's an awareness that we're not doing very well, and there are reminders that we're not doing well. You know, our economy is stagnant. We're up against some real problems in terms of our future. Income inequality is one. You don't have to be some wild lefty liberal to see that. I mean, the whole foundation of our country was always on a stable middle class and an expanding middle class, opportunity, equal playing field. I'm not saying that was the reality, but that was always the expectation. You know. And, you know, whether it's de Tocqueville or the founding fathers, there was always an assumption that at least for what you thought was the base population there would be this opportunity. You know. And we have been forced over the last couple of decades to recognize that no, it's going alarmingly in a different direction.

Internationally, we know we're not doing very well. I mean, we don't produce a whole lot of products that everybody in the world is dying to get their hands on. The main thing that we've been effective on is this tech stuff, and our tech companies are the ones that are most concerned that our political model is not a good one. They're the ones that are out there having to sell this stuff, and this stuff involves getting confidence and knowing the culture, caring about other people, winning their confidence. And that's been endangered.

So the only thing I would–I don't disagree with you at all as to whether our model is in trouble. It's in trouble. I disagree with you only on whether–the number of people who know it's in trouble.

JAY: I would say even most of them–I would probably think most of the elite know it's in trouble. They're just going to cash in on it, and it's going to be someone else's problem to do something about it.

SCHEER: Okay. You're putting your finger on something that I feel is very critical. And I have spent my life interviewing people generally around power, in government and so forth. I've traveled with Nelson Rockefeller and David Rockefeller. You know, I have interviewed people who became president, from Richard Nixon, Clinton, and so forth and so on.

And if I were to try to explain, the big shift that I've seen is long-term as opposed to short-term, that most of the people I had interviewed in the first stage of my career, say somewhere up until 1970, were people that at least were concerned what their grandchildren might think. You know? There was either through family, inherited wealth, or going to certain schools, or there was some sense of social responsibility, you know, that you could find, that we have to leave our mark, we have to leave it a better place, we have to–and just for our place in history, that it mattered. Okay? So you could be concerned, oh, we'd better get with the civil rights movement, because otherwise we're going to fall apart, or we'd better care about the economic condition of the rest of the world, because otherwise it will rebel, we'd better worry about the living condition of our own people here or they'll rise up with pitchforks and toss you out.

I think what happened is we went into this madcap period of short-term greed.

JAY: And let me just–Bob wrote a book called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. And this was a kind of turning point you're talking about.

SCHEER: Yeah, that's really what my book is about, because you had sensible rules of the road that came out of the New Deal, and there was a recognition, because of the Great Depression, that you just can't have this madcap, crazy, Gilded Age society. Again I overuse this concept of adults watching the store, but I remember going back to just being a kid in the Bronx, and you didn't leave the children to run the fruit stand, 'cause they'd give everything away or they'd go off themselves and play stickball. Somebody had to be there to make sure the stuff got sold and money was paid and things. And you lost that. You got people coming out of the law schools and the business schools that were shysters. You know, they just wanted some hustle, some scam. That's how you got into credit default swaps and collateralized debt obligations.

JAY: Yeah, but the bubbles are euphoric,–

SCHEER: Yeah.

JAY: –if you're in on cashing in on the bubble.

SCHEER: And anybody who looked at that knew. I mean, I was interviewing people during those years, and they'd say, this is, you know, as Buffett said, financial instruments of mass destruction. You know, how could you believe in any of this stuff? How could anybody believe if you–this is what my book was about–you take all these loans and you redefine them and you talk about the risk in stupid ways and you give loans to people who can't support it, and somehow, okay, and whether you were in Fannie Mae, Freddie Mac, or whether you were in the private sector, 'cause Fannie Mae and Freddie Mac were being traded on the stock market, you had to know that this was going to explode. They knew it. And they got the laws to change to make it legal. It should have been illegal.

You know. I mean, the Commodity Futures Modernization Act, which Bill Clinton signed off as a lame duck president in 2000, after it was already–you know, the election was over, he was now a lame duck, and he signed this bill. What was the purpose of it? It was to make all of this garbage legal. It said–I think it was Section 3 of the Commodity Futures Modernization Act–a Republican-Democratic bipartisan bill–said no existing law or regulatory agency will have jurisdiction over credit default swaps or collateralized debt obligations or any of these new financial mechanisms. Why? Because they said this is modern. We have to compete with Europe. You have to be able to do these things. We can't let–we have to give legal certainty–Lawrence Summers, you know, secretary of the Treasury–we have to have legal certainty for these financial instruments; otherwise, they won't be effective. Right? Legal certainty meant no one's going to look at it, no one's going to challenge it, no one's going to set any standards, no existing regulatory agency or law will apply. So it was a license to steal.

JAY: Now, for people that don't understand the concept, quickly.

SCHEER: Well, quickly, what happens is they developed all these new financial gimmicks. You know, a credit default swap was something that was an insurance policy, but it was not an insurance policy. It's what AIG did and got into so much trouble. They said, you do these collateralized debt obligations, you take all these different loans, subprime mortgages–.

JAY: Which were invented in Baltimore, by the way.

SCHEER: Yeah, auto loans, or any of these things, and then they don't make sense on their own and they all seem quite risky, but we'll put them into a pool and we'll assess their value and we'll get these credit rating agencies that have a stake in saying, yeah, they're all good to go because they're going to get money from it. So there was no regulation. And then you pass a law that says you're allowed to do this, no one will look at it carefully, no existing regulatory agency will have control. So you've got a license to steal. Go knock yourself out. You know? And they, selling all these loans, packaging them, and then reselling them to people over the world. Right? And we can predict, you know, get this income and so forth. And then, if it looks shaky, we're going to give you these phony insurance policies, right, that will seem to back them up. But there's no money behind it. It's not like a real insurance policy. Nobody's putting any resources.

So, suddenly, you've got this thing that's going to explode, and AIG, which is supposed to be backing up the insurance, says, hey, we can't do that; we have no money for that. So now your housing bubble has collapsed and AIG can't support it. And it's nothing more than the mafia doing a scam, only you have passed laws that say that's all legal, that's all legal.

Now, you're absolutely right. You wouldn't do that if you were worried about how even you would appear to your grandchildren. Okay? People looking back now know these people were crooks, whether they went to–they didn't go to jail, 'cause they they get the law passed to make it that it's not a crime to defraud people. It's legal. It wipes out half of the wealth of African Americans in this country, wipes out the economic gains of the civil rights movement, 'cause they were particularly a group that was particularly victimized. It wipes out two-thirds–these are Pew Research Center figures–wipes out two-thirds of the wealth, the collected wealth over generations of Hispanics in this country because they were subject to these subprime. They lose everything when they lose their house. But the guys putting it all together, they escape with their billions. They don't go to jail. So, yes, if what you mean by your opening statement was we don't have solid, responsible people who even care how they will appear to their grandchildren–.

You've got a guy like Robert Rubin, okay? Robert Rubin was secretary of the Treasury under Bill Clinton. He had come from Goldman Sachs. He had convinced Clinton you could do all this stuff, this is all great, we'll do all this crap. He brings in Lawrence Summers. Timothy Geithner, who's a younger person working in there, he becomes the Treasury secretary under Obama. They do all this stuff. They get Clinton to sign off on it. He does it with Phil Gramm, the Republican, so it's bipartisan. Very few people challenge it. You know, now, I think if you ask anybody about Robert Rubin, they say, God, yeah, he wasn't too good for it. I'll bet you his own family members think he got his–you know, what happens? He leaves the Clinton administration; he goes to work for a bank that he makes legal, right? The merger of Citibank and Travelers Insurance they make legal with their reversal of Glass-Steagall, the Financial Services Modernization Act, and then they got the Commodity Futures [Modernization Act], which makes these gimmicks legal. He gets $10 million a year for the next decade. Sure, he's got money salted away. But I don't think he's got a reputation that's worth anything. I don't know. Lawrence Summers, again, I don't think people particularly treat those with respect. But they have money. You know, they can take care of their nephews and nieces. But I think it's generally accepted they caused a lot of damage to the economy.

JAY: But it's not, like, that it's just a bad group of people happened to get into power. And I'm not suggesting you're suggesting that.

SCHEER: No, it's the best and the brightest that Halberstam wrote about in Vietnam. These are very well educated people who know what they're doing and, I believe, have to know it's going to destroy the lives of millions of people, and they go ahead and do it. It's just like–.

JAY: Yeah, 'cause they say if it ain't me doing it, it's going to be him doing it, or her.

SCHEER: Whatever their rationalizations, they surround themselves with lawyers and PR people who tell them this is all wonderful, and they get away with it.

JAY: But it's the way the system has evolved that so much money is in so few hands. There's not much else for them to do with it than bet and gamble against each other, create this massive speculative sector of the economy, which is financializing everything. Even when they talk about climate change, all they really have in mind is a way to financialize it. So whether it's this group or the other group, the sort of system itself is created where there's–so much capital has become completely parasitical.

SCHEER: Yes, but they could also be decent people. They could actually wonder about what would Jesus do. They could actually think about what does their lives mean.

JAY: I think some do and drop out.

SCHEER: A few.

JAY: Some do, and they can't take it anymore, and they drop out.

SCHEER: Yeah.

JAY: But they're not in any position to change the course of the ship.

SCHEER: Well, but also the question you should ask is why aren't they being observed in doing this. And the reason is because they can buy off everyone.

JAY: Especially the media.

SCHEER: The media, but the universities, the grants of–you know, build buildings at universities. Come on.

JAY: I want to stress the media 'cause they have this theatrical show going in the elections–I'm not saying there isn't a real contention for power, but when you have unlimited contributions, unlimited spending, what are they spending it on? They're spending it on TV advertising.

SCHEER: Yeah, and they're spending it on candidates who will not give them a hard time. There's no question about it.

But it's not just the media. I mean, I don't want to exonerate the media, but you–you know, in the day of the internet, you should have more critical voices, right, 'cause–but even there you look at where could–you know, okay, to understand the economy or foreign policy requires a little brainwork, okay? Most people have got to take care of their job and their family and pick the kid up and how do I pay this bill and am I going to lose my job and/or how am I going to make that sale. And so their lives are taken up. And then we have a group of people, whether they're called journalists or professors or consultants or what have you who actually have the time and are really charged with figuring stuff out.

Now, most of this stuff is not all that difficult to figure out. So then you have to ask yourself the question, why didn't you figure it out? I mean, why didn't the media–in my book I describe how The New York Times was a cheerleader for this radical deregulation. They used words like modernization. They said long overdue. Now, why? You know, because they were living in a culture and benefiting from a culture that was benefiting from the ripoff. These are the people who advertise. These are the people who invest in your venture, in your media. These are the people who buy chairs at the schools where you're teaching. These are people who support the charities or political causes that you happen to agree with. There is a culture of corruption, I mean, 'cause anyone else looking at this, they say, wait a minute, this is nonsensical, this is bad. Why are you selling–I remember writing about this stuff. I would go out to what they call the Inland Empire in California where they're building all of these–. I said, who's going to live here? How are they going to get to work? Who's paying for this? Why are they making the loans? And then you realize there is no there there. Don't confuse the thing–I remember an old advertising [incompr.] don't confuse the thing being sold with the thing itself. They're not selling a house to somebody who needs a house and is going to live and be able to afford the payment; they're selling this collateralized debt obligation that's 1,000 of those houses that you have made and chopped up and iced and diced and everything and sliced, and then you're going to make that seem like a good bet to somebody. Where? In Saudi Arabia or in France or–.

JAY: Knowing it's all going to default.

SCHEER: Yeah, but you're going to get in and out before it defaults.

JAY: Yeah

William C, June 26, 2015 at 4:05 am

O tempora O mores.

Little changes really?

Benedict@Large, June 26, 2015 at 8:08 am

Scheer understates (just a bit) what the Commodities Futures Modernization act was all about. What all these credit default swaps and other exotic new derivative instruments were all about was recreating and expanding the list of instruments in use on Wall Street. CFMA's purpose was to insure that this parallel market was unregulated. I one fell swoop, CFMA gave Wall Street the ability to recreate itself, only the recreation was to be entirely without government oversight.
I'm sure there were a few incompetent fools (like Alan Greenspan and Phil Gramm) who actually believed the toxic hype that this was all about leading the curve to the new Nirvana, but pretty much everyone else knew that is was nothing more than a government-sanctioned heist, because almost at once, everyone started acting like it was. Even as early as 2000, the national association of real estate appraisers was petitioning the government for relief from bankers forcing them to scam their appraisals or get kicked out of business.

By 2002, Dean Baker was complaining that the rent-vs-own ratios that had been constant for a hundred years were careening wildly, with no apparent cause.

By 2004, the FBI was begging Congress to fund more investigators, saying that the mortgage industry had become a swamp of corruption.

By the end of 2005, the entire mortgage market began collapsing, and the only thing that delayed it for another 30 or so months was that the Bush administration forced Fannie and Freddie to take their hundreds of billions of wealth … OUR WEALTH … and throw it against that market's collapsing edifice.

The only thing left was that the next President would have to owe his election to the very people who needed to be indicted, convicted, and jailed.

LifelongLib, June 26, 2015 at 4:48 am

The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away.

Ben Johannson, June 26, 2015 at 5:45 am

Bubble talk leads us back to the mainstream of economic thought. The notion of bubble is a deviation from some normal state of affairs, namely a growing, self-equilibrating economy and markets (called growth theory among neoliberals.) Some event, it is presumed, external to the normal state forces the economy out of kilter but once this is dealt with economic growth and employment will return to the trajectory everybody knows and loves.

What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray.

Maju, June 26, 2015 at 8:08 am

Actually what happens is that we reach an overproduction crisis, which is the natural thing to do for Capitalism, at least according to Marx.
But while we are in that overproduction crisis, the financier capitalists still grow in power and wealth, because they speculate with it, being almost the only ones able to still make a sustained profit, and use that power to contain any attempt of reform and rather promote even greater deregulation, like the triple-T secret treaties. All very natural and expectable, albeit unfortunate, in good economic and political science.

Maju, June 26, 2015 at 6:26 am

TRNN are generally very worth watching, thank you. Although they may have overdone the interviewer's makeup on this occasion.
This links very well with what I was saying in another thread: modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal.
Another interesting comment of Scheer is that a key "rational" (or "productive") US economic sector is the technological one, what is no doubt true. I am under the strong impression that the USA could for example be leading the transition to renewables, as most technological advances in solar energies, for instance, happen in the USA. But paradoxically the republic is actually betting heavily on oil and not using that advantage to reaffirm itself as avant-guard global economic power, what could well give Washington another whole century of hegemony.
So indeed there is no plan, only short-termism and loot-while-you-can.

ambrit, June 26, 2015 at 6:33 am

I'm glad that the concept of 'elites' is finally gaining widespread acceptability. It is a sorry state of affairs when a class of people develops an "us or them" worldview, but there it is. If I understand it correctly, MMT is a system based on a rational and pragmatic view of how money works. 'Elites,' as an organizing model serves a similar function in the socio political sphere of human endeavour. Each contends with 'official' ideologies promoted by the system itself.
I agree with Feynmans' contention that the system architecture of a human institution defines and circumscribes it's functionality. His addendum to the Space Shuttle Challenger Accident Report lays out his contention. Essentially, the idea is something I've read in other accounts of how the government bureaucracies work. Functionaries are punished for presenting facts and analysis counter to the perceived desired outcome. The perceptions guiding the process are generally internally produced and shaped. No sinister 'master criminal' is required. The group as a whole develops it's own world view, and designs systems to support and expand that "World."

It has been asserted that Bernays et. al. applied the scientific method to crowd control and manipulation. That generation is now long gone, and with them the concept of 'public service.' Even if one were to apply a maximum degree of cynicism, that bygone generation of 'elites' had an infinitely greater regard for the 'public good' than today's 'elites.' As the article above plainly states, even that degree of concern for out groups is gone.

Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

ambrit, June 26, 2015 at 6:55 am

Blast! I forgot to append Feynmans appendix to the Rogers Report. (I've put this up once before, so please excuse the redundancy.)
http://history.nasa.gov/rogersrep/v2appf.htm

H. Alexander Ivey, June 26, 2015 at 11:52 pm

Thanks for the link, interesting report.
Am struck with the NASA managers over-riding their engineers' concerns. This is not a result of a "bureaucratic mind-set" but of people not being held responsible for their actions. The managers were paid to have a flight go on time. The engineers held to their belief that the flight should be as safe as they could make it.
The fault is not in our stars, but in our compensation systems. I don't think any NASA manager lost their job, got demoted, or a letter of reprimand over the Challenger accident.

ambrit, June 27, 2015 at 10:27 am

Yes, but that very "flight go on time" consideration is a part of the "bureaucratic mind set." When a functionary believes that adherence to an even unstated expectation will determine that bureaucrats future career arc, ways will be found.

The other dimension of this, seldom voiced, is the fact that President Reagan was scheduled to give the annual State of the Union speech the night of the launch day, January 28, 1986. Rumours have since circulated that Christina McAuliffe was scheduled to participate by remote camera link from orbit. Having a cameo in the State of the Union speech by Americas favourite teacher in space is exactly the sort of stunt a trained Hollywood actor would endorse. I blame Ronnie Reagan and "politics as usual" for this disaster.

As for bureaucrats overriding the opinions of technocrats, well, that's life. The political actors keep pushing the envelope regarding safety, and especially cost, until someone gets killed. Then the game is reset. I have personally seen this dynamic play out several times.
Even better than the Challenger fiasco was the outright negligence that caused the Columbia 'event' in 2003. There had been serious concern voiced by engineers about the big piece of foam that broke off of the main tank and struck the underside of the shuttle during launch. This was no love tap. The foam chunk hit the shuttle going approximately 1900 miles per hour. This made a hole in the underside left wing heat tile array. Hot gasses from re-entry entered the wing root and broke up the shuttle. The defining factor again was the mindset of the NASA bureaucracy. This excerpt from the Columbia disaster wiki shows how it happened.

In a risk-management scenario similar to the Challenger disaster, NASA management failed to recognize the relevance of engineering concerns for safety for imaging to inspect possible damage, and failed to respond to engineer requests about the status of astronaut inspection of the left wing. Engineers made three separate requests for Department of Defense (DOD) imaging of the shuttle in orbit to more precisely determine damage. While the images were not guaranteed to show the damage, the capability existed for imaging of sufficient resolution to provide meaningful examination. NASA management did not honor the requests and in some cases intervened to stop the DOD from assisting.[11] The CAIB recommended subsequent shuttle flights be imaged while in orbit using ground-based or space-based DOD assets.[12]

Details of the DOD's unfulfilled participation with Columbia remain secret; retired NASA official Wayne Hale stated in 2012 that "[a]ctivity regarding other national assets and agencies remains classified and I cannot comment on that aspect of the Columbia tragedy."[13]

So, there you have it. Bureaucracies, large and small, exhibit definable and consistent patterns of behavior. The fault lies not in our stars, as you observed, but in our Chairs.

ewmayer, June 27, 2015 at 7:40 pm

NASA also exhibited such managerial fubar-ness in the run-up to the Hubble main mirror fiasco – here is a 1990 NYT piece on that. The punchline: For more than a year pre-launch NASA had not one but TWO fully finished main mirrors in storage – the flawed one made by Perkin-Elmer, and a perfectly sound one subcontracted by P-E to Eastman Kodak. Did NASA bother to do the simple "let's comparison-test these 2 mirrors and use the better one, if one proves superior, in the Hubble" thing? Of course not. Hell, a simple scaled-up Foucault test of the kind amateur telescope makers have been doing for over 150 years using primitive tools would have revealed the problem right quick. Classic other-people's-money insular elite stupidity.

Vatch, June 26, 2015 at 10:16 am

Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

I like that! Biologically true, and also true in the realm of political economy.

John Smith, June 26, 2015 at 2:57 pm

Except the parasites think TINA and therefore are unaware that they ARE parasites and thus don't have the good sense to recognize that their lucre is filthy.

Paul Tioxon June 26, 2015 at 9:04 am

Capitalism. What is most exceptional about this site is its name. The mere fact that it uses the name capitalism at all, even nakedcapitalism, is the most taboo breaking aspect announcing a real discussion about a real topic. Notice how Yves preambles this discussion to pre-2006 conformity of thought:

"If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work."

You might as well add "capitalism" to ill chosen words.

The apex of American power in the aftermath of the Clinton years coupling robust job creation and technological advancement of an extensive internet infrastructure to produce the capitalist propaganda theme of the coming the 21st Century: Supertanker America! Remember when the unbroken quarters of growth, low interest rates, steady stock market index rising and company after company emerging from the pages of science fiction to launch from NASDAQ into the real economy? The American Economy would ride out any boom or bust, out sail any crashing waves of stormy global contraction and lead the world economy out of any doldrums just as our military stood dominant across the oceans to the West and East of the continental hegemon. Our military might, our economic resilience and now, our triumphant ideology of capitalism would be consumed by the world more readily than any other export. There was a plan drawn up for a bold new global order of the ages, The Project for a New American Century PNAC. Of course, that failed miserably, unleashing WWIII across the Arab/Muslim world.

But amidst all of the talk of globalization, world trade organization, international summits of G-7s and G-20s, NATO and NAFTA, we have Davos. The Woodstock for capitalists, but never spoken of any such terms. In the above TRNN interview, "the system" and its "elites" are discussed. But as usual, there is always an internalize euphemism, socialized squeamishness for giving the system a formal name and giving its actors a title. Capitalism and the capitalists who love it. There, I said it, the love that dare not speak its name! And the key to breakdown from long term perspective to short term greed came from banking deregulation. Not surprising for capitalism to turn its longing eyes to banking, the platform it was built upon 500 years ago from the banking centers of Genoa, Venice, Florence etc. Despite Simon Johnson's supposed revelation of a silent financial coup, capitalism all along has ruled implicitly, with the only silence coming from the people who master the rules of capitalism not resorting to its name.

Giovanni Arrighi in an essay points out the disappearance of capitalism from academic research, almost in its entirety from economics. Notice, there are Marxist Economists or Keynesian Economics, and then there is just plain Economics. Not Capitalist Economics, that would not be value free positivism, the purest of methodological based scientific endeavors.

http://krieger.jhu.edu/arrighi/wp-content/uploads/sites/29/2012/08/NewEconomicSoc_000.pdf

Arrighi finds in an almost 800 page " THE HANDBOOK OF ECONOMIC SOCIOLOGY", sparse mention of capitalism. Basically, a small usage of the word and a single reference, but mostly, a great number of writings by Marx, Weber and what others have had to say about capitalism, but not much about capitalism by its presume supporters. Much of this Arrighi attributes to the micro focus of the social sciences and its failure and or unwillingness to deal with long term structural features of capitalism. Basically, an ahistoric or short term approach has capitalism disappearing altogether under the weakened methodology too attenuated to measure the processes that compose capitalism. It is not there because the unit of analysis is too small, too short in time or too segmented by focusing on one nation or one enterprise and not the whole economy of one nation connected with and trading with other nations in a global system.

An entire generation of myopia induced social science, including economics has produced nothing less but the short term crisis producing best and brightest, who can't see beyond the next quarter. The motto is; "Are we there yet?". Impatience, hyper frequency trading, dedicated fiber optic fast as the speed of light trading cables from where ever to Wall St, all to shave off a few seconds or micro seconds or quantum seconds, in order to turn a profit of pennies a few billion times over a second or a minute, hour after hour, day after day. No wonder this cognitively captured educated elite can not see anything larger than a minute portion of reality that their algorithms symbolically represent.

Jim A June 26, 2015 at 9:19 am

There's nothing inherently wrong with managing risk by aggregation. In fact insurance companies have been doing that for centurie as the fact that the mortgage insurance business (where traditional underwriters and experts set the price for insurance) was effectively pricing the risk of default for riskier mortgages VERY differently than the bond market was pricing the exact same risk.

Noonan June 26, 2015 at 9:23 am

The godly person has perished from the land,
And there is no upright person among men.
All of them lie in wait for bloodshed;
Each of them hunts the other with a net.
Concerning evil, both hands do it well.
The prince asks, also the judge, for a bribe,
And a great man speaks the desire of his soul;
So they weave it together.

Micah 7: 2-3

TG June 26, 2015 at 9:49 am

Don't forget MIT economist Lester Thurow's classic essay "An Establishment or an Oligarchy?"

http://www.ntanet.org/NTJ/42/4/ntj-v42n04p405-11-establishment-oligarchy.pdf

Some if it's a little dated, but the key points remain pertinent.

"The central goal of an establishment is to insure that the system works so that the country will in the long run be successful. An establishment is self-confident that if the system works and if their country does well, they will personally do well. Being self-confident they don't have to make their own immediate self-interest paramount when they influence public decisions."

"In contrast an oligarchy is a group of insecure individuals who amass funds in secret Swiss bank accounts. Because they think that they must always look out for their own immediate self-interest, they aren't interested in taking time and effort to improve their country's long-run prospects. They aren't confident that if the country is successful, they will be successful."

nat scientist June 26, 2015 at 10:13 am

Bad science makes bad law.
When kindness is kicked to the curb, the jungle is free to grow.

Ivy June 26, 2015 at 10:49 am

William K. Black at UM-KC is instructive about so much of what has gone on in regulatory and financial circles.

For reference, see his website including archived articles

readerOfTeaLeaves June 26, 2015 at 11:14 am

Depressing, but important, interview

Belongs in a time capsule

susan the other June 26, 2015 at 11:28 am

Sheer talks about the aftermath of going off the gold standard. After 1970 there was a long hysteria (still in motion) that translated into austerity (supply side nonsense) because maintaining the value of the dollar meant everything. If the dollar took a dive, both our military and our finance complex would begin to fail. There would be no confidence in the once great USA.

Witness the EU today. Those guys would rather bleed Greece to death than allow the euro to slide too much. They only pretend that they are protecting the EU taxpayers. It is such a fiction to try to maintain austerity for a strong currency because it defeats itself every time, and in order to surface an economy must do bubbles because there is no economy left after austerity. So it all turns into froth. There is a reason derivatives were invented and laws were passed making them legal. Because Larry Summers et.al. all knew their own positions were at stake if capitalism no longer produced profits for the elite. As Stephanie Kelton has informed us, we do not need to worry about the "value" of the dollar – the exchange rate – all we need to do is manufacture products that people want to buy. But that won't save the bloated ranks of the elite.

Crazy Horse June 26, 2015 at 1:57 pm

I must say that the moral and intellectual depravity of the world's elites is great news for the planet. From the point of view of the robin building her nest in the tree outside my window, humans are a toxic cancer, poisoning the soil that produces the worms she needs to feed her hatchlings. (assuming they survive the overly thin eggshells that agricultural chemicals have caused her to produce).

Indeed, for most of the planet's inhabitants homo sapiens are the biggest threat to their continued survival. So rapid economic collapse brought on by the Masters of the Universe's insatiable greed and the human species fatal inability to behave as part of an interconnected ecosystem is the best hope for the survival of a planet capable of supporting all the other life forms that have evolved with it.

Lambert Strether June 26, 2015 at 3:03 pm

Thinking back to elites past, at least civilization got some great art or architecture or literature out of the surplus. Sure, the Italian elites were adept at poisoning each other, but the world got Michelangelo and DaVinci. The Elizabethan elites had the Star Chamber, but the world got Shakespeare. The Victorians had the empire, but also Alice in Wonderland and Dickens. The Bourbons lost their heads, but the world got the Louvre. And on and on and on.

But for this elite, I'm trying to think of one great artist and I can't come up with one. Jeff Koons?

OK, the meta, I get it. But still. Am I wrong on this? Is there a squillionaire Medici out there somewhere?

Stupidest, most vile, and destructive elites in the history of the world and that is saying something.

Vatch June 26, 2015 at 4:40 pm

Nowadays, the members of the top 0.01% just seem to buy and sell, at ever escalating prices, the art that was created in previous generations:

https://en.wikipedia.org/wiki/List_of_most_expensive_paintings

Jerry Denim June 26, 2015 at 5:23 pm

I really appreciate Paul Jay insisting on calling out the media for their role in all of this. It really puts me up the wall how supposedly left wing media outlets always insist on having a right wing propagandist sit in as a counter weight to the lefty when conducting an interview, but then NOBODY calls out the right wing propagandist on his/her blatantly obvious, totally false bullshit regardless of crazy their claims.

Perfect example was the Amy Goodman hosted "Democracy Now" segment on the TPP which was linked here yesterday. They had a guy from Public Citizen on to denounce the TPP and a professional liar from the Cato institute to defend it and no one batted an eye or piped up to say word when the Cato guy floated this howler:

"You know, I certainly do think that the TPP, to the extent that it liberalizes trade, is going to increase wages. It's going to improve the economy of the United States. By opening markets to exports, the TPP will help create jobs. By opening up access to imports, the TPP will help create jobs. Most of the imports that come to this country are used by American manufacturers. It will increase productivity, increase wages and promote growth. So I think that for the criteria that Hillary Clinton sets out, the TPP will most likely be a good deal."

Why in the world Amy Goodman the host of the show or her guest from Public Citizen doesn't even make an attempt to counter this blatant lie in the interest of truth or journalistic ethics is beyond me. Why not something like this: " Excuse me Bill, what did you just say? Did you just claim the TPP is going to raise wages and create jobs in the United States? My god Bill, that is the biggest fucking lie I have ever heard and you know it. As I'm sure you know Bill the entire point of the TPP and other Free Trade pacts is to open the borders of low wage, low regulation countries so companies in the United States can offshore more jobs or at least use the threat of relocating as leverage to further drive down wages, so don't you dare sit there with a straight face and your little American Flag lapel pin and insult this show and my audience with such blatantly false lies. Shame on you Bill, you're a disgrace."

How hard would that be?

Huh? June 26, 2015 at 8:41 pm

Jerry, I agree with you on the Democracy Now show (I listened to it, too) … but what really got me was this lovely exchange:

"JUAN GONZÁLEZ: And, Bill Watson of the Cato Institute, your reaction to the impending, now appears to be, passage of the fast-track legislation?

BILL WATSON: Well, I'm really looking forward to seeing the TPP be completed, find out what's in the agreement and how well it liberalizes trade between the United States and the other 11 members in the agreement."

Um … explain to me how you're looking forward to the TPP being completed, but you still need to "find out what's in the agreement …"

WHAT? You don't know what's in it, but it's all good?

different clue June 27, 2015 at 9:14 pm

If only someone had quoted Pelosi's very words . . . . " you mean we have to pass it to find out what's in it?"

Tony Wikrent June 26, 2015 at 8:28 pm

I read comments like Scheers, that "these are educated people" and they knew what they were doing, and I just am not sure how correct they are. It just does not make sense to me that these people allowed what is essentially a "crimogenic environment" (as Bill Black often writes) to devolve into the open sociopathy and psychopathy we have today. Something is missing; it all just does not fit together.

The one thing nobody ever mentions is the role of organized crime. The mergers and acquisitions and the leveraged buy outs of the 1960s through 1990s was heavily financed and influenced by organized crime. Look at Penny Pritzker's family, and its roots in The Outfit of Chicago. Look at Lord Hanson and his connections to organized crime. Look at the historical legacy of HSBC as the Hong Kong and Shanghai Bank in the opium trade and opium wars. Good lord, look at Ronald Reagan – who is fingered as organized crimes' favorite politician by Gus Russo in his book Supermob.

Was it a good thing that organized crime "went legit"? Or is the true legacy the "crimogenic environment" we have today?

Lambert Strether June 26, 2015 at 11:34 pm

"heavily financed and influenced by organized crime" Sourcing?

[Jun 27, 2015] The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors

Patient Observer, June 26, 2015 at 8:10 pm

This is big:
http://rt.com/news/270046-greece-debt-deal-referendum/
"The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors. It's up to the Greek people, Tsipras said, to make a fateful decision on the country's sovereignty, independence and future.
"These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people," Greek Prime Minister Alexis Tsipras said in a televised address to the nation, as cited by Reuters.

The referendum will be held on July 5, a few days past the June 30 deadline, Tsipras announced. "

A clever move – what can EU do if the debt deal is voted down? Putin-like in its directness and effectiveness.

yalensis, June 27, 2015 at 3:09 am
Hallelujah!
And holding the referendum just a week from now is smart too.

EU/USA don't have enough time to organize election fraud.

[Jun 26, 2015] Why Jim Rogers is buying what everyone else is selling By Michael Sincere

Jun 26, 2015 | MarketWatch

Is the bond market in a bubble?
Whether it's a bubble or not we will find out one day, but it probably is. For the stock market to go down, something has to happen, and it could happen if the bond market scares the socks off everyone. The previous bear market in bonds was from 1946 to 1981. Since 1981, the bond market has been in a bull market. When bonds start going lower, and rates go higher, rates will go much, much higher. Interest rates go to levels we cannot conceive right now. I cannot tell you how high interest rates could go but in 1981 U.S. government bonds were at 15%. Right now, there is inflation, but the U.S. Bureau of Labor Statistics say there is no inflation. I don't know where they go to shop, or where they send their kids to school, or go to baseball games. There is inflation all over the world, not just in the U.S.
'The only thing that works is when people fail, go bankrupt, and start over.'

Write this down for June 2015: This low interest rate environment will not continue forever. Bonds could go down for a long time, which will scare the bureaucrats in the central banks. This is why we might have a 10% to 13% decline in stocks.

... ... ...

What do you think of gold?

Gold (GCQ5, +0.16%) is in a correction, and the correction has gone on for four years. Although I am not buying gold, I am expecting an opportunity to buy gold sometime in the next year or two. For instance, if gold goes under $1,000, I hope I'm smart enough to buy a lot more gold.

[Jun 25, 2015]We Are Reaching Peak Energy Demand, BP Data Suggests

Submitted by Gail Tverberg via Our Finite World blog,

Some people talk about peak energy (or oil) supply. They expect high prices and more demand than supply. Other people talk about energy demand hitting a peak many years from now, perhaps when most of us have electric cars.

Neither of these views is correct. The real situation is that we right now seem to be reaching peak energy demand through low commodity prices. I see evidence of this in the historical energy data recently updated by BP (BP Statistical Review of World Energy 2015).

Growth in world energy consumption is clearly slowing. In fact, growth in energy consumption was only 0.9% in 2014. This is far below the 2.3% growth we would expect, based on recent past patterns. In fact, energy consumption in 2012 and 2013 also grew at lower than the expected 2.3% growth rate (2012 – 1.4%; 2013 – 1.8%).

Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

Recently, I wrote that economic growth eventually runs into limits. The symptoms we should expect are similar to the patterns we have been seeing recently (Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)). It seems to me that the patterns in BP's new data are also of the kind that we would expect to be seeing, if we are hitting limits that are causing low commodity prices.

One of our underlying problems is that energy costs that have risen faster than most workers' wages since 2000. Another underlying problem has to do with globalization. Globalization provides a temporary benefit. In the last 20 years, we greatly ramped up globalization, but we are now losing the temporary benefit globalization brings. We find we again need to deal with the limits of a finite world and the constraints such a world places on growth.

Energy Consumption is Slowing in Many Parts of the World

Many parts of the world are seeing slowing growth in energy consumption. One major example is China.

Figure 2. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

Based on recent patterns in China, we would expect fuel consumption to be increasing by about 7.5% per year. Instead, energy consumption has slowed, with growth amounting to 4.3% in 2012; 3.7% in 2013; and 2.6% in 2014. If China was recently the growth engine of the world, it is now sputtering.

Part of China's problem is that some of the would-be buyers of its products are not growing. Europe is a well-known example of an area with economic problems. Its consumption of energy products has been slumping since 2006.

Figure 3. European Union Energy Consumption based on BP Statistical Review of World Energy 2015 Data.

I have used the same scale (maximum = 3.5 billion metric tons of oil equivalent) on Figure 3 as I used on Figure 2 so that readers can easily compare the European's Union's energy consumption to that of China. When China was added to the World Trade Organization in December 2001, it used only about 60% as much energy as the European Union. In 2014, it used close to twice as much energy (1.85 times as much) as the European Union.

Another area with slumping energy demand is Japan. It consumption has been slumping since 2005. It was already well into a slump before its nuclear problems added to its other problems.

Figure 4. Japan energy consumption by fuel, based on BP Statistical Review of World Energy 2015.

A third area with slumping demand is the Former Soviet Union (FSU). The two major countries within tithe FSU with slumping demand are Russia and Ukraine.

Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

Of course, some of the recent slumping demand of Ukraine and Russia are intended–this is what US sanctions are about. Also, low oil prices hurt the buying power of Russia. This also contributes to its declining demand, and thus its consumption.

The United States is often portrayed as the bright ray of sunshine in a world with problems. Its energy consumption is not growing very briskly either.

Figure 6. United States energy consumption by fuel, based on BP Statistical Review of World Energy 2014.

To a significant extent, the US's slowing energy consumption is intended–more fuel-efficient cars, more fuel efficient lighting, and better insulation. But part of this reduction in the growth in energy consumption comes from outsourcing a portion of manufacturing to countries around the world, including China. Regardless of cause, and whether the result was intentional or not, the United States' consumption is not growing very briskly. Figure 6 shows a small uptick in the US's energy consumption since 2012. This doesn't do much to offset slowing growth or outright declines in many other countries around the world.

Slowing Growth in Demand for Almost All Fuels

We can also look at world energy consumption by type of energy product. Here we find that growth in consumption slowed in 2014 for nearly all types of energy.

Figure 7. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at oil separately (Figure 8), the data indicates that for the world in total, oil consumption grew by 0.8% in 2014. This is lower than in the previous three years (1.1%, 1.2%, and 1.1% growth rates).

Figure 8. Oil consumption by part of the world, based on BP Statistical Review of World Energy 2015.

If oil producers had planned for 2014 oil consumption based on the recent past growth in oil consumption growth, they would have overshot by about 1,484 million tons of oil equivalent (MTOE), or about 324,000 barrels per day. If this entire drop in oil consumption came in the second half of 2014, the overshoot would have been about 648,000 barrels per day during that period. Thus, the mismatch we are have recently been seeing between oil consumption and supply appears to be partly related to falling demand, based on BP's data.

(Note: The "oil" being discussed is inclusive of biofuels and natural gas liquids. I am using MTOE because MTOE puts all fuels on an energy equivalent basis. A barrel is a volume measure. Growth in barrels will be slightly different from that in MTOE because of the changing mix of liquid fuels.)

We can also look at oil consumption for the US, EU, and Japan, compared to all of the rest of the world.

Figure 9. Oil consumption divided between the (a) US, EU, and Japan, and (b) Rest of the World.

While the rest of the world is still increasing its growth in oil consumption, its rate of increase is falling–from 2.3% in 2012, to 1.6% in 2013, to 1.3% in 2014.

Figure 10 showing world coal consumption is truly amazing. Huge growth in coal use took place as globalization spread. Carbon taxes in some countries (but not others) further tended to push manufacturing to coal-intensive manufacturing locations, such as China and India.

Figure 10. World coal consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at the two parts of the world separately (Figure 11), we see that in the last three years, growth in coal consumption outside of US, EU, and Japan, has tapered down. This is similar to the result for world consumption of coal in total (Figure 10).

Figure 11. Coal consumption for the US, EU, and Japan separately from the Rest of the World, based on BP Statistical Review of World Energy data.

Another way of looking at fuels is in a chart that compares consumption of the various fuels side by side (Figure 12).

Figure 12. World energy consumption by fuel, showing each fuel separately, based on BP Statistical Review of World Energy 2015.

Consumption of oil, coal and natural gas are all moving on tracks that are in some sense parallel. In fact, coal and natural gas consumption have recently tapered more than oil consumption. World oil consumption grew by 0.8% in 2014; coal and natural gas consumption each grew by 0.4% in 2014.

The other three fuels are smaller. Hydroelectric had relatively slow growth in 2014. Its growth was only 2.0%, compared to a recent average of as much as 3.5%. Even with this slow growth, it raised hydroelectric energy consumption to 6.8% of world energy supply.

Nuclear electricity grew by 1.8%. This is actually a fairly large percentage gain compared to the recent shrinkage that has been taking place.

Other renewables continued to grow, but not as rapidly as in the past. The growth rate of this grouping was 12.0%, (compared to 22.4% in 2011, 18.1% in 2012, 16.5% in 2013). With the falling percentage growth rate, growth is more or less "linear"–similar amounts were added each year, rather than similar percentages. With recent growth, other renewables amounted to 2.5% of total world energy consumption in 2014.

Falling Consumption Is What We Would Expect with Lower Inflation-Adjusted Prices

People buy goods that they want or need, with one caveat: they don't buy what they cannot afford. To a significant extent affordability is based on wages (or income levels for governments or businesses). It can also reflect the availability of credit.

We know that commodity prices of many kinds (energy, food, metals of many kinds) have been have generally been falling, on an inflation adjusted basis, for the past four years. Figure 13 shows a graph prepared by the International Monetary Fund of trends in commodity prices.

Figure 13. Charts prepared by the IMF showing trends in indices of primary commodity prices.

It stands to reason that if prices of commodities are low, while the general trend in the cost of producing these commodities is upward, there will be erosion in the amount of these products that can be purchased. (This occurs because prices are falling relative to the cost of producing the goods.) If, prior to the drop in prices, consumption of the commodity had been growing rapidly, lower prices are likely to lead to a slower rate of consumption growth. If prices drop further or stay depressed, an absolute drop in consumption may occur.

It seems to me that the lower commodity prices we have been seeing over the past four years (with a recent sharper drop for oil), likely reflect an affordability problem. This affordability problem arises because for most people, wages did not rise when energy prices rose, and the prices of commodities in general rose in the early 2000s.

For a while, the lack of affordability could be masked with a variety of programs: economic stimulus, increasing debt and Quantitative Easing. Eventually these programs reach their limits, and prices begin falling in inflation-adjusted terms. Now we are at a point where prices of oil, coal, natural gas, and uranium are all low in inflation-adjusted terms, discouraging further investment.

Commodity Exporters–Will They Be Next to Be Hit with Lower Consumption?

If the price of a commodity, say oil, is low, this is a problem for a country that exports the commodity. The big issue is likely to be tax revenue. Governments very often get a major share of their tax revenue from taxing the profits of the companies that sell the commodities, such as oil. If the price of oil, or other commodity that is exported drops, then it will be difficult for the government to collect enough tax revenue. There may be other effects as well. The company producing the commodity may cut back its production. If this happens, the exporting country is faced with another problem–laid-off workers without jobs. This adds a second need for revenue: to pay benefits to laid-off workers.

Many oil exporters currently subsidize energy and food products for their citizens. If tax revenue is low, the amount of these subsidies is likely to be reduced. With lower subsidies, citizens will buy less, reducing world demand. This reduction in demand will tend to reduce world oil (or other commodity) prices.

Even if subsidies are not involved, lower tax revenue will very often affect the projects an oil exporter can undertake. These projects might include building roads, schools, or hospitals. With fewer projects, world demand for oil and other commodities tends to drop.

The concern I have now is that with low oil prices, and low prices of other commodities, a number of countries will have to cut back their programs, in order to balance government budgets. If this happens, the effect on the world economy could be quite large. To get an idea how large it might be, let's look again at Figure 1, recopied below.

Notice that the three "layers" in the middle are all countries whose economies are fairly closely tied to commodity exports. Arguably I could have included more countries in this category–for example, other OPEC countries could be included in this grouping. These countries are now in the "Rest of the World" category. Adding more countries to this category would make the portion of world consumption tied to countries depending on commodity exports even greater.

Figure 1- Resource consumption by part of the world. Canada etc. groupng also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

My concern is that low commodity prices will prove to be self-perpetuating, because low commodity prices will adversely affect commodity exporters. As these countries try to fix their own problems, their own demand for commodities will drop, and this will affect world commodity prices. The total amount of commodities used by exporters is quite large. It is even larger when oil is considered by itself (see Figure 8 above).

In my view, the collapse of the Soviet Union in 1991 occurred indirectly as a result of low oil prices in the late 1980s. A person can see from Figure 1 how much the energy consumption of the Former Soviet Union fell after 1991. Of course, in such a situation exports may fall more than consumption, leading to a rise in oil prices. Ultimately, the issue becomes whether a world economy can adapt to falling oil supply, caused by the collapse of some oil exporters.

Our Economy Has No Reverse Gear

None of the issues I raise would be a problem, if our economy had a reverse gear–in other words, if it could shrink as well as grow. There are a number of things that go wrong if an economy tries to shrink:

Businesses find themselves with more factories than they need. They need to lay off workers and sell buildings. Profits are likely to fall. Loan covenants may be breached. There is little incentive to invest in new factories or stores.

There are fewer jobs available, in comparison to the number of available workers. Many drop out of the labor force or become unemployed. Wages of non-elite workers tend to stagnate, reflecting the oversupply situation.

The government finds it necessary to pay more benefits to the unemployed. At the same time, the government's ability to collect taxes falls, because of the poor condition of businesses and workers.

Businesses in poor financial condition and workers who have been laid off tend to default on loans. This tends to put banks into poor financial condition.

The number of elderly and disabled tends to grow, even as the working population stagnates or falls, making the funding of pensions increasingly difficult.

Resale prices of homes tend to drop because there are not enough buyers.

Many have focused on a single problem area–for example, the requirement that interest be paid on debt–as being the problem preventing the economy from shrinking. It seems to me that this is not the only issue. The problem is much more fundamental. We live in a networked economy; a networked economy has only two directions available to it: (1) growth and (2) recession, which can lead to collapse.

* * *

Conclusion

What we seem to be seeing is an end to the boost that globalization gave to the world economy. Thus, world economic growth is slowing, and because of this slowed economic growth, demand for energy products is slowing. This globalization was encouraged by the Kyoto Protocol (1997). The protocol aimed to reduce carbon emissions, but because it inadvertently encouraged globalization, it tended to have the opposite effect. Adding China to the World Trade Organization in 2001 further encouraged globalization. CO2 emissions tended to grow more rapidly after those dates.

Figure 14. World CO2 emissions from fossil fuels, based on data from BP Statistical Review of World Energy 2015.

Now growth in fuel use is slowing around the world. Virtually all types of fuel are affected, as are many parts of the world. The slowing growth is associated with low fuel prices, and thus slowing demand for fuel. This is what we would expect, if the world is running into affordability problems, ultimately related to fuel prices rising faster than wages.

Globalization brings huge advantages, in the form of access to cheap energy products still in the ground. From the point of view of businesses, there is also the possibility of access to cheap labor and access to new markets for selling their goods. For long-industrialized countries, globalization also represents a workaround to inadequate local energy supplies.

The one problem with globalization is that it is not a permanent solution. This happens for several reasons:

A great deal of debt is needed for the new operations. At some point, this debt starts reaching limits.

Diminishing returns leads to higher cost of energy products. For example, later coal may need to come from more distant locations, adding to costs.

Wages in the newly globalized area tend to rise, negating some of the initial benefit of low wages.

Wages of workers in the area developed prior to globalization tend to fall because of competition with workers from parts of the world getting lower pay.

Pollution becomes an increasing problem in the newly globalized part of the world. China is especially concerned about this problem.

Eventually, more than enough factory space is built, and more than enough housing is built.

Demand for energy products (in terms of what workers around the world can afford) cannot keep up with production, in part because wages of many workers lag thanks to competition with low-paid workers in less-advanced countries.

It seems to me that we are reaching the limits of globalization now. This is why prices of commodities have fallen. With falling prices comes lower total consumption. Many economies are gradually moving into recession–this is what the low prices and falling rates of energy growth really mean.

It is quite possible that at some point in the not too distant future, demand (and prices) will fall further. We then will be dealing with severe worldwide recession.

In my view, low prices and low demand for commodities are what we should expect, as we reach limits of a finite world. There is widespread belief that as we reach limits, prices will rise, and energy products will become scarce. I don't think that this combination can happen for very long in a networked economy. High energy prices tend to lead to recession, bringing down prices. Low wages and slow growth in debt also tend to bring down prices. A networked economy can work in ways that does not match our intuition; this is why many researchers fail to see understand the nature of the problem we are facing.
Financial_skeptic/ /energy. Stagnation/

[Jun 24, 2015] Russia overtakes Saudi Arabia as largest supplier of oil to China

Jun 24, 2015 | The Guardian

Russia has overtaken Saudi Arabia as the largest supplier of oil to China for the first time, sending almost 930,000 barrels a day last month – up 21% on April.

China imported 3.92m tonnes of crude oil from Russia in May. In comparison, oil imports from Angola and Saudia Arabia totalled 3.26m tonnes and 3.05m tonnes respectively.

Popeyes 24 Jun 2015 16:33

Just another example of Russia and China working together at the expense of the U.S. Currency swaps between Russia (ruble) and China (yuan) for an initial US$ 25 billion equivalent have already been implemented, to allow direct transactions between the two countries. Similar swaps are under way between China and Russia with other countries, primarily the BRICS and the Shanghai Cooperation Organisation.

In other words, a large junk of hydrocarbons are no longer being traded in US (petro) dollars, but in rubles and yuans and their partners respective local currencies, thus reducing worldwide demand for the petro dollar.

PlatonKuzin -> 6i9vern 24 Jun 2015 16:28

True. And what the US is now doing - to prevent the above said from happening - is preparing a war against Russia in Europe by proxy, using the same Europe. There is only one, but very important aspect crossing its dirty criminal intentions.

And that is that, if the US wages a war in Europe, this time, number one target of Russia will be the United States and the war will go on its territory. The States will not survive this time overseas. It must keep it in mind all the time.

6i9vern 24 Jun 2015 15:09

"Russia now accepts yuan for oil payments"

And so it begins - the end of the petro-dollar, the end of virtually all international trade being mediated in dollars.

And when that ends, the ability of the USA to run trillion dollar deficits at minimal cost goes. The state will have to shrink. The military industrial complex and entitlements will be radically cut.

70 million lower middle-class Americans will cease having First World lifestyles.

Kaiama -> sasha19 24 Jun 2015 15:04

Actually, I am aware that a deal was signed by Tsipras in St Petersberg to construct a gas pipeline to carry Russian gas from Turkey. But, and this is the crucial point, Russia's trade with China is growing: goods, energy and military technology. In the future, I would expect most of the petrochemicals and natural resources to be redirected to Asia rather than Europe. Yes, the Russians are trying to keep their European Business, but they are also developing the Asian alternative where people aren't trying to screw Russia at the same time. Long term, I suggest that trade with Europe, including gas, will decline permanently or at least for a generation until people have forgotten about everything.

Petar -> Peter iangio 24 Jun 2015 14:58

You probably meant ukrainian fascist butchering innocent children and women in Novorossia..but not for long .Russia is redirecting its exports to Asia to break independence on corrupt western money..once it is done..ukraine is doomed.

BMWAlbert -> Chirographer 24 Jun 2015 14:55

I think the 'out-of-ground' price in RU is Globally speaking, very low, but China tends to low-ball producing of all energy and materials with a provision of large volume and importantly, high reliability. It was the same with the NG, it was priced something like 30USD below the Euro-rate mean.

tiojo 24 Jun 2015 13:43

One of the expected consequences of US and EU economic sanctions on Russia. It finds other partners with which to trade. With the NATO sabre rattlers doing their best to keep themselves and their armed forces in employment combined with economic sanctions that build barriers rather than ties any thought of constructive dialogue seems to have gone out of the window. A pity that Ms Merkel seems to be sidelined in Greece. She seemed to be the only one who saw a future in a positive relationship between Europe and Russia.

MaoChengJi 24 Jun 2015 13:27

Calculations at the time shows Russia needs an oil price of $105 a barrel for its budget to break-even

Well, of course the budget is not sent down by God. They planned for $105/barrel, and now they'll have a different budget. Or they'll compensate by selling more oil. Or they'll use a part of their large rainy-day fund.

Phil_Paris -> oleteo 24 Jun 2015 12:52

It is not a coincidence that the huge increase of production of gas thanks to fracking has the consequence of lowering the sales of oil from the Saudi Arabia to the US.
Now China is buying a lot of oil from a Saudi Arabia.

Then the USA is not as dependant of Saudi Arabia, which is a reasonnable move after 9/11, but undoubtebly must retain good connections in the oil industry there which can be usefull when China is highly dependant on imported oil.

Phil_Paris -> quarrytone 24 Jun 2015 12:38

China doesn't "cement ties in South America", China for example makes agreements with Brasil to build a railway across the Amazonia to carry GM soya and cut the forest to export logs to China, and eliminate indigenous tribes if necessary
It's colonial.
As regards China and Russia, Russia has signed an agreement whereby it will sell gas to China with Chinese financing through a pipeline (built by Chinese firms, Chinese workers probably too as it would be naive to think that China will pay to employ Russians) not connected to the grid to Europe ie for the sole destination of China, hence China will hold Russia by the b....
In the South China Sea China is violating the International Law of the Sea and occupies islands and islets included in the EEZ of states thousands of km from its own shores.

quarrytone -> Phil_Paris 24 Jun 2015 11:49

However the biased press likes to dress it up, China does have a historic claim to uninhabited islands and reefs, however tenuous in Western law. Comparing that old KMT claim to a sudden annexation across a long settled border is faintly hysterical.

And no, there are not millions of Chinese on Russia's border. Clearly geography isn't your strong point. There are one or two cities with a couple of million doing well thanks through trade with Russia, and Russians doing very well in trade with China. If China wants farmland produce then that will only cement ties with Russia, as it does with South America.

[Jun 24, 2015] US productivity – the dog that isn't barking at the Fed by Gavyn Davies

"...The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. "

"...Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?"

Jun 21, 2015 | blogs.ft.com | 15 comments | Share

Before last week's FOMC meeting, there was much debate about whether the Fed would officially draw attention to the awful US productivity data that have been published lately. Both William Dudley and Janet Yellen have highlighted the problem in recent speeches, and there was speculation that some members of the FOMC might revise down their estimates for potential GDP growth at the June meeting.

In fact, however, they did not do so, preferring to sweep the problem under the carpet for at least another meeting. Instead, they focused attention on the "gradual" nature of the likely upward path for interest rates after lift-off, which now seems marginally more likely to start in December than in September 2015.

The FOMC's range for long run GDP growth fell sharply from 2011 to 2013, but has not been changed now for about a year. Potential GDP growth depends on underlying productivity growth, and on the projected growth in the labour force, which is about 0.4 per cent per annum at present. So the Fed's central projection of 2.15 per cent for potential GDP growth implies a productivity projection of about 1.75 per cent.

The problem, however, is that this range is not consistent with the actual productivity numbers that have been published at any stage during the present economic recovery. Since 2009, productivity has risen at an average of 1.5 per cent per annum while over the past two years it has risen at only 0.5 per cent. Normally, as a recovery matures, productivity growth should be speeding up, but that is not happening this time. At some point soon, the FOMC will need to acknowledge this.

Why does this matter for policy and markets? After all, in the period since 2009, the slowdown in productivity growth has occurred without this having any effect on Fed decisions, and without doing any damage to equity or bond prices. But that was in an environment of excess capacity in the economy, even with a very low estimate for potential GDP growth. Now that excess capacity has been nearly eliminated on many estimates, the growth rate in potential GDP could suddenly become a binding constraint on the economy.

A major downgrade to the FOMC's productivity projections would have very adverse implications for markets. Short term interest rates would need to rise more rapidly, for any given rate of growth in real GDP. Long term rates may rise by less, because the Fed's estimate of real long term interest rate – the eventual destination for rates during the tightening cycle – would probably decline with the underlying GDP growth rate.

That means the yield curve would probably invert, which is normally not a good signal for equities. Furthermore, a rise in unit labour costs, following lower productivity growth, could result in a decline in the profits share in GDP, which has been one of the key fundamental underpinnings for the equity bull market.

But before leaping into action, members of the FOMC will have to ask themselves at least three difficult questions about the productivity challenge. These are:

Is the slowdown being exaggerated by mismeasurement in the official economic data, because the impact of IT on productivity is being under-stated? This issue is now being widely debated, as it was in the late 1990s, when Fed Chairman Greenspan used the same argument to justify running the economy "hotter" than otherwise would have been justified. As far as we can tell, the current Fed is not as persuaded by the IT argument as Greenspan was. In her recent speech, Ms Yellen was agnostic on this debate: "I do not know who is right". Furthermore, there is no sign that the official statisticians are planning to reconsider the inflation and productivity statistics, as they did with the Boskin Commission report in the 1990s. Therefore, the current Fed will have no "cover" from an impending change in the official data to make a controversial judgment on productivity growth. They are unlikely to use this escape route.

Will productivity growth rebound automatically if the recovery in GDP accelerates? Ms Yellen has often suggested that this might be the case and she remarked in last week's press conference that this assumption has been built into the Fed's latest economic projections. But there is very little evidence that it is actually happening as the recovery matures. If that remains the case, there is scope for disappointment here, rather than the reverse.

How should monetary policy respond to an acceleration in unit labour costs driven by rising wage inflation at a time of slow productivity growth? The FOMC is aware that wage inflation is now starting to rise slightly on some measures, but it has shown no signs of alarm over this trend so far. Recent Fed research has suggested that the link between labour costs and price inflation is much less robust than it was in earlier decades, but it is questionable whether the FOMC will feel they can rely on this if the rate of increase in unit labour costs rises above 3 per cent. That may happen in the not too distant future.

What is the bottom line? The median of the FOMC's "dot plot" for the future path for short rates remains substantially above the path that is priced into the bond markets, though the gap has narrowed with the slight downward revisions to the dots that emerged after last week's policy meeting. Furthermore, there have been suggestions, after forensic analysis of the "dots", that the key members of the FOMC might be bunched around the dovish end of the range, so the difference between them and the market may no longer be very significant.

This means that, in the immediate future, the danger that a really hawkish Fed might shock the markets is still fairly slight:

The risk, however, is that neither the Fed dots, nor the markets, are making sufficient allowance for the looming threat to the path for short rates stemming from low productivity growth. The markets are increasingly aware that this threat exists. For example, Bruce Kasman of J.P. Morgan has been warning about "demand side optimism and supply side pessimism", a combination that sounds bad for US bonds and equities.

It will be hard for the FOMC to skirt round this issue for much longer.

MarkGB, 3 days ago

"Is the slowdown being exaggerated by mis-measurement in the official economic data, because the impact of IT on productivity is being under-stated? "
No - the whole picture of what is happening in the real US economy is being distorted by mis-measurement in the official economic data, through:
1. GDP figures that are being inflated by politically motivated 'seasonal adjustments', which conveniently support the Fed's jawboning of the stock market
2. Inflation figures that bear very little resemblance to rises in the cost of living, particularly for poor people, but which do very conveniently hold down annual rises in benefits and social security
3. Unemployment figures that:
a) Count 1+ hours a week as a job
b) When three of these jobs are being carried out by the same person that's counted as three 'jobs'

c) The jobs being lost are 50k+ jobs whilst the 'jobs' being gained are part-time low wage jobs

d) The majority of these jobs are being taken by the 50 plus age group, not young people

In short, the official presentation of what is happening in the US economy is as bent as a nine dollar note...garbage in, garbage out.

You are right Mr Davies, productivity is being eroded - the life is being sucked out of the US economy by the distortions and mal-investments generated by Federal Reserve monetary policies, coupled with governmental taxation, regulatory and fiscal policies that urgently need reform, which, amongst other things make it increasingly difficult for small businesses to create new jobs.

Politicians and government academics typically don't 'get' productivity. Most of them have never produced anything. They are like kids who want a McDonald's but have never even seen a cow, let alone worked on a farm.

/B
3 days ago

@MarkGB plus GDP itself is nuts. Most credit creation is through lending against land. We have the inversion of demographics now the boomers are retiring and have (thank god) started to end borrowing against land. Therefore GDP will fall, even as we see fantastic increases in wealth creation due to an IT revolution.

GDP is just not useful. For the life of me I can't understand why when most newly created money is via housing that we are not spending more time discussing land.

Imputed rent alone accounts for 10% of GDP. Yet the FT just never ever talks about any of this in detail.

Paul A. Myers, 4 days ago

The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. This contrasts sharply with Jeb Bush's assertion that he can achieve 4 percent GDP growth (which an FT editorial characterizes as absurd). But the key point is that the US political establishment in Congress is at best very confused about the drivers of current GDP growth.
My surmise is that to increase US GDP potential would require a significant increase in public spending on infrastructure and research -- that there is private capital sitting on the sidelines due to a lack of public investment. If so, then further tax cuts and less government spending -- the bromides the Republican party are bringing to the 2016 election -- are the wrong medicine.
So better private sector growth will require more public spending. Obviously this is a counterintuitive argument to most voters. It will be interesting to see where the US government goes in 2017 and beyond with regard to public investment. And will this even be an issue in the 2016 campaign.

Michael McPhillips, 3 days ago

@Paul A. Myers
As public spending is already included in GDP from those who pay the taxes and deficit spending still the only way government can increase growth (IT figures for it) are you saying that only with infrastructure spending can private capital also invest and not from tax cuts and lower public spending, which would increase demand and slow the rate of future tax increases, which would encourage investment.
Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?

cg12348, 3 days ago

Reality is starting to set in - the US is in decline - due to demographics and global competitive forces. Now as with all liberal governments - social programs try to compensate for those things productivity is expected to make ore available - far less efficient coming from social programs than private markets - the spiral continues.

joshuak2077, 3 days ago

To consider expanding Inflationary forces because of trailing productivity does not take in considerations the exogenous forces coming from abroad that suppress Inflation. The ways economists evaluate and predict at the moment is profoundly endogenous and therefor shortminded.

FRUSTRATED SAVER
3 days ago

If the us is now running near full capacity surely we should expect domestic investment to
accelerate isnt that the indicator the fed should be watching alternatively there is excess capacity in other parts of the world(china for instance) and in a world of competetive devaluations
this is going to worsen the trade deficit as it has in the past. and may not be inflationary
making the conundrum worse

[Jun 23, 2015] Rumors of bond Armageddon are exaggerated By Agnes T. Crane, Neil Unmack

Economy is too weak to survive series of Fed rate raises. So there will be just minimal token gestures. The article below is from 2013. So it is more the two years old.

May 28, 2013 | breakingviews.com/
Rumors of a credit bubble are only partially exaggerated. Tell-tale signs of a boom seem to be everywhere. Yet, most investors aren't panicked. Who's right? Breakingviews offers a bubble-meter for the credit market.
Raw yields aren't a clear indicator. Central-bank buying helps keep returns down on government bonds so fixed income investors who want higher returns have to buy debt issued by companies more prone to default. The dash for yield makes a bubble more likely.

The five-part bubble-meter marks on a scale of one to 10, with one indicating ridiculous caution, five healthy moderation and 10 a mania in the style of 2007.

1) Are yields too low?

The premium investors charge to compensate for default risk has fallen by nearly a percentage point on average, helping to knock down yields to around 5.5 percent, according to JPMorgan. Moreover, there are signs that investors are failing to discriminate between borrowers. The 3 percentage point premium for bottom-of-the-barrel CCC-rated debt over comparable single-B paper is less than half the historical differential.

As of May 17, U.S. junk bond spreads were 1.33 percentage points too low to compensate for default risk, according to a model devised by bond veteran Marty Fridson. But then again, the average junk spread in 2007 fell to 2.5 percentage points, a little more than half today's levels. Bubble rating: 8/10
2) Is there too much debt?

A surge in high-yield issuance is normally a pretty good sign of a bubble. There has certainly been a lot recently. So far this year global high yield bond sales have topped $200 billion. That's already above the highest full year in the last cycle, according to Thomson Reuters data. Leveraged loans are also smoking hot, with new issuance on track to beat the $688 billion high-water mark hit in 2007, according to LPC data.

But there's a hopeful caveat. New leveraged buyouts aren't driving the fundraising. Much of the recent burst has actually been risk-reducing, as companies have refinanced old debt at lower rates and longer maturities. For example, in 2009 a seemingly-impossible $204 billion worth of debt from junk-rated U.S. companies was set to mature this year. Thanks to refinancing, the actual sum will be a tenth of that. Bubble rating: 7/10
3) Are terms and conditions too generous for borrowers?

In hot markets, issuers can get away with higher leverage ratios and looser lending terms. Currently, they are doing both.

The average debt-to-EBITDA multiples on U.S.-sponsored LBO deals has averaged 5.5 times this year and last, up from 4.2 times in 2009, according to LPC. Yet it's still below the 6.5 average in the 2007 LBO peak year. Meanwhile, issuance of so-called covenant-lite loans, which give lenders weak or no enforcement rights when borrowers' profits fall, has soared to all-time highs. And issuance of particularly lender-unfriendly Payment in Kind (PIK) loans was up around 13-fold last year from 2010, according to Morgan Stanley. Bubble rating: 9/10
4) Are financial engineers too active?

In the last credit bubble, banks' whizz kids created imaginative securities - collateralized debt obligations, structured investment vehicles and complex derivatives - to juice up leverage and inject liquidity into markets. In 2006, global CDO issuance reached half a trillion dollars. In the first quarter of this year, only $23.5 billion have hit the market, according to SIFMA.

True, exchange-traded funds are booming, but they mostly don't use leverage. Still, the ETFs are untested in a downturn, and a rush to sell could precipitate a rout. Even if financial engineering is subdued, the growth in funds owned by retail investors, like mutual funds, could be a source of turmoil. Bubble rating: 4/10
5) Are investors too complacent?

When credit conditions are loose, even the weakest companies can find funding. That puts a lid on defaults and breeds investor complacency. In 2007, defaults were less than 1 percent of outstanding debt defaulted. Two years later the ratio was over 8 percent.

Cheap funding provided by central banks has kept defaults low, even though GDP growth has been slow. The average default rate for single-B credits over the last four decades was 5 percent, according to Deutsche Bank, but only 1.6 percent in the last decade, despite two financial crises. In a world where credit risk is banished, investors are bound to get sloppy. Bubble rating: 7/10
Tot it all up: there's an abundant amount of cheap debt on increasingly loose terms. But the unweighted average score of seven on the bubble-meter indicates credit markets aren't yet showing the kind of excesses seen in the 2006/2007 boom. The bad news: it may not take long before they get there.

[Jun 23, 2015] "The End Of The Road" - Debt-Funded Buyback Boosts Are Finite

"...inorganic measures to boost profitability, like cost-cutting, wage suppression, layoffs, and stock buybacks, are finite in nature."

"...The question that investors need to be asking is what happens when companies inevitability reach "the end of road." Importantly, with the Fed determined to begin hiking interest rates, despite weak economic data, the end may be nearer than most are currently expecting."

"...More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year's record.""

Jun 23, 2015 | zerohedge.com

The problem for investors is that inorganic measures to boost profitability, like cost-cutting, wage suppression, layoffs, and stock buybacks, are finite in nature.

Eventually, these options are exhausted. There are only so many employees that can be terminated, wages can only be suppressed for so long, and there is a finite number of shares that can ultimately be repurchased from shareholders.

The question that investors need to be asking is what happens when companies inevitability reach "the end of road." Importantly, with the Fed determined to begin hiking interest rates, despite weak economic data, the end may be nearer than most are currently expecting.

... ... ...
This aggressive use of this tactic was brought to light recently in a Bloomberg article by Oliver Renick which stated:

It's official, using proceeds from debt sales to send cash to stockholders has never been more popular.

Standard & Poor's 500 Index companies listed buybacks or dividends among the use of proceeds in $58 billion of bond deals in the past three months, the most on record, according to data compiled by Bloomberg and Sundial Capital Research Inc. More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year's record."

While there is much talk about the end of the "bond bull market," recent data suggests that this is far from the case. Investors, yield-hungry in a near zero interest rate environment, remain eager buyers of any and all debt issued, even if that debt is "junk rated."

[Jun 23, 2015] If you are heavely invested In stocks be ready for surprises

This one is from Hussman's weekly letter. He is based his prediction of the current value of the Q Ratio. The fact that we saw such pronouncements for a couple of years from ZH does not mean that current situation is healthy. That only means that the timing of correction in unpredictable. ECRI's most recent article presents slides and notes from ECRI's Lakshman Achuthan talk at the Madrid Fund Forum conference. He discussed the relationship between lower trend growth and recessions. "ECRI believes that minimally we're returning to a period of more frequent recessions, as we saw in much of the twentieth century....Going back to at least the 1970s, growth has been stair-stepping down during each successive expansion."

Jun 22, 2015 | zerohedge.com

Today will go down in history as one of the worst times in history to be invested in the stock market. Virtually no one believes this statement. That is why it will prove to be true. Every valuation method known to mankind is flashing red. A crash is baked in the cake. Will the trigger be Greek default, a Chinese market crash, a Fed rate increase, a derivative bet going boom, a Middle East event, someone doing something stupid in the South China Sea, a Ukrainian eruption, or a butterfly flapping its wings? When greed turns to fear, for whatever reason, the house of cards will collapse for the 3rd time in 15 years. Thank the "brilliant" bankers at the Federal Reserve.

[Jun 21, 2015] Game of chicken over Greece risks slipping out of control

Greece's bailout program expires in 10 days and money is draining from the country's banks. The resulting financial blowup could slip out of control and lead to Greece's departure from the 19-nation eurozone.

... ... ...

One crunch date is June 30. That's when Greece's bailout program expires and the last 7.2 billion euros ($8.1 billion) left in it will no longer be available.

On the same day, Greece has to pay the International Monetary Fund 1.6 billion euros ($1.8 billion) and it doesn't have the money to do so. If it doesn't pay, it won't be immediately declared in default by ratings agencies. But the IMF also says it wouldn't be able to lend Greece new funds until the arrears are taken care of.

the days go by and Greece and its creditors bet the other side will fold, the risk is that the politicians will be overtaken by events. The threat many economists cite as the major one: the possibility of a run on the banks in Greece.
The Greek government could try to stem that by imposing limits on withdrawals.

If the banks are seen as failing and the government is defaulting on its obligations, the European Central Bank would eventually face a decision on whether to end the emergency credit it allows Greeks banks to draw on to survive. The ECB, which represents all 19 eurozone countries, would be risking losing central bank money on a failing banking system.

Out of euros, the Greek government might have to print a new currency to rescue the banks and to pay its bills.

... ... ...

JJbama

If they don't default now, Greece will continue to take up all the administrative energy of the EU for the foreseeable future. That is until Spain, Italy and Portugal realize the consequences aren't so bad for ignoring budgetary guidelines, then all four will be basket cases. The EU won't be able to print money fast enough to prop up all four, so it will sink under its own weight. That will be a REAL shock to the world banking system. Let Greece default now, leave the Euro, and suffer the short-term consequences before the contagion spreads. They will be better off in the long run being able to devalue their currency as needed, and the Euro will survive.

Patrick M

I'm from Ireland. I agree with JJbama. If they allow Greece to it their way , the other countries will see Germany blinked and will elect Politicians that will allow them to go back to their "footloose and fancy free" ways.

Even though there are anti-austerity folks in Ireland, we do not forget the '80's and the "Mac the Knife" austerity combined with Foreign Direct Investment that produced the "Celtic Tiger" (Of course it also produced the materialist and greedy form of capitalism championed by the USA) which thankfully most Irish have now abandoned.

NAVYNUKE

Most people living today have never seen a good old fashioned bank run except watching "It's A Wonderful Life".

Fractional reserve banking requires only 10% reserves in cash, and those depositors slow to react will find the euros they deposited have been converted to worthless drachmas, or just vanished into thin air.

Monday should be a free-for-all.

Michael

There is no way in this world economy, with the coming political wars, and the real live wars, that the EU can continue to hold up Greece and they will not do anything to make it work, they are socialist and now as you see they do not want to pay back what they borrowed, they want it forgiven and more loans given.

The EU is crazy to keep such a weak link in their organization, they have several more that will fold in the future if the economy goes the way of the world conflicts on the horizon.

I think eventually the EU will fold under world tension and world economic pressures coming down the road for the whole world to contend with.

G

A committee convened by the Greek parliament has claimed much of the country's debt of 320bn euros was illegally contracted and should not be paid. Bail-out discussions should not take one more step until the Greek parliament votes to repudiate this position and affirms the full and legal debt obligation that the country owes its creditors.

Wolfowitz Doctrine

The US benefits greatly if Greece leaves the Eurozone and EU crashes.
As the world's ONLY universal currency. where we have exclusive keys to the printing press to make as many new dollars out of thin air as we want, nobody with threaten the US Empire.

FREEDOM

There is no solution to this mess- The Greeks can never repay the money loaned to them and the IMF and ECB knows this- this is a giant dog and pony show to help mitigate the fallout to what is the inevitable outcome. And to my fellow American peasant citizens - we too can never repay our debts - the only reason we are not in default is that we are the world's reserve currency status. This enables us the ability to manufacture and print money endlessly. When that privilege ends ( and it WILL end ) we will be in a position exponentially worse than Greece.

[Jun 21, 2015] China's stock market dream could bring about its worst nightmare

"..."The tide is going to go out, and there's going to be a lot of people without their swimming trunks on,""

China's ruling Communist Party has made it clear that it has a mortal enemy: social unrest.
Separately, it has also made it clear that the Chinese people should be heavily invested in the stock market.
And so, dutifully, the Chinese people have done just that, spurring the longest bull market in the country's history - the glorious 100% rally of the Shanghai Composite over the past year.
Unfortunately, it looks as if that rally may be coming to an end. This week, the Shanghai composite had its worst week since 2008, falling 6.5% on Friday. It is now officially in correction territory.

"The tide is going to go out, and there's going to be a lot of people without their swimming trunks on,"

Ewen Cameron Watt, chief investment strategist at BlackRock - which oversees $4.8 trillion as the world's biggest money manager - said in an interview on Bloomberg Television in London. "We're seeing it deflating quite rapidly."
When that happens, these two separate ideas - investing in the stocks and social unrest - could come together and turn China's Shanghai Composite dream into a nightmare.

[Jun 20, 2015] Wave of Defaults, Bankruptcies Spook Bond Investors

naked capitalism

For the week ended June 17, investors yanked "a whopping" $2.9 billion out of junk bond funds, according to S&P Capital IQ/ LCD's HighYieldBond.com, on top of the $2.6 billion they'd yanked out in the prior week.

Those redemptions dragged down the year-to-date inflows to $3.6 billion, nearly 40% below last year at this time. But $201.5 billion remain in those funds.

Jill, June 20, 2015 at 8:12 am

Henry Ford was a fascist who hated Jewish people. Still, he got something right. People need to earn enough money to buy your product. If they can't, your business is going down.
I know several local small business owners who have successfully been in business for a long time. They are now struggling to stay open. People cannot afford to patronize them as before. They are scared. These are people who have worked really hard to make their business a success. It's not working any more.
The ruling elite thinks its going to be fine forever. In this, they are mistaken. As they bring down the economy again (really they never stopped since 2008 and before), they apparently believe they will thrive when the vast majority of people can't pay for housing, food, utilities, etc and get to live on a poisoned planet. Yes indeed, these are our "best and brightest".

Eileen Appelbaum, June 20, 2015 at 11:05 am

Private equity firms stepping in to fill the gap created by exits from junk bond funds and limits that regulators have placed on leveraged loans by banks http://www.bloomberg.com/news/articles/2015-02-02/kkr-seizing-on-banks-withdrawal-amid-leveraged-loan-clampdown.

Interest rates higher than junk on loans to oil and gas.

susan the other, June 20, 2015 at 11:43 am

Another catastrophe for pension funds? CDO holders might follow the MBS lead and sell everything to the Fed. So that might be a new QE. Or it might just be business as usual for the Fed that has never stopped buying this stuff.

[Jun 20, 2015] Paul Krugman Voodoo, Jeb! Style

"...Selling tax cuts for the wealthy with unrealistic promises about growth"
.
"...Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
By Josh Barro"
.
"...Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years."
.
"...We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world. Then the neolibs took over and screwed it all up."
.
"...If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growingthat state at 4% is based on blowing a "...catastrophic bubble"
.
"...And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.
.
Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.
.
Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity."
.
"... Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right. So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
.
"...Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity."

Jun 20, 2015 | Economist's View

Selling tax cuts for the wealthy with unrealistic promises about growth:

Voodoo, Jeb! Style, by Paul Krugman, Commentary, NY Times: On Monday Jeb Bush - or I guess that's Jeb!,... gave us a first view of his policy goals. First, he says that if elected he would double America's rate of economic growth to 4 percent. Second, he would make it possible for every American to lose as much weight as he or she wants, without any need for dieting or exercise.

O.K., he didn't actually make that second promise. But he might as well have. It would have been just as realistic as promising 4 percent growth, and considerably less irresponsible. ...

Mr. Bush ... believes that the growth in Florida's economy during his time as governor offers a role model for the nation as a whole. Why is that funny? Because everyone except Mr. Bush knows that, during those years, Florida was booming thanks to the mother of all housing bubbles. When the bubble burst, the state plunged into a deep slump... The key to Mr. Bush's record of success, then, was good political timing: He managed to leave office before the unsustainable nature of the boom he now invokes became obvious.

But Mr. Bush's economic promises reflect more than self-aggrandizement. They also reflect his party's habit of boasting about its ability to deliver rapid economic growth, even though there's no evidence at all to justify such boasts. It's as if a bunch of relatively short men made a regular practice of swaggering around, telling everyone they see that they're 6 feet 2 inches tall. ...

Why, then, all the boasting about growth? The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.

There is, of course, a term for basing a national program on this kind of self-serving (and plutocrat-serving) wishful thinking. Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right.

So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
Dan Kervick said in reply to pgl...

That's the kind of short-term thinking we could use a lot less of. Clinton unleashed the banks and neutered the regulatory apparatus, which directly set the stage for the financial crisis of 2007/8. He himself has expressed regret about these policies, but many in the Clinton loyalist bloc in his party still have trouble grasping the point.

He also happened to be sitting in the Oval Office when a (harmful) dot-com bubble and (useful) productivity surge took place, driven by tech developments coming to fruition that Bill Clinton did absolutely nothing to catalyze. Those developments were the outcome of decades of government-driven R&D in the various components of computer and internet technology. Clinton reaped the political benefits of that earlier big government investment, but presided himself over further reductions in government driven by the reigning neoliberal small government philosophy.

The stagnation we are currently experiencing is, in part, the result of four decades of failure by both parties to accept the responsibilities of government leadership in the technological and infrastructure development ares, and to seize opportunities for transformative national and global development of the kinds that that only governments are capable of carrying out.

Inequality also surged dramatically under Clinton. Of course this was not all attributable to Clinton himself, but was an outcome of the reigning neoliberal approach to political economy, and long term trends in finance, corporate organization and tax policies that prevailed throughout the neoliberal era under Reagan, Bush I, Clinton, and Bush II - and which have sadly continued under Obama.

anne said in reply to anne...

http://www.nytimes.com/2015/06/18/upshot/economists-advise-us-not-to-hold-our-breath-on-jeb-bushs-growth-target.html

June 17, 2015

Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
By Josh Barro

Jeb Bush set out an aggressive economic growth target in his campaign announcement speech Monday: four percent real G.D.P. growth, for a decade.

"It's possible," he said. "It can be done."

Don't bet on it.

Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years.

After 2020, with the percentage of the American population that is of prime working age shrinking, the Congressional Budget Office expects growth to stabilize at 2.2 percent. Hitting Mr. Bush's target would require nearly doubling that pace. It would mean exceeding the economic performance of every presidential administration since the Kennedy-Johnson years despite demographic headwinds caused by baby-boom retirements....

Dan Kervick said in reply to pgl...

It was more than that. We still had a Vietnam war post-1966, but growth began to fall. And the Iraq War never gave us growth rates of 5%, 6% and 7%. Something else was going on. Some of it was just the baby boom, but we were also carrying out massive public investment projects: GI Bill, highway plan, space program and more.

Why are you so eager to disparage the progressive achievements of the postwar period that took place under assertive, forward-leaning government, and make it look like it was all military? Democrats should try to take credit for that stuff. We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world.

Then the neolibs took over and screwed it all up.

Stop trying to run away from all the things we did right. We can do that kind of thing again, but the challenges are different now. We have to remake the global system because otherwise we will destroy the planet. Our social system is crumbling. Water resources are in jeopardy. Our consumption patterns are irrational, inefficient and unbalanced. If we don't act now we are headed toward a future of pollution, resource wars, caste fragmentation and impoverishment.

The Pope just sent you guys another big fat hanger to hit out of the park and you seem to want to take it off your head again.

Wake up. Think bigger. Good lord; it's not about the freaking interest rates.

DeDude said in reply to anne...

If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growing that state at 4% is based on blowing a catastrophic bubble - is that what he will do to grow the national economy by 4%? The only way to grow the economy by 4% is to increase the income of the consumer class by 4% - that is not going to happen with another Bush in the white house.

anne said in reply to DeDude...

If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic....

[ Population growth is 0.7% yearly, while total factor productivity growth has averaged 1.2% yearly since 1948. That leaves 2.1% growth with an employment-population ratio that is far below that of other healthy developed countries.

China has averaged 8.6% per capita GDP growth yearly since 1977, or for 38 years, and how this has been done should be thoroughly studied. ]

DeDude said in reply to pgl...

Agree, the conversion of their population from dirt poor subsistence farmers to productive factory workers (and consumers) has been a substantial driver of Chinese GDP growth rates. The appear to understand that they have reached a size where they can no longer rely on mercantilism and need to transform to a true consumer economy - so they probably will be able to continue outpacing the US growth for at least another decade or two. Especially if we continue to elect people who fail to "get" such a basic concept as that economic growth originate in increased consumption.

Peter K. said...

This is the Krugman I don't like. I understand what he's doing - a Jeb! presidency with a Republican Congress would be a nightmare - pace Paine and Kervack - but he should spare a paragraph why Obama's growth rate sucks so bad and why long term growth rates are coming down from the Golden Era of rising living standards.

Marco policy. Unions. Inequality. Boom/bust cycle. Obama picked Bernanke and Geithner and listened to them. That's why his growth rate sucks, not demographics. And a crappy economy doesn't help with race relations.

Dan Kervick said...

I responded briefly to this in the other thread where Fred Dobbs posted it, but I'll expand a bit here.

Paul Krugman thinks we don't know how to make make long-run growth happen as a matter of deliberate policy, and that changes in long-run growth patterns are unpredictable. But I think he's much overstating the case. We know that if we shift overall spending at the national level from wasteful consumption into investment, R&D and capital development, we can build up the productive capacity of the country and achieve much higher levels of GDP growth for some years in the short term, and much higher overall GDP in the long run. It's true that we can't sustain annual growth at some arbitrarily chosen high level over a long run. But even 10 years or so of surging growth followed by a leveling off would mean we level off at a higher level of prosperity than we get from perpetuating our current pattern of sluggish growth indefinitely.

And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.

Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.

Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity.

We don't know how to create sustained high growth over many years? Tell that to the Chinese. Tell it to the economic engineers who doubled US annual output between 1939 to 1944, when failure was not an option. Tell it to the people who engineered high average growth between 1950 and 1965 by sustaining government investment at a much higher level than we do currently. Marianna Mazzucato, among others, gets this stuff. Loser liberals from the boomer generation often don't. They are stuck in the neoliberal paradigm of an economy that is "self-adjusting" over the long run, and where the only role for government is short-term stabilization and running a safety net.

The only thing standing between us and a major American liftoff is ideological stupidity and lack of political will. The visionary engineering portfolios of the worlds creative people are overstuffed with incredible plans: entirely new kinds of cities; transoceanic tunnels, redesigns of entire energy grids and transportation systems. What is lacking is leaders with a clue and the willingness to call for the kind of organization, planning and mobilization to make these things happen.

Suppose a president shoots for 4% and we only get 3.5%. How have we lost? And who pays the political price? The guy who set the high target and then laughs, "Hey we only got 3.5% - just shoot me." Or the snarky smart guys on the sidelines who say, "I told you we didn't have it in us."

Krugman has been writing some good stuff lately, but these recent kneejerk columns about Jeb Bush are Krugman at his absolute worst. Whenever he puts on his blue team baseball cap and descends into this kind of shallow hackitude, his IQ goes down 50 points. If Jeb Bush said, "We're going to end cancer in our lifetime!" I now fully expect Krugman to come back with, "That's so unrealistic; we don't know where cancer comes from."

Peter K. said in reply to Dan Kervick...

If you push the monetary-fiscal mix (and trade) you can get higher growth and higher productivity.

That means looser monetary policy and more fiscal policy until inflation picks up. That also means distributing income more widely, via unions and better labor laws and regulating banks effectively, including better credit policy.

If Obama had better monetary and fiscal policy (and a competitive dollar) during his Presidency his growth rates would have been better.

Instead they were worried about the deficit and inflation becoming "unmoored" or a problem some day.

Phantom issues.

Dan Kervick said in reply to Peter K....

Yes, too much concern about restrictive target rates and parameters. And although some of the economic goals can be described in abstract macroeconomic terms, the policy instruments can't be addressed purely macroeconomically. It's a matter of choosing the world we want to live in and then building it - on purpose, deliberately. You can't just shoot for an interest rate and inflation rate and then expect that better world to emerge from from private enterprise on its own.

Businesses have already had the most favorable credit conditions anyone can reasonably want, and still very few of them are building the future we need or expanding ambitiously. They lack courage and a sense of direction because of an absence of leadership. So their hunger for "safe assets" and rent-collection schemes is endless.

DeDude said...

"He managed to leave office before the unsustainable nature of the boom he now invokes became obvious."

Yes Jeb Bush has a slightly better timing than his big brother George, who did not get out before the collapse of the bubble he had created and lived high on. Unfortunately, the only way GOP presidents can get growth is by blowing bubbles. That will create additional "money" in the system which can be used to push the main/only driver of GDP growth - consumption.

As much as GOPsters try to avoid dealing with the "gravitational law" of economics they can only postpone it. Economic growth is driven by increases in consumption, which means either bigger government or increases in money to the consumer class.

The only palatable way for the party of the rich to get to that is by blowing bubbles in some asset class held by the upper half of the consumer class. But then they have to time those bubbles such that they blow up during a democratic presidency (to avoid being blamed for what was their fault)

Lafayette said...

{PK: The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.}

It is amazing that "getting rich" should be so ingrained as part and parcel of the "American Way of Life".

People, since antiquity, have always wanted to praise their "heroes". Typically, Roman generals would return to Rome to parade their booty in front of the population. No doubt, those generals then got involved in Roman politics. Otherwise, why risk your life on the battle field.

Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity.

Why, otherwise, would stupendous lottery wins be such an attractive way to waste one's money ... ?

[Jun 20, 2015]I Agree with Milton Friedman!

June 15, 2015 | The Baseline Scenario | 7 comments
By James Kwak

In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable. In particular (pp. 164–66):

"Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth.

"This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

"Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as 'deserving'; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit."

I think Friedman is correct here. This is basically the same point that I made in my earlier post: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Read more at Medium.

William Fairburn | June 15, 2015 at 3:26 pm |
But outcomes are path dependent. If my hard work is valuable because a drug lord values my services, then one could argue that my income is not morally justified. Similarly, if capital is distributed the way it is because of generations of unlevel playing fields, different sets of rules, criminal behavior etc, and capital dictates the value of various types of hard work, I think similar logic applies. (If people like me controlled all wealth, there would be no Wall Street and no hedge fund managers to complain about)

Pavlos | June 15, 2015 at 3:44 pm |
If you unpick the chain of causality, very little difference in income ends up being attributable to a difference of preferences between leisure and work. Differences in disposition between, say, artistry and banking would be more significant but does that justify a difference in reward? Perhaps selfishness makes you rich, is that a good thing?

In the end almost no differences in wealth is a matter of free choice. Right-wing people would say it's all preference between industry and idleness.

Differences in income would be much better justified as different power to allocate resources than different license to consume. If I started a bakery, tech startup, etc. maybe it's fair that I get to control how that thing evolves. Control as reward for success seems fair and efficient. Consumption as reward for success much less so.

anijioforlawrence | June 15, 2015 at 4:58 pm |
Reblogged this on xdayschocolate.

Aaron Parr | June 15, 2015 at 5:45 pm |
I see such distinctions as getting lost in the weeds and thus meaningless.

The problems of our economy do not stem from the differentials of merit between different kinds of wealth acquisition. The problems with our economy stem from the inherent class conflict in the Capitalist system. You have one class of owners/decision makers and another of workers. Instead of a system that all of us have influence over and work hard to improve, we have a system which concentrates wealth in fewer and fewer hands, and thus tends to the same kind of structure as in the moribund, totalitarian systems it is said to be superior to.

This is not even remotely complicated. Those of us in the middle classes however are so desperate to justify our relative positions of comfort and privilege with the myth of meritocracy that we lose sight of the real world around us. The most essential work is the least paid. The higher paid work is important only to an increasingly smaller group of people.

Until we have a society in which workers, owners, and directors of enterprise are 100% integrated (meaning that when there is no separation between workers and capitalists) it will never be even close to a meritocracy in the long run, and we will be less and less capable of directing our labor toward things that we actually need to be doing. Instead we are busy working to make the rich richer and anything that doesn't help the rich in the short term is sacrificed by those making the decisions. And while in theory Capitalism embraces market structures which are supposed to distribute decision making, the concentration of wealth and power renders the market impotent int his regard.

In short: Capitalism over time becomes less and less capable of directing the economy to work of any merit to the majority of the population because its basic structure ensures the concentration of wealth and centralization of control in the hands of the few who are not properly motivated to care or even be particularly good at managing the wider economy. (In fact they are particularly bad at it)

It would be much better to have all enterprises run, owned and directed by the workers with no capitalists as we know them today involved at all. Capital is thus decentralized (rather than dominated by a wealthy individual or a state run bureaucracy), and individuals running the enterprise are not motivated to acquire wealth at the expense of the enterprise and other workers.

Ron the Jew | June 16, 2015 at 9:22 am |
Have y'all actually read real history? myth of meritocracy? while there is a difference between working hard and working smart, I have lifted myself out of the low end and can now pay for many others comfortable lives via the taxes I pay. In my case, meritocracy has worked really well to reward behavior that pushes all of society forward.

No other system in the history of the world has done more to lift the average Joe than this system. It's not perfect. But, it is by far the best one yet. At least if results matter at all.

Ann | June 16, 2015 at 4:16 pm |
I want a divorce, "Ron the Jew".

Sure, I had the "right" to make my life less miserable through honest work, I just wasn't allowed to own anything that I worked to create to make me less miserable – like food clothing shelter and the company of good people living with the same values – the "rule of law".

Steve Vallo | June 19, 2015 at 4:56 pm |
It is not money as a thing but the ancillary byproducts – education, connections, influence, etc. With money I can buy the expertise of someone when I have no inherent expertise or abilities of my own. I get as many chances as I want but you don't. In fact, I would have a greater ability to be criminal and immoral without consequence, so you could legitimately ask of wealth concentration by inheritance actually sets back all of humanity by granting greater control to people with those type of personality characteristics.

[Jun 20, 2015] Junk Bonds Are Not Leading Stocks Yet

Jun 20, 2015 | Jeremy L. Hill's Blog

Focus for a moment on how bonds and fixed income volatility affect the stock market. There is little doubt that a bond market crash (or melt up) will highly impact the U.S. stock market. We've already seen U.S. Treasury Notes rise in yields which has fired the racing gun for bond repositioning. Yesterday, Lipper reported that investors withdrew $2.6 billion from high yield bond funds last week while equity funds saw an inflow of $2.8 billion.

Here's the rub. High yield bonds have outperformed stocks so far in 2015 in many respects. Looking at the high yield indices published by Merrill Lynch, both higher rated and triple C rated high yield bonds have outperformed the S&P 500 which is up 2.45% year to date.

OK, actually that is slightly inaccurate if you include dividends which juices the total return to 3.40% year to date. The point is that high yield bonds have done pretty well in 2014 relative to other bonds and other asset classes? Why? Because high yield bonds are generally about idiosyncratic risk at the company and paper level, rather than about a sector or a market. The implication is that some level of market risk can be avoided in high yield debt when investing in individual companies (not ETFs or funds).

The question now becomes whether the U.S. high yield market will lead equities lower? There has been much discourse as to whether a selloff in the high yield market would bleed into equities. Conversely, some commentators have posited that a selloff in the bond market will be constructive for stock prices as money coming out of bonds will gravitate to stocks. Maybe. Maybe both are right and wrong and at the same time and for different reasons.

The correlation coefficient between U.S. high yield bonds and stocks – using the iShares iBoxx High Yield Corporate ETF (ticker: HYG) and the S&P 500 as benchmarks – shows a very strong correlation between the two assets classes: 85% roughly.

This does not mean that high yield bonds lead U.S. stocks, or vice versa. Markets and the punditry tend to overstate these types of relationships but they are frequently temporal in nature. It makes sense that stocks and high yield bonds are correlated – both assets depend upon the general state of the economy for earnings growth and minimalizing of credit risk. However, the notion that one can trade stocks based upon high yield market is a generalization and void of the much higher level of analysis that should be employed when trading asset correlations. More simply and importantly, watch for (all of a sudden) high levels of bond market volatility. That is what can be stated as a "risk off" factor and will likely bounce stocks indices around in its wake.

For more information on Old Blackheath Companies and our services go to http://www.oldblackheath.com/

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DISCLAIMER: NOTHING HEREIN SHALL BE CONSTRUED AS INVESTMENT ADVICE, A RECOMMENDATION OR SOLICITATION TO BUY OR SELL ANY SECURITY. PAST PERFORMANCE DOES NOT PREDICT OR GUARANTEE FUTURE SIMILAR RESULTS. SEEK THE ADVICE OF AN INVESTMENT MANAGER, LAWYER AND ACCOUNTANT BEFORE YOU INVEST. DON'T RELY ON ANYTHING HEREIN. DO YOUR OWN HOMEWORK. THIS IS NOT A RESEARCH REPORT. THIS IS FOR ENTERTAINMENT PURPOSES ONLY AND DOES NOT CONSIDER THE INVESTMENT NEEDS OR SUITABILITY OF ANY INDIVIDUAL. THERE IS NO PROMISE TO CORRECT ANY ERRORS OR OMISSIONS OR NOTIFY THE READER OF ANY SUCH ERRORS OR OMISSIONS.

[Jun 19, 2015] United States of Amnesia

May 19, 2015 | jessescrossroadscafe.blogspot.com

"We are the United States of Amnesia, we learn nothing because we remember nothing." -- Gore Vidal
Stocks backed off their exuberant rally high from last Friday after that 'goldilocks' job number.
The 'global bond rout' has investors nervous, and well they might be.

We are led by narcissists and sociopaths, in a most unwholesome partnership between the public and private sector.

And the most feral, counterproductive response of self-proclaimed 'reformers' is to eliminate government, to nullify it, so that in their very deluded and romantic imaginations the monied interests can refrain from acting as lawbreakers, since at their core these most selfish and cunning of predators and sociopaths are really yearning to be, think, and act like angels.

And what will we do, having deregulated our markets, freed them from restraint, and eliminated the laws so that none may be lawbreakers. What will we do when the very heart of darkness has a freer reign to blow the winds of plunder and power over the lands, with nothing to provide us a foothold or an anchor, the laws which are the pillars of justice having been all overturned?

Have a pleasant evening.

[Jun 19, 2015]BLS Twenty-Five States had Unemployment Rate Increases in May

sum luk wrote on Fri, 6/19/2015 - 8:15 am (in reply to...)

josap wrote:

First-Quarter Growth Disappoints, but Outlook Robust

… yes, but now, cpi / pce have been saved by rising gasoline prices: http://floatingpath.wpengine.netdna-cdn.com/wp-content/uploads/2015/06/CPI-Table-820x567.png

arthur_dent wrote on Fri, 6/19/2015 - 8:29 am

we all know by now, but it does not hurt to be reminded,

The Fed Sucks At Economic Forecasting

(second topic down)

KarmaPolice wrote on Fri, 6/19/2015 - 8:42 am

Why U.S. is producing but not using more oil and gas - MarketWatch

"One offshoot: the number of busses on the road has surged."

All going to Colorado.

yuan, wrote on Fri, 6/19/2015 - 8:58 am
Let Greece Go - Bloomberg View

Regardless, it is now in Greece's own best interests to show itself the door. There should be no doubt, as Martin Wolf points out in the Financial Times, that like most divorces, this one will be acrimonious. But the sooner it starts, the sooner Greece can begin the process of starting an economic recovery.

Here are a few that might persuade Greece to pack its bags and leave the abusive relationship it's in with the EU:...

Default!
Default!
Default!

yuan wrote on Fri, 6/19/2015 - 9:02 am
The Track Record for Austerity in the Euro Crisis Countries | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research

This table compares the I.M.F.'s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries.

Reality has a Keynsian bias...

Citizen AllenM wrote on Fri, 6/19/2015 - 9:31 am

A fine birthday present for me on Monday- A Grexit!
I am so excited to finally see what happens when the pseudo gold standard collapses again, bit by bit.
Someday this war's gonna end...

Comrade Janošik wrote on Fri, 6/19/2015 - 9:31 am

i too sense the Dooooooooooooooom!!!

Citizen AllenM wrote on Fri, 6/19/2015 - 9:39 am (in reply to...)

Bank runs starting, so out they go!
Using the Argentine model, they are toast monday.
Or one more episode of can kicking could occur, but the writing is now on the wall.
Someday this war's gonna end...

Sebastian wrote on Fri, 6/19/2015 - 9:44 am

Timetable of potential Greece default.

Greek debt crisis: Key dates on the road to a possible Grexit - FT.com

If no agreement can be reached, worst-case scenarios begin to kick in, including capital controls to limit withdrawals from Greek banks and prevent a complete financial meltdown.

If a Greek bank run were to begin, the European Central Bank - which is keeping Greek banks on life support by approving emergency central bank loans to local financial institutions - could be forced to declare them insolvent and withdraw all assistance.

Without the emergency loans, Greece's banks would collapse and the only way to restart them would be creating a new central bank with a new currency.

Sebastian

josap wrote on Fri, 6/19/2015 - 9:53 am

Today.
ECB approves rise in emergency loans to Greek banks - FT.com

Greece and Europe look into the abyss, with one last chance looming - The Washington Post
Fears that Greece's cash-strapped banks might imminently close their doors eased Friday afternoon as the European Central Bank agreed to pump even more emergency loans into the Greek banking system. It was the second time this week that the ECB had come to the rescue, following an infusion Wednesday. But the new loan was only expected to cover the country's lenders through Monday, and ECB officials made clear it was just a temporary patch for a much bigger problem.

Fair Economist wrote on Fri, 6/19/2015 - 10:01 am

I don't understand the ECB's game. They made a statement yesterday that the Greek banks were going to be in trouble soon, setting off a run - and then loan more money to these insolvent institutions. This makes no sense whether they're trying to be tough or gentle. Unless, I suppose, they're trying to assume all the bad debt by letting the banks run off entirely, and I can't believe they're trying to do that.

bearly wrote on Fri, 6/19/2015 - 10:02 am (in reply to...)

Fair Economist wrote:

I don't understand the ECB's game.

They're trying to reel in the IMF to spread the losses outside of the eurozone.

Fair Economist wrote on Fri, 6/19/2015 - 10:10 am (in reply to...)

They're trying to reel in the IMF to spread the losses outside of the eurozone.
Well, right now the IMF is as exposed as it's ever going to be. Right now a big chunk of the loans are already from the IMF. The next tranche, if it ever comes, will be a loan from the EC and will be used to pay off the IMF. If the EC wants to minimize their losses and dump as much as possible on the IMF, ending it now is in their interest - but then why would they assume even larger amounts of bad bank debt?

There have been, according to one site, 3.4 billion in euro withdrawals already this week - that's almost half the size of the tranche currently under negotiation (7.2 billion IIRC).

Private debt, as usual, dwarfs public debt.

[Jun 19, 2015] Another Fed Insider Quits, Tells The Truth

Jun 19, 2015 | Zero Hedge

Once more, an "insider" from The Fed exposes the reality of an academic ivory tower clueless of the real financial markets. Former adviser to Dallas Fed's Dick Fisher, Danielle DiMartino Booth speaking in a CNBC interview slams The Fed for "allowing the [market] tail to wag the [monetary policy] dog," warning that "The Fed's credibility itself is at stake... they have backed themselves into a very tight corner... the tightest ever." As she writes in her first Op-Ed, "The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive... All retirees' security is thus at risk ith ign monetary policy had encouraged malinvestment, the scourge that Austrian Ludwig von Mises warned of in the early 20th century. An overabundance of debt, if left unchecked, inevitably leads to the misallocation of resources. In the case of the first years of the 2000s, the target was, of course, the housing market.

The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive. It goes without saying that the heat of the financial crisis merited a monumental response on policymakers' part. That said, the most glaring outgrowth has been politicians' exploiting low interest rates to their benefit. While it's conceivable that well-intentioned central bankers want no part in encouraging Congressional malfeasance, the fact remains that the lack of action on politicians' part would not have been possible absent the Fed's allowing Congress to abdicate its responsibilities to the manna of easy money.

Of course, we all appear to have been spoiled over the last 25 years. A funny thing happened when the Fed placed a floor under stock prices with assurances that investors' pain and suffering would be mitigated – recessions faded from the norm. Over the past 25 years, the economy has contracted one-fourth as often as it did in the 25 years that preceded this benign era. Hence the illusion of prosperity, one that has rendered investors complacent to the point of being comatose. That's what happens when entire industries are able to run with more capacity than demand validates simply because the credit to remain in operation is there for the taking. To take but one example, capacity utilization is at 78.1 percent, shy of the 30-year average of 79.6 percent some six years into the current recovery. The downside is that the cathartic cleansing that takes place when recession is allowed to play out all the way to the bitter end of a bankruptcy cycle never occurs – winners and losers alike stay in business.

The savvy fellows in the C-suites are not blind to reduced competitiveness. As such they are remiss to expand their core businesses too much, that is, until the time they can truly assess the operating environment in a post-easy money world. The tricky part is that the credit is still there for the taking. What's to be done? In the words of one of the wisest owls on Wall Street, UBS's Art Cashin, such environments raise the not-so-fine art of financial engineering to a "botox state". It's no secret that companies have been gorging themselves on share buybacks and mergers and acquisitions, non-productive but highly lucrative endeavors. When combined the results are magnificent – costs are cut, profits juiced and bonus season becomes the most wonderful time of the year.

The insult added to the economic injury is the players who are compelled to underwrite the not-so-virtuous cycle. Broken pension accounting and incentives continue to force the hands of the individuals tasked with allocating the portfolios underlying the nation's $18 trillion in public pension obligations. One of the least discussed consequences of easy monetary policy is the damage wrought on the nation's pension system. Not only have low interest rates compounded underfunded statuses, they have driven pension assets into riskier and less liquid investments than anything prudence would dictate. The catalyst is the perverse rate of return assumptions that are wholly disconnected from reality. Averaging 7.75 percent, these bogeys have forced allocations into credit plays, many of which are caged in the least liquid corners of the debt markets. The irony is that many pensions have sought to diversify away from their bloated equity holdings by seeking out what they perceive to be the traditional safe harbor of fixed income investments, much of which flows straight back into the stock market via debt-financed share buybacks and M&A.

All retirees' security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself. Pension math, however, will forestall the day of reckoning in the financial markets given the demographic surge in retiring beneficiaries that require states and municipalities to top off pensions' coffers. Pensions will thus dig themselves into a deeper grave than they would otherwise by buying the credit craze more time.

Meanwhile, would-be retirees who don't have the safety of promised pensions continue to be punished by low interest rates. The past seven years have criminalized conservative cash savings. The Swiss Re report quantified what U.S. savers have lost in interest income at $470 billion, while debtors had an easier time. It's no coincidence that the balance for a household nearing retirement will only cover two years based on the nation's median income. Nor is it any wonder that the labor force participation rate for those aged 55 and older has increased by three percentage points over the past decade. If only they were all earning what they did in their prime years.

And the lesson to be learned when making ends meet is simply not feasible? That would be the tried and true economic offset, the magic behind the miracle of our consuming nation, which for too long now has been debt that pulls forward the demand that should have to wait. Despite the collapse in mortgages, overall household debt remains elevated; it isn't that far below its pre-recession level, and households are now splurging on cars as lending standards have caved. Even credit card borrowing is making a comeback – the average household's credit card balance of $7,177 is the highest in six years. Meanwhile, student debt is scaling record heights as families struggle to keep pace with the most egregious inflation plaguing household budgets, that of higher education.

As for the gravest sin of the QE era, in the fiscal year 2015, the U.S. government paid 1.8 percent on public debt. One would be hard pressed to identify any other debtor whose borrowing costs decrease despite its trebling in debt outstanding. Actually, that's a privilege we need to protect. As for indemnifying the nation's balance sheet, that opportunity has been squandered by spineless politicians who would rather maintain the veneer of scant deficits rather than extend the maturity of the nation's debts. Our wise neighbors to the south recently issued a 100-year bond. Where, one must ask, is our leaders' wisdom when we need it most?

Could it be that hiding behind the Fed's largesse is the path of least resistance? It would certainly appear to be the case. All the while, the excesses in the financial markets continue to build unchecked. The time has long come and gone to abandon the model-driven decision framework that pushes the Fed into an ever-shrinking corner. It is high time central bankers acknowledge their complicity in enabling Congress to fiddle while the country burns. As was the case with the revelation that the Great Moderation was but a myth, it is crucial that our leaders retake the country's reins thus also bringing to an end the deeply damaging era of The Great Abdication.

[Jun 16, 2015] Credibility Trap

"While we were not watching, conspiracy theory has undergone Orwellian redefinition. A 'conspiracy theory' no longer means an event explained by a conspiracy. Instead, it now means any explanation, or even a fact, that is out of step with the government's explanation and that of its media pimps... In other words, as truth becomes uncomfortable for government and its Ministry of Propaganda, truth is redefined as conspiracy theory, by which is meant an absurd and laughable explanation that we should ignore." Paul Craig Roberts
The Bucket Shop was quiet last Friday and today, as the usual punters were swapping stories and matching dollar bills for side bets.
There was a little spike in the precious metals as it was announced that the EU is preparing capital controls in the event of a Greek Default.

Keep an eye on these developments as I think that the powers that be are increasingly concerned that their fantastic (as in born of fantasy) plans are coming unraveled.

They do not know what they are doing but, of more concern, it is not clear that they even care, as long as they think that they are winning.

[Jun 16, 2015] A few sturdy sectors are preventing a market breakdown

"...speculative hedge funds now have more bearish positions than at any time since October."

The pressure of global market weakness is finally, slowly being felt by stocks in the U.S., where the Standard & Poor's 500 (^GSPC) is threatening to sag beneath the lower end of its stubborn, tight trading range.

It's been a low-drama, grinding pullback that has cost the U.S. benchmark some 2% over the past 16 trading days, taking it down to levels seen three times before over the past three months.

The retreat has not escaped the notice of tactical professional traders, as speculative hedge funds now have more bearish positions than at any time since October. Short selling in the broad market is also back up to October levels.

This rebuilt wall of worry and active hedging instinct are potentially good things for stocks, as caution can provide some insulation from steeper declines.

[Jun 16, 2015] This Is the Maximum Benefit You Can Get from Social Security

Top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today's dollars ($42,182 a year)

Social Security bases your benefits on your highest 35 years of earnings after adjusting each year's earnings to reflect wage inflation. In other words, your top 35 years, as documented via your payroll stubs, may not be your top 35 once they're adjusted for wage inflation. Still, you can be certain that if you've earned at or above the annual payroll-tax ceiling for at least 35 years-lucky you!-a benefits bonanza awaits.

The size of that benefit check will also depend on wage inflation.

This year's top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). By contrast, the average Social Security payout is a more modest $1,287 ($15,444 a year).

If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today's dollars ($42,182 a year). The actual amount you'd receive in four years also would include accumulated cost of living adjustments.

[Jun 15, 2015] Academics Who Defend Wall St. Reap Reward

"... What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found. ..."

"... The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton. ..."

December 27, 2013 | NYTimes.com

Signs of the energy business are inescapable in and around Houston - the pipelines, refineries and tankers that crowd the harbor, and the gleaming office towers where oil companies and energy traders have transformed the skyline.

And in a squat glass building on the University of Houston campus, a measure of the industry's pre-eminence can also be found in the person of Craig Pirrong, a professor of finance, who sits at the nexus of commerce and academia.

As energy companies and traders have reaped fortunes by buying and selling oil and other commodities during the recent boom in the commodity markets, Mr. Pirrong has positioned himself as the hard-nosed defender of financial speculators - the combative, occasionally acerbic academic authority to call upon when difficult questions arise in Congress and elsewhere about the multitrillion-dollar global commodities trade.

Do financial speculators and commodity index funds drive up prices of oil and other essentials, ultimately costing consumers? Since 2006, Mr. Pirrong has written a flurry of influential letters to federal agencies arguing that the answer to that question is an emphatic no. He has testified before Congress to that effect, hosted seminars with traders and government regulators, and given countless interviews for financial publications absolving Wall Street speculation of any appreciable role in the price spikes.

What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found.

While his university's financial ties to speculators have been the subject of scrutiny by the news media and others, it was not until last month, after repeated requests by The Times under the Freedom of Information Act, that the University of Houston, a public institution, insisted that Mr. Pirrong submit disclosure forms that shed some light on those financial ties.

Governments and regulatory agencies in the United States and Europe have been gradually moving to restrict speculation by major banks. The Federal Reserve, concerned about the risks, is reviewing whether it should tighten regulations and limit the activities of banks in the commodities world.

But interviews with dozens of academics and traders, and a review of hundreds of emails and other documents involving two highly visible professors in the commodities field - Mr. Pirrong and Professor Scott H. Irwin at the University of Illinois - show how major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.

The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton.

Professors Pirrong and Irwin say that industry backing did not color their opinions.

Mr. Pirrong's research was cited extensively by the plaintiffs in a lawsuit filed by Wall Street interests in 2011 that for two years has blocked the limits on speculation that had been approved by Congress as part of the Dodd-Frank financial reform law. During that same time period, Mr. Pirrong has worked as a paid research consultant for one of the lead plaintiffs in the case, the International Swaps and Derivatives Association, according to his disclosure form.

While he customarily identifies himself solely as an academic, Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy, according to the disclosure forms.

The disclosure forms do not require Mr. Pirrong to reveal how much money he made from his consulting work, and a university spokesman said that the university believed it was strengthened by the financial support it received from the business community. When asked about the financial benefits of his outside activities, Mr. Pirrong replied, "That's between me and the I.R.S."

Debating to a Stalemate

No one disputes that a substantial portion of price increases in oil and food over the last decade were caused by fundamental market factors: increased demand from China and other industrializing countries, extreme weather, currency fluctuations and the diversion of grain to biofuel.

But so much speculative money poured into markets - from $13 billion in 2003 to $317 billion at a peak in 2008 - that many economists, and even some commodities traders and investment banks, say the flood became a factor of its own in distorting prices.

Others assert that commodities markets have historically gone through intermittent price bubbles and that the most recent gyrations were not caused by the influx of speculative money. Mr. Pirrong has also argued that the huge inflow of Wall Street money may actually lower costs by decreasing what commodities producers pay to manage their risk.

Mr. Pirrong and the University of Houston are not alone in publicly defending speculation while accepting financial help from speculators. Other researchers have received funding or paid consulting jobs courtesy of major commodities traders including AIG Financial Products, banks including the Royal Bank of Canada or financial industry groups like the Futures Industry Association.

One of the most widely quoted defenders of speculation in agricultural markets, Mr. Irwin of the University of Illinois, Urbana-Champaign, consults for a business that serves hedge funds, investment banks and other commodities speculators, according to information received by The Times under the Freedom of Information Act. The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market.

Mr. Irwin, the University of Illinois and the Chicago exchange all say that his research is not related to the financial support.

Underwriting researchers and academic institutions is one part of Wall Street's efforts to fend off regulation.

The industry has also spent millions on lobbyists and lawyers to promote its views in Congress and with government regulators. Major financial companies have also funded magazines and websites to promote academics with friendly points of view. When two studies commissioned by the Commodity Futures Trading Commission, the financial regulatory agency, raised questions about the possible drawbacks of speculation and of high-frequency trading, lawyers for the Chicago exchange wrote a letter of complaint, saying that its members' proprietary trading information was at risk of disclosure, and the research program was shut down.

The result of the various Wall Street efforts has been a policy stalemate that has allowed intensive speculation in commodities to continue despite growing concern that it may harm consumers and, for example, worsen food shortages. After a two-year legal delay, the futures trading commission this month introduced plans for new limits on speculation. Some European banks have stopped speculating in food, fearing it might contribute to worldwide hunger.

Mr. Pirrong, Mr. Irwin and other scholars say that financial considerations have not influenced their work. In some cases they have gone against the industry's interests. They also say that other researchers with no known financial ties to the industry have also raised doubts about any link involving speculation and soaring prices.

But ethics experts say that when academics fail to disclose financial ties, they do a disservice to the public and undermine the perception of impartiality.

"If those that are creating the culture around financial regulation also have a significant, if hidden, conflict of interest, our public is not likely to be well served," said Gerald Epstein, an economics professor at the University of Massachusetts, Amherst, who in 2010 released a study about conflicts of interest among academics who advised the federal government after the financial crisis.

Speculation in the Market

Financial ties among professors promoting speculation and the banks and trading firms that profit from it date back to the beginning of the recent commodities boom, which got an intellectual kick-start from academia.

After Congress and the Clinton administration deregulated the commodities markets in 2000, and the Securities and Exchange Commission lowered capital requirements on investment banks in 2004, the financial giants began developing new funds to capitalize on the opportunity.

AIG Financial Products commissioned two highly respected Yale University professors in 2004 to analyze the performance of commodities markets over a half-century. The professors - who prominently acknowledged the financial support - concluded that commodities markets "work well when they are needed most," namely when the stock and bond markets falter.

Money flowed into the commodities markets, and although the markets have cooled in the last two years, the price of oil is now four times what it was a decade ago, and corn, wheat and soybeans are all more than twice as expensive.

A public uproar about the rising prices became heated in the spring of 2008, as oil soared and gas prices became an issue in the presidential campaign. Congress scheduled public hearings to explore whether speculation had become so excessive it was distorting prices.

Financial speculators are investors who bet on price swings without any intention of taking delivery of the physical commodity. They can help smooth the volatility of the market by adding capital, spreading risk and offering buyers and sellers a kind of price insurance. But an assortment of studies by academics, congressional committees and consumer advocate groups had found evidence suggesting that the wave of speculation that accelerated in 2003 had at times overwhelmed the market.

Financial speculators accounted for 30 percent of commodities markets in 2002, and 70 percent in 2008. As gasoline topped $4 a gallon in the summer of 2008, Congress tried to soothe angry motorists by pushing for restrictions on oil speculation.

Mr. Pirrong jumped into the fray. He wrote papers, blog posts and opinion pieces for publications like The Wall Street Journal, calling the concern about speculation "a witch hunt."

Mr. Pirrong also testified before the House of Representatives in 2008 and, identifying himself as an academic who had worked for commodities exchanges a decade earlier, he warned that congressional plans to rein in speculators would only make matters worse.

"Indeed, such policies are likely to harm U.S. consumers and producers," he said. When oil company executives, traders and investment banks cited speculation as a major cause of surging prices which, by some estimates, was costing American consumers more than $300 billion a year, Mr. Pirrong dutifully contradicted them.

Mr. Pirrong's profile grew as he sat on advisory panels and hosted conferences with senior executives from the trading world as well as top federal regulators. Last year, Blythe Masters, head of commodity trading at JPMorgan Chase, approached him to write a report for a global bank lobbying group, the Global Financial Markets Association.

The report was completed in July 2012, but the association declined to release it. Mr. Pirrong said it was because he had reached the conclusion that banks should be regulated more heavily than other commodity traders. "I wouldn't change the call, so they sat on the report," he wrote on his blog, The Streetwise Professor.

What Mr. Pirrong did not reveal in his public statements about the report is that he had financial ties to both sides of that debate: the commodities traders as well as the banks. Ms. Masters declined to comment. Over the years, Mr. Pirrong has resisted releasing details of his own financial dealings with speculators, and when The Times first requested his disclosure forms in March, the University of Houston said that none were required of him. The disclosure forms Mr. Pirrong ultimately filed in November indicate that since 2011, he has been paid for outside work involving 11 different clients. Some fees are for his work as an expert witness, testifying in court cases on behalf of the Chicago Mercantile Exchange and a bank and a company that makes futures-trading software. The commodities firm Trafigura contracted him to conduct a research project.

Mr. Pirrong is also a member of the advisory board for TruMarx Partners, a company that sells software to energy traders, a position that entitles him to a stock option package.

It was reported in The Nation magazine in November that the University of Houston's Global Energy Management Institute, where Mr. Pirrong serves as a director, has also received funding from the Chicago exchange, as well as financial institutions that profit from speculation, including Citibank and Bank of America.

On his blog, Mr. Pirrong has dismissed suggestions that his work for a school that trains future oil industry executives creates a conflict of interest.

"Uhm, no, dipstick," he wrote in 2011, replying to a reader who had questioned his objectivity. "I call 'em like I see 'em." In a telephone interview last week, Mr. Pirrong said that his consulting work gave him insight into the kind of real-world case studies that improve his research and teaching. "My compensation doesn't depend on my conclusions," he said.

When asked about Mr. Pirrong's disclosure, Richard Bonnin, a university spokesman said only that all employees were given annual training on the school's policy, which requires researchers to report paid outside consultant work.

Professors as Pitchmen

Concerns about academic conflicts of interest have become a major issue among business professors and economists since the financial crisis. In 2010, the documentary "Inside Job" blasted a handful of prominent academic economists who did not reveal Wall Street's financial backing of studies which, in some cases, extolled the virtues of financially unsound assets. Two years later, the American Economic Association adopted tougher disclosure rules.

Even with the guidelines, however, financial firms have been able to use the resources and credibility of academia to shape the political debate.

The Chicago Mercantile Exchange and the University of Illinois at Urbana-Champaign, for example, at times blur the line between research and public relations.

The exchange's public relations staff has helped Mr. Irwin shop his pro-speculation essays to newspaper op-ed pages, according to emails reviewed by The Times. His studies, writings, videotaped speeches and interviews have been displayed on the exchange's website and its online magazine.

In June 2009, when a Senate subcommittee released a report about speculation in the wheat market that raised concerns about new regulations, executives at the Chicago exchange turned to Mr. Irwin and his University of Illinois colleagues to come up with a response.

Dr. Paul Ellinger, department head of agriculture and consumer economics, said, "The interactions that have occurred here are common among researchers."

A spokesman for the exchange said that Mr. Irwin was just one of a "large and growing pool of esteemed academics, governmental editors and editors in the mainstream press" whose work it follows and posts on its various publications. While the C.M.E. has given more than $1.4 million to the University of Illinois since 2008, most has gone to the business school and none to the School of Agriculture and Consumer Economics, where Mr. Irwin teaches. And when Mr. Irwin asked the exchange's foundation for $25,000 several years ago to sponsor a website he runs to inform farmers about agricultural conditions and regulations, his request was denied.

Still, some of Mr. Irwin's recent research has been funded by major players in the commodities world. Last year, he was paid $50,000 as a consultant for Gresham Investment Management in Chicago, which manages $16 billion and runs its own commodities index fund. He noted Gresham's sponsorship in the paper and on his disclosure form, and said it gave him the opportunity to use new data and test new hypotheses.

Mr. Irwin also works for a business called Yieldcast that caters to agricultural producers, investments banks and other speculators, selling them predictions of corn and soybean yields. Mr. Irwin has said he does not consider it a conflict because he works only with the mathematical forecasting models and never consults with clients.

"The debate about financialization is primarily about the large index funds, none of whom are clients," he said.

Mr. Irwin declined to provide a list of his clients, and the university said its disclosure requirements did not compel him to do so.
This article has been revised to reflect the following correction:
Correction: December 31, 2013

An article on Saturday about financial rewards from Wall Street to academic experts whose research supports the financial community's views on commodity trading misidentified a Canadian bank and commodities trader that financed the work of academic researchers or paid consultants. It is the Royal Bank of Canada, not the Bank of Canada, which is that nation's central bank. The article also rendered incorrectly the university affiliation of Scott H. Irwin, a prominent defender of speculation in agricultural markets. He is a professor at the University of Illinois at Urbana-Champaign - not Champaign-Urbana. And a picture caption with the continuation of the article misidentified the subject of one of several pictures. The lower right photograph showed the atrium of the University of Illinois's business school - not its Market Information Lab, which was shown behind Professor Irwin in the photograph at the left.

Response from the academic criminal: Streetwise Professor

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Read All Comments (440)

[Jun 15, 2015] Stocks are not cheap Carlyle's Rubenstein

Jun 15, 2015 | finance.yahoo.com

Billionaire private equity pro and philanthropist David Rubenstein on Monday said stock prices "are not cheap" right now, creating a tough environment for dealmakers looking for bargains.

[Jun 15, 2015] Res Publica, Res Imperium, Res Corporata

Keep an eye on Deutsche Bank and the Ukraine. I have a bad feeling about this market.

jessescrossroadscafe.blogspot.com
What is happening in Greece is clearly about more than just money. How can they blithely give Ukraine a pass and a free lunch, and Greece the Iron Heel?
I am wondering what will satisfy the Troika, short of tossing out the elected government of Greece and putting a Stellvertretender Reichsprotektor in place to administer their newly taken territories to the south.

Keep an eye on Deutsche Bank and the Ukraine.

I have a bad feeling about this market.

[Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?

Notable quotes:

"... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."

"... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."

"... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."

"... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."

"... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."

"... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."

"... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."

"... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."

Jun 12, 2015 | The Guardian

Hristos Dagres 12 Jun 2015 11:50

Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].

These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ

[http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]

I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.

Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.

MachinePork 12 Jun 2015 11:30

Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.

At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.

God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.

The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.

Maria Christoulaki 12 Jun 2015 10:43

Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.

mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08

It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!

mgtuzairodtiiasn Angkor 12 Jun 2015 08:55

Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.

Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.

elenits -> Anton Brasschaat 12 Jun 2015 07:57

"Loans" imposed by IMF against its mandate = Odious debt.

Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt

Loans to Greece that were not used by Greeks = Odious debt

IMF breaking its own rules to loan without debt restructure = Odious debt

This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.

elenits -> asiancelt 12 Jun 2015 07:49

If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.

Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.

There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.

dawisner -> Constantine Alexander 12 Jun 2015 07:30

Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.

seaspan -> Anton Brasschaat 12 Jun 2015 05:50

French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.

And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.

It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?

And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.

It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...

Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43

My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.

If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).

The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.

PyrosT -> Enoch Arden 12 Jun 2015 05:32

destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.

IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.

If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.

Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.

But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.

But...

Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.

DANIELDS 12 Jun 2015 05:10

Yesterday briefing by G.RICE of IMF

...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.

http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015

......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.

This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.

Angkor Renato -> Timotheus 12 Jun 2015 04:53

Renato on your checklist for Greece's solution to its current problems, a few questions:

1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.

2. Secure Russian and Chinese support for the new currency
How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.

3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?

4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.

5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.

zchabj6 -> JimVxxxx 12 Jun 2015 04:37

The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.

This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.

As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.

But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.

And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.

AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.

REDLAN1 12 Jun 2015 04:29

What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...

We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?

Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?

REDLAN1 -> galava 12 Jun 2015 03:52

You can do the math yourself for the UK...

http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html

I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.

Scipio1 -> Angkor 12 Jun 2015 03:27

In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.

The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.

The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.

Hypatia415 -> Quaestio 12 Jun 2015 03:07

Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisis

PeregrineSlim 12 Jun 2015 02:47

Leaving the negotiation table is negotiation.

The IMF are not going anywhere. They are just negotiating.

Greece can take heart. They'll do anything for a deal.

ShiresofEngland 12 Jun 2015 02:35

http://www.telegraph.co.uk/finance/economics/11654639/IMF-has-betrayed-its-mission-in-Greece-captive-to-EMU-creditors.html

This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.

For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.

It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.

JimVxxxx -> madrupert 12 Jun 2015 02:35

The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!

The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.

JimVxxxx -> zchabj6 12 Jun 2015 02:28

Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).

The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.

I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?

hermanmitt -> piper909 12 Jun 2015 02:22

This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.

"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.

That process is now well under way in the form of TTIP.
Q: Ever wondered how something this important could be discussed in secret?
A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.

Constantine Alexander 12 Jun 2015 02:16

It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?

That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.

Renato Timotheus 12 Jun 2015 02:13

I think the solution for Greece is becoming clearer by the day.
1. Default.
2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
4. Massive drive to attract British and Russian tourists to a cheaper Greece.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup.

eastofthesun -> Faith Puleston 12 Jun 2015 02:07

it is a country that thinks the EU is a source of income to make up for them not doing their sums at home

I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.

If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)

That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.

AlexLeo 12 Jun 2015 01:33

A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.

Chris Hindle 12 Jun 2015 01:23

IMF to Alexis Tsipras: 'Do you feel lucky, punk?'

Good to see this 'economist' sitting astride the neutral position

I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
I wonder if this 'economist' was trained in the dreamworld of neo-classical economics

To put it clearly - Bollox to the IMF -- People first!

Notaterrorist 12 Jun 2015 01:00

The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.

If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.

"Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.

What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)

Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."

Quaestio -> MikeBenn 11 Jun 2015 23:00

Why? Because US investment banks were involved in the Greek debt.

Wall St. Helped to Mask Debt Fueling Europe's Crisis

By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
The New York Times

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.

Glen Killoran -> Pomario 11 Jun 2015 22:49

Based upon what?

Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.

Shipping? Too late, that ship has already sailed.

Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.

Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.

Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.

And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?

Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.

Mark Richardson 11 Jun 2015 22:46

It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.

Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.

Andrew Paul -> Wood Pomario 11 Jun 2015 22:16

There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?

fflambeau -> Glen Killoran 11 Jun 2015 22:01

I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.

You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.

As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.

fflambeau 11 Jun 2015 21:42

Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.

General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).

What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.

Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430

Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.

So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.

AnhTay 11 Jun 2015 19:10

One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.

fceska -> Bowhill 11 Jun 2015 19:07

That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:

Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.

could be rewritten as:

Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.

aretzios -> mariandavid 11 Jun 2015 18:37

You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.

The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.

Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.

At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody

[Jun 12, 2015]3 Questions Amy Glasmeier on the living wage

"...When I look at the minimum wage compared to the living wage, in many places in the United States, it would take working two-and-a-half to three minimum wage jobs to make ends meet. So from the standpoint of how families are doing, we can say clearly that minimum wage as a baseline is making it very difficult for families. That's the first thing that jumps out to me. The second thing is that we have the notion that it should be cheaper to live in rural places than in urban places, but the calculator helps to identity that the actual cost of living is usually about highly local circumstances. In some rural places, rental housing is basically unavailable, because most people own their own homes. So if you are searching for rental housing, the cost can be very high. Some factors that we take for granted, like being able to find a rental unit, actually end up presenting a much higher cost than you might think."

June 11, 2015 MIT News

MIT professor and expert in regional economies calculates how far salaries stretch.

How far does a typical salary stretch? An increasingly visible movement in the U.S. to raise the minimum wage has gained traction recently. Yet according to the research of MIT Professor Amy Glasmeier, a minimum wage does not go very far: In a family with two parents and two children, the adults would each have to work 77 hours per week at minimum wage levels to make ends meet. That's one of several noteworthy new numbers emerging from the latest update to Glasmeier's Living Wage Calculator, a tool she and other researchers developed at MIT to present a realistic estimate, tailored by region, of the cost of living. Nationally, Glasmeier has found, over one-third of families earn less than a living wage. MIT News recently spoke with Glasmeier about the issue.

Q. What is the Living Wage Calculator you have developed, and how does it work?

A. In most industrial countries there is either a minimum wage or a living wage, which is an agreed rate of pay for work. This type of calculation occurs partly to put a floor underneath wage rates, so that people make enough money to pay their bills. This tool was developed to try to put a real value, based on local data, on the cost of living. … The difference between us and other countries is that we have an absolute value for the minimum wage, and they have a relative value that's related usually to 60 percent of the median [wage]. From a global perspective, our minimum wage is very low.

The living wage calculator includes the basic elements of a cost of living: housing, food, child care, transportation costs, miscellaneous - which includes clothing, as well as taxes. It's designed to be a minimum living wage that someone would need to be able to pay the basic expenses of their daily lives.

Q. You have just released an updated set of data that sheds new light on the disparity between the minimum wage and your estimated living wage. What is most striking to you about the new numbers?

A. When I look at the minimum wage compared to the living wage, in many places in the United States, it would take working two-and-a-half to three minimum wage jobs to make ends meet. So from the standpoint of how families are doing, we can say clearly that minimum wage as a baseline is making it very difficult for families. That's the first thing that jumps out to me. The second thing is that we have the notion that it should be cheaper to live in rural places than in urban places, but the calculator helps to identity that the actual cost of living is usually about highly local circumstances. In some rural places, rental housing is basically unavailable, because most people own their own homes. So if you are searching for rental housing, the cost can be very high. Some factors that we take for granted, like being able to find a rental unit, actually end up presenting a much higher cost than you might think.

Another thing is that despite the fact that we know more than 50 percent of women work, we still as a society haven't embraced the fact that child care is a critical element in our working families. It is a good that families need, for both parents to be able to make a living wage. Now the problem is, in a lot of places, child care is very expensive. Families are often faced with very difficult circumstances because they can't live on one salary, but if they have the second person work, almost all of that salary goes to buying child care. Or, if they get child care, it may not be a certified licensed program. So what do families do? They will pool child care, use neighbors, siblings, their parents if they can, or find low-cost babysitting. But there is now pretty convincing research that children living in poor households lack a whole host of socialization skills and life skills. There are some issues associated with the psychological wellbeing and the knowledge acquisition capacity of kids when they're not in situations of economic security.

Q. Recently we have seen companies such as IKEA pledging to pay a living wage, and Wal-Mart raising wages, though not to the living wage level. Is the landscape changing in this regard?

A. We are seeing a growing recognition of the need to have adjustments in wages that brings families above the minimum wage. There are cases that are not in the press, but where committed individuals, like the city manager of Elk Grove, Illinois, recognizes that the people they have on government contracts are making insufficient incomes to live in those communities.

A lot of it is motivated by a sense of fairness. I get emails 365 days a year from people using the tool [the living wage calculator], which gets 100,000 hits a month, and those people strongly feel the nation would be better off if we paid higher wages, because people would have more stability, and would actually be able to engage in consumption, which would be important as a driver of the economy.

In terms of companies, there are well-known ones such as IKEA, which philosophically realize people need to make a living wage. Other companies are perhaps more pragmatic. They're in labor markets where they realize the cost of living is high and want to make sure they're getting employees who are matched well with the job. There are companies that are not famous - like one I know of in Savannah, Georgia, that works in alignment with the port, which trains people, and tries to negotiate for workers to get better wages in their next jobs.

In terms of regions, probably the calculator is used slightly more in the South, because in general, the South is the low-wage region of the U.S., but it has high costs. On the West Coast, you have dynamic economies, and there is social pressure for higher wages, and you also have enlightened employers - that applies to municipalities where the economy is dynamic. There are also places with a history of unionization, trying to use the calculator to demonstrate to employers the value of the living wage. There are also a lot of religious organizations deeply committed to social justice and make arguments for the living wage. … If you work eight hours a day, you deserve to be able to make it - I hear that all the time.

[Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?

Notable quotes:

"... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."

"... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."

"... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."

"... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."

"... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."

"... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."

"... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."

"... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."

Jun 12, 2015 | The Guardian

Hristos Dagres 12 Jun 2015 11:50

Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].

These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ

[http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]

I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.

Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.

MachinePork 12 Jun 2015 11:30

Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.

At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.

God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.

The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.

Maria Christoulaki 12 Jun 2015 10:43

Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.

mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08

It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!

mgtuzairodtiiasn Angkor 12 Jun 2015 08:55

Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.

Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.

elenits -> Anton Brasschaat 12 Jun 2015 07:57

"Loans" imposed by IMF against its mandate = Odious debt.

Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt

Loans to Greece that were not used by Greeks = Odious debt

IMF breaking its own rules to loan without debt restructure = Odious debt

This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.

elenits -> asiancelt 12 Jun 2015 07:49

If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.

Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.

There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.

dawisner -> Constantine Alexander 12 Jun 2015 07:30

Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.

seaspan -> Anton Brasschaat 12 Jun 2015 05:50

French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.

And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.

It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?

And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.

It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...

Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43

My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.

If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).

The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.

PyrosT -> Enoch Arden 12 Jun 2015 05:32

destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.

IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.

If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.

Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.

But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.

But...

Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.

DANIELDS 12 Jun 2015 05:10

Yesterday briefing by G.RICE of IMF

...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.

http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015

......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.

This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.

Angkor Renato -> Timotheus 12 Jun 2015 04:53

Renato on your checklist for Greece's solution to its current problems, a few questions:

1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.

2. Secure Russian and Chinese support for the new currency
How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.

3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?

4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.

5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.

zchabj6 -> JimVxxxx 12 Jun 2015 04:37

The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.

This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.

As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.

But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.

And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.

AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.

REDLAN1 12 Jun 2015 04:29

What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...

We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?

Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?

REDLAN1 -> galava 12 Jun 2015 03:52

You can do the math yourself for the UK...

http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html

I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.

Scipio1 -> Angkor 12 Jun 2015 03:27

In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.

The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.

The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.

Hypatia415 -> Quaestio 12 Jun 2015 03:07

Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisis

PeregrineSlim 12 Jun 2015 02:47

Leaving the negotiation table is negotiation.

The IMF are not going anywhere. They are just negotiating.

Greece can take heart. They'll do anything for a deal.

ShiresofEngland 12 Jun 2015 02:35

http://www.telegraph.co.uk/finance/economics/11654639/IMF-has-betrayed-its-mission-in-Greece-captive-to-EMU-creditors.html

This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.

For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.

It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.

JimVxxxx -> madrupert 12 Jun 2015 02:35

The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!

The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.

JimVxxxx -> zchabj6 12 Jun 2015 02:28

Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).

The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.

I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?

hermanmitt -> piper909 12 Jun 2015 02:22

This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.

"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.

That process is now well under way in the form of TTIP.
Q: Ever wondered how something this important could be discussed in secret?
A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.

Constantine Alexander 12 Jun 2015 02:16

It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?

That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.

Renato Timotheus 12 Jun 2015 02:13

I think the solution for Greece is becoming clearer by the day.
1. Default.
2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
4. Massive drive to attract British and Russian tourists to a cheaper Greece.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup.

eastofthesun -> Faith Puleston 12 Jun 2015 02:07

it is a country that thinks the EU is a source of income to make up for them not doing their sums at home

I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.

If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)

That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.

AlexLeo 12 Jun 2015 01:33

A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.

Chris Hindle 12 Jun 2015 01:23

IMF to Alexis Tsipras: 'Do you feel lucky, punk?'

Good to see this 'economist' sitting astride the neutral position

I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
I wonder if this 'economist' was trained in the dreamworld of neo-classical economics

To put it clearly - Bollox to the IMF -- People first!

Notaterrorist 12 Jun 2015 01:00

The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.

If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.

"Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.

What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)

Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."

Quaestio -> MikeBenn 11 Jun 2015 23:00

Why? Because US investment banks were involved in the Greek debt.

Wall St. Helped to Mask Debt Fueling Europe's Crisis

By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
The New York Times

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.

Glen Killoran -> Pomario 11 Jun 2015 22:49

Based upon what?

Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.

Shipping? Too late, that ship has already sailed.

Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.

Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.

Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.

And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?

Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.

Mark Richardson 11 Jun 2015 22:46

It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.

Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.

Andrew Paul -> Wood Pomario 11 Jun 2015 22:16

There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?

fflambeau -> Glen Killoran 11 Jun 2015 22:01

I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.

You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.

As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.

fflambeau 11 Jun 2015 21:42

Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.

General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).

What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.

Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430

Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.

So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.

AnhTay 11 Jun 2015 19:10

One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.

fceska -> Bowhill 11 Jun 2015 19:07

That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:

Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.

could be rewritten as:

Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.

aretzios -> mariandavid 11 Jun 2015 18:37

You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.

The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.

Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.

At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody

[Jun 12, 2015] Europe Gives Greece 24 Hours To Comply; Germany Draws Up Capital Control Plans

Jun 12, 2015 | Zero Hedge
EU officials turned up the heat on Athens Thursday after the IMF withdrew its team and sent its lead negotiators back to Washington.
In what can only be described as a half-hearted effort, Greek PM Alexis Tsipras submitted two three-page proposals earlier this week that were dismissed by creditors as "not serious." We suggested that perhaps that was intentional as Tsipras, having bought Greece some time by opting for the "Zambian" IMF payment bundle, is simply keeping up appearances while the real negotiating is going on behind the scenes with Syriza party hardliners who Tsipras desperately needs to support any proposal before it goes to parliament in order to avoid what could quickly deteriorate into a political and social crisis.

One has to believe that Brussels understands this, but it could very well be that between Tsipras' scathing op-ed (published two Sundays ago) and the PM's fiery speech to parliament last Friday, creditors are becoming concerned that Tsipras might actually be starting to believe that he can effectively blackmail the EMU by threatening to prove, once and for all, that the currency bloc is in fact dissoluble no matter what manner of protestations one might hear in polite company.

So, with the IMF having thrown in the towel, and with German lawmakers set to rally behind the incorrigible FinMin Wolfgang Schaeuble in what amounts to a mutiny on the SS Merkel, Europe appears to have finally had enough because by Thursday evening, reports indicated that EU officials have given Greece 24 hours to come back with a proposal that includes pension reform and VAT increases.

Via Bloomberg:

Greece was warned by a group of European Union officials in Brussels it had less than 24 hours to come up with a serious counter-proposal, according to a person familiar with the discussion.

Greek delegate told by EU officials that a list must includes reform on pension and VAT.

Greece told by the officials that they are taking seriously all scenarios.

EU official didn't specifically say what would happen to Greece if there was no plan presented tomorrow.

And meanwhile, Reuters (citing Bild) says Germany is now engaged in "concrete" discussions over how to handle a Greek bankruptcy :

The German government is holding "concrete consultations" on what to do in the case of a bankruptcy of the Greek state, German newspaper Bild said, citing several people familiar with the matter.

This includes discussions about introducing capital controls in Greece if the crisis-stricken country goes bankrupt, Bild said in an advance copy of an article due to be published on Friday.

It said a debt haircut for Greece was also being discussed, adding that government officials were in close contact with the European Central Bank on that.

The German government did not, however, have a concrete plan of how it would react if Greece goes bankrupt and much would have to be decided on an ad-hoc basis, Bild cited the sources as saying.

The takeaway here is that come hell, high water, or "Grimbo," the EU is going to extract its pension cuts and VAT hikes from Tsipras, and not because anyone seriously thinks it will make a difference in terms of putting the country on a 'sustainable' path, but because the EU simply cannot afford for Syriza sympathizers in more economically consequential countries like Spain to get any ideas about rolling back austerity (of 'fauxsterity' as it were) and using EMU membership as a bargaining chip.

The only question now is whether Tsipras has been successful at convincing party hardliners to support further concessions, because if this turns into a protracted political battle, it's entirely possible that the country will descend into chaos, if only for a few weeks.

Stay tuned, and as a reminder, here's a flowchart that outlines various political and economic ramifications as well as a guide to what's being negotiated...

Haus-Targaryen

Ja, vee zee Germanz are giving you 24 hours to surrender. Wenn you do not surrender, you vill be given another 30 day grace period, followed by another 60 day emergency grace period.
YOU HAVE 24 HOURS!

cookie nookie

I agree with the Germans. Greece should be invaded, and her citizens should be sold into slavery. That's what happens to deadbeats.

Haus-Targaryen

I wondner if this is why the two Deutsche CEOs threw in the towel.
Greece is approximatly 20x Lehman.
DB is way more exposed Greek debt than AIG was.
Someone told the "inner circle" the game is over, and they were like "welp, um ....

I think its time to retire, and I am going to be diversifying my personal accounts into Russia & China. Königsburg is nice this time of year. You all have fun."

r00t61

Your theory is similar to Dave Kranzler's.

Fund Manager A Derivatives Bomb Exploded Within The Last Two Weeks SilverDoctors.com

I for one am getting tired of all the "stuff" being the worst Since Lehman®. Maybe soon it will be all the stuff being the worst Since DeutscheB®.

TeethVillage88

I think he is asking for a vote on if this is the "Final Event".

VinceFostersGhost

Draws Up Capital Control Plans

The smart money got out weeks ago.

Haus-Targaryen

They say those who panic first panic best.
I imagine the paranoid money left years ago. The smart money left in Jan/Feb, and now its just the average idiots dragging their heels.

Watson

FWIW:
1. My understanding was that although DB _did_ have a lot of Greek exposure, they have now moved it on (mostly to German state(AKA German taxpayers));

2. I still think that unless Greeks themselves pull out of EUR, at any genuine crisis Merkel will simply use German taxpayers to pay any Greek bills falling due - so I don't see why any Greek politico will ever pull out (doesn't mean situation is stable, sensible or even desirable);

3. I agree with another poster that Greece is basically distraction - if you want to worry about EUR-zone/EU breakup, look at Spain.

Haus-Targaryen

Watson,
This makes sense if you only look at primary debt exposure. That DB did shift to the Bund. However, I could not care less about the $330 billion or so in primary debt the Greek government could default on.
I care about CDS and then the subsequent margin calls from the chaos that follows, and then the subsequent CDS as the first round of CDS holders (secondary debt exposure) get margin called into oblivion.
This is what keeps me awake at night.

Wolferl

There´s so much talk about the DB´s CDS over the past years but in fact nobody knows exactly about the amount of liabilities in case of a Greek default. In my view the real dangers within the international finance system are alway there were the public cannot see them. So my gut feeling is that it´s not DB that will be the cause of a crash in the events of a Greek default, but something else. Of course, all the big players will be in danger in that event, including DB. And btw,

Throw those pathetic Greek dead beats out of Europe already.

Watson

DB Greek exposure via CDS would surely show up in DB's total Greek exposure.
Wouldn't this show up in published accounts?

Wolferl

If you have a public account that shows exactly DB´s Greek exposure provide a link or source please, i don´t have one. The only thing i know that they have a huge exposure in the derivative markets in general, which isn´t a good thing in general in the event of an overall market crash, but it´s possible too that they will be "winner" in such an event.

wiser

A restructuring of Greece's debt is absolutely essential, otherwise the chances of a recovery for the country are extremely slim, political economist Philippe Legrain said on Thursday, in a public hearing before the "Debt Truth" Committee in the Greek Parliament.
http://www.amna.gr/english/articleview.php?id=10041

The troika saved banks and creditors – not Greece
The funds were, to a large degree, channelled back to the creditor countries. This entailed a double shift in liabilities: from the banks of the periphery to the governments (and citizens) of the periphery; and from the banks of the core to the governments (and citizens) of the eurozone as whole, since most of the troika bailout funds came from EMU countries.

With most of the bailout money going to banks and creditors, Greece doesn't just need debt relief, it deserves it.
https://www.opendemocracy.net/can-europe-make-it/thomas-fazi/troika-save...

Haus-Targaryen

While you are correct, Greece cannot restructure debt within the EMZ. Its just impossible.

Haus-Targaryen

No, DB's CDS exposure is lumped into DB's Derivative Exposure, which is not subject to the same reporting requirements as other normal liabilities until they are realized. A.k.a. -

These won't show up on the balance sheet until they become due, at which point the game is over. No one knows their exact exposure, as this is internal to DB and there are no reporting requirements.

So, DB must report its direct exposure to Greek debt, it has no obligation to report its exposure to Greek debt via CDS.

wiser

The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP
http://www.zerohedge.com/news/2014-04-28/elephant-room-deutsche-banks-75...

Haus-Targaryen

Even if just 1% of that is tied to Greek GDP, thats 750 Billion €.
That would be the end of DB.

new game

why cant the ecb stabilize the "out of balance" derivitives? they will keep the train on the tracks. behind the scenes they will do whatever it takes. and you and i will hear very little about the ugly print pledged to keep this shit show going. just another huge kick of da can...

Wolferl'

Because those derivatives are written in the branches of all the TBTF banks in the City of London, which is not part of the UK and not part of the EU.

Sirius Wonderblast

Don't forget that Spain retains a law which makes it legal not to disclose debts. Hence the likes of Santander get to perpetuate the myth that they escaped exposure to the Spanish property bubble. The published property market losses in Spain remain greatly understated, imho.

[Jun 11, 2015] Disaster Risk and Asset Pricing

Jun 11, 2015 | economistsview.typepad.com

Jerry Tsai and Jessica Wachter at Vox EU:

Disaster risk and asset pricing, Jerry Tsai, Jessica Wachter, Vox EU: A persistently puzzling feature of the US stock market is the high return to holding a diversified equity portfolio. On average, over the last 60 years, equities have outperformed short-term bonds by 7.5% a year. The difference, when cumulated over time, is dramatic. ...$1 invested in 1947 in a value-weighted portfolio of equities traded on major exchanges would have increased 100-fold (in 1947 dollars), while a strategy of rolling over short-term Treasury bills would have barely kept up with inflation. The 2008 Global Crisis resulted in a very temporary dip in this performance. ...
Why do equities earn such a high rate of return?

The most obvious possibility is that this high return is a compensation for risk. However, while equity markets are very risky (the standard deviation of the above portfolio is 18% per year), this risk is not reflected in the broader economy. For long-run investors who are willing to ride out the ups and downs of the stock market, the risk that matters is the risk in actual consumption. And that standard deviation has historically been less than 2% a year, even when taking the Great Recession into account. This disconnect between the return to holding stocks and the risk of the overall economy, is known as the equity premium puzzle (Mehra and Prescott 1985).

In a recent article (Tsai and Wachter 2015), we argue that this equity premium reflects the risk of an economy-wide disaster. Our argument builds on work by Robert Barro (2006), further developed with co-authors Emi Nakamura, John Steinssen and Jose Ursua (Barro and Ursua 2008, Nakamura et al. 2011). ...

Once we account for the possibility of rare disasters, the equity premium is no longer a puzzle. High equity returns do not represent a 'free lunch' in which investors receive high returns without taking on risk. On the other hand, equities do not represent something that prudent investors should avoid. Rather high returns on equities reward investors for bearing the risk of a large decline in stock prices during an economic disaster.

Stock market volatility

Another basic question about the stock market pertains to the level of volatility. Various studies, beginning with Shiller (1981) have concluded that the volatility in the stock market is too great to represent forecasts of future dividends or other measures of cash flows of corporations. As memorably described by Shiller, the stock market appears to exhibit 'excess' volatility, namely volatility that cannot be attributed to rational factors and rather reflects (in the words of Keynes) the 'animal spirits' of investors.

Rare disaster models offer an alternative way to understand excess volatility. Rather than reflecting the day-to-day whims of investors, stock market fluctuations could reflect investors' changing views of the probability of a rare disaster..., stock returns, which incorporate these probabilities, can be far more volatile than dividends or consumption, which reflect (primarily) the disaster itself. ...

Low interest rates

As is well-known, the Global Crisis and its aftermath have been characterised by interest rates that are extremely low by historical standards. ... Of course, many factors influence interest rates. However, the same model that can explain a high equity premium and high stock market volatility, can also explain this seemingly anomalous interest rate behaviour. When the risk of a rare disaster rises, investors want to save to protect their assets for the future. This lowers the required return on savings, namely the interest rate, even as it raises the implicit rate of return on equities. This could contribute to the challenge facing central banks when conducting monetary policy. According to this view, raising interest rates may not be a matter of a simple policy decision, and may require the far-harder task of altering investors' perceptions of risk. ...

Conclusion

Recent research demonstrates how rare disasters can explain both a high equity premium and high stock market volatility. Time-varying disaster risk offers a compelling explanation for the patterns in equity values, consumption, and interest rates during the recent Global Crisis and its aftermath. While significant attention has rightly been paid to reducing or eliminating risk in the aftermath of the Crisis, research on disasters suggests that this is a risk that, to some extent, has long been present and accounted for in equity markets. While policymakers struggle with strategies to avoid crises, investors may have decided that a risk of a crisis can never be truly eliminated, and have acted accordingly. ...

Selected Skeptical Comments
Matt Young said...

http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm
The prime rate is what credit worthy corporations pay, and it has been in line with the price rise of stock values. The prime rate currently is 3%, but in all of the studies it has been 5% and higher.

Query, not a conclusion. Why are we comparing treasury safe rate to the market index, not the prime rate?

likbez

Stock market is the major tool of redistribution of wealth under neoliberalism. So management of corporations takes action to maximize "shareholder value" and that includes means such as cutting workforce, outsourcing or moving production to low wage countries.
401K was also quite devious scheme to get prols to finance fat cats and deprive them of garanteered pension forcing them to assume all the investment risk. If made stock ownership almost universal hugely benefitting Wall street and creating new breed of "fat cat" in mutual fund companies (Fidelity, Vanguard, PIMCO, etc. )
The third factor was "helicopter money" which found its way into stock market. I think this one explains quite a bit of S&P500 amazing run since 2008.

[Jun 10, 2015] Peter Schiff Warns This May Be The First Bubble To Burst Without A Pin

Jun 10, 2015 | Zero Hedge

Submitted by Peter Schiff via Euro-Pacific Capital,

It is well known that I don't think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008 (see my previous article on the subject). But there is one former Fed and White House economist who has a slightly better track record...which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.
Back in the late 1990s, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position. (But even Lindsey's $100-$200 billion forecast proved way too conservative - the final price of the invasion and occupation is expected to exceed $2 trillion). Now Lindsey is speaking out again, and this time he is pointing to what he sees as a painfully obvious problem: That the Fed is creating new bubbles that no one seems willing to confront or even acknowledge. Interviewed by CNBC on June 8th on Squawk Box, Lindsey offered an unusually blunt assessment of the current state of the markets and the economy. To paraphrase:
"The public and the political class love to have everything going up. We had "Bubble #1" in the 1990s, "Bubble #2" in the 00s, and now we are in "Bubble #3." It's a lot of fun while it's going up, but no one wants to be accused of ending the party early. But it's the Fed's job to take away the punch bowl before the party really gets going."
To his credit, however, Lindsey sees how this is sowing the seeds for future pain, saying:
"The current Fed Funds rate is clearly too low, the only question is how we move it higher: Do we do it slowly, and start sooner, or do we wait until we are forced to, by the bond market or by events or statistics, in which case we would need to move more quickly. By far the lower risk approach would be to move slowly and gradually."
In other words, he is virtually pleading for his former Fed colleagues to begin raising rates immediately. I would take Lindsey's assertion one step further; the party really got going years ago and has been raging since September 2011, the last time the Dow corrected more than 10%. (That correction occurred at a time when the Fed had briefly ceased stimulating markets with quantitative easing.) Since then, the Dow has rallied by almost 58% without ever taking a breather. With such confidence, the party has long since passed into the realm of late night delirium. As if to confirm that opinion, on June 8th the Associated Press published an extensive survey of 500 companies (using data supplied by S&P Capital IQ) that showed how corporate earnings have been inflated by gimmicky accounting. Public corporations, upon whose financial performance great sums may be gained or lost, are supposed to report earnings using standard GAAP (Generally Accepted Accounting Principles) methods. But much like government statisticians (see last month's commentary on the dismissal of bad first quarter performance), corporate accountants may choose to focus instead on alternative versions of profits to make lemonade from lemons. Using creative accounting, bad performance can be explained away, moved forward, depreciated, offset, or otherwise erased. Given the enormity and complexity of corporate accounting, investors have deputized the analyst community to sniff out these shenanigans. Unfortunately, our deputies may have been napping on the job. The AP found that 72% of the 500 companies had adjusted profits that were higher than net income in the first quarter of this year, and that the gap between those figures had widened to sixteen percent from nine percent five years ago. They also found that 21% of companies reported adjusted profits that were 50% more than net income, up from just 13% five years ago. But with the fully spiked punch bowl still on the table, and the disco beat thumping on the speakers, investors have consistently looked past the smoke and mirrors and have accepted adjusted profits at face value. In a similar vein, they have looked past the distorting effect made by the huge wave of corporate share buybacks (financed on the back of six years of zero percent interest rates from the Fed). The buybacks have created the illusion of earnings per share growth even while revenues have stalled. So kudos to Lindsey for pointing out the ugly truth. But I do not share his belief that the economy and the stock market can survive the slow, steady rate increases that he advocates. I believe that a very large portion of even our modest current growth is based on the "wealth effect" of rising stock, bond, and real estate prices that have only been made possible by zero percent rates in the first place. In my opinion, it is no coincidence that economic growth and stock market performance have stagnated since December 2014 when the Fed's QE program came to an end (it has very little to do with either bad winter weather or the West Coast port closings). Prior to that, the $80+ billion dollars per month that the Fed had been pumping into the economy had helped push up asset prices across the board. With QE gone, the only thing helping to keep them from falling, and the economy from an outright recession (which is technically a possibility for the first half of 2015), is zero percent interest rates. Given this, even modest increases in interest rates could be devastating. Lindsey's gradual approach may be equally as dangerous as the rapid variety. But the quick hit has the virtue of bringing the inevitable pain forward quickly and dealing with it all at once. Call it the band-aid removal approach; it may seem brutal, but at least it's direct, decisive and makes us deal with our problems now, rather than pushing them endlessly into the future. The last attempt made by the Fed to raise rates gradually occurred after 2003-2004 when Alan Greenspan had attempted to withdraw the easy liquidity that he had supplied to the markets in the form of more than one years' worth of 1% interest rates. But by raising rates in quarter point increments for the succeeding two years, Greenspan was unable to get in front of and contain the growing housing bubble, which burst a few years later and threatened to bring down the entire economy. In retrospect, Greenspan may have done us all a favor if he had moved more decisively. Today, we face a similar but far more dangerous prospect. Whereas Greenspan kept rates at 1% for only a year, Bernanke and Yellen have kept them at zero for almost seven. We have pumped in massively more liquidity this time around, and our economy has become that much more addicted and unbalanced as a result. Arguably, the bubbles we have created (in stocks, bonds, student debt, auto loans, and real estate) in the years since rates were cut to zero in 2008 have been far larger than the stock and housing bubbles of the Greenspan era. When they pop, look out below. Unfortunately, the gradual approach did not save us last time (worse, it backfired by making the ensuing crisis that much worse), and I believe it won't work this time. In fact, the current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can't. Lindsey will be right that the markets will eventually force the Fed to raise rates even more abruptly if it waits too long to raise them on its own. But he grossly underestimates the magnitude of the rise and the severity of the crisis when that happens. It won't just be the end of a raging party, but the beginning of the worst economic hangover this nation has yet experienced.

I would suspect the DB resignations are related to Greece exposure.
Fraud is being used to cover negligence.
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Wed, 06/10/2015 - 16:49 | 6183927 clooney_art

clooney_art's picture

If all the secrecy everywhere has any foreboding, we won't even know when the market crashes.
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Wed, 06/10/2015 - 18:00 | 6184191 El Vaquero

El Vaquero's picture

Yeah we will. We'll wake up one morning to hard capitol controls as opposed to the soft ones that we have now, and people who actually had FRNs in the bank will find them replaced with worthless shares of bank stock.
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Wed, 06/10/2015 - 16:54 | 6183960 gmak

gmak's picture

Don't think so unless it has something to do with the collateral market. The actions of the FED and other CBs have created the interesting situations where many CSAs are being modified to permit cash instead of T-bills (or the .gov /sovereign debt instrument of the underlying currency in the derivatives).
If a Derivatives' bomb exploded, it would be creating all sorts of panic in back offices as re-hypothecation of collateral comes home to roost.

El Vaquero

El Vaquero's picture

You may be correct, as I think we would have heard something more about it by now, but Douche Bank is one to keep an eye on anyway. They have the largest known pile of derivatives in the world, their CEOs just got nixed, Greece is probably a problem for them and they're in a country that has seen its YoY exports decline by 18%. Not a good position to be in.

cowdiddly

Geeze again? They have been jawboning about raising rates since 2010. Go ahead Punks make my day. Once again for the math challenged dreamers.
Interest payments on the national debt at Zero is running about 270 billion. at a mere 1 percent this becomes a 550 billion. at 2 percent 1.1 trillion a year with a tax base of about 3.1 trillion or 33% of Govt Income just to pay interest.
3% yea whatevea.
So quit yer yammerin and get after it you broke ass lying Sacks O S. I dare ya.

jmeyer

The Fed will not do anything serious about interest rates unless the markets show evidence of a need. They can also raise by less than 25 bps. The Fed is not certain about the direction of the economy. We may be entering a Japan style deflation, although it would be faster here. Raising rates in that case would be destructive. There is still room do QE. And the Fed can legally trade in any market it wants to trade in even soybeans, gas, whatever. The Fed cannot control a derivative mother of all bombs bringing long bank holidays and frozen accounts; SHTF Defcon 1 mess. IMO.

taggaroonie

Cowdiddly, can you educate me further - sincerely. How would an increase in interest rates apply to existing treasuries?
I would have thought a 10-year bond yeilding 1% only paid out that amount of interest at maturation.

By this reckoning, the increase in rates would affect deficit spending, rather than existing debt.

Mind you, I've been wrong before.

mendigo

The talk of impending collapse is an effort to distract from the reality that the collapse has been under way since about 2000. All the fed gyrations are in effort to mask this.
Immigration is also being used to grease the skids - supressing wage pressure.

El Vaquero

It has been a gradual drop into misery for the last 10-15 years. Labor force participation rate has been on the decline since ~2000, and the costs of living have not been declining. At some point, because of the decline, we won't be able to support this overly complex system that we've built up around us, and it will come down. This is probably going to be the next financial crisis, or a war, which will probably be remembered as the collapse. That is wrong. Whatever event it is, it will be the end of the collapse, not the entire collapse itself.

FranSix

You have had a massively inverted yield curve with the rise in the $U.S. and the spread between U.S. Treasury bills and Euro long dated bonds. Massively inverted. Screamingly inverted. Doomsday inverted.

konputa

Have you guys looked at the performance of Schiff's funds?
Get a load of this horseshit:
EPLAX -5.24% YTD, -19.32% 1Y
EPASX +0.17% YTD, -8.16% 1Y
EPHCX +8.76% YTD, +9.57% 1Y
EPGFX -3.69% YTD, -20.13% 1Y
SHTF is already here if you've been investing with Schiff.

TeethVillage88s

EP China Fund (EPHCX) - His only Fund doing well is China Fund. How Ironic that he is complaining about the US Exchange Markets & the FED who has been pumping them up.
Why has the FED been Pumping up Stocks?
Because they are Bankers and all Bankers care about is their damn Stock Market.

ElixirMixer

Not that I disagree with the general premise, but Peter Schiff is basically now the financial equivalent of those 19th century religious fanatics that predicted the world would end every single year.

philosophers bone

Poor Analogy. He's more like the drug counsellor predicting that the addicted drug addicts (Central Banks) can't stop coming back for more (QE). Till the addict kills himself (Market Collapse / Hyperinflation). The fact is that the drug addict is hanging on a little longer than predicted. But the underlying assumption and predicted end game - total destruction - is dead on.

Fun Facts

Valid but people in the US tend to be too US centric.
The western CB cabal/cartel is global and it operates globally in a coordinated fashion.
They communicate every day and persue the same global policies. This explains the FED loaning 13 trillion to foreign banks in 08 [covertly].
They conduct coordinated open market operations [covertly].
In this sense, QE has not ended. It rotates from bank to bank. Today, the ECB and BOJ are supporting the UST market as well as their own markets with QE printing.
QE cannot end. The ponzi math behind it all prohibits that.
The only difference between this and madoff is that in this case the printing press is the substitute for ever greater "new investor" money.
It will end only when the "money" [which is not money at all but an unpayable debt] loses it's value, and it will. It would have already absent open market operations and a quadrillion dollar derivative ticking time bomb.

TeethVillage88s

Fun Facts Yes Open Market Operations need an Audit Badly.
You sound like you know FED Banking. I'll have to refresh my memory.
But I don't think it is common knowledge to know that Open Market Ops are going on, nor that it is not normal.
I have thought it was normal the last year... since I don't read enough about the FED.

Pareto

The FED has essentially lied (and I know everybody is going to say "duh", but, I'm trying to defeat them at least intellectually), when Bernanke essentially mandated the Phillips curve as his key economic policy with 6.5 and 2 on the unemployment inflation tradeoff as the trigger for halting/reversing the expansion of their balance sheet. By my estimate they have surpassed this objective - comfortably. Regardless of whether you believe the Phillips curve theoretical cosntructs is another matter, but, what is important and ought to not be overlooked is that the FED has made a complete mockery of living up to even this - this Keynesian line in the sand - that they themselves defined and set as THE criterion for changing their monetary policy. They keep moving the fucking goal posts - goal posts which are themselves - not even real.
There are a lot of things that piss me off about the FED - too various and many to talk about here - but this - this fabricated bullshit doublespeak economic hocus pocus bunk - of never intending to do what they said they were going to do - even if you think that what they said they were going to do was bunk anyways (Phillips curve crap).......ITS THIS that pisses me off most.
They are just making shit up. There is absolutely no credibility and therefore no respect for this institution - because in addition to the severe economic damage it has created - it continues to ignore its responsibilityas a steward of the people's money; distort and destroy meaningful capital formation (and instead has promoted sharebuy backs for crony capitalist gains that benefit no-one but people like Carl Icahn and Warren Buffet) - continue to create all sorts of incentive distortions in capital and derivative markets - and through all of it - they continue to lie about it - the whole fucking lot of them. They are so dogmatic and fixated on saving their own ass that they are willing to fuck everybody else in the process of spilling their continuous lies and deceit. Its fucking embarrassing!!
At least - at least when Volker took the chair (he flatly ignored 1/2 of the Phillips curve and never ever believed the other), he cut price inflation off at the head. He did exactly what he said he was going to do. I'm not arguing Volker was a hero - I'm arguing Volker was the last credible chair of the most important insitution in the world and that since him we have had nothing but bat shit crazy clowns running things. Its a shit show that is out of control and we all ought to be writing our repsective .......fuck that - just something - anything to start igniting the idea that weought to be returning to some sort of normalcy before it is no longer recognizable or AFFORDABLE.
Its a fucking joke.
And its fucking embarrassing.
END the FUCKING FED!!

Citxmech

If the fed substantially raised rates the US economy would pretty much implode instantly.

El Vaquero

You are correct, excepting maybe a tolken 0.25% raise. However, if the Fed doesn't raise rates, the US economy will implode anyway. If you're on the top of a burning building, do you let the fire kill you, or do you jump? That's the kind of situation the Fed is in.

Magooo

THIS is the DISEASE - the financial crisis is the symptom --- the disease is fatal for civilization

THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

TeethVillage88s

TeethVillage88s's picture

All Citizens & Investors need correct data & Info in order to make decisions, influence communities & Nation, build families & Security, and Balance our Time & Service here.
Thanks. Looks like a good Read.
I needed to make some bullets from the above, but wanted to ask what a Financial Adviser is likely not to include in his analysis:
- part one: the end of an era
- four critical factors: debt bubble, globalization; obscured economic trends, energy-returns cliff-edge.
- part two: this time is different
- implosion of the credit super-cycle (3 Decades)
- part three: the globalisation disaster
- use of debt for consumption
- part four: loaded dice
- distorted data driving policy
- Economic data (including inflation, growth, GDP and unemployment) used for government spending,
- part five: the killer equation, the decaying growth dynamic
What is missing:
- Huge Compensation for those at the top
- Gaming of Investments is known, but often the safe Dividends are not there for the little guy(more of a Game than real business)
- Cutting Public Jobs & Benefits is primary cost cutting measure
- Only now are people asking what is the effect of cutting jobs and Decapitalizing Industry, Outsourcing, Off Shoring, and Greed that sends wealth to Accounts Offshore
- Automation, Robotics Displacing Jobs
- Loss of Middle Class is Loss of Consumer Market to a Large Degree
- Expensive Health Care Industry, Education & Housing are Deadly Trends unless people agree to live in single room apartments like Orientals sometimes do
Now I just have to read it I guess.
Seriously the Outsized Compensation in the USA while providing lousy Health Care Service, Lousy Education, Lousy Government, Lousy News & Reporting (MSM), Lousy Government Spying, Dirty Wars, Corrupt Defense Spending, Private for Profit Prisons... just smacks of Greed and lack of Humanity as Jobs & Middle Class Disappear.

harrybrown

the fed IS NOT fighting for its life, its serving it spurpose as planned to "transfer the worlds wealth" to the FED owners, plain & simple, just look at the ideology of those who control it below. any of it seem familiar?

The Protocols of Zion in Modern English A one page summary…
Goyim are mentally inferior to Jews and can't run their nations properly. For their sake and ours, we need to abolish their governments and replace them with a single government. This will take a long time and involve much bloodshed, but it's for a good cause. Here's what we'll need to do:
• Place our agents and helpers everywhere
• Take control of the media and use it in propaganda for our plans
• Start fights between different races, classes and religions
• Use bribery, threats and blackmail to get our way
• Use Freemasonic Lodges to attract potential public officials
• Appeal to successful people's egos
• Appoint puppet leaders who can be controlled by blackmail
• Replace royal rule with socialist rule, then communism, then despotism
• Abolish all rights and freedoms, except the right of force by us
• Sacrifice people (including Jews sometimes) when necessary
• Eliminate religion; replace it with science and materialism
• Control the education system to spread deception and destroy intellect
• Rewrite history to our benefit
• Create entertaining distractions
• Corrupt minds with filth and perversion
• Encourage people to spy on one another
• Keep the masses in poverty and perpetual labor
• Take possession of all wealth, property and (especially) gold
• Use gold to manipulate the markets, cause depressions etc.
• Introduce a progressive tax on wealth
• Replace sound investment with speculation
• Make long-term interest-bearing loans to governments
• Give bad advice to governments and everyone else
Eventually the Goyim will be so angry with their governments (because we'll blame them for the resulting mess) that they'll gladly have us take over. We will then appoint a descendant of David to be king of the world, and the remaining Goyim will bow down and sing his praises. Everyone will live in peace and obedient order under his glorious rule.

bluskyes

Usery is a moral issue, not an economic issue.
If money were sound, one would not have to charge interest to retain the purchasing power of loan's principle.

The Delicate Genius

"Lindsey is famous for spotting the emergence of the late 1990s U.S. stock market bubble back in 1996 while a Governor of the Federal Reserve. According to the meeting transcripts for September of that year, Lindsey challenged the expectation that corporate earnings would grow 11½ percent a year continually. "

Maybe the problem is people laboring under the misconception that economics is anything like real science?

TeethVillage88s's picture

Nice quote.
I am a little slow and thought about that for year maybe three years ago. I've only been on here a year. So maybe I posted something about questioning if Economics could even be considered a Soft Science. Hard Science deserves Respect. Medicine is just a practice based on observations and is not a hard science.
Anyway I think even the slubs that don't read business, finance, or economic don't believe the government or economics. They know policy comes from an Interest group and this leads at least to Bias in gov admins, but more likey is complete Influence by the Wealth & TPTB.
Krugman & Greenspan are likely smart people, but I just think of them as insiders, paid shills like MSM, or CIA/NSA/FCC types.

Dre4dwolf

Its not about a recovery or higher asset prices.
What people do not realize is that we are at war, financially.... NOT ECONOMIMCALLY, but FINANCIALLY.
The Fed + U.S. Govt is actively going at it with China and Europe and Russia trying to destabilize their banking institutions so that they can force them into joining some sort of "one world" bank organization . . . a global unified currency...
In order for the Fed + collection of Rothschild owned banks to pull this off they will have to destroy all the national banking institutions (collapse them all at the same time).

In order to collapse them all they have to force them to "play a game".
Just like the U.S. managed to defeat Russia during the cold war, they tricked them into expanding their military and govt expenditures to the point of collapse.

The Central Banks of the world are engaged in the same "game" again. . . this time govts will push themselves over the edge with debt to finance debt, instead of debt to finance a war machine.

This time when the banks go down, it will be for good and all the chips will endup in one mega bank, which will in turn become the One-World Bank.

This is the plan.
This was always the plan.

9/11 was about putting into motion a chain of events that would eventually lead to this "Final solution".

9/11 failed to complete the task, which is why they expanded monetary policy post 9/11 in order to push the markets over the edge ala 2007~2009.... which again failed to produce the results they were seeking,so now having failed with terrorism, and financial fraud, the elitists will simply resort to a "combined disaster" of sorts.... and if that fails. . . it will be full on martial law rule by decree/fiat.

They will get their "one world order" one way or another... at any cost even though they know full well a unified system of governance and monetary policy for the entire globa will fail misserably as socio-economic pressures boil over to uncontrollable levels at which point no amount of tear gas can hold it together.

Hohum

You might as well sit back and enjoy the show because it's one of two paths. One, total debt rises faster than total output and we all feel wealthier for a while. Or, two, debt falls off and our precious consumer society circles the drain.

[Jun 10, 2015] Why you4 should care that Robert Prechter is warning of a 'sharp collapse' in stocks

MarketWatch
Who is Robert Prechter, and why should investors care that he is warning them to be on high alert for a potential collapse in the stock market?
The president of Elliott Wave International, Prechter may not be a household name on Main Street, but he's widely known on Wall Street as the foremost authority on the Elliott Wave principle, a forecasting methodology used by generations of technical analysts that is based on the belief that financial markets trend in five waves, and retrace in three waves.

Don't miss the slide show: 5 charts to help unravel the Elliott Wave mystery

Prechter is also the executive director of the Socionomics Institute, founded to study how those same wave patterns define changes in social mood and govern social events.

'If the cycle is still operating, the stock market is at high risk of a sharp collapse. Near term, we're prepared to see the Dow make one more high. But it doesn't have to happen.'
Robert Prechter, Elliott Wave International

Elliott Wave analysis, which was devised by Ralph Nelson Elliott in the 1930s, is much more than a bunch of numbers and letters placed on a chart to denote which wave, or degree of waves, the market is traversing. Those who fully embrace it say it is the only form of technical analysis that can incorporate and explain all the other techniques used by chart watchers.

Walter Zimmerman, chief technical analyst at energy research firm United-ICAP, calls it the "grand unified field theory of chart pattern analysis." Head-and-shoulders reversals, technical divergences, candlestick charts - they can all be explained within the framework of the Elliott Wave principle, Zimmerman said.

Based on Prechter's analysis of where the stock market is positioned within its wave structure, he believes the bull market is in a "precarious position."

For one, he said the sentiment indicators he follows have reflected extreme optimism for over two years. That is often viewed as a contrarian signal, because it suggests those looking to buy have already done so, leaving fewer buyers to step in if the market starts slipping.

Plus: Read more about bullish exuberance.

In addition, Prechter said a number of momentum indicators have been revealing a "dramatic lessening" in the number of stocks and indexes that have participated in the rally in recent months.

For example, when the Dow Jones Industrial Average DJIA, +1.40% reached a record closing high on Feb. 27, there were 172 NYSE-listed stocks that achieved new 52-week highs, and 31 stocks that hit 52-week lows. But when the Dow rose to it is latest record on May 19, the number of new highs had fallen to 118, while new lows rose to 38.

[Jun 10, 2015] This Is What Happened The Last Time Pimco Dumped Its US Treasuries

"...The reason the bond market sells off before / during the "first" Fed hike is because investors start pricing in a series of rate hikes. Bonds always get crushed around the time of the "first" hike."

Jun 10, 2015 | Zero Hedge
taketheredpill

The reason the bond market sells off before / during the "first" Fed hike is because investors start pricing in a series of rate hikes. Bonds always get crushed around the time of the "first" hike.

However bonds do very well around the time of the "last" hike, when the market looks around the macro landscape and figures out that the Fed has "done enough".

So take a look around at the US economy. Imagine you had just come out of a coma and were not allowed to look at rates, only GDP, Employment Particiopation, %yoy Wages, % yoy Retail Sales, %yoy CPI. Then someone asked you whether we were at the start of a Fed rate hike cycle, about to see the "first" hike, OR, are we at the end of a Fed rate hike cycle, about to see the "last" hike.

If the Fed does hike it will be "One & Done" and any bond sell-off is a chance to buy cheap.

However if the Fed hikes and there is a severe Equity correction beware Fed-speak that hints of an emergency round of QE (aka Bond Killer).

Bam_Man

It's called "front-running the front-runners".
And it's why Treasury yields will actually fall once the Fed starts to raise rates.

[Jun 10, 2015] Fragility What Has the Watchers Worried In the US Debt Markets

"...The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart. What was most shocking was how quickly it happened once the dominos started falling."

"...The gross mispricing of risks in financial paper, again, and the lack of reform in the financial system along with excessive leverage and mispricing of risk, the fragility of long distorted markets if you will, has certainly risen to impressive levels again."

"...It is a familiar template of recklessness, fraud, and then reckoning. Afterward there is the usual attempt to blame the government officials which have been corrupted, and the people who have been duped and swindled. Quite often some scapegoat will be found to be demonized."

"...Tell us why you think it might be different this time. What has really changed? From what I can tell, it has not only stayed the same for the most part under the cosmetics of change, and significant portions of the financial landscape have gotten decidedly more dangerous, larger, and more leveraged."

Jesse's Café Américain

As you know I am on the lookout for a 'trigger event' that might spark another financial crisis, given the composition of the economy and the financial markets.

In the last financial crisis 2008, it was the failure of the two Bear Stearns hedge funds that exposed the grossly mispriced risks in mortgage backed financial assets, and the generally flawed nature of the market's collateralized debt obligations. This led to a cascade of failures in fraudulently priced assets, and resulted in increasingly large institutional failures, including the collapse of Lehman Brothers.

One can draw some parallels with the financial crisis before that, which was the gross mispricing of risk and inflated values of internet-related tech companies that had grown to obviously epic proportions by 2000. A failure of several key tech bellwethers to make their numbers, and some negative results in the economy, showed the flaws in the underlying assumptions in what was clearly an asset bubble. And once the selling started, it was Katy-bar-the-door.

The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart. What was most shocking was how quickly it happened once the dominos started falling.

The debt market in the US, with its deep ties to private equities, is probably not a trigger event, the fuse itself. But it well might serve as the powder keg that will transmit the effects of some more individual event throughout the world's markets and economies.

The gross mispricing of risks in financial paper, again, and the lack of reform in the financial system along with excessive leverage and mispricing of risk, the fragility of long distorted markets if you will, has certainly risen to impressive levels again.

It is a familiar template of recklessness, fraud, and then reckoning. Afterward there is the usual attempt to blame the government officials which have been corrupted, and the people who have been duped and swindled. Quite often some scapegoat will be found to be demonized.

I am thinking that this time the problem will arise overseas, with the failure of some major financial institutions there. Perhaps Greece will provide the spark. Or the Ukraine, or Mideast, or something yet unforeseen. The failure of some major European bank certainly has historical precedent.

And if we do experience another crisis, do not be surprised if the moguls of finance come to the Congress through their proxies again, with a sheet of paper in hand demanding hundreds of billions of dollars, or else.

Last time it was a bail-out, which was the printing of money by the Fed to monetize the banking losses and shift them to the public. This time they are thinking of something more direct, talking about a bail-in. What if they eliminated cash, and started utilizing and redploying financial assets like savings and pensions. The uber-wealthy already have their wealth parked in hard income-producing assets and offshore tax havens. Who would stop them?

Tell us why you think it might be different this time. What has really changed? From what I can tell, it has not only stayed the same for the most part under the cosmetics of change, and significant portions of the financial landscape have gotten decidedly more dangerous, larger, and more leveraged.

... ... ...

Read the entire article here.

[Jun 10, 2015] Here Is What's Fraying Nerves Among the Financial Stability Folks at Treasury By Pam Martens and Russ Martens

"...the investment grade corporate bond market, which had heretofore held up "reasonably well" during the ongoing tumbles in government debt markets, has now joined the chaos."

"..."Adding to the concerns of bond bears, the market's liquidity - the ability of traders to buy and sell securities smoothly and without moving prices excessively - has diminished dramatically. That exacerbates sell-offs and could in the worst case turn a natural correction into a crash - especially if retail investors are frightened by the fact that their supposedly safe bond funds can lose money and dump the asset class.""

June 10, 2015 | Wall Street On Parade

On Monday, Richard Berner worried aloud at the Brookings Institution about what's troubling the smartest guys in the room about today's markets.

Berner is the Director of the Office of Financial Research (OFR) at the Treasury Department. That's the agency created under the Dodd-Frank financial reform legislation to, according to their web site, "shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose," and, ideally, provide the analysis to the folks sitting on the Financial Stability Oversight Council in time to prevent another 2008-style financial collapse on Wall Street.

Two notable concerns stood out in Berner's talk. First was a concern about liquidity in bond markets evaporating rapidly for reasons they don't yet "sufficiently understand."

... ... ...

Another major concern are the bond mutual funds and ETFs that have mushroomed since the 2008 crisis and are stuffed full of illiquid assets or assets which might become illiquid in a financial panic. Berner quoted SEC Commissioner Michael Piwowar on this issue, who has said:

"The growth of bond mutual funds and exchange-traded funds (ETFs) in recent years means that these funds now hold a much higher fraction of the available stock of relatively less liquid assets than they did before the financial crisis…their growth heightens the potential for a forced sale in the underlying markets if some event were to trigger large volumes of redemptions."

Within 24 hours of Berner delivering his warnings, Bloomberg News was out with this nail biter:

"BlackRock's $14.3 billion high-yield bond ETF plunged 1.6 percent in the six days through Monday as $940.5 million exited the fund, Bloomberg data show. State Street Corp.'s $10.7 billion junk-debt ETF dropped 1.7 percent, with $571.7 million of withdrawals."

The Financial Times threw more fresh worry into the bond market disarray this week by noting that the investment grade corporate bond market, which had heretofore held up "reasonably well" during the ongoing tumbles in government debt markets, has now joined the chaos. According to the Financial Times, "The average yield of debt issued by investment-grade companies has jumped from 2.8 per cent in mid-April to about 3.3 per cent, erasing investor gains made earlier this year." (Bond prices move inversely to interest rates; when yields rise on existing bonds, their value falls in the market place.)

The Financial Times article noted the same concerns as those of the OFR, writing:

"Adding to the concerns of bond bears, the market's liquidity - the ability of traders to buy and sell securities smoothly and without moving prices excessively - has diminished dramatically. That exacerbates sell-offs and could in the worst case turn a natural correction into a crash - especially if retail investors are frightened by the fact that their supposedly safe bond funds can lose money and dump the asset class."

According to Bloomberg data, corporations have issued an astounding $9.3 trillion of bonds since the start of 2009 as borrowing costs have plummeted as the Fed cut and maintained its Fed Funds rate in the zero bound range. Much of the proceeds of those corporate bond offerings found their way into the stock market through corporate share buybacks, pushing stock prices artificially higher.

When you put all of these factors together, it's clear this is an unprecedented era of risk with little visibility on how markets will behave during periods of extreme stress.

[Jun 09, 2015] Wholesale Inventory Ratio, Sales Stabilize At Recessionary Levels

Jun 09, 2015 | Zero Hedge

Despite continued slowing in the pace of inventory builds in the past few months, the ratio of inventory-to-sales remains mired in a recessionary quagmire; but today's data showed some hope - which stocks hated. Inventory-to-Sales dropped from 1.30 to 1.29 (still recessionary) as Wholesale Inventories rose 0.4% (againmst +0.2% expectations) and Wholesale Sales rose a notable 1.6% (against expectations of a 0.6% rise). YoY Wholesales Sales remain in negative territory however and confirm the recessionary warning that the ratio is sending.

Inventories rose...

[Jun 09, 2015] Interest Rates Natural or Artificial

"...When you move from a investment driven economy to a consumer driven economy, interest rates will decline."

"...The US can grow slower than in say the 1970's, yet the people can feel richer and more materially satisfied because of the rate of consumption is much larger in many respects to the 1970's despite slower gdp growth from recession to recession."

"...There are truly 3 notches to evolution :

investment into heavy industry and infrastructure

consumer subsistence economy

consumer economy of Veblen Goods

Each notch ushers in less inflation but more disinflation. Add to that disinflation is the type of deflation provided by *Moore's Law*, economy of scale provided by labour division and years of experience. Each of above forces fuel our march toward a natural rate of deflation which provides an end to the complexities of finance, complexities that are exploited by rentiers galore. Recently our banking *industry* has been laying off and firing droves of *employees*. Banks have seen the handwriting on the graffiti wall."

"...What seems lacking in all this discussion is the issue of currency interdependence - the Fed isn't just setting rates for the USA, it is in a sense a central bank for the world economy. I would prefer that it wasn't, but it is. So long as the rest of the world keeps sucking up dollars, the Feds ability to control what happens in the US will be reduced."

"...Fiscal authorities have conducted austerity and decreased demand and sending inflation negative or too low. Monetary policy has attempted to counter bad fiscal policy by supporting lower interest rates. Underinvestment by governments including austerity is the biggest reason for low interest rates. Another is failure to adequately tax the wealthy leaving too much wealth that is not being spent looking for safe bonds to invest in. Collecting the excess as taxes would lower demand for bonds and help raise interest rates. "

"...The whole point of conservative economic policy is to preserve the haves and distract the have-nots. It is not about a thriving economy but about who wins and who loses. When you have enough money and never fight in wars then all of life just seems like a game."

"...I think what is missing from the discussion is effect of energy prices on interest rates. High oil prices lead to diminished profitability and as such depress interest rates."

Jun 09, 2015 | Economist's View

John Cummings

When you move from a investment driven economy to a consumer driven economy, interest rates will decline. It started in the mid-80's not the mid-90's as the US shifted its portfolio and tax policies around to support consumption over investment as means to reduce inflation and bring in cash to bonds.

This was the main mistake the Federal Reserve made in 2003. They saw weak investment, but ignored rapid growth in consumption. Were to slow to move off the floor and allowed the housing bubble to crest at full nadir instead of 'taking off the edge' like they promised to do. I have always heard whispers about Republican involvement as well.

Taylor's pov is to look historically at consumption, which is a extremely large share of GDP right now. The US can grow slower than in say the 1970's, yet the people can feel richer and more materially satisfied because of the rate of consumption is much larger in many respects to the 1970's despite slower gdp growth from recession to recession.

Lido Tuxedo said in reply to John Cummings...

"investment driven economy to a consumer driven economy, interest rates will decline. It started in the"
~~John Cummings~

There are truly 3 notches to evolution :

investment into heavy industry and infrastructure

consumer subsistence economy

consumer economy of Veblen Goods

Each notch ushers in less inflation but more disinflation. Add to that disinflation is the type of deflation provided by *Moore's Law*, economy of scale provided by labour division and years of experience. Each of above forces fuel our march toward a natural rate of deflation which provides an end to the complexities of finance, complexities that are exploited by rentiers galore. Recently our banking *industry* has been laying off and firing droves of *employees*. Banks have seen the handwriting on the graffiti wall.

They see that with short rates near 0% FG, fed gubernatorial has run out of ammo. Congress has run out of excuses for blowing the stagflation payer's buying power and the taxpayers cash.

As long rates drift downward towards the event horizon, perhaps just short of 2%, there is the probability of a sudden collapse of long rates to less than 0%.

A the moment of collapse there will be no more excuse for printing t-bonds. Fiat, treasury notes, silver certificates, gold certificates, cash will be printed up instead.

The end game for high finance will be the game of sudden death analogous to the breaking the sound barrier with

a loud
bang --

reason said...

Mention Fed and interest rates and all sorts of funny ideas come to the surface!

What seems lacking in all this discussion is the issue of currency interdependence - the Fed isn't just setting rates for the USA, it is in a sense a central bank for the world economy. I would prefer that it wasn't, but it is. So long as the rest of the world keeps sucking up dollars, the Feds ability to control what happens in the US will be reduced.

bakho said...

Interest rates vary with demand and risk of the loan.

Payday loans are exorbitantly high reflecting high risk and few lenders.

Student loans are excessively high because demand is high and a small set of lenders.

Credit card loans are variable dependent on risk. There is stiff competition for low risk borrowers and lower rates. Some still borrow at 15% plus.

Mortgage loans have gone up recently to reflect the increased number of buyers.

Interest rates on bonds have fallen as investment as the risk premium for many investments (such as business expansion due to overcapacity) skyrocketed in the wake of economic crises. When bonds have high demand the interest paid is lower.

Fiscal authorities have conducted austerity and decreased demand and sending inflation negative or too low. Monetary policy has attempted to counter bad fiscal policy by supporting lower interest rates. Underinvestment by governments including austerity is the biggest reason for low interest rates. Another is failure to adequately tax the wealthy leaving too much wealth that is not being spent looking for safe bonds to invest in. Collecting the excess as taxes would lower demand for bonds and help raise interest rates.

Chris Herbert said...

I'm not certain whether this is important or not, but I suspect it is. Our tax laws, and apparently much of our economy, funnels income gains to the owner of capital almost exclusively. Capital and cash pool in private bank and investment accounts amongst the top two tenths of the top one percent. Meanwhile poverty spreads below. This is the classic Adam Smith notion of a rich nation going to ruin, by the way. Also, at the national account level we fail to fund any reasonable level of infrastructure development, and that which we do is considered 'deficit' spending because we no longer collect taxes, a la Greece. Why we consider this deficit spending as opposed to what it actually is, investment, is beyond me. As a result of this mistake, we cannot make the investments we need to remain a modern society. China can spit out bullet trains by the half dozen and we can't manage to build a single one. Apparently the real enemy of rich countries are conservatives who do not understand what makes an economy robust.

We need to relearn how to collect taxes and we need to relearn the difference between consumption and investment spending. It isn't the deficit that matters, it's what you spend your deficit on.

Darryl FKA Ron said in reply to Chris Herbert...

Well said.

The whole point of conservative economic policy is to preserve the haves and distract the have-nots. It is not about a thriving economy but about who wins and who loses. When you have enough money and never fight in wars then all of life just seems like a game.

Darryl FKA Ron said...

If money is artificial then interest rates would have to be artificial too, but that is not the point. First off, we are talking about Fed interest rates, which can be out of line with market rates at rare times. If Fed rates were too low given the demand for loanable funds then the market would take a higher interest rate spread for itself. What matters most is the effect on output, consumption demand, wages, and investment as Fed interest rates go up or down. If Fed rates are too high then the market tells this to the Fed by a collapse in demand for loanable funds.

If Fed rates are too low then the market tells this to the Fed by a boom in demand for loanable funds and lenders taking a higher spread. For those that invoke the natural interest rate euphemism then what they really mean is market rates.

What is the market telling them? Make them tell us how the market is saying that to them.

JF said in reply to Darryl FKA Ron...

Darryl FKA Ron - Good points, but can I get you to stop using the term "loanable funds" - it is a term that has theoretical meanings that are questioned as not being true in fact (though of theoretical and analytic interest).

You can simply substitute: "demand for lending"

JF said in reply to JF...

Here is a read, published July 2014, though you can also look at the most recent discussion from the Bank of England's bulletins.

http://web.stanford.edu/~kumhof/banks-lf-fmc.pdf

"Abstract

In the loanable funds model of banking, banks accept deposits of resources from savers and then lend them to borrowers. In the real world, banks provide financing, that is they create deposits of new money through lending, and in doing so are mainly constrained by expectations of profitability and solvency.

This paper presents and contrasts simple loanable funds and financing models of banking. Compared to otherwise identical loanable funds models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have much larger effects on the real economy. "

Darryl FKA Ron said in reply to JF...

Yeah, I use the terms interchangeably too often. Demand for lending is appropriate for ordinary commercial banking. Loanable funds only has real meaning for lending by bond buyers, ordinarily through investment banking financial intermediation. For home loans commercial banks are often the loan originators, but they are not the lenders.

likbez said...

I think what is missing from the discussion is effect of energy prices on interest rates. High oil prices lead to diminished profitability and as such depress interest rates.

The Warren Buffet Economy, Part 1: Why Its Days Are Numbered

This central bank fueled boom will ultimately be paid for in the form of a prolonged deflationary contraction. Then, trillions of uneconomic assets will be written off, industrial sector profits will collapse and the great inflation of financial assets over the last 27 years will meet its day of reckoning. On the morning after, of course, it will be asked why the central banks were permitted to engineer this fantastic financial and economic bubble. The short answer is that it was done so that monetary central planners could smooth and optimize the business cycle and save world capitalism from its purported tendency toward instability, underperformance and depressionary collapse.

[Jun 09, 2015] Possible Q2 earnings recession nothing to lose sleep over

Rising price of oil should be the factor depressing earning, not increasing them. Drogen is wrong in this respect...

Jun 09, 2015 | finance.yahoo.com

Leigh Drogen of Estimize said an earnings recession is unlikely for the next quarter, citing low estimates and rising oil prices.

Last quarter yielded a 1.2% growth in earnings despite Wall Street's prediction of negative 2%.

"Most of that was in energy, so obviously with the price of oil going down we saw a huge drop in energy earnings," Drogen said. "But what happened was the analysts took their numbers way too far down."

In Q2, similarly pessimistic predictions from Wall Street can be expected to produce further disparity in projections.

"When we see the price of oil this quarter, or last quarter which will affect this quarter's earnings, it has gone up," Drogen added. "And so we're looking for better numbers than the Street is this quarter again and we don't think there's going to be an earnings recession."

[Jun 07, 2015] I'm so, so tired of political journalists by Beverly Mann

June 2, 2015 | Angry Bear

Politico's top article today is titled "Did Elizabeth Warren go too far this time?" But it's subtitled "The Massachusetts senator's attack on Securities and Exchange Commission Chair Mary Jo White causes backlash on Wall Street." The article, which is lengthy, discusses a 13-page letter Warren sent this morning to SEC Chairwoman Mary Jo White, absolutely ripping White for … well, you should read the article, all the way to the end.

By the end of the article, you'll wonder why somewhere in the middle of it, it says that Warren's influence seems to be on the wane and that the letter probably will hasten the waning. The article has two co-authors, and the headline would not have been written by either of them. So that might be why the article is part details and background, and part what Wall Street and the White House want as the media's take on the letter's contents and fallout. I did a double-take when I read this sentence: "The backlash against Warren was the latest indication that populist firebrand's efforts to push for tougher financial regulation may be losing some momentum."

The backlash against Warren is from Wall Street, the SEC, Mary Jo White's office, and the CEOs and lobbyists who want the TPP treaty ratified and are selling it as a trade agreement even though, mostly, it's not. Warren (and others) object not to the actual trade provisions but to parts of it that do not concern trade as such. And the SEC rules under Dodd-Frank that Warren angrily says the SEC keeps delaying concern transparency of corporations concerning the CEO's pay as compared to that of the company's ordinary employees, and concern disclosure of the identities of the tax-exempt organizations that receive corporate donations, and the amounts of the donations.

The public backlash against this has begun, the Politico article says. Just call JPMorgan's corporate offices and lobbying firms. They'll tell ya!

As for Wall Street's public relations offering on it, the part of it that the article discusses with specificity sounds to me ridiculous:

"I don't understand Sen. Warren's criticism of White for recusing herself where there is a conflict of interest," said Wayne Abernathy, a top lobbyist for the American Bankers Association, referring to Warren's criticism that White isn't involved in SEC actions when her husband's law firm represents the companies involved. "Is it that she would prefer that the chairman go forward and participate in enforcement cases despite the conflict of interest?"

No, actually, it's that because her husband is a partner in one of the premier New York law firms that represent the biggest financial institutions against the SEC and Justice Department during investigations and in civil and criminal litigation. And that her recusal means that the SEC is routinely deadlocked about whether to bring charges in such cases because the remaining SEC commissioners are equally divided between Republicans and Democrats. How convenient.

Relatedly, Roger Cohen has a terrific column today in the New York Times. But you have to read to the end to get the relation.

[Jun 07, 2015] CEO Pay Fueled Top 1% Income Growth

Larry Mishel:

New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth: A new paper, Firming up Inequality, has been receiving substantial attention in the media for its claim that wage inequality is not occurring within firms but only occurs between firms. The authors claim that their results disprove the claim made by me and others, such as Thomas Piketty and Emmanuel Saez, that the growth of top 1 percent incomes was driven by the pay of executives and those in the financial sector. Though the authors present valuable new data, which offers the possibility of great insights, their current analysis does not disprove that executive pay has fueled top 1 percent income growth. In fact, the study neither examines nor rebuts claims about executive pay.
The authors also offer a "we live in the best possible world" interpretation of their findings-inequality is due to high productivity growth of "superfirms." This is pure speculation and is completely disconnected from their actual empirical work. A similar study examined productivity trends and contradicts their narrative about superfirms.
Last, there are reasons to be skeptical of their findings because they imply huge wage disparities have opened up between median workers across firms within an industry that are implausible. ...

He goes in to explain in detail.

anne said...
There is a trick played by the writers of "Firming up Inequality," the trick is that the writers begin the study after there had been a dramatic increase in the relative wage levels of top corporate executives. By 1980, the difference in wages of ordinary workers and top executives was largely in place.

The 1970s was a time of corporate manager or executive "revolution," as John Bogle remarked in a lecture I heard, and I have wondered for several years whether the ideas of Milton Friedman * provided a basis for this revolution.

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

September 13, 1970

The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York Times
anne said in reply to anne...
http://g-mond.parisschoolofeconomics.eu/topincomes/

March, 2015

Wages, Salaries and Pensions as Share of Income for Top .1%, 1970-1980

1970 ( 32.20) *
1971 ( 34.00)
1972 ( 37.41)
1973 ( 36.92)
1974 ( 36.23) Ford

1975 ( 40.69)
1976 ( 43.39)
1977 ( 45.39) Carter
1978 ( 45.89)
1979 ( 46.76)

1980 ( 49.09)

-- Thomas Piketty and Emmanuel Saez

[Jun 05, 2015]May Employment Report 280,000 Jobs, 5.5% Unemployment Rate

This 280 figure is birth-death adjusted, so it might well be lower. Still it is better then 150K.

Rajesh wrote on Fri, 6/5/2015 - 5:49 am

U-3
Feb: 5.5%
Mar: 5.5%
Apr: 5.4%
May: 5.5%
Has the unemployment rate flat-lined?

Sebastian wrote on Fri, 6/5/2015 - 5:52 am

CR said: "This was above expectations of 220,000 jobs, and combined revisions were up ... a strong report."

And Belmont said: "And a tick up in rate = more people coming back into the fold."

Both right.

One of the methods of data-torture that I use to support my unfounded Pollyanna point of view is to measure the growth of the total labor force available and compare it to the growth of the labor force that's actually employed.

As long as the growth in "employed" is greater than the growth of "available", no worries.

No worries.

Bureau of Labor Statistics

Rajesh wrote on Fri, 6/5/2015 - 5:53 am (in reply to...)

Belmont wrote:

Are you really trying to find something negative?

A flat unemployment rate is good news. It indicates that we are finally pulling people into the labor force. So far, we are not doing it in the numbers that would move labor force participation. We can't really talk about a tight labor market when we have millions of people who was unemployed for more than 26 weeks.

dilbert dogbert wrote on Fri, 6/5/2015 - 5:55 am

I Blame obummmers and Killery for forcing people to work!!!!! Impeach Now!!!!
More cooked books numbers!!! Dooooooooooooooom!!! Dooooooooooooooom!!! Dooooooooooooooom!!!

KarmaPolice wrote on Fri, 6/5/2015 - 5:57 am (in reply to...)

Sebastian wrote:

Bureau of Labor Statistics

This gummint agency cannot be trusted. I know this, I read the HCN, Breitbart, and Zombie nation.

Rob Dawg wrote on Fri, 6/5/2015 - 6:01 am (in reply to...)

Belmont wrote on Fri, 6/5/2015 - 5:54 am

Fuck you Rob! How bout that. People read just fine here.

What they read is you incessantly setting up straw men. You've set in your mind a static view of these HCN doomerati because they were so eloquent and accurate about how bad things really were a long time ago. You should have taken away that they are eloquent and accurate instead you fixated on the negative message and merely assume that message never changed.

sum luk wrote on Fri, 6/5/2015 - 6:11 am

Lets take a coffee break
US May Average Hourly Earnings +0.32%, or +$0.08 to $24.96; Over Year +2.3%
…
Unit labour cost in sel EZ countries : https://twitter.com/cigolo/status/606794251297558528

homedad43 wrote on Fri, 6/5/2015 - 6:16 am

Slightly different tack from unemployment...the "older" commenters might recall that almost five years ago, I began tracking a marketbasket of 47 grocery store items at three separate local grocers. I was curious about what was really happening with inflation/deflation and all of that. Of these 47 common items, 37 are foodstuffs (pound of ground beef, etc...); I've kept a baseline of 100 as of November 2010 for both the Total Index of the 47 items as well as the Food-Only Subindex of 37 foodstuffs. Pricing has been done on or about the 1st of each month since November 2010 (I'm a dog with a friggin' bone).
The Food-Only Subindex has always been higher than the larger Total Index and when the Total Index was at 111.18 in December 2014 (November 2010 = 100), the Food-Only Subindex maxed at a peak of 115.33 (November 2010 = 100). Since that high in December, both have dropped but the Food-Only Subindex has crashed to 106.46...more than four years of pricing activity for a marketbasket of commonly purchased items has been wiped out in six months.

When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining. In the past six months, each of the unrelated grocers has instituted new pricing policies and the effect is rather stunning.

Practical Dad

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:24 am (in reply to...)

homedad43 wrote:

When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining.

But not inconsistent. Did you see this index recently? US Daily Index " The Billion Prices Project @ MIT

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:30 am (in reply to...)

Mook wrote:

But can we at least all agree that (un)employment is at best a coincident (if not a lagging) indicator?

I think that's still the case. Popular wisdom held that housing was a lagging indicator but that was back in the dark days when houses were primarily a place to live and only secondarily an inflation-protected savings account and only tertiarily a hedge fund for the common man that doubled as shelter.

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:35 am (in reply to...)

KarmaPolice wrote:

40 percent of all home purchases are cash.

And we know the average (median) joe has that much cash just laying around in savings accounts. It's easy to save when median rent is only $4500/mo in San Francisco, which also represents accurately average (median) joe and average (median) joe's income.

Bruce in Tennessee wrote on Fri, 6/5/2015 - 6:50 am

...18 trillion in taxpayer debt nationally, wonderful reverse mortgage commercials for the elderly who've been gutted, student loan burdens for the young, 7 year car loans for the subprime, huge stock buybacks rather than capital investment, and yada yada...

Mook wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

lawyerliz wrote:

This behavior may reassert itself with new borrowers only.

Key phrase, that one.
The marginal new borrower may scramble to lock in a 4.5% rate before it moves to 4.75%. All well and good, if you believe that the population of marginal new borrowers (generally millennials with uncertain job prospects, little liquidity, and a Steinway worth of student loan debts strapped to their backs) is sufficient to maintain existing sales volumes and rising prices.
Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

Blackhalo wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

Rajesh wrote:

Has the unemployment rate flat-lined?

Probably reached equilibrium, at the point where folks who had given up, can find work, and any increase in demand, is off-set by added supply.

KarmaPolice wrote on Fri, 6/5/2015 - 6:51 am (in reply to...)

ResistanceIsFeudal wrote:

Of course there is. The Tale of Two Economies continues unabated.

It's nothing new. And pretty much on-pace since the seventies for the US.
Although I did see an interesting statistic that the majority of people moving into Houston are renters even though their salaries are more than acceptable for purchasing a home. Perhaps they are getting smarter about boom/bust cycles.

sum luk wrote on Fri, 6/5/2015 - 6:51 am

DeutscheBank: wage growth acceleration: https://twitter.com/fxmacro/status/606810704813916161

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:52 am (in reply to...)

Mook wrote:

Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

Except the voting booth.

KarmaPolice wrote on Fri, 6/5/2015 - 6:54 am (in reply to...)

ResistanceIsFeudal wrote:

Except the voting booth.

Good luck with that as well.

burnside wrote on Fri, 6/5/2015 - 6:55 am (in reply to...)

Rates will have to rise quite a bit, I should think. That became very common in the late seventies. Very.

sum luk wrote on Fri, 6/5/2015 - 6:55 am

Average hourly earnings have increased 2.04% (nominally) from a year ago
chart: https://twitter.com/NickatFP/status/606814645551251456

umop apisdn wrote on Fri, 6/5/2015 - 6:56 am (in reply to...)

18 trillion in taxpayer debt nationally

The Treasury is not the taxpayer.

sum luk wrote on Fri, 6/5/2015 - 6:57 am

U.S. Economy Adds 280k New Jobs In May - Floating Path

Blackhalo wrote on Fri, 6/5/2015 - 6:57 am (in reply to...)

lawyerliz wrote:

it will be really hard for a borrower with a 3.5% to 4.25% rate to decide to move up to 5.5---7% rate.
It would seem that you'd get a lot less house, moving from 3.5% to 7%, for the same monthly nut.
Let's see: a 250K home at 3.5% vs 170K house at 7%... $1150/mo...

KarmaPolice wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

homedad43 wrote:

The decreases are happening but in the things that are more common...bananas, potatoes, canned veggies. Hell, even cooked deli ham and deli cheese went down in the past two months.

Oil prices.....

homedad43 wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

Average hourly earnings have increased 2.04% (nominally) from a year ago

Yep...but if you're paying more for health insurance and doing without other benefits that you now have to cover, then that situation is still a net loss.

Belmont wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

I was told that this would never happen. That we would all be searching the forests for edible mushrooms till the end of time.

sum luk wrote on Fri, 6/5/2015 - 6:59 am (in reply to...)

18 trillion in taxpayer debt nationally
umop apisdn wrote:

The Treasury is not the taxpayer.

… that's ok, 18 trillion is just the headline ~ not the actual number

homedad43 wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

One of the items that I price is a 48 oz container of canola oil for cooking. When oil prices spiked, the canola oil went up across all three stores since canola seeds are also used in bio-fuels...since then the price for that size container has dropped but not as much...elastic upwards and inelastic downwards. Somebody's making money.

Rob Dawg wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

Bruce in Tennessee wrote:

18 trillion in taxpayer debt nationally,...
Debt Maturity Chart
We either pay off $3 trillion in the next year or cough up an extra $35 billion for every increase of 1% when rolling over.

KarmaPolice wrote on Fri, 6/5/2015 - 7:02 am (in reply to...)

homedad43 wrote:

Somebody's making money.

That's called capitalism.

Mike_PNW wrote on Fri, 6/5/2015 - 7:03 am

Pending layoffs at Intel...
Intel plans job cuts across the company, internal memo says | OregonLive.com

[Jun 05, 2015] Gross Says Bond Rout Scary as Hell Even Without Bear Market By Wes Goodman

Bloomberg

The turmoil has sent U.S. government securities maturing in 10 years and longer down 7.4 percent since the end of March, heading for the biggest quarterly loss since 2010, based on Bloomberg World Bond Indexes. The decline is part of a global selloff, led by German bunds and fueled by what traders say is a lack of liquidity.

"I recognize the tremendous liquidity problems and the ups and the downs on a daily basis -- or even on a minute basis -- and it scares the hell out of me," Gross said in an interview Thursday. "But I don't think we're in for a bear bond market just yet."

Gross ... said Treasuries have fallen to fair levels. The benchmark Treasury 10-year yield rose three basis points, or 0.03 percentage point, to 2.34 percent at 6:56 a.m. New York time, according to Bloomberg Bond Trader data. It reached 2.42 percent on Thursday, the highest since October, having climbed from a year-to-date low of 1.64 percent.

Gross said 2.30 percent is "fair value."

Treasury market volatility climbed to a three-month high this week, according to the Bank of America Merrill Lynch MOVE Index. The gauge increased to 91.81 Wednesday, from as low as 70.99 on April 27.

"People's faces are within inches of their screens, eyes are glued to the screens, to the news sources, to the price action," said Craig Collins, managing director of rates trading at Bank of Montreal in London. "You see the market move and it's 'what's out, what's out?' Risk appetite is very, very low with the liquidity in the market being very low and that's made for this really choppy price action."

Trading activity is declining because of regulations such as the Volcker Rule and Basel III that require banks to cut back on risky activities and holdings, according to Hajime Nagata, who invests in Treasuries for Tokyo-based Diam Co. Bond-market moves have become exaggerated as a result, he said.

The primary dealers that underwrite America's bonds have cut U.S. government debt holdings to $30.3 billion as of May 27, from a record $146 billion in October 2013, Federal Reserve data show.

... ... ...

Gross said he doesn't see the threat of a bear market in bonds with inflation falling short of the Fed's 2 percent target. The central bank's preferred measure of costs was 0.1 percent as of the most recent report in April.

A period when returns aren't positive is generally considered a bear market in bonds. While securities with the longest maturities have suffered the brunt of the global selloff, other debt investments fared better.

The Vanguard Total Bond Market Index Fund, the biggest bond mutual fund in the world with $118 billion in assets, is little changed this year, according to data compiled by Bloomberg. It's returned 2.6 percent over the past 12 months.

The debt-market selloff probably doesn't have much further to go, said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd. "It's been violent, and it's happened in a short few days," Jolly said. "We're getting to the point where some investors are starting to see value in buying bonds again."

ABC

There is no value in buying bonds unless it gets 3% and above while slowly getting to the average norm of the past. Ten years is a long time to get little to live on, right. If you die, then the government gets their take and not much left for the children.

Wall Street can be very risky at this time for the elderly. Got to eat and have a roof over your head. The eyeball gouging guys do not care if granny eats or has a roof over her head.

JB

Only "scary" for the idiots who piled in at the top - but not for "fund managers". They are gambling with someone else's money; they are ALL unaccountable.

[Jun 05, 2015] Vanguard guidance

Noni Robinson: Joe, when do you think the Fed will start to raise short-term interest rates and at what pace?

Joe Davis: Good question. You know, we certainly stated at the beginning of the year, Noni, in our past conversations, that the Fed was very likely to raise rates this year. And that is still the case. There's been a great deal of fixation in the marketplace around whether it would be June or September, perhaps even as late as December. And depending upon the data, I think, ultimately [that] will determine when the Fed raises rates. I think right now central tendencies are around September. I think that's clear from the Federal Reserve in the minutes, and the weak data we had in the first quarter, some of which is [because of] weather, some of it is not.

Joe Davis More importantly, what we've talked for some time Noni, is much more important than when the Fed raises rates, is-to your question-the pace, and where they ultimately stop. And in our minds, for some time, we've been of the thought that the Fed was unlikely to raise rates very high, and they were going to do so at a very gradual pace. And in fact we thought that the Federal Reserve would pause, perhaps as low as 1%, to reassess the economy and to see the performance. Particularly since the Federal Reserve is extremely likely to be the only central bank in the developed world that will be raising rates in the near future.

So again, I still think it's going to be a very gradual and slow pace. I think it's ultimately a positive for the U.S. economy. There is a limit to how far the Fed can raise rates. Two important points. First is, inflation is below where they want it, it's been there for four years and it's not near 2% on the official rate. And so, unlike previous tightening cycles, they may be raising rates with their inflation below where they want it, as opposed to the past when it was higher than they wanted, and they wanted to push it down.

And then secondly, whether or not they may directly acknowledge it, is the recent strength in the U.S. dollar, given in part due to the strength of the U.S versus other developed markets, there's a tightening bias in the appreciation of the dollar. So that, in itself, I think will be self-limiting in terms of how far the Federal Reserve will need to raise rates.

Noni Robinson: Roger, have the markets already priced in higher rates? Or do you think we'll see some volatility as rates start to rise?

Roger Aliaga-DiazRoger Aliaga-Díaz: Yes, Noni. In part, they have priced in some of the rate rise that's expected for 2015. But still there is a little bit of disconnect between the market-inferred path of rates, and what the Fed is stating. It's not a large disconnect, we're looking at a half of a percentage point. The market seems to be a little bit impacted by technical factors. Basically the flight to safety into the U.S. dollar, and dollar-denominated debt we've been seeing over the past few months. And that tends to push U.S. yields down below what economic fundamentals would determine.

On the other hand, the Fed projections are assuming, at the moment, that the Fed is going to raise rates to closer to historical levels, or to about 4% for what's called a terminal rate, long-term. But we believe that over time-and the Fed is basically acknowledging this gradually-that over time due to the low growth environment and subdued inflation environment, that terminal rate may come down closer to where the market is.

So [there could be] a little bit of volatility [because] the market may catch up to the Fed in the short-term as we get closer to lift off. The Fed is over time, gradually reducing that long-term rate. But volatility, yes. Usually at turning points we should expect some volatility. Not necessarily in one direction, it's not all bad. It's more uncertainty around the path of rates, the gradual path that Joe was referring to. So the best basic strategy for that is to stay well diversified across the maturity curve, accessing a broad bond benchmark

[Jun 05, 2015] 5 things to think about on your journey to retirement

May 04, 2015 | https://personal.vanguard.com/us/insights/article/5-things-journey-to-retirement-052015

... ... ...

Deji Akintoye: Figuring out how much you need to accumulate gets to the heart of the matter: the dollar amount you'll need to "afford" retirement.

... ... ...

By looking at a few factors (including your age, the amount you save, and your anticipated rate of return), you can project whether you're on track to meet your savings goals. The key is to set realistic expectations for retirement and create a plan.

... ... ...

Kahlilah Dowe: I've heard people say that retirement starts to seem "real" when it's about 5 years away. This can be a good time to think about how much income you'll need to make your vision of retirement a reality.

... If your portfolio will be your primary income source, it may be smart to invest more conservatively to preserve the value of your portfolio.

... focus on your asset mix. The level of risk you take on should correspond with how much your investment portfolio will have to shoulder the weight of supporting your daily living expenses in retirement.

... ... ...

Jane Simpson: For some investors, retirement means transitioning to a life of relaxing and spending-from a life of working and saving. In the midst of the transition, consider how your lifestyle changes can potentially impact your finances.

Using projected fixed expenses (costs that are the same every month) and discretionary expenses (costs that cover wants rather than needs), come up with a spending strategy to balance your expectations with your limitations.

Although it's prudent to plan ahead, it's also necessary to remain financially flexible-you can make a plan based on what you know right now, but you have to monitor your actual spending and make adjustments as needed. I encourage all newly retired clients to remember that the first few years of retirement are often about fulfilling lifelong dreams (like relocating or taking a trip of a lifetime), so it's unlikely that subsequent years of retirement will include the same expenses. It's okay to take some time to figure it out.

Julie Edwards: About 5 years after you retire, consider asking yourself whether or not retirement is what you thought it would be. Compare the vision you had for retirement with the reality of being retired. But before you place the blame on your finances for any unmet expectations, review your budget. Is your spending on track?

If you're overspending, you can either supplement your income (by getting a job) or reduce your expenses. Because you're on a fixed income, it's a good idea to periodically review your discretionary expenses and potentially give up or cut back on a membership, an activity, or a recurring expense that isn't crucial to your happiness.

... ... ....

[Jun 05, 2015] BONDS: U.S. government bond prices rose, pushing yields down. The yield on the 10-year Treasury note dropped to 2.30 percent from 2.36 percent late Wednesday.

[Jun 04, 2015] Pickens Saudis bluffing on oil production

Quotes:
.
"...OPEC is "all in at 31 million barrels a day. That's about all they can do,"
.
"...They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do."

Notable quotes:

"... "They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do." ..."

"... The cartel is now pumping about 2 million bpd more than needed, analyst say, feeding a glut that has left millions of barrels stored on tankers without a buyer and kept prices at close to half their peak levels last year. ..."

"... "If you're trying to grow production, you've first got to maintain production." ..."

"... Oil wells-whether conventional or unconventional-reach peak production soon after they yield the first drop of crude. The U.S. industry is dominated by unconventional wells. ..."

"... Conventional wells go through a long period of steady, flat production between peak and decline. In contrast, production falls rapidly in the first three years of unconventional wells-those in shale, sandstone and carbonates. They then enter a long phase of very low production. ..."

"... "Just as soon as you get an oil well, put it on production, it starts to decline," Pickens said. "Now how fast is it going to decline is very important." ..."

Jun 04, 2015 | finance.yahoo.com

OPEC is "all in at 31 million barrels a day. That's about all they can do," Pickens said on CNBC's " Squawk Box ."

"They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do."

Oil Minister Ali al-Naimi said Saudi Arabia produced some 10.3 million bpd of crude in March, eclipsing a previous high of 10.2 million in August 2013.

The Organization of the Petroleum Exporting Countries is expected at a meeting on Friday to keep a group output target of 30 million bpd, a ceiling it has been exceeding for most of the last two years, weakening prices.

The cartel is now pumping about 2 million bpd more than needed, analyst say, feeding a glut that has left millions of barrels stored on tankers without a buyer and kept prices at close to half their peak levels last year.

Production declines in the United States will also support prices, Pickens said, noting that output has dropped off in North Dakota's Bakken formation and Texas's Eagle Ford play as drillers have taken about 1,000 rigs out of oilfields since December.

"Now, you shut down 1,000 rigs, we're dealing with decline curve," said Pickens, chairman of BP Capital Management. "If you're trying to grow production, you've first got to maintain production."

Oil wells-whether conventional or unconventional-reach peak production soon after they yield the first drop of crude. The U.S. industry is dominated by unconventional wells.

Conventional wells go through a long period of steady, flat production between peak and decline. In contrast, production falls rapidly in the first three years of unconventional wells-those in shale, sandstone and carbonates. They then enter a long phase of very low production.

"Just as soon as you get an oil well, put it on production, it starts to decline," Pickens said. "Now how fast is it going to decline is very important."

Read More

CNBC Survey: No action at OPEC, but what about shale?

The looming threat to American oil output

Oil falls more than 1 percent on high OPEC output, firmer dollar Reuters

OPEC may condemn the world to an oil glut for years as big meeting looms MarketWatch

Oil falls as OPEC output stays high, dollar rises Reuters

Gulf producers to resist cuts at OPEC meet: analysts AFP

Oil market 'comfortable' with violence risk: Saudi AFP

[Jun 04, 2015] There is 'sheer panic' in the bond market

According to Bloomberg, bonds wiped out all their gains for the year. The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

There is chaos in global markets. Bonds sold off sharply on Thursday morning for a second day in a row. They've reversed the decline, but stocks are still lower, after the chaos spilled over.

... ... ...

The International Monetary Fund slashed US growth forecasts, and urged the Federal Reserve to delay its first interest rate hike until 2016, in a statement that crossed as the stock market opened.

In a speech last month, Fed chair Janet Yellen said it would be appropriate to raise interest rates "at some point this year" if the economy continues to improve.

In a morning note before the open, Brean Capital's Peter Tchir wrote: "It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a 'risk on' trade it is a 'risk off' trade, where low yields are viewed as a risk asset and not a safe haven."

The sell off in global bonds started Wednesday, as European Central Bank president Mario Draghi gave a news conference in which he said markets should get used to episodes of higher volatility.

Draghi also emphasized that the ECB had no intention to soon end its €60 billion bond-buying program, called quantitative easing, before its planned end date of September 2016.

Bond yields, which move in the opposite direction to their prices, spiked across Europe on Wednesday, and on Thursday this move is continuing, with German bund yields and US Treasury yields hitting new 2015 highs and continuing to climb overnight.

According to Bloomberg, bonds wiped out all their gains for the year.

... ... ...

The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

[Jun 04, 2015] U.S. economy slow, disappointing and not about to change for the better

Notable quotes:

"...the primary culprit is the decline of main street citizen's spendable income. That is why the windfall of lower gas prices had no lasting effect. Many pundits talk about the lack of inflation but this too is inaccurate - ask main street citizens. Since our economy is regrettably tied to buying our country's "stuff", and the fed policies are moving wealth away from the majority of our citizens, our system is critically flawed. New wealth is not being returned to the economy. The horrible truth is killing entitlement programs, and the fact that other world nations are following the same pattern, does not bode well for a genuine recovery. "

"...No Central Banker is going to stick their neck out and raise rates..."

finance.yahoo.com

The U.S. economy shrank in the first quarter, the third such decline since the expansion officially began in mid-2009. But when the data came out last week most economists chalked up the 0.7% contraction to temporary factors like weather, the strong dollar and the West Coast port strike. The calendar has turned to June and the data now coming in for April and May suggest any second-quarter rebound will be limited, at best: The Atlanta Fed's real-time GDPNow model predicts growth of just 0.8% for the April-June timeframe.

"At the beginning of this year there was a hope and expectation things would pick up," recalls Kevin Logan, chief U.S. economist at HSBC. "Now it's five months in [to 2015] and we're reassessing everything. This is a slow, disappointing expansion [and] doesn't seem like it's changing now."

A big reason for the econo-optimism at the start of the year was the sharp drop in gasoline prices, which many economists predicted would be a "windfall" for U.S. consumers. But Logan notes the biggest part of the decline came at the end of 2014, helping spur a 4.5% growth rate in consumption in the fourth quarter. "There was a shift upward in spending and now we're trending [flat] again," he says, as reflecting the 0% consumption growth in the personal income/spending figures released Monday. "Consumer spending has picked up a bit but not to drive the economy to the rate of growth we thought we were going to get."

(As an aside, when I suggested in mid-April the U.S. economy may have already peaked, people thought I was nuts. It's still a variant few but fewer people are laughing now. On the other hand, with personal incomes up 0.4%, the savings rate has risen, which is good for the individual but not so good for the overall economy, aka the paradox of thrift.)

But Yes, We Have No Inflation

The other big news in that same personal income/consumption release Monday was the Core Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, rose just 0.1% in April and is now up only 1.2% on a year-over-year basis, down from 1.4% in March.

"Fed officials want to be reasonably confident inflation will return to the 2% level they're targeting but the data is moving in the opposite direction," says Logan.

Barring a sharp rebound in both growth and inflation, Logan believes the Fed will postpone its first rate hike until September or December, noting the strong dollar presents another headwind for both U.S. inflation and growth. Exports suffered the biggest drop in six years in the first quarter and although the greenback's strength has moderated of late, the Fed's own model shows the impact of a rising dollar occurs with a lag and increases over time, The WSJ reports.

"Domestically things have picked up...but the appreciation of the dollar is going to hold the economy back," says Logan, whose forecasts have been below consensus for both growth and inflation in recent years -- meaning he's been more accurate than most of his peers, not to mention the Fed.

Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at atask@yahoo-inc.com.

proposedsolutionsblogspot

...double on food stamps than in 2008 plus food pantries and soup kitchens all over the country getting swamped and no media coverage given to these, we are flooded with stock pumping propaganda...

Just Some Guy Figuring

Since the "expansion began" the only common thread was the Federal Reserve was printing $3T worth of money that did not exist before and put it in the streets where the big guys did nothing but buy everything up on the cheap.

Six months ago the printing press was shut down.

With the well known lag of 6-12 months from when the Fed adjusts policy to actually seeing it in the economy, Guess what? No more "growth" because of money supply pumped into the economy.

The overall employment picture speaks to the fact no growth has happened since 2008.

In the prime 16-64 year old working age bracket 64M of 203M have left the labor force, are not in the labor force or are and unemployed.

203M 16-64 year olds is the largest number ever population wise in the history of the labor force.

The more than a third with of that number with no job is the highest since the depressions of 1929 and 1933.

MacDaddyWatch

Hillary Down the Crapper:

(CNN): More people have an unfavorable view of Democratic front-runner Hillary Clinton now than at any time since 2001, according to a new CNN/ORC poll on the 2016 race. The poll shows that her numbers have dropped significantly across several key indicators since she launched her campaign in April.

A growing number of people say she is not honest and trustworthy (57%, up from 49% in March), less than half feel she cares about people like them (47%, down from 53% last July) and more now feel she does not inspire confidence (50%, up from 42% last March).

Duane

He makes the point that everyone that works and owns/drives a car got a rise last year in the form of lower gas prices. Gas is a buck (+ -) than last year at this time-as the story goes; you may not have received a raise at your job, you none the less have one in the form of lower gas prices. This reasoning can be applied to beer prices, clothing, or any 'on sale' item. I know this is convoluted but this is how many see economics. And, if your told this over and over you may start to believe it too.

Happy

Mr. Task, with all due respect, your article is neither informative nor newsworthy. Much has been said about weather, higher dollar, and west coast ports being responsible for the decline of the US first quarter's economy. All perhaps influenced the decline (originally reported to be an increase) but the primary culprit is the decline of main street citizen's spendable income. That is why the windfall of lower gas prices had no lasting effect. Many pundits talk about the lack of inflation but this too is inaccurate - ask main street citizens. Since our economy is regrettably tied to buying our country's "stuff", and the fed policies are moving wealth away from the majority of our citizens, our system is critically flawed. New wealth is not being returned to the economy. The horrible truth is killing entitlement programs, and the fact that other world nations are following the same pattern, does not bode well for a genuine recovery.

wow

Do not worry, our propaganda (just look around) works great! It will solve all our problems! Remember that we claim that we had 5.4%,2.2% (now negative 0.7%) solid and thriving growth! China had 9%, 7.4% (now 7%) slowing and stagnant growth and will collapse like Japan; and ours will not (it is all our weather's faults and China has great weather!???). Foreign investments are flowing in US, and flowing out in China. We are the only booming economy in the world!

With Chinese collapsing economy, no way they will become a major power; and of course we should pull out from their market (and thus most of our investors here missed the bully market of the last few years there!). Their dictatorship government would never work! We are much better off than they are! Once China collapsed, no other country can support Russia and they will collapse also! We just need to chant this repeatedly in mind! Everything will be fine! We will be rich and powerful! LOL!

goldchest

No Central Banker is going to stick their neck out and raise rates. They have left that job to Investors who when they become wise stop buying Bonds that yield nothing but peanuts, thereby allowing Bond prices to fall and yields to rise. The Bond bubble is the biggest bubble seen in a century and when it bursts the flood will destroy all in its path. Slowly Investors are realizing that gimmickry has produced only spurious gains that will be washed away in a flash. Need to have the life jacket on at all times.

Clay

After all those trillions in central bank bond purchases . . . and this is what we've got to show for it? And it's the same all over the globe.

These central banks will soon have to make a decision. How much risk are they willing to take? Do we eat the frog now, or do we continue pumping? My bet is that they're in too deep to stop now.

[Jun 03, 2015] The Fed's low rates may be harming the middle class By Rick Newman

"...there's new concern that the abnormally low interest rates resulting from central bank quantitative easing are creating perverse incentives for many companies to deploy cash in ways that benefit the wealthy without doing much, if anything, for workers or ordinary consumers. "

....nearly seven years on, aggressive monetary stimulus may now be hurting those it's meant to help.

Fed critics have long warned that the gusher of liquidity opened by the Fed will generate runaway inflation, which hasn't happened. But there's new concern that the abnormally low interest rates resulting from central bank quantitative easing are creating perverse incentives for many companies to deploy cash in ways that benefit the wealthy without doing much, if anything, for workers or ordinary consumers. "Flooding the system with more cheap money is the wrong solution," former FDIC chief Sheila Bair recently told Yahoo Finance. "It has made income inequality worse. We need to get back to real economic growth, not artificially stimulated growth with cheap interest rates."

Wall Street barons and other one-percenters have gained the most from super-low rates that have diverted a flood of money out of low-yielding bonds and into stocks and other risky assets, producing an epic bull market that's now in its sixth year. But a growing chorus of one-percenters, including BlackRock CEO Lawrence Fink and hedge-fund billionaire Stanley Druckenmiller, argue that raising rates is now the best way to help workers still struggling to join the economic recovery.

The reasoning goes like this: Low rates make debt so cheap that companies are borrowing to finance mergers, acquisitions, stock buybacks and other types of "financial engineering" instead of investing in ways that boost the real economy and create jobs. Mergers and acquisitions tend to eliminate jobs as firms consolidate, rather than creating them as a company might by expanding a factory, purchasing new equipment or directly taking on new workers.

Recent research by economist William Lazonick of the University of Massachusetts Lowell argues that a surge in stock buybacks in recent years has "concentrated wealth among the richest households" while wiping out middle-income jobs that used to sustain many families. "Low interest rates are currently doing more to encourage buybacks than productive investment," Lazonick says.

A doubling of corporate debt

Druckenmiller points out that the amount of corporate debt in circulation has doubled from $3.5 trillion in 2007-which we now know was the peak of the debt bubble that preceded the 2008 crash-to $7 trillion today, largely because low rates make it so appealing for companies to borrow. Much of the new debt on the market is rated below-investment grade, or "junk." In a downturn, higher-than expected default rates on those risky bonds could leave unprepared investors shouldering heavy losses. "The risk of a credit bubble is extremely high," Druckenmiller recently told Bloomberg. "If not addressed pretty soon, things could get pretty difficult three or four years down the road." And just about every downturn hurts those living paycheck to paycheck a lot more than those with substantial savings.

... ... ...

Rick Newman's latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.

Related Stories

Bond Traders Know Things the Fed Doesn't Bloomberg

Gundlach: Federal Reserve won't raise interest rates this year MarketWatch

Bernanke still blind to market bubbles CNBC

[Jun 02, 2015]The Current Overproduction Crisis And War

Ian Welsh makes Fourteen Points on the World Economy as the US GDP Drops .7 Percent. He believes that the economy is again turning towards a global recession. This recession comes even as there has not been a real recovery from the last global economic crisis:

Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

The business cycle is again turning down and is doing so sharply. Not only in the U.S. but also in Europe and Asia.

Every central bank has been throwing money at the local economies but that money finds no productive use. Why would a company invest even at 0% interests when nobody will buy the additional products for a profitable price? How could consumers buy more when wages are stagnant and they are already overburdened with debt taken up in the last expansion cycle? The central banks are pushing on a string while distorting normal market relations. This intensifies the original crisis.

My believe is that the global crisis we see is one of overproduction, an excess or glut of supplies and on the other side a lack of consumption. The exceptional cheap money created by the central banks makes investment in machines preferable over employment of a human workforce. The result: Manufacturing hub starts work on first zero-labor factory

Chen predicted that instead of 2,000 workers, the current strength of the workforce, the company will require only 200 to operate software system and backstage management.

The (Central) bank gave Mr. Chen cheap money and at an interest rate of 0% a complete automation of his company may indeed be profitable. It is unlikely though that he would make the same move at an interest rate of 10%. But on the larger macro economic scale Mr Chen needs to ask this question: "How will the 1,800 laid off workers be able to buy the products my company makes?" Some of the laid off people may find marginal "service" job but the money they will make from those will likely be just enough to keep them alive. And over time flipping burgers will also be automated. And then?

Karl Marx described such overproduction crises. Their cause is a rising share of an economy's profits going to an ever smaller class of "owners" while the growing class of marginal "workers" gets less and less of the total pie. In the last decades this phenomenon can be observed all over the developed world. The other side of the overproduction crisis is an underconsumption crisis. People can no longer buy for lack of income.

While a realignment of central bank interest rates to historical averages, say some 6%, would help to slow the negative process it would not solve the current problem. Income inequality and overproduction would still increase though at a lesser pace. The historic imperialist remedy for local overproduction, capturing new markets, is no longer available. Global trade is already high. There is little land left to colonize and to widen the markets for ones products.

There are then two solutions to such an crisis.

One is to tackle the underconsumption side and to change the distribution of an economy's profits with a much larger share going to "workers" and a smaller share going to "owners". This could be achieved through higher taxes on "owners" and redistribution by the state but also through empowerment of labor unions and like means. But with governments all over the world more and more captured by the "owners" the chance that this solution will be chosen seem low.

The other solution for a capitalist society to a crisis of overproduction is the forced destruction of (global) production capabilities through a big war. War also helps to increase control over the people and to get rid of "surplus workers".

The U.S. was the big economic winner of World War I and II. Production capacities elsewhere got destroyed through the wars and a huge number of global "surplus workers" were killed. For the U.S. the wars were, overall, very profitable. Other countries have distinct different experiences with wars. In likely no other country than the U.S. would one find a major newspaper that arguing that wars make us safer and richer.

I am therefore concerned that the intensifying crisis of overproduction and its seemingly casual preference for war will, in years to come, push the U.S. into starting a new global cataclysmic conflict.

Neoconservatives like Victoria Nuland tried to goad Russia and the EU into a big war over Ukraine. The top lobbyist of the military industrial complex, U.S. Secretary of Defense Ash Carter is trying to instigate a war between China and its neighbors over some atolls in the South China Sea. The U.S. is at least complicit in the rise of the Islamic State which will leave the Middle East at war for the foreseeable future.

Are these already, conscious or by chance, attempts by the U.S. to solve the problem of global overproduction in its favor?

Posted by: r@rtalk.com | Jun 1, 2015 2:05:50 PM | 2

Marx's early writings, including the Communist Manifesto, did indeed focus on crises of overproduction. But, in Capital, he explained that falling rates of profit are the key dynamic. For a popular blog on these issues, see Michael Roberts:

https://thenextrecession.wordpress.com/

Of course, there is plenty of debate on these matters within Marxian political economy. The best academic source is the journal, Historical Materialism:

http://booksandjournals.brillonline.com/content/journals/1569206x

Posted by: Mike Maloney | Jun 1, 2015 2:38:15 PM | 5

I think you're right, b. The U.S. will not allow regional hegemons who are not clients let alone a global one to challenge its unipolar world. That's why we're seeing all these wars in various stages -- hot in the Middle East; hot and cold in Ukraine; cold in Southeast Asia. The U.S. prefers smashed failed states to anything remotely challenging its full-spectrum dominance.

The neoliberal prescription for low growth/no growth is the complete cannibalization of the state. Privatized health care is being exported to Europe, while in the U.S. public education is being devoured by corporations.

Posted by: VietnamVet | Jun 1, 2015 3:01:36 PM | 7

Since the subject is blacked out by corporate media, we have to decipher the news to try to figure what is actually happening. The only stimulus acceptable to the elite and their politicians is war. 2,300 Humvees seized by Islamic State. Instead of containment, ship thousands of anti-tank missiles to Baghdad; more money in the pocket of the Military Complex.

The problem is that it is psychotic. The Islamic State's end game is Mecca. The shutoff of 11% of the world's oil supply will collapse the world economy. Yet, this is not an aberration.

A civil war was started in Ukraine right on Russia's border; a nuclear power who has said they will use them if there is a shooting war with NATO.

The Greeks are being pillaged to pay debts that cannot ever be paid back. Unless the debt is written off, the Eurozone will splinter asunder.

The only description for this is greed. Get rich today; the hell with tomorrow and the rest of mankind.

Posted by: Mike Maloney | Jun 1, 2015 3:57:03 PM | 9

The good news is that this U.S.-led neoliberal hegemony (what Tariq Ali calls the "Radical Center") is rapidly losing any popular legitimacy. Syriza in Greece, Podemos in Spain, Sinn Fein in Ireland, SNP in the UK, even Bernie Sanders in the U.S. His first day of campaigning last week in Iowa 700 hundred people showed up to hear him speak, compared to 50 for Martin O'Malley, another corporate shill.

Sanders is no antiwar crusader, but his basic ideas -- cutting military spending, breaking up the big banks, raising marginal tax rates on the wealthy, creating jobs by investing in infrastructure -- have proven the most popular, at least based on turnout, in Iowa of any candidate, Republican or Democrat, so far.

Posted by: tom | Jun 1, 2015 4:17:23 PM | 10

We have to look at the perspective of the class war too, where the corporate and elite class have growing contempt for the lower/middle classes more than they already do. So, how can one grow the economy, when the elite and corporate class are exploiting, growing inequality, and hate for us even more ?

Posted by: Bill | Jun 1, 2015 5:15:09 PM | 12

The prime vote holder of the IMF himself states the IMF has "served US National and economic interests" since it's inception, across Latin America, Europe and the world, and that "US Leadership" in the IMF is "critical".

http://www.foreign.senate.gov/imo/media/doc/Sobel_Testimony.pdf

The ideas behind the institutions that came out of Bretton Woods were already in the mind of FDR and Keynes long before the conference. One of FDR's key advisors was James Warburg whose father had funded Hitler as well as the USSR, and founded the Federal Reserve Bank.

https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_Hitler.pdf
https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_the_bolshevik_revolution-5.pdf

US financiers funded Russian manufactured trucks which went to the North Vietnamese forces, and today BP hold stakes in Russian energy firms while Hilary Clinton sells Russia the US Uranium supply.

As Major General Smedley Butler said in 1935 "War is a Racket". All that has changed is the quality of the supporting propaganda.

Posted by: Piotr Berman | Jun 1, 2015 5:50:10 PM | 16

I think that it is not "overproduction", but the result of improved transportation, communication and more free trade. What is the advantage of paying wages in USA or Western Europe if you can put all labor consuming operations in China, where there is good infrastructure, or in countries where infrastructure is not as good but the labor much cheaper, like Bangladesh? The answer is that while some advantages do exists, there are less and less frequent. Even automation can be performed elsewhere.

Historically, in 16-th century The Netherlands were the chief European center of non-agricultural production, international trade and banking, and afterwards there was less and less production, but the country retained for a while its position in trade and banking. That cycle affected northern Italy earlier, and England, later. I think that one part of the solution would be a moderate, and yet effective, policy supportive of domestic production and domestic employment.

But there is also a bit of overproduction. Average American could perfectly well live in a smaller home, drive a smaller vehicle, buy fewer gadgets etc. with hardly decreasing the quality of life. Those below the average income can be out of luck, but they do not consume much anyway. Additionally, there is an excessive gap between "micro-economic" and "macro-economic" optimum behavior.

Most American household has so little savings that the suffer a crisis very easily, so it would be better for them to spend less, e.g. by cooking more and eating out less, cutting down impulse buying etc. However, the cut in demand is recessionary on a macro-scale. It would be sensible to have policies that would concentrate not on "growth" but on satisfaction of needs.

Posted by: PokeTheTruth | Jun 1, 2015 6:11:12 PM | 18

America is drowning in the sewer of the national political system. There is no candidate or incumbent in Washington, DC who serves the country. These elitists rape our liberties, steal our wealth, entice our grandchildren into killing people in foreign lands and subject the future of the nation to be slaves to the debt masters.

The American people must exercise the only peaceful option left to restore the federal republic which is rapidly being transformed into a unitary style government like much of Europe. On November 8, 2016, the nation must stay home and not give its consent to continue being abused by the plutocracy of puppets bribed by the global bankers, multinational corporations and foreign state lobbyists.

Abstinence is not benign as some would believe, it is a very powerful check on government when it becomes so infested with opportunists who pursue their own self-serving aggrandizement through the passage of law and regulation to benefit themselves and their criminal syndicate. Without a democratic mandate the cabal cannot hold power and therefore the legislative function of law making is extinguished. The bureaucracy remains in place until the fiscal budget ends in October of the following year which means social security payments will still be made, Medicare claims will still be processed and other central government functions will continue. During those 10 months, the people must demand from the governors of each of their respective States new elections with candidates who are independent of the two-party dogma that has corrupted Washington, DC.

An implied vote of 'No Confidence" or "None of the Above" is the only sensible way to end this long running nightmare of tyrannical fascism and nationalism that is destroying the country.

The motto of new liberty must be, "Dissolve it, start over!"

Posted by: chuckvw | Jun 1, 2015 7:26:53 PM | 19

So much for the surplus value of labor... All surplus and no labor... The global capitalist system has become bulimic.

Posted by: Tom Murphy | Jun 1, 2015 8:59:08 PM | 20

I remember in school in the early 1980's a teacher said something really disgusting to the class: "want to boost an economy, have a war" (clearly the powers that be have made sure that there propaganda gets fed to the public) another ugly thing a teacher tried to push was the notion that WWII's economic effect was some sort of special boost yet at the same time trying to obscure the basic fact that it was government spending that took us out of the depression so war was not needed at all. A lot of work has gone into pushing the manipulative propaganda which is meant to manipulate and sell the agenda of the powerful.

How it was presented was "FDR tried the New Deal but it took WWII to get us out of the Great Depression." The framing of it that way is intentionally manipulative in order to obscure the role government spending had in getting us out of the depression and it is phrased that way to sell war.

Posted by: rufus magister | Jun 1, 2015 9:08:58 PM | 21

in re 14 --

Nor did they suffer from overproduction of T-34's,, even though they cut cost and production time in half. But they still had sufficient to defeat Hitler, thank Ford! The Space Station is in trouble if there are shortages of Proton rockets. And the Federation is still enjoying some Union leftovers in education and healthcare, see Lisa Marie White's accounting of why American liberals are wrong about Russia.

For an artistic take on overproduction in capitalism, see Brave New World. Ending is better than mending!

Whatever happened to waste not, want not? Just a throwaway line....

Posted by: Copeland | Jun 1, 2015 9:12:41 PM | 22

Piotyr Berman @ 16

I think you're on the right track. Before capitalism ran amok and metastasized into a global zombie, there were guilds. I believe the Netherlands had a rich history of those organizations. These were created to protect the rights and privileges of members (to be sure); but they also preserved and improved the skills, and passed these on through apprenticeship. The obsession in consumerism is about having something brand new, and also relies on planned obsolescence, which needs to produce shoddy goods such as plastic footwear, that will be discarded as junk in a few months. Having things made which are durable enough to go through several cycles of repair, would moderate the overheated production.

If labor is expunged by automation-crazed corporations; then war or revolution, or even both at once, is possible. The cataclysmic outcome that b sketched out is then possible. Of course it's all very short-sighted; but I once read somewhere that at the onset of the 1930s Great Depression, the capitalists examined the option of reducing working hours for everyone so that workers might still muddle through.

On closer examination, capitalists calculated that dumping workers into the trash heap would add a few dollars more to the corporate bottom line, and be more agreeable to shareholders.

Posted by: Lone Wolf | Jun 1, 2015 9:46:47 PM | 23

@b

Since you mentioned Karl Marx, the exclusion of a very valid third option, revolutionary war/class struggle, makes itself evident. From the trend we witnessed after WWII, we cannot expect as you correctly noted, a redistribution of wealth out of the greedy and gluttonous transatlantic empire and its minions, since concentration, centralization and consolidation of capital has been the order of the day ever since. The other major trend after WWII has been imperial wars, either by proxy or direct intervention, fought against countries that followed the path to independence from colonial powers by means of revolutionary wars, in Asia, Africa and Latin America. The potential for another period of revolutionary war is real, given the abject misery of the wretched of the earth, which have been left with nothing to lose but their chains. The main obstacle they face is the lack of a scientific tool to interpret their current predicament, and at the same time provide them with a vision of the social paradigm they aspire at, out of the ruins left of their societies. With its inherent limitations given by dogma, Marxism was that tool for Mao, Lumumba, Ben-Bella, Ho Chi Minh, Castro, and many other African, Asian and Latin American leaders who took upon their shoulders to shake their peripheral dependency. Many of them were successful in their revolutionary endeavors, and were able to trace an independent path for their societies, even if burdened with all the problems typical of the "third world." Nevertheless, even before the fall of the Soviet Union, Marx and Marxism were thrown under a pile of dead dogs, even more after the fall, which was attributed to the utter failure of Marxism as a social science.

Marx and Marxism were part of the "end of history," a thing of the past, a post-Hegelian utopian philosophy whose ultimate results were the creation of dystopian societies…until the crisis of 2007, when suddenly everybody wanted to understand WTF is a cyclical crisis, and why do they happen. Das Kapital became a best seller in Germany and beyond; becoming a model for new works tailored after Marx's statistically saturated magnus opus, e.g. Thomas Piketty's "Capital in the Twenty-First Century, " and others. Despite all the intellectually gifted resisters to the empire, and the vast expansion of knowledge of the digital age, no new revolutionary theory has appeared, able to inspire the masses of dispossessed as Marxism did at the turn of the XIX c., one that changed the course of history forever during the XX c.

It is in this vacuum, a modern epistemological crisis, that the neocons, bastard children of Trotskyism, took ownership of Trotsky's "Theory of Permanent Revolution," and turned it into a counterrevolutionary instrument for their nefarious global domination purposes. Hence revolutions became bastardized, categorized by "colors" or "seasons" according to the whims of the vulgar ruling elites, and lost their power to change societies from the bottom up. This crisis of knowledge of their own socio-economic/political conditions are having a profound effect on the masses worldwide, who in many instances rise up against their oppressors, e.g. Egypt/Arab "Spring," without a leadership, without a clear vision of their goals, without a social agenda that guides their movements, and they end up getting crushed or coopted by the new rulers, toys for the empire games of regime change. These are the "Twitter" and "Facebook" so-called "revolutions," mass movements with no direction, no aim, and no strategy for social change. What kind of society did the Egyptians, Tunisians, et al want? Did they have a program for the society they wanted to build? Was there a clear strategy and tactics to achieve their goals? "Crisis," say Gramsci, that giant of Italian Marxism, "is when the old has not died and the new has not been born." Humanity is now facing an epistemological crisis of galactic proportions, in serious need of a new revolutionary theory that, like Marxism in the XIX/XX c., gives the masses a vision of a future to build with their own hands, and hope there is a better world other than sweat-shops, slavery, toiling without rewards, exploitation, misery, crime, and an ever-growing gap between the ruling elites and the working masses.

Posted by: Nana2007 | Jun 1, 2015 10:11:44 PM | 24

There could be a helicopter drop ala Ben Bernanke.

I like Gail Tverberg on diminishing returns/oversupply.

I like Andrew Kliman on the declining rate of profit.

Thanks for connecting the dots on this B.

Posted by: ruralito | Jun 1, 2015 10:11:54 PM | 25

@12, Sutton is an ass. He pushes the theory that Communism and Fascism are equally bad and what is needed is some mystical third way: Libertarians with their squirrel rifles hunkerin down behind cotton bales. So Wall St. offered Lenin free cash, and he took it! Well, duh!

Posted by: Nana2007 | Jun 1, 2015 10:19:49 PM | 26

The motto of new liberty must be, "Dissolve it, start over!"

PokeTheTruth@18- I tend to agree, with the caveat that plenty people need to be held accountable.

Texas might be getting that idea.

Posted by: rufus magister | Jun 1, 2015 10:44:18 PM | 27

PB @ 16, Copeland at 22

Historians of the United Provinces point out that Holland and her allied provinces lacked a sufficient population base to administer and defend the holdings she gained in her revolt against Spain ("The Eighty Years War"). With the loss of revenue, croqetten and circuses became less affordable. The House of Orange were elevated from elected Statholders to Kings, the thinking being a monarchy would better keep the lower classes down than a republic. This environment proved conducive to the spread of revolutionary ideas in the Low Countries after 1789.

Historian of the later Renaissance attribute the decline of the urban republics to several factors. The prevailing aristocratic values induced merchant families to move their capital from commercial and industrial operations to urban and rural real estate -- especially country tracts that came with patents of nobility. Failing that, you could, like the Medici, subvert the Republic with wealth and buy a title from the Papacy or Holy Roman Emperor. And a more mundane factor -- they ran out of good shipbuilding timber.

England for her part had a large population. It had plenty of timber -- North America was a shipwright's wet dream, and before this, measures prioritized available timber for maritime uses.

When elites think protecting domestic markets and workers will add to their bottom line, they will. But if the see money to be made in "outsourcing" and "off-shoring", well, away the factories, jobs, salaries, and purchases from suppliers go.

England began to lose her superiority in textiles and iron and steel to cheaper American and German production. And these two rivals took advantage of what Gershenkron has called "the advantage of the latecomer." The major industrial expansions of both took place in the Second Industrial Revolution, where steel, chemicals, and electrics were the new driving technologies, and both were leaders in these fields. After a rearguard action up to World War II, they accepted de-industrialization whole-hearted under Thatcher.

PTT at 18 -- The elite will be totally fine with abstention. Less voters to bribe. Not only will things continue as they were, we'll have to endure fools like David Brooks lecturing us on our lack of civic engagement.

Go to the polls. If you can't bring yourself to vote for the left(over) parties down the ballot, write in you favorite choice -- "none of the above" will do. And not just for President, do it for all the races. The rightists will bring more of the same, only with more Pharisee-style false piety or boring Ayn Rand novels. Friends don't let friends vote Tea Party.

Lone Wolf at 23 -- Time permits me only to say -- Gramsci Rules!

Posted by: meofios | Jun 1, 2015 10:55:26 PM | 28

I think the over-production we see is caused by zombie companies all around the world, that don't generate any profit, sustained by zero interest rate loans, over produce goods, causing a glut of products, and cause price deflation.

Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

RM@27

The 'elites' spend billions of dollars every election cycle to encourage or frighten people into the voting booth. Without that 'consent of the people' their minions have no mandate or legal right to rule over us. Throwing your vote away by voting for or against someone or even writing FU on the ballot is still supporting the corrupt system that they will continue to use to rule and if voting could change anything, it would be illegal.

This doesn't mean that elections and voting may not someday be useful again but there is no possibility they can now be used to change our corrupt system.

Posted by: Hoarsewhisperer | Jun 2, 2015 1:32:21 AM | 30

Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

I agree with that.
Lone Wolf @ #23's Gramisci perspective is on the money.

Russell Brand, my favourite non-revolutionary revolutionary, makes the (laboured) point that a govt elected by less than 50% of eligible voters cannot claim legitimacy.

But Gramisci was righter than everyone else in pointing out that "Crisis is when the old has not died and the new has not been born."

It should be obvious to everyone, by now, that Twitter and Facebook "revolutions" aren't revolutions, or journeys, and have no useful or coherent destination.

Posted by: Chipnik | Jun 2, 2015 7:25:37 AM | 31

b

This is the 'atto-fox problem' in biology, addressed by the Lotka-Volterra equation in Brauer, F. and Castillo-Chavez, C., Mathematical Models in Population Biology and Epidemiology, Springer-Verlag, (2000), and many others, the bifurcation relationship allowing two mutually independent steady-state solutions, one with higher predation and lower prey population used to justify higher resource extraction rates, ...but it remains just a theory and requires a rigorous definition of who is the 'prey'.

Is the prey the poor and downtrodden? No, those are the losers.

We can all agree the 'prey' is ultimately the energy needed to continue surviving for another day, not the staid pedantic 19thC Marxist 'Das Kapital', but just the 'real' value of evolutionary currency and trade. We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them. They'really part of a non-viable fractional-reserve usury-based ecosystem that's running out of balance, Koyaanisqatsi.

The rich prey on the energy developed by the poor through usury and credit, but also, the socialist state preys upon the destitute as a source of $Bs public program, using public tax extraction to generate private wealth in much the same way as usury and credit. More rice tents!!

If we de-anthropomorphize the Marxist class-struggle dialectic, and the rabbinical Maker-Taker meme, the answer pops right out like a jujube: not overproduction, not QEn, not oligarchs and monopolies, but usury and taxes.

Wah-lah. Usury. Taxes. Same as it ever was. Que sera, sera.

Posted by: rufus magister | Jun 2, 2015 8:16:58 AM | 32

Wayout at 29 --

The standard line of us reds is that participation in elections is a useful tool for educating the masses and marshaling and mobilizing progressive forces. And that mass action, e.g., the general strike, is the real means of social change.

Bhagavan Chippy at 31 --

I'd stick to physics and Eastern mysticism.

Predation occurs between, not within species. Socialism is about the workers controlling the means of production that they service. Social welfare capitalism bought their birthright for "a mess of pottage" (Gen. 25: 29-34). But austerity is taking that off the table.

I find the overtones of the "rabbinical meme" and the emphasis on usury and taxes disturbing. See this handy comparative chart; fascism is "Strongly against international financial markets and usury." The Abolition of Income Tax and Usury Party is recent spawn of that brood.

Our own home-grown TeaBaggers don't feel too good about it either.

You might consider a clarification or restatement of your position.

Posted by: paulmeli | Jun 2, 2015 8:28:43 AM | 33

"We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them"

Well, there's too much savings (accumulated financial wealth) but not enough spending. We know this because we have too much unemployment. Properly targeted spending cures unemployment.

Spending is a function mainly of money printing, existing money (previously created) mostly just earns interest and so is parasitic to the system in the net (economic rent), which leads to a paradox.

In the old days in the U.S. between 1933 and the mid-1960's the top marginal tax rate remained around 90% and then around 70% until Reagan was elected.

This maintained some sort of balance between money printing and saving. Now, money creation just piles up at the top which creates huge inequalities of power.

Posted by: geoff29 | Jun 2, 2015 9:24:35 AM | 34

It's simple to conclude that the "ruling class" and their spokes-people are if not absolutely greedy and mendacious, then at least criminally stupid.

But I think that's short-sighted. The financial crisis could be resolved in a moment's notice, since money is more or less an "imaginary" construct, especially now that it's just 1s and 0s, as was mentioned. The population is clamoring for "higher wages," but if we here were the small ruling class, we must know that "higher wages" means more mouths to feed from a growing population. Or, it means more disgruntled minions crying for "revolution" carrying pitch forks to the very gates of the gated communities and wilderness tracts where the very wealthy keep themselves concealed, when calamity strikes and food is scarce.

And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc. What wars are being threatened between great powers, are are not about the resolution of world wide perils in terms of repairing the global over indulgence in carbon based technologies, in fact they seem to be based on increasing their use and further extracting scarce resources and more rapidly burning down the house.

Intelligent discussions are conducted here at MOA, it would be foolish to conclude that some semblance of intelligent discussions are not also held in the upper rooms and chambers of power, stripped of pretense and falsehood. If so, if one of us were sitting with those chosen few, I'm sure we would come to the conclusion that we were in a serious fix. And our backs are up against the wall. "Austerity" would be pushed to its extremities to decrease productivity and reduce the population through Urie's principle of immiseration.

Put yourself in the shoes of this ruling class, our primary MO would no doubt be self-preservation from the encroaching revolutions and chaos, and destruction, and a preservation of some kind of status quo. Otherwise, all that we had, were we sitting on the porch overlooking our estate, would be gone.

If nothing else works like the current financial immiseration to reduce the current state of affairs to a simpler and more manageable system where our ruling class rank and stature in society remained permanent and secure (because really our whole being has been reduced to measuring ourselves by our imagined sense of self-worth determined by our wealth, etc.) but the elimination of so many annoying minions through some kind of controlled burn, like a war, then certainly we would go about that?

I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

===

Posted by: ralphieboy | Jun 2, 2015 10:25:43 AM | 36

There is a famous anecdote about a General Motors executive showing off their newest automated assembly line to a United Auto Workers Union boss and remarking "Not one of them is a union member!"

To which the UAW boss replied, "And not one of them is a GM customer, either."

Posted by: Willy2 | Jun 2, 2015 11:15:49 AM | 40

There's a lack of demand worldwide because since say 1981 workers/employees have received wage increases below inflation. In that regard workers have seen their purchasing power being reduced for over 30 years. No wonder, households/workers aren't able or willing spend lots of money.

From 1981 up to 2008 households/workers were willing to increase their debtload. By going deeper into debt those households were able to keep their spending at a reasonable level.

But since 2008 households are reluctant to go deeper into debt and that has weakened the worldwide economy.

As long as workers don't get wage increases at or above inflation (levels) or are willing increase their debtloads (again) there's no chance for a economic recovery.

Posted by: HnH | Jun 2, 2015 11:23:22 AM | 41

b,

you normally publish highly insightful analyses and information nuggets that I have trouble finding elsewhere. On this topic, however, you jumped short.

Yes, we are struggling with overproduction and lack of consumption, but it is important to know where this development comes from. If you look at historical data, then you might realize that the purchasing power of people in the Western World started decreasing at the start of the 80s last century. The *growth* in purchasing power decreased since the 1960s. And debt is a significant, but small, part of it. The average growth in GDP has been consistently shrinking since the 1960s. Can you even remember a time, when the economy in one of the Western countries has been growing by more than 4% YoY? I don't. For Germany you have to go back to before the 70s oil crisis to find two years with a consecutive growth of 4% for more than one year. I wasn't even born then.

The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food. And there are more and more people living right now.

This main problem, the diminishing returns, makes it that people have to spend more and more to afford the basic necessities. Corporations and enterprises react to their diminishing sales by cutting their costs to pay their loans. The easiest way to cutting costs is letting go of workers.

Since 2008, the crash happened after the crash of the oil price, Western Central Banks needed to keep their interest rates a 0%, because there was no growth. If they are ever crazy enough to raise interest rates, they will be blamed for the worst market crash in human history.

The reason is that we have reached the limits to growth. There is no more growth to be had for the industrialized civilization. That is over. For good. Unless we find an unlimited energy source that is very, very cheap. None is on the horizon so far.

Currently, a country can only produce growth, for a very short time, at the expense of others. That too will stop. Then, in a few years at the latest, global GDP will start to shrink. That is when the wars will start in earnest. That is when the killing and dying will start in earnest.

That killing and dying will not stop, until the world will have found a means to reduce its energy consumption to the physical and geological realities out there. That will take a while, and I have no clue how the world will look like.

Best wishes,
HnH

Posted by: ǝn⇂ɔ | Jun 2, 2015 11:38:36 AM | 43

Sorry, but I again disagree.

First of all, the robots in the example are there because there the Chinese labor pool has been growing slower than the economy for years now.

Secondly, robots need to be made by somebody. They cost lots of money. They have to be maintained and often upgraded. The physical operation of the plant might take 90% less workers, but the remaining workers are paid as much or more as the previous entire work force.

Thirdly, the production noted in the article isn't for China - at least, not yet. It is for the 1st world. Thus the "replacement" of the worker is a dynamic of cheaper labor elsewhere rather than actual replacement with mechanization.

As for economics: an entire series of fallacies.

a) Overproduction. While I will certainly agree that the 1st world can do with less, this is irrelevant. Every labor saving device ever created has ultimately had the labor savings spent on higher standards of living. There is nothing to indicate any change in this dynamic. Thus while we no longer have tens and hundreds of thousands of workers making automobiles, we now have tens and hundreds of thousands of workers doing other things like fracking oil and natural gas, servicing the cars via a nationwide array of repair, refueling, and upkeep (car washes, etc). Equally, we don't drive Model T's anymore. Ford used to be nearly entirely self sufficient outside of the metals - this is no longer true. Ford doesn't make computer chips or any of hundreds of parts in present day Fords.

b) Labor isn't the problem - consumption is. In terms of overall productivity, Americans as a whole are producing more than ever before. Hours worked has been inching down, but hours of work isn't what dictates the actual output - it is a function of productivity times hours worked, and that product continues to increase overall.

The primary difference between today and post World War II is that of the economic rewards. Americans who aren't in the managerial class get paid a smaller percentage of the overall production created than ever before. This also has been decreasing for decades.

Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money.

Posted by: Lone Wolf | Jun 2, 2015 12:08:31 PM | 44

Right on cue...

Why America's color revolution strategy of global domination is doomed to fail: the case of Egypt

Posted by: paulmeli | Jun 2, 2015 12:16:13 PM | 45

"The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food."

This may well be true, but if one looks at the history of spending growth (or more accurately public investment) by the U.S. federal government one will see that spending growth suddenly dropped by 1/3rd in the early 1980's (around the beginning of Ronald Reagan's presidency). This can be observed visually very easily by looking at the FRED series FGEXPND on a log scale…the breakpoint is obvious and so is the one at around 2010.

U.S. federal spending has averaged 7% since WWII overall…about 9% through 1985 dropping to about 5% thereafter. Since 2010 growth has been an anemic 1.6%.

It's no wonder GDP growth has been on decline since the 80's, and it's no wonder we are experiencing a slowdown now.

Posted by: james | Jun 2, 2015 12:34:50 PM | 46

@43 ǝn⇂ɔ quote.. "Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money."

who is buying the produce ǝn⇂ɔ ?

Posted by: dh | Jun 2, 2015 12:38:22 PM | 47

@46 A lot of money goes into remodelling. Look at the proliferation of home improvement stores.

Posted by: james | Jun 2, 2015 1:22:48 PM | 48

@47 dh.. the big money is in the mic/fic complex... chump change in most other areas relatively speaking.. i think the big money is coming from gov't spending.. it is a self sustaining vicious circle for everyone.. that's my simplistic rendition of it! who pays for those orange jump suits anyway?

Posted by: dh | Jun 2, 2015 1:33:19 PM | 49

@48 Not everybody in the US is in jail or on food stamps. There is a lot of disposable income in the US. People buy new vehicles, improve their homes, upgrade their entertainment systems, send kids to college, go on trips. The trick is to keep interest rates low and keep printing money. So far it seems to be working.

Posted by: Lone Wolf | Jun 2, 2015 3:09:14 PM | 52

@geoff29 @34
And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc.
I am sure they discuss those and many other subjects under heaven, problem starts with their conclusions. Ever heard of the "smart idiot effect"?

(...)Buried in the Pew report was a little chart showing the relationship between one's political party affiliation, one's acceptance that humans are causing global warming, and one's level of education. And here's the mind-blowing surprise: For Republicans, having a college degree didn't appear to make one any more open to what scientists have to say. On the contrary, better-educated Republicans were more skeptical of modern climate science than their less educated brethren. Only 19 percent of college-educated Republicans agreed that the planet is warming due to human actions, versus 31 percent of non-college-educated Republicans.
For Democrats and Independents, the opposite was the case. More education correlated with being more accepting of climate science-among Democrats, dramatically so. The difference in acceptance between more and less educated Democrats was 23 percentage points.

This was my first encounter with what I now like to call the "smart idiots" effect: The fact that politically sophisticated or knowledgeable people are often more biased, and less persuadable, than the ignorant. It's a reality that generates endless frustration for many scientists-and indeed, for many well-educated, reasonable people.(...)

I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

Well, their lack of awareness is legendary, and their indifference to their damage on the planet and the suffering of others is their trademark. They might laugh all the way to the bank, in total ignorance of the legacy their greed and possessiveness are leaving in their wake.

Posted by: Lone Wolf | Jun 2, 2015 3:52:00 PM | 53

From Cooperation to Competition -
The Future of U.S.-Russian Relations

May 2015

A Report on an Interdisciplinary Wargame conducted by the
U.S. Army War College

Carlisle, Pennsylvania

Posted by: james | Jun 2, 2015 4:04:04 PM | 54

@49 dh.. i know that but thanks for the reminder..almost zero interest rates is the name of the game and has been for some time.. if people had a different interest rate on their line of credit - the jig would be up.. for now it is 'free money' with anyone silly enough to not 'invest' in the wall st casino, or is in any way pragmatic financially - will watch what money they have devalue quicker then you can say 'quicksand'..and, i am always reminded of the racial divide when i think of the states - food stamps verses big brand new automobiles.. what a weird culture.. canada isn't a lot different in some regards.. it is and it isn't..

Posted by: okie farmer | Jun 2, 2015 4:13:02 PM | 55

http://www.truthdig.com/report/item/karl_marx_was_right_20150531
by Chris Hedges

Karl Marx exposed the peculiar dynamics of capitalism, or what he called "the bourgeois mode of production." He foresaw that capitalism had built within it the seeds of its own destruction. He knew that reigning ideologies-think neoliberalism-were created to serve the interests of the elites and in particular the economic elites, since "the class which has the means of material production at its disposal, has control at the same time over the means of mental production" and "the ruling ideas are nothing more than the ideal expression of the dominant material relationships … the relationships which make one class the ruling one." He saw that there would come a day when capitalism would exhaust its potential and collapse.
~~~
The final stages of capitalism, Marx wrote, would be marked by developments that are intimately familiar to most of us. Unable to expand and generate profits at past levels, the capitalist system would begin to consume the structures that sustained it. It would prey upon, in the name of austerity, the working class and the poor, driving them ever deeper into debt and poverty and diminishing the capacity of the state to serve the needs of ordinary citizens.
~~~
The corporations that own the media have worked overtime to sell to a bewildered public the fiction that we are enjoying a recovery. Employment figures, through a variety of gimmicks, including erasing those who are unemployed for over a year from unemployment rolls, are a lie, as is nearly every other financial indicator pumped out for public consumption. We live, rather, in the twilight stages of global capitalism, which may be surprisingly more resilient than we expect, but which is ultimately terminal. Marx knew that once the market mechanism became the sole determining factor for the fate of the nation-state, as well as the natural world, both would be demolished. No one knows when this will happen. But that it will happen, perhaps within our lifetime, seems certain.

"The old is dying, the new struggles to be born, and in the interregnum there are many morbid symptoms," Antonio Gramsci wrote.

What comes next is up to us.

Posted by: ToivoS | Jun 2, 2015 8:18:47 PM | 57

lonewolf #52

Your comment reminds me of something once said by a retired law professor. "We spend considerable effort looking for bright young students for admittance into law school. Then we spend the next three years beating out their common sense".

Having been involved in graduate school education during my career that statement also applies to grad student education in English and Social Science departments.

[Jun 01, 2015] Fischer Says Bankers Should Be Punished for Financial Crimes

Jun 01, 2015 | finance.yahoo.com/ Bloomberg

Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration.

"Individuals should be punished for any misconduct they personally engaged in," Fischer said in a speech to bankers Monday in Toronto. While massive fines are being imposed on banks, "one does not see the individuals who were responsible for some of the worst aspects of bank behavior, for example in the Libor and foreign-exchange scandals, being punished severely."

Some of the world's biggest banks, including Citigroup Inc., JPMorgan Chase & Co., and Barclays Plc, have agreed to pay more than $10 billion to U.S., U.K. and Swiss authorities to settle probes into rigging of foreign-exchange rates.
Financial firms have also paid about $9 billion to settle allegations they were involved in rigging the London interbank offered rate, a benchmark used in more than an estimated $300 trillion of securities, from interest-rate swaps to mortgages and student loans.

Fischer, who leads a committee to avoid the emergence of asset-price bubbles, also said central bankers shouldn't rule out using interest rates to maintain financial stability. Policy makers want to ensure that six years of near-zero rates don't lead to a repeat of the U.S. housing boom and subsequent financial crisis.

"I don't at present see a major financial crisis on the horizon, but whenever you say that you know you're looking for trouble," Fischer said in response to an audience question after his speech.

With the costs of the crisis still being felt in the form of persistently slow growth, Fischer warned central bankers against complacency about the risks of another crisis.

"There is now growing evidence that recessions lead not only to a lower level of future output, but also to a persistently lower growth rate," Fischer, 71, said in a speech that surveyed the lessons of financial crises over the past 20 years.

He cited a "lively discussion" led by former Treasury Secretary Lawrence Summers, who has argued the U.S. could face a period of "secular stagnation." Others, including economists Carmen Reinhart and Kenneth Rogoff, say the U.S. and other economies are slow to recover from crises fueled by debt.

"It may take many years until we know the answer to the question of whether we are in a situation of secular stagnation or a debt supercycle," Fischer said to the International Monetary Conference.

Fischer criticized efforts to roll back financial regulation.

Banker Complaints

"Often when bankers complain about regulations, they give the impression that financial crises are now a thing of the past, and furthermore in many cases, that they played no role in the previous crisis."

Fischer joined the Fed a year ago. He led the Bank of Israel from 2005 to 2013. He was the International Monetary Fund's No. 2 official from 1994 to 2001, years that encompassed the Asian crisis, and the World Bank's chief economist from 1988 to 1990.

Fischer didn't comment on the outlook for monetary policy. Fed officials led by Chair Janet Yellen are considering when to raise their benchmark lending rate, with the next meeting scheduled for June 16-17.

Yellen said on May 22 that the central bank plans to raise interest rates at some point this year, even though the economy contracted in the first quarter. She said that "the pace of normalization is likely to be gradual."

Growth Potential

A slowdown in the long-run potential growth rate of the economy has lowered the bar that gross domestic product must clear for the central bank to increase rates, according to Fed watchers including Michael Feroli of JPMorgan Chase & Co. Feroli estimated the long-term growth rate at 1.75 percent, which is lower than Fed estimates.
Gross domestic product shrank at a 0.7 percent annualized rate in the first quarter. Since the recession ended in June 2009, GDP has grown at an average annual pace of 2.2 percent.

[Jun 01, 2015] Monday Personal Income and Outlays, ISM Mfg Index, Construction Spending

Jun 01, 2015 | calculatedriskblog.com

From Jim Hamilton at Econbrowser: Current economic conditions: not as bad as it sounds

The new BEA data also allow us to calculate an alternative estimate of GDP, building the estimate up from income data instead of expenditures. In terms of the underlying concepts, the income-based and expenditure-based calculations should produce the identical number for GDP. But because the data sources are different, in practice the two estimates differ, with the difference officially reported as a "statistical discrepancy." While the expenditure-based GDP estimate showed a 0.7% decline at an annual rate, the income-based GDP estimate implied 1.4% growth for the first quarter. Moreover, using the statistical method for reconciling and combining the different estimates proposed by Aruoba, Diebold, Nalewaik, Schorfheide, and Song (ADNSS), the best estimate of first-quarter real GDP growth based on the existing data might be about 2%.

1 currency now -yogi wrote on Sun, 5/31/2015 - 7:14 pm

The Obama Administration continues to brush aside warnings from legal experts and policymakers that "fast track" and free trade deals could threaten the Dodd-Frank Act and other protections against recklessness on Wall Street.
That's despite the fact that the fact check by Bloomberg News headlined "Why Obama is Wrong and Warren is Right on Trade Bill Quarrel" stated simply that "Elizabeth Warren has got the law on her side" and that trade deals do pose a threat to Wall Street reform.

Lead trade negotiator Michael Froman is a former executive at banking giant Citigroup. While he helped staff the Obama Administration with bank-friendly officials as a senior member of the 2008 presidential transition team, he was still getting a salary from Citigroup – all while Citigroup was making history with history-shattering bailouts. Then he got a golden parachute worth millions from the bank when he went into government.

Demand Progress | No "fast track" to killing Dodd-Frank

Outsider wrote on Sun, 5/31/2015 - 7:49 pm
A global workforce will mean lower wages for Americans and higher wages for (previously) 3rd world countries. It's hard to argue against that because they're entitled to a decent standard of living as well. It is what it is. GDP is a strange barometer.
robj wrote on Sun, 5/31/2015 - 7:49 pm
The pattern has remained pretty much intact for 3-4 years. The doomerians jump on the winter/spring numbers like a cat on a lizard; instead it's slow, disappointing growth. Onwards and sideways.
The doom crash will come and we'll all be Raptured.

Outsider wrote on Sun, 5/31/2015 - 8:06 pm

"Robert Samuelson Does Battle With the Bureau of Labor Statistics | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research"

Addendum:

The most obvious explanation for the continuing weakness of the economy is that there is nothing to fill the gap in demand created by a $500 billion annual trade deficit (@ 3 percent of GDP). In the last decade, the demand generated by the housing bubble filled the gap, while in the 1990s the demand from a stock bubble filled the gap. In the absence of another bubble and a refusal to run large budget deficits, there is no obvious source of demand to fill this gap.

I'm thinking the only way out of this pickle is virtual reality.

America's binky.

Outsider wrote on Mon, 6/1/2015 - 4:37 am

Record highs of Americans leasing vehicles

Officially, the latest report on automotive lending by Experian Automotive found the average new vehicle lease monthly payment in the first quarter was $405 while the average monthly payment for a new vehicle loan was $488.

Absurdity.

In Q1, the average length of new vehicle loans hit an all-time high of five years and seven months according to the report. Furthermore, a record 29.5 percent of those taking out a new vehicle loan stretched their loans out between six and seven years according to Experian. The report also found the 18.6 percent increase in those new vehicle loans with terms between 73 and 84 months.

How's the fed interest rate hike going to (eventually) affect this market?

Bruce in Tennessee wrote on Mon, 6/1/2015 - 4:45 am

Peering Toward Q2 | Alhambra Investment Partners – We Are Different.

"To make that even more plain and obvious, nominal final sales (a much better, if still flawed, view of the economy than GDP) were revised down by almost $30 billion. That doesn't sound like a lot, but it is a massive downgrade for a first revision. Nominal final sales had already been negative for only the fourth time in the last five decades (with the other three being in the Great Recession itself), going from just slightly negative to now no doubt.

Again, that makes it difficult to accept that a sharp rebound is coming this very quarter, instead placing much more emphasis on the Atlanta Fed's current estimate of just 0.8% for Q2 – particularly since, as of these revisions, it will take 0.8% just to get the economy back to zero for all of H1. So far the revisions suggest even that might be optimistic, as well as the current state of data coming in for April and now May."

...Should be a very interesting time for equity prices, this quarter.....

[Jun 01, 2015] Current economic conditions not as bad as it sounds

Jun 01, 2015 | econbrowser.com | 19 Replies

On Friday the Bureau of Economic Analysis released its second estimate of U.S. 2015:Q1 real GDP growth. The BEA now estimates that the economy contracted at a 0.7% annual rate rather than grew 0.2% as originally estimated. The number is discouraging, though I see some silver linings.

The primary factors that brought GDP growth down from the BEA's original estimate were stronger growth of imports and a smaller inventory build than originally anticipated. Both components can be volatile, and I would not interpret the latter as a sign of fundamental weakness.

The new BEA data also allow us to calculate an alternative estimate of GDP, building the estimate up from income data instead of expenditures. In terms of the underlying concepts, the income-based and expenditure-based calculations should produce the identical number for GDP. But because the data sources are different, in practice the two estimates differ, with the difference officially reported as a "statistical discrepancy." While the expenditure-based GDP estimate showed a 0.7% decline at an annual rate, the income-based GDP estimate implied 1.4% growth for the first quarter. Moreover, using the statistical method for reconciling and combining the different estimates proposed by Aruoba, Diebold, Nalewaik, Schorfheide, and Song (ADNSS), the best estimate of first-quarter real GDP growth based on the existing data might be about 2%.

Alternative estimates of real GDP growth at an annual rate. Solid black: expenditure-based estimate reported by BEA. Dotted black: income-based estimate calculated directly from BEA-reported statistical discrepancy and GDP price deflator. Red: estimate calculated using the Aruoba, et al. method. Source: Federal Reserve Bank of Philadelphia.

Another factor contributing to the weak first-quarter GDP number was harsh winter weather. This is becoming a pattern, with the "seasonally adjusted" Q1 estimates coming in consistently below the other three quarters for the last decade. Jason Furman had this comment:

The debate so far over the cause of first-quarter underperformance has tended to treat residual seasonality and weather effects as analytically distinct explanations. However, to the extent that worsening winter weather is part of a long-term trend rather than a random occurrence, changing weather patterns may be related to residual seasonality. A seasonal adjustment algorithm should adjust for effects of normal weather within a particular quarter-and to the extent that global climate change leads to a new "normal" for weather, seasonal adjustments will eventually catch up.

Source: White House Council of Economic Advisers.

But others caution that we shouldn't simply dismiss the Q1 GDP numbers. Here's Richard Moody, chief economist at Regions Financial Corp.:

Many analysts seem tempted to simply brush aside the contraction in real GDP in [the first quarter] as a function of transitory factors– harsh winter weather, the port strike– that will have no lasting effect. We caution against treating the first-quarter GDP data so cavalierly, as doing so overlooks the more structural forces that weighed on the economy in [the first quarter]– the ongoing pullbacks in job counts and investment in the energy sector and related industries, still uncertain global growth prospects, and the stronger U.S. dollar.

It's certainly true that signs of weakness are not just showing up in GDP and are not confined to the first quarter. The latest numbers on industrial production, retail sales, and durable-goods orders all suggest the economy may have hit a soft spot that extended into April.

Source: FRED.

Source: FRED.

Source: FRED.

But Bill McBride explains why he's still sanguine about housing:

Total housing starts in April were solid and well above expectations– and at the highest level since 2007…. Note the exceptionally low level of single family starts and completions. The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

Source: Calculated Risk.

But the key is ongoing gains in employment, which still show solid momentum that should carry the economy forward.

Source: FRED.

Overall, I can't quarrel with this summary by Council of Economic Advisers Chair Jason Furman:

The first-quarter slowdown was the result of harsh winter weather, tepid foreign demand, and consumers saving the windfall from lower oil prices. The combination of personal consumption and fixed investment, the most stable components of GDP, has grown 3.4 percent over the past four quarters. This solid long-term economic trend complements the robust pace of job growth and unemployment reduction over the last year.

Source: White House Council of Economic Advisers.

mp123 May 31, 2015 at 9:50 am

Great piece. Thanks

PeakTrader May 31, 2015 at 10:47 am

If the country was at full employment in 2007, we gained only 3 million jobs since then.

If 125,000 jobs were needed each month to keep up with population growth, we needed 11 1/4 million jobs, since 2007, to get back on track.

And, too many jobs, since 2007, have been part-time jobs.

PeakTrader May 31, 2015 at 11:17 am

And, part of the "train wreck" is declining real income of younger workers, while older workers postpone retirement to pay-down debt or build-up saving, that has to weigh on spending and borrowing, particularly in housing, and housing-related goods, while student loan debt continues to soar.

John Cummings May 31, 2015 at 1:06 pm

This is totally wrong. Older workers aren't postponing retirement at all. They are speeding it up as the stock market recovered.

PeakTrader May 31, 2015 at 4:28 pm

Then why, since the last recession, has the 55 and older labor force participation rate held up near the highest level in over 50 years, while the total labor force participation rate had a steep decline and reached the lowest level in 40 years.

And, why is the 55 and older unemployment rate so much lower than the overall unemployment rate.

PeakTrader May 31, 2015 at 4:56 pm

And, there's a lot more to it than the stock market:

"In 2012, 62 percent of survey respondents aged 45 to 60 said that the recent recession has made them consider postponing retirement, up significantly from 42 percent in 2010.

"Job losses, pay cuts, and significant declines in home values were among the major factors driving these planned delays…Workers who drew from their savings to help get through the tough financial times of recent years were also more likely to plan a delayed retirement.

Falling interest rates on even relatively stable investments…The yield on a 10-year Treasury bond was just about 3.5 percent two years ago; today it is below 2 percent.

The ongoing shift from employer-sponsored pension plans to employee-managed retirement savings…Without guaranteed benefits, more people may feel the need to work more years, in order to guarantee sufficient income after retirement."

http://www.salary.com/older-workers-are-delaying-retirement/

New Deal democrat May 31, 2015 at 11:31 am

I take issue with one part of this analysis: failure to include the effect of the 20% appreciation of the U.S. $ in late 2014. The collapse in exports didn't just happen because of foreign weakness. It happened because U.S. goods became 20% more expensive. Of the 5 times since 1973 that the dollar has appreciated this sharply, 3 were associated with U S recessions.

John Cummings May 31, 2015 at 1:03 pm

Yeah, but that was DX over 110. This is a historically "average" DX.

BC May 31, 2015 at 11:41 am

The sum of real per capita after-tax profits, disposable income, and gov't receipts decelerated to historical "stall speed" after Q3 2014 to date, coincident with the crash in the price of oil and gasoline.

Retail sales imply sub-1% SAAR real GDP so far for Q2, which in turn implies "stall speed" for the 4-qtr. average or real GDP through Q2.

US Treasury withholding receipts have decelerated from the cyclical peak to a level similar to Mar-May 2008 and Jun-Aug 2001, implying that employment is overstated and growing below 1% for the 12-month average, supporting the weakness in reported retail sales (ex autos financed increasingly by subprime loans) and real GDP.

The proportional aggregate of real GDP per capita for 70-75% of the world economy decelerated below historical "stall speed" in 2014, which historically coincided with recession.

FDI and trade are not growing.

Housing remains weak because Millennials do not have the financial capacity to become mortgage debtors given their meager average real, after-tax incomes, lack of job tenure, inability to save, indebtedness, and medical insurance costs.

The level and rate of increase of household health care spending as a share of income, PCE, and GDP is recessionary for household spending and thus for GDP.

Moreover, housing as a share of GDP no longer contributes materially to GDP growth. Given the cyclical slow or no growth of gov't spending since 2010-11 (accelerating recently because of Obamacare subsidies) , the net of growth of housing and gov't spending as a share of GDP is a wash.

The energy sector is in an incipient bust, manifesting in various surveys in the Texas Fed region and parts of the Midwest and Mountain regions dependent upon the shale and energy-related transport sectors. The weakness in these sectors is dragging on orders, IP mfg., and mfg. employment.

The consensus continues to believe that there can't be a recession without the Fed raising rates and the yield curve inverting, but this condition is not historically consistent during a debt-deflationary regime, which began in 2008 and has persisted in Japan since 1998.

Additionally, with the post-2007 trend for real final sales per capita at ~0% and slightly above 1% since 2010-11, the secular trend rate of growth since 2007-08 is within the margin or error of the estimates for the deflator and import prices. Therefore, the US economy is perpetually vulnerable to experiencing "stall speed" or contraction owing to any number of shocks, including weather, drought, natural disasters, labor actions, energy, popping financial bubbles, and geopolitics.

Finally, as the peak Boomer demographic drag effects bear down in the US, Canada, UK, EZ, Japan, China, and the Asian city-states, we will experience an intensification of the effects of a once-in-history shift in the composition of US household spending from high-multiplier housing, autos (not yet), and child rearing to a permanent, structural transition to low- or no-multiplier spending for property taxes, house maintenance, utilities, insurance, and out-of-pocket costs for medical services and medications. The coincident lack of growth of the labor force and wages/GDP at a record low will continue to cause productivity to decelerate along with the 10-year rate of real GDP per capita hereafter.

Therefore, there will be no "escape velocity" for real GDP growth, despite the Fed's obligatory forward guidance. ~0% growth of post-2007 real final sales per capita is the "new normal" of "secular stagnation", i.e., as good as it gets. Therefore, the Fed cannot raise the funds rate (or not much before reversing course) under these conditions. The deceleration of real GDP will cause the deficit/GDP to increase this year, making it more likely than not that the Fed will resume QEternity later in the year.

John Cummings May 31, 2015 at 12:47 pm

That isn't real retail sales. Adjust out for the deflation adjusted to oil price decline, that means real pce is being underestimated. GDP boomed between Q3-2013 and Q4-2014. They have it at 2.95% during that time, but I have it at 4.4% in the same timeframe and may have been 5% without the port strike(which will accelerate the 2nd quarterly). That would change things quite a bit, quite a bit. My guess they under estimated the domestic energy boom was having on fixed non-residential spending. It created a good deal of catchup speed in the economy. So we slow down "real time" to 2.5%. My guess the "weakness" persists until Residential investment accelerates over the course of 2015 and the Arabs run out of gas and drive prices back up. I see domestic energy production in a mid-cycle slump. Lets note low gas prices are fueling a boom: in restaurants. Total bar/restaurant spending is at a bush era high.

Interbank lending has accelerated rapidly in since the 4th quarter of 2014.

Steven Kopits May 31, 2015 at 1:48 pm

The logic would suggest that underlying GDP was higher in Q1 than the reported figures. We added 550,000 jobs, which is a very solid quarter for the US and converts into 1.6% annualized GDP growth assuming only labor (no productivity) effects and assuming new entrants have average productivity rates (which I believe Menzie's post suggested a couple of months back).

We just missed initial unemployment claims falling to the lowest since 1973–so that's also a strong indicator. They are currently at the lowest level as a percent of the labor force since 1960.

The rig data suggest the US shale recession is ending. My view is that we'll see a hard re-start of the sector before the end of the summer. To wit: Friday's BH rig report indicated the Canadian horizontal oil directed rigs rose by 95% last week, and up three fold in the last three weeks, albeit from a low base. We don't really have more than a leveling from the US side, but I think we'll see a solid rebound pretty soon. That should also help Q3 GDP data.

Overall, Q1 data was pretty weak, but, like Jim, I don't think we should read too much into it.

I'm on CNBC tomorrow in the 12-1 pm time slot.

New Deal democrat May 31, 2015 at 3:01 pm

Steve,

Well, we are 2/3 the way through Q2, and the weekly reports also show:
1. Johnson Redbook and Gallup consumer spending still stink (Gallup just had its most negative YoY 14 day average this year)
2. Steel production still stinks, down between -5% to -10% YoY
3. Rail carloads still stink, down about -9% YoY in the most recent week
4. The American Staffing Association's staffing index turned flat YoY in the last two weeks, for the first time since the Great Recession ended.
Bottom line: the most up-to-date evidence is that the weakness in Q1 has persisted more than halfway through Q2.

Steven Kopits May 31, 2015 at 4:30 pm

I'm not sure I see what you see in the data.

Take rail. Coal shipments are down, but we expected that. Oil is flat, which is perhaps a bit better than I expected. Grains are down modestly but within recent averages.

Temporary and contract staffing is flat year over year. But wouldn't we expect temporary workers to move into full time jobs as the economy recovers? Wouldn't we expect to see weakness in 'part time for economic reasons'?

As for steel, 2/3 of steel output goes to automotive or construction, and both these sectors seem to be doing well. About 10% of steel goes to energy, and it's pretty clear that sector is taking a breather.

New Deal democrat May 31, 2015 at 6:01 pm

Steve, metals shipments by rail are also down. Coal for export is down as the US's competitors have picked up some demand, due to USD strength.

Steel is also down due to a big increase in steel imports in the last year, again coinciding with USD strength.

As to staffing, first of all, there are plenty of full time temp jobs. Secondly, part time employment peaked about 4 or 5 years ago, and the temp staffing index had gone up almost relentlessly since.

Meanwhile, April industrial production and real retail sales declined.

Weekly steel, rail, and retail sales all turned down between the first of the year and mid-February, and have stayed down. Why shouldn't we conclude that the part of the economy responsible for the Q1 decline is still down as well?

Steven Kopits May 31, 2015 at 8:06 pm

Don't know what to tell you. Maybe you're right. It's clear that the strength of the dollar has taken a toll. But is that a reflection of economic weakness?

In April, hotels had the best month ever, according to McBride.
http://www.calculatedriskblog.com/2015/05/hotels-best-april-ever.html

Auto sales are the best in fifteen years
http://www.calculatedriskblog.com/2015/04/vehicle-sales-forecasts-best-april-in.html

Housing starts best since 2007, with plenty of running room ahead
http://www.calculatedriskblog.com/2015/05/housing-starts-increased-to-1135.html

Maybe things fall apart, but the data are not uniformly bad. I'll wait to see until passing judgment.

BC May 31, 2015 at 4:04 pm

John, adjust retail sales and PCE for core CPI/PCE deflator and the effect of accelerating costs of so-called "health care", and the real disposable income and potential spending capacity of the bottom 90-99% is weak and poised to weaken further.

Moreover, real, after-tax profits are contracting, which portends further weakness in real non-residential investment per employee, IP mfg., and thus further deceleration of real GDP per capita.

One has to understand the once-in-history transition of the composition of household spending to discern this clearly and its implications hereafter for the next 5-10 years.

BC May 31, 2015 at 4:29 pm

Steven, employment is being overstated/overreported since Aug-Nov 2014, as is typical at the peak of the business cycle and deceleration to, and below, "stall speed" prior to recession, i.e., a "banana".

Moreover, the US economy is now increasingly dependent upon (1) the unprofitable, unusustainable energy costs of growth of energy extraction, (2) the discretionary spending of the top 1-5%, mostly for luxury imports and no-multiplier domestic spending, and (3) the working class bottom 90% borrowing via subprime loans for "higher education" and autos that they can't afford to service.

IOW, the US is exhibiting increasing evidence of becoming (already is) a Third World economy/society.

Granted, I concede that no one of vetted professional legitimacy and standing can publicly concede or admit this, and I deeply empathize, believe ME.

But you and I are faithful students of history and human nature, and it will escape neither of us that the collective resources and intention of Anglo-American-Zionist empire, Wall St., the int'l banking syndicate, and the Anglo-American-Zionist imperial military war machine is now preparing for the full application of resources and power against the Middle Kingdom (that the empire created, incidentally) in the Pacific, Central Asia, the Middle East, Africa, and the western hemisphere, which will likely include, if history is our guide, blockades and embargoes against China, as in the case of Japan in the 1930s, precipitating the increasing risk of war of the West against China in the years hence.

Achilles last stand: https://www.youtube.com/watch?v=YWOuzYvksRw

sherparick June 1, 2015 at 4:08 am

I do think Jim underestimates the impact of the a 20% appreciation of the dollar over the last year (even with the slippage since the peak in March). When nominal economic growth is low in a a low inflation/disinflation environment, even a 1% increase in -net exports is going to flatten the economy and slow growth below the real 2% trend (growth in labor force plus productivity increases). Further, dollar appreciation not only weakens demand for U.S. exports, it reduces demand for U.S. goods and services that compete with foreign imports and places downward pressure on the wages in these sectors, a downward pressure that spreads out through the whole economy. Finally, as Dean Baker points out, the U.S. personal consumption level is not low (except in comparison to the bubble/HELOC fueled spending of the housing bubble years) when examined over the long term. Neoliberals who want to cut social security and medicare and other safety net programs should expect that ordinary people will reduce consumption and try to build savings in order to achieve "the self-reliance" they believe the hoi-polloi should have as their goal. The problem is that as U.S. consumer adopts private austerity, and states around the world adopt public austerity, a question arises as what to do with all the "supply" of stuff and labor coming into the world from societies previously not part of the global capitalistic economy.

rjs June 1, 2015 at 4:37 am

i have trouble with the revision to imports….recall that our imports jumped in March when the West coast dock strike ended and the ships were unloaded, and as a result the March trade deficit increased 43%…i went through the itemized list of March imports and found for instance, that imports of consumer goods rose by $9,013 million to $54,164 million on a $1,677 increase in imports of cell phones and similar household electronics, a $1,293 increase in imports of synthetic textiles, and a $981 million increase in our imports of furniture and similar household goods..in addition, our imports of cotton apparel and household goods, footwear, pharmaceutical preparations, toys, games, and sporting goods, televisions and video equipment. other consumer nondurables, non textile apparel and household goods, household appliances cookware, cutlery, tools, and camping apparel and gear all also rose by more that $250 million each…those increases almost certainly did not indicate an increase in consumption of consumer goods by that much, but rather just an offloading of ships…there were similar increases in every other catagory of imports except petroleum and similar industrial supplies…

since those goods were not consumer, i expected they'd show up as an increase in wholesale or retail inventories…did not show up in March business sales, business inventories, or anywhere in investment…so while BEA applied their GDP formula to subtract imports from 1st quarter GDP as they normally would, the reason imports are subtracted is because they represent consumption inventories or investment that was previously added to GDP that was not produced here…considering that those March imports don't seem to have been added to any of the other national accounts, they shouldn't subtract from GDP…where those March imports went is still a mystery, perhaps they'll show up in consumption or inventories in the 2nd quarter, but from here it appears that the subtraction of the March jump in imports was misallocated by the automated GDP algorithm …

[May 31, 2015] Something Smells Fishy

May 30, 2015 | Zero Hedge

Submitted by Jim Quinn of The Burning Platform
It's always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn't afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.

Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing. We now know who was responsible. Greenspan and Bernanke were at least 75% responsible for the housing bubble and its eventual implosion, which essentially destroyed our economic system. They purposely kept interest rates at obscenely low levels, encouraging every Tom, Dick and Julio to buy a home with a negative amortization, no doc, nothing down, adjustable rate mortgage, so they could live the American dream of being in debt up to their eyeballs.

Greenspan and Bernanke were also responsible for regulating the Wall Street banks. They allowed them to leverage themselves 30 to 1. They allowed them to create fraudulent high risk mortgage products. They looked the other way as Wall Street sliced and diced these guaranteed to default mortgages into AAA rated derivatives that were then spread throughout the global financial system like ticking time bombs. As home prices rose three standard deviations above the long term average, these Ivy League educated geniuses cheered it all on. Bernanke saw no bubble, just as it was bursting. He saw no mal-investment or systematic risk from this orgy of greed and fraud. And then it all blew up in our faces, while the perpetrators walked away unscathed to pillage and rape once more.

And now we come to present day and something really smells fishy again. Home prices crashed by 40% between 2005 and 2012, putting prices back to 1978 on an inflation adjusted basis. All of the bubble gains were wiped out in the blink of an eye. Bernanke and his Wall Street owners had a real problem with this development. Wall Street banks had/have billions in toxic mortgages on their books and only accounting fraud by not having to mark them to market has kept these banks from having to declare bankruptcy. Bernanke, Geithner, and the Wall Street banks hatched their master plan to save themselves at the expense of young people in 2011/2012.

We know for a fact that real median household income is still 7% below 2007 levels and sits at the same level as 1989. We know for a fact that wages have been stagnant since 2007. We know for a fact GDP has barely broken 2% since 2009. We know for a fact the price of healthcare, food, energy, tuition, rent, and a myriad of other daily living expenses are dramatically higher since 2009. We know mortgage originations are at 1997 levels. We know housing starts are 60% below the 2005 highs and at levels seen during the 1991 and 1981 recessions. Existing home sales are 30% below the 2005 high, only up 10% from 2012 levels, and sitting at levels reached in 1999 before the boom.

A critical thinking person might wonder how median single family home prices could possibly skyrocket by 37% in the last three years when household incomes are falling, living expenses rising, and the number of houses being sold are at recessionary levels. The stinking rotting fish again sits in the hallways of the Eccles Building in Washington D.C. Janet "Yellowfish" Yellen has inherited the bubble blowing machine from Ben "Blowfish" Bernanke and has continued to inflate a new housing bubble, because one housing bubble just isn't enough.

There is nothing free market about the 37% increase in home prices. It has absolutely nothing to do with supply and demand. It has nothing to do with normal families looking for a home. It has everything to do with the Federal Reserve's 0% interest rates, the $3.5 trillion of QE injected into the economic gambling system, Wall Street banks withholding foreclosures from the market, hedge funds buying up tens of thousands of foreclosed homes and renting them out to the former middle class, Fannie and Freddie guaranteeing 70% of all sales, the government encouraging 3.5% subprime loans again, Chinese and Russian billionaires parking their ill gotten wealth in US real estate, and flippers reappearing in the same old places (Las Vegas, Phoenix, Florida, California).

The Federal Reserve created the last housing bubble and they've created the new housing bubble, along with stock and bond bubbles, with their easy money policies designed to enrich their Wall Street owners and the parasites who feed off the financial industry. Their entire plan smells to high heaven. They have thrown young people and most of the middle class overboard, while the bankers, billionaires, politicians, and connected cronies party like it was 2005 on their $250 million yachts.

Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.

The good news is the Wall Street banks have inflated their balance sheets and celebrated by giving themselves $20 billion in bonuses for a job well done. If mortgage rates rise to 4% or God forbid 5%, the entire housing complex would implode faster than a blowfish out of water. If you've bought in the last two years you will be underwater sleeping with the fishes like Luca Brasi in the not too distant future.

bdc63

The FED works for the banks. The FED will always take actions that are in the best interest of the banks. Any benefits to the american public is unintended happenstance.

Any negative impacts on the american public is blamed on the policies of the political party not currently in power.

Wash. Rinse. Repeat.

stoneworker

Yeah you are right they are not going to screw themselves. Which is why imho all that this article do is provide evidence to the theory that they will not raise interest rates by any significant amount any time soon....and not in an election year either.

New_Meat

bdc:

"The FED works for the banks."

Actually The FED IS da banks.

- Ned

doctor10

Local, state and Fed.gov have trashed American business so badly that since 1995, the only remaining collateral underpinning the mountain of debt is real estate. The title-trashing that occurred in the mid-2000's as part of the securitization process instigated by WallSt to pump the balloon higher, has in reality trashed many property's for decades until their title provenance gets sorted out again at a local level.

The debt balloon breaks when finally real estate has to be "priced to reality'

It will be a double-whammy then, because the international derivative house of cards will detonate simultaneously with the domestic muni-bond market as property tax revenues will disappear.

depending upon how Fed.gov decides it will respond will then determine whether a modern multi-generational "dark-ages" can be avoided

[May 30, 2015] BYRON WIEN The Fed basically put $3 trillion into the stock market

Stocks have catapulted through the recovery.

Among the things that have driven the expansion, a key factor has been the role of the Federal Reserve.

In market commentary Wednesday, Blackstone's Byron Wien pegs a number on this: $3 trillion.

Even though we've seen company earnings more than double between 2009 and 2014, there has been concern that the market rally has largely been driven by so-called easy money the Fed supplied through its bond-buying program, or quantitative easing.

Wien quantifies its contribution:

It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. The Federal Reserve was providing this stimulus to improve the growth of the economy, but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low. If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion. You could argue that the monetary stimulus financed the multiple expansion in this cycle.

Wien also sees an increased likelihood that we could be headed for a 10% correction, something the market hasn't seen in over three years.

It has been three years since the last one. Sentiment among investors is optimistic or complacent, not a condition conducive to a sustained upward market move. I still maintain a positive outlook for the S&P 500 for 2015, but perhaps we have to endure a little pain first.

It is possible, however, that stocks will rise another 10% before the end of the year, Wien says. But they'll have to achieve that without the Fed's help.

Recently, there's been a focus on liquidity in the markets - how easily investors will be able to buy or sell securities at a given price.

And with the Fed getting ready to tighten monetary policy, commentators have said said we may see wild price swings as investors rush for the exits.

Read Wien's full commentary here "

SFS123

This is nothing but bubble. Simple arithmetic tells stock buy back should not effect the real price of remaining stocks because the company buying back is loosing cash reserve. In other words the balance sheet will have equal negative effect. Any increase has to be only short term. The reason this stock increase is sustaining long term is because buy back is not happening using company's cash reserve but using debt, which will have to be paid back. So all the stock increase even more unreal. When all this ends we will be left with bloated stock price of companies with huge negative balance sheets. In other words shell corporations. Many of these shells will blow up into nothingness. This is exactly what happened with housing market in previous round.

Boubou

So the $3T has raised asset prices to bubble levels, but the real US economy and wages are stagnant and ordinary savers are now beggars. This is flagrant pandering to the rich - the owners of assets, and total disregard for the working majority. If this has not produced any momentum from workers, the unions and the AARP then nothing will. And where is the party of the workers and the so called middle class in all this ??. Not a word from Obama or Hillary on this.

Jorge Fernandez

Yes, and possibly much more than just $3 trillion. That is the primary reason why the stock market has been manipulated into record levels. This allows the criminals to continue their Ponzi scheme at the expense of the suckers of the working class - you and me. They get to reap $billions; we get stuck with the bill. Meanwhile, our government -- which is supposed to protect us from such crimes -- is not only doing nothing, they are actually an active participant in the grand theft.

Wags

Earnings doubled because they lowered their borrowing costs due to the low interest rates. A lot of companies did share buybacks where they borrowed money to buy their own stock. There wasn't any real economic growth. We'll see how it ends, but I'd be cautious buying here.

5 Things To Ponder Is The Stock Market Rational Or Nuts

May 29, 2015 | Zero Hedge

Submitted by Lance Roberts via STA Wealth Management,

This past week, Houston, where I live, was flooded by a torrential down pour. However, it was not the rain itself that was the problem, it was the surge in rivers that flow through Houston. As far away as Austin and Dallas, rainfall had already began to flow into the San Jacinto and Colorado rivers which eventually culminated in rising water levels in Houston.

Furthermore, Houston is designed so that water flows into the streets and eventually into the bayou and rivers out to the Gulf of Mexico. It didn't take much more rainfall to send the rivers cresting over their banks creating a catastrophe following Memorial Day.

Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow - the financial markets. That excess liquidity has sent prices soaring to record highs despite weakling macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreparable loss of capital.

As I discussed earlier this week, the next decade will likely be rather disappointing for investors. To wit:

"When using a relative comparison, in this case 10-years, what Shiller's data does provide is a key understanding as to what market returns should be. The chart below compares Shiller's 10-year CAPE to 10-year actual forward returns from the S&P 500."

... ... ...

OTHER STUFF OF INTEREST
19 Things That Actually Happened In 1999 by Michael Johnston via Poseidon Financial

"Although the events of 1999 are ancient history by many standards, some very clear memories no doubt remain for many investors. With technology and biotech stocks once again hot, a number of comparisons to the last bubble have been made. But the current environment can't come close to matching 1999, either in terms of valuations or in the sheer madness of the markets."

About Bulls, Bears & Pigs by Lvaylo Ivanov vis Ivanhoff.com

"The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I'm here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere."

7 Lies Investors Tell Themselves by Jonathan Clements via MarketWatch

"'In a bull market, there's a tendency for investors to think they're brilliant,' says Brad Barber, a finance professor at the University of California, Davis, and an expert in behavioral finance. Indeed, as share prices climb, investors' confidence grows and they start making all kinds of dubious claims.

Here are seven comments you have probably heard from friends-and that may have escaped your own lips."

Robert Shiller Unlike 1929 This Time Everything - Stocks, Bonds And Housing - Is Overvalued

May 29, 2015 | Zero Hedge

Robert Shiller is a professor of economics and finance at Yale University. He is the author of Irrational Exuberance, which in 2000 predicted the collapse of the tech bubble and is now in its third edition. He was awarded the Nobel Prize in Economic Sciences in 2013 for his work on asset prices and financial market behavior.

In the attached interview he observes that the recent equity run-up seems to be driven more by fear than by exuberance, as a lack of confidence in the future prompts investors to save more and thereby bid up asset prices.

Below is an interview he gave to Goldman Sachs' Allison Nathan

Allison Nathan: Are US stocks overvalued today?

Robert Shiller: I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007-all moments before market crashes.

But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what's going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, "Do you think the stock market is overvalued, undervalued, or about right?" Lately, what I call "valuation confidence" captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000. The fact that people don't believe in the valuation of the market is a source of concern and might be a symptom of a bubble, though I don't know that we have enough data to prove it is a bubble. In general, I try to get a sense of investors' excitement and anxieties through these kinds of measures and even by just reading the news. You might say that's very unscientific, but I do what I can to understand the state of mind of investors, which I think is very important in understanding market moves.

Allison Nathan: Wharton professor Jeremy Siegel argues that using S&P 500 earnings data for the CAPE ratio inflates it. What is your response to this?

Robert Shiller: Jeremy Siegel's 2013 paper that makes this argument does say that the CAPE ratio is useful. He just wants to make an improved CAPE ratio. And he proposes an alternative based on National Income and Product Account (NIPA) earnings, which he says yields a CAPE ratio that has predicted returns better, at least over the time period for which he has these earnings data. I think it is an interesting paper. But I am not ready to endorse the switch to NIPA earnings partly because they are conceptually a little different, valuing not just publicly traded stocks but also other companies. But the critical point he makes is that NIPA earnings-at least as of 2013-were higher than S&P 500 earnings, which made the market look less overvalued. Given that market valuations have continued to rise, I think that discussion has faded somewhat.

Allison Nathan: Is the equity market a bubble today?

Robert Shiller: I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there is certainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going. So there is a bubble element to what we see. But I'm not sure that the current situation is a classic bubble because I'm not certain that most people have extravagant expectations. In fact, the current environment may be driven more by fear than by a sense of a new era. I detect a tinge of anxiety and insecurity now that is a factor in markets, which is quite different from other market booms historically.

Allison Nathan: How else does this period of apparent equity overvaluation compare to equity booms in the past?

Robert Shiller: This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren't. It's an interesting phenomenon.

Allison Nathan: What explains this phenomenon of asset valuations looking high across the board?

Robert Shiller: There are multiple answers to that question. But if I had to oversimplify with just one idea, it would be what I just alluded to a moment ago-that people are not confident in their future. They remember the financial crisis, and they worry. They hear about inequality through the Occupy Wall Street Movement and in many other places, and they worry where they will fall on the inequality spectrum in a decade or so. They observe the amazing but perhaps unsettling rise of information technology (IT), and they worry. As a result of all of this anxiety, they want to save more. But given the lack of options to invest in at a high return, they end up just bidding up the prices of existing assets. That, in turn, creates disappointment, more concern, and perhaps the feeling that they might be too late because of how much the market has already risen. But they still invest in it because of their anxieties.

Allison Nathan: What does this mean for market stability?

Robert Shiller: It means that the market could keep going up like this for some time. Its been an amazing run and looks like something that can't keep going indefinitely, but it might continue for several more years. So market bulls may be right that the market runs further. I think that could happen too. But I take a different view of the drivers of these runs; I tend to view them as more irrational. I just don't know when this bull market will end. And it might end very badly.

Allison Nathan: How concerned are you about a meaningful correction in the next six months to a year?

Robert Shiller: My concern has risen with the market. There could certainly be a correction in the next year. But the problem is that a correction might not come for five years. We just don't have any way to forecast when it will come.

Allison Nathan: Was it appropriate for Fed Chair Janet Yellen to express concern about equity valuations?

Robert Shiller: I think that there is a moral imperative for Fed leadership to express some opinion about the market. They have a staff of experts-a whole research army-to study these issues, and people look to the Fed as an authority. Believers in efficient markets would say that we shouldn't care about these opinions; that the market is smarter than any individual or any research team. But I disagree. I think that the market is not smart about these sorts of things and that we do need leadership from people who study these questions. And so I applaud Janet Yellen for making that statement, which helped put the current state of the market in perspective.

One reason why the boom in the 1990s went on as long as it did is that Fed Chairman Alan Greenspan made very little of worries about the market. At one point he used the term "irrational exuberance," which led to a sharp drop in markets, but he never came back to that theme.

Allison Nathan: Of all the expensive asset classes today, which looks the most convincingly like a bubble?

Robert Shiller: The bond market looks the most unusual relative to history, with real US yields just off record lows of recent years. The difference, though, between the stock market and the bond market is that historically the bond market doesn't seem to crash like the stock market. Notably, if you go back to 1929, there was a huge crash in the stock market and not much action in the corporate bond market. That might come across as a surprise, but it's history. We are now in different times, though, with a very long run of very low interest rates that has affected many countries in the world. So there could be a big correction in the bond market. I'm not forecasting that because I don't like to forecast things that almost never happen. But it could happen. And that's the problem we face.

Allison Nathan: What should investors do when so many assets look expensive?

Robert Shiller: I am not an investment advisor. But I would say that the main implication for most people is that they should save more because their portfolio probably won't do as well as they imagined. And if they're saving for some distant goal like retirement, they might be disappointed. People have learned about the power of compound interest. But what they don't understand is that if interest rates are zero, you don't get any compound interest. I think that there is complacency among investors today. People have seen how well the stock market has done over the last century. But the market might not do so well the next time. So you have to consider whether you are saving enough.

And as a general principle, I think people should diversify across assets and geographies because there is no way to predict what any one asset will do with any accuracy. I've been talking down US stocks because of their high valuation, but I would invest something into US stocks; I would just put a heavier contribution in stocks around the world, where CAPE ratios look lower. I keep coming back to the theme that there are lots of places outside of the US to invest. And I would also own bonds, real estate and commodities. Commodities are overlooked by many investors but they are an important part of an investing portfolio.

The reality is that people are not very good at diversifying. This has been documented in studies. They tend to be distracted, and focus too much on one sector or one thing that they have heard. They also tend to focus on their own country. There's no reason why one should invest only in one's own country. Quite the contrary, some people make the extreme statement you should short your own country and invest only elsewhere. I wouldn't go to that extreme, but it is a plausible argument.

Allison Nathan: But is the strong US growth story relative to elsewhere enough to warrant buying US stocks?

Robert Shiller: The US looks pretty good and in some ways brilliant. The exciting news about technology seems to come largely from the US. For example, fracking, which is predominantly a US technology, transformed the energy market, and just within the last five years or so. And many electronics and IT advances are also coming from the US. So there is reason to believe in this country.

But I think that we also have to understand that we tend to be biased. One sees and appreciates one's own country; that's human nature that one has to correct for. Amazing things can happen elsewhere as well. You see that in much of the developing world; over the last half-century, there's been remarkable economic progress and growth. And we're going to see more and more advancement in those countries. So maybe the high US CAPE ratio is partly justified.

But I think we have to nourish a healthy skepticism as investors and not get swayed too much by the idea that we're living in a new era here.
bwh1214

To keep the credit created boom alive took a stock bubble in the 90's, took a stock and real-estate bubble in the 2000's, now takes a stock, bond and real-estate bubble.

So we made it to where they were in 1929 in 2000. We are going to find out what the crash looks like if the fed had kept the music playing for another 15 years in 1929.

Ham-bone

Perhaps it because there's fewer of them with fewer jobs that generally pay less and they have more debt???

Consider...

The reason WHY the Fed and CB's did what they and did since '08 needs better publicity.

Why they changed from marginal manipulation to outright "being the market" since '08...why the big change??? And once you understand the problem, you understand why the Fed's actions are criminal because they were never going to work or "help" the nation...only offer a small and shrinking cadre an opportunity to strip mine the nation on the way out.

It was a "flow" (not "stock") issue of new consumers that killed an already very flawed model. The annual "flow" of new population growth in the US, EU, Japan, elsewhere all peaked in the '80's and annual new population growth began ebbing. By 2008 in the US, the 25-54yr/old annual population change went negative. The sliding #'s of new consumers had been hiden for years by lower interest rates, more available credit (subprime, etc.), longer duration credit. But the '08 outright annual fall of the consumer base was too much.

The Fed and CB's had to "suspend the free markets to save the free markets" (but what they really meant was they needed to suspend free markets because what a market would have done is found real pricing between lots of sellers and declining buyers).

Everything now is simply trying to hide the fact we have shrinking consumer bases and will for a decade...and maybe for the rest of our lifetimes.

I try to outline in the following links...all data from Fed's FRED...

http://econimica.blogspot.com/2015/05/2008-was-tremorwhy-main-event-is-still.html

http://econimica.blogspot.com/2015/05/reality-check.html

Mini-Me

I find it ironic that his only explicit mention of the Fed was that they need to exhibit leadership and voice their opinions. Baloney. They flap their gums all damn day, and most of it is a pack of lies.

Shiller needs to pull his head out of his ass and call a spade a spade. The world is in this mess because of excessive debt. And we have excessive debt because the central banks punish savings and incentivize spending.

Nothing changes for the better until central banking is discredited and abolished.

Pancho Villa

Asset prices are above historical norms because the average age is increasing. In general, net worth peaks around retirement age. The baby boomers are nearing retirement age or have just recently retired, which is creating an unprecedented demand for investment assets causing their prices to soar.

The baby boom peaked in 1957. Add 65 years to arrive in 2022. If this theory is correct, the late 2020's are going to be very interesting. And not in a pleasant way.

[May 29, 2015] Non-Farm Payrolls Next Week - Risk Management

If there has been any major adjustment it has been the timing elements. These things seem to unfold much more slowly than one would expect. And the audacity of the oligarchs, which is a counterpart to the surprising apathy of the public to scandal after scandal, is also a bit surprising.

Jesse's Café Américain

There is a lot of macroeconomic data coming out for the US next week. I have included the calendar below.

Among these will be the Non-Farm Payrolls number for May, which will be released on Friday.

This data will be watched closely because while the markets are sloughing off the newly revised contraction for GDP in the 1Q, they are nervously trying to maintain their belief in the story that this was some sort of weather-related anomaly. The more contemporaneous data is showing higher than expected unemployment claims and a truly awful Chicago PMI has them edgy to say the least. So next week's data will be very important since it is so current.

There was overnight commentary on the gold market. It is a broad summary of the market that paints a broader picture of what may be going on. It also sets the stage for the currency war. I urge you to read it here.

Of course there are other ways to explain all these things. I have read these explanations presented by very serious people. But I have been following this map or model of what is unfolding since roughly 2000, and it continues to surprise me as encompassing many more pieces of data from different places quite well without major modifications.

If there has been any major adjustment it has been the timing elements. These things seem to unfold much more slowly than one would expect. And the audacity of the oligarchs, which is a counterpart to the surprising apathy of the public to scandal after scandal, is also a bit surprising.

Moreso than ever I am convinced that the lack of reform and gross mispricing of risk is going to catch up with the US financial system, and the results may be quite impressive. There are bubbles which are being ignored again with a cavalier dismissal. So I do now think we are going to see a third financial crisis sometime within the next two years. And there may be noticeable political consequences because of this.

Fed's Policy Errors and Gross Mispricing of Risks: Nuts

And given the track record of the American ruling elite, I have little doubt they will keep doing the same things until they crash the financial system for the third time in less than twenty years. And they will recklessly view this as just 'another opportunity.'

"It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. "

The Federal Reserve was providing this stimulus to improve the growth of the economy,but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low.

If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion.

You could argue that the monetary stimulus financed the multiple expansion in this cycle."

Byron Wien, The Fed basically put $3 trillion into the stock market

I think Byron is being generous with the contribution of earnings, which are increasingly questionable artifacts of dodgy accounting and stock buybacks fueled by cheap debt.

But this is the very point on which I have been pushing so hard for what, six years now? There is nothing wrong with stimulus, but stimulus for its own sake being pushed top down into a largely unreformed financial system is a willful kind of policy error, bordering on an insular world view, if not collective madness.

And the great majority of economists have been on board with this latest financial folly, either through active rationalization or timid acquiescence. Professions that are build on powerful connections and 'reputations' often degenerate into a stubborn sort of herd mentality.
Let's not talk around this, or expend too many words on it.

This is nuts.

Stocks were sagging after the expected revision of the 1Q GDP to a contraction, which is what we said when the first 'positive' reading came out a month or so ago. Ho hum. So now we are 'looking forward' and the Chicago PMI, which is a reasonably current number, missed by a mile, and threw cold water all over this anomaly story for 1Q's slump.

And given the track record of the American ruling elite, I have little doubt they will keep doing the same things until they crash the financial system for the third time in less than twenty years. And they will recklessly view this as just 'another opportunity.'

Currency Wars, Gold Pools, and Comex Potential Claims Per Deliverable Ounce

Based on some interactions with newer patrons of Le Café, I thought it might be a good time to restate the general lay of the land in the gold market. The occasion for this is the latest measure of what might be called leverage in the futures market, what it is, and what it may or may not mean and why.

Clearly the paper markets, involving associated trades in ETFs, mining company stocks, derivatives, and so forth are much broader than the futures market alone. But the futures market is what one might call the locus of execution for our drama.

The potential claims number for gold at the NY Comex is calculated by Nick Laird at Sharelynx.com by taking the amount of gold bullion marked as 'registered' for delivery at current prices by the number of contracts open on the futures market at 100 ounces of gold per contract.

Yes there is more gold that the 373,000 ounces currently marked for delivery in all the warehouses. But that gold is merely there in storage by its owners, so counting it towards delivery, without the prior consent of the owner, is a bit presumptuous to say the least. One might safely assume that market rules apply, and more gold will become deliverable at higher prices.

With a potential 111 claims per ounce of gold marked 'registered' for delivery at these prices, one might expect to see quite a move higher in prices to reach a market clearing price, and perhaps even a significant short squeeze.

But we probably will not see any such short squeeze, and maybe not even a breakout from this price range, unless something unusual happens outside of the New York and London markets.

The Comex, aka The Bucket Shop on the Hudson, does not set prices in the usual supply and demand dynamics. And London and New York are playing a tag team with any number of markets these days, from forex to LIBOR to bonds.

Gold could break out in a big way. It would not take all that much for a large hedge fund, or even a well-heeled world class individual, to turn about three thousand of those contracts in for delivery AND take the gold bullion out of the warehouses, moving them to Asia and pocketing a substantial profit on the gain.
This assault on an unsustainable price peg is how Soros and associates in Zurich took the Bank of England for over a billion in their selling of the pound against an unrealistic price point.

Why doesn't anything like this happen?

Is it because people do not have the money to do it? In times of billion dollar art auctions and $500M homes being built on spec? Don't make us laugh.

Is it because people do not want gold bullion? The Shanghai Gold Exchange is routinely moving physical thirty to forty tonnes per week out of its warehouses. Thirty tonnes is about 965,000 troy ounces, about three times the total deliverable at the Comex now in total.

No, it will probably not happen because the big money has been warned off the Banks' turf, and their game is to keep the wash and rinse price cycles running to provide a steady profit as long as they can.
As long as price is the 'only component' in the market dynamics, with demand and supply artificially dampened by a 'no withdrawals' house rules, the liar's pokers carney games based on very loosely regulated price action can continue.

It is not all that dissimilar to a poker game in which there are unlimited raises, the rule of table stakes does not apply, and one does not have to show their cards, and can only be called if the house allows it. Those with the biggest wallets can keep selling paper gold as long as they wish at whatever price they wish, and never have to even show their cards, and cannot effectively be called unless they permit it.
I know this example is a bit rough, but not all that much. It almost looks like a scam, rigged in favor of the deepest pocketed players, doesn't it? And what if they get additional information about the hands of the other players and the size of their wallets. Well, now you know why I consider those smaller players who keep coming back to the action in that casino to be a bit out of touch.

So the bullion banks and their friends can keep cranking out steady profits while holding bullion prices within a range that is a comfort to the nervous money printers in the Federal Reserve. This keeps the government happy, the regulators off their backs so to speak, and the wash and rinse cycles rolling.
The reason why this sort of imbalance could get sorted out in the currency markets but not in commodities is illustrated by the relative experiences of George Soros and the Hunt Brothers.

Lucky for Soros that the forex markets are so broad and deep that no single group of cronies can control the exchange rules in the 'cash markets' to suit their plays. Yes some central banks can make it quite risky, even painful, but the solution is not so neat as what happened in with the Hunt Brothers and silver. There the exchange the US regulators just changed the rules of the game and that was that.
If one were to do something about a price imbalance in a commodities market, as opposed to an unregulated global market, you would tend to wish to do it off exchange by slowly accumulating a large portion of the available global supply, as quietly as possible. This only works obviously with a commodity that has inherently has a relatively stable supply.

The spoiler in the gold paper game might then be expected to be those 'outside' the range of the gold pool. They are those who do not do their business primarily in the betting parlors of New York and London.

If one cannot secure a sizable portion of supply via paper on the exchange where the cronies make the rules, one just cuts out the middlemen and buys it directly, and it works as long as they do it off exchange and have an unimpeachable line of credit. And then one would keep stacking their physical metal while enjoying what they think are very attractive prices.

Some analysts think that they know 'what China wants.' Who is China? Have the Chinese had a meeting and hammered out a single, unified policy plan? How about the Americans, and the Russians? Or are there various competing domestic factions in every country? And even more significantly perhaps, are there special interest groups, a self-defining elite, without preferences except for themselves? As you can see this is a complex scenario with many variables.

And in compressing the complexity of the scenario, we lose information and applicability, always, and sometimes intentionally. Simple sells, and is successful depending on your sales objective. Nothing was simpler and more powerful than the efficient markets hypothesis with perfectly rational actors. It led to an otherworldly market ideology that caused one of the greatest financial crises in history.

This is not the first time we have seen such a de facto pooling arrangement. There was the London Gold Pool, which sought to 'stabilize the gold price' at $35 dollars from 1961 until it collapsed in 1968. That mispricing caused a 'run' on the gold in the US, and led to the Nixon shock in 1971, the closing of the gold window, and the eventual rise in the price of gold to $850 in 1980.

Or we could point to the long bear market in gold, which reached its trough with the sale of England's gold in Brown's Bottom around $250 between 1999-and 2002, This was resolved with the so-called Washington Agreement, which provided a plan for more measured selling and leasing of Western central bank gold to control the price of bullion largely amongst the Europeans.

Their intention was to have had this agreement continue until 2009, but alas, the rising economies of Asia and the BRICS were not sharing their vision of the future. And so the purchasing of central bank gold reserves turned positive for the first time in over twenty years around 2006-7, ahead of the collapse of the US housing and credit bubble.

As you may recall, gold subsequently rose to around $1900 in a fairly short period of time, and has now fallen back to the current price range in dollars of $1180-1230.

And where are we now?

The BRICS are still buying. There is quite a bit of secrecy and jawboning surrounding the actual levels of bullion available and unencumbered in the Western central banks. The IMF, a ringmaster for the States if you will, has offered (threatened) to sell the same gold on about ten occasions.

Not all the Western banks are holding to plan. Some are even taking the unusual steps of repatriating their gold from the Anglo-American vaults where it has been since the Second World War. They fear that if things go off the rails, and there is a reckoning of ownership claims, possession will once again be nine-tenths of the law.

It will be interesting to see where the market forces take us eventually, if they are allowed to do so. I do not assume necessarily that they will.

However the fact remains that the existing 'Bretton Woods II' de facto reserve currency arrangement for global trade, based on a fiat US dollar, which was unilaterally put in place by the US in 1971 on the closing of the gold window, has reached its point of unsustainability.

I do not believe that there has ever been a purely fiat global currency of this magnitude before in recorded history. So we should not be too surprised if the situation seems to evolve rather slowly,
There is already a great deal of posturing by cross national special interest groups, with 'negotiation' on multiple levels from financial to diplomatic. We may even expect the abusive use of the military to push certain proposals forward rather forcefully.
Bureaucrats can become quite draconian when their schemes for personal power go awry. And in my own monetary thinking a purely fiat currency for international trade ultimately implies the development, or imposition, of a global government controlled by the monetary authority, whatever they may choose to call themselves. The imposition of fiat valuation relies on control, which means power, and often plenty of it.

The future composition of any world government is a very open question. There is very obviously an Anglo-American faction for 'the New American Century.' But there are also Pan-Asian, Pan-Pacific, sub-Saharan, Eurasian and Pan-European elements as well. Although it is most likely a bit of a reach, one has to wonder if this odd construction of the European Monetary Union is not some sort of a testbed for the future cooperation of regional oligarchies. I am not saying that there is 'A Plan' but there are certainly plans that some groups are clearly pushing towards their own objectives and agendas, and have been doing so for some time. Professor Carroll Quigley, Bill Clinton's mentor at Georgetown, has been instructive on this subject.
We are in exciting times with history being made it seems. There are a number of possible outcomes, which quite frankly no one can accurately forecast at this point. There are too many degrees of freedom, so they literally cannot. But they can throw up theories and strawmen of what may happen, and charge you to read about it. It is an honest source of income, rather like writing racing forms or novellas, or the weather report in the 1950's. And it is fun to talk about while we watch things develop.

But make no mistake, when some of these fellows overreach with their claims of certainty, if they really knew what will happen they would not be telling it to you. They would be playing with their own money in the casino, for all they were worth. Or running funds that increased their leverage for their theories, while providing a steady management income. This is a longer term play after all, and so speculative leverage is a short term risk to be managed. Banks like to catch the players indisposed.

And then, alas, there are those who play for pay, who promulgate their ideas for the special interests, spreading disinformation. Or just make the most dramatic sort of stuff up, selling a kind of financial pornography.

This landscape is what I, and several others some more notable certainly, have called The Currency Wars.

Going Off the Rails on a Crazy Train

28 May 2015

"And what happens when PR turns a profit, and truth goes penniless?"
Bill Moyers

"Insanity is doing the same thing, over and over again, and expecting different results."
Albert Einstein

"Has he lost his mind? Can he see or is he blind?
Now the time is here for Iron Man to spread fear." Ozzy Osbourne, Iron Man

Most Americans are completely unaware of FIFA or what it does, and only a bit more aware of the World Cup and non-US football. Unless they are school age children perhaps, the parents of same, or recent immigrants from Europe and South America. The official reason for the US to proceed with prosecutions of FIFA this week, after a 24 year investigation, is that the payoff schemes involved some of the Wall Street Banks. Since it is unlikely that there will be any action against these same Banks, one wonders as to the reason and the timing for this. This week FIFA was expected to sanction Israel on Wednesday for their truly terrible treatment of Palestinian football clubs. And the US was perturbed that Qatar was chosen as the 2022 World Cup host, despite their awful human rights record, and record donations to the Clinton Fund, and loyalty to the US ambitions in the Mideast. And finally, FIFA dared to award the 2018 World Cup to Moscow. Have you noticed that this FIFA prosecution, which so few understand and care about in the States, is getting so much more media coverage than the latest massive thefts by the Banks in wholesale rigging in the forex markets, for which no one is being prosecuted and no serious reforms are being undertaken? There are risks in standing in any way against the will of an empire.

And besides, FIFA is THEIR scandal, and it serves to distract from OUR scandals. Speaking of gold, it appears that Austria has decided that the risks of storing its sovereign gold in London are too great, and are repatriating it home. As well they may, because in the times that are just ahead, we might suspect that possession will be nine-tenths of the law, MF Global-style. Gold and silver are quite obviously in some sort of locked down trading range. Gold will become much more interesting next week as June is an active month, and the leverage on the deliverable portion of the Comex gold warehouses is historically rather high, indicating higher prices ahead. Of course, that is not the way things work necessarily in The Bucket Shop on the Hudson. The gold game in the US benefits The Central Bank storytelling, and the Banks, who 'make markets,' or make-up markets to suit themselves and their trading profits. It is quite lucrative as we have seen in so many other cases like is such as LIBOR, forex, derivatives, and so forth. On a final note, it must seem like madness to the non-US observers, what the Fed is doing with QE and top down stimulus.

Well not to the Brits, because they have taken such madness to heart, or the Continent, which is visiting senseless misery now on Greece, and a number of the usual suspects yet to come, until they finally make they way around to the volks at home. And so here we are, running off the rails on the neo-con and neo-liberal crazy train. Have a pleasant evening.

"In the eyes of empire builders, men are not men but instruments."

Napoleon Bonaparte

Stocks had a bit of a bobble this morning on the much worse than expected unemployment claims number.

But Wall Street came to its senses, and realized how little the average American matters in the greater scheme of things anymore.

Let's see how stocks go into the weekend.

Nothing New

27 May 2015

"This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.

That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages.

We desire both to be respectable and to be respected. We dread both to be contemptible and to be contemned. But, upon coming into the world, we soon find that wisdom and virtue are by no means the sole objects of respect; nor vice and folly, of contempt."

Adam Smith, Theory of Moral Sentiment

אֵין כָּל חָדָשׁ תַּחַת הַשָּׁמֶשׁ

Nihil sub sole novum.

There is nothing new under the sun.

Ecclesiastes 1:9

Their is surely nothing new under the sun, except those who are called and will be held accountable for their labor, under it. Our moderns believe that they have learned to lie, to cheat, and to kill with unsurpassed skill, cleverness, and shamelessness.

They have discovered their will to power. Or perhaps, the will to power has discovered them. They think that they have gained some impunity, and have risen above humanity to become as gods. This week will see the last of the May contracts, and the beginning of the active month of June for gold.

[May 28, 2015] Why America's Debt Bomb Won't Explode... Yet by Samuel Rines

May 26, 2015 | The National Interest

Debt levels may be enormous, but interest payments aren't at historical highs.

In Schrodinger's famous thought experiment, a cat is placed in a sealed box with a mechanism rigged to possibly release cyanide in an hour, depending on the rate of atomic decay. It is a quirk of quantum mechanics that, until the contents of the box are observed, the cat can be considered to be both alive and dead-simultaneously.

The thought experiment is well suited to pondering the U.S. federal government's current debt situation. Currently, there is an unprecedented amount of debt in the proverbial "box," and the outcome is difficult to observe until after the fact.

And this is part of the problem. Much like Schrodinger's cyanide, the level of U.S. debt could be safely contained or mortally high, it depends on when, if, and by how much interest rates rise in the future. We neither know the timing or the extent interest rates will rise in the future-not to mention the level of debt that will need to be refinanced. This means that the debt situation is in a sort of limbo. We simply do not know when, or if, it will explode.

There are certainly reasons to be concerned. The absolute amount of debt amassed by the federal government is at an unprecedented $18.1 trillion with $13 trillion held by the public. These are astounding amounts, but the level of debt is not the end of the story, as the level of debt does not determine the amount of interest expense tied to the accumulated debt.

Debt to GDP is an often cited metric. It is catchy, simple to use and calculate, and sounds ominous. (A 100 percent debt-to-GDP really means that if all of GDP were used to repay debt, it would take one year to do it.) But it is a deficient measure. GDP itself cannot be used to repay the national debt, and then there is the question of real or nominal GDP use. GDP is a measure of consumption, but also contains government spending, inventories, and transfer payments-none of which should be counted in a metric that is attempting to convey information about a country's indebtedness or ability to repay.

A far more relevant figure would be the amount of revenue the government is receiving-its tax receipts. GDP does not provide an indication of future government revenues, or even potential government revenues. Stepping back for a minute, we should remember that other countries have spent decades far above the 100 percent debt/GDP ratio (Japan) with little consequence.

Much the same criticism could be levied against the overuse of the "debt" number. The amount of debt is (to an extent) irrelevant-so long as the interest payments are manageable.

A more relevant and straightforward way to evaluate the seriousness of a country's debt addiction is comparing a government's revenues to the interest expense of its debt-"payment to revenue." Simply, how much does the government collect during a fiscal year, how much does the government spend on interest in a fiscal year, and how does this compare to history.

This gives a useful indication of the actual costs of debt accumulation-not simply the size of the stockpile. It also provides a more complete context to the evolution of the federal debt by implicitly including interest rates and changes to the tax code.

Using this measurement, America's federal debt picture brightens significantly. Whereas debt to GDP is 100 percent and has persistently crept higher, payment to revenue has consistently moved lower. While the total debt outstanding is sitting at an all-time high above the $18 trillion mark, both net interest expense and total interest expense are off their highs. Net interest subtracts the payments on the roughly $5 trillion in intra-governmental debt holdings, thereby reducing the reported number.

Exiting 2014, net payment to revenues is similar to the level of 1970's, and the repayment dollar figure is below the level in 1995 with more than double the revenues. For perspective, the net interest payment in 1995 was $232.1 billion or 17 percent of revenues. In 2014, the net interest payment was $229 billion or 8 percent of revenues. Despite the ominous debt/GDP headlines, net interest payments are the same as 20 years ago.

Granted, the Federal Reserve's low interest rate policy and subsequent QE program has caused borrowing rates to decline. And the aforementioned decline of interest payments to revenues was due to interest rates declining over the past couple decades. Therefore, the Fed is principally responsible for the phenomenon of low interest expenses, and some credit for the better economy and increasing revenue should be given to the Fed for its monetary intervention.

But there are still worrying possibilities. The potential for interest rates to rise in the future poses the most danger. A doubling of the interest payments would return the total interest payments to about 29 percent. This is a bit higher than 1992, when the debt level was lower, but the debt payments as a percent of revenues were far higher than today. A doubling of the net interest to about 15 percent would bring it to a level similar to the mid-90's, but below the high teen figures that dominated the 1980's.

There is a much higher debt level now, but a lower relative cost of debt service to revenues. This indicates interest rates and the resultant interest payments can move significantly higher without the debt becoming too much to handle.

There is no denying the debt amassed by the U.S. federal government is considerable, and has the potential to cause problems down the road. But looking at the issue through the narrow lens of debt/GDP would be a fallacy. Well publicized papers have argued that beyond a certain threshold level of debt/GDP, economic growth slows. In reality, the slowing was probably more attributable to changes in the costs of servicing the debt. The economics of debt change and so do the situations and context.

The U.S. "debt problem" is either nearing a crisis point-as it careens over the "slow growth" threshold-or is in fine shape-because revenue increases have outstripped interest payments. At the moment, there are plenty of revenues to cover the interest expenses, regardless of the absolute level of debt. Interest rates may rise, and with it the interest paid. The U.S. economy has dealt with higher revenue to interest paid, before. There is good reason to think that the cyanide is still contained, and the cat is still alive.

Samuel Rines is an economist with Chilton Capital Management in Houston, TX. Follow him on Twitter @samuelrines.

[May 27, 2015] The Art of the Gouge NYU as a Model for Predatory Higher Education

" a mind-numbing and degrading set of scams perpetrated on students, including the bait and switch of hitting them with extra charges they can't possibly find out about before they have committed to the school, to the tune of an estimated $10,000 per year; providing mediocre education" That's the essence of neoliberal university. Be careful and check facts before getting into "predatory neoliberal university". The list of scams they're running is impressive, but you can avoid them. Just go to your in-state public University, kids, you'll be glad you did (or at least glad you didn't go to NYU).

Under Chairman of the Board Martin Lipton and President John Sexton, New York University has been operating as a real estate development/management business with a predatory higher-education side venture. A group of 400 faculty members at NYU, Faculty Against the Sexton Plan (FASP), have been working for years against what Pam Martens has called "running NYU as a tyrannical slush fund for privileged interests." FASP just published a devastating document, The Art of the Gouge, which describes how NYU engages in a mind-numbing range of tricks and traps to extract as much in fees as possible from students, while at the same time failing to invest in and often degrading the educational "product".
The first part of the report goes through a mind-numbing and degrading set of scams perpetrated on students, including the bait and switch of hitting them with extra charges they can't possibly find out about before they have committed to the school, to the tune of an estimated $10,000 per year; providing mediocre education in programs that require "study abroad" while also requiring them to stay in grossly overpriced university housing; admitting a high proportion of foreign students, precisely because they pay higher fees (and predictably, NYU's premiums are even higher than that of other schools), and offering shamelessly overpriced, narrow, and not very good health services.

Mind you, that list only scratches the surface.

The second part, which describes how the funds are used, describes in gory detail how the school throws money at real estate empire-building, disproportionately for administrative space and housing when teaching facilities are in short supply. The third document describes how NYU is an even more extreme practitioner of squeezing the incomes of faculty while gold-plating administrator pay and perks. Consider one famous example that we discussed in 2013, Jacob Lew, who was then the presumed incoming Treasury Secretary:

Remember, Lew came from a job at NYU where he already looks to have been considerably overpaid. He received over $840,000 for the academic year 2002-2003, which had him earning more than most university presidents, including NYU's president. And on top of that, as Pam Martens ferreted out, he was apparently given a $1.3 million house. I'm not making that up, go read her piece. The mechanism was that NYU lent the $1.3 million to buy the house to Lew and then forgave it over five years. Oh, and they paid him the money to pay the interest too. We will assume that the forgiveness of debt was reported properly to the IRS.

Pam Martens has long been bird-dogging the grifting at NYU. As she wrote later in 2013:

In September 2009, the New York Times published a remarkable exercise in inanity, profiling John Sexton, President of NYU..

We don't, for example, learn from the interview that his home on Fire Island has been financed since 1994 by several million dollars in loans from the NYU School of Law Foundation and NYU itself…

This is not the only residence that NYU has made possible for its President. He has the use of two well appointed apartments owned by NYU in Manhattan. Sexton, who turned 70 in September, is also set to receive a length of service bonus of $2.5 million in 2015 and an annual pension of $800,000 when he retires. That pension is the equivalent of NYU taking $10 million of its assets and placing them in an immediate annuity for Sexton.

Sexton has plenty of company when it comes to getting out of the city in the summer through the generosity of NYU. Richard Tsien, Director of the NYU Neuroscience Institute, bought a house in East Fishkill, New York, 76 miles from the university, for $1,125,000 in February 2012 with $500,000 in financing from NYU. According to an online description, it's a stone house on 7 park-like acres with a flowing stream and a functioning 12-foot water wheel.

Numerous other NYU professors have country homes financed by the NYU School of Law Foundation or NYU. Between primary residences and vacation homes, NYU and its affiliated nonprofits have an estimated $72 million to $96 million outstanding in loans to faculty and administrators. The university has acknowledged 168 loans.

So the sort of conduct documented in these three reports is no surprise if you've been following this story, but having them documented in so much detail is devastating. I hope you'll read them and circulate them widely, above all to parents whose children might be considering applying to NYU.

The-art-of-the-gouge-Part-1

The-art-of-the-gouge-Part-2

The-art-of-the-gouge-Part-3

Elizabeth, May 22, 2015 at 7:54 am

I'm an NYU grad and my son started there a few years ago. In that 30 years, the cost of housing roughly doubled, while the cost of tuition roughly quadrupled. So, Forbes' "pocketbook demands of living in New York" rationale doesn't really fly. The cost of educating a student there must be less now, in the era of faculty serfdom. I wonder if one reason the tuition has skyrocketed is because student loans are so easy to get – often "guaranteed." Maybe the university charges as much as the families can borrow?

sufferin'succotash, May 22, 2015 at 8:12 am

It's known as preparing students for the wider world.

hemeantwell, May 22, 2015 at 8:26 am

Here's another link to a Doug Henwood KPFA interview, this time with Christy Thornton, a grad student at NYU who was part of a recent successful organizing drive among teaching assistants. It's particularly good on NYU's corporate-mimicking multinational strategy, funded by jacking up student fees. The Thornton interview is the second half.

http://shout.lbo-talk.org/lbo/RadioArchive/2013/13_12_19_16.mp3

Jim Haygood, May 22, 2015 at 9:45 am

Higher education, comrades: as with options, the big profits accrue to the seller, not the buyer. Is anyone surprised that, like our Dear Leader, NYU's John Sexton is a Harvard Law grad? It's not the musty old tomes on torts and trusts, but the lifelong networking with fellow toffs and racketeers that pays off big time.

An NYT article just revealed the biz model:

Seen from the Internet [sic], it is a vast education empire: hundreds of universities and high schools, with elegant names and smiling professors at sun-dappled American campuses.

Their websites, glossy and assured, offer online degrees in dozens of disciplines, like nursing and civil engineering.

Yet on closer examination, this picture shimmers like a mirage. The news reports are fabricated. The professors are paid actors. The university campuses exist only as stock photos on computer servers. The degrees have no true accreditation.

http://www.nytimes.com/2015/05/18/world/asia/fake-diplomas-real-cash-pakistani-company-axact-reaps-millions-columbiana-barkley.html

What other kind of biz gets customers lined up and pounding on the door to get in? I love it!

So I'm starting my own educational empire: Harward, Yates and Princetown. They're all members of the prestigious Hanseatic League, and are accredited by IATA (the International Academic Transcript Authority).

Don't miss our summer sale, at only $995 a credit hour. We accept Paypal and Bitcoin. Enter to win a free PhD Econ degree if you sign up by June 30th!

washunate, May 22, 2015 at 5:33 pm

His bio really is a fantastic who's who of what's wrong with our leadership class. He's a banker lawyer professor extraordinaire. And he's got quite a doctor running the med center.

President Sexton is Chair of the Independent Colleges and Universities of New York, Chair of the New York Academy of Sciences, and Vice Chair of the American Council on Education. He is a fellow of the American Academy of Arts and Sciences and a member of both the Association of American University Presidents and the Council on Foreign Relations. He has served as the Chairman of the Board of the Federal Reserve Bank of New York (2003-2006) and Chair of the Federal Reserve Systems Council of Chairs (2006). He served as a Board Member for the National Association of Securities Dealers (1996-1998), and was Founding Chair of the Board of NASD Dispute Resolution (2000-2002). He also serves on the Boards of the Council on Foreign Relations, the Institute of International Education and the Association for a Better New York. While Dean of the Law School he was President of the Association of American Law Schools.

http://www.nyas.org/whoweare/bog/sexton.aspx
http://nyulangone.org/our-story/our-leadership/executive-leadership/robert-i-grossman-md

sd, May 22, 2015 at 10:05 am

NYU had a scam going with student loans back in the 1980s that finally got exposed in the 1990s. It's almost impossible to find anything about it now. The story never seemed to grow legs.

Michael Hudson, May 22, 2015 at 10:18 am

NYU is to education what Scientology is to religion.

Remember a generation ago, when NYU bought a spaghetti factory and claimed tax deductibility for its profits because the spaghetti was part of a tax-exempt "educational institution."

There's a metaphor here.

diptherio, May 22, 2015 at 10:29 am

But, but…they're in New York City and everybody knows that whatever happens in NYC is better, and more advanced and more important–and just more real–than things that happen anywhere else in the country! Everybody knows that. NYU may have it's share of problems, but at least it's not located in some lame city in Missouri….jeesh!

Jim Haygood, May 22, 2015 at 11:00 am

"NYU bought a spaghetti factory"

How else are you gonna learn to write C code?

Plus it served as a case study for vertical integration of campus food services.

Got my doctorate in Motorcycle Mechanics there, based on lifetime experience in benching and wrenching.

diptherio, May 22, 2015 at 10:26 am

I'll just note that "non-refundable deposit" is an oxymoron.

The list of scams they're running is impressive, but in a bad way…go to your in-state public University, kids, you'll be glad you did (or at least glad you didn't go to NYU).

George Phillies, May 22, 2015 at 11:04 am

Readers may find of some interest
https://www.insidehighered.com/news/2013/06/19/nyu-vacation-home-loans-pay-narrative-administrative-excess

The high salaries sometimes percolate down the ladder.

Rosario, May 22, 2015 at 2:49 pm

Today's universities only offer potentially three valuable opportunities for students: facilities (at huge cost covered by tuition), faculty (sometimes), and peers (the best of the three, think students as laborers versus employer with the potential for unionizing).

Students no longer attend universities as hubs of knowledge or information. They are hubs of opportunity. By analogy, it is like paying for the opportunity to get an interview at some high paying job.

Thus why attending NYU, Harvard, MIT, etc. is a must for any social climber, and what a dream in NYC with cocktail parties and beautiful people abound in the midst of perpetual fantasy.

craazyman

May 22, 2015 at 4:17 pm

The top 10 reasons why NYU bureaucrats get pay and perks worth millions . . .

Reason $10. You gotta show the kids how da woiled woiks

Reason $9. When you hire the students as hookers, you can afford to pay an internationally competitive fee

Reason $8. They want their own rung in Dante's inferno! Whoa!

Reason $7. Take a look at Raphael's School at Athens then think about all the marble and pillars. That's not a low rent operation.

Reason $6. They're too old to have their toga parties in a frat house.

Reason $5. When you live and work in NYU mansions, you're always on the job! Isn't that worth overtime pay?

Reason $4. They say they're salesmen and salesmen make a lot of money. OK bucko?

Reason $3. Buildings are taller in New York than most other places. So there's more to administer

Reason $2. They say they don't need a reason.

and Reason $1 why NYU bureaucrats get pay and perks worth millions . . . drum roll please . . . They're not really sure, but they've hired themselves as high-priced consultants to figure it out!!! . . whoa! ka-ching!

ginnie nyc, May 22, 2015 at 7:20 pm

Wow, Yves, thanks for posting this report. I made the very expensive mistake of enrolling in grad school at NYU in the early '90's – the degree of fraud and shaving, simply in the academic sense, was astonishing. My advisor was nowhere to be found after classes began for the entire first year; they lied about who headed my department (no one), and when someone was finally hired at year's end, he was an administrative hack from within who had absolutely no foundation in the department, the division, or any related discipline. All my 'professors' except one were much-abused adjuncts.

The main library, Bobst, is a fitting monument to its pederast donor (look it up). A good deal of the collection was 'missing' or heavily vandalized; the NY Public Libraries books in circulation are in much better shape with far more users. There were no carrells for masters candidates in the library, for love or money. Most of the library's cubic footage is occupied by a vast, central atrium that travels the height of the building, with the book collection squeezed around the periphery. This atrium is a favorite place for stressed students to end it all.

I decided to take some courses at their IFA (Institute of Fine Arts), which is near the Metropolitan Museum. The administrator there refused to let me enroll as I was not "in the school". I thought about this, called the professors directly, got signed letters from them (naturally), and happily returned to give the admin apoplexy. None of this crap took place when I was an undergrad at Penn – I never had a problem enrolling in PhD classes, administratively, whether inside or outside my school.

New York University is not a university, it's a random collection of isolated departments and special institutes created around famous, very expensive names, who usually do not stay beyond 4 or 5 years. It costs more than Columbia, which is Ivy League, for what that's worth, and took me 15 years to pay off. Even after I had to go on SSDI, which was helluva lot of fun.

Michael Fiorillo, May 22, 2015 at 8:40 pm

As a lifelong Villager, NYU has always been The Enemy, and it has been a stock phrase of mine for a generation that it's a real estate development company with a higher education subsidiary.

The university is a classic example of how geography is destiny, since for years it was a second-tier commuter school that happened to be located in a globally-hyped youth ghetto (which it then institutionalized). In many respects, it's still a second-tier school (worse, given their extreme grabbiness) tarted up with some celebrity academics that students, treated like rubes, will never see.

From personal experience, I know that most departments are profit centers. Twenty years ago, I got a Master's degree in education (and, to be fair, they gave me a fairly generous financial aid package). I had young children, so it was mostly a matter of convenience. Of the dozen classes I took, apart from student teaching and observations, only three were taught by full-time, tenured faculty. The others were taught by adjuncts and TAs who ranged from OK to really terrible.

That was graduate school; I hate to think of the poor, deluded kids who can't afford the extortionate hustle of attending this school, indebting themselves for many years to do so.

Fool, May 23, 2015 at 5:00 pm

You're not alone. NYU ruined New York City for all of us.

lord koos, May 24, 2015 at 12:03 am

Universities are now just another institution to loot. This piece reminds me of a scene in the 2014 documentary "Ivory Tower", which if people haven't seen, they really need to. Although I'm sure many readers here are familiar with the story of Cooper Union, there is an interview with the University president that is a priceless peek at the looting class.

He basically squandered Cooper Union's legacy by taking the college's money and gambling it in the stock market a little before the crash of 2008 and by spending $170,000,000 of the college's money on a building that was not really needed. A school that had been pretty much funded in perpetuity (Cooper Union owns the land under the Chrysler building), became indebted for millions of dollars and they now must charge students to attend, as well as having to sell off assets. I can't believe the guy is still president of the school.

https://en.wikipedia.org/wiki/Cooper_Union_financial_crisis_and_tuition_protests

Lambert Strether, May 24, 2015 at 12:41 am

NC: "How Is It Possible That the Trustees at Cooper Union Have Not Resigned in Shame?"

[May 24, 2015] Restoring the Public's Trust in Economists

May 19, 2015 | economistsview.typepad.com

I have a new column:

Restoring the Public's Trust in Economists: The belief that economics has become politicized is a big reason the general public has lost faith in the ability of economists to give advice on important policy questions. For most issues, like raising the minimum wage, the effects of government spending, international trade, whether CEOs deserve their high compensation, etc., etc., it seems as though economists who also happen to be Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other. Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration or follow the side that agrees with their preconceived notions and ideological beliefs.

But why is it so hard to sort out? Why can't the press do a better job of avoiding "he said – she said" reporting and give the public direct and specific answers to these important policy questions? One reason is the "mathiness" that has infected our economic models, something economist Paul Romer recently identified as a big problem with economic theory. :

Posted by Mark Thoma on Tuesday, May 19, 2015 at 08:10 AM in Economics, Fiscal Times, Politics, Press | Permalink Comments (55)

ken melvin:

Was this twisting, manipulation of data and results ever so endemic politics as today?

Sandwichman -> ken melvin:

Frederic Harrison called political economy "this magazine of untruth" in 1872.

"The complaint one makes against that anti-social jargon, which so easily passes for economic science, is that it is in ludicrous opposition to the common observation of facts. Political economy professes to be a science based on observation. But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital.

The employing class is virtually in possession of the whole machinery of information; and all judgments are tinged with the tone current among them. Thus we see the very newspapers which celebrate the amusements of the rich in a hundred different forms, scandalized at the coal miners objecting to grub in the pits every day in the week. Laziness, ingratitude, and extortion, seem the proper terms for sportsmen and fine ladies to apply to the men and children who swelter half their lives underground. The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed:."

mrrunangun

The public is correct to be skeptical of the value of economics as a prescriptive science at its current stage of development. Bill Black's critique of the econ profession as being unwilling to take account the effects of fraud or corruption in its models renders the models useless as a basis for prescriptions for public policy.
Medicine in the late 18th century was inaccurate even as a descriptive science. john Hunter in Britain and Claude Bernard in France began to report organized observations in surgery and medicine. Many medical men subscribed to the theory of the four humors and its prescriptive capacity was limited to bleeding or purging and debates as to which was appropriate for which condition were taken seriously. Much as debates as to whether financially insupportable debt loads or socially insupportable austerity and inequality are seen among contemporary economists.
Economics is stil not accurate as a descriptive science, as its practitioners are unwilling to make unwelcome observations. The problems of Chicago and Illinois are largely related to the longstanding custom of using public office for private gain among the political leaders here and the willingness of the local press and public to tolerate it. Economics provided no diagnosis for this problem before it became a crisis. Economics has no prescription for this, though its baneful effects are clearly economic in nature.

Darryl FKA Ron -> mrrunangun:

Yes sir!

JohnH -> mrrunangun:

I would only add that economists, macro-economists in particular, have become advocates rather than dispassionate analysts and educators. In this role they tend to tout the benefits of their position without discussing the costs or downsides.
For example, Stiglitz notes that while the Fed and economists touted the advantages of low interest rates, they omitted the costs:

"There was a cost, however: all those retired individuals who had invested prudently in government bonds suddenly saw their incomes disappear. In this way, there was a large transfer of wealth from the elderly to the government, and from the government to the bankers. But little mention of the harm to the elderly was made, and little was done to offset it.
The lower interest rates might have dampened spending in other ways. Persons nearing retirement, seeing that they would have to put away that much more in safe government bonds to get the retirement income they desired, would have to save more. As would parents saving to put their kids through school. Even cursory attention to the distributional consequences of such policies would have raised doubt about the effectiveness of the low interest rate policy." (The Price of Inequality)

Economists, by championing certain policies which are ostensibly "good for the economy," are too often oblivious to the harmful effects on significant portions of the population. Rather than acknowledge the negative effects, economists seem to say, "just suck it up!" Well, that's fine for a short time. But for a decade?
How can the public retain trust in economists when they advocate positions that directly harm their pocketbooks for a long period of time?

JF:

Economists position themselves as being against self government when they misuse the "distortion" conceptualization.
Academic institutions should teach business, finance and economic students that govt rules are part of markets, like other parts, and take care in casting the impression that govt rules are per se, distortionary when they explain modeling, models and in their theoretical discussions.
I'd like to see more blog articles and papers on the notion of distortion, and when markets are distorted by actors involved in the markets.
Of course, I would also like to see all economists when imparting advice to govt policy discussions to upfront say something about how govts are not distortionary, per se. Ideally they'd say that self-govt institutions are most likely to produce uniform and fair marketplaces, but I suppose that is asking for too much.
There is an academic and research agenda here too. Find all basic equations containing a G in them, and figure out ways to separate out govt as just another purchaser versus govt as a rule maker. Rewrite all the equations, teach them as re-written, and we may avoid the quite-silly notion that markets make themselves and self-adjust availing themselves of unlimited freedoms of order bound only by immutable governance rules that have come from somewhere other than from human institutions.
How can economists be trusted if they are undermining confidence and trust in self-government?

Conelrad -> JF:

Thank you for this reply.
As you suggest, "the economy" is not independent of the society in which it's embedded--contrary to the dominant teaching of economists. The reality is that every "economy" is a set of relationships established via societal rules and regulations, many if not most emanating from government.
Among the sins of the prevailing economics is the fallacy of misplaced concreteness, i.e., "mistak[ing] an abstract belief, opinion, or concept [such as "the economy"] about the way things are for a physical or 'concrete' reality" (Wikipedia).
The pervasive notion of "the economy" shared by liberals and conservatives forms a set of blinders. With such tunnel vision, economists generally end up, intentionally and not, creating a smokescreen. This smog helps obscure rule-making that, e.g., redistributes wealth and income upward and risk downward.
Despite economists' failure to anticipate the Great Recession, economics has not undergone a needed paradigm shift. Until that happens, pronouncements from the discipline must be taken with a very large grain of salt.

pgl:

Simon Wren Lewis in a recent post linked to something he wrote in August 2012. It was an excellent discussion of how Greg Mankiw and John Taylor was lying on behalf of Mitt Romney. SWL found this repugnant. I agree.

Syaloch:

Perhaps economics can learn something from studying the dynamics of the global climate change "debate"?
As in economics, climate science deals with a complex, dynamic global system where you have to rely more on data gleaned from the historical record than running controlled experiments. In both cases you have strong ideological agendas to have the research point to a predetermined conclusion. And even more so than in econ, in climate science you have ideologues trying to blatantly interfere with, pollute, deny, and suppress results they do not wish to hear. And yet climate science seems to have weathered these attacks quite well, with the scientists generally maintaining their integrity and continuing to speak with one voice, whereas economics is a mess. Why the difference?

Peter K.:

"In many other cases, the data do point in a particular direction but this is ignored or denied because it gives results that disagree with someone's previous work, goes against their political leanings, or contradicts their preconceived conclusions. The tactic in this case is to just cite the few papers that support your position while ignoring, dismissing, or clouding the considerable amount of evidence that points in the other direction. This cherry picking and obfuscation of the evidence leaves the impression that there is uncertainty over issues that are largely settled. To me, this is one of the more frustrating aspects of communicating economic policy to the general public."
This is tactic used by JohnH, Don Kevack, Jeffrey Sachs, and Niall Ferguson among others.
I can't imagine what they believe they're accomplishing other than annoying people who know better. Perhaps that's all they want to do.

Tom aka Rusty:

Sorry to bust your bubble, but those who comment here will probably read more economics this week than most people will read this decade, or this lifetime.
Most people are too busy working and getting on with their lives to study economics. They depend on whatever "business news" they have time to pick up during a busy day, if at all.
And since both sides of most debates claim to have the gospel truth, who can sort it out? Both sides are tainted with politics, both sides claim to have data on their side, blah, blah.
Back to the real world:.and real work.

Roger Gathmann:

Nice article!
However, it is premised on an idea that I am extremely skeptical about: that there exists a value free, neutral economics that we can point to when discussing policy. That economists line up with different parties or ideologies is, I think, a good thing, not a bad thing. That doesn't mean they should blur the results of their work - it does mean that they approach the work from a certain angle. There is a reason for this. One of the great premises of economics is that people work in their own self interest. However, I think that premise relies too much on a hard notion of self that doesn't exist in real life - most people I know have a distant notion that what they are doing every day will somehow benefit them, but their direct actions are more likely to be linked to the benefit of others, whether its a company, a family, a lover, a friend, the country, the community, etc. But the one place where self interest is magnified n the classic economic sense is in economics itself. This is the conclusion of a number of surveys, which are referenced here: https://bcps.org/offices/lis/researchcourse/images/econ-selfish.pdf
This paragraph sums up the state of research:

"Inquiry into the question of whether economists are less apt to engage in what Frey and Meyer (2004) refer to as pro-social behavior begins with Marwell and Ames (1981), who find that economics graduate students are more likely than other groups to free ride in a public-goods experiment. Additional experiments produced similar results: economics students offer less in ultimatum games (Carter and Irons 1991), they are more likely to defect in prisoners' dilemma games (Frank, Gilovich and Regan 1993), they are more likely to defect in a solidarity game (Selten and Ockenfels 1998), and they are more likely to accept bribes (Frank and Schulze 2000).

Other research relies on survey data. Rubenstein (2009) describes various business scenarios and asks students, as hypothetical employers, to make a series of decisions with respect to their employees; he finds that economics students are more likely to place profit maximization ahead of the welfare of the workers. Economists among Frey and Pommerehne's (1993) and Haucap and Just's (2003) survey respondents are more apt to view allocation based on prices as a fair mechanism for allocation."

What Mark is pointing to is what I'd call ideology maximization. It is what I'd expect to arise from a group that begins by viewing human action as governed by self interest, and that self interest as being more socially beneficial in the long run than altruism.

Frankly, I think that this will always be the case in economics. It is one of the many reasons that economics is not social physics. Culture counts.

pgl -> Roger Gathmann:

"ideology maximization" strikes me as an excuse for deceiving people. Sorry but I find this incredibly insulting. There are economists who want an honest exchange of ideas. Our host is one of those people.
So way to go - telling Mark Thoma that he cannot exist. Duh!

Roger Gathmann -> pgl:

No, I was telling Mark that if he thinks he is doing value neutral economics, I don't believe it. It doesn't have to do with his existence.

So, to upgrade this comment to something that has some intellectual respectability - you don't believe the surveys that repeatedly show economics classes make people act in more selfish ways? Do you have any countering evidence whatsoever? And if you don't, and you think that the surveys are correct, what would you predict for the discipline as a whole?

Myself, this is where ideological maximization starts - to maintain, on the one hand, that models which are explicitly premised on narrowly selfish behaviors describe social action, and then to maintain, on the other hand, that economists never act on their ideological interests. Either loosen up the first premise - in which case economics needs a much more extensive overhaul than is proposed by Mark - or get used to the consequence, which is a selfish culture that leads to, at least, unconscious ideological bias.

That doesn't, by the way, mean that the work is bad. It is bad from the standpoint of value neutrality, but if you reject that Weberian standard, it becomes part of a dialogue. In the second case, conflict is not a sign of untrustworthiness, but of vigor.

pgl:

In Krugman's mis-selling of TPP, he references what he considered the best blog post ever - "Good ideas do not need lots of lies told about them in order to gain public acceptance". It was about the lies told to get us to invade Iraq but it had this gem over whether to include the true cost of stock options on the income statement:
"Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.
Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic."
Awesome!

pgl -> pgl:

Warren Buffet's term blag was new to me so I went to Urban Dictionary:
"To gain, usually entrance to a restricted area or club, or some material good, through confidence trickery or cheekiness. Lying is also acceptable."
Perfect! Tech companies lying to their shareholders. And when FAS 123 ended that - they still lie to the IRS.

Denis Drew:

" Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration "
Maybe if the Democrats would beat to death just a couple of issues (I have two really big issues in mind) where the eighth-grade math is indubitably in progressive favor, then, folks might tend to take progressive economists word for it on everything else (or at least lean our way) -- and forever see the Republicans as dolts.
I can envision some Democrat campaign organization working up a couple of commercials that can be used by any Democrat (or anybody else) in the country for free.
The most indefensible Republican nonsense is states refusing to expand Medicaid for 90% payback from the federal government. Half (okay a guess) the patients who would have been covered by expansion will show up somewhere for treatment anyway -- and the (unpaid) expenditure is going to be packed into the price of private premiums or paid through other government channels. Often these folks wont show up until their illness is much further advanced and extremely more expensive to treat and for the public or inflated premium channel to cover.

The same makes it foolish to minimize on even the 65% payback for current Medicaid.
The states send the fed the money; don't they want it back? The same states will give away billions in tax abatements to attract jobs. How does that song go: Money for nothin; jobs for free? Don't have to mention any bleeding heart, liberal stuff about needy patients; it's all bottom line.

* * * * *

Another damn the damn fool-Republicans commercial could be the win/win math of the minimum wage. Republicans forget that the price of labor is a price within a price -- sometimes allowing large wage hikes at minimal product price hike (if the price of labor has been underpaid for a long time). I call this the magnifier effect (cab driver econ). Card and Kruger showed that fast food (highest labor costs, lowest wage starting point) sale grew after minimum wage raises.
What could these raises have been: a dollar or two? 20% X 33% fast food labor costs? Adding 5-6% to fast food prices? But the same wage hike hit businesses with only 10-15% wage costs -- adding negligible to their prices -- but a lot to the wages of fast food customers: the magnifier effect.
The eighth-grade math: 50% of the workforce averaging $8,000 raise ($15 being the 45 percentile wage + 5 percent getting full $16,000)= 75 million employees X $8,000 = $600 billion = about 4% shift of GDP to raise almost half the country to $30,000 a year. What were they doing below that anyway?! 4% is how much we grow every couple of years -- save more than that on jails, etc. -- half the country better educated, more productive economy in the long run.
Just run these two commercials until they sink in (what Obama gets paid to do for free) -- the Republicans will never be the same. Go on saying nothing beyond hanging on to the Democrats paltry past :
: Obamacare that leaves tens of millions out -- too expensive for many;
General support for some kind of minimum wage hike (min now several dollars below 1968 -- double per capita income later!)
Hang on to SS, Medicare, Medicaid;
Hang on to Dodd-Frank;
Nothing to say about the defining economic -- and political -- pathology of our time: de-unionization. Nothing to wake voters out of their deep sleep and rouse them to the polls and nothing will ever change.

Sandwichman:

"Restoring the Public's Trust in Economists"?
Why would you want to do a silly thing like that? Sort of like restoring People's Temple members' appetite for kool-aide.
Why not restore members of the public's capacity to THINK FOR THEMSELVES, instead?

Syaloch -> Sandwichman:

Having individuals think for themselves is well and good, but in most cases it's simply not possible or practical for the general public to be as well informed about a subject as scientists with graduate-level training who study it every day. That's why trustable experts are needed.

Sandwichman -> Syaloch:

There is such a thing as learned incapacity, too. There are quite a few bits of cult belief that circulate amongst those so-called "scientists" with graduate level training that wouldn't occur to the general public. I mean weird stuff that hearkens back to late 18th century polemics against mercantalism and fascination with mechanical analogies.
"There is an INFINITE amount of work to be done!"
No, there isn't, there is only as much work to be done as can be PAID FOR.
"There is a BUILT-IN MECHANISM that ensures we will never exhaust natural resources."
Nope. There is more than one "built-in mechanism" and they produce contradictory outcomes. Exchange is reversible in principle, at least. but PRODUCTION is not.
"A change is a potential Pareto improvement if the winners could compensate the losers."
No, no, no, no. The claim is based on a same yardstick fallacy.
"Economic Growth is at the heart of Keynesian economics."
Uh-uh. Keynes was dead two years when Leon Keyserling launched the growth-pimp swindle.

Sandwichman -> Sandwichman:

Kenneth Galbraith:

"The Council of Economic Advisers became in turn, a platform for expounding the Keynesian view of the economy and it was brought promptly Into use. Leon Keyserling, as an original member and later chairman, was a tireless exponent of the ideas. And he saw at an early stage the importance of enlarging them to embrace not only the prevention of depression but the maintenance of an adequate rate of economic expansion. Thus in a decade had the revolut1on spread."

Leon Keyserling:

"Coming over to economic growth in particular, everybody talks about the influence of Keynesian economics. The Keynesian economics is really a static economics. It doesn't deal with economic growth at all. Furthermore, it was developed at a time of worldwide depression. Even Ken Galbraith, in an article in the New York Times a couple of years ago, when he was talking about the influence of Keynesian economics, mentioned me specifically as the one who had introduced the fundamental new factor of the dynamics of economic growth."

pgl:

Google Master JohnH pulls another one out of his ass. A cherry picked quote from Stiglitz that JohnH abuses to suggest that the FED never considers income inequality. Janet Yellen - current head of the FED - begs to differ:
http://blogs.wsj.com/economics/2015/04/02/yellen-economic-inequality-long-an-interest-of-the-fed/
And of course Stiglitz would strongly blast the gold bug nonsense from JohnH as well as the Cameron fiscal austerity that JohnH hearts. Who to believe - the very smart Janet Yellen or the serial piss ant known as JohnH?

JohnH -> pgl:

Wow two speeches (now three) in eight years about inequality!!! That's what I call lip service.
"'Economic inequality has long been of interest within the Federal Reserve System,' [Yellen] said, citing a 2007 speech by then-Chairman Ben Bernanke on the matter. Her own speech last October was in that same tradition, she said."
I'll believe Stiglitz on this one: "standard macroeconomic models don't even recognize that the distribution of income matters, and so it's not surprising that the Fed in its policies has often seemed oblivious to the distributional implications of its decisions." (The Price of Inequality)

pgl -> JohnH:

You have not read what Yellen has written. If you did - you might know something besides how to attack people. Have Cameron give his pitbull cheerleader a new bone.

pgl:

Rather than wasting one's time listening to JohnH's blovating about how we need to screw the overall economy with tight money if we care about income inequality, here's something from a couple of folks who actually understand economics. James Kwak goes back and reads Lawrence Summers:
http://baselinescenario.com/2015/05/19/over-at-medium-the-importance-of-taxing-capital/
Part of what Summers noted was:
http://larrysummers.com/2015/05/04/okuns-equality-and-efficiency

"At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation."

This is an insight you'd never get from Greg Mankiw's blog!

pgl:

A nice review of Stiglitz's Price of Inequality. Check it out as JohhH is incredibly misrepresenting Stiglitz's book to claim that Stiglitz agrees with JohnH's gold bug insanity:
http://www.nytimes.com/2012/08/05/books/review/the-price-of-inequality-by-joseph-e-stiglitz.html?_r=0
Quite the contrary - Stiglitz wants us to get back to full employment. He prefers using fiscal stimulus. JohnH hearts Cameron's fiscal austerity. Stiglitz in the past has been critical for pulling the plug on monetary stimulus but this is exactly what gold bug JohnH advocates.
JohnH once again cherry picks a quote out of context to misrepresent what someone had said. But that is all JohnH is good for.

JohnH -> pgl:

Maybe you should read the book. Quotes are from Stiglitz's criticism of macroeconomics and the Fed.

pgl -> JohnH:

PeterK got this right. Another out of context cherry picked quote. FYI - Krugman just called you a right winger. Check it out!

Matt Young:

"Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other."
------------
Here is a clue, hard to get, but let me help. Two groups, Dem and Repub. Having that distinction, thinking it matters and making it part of the theory then, right away, we have bad economics.

pgl -> Matt Young:

Bad economics? Boy Bot has bad programming. Babble on!

Matt Young:

Is the economy stationary? - Jérémie Cohen-Setton
------
Take this post for example. This is about one thing, economists are acknowledging that the economy cycles at eight year presidential elections with an 85% probability. If you just say presidential elections, then it is a 90% probability. We are now undergoing a slow down right on schedule.

Now, I wath who sees the pattern. A lot of economists see it, but of public intellectuals, I count actually two who can say the words out loud, Jerry Brown mentions it and Roger Farmer brings it up.
That is the problem right there, cyclic behavior in aggregate statistics are topic number three, I think, in most probability classes. But, just now, after looking and staring at the obvious evidence for six years, economists can see the grey bar pattern? This is not theory, this is something very fundamentally wrong with economics, a very deep fraud.

Matt Young:

Let me go on.
In the Southwest we have two economies, Texas and California in the top 20 largest economies in the world. There major foreign policy concern is trade with Mexico. Probably 4% of the ballot isses on the voting booth out here are federal votes, and about 65% of the issues are non-partison local measures. Yet one of the two behemoths is solidly Republican, the other solidly Democrat; and neither has any real voice in the Senate.
Yet, this amazing and obvious condition is not even up for study at UC Berkeley, which is supposed to be one of the top political economic schools. Nor will you see this studied at Harvard, which should know better. And now we discover that DC cycles, an obvious connection needing to be studied. We have conscious fraud in the economic sciences. It pervades almost every large economic school, except UCLA and UCSD, from my limited look. (There are many economic schools not so fraudulent, I cannot count them all.)

[May 23, 2015] Former Fed Governor Says Fed Lost Credibility To Stay On Top Of Ticking Monetary Bomb

05/21/2015 | Zero Hedge
Submitted by Wolf Richter via WolfStreet.com,
Lawrence Lindsey, a Governor of the Federal Reserve from 1991 to 1997, was right before. And got fired for it. Reality was too inconvenient.

In December 2002, as George W. Bush's economic adviser and Director of the National Economic Council at the White House, he fretted out loud that the invasion of Iraq would be a lot more expensive than supporters of it were claiming. Clearly he'd failed to drink the Kool-Aid. Instead of peanuts, it would cost as much as $200 billion, he said. It shook the White House at its foundations, the fact that he had the temerity to say this.

The Atlantic explains:

Bush instead stood by such advisers as Paul Wolfowitz, who said that the invasion would be largely "self-financing" via Iraq's oil, and Andrew Natsios, who told an incredulous Ted Koppel that the war's total cost to the American taxpayer would be no more than $1.7 billion.

As it turns out, Lawrence Lindsey's estimate was indeed off - by a factor of 10 or more, on the low side.

So maybe people should listen to him. And maybe, if his record repeats itself, the disaster he warns about is going to be a lot more costly in the end than the worst-case scenario he is now predicting.

Lindsey was speaking during a panel discussion on Fed policy at an event sponsored by the Peterson Foundation, MarketWatch reported. And once again, he dared to say what everyone already knew, but what the financial establishment on Wall Street fights tooth and nail:

The Fed has dragged out the normalization of interest rates "way beyond what is prudent."

He explained that in graduate school, if you suggested that the federal funds rate should be kept at zero while the unemployment rate is 5.4%, which is exactly what the Fed has been doing, "you would have been laughed out of the classroom."

"At some point we're going to get a series of bad numbers, showing a little higher inflation, and the market is going to say 'on my god, we're so far behind the curve' and force an adjustment that is going to be wrenching," he said.

According to his calculus, when this "wrenching" adjustment kicks in, it would turn into a market disruption at a level "seven or eight" on a scale of 10, with 10 being the worst.

But that's the guy that warned that the total cost of the Iraq invasion would be $200 billion, instead of peanuts, and later it turns out to amount to $2 trillion. So by how much is he underestimating the ultimate debacle with his prediction of a "wrenching" adjustment of "seven or eight" on a scale of 10? Maybe we're better off not knowing the answer.

So what should the Fed do to mitigate the risk of this sort of bone-chilling bond market? Start hiking rates. Start with modest hikes. But start in June.

But it may already be too late.

He said the Fed "has almost no credibility" with his clients about its ability to "stay on top of ticking monetary bomb."

Stocks are at all-time highs. The party is just too fun to walk away from. Money is once again flooding into even distressed energy-related junk-rated companies that are once again able to sell bonds on a wing and a prayer because yield-starved investors, brainwashed by the Fed's interest-rate repression, are chasing yield wherever they can find it, no matter what the risks.

Times are good, and everyone is having fun now. But it won't last: "the market is going to take the Fed and the Treasury curve to task in a very painful way," he warned.

Rate hikes would have a long way to go: If the Fed raised rates by a quarter percentage point at every other meeting starting this June – oh my, can you see the tantrum already? – monetary policy would not actually be restrictive until December 2016, he said.

Going that far, ever, though it would only mean going back to "normal," would be plain unthinkable for Wall Street hype mongers that have conniptions every time the Fed contemplates raising rates just once, and just a quarter point, just to show that it's still there, even if it has no intention whatsoever of staying on "top of the ticking monetary bomb."

A disturbing scenario is already playing out for folks fretting about "financial instability," as it's called in central-bank jargon. Read… "Buyers beware": Capital Markets "Completely Backwards"

[May 23, 2015] The Children of the Abyss

May 20, 2015 | Jesse's Café Américain

"He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."
J.H.Newman, The Times of Antichrist

People do not wake up one day and suddenly decide to become monsters, giving birth to unspeakable horrors.

And yet throughout history, different peoples have done truly monstrous things. The Americans were pioneers in forced sterilization and state propaganda. The British invented concentration camps, and were masters of predatory colonization. They even turned a large portion of the capital of their Empire into a festering ghetto through the Darwinian economics of neglect. None have clean hands. No one is exceptional.

What do they have in common? They all take a walk down a long and twisted path, one cold-hearted and 'expedient' decision at a time, shifting responsibility by deflecting the choice for their actions on their leaders.

There is always some crackpot theory. some law of nature, from scientists or economists to support it. What else could they do? It is always difficult, but necessary.

They cope with their actions by making their victims the other, objectified, different, marginalized. And what they marginalize they cannot see. What they cannot see, by choice, is easily ignored.

And so they destroy and they kill, first by neglect and then by more efficient and decisive actions.

They walk slowly, but almost determinedly, into an abyss of their own creation.

But they all seem to have one thing in common. First they come for the old, the weak, the disabled, and the different, in a widening circle of scapegoats for their plunder.

"There is one beautiful sight in the East End, and only one, and it is the children dancing in the street when the organ-grinder goes his round. It is fascinating to watch them, the new-born, the next generation, swaying and stepping, with pretty little mimicries and graceful inventions all their own, with muscles that move swiftly and easily, and bodies that leap airily, weaving rhythms never taught in dancing school.
I have talked with these children, here, there, and everywhere, and they struck me as being bright as other children, and in many ways even brighter. They have most active little imaginations. Their capacity for projecting themselves into the realm of romance and fantasy is remarkable. A joyous life is romping in their blood. They delight in music, and motion, and colour, and very often they betray a startling beauty of face and form under their filth and rags.

But there is a Pied Piper of London Town who steals them all away. They disappear. One never sees them again, or anything that suggests them. You may look for them in vain amongst the generation of grown-ups. Here you will find stunted forms, ugly faces, and blunt and stolid minds. Grace, beauty, imagination, all the resiliency of mind and muscle, are gone. Sometimes, however, you may see a woman, not necessarily old, but twisted and deformed out of all womanhood, bloated and drunken, lift her draggled skirts and execute a few grotesque and lumbering steps upon the pavement. It is a hint that she was once one of those children who danced to the organ-grinder. Those grotesque and lumbering steps are all that is left of the promise of childhood. In the befogged recesses of her brain has arisen a fleeting memory that she was once a girl. The crowd closes in. Little girls are dancing beside her, about her, with all the pretty graces she dimly recollects, but can no more than parody with her body. Then she pants for breath, exhausted, and stumbles out through the circle. But the little girls dance on.

The children of the Ghetto possess all the qualities which make for noble manhood and womanhood; but the Ghetto itself, like an infuriated tigress turning on its young, turns upon and destroys all these qualities, blots out the light and laughter, and moulds those it does not kill into sodden and forlorn creatures, uncouth, degraded, and wretched below the beasts of the field.

As to the manner in which this is done, I have in previous chapters described it at length; here let Professor Huxley describe it in brief:-

"Any one who is acquainted with the state of the population of all great industrial centres, whether in this or other countries, is aware that amidst a large and increasing body of that population there reigns supreme . . . that condition which the French call la misere, a word for which I do not think there is any exact English equivalent. It is a condition in which the food, warmth, and clothing which are necessary for the mere maintenance of the functions of the body in their normal state cannot be obtained; in which men, women, and children are forced to crowd into dens wherein decency is abolished, and the most ordinary conditions of healthful existence are impossible of attainment; in which the pleasures within reach are reduced to brutality and drunkenness; in which the pains accumulate at compound interest in the shape of starvation, disease, stunted development, and moral degradation; in which the prospect of even steady and honest industry is a life of unsuccessful battling with hunger, rounded by a pauper's grave."

In such conditions, the outlook for children is hopeless. They die like flies, and those that survive, survive because they possess excessive vitality and a capacity of adaptation to the degradation with which they are surrounded. They have no home life. In the dens and lairs in which they live they are exposed to all that is obscene and indecent. And as their minds are made rotten, so are their bodies made rotten by bad sanitation, overcrowding, and underfeeding. When a father and mother live with three or four children in a room where the children take turn about in sitting up to drive the rats away from the sleepers, when those children never have enough to eat and are preyed upon and made miserable and weak by swarming vermin, the sort of men and women the survivors will make can readily be imagined."

Jack London, The People of the Abyss

[May 21, 2015]Consistent With

May 21, 2015 | Economist's View
Chris Dillow:
"Consistent with": ...Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. ...

This is a point which some defenders of inequality miss. Of course, you can devise theories which are "consistent with" inequality arising from reasonable differences in choices and marginal products. Such theories, though, beg the question: is that how inequality really emerged?... And the answer, to put it mildly, is: only partially. It also arose from luck, inefficient selection, rigged markets, rent-seeking and outright theft. ...

Quite often, the facts are consistent with either theory. For example, the well-attested momentum anomaly - the tendency for assets that have risen in price recently to continue rising - is "consistent with" both a cognitive bias (under-reaction) and with rational behaviour; fund managers' desire to avoid benchmark risk.

My point here should be well-known. The Duhem-Quine thesis warns us that facts under-determine theory: they are "consistent with" multiple theories. ...

So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities...

[May 19, 2015]Oil Prices Will Fall A Lesson In Gravity

The problem with this line of thinking is that people are betting that real price of oil extraction is higher then the current level. And such long bets are in itself is a powerful factor that limit speculators flexibility and ability to short the "paper oil". There is strong evidence that "peak cheap oil" is upon us, so the current situation can be only temporary. What "temporary" means here is unclear, but as Herbert Stein put it "If something cannot go on forever, it will stop," This saying is applicable to low oil prices, if "peak cheap oil" hypothesis is right.

May 19, 2015 | Zero Hedge

Submitted by Arthur Berman via OilPrice.com,

The oil price collapse is not over yet. It is more likely that the Brent price could fall back into the mid-$50 range than that it will continue to rise toward $70 per barrel.

That is because oil prices have risen based on sentiment alone. The fundamentals of supply and demand indicate a dismal reality: oil prices will fall and may fall hard in the near term.

Our present situation is like that of the cartoon character Wile E. Coyote. He routinely ran off of a cliff and as long as he didn't look down, everything was fine. But as soon as he looked down and saw that there was no ground beneath him, he fell. Hope and momentum cannot overcome gravity.

Neither can ignoring the data.

When I look down from $60 WTI and almost $68 Brent, I see no support except sentiment. Like Wile E. Coyote, we need a gravity lesson about oil prices. What goes up for no reason, will come down sooner than later and it may fall hard.

Let's examine the facts.

The principal reason for the oil-price collapse is a production surplus–more supply than demand for oil. The latest data from EIA (Figure 2) indicates that the surplus is the greatest since the current oil-price collapse began. In other words, the cause of the price collapse is getting worse, not better!

The latest data from IEA indicates that the production surplus in first quarter of 2015 is the greatest of the last decade and much greater than during the 4 previous quarters (Figure 3).

With data like this from EIA and IEA, how can anyone be optimistic that even higher oil prices may be coming? How can anyone say that the price increase in recent months has any relationship to reality whatsoever?

Both IEA and OPEC offered grave concerns about persistent over-supply in their recent monthly reports that seem to have been ignored or dismissed in the jubilance of higher oil prices.

Analysts may be hopeful that the drop in U.S. rig counts–which has almost stopped in the last two weeks–will result in a decrease in tight oil production. I believe that is true but the U.S. is not the world and the world continues to add production.

With somewhat higher prices, some tight oil producers like EOG say they are ready to aggressively grow production again if prices stabilize around $65 per barrel. If other producers do the same, so much for the as-yet-to-be seen production decline from lower rig counts.

Many point to signs of increased oil demand because of low product prices as a positive trend. I agree, but as long as production is growing faster than consumption, we have an over-supply problem.

I hope that the rebound in oil prices over the past two months is sustainable and that prices continue to rise. But hope doesn't count much for very long in global markets. The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.

Wile E. Coyote never learned the lesson of gravity but that was in a cartoon. This is real.

junction

In the spring of 2008, oil spiked to near $140 a barrel. Then, I read that an expert said that oil should be trading at $65 a barrel, that the higher price was market manipulation. In short order, as the Wall Street collapse took hold, oil's barrel price dropped by over a $100, to about $38 a barrel by September. That $65 a barrel price is still what the benchmark price should be. The problem for frackers is that at $65, frackers can't make any profits.

Serfs Up

Also the other problem for frackers was they couldn't make any positive free cash flows with oil at $100.

papaya

It's not just frackers, but producers from oil sands, too.
Not even 10 years ago, teh Saudi's claimed that their economy required a minimum of $80 /bbl for crude.

MSimon

I think they require $70 a bbl now to keep their oil socialism afloat.

LawsofPhysics

The planet seemed to do just fine and there was plenty of water before all humanity starting extracting all that oil. What the fuck are you talking about? What is oil? Oil is in fact consumable calories and reduced hydrocarbons. The fact is, these are very useful things, especially when it comes to maintaining a high standard of living.

Niall Of The Nine Hostages

Well, of course oil prices will never recover! Goldman told us so! Goldman wouldn't lie, would they?
In any case, in markets surpluses are self-correcting. The North American shale oil industry has essentially collapsed, leaving more room for dirty Muslim oil to take its place....

Paul451

Summer stock gasoline (lower reid vapor pressure so your car's fuel system doesn't vapor lock) means an automatic price increase this time of year.
Most/all price pressure (if there is actually such a thing anymore) on crude is down. As long as The Crazies are running the Middle East asylum, the price will not hit absolute bottom. Risk has to be incorporated into the price somehow.

[May 19, 2015]How To Spot Groupthink Among Economists

May 19, 2015 | Zero Hedge

As GMO's James Montier says in his latest white paper today "it seems one can hardly open a financial newspaper or read a blog these days without tripping over some academic-cum-central banker talking about the once arcane notion of the equilibrium real interest rate."

Sure enough, it is the laughable concept of the equilibrium real interest rate (laugable because if it can be quantified and put into an equation, it becomes tangible and central banks are convinced they can recreate it, perfect it and implement it to "fix the economy"... usually with disastrous results) that is the topic of his latest must read piece "The Idolatry of Interest Rates Part I: Chasing Will-o'-the-Wisp", which not only makes a mockery of central planners but also the intellectual conceits they all hold so dear, and which they will all hold dear all the way until the now inevitable collapse of "New Keynesian" economics.

And while there is much to discuss in his full 13 page paper, the following excerpt discussing how to spot groupthink in crowds (of economists) is what we found most relevant and amusing, perhaps because the entire world is now caught in a groupthink mode, and what's worse, a groupthink that is peddling the wrong solution to the worldwide problem that can be summarized as simply as "$200 trillion in debt."

From Jim Montier:

Wisdom of crowds or groupthink extraordinaire?

One could take the view that so many bright individuals all coalescing around a single framework was evidence of the wisdom of crowds. However, rather than representing the power of consensus, it appears to me to be evidence of extreme groupthink – it is very telling that not one of the aforementioned luminaries has questioned the framework itself.

One of the preconditions for the wisdom of crowds to hold is that people must be independent. This clearly isn't the case with the above coterie of economists, many of whom trained at the same university under the same teacher. As Steve Keen pointed out, "If I were describing a group of thoroughbred horses, alarm bells would already be ringing about a dangerous level of in-breeding."

The term "groupthink" was coined by Irving Janis in 1972. In his original work, Janis cited the Vietnam War and the Bay of Pigs invasion as prime examples of the groupthink mentality. However, modern examples are all too prevalent.

Groupthink is often characterised by:

A tendency to examine too few alternatives;

A lack of critical assessment of each other's ideas;

A high degree of selectivity in information gathering;

A lack of contingency plans;

Poor decisions are often rationalised;

The group has an illusion of invulnerability and shared morality;

True feelings and beliefs are suppressed;

An illusion of unanimity is maintained;

Mind guards (essentially information sentinels) may be appointed to protect the group from negative information.

Perhaps it is just me, but these traits seem to pretty much capture the nature of mainstream economics these days.

SMG

Groupthink among economists only? Heck most of Western Civilization is in groupthink. Everything is Awesome! TM Remember.

NoDebt

Guys, again, let's think a little deeper here. It's not so much that they all believe it to be true, it's because they all NEED it to be true.
First off, the alternative to the current "low interest rates will stimulate the economy" (i.e. throw money at anything that moves) is what, exactly? Either it doesn't stimulate the economy or has no effect. Leaving them in a heluva lurch.
But this is small beans. Here's what really matters: their own self-interest.
If this argument (fairy tale) is shown not to be true or correct, their little ivory tower crashes down, their plum positions get vacated for another, their friends experience similar catastrophe and their self-supporting power network will be swept away and replaced with another, including their buddies in "academia" from which they sprang.
Given that even the slowest-witted among them must by now realize this fantasy of money printing stimulating the economy didn't work and is NEVER going to work, they have no choice but to either circle the wagons and close ranks or start getting picked off one by one. They are a union, a cabal, a society and, as such, must provide a united front, unassailable by mere facts.
The word has already been spread: hang together or hang separately. For this and other reasons they MUST have groupthink.

[May 18, 2015] Stock Market Valuation Exceeds Its Components' Actual Value - Slashdot

An anonymous reader writes: James Tobin, a Nobel Prize-winning economist, developed a concept called "Q-value" - it's the ratio between two numbers: 1) the sum of all publicly-traded companies' stock valuations and 2) the value of all these companies' actual assets, if they were sold. Bloomberg reports that the continued strength of the stock market has now caused that ratio to go over 1 - in other words, the market values companies about 10% higher than the sum of their actual assets. The Q value is now at its highest point since the Dot-com bubble. Similar peaks in the past hundred years have all been quickly followed by crashes.

Now, that's not to say a crash is imminent - experts disagree on the Q-value's reliability. One said, "the ratio's doubling since 2009 to 1.10 is a symptom of companies diverting money from their businesses to the stock market, choosing buybacks over capital spending. Six years of zero-percent interest rates have similarly driven investors into riskier things like equities, elevating the paper value of assets over their tangible worth."

Others point out that as the digital economy grows, a greater portion of publicly traded companies lack the tangible assets that were the hallmark of the manufacturing boom.

[May 17, 2015] This May Just Be The Start Of The Oil Price War Says IEA

05/16/2015 | Zero Hedge
Submitted by Andy Tully via OilPrice.com,
Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world's most influential oil-producing country, he has enormous influence.

But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC's strategy of forcing US shale to cut back is succeeding.

The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia's effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called "light, tight oil" (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.

"In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked," the IEA reported. "Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating."

But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.

As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.

But that, evidently, isn't good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. "Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks," the report said.

For example, Statoil, Norway's huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas' Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.

"There's a proverb in Norway that says necessity teaches the naked woman how to knit," Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.

Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it's been able to reduce drilling time from an average of 21 days to 17.

Against this backdrop, then, it's not surprising that the IEA isn't so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. "It would thus be premature to suggest that OPEC has won the battle for market share," the agency's report said. "The battle, rather, has just started."

[May 17, 2015]Dumping only works if you destroy, buy or otherwise acquire control on your competitor s

astabada, May 14, 2015 at 9:06 pm
This article is from Sputnik News.
Six months ago, OPEC, led by Saudi Arabia, announced a surprising decision to counter rivals' energy production. Instead of cutting back on oil production to match global demand, member states would hold steady.

[…] by flooding the market, global prices would plunge, and more high-priced competitors would be forced to respond. The main target, US shale companies, would hopefully collapse as they were forced to cut spending.

Six months later, the plan seems to be working.

Well done Saudi Arabia, well done. Except oil is a finite resource, so US oil (and Venezuelan, Russian, Iranian oil, …) are still there, and eventually will get sold at even higher prices.

Dumping works if you destroy, buy or otherwise acquire control on your competitors.

If you had ten canvas from van Gogh, would you sell them at half price to prevent your competitors from selling theirs?

If you answered yes to the above question, congratulations! You are eligible to be Oil Minister of the Kingdom of Saudi Arabia! Contact us immediately (please outside lunch hours).

[May 14, 2015] A Short History of Financial Euphoria by John Kenneth Galbraith

Amazon.com Books
Sergio Da Silva, July 1, 2001
Bubble Story
IN THIS SMALL but witty and well-crafted book, Galbraith chronicles the major speculative episodes, from the seventeenth-century tulipmania to the junk-bond follies of the eighties. The book was first published in 1990 and thus the recent dotcom-bubble burst is not covered. Nevertheless, the Harvard professor's book is still worth reading. A reason is that he claims to have identified common patterns in the history of financial euphoria. `In small ways the history of the great speculative boom and its aftermath does change. Much, much more remains the same', he predicts.

The perennial features are these. Some seemingly new and desirable artifact or development captures the financial imagination of a large number of people (say, group 1). The arrival of tulips in Western Europe, gold in Louisiana, the advent of joint-stock companies (corporations), real estate in Florida, or the economic designs of Reagan are all examples. The price of the object of speculation goes up. The object when bought today is worth more tomorrow. This attracts new buyers and assures a further price increase. Those in group 1 are persuaded that the new price-enhancing circumstance is under control, and expect the market to stay up and go up, perhaps indefinitely. The individual or institution that discovered the novelty (in group 2) is thought to be ahead of the mob. Fewer in number, individuals of group 2 perceive the speculative mood of the moment, try to get the maximum reward from the increase as it continues, and plan to be out before the eventual crash. The affluence of group 2 is wrongly associated, by group 1, with a miraculous financial genius. When something triggers the ultimate reversal, group 2 decides now is time to get out. Group 1 finds its illusion abruptly destroyed. Both groups sell or try to sell. The market collapses.

Galbraith observes that, in this process, `speculation buys up the intelligence of those involved'. The crowd converts the individual in group 1 from possessing reasonable good sense to stupidity. Those in group 2 also make errors of vanity by thinking they will beat the speculative game. It seems that `all people are most credulous when they are most happy'. Reputable public and financial opinion reinforces euphoria by condemning those who express doubt or dissent by warning of a crash. The celebrated Yale economist Irving Fisher, for instance, spoke out sharply against Roger Babson, who foresaw the crash of 1929. But the critic must wait until after the crash for any approval, Galbraith laments.

Despite the fact that common features in speculative episodes recur, history counts little because a financial disaster is quickly forgotten by a new, self-confident generation. Something is perceived as a financial novelty merely because the financial memory is short: `financial operations do not lend themselves to innovation'. Insightfully, Galbraith notices that all financial innovation involves the creation of debt leveraged against more limited assets. This is the case of banks, whose debt is leveraged on a given volume of hard cash. This is also the case of the holding companies created in the 1920s, whose stockholders issued bonds and preferred stock to buy other stocks. And this is the case, too, of the junk bonds of the mergers-and-acquisitions mania in the 1980s, when high-risk, higher-interest bonds were issued in greater volume against the credit of the companies being taken over. As Galbraith puts it: `the world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version'.

However a crisis may strike at any moment whenever a debt is perceived to become dangerously out of scale in relation to the underlying means of payment. After the crash, group 1 expresses anger against the `financial genius' of group 2. `Financial genius is before the fall', Galbraith prophesies.

Group 1 finally realizes that having more money may mean that a person in group 2 is indifferent to moral constraints. Group 2 could have even gone beyond the law, as far as leverage is concerned. Incarceration of some individuals of group 2 may follow. Leverage is seen as morally disputable at last.

Talks of regulation and reform follow. However, the speculation itself or the aberrant optimism that lay behind it will not be discussed. `Nothing is more remarkable than this: in the aftermath of speculation, the reality will be all but ignored.' Why? Because it is easier for group 1 to blame one individual or a few individuals in group 2 than to take responsibility for its own widespread naivety. And also because there is a need to find a cause for the crash that is external to the market itself. After all, the market is believed to be `a neutral and accurate reflection of external influences; it is not supposed to be subject to an inherent and internal dynamic of error'. The deficit in the federal budget was, for instance, blamed for the 1987 crash. Another anecdotal account of Black Monday has been that the crash was caused by portfolio insurance computer programs which sold stocks as the market went lower.

Galbraith's book is compulsory reading for economists, especially those working on behavioural finance or econophysics. Being an antidote to illusory financial euphoria, the book is thus of interest to the general public as well. Galbraith's own sense of déjà vu towards speculative financial bubbles enabled him to predict the crash of 19 October 1987. People really seem to be intrinsically unable to prevent getting stuck in the error-prone dynamics of bull markets, as in his `bubble story'.

But perhaps they have already learned some minor lessons on how to better protect themselves in the aftermath of crashes. Indeed despite the fact that the Black Monday crash was nearly twice as severe as the stock market collapse of 1929, it did not trigger a depression. Likewise the internet-bubble burst of 2000 had a surprisingly modest effect on wealth. Will we finally learn to learn from history?

[May 14, 2015] Russia crisis to hit ex-Soviet states harder than expected EBRD

In Ukraine, whose economy has been drained by the deadly separatist conflict in the country's east, "GDP is now expected to shrink by 7.5 percent this year -- a worsening outlook since January, when a five percent contraction was forecast," the EBRD said.
Mike

Ukraine's economy is not only being drained by the separatist war in the east, but the lack of work, foreign investment and the returning of thousands of Ukraine workers who live/work in Russia (just like other workers who have had to returned home to other ex-Soviet republics, something is not being mentioned here in the case of Ukraine) but the jobs have dried up do to the sanctions imposed by the West.

Real

That's exactly what Washington wanted -- weaken the economy and stability of Russia's neighboring countries to damage Russia in a long run.

[May 14, 2015] US Economy Collapses Again by JACK RASMUS

May 14, 2015 | CounterPunch
4th Time in 4 years
Data released last week by the U.S. government showed the U.S. economy came to a near halt in the first three months of 2015, falling to nearly zero – i.e. a mere 0.2 percent annual growth rate for the January-March quarter. The collapse was the fourth time that the U.S. economy in the past four years either came to a virtual halt or actually declined. Four times in four years it has stalled out. So what's going on?

In 2011, the U.S. economy collapsed to 0.1 percent in terms of annual growth rate. At the end of 2012, to a mere 0.2 percent initial decline. In early 2014, it actually declined by -2.2 percent.

And now in 2015, it is essentially flat once again at 0.2 percent. The numbers are actually even worse, if one discounts the redefinitions of GDP that were made by the US in 2013, counting new categories as contributing to growth, like R&D spending, that for decades were not considered contributors to growth – in effect creating economic growth by statistical manipulation. Those highly questionable 2013 definitional additions to growth added around US$500 billion a year to U.S. growth estimates, or about 0.3 percent of U.S. GDP. Back those redefinitions out, and the U.S. experienced negative GDP four times in the last four years. We get -0.2 percent in 2011, 0 percent in 2012, -2.5 percent in 2014 and -0.1 percent earlier this year.

It is therefore arguable that the U.S. has also experienced at least one mild 'double dip' recession, and perhaps two, since 2010.

All the four U.S. economic relapses occurred following preceding month gains in growth sufficient to generate claims by politicians and pundits alike that the U.S. economy had finally 'turned the corner' and was now on a path of sustained economic recovery. Yet every time such claims were made, reality contradicted their predictions within a few months, and the economy collapsed again, creating a scenario not of sustained economic recovery but of a 'stop-go' trajectory.

The consequence of this 'stop-go' recovery is that the U.S. economy since 2009 – the official end of the last recession – has experienced the weakest recovery from recession in the last fifty years, just about half the normal post-recession recovery. And this 'half normal' recovery since 2009 occurs after an annual growth averaging only 1.7 percent during the years 2001-2010 in the U.S. Something new is happening to the U.S. economy since 2000. What is it?

Recessions in the U.S. have occurred on average every 7 years. It's now year five since the last one officially ended in June 2009. What happens if the current weak recovery reaches its end at around 7 years, i.e. in mid-2016 a year from now? Will the next recession prove even worse, perhaps much worse, occurring as it will on a base recovery half of normal?

Unfortunately, such questions aren't asked by most mainstream economists, and certainly not by politicians and business media pundits.

Stop-Go On A Steady Slowing Global Economy

The problem of weak, stop-go, recovery in the U.S. today is further exacerbated by a global economy that continues to slow even more rapidly and, in case after case, slip increasingly into recessions or stagnate at best.

Signs of weakness and stress in the global economy are everywhere and growing. Despite massive money injections by its central bank in 2013, and again in 2014, Japan's economy has fallen in 2015, a fourth time, into recession.

After having experienced two recessions since 2009, Europe's economy is also trending toward stagnation once more after it too, like Japan, just introduced a US$60 billion a month central bank money injection this past winter. Despite daily hype in the business press, unemployment in the Eurozone is still officially at 11.4 percent, and in countries like Spain and Greece, still at 24 percent. Yet we hear Spain is now the 'poster-boy' of the Eurozone, having returned to robust growth. Growth for whom? Certainly not the 24 percent still jobless, a rate that hasn't changed in years. Euro businesses in Spain are doing better, having imposed severe 'labor market reforms' on workers there, in order to drive down wages to help reduce costs and boost Spanish exports. Meanwhile, Italy remains the economic black sheep of the Eurozone, still in recession for years now, while France officially records no growth, but is likely in recession as well. Elites in both Italy and France hope to copy Spain's 'labor market reforms' (read: cut wages, pensions, and make it easier to layoff full time workers). In order to boost its growth, Italy is considering, or may have already decided, to redefine its way to growth by including the services of prostitutes and drug dealers as part of its GDP. Were the USA to do the same redefinition, it would no doubt mean a record boost to GDP.

Across the Eurozone, the greater economy of its 18 countries still hasn't reached levels it had in 2007, before the onset of the last recession. Unlike the U.S.'s 'stop-go', Europe has been 'stop-go-stop'.

Even beyond the Eurozone, in the broader Euro area the picture is not much better. After a brief, artificial real estate boom fueled by foreign investment, the UK is now growing again at a mere 0.3 percent rate. And then there's China, where economic growth continues to slow, despite multiple fiscal and monetary stimulus programs introduced the past two years to try to boost the economy further. And the global slowdown applies not just the largest economies. Emerging market economies in Latin America, Africa, and elsewhere that are especially dependent on commodities production and exports have been descending one by one into recession, or at best stagnating.

Yet despite this growing global economic weakness, and the U.S. economy's repeated annual economic relapses and 'half normal' recovery rate, we are still being told that the U.S. economy is sound and that it will lead the rest of the world economy toward sustained economic growth this year and next.

It's the Weather!

We're told the declines in U.S. growth the last two years – January to March 2015 and before that 2014 – have been due to 'bad weather'. And that this coming summer 2015 the U.S. economy will 'snap back' again, as it did last summer 2014.

But is economic forecast by weather metaphor really the cause of the recent U.S. slowdown? Not really. Even economists themselves admit that, at the very most, only 0.5 percent of last quarter GDP decline can be attributed to weather. If the fourth quarter 2014 U.S. GDP was 2.2 percent, in other words, then only -0.5 percent of the drop was due to weather. So what about the other -1.5 percent drop from the fourth to the first quarter 2015?

A closer look shows that at least -1.25 percent of that -1.5 percent was due to the sharp decline in U.S. exports. That decline was due largely to the US dollar's sharp rise in value compared to other currencies since last fall. A rising dollar makes U.S. exports more expensive. U.S. exporters lose out to European, Japanese and Chinese competitors. Since U.S. exports are largely manufactured goods, that means U.S. manufacturing slows – which it has. And that in turn means U.S. growth slows.

The reason for the dollar's rise is threefold. First, the U.S. central bank's repeated signaling of intent to raise U.S. interest rates this year. Second, the collapse of world oil prices that also drive up the dollar. Third, the massive money injections by Europe and Japan central banks in the form of 'quantitative easing' (QE) programs that are designed to drive down the value of the Euro and the Yen in order to achieve a competitive advantage for their region's exports at the expense of U.S. exporters.

What's going on globally today is rolling 'competitive devaluations' of currencies by means of massive central bank monetary injections. In ways this is somewhat like the 1930s depression. Then countries devalued their currencies by legal declaration, as they tried to boost their economies by stealing exports from competitors. The problem with that strategy is that all could do it, and they did. So no one gained in the end and the global economy and trade sank further. Today's new form of competitive devaluation is no different. It signals the major capitalist regions of the world – i.e. north America, Europe, Japan, and now even China – are beginning to fight over a slower growing global economic pie. The devaluations are just assuming a different form. Not legal declaration but monetary injection by central banks.

In early 2014 Japan introduced its QE and central bank injection. It gained a temporary trade advantage. But then Europe did the same. Japan lost its advantage, which Europe gained. The U.S. lost the most in terms of exports, since its dollar rose for two reasons – Japan and Europe currencies falling and talk of U.S. interest rate hikes as well.

But most recently, the U.S. central bank has signaled that interest rates may not rise this year. Oops. There goes the Euro and Yen losing its advantage once more and their economies slipping again. This see-saw, back and forth, fighting over a shrinking trade pie only reveals a new instability growing in the global economy. Europe in particular will soon be hammered by a potential Greek debt default, a continually imploding Ukrainian economy it has committed to bail out at US$40 billion so far, and now the U.S. indicating it won't raise rates. Watch Japan, which will likely again devalue still further to offset U.S. and Europe measures. Meanwhile, as China continues to slow, it could eventually reduce the Yuan to boost its exports as well.

What this global scenario means is that the U.S. economy significantly weakened in the first quarter 2015 due not to weather, but because of loss of global exports due to the reasons noted. But trade competition and currency wars are not the only explanation for the near collapse of the U.S. economy last quarter.

Collapse of Oil Prices and U.S. Economic Slowdown

Another major development in 2014 in the U.S., that disappeared by early 2015, was the Oil/Shale Gas boom. After having surged to record levels in the first half of 2014, contributing largely to the summer 2014 U.S. 5 percent GDP rise, after mid-year the global price of oil collapsed. By end of year 2014 the collapse was in full swing. Investment in this sector fell by nearly half, regional construction activity in the Dakota-Texas area also fell abruptly, as did the mining activity as oil/gas wells were shut down, and as railroad and trucking transport activity declined. A major contributor to 2014 economic growth in the U.S. thus fell through by early 2015. What's significant, moreover, is that it won't come back in 2015. So the 'recovery' in the summer of 2014 won't have this contributing factor behind it in 2015.

One-Time Consumer Spending on Health Care

Another temporary factor that contributed to the summer 2014 surge in U.S. growth, that has also since disappeared, is first time consumer household spending on healthcare services. Last summer was the first full year of sign-ups by 10 million households to Obama's 'Affordable Care' Insurance Program. Spending on new insurance premiums, and on healthcare services by millions of new customers for the first time, together served to give U.S. GDP last summer 2014 another major boost. But those sign-ups have leveled off. Most of those who wanted to sign up have done so. Future growth in health insurance and health care services has therefore leveled off.

So like the shale/oil gas surge and the export-trade advantage, the health care spending surge contribution to U.S. economic growth is most likely temporary as well.

Why the US Economy Will Continue A 'Stop-Go' Trajectory

There are three fundamental causes why the U.S. economy will continue on its 5 year long, stop-go recovery trajectory until the next recession in 2016 or after.

First, there is insufficient wage and income growth for the approximate 100 million wage earning households that constitute the bulk of consumer spending in the U.S., which accounts for roughly 70 percent of the US economy annually. In turn, the reason for the lack of wage and income growth by these households is the lack of full time, decent paying jobs creation in the US. Jobs that are being created are low pay, no benefit jobs. Part time and temp jobs. Service jobs, and few manufacturing or construction jobs. Working class consumption is also compressed by inability to earn interest on basic savings accounts. Then there's household debt, for past education borrowing, for auto purchases, and credit cards, which also takes a toll on spending.

Second, there's the lack of investment spending by business. Large, multinational corporations in particular continue to prefer to invest outside the U.S. rather than in it. When not investing abroad, they prefer to 'spend' their record profits on stock buybacks and dividend payouts to shareholders. More than US$5 trillion worth since 2009. Another trillion dollars projected in 2015 alone as well. Then there's their growing investing in financial asset markets and securities, which now constitute about 25 percent of all multinational corporate investing. And what they don't invest in financial assets, invest abroad, or spend in buybacks and dividends, they just hoard as cash on their balance sheets, reportedly now in excess of US$1.7 trillion in their offshore subsidiaries. None of these alternatives and diversions result in real investment that create real decent paying jobs, at decent pay and benefits. Hence, consumption by the 100 million households stagnates or lags-except for more debt based spending perhaps.

Third, there's no sustained recovery on the near horizon because the U.S. government has clearly decided on growing only defense spending. The new Republican Party dominated U.S. Congress insists on cutting social programs further, including long time once sacrosanct programs like Medicare for seniors. In the first quarter U.S. GDP numbers, spending by State and Local governments slowed noticeably, as did US federal spending on non-defense products and projects.

Instead of sustained growth, the scenario is 'stop-go', as this or that temporary factor occur to boost U.S. GDP and growth temporarily, followed by other temporary developments that in turn subsequently drag U.S. GDP back to zero or negative growth. Add further to this scenario the Eurozone's continuing economic instability, the UK's new stagnant growth, Japan's descent into yet another recession, China's deepening struggle to maintain 7 percent growth that is almost certain to fall below that level soon, oil and commodity producing emerging markets that are already in recession, and an historic weak recovery already in its 5th year of an average 7 year cycle-then what remains is a likely further long term, stop-go US economy as the global economy continues to slow as well.

Jack Rasmus is the author of the forthcoming book, 'Systemic Fragility in the Global Economy', by Clarity Press, 2015, and the prior book's, 'Epic Recession: Prelude to Global Depression', 2012, and 'Obama's Economy: Recovery for the Few', 2012. He blogs at jackrasmus.com.

This article first appeared in teleSUR.

[May 13, 2015] What is neoliberalism

"...Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts."

"...Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy)."

"...The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship. "

"...One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector. "

"...one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit. "

anotherangryvoice.blogspot.com

Neoliberalism is a very important, yet often misunderstood concept. To give a short, oversimplified definition: Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts.

People often boggle at the use of the word "neoliberal" as if the utterer were some kind of crazed tinfoil hat wearing conspiracy theorist raving about insane lizard-man conspiracies, rather than someone attempting to concisely define the global economic orthodoxy of the last three decades or so.
One of the main problems we encounter when discussing neoliberalism is the haziness of the definition. Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy).
The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship.
The first experiment in applied neoliberal theory began on September 11th 1973 in Chile, when a US backed military coup resulted in the death of social-democratic leader Salvador Allende and his replacement with the brutal military dictator General Pinochet (Margaret Thatcher's friend and idol).
Thousands of people were murdered by the Pinochet regime for political reasons and tens of thousands more were tortured as Pinochet and the "Chicago boys" set about implementing neoliberal economic reforms and brutally suppressing anyone that stood in their way. The US financially doped the Chilean economy in order to create the impression that these rabid-right wing reforms were successful. After the "success" of the Chilean neoliberal experiment, the instillation and economic support of right-wing military dictatorships to impose neoliberal economic reforms became unofficial US foreign policy.
The first of the democratically elected neoliberals were Margaret Thatcher in the UK and Ronald Reagan in the US. They both set about introducing ideologically driven neoliberal reforms, such as the complete withdrawal of capital controls by Tory Chancellor Geoffrey Howe and the deregulation of the US financial markets that led to vast corruption scandals like Enron and the global financial sector insolvency crisis of 2007-08.
By 1989 the ideology of neoliberalism was enshrined as the economic orthodoxy of the world as undemocratic Washington based institutions such as the International Monetary Fund (IMF), the World Bank and the US Treasury Department signed up to a ten point economic plan which was riddled with neoliberal ideology such as trade liberalisation, privatisation, financial sector deregulation and tax cuts for the wealthy. This agreement between anti-democratic organisations is misleadingly referred to as "The Washington Consensus".
These days, the IMF is the most high profile pusher of neoliberal economic policies. Their strategy involves applying strict "structural adjustment" conditions on their loans. These conditions are invariably neoliberal reforms such as privatisation of utilities, services and government owned industries, tax cuts for corporations and the wealthy, the abandonment of capital controls, the removal of democratic controls over central banks and monetary policy and the deregulation of financial industries.
Neoliberal economic policies have created economic disaster after economic disaster, virtually wherever they have been tried out. Some of the most high profile examples include:
South Africa: When the racist Apartheid system was finally overthrown in 1994, the new ANC government embraced neoliberal economic theory and set about privatising virtually everything, cutting taxes for the wealthy, destroying capital controls and deregulating their financial sector. After 18 years of neoliberal government, more black South Africans are living in extreme poverty, more people are unemployed and South Africa is an even more unequal society than it was under the racist Apartheid regime. Between 1994 and 2006 the number of South Africans living on less than $1 a day doubled from 2 million to 4 million, by 2002, eight years after the end of Apartheid 2002 the unemployment rate for black South Africans had risen to 48%.*

Russia: After the fall of communism, neoliberal economists flooded into Russia to create their free-market utopia, however all they managed to do was massively increase levels of absolute poverty, reduce productivity and create a few dozen absurdly wealthy oligarchs who siphoned their $trillions out of Russia to "invest" in vanity projects such as Chelsea FC. Within less than a decade of being one of the world's two great super-powers, the neoliberal revolution resulted in Russia defaulting on their debts in 1998.
Argentina: Praised as the poster-boys of neoliberalism by the IMF in the 1990s for the speed and scale of their neoliberal reforms, the Argentine economy collapsed into chaos between 1999-2002, only recovering after Argentina defaulted on their debts and prioritised repayment of their IMF loans, which allowed them to tear up the IMF book of neoliberal dogma and begin implementing an investment based growth strategy which boosted the Argentine economy out of their prolonged recession. The late Argentine President Néstor Kirchner famously stated that the IMF had "transformed itself from being a lender for development to a creditor demanding privileges".
The Eurozone: The right-wing love to drivel on about how the EU is a "leftie" organisation, but the unelected technocrats that run the EU (the European commission and the European Central Bank) are fully signed up to the neoliberal economic orthodoxy, where economic interests are separated from democratic control. Take the economic crisis in Greece: The EC and the ECB lined up with the neoliberal pushing IMF to force hard line neoliberal reforms onto the Greek economy in return for vast multi-billion "bailouts" that flowed directly out of Greece to "bail out" their reckless creditors (mainly German and French banks). When the neoliberalisation reforms resulted in further economic contraction, rising unemployment and worsening economic conditions the ECB, EC, IMF troika simply removed the democratic Greek government and appointed their own stooge, an economic coup trick they also carried out in Italy. Spain and Ireland are other cracking examples of neoliberal failure in the Eurozone. These two nations were more fiscally responsible than Germany, France or the UK in terms of government borrowing before the neoliberal economic meltdown, however their deregulated financial sectors inflated absurd property bubbles, leaving the Irish and Spanish economies in ruins once the bubbles burst around 2007-08.

The United Kingdom: Here is a short article summarising how three decades of neoliberal policy have undone many of the gains made during the mixed-economy era.
Despite this litany of economic failures, neoliberalism remains the global economic orthodoxy. Just like any good pseudo-scientific or religious orthodoxy the supporters of neoliberal theory always manage to come up with a load of post-hoc rationalisations for the failure of their theories and the solutions they present for the crises their own theories induced are always based upon the implementation of even more fundamentalist neoliberal policies.

One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector.
Just as with other pseudo-scientific theories and fundamentalist ideologies, the excuse that "we just weren't fundamentalist enough last time" is always there. The neoliberal pushers of the establishment know that pure free-market economies are as much of an absurd fairytale as 100% pure communist economies, however they keep pushing for further privatisations, tax cuts for the rich, wage repression for the ordinary, and reckless financial sector deregulations precicely because they are the direct beneficiaries of these policies. Take the constantly widening wealth gap in the UK throughout three decades of neoliberal policy. The minority of beneficiaries from this ever widening wealth gap are the business classes, financial sector workers, the mainstream media elite and the political classes. It is no wonder at all that these people think neoliberalism is a successful ideology. Within their bubbles of wealth and privilege it has been. To everyone else it has been an absolute disaster.
Returning to a point I raised earlier in the article; one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit.
Another concept that is closely related to neoliberalism is the ideology of minarchism (small stateism), however the neoliberal brigade seem perfectly happy to ignore the small-state ideology when it suits their personal interests. Take the vast banker bailouts (the biggest state subsidies in human history) that were needed to save the neoliberalised global financial sector from the consequences of their own reckless gambling, the exponential growth of the parasitic corporate outsourcing sector (corporations that make virtually 100% of their turnover from the state) and the ludicrous housing subsidies (such as "Help to Buy and Housing Benefits) that have fueled the reinflation of yet another property Ponzi bubble.
The Godfather of neoliberalism was Milton Friedman. He made the case that illegal drugs should be legalised in order to create a free-market drug trade, which is one of the very few things I agreed with him about. However this is politically inconvenient (because the illegal drug market is a vital source of financial sector liquidity) so unlike so many of his neoliberal ideas that have consistently failed, yet remain incredibly popular with the wealthy elite, Friedman's libertarian drug legalisation proposals have never even been tried out.
The fact that neoliberals are so often prepared to ignore the fundamental principles of libertarianism (the non-aggression principle, drug legalisation, individual freedoms, the right to peaceful protest ...) and abuse the fundamental principles of small state minarchism (vast taxpayer funded bailouts for their financial sector friends, £billions in taxpayer funded outsourcing contracts, alcohol price fixing schemes) demonstrate that neoliberalism is actually more like Ayn Rand's barmy (greed is the only virtue, all other "virtues" are aberrations) pseudo-philosophical ideology of objectivism than a set of formal economic theories.
The result of neoliberal economic theories has been proven time and again. Countries that embrace the neoliberal pseudo-economic ideology end up with "crony capitalism", where the poor and ordinary suffer "austerity", wage repression, revocation of labour rights and the right to protest, whilst a tiny cabal of corporate interests and establishment insiders enrich themselves via anti-competitive practices, outright criminality and corruption and vast socialism-for-the-rich schemes.
Neoliberal fanatics in powerful positions have demonstrated time and again that they will willingly ditch their right-wing libertarian and minarchist "principles" if those principles happen to conflict with their own personal self-interest. Neoliberalism is less of a formal set of economic theories than an error strewn obfuscation narrative to promote the economic interests, and justify the personal greed of the wealthy, self-serving establishment elite.
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[May 12, 2015]Infinity And The Bond Market Wormhole

Zero Hedge

The infinite loop continues.
Central banks ease, cajole, fluff up their feathers and push markets to where they don't belong. Markets try to reprice themselves closer to normalcy (sanity). Central banks see their main equity index fall and panic. Central bank pushes more chips in and everyone has to cover. Central banks declare victory. Smart investor sells.

It is so utterly appropriate that in the definition of infinite loop on Wiki it is pointed out that a synonym is "unproductive loop."

Like any table stakes game, running out of wherewithal is a killer. What if the other player doesn't value the keys to your car? It certainly feels that way when debating how clever it would be to juice inflationary expectations by increasing the inflation target, which will ignite the animal spirits of the economy, even though (wink, wink) we will pull back before it becomes a problem.

Another conceit being floated -- by the same central bankers who get night sweats thinking about the day after they raise rates some nominal amount -- is that their communication strategy has been so straight-forward and consistent that surely markets and the banks are on the same page.

Yes, it will be a "regime change," but surely we are all seeing and evaluating the data the same way. That is code for, we don't have a clue either, but we desperately can't threaten the wealth effect of higher equity prices. This supposed wealth effect is used to celebrate (see a chart of Chinese equities) what in an alternative universe would be viewed as a bubble.

Bonds are down because they are overpriced. They use the elevator rather than the stairs because the conceit of getting out right before it gets ugly never works unless there is massive official support, but even that is not always enough, let alone appropriate.

The numbers out of Europe have been getting better. 1Q growth in Europe was better than in the U.S. or U.K. QE is working and the economy is building momentum. So explain to me again why 10-year rates should be negative? The EUR is up over a percent this morning. That may look nice, but that is precisely what they don't need and shouldn't want. Let the rally continue and we can dust off the negative yield talking points.

[May 12, 2015] An Open Letter to Bill McNabb, CEO of Vanguard Group

Economist's View
Stephen G. Cecchetti and Kermit L. Schoenholtz (sort of a follow up on the claim that financial reform is working -- perhaps -- but as noted in the post below this one there is more to do):
An Open Letter to Bill McNabb, CEO of Vanguard Group: Dear Mr. McNabb,

We find your WSJ op-ed (Wednesday, May 6) misleading, short-sighted, self-serving, and very disappointing.

Vanguard has been in the forefront of providing low-cost, reliable access to U.S. and global capital markets to millions of customers, including ourselves. Following the financial crisis of 2007-2009, the firm naturally should be a leader in promoting a more resilient financial system. Your op-ed sadly goes in the opposite direction.

Let's start with the most stunning example: your defense of money market mutual funds. MMMFs are simply banks masquerading as professionally managed investment products. Like banks, they engage in liquidity and maturity transformation. Like banks, they faced runs in 2008 that ended only when the federal government provided a guarantee that put taxpayers at risk. Even with that guarantee, the government still had to support many healthy U.S. corporations with household names that – having previously relied on MMMF purchases of their commercial paper – suddenly faced a severe credit crunch. And, to limit a fire sale amidst the crisis, the Federal Reserve had to provide special funding to buyers to help MMMFs unload their assets.

Unsurprisingly, fund sponsors and their clients – both creditors and borrowers – want to keep these opaque federal subsidies (especially the implicit guarantees that only become explicit and transparent in a crisis). Like them, you make the false, but popular claim that power-hungry regulators (who wish to limit the subsidies that make future crises more likely) are attacking (taxing!) Main Street instead of Wall Street.

In fact, the investment company industry captured its primary regulator long ago, and hasn't let go. The Securities and Exchange Commission's 2014 "reform" of MMMFs is exhibit A. It almost surely makes these funds more, not less, liable to runs (see here and here). And – what a surprise – Congress seems to find protecting U.S. taxpayers from contingent liabilities (like implicit financial guarantees to your industry) less attractive than the largesse of financial lobbyists. Even the voluminous Dodd-Frank Act didn't address MMMFs! :

After quite a bit more, they conclude with:

As the CEO of one of the largest mutual fund companies in the world that is dedicated to serving and protecting small investors, you should be in the vanguard of advocating reforms that enhance stability.

Instead of complaining about regulation under the guise of protecting Main Street, you should highlight the vulnerabilities in our financial system and make the case for efficient regulation that treats all activities equally. You should also promote investment vehicles that are likely to prove robust in a crisis, while warning about existing products that probably won't be.

Only greater resilience in the system can make investors confident that capital markets here and elsewhere will remain strong. That is in Vanguard's interest, too.

Sincerely,

Stephen G. Cecchetti and Kermit L. Schoenholtz
anne -> anne:

Stephen Cecchetti and Kermit Schoenholtz are intent on undermining the most important stock and bond investment vehicle for moderately wealthy investors. Vanguard sets the finest of examples for the entire investment industry.

pgl -> anne:

Maybe you are being paid by Vanguard but you are wrong. You are not qualified to comment on financial economics. Stephen Cecchetti and Kermit Schoenholtz are.

And they are not trying to undermine anyone. They are simply telling the truth. Repeat your garbage all you want but it is garbage.

mulp -> anne:

Anne, unless you call the FDIC bailout of the money market funds, and the Fed providing liquidity to them in 2008-9 totally wrong and you should have suffered losses in your holding in MMMF as they marketed to market (breaking the buck) and froze withdrawals until they could liquidate their holdings, or alternatively, declared bankruptcy, then you are totally bought into the free lunch economics of Friedman, Reagan, and all the bank lobbyists dependent on government handling the losses while they reap the profits.

I remember the debate in the late 60s and early 70s on money market funds. We (the People) were assured that MMFs would never be seen as banks by any one investing in them because everyone would know the MMF would someday lose value and in the process freeze the assets for some length of time until the fund could be liquidated.

In other words, not one person putting money in a MMF would see it as a bank that pays higher interest. More importantly, no business or corporation would ever confuse a MMF with a bank.

In 2008, it is clear that the promises made four decades earlier to allow unsophisticated investors access money market funds without lengthy notice of intent to withdraw funds was all a lie, or a belief in tinker bell, pixie dust, and free lunches.

The money market funds should have been left to collapse in 2008 to destroy all faith in them as safe for individuals to use, and in the process, "destroy trillions in wealth" held by tens of millions of upper middle class workers.

I would have lost more than I did in 2008, but the demand for greater government control of the financial sector plus greater social safety nets would have followed.

This is the first time I've seen someone besides me state that mutual funds are banks as we knew them in the 60s, except they pay nothing for the protection of FDIC and Federal Reserve membership.

anne:

http://www.nytimes.com/2015/05/10/your-money/fees-on-mutual-funds-fall-thank-yourself.html

May 9, 2015

Fees on Mutual Funds Fall. Thank Yourself.
By JEFF SOMMER

Wall Street is reaping mounting revenue from mutual funds and exchange-traded funds, yet investors are paying lower fees.

That sounds like a good deal for the millions of people who use the funds to invest their savings, and a great deal for the companies that run and sell the funds.

But that win-win situation is not quite as benign as it would seem. Many investors are still - often unwittingly - paying huge fees that cut into retirement savings.

A new Morningstar study offers an excellent explanation of what is happening. The report, "2015 Fee Study: Investors Are Driving Expense Ratios Down," found that, by one measure, mutual fund and E.T.F. fees paid by individual investors had dropped significantly - 27 percent - over the last 10 years. But it isn't mainly because Wall Street fund managers have been reducing fees. The study found that investors have been voting with their feet, moving money from expensive funds into cheaper ones, like index funds. That drives down the asset-weighted cost of mutual funds, skewing the statistics.

"It's not mainly thanks to the efforts of the fund companies," Michael Rawson, an author of the Morningstar study, said in an interview. "It's mainly because people have gravitated toward lower-cost funds."

There's a good reason for the migration to lower-cost funds: They tend to outperform higher-cost ones. As I've written recently, most actively managed mutual funds don't beat the market; those that do beat it rarely manage the feat consistently. Many consumers have gotten the message. Of the 100 lowest-cost funds on the market in March, 95 were index funds that merely try to match the market, not beat it, according to an unpublished study by the Bogle Financial Markets Research Center. Many investors have chosen index funds.

Yet because of the peculiar economics of the asset management industry, fund companies are still doing great. The companies that run the funds have been reaping outsize rewards because as fund assets have grown - thanks in part to the market's terrific performance over the last six years - the companies' own costs have declined.

That's because of economies of scale that the companies don't share fully with customers. "The cost of individual funds has dropped, but the assets have gotten so much bigger that the companies' revenue from fees has grown tremendously," Mr. Rawson said. "They could be sharing more of those revenues with consumers, but they're not."

Using publicly available documents, the Morningstar researchers estimated that in 2014, fee revenue from all stock and bond mutual funds and E.T.F.s reached a record high of $88 billion, up from $50 billion a decade earlier. Assets under management grew 143 percent, and industry fee revenue surged more than 75 percent. The asset-weighted expense ratio - the funds' publicly declared expenses divided by the actual money that investors put into them - declined, too, but only by 27 percent. "The industry - rather than fund shareholders - has benefited most," the report said. Mr. Rawson, a Morningstar analyst, wrote the report with Ben Johnson, director of global E.T.F. research at the company.

The details are fresh, but the economic machine that propels the asset management business has been whirring along for decades. In a telephone interview last week, John C. Bogle, the founder of Vanguard, the industry's low-cost leader, said that in some ways, running a fund company is like operating a factory. As you ramp up production, it becomes cheaper to produce additional items because important costs - fixed costs - don't rise.

For an asset management company, he said, a stock or bond portfolio is the core product and the intellectual exercise of selecting stocks and bonds for it is a fixed cost. "When you set up and run the portfolio, it's not much more expensive to do it when your fund has, say, $1 billion in assets, than when it had only $30 million," Mr. Bogle said.

"Unless you cut your fees drastically, you're going to generate a lot more money for your company as assets grow," Mr. Bogle said. "But do you think the industry wants you to understand that? Absolutely not. Most fund companies aren't passing those savings on to investors."

Vanguard, which is owned by shareholders of its funds, passes along most of the savings. Morningstar found that Vanguard's average asset-weighted expense ratio in 2014 was 0.14 percent, lower than any of the other top asset management companies and lower than 0.64, the current asset-weighted expense ratio for all funds.

Mr. Bogle says companies should charge a modest, flat fee for setting up a portfolio - not a percentage of assets, charged annually, which is the current practice - and give fund investors the rest of the money. That would not generate the splendid profits that asset management companies and their owners have enjoyed, however.

No wonder that in a rising market, shares of publicly traded asset management companies tend to outperform their own stock portfolios. For example, since the beginning of March 2009, the start of the current bull market, through April, the stock of BlackRock, the giant E.T.F. company, returned 27.1 percent, annualized, compared with 20.8 percent annualized in the iShares Core S&P 500 E.T.F., a BlackRock fund that tracks the Standard & Poor's 500-stock index, according to Bloomberg. You would have been better off investing in BlackRock, the company, than in its own S.&.P. 500 index fund.

Why should mutual fund and E.T.F. investors care about the economics of fund expenses? Because it's the dark side of compounding, a force that can be magical when it works in your favor:.

anne:

https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard 500 Stock Index Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 12.56%)
3/30/2012 ( 15.93)
3/31/2010 ( 14.29)
3/31/2005 ( 7.89)

08/31/1976 ( 11.05)

https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard Long-Term Investment-Grade Bond Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 14.54%)
3/30/2012 ( 8.42)
3/31/2010 ( 10.34)
3/31/2005 ( 7.49)

07/09/1973 ( 8.71)

anne -> anne:

This is what Vanguard has meant for modestly wealthy conservative long term investments since the 1970s. From Warren Buffett to David Swenson, the chief investment officer at Yale, Vanguard has been the recommended vehicle for ordinary stock and bond investors.

Harming Vanguard would be a tragedy.

anne -> anne:

"Harming Vanguard would be a tragedy."

The point is harming Vanguard would be harming the ordinary investors who in effect own Vanguard since Vanguard is indeed a "mutual" fund company, a company owned by fund investors.

Dan Kervick -> anne:

The well-being of modestly wealthy long-term investors is only one factor to consider in relation to the well-being of the entire US and global economy. Shouldn't we broaden the discussion?

anne -> Dan Kervick:

Vanguard forms a model for investment well-being in the United States.

Bob:

Anne, having liquidity requirements is not a tax on investors. When McNabb represents it as such, he is lying. There are no new fees or taxes imposed. It just requires that stock funds hold a percentage of assets in safe bonds in order to handle redemptions in panic situation rather than rely on taxpayer bailouts.

Investors are still entitled to 100% of the returns from the fund. Yes, it is true that the total return may be somewhat less because bond returns are typically less than stock returns. However, that isn't a tax or fee on investors.

Almost no investors maintain a 100% stock portfolio. The typical investor my have anywhere from 20% to 80% bonds. So with the liquidity proposal, some portion of the bond assets they hold anyway will be in their stock fund. They can adjust their stock vs bond allocation accordingly, taking into account the bonds held in their stock fund. After this adjustment, they will receive exactly the same total portfolio return as previously.

The idea that this is a tax or fee is simply a lie. Investors still receive 100% of their investment return.

Dan Kervick -> anne:

Well, it seems prima facie plausible that the ability of some firms to deliver very high returns at low cost is due to the amount they have invested in high-risk, high-yield assets. An economy filled with many such firms is going to be an economy with a higher level of systemic risk. If we want a financially safer world, then some rich people are going to have to get richer much more slowly than they did in the past.
JohnH: I don't believe Vanguard needs any liquidity requirements because none of its investments use leverage. If money is needed, they would just sell the assets at the current market value and disburse the proceeds.
MMMFs are a little different, because there is the presumption that that value of each share will always be $1, which it will be if short term treasuries are kept to term. In case of a run, the Fed could also buy the treasuries and keep them a few weeks to maturity, as they do under QE.

For funds that use leverage, the risk of a run is entirely different:

Longtooth:

My interpretation of Anne's issue is that she simply favors individualism's credo for the "moderately wealthy" over the rest of our society, and rationalizes her position by believing (in faith) that Vanguard is immune to failure and thus would not be a participant in any new liquidity meltdown, ergo the nation's taxpayers should shoulder the burden of for profit financial investors when such financial markets fail.
I'm not sure what Anne's position is/was related to the meltdown just past.. but she's caught on the horns of dilemma --- either taxpayer's bail out private investors or they suffer an even greater financial and economic calamity.
The whole point of Cecchetti & Schoenholtz open letter is that a) Vanguard is not immune, and b) taxpayers should NOT be placed on the horns of that dilemma again, and thus the Vanguard letter was indeed self-serving and misleading.

EMichael -> Longtooth:

Perfect.

McMike:

Well, the critiques may be technically accurate enough as far as they go.
But I fail to see how attacking one of the last pockets of low-fee, consumer-facing investment helps anyone in the long run, except those who wish to herd all money into complex, opaque, high-fee vehicles.
Money Market "reform" may have found some reasonable-sounding talking points on which to promote itself, but stepping back, one cannot help but see it is simply one more wave in the voracious plunder and elimination of any and all alternatives to the relentless and jealous Wall Street flim flam machine.

anne:

A democratic investment company is a company that is investor owned, that offers the finest quality long term stock and bond funds with minimal transactions or turnover at low management cost for investors with $10,000. For those men and women who prefer to deal with a Goldman Sachs, a suggest giving that company a call and finding the difference.
The idea that a Warren Buffett is paid by Vanguard for recommending Vanguard only shows a failure to understand that Vanguard is owned by investors and there are no payments made to financial advisers for recommending the company.

DeDude -> anne:

If you think the leadership if Vanguard is controlled by and serving its investors - then you need to get out of the Ivory tower a little more.

Leadership in any Wall Street company are always serving themselves first, second and third. It is just that some of them are better at hiding that fact than others.

DeDude:

As much as Vanguard is trying to sell itself as the investors friend on Wall street, their leadership is just as much a part of the Wall street vampire tribe as the rest of them. Yes, they suck less less blood from each victim, but they are still blood-suckers. When I see Vanguard offering a fund that restrict its investments to companies that compensate CEOs less than average (for that industry and size), then I will know they have left the blood-sucker tribe. The one product that would truly serve the interest of investors is not available from any investment company, because as useful as it would be for us it is dangerous for them.

anne:

The descent to profane and violent language on this thread, the descent to intimidation and bullying, is intolerable, horrifying, and meant only to destroy this thread and this blog.

EMichael -> anne:

Personally, I think the constant repetition of a Edwardian rant about language is "intolerable, horrifying, and meant only to destroy this thread and this blog."
As Keynes said, "words ought to be a little wild".

Syaloch -> EMichael:

Amen to that.

Syaloch -> anne:

Am I missing something? Neither "vampire" nor "blood-sucker" is profanity -- unless you mean it in the sense of blasphemous, i.e. criticism of something sacred.
Do you think that this "class of people" who work on Wall Street are holy deities and therefore beyond reproach?

You attitudes toward Vanguard certainly seem to point in that direction:

anne -> Syaloch:

These very terms were used to characterize and dehumanize a class of people in the 1930s. These are terrible, fearful terms to use to describe and stereotype people.

anne:

The use of profanity and a metaphor from the 1930s in describing a class of people is intolerable. Paul Krugman made a serious mistake in using a 1930s metaphor in description, both for the dismissing of the decency of the humanness of an entire class of people and for setting an example as to use of the metaphor.
Millions of people were methodically murdered during the 1930s in the wake of a campaign to stereotypically deny their decency, to deny their humanness by using dehumanizing metaphors to describe them.

likbez -> anne:

While behavior that you mentioned are unacceptable, a part of the blame is on you: you demonstrated a perfect example of the psychology of rentier, Anna.
Rentier capitalism is a term used to describe the belief in economic practices of parasitic monopolization of access to any kind of property, and gaining significant amounts of profit without contribution to society.

DeDude:

No, I think people are just having a little fun with your stuttering failure to address the issues. However, I will stop now (before being called a Nazi again – but don't think your bullying has worked, its just that I am tired)

DrDick -> DeDude:

Nothing I love more than passive-aggressive bullies, but that is Anne's schtick.

likbez

The key question to Anne is whether Vanguard is really better for unmanaged funds then ETFs. You need to provides us with solid evidence or all your post with belong to the category that Prince Hamlet defined as:

The lady doth protest too much, methinks.

And for managed funds Vanguard experienced several high profile disasters such as with their flagship Primecap fund around 2008. In this sense there is not much to talk about here. Thir managed funds is just a typical example of "go with the crowd" approach.
Issue of fees was important in 90th. But now IMHO Vanguard belongs to "also run" category: for each Vanguard fund you probably can find other fund or ETF with comparable fees.
So why you so adamant in defending Vanguard Anne? It' just one of Wall Street sharks which was broght to the surface by establishing 401K in 1978
P.S. I also consider Vanguard to be among more decent category of Wall Street sharks. But it is still a shark.

[May 12, 2015] Crude Prices 'Spike' Despite Saudis Increasing 'Surge' Production

May 12, 2015 | Zero Hedge
As Barclays recently noted, there is a complete decoupling between futures and physical markets for crude oil and nowhere is that more evident than the high volume spike in crude that just happened after Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.
As Bloomberg reports,

Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.

The Middle Eastern country increased daily crude output by 13,700 barrels in April to an average of 10.308 million, according to data the country communicated to the Organization of Petroleum Exporting Countries' secretariat in Vienna.

Prices collapsed by almost half last year as Saudi Arabia led OPEC in maintaining production rather than cede market share to booming U.S. output. The group has become more unified about keeping its daily output target of 30 million barrels because prices are now rising, according to Kuwait's oil minister. Oil in New York has surged more than 40 percent from its March low amid as U.S. drillers pulled a record number of rigs from fields.

"The Saudis must be content that their policy of protecting their market share has worked so well and prices did not stay below $50 for long," said Christopher Bellew, senior broker at Jefferies International Ltd. in London, who had not seen the report. "They held their nerve and now see a stable market with their share preserved."

...

OPEC maintained projections for supply growth from oil producers outside the group in 2015 at 680,000 barrels a day. It also kept its 2015 estimate for demand for the group's crude at 29.3 million barrels a day. That's about 1.5 million barrels a day less than the group produced in April.

Looney

The Saudis are really pissed now. They are in the full tantrum mode. Within just a few years they went from Bush's dearest friend to Obama's bitch. ;-)

Secret Weapon
The Saudis can go fuck themselves in the neck. 9/11 Truth.
samsara
They were just the drivers in the crime, the CIA and Mossad via dual citizenship Americans were the brains of the crime....

samsara

"...Saudi Arabia boosted crude production for a second month to the highest level in at least three decades..."

SA has seen the writing on the wall, Their tenure is almost up, and anticipate losing control of the infrastructure.
They are pumping out, and Cashing OUT as fast as they can.
Making as much as they can while they can before they are overthrown and move to a 'Safe Place" somewhere.
To know what I mean, look at this story.

Iran Responds To US Naval Escalation, Sends Warship Escort For Yemen Aid Vessel

[May 12, 2015] China overtakes US as biggest crude importer

May 11, 2015 | RT News

China has become world's biggest importer of crude oil in April, reaching a record number of almost 7.4 million barrels per day, compared to America's estimated 7.2 million bpd, Reuters reported. The growth came despite a slowing economy and was spurred by relatively low oil price and recent interest rate cuts in China as the government tries to stimulate growth. While the US may retake top spot in the months to come, China is expected to be the biggest importer of crude oil in the long run, while becoming the world's leading exporter of almost all major commodities, including coal and most metals.

[May 11, 2015] Avoid Fraud

May 11, 2015 | FINRA.org

Even if you have never been subjected to an investment fraudster's sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the money is"-and that means targeting older Americans who are nearing or already in retirement.

Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you've been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.

To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common tactics:

The "Phantom Riches" Tactic-dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month in income."

The "Source Credibility" Tactic-trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."

The "Social Consensus" Tactic-leading you to believe that other savvy investors have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in-and so is my mom and half her church-and it's worth every dime."

The "Reciprocity" Tactic-offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now-half off."

The "Scarcity" Tactic-creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."

Protect yourself with these strategies:

End the conversation. Practice saying "No." Simply say, "I'm sorry, I'm not interested. Thank you." Let them know you'll think about it and get back to them. Have an exit strategy so you can leave the conversation if the pressure rises.

Turn the tables and ask questions. Before you give out information about yourself, ask and check.

Talk to someone before investing. Be extremely skeptical if the salesperson says, "Don't tell anyone else about this special deal!" A legitimate professional will not ask you to keep secrets. Even if the seller and the investment are registered, discuss your decision first with a family member, investment professional, lawyer or accountant.

Take your name off solicitation lists. To reduce the number of sales pitches you receive, use the Federal Trade Commission's National Do Not Call Registry.

FINRA offers an array of information and resources to help you outsmart investment fraud.

Red Flags of Fraud
Knowing the important warning signs of financial fraud puts you in charge.

Ask and Check
Ask the right questions and verify the answers before you work with an investment professional or buy an investment product.

How Social Pressure Cost One Family $30,000
It's often hard to resist an investment tip from someone in your social circle. Before handing over any money, you need to check out the investment and the person selling it.

Spot a Scam in 6 Steps
Financial fraudsters use sophisticated and effective tactics to get people to part with their money. Here are six steps you can take to help you spot an investment scam.

Investor Alerts
Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.

More

Risk Meter
Use our Risk Meter to see whether you share characteristics and behavior traits that have been shown to make some investors vulnerable to investment fraud.

Scam Meter
In just four questions our Scam Meter will help you tell if an investment you are thinking about might be a scam.

[May 08, 2015] Capitalizing on Crisis The Political Origins of the Rise of Finance by Greta R. Krippner

August 31, 2014 | Amazon.com
Stephen Thompson on August 31, 2014

an attempt to understand financialization without applying class analysis
Krippner defines financialization as "the growing importance of financial activities as a source of profits in the economy." The excellent second chapter of Capitalizing on Crisis makes clear that a process of significant financialization has indeed occurred in the United States. The share of total corporate profits made by financial corporations rose from around 15% in the 1950s to about 45% (!) in 2000. At the same time, for nonfinancial corporations, the ratio of portfolio income to total cash flow increased sharply. These changes mark a structural change in the US economy, with corporations apparently channeling more of their retained earnings toward the finance of consumer credit and other unproductive activities, rather than fixed capital investment. It is also worth noting that by driving up rentier incomes, financialization has played a major role in making the distribution of income more regressive. Obviously there are a number of questions one could ask about all this. Krippner focusses on one of the most fundamental: why did financialization occur?
Krippner's answer goes essentially as follows. Starting in the late 1960s, various social movements (especially groups of women, African Americans, and unionized workers) in the United States became more powerful and demanded a larger share of national income for their members. The government responded by offering a bunch of expensive new public programs. At the same time, the government was ramping up military spending for the Vietnam war. This "guns and butter" policy, when coupled with the declining growth rate of the US economy, was highly inflationary. At the same time, since, under the New Deal regulatory system, the *nominal* interest rates on both bank deposits and mortgages were essentially fixed, the high rate of inflation drove the corresponding *real* rates of interest to low or negative levels, leading to a massive reallocation of credit in the economy. On the one hand, money flowed out of mortgage financing, so many middle-income people suddenly could not buy homes; on the other hand, banks lost deposits and were at risk of becoming insolvent. All of this set off a wave of financial innovation and political lobbying that undermined, and eventually destroyed, the policy of fixed interest rates that was at the heart of the New Deal bank-regulation system; this set off the process of financialization.

I think several aspects of the above account are correct; it explains why *some* powerful social groups would be willing to support and agitate for financial deregulation. The problem comes when Krippner tries to explain why policy makers ultimately supported the interests of these particular social groups over the others, which had strong reasons to oppose deregulation. For example, Krippner describes in the book how early experiments (during the mid-1970s) with adjustable-rate mortgages were met with fierce public opposition, and quickly fell apart as a result. But then this opposition seems to simply disappear by the end of the 1970s, when interest rates were completely deregulated. What happened? And why did policy makers ultimately deregulate interest rates?

The answer, according the Krippner, is that the deregulation of interest rates was part of a larger package of reforms, which allowed policy makers to avoid dealing with the conflict over income distribution that boiled over in the 1970s. It is argued that the expanded supply of credit in the US economy after the 1970s – which would not have been forthcoming without the deregulation of interest rates – made it possible to appease the various social groups that were demanding a better standard of living, and to do so without squeezing profits, increasing taxes or feeding inflation. The argument is that, by borrowing the money from abroad to finance social programs, and by increasing the amount of credit available to consumers, policy makers did not have to choose between different social priorities. Thus Krippner writes in the concluding chapter that financialization deferred "questions that first confronted U.S. society in the late 1960s and 1970s regarding which social actors should bear the burden of a fading prosperity."

I see two major problems with that argument.

The first problem is that the questions about "which social actors should bear the burden of a fading prosperity" were NOT deferred. In a process that started in the late 1970s (under Carter!) and accelerated in the 1980s, politicians and wealthy people initiated an onslaught of new policies that were clearly intended to both redistribute income upward and also crush the social movements which had been working to redistribute income downward in the 1960s and 1970s. Various forms of aid to the poor were cut, the tax system became much more regressive, huge sums of money flowed to right-wing advocacy groups and think tanks, the Fed implemented a tight-money policy which drove the unemployment rate sharply upward, there was an all-out assault on unions, government and foundation support for community activist groups was cut, etc. (For a detailed account of all this, I recommend the book Right Turn by Ferguson and Rogers). The success of this project is evidenced by the sharp change in the income distribution trends after the 1970s. In fact, far from *deferring* the conflict over income distribution, the financialization of the US economy seems to have actually been one of the biggest factors which helped to *settle* the conflict in favor of the upper socio-economic strata (see the paper "Financialization and US Income Inequality, 1970-2008" by Lin and Tomaskovic-Devey, published March 2013 in the American Journal of Sociology).

Second, it is far from clear that the increased availability of consumer credit did much of anything to compensate for the stagnating incomes received by the poor and working-class people after the 1970s. I have read, for example, that the consumption-fueled boom during the 1990s was financed entirely by loans taken out by *upper-income households* – the people who saw their share of income RISE during the era of financialization. And even if consumer credit did become significantly more available to the poor and working people in the 1980s (and I am not convinced this is true), why would they passively accept this as an alternative to the rising incomes they were demanding in the 1970s? I think the obvious explanation is that increased flows of credit were not what resolved the crisis of the 1970s; policy makers resolved the crisis of the 1970s by curtailing the political power of poor and working people, and by crushing progressive social movements.

Thus Krippner's argument that financialization, rather than being a class project, was simply an inadvertent result of policy makers' attempts to make voters happy, seems unconvincing to me. And I could go on much longer; I think Krippner's refusal to apply class analysis creates unnecessary problems throughout the book. Nevertheless, Capitalizing on Crisis is interesting and informative, and should be read by anyone who wants to better understand financialization. I found the chapter on Fed policy, in particular, to be illuminating. And like I said above, chapter 2 is excellent. But there are better books on financialization. I particularly recommend the work of Dumenil and Levy.

[May 08, 2015] Power The Essence of Corrupt Banking and Politics Is to Grow and Control the Debt

May 04, 2015 | Jesse's Café Américain

"Events have satisfied my mind, and I think the minds of the American people, that the mischiefs and dangers which flow from a national [central] bank far over-balance all its advantages. The bold effort the present bank has made to control the Government, the distresses it has wantonly produced, the violence of which it has been the occasion in one of our cities famed for its observance of law and order, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."

- Andrew Jackson, Sixth Annual Message, December 1, 1834

"Another cause of today's instability is that we now have a society in America, Europe and much of the world which is totally dominated by the two elements of sovereignty that are not included in the state structure: control of credit and banking, and the corporation.

These are free of political controls and social responsibility and have largely monopolized power in Western Civilization and in American society. They are ruthlessly going forward to eliminate land, labor, entrepreneurial-managerial skills, and everything else the economists once told us were the chief elements of production.
The only element of production they are concerned with is the one they can control: capital."

- Professor Carroll Quigley, Oscar Iden Lecture Series 3, 1976

Money is power. And those who control the money, if they have the will for it, can use it as a means to incredible power, to create debt, and to control it, thereby controlling the debtors, both as individuals, as communities, as regions, and whole nations.
This is the story of global trade deals, the Dollar, and the foul marriage between politics, money, and central banking. The more discretion and secrecy that is granted to those who create money and debt, the more vulnerable is the freedom of the people.
This is the story of Cyprus, of Greece, and of the Ukraine.
And there will be more.
This will to power is as old as Babylon, and as evil as hell.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.
Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

Professor Carroll Quigley, Tragedy and Hope, 1966

"He promises you illumination, he offers you knowledge, science, philosophy, enlargement of mind. He scoffs at times gone by; he scoffs at every institution which reveres them.
He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods.
Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."
John Henry Newman

Posted by Jesse at 8:03 PM

Category: audacious oligarchy, central banks, debt slavery, Federal Reserve, financial corruption, modern monetary theory, money corruption, political corruption

[May 08, 2015] Will oil prices keep rising. Signs say yes

May 08, 2015 | usatoday.com

Oil prices are up and could continue to see some strength coming from a very unlikely source: Eurozone growth.

That's not a typo. The European Union published a forecast on May 5 that pointed to a higher rate of economic expansion in the months ahead on the back of monetary stimulus and low oil prices. The EU could see growth of 1.8%, an upward revision from its previous forecast in February of 1.7%. That is not exactly lightning-speed growth, but it is a solid performance for the debt-ridden continent that has been fighting off recession.

Still, there is a massive hangover from the Eurozone crisis from the last few years – debt, high unemployment, banking fragility, and an unclear path forward. And, ironically, the improved outlook stemmed in part from low oil prices, but a stronger EU economy could contribute to higher oil prices. For the oil markets, a stronger European performance is an unlikely, but welcome, development.

With all of the quarterly earnings in from the oil majors, there is one common thread that runs through all of the reports. Profits from upstream oil and gas production were way down for the first quarter in 2015, but the damage was largely mitigated by downstream refining, which saw a large boost in revenue. Lower oil prices provide a larger margin for refiners to sell their products. But with WTI trading at a discount, refiners earn a little extra – buying crude at a discounted (WTI) price, and selling their refined products at a higher global price (more closely linked to Brent). By and large, the oil majors have their fingers in a lot of pies, and robust downstream operations provide a hedge against lower oil prices. That is not the case with smaller upstream companies that are more singularly focused on extraction. Those are the companies that are clearly hurting much worse.

ExxonMobil (XOM) saw its refining profits double even as its upstream activities suffered. BP (BP) saw downstream earnings more than double. Total (TOT) managed to triple its earnings from refining. And on it goes. Still, overall, profits for all the oil majors are down on balance, but the first quarter performances show the benefits of an integrated business model.

Another strategy that oil producers are using to alleviate the damage done from low oil prices is through financial mechanisms. Hedging their production at stable price levels could keep losses at a certain level, even if it means putting a ceiling on potential profits. Reuters reported that oil producers are stepping up their hedging, locking in prices that allow them to sell oil within a range of between, say, $45 and $70 per barrel. If prices drop below $45, these companies would be protected. Still, that means that they would miss out on higher profits if prices jump above $70. But after a year of extreme volatility, an increasing number of companies find it beneficial to hedge their future production to ensure some stability.

... ... ...

Russia continues to produce oil at a near-record rate. For the month of April, Russia produced 10.71 million barrels per day, a high in the post-Soviet era. The higher production is helping offset the decline in revenues from low prices and western sanctions. The Russian economy shrank by a painful 3.4% in March from the year before. The ruble has taken on a high degree of volatility, interest rates were jacked up to rein in inflation and capital flight, and government revenues have taken a hit. Russian President Vladimir Putin is surely breathing a sigh of relief with the recent uptick in oil prices, a rise of nearly 40% in the last few weeks. Brent is now trading above $66 per barrel, a level not seen since OPEC made its decision to leave its output unchanged last November.

Russian officials are set to meet with their OPEC counterparts in early June, with discussions covering the possibility of a coordinated output cut. But there is little scope for Russia to cut back on its production, given the aforementioned economic struggles. Russia declined to cooperate last time around. However, having seen OPEC's resolve in the face of low oil prices in the intervening months since their last meeting, perhaps Russia will reconsider balking at coordination.

OilPrice.com is a USA TODAY content partner offering oil and energy news and commentary. Its content is produced independently of USA TODAY.

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[May 06, 2015] Dangerous Markets Here Are Some Levels and Triggers to Watch

Jesse's Café Américain

We typically do not get major market corrections in May. They tend to cluster in the Spring and the Fall. By major correction I mean 15+%.

For example, in 1929 there was a 'market break' in March, and then the exchange shook it off and went on to have a bumpy summer of ups and downs with a final climb to a top in October.

Every market decline has its own specific course of events, but they do tend to have some things in common. There is generally a build up of conditions that make it the right kind of market, and then some trigger event occurs to set things in motion. It is much like what occurs in the build up to an avalanche, or a wildfire.

So we are talking about 'avalanche conditions.'

That does seem to be a little counter-intuitive, because we seem to have markets that are almost sleep walking within ranges with short term algo-driven volatility. These are very 'cynical markets.' The masters of the universe believe that they are firmly in control.

Looking at the composition of this market and the economies, I see bubbles both in the US and especially in China, in bonds and in stocks.

I see a paucity of liquidity of the right sorts, of determined investment money of the durable sort, and economies that are narrowing, with most of the discretionary money shoved well into the top tier of consumers and investors.

And the money is hot, compliments of the Fed, and the focus is for the most part short term. I think my opinion of the Fed is well known by now to any regular readers, and the ECB is no better.

So in surveying this mountain with its potentially dangerous conditions, one looks for potential trigger events.

Greece looms large. Despite the pooh-poohing and brinksmanship by both sides, a Greek failure could prove to be the underanticipated Lehman event that would set the cascade of dominos falling.

And then there are the many confrontational hotspots around the world, in the Mideast of course, in the South China Sea, and in the Ukraine among others.

What makes this particularly dangerous is the cavalier attitude of the neo-con chicken hawks towards military action, especially in some of the English speaking countries.
Two articles this morning brought this thinking into focus. But I have been having this conversation off and on with some trading friends for the past few weeks, and I also noted in the beginning of the year some signs of trouble. What 2000, 2008, and 2015 May Have In Common
The first, Shrinking Liquidity Exposes Markets to Crunch, sounds like a prelude to 'no one could have seen this coming.'

And the second from my friend Adam Taggart, For Heaven's Sake Hedge, shows some of the other aspects that make markets dangerous.

I have not yet seen the classic 'crash patterns' on the charts that I have documented extensively over the years, but as I am saying, and I hope I am clear about this, I see dangerous market conditions that, given the right kind of trigger event, could unleash quite a bit of mispriced risk and concealed fragility.

I don't get into sentiment or contrarian indicators all that often, because from my experience they can be very much in the eye of the beholder. But the tenor of the discussion on financial TV is especially disconnected from reality now, with a clueless bravado that is characteristic of a coming conflagration.

The discussion of the TPP this morning on Bloomberg and of gold on CNBC in particular were striking.

I am taking a defensive posture, not because I think we are going to crash the markets, since only mugs make those calls and bet on them with their own money. Rather, I think we are seeing dangerous markets, with the danger exacerbated by the willful arrogance of the market masters and their money men.

I extend this watch to October, and will keep looking for changes. I do not expect much to come of this. This is just a caution, but given a trigger event of sufficient magnitude, this could become a problematic market even during the dog days of Summer. Our leadership and financial management is just that bad, reckless and irresponsible.

One thing I learned, most painfully, is that the Fed can and will keep an obvious asset bubble going much longer than one might expect, given the lack of a major trigger event. And they have absolutely demonstrated a disregard for the consequences from doing so several times in the past fifteen years.

US Shale Sector Crashes After David Einhorn Repeats What Everyone Knows Already

Zero Hedge

Greenlight's David Einhorn has come out swinging at the Fed-fueled fracking frenzy and, after pointing out facts that are extremely widely known, and have been explained innumerable times here, sent Shale stocks tumbling... led by the so-called "MotherFracker" - Pioneer Natural Resources... Einhorn concludes, "Either way the frackers are fracked."

[May 04, 2015] Peak Oil Optimism

Zero Hedge

Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal...

As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

[May 04, 2015] Stephen Roach Derides Central Bankers' Mass Delusion

May 04, 2015 | Zero Hedge

Authored by Stephen Roach, originally posted at Project Syndicate,
The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.

The rise and fall of post-World War II Japan heralded what was to come. The growth miracle of an ascendant Japanese economy was premised on an unsustainable suppression of the yen. When Europe and the United States challenged this mercantilist approach with the 1985 Plaza Accord, the Bank of Japan countered with aggressive monetary easing that fueled massive asset and credit bubbles.

The rest is history. The bubbles burst, quickly bringing down Japan's unbalanced economy. With productivity having deteriorated considerably – a symptom that had been obscured by the bubbles – Japan was unable to engineer a meaningful recovery. In fact, it still struggles with imbalances today, owing to its inability or unwillingness to embrace badly needed structural reforms – the so-called "third arrow" of Prime Minister Shinzo Abe's economic recovery strategy, known as "Abenomics."

Despite the abject failure of Japan's approach, the rest of the world remains committed to using monetary policy to cure structural ailments. The die was cast in the form of a seminal 2002 paper by US Federal Reserve staff economists, which became the blueprint for America's macroeconomic stabilization policy under Fed Chairs Alan Greenspan and Ben Bernanke.

The paper's central premise was that Japan's monetary and fiscal authorities had erred mainly by acting too timidly. Bubbles and structural imbalances were not seen as the problem. Instead, the paper's authors argued that Japan's "lost decades" of anemic growth and deflation could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.

If only it were that simple. In fact, the focus on speed and force – the essence of what US economic policymakers now call the "big bazooka" – has prompted an insidious mutation of the Japanese disease. The liquidity injections of quantitative easing (QE) have shifted monetary-policy transmission channels away from interest rates to asset and currency markets. That is considered necessary, of course, because central banks have already pushed benchmark policy rates to the once-dreaded "zero bound."

But fear not, claim advocates of unconventional monetary policy. What central banks cannot achieve with traditional tools can now be accomplished through the circuitous channels of wealth effects in asset markets or with the competitive edge gained from currency depreciation.

This is where delusion arises. Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises.

Consider the US – the poster child of the new prescription for recovery. Although the Fed expanded its balance sheet from less than $1 trillion in late 2008 to $4.5 trillion by the fall of 2014, nominal GDP increased by only $2.7 trillion. The remaining $900 billion spilled over into financial markets, helping to spur a trebling of the US equity market. Meanwhile, the real economy eked out a decidedly subpar recovery, with real GDP growth holding to a 2.3% trajectory – fully two percentage points below the 4.3% norm of past cycles.

Indeed, notwithstanding the Fed's massive liquidity injection, the American consumer – who suffered the most during the wrenching balance-sheet recession of 2008-2009 – has not recovered. Real personal consumption expenditures have grown at just 1.4% annually over the last seven years. Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible.

"It might have been worse," is the common retort of the counter-factualists. But is that really true? After all, as Joseph Schumpeter famously observed, market-based systems have long had an uncanny knack for self-healing. But this was all but disallowed in the post-crisis era by US government bailouts and the Fed's manipulation of asset prices.

America's subpar performance has not stopped others from emulating its policies. On the contrary, Europe has now rushed to initiate QE. Even Japan, the genesis of this tale, has embraced a new and intensive form of QE, reflecting its apparent desire to learn the "lessons" of its own mistakes, as interpreted by the US.

But, beyond the impact that this approach is having on individual economies are broader systemic risks that arise from surging equities and weaker currencies. As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify. In the meantime, politicians are lulled into a false sense of complacency that undermines their incentive to confront the structural challenges they face.

What will it take to break this daisy chain? As Chinese Premier Li Keqiang stressed in a recent interview, the answer is a commitment to structural reform – a strategic focus of China's that, he noted, is not shared by others. For all the handwringing over China's so-called slowdown, it seems as if its leaders may have a more realistic and constructive assessment of the macroeconomic policy challenge than their counterparts in the more advanced economies.

Policy debates in the US and elsewhere have been turned inside out since the crisis – with potentially devastating consequences. Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for healthy recovery. On the contrary, it promises more asset bubbles, financial crises, and Japanese-style secular stagnation.

[May 04, 2015] Federal Reserve 1 - 0 Saudi Arabia

May 04, 2015 | Zero Hedge

Since we last updated the state of Saudi Arabia's reserve stash, things have gone from bad to worse. It appears the battle to crush US Shale producers is taking its toll as The FT reports, Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans (and thus social stability) despite lower oil prices. All the time The Fed remains 'easy', no matter how negative US Shale cashflows are, the muppets will buy their debt and keep the mal-invested market alive. Saudi reserves are now their lowest in almost 2 years (but they have plenty more to chew through to out-wait The Fed).

Saudi Reserves have dropped to 2 year lows and fallen by the most ever in the last 2 months...

As The FT reports,

The central bank's foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh's rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

The latest data show Saudi's foreign reserves dropped by $16bn to $698bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

As one analyst noted, "There is a need to rationalise spending," as King Salman promised a bonus payment for military personnel engaged in the kingdom's month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers.

...

"The [military] bonuses are not an encouraging sign," said Steffen Herthog of the London School of Economics. "It shows the knee-jerk reaction to political challenges is to distribute more money."

* * *
The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic.

* * *

Simply out, as long as The Fed keeps ZIRP, it will cost Saudi Arabia.
TeethVillage88s

Business is Business. SA has Oil Clout, but USA would look askance at returning Gold.

However, when you are cash starved, when you have an Obvious Reserves problem, but can't stop till you ruin the Industry... SA could get a way with a short term request for Gold Reserves.

Short term 2 years. 5-7 years would not help with the Driving of Oil Price to $50. USA would stall, stall, stall.

[May 04, 2015] Bill Gross Investment Outlook

Having turned the corner on my 70th year, like prize winning author Julian Barnes, I have a sense of an ending. Death frightens me and causes what Barnes calls great unrest, but for me it is not death but the dying that does so. After all, we each fade into unconsciousness every night, do we not? Where was "I" between 9 and 5 last night? Nowhere that I can remember, with the exception of my infrequent dreams. Where was "I" for the 13 billion years following the Big Bang? I can't remember, but assume it will be the same after I depart – going back to where I came from, unknown, unremembered, and unconscious after billions of future eons. I'll miss though, not knowing what becomes of "you" and humanity's torturous path – how it will all turn out in the end. I'll miss that sense of an ending, but it seems more of an uneasiness, not a great unrest. What I fear most is the dying – the "Tuesdays with Morrie" that for Morrie became unbearable each and every day in our modern world of medicine and extended living; the suffering that accompanied him and will accompany most of us along that downward sloping glide path filled with cancer, stroke, and associated surgeries which make life less bearable than it was a day, a month, a decade before.

Turning 70 is something that all of us should hope to do but fear at the same time. At 70, parents have died long ago, but now siblings, best friends, even contemporary celebrities and sports heroes pass away, serving as a reminder that any day you could be next. A 70-year-old reads the obituaries with a self-awareness as opposed to an item of interest. Some point out that this heightened intensity should make the moment all the more precious and therein lies the challenge: make it so; make it precious; savor what you have done – family, career, giving back – the "accumulation" that Julian Barnes speaks to. Nevertheless, the "responsibility" for a life's work grows heavier as we age and the "unrest" less restful by the year. All too soon for each of us, there will be "great unrest" and a journey's ending from which we came and to where we are going.

A "sense of an ending" has been frequently mentioned in recent months when applied to asset markets and the great Bull Run that began in 1981. Then, long term Treasury rates were at 14.50% and the Dow at 900. A "20 banger" followed for stocks as Peter Lynch once described such moves, as well as a similar return for 30 year Treasuries after the extraordinary annual yields are factored into the equation: financial wealth was created as never before. Fully invested investors wound up with 20 times as much money as when they began. But as Julian Barnes expressed it with individual lives, so too does his metaphor seem to apply to financial markets: "Accumulation, responsibility, unrest…and then great unrest." Many prominent investment managers have been sounding similar alarms, some, perhaps a little too soon as with my Investment Outlooks of a few years past titled, "Man in the Mirror", "Credit Supernova" and others. But now, successful, neither perma-bearish nor perma-bullish managers have spoken to a "sense of an ending" as well. Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don't necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a "bang" at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial "obits", although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

Policymakers and asset market bulls, on the other hand speak to the possibility of normalization – a return to 2% growth and 2% inflation in developed countries which may not initially be bond market friendly, but certainly fortuitous for jobs, profits, and stock markets worldwide. Their "New Normal" as I reaffirmed most recently at a Grant's Interest Rate Observer quarterly conference in NYC, depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt. At that conference I equated such a notion with a similar real life example of pouring lighter fluid onto a barbeque of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster. Disaster in the form of burnt ribs was my historical experience. It will likely be the same for monetary policy, with its QE's and now negative interest rates that bubble all asset markets.

But for the global economy, which continues to lever as opposed to delever, the path to normalcy seems blocked. Structural elements – the New Normal and secular stagnation, which are the result of aging demographics, high debt/GDP, and technological displacement of labor, are phenomena which appear to have stunted real growth over the past five years and will continue to do so. Even the three strongest developed economies – the U.S., Germany, and the U.K. – have experienced real growth of 2% or less since Lehman. If trillions of dollars of monetary lighter fluid have not succeeded there (and in Japan) these past 5 years, why should we expect Draghi, his ECB, and the Eurozone to fare much differently?

Because of this stunted growth, zero based interest rates, and our difficulty in escaping an ongoing debt crisis, the "sense of an ending" could not be much clearer for asset markets. Where can a negative yielding Euroland bond market go once it reaches (–25) basis points? Minus 50? Perhaps, but then at some point, common sense must acknowledge that savers will no longer be willing to exchange cash Euros for bonds and investment will wither. Funny how bonds were labeled "certificates of confiscation" back in the early 1980's when yields were 14%. What should we call them now? Likewise, all other financial asset prices are inextricably linked to global yields which discount future cash flows, resulting in an Everest asset price peak which has been successfully scaled, but allows for little additional climbing. Look at it this way: If 3 trillion dollars of negatively yielding Euroland bonds are used as the basis for discounting future earnings streams, then how much higher can Euroland (Japanese, UK, U.S.) P/E's go? Once an investor has discounted all future cash flows at 0% nominal and perhaps (–2%) real, the only way to climb up a yet undiscovered Everest is for earnings growth to accelerate above historical norms. Get down off this peak, that F. Scott Fitzgerald once described as a "Mountain as big as the Ritz." Maybe not to sea level, but get down. Credit based oxygen is running out.

At the Grant's Conference, and in prior Investment Outlooks, I addressed the timing of this "ending" with the following description: "When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress." We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.

But what should this rational investor do? Breathe deeply as the noose is tightened at the top of the gallows? Well no, asset prices may be past 70 in "market years", but savoring the remaining choices in terms of reward / risk remains essential. Yet if yields are too low, credit spreads too tight, and P/E ratios too high, what portfolio or set of ideas can lead to a restful, unconscious evening 'twixt 9 and 5 AM? That is where an unconstrained portfolio and an unconstrained mindset comes in handy. 35 years of an asset bull market tends to ingrain a certain way of doing things in almost all asset managers. Since capital gains have dominated historical returns, investment managers tend to focus on areas where capital gains seem most probable. They fail to consider that mildly levered income as opposed to capital gains will likely be the favored risk / reward alternative. They forget that Sharpe / information ratios which have long served as the report card for an investor's alpha generating skills were partially just a function of asset bull markets. Active asset managers as well, conveniently forget that their (my) industry has failed to reduce fees as a percentage of assets which have multiplied by at least a factor of 20 since 1981. They believe therefore, that they and their industry deserve to be 20 times richer because of their skill or better yet, their introduction of confusing and sometimes destructive quantitative technologies and derivatives that led to Lehman and the Great Recession.

Hogwash. This is all ending. The successful portfolio manager for the next 35 years will be one that refocuses on the possibility of periodic negative annual returns and miniscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns, if only by 300 to 400 basis points. My recent view of a German Bund short is one such example. At 0%, the cost of carry is just that, and the inevitable return to 1 or 2% yields becomes a high probability, which will lead to a 15% "capital gain" over an uncertain period of time. I wish to still be active in say 2020 to see how this ends. As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang. But if so, like death, only the timing is in doubt. Because of this sense, however, I have unrest, increasingly a great unrest. You should as well.

-William H. Gross

[Apr 22, 2015] Guess What Happened The Last Time Bond Yields Crashed Like This...

Long term bond prices and now really up. So what's next?

Apr 22, 2015 | Zero Hedge
If a major financial crisis was approaching, we would expect to see the "smart money" getting out of stocks and pouring into government bonds that are traditionally considered to be "safe" during a crisis. This is called a "flight to safety" or a "flight to quality". In the past, when there has been a "flight to quality" we have seen yields for German government bonds and U.S. government bonds go way down. As you will see below, this is exactly what we witnessed during the financial crisis of 2008. U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace. Well, it is starting to happen again. In recent months we have seen U.S. and German bond yields begin to plummet as the "smart money" moves out of the stock market. So is this another sign that we are on the precipice of a significant financial panic?
Back in 2008, German bonds actually began to plunge well before U.S. bonds did. Does that mean that European money is "smarter" than U.S. money? That would certainly be a very interesting theory to explore. As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

... ... ...
Sadly, most people are not willing to learn from history. Even though it is glaringly apparent that we are in a historic financial bubble, most investors on Wall Street cannot see it because they do not want to see it. They want to believe that somehow "things are different this time" and that stocks will just continue to go up indefinitely so that they can keep making lots and lots of money.
And despite what you may think, I actually want this bubble to continue for as long as possible. Despite all of our problems, life is still relatively good in America today – at least compared to what is coming.

I like to refer to this next crisis as our "third strike".

Back in 2000 and 2001, the dotcom bubble burst and we experienced a painful recession, but we didn't learn any lessons. That was strike number one.

Then came the financial crash of 2008 and the worst economic downturn since the Great Depression. But we didn't learn any lessons from that either. Instead, we just reinflated the same old financial bubbles and kept on making the exact same mistakes as before. That was strike number two.

This next financial crisis will be strike number three. After this next crisis, I don't believe that there will ever be a return to "normal" for the United States. I believe that this is going to be the crisis that unleashes hell in our nation.

So no, I am not eager for that to come. Even though there is no way that this bubble of debt-fueled false prosperity can last indefinitely, I would like for it to last at least a little while longer.

Because what comes after it is going to be truly terrible.
Goldilocks

Stockholm syndrome
http://en.wikipedia.org/wiki/Stockholm_syndrome

Stockholm syndrome, or capture-bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending and identifying with the captors. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness.[1][2] The FBI's Hostage Barricade Database System shows that roughly 8 percent of victims show evidence of Stockholm syndrome.[3]

Stockholm syndrome can be seen as a form of traumatic bonding, which does not necessarily require a hostage scenario, but which describes "strong emotional ties that develop between two persons where one person intermittently harasses, beats, threatens, abuses, or intimidates the other."[4] One commonly used hypothesis to explain the effect of Stockholm syndrome is based on Freudian theory. It suggests that the bonding is the individual's response to trauma in becoming a victim. Identifying with the aggressor is one way that the ego defends itself. When a victim believes the same values as the aggressor, they cease to be perceived as a threat.[5]

[Apr 21, 2015] 'Dollar valueless, about to crash' - World Bank whistleblower

This article from 2013 now is about danger of relying on expert judgment. In this case highly skeptical judgment about the US financial system. Is this woman just three years ahead of events? Or is she completely off the mark? Nobody knows.

Oct 8, 2013 | youtube.com
The US government shutdown - a temporary ailment or a symptom of a grave disease? Are the Republicans right in their move to block Obamacare spending? Who gains from the shutdown turmoil? Do the politicians care about their citizens? Our guest comes from the very heart of the banking system: Karen Hudes was World Bank lawyer when she blew the whistle on major corruption cases in the system and was fired as a result.
Follow@SophieCo_RT

Sophie Shevardnadze: Our guest today is whistleblower Karen Hudes, former senior counsel at the World Bank. Karen, it's great to have you on a show today.

Karen Hudes: Thanks for having me. Sophie, I'm glad to be with you.
Read the full transcript
SS: So, the government shutdown. Is the move on the part of the Republicans justified? Is fighting off Obamacare worth all this mess?

KH: I think there is something more going on behind the scenes. A lot more, actually.

SS: What do you mean?

KH: Well, there is terrible currency problem. We're on the verge of the currency war. The Federal Reserve is printing dollars like there is no tomorrow, and if they keep going, the rest of the world is not going to accept them. As it is, the BRICS countries – Brazil, Russia, India, China and South Africa – have decided that they are going to finance the trade among these countries with assets and pay for the difference in gold. And this is the right move for them...

SS: But how is that connected with a shutdown though?

KH: The US Congress has been fighting with the presidency, because the presidency have been in total contempt, and the highest legal officer of the United States government has also been in contempt of Congress in fighting this international corruption that is ruining the dollar as an international reserve currency.

SS: But you know, economists have been predicting the dollar will fall ever since the crisis in 2008. But the Government has managed to keep it afloat.

KH: Well, not for long. If you look at what's going in the gold and other precious metals markets, silver as well, we're headed towards something called "permanent gold backwardation"- that means there is a loss in confidence in the fiat currencies that are issued by those private banks. They like to consider themselves as 'public banks' but they really are owned by private entities. And these currencies are about to crash because they are valueless, that's what always happens to paper currencies that aren't backed by assets.

SS: Like you've mentioned - "gold backwardation", gold is often chanted as perfectly safe investment and alternative to the dollar, even. But how come the price of gold is falling?

KH: Because of market manipulation - but that can only continue for so long because the Central Banks are running out of gold and the rest of the world are lining up to buy them. If you want to buy gold today, you have to pay a premium. What they are offering in the future is called 'a naked short'. They don't have the gold to back those offers, that's illegal what they are doing.

SS: I will get back to gold in a bit. But for now I would like to focus on Obamacare. In your opinion, is Obamacare really that crucial for the US economy?

KH: What you have is something that's very good for the medical insurers because most of the other countries that offer medical coverage do this through a single issuer. And that's not what we have here. What we have here is a bill that was drafted by the medical insurance companies. It's not good for this economy. It never was.

SS: Why do you say it's not good?

KH: Because what's happening is that workers that worked full-time are being put deliberately on part-time basis, so that the companies can avoid giving the medical insurance coverage under the provisions of the law.

SS: You know this Obamacare thing.. I've heard it many times being compared to Socialism, Communism sometimes even. Do you trace the resemblance?

KH: That's just because the mainstream media, when they report about what's going on, are doing it by telling lies and anything that's good for the powers that be. The mainstream media is completely owned and controlled by the same companies, private companies that own the Federal Reserve System. Most of the American citizens are clueless about the corruption that's rifling their economy.

SS: But just to make sure - are you saying that everything about Obamacare is bad? Or are there good things about it?

KH: No, of course, there are good things about it. But the problem is that the people that wanted to get up decent coverage were not given the tools, they were not given the equipment, they were not given the press coverage – the honest press coverage, that society needs to enact just legislation. The Congress people are all bribed by these corrupt forces and the American citizens have zero confidence in their Congress.

SS: So, at this point you side with the Republicans for blocking the medicare.

KH: I'm not siding with Democrats or Republicans, because both of those parties have been co-opted by these terrible corrupt forces I'm talking about.

SS: What we have right now is Americans being forced to get health insurance. How does it go with their love of liberties and freedom of choice?

KH: It's not so much a question of being forced; you have to look at those parts of the society that have been thrown under the bus. The uneducated children, who are not given superior education, like we used to have. We are society that is giving short shrift to the people that need us. I'm not saying that we ignore the health needs of our country. I'm saying that we ignore the mainstream media, because they are not telling us the truth.

SS: You know, I've also heard Obama supporters argue that the American Capitalism is on the verge of death in its present form, the way it is existing now, and the social injections, meaning the medical care and Obamacare, are needed as the only way to reform it or save it. Do you agree or disagree with that?

KH: The problem is not with the American citizens, they are a wonderful group, their values are good. It's just that they are not given the tools that they need to have a just society. They are not given the basic information about what is really going on and who is benefiting from the economies that they are being told… they are being told that they have no money, they have taken an entire city, Detroit, and declared it bankrupt. When what's actually happening is their tax dollars are not even staying in the society, their tax dollars are going by treaty to the United Kingdom, and then they are being transferred to the Vatican, to the bank of the Vatican. This is not a society that is going to be sustainable on any basis, for any reason.

SS: Do you feel like American economy is picking up because we hear President Obama saying the shutdown hurts American economy but at the very sensitive moment, word is it has just started to catch up. Do you feel like it's catching up really?

KH: Those numbers about the employment are completely fabricated because they are not counting those people who have given up ever finding a job as unemployed. That's ridiculous! The real rate is just about double what they reported as being.

SS: So the American debt looks like a doomed patient. Is there any other possibility for it than just grow into eternity forever? I mean raising debt ceiling once or twice a year, what's the problem?

KH: The problem is actually when you talk about debt, is that our currency is financed by debt; our currency is issued by the Federal Reserve instead of the Treasury which is unconstitutional. When the Federal Reserve System was instituted in 1913 most of the Congress was on break, they sneaked that legislation through. So the debt is there simply for those bankers to put in interest on it and have it grow and compound every year. The debt is a fabrication, it's probably should be repudiated. But it can be repudiated until you'll have looked that all of the implications.

SS: Do you think it's going to go on and on forever?

KH: No, what I think it's going to happen is that at the upcoming Bretton Woods meeting on October 9th the countries of the world, the foreign ministers of the world are going to sit down and have a rational basis for currency rather than this fiat currency which is absolutely... what can I say, it makes no sense to anyone but the bankers that are issuing it.

SS: So, when you look at the concept of the debt, it's much more than just borrowing money - it makes you controllable. For example, in the case of US - who controls it, you mean the big corporations, or countries like China and Japan, who control large chunks of the debt?

KH: Well, that's a very good question and, fortunately, some mathematicians at the Swiss Federal Institute of Technology have given us a very precise answer. They did a study of who owns and controls the companies on the capital markets - 43 000 companies. They found out that there is "a secret super-entity", they call it, that owns 60% of the earnings every year and 40% of the assets. They did this by putting the same people on the boards of these companies. So, they have ten times the economic power than there are entitled to. And they thought that none would catch them at it. This is a huge conglomerate that has been rigging the labor prices, it has been rigging all of the commodity's prices, and it has been trading in the securities markets with the insider information. It has got to be stopped. It also bought up the media and has been lying to people deliberately. This is going to stop.

SS: So just to answer my question - the government is controlled by the conglomerate or the corporations rather than countries that are up and coming economically, right? Why haven't these corporations or conglomerate, as you call it, been caught? Why is nothing changing?

KH: That's the whole point about it. They'd like to think they are in control but they are not, they are not above the law. And we, citizens, know exactly what they are up to, we've been working on this problem, all of the governors of the States have been working on this terrible corruption, so have the Attorneys-General, so have the Sheriffs, and it's not going to continue. The American people are taking back their government and they are stopping this terrible corruption.

SS: As of today, the United States is a financial heart of the world. Whether it collapses or keeps on going, it's obviously wrong – this much power is concentrated in one place. Asia is a rising monster right now; could it be stealing this financial role from the US? Do you think China, for example, could steal its financial role from the US? Or are they also controlled by that same financial elite you're mentioning?

KH: Well, I can tell you that the Jesuits have a very strong stranglehold on China as well but I can also tell you that the transition of economic strengths from the western countries to the east is going to happen, but it's going to happen in a smooth way. It's not going to be a transition through a currency war like that terrible corrupt group is trying to manipulate everyone into. No, we're going to have a peaceful power transition this time around; we're not going to have the World War III. They try to pull it off in Syria, they are now thinking they can pull it off in Iran, it's not happening. The citizens of the world see what they are doing and we're not letting them get away with it this time.

SS: Foreign governments keep buying US Treasury bonds despite obvious problems US economy is facing. What's making them do that, in your opinion?

KH: I think the biggest market for the Federal Reserve notes is the US Treasury and there is a gut of dollars right now. But, yes, there is also a small market, unfortunately, the market is weakening as the dollar weakens because of all of this, what they call quantitative easing, where every month so many additional dollars are printed with absolutely no backing.

SS: Should we be buying gold?

KH: Well, yes and no, I think gold is probably a wise purchase right now, but more as insurance than investment, because there is actually a great deal of gold, there is even more gold than people know about. For example, the amount of gold in the deposit in the Bank of Hawaii is 170 000 tonnes, this is more than the World Gold Council says is available for all the gold on the Earth. People don't know how much gold there is, there is a lot of gold.

SS: Are you buying gold?

KH: I did actually, yes. But not because it's an investment, but because I'm not 100% certain that we're going to get to act together before all of the paper fiat currency falls apart. So I see it as insurance, but because of the amount of gold that's actually around in the world in deposit all over the world I'm not so sure it's a great investment.

SS: So you think the return to the gold standard is a realistic thing? It could be a possibility?

KH: Well, actually, that's not such a good thing. The currency ought to be backed by value, but there is no reason why it should be restricted to precious metals, it could be any of the commodities that are valuable. The important thing is that, yes, the currency should be backed by assets rather than by debt as we now have.

SS: But if a financial collapse happens , let's say, will gold be of any use? I mean, there is shortage of food, look at the world today, the biggest problem we're facing is the clean drinking water. What gold is going to do about that?

KH: First of all, I think that we're going to manage to get our act together; I'm not expecting a collapse. Very accurate game-theory model is showing that we're going to manage to make a transition in a very smooth way; maybe there'll be a few fits and starts, but I think most of the countries in the world are in favor of working together and not to have a collapse. The only thing that you're saying is that some of these crooks haven't figured out, they haven't seen the writing on the wall, they haven't seen that we understand that there is a way to work together and avoid these problems, which are definitely avoidable.

SS: So, Karen, you were a senior counsel at the World Bank. Tell me something, honest banking is this an oxymoron?

KH: No, we have examples all over the place - in the United States, the state of North Dakota has its own state bank and many of the other states are looking at that - at the moment 22 other states are looking at it, and we're urging the other 28 states to look at it. There was a bank in Amsterdam that, I think, went on for 300 years with no problem. We know how to do banking, it should be like infrastructure to support the economy, it shouldn't be for the benefit of elites that think they are above the law as we currently have. If you look at the Bank for International Settlements (BIS) - that institution was established when the war reparations were being exacted from Germany after the World War I. That's when it was started in 1930 and I believe its 60 central banks, that are members of the BIS - those are the corporates, those are the ones that really needs to go out of business.

SS: You first blew the whistle over corruption in the World Bank. Tell us more about your revelations?

KH: Well, that's actually what happened: I was working in the Philippines and there was a bank… this was at the end of the East Asia financial crisis in the end of the 1990s. And the second largest bank in the Philippines, the Philippine National Bank, there was a loan to strengthen the banking sector and, what happened, that there was a man who own Philippine airlines, Lucio Tan, who ended up buying more than 10% of the shares of the Philippine National Bank without informing the security authorities in the Philippines - that was against the law. And then I told the person who was in charge of the World Bank Lending Program that they should tell the government of the Philippines that the conditions of the loan were not going to be met. And instead I was reassigned, and I didn't accept that, so I went to the meeting, where it was decided whether or not to disburse the loan and I said that the board was not being informed that the conditions were not met. And then what happened was the loan wasn't disbursed, but the people who had their money on deposit in that bank withdrew their money and the Philippine Deposit Insurance Corp. had to withdraw, had to back up the bank, for five hundred million dollars, and then we didn't disburse our loan for two hundred million and the Japanese didn't disburse their loan for two hundred million. So, that was nine hundred million dollars worth of a poor loan performance and when the evaluation department in the World Bank said that the World Bank had performed satisfactorily, I corrected that report and my correction was never given to the board. That was a cover up. You can't have a cover up in a bank - that shows that money is going the wrong way. I've been working together with other whistleblowers at the World Bank, because we know that the board has to be informed about what's actually going on. Other whistleblowers have reported double accounting, we reported this to the UK Parliament, I reported it to the European Parliament in 2011 and the European Parliament wrote the letter to the World Bank. I had a very detailed chronology - and the World Bank never responded. Then I've been reporting this to the US Congress and when the US Congress was asked to give a capital increase to the World Bank, they had asked for a government accountability office audit which never took place. I was reporting this to the International Organization of Supreme Audit institutions and then I asked the board to require KPMG to do an audit of the World Bank Internal Controls. KPMG did not follow the auditing standards, so I reported this to the public company accounting oversight board, I reported this to the SEC. But since the SEC couldn't be bothered to sort out the insider trading for the Federal Reserve System, they certainly weren't going to straighten out the bonds in the World Bank. So I bought a World Bank bond and I sued under the securities laws, and I also went to each and every Attorney-General in the States, and I told the States that they were responsible for making sure that there was accurate financial information going to the bond holders in their States, and I also went to the International Organization of the Securities Commissioners. So, the World Bank has got to be brought into compliance and there has to be transparency in the capital markets, and the insider training of the Federal Reserve System is going to be history in short order.

SS: Do you feel safe after all these leaks, I mean you were fired?

KH: You know I have been working with some very wonderful whistleblowers; in particular, I'd like to mention Mark Novitsky who has been reporting about insider trading and inaccurate financial reporting for Teletech, which is a company that had been spying on American citizens. So, when whistleblowers work together, and compare notes and share information you get a very accurate picture. In addition, I'd like to mention Larry Harrison, who has been my PR guy. So when you have people who you're working with it's not so easy to shut the whistleblowers down, we just gain in strength. We're going from strength to strength.

SS: Do you feel like you are being heard? Is anything changing?

KH: Well, that's what I like to ask your audience.

SS: Do you feel like anything changing in the system by whistleblowing on it?

KH: Yes, I absolutely do. I think the number of people they are hearing my message and that are looking into this information, and every day they are sending me e-mails. They are going out and they are getting their neighbors to find out what's really going on. I don't think this mainstream media is going to have too big of an audience at the rate we're going.

SS: There are liberty movements that are actually picking up now, the likes of Bitcoin, for example. Can they ever grow into a solid rival to the conventional system?

KH: I think they're going to be a force to be reckoned with, yes. It's a matter of fact. There are other similar kinds of payment systems that are now gaining currency. Yes, I think we're going to have a world where there's a lot of choice and the legal tender is not going to be used to put people into debt and to imprison them.

SS: Are you using a Bitcoin as of now?

KH: That's a good question. I'm trying to learn how. There is a conference that is taking place and I'm going to try to get myself sorted out on that.

SS: Karen, thank you very much for your time. That's all for today. Our guest was a former insider at the World Bank, ex-senior counsel Karen Hudes. Thanks for watching and we will see next time here in SophieCo.

[Apr 20, 2015] Stop The Presses Nobel-Prize Winning Economist Slams QE

Apr 20, 2015 | Zero Hedge
Whether it is due to pervasive groupthink, a chronic lack of vision, the perpetuation of failed ideas, or just because the alternative casts grave doubts about the value of their very existence, conventional economists and their media lackeys have almost without exception been supportive of the Fed's "recovery" efforts, be it ZIRP or QE. After all, neoclassical economics demands it, and if the Fed is wrong about its response to the second great depression, then the value of every single economist likewise goes out the window.
... ... ...

... Nobel-prize winning economist Robert Merton (of expanded Black-Scholes fame) with Arun Muralidhar as co-author, released an Op-Ed in Pensions and Investments magazine titled "Monetary policy: It's all relative", in which they slammed not only the current monetary policy response to economic ills (as observed through the prism of pension math and the adverse impact of low rates), but question if instead of leading to an improvement, QE isn't in fact making the situation even worse.

Here are the key excerpts from the op-ed:

... while QE has increased absolute wealth, it has simultaneously lowered relative wealth for a large class of investors. This could lead to the opposite of the desired effect for this group of investors. Lower relative wealth means investors need to save more to improve their funded status, especially where regulations are strict, and it results in less consumption and investment, and may not remove the deflationary overhang.

...

An alternate, more sophisticated approach to explaining why QE may not work to stimulate aggregate consumption is, perhaps, because the demographic mix of the U.S. (and most parts of the developed world) has shifted toward older people. Unlike 30 or 40 years ago, the enormous baby boomer generation, and even retirees, are much wealthier (including human capital) than in the past, and they are wealthier than current generations earlier in their life cycle. So the wealth effect does not lead to an increase in consumption and, potentially, has the opposite outcome.

When baby boomers were in the sweet spot for housing needs, expenditures on children and cars, etc. 30 to 40 years ago, the effect the central banks were expecting from QE might have worked better, as they expected it would, but that need not be a reliable prediction under the changed current demographic and wealth distribution.

...

We believe it is imperative for central banks and academia to examine this perspective immediately and develop a new monetary policy toolkit, because it would be tragic if the central banks' attempts to improve economic security with the current orthodoxy leads, instead, to less consumption, less investment and greater retirement insecurity.

And the punchline:

A recent study by the Center for American Progress shows that millions of Americans (as high as 50% of households) are in danger of retiring with insufficient money to maintain the standard of living to which they are accustomed, and the problem is getting progressively worse. Your previous editorial argues that QE by the central bank may impose unintended costs on pensions, at both the institutional and retail level. This suggests more research needs to be conducted to examine how monetary policy affects relative wealth, not just absolute wealth, and whether traditional approaches are outdated given the current retirement landscape. This may call for central banks to use a different set of policy tools than manipulating long-term rates, and may even argue for the Fed to actually raise long-term rates faster than what is recommended by traditional monetary policy.

Alas, with central banks now proudly owning $22 trillion in "assets", it is far too late. The best one can hope for is that the social collapse the results after QE's failure is finally accepted by all, and that includes all other economists, will be somewhat contained.

Needless to say, all it would take for the Fed to "lose credibility" (if only among its "very serious" peers; it has long since lost all credibility across the broader population) is for a few more economists to have a comparable epiphany and declare that the money-printing emperor is naked, and then all bets - at least for the current failed economic and monetary regime - are off.

NoDebt

Yes, I have a nail gun. You can borrow it at any time. Just wash the blood off before you give it back.

And, just FYI, I am an economist by training (but I'm feeling much better now). I never throught QE was a good idea and have stated bluntly many times why I always thought QE was a bad idea, sounding somewhat similar to the points made in this article. But, sadly, with no PhD, nobody gives a crap what I think. Fortunately, I never ran a well known financial company up on the rocks 20 years ago, either.

NOT ALL ECONOMISTS THINK ENDLESS MONEY PRINTING IS GOING TO SOLVE ANYTHING OR EVEN "WORK" IN ANY MEANINGFUL WAY. Dissenting opinions are regularly filtered out of the discussion by the media, much like climate change 'deniers' opinions are filtered out in discussions of the environment, or the way no 'environmentalist' ever mentions anything bad about radiation leaking from Fukushima. I could go on and on, but the basic point is, not every economist is a clueless moron worshipping at the altar of stimulating aggregate demand.

Ham-bone

Somebody should write a book about this stuff...oh, er...somebody did and all major publishers rejected it??? Shocker...

http://econimica.blogspot.com/2015/02/fundamentally-flawed-chapter-1-advanced.html

http://econimica.blogspot.com/2015/02/fundamentally-flawed-outline-how-us-eu.html

williambanzai7

Yes the same Long Term Capital Management Merton

Blankenstein

Why is anyone listening to this guy? He blew his credibility back in the 90s.

"Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".^[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000."

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

kchrisc

"They lie even when they are telling the truth." Hence this scumbag's statement.

My belief is that they are preparing to kill off the dollar, which is why it is "up." As part of the setup they need to prepare a fall-guy, and that is to be the FedRes.

Of course, part of the plan is to not allow their fiat-dollar debts to evaporate, but be converted to SDRs--"Pay us now in gold or euros." (Remember, they own the courts.)

Liberty is a demand. Tyranny is submission.

Is the dollar up on "exit," or "strength?"

kchrisc

I personally think that instead of another QE, which they may still do, the goal is to assure those so connected and the Amongst be permitted a golden exit to the euro, shekel, or other. They will then "pull it" and lay it all at the feet of the FedRes so as to prepare the sheeple for their worldwide central bank and SDRs.

Fits in with the Saudis price war collaboration as well. As a reward for their cooperation, they can be permitted the ability to reapportion their assets while their Zionist friends prop the "markets" up and the "exit" open, and be spared when they "pull it."

We shall see. At any rate, the dollar is doomed.

Liberty is a demand. Tyranny is submission.

"When did daylight get a train whistle?"

economessed

We don't need more mathematical models. We need to embrace common sense.

It was excessive borrowing and casual accounting standards that caused the problem. QE didn't counter-act those situations -- it embraced them. The only question left to ask is "when will this experiment arrive at the inflection point of impact?"

divedivedive

QE (and ZIRP) really pushed this retirement couple out of the US. Gosh - I remember years(as savers) when we were making more money on the interest from our savings than our actual earnings. Personally - I think monetary policy in the US today is all about trying to maximize the tax base. The longer ZIRP continues the fewer retiree aged people can walk away from their jobs, the more tax revenues coming in.

MEFOBILLS

Keen had forecast debt deflation prior to 2008. Hudson also knew it was coming.

http://www.debtdeflation.com/blogs/#PIX&kdntuid=1&p=52041&s=undefined&a=undefined

MMT theorists have analyzed the problem ad-infinitum.

It takes a Nobel prize winner, when others have been yelling the answers from the rooftops for 7 years?

It is simple, those that are in the back pocket of banking will always promulgate banker solutions. For example, QE swapping fresh FED keyboard money for debt instruments. All this does is change composition of the money supply from less debt to more money, and the money in turn channels into finance or gets caught up in banker reserve loops. If in finance, it finances yet more debt. This particular type of financialized debt has no connection to the real economy other than being extractive. QE money in banker reserve channels gets stuck because cash reserves now get FED interest, to then prevent rate collapse to zero on overnight market. You heard right, cash - which is not a debt instrument - gets paid interest and thus it gets stuck, with banks enjoying being fully capitalized.

But, bankers don't really own monetary policy, even though as a parasite they have usurped money creation, to then loan their credit into existence, Bankers certainly don't own fiscal (taxation) policy. For them to give up their pretender control over monetary policy, they will have to admit that money is actually law, and not private credit.

To admit that, their entire market theory of credit money will have to be shoved into history's trash bin, and they will also lose their easy rentier lifestyles. Better to keep peddling lies and keep humanity hypnotized.

Like Tyler's often say, 12T of QE money already spent, would have paid off all mortgages in U.S. If 12T had been SPENT into existence and channeled into mortgages, debt depression most certainly would be over. Effectively, mortgage debt instruments would have been erased, especially as the new money would have vanished into ledger as it bought down principle.

People's future labor (which is now) would then have had extra wallet money to buy from their producing neighbors, rather than having their output vector to credit destruction on banker ledger. This action would have created a wealth cycle as people work with each other to create and produce. Debt depression also pays banker usury, thus further draining credit money supply. Finance has an upper loop where they trade debt instruments and do financial games, and real economy has a lower loop that is in constant drain.

A land tax via fiscal policy would have been required to prevent a new debt bubble against land though -so had we paid off mortgages, it would have had to come with new fiscal stipulations.

Did Obama ever hear this from Geithner, Bernanke or any other members of the tribe and their sayanim fraternity? Its highly doubtful; parasitism runs deep when money creation power is so lucrative and ordained by God. It is especially good to be self chosen and have operative control methods on humanity.

Owning and holding debts on the people, to then gain usury and do Magic swaps, is the parasites control method.

falak pema

Having robbed the future we now rob the present which only leads to a tomorrow which will rob the past; the core baby boomer generation THAT OPTED OUT AND SURRENDERED TO EASY, SLEAZY REAGANOMICS...

The Bushes, the Clintons, the Blairs, the Muttis the Sarkos and the Browns...They should have fought the legacy of Dear Henry and the Cold War CiA/MIC scam that had gotten us into Nam and had shown its corruption in Watergate et al. No, they just bought into it and screwed the welfare productive state!

What a sell out of western values. Now its multiplied and this new millennium generation cannot tell an Apple from a Google big data scam.

Its all Facebook to them --

stilletto

This guy is as dumb as Krugman. He's basically saying that QE should be good but might not be because of the weather - or rather that people are a bit older. He doesnt understand economics either. QE fails because the system is debt saturated. The economy is like a sponge, when debt free it quickly absorbs the extra money but as it gets soaked it becomes less effective until the economy / sponge just oozes and fails. The problem that all these brain-dead morons don't understand is that the economy is soaked with too much debt.

Never found an economist who understood reality -- but then i trained as an Economic Historian. Economists don't read history therefore they are doomed to repeat past failures. Just like statisticians - another voodoo outfit.

[Apr 14, 2015] The Message from the 22 Year Old Suicide at the Nation's Capitol

Apr 14, 2015 | Jesse's Café Américain

Suicide is a prohibited form of violence in my own belief, as are all other forms of murder. Therefore I would not hold this type of protest up as an example to anyone.

However, an even worse offense would be to completely ignore the message which this young man delivered, as most of the mainstream media has done in the US.

I did not even know what really happened until I read this article below from Wall Street On Parade today. The police and media referred to it as a 'social protest.'

Before he killed himself, the young man held up a sign that said "Tax the One Percent."

Perhaps an even more pointed message might be 'shut down the loopholes for the Top .01%.' Those who make their money from wages and ordinary income pay fairly significant taxes.

However, the uber-rich have so many loopholes and tax avoidance schemes that they often pay much lower percentage than even those in the lowest income levels. The top .01% use the upper middle class as shields for their antics.

You may read the entire article about this here.

Rather than one young light be extinguished and quickly overlooked by the powerful, perhaps it would be better if a million people were to march on the Capitol, and effective shut it down in protest this Summer. That might get their attention. Alas, the apathy in the people is pervasive, at least for now.

Wall Street On Parade
22-Year Old Commits Suicide at Capitol to Send Congress a Message
By Pam Martens: April 14, 2015
At approximately 1:07 p.m. on Saturday afternoon, April 11, during the annual Cherry Blossom Festival celebrating springtime in the Nation's Capitol, a 22-year old man took his own life with a gun on the Capitol grounds with a protest sign taped to his hand. According to the Washington Post, the sign read: "Tax the one percent."

Yesterday, the Metropolitan Police Department released the young man's name. He was Leo P. Thornton of Lincolnwood, Illinois. Based on what is currently known, the young man had traveled to Washington, D.C. for the express purpose of making a political statement with his sign and then ending his young life.

The Chicago Tribune reported that "Thornton's parents filed a missing persons report on the morning of April 11 after he never came home from work on April 10, Lincolnwood Deputy Police Chief John Walsh said."

Those are the tragic facts of the incident itself. But there is a broader tragedy: the vacuous handling of this story by corporate media. The Washington Post headlined the story with this: "Rhythms of Washington Return after Illinois Man's Suicide Outside Capitol." The message he delivered to his Congress – tax the one percent – has yet to be explored by any major news outlet in America in connection with this tragedy.

Was the message of Leo P. Thornton of Lincolnwood, Illinois a critical piece of information for this Congress to hear at this moment in American history. You're damn right it was. Outside of Wall Street's wealth transfer system, provisions in the U.S. tax code are the second biggest wealth transfer system to the one percent. Together, these two systems have created the greatest income and wealth inequality since the economic collapse in the Great Depression. They threaten a repeat of the 2008 financial collapse because the majority of Americans do not have the wages or savings to support the broader economy...

Profiles In Hypocrisy, In the Garden of Beasts

08 April 2015 | Jesse's Café Américain

"The only vice that cannot be forgiven is hypocrisy. The repentance of a hypocrite is itself hypocrisy."

William Hazlitt

"The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

Janet Tavakoli, Decisions: Life and Death on Wall Street

Gold and silver were pushed back to their assigned round numbers, with gold barely holding above 1200 and silver pushed well below the 17 handle.

Ted Butler has a rather striking piece about the rigging in the silver market which you can read here.

Speaking of silver it appears that Turkey had record imports of silver bullion in March. You can read about that here. I am not sure how significant that is. We can certainly keep an eye on it to see if this is a one time thing or a trend.

Thoughts of silver drachmas and dirhams come to mind, but it is most likely improbably premature. Still, this is a currency war and things seem to be building to a reckoning of sorts. Who can say what desperate people might do to end repression?

Nothing really happened at the Bucket Shop on the Hudson. A few contracts of silver were claimed, and inventory was shoved around the plate in the warehouses. The real action is taking place in the Mideast and Asia.

We have become a coarse and careless people, smugly confident in our 'Exceptionalism.' We are no longer shocked about lies, but instead critique the style and performance of the liars, and try to emulate them in our own professions.

How can we not cringe at some of the more shocking abuses that pass for generally acceptable behavior in public figures these days? And we encourage it, by both our silence and our acceptance.
Oh yes, we recoil in horror at any kind of sex, at the human form, with great puritanical umbrage, but stealing and cheating, and abusing the poor and the defenseless in even the most petty and vicious ways is looked upon with admiration, because we are in love with power.
Power is our new golden calf. Even some so-called 'reformers' are falling all over themselves at a chance to move near the circles of power, to have influence, to be seen as connected. All we seem to want is to get paid, to get ahead, to 'win.'
Hypocrites!

And the example of our cultural and societal icons are certainly leading to a general corrosion of all morals and civilities. And that is a shame, which eventually will have significant repercussions and consequences for us as a people and a society.

Where will we finally draw the line and come to our senses? How far are we willing to go? How many crimes and abuses, how much theft and torture are we willing to overlook? Why do we allow our society to be defined by sociopaths?

When will we finally look about, and see that we too, despite all our smug superiority, have created our own garden of beasts?

[Apr 12, 2015] Why The Oil Price Collapse Is U.S. Shale's Fault

There is a link between overproduction of expensive oil and shale gas and access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.

April 7, 2015 | nakedcapitalism.com

Yves here. Notice how Arthur Berman links overproduction of expensive oil and shale gas to access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.

By Arthur Berman, a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector. Berman is an associate editor of the American Association of Petroleum Geologists Bulletin, and was a managing editor and frequent contributor to theoildrum.com. He is a Director of the Association for the Study of Peak Oil, and has served on the boards of directors of The Houston Geological Society and The Society of Independent Professional Earth Scientists. Originally published at OilPrice

The present oil price collapse is because of over-production of expensive tight oil. The collapse occurred because of the inability of the world market to support the cost of the new expensive oil supply from shale, oil sands and deep water. Demand was progressively destroyed during the longest period of sustained high oil prices in history from 2010 through 2014.

Since the early 2000s, the price of oil was largely insensitive to the fundamentals of supply and demand as long as prices were less than about $90 per barrel. The chart below shows world liquids supply minus demand (relative supply surplus or deficit), and WTI oil price.

Figure 1. World liquids relative surplus or deficit (production minus consumption) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

In mid-2004 and mid-2005, the relative supply surplus was much greater than it has been during the 2014-2015 price collapse yet prices continued to rise. When oil traders perceive supply limits and rising prices, price below some critical threshold is not an issue. They are willing to carry the cost of storage and interest to hold the commodity in the future when it will be more valuable.

In 2004, the relative supply surplus reached 1.9 million barrels per day and in 2005, it reached 4.1 million barrels per day. By contrast, the greatest supply surplus in the current oil price collapse was 1.7 million barrels per day in January 2015.

During periods of supply surplus in 2004 and 2005, prices were less than $75 per barrel. The average WTI oil price between November 2010 and October 2014 was $91 and for 18 months of that period, prices were more than $100 per barrel.

Oil prices have collapsed three times because of demand destruction: in 1979, 2008 and 2014. In all of these cases, oil prices exceeded $90 per barrel in real 2015 dollars for extended periods. The chart below shows WTI oil price* from 1970 to the present with periods when price exceeded $90 per barrel highlighted in red.

Figure 2. WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars. Areas in red represent periods when oil prices exceeded $90 per barrel. Source: U.S. Bureau of Labor Statistics, EIA and Labyrinth Consulting Services, Inc.

Oil prices were more than $90 in 1979-1981 for 26 months; in 2008-2009, for 13 months; and in 2010-2014, for 33 months. 2010-2014 was the longest period of oil prices above $90 in history. There were other factors at work in all three of these high oil-price episodes and their subsequent periods of price collapse.

In 1979, the trigger for oil-price increase was the Iranian Revolution and the Iran-Iraq war. More than 6 million barrels of oil were removed from world supply. Oil prices rose from $50 to $115 per barrel (in real 2015 dollars) between January 1979 and April 1981. Then, new production from the North Sea, Mexico, Alaska and Siberia flooded the market. By March 1986, prices had fallen to $27 per barrel. OPEC cut production by 14 million barrels per day but oil price was unaffected because of a combination of demand destruction, crippling interest rates, and new supply from non-OPEC countries. Prices did not begin to recover until 2001.

So far, the current oil-price collapse is nothing like this. Surplus production is about 1.0 to 1.5 million barrels per day, interest rates are near zero, and demand recovery appears strong from early data.

The oil-price collapse and Financial Crisis of 2008 were preceded by 11 consecutive months of relative supply deficit and price increase (Figure 1 above). This was largely because of a surge of consumption by China and low OPEC spare capacity. Oil prices approached $150 per barrel in June 2008, the highest price ever reached, and then collapsed below $40 by February 2009.

The record price of oil was an underlying cause of The Financial Crisis. It increased the cost of global trade, produced inflation and higher interest rates that contributed to real estate loan defaults, and caused demand destruction for oil and other commodities.

Weak demand for all commodities and loans remains a chronic artifact of the years since 2008 despite the best efforts of central banks to correct the problem.

Oil prices rebounded fairly quickly after 2008 because of a 4.2 million barrel per day production cut by OPEC in January 2009 (Figure 1). Another reason for increasing oil price was the devaluation of the U.S. dollar by the Federal Reserve Board by lowering interest rates and increasing the money supply. The chart below shows Federal Funds interest rates and the price of oil.

Figure 3. Federal funds interest rates and WTI oil price in 2015 dollars, January 2000 – January 2015. Source: Board of Governors of the Federal Reserve System, EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.

Oil prices rose with a weak U.S. dollar and interest rates near zero in 2009. Other factors, notably the Arab Spring uprisings in the Middle East, also contributed to the price increase.

As prices passed $80 per barrel in late 2009, tight oil production began in earnest. Low interest rates forced investors to look for yields better than they could find in U.S. Treasury bonds or conventional savings instruments. Money flowed to U.S. E&P companies through high-yield corporate ("junk") bonds, loans, joint ventures and share offerings. Although risk was a concern, these were investments in the United States that were theoretically backed by hard assets of oil and gas in the ground.

In the first half of 2012, flagging demand caused a relative supply surplus of 3.5 million barrels per day (Figure 1 above). WTI oil prices dropped below $90 but by early 2013, prices returned to the high $90-to-low-$100 per barrel range.

Tight oil boomed after late 2011 when oil prices moved higher than $90. An endless flow of easy money was available to fund spending that always exceeded cash flow. The table below shows full-year 2014 earnings data for representative tight oil E&P companies.

Table 1. Full-year 2014 earnings data for representative tight oil exploration and production companies. Dollar amounts in millions of U.S. dollars. FCF=free cash flow; CF=cash flow; CE=capital expenditures. Source: 2014 10-K filings, Google Finance and Labyrinth Consulting Services, Inc.

These companies out-spent cash flow by 25%, spending $1.25 for every $1.00 earned from operations. Only 3 companies–OXY, EOG and Marathon–had positive free cash flow. Total debt increased from $83.4 to $90.3 billion from 2013 to 2014. Debt must be continually re-financed on increasingly poorer terms because it can never be repaid from cash flow by many of these companies.

The U.S. E&P business has, in effect, become financialized: investment in this class of company has become the sub-prime derivative of the post-Financial Crisis period. There is no performance requirement by investors other than the implicit need to maintain net asset values above debt covenant trigger thresholds.

These terrible financial results reflect a year when average WTI oil prices were more than $93 per barrel. First quarter 2015 earnings will make these results look good.

The immediate cause of the present oil price collapse is found in increasing production and, to a less obvious extent, decreasing demand that began in January 2014 as shown in the chart below. Markets react slowly and it was not until June 2014 that prices began to fall.

Figure 4. World liquids supply and demand, July 2013-February 2015: Source: EIA and Labyrinth Consulting Services, Inc.

This was the manifestation of longer-term demand destruction following nearly 3 years of oil prices above $90. The chart below shows the same world liquids data as in Figure 1 but with demand (consumption) expressed as a percentage of supply (production).

Figure 5. World liquids demand (consumption) as a percent of supply (production) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

Figure 5 shows that demand as a percent of supply was generally increasing until about September 2007 and has been generally decreasing since then. Especially weak demand since early 2014 is merely the most extreme expression of a trend that has been active for more than 7 years.

The present oil-price collapse is, therefore, because of long-term high oil-price fatigue. It reached a crescendo in mid-2008 when oil prices exceeded $140 per barrel but was not specifically recognized as more than another of the factors that contributed to the Financial Collapse that followed. It is now clear that oil price was a central cause of that collapse.

The artificial low interest rates that have been imposed by central banks since the Collapse have weakened the U.S. dollar and pushed the price of oil above $90 per barrel for the longest period in history.

The quest for yields in a low interest rate world led investment banks to direct capital to U.S. E&P companies. Capital flowed in unprecedented volumes with no performance expectation other than payment of the coupon attached to that investment. Tight oil boomed despite poor financial performance.

The current oil-price collapse is because of expensive tight and other unconventional oil and the market's inability to support its cost. $90 per barrel WTI price appears to be the empirical threshold for demand destruction. Only the best parts of core areas of the Bakken and Eagle Ford shale plays make some profit at $90 per barrel and almost nothing makes money at present oil prices.

Low price will eventually cure weak demand. At the same time, the effect of reduced oil and gas spending on the U.S. economy is unclear but a weaker economy could lower demand despite low prices. Allen Brooks and Euan Mearns have explained the case for demand destruction in excellent detail.

The present oil-price collapse is severe because of the accumulated, long-term price fatigue that has existed since late 2007. Although the immediate cause of the collapse is over-production of tight oil, the key to recovery is demand.

Demand is more difficult to cure than over-supply so that is where efforts must be directed. Over-production of non-commercial tight oil must slow and eventually stop before the market can balance itself. I am more optimistic than most that this is already underway but it distresses me to see increased capital flow thus far in 2015 to what Christopher Helman aptly calls "zombie" companies.

The problem is structural and systemic and firmly rooted in the irresponsible funding of under-performing U.S. tight oil companies since at least 2010. The first step to price recovery is the severing of capital supply to companies that could not fund their operations from cash flow when oil prices were more than $90 per barrel. If this does not happen, we could be in for a long period of low oil prices.

kimyo, April 7, 2015 at 1:08 am

i hold stoneleigh in the highest regard because of analysis like this: (published in 2010, answering a reader's questions)

Q: If we have $20 oil there will be no crisis, guaranteed. $20 oil and we have lots of credit/money expansion. Multipliers working and inflation/growth. We would have commerce. We would all be buying shit from (low- wage/cheap coal) China.

Stoneleigh: I disagree. I think we will see $20 oil, but only because of a massive fall in aggregate demand due to the evaporation of purchasing power. $20 oil will not be cheap oil. On the contrary, it will seem very expensive to most people.

(continuing)
Stoneleigh: I am not convinced we will see the dollar become a proxy for oil. I think the dollar will rise substantially as dollar-denominated debt deflates (creating demand for dollars), and people make a knee-jerk move into it on a flight to safety. However, I don't think this will last more than a year or two at most.

I think we are headed into a chaotic currency regime where floating exchange rates are dropped, currency pegs instituted in an attempt to 'beggar they neighbour', and those currency pegs fail.

as late as q2/2014, people would have ridiculed her. since, we're not at $20/barrel, but it's certainly possible, given the 5/2015 land-based storage fill-up and the need for the shale operations to keep pumping. the swiss currency peg cut, the dollar's strength, she made the call and backed it up.

Luke The Debtor, April 7, 2015 at 1:48 am

The peak oilists' thesis is wearing thin: US oil and oil product production record. We're getting awfully close to seeing their covenant with Huebert expelled from energy discussions.

vegeholic, April 7, 2015 at 9:17 am

Did you actually read the article? One of the author's main points is that the dramatic increase in production is largely an artifact of cheap money. Dancing on the grave of Mr. Hubbert might be a little premature.

sd, April 7, 2015 at 3:10 am

Zombie oil for zombie banks in a zombie economy.

Ignacio, April 7, 2015 at 5:35 am

Berman's post is excellent. The comment you replied looks intended to lower the discussion to below ground level.

Your answer is brief but points to another point of discussion: how the fracking investment frenzy will unfold. This is addressed in Euan Mearns link and adds to the uncertainty in economic and energy future.

fajensen, April 7, 2015 at 7:16 am

We will need to become zombies too – because the banks will have invested our pensions in shale oil riiight about at the top, when their cronies are dumping, so we cannot afford to retire or even die of old age.

Santi, April 7, 2015 at 10:16 am

In the South of Europe around one quarter of the population are already economic zombies: unemployed with no perspectives of ever getting a job. But most of us refuse to follow the second law of neoliberal thinking, and "go die" ;)

In the positive side, Energy Intensity of Mediterranean countries like Spain and Greece, but also France or Italy is getting way better in a context of diminishing GDP (according to Eurostat). Spike in Greece was probably due to meltdown in 2012.

Jim Haygood, April 7, 2015 at 8:01 am

'Demand is more difficult to cure than over-supply so that is where efforts must be directed.'

First central planning created oversupply through 'financialization.' Now demand has to be 'cured,' which is what QE and ZIRP (whether effective or not) were intended to do.

Who is going to do this 'severing of capital supply to companies,' which metaphorically suggests corporate head chopping? Evidently, the mistakes of central planning are to be combated with yet more central planning.

I hear that a retired central planner, Alan Greenspan, is available for consulting gigs. When it comes to forecasting energy demand and prices, he's a legend in his own mind.

craazyboy, April 7, 2015 at 10:55 am

"Who is going to do this 'severing of capital supply to companies.."

I imagine it happens as their short and medium term bonds come due and they need to enter the bond market to re-fi. I would hope the investment world has not gotten so crazy in their search for a little yield that they overlook the fact that many of these companies bleed $40 of red ink for every barrel they pump. 'Course they will likely need to enter the bond market before rolling over existing debt – if they aren't even generating enough revenue to cover cash operating expense.

vidimi, April 7, 2015 at 12:03 pm

i had also picked that sentence out because it looks very counterintuitive. if something is more difficult, isn't it better to do the thing that's easier? but i take it to mean that supply will sort itself out while demand will need a hand.

Steve H., April 7, 2015 at 8:19 am

Don Lancaster is an old-school electronics buff who wrote "The Incredible Secret Money Machine." His amortization analyses debunking the financial viability of solar photovoltaics are excellent. For anyone interested, there is this pdf from 2008:
.tinaja.com/glib/pvlect2.pdf

Amend with this note from last December:

"Meanwhile, the November pv pricing figures are in and approach
45 cents per peak panel watt, If the present price drops continue,
hitting the magic 25 cents per peak panel watt required for net
energy renewability and sustainability could happen in as little
as eight months."

Coming from him, that is a very optimistic comment.

Fool, April 7, 2015 at 5:06 pm
So, from my rudimentary understanding: the financial sector is throwing lots of junk bonds around Shale markets; this hot money is causing an oversupply which is bringing down the price of oil. But if the price of oil is cheap, what's the problem?

Oil Dusk, April 7, 2015 at 5:40 pm

Interesting theory. Here's an alternate one.

(1) OPEC essentially sets the world price for oil when it meets with OPEC and agrees on quotas.

(2) Oil producers are essentially price takers. If the world price of oil exceeds the cost to produce this oil, as estimated over the life of an given oil well, then producers will make a decision to drill that well.

(3) The real world price for oil should probably have been something around $85 a barrel for the past five years. The fact that it was actually something closer to $100, suggests that oil producers with marginal costs that could make their money back, along with a reasonable return, at $100 a barrel oil, were able to find capital to drill those wells.

(4) As the US added a few million barrels a day of production through its oil shale operations (out of an estimated 90 million barrels of oil a day of crude oil liquids), OPEC once again had the option of simply cutting back on its quota and keeping prices at this level. Instead, this time, they chose to keep their level of production (to include the quotas) in place.

(5) OPEC, as a cartel and mostly led by the Saudis in this matter, are suddenly willing to allow the crude oil market to crater to hurt other producers. They are willing to accept a large loss, as compared to what they have been making in recent years, in order to eliminate competitors and make the capital providers for their competitors think twice. They are achieving this by basically not undertaking their normal price setting behavior (which would be illegal in the US, unless it was done by someone like the Texas Railroad Commission). Once these competitors are eliminated, anticipate that OPEC will re-set the world price for oil back in the $85 a barrel range for now, but don't be surprised to see world prices jump above $100 for some temporary period.

(6) Some portion of these shale plays are not economic above $85 a barrel; those companies that are overly invested in those marginal plays are in trouble. However, despite your persistent claims to the contrary, much of the US shale business is economic at $85 a barrel or less.

(7) The annual decline rate for global production is something close to 5 million barrels a year. This is the amount of new oil production that must come on line each year in order to allow the amount of oil being produced to remain constant from year to year.

(8) Given recent prices, the amount of capital being reinvested in oil drilling operations, is probably less than half of what it was last year. This means that the few million barrels of oil being produced from our oil shale operations a year has already been absorbed into the world oil system as part of that replacement oil for this year's oil production decline.

(9) These current low oil prices will not likely last for long unless OPEC really throws in the kitchen sink and increases their quotas and digs into their excess production capacity in an attempt to flood the market. The EIA country report for Iraq suggests that they could possibly come up with another 6 million a day of production. Even so, that capacity could be absorbed in a couple years of annual decline.

(10) You don't need to assume industry malfeasance to explain what has happened. The facts seem sufficiently explanatory.

[Apr 12, 2015] The American Consumer Will Never Be Back

Under neoliberalism most Americans became debt slaves ("What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. ")...

Quote: " I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step: "[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent. " "

Apr 11, 2015 | Zero Hedge

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

That title may be a bit much, granted, because never is a very long time. I might instead have said "The American Consumer Won't Be Back For A Very Long Time". Still, I simply don't see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me.

However, that is by no means a generally accepted point of view in the financial press. There's reality, and then there's whatever it is they're smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy's at Bloomberg, who named his latest effort "US Consumers Will Open Their Wallets Soon Enough".

I know, sometimes they make it just too easy to whackamole 'em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what's truly happening to their lives, and their societies. And they're not nearly getting enough of it through the 'official' press. So here goes nothing:

US Consumers Will Open Their Wallets Soon Enough

People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren't spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there's still a "global savings glut." Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending.

The first problem with Coy's thesis is that even if people open their wallets, far too many of them will find there's nothing there. And Bernanke simply doesn't understand what savings are. His ideas through the past decade+ about a Chinese savings glut were always way off the mark, and his global – or American – savings glut theory is, if possible, even more wrong. In the minds of the world's Bernankes, there's no such thing as people opening their wallets to find them empty. If they don't spend, they must be saving. That there's a third option, that of not having any dollars to spend, is for all intents and purposes ignored.

The U.S. personal savings rate-5.8% in February-is the highest since 2012. "After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow," Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

The little man inside, when I read things like that, tells me this is nonsense. So I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step:

[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent.

Making paying off your debt (i.e. money you've already spent) count towards your savings is a practice fraught with questionable consequences. But useful for economists, and accountants alike, no doubt. The problem with it is that it hides reality behind a veil. Because debt repayments are not really savings at all; people are not free to spend what they put into paying off debt, on something else, like iPads, cars or trinkets. Not even on hookers or crack cocaine, for that matter.

For the vast majority of what is paid off in debt, there's no such thing as free choices. People pay off debt because they must. Or, to look at it from another, wide lens, angle, Americans would have to stop servicing their debt payments if they want to 'start spending' again.

Going through the numbers from various sources, I can see that the US personal savings rate is presently some 5.8% of pre-tax income, and debt repayment is close to 10% of disposable -after tax – income. I'm still trying to make those stats rhyme. But no matter how you read and interpret them, it should be clear that debt repayments are a large part of 'official' savings. Even if they really shouldn't be counted as such.

Of what remains in real savings, retirement/pension savings must necessarily be a substantial percentage, and it would be weird to call those things 'saving like there is a tomorrow', if only because they are about, well, tomorrow. But that seems to be the new normal: creating the impression that saving any money at all is somehow detrimental to the economy. A truly crazy notion, if you ask me. Let's get back to Bloomberg's Coy:

There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great-that's money in someone else's pocket.

In someone else's pocket, but no longer in yours. Why would that be so great? It's only great if that someone has added value to something by doing productive work, not if you simply swap paper assets.

If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development.

That notion of 'the financial system is supposed to' refers to theories such as those that Bernanke and his ilk 'believe' in. Theories that have no practical value. What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. After all, according to them, whatever amount of dollars you get in, you either spend or save them. And if you use them to pay off previously incurred debt, you're supposedly actually saving, even though you no longer have possession of the money in any way, shape or sense, nor a choice of what to spend it on.

But if no one's in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called 'U.S. Consumers: Still Shopping, Not Dropping'. While noting a "deceleration" in consumer spending, they wrote, "we think that concerns about the outlook for the consumer are overstated." Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017.

Oh sweet lord. Now a falling savings rate has become a beneficial thing, even when and where savings are very low. Not saving will allegedly save the economy. How did that happen? If we may presume that debt repayments will continue virtually unabated, and there seems to be little reason to think otherwise, this means that by 2017 there will be just about nothing saved at all anymore in America. Which means there'd be very little left of the 'If you save it, the financial system is supposed to recycle your dollar into productive investment'.

The only 'growth' perspective America has left is to grow its debt levels continually, continuously and arguably exponentially.

Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn't set off many alarm bells. "Consumer spending is starting to look more and more like a coiled spring," says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren't retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

They got deeper into debt, and this is a sign they're not 'retrenching'? A coiled spring? Really?

According to Deutsche Bank Securities, the first reason to think consumers will resume spending is that their incomes are rising. Annual growth in average hourly earnings has averaged about 2% since 2010, which isn't great but does exceed inflation. With more people working as well, aggregate payroll outlays are up 4.9% from the past year, according to Bureau of Labor Statistics data.

The rises in stock and home prices should make consumers more willing to live a little, say the Deutsche Bank authors. They calculate that households' net worth is almost 6.5 times consumers' disposable personal income. That's the highest ratio since before the housing crash.

But that last bit is arguably all due to QE induced asset bubbles. Not an argument the author would make, I know, but nevertheless. Coincidentally, another Bloomberg article published the same day as the one we're delving in here is called:Why Your Wages Could Be Depressed for a Lot Longer Than You Think. Perhaps the respective authors should have a sit down.

No question, the high savings rate depresses spending in the short run. Purchases of durable goods, from cars to couches, remain well below their 60-year average share of GDP. But all that saving helps consumers get their finances in order, which will allow them to satisfy pent-up demand for that sweet new Ford F-150.

No no no: they just paid off part of their debts. How can that possibly mean they'll go out and get a new F-150? In real life, they spent their money instead of saving it. Either way, they don't have it any longer to spend on a F-150. It would mean they need to get into new debt. On top of what they still have left over even AFTER paying down part of it.

Fed data show that financial obligations including debt service, rent, and auto leases are about their lowest in comparison to disposable income since 1981.

Hmm. According to Wikipedia, "Household debt as a % of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011." It's about 105% today. So that's just a very weird statement. Someone's wrong, very wrong, and I think I know who that would be. Maybe Peter Coy conveniently ignores mortgage payments when he talks about "financial obligations including debt service, rent, and auto leases"?!

When consumers are ready to borrow more, it won't hurt that, according to the Fed's survey of banks' senior loan officers, banks are easing lending standards.

See? That's what I said: they can only spend if they acquire new debt. They're just getting rid of the last batch, and it's going mighty slowly at that. Lest we forget, when debt as a percentage of income falls, that is due to quite an extent to people failing to make any debt payments at all, and losing their homes and cars. This is a dead economic model. This model is pining for the fjords.

These factors add up to an optimistic consumer.

Oh, c'mon. What is that statement based on? That 'sky high' savings rate that is really just poor slobs paying off what they can in debt repayments so they won't get hit with even more fees and fines?

What I think these factors add up to, is a delusional reporter. There is no excess saving. It's ludicrous. As far as people have any money at all, they're using it to pay down their previously incurred debts. And that gets tallied into their savings rate by the government's creative accounting methods. That's all there is to the whole story. But it will, regardless, induce a few more poor souls to sign up for more mortgages and car loans and feel like happy American consumers on their way down into the maelstrom.

It's sad, it really is. Maybe we should first of all stop referring to the American people as 'consumers'. That might help.

[Apr 10, 2015] Where's The Recovery™ - Shout and Feel It

Apr 7, 2015 | jessescrossroadscafe.blogspot.com

"We cannot look to the conscience of the world when our own conscience is asleep."
Carl von Ossietzky, German editor of Die Weltbühne, awarded the Nobel Peace Prize in 1935

"It would be no sin if statesmen learned enough of history to realize that no system which implies control of society by privilege seekers has ever ended in any other way than collapse."

William Dodd, historian and US Ambassador to Germany, 1933

There isn't any recovery. Or at least the false recovery that has been erected is showing great holes through its painted canvas and thin veneer of distorted statistics.

The Fed will still raise interest rates at least once or twice, for 'technical reasons' that have nothing to do with the real economy and everything to do with their own financial engineering practices and the desires of the financiers.

The credibility trap remains a powerful snare for the pampered princes and princesses. How can they admit what is wrong without endangering their own privileged positions and undermining the 'authority' that they so undeservedly enjoy?

And so by example and by continuing reinforcement, lies and deception have become the generally accepted way of doing business in the land of the exceptional. Exceptionally self-deluded that is.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

[Apr 10, 2015] Thursday Unemployment Claims

calculatedriskblog.com

Doc Holiday, Wed, 4/8/2015 - 6:54 pm

Mr. Butter's Warns of Stupid Shit Ahead:

'Profit recession' looms ahead of U.S. first-quarter financial reports - The Globe and Mail

According to FactSet senior earnings analyst John Butters, just 16 companies in the S&P 500 have issued positive guidance prior to releasing their first-quarter results, and 85 firms have ratcheted down their estimates.

"If 16 is the final number of companies issuing positive EPS guidance for the quarter, it will mark the lowest number since Q1 2006," Mr. Butters said.

[Apr 07, 2015] Decisions Life and Death on Wall Street

Apr 07, 2015 | Jesse's Café Américain

I have just started reading a new book by Janet Tavakoli called Decisions: Life and Death on Wall Street.

There is also a paperback version of it available in the US and Canada here.

This is a non-fiction story of her travels in the world of finance that asks the question, 'What would you be willing to do for money and power?'

As usual Janet does not pull her punches. The description on Amazon is rather intriguing.

In New York, the Federal Reserve Bank hides damaging information about too-big-too-fail banks from the public eye. A prominent bank CEO seems on the verge of a nervous breakdown.
In Washington D.C., a former Wall Street regulator checks into a hotel using the name of a hedge fund manager for an illicit meeting with a prostitute. In a D.C. suburb, the CFO of a beleaguered mortgage giant chooses a drastic personal end to "relentless pressure".

In a picturesque suburb of Zug, Switzerland, the CFO of a major insurance company decides to end his life. In London, a financier kills himself in a way he once said he never would.

In her new memoir, Janet Tavakoli shines a bright light on the money-driven culture of Wall Street and Washington, and the life and death consequences of our decisions that put profit above all.

"The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

If 'rule under law' were more than just a slogan in the United States, men who occupied the senior-most positions in too-big-to-fail banks would have been disgraced, prosecuted, and jailed. But no bank executive was held accountable."

[Apr 07, 2015] Bernanke's True Legacy

The marginal cost of the 50 largest oil and gas producers globally increased to US $92/bbl in 2011

Apr 07, 2015 | Zero Hedge
Magooo

... ... ...

THE END OF CHEAP OIL Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years

Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://www.scientificamerican.com/article/the-end-of-cheap-oil/

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world's economies. http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

BUT WE NEED HIGH OIL PRICES: The marginal cost of the 50 largest oil and gas producers globally increased to US $92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

THE PERFECT STORM (see p. 59 onwards) The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

[Apr 07, 2015] Baker Hughes to close Bryan office, terminate employees by Nora Olabi

Apr 06, 2015 | Houston Business Journal

Houston-based Baker Hughes Inc. (NYSE: BHI) is permanently shutting down its Bryan, Texas, office, located just outside College Station, according to KHOU Channel 11.

Fifty-four employees at the office are expected to be terminated.

In a statement to the city of Bryan, Baker Hughes said it "must reduce its cost structure companywide in order to remain competitive in this challenging business environment." Employees may be eligible for redeployment.

Terminated employees will be paid for a 60-day period, and benefits will continue for three months following the closure.

The job cuts are part of a companywide workforce reduction that will minimize cost during this downturn in oil prices. Baker Hughes said it would cut about 7,000 jobs amid slumping oil prices.

Baker Hughes has also closed other facilities to reduce expenditures. Its Mineral Wells, Texas, plant closure affected 110 employees.

During the oil downturn, companies have turned to mergers and acquisitions to shore up finances. Shareholders at Halliburton and Baker Hughes recently approved the companies' $34.6 billion megamerger.

Slumped oil prices have also hit companies such as Weatherford International PLC (NYSE: WFT). The company announced it would cut up to 8,000 jobs in the first half, mostly from the U.S. The company eliminated nearly 7,000 jobs globally just last year.

Here's an update on the Texas energy companies that have cut back amid slumping oil prices this year.

[Apr 03, 2015] West is trying to buy allies of Russia

This is extremely strong move by the US diplomacy (EU vassals were just token players, extras in the play) which considerably weakens Russia political and economic position. It also shows that drop of oil prices was a well though out strategic move with several possible surprises in the sleeves.

Apr 03, 2015 | svpressa.ru

How the lift sanctions against Iran will affect the position of Russia in the world

Lengthy negotiations the six world powers (Russia, USA, UK, France, Germany, China) in Lausanne ended with agreement on the lifting of restrictions against Iran. Foreign Minister of this country Mohammad Zarif called the historical results of the negotiations. Similar opinion is shared by U.S. President Barack Obama, who compared the agreements with agreements between the United States and the Soviet Union during the reign of Reagan and Nixon. The world market after the statements of the leaders of the six responded to a decrease in oil prices. But the question arise: will the economy of Russia suffer as a result of this shrewd move, and will Russia be able to maintain a trusting relationship with its ally in the Middle East or it will change camps.

The EU and the US sanctions against Iran seriously limited the foreign trade of Tehran. They were introduced under the pretext of preventing Iran's development of its own nuclear weapons. Iran argued that solely interested in building on their own territory of the nuclear power plants and is not intended to have weapons of mass destruction. But the official representatives of the West did not believe statements by Iran leadership, fearing that obtaining a nuclear weapon by Iran will seriously alter the geopolitical balance in the middle East.

In recent years tensions between Iran and the West only grew. This played against attempts to isolate Moscow, which, after the reunification of the Crimea with Russia was forced to start organizing the "anti-Western coalition." to counter Western sanctions. But Tehran clearly did not enjoyed its permanent status of a "rogue state" assigned by the USA, and the new President of Iran Hassan Rouhani began to hint that he might compromise and accept the demands of the West.

Concluded at Lausanne agreements, Iran accepted an obligation for 15 years not to build new facilities for uranium enrichment and not to enrich uranium to the level of over to 3.67%, while also reducing the number of centrifuges from the current 19 thousand to six thousand. In response to the Tehran gets the opportunity to export the energy to the West.

The appearance on the world market of oil and gas from a new player at the current moment of low energy prices might trigger further collapse in the price of "black gold" which will jeopardize the economy of Russia. At the same time, the removal of restrictions on the development of the Iranian nuclear program will enhance the ability of Russian companies to participate in construction of nuclear power plants. It also indirectly created a new prospects for cooperation in military-technical sphere.

It is possible that the West went to the lifting of sanctions, based on geopolitical considerations. Shiite Iran is supporting the rebels Houthis in Yemen and efforts of the coalition led by Saudi Arabia may not lead to success. This can threatens oil supplies to Europe and the USA. In addition, Iran has long expressed his desire to join the Shanghai cooperation organization, collective security Treaty organization and BRICS. Here West was forced to give Tehran a bone to block or slow down such moves.

The lifting of the sanctions on Iran may lead in the near future to the fall in oil prices. But this probably will be a short-term phenomenon caused by excessive speculation. In itself, the lifting of sanctions in the future for a few months will not affect the market, " said the Director of the Center for the study of world energy markets energy research Institute of Russian Academy of Sciences Vyacheslav Kulagin. No additional quantities of oil and gas on the market will be added to market immediately. But if the current economic situation in the world will stay then in the future the lifting of the sanctions on Iran will led to significant changes. Iran will obtain access to Western investments and technology. But again, in a short term the world energy market is not affected.
But if we talk about the future after 2020, Iran could become a leading exporter of oil and gas. Oil and gas production will increase. It is worth noting the value of the field "South Pars". Even before the sanctions, there were dozens of projects in this field, including some with the participation of Russian companies. If those projects will be revived, then they will have a serious impact. But this impact will be felt in 2020 or even 2030. In this timeframe Russia will get a serious competitor in the commodities market.

It is worth considering the geopolitical factor, in particular, the current situation in Yemen. Iran supports the Shiite population of this country, but does not yet have the financial capacity to significantly affect the situation. But in the future if the investment is going in Iran, such opportunities will appear. Accordingly, re-configuration of forces in the Middle East will be a bigger question than it is today.

[Apr 03, 2015] Sitting On Top Of the World

Apr 02, 2015 | Jesse's Café Américain

"Larry [Summers] leaned back in his chair and offered me some advice. I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want.

But people on the inside don't listen to them. Insiders, however, get lots of access and a chance to push their ideas. People - powerful people - listen to what they have to say. But insiders also understand one unbreakable rule: they don't criticize other insiders."

Elizabeth Warren, A Fighting Chance

A favorite trick of perception management is to put out a good number, and revise it lower, even sharply so, in the next couple of months, thereby rolling over the material obtained to the more current month, whether it be jobs, or factory orders, or whatever is on display. We saw an example of this today with the Factory Orders.

They do it so regularly that is only remarkable that the mainstream commentators seem to fall for it every time. Thereby we obtain a rolling enthusiasm of improvement, while in the midst of a secular stagnation.

Yes there are certainly more jobs. We are coming off a calamitous decline in economic activity brought on by an asset bubble founded in regulatory capture and widespread financial fraud.

Unfortunately all the abundant monetary stimulus that has flowed from the Fed's Balance Sheet into the financial economy to create these 'jobs' is finding it almost impossible to reach sustainability through a revival in aggregate demand. Instead, it is being used to prop up the balance sheets of the zombie Banks.

This is shown in the unadorned GDP numbers year over year and the flagging velocity of money. Another enormous headwind is globalization that is creating unmanageable social and financial units, and the rise of corporate monopolies that span national borders.

The US may already have slipped into recession. There will most likely be no alarm raised, because the looting of the ship into the first class lifeboats continues, and it is easier if the lower decks remain unaware of the risk.

The rigging of the gold and silver markets is founded in this desire to manage perception. Oh, it is based on a more 'noble' desire to inspire confidence and not make people panic.

But at the same time, it has become an enduring illusion, while the disparities in economic health become increasingly pronounced. And so the looting by the nationless few continues, and justice is led down a hallway and strangled, draped in the national colors, to the sound of patriotic tunes. Such are times of currency war.

The self-serving policy errors of the Federal Reserve Bank are matched only by the horrendously destructive policy errors in political judgment by a Congress and an Executive that has been captured by the moneyed interests.

Who will dare even tell the truth, much less act on it, when the surrender of the truth for 'the story' is one's passport to the more favored classes, the insiders, with all that this implies in terms of comfort and security? The only resignation is to accept a permanent exile, to be without influence, without a voice, ignored.

One must go along to get along, to pay one's dues, extend and pretend, and never, ever, speak ill of the insiders and their schemes. Freedom, who needs it, when you can have security, comfort, and prestige.

So here we are, at peak illusion, just sitting on top of the world.

Have a pleasant evening.

On Secular Stagnation: A Response to Bernanke

economistsview.typepad.com
Larry Summers responds to Ben Bernanke:
On Secular Stagnation: A Response to Bernanke, by Larry Summers: Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates – since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate. ...

His conclusion:

I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation. It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.
But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.
If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

Bud Meyers:
"Saving relative to investment" -- Those at the are top hoarding cash; the money supply isn't being re-circulated to drive economic activity; instead it's perpetuating future generations of heirs.
To expand public and private investment would require changing the tax code and having better enforcement by the IRS (offshore accounts, etc.) An adequate level of demand and its appropriate distribution can be acquired by raising the federal minimum wage to $25 an hour -- all the things that the current congress is against.

Benedict@Large:

"Those at the are top hoarding cash ..."
From the opposite viewpoint, there are few suitable (risk v. reward) investment opportunities. For the same reason, stock buy-backs are popular with corporations.
The real problem is and has always been a lack of demand. Without demand, there is no reason to invest. Just surplus savings. Excess reserves. Those at the top are simply doing the best they can with them.

reed hundt

Gentle economists: a global or even national project to rebuild the energy platform on sustainable and much more affordable grounds would eliminate all vestiges of stagnation. Taxing GHG is only one part, and not an absolutely necessary part, of that project. This is the infrastructure plan par excellence. I might add that the avoided costs are, well, er, mind bogglingly large.

I predict absolutely no one will comment on what I've posted; no one paid any attention to the same prediction made in or about 1994 by the FCC chairman with respect to the rebuilding of the communications platform. Who was that guy?

RGC:

I think we have two distinguishable problems:
1. Effective demand is inadequate and the private sector is extremely unlikely to provide it any time soon. As mentioned, corporations are swimming in cash and are buying back their stock - meaning they don't see good investment opportunities in their marketplace. If the federal government doesn't spend for infrastructure and other things we are likely stuck.
2. The FIRE sector is sucking an ever-increasing amount of income out of the real economy. The average consumers' money is going to pay interest on debt rather than goods and services. The Fire sector uses their income to make more loans and thus collect even more interest or they speculate in the price of existing assets. Thus the real economy continues to shrink.
If fundamental changes re fiscal policy and the treatment of returns to finance versus returns to productive investment are not made, we are screwed.

The Rage said in reply to RGC

"Effective demand" is irrelevant with a strong "FIRE" sector. It is credit expansion and financing of that credit expansion that drive the economy.

So people say "effective demand" is not good enough, but the economy keeps on expanding and expanding as commercial paper surges despite "effective" demand not rising.

This is why I say there was no recession in the early 2000's. Businesses overreacted to the digital booms end and over cut production while commercial paper was booming. Then they had to snap back over 2003 to reflect reality of condition. It is a different economy and one not built on industrial production or consumer savings. The "real" economy is the FIRE sector.
To unbuild that, would require a medium nobody wants to go through.

djb said...

i am glad to see someone blaming hansen, not keynes for the idea that secular stagnation is best we can do
keynes is often attributed to having said this in the general theory, but NEVER said such a thing
he defined several scenarios where it could occur,
believing a true general theory should be able to explain reality
but NEVER said that the scenarios were unsolvable

"But we must not conclude that the mean position thus determined by "natural" tendencies, namely, by those tendencies which are likely to persist, failing measures expressly designed to correct them, is, therefore, established by laws of necessity.
The unimpeded rule of the above conditions is a fact of observation concerning the world as it is or has been, and not a necessary principle which cannot be changed."

thats from the end of chapter 18, the general theory

Fred C. Dobbs said...

Bottom line, the Bernankes
& Yellens can only do so much.
Monetary policy won't get it all done.
That's where Tim Cook & Elon Musk
come in, to do the rest.

Min

Long Depression 2.0?

The Rage said in reply to Min...

Been going on since the early 80's.

anne said in reply to anne...

I too come down on the side of Lawrence Summers. The problem in Europe is domestic demand and that could have and should have been handled by a Keynesian spending approach from 2008 on:

http://research.stlouisfed.org/fred2/graph/?g=VRj
August 4, 2014
Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013
(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=16ei
August 4, 2014
Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013
(Indexed to 2007)

Reply

[Apr 01, 2015] Liquidity Traps, Local and Global (Somewhat Wonkish) By Paul Krugman

Apr 01, 2015 | krugman.blogs.nytimes.com

There's been a really interesting back and forth between Ben Bernanke * and Larry Summers ** over secular stagnation. I agree with most of what both have to say. But there's a substantive difference in views, in which Bernanke correctly, I'd argue, criticizes Summers for insufficient attention to international capital flows – but then argues that once you do allow for international capital movement it obviates many of the secular stagnation concerns, which I believe is wrong.

As it happens, the role of capital flows in the logic of liquidity traps is an issue I tackled right at the beginning, back in 1998; and I've been trying to work out how it plays into the discussion of secular stagnation, which is basically the claim that countries can face very persistent, quasi-permanent liquidity traps. So I think I may have something useful to add here.

Start with Bernanke's critique of Summers. The most persuasive evidence that the US may face secular stagnation comes from the lackluster recovery of 2001-2007. We experienced the mother of all housing bubbles, fueled by a huge, unsustainable rise in household debt – yet all we got was a fairly unimpressive expansion by historical standards, and little if any inflationary overheating. This would seem to point to fundamental weakness in private demand. But one reason for the sluggish growth in demand for U.S.-produced goods and services was a huge trade deficit, the counterpart of huge reserve accumulation in China and other emerging markets. So Bernanke argues that what Summers sees as evidence of secular stagnation actually reflects the global savings glut.

That's a good point. But Bernanke then goes on, as I understand him, to argue that international capital flows should solve the problem of secular stagnation unless if affects the world as a whole, because capital can seek higher returns abroad; he also argues that the global savings glut is mainly a thing of the past, and that in any case such problems can be addressed mainly by putting pressure on foreign governments to open their capital accounts and stop pursuing policies that promote excessive current account surpluses. And in these assertions, I'd suggest, he goes somewhat astray.

Let's first ask whether the possibility of investing abroad obviates the problem of liquidity traps in general (as opposed to secular stagnation.) To do this, consider the analysis I laid out a couple of months ago when I was trying to think about the dollar and U.S. recovery, but run it in reverse. Suppose that a country or currency area – let's call it Europe - suffers a decline in aggregate demand. And suppose that this threatens to push the Wicksellian natural rate of interest – the rate of interest at which desired savings and investment would be equal at full employment - below zero. Can this happen if there are positive-return investments outside of Europe?

You might think not: as long as there are positive-return investments abroad, capital will flow out. This will drive down the value of the euro, increasing net exports, and raising the Wicksellian natural rate. So you might think that you can't have a liquidity trap in just one country, as long as capital is mobile.

But this isn't right if the weakness in European demand is perceived as temporary (where that could mean a number of years). For in that case the weakness of the euro will also be seen as temporary: the further it falls, the faster investors will expect it to rise back to a "normal" level in the future. And this expected appreciation back toward normality will equalize expected returns after a decline in the euro that is well short of being enough to raise the natural rate of interest all the way to its level abroad. International capital mobility makes a liquidity trap in just one country less likely, but it by no means rules that possibility out.

Still, secular stagnation – as opposed to liquidity-trap analysis in general – is concerned with excess saving that lasts a very long time, that's quasi-permanent. So in that case wouldn't we expect capital mobility to be decisive? Shouldn't it be impossible to have secular stagnation in just one country?

When I first approached this issue, that's what I thought. But I immediately ran up against a big real-world counterexample: Japan. Japan has effectively been at the zero lower bound since the 1990s, and it wasn't until the end of 2008 that the rest of the advanced world joined it there. So why didn't capital flood out of Japan in search of higher returns, driving the yen down and boosting Japan out of its trap?

The answer is that real returns in Japan weren't exceptionally low – they were, in fact, more or less equal to those abroad. But this equalization of real rates didn't occur through an equalization of Wicksellian natural rates. Instead, what happened was that persistent deflation in Japan, combined with the zero lower bound, kept the actual real interest rate well above the Wicksellian rate. Here's the data from 1996 to 2008, with inflation measured by the GDP deflator and interest rates measured by 6-month Libor:

[Graph]

OK, it's not full equalization. but not too far off - despite being at the zero lower bound for many years, Japan ended up offering more or less competitive real returns.

The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into "lowflation", you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.

Which brings me to the future of the global savings glut.

As Bernanke notes, as far as big current account surpluses go, Germany is the new China. However, he argues that the large current account surplus of the euro area as a whole is a temporary phenomenon driven by cyclical weakness in the euro periphery, and therefore not likely to be a source of persistent trouble.

But look at what bond markets are saying! German interest rates – presumably an indicator of perceived euro safe rates – are negative out to seven years; the 10-year rate is only 16 basis points. This is telling us that markets expect the euro area economy to be depressed, and ECB rates very low, for many years to come. In effect, European bond markets are flashing a secular stagnation warning.

And this makes sense: the case for secular stagnation in Europe is considerably stronger than it is for the U.S.. Working-age population is declining, Japan-style; the euro system, with a shared currency but no fiscal integration, arguably imparts a strong contractionary bias to fiscal policy; and core inflation is already down to just 0.6 percent.

By the logic I've already laid out, this should imply a persistently very weak euro and a persistently large European current account surplus, as Europe in effect tries to export its secular stagnation – a process limited only by the way low inflation or deflation interact with the zero lower bound to keep interest rates from falling to their Wicksellian equilibrium rate.

Sure enough, if we try to figure out the market's implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

What this in turn implies is that even if you downplay domestic U.S. weakness and focus on the export of capital from other countries, especially Germany, there's no good reason to believe that this new version of the global savings glut will end any time soon.

Which brings me to the policy debate. Bernanke seems to be saying that if there is a problem, it can be solved by cracking down on currency manipulation:

"The US and the international community should continue to oppose national policies that promote large, persistent current account surpluses and to work toward an international system that delivers better balance in trade and capital flows."

If my analysis of the European problem is right, however, this is pretty much irrelevant: Europe's trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren't that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.

* http://www.brookings.edu/blogs/ben-bernanke

** http://larrysummers.com/2015/04/01/on-secular-stagnation-a-response-to-bernanke/

[Apr 01, 2015] Links 3-30-15

Apr 01, 2015 | naked capitalism

Jim Haygood, March 30, 2015 at 8:47 am

So does our dear Uncle Ben (Bernanke):

When I was chairman, more than one legislator accused me and my colleagues on the Fed's policy-setting Federal Open Market Committee of "throwing seniors under the bus" (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings.

I was concerned about those seniors as well.

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

To paraphrase an old joke from engineering school, 'Four years ago, I couldn't even spell seniur. Now I are one!'

Ben's screed sounds oh-so-plausible, until one focuses on what it doesn't say. It doesn't disclose that a steeply-sloped yield curve, with its lower end anchored at zero, is a direct, unlegislated subsidy to banks who borrow short and lend long.

Of course, borrowing short and lending long is risky. But as the events of 2008 proved, banks that blow themselves up with stupid, risky behavior will get bailed out with public funds if necessary, then subsidized for years afterward with ZIRP. Hey, it's a bank cartel. When foxes guard the hen house, the dinner menu never varies: chicken!

craazyboy, March 30, 2015 at 9:58 am

More desperate Econ 101 verbiage, disconnected from any reality, attempting to validate the notion that Fed short term policy rates ( a bankers "cost" – not selling price) has any benefit to the economy*. Ok, we know Volker was able to break the economy with 15% short rates. So we are to believe that all you need to do is the opposite of Volker, and voila!, vibrant healthy economy. Yeah, binary brains rejoice!

No mention of securitization and the role it plays in modern banking. You can be interest rate insensitive when you are on the "fee model" and can sell off all your risks – after obfuscating the risks to make a prettier package for yield starved "investors". "CDS with that", they will offer for default risk. You might be able to hedge long term inflation/interest rate risk – but your total return probably goes back to zero. Anything to prop up housing prices beyond what the consumer can afford. But maybe the Fed doesn't know that is going on and Ben is still unaware. hahahahaha. I'm just kidding. Ben isn't an idiot…oh wait, we're doing it again???

He was concerned about "seniors" – THEN he threw them under the bus. 'Course no mention of that growing pre-senior bracket – when you are permanently out of the job market for whatever reason, but have many years to go prior to being eligible for SS.

Then no mention of time frame. Isn't 6 years and counting long enough to see if you are getting these so called positive effects he claims? Anything weird happening to challenge your theoretical world view? Is a stock bubble a good thing or a bad thing? Is a bubble a store of value? hahahaha Stay tuned if you're not sure yet.

* About the only "good" effect you can put your finger on is maybe some people and orgs can re-finance at lower rates. But this usually applies to someone that has good credit and not teetering on bankruptcy already. Then typically, to really get the good lower rate you need to get around going thru a bank. So the biggest beneficiaries would be large financially stable corporations with direct access to the bond market. Then this effect may warrant low rates for perhaps a year or so, at which point they all should have done it and be done. By now we have seen what they've done with the money, and it generally wasn't hiring.

JTMcPhee

March 30, 2015 at 3:57 pm

cb, maybe you've seen the conglomerate (in the geology sense) behind the "Dismal Science" (sic) link above, http://www.nybooks.com/blogs/gallery/2015/mar/29/whats-wrong-with-the-economy/ How much additional evidence of the bankruptcy of competence (measured by decency and comity and mitigation of pain and such meaningless metrics, or even by the patent failure of economics to meet any of the tests of what constitutes a "scientific discipline") amongst all the "economists" is needed to nail down an indictment?

Shoot, it is too much for me, at least, to gird myself to pick out the most horrific, all-too-human, and insufficiently humane (from my own "loser's" perspective, of course), riffs and bits from that March 14–15, 2015, conference, "What's Wrong with the Economy-and with Economics?" Which convocation seems a little like asking a bunch of bird colonels and 1-star generals and think-tankers and CEOs of post-national corporate thingies like Lockheed "We never Forget who we are Working For" Martin at a gathering at the War College to discuss "What (If Anything) Is Wrong With The Military-Industrial-Congressional-Petro-Financial Complex?"

I won't pretend to know the CVs and bona fides of the participants (though I don't see Noam Chomsky and those sorts represented at all), but it looks, reads and sounds like every one of the fat, dumb and happy folks in attendance are all feeding at the same trough. "Oh, our models just need tweaking!" and keep those political-economists at a very long distance, they might inject the notion that human pain is present and inherent, and so very distastefully so, in all their policies, but don't let that get in the way of a lot of genteel comradery among those admitted to the club… Besides, the "right people" are doing very well indeed, thank you very much. And we need a little time to wrap some bland and dense formulae and definitional constraints around potentially combustible non-scientific notions like equity and morality and honor and decency.

"Burn it all down!" is gaining some steam, folks. Economists and their leash-holders can pretend all they want that they have nomenclature and handles and plans and contingencies for all this overlay of pseudo-scientific Ruler-serving complexity they have created in service to the Elite. The Crowd can be chivvied just so far, and then there's a stampede.

I can hardly wait, out here in entertainment-space, to see how the fops and courtiers and courtesans and peacekeepers in "The Capital" fare in the last installment of "Hunger Games: Mockingjay II." The word from the Districts: "President Snow! If we burn, you burn with us!"

Of course, maybe this conference and other such gatherings are really an arch subversive plot to undermine the minions of the "science" wing of the economist brand, and blow a little lift under the pinions of the "political" wing…

Reply ↓

craazyboy

March 30, 2015 at 6:46 pm

Who knows what may happen when you get a bunch of proctologists together for a navel gazing convention.

[Apr 01, 2015] Chris Hedges America is a Tinderbox

Apr 01, 2015 | naked capitalism
Banger July 21, 2013 at 1:18 am

Well, I don't find most people vicious. But you are right if you mean by that they admire and respect strength. The Montgomery Bus Boycott was a powerful symbol of the strength of a community. Most Americans have contempt for the left because it is weak. It wilts, always, under pressure. I am old enough to remember when that wasn't the case.

I don't blame the American people because they have been subject to the most sophisticated mind-control regime ever known–people who are literally under dozens of magic spells, half-hypnotized and half-awake. Yes, they succumbed to the sly manipulations that used the unconscious as a playing field without hardly anyone knowing.

jake chase July 21, 2013 at 1:47 am

Sophisticated mind control my ass. Plutocrat right wing horseshit sells because it makes people who buy it feel somehow respectable and virtuous, without challenging in any way the mean, puerile selfishness by which they steer their own ship of life. Just about every man at least has somebody he can push around, thrash if he feels like it, all the while telling himself how manly this makes him. Want to see what the working class is like? Spend a few hours in one of their bars.

The only thing 90% of the population wants is for their own worthless lives to become marginally more luxurious. I saw this vividly during the Seventies, on the North Fork of Long Island, where every union screw turning warm mongering putz had his little plot of grass, his motorboat, his garden tools that made the neighborhood sound like Armageddon. Archie Bunker was a sanitized version of these bastards, who liked nothing better than thrashing some long haired student or idealistic protestor and waiving the flag for Richard Nixon.

Of course, none of them had served anywhere. They had fallen into the between the wars age group, and their idea of military service was a John Wayne movie.

Banger July 21, 2013 at 11:22 am

Sure, many working class assholes were and are assholes. But many are not that way and I hung out in some bars then and I must say I knew some nice guys too.

As for mind-control–I've studied it and the ruling elites certainly set out on the project willfully and left a paper trail and it worked. Stage magic works as does manipulating the unconscious of people who don't believe they can be manipulated.

jonboinAR July 21, 2013 at 1:56 pm

Response to "tongograd"'s quotation of Mark Ames

Will you listen to this from a white male point of view? As the end of the first paragraph makes clear, the people that Ames is calling not just stupid but cowardly, nearly the worst insult you can give to a human being, are not really so much Americans in general, that is Latinos, African Americans, Native Americans, Asians, or women of any ethnicity, but specifically white males. Really them alone. Then, again, as usual, following the string of insults, Ames and the Left he putatively represents have the nerve to wonder just what they have to do to attract the white male vote. "Well, we can't do anything about it. They're not just benighted and otherwise disgusting, but really they're chicken-shirt. If they ever decide to grow a pair they'll come to us." Really? You think so?

What other ethnic group on the face of the earth is it not just considered acceptable by the Left, but de rigeur, to openly despise, to compete in order to creatively criticize and put down. "Hey", says Ames, "Everyone calls them stupid. No one ever thinks to call them cowards, the whole group of white, male American Fox News watchers. I'll make my name today!" ANY other ethnic group, you'd better watch yourself when you reference. You'd better make sure that nothing you say can be taken to even imply any criticism of them as a group. Man, I don't think I'm exaggerating here. But white males, especially if they're American, whether working or managerial class, have, since the Civil Rights Era, been the scapegoats of the left, classical-like scapegoats, openly, until now it's not even questioned. The Left puzzles and puzzles about why the American white male distrusts them, but never even brings up this perfectly obvious question. I don't know. My discussion of it right now will probably be considered racist by some just for defending them. It seems as though the practical definition of racism is advocating in any way for the interests of whites or, especially, white males. Nothing they have or do is considered legitimate.

"We the spiteful." Please! That's just funny.

You, we (and man, I do it too, now I think of it), the Left, need to stop pretending to wonder why the white males in the US don't want to travel with us. If we're really interested in winning the economic war with the "oligarchs", we're going to have to drop the identity politics and return to class. But maybe it's useful, psychologically or competivitively necessary to continue scapegoating them and this economic struggle is really a smokescreen for something else. I don't know.

Lexington July 20, 2013 at 3:38 pm

The problem, Hugh, is that your 99% does not agree with your view of the world. They believe that the poor are lazy and they are more resentful of the poor than the Koch brothers. Leftists have to face this fact.

Yes, they have to face it, but they don't have to accept it. To build a mass movement these people need to be engaged in dialogue and persuaded that there is another way (I deliberately avoid the condescending term "educated"). Many people seem to think this is next to impossible and not worth trying, but from where I'm standing it's the only way. And I don't think it's that hard, because our agenda is emminently in their self interest, and at bottom people invariably have a very firm grasp of their own self interest, even if it has been clouded by "wedge issues" and "culture wars".

Bottom line is that racial resentment and nationalism are all good and fine, but when your stomach is empty they don't amount to a hill of beans. Neoliberalism is remorselessly proleteriatizing the American worker and one consequence is that peoples' priorities become a lot clearer.

I can only site the most egregious example and that is the Daily Kos blog which is an example of where faux-leftists dominate the discussion and ban real discussion when it gets beyond Party orthodoxy.

Daily Kos is the unofficial house organ of the Democratic Party, not in any way legitimately a progressive site. Markos has never been very good at concealing his ambition of becoming a player in the Democratic establishment by leveraging the site's potential to mobilize the base. Back in the day when we could pretend that progressives and Democrats were largely on the same team lots of people were willing to overlook that. Seems like a lifetime ago now.

The left is dead right now–stone cold dead. Occupy was a last stab by anarchists to wake it up–it failed utterly in doing that though I think it may have revived anarchism a bit which is always a good thing.

I honestly don't know what people expected from Occupy. Did the Montgomery bus boycott end racial segregation in the south? Did the Ludlow Massacre crystalize broad suppport for workers rights? Occupy was an opening skirmish in what will be, at best, a very long and drawn out war of attrition against very powerful and deeply entrenched interests. Perhaps our society's obsession with instant gratification has blinded people to exactly what this will entail.
Hugh July 20, 2013 at 7:16 pm

I agree with you. We need to talk to all Americans, citizen to citizen, equal to equal. We must ask not just for their ideas and support but their full participation.

A bad idea (what we have now) can be overturned by a good idea (what we can build together). But we don't have to just appeal to self interest. Ordinary people, we of the 99%, have shown for hundreds of years that we were willing to fight and even die for something bigger than ourselves. That impulse has not disappeared. We just need to give people something to believe in, and make sure that it is worthy of their belief.
jake chase July 21, 2013 at 1:51 am

Ordinary people have shown they are sheep willing to be led into slaughter, too fearful of censure by neighbors to even stand up for their own lives. There is nothing they have 'died for' in the past three hundred years that was worth a fart in a hailstorm. If you think otherwise you better spend more time reading history.

Calgacus July 21, 2013 at 6:29 pm

Really, Jake? The sides in the US Civil War & WWII were indistinguishable, and one side was not somewhat gooder guys than the other? (Need I say that that side was imho the one with the evil Northern capitalists & later the US military-industrial imperialist complex & Joe Stalin too?)

The slaves in Haiti 200 years ago were not fighting for something "worth a fart in a hailstorm"?
Really?

Banger July 21, 2013 at 1:10 am

The Montgomery Bus Boycott did much to change things at the time–it built momentum for a movement by showing the determination of citizens to see the project to the end. It was a dramatic show of strength by a community that had felt marginalized and despised by the majority of citizens.

Occupy was nothing of the kind. It was studiously not organized and it achieved little momentum because, beyond the participants and part of the intellectual class it did not win much respect from the population as a whole. Again, it aided the cause of anarchism and I think showed the left an interesting direction to follow.

jrs July 21, 2013 at 2:56 pm

I'm tired of criticisms of Occupy for not being organized, if the point of the criticism is they didn't have a leader, and proper heirarchy etc.. The fact that there was an assassination attempt on Occupies "leaders" (and the assassination attempt had unintended humor – the keystone cops want to assassinate leaders of an anarchist group!), shows just how dangerous organizing in a traditional hierarchy would have been. Leaders = Targets for Assassination. That's the murder elite we are dealing with. Perhaps the anarchist know a great deal more about fighting a guerilla war than their liberal critics.

Banger July 21, 2013 at 3:30 pm

Occupy was a sign more than a movement. By not organizing, of course, it avoided decapitation and populated the imagination more than the streets. It's taken me awhile to understand it as a harbinger of a new political age. Since it is new I do not understand it yet. But I recognize that politics cannot change without a profound change in consciousness in all of us left, right, center and outsider (my current political alignment).

But, as a political movement, it failed completely. Lack of coherence did not inspire the confidence of people sitting on the fence. That's not the fault of Occupy it's just the way we are now.

Nathanael July 21, 2013 at 10:18 pm

The Montgomery Bus Boycott came after a decade of seemingly fruitless work in the 1950s, and even earlier setbacks in the 1940s.

I have debated in these pages whether we are in the equivalent of the "1950s" phase or the "1940s" phase. We certainly aren't anywhere near the 1960s phase; some people have to age out and others have to grow up.

EricT July 21, 2013 at 1:08 am

I don't agree with the presumption that the 99% in this country can't agree on anything we actually agree on a lot when the real message is delivered. The real problem is that every movement that gains momentum is co-opted by the real power in this country. Nixon's cointel has become the policy of the elite to protect itself. Haven't you ever turned on current TV. On my cable system, the sound is awful, I have to turn the volume way up to hear it, turn on one of the MSM stations and the sound is relatively incredible. They make it hard for everyone to organize, they give you candidates that only differ on the most divisive issues( i.e. reproductive rights ) and won't address the actual causes of everyone's malaise.

They promote chaos among us all, by not actually bailing out the country, they keep everyone on edge being one paycheck away from bankruptcy or one medical condition from ruin, some of their tools are racism and classism. The game is rigged and we are the suckers.

jrs July 21, 2013 at 2:49 pm

As for "more resentful of the poor than the Koch brothers". I get into debates where a subject of never ending interst is whether or not people deserve their economic fate.

Gah, with all that is wrong with the world (so so much) why is this topic even so endlessly interesting to people? The truth seems obvious and boring to me: while there is sometimes things individuals can do to effect their economic situation one way or other we don't live in some world that magically metes out justice in monetary reward. Duh. Furthermore an economic system that doesn't allow second and third and forth etc. chances before condemning people to poverty is cruel. And I'm not even talking about second chances for murders or any type of moral offense – I mean for making dumb economic decisions! Even some platonic ideal of a Perfect economic Meritocracy – if it all depended on an economic decisions you made at 19 and could never be changed after that point is *inhuman* – it does meet a basic human requirement of human life for growth over the lifespan. Life has consequences by it's very nature, but punishment to poverty is a consequence purely of social systems.

So really why is the question of whether people deserve their economic fate even so interesting to poeple? We are the 99%.

Lambert Strether July 20, 2013 at 4:40 am

Gramsci wrote from one of Mussolini's jails. A lot of his language is neutral for that reason.
ambrit July 20, 2013 at 6:28 am

Mr Strether;
Obama as a modern American Mussolini! Now that's an image! The Tea Party stooges got it wrong in portraying 'O' as a Hitler type. He's a 'kinder gentler' Mussolini type authoritarian! (Somehow this strikes me as an insult to the memory of Mussolini. Go figure.)

from Mexico July 20, 2013 at 10:52 am

I agree that no change will take place without organizational politics.

Peter Skerry does an outstanding analysis of the three types of politics - organizational, protest and elite-network - in Mexican Americans: The Ambivialent Minority.

Organizational politics has always been the only effective way to advance the interests of the lower socio-economic orders. Elite-network has of course always been the domain of elites, folks like Obama. Protest politics can swing both ways, but as a stand-alone tactic it is inadequate. Remember that behind the Civil Rights Movment stood an elaborate organization: the Black church.

Lexington July 20, 2013 at 3:12 pm

Protest politics creates awareness of the issues and mobilizes people behind them. It is therefore complimentary to organizational politics rather than an alternative to it.

You are absolutely right to point out that the church was indespensable in organizing the civil rights movement, including providing most of the leadership. But it was the sight of thousands of blacks in the streets demanding their rights that moved public discourse on civil rights by giving urgency and momentum to their agenda.

nonclassical July 20, 2013 at 5:49 pm

Hugh,

I love your writing…but English language is "abstract", meaning specifically, (the
"act" portion) that it enables words-concepts to be presented, while lacking in
direct ACTion…English is a poor language for DIRECT ACTion, therefore direct thought consideration-in comparison, an Asian pictogram is a direct picture of an action-leads away from "abstraction"…

..what I intend, therefore, is to take specific actions into consideration, and force them upon public consideration.

If "the people's representative government" is to return to this conceptual relevance, first must be a public movement to end, once and for all, ALL campaign $$$$ influencing "the people's representative government"…otherwise, all else is in permanent fail mode…focus, people…

wes July 20, 2013 at 4:33 am

yves, I totally agree with your analysis of the shortcomings of hedges' understanding of the history of anticommunism. its been one of the few undercurrents that really annoys me about his otherwise admirable body of work and thought.

i would add that in addition to the repressive state apparatus's mastery of human movement through the urban landscape which you mention, there's at least one more important bit of geographical context to the underdevelopment of American oppositional culture: the suburb. It's a lot easier to mass on the streets when there's a mass of people living on the same street.

Banger July 20, 2013 at 1:17 pm

Yves makes good points but she's wrong that not having a street culture necessarily precludes activism. It is the propaganda regime that has silenced real dissent and it has, and this is far worse, the betrayal of truth by both Hedges' liberal class and the radical left. The left, as a whole, has accepted the mainstream narratives about the nature of power-relations in this country and the basic narrative that our leaders always mean well even though they may be misguided and that Vietnam or Iraq was a "mistake" by policy makers suffering from hubris. Bullsh!t!!!! Macbeth did not make a "mistake" he was a greedy bastard who wanted power. Well, that's the case for the vast majority of American politicians and power-brokers–not grasping this clearly has destroyed the American left–let's bury it and start again shall we?

Antifa July 20, 2013 at 2:55 pm

The biggest and most invisible elephant in the American psyche is this: our government has long since abandoned the goal of managing this nation as a nation.

Instead, America as a nation is managed as a means to global empire.

And everyone's all right with this.

While a middle class was useful to produce salable products to the rest of the world, we had a prosperous middle class. Now that industry can be relocated wherever wages and taxes are lowest, America's middle class is being stripped of its jobs, homes, pensions, social safety net, civil liberties and future.

All to feed the last sticks of furniture into the raging war for global economic and military dominance that benefits only our wealthiest one percent.

Even wingnuts respond to the idea that we need to leave off policing every square foot of the planet and return to looking after our own nation as a nation, rebuilding decent jobs, rebuilding communities, and rebuilding our sense of there being a better future for our kids than we got.

Discussing and organizing around this idea that our lust and quest for empire has gone way too far scares the powerful more than anything else. It cuts at the very root of their power when they hear demands from all political sides that we cease empire building in favor of returning our full attention to domestic progress, to managing health and success for the citizens of this country, our country, before projects to surveill, conquer, or economically dominate any other nation.

Call it the Me First project. Everybody gets to make demands for a better life for themselves and their children. That's the American Dream that everyone wants.

Call it Nation Building. We're gonna roll up our sleeves and make our country self sufficient in clean energy, first in education, first in healthcare, first in equality and liberty, and the model for nations everywhere. Cuz that's how we roll.

It is not normal for Americans to lose their futures, for Americans and their children to be starved of shelter, food, medicine and education in order to have an active military theater command for every continent on earth.

Where is that in our Constitution?

from Mexico July 20, 2013 at 3:36 pm

All through history one may observe the tendency of power to destroy its very raison d'être. It is suffered because it achieves internal unity and creates external defenses for the nation. But it grows to such proportions that it destroys the social peace of the state by the animosities which its exactions arouse, and it enervates the sentiment of patriotism by robbing the common man of the basic privileges which might bind him to his nation. The words attributed by Plutarch to Tiberius Gracchus reveal the hollowness of the pretensions by which the powerful classes enlist their slaves in the defense of their dominions:

The wild beasts in Italy had at least their lairs, dens and caves whereto they might retreat; whereas the men who fought and died for the land had nothing in it save air and light, but were forced to wander to and from with their wives and children, without resting place or house wherein they might lodge… The poor folk go to war, to fight and to die for the delights, riches and superfluities of others.

–PLUTARCH, The Parallel Lives

Banger July 21, 2013 at 3:32 pm

Echoes Jesus: "Foxes have dens and birds have nests, but the Son of Man has no place to lay his head." Luke 9:48.

nonclassical July 20, 2013 at 6:01 pm

Banger,

that "propaganda" you mention is summed up in entirety in Adam Curtis' fine BBC videos (and you are accurate):

http://www.youtube.com/watch?v=cW_rIdd69W8

http://www.youtube.com/watch?v=gZt2HhFXB3M

http://www.youtube.com/watch?v=WbRApO3k_Jo

http://www.youtube.com/watch?v=voHbU6gaPos
……………….

I would love to be able to post the entire Adam Curtis "The Power of Nightmares" video also-but due to U.S. video of neocon bushit, shown on U.S. television, and number of us who have posted it in direct contradiction to fundamentalist propaganda, it is permanently removed from youtube…entirely too controversial…(too funny-buy the video):

http://www.amazon.com/Four-Adam-Curtis-Nightmares-Century/dp/1615774408/ref=sr_1_1?s=movies-tv&ie=UTF8&qid=1374357284&sr=1-1&keywords=adam+curtis+documentaries

people might also be advised that Curtis' videos include British and Russian economic history, in parallel to historical treatise involved in these videos:

"All watched over by machines of loving Grace" is expose' on Ayn Rand…

"Mayfair Collection" is British military-economic historical treatise…

OIFVet July 20, 2013 at 6:11 pm

Try here: http://www.youtube.com/user/BBCNightmares. It works.

JCC July 21, 2013 at 3:39 pm

Not any more, it only took one day since your link to take it down.

Dan Kervick July 20, 2013 at 9:53 pm

It seems to me that if people of a leftist orientation want to achieve some sort of real, comprehensive and enduring social change, the first step is to accept and embrace the idea that what they are trying to do is achieve political power. That might appear obvious, but it sometimes seems to be a characteristic psychological trait of the contemporary left to have turned their politics into a matter of pure psychological identity, temperament and personal expression. Most self-described lefties seem to possess such a deep antipathy toward all forms of political power, such as it actually exists in actual human nature and human history, that their aspirations for change are utterly and comically doomed from the outset.

So all that is left for them is a kind of waiting around for some vaguely imagined spiritual transformations of humanity, wringing an occasional concession out of existing elites due with a noisy protest or two. Lovely. Keep praying, dreaming and "demonstrating" forever. Meanwhile, keep being dominated, because real politics is not a quest for millennial religious enlightenment, or personal liberation from all forces of external control. That's just egotistic self-indulgence. Real politics is organized, coordinated, strategically and tactically mature action in pursuit of difficult social goals.

People like Hedges, Chomsky really have little to offer, I'm sorry to say. Their style of leftism has been on proud and impotent display for about four decades now as the right has taken over the world. They are angry and alienated outsiders whose entire intellectual and emotional identity is based on remaining angry and alienated outsiders so they have a mighty wall of oppressive counter-reality against which to rail and define themselves.

People who want political power might want to start by at least imagining themselves in power. Now, I can already hear the contemporary critic, "No in my utopia, there is no power. There is no coercion. There is no institutional organization with conventional systems of governmental direction and control. There is no commerce and exchange. There are no police enforcing any rules. There is no "wielding" of anything. There is no hell below us; above us only sky, blah, blah. There are just people living in perfect magical harmony, achieving a lovely, comprehensive but utterly non-coercive egalitarian coordination."

Let's just say that there have been periods of left-wing success in the past, and this isn't how they thought. They built a middle class out of a peasantry; they created social insurance systems; they destroyed serfdom; they ended child labor; they created tax regimes that leveled inequalities and funded broad-based investment for the general good; they built powerful unions and parties that actually managed to run things, get elected and implement a difficult agenda. they wrested control of society's capital resources from powerful private owners of those resources who were in no mood to give them up. They fought and died in Spain; they fought and died in Germany and they fought in Stalingrad. And that wasn't just because they wanted to be martyrs, but because they judged these battles to be necessary steps in a long, hard strategically coherent slog.
Paul Tioxon July 20, 2013 at 10:47 pm

https://www.youtube.com/watch?v=7t537W5zoFI

Billy Joel-Prelude/Angry Young Man- WITH Lyrics
Marko July 20, 2013 at 11:14 pm

" People like Hedges, Chomsky really have little to offer, I'm sorry to say…."

Says who ?

Says Kervick. Mr. Dan Kervick.

WTF is that? Has he done anything ? Is he anybody ? Does he have any bright ideas ?

None that are readily apparent.

Well he should shut his bashing-all-leftists-that-aren't-himself pie-hole till he does , then.

Maybe when he's sued the gov't on behalf of all of us and our civil liberties , as Hedges and Chomsky did recently , he'll have some reason to puff himself up. As of today , he ain't got jack shit.
Lambert Strether July 20, 2013 at 11:22 pm

Less ad hominem, more responsiveness, please. It's going to take a little more than suing the government to get us out of this hole. It's certainly good, admirable, that Hedges ad Chomsky did this. C'est magnifique, mais pas la guerre. Kervick points this out. It's a perfectly respectable argument.
from Mexico July 21, 2013 at 12:34 am

I thought Kervick made a valid argument too.

We've dreamed of a world free of politics, hierarchy and coercion for a long time, in the Modern period since Rousseau. And this aversion to politics has had a strong influence on the left, as Hannah Arendt explains in "Karl Marx and the Tradition of Western Political Thought."

But there are plenty of people out there, like Adam Curtis, who believe this is a Utopian vision. In his latest film, All Watched Over by Machines of Loving Grace, he speaks of the latest ideology, "computer utopianism" or the "California ideology," that, as the trailer says, held out the promise of a society "without politics and the old hierarchies of power."

"But power hasn't gone away," concludes the trailer. "It never does."

http://vimeo.com/54978755
Chris Rogers July 21, 2013 at 3:07 am

@Mexico,

One of the major problems with the 'organisational meme' is that very often said organisation becomes rather staid and Conservative – much as Robert Michel's noted with his 'iron law of oligarchy', i.e., 'who says organisation, says oligarchy',. And, if I'm not mistaken, those who were at the forefront of the OWS movement wished to avoid this and remain truthful to their grassroots – the problem with OWS, who's aims were noble, was it seemed to be a 'middle class' movement', which by its own definition alienated much support from the working class.

Now, if only we had another Martin Luther King, who by any measurable standards is one of the USA's greatest political leaders and a brilliant orator in his time – regretfully, and as history suggests, he was a once in a lifetime brilliant leader – he was also able to connect to not only his core constituency, but those with a moral outlook whatever their class or colour maybe – Regretfully, I see no MKL on the horizon to inspire and coral many of the disparate forces and opinion expressed on these boards.

So there you have it, our left-of-centre leanings mean in effect we are awaiting a messiah to deliver us from this neoliberal dystopia and deliver us the 'new Jerusalem' – which seems highly religious.

One 'big plus' for all concerned, is that Hughes comments and opinions have driven an unusually large response from the commons – its very disparate, with forces from both the left-of-centre and more libertarian elements having similar aims and goals and all highly concerned.

What to do next is the obvious question, and its a must to avoid false prophets, such as one Barack Obama in the US or Tony Blair in the UK.
Joe Miller July 22, 2013 at 12:55 am

"We've dreamed of a world free of politics, hierarchy and coercion for a long time, in the Modern period since Rousseau."

It's entirely possible to be free from the latter while still engaged in the former. Here's what Morgan Finnegan has to say about egalitarianism in extant forager societies:

"Egalitarianism in BaAka contexts is a relationship rather than a static term, within which there is continual bargaining and disputation. Individual autonomy and freedom, as in all hunter-gatherer communities is prized, so that the social ethos of sharing and the perpetual motion against dominance must be continually reinvented. This tension is what gives the egalitarian relationship its fluid, dynamic quality."

RanDomino July 21, 2013 at 12:58 am

Cute. An orthodox Marxist lecturing anyone about what it takes to succeed. THIS time it'll be different, right comrade?
Dan Kervick July 21, 2013 at 12:12 pm

I'm not a Marxist. I don't believe in the labor theory of value or dialectical materialism or the withering away of the state, and I believe societies need to have vibrant private sectors as well as public sectors. I'm just a practical egalitarian who believes in old-fashioned "mixed economy" economics, and the possibility of vibrant real-world, problem-solving democracy. A society with state-supported full employment and ongoing public investment in human capital and strategic economic transformation; a broad and much more equal distribution of the national output with strong caps of private accumulation; a socialization of retirement, education and health care, with most of the remaining consumer economy handled by private enterprise; a drastically reduced and reorganized financial sector with reformed institutions of public finance; more time spent on citizen deliberation, education and practical governance chores, and less on entertaining oneself and doing one's day job – these things all seem eminently achievable to me, since in one form or another they were being achieved in the past before neoliberalism swept much of it away. So the left just has to pick of the pieces and get started again.

We don't need a revolutionary "spark" or a "charismatic leader". We're talking about a long ground game. There needs to be coordination on an ambitious agenda, and some strategic thinking about how to put it into practice. How did the radical right agenda of people like William F. Buckley and Barry Goldwater become the depressing mainstream that it is today. No revolutionary romance. They just spent decades organizing and carrying through a gradual takeover.

No dreams of tribal life in a pre-historical rain forest, where 200 people manage to live without formal rules and law enforcement; no fantasies about techno-geek, open source, government-free utopia of untrammeled anarchic liberty.

There is always a certain element of thinkers who thinks the very idea of a police department that keeps people from pissing on the sidewalk is "fascist" or "maoist", etc.
Banger July 21, 2013 at 1:27 am

I think I sympathize with you. The left's aversion for politics comes from the sense that, in the end, politics breeds the struggle for power and that, in itself, is the deep problem that we are sitting with that makes us unable to move.

For me this is because leftist have tended to accept the dominant narrative as the container of their own. I claim that the dominant narrative is a carefully constructed and engineered lie and should be totally discarded.

The essence of the left's problem is that all power that isn't a result of the usual Machiavellian game comes from community. A mobilized community can stand up to political power and has and won clear victories over and over again. By accepting the individualist philosophy that cripples any movement we accept defeat. We cannot be a collection of individuals voting for the usual clowns–that is no way towards anything but neo-feudalism which is coming about as sure as the sun will rise tomorrow.

First, form communities–you talk about change, about peace, about egalitarianism–then give up your selfish ways and join with others by pooling resources and building trust. There is no other path. The alternative to that? Mysticism and it could lead to community, who knows. The monastics seemed to have done rather well back in the day.
jake chase July 21, 2013 at 2:03 am

Yes, give up your selfish ways- now there is a message that will resonate with the working class. On the other hand, you could promise them all a new Webber grill with an electronic starter.
Banger July 21, 2013 at 6:54 pm

No I would tell them about teamwork, parties, relaxing because your friend has your back–how long before "things" become empty? Life is to be lived not endured mediated by products.
Timothy Y. Fong July 21, 2013 at 2:26 pm

The mistake is in believing that there is some end-steady-state utopia. There isn't. No matter what we do, in 100 years (or less) some angry 20-somethings are going to look back at us and say we screwed up. Nonetheless, the winning is in the struggle.
Ruben July 21, 2013 at 2:11 pm

"Most self-described lefties seem to possess such a deep antipathy toward all forms of political power, such as it actually exists in actual human nature and human history, that their aspirations for change are utterly and comically doomed from the outset."

To base your argument on such an empty abstraction as "human nature" is to fail Popper's test of falsifiability.

Look, this works too: because of human nature any successful fight for political power is doomed to turn first tragically then comically into tyranny, as it actually has happened throughout history.

At the end of your argument you make a strawman of the other view but that's OK, it's a free blog-comment section.

Anyways, the perfect example you are looking for of leftists achieving political power at the last paragraph of your argument existed for several decades, it was called the USSR. Earlier examples include the Jacobins.

Achieving political power is not the solution, political power itself is the problem. Whomever achieves political power, no matter how pious, immediately suffers moral debasement, because the well being of the abstract collective notion he/she undertakes to protect overwhelms the natural, evolved, in-built morality of the individual.
Dan Kervick July 21, 2013 at 4:00 pm

Human nature isn't just an abstraction. There is a science of it.
Ruben July 22, 2013 at 2:41 am

Insofar as there is a science of human nature, that science is genetics, and genetics is no ground at all to prove the need of political power.
Dan Kervick July 21, 2013 at 4:03 pm

What about the union movement of the 20th century? Or the successful creation of the Social Security system? Or minimum wage laws? Or the 90% marginal tax rate?, etc. These things were passed by actual legislators who achieved political power.

You know, every exertion of leftism doesn't degenerate into "Mao" or "Stalin". Can't we get
Dan Kervick July 21, 2013 at 4:04 pm

Mean to say: "Can't we get past that?"
Ruben July 22, 2013 at 3:22 am

I guess we want different different results so our views cannot be reconciled.

I lived some time in a country that has a well developed and firmly established social safety net, no poverty, very little crime, high taxes, allowances to help the less fortunate, strong unions, unarmed police, short work hours, good salaries, the whole machinery.

I observed the system attentively.

Of course I set out to find two fundamental elements, a girlfriend and a soccer league. As it happened, both provided me excellent windows into the entrails of the system.

The captain of my soccer team worked for the gov't safety net. His job was to cross-check and spy on those receiving help. The way he spoke about beneficiaries and the things he did to spy on them so they were not cheating convinced me that a strong State that takes seriously the role of protecting the working class reduces to just one major functioning principle: the State buys poverty.

Those receiving help must provide the State with poverty and the State will pay for that supply. The State spied on its clients to know whether they have any other income except the price paid by the State for their poverty because if that was the case then these client were not really providing all the poverty the State was paying for.

So in my view whenever the left gets political power and the result is not Stalin then the result is the commoditization of poverty, the commoditization of workingclassness.
Timothy Y. Fong July 21, 2013 at 2:24 pm

I agree. I hear Hedges' argument about speaking in the prophetic voice and calling out abuses of power. There's a role for that in every society, By definition, those embodying the role cannot every take power– which means they are, at best, Cassandras.

For those of us who want to implement positive programs (such as the job guarantee), then the path is the same as always; kick ass and take names.
profoundlogic July 20, 2013 at 6:04 am

Yes, Obama is the ultimate Manchurian candidate. Sadly, Hedges, while completely well-intentioned, seems to underestimate America's collective apathy and indoctrination. Most Americans are still too comfortable to care, and until enough of the population takes a hit to the wallet they will continue their journey toward the "American dream", only to find that the dream was more a mirage.
from Mexico July 20, 2013 at 12:04 pm

There was a comment that was made very late on yesterday's Hedges thread, but which I think has great merit, so would like to repost here:

tongorad says:

July 20, 2013 at 12:08 am

I think environmental gloom and doomers are a non-starter for the working class. So you want to take away my working class food, one of the few things I'm allowed to enjoy, and nibble on twigs and leaves?

The neoliberals are serving up a bogus prosperity gospel that will not be defeated by the likes of Mr Vinegar-Tits himself, Chris Hedges. In fact, I think environmentalism will only serve to quicken the pace of facism, as the psychology of it harmonizes with the idea of an Other that we need guard or protect ourselves against. And the austerity angle too (those working class have had it too good, they need to do what's good for them).
If the left can't articulate a positive vision, then it has nothing for the working class.

Read more at http://www.nakedcapitalism.com/2013/07/chris-hedges-on-whether-we-can-change-trajectory-and-avert-collapse.html#mECFYJXw5JxX8qKM.99

If we look at one of the most successful mass movements of all times, Christianity, what we see is that it ministered to both man's material needs and his spiritual needs. The PBS special on the history of early Christianity makes this clear:

http://www.pbs.org/wgbh/pages/frontline/shows/religion/

The evolutionary biologist David Sloan Wilson had this to say about it:

Christian society provided "a miniature welfare state in an empire which for the most part lacked social services" (Johnson, 1976, 75; quoted in Stark 1996, 84). Even the emperor Julian acknowledged this fact in a letter to a pagan priest: "The impious Galileans support not only their poor, but ours as well, everyone can see that our people lack aid from us" (84). Julian saw the problem and tried to institute pagan charities to rival Christian charities, but the social dilemmas implied by the word "charity" are not solved so easily.

–DAVID SLOAN WILSON, Darwin's Cathedral: Evolution, Religion, and the Nature of Society.

Here's what the Rev. Martin Luther King said on the subject:

…the gospel deals with the whole man, not only his soul but his body; not only his spiritual well-being but his material well-being. It has been my conviction ever since reading Rauschenbusch that any religion which professes to be concerned about the souls of men and is not concerned about the social and economic conditions that scar the soul, is a spiritually moribund religion only waiting for the day to be buried.

http://mlk-kpp01.stanford.edu/primarydocuments/Vol4/1-Sept-1958_MyPilgrimageToNonviolence.pdf

When Christianity became the official religion of the Roman Empire all this changed. Plato's two-world theory of body and soul was revived and interjected into Christian theology, and was revived once more by Jefferson, Madison, and Williams to become the reigning political philosophy of the new republic, a phenomenon which Thomas E. Buckley describes in great detail in "The Political Theology of Thomas Jefferson," or David Little in "Religion and Civil Virtue in America."

Carroll Quigley in The Evolution of Civilizations speaks of the potential pitfalls of the sort of Neo-Platonic dualism that, according to Reinhold Niebuhr, "corrupted" Christianity when Christianity was "philosophically elaborated in Greco-Roman thought" (Niebuhr, "Optimism, Pessimism, and Religious Faith"):

We deal with continua rationally either by dividing them into arbitrary intervals to which we give names, or by giving names to the two ends of the continuum and using these terms as if the middle ground did not exist at all. This last method is called "polarizing continuum," and is frequently done even when the greatest frequency of occurrence is in the middle range… Such polarization of continua is so common and so familiar that we come, frequently, to accept our categories as real instead of being arbitrary and imaginary, as they usually are…

This practice of slicing continua into parts or even into dual poles and giving names to these artificial categories is necessary if we are to think about the world or to talk about it. But we must always remain alert to the danger of believing that our terms are real or refer to reality except by rough approximation. Only by making such divisions can we deal in a rational way with the many nonrational aspects of the world.

Moneta July 20, 2013 at 1:00 pm

In summary, religion will take over as a pacifier, or the promise of a better life in afterlife.

As for the environmental argument… in Japan, when the Emperor noticed a little too much deforestation, he put a moratorium on tree cutting. Of course, the poor and destitute suffered the most when the twigs disappeared.

That's why think humanity will be going through a tough time before it gets better.
from Mexico July 20, 2013 at 2:57 pm

Moneta says:

In summary, religion will take over as a pacifier, or the promise of a better life in afterlife.

Well that's certainly a one-eyed view of religion, a view which the rich and powerful who corrupted Christianity with Neo-Platonic dualism hoped to instill in the Christian faithful: forego rewards in this life because your true reward is in the next life.

And, according to the liars by omission, that is also what Marx believed. He did, after all, say that religion "is the opium of the people."

However, like any literalistic or fundamentalist interpretation, that is a distortion and a half-truth achieved by selective quotation of "scripture," as Susan Neiman explains:

Metaphors have long lives, and Marx's description of religion as the opium of the people helped mislead us all. In fact, though Marx was the first thinker to show how deeply our worldviews may be shaped by material needs, his views of religion are more complex, and less condescending, than most leftist critics who followed. Far from reducing religious needs to economic ones, Marx called the criticism of religion the first premise of all other criticism because he understood its power. Here's what he actually says in the passage leading up to the one-liner about opium:

"Religion is the general theory of the world, its encyclopedia, its logic in popular form, its spiritualistic point d'honneur, its enthusiasm, its moral sanction, its solemn complement, and general ground for the consummation and justification of this world….Religious suffering is at once the expression of real suffering and the protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of spiritless conditions. It is the opium of the people."

Sitting in the British Library, Marx may have got his drugs wrong. On his account, religion is anything but a sedative; in fact it sounds more like cocaine. In Marx's description, religion is the force that keeps the world awake. Heart of a heartless world calls up love as well as courage; hearts are also sometimes seats of purity, another quality one longs for when one longs for faith. But saccharin allegories aside: anatomically speaking, the heart is the organ that keeps us alive.

Marx's judgment of the forces arrayed against religion was just as savvy as his judgment of its power. His description of what capitalism did to the world it found might, with few changes, have been written by believers in Afghanistan-or Arkansas.

"The bourgeois…drowned the most heavenly ecstasies of religious fervor in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom-free trade…All that is solid, melts into air, all that is holy is profaned."

Of course this is irony, and verbal acrobatics, but it's also ambivalence. Marx's attitude towards the religious standpoint is hardly one of scorn. Something fateful was lost when bourgeois calculation replaced religious devotion, and we are right to feel bereaved.

http://www.einsteinforum.de/fileadmin/einsteinforum/downloads/victims_neiman.pdf

Banger July 20, 2013 at 3:33 pm

Indeed, we ought to feel bereaved. Religion is not an option but a constant whether we call it religion or atheism–we bind ourselves to some conceptual of mythological framework. Our current religion is just as real as any of the others–it is seen in the films, shows, and news stories we watch that make up our culture. Our rituals, Christmas, the Super Bowl and so on are religious and re-enforce the values of radical materialism and competition. Fortunately for all of us today's religion is so confusing and contradictory that unlike the relatively mild contradictions of other religion it cannot be maintained for long. In addition, our current secular religion does not offer satisfying rewards.
Doug Terpstra July 20, 2013 at 4:01 pm

Timeless - Marx could have written this just yesterday about the Wall Street-Washington kleptocracy.

"…drowned the most heavenly ecstasies of religious fervor in the icy water of egotistical calculation….resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom-free trade…All that is solid, melts into air, all that is holy is profaned."

It's no wonder Marx is taboo, Howard Zinn too. Thanks.
Moneta July 20, 2013 at 4:07 pm

I should have written that religion will be used and/or promoted as a pacifier but sometimes you need to try to find the right one to pacify the baby. Some babies will never take to one and others will bop other babies in the face with them.
myshkin July 20, 2013 at 4:33 pm

I don't claim to know Marx's attitude toward religion, no doubt manifold, yet did he not think it would fade away, part of that earlier phase of human history that was irrational and that would be superceded by the later industrial and scientific phase? The passage you end with, "All that is solid, melts into air, all that is holy is profaned." continues, "And man is at last compelled to face, with sober senses, his real conditions of life, and his relations with his kind." For Marx, a starting point for building a better world.

Whether we should take his idea that human history is necessarily a story of progress seriously is mooted. Civilization by its nature is a collective enterprise with interacting components of commerce, politics etc. The usual result is bureuacracy, Hannah Arendt had this to say, "Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act." That seems to be where we are now and where human enterprise frequently dead ends.
Moneta July 20, 2013 at 4:45 pm

Well the creationist putsch and some other religions are a thorn on science's side right now.
psychohistorian July 20, 2013 at 5:24 pm

I have a problem with the general concept of religion being the general theory of the world. That theory worked until the Enlightenment where the general theory of the church was shown to be BS.

We are there again because the inherited rich made a devils pact of relevance for the should have evolved to myth religions in exchange for unquestioned inheritance and accumulating private ownership of property (i.e. the class system of the past few hundred years.

If religion is the general theory of the world, does it have a theological explanation of the hexagonal clouds on the North pole of Saturn? GRIN

Why can't we proceed with the humility of knowing how much we don't know or will never know and not try and integrate any faith based theories as other than myth.
jake chase July 21, 2013 at 2:10 am

Marx was a brilliant social critic and the only thing he ever got wrong was his dialectic, which doesn't make any more sense than other Millennial nonsense. The best thing he ever wrote may be the Eighteenth Brumaire of Louis Bonapart.

Perhaps he just spent too much time in cold rooms fueling himself on Hegel?
LAS July 20, 2013 at 4:31 pm

I don't think of the Rev. Daniel Berrigan or Rev. Martin Luther King as passive. And if you read what Christ actually said in the bible, you'll find no pushover, but someone who aroused considerable fear among Romans and other ruling authorities.
LizinOregon July 20, 2013 at 3:20 pm

Looking to religion to provide a solution is just substituting one Daddy for another.
from Mexico July 20, 2013 at 4:57 pm

True enough.

That point was certainly driven home by Jacques Barzun in From Dawn to Decadence.

At the turn of the 20th century, Shaw despaired that his hallowed Fabian socialism and other socialisms had failed to overcome man's "brutish instincts and his propensity to lie and mouth empty ideals," while another disillusioned socialist, Georges Sorel, in Reflections on Violence, urged the industrial unions towards a final combat with police that would overthrow the capitalist system.

The scientists of the day were all agog with the latest scientific fads: Social Darwinism, anthropo-sociology and Eugenics. The world of the scientific and artistic elite was all gilded wrapping paper, hermetically sealed off from the hoi polloi:

With all the preaching and practicing of bloodshed between 1890 and 1914, how can it be that in retrospect the period was seen as an ideal time deserving to be called la Belle Époque? … Here it is enough to say that the intellectual and artistic elites, and to a certain extent high society, lived in their world of creation, criticism, and delight in the new. They were aware of the crises, no doubt, but after one or two had gone by gave little thought to what they might still cause…

And when the war broke out, their reaction was equally as depraved:

This haughty ignorance of social and political facts enables us to understand why the cultivated classes reacted as they did when war came: several hundred intellectuals in Germany signed a manifesto denouncing "the other side" as if betrayed by a friend and brother. It was answered, with a like rhetoric, by several hundred of the French. The enemy's purpose must be wicked since we are innocent.

A prominent German pacifist responded to the pro-war manifesto with a 'Manifesto to Europeans', which challenged militarism and 'this barbarous war' and called for peaceful European unity against it. 'Educated people in all countries should use their influence to bring about a peace treaty that will not carry the seeds of future wars.' Only three other people were brave enough to sign this peace manifesto; one of them was Einstein. As Barzun explains:

Looking over the roster of great names in literature, painting, music, philosophy, science, and social science, one cannot think of more than half a dozen or so who did not spout all the catchphrases of abuse and vainglory.

But despite the depravity of the artistic and intellectual elite, the deportment of the clergy was even worse, as Barzun goes on to point out:

And everywhere the clergy were the most rabid glorifiers of the struggle and inciters to hatred. The Brotherhood of Man and the Thou Shalt Not Kill were no longer preachable… [B]ishops in various countries spoke out for total war. They enlisted God: "He is certainly on our side, because our goals are sinless and our hearts are pure." The most moderate said: "Kill but do not hate." One English preacher spoke of "the wrath of the Lamb" and another speculated that although Jesus would not have become a combatant, he would have enlisted in the Medical Corps.

But, as Barzun continues, even though the "20C fury recalled the wars of religion," in "1914 religion was no longer a prime aggressive impulse" and "not before 1914 was the flush of blood lust seen on the whole intellectual class."
jake chase July 21, 2013 at 2:14 am

On the other hand, you have Henry Ford, who people think of as an anti-Semite and a fascist, who did everything he could to stop the War.

Have you read his autobiography? Nobody ever had a better understanding of bankers. That is why he never went public or borrowed any money. It took less than ten years for his descendants to totally fuck up his company.
LizinOregon July 21, 2013 at 2:50 am

Unraveling the common thread of human atrocities leads inevitably to tribal identity. But without a strong attachment to some group, the individual is left with the lonely burden of always swimming against the tide. I think we can try to understand the past and pretend to predict the future, but cannot hope to make sense of the time we live in because we are the actors who are creating it.
tongorad July 20, 2013 at 3:34 pm

Thank you for mentioning my comment, from Mexico, I am truly honored as I admire your writing on this forum so very much.
nonclassical July 20, 2013 at 6:08 pm

…it's also known as "Black-White" DUALITY…which is an imperfect point of view, used primarily by reductionists and power monger-manichean-"ends justifies means" advocates…view Hitler-George W Bush propaganda, as perpetrated by "Rendon Group"=John Rendon…as shown here:

http://ics-www.leeds.ac.uk/papers/vp01.cfm?outfit=pmt&folder=2053&paper=3010

The Man Who Sold the War
Meet John Rendon, Bush's general in the propaganda war
JAMES BAMFORD
Dan Kervick July 21, 2013 at 4:09 pm

Early Christianity doesn't seem to have had much to do with ministering to humanity's material needs. It was an apocalyptic cult based on renunciation and waiting for the end of the world. Only after Constantine perverted it into a Greco-Roman style religion of praying to gods for military victories and the like did it turn into a quasi-worldly faith.
Joe Miller July 22, 2013 at 1:02 am

Have you ever read The Legitimacy Of The Modern World by Hans Blumenberg, FM? I think you would learn a great deal from it if you haven't yet. You can learn about Blumenberg's ouvre here. http://www.readysteadybook.com/Article.aspx?page=hansblumenberg
der July 20, 2013 at 6:23 am

When violence is directed toward the state and state supported corporate interests then our militarized police forces will certainly, aggressively, dial up state violence. I agree that a general strike is unlikely mostly for the reason that we're inculcated to see success as an individual effort. Violence, random or otherwise, will come as a one on one action to self-survival, the have-nots taking from the have just a little more than.

Pierce writes of it as Stand Your Ground vigilantism:

On the streets, we are being trained paradoxically to both submit to the authority of the police, and to take the law into our own hands, if necessary, because the police cannot possibly protect us from every danger. Stand Your Ground, though it played no role in the Zimmerman trial per se, is vigilantism hallowed by legislation. That's all it is. This does nothing but produce a national schizophrenia about crime and fear and weaponry that we inevitably act out.
http://www.esquire.com/blogs/politics/Vigilante_Nation
ambrit July 20, 2013 at 6:33 am

Dear der;
It looks increasingly like the organs of State violence are proactively applying 'maximum coercive force' against even peaceful and societally accepted forms of protest. See the police response to the feminist protest in Virginia recently as highlighted by skippy. A little overt psychological bullying has become the norm. When will it go over to overt physical bullying, unprovoked? That's going to be the testing point.
from Mexico July 20, 2013 at 12:42 pm

There exist two equally old and time-honored traditions concerning the basis of political power. One of these - that professed by the likes C. Wright Mills, Max Weber, Voltaire, Clausewitz, Strausz-Hupe, Marx, Bodin, John Stewart Mill, and Stalin - was most succinctly summed up by Mao Tse Tung: "Political power grows out of the barrel of a gun."

However, there exists another tradition and another vocabulary no less old and time-honored, which is that it is the people's support that lends power to the institutions of a country. This is what Madison meant when he said "all governments rest on opinion."

Hannah Arendt fell into this later grouping, which explains why in "On Violence" she wrote: "Rule by sheer violence comes into play where power is being lost."

Those, however, who embrace the first tradition - that "Political power grows out of the barrel of a gun." - probably perceive these as being pretty bleak and hopeless times.
Banger July 20, 2013 at 2:27 pm

Ultimately power does come from brute force at least as we understand it. There are other sorts of power that come from community. However the modern state has sought to destroy community so that those who come to power have more power. In the U.S. there is no need to always use force–they have used the power of science and stage-magic to rule by controlling the collective unconscious to believe that up is down and down is up. Almost all of the mainstream narrative is demonstrably false–yet people, including nearly all of the left accept it as, at least, mainly true.
Dave July 20, 2013 at 8:31 pm

"Rule by sheer violence" also comes into play when power is achieved.
Jess July 20, 2013 at 2:20 pm

There is a huge misconception among many on the left about Stand Your Ground laws. Granted, there have been times when these laws have been twisted to grant license to acts that had, or were perceived to have, a racist component. But these laws grew out of the absurdity that existed (and still exists) without them. Without a Stand Your Ground law, the rights all reside with the criminal. You, the victim, are required to retreat. The criminal has the right-of-way.

The classic example is someone being approached by a mugger. Absent SYG, the potential victim is required to retreat and can only exercise a potentially lethal (or even harmful) response AFTER he or she runs out of room to retreat.

Another classic example: You surprise a thief breaking into your car. You CANNOT attempt to stop him. You must retreat and let him finish the job. (Absent SYG you cannot use potentially harmful or lethal force to protect property, your own or others.) If threatened, it is the victim's legal obligation and responsibility to defuse the situation by retreating. (Or standing idly by at some "safe" distance.) In jurisdictions without SYG, there have been cases where thieves successfully sued the targets of their crimes for financial compensation for injuries sustained. The criminal was viewed, in the eyes of the law, as the victim. This kind of Kafkaesque, through-the-looking-glass bullshit is what prompted SYG laws in the first place.
LillithMc July 20, 2013 at 2:49 pm

In CA there is only instruction to the jury to be "reasonable" when evaluating the victim while requiring the "aggressor" to retreat or to prove his need to shoot. In contrast to Florida, Martin had the right to stand his ground. Zimmerman, the aggressor, should have stayed in his car or retreated. At trial he had the obligation to prove he was in mortal danger.
I hope the feds investigate both the obvious racial profiling of Martin using his many tapes from the police on different occasions and the problems with the GOP/ALEC/NRA stand your ground laws passed in all the red states.
Yalt July 20, 2013 at 3:30 pm

In the general case it is not clear who, if anyone, is the "criminal". Is an older man with a gun, apparently stalking a teenager, a criminal? Or is he an upstanding member of the community carrying out necessary nieghborhood policing activities? Without the telltale shading of the respective skins, who would know?

Thankfully we don't have to worry about such subtleties because these laws typically refer to the shooter's subjective perception of threat without requiring any objective basis for that perception. That allows the application of the law to be more black and white than it might otherwise be.
Lexington July 20, 2013 at 4:26 pm

Yalt's point about your use of the word "criminal" is spot on, but let's deconstruct it just a little more.

When you say "criminal" it is really code for "person of colour", or "poor person". When you imagine coming across someone breaking into your car, that's who that someone is. Strictly speaking someone isn't a criminal until they have been tried and convicted in a court of law, but to many Americans people of certain racial or ethnic backgrounds and certain socio economic classes are presumptively criminals. And stand your ground, like so many law and order initiatives in the US, is about extending the law to exert every greater social control over them -in this case by giving ordinary citizens -specifically "law abiding", middle class citizens- the power to act as judge, jury and executioner over their inferiors.
Jess July 20, 2013 at 6:02 pm

Technically, you're right about the term criminal. After all, on a hot day the guy breaking into your car could just be acting to free a child or pet trapped inside. (Provided, of course, there was a child or pet inside.) And at night, the guy could just be trying to move your car that was blocking his driveway. (If, in fact, you had parked blocking his driveway, which is not at that uncommon in certain communities which are near nightclub hot spots.)

However, when you're legally parked on a public street and come out of the restaurant or movie theater to find a guy trying to jack your car, for the purpose of everyday common language and communication, you're pretty much safe in describing him as a "criminal".
from Mexico July 20, 2013 at 6:32 pm

@ Jess

Since when is someone committing a property crime deserving of being shot?

If you surprise someone burglarizing your car, the appropriate response is to call the police and let them handle it.

You're just spouting a bunch of stupid vigilante nonsense, in which a non-violent crime stands a high likelihood of being escalated to a violent confrontation.
Jess July 20, 2013 at 8:22 pm

@ Mexico -
"Since when is someone committing a property crime deserving of being shot?

If you surprise someone burglarizing your car, the appropriate response is to call the police and let them handle it."

You're kidding, right? No, I'm afraid you're not. For you, the criminal has superior rights. I, who has worked hard (sometimes at multiple jobs) just for the ability to drive a reliable car, owe it - OWE IT - to the thief to let him make off with my car or it's contents. I've got a suggestion for the thief: Don't wanna get shot? Don't rob people and their cars and homes. But that's not good enough for you. No, you believe that the criminal has a RIGHT TO ESCAPE. Because, you see, unlike cop shows, cops usually aren't right around the corner. Even in densely populated urban areas and typical suburbs, police often take 10-20 minutes or more to respond to a call. By then the thief is long gone.

So what do the police do? Write a report, which you can get within a few days at the local police department - but often only after paying a fee! Then you can get your insurance to pay whatever the residual amount is over and above your deductible, unless your deductible is higher than the damage, in which case you pay the whole thing.

Got any idea what a replacement airbag costs? About $1,000. Not for a Benz or a Beamer, but for the average car. And that's not including the installation cost. And you know what?

a) By your reasoning, the thief has the right to come back the day after your car is fixed and rob it again! Because, again, you - the law-abiding, tax-paying good citizen - cannot or should not protect your property.

b) Your insurance deductible is usually per-incident, meaning that in this scenario, once again you must go out-of-pocket for the replacement cost.

c) Insurance claims, esp. repeat claims for the same type of damage, can get your policy canceled or the rate raised.

d) To prioritize things like food, shelter, medical care, etc., lots of people do not carry "Comprehensive" coverage on their policies, so they have NO coverage for losses due to break-ins and vandalism.

This is what I mean by the inverted logic that pervades jurisdictions without SYG laws. All the rights belong to the criminal. So how about I exercise those rights? I'm hereby giving Yves permission to give you my email addy. You give me your info - residence location, car license number, etc. Then I'll come and rob you over and over and over and over again and you promise never to try to stop me and always to settle for just calling the police. (I'm sure this won't be a problem because evidently you have all the money necessary to continually replace your valuables.)
JCC July 21, 2013 at 4:10 pm

Although this discussion is completely off-topic, you both have valid points:

1) Standing by and waiting for cops is a complete waste of time and you will rarely, if ever, get your property back or be compensated in any way other than the loss of valuable personal time dealing with police, usually on the order of hours and adding insult to injury, insult even from the police themselves. I say this from more than one incident of direct personal experience.

2) Shooting someone over a radio theft in your car is a little over the top, to put it mildly. On the other hand, in most states, the thief is protected and there is nothing you can do, including the use of pepper spray, taser, or baseball bat/baton, which in my opinion is far more reasonable and appropriate. But most states do not allow even this if you were not attacked directly.

Which goes to show how unbalanced our society truly is.

If I cautiosly "swipe" (download) a bunch of 1's and 0's intelligently encoded into 3 minutes of music I face 10's of thousands of dollars in fines and potential loss of a couple of years of feedom, but if I cautiosly jack the radio out of my neighbor's car very little, if anything, will ever happen to me.

People like Mark Ames say that the average worker is cowardly but the fact is the average citizen wants to avoid like the plage both the left and their accusations (and no real organized solutions) and the right with their accusations (and their highly organized "solutions").

They just want decent jobs, decent children, decent communities, and decent and reasonable law enforcement. Once 3 out of 4 of these things are gone, there will be a reaction good or bad.
from Mexico July 20, 2013 at 5:21 pm

@ Jess

I'm not buying it.

Here's a rebuttal to your argument:

"A Most American Way to Die"

If you're an unarmed black teen in Florida, someone can gun you down – and they might get away with it

Read more: http://www.rollingstone.com/culture/news/jordan-davis-stand-your-grounds-latest-victim-20130425#ixzz2ZcfbGZkF

Jess July 20, 2013 at 6:21 pm

Nice try at pulling out the old straw man. No attempt to rebut my arguments about why SYG laws came into being, or the factual situation where they do not exist. SYG is a lot like a person's right to protect themselves in their homes. "(Every man's home is his castle.") Prior to changes in laws, it was possible for people to be charged with, and convicted of, murder or manslaughter for using deadly force against intruders WITHIN their own homes. In times past, you couldn't shoot an intruder who was trying "just" to steal your TV or other valuables. Inside your own domicile you could not protect your own property, own the lives of you and your family or guests. Upside down, ass-backwards, through-the-looking-glass laws? Absolutely. Now, in most jurisdictions, that has changed. In many areas you can now even use deadly force to protect your valuables outside the house as long at they're on your property.

The fact that SOMETIMES, in SOME situations, SYG can either be abused or result in a verdict like the Zimmerman one. There have been many cases of family members accidentally being mistaken for intruders and shoot within the home by other family members. Should it therefore be illegal for homeowners to possess firearms? Most people would answer, "No". (There are, of course, people who believe that citizens should never, ever, EVER, under any circumstances, own firearms, even if they live in areas of Alaska so remote as be reachable only by plane. Never mind the bears feeding on your livestock and threatening your kids, firearms are always and forever intrinsically bad, bad, bad!)
Jess July 20, 2013 at 6:28 pm

"The fact that SOMETIMES, in SOME situations, SYG can either be abused or result in a verdict like the Zimmerman one." should have ended with "is being used as the logic to strike down SYG laws."

My bad. But edit function would be so nice.
from Mexico July 20, 2013 at 7:13 pm

As the article I linked explained, the Stand Your Ground law is the extension of an ancient law, one which allowed someone to shoot an intruder who had broken into their home:

It was another wild debasement of existing law, this one dating back to a distinctly American iteration of English common law called "castle doctrine," where the original duty to retreat was rejected and you had the right to use deadly force if your castle, i.e., dwelling, was invaded, though there were subtle differences state by state. But the gun lobby got cracking in the 1960s and expanded the law to include your lawn and backyard, then, a couple of decades later, your car, as well. Now, with Stand Your Ground, your castle was your person and your right to use deadly force traveled with you.

I remember many years ago, when I was living in West Texas, there was a doctor who shot and killed a teenage boy. The boy was stealing a battery from the doctor's car and the doctor shot him from the second story window of his home using a high-powered rifle.

So let me ask you, was what the doctor did morally justified? It sounds like under Stand Your Ground that what he did would have been legal. But is summary execution an appropriate punishment for someone stealing a car battery?
Jess July 20, 2013 at 8:34 pm

As I said in another reply to you (which may or may not show up at some later time) "You don't wanna get shot, don't steal."

Although in my personal situation, I would have:

First, demanded that the thief drop to the ground;

Second, if he tried to flee, wound him in the leg. (But then again, I'm a pretty damn good shot.)

Third, if he demonstrated any hostile intent toward me, such as reaching for or brandishing a weapon of his own, I'd put two in his heart and before he hit the ground another in the head. (Like I said, I'm a good shot.)
Yves Smith Post authorJuly 20, 2013 at 9:31 pm

You really think theft justifies murder? Not even the bloody Old Testament stands for that: "an eye for an eye".

So why don't you go kill Jamie Dimon or Lloyd Blankfein or Joe Cassano? You're wasting your vigilante energy on the wrong targets.

I lived in NYC in the bad old days, when pickpocketing and other types of theft were common. But no one was worried about their personal safety, even people who had break-ins. These guys just wanted your stuff, they weren't interested in killing or hurting you. People carried mugger money, $10 or $20 they'd hand to a robber in case they were accosted.

You've said you don't even believe they are threats, just robbers, but you feel justified in blowing them away. That's depraved.

Plus you are kidding yourself that your precious pop-shooter is any protection if you were to get a hardened criminal pissed off at you. Being good at a practice range or hunting has no relationship to using a weapon in a real life situation. Even cops, who generally have their weapons drawn before going into a hostile encounter, hit their targets only about 15-20% of the time (cops have a higher success rate because they travel in pairs, usually have their weapons drawn and aimed in advance, and can call in backup if they really get in trouble).

And they've studied how effective guns are. The short answer is not very. The Tueller Rule, based on numerous studies, is that within 21 feet, an assailant can get to you before you will get your weapon out and aimed. And cops have them in holsters, far more accessible than they'd be to you.

Try pulling out a weapon, and a serious bad guy will kick you in the groin or ribs (crushing your liver or spleen depending on how he decided to aim) or gouge your eyes out, and for the encore, slam your head into the pavement and crack your skull open. But be my guest. Try escalating a fight with a robber. Maybe you'll be right, but if he's a real criminal, you are the one more likely to wind up dead.

This advice, BTW, comes from folks who helped develop the hand to hand combat course for the Navy Seals and now teach cops, the FBI, and interested laypeople, and they study tapes of prison fights and police encounters. So the scenario above isn't theory, it's what often happens.
Dave July 21, 2013 at 1:25 am

Yves,

I just noticed your response to Jess after I wrote my response to you. You are seriously overestimating the competency of cops! Many are capable, but many are not. Many are a danger to themselves, their fellow cops, and the citizens they serve. They should not be allowed to carry guns. On the other hand, many of my civilian friends are far more capable to defending themselves and others than are many cops. Blanket statements and policies are for governments; they have an agenda.

"Just give them what they want." "Then they will go away!" It is not quite that simple when one is dealing with a sociopath, and there are a lot of them. Freedom of choice fits here too. If one's freedom to have the means to defend one's self is denied because of some blanket statement by some element of power in society, then we have lost

We then have returned to the law of the jungle, where the strongest and most ruthless rule by violence. The firearm is the only effective available equalizer and it makes the weakest woman equal to the strongest and most vicious man. The police do not protect people except in a matter of pure happenstance. What they do is arrive after the event and take pictures of the mess. Then they try to catch the bad guys before they do it again.
Moneta July 21, 2013 at 7:20 am

When I read comments like these, I get depressed. I am astounded at the depravity in the US.

Whys is it that in Canada and Europe, we generally don't feel the need to carry arms? We can generally walk around anywhere without being afraid of getting robbed or attacked.

Why is that? Is it because we have more equality? Gated communities are frowned upon. We believe that it takes a village to raise a child.

You know what I find really depressing? It's that I see the American way of doing things creeping up on us. Gated communities are popping here and there. Our prime minister is accelerating the process with his neoliberal or neocon policies. Inequality has ballooned… it is still being masked by a real estate bubble where equity is making the low middle class do stupid things. But it is appearing here while most do not see it and I have no clue how to stop it.
Inverness July 21, 2013 at 9:42 am

Moneta,
Right on. Creeping neo-liberalism has hit Canada. Even Quebec, which pretends to be so progressive and socialist, has been cutting their $7.00 day cares and unemployment budgets, and throwing in some nationalism to divert attention away from the reality that Pauline Marois is right-wing.
Yves Smith Post authorJuly 21, 2013 at 3:09 am

Dave,

I have more knowledge of this terrain than you might think.

1. There are pretty clear indicators of social (male posturing) and economically motivated crimes versus anti-social violence. They stop talking. If they are still talking, it's still a social interaction. Even a crime can be a social interaction. If it's social, you may be able to keep it social. Plus you may have no better options:

http://www.sfgate.com/crime/article/Marin-hostage-s-heroism-leads-to-arrest-4476655.php

2. As I indicated, guns are far better at getting your loved ones killed in your house than in any kind of self defense. Even cops have trouble using them well in the heat of battle. If someone is in close proximity to you and has bad intent, you are not going to get your weapon out in time to hold him off. Not even close.

If you are serious about self defense, take a course taught by people who teach law enforcement professionals. And not martial arts, that's a sport.
Dave July 21, 2013 at 12:16 pm

Yves,

Thanks for your advice on seeking instruction from professionals. I'm way ahead of you though. For the past 30 years I have been inventing and selling them a few of their favorite tools. Some of my closest friends are prominent weapons and tactics instructors for the FBI, Secret Service, Seal Teams and Delta Force. In some cases I am not particularly proud of this, as some organizations such as SWAT teams and other groups have totally corrupted their original ideals. Nevertheless, I have taken instruction on a regular basis and it has been one on one and free of charge in all cases.

You are right about martial arts, as they are not of that much value in reality.
These guys deal in reality though, and the reality is that they cannot protect us from violence, simply because they cannot be there at all times. There is an old saying in my social community. "I carry a gun because a cop is too heavy."

If you carry a gun, at least you have the option of using it if it comes down to a life or death situation. Freedom of choice again. Of course, one most certainly must have instruction in rules of safety and proper use. Concealed carry permits always require an extensive background check and basic instruction. Blanket statements and policies by government and well meaning individuals restrict this freedom of choice.

It is sad that we live in a society that is saturated with the mentality of violence. My visits to western Canada always give me a glimmer of hope. But the reality is that we do live in a culture of violence. Our children are almost constantly entertained by the same computer games our military uses to de-sensitize soldiers to killing. TV and action movies present lethal violence as a normal solution to many problems. Our wonderful country has been fucked up by the mass media and other factors in more ways than one!
Dave July 21, 2013 at 1:34 pm

To the moderator:

It appears that the truth is way too uncomfortable for this forum. A real discussion is not just preaching to the choir. It involves civilized disagreement and tolerance for diversity. Thanks for giving me the opportunity to present my points of view!
Jess July 21, 2013 at 2:21 pm

I agree. Thanks for letting all sides chime in.
Jess July 21, 2013 at 2:14 pm

"guns are far better at getting your loved ones killed in your house than in any kind of self defense."

The studies that presumably make up the basis for that statement have been discredited because they did not segregate out houses and homes used for or by people engaged in criminal activity, most notably drug dealing. And those studies usually linked having a gun in the home to being shot - but NOT by your own gun. (Granted, that does happen from time to time, but it is not nearly as prevalent as the gun-banishment folks would have you believe.)

What's interesting about this debate is a story that was on HuffPo earlier this week. A former husband was shot dead by his ex-wife in their former family home 15 minutes - FIFTEEN MINUTES - after they left court where a judge slapped the guy with an injunction not to come near his former wife. In this particular case, after he broke down the front door she retreated to the bedroom and only after he broke down that door did she shot and kill him. By your reasoning, she should have never had the gun in the first place, leaving her these options:

a) Wait however long it took for the cops to get there, and quite possibly being killed before then.

b) Climbing out a window and trying to outrun her obviously enraged, adrenaline-pumped up husband. Good luck with that. (Not to mention the idea that fleeing would have left any children in the house at their psycho father's not so tender mercies.)

BTW, just to clear the record of any lingering doubts:

a) I am not, and have never been, a member of the NRA and I have nothing but disgust for their stance against background checks and their shilling for the firearms industry.

b) I have been a registered Democrat all my life (although after Obama's betrayals my Dem status merely reflects my desire to vote in the state legislative primaries for my district). In fact, I'm such a racist whacko gun-nut cracker that I worked in Tom Bradley's first campaign for mayor of L.A. (For those not aware, that would be BLACK Tom Bradley). Among my other liberal bona-fides are volunteering in the campaigns of JFK, RFK, and McGovern, plus over two decades of activism with local initiative and referendum campaigns fighting over-development and bond-issue boondoggles.
Jess July 21, 2013 at 2:47 pm

"I lived in NYC in the bad old days, when pickpocketing and other types of theft were common. But no one was worried about their personal safety, even people who had break-ins. These guys just wanted your stuff, they weren't interested in killing or hurting you. People carried mugger money, $10 or $20 they'd hand to a robber in case they were accosted."

So, in effect, the robber has a right to your money or belongings without resistance? Then why do you refer to that time as "the bad old days"? Seems to me that was your perfect world: poor thieves took your money with impunity, no threat of suffering harm, and all was right with the world. $10 or $20 was just "mad money" for you Wall Street types but you made no mention of the people for whom $10 or $20 was a lot of money, enough to buy milk and groceries for the kids, enough to ride the subway to their job for an entire month, etc. And in those days, $10 or $20 bought a lot. Today the equivalent would be what, $50 and $100?

And, like the example given of the doctor who shot the kid breaking into his car, you believe that it is the sole responsibility of the crime victim to assess what is the appropriate, or potential, result of any response to the crime? The doctor has to ask, "Is it worth killing some one over a battery?" but the thief NEVER has to ask, "Is a battery worth getting killed over?" That's how it's supposed to work?

Let's examine the motivational aspects of the crime: If the thief needed the battery because he's poor and the battery to his car died, perhaps that mitigates his crime. But it also begs the question, "What does he need his own car for?" If it's to drive to work or the store/pharmacy for food and medicine for his family, then that's more mitigation. Conversely, what if he just wants to be able to cruise around, go over to his chick's crib to get laid, hang with some buds and smoke some weed? (Not that I think there is anything wrong with smoking weed, but let's face it, that reason pales against the others I've mentioned.) Or what if he needs to battery for his car so he can pull off a robbery or deliver some dope to a buyer?

Now let's turn it around and look at the doctor's perspective:

Why should he devote 12 years of studying and a grueling internship to become a doctor, incurring mountains of debt in the process, only to arrive at a position where he has to let a thief steal the battery out of the his own car in his own driveway?

What if the doctor gets an emergency call, what if he is a neurosurgeon or a key member of a heart-transplant team and suddenly his special skills are needed, but he is delayed (or even prevented) from getting to the hospital or patient in time because his car won't start and he has to get a friend, neighbor, cab, etc?

What if the patient who dies, or suffers irreversible brain damage, is a close friend or relative of yours? What if it was Lambert? Glenzilla? Naomi Klein? Edward Snowden?
Yves Smith Post authorJuly 21, 2013 at 11:39 pm

You've just proven my point to have to resort to such strained hypotheticals.

It is depraved to think that theft of property justifies killing someone. Period. Depraved. Take your sick world views and go pollute another site.
Dave July 20, 2013 at 8:46 pm

You are absolutely right that the doctor had no moral or legal right to shoot. I hope that the doctor got life without parole.

In the Florida M vs Z case though, Mr. Martin's constitutional right to attempt to bash the brains out on the pavement of someone who irritated him was violated by Mr. Zimmerman.
Yves Smith Post authorJuly 20, 2013 at 9:19 pm

The idea that Martin was a threat to Zimmerman was never established. Zimmerman had no serious injuries and the angle of the gunshot that entered Martin could be explained by theories other than that offered by the defense.

There are really obvious reasons why SYG is a bad idea: male posturing. Guys get in bar fights all the time, and one slugs the other and one guy falls and cracks his head on the floor or the bar and winds up dead.

The Zimmerman verdict has just officially opened up hunting season on minorities. Some white dude accosts black/Hispanic dude and utters a racial slur. Black/Hispanic dude gives him some lip back. White dude escalates and starts getting verbally abusive, maybe gets in black/Hispanic dude's face. Black dude backs away and reaches into pocket to pull out cell phone. White dude shoots, claims later he thought black/Hispanic dude was pulling out a gun whether or not he actually felt threatened.

Rinse and repeat.

You might as well call it "legalized ethnic cleansing"
Dave July 21, 2013 at 12:41 am

Yves,

Zimmerman had "no serious injuries" YET. As you pointed out in the next paragraph about the bar fight though, "one guy falls and cracks his head on the floor and winds up dead".

Considering "ethnic cleansing", black folks have a legal right to buy and own guns, just like white folks, and they do. (unless they are a convicted felon of course) When they use these guns on either whites or blacks, there is usually no mention of race. Quite the contrary when whites use them on blacks. Another case of the media trying to create a frenzy.

All indications are that Zimmerman is (was) a wanna be cop and a fool. He did not physically attack Martin though. Martin violently attacked Zimmerman evidently just because he felt offended. He was using a deadly weapon, the pavement, apparently to try to remove Zimmerman's brains from his skull.

I would submit that you and many others have been watching too much TV and too many action flicks. They do not begin to accurately portray the ugliness and sometimes brain damaging or even fatal results of a severe beating inflicted in an unyielding environment such as a city street or sidewalk.
LucyLulu July 21, 2013 at 2:45 am

When they use these guns on either whites or blacks, there is usually no mention of race

Perhaps not, but if they are caught, they are arrested, convicted, and sentenced to prison. They aren't acquitted, much less released the same night without an investigation or being charged.
Inverness July 21, 2013 at 9:47 am

Dave, Zimmerman did not physically attack Martin? After stalking him in a van (if you've never been stalked by somebody, it is frightening), He SHOT him. To death.

Martin was trying to stand his ground, after being psychologically terrorized by a vigilante. Had Zimmerman not done that, nor been emboldened by SYG laws, that boy would be alive today.
facethemusic July 20, 2013 at 6:32 pm

There's a logical flaw in your statement:

"Without a Stand Your Ground law, the rights all reside with the criminal. You, the victim, are required to retreat. The criminal has the right-of-way."

Both people walking down the street have the rights you speak of. It's only after one of them assaults the other that you can call them a criminal. Until something happens, both people have the right of way. SYG seems to allow a pre-emptive defensive strike, to something that may or may not be there.
Jess July 20, 2013 at 8:30 pm

"Both people walking down the street have the rights you speak of. It's only after one of them assaults the other that you can call them a criminal. Until something happens, both people have the right of way. SYG seems to allow a pre-emptive defensive strike, to something that may or may not be there."

Wrong. SYG only allows you to SYG after you have been threatened. Two folks walking opposite directions, both have equal rights. But absent SYG, once the other guy pulls a gun or a knife or a lead pipe and demands your money, he has the right-of-way. You must retreat and/or fork over to avoid confrontation. It is your responsibility to insure that the situation does not escalate. Forget the guy aspect; if you engage in hand-to-hand combat with the guy, you're liable for his injuries because you didn't comply with his demands and/or retreat or flee. This is the absurdity of jurisdictions without SYG laws.
Jess July 20, 2013 at 8:36 pm

Should be "forget the gun aspect".

Can we please have an edit function? Pretty please?
myshkin July 20, 2013 at 8:57 pm

Can we please stop paying attention to anything you have to say.
Lambert Strether July 20, 2013 at 11:38 pm

Wrong. Not "have been threatened." Feel threatened. Unfortunately, racists tend to feel threatened by black people. CNN:

A Florida man charged with murder in the fatal shooting of a [black] teenager amid an argument over loud music at a gas station pleaded not guilty Monday.

Michael Dunn, 45, entered his plea during a hearing Monday morning at the Duval County, Florida, jail.

Dunn told investigators he fired at a car in which Jordan Davis, 17, and three of his friends were sitting because he felt threatened by them. No guns were found inside the teens' car, the Jacksonville Sheriff's Office said.

So, if open season on black people sounds like a good idea to you, by all means support ~~lost cause~~ "stand your ground" laws.
Jess July 21, 2013 at 1:48 pm

And you'll notice the man has been charged with murder. That's what gets the whole SYG issue confused. As I understand it, any SYG defense predicated on the idea of "feeling threatened" rests on having some valid reason, such as the presence of a weapon, menacing behavior, etc.
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middle seaman July 20, 2013 at 6:59 am

Hedges mentions the Swedish success of eliminating poverty in the 80s. This success belongs to Social Democrats which, in this country, means the more liberal wing of the Democratic Party before Reagan. Social Democrats don't equate with socialism. Socialism which, at least most of its 20th century life, means a very limited capitalistic economy. We know that system doesn't work.

The left has weakened drastically during the late 20th century years and since then. The US is not alone in that. The Israeli left deteriorated to almost a joke. Many European countries went the same way.

The US left became increasingly frustrated with its inability to respond to popular affinity to low level affluence. It became Tea Party left. Hate became a major factor in everything. They gang raped Hillary. They abandoned labor unions, they rejected poor whites, they hated everything right wing and developed a racial rejection towards Israel that was copied from its European equivalent whose source, mainly a Millennium of European Anti-Semitism.

Uprisings don't help. Million demonstrated, with limited violence, in Madrid, Athens and Tel Aviv. The rich couldn't care less. The Arab Spring, a historical and universal achievement of the Arab youth, has been kidnapped by Fundamentalists.

In the two segments so far, Hedges provides important information, but his prescription for solutions are awfully misplaced.
Chris Rogers July 20, 2013 at 9:31 am

Hugh Sir,

Sorry to rain on your parade, but most left-of-centre parties in Western Europe were founded on Socialist, as opposed to Communist, foundations and principles – as an example, within Germany from the states founding in 1871, and until the mid 1950's the German SDP group was an avowed Socialist movement – the KDP, an off shoot of the SPD, was an avowed Communist Party.

Here in the UK, the Labour Party founded at the beginning of the 20th Century was an openly Socialist and progressive movement – even if its leaders when in power failed to honour Clause IV of the party's constitution.

The UK Labour Party under one Tony Blair ceased to be an avowed Socialist/Labour Party with the removal of Clause IV in the mid-1990's – the rest is history, for as with the US Democratic Party, the UK's Labour Party is as addicted to neoliberal economics and self serving careerist politicians as the Democrat Party.

The German SPD had its Blair moment in the 1950's, but was still a credible left-of-centre progressive movement well in to the 1990's – not so now I'm afraid.

In a nutshell, most Northern European left-of-centre political groupings favoured whats referred too as a 'mixed-economy' with state and private enterprises – Southern European nations, among them France, have a somewhat different history as far as Communism and left-of-centre political groupings are concerned, much of this religious-based, namely the Catholic Church.

Whilst its been a while since I've studied European comparative politics, you had common threads in Europe in the more Northern states.

Its all interesting stuff, but Communism, not to be conflated with Socialism or social democratic movements, was always more stronger in the Southern European nations – we should discount Weimar Germany's experience, which was an exception to the rule as politics became more polarised due to economic dislocation.

What is a fact, and one usually well hidden from the US populace, is how brutally repressed anything with a hint of left-of-centre smell to it was in the USA, this from the time of the Irish diaspora through to the treatment of OWS.

Its truly shocking now that Nixon could be accused of being a Socialist by those running both the Dems and Republican's presently – which gives an indication of how much to the right US politics has moved in less than 40 years, and this trend coincides with the ascendency of the economic philosophy now referred too as 'neoliberalism', which in reality is a backwards looking system of governance and economics born out of the Victorian era – it really should be consigned to the dustbin of history.

As for myself, born and raised in the South Wales valleys of the UK, I have no issue calling myself a Socialist, which is a philosophy again that favours a so called 'mixed-economy' wedded to a strong welfare state – I'm certainly no Communist, although have o issues with much of Marx and Engels output, as well as many other noted left-of-centre progressives and revolutionaries of the later part of the nineteenth century.
Chris Rogers July 20, 2013 at 9:45 am

That should be in reply to Seaman and not Hugh – so an apology to Hugh.
from Mexico July 20, 2013 at 1:38 pm

That's a great comment, but I think socialists have to do some really profound self-examination and soul searching.

Lawrence Goodwyn, for instance, in The Populist Moment renders a rather harsh criticism of socialism:

On the available evidence, twentieth-century people around the globe are paying a high price for their submission to the hierarchical languages of political analysis that have grown out of the visions of Adam Smith and Karl Marx. The problem that will doubtless interest future historians is not so much the presence, in the twentieth century, of mass political alienation, but the passivity with which the citizenry accepted that condition.

[….]

But while American socialists, for reasons they themselves did not cause, can be seen in retrospect as never having had a chance, they can be severely faulted for the dull dogmatism and political adolescence of their response to this circumstance… [I]ndividual righteousness and endless sectarian warfare over ideology came to characterize the politics of a creed rigidified in the prose of nineteenth-century prophets. As a body of political ideas, socialism in America - as in so many other countries - never developed a capacity for self-generating creativity. It remained in intellectual servitude to sundry "correct" interpretations by sundry theorists - mostly dead theorists - even as the unfolding history of the twentieth century raised compelling new questions about the most difficult political problem facing mankind: the centralization of power in highly technological societies. If it requires an army responsive to a central political committee to domesticate the corporate state, socialism has overwhelmingly failed to deal with the question of who, in the name of democratic values, would domesticate the part and the army. In the face of such a central impasse, it requires a rather grand failure of imagination to sustain the traditional socialist faith.

Perhaps this is what Hedges means when he speaks of the "inability to articulate a viable socialism."
Moneta July 20, 2013 at 2:35 pm

One of the issues I see hindering the liberals in North America is their focus on materialism.

What I have noticed is that those of a conservative mindset tend to see the pie as limited in size and those of a liberal mindset tend to think that the size of the pie can be unlimited. Admittedly, there are those with a conservative mindset who do think resources are unlimited but their primary goal is often to corner the markets so they can control a bigger portion of the pie and this caps the size of the pie.

I believe the pie can be unlimited but not as long as our money and economic systems are primarily based on hard goods and materialism.

I think the liberals will always lose when the resources become scarce within the scope of the economic system at the time. When the hard assets got scarce in Europe, we got the righties digging their heels and mass exodus.

Now that all land is owned in the US, we are slowly seeing a creeping rentier society. And globally, there is not much more land to go to that is free for the taking.

Materialism individualism will need to shrink for our situation to improve. I am optimistic humanity will improve and technology will help but I don't think this will happen with 7 billion people on the planet.
Dave July 20, 2013 at 8:53 pm

We need to put birth control chemicals in the water! Personally, I would tax children rather than greedy capitalists.
Moneta July 20, 2013 at 9:50 pm

That's what we're doing, except we don't explicitly call it taxes.
Yalt July 20, 2013 at 2:35 pm

I have a different impression of US labor history. "Bread and roses" in Lawrence, those iconic "I am a Man" signs in Memphis, the Wobbly soapboxes in Spokane…all pretty creative if you ask me, and hardly passive.

"Intellectual subservience to sundry correct interpretations?" Not down in the trenches, where it mattered.
Lexington July 20, 2013 at 4:35 pm

Goodwyn's point is perhaps not inaccurate when discussing the history of socialism in America, but you're point is equally well taken: history isn't destiny.
from Mexico July 20, 2013 at 6:04 pm

@ Yalt

Your take sounds closer to that of Reinhold Niebuhr:

The American labor movement was almost completely bereft of the ideological weapons, which the rebellious industrial masses of Europe carried. In its inception it disavowed not only Marxist revolutionary formulas but every kind of political program. It was a pragmatic movement, born of the necessity of setting organized power against organized power in a technical society. Gradually it became conscious of the fact that economic power does try to bend government to its own ends. It has, therefore, decided to challenge a combination of political and economic power with a like combination of its own…

More recently, housing, medicine and social security have become matters of public and political policy. All this has been accomplished on a purely pragmatic basis, without the ideological baggage which European labor carried.

–REINHOLD NIEBUHR, The Irony of American History

Niebuhr may not be an unbiased source, though, because he was a member of the Socialist Party up until 1940. Niebuhr's break with the Socialist Party, however, was related to pacifism, and not specifically due to labor or welfare society issues. Niebuhr had been a pacifist, but his position had changed so that it was no longer reconcilable with that of the anti-war Socialist Party. It was also over the issue of pacifism where the Rev. Martin Luther King parted ways with Niebuhr.
Yalt July 20, 2013 at 11:10 pm

No, that is not my take.

Niebuhr's use of the term "baggage" is telling. The Wobblies were as principled, as "ideological" in the true sense of the word, as any labor movement I can think of. "Bread and roses," the demand for the satisfaction of spiritual and not just of material needs, was anything but pragmatic. The Seattle free-speech soapbox action was a sophisticated civil demonstration and a deeply political act.

Their deeply-held principles, their ideology, gave them a moral power that organized US labor has never regained. For Niebuhr this is "baggage".

There's a reason he found it so easy to make his piece with the militarists, and there are few people I would less want to see my views conflated with.
Chris Rogers July 20, 2013 at 2:55 pm

@Down Mexico,

Can I first refer you to a post I made in yesterday's comments on Hedges first Real News interview, namely, due to the elaborate language he utilised in his opening missive, he'd already lost the argument due to the fact that if you are from a non-universiry educational background most would not have a clue what he was talking about – I do not blame a persons ignorance on them personally though, this issue has much to do with the education system and other modern distractions – this applies in equal measure in the UK and USA.

Further, and when you reference 'socialism', it seems to me you always do this from the vantage point of having read it in a academic book, rather than actually lived or experienced it.

To be perfectly honest, I do not believe you can learn about socialism from a book or academic study – socialism must be in the heart and learned from real life experiences and real life struggles and only the poor, or, as I refer to it, the working class, can have a true and meaningful understanding of what socialism is, and again this is learn't from real life experiences – for this and this alone, I'd always rather read Thomas Paine, than anything written by the supposed great minds of political philosophy, i.e., I cannot abide John Locke.

Now, you are instructing members of the working class, whom many would believe should be well versed in socialism, to re-evaluate what socialism and left-of-centre politics is about, this despite the fact that the vast majority are not versed is such matters. And this is because, on the whole, the State denies them an education whereby by they can be versed in left-of-centre political philosophies, never mind, there own history and contribution to the formation of the USA, both prior and after 1776.

Further, in the USA at least, talk of the working class is avoided, i.e., as far as I can tell, the USA has no working class, you are either middle class or blue collar – but never working class.

This I find strange, for where I grew up, we were all fully aware of what class we belonged too and the socialism and working class solidarity I often refer too originated in actual real and oppressed communities, where working class solidarity was essential if we were to better ourselves and reverse class injustice – to all extent and purposes, one is talking about 'communtarianism', which our friend Rousseau discussing in much of his own output.

Now, as highlighted, and thankfully I was lucky enough to have a good education paid for by the state, whilst I may be able to cotton on to much of the debate, dialogue and academic-based research and philosophy many here highlight continually, the fact remains, that many of those who are required to combine forces to change matters, be this by legal means, or revolutionary means, to be frank, have little idea what many are discussing on these boards – and yet, these are 'socialists', they just do not understand it because class and education are denied in the USA and many other nations.

Anyway, that's my two bobs worth, but, its no good preaching to the converted and highlighting how well read we are and expect revolutionary change, if those forces that can bring about said change cannot understand us – might as well speak in Latin.

So, I do not think left-of-centre grouping, namely the working classes need to re-evaluate themselves – progressives and academics perhaps, the working class that's denied a class consciousness certainly cannot do that – and these are your socialists and the vanguard necessary for a better tomorrow.
charles sereno July 20, 2013 at 4:38 pm

Just came late upon this discussion and was impressed (and maybe missed some of it). I see several viewpoints, not particularly contradictory, though typically ones employing the kind of arguments that lead to non-productive cat fights. One bit that I can add based on experience is this - the "masses" (or fill in the blank) are not unattracted to the intellectual elite, on one condition. That condition being that the person espousing views, (even when offensive to those they currently follow), has risen up from their own background and have experienced enough of it to understand how they think. Once that happens, they swell with pride and are eager to learn new ways. This is the makings of a true revolution. The acid test of a leader is this - Does he/she fully comprehend that one's own competence in a particular area must be accompanied by a quest for leaders in many other areas?
The problem Chris Hedges has (not his fault) is that his audience doesn't suspect how much he's shared their own experiences.
digi_owl July 20, 2013 at 11:07 am

I suspect the academic left in the Nordics and elsewhere were too effective at selling the message of education as a road to a high wage.

To take my home country of Norway, the supposed labor party has become something of a bureaucrat's party. And their "socialist" splinter party has mostly focused on students, academia and foreign issues.

In its place has risen a populist right wing party focused on entrepreneurship and the myth of the self made man. Meaning that there is no political party that think about the industrial and service worker from their own point of view.

It is either from the professional administrator/bureaucrat point of view, or the budding business man point of view (where the laborer becomes a one man business doing contract/consultant work rather than wage work).
Massinissa July 20, 2013 at 11:33 am

Parts of your post are sort of facepalm.

Firstly, what is wrong with not supporting that center right clown Hillary? Do you really still think she would have been any different than Obama? Or Bill Clinton for that matter?

And the antipathy towards part of the left of Israel, which by the way is certainly a minority (DiFi is part of the 'left' for gods sakes! Shes practically Israel's representative to the Senate!), is most certainly not based on racial grounds. To suggest as such is a thorough misdirection and strawman, and quite insulting.

Though I agree with most of the rest of the post, with the exception of your attitudes towards socialism, which Rogers debunks far more ably than I.
Banger July 20, 2013 at 1:20 pm

Most social-democrats are described as being proponents of a managed economy. You allow capitalism to thrive where it thrives best and you guarantee that citizens do not suffer from deprivation. When capitalism goes awry you stem pin. Scandinavia was never socialist–it always had capitalism at the center of the economy.
Tokai Tuna July 20, 2013 at 1:32 pm

I thought the Arab spring was promoted by NGOs and the like, but billed as an authentic youth uprising. Fundamentalists are fine as long as they still behave like Mubarak did. Behave as 'Murica prefers and we'll call it a Democratic incubator of Jeffersonian Fundamentalism, the weapons and money are on the way – it's getting harder to buy people off these days.
Part of the problem with the "American Tinderbox" is the torrent of misinformation and propaganda aimed at everyone. Right next to Hedges columns for example, you'll see Eugene Robinson, who chops out the type and posts a civil whimper of protest. Starbucks readin'.
Yalt July 20, 2013 at 2:42 pm

I suspect it was both at the same time–that was certainly the case in the Ukraine, where the great majority of the Orange demonstrators were blissfully unaware of the fact that the movement they embodied was being funded by and steered from the West.

It's not so different here–our local Tea Party crowd really believes they're a genuine grassroots movement set off by a completely unscripted and impromptu television rant. They know nothing about the Kochs, if you told them they wouldn't believe you, if they believed you they wouldn't care.
OIFVet July 20, 2013 at 2:29 pm

Respectfully, that which you describe as "left" is nothing more than a faction of the neoliberal movement. Faux "progressives" of the MSNBC variety are nothing more than useful stooges for the official narrative which seeks to convince us that the Democrat party is a leftist party, that Obama is the best thing since sliced bread, that there is an actual alternative to the neoliberal sociopathy which is leading us into the serfdom of the new Dark Age. And I refuse to recognize anyone named Clinton as a leftist, what with NAFTA, Graham-Leach-Bliley, and the unhealthy Rubinite dependency…
Massinissa July 20, 2013 at 3:28 pm

AMEN. My thoughts exactly.

I fail to see why some 'leftists' are STILL upset that Obama beat that Rubinite Hillary. For those folks, whenever Obama does something bad, they say, "Ah, Hillary would have been so much better!" with absolutely no evidence at all that she would have done anything different. Its sort of nauseating to me.
Jess July 20, 2013 at 6:37 pm

Another AMEN.

And it's not "sort of nauseating" to be, it's just nauseating.
Synopticist July 21, 2013 at 8:54 am

I don't agree with that. I think Clinton would have been a fair bit better than Obama. Obama is a centre-right corporatist, Clinton's a centrist.

But the big difference is she would have understood that there was no room for compromise with the republicans. Obama is a bit of a pussy basically, whereas Clinton isn't, and shew also understands the need to keep your base happy, which in her case included unions.
OIFVet July 21, 2013 at 11:59 am

Lesser evilism again. Really?! Let me guess, her Secretary of Energy will be Ed Rendell… No thanks. And I will never buy the "Obama is a pussy" meme, he gets precisely what he wants.
Doug Terpstra July 20, 2013 at 11:19 pm

Yup, different puppets; same string-pullers, same show. Obama is puppet V2.0, artificial sentience, apparently without conscience or soul.
Tenney Naumer July 20, 2013 at 7:12 am

It is utterly amazing how the introduction of fracking has galvanized Americans on both sides of the political divide. Anti-fracking movemnts are growing like wildfire across the country and they are also partnering with the anti-pipeline movements. People are looking at the role of city and county governments like never before. The battle between ordinary people and oil and gas companies and all the campaign money flowing in to state legislators have awoken the passive public.e
MikeNY July 20, 2013 at 7:17 am

As it's said in politics, things can move quickly from the impossible to the inevitable, without stopping at the probable.

If we keep pumping a million or more college graduates into the workforce every year without decent prospects for employment, very soon we will have a critical mass of 10+ million who may be ready simply to "withdraw from the system". Young, educated, indebted, and unemployed.

I believe, of course, that power will try to cling to power: when social unrest emerges, the federal government will find the money for a massive jobs program. It's the least risky option, the most conservative, for the plutocracy.
Skeptic July 20, 2013 at 7:34 am

I wonder what role Professional Sports (including NCAA) and the Entertainment Complex (including Iphones, Ipads, other entertainment devices) play in the Pacification of America. Seems most folks have their entertainment if nothing else.

Professional Sports all have virtual Monopolies granted by government fiat. They all get huge government tax subsidies either directly through stadia financing or other means. Every city in America has its team. Many of these teams are owned by Wall Street types or hedge fund guys (Boston Red Sox). Bernie Madoff was using NY Mets to get clients. The airwaves are full of Sportz Talk. Every newscast has its Sportz Update. The only alternative commentator I have ever heard really go after Professional Sportz is Alex Jones.

Universities too have all their Sportz, generally acting as feeders into the Big Money Sportz. Many Latin Perfessors will tell you that Sportz runs the University.

If I am not mistaken, is that not an ADIDAS shirt Tsarnaev is wearing on the cover of Rolling Stone? ADIDAS one of the biggest domestic and international Sportz suppliers and advertisers. So even Tsarnaev has been Sportz brainwashed? I have seen this many times. Michael Moore wearing Sportz hats. I have seen demonstrators at labor rallies wearing NYYankees hats. NYYankees, the team of Wall Street.

Then there are numerous Progressives and Liberals who all have their favorite teams. Really remarkable, they do not even understand the link between Sportz, the State and the Great Deterioration. No, they need their lighter moment at the ballpark where they can forget, guzzle ten dollar beers and be advertised to.

Then there's Hollywood, Disney, and all the Entertainment conglomerates who control that Industry. Not exactly Occupy material.

Lastly, all the Tech Toyz. Ipads, phones, Facebooks, etc. to divert and entertain us all on the way down. Get all the latest Sportz scores and Celeb Chatter. Cheaply too. If things get really bad, the 1% can just give free sat TV and the newest Apple trinket to the 99% and just keep on truckin'. Just like buying Manhattan for $24! Maybe throw in a ticket to the BIG GAME.(Obummah gave away free cellphones.)

Why are Sportz, Entertainment, Tech Toyz all ignored as factors in the Pacification of America? Is it because we all have our favorite teams, conglomeratized entertainments and Tech Toyz? Seems that there is one Big Elephant no one is mentioning.

So, being from Boston, go Red Sox, Patriots (there's a name a revolutionary can love), Celtics, Bruins, BC Eagles, Harvard Crimson,…. etc.

What's your favorite team or TV show or Tech Toy?

When is NC going to have a Sportz Section?
Boston Scrod July 20, 2013 at 9:15 am

Skeptic doesn't seem to appreciate the fact that our founders freed us from the yoke of colonial oppression so that we could use our hard won freedom to commit our lives to the enjoyment of spectacle and entertainment, both real and virtual. Wake up and smell the coffee, man!
mark worden July 20, 2013 at 9:21 am

Neil Postman: Amusing ourselves to Death. comes to mind.

not to mention….bread and circuses
Adam Noel July 20, 2013 at 9:34 am

Good comment and one with many here agree. This is why I am completely fatalistic about change coming as long as the entertainment-media nexus exists. No change can occur because change would entail missing Glee, The Kardashians or the Football game.

From an evolutionary perspective the current system is novel. This system, through pursuit of the profit motive, has been optimized (selection of products that produce the most profit will result in more of those products. These products, if they are to be extra-profitable, most exploit psychology in some shape or form) to override our instincts and drive consumerism.

To a certain degree even those who profess to be proponents of change (Michael Moore, etc) view such events as "just fun" while they are nothing like the sporting events, plays, etc of the century prior. These events, once you are plugged into them, are marketing machines optimized to ensure you keep coming back.

Huxley is ultimately more right then Orwell. Most people read Huxley and are terrified at the idea of soma yet fail to recognize such a system already exists. Through exploitation of evolutionary novel contexts to produce rampant consumerism we are already enslaved. Like you said, as long as the entertainment-media complex keeps on churning out content nobody will notice.

People who promote wanting a simpler life cannot compete with sky-diving out of planes recording the experience with google glass, jumping off ramps and then zip-lining (Or something) into a press release. Life is Hollywood now, baby. You either go big or go home.
F. Beard July 20, 2013 at 9:45 am

Quit blaming the victims!

Back when most of us were on the family farms the banks stole, there was plenty of wholesome entertainment and work to do.

But now most people have to make do with the mess of pottage they've been given in return – cheap entertainment and mass consumption.
Adam Noel July 20, 2013 at 9:52 am

I do agree with you that it is not anyone's fault. It is a way of life now pretty much and as I said to a friend before… when I look behind it all sometimes there is still a distinctly human character to some of it. (i.e. all is not lost)

For example, watching a television show with a sibling eventually becomes part of the bond between those two siblings. Sure, to a certain degree, it is a mass produced pile of garbage but the bond formed through the mass produced pile of garbage is still meaningful.

It is never the victim's fault and to a certain degree it isn't even the oligarch's faults. The system itself is the problem.
F. Beard July 20, 2013 at 9:58 am

I do agree with you that it is not anyone's fault. Adam Noel

I've never said that. Those who set up the money system and those who continue to support it in the face of a just alternative are certainly at fault.
Moneta July 20, 2013 at 4:42 pm

If you were them, you would do the same thing.

Empathy is what will help us get us out of this hole.
F. Beard July 20, 2013 at 6:03 pm

Speak for yourself.

I've lent people money quite a few times but never charged them interest. So it appears I can't even get to 1st bank when it comes to being a banker.

You?
Moneta July 20, 2013 at 10:01 pm

Cognitive empathy: the drive to identify another's mental states.[14][17] The term cognitive empathy and theory of mind are often used synonymously.[18
---
It's not a question of putting the person you are in someone else's shoes because the reality is that if you had the genetics, upbringing and experiences of the 1%, you would not be the person you are now.

Another reality is that you never really know how you would act in intense situations until you live it. I know, I've been there and it's an eye opener.
F. Beard July 21, 2013 at 4:46 pm

Actually dear, (now that I know you're female) I do realize that we're in a tragic situation and I don't blame very many at all. For example, I hate usury but I'm pretty sure my pension depends on it. I hate credit creation but realize pension funds are invested in banks.

I do seek a painless way out for everyone except sadists and those who seek to profit from misery.
Moneta July 21, 2013 at 7:57 pm

I do realize that it is very difficult to get our worldviews across in blurbs.

And I do also realize that each one of us has a few pieces of the puzzle. Some more than others but each piece counts.
Chris Rogers July 20, 2013 at 12:37 pm

Noel Sir,

First, I concur with your analysis that a large part of the populace, be it in North America or the more northerly parts of Western Europe do seem to be addicted to Soma – of course referencing Huxley's Brave New World, which as with Orwell's 1984 is a wonderful dystopian novel predicting a ghastly future for mankind – indeed, if we mix both Huxley's dystopia with that of Orwell's, I think we are more or less 99% there in those northern nations where unemployment is at or below 10%.

I don't think we can say this for places such as Mexico, or many of the Southern European nations – many of whom due to poverty are unable to enjoy the 'paid for' bread and circuses our masters wish us to consume.

However, and what's perhaps even more interesting, and shall I say I think Yves's misses the point a little in Hedges second RN interview – there is actually no commons so to speak, no hallowed and commonly owned ground where critics can air a grievance and communicate effectively face-to-face. Indeed, we have to all extent and purposes become digitally atomised – and as others have noted, one cannot launch a revolution via digital means blogging on sites like NC. Indeed, NC actually benefits TPTB by the very fact we are stuck in front of a monitor or with a iPad posting comments on these boards, rather than socialising and rioting – which our friends in Southern Europe seem adapt at doing, namely in Spain, Greece and Italy, and sometimes in France.

So, my analysis for what its worth, which may be a little deterministic for some, is this: At our present juncture in the profit-driven proto-fascist nations such as the USA and UK we have the drip feed of SOMA, or as I refer to it as, bubblegum entertainment of the lowest kind, much of which you have to access via paid subscriptions. Now if you have high employment levels and a decent welfare safety net, its possible to keep persons of the street and from interacting at a personal level – be this in work, taverns, sports grounds whatever – what happens though, when the majority due to lack of funds cannot actually access these dumbing down services>

And this is where our trajectory is taking us, for not only under neoliberalism does every thing have to be paid for and a profit derived thereof, but by the very act of cutting wages and increasing unemployment to unheard of levels, our masters are digging their own graves.

I will make one further addition based on observations in the UK. Its been approx. 40 years since the neoliberal inspired counter revolution was launched, in which time we have witnessed a huge increase in inequality, unemployment and real poverty, exacerbated by the GFC – unlike its bedfellow though in the USA, so demented are our neoliberal baboons in the UK, that they have adopted a policy of austerity in a period of stagflation and high unemployment, however, the cutbacks are not only on the welfare state, quite the reverse in fact has happened to that in America, namely, even the forces of law and order, and the military have had huge cutbacks – with the only increase in spending on our secret services. So, instead of militarising the state apparatus, as in the US, our masters have done the reverse, i.e., they are so greedy and tightfisted that they will not pay for their own protection.

So, don't be surprised to see further outbreaks of public rioting and disorder in the UK over the coming years as further austerity is embraced – for if you cannot even afford the Soma, like most addicts you'll turn to crime, or combine with others and riot – as for political change, I think this will only come when this inflection point is reached, which is basically what Hedges is saying, and if the UK goes, so does much of Europe – particularly given we are about the most passive of all our European neighbours I'm ashamed to say.

Funny that!!!!!!!!!
from Mexico July 20, 2013 at 10:40 am

Carlos Fuentes called it the new Baroque, a Baroque that had devolved into its Rococo extreme. There is no empty time and no empty space, as every space and every moment is filled with dazzling, lavish, elaborate, swirling splendor. Here's an illustration of the orginal Rococo:

http://www.reprodart.com/kunst/salvador_barbudo_sanchez/1014478.jpg

It was also used in religous settings. Here's an example from Mexico, where the Rococo perhaps was carried to its most elaborate extreme:

http://safe-img02.olx.com.mx/ui/11/83/25/1306095947_206347825_14-Paseo-cultural-a-Puebla-.jpg

Other terms for it are, in Mexico, pan y toros, or in Roman times bread and circus.

It didn't work out too well for Luis XVI or Marie Antoinette, nor for the Bourbons in Mexico. And some argue it wasn't a sustainable form of social control in Rome either, although I'm sure you are aware there are about a thousand different theories on why the Roman Empire declined.
Lambert Strether July 20, 2013 at 4:52 pm

Banger July 20, 2013 at 1:31 pm

Yes, the whole entertainment industry and consumerism did not arise randomly as everyone including nearly all leftists belive. It was engineered as surely as Hedges has carefully examined the origins of manufacturing consent by the power-elite. The current narrative we live under is not a random interaction of market forces–i.e., giving people what they want. I used to think that. One book that changed my mind, is Captains of Consciousness, Advertising and the Social Roots of the Consumer Culture written in the 70s that contains numerous quotes from the power-elite on how to condition the populace to create the culture you describe.

This is not the sort of natural result of freedom of expression and all that. Our fetters, our narratives have been carefully constructed using the best minds, the best materials, the best research available to enslave us not by jack-booted thugs–that clearly did not work but through what would have once been called "magic spells."

I believe that the interest in magic and fantasy has a lot to do with the fact that consciously we are not allowed to admit to ourselves that we live in a world manipulated by, frankly, evil magicians–they use our desperate need to believe we actually are "individuals" who want to be free to create our own identity. We're not, we're food for predators. Hedges, by the way does an excellent jobs in several of his books describing some of this though he and I disagree on some of his conclusions.
Lambert Strether July 20, 2013 at 4:54 pm

To them we are food. To us, we are individuals, fully human moral agents.
reslez July 20, 2013 at 9:08 pm

We are ruled by evil magicians. Objectivism falls on the same slice of the alignment pie as True (or Neutral) Evil:

A neutral evil villain does whatever she can get away with. She is out for herself, pure and simple. She sheds no tears for those she kills, whether for profit, sport, or convenience. She has no love of order and holds no illusion that following laws, traditions, or codes would make her any better or more noble. On the other hand, she doesn't have the restless nature or love of conflict that a chaotic evil villain has.

Neutral evil beings consider their alignment to be the best because they can advance themselves without regard for others.

This ethos holds that seeking to promote weal for all actually brings woe to the truly deserving. Natural forces which are meant to cull out the weak and stupid are artificially suppressed by so-called good, and the fittest are wrongfully held back, so whatever means are expedient can be used by te powerful to gain and maintain their dominance, without concern for anything.

Neutral evil characters are primarily concerned with themselves and their own advancement. They have no particular objection to working with others or, for that matter, going it on their own. Their only interest is in getting ahead. If there is a quick and easy way to gain a profit, whether it be legal, questionable, or obviously illegal, they take advantage of it. Although neutral evil characters do not have the every-man-for-himself attitude of chaotic characters, they have no qualms about betraying their friends and companions for personal gain. They typically base their allegiance on power and money, which makes them quite receptive to bribes.

The neutral evil is an unscrupulous, self-serving character who is only out for himself. Power, glory, wealth, position, and anything that will make his life more comfortable is his goal. It matters not who gets caught in the middle, as long as he comes out smelling like a rose. This person will lie, cheat, and kill anyone to attain his personal goals.

from The D&D Alignment System: Neutral Evil

Schofield July 20, 2013 at 8:43 am

The class war is ultimately based on the failure to understand how both human nature and money works. Ultimately it's a failure to understand the importance of balance. Balancing self-interest against other-interest and public creation of money against private creation.
JCC July 21, 2013 at 4:25 pm

That's for sure, ir as Henry Ford said many years ago before things got really out of hand, "It is well enough that the people of this nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

I'm reading Bad Money by Kevin Phillips at the moment, and although outdated by 5 years or so, the patterns he describes have gotten worse.

The first thing the Left needs to do is read this, have all their acolytes read it, and then ban all discussions on his nuanced politics (such as always describing the presidents of countries that castigate the U.S. as "strongmen" while using the polite honorific for those presidents/prime ministers that are our allies) and pay attention to the bare facts, as well as read NakedCap :)

I'm not done with Bad Money yet, maybe I'll change my mind, but until you get the average person on the streets to understand our system of money, nothing good will be accomplished.
C.Raghavan July 20, 2013 at 8:53 am

see recent column of Prof. Johan Galtung of Transcend Peace University http://www.ipsnews.net/2013/07/the-new-fascism/
raghavan
profoundlogic July 20, 2013 at 9:13 am

If you're looking for a real tinderbox, check out the Comex. JPM's eligible gold down 66% in one day. LOL! One has to wonder how long the bullion banks and Fed can keep this game up? Any coincidence that the Fed is now reconsidering banks' commodity trading actions? Things that make you go hmmmm.

Perhaps Hedges should begin a movement to expose the gold leasing actions contributing to the obfuscation of balance sheets? In an age when regulation has become a joke, this is looking more like another MF Global waiting to happen. It's pretty hard to tender delivery of what you don't have.

http://www.bloomberg.com/news/2013-07-20/fed-reviewing-2003-decision-on-banks-commodities-activities.html
Bam_Man July 20, 2013 at 10:53 am

And when they declare Force Majeure and offer settlement in cash only, the COMEX will finally be recognized as the "bucket shop" that it is.
Jennifer July 20, 2013 at 9:17 am

I agree that Obama has been terribly destructive-whether by design or by accident doesn't really matter. And I agree that there is nothing very hopeful about the political "left". But there are pockets of hope and resistance everywhere-the low-wage organizing happening all over the country, the ripple effects of Snowden, the fight in Texas over choice. More and more people are recognizing class war, even if they don't call it that. And there are mainstream allies in this, even if they don't have the same rationale. It's always a question of how this dissatisfaction will channeled, if people think they can vote for Democrats indiscriminately and get change, than no, that is not going to work. But if a few independent voices could be elected, and/or if people can organize around specific issues, and hold accountable whoever is in office for those issues, things could happen. It's true that Americans don't take to the streets the way others do, but seriously what has all that street protesting got Europeans? As far as I can tell, nothing. I don't want to say protests are useless, of course not, but it's just as silly to suggest that's the only way significant change will occur.
I will tell in Chicago there is organizing all over the place, mostly by young people who fully understand what is at stake.
Banger July 20, 2013 at 1:35 pm

Actually, street demos have gotten the Europeans almost everything. The governments feared the public and provided them with the benefits they now receive because of that fear. This began to change in Europe starting in the 70s, like here, it's a long story but, at this time, the European left has been outmaneuvered pretty easily.
OIFVet July 20, 2013 at 3:02 pm

Jennifer, as your fellow Chicagoan I have to ask: do you honestly think that the organizing by the young people will overcome King Rahm's fundraising muscle and his court of 50 merry yes-men alder-creatures? I agree that in the past year the general level of awareness has increased given the events surrounding the teachers' strike and the total war on public education, but come 2015 will that be enough to overcome Rahm's ability to raise $2 mil every quarter? I think not. As a fellow "lakefront liberal" (from Hyde Park), let me share what I see on the South Side: struggling minorities who are unhappy with the status quo, but happily accepting a few minimum wage crumbs thrown their way by the Penny Pritzker/UChicago Hyatt development, (paid for with TIF money taken from their public schools of course), and asking for more of the same. I see an ever-accelerating stripping of the public assets and an administration which makes me long for the days of Little Daley. And worst of all, I see a majority which is too damn apathetic to do anything about it, with or without organizing. I am sorry but I do not share your upbeat view of the events in Chicago.
Jennifer July 20, 2013 at 10:05 pm

You should get out more.
OIFVet July 21, 2013 at 11:39 am

Thank you for the advice, but I do get out plenty. I suspect I go to places where you do not. Hint: the North Side is not all there is to Chicago. I do have some very dear friends living in your neighborhood, good 'lakefront liberals' one and all. Their problems couldn't be further removed from the problems of the South Side populace, and I don't think one can organize people whose problems they don't understand. Regarding schools, Rahm is careful not to push north siders too far, something which he has no compunction doing to the minority south and west sides. That's because he knows only too well that north siders have the money and muscle to cause problems while on the south side power comes from churches and precinct captains, institutions which are in his pocket. Outside organizers as yet stand no chance given Chicago's racial history. Again, learn about the people you want to organize. I suspect that will require stepping outside Lakeview every so often. I am sorry if that sounds mean-spirited, I certainly do not intend it to come out like that.
Dave July 20, 2013 at 9:04 pm

Your protests will be tolerated and held to be constitutional as long as they have no real effect. If they start to have an effect, they will be ruthlessly suppressed.
Thor's Hammer July 20, 2013 at 9:22 am

"Everybody Knows" Classic description of the world by Jonette Napolitano and the band Concrete Blonde
http://www.youtube.com/watch?v=RaJAxdGeZ4E

Thor's Hammer July 20, 2013 at 9:41 am

And if apathy doesn't do it for you, there is always Jonestown. http://www.youtube.com/watch?v=yyQvxVD_wZs
Lambert Strether July 20, 2013 at 4:56 pm

The classic version…

Thor's Hammer July 20, 2013 at 6:26 pm

My instinct tells me that "Jonestown"has has more prediction probabiliity than all the dreams of tecnosalvation.
Paranormal Corpse July 20, 2013 at 7:00 pm

Paranormal Corpse July 20, 2013 at 7:04 pm

sorry, unsuccessful embedding

Corporate Elect

http://www.youtube.com/watch?v=R_sot9ZK8X8
F. Beard July 21, 2013 at 4:35 pm

Looks like Leonard Nimoy.
Shutter July 20, 2013 at 9:47 am

Don't expect anything from the 'people'. Expect the gov't to go publicly HARD right and crash the economy in the effort to wring every last penny out of it. When power distribution, communications, dollar collapse and fuel shortages isolate us, the country will fragment. We'll see what shakes out after that.
Phrase July 20, 2013 at 12:36 pm

Shutter, i tend to agree with your statement : " Expect the gov't to go publicly HARD right and crash the economy in the effort to wring every last penny out of it. When power distribution, communications, dollar collapse and fuel shortages isolate us, the country will fragment. "
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For me, i would nuance your statement so that the focus ends up clarifying the force and monied long-term strategic planning that has concentrated the neoliberal agenda's implementation into supra-national institutions, tireless working at destroying national sovereignty by for example, multi-national trade agreements with corporate controlled investor-state resolution bodies. … For me, civil soceity clearly realizes how 'illegitimate' those publically financed economic bank bailouts are. … But TBTF banks are global institutions fighting to maintain hegemony and the maintainance of the status-quo which is ever needy, and always greedy. … It is inherent to 'the system'.
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But, i really just wanted to mention Gar Alperovitz. His writings, to me, convey the role that 'pain' has in gradually becoming the catalyst for the building of the 'critical mass' needed to bring about … if not global institutional change … maybe regional pragmatic transformative change as communities take back control. … I do believe in people, the spirit of co-operation, innovation, and regional communities reclaiming sustainability. … Hedge's thoughts and writing continually throws cold water as a wake-up call.
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Yes …, and as you may agree, … the battle is one of economies of scale -- … It is also about redefining the dominant narrative so that the moral, ethical, environmental, health of the eco-system, rejection of solely the fiduciary commitment, … etc., concern for the public good, …etc., … gets inserted into the policy making agenda. … ALEC has to go!
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I don't think that a more equitable horizontal hierarchy can co-exist with the imperialist, militaristic, financialized, neoliberal global vertical hierarchy … furthered by some unrepresentative national governments. … The more regional 'pain' that we see the more daunting and yet also related we see different pluralist struggles. … I guess the question here is, how large can regional civil society friendly communities/regions become before the represent a threat to rule from the stratosphere. …
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So, to come back to your comment, I also am very concerned the disaster capitalism's monsters are getting ready for profit from the fire sale -- … phrase
Banger July 20, 2013 at 1:40 pm

Personally, I don't think so. The hard right today has a strong and growing part that is against war, for civil liberties and sees our own government as the enemy. I believe they are far in advance of what is left of the left and offer the only avenue for change at this time. The government fears an armed and motivated public. They certainly try to manipulate the right by trying to induce racial hatred and all that but I don't think it is working so well anymore. The far right in this country is not fascist but libertarian–though there is a real fascist right I believe it is more a construction created by billionaires that, without considerable funding, would collapse.
Jim July 20, 2013 at 2:19 pm

Great point…I'm seeing that too here in flyover country. There have recently been publicly displayed banners supporting the 4th amendment, which may explain why some Republican politicians have actually been skeptical of Obama's position on surveillance. I think many here are finally getting that social issues are just a way to distract people from the corporate hegemony built in Washington.

Personally, I've been monitoring what I call the "Bullet Price Index". A couple of acquaintances of mine are avid gun collectors, and when I get a chance to speak with them, I always ask what the price of ammunition is, not at Wal-Mart, but amongst themselves in underground transactions. A typical .22-caliber round is what I ask about. About a year ago, the price was around 80 cents. The last quote I received, in June, is about $1.80 to $2.

Feel free to debate the implication of this, but I think this creates an opposing argument to the "frustrated individual" theory in this post. Anger is more widespread than even NC readers might think, and creates a risk that the possible results of this may neither be social-issue friendly, nor big-corporation friendlly…just another data point to throw into the mix.
Banger July 20, 2013 at 2:33 pm

Yes, I think if you live in the South as I do you see a lot of interesting developments particularly among the young who see the influence of the government as toxic. I had an interesting talk with someone not too long ago who came from Kentucky who told of her community being destroyed by Social Security disability checks and crooked doctors writing pain-killer prescriptions. She was looking for a way of just dropping out of society she was so disgusted.
The Rage July 21, 2013 at 1:04 am

Don't agree with this at all. The "right" are just goons global capitalists want to use to abolish the bougeois states and turn all law to the capitalists.

fwiw, it ain't 'social security' checks that are doing anything, stop issuing them, the price would just go down and drugs would still be flowing.
Banger July 21, 2013 at 7:00 pm

Some, particularly the growing movement of pro-gun, anti-corporate, pro-libertarian, anti-globalist, anti-chemicals in your food are beginning to coalesce–I see it in young people in the fly-over country. That's where the action is.
Lambert Strether July 20, 2013 at 5:04 pm

I like that index.
Dave July 20, 2013 at 9:19 pm

The armed far right has a large number of religious zealots. If there ever is an armed rebellion, religion will be a major factor. The wars against the Muslims have been a significant issue. Many have been to Iraq and Afghanistan and actually consider those campaigns to be a Christian crusade. Many active duty officers certainly do. Coups have occurred in other countries when similar wars have been "lost". So if there is a revolution, it's possible that it may be a military coup.
Lambert Strether July 20, 2013 at 11:28 pm

Yes, and the Christianist loons at the Air Force Academy controlling some nukes. Happy thought!
Banger July 21, 2013 at 1:32 am

My own experience is that the people who are into guns aren't necessarily religious–they use religion as a frame of reference but aren't that dedicated to it. I think they are more suspicious of the the political order and think civil society is disintegrating.
Pogonip July 20, 2013 at 9:50 am

Americans will demand change when their vehicles are taken away, or their ability to drive those vehicles whenever and wherever they please (curfews, $15/gallon gas). Not before then.
John July 21, 2013 at 8:54 pm

No, not until the cable and the electricity are turned off.

Then fantasy world America is over and survival America will begin.
F. Beard July 20, 2013 at 10:14 am

Here, Hedges laments the lack of an effective left, and blames its death on the "inability to articulate a viable socialism". Yves Smith

The Left speaks of sharing and equity but have never, to my knowledge, been against central banking which promotes usury and debt.
Inverness July 20, 2013 at 10:56 am

His discussion of socialism was vague. He seemed to suggest social democracy as the solution? Then just say it. There is such a lack of willingness to discuss concrete plans, with the exception of people like Richard Wolff, who has shared how worker cooperatives can be quite successful.

Of course, the social democratic state was preserved as an alternative to communism in Europe. Since "there is no alternative" to crony capitalism, the social democratic state is in pretty lousy shape in Europe, especially for those in the EU, although even Sweden has been privatizing its public schools (!) How viable is that model? It's better than the virus that's spreading throughout North American and Europe now, although there will always be some inequality under social democracy, albeit significantly less.
Inverness July 20, 2013 at 10:37 am

Agreeing with Yves' misdiagnosis of Obama, oddly referred to as merely "mediocre" by Mr. Hedges. Bush is venal, and Obama is just average? No, Obama is brilliant, because who saw it coming? The same man who wrote so eloquently about black male suffering in Chicago in his memoirs, could be so indifferent to children in Pakistan and Afghanistan? Who thought such a nuanced thinker could be such a brute, and thug? There you go.

He's a new breed, one of Morris Berman's hollow men with no moral compass and reminds me of another highly accomplished "progressive" with all the right academic credentials, Ms. Samantha Powers, who also proves to have a similar shaky moral compass. Now, she's totally cool with Israeli atrocities! Who saw that coming? But if it gets you ahead, why not? She's moving in high places, with the right books behind her (she has "proven" she cares about humanity), yet the monstrous capacity to work for this administration, and everything that entails (legitimizing mass murder and torture as foreign and domestic policy).

These people are so much scarier than Bush. What's that line from the Usual Suspects? The greatest trick the devil played was convincing the world he didn't exist. Obama and his ilk are real-time, real world shape-shifters.

For Morris Berman's talk: http://www.youtube.com/watch?v=70buY9TZ7bo
Patricia July 20, 2013 at 12:30 pm

Berman analysis is precise, but I am realllyyyy tired of intellectuals soaking their analysis of the US public in a wretched judgmentalism that rivals any Calvinist. It emerges from a deep sense of superiority. And anyone who thinks US public is too stupid to get that is too stupid themselves.

Thus the first question that Berman fields (24:50) is from someone bemoaning the failure of democracy and wondering about a benevolent dictator (via Plato, of course, right?). And Berman answers, among other things: "…de Tocqueville mentioned that democracy can only work if the population is fairly intelligent and we don't have that."

The next questioner tries to address this, asking about "A General Theory of Love" (Thomas Lewis ed) from which Berman quoted: "A good deal of modern American culture is an extended experiment in the effects of depriving people of what they crave most."

Berman says, further, "In other words, what we are channeled into by this system is substitute satisfaction. Because human beings want is what they've always wanted: community, friendship, sex, interesting things to think about, safety…And what this system does is it takes those things away and says, 'here, here's a cell phone…here's television'. It gives you stuff that basically is crap and it says, "You'll be happy with it" and generally people aren't, on some level. And that's part of the crisis, really."

This isn't part of the issue, it is at center. What underlies community, friendship, sex, etc, is the need to be to be loved and to believe that one's life is meaningful. When these things are methodically stripped from humans over decades (over generations) by a culture ruled by big business' bottom line of maximum profit, they will take the allowed substitutes, and they become defeated. Of course it follows that they will also become stupider. How could they not? They suffer malnutrition.

Stupidity is not the problem but a symptom. No wonder the working class remains alienated from the remaining handful of intellectuals. No wonder the liberal educated class never cared all the much about labor unions. And, FWIW, the working classes include all groups of color, because that is where they also predominantly reside.

Failure by superiority. Talk about stupid!
Banger July 20, 2013 at 1:51 pm

Terrific comment!!!! I agree with you on Berman, someone who does have the some of the best analysis around, certainly, for me Hedges and Berman, who are friends, should be at the center of any discussion on culture and politics. But Berman's demonization of U.S. culture comes from his own sense of alienation from the rest of us not his analysis, in my view.

We need all the things you say and we are malnourished on a psychic level. I've made the argument that we live in a new age of magicians. I maintain that Americans have been victim of a carefully calculated and engineered mind-control system. How and why this happened has been well-documented but isn't generally known. Both Hedges and Berman touch on it but they miss the power of the magic. By magic I mean both traditional stage magic and careful manipulation of the subconscious. Nearly everyone I talk to that is reasonably intelligent categorically denies that they are influenced by advertising. Well consciously, most people reject advertising claims–but unconsciously, if it's done right their subconscious accepts it and waits for the opportunity to express that acceptance. Much of our problem lies in our refusal, despite over a century of theorizing and research that most of our motivations come from the unconscious and this is most true in American intellectual culture. If you don't understand the overwhelming force of unconscious desires both individual and collective you cannot possibly understand contemporary society in any way–you would just be blindly throwing darts or coming to Berman's conclusions that we are just stupid and, eventually, to the conclusion that human beings are base creatures. My experience is that human beings are splendid beautiful creatures and this gap between beauty that I see inside people and the reality of their sad state has always struck me and pained me almost beyond belief. It is like seeing people being flogged and tortured from the inside–no wonder so many people are in pain physically and emotionally!!
Inverness July 20, 2013 at 2:39 pm

Yes - those propagandists are the ultimate wizards behind the curtain, aren't they?

It's true that if we dismiss most Americans as unintelligent, we might fall victim to a kind of snobbery that alienates the very people with whom we need to build solidarity. I also agree that we shouldn't underestimate the well-oiled machine started by Bernays (Adam Curtis does a fine job of establishing this timeline).

Frankly, when I hear that Germans, Canadians, and British people aren't freaking out in massive numbers over the Snowden allegations, nor storming the American embassy, I start to realize that more and more people have been seduced and lulled by sophisticated lies, not only Americans.
Banger July 20, 2013 at 2:45 pm

Europe may have changed more than the U.S.–the dynamic there is fascinating. I see less hope there than here.
OIFVet July 20, 2013 at 4:21 pm

I disagree. It is true that Europe has changed more, but what is still true IMO is that unlike us in the US they don't have to deal with the chimera of the "American Dream" and its attendant belief in individualism over society. Class conscience there is still strong unlike here in the US where, as Chris Rogers has correctly noted, we act as though there are no class divisions. Never underestimate the capacity of the European masses to make important heads roll, figuratively and literally.
Banger July 20, 2013 at 4:34 pm

You maybe right there. But my instinct is, no offense to Europeans, that European society strikes me as being as even more confused than Americans by contemporary society. I agree that Europeans have more communitarian values one hopes that young people will find a way to move things in a more radical direction.
OIFVet July 20, 2013 at 5:19 pm

I am not sure precisely what you meant by "contemporary society" but I will admit that you may have a point, though from my experience it may only apply to some parts of Eastern Europe. I was born in one of the former "communist bloc" countries (one which is currently racked by protests), and what strikes me is the reactionary venom against anything perceived as "left", never mind that most people seem to have trouble defining "left" and "right" and never mind that it was the supposed "socialists" who imposed flat taxation. So we have the paradox of protests for social justice and complete public resistance to social spending or anything with the word "social" in it. Though it is due in part to the well earned distrust in the corrupt ruling elites, your point about the propaganda used to control, blunt, and misdirect the anger also applies. But this is Eastern Europe so I wouldn't use it to generalize about the rest of the continent. In my experiences and observations, Southern Europeans and the French are in no way confused about what is going on; the problem there as I see it is that the populace has yet to find an effective way to overcome the loss of sovereignty which has come with the rise of the EU and the financial control of international institutions like the "troika". And witness the explosive bitterness in the UK which manifested itself after Thatcher's death: the people didn't seem to have trouble identifying the source of their issues and remembered only too well how this new economic order was imposed upon them.

Perhaps I am biased by my euro origins, but I truly see Americans as far more compliant and easy to control. The myth of the "American Dream" I already mentioned. The myth of the "American Exceptionalism" is where I see the tool used to control the American people: we are exceptional so we must protect that at all costs, including sacrificing treasure to pursue our imperial interests abroad and sacrificing essential constitutionally guaranteed freedoms at home to "protect" us from "evildoers". I only wish I knew who would protect us from our "protectors"…
Moneta July 20, 2013 at 10:24 pm

One important issue with Europe is its dependency on banking and the US. They can not deforest and energy is limited. So they really have to limit their materialism, something they have not managed very well over the last couple of decades.

If they really want to keep their material way of life, they will have to be extremely productive… hard to see with their ageing population.

Once again, materialism is at the core.
Banger July 21, 2013 at 1:38 am

Sorry, by "contemporary society" I mean the modern social contract that devalues family and community and encourages atomism, i.e., people live without reference to traditional values–in all sections of Europe these ties have been more important than in the States and therefore, in my view, the trauma may be greater.

As for the American Dream and all that, I think that is changing–the youth, increasingly, don't believe in it.
Moneta July 20, 2013 at 10:16 pm

One morning, in my mid-20s, while I was pulling up my 3rd pair of stockings in 5 minutes, I had an epiphany. I realized that I was one of the brainwashed by culture… why do we women wear such wasteful an uncomfortable accessories?

Every time I think I am so "independent or special", I remember this incident and laugh at my hubris.
Dan H July 21, 2013 at 1:23 am

I was sure you were male, and would have gauged my ability to make that call as rock solid…I look out for your handle, have a well formed conception of your outlook etc…at least I thought I did. Your moment of self introspection has caused one of my own. Thank you.
Moneta July 21, 2013 at 7:49 am

LOL! I majored in math-economics and work in finance. I have spent most of my life in men centric circles… I'm here because in real life I'm surrounded by people who have no interest in the subjects I find captivating and the top 20%, most of which are deluded and drive me nuts!

I guess I have been forced to be an actress for 20 years, no awards lined up though…
F. Beard July 21, 2013 at 4:33 pm

Gee wiz, gal!

I'll not be able to get so mad at you now.

But I sure disliked you as a male!
Klassy! July 20, 2013 at 4:11 pm

Yes, excellent comment.
Lambert Strether July 20, 2013 at 5:09 pm

"The other guy is stupid" is a very well-worn trope among Obots and Democrats generally. Every so often The Daily Howler does a Maddow takedown, which should dispel any notion that either legacy party has a monopoly on stupid.
OIFVet July 20, 2013 at 3:13 pm

"who saw it coming?" Adolph Reed did, as far back as the mid-90's:

"In Chicago, for instance, we've gotten a foretaste of the new breed of foundation-hatched black communitarian voices; one of them, a smooth Harvard lawyer with impeccable do-good credentials and vacuous-to-repressive neoliberal politics, has won a state senate seat on a base mainly in the liberal foundation and development worlds. His fundamentally bootstrap line was softened by a patina of the rhetoric of
authentic community, talk about meeting in kitchens, small-scale solutions to social problems, and the predictable elevation of process over program - the point where identity politics converges with old-fashioned middle-class reform in favoring form over substance. I suspect that his ilk is the wave of the future in U.S. black politics,
as in Haiti and wherever else the International Monetary Fund has sway. So far the black activist response hasn't been up to the challenge. We have to do better."

"The Curse of Community," Village Voice, January 16, 1996
Banger July 21, 2013 at 1:40 am

Great, great find–kudos to you!
indianaboy July 20, 2013 at 11:56 am

The closer you were to the Soviet Union, the more meaningful socialism your society enjoyed. Scandinavia > UK > USA

The key to upper class concessions is a real fear on the part of the upper class that without compromise they risk revolution. Working class revolutions are usually only possible if they are supported by an external superpower: the USSR in the the 20th century played this role for the West.

Today, interestingly enough, the US is providing this same benefit to the working masses of China. As someone who frequently travels to the PRC and closely watches the party-state it is clear that they're continuing policies of raising the minimum wage and extending health insurance, and subsidized education are being motivated in part, by a real fear that without these concessions, the lower classes will revolt and demand democratic freedoms, inspired in no small part by the (actually inaccurate) perception that the US is both a democracy and a superpower (in PPP terms the PRC is a much, much larger economy; the US is being propped up only by its overvalued currency)

The lower and middle classes in the PRC will sorely miss the US when it is gone. We may be entering into a new conservative period akin to 1815-1848 Europe when a concert of authoritarian monarchies kept a firm hand over the restive European lower classes.
Chris Rogers July 20, 2013 at 1:28 pm

@indianboy,

No, no, no.

Your analysis is wrong to say the least, particularly with regards the development of more socially democratically orientated states in Western Europe.

I don't wish to belittle your analysis, but by focusing on post 1917 developments in Europe after the Communist seizure of power – Russia after all was a democracy in 1917 for a few months – is wrong.

First and foremost, you need to acquaint yourself more with German History after unification in 1871 following the Franco-Prussian War and consequent Paris uprising and the Commune – the first true elements of a modern welfare state, which is now associated with social democratic nations, were actually sown by Bismarck, and wether we like it or not, Germany under Bismarck was a functioning democracy despite its three tier voting system that favoured the ruling elite – remember in the 1912 German elections the SPD had the largest share of the vote and were a formidable presence in the Reichstag – so fear of the Soviet Union had little to do with it in Western Europe.

As an illustration, the UK suffered a pretty severe recession from the early 1870's until the 1890's, welfare provision was limited to say the least – we had the Poorhouse/Workhouse and a philosophy of its the poor's fault they are poor – not the states – a wonderful attitude if you are the sole Superpower, not so good when you had the French, Germans and USA biting at your heels – now, if you look at international relations in Europe during the timeline 1871-1914, there is an emerging trend, not only a growth in the power of the working class, but the development of an alliance system that ultimately led to WWI – further, and with regards the development of a welfare state in the UK, it was the Boar War and UK's inability to field a strong and healthy army that resulted in the post 1905 Liberal Government reforms, and, the requirement for a large standing army to deploy in France as a result of the Duel Entente – until that requirement, which needed strong healthy cannon fodder, the authorities could not give a toss – a similar effect rippled over much of Europe – not so Tsarist Russia.

So, one of the reasons for the development of a welfare state in Western Europe, was not so much the demands of the Working Class, but the huge demands of fielding massive armies when the populations were far smaller than today.

Hence, it was actually the struggle for supremacy in Europe after German reunification that resulted in what we'd term social democratic states – indeed, such was the dire poverty in the Scandinavia states prior to WWI that emigration to the New World was a major problem.

Hope this illuminates a little?
Banger July 20, 2013 at 2:03 pm

I think both of you are right so some degree but I mostly agree with you. Nation states, from their inception, let's say with 17th century France had as their goal the enrichment and prosperity of society. Yes, the royals got caught up in wasteful stupid wars but their non-war policies tended to favor having a prosperous country whether just to have revenue or not–it was generally accepted that the privileged should take care of their dominions.

This caring about their subjects was also a factor in the early history of the U.S. Lasch in his great work Revolt of the Elites points out that oligarchs in small towns and cities often competed with each other in buiding libraries, beautiful parks and fine schools for the populations under their control until the post-Civil War era gradually changed all that. The movie It's a Wonderful Life is an example of the old noblesse oblige that was present in smaller communities as late as the 1930s and 40s.

Our own system is a result of the fact that authority began to be unstable and up for grabs so that there was a competitive advantage to be immoral, selfish and ruthless. So the George Bailey's were replaced by the Mr. Potters and the those were replaced by Mr. Potters sons with MBAs.

As for the Chinese, their culture has consistently pointed themselves in structuring their society with central authorities motivated by what is best for the society as a whole not out of fear of the peasants but out of logic. That is why their society of guaranteeing that a certain class maintains power and that class be very limited so that while dynastic struggles are present there is no direct need to ruthlessly repress the people as a whole because those people are quite happy to be well-ruled. Good governance, not political freedom, is how people prefer things. Americans too would be happy if they had good governance without political freedom–sadly we have neither which is why we are probably headed for trouble.
mcgee July 20, 2013 at 12:05 pm

Change is the only constant with the shape of change being the great mystery. Society has to offer a standard course for success to keep the majority on similar paths that maintains the status quo. The financial crisis was too large a shift towards the oligarchs/plutocrats and left many without a clear path forward. The wild cards are the surveillance state, militarized police, and constatnt propaganda intermixed in the steady drip of infotainment being capable of the level of control necessary as the number of disaffected grows. I lean towards thinking that the surveillance state is a real game changer and has forever upset the familiar historical cycle of government.

The built in safety valves to bleed off societal stress have been reinforced by active social engineering and the very real threat of violence by the state. Conditions are going to need to get much worse before change happens on the ground in America. The shape of the future isn't one conducive to individual rights and an egalitarian society. Far from it in fact.

Current population growth and enrironmental degradation will eventually trump the contrivances of modern society but as is standard throughout history, it will be the 99% that will suffer the harshest consequences. Mother nature is one helluva of a clean up batter when the bases are loaded with the excesses of humanity.
sharonsj July 20, 2013 at 12:36 pm

I watched the first Obama-Obama debate and gave up after 15 minutes. I was talking to a reporter friend, who commiserated that she had to watch the entire thing. I explained that after 15 mintues neither man had said anything I didn't already know and I wasn't going to waste any more of my time. She said the same thing about the entire debate and added that in fact she had decided to become a Socialist. I started laughing because I'd come to the same conclusion after a lot less time.

This country desperately needs a real revolution…any kind will do. The level of anger in the country really is alarming and I'd hoped that we'd see more large protests. I wonder if people are just exhausted or if they've given up? Chris, I don't think you can blame a weakened left for the lack of people in the streets. But the generations that used to march are getting to old to do it again. We need the younger generations to wake up and get out there.
Jim Haywood July 20, 2013 at 1:02 pm

'I watched the first Obama-Obama debate and gave up after 15 minutes.'

Hell, I don't blame you.

What was the preening narcissist doing - talking to himself in the mirror?

Likely the backward reflection of the teleprompter confused him, never having learned Leonardo's skill of reverse writing.
Banger July 20, 2013 at 2:06 pm

Very LOL–cool comment. I agree, almost any change is good. Sadly the left is indeed dead for reasons I've given below and other Chris' reasons as well. But that change is likely to come from the right not the left. In fact, I believe the new left will come out of the right somehow by magic perhaps.
Dave July 20, 2013 at 9:24 pm

They would just sit around and play games on their smart phones!
barrisj July 20, 2013 at 12:38 pm

The late Tony Judt had gone over some of the same ground in his book, "Ill Fares The Land" – albeit from a "Western" perspective (Europe, North America) – in lamenting the fecklessness of contemporary Social democracy in the face of a radical challenge from the Right. Moreover, he asserts that the best a progressive agenda can hope for is, "…[I]ncremental improvements upon unsatisfactory circumstances…", an exceedingly modest and indeed a near-defeatist posture. For Judt as well has all but conceded Advantage Neo-liberalism, and also despairs of any sort of "bottom-up" revolt against abusive capitalism and its enablers and protectors in government.
In fact, "It is the Right that has inherited the ambitious modernist urge to destroy and innovate in the name of a universal project. From the war in Iraq through the unrequited desire to dismantle public education and health services, to the decades-long project of financial deregulation, the political Right – from Thatcher and Reagan to Bush and Blair – has abondoned the association of political conservatism with social moderation which served it so well from Disraeli to Heath, from Theodore Roosevelt to Nelson Rockefeller".
Were Judt alive today, he certainly would have included Obama – with his unprecedented expansion of state surveillance, connivance with the financial overlords, suppression of dissent and transparency in government, and continuation of a militaristic foreign policy – as an avatar of the neoliberal or neofascist project. Both political parties, the courts, corporate and financial interests, "law enforcement", all are united in preserving or extending this "project", and in fact consolidate their stranglehold on the people in the aftermath of each inevitable crisis that continues to befall late-capitalism. How, one asks, can a severe pessimistic reading of any chance of meaningful reform be anything other than a realistic assessment of where the future lies.
Banger July 20, 2013 at 1:00 pm

The left in the U.S. has, traditionally, three sources of "energy": (1)religious/spiritual/ethical people; (2) intellectuals and artists; (3) the labor movement. These forces have been divided and may never come together again in large part due to what was termed identity/ethnic politics. The sixties ended up shattering the alliances that were already fraying–we can't blame any one group of movement other than say that the left was, by the seventies pretty much shattered.

All the contradictory forces were in conflict of course but the problem, at the time, was that the central figures that offered a clear and realistic alternative vision were shot-down like mad dogs.

My critique, unlike Hedges, is that the big mistake was to accept, without criticism the official stories on the JFK, RFK and MLK assassinations despite overwhelming evidence to the contrary. There are thousands of researchers that have meticulously deconstructed the official narrative on those assassinations but almost no one on the left has the courage to even look at the evidence–usually they cite the famous Richard J. Hofstadter essay of 1964 "The Paranoid Style in American Politics." Of course Hofstadter made good points and so on but basically it was, as an essay, a typical work of sophistry–certainly conspiracy theories abound about many things most of them based on rumor and fantasy by radically misinformed people. But the 60s assassination "conspiracy theorists" had mountains of evidence and even more now that would, at the very least, be an invitation to dialogue. Instead the liberal and radical left have both categorically rejected the direct evidence in those cases in favor of the official narrative. This is why I consider the American left the "Stasi left."

To nearly all prominent leftists in this country official government narrative on the assassinations (and nothing else) was a priori as true as the fact the Moon circles the earth. Any contrary opinion cannot be discussed–if you bring the matter up you are clearly insane and belong on medication or in a mental hospital.

Worse, the left, along with the mainstream, refuse to believe political conspiracies exist in the Unites States. Other countries and other eras, of course had conspiracies as anyone who has read the classical historians can attest but when the U.S. was born conspiracy only existed in a box called "crime" and the political elite are incapable of assassinating rivals or breaking the law to fix elections, plant false stories in the press (except very rarely–in fact the left ignores much of what Frank Church managed to expose about the CIA).

In my view the intellectual left, by ignoring the assassinations of the 60s, literally has put an end to the rationality and dialectic as a legitimate mode of inquiry. Is it any surprise that so many Americans reject science and rationality? Of course when it's done on the right everyone laughs and I can only think "hypocrites." At least right-wingers usually have the excuse of lacking the tools of analysis.

The most obvious evidence I know because it is quick to describe and takes a very simple Google search is to cite the fact that Thomas Noguchi's Cornoner's Report was never entered into evidence in the Sirhan's trial. Do you get that? Why? Because it showed that RFK, who would have been the next POTUS, was killed by a gun shot at point blank range from the back and pointing upwards. That's just for starters–the official case is a lie from start to finish as are all the other cases and I won't waste my breath beyond that except to add that sound analysis clearly shows that more than nine shots were fired–you'll have to find for yourself what that means.

Once you start looking into these matters you will be stunned by how obviously wrong the narrative is. It's not a matter of careful detective work it is staring you right in the face. My own analysis is that all the major assassinations were hits by professional killers and all the assassinations were covered up by all the agencies involved. This is where, of course, the critics of conspiracies balk and say "too many people were involved", again, I have a counter argument but I shouldn't have to argue that–one starts from evidence and then works towards a theory and you cannot discount a theory before looking at the evidence and the American left along with the security services and their stooges in the press have been signing from the same song-book. My experience of being around power at various levels tells me that these people don't f!ck around–if you're in the way they don't blink to kill you or even millions to get what they want and this has been true throughout history.

So there's my rant–my guess is that none of you have the courage to address this if you accept the official narratives about the history of the past few decades–I've seldom, in any forum, been exposed to anyone willing to debate this issue other than dismiss me as conspiracy nut or kook or whatever which obviously means that I'm hallucinating Thomas Noguchi's Coroner's report because it can't possibly exist. This is the chief reason the left has failed in this country and will continue to fail until it decides to deconstruct the official narrative. Until then, I maintain that the only possibility of positive change comes from the right not the left.
Chris Rogers July 20, 2013 at 1:55 pm

I'm not one for conspiracy theories, and being British, perhaps I'm not the best person to get involved in the detail of your argument.

I can tell you this, under the UK judicial system, a mock trial was actually held with regards the person accused of slaying MLK for the UK's Channel 4, and the accused, based on all known evidence and forensics was deemed not guilty.

its also a fact the USA denies much of its own horrendous history and portrays itself purer than the white driven snow – a point Oliver Stone often makes in both his movies and documentaries.

In the UK, do not fear, conspiracies abound, its now a well known fact that elements within the UK security services in the mid 1970's wished to have an actual coup in the UK and depose a sitting Labour Prime Minister, one Harold Wilson, whom many considered was a Soviet stooge – Mr. Wilson being the British leader who told the US to stuff its Vietnam adventure up its arse – hence we were never involved in that war with you – if only that were true of one Tony Blair.

However, I do think your attacks on the left are a little unfair, in the UK at least, there has always been a lot of distrust between academics and leaders of the real working class, never mind other progressive movements that constituted the Labour Party.

to my mind, and understanding of US politics and history, there has never been a true working class party to represent the workers interests, indeed, the closest you got to this was the Wobblies, and look what Woodrow Wilson did to them.

Indeed, US history is replete in the states utter aberrance and detestation of populist working class movements, its the reason for the 1788/89 Constitutional Convention and creation of a Federal State, rather than the loose alliance or Confederate states that the anti-federalists desired – the anti-federalists being the real supporters of democracy and other rights, rather than that rag you now revere, namely the Constitution, which established a Federal Republic that favoured property and wealth over actual human and civil rights.
Banger July 20, 2013 at 2:15 pm

In the thirties and forties there was a fairly close connection between the intellectual left and the American labor movement that carried up until the McCarthy era and that is all a very interesting story too long to get into.

The UK situation is very different and always has been.

As for conspiracies–in the case of the RFK as I cited there can be no doubt–you either accept that the official story is wrong–the evidence is very obvious or you live in a fantasy world. There was a MLK trial in the U.S. The NYT reported the verdict: http://www.nytimes.com/1999/12/09/us/memphis-jury-sees-conspiracy-in-martin-luther-king-s-killing.html. Note that no mainstream media reporters sent reporters to the trial. No one commented for or against, as far as I know, on the merits of the evidence. Generally the story was ignored. That is, in my view, a conspiracy right there.

Again, no one ever answers my sort of allegation other than say that they don't believe in conspiracy theories or don't indulge in them as if it was a vice–you cannot understand history without it so then throw out Herodotus, Theucidities, Livy and all the rest of them and burn Machiavelli while we're at it.

But I enjoyed your comments and appreciated you non-insulting answer.
Chris Rogers July 20, 2013 at 3:19 pm

@banger,

Actually, the biggest conspiracy at the moment, at least here in Europe, is the lack of comprehensive media coverage concerning the anti-austerity protests in most of Southern Europe – no doubt, our masters learn from the experiences of the media and the Vietnam War, would prefer to with hold all news of protest from us.

As for differences between the UK and US, its the growing lack of difference that frightens me – our ruling elites being virtually identical, although the Uk's has always been more 'stupid' than its US counterparts.
psychohistorian July 20, 2013 at 5:38 pm

Hey Western Bloc country slaves! The ruling elites are not virtually identical, they are a global sect of plutocrats. They play nationalism off between their slave nation states as needed to divide and retain control.

Wake up and smell your enemy!
Andrew Watts July 20, 2013 at 6:37 pm

There's always been a deep relationship between the US/UK power elite. Even during the American revolution leading British opposition leaders like Charles Fox portrayed it as an English civil war. This attitude has always been offensive to the pretenses of American exceptionalism. Or to the average British subject. I believe the 4th of July is called "Go home Yankee!" day in Great Britain.

As for how stupid the American elite is, TARP was a complete rip-off of the British bailout plan. According to Hank Paulson, the US Treasury had a worst case scenario plan that was judged to be inferior within days of writing it.
Chris Rogers July 21, 2013 at 3:36 am

Andrew Sir,

I'm unsure on that one, yes in one respect the US War of Independence was an 'English Civil War' to all extents and purposes, however, many a historian is of the opinion that the last 'English Civil war' was the actual US Civil War itself, or, as it should more aptly be called, 'the War of Secession', and here the UK was highly supportive of the Southern cause, or State's Right's – its not one of my strong points as far as history or politics is concerned, and obviously, its regrettable that the debate of 'slavery' was very much tied in with the War itself – although not the main cause at its outset.

Indeed, I'd say the US Civil War was the eruption of violence between the 'anti-federalist' forces in the US and pro-Federal forces, and I for one have always sided with the Anti-Federalists, who cause was just, if regretfully tainted with the horror of slavery.

Anyway, that's my two cents worth here.
Andrew Watts July 21, 2013 at 7:00 am

That makes sense. I've always secretly harbored the opinion that the seeds of the United States' dissolution was sown by the English Civil War. The English people who came to the colonies during and after that time were just as divided by the conflict. With Roundheads settling primarily in New England, and Cavaliers immigrating to Virginia and the southern colonies. It helps explain the cultural and political differences between the Mason-Dixon line.

As for the future, America is quite advanced in undoing the Glorious Revolution. Many of the rights that were originally derived from it and enshrined into our Constitution have become a dead letter.
The Black Swan July 20, 2013 at 2:11 pm

But ignorance is such bliss. I spent a lot of time over the previous winter digging through the internet and have come to almost the same conclusion. Everything we've been taught in History class in school and everything taught by the media is purposefully designed to obfuscate the truth. Maybe it's not all outright lies, but when we get the truth, it's only the truth that TPTB wish us to know. Once you accept that everything you've ever known and believed is a lie, it becomes very easy to see the truth and understand much more of how our modern world works. But I've yet to meet (in person) anyone who was willing to challenge their false beliefs and start to look at the truth. It is a painful experience to confront reality and something most people are not prepared for and mostly uninterested in.
Banger July 20, 2013 at 2:41 pm

Exactly. It is very painful to experience this. How can you live in normal society and function and understand that most of what other people believe to be true is false. More and more people I know believe being interested in politics is a form of "escape" because it is meaningless–I think they have a point and I've tried to move away from it. But I'm haunted by it since my life has been spent in vicinity to Washington and the whole scene there until recently.

Well, for me it's not so hard because people I know don't think about public affairs other than when the media makes a big deal of something like the Zimmerman trial and that kind of thing but it's all quickly forgotten in a week and people go on to their private affairs. People are more interested in the TV shows they watch or see politics as comedy. My wife is, for example, utterly uninterested in public affairs (other than local) other than what she watches on Comedy Central–she isn't stupid she understands that the news is bullshit so she may as well laugh about it.

I think most people, deep down, really don't believe the narrative but they need some kind of intellectual framework and they look around and see nothing so they accept whatever they see. I suppose Comedy Central is better than CNN.
Yalt July 20, 2013 at 3:08 pm

One of the things I'm struggling to understand with this is what the fate of the Kennedys is supposed to have to do with the fate of American socialism. Is the idea that JFK was a leftist, knocked off by counterrevolutionaries, and the left's fatal error was to not understand this?

I supposed by contemporary American standards the Kennedys were, indeed, on the left. Of course, so was Nixon.

Workers trying to hitch a ride on the wagon of one or another faction of the ruling class seems to me to be a big part of the problem. Warping history so as to be able to do it retroactively doesn't seem likely to be part of the solution. It's not that I think you're wrong so much as I think it's completely irrelevant.
Massinissa July 20, 2013 at 3:41 pm

I agree with you in a sense.

I dont think the Kennedys would really have saved us or anything. That sort of thing is wishful thinking to me.

But how can we have faith in a political system, where those of the ruling class who buck the status quo in even the very smallest amounts, can get knocked off by even more influential sectors of the ruling class?

I think understanding that the kennedy's were assasinated in a conspiracy is more important than the influence the assasinations themselves created. The fact is not that it was the Kennedys who were assasinated, but that anyone was assassinated by the PotB at all. How can we have faith in the PotB or our 'democracy' when the elites pull this shit on eachother when they get out of line?
Banger July 20, 2013 at 3:53 pm

Whether you believe JFK was on the left or not is irrelevant. The fact he was killed in an illegal coup d'etat is a concern of everyone. He was a social democrat but a careful one. He was killed because he wanted to end the Cold War so the world could resume the movement toward egalitarian societies. The world would have been transformed.

Go back and read what RFK proposed–I was in the midst of all that at the time and followed events closely. MLK would have united all the left social movements that later dispersed because he may have been the most brilliant leader of his time.

Frankly, Americans just don't want to face what happened back then. I find this as yet another example of our collective insanity. If read the correspondence between JFK and Khrushchev you will be touched by the desire of both men to get out of the trap they found themselves in. If you just examine closely the Cuban Missile Crisis and what was said–you will realize that almost the entire U.S. military wanted a first-strike on the USSR. Their bloodthirsty evil almost got us all killed but for JFK and Khrushchev. Also in the mix were others including another great man Pope John XXIII.
Yalt July 20, 2013 at 3:55 pm

I, personally, think these conspiracy theories have been deliberately nurtured by the authorities to distract the masses from useful analysis of their own plight.

It's a conspiracy.
Banger July 21, 2013 at 1:43 am

So then you are just don't believe in evidence. You are saying that I made up the fact that the official story of the RFK assassination is correct despite the fact the coroner's reports says it's false. Stop hurling accusations around when you are not acquainted with the obvious facts.
Banger July 20, 2013 at 3:46 pm

JFK and RFK were opportunists as all politicians are but were both social democrats, clearly. MLK was a radical leftist and regarded as "the most dangerous man in America" by J. Edgar Hoover and, I believe, all the power-elite. JFK confronted the entire power-elite and lost. RFK was going to continue the job and MLK would have represented the social forces that would assure RFK would succeed.

JFK wanted to end the Cold War and that was the main reason he was killed. RFK would have ended the war and instituted social democracy beyond LBJ and in concert with MLK.

The left died in '68 not just from the assassination but continuing the denial of what happened.
Andrew Watts July 20, 2013 at 6:40 pm

Banger,

I don't buy that story. It was well-known at the time that the Kennedy family were aspiring social climbers. The Kennedy patriarch stood a good chance of being nominated as a presidential candidate for the Democratic Party. If it wasn't for his pro-Hitler views during his time as American ambassador in London he probably would've been. The fact that he was able to realize his ambitions through his progeny did not make them the natural leaders of the left-wing in American politics.

The Cold War was still in it's early formative years. Despite that one individual no matter how powerful, was not going to stand against the tide of history. This was a socio-economic and political struggle between aspiring global hegemons. That individuals like De Tocqueville foresaw well in advance. The cult of Kennedy resembles the Obamabots in too many disturbing ways. At some point you have to accept that the Democrats cannot possibly satisfy the grievances of every American radical/dissent group.
Banger July 21, 2013 at 1:48 am

Of course you don't buy the story because you are ignorant on the matter–you have not studied the issue because you are afraid to and you are in excellent company. No one wants to look at this stuff–your characterization of the Kennedy's is simple-minded and part of the propaganda of the center. Kennedy was clearly prepared to take concrete steps to end the Cold War–he wanted to blow up the CIA and he opposed all his generals who did want a nuclear war with the USSR because they felt they could destroy the USSR for good and believed that the U.S. would only lose 30 million people. That's a f!cking fact and there is much else you are afraid to look into.
Andrew Watts July 21, 2013 at 7:09 am

Banger, that hurts. It was only a week ago in the Snowden post that I mentioned how close we came to atomic warfare over the Stalin-Tito split based upon declassified documents. I am not ignorant of how crazy some of those old Cold Warriors were.

It was under the Kennedy administration that the top marginal tax rate got a tax cut. What sort of left winger would support that action? Neither Presidents Truman or Eisenhower consented to a tax cut for the very richest people in the country. As for your assertion regarding the CIA… Bay of Pigs. Eisenhower couldn't be fooled into such a moronic plan by the CIA Truman loathed the CIA so much he openly referred to it as the American Gestapo.

I can overlook the Kennedy brother's personal and political faults, but it seems extremely unlikely that they would accomplish either of the things you think they would've been or become in the future. Besides the whole not starting a nuclear war bit.
Banger July 21, 2013 at 1:08 pm

Look, Kennedy was a kind of fool–he was constantly fooled and manipulated by the powers that be and then got his head blown off–his instincts were good and his heart was, in my view, in the right place as many men of courage, however foolish, have their hearts in the right place. Compare his travails in WWII with the coward G. Bush senior or junior who was even worse.

I don't mean to insult you–I respect your thoughts expressed here always thoughtful and well written. But I get impatient with the following: that the assassination reflect a coup d'etat that makes the Civil War pale in comparison. These events are the single most important events to have happened in the history of the U.S. Maybe the Kennedies and MLK were a bunch of mad dogs who would ultimately endanger the world–I certainly can't be sure that they weren't. But it f!cking happened and these people who did these deeds, and the evidence is overwhelming that they did, stole our history from us. I can't possibly see how these events can be ignored. And I assert that no left-wing movement can even come close to having more than a slight effect on politics unless it confronts this reality. This may be one of the chief reasons I believe change can only happen from the right who tend to be more open to alternate visions.

If I'm wrong and the coroner's report on RFKs murder does not indicate that they got the wrong killer then, of course, I'm a deluded paranoiac. If what I say is true then everything in the mainstream narrative collapses like a house of cards.
Publius July 20, 2013 at 1:46 pm

I think we have to go back to Carlyle and Ruskin in England to grasp our present situation. Theory needs to be broomed into the dustbin. The question is a moral one. "Signs of the Times" and the Condition of England Question

O ye hypocrites, ye can discern the face of the sky;
But can ye not discern the signs of the times? - Matthew 16:3, King James Bible

In June 1829,the Edinburgh Review published Carlyle's "Signs of the Times," (text) in which he anticipates the Condition of England Question he raised a decade later in Chartism (1839) and Past and Present (1843). As G. B. Tennyson notes, "Carlyle more than any man before him perceived the changes being wrought by the Industrial Revolution" (XXVIII). He criticised vehemently the ethos of the Industrial Revolution, which, he believed, was destroying human individuality. He expressed his distrust of the spirit of the "mechanical age", which was manifested not only in the technical progress of English society but also in an overwhelming feeling of inanition: "The King has virtually abdicated; the Church is a widow, without jointure; public principle is gone; private honesty is going; society, in short, is in fact falling to pieces; and a time of unmixed evil is come on us" (33). The essay was aimed to draw the attention of the reading public to the spiritual price of social change, caused particularly by the frenetic industrialisation. In "Signs of the Times" Carlyle warned that the Industrial Revolution was turning people into mechanical automatons devoid of individuality and spirituality. For Carlyle, machine and mechanisation had double meaning: they meant literally new technical devices, but also metaphorically mechanistic thought that suppresses human freedom. Carlyle strongly criticised the mechanisation of the human spirit and indicated the high moral costs of industrial change.

Were we required to characterise this age of ours by any single epithet, we should be tempted to call it, not an Heroical, Devotional, Philosophical, or Moral Age, but, above all others, the Mechanical Age. It is the Age of Machinery, in every outward and inward sense of that word; the age which, with its whole undivided might, forwards, teaches and practises the great art of adapting means to ends. Nothing is now done directly, or by hand; all is by rule and calculated contrivance. [34]

In this sermon-like essay, Carlyle led a crusade against scientific materialism, Utilitarianism and the laissez-faire system. He believed that the freedom of the emerging mechanical society in England was a delusion, because it made workers into greater slaves than their ancient counterparts had been and mechanisation of society threatened the human ability to think and act creatively:

Men are grown mechanical in head and in heart, as well as in hand. They have lost faith in individual endeavour, and in natural force, of any kind. Not for internal perfection, but for external combinations and arrangements, for institutions, constitutions, for Mechanism of one sort or other, do they hope and struggle. Their whole efforts, attachments, opinions, turn on mechanism, and are of a mechanical character.
Brooklin Bridge July 20, 2013 at 1:48 pm

No matter how bleak things appear, the reality is probably much much worse.

The greed and corruption that we are discussing will play itself out, possibly with minor social upheavals and attempts to rectify things, and along with that "playing out of corruption" will be irreversible additions to C02 emissions and other climate change triggers that take us way way beyond the tipping point we have already recently crossed. Each degree of temperature rise means a new degree of unstoppable catastrophe. And while that will certainly bring governments down, and corruption along with it, it will do the same to civilizations.

The idea that if we just stop everything now, right now, we will avoid the existential threat is absurd. We are going full steam ahead with exploitation of the most lethal substances in earth by the most powerful unstoppable global force of corruption in recorded history. We are not going to stop the madness. We are the madness.

Sure we could stop it (if we were suddenly transformed, say, into angels). But short of something along those dubious lines, we won't stop it any more than we would stop the sea level rising with a tea spoon.

If we are lucky, humankind will essentially be made up of small nomadic groups of hunter gatherers within a hundred and fifty years (probably made up of the descendants of the 1% no matter how grotesquely unfair that seems). Keeping hold of technology seems iffy. I remember hearing that there is a point of critical mass, population wise, below which we probably go extinct. Either way it will be a blessing for the other species that manage to survive.
casino implosion July 20, 2013 at 1:49 pm

Does Chris Hedges deal with any actual people in the course of his activities?

We're about as close to a revolutionary uprising as we are to the orbit of Neptune.
Chris Rogers July 20, 2013 at 2:01 pm

Actually Hedges analysis is correct if we use history as a guidance, i.e,. sooner or later an inflection point will be reached and chaos will be unleashed – what will cause this is certainly unknown, but, and on the continuing trajectory the US is following, something will give – and I doubt very much, your so called 'middle class', once the funds run out, as they will given the unlimited greed of your masters, will like the concentration camps your post 9/11 governing officials have in mind for you.
Greg T July 20, 2013 at 4:54 pm

Agreed, Chris. Hedges actually knows quite a bit about the mood of the country. He is first and foremost, a reporter. His book Days of Destruction, Days of Revolt is based on his travels in some of the worst economic pockets in the country. If he says the US is a tinderbox, we should take him seriously.

I don't think he's as optimistic as Yves suggests. In Part 1, he says he's existentially optimistic but practically pessimistic. I think that means he is confident people will come to realize their condition and who is responsible for it, but changing it will be difficult. He does say in the interview that he's not naive enough to believe that 500 K people marching in Washington will immediately change anything, but it would be a necessary step.

Chris, I think you are correct. With each crisis, more and more people will become ' excess baggage '. Theres something about survival that tends to galvanize people to a purpose.
Lambert Strether July 20, 2013 at 7:47 pm

"Pessimism of the intelligence, optimism of the will." –Gramsci.
Mark Stevens July 20, 2013 at 1:49 pm

We have indeed become a culture that is a mixture of both Brave New World and 1984. One aspect of the current situation which is overlooked is the state of our physical health. I can not see a revolution led by people who are too fat to walk a few blocks. How much of the population is dependent on the government for medicaid and medicare? Many of them would be literally risking their lives if their source of medication and treatment were to be cut off. With 50 million food stamp recipients how many would starve without that assistance? I can not see those so dependent leading the charge on Capitol Hill. When the system collapses under its own weight and the population has started to decline there will be nothing to lose, so maybe then.
Massinissa July 20, 2013 at 3:44 pm

When the food stamps are cut, and medical care becomes less and less due to the effects of austerity, we may see uprising, at least of a small sort.

When people cannot survive, they get angry.

But right now they CAN survive, albeit pitifully. So there is no revolution at the moment.

People will not revolt until they are forced by their desperation to do so.
Inverness July 20, 2013 at 6:14 pm

Massinissa, so many people are absolutely not surviving right now. There are American counties that lack running water, tent cities propped up for the newly homeless, whose numbers continue to rise, not to mention suicides.

Many of Americans have already reached that breaking point. Maybe we need more of the formerly middle class to join their ranks? I don't know. But the situation has already grown so severe…

http://www.nytimes.com/2012/11/05/health/us-suicide-rate-rose-during-recession-study-finds.html?_r=0

http://www.theroot.com/views/not-all-americans-have-enough-access-water
RanDomino July 21, 2013 at 1:11 am

Anger does not lead to revolution. Organization does.
Tokai Tuna July 20, 2013 at 1:51 pm

"I suspect we'll see more and more random violence as frustrated individuals lash out." That's cynical, but it will be very much welcomed as it potentiates opportunity through crisis.
Business has long succeeded profitably by designing things to fail, or engineering failure or setting things up to fail.
Controlling information, wind shield wipers or human capital, destroying things to save them. It's worth reminding people that frustration or anger can be helpful and doesn't necessarily mean violence or lashing out.
optimader July 20, 2013 at 2:07 pm

For Cris Hedges, wherever he may be lamenting today

http://www.youtube.com/watch?v=AdYaTa_lOf4&list=TLqNmIWc-WsxE
Teddy has an Operation
allcoppedout July 20, 2013 at 2:59 pm

Socialist alternatives have been articulated for a long time and most primitive societies are more egalitarian than our clown fest. The communism of the free table was articulated in a slave economy that was sexist. The China of Mao and the USSR of Stalin were disasters. One might even put forward Thatcher as the most Gramscian of our politicians, destroying the hegemony of communities and their representation (unions).

Philosophy has long had a radical theory,which we might put as Wittgenstein noticing the long history of the subject had produced a hill of beans and language was worth looking at as the cause and re-grouping it a potential solution, complicated by the solution being expressed in language. There is a shed load of critique across the social sciences and our literature, even on how dominant ideologies arise and are maintained. Science, which is apolitical in teaching and practice, produces liberals in massive preponderance, with a tiny GOP/Tory rump – we are not, in the main, products of Critical Theory classes or the excellent line of Mexico. Of course, science as it reaches the public is not what we go through in learning it, but the dunnage on the next diet-fad as Banger tells us.

I dislike blaming the current squalor on the US – we need to identify the real shadows. We know who they are – the people with massive, hoarded wealth across the planet. Detroit is interesting here because the bankruptcy threatens another form of what we thought hoarded wealth, that expected to pay pensions. This money is probably long gone across the US cities and down a Ponzi drain. I note a judge who co-authored a book on Ponzi unwinding is in charge in Detroit. This could be the tipping point that tells us as a society that our politicians have been engaged in a vast cover-up (or so dumb the could not read the writing on the wall) – I was teaching this as far back as 1992 but may as well have been walking the streets in 'the end of the world is nigh' sandwich-boards. Cops could retire here on two-thirds pay back then.

Detroit, Gary (Indiana), Birmingham (Alabama) … might just be the touch-paper if substantial numbers of middle-class people find their income gone. We have similar situations in the UK, as does much of the EU. Not long ago we were being told pension pots were brimming full!

The key thing we don't grok is that most people don't learn very much and are very easily swayed by cultural rot – look how many cop and secret service hero shows hinge on will they won't they sex and a sub-text of personal revenge, heroes nice to children, animals (NCIS is the utter classic) and the notion we the public will do what is right when asked. Young South African boys queue up for ritual humiliation to become 'men' (whilst losing 'manhood' in botched circumcision) – I see little difference in Western cool.

Young populations are much more likely to rebel. Analysing internal conflicts in 175 nations during the second half of the 20th century, Urdal found that "with every percentage point increase in the youth population, relative to the [total] adult population, the risk of conflict increases by more than 4 per cent." When young adults exceed 35 per cent of all adults, the risk is 150 per cent higher (International Studies Quarterly, vol 50, p 607). The relationship persists, he says, even when factors such as the state of national economic development, democracy and conflict history are filtered out. In a study for the non-governmental organisation Population Action International in 2003, Richard Cincotta, a researcher who currently advises the US government's National Intelligence Council on demography, found that countries in which more than 40 per cent of the adult population is aged between 15 and 29 are more than twice as likely as older societies to experience some form of civil conflict.

We may not be on the streets because we have become pathetic/apathetic with age. Perhaps we oldies are to blame and should make the trip to 'Lemming Hill' (though lemmings don't actually commit suicide), as a gesture to the future of our species? Bees leave the hive when ill in a form of altruism.

History tells us any kind of revolution will not do. Why should we have more success if we take to the streets than the Egyptians or most of Eastern Europe? Do we feel racial superiority? The older academics when I was a student almost all supported massive change as we want now. We got human resource management instead (an evil).

The question has always been how we get things done after the revolution and hanging bankers has become a bore. Money needs to go in its current form as thirty pieces of silver, or whatever the globally arbitraged level that has sunk to. We hardly discuss the needed attitude changes and the new constitution
Chris Rogers July 20, 2013 at 3:29 pm

Hate to break the news to you, but any change at all, if its to come out of the UK will be driven by the grey haired brigade, i.e., those most likely to vote, and not the youth you allude to.

Given the ConDem government in the UK now has its mindset on another 5 years of austerity after 2015 and proposes attacking the benefits of pensioners as it decimates social welfare – somehow, i can't see pensioners buying into this crap.

Don't expect any change from Ed Miliband's NewNuLabour Party – an absolute disgrace and I certainly will not be voting for them – Green and Plaid Cymru all the way for me from now on.
Lambert Strether July 20, 2013 at 5:20 pm

FWIW, I think it has to be the diamond geezers plus the youth. This picture from Moral Mondays encourages me:

Note the younger person also being arrested in the background.

I heard a similar anecdote locally: Three geezers like me and two young women stopping an oil tank car train.

* * *

All defensive, though. Stopping stuff, not starting it. So, back to TINA. Maybe Alperowitz is pointing to the way forward to a real alternative. I'm not sure.
Banger July 21, 2013 at 12:53 pm

Really nice analysis. Hope you continue in this vein in the future. As for the youth contingent you are right of course and that may be the reason we are all standing around waiting for something to happen.

However, we can take courage on one central fact: we live in a world that is so radically different that the old criteria just no longer count–something deeper is at work here and we haven't yet been able to grasp it.
LillithMc July 20, 2013 at 3:13 pm

The tinderbox was last week with the Zimmerman trial. For the left it was a repeat of the south before the Civil Rights movement. GOP/NRA/ALEC laws passed in all the red states included the Florida version of "stand your ground". The right began an immediate portrayal of Martin as a thug who deserved what he got. Zimmerman was sent home with his gun for 40 days until civil unrest demanded a trial. The right claimed "stand your ground" was not part of the trial although the juror said instructions were from that law. It could be the tinderbox will be something like the Martin trial, the massacre in Newtown or some other event that incites crowds and brings out the armed militia of Homeland Security. Occupy was clearly under Homeland Security attention just as the Civil Rights movement was covered by the FBI with local police alerted to any protest in order to prepare a bloody response. A map of all the red states shows where the new laws are in effect. They involve voter suppression, extreme gerrymanders, restrictions of women's health care rights, corporate reduction of taxes and increased rights to pollute. When the red states show the effects of no health care for the poor (no medicaid), back-alley abortions, millions with concealed gun permits but questionable backgrounds like Zimmerman, we may see a tinderbox. That could also be part of the plan like the billionaire funding of the tea party.
Waking Up July 20, 2013 at 3:15 pm

Regardless of his past part in our current state of affairs as a nation, I have to say that I was surprised to hear a former President of the United States… Jimmy Carter… acknowledge the truth that the United States is no longer a functioning Democracy.

Bravo to Jimmy Carter for speaking the truth!
Jill July 20, 2013 at 4:07 pm

I am getting ready to approach my neighbor who belongs to the tea party and the Libertarian party to discuss opposition to the surveillance state. I would also like to talk about the economy, but one thing at a time. I believe a few liberal friends should join in and we should schedule small group talks about this. I picture doing this at our homes or the libray etc.

I think we should do this together to show that fighting a surveillance state matters to people on both the right and left. We need to come together and I believe this is one area where we share things in common.

Should anyone like to give me advice on what to say, how to say it, etc. please offer it. I want to hear it. If you have advice on speaking about the economy in plain language, that can cross ideological divides, I want to hear that also.

Thanks, Jill
Otter July 20, 2013 at 11:32 pm

Before you speak, listen.
Lambert Strether July 21, 2013 at 1:10 am

@Jill–

I thought I posted on this somewhere, but I can't find it. So I hope I tell the story the same way….

* * *

Last month I was driven home from a permaculture event in Northern Maine with a nice churchgoing couple and they asked me what I did. I explained, in fairly general terms, and the husband asked me What I thought the big stories of the day were, mentioning that he heard a lot about Benghazi. [oh-kaaay…]

I responded that I felt that most of the big stories weren't covered at all, at least in the news. For example, "Why haven't any bankers gone to jail?" Big nod from the husband, bigger nod from the wife. So commmunication is possible….
Jill July 21, 2013 at 11:16 am

Thanks Lambert and Otter!

To All: When I read these comments I was struck by the amount of love behind them. Even people who disagreed with each other, or whose ideas I personally do not hold–I could tell they were motivated by good will and the desire for things to turn better for other people and our nation.
LAS July 20, 2013 at 4:17 pm

Let's not forget to look for resistance in other ways than street protest. Immediately after the Nazi take over of France in WWII, it seemed that the French were compliant to rule by Germans and the Vichy French collaborators. Gatherings by more than 5 persons was illegal. But, in fact, hearts and minds were continuously defecting as each day continued under the occupation. People of all backgrounds joined the resistance and many of them behaved with great heroism performing relatively small acts of sabotage.

Although they may not be marching in Washington, a high proportion of Americans obviously do distrust schemes of man at a relatively high rate. Where it goes from here, I'm not sure.
barrisj July 20, 2013 at 5:04 pm

The late Tony Judt had addressed similar issues to those of Hedges in his "Ill Fares The Land", where he lamented the inability of Social democracy to either preserve the gains made earlier in the 20th Century, or indeed repel the savage attacks on them by "the neoliberal agenda". In fact, Judt concedes that ""incremental improvements upon unsatisfactory circumstances are the best that we can hope for…", a rather tepid and underwhelming outlook, I'm afraid. Judt notes that the forces of reaction have indeed stolen a march on progressivism, and writes: "It is the Right that has inherited the ambitious modernist urge to destroy and innovate in the name of a universal project. From the war in Iraq through the unrequited desire to dismantle public education and health services, to the decades-long project of financial deregulation, the political Right – from Thatcher and Reagan to Bush and Blair – has abandoned the association of political conservatism with social moderation […]."
He surely would have included Obama as an avatar of the neoliberal project, as his administration has connived with major corporate and financial interests to further protect their interests, has extended the Surveillance State into unprecedented territory, has continued a militaristic foreign policy – fine-tuned, really, with his drone-based "projection" of US power – and generally rewarded "the malefactors of great wealth" at the expense of the vast bulk of the US public. In fact, as late-capitalism careens its reckless way through Western economies, each national or international crisis fomented by the plutocracy elicits even further punishment of its victims. How can anything but an acute pessimistic expectation of any sort of meaningful reform be a valid position?
Lambert Strether July 20, 2013 at 5:51 pm

I dunno where the touch paper or the spark is, but I'd be thinking seriously about supply chain vulnerability, since AFAIK the supply chain has been highly optimized - i.e., is fragile - since "just in time" days. The supply chain is the common terrain of anti-fracking, anti-pipeline, Walmart protests, and even efforts like local food sovereignty. I'm sure there are more….

Granted, drones, surveillance, militarized police forces, besides other Leviathon-like tactics but (a) our military just lost two wars applying such tactics internationally, (b) it's a big continent, and (c) check out Lieutenant General Paul K. Van Riper and Millenium challenge.
nobody July 20, 2013 at 8:14 pm

You might enjoy a paper introduced at Zero Hedge awhile back as "Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890."

http://www.zerohedge.com/news/trade-study-global-systemic-collapse
Lambert Strether July 20, 2013 at 11:41 pm

Well, we'll just have to see, won't we?

Meanwhile, try harder.
nobody July 21, 2013 at 12:20 pm

Try looking at things from more angles.
Otter July 20, 2013 at 11:55 pm

Somebody should translate that into English.
RanDomino July 21, 2013 at 1:19 am

If it's ZeroHedge, you can assume it means "Buy gold!".
Lambert Strether July 21, 2013 at 1:34 am

Because now is a always a good time to buy gold!

I haven't mocked that mindset nearly enough lately.
nobody July 21, 2013 at 12:18 pm

It's not from ZeroHedge, I said it was introduced there. I wanted to quote the sentence about absinthe and opium.

The paper comes from the Foundation for the Economics of Sustainability:

"Feasta was launched in Dublin in October 1998 to explore the economic, cultural and environmental characteristics of a truly sustainable society, and to disseminate the results of this exploration to the widest relevant audience.

"The position Feasta has adopted is that many of the world's problems are caused not by bad people but by dysfunctional systems and it sees its purpose as designing better systems. For example, the economic system demands continual growth if it is not to collapse into a catastrophic depression, and this leaves politicians with little alternative but to pursue short-term economic growth more-or-less regardless of the damage that that pursuit might be doing to longer-term environmental and social sustainability.

"Feasta has spent a lot of time examining the reasons for this growth compulsion to see if an economic system can be devised without it. Feasta has also looked at money systems, agricultural systems, carbon systems, energy systems, taxation systems, rationing systems, land tenure systems and democratic systems and come up with ideas for these.

"We take it as given that sustainability must benefit everyone in a society, rather than merely those who are financially or otherwise privileged. We consider a society to be sustainable if it can expect to survive for several hundreds of years without being forced to change because it is currently destroying or undermining something on which its survival crucially depends."

http://www.feasta.org/about/background-2/
RBHoughton July 20, 2013 at 7:43 pm

I agree with you that 1/ Obama has done as well as might be expected and 2/ many young people have probably been disabled from taking their usual leading role in protest.

I should like to make the case for retirees. They are usually dependent on the economic system for their pensions and that will mitigate the effectiveness of many but some will have more freedom to act and they all recall the America of 'Burns and Allen' and 'Happy Days.' They know it does not have to be like it is today.

Marching does not concern the elites any more but not voting in elections, non-payment of taxes, boycotts of particular products, barter of goods and services and many other tactics can force political attention.
ohmyheck July 20, 2013 at 10:45 pm

Anecdote- after reading this article this morning, I sold an item I had on Craigslist. The person who bought it was a man around 40. Very clean-cut, and Mormon.

He proceeded to tell me that he lost everything–home and a growing business, in 2008. He now works at the North Dakota oil rigs cuz the money is good.

He told me that in his travels he meets a whole lot of folks who understand very well what is going on in this country, and they believe that there will be a revolt, and that many of them are preparing.

MSM and others can call them nutjobs, but when the nutjobs reach a certain percentage, well, who is the nutjob? The one who knows the truth or the one in denial?

Out here in fly-over country, this is very real.
VietnamVet July 20, 2013 at 11:52 pm

This is the best commentary on current affairs I've read.

With the fall of the Soviet Union, the Western Elite ceased to fear a workers revolt and commenced to accumulate wealth any way they could.

Modern Consumerism works to calm and divert our society. Marketing satisfies our human needs; but, only if you have money to spend. When all your earnings from slinging hash are going to pay off your student loan; material consumption is impossible except to survive. Corporate propaganda continues to message that this is the best of all possible worlds. When it isn't, it's the dead beat's fault. This works i.e. the 28% increase in the middle age suicide rate. But, at some point, when the middle class realizes they about to lose everything; then the aristocrats' heads will roll, once again.
Chris Rogers July 21, 2013 at 3:58 am

@Vietnam Vet,

You are absolutely correct that since the demise of the USSR the Western Power elite have become reckless in their pursuit of more wealth and more power – combined with the establishment of both a single world currency and single world government for want of a better word – this triumphalism is epitomised in Fukuyama's "The End of History and the Last Man."

Regretfully, TBTB are better advised to read Kennedy's "The Rise and Fall of the Great Powers", rather than Fukuyama's trash.

It should be no surprise that with the fall of the USSR the Power Elite felt safe enough to begin the final part of its neoliberal economic assault on the masses – epitomised by the election of Clinton in the US and Tony Blair in the UK – the rest is history, but Reagan and Thatcher may well have begun the neoliberal counter-revolution, but it was their progeny in the Democratic Party and NuLabour Party that finished off what they begun.

Indeed, think how much different history would be if George Bush had won the 1992 Presidential election – not as if I'm a supporter of the Bush clan or the Republicans by the way.
Paul Tioxon July 21, 2013 at 12:43 am

There is ongoing work by many people all over the world and all over America to strengthen the things that remain. I just finished "THE PEOPLE'S PENSION" BY ERIK LAURSEN. Bill Black covered it in post here a month or so ago. It is much a manual to understanding the opposition and how to counter it as it is a useful history of recent American politics. Social Security First has been the driving force for a United Political Front of different groups to rally behind. I know I am even more so than before will be using it as an instrument of political organizing in everyday conversation.

As to building a better future out of the chaos and ruble that is all around us, again, many different anti-Establishment initiatives are taking place. But if you are looking for some great big blowout, it is not predictable or even recognizable at first. Sometime an event is so large as not to be measurable unless it is well past its mid point as a social process. Trayvon Martin, Occupy, The Texas Women Filibuster Movement, The Unions in Wisconsin and Ohio, Teachers in Chicago and Philadelphia and on and on, don't have to been operated out of central control from commie pinko HQ, but a lot is happening now that hasn't been in long while.

http://www.thealliancefordemocracy.org/links.html
cadams July 21, 2013 at 1:15 am

The problem with the egalitarian position, and with most of the posters on this website, is its hollow materialism. Glenn Beck and Sean Hannity will probably always kick your asses because they can speak the cultural language of the American religion: atavist and manichean, of God, religion and family, and the battle between good and evil. Orwell, often mentioned on this website, described brilliantly the problem of the soulless idealist in his essay "Can Socialists Be Happy?"
http://www.online-literature.com/orwell/895/

The first problem of the egalitarian is the problem of language and semantics (see also Orwell's "Politics and the English Language"). The language of H.G. Wells, Huxley, and other empty utopians can never compete with that of Dickens, Churchill's 1940 speeches, or of the Four Gospels in the King James Version.

You can't ever win over people to egalitarian principles if you are also joined to the hip with ideas that are perceived by them as leading to the breakdown of the family, or are perceived as morally wrong. You can't fight culture; you must learn to work within the culture of the American religion.
RanDomino July 21, 2013 at 1:21 am

Just because SOME people adhere to that world does not mean that all or even most do. There are many more people in the US who are not part of "American" society than you think.
Lambert Strether July 21, 2013 at 1:32 am

And the act of corruption starts with corrupt language.

However, being able to sense or indict corrupt language (Hedges is not only an English major but the son of a minister) is not at all the same as inventing a new language.
Emma July 21, 2013 at 2:38 am

Agreed.
Corruption on a massive scale is constantly disguised with perverted language so it looks like a Big Mac which the masses are happy to eat up.
Patricia July 21, 2013 at 9:04 am

Cadams: I've been recently reading in the online US Evangelical community because I want to see what's going on. I've been away from the church for 35 years.

I've been fascinated to find deep conflict there over the same issues as in our larger culture. Abusive opaque authoritarianism is rampant with its usual demeaning/controlling of membership (demands, tithing, but getting no voice). Leaders grab/misuse tithes as our gov't does to taxes. There is propagandistic exceptionalism (Christians are "righter and better") that rivals our nation's propaganda of US exceptionalism. Etc.

And more and more membership are rejecting it. There's been a slowly increasing exodus of members even while many of them do not reject the faith itself.

In that context, Fox and Beck are the propaganda. Of course, propaganda is not complete BS. It works best in mixture.

On various sites, I have been commenting about the similarities, here/there, and there's been receptivity, so that's good.

Thus, your accusation of hollow materialism is merely beam-off propaganda from that corner of the world.
Ep3 July 21, 2013 at 8:10 am

Yves, here's my thoughts about when this "neo-fascist" rule began; July 4, 1776. Those guys wanted to be kings too. They were mad that the only way to get there was thru birth. So they opened up the requirements. But I want to fast forward to the depression. Social stirrings were already roaring outside the US. And when they began inside the country, amists the depression, I believe the elites became worried. They felt really threatened that the depression was gonna be the end of their power run. they opened up the pocketbooks and slowly implemented marginal socialist policies. by the time the US was out of the great depression, they had effectively stopped "benefits" and resumed their campaign against "communism" (communism being this fear of an economically healthy middle class). I also think it was partly to do with the fear of the baby boomers. Their voting power had to be contained and focused. Here, by providing well paying jobs with extensive benefits, boomers could be lulled into complacency and a sense of false optimism (they did well, and the myth that the next generation always does better) so that they were no longer a political threat (ongoing). In the 1970s, the political parties and campaign strategies were given the green light. And Reagan was their man. Carter went along with their plans, but Ronny gave then free reign. The absence of active govt from Ford and carter, who appeased the pent up tension from Vietnam and watergate (apathy breed apathy), released the 'Reagan revolution'. Ppl wanted change, and a great media campaign focused that blame at govt.
So my point is that this "neo-fascism" has been going on for a long time. It's just had a different name and face. It didn't start with Obama, w, Clinton, reagan, etc. it has always existed. And blaming the latest figurehead is just parlor tricks
Jack Heape July 21, 2013 at 10:36 am

Maybe not 1776, but for sure when the Constitution replaced the Articles of Confederation. The end of the Civil War consolidated the Federal government as the supreme law of the land, and ever since then the elites have worked to centralize and monopolize. They did this by the creation of the Fed, granting corporations legal personhood and immortality, the income tax (allows the creation of favoritism toward certain classes), public schools (state run propaganda), and media centralization and ownership. Americans have been propagandized into thinking they are exceptional. I see no future for the US. The neo-facists will take over and we will follow 1930's Germany down their road into dictatorship. The game is rigged, elections are a joke, and the police state is in place.
The Rage July 21, 2013 at 6:55 pm

Uh, Public Schools were in America since the beginning. Just about all the founders were a favorite of them. If anything, it is the private schooling industrial complex that is the problem.

The Civil War frankly, "created" the United States. Without it, the country couldn't survive. Capitalism has built up enough. Now Capitalists want to destroy the Federal Government………what does that tell you?

Your whole post is pathetic and full of internationalism.
Chris Maukonen July 21, 2013 at 11:12 am

I will amke the same comment here that I made at FDL to a similar post:

I agree whole heartedly with Hedges assessment of the situation. His analogy of this being a neo-feudalistic society is spot on. And that the democratic party is an extreme right party with an extreme right agenda.

HOWEVER I disagree that any solution will be achieved in the voting booth. Any more than it would have been in Stalinist Russia.

THERE WILL NEVER BE A SOLUTION IN THE VOTING BOOTH PERIOD. The elites will NEVER ALLOW it to happen.
tongorad July 21, 2013 at 11:35 am

It is going to be nigh near impossible to get a mass movement underway in our current police/surveillance state, which is only growing stronger and more severe. The tipping point would almost have to be some mega-catastrophic event. Before that, people will be weighing the trade-offs and coming down on the side of passivity and acceptance. For example, should I risk an arrest at the protest down the street that would potentially jeopardize my current and future employment? Previous generations of activists had their own set of problems, we have the computer database.
ictus92 July 21, 2013 at 4:57 pm

To paraphrase Madeline Albright: "What's the point of creating a totalitarian police state if you're not going to use it?"

So where is the American totalitarian state going? If you look at the NDAA and the discussion around repealing the Posse Comitatus Act, the key words include quelling "domestic civil unrest"… So what are the "deep government" types anticipating so hysterically?

Well, the financial crisis keeps grinding away and is about to enter another phase of collapse as "quantitative easing" has run its course. Interest rates are rising, posing "technical insolvency" of the Federal Reserve itself. What this means is that time's up for the 46 million in the Food Stamp Supplemental Program; 56 million getting Social Security retirement or disability benefits; and at least 20 million more needing full time employment. Obviously there's some overlap, but the total number of people living on the margins of subsistence pushes 30% of the population.

For these, they face an immediate "Final Solution"… not exactly direct extermination, but death by deprivation, illness etc. Can work camps be far off for these tens of millions and the many millions more living paycheck to paycheck? This population and their sympathizers comprise the tinder for "civil unrest". Hence the corollary to the famous "Collect it all" (communications) is "control it all" (civil disorder following further economic collapse).

Furthermore, prolonged neglect of key infrastructure will lead inevitably to severe food, water and electric power access - another source of civil unrest potential.

Of course, overseas the totalitarian police state eliminates all expression of opposition that can change policies in the quest for "Permanent War" and "full spectrum" military dominance. This ends in global military confrontation… just as the financial crisis of the 30's gave rise to another World War… only this time around world war will pitch towards thermonuclear war in short order. That's how totalitarian regimes collapse into catastrophe, dragging the rest of us to an unpleasant demise.

Unfortunately, I don't think there's a damn thing any of us can do to arrest this beserk Levithan…
The Rage July 21, 2013 at 6:59 pm

The Totalitarian state is called "Capitalism"…….once you understand that as the decadent phase of the merchent class.

The lack of reasoning on this thread is amazing. People simple DO NOT GET IT!!!!
tongorad July 21, 2013 at 11:42 am

I do think that things are a lot worse than people want to recognize or realize. I'm in my late 40's and so many of my friends are out of luck and out of hope. One of my friends is currently squatting in a house and is near suicide.
The situation sure looks hopeless now.
Nathanael July 21, 2013 at 10:19 pm

Suicide is what they want. Never commit suicide (unless, y'know, your problems really are your own fault); better to murder whoever ruined your life. I realize this view is unpopular, but it is a view with a pedigree dating back to ancient Sumeria.
aljamo July 21, 2013 at 12:09 pm

Banger has it right when questioning the murders of JFK, RFK and MLK. I add JFK jr. to the list. He was a threat to the establishment in 2000. Nearing the 50 year anniversary of JFK's murder, the existing facts completely wash over the obvious blatant lies of the Warren Commission findings. This murder and subsequent murders of important American citizens are still as relevent as the day they happened. These murders have erased our civility as a justice and freedom caring nation, clearly by design of those oppressing our constitution. The truth about JFK's murder is all important.
Banger July 21, 2013 at 12:42 pm

The issue is actually greater than just political. The issue is whether we choose to abandon reason or not. The fact that one cannot have a discussion on these issues but, rather, that people who do not believe in the official narrative are simply dismissed as irrational and deluded. No discussion is necessary. We either choose to confront the truth or we don't. I believe the vast majority of the left-intelligentsia refuse to face the truth about the assassinations and, I believe, most everything else in favor of comfort. The sad part is that they criticize religious people for doing just that.
Nathanael July 21, 2013 at 10:22 pm

Derren Brown demonstrated that Sirhan Sirhan's story of being hypnotised into assassinating RFK was completely, 100%, plausible.

So he probably was hypnotized into assassinating RFK.

I don't think the people who ran the assassination of RFK actually got what they wanted though. If they wanted to stop the Civil Rights movement… fail. If they wanted to promote the Vietnam War… well, the war was lost anyway. Et cetera. Even evil conspirators can be remarkably incompetent when it comes to long-term thinking.
Nathanael July 21, 2013 at 10:23 pm

It's worth looking up the Derren Brown show. He hypnotised a random man into assassinating Stephen Fry in a theater. (With a trick rifle, so that Stephen Fry didn't die, obviously). He followed a procedure corresponding tightly to Sirhan Sirhan's memory.

[Mar 28, 2015] Non-Farm Payrolls Next Week

Mar 28, 2015 | Jesse's Café Américain

"We sometimes forget that central banking as we know it today is, in fact, largely an invention of the past hundred years or so, even though a few central banks can trace their ancestry back to the early nineteenth century or before.

It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. If the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with `free banking.'

The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy."

Paul Volcker, foreword to The Central Banks, 1995

Price stability is not, of course, the only priority of a central bank, depending on how narrowly or broadly one wishes to define it. But I think that the record of the Federal Reserve over the past twenty to thirty years is abysmal enough to cast doubt on their competency and objectivity by almost any other range of metrics, considering the prolonged stagnant real wage, growing wealth inequality, massively fraudulent banking system, and serial asset bubbles interspersed with systemic crises.

What has gone wrong with our great experiment in central banking and fiat money is a good question, but for another day. But history does suggest that no class or organization is worthy of holding such power, without even more powerful safeguards against its abuse.

Gold and silver were capped around the round numbers for the better part of the day, and took a little cheap shot in the after hours as they did in the early open in New York.

Bubbe Yellen spoke at the San Francisco Fed near the close, basically stirring the verbal pot for the Fed's intended escape from the zero interest rate bound while hedging their bets broadly. See Janet Yellen's Pat Paulsen Speech.

That the program has been a failure to stimulate the economy, instead fostering bubbles, speculation, and much greater wealth inequality while failing to encourage organic growth in wages and livable jobs is besides the point.

The wealthy and the Banks are doing great, and look forward to doing even better as they continue to consolidate production and acquiring income producing assets on the cheap and paying for them with inflated paper like stock and bonds.

I have included the economic calendar for next week below, because it is likely to be more of an influence on the metals. Especially so in light of Bubbe's remarks about data dependency and the categories of data which she is setting her eyes upon.

The problem is much more than the Fed. The trade deals being negotiated, TTIP and TTP, are designed to continue to erode the power of people to make choices for their nation in terms of standards of living, social justice, child labor, environment, and so forth.

The bigger picture, which so few really understand, is the ongoing currency war, and the changes that are taking place to progress the post-Bretton Woods status quo. They cannot understand it because they have really known nothing else in their lifetimes, and their knowledge of history is highly selective and often wanting. They grasp on to often self-serving, crackpot theories to reassure themselves that change is not coming, and their pampered places are secure.

Change is coming. It may be entering modestly seated on the colt of an ass, but depending on how it is received, it may be bringing redemption for those who receive it, and a stinging rebuke for the den of thieves that have distorted the courtyards of the markets.

The choice is of course ours, but all things considered, we seem to be a people generally inclined to making very bad choices and building desolate places, and painting the bones of our folly contained therein with a thin coating of whitewash and rationalization. Those who rule those foul places were better off if they had never been born.

"And when he drew near and saw the City, he wept over it, saying, 'Would that you, even you, had known on this day the things that make for peace and prosperity! But now they are hidden from your eyes. For the days will come when your enemies will set up barriers around you, and surround you, and hem you in on every side, and tear you down to the ground, you and your children within you. And they will not leave one stone upon another in you, because you did not know the time of your judgement and redemption.'"

Have a pleasant weekend.

[Mar 28, 2015] The Confidence Witch

Mar 28, 2015 | Economist's View
Gloomy European Economist, Francesco Saraceno:
The Confidence Witch: ...The confidence fairy seems to have turned into a confidence witch. One more victim of the crisis. But this one will not be missed.

It is not shameful to change opinion. Rather the contrary, it is a sign of intellectual courage. Two years ago, the IMF famously surprised commentators worldwide with a rather substantial U-turn on the impact of austerity. Revised calculations on the size of multipliers led them to acknowledge that they had underestimated the impact of austerity on economic activity.

Even at that time it started with a technical paper. But significantly, that paper was coauthored by Olivier Blanchard, IMF Chief Economist. It then served as the basis for a progress report on Greece, in June 2013, that de facto disavowed the first bailout program arguing that austerity had proven to be self-defeating.

Let us just hope that in the ECB new building communication between the research department and the top guys is more effective than in the old one…

pgl said...

Maybe this should be called the Confidence Bitch.

kthomas said in reply to pgl...

The Confidence the Clown.

[Mar 26, 2015] Revealed: how the FBI coordinated the crackdown on Occupy by Naomi Wolf

Quote: "The fusion of the tracking of money and the suppression of dissent means that a huge area of vulnerability in civil society – people's income streams and financial records – is now firmly in the hands of the banks, which are, in turn, now in the business of tracking your dissent."

Dec 29, 2012 | The Guardian

RideAPaleHorse -> bullwinkle 29 Dec 2012 20:13

@bullwinkle - Sorry, but to merely put this down to misleading information on the internet is garbage.

Giving us interest on money is no return at all when inflation is factored in to it. Why is so much energy put into keeping the real inflation rate from the public? Because it shows us how much the money is being destroyed - how little wages go up compared to cost of living.

I haven't the time nor energy tonight to go into this but seriously, anyone who is reading bullwinkles rebuttal and thinking, "yeah, maybe this guys got it figured out. The banks aren't out to screw us over!!" He hasn't at all. Check it out for yourself. There are stacks of viable and credible sources of information online.

The money scam is the most pertinent issues facing us today.

[Mar 22, 2015] Economist's View 'Controlling the Past'

March 22, 2015 | economistsview.typepad.com

Simon Wren-Lewis:

Controlling the past: In his novel 1984 George Orwell wrote: "Who controls the past controls the future: who controls the present controls the past." We are not quite in this Orwellian world yet, which means attempts to rewrite history can at least be contested. A few days ago the UK Prime Minister in Brussels said this:
"When I first came here as prime minister five years ago, Britain and Greece were virtually in the same boat, we had similar sized budget deficits. The reason we are in a different position is we took long-term difficult decisions and we had all of the hard work and effort of the British people. I am determined we do not go backwards."

In other words if only those lazy Greeks had taken the difficult decisions that the UK took, they too could be like the UK today.

This is such as travesty of the truth, as well as a huge insult to the Greek people, that it is difficult to know where to begin. ...

The real travesty ... is in the implication that somehow Greece failed to take the 'difficult decisions' that the UK took. 'Difficult decisions' is code for austerity. A good measure of austerity is the underlying primary balance. According to the OECD, the UK underlying primary balance was -7% in 2009, and it fell to -3.5% in 2014: a fiscal contraction worth 3.5% of GDP. In Greece it was -12.1% in 2009, and was turned into a surplus of 7.6% by 2014: a fiscal contraction worth 19.7% of GDP! So Greece had far more austerity, which is of course why Greek GDP has fallen by 25% over the same period. A far more accurate statement would be that the UK started taking the same 'difficult decisions' as Greece took, albeit in a much milder form, but realized the folly of this and stopped. Greece did not get that choice. And I have not even mentioned the small matter of being in or out of a currency union. ...

pgl:

Cameron's fiscal austerity has been awful for the UK but he refuses to admit his incompetence. So he finds an economy doing even worse than the UK - Greece. Why is it doing worse? Because it was forced to have even more fiscal austerity than Cameron choose to impose. But did I not say Cameron refuses to admit austerity was a mistake? So what does he do - accuse Greece of not doing enough austerity. Hey - incompetent political leaders lie a lot.

Op said in reply to pgl...

Incompetence

You idiot

he's a bald face liar serving the interests of "the city"
He's a demagogue and a shit faced hog in a clean suit
Tory politicians should end with a cabinet full of em hanging from a gallows in trafalgar square

Spluttering about travesty
Hardly encompasses the grotesque inhumanity of these eight legged monstrosities

That said

I blame new labor for all this

They enabled such idery ghouls to regain power

pgl said in reply to Op ...

I see that you flunked pre-K reading comprehension. I said he lied. And he is incompetent too. But do babble on.

Op said in reply to pgl...

He is profoundly not incompetent
He got the results he was after
He deflected blame wiliest cutting back on the recovery rate

You need to use words
as they are customarily used
Or explicitly define your use
To you incompetent is just a slur
Much like shit head

Peter K. said in reply to Op ...

I don't have any problem with what Wren-Lewis and pgl have written.

Cameron says austerity works. It doesn't. That's incompetence. He's also dishonest which makes it worse.

It's also possible he's lying about wanting to be competent, but why speculate? Why bother?

What does it matter?

paine said in reply to Peter K....

The tory cabinet wanted a slow recovery
they have little concern about deficits per se

They use scare tactics

paine said in reply to Peter K....

The pm does not give a wit about austerity working

He wanted a stag

Cui bono

Fred C. Dobbs said in reply to pgl...

Cameron's coalition partner, Nick Clegg of the Liberal Dems, has said Enough With The Austerity already. Not so much that the coalition is threatened,
y'know, but, please...

We can end austerity, Clegg tells activists http://www.walesonline.co.uk/news/wales-news/nick-clegg-promises-end-era-8844662

paine said in reply to Fred C. Dobbs...

Barrys twin

Fred C. Dobbs said...

I have read that in recent years, Greece has made much progress, increasing exports, etc.

Under austerity, they have also laid off a whole lot of guv'mint employees, resulting in 25% unemployed, a LOT of whom would like their jobs back. Would that also be something the Brits dealt with?

anne said...

http://research.stlouisfed.org/fred2/graph/?g=10O8

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for Greece, 2000-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=10TQ

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for Greece, 2007-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=11aE

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for United Kingdom, 2000-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=152R

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for United Kingdom, 2007-2012

(Percent)

anne said in reply to anne...

Where government debt as a share of GDP for the United Kingdom was 44.8% in 2007, debt as a share of GDP in Greece in 2007 was 120.4%. The trade balance was -2.6% in the UK in 2007 and -6.5% in Greece.

Where government debt as a share of GDP for the United Kingdom was 97.2% in 2012, debt as a share of GDP in Greece in 2012 was 163.6%. The trade balance was -5.5% in the UK in 2012 and -9.4% in Greece.

anne said...

http://research.stlouisfed.org/fred2/graph/?g=152T

August 4, 2014

Real per capita Gross Domestic Product for United Kingdom and Greece, 2000-2013

(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=152W

August 4, 2014

Real per capita Gross Domestic Product for United Kingdom and Greece, 2007-2013

(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=152X

November 1, 2014

Total Factor Productivity at Constant National Prices for United
Kingdom and Greece, 2000-2011

http://research.stlouisfed.org/fred2/graph/?g=1530

November 1, 2014

Total Factor Productivity at Constant National Prices for United
Kingdom and Greece, 2007-2011

mulp said...

"And I have not even mentioned the small matter of being in or out of a currency union. ..."

Yeo, if Greece were to still be on the drachma, then Greece could simply print infinite drachma to buy all the imports, especially oil, that it needs because in a free market, the buyer dictates to the seller the price and terms in all cases.

This is a core principle of free lunch economics!

If housing subsidies and food stamps were eliminated, then the working poor would be able to buy sirloin and prime rib for 10 cents per pound because that is as much as they can afford, but the buyer sets the price and terms for all sellers. If rent subsidies were eliminated, the number of 1200 sq-ft rentals at $200 per month would explode because the working poor renter can dictate the size of the apartment and rent. That's why its called the free market. Market goods are freely available and free in a free market!

The problem in Greece is that too many people believe in free lunch economics. They consider taxes theft and paying taxes to be stupidity. But worse, international bankers believe in free lunch economics where they can loan other people's money to people who can not afford to repay the loans, but the high debt creates wealth and that will create more debt funded spending which will pay for all the past debt.

I don't see any wing of economists willing to reject free lunch economics and return to the principles of capitalism that were established by FDR and then promoted by government until the 70s when conservatives sold Americans on pillage and plunder, on free lunch economics.

And those free lunch economic principles have been sold all over the world, especially to Greece when international bankers told Greece they can borrow and spend to infinite, trust them.

[Mar 22, 2015] That Was The Week That Was

March 20, 2015 | Jesse's Café Américain

"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."

Hyman Minsky, The Financial Instability Hypothesis

Gold and silver had a very positive day today, running up to their short term overhead resistance intraday, and holding most of those gains.

There was intraday commentary on gold and silver here.

The moves next week will be much more meaningful than this short term run up off a very oversold condition.

I am ready for anything, given that the character of the bucket shop has not been improved.

I have included the economic calendar for next week. There will be the *third* revision to 4Q GDP which, unless it is markedly revised lower to give some headroom for the next 1Q estimate, will likely be a trip to the snoratorium.

The macroeconomics and global situation are much more significant, even if the domestic trade and commentary barely gives it an exceptional nod or acknowledgement.

Remember me in your prayers, as I remember you.

Have a pleasant weekend.

[Mar 21, 2015] You Think You're An Investor I Think Not by Raul Ilargi Meijer

Mar 19, 2015 | Zero Hedge
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
Let's start with defining what an 'investor' really is. A reasonable definition of an investor seems to be 'someone who puts money into risk bearing assets that promise to produce financial gains through – increased – productivity'.

If we can agree on that, then furthermore I think we can all agree that investors need markets. And not only that, but they need functioning markets. What defines 'functioning' here is that 'investors' need to be able to discern what the value is of the assets they have already purchased and/or are thinking of purchasing in the future.

But we haven't had any functioning markets since at least 2008. There is no price discovery left, nobody knows the actual value of anything anymore, and 'traders' pour money into all sorts of 'assets' without having one single clue as to what they are really worth. They don't even care about the real value of the 'assets' they purchase. They don't have to, because the game's so obviously rigged and distorted.

There is no risk left in the assets, productivity – i.e. the added value – has long since ceased to be an issue, and that leaves financial gains as the only point of our definition above. But that must of necessity also mean that whoever trades in these non-functioning markets – preferably with 'money' borrowed on the cheap -, is not an investor.

So what are the people who do trade, while still calling themselves investors? Are they then mere 'traders'? That doesn't quite seem to fit.

What are they then? It may sound a bit harsh to claim they are all just plain grifters, but maybe that's not too far off the truth after all.

One might conclude, when looking at the excessive attention 'everyone' paid yet again today to Janet Yellen and the Fed, waiting breathlessly to see if she utters the word 'patience', that those people who call themselves 'investors' are not even grifters, they're nothing but yet another group of lazy bums waiting for government – and/or central bank – hand-outs.

Just much bigger hand-outs than people receive who are on foodstamps (and now you know where that much maligned inequality comes from). But they're still hand-outs.

Nobody puts money into worthy (for lack of a better term), innovative, productive projects anymore, everyone just waits for what the Fed says and plays it safe (hand-outs). The Fed has thus eroded the investment world, and indeed the entire investment market model.

And that will come back to bite everyone. There is no more money flowing into any 'worthy' initiatives, it's all going into whatever makes most money fastest, screw – increased – productivity. And since price discovery no longer exists, worthy initiatives will receive funding only through some freak accident (like a billionaire with Alzheimer's), not by design, not through the inherent benefits of the investment model. Which is all but dead.

This cannot but have far reaching consequences, because we no longer have a model in which the best and brightest and hardest working amongst us can and will get funding to build their dreams. All money goes into either 'Tech Boom The Sequel', or is spent betting against whatever trend looks fit to fall first. Or a combination of the two.

The smarter amongst you, and I have to doubt that there are too many, will understand that the Fed 'protection racket' that has existed for years, is about to come to an end. It's you against Wall Street now, and most of you don't stand a chance in that arena.

A rate hike, any rate hike, or two, is the (re-)start of price discovery, at a time when everyone is 'invested' in 'assets' for which price discovery was never even considered at the time of purchasing. How fast can you unload? Who's going to be the buyer? Are there enough fools greater than you left?

Maybe I should feel better knowing how much y'all stand to lose soon, but I don't, because I also know how much everyone else stands to lose who already don't have anything but debt. Emerging markets are going to get obliterated, all sorts of funds and levels of government, domestic and abroad, are going to get crushed – resulting in more services getting cut for the poor -, and so, whether you like it or not, are most Americans and Europeans who fancy calling themselves 'investors'.

They're not. They're just a bunch of grifters and bums. They couldn't (have) survive(d) in a marketplace that has actual price discovery. They couldn't have borne the losses and recuperated. Not the way real investors do.

I found this a good and somewhat amusing summary of the feeling before Yellen's speech today, as expressed yesterday via MarketWatch:

'Hell Will Break Loose' If Fed Loses Patience

It could go either way, according to the Fly from the iBankCoin blog, who spoke of extremes. "If we find out this Wednesday that [Janet Yellen] is not, in fact, patient, hell will break loose and 66 seals of hell will be broken - paving way for actual centaurs to roam, wall-kicking people in the faces with their hooves," he wrote. "On the other hand, if Janet is patient and says so, we're all going to make an absurd amount of money."

Having a rigged, distorted system that fakes being a market and makes a bunch of grifters a lot of money, is not how you build a functioning society.

Oh, and you know what the worst thing of all is – if it can get any worse -? If the Fed and other central banks, post-2008, would have simply let the markets sort things out, most of the 'money' that has now been so horribly dislocated and mis-invested and debt-riddled, would never have existed in the first place.

The S&P would have been at 500 or so, bonds would have 'normal' prices and yields, actual investors would have taken their losses, and we would have had at least some sparks of brightness to look forward to. As things are, there's only the headlights of that highspeed train coming at us from the other side of the tunnel.
Average:
4.666665

Ben Bernanke Was Right No Rate Normalization During My Lifetime

Zero Hedge
With the Fed's credibility terminally smeared across the windshield of the Marriner Eccles-mobile, courtesy of the latest "dots" projection which proved yet again - and beyond any doubt - that the FOMC members are just a pack of chimps throwing darts, and perhaps feces, at a fed funds dart board, we can now honestly say that the one Fed (ex) member who was 100% accurate (if only in this case), and who saw the writing on the wall early on and got the hell out of Marriner Eccles while he could, is Ben Bernanke.
As a reminder, this is what he said (via Reuters):

"At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed's main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke's lifetime. "Shocking when he said this," the guest scribbled in his notes. "Is that really true?" he scribbled at another point, according to the notes reviewed by Reuters."

Yes, it really is.

[Mar 20, 2015] Here Is The Reason Why Stocks Are Soaring, Or Farewell Recovery... Again

03/18/2015 | Zero Hedge

Why are stock soaring in response to the Fed statement and latest set of projections? Because, as Bloomberg promptly calculated, the FOMC revised down all forecasts for 2015 since the previous SEP was released on Dec. 17.
The median dot for year end 2015 falls to 0.625% from 1.125% in Dec: a whopping 0.50% cut.
And there goes not only the "recovery" but any imminent rate hike.
The details:

The central tendency for GDP this year is 2.3%-2.7% vs 2.6%-3%. But the real hammer was 2016 and 2017: these were just slashed from 2.5%-3.0% and 2.3%-2.5% as of December, to 2.3-2.7% and 2.0-2.4%.

Unemployment rate 5.0-5.2% vs 5.2%-5.3%

The Fed now sees PCE inflation at 0.6%-0.8%. This was supposed to be 1%-1.6% just three months ago.

Core PCE 1.3%-1.4% vs 1.5%-1.8%

And the one that matters most, the "dot plot", saw the median dot for 2016 fall to 1.875% vs 2.5%, and decline to 3.125% from 3.625% for 2017.

And here is a comparison of the dots since September 2014 courtesy of @Not_Jim_Cramer. The Fed: wrong as ever.

In other words, what the Fed just said is the following: "it wasn't the snow, it was the economy."
End Result: Goodbye recovery, hello stock surge.

[Mar 20, 2015] The Fed's Reckless Gamble by Christopher Whalen

But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth.

February 23, 2015 | The National Interest
WHEN PICMO founder William Gross coined the term the "new normal," he both stated the obvious and offered a fresh insight. Most people understand in a visceral way that things have changed dramatically when it comes to jobs and economic opportunities since the financial crisis of 2008. But more than something new, the current state of the U.S. economy represents a reversion to the old normal-the price deflation and slack job market that existed in the 1920s and 1930s-which was interrupted by World War II and the subsequent decades of the Cold War and massive government spending.
It is safe to say that everyone wishes for a return to business as usual, at least insofar as "normal" is understood by most Americans. Plentiful jobs, along with rising home and stock prices, worked for most of us. The only problem is that the old normal economy of the 2000s, for example, saw prices for homes, stocks and other asset classes growing at levels that were clearly not sustainable. When we saw annual double-digit increases in home prices in the United States during the mid-2000s, the one thing you could be sure about was that this rate of price change was unsound and probably a function of external factors such as low interest rates and easy credit.

Since the 2008 financial bust, the U.S. economy has been anything but normal. The housing market, for example, rebounded at double-digit rates in 2011–2013, but now seems to be losing momentum rapidly. Near-zero interest rates maintained by the Federal Open Market Committee (FOMC) prevented an immediate apocalypse in the form of a 1930s-style price deflation, but this is both good and bad news. The lack of a true debt deflation commensurate with the degree of excess prior to 2008 has left the U.S. economy hanging in a form of economic stasis. Without price deflation and debt restructuring, there is no economic "bounce" and thus no recovery in demand or jobs.

TODAY, THE U.S. economy is like a cardiac patient on artificial life support. Flat employment, flat credit growth (at least for productive purposes) and falling inflation-adjusted incomes are the attributes of the new normal. Nobel laureate Robert Shiller draws an explicit parallel between today's "new normal" of no or slow wage and job growth and the late 1930s, when the U.S. economy began to sink under the weight of FDR's New Deal experiment:

The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins.

Shiller's point about how World War II rescued America from the deflation of the late 1930s is often missed, deliberately, by many economists. FDR's antibusiness rhetoric during the New Deal actually made the deflation of the 1930s worse by chasing private capital out of the U.S. economy. In their classic book A Monetary History of the United States, 1867–1960, Milton Friedman and Anna Jacobson Schwartz documented how private capital formation in the United States essentially went to zero by the late 1930s, leaving the public sector as the only engine of growth into the 1950s and 1960s. Large corporations and banks aligned with the federal government were the most significant source of credit and economic prosperity in that period. It took until the 1970s for private risk taking to truly reemerge in the U.S. economy, driving growth for decades thereafter. After these dramatic swings in growth and demand, however, we still have a muddled view of what constitutes long-term economic expansion.

While politicians and central banks can artificially increase the nominal growth rate for relatively short periods of time-we know this as a "bubble"-such machinations create no real wealth. We feel wealthier for a time, as in the Roaring Twenties and the 2000s. Yet when any significant proportion of the population tries to take its chips off the gaming table, the good times end. Given that an economy only truly grows wealth at the rate of real GDP growth, as Alex Pollock of the American Enterprise Institute observes, why do so many economists and the members of the FOMC call for policies to push higher and unsustainable rates of economic growth? The answer comes down to a basic difference between conservatives and liberals when it comes to inflation, a conflict of visions that has its roots in the dark days of the Great Depression.

Some on the left, like author William Greider, believe that a little inflation is good for working people and debtors, even if it erodes the purchasing power of wages. But just as a steady 2 percent increase in real wealth provides enormous benefits to a society, a steady 2 percent annual inflation rate can rob workers and families of the ability to meet basic needs in a matter of a few scant years. For example, an item that cost $20 in 1930 would cost $283 as of this writing, reflecting a cumulative rate of inflation of 1,315 percent, according to the Consumer Price Index (CPI) maintained by the Bureau of Labor Statistics (BLS).

Remember that because of various adjustments and omissions from the underlying data, the CPI greatly understates the actual rate of inflation experienced by individual consumers. Inflation, after all, is a monetary phenomenon that occurs when the value of money declines relative to the goods and services it can purchase. Small wonder that Americans have seen a steady decrease in real income over the past several decades. And yet the Federal Reserve and other central banks explicitly target inflation levels that are ultimately destroying consumer purchasing power.
WHEN POLITICIANS or members of the FOMC promise growth above that 2 percent long-term average, they are being more than a little disingenuous. Not only will using government policy to stimulate demand and keeping interest rates low create financial bubbles and other problems in the short term, but such expedients will also actually hurt all of us by eroding the purchasing power of wages and income. The housing boom of the 2000s, for example, was supported with public-policy initiatives from Washington and low interest rates from the Fed, but the result was a massive financial collapse and the destruction of trillions of dollars in notional wealth. Meanwhile, the cost of housing has continued to climb, even as real incomes have fallen.
Nobel laureate Paul Krugman is one of the leading exponents of the inflationist view. Week in and week out in his New York Times column, Krugman derides those who spend too much time worrying about inflation and advocates an increase in government spending, fueled by higher taxes or additional debt, as a means of stimulating demand for goods and services, and thus jobs. Krugman ridicules "the wealthy" for advocating low inflation and insists that the road to salvation is to continue the policies of the past half century, which includes using government spending and easy money to increase nominal private demand.

But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth. Krugman and his fellow travelers on the left correctly point out that there is little or no wage inflation in the U.S. economy, but that does not mean that inflation, broadly defined, is not a serious problem. The combination of decades of deficit spending and more recent experiments in radical monetary policy has contributed to a slow but steady increase in the cost of living for all Americans, an increase that's caused real incomes and the value of savings to fall.

Krugman and other advocates of secular inflation point to the period after World War II as proof that deficit spending and a large national debt help economic growth. But such views are myopic. The massive government spending during and after World War II helped to pull the United States out of the debt and deflation of the 1930s, much of which was worsened by the excesses of FDR's New Deal. But you cannot treat the period immediately following the Second World War as "normal" in any dimension.

In fact, the key driver of prosperity following World War II was not government spending but demographics. Johnny came marching home, got married and had lots of babies. Between 1950 and 2000, the civilian labor force grew by an average of 1.6 percent per year, according to the BLS. This may not sound like a big number, but over fifty years that meant that the cohort of working-age Americans more than doubled in number from 62 million to 141 million by the start of the twenty-first century. The BLS estimates that, between 2000 and 2050, the working-age population will grow just 36 percent, or about 0.6 percent annually.

With a smaller demand "pull" from shrinking demographic growth, a slower economy is hardly surprising. If we recall that the real, long-term growth of wealth is a function of increases in population and production, then the fact of slower U.S. population growth in the twenty-first century suggests that we will also see more modest growth in GDP. Under such circumstances, what is normal? More important, with nominal GDP growth in the 2–3 percent range absent shocks from external factors, and the Fed targeting similar levels of price inflation, will Americans see any improvement in their real inflation-adjusted income or wealth?

Sadly, you will never hear Federal Reserve chair Janet Yellen and the members of the FOMC admit that the real, long-term growth rate for wealth or GDP is just 2 percent. Because of the dual mandate given to the U.S. central bank of encouraging employment and ensuring price stability, the FOMC has tended to focus policy on trying to encourage job growth while pretending that inflation is not a problem. Indeed, over the past two decades, as real growth prospects have waned, the FOMC has used progressively lower interest rates to both stimulate growth and rescue the economy from the aftereffects of the latest Fed-inspired boom. Whatever concerns the Fed still harbors regarding long-term price stability have been overwhelmed by the political imperative to achieve short-term job growth.

Economists in both private and public life make a living by talking about levels of potential growth that are far above the long-term average increase in real wealth. One reason for this is that suggesting that the long-term average growth rate will not exceed 2 percent implies a future of limited job opportunities, something that's hardly popular with voters or elected officials. The remarkable growth rates claimed by China's authoritarian regime illustrate the political imperative behind such efforts. As a result of the one-child policy, China's population is growing at just 0.5 percent annually, according to the World Bank. When you see official Chinese GDP growth rates of more than ten times the rate of population increase, the one thing you can be sure about is that the claimed rate of "growth" is unsustainable and driven by politically motivated government spending.

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OVER THE past several years, members of the FOMC have maintained ultralow interest rates, ostensibly to boost economic activity in such areas as housing and job growth. But despite low interest rates and massive purchases of government debt and mortgage securities by the FOMC, volumes of residential mortgage lending have plummeted down to decade-low levels, and job growth remains anemic and of poor quality. Instead of stimulating a recovery in the real economy, the policies followed by the FOMC under first Ben Bernanke and now Janet Yellen have only created new asset bubbles in sectors like real estate, public equities and the corporate bond market. With interest rates and commodity prices now falling around the world and the dollar soaring against other currencies, the FOMC seems to have created a "deflation trap" whereby investors are unwilling to put capital at risk as they await higher interest rates. Meanwhile, job creation and spending suffer due to a lack of investment.

Some Fed officials are increasingly uncomfortable with the Fed's policies. Richard Fisher, president of the Federal Reserve Bank of Dallas, dissented from his colleagues on the FOMC, saying he'd like to see rates begin to go up in 2015. Philadelphia Fed chief Charles Plosser also dissented on similar grounds. But both Fisher and Plosser no longer vote on the FOMC. A decidedly left-wing majority on the Fed's policy-making body continues to support the extraordinary low-rate policies in an effort to boost job growth. In the European Union, the European Central Bank is pursuing a similar policy.

But the sad fact remains that the use of interest rates or fiscal policy to stimulate nominal growth is of limited utility today. In the 1970s and 1980s, when the children of the post–World War II baby boom were starting families of their own, a little bit of push in the form of low interest rates or increased government spending resulted in a substantial increase in job creation and economic activity-along with higher inflation. Today, with lower population growth rates and relatively high levels of public debt in most industrial nations, the utility of fiscal or monetary policy in boosting growth rates is very limited-but inflation remains a problem that affects all consumers, rich and poor.

In the Fed's most recent report to Congress, Yellen repeated the Fed's explicit embrace of a 2 percent inflation rate, in order to help the employment picture, all the while paying lip service to the Fed's responsibility to ensure stable prices. She stated:

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.

What Yellen is saying explicitly is that it is not possible for the FOMC to achieve the legal mandate of "maximum employment" without tolerating a 2 percent inflation rate. But a 2 percent rate of inflation, compounded over twenty years, will rob American consumers of half of the purchasing power of their wages and savings. Not only do the Fed's publicly stated policies doom many Americans to poverty in the future, but they are also an explicit admission that the Fed's dual legal mandate set by Congress in 1978 is unworkable. The Fed cannot both pursue "maximum employment" and safeguard against inflation. Indeed, there is a growing doubt that the Fed can truly change the employment picture. But the political attraction of promising people higher wage and job growth, it seems, is so powerful that members of the FOMC and central bankers around the world cannot help themselves. Ultimately, using low interest rates in an attempt to boost demand and job creation will fail.

Christopher Whalen is senior managing director and head of research at Kroll Bond Rating Agency. He is the author of Inflated: How Money and Debt Built the American Dream (Wiley, 2010) and the coauthor, with Frederick Feldkamp, of Financial Stability: Fraud, Confidence, and the Wealth of Nations (Wiley, 2014).

[Mar 19, 2015] The Central Banks Will Not Be Able to Control This by Phoenix Capital Research

Mar 19, 2015 | Zero Hedge

The biggest issue facing the financial system today is the US Dollar rally.

The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as big as ALL of the money printing that occurred between 2009 and 2013.

And it's imploding as we write this.

Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.

When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

And the US Dollar has been rallying… HARD. Indeed, the move that began in July 2014 is already larger par in scope with that which occurred during the 2008 meltdown.

Moreover, this move has occurred with little to no rest. The US Dollar barely corrected 2% after rallying a stunning 16+% in a matter of months before beginning its next leg up.

You only get these sorts of moves when the stuff hits the fan. CNBC and the others are babbling about the Fed's FOMC changes, but all of that is just a distraction from the fact that a $9+ trillion carry trade, arguably the largest carry trade in history, has begun to blow up.

Rate hikes, QE, all of this stuff is minor in comparison to the carnage the US Dollar is having on the financial system. Take a look at the impact it's having on emerging market currencies.

... ... ...

[Mar 19, 2015] How Many Shale Oil Plays Make Money At $37 Per Barrel by Jim Quinn

Mar 19, 2015 | Zero Hedge

Kirk2NCC1701

"How Many Shale Oil Plays Make Money At $37 Per Barrel? (Spoiler Alert: None)"

Ah, but the Big Fish still get to eat the Little Fish (via bankruptcy fire sales) -- thanks to the Fed and its QE: "Money for nothing, and checks for free!"

Sing along now... "Money for nothing... easy, easy money..."

Note that Big Fish control Big Gov. Little Fish do not. Place your bets accordingly.
.

p.s. "Ditto" for AU and AG mines: "Con-so-li-da-tion", i.e. hostile takeovers and bankruptcy sales.

You should know by now that it is in the very Fabric/DNA of the current Monetary System (fiat currency + FRB + Derivatives) to culminate in Socialism for the Western Oligarchs (asymmetric Benefits that privatizes profits, and nationalizes debts/losses).

Amschel Meyer Rothschild must be glowing in his grave, and toasting with Lucifer.

swmnguy

"Socialism for the Western Oligarchs (asymmetric Benefits that privatizes profits, and nationalizes debts/losses)" is a great description.

It's what Mussolini referred to using the word "Fascism."

Fascism isn't about marching around shouting in cool uniforms, nor about having people lecture you on behavior. Those are surface characteristics that can be found elsewhere. It's about allowing corporate power to take over and subsume state power, for the benefit of the corporate elites. That's why "Islamo-Fascism" is a nonsense term. The Islamists are religious fanatics bent on a repressive and violent theocracy, which is something I want no part of, but it's not "Fascism."

Same with American Liberals; they're not inclined toward fascism because a lesbian might lecture you on pronouns, or a vegan might lecture you on eating meat. That's annoying, but what makes American Liberals tend toward fascism is that they support measures which put more and more public and state interests into the hands of corporate interests, for the benefit of the corporate interests first and anybody else second if at all (examples being "ObamaCare" with is a bailout of corporate insurance and medical interests which have otherwise priced themselves out of business; "HAMP" which uses public/government money to bail out corporate finance housing lenders who would otherwise lose on investments they never should have made; Any student loan program, which will use public/government money to bail out corporate finance education lenders and their collaborators in the Education industry who have also priced themselves out of business; among many other available examples).

I hate to get pedantic about word choices, but words have meanings and when the subject is important, it's critical to use the right word to refer to what you're talking about. America's political vocabulary has been very intentionally drained of meaning, and words are used to refer to things other than what the words mean. That has the eventual effect of preventing us from communicating with each other on political topics, and I don't have to tell you who benefits from, and desires, that outcome.

Thanks for the good, concise description.

Buckaroo Banzai

Sorry, but you're wrong. Words do have meanings, and you are misusing the word "fascism". Fascism is defined as NATIONAL SOCIALISM. Under fascism, corporations do work closely with the State, but they maintain a separate identity, and are subsidiary to the State.

What we have today in this country is an entirely different system. Corporations have evolved into INTERNATIONAL entities, not national entities as they were in the 1930s and 1940s. Furthermore, corporations don't work closely with the State, rather, Corporate EXECUTIVES have been wholly integrated into the ruling elite, which is a class that now consists of corporate executives, national politicians, and SES-level federal bureaucrats. The modern publicly-traded International Corporation has been reduced to a privileged legal entity that is looted by the entire elite class via stock options, stock buybacks, political contributions, lobbying expenses, and the associated revolving doors between the corporate suite, K Street, and capitol hill. Corporations are still nominally owned by the "public", but the wealth and power they generate have been completely co-opted by the Elite class.

What most people miss is how dramatically corporations have evolved over the last century, and how the role of corporate executive has changed. That is where the confusion lies.

thamnosma

Nice explanation. Still, the State hands out benefits to some corporations and punishes others. In that sense, there remains a measure of the classical fascism. Obviously, the international corporations can do some level of moving around, shifting to more favorable State environments. However, that is becoming more difficult as "global governance" moves forward on various levels. I have a hard time sorting out these ruling elite relationships but lean toward the State still maintaining ultimate dominance.

Buckaroo Banzai

"Still, the State hands out benefits to some corporations and punishes others. In that sense, there remains a measure of the classical fascism."

Not really. A better way to look at it is an internal political struggle between competing factions of the elite. And don't forget, if you are a corporate executive at a corporation that is on the losing end of lobbying or politics, you will get paid regardless. Ultimately it is the shareholder that will get screwed, not the executive.

[Mar 18, 2015] Here Is Why The Fed Can't Hike Rates By Even 0.25%

Mar 18, 2015 | Zero Hedge
There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system. A quick refresh of his bio from the Institute for New Economic Thinking:

Mr. Pozsar has been deeply involved in the response to the global financial crisis and the ensuing policy debate. He joined the Federal Reserve Bank of New York in August 2008 in charge of market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, U.S. Treasury and White House officials throughout the crisis; played an instrumental role in building the TALF to backstop the ABS market; and pioneered the mapping of the shadow banking system which inspired the FSB's effort to monitor and regulate shadow banking globally. Prior to Credit Suisse, Mr. Pozsar was a senior adviser to the U.S. Department of the Treasury, where he advised the Office of Debt Management and the Office of Financial Research, and served as Treasury's liaison to the FSB on matters of financial innovation. He also worked with the Federal Reserve Board on improving the U.S. Flow of Funds Accounts.

While Zoltan is currently working in the private sector at Credit Suisse, he is perhaps best known for laying out, back in 2009, the full topographical map of the US shadow banking system in all its flow of assets (or is that contra-assets when it is a repo) beauty.

Which is also why we bring him up, because in a much welcome follow up to his previous work title "A Macro View of Shadow Banking" which we will discuss further in the coming days because it is not only Zoltan's shadow banking magnum opus and must read for anyone who wants to get up to speed with all the latest development in the unregulated shadow banking space, but because Poszar also provides perhaps what is the most important chart which explains why the Fed is so very terrified of even the smallest possible incremental rate hike of 0.25%.

Specifically, we look at Poszar's findings about the implied leverage within the fixed income asset space in America's just a little levered buyside community. This is what he says:

Although no precise measures are available, the presence of leverage among hedge funds with credit and fixed income strategies has been recognized since the LTCM crisis (see Figure 21), as is leverage in separate accounts in the asset management complex.

While hedge funds and separate accounts are allowed to use leverage liberally – in fact, leverage is the sine qua non of these investment vehicles – it is widely underappreciated that bond mutual funds that are typically thought of as unlevered and long-only also have considerable room to use leverage.

The extent to which this room to use leverage is utilized is up to bond portfolio managers to decide, and it is not uncommon for the largest bond funds to maximize the leverage they may bear in their portfolio within the limits allowed by the Investment Company Act of 1940, and the SEC's interpretation of the portfolio leverage and concentration incurred through the use of derivatives.

However, the creep of leverage into what are traditionally thought of as long-only bond funds was missed by the mainstream economics literature and textbooks entirely. For example, recent works that identify asset managers as the core intermediaries behind the "second phase of global liquidity" focus solely on indirect forms of leverage (FX mismatches) embedded in bond portfolios through holdings of dollar-denominated emerging market sovereign and corporate bonds (see Shin, 2013).

Other works state even more explicitly the widely-held assumption that fixed income mutual funds are unlevered, and analyze episodes of market volatility induced by redemptions without any regard to how direct forms of leverage embedded in fixed income mutual funds may amplify volatility during periods of rising redemptions (see for example Feroli, Kashyap, Schoenholtz and Shin, 2014, Chapter 1 of the International Monetary Fund's October 2014 Global Financial Stability Report, Chapter 6 of the BIS' 84th Annual Report, and Brown, Dattels and Frieda, 2014 (forthcoming)).

But all of these views sit uncomfortably with the hard evidence presented above, and recent revelations about "perceived" alphas (see Gross, 2014b) and price action in the interest rate derivative markets amidst soaring redemptions from the largest bond portfolio in the global financial ecosystem – the PIMCO Total Return Fund (see Mackenzie and Meyer, 2014). More concretely, a look at the portfolio of this specific fund provides good examples of the forms of leverage discussed above.

...

More broadly, the above example demonstrates the evolution of the traditional core product of the asset management industry – long-only, relative-return funds – as it came under pressure from two directions: from hedge funds, offering absolute return strategies, and from passive index-replication products in the form of low-cost exchange traded funds (ETFs). Core-satellite investment mandates became the trend, with hedge funds providing alpha and index-replication vehicles delivering beta at low cost. Traditional asset managers responded to this challenge a number of ways: some by launching their own, internal hedge funds, and some by incorporating into their core products many of the alternative investment techniques used by the hedge funds. These industry trends were the sources of competitive push that drove the above-mentioned creep of leverage into the industry's traditional, long-only, relative-return bond funds (and hence the rise of levered betas), all designed to stem the flow of assets to the hedge fund competition and command higher fees as the profitability of traditional core products was squeezed (see Bank of New York, 2011 as well as Haldane, 2014).

And visually:

In short, what Poszar is saying is that in a world in which the traditional broker-dealers and banks have indeed reduced leverage and instead use $2.5 trillion in Fed reserves as fungible collateral against which to buy credit derivatives (for example as in the case of JPM's CIO office and its attempt to corner the IG9 market) the buyside community, which as we have long discussed has largely avoided equities due to fears of a spectacular market implosion (and certainly minimized levered exposure in the space with the exception of several prominent HFT participants) has instead been forced to chase after fixed income products. And chase with leverage that would make one's head spin as can be seen in the outlier chart above.

And while Poszar may be quite correct in stating that most have missed the leverage creep he observes above...

Perhaps the key reasons why economists have missed the creep of leverage into the traditionally long-only world of fixed income mutual funds are the conceptual gaps in the way in which the U.S. Financial Accounts (formerly the Flow of Funds) depict the global financial ecosystem, and by extension, the limited mental map it gives to economists who use it to understand asset prices.

... one entity that does understand all this and grasps the momentuous implications of even the smallest quantum of interest rate increase, is the entity where Poszar previously worked: the US Treasury and the Federal Reserve itself.

And so, the next time someone asks "why is Yellen so terrified of even the smallest possible rate hike", show them this chart above and explain that the Fed vividly remembers what heppened when LTCM blew up. What the Fed doesn't want, is not one but one thousand LTCMs going off at exactly the same time in what is now the world's most levered trade...
strannick

So the dollar isnt going up because of America's sound fundamentals? But rather because its newly minted QE is being used to make leveraged, unhedged gambling bets in derivatives markets (ie. CDOs that cant be paid by counter parties like AIG to losers like MF Global) by primary dealers as repo collateral instead of being released into the economy and increasinging the money velocity?

So the Fed is lying when they say they will soon raise interest rates? Even though raising interest rates .25 % would add 100s of billions in interest to the over 18 trillion dollar debt?

So there is a quadrillion dollar hidden -shadow- banking system beyond the site of Congress and investors at large? That is potentially worse than a 1000 Lehmans?

So then shouldn't we be using our overvalued dollars to buy suppressed under valued gold

waterwitch

I found this helpful:

http://www.barclayhedge.com/research/educational-articles/hedge-fund-str...

ZerOhead

Crap... It's just like the movie SPEED with Sandra Bullock and Keanu Reeves back in '94 when a former banker rigs a bus loaded with muppets to explode unless he get's paid a million$$ ransom.

If Yellen let's the speed fall below 50 MPH then the bomb goes off and everyone dies.

Meanwhile she's desperately looking for an off-ramp called ECONOMIC GROWTH but it ain't there... and now she's running out of road and there's a hole in her gas tank...

SWRichmond

we look at Poszar's findings about the implied leverage within the fixed income asset space

Do you have any idea what the avg rate on the 10 year bond is?

Of course it is about leverage, it has always been about leverage. There are two ways for control freaks to fight a deleveraging: 1) print money, and 2) re-lever. And since the fixed income markets are by far the largest, guess where the leverage (mostly in the form of swaps) was placed?

And in order to keep this leverage from blowing up, interest rates have to stay zero, forever. This is not rocket science. Neither, however, is it reality, but that is what they are trying to do.

Totentänzerlied

1. Average all-time historical return is 0 or negative. Inflation beyond a few tenths of a percent only became a standard phenomenon during the industrial age. This is one of the key points of metallism and one of the reasons monetarists and chartalists (more like charlatans) hate metallism.

2. Savers should not have their money in the bank (or brokerage) if they don't want the banks to use it.

To my knowledge the long-run average coupon on government debt in all places was 3%-5% or less, it was the preferred asset class (in addition to farmland, of course) of the rentier parasites of recent centuries. This high rate is part of why we got national income taxes; careful what you wish for.

There is no point in calling fiat currency stolen, any more than there is in calling a unicorn stolen. It is all debt, not money. The theft begins as soon as it is loaned into existence. Beyond that, the interest means it by nature requires theft from the future.

aVileRat

Fun fact,

The mean 'seed' fund runs at around 120% gross and you would think one would do a 'hedged' book, you know, at best 100% leverage, maybe 120% gross in extreme periods right ?

Saw a fund yesterday, small, about XYZ MM under management, running on 197% gross and 300% net. Yes, you are reading that correct. US Institutional qualified, with more than 10 accounts.

Now either I'm getting really old, or my idea of risk management is totally shot to shit at this stage in my career, but this guy was balls deep in fixed credit and swaps. Refused to give over his VaR metrics, or altman score, but had a stupidly great sharpe ratio. Some days, when I think about how some junk companies inflate by 20% a day, I think about this guy, and his fund.

And I wonder, what if this is the new normal. If Bill, Leon, George.... old crew is working away, and there are a whole bunch of wingnuts like this ZYZ nutter who are chasing yield with every risk hedged to keep below your Prime guidebook, but in reality are running at ratios Myron Sholes would have shit himself at.

Just a food for thought.

Toten is 100% correct, risk free is a economic concept derived from post-war 1918 sov. growth rates vs. the real 400 years of economic history; While Case Shiller's often trot out CAPE model works great at predicting rate moves using smoothing, that whole thing assumes underlying growth conditions which are not normal; namely a baby boom, accretive fixed capital rates, technical revolutions every 5 to 10 years and monetary stability. Throw CAPE into some funky currency wars, like the 1750's with only 3 varables ? busted like TRIPS.

Fed policy is going to give stability, which we expected

Now the rest needs to come from the rest of the world. Arguably the US technocrats are more inclusive and forward looking than the fractionalized govts in Japan (no offense Abe!) so Fiscal policy, has a fighting chance of at least respecting the structural reforms required by US gov, lest major allies switch to RNB; creating the bi-material system Austrians badly want. Where RNB is the 'silver' and UST is the 'gold standard'.

If they fail to act, and US corps/US Trading partners will continue to plan outlays for tax management & accretive ROE's to optimize their USD purchasing power, and will invest abroad. Which is pretty much what happened when economic powers dropped gold or bi-standard switching the last time this happened; when the world had a band of iron to every corner of the globe.

In this scenario, US investors can certainly rely on price stability, but as Janet Yellen said in press scrum today: the world is responsible for their own portfolios and yield valuations. Fed does not promise a risk free rate, nor does it target a risk free rate; only inflation & job growth.

As ZH has spoke about ad nausum, job quality is shit, and projected tax planning & wage growth, when millennials hit 40 is going to be nowhere close to sustaining the AA rating of the USA, let alone its G8+7 trade allies. So until we see 57% of U-5 semi-attached workers actually get with something approaching post-war wage & family formation rates, achieving a 8% risk free world is beyond us. Which is where a Fiscal & technocratic solution comes into play; and requires a global coordinated effort which is inclusive of all the key countries. The alternative ? They'll just fuck off and hit up China, turning a blind eye to middle kingdom 2.0, which was a key behind the dead global growth post- 1 AD, and likely even pre-1AD given Chinas total inability to govern that cesspit since the Bronze Age.

In this scenario, I think back to that tool, and his reach for yield hyper-LTCM trading vehicle. When that martingale hits zilch, what happens to them? Will it matter at that point ? Will credit origination matter at all when NIRP becomes accepted as a cost of trade, and we simply trade in 1 oligarchy and swap in UST? where the UST becomes a scarce form of barter like gold was in 1500 ?

Will Primes and Institutional investors be able to tell the difference between technical and productive growth at that point ? Or will the fear of risk, or perhaps the lack of education on industry specific risk lead to a total lack of interest in exploration & moonshot capital ?

Fun fact, the cotton gin is thought to have been 'invented' in at least 5 instances in history, but it only was when some Jews with a some funny names decided to arb their trade float for a merchant capital fund. This was amid a raging stagflation enviroment, and it worked out well for us since 1680.

If we are staring down the barrel of another 40 year stagnation ecosystem (at least), and if we assume Washington/NATO gridlock extends as long as the Holy Roman Empire's decline; we could be in for a good long time of NIRP.

On an end note. ZH lobbied for 'healthy' deflation for 4 years, and now its happening. You cant have a rate hike, and price deflation at the same time. We are done with the Keynsian real time lab study, and now we're onto the Austrian study:

Austrians propose that Federal reserve money printing is the bane of all evil, and the Fed is the sole originator of all credit default which starts the busines cycle. The fed is now accomodative, and neutral, as 'the market' desired. Now its time for the Austrian system to prove money is all locked into one closed economic system; and fixed capital can thrive in a liquidity moderating system.

Our current economic model based on the 1929-1941 experiment proved flawed, so lets see what happens. Ball is in 'the market' and ZH's court to prove this works, in my view.

And for the little meth-Myrons out there, lets hope this NIRP works. If 92/95 happens (it still could with the natural move in rates down by currency flight to USD; esp if ECB is limit bound by QE assets), that is our best solution out. And Gold is at best, a marginal utility vehicle for wealth preservation; which makes Goldbugging a moot point if we're arguging (happily I might add) for creative wealth destruction to prosperity.

TLDR:

- Credit risk is a passing fad, they will flame out if growth is going to its pre-1880 level of stangation to -3% for most of Europe; without Antilla's creative destruction no less. Its about 10x worse today than when Rockstar did his very well done study on shadow risk, and how its warping leins & economic momentum.

- USA's trade partners will eventually conclude its a bad trade partner due how a strong dollar is killing both domestic wealth effects, and the USA's increasing protectionism, USA global policy becomes inert as the USA Dol & T's become a Giffen good

- Last time something barbaric happened, large debts and a useless Technocratic fiscal govt. had their way with the world, we ended up with a badly FUBAR Europe, and all 14 eras of Chinese society.

- Settle in, unless the last 2 generate something constructive; you are all fucked. But thats good for doom porn lovers.

- Yellen looks at the same shit as ZH. In fact, she straight up said she knows it just as well as TD1, and until you see the same numbers they do, which they do, and real time u-5 wages and job quality improves, forcasts changed, because Saudi Arabia had a Taper Tantrum, and while inflation is one part of the puzzle, data dependance is just as transparent as a post on ZH.

And to hike rates would bail out wall st. Pensions, at the further expense of 'the middle class', and pretty much the entire world. As predicted.

alphamentalist

wake up! look at the jefferies numbers of the other day. it is nearly impossible for banks to make money under these conditions. sure they saw some MTM on their rates books back in '10/11/12, but the rest of "earnings" for years running has been from mark-to-fantasy, headcount reductions, buybacks, offshoring, and loss avoidance (delaying foreclosures and repossessions on NPLs). this the-Fed-is-saving-the-banksters meme, while popular, doesn't fit the observable realities. fed policy is--as tiny timmah geithner confessed--the best progressive economics in action.

it is direct monetary financing of our bloated federal government. when you see a person doing something most people infer the motivation for the action is the reward for the action. in the case of the fed we need to adjust our optics to understand they are doing things not to be rewarded but to avoid consequences (like the Dutch boy with his finger in the dike, no Yellen pun intended). what would happen if they allowed a return to market economics?

the federal government would have to fund its ever growing shortfall in the rates market. that would probably be possible at first, but the higher rates would slow the remains of the "economy", which would increase demand for services AND retard tax receipts, which would increase the funding shortfall, which would push up rates, which would choke the economy, which would...well, you get the picture. without the Fed, the overlevered federal candy machine would quickly tear itself apart.

I think the Fed is going to try to raise in order to re-set the shock absorbers before the coming sell off in order to maintain at least the illusion they can stimulate the economy. but it is too little, too late. we will quickly be back to the Fed protecting the politicos by trying to slow the collapse. (to keep this simple I have avoided the obvious asset-inflation scheme as a tool to keep large donors happy, but even analyzing that will bring you back to the same place: the Fed must protect the politicians or die trying.) this is the slow motion death rattle of America's nanny state.

kaiserhoff

This is a very popular view, but it is wrong. We are talking about fractions of a percent. Declining oil prices have given them an undeserved window, in which to begin normalization.

It's true there is no exit strategy. There never was. This is their one last chance to let market rates emerge without complete chaos. They are too stupid to take it. Unfortunately, the consequences will fall on us all.

tahoebumsmith

The FED has over 4 Trillion on their balance sheets now compared to 852 billion in 11/08.. The US Government has over 17 Trillion dollars of debt compared to 9.23 Trillion in 11/08... need I say more? That is unless they don't have to pay interest> Were all Japanese now and if inflation forces the 0% interest Ponzi to raise interest rates you might just as well bring the whole herd of deer out Tyler because it will be carnage

WTFRLY

9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse in Denmark court

walküre

"Magic" number 7

US is run by gangsters. Greatest criminal enterprise ever conceived in the history of man.

KuriousKat

The hellicopters will come but they won't be dropping money.

Some folx ain't waitin till September..

coming to a theater near you.

http://news.yahoo.com/police-car-burnt-windows-smashed-start-anti-ecb-06...

Frankfurt (AFP) - Violent clashes between anti-capitalist protesters and German police left dozens injured and a trail of destruction in Germany's financial capital as the European Central Bank opened its new headquarters Wednesday.

Draghi, addressing some 100 invited guests at a low-key ceremony, rejected blame for the suffering brought by budget cuts and austerity policies amid the financial crisis in Europe.

MATA HAIRY

um...those are europeans rising up against their masters. Not americans.

Americans are cattle and will never do so. At least white americans never will.

kchrisc

"There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system."

The FedRes is NOT a part of the governmnet, but a PRIVATE branch of the PRIVATE Zionist banking cabal that owns and controls the DC US.

The FedRes only wants to comprehend the ramifications of their actions the same as a thief does. And like a thief, they wish to keep their loot, and to remain free to thieve more in the future.

The banksters need to repay us. Guillotine the Fed. Audit the heads.

yogibear

LOL, the Federal Reserve can't raise rates.

Just BS the markets for months and later years.

The markets may have just figured it out.

[Mar 16, 2015] List of countries by oil consumption

Mar 16, 2015 | Wikipedia, the free encyclopedia

This is a list of countries by oil consumption based on the [2]

Rank Country/Region Oil consumption
(bbl/day) Year

1 United States 18,840,000 2011 est.

2 China 9,790,000 2011 est.

3 Japan 4,464,000 2011 est.

4 India 3,292,000 2011 est.

5 Russia 3,196,000 2012 est.

6 Saudi Arabia 2,817,000 2011 est.

7 Brazil 2,594,000 2011 est.

8 Germany 2,400,000 2011 est.

9 South Korea 2,301,000 2012 est.

10 Canada 2,259,000 NA

11 Mexico 2,133,000 2011 est.

12 France 1,792,000 2011 est.

13 Iran 1,709,000 2012 est.

14 Italy 1,454,000 2011 est.

15 Spain 1,384,000 2011 est.

16 Singapore 1,380,000 2012 est.

17 Indonesia 1,322,000 2011 est.

18 United Kingdom 1,217,000 2013 est.

19 Australia 1,023,000 2011 est.

20 Netherlands 1,010,000 2011 est

World Crude Oil Production by Year (Thousand Barrels per Day)

year production change

1980 59,420.56 NA

1981 55,904.87 -5.92 %

1982 53,312.60 -4.64 %

1983 53,130.85 -0.34 %

1984 54,379.94 2.35 %

1985 53,843.26 -0.99 %

1986 56,202.61 4.38 %

1987 56,536.07 0.59 %

1988 58,593.86 3.64 %

1989 59,694.83 1.88 %

1990 60,404.45 1.19 %

1991 60,112.96 -0.48 %

1992 60,093.48 -0.03 %

1993 60,157.95 0.11 %

1994 58,805.19 -2.25 %

1995 59,949.60 1.95 %

1996 61,282.65 2.22 %

1997 63,317.67 3.32 %

1998 64,468.21 1.82 %

1999 63,322.39 -1.78 %

2000 66,268.41 4.65 %

2001 65,865.38 -0.61 %

2002 64,973.32 -1.35 %

2003 67,327.29 3.62 %

2004 70,706.05 5.02 %

2005 72,176.09 2.08 %

2006 71,945.59 -0.32 %

2007 71,611.84 -0.46 %

2008 72,581.54 1.35 %

2009 71,317.64 -1.74 %

2010 73,216.29 2.66 %

2011 73,485.09 0.37 %

2012 75,063.80 2.15 %

2013 75,239.91 0.23 %

[Mar 16, 2015] File Under Improving Economy, Not

If the US is at Full Employment and the Economy is at full steam ( as Obot lackeys keep telling us), then why is the Fed Funds rate still at 0%. Isn't 0% Fed rate an indicator of an Economy On Life Support. Tell me why I'm wrong.

March 14, 2015 | naked capitalism

participant-observer-observed, March 14, 2015 at 5:19 am

This is int'l but insofar as City sleeps with Wall St, it may be relevant to see that City has a new boyfriend, getting front page coverage at the Taipei Times

Beijing yesterday hailed Britain's announcement that it would seek to join a Chinese-led development bank, after Washington voiced caution about the move.
. . . .
London's move drew a cautious response from Washington, a rare note of discord in their "special relationship," which follows criticism from the US about Britain's cuts to defense spending.
China and 20 other countries signed a memorandum of understanding to establish the Beijing-headquartered bank in October.
"We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks," US National Security Council spokesman Patrick Ventrell said.
"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards."
The bank has support from countries including India, Singapore, Malaysia, Cambodia, Pakistan, the Philippines, Uzbekistan and Vietnam.
China's official Xinhua news agency rapped the US for its skepticism, writing in a commentary yesterday that Washington "exhibited nothing but a childish paranoia towards China."
"It seems that the US government needs to be reminded that bias and a deep-rooted strategic distrust towards China are by no means helpful in forging a healthy relationship with the country," Xinhua wrote.
"It's imperative for Washington to change its mindset," it said.
World Bank president Jim Yong Kim yesterday also welcomed the setting up of the China-backed bank.

Llewelyn Moss, March 14, 2015 at 8:51 am

If the US is at Full Employment and the Economy is at full steam ( as Obot lackeys keep telling us), then why is the Fed Funds rate still at 0%.
Isn't 0% Fed rate an indicator of an Economy On Life Support. Tell me why I'm wrong.

cassiodorus, March 14, 2015 at 5:02 pm

Employment-population ratio: 59.3%, where it was in July of 2009
Employment-population ratio, 25-54: 77.3%, about where it was at the beginning of 2009
There has, then, been only a limited recovery.

[Mar 15, 2015] North America Crude Oil Production Remains Strong

Mar 15, 2015 | Zero Hedge

JustObserving

North America Crude Oil Production Remains Strong
Let's give that statement some numbers and context:
Yet US continues to import at least 7.3 million barrels a day. So does China (7.3 mbd). India imports about 3.9 million barrels a day. World oil production is between 92 and 93 million barrels a day - say, 92.5 million barrels a day
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS2&f=A

post turtle saver

The US and China import because they're the #1 and #2 refiners in the world, respectively. Not everything that's imported into the US and China ends up being used in the US and China... just to add some context to your context...

JustObserving

US consumes about 19.5 million barrels a day and produces about 12 million barrels a day from all sources (actual oil production about 9.5 million barrels a day). So imports have to be about 7.5 million barrels a day. It is not as if the US is exporting millions of barrels of oil per day.
China is using about 10.7 million barrels a day and producing about 4 million barrels a day. So it needs about 6.7 million barrels a day of imports for domestic consumption.
The oil price decline is mainly due to economic warfare:
The Engineered Decline in Oil Prices: Economic Warfare is the West's Main Weapon
For Russia, exports of oil and gas equate to 68 per cent of Russia's total exports, and 50 per cent of its federal revenues
http://www.globalresearch.ca/the-engineered-decline-in-oil-prices-econom...

DaveyJones

Considering the US peaked in the early 70s and the world peaked in about 2004 things are a mess. If oil was in abundance how come all the oil seems to live with bad guys wherever we aim our weapons.

How come it makes skyscrapers defy gravity.

weird that is

angel_of_joy

One year from now the current wells will start showing the rapid exhaustion typical for fracking sources, and production will decline abruptly. By then a lot of companies will be pretty fucked up, will minimal resources for new exploration.

The whole industry will become another un-holly debt mess... just in time for elections ;)

dougie

Most of the increased production is from the already drilled, but uncompleted wells that are decreasing in number as they are completed and not replaced by more drilling. The stock of uncompleted wells will be exhausted in the not too distant future, leading to radically decreased production as fracked wells enter their steep decline. Meanwhile, drilling companies are disappearing as prices are well below the break even point of fracked wells.
BTW, great irony with the pic of "bomb trains" that are exploding all over the North American continent. Funny stuff.

Thirtyseven

Makes one wonder about opportunity costs. Even if producers are producing at a loss, wouldn't their losses be greater if they were not producing at all? Thus: Oversupply.

Winston Churchill

Slow motion bankruptcy, is still bankruptcy. A lot of the long term oil hedges start dropping off in April. The counter parties have already been taking a bath, once those hedges have gone, look out below.

silverer

It's interesting to see how this is happening. Oil is a magnificent example to show how the entire economic and banking system is predicated on continuous growth only. There is an automatic system in place for growth, but not for shrinkage.

Oversupply into any market would normally result in lowering productivity of goods. If you can't sell all your widgets, you start to crank out less. It all works out OK if you are still profitable to pay your overhead and debt, or you have no debt. Here's the perfect trap going forward for most businesses: only up works. How can the oil system go backward evenly in an ordered fashion with so many suppliers to keep profits where they need to be at margins dictated by supply and demand?

With constantly dropping consumption on this scale, even if all the producers worked together, the price/margin math would eventually still not work. This is exacerbated by the fact that there is so little leeway regarding how all this is financed (big time loans to the max!). It might be easier to do if no loans existed against the rigs, but that is the stick poking the bear for sure. At some point, rigs are going to have to be shut down.

If they were owned outright with no financing, then only the rig owners are impacted. But the loans go way beyond the rigs, to the paper that everyone is holding and all the other crap the banks attach to it. We're about to get a lesson in going backwards, but it isn't going to be a fun one.

angel_of_joy

It's going to be a lesson about things to come... full speed ahead, then forced stop !

knukles

Yes. It's all about cash flow. It it were textbook theory, they'd just quit, shut down. But this is reality. Debt service and payrolls need to be met, structure run or ruin. It's about cash flow. A lot of rigs can be idled, but production form others gets ramped up. Over simplified, but gets the point across.

And probably ain't a gonna change at current prices. If we get to, just picking a number, say $20, then things get shuttered for good. Equipment old off, leases sold, etc.

Youri Carma

Can Canada's oil sands cope with $50 crude?, Mar 13, 2015 Financial Times https://www.youtube.com/watch?v=L_YFFL3o-vw

Oh regional Indian

Looking at the Crashing BDI etc., I checked and found that global shipping accounts for only 4.5% of annual oil consumption. That is way lower than I thought and thus the shipping slump clearly does not impact demand THAT drastically.
Americans are still going high on the SUV hog. So there is that. And all the ships (tankers etc.) that are not sailing are storing.

In short, this oil production constant to increasing and price plummeting looks good for a few months more. When global storage gets full, the bombs will start to fly and we'll see $150 oil in short order again. Turn the other (ass) cheek...
https://aadivaahan.wordpress.com/2015/03/14/wisdom-for-rawriors/

fremannx

Deflationary depressions present economic situations that are hard to understand out of context. Regardless of production levels (which are being financed with borrowed money), crude prices are a function of the deflationary vortex consuming every asset class today.
Falling crude prices should take a short break and correct somewhat in the near future, but the long-term picture remains down...

http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...

jdtexas

Low oil prices are helping auto-related sector.....temporarily

Renault's Russian Lada Division Takes Over Crimeas Auto Market

U.S. DOT Adds 4 Tire Codes For New Russian Tire Imports

Kia is Now Russia's Best-selling Car

Ford Launches EcoSport In Russia For Production In Naberezhniye Chelny

Ford To Roll Out 6 New Models in Russia

Jack Burton

The recent wave of US oil production was heavily leveraged and this oil is on the margin. Oil producers are heavily in debt for the costs of production, thus they must produce full out to try and meet payment schedules to banks and investors. If they cease producing due to low prices, they immediately face bankruptcy. The real fall out of low oil prices is not NOW, it is in the following months down the road when producing at a loss, and trying to meet interest payments catches up with high cost of production US oil producers. You gotta face the fact, Saudi oil comes out of the ground at a small fraction of the price of new US and Canadian sources. 1/10th the cost of Tar Sands mining.

Hohum

Counterpoint: https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf

In.Sip.ient

Of course oil production is strong. US gov't figures show demand outstrips production world wide by about 15Million bbls!

This is all about the US$

Specifically, the US$ is being re-priced relative to DC "gold" ( what you and I call "oil" ) in response to the activation of the SCO. A nice suckers rally in US$ is having all sorts of follow on effects in the US$ denominated world. Even makes oil look like a disaster.

Oh, and it makes the economies in the SCO look like they are faltering or failing. Problem is, that with a large chunk of the worlds economy running through the SCO ( and by definition entirely outside the US$ financial system ) we make a huge mistake assuming the late great US$ based financial system actually indicates anything real in the world economy...

Wonder if this is why our allies ( like the UK !!! ) are looking at entry into the SCO...???

[Mar 11, 2015] The Gathering Storm

Mar 1, 2015 | Jesse's Café Américain

"I hope I am over wary; but if I am not, there is, even now, something of ill-omen, amongst us. I mean the increasing disregard for law which pervades the country; the growing disposition to substitute the wild and furious passions, in lieu of the sober judgment of Courts; and the worse than savage mobs, for the executive ministers of justice...

At the close of that [revolutionary] struggle, nearly every adult male had been a participator in some of its scenes. The consequence was, that of those scenes, in the form of a husband, a father, a son or brother, a living history was to be found in every family-- a history bearing the indubitable testimonies of its own authenticity, in the limbs mangled, in the scars of wounds received, in the midst of the very scenes related-- a history, too, that could be read and understood alike by all, the wise and the ignorant, the learned and the unlearned.

But those histories are gone. They can be read no more forever. They were a fortress of strength; but, what invading foeman could never do, the silent artillery of time has done; the leveling of its walls. They are gone. They were a forest of giant oaks; but the all-resistless hurricane has swept over them, and left only, here and there, a lonely trunk, despoiled of its verdure, shorn of its foliage; unshading and unshaded, to murmur in a few gentle breezes, and to combat with its mutilated limbs, a few more ruder storms, then to sink, and be no more.

They were the pillars of the temple of liberty; and now, that they have crumbled away, that temple must fall, unless we, their descendants, supply their places with other pillars, hewn from the solid quarry of sober reason. Passion has helped us; but can do so no more. It will in future be our enemy. Reason, cold, calculating, unimpassioned reason, must furnish all the materials for our future support and defence.

Let those materials be moulded into general intelligence, sound morality, and in particular, a reverence for the constitution and laws: and, that we improved to the last; that we remained free to the last; that we revered his name to the last; that, during his long sleep, we permitted no hostile foot to pass over or desecrate his resting place; shall be that which to learn the last trump shall awaken our Washington.

Upon these let the proud fabric of freedom rest, as the rock of its basis; and as truly as has been said of the only greater institution, 'the gates of hell shall not prevail against it.'"

Abraham Lincoln, Lyceum Address, January 27, 1838

Gold and silver did very little today, despite the brisk sell off in equities. The denizens of the bucket shops were busy picking pockets in other markets.

The global economy is in a very difficult circumstance, and the Fed is at the heart of it. I have no sympathy for them whatsoever, because they have placed themselves there, repeatedly, by their actions and omissions as manager of the world's reserve currency and key regulator of one of the world's most influential financial markets.

Will the Fed raise rates as they have now led the world to expect, or will they do nothing, and essentially cut them by once again kicking those who believe them in the expectations?

Most Americans do not understand what is going on in the rest of the world. It is not pretty. Europe is hanging by a much thinner thread than I think the plutocrats in Frankfurt and Brussels realize.

The emerging markets are absorbing a great deal of inflation being generated and exported by the US. It would be extremely interesting to have access to a reliable estimate of Eurodollars. I think we are experiencing yet another Eurodollar short squeeze as the debts contracted for by overseas companies in dollars feel the stress of a disjointed global financial system.

It took a little over twenty years for the unease that Lincoln describes above to explode upon the landscape in a bloody civil war. It might be worth reading his entire Lyceum speech. It surely does not describe what we might think of as domestic tranquility and pastoral bliss. The republic endured, but at a terrible cost.

In our age reason and morality and honour have fallen to the despicable cheapness of 'greed is good' and the foul god of the market.
Have a pleasant evening.

[Mar 11, 2015] U.S. oil production still surging

Mar 11, 2015 | econbrowser.com | 26 Replies

The EIA is now reporting that U.S. field production of crude oil averaged almost 8.7 million barrels a day in 2014. That's up 1.2 mb/d from 2013, and is only 0.9 mb/d below the all-time U.S. peak in 1970.

Production of oil by means of fracturing shale and other tight formations is the main reason. The EIA drilling productivity report estimates that production from the Permian, Eagle Ford, Bakken, and Niobrara– the main tight oil producing areas– was 1 mb/d higher in 2014 compared to the previous year. I used that estimate to update my graph of U.S. production by source. The tight oil story is pretty dramatic.

U.S. field production of crude oil, by source, 1860-2014, in millions of barrels per day. Updated from Hamilton (2014) based on data reported in [1], [2].

And it seems to be continuing. The February drilling report estimates production from those 4 regions will be almost 0.3 mb/d higher this month than it was in December. That's leading to record levels of U.S. inventories.

Source: EIA.

How much longer will production keep going up? Much of the new production can't be profitable at current prices, and the number of drilling rigs operating in the tight oil areas has fallen 12% since September.

Combined oil rig count for Permian, Eagle Ford, Bakken, and Niobrara, January 2007 to January 2015. Data source: EIA.

That presumably means less than a 12% reduction in production from new wells, for two reasons. First, it is the least promising new prospects that will be cut first. Second, there has been a learning curve improving productivity of new wells.

Average oil production per rig (in barrels per day) across Permian, Eagle Ford, Bakken, and Niobrara, January 2007 to January 2015. Data source: EIA.

Working against these is the fact that production from existing wells continues to decline. But at the moment, it seems further adjustments on the part of drillers will be necessary in order to bring the supply of oil in balance with the demand.

This entry was posted on March 8, 2015 by James_Hamilton.

Selected Skeptical Comments
Jeffrey J. Brown March 8, 2015 at 10:25 am

Because of declining production, Mexico no longer has sufficient domestic light, sweet crude oil production to meet the domestic demand from refineries designed to process light crude, so they are going to have to start importing light crude, although they remain a net oil exporter.

In any case, the Pemex official quoted in the following article had an interesting comment about condensate (which is basically natural gasoline that is not of much use as feedstock for producing distillates like diesel fuel).

As I have previously noted, in my opinion it is very likely that actual global crude oil production (45 and lower API gravity crude oil) probably peaked in 2005, while global natural gas production and associated liquids–condensate and NGL's–have so far continued to increase.

And when the EIA refers to "Crude Oil," they define it as actual Crude Oil + Condensate (C+C). Just as we don't know for sure what the Condensate to C+C ratio is for US production, we don't know what the ratio is for US C+C inventories, but in both cases, I suspect that the Condensate to C+C Ratio has increased substantially in recent years.

In any case, US imports of crude oil remain relatively high, at about 44% of the C+C inputs into refineries. I suspect that refiners continue to import a lot of crude oil, because they have to, in order to get the product output that they need.

Mexico's Pemex aims to start importing light crude this year (2014)

http://uk.reuters.com/article/2014/08/28/mexico-pemex-idUKL1N0QX2TL20140828

Aug 28 (Reuters) – Mexican state-owned oil company Pemex wants to launch light crude oil imports later this year, potentially reaching up to 70,000 barrels per day (bpd) and aimed at boosting refinery output, the head of its commercial arm said.

The imports would mark an abrupt shift from a decades-old devotion to crude oil self-sufficiency in Mexico, long a major exporter to the United States. It also comes after a sweeping energy sector overhaul which seeks to reverse many years of declining output and export volumes.

"Our objective is that (crude imports) will begin this year," said Jose Manuel Carrera, chief executive officer of PMI Comercio Internacional, Pemex's oil trading arm. His comments are the strongest signals to date on both the timing and potential volumes of light crude imports to Mexico. . . .

While U.S. companies Pioneer Natural Resources and Enterprise Products Partners have secured permission to ship a type of ultralight oil known as condensate to foreign buyers, Carrera all but ruled out the possibility.

"Condensate is not necessarily what Mexico needs. It needs crude," he said.

Jeffrey J. Brown March 8, 2015 at 10:30 am

A product yield by gravity chart follows, which explains why Pemex, and other refiners, need crude oil, not condensate. Note the substantial decline in distillate yield, just going from 39 API gravity to 42 API gravity (labeled as "Condensate" on the chart):

http://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

And a graph showing API gravity versus sulphur content for several grades of global crude oil (note that the chart scale tops out at 40 API gravity):

http://i1095.photobucket.com/albums/i475/westexas/APGravityVsSulfurContentforCrudeOils_zpsc28e149c.gif

Jeffrey J. Brown March 8, 2015 at 1:46 pm

EIA Forecast for US Crude + Condensate Production by Type

Note the forecast for the very modest increase in 40 API gravity and lower crude oil production, versus the total increase in US C+C production:

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

2slugbaits March 8, 2015 at 11:12 am

Second, there has been a learning curve improving productivity of new wells.

The standard learning curve formulae and learning curve tables that I know and use typically show a very sharp increase initially and then the curves go very flat very quickly.

rjs March 8, 2015 at 1:29 pm

so, i've got a question…if oil inventories are at a record high 444.4 million barrels, up 22.2% from the same period a year ago, as your EIA graph shows, then why did we continue to import 7.4 million barrels a day during the last week of February, 89,000 barrels a day more than we imported during the previous week?

Jeffrey J. Brown March 8, 2015 at 1:49 pm

Perhaps because the bulk of the increase in US Crude + Condensate production and inventories consists of condensate?

SPENCER March 9, 2015 at 6:09 am

We are probably importing more oil because speculators are to bring home and selling stocks that had been held in tankers offshore as a bet on higher prices.

They have to cut their loses at some point.

rjs March 9, 2015 at 6:51 am

i answered my own question above here: http://www.dailykos.com/story/2015/03/09/1369526/-rig-counts-for-February-and-the-week-just-ended-and-what-are-we-gonna-do-with-all-this-oil
in a word, contango

Randall Parker March 8, 2015 at 10:11 pm

Jeffrey J. Brown, Peak oil has been delayed by technology for extraction of tight oil. The future is uncertain. The doomsters of 10 years ago were excessively pessimist. Care to own up to excessive pessimism? I'm guilty.

The $100 trillion dollar question: can tight gas extraction be made to work outside USA?

Jeffrey J. Brown March 9, 2015 at 6:46 am

To be clarify slightly, in my opinion tight/shale plays have delayed Peak Liquids, while the trillions of dollars spent on global upstream capex since 2005 have just kept us on an undulating plateau of actual crude oil production.

Note that when we ask for the price of oil, we get the price of actual crude oil (45 and lower API gravity crude), but when we ask for the volume of oil, we get some combination of crude + condensate + NGL + biofuels.

Following is a chart showing normalized values for global gas, global natural gas liquids (NGL) and global Crude + Condensate (with 2005 values = 100%), through the year 2012 (similar trends for 2013):

http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg

The following chart, posted up the thread, really tells the tale. It shows the EIA's own projection for the composition of US C+C. As noted up the thread, the distillate yield from 40 and higher API gravity liquids drops tremendously, and what refineries need, in order to meet refined product demand, is mostly 40 and lower API gravity crude (as expressed by the Pemex CEO), while the vast majority of the increase in US liquids production is from 40 and higher API gravity liquids.

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

Condensate & NGL are byproducts of natural gas production, and in my opinion the only reasonable interpretation of the available data is that actual global crude oil production (45 and lower API gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase.

The end of civilization as we know it March 9, 2015 at 7:44 am

@ Jeffrey J. Brown

Great charts!

They go a long way in explaining why, in many parts of the US, gasoline now sales for more than low-sulfur diesel. Fifteen years ago that never happened.

I'm no refinery expert, but I believe many, if not most, of the myriad petroleum byproducts we depend upon also come from the lower-gravity crude oils. See, for example, A partial list of products made from Petroleum (144 of 6000 items). "One 42-gallon barrel of oil creates 19.4 gallons of gasoline," the heading reads. "The rest (over half) is used to make things like:"

I would add a caveat to your discussion. The decision to send Mexico's low-gravity, high-sulfur Mayan crude to the Gulf Coast for refining also has to do with the high-sulfur content of the crude. It's not all about gravity. Like I said, I'm no refinery expert, but I remember reading that Mexico's current refinery infrastructure lacks the capability to refine high-sulfur crude oils. The Gulf Coast refineries, on the other hand, have a surfeit of this type of refining capability. I do not know how much of the decision to send much of Mexico's low-gravity, high-sulfur Mayan crude to the Gulf Coast has to do with gravity, how much has to do with sulfur content, and how much has to do with other factors, such as US geopolitical exigencies (as is the charge frequently leveled here in Mexico). However, these factors are worth looking into.

Jeffrey J. Brown March 9, 2015 at 10:43 am

To clarify slightly, my analysis suggests that gasoline may be in surplus*, relative to distillates like diesel, and the most recent data put the US average retail price for gasoline at $2.46 versus $2.93 for diesel. *Or to be more accurate, refiners don't need any more condensate input.

I think that the following EIA chart, which shows that US 40+ API gravity C+C liquids increased from 1.4 mbpd in 2011 to an estimated 4.2 mbpd in 2015 (an increase of 2.8 mbpd), versus a projected increase of only about 0.7 mbpd in 40 and lower API gravity crude from 2011 to 2015, really tells the tale, especially when combined with the refinery yield chart that shows that Cat Feed + Distillates drops from about 52% at 39 API gravity to about 20% at 42 API gravity:

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

http://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

40 API and lower crude accounted for 75% of US C+C production in 2011, but the projection was that it would only account for 54% of US C+C production in 2015.

And as noted elsewhere, it took about half the global rig fleet (targeting oil and gas reservoirs) just to show a projected increase of about 0.5 mbpd in quality crude oil production (40 API gravity and lower) from 2011 to 2014.

Jeffrey J. Brown March 9, 2015 at 8:25 am

Re: The $100 trillion dollar question: can tight gas extraction be made to work outside USA?

In areas where tight/shale plays may be commercially feasible outside the US and Canada, the key question is whether operators in a given play can drill and complete wells fast enough to offset the declines from existing wells and add new production. Early last year, US rigs accounted for about half of the total global rig count, which gives one an idea of the scale of the drilling and completion effort that it would take to replace the output from giant declining global oil and gas fields with the output from high decline rate tight/shale plays.

It's interesting to look at some regional declines in US oil and gas production, e.g., marketed Louisiana natural gas production (the EIA doesn't have dry processed data by state).
According to the EIA, the observed simple percentage decline in Louisiana's annual natural gas production from 2012 to 2013 was 20%. This would be the net change in production, after new wells were added. The gross decline rate (from existing wells in 2012) would be even higher. This puts a recent Citi Research estimate in perspective.
Citi estimates that the gross underlying decline rate for overall US natural gas production is about 24%/year. This would be the estimated year over year decline in production if no new wells were put on line.
Based on the Citi report, the US would have to replace 100% of current natural gas production in about four years, just to maintain current gas production for four years*.

*Of course existing production would not decline by about 100% in four years at a 24%/year decline rate, but I am stipulating a "What if" steady state production scenario.

The end of civilization as we know it March 9, 2015 at 7:04 am

This is an extremely bad example of reporting. Does it get any worse than this?

What it does is to take the official spin being evangelized by the EIA and other members of the "drill baby drill" crowd - folks like ExxonMobil's chief executive Rex Tillerson - and faithfully and uncritically parrots it.

It's the same old boilerplate, for example, that we got a couple of days ago from the Financial Times. In its drive to perpetuate what Michael Klare calls the "Reign of Carbon," the Times sublimely reported that:

Oil production in the Eagle Ford is not going to fall away any time soon: with the benchmark West Texas Intermediate at about $50 a barrel on Friday, it is profitable to keep pumping from most established wells. On Wednesday, Rex Tillerson, ExxonMobil's chief executive, said US shale production would be more resilient than many had expected.

If the crude price rebounded to $80 or $100, the good times could return.

Those not enamored of being part of Karl Rove's defactualized "create-your-own-reality" universe, however, might want to go over to the Texas Railroad Commission's Online Research Queries to see what is actually going on in the Eagle Ford shale play.

Those who do so will make a shocking discovery: Crude oil and condensate production from the Eagle Ford peaked in August 2014 at 356 million barrels (total production for the entire month). By December 2014 it had fallen to 319 million barrels for the month. And this was well before the precipitous decline in the number of drilling rigs operating in the Eagle Ford. In the first week of September 2014, Baker Hughes reports that 202 drilling rigs were actively drilling in the Eagle Ford. That number by the first week of March 2015 had dropped to 149.

For those skeptical of the future carbon Utopia being touted from inside the Beltway, being spun by the likes of the EIA and Rex Tillerson, IHS has done significant research, and offers a dissident point of view:

IHS study suggests U.S. oil production to halt by mid-year

The end of civilization as we know it March 10, 2015 at 9:14 am

That should read:

Crude oil and condensate production from the Eagle Ford peaked in August 2014 at ~~356~~ 35.6 million barrels (total production for the entire month). By December 2014 it had fallen to ~~319~~ 31.9 million barrels for the month.

AS March 9, 2015 at 9:12 am

The End
Could you repeat your comments is a more succinct way (bullet points?) perhaps without sarcasm. If readers are busy, it is difficult to determine your point without reading all the citations. I am interested in what you have to say, but find it difficult to follow your thread without a lot of clicking.

The end of civilization as we know it March 9, 2015 at 12:00 pm

@ AS

Well I'm not sure that the complexity of the human condition or the universe can be reduced to bullet points. However, I'll give it my best shot:

The need to slay the energy vampire (and Russia, Venezuela and Iran at the same time) for fun and profit is great.

The US right-wingers have their preferred silver bullet to slay the energy vampire: the US's fabled and highly touted shale gas and oil resource plays. (US left-wingers also have their preferred silver bullet to slay the energy vampire - the envisioned future Green energy Utopia - but that is a topic for a different discussion.)

Because the need to slay the energy vampire is so great, there's a lot of lying and wishful thinking going on when it comes to shale gas and oil.

As it turns out, the right-winger's silver bullet is a blank. It is little more than a flash in the pan.

The Barnett Shale play was the first major US shale play.

In 2013, the world was shocked when the Bureau of Economic Geology at the University of Texas concluded that the average EUR from the 16,000 wells in the Barnett Shale would be only 1.44 billion cubic feet.

This was a time when industry, and those advocating for US full-spectrum dominance, were still touting average EURs from wells in the Barnett at between 2 and 3 bcf per well.

When the University of Texas released its study in February 2013, many felt that even it was too optimistic. Jim Fuquay, for instance, asked in the Fort Worth Star-Telegram, "But what about producers' estimates of 2 or even 3 bcf?"

Fuquay pointed out that at that time, even though many of the Barnett shale wells had already been producing for years, "Only 512 wells in the Barnett Shale, or less than 3 percent, have produced 2 bcf in their lives." He added that "A mere 70 wells, less than 1 percent, have hit 3 bcf or more."

As it turns out, the University of Texas study was too optimistic. If one takes a pen and traces actual production from the Barnett Shale for the past four years over the graph of the study's production forecast, what we see is that production for a couple of years exceeded the forecast, but then production went into a steep nosedive and has declined much more rapidly than the researchers had predicted.

Average EUR from a Barnett Shale well now looks to be well below 1 bcf, or a half, a third or even less of what producers had hyped.

There is a long history of distortions and exaggerations, which find fertile ground with true believers in American exceptionalism and full-spectrum dominance, being perpetrated by shale oil and gas producers.

There exists considerable evidence which suggests that these distortions and exaggerations have not stopped, and that they continue unabated to this very day.

As I said, the need to believe in a silver bullet to slay the energy vampire, despite all factual evidence to the contrary, is great.

AS March 9, 2015 at 12:39 pm

The End

Thanks for your comments. If I understand you correctly you agree with Jeffrey Brown and I think Professor Hamilton that we are past peak oil and that world oil harvesting is in decline, since the harvesting of tight oil is not going to rescue an energy hungry world. What now then for energy sources?

Nick G March 10, 2015 at 10:52 am

Well, personal transportation accounts for the majority of oil consumption.

Personal transportation is easily done with EVs – a Chevy Volt costs less to own and operate than the average US passenger vehicle, and gets 200MPG. A Nissan Leaf is the lowest cost vehicle on the road.

EVs can be ramped up pretty quickly – They're 3-4% of sales right now (including hybrids). Production volume could be doubled essentially overnight, and doubled every two years thereafter. In 8 years you could be at 80% of new vehicles, and in another 5 years they'd account for 50% of vehicle miles driven. In another 6 years they'd account for 75% (vehicles less than 6 years old account for 50% of VMT). Ethanol accounts for about 10% of passenger transportation fuel, so a fleet of Chevy Volts could be powered with no oil at all.

There's a pretty straightforward path forward, if we needed a short term fix to get us through a period of fast depletion, or another oil shock while we were transitioning to EVs. The US could reduce passenger fuel consumption by 50% essentially overnight by raising the average passengers per vehicle from 1.2 to 2.4. Look at Uber, look at smartphones for connectin with people. There are very, very few destinations in the US that no one else is going to. On almost any road, look around: there are other people on the road, going in the same direction.

With an ad hoc smartphone based system, you could find someone going in your direction almost anywhere. And, even with old-fashioned employer-based systems, about 10% of Americans carpool to work right now.

Carpooling – the horror.

Mason Inman March 9, 2015 at 4:42 pm

Dr. Hamilton-I was curious where you got the data points for offshore oil production statistics during the early years (~1950 to 1980).

The EIA pages that are cited as the sources of the data appear to only have data separated into on-shore and off-shore going back to 1981. Elsewhere, I've seen EIA data showing this split, going back to 1970, but not any earlier than that.

James_Hamilton Post author March 9, 2015 at 7:05 pm

Mason Inman: See Annual Energy Review, Table 5.2.

Mason Inman March 10, 2015 at 1:27 pm

Thanks so much! I hadn't seen that data set before.

Steven Kopits March 10, 2015 at 3:16 pm

Are we surprised there's corruption and incompetence?

http://money.cnn.com/2015/03/10/news/economy/world-leaders-salaries/index.html?iid=HP_LN

Anonymous March 11, 2015 at 4:29 pm

I wonder if it is possible to do an econometric analysis of fuel prices and actual consumption levels.

We've seen very modest appreciation in fuel efficiency and less driving in the passenger transportation side considering the near tripling of real costs, i.e, how much households spend on gasoline as a percentage of their income.

So, at what price point does elasticity of demand really kick in, and can we do any realistic quantitative projection, controlling for such factors as employment levels and necessity costs (those households who have no alternatives but to pay more – they can't don't have any substitutes in transit or can't afford to buy more efficient vehicles) .

[Mar 10, 2015] Alan Greenspan Warns Of Explosive Inflation Tinderbox Looking For A Spark

Mar 10, 2015 |

Zero Hedge

Last month it was revealed that former federal reserve Chairman Alan Greenspan, the architect of U.S. monetary policy under four Presidents, is anticipating a significant market event as a result of the trillions of dollars that have been pumped into the system over the last several years. According to Greenspan, something big is coming.

His comments were shared by well known resource analyst Brien Lundin, who joined Greenspan for private discussions at last year's New Orleans Investment Conference. In his latest interview Lundin further clarifies Greenspan's private thoughts on current economic and monetary policy and sheds light on the former Fed Chairman's suggestion that 'something big is coming.'

Greenspan made some good points to me… He was concerned about inflation… He was specifically concerned in relation to the outstanding, or excess, reserves which are close to three trillion dollars being held on the Fed balance sheet now… That money is just hanging over the U.S. economy like a big water balloon of liquidity and it's just searching for a pin.

In fact, Greenspan referred to it as a tinderbox of explosive inflation looking for a spark.

Watch the full insider interview:

[Mar 07, 2015] How America Added 17 Million People In 7 Years... And Zero Full-Time Jobs

Mar 07, 2015 | Zero Hedge

Submitted by Chris Hamilton via Hambone's Stuff blog

Amazing Math from the Bureau of Labor Statistics

According to the most recent Bureau of Labor Statistics release, the UE (unemployment) rate fell to 5.5% as of February. The last time the UE rate was this low was May of 2008.

What I'm fascinated by is the fact that the US population grew from February 2008 to February 2015 by 16.8 million persons, or a 5.5% increase in total population, and on a net basis, not a single one of those 16.8 million persons got a FT (full time) job… while a net 2.7 million were lucky enough to get a (or multiple) PT (part time) job.

This means that 14.3 million persons, or 4.4% of the current US population, were added without a single job among them (chart below). This makes for fascinating math when a 4.4% increase of the total US population without jobs can nearly halve the UE rate down to 5.5%, equal to 2008's UE rates?!?

The recent BLS data are considered "strong employment reports" and are taken as such booming harbingers of economic accomplishment that the Federal Reserve feels rates need to begin their long awaited hikes.

Just to avoid some confusion on this 16.8 million population growth…this does not mean there was a baby boom over this period…quite the opposite as a flat birth rate has been offset by an even faster declining death rate (the baby boom and older generations are living much longer than previous generations…thus the pig through the python population growth).

And just to make sure this isn't cherry picking data…below is non-seasonally adjusted raw data from the Bureau of Labor Statistics back to '08 showing rising PT jobs and declining FT jobs.

Renfield

The point isn't so much that BLS fakes its numbers. The point is the futility of believing ANY self-reporting - by government or anyone else, but especially by government. (Because they also have power of decree enforcement, their 'statistics' should be treated as propaganda and assumed to be lies as a matter of course.)

[Mar 05, 2015] Angry Bear " Why Liberals Keep Losing by Steve Roth

The problem is that a large part of Democrats are 100% pure neoliberals who might be even worse then Republicans. At least Republicans are less hypocritical. From comments: "The Democrats couldn't round up enough solid votes to pass card check, a significant amount of the caucus is neo-liberal."

March 4, 2015 | angrybearblog.com

James Carville was certainly right: "It's the economy, stupid."

And under Democrats (compared to Republicans), the economy kicks ass:

This is GDP growth, but that kick-assness is blatant in any economic measure you look at, from job growth to stock-market returns to household income to government deficits. And it's true over any lengthy period (say, 30+ years) over the last century. I could post fifty graphics here that tell exactly the same story. (Here's a favorite: even the rich get richer under Democrats.)

But now ask yourself: how many Americans know that Democrats make them richer? (Lots richer.) One in ten? Maybe? Now ask yourself why liberals keep losing.

The Republicans have successfully branded themselves as "the party of growth," and Democrats have just let them do it, for decades - even though it's completely contrary to reality.

Democrats have the strongest possible political argument sitting in their rhetorical holsters, but for whatever reasons, they just won't draw.

There is one and only one story that Democrats need to be telling, and they need to follow the Republican political playbook: repeat it endlessly, for years on end.

We will make you richer. We've been doing it for decades, and we'll keep doing it.

"Equality" is important (especially because it does make people richer). But really: Americans just change the channel.

"Opportunity" is important. But it's just a proxy for, a chance of, getting richer.

"Getting the rich" (truly progressive taxes, a more-level playing field, reining in finance) is necessary and important. But Americans get only visceral satisfaction from that message – it doesn't speak to personal, direct, material benefit that they're going to experience.

Americans want to hear how Democrats are going to make them more prosperous. Full stop.

And Democrats have a loud-and-clear story on that subject. They just need to 1) tell that story constantly, repetitively, ad nauseum, like the Republicans do, and 2) put aside other stories (like, identity politics) that dilute, confuse, and distract from that story.

Start with that lede - "we make America prosperous" - and a whole litany of talking points emerges. And they're the very talking points that have driven Republicans' (otherwise inexplicable) political success over the last thirty years.

But there's one key advantage for Democrats: In their mouths…the story is true.

Democrats could be stealing Republicans' best Frank Luntz/Grover Norquist talking points and riding them all the way to the ballot box. Here's a sampling to start with:

Wisdom of the Crowds. Democrats' widespread government spending - education, health care, infrastructure, social support - puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like defense and business. Those individuals' free choices on where to spend the money allocate resources where they're needed - to truly productive industries that deliver goods people actually want.

Preventing Government "Capture." Money that goes to millions of individuals is much less subject to "capture" by powerful players, so it is much less likely to be used to then "capture" government via political donations, sweetheart deals, and crony capitalism.

Labor Market Flexibility. When people feel confident that they and their families won't end up on the streets - they know that their children will have health care, a good education, and a decent safety net if the worst happens - they feel free to move to a different job that better fits their talents - better allocating labor resources. "Labor market flexibility" often suggests the freedom (of employers) to hire and fire, but the freedom of hundreds of millions of employees is far more profound, economically.

Freedom to Innovate. Individuals who are standing on that social springboard that Democratic policies provide - who have that platform beneath them - can do more than just shift jobs. They have the freedom to strike out on their own and develop innovative, entrepreneurial ventures that drive long-term growth and prosperity (and personal freedom and satisfaction) - without worrying that their children will suffer if the risk goes wrong.

Give ten, twenty, or thirty million more Americans a place to stand, and they'll move the world.

Profitable Investments in Long-Term Growth. From education to infrastructure to scientific research, Democratic priorities deliver money to projects that the free market doesn't support on its own, and that have been demonstrated to pay off many times over in widespread public prosperity.

Power to the Producers. The dispersal of income and wealth under Democratic policies provides the widespread demand (read: sales) that producers need to succeed, to expand, and to take risks on innovative new endeavors. Rather than assuming that government knows best and giving money directly to businesses, Democratic policies trust the markets to direct that money to the most productive producers.

Fiscal Prudence. True conservatives pay their bills. From the 35 years of declining debt after World War II (until…Reagan) to the years of budget surpluses and declining debt under Bill Clinton, Democratic policies demonstrate which party deserves the name "fiscal conservatives."

Labor and Trade Efficiencies. The social support programs that Democrats champion - if they truly provide an adequate level of support - give policy makers much more freedom to put in place what are otherwise draconian, but efficient, trade and labor policies. If everyone is guaranteed a decent wage by an excellent program like the Earned Income Tax Credit, we have less need for the admittedly mixed blessings of unions and protectionism.

Take the graph from the top of this post and put it on billboards all over America. It's time for Americans to understand who makes them richer.

Cross-posted at Asymptosis.
Denis Drew , March 4, 2015 2:52 pm

I saw an idea in the Washington Post yesterday that might be the - no candidate could invent any excuse to oppose it/no candidate should dare - perfect Democratic win issue: a law requiring a vote for or against having a union in every workplace. This vote would take place in every workplace every so many years. How can a pol tell us we cannot vote?!

Laws that decimate unions may be inevitable. Here's how labor can survive.

Mark Jamison, March 4, 2015 4:51 pm

Denis, I love your idea but it isn't going to happen and I doubt it would be as cut and dried as you suggest. The Democrats couldn't round up enough solid votes to pass card check, a significant amount of the caucus is neo-liberal.

One example, Senator Tammy Baldwin from Wisconsin. She has bent over backward to carry water for a large printer in her state and for the paper industry with respect to postal issues. She hasn't shown a bit of concern for all the jobs lost at the various processing plants in Wisconsin, real job losses not the anticipated kind Quad Graphics and the paper companies say will occur with modest increases in advertising rates (losses that aren't supported by any economic analysis).

Baldwin's one expression of concern for labor was to demand that the PMG make sure the same percentage of managers lost their jobs as craft employees.

As for the general claim of this piece, it's hard to disagree but Democratic growth hasn't led to increases in wages. It hasn't led to a system where productivity gains are shared beyond the 1%. There's no question that at this point in time any nominal Democrat is better than any nominal Republican but quite frankly that isn't saying much. Bill Clinton's economic team helped set the table for a whole lot of pain for a whole lot of folks. Was Clinton's triangulating better than what any Republican would have done? No doubt but that doesn't mean that what Clinton did was all that good.
There's a world of difference between Democrats like Warren, Brown, and Whitehouse than a good deal of the caucus. We need to return to ideas that value public goods, that create an even playing field for workers and labor while reining in the excesses of the technocratic watch state.

Thornton Hall, March 4, 2015 7:00 pm

If you want to know why something worked in the time of FDR but not in the time of Clinton, you might ask yourself: what has changed?

Have politicians changed? FDR was a rich scion of the Northeast. Congress was full of lawyers, doctors, and other wealthy people. Big banks used their cash for maximum influence. None of that is any "worse" now than it was then.

There has been a dramatic change, though. The media used to be produced by the working class, for the working class. Pulitzer and Hearst employed high school graduates who wrote things that other not-well-educated people wanted to read.

Today, our journalists have masters degrees and write breathy inside baseball stories that are all based on the (ruinous) Watergate formula of professional news: access, access, access.

The "left" bitches and moans about leadership and messaging and a long list of things that haven't changed. Just because you're educated, don't mean you're smart.

[Feb 27, 2015] The EU's plan for an energy union would call Vladimir Putin's bluff by Natalie Nougayrède

Neocon cause is lost cause. No amount of propaganda can change this fact. This pressitute sings Anglo-American official tune with a little bit too much zeal... Even for Guardian pressitute... From comments: "A military empire (US + EU + NATO) with an hegemonic agenda which conquers territories either peacefully (the 28 EU countries) or violently when there is resistance by destabilization leading to war (Yugoslavia, Libya, Syria, Mali, Central Africa, Palestine and now Ukraine) or overthrow elected governments (Ukraine, Latin America), or both in total disregard of international law. "

Feb 27, 2015 | theguardian.com

... ... ...

It's easy to understand why the proponents of an EU energy union would use slightly grandiose language to sell their ideas. They have cast this plan as the "most ambitious European energy project since the Coal and Steel Community" of the 1950s. After all, energy solidarity is what Europe was all about at the start. Having France and Germany share their coal and steel was seen, in the words of Robert Schuman, one of the founders of the European project, as the best way to "make war not only unthinkable but materially impossible". Peace and prosperity were to flow from regional integration.

Last year, war broke out in the country (Ukraine) through which most of Russia's energy exports transit on their way to many of our homes. A key feature of Putin's Ukraine strategy has been to make sure this country of transit would never quite escape Moscow's domination – and that Gazprom would never lose the possibility of directly controlling Ukraine's gas pipelines to Europe.

The Brussels commission is right to push for a new union. Energy should be, along with freedom of movement for people, goods and services, a key dimension of the EU. It would help in dealing with Russia's behaviour as well as in tackling climate change. It is of huge strategic importance. Yet it has not happened – so far – because it is so difficult to build politically, and it will be expensive.

Energy is run nationally – not at EU level – at present. Key countries, especially the UK, France and Germany, have their own views on how energy policy should be run, and they are all different. The UK has a deregulated market, many private players, and no dependency on Gazprom. France is highly centralised, with a handful of , state-controlled big players and 75% of electricity generated by nuclear power (which is anathema to the Germans). Germany dislikes nuclear energy and wants to get rid of it, preferring to burn coal if they run out of gas or renewables. And they have had historically good relations with Gazprom. Poland burns a lot of coal (it prefers that to Russian gas), but Poles also want to look for shale gas. They don't worry that much about greenhouse gases. The list goes on.

There is a disorderly patchwork of energy policies across Europe. But questions that have been important for years need to be re-addressed. It is too late to settle scores over who wrecked Europe's previous chances of setting up a common energy policy. But Germany does have a special responsibility here. Its large and powerful energy companies, E.ON and RWE, were the first in the early 2000s to carve out long-term contracts with Gazprom without much consultation with European partners. Later, Germany unilaterally signed up to Russia's North Stream pipeline which the Baltic states and Poland could only perceive as an attempt to pressure them geopolitically.

The new EU plan doesn't aim to dismantle such realities but is pragmatic enough to try to deal with some of Europe's obvious weaknesses. Because energy has been mostly a domestic issue there are very few, interconnecting pipelines and grids. The plan is to build more. This would allow compensation for energy cut offs – such as the ones that Russia created in 2006 and 2009, causing thousands of eastern European homes to be left without heating for weeks.

Another idea is to diversify energy supplies by working on a southern gas corridor linking Europe to Turkey and Central Asia, or by setting up liquified natural gas hubs in northern Europe that could act as back-up in case of another gas crisis with Russia.

The complexities are numerous. Some energy business insiders point out that negotiating with a Central Asian country such as Turkmenistan is like landing on another planet. One told me about a meeting with 30 Turkmen government officials sitting immobile behind long tables in the Hall of the Peoples of Turkmenistan's capital, who didn't say a word but just stared. Turkmenistan is a big gas producer whose operatives have been known to sell the same quantity of gas several times over to various buyers (Russians, Chinese, etc).

... ... ...
Bosula -> Fencewalker , 27 Feb 2015 21:39

How am I an obvious Putinbot because I'm critical of neo cons and journalists who trot out one article after another on the same themes? Follow what this smiley faced right winger writes and you'll see.

These journalists should be criticised and that is the purpose of free speech and posting on this site.

Just because you disagree with my posts doesn't make me a Putin bot.

My family connections are with Ukraine - not Russia.

irishmand -> JamesPl , 27 Feb 2015 21:31

"I can't blame you for demanding Putin that pays you in a hard currency! Thanks to him, a rouble isn't worth using as toilet-paper, now.
A user name 'Irishmand' who only comments on Russian issues and always with a pro-Kremlin view - you know that Astroturf always looks fake, right?"
1. I am in Canada. Hence, Canadian Dollars.
2. Read my profile. It explains a lot.
3. Yes, I love Russia and I like Putin. What is wrong with it? I see the western media lies. Your media became a shame of this "free democratic" society.

sparrow10 -> joem , 27 Feb 2015 20:36

I also think the US is desperately trying to 'take out' sources of energy not under their control: for instance Russia and Venezuela.

We don't have sanctions on Russia because of trouble with Russia, we have trouble with Russia in order to have sanctions. Who do the sanctions hurt? Russia and the EU. Who do sanctions help and not hurt? The US. Cui Bono.

I see Joem, talking to yourself, is that because no-one else will listen.

Paul Greenwood , 27 Feb 2015 20:31

Britain should pay for Ukraine's gas by imposing VAT on newspapers. It seems unfair that Naftogaz should have to pay for gas when it is a natural resource. Britain gets gas free from Qatar shipped in charity tankers so people in Britain do not have energy costs, it is only fair that the EU guarantee free gas EU-wide and that energy be a free good in Greece as well as Britain.

Bosula jezzam, 27 Feb 2015 19:00

The US has no issues talking with many right wing undemocratic regimes. I don't follow your point.

Since WW2 the US have meddled in, waged war against or directly overturned popular and democratically elected countries in 69 UN member nations.

Bosula -> omasta, 27 Feb 2015 18:49

I've attending many Holodomor commemorations, but why I stopped going was that many other Ukrainians did not like hearing that millions of other Soviet citizens from across the Union were also starved and sent to Siberia. At this time a few million Russians also starved. With a Ukrainian family I agree the Ukrainians were affected the most, but you should recognise the millions of other Soviets including Russian people who also starved. The problem is that acknowledging Stalin's plans were not just against Ukraine weakens some of the propaganda that has kept into Holodomor.

Another point - not sure how this is relevant to greed and corruption in Ukraine by the Oligarchs, stealing Russian gas and not paying bills?

irishmand -> Polvilho, 27 Feb 2015 18:37

What do YOU know about Chechnya, my little far right ultra-nationalist buddy?
Also, why do you pretend to be Irish?

I was born in Russia lived there until 2004. I lived in Moscow when Chechens were blowing up residential buildings, buses and subway stations there. I lived in Moscow when Nordost happened. My farther was a high rank police officer, I also worked in the force myself. I worked in the office in Moscow and when Chechens didn't like something in the contract two Mercedeses full of Chechens with AK's came to the office. Chechen criminal group is one of the strongest in Moscow.
I know people who went to that war. It was a war, yes. It was horrible, yes. This war was going on for 300 years, with more or less intensity.

Bosula , 27 Feb 2015 18:29

Why does this neo con reporter not raise any questions about our Saudi oil friends and their support for Islamic extremism not to mention involvement in 9/11?

It is a pity is that the US State Department will give her another briefing this week and then we will receive another of her anti Russian sermons.

Any bets on her next topic?

Perhaps a critique of the EU for its diplomatic focus on East Ukraine rather than taking a hardline arming Kiev to the hilt, even sending in NATO troops.

Maybe her briefing by the State Department is still to blacken, demonise and soften up the public about everything Russia being awful and a threat.

irishmand -> Polvilho, 27 Feb 2015 18:25

Also, classy display of chauvinistic nationalism just to prove how "not a fascist" you are.
Heads up, your lot have shot Nemtsov, in a typically cowardly dick move.

1. I don't anything chauvinistic nationalism in what I said
2. There is a principal in Russia: when you speak about a dead person you either say goods things or nothing. I don't think Putin decided to eliminate Nemtsov, he was not a threat to him. It might have been a business issue.

irishmand -> Polvilho , 27 Feb 2015 18:22

No you didn't, unless you're over 80.
Also, why are you pretending to be Irish?

1. My grandfather died in the war.
2. I am not, please see my profile. It is just a nickname. I love Cranberries.

irishmand -> LinneaBorealis, 27 Feb 2015 18:19

It is a geographic fact that Russia EU/Europe a neighbours but you are totally deluded if you believe EU wants to be partners with a Russia that throws its military power about, bullies and threatens, annexes parts of a neighbouring country. Can't you see what damage Russia has done to itself bringing war and distruction to Ukraine? EU wants to co-operate as equal partners, not being bossed about, lied and dictated to.

You put too much blame on Russia. Turn around and look at US/EU who installed a fascist regime in Kiev.

Russia also wants to deal with the partners it can trust. But after what happened in Kiev, who will trust US/EU, only a madman. US/EU clearly demonstrated that the only way they deal with anybody is everybody has to accept US/EU's point of view, otherwise he is hitler, fascist and dictator. US/EU is also ready to lie through thier teeth to get what they want. Is it a democracy?

Bosula -> Tikibarwarrior, 27 Feb 2015 18:17

And he doesn't appear to have any links with Ukraine so my guess is he is working in some paid capacity for one of the US agencies that undertake this soft propaganda role ( there are many so it is not obvious which one it might be).

irishmand -> Rudeboy1, 27 Feb 2015 18:10

Putin can't afford to cut the gas off. Russia is completely reliant on gas exports. LNG shipping cannot replace pipelines efficiently. Any Russian moves to decrease reliance on supplying Europe dovetail roughly with how long Europe would take to be weaned off Russian gas.

1. Russia can't afford not to supply gas.
2. Europe cannot afford not to buy gas.
3. US wants to sell shale gas in Europe.
4. Hence, Maidan... US problem solved

It would take Europe 3-5 years to find an alternative for Russian gas. It will allow Russia to build pipes and LNG terminals to re-direct gas flow to Asia. Everybody is happy.

irishmand -> dropthemchammer, 27 Feb 2015 18:03

For those saying Russia has not used gas as a weapon :
http://www.independent.co.uk/news/world/europe/ukraine-crisis-putin-will-cut-gas-to-europe-unless-russia-is-paid-by-the-end-of-the-week-10071475.html

Yes, the whole theory here is the western media are saying truth, when they are not. So, all you links are just reference to another lie.

Tikibarwarrior -> maureen mcmillan , 27 Feb 2015 18:03

I'm in the same boat as you Maureen. I voted for Obama twice but this past year I had my eyes opened. I never thought I would see what I have seen on video in regards to Ukraine.....and I never thought I'd see the US back murderous neo-Nazi fascists. It is has been a truly horrifying, eye opening year.

mikedow -> ID5868758, 27 Feb 2015 18:01

This operation has been underway for decades. It's probably been in the planning stage ever since Western Europe made the gas deal with Russia in the beginning. Carter and Reagan both didn't like it back then.

irishmand -> Gangoffour, 27 Feb 2015 17:59

The Indians are tiny customers in comparison to the EU. Regardless, there are closer suppliers who easily undercut Gazprom on price.

1. 1.1B people it is definitely smaller market than EU one, no doubt.
2. Who is closer and cheaper supplier for India?

Polvilho -> irishmand, 27 Feb 2015 17:58

What do YOU know about Chechnya, my little far right ultra-nationalist buddy?

Also, why do you pretend to be Irish?

irishmand -> jezzam, 27 Feb 2015 17:57

Russia has lost the West as a market at a time when there is a glut of oil. It is now set to become China's cut-price gas station. I understand the deal with China was at such a low price that Russia will actually lose money on the deal. Another triumph for Putin's foreign policy. China will be a much worse master for Russia than the West would have been.

1. Have you seen the contract between Russia and China.
2. Europe partially lost Russian market. Few people in sane mind will trade with you and trust you after what US/EU did.

irishmand -> dropthemchammer, 27 Feb 2015 17:55

My point is that number is not bigger then the 30% of europes gas meaning Russia will be out of pocket.

You should try it, so far it was only empty words.

Tikibarwarrior -> omasta, 27 Feb 2015 17:55

New Ukraine, deserves the criticism. They are a failed fascist state (that is economically imploding due to mismangement and corruption) that has spent the last year bombing it's own citizens and killing over 10,000 of those citizens. Don't embarrass yourself.

Chirographer -> ID5868758, 27 Feb 2015 17:53

It's called a business decision. Based on a net profit. Even more than common sense, it's arithmetic.

Common sense comes under attack when political calculations are put into the equation.

irishmand -> dropthemchammer, 27 Feb 2015 17:53

all the pipes have the option to flow from other directions.

1. What direction?
2. How much the gas flown from another direction costs?
3. If Russia is so bad, you should stop dealing with Russia completely. Close your borders to Russians and break all the existing ties.

ID5868758 -> mikedow, 27 Feb 2015 17:50

And the US Congress votes to give Obama another $500 million tax payer dollars to arm and train those "moderate rebels" he's been arming and raining since the beginning of the phony "civil war" in Syria.

Tikibarwarrior -> psygone, 27 Feb 2015 17:50

Psygone, why should you care if they break ties, you've campaigned against Russia at the Guardian for the entire past year?

irishmand -> jezzam , 27 Feb 2015 17:49

"You miss the point. The EU is not unwilling to buy oil from Russia because it is a fascist dictatorship, but because it is an unreliable supplier. Other suppliers do not threaten to cut off supplies to further foreign policy aims."
1. Please provide the examples of Russia being "fascist dictatorship"
2. Please provide examples of Russia being "an unreliable supplier".

irishmand -> dropthemchammer, 27 Feb 2015 17:47

None of them have invaded their neighbors.

No they didn't. They had and have corruption, civil wars and genocide, but it is irrelevant, because their governments are loyal to US/EU. So, they are goods guys.

Don Scott, 27 Feb 2015 17:45

Maybe the US should have thought about the consequences of undertaking a coup in Ukraine and installing an anti-Russian government there.

irishmand -> dropthemchammer, 27 Feb 2015 17:43

He will not be in power next year. there is a general feeling that he will not win elections. THus he is not a dictator.

You are rrght, he is not, he is a brainless puppet. The puppeteers are not visible. In one year they will install another puppet. It is what's called "illusion of democracy". You an elect a president, but he or she is of no importance and in reality don't make any decisions.

Polvilho -> irishmand, 27 Feb 2015 17:41

Also, classy display of chauvinistic nationalism just to prove how "not a fascist" you are.

Heads up, your lot have shot Nemtsov, in a typically cowardly dick move.

irishmand -> Polvilho, 27 Feb 2015 17:33

"What, you fascists? I'm not surprised."
Another snappy answer.
We Russians, who standing united with other nations of USSR stopped german fascists and their ukrainian friends Bandera and Shukhevich. The Germans have learnt their lesson, but ukranians have not. Now ukranians fascists are back for another lesson, which is being taught to them as we speak.

irishmand -> Alderbaran, 27 Feb 2015 17:26

1. Exactly, this is what I was talking about: "Kievan Rus' begins with the rule (882–912) of Prince Oleg, who extended his control from Novgorod south along the Dnieper river valley..."

2. I would be stupid to argue that there is full blown democracy in Russia. However, Inet is not filtered, there are some opposition newspapers, TV channels and radio stations. You can also install a satellite dish and watch whatever you want. The only thing they will come on you very hard and quickly for is if you start calling for the change of government by force. But nobody in Russia will support this topic seeing what happened to Ukraine after Maidan. Nobody wants Maidan in Russia.

Also the meaning of the gay regulation law was twisted in the western media. The only thing it prohibits is promotion of gay values in public, which, I am sorry, I support.

irishmand -> Polvilho, 27 Feb 2015 17:12

Wow, snappy answer. You have no idea about manners, do you? Well, it is typical. It is how I see people of your kind.

1) You first, twinkle.
If it is my choice, then I say there is no funding and arming.

2) Russian fascists. In Ukraine. Lots of them. Hard to miss. One was Prime Minsister of the DPR before Zakharchenko, who's attitude towards Jews suggests he is also a fascist, despite not being Russian.
Again, no proof, empty words. No value.

3) You're right, Russia is clearly not financing the FN and other fascist parties. They must just all support Putin because they see in him a man after their own heart.

We love Putin. He finally slapped on the face people like you. You are pissed off, of course, but if you keep messing around, he will slap you more.

Gil Matos-Sequí -> psygone 27 Feb 2015 09:21

It is too early to say what the results of the suit will be. I think the suit has as much if not more to influence the power of the EU over it's constituent members in negotiating gas prices and contracts. Russia does not stand to loose much in negotiating one price for a huge block as opposed to smaller contracts. This will affect the price of course but it will most likely mean that smaller countries end up paying significantly more than they are paying. As far as the accusations about over pricing by Gazprom, it is ridiculous. The price of Gas is tied to the price of oil and each contract devises a formula relative to the specifics of the deal. Gazprom already envisages itself selling gas to Europe from gas hub via Turkey and Turkey already envisages itself a the major gas hub and transit point for Europe, wether it be gas from Russia, or Azerbaijan, or Turkmenistan, or wherever. This lawsuit will have very limited bearing on geopolitics or real-politik over which the EU frankly has little influence.

RVictor -> caliento 27 Feb 2015 09:18

former Chancellor Schroeder

It is due to Schroeder Germany has now uninterpretable gas supply through the Nord Stream.

RVictor -> elti97 27 Feb 2015 09:16

Solar energy, for example, already accounts for 6% of German electricity

Wow! 6%! Amazing! Especially in winter time on north parts of Germany - solar energy will for sure cover heating needs!

AtMyAge 27 Feb 2015 09:11

A key feature of Putin's Ukraine strategy has been to make sure this country of transit would never quite escape Moscow's domination – and that Gazprom would never lose the possibility of directly controlling Ukraine's gas pipelines to Europe.

OH come on! This is a key feature of the EU's policy - to force Russia to transit gas across Ukraine in order to force Russia to supply Ukraine at below market rates or face losing the EU market.

Russia has been doing EVERYTHING possible to bypass Ukraine and supply Europe by other routes - but the EU keeps blocking it. Russia fires up the south stream pipeline project and Brussels bullies Bulgaria to stop work on, so Russia announces an alternative route via Turkey, but again the EU refuses to commit to making the connections.

In short, the EU is using energy policy to attempt to bully Russia - not the other way around.

Asking to be paid for supplying gas is NOT bullying nor using energy as a weapon. Its called business. When you go to work, you expect to be paid at the end of the week/month the salary that you were promised not insulted and accused of bullying when the money you are owed is not paid and you are reluctant to continue to work for nothing...

Simon311 -> psygone 27 Feb 2015 08:58

"It's strategically important to see Gazprom lose its market share in the world's richest and largest trading bloc."

Is it? Does it make strategic sense to mix economics for a recovering economy with power politics?

Does it make strategic sense to provoke a nuclear power?

Tikibarwarrior -> Jeremn 27 Feb 2015 08:55

The EU is in the process of falling apart due to the misguided policies implemented in Ukraine. This article is past tense. It may have made sense previously but the Greeks are on the edge of leaving due to the huge austerity/ECB rip offs. What people need to understand is that Russia isn't the enemy of the European people. The real problem in Europe is the increasing poverty and growth of right wing extremism/neo-nazism due to crippling austerity policies conducted by the ECB/IMF/EU vassal leaders. The goal for the 1% has been to keep the publics eye on the left hand while it moves the money into their right hands.

Like the US bailout of 2007, the take a massive chunk of change from 'we the people', they then distribute that money to the banks and the 1%ers who run those banks. They loan it out and put countries into debt slavery. I recommend watching the film "The International" (with Clive Barker) to fully understand how this is done. It is a form of money laundering. The money doesn't trickle down after they create a bailout like the recent EU 500 billion euro self award. The debt is passed on to the public who pay it back ten fold over time. The countries, like Greece, are then trapped and held in debt slavery to the banker 1%. The EU vassals continue the cycle and send in their resource/utility extractors to buy up the assets of the countries, such as what is now going on in Ukraine.

The US destabilized it, then the EU/IMF give it massive loans it can't pay back, then the big corps/hedge funds come in and buy up all the assets/utilities/farming and fracking land. After the rape is complete the people are stuck in poverty, such as Greece is.

Look at Spain. Look at the UK these days. Germany has 12% of the population in poverty, but you will never hear this from the compliant, vassal media whose job it is to keep the people in the dark and never address the real root cause of the problem, the greedy 1% who rule us all.

For the EU, Russia is the least of your worries. Energy independence isn't the problem, sovereign nations and human independence is. The EU needs to break apart so people can be free again.

Simon311 -> psygone 27 Feb 2015 08:55

What a ridiculous remark. The last thing the EU needs is a trade war and a hostile stand off with Russia,

SHappens -> Havingalavrov 27 Feb 2015 08:40

There is a quiz about Russia on this site you should take.

I suppose we could say pretty much the same about the EU:

A single party (bipartisanship hides identical policies) that monopolizes power and denies opponents access to the power.

Leadership either unelected or elected in "rigged" elections, all deeply discredited in the eyes of people who no longer have any confidence in them as they are almost all at worst crooks or puppets, and, at best, incompetent and uneducated technocrats who have lost touch with reality.

Elected leaders (parliamentarians), co-opted (EU Commission) appointed (senior) and selected (CAC 40) all from the same "aristocracy" which repeats itself and that has nothing to envy to the one that had generated the Party in the USSR.

So unpopular leaders that they can not meet the true population. All press conferences and all "errands" of the rulers out of their bunkered palaces are all staged with "extras and accessories" mounted with the complicity of subsidized state media.

Paralysis of 'governance', incapable of reforming itself as it is mired in its heaviness, its incompetence, corruption, immorality and privileges apparently attempting to binge themselves as much as possible before everything collapses.

More separation of powers, but almost complete collusion between the executive, legislative, judicial, media, financial and thus criminalization and corruption powers, all accompanied by impunity.

A military empire (US + EU + NATO) with an hegemonic agenda which conquers territories either peacefully (the 28 EU countries) or violently when there is resistance by destabilization leading to war (Yugoslavia, Libya, Syria, Mali, Central Africa, Palestine and now Ukraine) or overthrow elected governments (Ukraine, Latin America), or both in total disregard of international law.

Media propaganda lying as they breathe and producing "evidence" sometimes even gross, to deceive and manipulate the public. With less and less success, which promises the collapse of the system.

The demonization of past victims (Serbs, Libyans, Afghans, Iraqis, etc.), present (Syrians, Ukrainians Autonomist, Palestinians, etc.) and desired (Russians).

Laws that dictate the story (Law memorial) with imprisonment to those who question the "official version." Liberal laws and laws drafts to prohibit meetings or shows that displease the "device" as well as control the Internet.

The witch hunt of dissidents, even the most peaceful, who are sometimes forced to flee Russia for having told the truth; this country has in fact become a heaven for dissidents of our system as we welcome former dissidents of the USSR.

Hatred of religion: slander and defamation attacks of all kinds against two religions in particular, Catholic and Muslim, seen as hotbeds of resistance to the proposed overhaul of liberal-libertarian society pursued by the regime.

The militarization of riot police used to repress peaceful demonstrations and dissenting, discredit the protesters by provocation under false flags.

The attack by the army of its own people (Ukraine for example).

Laxity towards real criminals protected by a corrupt "elite" and towards troublemakers.

Introduction of a "police of thought" (the equivalent of Soviet political commissioners) to give the power and the means to various groups and pro-system associations to denounce, discredit, sue and even physically attack dissidents.

Mass spying (NSA-Stasi) and encouraging denunciation.

And unlike the USSR this time, many things were completely free (health, culture, education, etc.) and where there was no unemployment, destruction of social rights and workers' rights in Europe.

Back in the USSR.

[Feb 27, 2015] Over-Confidence on Steroids

"We run carelessly to the precipice, after we have put up a façade to prevent ourselves from seeing it."

Blaise Pascal

Gold and silver were hit by selling in NY this morning.

Hey, why not? Things are just what we say they are, especially when they have an increasingly tenuous connection to reality.

There was intraday commentary about 'Debt Is Just Money That We Owe Ourselves Here.'

This is beginning to feel a whole lot like 2006, where a few were just about crawling out of their skins with the nonsensicalness of what they were hearing, and the looming disaster which they saw coming.

No one really listened. I remember vividly making noise on economic chatboards, with participants saying things like 'what does he want' and 'what is he saying?' After all, Greenspan had assured us that housing was invincible and incapable of being in a bubble, and Bernanke had things well in hand, with theory triumphing over all.

And then as it is now, the herd was just blithely rolling along, following Wall Street into the next unforeseeable financial crisis.

We are there again. And like then, they know it. But they think they can manage it to their benefit, so why would they care?

And given the chance, they will do it again. It is the pleasant cycle of financialisation and accumulation. We are diverted by bread and circuses, the media's sturm und drang that anesthetizes thought.

Economists-Say-Dumb-Things Chronicles: 'Debt Is Money We Owe To Ourselves'

11 February 2015

Like so many sloppy discussions of economics to make an important policy point, but badly, this one diverges from common shared reality fairly quickly.

Let me strike the key hypothesis in this, that prompts a leap of faith, over a cliff and into the abyss of fantasy.

"Debt is money we owe to ourselves."

Something on which Mr. Krugman can agree with Dick Cheney who said, 'Reagan proved that deficits don't matter.' How is that for a twist?

From an accounting standpoint and within the realm of theoretical identities this is true. Each debt is someone else's asset.

The key of course is how we define 'ourselves.'

If 'we' are the entire planet, equally and without distinction of interests and property, then perhaps one might say, ok, although it loses all meaning and significance. I would not mind pooling my household books with one of the Banking billionaires and to be able to step up to the Fed's free cash window anytime to do my business, with the assurance that I have a government guarantee underpinning my ledger, but alas.

And this is a problem because the paramount issue we are facing today is the historically extreme concentration of capital assets in a relatively few hands, and the burden of unpayable debts being imposed upon a large segment of the people by a system that has been hijacked by the moneyed interests.

If you take this pithless observation by Mr. Krugman down one level of detail in the States for example, one finds that the debt is an asset on the books of a increasingly small number of wealthy people, with much of it controlled for them by a handful of Banks.

This system is not sustainable, and I see no sign that it will even cohere, without substantial reform.

I wonder if the average American who is losing their car and house, and who is being hounded by debt collectors for whom those debts seems to matter a great deal, can use that argument with the Banks.

Putting aside private debts, let's just stay in the realm of sovereign debt, where the economic imagination can more easily take its flights of fancy.

Debt is just money we owe to ourselves is similar to the flat pronouncement that a sovereign that issues its own currency can never default. Money is just an accounting entry so why the fuss? And from this comes a Pandora's Box of muddy thinking, a selective myopia towards history, and Trillion Dollar Platinum coins.

I wonder if Greece can use this argument, that debt is just money that we owe to 'ourselves,' when they meet with the Germans this week.

But no, the US is different. Every other country may fail, and many have including that insubstantial nation of Russia not all that long ago, but not us. We are young and immortal. Our benchmark for virtue is power, and we are virtuous enough to be able to say that when things are not working out as we planned, we are able to decree that 'money is whatever we say it is,' and God help anyone who does not agree.
And so we might presume that the mighty US is going to be able to make that case about debt forever to its creditors who are outside the direct thought control of its monetary system, a short list of which is contained below.
It is funny how the moneyed interests and their courtiers are always saying, 'debt doesn't matter,' especially when they want us to assume their gambling debts which they incurred by frauds using our own money. Until, that is, they decide to call in the loans and the debts, and impose their will upon the people with foreclosures, garnishment, austerity, and debtors' prisons.

I agree wholeheartedly that the rhetoric around the discussion of spending priorities gets silly and overheated and quite frankly disgusting. That has more to do with a society in the grip of a greedy few, corrupt public servants, sophistical theoreticians, and boisterous minions than it does with the need to expand our economic theories into existential irrelevance. Madness is certainly attractive perhaps in a land going mad, but it is unlikely to be productive.

Arguments like those from the MMT crowd, both right and left, and economists like Paul do us no favors in concocting some fantastical solution to what is primarily a problem of governance, justice, transparency, and power gone horrible wrong.

The 'debt' and the 'budget' are not an economics argument but a policy argument. What is important to us? What do we continue to hold as these truths? And how do we resolve those disagreements? Avoiding that policy and priority discussion enables those who are caught in the credibility trap to continue to beg the question entirely, and the real task at hand, which is reform.

We cannot discuss reform until we expose the corruption. And therein lies the problem, because quite a few powerful hands have been dipping into the largesse, and quite a few courtiers have a vested interest in continuing to propagate the lies and myths of a failing system.

I am not a 'hard money' guy. I am certainly not in favor of a domestic gold standard as a remedy for our current set of problems.

What I am saying, and I think it has been consistently so, is that the system that we have now is so fundamentally broken that no matter what incidental things that we do, no matter how much stimulus is provided under whatever rationales, that all good will be turned to ill, the gap of inequality will keep widening, and that the situation will continue to worsen, lurching from crisis to crisis.

Is this not what we have seen since all the programs were put in place since the crisis of 2008? That the rich are getting richer, because all we have really done is prop up an unjust, broken, and unworkable system. And I think that this is the point that is being made by Greece in Europe today.

You cannot keep a game running when the insiders that control it are making up the rules as they go along, hiding their assets, dictating the judges' decisions, dipping into the other players money at will, and generally cheating and doing whatever they wish when they wish, because they can.

The system is too flawed to be sustainable, and must change in order to cohere.

NY Times

Debt Is Money We Owe To Ourselves
By Paul Krugman
February 6, 2015

Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we're stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn't an indication that we're living beyond our means, because as Fatas puts it, one person's debt is another person's asset; or as I equivalently put it, debt is money we owe to ourselves - an obviously true statement that, I have discovered, has the power to induce blinding rage in many people...

More than that, as Fatas points out, rising debt could be a good sign. Think of my little two-classes model of debt, where some people are less patient than others - perhaps (to step outside the model a bit) because they have better investment opportunities. Moving from a very limited financial system that doesn't allow much debt to a somewhat more open-minded system should, in that case, be good for growth and welfare...

And the problems with public debt are also mainly about possible instability rather than "borrowing from our children". The rhetoric of fiscal debates has been, for the most part, nonsense.

Read the entire piece here.

Posted by Jesse at 3:10 PM

[Feb 27, 2015] Sturm und Drang

"...it is the most alarming example of cheap demagoguery you are likely to have seen."

George Monbiot, on Rick Santelli

February 10, 2015 | jessescrossroadscafe.blogspot.com

I watched CNBC today, which is unusual.

When Adam Johnson left Bloomberg the quality declined markedly, wavering between screechy and vacuous, with lots of gossipy and giggly segways. A few notable exceptions like Julie Hyman, Tom Keene, and Eric Schatzker, but not as many since Adam Johnson left.
CNBC is not much better, again with a few notable exceptions like Bill Griffeth and Kelly Evans. It was pretty much the 'same old' as it was when I stopped watching it a few years ago.
But Rick Santelli was quite the sight.
His eyes became very open and wild as he pressed his face to the camera, his nostrils were flaring, and you could see the spit flying out of his mouth. Network for the one percent. Maybe time for a teeth cleaning.
I have seen him good naturedly gooning it up with his pit trading cronies several times before, who seem to be a dying breed by the way, and it was something you could just take in stride.

But this was something different, chewing-the-scenery-wise. Is there an inverse relationship between bombast and ratings?

It is 'financial television' after all. Infomercials interspersed with country club crudité infotainment. But today he had the persona of a park bench lunatic, and it was decidedly unattractive, if not disturbing.

And it was clearly an act.

Is he supposed to be the bad guy or the good guy? Or just the extreme guy, like George 'The Animal' Steele? Is this some new twist in broadcast journalism? Are they getting their production values from professional wrestling these days?

Who is doing their casting, Vince McMahon? And their directing, Ed Wood? Are they just following the fashions of the day? Are we all Bobby Heenan now?
Do we even know what genuine human life is all about, anymore? Do we even care? Living life in stereotypes and spin is simpler and more pliantly digestible. Is life imitating art, in caricature?
The saddest part is that this is becoming a tone for not just finance but 'the real news,' led by Fox and CNBC's sister, MSNBC. And the very serious Sunday morning shows are going off-the-hook as well, as they grapple with a credibility gap that prevents the political and media elite from acknowledging the decline in the average person's reality.
Speaking of unattractive and disturbing, the SP futures managed to rally solidly up to the top of the big resistance around 2065 for the fifth time since mid January.
The big tickle is going to be Greece this week, with maybe a nod from the Ukraine. If we get a surprise settlement on Greece by some miracle tomorrow, the markets will do a moonshot.
It is hard to tell. Most of the local (US) commentary is either hopelessly slanted or incredibly naïve. It is sad when very good financial commentators decide to be political analysts too. Or when financial commenters decide to embark on flights of fantasy. I have enough actual experience to know what I do not know, and that is quite a bit. At least I'll admit it. But speculating about what is happening or what might happen is fun when you are unconstrained by facts.
One has to tune out the sturm und drang with which the players are filling the airwaves as they prepare to get serious. This is the oh yeah, yeah! portion of the prototypical schoolyard encounter.
So let's keep an eye on the geopoliticals, because I do not think the stock markets will unleash the rally monkeys until they are more sure that something disruptive is not coming. Even if the talks completely break down and Greek says they will exit, I suspect we *might* see a relief rally after an initial plunge. Remember the mistaken optimism prior to the crushing reality of Lehman Brothers?
Have a pleasant evening.

[Feb 26, 2015] EU Warns of Debt Dangers Facing Ireland and Euro Zone – "Emperor Has No Clothes"

goldcore.com

- High "structural" unemployment, high levels of public and private debt and a still vulnerable banking sector are weighing on the Irish economy

- Report further casts doubt on the "recovery" narrative being touted by governments, banks and vested interests across the world

- Levels of spin and denial not seen since before the crash of 2008

[Feb 26, 2015] The Technical Fundamentals

Feb 26, 2015 | Jesse's Café Américain

This market feels heavier than it looks.

It is hard to judge 'sentiment' because the market is being almost totally dominated by a few institutions, a handful of very large trading desks, and a swirling crowd of HFT hit and run predators.

So given this concentration of power, the market can move in just about any direction that external events, or the lack thereof, may permit.

The 'fundamentals' are not in play, at least for now. And so the markets may continue to diverge from the real economy, until they cannot. And then the reckoning comes.

The Fed is absolutely NOT blameless in this exercise, as they were not blameless in the past. They publicly denied there was a stock bubble, while discussing it in private.

They just let it run its course without even taking the minimal actions which they possessed then as a regulator, which are much greater now.

Have a pleasant evening.

[Feb 25, 2015] Ukraine Enters The Endgame

We Weimar'd some folks via color revolution instead of WWI. Mission Accomplished... "Russia will cut off gas supplies to Ukraine if Kiev fails to pay in "three or four days," President Vladimir Putin said, adding that this "will create a problem" for gas transit to Europe."

Feb 25, 2015 | Zero Hedge

The Hryvnia weakened over the weekend to UAH 30 vs. the USD, prompting the Ukrainian authorities to tighten FX controls and to intervene by a reported US$80mn today, and causing a further weakening of the currency to UAH 40 on the black market as of this morning. While pressures have subsided somewhat (with black-market, mid-market spot now around UAH 33), in our view, the current FX controls are only likely to provide temporary relief to the currency and, thus, introduce risks that the authorities could tighten FX controls further

... ... ...

There are several causes for the weakening of the Hryvnia:

Net private capital outflows (excluding net IMF/official sector flows), which stood at an estimated US$10bn in 2014. This number excludes US$3.7bn in repayments to the IMF and about US$4.5bn in debt service on external sovereign bonds.

Current account and trade deficits, due to the collapse in exports and despite the fact that domestic demand has weakened sharply.

Monetary financing of Ukraine's fiscal deficits.

While Ukraine's current account and trade balances should close as domestic demand continues to contract and as the Hryvnia has weakened further, capital flight continues, with bank FX deposit outflows of US$600-700mn/month in November-January. Moreover, monetization of the deficit has accelerated as local banks are no longer able to absorb domestic bond issuance. The share of domestic government bonds owned by the NBU has risen to 71% in January, from 59% one year prior, with the share held by domestic banks falling by the same amount (to 20%). Meanwhile, narrow money continues to grow at around 15-20%yoy, at a time when domestic credit is now contracting by 10%yoy. While money supply growth in the mid-single digits in a context of weak credit growth may have been offset for most of 2014 by large-scale FX interventions by the NBU, withdrawing liquidity, FX interventions have slowed in H2-2014 and the NBU reportedly stopped intervening in February (although it intervened once again by US$80mn today). This has caused assets on the NBU's balance sheet to grow by about 60%yoy in recent months and by 8%mom in January (seasonally-adjusted). In our view, with the economy and cash demand weakening, domestic credit shrinking and an absence of liquidity withdrawal via interventions, money supply growth at the current pace will ultimately prove inflationary and will cause the Hryvnia to weaken further.

While monetary financing of the deficit may debase the value of the Hryvnia in the medium term, it is the shortage of FX in the system that has caused the proximate pressure on the currency, as NBU reserves declined to US$6.4bn in January (4 weeks of imports) and are likely to decline to US$5-5.5bn in February (3 weeks of import cover). These international reserves include about US$1bn in monetary gold, so the liquid amount of reserves is likely to fall to US$4-4.5bn in February (2.5 weeks of imports).

… raising short-term risks, until IMF funds arrive …

In our view, while the current FX controls may provide some temporary relief, pressure is likely to continue to build on the Hryvnia until expectations stabilize, confidence is restored, and the country's FX reserves are replenished. Given the poor liquidity and destabilization of expectations in the FX market, the ongoing conflict in Donbass that undermines confidence, and the continued need to import natural gas and other essential goods and make external debt payments, these factors are likely to continue to exert pressure on the Hryvnia, at least until the IMF Board approves the newly-agreed program and makes its first disbursement. However, this will likely take at a minimum 2-3 weeks and there are risks of delays. First, the authorities must fulfil their prior actions for the program, and notably the Rada must approve a new budget law. This is scheduled to take place in a session on March 3, although PM Yatseniuk is attempting to accelerate this process by holding an extraordinary Rada session to approve the legislation. Even if the session is moved forward, in our view, there is no guarantee that the law will be approved immediately and delays are possible. Once prior actions are fulfilled, the IMF Board can meet, approve the new program, then disburse funds shortly thereafter. Our base case is that this will take place in mid-March (the current board review date is reportedly scheduled for March 11), although it is possible that this could be delayed. With the current pace of reserve depletion and pressure build-up on the Hryvnia, it is possible that the IMF funds may not arrive quickly enough. This raises the short-term risk of a significant further increase in pressure on the Hryvnia.

… and implying potential need for emergency policy action

Given the balance of payments and monetary pressures on the currency, the authorities and international donors, in our view, have several policy options. First, the Ukrainian authorities could tighten FX controls further. In the extreme, this could potentially involve a bank deposit freeze, a ban on retail FX purchases and/or moratorium on external payments and complete closure of the capital account. Second, international donors (bilateral lenders and IFIs) could recognize the fragility of the current situation and the fact that the IMF timeframe may prove to be too slow to stabilize the currency. Thus, in our view, the international community could make available emergency funds in the coming days or weeks, effectively bridging financing for Ukraine until the IMF disbursement arrives. However, bureaucratic, legal and political hurdles may exist to any large-scale emergency disbursement to Ukraine, either bilaterally or multilaterally. Thus, there is no guarantee that such emergency funds could or would be made available. This introduces further short-term policy uncertainties.

Finally, the recent and sharp weakening of the Hryvnia, as well as significant recent shifts in money demand and supply, could necessitate an overhaul of some of the IMF's program assumptions and targets. In our view, this could require further technical work on the part of the IMF and could cause additional delays to disbursement of IMF funds. As the monetary and financial dynamics evolve rapidly, so may the IMF's working program assumptions and the parameters of the program.
actionjacksonbrownie

The truly crazy part of all this, is that the average ukrop "patriot" STILL thinks the u.s. is only there to help them, and russia is the root of all evil.
The farce is strong in this one.

Icelandicsaga.....

Mexico wont fade away .. we will harmonize . integrate . and become a bad case of Brazil disease .. top crust and the millions below.WE will blend into NORTH AMERIC the meme . .keep saying that NORTH AMERICA . . we are no longer USA . we are NORTH AMERICA .. say it over and over again .... we already got the cartels and corruption and 20 million illegals.. why not the entire enchilada. so to speak. Canada wont be too happy about it .. we already tried to scam their water resources to fix water shortages in the southeast .. they refused. but hey . there is always tomorrow... .

ThroxxOfVron

"Moreover, monetization of the deficit has accelerated as local banks are no longer able to absorb domestic bond issuance. The share of domestic government bonds owned by the NBU has risen to 71% in January, from 59% one year prior, with the share held by domestic banks falling by the same amount (to 20%). Meanwhile, narrow money continues to grow at around 15-20%yoy, at a time when domestic credit is now contracting by 10%yoy. While money supply growth in the mid-single digits in a context of weak credit growth may have been offset for most of 2014 by large-scale FX interventions by the NBU, withdrawing liquidity, FX interventions have slowed in H2-2014 and the NBU reportedly stopped intervening in February (although it intervened once again by US$80mn today). This has caused assets on the NBU's balance sheet to grow by about 60%yoy in recent months and by 8%mom in January (seasonally-adjusted). "
They are printing with complete wreckless criminal abandon: bonds and currency!
The level of monetization is way more than triple what The US Treasury and The FED have admitted to colluding together to float the system with as a gross percentage of bonds and currency en todo. ..& The FED had a huge stock of MBS to soak as well as the global payments system to disburse the emission to
This is a massive torrent of raw unsterilized counterfeiting of preposterous proportion to the existing stock.
Christine LaGarde presonally sent the Ukrainians letters telling them to flat out stop it or the IMF wouldn't give 'em any more emergency loans.
"We Weimar'd some folks."
This is gonna be one for the history books easily rivaling the German and Hungarian tsunamis of the last century.
There is no way in hell this can be reversed or mitigated at this point. Ukraine is doomed to suffer the full destructive force of a currency collapse. The damage is by no means completed...
IMHO, regretably, the Ukrainian citizenry would have been far better off being quietly wholly subsumed by Russia than face this tragedy. Everyone is trying to 'save' Ukraine ( for their own greedy purposes ) and they are burning it to the ground 'saving' it.
Disgusted and anguished do not fully convey the feelings I am experiencing...
IF you do such things as pray, you should pray for these people; -they are going to go straight through Hell.

Majestic12

"IMHO, regretably, the Ukrainian citizenry would have been far better off being quietly wholly subsumed by Russia than face this tragedy. "
Russia does not want their Nazi, lazy asses. Who would. The East is the center of industry and called "restive". Oh, and they all speak Russian?
Who knew. Hard-working, productive, hard playing people, and they're Russian?

ThroxxOfVron

Partition would have been a better answer than what is unfolding.
Who would actually want the 'Nazi, lazy'? Average Ukrainians, the EU, the British, the Israelis, the USA?
Unless I am mistaken the general consensus is that true Nazi types are not really welcome in most 'polite' company.
They would be a dangerous fringe element no matter the constitution of the nation unless they were to seize power and use it to disenfranchise the remainder, and any fringe/minority ideological element that seizes power and disemfranchises the remainder majority is unpopular no matter the ideology. See: Neocon, Neolib, Zionism, Feudalism, 1%er, Junta, Annanuki, etc...
The fact is that Ukraine only has a tiny minority that espouse such ideological concepts, and I suspect many of these only use the imagery as a front for more classic mobsterism and warlordism. Espoused Nazis may be a dominant militant organization in some parts of Ukraine; but, I am doubtful that Ukraine is generally predominantly dominated by Nazi ideology...

Motasaurus

That's what the support of the neo-Nazis is all about. They are just replaying WWII, only slight further to the West. After all the original German Nazis were funded, finances, politically supported and built by the Western powers terrified of being voraciously murdered in bolshevic revolutions.
Of course those "powers" were played for fools by those who fund them. I am fairly convinced that the entire 20th Century was simply a socio-psychological experiment to determine whether National Socialism or Communism was a better method for controlling the masses.

Jack Burton

The end game will have winners. Expect the usual suspects to walk away with some nice profits. And the Ukrainian farm lands, fracking potential and what little of industry remains, will all be sold to western baks for pennies on the dollar. Again, you can be certain the usual suspects, whose name can not be mentioned, will own Ukraine.
The people went to Maidan on the promise of a German lifestyle and EU passports which entail freedom of movement within the EU. Thus the mass exodus of youth for Paris, London, Berlin, Rome, Stockholm, Madrid. In the flush of freedom, at least 2 million youth will move within weeks. More will follow as they arrange transport. Anywhere in Germany or west of Germany will be their target sites.

czarangelus

I am incredulous watching the human citizens of this world take careful, precise aim at their own feet. After thousands of years of written history of the same things not working!

NoDebt

We're not repeating the mistakes of the past because we're unmindful of history. We're being LED through this circle of rise and fall by the elites. That have it all mapped out. Not to the day, but they know damned well the waypoints to make the turns.
Let me ask you something. When was the last time you heard a politician or banker talk about avoiding the mistakes of the past? Never. They only talk about what "needs" to be done next. And they walk the world around in a big circle like at the pony rides.

Supernova Born

"Russia will cut off gas supplies to Ukraine if Kiev fails to pay in "three or four days," President Vladimir Putin said, adding that this "will create a problem" for gas transit to Europe."
-RT

DutchBoy2015

Putin should have done that LONG ago. Fuck the NeoNazis of Kiev

Buckaroo Banzai

The "NeoNazis of Kiev" will do just fine no matter what. It's the average Ukrainian that's going to get fucked.

suteibu

Our US democratically elected government, making friends...er...slaves all over the world.
It's like the War on Poverty gone international.
At some point in near future, Americans traveling abroad will be considered suspected terrorists requiring a local to vouch for an entry visa.

Motasaurus

Every "war on" in post WW2 history seems to have only created more of the thing. War on drugs? More drugs. War on poverty? More poverty. War on terror? More terror.
What we need is a good old fashioned, openly declared war, but this time put it on something useful like, manufacturing and the middle class.
We've got to stop this bullsh*t coming out of the ministry of truth where everything that is "being supported" gets destroyed and everything that has been declared war on thrives.

krage_man

The chance of getting the money is gettin slim with each second. The parlament is refusing to vote for the strings attached to it so far. It has a reason. Like after it, payments for basic services - heat, gas, electicity will exceed average monthly salary! Another condition is restructuring of the debt ( that is where 15bn come from) , which Putin refuses.
IMF may give the money under pressure from US/EU to preserve the gas flow but this will never be paid back. I question if donors would agree to lose money this way at all... Ukraine need about 150 billions to recover..
Now, Ukraine has a couple of billions left and this is it, huge debt on salary to goverment workers, no tax collection 30% fall of industrial output, etc. .... the state is failing.. we should expect emergency UN food shipment in a few months...

markar

The US/EU/IMF will be pouring billions down this rathole they call a country to the tune of trillions to keep this turd on life support-- until the asset stripping is completed. China, Russia & the BRICs better start demanding something besides worthless $s for their goods soon.

vincenze

Every Ukrainian will tell you that it's Putin's fault.

DutchBoy2015

I am sure Yats the Rat already has a couple of billion squirreled away and a place to bail out to...

DutchBoy2015

This is a pretty good video ''Crimea for Dummies''
Of course its BANNED in the USA LOL
https://www.youtube.com/watch?v=W1zvb_ottiw

WTFUD

From my extensive travels around eastern Europe i find it incomprehensible that the false lure of western riches by association still holds any sway.
In fact i struggle to find ANY evidence that any one of these countries has developed its infrastructure or raised its standard of living in the last 20/25 years.
Mini-cab drivers, hotel work and strip clubs remain the top 3 occupations for those who happen to escape.
The grass is not always greener. . . .
Advice - Look East

Ex-Plunge Protection Team Whistleblower Governments Control Markets; There Is No Price Discovery Anymore

Feb 23, 2015 | Zero Hedge

Conspiracy 'Theory' becomes Conspiracy 'Fact.

"There's no price discovery anymore by the market... governments impose prices on the market." - Pippa Malmgren, former member of the U.S. President's Working Group on Financial Markets.

In this 38 minute interview Lars Schall, for Matterhorn Asset Management, speaks with Dr Pippa Malmgren, a US financial advisor and policy expert based in London. Dr Malmgren has been a member of the U.S. President's Working Group on Financial Markets (a.k.a. the "Plunge Protection Team"). They address, inter alia:

Malmgren's recent book "Signals: the breakdown of the social contract and the rise of geopolitics";

the "inflation vs deflation" debate

the closer ties between Russia and China

the future of the Euro

Germany's gold reserves

and the phenomenon of "financial repression"

Moreover, Dr Malmgren explains what she foresees as the endgame of the financial crisis.

Full interview:

https://www.youtube.com/watch?v=mEGzfxHcbMA

See also

KeiserReport: Guest Pippa Malmgren on rigged gov. data

Dr Philippa Malgrem. Global Capital Markets: Moving South.

[Feb 23, 2015] What's Next For Oil And Gold Thoughts From Eric Sprott, Rick Rule And Marc Faber

Feb 23, 2015 | Zero Hedge
" How can we have an economic recovery when there is barely any discretionary disposable income for 40% of the population? As we have shown above, those that have seen their incomes grow are not the ones most likely to spend, while the bottom 40% of households still rely heavily on government assistance, have had stagnant incomes and have been faced with increasing inflation for "non-discretionary" goods that constitute a very large share of their incomes. There is clearly no recovery…"
- Eric Sprott, Chairman and Founder of Sprott Inc., July 2014

" Most developed economies have consumed and borrowed at worrying levels. The US federal government has on-balance-sheet liabilities of over $16 trillion and off-balance-sheet liabilities estimated at about $70 trillion. These numbers do not include state and local government liabilities, or the likely liabilities from underfunded private pensions. Not to mention increased costs associated with more comprehensive health care and an aging population!"

- Rick Rule, Chairman of Sprott US Holdings Ltd., July 2014

"This is the second longest bull market in the last 100 years. I wouldn't buy shares here. I'm not interested. Now can the market go up another 20 percent? I wasn't interested to buy the NASDAQ in late 1999, but between January 2000 to March 2000, the NASDAQ went up another 30%. Afterwards people were crying when they realized their losses. The markets go up and down. I think that the upside potential now for the general stock market is very limited and there is considerable downside risk. Probably more downside risk than investors realize."

- Marc Faber, Board of Directors of Sprott Inc., February 2014

Below are some further perspective on what may be next for oil and gold from Eric Sprott, Rick Rule and Marc Faber.

* * *

Weakness Around the World

The oil price is driven by the same dynamic that underpins the case for most commodities, such as copper, uranium, or iron ore.

As people get richer, especially in emerging markets, they tend to consume more metals with which to build houses and cars, and more fuels to generate energy and power machines.

Yet commodities have been flat since the Great Recession ended, suggesting, once again, that economic growth is slowing down.

The price of copper is at a four-and-a-half-year low of $2.60 per pound. Uranium sells for $36 per pound today, down from around $65 in 2011. Iron ore for delivery in 2015 trades for below $60 per tonne on the futures market, down from over $180 per tonne in 2011.

The price of oil, meanwhile, had not declined substantially over the last three years. Perhaps its recent price collapse is not as sudden and inexplicable as many believe.

Indeed, a low oil price is consistent with the price action we've seen in other commodities. It also dovetails with economic data we're seeing from around the world, which suggest that global growth rates are simply decreasing.

The Eurozone is trudging along more slowly than the US, according to statistics from the European Central Bank. In the third quarter of 2014, its GDP was nearly flat at 0.3% in growth. Inventories were being dis-hoarded, falling by around 15 billion euros over the last 6 months. This suggests that fewer goods are being produced and stockpiled – a response to weak demand. Employment grew by 0.2% over the quarter, meaning that unemployment levels are still high for the developed world, and industrial production increased by only 0.1%.

The situation is similar in Japan. Despite sustained ultra-low interest rates and activist policies meant to stoke growth, the country is mired in what isn't far off from being a depression. Its GDP shrank 0.5% in the third quarter of 2014, right on the heels of a more than 1.5% contraction in the second quarter.

Developed-world economies are not the only ones that are experiencing weakness now.

China's annual growth rate has slowed from around 10% in 2011 to around 7.5% as of the third quarter of 2014. 11 Its domestic consumer market appears subdued. In the third quarter of 2014, the Consumer Price Index (CPI), which measures the average change in the prices of consumer goods and services, was its lowest since February 2010. The real estate market has been weak and domestic investments in fixed assets – which includes new building projects – grew by only 16.1%. That number was above 21% in early 2013, and has been declining steadily ever since.

Weak economies around the world offer weak demand for commodities and for capital. The effect is to keep interest rates extremely low and to push commodity prices down.

The same logic applies to oil, which has long been priced with the expectation of ever-increasing demand and ever-declining supply. We can therefore view the oil price as a symptom of poor global economic growth, which is a long-term problem – and not just as a short-lived consequence of a slight oversupply of oil.

Falling oil prices are yet another sign that the world economy may be more fragile than before the Great Recession.

Why is this important? Well, many write off the oil price drop as merely the machinations of Saudi Arabia to throw a monkey wrench in the wheels of the US shale industry – or perhaps a market that's over-reacting to a slight supply and demand imbalance. You would then naturally expect a quick recovery after the market worked through the problem of oversupply, or once OPEC and Saudi Arabia had adequately bludgeoned its rivals. On the other hand, if you attribute the oil price decline to a more significant underlying issue within the world economy, then the oil price drop starts to look like the harbinger of a more long-term trend.

[Feb 20, 2015] No Tech Bubble Here, Says CNN This Time It's Different

when Uber is given a valuation of $40 billion, can a crash be far behind?

February 20, 2015 | Slashdot

ErichTheRed writes

I saw this on the Money page of CNN today. Apparently, various stock analysts have declared that this run-up in stock prices is different than the 1999 version. OK, we don't have the pets.com sock puppet, Webvan or theglobe.com anymore, but when Uber is given a valuation of $40 billion, can a crash be far behind?

Anonymous Coward

...Fool me twice, shame on me.

This is wise advice when discussing the Wall Street crowd.

[Feb 10, 2015] This Man Will Never Be Invited Back On CNBC

Feb 10, 2015 | Zero Hedge

And now for something completely unexpected: 2 minutes of pure truth (courtesy of Mizuho's Steve Ricchiuto) on CNBC...

148 seconds of awkward uncomfortable truthiness...

While Steve had a number of hard to hear quotes for the CNBC anchors - such as:

"There is no acceleration in underlying economic activity," and

"There's this wrong concept that I keep on hearing about in the financial press about the acceleration in economic growth... It's not happening!"

A stunned Simon Hobbs rebuffs, "That's a long list of non-ideal situations we find ourselves in," to which Ricchiuto snaps back "and we can keep on going!"

"After a string of dismal data on durable goods, retail spending, and inventories, we get a good jobs number and everyone saying the economy's good - it's not good!"

It was Sara Eisen that had the quote of the brief clip... (which has unbelievably been edited out since we posted it seems at around the 1:40 mark) when faced Steve's barrage of facts about the real economy, replied:

"but the key is that's not what The Fed is telling us."

Summing up the unbelievable 'faith' (misplaced beyond all reputational loss) that so many have in the central planners of the world.

realmoney2015

Nobody 'listens' to MSM. They have either turned it off or they zonk out. If people listen to MSM they would realize that it is all propaganda!

We all know that the Fed can't raise interest rates. Look at the housing market! It's terrible. What would it look like if interest rates were to rise? The economy has not and will not improve until it crashes completely and resets (hopefully with real free markets).

Until then, stop going in debt. Only buy what you can afford. Use cash as much as possible. Better yet, use silver where its possible. Friend helps you move, give him a silver eagle. Need a lift to the airport give them a few silver dimes. If your friends won't accept these as payments maybe these candles with silver coin prizes would be better appreciated:

https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu

http://www.zerohedge.com/news/2015-02-05/3-things-56-lie-dividend-cuts-valuation

Now, Jim Clifton is back stating that not only is BLS wrong in its assumptions about employment activity, but also that the 5.6% unemployment number is "extremely misleading."

"The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.

Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is 'down' to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast 'falling' unemployment."

Of course, Jim is once again correct. Many arguments of low labor force participation rates have focused on the retirement of the baby-boomer generation. Therefore, to exclude that argument, even though those over the age of 65 that are currently employed is at the highest level on record, we can look solely at the group of individuals that should be actively employed (16-54 years of age.) The following chart, which is the labor force participation rate of solely 16-54-year-olds, shows the real problem with the BLS's employment figures.

Considering that only 46% of that age group are currently employed suggests that an unemployment rate of just 5.6% is highly misleading.

Of course, you already knew that didn't you?

Dividend Cuts To Impact Personal Incomes

Political Calculations brought out a very interesting point recently discussing the rise in dividend cuts due to the deteriorating economic backdrop. To wit:

"Going by the number of publicly-traded companies that acted to cut their dividends in January 2015, the U.S. economy didn't just experience recessionary conditions during the month. Instead, it outright contracted."

"Or perhaps a better description of what happened is that the U.S. oil industry's efforts to push its luck as far as it could has run out of good luck to push.

By that, we're referring to the consequences of falling oil prices, which are forcing an increasing number of companies tied to oil extraction activities in the United States to take the dramatic step of slashing their dividends. With 57 U.S. companies taking that action in January 2015, the number of companies taking that action in a single month is consistent only with previous months in which the U.S. economy either experienced contraction or in response to major dividend tax rate hikes.

January 2015 saw no major tax rate hikes on dividends, so contraction it is."

Importantly, another impact of the decline in dividend payout will be a reduction of the amount of dividend income that makes up part of the personal income and spending reports. The chart below shows the monthly net change of a few components of the personal income figure. Notice that in the most recent month personal interest income is negative due to the plunge in interest rates and dividend income was marginally positive.

Considering that the decline in oil prices is supposed to good for the consumer, even though personal spending declined in the most recently reported period, the decline in dividends will certainly have a negative effect on those depending on those dividends. As I showed recently, the current detachment between spending and the stock market will likely be corrected rather harshly at some point.

2nd Most Overvalued Market In History

I recently gave a presentation at the 2015 World Economic Conference (see full slide deck here) in which I discussed varying aspects of the market that should have investors fairly concerned. High yield spreads on the decline, extreme deviations from the long-term mean, and margin debt levels should all be at the top of the list.

One point I did not include, but should have, was noted recently by my dear friend Doug Short.

"The peak in 2000 marked an unprecedented 147% overshooting of the trend - nearly double the overshoot in 1929. The index had been above trend for two decades, with one exception: it dipped about 13% below trend briefly in March of 2009. But at the beginning of February 2015, it is 91% above trend, down from 95% above trend the month before. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 1060 level. If the index should decline over the next few years to a level comparable to previous major bottoms, it would fall to the low 500 range."

"Incidentally, the standard deviation for prices above and below trend is 40.6%. Here is a close-up of the regression values with the regression itself shown as the zero line. I've highlighted the standard deviations. We can see that the early 20th century real price peaks occurred at around the second deviation. Troughs prior to 2009 have been more than a standard deviation below trend. The peak in 2000 was well north of 3 deviations, and the 2007 peak was above the two deviations -- as is our current level."

As I stated during my presentation, we can certainly "hope" that the markets will continue to march endlessly higher. However, "hope" has never been an effective portfolio management strategy.

[Feb 05, 2015] Price of oil and the disruption of flow of oil dollars to the USA coffers

Additionally, low oil prices have blocked the flow of petrodollars in the United States. Oil exporters have invested their profits in US bonds. Now OPEC need to reduce state budget and spend some of those bonds that the US is holding. Well, the USA have debts to pay and now it just can't print the money as freely as before.

On the amount of oil that costs $1 accounts there are more then $10 of all kind of securities.

It turns out that the price is determined by Wall street mafia, large funds and holders of those securities, not so much by the producers or consumers of oil.

Low oil prices have an obvious advantage: they inhibits Russia economic growth.

But low oil prices have costs. They already starting to cause bankrupcy of companies extracting shale oil. And again, no so much companies as such, but all the mess of securities (shares, derivatives, insurance, insurance of insurance, etc) connected with them. If things begin to crumble, it might be something like a mini repetition of 2008, which was triggered by the collapse of mortgage giants.

Additionally, low oil prices have blocked the flow of petrodollars in the United States. Oil exporters have invested their profits in US bonds. Now OPEC need to reduce state budget and spend some of those bonds that the US is holding. Well, the USA have debts to pay and now it just can't print the money as freely as before.

Finally, low oil prices make China extremely happy. Strong dollar undermines the US exports.

In General, the conclusion is as following. Oil is a geopolitical resource and the USA financial cartel is powerful enough to set any price for oil. $30 or, may be even $20 per barrel. But the problem is that at such a low price several problems arise.

In fact, the oil price is a compromise between the elite U.S and the elite of OPEC designed "to deal with" Russia. But somebody might not be able to endure described economic war for long and associated costs..

[Feb 02, 2015] Gold Daily and Silver Weekly Charts - Carry On

Feb 02, 2015 | Jesse's Café Américain

People who follow price alone, and believe that this is the truest indicator of future value, have a point. And it is valid, based on a very short timeframe, most likely appropriate to a day trader.
And it is no coincidence that most day traders go broke.
Most traders overall go broke. They may have great runs for a time. I have seen runs at the crap table that were amazing. I had a run at poker that was astonishing, and that lasted for a couple of years. I had one night at the tables that was almost exhilarating. I made some short term profits playing the futures that were almost jaw dropping.
But they passed. And then came the steady losses. The most enduring profits I have made were done over a long time with a steady position, being right and sitting tight. The key to that is 'being right.' It is never easy.
People have different styles as traders. Some like the thrill of the short term, and others prefer what is called 'value investing' and the longer term. You have to pick what suits you.

But at the end of the day, most everyone loses except the casino, unless you can find and exploit some kind of edge.

That is the best that I can and will say regarding a commentator about the precious metals who might say that all that matters is price, because it does not matter who is buying or selling. Or why.

You don't need to know that. You do not need to know the players or their possible motivations. It is a point of view. And a good one if you wish to be a price follower and a day trader, and not have a real clue about the opportunities one may have to make some serious money.

The market makers and professionals all too often paint 'pictures' with price action. To somehow say that price contains all useful information and the truest picture at that moment is a corollary of the efficient markets hypothesis. And I would like to think after umpteen price rigging scandals, that we would reflexively know that this is all rubbish. And enough about that nonsense.

There are great changes underway in the world of money. And you will either understand them now, or understand them later. True, all sellers become buyers and all buyers become sellers given enough time. But that is the kind of timeframe about which Keynes remarked that 'in the long run we are all dead.' Someday will come. But its an odd logical fallacy to take the extremely short and the extremely long and reason from those examples, ignoring the great bulk of experience which is in-between.

As you may have noticed, most of the antics from yesterday's markets were erased today. The sharp rally in stocks dissipated, and the big hit on gold was largely erased.

As I had said, we had a real test for the precious metals this week, most notably gold, which is the metal of controversy. We had an option expiration, a first position day on a new active contract, an FOMC meeting, and a first estimate of 4Q GDP.

So far so good. If gold wanted to find a place to bounce, today's was about as good of a bounce as any.

The bounce in stocks with the subsequent flop was not surprising. The Fed hates to leave the market feeling like it has failed, perception management-wise.

Follow through is absolutely everything for gold and silver here. We are now in an 'active month' and the first delivery reports have reflected that. Deliveries were coming out of 'customer accounts' and the house accounts were the takers. But you don't need to know that.

What you do need to know is that gold bullion is flowing steadily and heavily from West to East. And that we are nearing the natural end for a currency cycle. And that the price of gold and silver are based on leverage, and rehypothecation, and that these things have failed in the micro level, such as at MF Global, and can fail at the macro level, as in the failure of the London Gold Pool.

Please remember the poor. Their lives are very hard, and they are easy to forget. And not just the people who are poor in things, but also those who are poor in spirit, and unable to love. Don't just worry and count your money, although that is practically important.

Remember the only things that really endure, that will stay with you, as you truly are, a soul that happens to have a body, for now. And that is measured not in dollars, but in love.

Have a pleasant weekend.

[Jan 31, 2015] The Bond Market Has Reached Tulip Bubble Proportions

Looks like Fed lost credibility...

Jan 30, 2015 | zerohedge.com

Fed Officials Trying to Send Signals to the Bond Market
James Bullard on Friday noted that the Bond Market was far too dovish in relation to where the Fed is in regard to raising rates in June, and this might be the understatement of the year so far. For example the U.S. 2-Year Bond Yield is 0.45 or 45 basis points, think about this for a moment. Even if the Fed fund`s rate finishes the year at 50 basis points which is well below the Fed`s most conservative forecasts, and we use a conservative annual inflation rate of 1% (I know oil has dropped but there are more inflation categories than just the energy component). Moreover, the overall annual inflation rate is well above 1% right now, and you factor in that this bond is paying a 2-year risk premium for tying up one`s capital with all kinds of inflation risks over that 2-year time frame, this has to be the stupidest investment of all time.
2-Year U.S. Bond Yield is 45 Basis Points

To buy the 2-Year Bond when the Fed has practically stated that after two FOMC meeting`s they are liable to raise rates at least 25 basis points at the earliest (think April) and June at the latest so that is 25 basis points right there added to the Fed Fund`s rate, and needs to be added to the 2-Year Bond calculation so the current Fed target rate is 0.00 - 0.25 with the daily rate on 1/29 of 0.11 or 11 basis points, so add the June 25 basis rate hike to the current daily rate of 11 basis points and you get a 36 basis point starting point for borrowing money, add an annual inflation rate of 1%, and we are at 136 basis points for evaluating the 2-Year Bond given this rather charitable and conservative analysis.

Thinking About the New Greek Crisis

NYTimes.com
... ... ...
5. Ideals aside, the consequences of playing hardball with Greece over its banks could very easily be immense. Up until now, the euro has proved very durable, largely thanks to the point Barry Eichengreen emphasized: any country that even hinted at the possibility of leaving would face the mother of all bank runs. But as I worried some time ago, this argument becomes moot if the banking system has already collapsed. Grexit - the often speculated about, never so far materializing Greek exit from the euro - becomes a very real possibility if European creditors try to exert leverage by taking away the safety net for Greek banks.

6. And if Greece really does leave the euro - if it turns out that the single currency is not irreversible - do you really think there would be no contagion? Wanna bet on it?

7. In particular, think about what happens if Greece leaves the euro and then manages to find its footing - which it probably would after a chaotic year or two. The EU could prevent that by deliberately undermining the post-euro Greek economy. But that would be a betrayal of European principles.

8. At the moment, Germany is talking as if it intends to follow the Michael Corleone strategy. But do we really think that Syriza will or even can retreat with its tail between its legs immediately after winning a dramatic election victory? Again, wanna bet on it?

Daniel Davies tells us that "European policy makers aren't stupid." But they do say stupid things, still talking about expansionary austerity, still treating debt as a purely moral issue. Can and will they be realistic, accept that they can't extract blood from a stone - at any rate not at the rate of 4.5 percent of GDP - in time to avert a spiral into disaster?

Selected comments from Economist's View Links for 01-29-15
Darryl FKA Ron
RE: Whitewashing the Crazy, Fed Edition
[Krugman is just knocking them out of the park today.]

How does one report on politics when a significant wing of the political spectrum is, not to put too fine a point on it, stark raving mad? I appreciate that it's hard to do without attracting accusations of bias; on the other hand, there's a temptation to soft-pedal the crazy, to make it seem as if politicians were less out there than they really are...

*

[So, is it Ron's be kind of Krugman day? Well any day that Krugman addresses financialists' dogma head on and skewers idiotic Republican politicians without lapsing into Dembot apologetics is Ron's be kind to Krugman day.]

pgl said in reply to Darryl FKA Ron...
In the meantime John Taylor is defending this Rand Paul bill over at his blog. How you ask? First Taylor brags about his now (in)famous rule. And then he states this bill does not really require anything more than the FED being clear about its actions. Of course the FED has been clear. So why do we need a law if it does nothing?
Darryl FKA Ron said in reply to pgl...
Sorry, but I did not read about that. Don't feel bad though because I did not read the articles about Ted Cruz or Rick Perry either. I don't think of them as alternative viewpoints. Actually, I don't even think of them as viewpoints. So, I don't really think of the technocrats that serve them as economists either.
ilsm said in reply to Darryl FKA Ron...
Romney is Crazy; life coaches, charter schools, blame the single parent and backbone is funding the wars (more drone strikes, star wars and aircraft carriers to haul around broken F-35's with money taken from schools and kids' preschools).
You fix under funded schools, and kids who don't get remedies for lacking 3 year and up pre schooling by giving the money to charter schools run by amateurs wanting to teach how wrong the theme song to Big Bang Theory is and break up the NETU...........

Everyone is scared Nobel Prize winner Shiller

The human race has deep underlying fears about technology and the lives their children will lead and this can be seen - in all places -- in the negative yields in bond markets, Nobel Prize-winning economist Robert Shiller told CNBC.

"I think fears have been growing for years that represent the willingness of people to bid up bond prices," he told CNBC Wednesday." They are worried about their future. They are worried not just about next year, they are worried about the next twenty years, the next forty years. So they are desperately trying to provide for that, they'll even accept negative yields."

Shiller won the Nobel prize for economics in October 2013 for his research that has improved the forecasting of long-term asset prices and helped the emergence of index funds in stock markets. He was awarded the 8 million crown ($1.25 million) prize alongside fellow economists Eugene Fama and Lars Peter Hansen.

In London after a trip to the World Economic Forum, he said that the Davos event had helped him understand that there is not just pessimism about the global economy, but worry.

"There's this increasing fear of technology, information technology, artificial intelligence, robotics, 3-D printers, the internet and all these different forms," he said. Technology, he added "seems to be changing life in such a fundamental way and what it's leaving people thinking is 'where will I be in 30 years? Look how fast everything is changing now. Where will my children be? I want to leave something for them because they could be in terrible straits'."

The World Economic Forum's (WEF) Global Risk Report, released to coincide with last week's event, warned of people designing "bespoke viruses as murder weapons" and that computers could turn rogue.

In Davos, Yahoo chief executive Marissa Mayer told delegates that she expected internet privacy to swing further into the hands of governments over the coming months.

At another seminar, the Daily Mail reported, a panel of academics warned of mosquito-sized robots flying around and stealing DNA samples.

Responding to Shiller, Edmund Shing, the global equity portfolio manager at BCS Asset Management, told CNBC that he often wonders whether the world is not in the throes of a second industrial revolution but rather a technological revolution. He was concerned that a whole class of jobs could either disappear or become deflationary.

"You (might not) see any more wage increases because of the pressure from technology," he said. Shiller added that Davos had taught him that people are trying to make sure they are in the top 1 percent of global earners. "This is desperation for many people," he said. "The problem now is we are going through a technological revolution, unlike any in history because we seem to be getting right to core abilities that people have, that's the ability to think, to know."

He added that knowledge from humans was becoming even more absolute because of technology. The example he gave was that astronomy is becoming more redundant with the advent of mobile applications. "They just whip out their phone and they can beat you," he said.

DH

It is a bit ironic that technological advances have actually made people less happy. Numerous surveys have shown that people feel more detached and depressed than ever before.

We are bombarded with more information that our brains can handle. Some of the information involves the wealth and success of others (which makes us feel like failures). Other information involves crimes, death and terrorism (which make us feel scared and insecure). Furthermore, one small misstep becomes instant social media news in which you're penalized for your intolerance or insensitivity. Finally, people now socialize by playing video games and texting friends.

Jesse's Café Américain European 'QE' In a Nutshell - Propagating the Western Trickle Down Policy Errors

EU disparately trying to avoid recession caused by creaking economic ties with Russia.

This is about it in a nutshell. 'Stimulus' American style comes to Europe.
Printing money and giving it to your cronies inflates asset prices, lines the pockets of the well-heeled heels, but does little for the real economy.

But it doesn't produce broad inflation (or aggregate demand) so we can do it many times! Success!

"At last the euro's lords and masters have accepted that something must be done about their zone's lamentable growth. They will unleash a massive bond-buying programme totaling a reported €1tn. The former BBC economic pundit Stephanie Flanders told the world it was "Santa Claus time"; the European Central Bank (ECB) has ridden to the rescue.
No it has not. Europe's great and good, partying on the slopes of Davos, are like courtiers at the Congress of Vienna. They are blinded by snow and celebrities. Santa Claus gives presents to people; the ECB gives presents to its banks. It is merely tipping large sums of money into the vaults of precisely the institutions whose crazy lending caused the crash of 2008, and which have been failing Europe's economy ever since.

Quantitative easing is a gigantic confidence trick. It was promised that it would yield new investment. It has not. It was promised that it would "pump money into the economy". It has not. It was also feared that printing money would lead to hyper-inflation. It has not, for the simple reason that no one gets to spend the money. It is a bookkeeping transaction between a central bank and a commercial bank. It means nothing as long as banks are told to build up their reserves.

Money in circulation matters. The whole of Europe, including Britain, is chronically short of demand, which is why deflation is such a menace. If no one can afford to buy anything, no one will sell anything or invest money in making anything..."

Simon Jenkins, QE for the eurozone is a gigantic confidence trick. It should fool no one

[Jan 22, 2015] Greek Elections, Europe's Identity Crisis

Jan 22, 2015 | Jesse's Café Américain

"Every man has a right to his own opinion, but no man has a right to be wrong in his facts...
Gold has worked down from Alexander's time. When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."
Bernard Baruch
"What is a cynic? A man who knows the price of everything and the value of nothing."
Oscar Wilde, Lady Windermere's Fan
I think you might replace the word 'cynic' in Oscar Wilde's famous quote with the word 'trader.' Especially the traders we have out and about in today's markets, who are better conmen than policy advisors. Of course one might say the same thing about our esteemed Congressmen, so perhaps it is better to say nothing, except to grasp your wallets more firmly.
President Obama will be giving his State of the Union tonight. Expect to hear some nice headline making proposals that will not have any impact on real legislation or policy. And this is by intent.
The plutocrats of Europe will be watching the Greek elections carefully on January 25. You may wish to keep an eye out for them as well. The EU is concerned that a left leaning government may be voted in that will buck the austerian trend.
American leadership has dementia, and is going to keep blundering around doing the same old, ineffective things, until something happens to change the situation.
Middle class income has been stagnant for forty years. Expect this to get a little attention, talk-wise. But little will be done.

[Jan 22, 2015] Financial TV Wasteland

The intellectual poverty of financial television is appalling:

Jan 22, 2015 | jessescrossroadscafe.blogspot.com

... ... ...
After the bell, both Netflix and IBM beat their earnings estimates, but missed on top line revenues.
Both are fine examples of low growth companies using accounting games to provide the appearance of vitality. IBM has been shrinking for quite some time, and Netflix, while it has potential, needs to change its model badly.
Or perhaps it would be more correct to say it should expand its portfolio of activities. But not being a true content provider, or a supplier of the pipe that carry its products, it is an interesting strategic position.
Let's see how the wash and rinse cycle proceeds. The Street would like to see stocks move higher now.
I turned to CNBC for relief from Trish Regan's pretty but nasal banality.
I noticed that CNBC had Rick Harrison, the purveyor of a Las Vegas pawn shop, and reality show star on as a guest commentator on macro-economics, providing policy advice. He may know the retail trade, but public economic policy, not so much.
I kept waiting for Steve Liesman to come on and provide the comic relief that Chumlee ordinarily delivers to give some entertainment value to Pawn Stars. Larry Kudlow was doing his schtick earlier on as 'Pops.'
The intellectual poverty of financial television is appalling: five miles wide, and an inch deep. No wonder the ratings were plummeting. See the quote from my friend Arby at the top of the page. Our elite ruling class is in the throes of cultural dementia.

[Jan 22, 2015] The Data Doesn't Lie - Here's What's Really Driving Interest Rates! Submitted by Thad Beversdorf via First Rebuttal blog,

Jan 22, 2015 | Zero Hedge
So Hilsenrath claims a little birdie (Fed insider) told him that rates will be raised later this year. I expect the Fed is just jerking him around. There is nothing fundamentally or otherwise to suggest rates will move up. I'm not sure if Hilsenrath is part of the game or just a gullible fool who is being used to keep the market off balance. Why would the Fed want the market off balance? The Fed does so intentionally because theory suggests such a strategy will improve the effectiveness of monetary policy (refer to rational expectation model).
Regardless of what the Fed says, the reality is that interest rates are not moving up anytime soon. It is shocking to me how arbitrarily economists make certain predictions. I mean don't get me wrong, I'm not a fan of ZIRP or NIRP. I see them as theft in the same way I see inflation as theft. Both effectively destroy the time value of money by way of politics and, these days more than ever, politics is simply another word for skullduggery.

kaiserhoff

The Fed will raise rates because they can't stop themselves.

They are arrogant, ignorant, out of touch, and out of ammunition. They see themselves as managers of the economy. No one else does, but at the moment they have no levers to pull, or buttons to push, except ONE.

Therefore, the idiots will push the button.

malek

The Fed will raise rates because [they can't stop themselves].

That statement alone has no significance to me.

The question is if they would raise in a meaningful way, so more than 0.5% overall (not necessarily in one step) and without some new rule bending such as govt bonds are exempted from the rate rise.
I'm sure the answer is NO (short of an impeding currency collapse, then they might raise rates as a last fruitless effort to save the dollar.)

falak pema

God forbid if the FED were put in the same conundrum as the SNB :

To choose between the real economy and the financial, casino "economy".

That's what the SNB retreat was about. It hurt the real economy to protect the franc against being inundated by bigger cousin Euro to which it was linked. "Can't afford an inflow of 100 B euros/month, no way! We will be drowning in devalued euros!"

If King $ is now harassed in similar fashion --as whispers and grumbles the US secretary of commerce-- : "We are being clobbered (think Boieng vs Airbus) by a STRONG $ in our export business"...

Then Potus will have to revise his book, caught between a rock and a hard place : If the $ continues to climb as FED tightens bond rates to accompany the so called virtuous spiral of US growth, -- "I am saying we are now in a growth cycle --- it will condemn the trade balance even more. And that cuts the ground under our feet!"

That is exactly where the SNB found itself last week....

Basically this means that Pax Americana is finding itself more and more stretched in this crisis to play Unilateral hegemon and ASSUME the consequences of its acts.

USA is no longer a young giant that towers like a colossus, more an old, aging baby boomer who needs to watch his gall bladder or liver.

NEOSERF

Borrowing to buy cars we shouldn't have, borrowing to get an education that is malaligned with the economy, borrowing to keep the dividends and EPS numbers where they need to be, borrowing to pretend that the Fed is propping up Main St...at some point, the numbers will be unfudgeable and the day after that David Tepper will be on CNBC telling us he is short everything and the economy is in freefall.

Wait What

banking establishments are more dangerous than standing armies... and the spending of money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale... bank paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs.

Thomas Jefferson

Fuck you Central Banks!

Clesthenes,

"I'm not sure if Hilsenrath is part of the game or just a gullible fool…"

It doesn't really matter: "part of the game" or "just a gullible fool".

A very large fraction of Americans are that way; and the main thing you need to know about them is that they will die, or kill, rather than correct their self-destructive habits.

And the problem, from our perspective, is, 'How do we protect ourselves from their murderous political system?'

First, a person in this "large fraction" is doing battle with a conscience riddled with guilt (for crimes committed or a life wasted). He will seek to control/destroy any action or word that might give power to his conscience; he will even destroy his own child for such end. And, when he is given political power, he will seek to control/destroy every such action or word within his power.

You can find these people by the millions: as family members, neighbors and, of course, thru-out every level of government, not to mention non-stop indoctrination machines (education systems, churches and media).

When you have millions of such people who use this power within their families, you have the political foundation for a nation-wide tyranny.

One of the co-relatives of this condition is that they will be led only by those who feed them a steady diet of pleasing lies. Let me make this clear: they will only be led by cutthroats and thieves: people who know they can obtain what they want only by falsehoods.

We live, in other words, in a system dominated by criminal and useless classes; and they know that their safety lies in crimes ever more numerous and heinous. As far as they are concerned, if destruction of the American economy – and, thus, the world economy – is necessary, so be it.

What is the solution?

We need to give them EXACTLY what they want: rule by thieves – and make sure they pay for it.

And that will be the problem, 'How do we protect ourselves from their rule by thieves?'

Protection from their tyranny WILL NOT COME simply by wishing to be left alone. For, to win their struggle against their conscience, they, by the millions, secretly long for the day when they will have the power necessary to "permanently" rid the earth of those who ask too many questions or describe too many crimes. For those who doubt this aim, let them explain the all-too-many death squads established across the planet. Such death squads were trained at Academy of the Americas in the American state of Georgia. In America they go by several names, FBI, CIA, local police, the DHS – especially the DHS (Department of Homeland Security); for, the DHS was specifically modeled after French committees of terror (1792-4), the Judeo-Bolshevik Cheka (aka NKVD, KGB et cetera) and the Nazi Schutzstaffel.

The primary purpose of these organs of terror was to protect rule by thieves by eliminating all dissent. If the DHS is modeled after those historical instruments of terror, what possibly could be its purpose?

Isn't that a silly question?

After all, what does the DHS plan to do with 2-3 billion rounds of ammo… an amount sufficient to wage an Iraqi War, at its highest rate, for 25 years? Remember, so-called terrorists do not travel as armies; but, rather cells of 5-10… and the DHS needs 2-3 billion rounds of ammo for these tiny cells… you know, the ones established by the CIA or FBI? Try again.

The real purpose of the DHS is to secure rule by criminal and useless classes by literally exterminating large numbers of productive and thrifty classes. Those in the productive class provide market-related goods and services; those in the thrifty class include all those who have accumulated an earned savings (opposed to a plundered savings). Such savings can be in the form of physical gold, or ownership of a business, stocks or bonds, among others.

Do you think you will survive this extermination merely by sitting back and waiting for the crash? You'd better reconsider your posture.

This is the warning that comes from reading the act of Congress that established the DHS. This Act created a system by which informers could make false allegations against anyone they please with near-total impunity. Of course, such informers aren't described as informers; rather they are given the title "submitting person" and their falsehoods will never be examined by any court or legislature or law enforcement agency. The legislation even specifies how this immunity is obtained. The "submitting person" only has to give an "express statement" that his lies were "voluntarily given" and that he expected "protection from disclosure". It's all there, in the act that created the DHS.

I'm sorry guys, but silly season is over.

If you want to survive, you have to combine with others of like mind for the purpose of mutual protection, among other purposes. The big question now is, 'HOW is this to be done?' And the quick answer is, 'You must establish First-Amendment assemblies – the only historically-proven method by which men have made their lives and property secure from rule by thieves.'

The American Revolution, you see, was powered by a large network of such assemblies: from town meetings, county meetings, state conventions and, ultimately, Continental Congresses.

I'm sorry, again: but I seem to be the only source for this information – despite all my efforts to distribute such knowledge.

Real, effective, protection is only possible by knowledge of the law and procedures of redress – and actions based on that knowledge.

[Jan 20, 2015] IMF says economic growth may never return to pre-crisis levels

Oct 7, 2014 | The Guardian

World economic outlook expects global growth to be 3.3% in 2014, down from its April forecasts as countries fail to recover strongly from recession

gtggtg -> dubium 10 Oct 2014 00:40

"Growth is the need for ever perpetually bigger profit. Nobody needs that."
Well, the capitalist system needs that.

"It does not even make sense."
Agreed, the capitalist system does not even make sense.

Dave Gardner 9 Oct 2014 09:48

IMF and this story make the Wall of Shame today at Growth Bias Busted: http://www.growthbiasbusted.org/wall-of-shame/entry/imf-repealing-laws-of-physics-taking-longer-than-we-thought

ruffsoft 8 Oct 2014 21:12

In a 3d world economy, which the world is devolving towards, high profits for corporations are matched with falling wages. The rich get richer, the working class gets pooer.

In the US, for over 30 years, median wages have fallen 40%, 15% since 2000.
Meanwhile, GDP is at record highs and CEO salaries are higher than ever.

Growing profits and GDP is not a recovery if wages continue to fall; it is just the signature of a 3d world economy, with fabulous wealth at the top and rising poverty among the working class.

Only shared prosperity is recovery; growing inequality is not economic recovery but successful class warfare.

Cynndara -> Mohammed Karim 8 Oct 2014 14:43

Don't worry. America is chock-full of salesmen. It's our specialty. Anyway, when the voters are faced with a choice between Tweedle-Dum and Tweedle-Dumber, it hardly matters whether they're sold or not. There are only two candidates for any job, and they are both owned and operated by the Big Banks. Americans no longer have an effective democracy, only the illusion of one. So if Goldman-Sachs feels that your recipe will do the trick, it will be rammed down our throats regardless of votes.

Cynndara -> Beginner20 8 Oct 2014 14:27

Right. The "developed" economies are no longer even producing enough to cover their own needs, let alone enough to create a positive net balance. With the interconnection of the world through mass communications, they can no longer plunder the smaller nations of the world and claim the loot as "productivity". So of course there can't be real growth. The idea that we could produce more and more every year was always an artifact of trading "free" goods from the natural and undeveloped world for the costly products of industry. When those "free" goods come with a pricetag, capitalism collapses.

Cynndara -> ID5088152 8 Oct 2014 13:52

Unionized manufacturing workers in the 50s made EXTREMELY good pay, on par with middle-management jobs. Remember that these were one-income families, with an employed male supporting a wife and several children from one salary. Also, immigration limits, lack of robotics and the residual labor-shortages of WWII made trained heavy-industry workers scarce and valuable.

GoddessOFblah -> hermanmitt 8 Oct 2014 13:30

There is actually nothing wrong with capitalism, but we have not had it for over 60 years.

What we now have is corporatism which, in short, can be described as financial fascism.

Don't agree with capitalism but that's very well said. Like with all ideologues - starts off great until the 1% horde the power/wealth for themselves.

simplevillageexpat 8 Oct 2014 12:08

Can't understand why all these economists are surprised that the Eurozone isn't recovering. Tied in the straight-jacket of the euro means EZ countries can do nothing for themselves except impose the slow death of austerity. With Germany racking up massive payments surpluses using the euro to avoid the otherwise inevitable currency appreciation for themselves. Other EZ countries cannot export within the Euro Zone as their prices are held too high. With Germany in the Euro the Euro itself is higher than they need to export outside the EZ (although they are doing a remarkable job in the circumstances). There is nothing left to fuel a recovery. Surely we are close to the end of this crazy game of Monopoly where the well placed get stronger and the others go bankrupt. Like a game of Monopoly the eventual winner now has no one to buy their products so they too are not recovering!

Its all been very predictable and predicted since Maastrict. But then, I'm just a simple ex-pat from the village. I know nothing!

AmandaMatthews 8 Oct 2014 10:11

The IMF is half our problem. They backed the financial terrorists who brought down half the world's economies. Their policies of rewarding rich at the expense of everyone else is one of the things that guarantees 'no growth'. The Austerity programs that they cursed so many nations with have caused nothing but chaos and hardship for everyone but our Wall Street/'City of London' financial terrorists.

Contrary to what the whizbangs of finance tell you, the true financial health of a nation isn't predicated on how well the stock market is doing, but on how well the people are doing.

SirTalbotBuxomly -> Gelion ,7 Oct 2014 9:59

As does Osborne in the UK where the Right Wing media and the Tories talk about a "Recovery" but for most people there is no such thing.

The recovery isn't measured by 'what most people think or feel' or whether their wages have gone up. Growth is measured objetively not anecdotall which is why the article says...

The Fund said the outlook was brighter in the US and the UK, which were "leaving the crisis behind and achieving decent growth". Britain is forecast to see its gross domestic product increase by 3.2% in 2014 – up 0.3 points from the April WEO and the fastest of any G7 nation.

And that's why people trust the Tories much more than Labour with the economy and that's why Labour are behind int he opinion polls.

Investing Quotes

.."In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices break through the limit in either direction."..

Jesse Livermore

My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire.

They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive.

The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets.

Finally, every investor understands the principle 'buy low and sell high', but when prices are low nobody wants to buy.

Marc Faber

Michael Roberts Blog

Indeed, that is the story for most capitalist economies in 2014 (Europe, Japan, the US and the UK): weak economic growth, poor business investment and falling real incomes for the average household.

The global economy remains in a crawl and will do so in 2015 for one good reason: the failure of business investment to leap forward. Goldman Sachs reckoned this time last year that there would be a global investment boom in 2014. That has proved to be a mirage in Europe, Japan, the UK and in the major so-called emerging economies of China, India, Brazil and Russia, where investment growth has slowed markedly or collapsed, as in the case of Russia (see my post, https://thenextrecession.wordpress.com/2014/12/08/oil-the-rouble-and-the-spectre-of-deflation/).

The emerging markets of Brazil, Russia, India and China collectively known as the BRICs - will likely grow in 2015 at their slowest pace in six years, according to Oxford Economics. Only the US has shown some pick-up in investment.

As I said last year, the reason that business investment has not boomed is that in most economies average profitability remains below levels before the Great Recession and below levels reached in the late 1990s. Most economies are still experiencing the downwave in the profitability cycle, as explained above. Coupled with the downwave in the Kondratiev cycle, that is why the global capitalist economy is in what I call a Long Depression, with some years to run.

Daniel de França, December 31, 2014 at 12:01 pm

You said one of these days that to recover profitability a world war would be necessary. Or maybe I am confused?

michael roberts, December 31, 2014 at 1:11 pm

Not every depression has been ended by war. But there have not been many depressions to judge! Perhaps the first capitalist depression of the early 1800s was ended by the Napoleonic wars. And the Great Depression of the 1930s was ended when America entered the war in 1941 and built up arms before hand. The Long Depression beginning in 1873 did not end in a world or even European war so it actually lasted longer and with varying degree of severity in different countries up to 1896. The current Long Depression is only seven years old. I think it might end around 2018 if there is a sufficient destruction of capital values by then. All this is a calculated guess – but calculated. I have said the opposite to what you think I said. I dont think this current depression will be ended by a world war, although there is permanent war – regional and local ones.

Philip Ferguson, December 31, 2014 at 2:14 am

Hi Michael,
you might be interested in this: http://rdln.wordpress.com/2014/12/31/michael-roberts-essays/

We re-blog a lot of your articles – mainly the ones on the world economy rather than individual countries – so we're happy to help out advertising your work.

This blog is a wonderful resource for anti-capitalists.

All the best for the New Year,
Phil

sartesian, January 4, 2015 at 1:06 am

Here's a prediction: growth will slow, turn negative, etc; things will get worse, the rate of profit will fall, and capitalism will not collapse; it will go on being capitalism until it is overthrown. Overproduction, financial crises, plummeting oil prices are just part of capital being capitalism; "The price of beef may be high or low, but it always involves the same sacrifice for the ox."
GrahamB, January 4, 2015 at 11:41 am
> Russia, Ukraine and Venezuela. Where else do you think growth be negative next year?

sartesian, January 4, 2015 at 1:07 pm
Italy, Cyprus, Slovenia, possibly the eurozone as a whole, Argentina, South Africa, Egypt, Nigeria, Angola, Libya, Senegal, Ecuador…..
GrahamB , January 4, 2015 at 1:46 pm
Well, the eurozone is of course the big unknown and I think the ECB will be forced to act early in the new year. If there is any improvement in the eurozone, global growth will probably be higher next year.
sartesian, January 4, 2015 at 4:38 pm
OK, that's your prediction. I have two predictions: (1) This shit–capitalism– will continue until it's overthrown. (2) Predictions will make absolutely no difference.

sartesian , January 5, 2015 at 6:25 pm

Now that's very interesting. I think maybe the problem is in viewing Capital as a "close and abstract" model– rather than as a critical analysis of the laws of capital accumulation and the immanent contradictions of that accumulation.

In a sense– right, no abstract closed theory can account for all variations, iterations of structural changes in a concrete mode of production. But historical materialism can and does.

I think that's what we're "supposed" to do with Capital– grasp its analysis as a means for apprehending what is going on here (or there) now (and then) in the mode of production.

Capital is not complete, in, of and by itself, without that historical materialism– without that recognition and apprehension of class struggle.

Henry, January 5, 2015 at 6:37 pm

Yep, I agree with that. Except closed and abstract can be at the same time a critical analysis. i think Marx was fully justified in his abstractions in Capital. I just think some Marxists can't see the world and the system beyond the abstractions.

GrahamB, January 5, 2015 at 7:01 pm

Some Marxists use a high frequency crisis predictor so it's not surprising that they sometimes get it right. Predicting capitalist non-crisis periods is less successful. And slow, stagnation, crisis and depression get used too loosely.

Edgar , January 6, 2015 at 9:16 pm

Maybe, but 2008 was a crisis! Some think it was merely a blip.

There is one thing not predicting a crisis but if you can't actually see one when it explodes in front of you then you have to ask, what use are you? I think the permanent revolution perspective, which I assume you are part of (Billj and that crowd), didn't regard 2008 as a crisis at all?

davidellis987, January 6, 2015 at 3:07 pm

How did we get here and where will we go?

Behind every crisis of capitalism is the fact that it takes more and more capital to make a decent rate of return. Capital constantly comes up against its political economic limits which prevent further growth and even throws the system into reverse. It has to burst through these arrangement once so favourable if it is to grow again. It takes great violence to overthrow the previously established political economy. It took two world wars and a Great Depression to establish American hegemony over a declining Europe and even then the assistance of world Stalinism was required.

But the post-War political economic arrangements could only deliver a boom of less than thirty years duration before profitability became an issue once again. This crisis of profitability which left the West stagnant, sclerotic and monopolised forced it into seeking an aggressive victory in the Cold War. An assault on the domestic and international working classes was launched along with an unprecedented credit-driven boom based on bank de-regulation.

Stalinism surrendered in the teeth of the West's spending and its weaponry not to mention a Western leadership seemingly mad enough to use them. Victory pushed America to seek to establish itself as the sole and only global super power. But the mighty US became militarily and morally bogged down in Iraq and Afghanistan and in 2008 the real cost of `winning' the Cold War became apparent when the Bankers' 30-year Ponzi Scheme collapsed in spectacular fashion.

The very forces whose emergence US imperialism had hoped to prevent were now evoked by its own efforts and US-sponsored globalisation began to unravel. The world economy is now stagnant, sclerotic, monopolised and irrevocably and completely bankrupt. The unravelling of globalisation will be a process ten times more violent than the process that established it and of course there is no America waiting in the wings to save America. There are no seriously conceivable new political economic arrangement into which capitalism can now move even if the old is swept away with great violence. A system that cannot change is a dead system.

Capitalism is a dead system. Our choice is to go with it to a New Dark Ages in which war is a permanent condition, a regime of global savagery a glimpse of which can be seen in Syria or Gaza or Baghdad today, or we can transcend capitalist globalisation through world proletarian revolution establishing a global commonwealth of proletarian nations taking global economic integration to the next level and putting our barbaric past behind us.

matt Says:

January 8, 2015 at 1:01 am

"So, I'd say that in terms of profit recovery, Russo-Japanese war is the start of a unique World War that lasted from 1905 until 1945."

Yep, that's a good starting point. Russia (Federation) and Japan, two sinking countries today.

Thanks for your mighty efforts generally, Michael.

Don't know about Kontratief waves myself, but I agree that the end of the long depression involved an escalating series of imperialist wars, culminating in the First World War.

That's not likely this time around, despite that destruction of the Russian Federation is virtually official U.S. policy. The Russian neo-con far right and fascist fringe cannot be mobilized for the destruction of the multinational federated state, as they presently have in Russian neo-imperialism what they would seek for if they were Ukrainian.

The Russian neo-liberals cannot overthrow the Putin regime, or any possible Russian Federation regime, without the Russian neo-fascists, as the actual outcome of the Maidan showed. And Ukraine is scheduled for reaming this year, by the EU and US oligarchs. Anyway a couple of key predictions neglected.

[Jan 19, 2015] Investment Outlook by Bill Gross

Be cautious and content with low positive returns in 2015. The time for risk taking has passed

January 2015
... I'll leave the specific forecasting for a few weeks' time and sum it up in a few quick sentences for now: Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over

Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don't do it. The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell

Nevertheless, there comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns. Now is that time and hopefully the next 12 monthly "Ides" will provide some air cover for me in terms of an inflection point

2015

Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the "crowd" has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months

My investment template shares a lot in common with, and owes credit to, the similar templates of Martin Barnes of the Bank Credit Analyst and Ray Dalio of Bridgewater Associates. All three of us share a belief in a finance-driven economic cycle which over time moves to excess both on the upside and the downside. For the past few decades, the secular excess has been on the upside with rapid credit growth, lower interest rates and tighter risk spreads dominating the long-term trend. There have been dramatic reversals as with the Lehman Brothers collapse, the Asia/dot-com crisis around the turn of the century, and of course 1987's one-day crash, but each reversal was met with a new and increasingly innovative monetary policy initiative on the part of the central banks that kept the bull market in asset prices alive

Consistently looser regulatory policies contributed immensely as well. The Bank Credit Analyst labels this history as the "debt supercycle," which is as descriptive as it gets

Each downward spike in the economy and its related financial markets was met with additional credit expansion generated by lower interest rates, financial innovation and regulatory easing, or more recently, direct central bank purchasing of assets labeled "Quantitative Easing." The power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981. Even with the recognition of the Minsky Moment in 2008 and his commonsensical reflection that "stability ultimately leads to instability," investors have continued to assume that monetary (and at times fiscal) policy could contain the long-term business cycle and produce continuing prosperity for investors in a multitude of asset classes both domestically and externally in emerging markets

There comes a time, however, when zero-based, and in some cases negative yields, fail to generate sufficient economic growth. While such yields almost automatically result in higher bond prices and escalating P/E ratios, their effect on real growth diminishes or in some cases, reverses. Corporate leaders, sensing structural changes in consumer demand, become willing borrowers, but primarily to reduce their own outstanding shares as opposed to investing in the real economy. Demographics, technology, and globalization reversals in turn have promoted a sense of "secular stagnation" as economist and former Treasury Secretary Larry Summers calls it and the "New Normal" as I labeled it as early as 2009. The Alice in Wonderland fact of the matter is that at the zero bound for interest rates, expected Returns on Investment (ROI) and Returns on Equity (ROE) are capped at increasingly low levels. The private sector becomes less willing to take a chance with their owners' money in a real economy that has a lack of aggregate demand as its dominant theme.

Making money by borrowing at no cost for investment in the real economy sounds like a no-brainer. But, it comes with increasing risk in an environment of secular stagnation, demand uncertainty, and with the ROI closer to zero itself than an entrepreneur is willing to bear.

The power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981

And so the miracle of the debt supercycle meets a logical end when yields, asset prices and the increasing amount of credit place an unreasonable burden on the balancing scale of risk and return. Too little return for too much risk. As the real economy of developed and developing nations sputter, so too eventually do financial markets. The timing – as mentioned previously – is never certain but the inevitable outcome is commonsensically sound. If real growth in most developed and highly levered economies cannot be normalized with monetary policy at the zero bound, then investors will ultimately seek alternative havens. Not immediately, but at the margin, credit and assets are exchanged for figurative and sometimes literal money in a mattress. As it does, the system delevers, as cash at the core or real assets at the exterior become the more desirable holding. The secular fertilization of credit creation and the wonders of the debt supercycle may cease to work as intended at the zero bound.

Comprehending (or proving) this can be as frustrating as understanding the differences between Newtonian and quantum physics and the possibility that the same object can be in two places at the same time. Central banks with their historical models do not yet comprehend the impotence of credit creation on the real economy at the zero bound. Increasingly, however, it is becoming obvious that as yields move closer and closer to zero, credit increasingly behaves like cash and loses its multiplicative power of monetary expansion for which the fractional reserve system was designed.

Finance – instead of functioning as a building block of the real economy – breaks it down. Investment is discouraged rather than encouraged due to declining ROIs and ROEs. In turn, financial economy asset class structures such as money market funds, banking, insurance, pensions, and even household balance sheets malfunction as the historical returns necessary to justify future liabilities become impossible to attain. Yields for savers become too low to meet liabilities. Both the real and the finance-based economies become threatened with the zero-based, nearly free money available for the taking. It's as if the rules of finance, like the quantum rules of particles, have reversed or at least negated what we historically believed to be true

And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows

Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable

Debt supercycles in the process of reversal are not favorable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable "Ides" sometime during the next 12 months.

Be cautious and content with low positive returns in 2015. The time for risk taking has passed

[Jan 19, 2015] The End of Our Financial Illusions - By Simon Johnson

In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.

April 17, 2014 | NYTimes.com

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You."

The global financial crisis that broke out following the collapse of Lehman Brothers in September 2008 was a big shock. This is literally true in terms of the impact on investors and market prices; a wide range of financial variables moved rapidly in unexpected and worrying directions. But what happened was also a shock to the realm of ideas about finance.
Before September 2008 - or at least before 2007, when some of the underlying problems first became more clearly manifest - the prevailing consensus among officials and specialists was that financial innovation was a good thing. In isolated instances, a particular new product might not work out as planned, as happens, for example, with medical innovation. But over all, the consensus went, financial innovation led by the private sector was making the system safer and more efficient.
This view was wrong.

In its day, this line of thinking justified the legal and regulatory changes that allowed some banks to become very large and to build up a much more complex range of activities in the 1990s and early 2000s, including through various kinds of opaque derivatives transactions.

In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.

Of course, some bankers knew exactly what they were doing as their companies increased their debt relative to their equity. On average, large complex global banks had about 2 percent equity and 98 percent debt on the liability side of the balance sheet before the crisis, meaning they were leveraged 50:1 (the ratio of total assets to equity).

The good news is that the official consensus was shattered in 2008, and is not coming back. Systemic risk slapped everyone in the face with an undeniable wake-up call.

However, the process of reforming the financial system is still at an early stage. The Dodd-Frank financial reforms of 2010 represent a useful start - including the Volcker Rule's restrictions on excessive risk-taking - and the recently adopted Basel III framework for capital regulation nudges equity requirements higher.

But the world's largest banks will, by one informed estimate, end up - as things currently stand - with about 3 percent equity and 97 percent debt as the average structure of their balance sheet liabilities. In the United States, if the latest leverage rule is implemented and enforced properly, this will become 5 percent equity and 95 percent debt for the biggest eight banks by 2018. While 20:1 is better than 50:1, this is still not enough equity to assure a reasonable degree of financial stability in the foreseeable future.

The argument about finance has now shifted and is much more about whether capital requirements for the largest banks should be increased further. Those opposed to such a move offer three reasons why big banks should not be required to fund themselves with much more equity.

First, some people contend that the crisis of 2008 was a rare accident and Dodd-Frank fixed whatever problems existed. This is completely unconvincing - particularly because many of the same people have spent much of the last four years opposing and delaying financial reform.

Most importantly, it ignores the ways in which incentives and rules have changed since the 1980s. As James Kwak and I asserted in "13 Bankers," the structure of the financial system is quite different now from what it was in 1980. In particular, the largest banks have become much bigger and more able to take on (and mismanage) much more risk.

The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat. This is the view sometimes associated with former Treasury Secretary Timothy Geithner. (Mr. Geithner has a book coming out soon, and it will be interesting to see his current position on this point).

But the impact of any financial crisis is not measured primarily in terms of whether the Treasury made or lost money on specific investments. The criteria instead should be what happened to output and jobs, as well as what the impact was on the country's fiscal accounts. How much more public debt do we have now relative to what we had before - and what kind of lasting negative effects will that have?

Mr. Kwak and I took this on in "White House Burning," putting the recent surge in public debt in the longer-run context of American fiscal policy. No matter how you look at it, the financial crisis was a complete disaster for the real economy and, given the way fiscal politics work in the modern United States, for the budget and for investments in any kind of physical infrastructure and education.

The third counterargument is that large complex financial institutions are needed because they provide some sort of magic for the broader economy. This still seems to be the view of some people at the Federal Reserve Bank of New York, which recently published a set of research papers on the topic.

But the benefits they find are small relative to the potential costs. Anat Admati and Martin Hellwig's "The Bankers' New Clothes" makes the vulnerability of modern banking abundantly clear.

A recent report from the International Monetary Fund finds that the United States and other governments are providing large implicit subsidies to these big banks: The prospect of potential government support lowers their funding costs by about 100 basis points (one percentage point).

Many people are involved in the official sector's rethinking of finance. This is the lasting contribution from books such as Sheila Bair's "Bull by the Horns," Neil Barofsky's "Bailout" and Jeff Connaughton's "The Payoff." In government circles, key decision makers were swayed by officials including Thomas Hoenig and Jeremiah Norton (both of the Federal Deposit Insurance Corporation) and Sarah Bloom Raskin (then on the Board of Governors of the Federal Reserve System; now at the Treasury Department). As chairman of the Commodity Futures Trading Commission, Gary Gensler had an immensely positive impact, both directly on the regulation of derivatives and also more broadly.

The Democratic senators Sherrod Brown of Ohio, Jeff Merkley of Oregon and Carl Levin of Michigan and Ted Kaufman of Delaware (who has since left the Senate), along with David Vitter, Republican of Louisiana, played key roles in shifting opinion. Elizabeth Warren's work, both before and after her election to the Senate from Massachusetts, has also had great influence.

Of all the civil society organizations seeking to promote financial stability, Dennis Kelleher's Better Markets stands out for its major impact through a relentless surge of arguments, comment letters and research. Its report on the cost of the crisis made clear beyond any reasonable doubt that the crisis had profound negative consequences for millions of people.

Many other officials have also shifted their views in important ways. We are not going back to the old ways of thinking about finance, and allowing for changes in these theories is an essential part of any modern economy. Finance needs to be regulated effectively, and large banks should fund themselves with much more equity than is currently the case.

Selected Skeptical Comments

toom, germany 19 June 2014

The basic question is whether financial trickery and juggling can produce wealth? Certainly these tricks produce wealth for the bankers on Wall St. But how about the rest of us?

The answer is "maybe, sometimes". The pension funds profited from 1980 to 2007 and then again after 2010, with help from the Fed. However the wealth increase from 1980 to 2000 was mainly from the export of manufacturing jobs from the US to China. That will never occur again.

So we are stuck with 1% return on investment, unless trickery or some new invention (a new kind of cell phone, or more broadband or alternate energy?) occurs.

jack waymire, sacramento, ca 22 April 2014

Sure 20:1 leverage on balance sheets is better than 50:1 leverage, but the intellectuals are missing the point. Who wins when banks are excessively leveraged? Shareholders? Clients? The U.S. economy? I submit the primary beneficiaries are the executives who run the banks. They make decisions with impunity. Increased leverage increases profits which increase executive bonuses. Shareholders may benefit if company stocks rise in value. Highly leveraged balance sheets create a huge risk for all Americans - except the executives who made the decisions to leverage the balance sheets and get into businesses they barely understand.

Justin, Ohio 18 April 2014

You nail it perfectly. But we need to ask broader question: Is American Dream a myth?
It seems to me American Dream is clearly a form of both myth and illusion and propaganda used by the upper classes to keep the lower classes or the 99% in their place.

I'm shocked!, America 17 April 2014

"The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat."

Let's find the person who said that and feed him to the tens of millions of unemployed people.

Jeff Atkinson, Gainesville, GA 17 April 2014

It's pretty simple. TBTF bank managers want to be regulated and paid like hedge fund managers but with a huge edge in the form of implied government assurances for their suppliers of capital. Such assurance can be purchased cheaply with political contributions and post government jobs for regulators.

Robert Baesemann, Los Angeles CA 17 April 2014

Bravo. I was prepared to read a rehash of the Collected Scientific Papers of Jamie Dimon," but this piece is very informative and helpful. The most critical issue on my horizon is the stability of the financial system. What I ask is whether or not the system is as stable as it was in 1998, or is it still teetering the way it was in 2007. In 2008, we observed the failure of Lehman, the rescue of several others (Merrill merged into BofA), and the failure and rescue of two money market funds that failed to make the buck. This seems to have been a global run on the banks which was cut off, but narrowly cut off. If there is a next time, the 2008 experience will only cause the fingers on the triggers to be quicker than they were in 2008. This seems to mean that we are not far removed from the lethally dangerous circumstances of 2008.

Thank you for pointing out the need for better financial regulation. As I recall, under Glass-Steagall commercial banking and investment banking were separate (no Merrill-BofA unions) and commercial bank reserve requirements were set by the FED at 20% to 25% or 4 to 1 or 5 to 1. In those days, commercial banks could not make profits like investment banks, but they could not drage the entire world into Depression. Investment banks were left to deal with people silly enough to gamble on Wall Street rather than Las Vegas. Oh for those halcyon days.

Murray Kenney, Ross, CA 17 April 2014

More equity = less lending. Less lending = less capital, particularly for small and medium sized businesses and for consumers with weak credit histories. Less capital for small and medium sized businesses and moderate income consumers = less economic growth.

That's why European Governments have resisted higher capital levels. They'd rather backstop their banks and treat bank debt as an off balance sheet liability of their governments than acknowledge the problem created by slow economic growth, excess supply, weak demand and low interest rates.

Michael F. Rhodes, Vancouver, Canada 17 April 2014

That is bunk. Financial alchemy has been tried in history (4th century Rome, post-war Germany and Basel risk weights). They don't work. Value creation, not finance creation, drives durable economics. Stop the apologetics. Tell people to work harder.

Manuel Morales, San Juan, Puerto Rico 17 April 2014

Financial illusions may be stronger than they may have ever been.

Professor Johnson writes that the financial crisis was a complete disaster to the real economy. Dennis Kelleher estimates a $12.8 trillion debacle in that same real economy with a negative impact that will be felt for years, if not decades, to come.

The doyens and shamans of 'high finance' have only received timid penalties for the global destruction they triggered while companies in the tangible economy, causing much less damage, are oftentimes chastised much more strongly and receive relatively far stricter punishments.

Regrettably the all-inclusive list of wizards of Wall Street are doing fine, are much alive and vigorously kicking while working compulsively to find 'innovative' and ingenious maneuvers to outfox regulations while moving higher on the 1% list.

The distressed state of affairs caused by the Great Recession may prove not to be the Main Event. Only time will tell.

Bob Feinberg, DC area 18 April 2014

At a recent event in Washington, Mr. Kelleher drastically raised his estimate of the embedded cost of the ongoing crisis due to overvaluation of swap positions of the TBTF banks. No one seems to know what this exposure is, and the prevailing view is that this is minimal because the positions net out.

The people who say this are the same ones who minimized the practices that gave rise to the 2008 episode of the ongoing, permanent crisis. The positions don't necessarily net out unless they are opposing sides of the same trade.

To estimate this exposure at several times the GDP of the US is probably conservative, but no one seems to know. Meanwhile the efforts of the so-called regulators are directed at preventing a so-called "default event" that would require these losses to be recognized.

BB, Orlando 17 April 2014

An excellent article. I completely agree that "Finance needs to regulated effectively and large banks should fund themselves with more equity." However, this is not going to happen until there are major political changes in the United States. The country is not a democracy, but a plutocracy. Wealthy people have benefited immensely by the status quo whereas the middle and lower classes have been devastated. This is because the government and the supreme court are controlled by big business. All elected government officials get in office with big business funding and they will act accordingly. The supreme court has exacerbated this situation by ruling that there should be no limits on campaign contributions. Campaign contributions need to be severely limited so educated, capable people from the middle and lower classes have an equal chance to play a significant role in government. How about a physicist as president(eg Ms Merkel)!.

Only a wealthy person such as Timothy Geithner would have the opinion that the costs of the financial crisis were not huge. He would feel differently if he was standing in the unemployment lines. The current plutocracy wants big profits which mean shipping jobs overseas, lower wages and more unemployment.

Dryly 41, 17 April 2014

Every thing that Professor Johnson says is spot on. Indeed, he is the only major economics professor that has identifies the source of the September 15, 2008 collapse of our financial system for the first time since October of 1929.

He is also the only one who has pointed out that Dodd-Frank didn't fix the problems created by the reversion to the Laissez Faire of Harding, Coolidge, Hoover and Mellon from the "strict supervision" of FDR.

We will once again return to "strict supervision" of finance. The only question is whether we do it before or after the next financial collapse. A wise and prudent nation would do it before but there is insufficient wisdom and prudence at this unfortunate time in American history.

Bob Feinberg, DC area 18 April 2014

Prof. Admati is another relentless leader of this debate. While the calls for stricter regulation of banks have grown louder, the opposition by the industry has hardened, and industry executives and lawyers are still running policy. This industry is, in effect, regulated by its own lawyers. To have meaningful regulation of this dangerous industry would required Transparency, Independence, and Accountability, all of which have been lacking throughout the decades of the ongoing, permanent crisis, and they still are.

Ms B, Buffalo 17 April 2014

Back in the 80's a local savings bank went "big time" around here with fancy deals in Florida and Texas. The deals were put together with the bank as lender with a piece of the ownership/equity as well. They bankers thought it was the cats meow, the cutting edge of sophisticated banking. The deals all tanked and the bank went down. Same nonsense now with different players and an even better means of obfuscation and rent seeking. Today, unfortunately the banksters are above the law and burning town the country has no consequences.

Larry L. Dallas, TX 18 April 2014

Here's a fact about the Oil Boom and the S&L Mess that happened in its midst that few people know:

EVERY SINGLE STATE BANK IN THE STATE OF TEXAS WENT UNDER IN THE AFTERMATH.

The 2008 Crisis was that smaller crisis writ large on the national and global scale. The fact that two idiots from Texas (Armey and Gramm) had a hand in the elimination of the Depression-era financial regulations that eventually led to 2008 just show that idiots are not capable of learning from prior experience.

Mark T, is a trusted commenter New York NY 17 April 2014

This sounds like a valedictory and indeed I hope it is the last post on this topic on which so much has been said (and repeated, and repeated).

One official unwisely unmentioned is Daniel Tarullo who is at the forefront of the push for greater macroprudential regulation. Among authors who should have been mentioned are Viral Acharya who has published a lot on systemic risk, Raghuram Rajan's Fault Lines is essential to understand the role of debt in the political economy of the post-gold-standard Western economies; and no analysis of the crisis is worthy of mention unless it faces up to the role that bank capital regulations played in shaping the portfolios of banks, which one can explore in Friedman's Engineering the Financial Crisis.

The post manages to discuss the financial crisis without once even alluding to the role of the GSE's and their politically driven acquisition of credit risk despite being overleveraged, through use of the implied government guarantee. Nor does it touch on the foreign role in the chase for yield, the connection between the trade deficit and the issuance of debt securities to countries with trade surpluses, or the mismatch between pension promises and pension funding that is one of the major sources of the growth of financial risk over the past two generations. Everything gets laid at the feet of 13 bankers. Unbelievable, yet so convenient, since it allows a whole sector of the elite to ignore the consequences of their policy preferences.

Larry L, Dallas, TX 17 April 2014

The problem with your argument is that same people who wanted to eliminate the Depression-era regulations were also the same people who wanted free trade which offshored a significant of the country's job base (and therefore its tax base and consumer spending capacity).

The result was higher federal deficits (which led to 5-fold increase in the national debt within a generation), higher gov't spending on transfer payments to make up for that lost personal income, a higher trade deficit from all of the imports and the reduced domestic expenditures on everything from education, R&D and infrastructure as a % of GDP.

The very same people who gave us the Financial Crisis were also responsible for the vicious cycle in the real economy.

E.T. Bass, SLC 18 April 2014

More to the point:

A bubble burst. "Bi-partisan" efforts at "home ownership" blew up, due to very highly questionable home mortgages. Which caused Lehman and Govt. Motors to blow up.

Outcome: second worst economic disaster in 100 years.

Today -- the most anti-small business president in history (per N.F.I.B.) who publicly snarls at the U.S. House and the slowest economic recovery in 100 years.

Res ipsa. Entirely predictable.

Steve, Raznick 17 April 2014

To be very clear, very precise, the banks were completely incapable of anything approaching accuracy when it came to the risks they took. Enough with this myth that these are unbelievably intelligent people who having attended a school with name people recognize inculcates them with special powers of divination.

We have 5 financial lobbyists for every congressmen. Just one illustration of how the game is tilted. Those lobbyists do not care about the financial security and welfare of the people. They care only about themselves and thwarting passage of any legislation which creates a sustainable, viable finance industry.

[Jan 16, 2015] Moody's Says Russia's GDP To Fall By 5.5% In 2015

There can not exist nether "free markets" nor independent rating agencies. Especially under neoliberalism. credibility. It's the same Moody that rate AAA mortgage CDOs before 2008. How many people dearly pay for their recklessness?

Moscow Exile, January 16, 2015 at 10:29 am

A Peter pre-empt:

Moody's Says Russia's GDP To Fall By 5.5% In 2015

Russia Says Inflation Could Hit 17% by March

For Navalny:

Get round here, Tagansky District, quick!

They're still selling milk at our local supermarket for 45 rubles a litre.

Bring some Western hacks if you can.

kirill, January 16, 2015 at 2:45 pm
The same clown outfit, Moody's, predicts a 2% drop in Ukraine's GDP in 2015:
http://www.credo-line.com/en/media/news/Moodys-predicts-Ukraines-GDP-to-fall-by-8-this-year-and-2-in-the-next-year.htm

Moody's has zero credibility.

[Jan 12, 2015] Goldman tries to make oil prices go lower

In a note to clients, Goldman Sachs slashed its forecast for oil prices. It now estimates that crude will average $50.40 a barrel this year, far below its previous forecast of $83.75. It also trimmed its forecast for Brent crude, a type used in international markets, to $70 a barrel from $90.

Jan 12, 2015 | NYTimes.com

Oil Slides Again, Taking Shares on Wall Street Down With It -
Falling oil prices dragged the stock market lower on Monday as Exxon Mobil, Chevron and other big energy companies sank along with crude.
The steep drop in oil prices over recent months has investors second-guessing expectations for the quarterly earnings season that starts this week.

Sam Stovall, the United States equity strategist at S&P Capital IQ, said that it seemed that every day brought another drop in Wall Street's earnings forecasts.

"What's happening is that we're seeing the very low bar for fourth-quarter earnings raising anxiety," Mr. Stovall said. "It's the continued decline in oil, but it's also that nearly half of the S.&P. 500's revenues come from overseas. Japan is in recession, and Europe is teetering on the edge of it."

The Standard & Poor's 500-stock index lost 16.55 points, or 0.8 percent, to close at 2,028.26. The Dow Jones industrial average slid 96.53 points, or 0.5 percent, to 17,640.84, and the Nasdaq lost 39.36 points, or 0.8 percent, closing at 4,664.71.

... ... ...

In a note to clients, Goldman Sachs slashed its forecast for oil prices. It now estimates that crude will average $50.40 a barrel this year, far below its previous forecast of $83.75. It also trimmed its forecast for Brent crude, a type used in international markets, to $70 a barrel from $90.

Oil prices extended their slide, with American crude losing $2.29 to settle at $46.07 a barrel. Brent lost $2.68 to $47.43. Both were trading at their lowest levels since March 2009.

[Jan 12, 2015] Is the US economy overstretched

RT Op-Edge

Unfortunately at the same time, economic gravity will out and that leads to some concern for 2015. The US economy has averaged 57 months of expansion before matters get a tad overheated and a recession ensues. Equally, we have many indicators of somewhat frothy stock multiples. Are they expensive? Well they certainly aren't cheap, with large US corporations making half their profits overseas. Even presuming growth elsewhere, a resurgent US dollar suggests lower profits for American corporations. Moreover, the bond bubble is on borrowed time with the shale economy likely subject to a "wildcat" cyclical downturn, given collapsing oil prices.

Admittedly, the US economy suffered a large downswing in the last recession but thanks to the flexibility of its employment and a relatively forgiving approach to redemption of entrepreneurial spirit after failure, the US has had a huge upswing which may continue awhile yet. However, January 2015 marks the 67th consecutive month of expansion (read that and weep, Europe!), already 10 more than the average upswing. Yes, the cycle may carry on for a while (we all hope so) but ultimately cyclical gravity will impact the US economy once more and it begins 2015 leveraging itself against the mean. A US recession is likely close at hand.

Ironically, while a US recession will adversely impact its citizens, the biggest losers in the process will likely be overseas markets. Even a short, relatively muted recession will likely cause a wave of dislocation, e.g. amidst the enormously over-leveraged government spendthrift continent of Europe where government continues to ignore the lessons of their own hubristic impotence to create growth.

An overstretched US cycle will likely cause America more economic pain before the lame duck Obama presidency ends. However, it will make the greatest impact on weakened states across the Atlantic

Mikhail R

Of course it is overstretched, and there are and will continue to be economic cycles. The U.S. and the world will soon be in another down cycle and whether we will have inflation or deflation remains to be seen. The U.S. and Russia need better communication. The Ukraine fiasco is a perfect example for much needed discussion. The U.S. should have kept Russia aware of its activities in Ukraine and Russia should have advised the U.S. of its intentions. Since neither party wanted to disclose their intentions, we now have sour relations between the two super powers. And, what affects Russia will eventually effect the U.S. and Europe, and vice versa. I am hoping a more conservative President will be elected in the U.S. and the White House will make it a priority to improve and re-establish better relations with Russia with an understanding that open communications is critical for a successful foreign policy and improved negotiations.

Serge Krieger

America growing rapidly ? hahaha! 5%. It is based upon purchases of health care plans. Yeah, great growing! America is one big lie.

Patrick O'Neil

How much industry does Russia have. It's GDP is about the same as Italy. LOL
Do a search of the highest revenue companies in the world. Look what country they are from. See the US multiple times? Now scroll for a Russian one. Keep scrolling. :)

[Jan 09, 2015] Larry Summers US economy not growing fast enough

Jan 09, 2015 | finance.yahoo.com

Former Clinton Treasury Secretary Larry Summers told CNBC Friday the U.S. economy is not growing fast enough.

While American economic growth is getting better and leads the rest of the world, investments need to be made to get the economy stronger, Summers said. "Confidence is the cheapest form of stimulus," he said on " Squawk Box ."

"We're not doing well enough. We haven't had a year of 3 percent [growth] in a very long time in the United States," he said.

Summers, also a former Obama administration economic advisor, said the U.S. bond market is indicating that investors are worried. "With forward interest rates coming down as much as they have, it suggests concern about underlying growth in this economy."

The government should be investing more, not less, in the economy, especially with borrowing rates at such low levels, he said. "We've got to be doing more to get the economy growing more rapidly and making sure everybody share in that prosperity."

Summers called for infrastructure investments in antiquated airports and shipping ports, and said tens of thousands schools around the nation need to be improved.

He said private-sector investments need to be made in energy, high-speech Internet and information technology. "Way over three- quarters of the investment that we're making is private-sector investment."

The government also needs to address burdensome regulations and policies, Summers said. "It's important to legislate tax reform in the corporate sector as soon as possible."

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digi_owl December 26, 2015 at 4:48 pm

Its a generational thing. Right after WW2, many of the elite had just that epiphany that unless they have the common people behind them, they are toast. But now they are dead or dying, and their grandkids are basically once more thinking that they can go it alone. This because they have not had the required experiences that help develop the wisdom.

Reply ↓

Paul Tioxon December 26, 2015 at 5:34 pm

What Marx saw long ago, we can see today, and without relegating ourselves to his analysis, come to our own conclusions. Contradictions, summed up well by Lincoln as a house divided against itself cannot stand is just as true today. Millions of guns to protect the citizenry from tyranny have only resulted in a 1/4 million murders and 5 times as many shootings since Jan 1, 2000, some placing people in wheel chairs and other crippling gunshot afflictions, and more and more institutionalized state oppression, economic exploitation and miserable lives propped up in an alcoholic haze until the liver or brain gives out. We have more food than we know what to do with so we throw away almost as much as we eat. And we have eaten ourselves into morbid obesity, diabetes and heart disease. The contradictions abound from the kitchen table to the kitchen cabinet of the White House where there seems to be nothing passed so freely as bad advice.

The Welfare State arose from the sacrifices of the population in giving their sweat, blood and tears to defend their nation during war, to be rewarded for their sacrifices, rewards which were demands for power sharing and more in the paycheck, more benefits and more time to enjoy the life spent in a more prosperous world. It seems to me that Obamacare is not simply in death spiral all of its own making, but even more so, because it is the best attempt capitalism can produce in an America that is the most capitalist of societies down to the marrow its bones. Little competition from the Church or the social relations between nobles and subjects set for in the laws that were disestablished to free markets for commodification and money making. Money making enterprises structured the laws from slavery, to the voting franchise with little from the state to cushion any of the hardships of life in America.

Health care is the largest industry we have. It is approaching 20% of the GNP. I remember the great national freak out in the late 1970s when congress realized it was approaching 10%. Nothing seems to be stopping the costs from spiraling upward and onward. No risk of deflation here where nothing is spared to save a life, operate on some poor little afflicted child, or buy a piece of equipment the size of an office building that shoots a proton beam at cancer, one cancer cell at a time.

When Obama Care becomes a clear burden to even the democrats who can point to it now as some sort of accomplishment, and it is an accomplishment for the people who finally get to see a doctor, get into a hospital, get that operation or diagnosis that saves their lives, when even those accomplishments number in the millions, it will be part of a health care industry for which $Trillions of dollars can no longer be justified or even funded. As that financial collapse approaches, it would be better for politicians to declare the defeat of a program better rolled into one universal single payer system currently operating as Medicare, than try to reform, shore up or the old tried and true public lie, get rid of its waste and corruption.

Declare victory with Medicare as the solution and put everyone into it. The only paper work left should be each person's medical history with diagnosis and healing as the happy ending to the story.

Reply ↓

jgordon December 26, 2015 at 5:40 pm

There is a fundamental error in perception in the Western world that is so pervasive that people can't even see it. As a most basic component of a healthy society people need to be able to survive at a local community level without outside support. Only after that is taken care of should people concern themselves with luxuries, inter-community and international relations.

Welfare–not to mention other government services–can appear to have positive impacts if one only looks at their effects in isolation, however I think there is a devastating and pernicious impact on people's ability to form community bonds and have local resilience with things like welfare.

Also, let's also not forget that Americans consume far more of the earth's precious resources than any other group in the world. Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire. Do these recipients of empire benefits have a moral right to share in the loot of empire? Perhaps instead of domestic welfare it would be more ethical for the American empire to provide social benefits for the indigenous peoples who are forced from their lands to work like slaves for the empire's benefit. Although admittedly if the American empire used it's loot for the benefit of the foreign peoples whose lives it destroyed then there'd probably be nothing left to spread around to the military, or to pacify and police the domestic population. So I suppose that's not a serious proposal.

Left in Wisconsin December 26, 2015 at 6:45 pm

Welfare etc are social services that can only be funded through the world-wide looting operation of the American empire

This is obviously not true. Unless every social democratic country in the world is considered as a piece of the American empire. And even then, I would argue that we can easily afford a generous welfare state with a small shift in priorities away from (globally destabilizing) defense spending to social productive spending on human development.

jgordon December 26, 2015 at 7:49 pm

Obvious to who? America lavishes so much money on its military not only because of corruption, but also because it has the world reserve currency and is a guarantor of the safety of international shipping. These facts are inextricably linked to the America's status as the world hegemon. The empire provides order and structure, and enforces the extraction of resources from the periphery to the center. The bread and circuses are inextricably linked to the empire's military activities and trying to tease them apart will only lead to collapse of the entire system sooner than it will otherwise happen.

"Social Democratic"–now that's an interesting phrase. Did you know that Syria is a democracy, and was an extremely prosperous and well-education nation prior to 2011?

Vatch December 26, 2015 at 8:14 pm

"Did you know that Syria is a democracy"

Here's a telling paragraph from the Wikipedia article about Syria:

Hafez al-Assad died on 10 June 2000. His son, Bashar al-Assad, was elected President in an election in which he ran unopposed.[68] His election saw the birth of the Damascus Spring and hopes of reform, but by autumn 2001 the authorities had suppressed the movement, imprisoning some of its leading intellectuals.[84] Instead, reforms have been limited to some market reforms.

[Dec 27, 2015] The Sneaky Way Austerity Got Sold to the Public Like Snake Oil

Notable quotes:

"... When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in. ..."

"... Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution. ..."

"... the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do. ..."

"... The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things. ..."

Dec 27, 2015 | naked capitalism
LP: You indicate that this approach to budgeting was invented as a way of making the New Deal acceptable to the business community. How did that work? Over time, who has benefitted from it? Who has lost?
OC: Back in the 1940s, workers were fighting for their rights, class struggle was heating up, and soldiers would soon be returning from the fronts. At that point, a new business organization, the Committee for Economic Development (CED), came together. Led by Beardsley Ruml and other influential business figures, the CED played a crucial role in developing a conservative approach to Keynesian economics that helped make policies that would help put all Americans to work acceptable to the business community.

The idea was that more consumers would translate into more profits - which is good for business. After all, the economic experts and budget technicians said so, not just the politicians. And the business leaders were told that economic growth and price stability would go along with this, which they liked.

But things changed progressively over the 1970s and early 1980s. Firms went global. They became financialized. The balance of power between workers and owners started to shift more towards the owners, the capitalists. People were told they needed to sacrifice, to accept cuts to social spending and fewer rights and benefits on the job - all in the name of economic science and capitalism. The CAB was turned into a tool for preventing excessive spending - or justifying selected cuts.

Middle class folks were afraid that inflation would erode their savings, so they were more keen to approve draconian measures to cut wages and reduce public budgets. People on the lower rungs of the economic ladder felt the pain first. But eventually the middle class fell on the wrong side of the fence, too. Most of them became relatively poorer.

I suppose this shows the limits of democracy when information, knowledge, and ultimately power are unequally distributed.

LP: You're really talking about birth of austerity and the way lies about public spending and budgets have been sold to the public. Why is austerity such a powerful idea and why do politicians still win elections promoting it?

OC: Austerity is so powerful today because it feeds off of itself. It makes people uncertain about their lives, their debts, and their jobs. They become afraid. It's a strong disciplinary mechanism. People stop joining forces and the political status quo gets locked down.

Even the
name of this tool, the "cyclically adjusted budget," carries an aura of respect. It diverts our attention. We don't question it. It creates a barrier between the individual and the political realm: it undermines democratic participation itself. This obscure theory validates, with its authority, a big economic mistake that sounds like common sense but is actually snake oil - the notion that the federal government budget is like a household budget. Actually, it isn't. Your household doesn't collect taxes. It doesn't print money. It works very differently, yet the nonsense that it should behave exactly like a household budget gets repeated by politicians and policymakers who really just want to squeeze ordinary people.

LP: How does all this play out in the U.S. and in Europe?

OC: The European Union requires its members to comply with something called a cyclically adjusted budget constraint. Each country has to review its economic and fiscal plans with the European Commission and prove that those are compatible with the Pact. It's a ceiling on a country's deficit, but it's also much more than that.

Thanks to the estimate, the governments of Italy or Spain, for example, are supposed to force the economy toward some ideal economic condition, the definition of which is obviously quite controversial and has so far rewarded those countries that have implemented labor market deregulation, cut pensions, and even changed the way elections happen. Again, it's a control mechanism.

In the U.S. this scenario plays out, too, although less strictly. Talk about the budget often relies on the same shifty and politically-shaded statistical tools to support one argument or the other. Usually we hear arguments that suggest we have to cut social programs and workers' rights and benefits or face economic doom. Tune in to the presidential debates and you'll hear this played out - and it isn't strictly limited to one party.

LP: How do we stop powerful players from co-opting economics and budgets for their own purposes?

OC: Our education system is increasingly unequal and deprived of public resources. This is true in the U.S. but also in Europe, where the crisis accelerated a process that was already underway. When children don't get good educations, the production of knowledge falls into private control. Power gets consolidated. The official theoretical frameworks that benefit the most powerful get locked in.

In the economic field, we need to engage different points of view and keep challenging dominant narratives and frameworks. One day, human curiosity will save us from intellectual prostitution.

craazyboy, December 25, 2015 at 10:10 am

Most people don't eat, go to college, use healthcare, rent or buy housing on the east or west coast, or purchase military equipment (except perhaps small time stuff like assault rifles), so the BLS greatly underweights(or hedonics prices, or just pulls rent data outta their butts) these things in the inflation data they create. The Fed then goes into a tizzy if the data comes in a few tenths of a percent below 2%, even if the data spent years above 2%, and floods the country in liquidity so our job creators – banks and large corporations – will hire us and give us raises, and once they finish doing that, the BLS will signal that inflation is 2% and the Fed will then know all our problems are solved. It just takes time.
See the book "Treasure Island" for how things are going on the revenue side. But more tax breaks for large corporations and the wealthy are needed so we don't force them to do any illegal tax avoidance stuff and they will then happily pay whatever they think their fair should be. Might be zero. They will then have money to buy stuff too, which is a big plus as well, when you think about it.
So clearly, you can see why deficit spending almost seems inevitable.
Then the next problem is we still have unemployment, and something needs to be done about that. For instance, lots of room for more government contracts for social purposes. Take Obamacare. Place a single source contract, now estimated between $1 and $2 billion, with a Canadian systems company that employs independent contractor Indian programmers. Eventually, we have Obamacare!
We can do this if we just get serious about this and say "No More Austerity In America!"

likbez, December 27, 2015 at 9:31 pm

Emperor Severus is famously said to have given the advice to his sons: "Be harmonious, enrich the soldiers, and scorn all other men"

Brooklin Bridge December 25, 2015 at 9:55 am

Can education provide the solution?

I suspect that the educational bias occurs at all levels in the sense that much the same misinformation is provided regardless of neighborhood but progressively wrapped in more elegant pedagogical flim-flam-ery for the owner class. Basically, the bias changes, but not the message, as one goes from poor (austerity – this is your lot in life) to wealthy (austerity – you were born to make the tough decisions, it's in your genes – and you'll just have to accept the rewards, man up to your destiny and toss em a quarter on Sundays). The upper class does get a far better education, but the bias is or becomes unconscious over time.

Basically, aristocracy is a nasty brutish cycle that keeps upping the ante of consequences.

washunate, December 26, 2015 at 8:09 am

Yves, INET and NEP and others have been lecturing that topic for years. How many trillions of dollars do we have to deficit spend before the failure of things to improve indicts the hypothesis itself?
Maybe what matters is not the amount of the spending, but rather, the distribution.
And what is so bad about deflation? The attachment of moral judgment to inflation and deflation is rather bizarre outside of establishment monetary economics. The basic monetary problem confronting the bottom 80% or so of American households is inflation, not deflation.

Dan Lynch, December 25, 2015 at 11:27 am

I don't buy the article's historical narrative.
Conservatives have ALWAYS opposed spending on social programs and ALWAYS used the deficit as an excuse (unless the deficit was due to war or tax cuts for the rich). This was true during the New Deal; FDR himself was a deficit hawk.
Nonetheless for years the public supported social programs and no politician dared to cut them. Not only were the politicians worried about votes but also the welfare state was a way to head off a left wing revolution.
What changed? I would say the change began in 1976 with the election of Rockefeller-funded Jimmy Carter, who immediately launched an austerity program. Support for Keynesian economics was further eroded by the 70's stagflation which we now know was caused by Mid East oil but at the time the "left" were like deer in the headlights, with no clue what to do.
The final nail in the coffin was the fall of the Berlin Wall and the collapse of the USSR, discrediting communism. After that, "there was no alternative" to corporate capitalism. Or more accurately, the left was slow to formulate an alternative and to this day is still struggling with an alternative as we have observed with Syriza. It's not enough to oppose austerity, you have to have a constructive plan to fix things.

Vatch, December 25, 2015 at 12:40 pm

History teaches us that peacetime austerity can be horribly disastrous. Some examples:
British austerity during the 19th century included the Great Irish Famine of 1845-1849: The Irish population was about 8 million people in 1841, and the death toll of the famine was at least a million. This is a huge percentage loss of life. Due to the combination of deaths with emigration and births that did not occur, the 1851 population of 6.5 million was estimated to be about 2.5 million lower than expected. Since food was exported during the famine, this was definitely an extreme case of austerity.
Soviet austerity during the 1930s: Millions died, and food was exported during the famine period of 1931-1933. Austerity is often associate with conservatives, so I guess conservative austerity enthusiasts must be pleased with the performance of the eminent conservative Josef Stalin.
Chinese austerity during the Great Leap Forward of 1958-1962: Tens of millions died - perhaps as many as 45 million. The same irony about conservatives and Stalin is true about conservatives and Mao, but on a far greater scale.
Merry Christmas.

ben chifley December 25, 2015 at 6:33 pm

july 24 2015: Krugman:Ignore the 'MIT gang' at US economy's peril Paul Krugman says while economists of the '70s discarded Keynes, he never went away at MIT.‏
http://www.chron.com/opinion/outlook/article/Krugman-Ignore-the-MIT-gang-at-US-economy-s-6404243.php

MIT: Libertarian Haven | Independent Political Report‏
http://www.independentpoliticalreport.com/2011/01/mit-libertarian-haven/

Soros | MIT Global Education & Career Development‏
https://gecd.mit.edu/go-abroad/distinguished-fellowships/explore-fellowships/soros

washunate December 26, 2015 at 8:05 am

This is a pretty remarkable piece of rambling drivel. To the extent coherent points can be taken away from this, it appears there are at least two major flaws:

1) There is absolutely no link between public opinion and CAB. Germany chooses to have national healthcare, passenger rail, and renewable energy. The US chooses to have national security, predatory medicine, and car-dependent sprawl.

2) There is absolutely no link between austerity and concentration of wealth and power. France has a much more equal distribution of wealth than the US. Yet the US has run enormous deficits while France is supposedly constrained by the techno mumbo jumbo nonsense of the EU.

The notion that 'austerity' is sold to the public is just a blatant falsehood. Americans don't support the budget priorities in Washington. It's a collective action problem, not a public opinion problem.

[Dec 27, 2015] This Junk Bond Derivative Index Is Saying Something Scary About Defaults

Bloomberg Business

Citigroup analysts led by Anindya Basu point out that spreads on the CDX HY, as the index is known, are currently pricing in an expected loss of 21.2 percent, which translates into something like 22 defaults over the next five years if one assumes zero recovery for investors. That is a pretty big number once you consider that a total of 41 CDX HY constituents have defaulted since the index really began trading in 2005, equating to about 3.72 defaults per year. A big chunk of those defaults (17) occurred in 2009 in the aftermath of the financial crisis.

What to make of it all? Actual recoveries during corporate default cycles tend to be higher than the worst-case scenario of zero percent. In fact, they average somewhere in the 26 percent range, which would imply 29 defaults over the next five years instead of 41.

So what? you might say. The CDX HY includes but one default cycle, and those types of analyses tend to underestimate the peril of tail risk scenarios (hello, subprime crisis). Citi has an answer for that, too. Using spreads from the cash bond market going back to 1991, they forecast the default rate over the next 12 months to be something more like 5 percent to 5.5 percent. (For comparison, the rating agency Moody's is currently forecasting a 3.77 percent default rate.)

[Dec 24, 2015] In 2012, Greek pension funds, which were obliged under Greek law to own government bonds were hit by debt write-down and lost about 10 billion euros or roughly 60 percent of their reserves

econbrowser.com
Jeffrey J. Brown June 9, 2015 at 12:26 pm

In reading the following NYT article about the Greek Crisis, with an emphasis on pensions and pensioners, I recalled Professor Hamilton's post on the US Social Security system. To borrow Warren Buffet's phrase about finding out who is skinny dipping when the tide goes out, I wonder if the tide has just receded faster for Greece than for the US, in terms of over promised and under-funded Social Security and pension plans, especially in regard to vastly underfunded state and local government pension plans. And of course, federal government owns both the asset and the liability for the Social Security Trust Fund

http://www.nytimes.com/2015/06/09/world/europe/greece-pensions-debt-negotiations-alexis-tsipras.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region&region=bottom-well&WT.nav=bottom-well&_r=0

Greece's social security system was troubled even before the crisis, already divided into more than 130 funds and offering a crazy quilt of early-retirement options that were a monument to past political patronage.

In 2012, the pension funds, which were obliged under Greek law to own government bonds*, were hit by a huge debt write-down as those bonds plummeted in value. As a result they lost about 10 billion euros, or $11.1 billion - roughly 60 percent of their reserves.

Greece's creditors, seeking to make the Greek labor market more competitive, insisted that the government reduce the amount companies and workers must contribute toward pensions. And they insisted that Greece reduce its minimum wage so that those who do contribute have smaller outlays.

At the same time, the pension system was becoming an even bigger component of the social safety net, absorbing thousands. People like Ms. Meliou retired early, either because of the sale of state-owned companies, because they feared their salaries would be cut and thus their pensions would be smaller, or simply because their businesses failed. Few are living comfortably, and many support unemployed children.

*Remind you of another system?

[Dec 24, 2015] An Aging Society Is No Problem When Wages Rise

"... Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied. ..."

"... Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich. ..."

"... Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings. ..."

economistsview.typepad.com

Dean Baker:

An Aging Society Is No Problem When Wages Rise: Eduardo Porter discusses the question of whether retirees will have sufficient income in twenty or thirty years. He points out that if no additional revenue is raised, Social Security will not be able to pay full scheduled benefits after 2034.

While this is true, it is important to note that this would have also been true in the 1940, 1950s, 1960s, and 1970s. If projections were made for Social Security that assumed no increase in the payroll tax in the future, there would have been a severe shortfall in the trust fund making it unable to pay full scheduled benefits.

We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised. (The age for full benefits has already been raised from 65 to 66 and will rise further to 67 by 2022, but no further increases are scheduled.)

The past increases in the Social Security tax have generally not imposed a large burden on workers because real wages rose. The Social Security trustees project average wages to rise by more than 50 percent over the next three decades. If most workers share in this wage growth, then the two or three percentage point tax increase that might be needed to keep the program fully funded would be a small fraction of the wage growth workers see over this period. Of course, if income gains continue to be redistributed upward, then any increase in the Social Security tax will be a large burden.

For this reason, Social Security should be seen first and foremost as part of the story of wage inequality. If workers get their share of the benefits of productivity growth then supporting a larger population of retirees will not be a problem. On the other hand, if the wealthy manage to prevent workers from benefiting from growth during their working lives, they will also likely prevent them from having a secure retirement.

RC AKA Darryl, Ron said...

Hey, if the plutocrats won't raise wages then they will need to raise the payroll tax cap on Social Security. They should have thought of that before starting so many wars. The Bonus Army will not be denied.

DrDick -> Darryl, Ron...

"they will need to raise the payroll tax cap on Social Security"
Raise it my foot, they need to eliminate it. The cap has always been more welfare for the rich.

Bud Meyers -> DrDick...

Why not eliminate the income cap ($118k) entirely and start taxing capital gains and dividends for Social Security too? Members of Congress pay this tax on 65% of the salaries ($174k), while 95% of all wage earners pay this tax on 100% of their earnings.

mulp

"We have now gone 25 years with no increase in the payroll tax, by far the longest such period since the program was created. With life expectancy continually increasing, it is inevitable that a fixed tax rate will eventually prove inadequate if the retirement age is not raised."
Illogical!
If wages of younger workers were maintaining the same gains over their previous generation peers, and in fact, gained even more due to reduced supply of workers relative to steady demand for labor as the large boomer cohort leaves the labor force to the smaller subsequent generation.
Instead, conservative free lunch economicntheory, itself grossly illogical, has led to cuts in wages as a matter of policy based on the idea that workers are not consumers, so gdp can grow faster if workers are paid less, leading to a larger supply of consumers with pockets of money being created by the tinker bell of wealth.
While changing demographics might require higher payroll taxes, say younger generations having more kids than the boomer generation and being stay at home parents than boomers were, in reality, the younger generations are moving further along the trend line of working more, just like the boomers.
Incomes are falling leading to reduced gdp growth because that is driven by labor incomes which are labor costs, and lower gdp means lower wage income means lower tax revenue with a fixed tax rate.
Social Security has structural problems simply because conservatives have sold Americans a bill of goods, promising something for nothing.
TANSTAAFL
As a leading edge boomer, I've had the best of both good and bad policy. Great big government benefits when young to give me a great start in life, followed by bad policy tax hikes for me paid for by screwing the generation of children I did not have, and now 68, getting the great big government Social Security benefits Reagan signed into law in 1983, doubly great because, my big government start in life lasted to 2001 and made me very rich from simply working and living like my parents who were shaped by the depression. And Republicans can not cut my benefits because I'm hidden in the biggest block of the Republican base who almost all depend on Social Security.

[Dec 24, 2015] The Fed Has Created A Monster And Just Made A Dangerous Mistake, Stephen Roach Warns

Zero Hedge
Stephen Roach is worried that the Fed has set the world up for another financial market meltdown.
Lower for longer rates and the proliferation of unconventional monetary policy have created "a breeding ground for asset bubbles, credit bubbles, and all-too frequent crises, so the Fed is really a part of the problem of financial instability rather than trying to provide a sense of calm in an otherwise unstable world," Roach told Bloomberg TV in an interview conducted a little over a week ago.

To be sure, Roach's sentiments have become par for the proverbial course. That is, it may have taken everyone a while (as in five years or so) to come to the conclusion we reached long ago, namely that central banks are setting the world up for a crisis that will make 2008 look like a walk in the park, but most of the "very serious" people are now getting concerned. Take BofAML for instance, who, in a note we outlined on Wednesday, demonstrated the prevailing dynamic with the following useful graphic:

Perhaps Jeremy Grantham put it best: "..in the Greenspan/ Bernanke/Yellen Era, the Fed historically did not stop its asset price pushing until fully- fledged bubbles had occurred, as they did in U.S. growth stocks in 2000 and in U.S. housing in 2006."

Indeed. It's with that in mind that we bring you the following excerpts from a new piece by Roach in which the former Morgan Stanley chief economist and Yale fellow recounts the evolution of the Fed and how the FOMC ultimately became "beholden to the monster it had created".

* * *

From "The Perils of Fed Gradualism" as posted at Project Syndicate

By now, it's an all-too-familiar drill. After an extended period of extraordinary monetary accommodation, the US Federal Reserve has begun the long march back to normalization.

A majority of financial market participants applaud this strategy. In fact, it is a dangerous mistake. The Fed is borrowing a page from the script of its last normalization campaign – the incremental rate hikes of 2004-2006 that followed the extraordinary accommodation of 2001-2003. Just as that earlier gradualism set the stage for a devastating financial crisis and a horrific recession in 2008-2009, there is mounting risk of yet another accident on what promises to be an even longer road to normalization.

The problem arises because the Fed, like other major central banks, has now become a creature of financial markets rather than a steward of the real economy. This transformation has been under way since the late 1980s, when monetary discipline broke the back of inflation and the Fed was faced with new challenges.

The challenges of the post-inflation era came to a head during Alan Greenspan's 18-and-a-half-year tenure as Fed Chair. The stock-market crash of October 19, 1987 – occurring only 69 days after Greenspan had been sworn in – provided a hint of what was to come. In response to a one-day 23% plunge in US equity prices, the Fed moved aggressively to support the brokerage system and purchase government securities.

In retrospect, this was the template for what became known as the "Greenspan put" – massive Fed liquidity injections aimed at stemming financial-market disruptions in the aftermath of a crisis. As the markets were battered repeatedly in the years to follow – from the savings-and-loan crisis (late 1980s) and the Gulf War (1990-1991) to the Asian Financial Crisis (1997-1998) and terrorist attacks (September 11, 2001) – the Greenspan put became an essential element of the Fed's market-driven tactics.

The Fed had, in effect, become beholden to the monster it had created. The corollary was that it had also become steadfast in protecting the financial-market-based underpinnings of the US economy.

Largely for that reason, and fearful of "Japan Syndrome" in the aftermath of the collapse of the US equity bubble, the Fed remained overly accommodative during the 2003-2006 period. The federal funds rate was held at a 46-year low of 1% through June 2004, before being raised 17 times in small increments of 25 basis points per move over the two-year period from mid-2004 to mid-2006. Yet it was precisely during this period of gradual normalization and prolonged accommodation that unbridled risk-taking sowed the seeds of the Great Crisis that was soon to come.

Today's Fed inherits the deeply entrenched moral hazard of the Asset Economy. The longer the Fed remains trapped in this mindset, the tougher its dilemma becomes – and the greater the systemic risks in financial markets and the asset-dependent US economy.

Full post here

* * *

Roach goes on to say that we're already seeing the beginnings of what may very well turn out to be a dramatic unwind as high yield rolls over and the emerging world struggles to cope with a soaring dollar (remember, even though EM has largely avoided "original sin" i.e. borrowing in dollars, at the sovereign level, corporates are another story).

As an aside, those interested in a comprehensive account of what Roach covers in the article cited above are encouraged to reach David Stockman's "The Great Deformation."

[Dec 23, 2015] The neocon's abiding faith in the so-called revolution in military affairs (RMA) has proved to be a colossal failure

peakoilbarrel.com

Glenn Stehle, 12/22/2015 at 12:11 pm

Watcher said:

This stuff about giving up . . . why do you want to give up. Fund weapons to prepare to TAKE what you must have.

But, as John Mearsheimer explains in this article, the neocon's abiding faith in the so-called revolution in military affairs (RMA) has proved to be a collossal failure:

In particular, they believed that the United States could rely on stealth technology, air-delivered precision-guided weapons, and small but highly mobile ground forces to win quick and decisive victories. They believed that the RMA gave the Bush administration a nimble military instrument which, to put it in Muhammad Ali's terminology, could "float like a butterfly and sting like a bee." ….

The real trouble comes once the United States owns the country it has overrun, and the Americans are seen as occupiers and face an insurgency. The RMA is largely useless in combatting an insurgency, against which a large army is needed, as the Bush administration has discovered in Iraq. But once the United States commits huge numbers of soldiers in a country like Iraq, it is no longer free to invade other countries because it is effectively stuck in a quagmire.

https://www.opendemocracy.net/democracy-americanpower/morgenthau_2522.jsp

So in light of that colossal failure of the RMA in Afghanistan and Iraq, what now?

The chest thumping rings a little bit hollow, to say the least.

Watcher, 12/23/2015 at 10:36 am
Rest assured if the Air Force had won its preference, there would have been no US Army involvement nor anyone particularly on the ground. There is no proof that the boots on the ground are required to hold territory makes any sense when you can dictate policy with precision strikes. And you can. "Do this, or die." After all, how many US Army or UK Army boots on the ground were required to remove Gadaffi?
Nobody "found out" that you had to have troops on site to do things. The Army lobbied for that to be sure they didn't lose funding. As did all the Congress critters with Army bases in their districts. As opposed to Air Force bases.

Think about it. Do you really think carrier based bombing is necessary? If you needed more sorties, you could send more Air Force aircraft. But the Navy has to defend its own funding, too.

Jimmy, 12/23/2015 at 11:26 am

"There is no proof that the boots on the ground are required to hold territory makes any sense when you can dictate policy with precision strikes. And you can. "Do this, or die."………"

Where have you been since 2001? If all it takes is air power to dictate policy then please explain to my why USA isn't dictating policy in Afghanistan, Iraq, Syria and Libya and seeing enthusiastic compliance with said policy by those on the ground. Removing Gaddafi is not difficult with air power however it took guys with AKs on the ground to put a bullet in his head.

If you suggest launching multimillion dollar air campaigns every time a handful of kids with RPGs and AKs get uppity you'll quickly find yourself on the losing side of the balance sheet of war. Keep it up for too long and you'll be broke. Your rivals will make sure of it with a very small expenditure.

You've obviously never served in the military. Dream on.

Fred Magyar, 12/23/2015 at 12:53 pm

If you suggest launching multimillion dollar air campaigns every time a handful of kids with RPGs and AKs get uppity you'll quickly find yourself on the losing side of the balance sheet of war. Keep it up for too long and you'll be broke. Your rivals will make sure of it with a very small expenditure.

Yup!

https://goo.gl/DMxx4f

The entire concept of 'GROUND' and 'TERRITORY' is so last century…
What matters today is digital control and governments just don't get it.

oldfarmermac, 12/23/2015 at 12:03 pm
While I generally disagree with Watcher on economics, I have to agree that he has a point regarding the efficacy of air power and infighting among the various branches of the armed services for status, resources, and political clout.
It is nowadays obviously possible to literally bomb any country with any significant industrial infrastructure back into the stone age using conventional, meaning non nuclear, bombs, and to do it at far less cost in men than putting troops on the ground.

One modern bomber, flying out of reach of anybody on the ground equipped with less than the latest and hardest to get anti air technology, can take out a dozen bridges, or a tank farm, or a water treatment plant, or a dozen office buildings- or for that matter a dozen hospitals. One or two " sorties" is enough to wipe out almost any kind of major industrial installation, or damage it past operation for many months on end.

In WWII, most of the bombs dropped landed hundreds of yards to miles away from the intended targets. Modern bombs can literally be aimed at a given WINDOW in a large building, with a very high probability of not missing that window more than a few feet, and actually hitting it quite often.

It is not a question of " can't be done" but rather whether the aggressor is willing to pay the price in the court of public opinion at home and world wide, and deal with the political repercussions.

So far no nation with the capability of bombing this way on the grand scale has been willing to actually do it.

But this does not prove that it will never be done.

All the major powers in WWII would have done it, if they had possessed the ability to do so at that time, if the leadership had concluded it would save the lives of countless men of their own and brought the war to a faster conclusion.

The US for instance firebombed some German cities with results that were ac quite comparable to the destruction of Hiroshima and Nagasaki with atom bombs.

And for what it is worth, we seldom hear much about nuclear weapons, except the scare stories involving mutant creatures and radioactivity levels being so high people will not be able to live where the bombs fall for centuries.

In actual fact, if only a few bombs are used, and they are designed so as to minimize fallout, people will be able to live where they are dropped within a decade, no problem, in terms of the big picture.Sure a few kids, maybe a lot of kids, would get cancer, but that would be a minor problem compared to lack of water , food, shelter,employment, etc.

One "MIRV" ICBM loaded with neutron bombs, or a couple of flights of heavy bombers protected by fighter air craft, could just about wipe out the entire urban population of a fair sized country in a matter of minutes or hours at the most.

There wouldn't be enough people LEFT to seriously dispute possession of the country with an occupying ground force.

I PRAY such a grand scale genocidal air war will never come to pass, but anybody who has bothered to look into the TECHNICAL possibility of such a war understands that it COULD HAPPEN.

At one time I read a book about the history of WWII once a week or so for a couple of years. It got to be a personal quest to understand how it started, and how it played out, and why.

The folks who argue that bombing the hell out of the Germans did not prevent them from increasing production of some armaments deliberately miss the point, for partisan reasons. The question should be rephrased, how much MORE would the GERMANS have been able to produce, and how many MORE men, and how many MORE planes and guns etc, they would have been able to put on OFFENSIVE rather than DEFENSIVE assignments.

The bombing nay sayers also avoid discussing the obvious fact that ninety percent of bombs hit their targets these days, where as in WWII more than ninety percent missed by a substantial margin.

Modern bombers will come home nearly every sortie. Any country initiating an air war is apt to have overwhelming air superiority,meaning plenty of fighter escorts, and modern bombers are stealthy and fly way too high for ordinary anti aircraft guns to reach them.

For now, nobody except the USA, Russia, and a couple of larger NATO countries could manage it.

But in a couple of decades, there might be other countries able to do it, and DESPERATE ENOUGH to do it.

One thing about military tech that people often fail to appreciate is that it often gets exponentially cheaper as time passes. The computers and guidance systems etc needed for a smart bomb were state of the art top secret stuff couple of decades ago. A decade from today, a good team of engineers will probably be able to design and BUILD smart bombs using readily available commercial technology.

A sharp kid could probably build a workable guidance system today hacking it together out of security camera and drone parts, with a smart phone sized computer programmed for just this one job. He might even be able to hack and reprogram a smart phone to serve as both the camera and the computer.

Suppose Iran and Iraq have another go a decade down the road. Either or both countries may have large arsenals of smart bombs, and planes to deliver them.

likbez, 12/23/2015 at 2:01 pm
"It is nowadays obviously possible to literally bomb any country with any significant industrial infrastructure back into the stone age using conventional, meaning non nuclear, bombs, and to do it at far less cost in men than putting troops on the ground. "
First of all bombers that are not reachable by modern air defense systems do not exist.

Also your implicit assumption is that attacked country does not have nuclear weapons (or at least dirty bombs) and means to deliver them to the aggressor. Or allies with such weapons.

And that such an attack will never lead to global thermonuclear war. In case nuclear winter materialize that's a postponed death sentence for the majority of population of the winner of such conflict.

So your statement is not true about China, Russia, EU, Israel, India, Pakistan, North Korea and several other countries with significant industrial infrastructure.

Also after Iraq war air defense systems developed at huge speed and now systems like S400 represent a huge obstacle to bombing without losing your own aircraft. Even older S300 systems are dangerous as Russians discovered during Georgia conflict.

If colonel Gaddafi was wiser and bought a dozen of S300 systems he might well be still alive as the idea of losing of half of aircraft would be a deterrent for French.

https://en.wikipedia.org/wiki/S-400_(missile)

=== quote ===
Maximum targeting range (detection radius is wider).

For a ballistic target (speed of 4800 m/s and a radar cross-section of 0.4 square meters): 230 km.

For a target with RCS of 4 square meters: 390 km.

For targeting of strategic – bomber sized types: 570 km.

Ves, 12/23/2015 at 9:05 pm
Mac,
Don't fantasies about any wars. Wars are not video games. If it is that simple US wouldn't do a war sequel every 10 years: "Gulf War I", "Gulf War II", and now you have proxy "Gulf War III" ..well let me ask you how many times you will bang your head in the wall before you realize that it does not work? It's just does not work.
Mac, you are too much consumed with garbage news that does not allow you to connect the dots. The Gulf War I was in the 90's and the world oil supply was relatively plentiful to absorb the shocks. Forward 2003 and Gulf War II and during and after the conflict the price of oil quadrupled and world economy pretty much got suffocated by 2008.
This time around the Gulf War III that is ongoing but obviously your favorite TV channel has not informed you, has to be proxy and relatively low intensity war otherwise with the hot war we would have a high price of oil beyond any imagination.
If you think you can run modern wars during prolonged period with high oil prices and having somewhat functioning economy then you have read wrong history books. It doesn't mean that they will not have another "go". But if they do you will be walking and not driving 20 miles to the closest grocery store.

[Dec 23, 2015] The Texas unempolyment rate is up 12% since the cyclical low in July-Aug

peakoilbarrel.com
BC, 12/21/2015 at 3:57 pm
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2XOQ
The Texas U rate is up 12% since the cyclical low in July-Aug, which similarly occurred in May-June 2008, Apr 2001, and Feb 1980.

Employment, particularly the U rate, is a lagging indicator.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2XP0

There are notable similarities between today and 1985-86 during the previous energy bust. However, real GDP per capita was growing at more than twice today's rate; peak Boomer demographic tailwinds were building; debt to wages and GDP was much lower; the price of oil fell to the $20s; interest rates were higher and setting up to decline, providing a once-in-a-lifetime, debt-induced, reflationary growth phase (that ended with the GFC); the US economy had not yet begun to deindustrialize; health care spending was one-half of today's level as a share of GDP; and inequality had not yet become extreme.

Texas entered recession in Q1-Q2 and the rest of the US economy is following behind. Prepare accordingly.

Clueless, 12/21/2015 at 4:58 pm
BC – I am too old and without enough energy [no pun intended, which always means pun] to research and respond to your points. Except with questions. In 1986, what was the US GDP as a % of world GDP? And what is that % today? What was the Texas GDP as a % of US GDP? And what is that % today? In 1986, how much money [billions of $] was the US just printing? And how much today?
I turned 21 in 1962. For the next 40 years, every chart pattern with respect to stocks, bonds, real estate, etc for the next 40 years was compared to the Great Depression. Every comparison ended up being total nonsense.

If I could give anyone some wisdom, it would be "Do not look at the past. It was totally different." In the Great Depression the farmers were broke [and, about 1/3 of Americans were farmers]. Lately, they are the wealthiest group of Americans. Yes, greater, on average than lawyers, doctors, and even investment bankers. The elderly, were the most in dire need. Today, with Social Security, Medicare, free food, pensions, their own houses, etc., they are the most content of any age group [per AARP]. And, the future is changing faster now than it was back in 1962-2002.

First, I want to thank Ron for having this blog. Merry Christmas, regardless of what you believe. And, I really do not know what your work experience was, but, it is of no matter. Other than to ask: Have you ever seen more opportunity staring you in the face? Years of lower new discoveries, especially with the "elephant" fields. Continuing, slow, but steady demand growth. I think that there is a big collision coming, especially with the 20-40 year olds that somehow believe that oil should be $20/barrel, gas under a 1$, and unlimited supply with the "new" technology. Some kind of disconnect. Their I-phones have kept going up in cost [the gold standard of technology], but oil will not. Some people are in for a rude awakening.

Let me add a Merry Christmas and a Happy & Prosperous New Year's wish to all.

[Dec 23, 2015] The Big Short Every American Should See This Movie

"... Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once. ..."

Zero Hedge
The Big Short opens nationwide today. But it happened to have one showing last night at a theater near me. My youngest son and I hopped in the car and went to see it. I loved the book by Michael Lewis. The cast assembled for the movie was top notch, but having the director of Anchorman and Talledaga Nights handle a subject matter like high finance seemed odd.
The choice of Adam McKay as director turned out to be brilliant. The question was how do you make a movie about the housing market, mortgage backed securities, collateralized debt obligations, collateralized debt swaps, and synthetic CDOs interesting for the average person. He succeeded beyond all expectations.

Interweaving pop culture icons, music, symbols of materialism, and unforgettable characters, McKay has created a masterpiece about the greed, stupidity, hubris, and arrogance of Wall Street bankers gone wild. He captures the idiocy and complete capture of the rating agencies (S&P, Moodys). He reveals the ineptitude and dysfunction of the SEC, where the goal of these regulators was to get a high paying job with banks they were supposed to regulate. He skewers the faux financial journalists at the Wall Street Journal who didn't want to rock the boat with the truth about the greatest fraud ever committed.

...Ultimately, it is a highly entertaining movie with the right moral overtone, despite non-stop profanity that captures the true nature of Wall Street traders. This is a dangerous movie for Wall Street, the government, and the establishment in general. They count on the complexity of Wall Street to confuse the average person and make their eyes glaze over. That makes it easier for them to keep committing fraud and harvesting the nation's wealth.

This movie cuts through the crap and reveals those in power to be corrupt, greedy weasels who aren't really as smart as they want you to think they are. The finale of the movie is sobering and infuriating. After unequivocally proving that Wall Street bankers, aided and abetted by the Federal Reserve, Congress, the SEC, and the mainstream media, destroyed the global financial system, put tens of millions out of work, got six million people tossed from their homes, and created the worst crisis since the Great Depression, the filmmakers are left to provide the depressing conclusion.

No bankers went to jail. The Too Big To Fail banks were not broken up – they were bailed out by the American taxpayers. They actually got bigger. Their profits have reached new heights, while the average family has seen their income fall. Wall Street is paying out record bonuses, while 46 million people are on food stamps. Wall Street and their lackeys at the Federal Reserve call the shots in this country. They don't give a fuck about you. And they're doing it again.

Every American should see this movie and get fucking pissed off. The theater was deathly silent at the end of the movie. The audience was stunned by the fact that the criminals on Wall Street got away with the crime of the century, and they're still on the loose. I had a great discussion with my 16 year old son on the way home. At least there is one millennial who understand how bad his generation is getting screwed.

wee-weed up

I read the book last year... It is outstanding! Highest recommendation. If you have not read this book, you cannot understand how today's market really works.

JRobby

This subject matter has to be put in a form that can be understood by the masses. Hopefully the popular actors and this director is a step in that direction.
Main stream Hollywood as an informer? Hmmmmm? This adds to the current assumptions and rumors of fractures among the elite groups.
We are reasonable people. If the banking elite is sacrificed and the other corporate oligarchs come into a more socially acceptable line, we may be satisfied. However, the banking elite must be sacrificed. There is no negotiation on that point.
Of course some will say I am over optimistic, they are throwing it in our faces to make $$$ and it ends up a total police state so enjoy your "entertainment" for now.
Time goes on. Time will tell.

chunga

First you'd have to believe that politicians give a fuck about any damn thing but themselves. REAL concern for minorities or communities LOL! Then you'd have to believe banks were forced to do *anything* they don't want.
Then, you'd have to fall right to sleep and miss the part where all this crap was sold on Wall Street while at the same time betting against all the "shitty deals" they made, then the whole thing getting bailed out @ par. With par being at the absurd fraudulent property appraisals that were made by the lenders or their agents. It's just nuts.
This was all planned, beginning with Greenspan. AIG's Greenberg KNEW their CDS paper was no damn good, but didn't care because the also KNEW there would be a bailout. The only problem for him was Paulson and Blankfein conspired to steal the bailout money...and they did!
That's why all this money went looking for people...it was all planned.

chunga

Hundreds of scandals have gone by since then, thoroughly unpunished, so I wonder why this movie is coming out now. I looked into some of the cronies calling the shots at the GSE's back then and saved it. A lot is outdated by now. Seems like a fairly bi-partisan effort.

FRANKLIN RAINES [D] – FNMA CEO (1999 – 2004) Raines accepted "early retirement" from his CEO position while the SEC pretended to investigate accounting irregularities. Fannie's own OHFHEO also accused him of abetting widespread accounting errors, including the shifting of losses, so he and his fellow execs could "earn" large bonuses. The WSJ reported back in 2008 that Raines was one of several cronies that received below market rates for mortgages from Countrywide. Raines alone receive loans for over $3 million while CEO of FNMA. Raines' compensation for his "work" at FNMA - $90 million.

RAINES GRADE – F

DANIEL MUDD [R] – FNMA CEO (2005 – 2008) Before becoming CEO of FNMA, Mudd worked at the Office of the Secretary of Defense, was an advisor to Asia-Pacific Economic Corp., "served" on the board of the Council of Foreign Relations, "consulted" at the World Bank, and held many positions at GE Capital including president and CEO. Mudd was dismissed as CEO of FNMA when FHFA became conservator in 2008. In 2011 Mudd and other GSE execs were charged by SEC with securities fraud. After his career at FNMA Mudd became CEO of a NYC hedge fund named "Fortress". Fortress invested in purchasing tax liens on delinquent property taxes from local governments under many benign corporate names such as "Pleasant Valley Capital" and "Travis Farm Investments". Cozy. Mudd's compensation for his "work" at FNMA - $80 million.

MUDD GRADE – F

NEEL KASHKARI [R] – FNMA CEO (Tenure is murky) Kashkari was a former investment banker for Goldman Sachs, was tapped by Hank "The Shank" Paulson to lend his skills over at TARP HQ, and now rather ironically, continues God's work as a Managing Director at PIMCO. Kashkari's compensation for his "work" at FNMA is also murky; I'll just assume it was too much.

KASHKARI GRADE - F

HERB ALLISON [D] – FNMA CEO (2008 – 2009) The esteemed Mr. Allison was quickly whisked off to oversee the wildly successful TARP program. I didn't find much on his compensation during his brief stint as FNMA CEO. Allison served in various positions at Merrill Lynch and became a member of the board in 1997. He was a director of the NYSE from 2003 – 2005.

ALLISON GRADE – F

MICHAEL WILLIAMS [?] – FNMA CEO (2009 – Jan 1, 2012) Mr. Williams is a 20 year veteran at FNMA. While "serving" as FNMA CEO, Williams managed to scrape by on less than $6 million in 2011 alone. This could and should be considered a hardship, given the complexities involved in purloining ~ $60 billion of Fed bailout money.

WILLIAMS GRADE – F

FANNIE'S MAJOR DANCE PARTNER, FREDDIE MAC, HAS ALSO PERFORMED VERY POORLY.

Charles (my friends call me "Ed") Haldeman has announced his retirement plans but intends to be a good sport and stay on with insolvent FHLMC until another crony can be found to fill his wing-tips.

That might take a while. "Serving" as CEO of the ultimate backstops for the lion's share of the MBS Ponzi is very stressful.

We'll have to accept former Freddie exec David Kellermann's testimony posthumously. Mr. Kellermann was found hanging by the neck in the basement of his posh Vienna, VA home in the affluent suburb of Washington. D.C. way back in April of 2009. It is presumed he had no help and local police have stated there was no evidence of foul play.

Urban Redneck

GREED is non-partisan. And all sides agreed MOAR "home ownership" was desirable. The left got its SJW colorblind automation, while the underwriters were able to increase volumes by thousands of percent while reducing overall headcount. Securitization wasn't actually "automated" since the fuckwits were using MS-Excel, but it was commoditized with Blackrock's pricing model.
These were the days of the original algorithms of mass financial destruction, which were primitive and largely FICO-centric, but everyone wanted to minimize the cost (of logic coding and external data sources) so they coding decisioning based solely on information contained in the mortgage application and the applicant's electronic credit report.

khakuda

Enjoyed the movie, but in typical Hollywood fashion, the role of the Federal Reserve and government in pushing housing down to those unable to afford it was not even mentioned once.

Keynesians

Wall Street is laughing at all the clowns who think this movie will "wake up America". It would have never came out if it was any kind of danger to Wall Street, the FED, or the establishment.

Agent P

Directed by Adam McKay (Anchorman, Step Brothers, The Other Guys....), so ... yeah I'm going to go see it. Remember the end credits for The Other Guys? He hates Wall Street....

GoldenDonuts

Perhaps you should read the book. These are real characters from a non fiction book. They may have changed a name or two but these are real people. I will lend you my copy if you can't afford one.

conraddobler

Yeah I can't imagine a commercially successful movie out of this that would actually tell the truth and make it to the screens.
What someone should do is write one of those fantastical novels where everything is a symbol for something else and jazz it up, put some romance, danger, intrigue and of course big boobs in it.
The real message ala the olden days usually had to be hidden to avoid the wrath of those it was really aimed at.

[Dec 22, 2015] A Milestone For Vanguard: New Fund Could Include Junk Bonds

blogs.barrons.com

,,,,The Vanguard Core Bond Fund, unveiled in a filing with regulators on Monday, is being billed as an actively managed alternative to index funds like the Total Bond Market fund (VBMFX, VBTLX, BND). Its launch, slated for the first three months of 2016, would coincide with a period of great uncertainty in the bond markets. The Fed could mull its next interest-rate hike as soon as March.

... ... ...

Daniel Wiener, editor of the Independent Adviser for Vanguard Investors newsletter and a close watcher of all things Vanguard, was quick to note that the fund could invest in bonds of "any quality." The new fund's fine print shows leeway for Vanguard's portfolio managers to plunk up to 5% of the portfolio in junk bonds. Some 30% of the fund could fall into "medium-quality" bonds.

Vanguard's existing offering in junk debt, the Vanguard High-Yield Corporate Fund (VWEHX, VWEAX), is managed by Wellington Management Company.

Says Wiener: "Vanguard has never offered lesser-quality bond funds run by its internal group. The junk portion of the Core Bond product will be a first."

[Dec 21, 2015] Weak president, neoliberal Obama and housing bubble

"... The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculators expected returns. when this dynamic gets out of control, it is a bubble. ..."

"... That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/ ..."

"... You think a rise in stock prices created by a fall in the cost of capital is a bubble. ..."

"... keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this? ..."

"... Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesnt favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didnt cost a dime. ..."

"... It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors cant understand what the Fed is doing, even though they tell you. ..."

"... Thats it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and its the governments fault. ..."

"... Here is how they evaluate models: Good model; one that reaches the right good conclusions. Bad model; one that ends up saying stuff nobody should believe in. ..."

"... Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest. ..."

"... Democrats filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. ..."

"... Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior. ..."

economistsview.typepad.com
reason said... December 18, 2015 at 02:20 AM
I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)
The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

JF said in reply to reason... December 18, 2015 at 05:19 AM

Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of" ....
Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

david said in reply to JF...

except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

sanjait said in reply to david... December 18, 2015 at 02:47 PM

Are there enough of those to dominate securities prices?
I don't see how there possibly could be. For everyone trying to reach for yield there are a lot of people happy to arbitrage or otherwise exploit those inefficiencies.

pgl said in reply to reason... December 18, 2015 at 05:53 AM

Nice comment. I think Krugman is letting others take out the bubble brains. But if he's reading your excellent comment - maybe he will go the fray.

BenIsNotYoda said in reply to reason... December 18, 2015 at 06:35 AM

"The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:35 AM

It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:38 AM

That is exactly the point. Expected returns in stocks have nothing to do with earnings growth. http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:38 AM

I mean earnings yields not earnings growth.

Sanjait said in reply to BenIsNotYoda... December 18, 2015 at 07:48 AM

So you say. And yet, stock values today conform very well with the standard model Williams says doesn't historically fit the data. While you are talking bubbles, the equity risk premium is parked in the normal range.
How do you explain that?

BenIsNotYoda said in reply to Sanjait... December 18, 2015 at 07:54 AM

so says Williams. dividend yields, earnings yields and risk premiums are not necessarily weighted heavily in investors' formation of expected returns. past returns do, to a great extent. that is what Williams shows.

BenIsNotYoda said in reply to BenIsNotYoda... December 18, 2015 at 07:56 AM

our prehistoric brains are wired to trend follow patterns.

pgl said in reply to BenIsNotYoda... December 18, 2015 at 09:13 AM

Williams actually tries to model the rise in stock prices and defines any increase the model cannot explain a bubble. Of course maybe his modeling is not entirely spot on and fundamentals can explain the rise stock prices.
But this is not what you do as you see any asset price increase as a bubble. Which is beyond stupid. Of course it would help if you ever bothered to do what Williams attempted - use a basic model of financial economics. Then again my guess is that is beyond your understanding of basic financial economics. So troll on!

BenIsNotYoda said in reply to pgl... December 18, 2015 at 10:40 AM

You think a rise in stock prices created by a fall in the cost of capital is a bubble. But no - it is a change in fundamentals.
keeping the risk free rate at zero for 7 years is not a change in fundamentals. and if it is and it rises leading to a large fall in equity prices, you will be the first one crying uncle. so why put the economy through this?

JohnH said in reply to pgl... December 18, 2015 at 04:22 PM

The first thing pgl did when stocks corrected this summer was to call for QE4...he panicked because his portfolio was threatened...but claimed that he was only worried about workers!

Fred C. Dobbs said in reply to reason... December 18, 2015 at 10:57 AM

It does not seem reasonable or
fair to pay practically no interest
on savings, which is a consequence
of Fed policy.
A consequence of this is that people
go into risky investments that lead
to catastrophe, sometimes widespread.

If the goal was to get people to spend
(i.e. consume) more, it seems that they
are persistently & stubbornly frugal.

Chris Herbert said in reply to Fred C. Dobbs... December 18, 2015 at 02:31 PM

Rising stock prices allow corporations to raise debt, because the stock is put up as collateral. This makes funding easier, but it doesn't favor any particular purpose of the funding. It could be to buy back stock, for example. Said buy back can raise the stock price even more, which in turn can pay off the borrowing. Didn't cost a dime.

sanjait said in reply to reason...

Let me be the fourth person to compliment that comment.
"leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates."

QFT!

The one hypothetical caveat (as BINY alluded to, knowingly or not) is that expectations often get out of whack based on momentum trading. So hypothetically, lowering rates could possibly feed that.

But guess what? Rates are already at zero. They can't go lower. It's not even a question of lowering rates, but rather whether to keep them where they are. So a bubbles-from-monetary-fed-momentum argument falls completely flat. We've been at zero for 7 years now!

reason said...

It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

Sanjait said in reply to reason...

That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.
And somehow the RW economists see no problem with this model

DeDude said in reply to Sanjait...

Here is how they evaluate models: Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.
likbez said in reply to Sanjait...
"Markets are efficient, unless the government does anything"
This is a dangerous neoliberal dogma. Total lie.

=== quote ===
The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

Peter K. said in reply to reason...

And/or the markets are telling the Fed something, like they don't believe the Fed's forecasts about growth and inflation and are betting otherwise, but the hawks at the Fed dismiss the markets and say we need to raise rates now.
It's all very convenient reasoning about markets.

Vile Content said...

"
constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.
"
~~pK~
... ... ...

anne said...

http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/
November 23, 2015

Shorts Subject
By Paul Krugman

Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

* http://www.cepr.net/documents/publications/housing_2002_08.pdf

** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

anne said in reply to anne...

http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html
August 16, 2002

Mind the Gap
By PAUL KRUGMAN

More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

* http://www.cepr.net/documents/publications/housing_2002_08.pdf

anne said in reply to anne...

http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html
August 8, 2005

That Hissing Sound
By PAUL KRUGMAN

This is the way the bubble ends: not with a pop, but with a hiss.

Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

EMichael said in reply to anne...

Yeah, the only thing he missed was the timing of the collapse.
The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

Yet prices accelerated until the top was reached a year after the column.

anne said in reply to EMichael...

http://www.nytimes.com/2006/08/25/opinion/25krugman.html
August 25, 2006

Housing Gets Ugly
By PAUL KRUGMAN

Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

EMichael said in reply to anne...

"Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

One day people will understand that payments are the key to all finance.

JohnH said...

"and it is an outrage that basically nobody ended up being punished ."

Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

JohnH said in reply to anne...

Oh, please...Krugman could barely criticize Obama, even when Obama introduced an austerity budget back in 2011.
The tendency of people like Krugman to overlook Democrats' bad behavior only encourages more bad behavior. If Krugman really cared about the policies he champions, he would let the chips fall wherever...and not let empty suits like Obama get away with austerity and failure to enforce the law when Wall Street willfully violates it.

pgl said in reply to JohnH...

Did you forgot to read the post before firing off your usual hate filled fact free rant? Here - let me help you out:
"some members of the new commission had a different goal. George Santayana famously remarked that "those who cannot remember the past are condemned to repeat it." What he didn't point out was that some people want to repeat the past - and that such people have an interest in making sure that we don't remember what happened, or that we remember it wrong. Sure enough, some commission members sought to block consideration of any historical account that might support efforts to rein in runaway bankers."

It seems Krugman indeed bashed how the government sort of let this crooks off the hook. We know you have an insane hatred for President Obama. But do you also hate your poor mom? Why else would you continue to write such incredibly stupid things?

JohnH said in reply to pgl...

As I expected, rationalizations for Obama's refusal to enforce the law...since when does the buck no longer stop at the White House? And what's with trying to defend people who refuse to do their job and uphold the rule of law?

pgl said in reply to JohnH...

Krugman did not rationalize that. Neither have I.
Either you know you are lying or you flunked preK reading.

JohnH said in reply to pgl...

Of course pgl rationalizs Obama's failures...he spent a lot of time denying that Obama introduced and signed off on austerity...and that he proposed cutting Social Security. And now he can't admit that Obama and Holder have refused to defend the rule of law by not prosecuting...or even seriously investigating...Wall Street criminality.

RGC said in reply to William...

Prosecutions don't require congressional action.
Most of the New Deal was accomplished in 100 days.

Promotion by a president can galvanize action.

pgl said in reply to EMichael...

The lack of prosecutions was a bad thing. Of course any prosecutor would tell you putting rich people in jail for anything is often difficult. Rich people get to hire expensive, talented, and otherwise slimy defense attorneys. I have to laugh at the idea that JohnH thinks he could have pulled this off. The slimy defense attorneys would have had his lunch before the judge's gavel could come down.

JohnH said in reply to pgl...

Obama could have at least made the investigations a high priority...but he let Holder, a Wall Street attorney, consign them to the lowest.
pgl is intent on explaining away Obama's failure to enforce the law...thereby encouraging more lawlessness.

JohnH said in reply to William...

Democrats' filibuster-proof majority consisted of 58 Democrats and two independents who caucused with them. Only an inept President and Senate majority leader could have failed to take advantage of such a majority to implement significant parts of the party platform. Even Lieberman had a good record on many issues. Except for ACA, it turned out to be a do-nothing Congress, reflecting an abject lack of leadership...which is why many are so desperate for leadership. Having lacked it for seven years, many are willing to turn to anybody, even Trump, to provide it. Pathetic!

RGC said in reply to William...

No vitriol, just facts. And Obama had the example of FDR to follow - why didn't he follow it? I have been deeply disappointed in Obama.

JohnH said in reply to pgl...

pgl conveniently forgets my choice words about Bill Clinton, Harry Reid and Nancy Pelosi. What I object to is Democrats who position themselves to sound like FDR and then prosecute a neo-liberal agenda.
Gullible folks like pgl and his coterie believe what these Democrats say and waste our time defending their neoliberal behavior.

[Dec 21, 2015] Monetalism is dead but remains of monetarist thinking are still lingering

"... Summers is right that bubbles are usually accompanied by some kind of financial euphoria. ..."

"... There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy. ..."

economistsview.typepad.com
Peter K. said in reply to pgl... December 16, 2015 at 10:07 AM

"It seems to me looking at a year when the stock market has gone down a bit, credit spreads have widened substantially and the dollar has been very strong it is hard to say that now is the time to fire a shot across the bow of financial euphoria. Looking especially at emerging markets I would judge that under-confidence and excessive risk aversion are a greater threat over the next several years than some kind of financial euphoria."

Summers is right that bubbles are usually accompanied by some kind of financial euphoria.

... ... ...

Peter K. said in reply to Benedict@Large...

I disagree with your assessment. People (elite?) are talking about unusual solutions because fiscal policy is being blocked politically.
MMT doesn't seem that different from Keynesianism, except proponents have very big chips on their shoulders for some reason.

Right now the Keynesians are arguing that the Fed shouldn't raise rates. Are the MMTers arguing any differently? Or are they merely giving us the blue prints for utopia. Blue prints don't help much if the politics are against you.

Syaloch said in reply to Peter K....

Great question.
If I have two black boxes that always produce exactly the same outputs, does it matter whether their internal mechanisms are different?

Dan Kervick said in reply to Syaloch...

"Or maybe they would be effective because people believe they ought to be effective."

Possibly. I think back in the 80's when monetarism was the super-sexy new view, there were a lot of people who thought inflation was mainly a function of the monetary base, so if the Fed made a big public stink about pumping up the monetary base, that could be counted on the boost inflation expectations, at least in some quarters, and the high expectations would in turn help to boost actual inflation. That doesn't seem to be the case any longer.

Dan Kervick said in reply to pgl...
The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.
Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

Other references to the heyday of monetarism abound:

http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

Dan Kervick said in reply to pgl...
The heyday of monetarism was the late 70's and early 80's. That's when Friedman's monetary theory of inflation caught the public imagination, and it's the only time the Fed ever attempted (briefly) to target the money supply.
Conservative spear-carrier Niall Ferguson knows how important monetarism was to the neoliberal movement, and how big a deal it was during the Thatcher-Reagan era.

http://www.niallferguson.com/journalism/finance-economics/friedman-is-dead-monetarism-is-dead-but-what-about-inflation

Other references to the heyday of monetarism abound:

http://www.voxeu.org/article/nominal-gdp-targeting-developing-nations

bakho said... December 16, 2015 at 05:45 AM
Kevin Hoover, The emperor has no clothes!

"Given what we know about representative-agent models…there is not the slightest reason for us to think that the conditions under which they should work are fulfilled. The claim that representative-agent models provide microfundations succeeds only when we steadfastly avoid the fact that representative-agent models are just as aggregative as old-fashioned Keynesian macroeconometric models. They do not solve the problem of aggregation; rather they assume that it can be ignored."

This the reason Macro needs to move into more data driven empirics.

There will be massive pushback because so many have wasted many years and resources building mathematically elegant but fatally flawed models that do not make accurate predictions on even represent the fundamentals of any economy.

Syaloch said... December 16, 2015 at 05:50 AM

The Advantages of Higher Inflation - The New York Times
From the article:

"A critical problem with aiming for higher inflation is how to get from here to there. The Fed has spent enormous effort anchoring people's expectations to 2 percent. Even economists sympathetic to a higher target are wary of what such a shift might do to its credibility.

"'A perfect world, where you could commit to 4 percent and everybody believed it, would be great,' Mr. Mishkin told me. 'We are not in a perfect world. Moving much higher than 2 percent raises the risk that expectations become unanchored.'

"So here is an alternative proposal. If the Fed is too cautious to risk unhinging inflationary expectations, how about just delivering what it has promised? Among economists and investors, the problem with the Fed's 2 percent target is that just about everybody believes it is really a ceiling. That makes it even harder for inflation to rise to that level. The market expects the Fed to act pre-emptively to ensure it never goes over that line - which is what it seems to be doing now.

"If the Fed is not going to aim for higher inflation, the least it could do is re-anchor expectations to the goal it established, allowing inflation to fluctuate above and below a 2 percent average. That alone might help deal with the next economic crisis.

"'We haven't fully tested whether we can deal with this kind of crisis with a 2 percent inflation target,' said David H. Romer of the University of California, Berkeley. 'Central banks have lots of tools. If they say they are willing to keep using them until they get where they want, they can eventually do it.'"

This highlights a confusing aspect of inflation targets. If the Fed simply announces a higher inflation target without taking any other action, have they really done anything? What's more, they not only need to announce the new target, they need to convince markets that they are willing to do whatever it takes to hit that target -- it's all about credibility and re-anchoring expectations. And while engaging in QE to push down longer-term rates might help make that statement more convincing, it doesn't seem to be strictly necessary for the new target to be effective.

Thus inflation targets seem in at least some cases to operate purely through psychological manipulation, as a sort of placebo effect: inflation rises not because the Fed has injected money into the economy today or changed the cost of lending today, but rather because the Fed is able to "trick" markets into believing it will rise in the future.

Peter K. said in reply to Syaloch...

And the reverse is true. The markets are skeptical that the Fed will hit its 2 percent ceiling target any time soon.
Inflation expectations are becoming un-anchored on the downside but nobody cares because .... oil.

Dan Kervick said in reply to Peter K....
I guess we'll all have to wait for Yellen's future memoirs to know the thinking that was going on inside the Fed during 2015. But it's interesting that both Yellen and Stanley Fischer, both formerly held in gigantic respect by the more prominent liberal economists, are now the targets of ire for apparently not seeing eye-to-eye with their opinionated friends on the outside. Despite the fact that BoG members have access to mountains of internal research and policy input that people on the outside can only guess at, the default position of the outsiders is that the insiders have been corrupted by power and fast-talking bankers or something.
Here's my conjecture about what the Fed's thinking is: The Fed recognizes that keeping policy interest rates down at an unprecedentedly low basement level for years on end sends this message to the global economy: the US economy is a sick basket case. It needs the permanent life support of extraordinary monetary policy intervention to be kept from flat-lining.

I think the people who actually work inside the Fed think that is total bunk, and that as they gradually wean the financial sector off of the monetary ventilator, nothing bad is going to happen at all. The patient is going to get up, walk around and breathe normally. And when that happens, it will say, "Wow, maybe I should have tried that earlier!" Business confidence will spurt; people will think, "Hey, I guess we're not in that gloomy post-2008 depression any more!", and the country will get on with its business more cheerfully.

The Fed has had a devil of a time getting back to normal, because despite its best intentions it has inadvertently re-defined a condition of zero rates and excess reserves bleeding from bankers's ears as the new normal, and created an out-of-control public fixation on monetary policy intervention. Fed communications strategies aimed at guiding the market have turned back on them in a reflexive and self-defeating cycle. They got themselves into a terrible pattern for a while where every time there was good economic news, the markets would respond negatively because they interpreted the good news as evidence that the Fed would "taper" - which they regarded as bad news! And if there was bad news, the markets would respond favorably because they saw the bad news as evidence that the fed would "remain aggressive" - which is good news! Obviously that's a pretty pathological cycle to be in: it's a mechanism fro economic self-stultification. Indicating a move toward normalization too suddenly in 2013 caused the irrational "taper tantrum", so they have had to go more slowly this time around with the hand-holding and by building a longer "guidance" runway.

Their chief need now is to push back against the monetary maniacs and hyperventilators who keep trying to convince impressionable business people and consumers that the Fed has somehow been "keeping the economy" afloat, and that when interest rates go up - from 1/4 to 1/2 of a percent! - we're all going to drown. If you have enough ambulance chasers convincing people they are sick and damaged, they will act sick and damaged.

[Dec 20, 2015] Paul Krugman: The Big Short, Housing Bubbles and Retold Lies

"... I get the feeling that if doing a film review of The Force Awakens , most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. ..."

"... In market fundamentalist world, markets dont fail. They can only be failed. Though its still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs. ..."

"... The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects. ..."

"... ....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what weve called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature. ..."

"... except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure ..."

"... Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJs lowest priority. Krugmans Democratic proclivities prevent him from stating the obvious. ..."

"... Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obamas hollow presidency that theyll even support a racist demagogue to avoid another empty White House. ..."

"... Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with teaser rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself Greenspan. ..."

"... When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do. ..."

economistsview.typepad.com

Why are Murdoch-controlled newspapers attacking "The Big Short?"

'The Big Short,' Housing Bubbles and Retold Lies, by Paul krugman, Commentary, NY Times: In May 2009 Congress created a special commission to examine the causes of the financial crisis. The idea was to emulate the celebrated Pecora Commission of the 1930s, which used careful historical analysis to help craft regulations that gave America two generations of financial stability.
But some members of the new commission had a different goal. ... Peter Wallison of the American Enterprise Institute, wrote to a fellow Republican on the commission ... it was important that what they said "not undermine the ability of the new House G.O.P. to modify or repeal Dodd-Frank"...; the party line, literally, required telling stories that would help Wall Street do it all over again.

Which brings me to a new movie the enemies of financial regulation really, really don't want you to see.

"The Big Short" ... does a terrific job of making Wall Street skulduggery entertaining, of exploiting the inherent black humor of how it went down. ... But you don't want me to play film critic; you want to know whether the movie got the underlying ... story right. And the answer is yes, in all the ways that matter. ...

The ...housing ... bubble ... was inflated largely via opaque financial schemes that in many cases amounted to outright fraud - and it is an outrage that basically nobody ended up being punished ... aside from innocent bystanders, namely the millions of workers who lost their jobs and the millions of families that lost their homes.

While the movie gets the essentials of the financial crisis right, the true story ... is deeply inconvenient to some very rich and powerful people. They and their intellectual hired guns have therefore spent years disseminating an alternative view ... that places all the blame ... on ... too much government, especially government-sponsored agencies supposedly pushing too many loans on the poor.

Never mind that the supposed evidence for this view has been thoroughly debunked..., constant repetition, especially in captive media, keeps this imaginary history in circulation no matter how often it is shown to be false.

Sure enough, "The Big Short" has already been the subject of vitriolic attacks in Murdoch-controlled newspapers...

The ... people who made "The Big Short" should consider the attacks a kind of compliment: The attackers obviously worry that the film is entertaining enough that it will expose a large audience to the truth. Let's hope that their fears are justified.

btg said in reply to pgl...

I get the feeling that if doing a film review of "The Force Awakens", most economists would be rooting for the Empire to win - after all the empire will bring free trade within its borders, like the EU. Krugman would not, however.

Sanjait said...

In market fundamentalist world, markets don't fail. They can only be failed. Though it's still not clear how they think a little bit of government incentive for loans to low income borrowers caused the entire financial sector to lose its mind wrt CDOs.

Are markets efficient or not? I feel like the fundiesndont really have a coherent explanation for what happened, other than insisting the government somehow did it.

reason said...

I wish Krugman would attack the view that is being propagated at the moment that low nominal interest rates (it seems irrespective of the reason for them) foster bubbles. It doesn't make the slightest bit of sense - leverage doesn't just magnify the gains, it magnifies the losses as well - what really counts is expectations regardless of nominal interest rates.)

The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects.

reason said... December 18, 2015 at 02:32 AM

It always seem to me that right wing economists credit businessmen with superhuman foresight and sophistication, except when it comes to the actions of the Fed and then something addles their brains and they become completely stupid. As I once put, it seems investors can't understand what the Fed is doing, even though they tell you.

Sanjait said in reply to reason... December 18, 2015 at 08:06 AM

That's it exactly. Markets are efficient, unless the government does anything, and then markets lose their minds and it's the government's fault.

And somehow the RW economists see no problem with this model

DeDude said in reply to Sanjait... December 18, 2015 at 08:18 AM

Here is how they evaluate models:

Good model; one that reaches the "right" good conclusions. Bad model; one that ends up saying stuff nobody should believe in.

likbez said in reply to Sanjait...

"Markets are efficient, unless the government does anything"

This is a dangerous neoliberal dogma. Total lie.

=== quote ===
The efficient market hypothesis (EMH) is a flavor of economic Lysenkoism which became popular for the last 30 years in the USA. It is a pseudo scientific theory or, in more politically correct terms, unrealistic idealization of market behavior. Like classic Lysenkoism in the past was supported by Stalin's totalitarian state, it was supported by the power of neoliberal state, which is the state captured by financial oligarchy (see Casino Capitalism and Quiet coup for more details).

Among the factors ignored by EMH is the positive feedback loop inherent in any system based on factional reserve banking, the level of market players ignorance, unequal access to the real information about the markets, the level of brainwashing performed on "lemmings" by controlled by elite MSM and market manipulation by the largest players and the state.

Economics, it is said, is the study of scarcity. There is, however, one thing that certainly isn't scarce, but which deserves the attention of economists - ignorance.
...Conventional economics analyses how individuals choose - maybe rationally, maybe not - from a range of options. But this raises the question: how do they know what these options are? Many feasible - even optimum - options might not occur to them. This fact has some important implications. ...
Slightly simplifying, we can say that (financial) markets are mainly efficient in separation of fools and their money... And efficient market hypothesis mostly bypasses important question about how the inequity of resources which inevitably affects the outcomes of market participants. For example, the level of education of market players is one aspect of the inequity of resources. Herd behavior is another important, but overlooked in EMH factor.

http://www.softpanorama.org/Skeptics/Financial_skeptic/Casino_capitalism/Pseudo_theories/Permanent_equilibrium_fallacy/Efficient_market_hypothesys/index.shtml

JF said in reply to reason...

Great comment. I especially liked this point: "The distribution of the use of credit between pure financial speculation and productive investment is not a function of"

....Supervising regulators need to look carefully at the ratio of credit used for financial trading compared to credit used for what we've called real-economy matters. They should adjust the level of monitoring based on this view while they also inform policy makers including those in the legislature.

There may be an opportunity in 2017 to revise the statutes so the public plainly says what the rules of Commerce are in these financial 'inter-mediation' areas - society is better served if more of such credit offerings go to investments in the real economy where inputs are real things like employees, supplies, equipment/technologies. The public's law can effect this change.

david said in reply to JF...

except that a significant chunk of institutional investors have sticky nominal targets for return thanks to the politics of return expectation setting (true for pension fund and endowments) -- low interest rates do encourage chasing phantoms or looking to extract some rents, for those subject to that kind of pressure

BenIsNotYoda said in reply to reason...

"The distribution of the use of credit between pure financial speculation and productive investment is not a function of interest rates, but of things like bank culture, bank regulation and macro-economic and technological prospects."

The relationship between low interest rates and bubbles has nothing to do with the above. Low interest rates RAISE asset prices. Through the magic of low discount rates, the future earnings and cash flows are worth a lot higher today. This is why Bernanke cut rates and kept them low. Raising asset prices and the resultant higher net worth was supposed to lead to higher spending today. But outsized returns also attracts speculation. what is so difficult to understand? John Williams of SF Fed has shown how positive returns in asset markets raises the speculator's expected returns. when this dynamic gets out of control, it is a bubble.

Sanjait said in reply to BenIsNotYoda...

It's hard to see how to your claim that expected returns are high when earnings yields across the board are historically low.

BenIsNotYoda said in reply to Sanjait...

That is exactly the point. Expected returns in stocks have nothing to do with earnings growth.

http://www.frbsf.org/our-district/press/presidents-speeches/williams-speeches/2013/september/asset-price-bubbles-tomorrow-yesterday-never-today/

Fred C. Dobbs said in reply to reason...

It does not seem reasonable or fair to pay practically no interest on savings, which is a consequence of Fed policy. A consequence of this is that people go into risky investments that lead to catastrophe, sometimes widespread. If the goal was to get people to spend (i.e. consume) more, it seems that they are persistently & stubbornly frugal.

anne, December 18, 2015 at 06:37 AM

http://krugman.blogs.nytimes.com/2015/11/23/shorts-subject/

November 23, 2015

Shorts Subject
By Paul Krugman

Last night I was invited to a screening of "The Big Short," which I thought was terrific; who knew that collateralized debt obligations and credit default swaps could be made into an edge-of-your-seat narrative (with great acting)?

But there was one shortcut the narrative took, which was understandable and possibly necessary, but still worth noting.

In the film, various eccentrics and oddballs make the discovery that subprime-backed securities are garbage, which is pretty much what happened; but this is wrapped together with their realization that there was a massive housing bubble, which is presented as equally contrary to anything anyone respectable was saying. And that's not quite right.

It's true that Greenspan and others were busy denying the very possibility of a housing bubble. And it's also true that anyone suggesting that such a bubble existed was attacked furiously - "You're only saying that because you hate Bush!" Still, there were a number of economic analysts making the case for a massive bubble. Here's Dean Baker in 2002. * Bill McBride (Calculated Risk) was on the case early and very effectively. I keyed off Baker and McBride, arguing for a bubble in 2004 and making my big statement about the analytics in 2005, ** that is, if anything a bit earlier than most of the events in the film. I'm still fairly proud of that piece, by the way, because I think I got it very right by emphasizing the importance of breaking apart regional trends.

So the bubble itself was something number crunchers could see without delving into the details of mortgage-backed securities, traveling around Florida, or any of the other drama shown in the film. In fact, I'd say that the housing bubble of the mid-2000s was the most obvious thing I've ever seen, and that the refusal of so many people to acknowledge the possibility was a dramatic illustration of motivated reasoning at work.

The financial superstructure built on the bubble was something else; I was clueless about that, and didn't see the financial crisis coming at all.

* http://www.cepr.net/documents/publications/housing_2002_08.pdf

** http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

anne said in reply to anne... December 18, 2015 at 06:43 AM

http://www.nytimes.com/2002/08/16/opinion/mind-the-gap.html

August 16, 2002

Mind the Gap
By PAUL KRUGMAN

More and more people are using the B-word about the housing market. A recent analysis * by Dean Baker, of the Center for Economic Policy Research, makes a particularly compelling case for a housing bubble. House prices have run well ahead of rents, suggesting that people are now buying houses for speculation rather than merely for shelter. And the explanations one hears for those high prices sound more and more like the rationalizations one heard for Nasdaq 5,000.

If we do have a housing bubble, and it bursts, we'll be looking a lot too Japanese for comfort....

* http://www.cepr.net/documents/publications/housing_2002_08.pdf

anne said in reply to anne... December 18, 2015 at 06:44 AM

http://www.nytimes.com/2005/08/08/opinion/that-hissing-sound.html

August 8, 2005

That Hissing Sound
By PAUL KRUGMAN

This is the way the bubble ends: not with a pop, but with a hiss.

Housing prices move much more slowly than stock prices. There are no Black Mondays, when prices fall 23 percent in a day. In fact, prices often keep rising for a while even after a housing boom goes bust.

So the news that the U.S. housing bubble is over won't come in the form of plunging prices; it will come in the form of falling sales and rising inventory, as sellers try to get prices that buyers are no longer willing to pay. And the process may already have started.

Of course, some people still deny that there's a housing bubble. Let me explain how we know that they're wrong.

One piece of evidence is the sense of frenzy about real estate, which irresistibly brings to mind the stock frenzy of 1999. Even some of the players are the same. The authors of the 1999 best seller "Dow 36,000" are now among the most vocal proponents of the view that there is no housing bubble.

Then there are the numbers. Many bubble deniers point to average prices for the country as a whole, which look worrisome but not totally crazy. When it comes to housing, however, the United States is really two countries, Flatland and the Zoned Zone.

In Flatland, which occupies the middle of the country, it's easy to build houses. When the demand for houses rises, Flatland metropolitan areas, which don't really have traditional downtowns, just sprawl some more. As a result, housing prices are basically determined by the cost of construction. In Flatland, a housing bubble can't even get started.

But in the Zoned Zone, which lies along the coasts, a combination of high population density and land-use restrictions - hence "zoned" - makes it hard to build new houses. So when people become willing to spend more on houses, say because of a fall in mortgage rates, some houses get built, but the prices of existing houses also go up. And if people think that prices will continue to rise, they become willing to spend even more, driving prices still higher, and so on. In other words, the Zoned Zone is prone to housing bubbles.

And Zoned Zone housing prices, which have risen much faster than the national average, clearly point to a bubble....

EMichael said in reply to anne... December 18, 2015 at 06:59 AM

Yeah, the only thing he missed was the timing of the collapse. The day he wrote this the Fed had already raised rates 250% in one year, on the way to a total of 400% in the next 6 months.

Yet prices accelerated until the top was reached a year after the column.

anne said in reply to EMichael... December 18, 2015 at 07:43 AM

http://www.nytimes.com/2006/08/25/opinion/25krugman.html

August 25, 2006

Housing Gets Ugly
By PAUL KRUGMAN

Bubble, bubble, Toll's in trouble. This week, Toll Brothers, the nation's premier builder of McMansions, announced that sales were way off, profits were down, and the company was walking away from already-purchased options on land for future development.

Toll's announcement was one of many indications that the long-feared housing bust has arrived. Home sales are down sharply; home prices, which rose 57 percent over the past five years (and much more than that along the coasts), are now falling in much of the country. The inventory of unsold existing homes is at a 13-year high; builders' confidence is at a 15-year low.

A year ago, Robert Toll, who runs Toll Brothers, was euphoric about the housing boom, declaring: "We've got the supply, and the market has got the demand. So it's a match made in heaven." In a New York Times profile of his company published last October, he dismissed worries about a possible bust. "Why can't real estate just have a boom like every other industry?" he asked. "Why do we have to have a bubble and then a pop?"

The current downturn, Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition" taking housing down along with the rest of the economy. He suggests that unease about the direction of the country and the war in Iraq is undermining confidence. All I have to say is: pop! ...

EMichael said in reply to anne... December 18, 2015 at 07:52 AM

"Mr. Toll now says, is unlike anything he's seen: sales are slumping despite the absence of any "macroeconomic nasty condition""

You gotta love builders and RE agents. It wasn't macro that caused it, it was default rates across the board on supposedly safe investments that caused mortgage money supply to totally disappear.

One day people will understand that payments are the key to all finance.

JohnH said...

"and it is an outrage that basically nobody ended up being punished ."

Yes, indeed. And who do we have to blame for that? Obama and Holder, of course. They made the investigation of mortgage securities fraud DOJ's lowest priority. Krugman's Democratic proclivities prevent him from stating the obvious.

I' m sure that pgl and his band of merry Obamabots will try to spin this in Obama's favor...I.e. Congress prevented him from implementing the law, even though Congress has nothing to do with it.

Fact is, Obama has intentionally been a lame duck ever since he took office. He was even clueless on how to capitalize on a filibuster-proof majority in the midst of an economic crisis...which brings us to Trump. Many are so desperate for leadership after Obama's hollow presidency that they'll even support a racist demagogue to avoid another empty White House.

run75441 said in reply to JohnH...

Yes you are correct. From 2001 into 2008 when all of the liar and ninja loans were being made, not one government official stepped forward to investigate the possibility of fraud, the predatory lending, the misrepresentation of loans taking place, the loans with "teaser" rates which later ballooned, the packing of loans with deceptive fees, the illegal kick backs, etc. Not one. To make matters worst, the administration from 2001-2008 aligned itself with the banks along with the maestro hisself "Greenspan."

When state AGs took on the burden of investigating the flagrant violations, the administration moves to block them saying they had no jurisdiction to do so. It did this through the OCC issuing rules preventing the states from prosecuting the banks. Besides blocking any investigation, the OCC failed in its mission to audit the banks for which it was by law to do.

What was the SEC doing during this time period? What was the administration doing with Enron in 2002? Didn't Cheney get sued by the GAO to find out who he was talking to at Enron?

Yes there is the matter of not prosecuting banking execs after 2008; however, the issue was allowed to grow during the prior administration and left on the next administration's doorstep. Closing the barn door after the perps have escaped is a bit late and it should have been stopped dead in its tracks during the prior 8 years.

So keep going down that path and we can also talk about fraud with tranching, CDS, Naked CDs, reserves, etc.

So, where was the administration during this time period?

DeDude said...

Subprime loans in poor communities represented a very small fraction of the total subprime volume and defaulted loans. I mean talk about the mouse and the elephant. Yet the FoxBots are being convinced to look at those scary mice and all that thundering noise they are making.

Alex H said in reply to Peter K....
In the book, one of the supposed villains went to the division of AIG that was selling CDSes (i.e. "insuring" the toxic crap) and explained to a direct subordinate of the division exactly how his bank and the other companies of Wall Street were suckering them into taking on absurd risks. In *2005*.
Because he was massively short in this market, and AIG pulling the plug would have popped the bubble. Nobody else was selling CDSes (then), and Wall Street couldn't have pretended that their risks were covered without them. That doesn't make him a hero, but seriously, if AIG had listened, no collapse.

Several of the characters effectively called up the ratings agencies to shout at them. Others called NYT and WSJ reporters, who ignored them. Then they called the SEC's enforcement division, who ignored them.

Besides, if the other side in all of those bets were foreign "widows and orphans", then it wouldn't have wrecked the financial system. If Bear Stearns had been sitting as the middleman between a Korean pension fund and Steve Eisman, they'd have just taken their cut and moved on.

[Dec 19, 2015] The Enduring Relevance of "Manias, Panics, and Crashes"

"... Manias, Panics, and Crashes ..."

"... The New International Money Game ..."

"... Manias, Panics and Crashes ..."

"... Why Minsky Matters ..."

December 17, 2015 | Angry Bear

by Joseph Joyce

The Enduring Relevance of "Manias, Panics, and Crashes"

The seventh edition of Manias, Panics, and Crashes has recently been published by Palgrave Macmillan. Charles Kindleberger of MIT wrote the first edition, which appeared in 1978, and followed it with three more editions. Robert Aliber of the Booth School of Business at the University of Chicago took over the editing and rewriting of the fifth edition, which came out in 2005. (Aliber is also the author of another well-known book on international finance, The New International Money Game.) The continuing popularity of Manias, Panics and Crashes shows that financial crises continue to be a matter of widespread concern.
Kindleberger built upon the work of Hyman Minsky, a faculty member at Washington University in St. Louis. Minsky was a proponent of what he called the "financial instability hypothesis," which posited that financial markets are inherently unstable. Periods of financial booms are followed by busts, and governmental intervention can delay but not eliminate crises. Minsky's work received a great deal of attention during the global financial crisis (see here and here; for a summary of Minksy's work, see Why Minsky Matters by L. Randall Wray of the University of Missouri-Kansas City and the Levy Economics Institute).

Kindleberger provided a more detailed description of the stages of a financial crisis. The period preceding a crisis begins with a "displacement," a shock to the system. When a displacement improves the profitability of at least one sector of an economy, firms and individuals will seek to take advantage of this opportunity. The resulting demand for financial assets leads to an increase in their prices. Positive feedback in asset markets lead to more investments and financial speculation, and a period of "euphoria," or mania develops.

At some point, however, insiders begin to take profits and withdraw from the markets. Once market participants realize that prices have peaked, flight from the markets becomes widespread. As prices plummet, a period of "revulsion" or panic ensues. Those who had financed their positions in the market by borrowing on the promise of profits on the purchased assets become insolvent. The panic ends when prices fall so far that some traders are tempted to come back into the market, or trading is limited by the authorities, or a lender of last resort intervenes to halt the decline.

In addition to elaborating on the stages of a financial crisis, Kindleberger also placed them in an international context. He wrote about the propagation of crises through the arbitrage of divergences in the prices of assets across markets or their substitutes. Capital flows and the spread of euphoria also contribute to the simultaneous rises in asset prices in different countries. (Piero Pasotti and Alessandro Vercelli of the University of Siena provide an analysis of Kindleberger's contributions.)

Aliber has continued to update the book, and the new edition has a chapter on the European sovereign debt crisis. (The prior edition covered the events of 2008-09.) But he has also made his own contributions to the Minsky-Kindleberger (and now –Aliber) framework. Aliber characterizes the decades since the early 1980s as "…the most tumultuous in monetary history in terms of the number, scope and severity of banking crises." To date, there have been four waves of such crises, which are almost always accompanied by currency crises. The first wave was the debt crisis of developing nations during the 1980s, and it was followed by a second wave of crises in Japan and the Nordic countries in the early 1990s. The third wave was the Asian financial crisis of 1997-98, and the fourth is the global financial crisis.

Aliber emphasizes the role of cross-border investment flows in precipitating the crises. Their volatility has risen under flexible exchange rates, which allow central banks more freedom in formulating monetary policies that influence capital allocation. He also draws attention to the increases in household wealth due to rising asset prices and currency appreciation that contribute to consumption expenditures and amplify the boom periods. The reversal in wealth once investors revise their expectations and capital begins to flow out makes the resulting downturn more acute.

These views are consistent in many ways with those of Claudio Borio of the Bank for International Settlements (see also here). He has written that the international monetary and financial system amplifies the "excess financial elasticity," i.e., the buildup of financial imbalances that characterizes domestic financial markets. He identifies two channels of transmission. First, capital inflows contribute to the rise in domestic credit during a financial boom. The impact of global conditions on domestic financial markets exacerbates this development (see here). Second, monetary regimes may facilitate the expansion of monetary conditions from one country to others. Central bankers concerned about currency appreciation and a loss of competitiveness keep interest rates lower than they would otherwise, which furthers a domestic boom. In addition, the actions of central banks with international currencies such as the dollar has international ramifications, as the current widespread concern about the impending rise in the Federal Funds rate shows.

Aliber ends the current edition of Manias, Panics and Crashes with an appendix on China's financial situation. He compares the surge in China's housing markets with the Japanese boom of the 1980s and subsequent bust that initiated decades of slow economic growth. An oversupply of new housing in China has resulted in a decline in prices that threatens the solvency of property developers and the banks and shadow banks that financed them. Aliber is dubious of the claim that the Chinese government will support the banks, pointing out that such support will only worsen China's indebtedness. The need for an eighth edition of Manias, Panics and Crashes may soon be apparent.

cross posted with Capital Ebbs and Flows

[Dec 19, 2015] The Washington Post's Non-Political Fed Looks a Lot Like Wall Street's Fed

"... Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. ..."

Dec 19, 2015 | Beat the Press

... ... ...

But what is even more striking is the Post's ability to treat the Fed a neutral party when the evidence is so overwhelming in the opposite direction. The majority of the Fed's 12 district bank presidents have long been pushing for a rate hike. While there are some doves among this group, most notably Charles Evans, the Chicago bank president, and Narayana Kocherlakota, the departing president of the Minneapolis bank, most of this group has publicly pushed for higher rate hikes for some time. By contrast, the governors who are appointed through the democratic process, have been far more cautious about raising rates.

It should raise serious concerns that the bank presidents, who are appointed through a process dominated by the banking industry, has such a different perspective on the best path forward for monetary policy. With only five of the seven governor slots currently filled, there are as many presidents with voting seats on the Fed's Open Market Committee as governors. In total, the governors are outnumbered at meetings by a ratio of twelve to five.

Any serious discussion of Fed policy would note that the banking industry appears to have a grossly disproportionate say in the country's monetary policy. Furthermore, it seems determined to use that influence to push the Fed on a path that slows growth and reduces the rate of job creation. The Post somehow missed this story or at least would prefer that the rest of us not take notice.

* https://www.washingtonpost.com/opinions/the-federal-reserve-makes-a-good-judgment-call-in-raising-interest-rates/2015/12/18/7954e1c6-a4f8-11e5-ad3f-991ce3374e23_story.html

-- Dean Baker

[Dec 18, 2015] The Upward Redistribution of Income: Are Rents the Story?

Looks like growth of financial sector represents direct threat to the society

"... Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low. ..."

"... Growth of the non-financial-sector == growth in productivity ..."

"... In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers. ..."

December 18, 2015 | cepr.netDean Baker:

Working Paper: : In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period.
This paper argues that the bulk of this upward redistribution comes from the growth of rents in the economy in four major areas: patent and copyright protection, the financial sector, the pay of CEOs and other top executives, and protectionist measures that have boosted the pay of doctors and other highly educated professionals. The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to this rapid rise in inequality, as for example argued by Thomas Piketty.
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RC AKA Darryl, Ron said in reply to Fair Economist, December 18, 2015 at 11:34 AM

"...the growth of finance capitalism was what would kill capitalism off..."

"Financialization" is a short-cut terminology that in full is term either "financialization of non-financial firms" or "financialization of the means of production." In either case it leads to consolidation of firms, outsourcing, downsizing, and offshoring to reduce work force and wages and increase rents.

Consolidation, the alpha and omega of financialization can only be executed with very liquid financial markets, big investment banks to back necessary leverage to make the proffers, and an acute capital gains tax preference relative to dividends and interest earnings, the grease to liquidity.

It takes big finance to do "financialization" and it takes "financialization" to extract big rents while maintaining low wages.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:42 AM
[THANKS to djb just down thread who supplied this link:]
http://www.democraticunderground.com/10021305040

Finance sector as percent of US GDP, 1860-present: the growth of the rentier economy

[graph]

Financialization is a term sometimes used in discussions of financial capitalism which developed over recent decades, in which financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics.

Financialization is a term that describes an economic system or process that attempts to reduce all value that is exchanged (whether tangible, intangible, future or present promises, etc.) either into a financial instrument or a derivative of a financial instrument. The original intent of financialization is to be able to reduce any work-product or service to an exchangeable financial instrument... Financialization also makes economic rents possible...financial leverage tended to override capital (equity) and financial markets tended to dominate over the traditional industrial economy and agricultural economics...

Companies are not able to invest in new physical capital equipment or buildings because they are obliged to use their operating revenue to pay their bankers and bondholders, as well as junk-bond holders. This is what I mean when I say that the economy is becoming financialized. Its aim is not to provide tangible capital formation or rising living standards, but to generate interest, financial fees for underwriting mergers and acquisitions, and capital gains that accrue mainly to insiders, headed by upper management and large financial institutions. The upshot is that the traditional business cycle has been overshadowed by a secular increase in debt.

Instead of labor earning more, hourly earnings have declined in real terms. There has been a drop in net disposable income after paying taxes and withholding "forced saving" for social Security and medical insurance, pension-fund contributions and–most serious of all–debt service on credit cards, bank loans, mortgage loans, student loans, auto loans, home insurance premiums, life insurance, private medical insurance and other FIRE-sector charges. ... This diverts spending away from goods and services.

In the United States, probably more money has been made through the appreciation of real estate than in any other way. What are the long-term consequences if an increasing percentage of savings and wealth, as it now seems, is used to inflate the prices of already existing assets - real estate and stocks - instead of to create new production and innovation?

http://en.wikipedia.org/wiki/Financialization

pgl said in reply to RC AKA Darryl, Ron, December 18, 2015 at 03:25 PM
Your graph shows something I've been meaning to suggest for a while. Take a look at the last time that the financial sector share of GDP rose. The late 1920's. Which was followed by the Great Depression which has similar causes as our Great Recession. Here is my observation.
Give that Wall Street clowns a huge increase in our national income and we don't get more services from them. What we get is screwed on the grandest of scales.

BTW - there is a simple causal relationship that explains both the rise in the share of financial sector income/GDP and the massive collapses of the economy (1929 and 2007). It is called stupid financial deregulation. First we see the megabanks and Wall Street milking the system for all its worth and when their unhanded and often secretive risk taking falls apart - the rest of bear the brunt of the damage.

Which is why this election is crucial. Elect a Republican and we repeat this mistake again. Elect a real progressive and we can put in place the types of financial reforms FDR was known for.

Peter K. said in reply to RC AKA Darryl, Ron, December 18, 2015 at 11:50 AM

" and it takes "financialization" to extract big rents while maintaining low wages."

It takes governmental macro policy to maintain loose labor markets and low wages. Perhaps the financialization of the economy and rising inequality leads to a corruption of the political process which leads to monetary, currency and fiscal policy such that labor markets are loose and inflation is low.

djb said...

http://www.democraticunderground.com/10021305040

I don't know about the last couple years but this chart indicates a large growth in financials as a share of gdp over the years since the 40's

RC AKA Darryl, Ron said in reply to djb, December 18, 2015 at 12:03 PM
[Anne gave you FIRE sector profits as a share of GDP while this gives FIRE sector profits as a share of total corporate profits.]
*

[Smoking gun excerpt:]

"...The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent...

[Ouch!]

[Now the whole enchilada:]

http://www.washingtonmonthly.com/magazine/novemberdecember_2014/features/frenzied_financialization052714.php?page=all

If you want to know what happened to economic equality in this country, one word will explain a lot of it: financialization. That term refers to an increase in the size, scope, and power of the financial sector-the people and firms that manage money and underwrite stocks, bonds, derivatives, and other securities-relative to the rest of the economy.

The financialization revolution over the past thirty-five years has moved us toward greater inequality in three distinct ways. The first involves moving a larger share of the total national wealth into the hands of the financial sector. The second involves concentrating on activities that are of questionable value, or even detrimental to the economy as a whole. And finally, finance has increased inequality by convincing corporate executives and asset managers that corporations must be judged not by the quality of their products and workforce but by one thing only: immediate income paid to shareholders.

The financial system has grown rapidly since the early 1980s. In the 1950s, the financial sector accounted for about 3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5 percent. The sector's yearly rate of growth doubled after 1980, rising to a peak of 7.5 percent of GDP in 2006. As finance has grown in relative size it has also grown disproportionately more profitable. In 1950, financial-sector profits were about 8 percent of overall U.S. profits-meaning all the profit earned by any kind of business enterprise in the country. By the 2000s, they ranged between 20 and 40 percent. This isn't just the decline of profits in other industries, either. Between 1980 and 2006, while GDP increased five times, financial-sector profits increased sixteen times over. While financial and nonfinancial profits grew at roughly the same rate before 1980, between 1980 and 2006 nonfinancial profits grew seven times while financial profits grew sixteen times.

This trend has continued even after the financial crisis of 2008 and subsequent financial reforms, including the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act. Financial profits in 2012 were 24 percent of total profits, while the financial sector's share of GDP was 6.8 percent. These numbers are lower than the high points of the mid-2000s; but, compared to the years before 1980, they are remarkably high.

This explosion of finance has generated greater inequality. To begin with, the share of the total workforce employed in the financial sector has barely budged, much less grown at a rate equivalent to the size and profitability of the sector as a whole. That means that these swollen profits are flowing to a small sliver of the population: those employed in finance. And financiers, in turn, have become substantially more prominent among the top 1 percent. Recent work by the economists Jon Bakija, Adam Cole, and Bradley T. Heim found that the percentage of those in the top 1 percent of income working in finance nearly doubled between 1979 and 2005, from 7.7 percent to 13.9 percent.

If the economy had become far more productive as a result of these changes, they could have been worthwhile. But the evidence shows it did not. Economist Thomas Philippon found that financial services themselves have become less, not more, efficient over this time period. The unit cost of financial services, or the percentage of assets it costs to produce all financial issuances, was relatively high at the dawn of the twentieth century, but declined to below 2 percent between 1901 and 1960. However, it has increased since the 1960s, and is back to levels seen at the early twentieth century. Whatever finance is doing, it isn't doing it more cheaply.

In fact, the second damaging trend is that financial institutions began to concentrate more and more on activities that are worrisome at best and destructive at worst. Harvard Business School professors Robin Greenwood and David Scharfstein argue that between 1980 and 2007 the growth in financial-industry revenues came from two things: asset management and loan origination. Fees associated either with asset management or with household credit in particular were responsible for 74 percent of the growth in financial-sector output over that period.

The asset management portion reflects the explosion of mutual funds, which increased from $134 billion in assets in 1980 to $12 trillion in 2007. Much of it also comes from "alternative investment vehicles" like hedge funds and private equity. Over this time, the fee rate for mutual funds fell, but fees associated with alternative investment vehicles exploded. This is, in essence, money for nothing-there is little evidence that hedge funds actually perform better than the market over time. And, unlike mutual funds, alternative investment funds do not fully disclose their practices and fees publicly.

Beginning in 1980 and continuing today, banks generate less and less of their income from interest on loans. Instead, they rely on fees, from either consumers or borrowers. Fees associated with household credit grew from 1.1 percent of GDP in 1980 to 3.4 percent in 2007. As part of the unregulated shadow banking sector that took over the financial sector, banks are less and less in the business of holding loans and more and more concerned with packaging them and selling them off. Instead of holding loans on their books, banks originate loans to sell off and distribute into this new type of banking sector.

Again, if this "originate-to-distribute" model created value for society, it could be a worthwhile practice. But, in fact, this model introduced huge opportunities for fraud throughout the lending process. Loans-such as "securitized mortgages" made up of pledges of the income stream from subprime mortgage loans-were passed along a chain of buyers until someone far away held the ultimate risk. Bankers who originated the mortgages received significant commissions, with virtually no accountability or oversight. The incentive, in fact, was perverse: find the worst loans with the biggest fees instead of properly screening for whether the loans would be any good for investors.

The same model made it difficult, if not impossible, to renegotiate bad mortgages when the system collapsed. Those tasked with tackling bad mortgages on behalf of investors had their own conflicts of interests, and found themselves profiting while loans struggled. This process created bad debts that could never be paid, and blocked attempts to try and rework them after the fact. The resulting pool of bad debt has been a drag on the economy ever since, giving us the fall in median wages of the Great Recession and the sluggish recovery we still live with.

And of course it's been an epic disaster for the borrowers themselves. Many of them, we now know, were moderate- and lower-income families who were in no financial position to borrow as much as they did, especially under such predatory terms and with such high fees. Collapsing home prices and the inability to renegotiate their underwater mortgages stripped these folks of whatever savings they had and left them in deep debt, widening even further the gulf of inequality in this country.

Moreover, financialization isn't just confined to the financial sector itself. It's also ultimately about who controls, guides, and benefits from our economy as a whole. And here's the last big change: the "shareholder revolution," started in the 1980s and continuing to this very day, has fundamentally transformed the way our economy functions in favor of wealth owners.

To understand this change, compare two eras at General Electric. This is how business professor Gerald Davis describes the perspective of Owen Young, who was CEO of GE almost straight through from 1922 to 1945: "[S]tockholders are confined to a maximum return equivalent to a risk premium. The remaining profit stays in the enterprise, is paid out in higher wages, or is passed on to the customer." Davis contrasts that ethos with that of Jack Welch, CEO from 1981 to 2001; Welch, Davis says, believed in "the shareholder as king-the residual claimant, entitled to the [whole] pot of earnings."

This change had dramatic consequences. Economist J. W. Mason found that, before the 1980s, firms tended to borrow funds in order to fuel investment. Since 1980, that link has been broken. Now when firms borrow, they tend to use the money to fund dividends or buy back stocks. Indeed, even during the height of the housing boom, Mason notes, "corporations were paying out more than 100 percent of their cash flow to shareholders."

This lack of investment is obviously holding back our recovery. Productive investment remains low, and even extraordinary action by the Federal Reserve to make investments more profitable by keeping interest rates low has not been able to counteract the general corporate presumption that this money should go to shareholders. There is thus less innovation, less risk taking, and ultimately less growth. One of the reasons this revolution was engineered in the 1980s was to put a check on what kinds of investments CEOs could make, and one of those investments was wage growth. Finance has now won the battle against wage earners: corporations today are reluctant to raise wages even as the economy slowly starts to recover. This keeps the economy perpetually sluggish by retarding consumer demand, while also increasing inequality.

How can these changes be challenged? The first thing we must understand is the scope of the change. As Mason writes, the changes have been intellectual, legal, and institutional. At the intellectual level, academic research and conventional wisdom among economists and policymakers coalesced around the ideas that maximizing returns to shareholders is the only goal of a corporation, and that the financial markets were always right. At the legal level, laws regulating finance at the state level were overturned by the Supreme Court or preempted by federal regulators, and antitrust regulations were gutted by the Reagan administration and not taken up again.

At the institutional level, deregulation over several administrations led to a massive concentration of the financial sector into fewer, richer firms. As financial expertise became more prestigious than industry-specific knowledge, CEOs no longer came from within the firms they represented but instead from other firms or from Wall Street; their pay was aligned through stock options, which naturally turned their focus toward maximizing stock prices. The intellectual and institutional transformation was part of an overwhelming ideological change: the health and strength of the economy became identified solely with the profitability of the financial markets.

This was a bold revolution, and any program that seeks to change it has to be just as bold intellectually. Such a program will also require legal and institutional changes, ones that go beyond making sure that financial firms can fail without destroying the economy. Dodd-Frank can be thought of as a reaction against the worst excesses of the financial sector at the height of the housing bubble, and as a line of defense against future financial panics. Many parts of it are doing yeoman's work in curtailing the financial sector's abuses, especially in terms of protecting consumers from fraud and bringing some transparency to the Wild West of the derivatives markets. But the scope of the law is too limited to roll back these larger changes.

One provision of Dodd-Frank, however, suggests a way forward. At the urging of the AFL-CIO, Dodd-Frank empowered the Securities and Exchange Commission to examine the activities of private equity firms on behalf of their investors. At around $3.5 trillion, private equity is a massive market with serious consequences for the economy as a whole. On its first pass, the SEC found extensive abuses. Andrew Bowden, the director of the SEC's examinations office, stated that the agency found "what we believe are violations of law or material weaknesses in controls over 50 percent of the time."

Lawmakers could require private equity and hedge funds to standardize their disclosures of fees and holdings, as is currently the case for mutual funds. The decline in fees for mutual funds noted above didn't just happen by itself; it happened because the law structured the market for actual transparency and price competition. This will need to happen again for the broader financial sector.

But the most important change will be intellectual: we must come to understand our economy not as simply a vehicle for capital owners, but rather as the creation of all of us, a common endeavor that creates space for innovation, risk taking, and a stronger workforce. This change will be difficult, as we will have to alter how we approach the economy as a whole. Our wealth and companies can't just be strip-mined for a small sliver of capital holders; we'll need to bring the corporation back to the public realm. But without it, we will remain trapped inside an economy that only works for a select few.

[Whew!]

Puerto Barato said in reply to RC AKA Darryl, Ron,

"3 percent of U.S. gross domestic product. Today, that figure has more than doubled, to 6.5"
~~RC AKA Darryl, Ron ~

Growth of the non-financial-sector == growth in productivity

Growth of the financial-sector == growth in upward transfer of wealth

Ostensibly financial-sector is there to protect your money from being eaten up by inflation. Closer inspection shows that the prevention of *eaten up* is by the method of rent collection.

Accountants handle this analysis poorly, but you can see what is happening. Boiling it down to the bottom line you can easily see that wiping out the financial sector is the remedy to the Piketty.

Hell! Financial sector wiped itself out in 008. Problem was that the GSE and administration brought the zombie back to life then put the vampire back at our throats. What was the precipitating factor that snagged the financial sector without warning?

Unexpected
deflation
!

Gimme some
of that

pgl said in reply to djb...

People like Brad DeLong have noted this for a while. Twice as many people making twice as much money per person. And their true value to us - not a bit more than it was back in the 1940's.

Rock O Sock O Choco said in reply to djb... December 18, 2015 at 06:26 PM

http://www.mybudget360.com/wp-content/uploads/2010/01/financial-sector-gdp-percent.png

http://wadhwa.com/wp-content/uploads/2011/03/Finance-Sector-as-percentage-of-GDP.png

https://upload.wikimedia.org/wikipedia/commons/9/92/NYUGDPFinancialShare.jpg

JEC - MeanSquaredErrors said...

Wait, what?

Piketty looks at centuries of data from all over the world and concludes that capitalism has a long-run bias towards income concentration. Baker looks at 35 years of data in one country and concludes that Piketty is wrong. Um...?

A little more generously, what Baker actually writes is:

"The argument on rents is important because, if correct, it means that there is nothing intrinsic to capitalism that led to **this** rapid rise in inequality, as for example argued by Thomas Piketty." (emphasis added)

But Piketty has always been very explicit that the recent rise in US income inequality is anomalous -- driven primarily by rising inequality in the distribution of labor income, and only secondarily by any shift from labor to capital income.

So perhaps Baker is "correctly" refuting Straw Thomas Piketty. Which I suppose is better than just being obviously wrong. Maybe.

tew said...

Some simple math shows that this assertion is false "As a result of this upward redistribution, most workers have seen little improvement in living standards" unless you think an apprx. 60% in per-capita real income (expressed as GDP) among the 99% is "little improvement".

Real GDP 2015 / Real GDP 1980 = 2.57 (Source: FRED)
If the income share of the 1% shifted from 10% to 20% then The 1%' real GDP component went up 410% while that of The 99% went up 130%. Accounting for a population increase of about 41% brings those numbers to a 265% increase and a 62% increase.

Certainly a very unequal distribution of the productivity gains but hard to call "little".

I believe the truth of the statement is revealed when you look at the Top 5% vs. the other 95%.

cm said in reply to tew...

For most "working people", their raises are quickly eaten up by increases in housing/rental, food, local services, and other nondiscretionary costs. Sure, you can buy more and better imported consumer electronics per dollar, but you have to pay the rent/mortgage every months, how often do you buy a new flat screen TV? In a high-cost metro, a big ass TV will easily cost less than a single monthly rent (and probably less than your annual cable bill that you need to actually watch TV).

pgl said in reply to tew...

Are you trying to be the champion of the 1%? Sorry dude but Greg Mankiw beat you to this.

anne said...

In the years since 1980, there has been a well-documented upward redistribution of income. While there are some differences by methodology and the precise years chosen, the top one percent of households have seen their income share roughly double from 10 percent in 1980 to 20 percent in the second decade of the 21st century. As a result of this upward redistribution, most workers have seen little improvement in living standards from the productivity gains over this period....

-- Dean Baker

anne said in reply to anne...

http://www.census.gov/hhes/www/income/data/historical/household/

September 16, 2015

Real Median Household Income, 1980 & 2014

1980 ( 48,462)

2014 ( 53,657)

53,657 - 48,462 = 5,195

5,195 / 48,462 = 10.7%

Between 1980 and 2014 real median household income increased by a mere 10.7%.

anne said in reply to don...

I would be curious to know what has happened to the number of members per household....

http://www.census.gov/hhes/www/income/data/historical/household/

September 16, 2015

Household Size

2014 ( 2.54)
1980 ( 2.73)

[ The difference in household size to real median household incomes is not statistically significant. ]

anne said in reply to anne...

http://www.census.gov/hhes/www/income/data/historical/families/index.html

September 16, 2015

Real Median Family Income, 1948-1980-2014

1948 ( 27,369)

1980 ( 57,528)

2014 ( 66,632)

57,528 - 27,369 = 30,159

30,159 / 27,369 = 110.2%

66,632 - 57,528 = 9,104

9,104 / 57,528 = 15.8%

Between 1948 and 1980, real median family income increased by 110.2%, while between 1980 and 2014 real median family income increased by a mere 15.8%.

cm said...

"protectionist measures that have boosted the pay of doctors and other highly educated professionals"

Protectionist measures (largely of the variety that foreign credentials are not recognized) apply to doctors and similar accredited occupations considered to be of some importance, but certainly much less so to "highly educated professionals" in tech, where the protectionism is limited to annual quotas for some categories of new workers imported into the country and requiring companies to pay above a certain wage rate for work visa holders in jobs claimed to have high skills requirements.

A little mentioned but significant factor for growing wages in "highly skilled" jobs is that the level of foundational and generic domain skills is a necessity, but is not all the value the individual brings to the company. In complex subject matters, even the most competent person joining a company has to become familiar with the details of the products, the industry niche, the processes and professional/personal relationships in the company or industry, etc. All these are not really teachable and require between months and years in the job. This represents a significant sunk cost. Sometimes (actually rather often) experience within the niche/industry is in a degree portable between companies, but some company still had to employ enough people to build this experience, and it cannot be readily bought by bringing in however competent freshers.

This applies less so e.g. in medicine. There are of course many heavily specialized disciplines, but a top flight brain or internal organ surgeon can essentially work on any person. The variation in the subject matter is large and complex, but much more static than in technology.

That's not to knock down the skill of medical staff in any way (or anybody else who does a job that is not trivial, and that's true for many jobs). But specialization vs. genericity follow a different pattern than in tech.

Another example, the legal profession. There are similar principles that carry across, with a lot of the specialization happening along different legislation, case law, etc., specific to the jurisdiction and/or domain being litigated.

[Dec 18, 2015] How low can oil prices go? Opec and El Niño take a bite out of crudes cost

Oil is a valuable chemical resource that is now wasted because of low prices... "The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers."

"... Iran wont flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference. ..."

"... Those who predict very low prices dont understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this years peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place. ..."

"... If oil prices remain very low until 2025 itll either be because you are right or because the world went to hell. ..."

"... But Im with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again. ..."

"... Time to examine the real question: how long can the Saudis maintain their current production rates? Theyre currently producing more than 10 Mbarrels/day, but lets take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day - 47.5 years. @ 20 Mbarrels/day - 35 years. ..."

"... The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers. ..."

"... Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly? ..."

"... Yeah, but I suspect it was written incorrectly. Im betting the Saudis real target is the Russians. ..."

"... In 1975 dollars, thats $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal). ..."

"... I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time ..."

Dec 16, 2015 | The Guardian

Fernando Leza -> jah5446 15 Dec 2015 06:12

Iran won't flood the market in 2016. Right now Iran is losing production. It takes time to reverse decline and make a difference.

Those who predict very low prices don't understand the industry (I do). The low price environment reduces capital investment, which has to be there just to keep production flat (the decline is 3 to 5 million barrels of oil per day per year). At this time capacity is dropping everywhere except for a few select countries. The USA is losing capacity, and will never again reach this year's peak unless prices double. Other countries are hopeless. From Norway to Indonesia to Colombia to Nigeria and Azerbaijan, peak oil has already taken place.

Fernando Leza -> SonOfFredTheBadman 15 Dec 2015 06:05

If oil prices remain very low until 2025 it'll either be because you are right or because the world went to hell. I prefer your vision, of course. But I'm afraid most of your talk is wishful thinking. Those of us who do know how to put watts on the table can't figure out any viable solutions. Hopefully something like cheap fusion power will rise. Otherwise you may be eating human flesh in 2060.

Fernando Leza -> p26677 15 Dec 2015 06:00

Keep assuming. I'll keep buying Shell stock.

MatCendana -> UnevenSurface 14 Dec 2015 03:36

Regardless of the breakeven price, producers with the wells already running or about to will keep pumping. Better to have some income, even if the operation is at a loss, than no income. This will go on and on right until the end, which is either prices eventually go up or they run out of oil and can't drill new wells.

But I'm with Carambaman - prices will go up again. Demand is and will still be there. The excess output will eventually end, and the prices stabilises. And then move up again.

Billy Carnes 13 Dec 2015 19:52

Also this hurts the states...Louisiana is now in the hole over 1.5 Billion or more

TomRoche 13 Dec 2015 12:31

@Guardian: Time to examine the real question: how long can the Saudis maintain their current production rates? They're currently producing more than 10 Mbarrels/day, but let's take the latter figure as a lower bound. They apparently have (per US consulate via WikiLeaks--time for a followup?) at least 260 Gbarrels (though it seems no one outside Saudi really knows). You do the math: 260 Gbarrels / (10 Mbarrels/day) = 26 kdays ~= 70 years. @ 15 Mbarrels/day -> 47.5 years. @ 20 Mbarrels/day -> 35 years.

That's just Saudi (allegedly) proven reserves. But it's plenty long enough to push atmospheric GHG levels, and associated radiative forcing, to ridiculously destructive excess.

The obvious follow-up question is, how long will the sane people of the world continue to allow so much fossil-fuel combustion to continue? An exercise for readers.

TomRoche -> GueroElEnfermero 13 Dec 2015 12:14

@GueroElEnfermero: 'Saudi Arabia, a US ally, using oil production and pricing to crush US oil shale industry? Did I read that correctly?'

Yeah, but I suspect it was *written* incorrectly. I'm betting the Saudis' real target is the Russians.

Sieggy 13 Dec 2015 11:49

In 1975 dollars, that's $8.31 / bbl (with a cumulative inflation factor of 342% over 40 years), or $.45 / gal for gas (assuming a current price of $2.00 / gal).

Carambaman 13 Dec 2015 10:25

I spent 30 years in the oil industry and experienced many cycles. When it is up people cannot believe it will go down and when it is down people cannot believe it will go up. It is all a matter of time

[Dec 17, 2015] The Feds decision to raise interest rates today is an unfortunate move in the wrong direction

"... The Feds decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the Fed to conclude that the greater risk at the moment is too many jobs. ..."

"... While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002. ..."

"... While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent. ..."

"... One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. ..."

economistsview.typepad.com
Peter K. -> RC AKA Darryl, Ron... December 17, 2015 at 10:12 AM
"Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004."
There isn't much of a difference between signaling tighter money to a market that is skeptical of Fed forecasts and actually tightening.

http://cepr.net/press-center/press-releases/statement-on-fed-and-interest-rates

Washington, D.C.- Dean Baker, economist and a co-director of the Center for Economic and Policy Research (CEPR) issued the following statement in response to the Federal Reserve's decision regarding interest rates:

"The Fed's decision to raise interest rates today is an unfortunate move in the wrong direction. In setting interest rate policy the Fed must decide whether the economy is at risk of having too few or too many jobs, with the latter being determined by the extent to which its current rate of job creation may lead to inflation. It is difficult to see how the evidence would lead the Fed to conclude that the greater risk at the moment is too many jobs.

"While at 5.0 percent, the unemployment rate is not extraordinarily high, most other measures of the labor market are near recession levels. The percentage of the workforce that is involuntarily working part-time is near the highs reached following the 2001 recession. The average and median duration of unemployment spells are also near recession highs. And the percentage of workers who feel confident enough to quit their jobs without another job lined up remains near the low points reached in 2002.

"If we look at employment rates rather than unemployment, the percentage of prime-age workers (ages 25-54) with jobs is still down by almost three full percentage points from the pre-recession peak and by more than four full percentage points from the peak hit in 2000. This does not look like a strong labor market.

"On the other side, there is virtually no basis for concerns about the risk of inflation in the current data. The most recent data show that the core personal consumption expenditure deflator targeted by the Fed increased at just a 1.2 percent annual rate over the last three months, down slightly from the 1.3 percent rate over the last year. This means that the Fed should be concerned about being below its inflation target, not above it.

"While wage growth has edged up somewhat in recent months by some measures, it is still well below a rate that is consistent with the Fed's inflation target. Hourly wages have risen at a 2.7 percent rate over the last year. If there is just 1.5 percent productivity growth, this would be consistent with a rate of inflation of 1.2 percent.

"Furthermore, it is important to recognize that workers took a large hit to their wages in the downturn, with a shift of more than four percentage points of national income from wages to profits. In principle, workers can restore their share of national income (the equivalent of an 8 percent wage gain), but the Fed would have to be prepared to allow wage growth to substantially outpace prices for a period of time. If the Fed acts to prevent workers from getting this bargaining power, it will effectively lock in place this upward redistribution. Needless to say, workers at the middle and bottom of the wage distribution can expect to see the biggest hit in this scenario.

"One positive point in today's action is the Fed's commitment in its statement to allow future rate hikes to be guided by the data, rather than locking in a path towards "normalization" as was effectively done in 2004. If it is the case that the economy is not strong enough to justify rate hikes, then the hike today may be the last one for some period of time. It will be important for the Fed to carefully assess the data as it makes its decision on interest rates at future meetings.

"Recent economic data suggest that today's move was a mistake. Hopefully the Fed will not compound this mistake with more unwarranted rate hikes in the future."

RC AKA Darryl, Ron said in reply to Peter K....

I like Dean Baker. Unlike the Fed, Dean Baker is a class warrior on the side of the wage class. He makes the point about the path to normalization being critical that I have been discussing for quite a while. Let's hope this Fed knows better than Greenspan/Bernanke in 2004-2006. THANKS!

likbez said in reply to RC AKA Darryl, Ron...

Very true !

pgl said in reply to RC AKA Darryl, Ron...

"Longer-term bond rates barely moved, showing that there was very little news." This interest rate rose from 4.45% to 5.46% already. So the damage was already done:
https://research.stlouisfed.org/fred2/series/BAA

RC AKA Darryl, Ron said in reply to pgl...

"... This interest rate rose from 4.45% to 5.46% already..."

[Exactly! Corporate bond rates have been rising steadily since May. Yellen is not doing what Greenspan did in 2004. Yellen's Fed waited until the bond rate lifted off on its own (and maybe with some help from policy communications) before they raised the FFR. So far, there is no sign of their making a fatal error. They are not fighting class warfare for wage class either, but they seem intent on not screwing the pooch in the way that Greenspan and Bernanke did. No double dip thank you and hold the nuts.]

[Dec 17, 2015] Full employment is important for long-term reduction of inequality

"... Full employment is important for long-term reduction of inequality. Periods of high unemployment not only do damage to workers who lose their jobs and see their skills atrophy, but also cause those who keep their jobs to experience weaker wage growth. This is especially hard on those with lower incomes, who see larger cuts in working hours during periods of high unemployment. ..."

"... The elites like Feldman seem to be fine with golden parachutes for the wealthy but want to give the poor a lottery in place of a pension. Social Security is insurance that provides a safety net. Replacing SS with investments that allow people to fall through the cracks is not a good idea. ..."

economistsview.typepad.com

pgl said... December 17, 2015 at 01:46 AM

...
Full employment is important for long-term reduction of inequality. Periods of high unemployment not only do damage to workers who lose their jobs and see their skills atrophy, but also cause those who keep their jobs to experience weaker wage growth. This is especially hard on those with lower incomes, who see larger cuts in working hours during periods of high unemployment.

...As it looks like the economy will be weak, and interest rates low, for the foreseeable future, this is a problem that won't go away on its own. And as she concludes, "excessive emphasis on low and stable inflation at the expense of a strong labor market is unwarranted. Privileging low inflation over maximum employment means that more people are likely to experience unemployment, underemployment, or stagnant wages."

bakho -> pgl...
Our wealthy elites like cheap labor. High unemployment leads to cheap labor.
The newly employed are not likely to take up a collection to hire an outgoing Fed member. A banker might be willing to hire at a premium.
BenIsNotYoda -> pgl...

The Fed can not reduce inequality. This should be done with fiscal action - taxes, min wage hikes etc. To push Fed to consider inequality is pure mission creep and delusional. They will create more problems trying. What is next on the list? Cancer?

pgl -> BenIsNotYoda...

I'm not against fiscal stimulus but that is not decided by the FED. Congress is run by gold bug idiots. So the point that the FED should not be run by gold bug idiots stands...

BenIsNotYoda -> pgl...

The rule should be - do not do stupid things. And by absolving congress and pushing the Fed to do things they can not, you are part of the problem.

Peter K. -> BenIsNotYoda...

"The Fed can not reduce inequality."
Why not?
"This should be done with fiscal action - taxes, min wage hikes etc."
Why not all of the above?
"To push Fed to consider inequality is pure mission creep and delusional."
Why?
"They will create more problems trying."
Not true.
"What is next on the list? Cancer?""
reductio ad absurdum

William -> Peter K....

A Reductio is not actually a fallacy, it's an acceptable form of refutation.
His actual fallacy was a Slippery Slope.
That being said, I agree with pgl. Just because the person behind the steering wheel is trying to drive you into a ditch doesn't mean the person controlling the pedals can't hit the breaks.
(Though our current situation is more like the person behind the wheel is refusing to steer, and is instead spending their time drilling holes in the gas tank to keep us from going anywhere.)

Sanjait -> William...

His fallacy was in the original claim that the Fed can't do anything to reduce inequality. It's an especially obtuse claim at this moment in time.

Syaloch -> BenIsNotYoda...

Binder: "Privileging low inflation over maximum employment means that more people are likely to experience unemployment, underemployment, or stagnant wages."
Sure sounds to me like the Fed can reduce inequality.
Or do you think unemployment, underemployment, and stagnant wages have no impact on inequality?

RGC -> RGC...

Pushing on a string
From Wikipedia, the free encyclopedia
Pushing on a string is a figure of speech for influence that is more effective in moving things in one direction than another – you can pull, but not push.
If something is connected to someone by a string, they can move it toward themselves by pulling on the string, but they cannot move it away from themselves by pushing on the string. It is often used in the context of economic policy, specifically the view that "Monetary policy [is] asymmetric; it being easier to stop an expansion than to end a severe contraction
According to Roger G. Sandilans[1] and John Harold Wood[2] the phrase was introduced by Congressman T. Alan Goldsborough in 1935, supporting Federal Reserve chairman Marriner Eccles in Congressional hearings on the Banking Act of 1935:
Governor Eccles: Under present circumstances, there is very little, if any, that can be done.
Congressman Goldsborough: You mean you cannot push on a string.
Governor Eccles: That is a very good way to put it, one cannot push on a string. We are in the depths of a depression and... beyond creating an easy money situation through reduction of discount rates, there is very little, if anything, that the reserve organization can do to bring about recovery.[2]
The phrase is, however, often attributed to John Maynard Keynes: "As Keynes pointed out, it's like pushing on a string...",[3] "This is what Keynes meant by the phrase 'Pushing on a string.'"
https://en.wikipedia.org/wiki/Pushing_on_a_string

BenIsNotYoda -> Syaloch...

To all of the above,

The biggest factor increasing inequality is not high unemployment right now. It is sky high asset prices that is raising the net worth and income of the top 1% or 0.1%. Piketty documented this as well - asset prices and inequality cycles are highly correlated.

So what is Fed to do? They caused it in the first place.

Letting the economy run hot so wages go up - this way will take forever to reduce inequality to any appreciable degree.

Cascatore Хачатурян -> BenIsNotYoda..

"
Fed can not reduce inequality. This should be done with
"
~~BenIsNotYoda~
Do FG have 4 trillion $$$$ of assets still on their balance sheet? What happens when they auction these off into the free market? All asset prices drop? By supply/price/demand? As asset prices drop what happens to buying power of 1% jokers? Drops?
As buying power of 1% dudes drops they are able to buy less thus to some extent they cease to price 99% out of the market. Do you see the mechanism involved?
When the benBernank pushed onto the top of the stack first high rates then middle rates then low rates then small balance sheet as he expanded sheet with *twist*, you are thinking that the graniteJanet will pop balance sheet off the top of the stack first later pop 0% rates off top of the stack as we come out of the inner loop then revert to the parent process. This is subtle but important.
The graniteJanet used an offset on the stack pointer to dip into the middle of the stack to access higher rate first, bypassing the 4 trillion balance sheet. Do you see how all this fits together?
You now have 64 micro-seconds to crunch the numbers.
Good
luck
!

JohnH -> pgl...

As usual, pgl opposes any ideas that carry of whiff of criticism of the Fed and its ineffective, redistributive monetary policy. He must be responsible for PR for the Fed...
In fact the criticisms are spot on--its focus is more on higher inflation than on legally mandated maximum employment, it refuses to enforce regulations, and it is rife with cronyism, as Bernie's audit of the Fed revealed years ago.
Stiglitz advocates reform, noting that "The real problem is that money does not go to where it should go, as we see for example in the United States. The money does not flow into the real economy, because the transmission mechanism is broken...Access for small and medium enterprises to credit is too expensive. That's why it is so important that the transmission mechanism work." And of course, consumer credit rates barely budged since the Fed cut rates to zero, so ordinary people don't see the benefit, except for affluent mortgage holders.

http://www.cash.ch/news/alle/stiglitz-billiggeld-lost-kein-problem-3393853-448
Ellen Brown would go further--reinvent the entire banking system and cites Russia, Iceland, Ireland and Ecuador as places experimenting with new ideas.
http://ellenbrown.com/2015/12/11/reinventing-banking-developments-in-russia-iceland-the-uk-and-ecuador/
Of course, all of this is anathema to Fedbots like pgl, who insist that everything is hunky dory...if only the Fed would feed free money to his cronies forever, it would be heaven on earth.
Instead of taking any criticism of the Fed off the table, as pgl and his coterie fervently desire, it's long past time for a thorough debate about the Fed, its failed policies, and ways to extensively reform it.

bakho said...

Noah Corrects Feldman's funny numbers on entitlements and wealth inequality and comes to the opposite conclusion. The elites like Feldman seem to be fine with golden parachutes for the wealthy but want to give the poor a lottery in place of a pension. Social Security is insurance that provides a safety net. Replacing SS with investments that allow people to fall through the cracks is not a good idea.

[Dec 17, 2015] Update of CBOs long term SS projections

www.cbo.gov

"CBO's Publications - CBO's 2015 Long-Term Projections for Social Security: Additional Information"

New From CBO

pdf 446.38 KB

"CBO's 2015 Long-Term Projections for Social Security: Additional Information"

"Under current law, CBO projects, Social Security's trust funds, considered together, will be exhausted in 2029. In that case, benefits in 2030 would need to be reduced by 29 percent from the scheduled amounts."

Summary

"Social Security, which marked its 80th anniversary in 2015, is the largest single program in the federal government's budget. About 72 percent of the roughly 60 million people who currently receive Social Security benefits are retired workers or their spouses and children, and another 10 percent are survivors of deceased workers; all of those beneficiaries receive payments through Old-Age and Survivors Insurance (OASI). The remaining 18 percent of beneficiaries are disabled workers or their spouses and children; they receive Disability Insurance (DI) benefits.

In fiscal year 2015, spending for Social Security benefits totaled $877 billion, or almost one-quarter of federal spending. OASI payments accounted for about 84 percent of those outlays, and DI payments made up about 16 percent."

[Dec 16, 2015] Donald Trump's Divisiveness Is Bad for the Economy

"... A divided society cannot function optimally, especially when the divisions erect walls between groups that are difficult to cross. There are all sorts of attempts to divide us right now, but I want to focus on something other than the bigotry that has been on display in the Republican race for the presidential nomination, the division into winners and losers. ..."

"... To some extent that's correct, but competitive capitalism is not divisive. In fact, it is just the opposite. Competition is a great leveling force. ..."

"... For example, when a firm discovers something new, other firms, if they can, will copy it and duplicate the innovation. If a firm finds a highly profitable strategy, other firms will mimic it and take some of those profits for themselves. A firm might temporarily separate itself from other firms in an industry, but competition will bring them back together. Sometimes there are impediments to this leveling process such as patents, monopoly power, and talent that is difficult to duplicate, but competition is always there, waiting and watching. ..."

"... Competition also drives us forward individually and as a nation. It is a source of new innovation and new technology as people and firms try to find ways to do better than others, to earn higher incomes, gain more popularity, to escape from the pack. People pursue education and other ways to improve themselves not just as a source of knowledge, but also as a way to distinguish themselves. ..."

"... There are differences in talents and abilities, of course, that prevent a full leveling, but to the extent possible people will copy anything that leads to success. ..."

"... Inequality erects those barriers as those who have been fortunate try to protect themselves from capitalism's inherent tendency to erode away their superior position. They feel threatened by competition and do all they can to avoid it once they have found success. ..."

"... When those barriers exist, talent is wasted and we are worse off as a nation. How many great ideas will never be known simply because some people never had the education or opportunity needed to draw the ideas out? ..."

"... Separating the winners from the losers is okay if it is based on merit. If we start equally, and have the same chance to get ahead, then unequal outcomes are less of a concern. The problem is that some people are born "winners" even though they have done nothing to earn it, and others have little chance to win due to our unwillingness to truly embrace what equal opportunity means. ..."

Dec 15, 2015 | The Fiscal Times

White House spokesperson Josh Earnest described Donald Trump as "offensive and toxic," though that only begins to describe the corrosive effect his bigotry, divisiveness, and xenophobia have on our society. It is at odds with our values as a nation.
It's also bad for the economy.

A divided society cannot function optimally, especially when the divisions erect walls between groups that are difficult to cross. There are all sorts of attempts to divide us right now, but I want to focus on something other than the bigotry that has been on display in the Republican race for the presidential nomination, the division into winners and losers.

It might seem at first that this is exactly what capitalism does. It uses competition to separate people into various income classes, decide who gets the best jobs, who gets to live in desirable locations – it decides who wins and who loses. Some people, hopefully those who have earned it, do well and others fall behind. This drive to be a winner, it is argued, is the driving force behind capitalism.

To some extent that's correct, but competitive capitalism is not divisive. In fact, it is just the opposite. Competition is a great leveling force.

For example, when a firm discovers something new, other firms, if they can, will copy it and duplicate the innovation. If a firm finds a highly profitable strategy, other firms will mimic it and take some of those profits for themselves. A firm might temporarily separate itself from other firms in an industry, but competition will bring them back together. Sometimes there are impediments to this leveling process such as patents, monopoly power, and talent that is difficult to duplicate, but competition is always there, waiting and watching.

Competition also drives us forward individually and as a nation. It is a source of new innovation and new technology as people and firms try to find ways to do better than others, to earn higher incomes, gain more popularity, to escape from the pack. People pursue education and other ways to improve themselves not just as a source of knowledge, but also as a way to distinguish themselves.

However, any successful strategy will be followed. There are differences in talents and abilities, of course, that prevent a full leveling, but to the extent possible people will copy anything that leads to success. The fact that this is true – that capitalism will take away gains and differences if it can – is what drives people to continue to try to get ahead. If you rest on your laurels, they will be taken away.

But there is an essential feature in the system that makes it work, and this takes us back to the attempt by Trump and the Republican Party more generally to erect walls between groups of people. The system works best when people have the freedom to enter a new business (if they have the means and are willing to take the risk). It works best when people compete for jobs on equal footing, have access to the same opportunities, when there are no artificial barriers in society that prevent people from reaching their full potential.

Inequality erects those barriers as those who have been fortunate try to protect themselves from capitalism's inherent tendency to erode away their superior position. They feel threatened by competition and do all they can to avoid it once they have found success. And it's not just the wealthy. Even the middle class will attempt to erect roadblocks – social, legal, whatever it takes – if it feels threatened from competition from traditionally disadvantaged groups.

When those barriers exist, talent is wasted and we are worse off as a nation. How many great ideas will never be known simply because some people never had the education or opportunity needed to draw the ideas out?

But it's not just the children of poorer households that are disadvantaged by inequality. The children of the wealthy have no incentive, in many cases, to reach their full potential. Why struggle, take risks, do the hard work that is needed to come up with a new and useful idea when your needs are already taken care of? How much talent is wasted because of this?

It is not inequality that drives innovation and economic growth--it is the attempt to escape the leveling forces of capitalism. If we truly wanted to produce the most economic growth, everyone should start off equal to the extent possible. That way, everyone would have the incentive to differentiate themselves from others, and the means to do so. Inheritance taxes would be 100 percent; schools would be assigned randomly to ensure there's an incentive to equalize resources, and so on, and so on.

Of course, that will never happen. As we're seeing in the presidential election, those with means are trying to make the divisions larger rather than break them down. They tell us inequality drives our economy, when in fact inequality is an outcome, the driving force behind it is the desire to escape the equalizing forces of competition. Inequality as a starting point takes away opportunity from the children of the poor, and it dulls incentives for the children of the rich. It's not hard to understand why recent research has found that high and persistent inequality is associated with lower economic growth.

Separating the winners from the losers is okay if it is based on merit. If we start equally, and have the same chance to get ahead, then unequal outcomes are less of a concern. The problem is that some people are born "winners" even though they have done nothing to earn it, and others have little chance to win due to our unwillingness to truly embrace what equal opportunity means.

And, as Republican campaigns for the presidential nomination are making abundantly clear, that's just the way some people want it.

Related: Americans More Concerned About Over-Regulation Than Economic Inequality

Related: Why Americans Shrug Off Income Inequality

Related: The Politics of Income Inequality

[Dec 15, 2015] FOMC Tomorrow, Cargo Cult Economics

"... So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. ..."

Jesse's Café Américain

...There is a heavy lean towards believing that the Fed will raise rates 25 basis points.

Fed Funds futures are indicating expectation of a move to 100 basis points total by the end of next year. Let's see if they can pull that one off. It seems aspirational, if one wishes to have room to cut when their latest folly falls back upon them.

The idea that since recoveries are often accompanied by inflation, if we can only use monetary policy to create inflation then the recovery will come, is so wrong-headed that it leaves me aghast.

Even Keynes recognized that the point of stimulus was to provoke aggregate demand, which is the organic form of growth in the economy that will provide all the inflation that one might expect.

But to pursue this effete, top down stimulus focused primary on the still unreformed Banking system and the wealthiest top few percent is beyond policy error, and more policy malpractice. And of course, if one puts austerity and financial parasitism into the mix, then we just aren't in Kansas anymore Toto.

So let's see how things go this week, keeping in mind that there may be antics aplenty after the Fed announcement and into the quad witch for stocks on Friday. The miners have been beaten bloody.

[Dec 15, 2015] This Is How The Credit Crisis Spreads To Stocks

"... Yeah but its junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong? ..."

"... The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational. ..."

"... Charts: Bloomberg ..."

"... And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations. ..."

"... Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia? ..."

"... ...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves. ..."

"... What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy." ..."

"... Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber. ..."

"... if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia. ..."

"... Our DC Beltway and NYC elites are wildly delusional about their ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated. ..."

"... The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat. ..."

"... Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population ..."

"... The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that Americans from all walks of life are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake. ..."

"... Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a fight against Islam ; TPTB certainly seem to be giving this angle their best shot these days. ..."

"... What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity. ..."

"... Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you. ..."

Dec 14, 2015 | zerohedge.com

"Yeah but it's junk credit... who cares! I am invested in solid megacaps and even solider FANGs - what can go wrong?"

The biggest buyer of stocks in 2016, will be, according to Goldman Sachs, the same as it was in 2015 - corporate management teams buying back their own stock in near record quantities. But there is a problem with this thesis... the cost of funding these epic buybacks is surging, making the un-economic actions of the CFO (if very economical for their own bank accounts as they sell record amounts of their own personal stock to their company) even more irrational.

Here is Goldman's David Kostin explaining who the biggest buyer of stocks is (and will be) - as a reminder, it's not "mom(o) and pop".

We expect corporations will continue to be the largest source of demand for stocks, with net purchases by US companies totaling $450 billion, equal to about 2% of public equity cap. We forecast equity inflows from equity-related ETFs ($225 billion), equity mutual funds ($200 billion), life insurance ($50 billion), and foreign investors ($25 billion). We forecast net outflows from households ($25 billion) and pensions ($150 billion).

Well, the cost of funding that carnival of financial engineering and artifice (just ask Nordstrom, Macy's, IBM and so on) is soaring, as high-yield decompression pukes over into investment grade markets, spiking the cost of funding and crushing the 'economic feasibility' of debt-funded shareholder-friendliness:

Charts: Bloomberg

And, in case you thought "well, cost of funding has only gone up 30-40bps in IG, they can handle that," you are wrong! To all those who claim US corporate balance sheets are in great shape - they are not! Leverage is at record highs and interest coverage near record lows for the IG universe. And judging by today's collapse in Investment Grade bond prices, the market just woke up to this reality.

Simply put, the Fed's policies enabled massive releveraging and now corporations are stuck with few options to escape a vicious circle - which by the way, is why it's called the credit 'cycle'.

And this is why the contagion to IG matters: the biggest buyer of stocks of the last few years is about to priced away as its (cheap debt) funding dries up, removing the biggest pillar of delusion from current equity valuations.
Selected Skeptical Comments
strannick

Professor Steve Cohen, the foremost Russia scholar in the U.S., laments, is that it is this narrative which has precluded America from ever concluding any real ability to find a mutually acceptable modus vivendi with Russia – which it sorely needs, if it is ever seriously to tackle the phenomenon of Wahhabist jihadism (or resolve the Syrian conflict).

Wow, the foremost scholar on Russia is one dumb motherfucker. Did nobody tell this stupid asshole that the west funds jihadism in order to conquer Russia?

sam i am

The Western nations underestimated the horrible trauma that the Russian society experienced in 1990s when the Russians peacefully surrendered their society, their lands, their economy to the West, hoping to be accepted and treated as equals by the "world" community. Instead, the West dealt with the Russian skillfully, decisively, and mercilessly, just like the American Indians were dealt with by the colonizers. The Russia was gutted, scalped, and hanged on a cross to die slow and painful death. Some say that Russia like a cat has nine lives. Others say that Russia died and resurrected like Phoenix or Jesus. Open wounds have not healed yet, when after the February 22nd 2014 putsch in Kiev, and publication of the US Department of Defense tenders on the constructions of facilities in Sevastopol for the US fleet and NAVY everyone in Russia, including its government, understood that it was a declaration of war, and stood up in arms.

http://thesaker.is/ukraine-sitrep-december-13th-2015-by-scott/

Global Observer

...After Ukraine and Syria, Russians have no illusions left about how the West intends to treat Russia. Russians are ready for any action Putin may take against the West and any fall out from it for themselves.

Ghordius

"It is the basis to America's and Europe's claim to exceptionalism and leadership". seriously?

"What is sometimes forgotten, is how the Bush neo-cons gave their "spin" to this narrative for the Middle East by casting Arab national secularists and Ba'athists as the offspring of "Satan": David Wurmser was advocating in 1996, "expediting the chaotic collapse" of secular-Arab nationalism in general, and Baathism in particular. He concurred with King Hussein of Jordan that "the phenomenon of Baathism" was, from the very beginning, "an agent of foreign, namely Soviet policy.""

so? yes, King Hussein is right, in the very beginning it was mainly the Soviet Union that fostered Ba'athism. and again, so? the Soviet Union is no more

junction

Obama is stark raving mad, and his female neocons - Nuland, Powers and assorted other power hungry bitches - are too busy following orders from Israel to realize they are on a treasonous path to World War III. Putin will vaporize Raqqa with one of his new nuclear weapons that works like a neutron bomb. In all likelihood, when the first Kalibr cruise missiles hit ISIS/Bush's Captagon meth plant in Raqqa, the U.S. National Reconnaissance Office couldn't even detect them to warn CIA black ops spies in the drug facility to run. Putin knows Erdogan was following Obama's orders when Erdogan let US Air Force pilots in Turkish planes shot down the Russian bomber.

Global Observer

NOBODY WINS A NUCLEAR WAR.
I hope that Putin and his Military Advisors are smart enough to figure that out.

They are. But what the Americans don't seem to be aware of is that for some there are worse things than being dead and in order to avoid these worse things, people are prepared to die and nations willing to risk annihilation.

Russia is willing to risk annihilation in order to be able to live peacefully and with dignity. Is the USA willing to risk annihilation in order to be able to continue to insult Russia and bully the world? If the USA is indeed willing to risk annihilation to continue to do that, it would be silly for Russia not to attack the USA while she still can, because if the US were ever to develop the capability to neutralise a Russian nuclear attack, Russia can be guaranteed she will be treated with no greater respect than Iraq under Saddam was. Neither being locked in a weapons race to keep the US vulnerable to Russian attacks nor being prepared to live under Western dictates are options for Russia.

monk27

If the US will be stupid enough to start a war with Russia or/and China, it will lose such a fight big time. That will be the end of America as we know it, and also the end of the contemporary Western "elite" whether they believe it or not. Their move...

MrPalladium

"and also the end of the contemporary Western "elite"

Our DC Beltway and NYC elites are wildly delusional about "their" ability to win a nuclear war. They listen only to the defense contractors. In fact the West's elites are the prime target in a nuclear war, and even though a small and select strata might have time to hide in a deep bunker, the vast substrata that supports them, runs their bureaucracies and mans their deep state will certainly be annihilated.

No intelligent power like Russia is likely to waste a perfectly good nuke on Paducah Kentucky, but it is certain that the entire population of Manhattan Island, and the DC beltway will be vaporized along with West Los Angeles (propaganda production central) and Silly Valley. The effluvia of the silos in Iowa and Nebraska can be intercepted. Remarkably, our elites and their supporting substrata still believe that the main combatants will be rural boys from Texas and Tennessee which in a strange turn of justice will be the safest places to hide. Our 400 or so billionaire oligarchs who control this country are concentrated in about 20 zip codes. Do you really think that Russia hasn't already targeted them? The whole point of nuclear war is to decapitate the regime but spare the resources and general population for future use, and the real regime, the oligarchs, occupy a very modest and easily cleared amount of territory.
The nuclear war our elites seek to provoke will be the first in nearly a thousand years in which the elites themselves will be on the front lines of the combat.

August

I do like the way you think, Mr. P, and it's entertaining to speculate about war, TEOTWAWKI etc.
Personally, I think the biggest weakness the USA has is its increasingly diverse and divided population (which is also rather dumbed-down, infantile and irresponsible). The Pentagon and their masters must expect to resolve any future major conflict by means of technologic jujitsu; if they think that "Americans from all walks of life" are going to rally in support of a major foreign war of choice, support mass conscription etc., they're making IMHO a big mistake.

Still, with enough provocation and manipulation, perhaps the typical Amurican can be goosed into enthusiasm for a "fight against Islam"; TPTB certainly seem to be giving this angle their best shot these days.

monk27

"They" (i.e. the Russians) stand a better chance to survive than us. Ours is a much more complex AND violent society than theirs. The Mad Max way of living works only in movie...

Tall Tom

NO. THEY DO NOT. NUCLEAR WINTER, PAL.

You will either freeze to death or succumb to suffocation due to LACK OF OXYGEN.

The ash will blot out most sunlight. Plants require sunlight to photosynthesize Carbon, from CO2, into complex sugars and starches.

They transpire OXYGEN. Without the plants...YOU ARE DEAD.

Watch this video. Even the former Soviet Academy of Sciences concur with this modeling. NOBODY WILL SURVIVE. It is GLOBAL EXTINCTION. It is a God Damned Extinction Level Event.

https://www.youtube.com/watch?v=WCTKcd2Ko98

I am a physicist. This is valid science. My warning is not without a solid foundation.

Volkodav

Soviet did not so much invade. Soviet was already, support moderate government, building infrastructure, schools and other. Girls attended school in dresses.
Search for photos Kabul in 60's 70's
Moderate leader was murdered in coup by extremist backed from outsiders. Russians, moderates and monorities were slaughtered. That is when Soviet, after much concern debate, sent additional forces. Soviet was not defeated, but withdrew orderly result of collapse of funds, problems.
Soviet controlled more of country than west coalition ever did and alone, against outside interferences aiding radicals there was some beginning of what is today, some nasty creations. You never understood there was other side, moderate and civil
https://www.youtube.com/watch?v=Xc2KeSkl5H0

ebworthen

What a shame, such stupidity; the other great power and nation that is at least still Western and Christian. Europe appears to be lost, and yet the U.S. arms Muslim armies and pokes Russia on its borders. Abject insanity.

Insurrexion

Simple. Kill the Neocons one by one and we have a safer world for your children, your family and you.

[Dec 15, 2015] How to Invest in Bonds as Interest Rates Start Rising

"... For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss. ..."

TheStreet

Keep in mind that the Fed's first rate hike won't really change much. Rates will still be at historic lows. It all depends on how much the central bank raises rates in the coming months. So you don't have to rush to do anything.
An increase of 0.25 percentage point on Wednesday will almost certainly not result in big swings in bond values, especially given how many in the market expect the hike. And the Fed is likely to say that the pace of future increases will be slow.
Still, higher rates lessen the value of the bonds you currently own. That's because newly issued bonds under those higher rates will pay out more than older ones. So the price of your older bonds falls as a result.
For investors who hold bonds primarily for the income they generate, the drop in prices doesn't matter as much. That's because if you hold a bond until maturity, you never have to sell it and take a loss.

But it's a different story if you hold bonds through a mutual fund, as most investors do. The value of the fund declines with any interest rate hike because the fund becomes less attractive to investors.
The drop in value is closely linked with the term of the bonds, known as duration. Those durations are usually indicated as short term, intermediate term, or long term. In theory, short-term bonds will drop the least in value, and long-term bonds will drop the most when rates go up.
So what should investors do?
Larry Swedroe, author of The Only Guide to a Winning Bond Strategy You'll Ever Need, urges investors not to make big moves without making a plan first.
"Inaction is almost always better" than making a sudden shift in strategy in a panic, he said.
"The most anticipated event of any we can think of is that the Fed is going to raise interest rates on Dec. 16," Swedroe said. "The market must already have that information incorporated into the current price" of bonds (and stocks too, for that matter).
Don't try to outsmart the market, said Swedroe, who also is director of research for the BAM Alliance of financial advisers.

Investors "stretching for yield" can make "very bad errors," Swedroe said, including investing in real estate investment trusts, dividend-paying stocks, emerging-market bonds, and other securities that are much more risky than bonds.
If the economy falters and investors flee those asset classes and move to high-quality investments, investors in riskier assets "get crushed, just when you need the safety the most," said Swedroe.
Swedroe suggests three possible strategies for investors looking for yield in this market.

1.Stick to the middle. For bonds, the "sweet spot" for balancing risk and reward is via intermediate-term bonds with about a 5-year duration, Swedroe said. Investors there can get "most of the term premium without the longer-term inflation risk." Consider any low-cost, intermediate-term, high-quality bond fund, he said. That could include the Vanguard Intermediate-Term Bond ETF (BIV) or the Fidelity Spartan U.S. Bond Index Fund (FBIDX) -- there are many such funds available.
2.Move to CDs. Investors who really want yield but can't stomach the market fluctuation of bond funds should look at certificates of deposit, "where you can have much higher yields" than bonds but with very low risk and no mutual fund fees. For example, 5-year CDs can pay up to 2.45% in annual percentage yield, while 5-year U.S. Treasury securities pay a yield of a mere 1.56%. Swedroe said CDs are most useful for investors with IRAs, who can choose where they hold their assets.
3.Embrace the wisdom of the markets. This is the most Zen option. Swedroe said investors should take a page out of Warren Buffett's book, ignore market forecasts, and simply develop a financial plan. Find the best way to implement the plan -- with simplicity and low costs. "Stop worrying and stick with your plan," he said. Forever.
If investors really do want to rely on the consensus judgment of the markets, they should consider the world's largest bond fund, the Vanguard Total Bond Market Index (VBMFX) (VBTLX) (BND) . (In April, Vanguard's fund surpassed Pacific Investment Management's Pimco Total Return Fund (PTTAX) , which had been the largest bond fund for decades.)
Must Read: Why Wall Street Won't Be Pouring Cristal on New Year's Eve
Vanguard's Total Bond index fund is totally market weighted, with no active calls about which types of bonds will outperform and which will not. The investor class charges a 0.2% fee annually, and the ETF class charges 0.07%. The fund's SEC yield is 2.27% and its average duration is 5.8 years (in the "sweet spot"), and its pretax return for the past 12 months as of Sept. 30 has been 2.64%. It's hard to get cheaper or simpler.
Investors can also buy Treasury bonds directly from the government via Treasury Direct -- and pay no fees. The bonds available there are high-quality and simple to buy. There are some caveats: EE and E savings bonds must be held for at least one year, and you'll pay a penalty of three months' interest if you sell them within five years of buying them; they earn interest for 30 years. Other Treasury notes and bonds can be bought directly through Treasury Direct, but if you want to sell them before their term is up, you'll need to move them to a broker for sale. You can also buy resold Treasury securities at auction on Treasury Direct.
And investors should also maintain perspective, according to Vanguard.

"Many people look at bonds independently from their stocks," Fran Kinniry, of Vanguard's Investment Strategy Group, said in a statement. "But it's more beneficial to think, 'How do my bonds complement my stocks and fit into my whole investment picture?' You really want to put the two types of investments together and see how they interact as a whole. Ask yourself: 'What's my risk level for all my holdings? Does it align with my risk comfort if there's a downturn?' If you answer no, make the appropriate adjustments."
In other words, investors should hold bonds to manage volatility, to provide consistency in a portfolio, and to earn a reasonable return. Using bonds for speculation or to take more risk makes an entire portfolio more volatile.
So investors may want to stick to plain-vanilla bonds. If they plan to hold a bond fund to its average duration, which is listed on the prospectus, they will likely come out ahead even after an interest rate hike -- being paid more in interest than they have lost to reduced principal (or the face value of the bonds).

Investors hold bonds for safety -- or at least they should. If you have too much money tied up in junk bonds or in long-term bonds, be prepared for swings in the value of the principal. If you can wait out the duration of the bonds, you will likely be OK. If you can't stomach big swings, face that about yourself and move to shorter duration bonds or CDs. They could pay less, but they will also fluctuate less in value.
Must Read: 8 Winning Financial Stocks Once the Fed Raises Interest Rates
Fixed-income investing is about reducing risk and receiving a predictable payment on schedule. Remember that the bonds will keep paying the same even if their face value has dropped.
Now's the time when bond investors should verify that they have enough -- not too much, not too little -- in bonds, then sit back and collect the interest.

[Dec 14, 2015] Offshoring and Unskilled Labor Demand Evidence That Trade Matters

"... I actually think that the bigger effect is not just offshoring, but a vicious circle relating to increasing inequality. After all, most of the economy today is services, but if normal people cant afford the services anymore, then that will of course stagnate, forcing down wages decreasing the affordability even more (or causing substitution of inferior automated or remote services). ..."

"... That is why the one employment bright spot is medical services which are subsidised (one way or the other) almost everywhere. We really have to investigate more the distribution of the circulation of money, how the concentration of money in a few hands means that money circulates through relatively hands. I dont know of anybody who actually investigates this. You could say, it is the disaggregation-is-important problem. ..."

"... One thing that really annoys with political discussion today is the dominance of money illusion. This is particularly extreme in the Euro area today where Germans keep complaining that so and so will be taking our tax money . No one ever seems to stop and think, where does the money come from in the first place , and yet, in macro-economics, this is absolutely the most important question. Nobody even seems to notice that both deleveraging and bankruptcy actively destroy money and that money needs to be replaced. ..."

"... Foreign companies like Toyota and Honda solidified their dominance in family and economy cars, gained market share in high-margin luxury cars, and, in an ironic twist, soon stormed in with their own sophisticatedly engineered and marketed SUVs, pickups and minivans. Detroit, suffering from a "good enough" syndrome and wedded to ineffective marketing gimmicks like rebates and zero-percent financing, failed to give consumers what they really wanted - reliability, the latest technology and good design at a reasonable cost. ..."

"... Yes, I see offshoring as a transitional stage while foreign workers are cheaper than machines. ..."

"... The plot was about automation, but the moral was about humanity. :) ..."

"... "The main business of humanity is to do a good job of being human beings, said Paul, not to serve as appendages to machines, institutions, and systems." ..."

"... It is not the PRODUCERS who have a huge incentive to make sure it never happens. Au contraire, they want their consumers to have more money. It is the OWNERS who want to make sure it never happens because that would dilute their power. ..."

Dec 14, 2015 | Economist's View

Syaloch said in reply to cm...

So you think that offshoring does not eventually increase living standards in the destination countries? That's odd. What's your evidence?

Automation may not be the first response, but it's always in the equation:

CEO: "Those pesky foreign workers are asking for more again! Machines are so much easier to work with. Can we replace them with machines yet?"

CTO: "Let me check... No, not yet, but a lot of smart people are working on it."

CEO: "OK, then let's look for another offshoring partner with more complacent workers for now and revisit this later."

The answer to this automation question only has to be yes once to permanently change the playing field.

reason said...

I actually think that the bigger effect is not just offshoring, but a vicious circle relating to increasing inequality. After all, most of the economy today is services, but if normal people can't afford the services anymore, then that will of course stagnate, forcing down wages decreasing the affordability even more (or causing substitution of inferior automated or remote services).

That is why the one employment bright spot is medical services which are subsidised (one way or the other) almost everywhere. We really have to investigate more the distribution of the circulation of money, how the concentration of money in a few hands means that money circulates through relatively hands. I don't know of anybody who actually investigates this. You could say, it is the disaggregation-is-important problem.

reason said...

One thing that really annoys with political discussion today is the dominance of money illusion. This is particularly extreme in the Euro area today where Germans keep complaining that so and so will be taking "our tax money". No one ever seems to stop and think, "where does the money come from in the first place", and yet, in macro-economics, this is absolutely the most important question. Nobody even seems to notice that both deleveraging and bankruptcy actively destroy money and that money needs to be replaced.

RC AKA Darryl, Ron said in reply to pgl...

"...the empty suits running GM and Ford were both greedy and incompetent..."
[Yep!]
http://www.amazon.com/The-United-States-Toyota-Squandered/dp/1592993028
The United States of Toyota: How Detroit Squandered Its Legacy and Enabled Toyota to Become America's Car Company
September 11, 2007
by Peter M. DeLorenzo
The United States of Toyota is many stories in one. First and foremost, it is a business story, detailing the decline of the American automobile industry - and the simultaneous rise of an Asian manufacturer to take its place. It is also a history book, providing an intimate portrait of the larger-than-life personalities and cars that led the American auto industry through its glory days and down the path toward extinction. It is a political/current affairs piece, presenting the rise of a Japanese company - Toyota - not just in terms of its sales success but also in terms of its cultural success, as it works to assimilate into American society. And finally, it is a never-before-seen primer on Detroit - The Motor City - a town and a region dominated by the auto companies, their suppliers and their ad agencies - and by a mindset and culture all its own. In commentary that is as accurate as it is blunt, Peter De Lorenzo presents the players and the action in the auto business in a way not seen before in print. His voice is unique and refreshingly candid. His provocative analyses and assessments - grounded in personal experience and a lifelong immersion in all things automotive - present a compelling picture of the state of the auto business - how it used to be, what it has become and where it is headed. From the arrogance and short-sightedness of the Detroit manufacturers to the acumen and relentlessness of Toyota, The United States of Toyota paints an insightful portrait of an iconic American industry as it struggles for survival in the early years of the 21st century.
http://www.amazon.com/The-End-Detroit-American-Market/dp/0385507704
The End of Detroit: How the Big Three Lost Their Grip on the American Car Market

September 21, 2004
by Micheline Maynard
An in-depth, hard-hitting account of the mistakes, miscalculations and myopia that have doomed America's automobile industry.
In the 1990s, Detroit's Big Three automobile companies were riding high. The introduction of the minivan and the SUV had revitalized the industry, and it was widely believed that Detroit had miraculously overcome the threat of foreign imports and regained its ascendant position. As Micheline Maynard makes brilliantly clear in THE END OF DETROIT, however, the traditional American car industry was, in fact, headed for disaster. Maynard argues that by focusing on high-profit trucks and SUVs, the Big Three missed a golden opportunity to win back the American car-buyer.

Foreign companies like Toyota and Honda solidified their dominance in family and economy cars, gained market share in high-margin luxury cars, and, in an ironic twist, soon stormed in with their own sophisticatedly engineered and marketed SUVs, pickups and minivans. Detroit, suffering from a "good enough" syndrome and wedded to ineffective marketing gimmicks like rebates and zero-percent financing, failed to give consumers what they really wanted - reliability, the latest technology and good design at a reasonable cost. Drawing on a wide range of interviews with industry leaders, including Toyota's Fujio Cho, Nissan's Carlos Ghosn, Chrysler's Dieter Zetsche, BMW's Helmut Panke, and GM's Robert Lutz, as well as car designers, engineers, test drivers and owners, Maynard presents a stark picture of the culture of arrogance and insularity that led American car manufacturers astray. Maynard predicts that, by the end of the decade, one of the American car makers will no longer exist in its present form.
*
[Like the executives of the US steel industry before them, the management of the big three (plus one) US automakers possessed legendary inabilities when it came to product development and production quality control. One can only imagine that their golf games must have been better than their understanding of auto making.]

pgl said in reply to RC AKA Darryl, Ron...

Exactly - products designs that were better than our. Lean production which we were slow to adapt. And there are those Jan commercials. Toyotas are selling like crazy. But at least Ford and GM is finally under new management.

sanjait said in reply to pgl...

A few decades later ... Ford and GM do indeed look to be getting their act together. I'd buy a car from either one of those companies today.

lower middle class said...

Paging Dr. Proteus... Dr. Paul Proteus!

cm said in reply to lower middle class...

That was automation, not offshoring.

Syaloch said in reply to cm...

In the end that's a distinction without a difference.

Julio said in reply to Syaloch...

Yes, I see offshoring as a transitional stage while foreign workers are cheaper than machines.

RC AKA Darryl, Ron said in reply to Julio...

Machines could not open up SE Asian markets to US firms in the way that offshoring could.

Syaloch said in reply to RC AKA Darryl, Ron...

Suppose we visited those factories from Player Piano and discovered that the few highly educated workers remaining were not overseeing automated machines, but rather shipping raw materials over to a foreign country where goods were produced by low-wage laborers. In terms of the domestic economy, would that make any difference?
Large-scale offshoring was enabled by machines that made the exchange of goods and information between remote locations possible. Whatever residual labor component is involved is merely an automation problem that hasn't been solved... yet.

RC AKA Darryl, Ron said in reply to Syaloch...

MNCs wanted their capital investment to have access to the markets with the most growth potential. Regulatory and FOREX arbitrage helped. Labor costs were low on the totem pole.

Syaloch said in reply to RC AKA Darryl, Ron...

That's more true with offshored manufacturing than with services. US companies aren't sending call center jobs to India because they hope to serve the Indian market.

But even with regard to manufacturing labor costs are obviously a major consideration. Just watch any episode of "Shark Tank" and listen to the sharks explain how stupid anyone is for trying to manufacture anything here in the US. Are t-shirts sewn in Bangladesh because of the huge growth potential in apparel sales there? Were the Mexican maquiladoras set up to have better access to the Mexican market?

lower middle class said in reply to cm...

The plot was about automation, but the moral was about humanity. :)
"The main business of humanity is to do a good job of being human beings," said Paul, "not to serve as appendages to machines, institutions, and systems."
― Kurt Vonnegut, Player Piano

Syaloch said in reply to lower middle class...

Toward the end of Player Piano the Shah of Bratpuhr asks a very good question: What are people for?
When I first read Player Piano I also happened by pure chance to be reading a collection of essays by Wendell Berry titled "What Are People For?"
The eponymous essay from Berry's collection was a great complement to Vonnegut's book.

lower middle class said in reply to Syaloch...

Time for me to visit the library, thanks Syaloch!

reason said...

New Deal democrat
Yes, it is part of your name (and was copied then throughout the Western world). Then of course there was the Russian and Chinese revolutions, which at least initially were very egalitarian.

New Deal democrat said in reply to reason...

I think you misunderstood my point, which was about liberalizing international trade. I'm not 100% sure, but I don't think that was a really high priority of the Russian and Chinese revolutions. :)

pgl said in reply to New Deal democrat...

I studied Russian history. Free trade was not exactly what drove Lenin. And it is certainly not what drives Putin.

PPaine said in reply to New Deal democrat...

There was a significant debate about trade early on with bukharin advocating. Two way openness. And Lenin a two way state monopoly. Lenin anticipated what happened to russia after the wall fell ....70 or so years later.

He had a keen insight into MNCs free for all tactics. Unfortunately state concessions which he supported faced a tacit constriction.

Despite notable exceptions including Pater Koch

reason said...

P.S. New Deal democrat

It is not the PRODUCERS who have a huge incentive to make sure it never happens. Au contraire, they want their consumers to have more money. It is the OWNERS who want to make sure it never happens because that would dilute their power.

RC AKA Darryl, Ron said in reply to reason...

Yep. Capital gains... and gains... and gains, until there is little left for labor gains.

pgl said in reply to RC AKA Darryl, Ron...

Nike makes obscene profits. And for what? Designing new shoes? They don't make anything - their third party Chinese manufacturers do the hard work at low wages. BTW - the US does not get to tax those Nike profits as they end up in Bermuda.

[Dec 13, 2015] While redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits

For the last several year buying "junkest junk" was a profitable strategy. Now it came to abrupt end.

"... The rest of the industry has been quick to say that while redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits. ..."

"... Goldman Sachs, for one, put out a note Friday warning Franklin Resources "is most at risk" given the large high-yield holdings of its funds, poor performance and large outflows. On Friday, its shares fell sharply. Meanwhile, there were unusually large declines Friday in the value of exchange-traded funds that track high-yield debt. ..."

"... The idea of a "run" on mutual funds might sound strange. Typically, runs are associated with highly leveraged banks engaged in maturity transformation, funding long-term loans with short-term debt. Nearly all the programs designed to avoid destabilizing runs-from deposit insurance to the Fed's discount window to liquidity requirements-are built for banks. But unleveraged investors, including mutual funds, can also give rise to runs. That is because there is a liquidity mismatch in mutual funds that hold relatively illiquid assets funded by investors entitled to daily redemptions. ..."

peakoilbarrel.com
Jeffrey J. Brown, 12/13/2015 at 4:06 pm
Interesting WSJ article (do a Google Search for the title, for access). Last week, the Journal noted that Chesapeake bonds that traded at 80¢ on the dollar a few months ago were currently trading at 30¢ to 40¢ on the dollar. I suspect that there are some huge losses on the books of a lot of pension funds.
WSJ: The Liquidity Trap That's Spooking Bond Funds
The specter of a destabilizing run on debt is haunting markets

The debt world is haunted by a specter-of a destabilizing run on markets.

Last week, this took on more form even if there weren't concrete signs of panic. Only one mutual fund manager, Third Avenue Management, has said it would halt redemptions to forestall having to dispose of assets in a fire sale. The rest of the industry has been quick to say that while redemptions are elevated, particularly in high-yield bond funds, there doesn't seem to be a rush to for the exits.

Still, growing angst comes as the oil-price rout continues and the U.S. Federal Reserve appears ready to raise rates. This has investors worried-and starting to ask the fearful question: "Who's next?"

Goldman Sachs, for one, put out a note Friday warning Franklin Resources "is most at risk" given the large high-yield holdings of its funds, poor performance and large outflows. On Friday, its shares fell sharply. Meanwhile, there were unusually large declines Friday in the value of exchange-traded funds that track high-yield debt.

The idea of a "run" on mutual funds might sound strange. Typically, runs are associated with highly leveraged banks engaged in maturity transformation, funding long-term loans with short-term debt. Nearly all the programs designed to avoid destabilizing runs-from deposit insurance to the Fed's discount window to liquidity requirements-are built for banks. But unleveraged investors, including mutual funds, can also give rise to runs. That is because there is a liquidity mismatch in mutual funds that hold relatively illiquid assets funded by investors entitled to daily redemptions.

[Dec 13, 2015] Deregulation of exotic financial instruments like derivatives and credit-default swaps and corruption of Congress and government

"... Can you list all of the pro- or anti- Wall Street reforms and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspans record? ..."

"... Its actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question What is a realistic alternative? Thats where differences and policy debate starts. ..."

"... Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over objection by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). ..."

"... It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I dont have time to hunt them up now. Besides, no one would read them anyway. ..."

"... GS was one of several actions taken by the New Deal. That it wasnt sufficient by itself doesnt equate to it wasnt beneficial. ..."

"... "Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy." ..."

"... The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail ..."

"... Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. ..."

"... It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats. ..."

"... We had a financial dereg craze back in the late 1970s and early 1980s which led to the S L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse. ..."

"... This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling. ..."

"... According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. ..."

"... The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry. ..."

"... Great to see Bakers acknowledgement that an updated Glass-Steagall is just one component of the progressive wings plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types dont think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much. ..."

"... Yes thats a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. ..."

"... Slippery slope. Ya gotta find me a business of any type that does not protest any kind of regulation on their business. ..."

"... Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clintons plan? Ive heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/ ..."

"... Hillary Clinton unveiled her big plan to curb the worst of Wall Streets excesses on Thursday. The reaction from the banking community was a shrug, if not relief. ..."

"... Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland". ..."

economistsview.typepad.com

RGC said...

Hillary Clinton Is Whitewashing the Financial Catastrophe

She has a plan that she claims will reform Wall Street-but she's deflecting responsibility from old friends and donors in the industry.

By William Greider
Yesterday 3:11 pm

Hillary Clinton's recent op-ed in The New York Times, "How I'd Rein In Wall Street," was intended to reassure nervous Democrats who fear she is still in thrall to those mega-bankers of New York who crashed the American economy. Clinton's brisk recital of plausible reform ideas might convince wishful thinkers who are not familiar with the complexities of banking. But informed skeptics, myself included, see a disturbing message in her argument that ought to alarm innocent supporters.

Candidate Clinton is essentially whitewashing the financial catastrophe. She has produced a clumsy rewrite of what caused the 2008 collapse, one that conveniently leaves her husband out of the story. He was the president who legislated the predicate for Wall Street's meltdown. Hillary Clinton's redefinition of the reform problem deflects the blame from Wall Street's most powerful institutions, like JPMorgan Chase and Goldman Sachs, and instead fingers less celebrated players that failed. In roundabout fashion, Hillary Clinton sounds like she is assuring old friends and donors in the financial sector that, if she becomes president, she will not come after them.

The seminal event that sowed financial disaster was the repeal of the New Deal's Glass-Steagall Act of 1933, which had separated banking into different realms: investment banks, which organize capital investors for risk-taking ventures; and deposit-holding banks, which serve people as borrowers and lenders. That law's repeal, a great victory for Wall Street, was delivered by Bill Clinton in 1999, assisted by the Federal Reserve and the financial sector's armies of lobbyists. The "universal banking model" was saluted as a modernizing reform that liberated traditional banks to participate directly and indirectly in long-prohibited and vastly more profitable risk-taking.

Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale. The banks invented "guarantees" against loss and sold them to both companies and market players. The fast-expanding financial sector claimed a larger and larger share of the economy (and still does) at the expense of the real economy of producers and consumers. The interconnectedness across market sectors created the illusion of safety. When illusions failed, these connected guarantees became the dragnet that drove panic in every direction. Ultimately, the federal government had to rescue everyone, foreign and domestic, to stop the bleeding.

Yet Hillary Clinton asserts in her Times op-ed that repeal of Glass-Steagall had nothing to do with it. She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks. Her argument amounts to facile evasion that ignores the interconnected exposures. The Federal Reserve spent $180 billion bailing out AIG so AIG could pay back Goldman Sachs and other banks. If the Fed hadn't acted and had allowed AIG to fail, the banks would have gone down too.

These sound like esoteric questions of bank regulation (and they are), but the consequences of pretending they do not matter are enormous. The federal government and Federal Reserve would remain on the hook for rescuing losers in a future crisis. The largest and most adventurous banks would remain free to experiment, inventing fictitious guarantees and selling them to eager suckers. If things go wrong, Uncle Sam cleans up the mess.

Senator Elizabeth Warren and other reformers are pushing a simpler remedy-restore the Glass-Steagall principles and give citizens a safe, government-insured place to store their money. "Banking should be boring," Warren explains (her co-sponsor is GOP Senator John McCain).
That's a hard sell in politics, given the banking sector's bear hug of Congress and the White House, its callous manipulation of both political parties. Of course, it is more complicated than that. But recreating a safe, stable banking system-a place where ordinary people can keep their money-ought to be the first benchmark for Democrats who claim to be reformers.

Actually, the most compelling witnesses for Senator Warren's argument are the two bankers who introduced this adventure in "universal banking" back in the 1990s. They used their political savvy and relentless muscle to seduce Bill Clinton and his so-called New Democrats. John Reed was CEO of Citicorp and led the charge. He has since apologized to the nation. Sandy Weill was chairman of the board and a brilliant financier who envisioned the possibilities of a single, all-purpose financial house, freed of government's narrow-minded regulations. They won politically, but at staggering cost to the country.

Weill confessed error back in 2012: "What we should probably do is go and split up investment banking from banking. Have banks do something that's not going to risk the taxpayer dollars, that's not going to be too big to fail."

John Reed's confession explained explicitly why their modernizing crusade failed for two fundamental business reasons. "One was the belief that combining all types of finance into one institution would drive costs down-and the larger institution the more efficient it would be," Reed wrote in the Financial Times in November. Reed said, "We now know that there are very few cost efficiencies that come from the merger of functions-indeed, there may be none at all. It is possible that combining so much in a single bank makes services more expensive than if they were instead offered by smaller, specialised players."

The second grave error, Reed said, was trying to mix the two conflicting cultures in banking-bankers who are pulling in opposite directions. That tension helps explain the competitive greed displayed by the modernized banking system. This disorder speaks to the current political crisis in ways that neither Dems nor Republicans wish to confront. It would require the politicians to critique the bankers (often their funders) in terms of human failure.

"Mixing incompatible cultures is a problem all by itself," Reed wrote. "It makes the entire finance industry more fragile…. As is now clear, traditional banking attracts one kind of talent, which is entirely different from the kinds drawn towards investment banking and trading. Traditional bankers tend to be extroverts, sociable people who are focused on longer term relationships. They are, in many important respects, risk averse. Investment bankers and their traders are more short termist. They are comfortable with, and many even seek out, risk and are more focused on immediate reward."

Reed concludes, "As I have reflected about the years since 1999, I think the lessons of Glass-Steagall and its repeal suggest that the universal banking model is inherently unstable and unworkable. No amount of restructuring, management change or regulation is ever likely to change that."

This might sound hopelessly naive, but the Democratic Party might do better in politics if it told more of the truth more often: what they tried do and why it failed, and what they think they may have gotten wrong. People already know they haven't gotten a straight story from politicians. They might be favorably impressed by a little more candor in the plain-spoken manner of John Reed.

Of course it's unfair to pick on the Dems. Republicans have been lying about their big stuff for so long and so relentlessly that their voters are now staging a wrathful rebellion. Who knows, maybe a little honest talk might lead to honest debate. Think about it. Do the people want to hear the truth about our national condition? Could they stand it?

http://www.thenation.com/article/hillary-clinton-is-whitewashing-the-financial-catastrophe/

EMichael -> RGC...

"She claims that Glass-Steagall would not have limited the reckless behavior of institutions like Lehman Brothers or insurance giant AIG, which were not traditional banks."

Of course this claim is absolutely true. Just like GS would not have affected the other investment banks, whatever their name was. And just like we would have had to bail out those other banks whatever their name was.

Peter K. -> EMichael...
Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed as President including nominating Alan Greenspan as head regulator? Cutting the capital gains tax? Are you aware of Greenspan's record?
Yes Hillary isn't Bill but she hasn't criticized her husband specifically about his record and seems to want to have her cake and eat it too.
Of course Hillary is much better than the Republicans, pace Rustbucket and the Green Lantern Lefty club. Still, critics have a point.
I won't be surprised if she doesn't do much to rein in Wall Street besides some window dressing.
sanjait -> Peter K....

"Can you list all of the pro- or anti- Wall Street "reforms" and actions Bill Clinton performed..."

That, right there, is what's wrong with Bernie and his fans. They measure everything by whether it is "pro- or anti- Wall Street". Glass Steagall is anti-Wall Street. A financial transactions tax is anti-Wall Street. But neither has any hope of controlling systemic financial risk in this country. None.

You guys want to punish Wall Street but not even bother trying to think of how to achieve useful policy goals. Some people, like Paine here, are actually open about this vacuity, as if the only thing that were important were winning a power struggle.

Hillary's plan is flat out better. It's more comprehensive and more effective at reining in the financial system to limit systemic risk. Period.

You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it.

likbez -> sanjait...

"You guys want to make this a character melodrama rather than a policy debate, and I fear the result of that will be that the candidate who actually has the best plan won't get to enact it."

You are misrepresenting the positions. It's actually pro-neoliberalism crowd vs anti-neoliberalism crowd. In no way anti-neoliberalism commenters here view this is a character melodrama, although psychologically Hillary probably does has certain problems as her reaction to the death of Gadhafi attests. The key problem with anti-neoliberalism crowd is the question "What is a realistic alternative?" That's where differences and policy debate starts.

RGC -> EMichael...
"Her argument amounts to facile evasion"

Fred C. Dobbs -> RGC...

'The majority favors policies to the left of Hillary.'

Nah. I don't think so.

No, Liberals Don't Control the Democratic Party http://www.theatlantic.com/politics/archive/2014/02/no-liberals-dont-control-the-democratic-party/283653/
The Atlantic - Feb 7, 2014

... The Democrats' liberal faction has been greatly overestimated by pundits who mistake noisiness for clout or assume that the left functions like the right. In fact, liberals hold nowhere near the power in the Democratic Party that conservatives hold in the Republican Party. And while they may well be gaining, they're still far from being in charge. ...

Paine -> RGC...

What's not confronted ? Suggest what a System like the pre repeal system would have done in the 00's. My guess we'd have ended in a crisis anyway. Yes we can segregate the depository system. But credit is elastic enough to build bubbles without the depository system involved

EMichael -> Paine ...

Exactly.
Most people think of lending like the Bailey Brothers Savings and Loan still exists.

RC AKA Darryl, Ron -> EMichael...

Don't be such a whistle dick. Just because you cannot figure out why GLBA made such an impact that in no way means that people that do understand are stupid. See my posted comment to RGC on GLBA just down thread for an more detailed explanation including a linked web article. No, GS alone would not have prevented the mortgage bubble, but it would have lessened TBTF and GS stood as icon, a symbol of financial regulation. Hell, if we don't need GS then why don't we just allow unregulated derivatives trading? Who cares, right? Senators Byron Dorgan, Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders all voted against GLBA to repeal GS for some strange reason and Dorgan made a really big deal out of it at the time. I doubt everyone on that list of Senators was just stupid because they did not see it your way.

RC AKA Darryl, Ron -> EMichael...
I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. Democrats gained majority, but not filibuster proof, caught between Iraq and a hard place following their votes for TARP and a broader understanding of their participation in the unanimous consent passage of the CFMA, over "objection" by Senators James Inhofe (R-OK) and Paul Wellstone (D-MN). We have had a Republican majority in the House since the 2010 election and now they have the Senate as well. If you are that sure that voters just choose divided government, then aren't we better off to have a Republican POTUS and Democratic Congress?

sanjait -> RC AKA Darryl, Ron...

"I ran all out of ceteris paribus quite some time ago. Events do not occur in isolation. GLBA increased TBTF in AIG and Citi. TBTF forced TARP. GLBA greased the skids for CFMA. "

I know you think this is a really meaningful string that evidences causation, but it just looks like you are reaching, reaching, reaching ...

RC AKA Darryl, Ron -> sanjait...

Maybe. No way to say for sure. It certainly fits the kind of herd mentality that I always saw in corporate Amerika until I retired. The William Greider article posted by RGC was very consistent in its account by John Reed with the details of one or two books written about AIG back in 2009 or so. I don't have time to hunt them up now. Besides, no one would read them anyway.
I am voting for whoever wins the Democratic nomination for POTUS. Bernie without a like-minded Congress would not do much good. But when we shoot each other down here at EV without offering any agreement or consideration that we might not be 100% correct, then that goes against Doc Thoma's idea of an open forum. Granted, with my great big pair then I am willing to state my opinion with no consideration for validation or acceptance, but not everyone has that degree of a comfort zone. Besides, I am so old an cynical that shooting down the overdogs that go after the underdogs is one of the few things that I still care about.

RGC -> Paine ...

GS was one of several actions taken by the New Deal. That it wasn't sufficient by itself doesn't equate to it wasn't beneficial.

RC AKA Darryl, Ron -> RGC...

[Lock and load.]
http://www.occasionalplanet.org/2015/05/13/glass-steagall-one-democratic-senator-who-got-it-right/

Glass-Steagall: Warren and Sanders bring it back into focus

Madonna Gauding / May 13, 2015

Senators Bernie Sanders and Elizabeth Warren are putting a new focus on the Glass-Steagall Act, which was, unfortunately, repealed in 1999 and led directly to the financial crises we have faced ever since. Here's a bit of history of this legislative debacle from an older post on Occasional Planet published several years ago :

On November 4, 1999, Senator Byron Dorgan (D-ND) took to the floor of the senate to make an impassioned speech against the repeal of the Glass-Steagall Act, (alternately known as Gramm Leach Biley, or the "Financial Modernization Act") Repeal of Glass-Steagall would allow banks to merge with insurance companies and investments houses. He said "I want to sound a warning call today about this legislation, I think this legislation is just fundamentally terrible."

According to Sam Stein, writing in 2009 in the Huffington Post, only eight senators voted against the repeal. Senior staff in the Clinton administration and many now in the Obama administration praised the repeal as the "most important breakthrough in the world of finance and politics in decades"

According to Stein, Dorgan warned that banks would become "too big to fail" and claimed that Congress would "look back in a decade and say we should not have done this." The repeal of Glass Steagall, of course, was one of several bad policies that helped lead to the current economic crisis we are in now.

Dorgan wasn't entirely alone. Sens. Barbara Boxer, Barbara Mikulski, Richard Shelby, Tom Harkin, Richard Bryan, Russ Feingold and Bernie Sanders also cast nay votes. The late Sen. Paul Wellstone opposed the bill, and warned at the time that Congress was "about to repeal the economic stabilizer without putting any comparable safeguard in its place."

Democratic Senators had sufficient knowledge about the dangers of the repeal of Glass Steagall, but chose to ignore it. Plenty of experts warned that it would be impossible to "discipline" banks once the legislation was passed, and that they would get too big and complex to regulate. Editorials against repeal appeared in the New York Times and other mainstream venues, suggesting that if the new megabanks were to falter, they could take down the entire global economy, which is exactly what happened. Stein quotes Ralph Nader who said at the time, "We will look back at this and wonder how the country was so asleep. It's just a nightmare."

According to Stein:

"The Senate voted to pass Gramm-Leach-Bliley by a vote of 90-8 and reversed what was, for more than six decades, a framework that had governed the functions and reach of the nation's largest banks. No longer limited by laws and regulations commercial and investment banks could now merge. Many had already begun the process, including, among others, J.P. Morgan and Citicorp. The new law allowed it to be permanent. The updated ground rules were low on oversight and heavy on risky ventures. Historically in the business of mortgages and credit cards, banks now would sell insurance and stock.

Nevertheless, the bill did not lack champions, many of whom declared that the original legislation - forged during the Great Depression - was both antiquated and cumbersome for the banking industry. Congress had tried 11 times to repeal Glass-Steagall. The twelfth was the charm.

"Today Congress voted to update the rules that have governed financial services since the Great Depression and replace them with a system for the 21st century," said then-Treasury Secretary Lawrence Summers. "This historic legislation will better enable American companies to compete in the new economy."

"I welcome this day as a day of success and triumph," said Sen. Christopher Dodd, (D-Conn.).

"The concerns that we will have a meltdown like 1929 are dramatically overblown," said Sen. Bob Kerrey, (D-Neb.).

"If we don't pass this bill, we could find London or Frankfurt or years down the road Shanghai becoming the financial capital of the world," said Sen. Chuck Schumer, D-N.Y. "There are many reasons for this bill, but first and foremost is to ensure that U.S. financial firms remain competitive."

Unfortunately, the statement by Chuck Schumer sounds very much like it was prepared by a lobbyist. This vote underscores the way in which our elected officials are so heavily swayed by corporate and banking money that our voices and needs become irrelevant. It is why we need publicly funded elections. Democratic senators, the so-called representatives of the people, fell over themselves to please their Wall Street donors knowing full well there were dangers for the country at large, for ordinary Americans, in repealing Glass-Steagall.

It is important to hold Democratic senators (along with current members of the Obama administration) accountable for the significant role they have played in the current economic crisis that has caused so much suffering for ordinary Americans. In case you were wondering, the current Democratic Senators who voted yes to repeal the Glass-Steagall act are the following:

Daniel Akaka – Max Baucus – Evan Bayh – Jeff Bingaman – Kent Conrad – Chris Dodd – Dick Durbin – Dianne Feinstein – Daniel Inouye – Tim Johnson – John Kerry – Herb Kohl – Mary Landrieu – Frank Lautenberg – Patrick Leahy – Carl Levin – Joseph Lieberman – Blanche Lincoln – Patty Murray – Jack Reed – Harry Reid – Jay Rockefeller – Chuck Schumer – Ron Wyden

Former House members who voted for repeal who are current Senators.

Mark Udall [as of 2010] – Debbie Stabenow – Bob Menendez – Tom Udall -Sherrod Brown

No longer in the Senate, or passed away, but who voted for repeal:

Joe Biden -Ted Kennedy -Robert Byrd

These Democratic senators would like to forget or make excuses for their enthusiastic vote on the repeal of Glass Steagall, but it is important to hold them accountable for helping their bank donors realize obscene profits while their constituents lost jobs, savings and homes. And it is important to demand that they serve the interests of the American people.

*

[The repeal of Glass Steagal was a landmark victory in deregulation that greased the skids for the passage of CFMA once Democrats had been further demoralized by the SCOTUS decision on Bush-v-Gore. The first vote on GLBA was split along party lines, but passed because Republicans had majority and Clinton was willing to sign which was clear from the waiver that had been granted to illegal Citi merger with Travelers. Both Citi and AIG mergers contributed to too big to fail. The CFMA was the nail in the coffin that probably would have never gotten off the ground if Democrats had held the line on the GLBA. Glass-Steagal was insufficient as a regulatory system to prevent the 2008 mortgage crisis, but it was giant as an icon of New Deal financial system reform. Its loss institutionalized too big to fail.]

pgl -> RC AKA Darryl, Ron...

Gramm Leach Biley was a mistake. But it was not the only failure of US regulatory policies towards financial institutions nor the most important. I think that is what Hillary Clinton is saying.

RC AKA Darryl, Ron -> pgl...

It was more symbolic caving in on financial regulation than a specific technical failure except for making too big to fail worse at Citi and AIG. It marked a sea change of thinking about financial regulation. Nothing mattered any more, including the CFMA just a little over one year later. Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus on financial deregulation enough that after the demoralizing defeat of Democrats in Bush-v-Gore then there was no New Deal spirit of financial regulation left. Social development is not just a series of unconnected events. It is carried on a tide of change. A falling tide grounds all boats.

pgl -> RC AKA Darryl, Ron...

We had a financial dereg craze back in the late 1970's and early 1980's which led to the S&L disaster. One would have thought we would have learned from that. But then came the dereg craziness 20 years later. And this disaster was much worse.
I don't care whether Hillary says 1999 was a mistake or not. I do care what the regulations of financial institutions will be like going forward.

RC AKA Darryl, Ron -> pgl...

I cannot disagree with any of that.

sanjait -> RC AKA Darryl, Ron...

"Deregulation of derivatives trading mandated by the CFMA was a colossal failure and it is not bizarre to believe that GLBA precipitated the consensus"

Yeah, it is kind of bizarre to blame one bill for a crisis that occurred largely because another bill was passed, based on some some vague assertion about how the first bill made everyone think crazy.

RC AKA Darryl, Ron -> sanjait...
Democrats did not vote for GLBA until after reconciliation between the House and Senate bills. Democrats were tossed a bone in the Community Reinvestment Act financing provisions and given that Bill Clinton was going to sign anyway and that Republicans were able to pass the bill without a single vote from Democrats then all but a few Democrats bought in. They could not stop it, so they just bought into it. I thought there was supposed to be an understanding of behaviorism devoted to understanding the political economy. For that matter Republicans did not need Democrats to vote for the CFMA either, but they did. That gave Republicans political cover for whatever went wrong later on. No one with a clue believed things would go well from the passage of either of these bills. It was pure Wall Street driven kleptocracy.
likbez -> sanjait...
It was not one bill or another. It was a government policy to get traders what they want.
See

Bruce E. Woych | August 6, 2013 at 5:45 pm |

http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry-summers-the-truth-about-unlimited-risk-potential/

The Untold Story: Brooksley Born, Larry Summers & the Truth …
http://www.imackgroup.com/mathematics/989981-the-untold-story-brooksley-born-larry...
Oct 5, 2012 … Larry Summers is attempting to re-write history at the expense of … and they might just find one critical point revealed in Mr. Cohan's article.
[PERTINENT EXCERPT]: Oct 5, 2012

"As the western world wakes to the fact it is in the middle of a debt crisis spiral, intelligent voices are wondering how this manifested itself? As we speak, those close to the situation could be engaging in historical revisionism to obfuscate their role in the design of faulty leverage structures that were identified in the derivatives markets in 1998 and 2008. These same design flaws, first identified in 1998, are persistent today and could become graphically evident in the very near future under the weight of a European debt crisis.

Author and Bloomberg columnist William Cohan chronicles the fascinating start of this historic leverage implosion in his recent article Rethinking Robert Rubin. Readers may recall it was Mr. Cohan who, in 2004, noted leverage issues that ultimately imploded in 2007-08.

At some point, market watchers will realize the debt crisis story will literally change the world. They will look to the root cause of the problem, and they might just find one critical point revealed in Mr. Cohan's article.

This point occurs in 1998 when then Commodity Futures Trading Commission (CFTC) ChairwomanBrooksley Born identified what now might be recognized as core design flaws in leverage structure used in Over the Counter (OTC) transactions. Ms. Born brought her concerns public, by first asking just to study the issue, as appropriate action was not being taken. She issued a concept release paper that simply asked for more information. "The Commission is not entering into this process with preconceived results in mind," the document reads.

Ms. Born later noted in, the PBS Frontline documentary on the topic speculation at the CFTC was the unregulated OTC derivatives were opaque, the risk to the global economy could not be determined and the risk was potentially catastrophic. As a result of this inquiry, Ms. Born was ultimately forced from office.

This brings us to Lawrence Summers, the former Treasury Secretary of the United States and at the time right hand man to then Treasury Security Robert Rubin. Mr. Summers was widely credited with implementation of the aggressive tactics used to remove Ms. Born from her office, tactics that multiple sources describe as showing an old world bias against women piercing the glass ceiling.

According to numerous published reports, Mr. Summers was involved in. silencing those who questioned the opaque derivative product's design. "

RC AKA Darryl, Ron -> Paine ...

TBTF on steroids, might as well CFMA - why not?
Bubbles with less TBTF and a lot less credit default swaps would have been a lot less messy going in. Without TARP, then Congress might have still had the guts for making a lesser New Deal.

EMichael -> RC AKA Darryl, Ron...

TARP was window dressing. The curtain that covered up the FED's actions.

pgl -> RGC...

Where have I heard about William Greider? Oh yea - this critique of something stupid he wrote about a Supreme Court decision:
www.washingtonpost.com/news/volokh-conspiracy/wp/2014/06/06/how-many-errors-can-william-greider-make-in-two-sentences-describing-lochner-v-new-york/

pgl -> RGC...

"Exotic financial instruments like derivatives and credit-default swaps flourished, enabling old-line bankers to share in the fun and profit on an awesome scale."

These would have flourished even if Glass-Steagall remained on the books. Leave it to RGC to find some critic of HRC who knows nothing about financial markets.

RGC -> pgl...

Derivatives flourished because of the other deregulation under Clinton, the CFMA. The repeal of GS helped commercial banks participate.

RGC -> pgl...

The repeal of GS helped commercial banks participate.

Fred C. Dobbs -> pgl...

Warren Buffet used to rail about how risky derivative investing is, until he realized they are *extremely* important in the re-insurance biz, which is a
big part of Berkshire Hathaway.

Peter K. said...

http://cepr.net/blogs/beat-the-press/hillary-clinton-bernie-sanders-and-cracking-down-on-wall-street
Hillary Clinton, Bernie Sanders, and Cracking Down on Wall Street
by Dean Baker

Published: 12 December 2015

The New Yorker ran a rather confused piece on Gary Sernovitz, a managing director at the investment firm Lime Rock Partners, on whether Bernie Sanders or Hillary Clinton would be more effective in reining in Wall Street. The piece assures us that Secretary Clinton has a better understanding of Wall Street and that her plan would be more effective in cracking down on the industry. The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry.

The piece assures us that too big to fail banks are no longer a problem, noting their drop in profitability from bubble peaks and telling readers:

"not only are Sanders's bogeybanks just one part of Wall Street but they are getting less powerful and less problematic by the year."

This argument is strange for a couple of reasons. First, the peak of the subprime bubble frenzy is hardly a good base of comparison. The real question is should we anticipate declining profits going forward. That hardly seems clear. For example, Citigroup recently reported surging profits, while Wells Fargo's third quarter profits were up 8 percent from 2014 levels.

If Sernovitz is predicting that the big banks are about to shrivel up to nothingness, the market does not agree with him. Citigroup has a market capitalization of $152 billion, JPMorgan has a market cap of $236 billion, and Bank of America has a market cap of $174 billion. Clearly investors agree with Sanders in thinking that these huge banks will have sizable profits for some time to come.

The real question on too big to fail is whether the government would sit by and let a Goldman Sachs or Citigroup go bankrupt. Perhaps some people think that it is now the case, but I've never met anyone in that group.

Sernovitz is also dismissive on Sanders call for bringing back the Glass-Steagall separation between commercial banking and investment banking. He makes the comparison to the battle over the Keystone XL pipeline, which is actually quite appropriate. The Keystone battle did take on exaggerated importance in the climate debate. There was never a zero/one proposition in which no tar sands oil would be pumped without the pipeline, while all of it would be pumped if the pipeline was constructed. Nonetheless, if the Obama administration was committed to restricting greenhouse gas emissions, it is difficult to see why it would support the building of a pipeline that would facilitate bringing some of the world's dirtiest oil to market.

In the same vein, Sernovitz is right that it is difficult to see how anything about the growth of the housing bubble and its subsequent collapse would have been very different if Glass-Steagall were still in place. And, it is possible in principle to regulate bank's risky practices without Glass-Steagall, as the Volcker rule is doing. However, enforcement tends to weaken over time under industry pressure, which is a reason why the clear lines of Glass-Steagall can be beneficial. Furthermore, as with Keystone, if we want to restrict banks' power, what is the advantage of letting them get bigger and more complex?

The repeal of Glass-Steagall was sold in large part by boasting of the potential synergies from combining investment and commercial banking under one roof. But if the operations are kept completely separate, as is supposed to be the case, where are the synergies?

But the strangest part of Sernovitz's story is that he leaves out Sanders' financial transactions tax (FTT) altogether. This is bizarre, because the FTT is essentially a hatchet blow to the waste and exorbitant salaries in the industry.

Most research shows that trading volume is very responsive to the cost of trading, with most estimates putting the elasticity close to one. This means that if trading costs rise by 50 percent, then trading volume declines by 50 percent. (In its recent analysis of FTTs, the Tax Policy Center assumed that the elasticity was 1.5, meaning that trading volume decline by 150 percent of the increase in trading costs.) The implication of this finding is that the financial industry would pay the full cost of a financial transactions tax in the form of reduced trading revenue.

The Tax Policy Center estimated that a 0.1 percent tax on stock trades, scaled with lower taxes on other assets, would raise $50 billion a year in tax revenue. The implied reduction in trading revenue was even larger. Senator Sanders has proposed a tax of 0.5 percent on equities (also with a scaled tax on other assets). This would lead to an even larger reduction in revenue for the financial industry.

It is incredible that Sernovitz would ignore a policy with such enormous consequences for the financial sector in his assessment of which candidate would be tougher on Wall Street. Sanders FTT would almost certainly do more to change behavior on Wall Street then everything that Clinton has proposed taken together by a rather large margin. It's sort of like evaluating the New England Patriots' Super Bowl prospects without discussing their quarterback.

Syaloch -> Peter K....

Great to see Baker's acknowledgement that an updated Glass-Steagall is just one component of the progressive wing's plan to rein in Wall Street, not the sum total of it. Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much.

Peter K. -> Syaloch...

Yes that's a good way to look it. Wall Street gave the Democrats and Clinton a lot of campaign cash so that they would dismantle Glass-Steagall. If they want it done, it's probably not a good idea.

EMichael -> Syaloch...

Slippery slope. Ya' gotta find me a business of any type that does not protest any kind of regulation on their business.

Syaloch -> EMichael...

Yeah, but usually because of all the bad things they say will happen because of the regulation. The question is, what do they think of Clinton's plan? I've heard surprisingly little about that, and what I have heard is along these lines: http://money.cnn.com/2015/10/08/investing/hillary-clinton-wall-street-plan/
"Hillary Clinton unveiled her big plan to curb the worst of Wall Street's excesses on Thursday. The reaction from the banking community was a shrug, if not relief."

pgl -> Syaloch...

Two excellent points!!!

sanjait -> Syaloch...

"Besides, if Wall Street types don't think restoring Glass-Steagall will have any meaningful effects, why do they expend so much energy to disparage it? Methinks they doth protest too much."

It has an effect of shrinking the size of a few firms, and that has a detrimental effect on the top managers of those firms, who get paid more money if they have larger firms to manage. But it has little to no meaningful effect on systemic risk.

So if your main policy goal is to shrink the compensation for a small number of powerful Wall Street managers, G-S is great. But if you actually want to accomplish something useful to the American people, like limiting systemic risk in the financial sector, then a plan like Hillary's is much much better. She explained this fairly well in her recent NYT piece.

Paine -> Peter K....

There is absolutely NO question Bernie is for real. Wall Street does not want Bernie. So they'll let Hillary talk as big as she needs to . Why should we believe her when an honest guy like Barry caved once in power

Paine -> Paine ...

Bernie has been anti Wall Street his whole career . He's on a crusade. Hillary is pulling a sham bola

Paine -> Paine ...

Perhaps too often we look at Wall Street as monolithic whether consciously or not. Obviously we know it's no monolithic: there are serious differences
When the street is riding high especially. Right now the street is probably not united but too cautious to display profound differences in public. They're sitting on their hands waiting to see how high the anti Wall Street tide runs this election cycle. Trump gives them cover and I really fear secretly Hillary gives them comfort

This all coiled change if Bernie surges. How that happens depends crucially on New Hampshire. Not Iowa

EMichael -> Paine ...

If Bernie surges and wins the nomination, we will all get to watch the death of the Progressive movement for a decade or two. Congress will become more GOP dominated, and we will have a President in office who will make Hoover look like a Socialist.

Syaloch -> EMichael...

Of course. In politics, as they say in the service, one must always choose the lesser of two evils. https://www.youtube.com/watch?v=e4PzpxOj5Cc

pgl -> EMichael...

You should like the moderate Democrats after George McGovern ran in 1972. I'm hoping we have another 1964 with Bernie leading a united Democratic Congress.

EMichael -> pgl...

Not a chance in the world. And I like Sanders much more than anyone else. It just simply cannot, and will not, happen. He is a communist. Not to me, not to you, but to the vast majority of American voters.

pgl -> EMichael...

He is not a communist. But I agree - Hillary is winning the Democratic nomination. I have only one vote and in New York, I'm badly outnumbered.

ilsm -> Paine ...

I believe Hillary will be to liberal causes after she is elected as LBJ was to peace in Vietnam. Like Bill and Obomber.

pgl -> ilsm...

By 1968, LBJ finally realized it was time to end that stupid war. But it seems certain members in the State Department undermined his efforts in a cynical ploy to get Nixon to be President. The Republican Party has had more slime than substance of most of my life time.

pgl -> Peter K....

Gary Sernovitz, a managing director at the investment firm Lime Rock Partners? Why are we listening to this guy too. It's like letting the fox guard the hen house.

sanjait -> Peter K....

"The piece is bizarre both because it essentially dismisses the concern with too big to fail banks and completely ignores Sanders' proposal for a financial transactions tax which is by far the most important mechanism for reining in the financial industry."

This is just wrong. Is financial system risk in any way correlated with the frequency of transactions? Except for market volatility from HFT ... no. The financial crisis wasn't caused by a high volume of trades. It was caused by bad investments into highly illiquid assets. Again, great example of wanting to punish Wall Street but not bothering to think about what actually works.

Peter K. said...

Robert Reich to the Fed: this is not the time to raise rates.
https://www.facebook.com/video.php?v=1116088268403768

RGC said...

Iceland's Radical Money Plan
Iceland, too, is looking at a radical transformation of its money system, after suffering the crushing boom/bust cycle of the private banking model that bankrupted its largest banks in 2008. According to a March 2015 article in the UK Telegraph:

Iceland's government is considering a revolutionary monetary proposal – removing the power of commercial banks to create money and handing it to the central bank. The proposal, which would be a turnaround in the history of modern finance, was part of a report written by a lawmaker from the ruling centrist Progress Party, Frosti Sigurjonsson, entitled "A better monetary system for Iceland".

"The findings will be an important contribution to the upcoming discussion, here and elsewhere, on money creation and monetary policy," Prime Minister Sigmundur David Gunnlaugsson said. The report, commissioned by the premier, is aimed at putting an end to a monetary system in place through a slew of financial crises, including the latest one in 2008.

Under this "Sovereign Money" proposal, the country's central bank would become the only creator of money. Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders. The proposal is a variant of the Chicago Plan promoted by Kumhof and Benes of the IMF and the Positive Money group in the UK.

Public Banking Initiatives in Iceland, Ireland and the UK

A major concern with stripping private banks of the power to create money as deposits when they make loans is that it will seriously reduce the availability of credit in an already sluggish economy. One solution is to make the banks, or some of them, public institutions. They would still be creating money when they made loans, but it would be as agents of the government; and the profits would be available for public use, on the model of the US Bank of North Dakota and the German Sparkassen (public savings banks).

In Ireland, three political parties – Sinn Fein, the Green Party and Renua Ireland (a new party) - are now supporting initiatives for a network of local publicly-owned banks on the Sparkassen model. In the UK, the New Economy Foundation (NEF) is proposing that the failed Royal Bank of Scotland be transformed into a network of public interest banks on that model. And in Iceland, public banking is part of the platform of a new political party called the Dawn Party.

December 11, 2015
Reinventing Banking: From Russia to Iceland to Ecuador

by Ellen Brown

http://www.counterpunch.org/2015/12/11/reinventing-banking-from-russia-to-iceland-to-ecuador/

pgl -> RGC...

"Banks would continue to manage accounts and payments and would serve as intermediaries between savers and lenders."
OK but that means they issue bank accounts which of course we call deposits. So is this just semantics? People want checking accounts. People want savings accounts. Otherwise they would not exist. Iceland plans to do what to stop the private sector from getting what it wants?

I like the idea of public banks. Let's nationalize JPMorganChase so we don't have to listen to Jamie Dimon anymore!

sanjait -> pgl...

I don't know for sure (not bothering to search and read the referenced proposals), but I assumed the described proposal was for an end to fractional reserve banking. Banks would have to have full reserves to make loans. Or something. I could be wrong about that.

Syaloch said...

Sorry, but Your Favorite Company Can't Be Your Friend
http://www.nytimes.com/2015/12/13/upshot/sorry-but-your-favorite-company-cant-be-your-friend.html?partner=rss&emc=rss&_r=0

To think that an artificial person, whether corporeal or corporate, can ever be your friend requires a remarkable level of self-delusion.

A commenter on the Times site aptly quotes Marx in response:

"The bourgeoisie, wherever it has got the upper hand, has put an end to all feudal, patriarchal, idyllic relations. It has pitilessly torn asunder the motley feudal ties that bound man to his "natural superiors", and has left remaining no other nexus between man and man than naked self-interest, than callous "cash payment". It has drowned the most heavenly ecstasies of religious fervour, of chivalrous enthusiasm, of philistine sentimentalism, in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms, has set up that single, unconscionable freedom - Free Trade. In one word, for exploitation, veiled by religious and political illusions, it has substituted naked, shameless, direct, brutal exploitation.

"The bourgeoisie has stripped of its halo every occupation hitherto honoured and looked up to with reverent awe. It has converted the physician, the lawyer, the priest, the poet, the man of science, into its paid wage labourers."

https://www.marxists.org/archive/marx/works/1848/communist-manifesto/ch01.htm

[Dec 12, 2015] David Dayen Is This The Beginning of the Crackup in High-Yield Corporate Debt

"... It cuts two ways. Junk ETFs such as JNK and HYG have badly underperformed their benchmarks, owing to buying and selling in an illiquid market to replicate an index. Whereas actively managed junk mutual funds have the flexibility to deviate from index holdings in ways that can add a couple of hundred basis points a year. ..."

"... Your apology is flawed because it assumes equal access to information among investors as well as assuming all investors have the same objective. Institutional investors have different goals than hedge funds for example. The people you refer to have been fleeced that's just ok with you. As to tea leaves the people have been steeped in recovery stories for years. ..."

"... Wait, so speculators are shorting big bond positions of distressed funds? No way, hope they aren't doing this to ETF's. Jeez, didn't see this coming. I guess having the positions of big ETF's published daily might assist the speculators. ..."

"... What I do remember (and I can't remember whether it was Spring of 2008 or earlier), was that HY spreads had gapped out at least a couple of hundred bps, and equities were still at or near all-time highs. I remember sitting in a meeting with a couple I-bankers, who chuckled ruefully "equities haven't a clue". ..."

"... The received wisdom on the Street is that the bond market is smarter than the equity market. And, at last in my career, it was true, at least as far as downturns went. ..."

naked capitalism
MikeNY December 12, 2015 at 6:41 am

Yes, junk is usually the canary in the coal mine. The HY market melted in the Summer of 2008, months before equities noticed what was going on. The question really is how much contagion there will be: how many CDS have been written on the distressed names, who holds them, etc. My instinct tells me that there are considerably less CDS on junk than were written on MBS, due to the smaller market, the lower liquidity and (supposed) credit quality. But how much has that changed since 2008? I dunno.

One thing I do know: it's like the movie "Groundhog Day". The Fed always overstimulates, and there always follows a crash. Are there any bubbles left to blow, to 'reflate' assets next time?

timmy December 12, 2015 at 9:39 am

Your remark on written CDS is important. While it may be difficult to get liquidity on distressed names, it is less so on credit tiers above that or on indices. I'm sure there is some on junk, yes, but the real opportunity for spec CDS is (perhaps, was) on the BBB space which is the largest category in the investment grade market and is more liquid. While it may take awhile for distressed trading to creep up the credit ratings to the larger and more liquid names (specifically, since the definition of liquidity seems to be important on NC: the size of the specific issues' float, approximated with average daily volume), they will also have larger moves because potential fallen angels are repriced aggressively in an unstable market. The other thing about CDS is that they are most often delta-hedged which requires dealers to sell proxy's as the CDS go deeper into the money. The one restraining factor is that once a crisis is in motion, I think its going to be difficult for specs to get more CDS on their books. This strategy is purely directional (this is not an ETF NAV arb), essentially owning out of the money puts with minimal cost of carry.

Jim Haygood December 12, 2015 at 1:39 pm

'Their investing strategy – putting high-risk investments into a mutual fund – seems like exactly what not to do.'

It cuts two ways. Junk ETFs such as JNK and HYG have badly underperformed their benchmarks, owing to buying and selling in an illiquid market to replicate an index. Whereas actively managed junk mutual funds have the flexibility to deviate from index holdings in ways that can add a couple of hundred basis points a year.

That said, both junk ETFs and junk mutual funds are offering daily liquidity, while holding underlying securities that may trade once a week, or have no bids at all. As David Dayen observes, this sets up the risk of a bank run when investors get spooked.

Take a look at the "power dive" chart of TFCIX (Third Avenue Focused Credit Fund) - Aiieeeeee!

http://bigcharts.marketwatch.com/quickchart/quickchart.asp?symb=tfcix&insttype=&freq=&show=

Now the question is contagion. Morningstar shows that 48% of TFCIX's portfolio was below B rating, and 41% had no bond rating. Most junk funds don't have THAT ugly a portfolio. But when the herd starts to stampede, fine distinctions can get lost in the dust cloud from the thundering hooves.

Over to you, J-Yel. Do you feel lucky, cherie? Well, do you?

Mike Sparrow December 12, 2015 at 3:48 pm

There is no CDS. There just isn't less, there is none. The stock market has pretty much ignored it as well except that its move from 13000 to 18000 has temporarily stalled. I suspect by the spring, this will be old news.

I think we make errors here, not understanding this particular type of financial speculation is "anti-growth" in general. This would probably blow most of the minds on this board.

Keith December 12, 2015 at 7:27 am

Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.

After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.

When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.

The end result 2008.

With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.

Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.

The broad brush effect has blown bubbles everywhere.

"9 August 2007 – BNP Paribas freeze three of their funds, indicating that they have no way of valuing the complex assets inside them known as collateralised debt obligations (CDOs), or packages of sub-prime loans. It is the first major bank to acknowledge the risk of exposure to sub-prime mortgage markets. Adam Applegarth (right), Northern Rock's chief executive, later says that it was "the day the world changed"

10th December 2015 – "Moments ago, we learned courtesy of the head of Mutual Fund Research at Morningstar, Russ Kinnel, that the next leg of the junk bond crisis has officially arrived, after Third Avenue announced it has blocked investor redemptions from its high yield-heavy Focused Credit Fund, which according to the company has entered a "Plan of Liquidation" effective December 9."
When investor's can't get their money out of funds they panic.

Central Bank low interest rate policies encourage investors to look at risky environments to get a reasonable return

Pre-2007 – Sub-prime based complex financial instruments
Now – Junk bonds

The ball is rolling and the second hedge fund has closed its doors, investors money is trapped in a world of loss.

"Here Is "Gate" #2: $1.3 Billion Hedge Fund Founded By Ex-Bear Stearns Traders, Just Suspended Redemptions"

We know the world is downing in debt and Greece is the best example I can think of that shows the reluctance to admit the debt is unsustainable.

Housing booms and busts across the globe ……

Those bankers have saturated the world with their debt products.

Keith December 12, 2015 at 7:29 am

Links (which will probably require moderation)

http://www.theguardian.com/business/2012/aug/07/credit-crunch-boom-bust-timeline

http://www.zerohedge.com/news/2015-12-10/next-leg-junk-bond-crisis-third-avenue-focused-credit-fund-gates-redemptions-liquida

http://www.zerohedge.com/news/2015-12-11/here-gate-2-13-billion-stone-lion-capital-suspends-redemptions

Skippy December 12, 2015 at 7:41 am

Quality of instruments impaired by corruption has a more deleterious effect than quantities of could ever imagine…

David December 12, 2015 at 10:33 am

"Those bankers have saturated the world with their debt products."

I'm no apologist for Banksters but people bought this "stuff" as the Stuffies.

whether you call it greed or desperation in the face of zero yield – at the end of the day the horizon was short since the last debacle.

getting 2 & 20 or whatever the comp arrangement was for those who are motivated by greed – 2% of $2 Billion yields at least $40 million a year for 5 years or $200 million – not bad for ten guys or less – obviously not fiduciaries – bouncing from Bear to Tudor to Third Ave with no change in the model yields predictable results

I put forth the proposition the "people" deserve their fate – the tea leaves were all there to see

tegnost December 12, 2015 at 10:52 am

Your apology is flawed because it assumes equal access to information among investors as well as assuming all investors have the same objective. Institutional investors have different goals than hedge funds for example. The people you refer to have been fleeced that's just ok with you. As to tea leaves the people have been steeped in recovery stories for years.

Ian December 12, 2015 at 2:24 pm

Also fails to recognize the collateral damage caused towards the people that did not directly participate. It is very hard to say that they deserve their fate in this context, in that they were largely powerless to stop it to begin with, at a reasonable level.

Ian December 12, 2015 at 2:29 pm

I guess you qualified that with focusing solely on the people who bought it. Did not read fully.

Timmy December 12, 2015 at 8:34 am

Wait, so speculators are shorting big bond positions of distressed funds? No way, hope they aren't doing this to ETF's. Jeez, didn't see this coming. I guess having the positions of big ETF's published daily might assist the speculators.

Jim Haygood December 12, 2015 at 4:25 pm

Yesterday HYG closed at a 0.76% discount to NAV, while JNK closed at a 0.68% discount (values from Morningstar). These are wider discounts than ETF managers like to see.

The arbitrage mechanism of buying the discounted ETF shares, redeeming them for the underlying, and then selling the bonds at full value for an instant 0.76% gain is supposed to kick in now.

But sell … to whom?

Timmy December 12, 2015 at 4:51 pm

The misperception is that the ETF junk trade is an arb right now. Its not, its directional. The discipline to bring NAV's in line with underlying value will only kick in at much wider levels because traders are still long (and putting on more of) the "widener" because they anticipate higher levels of vol going forward.

tegnost December 12, 2015 at 9:15 am

Actually have already been bracing myself as demand for labor fell off a cliff at the end of sept., and I'm guessing it's stories such as this that makes my customers tighten their belts....

nat scientist December 12, 2015 at 9:55 am

"Some say the world will end in fire
Some say in ice
From what I've tasted of desire
I hold with those who favor (fire) INFLATION
But if it had to (perish) REFINANCE twice,
I think I know enough of (hate) ZIRP RATES
To say that for destruction (ice) NO BID
Is also great
And would suffice."

Marty Whitman now gets Robert Frost.

craazyboy December 12, 2015 at 4:26 pm

All those junk companies could just declare bankruptcy and start over. That's the way it's supposed to work. Just ask The Donald. Then it would be like that movie where Bruce Willis saved the earth from an asteroid strike. 'Course there was only one asteroid in that movie. Instead, we have World War Z with zombies all over the place!

But maybe JYell will buy all the junk bonds, burn them, and then the dollar will crash and we can all get jobs?

Christer Kamb December 12, 2015 at 1:44 pm

MikeNY said;

"The HY market melted in the Summer of 2008, months before equities noticed what was going on."

Not really. HYG market were in a downtrend during summer of 2007, together with the stockmarket. Also in the 2008 summer both markets were in a severe meltdown. This time around the HYG´s started their downtrend from summer 2014 with the 1:st leg down to dec same year. 2:nd leg is now running in which the stockmarket joined.

Your right, HYG´s seems to be the canaries here! But, from august this year they seems to go in different directions. Or are they?

MikeNY December 12, 2015 at 4:25 pm

You're right, it was earlier than Summer 2008, now I think about it.

What I do remember (and I can't remember whether it was Spring of 2008 or earlier), was that HY spreads had gapped out at least a couple of hundred bps, and equities were still at or near all-time highs. I remember sitting in a meeting with a couple I-bankers, who chuckled ruefully "equities haven't a clue".

The received wisdom on the Street is that the bond market is smarter than the equity market. And, at last in my career, it was true, at least as far as downturns went.

[Dec 12, 2015] Robert Reich to the Fed: this is not the time to raise rates

"... Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you. ..."

www.facebook.com

Robert Reich

Within days the Fed will begin hiking interest rates in an effort to prevent inflation. This is nuts. There's no sign of dangerous inflation anywhere. Raising rates will just slow the economy, making it harder for people to find jobs. The share of working-age people in jobs is near a 40-year low. Watch our video to find out what this is all about -- and how it will affect you.

Dwight McCabe

According to Paul Krugman the banks desperately need rates higher so they make more profits. With these very low rates they are stuck in low profit. The Fed lives in the financial culture and all the learned people around them, bankers, are convinced that the economy needs higher rates. The economy will not benefit but the financial community sure will.

David Van Dyne

...By the way, how about the negative returns on money market funds invested through a 401(k) plan?

[Dec 12, 2015] The American middle class is now matched in number by those in the economic tiers above and below it

"... I would merely point out that the out-of-touch elite is not confined to the Republican Party. There are substantial elements within the Brookings-Third Way wing of the Democratic coalition that would rather cut Social Security than establish a sensible retirement-income system, and that would rather cut Medicare than improve the efficiency of health care finance and delivery, after all. ..."

"... Why a one-percentage-point rise in the GDP share of Social Security is something that calls in any technocratic sense for cuts to the Social Security system is something that eludes me. What cutting Social Security has to do with reducing poverty eludes me. But it is something that all fifteen of the authors thought was so obvious as to require no explanation or justification whatsoever... ..."

Economist's View

Links for 12-12-15

Syaloch said in reply to anne...

In other news, here at home we're shrinking too.
http://www.pewsocialtrends.org/2015/12/09/the-american-middle-class-is-losing-ground/
The American Middle Class Is Losing Ground
No longer the majority and falling behind financially
After more than four decades of serving as the nation's economic majority, the American middle class is now matched in number by those in the economic tiers above and below it. In early 2015, 120.8 million adults were in middle-income households, compared with 121.3 million in lower- and upper-income households combined, a demographic shift that could signal a tipping point, according to a new Pew Research Center analysis of government data.

Peter K. said...

I don't believe I've seen DeLong talk this way before. He and Krugman often focus on the Republicans or the European VSPs, with good reason.
But if Hillary doesn't move the ball down the field despite Republican opposition, increasing inequality will make politics worse and worse.
http://www.bradford-delong.com/2015/12/live-from-evans-hall-i-would-merely-point-out-that-the-out-of-touch-elite-is-not-confined-to-the-republican-party-ther.html
Live from Evans Hall: I would merely point out that the out-of-touch elite is not confined to the Republican Party. There are substantial elements within the Brookings-Third Way wing of the Democratic coalition that would rather cut Social Security than establish a sensible retirement-income system, and that would rather cut Medicare than improve the efficiency of health care finance and delivery, after all.
As all of the authors of the Brookings-AEI joint "consensus plan for reducing poverty and restoring the American dream" write:
there are reasonable ways both to cut spending and to raise revenue that are consistent with our core values. For example, Social Security spending is projected to consume over one percentage point more of national income in 2040 than it does today...

Why a one-percentage-point rise in the GDP share of Social Security is something that calls in any technocratic sense for cuts to the Social Security system is something that eludes me. What cutting Social Security has to do with reducing poverty eludes me. But it is something that all fifteen of the authors thought was so obvious as to require no explanation or justification whatsoever...

Paul Krugman: Empowering the Ugliness: "The story is quite different in America...
Continue reading "" "

[Dec 11, 2015] Dangers of reaching for yield

The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. Add to this fake earnings and share repurchases that weaken many companies including such stalwart as IBM and you get the message.

"... A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street. ..."

"... All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk. ..."

"... "Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap." ..."

"... Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500. ..."

economistsview.typepad.com

BenIsNotYoda said... Friday, December 11, 2015 at 03:42 AM

Another leg of the reach-for-yield/carry trade crumbling. Emerging markets, commodities and now corporate high yield. No bubbles here. Carry on.
http://www.wsj.com/articles/as-high-yield-debt-reels-mutual-fund-blocks-holders-from-redeeming-1449767526

Junk Fund's Demise Fuels Concern Over Bond Rout

Third Avenue Focused Credit Fund takes rare step, seeking an orderly liquidation as junk-bond market swoons

A firm founded by legendary vulture investor Martin Whitman is barring investor withdrawals while it liquidates its high-yield bond fund, an unusual move that highlights the severity of the months long junk-bond plunge that has swept Wall Street.

The decision by Third Avenue Management LLC means investors in the $789 million Third Avenue Focused Credit Fund may not receive all their money back for months, if not more.

BenIsNotYoda said in reply to BenIsNotYoda...
of course, biotech has to be added to this list; down 20%.
pgl said in reply to BenIsNotYoda...
Amgen shares trading at $145 and Gilead shares trading at $102. Not feeling sorry for these dudes.
pgl said in reply to BenIsNotYoda...
Talk about burying the lead:

"The yield spread between junk-rated debt and U.S. Treasurys narrowed to a multiyear low in mid-2014, reflecting investors' confidence in companies' business prospects. But spreads have since risen, reflecting lower prices, as the energy bust intensified questions about junk-rated companies' ability to repay debts. All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk.

"Investors have been dazzled that yields on bonds have climbed so high, even while default rates remained low," said Martin Fridson, founder of Lehmann Livian Fridson Advisors and a longtime junk-bond analyst. "Currently, though, the ability to sell a large position is especially poor…. When that tension gets especially high, you can see something snap."

The Securities and Exchange Commission has been warning mutual-fund managers who purchase illiquid securities-those that may be difficult to buy or sell at stated prices because of a lack of willing investors-to prepare better for potential redemptions and is drawing up new rules requiring such measures."

Simply put - people who go into the junk bond market get a very high return but they also take the risk. No feeling sorry for these guys especially given that the SEC gave them fair warning.

Peter K. said in reply to pgl...

"All 30 of the largest high-yield bond funds tracked by Morningstar have lost money this year, reflecting price declines as investors shied away from risk."

Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield.

The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data.

http://cepr.net/blogs/beat-the-press/matt-o-brien-takes-obama-to-task-on-fed-appointees

Dean Baker again:

"Preventing the rebirth of housing bubbles in these markets was a very good thing in my book. I will add the qualification that high interest rates is not my preferred way of bursting bubbles. The first recourse should be talk, as in using the Fed's bully pulpit, coupled with its research, to warn the markets of rising bubbles. Janet Yellen did this successfully in the summer of 2014 when she used congressional testimony to warn of bubbles in social media companies, biotech stocks, and junk bonds. She did not follow through with subsequent warnings, but all three markets did take a hit in the weeks following her testimony.

For some reason most economists reject the idea of having the Fed talk down bubbles. I guess it is considered impolite. This seems more than a bit bizarre given the enormous damage done by bursting bubbles compared with the virtually costless effort to talk them down.

Of course the Fed also has substantial regulatory powers which can be used to curb bank lending to support bubbles. This is also a policy option that should be pursued before deliberately slowing the economy with higher interest rates.

Anyhow, I was not happy to see the economy slowed by the Taper Tantrum, but I was very happy to see that it prevented the growth of another bubble. It is unfortunate that almost no one knows this story - I guess it is difficult for reporters to get access to the Case-Shiller data on the web."

pgl said in reply to Peter K....
"The market goes up and down. Only drama queens would see a bubble like the tech stock bubble or housing bubble in the data."
Yep! And the lack of QE of late has driven up both government bond rates and credit spreads. Now wonder these vulture investors lost money. I'm not feeling for them a bit. And yes - BenIsNotYoda was being a drama queen.

likbez said in reply to Peter K....
"Investors are shying away from risk? I thought ZIRP encouraged reach-for-yield."
Yes, very true.

Speculation by retail investors in high risk instruments like high yield bonds, oil ETN funds (based off oil futures), gold funds, etc rose tremendously during ZIPR period. Probably several billions were lost by retail investors during this period in search for yield. The same is true about participation of retail investors in regular casino games such as stock funds and indexes like S&P500.

Conservative investments like TIPS suffered.

[Dec 11, 2015] Demand, Supply, and what is new after 2008

"... Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. ..."

angrybearblog.com
Angry Bear
... ... ...

The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation.

Krugman posted a graph showing how the US graph of inflation and unemployment has changed (just click the link and look). In the past high unemployment gradually lead to lower inflation and then to lower inflation and unemployment - this is the pattern predicted by Friedman, Phelps, Tobin (and discussed already by Samuelson and Solow in 1960). But in the recent past extremely high unemployment has come with low and stable core inflation.

Things used look very different here in Italy than in the USA. Here is a graph of data from before January 2008. Extremely high unemployment was consistent with moderate and then with low inflation. The only clear shift in inflation occurred in 1996 and 1997 (which may or may not be when Italians began to think they might actually earn the wonderful reward of being allowed to adopt the Euro).

By 2008, The flat Phillips curve (the Fillipo curve?) was already very clear to anyone who read Italian newspapers.

Here are all data which are available on FRED (yes I sit in Rome and surf to St Louis for Italian data). Oddly the harmonized unemployment series is only available (at FRED) from 1983 on.

In this graph there is also very little sign of Friedman-Phelps cycles. The old pattern was a steady decline from extremely high inflation - it looks almost like an expectations unaugmented Phillips curve. But then (really from 1986 on) there was fairly stable moderate to low inflation along with extreme swings in unemployment. I stress that this is CPI inflation including food and energy not core inflation. the peak oil spike in 2007 and the collapse in 2008 are clearly visible. It is possible that the most recent observations show a slide to actual persistent deflation, but it is more likely that the recent decline in inflation is due to the collapse of the price of oil.

Unlearning economic paradigms | Bruegel , November 30, 2015 7:22 am

[…] Robert Waldmann writes that that the reason Krugman was surprised by the failure of the supply side is that he didn't pay enough attention to the European unemployment problem. The natural unemployment rate hypothesis failed spectacularly in Europe in the 1980s. Extremely high unemployment did not lead to deflation - rather it coexisted with moderate inflation for a long time, then with low inflation. By 2008, the flat Phillips curve was already very clear to anyone who read Italian newspapers. […]

[Dec 11, 2015] Why Its Tricky for Fed Officials to Talk Politically

"There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not." Economic and politics are like Siamese twins (which actually . If somebody trying to separate them it is a clear sign that the guy is either neoliberal propagandists or outright crook.

"... I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of purely economic (like many other things are camouflaged under neoliberalism.) ..."

"... I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times. ..."

"... This kind of debate seems to be a by-product of the contemporary obsession with having an independent central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy. ..."

"... A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it. ..."

"... The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries. ..."

"... Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack. ..."

"... As to why risk a political backlash in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all. ..."

Dec 11, 2015 | Economist's View
anne said...
Fine column, with which I agree. Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate.
As for the use of the word "hack" in referring to Janet Yellen, that needlessly insulting use was by a Washington Post editor and not by columnist Michael Strain.

anne -> RW (the other)...

As Brad notes, many Fed Chairs before Yellen have opined on matters outside monetary policy so why is Yellen subject to a different standard?

[ Fine, I have reconsidered and agree. No matter how the headline was written, the headline was meant to be intimidating and was willfully mean and that could and should have been made clear immediately by the writer of the column. ]

likbez -> anne...

"Federal Reserve policy as such is difficult and contentious enough to avoid wandering to social-economic analysis or philosophy from aspects of the Fed mandate."

Anne,

I think FED chairman is the second most powerful political position in the USA after the POTUS. Or may be in some respects it is even the first ;-) So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

That's why Greenspan got it, while being despised by his Wall-Street colleagues...

He got it because he was perfect for promoting deregulation political agenda from the position of FED chair.

pgl -> likbez...

Greenspan was despised on Wall Street? Wow as he tried so hard to serve their interests. I guess the Wall Street crowd is never happy no matter how much income we feed these blow hards.

anne -> likbez...

So it is quintessentially high-power political position masked with the smokescreen of "purely economic" (like many other things are camouflaged under neoliberalism.)

[ I understand, and am convinced. ]

Peter K. said...

I respectfully disagree. Republicans are always working the refs and despite what the writer from AEI said, they're okay with conservative Fed chairs talking politics. They have double standards.

Greenspan testified to Congress on behalf of Bush's tax cuts for the rich. Something about how since Clinton balanced the budget, the financial markets had too little safe debt to work with. (maybe that's why they dove into mortgaged-backed securities). But tax cuts versus more government spending? He and Rubin advised Clinton to drop his middle class spending bill and trade deficit reduction for lower interest rates. That's economics which have political outcomes.

So if the rightwing is going to work the the refs, so should the left. We shouldn't unilaterally disarm over fears Congress will gun for the Fed. There should be more groups like Fed Up protesting.

The good thing about Yellen's speech is that it's a signal to progressives that inequality is problem for her even as she is raising rates in a political dance with hawks and Congress.

The Fed is constantly accused of increasing inequality so it's good Yellen is saying she thinks it's a bad thing and not American.

Bernie Sanders is right that for change to happen we'll need more political involvement from regular citizens. We'll need a popular movement with many leaders.

The Fed should be square in the sights of a progressive movement. A high-pressured economy with full employment should be a top priority.

Instead I saw Nancy Pelosi being interviewed by Al Hunt on Charlie Rose the other night. Hunt asked her about Yellen raising rates.

Pelosi said no comment as she wasn't looking at the data Yellen was and didn't want to interfere. The Fed should be independent, etc. Perhaps like Thoma she has the best of motives and doesn't want to motivate the Republicans to go after the Fed and oppose what she wants.

Still I felt the Democratic leadership should be committed to a high-pressure economy. Her staff should know what Krugman, Summers etc are saying. What the IMF and World Bank are sayings.

She should have said "they shouldn't raise rates until they see the whites of inflation's eyes" as Krugman memorably put it. She should have said that emphatically.

We need a Democratic Party like that.

Instead Peter Diamond is blocked from becoming a Fed governor by Republicans and Pelosi is afraid to comment on monetary policy.

Peter K. -> Peter K....

A longer reply from DeLong:

http://www.bradford-delong.com/2015/12/must-read-i-would-beg-the-highly-esteemed-mark-thoma-to-draw-a-distinction-here-between-inappropriate-and-unwise-in-m.html

Must-Read: I would beg the highly-esteemed Mark Thoma to draw a distinction here between "inappropriate" and unwise. In my view, it is not at all inappropriate for Fed Chair Janet Yellen to express her concern about excessive inequality. Previous Fed Chairs, after all, have expressed their liking for inequality as an essential engine of economic growth over and over again over the past half century--with exactly zero critical snarking from the American Enterprise Institute for trespassing beyond the boundaries of their role.

But that it is not inappropriate for Janet Yellen to do so does not mean that it is wise. Mark's argument is, I think, that given the current political situation it is unwise for Janet to further incite the ire of the nutboys in the way that even the mildest expression of concern about rising inequality will do.

That may or may not be true. I think it is not.

But I do not think that bears on my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous, inattentive to precedent, shoddy, expired, expired, gone to meet their maker, bereft of life, resting in peace, pushing up the daisies, kicked the bucket, shuffled off their mortal coil, run down the curtain, and joined the bleeding choir invisible:

Mark Thoma: Why It's Tricky for Fed Officials to Talk Politically: "I think I disagree with Brad DeLong...

pgl -> Peter K....

"my point that Michael R. Strain's arguments that Janet Yellen's speech on inequality was inappropriate are void, wrong, erroneous..."

DeLong is exactly right here. Strain's argument has its own share of partisan lies whereas Yellen is telling the truth. Brad will not be intimidated by this AEI weasel.

sanjait said...

Why would Yellen not talk about inequality? It's an important macroeconomic topic and one that is relevant for her job. It's both an input and an output variable that is related to monetary policy.

And, arguably I think, median wage growth should be regarded as a policy goal for the Fed, related to its explicit mandate of "maximum employment."

But even if you think inequality is unrelated to the Fed's policy goals, that doesn't stop them from talking about other topics. Do people accuse the Fed of playing politics when they talk about desiring reduced financial market volatility? That has little to do with growth, employment and general price stability.

likbez -> sanjait...

I think that is a hidden principle behind attacks on FED chair. A neoliberal principle that the state should not intrude into economics and limit itself to the police, security, defense, law enforcement and few other related to this functions. So their point that she overextended her mandate is an objection based on principle. Which can be violated only if it is used to uphold neoliberalism, as Greenspan did during his career many times.

Sandwichman said...

I think I disagree with Mark Thoma's disagreement with Brad DeLong. Actually, ALL economic discourse is political and efforts to restrain the politics are inevitably efforts to keep the politics one-sided

Dan Kervick said...

This kind of debate seems to be a by-product of the contemporary obsession with having an "independent" central bank, run according to the fantasy that there is such a thing as a neutral or apolitical way to conduct monetary policy.

But there really isn't. Different kinds of social, economic and political values and policy agendas are going to call for different kinds monetary and credit policies. It might be better for our political health if the Fed were administratively re-located as an executive branch agency that is in turn part of a broader Department of Money and Banking - no different from the Departments of Agriculture, Labor, Education, etc. In that case everybody would then view Fed governors as ordinary executive branch appointees who report to the President, and whose policies are naturally an extension of the administration's broader agenda. Then if people don't like the monetary policies that are carried out, that would be one factor in their decision about whom to vote for.

There is no reason for central banks to have the kind of independence that judicial institutions have. Justice may be blind and above politics, but money and banking are not. Decisions in that latter area should be no more politics-free than decisions about taxing and spending. If we fold the central bank more completely into the regular processes of representative government, then if a candidate wants to run on a platform of keeping interest rates low, small business credit easy, bank profits small, etc., they could do so without all of the doubletalk about the protecting the independence of the sacrosanct bankers' temple.

We could also then avoid unproductive wheel-spinning about that impossibly vague and hedged Fed mandate that can be stretched to mean almost anything people want it to mean. The Fed's mandate under the political solution would just be whatever monetary policy the President ran on.

likbez -> Dan Kervick...

"The Fed's mandate under the political solution would just be whatever monetary policy the President ran on"

Perfect !

Actually sanjait in his post made a good point why this illusive goal is desirable (providing "electoral advantage") although Greenspan probably violated this rule. A couple of hikes of interest rates from now till election probably will doom Democrats.

Also the idea of FEB independence went into overdrive since 80th not accidentally. It has its value in enhancing the level of deregulation.

Among other things it helps to protect large financial institutions from outright nationalization in cases like 2008.

Does somebody in this forum really think that Bernanke has an option of putting a couple of Wall-Street most violent and destructive behemoths into receivership (in other words nationalize them) in 2008 without Congress approval ?

Dan Kervick -> Sanjait ...

Sanjait, with due respect, you are not really responding to the reform proposal, but only affirming the differences between that proposal and the current system.
Yes, of course fiscal policy is "constrained" by Congress. Indeed, it is not just constrained by Congress but actually made by Congress, subject only to an overridable executive branch veto. The executive branch is responsible primarily for carrying out the legislature's fiscal directives. That's the point. In a democratic system decisions about all forms of taxation and government spending are supposed to be made by the elected legislative branch, and then executed by agencies of the executive branch. My proposal is that monetary policy should be handled in the same way: by the elected political branches of the government.
You point out that under current arrangements, central banks can, if they choose, effect large monetary offsets to fiscal policy (or at least to some of the aggregate macroeconomic effects of those policies). I don't understand why any non-elected and politically unaccountable branch of our government should have the power to offset the policies of the elected branches in this way. Fiscal and monetary policy need to be yoked together to achieve policy ends effectively. Those policy ends should be the ones people vote for, not the ones a handful of men and women happen to think are appropriate.

JF -> Dan Kervick...

"In a democratic system" is what you wrote.
It is more proper to refer to it as republicanism. The separation of powers doctrine, underlying the US constitution, is a reflection of James Madison's characterization in the 51st The Federalist Paper, and it is a US-defined republicanism that is almost unique:
"the republican form, wherein the legislative authority necessarily predominates."
- or something like that is the quote.
In the US framers' view, at least those who constructed the re-write in 1787 and were the leaders - I'd say the most important word in Madison's explanation is the word "necessarily" - this philosophy has all law and policy stemming from the public, it presumes that you can't have stability and dynamic change of benefit to society without this.
Arguably, aristocracies, fascists, totalitarians, and all the other isms, just don't see it that way, they see things as top-down ordering of society.
The mythology of the monetary theorizing and the notions about a central bank being independently delphic has some of this top-down ordering view to it (austerianism, comes to mind). Well, I don't believe in a religious sense that this is how it should be, nor do you it seems.
It will be an interesting Congress in 2017 when new legislative authorities are enacted to establish clearer framing of the ministerial duties now held by the FRB.
Are FED officials scared that this will happen, and as a result they circle the wagons with their associates in the financial community now to fend off the public????
I hope this is not true. They can allay their own fears by leading not back toward 1907, in my opinion.
Of course, I could say where I'd like economic policies to go, and do here often, but this thread is about Yellin and other FED officials.
I recognize that FRB officials can say things too, and should, as leaders of this nation (with a whole lot of research power and evidence available to them their commentary on political economics should have merit and be influential).
Thanks for continuing to remind people that we govern ourselves in the US in a US-defined republican-form. But I think the people still respect and listen to leadership - so speak out FED officials.

JF -> Dan Kervick...

But Dan K, then you'd de-mythologize an entire wing of macroeconomics in a wing referred to as monetary theory based on a separate Central Bank, or some non-political theory of money.
Don't mind the theory as it is an analytic framework that questions and sometimes informs - but it is good to step back and realize some of the religious-like framing.
It is political-economy.

Peter K. -> pgl...

Yellen really lays it out in her speech.

"The extent of and continuing increase in inequality in the United States greatly concern me. The past several decades have seen the most sustained rise in inequality since the 19th century after more than 40 years of narrowing inequality following the Great Depression. By some estimates, income and wealth inequality are near their highest levels in the past hundred years, much higher than the average during that time span and probably higher than for much of American history before then.2 It is no secret that the past few decades of widening inequality can be summed up as significant income and wealth gains for those at the very top and stagnant living standards for the majority. I think it is appropriate to ask whether this trend is compatible with values rooted in our nation's history, among them the high value Americans have traditionally placed on equality of opportunity."

And even links to Piketty in footnote 42.

"Along with other economic advantages, it is likely that large inheritances play a role in the fairly limited intergenerational mobility that I described earlier.42"

42. This topic is discussed extensively in Thomas Piketty (2014), Capital in the 21st Century, trans. Arthur Goldhammer (Cambridge, Mass.: Belknap Press). Return to text

Sanjait said...

A number of commenters and authors have recently pointed out that inequality may not just be an unrelated phenomenon to monetary policy, but actually, in part at least, a byproduct of it.
The theory is that the Fed in the Great Moderation age has been so keen to stave off even the possibility of inflation that it chokes down the vigor of recoveries before they get to the part where median wages start rising quickly. The result is that wages get ratcheted down with the economic cycle, falling during recessions and never fully recovering during the recoveries.
Do I believe this theory? Increasingly, yes I do. And seeing the Fed right now decide to raise rates, citing accelerating wage growth as one of the main reasons, has reinforced my belief.

A Boy Named Sue said...

Two Things: (i) The Fed should be open and honest about monetary policy. No one wants to return to the Greenspan days. (ii) Brad Delong is a neoliberal hack.

A Boy Named Sue -> A Boy Named Sue...

I do admit, Delong is my favorite conservative economist. He is witty and educational, unlike most RW hacks.

Jeff said...

As to "why risk a political backlash" in the piece, the short answer is: to invoke the debate on whether politics or fact (science) is going to dominate. Because they can't both. See: Romer. Let's have this out once and for all.

[Dec 11, 2015] Demise of the US Middle Class Now Official

"... The US is in the midst of transforming itself into a much lower wage environment for all employers. ..."

"... Now the most telling part: Of the households with children in their twenties (a mixture of high school only and graduates in an approximately 50/50 mix of the two) none - absolutely none - can afford to live in the same style as their parents did. ..."

"... Those with no college degree are having, again, to live with their parents until they can afford somewhere to rent. ..."

"... Damn those neo-liberals, damn them to hell! ..."

"... Newsweek ran a story last year, titled "The Hit Men," about executives responsible for massive layoffs. The chief executives of AT T, Nynex, Sears, Philip Morris and Delta Air Lines were high on the list. Of course, international competition plays a role in some downsizings, but as Newsweek's list makes clear, it is hardly the most important cause of the phenomenon. To my knowledge there are no Japanese keiretsu competing to carry my long-distance calls or South Korean conglomerates offering me local service. Nor have many Americans started buying their home appliances at Mexican stores or smoking French cigarettes. I cannot fly Cathay Pacific from Boston to New York. … ..."

"... The ONLY reason these corporate scum downsize is to artificially drive up "productivity" numbers, not real growth in anything, just productivity (because fewer workers NOW have to do the work of 3, and THAT for less pay than before! Instant explosion in productivity!). This only serves to bump up share prices which don't actually reflect anything of value or even approach reality on its own terms. They get to say, "See? Massive increase in productivity, so pay me a bazillion damn dollars in 'bonus". ..."

"... Every pay cut, every job loss should be legally tied to a requirement to lay off a proportionate number of execs AND a proportional cut to top pay and compensation. The income of the top MUST be hard-locked to pay for workers. Worker pay and compensation decreases, then so MUST executive pay and compensation. ..."

"... America was a young country full of opportunity, like China a decade or two ago. As a nation matures the wealth concentrates without strong progressive taxation and high inheritance taxes. Now US social mobility is on a par with the UK, putting it at the second lowest in Europe which is pretty bad. Our privately educated elite are an obvious cause of low social mobility in the UK and perhaps private universities are doing the same job in the US. ..."

"... The 20th Century saw progressive taxation to do away with old money elites and so looking at the playing field now can be rather deceptive. Today's ideal is unregulated, trickledown Capitalism. We had unregulated, trickledown Capitalism in the UK in the 19th Century ..."

"... The Rothschild brothers of London writing to associates in New York, 1863: ..."

"... Our current wealth distribution is more the product of meritocracy than of inheritance. Harvard decided to go meritocratic back in the '50s. The average IQ of the incoming freshman class skyrocketed. There were still legacies, of course, but the whole Ivy League opened up to highly motivated, highly intelligent strivers. The result, in my view, and in the views of 'The Bell Curve' and 'The Revolt of the Elites' was a cognitive elite taking all the best jobs. Ivy league dominance of the most desirable positions in the FIRE sector, government, and the judiciary is far more pronounced today than it was in 1950. ..."

"... You don't seem familiar with the actual data. The US is more unequal than any other major industrialized nation on the planet. By a lot. And it's not a leftist thing. When Americans are surveyed about their desired wealth distribution, the mainstream – not leftist – viewpoint is that the ideal distribution looks roughly like Sweden. ..."

Dec 10, 2015 | naked capitalism
David Carl Grimes December 10, 2015 at 10:13 am

According to the Credit Suisse Global Wealth Report, the middle class makes up only 38% of US adults. The poor make up 50%!

https://www.credit-suisse.com/ch/en/about-us/research/research-institute/publications.html

Felix47 December 10, 2015 at 10:36 am

The only real population growth in the US is at the extreme lower end. Nowadays we see fewer and fewer white baby boomers working. For now employers can hold their prices up somewhat because the baby boomers still consume and the employers now can profit because their labor gets less and less money. This will only last until the baby boomers die out. The replacement workforce and the workforce for the future is brown and sees minimum wage as a huge improvement over the situation in their native countries. The US is in the midst of transforming itself into a much lower wage environment for all employers. This study should be combined with a demographic analysis. My suspicion is that the "middle class" is simply dying off to be replaced by third world refugees who are going to earn a lot less.

Clive December 10, 2015 at 11:06 am

Where I live most of the houses around are the definition of "middle class" for England, and it has been a middle class neighbourhood for about a century. You can tell this from the houses types - starting at Edwardian villas with an attic for one (two at the most) live-in maids which would have been the bottom-run of middle class at the time, through to post-war medium sized houses, townhouses, a couple retirement bungalows then some more recent building from the mid-1990's. Nothing is much over 2000 sq. ft. and most are a little less than that. The majority of residents have lived here for 20+years (until recently, it had an extremely stable population base) and their occupations are, again, what you'd have thought of as being text-book middle class (teachers, local government mid-ranking managers, skilled manufacturing, some semi-skilled such as CNC machine operators but no unemployed households or people who are forced to rely on social security.

Now the most telling part: Of the households with children in their twenties (a mixture of high school only and graduates in an approximately 50/50 mix of the two) none - absolutely none - can afford to live in the same style as their parents did. I will emphasis again, this is not historically 1%'er or even a 10%'er neighbourhood. Up until the last 20 years, it was the middle of the middle. Those will college educations (most have had to return to their parents' houses, which is a social issue in itself) are having to wait until they - so they hope - get pay significant rises from their starting salaries to find a place which is not so far down the level they have been accustomed to or else move in with a partner (which again is a social issue because relationships are more difficult to sustain if they begin to be forced by the need to find suitable accommodation).

Those with no college degree are having, again, to live with their parents until they can afford somewhere to rent. This sounds ridiculous (the whole point of renting should be that you don't need to tie up capital or much savings) but because rents are so high this close to London, such a significant portion of their likely incomes will be tied up in rent that they need a cash cushion to survive the inevitable periods where work is not easy to come by and they have to take whatever is offered. Either that or, again, they need to be in a relationship and have someone to split the rent with. But founding a relationship is kind-a hard while living with your folks.

Traditionally, parents might have been able to help their kids with a loan deposit. But many parents already cleared themselves out of their own savings paying tuition fees and the worst excesses of their children's student loans so they would at least not end up starting out £30-£50k in debt. Even if they hadn't done that, a 10% deposit comes in at £25k on the sorts of housing which the middle classes expect to be living in - the kids' parents have been so hollowed out over the last two decades that they don't have that sort of money lying around. Oh, and even if they did, a £225k mortgage is - rightly - outside of most mainstream lender's mortgage criteria for those on a "middle class" job/salary combination as huge salary multiples are no longer available.

Even with college educations, while people in their twenties might be fairly able to get a job in London and the Home Counties paying, say, £30k pa. before taxes, they will have travel costs of £3-5k a year which takes a big chunk out of that before they've even started. Student loan payments will take another couple of thousand out of pre-tax income. If they live link monks (or nuns), they might just about be able to save £5 to £10k a year. Which means it will be another 5 to 7 years before they can achieve any sort of financial or family-life independence - they'll be pushing 30 in other words.

Without college, they are facing renting very poor accommodation for the rest of their days, with no viable option to improve their lot.

So it's RIP the Middle Class, in South East England anyway. If it's died here, I can't think where it might still have any hope of being alive. I've not even mentioned pension provision here, so old age will hold no succour whatsoever.

The FT piece was a Panglossian interpretation of this reality.

MLaRowe December 11, 2015 at 2:29 pm

Just wanted to say I appreciated this comment. I see the realness of what you have described in Central Ohio, USA myself. Thank you.

perpetualWAR December 10, 2015 at 11:49 am

I am a former 6-figure earner who has been fighting foreclosure on my house for six years. Right before the last go-round with the bank, I lost the job I got in 2010 (after a year and a half of unemployment.) So, rather than getting a job, I fought the foreclosure pro se for two years.

Just got new employment and am earning $14/hr.

BTW, my former career was marketing to architects. The gal in Atlanta is crazy to think that the newest construction boom will keep her employed. During my employment in 2010, I would ask architectural firms how the Greatest Depression affected their office. Most never responded to that question, however I will never forget one pricipal replied, "Eight out of our ten employees lost their homes to foreclosure."

You just can't bounce back after losing everything in middle age.

NOTaREALmerican December 10, 2015 at 11:50 am

Damn those neo-liberals, damn them to hell!

allan December 10, 2015 at 12:09 pm

In 1997, some guy wrote this about the effects of globalization:

Critics of the global economy invariably reply that America may be creating lots of jobs but that they are tenuous because of the prevalence of downsizing, which is a reaction to international competition (a line of reasoning that also provides a good excuse for companies undertaking layoffs).

Come again? Newsweek ran a story last year, titled "The Hit Men," about executives responsible for massive layoffs. The chief executives of AT&T, Nynex, Sears, Philip Morris and Delta Air Lines were high on the list. Of course, international competition plays a role in some downsizings, but as Newsweek's list makes clear, it is hardly the most important cause of the phenomenon. To my knowledge there are no Japanese keiretsu competing to carry my long-distance calls or South Korean conglomerates offering me local service. Nor have many Americans started buying their home appliances at Mexican stores or smoking French cigarettes. I cannot fly Cathay Pacific from Boston to New York. …

Many on the left dislike the global marketplace because it epitomizes what they dislike about markets in general: the fact that nobody is in charge. The truth is that the invisible hand rules most domestic markets, too, a reality that most Americans seem to accept as a fact of life. But those who would like to see us revert to a more managed society in all ways hope that popular unease over the economic influence of people who live in far-off places and have funny-sounding names can be used as the thin end of an ideological wedge.

If a vanishing middle-class is the price that needs to be paid for the triumph of Econ 101, so be it. /s

Praedor December 10, 2015 at 1:21 pm

The ONLY reason these corporate scum downsize is to artificially drive up "productivity" numbers, not real growth in anything, just productivity (because fewer workers NOW have to do the work of 3, and THAT for less pay than before! Instant explosion in productivity!). This only serves to bump up share prices which don't actually reflect anything of value or even approach reality on its own terms. They get to say, "See? Massive increase in productivity, so pay me a bazillion damn dollars in 'bonus'".

Every pay cut, every job loss should be legally tied to a requirement to lay off a proportionate number of execs AND a proportional cut to top pay and compensation. The income of the top MUST be hard-locked to pay for workers. Worker pay and compensation decreases, then so MUST executive pay and compensation.

Steven December 10, 2015 at 2:37 pm

If we reasoned similarly in physics, we should probably discover that weights possessed the property of levitation. It is the economist's definition of wealth that is at fault …

Frederick Soddy, WEALTH, VIRTUAL WEALTH AND DEBT, p. 78

As Ruskin said, logical definition of wealth is absolutely needed for the basis of economics needed for the basis of economics if it is to be a science.

ibid, p. 102

"But the securities of American millionaires can be exchanged in a flash for any currency in the world, for land, for other stocks and bonds. The wealth of the Indian princes is immobile, static; the wealth of their American counterparts is mobile, dynamic. In the money markets of the world the feudal wealth of the Indian princes is of no consequence."

Ferdinand Lundberg, "America's 60 Families", The Vanguard Press, New York, 1937, p. 7
Multiply that 'wealth' by the leverage a country's bankers are able to create with fractional reserve lending and you get:

"Finance is the new form of warfare - without the expense of a military overhead and an occupation against unwilling hosts."

http://michael-hudson.com/2010/10/why-the-imf-meetings-failed/

America's and Europe's middle class is dying because:

a. time marches on. We don't need armies of workers laboring day and night to create REAL, NEEDED wealth
b. the world's 0.01% would rather continue "doing God's work" than share the wealth created by advances in science and technology with their "laboring cattle". A leisure class with a genuine clue about what real needed wealth is and what is really happening in the world constitutes a genuine threat to the established order and to all that 'wealth' the 0.01% has piled up in the form of money. (See graph above)

All those jobs this country has off-shored with all the technology and education it takes to perform them ARE real wealth – along with things like renewable energy.

If it really is such a big surprise that countries like China are becoming relatively more wealthy and powerful than the U.S. then the world's rich really are as stupid as many of us believe they are.

RBHoughton December 10, 2015 at 8:32 pm

Well, I'll throw in a socialist comment and hope I'm not flamed.

Isn't it the case that everyone needs a roof over their heads, food and clothing? Perhaps a bicycle too. These things and free education are the minimum a government should supply to its people.

Keith December 11, 2015 at 3:29 am

America was a young country full of opportunity, like China a decade or two ago. As a nation matures the wealth concentrates without strong progressive taxation and high inheritance taxes. Now US social mobility is on a par with the UK, putting it at the second lowest in Europe which is pretty bad. Our privately educated elite are an obvious cause of low social mobility in the UK and perhaps private universities are doing the same job in the US.

If we want equality of opportunity we should think what a meritocracy would look like.

"What is a meritocracy?"

1) In a meritocracy everyone succeeds on their own merit.

This is obvious, but to succeed on your own merit, we need to do away the traditional mechanisms that socially stratify society due to wealth flowing down the generations. Anything that comes from your parents has nothing to do with your own effort.

2) There is no un-earned wealth or power, e.g inheritance, trust funds, hereditary titles

In a meritocracy we need equal opportunity for all. We can't have the current two tier education system with its fast track of private schools for people with wealthy parents.

3) There is a uniform schools system for everyone with no private schools.

Thinking about a true meritocracy then allows you to see how wealth concentrates.

Inheritance and trust funds are major contributors.

When you start off with a lot of capital behind you, you are in life's fast lane.

a) Those with excess capital invest it and collect interest, dividends and rent.
b) Those with insufficient capital borrow money and pay interest and rent.

If the trust fund/inheritance is large enough then you won't need to work at all and can live off the rentier income provided by your parents wealth and the work of an investment banker.

If you are in life's slow lane, with no parental wealth coming your way, you will be loaded up with student debt, rent, mortgages and loans.

To ensure the children of the wealthy get the best start we have private schools to ensure they get the best education and make the right contacts ready for the race of life.

The children of the poor are born in poor areas where schools are typically below average and they are handicapped before they have even started the race of life.

Wealth concentrates because the system is designed that way.

A meritocracy gives everyone equal opportunity but that is the last thing those in charge want for their children

Keith December 11, 2015 at 5:31 am

It is easier to see what is going on if we put things in a historical perspective. Is Capitalism the first social system since the dawn of civilisation to trickle down?
Since it is based on self-interest this seems highly unlikely. It would be drawn up in the self-interest of those that came up with the system, i.e. those at the top.

The 20th Century saw progressive taxation to do away with old money elites and so looking at the playing field now can be rather deceptive. Today's ideal is unregulated, trickledown Capitalism. We had unregulated, trickledown Capitalism in the UK in the 19th Century. We know what it looks like.

1) Those at the top were very wealthy
2) Those lower down lived in grinding poverty, paid just enough to keep them alive to work with as little time off as possible.
3) Slavery
4) Child Labour

Immense wealth at the top with nothing trickling down, just like today.

The beginnings of regulation to deal with the wealthy UK businessman seeking to maximise profit, the abolition of slavery and child labour. At the end of the 19th Century, with a century of two of Capitalism under our belt, it was very obvious a Leisure Class existed at the top of society. The Theory of the Leisure Class: An Economic Study of Institutions, by Thorstein Veblen The Wikipedia entry gives a good insight. This was before the levelling of progressive taxation in the 20th Century.

It can clearly be seen that Capitalism, like every other social system since the dawn of civilisation, is designed to support a Leisure Class at the top through the effort of a working and middle class.

After the 20th Century progressive taxation the Leisure Class probably stay hidden in the US. In the UK, associates of the Royal Family are covered in the press and show the Leisure Class are still here with us today.

It was obvious in Adam Smith's day.

Adam Smith:

"The Labour and time of the poor is in civilised countries sacrificed to the maintaining of the rich in ease and luxury. The Landlord is maintained in idleness and luxury by the labour of his tenants. The moneyed man is supported by his extractions from the industrious merchant and the needy who are obliged to support him in ease by a return for the use of his money. But every savage has the full fruits of his own labours; there are no landlords, no usurers and no tax gatherers."

With Capitalism it's better hidden:

The Rothschild brothers of London writing to associates in New York, 1863:

"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests."

Keith December 11, 2015 at 5:32 am

Everyone works in their own self interest even economists.

Malthus – supports the vested interests of landlords and so finds nothing wrong with parasitic landlord rent extraction.

Ricardo – supports the vested interest of bankers coming from a banking family, sees problem with feudal landowners but not bankers that create money out of nothing

The Austrian School – Austrian aristocrats, of the European Leisure class, support investor's interests. Anti-Government as they are trying to do away with the old European aristocracy. Give preference to those with money:

You are free to spend your money as you choose.
No money, no freedom.
Money is freedom.

Most classical economists differentiated between earned and unearned wealth. The Austrian Aristocrats benefit from inherited wealth and hide the distinction. As members of the European Leisure class, they liked to invest and make money from the hard work of others while doing very little themselves.

Keith December 11, 2015 at 5:33 am

A monetary system devised by bankers where they create money out of nothing and lend it out charging interest to make a profit. When you come up with a system you make sure it works for you.

How is the legal system loaded? Why do people use expensive barristers/legal teams? It increases your chance of winning the case. What if you can't afford expensive barristers/legal teams? You decrease your chance of winning the case. It's loaded.

Jim in SC December 11, 2015 at 9:27 am

Our current wealth distribution is more the product of meritocracy than of inheritance. Harvard decided to go meritocratic back in the '50s. The average IQ of the incoming freshman class skyrocketed. There were still legacies, of course, but the whole Ivy League opened up to highly motivated, highly intelligent strivers. The result, in my view, and in the views of 'The Bell Curve' and 'The Revolt of the Elites' was a cognitive elite taking all the best jobs. Ivy league dominance of the most desirable positions in the FIRE sector, government, and the judiciary is far more pronounced today than it was in 1950.

What would the smartest strivers of the last sixty years have been doing if they hadn't gone to the Ivies? For one thing, they'd probably be living in the Heartland, or wherever they were from. They might have gone to a local college. IQs at local schools have dropped as IQs at the Ivies have risen. They might have worked at a union job. Losing people in the top 1% of intelligence to the Goldman Sachs and McKinseys of the world has been a terrible blow to those segments of society whose interests needed to be protected from unfettered capitalism.

I wish the terminal lefties here at Naked Capitalism would stop trotting out the tired old horse of wealth being perpetuated across generations. By and large, in the United States, it is dispersed over time. Europe may be a different story. There are still wealthy Fuggers, etcetera. But in the US it tends to get dispersed. Only one member of the Forbes 400 of which I am aware has a tie to a great 19th century fortune: David Rockefeller, and he worked at Citigroup. See Rob Arnott's take on wealth dispersion, and Dr. William Bernstein's.

Ulysses December 11, 2015 at 10:24 am

"I wish the terminal lefties here at Naked Capitalism would stop trotting out the tired old horse of wealth being perpetuated across generations. By and large, in the United States, it is dispersed over time."

There is a very narrow sense in which this is true. We do not enforce a system of male primogeniture among a landed aristocracy here in the United States. The fact that some of my ancestors once owned large estates, in New Holland and New York, doesn't entitle me to life as a lord of the manor today. What it did do for me however, was give to my maternal grandparents the easy circumstances necessary to pursue their own interests with no desperate struggle for survival. This allowed my parents to pursue careers in philosophy and linguistics. My generation saw my brother become a physicist and myself a medievalist. We will never be as wealthy as our great-great grandparents were. Yet, because of their wealth, (even much dispersed over time) we were given opportunities to pursue interests that are simply not often available to many others.

I always hear how Bill Gates was a "self-made" man. Really? His mother, Mary Maxwell House Gates was on the board at First Interstate Bank of Washington, and his father William H. Gates, II, was a wealthy attorney and philanthropist.

I know that not all DuPonts, Rockefellers, Whitneys, Vanderbilts, Sharpes, Hutchinsons, Van Rensselaers, etc. are super wealthy today. Yet the vast majority of them are at least comfortable, just as Bill Gates would have been– even if he had never worked a day in his life.

washunate December 11, 2015 at 5:32 pm

You don't seem familiar with the actual data. The US is more unequal than any other major industrialized nation on the planet. By a lot. And it's not a leftist thing. When Americans are surveyed about their desired wealth distribution, the mainstream – not leftist – viewpoint is that the ideal distribution looks roughly like Sweden.

Also, in a meritocratic society, the socioeconomic status of the parents would have no material impact on the child. In the US, by contrast, the parents are highly predictive of the child. Google the general term social mobility if you are interested in this. For example, we can predict that some kids will be arrested by police more than others simply by looking at the zip code of the parents at the time of birth. Stuff like that is nuts and completely incompatible with a merit-based hypothesis.

[Dec 10, 2015] A Critique of Piketty on the Normative Force of Wealth Inequality

"... So… if I work hard all my life, say three minimum wage jobs, to put my kid through college, their college education is "unjustified"? ..."

"... Nothing is a priori just or unjust; Thomas More had slaves in his Utopia. However, when a socio-economic arrangement reaches a phase where its fairness is commonly questioned, that's a sure sign that the dominant ideology fails to convince, and the system is in trouble. Doesn't mean it's going to collapse tomorrow, obviously. ..."

"... In a perfectly equal society where no one inherited anything, everyone got exactly the same starting salary, saved the same amount, got the same raise every year and earned the same rate of return, the richest 1/5 would still control 66% of the wealth just due to cohort effects. ..."

"... This is an interesting paper about the dissipation of wealth: What is the True Rate of Social Mobility in Sweden? Suggests that the tendency of fortunes to fade away is generally underestimated ..."

"... My reading of r g is that its piketty's attempt to put an overarching intellectual framework over his results and that its the least successful part of the work, although Brad Delong has made pretty good sense of it here ..."

"... As Cudd concedes, Piketty presents a positive analysis predicting that inherited wealth will become dominant, and doesn't spell out any theory of justice, though it's obvious that he thinks this is a bad thing. ..."

"... So, Cudd makes up a theory of justice, imputes it to Piketty and then says it hasn't been proven. What's more she writes as this topic is being addressed for the first time. She doesn't mention any of the vast number of people who've written on equality and whose arguments might be relevant here. ..."

"... I agree with other posters. The OP 'reconstructed' an argument Piketty never made about a topic he didn't address, and then complained about how bad it is (and for really unconvincing reasons). It's not often you see someone lose an argument so badly with a straw man of their own construction. ..."

"... A greatly unequal society requires a great amount of resources to maintain its inequality, and thus itself. ..."

Dec 11, 2015 | Crooked Timber

on December 10, 2015

Thomas Piketty's Capital in the Twenty-First Century is an important and valuable contribution to political economy, both empirically and philosophically. Piketty grounds his theory in vast empirical data,rather than settling for elegant mathematical models. He courageously embraces the fact that economic theory is inevitably value laden, and proposes a theory of the historical dynamics of wealth accumulation in order to offer an updated moral critique of capitalism. Grounding his prediction in the historical data and profoundly simple mathematics, Piketty projects that economic inequality is likely to increase and to favor those who own inherited capital over time. He advances the normative judgment that rising inequality is unjust and must be contained. Although Piketty raises important concerns about the possibility of growing wealth inequality, he fails to normatively ground or argue for his presupposition that this inequality is unjust. Since relative poverty can coincide with high levels of objective or subjective well-being, this presupposition is brought into question. However, there are causes of inequality (including wealth inequality) that clearly can be shown to be unjust. By considering other forms and causes of inequality and oppression, we can distinguish between those forms of wealth inequality that are unjust and those that are normatively benign. In this way Piketty's concerns about growing wealth inequality from inheritance can be partly justified, though of course not empirically verified. Piketty's argument for the injustice of growing economic inequality has two parts. The first part is an empirical, economic argument for the claim that returns from inherited wealth will far outstrip income. This argument can be summarized as follows. Let r be the rate of return on capital, and g be the growth rate of the annual flow of national income.

If r>g, then (wealth) inequality will grow over time.

Individuals who own a greater amount of capital earn a larger r.

Growth, g, is likely to be slower in future.

If r is great enough and g is low enough, then there will be ever more capital from older, inherited wealth, than from wealth saved from income.

Hence, (wealth) inequality will increase, and inherited wealth will make up the greatest amount of capital. [click to continue…]

T 12.10.15 at 4:24 pm

"To show that income inequalities are unjust, they also have to be shown to derive from injustice or to lead to injustice." First, thank you for taking the time to join the group blog. Second, it seems that high income and high wealth individuals have been very effective in tilting the tax, regulatory, and legal environment even more in their favor thereby increasing the inequality that you may argue was not originally unjust. Do you think those behaviors lead to unjust income inequality? Do you think those behaviors are a necessary consequence of increased wealth and income inequality?

Rakesh Bhandari 12.10.15 at 4:29 pm 2

Interesting and challenging comment which will take several readings to understand and evaluate the many different arguments being made.
Here is why Piketty thinks a rentier society contradicts the meritocratic worldview of democratic societies:

"…no ineluctable force standing in the way to extreme concentration of wealth…if growth slows and the return on capital increases [as] tax competition between nations heats up…Our democratic societies rest on a meritocratic worldview, or at any rate, a meritocratic hope, by whichI I mean a belief in a society in which inequality is based more on merit and effort than on kinship and rents. This belief and hope play a very crucial role in modern society, for a simple reason: in a democracy the professed equality of rights of all citizens contrasts sharply with the very real inequality of living conditions, and in order to overcome this contradiction it is vital to make sure that social inequalities derive from ration and universal principles rather than arbitrary contingencies. Inequalities must therefore be just and useful to all, at least in the realm of discourse and as far as possible in reality as well…Durkheim predicted that modern democratic society would not put for long with the existence of inherited wealth and would ultimately see to it that the ownership of property ended at death." p. 422

I understand Cudd to be raising a neo-liberal point discussed in Raymond Plant's book on neo-liberalism -- that if a fortune has been made through no injustice to a concrete other and its gifting and bequeathing does no concrete injustice to another, then there is no coherent ideal of social justice (Hayek's idea that social justice is mirage) that would allow us to condemn the resulting distribution of wealth, as fantastically concentrated as it may be.

Yet a rentier society would actually undermine social utility by reducing the incentives for entrepreneurial exertion; the largest incomes also could not be justified in terms of meritocratic principles; and rentiers would be in a position to use the political process to extract not what Piketty calls rent in terms of the income of a rentier but what most economists mean by rents. The last would have no justification in terms of welfare economics (of which Cudd gives an eloquent defense in her book on capitalism). Piketty is correct that to the extent that citizens understood the nature of a rentier society they would rise in opposition to it.

Plus, the wealth concentration of a rentier society would not be accepted in a Rawlsian original position and to the extent that some wealth is needed to exercise one's capabilities would be unjustifiable from Sen's and Nussbaum's capabilities theory. Piketty expresses sympathy for both normative political theories.

Now Cudd also notes that Piketty argues that the astronomical pay of super-managers cannot be justified in meritocratic terms; his argument is more developed than she lets on–it involves cross-sectional comparison and econometric analysis, controlling for luck and other factors in company performance outside the control of a supermanager as well as the inapplicability of marginal productivity theory to the unique jobs that a CEO does. Plus, he gives an institutional analysis of the way in which CEO's can capture boards and how their incentive to do so rose with lower marginal tax rates. Of course that Piketty undermines this justification does not necessarily mean that such compensation is unjustified, but he does undermine the meritocratic justification that is given for it.

MPAVictoria 12.10.15 at 4:34 pm 3

"When wealth inequalities stem from unjust inheritances"

Is there any inheritance anywhere in the world that is not an "unjust" inheritance? Serious question...

Bruce Wilder 12.10.15 at 4:34 pm 4

Piketty treats economic inequality stemming from return on capital . . . as a zero sum sort of situation, but that is clearly not true. Investment of capital creates improvements in standard of living for all.
"that is clearly not true" seems a bit emphatic for a proposition that should not be clear at all. It might be the case that an instance of capital investment improves the standard of living or it might be immiserating. A wealthy investor might invest in a payday loan operation with a remarkable return on investment. A corporation might invest in automation of a production process and bargain for a reduction of wages for the now less numerous and "less-skilled" workforce.

The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed.

We can certainly hope for the kind of capital investments that result in economic growth that exceeds the return to the owners of capital, but that's not the world Piketty is worried about.

Bruce Wilder 12.10.15 at 4:47 pm 5

Piketty argues that top managers today are paid unjustifiably large salaries because it is too difficult to assess the marginal productivity, and in the absence of any information they are able to manipulate their own and each other's wages. A market failure is not an injustice . . .
Calling an exercise of power and authority in a bureaucratic hierarchy "a market failure" is an error of ideological obduracy, since hierarchies are not "markets". Hierarchies of authority make economic use of social domination, which is, at least, potentially problematic for justice.

Bruce Wilder 12.10.15 at 4:53 pm 6

A significant cause of income inequality is the differences in human capital developed through education. Piketty notes that the educational systems in Europe and especially the US tend to prevent rather than promote social mobility, and instead transmit privilege. 'Parents' income has become an almost perfect predictor of university access.' (p. 485) Piketty's explanation seems to be that it is because wealthy parents buy places for their children in universities, but I think this overestimates the corruption in university admissions and it underestimates the degree of stratification of the developed academic abilities of college age students. Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods. Especially elite universities in the US compete very hard to find and attract low income and minority students, but the competition is stiff for qualified students who will not need remediation in order to succeed.
Demand for low-cost tokens is outrunning supply.

Trader Joe 12.10.15 at 5:03 pm 7

I struggle a lot with the concept of inheritance and when/when not justified. Its easy to see how its unfair/unjustified when the amounts are signficant, far less so when they are not.
If I'm a Rockefeller and hand over the emprire to my children, its easy to see an undeserved conferred advantage.

If I'm farmer Joe who has worked my farm all my life, own it outright through my labor and savings and then want to pass that to my children, who have also worked it all their life(s), so that it can sustain them the same way as it sustained me – it seems far more fair though it still confers on them an advantage of priveldged and if they successfully manage that advantage they should be able to make it grow. Over some number of generations, the differences would collapse.

I think its a very natural instinct for a parent to want to transmit advantage to their children. Teaching them and nurturing their character are never criticized though no less an asset than dollars or farms.

I can see how the provision of an elite education transmits priveledge, but I'malso hard pressed to suggest a child should be denied the best possible education that they can get. If a child has intellectual talent it should be developed regardless of whether they come from a rich or poor family.

One take away from Picketty could be the best possible biological strategy is to try to get as rich as you possibly can because that's the best possible insurance for perpetuating your DNA. Probably not the policy prescription being encouraged, but certainly supported by the data.

Paul 12.10.15 at 5:21 pm 8

All property rights are oppressive; they amount to the restriction of the freedom of the non-property owner. Unless one wants to go communist (and argue that it is possible to create a society without property rights) or libertarian (and argue that property rights somehow exist a priori of society), any society is necessarily oppressive and unjust. The goal is to minimise this injustice without creating others or destroying the ability if society to function.
So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition.

notsneaky 12.10.15 at 5:43 pm 9

"Is there any inheritance anywhere in the world that is not an "unjust" inheritance?"

So… if I work hard all my life, say three minimum wage jobs, to put my kid through college, their college education is "unjustified"?

MPAVictoria 12.10.15 at 5:55 pm 11

"So I think the OP is wrong in asserting that any allocation of property rights should be assumed just in the absence if evidence that the distribution is "oppression". Property rights are (probably necessary) oppression, almost by definition."
Yep. Property is violence. Maybe beneficial violence in the utilitarian sense but violence all the same.

Ze K 12.10.15 at 6:34 pm 12

Nothing is a priori just or unjust; Thomas More had slaves in his Utopia. However, when a socio-economic arrangement reaches a phase where its fairness is commonly questioned, that's a sure sign that the dominant ideology fails to convince, and the system is in trouble. Doesn't mean it's going to collapse tomorrow, obviously.

Rakesh Bhandari 12.10.15 at 6:45 pm 13

It could be argued that entrepreneurial behavior is already individually irrational -- see Kahneman and Tversky. But it is often motivated at least partially by the dream of creating dynastic wealth and glory. Otherwise, it would make little sense to do the hard labor of thinking of new ways of doing things, convincing financiers of the worthiness of the project and giving up more secure incomes. One could worry that Piketty has exaggerated the importance of inherited wealth even in the face of his own evidence (only a small fraction of the top 1% receive most of their income as rentier rent IIRC) and that he has under-estimated its importance as an economic incentive for entrepreneurial labor and that he has also underestimated the extent to which great fortunes dissipate over time due to the growth of heirs and reasonable taxation.

MPAVictoria 12.10.15 at 6:51 pm14

"Nothing is a priori just or unjust"

He said as he foreclosed on the poor family and cast them out to starve in the street.

cassander 12.10.15 at 6:51 pm 15

>If r>g, then (wealth) inequality will grow over time.

If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake.

> Wealthier families are better able to invest in developing children's abilities and talents to prepare them for college, and have better schools in their neighborhoods.

Large American urban school districts are not just the best funded in the country, they're the best funded in the world. And what Bruce says about market failure applies equally well here. people have voted massive amounts of money for urban schools, when those state run schools fail to perform well despite these resources, the failure cannot possibly be attributed to market forces.

> In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%.

In a perfectly equal society where no one inherited anything, everyone got exactly the same starting salary, saved the same amount, got the same raise every year and earned the same rate of return, the richest 1/5 would still control 66% of the wealth just due to cohort effects. This simple characterizations of wealth inequality by quintiles or deciles do more to conceal than to reveal. what matters is not snapshots, but lifetime expectations. These, however, are harder to calculate and make for much less snappy talking points

Paul 12.10.15 at 6:51 pm 16

This is an interesting paper about the dissipation of wealth: What is the True Rate of Social Mobility in Sweden? Suggests that the tendency of fortunes to fade away is generally underestimated

Paul 12.10.15 at 7:00 pm 17

My reading of r>g is that its piketty's attempt to put an overarching intellectual framework over his results and that its the least successful part of the work, although Brad Delong has made pretty good sense of it here
http://www.econ.hit-u.ac.jp/~makoto/Piketty_readings/Delong_2015.pdf

But even if you consider it in error its the conclusion more than the foundation. The data speaks for itself.

Cassander @15: I read your comment as "even a pretty equal society would be pretty unequal". The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.

Layman 12.10.15 at 7:13 pm

If we are to complain that Piketty fails to demonstrate that income inequalities originate from or lead to injustices, can we not also complain that he fails to demonstrate that the sun rises in the east, or that night follows day, or that it is quite difficult to put the toothpaste back into the tube? While this is not as bad as complaining that he fails to discuss 20th- and 21st- century novels, it approaches that degree of badness.

cassander 12.10.15 at 7:49 pm 21

@Paul

>This is an interesting paper about the disspation of wealth:

I just skimmed it, but that the paper argues that there's a great deal of dissipation of wealth, just that it's well below 100% dissipation.

>The definition if a " pretty equal" society us surely one where the richest 20% only control a little more than 20% of the wealth, surely? After all, the tallest 20% do not account for 66% of the total height in the population.

If everyone was born 2 feet tall and got 10% taller a year, then the tallest 20% would have 80% of the height. the point of the math I laid out is precisely that "a society where everyone has the same amount of stuff" and "a society where everyone gets the same amount of stuff" are not the same, despite our basic instinct that they should be.

T 12.10.15 at 7:52 pm 22

@16
This and other studies using unique surnames tends to suggest that mobility may be overstated.
http://faculty.econ.ucdavis.edu/faculty/gclark/papers/Sweden%202012%20AUG.pdf

engels 12.10.15 at 7:53 pm 23

Apologies if I've misunderstood but does the OP really think that someone who affirm's Paine's maxim that
'Social distinctions can be based only on common utility, must believe that someone's inviting different numbers of people to two different dinner parties is unjust?

Paul 12.10.15 at 8:02 pm, 24

@cassander
But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not? And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.
I can see your point that headline numbers can be misleading, but piketty also shows a clear trend, that wealth is becoming more concentrated. Unless the metrics are somehow a deteriorating representation if reality that's a real thing.

cassander 12.10.15 at 8:55 pm 25

@Paul
>But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not?

For some definitions of unequal, yes, but I say those framing are not particularly useful We are all born ignorant and spend a lifetime accumulating knowledge, but we do not lament the "knowledge gap" between old and young. A world where everyone made X dollars a year, except for their 20th year when they make 1000X would not have a Gini score of 0, but I would call that world equal.

> And piketty's shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating.

It shows that most people aren't accumulating YET. In the real world, people do not save X percent of their income a year, they they consume a larger share of their income when young (consume much more than their income, actually) and save more as they age, for obvious reasons. That's why you have to look at wealth over lifetimes, not in snapshots.

Peter K. 12.10.15 at 9:15 pm 26

@ 15 Cassander
">If r>g, then (wealth) inequality will grow over time.

If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake."

It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).

Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah Winfrey.

These people need the financial sector to put their money to work. And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.

Peter K. 12.10.15 at 9:21 pm 27

And the one percent also effect politics and policy through their generous campaign contributions (Koch brothers); sponsorship of think tanks; ownership of mass media (think Rupert Murdoch); etc. etc.
Politics and policy can effect both *r* and *g.*

http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

"Around the same time that Mr. Rauner began running for governor, a group of researchers based at Northwestern University published findings from the country's first-ever representative survey of the richest one percent of Americans. The study, known as the Survey of Economically Successful Americans and the Common Good, canvassed a sample of the wealthy from the Chicago area. Those canvassed were granted anonymity to discuss their views candidly.

Their replies were striking. Where merely affluent Americans are more likely to identify as Democrats than as Republicans, the ultrawealthy overwhelmingly leaned right. They are far more likely to raise money for politicians and to have access to them; nearly half had personally contacted one of Illinois's two United States senators.

Where the general public overwhelmingly supports a high minimum wage, the one percent are broadly opposed. A majority of Americans supported expanding safety-net and retirement programs, while most of the very wealthy opposed them. And while Americans are not enthusiastic about higher taxes generally, they feel strongly that the rich should pay more than they do, and more than everyone else pays.

"Probably the biggest single area of disconnect has to do with social welfare programs," said Benjamin I. Page, a political scientist at Northwestern University and a co-author of the study. "The other big area has to do with paying for those programs, particularly taxes on high-income and wealthy people.""

Soru 12.10.15 at 9:40 pm 28

One thing is that in reality, setting 'the wealth of a new born' as zero is rather arbitrary. In one country they might get , by right of citizenship, X dollars of security, legal, health and welfare services. In another, Y dollars..
Both have no money, but if X >> Y, then they are going to have very different average expected life outcomes.

At a high zero point, you get cops and judges who uphold the law, at a low one you can hire some bodyguards. At high zero point you can go to a library, at a low one hire a hack to write your autobiography.

You can extend that to cases of active oppression by giving that a dollar equivalent and a minus sign. After all, even slavery could usually be escaped from, in theory, by buying yourself…

Thing is, the _potential_ floor of wealth in a modern society _could be_ as far above active oppression as room temperature is above absolute zero.

And raising it never stops being a good.

T 12.10.15 at 9:53 pm 29

@27
Exactly. Regardless of how how rich got that way there is no question that they are using their wealth to increase and capture economic rents and to take actions that diminish income and wealth mobility. To the extent the economy veers to increased rent seeking, it could very well lower future growth by diverting resources to non-productive activities. If this behavior is baked in as inequality reaches a certain threshold, then it is inherently unjust. To the extent its not always baked in, it has certainly had that effect in the US over the last 30 years. Consequently, we can conclude that current levels of US inequality are unjust.

Mike Furlan 12.10.15 at 10:27 pm 30

An interesting snapshot of where we are.
http://www.nakedcapitalism.com/2015/12/demise-of-the-us-middle-class-now-official.html

cassander 12.10.15 at 10:31 pm 31

@Peter K.
>It's not saying that wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class).

That's explicitly the argument pikety makes with R>G, that the rich get richer by virtue of being rich, not that the moderately well off occasionally become rich by some other means. None of the people you mention got rich by sitting on accumulated capital, nor did any of the fortune 500.

>And as we've seen the last 100 years, the fiancial sector grows and grows as many of the newly rich are financiers.

getting rich by playing financier with other people's investments is not what pikety is talking about. Warren Buffet's fortune, and almost every other financial fortune I can think of, was made by taking a percentage of the profit he got from investing other people's money, not his own.

js. 12.10.15 at 10:50 pm 32

However, the equality presumption is false; it is a fallacy akin to the principle of insufficient reason, which assumes equiprobability of events where there is no reason to assign another probability. But there is also no reason to assign equal probability rather than any other, and thus rationality cannot demand that. By the same token, morality cannot demand equal shares of a good (or bad) in the absence of a reason for it. I take this to be a point of logic, not morality.

This is almost bizarrely unconvincing. You seem to be using "inequality" in a purely formal sense-a sense in which "4 > 2" counts as an inequality. In this sense of the word, it may well be true that there is no presumption of equality. But that fact has no bearing on whether or not a presumption of equality is plausible in the case of interest, namely social and economic inequalities. In this particular case, if there is a widespread moral intuition in favor of the presumption of equality (as I think there is), you can't simply hand-wave away the presumption as a "matter of logic". You need to either (a) show that there is in fact no such widespread intuition, or (b) provide some sort of error theory for this intuition. And until one of these arguments is forthcoming, I'll continue to think that the presumption of equality has quite a bit going for it.

Tabasco 12.10.15 at 11:05 pm 33

wealthy dynasties don't fall apart. They often do. But new dynasties are formed (often from well-off families, not the lower middle class). Trump. Warren Buffet. George Soros. Bill Gates. Mark Zuckerberg. Oprah Winfrey

Gates is giving his money away. Buffet and Zuckerberg say they are going to give away their money. So, no dynasties there.

T 12.10.15 at 11:32 pm 34

@33
As for dynastic wealth, there are 4 Waltons, 3 Mars, and 2 Kochs among the top 18 richest Americans. That's 50%. Pinketty is forecasting a future of dynastic wealth, the Forbes 400 in 30 years. It's the kids of today's plutocrats that will be the beneficiaries.

UserGoogol 12.10.15 at 11:50 pm 35

Paul @ 8: I'd push against that in multiple directions. Even without property per se, some degree of excluding people from using resources is inevitable just from being an organism living in a world of limited resources. If I eat some food, I exclude others from eating that food. Property gives people rather extensive abilities to exclude others from using resources far beyond what is strictly necessary in a state of nature, but any existence involves curtailing the freedoms of others. The only way to have absolute freedom is to be God.
But by the same token it seems kind of vacuous and silly to call that injustice. Minimizing the amount of suffering (or keeping the suffering within "reasonable" bounds) seems like a more sensible way of defining that word.

To get back to the actual point you were making instead of making vague philosophical rumbling, property certainly ipso facto causes some degree of restriction of freedom and this is something deserving of critical attention. But I don't think you can usefully say that they're oppressive by definition.

F. Foundling 12.10.15 at 11:52 pm 36

The OP's notion of justice is not explained in the text, but it seems to be different from mine, and, I think, from that of many others. I think most people would agree that a just distribution is a distribution in accordance with the merits and/or needs of the individuals. Any deviation from such a distribution, for whatever reason, is unjust (it 'harms others' in the sense that the same resource could have been allocated to others more deserving of it based on their merits/needs, and the fact that more wealth has been created doesn't change anything as long as that new wealth is not distributed according to the same principle). This means that inheritance-determined distribution is inevitably unjust, just as any other distribution that is not deliberately made to reflect the merits and/or needs of the individuals can be reasonably assumed to be unjust by default, for the same reason that any random lottery ticket can be assumed not to be winning the jackpot, and any random sequence of body movements can be assumed not to result in the making of a sandwitch.
The equality presumption is basic to most people's sense of justice: most people, when asked to divide a loaf of bread 'justly' between two complete strangers of whom they know nothing, will split it into two equal parts unless there is an obvious criterion by which to differentiate (size, age, gender, caste, etc.). Indeed, even when the bread is distributed unequally in accordance with one or more of these characteristics, the very fact that the difference in share size is made proportionate to the difference in the chosen characteristic(s) shows that no other inequality is assumed apart from the one explicitly entailed by the characteristic – i.e. equality is assumed by default 'other things being equal'. Yes, it is very unlikely that these two random strangers really are *precisely* equally good and deserving; the point is that we have no *right* to assume otherwise, and as humans they have a *right* to be treated equally unless there is a specific reason for the contrary.

Bruce B. 12.11.15 at 12:26 am 37

It's worth noting that in a lot of cases where a particular family dynasty falls apart, a great deal of the money doesn't travel far. It goes to co-owners of shared enterprises, colleagues and rivals, and others in the same stratum. Cash can flow out quickly, but lots of assets hang around, and get used by someone close at hand.
If the principle that "since I didn't set out to harm anyone, you have no right to tax my stuff" were taken seriously in general, we wouldn't have laws against pollution or having your car run over someone because you didn't set the parking break. The idea sounds appealing widely at first hearing, but it doesn't take much of a context to establish how incompatible it is with a bunch of other moral reasoning.

John Quiggin 12.11.15 at 12:41 am 38

The OP seems to be completely misconceived. As Cudd concedes, Piketty presents a positive analysis predicting that inherited wealth will become dominant, and doesn't spell out any theory of justice, though it's obvious that he thinks this is a bad thing.
So, Cudd makes up a theory of justice, imputes it to Piketty and then says it hasn't been proven. What's more she writes as this topic is being addressed for the first time. She doesn't mention any of the vast number of people who've written on equality and whose arguments might be relevant here.

The closest actual engagement with Piketty is her reference to the epigraph 'Social distinctions can be based only on common utility,' which would most naturally be interpreted in utilitarian terms (that's the default assumption for an economist anyway). So, Piketty can be taken to say that a combination of slow growth and increasing inequality is unlikely to promote common (aggregate) utility. There are plenty of arguments that can be made for or against this, but Cudd doesn't even bother. Having cited the epigraph, she never again mentions utility.

js. 12.11.15 at 1:02 am 39

UserGoogol @35 - I'd make it even simpler: if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible, then whatever you've got is not a conception of justice.

engels 12.11.15 at 1:05 am 41

I agree with other posters. The OP 'reconstructed' an argument Piketty never made about a topic he didn't address, and then complained about how bad it is (and for really unconvincing reasons). It's not often you see someone lose an argument so badly with a straw man of their own construction.

Robb Lutton 12.11.15 at 1:16 am 42

…In the US today, top 10% own 25% and the next 40% own 25% of capital,…
This cannot be true else there would be no inequality as it would mean the bottom 50% would have 50% of capital.

Markos Valaris 12.11.15 at 1:51 am 44
js, UserGoogol, I suspect Paul is after something somewhat different, which is the idea that using force to exclude others from some resources must *either* be backed by good reasons *or* count as oppressive/unjust. This doesn't seem crazy, and it would generate the kind of request for justification the OP puzzles about.

LFC 12.11.15 at 2:06 am 45

I haven't read the comment thread with great care but I have the read the OP.
It seems to be the basic argument of the OP is roughly this:

1) Absolute poverty (in today's world) is always unjust, but relative poverty resulting from economic inequalities is not necessarily always (or even presumptively) unjust. Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.

2) Economic inequalities resulting in or reflecting relative (not absolute) poverty are unjust when they are caused by (or transmit) oppression and/or discrimination, or when they 'stigmatize' and thereby cause psychological harm to an identifiable group. This point I think is more controversial but interesting and defensible, at least with a more elaborate account, which I take it the author of the OP has given elsewhere.

As for where the OP directly engages with and criticizes Piketty, I'm not well-placed to get into this, but ISTM the passage where the OP criticizes him for ignoring the factor of oppression, e.g. w/r/t women in particular time periods, can be taken as a reasonable criticism.

When read with some care, the OP seems not anywhere near as hostile to some kind of egalitarian position, istm, as some commenters here apparently think.

LFC 12.11.15 at 2:27 am 47

One last thing: the criterion of "stigma" is arguably not that far from the Rawlsian criterion of 'self-respect' (which came up in the thread on Chris B's post), or at least it might be related… If one feels stigmatized or is objectively stigmatized by a particular situation of ec. inequality, then the social bases of self-respect are not being met. The OP refers to "social psychology" as tool of empirical investigation here, whereas in the other thread we were talking about moral psychology, but obvs. there's a common element: psychology.

Matt 12.11.15 at 3:52 am 48

LFC's reconstruction of the post strikes me as not only charitable, but pretty much obviously right. I'm pretty surprised, and sorry, to see the comments mostly get on the wrong foot and not address what's interesting in the post.

John Quiggin 12.11.15 at 4:20 am 49

'Surely not the case for women'. This is far from obvious. 40 per cent of female headed families live in poverty. http://www.epi.org/publication/female-headed-families-children-poverty/
This is an absolute poverty line set in the early 1960s, so the position of these families relative to the median household is considerably worse. Relative to the top 1 per cent of households, the gap has grown enormously.

The poverty rate for female headed households has barely changed since the 1970s, but (I think) the proportion of such households has increased substantially. On the other side of that equation, the proportion of couple households with two high incomes has also risen.

So, while it's certainly true that the wages of employed women have risen relative to those of employed men, that doesn't mean that gender based inequality and poverty have declined.

I haven't got a conclusive answer on this, but if it's going to be the central point of a critique it deserves more than a handwaving "surely".

F. Foundling 12.11.15 at 4:31 am 50

@js. 12.11.15 at 1:02 am
> if you've got a conception of "justice" such that any possible social arrangement is unjust, i.e. justice is actually impossible …
A banal point, probably, but AFAICS, everything is unjust compared to perfect justice, and perfect justice is impossible, because perfect anything is impossible. Not a reason not to keep 'perfecting' things. It's what humans do.

@LFC 12.11.15 at 2:06 am
> the OP seems not anywhere near as hostile to some kind of egalitarian position

'Some' does a lot of work here.

>Some economic inequalities are unjust, others aren't, and one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust. This point strikes me as fairly uncontroversial.

The problem is that the OP's idea of what it takes to prove an inequality to be unjust is highly restricted. Not only is inequality assumed to be just until the opposite is proven, but it is argued that even if an inequality demonstrably, as Piketty claims, lacks any basis in merit (a blatant example being the case of inheritance), this is still not sufficient to make it unjust. That inequality per se does not even need to be justified by merit, or in any way at all, is a position so radically and counterintuitively anti-egalitarian that even right-wingers usually won't take it openly (rather, they'll insist that there is, in fact, a merit that justifies it). You see, only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.

js. 12.11.15 at 4:35 am 51

Hey Markos, it's Jamsheed. I think I see what you're saying-maybe. If that's what Paul was getting at, fair enough. But if I'm understanding you correctly, I think it still ends up turning on the "equality presumption" bit, on which see below.
LFC - I agree with you that Cudd is sympathetic to egalitarianism in the post-and her points about gender inequality are well taken. I didn't mean to imply otherwise. It just seems to me that she's given up a good direct argument against inequality for a considerably more circuitous one-for reasons that remain utterly opaque to me. (For one thing, all those old homilies about the "gentler and fairer sex" can be taken as ways to defeat the equality presumption, which would militate against gender inequality; one could of course find more modern equivalents too.)

Anyway, this still seems wrong to me:

one needs to make an argument about why particular inequalities (when we're talking about relative and not absolute poverty) are unjust

I really think it's the other way around. One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.

LFC 12.11.15 at 4:44 am 52

Matt @48
Thanks.
(Btw, in re-reading my comment @45, I see there are typos in the first two lines - sorry.)9
JQ @49: I said that "could be" a reasonable pt of criticism of P., but I don't/didn't know the empirics, so wasn't endorsing.

A H 12.11.15 at 4:46 am 53

I read Piketty as being a reformist liberal similar to Keynes. The reason wealth inequality is bad is because it threatens meritocratic liberal capitalism with either a return to feudalism or political upheaval. So any normative critique of Piketty needs to start with meritocracy.

greg 12.11.15 at 5:41 am 55

Any distribution of income in a society requires the consumption of resources to maintain itself. That distribution which requires the least consumption of resources to maintain itself is the most 'natural.' It is the most efficient, as well as the most robust economy.
A greatly unequal society requires a great amount of resources to maintain its inequality, and thus itself. (A perfectly equal society also requires a large amount of resources just to maintain equality.) This consumption of resources, merely to maintain inequality, reduces the amount of resources available to actually operate the economy. That is, it reduces the efficiency of the economy. If the efficiency of the economy is sufficiently reduced, the economy cannot maintain itself.

greg 12.11.15 at 5:47 am 56

But I suppose the survival of the economy is beside the point.

Paul 12.11.15 at 6:51 am 57

UserGoogol @35: If you stop a hungry person picking an apple from a tree, it may be just (there may be a hungrier person who has planted and tended the tree, for example), but it's hard to argue that it isn't oppressive. But I concede this is a silly argument.
The serious argument is that property is so deeply engrained in our society that it tends to get a free pass. I suspect that most people's conception of justice is based on the idea of "everyone has the right to their own stuff" ignoring completely how arbitrary our moral claims to owning anything as individuals actually are. What I dislike about the OP is that it effectively works from the position that existing claims on property are to be considered valid unless demonstrated otherwise; and doesn't make this argument directly, but instead makes it implicitly by making egalitarianism prove its case.

John Quiggin 12.11.15 at 7:12 am 58

Rather than imputing a theory of justice to Piketty based on hints from Capital in the 21st Century, it would have been more helpful to respond to the explicitly normative analysis in his work with Saez, which leads to a call for a top marginal tax rate of around 70 per cent.
This gives a clear answer to the "burden of proof" question raised in the comments above. In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.

Again, the OP does none of this. There's no sign that the author is even aware of Piketty's large body of work leading up to Capital in the 21st Century

TM 12.11.15 at 9:34 am 59

The article is poorly argued and based on irrelevant speculation.
Bruce W 4: "The emblematic condition of Piketty's work, r > g, ought to imply something about the balance at the margin. If the income share claimed by capital is rising faster than total income, it cannot be the case that all capital investment entails a positive-sum bargain in which the net gain is distributed."

In the light of our discussion in the other thread, I am a bit surprised. You are now admitting that Piketty's argument is based on capital's share of total income rising but clearly, that share cannot rise indefinitely or else it would swallow up all of production. This is what I have argued and you, if I remember correctly, called that "idiotic". So which is it?

TM 12.11.15 at 9:47 am 60

"a country that saves a lot and grows slowly will over the long run accumulate an enormous stock of capital (relative to its income)." (Piketty)
This kind of argument really drives me to despair. If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it. As of ownership, a lot of our accumulated capital is actually publicly owned and actually makes people's lives better. Piketty makes no difference between productive capital and unproductive wealth and none between publicly and privately owned capital. Piketty makes it sound as if public investment in productive infrastructure is a bad policy because we really shouldn't be accumulating so much capital. Exasperating.

Ze K 12.11.15 at 10:52 am 61

The justice thing is tricky. In the current western worldview, as I understand it, the only 'just' way to distribute a loaf of bread is to negotiate and sell it.
Capitalist inequality doesn't need to be justified, because it's not explicitly postulated (quite the opposite: 'all men are created equal'), but is merely a side-effect of a much more fundamental concept, the right to own property, also known as 'freedom', 'liberty'.

Social distinctions can be based only on common utility, but wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.

Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.

Richard M 12.11.15 at 11:45 am 62

> If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an "enormous stock" of it.
That seems a failure of charitable reading. You can't get publicly owned utilities as a consequence of private savings. So by 'capital', he clearly means money, i.e. ownership rights, not the things that money buys.

Some interesting back-of-envelope calculations from link below suggest that there is two-to-three times as much ' investable capital' as 'capital required to run the economy'. Which explains why so much of it is spent trying to play zero-sum-except-in-case-of-fraud financial games. And why every-time someone does come up with a semi-valid new thing, they end up a billionaire.

http://continuations.com/post/134920840275/capital-is-no-longer-scarce

TM 12.11.15 at 1:04 pm 63

"You can't get publicly owned utilities as a consequence of private savings."
But Piketty ("a country that saves a lot" etc.) doesn't make any of these distinctions. Is it really uncharitable to take him literally?

reason 12.11.15 at 1:22 pm 64

There are some very controversial points raised in the OP.
This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).

reason 12.11.15 at 1:27 pm 65

"It seems that Piketty treats economic inequality stemming from return on capital or income as a zero sum sort of situation, but that is clearly not true."
I know Bruce W addressed this before @4, but to take another tack – it is also empirically not true since wage rates have been falling for 30 years at the same time as inequality has increased (not to mention that capital investment, at least since the invention of the joint stock company, is not an exclusive imperative of the wealthy).

reason 12.11.15 at 1:32 pm 66

Where do the figures from
" In the 19th century the top 10% most wealthy owned 90% of capital, the middle 40% owned 5% and the bottom 50% owned 5%. In the US today, top 10% own 25% and the next 40% own 25% of capital, while in Europe the top 10% own 60% and the next 40% own 35% of capital. " come from (there is no source given).
The figure for the US today looks simply odd:
http://inequality.org/wealth-inequality/ suggests the top 10% today own 75% of the wealth.

reason 12.11.15 at 1:45 pm 67

"Piketty claims that 'economics is a subdiscipline of the social sciences, alongside history, sociology, anthropology, and political science.'"

I regard this as rather unfortunate. I think economics is much closer in content and style to ecology and should be seen as a subset of ecology. If it saw itself that way, it would be much better.

MPAVictoria 12.11.15 at 2:19 pm 68

Paul I think you may find this article by Matt Bruenig interesting as it relates to many of the points you have made here:
http://www.demos.org/blog/6/3/14/lesson-grab-what-you-can

engels 12.11.15 at 2:27 pm 69

Lfc, speaking only for myself the problem with the OP of not that it's 'hostile to some kind of egalitarian position' but that it's making bad arguments against a set of made-up claims.

LFC 12.11.15 at 2:49 pm 70

reason @64
This "even though human capital can create great wealth in a single lifetime, as Bill Gates's example would attest." is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital).
I think Cudd's point here in the context of the post is the fairly banal one that not all fortunes are inherited, even today: Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc and then turning it into a corporate empire, helped *greatly* of course by intellectual-property laws once the software etc hit the market. I agree the sentence should be tweaked, but the 'human capital' reference here is to the fact that he and others he worked with were able to come up w/ whatever they came up with in the first place. Anyway, it's sort of a side issue because the post is not about the legal, socioeconomic, and 'luck' conditions that allow some inventors to get wealthy and others not, and it was really a point just made in passing.

reason 12.11.15 at 2:54 pm 71

LFC @70
None the less the value of his human capital is what an employed programmer would have been paid to do what he did. And such a basic error, may not change the argument substantially, but along with some other errors (notably the incorrect wealth distribution figure quoted) gives the whole OP less authority than it otherwise might have had.

LFC 12.11.15 at 3:07 pm 72

JQ @58
In the absence of welfare-relevant differences between people, the utility derived from a given aggregate income is maximized when that income is distributed equally. So, any inequality needs to be justified, either on the basis of welfare-relevant differences, or on the basis that it is needed to generate a larger aggregate income.
But "welfare-relevant differences between people" frequently exist, so at this level of generality that mostly kicks the can down the road, so to speak. Piketty and Saez's call for a top marginal tax rate of around 70 percent is presumably based on a combination of their normative leanings and their empirical judgment that such a tax rate would not harm economic growth in a major way so as to offset its redistributive or other benefits. Assuming that judgment is correct, I'm still not sure it's reasonable to expect Cudd, who is a philosopher not an economist, to grapple with it. But I take the point that the OP as it's presented infers (or imputes) a normative analysis on P.'s part w/o noting what he had written in that vein before the book.

Layman 12.11.15 at 3:09 pm 73

"Gates did not inherit his wealth (though presumably he came from a middle or upper-middle class background) but made his fortune via inventing stuff in a garage etc"
I think this is the wrong myth. Perhaps you mean Jobs?

engels 12.11.15 at 3:10 pm 74

His father was a prominent lawyer, and his mother served on the board of directors for First Interstate BancSystem and the United Way. Gates's maternal grandfather was JW Maxwell, a national bank president. Gates has one elder sister, Kristi (Kristianne), and one younger sister, Libby. He was the fourth of his name in his family, but was known as William Gates III or "Trey" because his father had the "II" suffix.

engels 12.11.15 at 3:25 pm 75

Apropos of nothing where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?

LFC 12.11.15 at 3:31 pm 76

js. @51
One never needs to justify why an inequality is unjust-one only ever needs to justify the inequality itself. Of course, one sees plenty of arguments for why some inequality is unjust and why we need to fix that, but I think these are really arguments for disrupting existing social arrangements so as to make them more egalitarian, rather than arguments for the justice of equality per se, which again is something that's rarely needed an argument, it seems to me.
The main issue here though is not inequality in general but inequality of wealth and income. And no functioning economy in the real world can maintain a *completely* equal income distribution over time without a degree of micromanagement from someone that would be unworkable; probably not even a socialist utopia is going to have a *completely* equal distribution.

So there *will be* some inequalities of income and wealth. If you want to start from the position that all of those inequalities have to be justified on a case-by-case basis, so to speak, that's fine with me, I guess. But you're not going to end up w complete equality of income, empirically b.c is it's not sustainable over time in any kind of minimally dynamic economy, and normatively b.c there are always going to be "welfare-relevant differences between people" (JQ's phrase), e.g., those with particular disabilities, etc etc.

F Foundling @50
only some very specific reasons such as certain proof of the presence of what the author calls 'stigma' and 'oppression' might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I don't think convincing the author is worth the trouble.

It depends partly on how broadly 'oppression' and 'stigma' are defined. If inherited wealth plays an ever-increasing role in an economy and if the result is a caste-like society which effectively stigmatizes those excluded from the top caste by denying them access to, e.g., anything like equal educational or employment opportunities, then on the OP's reasoning that would be grounds for restricting inheritances.

LFC 12.11.15 at 3:45 pm 78

@66, @77
There's a simple explanation: it's a typographical error. "25%" at that point should read "75%". Pretty obviously, the top 10% in the U.S. today don't own a mere 25% of the 'capital'. It's a typo.

que_es 12.11.15 at 3:57 pm79

cassander at 15:

>If r>g, then (wealth) inequality will grow over time.

"If this were true, every Kennedy alive today would be richer than Joe Kennedy was. This is not the case. It is not the case because people eventually die and fortunes get divided up. It's not a statement of how feudalism works under primogeniture, but it doesn't describe modern economies. Everything Pikety says is built on this fundamental mistake. "

Every Kennedy? Huh? A wealthy person today is perfectly free to leave all of his/her wealth to the eldest son. But wealthy families today are not stuck with primogeniture. They can design their own custom wealth preservation plans and impose restrictions on the use of family wealth for generations after the death of the patriarch/matriarch. Perhaps most importantly, they can and almost always do impose restrictions on the free alienability of that wealth that restricts the rights of third parties in ways that entrench the wealth within the family.

JimV 12.11.15 at 4:11 pm 80

A minor digressive point about Bill Gates (based on reading the unauthorized biography "Gates"): he came from a wealthy background and as a result went to a school which had a computer club which had access to a PDP-11 mini-computer, at a time when most high schools did not have computer clubs. He and Paul Allen (illegally) copied the Basic Interpreter program of that computer, received slaps on the wrist for it (not that I think it deserved much more, but kids of a different social class might have been treated more severely), and later used it as the basis for their first commercial success, a Basic Interpreter for the first home micro-computer.
He and Paul Allen are very smart people, but there were probably at least 10,000 other kids as smart or smarter from poor or middle-class backgrounds in the USA at that time, but who did not have the same opportunities.

In conclusion, not a case of capital accumulation only, but it played a part – which I think is all that is necessary, just a a small fitness advance will raise a species to domination over time.

LFC 12.11.15 at 4:19 pm 81

Ze K @61

…wealth, according to our worldview, can be legitimately acquired by luck. Inheriting wealth is one example of such luck.

Questioning these assumptions (again, in our current worldview) makes one a supporter of totalitarianism.

Rawls TOJ 1971, p.15, emphasis added: "Once we decide to look for a conception of justice that nullifies the accidents of natural endowment and the contingencies of social circumstance…, we are led to these principles [of justice]."

So Rawls was "a supporter of totalitarianism"? One could easily get the impression from reading certain things on the Internet and elsewhere that he was a squishy milquetoast liberal. My, my. Live and learn.

js. 12.11.15 at 4:20 pm 82

LFC @76 - Oh, I don't think each inequality needs to be justified on a case by case basis-something like the Difference Principle would do the trick.
Maybe I'm not being clear, but I mean to make one specific point: Cudd is wrong to think that the equality presumption is false, or at any rate she hasn't given any argument that would convince me otherwise.

This isn't a blanket criticism of her post or anything like that. For example, I think a lot of the stuff about oppression is interesting and worth thinking about. I just picked the one thing I disagree with (as one does).

LFC 12.11.15 at 4:29 pm 84

js. @82:
I get it. Fair enough.
Now we can get back to the burning question of whether people who support 80% inheritance/estate taxes and 70% top marginal tax rates are Stalinists or merely Trotskyites. ;)

Ze K 12.11.15 at 4:33 pm 85

"So Rawls was "a supporter of totalitarianism"? "

Yeah, sounds like it, according to this excerpt, unless it's ripped out of context. "nullifies the accidents of natural endowment and the contingencies of social circumstance" sounds more radical than stalinism, it's practically pol-potian.

LFC 12.11.15 at 5:24 pm 86

@85
well, since the bk quoted from is 600 pp. long, it was necessarily out of context. (R's first principle protects/prioritizes "basic [political] liberties".) Anyway, the pt was I don't think challenging inherited wealth equals Pol-Potianism. But this is just a minor eddy here, so we can agree to forget it.

LFC 12.11.15 at 5:40 pm 87

engels @75
where does being called Miles Fraser V or whatever place you in American class system: 1% or merely upper-middle class?
My hunch/sense is that this is not a particularly reliable index of class position. There are probably some very non-affluent African-American families today with people w names like Jones III or Smith IV, etc.

On the other hand, when you see names with clear references to 17th or 18th cent. (hypothetically, something like "John Hancock V"), you pretty much know the person is from an old-line WASP family that's been in the U.S. a long time. Which doesn't *necessarily* mean wealthy, though it could well mean that

"... I understand Cudd to be raising a neo-liberal point discussed in Raymond Plants book on neo-liberalism -- that if a fortune has been made through no injustice to a concrete other and its gifting and bequeathing does no concrete injustice to another, then there is no coherent ideal of social justice (Hayeks idea that social justice is mirage) that would allow us to condemn the resulting distribution of wealth, as fantastically concentrated as it may be. ..."

"... Calling an exercise of power and authority in a bureaucratic hierarchy a market failure is an error of ideological obduracy, since hierarchies are not markets . Hierarchies of authority make economic use of social domination, which is, at least, potentially problematic for justice. ..."

"... I can see how the provision of an elite education transmits priveledge, but Imalso hard pressed to suggest a child should be denied the best possible education that they can get. If a child has intellectual talent it should be developed regardless of whether they come from a rich or poor family. ..."

"... So… if I work hard all my life, say three minimum wage jobs, to put my kid through college, their college education is unjustified ? ..."

"... Nothing is a priori just or unjust; Thomas More had slaves in his Utopia. However, when a socio-economic arrangement reaches a phase where its fairness is commonly questioned, thats a sure sign that the dominant ideology fails to convince, and the system is in trouble. Doesnt mean its going to collapse tomorrow, obviously. ..."

"... He said as he foreclosed on the poor family and cast them out to starve in the street. ..."

"... My reading of r g is that its pikettys attempt to put an overarching intellectual framework over his results and that its the least successful part of the work, although Brad Delong has made pretty good sense of it here ..."

"... But a world where everyone is born poor and steadily becomes rich is also a pretty unequal world, is it not? And pikettys shows that 50% of people in most western societies own nothing, which suggests a lot of people are not accumulating. ..."

"... As Cudd concedes, Piketty presents a positive analysis predicting that inherited wealth will become dominant, and doesnt spell out any theory of justice, though its obvious that he thinks this is a bad thing. ..."

"... So, Cudd makes up a theory of justice, imputes it to Piketty and then says it hasnt been proven. Whats more she writes as this topic is being addressed for the first time. She doesnt mention any of the vast number of people whove written on equality and whose arguments might be relevant here. ..."

"... I agree with other posters. The OP reconstructed an argument Piketty never made about a topic he didnt address, and then complained about how bad it is (and for really unconvincing reasons). Its not often you see someone lose an argument so badly with a straw man of their own construction. ..."

"... This is an absolute poverty line set in the early 1960s, so the position of these families relative to the median household is considerably worse. Relative to the top 1 per cent of households, the gap has grown enormously. The poverty rate for female headed households has barely changed since the 1970s, but (I think) the proportion of such households has increased substantially. On the other side of that equation, the proportion of couple households with two high incomes has also risen. So, while its certainly true that the wages of employed women have risen relative to those of employed men, that doesnt mean that gender based inequality and poverty have declined. ..."

"... if youve got a conception of justice such that any possible social arrangement is unjust, i.e. justice is actually impossible … A banal point, probably, but AFAICS, everything is unjust compared to perfect justice, and perfect justice is impossible, because perfect anything is impossible. Not a reason not to keep perfecting things. Its what humans do. ..."

"... The problem is that the OPs idea of what it takes to prove an inequality to be unjust is highly restricted. Not only is inequality assumed to be just until the opposite is proven, but it is argued that even if an inequality demonstrably, as Piketty claims, lacks any basis in merit (a blatant example being the case of inheritance), this is still not sufficient to make it unjust. That inequality per se does not even need to be justified by merit, or in any way at all, is a position so radically and counterintuitively anti-egalitarian that even right-wingers usually wont take it openly (rather, theyll insist that there is, in fact, a merit that justifies it). You see, only some very specific reasons such as certain proof of the presence of what the author calls stigma and oppression might potentially convince the author to deign to care about wealth-induced unequal outcomes in a way roughly comparable to the way the author cares about gender-induced and race-induced unequal outcomes. Personally, I dont think convincing the author is worth the trouble. ..."

"... This consumption of resources, merely to maintain inequality, reduces the amount of resources available to actually operate the economy. That is, it reduces the efficiency of the economy. If the efficiency of the economy is sufficiently reduced, the economy cannot maintain itself. ..."

"... Rather than imputing a theory of justice to Piketty based on hints from Capital in the 21st Century , it would have been more helpful to respond to the explicitly normative analysis in his work with Saez, which leads to a call for a top marginal tax rate of around 70 per cent. ..."

"... This kind of argument really drives me to despair. If that stock of capital is productive capital, it is a good, not a bad thing for a society to have accumulated an enormous stock of it. As of ownership, a lot of our accumulated capital is actually publicly owned and actually makes peoples lives better. Piketty makes no difference between productive capital and unproductive wealth and none between publicly and privately owned capital. Piketty makes it sound as if public investment in productive infrastructure is a bad policy because we really shouldnt be accumulating so much capital. Exasperating. ..."

"... Social distinctions can be based only on common utility, but wealth , according to our worldview, can be legitimately acquired by luck . Inheriting wealth is one example of such luck. ..."

"... You cant get publicly owned utilities as a consequence of private savings. So by capital, he clearly means money, i.e. ownership rights, not the things that money buys. ..."

"... Some interesting back-of-envelope calculations from link below suggest that there is two-to-three times as much investable capital as capital required to run the economy. Which explains why so much of it is spent trying to play zero-sum-except-in-case-of-fraud financial games. And why every-time someone does come up with a semi-valid new thing, they end up a billionaire. ..."

"... This even though human capital can create great wealth in a single lifetime, as Bill Gatess example would attest. is clearly fallacious (Bill Gates great wealth came from Intellectual Property not human capital). ..."

"... The figure for the US today looks simply odd: http://inequality.org/wealth-inequality/ suggests the top 10% today own 75% of the wealth. ..."

"... None the less the value of his human capital is what an employed programmer would have been paid to do what he did. And such a basic error, may not change the argument substantially, but along with some other errors (notably the incorrect wealth distribution figure quoted) gives the whole OP less authority than it otherwise might have had. ..."

"... Piketty and Saezs call for a top marginal tax rate of around 70 percent is presumably based on a combination of their normative leanings and their empirical judgment that such a tax rate would not harm economic growth in a major way so as to offset its redistributive or other benefits. Assuming that judgment is correct, Im still not sure its reasonable to expect Cudd, who is a philosopher not an economist, to grapple with it. But I take the point that the OP as its presented infers (or imputes) a normative analysis on P.s part w/o noting what he had written in that vein before the book. ..."

"... The main issue here though is not inequality in general but inequality of wealth and income. And no functioning economy in the real world can maintain a completely equal income distribution over time without a degree of micromanagement from someone that would be unworkable; probably not even a socialist utopia is going to have a completely equal distribution. ..."

[Dec 10, 2015] The Feds Painted Itself Into The Most Dangerous Corner In History - Why There Will Soon Be A Riot In The Casino

As long as oil stay low I think there will be no recession...

"... Submitted by David Stockman via Contra Corner blog, ..."

Zero Hedge

Submitted by David Stockman via Contra Corner blog,

Presumably, Yellen and her posse know that we did not have seven years running of negative real money market rates even during the Great Depression of the 1930s.
So after one pretension, delusion, head fake and forecasting error after another, the denizens of the Eccles Building have painted themselves into the most dangerous monetary corner in history. They have left themselves no alternative except to provoke a riot in the casino - the very outcome that has filled them with fear and dread all these years.

... ... ...

But the fantastic global credit bubble summarized below has now reached its apogee. China and the EM economies are rolling over into a debilitating deflation, thereby catalyzing the mother of all margins calls. This time subprime is lettered in Chinese and speaks with a Portuguese accent.

... ... ...
According to Dr. Summers, the thing to do when recession strikes is to cut interest rates by 300 basis points. But even he admits it ain't going to happen this time.
Even if were technically possible to have a negative 300 bps federal funds rate, what is already a 2016 election year gong show would take on a whole new level of crazy. The brutally trod upon savers and retirees of American would well and truly revolt.

Historical experience suggests that when recession comes it is necessary to cut interest rates by more than 300 basis points. I agree with the market that the Fed likely will not be able to raise rates by 100 basis points a year without threatening to undermine the recovery. But even if this were possible, the chances are very high that recession will come before there is room to cut rates by enough to offset it. The knowledge that this is the case must surely reduce confidence and inhibit demand.

Central bankers bravely assert that they can always use unconventional tools. But there may be less in the cupboard than they suppose. The efficacy of further quantitative easing in an environment of well-functioning markets and already very low medium-term rates is highly questionable. There are severe limits on how negative rates can become. A central bank that is forced back to the zero lower bound is not likely to have great credibility if it engages in forward guidance.

Katherine Schock, 1 year ago
Just spent the major part of my day putting together the records to file the old man's tax this year. We have contributed mightily to the insurance industry, the pharmaceutical industry, the medical industry and yes, a major part of our income that makes up our yearly retirement amount has ended up in the pockets of these Wall Street bums! Therefore, I am posting this song as a tribute to Wall Street...thanks to you guys we barely have a dime left over! Hope you choke on your fucking bonus!
Gene Burnett - Jump You F#kers (A Song For Wall Street) - YouTube

[Dec 10, 2015] Regarding the Future is Bright

"... We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time. ..."

"... the crucial indicator being real wage growth. ..."

"... Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be bright for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes. ..."

"... Clintons tech stock bubble popped and morphed into Bushs housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didnt help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existenc ..."

"... The simple tool for reining in our excessively top-heavy financial sector is deflation! ..."

"... Its generally useful to talk about macroeconomic factors in terms of cyclical and structural factors. Its a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous core problem that leads to recessions, I am very suspicious. Usually, such claims are about someones hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions. ..."

Economist's View
bakho said...
Regarding the "The Future is Bright ".
We had a sluggish economy during the Bush Mismanagement years. The Fed compensated by allowing an under regulated housing bubble to form. We never fixed the core problem that led to the 2001 recession. It would be foolish to try to fix the jobs problem with housing alone and I think Bondad has a point that housing is not saving us this time.

cawley said in reply to bakho...
Agreed. Also with the crucial indicator being real wage growth.

ken melvin said in reply to bakho...

Yup, housing is the effect, not the cause.

RC AKA Darryl, Ron said in reply to ken melvin...

Exactly!

New Deal democrat said in reply to bakho...

Thanks.
My post at Bonddad was an elaboration on a comment I made here two days ago. I had been meaning to reply to CR last year when he made the same argument, but never got around to it.

In fairness, I think Bill makes an excellent case that we won't have another recession brought about by a housing bubble, and/or too much consumer leverage any time soon. But there are plenty of other reasons why the economy might tip back into recession, as comments here have already mentioned.

Dan Kervick said in reply to New Deal democrat...

Another problem is that we live in a bad society. Whether or not there is another recession affects the precise level of pain. But even if there is no recession the future will only be "bright" for a select class of socially privileged winners. For many, many Americans, the future is bleak no matter what - absent major structural political and economic changes.

Dan Kervick said in reply to JF...

Well I said the prospects are bleak only absent major structural political and economic changes. And they are. American society is killing off whole classes of people. The prisons are full; there are epidemics of substance abuse going on, and rising suicide rates. The Financial Times reported today Even if there is no recession, that just means that these people are not also laid off, and can trudge back and forth every day from their Wal-Jobs to their hardscrabble communities, slums and trailer parks and afford more booze to drink themselves to death or buy lottery tickets to win imaginary pots of gold that will never come, and to have a functioning TV so they can watch people scream at each other all night. Oh, and the prices of hookers and drugs are down. Bright times!
Why should any of these people care what the "Bonddad" thinks about how bright the future is for people who ... well, own bonds; or who party in Manhattan and Silicon Valley with their fortunes; or who make use of their abundant low-anxiety leisure to talk to their college chums all day in the establishment punditariat?

The up and down cyclical motions of the pretty horsies going up and down mean little to the people who sleep in the dark machinery underneath the merry-go-round.

If US society keeps its basic overall shape, the future isn't bright. But it does contain just enough glare to make sure that the party boys with their ever-evolving fashion lines of fancy sunglasses will continue not to see half of the world.

Dan Kervick said in reply to Dan Kervick...

Incomplete sentence. I meant to say, "The Financial Times reported today on the further hollowing out of the US middle class and growing income stratification."

Dan Kervick said in reply to Dan Kervick...

America, 2015:
http://www.theguardian.com/us-news/2015/may/14/homan-square-detainee-police-abuse

JF said in reply to Dan Kervick...

Yes, we absolutely have the opportunity to do better. We ought to try.

Julio said in reply to JF...

We are rich beyond belief. We just have to get used to the idea. Then, new vistas open up.

JF said in reply to Julio...

Yes. Net Wealth of US residents is nearly $85 T with an annual flow of economic activity over $17 T.
We have a rising population, not a declining one.

We produce more food than we can eat and have access to immense energy sources.

And we have one of the better judicial systems and at least historically a governing set of institutions that brings up to the pragmatic middle that has made sound currency and nationwide payment systems, lots of supportive infrastructure including some good literacy levels from the educational system part of it.

We can do better, but I'd take the US over any other place (we even have a moderate climate).

This election might change my thinking on this last point about taking the US over say Canada - but I think I'll be happy to remain.

Julio said in reply to JF...

Yes, I went through some of the same thoughts when we reelected Bush-Cheney. But here I am.

Dan Kervick said in reply to JF...

JF, I agree that the aggregates and net numbers are great. But our cruel, stratified, inegalitarian social system is the problem. The way those aggregate quantities are spread out over the population is a global scandal.
America is good for me too, personally. My wife and I live in a well-off upper middle class community in New Hampshire. Very good schools, no crime to speak of, a town full of healthy and advantaged kids 95% bound for colleges. We had and still do have various recession-related anxieties, but they are the anxieties most people in the world only dream of.

But my life isn't America. It's a privileged and charmed part of it. If I get pulled over by a policeman for driving a bit too fast, I just get a courteous and smiling warning from Officer Friendly. Many others run a good chance of getting tasered, shot or sodomized in a police station. And that's just the tip of the iceberg of the savage inequalities.

anne said in reply to New Deal democrat...

http://bonddad.blogspot.com/2015/12/the-future-is-bright-or-perhaps-not.html
December 9, 2015

The Future is Bright . . . or perhaps not
By New Deal democrat

[ Really nicely done. ]

Peter K. said in reply to bakho...

Clinton's tech stock bubble popped and morphed into Bush's housing bubble. Bush thought military Keynesianism and tax cuts for the rich would help but they didn't help much. The solution is to regulate and tax the financial industry to prevent bubbles from forming. Greenspan denied its existence.
The solution is not to raise interest rates in a depressed economy.

As DeLong has written the housing bubble was deflating and housing jobs were being replaced by export jobs.

Then the whole thing short-circuited with the financial crisis.

At the time the Fed was passively tightening over inflation concerns.

Peter K. said in reply to Peter K....

Another solution is more fiscal policy so that monetary policy doesn't carry all of the burden.
Tax cuts for the rich isn't good fiscal policy.

pgl said in reply to Peter K....

Greg Mankiw links to some report on the effects of the Jeb! tax cuts but does not comment (Krugman did comment in this report). I followed the link and read the abstract. It is not exactly what Mankiw usually says about the wonders of tax cuts for rich people.

Peter K. said in reply to pgl...

I avoid Mankiw's website. No comments.
:D

Interesting though. Didn't Krugman blog that the report backs up his (everyone's) claims?

pgl said in reply to Peter K....

Krugman did. Abstract of the report and Krugman's comment below. I just found it funny that Mankiw gave a hat tip to something that I doubt he even read first. I guess Greg is getting a lot like JohnH in that way.

Peter K. said in reply to pgl...

"I guess Greg is getting a lot like JohnH in that way."
So much trolling to do, so little time. It's hard to keep up with all the misinformation.

PPaine said in reply to Peter K....

Pay roll tax cuts and increased retirement payments
Plus a greatly expanded earned income subsidy aka tax credit

These are job class macro moves

Bernie gets this

Hillary ???

PPaine said in reply to PPaine ...

The fed needs to be captured first before we can rely on. It to operate in sync with a pro job class macro policy

ilsm said in reply to PPaine ...

ARAMCO and the pentagon need the cash!

Norovirus said in reply to Peter K....

"tax the financial industry to prevent"
~~Peter K~

When you need less of something, tax it. This will shift the supply/price/demand curve of financial "services". We need more of sawmills but less of banks, brokers and quants. Production we need. Casino we don't need. Hell!

If you want casino then go to Vegas -- more bells and whistles for you money!

Guten
fahrt
!

Laundry Bank & Trust said in reply to Norovirus...

Most efficient way to tax financial services is a simple tool.
"simplicity is the meaning of life.
"
~~Ockham's axiom~

"
Simplicity is more sustainable than complexity.
"
~~Ockham's first theorem~

The simple tool for reining in our excessively top-heavy financial sector is deflation!

sanjait said in reply to bakho...

It's generally useful to talk about macroeconomic factors in terms of "cyclical" and "structural" factors. It's a reductionist framework, but one that IMO holds up well and is quite clarifying. So when I hear someone say something about a nebulous "core problem" that leads to recessions, I am very suspicious. Usually, such claims are about someone's hobby horse structural issue, which may or may not be important, but is generally not the cause of recessions.

PPaine said in reply to sanjait...

Well a chronic trade deficit And. Spontaneous over accumulation are clearly structural problems that may well require significant if varying full employment budget deficits over the whole cycle
The inter action of structural and cyclical requires composite macro policy programs using multiple instruments

The dollar should stay at the assumed long run balanced trade forex thru out the cycle
Over accumulation suggests a ceiling of zero real for the policy rate

Etc etc

Sanjait said in reply to PPaine ...

Rich developed countries are supposed to have a chronic trade deficit.
But sure, let's humor that concern for a sec:

What then, do you claim, is the structural factor that causes chronic trade deficits? This should be interesting.

RC AKA Darryl, Ron said...

RE: The Evolution of Work
[This piece is sort of like the David Warsh broad brush economic history short form pieces except that it is focused purely on the plight of the proletariat instead of elites.]

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

Dani Rodrik seems to be on the side of the weebles.

ken melvin said in reply to RC AKA Darryl, Ron...

Are we still evolving?

RC AKA Darryl, Ron said in reply to ken melvin...

Yep. Evolution never seems to be happening when most of what one sees is within their own generation, sort of by definition. What the millennials are evolving into is something I want to learn, but have not had the chance to duly observe for myself yet. Jealousy between my current wife and the mother of my children created an atmosphere too tedious for my current wife to be subjected to. You should know though that I am not the father of my children either. I just raised them from 4, 6, and 12. Husbands number one and two of the mother of my children were the biological fathers. She had no children with husbands number three (me) nor four. She is still hunting for number five but her powder is too wet now to fire.
So, what have you learned from your grandchildren?

From our three girls I learned that progress is mighty slow.

PPaine said in reply to RC AKA Darryl, Ron...

Yes
I love his strong advocacy for cross border labor mobility. Control the borders but increase the OECD inflow

We should set a huge quota for middle easterners

But let them in very slowly
Meanwhile those that apply
Get to stay in a safe area provided by lady liberty

Inside the us !

RC AKA Darryl, Ron said in reply to PPaine ...

That would trump Trump.

ilsm said in reply to PPaine ...

Wll st banks already get a cut on banking al Qaeda!

bakho said in reply to RC AKA Darryl, Ron...

Dani does not address hours worked or time off.
The US has one of the worst leave policies in the developed world.
When was the last reduction in the work week?
There are a lot of services that are not being provided due to lack of money. Some of the underemployed could move into low level service jobs if other workers moved up to a higher level.
It is a failure when large numbers of people do not have productive work. They have too little money to sustain potential output, leaving employment far below potential. It is a vicious downward spiral. The spiral is fixed by intervention that reverses the spiral. We have a failure of fiscal policy to address the root problem.

Dan Kervick said in reply to bakho...

He's a development economist and his article is about work in the developing world.

RC AKA Darryl, Ron said in reply to bakho...

We have a lot of failures and I don't have time enough to make a full list. Changing stuff requires political action on behalf of and usually orchestrated by those that have the needs that require addressing. We need massive working class majority electoral solidarity. Until then the political establishment is safe to treat us as second rate constituents and focus on the desires of the elite.

JF said in reply to bakho...

The Tim Taylor piece is helping to remind people to focus more attention on economic policies related to work practices being seen in society. More talk about this the better.
My two cents, is that society is better when people are hired for stable, full-time jobs. All kinds of definitional matters attend to just saying this, but I still think it needs to be a predominating focus. Society wants more people to have full-time jobs, however you define full-time. So we need to watch developments in the gig economy carefully.

By predominating full-time employment as a policy-making factor, I'd say this view means that in serious downturns, for instance, we do not want govts eliminating full time, stable jobs if we can somehow do fiscal sharing to avoid this as much as can be done.

The largest employer segment in the US (well at least it used to be bigger than retail, last time I studied this) is state and local govt employment. These employers don't pay out of whack high-salaries and for the most part the hiring has had a stable and proportional growth rate (political bosses in the US don't hand out jobs to create voters much anymore). These employers create floors in the labor marketplace and this forces other employers to compete on stability factors and on the notion of being full-time. I think we want this type of competition.

The right-wing Machiavelli ones understand this dynamic and that is why they are very happy to undermine govt employment (cut it, they are lazy anyway, ugh-bureaucrats don't do real things, etc.) - they don't want the competition as it raises the costs of their decades long control over wages.

But any employer offering stability and full-time jobs - this is good, and economic policies for our society ought to take this into account as a predominating factor.

sanjait said in reply to JF...

Hey JF.
I didn't have time to write up a solid reply the other day, but I did want to eventually respond to your question and comments about whether the central bank has control of long term interest rates ("it's own instruments...") through purchases.

My quick answer:

It influences their prices, but not through inducing scarcity. That is because, unlike commodities, securities are not priced based on their scarcity, they are priced based on their expected returns.

So when the Fed buys $40b in bonds per month, in a $500+b per month liquid market, it's hardly going to move the price.

But, the Fed does influence long term bond rates both by modulating the entire money supply and by setting expectations for how it will modulate the money supply in the future (aka., the reaction function.)

One very huge observation apropos of all this: every time the Fed announced a new round of QE, longer term bond rates went UP rather than DOWN. Why? Because it showed the Fed's reaction function was looser than previously thought, and also they were more committed to staving off disinflation.

Though I will concede, not everyone sees it this way. Even inside the Fed many of them had a simple model that says: buying more bonds = pushing down the price. But I get the impression they generally abandoned that model after operation twist utterly failed to work in that way.

JF said in reply to sanjait...

OK. Yield, price, cost to the govt - not always the same thing, but each has a perspective.
Assuming you are correct that the later QE, and I don't know myself, just assumed that the cost to the govt of a new 10 year moderated a bit in a later QE, I think this evidence points to why they don't use new-QEing now.

It dawned on them that its initial cost-to-govt effects, lowering interest rates, was just not happening. So why subsidize the dealer networks and stuff more assets on to their books using electronic entries into reserve accounts as payment when we (the FRB) have no idea what to do with assets of this magnitude.

But off the thread's topic.

[Dec 10, 2015] Special Report Buybacks enrich the bosses even when business sags

"... Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price. ..."

"... But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers. ..."

"... Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking." ..."

"... As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending. ..."

"... "There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets. ..."

"... The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar. ..."

"... At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit. ..."

finance.yahoo.com

NEW YORK(Reuters) - When health insurer Humana Inc reported worse-than-expected quarterly earnings in late 2014 – including a 21 percent drop in net income – it softened the blow by immediately telling investors it would make a $500 million share repurchase.

In addition to soothing shareholders, the surprise buyback benefited the company's senior executives. It added around two cents to the company's annual earnings per share, allowing Humana to surpass its $7.50 EPS target by a single cent and unlocking higher pay for top managers under terms of the company's compensation agreement.

Thanks to Humana hitting that target, Chief Executive Officer Bruce Broussard earned a $1.68 million bonus for 2014.

Most publicly traded U.S. companies reward top managers for hitting performance targets, meant to tie the interests of managers and shareholders together. At many big companies, those interests are deemed to be best aligned by linking executive performance to earnings per share, along with measures derived from the company's stock price.

But these metrics may not be solely a reflection of a company's operating performance. They can be, and often are, influenced through stock repurchases. In addition to cutting the number of a company's shares outstanding, and thus lifting EPS, buybacks also increase demand for the shares, usually providing a lift to the share price, which affects other performance markers.

As corporate America engages in an unprecedented buyback binge, soaring CEO pay tied to short-term performance measures like EPS is prompting criticism that executives are using stock repurchases to enrich themselves at the expense of long-term corporate health, capital investment and employment.

"We've accepted a definition of performance that is narrow and quite possibly inappropriate," said Rosanna Landis Weaver, program manager of the executive compensation initiative at As You Sow, a Washington, D.C., nonprofit that promotes corporate responsibility. Pay for performance as it is often structured creates "very troublesome, problematic incentives that can potentially drive very short-term thinking."

A Reuters analysis of the companies in the Standard & Poor's 500 Index found that 255 of those companies reward executives in part by using EPS, while another 28 use other per-share metrics that can be influenced by share buybacks.

In addition, 303 also use total shareholder return, essentially a company's share price appreciation plus dividends, and 169 companies use both EPS and total shareholder return to help determine pay.

STANDARD PRACTICE

EPS and share-price metrics underpin much of the compensation of some of the highest-paid CEOs, including those at Walt Disney Co, Viacom Inc, 21st Century Fox Inc, Target Corp and Cisco Systems Inc.

... ... ...

As reported in the first article in this series, share buybacks by U.S. non-financial companies reached a record $520 billion in the most recent reporting year. A Reuters analysis of 3,300 non-financial companies found that together, buybacks and dividends have surpassed total capital expenditures and are more than double research and development spending.

Companies buy back their shares for various reasons. They do it when they believe their shares are undervalued, or to make use of cash or cheap debt financing when business conditions don't justify capital or R&D spending. They also do it to meet the expectations of increasingly demanding investors.

Lately, the sheer volume of buybacks has prompted complaints among academics, politicians and investors that massive stock repurchases are stifling innovation and hurting U.S. competitiveness - and contributing to widening income inequality by rewarding executives with ever higher pay, often divorced from a company's underlying performance.

"There's been an over-focus on buybacks and raising EPS to hit share option targets, and we know that those are concentrated in the hands of the few, and that the few is in the top 1 percent," said James Montier, a member of the asset allocation team at global investment firm GMO in London, which manages more than $100 billion in assets.

The introduction of performance targets has been a driver of surging executive pay, helping to widen the gap between the richest in America and the rest of the country. Median CEO pay among companies in the S&P 500 increased to a record $10.3 million last year, up from $8.6 million in 2010, according to data firm Equilar.

At those levels, CEOs last year were paid 303 times what workers in their industries earned, compared with a ratio of 59 times in 1989, according to the Economic Policy Institute, a Washington-based nonprofit.

SALARY AND A LOT MORE

Today, the bulk of CEO compensation comes from cash and stock awards, much of it tied to performance metrics. Last year, base salary accounted for just 8 percent of CEO pay for S&P 500 companies, while cash and stock incentives made up more than 45 percent, according to proxy advisory firm Institutional Shareholder Services.

...In 1992, Congress changed the tax code to curb rising executive pay and encourage performance-based compensation. It didn't work. Instead, the shift is widely blamed for soaring executive pay and a heavier emphasis on short-term results.

Companies started tying performance pay to "short-term metrics, and suddenly all the things we don't want to happen start happening," said Lynn Stout, a professor of corporate and business law at Cornell Law School in Ithaca, New York. "Despite 20 years of trying, we have still failed to come up with an objective performance metric that can't be gamed."

Shareholder expectations have changed, too. The individuals and other smaller, mostly passive investors who dominated equity markets during the postwar decades have given way to large institutional investors. These institutions tend to want higher returns, sooner, than their predecessors. Consider that the average time investors held a particular share has fallen from around eight years in 1960 to a year and a half now, according to New York Stock Exchange data.

"TOO EASY TO MANIPULATE"

Companies like to use EPS as a performance metric because it is the primary focus of financial analysts when assessing the value of a stock and of investors when evaluating their return on investment.

But "it is not an appropriate target, it's too easy to manipulate," said Almeida, the University of Illinois finance professor.

...By providing a lift to a stock's price, buybacks can increase total shareholder return to target levels, resulting in more stock awards for executives. And of course, the higher stock price lifts the value of company stock they already own.

"It can goose the price at time when the high price means they earn performance shares … even if the stock price later goes back down, they got their shares," said Michael Dorff, a law professor at the Southwestern Law School in Los Angeles.

Exxon Corp, the largest repurchaser of shares over the past decade, has rejected shareholder proposals that it add three-year targets based on shareholder return to its compensation program. In its most recent proxy, the energy company said doing so could increase risk-taking and encourage underinvestment to achieve short-term results.

The energy giant makes half of its annual executive bonus payments contingent on meeting longer-term EPS thresholds. Since 2005, the company has spent more than $200 billion on buybacks.

ADDITIONAL TWEAKS

While performance targets are specific, they aren't necessarily fixed. Corporate boards often adjust them or how they are calculated in ways that lift executive pay.

[Dec 10, 2015] Pandering to Plutocrats

"... From my perspective, the person who should be read and properly considered and credited for describing the general politics experienced in Western Europe and the United States in the wake of recession is Naomi Klein. That economists so easily turn away from or unknowingly ridicule the Shock Doctrine ideas of Klein, ideas that are so sadly reasonable today, really troubles me. Joseph Stiglitz and Paul Krugman were respectful, but what other economists? ..."

"... Noah Smith recently offered an interesting take * on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through reforms - which basically means changes they want, which may or may not actually serve the interest of promoting economic growth - and oppose any policies that might mitigate crisis without the need for these changes: ..."

"... What Smith didnt note, somewhat surprisingly, is that his argument is very close to Naomi Kleins Shock Doctrine, with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Kleins book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about whats going on in Europe in particular. ..."

"... What Smith didnt note, somewhat surprisingly, is that his argument is very close to Naomi Kleins Shock Doctrine, with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. ..."

"... GOP/thuggee appeal to the varied fears, hate and prejudice of poor people aka the base: ..."

"... Not only. Those tricks are just a small part of the strategy. The part which is typically called wedge issues politics. See for example Whats the matter with Kansas ..."

"... In order to explain to the Cons why no progress gets made on these issues, politicians and pundits point their fingers to a liberal elite, a straw man representing everything that conservatism is not. When reasons are given, they eschew economic reasons in favor of accusing this elite of simply hating America, or having a desire to harm average Americans. This theme of victimization by these elites is pervasive in conservative literature, despite the fact that at the time conservatives controlled all three branches of government, was being served by an extensive media devoted only to conservative ideology, and conservatives had won 6 of the previous 9 presidential elections. ..."

"... But the problem is much deeper. They dictate the rules, the rationality by which we live. This is a complete ideological victory and complete defeat of New Deal ideology by neoliberal ideology. ..."

"... Financial deregulation has driven capital away from growth-supporting investment, toward speculative trading that increases financial instability. It has also led to a diversion of talent and energy into negative value-added activities such as high-frequency trading, frontrunning, and LIBOR manipulation. The rise of banks too big to fail has led to a culture of impunity and lawlessness in the financial industry. Notwithstanding massive fraud in the mortgage industry and serial criminality on the part of major banks such as J. P. Morgan, virtually no guilty bankers have been prosecuted for their roles in the financial crisis, and fines capture only a small fraction of profits from illegal dealings. All of this has increased inequality. ..."

Dec 10, 2015 | Economist's View
Throw the middle class a bone to get their vote, then take even more away later.
The Tax Policy Center analyzed Jeb Bush's tax plan. Paul Krugman reacts:

Pandering to Plutocrats: ...Most of the headlines I've seen focus on the amazing price tag: $6.8 trillion of unfunded tax cuts in the first decade. But it's also important to realize the extent to which this is tax-cutting on the rich, by the rich, for the rich. Here's the change in after-tax income resulting from the plan:

Huge benefits for the super-elite. And if you are tempted to say that the middle class gets at least some tax cut, remember that the budget hole would force sharp cuts in spending..., this means sharp cuts in programs that benefit ordinary Americans, probably swamping any tax cuts.

So, huge tax cuts that would massively increase debt, with the benefits going to the very highest-income Americans. And this is the "responsible", moderate candidate.
> Dan Kervick said...
Same as it ever was. Republicans pretend to be against deficits, but are really just against spending. So they propose tax cuts to raise deficits (which they sometimes initially pretend won't materialize because of supply side effects), and then they push for the spending cuts to counter the deficits they created. This is the old Norquist strategy, and it still has political legs.
pgl -> Dan Kervick...
Are they against spending? Reagan increased defense spending. Everyone of the current clowns want to do it again. Republicans are for shifting the tax base to the little people even as they slash their Social Security benefits. Take from the poor and give to the rich.
likbez -> pgl...
"Are they against spending? Reagan increased defense spending. "
Good point. They are against non-defense spending, so for them the role of the state is limited to military industrial complex support.

And I would not discard completely the value of defense spending (aka Military Keynesianism). It is probably one of the most powerful drivers of technological progress that mankind has outside wars.

pgl -> likbez...
So you agree with Christie and Trump? Declare war on China and all of the Middle East. That will work well. Ahem.
likbez -> pgl...
Don't be so simplistic. What I stated is "It is probably one of the most powerful drivers of technological progress that mankind has outside wars."
My point is that wars, such as WWII or Vietnam, or Iraq war accelerate technical progress. That does not mean that I am warmonger like Hillary.

anne said...
http://krugman.blogs.nytimes.com/2015/12/09/the-banality-of-trumpism/
December 9, 2015

The Banality of Trumpism
By Paul Krugman

Brian Beutler has a good piece about the liberal reaction to Trumpism * - which is that the phenomenon

"was neither unexpected nor the source of any new or profound lesson."

But I think he casts it a bit too narrowly. The basic liberal diagnosis of modern conservatism has long been that it was a plutocratic movement that won elections by appealing to the racism and general anger-at-the-other of whites; there's nothing too surprising about an election in which the establishment candidates continue to serve plutocracy ** while the base turns to candidates who drop the euphemisms while going straight to the racism and xenophobia.

Beutler says that:

"The only people who claim to be befuddled by the Trump phenomenon are officials on knife-edge in the party he leads."

But surely the people most taken by surprise, least able to handle the phenomenon, are the self-proclaimed centrists, the both-sides-do-it crowd, who denounced the plutocrats-and-racists diagnosis as "shrill," insisting that we are having a real debate with just a few fringe characters on either side. Some of those people are still trying to portray the parties as symmetric: Bernie Sanders calling for single-payer health insurance is just like Trump calling for mass deportations and a ban on Muslims.

That was always a silly position. And as Beutler says, those of us who were clear-headed about conservative politics are almost bored by the repeated revelations of what we already knew.

* https://newrepublic.com/article/125353/trump-proves-liberals-right-along

** http://krugman.blogs.nytimes.com/2015/12/09/pandering-to-plutocrats/

pgl said in reply to anne...
Nixon's Southern Strategy. Pretend to be racist so you get the votes of stupid white people. BTW - I grew up in Georgia so I lived this garbage as a kid. Trump is and always has been a disaster.
likbez said in reply to pgl...
"Nixon's Southern Strategy"
Or may be Trump is sensing the shift to the right of population of Western countries that we also observed recently in France and before that in Hungary and Poland.

anne said in reply to anne...
From my perspective, the person who should be read and properly considered and credited for describing the general politics experienced in Western Europe and the United States in the wake of recession is Naomi Klein.
That economists so easily turn away from or unknowingly ridicule the "Shock Doctrine" ideas of Klein, ideas that are so sadly reasonable today, really troubles me. Joseph Stiglitz and Paul Krugman were respectful, but what other economists?

anne said in reply to anne...
http://delong.typepad.com/sdj/2010/04/hoisted-from-the-archives-tyler-cowen-thinks-naomi-klein-believes-her-own-bulls------grasping-reality-with-tractor-beams.html#tpe-action-resize-122
October 4, 2007

Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls---

He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view:

"Shock Jock": *

* http://www.nysun.com/arts/shock-jock/63867/

-- Brad DeLong

anne said in reply to anne...
http://delong.typepad.com/sdj/2010/04/hoisted-from-the-archives-tyler-cowen-thinks-naomi-klein-believes-her-own-bulls------grasping-reality-with-tractor-beams.html
April 8, 2010

Hoisted from the Archives: Tyler Cowen Thinks Naomi Klein Believes Her Own Bulls---

He reads her book. He doesn't think it meets minimum intellectual standards. I think he is right: now I can borrow Tyler's ideas and have an informed view.... *

* http://delong.typepad.com/sdj/2007/10/tyler-cowen-thi.html

October 4, 2007

-- Brad DeLong

anne -> anne...

http://krugman.blogs.nytimes.com/2013/05/16/the-smithkleinkalecki-theory-of-austerity/
May 16, 2013

The Smith/Klein/Kalecki Theory of Austerity

By Paul Krugman

Noah Smith recently offered an interesting take * on the real reasons austerity garners so much support from elites, no matter how badly it fails in practice. Elites, he argues, see economic distress as an opportunity to push through "reforms" - which basically means changes they want, which may or may not actually serve the interest of promoting economic growth - and oppose any policies that might mitigate crisis without the need for these changes:

"I conjecture that 'austerians' are concerned that anti-recessionary macro policy will allow a country to 'muddle through' a crisis without improving its institutions. In other words, they fear that a successful stimulus would be wasting a good crisis....

"If people really do think that the danger of stimulus is not that it might fail, but that it might succeed, they need to say so. Only then, I believe, can we have an optimal public discussion about costs and benefits."

As he notes, the day after he wrote that post, Steven Pearlstein ** of the Washington Post made exactly that argument for austerity.

What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular.

And the lineage goes back even further. Two and a half years ago Mike Konczal *** reminded us of a classic 1943 (!) essay by Michal Kalecki, who suggested that business interests hate Keynesian economics because they fear that it might work - and in so doing mean that politicians would no longer have to abase themselves before businessmen in the name of preserving confidence. This is pretty close to the argument that we must have austerity, because stimulus might remove the incentive for structural reform that, you guessed it, gives businesses the confidence they need before deigning to produce recovery.

And sure enough, in my inbox this morning I see a piece more or less deploring the early signs of success for Abenomics: Abenomics is working - but it had better not work too well. **** Because if it works, how will we get structural reform?

So one way to see the drive for austerity is as an application of a sort of reverse Hippocratic oath: "First, do nothing to mitigate harm." For the people must suffer if neoliberal reforms are to prosper.

* http://noahpinionblog.blogspot.com/2013/05/why-do-people-support-austerity.html

** https://www.washingtonpost.com/news/wonk/wp/2013/05/14/the-case-for-austerity-isnt-dead-yet/

*** http://rortybomb.wordpress.com/2011/01/21/kristol-kalecki-and-a-19th-century-economist-defending-patriarchy-all-on-political-macroeconomics/

**** http://qz.com/85282/abenomics-is-working-but-it-had-better-not-work-too-well/

anne -> anne...
What Smith didn't note, somewhat surprisingly, is that his argument is very close to Naomi Klein's "Shock Doctrine," with its argument that elites systematically exploit disasters to push through neoliberal policies even if these policies are essentially irrelevant to the sources of disaster. I have to admit that I was predisposed to dislike Klein's book when it came out, probably out of professional turf-defending and whatever - but her thesis really helps explain a lot about what's going on in Europe in particular....
-- Paul Krugman

ilsm
GOP/thuggee appeal to the varied fears, hate and prejudice of poor people aka the base:
http://krugman.blogs.nytimes.com/2015/12/09/the-banality-of-trumpism/?_r=0

The get the fearful bigots to vote for plutocrats' interests the GOP/thuggee promise to make sure [more of] "those" people have less than the base.

likbez -> ilsm...

"GOP/thuggee appeal to the varied fears, hate and prejudice of poor people aka the base"

Not only. Those tricks are just a small part of the strategy. The part which is typically called wedge issues politics. See for example "What's the matter with Kansas" https://en.wikipedia.org/wiki/What%27s_the_Matter_with_Kansas%3F)

=== quote ===

Frank says that the conservative coalition is the dominant coalition in American politics. There are two sides to this coalition, according to the author. Economic conservatives want business tax cuts and deregulation. Frank says that since the coalition formed in the late 1960s, the coalition has been "fantastically rewarding" for the economic conservatives. The policies of the Republicans in power have been exclusively economic, but the coalition has caused the social conservatives to be worse off, due to these very economic policies and because the social issues that this faction pushes never go anywhere after the election. According to Frank, "abortion is never outlawed, school prayer never returns, the culture industry is never forced to clean up its act."

He attributes this partly to conservatives "waging cultural battles where victory is impossible," such as a constitutional amendment banning gay marriage. He also argues that the very capitalist system the economic conservatives strive to strengthen and deregulate promotes and commercially markets the perceived assault on traditional values.

Frank applies his thesis to answer the question of why these social conservatives continue to vote for Republicans, even though they are voting against their best interests. He argues that politicians and pundits stir the "Cons" to action by evoking certain issues, such as abortion, immigration, and taxation. By portraying themselves as champions of the conservatives on these issues, the politicians can get "Cons" to vote them into office. However, once in office, these politicians turn their attention to more mundane economic issues, such as business tax reduction or deregulation. Frank's thesis goes thus: In order to explain to the "Cons" why no progress gets made on these issues, politicians and pundits point their fingers to a "liberal elite," a straw man representing everything that conservatism is not. When reasons are given, they eschew economic reasons in favor of accusing this elite of simply hating America, or having a desire to harm "average" Americans. This theme of victimization by these "elites" is pervasive in conservative literature, despite the fact that at the time conservatives controlled all three branches of government, was being served by an extensive media devoted only to conservative ideology, and conservatives had won 6 of the previous 9 presidential elections.
=== end of quote ===

But the problem is much deeper. They dictate the rules, the rationality by which we live. This is a complete ideological victory and complete defeat of New Deal ideology by neoliberal ideology.

=== quote ===

Under the guise of 'free' markets, what was created was an alternative set of rules and practices rigged to serve capital owners and executives at the expense of ordinary workers, retirees, and young people. Let us count the ways.

IP monopolies have been strengthened worldwide. So-called 'free' trade deals have replaced labor-protecting tariffs with steeply increased capital-protecting IP regulations. Copyright terms have been extended far beyond any credible incentive effects.

Central banks across the OECD have practiced austerity, or failed to make unemployment reduction a priority, thereby gratuitously increasing unemployment to serve capital interests. Fiscal policy, too, has kept demand for labor weak, even while profits have soared. That r>g is due in part to g-depressing monetary and fiscal policies.

Laws and regulations regarding credit and bankruptcy have been rewritten to favor creditors. In the U.S., bankruptcy no longer fully discharges personal debts for many people. Millions of college students in the U.S. labor under mountains of undischargeable student debt. Usurious payday and title loans reinforce the cycle of poverty for more millions. Many creditors' business models are predatory, in which profits are generated by terms that trap people into spirals of debt, default, and accumulating fines and fees, and are deliberately designed to prevent people from paying off the loan, so they must pay interest and fees for a longer period. Regulators failed to reduce the principal owed on home loans after the financial crisis, gratuitously extending the length of the recession. In the EU, too, German-led monetary policy has strongly favored creditors over debtors, leading to recession and mass unemployment in the peripheral Eurozone countries.
Antitrust enforcement has weakened, increasing the dominance of big firms that exploit their market power, fattening profits and executive compensation.

Financial deregulation has driven capital away from growth-supporting investment, toward speculative trading that increases financial instability. It has also led to a diversion of talent and energy into negative value-added activities such as high-frequency trading, frontrunning, and LIBOR manipulation. The rise of banks 'too big to fail' has led to a culture of impunity and lawlessness in the financial industry. Notwithstanding massive fraud in the mortgage industry and serial criminality on the part of major banks such as J. P. Morgan, virtually no guilty bankers have been prosecuted for their roles in the financial crisis, and fines capture only a small fraction of profits from illegal dealings. All of this has increased inequality.

On the labor side, in the U.S., basic employment laws are unenforced or carry penalties too low to deter, leading to massive wage and tip theft, forced work off the clock, and numerous other violations, especially at the low end of the wage scale. Employees are routinely misclassified as independent contractors, as a way to escape requirements to provide benefits, pay social insurance taxes, and fob business expenses onto workers. Young workers performing useful services for their employees are routinely misclassified as interns, so they don't have to be paid at all.

The rise of contingent and temporary labor and labor subcontracting has also enabled corporations to shed responsibilities for providing decent pay, benefits, and working conditions–a pure shift of income from labor to capital (or, for nonprofits such as universities, a pure shift of income from contingent workers such as adjunct faculty to the pockets of top-level administrators). Franchising performs similar functions, whereby the franchisor imposes costs and pricing structures on individual franchisees that all-but-guarantee that the latter cannot clear a profit without violating labor laws. Outsourcing abroad, including to enterprises that exploit forced and defrauded workers, magnifies these problems. These practices are due to a failure of employment law to close loopholes that empower firms to pretend that their employees are someone else's responsibility.

U.S. law has systematically failed to protect workers' contractual pension rights. During stock booms, firms are permitted to skim supposedly excess profits in their pension funds for distribution to shareholders. In the inevitable bear market that follows, they dump now severely underfunded pension funds as hopelessly insolvent. Public pensions, too, have been underfunded or raided for decades.

The shift from defined-benefit pensions to defined-contribution retirement plans has put the onus on naive investors to invest their savings. Yet financial advisors are free to peddle high-fee low-return investments to them, pretending to act in their interests, leading to returns on 401(k) plans for the ordinary investor that are well below r. While regulations have been proposed to end this practice in the U.S., its prevalence represents a pure shift of income and wealth from labor to capital, and from ordinary workers to high-paid financiers.

In the U.S., labor laws protecting the right to organize have been violated with impunity at least since the 1980s. The decline of labor unions, in turn, has led to a decline in labor's political influence for all policies affecting workers, whether they are unionized or not.

In the U.S., the minimum wage has not kept up with inflation. Without the backstop of a minimum wage, much of the incidence of publicly provided benefits to low-wage workers, such as food stamps and the earned-income tax credit, accrues to major corporations, who don't have to pay as high wages to induce the same labor supply.

http://crookedtimber.org/2015/12/07/the-politics-behind-piketty/
=== end of quote ===

[Dec 09, 2015] Short Term Energy Outlook

"... EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. ..."

www.eia.gov

EIA forecasts that Brent crude oil prices will average $53/b in 2015 and $56/b in 2016. Forecast West Texas Intermediate (WTI) crude oil prices average $4/b lower than the Brent price in 2015 and $5/b lower in 2016. The current values of futures and options contracts for March 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $30/b to $63/b (at the 95% confidence interval). ...

The monthly average price of U.S. regular retail gasoline was $2.16/gallon (gal) in November, a decrease of 13 cents/gal from October and 75 cents/gal lower than in November 2014. EIA forecasts U.S. regular gasoline retail prices to average $2.04/gal in December 2015 and $2.36/gal for 2016.

[Dec 09, 2015] The Politics behind Piketty

"... I do think, however, she might add one to her list: the decline of the Rule Against Perpetuities (in the US) and the re-emergence of dynastic trusts, which lock in wealth across generations. ..."

"... A wonderful list; which in many ways can be summarized (not to diminish the longer version) as various forms of, "The wealthy have been allowed to write rules that work best for them" ..."

"... Deregulatory "free market" policies pushed by rich financiers and conservatives have made the economy more volatile and prone to the boom-bust cycle. During the boom, most of the gains accrue to the top, and after the bust, macro policy has been insufficient to bring about a swift recovery, again exacerbating inequality. ..."

"... What piketty does not analyze is nature of ideological hegemony in a rentier society. I already pointed to Bukharin's critique of rentier ideology in the economic theory of the leisure class. It makes for a fascinating comparison ..."

December 7, 2015 | Crooked Timber
Thomas Piketty traces widening inequality in rich countries since the early 1970s to increasing shares of income claimed by the top 1%. This trend is decomposed into the increasing share of income accruing to capital ownership, and the increasing share of labor income claimed by corporate executives and financiers. Piketty shows that the increasing share of labor income claimed by the top 1% is neither deserved nor economically useful, in the sense of stimulating better products and services, increasing economic growth, or providing other benefits to the 99%. Because he defines r, the return on capital, as the pure return to passive ownership (excluding returns to capital that could be traced to entrepreneurial activity or business judgment), it is evident that capital's share of income is also undeserved. But is it economically useful? Piketty misses an opportunity to connect his analysis to a critique of the ideology and associated politics that have driven increasing inequality since the early 1970s. While he rightly claims that the distribution of income and wealth is a deeply political matter, and connects increasing economic inequality to the increasing political clout of the top 1%, he does not identify political decisions, other than cuts in marginal tax rates on top incomes, that lie behind inequality trends. Filling in the ideological and political stories gives us some clues as to policy instruments, other than the tax code, needed to reverse the ominous trends he documents.
On the ideological front, several theories served to rationalized policy shifts in favor of increasing capital shares and top labor incomes. The stagflation of the 1970s was successfully blamed on Keynesian economics, fiscal irresponsibility, a bloated welfare state, militant labor unions, state regulation of the economy, and supposedly incentive-destroying high marginal tax rates on capital incomes and the rich. At the same time, the ideology of maximizing shareholder value took hold. Corporate executives who formerly lived merely like an especially comfortable middle class, and who gained prestige from sharing rents widely among corporate stakeholders, narrowed their focus to serving capital interests exclusively, and obtained compensation packages that tied their fates to that goal alone.

All of this might have made sense were it true that the only way to increase profits is to do things that add net value to the economy in which everyone else claims shares. But that's the hard way to increase capital's share of income, and thereby the income of top executives. It's much easier for the top 1% to make money by creating and exploiting opportunities to gain at the expense of everyone else. Under the guise of 'free' markets, what was created was an alternative set of rules and practices rigged to serve capital owners and executives at the expense of ordinary workers, retirees, and young people. Let us count the ways.

IP monopolies have been strengthened worldwide. So-called 'free' trade deals have replaced labor-protecting tariffs with steeply increased capital-protecting IP regulations. Copyright terms have been extended far beyond any credible incentive effects.

Central banks across the OECD have practiced austerity, or failed to make unemployment reduction a priority, thereby gratuitously increasing unemployment to serve capital interests. Fiscal policy, too, has kept demand for labor weak, even while profits have soared. That r>g is due in part to g-depressing monetary and fiscal policies.

Laws and regulations regarding credit and bankruptcy have been rewritten to favor creditors. In the U.S., bankruptcy no longer fully discharges personal debts for many people. Millions of college students in the U.S. labor under mountains of undischargeable student debt. Usurious payday and title loans reinforce the cycle of poverty for more millions. Many creditors' business models are predatory, in which profits are generated by terms that trap people into spirals of debt, default, and accumulating fines and fees, and are deliberately designed to prevent people from paying off the loan, so they must pay interest and fees for a longer period. Regulators failed to reduce the principal owed on home loans after the financial crisis, gratuitously extending the length of the recession. In the EU, too, German-led monetary policy has strongly favored creditors over debtors, leading to recession and mass unemployment in the peripheral Eurozone countries.

Antitrust enforcement has weakened, increasing the dominance of big firms that exploit their market power, fattening profits and executive compensation.

Financial deregulation has driven capital away from growth-supporting investment, toward speculative trading that increases financial instability. It has also led to a diversion of talent and energy into negative value-added activities such as high-frequency trading, frontrunning, and LIBOR manipulation. The rise of banks 'too big to fail' has led to a culture of impunity and lawlessness in the financial industry. Notwithstanding massive fraud in the mortgage industry and serial criminality on the part of major banks such as J. P. Morgan, virtually no guilty bankers have been prosecuted for their roles in the financial crisis, and fines capture only a small fraction of profits from illegal dealings. All of this has increased inequality.

On the labor side, in the U.S., basic employment laws are unenforced or carry penalties too low to deter, leading to massive wage and tip theft, forced work off the clock, and numerous other violations, especially at the low end of the wage scale. Employees are routinely misclassified as independent contractors, as a way to escape requirements to provide benefits, pay social insurance taxes, and fob business expenses onto workers. Young workers performing useful services for their employees are routinely misclassified as interns, so they don't have to be paid at all.

The rise of contingent and temporary labor and labor subcontracting has also enabled corporations to shed responsibilities for providing decent pay, benefits, and working conditions–a pure shift of income from labor to capital (or, for nonprofits such as universities, a pure shift of income from contingent workers such as adjunct faculty to the pockets of top-level administrators). Franchising performs similar functions, whereby the franchisor imposes costs and pricing structures on individual franchisees that all-but-guarantee that the latter cannot clear a profit without violating labor laws. Outsourcing abroad, including to enterprises that exploit forced and defrauded workers, magnifies these problems. These practices are due to a failure of employment law to close loopholes that empower firms to pretend that their employees are someone else's responsibility.

U.S. law has systematically failed to protect workers' contractual pension rights. During stock booms, firms are permitted to skim supposedly excess profits in their pension funds for distribution to shareholders. In the inevitable bear market that follows, they dump now severely underfunded pension funds as hopelessly insolvent. Public pensions, too, have been underfunded or raided for decades.

The shift from defined-benefit pensions to defined-contribution retirement plans has put the onus on naive investors to invest their savings. Yet financial advisors are free to peddle high-fee low-return investments to them, pretending to act in their interests, leading to returns on 401(k) plans for the ordinary investor that are well below r. While regulations have been proposed to end this practice in the U.S., its prevalence represents a pure shift of income and wealth from labor to capital, and from ordinary workers to high-paid financiers.

In the U.S., labor laws protecting the right to organize have been violated with impunity at least since the 1980s. The decline of labor unions, in turn, has led to a decline in labor's political influence for all policies affecting workers, whether they are unionized or not.

In the U.S., the minimum wage has not kept up with inflation. Without the backstop of a minimum wage, much of the incidence of publicly provided benefits to low-wage workers, such as food stamps and the earned-income tax credit, accrues to major corporations, who don't have to pay as high wages to induce the same labor supply.

From an ideological point of view, much of this can and has been peddled to the public as 'free' markets and 'deregulation.' The reality exposes the vacuity of these very ideas. In any advanced economy, the state must be involved in promulgating the constitutive rules of the economy. It can no more get out of the business of regulating the economy than the Commissioner of Baseball can get out of the business of promulgating the rules of Major League Baseball. The only real question is, in whose interests are the rules designed?

Ideology matters for politics. Once people have acquired income or wealth through the market, they feel strongly entitled to it. In the U.S. and increasingly in the rest of the OECD, the population at large, taken in by such representations, is reluctant to tax. Redistributing income and wealth by means of taxation, as Piketty proposes, becomes harder once people have it in their hands. We need to scrutinize the rules by which income and wealth get generated through the market, before it is taxed. They have been changing in a plutocratic direction for the past 45 years. The rule changes have not only increased r (at least for the top 1%), but also depressed g, by increasing monopoly power, shifting savings from real investment to speculation and scams, shifting top talent from production to value-extraction, and depressing aggregate demand.

Getting this story out is critical to changing politics. For plutocracy still must nod to what we might call 'weak' Rawlsianism: that inequality cannot be justified without showing that it delivers some benefits to the 99%. (It's not for nothing that one of the leading arms of plutocracy is called the Club for Growth.) Exposing the ways the game is rigged, as Elizabeth Warren has been doing, should open more levers to change than focusing on taxes alone–levers that should also help limit the pace of increasing inequality by raising g.

Rakesh Bhandari 12.07.15 at 5:50 pm

I think that this comments misses the force of Piketty's inequality r>g. Even if intellectual property laws were weaker (and rents thereby smaller) and and labor laws and Keynesian policies stronger (and thereby g higher) and even if small savers had a bit higher rate of return, the Piketty inequality would still be in operation (and big savers would still have much relative returns), giving us the uncanny return of a rentier society.
In short, this comments seems to me to miss the force of the r>g inequality.

Dan Cole 12.07.15 at 6:12 pm

I don't think it's a case of either or. it's true that Piketty does not pay sufficient attention to institutions and institutional changes that have increased returns to capital and reduced intergenerational economic mobility (up or down the ladder). His model stands on its own, but of course the returns to investment depend heavily on the kinds of institutions Prof. Anderson discusses.
I do think, however, she might add one to her list: the decline of the Rule Against Perpetuities (in the US) and the re-emergence of dynastic trusts, which lock in wealth across generations. This is still very much an institutional change in progress, state by state. Its probably will not begin to significantly affect social mobility statistics significantly for a generation.

Rakesh Bhandari 12.07.15 at 6:23 pm

I don't agree that Piketty ignores institutional changes or changes in property laws, e.g. the end of human chattel, the operation of war commissions, the evolution of minimum wage laws, the weakening of collective bargaining, and the "stakeholder" nature of Rhenish capitalism. Piketty is aware of all this, but he still reasons on the basis of his r>g inequality that the return of a rentier society is most likely except through a global tax on wealth. The principal reason: even if through institutional reforms r is reduced a bit, g is likely to revert to historical averages even with the right Keynesian policies. That gives us a r>g inequality great enough to yield an actual rentier society (not the petit rentier one we now have).

An On 12.07.15 at 7:38 pm

I'm sympathetic to the direction of this argument, but does a list so focused on the US provide an adequate explanation of a global phenomenon?
chris arnade 12.07.15 at 8:08 pm
A wonderful list; which in many ways can be summarized (not to diminish the longer version) as various forms of, "The wealthy have been allowed to write rules that work best for them"
This has meant diminished rules, and the enforcement of rules, for Wall Street and large corporations, sold under the free market notion that individual liberty is collectively beneficial.

Yet at the same time increased and aggressive regulation has been applied to poorer folks (Broken Windows policing and the War on Drugs) under the theory that individual liberty can collectively be corrosive.

The latter hasn't just been a moral outrage, it has also helped to devalue labor. It is harder to increase human capital when you are subjected to onerous rules and regulations.

T 12.07.15 at 8:32 pm

Hot off the presses, today's example of rent seeking in trillion dollar markets: http://www.nytimes.com/2015/12/07/business/a-revolving-door-helps-big-banks-quiet-campaign-to-muscle-out-fannie-and-freddie.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news
Robert 12.07.15 at 9:15 pm
Robert Reich's new book, Saving Capitalism, is basically a longer statement of the thesis of this post, albeit not as a comment on Piketty. Krugman has a review in The New York Review of Books.

krippendorf 12.07.15 at 9:41 pm

see also work by Grusky and Weeden, who have been pushing the line that rents are ubiquitous throughout the labor market, and not just in the top 1%, for quite some time.
But, they are sociologists, so they are easily ignored by Stiglitz, Reich, and other economists who are trying to make rent-based arguments for rising income inequality.

Peter K. 12.07.15 at 9:53 pm 10

I am excited about this seminar and discussion.
What I believe Piketty has said is that *r* remains remarkably constant despite how one would think that the laws of supply and demand would mean that an oversupply of capital and slower growth would decrease *r* but it remains high because of a variety of factors.

Piketty discusses how Depression and Wars changed the dynamic so that inequality decreased in the post-war years. The list of policies here describe the many reasons why inequality has increased again and growth has slowed down.

As Jared Bernstein wrote "…since the late 1970s, we've been at full employment only 30 percent of the time (see the data note below for an explanation of how this is measured). For the three decades before that, the job market was at full employment 70 percent of the time."

https://www.washingtonpost.com/posteverything/wp/2015/10/19/full-employment-a-bipartisan-goal-thats-missing-from-the-candidates-debates/

I believe macro policy (monetary, fiscal, trade) explains a large part of why growth has slowed and inequality increased since the 1970s.

Deregulatory "free market" policies pushed by rich financiers and conservatives have made the economy more volatile and prone to the boom-bust cycle. During the boom, most of the gains accrue to the top, and after the bust, macro policy has been insufficient to bring about a swift recovery, again exacerbating inequality.

Tabasco 12.07.15 at 10:38 pm, 11

Central banks across the OECD have practiced austerity
For nearly a decade central banks across the OECD have kept their policy interest rates at or near zero. In a couple of countries they are less than zero.

Whatever this is, it is not austerity.

Rakesh Bhandari 12.07.15 at 10:57 pm 12

From the phone. Even if r on average falls from 6 to 4 pc. and growth goes from 1.5 to 2pc you will still get a rentier society. Remember also wealthy will have higher average return m, say in this ex 6 pc. Then you have wealth growing 3 x the rate of income. I earlier argued that we should distinguish P's critique of rentier society from the Reich/Stiglitz critique of monopoly rents. P's whole point is that rentier society arises out of even competitive capitalism

Rakesh Bhandari 12.07.15 at 11:01 pm 13

What piketty does not analyze is nature of ideological hegemony in a rentier society. I already pointed to Bukharin's critique of rentier ideology in the economic theory of the leisure class. It makes for a fascinating comparison

Frank Wilhoit 12.07.15 at 11:35 pm 14

Chris Arnade @ 6:
A. "…the theory that individual liberty can collectively be corrosive…." is merely a cover for sadism.

B. "onerous rules and regulations" are only complained of by entities who do not wish to be held accountable.

bob mcmanus 12.07.15 at 11:44 pm 15

What piketty does not analyze is nature of ideological hegemony in a rentier society
As I read him, he doesn't need to, because it's irrelevant.

What Piketty's numbers prove is that it wasn't ideology or politics or unions or social movements and programs that gave us the Great Compression and decreased inequality but revolution, depression, and catastrophic war. Certainly history shows that every catastrophic war etc did not necessarily led to greater equality, but there is very little evidence for increases in equality without radical social disorder. Piketty explicitly says toward the end that moderate tax increases or redistributive social programs have had little effect, that the lower baseline after WWII was determining.

What is taken from the above can be up for discussion, perhaps the best can be done during peacetime is ameliorative efforts within a context of rising inequality, and ideology can help with those besides preparing for the inevitable collapse. But effective demand management will quickly fail for political reasons, see Kalecki.

If the above looks like Marxian praxis, it's no coincidence. Piketty's recommendation, taxing global wealth at confiscatory rates, should be understood as a practical recommendation. I think we all understand what it would take to tax away 40-50% of gross Saudi or Brunei or American wealth to distribute to Africa and South America, and Piketty surely was not unaware.

bob mcmanus 12.07.15 at 11:52 pm 16

I apologize, Piketty only asks, although I think he says "initially," for a lower global wealth tax rate, perhaps a few percent to counter r>g. I will dig out my copy. I am not at all bothered if Piketty details no clear process to confiscating global wealth, he surely doesn't have to, and it would get in the way of his message: that paths to equality are radically limited.

Peter T 12.07.15 at 11:54 pm 17

What struck me most about Piketty's data was the near constancy of r over centuries. This suggests to me that it is not a matter of balancing supply and demand for capital, but a structural feature (perhaps the return necessary to sustain the hierarchy of production?). So r, in itself, has little to do with the distribution of return: it could be spread across a large middling to wealthy class, or concentrated in the 0.1%, as political factors dictated.
I will add that the underlying mental model in much of economics seems to be the gentleman's estate. There is land, income for investment or consumption as prudence and virtue dictate, the lump sum in consols…with the ideal the improving landlord. That categories such as "capital" or "labour" do not stretch to countries does not seem to cross the imagination.

Mike Furlan 12.08.15 at 12:13 am 18

N. Taleb criticizes Piketty on mathematical grounds:

"What is worse, rejection of such theories also ignored the size effect, by countering with data of a different sample size, effectively making the dialogue on inequality uninformational statistically."
http://arxiv.org/pdf/1405.1791.pdf

I thought Piketty addressed this issue, for instance in looking at countries with relatively constant populations over time like France, and admitting that less could be learned from looking at a United States that grew from 3 to 300 million. But I'm sure that I'm missing many important aspects of this question.

Rakesh Bhandari 12.08.15 at 12:27 am 19
@18 If population is growing at a fast rate and therefore g as well, the fundamental inequality will be attenuated, and it will be difficult to see the long-term consequences of r>g in such a society. France gives us a better laboratory to see the likely effects of the fundamental inequality going forward than the US has hitherto provided.
Rakesh Bhandari 12.08.15 at 12:29 am 20
@15. I don't think this is quite right. Piketty thinks a fundamental problem with rentier society is in fact ideological, viz. that it cannot be squared with the meritocratic values that provide normative support for competitive markets. This raises the question of what the elements of a rentier ideology are. The only one I know to have provided an answer is Bukharin.

Rakesh Bhandari 12.08.15 at 12:52 am 21

@17 raises difficult questions. Some economists have claimed that r>g is just what you would expect from dynamically efficient economy, but this needs to be spelled out. Piketty has a complex section which I have not yet fully understood on why r being positive, and greater than g, cannot be explained in terms of a psychological theory of time preference. Perhaps another way of thinking about this would be: what would happen if r were to fall below g? Would there be mechanisms to restore Piketty's fundamental inequality? Piketty, I think, is saying "yes". So I shall re-read that section to get a better understanding of his argument.

John Quiggin 12.08.15 at 1:01 am 22

"Central banks across the OECD have practiced austerity"
As Tabasco observes, this point is loosely phrased. Austerity is a fiscal policy, not a monetary policy. But central banks can enforce austerity by refusing to accommodate government budget deficits. The ECB has clearly done this (as it was set up to do). In other cases, governments and legislatures have imposed austerity, with the support of central banks.

The US Fed is one example where the central bank has been less supportive of austerity than the legislature.

ZM 12.08.15 at 1:25 am 23

A question for the more economically minded – Would one reason that r is reasonably stable over a considerable time frame be because it is determined not by the most wealthy holders of capital (who presumably could afford to take a lower rate of return on a long term basis), but by the less wealthy who depend on a higher rate of r as otherwise their smaller investments wouldn't be financially rewarding?
For instance, in Australia workers have compulsory employer paid superannuation investments, and if the rate of return on these was lower I don't know that the policy of moving people to self-funded retirement by superannuation as opposed to government pensions would be feasible?

Peter K. 12.08.15 at 1:37 am 24

"Central banks across the OECD have practiced austerity"

I think that is right. They've not supported quick recoveries and have been overly fearful of phantom inflation.

http://cepr.net/blogs/beat-the-press/paul-krugman-larry-summers-and-the-fed-s-unused-ammunition

Sebastian H 12.08.15 at 1:39 am 25

I'm very sympathetic to much of the list of bad policies. I have a question about this though: "On the ideological front, several theories served to rationalized policy shifts in favor of increasing capital shares and top labor incomes. The stagflation of the 1970s was successfully blamed on Keynesian economics, fiscal irresponsibility, a bloated welfare state, militant labor unions, state regulation of the economy, and supposedly incentive-destroying high marginal tax rates on capital incomes and the rich."
What should it have been blamed on?

[I'm very open to the idea that the lessons of the 70s were overlearned–i.e. just because too much inflation is bad doesn't mean we should worry about it when it is below 5%. But this comment suggests that something else entirely was going on]

Rakesh Bhandari 12.08.15 at 1:56 am 26

@25 in regards to the quote from Anderson who, along with many others, is missing in my opinion Piketty's main thesis of how the normal operation of competitive or even social democratic capitalism or of course monopoly capitalism yields a rentier society in the absence of wealth and corporate taxation. Does not Piketty argue that the return to rentier society was underway before the Anglo-American neo-liberal turn (though it did obviously accelerate it) and has been happening even in societies not as neo-liberal as the Anglo-American ones? I read @5 as making this important point.

jake the antisoshul soshulist 12.08.15 at 1:56 am 27

I am not an economist, but the source of the blame was political. I have heard that the primary causes of "stagflation" were "printing money" to cover the debts from the Vietnam War, increased oil prices and supply issues driving up costs, and economic competition from Japan reducing demand. The economic elites saw an opportunity to
take advantage of the crisis and blame it on policies they did not like. And push to replace them with policies that were advantageous to those elites. Ronald Reagan was a very successful salesman for this.

Rakesh Bhandari 12.08.15 at 1:59 am 28

Maybe the American left is so focused on the critique of bad Republicans like Ronald Reagan and H.W. and W. Bush and so excited about Warren and Sanders–these political choices setting the limits of theoretical analysis – that it cannot countenance Piketty's deeper structural critique?

Peter T 12.08.15 at 2:29 am 29

Piketty uses "capital" or "wealth" to refer to any asset which provides a stream of income. This is, in my view, correct. This is quite distinct from "capital" in the ordinary economic sense. Much – in fact most – economic capital does not yield income (roads, schools, food crops…) and so does not count. There is no reason to believe that wealth in the first sense does or should correspond to capital in the second sense. Our collective capital dwarfs wealth, while much wealth is simply extractive. To count a claim on tax revenues (a government bond) in the same class as a terraced field is a major mistake.
From the late C19 on much private "capital" was withdrawn into the public spheres (eg private tolls or offices), a move that accelerated in the wars. Since 1980 this trend has reversed. Discussion of the amplitude or scarcity of capital should note that it is a legal and political category subject to large arbitrary changes.

Bruce Wilder 12.08.15 at 2:56 am 30

Piketty's deeper structural critique
Does Piketty have one? 'Cause then I missed it. It seems to me that Piketty is presenting the challenge of facts. He takes care to outline how the facts he documents are logically related, as in the analysis of how changes in the share distribution of income (between labor and capital) relates to economic growth and to the value of accumulated wealth as a stock. That's not "deep" or structural, though it is certainly necessary if we are to understand the facts as facts.

The first striking thing to me in Piketty's work is what Peter T discusses above at 2:29 am (@ 29): the distinction between wealth and capital, confusion about which powers the ideologies of more than a few economists and others. Just maintaining that distinction, while discussing the wild swings in the share of income going to capital over long periods of time forces attention to the politics. Is that "structure"?

notsneaky 12.08.15 at 4:06 am 31

@Rakesh – but the whole r vs. g thing in Piketty, while central to his book, is also the part that makes the least sense. It's made up, theoretically unsound, and with no evidence to back it up. It's junk. An accounting relationship is not a "law".
And it's really Piketty's single minded focus, based presumably on his desire to provide a grand "one size fits all" explanation for the phenomenon he's discussing, which leads him to sideline all the possible institutional explanations, such as the ones enumerated above (not that I agree with all or even most of them)

notsneaky 12.08.15 at 4:18 am 32

In terms of r vs. g
In linear production model – r > or or or g always but capital's share in income is constant. Taxing capital doesn't matter for distribution.

In Ramsey model with endogenous saving and non-Cobb Douglas production – r > g but same criticisms as above imply.

The only one story about r vs. g out of the whole book which sort of makes sense is that if r > g then capital income can become more unevenly distributed (even as capital total's share stays constant). But even that is based on some sketchy assumptions and relaxing these even slightly can completely flip the result.

The Journal of Economic Perspectives V 29/ N 1, 2015 has a symposium on the topic and it pretty much consists of various polite ways of saying "good data, but the r vs. g thing is nonsense"

Omega Centauri 12.08.15 at 4:39 am 33

I've argued before that the conclusion that the simple inequality r>g leads to unlimited inequality is wrong -or at best incomplete. There are multiple ways that concentrations of capital can be, and are dissipated (i.e. broken up into smaller bits owned by more people). Taxes, and "death-taxes" is only one mechanism to accomplish this. Having on average more than one inheritor is another. Think for example of the Saudi Royal family, which controls great deal of the wealth of the Kingdom. It isn't all concentrated in one nuclear family, there are now thousands of princes, after not too many more generations a plurality of the country will be able to claim royal inheritance. Also there are other mechanisms, that can dissipate wealth concentrations, including luxury goods: Maserati is distributing some wealth from the super rich, to its shareholders and employees… Major donations to charity is any other. Still another comes from the application of the saying "a fool and his money are soon parted": some of the progeny, will be separated from their inheritances. One can't just use a simple theory of the evolution of the distribution of wealth and income, if you ignore wealth dissipation effects you will get a wildly wrong result.
So in order to control or reverse the tendency towards ever increasing inequality, there could be deployed multiple strategies, all of which are aimed at increasing the dissipation of concentrations of wealth.

Omega Centauri 12.08.15 at 4:46 am 34

I also think there exist mechanisms in the economy which tend to stabilize R. The most obvious is that there are only so many profitable investments available at any given time, and supply/demand effects should lead to lower R if the amount of available capital gets too high or to increase it if there is less capital than investment opportunity. Also the tendency to spend wealth on immediate consumption versus investment changes as the expected return on investment changes. These effects should usually lead towards returning R towards some long term sustainable value.

[Dec 09, 2015] JPMorgan Fed could trigger 'massive stop loss order' in the S P 500 if liftoff goes awry

finance.yahoo.com

This important event falls at a peculiar time–less than 48 hours before the largest option expiry in many years," wrote Kolanovic, noting that $1.1 trillion worth of Standard & Poor's 500-stock index options–of which $670 billion are puts–will expire on Dec. 18. Roughly one-third of the puts poised to expire are at or near the money, with strike prices from 1,900 to 2,050.

"Clients are net long these puts and will likely hold onto them through the event and until expiry," the strategist wrote. "At the time of the Fed announcement, these put options will essentially look like a massive stop loss order under the market."

When a put is close to expiry, the writer of the option becomes a seller of the underlying security as it hits the strike price in order to mitigate the exposure. Thus, a negative reaction in the S&P 500 index to the Fed decision could trigger a wave of forced selling, potentially agitating markets.

No one knows better than Kolanovic how systematic selling can amplify price changes in financial markets.
However, it's fair to quibble with the premise: Is Janet Yellen really monitoring open interest in options linked to the S&P 500?

[Dec 09, 2015] Something Did Blow Up In Junk

Junk is really goes down. But with low oil price how really probably is the recession?

Zero Hedge

Thought Processor

...Seriously though, aren't HYG's always the canary in the coal mine...... No better buzzer for an incomming slowdown.

anti Oligarchy

I work right in the thick of the real economy... construction / utility / etc. It is happening right now on the ground floor, sales are drying up, inventories going up. It is as serious as you are projecting in these articles.

Paint By Number

My experience exactly. The industrial market (except for the flash in the pan oil boom) has been struggling since 2008. But something changed in September/October of this year. I can't tell you how many times I've heard "it's like someone flipped a switch."

Most people have no idea of how many highly technical and specialized products (valves, cables, pumps, transformers, special alloy components) are keeping electricity, gas, and water going to their homes. Many of these manufacturers are teetering on the edge. If this situation does not change for the better in the next few months we will begin to see major and spectacular failures in our infrastructure.

I can't overstate the potential devastating social and environmental chaos. It's all great fun to talk about popcorn and watching bankers jump from the 14th floor, but if the lights go out and don't come back on, there won't be much laughing.

kelley805

J.P. Morgan analysts wrote that the three best leading indicators for recession have been credit spreads, the shape of the yield curve and profit margins.

Here are some signs of a coming recession.

1. Investors in high-yield bonds are expecting to see their first negative return since the start of the credit crisis in 2008.

http://www.marketwatch.com/story/deteriorating-junk-bonds-flash-warning-signs-for-stocks-2015-12-07?dist=afterbell

2. Factory orders continue to drop

http://www.zerohedge.com/news/2015-10-02/us-factory-orders-flash-recession-warning-drop-yoy-10th-month-row

3. Default risk spikes

http://www.zerohedge.com/news/2015-10-02/us-financials-default-risk-spikes-2-year-high

4. M&A set record

http://michaelekelley.com/2015/05/29/mergers-and-acquisitions-set-record/

5. Iron ore prices tumble

http://www.marketwatch.com/story/iron-ore-prices-keep-crashing-adding-to-global-growth-fears-2015-11-30

6. Baltic dry shipping index tumbles

http://www.marketwatch.com/story/shipping-index-falls-to-all-time-low-stoking-fears-about-global-growth-2015-11-19

[Dec 09, 2015] The Endless Parade of Recession Calls

"... We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. Weve also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians. ..."

"... .... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi. ..."

Dec 06, 2015 | Calculated Risk
Note: I've made one recession call since starting this blog. One of my predictions for 2007 was a recession would start as a result of the housing bust (made it by one month - the recession started in December 2007). That prediction was out of the consensus for 2007 and, at the time, ECRI was saying a "recession is no longer a serious concern". Ouch.
For the last 6+ years, there have been an endless parade of incorrect recession calls. The most reported was probably the multiple recession calls from ECRI in 2011 and 2012.
... ... ...

Also on Friday I posted an excerpt from a Citi's research piece also suggesting a 65% chance of a recession in 2016.
Here is the Citi research piece.

[A] statistical approach is shown in Figure 46 and highlights the cumulative probability of a recession based on data from 1970-14 across US, UK, Germany and Japan. As the U.S. economy enters year seven, the cumulative probability of a recession in the next year rises to 65%.
This is just an historical statistical approach based on elapsed time.
Looking at the economic data, the odds of a recession in 2016 are very low (extremely unlikely in my view). Someday I'll make another recession call, but I'm not even on recession watch now.
Rob_Dawg

We have so messed with market forces and reporting and baselines and seasonal adjustments that all the old metrics are useless. We've also financialized everything. That means velocity. It means contagion. It means liquidity freezes. You know the list. The speed at which the next recession arrives will render any prediction useless except to historians.

sum_luk

Rob_Dawg:

all the old metrics are useless.

.... so, now we have an unduly enlarged glut of savings chasing an ever dimming prospect of profit. .... ultimate fiat trapped in a ponzi.

sum_luk

Rajesh:

I don't expect the U.S. economy to boom except on a relative basis.

... of course, Janet's theory is domestic US will carry on despite the fact that a strong dollar makes for cheap imports.

Rob_Dawg

Eventually China will have a shadow banking crisis that will leave the rest of the world with the problem of deciding how much to contain it. Very dangerous. 2016? No way of telling.

sm_landlord

Rajesh

I'm with you on that, Rajesh. To the extent that I'm doomy about the macro economy, it's mostly about the rest of the world. The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.
On the middle/micro level, I see a lot of government spending on things like street/road maintenance, which should prop some things up. Also, auto traffic seems to be back to pre-GR levels. Based on my recent visit to SM, anyway, most of the downtown area is approaching gridlock for much of the day again...
Can't say the risk is zero, though, because I still see a lot of fragility and testing of limits.

Cinco-X

Rajesh:

My no recession call for 2015 is looking good. I'm making a no recession in 2016 call now.

I was in Walmart on Friday evening picking up a prescription, and the place was a ghost town. Drove by Best Buy the previous evening and the parking lot was about 25% full

yuan

sm_landlord:

The US looks to do far less well than it could, but so far, it doesn't look like a US recession is imminent.

Umm...so pretty much business as usual since 2008 (and the republican plan to sabotage obummers by opposing anything that might benefit working class 'merkins).

curious

HHNW_GDP.jpg 1920x1080 105 KB

Early on in the housing bubble, Bill made a number of comments about bubbles using a plot of Household Net Worth to GDP ratio. Early on, he wrote that the ratio had been stable for nearly 50 years. He then changed his tune and started talking about a gradual increase since the 70's.

Here's the raw data series.

CitizenAllenM

Funny how the Boomer generation peak is going to change the economics of so much, just like I predicted.
I also predict a stunning comeback for Wal-Mart as the cost of living cuts really get going, and the Social Security Day Sales and Foodstamp sales kick off the monthly sales.
The America of limited everything, as free riders are eliminated.
Now, have you written off your skybox for 2015?
LoL- business has so much fat they will need to cut to survive the increase in poverty that will be the boomer retirement.
Already planning to shed vehicles as fast as Google Cars become available in 10 years
Someday this war's gonna end...

CitizenAllenM

LoL- you have paid more to store that organ than any value it has--- http://phoenix.craigslist.org/wvl/msg/5329410176.html3
Yup, $250 bucks for the middle class 1950s fantasy item!
Can't really give them away- Upright Pianos are the worst- worth more as parts for creative reuse than as instruments.
Grand Pianos still have some marginal value- unless a decent name brand and in excellent condition.
One of my friends was talking about how valuable the family Steinway was, and I told them to contact the local piano dealer to get an idea of the value, and then see how much it was going to cost to have shipped down from Minnesota- after she made the calls she decided it was no prize and stopped negotiating for it in the estate settlement :wink:
Technology is ruthlessly destroying mass books next, along with vinyl records, dvds, cds, etc. 8 tracks are worthless, cassette tapes even more worthless.
Printers and scanners are the junk of America.
Someday this war's gonna end...

[Dec 07, 2015] Academic Nightmares Where Everybody Majors in Money

The key idea of neoliberal university if to view students as customers and the degree as a product to sell.

"... The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents " widespread and long-lasting academic fraud at the university ." ..."

"... Students are increasingly perceived as customers ..."

"... the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class. ..."

"... Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. ..."

www.counterpunch.org
... ... ...
The university of North Carolina at Chapel Hill now faces one year of probation from the Southern Association of Colleges and Schools Commission on Colleges as a result of a report that documents "widespread and long-lasting academic fraud at the university." For years, employees of the university "knowingly steered about 1,5000 athletes toward no-show courses that never met and were not taught by any faculty members, and in which the only work required was a single research paper that received a high grade no matter what the content."

It isn't only athletes who get the benefit of such "no-show" courses. Small academic programs and departments struggling to survive occasionally come up with such courses as a way of boosting their numbers of majors. Even Harvard is now having to grapple with the question of whether their "General Education" program has had the effect of encouraging students to take easy courses.

Universities will bend over backwards not to fail a student–so long as he or she is actually paying tuition. I know of a case of a professor who was told by the director of the program in which the professor teaches to "take some responsibility" for the fact that some of this professor's students were failing a course. Apparently, the professor was expected to find a way to ensure that all the students passed the course. Fortunately, the professor is tenured, and hence had to freedom to refuse to do more than to try to help the students actually LEARN the material. Would an adjunct have felt free to do the same thing?

Students are increasingly perceived as customers and some administrators, and even some faculty, appear to conceive the "product" the university is selling as a degree rather than an education, so it does seem counter productive to risk losing a customer for something so insignificant as failing to go to class.

Failing to pay tuition, however, is a different matter. Faculty are sometimes instructed not to allow students to attend courses if they have not paid their tuition by the beginning of the term (which, because of the glacial slowness of some financial aid programs, is frequently a problem).

There's been a lot of discussion recently about how all students need to be taught ethics in college. Of course you can't require everyone to take the standard ethics class that is taught in the philosophy department. That would be too much work. If you suddenly are going to require that everyone at your university take ethics, well, you'd better dumb it down, so students won't object.

Keep it rigorous, or dumb it down, requiring students to take an ethics course is unlikely to make them more ethical. The thing is, you rarely make people ethical by teaching them ethics. You can help them to better understand the complexities of some ethical dilemmas and you can arm them with theoretical language they can use to defend choices they probably would have made anyway, but that doesn't make them better people so much as it makes them happier people.

Moral character is largely formed by the time students enter college. It isn't entirely formed, of course, so what happens to students in college can affect their moral development. People are so profoundly social that they continue to develop their conceptions of what is acceptable behavior throughout their entire lives. Aristotle recognized that. That's why he asserted that ethics was a subset of politics. If you want people to behave well, you have to organize your society in such a way that it sends a clear message concerning the behavior it approves of and the behavior it condemns. If the leaders of a given society want people to be honest and responsible, then they have to exemplify these character traits themselves, and then reward citizens who emulate their example.

Universities would do a much better job of shaping students' characters in positive ways if instead of requiring students to take dumbed-down ethics classes, they gave a damn about ethics themselves, if they cared more about actually delivering the product they purport to be selling, rather than giving mere lip service to it. Many universities are now delivering degrees that are effectively equivalent to the indulgences sold by the Catholic church in the middle ages: expensive, but otherwise meaningless, pieces of paper.

Today's college students may be ignorant, but they aren't stupid. They take the measure of an institution pretty quickly. They can smell hypocrisy, and if they have to pay tens of thousands of dollars a year for the dubious privilege of uninterrupted olfactory assault, they'll very likely develop the moral equivalent of olfactory fatigue. The message that, sadly, is all too often driven home to students today is that none of the traditional human values that educational institutions purport to preserve and foster, including learning in the broadest sense, really matter. The message they all to often receive now is that nothing really matters but money.

Now THAT is a nightmare!
M.G. Piety teaches philosophy at Drexel University. She is the editor and translator of Soren Kierkegaard's Repetition and Philosophical Crumbs. Her latest book is: Ways of Knowing: Kierkegaard's Pluralist Epistemology. She can be reached at: mgpiety@drexel.edu

[Dec 07, 2015] The key prerequisite of casino capitalism is corruption of regulators

Economist's View

likbez said...

When capital became unable of reaping large and fairly secure profits from manufacturing it like water tries to find other ways. It starts with semi-criminalizing finance -- that's the origin of the term "casino capitalism" (aka neoliberalism). I see casino capitalism as a set of semi-criminal ways of maintaining the rate of profits.
The key prerequisite here is corruption of regulators. So laws on the book does not matter much if regulators do not enforce them.

As Joseph Schumpeter noted, capitalism is not a steady-state system. It is unstable system in which population constantly experience and then try to overcome one crisis after another. Joseph Schumpeter naively assumed that the net result is reimaging itself via so called "creative destruction". But what we observe now it "uncreative destruction". In other words casino capitalism is devouring the host, the US society.

So all those Hillary statements are for plebs consumption only (another attempt to play "change we can believe in" trick). Just a hot air designed to get elected. Both Clintons are in the pocket of financial oligarchy and will never be able to get out of it alive.

GeorgeK said...

I believe I'm the only one on this blog that has actually traded bonds, done swaps and hedged bank portfolios with futures contracts. Sooo I kinda know something about this topic.

Hilary is a fraud; her daughter worked at a Hedge fund where she met her husband Marc Mezvinsky, who is now a money manager at the Eaglevale fund. Oddly many of the Eaglevale investors are investors in the Clinton Foundation and have also given money to Hilary's campaign. The Clinton Foundation gets boat loads of money from Hedge funds and will not raise taxes on such a rich source of funding.

The grooms mother is Marjory Margolies (ex)Mezvinsky, she cast the final vote giving Clinton the winning vote to raise taxes. She subsequently lost her run for reelection to congress, then her husband was convicted of fraud and they divorced.

This speech is an attempt to pry people away from Bernie, it won't work with primary voters but might with what's left of rational Republicans in the general election.

[Dec 07, 2015] Hillary Clinton How I'd Rein In Wall Street

[Dec 06, 2015] Beware Economics 101 -- this is a neoclassical junk

"... "The problem for early would - be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences. ..."

"... This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts. ..."

"... Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago. ..."

"... Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality. ..."

"... Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions…. ..."

"... Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail. ..."

"... With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way. ..."

"... Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts. ..."

"... It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters. ..."

"... A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt. ..."

"... The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC. ..."

"... The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. ..."

"... The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008. ..."

"... However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy. ..."

"... So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking). ..."

peakoilbarrel.com
VK, 12/04/2015 at 2:57 pm
Beware Economics 101. The peer review mechanism has horribly failed.
When you read Krugman, this is what he and our central bankers believe.

"The problem for early would - be neoclassical macroeconomists was that, strictly speaking, there was no microeconomic model of macroeconomics when they began their campaign. So they developed a neoclassical macro model from the foundation of the neoclassical growth model developed by Nobel laureate Robert Solow (Solow 1956) and Trevor Swan (Swan 2002). They interpreted the equilibrium growth path of the economy as being determined by the consumption and leisure preferences of a representative consumer, and explained deviations from equilibrium – which the rest of us know as the business cycle – by unpredictable 'shocks' to technology and consumer preferences.

This resulted in a model of the macroeconomy as consisting of a single consumer, who lives for ever, consuming the output of the economy. Which is a single good produced in a single firm, which he owns and in which he is the only employee, which pays him both profits equivalent to the marginal product of capital and a wage equivalent to the marginal product of labor. To which he decides how much labor to supply by solving a utility function that maximizes his utility over an infinite time horizon, which he rationally expects and therefore correctly predicts.

The economy would always be in equilibrium except for the impact of unexpected 'technology shocks' that change the firm's productive capabilities (or his consumption preferences) and thus temporarily cause the single capitalist/worker/consumer to alter his working hours.

Any reduction in working hours is a voluntary act, so the representative agent is never involuntarily unemployed, he's just taking more leisure. And there are no banks, no debt, and indeed no money in this model."

Prof. Steve Keen, Debunking Economics.

Dennis Coyne, 12/04/2015 at 6:11 pm
Hi VK,
No this is not what Krugman believes at all. There are some economists that think in these terms, in the US it is primarily in the interior of the country, the economists on the east and west coast, (this includes Krugman and many others) would not think in these terms at all.
Have you ever read anything by Krugman?
VK, 12/05/2015 at 1:41 am
Read Krugman for years. The basic neoclassical models are founded on the representative agent model with the above assumptions as core. Look up the PhD text book on economics – http://www.amazon.com/Microeconomic-Theory-Andreu-Mas-Colell/dp/0195073401
Krugman gives assessments based on the representative agent models, with its no money, no debt, no banks assumptions. Very linear models, no dynamic modeling.
Economic theory and modeling is stuck in the 19th century. Rest of the hard sciences, physics, chemistry, atmospherics moved on with Poincare and later Lorenz to dynamic simulations.
VK, 12/04/2015 at 3:04 pm
To Dennis Coyne, debt levels matter because "loans create deposits" and not vice versa. Bank of England published a paper last year on modern money creation http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf
The fractional reserve banking model taught in economics is absolutely empirically wrong. Because banks have the power to create credit money, they can issue in excess.

Under the empirically correct credit money creation model, there can be an excessive build up of debt. Hence the more than 250 sovereign and domestic govt debt crises since 1850.

Dennis Coyne, 12/04/2015 at 6:24 pm
Hi VK,
Rune Likvern posted the link and I read the paper. US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past.

There can be excessive debt and banks can fail due to poor lending practices combined with a severe recession. Nations can also default. The question is how much debt is too much debt. In economics there are different opinions on this question. When I was studying economics the focus was on public debt crowding out private debt when an economy was close to full employment.

Now there seems to be more focus on private debt, which nobody in economics used to worry about.

It may be that the lack of banking regulation and the rise of shadow banking has made this more of a problem, I am out of date on the latest research.

http://www.economist.com/blogs/freeexchange/2015/06/public-debt

The article at the link above suggests up to about a 150% debt to GDP ratio is a safe level for public debt.

VK, 12/05/2015 at 1:56 am
U.S. Textbooks don't cover this at all. The assumption that Paul Samuelson used in his seminal undergraduate textbook that millions have studied was the fractional reserve lending model which is empirically false.
The whole of economics is empirically false, it would be a laughing stock if people looked under the hood with its assumptions that are meant to preserve straight line thinking rather than dealing with reality, which is highly non-linear and dynamic.

Private debt wasn't a concern in economics because they assumed away the role of banks to preserve the equilibrium models. Once you incorporate reality into the models, which is what a true science would do, you find that private debt levels matter.

What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

What really happens: Saver puts money in a bank, has access to his money anytime. Borrower wants money, bank issues a credit and writes loan amount as asset. Purchasing power as a whole increases across the economy as both saver and borrower now have money to buy goods and services with.
That's how the economy grows – bank issuance of credit. And it can easily be in excess.

https://unlearningeconomics.wordpress.com/2012/04/03/the-keenkrugman-debate-a-summary/

Jef, 12/05/2015 at 9:12 am
Thanks for hanging in there VK.
I tried to explain this to my father in law who is an attorney specializing in finance and accounting. He simply could not accept it or even wrap his head around it even after reading the Bank of England piece.

It is fraud plain and simple and the cost to humanity in both financial terms and lives lost is huge.

Glenn Stehle, 12/05/2015 at 9:34 am
Paul Krugman is a quintessential neoclassical economist. Neoclassical economists threw the notion that economics should deal with empirical or factual reality overboard quite some time ago.
Perhaps no one was more explicit in articulating this notion that science should discard factual reality than Milton Friedman.

Any number of critics have pointed this out. For instance,

Economists often invoke a strange argument by Milton Friedman that states that models do not have to have realistic assumptions to be acceptable - giving them license to produce severely defective mathematical representations of reality.

–NASSIM NICHOLAS TALEB, The Black Swan

and

Economists as a rule do not deny that their assumptions about human nature are highly unrealistic, but instead claim, following Friedman (1962, 1982), that the absence of realism does not diminish the value of their theory because it "works," in the sense that it generates valid predictions….

Most important, philosophers of science have almost universally rejected Friedman's position (Boland, 1979). It is very widely agreed that the purpose of a theory is to explain. Otherwise, [predictions] are unable to foretell under what conditions they will continue to hold or fail.

AMITAI ETZIONI, The Moral Dimension

With the advent of the Great Financial Crisis, which began in 2007 and continues to this day, the neoclassical models did fail. And they failed in the most spectacular way.

Nevertheless, for those like Krugman who are in love with orthodox economic theory, when facts don't conform to theory, so much worse for the facts.

Glenn Stehle, 12/05/2015 at 9:55 am
It should be added that not everyone who rejects the orthodox, neoclassical theory of exogenous money creation and its "available funds" theory of banking, as Keen calls it, believes that debt matters.
A very good example of this is the MMT school, which even though it rejects the orthodox theory of money creation, nevertheless discounts the importance of debt, or at least public debt.

The distinction between private debt and public debt, however, is not a clear one. We all saw, for instance, the ease with which private debt was converted into public debt in the cases of Ireland and Spain in the wake of the GFC.

Dennis Coyne, 12/05/2015 at 12:38 pm
Hi Glenn,
Krugman does hold relatively mainstream views, but there are significant differences of opinion within economics. Many economists reject Keynesian theory, Krugman does not. The piece that VK posted by Keen was essentially a rejection of the macroeconomic theory that was formulated to replace Keynesian theory. Krugman would make many of the exact same criticisms.

The "debt doesn't matter" theme is carried a little too far, nobody really argues this. The argument is that when the economy is doing poorly due to low aggregate demand (during a severe recession) and monetary policy is not effective because interest rates are near zero (so that the federal funds rate cannot be lowered any further), cutting fiscal deficits is poor public policy.

Perhaps you disagree?

Glenn Stehle, 12/05/2015 at 1:57 pm
Dennis,
Are you unaware of the famous debate between Krugman and Keen, and what it is all about?

Perhaps this article by Ann Pettifor will help:

The debate between these two economists on the role of banking and specifically the creation of credit is of fundamental importance in understanding the shortcomings of orthodox economic thinking – and why it was so ill-equipped to handle, let alone predict, the crash of 2008.

Many rightly applaud Paul Krugman for using his platform at the New York Times to defend further fiscal stimulus in the US–against a hostile political crowd, not to mention the downright opposition of neo-liberal economists –- and we commend him for that.

However, because he has such an important platform, it matters more to many monetary economists (including the editor of this series) that he appears to lack a proper understanding of the nature of credit, and the role of banks in the economy.

https://www.opendemocracy.net/ourkingdom/steve-keen/keen-krugman-debate

I very much recommend reading the entire article, and much more can be found by Googling "Keen vs Krugman debate."

Dennis Coyne, 12/05/2015 at 12:15 pm
Hi Vk,
There are many of us who have studied beyond the introductory level. In my introductory courses, I believe we were taught this correctly, but that was long ago, I know when I instructed the introductory students as a grad student what I was teaching was essentially what I read in the paper you cited. Perhaps the "textbooks" have improved over time, I haven't read an economics textbook for many years.

Have you read any economics papers lately, perhaps there has been more progress than you think. A fundamental problem with economics is that how we understand the workings of the economy can affect the way people behave. People will always try to game the system and this then effects the system. It is a difficult modelling problem not faced by chemists and physicists.

If you solve it you should publish a paper.

Dennis Coyne, 12/05/2015 at 1:41 pm
Hi VK,
You said:

What economists think: Saver lends to borrower. Saver loses purchasing power, borrower gains purchasing power. Purchasing power hasn't changed in the economy. Just a shift

Economists don't think this way at all. These kinds of lessons are often presented in introductory economics courses to show how economists once thought things worked in 1803 when Say introduced "Say's Law".

Then the economics professor goes on to explain how a modern economy actually works (which we don't understand all that well.)

Generally speaking economic growth is considered a good thing, and banks lending to borrowers that are likely to be able to repay the loan (not true leading up to the financial crisis due to poor regulation and lending practices), is not a problem in a well regulated banking sector (in the US this went away in the 1980s).

So yes debt is a big problem with a poorly regulated banking industry (financial industry really because of shadow banking).

Debt is like a lot of things in life, too much or too little can be a bad thing.

The central bank can certainly influence the amount of lending by raising interest rates, as long as inflation is moderate, there is not much reason to do so.

Rune Likvern, 12/05/2015 at 1:43 pm

"US textbooks through 1990 covered this exactly as in that paper, so it was a good refresher, but not different from what I had learned in the past."

And what is the title of those textbooks?

"Now there seems to be more focus on private debt, which nobody in economics used to worry about."

Was it US public or private debt that started the GFC in 2007/2008?

[Dec 04, 2015] The alleged 'decoupling' of GDP from energy

peakoilbarrel.com
Don Stewart, 12/01/2015 at 12:25 pm

Dear Ron and Others
Relative to the alleged 'decoupling' of GDP from energy. Please see:
http://www.pnas.org/content/112/20/6271.full
The material footprint of nations

The apparent decoupling turns out to be mostly a mirage. It is true that rich countries outsource some of the more energy and materials intensive operations to poor countries, but if you count back from consumption, the rich countries are essentially as energy and materials dependent as they ever were. For fossil fuels, the coefficient is 90 percent…a 90 point increase in fossil fuels is needed for a 100 point increase in GDP.

Part of what happens can perhaps be understood by thinking about beef imports. If England imports beef from Africa, then there is a great deal of materials and energy consumed in Africa to produce the beef. Only a small percentage of the resource used gets exported to England. If you start with the steak in England and look back at the supply chain, you find that the consumption of the pound of steak in England was responsible for the consumption of lots of energy and materials in Africa.

I think that 'decoupling' is not the same as energy efficiency. Suppose, for example, that we look at the efficiency with which firewood is burned in an ordinary house. Back in the olden days, the wood was burned in a fireplace, which is inefficient. Then Franklin invented the Franklin stove and heating became more efficient in terms of calories of usable heat per cord of wood. But the stove wasn't necessarily any less or more expensive than the fireplace. Since GDP essentially measures cash outlay, the increased efficiency doesn't necessary have any direct impact on GDP.

Recently, we have begun to adjust GDP for 'hedonic factors'. Suppose, for example, that one has an old radio with lots of static and poor sound quality. Then one buys a new radio with better sound quality. But suppose that the price you pay for the new radio is the same as it was for the old radio. GDP would be the same for both radios. But, recently, the US government has begun to make adjustments for the quality of the sound.

Whether the hedonic adjustments make any sense depends on what sort of question you are trying to answer. If you are asking 'will my radio company be able to pay our debts?', then all that matters is your actual income. The fact that you had to improve the sound quality in order to remain competitive is an ancillary fact. If you are not getting any more income, then paying your debts doesn't get any easier.

Don Stewart

Fred Magyar, 12/01/2015 at 1:41 pm
Why the GDP Is Not An Good Measure of A Nation's Well Being
https://goo.gl/xKKHZx
In their book, The Spirit Level: Why Greater Equality Makes Societies Stronger (link is external), Professors Richard Wilkinson and Kate Pickett, present data taken from multiple credible sources that show the gap between the poor and rich the greatest in the U.S. among all developed nations; child well being is the worst in the U.S. among all developed nations; and levels of trust among people in the U.S. among the worst of all developed nations.

The Subcommittee on International Organizations, Human Rights and Oversight of the U.S. Congress' House Committee on Foreign Affairs stated, after examining the issue of the U.S.'s declining image abroad, "the decline in international approval of U.S. leadership is caused largely by opposition to the invasion of Iraq, U.S. support for dictators, and practices such as torture and rendition. They testified that this opposition is strengthened by the perception that our decisions are made unilaterally and without constraint by international law or standards-and that our rhetoric about democracy and human rights is hypocritical."

The US ranks 114th out of 125 countries in international peace and security.

http://www.goodcountry.org/

To those in power who believe that only strength counts, and that people are always self-interested, I say "We tried it your way, and it didn't work. Let's try something new."

Simon Anholt

Ves, 12/02/2015 at 8:49 am
Hi Dennis,
I see up there little discussion about GDP and what it means.
Let's say:
Country A: use washable rags to clean kitchen counter-tops.
Country B: use paper towels to clean same kitchen counter-tops.
As result they both have clean kitchen counter-tops but Country B has higher GDP due to use of paper towels.

So GDP means absolutely nothing or anything depending what you want to present.

GDP is like looking at the sunset and your mind is thinking that you are actually looking at the sunset. But it takes 8 minutes for sunlight to reach the earth and that sun that we think we are looking at is already gone. (Since this site is loaded with scientist they can correct me with if that 8 minutes is more or less correct )

Anyway, mostly GDP is used by some "smart" people we call economist to tell us some "story". For example they tell us: "You see sunny boy that GDP is big number this year, bigger than one from last year. So you should be content and happy. Not convinced? Don't worry we will "super size" that GDP for you next year. Isn't your tummy already feeling full and content?"

This kind of storytelling is usually printed as financial news about GDP. Meaningless if you ask me from the point of average citizen.

I have to go now because I have whole day of work planned for me by this economy and I will catch you later tonight to see your thoughts. Another thing that crosses my mind is how come that we work more or at least the same now when oil is at $40 compared to when oil was $100 last year? Wasn't the official meme that use of oil as our biggest invention beside sliced bread, made our life easier so we actually work less and spent more time with family & friends and doing odd staff like canoeing How come I don't feel that I did not get 60% discount due to price of oil in terms of work load from the last year Who is pocketing that 60%
How about employed folks who bought kiwi Leaf? Do they work less and have more time with family and friends or they are paddling in the same hamster wheel we call economy?

Dennis Coyne, 12/02/2015 at 12:39 pm
Hi Ves,
I agree GDP is a poor measure of well being. Another example would be World War 2 where a lot of output was created to destroy stuff (tanks, bombs, planes, ships, guns, etc), then stuff was destroyed, cities and other infrastructure in Europe and Asia and then it was rebuilt leading to a lot of economic growth. Were we better off? Probably not, especially the millions who died and their families.

GDP has many problems, beyond paper towels and paper plates and other wasteful (in my opinion) uses of resources.

I did a different chart using the human development index (HDI) from 1980 to 2013 which shows World primary energy use per unit of HDI(a dimensionless number) has been increasing roughly linearly, not decreasing as is the case for energy intensity.

The HDI is also far from perfect as a measure of human welfare, but probably better than GDP.

[Dec 04, 2015] German Financialization and the Eurozone Crisis

"... Bundenstalt für Finanzdienstleistungsaufsicht ..."

naked capitalism
Many studies of the Eurozone crisis focus on peripheral European states' current account deficits, or German neo-mercantilist policies that promoted export surpluses. However, German financialization and input on the eurozone's financial architecture promoted deficits, increased systemic risk, and facilitated the onset of Europe's subsequent crises.
Increasing German financial sector competition encouraged German banks' increasing securitization and participation in global capital markets. Regional liberalization created new marketplaces for German finance and increased crisis risk as current accounts diverged between Europe's core and periphery. After the global financial crisis of 2008, German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis. Rethinking how financial liberalization facilitated German and European financial crises may prevent the eurozone from repeating these performances in the future.

After the 1970s, German banks' trading activity came to surpass lending as the largest share of assets, while German firms increasingly borrowed in international capital markets rather than from domestic banks. Private banks alleged that political subsidies and higher credit ratings for Landesbanks, public banks that insured household, small enterprise, and local banks' access to capital, were unfair, and, in response, German lawmakers eliminated state guarantees for public banks. Landesbanks, despite their historic role as stable, non-profit, providers of credit, consequently had to compete with Germany's largest private banks for business. Changes in competition restructured the German financial system. Mergers and takeovers occurred, especially in commercial banks and Landesbanks. German financial intermediation ratios-total financial assets of financial corporations divided by the total financial assets of the economy-increased. Greater securitization and shadow banking relative to long-term lending increased German propensity for financial crisis, as securities, shares, and securitized debt constituted increasing percentages of German banks' assets and liabilities.

Throughout this period, Germany lacked a centralized financial regulatory apparatus. Only in 2002 did the country's central bank, the Bundesbank, establish the Bundenstalt für Finanzdienstleistungsaufsicht (Federal Financial Supervisory Authority, known as BaFin), which consolidated the responsibilities of three agencies to oversee the whole financial sector. However, neither institution could keep pace with new sources of financial and economic instability. German banking changes continued apace and destabilizing trends in banking grew.

German desire for financial liberalization at the European level, meanwhile, helped increase potential systemic risk of European finance. Despite some European opposition to removing barriers to capital and trade flows, Germany prevailed in setting these preconditions for membership in the European economic union. Germany's negotiating power stemmed from its strong currency, as well as French, Italian, and smaller European economies' desire for currency stability. Germany demanded an independent central bank for the union, removal of capital controls, and an expansion of the tasks banks could perform within the Economic and Monetary Union (EMU). The Second Banking Coordination Directive (SBCD) mandated that banks perform commercial and investment intermediation to be certified within the EMU; the Single Market Passport (SMP) required free trade and capital flows throughout the EMU. The SMP and SBCD increased the scope of activity that financial institutions throughout the union were expected to provide, and opened banks up to markets, instruments, and activities they could neither monitor nor regulate, and hence to destabilizing shocks.

Intra-EMU lending and borrowing subsequently increased, and total lending and borrowing grew relative to European countries' GDP from the early 1990s onward. Asymmetries emerged in capital flows between Europe's core, particularly the UK, Germany, and the Netherlands, to Europe's newly liberalized periphery. German banks lent increasing volumes to EMU member states, especially peripheral states. Though this lending on a country-by-country basis was a small percentage of Germany's GDP, it constituted larger percentages of borrowers' GDPs. In 2007, Germany lent 1.23% of its GDP to Portugal; this represented 17.68% of Portugal's GDP; in 2008, Germany lent 6% of its GDP to Ireland; this was 84% of Irish GDP. Germany, the largest European economy, lent larger percentages of its GDP to peripheral EMU nations relative to its lending to richer European economies. These flows, more potentially disruptive for borrowers than for the lender, reflected lack of oversight in asset management. German lending helped destabilize European financial systems more vulnerable to rapid capital inflows, and created conditions for large-scale capital flight in a crisis.

Financial competition increased in Europe over this period. Financial merger activity first accelerated within national borders, and later grew at supra-national levels. These movements increased eurozone access to capital, but increased pressure for banks to widen the scope of the services and lending that they provided. Rising European securitization in this period increased systemic risk for the EMU financial system. European holdings of U.S.-originated asset-backed securities increased by billions of dollars from the early 2000s until shortly before 2008. German banks were among the EMU's top issuers and acquirers of such assets. As banks' holdings of these assets increased, European systemic risk increased as well.

European total debt as a percentage of GDP rose in this period. Financial debt relative to GDP grew particularly sharply in core economies; Ireland was the only peripheral EMU economy with comparable levels of financial debt. Though government debt relative to GDP fell or held constant for most EMU nations, cross-border acquisition of sovereign debt increased until 2007. German banks acquired substantially larger portfolios of sovereign debt issued by other European states, which would not decrease until 2010. Only in 2009 did government debt relative to GDP increase throughout the eurozone, as governments guaranteed their financial systems to minimize the costs of the ensuing financial crisis.

The newly liberalized financial architecture of the eurozone increased both the market for German financial services and overall systemic risk of the European financial system; these dynamics helped destabilize the German financial system and economy at large. Rising German exports of goods, services, and capital to the rest of Europe grew the German economy, but divergence of current account balances within the EMU exposed it to sovereign debt risk in peripheral states. Potential systemic risk changed into systemic risk after the subprime mortgage crisis began. EMU economies would not have subsequently experienced such pressure to backstop national financial systems or to repay sovereign loans had German banks not lent so much or purchased so many sovereign bonds within the union. Narratives that fail to acknowledge Germany's role in promoting the circumstances that underlay the eurozone crisis ignore the destabilizing power of financial liberalization, even for a global financial center like Germany.

susan the other, December 3, 2015 at 1:06 pm

This is very interesting. It describes just how the EU mess unfolded beginning in 1970 with deregulation of the financial industry in the core. Big fish eat little fish. It is as if for 4 decades the banks in Germany compensated their losses to the bigger international lenders by taking on the riskier borrowers and were able to do so because of German mercantilism and financial deregulation. Like the German domestic banks loaned the periphery money with abandon, and effectively borrowed their own profits by speculating on bad customers. As German corporations did business with big international banksters, who lent at lower rates, other German banks resorted to buying the sovereign bonds of the periphery and selling CDOs, etc. The German banks were as over-extended looking for profit as consumers living on their credit cards. Deregulation enriched only the biggest international banks. We could call this behavior a form of digging your own grave. In 2009 the periphery saw their borrowing costs threatened and guaranteed their own financial institutions creating the "sovereign debt" that the core then refused to touch. Hypocrisy ruled. Generosity was in short supply. The whole thing fell apart. Deregulation was just another form of looting.

washunate, December 3, 2015 at 1:28 pm

German losses on international securitized assets prompted retrenchment of lending, paving the way for the eurozone's sovereign debt crisis.
I agree with the general conclusion at the end that German financialization is part of the overall narrative of EMU, but I don't follow this specific link in the chain of events as described. The eurozone has a sovereign debt crisis because those sovereign governments privatized the profits and socialized the losses of a global system of fraud. And if we're assigning national blame, it's a system run out of DC, NY, and London a lot more than Berlin, Frankfurt, and Brussels.
Current and capital account imbalances cancel each other out in the overall balance of payments. As bank lending decreases (capital account surplus shrinks) then the current account deficit shrinks as well (the 'trade deficit'). The problem is when governments step in and haphazardly backstop some of the losses – at least, when they do so without imposing taxes on the wealthy to a sufficient degree to pay for these bailouts.

[Dec 04, 2015] Congressional Aid to Multinationals Avoiding Taxes

EconoSpeak

The OECD's Base Erosion and Profit Shifting (BEPS) initiative is an effort by the G20 to curb the abuse of transfer pricing by multinationals. Senator Hatch is not a fan:

Throughout this process we have heard concerns from large sectors of the business community that the BEPS project could be used to further undermine our nation's competitiveness and to unfairly subject U.S. companies to greater tax liabilities abroad. Companies have also been concerned about various reporting requirements that could impose significant compliance costs on American businesses and force them to share highly sensitive proprietary information with foreign governments. I expect that we'll hear about these concerns from the business community and others during today's hearing.
Indeed we heard from some lawyer representing The Software Coalition who was there to mansplain to us how BEPS is evil. I learned two startling things. First – Bermuda must be part of the US tax base. Secondly, if Google is expected to pay taxes in the UK, it will take all those 53,600 jobs which are mainly in California and move them to Bermuda:
in particular how the changes to the international tax rules as developed under BEPS will significantly reduce the U.S. tax base and create disincentives for U.S. multinational corporations (MNCs) to create R&D jobs in the United States
Yes – I find his testimony absurd at so many levels. Let's take Google as an example. When they say foreign subsidiaries – think Bermuda. Over the past three year, Google's income has average $15.876 billion per year but its income taxes have only average $2.933 billion for an effective tax rate of only 18.5%. How did that happen? Well – 55% of its income is sourced to these foreign subsidiaries and the average tax rate on this income is only 6.5%. Nice deal! Google's tax model is not only easy to explain but is also a very common one for those in the Software Coalition. While all of the R&D is done in the U.S. and 45% of its sales are in the U.S. – U.S. source income is only 45% of worldwide income. Very little of the foreign sourced income ends up in places like the UK even 11% of Google's sales are to UK customers. Only problem is that income ends up on Ireland's books with the UK getting a very modest amount of the profits. Now you might be wondering how Google got to the foreign taxes to be only 6.5% of foreign sourced income since Ireland's tax rate is 12.5%. But think Double Irish Dutch Sandwich and you'll get how the profits ended up in Bermuda as well as perhaps a good lunch! But what about that repatriation tax you ask. Google's most recent 10-K proudly notes:
"We have not provided U.S. income taxes and foreign withholding taxes on the undistributed earnings of foreign subsidiaries".
In other words, they are not paying that repatriation tax. Besides the Republicans want to eliminate. Let's be honest – Congress has hamstringed the IRS efforts to enforce transfer pricing. The BEPS initiative arose out of this failure. And now the Republicans in Congress are objecting to even these efforts. And if Europe has the temerity of expecting its fair share of taxes, U.S. multinationals will leave California and relocate in Bermuda? Who is this lawyer kidding? Myrtle Blackwood
The development model in nation after nation is dependent upon global corporations. What is happening is simply a byproduct of this.
Jack
Would the problem of transfer mythical corporate location and the resulting lost taxes be resolved if taxes were based on point of revenue? Tax gross income where it is earned instead of taxing profits where they are not earned.

[Dec 04, 2015] But It's Just A 0.25% Rate Hike, What's The Big Deal - Here Is The Stunning Answer

"... So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S P along with a Treasury market crashing in parallel and no buyers. ..."

Zero Hedge

johngaltfla

Fascinating article Tyler. Because if the math is correct, which I believe it to be or damned close, then the Fed is about to drain several hundred billion dollars from an illiquid credit market leaving no bid at year end.

So after the Fed created mini-crash, then a Santa Claus Bullcrap Rally, we move into year end and on to January with a smashing potential for a 10-20% rapid correction in the S&P along with a Treasury market crashing in parallel and no buyers.
Shit could get real between the next two Fed meetings, that is for certain.

FireBrander

Bernanke did a little "draining" of his own; and brought down the global financial system...
THEN "SAVED IT", AND HE WAS HAILED AS A FUCKEN HERO!
Yellen my just be trying to secure her spot on the cover of Time for "Saving Us Again".

Fish Gone Bad

In October of 2008 there was a fairly large drain of money and things got scary (https://research.stlouisfed.org/fred2/graph/?chart_type=line&height=600&...[1][id]=MULT&width=1000).

[Dec 04, 2015] Wolf Richter "Distress" in US Corporate Debt Spikes to 2009 Level

"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street ..."

"... Other high-risk credits, such as those backed by subprime mortgages, will follow. And the irony? Just in the nick of time, subprime is back – but this time, it's even bigger. Read… Subprime "Alt"-Mortgages from Nonbanks Run by former Countrywide Execs Backed by PE Firms Are Booming ..."

www.nakedcapitalism.com

December 3, 2015 | naked capitalism
By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street
nvestors, lured into the $1.8-trillion US junk-bond minefield by the Fed's siren call to be fleeced by Wall Street and Corporate America, are now getting bloodied as these bonds are plunging.

Standard & Poor's "distress ratio" for bonds, which started rising a year ago, reached 20.1% by the end of November, up from 19.1% in October. It was its worst level since September 2009.

It engulfed 228 companies at the end of November, with $180 billion of distressed debt, up from 225 companies in October with $166 billion of distressed debt, S&P Capital IQ reported.

Bonds are "distressed" when prices have dropped so low that yields are 1,000 basis points (10 percentage points) above Treasury yields. The "distress ratio" is the number of non-defaulted distressed junk-bond issues divided by the total number of junk-bond issues. Once bonds take the next step and default, they're pulled out of the "distress ratio" and added to the "default rate."

During the Financial Crisis, the distress ratio fluctuated between 14.6% and, as the report put it, a "staggering" 70%. So this can still get a lot worse.

The distress ratio of leveraged loans, defined as the percentage of performing loans trading below 80 cents on the dollar, has jumped to 6.6% in November, up from 5.7% in October, the highest since the panic of the euro debt crisis in November 2011.

The distress ratio, according to S&P Capital IQ, "indicates the level of risk the market has priced into the bonds. A rising distress ratio reflects an increased need for capital and is typically a precursor to more defaults when accompanied by a severe, sustained market disruption."

And the default rate, which lags the distress ratio by about eight to nine months – it was 1.4% in July, 2014 – has been rising relentlessly. It hit 2.5% in September, 2.7% in October, and 2.8% on November 30.

This chart shows the deterioration in the S&P distress ratio for junk bonds (black line) and leveraged loans (brown line). Note the spike during the euro debt-crisis panic in late 2011:
The oil-and-gas sector accounted for 37% of the total distressed debt and sported the second-highest sector distress ratio of 50.4%. That is, half of the oil-and-gas junk debt trades at distressed levels! The biggest names are Chesapeake Energy with $7.4 billion in distressed debt and Linn Energy LLC with nearly $6 billion.
Both show how credit ratings are slow to catch up with reality. S&P still rates Chesapeake B- and Linn B+. Only 24% of distressed issuers are in the rating category of CCC to C. The rest are B- or higher, waiting in line for the downgrade as the noose tightens on them.

The metals, mining, and steel sector has the second largest number of distressed issues and sports the highest sector distress ratio (72.4%), with nearly three-quarters of the sector's junk debt trading at distressed levels. Among the biggest names are Peabody Energy with $4.7 billion in distressed debt and US Steel with $2.2 billion.

These top two sectors account for 53% of the total distressed debt. And now there are "spillover effects" to the broader junk-rated spectrum, impacting more and more sectors. While some sectors have no distressed debt yet, others are not so lucky:

Restaurants, 21 issuers, sector distress ratio of 21.4%;

Media and entertainment companies, 36 issuers, distress ratio of 17%;

High-tech companies, 22 issuers, distress ratio of 19%;

Chemicals, packaging, and environmental services companies, 14 issuers, distress ratio of 16.1%;

Consumer products companies, 16 issuers, distress ratio of 13.9%;

Financial institutions, 14 issuers, distress ratio of 12.6%.

The biggest names: truck maker Navistar; off-road tire, wheel, and assembly maker Titan International; specialty chemical makers The Chemours Co. and Hexion along with Hexion US Finance Corp.; Avon Products; Verso Paper; Advanced Micro Devices; business communications equipment and services provider Avaya; BMC Software and its finance operation; LBO wunderkind iHeart Communications (Bain Capital) with a whopping $8.9 billion in distressed debt; Scientific Games; jewelry and accessory retailer Claire Stores; telecom services provider Windstream; or Texas mega-utility GenOn Energy (now part of NRG Energy).

How much have investors in distressed bonds been bleeding? S&P's Distressed High-Yield Corporate Bond Index has collapsed 40% from its peak in mid-2014:

In terms of investor bloodletting: 70% of all distressed bonds are either unsecured or subordinated, the report notes. In a default, bondholders' claims to the company's assets are behind the claims of more senior creditors, and thus any "recovery" during restructuring or bankruptcy is often minimal.

At the lowest end of the junk bond spectrum – rated CCC or lower – the bottom is now falling out. Yields are spiking, having more than doubled from 8% in June 2014 to 16.6% now, the highest since August 2009:

These companies, at these yields, have serious trouble raising new money to fund their cash-flow-negative operations and pay their existing creditors. Their chances of ending up in default are increasing as the yields move higher.

And more companies are getting downgraded into this club of debt sinners. In November, S&P Ratings Services upgraded only eight companies with total debt of $15.8 billion but downgraded 46 companies with total debt of $113.7 billion, for a terrible "downgrade ratio" of 5.8 to 1, compared to 1 to 1 in 2014.

This is what the end of the Great Credit Bubble looks like. It is unraveling at the bottom. The unraveling will spread from there, as it always does when the credit cycle ends. Investors who'd been desperately chasing yield, thinking the Fed had abolished all risks, dove into risky bonds with ludicrously low yields. Now they're getting bloodied even though the fed funds rate is still at zero!

Other high-risk credits, such as those backed by subprime mortgages, will follow. And the irony? Just in the nick of time, subprime is back – but this time, it's even bigger. Read… Subprime "Alt"-Mortgages from Nonbanks Run by former Countrywide Execs Backed by PE Firms Are Booming
BrianM, December 3, 2015 at 11:09 am
It is interesting that "distressed" in this article pretty much refers to pricing alone and says little about whether it actually represents a significant change in the ability of companies to repay/refinance their debts. The charts show a similar spike that happened in 2012 without any real consequence to default rates. Of course we are right to not trust the rating agencies as they are lagging indicators and there is a prima facie case for oil being a potential disaster area, but the article give no evidence as to why the markets are right this time. They've been wrong before.
The definition of distress is also somewhat arbitrary – 1000bps stinks of being a round number rather than any meaningful economic measure. 900bps sounds pretty distressed to me. Or, as a bull might put it, a bargain!

tegnost, December 3, 2015 at 1:07 pm
Question: What mechanism brought distress down after the euro crisis in late 2011, and is it possible that mechanism, whatever it was, will work again?

susan the other. December 3, 2015 at 1:43 pm

It's kinda like the post above on German domestic banks looking for profit from any rotten source. We are on the cusp of a new economy; keeping alive the old consumer/manufacturing economy is a dead end. ...

[Dec 04, 2015] About those possible limits to creative destruction…

You need to distinguish "creative destruction" due to new technologies invented from "greed based" destruction caused by financization and outsourcing... In both cases old job dissaper, but in case of finanzition based destruction of jobs no new jobs are ever created. It's just plain vanilla wealth transfer to upper 1% of the society.

ftalphaville.ft.com
The social instability that comes alongside creative destruction - or 'disruption' - is often justified by the notion that unemployment effects are only temporary since in the long run a multitude of new jobs (many of which we can't even imagine yet) will inevitably be created.
Well, a new Oxford Martin School study by Carl Benedikt Frey and Thor Berger has found…

Only 0.5% of the US labor force is employed in industries that did not exist in 2000.

Even in Silicon Valley, only 1.8% of workers are employed in new industries

The majority of the 71 new 'tech' jobs relate to the emergence of digital technologies, (such as online auctions, video and audio streaming and web design) but also include renewable energy and biotech.

New jobs cluster in skilled cities, making economic activity increasingly concentrated and contributing to growing regional inequalities.

This, in other words, is the reality of the new "zero to one" tech world, where moving fast and breaking things (including jobs), then not worrying about the consequences until you're a billionaire who can give his wealth away in one billion dollar tranches, is the acceptable norm. (Even though, arguably, the accumulation of those billions in the first place is often the job-destroying problem.)

Dr. Frey adds the valuable commentary that:

"Because digital businesses require only limited capital investment, employment opportunities created by technological change may continue to stagnate as economies become increasingly digitized. Major economies like the US need to think about the implications for lower-skilled workers, to ensure that vast swathes of people don't get left behind."

Very fair point.

Limited capital investment equals extremely low barriers to entry. This in turn equals absolutely ruthless competition, which - somewhat ironically - leads to the "why should I bother investing in anything at all since there's nothing in it for me in the long run" effect. The real-world equivalent, if you will, of the Grossman Stiglitz Paradox.

As a consequence, faddy network effects - a.k.a who's first to benefit from natural monopoly formation or old-fashioned populism by another name - increasingly mean everything, reducing successful entrepreneurial enterprise to a simple lottery/gambling game or (at best) a highly politicised popularity contest, wherein marketing spend stands equivalent to political campaigning outlay.

Except, whereas political campaigns pay off electorate loyalty with promises of better lives in material terms, the most successful technology campaigns tend to do the opposite: pay off users for network loyalty with the promises of better digital returns, at the same time as transferring a greater share of material wealth to a tiny platform owning elite.

Indeed, because tech firms are mainly focused on redistributing existing wealth rather than creating more of it, for them to profit, some share of real economy product must be snatched from those who actually worked to produce it. That's Schumpeterian creative destruction in action, albeit at the cost of producers who tend to share their profits with workforces through wages.

The lowest cost producer will always be the one with smallest human workforce.

All of which then sparks a dangerous race to the bottom focused on cutting out the most expensive material input: the human.

What's worse, once that race starts, there's little to no incentive for anyone to invest in any business which ever involves human capital again.

The irony is, without any beneficiary workforce within the new business structure, it's only capital owners (or lucky billionaire charity cases) who get to benefit from the dividends created by the system. Demand for products and services is destroyed. To wit, a vicious deflationary cycle begins, which shrinks the pie rather than grows it.

Regarding the labour-destroying digital/tech trend, Frey and Berger's paper says specifically:

Relative to major corporations of the early computer revolution, the companies leading the digital revolution have created few employment opportunities: while IBM and Dell still employed 431,212 and 108,800 workers respectively, Facebook's headcount reached only 7,185 in 2013.

To be blunt, that arguably means it's not looking good for three of the core Schumpeterian presumptions, namely:

Technological disruption will eventually create jobs of equal merit elsewhere in the system (i.e. unemployment is temporary).

Recessions lead to efficiency gains that create social well-being for all.

Successful innovation must be rewarded with a temporary monopoly if it's to continue incentivising anyone to bear the risks of entrepreneurship.

It is, however, looking better for the Schumpeterian conclusion that eventually capitalism must give way to socialism if it's to create a widespread commonwealth.
Why? Because, whilst it's never been easier, cheaper or less risky to grab yourself a ticket for the 'monopoly reward' lottery - and thus more profitable when you do win - these cheap tickets are only available to businesses redistributing existing wealth that's focused on contracting consumer surplus as a whole.

In the digital tech era, that's at best an exercise in political-populism (marketing spend to get consumers to support this platform rather than another, for as low a consumer surplus cost as possible to the platform leader) and at worst an exercise in total utter randomness. Neither, consequently, really justifies outsized rewards to any winning party.

To the contrary, if you're in the business of creating new value utilising real human workforces or focused on creating new areas of demand, it's arguably never been more difficult, expensive or risky to take a punt on success - and thus less profitable if you do win. And that's because the very concept of rewarding a large workforce or consumer base with a steady, dependable and secure consumer surplus is considered to be a fundamental competitive disadvantage.

Related links:

How information technology is shrinking the pie – FT Alphaville

Disrupting FREEDOM! – FT Alphaville

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

[Dec 03, 2015] GDP and energy

"... A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. ..."

"... GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass. ..."

"... I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling. ..."

"... Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP. ..."

peakoilbarrel.com

VK, 11/30/2015 at 4:10 pm

So much for decoupling…
http://www.theguardian.com/commentisfree/2015/nov/24/consume-conserve-economic-growth-sustainability

"A paper published earlier this year in Proceedings of the National Academy of Sciences proposes that even the relative decoupling we claim to have achieved is an artefact of false accounting. It points out that governments and economists have measured our impacts in a way that seems irrational.

Here's how the false accounting works. It takes the raw materials we extract in our own countries, adds them to our imports of stuff from other countries, then subtracts our exports, to end up with something called "domestic material consumption". But by measuring only the products shifted from one nation to another, rather than the raw materials needed to create those products, it greatly underestimates the total use of resources by the rich nations.

For instance, if ores are mined and processed at home, these raw materials, as well as the machinery and infrastructure used to make finished metal, are included in the domestic material consumption accounts. But if we buy a metal product from abroad, only the weight of the metal is counted. So as mining and manufacturing shift from countries such as the UK and the US to countries like China and India, the rich nations appear to be using fewer resources. A more rational measure, called the material footprint, includes all the raw materials an economy uses, wherever they happen to be extracted. When these are taken into account, the apparent improvements in efficiency disappear."

BC, 11/30/2015 at 4:37 pm
VK, precisely. The US has been in a net-exergetic deficit in debt-money-based terms per capita since the mid- to late 1960s to mid-1970s to mid-1980s, having compensated by increasing to an unprecedented level to date debt to wages and GDP.
Moreover, the BEA-determined industry requirement costs as the basis of estimated gross and real value-added output (what we refer to as GDP), adjusted for our net-exergetic deficit in debt-money terms, the US has been in recession/"slow-motion depression" since Q4 2000-Q1 2001, and the world since 2005-08.

Senior BEA, BLS, Commerce, White House economic advisors, CIA, NSA, military intelligence, and Pentagon planners all know this in varying degrees as it relates to their imperatives and prerogatives.

However, the mass public and most political leaders are utterly unaware, or in the case of the latter, have no incentive to know or to share with the public what they know because they will not be able to raise a nickel thereafter for reelection if they do share.

And so it goes . . .

Ron Patterson, 11/30/2015 at 5:02 pm
Thanks VK, I suspected as much.
He told me that he and his colleagues had conducted a similar analysis, in this case of the UK's energy use and greenhouse gas emissions, "and we find a similar pattern". One of his papers reveals that while the UK's carbon dioxide emissions officially fell by 194m tonnes between 1990 and 2012, this apparent reduction is more than cancelled out by the CO2 we commission through buying stuff from abroad. This rose by 280m tonnes in the same period.

GDP is about as decoupled from energy about as much as a dog's tail is decoupled from his ass.

Jimmy, 12/02/2015 at 11:38 am
I'm with Ron on this one. If for example GDP units are produced at a ratio of 1:1 for every unit of energy consumed then a graph representing this trend could perhaps have 2 superimposed lines. If efficiency gains then begin to create 2 units of GDP for every unit of energy consumed then the 2 lines on the graph will diverge. There is no decoupling.
Only a divergence due to more units of GDP produced per unit of energy consumed. When somebody can create units of GDP and consume no energy at all then we will have decoupling. Coupling and decoupling are all or none terms/states of being. You're either coupled or your decoupled. Any arguments to the contrary are pedantic and uninformed.

Ron Patterson, 12/02/2015 at 11:58 am
Thanks Jimmy, with all the Pollyannas on this site I need all the support I can get.
Dennis Coyne, 12/02/2015 at 1:56 pm
Hi Jimmy,
Look up the meaning of decouple it is reduce or eliminate the effect of one part of a circuit on another. In this context the appropriate meaning is reduce.

Doesn't really matter, nobody thinks that energy inputs can be eliminated, that would be absurd.

Dennis Coyne, 12/01/2015 at 8:07 am
Hi VK,
The problem is solved by looking at World output and World primary energy use.

Energy intensity for the World has improved, though during the Chinese rapid expansion from 2000-2010, the progress stopped for a decade as energy was not used very efficiently in China over that period, since 2010 the progress has continued. Energy intensity is energy per unit of GDP produced.
Chart below for 1965 to 2014 using World Bank(from FRED), UN, and BP data.

Left vertical axis is in metric tons of oil equivalent (toe) per millions of 2005$ of real GDP (M2005$).

Javier, 12/01/2015 at 9:23 am
Hi Dennis,
That graph shows several things mixed that have co-evolved independently, so not many conclusions can be extracted.

-It reflects improvements in energy usage, meaning we are able to extract more economic yield per unit of energy. This is the only real efficiency improvement.

-It reflects increase in debt, that is reflected in GDP but does not use energy. If I borrow money GDP increases yet no energy is used.

-It reflects increase in tertiary economy at the expense of primary and secondary economies. We pay more for services and less for resources and goods.

We don't know the contribution of each to that graph (at least I don't), but given the magnitudes involved I would guess that the real efficiency improvement is small. This is supported by how the graph reacts to recessions (not the Chinese expansion as you claim), indicating that the main factor is economic, not energetic.

Now we know that debt has a limit, and once debt saturation is reached the economy, and specially the tertiary sector would be very badly affected. If that happens we might very well see that graph turn around and energy intensity increase.

Dennis Coyne, 12/01/2015 at 1:56 pm
Hi Javier,
GDP only increases if your money is spent on goods or services. It is output of goods and services. On a World level the debts and liabilities balance, so if I save my money and lend it to you, I spend less and you spend more. You should review your economics. At a World level, the debt has no effect, assuming we don't have ant interstellar debts. There was a World recession from 2000 to 2010? I hadn't heard about that.

Yes services might have increased, if that is what people want to spend their money on, then the share of services in the economy will increase. I don't have figures on the "non-service economy". Part of this increase reflects women entering the labor pool in greater numbers, some of the work cleaning the house or taking care of the garden are now part of GDP when before they were taken care of by the family. We may not have good data for the World on this effect.

Javier, 12/01/2015 at 2:21 pm
Dennis,
I think I do understand. If I go to the bank and ask for a 200,000 $ mortgage loan, that money is created from thin air, and when I go and pay for the house, GDP jumps by 200,000 $, so yes, increasing debt increases GDP as soon as the debt money is used. Since no oil was used to create the money, it counts as a reduction in oil intensity. Of course if I return the money to the bank the operation is reversed (they do keep the interests), but since on average debt is always expanding, except during crisis periods, oil intensity is always decreasing, except during crisis periods. Debt that is used to buy stocks or companies or to extract oil from the ground is the same.

Dennis Coyne, 12/01/2015 at 3:16 pm
Hi Javier,
The point is that you purchased a $200,000 house. That house was not created from thin air, not my house anyway.

It is not the debt, it is building a house that creates the GDP.

Rune Likvern, 12/01/2015 at 3:26 pm
So what comes first; The debt that allows for building the house, or first building the house and then creating the debt?
Dennis Coyne , 12/01/2015 at 3:47 pm
Hi Rune,
In most cases the debt will come first if the home is purchased with financing. It is possible to build a home using savings, in which case there would be no debt.

So the debt is not a requirement for GDP, just creating a new house, car, or other good or service.

Would GDP be lower if there were no debt, of course!

As long as debt grows at reasonable rates (similar to GDP growth at full employment), when there is a recession debt will initially grow faster than GDP and then will slow down until GDP growth catches up and surpasses the debt rate of growth.

Dennis Coyne, 12/01/2015 at 4:25 pm
Hi Rune,
I am curious. Do you think what Javier is saying is correct? Energy intensity has decreased because Debt to GDP ratios have increased? I am pretty sure Javier is not right, but you are very knowledgeable about economics. Perhaps you can explain it to me, if I am mistaken.

If all GDP was created with no debt (all of it was based on savings and income with no new borrowing) in year 1. And in year 2 50% of income was borrowed from banks to create the same level of GDP, would that mean in year 2 we have 150% of the first year because of the debt?

I don't think so, but I may be missing something.

Nick G, 12/02/2015 at 2:14 pm
Dennis,
Javier's suggestion about debt is not correct. Really, really not correct. Debt is just accounting for various kinds of ownership and obligations. If this were the old Soviet Union, construction would happen based on a central plan, and there would be no debt at all, but there would still be GDP.

Let's say there two houses on an island, and 2 residents, 1 in each house. One owns both houses, the other rents from the 1st. Then the renter borrows from the owner, and buys the house he/she lives in. Their monthly payment was rent, now it's a mortgage payment. The renter is now leveraged.

But, has anything "real" changed? No. Same amount of wealth, same amount of income, with different kinds of ownership, and different obligations (the renter now has to fix his own roof!).

Dennis Coyne, 12/01/2015 at 4:16 pm
Hi Javier,
You should read up on national income accounting. Debt does not really come into play, and more or less debt says absolutely nothing about the energy intensity of GDP. The chart I created is primary energy in metric tons of oil equivalent divided by real GDP in millions of 2005$. Debt plays no role.

Try the following link for a detailed introduction to national income accounting:

http://grizzly.la.psu.edu/~bickes/nia.pdf

Javier, 12/01/2015 at 7:06 pm
Dennis,
I still disagree. It is well known that the increase in debt has a positive effect on GDP, while the total outstanding debt can become a drag on GDP if too high. It is difficult to sustain that debt plays no role in GDP in light of the evidence.

For example China has had a phenomenal rate of growth accompanied by the highest rate of debt growth that the world has seen.

I think it is easy to understand.

Country A finances everything with savings and profits without increasing debt and sees an increase in GDP of 2%.

Country B finances half of the goods and services with an increase in debt and sees an increase in GDP of 2%.

Both countries use the same oil so both report the same oil intensity. However country B has brought half of the wealth used to increase the GDP from the future without bringing any future oil. That wealth will have to be repaid eventually, detracting from future GDP but at that point no oil will be recovered.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

Net effect is that debt reduces oil intensity when it is created and it increases oil intensity when it is payed. We have not seen that yet because we have not paid any debt yet. Debt is always increasing.

Dennis Coyne, 12/01/2015 at 10:17 pm
Hi Javier,
Many problems with your example.

First we need the GDP level of countries A and B, not just their growth rate. If we only talk about the incremental increases in GDP and energy use for each country it makes a little more sense.

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

What you say above is incorrect.

For simplicity I will assume if output grows by 2%, that energy use also grows by 2%, I will further assume each country has the same GDP, we will say it is $100 million before the 2% growth in your example.

If country B does not take on any debt and its GDP grows by 1%, then its energy use will also grow by 1% (not by 2%) as the energy use is proportional to GDP. So the energy intensity would remain the same. There is no reason for it to change, it depends on technology and the structural features of the economy (proportion of agriculture, manufacturing, and services).

Another basic fact of economics is that the loans taken out by a business are to take advantage of a business opportunity and they will tend to lead to higher growth, so your example is flawed.

If countries A and B are of similar size and similar levels of development (twins as it were), then if country A and country B both shunned any borrowing they will both grow at the same rate, say 2% and have the same energy intensity (energy use also grows by 2%). Let's now assume both countries are the same except that country A's culture is such that they think debt is bad, but country B does not have the same aversion to debt.
Country B borrows at 2% interest to take advantage of an investment opportunity which will have a rate of return of 4%, so country B grows faster than country A at 3% and its energy use also grows at 3% (energy intensity remains the same). The extra income earned is used to pay back the debt and the individual businesses come out ahead earning a net profit of 2% after paying back the interest. This is how rational businesses operate, they borrow money to make money.

Javier, 12/02/2015 at 8:54 am
Dennis,
I also have lots of problems with your example, so let's take a step back to look at the big picture.

That an increase on debt increases GDP is not in doubt. It is not only supported by evidence, but the basis for an entire economic theory that supports fighting recessions with debt-based stimulus.

So the question is if an increase in debt increases also GDP without oil consumption as to reduce oil-intensity. The answer is a resounding yes. Financial services are proportional to debt increase. Net interest expenses in the financial sector are seen as production and value added and are added to GDP. Any service charged by financial companies also increases GDP, and none of this economic activities uses oil, and very little energy.

I believe that a significant part of oil intensity reduction has come from the financialization of the economy linked to debt-increase, and therefore oil intensity is a fake measure of oil decoupling. If you look at energy-intensity you see the same phenomenon as with oil. It seems that we are decoupling from energy because we are moving towards a fake economy based on financial instruments. Finanzialization also appears linked to raising inequality as it effect is to increase the wealth only of owners of financial instruments.

I do not doubt that some oil and energy efficiency is real, after all it is a process that has been going on forever since the first oven was built to cook. But I seriously doubt that it is a process significant enough to solve an energy deficit problem which is what peak oil is going to bring. And to me oil intensity is a fake measure of increases in oil efficiency, that I do not doubt are real but much overstated.

Gail Tverberg has a lot more to say about decoupling GDP growth from energy growth in her article at TOD for anybody interested in the matter:

http://www.theoildrum.com/node/8615

Javier, 12/02/2015 at 9:23 am
Or to put it more clearly:

These two things are related. And decoupling is largely a myth.

In blue US energy intensity inverted

Dennis Coyne, 12/02/2015 at 10:43 am
Hi Javier,
Yes the financial sector has increased to a small degree from 4% of GDP to 8% based on the chart you posted (which is only for the United States rather than the World).

This has probably increased to some degree (more or less than the US is unknown) at the World level as well. This might explain a very small slice of the decrease in energy intensity, but I doubt it accounts for most of the change.

I agree with you that changes in the structure of the World economy (higher proportion of services) has probably decreased energy intensity, but I doubt that accounts for all of the change. The bottom line is that the World economic system is becoming more service oriented with services accounting for a larger share of GDP. At some point, services may reach some maximum level, in percentage terms, beyond which they cannot go. I don't know where that level is, debt levels will also reach some maximum level (in percentage terms) beyond which they cannot rise (maybe total debt of 300% to 350% of GDP at a World level as a potential maximum).

When those points are reached growth may be limited by how much more efficiently we can use energy and how quickly we can ramp up alternative energy as fossil fuel output declines. There is much that is unknown about the future.

Dennis Coyne, 12/02/2015 at 10:51 am
Hi Javier,
Note that you keep talking about oil, the chart shows primary energy (all forms of energy used by the economic system.)

Can you explain why country B in your example uses the same amount of energy whether it grows at 1% or 2%. One would expect that the energy use would be proportional to GDP, as that is what the World data shows.

Javier, 12/02/2015 at 11:55 am
Dennis,
That is not what I said or meant. Country B by increasing GDP 1% through an increase in debt is in essence bringing GDP from the future to the present. That borrowed GDP is using present energy.

The financial sector has increased from 2% to 8%, a 4x increase. This is not small peanuts. Specially considering that only a minor part of the financial transactions are considered towards GDP. Probably only Luxembourg and perhaps Switzerland and other banking paradises have a bigger share.

Dennis Coyne, 12/02/2015 at 2:01 pm
Hi Javier,
You said:

So in reality country B is reporting half of its real oil intensity. With present wealth it would have grown GDP by only 1% yet it has spent the same amount of oil than A.

You say above without the borrowing country B would grow by 1% (why does it grow less than country A?) but it uses the same amount of oil as country A, why if it grows more slowly?

Dennis Coyne, 12/02/2015 at 5:57 pm
Hi Javier,
Look closely at your chart in 1970 (when energy intensity started to decline) it was 4% and the most recent points on the chart are about 8.4%. I used the data from your chart (even though it is for the US rather than the World) and did an exponential trend from 1970 to 2010 for 4% to 8% and then extended to 2014 (8.5%) for financial GDP of World economy (probably not correct, but this is an illustration). Then I found the Energy intensity of the non-financial sector by assuming the financial sector has zero energy inputs (I expect they are low, this is an approximation). The Non-Financial Energy intensity is in the chart below.

Finally, Aggregate Demand is increased when there is more debt, but consider the Aggregate supply of goods produced to meet that demand. Whether the aggregate demand is because of private or public debt or not does not change the amount of energy needed to produce the supply of goods and services, it only changes how much demand there will be for those goods and services. I really cannot make it any simpler than that. Oh one more thing, do you think the energy needed to build a car (total energy embodied in all processes used to create the car and its components) changes if someone pays cash for the car vs financing the car?

Rune Likvern, 12/01/2015 at 2:23 pm
Dennis,
Bank of England has a different take on this;

" This article explains how the majority of money in the modern economy is created by commercial banks making loans.

Money creation in practice differs from some popular misconceptions - banks do not act simply as intermediaries, lending out deposits that savers place with them, and nor do they 'multiply up' central bank money to create new loans and deposits."

http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/2014/qb14q1prereleasemoneycreation.pdf

Dennis Coyne, 12/01/2015 at 3:37 pm
Hi Rune,
Yes that is correct. The banks create money by lending and borrowers destroy money as they pay back their loans. The money supply is controlled by the Central Bank buying and selling bonds.

The debt is only a problem if it grows too quickly. If the rate of debt growth slows or the rate of GDP growth increases there will not be a problem. There are differing views on how much debt is too much.

For public debt there is:

http://www.economist.com/blogs/freeexchange/2015/06/public-debt

http://www.forbes.com/sites/michaellingenheld/2015/10/22/the-world-needs-more-debt/

Rune Likvern, 12/01/2015 at 5:45 pm
Dennis,
Did you read the document from Bank of England?

Dennis Coyne, 12/02/2015 at 8:30 am
Hi Rune,
Yes I did. Under normal circumstances the supply of money is primarily influenced by the interest rate that is paid by commercial banks for money borrowed from the central bank. When the economy is in a severe recession and this interest rate falls to the "effective lower bound" (about 0.5%), the central bank loses its ability to increase the supply of money through lower interest rates.

Under these circumstances the central bank will buy assets (government bonds) to increase the money supply, it does not sell assets to reduce the money supply, it simply raises the interest rate it charges the commercial banks.

Dennis Coyne, 12/02/2015 at 8:18 am
Hi Rune,
Thanks for that link, it is a nice review of how central banks influence the supply of money by setting the interest rate which banks must pay on money borrowed from the central bank, which feeds through to interest rates throughout the economy and affects saving and borrowing through market interest rates set by banks.

I would encourage Javier to read that link as it addresses many misconceptions about money.

Glenn Stehle, 12/01/2015 at 10:00 am
Dennis,
You are comparing apples to oranges. GDP is determined using a price, or market, theory of value. So you are comparing a value determined using a market theory of value to a value determined using an intrinsic theory of value - the toe of energy.

If you want to compare apples to apples, then you have to compare GDP to the market value of the energy used.

Dennis Coyne, 12/01/2015 at 1:41 pm
Hi Glenn,
If we are concerned the energy constraints will limit real GDP, then the amount of energy consumed per unit of GDP produced is very relevant in my view.

It is not a comparison, it is a measure of energy intensity and how it has changed over time. See

https://en.wikipedia.org/wiki/Energy_intensity

I have simply charted the World Energy Intensity from 1965 to 2014.

Glenn Stehle, 12/01/2015 at 10:17 pm
Well again, Dennis, a valid comparison is one which compares dollars and cents to dollars and cents, not dollars and cents to toe.
There was a time (1970 to 2010) when the EIA published the total amount spent in the United States on energy. I have plotted the ratio of total spent on energy to total nominal GDP for those years. This is a true measure of "energy intensity," as it compares apples to apples, and does not omit the price of energy as your graph does.

I have added YOY growth in real GDP (calculated using constant 2009 dollars).

I don't want to draw too many conclusions from the graph, but it paints a far bleaker picture than your graph does. When energy intensity goes over .08 - as it did in 1974 and 2008 - then the economy began having convulsions.

The period from 1983 to 2006 is what is known as "the Great Moderation." It is also a period of low and generally declining energy intensity. When energy intensity began increasing again, as it did in 1999, surpassing .08 in 2006, then this marked the end of the Great Moderation. Is this mere coincidence?

Botton line: In my opinion not only is the quantity of energy (measured in toe) important to the performance of the economy, but the price of that energy is also important.

Using your graph, which makes no allowance for the price of energy, it is easy to see how you have come to believe that the economy is decoupling from energy.

Dennis Coyne, 12/02/2015 at 8:52 am
Hi Glenn,
It is not a comparison of money spent, energy intensity is defined as energy consumed per unit of output (measured in dollars) as there are many different goods and services and their monetary value is measured in constant dollars.

The difficulty with using price is that there are many different forms of energy (oil, coal, natural gas, nuclear, hydro, solar, wind, geothermal, and biofuels) which are included in the "primary energy" category. Note that your chart shows only one country not the world. I would present a chart for the World if I had it, I am using the data I have for primary energy divided by real GDP. I think it is useful because it is energy contraints we are concerned about, currently some forms of energy (fossil fuels especially) have very low prices so in monetary terms money spent on Energy divided by real GDP would be quite low.

Energy prices are quite volatile so I like the Energy intensity measure better as it shows energy needed to produce a unit of GDP, which has in fact declined since 1970 by about 30%(or an average annual decrease of about 0.8% per year).

Glenn Stehle, 12/02/2015 at 12:28 pm
Dennis,
I suppose price doesn't matter as long as one can get somebody else to pick up the tab.

For instance, we can compare a new $40,000 Chevy Bolt ev to a new $20,000 Honda HRV. There's no way the Bolt can compete on price. But if you can get somebody else to pick up the tab for the Bolt? Well then, no sweat!

As part of its COP21 coverage, CBS did a puff piece on their Evening News last night about how EVs are sweeping Norway.

http://www.cbsnews.com/videos/how-electric-cars-are-taking-over-norways-roads/

They interviewed one fellow who said he "had done the math" and will be able to drive his new EV "for free."

So I did a little bit more digging, and sure 'nuf, it looks like he's right.

According to the Wall Street Journal, Norway currently has 54,000 EVs on the road. Last year their owners received $540,000 in various forms of rebates, tax breaks and other perks from the Norwegian state. That's a cool $10,000 per car per year. So at that clip, it would only take 4 years to recover the cost of a $40,000 EV. And then after that one can enjoy almost free driving, all on the government's tab.

http://www.wsj.com/articles/electric-car-perks-put-norway-in-a-pinch-1442601936

But it looks like there's trouble in paradise. The WSJ says the government give-a-ways are set to end. The day of reckoning is still up in the air, but the latest date for phasing out the government largess is 2020. So the Norwegian government is taking the punch bowl away. The EV crowd, of course, isn't taking this horrible injustice lying down:

Christina Bu, secretary-general of the lobbying group Norwegian Electric Vehicle Association, said the 25,000-member association has been stalking political parties and government officials to ensure the main incentives remain in place, at least until 2020.

"If you cut all the incentives overnight, sales will plummet," she said.

Weaning buyers from such purchase incentives could add new headwinds to sales of vehicles already undercut by cheap fuel prices in some markets. In the U.S., the state of Georgia halted its $5,000 tax credit on July 1. Electric cars were about 2% of purchases in the state in 2014, estimates Washington-based think tank Keybridge Research LLC. It forecasts a 90% decline, or 8,700 fewer sales annually, as a result of the loss.

Glenn Stehle, 12/02/2015 at 1:06 pm
Edit
Last year their owners received $540 million in various forms of rebates, tax breaks and other perks from the Norwegian state.

Dennis Coyne, 12/02/2015 at 2:06 pm
Hi Glenn,
Do you have the price of primary energy from 1965 to 2014? I would be happy to do the chart you would like, but I don't know the appropriate price of energy, which has many different forms and prices throughout the World.

I agree price matters, as does the amount of energy available to purchase (which is what is in my chart).

Nick G, 12/02/2015 at 2:32 pm
Glenn,
You're looking at something different.

The original study in question was asking about whether an economy can grow without increasing it's inputs of oil, steel, etc.*

That's a very different question than whether an economy will be hurt by a sudden increase in the price of a key commodity, like oil. If the price of oil spikes, that can create a shock for the economy (e.g., people wait to see what happens with prices before they buy their next vehicle, and that delay causes a recession), but an increase in prices doesn't mean energy consumption has gone up.

-----------------
* (it can, of course, but that's separate issue from whether our societies have chosen to do so).

Ralph, 12/02/2015 at 8:46 am
I am far from convinced that GDP growth is a good way of measuring progress in a society. Let's take an example from the UK economy. (btw I am not worried about the genders here, I would happily be a house husband if my wife's earning potential was close to mine).
Today, nearly 70% of women of working age work. Families need both incomes to meet a reasonable standard of living. As a result, a large majority of UK children grow up in families with both parents working. Many parents end up sending young children to child minders and crèches so that they can work. This employs a lot of people, mostly women. More wealthy families then employ house cleaners and gardeners and handymen etc. to clean, garden and repair their homes that they don't have time to do themselves. Poorer people do without. This employs a lot more people. All the working women and the people employed by the working women pay taxes which means that people end up working more hours to afford to pay someone else to do these jobs than it would take to do the jobs themselves. Unless your own rate of pay is significantly higher than the people you pay to do the jobs, you would be financially better off doing it yourself. The government and the economists are delighted because tax take and GDP rise. All these extra people in useful employment driving around from low skilled job to to low skilled job, consuming extra resources, especially fossil fuels, when they would be a lot less stressed, more free time and financially better off, just doing all these activities for themselves.

It is a major mistake to professionalise low skilled domestic work. All it does is free up time for the rich and increases government tax take. Society as a whole is worse off.

Dennis Coyne, 12/02/2015 at 10:14 am
Hi Ralph,
I agree GDP is by no means a perfect measure, just a measure that is available at the World level. There are other measures such as the social progress index, but this is not available at the World level. There is also the United Nations Human Development Index(HDI), but again these measures are not published at the World level (or I couldn't find it). Actually I found some World data for the HDI from 1980 to 2013. The measure is not perfect see link below for data:

http://hdr.undp.org/en/content/table-2-human-development-index-trends-1980-2013
Discussion of HDI at

https://en.wikipedia.org/wiki/Human_Development_Index

Also from UN document:

Human Development Index (HDI): A composite index measuring average achievement in three basic dimensions of human development-a long and healthy life, knowledge and a decent standard of living. See Technical note 1 (http://hdr.undp.org/en) for details on how the HDI is calculated.

Chart below with World Primary energy (ktoe) divided by World HDI from 1980 to 2013. Based on the HDI, more energy is needed to improve well being and GDP is not a good measure of human welfare.

There is also an index for HDI that takes account of inequality, but the index (called IHDI) is only available from 2010 to 2013.

[Dec 03, 2015] MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status

www.nakedcapitalism.com
allan December 3, 2015 at 3:15 pm

Another disruptive innovation turns out not to work out as advertised.

Democratizing education? Examining access and usage patterns in massive open online courses [Science]

Massive open online courses (MOOCs) are often characterized as remedies to educational disparities related to social class. Using data from 68 MOOCs offered by Harvard and MIT between 2012 and 2014, we found that course participants from the United States tended to live in more-affluent and better-educated neighborhoods than the average U.S. resident. Among those who did register for courses, students with greater socioeconomic resources were more likely to earn a certificate. Furthermore, these differences in MOOC access and completion were larger for adolescents and young adults, the traditional ages where people find on-ramps into science, technology, engineering, and mathematics (STEM) coursework and careers. Our findings raise concerns that MOOCs and similar approaches to online learning can exacerbate rather than reduce disparities in educational outcomes related to socioeconomic status.

Lambert Strether, December 3, 2015 at 3:17 pm

That's not a bug. It's a feature.

jrs, December 3, 2015 at 5:40 pm

Well that's pretty much the same charge that could be leveled against most higher education. It makes disparities worse, maybe less so community colleges, I don't know.

cwaltz, December 3, 2015 at 6:16 pm

I wonder how much of that is due to inability to access the web in neighborhoods that are less affluent?
An online course isn't going to help me if mom or dad can't afford to pay for internet.

Bob Haugen, December 3, 2015 at 8:06 pm

Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving. There is no "make yourself a better citizen" or "improve your community" curriculum.

likbez, December 3, 2015 at 10:47 pm

"Most education in the world now, whether in classrooms or MOOCs, is oriented toward improving the personal capital of the upwardly striving."
Very true. Thank you !
This is the essence of neoliberal transformation of the university education.

[Dec 02, 2015] An introduction to the geography of student debt

"... ...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets. ..."

Equitable Growth

The geography of student debt is very different than the geography of delinquency. Take the Washington, D.C. metro region. In zip codes with high average loan balances (western and central Washington, D.C.), delinquency rates are lower. Within the District of Columbia, median income is highest in these parts of the city. Similar results–low delinquency rates in high-debt areas–can be seen for Chicago, as well. (See Figure 1.)

...What explains this relationship? There appear to be two possible, and mutually consistent, theories. First, although graduate students take out the largest student loans, they are able to carry large debt burdens thanks to their higher salaries post-graduation. Second, the rise in the number of students borrowing relatively small amounts for for-profit colleges has augmented the cumulative debt load, but because these borrowers face poor labor market outcomes and lower earnings upon graduation (if they do in fact graduate), their delinquency rates are much higher. This is further complicated by the fact that these for-profit college attendees generally come from lower-income families who may not be able to help with loan repayments.

The inverse relationship between delinquency and income is not surprising, especially when considering that problems of credit access have disproportionately affected poor and minority populations in the past.

...It might seem counterintuitive that lack of access to credit results in delinquency-seemingly a problem of "too much debt." But in fact, lack of access to credit and delinquency are two sides of the same coin. Nearly everyone needs access to credit markets to meet basic economic needs, and if they can't get loans through competitive, transparent financial networks, poor people are more likely to be subjected to exploitative credit arrangements in the form of very high rates and other onerous terms and penalties, including on student loans. That disadvantage interacts with and is magnified by their lack of labor market opportunities. The result is exactly what we see across time and space: high delinquency rates for those with the least access to credit markets.

...For user-friendliness, we assign each of these student debt scale variables a qualitative category. If average loan balance on the map is "somewhat high," for example, then it means that a zip code's average loan balance is between 25 and 35 percent higher than the national average of $24,271. Similarly, if the delinquency reads "very low," it corresponds to a scale level between 0.067 and 0.091.

Figure 6 summarizes the relationship between each of the scale variables' levels and their qualitative description.

[Dec 02, 2015] The False Promise of Meritocracy

Dec 02, 2015 | The Atlantic
Americans are, compared with populations of other countries, particularly enthusiastic about the idea of meritocracy, a system that rewards merit (ability + effort) with success. Americans are more likely to believe that people are rewarded for their intelligence and skills and are less likely to believe that family wealth plays a key role in getting ahead. And Americans' support for meritocratic principles has remained stable over the last two decades despite growing economic inequality, recessions, and the fact that there is less mobility in the United States than in most other industrialized countries.
This strong commitment to meritocratic ideals can lead to suspicion of efforts that aim to support particular demographic groups. For example, initiatives designed to recruit or provide development opportunities to under-represented groups often come under attack as "reverse discrimination." Some companies even justify not having diversity policies by highlighting their commitment to meritocracy. If a company evaluates people on their skills, abilities, and merit, without consideration of their gender, race, sexuality etc., and managers are objective in their assessments then there is no need for diversity policies, the thinking goes.

But is this true? Do commitments to meritocracy and objectivity lead to more fair workplaces?

Emilio J. Castilla, a professor at MIT's Sloan School of Management, has explored how meritocratic ideals and HR practices like pay-for-performance play out in organizations, and he's come to some unexpected conclusions.

In one company study, Castilla examined almost 9,000 employees who worked as support-staff at a large service-sector company. The company was committed to diversity and had implemented a merit-driven compensation system intended to reward high-level performance and to reward all employees equitably.

But Castilla's analysis revealed some very non-meritocratic outcomes. Women, ethnic minorities, and non-U.S.-born employees received a smaller increase in compensation compared with white men, despite holding the same jobs, working in the same units, having the same supervisors, the same human capital, and importantly, receiving the same performance score. Despite stating that "performance is the primary bases for all salary increases," the reality was that women, minorities, and those born outside the U.S. needed "to work harder and obtain higher performance scores in order to receive similar salary increases to white men."

[Dec 02, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

All this neoliberal talk about "maximizing shareholder value" is designed to hide a redistribution mechanism of wealth up. Which is the essence of neoliberalism. It's all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Stock buybacks is a form of asset-stripping, similar to one practiced by buyout sharks, but practiced by internal management team. Who cares if the company will be destroyed if you have a golden parachute ?

"... By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street . ..."

"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."

"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."

"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."

"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."

"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."

"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."

"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."

"... Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse? ..."

"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."

"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."

"... buybacks can be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities. ..."

"... Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad. ..."

"... One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock? ..."

"... Dumping money into R D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R D cash is hidden inside M A. M A is up 2-3 years in a row. ..."

November 21, 2015 | naked capitalism

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Magic trick turns into toxic mix.

Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

And there's a reason.

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

"Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

"None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

"Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned:

Mbuna, November 21, 2015 at 7:31 am

Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

ng, November 21, 2015 at 8:58 am

probably, in some or most cases, but the effect on the stock is the same.

Alejandro, November 21, 2015 at 9:19 am

Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).
On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

Jim, November 21, 2015 at 10:42 am

More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.

"Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."

Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.

Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?

John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.

Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

NeqNeq, November 21, 2015 at 11:44 am

One aspect that Reuters piece mentions, but glosses over with a single paragraph buried in the middle, is the fact that for many companies there are no ( or few) reasons to spend money in other ways. If capex/r&d doesn't give you much return, why not buy out the shareholders who are least interested in holding your stock?
Dumping cash into plants only makes sense in the places where the market is growing. For many years that has meant Asia (China). For example, Apple gets 66% (iirc) of revenue from Asia, and that is where they have continued investing in growth. If demand is slowing and costs are rising, and it looks like both are true, why would you put even more money in?
Dumping money into R&D is always risky, although different industries have different levels, and the "do it in-house" risk must be weighed against the costs of buying up companies with "proven" technologies. Thus, R&D cash is hidden inside M&A. M&A is up 2-3 years in a row.

[Dec 02, 2015] Larry Summers and the Subversion of Economics

"... As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws. ..."

"... Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.) ..."

"... In 2005, at the annual Jackson Hole, Wyo., conference of the worlds leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other peoples money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a full-blown financial crisis and a catastrophic meltdown. When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a Luddite, dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.) ..."

"... Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And its due not just to ideology; its also about straightforward, old-fashioned money. ..."

"... Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Departments Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates. ..."

"... I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics. ..."

"... It is difficult to get a man to understand something when his salary depends upon his not understanding it. ..."

economistsview.typepad.com

RGC, December 02, 2015 at 06:09 AM

Larry Summers and the Subversion of Economics
By Charles Ferguson October 03, 2010

The Obama administration recently announced that Larry Summers is resigning as director of the National Economic Council and will return to Harvard early next year. His imminent departure raises several questions: Who will replace him? What will he do next? But more important, it's a chance to consider the hugely damaging conflicts of interest of the senior academic economists who move among universities, government, and banking.

Summers is unquestionably brilliant, as all who have dealt with him, including myself, quickly realize. And yet rarely has one individual embodied so much of what is wrong with economics, with academe, and indeed with the American economy. For the past two years, I have immersed myself in those worlds in order to make a film, Inside Job, that takes a sweeping look at the financial crisis. And I found Summers everywhere I turned.

Consider: As a rising economist at Harvard and at the World Bank, Summers argued for privatization and deregulation in many domains, including finance. Later, as deputy secretary of the treasury and then treasury secretary in the Clinton administration, he implemented those policies. Summers oversaw passage of the Gramm-Leach-Bliley Act, which repealed Glass-Steagall, permitted the previously illegal merger that created Citigroup, and allowed further consolidation in the financial sector. He also successfully fought attempts by Brooksley Born, chair of the Commodity Futures Trading Commission in the Clinton administration, to regulate the financial derivatives that would cause so much damage in the housing bubble and the 2008 economic crisis. He then oversaw passage of the Commodity Futures Modernization Act, which banned all regulation of derivatives, including exempting them from state antigambling laws.

After Summers left the Clinton administration, his candidacy for president of Harvard was championed by his mentor Robert Rubin, a former CEO of Goldman Sachs, who was his boss and predecessor as treasury secretary. Rubin, after leaving the Treasury Department-where he championed the law that made Citigroup's creation legal-became both vice chairman of Citigroup and a powerful member of Harvard's governing board.

Over the past decade, Summers continued to advocate financial deregulation, both as president of Harvard and as a University Professor after being forced out of the presidency. During this time, Summers became wealthy through consulting and speaking engagements with financial firms. Between 2001 and his entry into the Obama administration, he made more than $20-million from the financial-services industry. (His 2009 federal financial-disclosure form listed his net worth as $17-million to $39-million.)

Summers remained close to Rubin and to Alan Greenspan, a former chairman of the Federal Reserve. When other economists began warning of abuses and systemic risk in the financial system deriving from the environment that Summers, Greenspan, and Rubin had created, Summers mocked and dismissed those warnings. In 2005, at the annual Jackson Hole, Wyo., conference of the world's leading central bankers, the chief economist of the International Monetary Fund, Raghuram Rajan, presented a brilliant paper that constituted the first prominent warning of the coming crisis. Rajan pointed out that the structure of financial-sector compensation, in combination with complex financial products, gave bankers huge cash incentives to take risks with other people's money, while imposing no penalties for any subsequent losses. Rajan warned that this bonus culture rewarded bankers for actions that could destroy their own institutions, or even the entire system, and that this could generate a "full-blown financial crisis" and a "catastrophic meltdown."

When Rajan finished speaking, Summers rose up from the audience and attacked him, calling him a "Luddite," dismissing his concerns, and warning that increased regulation would reduce the productivity of the financial sector. (Ben Bernanke, Tim Geithner, and Alan Greenspan were also in the audience.)

Soon after that, Summers lost his job as president of Harvard after suggesting that women might be innately inferior to men at scientific work. In another part of the same speech, he had used laissez-faire economic theory to argue that discrimination was unlikely to be a major cause of women's underrepresentation in either science or business. After all, he argued, if discrimination existed, then others, seeking a competitive advantage, would have access to a superior work force, causing those who discriminate to fail in the marketplace. It appeared that Summers had denied even the possibility of decades, indeed centuries, of racial, gender, and other discrimination in America and other societies. After the resulting outcry forced him to resign, Summers remained at Harvard as a faculty member, and he accelerated his financial-sector activities, receiving $135,000 for one speech at Goldman Sachs.

Then, after the 2008 financial crisis and its consequent recession, Summers was placed in charge of coordinating U.S. economic policy, deftly marginalizing others who challenged him. Under the stewardship of Summers, Geithner, and Bernanke, the Obama administration adopted policies as favorable toward the financial sector as those of the Clinton and Bush administrations-quite a feat. Never once has Summers publicly apologized or admitted any responsibility for causing the crisis. And now Harvard is welcoming him back.

Summers is unique but not alone. By now we are all familiar with the role of lobbying and campaign contributions, and with the revolving door between industry and government. What few Americans realize is that the revolving door is now a three-way intersection. Summers's career is the result of an extraordinary and underappreciated scandal in American society: the convergence of academic economics, Wall Street, and political power.

Starting in the 1980s, and heavily influenced by laissez-faire economics, the United States began deregulating financial services. Shortly thereafter, America began to experience financial crises for the first time since the Great Depression. The first one arose from the savings-and-loan and junk-bond scandals of the 1980s; then came the dot-com bubble of the late 1990s, the Asian financial crisis; the collapse of Long Term Capital Management, in 1998; Enron; and then the housing bubble, which led to the global financial crisis. Yet through the entire period, the U.S. financial sector grew larger, more powerful, and enormously more profitable. By 2006, financial services accounted for 40 percent of total American corporate profits. In large part, this was because the financial sector was corrupting the political system. But it was also subverting economics.

Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money.

Prominent academic economists (and sometimes also professors of law and public policy) are paid by companies and interest groups to testify before Congress, to write papers, to give speeches, to participate in conferences, to serve on boards of directors, to write briefs in regulatory proceedings, to defend companies in antitrust cases, and, of course, to lobby. This is now, literally, a billion-dollar industry. The Law and Economics Consulting Group, started 22 years ago by professors at the University of California at Berkeley (David Teece in the business school, Thomas Jorde in the law school, and the economists Richard Gilbert and Gordon Rausser), is now a $300-million publicly held company. Others specializing in the sale (or rental) of academic expertise include Competition Policy (now Compass Lexecon), started by Richard Gilbert and Daniel Rubinfeld, both of whom served as chief economist of the Justice Department's Antitrust Division in the Clinton administration; the Analysis Group; and Charles River Associates.

In my film you will see many famous economists looking very uncomfortable when confronted with their financial-sector activities; others appear only on archival video, because they declined to be interviewed. You'll hear from:

Martin Feldstein, a Harvard professor, a major architect of deregulation in the Reagan administration, president for 30 years of the National Bureau of Economic Research, and for 20 years on the boards of directors of both AIG, which paid him more than $6-million, and AIG Financial Products, whose derivatives deals destroyed the company. Feldstein has written several hundred papers, on many subjects; none of them address the dangers of unregulated financial derivatives or financial-industry compensation.

Glenn Hubbard, chairman of the Council of Economic Advisers in the first George W. Bush administration, dean of Columbia Business School, adviser to many financial firms, on the board of Metropolitan Life ($250,000 per year), and formerly on the board of Capmark, a major commercial mortgage lender, from which he resigned shortly before its bankruptcy, in 2009. In 2004, Hubbard wrote a paper with William C. Dudley, then chief economist of Goldman Sachs, praising securitization and derivatives as improving the stability of both financial markets and the wider economy.

Frederic Mishkin, a professor at the Columbia Business School, and a member of the Federal Reserve Board from 2006 to 2008. He was paid $124,000 by the Icelandic Chamber of Commerce to write a paper praising its regulatory and banking systems, two years before the Icelandic banks' Ponzi scheme collapsed, causing $100-billion in losses. His 2006 federal financial-disclosure form listed his net worth as $6-million to $17-million.

Laura Tyson, a professor at Berkeley, director of the National Economic Council in the Clinton administration, and also on the Board of Directors of Morgan Stanley, which pays her $350,000 per year.

Richard Portes, a professor at London Business School and founding director of the British Centre for Economic Policy Research, paid by the Icelandic Chamber of Commerce to write a report praising Iceland's financial system in 2007, only one year before it collapsed.

And John Campbell, chairman of Harvard's economics department, who finds it very difficult to explain why conflicts of interest in economics should not concern us.

But could he be right? Are these professors simply being paid to say what they would otherwise say anyway? Unlikely. Mishkin and Portes showed no interest whatever in Iceland until they were paid to do so, and they got it totally wrong. Nor do all these professors seem to make policy statements contrary to the financial interests of their clients. Even more telling, they uniformly oppose disclosure of their financial relationships.

The universities avert their eyes and deliberately don't require faculty members either to disclose their conflicts of interest or to report their outside income. As you can imagine, when Larry Summers was president of Harvard, he didn't work too hard to change this.

Now, however, as the national recovery is faltering, Summers is being eased out while Harvard is welcoming him back. How will the academic world receive him? The simple answer: Better than he deserves.

While making my film, we wrote to the presidents and provosts of Harvard, Columbia, and other universities with detailed questions about their conflict-of-interest policies, requesting interviews about the subject. None of them replied, except to refer us to their Web sites.

Academe, heal thyself.

http://chronicle.com/article/Larry-Summersthe/124790/

EMichael said in reply to RGC...
Yeah, after an economist has had one job in the government; one job in the banking system; and one teaching job he should be required to stop working as an economist.

RGC said in reply to EMichael...
I think it is interesting that Summers led the financial deregulation efforts of the Clinton administration and then made a bundle on Wall Street. I think that should be taken into account when evaluating his discussions of economics.

EMichael said in reply to RGC...
Of course it should.
At the same time this is not taking anything into account, this is about "subverting" economics.

Can you make a case that the only reason Summers made a "bundle" working on Wall Street is because of the financial deregulation efforts he made? Last time I looked he did not have a vote on the legislation.

RGC said in reply to EMichael...
I think this is especially troubling for the economics profession:

"Over the past 30 years, the economics profession-in economics departments, and in business, public policy, and law schools-has become so compromised by conflicts of interest that it now functions almost as a support group for financial services and other industries whose profits depend heavily on government policy. The route to the 2008 financial crisis, and the economic problems that still plague us, runs straight through the economics discipline. And it's due not just to ideology; it's also about straightforward, old-fashioned money."

EMichael said in reply to RGC...
Cause no economists actually believed in any of the policies that caused all of those things nor did any economist fail to vote for the policies adopted.

RGC said in reply to EMichael...
Upton Sinclair:
"It is difficult to get a man to understand something when his salary depends upon his not understanding it."

Tom aka Rusty said in reply to RGC...

As Hemingway and F. SCott Fitzgerald exchanged in their writings (the reputed face-to-face conversation may not have happened):
The rich are different.

Yes, they have more money.

Combine elite and rich and you get a toxic combination.

[Dec 01, 2015] The New Supply-Side Economics

Economist's View
reason: December 01, 2015 at 07:27 AM

Sanjait

I think it is perfectly clear that a secular policy of increasing private indebtedness is not indefinitely extendable. Sure, if we had printed money in the past and kept monetary policy relatively tight (or otherwise managed the international financial system so that large persistent balance of payments deficits were not tolerated) we wouldn't have got in the mess we are in. But once we are there just trying to get over-indebted people to take on more debt doesn't seem like a winning strategy.

http://crookedtimber.org/2015/11/29/secular-stagnation-and-the-financial-sector/comment-page-3/#comment-650710

EMichael said in reply to reason... December 01, 2015 at 07:34 AM

I see no real increase in private indebtedness.

The problem with the financial system is what lies behind lending.

reason: December 01, 2015 at 07:36 AM

Avraam Jack Dectis
Not bad.
But

1. asset taxes are tricky things to run (many assets aren't traded and the prices of other assets are very volatile). And there is the problem of offshore ownership and offshore assets, so it requires international co-operation.

2. This takes a very closed economy view of things - the trade deficit might end up affecting the trade balance and hence the flow of assets into and out of the country, and eventually also the terms of trade. You should think through how such a policy would work in say - Luxembourg.

reason:

EMichael

You see no increase in private indebtedness - when do you mean? If you mean now - then yes - that is exactly why the economy is so sluggish. Where is the increase in demand going to come from if the country is running a trade deficit, is not increasing its borrowing and is committed to reducing its government deficit?

[Nov 30, 2015] Corporate and Sovereign Bond Defaults to Send Shock Waves into Currency Markets

Nov 28, 2015 | Safehaven.com

Mr. Long stated that the credit cycle is now changing, taking its signals from the business cycle. This was agreed upon by Mr. Laggner who in his own words said:

"We're at the end of the credit cycle, the whole mal-investment in shale oil...tens of billions of dollars in lost wealth"

For the future, Mr. Laggner anticipates a massive series of defaults, resulting from huge deflationary pressures and a tightening by the market place, which is basically an unintended result of constant intervention. We are looking at corporate bond defaults, sovereign defaults which will send shockwaves into the currency system.

[Nov 30, 2015] Secular stagnation and the financial sector

"... Surely the answer is "risk transfer" ..."

"... Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree. ..."

"... the FIRE sector in particular, are parasitic on the economy. ..."

"... Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth? ..."

"... As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts." ..."

"... Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)? ..."

"... The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary. ..."

"... "The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision." ..."

"... My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it. ..."

November 29, 2015 | Crooked Timber

In my last post on private infrastructure finance and secular stagnation, I suggested a bigger argument that

The financialization of the global economy has produced a hugely costly financial sector, extracting returns that must, in the end, be taken out of the returns to investment of all kinds. The costs were hidden during the pre-crisis bubble era, but are now evident to everyone, including potential investors. So, even massively expansionary monetary policy doesn't produce much in the way of new private investment.
This isn't an original idea. The Bank of International Settlements put out a paper earlier this year arguing that financial sector growth crowds out real growth. But how does this work and what can be done about it? I'm still organizing my thoughts on this, so what I have are some ideas rather than a fully formed argument.
First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?

There are a few possible explanations

(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

(b) Tax evasion: the global financial sector allows corporations to greatly reduce their tax liabilities. Most of the savings in tax is captured in the financial sector itself, but the amount flowing to corporations is sufficient to offset the high costs of the modern financial sector, relative to (for example) old-style bank finance and simple corporate structures financed by debt and equity

(c) Volatility: the financialization of the economy has produced greatly increased volatility (in exchange rates, asset prices and so on). The financial sector amplifies and profits from this volatility, partly through regulatory arbitrage, and partly through entrenched and systematic fraud as in the LIBOR and Forex scandals.

(d) Political capture: The financial sector controls political outcomes in both traditional ways (political donations, highly revolving door jobs for future and former politicians) and through the ideology of market liberalism, which is perfectly designed to support policies supporting the financial sector, while discrediting policies traditionally sought by other parts of the corporate sector, such as protection for manufacturing industry. The shift to private finance for infrastructure, discussed in the previous post is part of this. The construction part of the infrastructure sector (which was always private) has suffered from the reduced flow of projects, but the finance part (previously managed through government bonds) has benefited massively.

The result of all this is that the financial sector benefits from an evolutionary strategy similar to that of an Australian eucalypt forest. Eucalypts are both highly flammable (they generate lots of combustible oil) and highly fire resistant. So eucalypt forests are subject to frequent fires which kill competing species, and allow the eucalypts to extend their range.

dsquared 11.29.15 at 1:24 pm

Surely the answer is "risk transfer". The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision. Their role is to provide insurance to the rest of society and this is what they did – in fact, they provided too much of it, with too little capital which is why they went bust, and why their bankruptcy was so disastrous (there's nothing worse than an insurer bankruptcy, because it hits you with a big loss at exactly the worst time). I think c) above is particularly unconvincing, as the biggest stylised feature of the period of financialisation was the Great Moderation – in fact, the financial sector stored up volatility that would otherwise have been experienced by other people, including the intermediation of some genuinely historically massive imbalances associated with the industrialisation of China, and stored it up until it couldn't hold any more and exploded.
I also don't think LIBOR and FX fit into that pattern at all very well either. Financial systems have two kinds of problem, which is why they often have two kinds of regulators. They have prudential problems and conduct problems. Both LIBOR and FX were old-fashioned profiteering and cartel arrangements, which could happen in any industry (hey let's talk about drug pricing and indeed university tuition some time). In actual fact, as I wrote a while ago, it's only LIBOR that can really be considered a scandal – FX was very much more a case of customers who wanted the benefits of tight regulation but didn't want to pay for them, and were lucky enough to find a political moment in which the time was right for an otherwise very unpromising case.

In other words, the answer to all your questions is "leverage". That's why financial systems grew so fast, that's why they're associated with poor economic performance, and that's why they tend to show up in periods of secular stagnation – a secular stagnation is almost defined as a period during which people try to maintain their standard of living by borrowing. Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment.

[1] I am never going to shut up about this. The real estate bubble was a policy-created bubble. It was blown up in real time and intentionally, by a Federal Reserve which wanted to cushion the blow of the tech bust. If the financial sector had refused to finance it, the financial sector would have been trying to run a monetary policy directly opposed to that of the central bank.

John Quiggin 11.29.15 at 1:55 pm 2

I agree that risk transfer is a big deal. On the other hand, it's not obvious that the financial sector did a lot to insure households against most of the additional risk, or that the Great Moderation corresponded to a reduction in the volatility faced by households. On the first point, despite massive financial innovation since 1980, the set of financial instruments easily available to households hasn't changed all that much. Most obviously, there's no insurance against bad employment and wage outcomes and home equity insurance hasn't really happened either.
Is what you're saying here is that, by extending a lot of credit, the financial sector allowed households to maintain consumption in the face of a permanent decline in income (at least relative to expectation)? That's an important part of the story, I agree.

The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

Eggplant 11.29.15 at 2:04 pm, 3

(e) Principle-agent problem.
(f) Implicit government backing allowing the underpricing of risk.

dsquared 11.29.15 at 2:32 pm. 4

Yeah, that's my point – the massive extension of credit to households was the financial sector's role in the big policy shift. At the end of the day, although we might with the benefit of hindsight agree that "subprime mortgages with no income verification at teaser rates" were a pretty stupid product that should never have been offered, they were a brand new financial product that had never been offered to households before! Even the example you mention – "insurance against bad employment and wage outcomes" – was sort of sold, albeit that what I'm referring to here is Payment Protection Insurance in the UK, which sort of underlines that it wasn't done well or responsibly.
I guess my argument here is that it's the combination of deregulation and stagnation that was necessary to create the 2000s policy disaster. But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector. Because the high debt levels were a policy goal (or at least, were the inevitable and forseeable consequence of trying to do demand management without fiscal policy), and as I keep saying in different contexts, you can't get to a stupid debt ratio by only doing sensible things.

The secular stagnation framing of the question leads me to think more about why investment hasn't responded to monetary policy rather than directly about households.

Isn't the answer to this just the definition of a Keynesian recession? Investment hasn't responded to monetary policy because there's no interest rate at which it makes sense to produce goods that can't be sold.

DrDick 11.29.15 at 2:32 pm 5

Capital generally, and the FIRE sector in particular, are parasitic on the economy. They provide some minimal benefits if kept strongly in check, but quickly become destructive if allowed to grow unchecked, as they have now.

Eggplant 11.29.15 at 2:37 pm 6

(g) Rising inequality leading to an ever increasing savings glut, providing the financial industry with a target-rich environment.

yastreblyansky 11.29.15 at 3:22 pm, 7

Dumb outsider thought, turning Eggplant @6 upside down: What about r > g? Perhaps financialization isn't so much a thing-in-itself as the mechanism through which wealth concentrates in periods of slow growth?

T 11.29.15 at 3:31 pm, 8

"But if we hadn't had the bad products we got, we'd have had something else go wrong, probably outside the regulated sector."
A more sophisticated version of the widely debunked theory that Fannie and Freddie blew up the housing sector by giving loans to poor people. Rule 1: It's never ever the bankers' fault. Rule 2: see Rule 1. At least d-squared has been consistent…

Or maybe there has been a systematic continuous effort to use political influence to garner rents by gutting both the regulatory and judicial constraints on their behavior. http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html?hp&action=click&pgtype=Homepage&clickSource=story-heading&module=first-column-region&region=top-news&WT.nav=top-news

yastreblyansky 11.29.15 at 3:35 pm, 9

Or rather through which rent-claimers concentrate wealth (@t) bringing long-term low growth.

bjk 11.29.15 at 3:43 pm, 10

Which direction is financialization heading? It looks to be decreasing. The mutual fund industry is in terminal decline, losing market share to ETFs. There are fewer financial advisors today than in 2008, yet the number of millionaires has increased. Stock trading has broken a 40 year trend of increasing volumes. Electronic and exchange trading of bonds and derivatives is increasing, driving down margins. Bots have driven human traders out of jobs (Dark Pools has a good account of this). Banks are earnings low single digit returns in their trading divisions, which suggests they will be shut down if things don't improve. It looks like finance is doing a good job of shrinking itself, with a little help from Elizabeth Warren.

T 11.29.15 at 4:50 pm, 16

There were several issues and arguments posed in the OP. I'm addressing this:
"First, if the financial sector is unproductive, how can it be so large and profitable in a market economy?
There are a few possible explanations

(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts."

D-squared response is of course it's the risk transfer. That flat out contradicts JQ, but d-squared is a master of the straight face. And then he proceeds - "there has been a decision to desocilaize"; "the financial sector was obviously the conduit for this policy decision"; and "the real estate bubble was a policy-created bubble."

So JQ, here's your answer of FIRE's ascendancy from an insider: You know me and my friends were standing around just doing nothin' and then these policy guys come around. Next thing ya know, we've doubled our share of GDP and put our bosses in the top 0.01%. Who woulda known? Crazy shit, huh? Hey and if anyone asks, tell 'um "risk transfer." And if they press, tell 'um "secular stagnation." In fact, tell 'um frickin' anything. It just wasn't our fault.

Rakesh Bhandari 11.29.15 at 4:51 pm, 17

I know that I shall have to read John Kay's Other People's Money at some point. I am wondering what people make of the old the then Marxist Hilferding's concept of promoters' profit as a way to understand some financial sector activity. I posted this here a few years back.
Here's his example, and I am trying to figure out to the extent that it throws light on the recent activity of Wall Street.

Start with an industrial firm with a capital of 1,000,000 marks that makes a profit of 150,000 marks with the average profit of 15 percent.

With an interest rate of 5% straight capitalization of income of 150,000 marks will have an estimated price of 3,000,000 marks (150,000/.05=3,000,000 marks)

A deduction of 20,000 marks for the various administration costs and directors fees would make the actual payment to shareholders 130,000 rather 150,000 marks

A risk premium of, say, 2% would be added to a fixed safe rate of interest of 5% in estimating the actual stock price

So what, then, is the stock price (130,000/.07)? 1,857,143 or roughly 1,900.000 marks

This 900,000 is free after deducting the initial investment of 1,000,000 marks

The balance of 900, 000 marks appears as promoters' profit which arises from the conversion of profit-bearing capital into interest bearing capital.

In 1910, Hilferding called this promoters profit, an economic category sui generis; it is earned by the promoter by selling of stocks or the securitizing of income on the capital market.

For Hilferding the investment bank, which promotes the conversion of profit-bearing to interest-bearing capital, claims the promoters profit.

The analysis seems pertinent to the securitization process today, and I would love to hear Henwood's and others' thoughts about this.

As Roubini and Mihm have pointed out, we have seen the securitization of mortgages, consumer loans, student loans, auto loans, airplane leases, revenues from forests and mines, delinquent tax liens, radio tower loans, boat loans, state revenues, the royalties of rock bands!

We have seen, in their words, an explosion in the selling of future income of dependable projected revenue streams such as rents or interest payments on mortgage payments as securities.

That securitization been driven by investors' quest for yield lift given the low rate of interest, itself the result of the global savings glut and Fed policy.

And it seems that Wall Street, with the connivance of the credit agencies, was able to appropriate value from the purchasers of securities by understating the risk premia.

The risk premium and promoters' profit are inversely correlated so there is a strong incentive to understate the former. This is what Hilferding did not say, but seems worth emphasizing today.

Aaron Brown 11.29.15 at 5:43 pm. 18
I sincerely do not understand your point here. I'm not arguing, just asking for clarification:
(a) As in the official theory of efficient markets, the financial sector is actually earning its keep by allocating capital to the most productive investments, and by spreading and managing risk. I don't see how anyone can argue this with a straight face in the light of the last 20 years of bubbles and busts.

For one thing, I don't see that the two bubbles and one bust of 1996 – 2015 are self-evidently worse than the more numerous bubbles and busts of 1976 – 1995. You might say the 2008 brush with Great Depression outweighs the hyperinflation and multiple deep recessions of the earlier era, but certainly the Internet and housing bubbles were more productive and less threatening than the commodity, Japan, emerging debt and other bubbles. Anyway, it's a close enough comparison that someone could certainly keep a straight face while saying that in the last 20 years financial volatility inflicted less real economic damage than in the preceding 20 years.

But the bigger issue is no one claims the financial system encourages steady growth. Creative (bubble) destruction (bust) is the rule. It is command economies that outlaw bubbles and busts–and inflation and unemployment–at the cost of unproductive employment, empty shelves, stifled innovation, loss of freedom and other consequences.

If you want to argue that the financial system did not earn its profits in the last 20 years, it seems to me you have to argue that economic growth was slow, or that more people in the world are in poverty today, or that there was not enough innovation; not that the ride was too volatile. Did Cuba, Venezuela, Argentina and North Korea do better than the financialized economies of the world? Did the hand of the State in Russia, China and other countries secure better outcomes than the global financial sector in countries that allowed it to operate (albeit with heavy regulation)?

It is certainly possible to argue that we could have had more growth and innovation and poverty reduction; and less volatility; with some third way that's better than both our current financial system and the alternatives practiced in the world today. But that point is not so obvious that any defender of the global financial system must be joking.

Why do you think the booms and busts of the last 20 years are such a clear and damning indictment of the financial system that the point needs no further elaboration?

Bruce Wilder 11.29.15 at 6:11 pm, 19

The financial system can engage in usury, lending money with no connection to productive investment, by simply creating a parasitic claim on income. There are straightforward ways of doing this: credit cards with high rates of interest or payday lending. There are slightly more complicated approaches: insurance that by design doesn't pay off for the nominal beneficiary.
There are really complicated ways of doing this: derivatives, for example, which blow up (and as an added bonus, undermine the informational efficiency of financial markets).

I keep thinking of Piketty's r > g: the ever-accumulating pile of money rising like a slow, but unstoppable tide. It has to be invested or "invested" - that is, it can buy the assembly of resources into productive capital assets that represent financial claims on the additional income generated by business innovation and expansion . . . OR . . . it can be used to finance the parasitic and predatory manipulations of an emergent neo-feudalism.

Where the secular stagnation thesis is not pure apologetic fraud, I would interpret it as saying, there are currently few opportunities to invest in additional productive "real" capital stock. For technological reasons, the new systems require much less capital than the old systems, so when an old telephone company replaces its expensive copper wire with fiber optics and cellphone towers, it may be able to fund a large part of the transition out of current cash-flow, even while maintaining the value of the bonds that once represented investment in a mountain of copper, but are now just rentier claims on an obsolete world.

In the brave new world, a handful of companies, who have lucked into commercial positions with high rents, throw off a lot of cash. So, the Apples and Intels do not need to be allocated new capital, but their distribution of cash to people who don't need it, is generating a lot of demand for "financial product". The rest of the business world is just trying to manage a slow decline, able to throw off modest amounts of cash, desperate to find sources of political power that might yield reliable rents, but without opportunities to innovate that would actually require net investment in excess of current cashflows from operations.

So, the financial system is just responding to this enlarged demand for non-productive investment in financial products that generate return from parasitic extraction.

In the interest of parasitic extraction, the financial system pursues the politics of neoliberal privatization as a means of generating financial products to satisfy demand.

Does that sound like a plausible narrative?

Dipper 11.29.15 at 6:30 pm, 20

re volatility, the thing you really want to worry about is liquidity. Pre-crash banks could warehouse risk and so provide liquidity. One consequence was volatility was recorded because liquid markets allowed prices to be observed.
Regulators have observed the conflict of interest caused by banks providing a financial service but also participating in the markets with their own money, and have acted to restrict banks from holding risk for proprietary trading (the Volcker rule). This is fine, but there has been a noticeable decrease in liquidity in what were once deep markets. The EURCHF un-pegging in Jan this year is a good example of reduced liquidity resulting in a massive move. There may well be more of this to come.

Sebastian H 11.29.15 at 6:34 pm, 21
"The biggest economic policy decision of the last thirty years has been the decision to de-socialise a lot of previously socially insured risks and transfer them back to the household sector (in their various capacities as workers, homeowners and consumers of healthcare). The financial sector was obviously the conduit for this policy decision."
I can't tell if you are arguing with John or agreeing with him. Is this agreement with his d) [the political capture explanation]? I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns. Is it possible that the financial sector was the obvious conduit because they were among the important authors of the ideas?

MisterMr 11.29.15 at 6:50 pm, 22

Previously commented here as Random Lurker.
In my opinion, finance had a passive role in the build up of the crisis.
Others have said similar things uptread, however this is my opinion:

1) the wage share of GDP depends largely on political choices; since the late seventies there has been a trend of a falling wage share more or less everywhere, as countries with a lower wage share are more competitive on the world market.
2) a falling wage share means a rising profit share, and "capitalists" tend to reinvest part of their profits, so a falling wage share caused a worldwide saving glut.
3) this worldwide saving glut caused an increased financialisation and a bubbling up of the price of some assets, particularly those assets whose supply is inelastic (for example, the value of distribution chains or of famous consumer brands).
4) this in turn causes an increased volatility of financial markets, and worse financial crises.

This situation is what we perceive as a secular stagnation, and IMHO depends mostly on a low worldwide wage share.
Unfortunately, I have no idea of how to reach an higher wage share, and I don't think "the market" has any mechanism to push up said wage share.

Rakesh Bhandari 11.29.15 at 7:08 pm, 23

Bruce,
What you are saying makes sense to me. Steven Pressman has also raised the question of how r is to be maintained with "an abundance of capital and its need for high rates of return." (Understanding Piketty's Capital in the Twenty First Century).
It's almost as if Piketty in his criticism of the rentier has a rentier's disregard for how the returns are actually to be made. To the extent that he considers production it is through marginal productivity theory. Piketty claims that marginal rate of substitution of capital for labor will remain above unity (and too bad Piketty dismissed the Cambridge Capital critique because Ian Steedman has used Sraffian theory to show the possibilities of high profits in even a fully automated economy).

Of course as Pressman implies, this "technical" view may blind us to the higher exploitation that may be necessary for returns to continue to remain high as capital becomes more abundant. Pressman also implies that Piketty also does not consider how finance can make higher rates of return by making higher-interest loans to weaker parties while having them absorb most of the risk (this would be your second kind of investment).

Search for the several paragraphs on the rentier in this section. It is remarkable that no one has yet compared Piketty's criticism of the rentier to this.
https://www.marxists.org/archive/bukharin/works/1927/leisure-economics/introduction.htm

felwith 11.29.15 at 8:31 pm, 24

" I don't know very much about the deep history of financial regulation, but I'm fairly certain that most voters have never put desocialization of risk in their top 5 concerns."
Of course not, but there are actors here other than "the public" and "the banks". In this case, I'm pretty sure Daniel is referring to the destruction of unionized middle class jobs with pensions and cheap-to-the-worker health insurance, which was carried out by their employers. While I doubt I could pick a bank owner out of a lineup filled out with captains of industry, they aren't actually interchangeable.

Peter K. 11.29.15 at 9:43 pm, 25

@1 Dsquared:
"Of course, if the financial sector had been required to hold enough equity capital in the first place, it would never have grown so big in the first place, and we could all be enjoying the thirteenth year of the post-dot-com bust[1] in relative contentment."

Secular stagnation to me just means not enough macro (monetary/fiscal) policy to keep up aggregate demand for full employment and target inflation.

Monetary and fiscal policy is being blocked by politics partly because filthy rich financiers are buying their way into politics:

http://www.nytimes.com/2015/11/30/us/politics/illinois-campaign-money-bruce-rauner.html

The question about Dsquare's alternate history I would have is: what is the response of fiscal and monetary policy to the "domestication" of the financial sector via higher capital requirements and leverage regulations, etc.?

If fiscal and monetary policy keeps the economy at a high-pressure level with full employment and rising wages, I don't see why secular stagnation is a problem.

But politics is blocking fiscal and monetary policy. Professor Quiggin talks of "massive" monetary policy, but it wasn't massive given the need. (It was massive compared to past recoveries.) It was big enough to avoid deflation despite unprecedented fiscal austerity. It wasn't big enough to hit their inflation target in a timely matter.

Ze K 11.29.15 at 9:53 pm, 27

My feeling (based on nothing but intuition) is that the answer is (d). The government is a tool of moneyed interests. I know, it sounds awfully libertarian, but it is what it is. And I can't foresee any non-catastrophic end to it.

[Nov 29, 2015] A Brief Word to Forecasters: STFU!

Notable quotes:

"... Washington Post Business Section ..."

"... Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future? ..."

"... This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. ..."

"... Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. ..."

www.ritholtz.com
My Sunday Washington Post Business Section column is out. This morning, we look at the annual forecasting foolishness so prevalent in the media.
By now, you know the drill: A bunch of analysts make their annual predictions, and of course, they are utterly useless. Here's an excerpt from the column:

"It's that time of year again when the mystics peer deep into their tea leaves, entrails and crystal balls to divine what's ahead.

Which means it's also time for my annual reminder: These folks cannot tell the future. Ignore them.

Most forecasters are barely familiar with what happened in the past. Based on what they say and write, it is apparent they often do not understand what is occurring here and now. Why would anyone imagine that they have the slightest clue about the future?

This is not my opinion, but a simple statistical fact: The data overwhelmingly show that the skill set of the predictive pundits is no better than a coin toss. The odd person gets these forecasts about the economy and stock markets right each year, but the lack of any sort of consistent winners and losers means that, mathematically, it is a random outcome."

I speak with numerous experts about the subject, including:

-James O'Shaughnessy (author of the classic "What Works on Wall Street," and CIO of O'Shaughnessy Asset Management

-Morgan Housel, a columnist for the Motley Fool

-Michael Johnston (Poseidon Financial. author of "A Visual History of Market Crash Predictions" and "The Not-So-Surprising Truth About Gold Bugs.")

-Laszlo Birinyi (researcher and market historian)

-David Rosenberg (chief economist and strategist at Gluskin Sheff)

They name names and dates and forecasts; hilarity ensues . . . Source:
Would you let a mystic manage your investment portfolio?
Barry Ritholtz
Washington Post, November 29, 2015
http://wapo.st/1PQDCVz
willid3, November 29, 2015 at 11:15 am

Course some of these 'predictions' are just some ones ideology. Course none of then ever seem to be punished when they fail. Like the folks who predicted the end of the US economy that was supposed to happen back in September, you will notice they now predict it will be in 2016 (which of course means they will just keep changing the year when that doesnt happen) eithe

[Nov 29, 2015] neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

Notable quotes:

"... neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital". ..."

"... ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that ..."

"... But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews. ..."

"... Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth. ..."

"... What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are. ..."

"... Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting). They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)! Indeed, if physics and mathematics is to be trusted, they must collapse! ..."

peakoilbarrel.com
Political Economist, 11/13/2015 at 3:55 pm
Hi Dennis, I wrote a long reply to your question on labor theory of value. But somehow after I posted it, it appears to have disappeared. I am trying to re-post it here
Dennis:

Hi Dennis, thanks for bringing this up. This is definitely not about energy. But since you mentioned this here, let me give you some of my thought.

First, regarding neoclassical economics, the debate between two Cambridges pretty much destroyed the logical foundation of neoclassical economics. Because neoclassical economics cannot establish the definition/measurement of "capital" without first knowing marginal productivity of capital; but they cannot establish the definition/measurement of marginal productivity of capital without first establishing "capital".

So neoclassical economics is involved in circular reasoning, and without a meaningful concept of capital, the rest of the system collapses.

The above is mostly theoretical. It does not necessarily undermine one's faith in the efficiency of a market economy (ironically, it is conceivable that the entire neoclassical case for invisible hand can be reconstructed based on labor theory of value; after all, Ricardo did that)

But since then there has been lots of development among the more enlightened mainstream economists that have basically established that market failures are both devastating and universal. This is serious, because this means, in fact, in their heart, they know the invisible hand argument is invalid. Stiglitz came close to admit it in some interviews.

Why does it matter? Consider the current environmental crisis. It is conceivable that we will fail to stop climate change and the emerging climate catastrophes will bring down human civilization. From the neoclassical perspective, this is because the market prices for fossil fuels are wrong. Can this be corrected by government intervention? From the neoclassical perspective, to do this, the government needs to know the correct prices and even if the government does know the correct prices, there is still the implementation problem (principal-agent problem, people will find ways to outmaneuver government, etc). If the government does not know the correct prices or cannot implement, then we cannot correct market failures. If, on the other hand, the government does know the correct prices and can implement, why not have socialist planning?

Compare this to socialism. Of course one needs to be reminded of the Soviet environmental disasters. But the Soviet environmental failures were almost nothing compared to the contemporary Chinese environmental crisis (and I need to remind people that China's current environmental crisis has happened after China's capitalist transition). Whatever is/was their internal system, both the Soviet Union and China are a part of the capitalist world system and therefore both of them are obligated to pursue economic growth.

Although this has not happened in history, but it is definitely conceivable that a socialist economy can be structured to be based on zero or negative growth. But this cannot be said of capitalism.

In fact the strongest economic argument against socialism is that the socialist economies did not grow rapidly enough (even though Cuba succeeded in delivering higher life expectancy than the United States and for some years Cuba was considered the only country that met the principle of sustainable development by the living planet report). Therefore, the question is, if it turns out that capitalism cannot provide sustainability for human civilization, what social system can deliver sustainability while meeting population's basic needs?

Now, about labor theory of value. There are two different questions here. One has to do with the labor theory of value as a theory to explain the long-term equilibrium prices in a competitive market economy and the other has to do with what Marx called the theory of surplus value.

About the theory of surplus value, it needs to be reminded that Marx's theory of surplus value or exploitation is not moralistic but based on observed economic facts (although it could be used for moralistic purposes). All it says is no more than this: in a capitalist economy, a workers has to work longer than the social labor time embodied in the commodities consumed by the worker himself (or the worker's family) and in this sense, the capitalist profit (surplus value) derives from the worker's surplus labor. This is factually true.

Of course, as you said, a similar quantitative relationship can be established for other production inputs. Say, the total energy consumed in a society will have to be greater than the energy input used for energy production (people here are of course familiar with EROEI, which has to be greater than 1 for society to function). Based on this, one could argue that not only the workers are exploited but energy is also "exploited".

But if one really wants to extend the concept of "exploitation" here (which I don't think makes sense), what is being "exploited" is energy BUT NOT energy owners (even less the owners of capital goods consuming energy).

In any case, the concept of "exploitation" or surplus value has to be used in a context of social relations. It makes sense that the workers can take over the means of production and appropriate their own surplus value (or products of their surplus labor). But it is obviously nonsense to say that the energy input can somehow appropriate the "surplus energy" consumed in other energy consumption processes.

Finally, about the long-term equilibrium prices. It can be easily established that in "simple commodity production" (pre-capitalist market economy, where the producers own their means of production), market prices tend to fluctuate around ratios that are in proportion to the total labor embodied in commodities (including both direct labor and indirect labor embodied in means of production).

The problem has to do with "prices of production" or the equilibrium prices in capitalism (you are probably aware that this is known as the "transformation problem" in the Marxist literature). All the difficulty comes from the fact that in capitalism, the direct labor time ("live labor") is further divided into necessary labor (the labor time it takes for the worker to replace his value of labor power) and surplus labor. In fact, knowing the production coefficients, a unique set of equilibrium prices and the equilibrium profit rate can be solved from a set of past labor (indirect labor), necessary labor, and surplus labor for each commodity. Thus, a definite set of mathematical relations can be established between the prices and the labor variables (although it's no longer simple proportionality; but I think it does not matter)

Of course the Neo-Sraffians would like to emphasize that you can take any other important input (say, energy) and establish a similar set of relationship between prices and say, past energy, necessary energy, and surplus energy. But, as I said, energy cannot be a player in social relations.

In any case, labor theory of value plays an insignificant role in modern Marxist economics (I personally still think labor theory of value is valid but it no longer provides important insights).

You will not find labor theory of value in my book. But I hope you will still find it intellectually interesting (and a little provocative).

Minqi Li, 11/13/2015 at 4:02 pm
Hi Ron, I prepared a long reply to Dennis's question. But each time when I posted it, it was marked as SPAM.
I saved the response to Dennis here:

http://redchinacn.net/portal.php?mod=view&aid=28599#comment

Can you help me to post it? Thank you

Fred Magyar, 11/13/2015 at 5:24 pm
Hi Minqi Li,
I read your reply to Dennis and found it cogent, however I do have a problem with the standard neoclassical economic viewpoint and as I have stated many times I find the standard capitalist and communist economic models to be less than useful systems with which to address our current global dilemmas. I am of the school of thought that we have to invent completely new ways of thinking and acting. There are some people who have embarked on this journey. I think this group best embodies my current thinking about what kinds of systems we need to develop. Some of these ideas are already taking hold in China too.
循环经济

http://www.ellenmacarthurfoundation.org/

Cheers!

Political Economist, 11/13/2015 at 8:07 pm
Fred, thanks for commenting.
The concept of 循环经济 or recycling economy is actually what China borrowed from the West. Chinese economists started talking about it in the 1990s. The practice is not as radical as it sounds. The primary intention has not been so much about saving the environment as accelerating capital accumulation by saving costs.

Although in some cases it has had some beneficial "side effects"

I agree that we need completely new thinking and practice that go beyond the 20th century. I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it.

Petro, 11/14/2015 at 1:15 am

"…I am of the school that zero (if not negative) economic growth is necessary for sustainability. The question is what kind of economic system can deliver it…."

What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

Such systems cannot be in a permanent thermodynamic equilibrium – controlled plateau, or "sustainability" if we will (which you seem to be wishing/suggesting).
They are utterly and totally dependent on ever-expanding energy/resource "consumption" and they ALWAYS and without exception collapse (hint: A.Bartlet)!
Indeed, if physics and mathematics is to be trusted, they must collapse!

-So, when you say:
"…The question is what kind of economic system can deliver it…", you are looking for the wrong, non-existing thing.

Consider that before your book is published…

Be well,

Petro

Political Economist, 11/14/2015 at 2:56 am
Unfortuantely, the book is already published.
Keynes said: "In the long run, we are all dead"

Petro, 11/14/2015 at 9:17 pm
"Unfortunately, the book is already published"
Unfortunately indeed!

Be well.

Petro

Javier, 11/14/2015 at 10:36 am
Hi Petro,
I agree in principle, but it is clear that societies can be built that are stable for hundreds to thousands of years until conditions diverge too much from those that allowed their formation. Hunter-gatherer societies were economically and socially stable in many parts of the world for most of the Holocene, so in principle it is theoretically possible to build a stable society that takes from the environment not much more than what can be renewed or recycled or last for a very long time. Animals and plants do it all the time, but of course their numbers are checked by the environment. And of course it would have little to do with current industrial civilization that is completely unsustainable.

Petro, 11/14/2015 at 9:24 pm
Hunter-Gatherers were stable ONLY for nature kept a "big stick" over their head every time they multiplied more than they should have…but as Ron has said multiple times: we are clever and have bypassed that (or so we think…).
Theoretically- as you say- yes!
Practically: NO!

"…We will kill them all…"
~ Ron Patterson

-And lastly, all this is mute for we ALREADY have passed the tipping point, or the point of no return- if you will.

Be well,

Petro

Fred Magyar, 11/14/2015 at 4:23 am
I agree with the idea that trying to achieve a zero growth economy is the only path towards sustainability.
Two points:

First the concept of the 'Circular Economy' goes far beyond simple recycling.

It incorporates systems and design thinking at a fundamental level in all aspects of the economy, government,and social systems. It thinks of the economy as an ecosystem. It borrows heavily from how nature builds sustainable systems. It is also very important to understand that it is not just a greenwashing. It is about a deep and fundamental process change.

Second: At our current juncture 'Perfect' is the enemy of good enough!
We need to move forward with all aspects of the 'Circular Economy' We don't have time to design and build a perfect system, We are in a situation where we know that our current ways of doing things are not sustainable so we have to push ahead with imperfect solutions and learn as we go.

Best Hopes!

BTW, Petro is only technically correct here:

-What you are saying/suggesting presents a profound misunderstanding of open, dissipative complex systems/structures – which we (our society, our economy – indeed our entire world ) are.

Without throwing the baby of ecosystem thermodynamics 101 out with the bath water, I repeat my point 'Perfect' is the enemy of good enough. Ecosystems are relatively speaking stable and have been for long periods of time. Nature has been tweaking them for 3.8 billion years. We on the other hand have managed to really screw things up in just a few thousand years.

We need to go back and learn how nature does design
https://goo.gl/tu3kPj

Ron Patterson, 11/14/2015 at 5:57 am
We need to go back and learn how nature does design
If we went back to when nature was in balance, to the point to where we were no longer destroying the ecosystem, then we would be back to only a few million Homo sapiens on earth.

While it is true that humans are a part of nature, it is also true that cancer is a part of nature.

Fred Magyar, 11/14/2015 at 7:30 am
We need to go back and learn how nature does design
If we went back to when nature was in balance,

Ron, that totally misses the point!

Yes, the ultimate goal would be to have sustainable systems in place. However, we are not in a position to go back to anything. We need to go forward. The point I was making is that we can learn from the way nature creates sustainable ecosystems and apply those lessons to our own systems. This is why I wanted to make crystal clear that I'm not talking about greenwashing or anything 'Green' in the old hippie commune model.

Basically nature uses multiple interconnected circular systems simultaneously on various scales from the microscopic to gigantic. Think of the multiple ecosystems on a single tree in a rainforest. The mosses and lichens fungi living on the bark of the tree. All the insect communities, ants, beetles, arachnids, etc, that depend on that. The tree itself using sunlight through photosynthesis, breathing, producing O2,transporting water and recycling nutrients, the carbon and nitrogen cycles and so on. The top of the tree is colonized with with completely different specialized ecosystems covered with epiphytes. Tree frogs and lizards living in the water filled pools created in the base of bromeliads. The birds and snakes living in the canopy. The large and small mammals living in various niches within all those ecosystems, the detrivores and bacteria and fungi that recycle all the nutrients from the organisms that die, etc… etc… and we are talking just one tree in a forest. This is the kind of integrated systems design that we need to emulate in our cities and businesses.

We humans, on the other hand, have built linear consumptive nonintegrated systems. These systems are extremely wasteful. Linear systems only work when resources limits are nonexistent. We no longer have the luxury of continuing with such systems. We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.

Ron Patterson, 11/14/2015 at 8:00 am
We need to learn how nature practically eliminates waste by emulating a model where waste streams are resource inputs and everything is reused there is practically no waste in a functioning stable ecosystem.
I totally understand your point Fred, but you are simply missing the big picture. When you say "we" just who are you talking about? Obviously if you are talking about fixing the terrible mess we find ourselves in, then "we" has to mean "we humans", all of us. And when you do that you are talking absolute nonsense.

Individuals can change but human nature cannot change. "We" will go on behaving in the future exactly as we have behaved in the past. The mass of humanity is consuming the natural resources like a drunken sailor going through his rich uncle's inheritance. And I don't mean just fossil resources, I mean all resources, all nature's bounty. And we are taking it from all the other creatures who are less clever than we are.

And "we" will continue to do so until it is gone, and all the other creatures are gone also.

wimbi, 11/13/2015 at 10:50 pm

A simple engineer's suggestion for basis of new economics, based on conversation with wiser ones elsewhere.
Proper economic structure is that which maximizes the number of options available for future choices.
Same as, minimize irreversibility; same as second law of thermo. Or, don't mess things up for the next guy.
Examples of violations of basic rule- kill the coral, next guy has less fish ; burn the oil, next guy has a smaller hunk of planet at bearable temps.
Example of application of basic rule – go to solar for energy, and stick within bounds of activity thereby set.
NB- another fundamental flaw of capitalism– like stars growing in a dust cloud where more massive ones grab mass faster than littler ones, ending up with big one gobbling it all. Bigger capitalists grab more resources faster than smaller ones, ending up with big ones getting it all.
And, very serious consequence – gross maldistribution of resource relative to individual ability to use resource wisely.
Above observations not to be attributed to me.

[Nov 26, 2015] Incorporating the Rentier Sectors into a Financial Model

Notable quotes:

"... Finance is not The economy ..."

"... In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. ..."

"... Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. ..."

"... even government tax revenue is diverted to pay debt service ..."

"... Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy. ..."

economistsview.typepad.com

RGC said in reply to JF... November 25, 2015 at 08:34 AM

Incorporating the Rentier Sectors into a Financial Model
Wednesday, September 12, 2012
by Dirk Bezemer and Michael Hudson

As published in the World Economic Association's World Economic Review Vol #1.

.......

2. Finance is not The economy

In the real world most credit today is spent to buy assets already in place, not to create new productive capacity. Some 80 percent of bank loans in the English-speaking world are real estate mortgages, and much of the balance is lent against stocks and bonds already issued. Banks lend to buyers of real estate, corporate raiders, ambitious financial empire-builders, and to management for debt-leveraged buyouts. A first approximation of this trend is to chart the share of bank lending that goes to the 'Fire, Insurance and Real Estate' sector, aka the nonbank financial sector. Graph 1 shows that its ratio to GDP has quadrupled since the 1950s. The contrast is with lending to the real sector, which has remained about constant relative to GDP. This is how our debt burden has grown.

Graph 1: Private debt growth is due to lending to the FIRE sector: the US, 1952-2007

Source: Bezemer (2012) based on US flow of fund data, BEA 'Z' tables.

What is true for America is true for many other countries: mortgage lending and other household debt have been 'the final stage in an artificially extended Ponzi Bubble' as Keen (2009) shows for Australia. Extending credit to purchase assets already in place bids up their price. Prospective homebuyers need to take on larger mortgages to obtain a home. The effect is to turn property rents into a flow of mortgage interest. These payments divert the revenue of consumers and businesses from being spent on consumption or new capital investment. The effect is deflationary for the economy's product markets, and hence consumer prices and employment, and therefore wages. This is why we had a long period of low cpi inflation but skyrocketing asset price inflation. The two trends are linked.

Debt-leveraged buyouts and commercial real estate purchases turn business cash flow (ebitda: earnings before interest, taxes, depreciation and amortization) into interest payments. Likewise, bank or bondholder financing of public debt (especially in the Eurozone, which lacks a central bank to monetize such debt) has turned a rising share of tax revenue into interest payments. As creditors recycle their receipts of interest and amortization (and capital gains) into new lending to buyers of real estate, stocks and bonds, a rising share of employee income, real estate rent, business revenue and even government tax revenue is diverted to pay debt service. By leaving less to spend on goods and services, the effect is to reduce new investment and employment.

Contemporary evidence for major OECD economies since the 1980s shows that rising capital gains may indeed divert finance away from the real sector's productivity growth (Stockhammer 2004) and more generally that 'financialization' (Epstein 2005) has hurt growth and incomes. Money created for capital gains has a small propensity to be spent by their rentier owners on goods and services, so that an increasing proportion of the economy's money flows are diverted to circulation in the financial sector. Wages do not increase, even as prices for property and financial securities rise – just the well-known trend that we have seen in the Western world since the 1970s, and which persists into the post-2001 Bubble Economy.

It is especially the case since 1991 in the post-Soviet economies, where neoliberal (that is, pro-financial) policy makers have had a free hand to shape tax and financial policy in favor of banks (mainly foreign bank branches). Latvia is cited as a neoliberal success story, but it would be hard to find an example where rentier income and prices have diverged more sharply from wages and the "real" production economy.

The more credit creation takes the form of inflating asset prices – rather than financing purchases of goods and services or direct investment employing labor – the more deflationary its effects are on the "real" economy of production and consumption. Housing and other asset prices crash, causing negative equity. Yet homeowners and businesses still have to pay off their debts. The national income accounts classify this pay-down as "saving," although the revenue is not available to the debtors doing the "saving" by "deleveraging."

The moral is that using homes as what Alan Greenspan referred to as "piggy banks", to take out home-equity loans, was not really like drawing down a bank account at all. When a bank account is drawn down there is less money available, but no residual obligation to pay. New income can be spent at the discretion of its recipient. But borrowing against a home implies an obligation to set aside future income to pay the banker – and hence a loss of future discretionary spending.

3. Towards a model of financialized economies

Creating a more realistic model of today's financialized economies to trace this phenomenon requires a breakdown of the national income and product accounts (NIPA) to see the economy as a set of distinct sectors interacting with each other. These accounts juxtapose the private and public sectors as far as current spending, saving and taxation is concerned. But the implication is that government budget deficits inflate the private-sector economy as a whole.

http://michael-hudson.com/2012/09/incorporating-the-rentier-sectors-into-a-financial-model-3/

pgl said in reply to anne...

Peter Dorman's excellent rebuttal of John Harwood:
http://econospeak.blogspot.com/2015/11/tax-policy-and-magic-investment-channel.html

[Nov 26, 2015] The U.S. Is the Most Unequal Developed Economy Outside Southern Europe

Notable quotes:

"... And yet Hillary mocked Bernie Sanders for wanting the U.S. to be more like Denmark. ..."

"... Excellent example of her opportunism, unprincipled ambition and revolting sense of superiority ..."

Bloomberg Business

Fred C. Dobbs said... November 25, 2015 at 10:50 AM

US Is the Most Unequal Developed Economy Outside
Southern Europe http://bloom.bg/1NrQVeT via @Bloomberg
Kasia Klimasinska - November 25, 2015
The developed world's most unequal economies are in struggling southern Europe, closely followed by the U.S.

That's according to a new report from Morgan Stanley, where analysts looked at indicators including the gender pay gap, involuntary part-time employment and Internet access. The bank also found that the rise of economies such as China and India has helped drive down inequality between countries, even though inequality within many individual has grown. Since the mid-1980s, income inequality has risen the most in Sweden when looking at developed economies. Even after that increase, Sweden (along with the rest of Scandinavia) still had the lowest levels of inequality. ...

Peter K. said in reply to Fred C. Dobbs...

And yet Hillary mocked Bernie Sanders for wanting the U.S. to be more like Denmark.

PPaine said in reply to Peter K....

Excellent example of her opportunism, unprincipled ambition and revolting sense of superiority
Among her peers those dangerous broiled creatures of middle class strivers domestic brimstone

She makes fellow victim turned brute [to the extent that] Dick Nixon look sympathetic

Fred C. Dobbs said in reply to Fred C. Dobbs... November 25, 2015 at 08:33 AM

BTW, there IS an unpostable link to the Morgan Stanley report in
the Bloomberg article

[Nov 25, 2015] Antonio Fatas on the Global Economy Counting backwards to the next recession

fatasmihov.blogspot.com

In the case of the US (using the NBER business cycle dates), in the post-WWII period expansions have lasted from 12 months in the expansion ending in 1981to 120 months in the expansion ending in 2001. The current expansion is already 77 months long, longer than the previous expansion of 2001-2007.

... ... ...

And this second reading the chart reminds us of the risk that we are facing if the next recession is somewhere in the near future and monetary policy has not had the time to go back to normal, to go back to levels of short term rates that allow for a decrease in these rates that is consistent with what we have seen in previous recession. And entering the next recession in Europe or the U.S. with interest rates that are too close to zero does not sound like a good idea and in addition there is a lot of uncertainty given that we have not seen such a case in the recent business cycles.

[Nov 24, 2015] James Poterba Interview

economistsview.typepad.com

James Poterba is interviewed by the Richmond Fed:

... ... ... EF: More recently, one of your areas of research has been retirement finance and the investment decisions of workers thinking about their retirement. In recent decades, we've seen a tremendous shift in the private sector from defined benefit retirement programs to defined contribution programs. Was this mainly a response by firms to the tightening of the regulatory environment for defined benefit plans, to changing demand from workers, or to something else?
Poterba: I think it's a bit of everything. A number of factors came together to create an environment in which firms were more comfortable offering defined contribution plans than defined benefit plans. One factor was that when firms began offering defined benefit plans, in World War II and the years following it, the U.S. economy and its population were growing rapidly. The size of the benefit recipient population from these plans relative to the workforce was small. It was also a time when life expectancy for people who were aged 65 was several years less than it is today. Over time, the financial executives at firms came to a greater recognition of the true cost of defined benefit plans.

I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income.

But ERISA and the growing recognition of the costs of defined benefit plans are probably not the full story. The U.S. labor market has become more dynamic over time, or at least workers think it has, and that has led to fewer workers being well-suited to defined benefit plans. These plans worked very well for workers who had a long career at a single firm. Today, workers may overestimate the degree of dynamism in the labor market. But if they believe it is dynamic, they may place great value on a portable retirement structure that enables them to move from firm to firm and to take their retirement assets with them.

Most workers who are at large firms, firms that have 500 employees or more, have access to defined contribution plans. Unfortunately, we still don't have great coverage at smaller firms, below, say, 50 employees. For workers who will spend a long career at a small firm, the absence of these employer-based plans can make it harder to save for retirement. A key policy priority is pushing the coverage of defined contribution plans further down the firm size distribution. That's hard, because smaller firms are less likely to have the infrastructure in place in their HR departments or to have the spare resources to be able to learn how to establish a defined contribution plan and how to administer it. They are probably also more reluctant to take on the fiduciary burdens and responsibilities that come with offering these plans.

Another concern, within the defined contribution system, is the significant amount of leakage. Money that was originally contributed for retirement may be pulled out before the worker reaches retirement age.

EF: What is causing that?

Poterba: Say you've worked for 10 years at a firm that offers a 401(k) plan and you've been contributing all the way along. You decide to leave that firm. In some cases, the firm you are leaving may encourage you to take the money out of their retirement plan because they may not want to have you around as a legacy participant in their plan. Sometimes, the worker may choose to move the funds from the prior 401(k) plan to a retirement plan at their new employer, or to an IRA. Those moves keep the funds in the retirement system. But sometimes, the worker just spends the money. When an individual leaves a job, they may experience a spell of unemployment, or they may have health issues. There may be very good reasons for tapping into the 401(k) accumulation. Using the 401(k) system as a source of emergency cash, sort of as the ATM for these crises, diminishes what gets accumulated for retirement.

Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings. So while there may be a "very good reason" for this from an individual's perspective, from a larger social perspective this is a problem connected to our unwillingness to provide adequate social insurance for those who are the unlucky losers to the dynamism inherent in capitalism that propels us forward. Those who benefit so much from the dynamism could and should do more to help those who pay the costs.
pgl:

"I also think the fiduciary responsibilities and the financial burdens that were placed on firms under the Employee Retirement Income Security Act of 1974, or ERISA, have discouraged firms from continuing in the defined benefit sector. ERISA corrected a set of imbalances by requiring firms to take more responsibility for the retirement plans they were offering their workers and to fund those plans so that these were not empty promises. ERISA was enacted in the aftermath of some high-profile bankruptcies of major U.S. firms and the discovery that their defined benefit plans were not well-funded, leaving retirees with virtually no pension income."

Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!

Which is exactly why Mark's closing here is so correct.

likbez said in reply to pgl:

"Gee we corporations liked pushing the responsibility of provided retirement benefits onto others and now that government regulations made that more difficult for us to do - we don't want to take any responsibility whatsoever!"

Not only that. 401K opens huge possibilities of shadow deals between financial firms/mutual funds and providers of 401K plans. They can agree on a bad set of funds (for example with high annual costs or with bad diversification -- heavily tilted toward stocks) in exchange of discounted services in other areas.

This is actually how such deals are done by all major corporations. Providers of 401 mutual funds in this case typically perform other services for the corporation. Some like Wall-Mart are especially cruel to their workers in this respect and fleece them mercilessly.

Also the amount of contributions from the company is usually much less then in defined benefit plan and all risks are transferred to employees.

The other negative side effect was tremendous growth of mutual fund industry which increased the "Financialization of the economy" -- hallmark of the neoliberal social system (aka casino capitalism).

This industry which has developed over the decades between 1980 and 2000 created preconditions for the situation, in which financial leverage tended to override capital (equity), and financial markets dominate the traditional industrial economy and agriculture.

For example such behemoths as Vanguard, Fidelity, Pimco, etc are direct result of the switch to 401K plans. They would never exists in such enormous size without them.

They by the virtue of being the largest shareholders play very negative role in corporate governance (if we use this neoliberal term). For example both Vanguard and Fidelity are indirectly responsible for 2008 crisis as the major voting shareholders of Wall Street "Masters of the Universe".

Such mutual funds providers are creating a new situation on the market with their enormous mutual funds and amount of funds under management.

Indirectly they facilitate sophisticated parasitic forms of trading which can exist only in high volume environment.

Tom aka Rusty said in reply to pgl:

Between 1974 and 1990 almost every small business and professional group DB plan I was aware of was closed or frozen, including HR-10s. Most of the rest faded away over time.

The ERISA administrative costs and financing risks were too much for these smaller sized firms, and the 401(k) came along (started in Rev. Act 1978, regulated more thoroughly in 84 and 86 tax acts).

A reform directed at the likes of General Motors didn't work well for the little guys. And General Motors continued playing games anyway.

And the 401(k) has not filled the void.

pgl said in reply to Tom aka Rusty:

"The ERISA administrative costs and financing risks were too much for these smaller sized firms".

Oh Lord - Rusty wants to excuse all sorts of nefarious corporate behavior as it is just too hard to play by the rules. How tiresome.

mulp said in reply to pgl:

Rusty believes in free lunch economics. Eliminate all labor costs so profits are 100% of revenue and gdp will explode as wealth creation drives production and the surge in supply will create consumers with drills of money due to the effect of other people's wealth.

Workers are a deadweight cost to an economy because workers such money into a blackhole from which the money never reappears.

Consumers are never workers and workers are never consumers.

Wealth comes from profits, not labor.
Labor destroys wealth.

That sums up free lunch economics. The free in free markets means wealth and profit should be free by labor being free.

pgl said in reply to Tom aka Rusty:

I wonder if Rusty has ever seen "Pensions: The Broken Promise" (NBC September 12, 1972) detailed the consequences of poorly funded pension plans and onerous vesting requirements. This Congress to hold a public hearings on pension issues and public support for pension reform grew significantly.

Or does Rusty remember Studebaker which closed up in the 1960's with pension plan was so poorly funded that Studebaker could not afford to provide all employees with their pensions. 3600 did receive full benefits but 4000 workers aged 40–59 who had ten years with Studebaker received lump sum payments valued at roughly 15% of the actuarial value of their pension benefits, and the remaining 2,900 workers received no pensions.

But Rusty thinks compliance with ERISA is just too complicated.

djb said in reply to pgl:

I mean seriously , pension after pension just disappeared when the firms declared bankruptcy and suddenly the money is no where to be found

there is nothing about that in this article

Mr. Poterba has no credibility with me, based on this interview

defined contribution, in part, was supposed to make it so this couldn't happen

pgl said in reply to djb:

I agree that Poterba could have spent more time on this issue but he is not the bad guy here. The bad guy are the fools who say government intervention has no place (hello Rusty). Defined contributions is a different means for paying for retirement but as Mark Thoma has noted since the beginning of this blog, it does not cover certain risks. Which is why we need to defend the Social Security program.

ilsm:

" The size of the benefit recipient population from these plans relative to the workforce was small."

Malthusian excuse for productivity gains going to the pentagon and other payors of the .1%.

"Inadequate social insurance for workers who lose their jobs leads to inadequate retirement savings."

The system works for the duped, the exploiters and the plunderers, no one else.

tom:

During the Obamacare debate, there was talk about a public option. Why not a public option for 401K plans, that would take the burden of administering such planes away from small firms? And if we are going to get so hot under the collar about 'choice', why not give employees two choices for public option, a defined contribution public option, and a defined benefit public option?

Sandwichman:

"...the dynamism inherent in capitalism that propels us forward..."

Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

Sandwichman said in reply to Sandwichman:
Offing "The Agenda" Before the Agenda Offs Us
http://econospeak.blogspot.ca/2015/11/offing-agenda-before-agenda-offs-us.html

Dean Baker writes:

"The time has long since passed when we should be arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it."

And the answer is… "set targets"?

As long as adopting shorter work weeks and years to achieve full employment is off the agenda, doing something meaningful about climate change is also off the agenda. Shorter hours is not a panacea for full employment or slowing man-made climate change. But excluding shorter hours from the policy mix is the opposite of a panacea - guaranteed toxic.

It is no mistake that shorter hours are off the agenda. It is not happenstance or serendipity. The best way to describe the thinking behind the exclusion is a kind of rentiers' marxism-in-reverse. Marx's model of capitalism predicts an "increasing organic composition" of capital. In the absence of capital devaluing crises, such an increase makes labor increasingly scarce relative to capital.

Shorter hours would make labor even scarcer relative to capital. Price of labor goes up, returns to capital go down. Can't let that happen. This is America, where "free enterprise" rules and the rich buy the public policy regime - and whatever economic policy rationale justifies it - that suits them.

So achieving full employment and mitigating climate change are off the respectable economists' agenda. The question is what are we prepared to do about that?

anne said in reply to Sandwichman...

http://www.cepr.net/documents/Getting-Back-to-Full-Employment_20131118.pdf

November, 2013

Getting Back to Full Employment
A Better Bargain for Working People
By Dean Baker and Jared Bernstein

anne said in reply to Sandwichman...

"...the dynamism inherent in capitalism that propels us forward..."

Although it is said that it doesn't matter how fast you are going if you don't know which direction you are headed. Forward? To what end?

[ A remarkably meaningless cliche. ]

[Nov 23, 2015] An Unforgiving Musical-Chairs Economy

Notable quotes:

"... Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs. ..."

"... Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015. ..."

"... I dont think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions. ..."

"... Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lots of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude. ..."

"... But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal. ..."

"... Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillarys position). ..."

November 22, 2015 | Economist's View '

Harold Pollack (the beginning of the post talks about a recent column in the NY Times noting that "The people who most rely on the safety-net programs secured by Democrats are, by and large, not voting against their own interests by electing Republicans. Rather, they are not voting, period," and how that has turned blues states red):

What's the matter with Kentucky?: ...Viewed from afar, one might think that categories such as "deserving poor" or "disabled" are reasonably clear-cut. Viewed up-close, things seem much more fuzzy. Many people who rely on public aid straddle the boundaries between deserving and undeserving, disabled and able-bodied. Many of us know people who receive various public benefits, and who might not need to rely on these programs if they made better choices, if they learned how to not talk back at work, if they had a better handle on various self-destructive behaviors, if they were more willing to take that crappy job and forego disability benefits, etc.
It's easy, even viewing our own friends and relatives, to confuse cause and effect regarding more intimate barriers. A sad reality of psychiatric disorders is that the very symptoms which inflict mental pain on the sufferer can make themselves felt to others in ways that undermine empathy and personal relationships.

Across the Thanksgiving dinner table, you see these human frailties and failures more intensely and with greater granularity than the labor economist could possibly see running cold data at the Census Bureau. But operating at high altitude, the labor economist sees structural issues you can't see from eye level.

There have always been vulnerable people, whose troubles arise from an impossible-to-untangle mixture of bad luck, destructive behaviors, and difficult personal circumstance. That economist can't see why your imperfect cousin can't seem to get it together to hold a basic job. She can see that your cousin is being squeezed out by an unforgiving musical-chairs economy. Every year, in the backwaters of America, that economy seems to put out fewer and fewer chairs.

Posted by Mark Thoma on Sunday, November 22, 2015 at 12:10 PM in Economics | Permalink Comments (26)

pgl said...

"Supporters of expanded social provision must find better ways to engage poor people, to get out their votes."
Of course Republicans are doing everything they can to keep poor people from voting.

cm -> pgl...
Also in the US, elections seem to always (?) take place on work days, whereas e.g. in Germany the happen on Sundays as a rule. Of course one can vote by mail, but that requires a pretty stable and reliable mailing address ...

pgl -> cm...
In the South the Republicans loathe the idea that voting might occur on Sundays. Seems they fear those black mega churches turning out the vote.
cm -> pgl...
I was thinking more of people being unable to (or "preferring" not to) miss work, and not being able to show up for work as well as vote on the same day.
Do you think that people don't have enough willpower to sustain their decision to vote from Sunday to Tuesday? Or that they would vote only under the social pressure from the church group?

pgl -> cm...

I'm just saying let them vote when they can. As in your first sentence here.

Number 6 said...

The US is a militarist-imperialist, rentier-socialist, friendly fascist (for now) corporate-state for the top 0.001-1% to ~10% (the best gov't the money of the top 0.001-1% can buy) and a moronocracy for the rest of us, i.e., "no representation without taxation".
What is needed is 'Merikans for Moronocracy (or Morons for a New 'Merika) for us morons in red AND blue states to write in our own names for CEO of the fascist corporate-state. Imagine tens of millions of us unaffiliated morons writing in Joe Moron for POTUS and Jane Moron for Veep (or switch for your gender-specific or non-specific preference, or not).

Surely, none of us could do any worse for the bottom 90%+ than the Establishmet top 0.001%'s "choices" over the past 30-40+ years, or the current lot of Dame Hilbillary, The Donald, Crazy Carson, et al. (Of course, Bernie Sanders speaks to the values and objectives of the vast majority of 'Merikans who are actually democratic socialists but have been propagandized for at least a century or more not to know it.)

Morons of the world unite!!!

anne said...

http://krugman.blogs.nytimes.com/2015/11/22/thinking-about-the-trumpthinkable/
November 22, 2015

Thinking About the Trumpthinkable
By Paul Krugman

Alan Abramowitz * reads the latest Washington Post poll and emails:

"Read these results ** and tell me how Trump doesn't win the Republican nomination? I've been very skeptical about this all along, but I'm starting to change my mind. I think there's at least a pretty decent chance that Trump will be the nominee.

"Here's why I think Trump could very well end up as the nominee:

"1. He's way ahead of every other candidate now and has been in the lead or tied for the lead for a long time.

"2. The only one even giving him any competition right now is Carson who is even less plausible and whose support is heavily concentrated among one (large) segment of the base-evangelicals.

"3. Rubio, the great establishment hope now, is deep in third place, barely in double digits and nowhere close to Trump or Carson.

"4. By far the most important thing GOP voters are looking for in a candidate is someone to 'bring needed change to Washington.'

"5. He is favored on almost every major issue by Republican voters including immigration and terrorism by wide margins. The current terrorism scare only helps him with Republicans. They want someone who will "bomb the shit" out of the Muslim terrorists.

"6. There is clearly strong support among Republicans for deporting 11 million illegal immigrants. They don't provide party breakdown here, but support for this is at about 40 percent among all voters so it's got to be a lot higher than that, maybe 60 percent, among Republicans.

"7. If none of the totally crazy things he's said up until now have hurt him among Republican voters, why would any crazy things he says in the next few months hurt him?

"8. He's very strong in several of the early states right now including NH, NV and SC. And he could do very well on 'Super Tuesday' with all those southern states voting. I can't see anyone but Trump or Carson winning in Georgia right now, for example, most likely Trump.

"9. And as for the idea of the GOP establishment ganging up on him and/or uniting behind another candidate like Rubio, that's at least as likely to backfire as to work. And even if it works, what's to stop Trump from then running as an independent?"

Indeed. You have a party whose domestic policy agenda consists of shouting "death panels!," whose foreign policy agenda consists of shouting "Benghazi!," and which now expects its base to realize that Trump isn't serious. Or to put it a bit differently, the definition of a GOP establishment candidate these days is someone who is in on the con, and knows that his colleagues have been talking nonsense. Primary voters are expected to respect that?

* http://polisci.emory.edu/home/people/faculty/abramowitz-alan.html

** http://apps.washingtonpost.com/g/page/politics/washington-post-abc-news-poll-nov-15-19-2015/1880/

gunste -> anne...
The reason may well be that there is a vast group of voters who consistently vote against their better interests, because their mindset is conservative, though they are actually middle class or lower. - Kansas appears to be a great example. These people do not think things through but vote on their gut (conservative they think) instincts. Education has a great deal to do with that voting decision. Thus we seem to see a blue collar worker with a median income take positions similar to that of the 1%. Curious but educational level is the likely answer. Such voters are also much more susceptible to propaganda based on tainted or false information which is circulated freely by many of the talking heads on radio and TV. Note that the Republicans work assiduously to discourage and restrict voting by gerrymandering, rules, voting days and sometimes requiting ID. - Democracy in America is a theoretical concept now.
cm said...
The Musical Chairs happens not only in the backwaters. It happens in and around the major job centers too. Nor is it only a matter of no job vs. some job, also how well the job is paid, working conditions, full time vs. part time, predictable work hours or on call (and only on-premises hours paid), etc.
It also doesn't just affect people with various "problems". There is the meme that when you are good you will always find a job, but that only works when employers are actually hiring. And the unstated part is that the job will be at your level of skill/ability. In "tech", and probably most "high skilled" fields, employers have a rather strong preference for an unbroken career in the field, you are basically defined by the "lowest" work you have done recently.

Dan Kervick -> Peter K....

"Kervick on the other hand tells us everyday that Krugman and DeLong are trying to pull the wool over our eyes on behalf of an evil neoliberal consensus."

Not pull the wool over our eyes. But they both do defend and rely on a mainstream neoliberal, New Keynesian models of the economy which I think paint a very inadequate picture of the way our economy actually functions and is woefully inadequate as a guide for policy action - especially of the kinds that are urgently needed in 2015.

I don't think Krugman and DeLong are the forces of evil. I just think the United States is in much worse shape then they seem prepared to come to grips with, and is in need of much more radical social and economic change then they seem willing to propose or entertain. They are stuck in the past and weighed down by defunct orthodoxies and theoretical abstractions.

Maybe in their hearts they really do grasp the magnitude of the problems, but just think the political environment is not hospitable to an honest airing of the alternatives. Maybe they are scared like everyone else.

But until prominent, established intellectuals with high profiles begin to come forward with bolder alternatives to late 20th century thinking, the America that is being crushed underfoot by an out-of-control capitalist leviathan is going to have to face a lot of unwelcome headwinds in their drive for liberating progressive change.

Syaloc -> Dan Kervick...
So basically you're calling for a return to a more institutional form of economics led by figures like John Kenneth Galbraith?
Dan Kervick -> Syaloc...
Yes, a more concrete, detailed, institution-based picture of the economic world, with more attention to history, other branches of social science, moral philosophy, cultural criticism, etc. - as well as just a bit more street smarts. Macroeconomists seem to have siloed themselves in self-contained theoretical world, where engagement with the human sciences of power and control, and the moral implications of those fields of study, are ignored.
Most of my general criticisms of economists, by the way, are aimed at macroeconomists. I listened to a lecture by Robert Schiller the other day about his new book, and thought it sounded like great stuff. I think there is lot's of great empirical work going on based on nuanced and up-to-date theories of human behavior. The macro guys often claim - on the basis of some kind of anti-reductionist credo - that their grand uniform economic theories of everything can float free of any foundation in theories of the actual behavior of actual human beings. But the theories are in practice based on analogies from individual or firm behavior to macro behavior, and the behavioral models on which they are based are extremely crude.

But basically, I think my main axe to grind is that these economists are just not sufficiently appalled by the moral horrors of the social world we live in. There is a general lack of zeal.

djb said...
a lot of it , I am sure, has to do with the "there is no difference between democrats and republicans" constant brainwashing
which helps the republicans big time

DrDick -> djb...
Sadly, it is also the case that the Democrats have backed way off economic issues since the late 1970s. At the time they suffered a massive fundraising disadvantage and wanted to attract big money donors (still Hillary's position).
djb -> DrDick...
still republicans are way worse especially now

DrDick said in reply to djb...

True, but for the poor, it is quite obvious that no one really gives a damn about them. Why should they vote when all they get is bailouts for banksters and the TPP? Right now, Sanders is the only one talking about programs that would really help them and he is a long shot (and I am a Sanders supporter).

Avraam Jack Dectis said...
.
A good economy compensates for much social dysfunction.
A bad economy moves people toward the margins, afflicts those near the margins and kills those at the margins.

This is what policy makers should consider as they pursue policies that do not put the citizen above all else.

cm -> Avraam Jack Dectis...
"A good economy compensates for much social dysfunction."
More than that, it prevents the worst of behaviors that are considered an expression of dysfunction from occurring, as people across all social strata have other things to worry about or keep them busy. Happy people don't bear grudges, or at least they are not on top of their consciousness as long as things are going well.

This could be seen time and again in societies with deep and sometimes violent divisions between ethnic groups where in times of relative prosperity (or at least a broadly shared vision for a better future) the conflicts are not removed but put on a backburner, or there is even "finally" reconciliation, and then when the economy turns south, the old grudges and conflicts come back (often not on their own, but fanned by groups who stand to gain from the divisions, or as a way of scapegoating).

[Nov 22, 2015] The Political Aftermath of Financial Crises Going to Extremes

Notable quotes:

"... The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. ..."

"... In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster. ..."

"... If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them. ..."

"... The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce. ..."

"... Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate. ..."

"... So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization". ..."

Nov 22, 2015 | Economist's View

mrrunangun:

Given that honesty in politics and government is relative, I wonder if relatively honest politics and relatively honest regulation of financial systems prevents financial crises.

pgl

Hillary Clinton hedges on a key issue:

http://talkingpointsmemo.com/news/hillary-clinton-break-up-big-banks

She says she would break up the mega banks ... if needed. It is needed - so no hedging on this issue.

JohnH -> pgl...

Once again pgl shows how gullible he is...believing what Hillary says not what she has done. What has she done? Well, Wall Street made her a millionaire.

http://money.cnn.com/2015/10/13/investing/hillary-clinton-wall-street/

Second, she announced her run for Senator from New York (Wall Street) immediately after Bill did Wall Street the mother of all favors...ending Glass-Steagall. In his naivete, pgl certainly believes that there was no quid pro quo!!!

Third, lots of people doubt whether she can be trusted to rein in Wall Street.
http://www.nytimes.com/2015/11/22/us/politics/wall-st-ties-linger-as-image-issue-for-hillary-clinton.html?_r=0

Of course, pgl believes lots of silly things...like his claim that Obama never proposed and signed off on austerity in 2011...or that he has proposed cutting Social Security...or that trickle down monetary policy hasn't overwhelmingly benefited the 1%.

I wonder when somebody will finally get to sell him the Brooklyn Bridge [better act now, pgl, get a really cheap loan while you still can!!!]

JohnH -> JohnH...

pgl thinks that Obama NEVER proposed cutting Social Security's! What a rube!

anne:

http://www.voxeu.org/article/political-aftermath-financial-crises-going-extremes

November 21, 2015

The political aftermath of financial crises: Going to extremes
By Manuel Funke, Moritz Schularick, and Christoph Trebesch

Implications

The typical political reaction to financial crises is as follows: votes for far-right parties increase strongly, government majorities shrink, the fractionalisation of parliaments rises and the overall number of parties represented in parliament jumps. These developments likely hinder crisis resolution and contribute to political gridlock. The resulting policy uncertainty may contribute to the much-debated slow economic recoveries from financial crises.

In the light of modern history, political radicalization, declining government majorities and increasing street protests appear to be the hallmark of financial crises. As a consequence, regulators and central bankers carry a big responsibility for political stability when overseeing financial markets. Preventing financial crises also means reducing the probability of a political disaster.

anne -> anne...

What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries. Leadership changes struck me as moderate, even moderate in beset Greece as the political stance of Syriza which looked to be confrontational with regard to the other eurozone countries quickly became accepting.

European developed country governments have been and are remarkably stable. Japan has been stable. There is political division in the United States, but I do not attribute that to the financial crisis or recession but rather to social divisions.

The essay is just not convincing.

likbez said...

"What strikes me, is that the political response to the short-lived international financial crisis but longer lived recession was quite restrained in developed countries"

If you mean that the goal of the state is providing unconditional welfare for financial oligarchy (which actually is true for neoliberalism), then I would agree.

But if you use any common sense definition of "restrained" this is a joke. Instead of sending criminals to jail they were awarded with oversized bonuses.

I think the authors are way too late to the show. There is no much left of the New Deal anyway, so radicalization of the US society was a fait accompli long before crisis of 2008.

If you look at the Republican Party and, especially, Republican candidates, now it is not the question of radicalization, but the question of sanity that arises. They are so completely detached from reality that Marxists look like "hard core" realists in comparison with them.

The whole party looks like an extreme and bizarre cult that intends to take over the country: another analogy with Marxists. Like Marx quipped: History repeats itself, first as tragedy, second as farce.

Democrats are not that different either. With Sanders representing probably the only candidates which can be classified as "center-left" in European terms. For all practical reasons Hillary is a center-right, if not far-right (and as for foreign policy agenda she is definitely far right) candidate.

So the key question is about sanity of the US society under neoliberalism, not some form of "radicalization".

[Nov 22, 2015] Pimco Total Return Fund Redemptions Reach 30 Consecutive Months

finance.yahoo.com

Redemptions at the Pimco Total Return Fund reached 30 straight months in October as the former world's largest mutual fund fell to $93.7 billion in assets.

The Pimco Income Fund continues to head in the other direction, surpassing $50 billion in assets for the first time as group Chief Investment Officer Daniel Ivascyn's pool has attracted $11.5 billion in net new cash this year, according to Newport Beach, California-based Pacific Investment Management Co.

"The Income Fund benefited from defensive positioning in the energy sectors and the recovery in the higher quality segments of the emerging markets," Ivascyn said.

Total Return is less than a third of its peak size as investors pulled $1.6 billion from the fund in October, the smallest monthly outflow since July 2014, two months before Pimco's ouster of co-founder Bill Gross prompted a rush to the exits. The fund peaked at about $293 billion in April 2013, shortly before Federal Reserve policy makers sparked the so-called taper tantrum by threatening to reduce their investments in Treasuries and mortgage-backed securities, prompting investors to flee bonds.

The Total Return Fund returned 1 percent this year through Nov. 2, outperforming 74 percent of its peers, according to data compiled by Bloomberg.

'Extreme Worry'

"We took advantage of market pricing that reflected extreme worry about spillovers from China and global deflation in September," said Scott Mather, a manager on Total Return and Pimco's CIO for core strategies. "As markets calmed and reassessed the probabilities with new data in October, our positions in corporate credit, mortgages and Treasuries benefited."

The $51 billion Pimco Income Fund has returned 3.6 percent in 2015, beating 98 percent of peers. It ranks in the 99th percentile for the three- and five-year periods.

While Pimco Total Return has lost assets, investors have added money to competitors such as TCW's Metropolitan West Total Return Bond Fund and the DoubleLine Total Return Bond Fund. DoubleLine's fund has returned 2.6 percent this year, outperforming 93 percent of peers, while the MetWest fund is up 0.6 percent, besting 45 percent of peers.

[Nov 22, 2015] Coping IRA Withdrawal Rules Advice IQ

www.adviceiq.com

Types of accounts where RMDs apply. While your invested money sat in your qualified retirement accounts, the IRS deferred any taxes due until a later date. That date arrives when you hit age 70 ½.

RMDs affect many types of accounts, including traditional IRAs, simplified employee pension (SEP) and savings incentive match plan for employees (SIMPLE) IRAs and employer retirement accounts such as 401(k)s and 403(b)s.

Once you reach the trigger age for RMDs, the IRS requires that you start taking RMDs and begins collecting taxes previously deferred. Taxes come due on amounts only as they are distributed to you and not while you keep them invested.

For the year you first reach 70½, you must take a minimum distribution either that year or no later than April of the following year. Every year after, you also must take the required minimum distribution by Dec. 31 of each tax year.

Beware deadline penalties. Not only does the IRS want to tax revenue from your retirement accounts, if you fail to meet the deadline for distribution the taxman sticks on an additional and whopping 50% penalty.

Figuring out what you owe. IRS publication number 590 explains how to calculate the actual amount you must take as an annual distribution and additional information on how RMDs apply to each type of retirement account you might own.

Generally, calculate RMD for each account by dividing the prior Dec. 31 balance of that IRA or retirement plan account by a life expectancy factor. Use the:

Joint and Last Survivor Table if your sole beneficiary of the account is your spouse and your spouse is more than 10 years younger than you;

Uniform Lifetime Table if your spouse is not your sole beneficiary or your spouse is not more than 10 years younger; and

Single Life Expectancy Table if you are a beneficiary of an account.

These great resources help you avoid the price of getting these calculations wrong – a price high enough that I recommend you consider help with the calculation and with getting the proper amount withdrawn from your accounts before the IRS deadline.

I especially warn those tracking more than one tax-deferred retirement account. If you still have years or even decades before RMDs apply to you, your parents or loved ones 70½ or older need this reminder, too.

Taxes are a part of life. Penalties you avoid.

[Nov 22, 2015] Fixing a broken retirement system

Notable quotes:

"... Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world. ..."

www.usatoday.com

The state of Americans' retirement preparation is shocking. Why is this, and what can people do about it?
PBS ran its Frontline documentary The Retirement Gamble a few years ago, and it's still pertinent. It's hard to watch this program without a sense of horror at the way our retirement plan system is rigged to rip off Americans struggling to save for their later years after working.

Here are the key points in The Retirement Gamble. Read them and think about what you can do to shore up your retirement plan:

The majority of Americans close to or in retirement don't have enough saved to cover a lengthy life as a retiree. And they don't have any ideas about improving their situation.

The retirement systems - chiefly, 401(k) and 403(b) plans - bilk billions of dollars from Americans in the form of fees. Plan documents deliberately hide some of these fees in fine print.

U.S. government attempts to clamp down on runaway retirement plan fees have met with mixed reaction in Congress, thanks to successful lobbying efforts by the financial services industry, such as JP Morgan Chase and Prudential Financial.

Americans are confused about the critical difference between a fiduciary and a non-fiduciary retirement advisor. The former, such as fee-only Registered Investment Advisors, are required to put clients' interests before their own interests. Brokers, however, adhere to a lower suitability standard – as long as a product seems "suitable," the broker has done his or her work. (My firm is an RIA.)

Periodic market swoons and fees hammer many retirement plan participants, who ignore how they invest. One interview on the program featured a retired couple, both teachers, who had an excessive concentration of their retirement money in dot.com stocks; their account plunged more than two-thirds in 2000. Agents circulate in teacher's lounges and sell the educators "tax-sheltered annuities," neglecting to tell them they are handcuffed to punitive redemption penalties, misleading return projections and high fees.

Potential Versus Real Wealth

John Bogle, the Vanguard Investments founder, pointed out that a "little" 2% annual fee will erode a whopping 63% of what clients could earn in their retirement accounts that booked a 7% annual average return (pre-fees). In other words, what he called "the tyranny of compounding costs" whittled the $100,000 you should have down to a measly $37,000 over 50 years of investing. JP Morgan Chase and other brokers who run expensive retirement plans come across poorly when they responded to this by saying they weren't familiar with these numbers, each retirement client has different needs, etc.

Sadly, there don't seem to be enough improvements to retirement plans to avoid having Americans work well into their 70s, if they can, or run out of money in retirement.

So what can you do? Here are some strategies:

Utilize tools such as www.brightscope.com to verify the quality, including cost, of your plan. If your plan is rated poorly, consider only saving up to the amount of your 401(k) contribution that your company matches.

If you qualify, based upon your adjusted gross income, save additionally in an individual retirement account. Look for low-cost mutual funds (e.g., Vanguard) so you can save 1% to 2% per year in fees.

Consider opting out of your plan if you have no match. You lose the up-front tax-deduction, but you may end up with more in hand by investing in low-cost mutual funds with after-tax money. Run these numbers with a professional since your retirement horizon and tax bracket can affect outcomes.

Coping: IRA Withdrawal Rules

Rollover old 401(k) or 403(b) plans from previous jobs to eliminate ongoing plan fees. Only consider retaining old plans if you have an exceptional deal, like 3% or higher guaranteed interest in the current low interest-rate world.

Postpone taking Social Security benefits as long as possible. Seek professional help before making Social Security decisions.

Consider downsizing by moving to a less expensive part of the country if you are at risk of outliving your assets. Sadly, some places – such as New Jersey, where I live – are relatively unattractive for retirees due to high taxes (including state estate tax) and high living expenses. New York may not be much better.

Save, save and save some more. Get professional advice about your retirement strategy from a qualified advisor.

[Nov 21, 2015] Global Trade Just Snapped Container Freight Rates Plummet 70% In 3 Weeks

Notable quotes:

"... Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with. ..."

"... Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum.. ..."

Zero Hedge
In fact, as the chart above shows, growth in global trade has been slowing down for some time, as Acting-Man's Pater Tenebrarum notes,

But somewhere between collapsing oil prices, dollar strength, and consumer lethargy the economy's narrative has drifted off plot. The theme has transitioned from one of renewed growth and recovery to one of recurring sickness and stagnation. Mass malinvestments in U.S. shale oil, Brazilian mines, and Chinese factories and real estate must be reckoned with.

Price adjustments, bankruptcies, and debt restructuring must be painfully worked through like a strawberry picker hunkered over a seemingly endless furrow row of over ripening fruits. Sore backs, burnt necks, and tender fingers are what the over-all economy has in front of it. The U.S. economy is not immune to the global disorder after all.

More evidence is revealed each week that the unexpected is happening. Instead of economic strength and robust growth, economic fundamentals are breaking down. Manufacturing is slowing. Consumer spending is soft. For additional edification, just look at copper, iron ore, or aluminum...

[Nov 21, 2015] O'Malley best debate line: I think it may be time for us to quit taking advice from economists

Notable quotes:

"... I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. ..."

"... I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. ..."

"... Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future. ..."

November 16, 2015 | naked capitalism

Hillary Clinton Appeal to 9-11 to Defend Wall Street Donations Was Bad, But This Was Worse

Jerry Denim, November 16, 2015 at 11:46 am

I couldn't believe my eyes and ears during the debate when Sanders impugned Clinton's integrity for taking Wall Street super PAC money and she seemed to successfully deflect the accusation by going full-bore star-spangled sparkle eagle. She played the vagina card then quickly blurted out "9/11 New York" for applause while attempting conflate aiding and abetting Wall Street with the 9/11 attacks and patriotism. I couldn't believe people were clapping and I couldn't believe Clinton had the audacity to pull such a illogical and juvenile stunt on live television, but yet CBS reported her highest approval scores of the debate were registered during her confusing but emotionally rousing (for some people apparently) "vagina, 9/11" defense.
I loved that Bernie Sanders was willing to drop the "F-bomb" (fraud) on Wall Street but he needs to swing much harder at Clinton. Clinton was quick to zing O'Malley as a hypocrite by noting he appointed a former hedge-fund manager to some state regulatory position when given the chance, but yet neither Sanders or O'Malley hit back with the fact that her only child and Clinton Foundation board member, Chelsea Clinton, worked for the hedge fund of a Clinton family pal and mega-donor in 2006. Neither candidate mentioned that her son-in-law and the father of her grandchild who she is so fond of mentioning, just so happens to be an extremely rich hedge fund manager who benefits handsomely from the Clinton's political connections and prestige. This isn't mud, this is extremely germane, factual material already on the public record. It gets to the core of who Hillary is and where her loyalties lie. Hillary herself chose to identify unregulated derivatives and the repeal of Glass-Steagall as the primary causes of the financial crisis. She either claimed directly or insinuated that she would address these issues as President, but surprisingly no one pointed out that it was her husband's administration that blocked Brooksley Born from regulating derivatives in the 1990's and it was her husband's administration that effectively repealed Glass-Steagal with the signing of Gramm-Leach-Billey act in 1999. It's not a stretch to say the Clinton's deregulation of Wall Street paved the way for the crisis of 2008 and the extreme income inequality of today. Wall Street is deeply unpopular and Bernie Sanders has built a candidacy on two main issues: attacking Wall Street and addressing income inequality. These are punches he can't afford not to throw at his rival when she holds a commanding lead in the polls plus the support of the DNC and media establishment. Clinton is deeply corrupt and beholden to Wall Street. She needs to be beaten with this stick hard and often. Attempting to deflect this very accurate, very damaging criticism by wrapping herself in the flag and invoking feminism is a cheap stunt that will only work so many times before people notice what she is doing. Bernie needs to swing harder and keep at it, he already has the right message and Clinton is highly vulnerable on his pet topics.
I thought O'Malley had one of the best lines of the night when he said "I think it may be time for us to quit taking advice from economists" but it seemed to go mostly unnoticed and unappreciated. I would have loved a frontal assault on the validity and integrity of economists when the bespectacled lady in blue attempted to nail down Sanders with a 'gotcha' question implying raising the minimum wage would be catastrophic for the economy because "such-and-such economist" said so. There is so much disdain for science and academic credentials in the heartland right now, it seems crazy not to harness this anti-academic populist energy and redirect it to a deserving target like neo-liberal economists instead of climate scientists. " How's that Laffer curve working out for ya Iowa? Are you feeling the prosperity 'trickle down' yet?" Sanders did a relatively good job of deflecting and not getting zinged by the 'gotcha' question but a full-frontal assault would have been much better. Stronger, more Presidential and with the added bonus of giving neo-liberal economists under the pay of plutocrats a black eye. Another missed opportunity. The questioner set it up perfectly for him. I would have loved to see the expression on her corn-fed face when Bernie turned her 'gotcha' question that she had spent so much time and thought crafting into the home-run answer of the evening. Perhaps it could happen in a debate in the near future.

[Nov 21, 2015] Wolf Richter: Financially Engineered Stocks Drag Down S P 500

All this neoliberal talk about "maximizing shareholder value" and hidden redistribution mechanism of wealth up. It;s all about executive pay. "Shareholder value" is nothing then a ruse for getting outsize bonuses but top execs. Who cares if the company will be destroyed if you have a golden parachute ?

Notable quotes:

"... IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. ..."

"... Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R D and capital expenditures. They're all doing it. ..."

"... Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period. ..."

"... This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion. ..."

"... Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery. ..."

"... Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining. ..."

"... But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered. ..."

"... Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s). ..."

"... On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement? ..."

"... "Results of all this financial engineering? Revenues of the S P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis." ..."

November 21, 2015 | naked capitalism

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Magic trick turns into toxic mix.

Stocks have been on a tear to nowhere this year. Now investors are praying for a Santa rally to pull them out of the mire. They're counting on desperate amounts of share buybacks that companies fund by loading up on debt. But the magic trick that had performed miracles over the past few years is backfiring.

And there's a reason.

IBM has blown $125 billion on buybacks since 2005, more than the $111 billion it invested in capital expenditures and R&D. It's staggering under its debt, while revenues have been declining for 14 quarters in a row. It cut its workforce by 55,000 people since 2012. And its stock is down 38% since March 2013.

Big-pharma icon Pfizer plowed $139 billion into buybacks and dividends in the past decade, compared to $82 billion in R&D and $18 billion in capital spending. 3M spent $48 billion on buybacks and dividends, and $30 billion on R&D and capital expenditures. They're all doing it.

"Activist investors" – hedge funds – have been clamoring for it. An investigative report by Reuters, titled The Cannibalized Company, lined some of them up:

In March, General Motors Co acceded to a $5 billion share buyback to satisfy investor Harry Wilson. He had threatened a proxy fight if the auto maker didn't distribute some of the $25 billion cash hoard it had built up after emerging from bankruptcy just a few years earlier.

DuPont early this year announced a $4 billion buyback program – on top of a $5 billion program announced a year earlier – to beat back activist investor Nelson Peltz's Trian Fund Management, which was seeking four board seats to get its way.

In March, Qualcomm Inc., under pressure from hedge fund Jana Partners, agreed to boost its program to purchase $10 billion of its shares over the next 12 months; the company already had an existing $7.8 billion buyback program and a commitment to return three quarters of its free cash flow to shareholders.

And in July, Qualcomm announced 5,000 layoffs. It's hard to innovate when you're trying to please a hedge fund.

CEOs with a long-term outlook and a focus on innovation and investment, rather than financial engineering, come under intense pressure.

"None of it is optional; if you ignore them, you go away," Russ Daniels, a tech executive with 15 years at Apple and 13 years at HP, told Reuters. "It's all just resource allocation," he said. "The situation right now is there are a lot of investors who believe that they can make a better decision about how to apply that resource than the management of the business can."

Nearly 60% of the 3,297 publicly traded non-financial US companies Reuters analyzed have engaged in share buybacks since 2010. Last year, the money spent on buybacks and dividends exceeded net income for the first time in a non-recession period.

This year, for the 613 companies that have reported earnings for fiscal 2015, share buybacks hit a record $520 billion. They also paid $365 billion in dividends, for a total of $885 billion, against their combined net income of $847 billion.

Buybacks and dividends amount to 113% of capital spending among companies that have repurchased shares since 2010, up from 60% in 2000 and from 38% in 1990. Corporate investment is normally a big driver in a recovery. Not this time! Hence the lousy recovery.

Financial engineering takes precedence over actual engineering in the minds of CEOs and CFOs. A company buying its own shares creates additional demand for those shares. It's supposed to drive up the share price. The hoopla surrounding buyback announcements drives up prices too. Buybacks also reduce the number of outstanding shares, thus increase the earnings per share, even when net income is declining.

"Serving customers, creating innovative new products, employing workers, taking care of the environment … are NOT the objectives of firms," sais Itzhak Ben-David, a finance professor of Ohio State University, a buyback proponent, according to Reuters. "These are components in the process that have the goal of maximizing shareholders' value."

But when companies load up on debt to fund buybacks while slashing investment in productive activities and innovation, it has consequences for revenues down the road. And now that magic trick to increase shareholder value has become a toxic mix. Shares of buyback queens are getting hammered.

Citigroup credit analysts looked into the extent to which this is happening – and why. Christine Hughes, Chief Investment Strategist at OtterWood Capital, summarized the Citi report this way: "This dynamic of borrowing from bondholders to pay shareholders may be coming to an end…."

Their chart (via OtterWood Capital) shows that about half of the cumulative outperformance of these buyback queens from 2012 through 2014 has been frittered away this year, as their shares, IBM-like, have swooned...

... ... ...

Selected Skeptical Comments

Mbuna, November 21, 2015 at 7:31 am

Me thinks Wolf is slightly barking up the wrong tree here. What needs to be looked at is how buy backs affect executive pay. "Shareholder value" is more often than not a ruse?

ng, November 21, 2015 at 8:58 am

probably, in some or most cases, but the effect on the stock is the same.

Alejandro, November 21, 2015 at 9:19 am

Interesting that you mention ruse, relating to "buy-backs"…from my POV, it seems like they've legalized insider trading or engineered (a) loophole(s).
On a somewhat related perspective on subterfuge. The language of "affordability" has proven to be insidiously clever. Not only does it reinforce and perpetuate the myth of "deserts", but camouflages the means of embezzling the means of distribution. Isn't distribution, really, the only rational purpose of finance, i.e., as a means of distribution as opposed to a means of embezzlement?

Jim, November 21, 2015 at 10:42 am

More nuance and less dogma please. The dogmatic tone really hurts what could otherwise be a fine but more-qualified position.
"Results of all this financial engineering? Revenues of the S&P 500 companies are falling for the fourth quarter in a row – the worst such spell since the Financial Crisis."
Eh, no. No question that buybacks *can* be asset-stripping and often are, but unless you tie capital allocation decisions closer to investment in the business such that they're mutually exclusive, this is specious and a reach. No one invests if they can't see the return. It would be just as easy to say that they're buying back stock because revenue is slipping and they have no other investment opportunities.
Revenues are falling in large part because these largest companies derive an ABSOLUTELY HUGE portion of their business overseas and the dollar has been ridiculously strong in the last 12-15 months. Rates are poised to rise, and the easy Fed-inspired rate arbitrage vis a vis stocks and "risk on" trade are closing. How about a little more context instead of just dogma?
John Malone made a career out of financial engineering, something like 30% annual returns for the 25 years of his CEO tenure at TCI. Buybacks were a huge part of that.
Perhaps an analysis of the monopolistic positions of so many American businesses that allow them the wherewithal to underinvest and still buy back huge amounts of stock? If we had a more competitive economy, companies would have less ability to underinvest. Ultimately, I think buybacks are more a result than a cause of dysfunction, but certainly not always bad.

[Nov 21, 2015] On the Lack of Courage in Regulators

Notable quotes:

"... Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along. ..."

"... It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment. ..."

Nov 21, 2015 | naked capitalism
I'm embedding the text of a short but must-read speech by Robert Jenkins, a former banker, hedge fund manager, and regulator (Bank of England) who is now a Senior Fellow at Better Markets. If nothing else, be sure to look at the partial list of bank misconduct and activities currently under investigation.
Jenkins points out that regulatory reform has fallen short on multiple fronts, and perhaps the most important is courage. Readers may understandably object to him giving lip service to the idea that Bernanke acted courageously during the crisis (serving the needs of banks via unconventional means is not tantamount to courage), but he is a Serious Person, and making a case against Bernanke would detract from his bigger message about the lack of guts post-crisis.

Now there have been exceptions, like Benjamin Lawsky, Sheila Bair, Gary Gensler, Kara Stein, and in a more insider capacity, Danny Tarullo. Contrast their examples with the typical cronyism and lame rationalizations for inaction, particularly by the Department of Justice and the SEC. It's not obvious how to reverse the corrosion of our collective values. But it is important to remember than norms can shift much faster than most people think possible, with, for instance, the 1950s followed by the radicalism and shifts in social values of the 1960s, which conservative elements are still fighting to roll back.

Michael G November 20, 2015 at 3:18 am

A link to a text version of the speech for those with uncooperative computers
http://www.ianfraser.org/why-well-all-end-up-paying-for-the-feeble-response-to-the-banking-crisis/
Worth reading

James Levy November 20, 2015 at 6:27 am

We do not live in an economy or a polity that breeds or rewards the kind of public-mindedness and civic virtue that gives you courage. The author thinks the system needs courageous people, but posits no conception of where they would come from and how they would thrive in the current system (news flash: they won't). So this is a classic "I see the problem clearly but can't see that the solution is impossible under the current system" piece.

TMock November 20, 2015 at 8:37 am

Agreed.

For those who desire real solutions, try this…

The Universal Principles of Sustainable Development

http://www.triplepundit.com/2011/02/universal-principles-sustainable-development/

Norb November 20, 2015 at 8:49 am

In Tavis Smiley's book, My Journey with Maya Angelou, he recounts an ongoing discussion the two of them entertained throughout the years concerning which trait, Love or Courage, was more important in realizing a full life. Angelou argued that acting courageously was the most important. Smiley saw love as the moving force. While important and moving, the discussion has the dead-end quality of not being able to move past the current system of injustice. I say this because in the end, both support incremental change to the existing system as the means to bring about social justice. The powerful elite have perfected the manipulation of incremental change to render it powerless.

When trying to change a social system, courage is needed. Courage to form a vision of the future that is based on public-mindedness and civic virtues that bring justice into the world. Our current leaders are delivering the exact opposite of civic justice. Its time to call them out on their duplicity, and ignore their vision of the future.

The courage that is needed today is not the courage to stand up to the criminals running things and somehow make them change. It is the courage to make them irrelevant. Change will come from the bottom up, one person at a time.

cnchal November 20, 2015 at 11:38 pm

And when one shows up, look what happens.

The disturbing fact is that laws have been broken but law breaking has not touched senior management.

If they knew, then they were complicit. If they did not, then they were incompetent. Alternatively, if the deserving dozens have indeed been banned from the field let the list be known – that we might see some of that "professional ostracism" of which Governor Carney speaks. One person who did lose his position and quite publicly at that was Martin Wheatley, the UK's courageous conduct enforcer.

Meanwhile the chairman of Europe's largest bank, Douglas Flint at HSBC, remains in situ – despite having been on the board since 1995; despite having signed off on the acquisition of Household Finance; and despite having had oversight of tax entangled subsidiaries in Switzerland and money laundering units in Mexico. Oh, and you'll love this: the recently retired CEO of Standard Chartered is reportedly an advisor to Her Majesty's Government. Standard Chartered was among the first to be investigated for violations of rogue regime sanctions. The bank was fined heavily and may be so again.

Courageous people get fired, which leads to no courageous people left.

GlassHammer November 20, 2015 at 12:32 pm

Can courage trump careerism? I believe that for the forseeable future the answer is "No". People are highly incentivized to take the path of least resistance and simply go along to get along.

susan the other November 20, 2015 at 2:52 pm

By extreme necessity (created by total dysfunction) we will probably wind up with planned and coordinated economies that do not rely on speculation & credit to come up with the next great idea. Those ideas will be forced to come from the top down. And the problems of unregulated capitalism frantically chumming for inspiration and extreme profits will shrink back down from a world-eating monster to just a fox or two.

Oliver Budde November 20, 2015 at 3:01 pm

It would be wrong to excuse the inaction of the Obama DOJ and SEC crews as being the result of some larger "corrosion of our collective values." The capos in those crews are the people doing the corroding, and not one of them was forced to (not) do what they did. Notice that every last one of the initial bunch is presently being paid, by Wall Street, to the tune of millions of dollars per year. They opted to cover up crimes and take a pay-off in exchange. And they are owed punishment.

Malcolm MacLeod, MD November 20, 2015 at 9:56 pm

Oliver: I believe that you hit the nail on the head, and
I wholeheartedly agree.

[Nov 21, 2015] Ilargi The Great Fall Of China Started At Least 4 Years Ago

Notable quotes:

"... The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today. ..."

"... "When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything." ..."

"... This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure. ..."

"... The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold. ..."

"... In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom! ..."

"... China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign. ..."

"... They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China. ..."

"... Except that China ain't Iowa, they can create a middle class as big as Europe and US combined. ..."

"... It's just anathema for the ruling class to give the little guys a break. ..."

"... The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like. ..."

"... We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it. ..."

"... It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market. ..."

"... Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman? ..."

Nov 20, 2015 | naked capitalism
Keith, November 20, 2015 at 7:41 am

We shouldn't be too surprised at falling commodity prices.

Using raw materials to make real things is all very 20th Century, financial engineering is the stuff of the 21st Century.

When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything.

Central Bank inflated asset bubbles will provide for all.

The biggest market in the world today is derivatives, money making money without a useful product or service in sight. With the market in derivatives being ten times larger than global GDP we can see that making useful products and providing useful services is nearly irrelevant even today.

We are nearly there.

fresno dan, November 20, 2015 at 10:59 am

"When Capitalism reaches its zenith, everyone will be an investor and no one will be doing anything."

+1000
Ah, that glorious day when we're all rich, rich, RICHer than Midas from interest, dividends, and rents!!!
Just to amuse myself, I intend to be a dog poop scooper – and pick up some pocket change of 1 million dollars a poop…

MyLessThanPrimeBeef, November 20, 2015 at 12:37 pm

Money making money.

Be careful.

It's like 'light seeking light doth light of light beguile.'

Money seeking money and money will be of money beguiled.

skippy, November 20, 2015 at 8:29 am

Who cares about Brent when transport is going poof….

financial matters, November 20, 2015 at 8:45 am

This problem of debt vs income seems to reflect the ongoing financialization (extraction, not to be confused with financing) of the global economy rather than a focus on capital development of people and the social and productive infrastructure.

I liked how Wray and Mazzucato linked the two in their Mack the Turtle analogy.

"Underlying all of this financialization was the homeowner's income-something like Dr. Seuss's King Yertle the Turtle-with layer upon layer of financial instruments, all of which were supported by Mack the turtle's mortgage payments. The system collapsed because Mack fell delinquent on payments he could not possibly have met: the house was overpriced (and the mortgage could have been for more than 100% of the price!), the mortgage terms were too unfavorable, the fees collected by all the links in the home mortgage finance food chain were too large, Mack had to take a cut of pay and hours as the economy slowed, and the late fees piled up (fraudulently, in many cases as mortgage servicers "lost" payments).

The "new model" was inefficient (too many fingers in the pie, all of them extracting value), highly risky (often Ponzi finance from the beginning with reverse amortization), and critically dependent on rising home prices. Even leaving aside the pervasive fraud, the model was diametrically opposed to the public interest, that is, the promotion of the capital development of the economy. It left behind whole neighborhoods of abandoned homes as well as new home developments that could not be sold."

Mission Oriented Finance

Carlos, November 20, 2015 at 9:34 am

Interesting, the supposition here is that China is heading for a depression similar to the Great Depression.

In my understanding, the Great Depression was an implosion of the credit system after a period of over investment in productive capacity. The investors failing to pay the workers enough to buy the extra goods produced. The projected returns never materialised to pay back the debt… Boom!

China could well be headed down that road, there isn't enough money getting into the pockets of ordinary Chinese that's for sure. Elites everywhere just can't bring themselves to give a break for those at the bottom.

China still has implicit state control of the banking sector, they may still have the political will to make any bad debt disappear with the puff of a fountain pen. That option is always available to a sovereign.

Then again they may just realize in time, someone needs to be paid to buy all the junk.

James Levy, November 20, 2015 at 12:51 pm

They were counting on us and the Europeans, but we've let them down. The race to the bottom erased the global middle class that could buy Chinese consumer products.

They specialized in mass production the way agribusiness has here, where the production is not where the consumption is. It's as if all the pig farmers of North Carolina and corn growers in Iowa woke up one morning and found out that the people of the Eastern Seaboard had all been put on a starvation diet. The economic results in the grain belt would not be pretty. Ditto China.

Carlos, November 21, 2015 at 1:54 am

So the corn growers need to eat more corn, that's my logic.

Except that China ain't Iowa, they can create a middle class as big as Europe and US combined.

It's just anathema for the ruling class to give the little guys a break.

James Levy, November 20, 2015 at 12:56 pm

The global glut of oil and other resources can't just be attributed to rising production in "tight oil". Somehow the Powers that be are hiding a great deal of economic contraction. If the world economy were growing it would need oil, copper, lead, zinc, wood and wood pulp, gold, and other metals as inputs. What I want to know is the extent of the cover-up, and what the global economy really looks like.

susan the other, November 20, 2015 at 2:22 pm

Where were you in 2011? I was here reading NC. One of the Links posted was a graph of the abrupt shutdown of China's economy – It was a cliffscape.

Very long vertical drop off. So dramatic I could hardly believe it and I said I was having trouble catching my breath. Another commenter said it looked like a tsunami. Of exported deflation as it turns out.

Things have been extreme since 2007 when the banksters began to fall; 2008 when Lehman crashed (just after the Beijing Olympics, how convenient for China…) and credit shut down. China was doin' just fine until then. In spite of the irrational mess in global capitalist eonomix.

The only way to remedy it was to shut it down I guess. That's really not very fine-tuned for a system the whole world relies on, is it?

ewmayer, November 20, 2015 at 6:09 pm

Related, this Pollyanna-ish laff-riot op-ed from Ross Gittins, the economics editor of the Sydney Morning Herald:

Don't buy the China doom and gloom stories just yet

Proceeds from the laughable assumption that official China economic numbers 'may not be as reliable as we'd like' rather than being 'persistently and hugely faked,' (especially during slowdowns) and ignores that the housing-market slowdown and huge unsold-RE-overhang will also necessarily be accompanied by a price crash, hence a huge amount of toxic debt being exposed – really basic boom/bust dynamics.

And no demographic boom coming to the rescue, either. (But he does repeatedly invoke the magic 'service economy boom' mantra mentioned by Ilargi.) Thankfully most of the commenters rightly take the author to task.

MyLessThanPrimeBeef, November 20, 2015 at 6:32 pm

Not too long ago, some here were still not buying the doom and gloom stories.

I don't have if they have been persuaded otherwise since.

RBHoughton, November 20, 2015 at 7:50 pm

Couple of thoughts:

Firstly, its only China's buying that stops oil falling even further Sr Ilargi.

Secondly its a Peoples' Republic – employment must be maintained.

We are not competent to forecast the future yet. Even the weather surprises us. Its also the case that people who do have relevant data are quite likely to convert that into profit rather than share it.

Don't worry, be happy. It will be OK.

ewmayer, November 21, 2015 at 2:29 am

Tangential Friday night funny: What's in a name?

Received a small airmail parcel today containing some replacement attachments for my Dremel moto-tool … package was addressed from Shenzen, specifically the "Fuming Manufacturing Park".

Wade Riddick, November 21, 2015 at 4:57 am

It's the collapse of bonded warehouse copper/aluminum/etc. lending frauds and all that rehypothecation. I don't think it's just a problem in end demand. It's a problem in the derivatives/futures market.

Ggg, November 21, 2015 at 6:53 am

Here is a very good case study for why people are always wrong about economy and markets. What happen to all the currency manipulators like Paul Krugman?

[Nov 20, 2015] How information technology is shrinking the pie

FT Alphaville

An essential read from Martin Wolf this Thursday on the manner in which corporate surpluses are contributing to the savings glut problem and causing all sorts of distributive chaos in the process.

So, whereas it used to be the sovereigns over-hoarding international claims and under-consuming/under-investing in their own infrastructure for the benefit of getting a leg up in the global hierarchal order, it's now corporates over-hoarding retained earnings for the sake of protecting their dominant positions instead (retaining earning piles being different to explicit cash piles, which can be generated with debt not just profit).

Says Wolf:

The observation that a structural surplus of savings over investment appears to have emerged in the corporate sectors of the big high-income countries is highly significant. It is significant for the growth of potential supply, since it reflects relatively feeble investment, but it is also significant for the shape of aggregate demand.

If the corporate sector runs a structural surplus of savings over investment, other sectors must run offsetting structural deficits. If the government is to be in financial balance, either households or foreigners must run these deficits. In the eurozone, this logic has led to huge current-account surpluses (a financial deficit for foreigners). For the UK and US, it is likely to mean renewed household deficits - a perilously destabilising possibility.

Why is corporate investment structurally so weak then? Wolf proposes a few reasons. One is the ageing of societies, which lowers the level of investment needed. The other is globalisation, which motivates relocation out of high-income countries. But the one we think might be most relevant is his proposition that technological innovation is quietly killing the incentive to invest. This is critical:
Much investment today is in IT, whose price is collapsing: constant nominal investment finances rising real investment. Again, much innovation seems to reduce the need for capital: consider the substitution of warehouses for retail stores.
We've taken for granted that "technology" is a force for good in the world. But perhaps the reality is a little different? Perhaps for every 'good' information tech creates, an equal and equivalent 'ungood' is created too? Or perhaps more so, the reason we're seeing the computer age everywhere but in the productivity statistics is precisely because information technology is and always has been another manifestation of a rent-extracting financial type of business.
Here's a chart by way of Iren Levina at Kingston University to cement our argument that banks were the original network-based technology platform unicorns - with business models equally focused on gathering privileged data about customer behaviours for the purpose of influencing more profitable behaviours elsewhere:

It is with good reason, then, that banks dedicate the biggest chunk of operating expenses to personnel, algorithms, IT infrastructure and hardware equipment. Banks, like information tech firms today, are and always have been information processing businesses.

On which note, Diana Hancock, of the Fed, argued convincingly in the 1990s that the Financial Firm is a financial technology which takes input (data), processes said input, and then creates monetary goods which distribute existing capital to sectors which can draw returns more effectively than others, in exchange for a leasing fee for that matching service.

But as Hancock says, financial profits can only be assured only if the purchase cost of one unit of the capital good less the rental received during the period is equal to the discounted depreciated value of the capital good in the rental period.

That's another way of saying bank profits are only justifiable if the added value from redistributing leased capital more than compensates for its natural depreciation - something that's only possible if the total value add is over and above total lease fees charged by the intermediaries. If at the end of the rental period society has no more capital (or less!) than it had to begin with, fees charged on an ex-ante basis will have proven unjustified.

The parallels between banks and technology platforms are thus uncanny.

In the banking process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate more constructive consumption elsewhere. By the time capital is returned, enough new capital is supposed to have been created to ensure both the original investors can be paid back as well as the banking/intermediary layer compensated for. Banking crises emerge when it turns out investments have failed to compensate for the natural depreciation rate.

Shrinking the pie?

In the unicorn IT process, data input represents the process by which information about future consumption (or lack thereof) - as extrapolated from previous behaviour - is collected from user networks to facilitate less constructive consumption at source.

In other words, instead of using information about long-term non-consumption to benefit value-adding industries which grow the pie for all, tech firms are focused on using information about fleeting periods of non-consumption to draw down existing capital more efficiently.

The better tech firms are at predicting or shaping behaviours through their information processes, the less new capital investment is needed, because reduced consumer optionality allows for increased supplier predictability. To wit, those who can predict their customer's behaviours best or mould them, become the lowest cost marginal producers - deferring more risky capital investment (by way of retained earnings) to the moment they can be sure they're the last monopolists left standing.

The pie as a whole stops growing, with only information tech providers - the modern-day rentiers of the system - benefiting from the structure.

To conclude, some points from Hancock's book which incidentally highlight the parallels between financial firms and modern-day unicorns:

The amount of profit generated, depends upon the strength of the banking system's monopoly position.

And..:

The traditional reason given for deposit rate ceilings is that bank competition for deposits allegedly leads to a high rate of bank failures. According to this view, bank competition for deposits led individual banks in the 1920′s and early 1930′s to offer higher interest rates in order to maintain or increase individual share of the market. The banks were forced to rely on higher yielding riskier assets to offset incurred deposit costs. This placed the banks in a vulnerable position. Any adverse economic developments, either national or local, would be sufficient to make these risky assets uncollectible by the bank. Deposit rate ceilings affect consumers, since they receive less for deposits than would otherwise be the case, but the accompanying increased monopoly power of financial institutions makes them allegedly more sound.

The techies would argue they're just making the world more efficient.

We can't help wonder if solutions based on substituting new goods for pre-existing goods (or virtual ones) are somewhat different to solutions which grow the pie for everyone. There seems to us an inherent risk in creating monopolistic systems which overstretch themselves to the point they essentially run on empty.

Izabella Kaminska joined FT Alphaville in October 2008. Before that she worked as a producer at CNBC, a natural gas reporter at Platts and an associate editor of BP's internal magazine.

Related links:
When a man cannot choose, is he still a consumer? - FT Alphaville
Assessing "Abenomics", again - FT Alphaville

[Nov 18, 2015] Can Anything Stop Companies From Loading Up on Debt UBS Says No.

Notable quotes:

"... When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower, they wrote. ..."

"... That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. ..."

"... Might the rating agencies spoil the party? they asked. In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call). ..."

"... With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor] ..."

finance.yahoo.com

It's no secret that companies have been taking advantage of years of low interest rates to sell cheap debt to eager investors, locking in lower funding costs that have allowed them to go on a spree of share buybacks and mergers and acquisitions.
With fresh evidence that investors are becoming more discerning when it comes to corporate credit as they approach the first interest rate rise in the U.S. in almost a decade, it's worth asking whether anything might stop the trend of companies assuming more and more debt on their balance sheets.

... ... ...

For a start, they note that higher funding costs are unlikely to dissuade companies from continuing to tap the debt market since, even after a rate hike, financing costs will remain near historic lows. "The predominant reason is the Fed[eral Reserve] is anchoring low interest rates," the analysts wrote.

When it comes to the hubris of corporate chief financial officers, who have been more than happy leveraging up balance sheets in order to reward shareholders, the analysts didn't mince words. "We find that corporate CFOs historically are inherently backward-looking when setting corporate financing decisions, relying on past extrapolations of economic activity, even when current market pricing suggests future investment returns may be lower," they wrote. "Several management teams have been on the road indicating higher funding costs of up to 100 to 200 basis points would not impede attractive M&A deals, in their view."

Higher market volatility has often been cited as one factor that could knock the corporate credit market off its seat...

That leaves downgrades by credit-rating agencies as one catalyst that could spark a turn in the cycle; downgrades of corporate credit have already exceeded upgrades this year at some of the bond graders. Here, Mish and Caprio offered some stunningly blunt words. "Might the rating agencies spoil the party?" they asked. "In the end we believe strong economic interests will overwhelm rationale considerations. Rating agencies remain heavily dependent on new issuance activity, face significant competitive pressures (as issuers will select two of three ratings) and appear unconcerned with where we are in the credit cycle (e.g., see Moody's latest conference call)."

With UBS having taken all those potential catalysts firmly off the table, that leaves just fundamentals to worry about. Who, for the past few years, has been worrying about those? [Sarcasm? - Editor]

"Bottom line, we struggle to envision an end to the releveraging phenomenon-absent a substantial correction in corporate earnings and/or broader risk assets," concluded the UBS analysts.

[Nov 17, 2015] Chicagonomics and Economics Rules

It's not about Adam Smith, it's about well paid intellectual prostitutes hired to restore the rule of financial oligarchy. The books discussed are Chicagoedonomics: The Evolution of Chicago Free Market Economics by By Lanny Ebenstein (278pp) and ECONOMICS RULES The Rights and Wrongs of the Dismal Science By Dani Rodrik (253pp)

Notable quotes:

"... He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor. ..."

"... Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of laissez-faire economics today. Smith's modern reputation is a caricature. ... ..."

Nov 17, 2015 | Economist's View

David Leonhardt reviews 'Chicagonomics' and 'Economics Rules':

'Chicagonomics' and 'Economics Rules': He believed that government had a crucial role to play in a well-functioning economy. It should finance and run good schools, as well as build roads, bridges and parks, he argued. It should tax alcohol, sugar and tobacco, all of which impose costs on society. It should regulate businesses to protect workers. And it should tax the rich - who suffer from "indolence and vanity" - to help the poor.

Which leftist economist was this? None other than Adam Smith, the inventor of the "invisible hand" and the icon of laissez-faire economics today. Smith's modern reputation is a caricature. ...
pgl

"Dani Rodrik, a Harvard economics professor, has written a much less political book than Ebenstein has, titled "Economics Rules," in which he sets out to explain the discipline to outsiders (and does a nice job). Yet in surveying the larger "rights and wrongs" of economics, to quote his subtitle, Rodrik has diagnosed the central mistake that contemporary libertarians have made: They have conflated ideas that often make sense with those that always make sense."

Dani is often under looked in these discussions which is a shame. His writings on how different societies have dealt with their local issues is some of the most informed economics out there.

likbez -> pgl...

I think we need to distinguish between Friedman the academic economist before writing Capitalism and Freedom (1962) and Friedman the public intellectual after.

"After" Friedman was a dismal intellectual prostitute that promoted neoliberalism for money paid by financial oligarchy. The level of dishonesty and intellectual degradation that he displays in his public appearances that now are available in YouTube videos is simply astonishing.

Actually Professor Wendy Brown touched the mechanics of this slick propaganda campaign in her book "Undoing the Demos". From Amazon:

=== Start of quote ===
Neoliberal rationality -- ubiquitous today in statecraft and the workplace, in jurisprudence, education, and culture -- remakes everything and everyone in the image of homo oeconomicus. What happens when this rationality transposes the constituent elements of democracy into an economic register? In Undoing the Demos, Wendy Brown explains how democracy itself is imperiled. The demos disintegrates into bits of human capital; concerns with justice bow to the mandates of growth rates, credit ratings, and investment climates; liberty submits to the imperative of human capital appreciation; equality dissolves into market competition; and popular sovereignty grows incoherent. Liberal democratic practices may not survive these transformations. Radical democratic dreams may not either.

In an original and compelling argument, Brown explains how and why neoliberal reason undoes the political form and political imaginary it falsely promises to secure and reinvigorate. Through meticulous analyses of neoliberalized law, political practices, governance, and education, she charts the new common sense. Undoing the Demos makes clear that for democracy to have a future, it must become an object of struggle and rethinking.

[Nov 15, 2015] Election 2016 Democratic debate transcript Clinton, Sanders, OMalley in Iowa

Hillary tried to play the gender card and the 9/11 card in an attempt to escape to accusation (actually a provable fact) that she is a Wall Street sheel. "Why has Wall Street been the major campaign contributor to Hillary Clinton?" Sanders asked loudly, concluding that big contributors only give because "They expect to get something. Everybody knows it."

...Clinton asserted that under her bank-regulation plan, if Wall Street institutions don't play by the rules "I will break them up."

Sanders minced her defense into peaces: "Wall Street play by the rules? Who are we kidding?! The business model for Wall Street is fraud," Sanders fired back.

A short time later, the moderators got a tweet calling her out for "invoking 9/11" to justify taking donations from Wall Street. One tweeter said they'd never seen a candidate "invoke 9/11 to champion Wall Street. What does that have to do with taking big donations," Clinton was asked.

Sanders said that there's no getting around the fact that Wall Street has become a dominant political power and its "business model is greed and fraud, and for the sake of our economy major banks must be broken up."

Bernie compared himself to Ike, scoring one of the few real laugh lines of the night. CBS News moderator Nancy Cordes asked Sanders how he's going to pay for expensive programs such as his tuition-free college plan. By taxing the wealthy and big corporations, he says. Asked how much of a tax hike he's planning to stick them with, he responded, "We haven't come up with an exact number yet … But it will not be as high as the number under Dwight D. Eisenhower which was 90%," Sanders said of the Republican president.

"I'm not that much of a socialist compared to Eisenhower," Sanders concluded, to guffaws from the crowd.

CBS News

JOHN DICKERSON:

Senator Sanders, let me just follow this line of thinking. You've criticized then Senator Clinton's vote. Do you have anything to criticize in the way she performed as secretary of state?

BERNIE SANDERS:

I think we have a disagreement. And-- the disagreement is that not only did I vote against the war in Iraq, if you look at history, John, you will find that regime change-- whether it was in the early '50s in Iran, whether it was toppling Salvador Allende in Chile or whether it was overthrowing the government Guatemala way back when-- these invasions, these-- these toppling of governments, regime changes have unintended consequences. I would say that on this issue I'm a little bit more conservative than the secretary.

JOHN DICKERSON:

Here, let me go--

MARTIN O'MALLEY:

John, may I-- may I interject here? Secretary Clinton also said that we left the h-- it was not just the invasion of Iraq which Secretary Clinton voted for and has since said was a big mistake, and indeed it was. But it was also the cascading effects that followed that.

It was also the disbanding of-- many elements of the Iraqi army that are now showing up as part of ISIS. It was-- country after country without making the investment in human intelligence to understand who the new leaders were and the new forces were that are coming up. We need to be much more far f-- thinking in this new 21st century era of-- of nation state failures and conflict. It's not just about getting rid of a single dictator. It is about understanding the secondary and third consequences that fall next.

JOHN DICKERSON:

Governor O'Malley, I wanna ask you a question and you can add whatever you'd like to. But let me ask you, is the world too dangerous a place for a governor who has no foreign policy experience?

MARTIN O'MALLEY:

John, the world is a very dangerous place. But the world is not too dangerous of a place for the United States of America provided we act according to our principles, provided we act intelligently. I mean, let's talk about this arc of-- of instability that Secretary Clinton talked about.

Libya is now a mess. Syria is a mess. Iraq is a mess. Afghanistan is a mess. As Americans we have shown ourselves-- to have the greatest military on the face of the planet. But we are not so very good at anticipating threats and appreciating just how difficult it is to build up stable democracies and make the investments in sustainable development that we must as the nation if we are to attack the root causes of-- of the source of-- of instability.

And I wanted to add one other thing, John, and I think it's important for all of us on this stage. I was in Burlington, Iowa and a mom of a service member of ours who served two duties in Iraq said, "Governor O'Malley, please, when you're with your other candidates and colleagues on-- on stage, please don't use the term boots on Iraq-- on the ground. Please don't use the term boots on the ground. My son is not a pair of boots on the ground."

These are American soldiers and we fail them when we fail to take into account what happens the day after a dictator falls. And when we fall to act with a whole of government approach with sustainable development, diplomacy and our economic power in-- alignment with our principles.

BERNIE SANDERS:

But when you talk about the long-term consequences of war let's talk about the men and women who came home from war. The 500,000 who came home with P.T.S.D. and traumatic brain injury. And I would hope that in the midst of all of this discussion this country makes certain that we do not turn our backs on the men and women who put their lives on the line to defend us. And that we stand with them as they have stood with us.

JOHN DICKERSON:

Senator Sanders, you've-- you've said that the donations to Secretary Clinton are compromising. So what did you think of her answer?

BERNIE SANDERS:

Not good enough. (LAUGH) Here's the story. I mean, you know, let's not be naive about it. Why do-- why over her political career has Wall Street a major-- the major-- campaign contributor to Hillary Clinton? You know, maybe they're dumb and they don't know what they're gonna get. But I don't think so.

Here is the major issue when we talk about Wall Street, it ain't complicated. You got six financial institutions today that have assets of 56 per-- equivalent to 50-- six percent of the GDP in America. They issue two thirds of the credit cards and one third of the mortgages. If Teddy Roosevelt, the good republican, were alive today you know what he'd say? "Break them up. Reestablish (APPLAUSE) (UNINTEL) like Teddy Roosevelt (UNINTEL) that is leadership. So I am the only candidate up here that doesn't have a super PAC. I'm not asking Wall Street or the billionaires for money. I will break up these banks, support community banks and credit unions-- credit unions. That's the future of banking in America.

JOHN DICKERSON:

Quick follow-up because you-- you-- (APPLAUSE) Secretary Clinton, you'll get a chance to respond. You said they know what they're going to get. What are they gonna get?

BERNIE SANDERS:

I have never heard a candidate, never, who's received huge amounts of money from oil, from coal, from Wall Street, from the military industrial complex, not one candidate, go, "OH, these-- these campaign contributions will not influence me. I'm gonna be independent." Now, why do they make millions of dollars of campaign contributions? They expect to get something. Everybody knows that. Once again, I am running a campaign differently than any other candidate. We are relying on small campaign donors, $750,000 and $30 apiece. That's who I'm indebted to.

BERNIE SANDERS:

Here's-- she touches on two broad issues. It's not just Wall Street. It's campaigns, a corrupt campaign finance system. And it is easy to talk the talk about ending-- Citizens United. But what I think we need to do is show by example that we are prepared to not rely on large corporations and Wall Street for campaign contributions.

And that's what I'm doing. In terms of Wall Street I respectfully disagree with you, Madame Secretary in the sense that the issue is when you have such incredible power and such incredible wealth, when you have Wall Street spending five billion dollars over a ten year period to get re-- to get deregulated the only answer that I know is break them up, reestablish Glass Steagall.

JOHN DICKERSON:

Senator, we have to get Senator O'Malley in. But no-- along with your answer how many Wall Street-- veterans would you have in your administration?

MARTIN O'MALLEY:

Well, I'll tell you what, I've said this before, I-- I don't-- I believe that we actually need some new economic thinking in the White House. And I would not have Robert Rubin or Larry Summers with all due respect, Secretary Clinton, to you and to them, back on my council of economic advisors.

HILLARY CLINTON:

Anyone (UNINTEL PHRASE).

MARTIN O'MALLEY:

If they were architects, sure, we'll-- we'll have-- we'll have an inclusive group. But I won't be taking my orders from Wall Street. And-- look, let me say this-- I put out a proposal-- I was on the front line when people lost their homes, when people lost their jobs.

I was on the front lines as the governor-- fighting against-- fighting that battle. Our economy was wrecked by the big banks of Wall Street. And Secretary Clinton-- when you put out your proposal (LAUGH) on Wall Street it was greeted by many as quote/ unquote weak tea. It is weak tea. It is not what the people expect of our country. We expect that our president will protect the main street economy from excesses on Wall Street. And that's why Bernie's right. We need to reinstate a modern version of Glass Steagall and we should have done it already. (APPLAUSE)

KATHIE OBRADOVICH:

And I will also go after executives who are responsible for the decisions that have such bad consequences for our country. (APPLAUSE)

BERNIE SANDERS:

Look, I don't know-- with all due respect to the secretary, Wall Street played by the rules. Who are we kidding? The business model of Wall Street is fraud. That's what it is. And we-- we have-- (APPLAUSE) and let me make this promise, one of the problems we have had I think all-- all Americans understand it is whether it's republican administration or democratic administration we have seen Wall Street and Goldman Sachs dominate administrations. Here's my promise Wall Street representatives will not be in my cabinet. (APPLAUSE)

BERNIE SANDERS:

But let's-- let me hear it-- if there's any difference between the secretary and myself. I have voted time and again to-- for-- for the background checks. And I wanna see it improved and expanded. I wanna see them do away with the gun show loophole. In 1988 I lost an election because I said we should not have assault weapons on the streets of America.

We have to do away with the strong man proposal. We need radical changes in mental health in America. So somebody who's suicidal or homicidal can get the emergency care they need. But we have-- I don't know that there's any disagreement here.

MARTIN O'MALLEY:

John, this is another one of those examples. Look, we have-- we have a lot of work to do. And we're the only nation on the planet that buries as many of our people from gun violence as we do in my own state after they-- the children in that Connecticut classroom were gunned down, we passed comprehensive-- gun safety legislation, background checks, ban on assault weapons.

And senator, I think we do need to repeal that immunity that you granted to the gun industry. But Secretary Clinton, you've been on three sides of this. When you ran in 2000 you said that we needed federal robust regulations. Then in 2008 you were portraying yourself as Annie Oakley and saying that we don't need those regulation on the federal level. And now you're coming back around here. So John, there's a big difference between leading by polls and leading with principle. We got it done in my state by leading with principle. And that's what we need to do as a party, comprehensive gun--

MARTIN O'MALLEY:
John, there is not-- a serious economist who would disagree that the six big banks of Wall Street have taken on so much power and that all of us are still on the hook to bail them out on their bad debts. That's not capitalism, Secretary Clinton-- Clinton, that's crummy capitalism.
That's a wonderful business model if you place that bet-- the taxpayers bail you out. But if you place good ones you pocket it. Look, I don't believe that the model-- there's lots of good people that work in finance, Secretary Sanders. But Secretary Clinton, we need to step up. And we need to protect main street from Wall Street. And you can't do that by-- by campaigning as the candidate of Wall Street. I am not the candidate of Wall Street. And I encourage--

BERNIE SANDERS:

No, it's not throwing-- it is an extraordinary investment for this country. In Germany, many other countries do it already. In fact, if you remember, 50, 60 years ago, University of California, City University of New York were virtually tuition-free. Here it's a new (?) story.

It's not just that college graduates should be $50,000 or $100,000 in debt. More importantly, I want kids in Burlington, Vermont, or Baltimore, Maryland, who are in the six grade or the eighth grade who don't have a lot of money, whose parents that-- like my parents, may never have gone to college. You know what I want, Kevin? I want those kids to know that if they study hard, they do their homework, regardless of the income of their families, they will in fact be able to great a college education. Because we're gonna make public colleges and universities tuition-free. This is revolutionary for education in America. It will give hope for millions of young people.

BERNIE SANDERS:
It's not gonna happen tomorrow. And it's probably not gonna happen until you have real campaign finance reform and get rid of all these super PACs and the power of the insurance companies and the drug companies. But at the end of the day, Nancy, here is a question. In this great country of ours, with so much intelligence, with so much capabilities, why do we remain the only (UNINTEL) country on earth that does not guarantee healthcare to all people as a right?
Why do we continue to get ripped off by the drug companies who can charge us any prices they want? Why is it that we are spending per capita far, far more than Canada, which is a hundred miles away from my door, that guarantees healthcare to all people? It will not happen tomorrow. But when millions of people stand up and are prepared to take on the insurance companies and the drug companies, it will happen and I will lead that effort. Medicare for all, single-payer system is the way we should go. (APPLAUSE)

BERNIE SANDERS:

Well-- I had the honor of being chairman of the U.S. Senate Committee on Veteran Affairs for two years. And in that capacity, I met with just an extraordinary group of people from World War II, from Korea, Vietnam, all of the wars. People who came back from Iraq and Afghanistan without legs, without arms. And I've been determined to do everything that I could to make VA healthcare the best in the world, to expand benefits to the men and women who put their lives on the line to defend (UNINTEL).

And we brought together legislation, supported by the American Legion, the VFW, the DAV, Vietnam Vets, all of the veterans' organizations, which was comprehensive, clearly the best (UNINTEL) for veterans' legislation brought forth in decades. I could only get two Republican votes on that. And after 56 votes, we didn't get 60. So what I have to do then is go back and start working on a bill that wasn't the bill that I wanted.

To (UNINTEL) people like John McCain, to (UNINTEL) people like Jeff Miller, the Republican chairman of the House, and work on a bill. It wasn't the bill that I wanted. But yet, it turns out to be one of the most significant pieces of veterans' legislation passed in recent history. You know, the crisis was, I lost what I wanted. But I have to stand up and come back and get the best that we could.

JOHN DICKERSON:

All right, Senator Sanders. We end-- (APPLAUSE) we've ended the evening on crisis, which underscores and reminds us again of what happened last night. Now let's move to closing statements, Governor O'Malley?

MARTIN O'MALLEY:

John, thank you. And to all of the people of Iowa, for the role that you've performed in this presidential selection process, if you believe that our country's problems and the threats that we face in this world can only be met with new thinking, new and fresh approaches, then I ask you to join my campaign. Go onto MartinOMalley.com. No hour is too short, no dollar too small.

If you-- we will not solve our nation's problems by resorting to the divisive ideologies of our past or by returning to polarizing figures from our past. We are at the threshold of a new era of American progress. That it's going to require that we act as Americans, based on our principles. Here at home, making an economy that works for all of us.

And also, acting according to our principles and constructing a new foreign policy of engagement and collaboration and doing a much better job of identifying threats before they back us into military corners. There is new-- no challenge too great for the United States to confront, provided we have the ability and the courage to put forward new leadership that can move us to those better and safer and more prosperous (UNINTEL). I need your help. Thank you very, very much. (APPLAUSE)

BERNIE SANDERS:

This country today has more income and wealth inequality than any major country on earth. We have a corrupt campaign finance system, dominated by super PACs. We're the only major country on earth that doesn't guarantee healthcare to all people. We have the highest rate of childhood poverty. And we're the only in the world, (UNINTEL) the only country that doesn't guarantee paid family and medical leave. That's not the America that I think we should be.

But in order to bring about the changes that we need, we need a political revolution. Millions of people are gonna have to stand up, turn off the TVs, get involved in the political process, and tell the big monied interests that we are taking back our country. Please go to BernieSanders.com, please become part of the political revolution. Thank you. (CHEERING) (APPLAUSE)

[Nov 15, 2015] The Nobel Prize winning economist who ate cat food

Notable quotes:

"... And the moral of this tale, he says, is that he had been phished for a phool - or manipulated into buying something. ..."

"... we live in a constructed world thats filled with deception like this. Fools or not ..."

"... Phishing was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term phools to describe its victims. ..."

"... The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society. ..."

"... Most people will pick little shortcuts, little dishonesties, says Prof Shiller. You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. Nobodys making a stink.... of course you do it, and the ones who dont do it are failing and going out of business. Thats a phishing equilibrium. ..."

"... Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want... ..."

November13. 2015 | http://www.bbc.com/news/business-34788197

"Once upon a time a Nobel Prize winning economist had a cat called Lightning.

Now, Lightning appeared to like his cat food, a rather pricey gourmet dish which claimed to be a cut above the rest. But maybe, thought the Nobel Prize winning economist, I have been fooled into thinking this cat food is a cut above the rest - when it isn't. There is only one way to find out, said the economist. And that is to eat it myself. And so he did. It was, he said with a giggle, pretty much like any other cat food.

And the moral of this tale, he says, is that he had been "phished for a phool" - or manipulated into buying something.

Now the economist in question, Robert Shiller and his fellow Nobel laureate George Akerlof, have written Phishing for Phools, about how the sellers of cat food and thousands of other products and services "phish" us into buying things we do not want or need.

"Of course they do it," he says. "If you had a cat food company you wouldn't say 'Dried Dead Fish' on the label...we live in a constructed world that's filled with deception like this." Fools or not

"Phishing" was initially coined to describe internet fraud, but Profs Shiller and Akerlof use it more broadly to cover a world of deception, and add the term "phools" to describe its victims.

Being gulled into paying more for cat food is hardly a serious affair. But the two economists see it as a microcosm of something much bigger in society.

The financial crisis of 2008 was caused in part, says Prof Shiller, by buyers being manipulated into buying financial products that were ultimately destructive to them and to society.

So the sale of deeply flawed mortgage-backed securities and their accompanying credit-default swaps flourished on the back of free markets and the reputations of the banks and finance house that sold them.

... ... ...

Profs Shiller and Akerlof argue that if people were fooling themselves there were plenty of others happy to help them on their way. ...The two authors are behavioral economists, who inject psychology and sociology into their economics. There's nothing new about that, but this latest foray into the "dismal art" has a distinctly dismal view of human nature.

"Most people will pick little shortcuts, little dishonesties," says Prof Shiller. "You are pushed [to dishonesty] by many pressures, one is a sense of responsibility to your investors, another is to your employees. And you think everybody does this. "Nobody's making a stink.... of course you do it, and the ones who don't do it are failing and going out of business. That's a phishing equilibrium."

... ... ...

Profs Shiller and Akerlof argue that the free markets persuade us to do things with results that no one could possibly want..."

[Nov 14, 2015] Students across U.S. march over debt, free public college

Neoliberal college is not about education. It is about getting wealthy a head start to enforce and strengthen separation between the elite and the rest. Other can only complain... But that e fact is the many large companies invite for interview for open positions only of Ivy Leagues graduates. Other do not need to apply. So it is mostly about "Class A" and "Class B" citizens. Talent and hard work can buy buy a ticket for vertical mobility (see some stories below), but that was true in any society. Actually mobility in the USA is below average, despite MSM non-stop brainwashing of the USA citizens about "the land of opportunities", the "American Dream", etc. And exorbitant salaries of University brass is a norm now. you can't change that without changing the neoliberal system as a whole. they are no longer bound by academic ethics. Like Wall Streeters, want to get the most of the life, no matter by what means (the end justifies the means mentality). They are masters of the universe. Others (aka suckers) can go to hell.

Notable quotes:

"... Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans. ..."

"... I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO. ..."

"... Ever visit a university in a country that has free college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for. ..."

"... What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college. ..."

"... College tuition cannot be allowed to just continue to escalate. ..."

"... If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school. ..."

"... I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. ..."

"... If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault! ..."

"... College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. ..."

"... The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like chief diversity and inclusion officer and you have expensive college. ..."

"... These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative. What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts? ..."

"... Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. ..."

Nov 14, 2015 | news.yahoo.com

Students held rallies on college campuses across the United States on Thursday to protest ballooning student loan debt for higher education and rally for tuition-free public colleges and a minimum wage hike for campus workers.
The demonstrations, dubbed the Million Student March, were planned just two days after thousands of fast-food workers took to the streets in a nationwide day of action pushing for a $15-an-hour minimum wage and union rights for the industry.

About 50 students from Boston-area colleges gathered at Northeastern University carrying signs that read "Degrees not receipts" and "Is this a school or a corporation?"
"The student debt crisis is awful. Change starts when people demand it in the street. Not in the White House," said Elan Axelbank, 20, a third year student at Northeastern, who said he was a co-founder of the national action.

... ... ...

"I want to graduate without debt," said Ashley Allison, a 22-year-old student at Boston's Bunker Hill Community College, at the Northeastern rally. "Community college has been kind to me, but if I want to go on, I have to take on debt."
Dealing with swiftly mounting student loan debt has been a focus of candidates vying for the White House in 2016. Democratic hopeful Bernie Sanders has vowed to make tuition free at public universities and colleges, and has pledged to cut interest rates for student loans.

... ... ...

Andrew Jackson

Free taxpayer supported public education means more college administrators earning $200,000 or more, more faculty earning $100,000 or more working 8 months a year and more $300 textbooks. Higher education costs are a direct correlation to Federal Student Loans subsiding college bureaucracies, exorbitant salaries for college administrators and faculty.

terrance

What fantasy world do these people live in. There is nothing for free and if you borrow tens of thousands of dollars you can't expect later that someone else will pick up your tab. Pucker up bucky, it is your responsibility.

Furthermore, a lot of this money didn't go to education. I have read where people went back to school so they could borrow money to pay their rent, or even their car payments. As for 15 dollars an hour to sling burgers, grow up.

sjc

Having been out of college for a few years, I am curious. I went to a State University. Tuition was high, I had to take loans, I drove a cheap 10 yr old vehicle, but it didn't kill me. My total debt was about the price of a decent new car back then.

Today, the average student loan debt after graduation is just under $30,000. Around the price of a new car. And these kids are trying to tell us that this is too much of a burden??? Look around any campus these days, and you will see lots of $30,000 cars in the parking lots.

I can see having a low, federally-subsidized interest rate on these loans....which I seem to recall having on some of my loans, but anyone wanting anything for free can take a hike, IMHO.

Meed

Careful what you wish for, kiddies. It's simple math and simple economics (things I learned in school while studying instead of protesting). Every university has a maximum number of students it can support, based on the number and capacity of dorms, classrooms, faculty, etc.

The tuition rates have always closely matched the amount of easily-accessed loans available - the easier the access to loans, the higher tuition is. The simple reason is that the universities raise tuition rates to manage the demand for their limited resources, and can always raise rates when there is more demand than there are openings for incoming students.

Thanks to the windfall from that high tuition, today's universities have student unions, recreation facilities, gyms, pools, and lots of amenities to attract students. Imagine what they will offer when they can't jack up the tuition. Ever visit a university in a country that has "free" college education for its' citizens? It's pretty austere. These kids need to think past the clever sound bytes and really consider the effect of what they are asking for.

matthew

Oddly enough, a majority of these students attend colleges who has sport teams sponsored by Nike, Under Armour, Adidas, or Reebok. So, should theses companies atop providing the uniforms and equipment free of charge and donate the money to make more scholarships available? Then the student athletes can purchase their own gear on their own dime. Where one group attains, another must lose. Let this be debated on college campuses and watch the students divide themselves. We will find out what is most important to them.

JB

What really needs to be addressed is the skyrocketing cost of college education PERIOD! At the rate it's going up pretty soon only the children of billionaires will be able to afford to go to college.

Some junk yard dog investigative journalist needs to dig into the rising cost of college education and identify the cause. Once the cause are understood then something can be done to make college more affordable. College tuition cannot be allowed to just continue to escalate.

just sayin'

Seriously how do we let our children out of high school without enough information to decide if going to college is actually a good investment? If a high school grad can't explain in detail how much cash is needed, and how spending all that cash and time for education is going to provide a positive return on investment, he or she should not be going to college. This should be near the top of things that teens learn in high school.

pcs

I get really cynical about all graduates claiming they had no idea how much their loans were going to cost them. I mean, they had enough math skills to be accepted, then graduate, from college. If you didn't bother to read your loan docs before signing, or research likely monthly payments for your loan, that's your fault!

E

College costs went up far faster than inflation, often because colleges built fancy sports and living facilities...because they figured out these same millennials pick colleges based on those things. If you tour colleges, and I toured many in the past few years with my kids, you don't see a classroom or lab unless you ask.

The standard tours take students through fancy facilities that have nothing to do with quality of education. Add declining teaching loads that have decreased from 12 class hours to 3 class hours per week for a professor in the past 25 years and the rise in overhead for non-academic administration overhead positions like "chief diversity and inclusion officer" and you have expensive college.

If students want a cheap education, go to the junior college for general ed classes then transfer to a four-year school. It is not glamorous but it yields a quality education without a fortune in debt.

Rich

Getting an education is obviously the biggest scam in history!!!! Look at who controls education. Look at all the Universities presidents last names then you will know what they are. I can't say it here on Yahoo because they will take my comments out for speaking the truth. These presidents make millions of $$$$$ a year off of students and parents who are slaves and work hard to pay those tuitions. Not only that but look at the owners last names of the Loan

50 CAL

Universities are money munching machines with no regard for how the students will repay the loans. Universities annually raise tuition rates(much of which is unnecessary) with no regard of how these young minds full of mush are going to repay the crushing debt, nor do they care. Locally one university just opened a 15 million dollar athletic center, which brings up the question, why did they need this? With that kind of cash to throw around, what wasn't at least some used to keep tuitions affordable?

Mike D

These 'loans' are now almost all, Pell Grant underwritten. Cannot Bankrupt on, co-signers and students can lose their Social Security money if defaulting. 1.5 trillion$ of these loans have been packaged, like Home Loans, derivative.

What happens to peoples retirement accounts when their Funds have investments in them, what happens to the Primary Dealers when the derivatives bubble bursts?

How are these loans to be made 'free' if existing loans bear interest? If the student of 'free education' defaults, doesn't graduate, will he owe money-will his parent, or will the 'free school' simply become a dumping ground for the youth without direction, simply housed in college's dorm rooms?
Lots of questions and two things to keep in mind, the Banks and Teaching institutes love the idea of 'free', the students are believing there might be a free ride.. ignoring schools and Banks don't, won't and never do anything for free.

This is not going to turn out well for consumers. Sure, Household payments of Education may drop, but the Institution of Education cannot keep even its slim success rate it has now. I don't know how educators managed to turn education into a purely self gratifying industry, giving anything to purchasers they wished for that Education loan, but never ever ever, has underwriting by the Central improved the quality of business. Complete underwriting of the important system of education at the Fed level will be a disaster.

There will be almost zero accountability for institutes and students, we will have a more expensive system that turns out the worst grads.

Don't try believing that other countries abilities with free Ed can be duplicated here.. not without serious socialism, a condition where qualifying for Ed advancement is determined by the Central.

Where it is free, but only to the select, the performers, most American Students would not qualify in other countries for advanced Ed. Blanket quals are almost a condition here, American Students are in for a serious surprise. They will not be so able to buy/loan their way to college and have to excel to get into college.
The joke is on the American student.

Jim

i was one of seven children- i worked my way through four years of undergrad and three years of grad school with my parents only being able to pay health insurance and car insurance- i worked shelving books, busing tables, delivering pizzas and for the last five years as a parimutuel clerk at dog and horsetracks- i never got to go on spring break, do a semester at sea or take classes in europe- i graduated debt free from public universities- have no sympathy for a bunch of whiny brats who have to drive better cars than their professors and believe they are entitled to special treatment- get a job and quit acting like a bunch of welfare queens who feel they deserve entitlements

Linda

My son is in college. Because grandpa saved his money over the years, he volunteered to pay for college costs. We hope to continue the tradition with our grandchildren and carefully save our money as well. We don't live high or purchase new. He will graduate zero dollars in debt.
My son's college roommate comes from a very wealthy family. They own a plane - two houses - dad works on Wall Street - mom is a Doctor. He has to pay for his own education and gets loans for everything. His parents simply don't have the cash to pay for his education.
It's priorities people! If something is worth it, you'll make it happen.

[Nov 13, 2015] Goldman Decline in Oil Prices boosted GDP by 0.2% in 2015

Notable quotes:

"... cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months. ..."

"... Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory. ..."

"... Can't wait until Goldman tells us that higher oil prices lead to higher GDP. ..."

"... Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it. ..."

"... This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really. ..."

"... Credo: Economic Beliefs in a World in Crisis ..."

Calculated Risk

A few excerpts from a Goldman Sachs research piece by economist Daan Struyven: Shale, States and the Shrinking Oil Stimulus

... ... ...

Our state-level analysis suggests that a 50% decline in oil prices is associated with an eventual rise in aggregate output of 0.4% and 400,000 to 500,000 extra jobs. These estimates are broadly consistent with our most recent research, but below the impact implied by many earlier studies. Taking together our new state-level estimates as well as our earlier work and a few back-of-the-envelope calculations, our best estimate would be that cheaper oil has boosted GDP growth in 2015 by 0.2 pp. Looking ahead, we think that about 0.1 pp of oil growth stimulus is left in the tank, which should lift growth over the next 18 months.

sm_landlord

Judging by the recent earnings reports from retailers, one has to question the Oil Stimulus theory.
http://www.moneyandmarkets.com/retail-rout-take-two-heck-going-742471

Sporkfed

Can't wait until Goldman tells us that higher oil prices lead to higher GDP.

JackSnap

Total real personal income expenditure is at the pre-97 trend. Markets keep on wanting 97-06 consumption levels. They simply don't get it.

gdd9000

This is not worthy of a post. It is just sucking up to Goldman, of all disreputable firms to quote. Ridonculous. Really.

The book: 'Credo: Economic Beliefs in a World in Crisis' is written by Brian Davey and published by Feasta, 2015. ISBN 9780-9540-5103-7. £20.

[Nov 13, 2015] When Economics Works and When it Doesn't

Notable quotes:

"... model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems ..."

"... to liberalize as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalization and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits. ..."

"... But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. ..."

"... "efficient markets hypothesis": ..."

"... tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible ..."

Economist's View

Part of an interview of Dani Rodrik:

Q. You give a couple of examples in the book of the way theoretical errors can lead to policy errors. The first example you give concerns the "efficient markets hypothesis". What role did an overestimation of the scope and explanatory power of that hypothesis play in the run-up to the global financial crisis of 2007-08?
A. If we take as our central model one under which the efficient markets hypothesis is correct-and that's a model where there are a number of critical assumptions: one is rationality (we rule out behavioral aspects like bandwagons, excessive optimism and so on); second, we rule out externalities and agency problems-there's a natural tendency in the policy world to liberalize as many markets as possible and to make regulation as light as possible. In the run-up to the financial crisis, if you'd looked at the steady increase in house prices or the growth of the shadow banking system from the perspective of the efficient markets hypothesis, they wouldn't have bothered you at all. You'd tell a story about how wonderful financial liberalization and innovation are-so many people, who didn't have access before to mortgages, were now able to afford houses; here was a supreme example of free markets providing social benefits.

But if you took the same [set of] facts, and applied the kind of models that people who had been looking at sovereign debt crises in emerging markets had been developing-boom and bust cycles, behavioral biases, agency problems, externalities, too-big-to-fail problems-if you applied those tools to the same facts, you'd get a very different kind of story. I wish we'd put greater weight on stories of the second kind rather than the first. We'd have been better off if we'd done so.

djb said...

"efficient markets hypothesis": magical thinking

Jerry Brown said...

I can't get that link to open. Dani Rodrik says "there is a natural tendency in the policy world to liberalise as many markets as possible and to make regulation as light as possible". Is that in general? Or is that a part of the efficient market hypothesis?

[Nov 12, 2015] The Quantum of the Soulless - Trickle Down Bubble

Notable quotes:

"... There may be little doubt that the trickle down stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven. ..."

"... the huge increase in corporate debt that has been facilitated by the Feds easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few. ..."

Jesse's Café Américain

"To know and to serve God, of course, is why we're here, a clear truth, that, like the nose on your face, is near at hand and easily discernible but can make you dizzy if you try to focus on it hard. But a little faith will see you through. What else will do except faith in such a cynical, corrupt time? When the country goes temporarily to the dogs, cats must learn to be circumspect, walk on fences, sleep in trees, and have faith that all this woofing is not the last word.

What is the last word, then? Gentleness is everywhere in daily life, a sign that faith rules through ordinary things: through cooking and small talk, through storytelling, making love, fishing, tending animals and sweet corn and flowers, through sports, music and books, raising kids - all the places where the gravy soaks in and grace shines through. Even in a time of elephantine vanity and greed, one never has to look far to see the campfires of gentle people."

Garrison Keillor

The economic data continued in weakly this morning, with an oversized number of newly unemployed, and a continuing unemployment number that was higher than expected. Tra la.

There may be little doubt that the 'trickle down' stimulus that has been bloating the paper assets of the wealthiest few while no progress is being made by all the rest is going to lead to a break point in the current socio-economic equilibrium. At least, this is what history has proven.

On the right is a chart that shows how the huge increase in corporate debt that has been facilitated by the Fed's easy money AND generous tax breaks, loopholes, and offshore tax havens for the biggest and the wealthiest corporations, has been largely deployed not to build for the future, or pay living wages, but rather to pump up the price of their stocks through buybacks that benefit insiders and the wealthiest few.

But such abuses of policy and regulation can go quite far. And the further it goes, the more messy the reversion to the mean may be.

... ... ...

[Nov 12, 2015] A Closer Look at All Those New U.S. Jobs Elliott Wave International

Notable quotes:

"... In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included. ..."

"... The labor force participation rate is at its lowest level in 38 years. ..."

"... This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work ..."

"... A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here. ..."

"... the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets. ..."

Safehaven.com

U.S. labor force participation rate is at its lowest level in 38 years
Editor's note: You'll find a text version of the story below the video.

https://www.youtube.com/watch?v=B9qPHWirD9o

In truth, the real jobless rate would be 9.8% if those who have given up looking for work and part-timers who want a full-time job were included.
The labor force participation rate is at its lowest level in 38 years.

This Federal Reserve chart (November 6) shows that only 62.4% of working-age Americans are employed or looking for work:

A record 94,610,000 Americans were not in the workforce in September. But the questionable health of the U.S. labor market doesn't stop here.
Even those who are working are struggling to make headway.
And what about the 2.95 million new jobs that were created in 2014, and the slightly more than 2 million so far in 2015?
The numbers sound impressive until you dig deeper. This is from the Atlantic magazine (September 4):

According to new research, between 2009 and 2014, wage loss across all jobs averaged 4 percent. But for those in the bottom quintile, those losses averaged 5.7 percent. ... The [jobs] where declines in real wages have been the most acute -- are also the jobs that have hired the highest share of new workers during the recovery.

It's true that average hourly earnings increased by nine cents in October. Even so, the point is that many of the new jobs in the U.S. have been at the lower end of the income brackets.

Also consider that in September, the U.S. Consumer Price Index fell 0.2% and that the Producer Price Index declined by 0.5%.

All told, our stance remains that deflation is knocking at the door.

Get the full picture of what we see as a worldwide deflationary trend in our new report, Deflation and the Devaluation Derby .

Here's what you will learn:

Currency devaluation's role in the developing global crisis

How the self-reinforcing aspect of deflation is already apparent in commodities trading

Why the top 1% of earners are in for a rude awakening

How Europe's biggest economies are screeching to a halt

The hair-raising future for U.S. stocks

Just recall how swiftly the 2007-2009 financial crisis unfolded. We anticipate that the next global financial crisis could be even more sudden and severe.

[Nov 12, 2015] Trickle Down, Starve the Beast, Supply-Side, and Sound Money Fantasies

Notable quotes:

"... STUDY: During the past three years, members of the Standard Poor's 500 Index have spent more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that what looks like buybacks are actually thinly veiled management-compensation plans. ..."

"... Looser monetary policy increases the value of existing assets but reduces the return on assets. So the impact it has on inequality is to increase it in the short run, but in the long run the first order* impact is zero. ..."

"... I doubt that trickle down, starve the beast, supply-side, sound money fantasies are really economics at all. They look now more like the supportive myths of a new, much more hierarchical social order. As such, they should be seen as modern equivalents of the Divine Right royal myth of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden. ..."

Economist's View

JohnH said in reply to djb...

Tim Canova on trickle down monetary policy:

"Ben Bernanke, the Federal Reserve chairman when the QE programs were first launched, claimed that asset purchases would have a "wealth effect": by the Fed purchasing bonds in such large amounts, bond prices would rise, yields would fall, and investors would shift into riskier securities, driving up the price of corporate shares and stock markets. Everyone would feel richer, businesses would invest and consumers would spend more. This seems much like the theory of "trickle-down" fiscal policy: that tax cuts for those with high incomes would be invested, thereby leading to the hiring of additional workers and spreading the benefits to the rest of the economy. But like the Bush administration's tax cuts, the Fed's monetary trickle-down has not worked so well. The Fed's lending and asset purchase programs have effectively propped up Wall Street interests -- big banks and financial markets -- but they have also neglected the needs of Main Street, including the small community banks, small and moderate sized and family-owned businesses, unemployed and underemployed workers, and state and local governments."
https://www.dissentmagazine.org/article/who-runs-federal-reserve-2008-crash

Canova is one of the nationally renowned economists who advised Bernie Sanders on the Fed, and actually got the Fed audited, exposing apparent conflicts of interest with Wall Street.
http://www.sanders.senate.gov/newsroom/press-releases/top-economists-to-advise-sanders-on-fed-reform

What's amazing: 'liberals' can see trickle down when it comes to tax cuts but not in monetary policy. They march in lock step with Wall Street when it comes to monetary policy...which has barely trickled down at all after seven years.

Bud Meyers said...

Bloomberg (November 2015)

STUDY: "During the past three years, members of the Standard & Poor's 500 Index have spent more than $1.5 trillion buying back stock ... US companies issued stock equal to $1.2 trillion last year. All told the new issues in 2014 exceeded share buybacks ... The conclusion is that what looks like buybacks are actually thinly veiled management-compensation plans."

http://www.bloombergview.com/articles/2015-11-11/why-corporate-management-loves-share-buybacks

Bernie! Bernie! Bernie!
https://www.youtube.com/watch?v=6_L5e0fIkQ8

sanjait said...

It's apparently impossible for most to understand this ... but the most accurate way to describe the first order distributional impact of looser monetary policy would be to say:
Looser monetary policy increases the value of existing assets but reduces the return on assets. So the impact it has on inequality is to increase it in the short run, but in the long run the first order* impact is zero.
*Of course, second order impacts are important here. But if we're counting those, we should probably keep in mind the dynamics of the given situation, and the fact that workers in no way benefit from letting the economy slide into depression.

Peter K. said...

WSJ:
"It's also notable that nearly all of the GOP candidates identify the Federal Reserve's post-crisis monetary policy as a source of rising inequality "
I find it hard to believe that the Wall Street Journal or the GOP candidates actually think rising inequality is a bad thing.

gordon said...

I doubt that "trickle down, starve the beast, supply-side, sound money fantasies" are really economics at all. They look now more like the supportive myths of a new, much more hierarchical social order. As such, they should be seen as modern equivalents of the Divine Right royal myth of the Ancien Regime, or even the claim of Dark Age warlords to be descendants of Woden.

[Nov 12, 2015] Oil price collapsing, could set new low

www.cnbc.com

West Texas Intermediate crude futures was down 2.75 percent at $41.75 per barrel. WTI set an intraday low of $37.75 on Aug. 24. Brent crude was down nearly 3 percent Thursday at $45.23 per barrel.

[Nov 12, 2015] These 425 Goldman Bankers Just Hit The Jackpot

Zero Hedge

It's that time of year.... when the bank-that-does-God's-work chooses who to bless with mass affluence. This year 425 Goldman Sachs' employees were annointed "Managing Directors" which according to Emolumnet.com means an average annual comp of approximately $1 million.

[Nov 12, 2015] Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

Notable quotes:

"... I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken. ..."

"... One thing to be careful with the fracklog, is that not all of these will be good wells. ..."

"... I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040. ..."

"... "Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."

"... U.S. drillers account for 20 percent of the debt due in 2015, ..."

peakoilbarrel.com

ChiefEngineer , 11/09/2015 at 2:46 pm

Saudi Arabia will not stop pumping to boost oil prices
http://www.cnbc.com/2015/11/09/

"Mr Falih, who is also health minister, forecast the market would come into balance in the new year, and then demand would start to suck up inventories and storage on oil tankers. "Hopefully, however, there will be enough investment to meet the needs beyond 2017."

Other officials also estimated that it would probably take one to two years for the market to clear up the oil market glut, allowing prices to recover towards $70-$80 a barrel."

Greenbub, 11/09/2015 at 2:54 pm
Chief, that link went dead, this might be right:
http://www.cnbc.com/2015/11/09/reuters-america-update-1-saudi-arabia-sees-robust-oil-fundamentals-as-rival-output-falls.html

Ron Patterson, 11/09/2015 at 4:40 pm
From your link, bold mine:
"Non-OPEC supply is expected to fall in 2016, only one year after the deep cuts in investment," he said.

"Beyond 2016, the fall in non-OPEC supply is likely to accelerate, as the cancellation and postponement of projects will start feeding into future supplies, and the impact of previous record investments on oil output starts to fade away."

I thought just about everyone was expecting a rebound in production by 2017?

AlexS, 11/09/2015 at 7:50 pm
Ron, Dennis
The EIA. IEA. OPEC and most others expect non-OPEC production, excluding the U.S. and Canada to decline in 2016 and the next few years due to the decline in investments and postponement / canceling of new projects. Production in Canada is still projected to continue to grow, but at a much slower rate than previously expected.

Finally, U.S. C+C production is expected to rebound in the second half of 2016 due to slightly higher oil prices ($55-57/bbl WTI). Also, U.S. NGL production proved much more resilient, than C+C, despite very low NGL prices.

Non-OPEC ex U.S. and Canada total liquids supply (mb/d)
Source: EIA STEO October 2015

Dennis Coyne, 11/10/2015 at 9:10 am
Hi AlexS,
Thanks. I don't think oil prices at $56/b is enough to increase the drilling in the LTO plays to the extent that output will increase, it may stop the decline and result in a plateau, it's hard to know.

On the "liquids" forecast, the NGL is not adjusted for energy content as it should be, each barrel of NGL has only 70% of the energy content of an average C+C barrel and the every 10 barrels of NGL should be counted as 7 barrels so that the liquids are reported in barrels of oil equivalent (or better yet report the output in gigajoules (1E9) or exajoules(1E18)). The same conversion should be done for ethanol as well.

AlexS, 11/10/2015 at 9:54 am
Dennis,
Note that not only the EIA, but also the IEA, OPEC, energy consultancies and investment banks are projecting a recovery in US oil production in the later part of next year.

That said, I agree with you that $56 WTI projected by the EIA may not be sufficient to trigger a fast rebound in drilling activity. However there is also a backlog of drilled but uncompleted wells that could be completed and put into operation with slightly higher oil prices.

Most shale companies have announced further cuts in investment budgets in 2016, so I think it is difficult to expect significant growth in the U.S. onshore oil production in 2H16.

If and when oil prices reach $65-70/bbl, I think LTO may start to recover (probably in 2017 ?). I think that annual growth rates will never reach 1mb/d+ seen in 2012-14, but 0.5 mb/d annual average growth is quite possible for several years with oil prices exceeding $70.

Dennis Coyne, 11/10/2015 at 1:33 pm

Hi AlexS,
I agree. Excellent point on the frack log, but at some point with the reduced rate of drilling the frack log will dwindle. Let's take the Bakken where we have the best numbers, Enno estimates around 800 DUC wells (rough guess from memory), to make things simple let's assume no more wells are drilled because prices are so low. If 80 wells per month are completed the DUCs are gone in July 2016. Now the no wells drilled is probably not realistic. If 40 wells per month are drilled (though at these oil prices I still don't understand why) the 800 DUCs would last for 20 months rather than only 10 months, so your story makes sense at least for the Bakken.

I have no idea what the frack log looks like for the Eagle Ford. If its similar to the Bakken and they complete 130 new wells per month, with about 61 oil rigs currently turning in the EF they can drill 80 wells per month, so they would need 50 wells each month from the frack log. If there are 800 DUCs, then that would last for 16 months.

The economics are better in the Eagle Ford because the wells are cheaper and transport costs are lower, but the EUR of the wells is also lower (230 kb vs 336 kb), the well profile has a thinner tail than the Bakken wells. I am not too confident about the EIA's DPR predictions for the Eagle Ford, output will decrease, but perhaps they(EIA) assume the frack log is zero and that only 75 new wells will be added to the Eagle Ford each month. If my guess of 150 new wells per month on average from Sept to Dec 2015 is correct, then decline from August to Dec 204 will only be about 100 kb/d and 255 kb/d from March to Dec 2015 (155 kb/d from March to August 2015).

Toolpush, 11/11/2015 at 12:45 pm

Dennis,
One thing to be careful with the fracklog, is that not all of these will be good wells. It is fair enough that companies like EOG will have some good DUCs, (should there be a "k" in that?) in their fracklogs. But as the fracklog is worked through, I am sure there will be a some very ugly DUCklings, that nobody wants to admit to.
How many fall into this category, will be anybodies guess, but not all DUC, will turn out to be beautiful swans?

Dennis Coyne, 11/10/2015 at 1:57 pm

Hi AlexS,
On the predictions of the EIA and IEA, they also expect total oil supply to be quite high in 2040. For example the EIA in their International Energy Outlook reference case they have C+C output at 99 Mb/d in 2040.

Their short term forecasts are probably better than that, but my expectation for 2040 C+C output is 62 Mb/d (which many believe is seriously optimistic, though you have never expressed an opinion as far as I remember).

So I take many of these forecasts with a grain of salt, they are often more optimistic than me, others are far more pessimistic, the middle ground is sometimes more realistic.

AlexS, 11/10/2015 at 9:08 pm
Dennis,
You said above that estimated URR of all global C+C (ex oil sands in Canada and Venezuela) is 2500 Gb. And about 1250 Gb of C+C had been produced at the end of 2014. So the remaining resources are 1250 Gb.

BP estimates total global proved oil reserves as of 2014 at 1700 Gb, or 1313 excluding Canadian oil sands and Venezuela's extra heavy oil. Their estimate in 2000 was 1301 Gb and 1126 Gb. Hence, despite cumulative production of 419 Gb in 2001-2014, proved reserves increased by 187 Gb, or 400 Gb including oil sands and Venezuela's Orinoco oil. Note that BP's estimate is for proved (not P+P) reserves, but it includes C+C+NGLs. My very rough guess is that NGLs account for between 5% and 10% of the total.

You may be skeptical about BP's estimates, but the fact is that proved reserves or 2P resources are not a constant number; they are increasing due to new discoveries and technological advances.

BTW, the EIA's estimate of global C+C production increasing from 79 mb/d in 2014 to 99 mb/d in 2040 implies a cumulative output of 836 Gb, about 2/3 of your estimate of remaining 2P resources of C+C or BP's estimate of the current proved reserves. Given future discoveries and improvements in technology, I think that further growth of global oil production to about 100 mb/d by 2040 should not be constrained by resource scarcity.

What can really make the EIA's and IEA's estimates too optimistic is not the depleting resource base, but the high cost of future supply, political factors and/or lower than expected demand.

Dennis Coyne, 11/11/2015 at 11:05 am
Hi AlexS,
Thanks.

You are quite optimistic. Note that I add 300 Gb to the 2500 Gb Hubbert Linearization estimate to account for reserve growth and discoveries.

The oil reserves reported in the BP Statistical review are 1312 Gb. Jean Laherrere estimates that about 300 Gb of OPEC reserves are "political" to keep quotas at appropriate levels with respect to "true" reserve levels. So the actual 2P reserves are likely to be 1010 Gb. Some of the cumulative C+C output is extra heavy oil so the cumulative C+C-XH output is 1240 Gb so we have a total cumulative discovery (cumulative output plus 2P reserves) of 2250 Gb through 2014.

My medium scenario with a URR of 2800 Gb of C+C-XH plus 600 Gb of XH oil (3400 Gb total C+C) assumes 550 Gb of discoveries plus reserve growth.

What do you expect for a URR for C+C?

Keep in mind that at some point oil prices rise to a level that substitutes for much of present oil use will become competitive, so oil prices above $175/b (in 2015$) are unlikely to be sustained in my view.

In a wider format below I will present a scenario with what extraction rates would be needed for my medium scenario to reach 99 Mb/d in 2040.

Dennis Coyne, 11/11/2015 at 4:20 pm
Hi Alex S,
I agree that high cost will be likely to reduce demand. The optimistic forecasts assume there will be low cost supply judging by the price scenarios. For AEO 2013 Brent remains under $110/b (2013$) until 2031 and only reaches $141/b (2013$) in 2040.

Depleting resources will raise production cost to more than these prices and demand will be reduced due to high oil prices. There will be an interaction between depletion and the economics of supply and demand. It will be depletion that raises costs, which will raise prices and reduce demand.

AlexS, 11/11/2015 at 4:41 pm
It will be depletion of low-cost reserves that raises marginal costs and prices. High-cost reserves may be abundant, but prices will rise.
AlexS, 11/09/2015 at 7:55 pm
corrected chart:

TechGuy, 11/10/2015 at 10:19 am
Oil Industry Needs Half a Trillion Dollars to Endure Price Slump
http://www.bloomberg.com/news/articles/2015-08-26/oil-industry-needs-to-find-half-a-trillion-dollars-to-survive
"Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent."

[These are just the bonds that have yields higher than 10%]

[Its very unlikely that prices will recover in time to save many of the drillers, and even if prices recover, even $75 oil will not help since they need $90 to break even to service the debt. Also not sure who is going to buy maturing debt so it can be rolled over. Even if prices slowly recover, there is likely to be fewer people willing to loan money drillers.]

Watcher, 11/10/2015 at 5:18 pm
Don't bet on it. Probably be even better if the price declines more. Apocalypse will not be permitted.

[Nov 12, 2015] MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION

Notable quotes:

"... "The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil." ..."

"... Wow, thats an average decline rate of about 18% per year (since 2003). ..."

peakoilbarrel.com

Doug Leighton 11/08/2015 at 10:27 am

MEXICO'S CANTARELL OIL FIELD POSTS RECORD LOW OIL PRODUCTION
"The Cantarell oil field - an aging supergiant oil field in Mexico - saw its lowest production in over 30 years with an output of 206,000 barrels per day in October, said PEMEX Exploration and Production (PEP) on Thursday. In its latest weekly report, Pemex said that Cantarell was producing 256,000 bpd at the beginning of 2015, its lowest level since 2004, sparking fears that Mexico's most productive field was running out of oil."

Meanwhile Ku-Maloob-Zaap remains on a production plateau of about 850,000 bpd which is expected to continue until 2017.

http://www.shanghaidaily.com/article/article_xinhua.aspx?id=308285

FreddyW, 11/08/2015 at 11:45 am
Wow, thats an average decline rate of about 18% per year (since 2003).
Doug Leighton, 11/08/2015 at 12:01 pm
Yeh, so much for the long fat tail theory. Mind you, there are extenuating circumstances (Aren't there always?). I.E., PEMEX started shifting resources away from Cantarell a year or so back.

[Nov 12, 2015] OPEC countries, Russia and International Oil Companies are all losing billions

Notable quotes:

"... It's perhaps more so high yield paper issuance ..."

"... We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red. ..."

peakoilbarrel.com
Euan Mearns, 11/08/2015 at 10:32 am

Oil Production Vital Statistics October 2015

The "big news" this month is that the banks granted over leveraged, loss making shale oil drillers a stay of execution by continuing to provide credit lines. Consequently, there was no major move in US oil drilling or production though both are trending down. Elsewhere, the story is one of production plateaus and stabilisation of rig counts. The modest production rises and falls detailed below are simply noise on these production baselines.

Against this backdrop of no news, the oil price traded sideways in October. OPEC countries, Russia and International Oil Companies are all losing billions and look set to continue doing so throughout 2016 as over-supply now looks set to continue until early 2017. The situation is one of stalemate as opposed to checkmate.

Watcher, 11/08/2015 at 12:28 pm

I think I would modify this a bit.

"Banks". It's perhaps more so high yield paper issuance, and we have seen at least one story indicating a bank (JP Morgan) orchestrated placement of the issuance in order to service debt JPM had actually loaned. So this would mean banks are selling debt to the public (with their powerful sales force), and doing so to protect their own loan portfolios. One might also wonder about their managed accounts (client money entrusted to in-house advisors) and if those accounts were put into this HY paper.

There was that JPM quote in response to a question about the risks to their loan portfolio. "We have offloaded that risk to investors."

To a certain extent it all says that I forgot my own mantra: Nothing relevant to money is going to be allowed to destroy civilization, because it can be created from nothingness.

We imagined that a mini Apocalypse loomed, derived from shutting down oil production via loan shutoff simply because it was not profitable. How absurd, in retrospect. Profitable. Profitable was a lot more powerful a requirement pre 2009 than post 2009. Now, it's almost laughable. No one is going to allow horrible outcomes just because numbers on a screen are red.

[Nov 12, 2015] Excerpts from several articles in Bloomberg and Reuters

Notable quotes:

"... Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said. ..."

"... "But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said. ..."

"... The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha. ..."

"... "The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition." ..."

"... "We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline." ..."

"... "We're near the bottom at $40, and there's a potential upside that's much higher." ..."

peakoilbarrel.com

AlexS, 11/09/2015 at 10:48 am

Excerpts from several articles in Bloomberg and Reuters:
Saudi Vice Oil Minister Sees Price Surge After Cutbacks

http://www.bloomberg.com/news/articles/2015-11-09/oil-investment-cuts-at-200-billion-as-saudi-prince-sees-rally

The scale of the global oil and gas industry's spending cuts are making another surge in energy prices possible by diminishing future supply, Saudi Vice Minister of Petroleum & Mineral Resources Prince Abdulaziz bin Salman said.

Investments have been cut by $200 billion this year and will drop another 3 percent to 8 percent next year, marking the first time since the mid 1980s that industry cut the spending for two consecutive years, Prince Abdulaziz said in a copy of his speech for delivery to energy ministers in Doha Monday. Nearly 5 million barrels a day of projects have been deferred or canceled, he said in the remarks.

Just like high oil prices can't last, a prolonged period of low prices is "also unsustainable, as it will induce large investment cuts and reduce the resilience of the oil industry, undermining the future security of supply and setting the scene for another sharp price rise," the prince said in the remarks. "As a responsible and reliable producer with long-term horizon, the kingdom is committed to continue to invest in its oil and gas sector, despite the drop in the oil price."

Oil demand is expected to be 94 million barrels a day this year, rising 1.5 percent from last year, with about 2 million barrels a day of spare capacity, mainly held in Saudi Arabia, the prince said. Growth in Asia's demand may slow "by efforts to efficiency enhancement and oil substitution," he said.

"But the petroleum industry should not lose sight of the fact that scale matters," with billions of people moving up into the middle class, the prince said. The size of the world's middle class will expand from 1.8 billion to 3.2 billion in 2020, and to 4.9 billion in 2030, with the bulk of this expansion occurring in Asia, he said.

"Rather than being a commodity in decline, as some would like to portray, supply and demand patterns indicate that the long-term fundamentals of the oil complex remain robust."

-------------------------

OPEC's Badri says oil market to be more balanced in 2016

Nov 9, 2015
http://www.reuters.com/article/2015/11/09/us-asia-energy-opec-idUSKCN0SY0TN20151109

The oil market is expected to become more balanced in 2016 as demand continues to grow, OPEC Secretary-General Abdullah al-Badri said on Monday ahead of the producer group's policy meeting next month.

"The expectation is that the market will return to more balance in 2016," he said in a speech at an Asian ministerial energy roundtable in the Qatari capital Doha.

"We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude," Badri said, according to the text of the speech published on the OPEC website.

Most of the oil supply increases in recent years have come from high-cost production, Badri said, in a clear reference to supply sources such as U.S. shale oil.

"The market is now taking on board this new reality and gradually resetting itself, as we can see with falling non-OPEC supply growth and stronger demand," he said.

----------------------------
Yergin Joins OPEC in Seeing Market Balanced as Soon as 2016

http://www.bloomberg.com/news/articles/2015-11-09/yergin-joins-opec-in-seeing-oil-market-balanced-as-soon-as-2016

Global demand for crude will bring more balance to the oil market as soon as next year, according to Pulitzer Prize-winning author and energy consultant Daniel Yergin and OPEC Secretary General Abdalla El-Badri.

The oil market will rebalance in 2016 or 2017, as demand grows between 1.2 million barrels per day and 1.5 million barrel per days through 2020, Yergin, vice chairman of consultants IHS, said in a speech in Abu Dhabi. Demand will rise by about 17 million barrels a day to almost 110 million barrels a day by 2040, with 70 percent of the growth to come from Asia, the head of the Organization of Petroleum Exporting Countries said at an event in Doha.

"The next few quarters are going to continue to be tough as Iranian oil comes back into the market," Yergin said Monday. "We really see 2016 as the year of transition."

Current market volatility was caused by oversupply, mostly from high-cost producers, and oil stocks are above the five-year average, El-Badri said. Energy industry investment in exploration and production fell 20 percent, or by about $130 billion from 2014 to 2015, he said.

"The expectation is that the market will return to more balance in 2016," El-Badri said Monday. "We see global oil demand maintaining its recent healthy growth. We see less non-OPEC supply. And we see an increase in the demand for OPEC crude."

Oil prices are unsustainable at current levels and will rise gradually as international companies defer projects and production plans, United Arab Emirates Energy Minister Suhail Al Mazrouei told reporters .

"We have a vested interest to keep prices as stable as possible, but we cannot do that by reducing production," Mazrouei said. "We expect the market will recover by itself because high-cost production will continue to decline."

The U.S. is now the new swing producer of oil, with much room for efficiency gains, Yergin said. If U.S. law would allow it, the nation could be a major oil exporter by the end of decade, he said. Canada's oil sands production will add more than 800,000 barrels a day by the decade's end, and Iran will add 400,000 to 600,000 barrels a day to world markets within a few months of sanctions ending.

"The market will have to deal with a very significant overhang of inventories," Yergin said. "There's more volatility in this process."
--------------------–
Speculators Share Andy Hall's Optimism That Oil Prices at Bottom

http://www.bloomberg.com/news/articles/2015-11-09/speculators-share-andy-hall-s-optimism-that-oil-prices-at-bottom

Andy Hall and Daniel Yergin think oil prices are bottoming out. Hedge funds agree.
Money managers' net-long position in West Texas Intermediate crude rose 20 percent in the week ended Nov. 3, the most in seven months, according to data from the U.S. Commodity Futures Trading Commission. Bets on rising prices increased to the highest level since June.
U.S. onshore oil production fell for the fifth month in a row in August and supplies grew at the slowest pace since September in the week ended Oct. 30. Inventory data don't indicate a surplus in the crude market and prices are set to rise, said Hall, one of the world's best-known oil traders. Global supply and demand will begin to move into balance by late 2016 or 2017, according to Yergin.

"The fundamentals are starting to play out," said David Pursell, a managing director at investment bank Tudor Pickering Holt & Co. in Houston. "You've got greater recognition that U.S. supply is falling and maybe falling faster. Inventories are building, but the pace of that build is more manageable."

Onshore production excluding Alaska fell to 7.25 million barrels a day in August, down 334,000 barrels a day from March, according to Energy Information Administration data. U.S. oil inventories grew by 2.8 million barrels a day the week ended Oct. 30, the smallest gain since Sept. 18.

U.S. output will retreat by about 10 percent in the 12 months ending April, according to Yergin, vice chairman at IHS Inc.." Prices may rise to $70 to $80 a barrel by the end of the decade, he said in an interview.

Hall, the crude trader, said Saudi Arabia is producing close to capacity while Iraq is struggling to maintain output, while U.S. rig counts will continue to decline.

"We think the degree of negativity is unwarranted," Hall, who runs $2.6 billion hedge fund Astenbeck Capital Management, said Nov. 4.

"The economy is on the rebound, China is coming out of a bear market, people are saying let's get long oil," said Carl Larry, head of oil and gas for Frost & Sullivan LP.

"We're near the bottom at $40, and there's a potential upside that's much higher."

[Nov 12, 2015] At the current price level some shale companies may stop completing wells and may stop drilling

Notable quotes:

"... I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole. ..."

"... At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015. ..."

"... I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up. ..."

"... "The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d." ..."

"... Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. ..."

"... In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels. ..."

"... Oil and gas debt held by US banks is over $270 billion, but that would include conventional production. ..."

"... Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA. ..."

"... Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years. ..."

"... A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017 ..."

peakoilbarrel.com
shallow sand, 11/11/2015 at 9:52 am
Heinrich. Your point about CAPEX v operating expense is on the money.
I focus on the oil price necessary to be cash flow neutral and maintain production. That price is different for every company and constantly changes, but overall it remains much higher than current oil and natural gas prices. Shale companies have been hiding behind this for quite awhile, but recently management is beginning to talk about maintaining production and cash flow neutrality. Apparently some one important has signaled to them that the cash burn has to stop. I do not think $55 WTI or even $65 WTI will result in a return to 2011-2014 like drilling, which is what will be needed to cause US oil production to reverse its decline. The shale companies cannot return rigs at these price levels without burning more cash, on the whole.

Heinrich Leopold, 11/11/2015 at 4:49 pm
shallow sand,
Thank you for your reply. My point is also that many shale companies have published low operating expenses over years by moving most of their expenses into the category 'capex'. By the recent impairments they have moved a big chunk of their capex into the category expenses. So, basically they are saying to investors: sorry folks you have invested your money, but actually it is not invested anymore we have spent the money already on producing gas and oil and you will see a big part of your money never again. This is in my view a very unfair way to pretend to have low operating costs.

Dennis Coyne, 11/11/2015 at 12:34 pm
Hi Heinrich,
Enno Peters posts charts each month showing the well productivity. It has not decreased.

At the current price level some companies may stop completing wells and may stop drilling. There are a fair number of drilled uncompleted wells in the Bakken (Enno has two estimates 450 and 900, I am not sure which he favors, let's call it 675). These wells are a sunk cost and are likely to be completed to keep up cash flow levels. Even if all drilling stops (which is unlikely) if 75 wells are completed from the frack log each month, there are 9 months supply of DUCs, if 40 wells per month are drilled the supply would be enough for 19 months of completions at 75 wells completed each month. My scenario assumes well productivity (the estimated ultimate recovery over the first 60 months) of new wells remains at 2013 to 2014 levels. So far the actual data shows no change in new well EUR (it actually increased slightly in 2013 and 2014 from earlier levels and has remained steady in 2015). Perhaps Enno or Freddy W have a 3 month or 6 month cumulative chart for the Bakken Three Forks. I have an old chart but they may have something more recent. Chart below is from data in April or May 2015.

FreddyW, 11/11/2015 at 4:36 pm
Hi,
I just want to add that yes production has stayed relatively flat over the years. But water content has increased significantly. Fracking has become more costly also with more fracking fluids and so on. They have on the other hand become more efficient in what they are doing, but I think overall that costs have gone up.

Newer wells produce more in the beginning, but has higher decline rates for at least the first year. My guess is that the earlier wells will eventually have recovered more oil than the later ones.

New data will probably come out on Friday. Maybe I have something to show after that.

AlexS says:
11/10/2015 at 2:24 pm
IEA World Energy Outlook 2015 on U.S. tight oil:

"The short investment cycle of US tight oil and its ability to respond quickly to price signals are changing the way that the oil market operates. The plunge in prices means US tight oil production is now stumbling: if prices out to 2020 remain under $60/bbl, without a rapid evolution in drilling efficiency and technology learning, tight oil production in the United States will likely see a substantial decline in output. However, with tighter markets leading to higher mid-term prices in the New Policies Scenario ($80/bbl in 2020) US tight oil ultimately resumes its upward march, growing by 1.5 mb/d by 2020 to over 5 mb/d."

"The short investment cycle of tight oil and its ability to respond quickly to price signals is changing the way that the oil market operates, but the intensity with which the tight oil resource is developed in the United States eventually pushes up costs. US tight oil production stumbles in the short term but resumes its upward march as prices recover, helped by continued improvements in technology and efficiency improvements. But tight oil's rise is ultimately constrained by the rising costs of production, as operators deplete the "sweet spots" and move to less productive acreage. US tight oil output reaches a plateau in the early-2020s, just above 5 mb/d, before starting a gradual decline."

Change in production (2015-2020) of US tight oil for a range of 2020 oil prices
mb/d

shallow sand says:
11/10/2015 at 5:57 pm
Anecdotal re US conventional.

Company near us, 2012-14 drilled and completed many conventional wells. 2015 drilled no wells and completed the few remaining ones in first quarter.

Decline from Q3 2014 to Q3 2015 14.5%. Had grown production annually 2012-14.

Wonder how many conventional oil wells were completed 2011-14? New conventional wells may have a high decline too.

I know dwarfed by shale, but it all adds up.

AlexS says:
11/11/2015 at 8:13 am
In its short term energy outlook, the EIA sharply revised its U.S. C+C production estimates for 2H15 and forecast for 2016.

Estimate for this year's growth was increased to 580 kb/d from a 540 kb/d in previous month STEO, due to stronger than expected performance in onshore production. The biggest upwards revisions were made for August 2015: +187 kb/d, September: +160 kb/d and October: + 108 kb/d. The new production forecast for 2015 is 9.29 mb/d vs. 9.25 mb/d in October STEO.

Despite these revisions, the EIA still notes that "monthly crude oil production started to decrease in the second quarter of 2015, led by Lower 48 onshore production. From March 2015 through October 2015, Lower 48 onshore output has fallen from more than 7.6 million b/d to about 7.1 million b/d. EIA estimates total crude oil production has declined almost 0.5 million b/d since April, averaging 9.1 million b/d in October", down 43 kb/d from September.

The EIA expects declines to continue through September 2016, when total production is forecast to average 8.54 mb/d. This level of production would be almost 1.1 mb/d less than the 2015 peak reached in April.

Doug Leighton says:
11/11/2015 at 9:35 am
WHY THE OIL SANDS NO LONGER MAKE ECONOMIC SENSE

"Plunging oil prices may suggest that the world is awash with cheap oil but, in reality, what the world is really awash with is lots of expensive oil, much of it being produced at a loss. OPEC, home to the world's lowest-cost oil, is pretty much producing what it always has. The market glut is from increased output from high-cost producers like the oil sands. Their existential dilemma in today's market is that it is they, not OPEC, who must cut production to clear the glut.

http://www.theglobeandmail.com/report-on-business/rob-commentary/oil-sands-no-longer-make-economic-sense/article27170104/

shallow sand says:
11/11/2015 at 10:08 am
I wish I knew more about production costs for the four Gulf OPEC members plus Iran and Iraq.

I also wish I knew how much of KSA's increase in oil production, for example, which began in March, 2015, was oil from storage as opposed to produced.

In any event, I bet the extra 1/2 to 1 million barrels (if truly produced) are the most expensive barrels they have. So one wonders how much more income is really earned by the extra barrels.

AlexS says:
11/11/2015 at 12:58 pm
shallow sand,

KSA's production was increasing from March and peaked in June. Since then, it has slightly declined.
I don't think they will (and can, and intend to) increase it further.

Saudi Arabia's oil production
Source: JODI, OPEC (direct communications)

shallow sand says:
11/11/2015 at 1:48 pm
AlexS. Thanks. Surprisingly, KSA has really not increased oil production that much, especially in relation to the United States.

Euan's post above indicates there is negligible spare capacity and it is almost all heavy oil with no refining capacity available for it. Given KSA interest in shale tech, would appear 10.6 may be their conventional peak.

Russia has been able to continue to slowly increase production. Do you think Russia is nearing conventional peak? Any recent news on Russian LTO efforts?

Will interesting to see how this plays out.

AlexS says:
11/11/2015 at 2:06 pm
shallow sand,

The IEA estimates Saudi capacity at 12.26 mb/d and sustainable spare capacity at 2.06 mb/d (in September). However these numbers can be overstated and actual capacity may not exceed 11-11.5 mb/d.

Euan is right that most spare capacity consists of heavy oil with high sulphur content.

3 other Gulf states have very small spare capacity of around 100 kb/d.

Hence production increases in 2016 can be expected only from Iran and Iraq. Libya is a big unknown, which potentially can add up to 1 mb/d

I think Russia could further increase production in the near term, but not by much. In the medium to long term it will try to maintain production at current levels, so it's probably not a peak, but a plateau.

Russian LTO is a long-term story, similarly to the Arctic projects. No significant additions are expected until next decade.

Among other non-OPEC, non-US sources, some growth may be expected from Canada and Brazil, but in both cases it will be slower than previously expected due to lower oil prices.

With the declining US output and continued (albeit slower) growth in demand, the market will begin rebalancing next year.

In 1H15, that will mean lower excess supply vs demand, and from 2H15 demand will likely exceed supply.
This scenario implies that additional supplies from Iran do not exceed 500-700 kb/d, Libya remains in doldrums, and there is no dramatic slowdown in global economic growth.

shallow sand says:
11/11/2015 at 5:50 pm
AlexS. Thanks for the post. I agree with you that Iran and Iraq appear to be able to add much more production than Saudi Arabia, Kuwait, UAE and Qatar combined.

Iraq in particular has many areas to be developed, subject primarily to political instability.

For example, Rumalia oil field production has ramped up significantly and it appears there is much room to run at a very low price.

dmg555 says:
11/11/2015 at 10:10 am
Does anyone here have a source for how much money was loaned to the tight oil fracking industry?

Watcher says:
11/11/2015 at 12:19 pm
You will find this number is fuzzy, as is true for all long term debt everywhere, because issuance rolls over on maturity and that may not be tracked.

shallow sand says:
11/11/2015 at 1:45 pm
Oil and gas debt held by US banks is over $270 billion, but that would include conventional production.

I have read in excess of $1/2 trillion, a number off the top of my head.

John S says:
11/11/2015 at 3:22 pm
Shallow: I think you will find the press release at the link below from FDIC interesting:

https://www.fdic.gov/news/news/press/2015/pr15089.html

Here is an excerpt:

"Oil and gas commitments to the exploration and production sector and the services sector totaled $276.5 billion, or 7.1 percent, of the SNC portfolio. Classified commitments-a credit rated as substandard, doubtful, or loss-among oil and gas borrowers totaled $34.2 billion, or 15.0 percent, of total classified commitments, compared with $6.9 billion, or 3.6 percent, in 2014."

I went looking for this because a local bank is seeking to increase is liquidity via a preferred stock offering. It is trying to raise a multi-million $ amount. The offered terms are a 5% dividend, 5 year term, and share repurchase at redemption date. The bank is 30 + years old.

I am told another local bank is doing a similar offering.

Hmmm…..liquidity issues and off balance sheet financing. Where has that been tried before in the oil patch?

Watcher says:
11/11/2015 at 4:23 pm
Banks do preferred offerings all the time.

Quick example, go to finance.google.com and enter stock symbol bac. and that's a period after the c and look at all the preferred offerings/issues.

Quick lesson for the partially washed. Preferred stock is equity that usually has no voting rights for corporate governance determination. Speaking practically it's usually priced about $25/share and pays a higher yield than any common dividend. Preferreds get their dividend first. If there isn't enough profit to pay preferred divvies and common, common has to get zero.

There are cumulative preferreds and convertible preferreds. Cumulative means if a quarter's dividend is missed, ya gotta make up that quarter's missed payout before you can pay to common shares. Convertible means can convert to XXX shares of common. blahblah

Anyway, a bank issuing preferred stock is not eyebrow raising in any environment. That is, excluding issuance bought by Buffet in 2009. Anything at all done that year was eyebrow raising.

shallow sand says:
11/11/2015 at 5:55 pm
John S. Thanks for the link! That is the release I was referring to earlier.

WTI below $43. Wow. Have to think the substandard or worse oil and gas backed loans are only going to grow.

Looking at Iraq and Iran more closely. I think those two are greater threats to KSA market share than US shale at this point in time. As US shale continues to drop, looks like Iran and Iraq are set to grow, with total costs likely lower than even KSA.

Watcher says:
11/11/2015 at 6:46 pm
KSA has said repeatedly shale is no threat to them and they are no threat to shale. Shale oil can't export. It CAN'T compete. And almost all US imports are coming from Canada and Mexico and Ven and Nigeria. Only about 1 mbpd from KSA.

They're right - besides which shale oil isn't the medium / heavy oil out of KSA. It's not even the same product to envision as competing.

oldfarmermac says:
11/11/2015 at 8:34 pm
Watcher, you occasionally make some sense, sorta kinda.

But you know better, or at least you ought to know better, than to say shale oil doesn't matter because it cannot be exported.

Oil is a fungible commodity traded in a brutally competitive world market.

A million barrels a day of domestic yankee production above and beyond "the usual" is a million barrels somebody formerly exported to us Yankees looking for a new home in some other importing country.

Taking a million barrels a day off our Yankee production would have approximately the same effect on the world market as if Saudi Arabia were to cut back by a million barrels a day.

But your remarks about oil supposedly going into storage recently seem to be very reasonable.

SURELY TO SKY DADDY the tank farms of the world must be getting pretty damned close to overflowing by now, and every rusty old tanker that will hold a few thousand barrels is probably full as well, sitting anchored someplace.

Doug Leighton says:
11/11/2015 at 1:49 pm
OIL GLUT DEEPENS WITH 100M BARRELS AT SEA

"Patrick Rodgers, the chief executive of Euronav, one of the world's biggest listed tanker companies, said oil glut was so severe traders were asking ships to go slow to help them manage storage levels."

http://www.ft.com/cms/s/0/f763a6da-8859-11e5-9f8c-a8d619fa707c.html#axzz3rD5Ye7ss

ezrydermike says:
11/11/2015 at 2:25 pm
wti futures 11-11-2015

Watcher says:
11/11/2015 at 6:50 pm
And btw all you supply and demand worshippers . . . just who is buying oil to store, when storage has throughput? You aren't buying to store it for future higher price. You buy it to store it to flow it outward incrementally to consumption, with new oil coming in to refill the tanks. FIFO. That's how Cushing works. If price rose, the oil getting sold from storage just went in there last week or 2 weeks ago. It didn't get there in January. There's no big profit.

dmg555 says:
11/11/2015 at 3:13 pm
From the Financial Times on Energy Debt

http://www.bloomberg.com/news/articles/2015-11-11/opec-challenges-shale-afresh-as-iraq-crude-floods-gulf-of-mexico

Oil Industry Needs Half a Trillion Dollars to Endure Price Slump. Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, (2015) about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

Watcher and Shallow: Your numbers on total debt look a bit low, but I'm only siting the Financial Times.

shallow sand says:
11/11/2015 at 6:01 pm
dmg555. I was just throwing out things off the top of my head, which is probably not the best thing to do.

A lot of money borrowed by US upstream, and they are in tremendous trouble if prices stay below $60 WTI though 2016, and do not substantially recover in 2017.

[Nov 12, 2015] Monthly legacy shale production declines accelerates

Notable quotes:

"... Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin. ..."

peakoilbarrel.com
AlexS, 11/09/2015 at 7:02 pm
Combined oil production from 7 shale plays is expected to decline by 558 kb/d, from 5507 kb/d in April to 4949 (these numbers include ~800-900 kb/d of conventional production, mainly from the Permian basin).
New combined estimates for 7 plays were revised down by about 25-35 kb/d from March to May, and by 40-50 kb/d from June to December.

AlexS, 11/09/2015 at 9:05 pm
Much steeper oil production declines in the Eagle Ford and Niobrara are apparently due to much higher and accelerating decline rates of the existing wells compared to the Bakken and Permian basin.
Monthly legacy production declines as % of total production by 4 key LTO plays
Source: EIA DPR

[Nov 12, 2015] Oil Majors Don't Share OPEC's Optimism On Oil Prices In 2016

Notable quotes:

"... Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering. ..."

"... So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price. ..."

"... If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable. ..."

Zero Hedge

OPEC's meeting in Vienna is less than a month away, and oil producers – countries and companies alike – have been raising their concerns at an energy conference in the United Arab Emirates over the cartel's strategy to keep prices low.

The issue arose on Monday when Mohammed bin Hamad al-Rumhy, the oil minister of Oman – not a member of OPEC – told the annual Abu Dhabi International Petroleum Exhibition and Conference that oil production is at "irresponsible" levels, leaving little latitude for variations in production.

"This is [a] man-made crisis in our industry we have created," al-Rhumy said. "And I think all we're doing is irresponsible."

Al-Rhumy added, "This is a commodity that if you have 1 million barrels a day extra in the market, you just destroy the market. We are hurting, we are feeling the pain, and we're taking it like a God-driven crisis. Sorry, I don't buy this, I think we've created it ourselves."

The next day, al-Rhumy's concerns, if not his criticism, were shared by executives of leading international oil companies: ExxonMobil of the United States, BP of Britain and Total of France. All said they expect the current glut of oil, and the resultant depression in oil prices, to last longer than anyone expected – months longer, if not years longer.

"I'm not sure we will exit from low prices before many months," Total CEO Patrick Pouyanne said.

Lamar McKay, the director of exploration and production for BP, said he expects oil prices will stay low for some time, and Michael Townshend, the company's director for Middle East operations, said he expects the price of a barrel of oil will rise no higher than about $60 for three more years.

These gloomy forecasts contrasted with the OPEC view. The group's secretary general, Abdullah al-Badri, told the conference on Tuesday that 2016 is likely to be a year for positive momentum in oil markets. And on Monday, UAE Oil Minister Suhail al-Mazrouei, said a decision by OPEC to cut production to shore up oil prices would only play into the hands of its competitors.

As a result, al-Mazrouei said, he doesn't expect OPEC to change its strategy when it meets Dec. 4. "When you are the least expensive oil, you should be the base producer," he said.

At its meeting in November 2014, OPEC adopted Saudi Oil Minister Ali al-Naimi's strategy of keeping production at 30 million barrels a day, despite the fall in oil prices caused by a rapid increase in production by non-members, especially the United States, which had ramped up production of shale oil.

The goal was to wage a price war that would keep oil prices so low that such producers, who rely on relatively expensive hydraulic fracturing, or fracking, can't afford to drill for oil. The break-even point for fracking is around $60 per barrel, and oil now averages about $50 per barrel, leading to a noticeable drop in U.S. drilling.

In the meantime, OPEC nations are exceeding their production limit of 30 million barrels per day by more than 1.5 million barrels, so it's no wonder oil prices are so low.

Concerns about low oil prices were raised before last year's OPEC meeting, particularly by Venezuela.

Saudi Arabia had already said it opposed production cuts. Venezuela's president, Nicolas Maduro, said he was hoping to work out ways to bolster oil prices in meeting both with members of OPEC and producers who weren't part of the 12-member cartel.

That came to naught, however, and the Saudi plan became OPEC policy. Despite current dissatisfaction from some oil producers, there's no reason to expect the cartel to change course if it believes its strategy is working.

Selected Skeptical Comments

Hard Assets

I have posted this comment on 7 million forums and discussion boards and I have yet to get a reasonable answer.

If an oil producer, big or small, has X barrels of oil in the ground, a finite number, why would they (especially OPEC countries who can 'control' the price) overproduce to sell today at $43 instead of $110+ ??

How does driving down the price get one more 'market share' ? When oil was $100/bbl, all things being equal, it was $100 across the globe. At $43, its $43 across the globe. Again, all things being equal, how does that impact market share ?

Sure, at a point in the future, when competitors fold you gain market share. Does this fall into the "market can stay illogical longer than one can remain solvent" category ?

Completely short sighted vision in my book. WTF was the intention of OPEC in the first place?

Saudi was selling 9 m/bbl/day when oil was at $100+, now they are selling 10.5 mbbl/day at $43. The math on that is staggering.

Back to the finite X reserves. No doubt Saudi and every oil producer will pump and drill and do everything they can to get down to the last drop. Then it's over, literally pack up your tent and call it a day.

So why are they overproducing, selling more of their finite resource at a low price instead of over the longer term at more than double its current price.

If the real reason of this stunt is to cause severe pain for Russia, Iran, Venezuala and others, well the oil doesn't go away. Someone will still own it and someone will still drill and pump when prices are more favorable.

So WTF is really going on here ?

Benjamin123

I sort of answered below.

They dont care. Those countries do not feel any pain. Countries are not even real, only people or animals feel pain and those oil ministers are rich either way.

Gregor Samsa

Easy answer: cashflow. These companies / countries need any revenue they can get. Turning off the lights and going home is simply not an answer.

A secondary answer is that many oil plays, such as tarsands and fracking literally cannot be shut down once started (at least not without incurring extra costs in the millions).

erk

US oil production is still up around 9 mill barrels according to EIA. Once their unsustainable shale oil output drops a million BBL or two, then OPEC are back to business as usual.

Youri Carma

It's not about OPEC anymore.

[Nov 11, 2015] Four US Firms With $4.8 Billion In Debt Warned This Week They May Default Any Minute

Zero Hedge

agent default

It's not just the oil. The oil is convenient to point at because the US can pretend that they got SA to cause the drop in order to stick it to Russia. Makes the US look really smug. Meanwhile the truth is, copper down, zinc down, iron ore down, you name it down.

Baltic Dry almost crashing, soft commodities gone to hell. I guess SA can also influence these markets as well.

[Nov 11, 2015] Questions for Monetary Policy

Notable quotes:

"... Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next. ..."

"... The drop in hours worked data in the productivity report is very confusing. ..."

"... I think lower oil prices has lead to a stronger consumption boost than initially thought. ..."

economistsview.typepad.com
James Bullard, president of the St. Louis Fed, says there are five questions for monetary policy:

The five questions

What are the chances of a hard landing in China?

Have U.S. financial market stress indicators worsened substantially?

Has the U.S. labor market returned to normal?

What will the headline inflation rate be once the effects of the oil price shock dissipate?

Will the U.S. dollar continue to gain value against rival currencies?

I would add:

Will wage gains translate into inflation (or something along those lines)?

Anything else?

sanjait said in reply to Anonymous...

Markets move based on expectations of both economic fundamentals and the Fed's reaction function. So both can create surprises.
In this case, a relatively stronger than expected US economy could push the dollar up quite a bit. The central bank would be expected to dampen but not eliminate this effect, even without changing their perceived reaction function.

DeDude said in reply to Anonymous... , November 10, 2015 at 02:35 PM

Looking at the recent moves in exchange rates based on a simple switch in expectation of whether or not the Fed would raise rates in December or wait one or two meetings its seems obvious that the markets are not very good at anticipation. So I would not put much money on the ability of the markets to anticipate the trajectory and endpoint of raising rates - or the ability of anybody to guess where the exchange rates will go next.
What we can say is that the strengthening of the US$ that has happened recently will hurt the economy - whether it will hurt enough to slow the Fed is anybodies guess. Whether those guesses have already been baked into the exchange rates is impossible to predict.

Bert Schlitz said...

On Angry Bear, there is a post about 3rd quarter hours and Spencer's remark:

"The drop in hours worked data in the productivity report is very confusing.

The employment shows several measures of hours worked and they increased in the third quarter from 0.5% to 1,08 for aggregate weekly payrolls.
Something is really change.
The productivity report also had unit labor cost rising more than prices,
This implies falling profits, what the S&P 500 shows."
Basically wages accelerated rapidly in the 3rd quarter. The BLS didn't start catching up to it until October. My guess the hours drop and employment picks up trying to hold down costs. However, this will probably only level off things off for a few quarters, which would be good enough to profits catch back up until the labor market becomes so tight, they simply have no choice but to raise prices and hours worked surge again. Classic mid-cycle behavior (which Lambert should have noticed).
This is what triggered the 3rd quarter selloff and inventory correction. That foreign stuff was for show. I think lower oil prices has lead to a stronger consumption boost than initially thought.

am said...

Clicked on this link for the answers but it is 34 blank pages, so i'll go for:
1. No, they'll just devalue when need be to soften the landing. I think they will do another one before the end of the year.
2. No idea.
3. Near it if you believe the Atlanta Fed. They have a detailed analysis on their blog.
4. 2.2 if you believe the St Louis Fed, end of December for the oil price decline washout from the system. So inflation will creep up by the end of the year.
5. Yes and more so if they raise the rate.
6. No. because it will just be oil led not wages (see 4).
Anything else: the weather with apologies to PeterK.

anne said...

I am really having increasing trouble understanding, how is it that having a Democratic President means making sure appointments from the State or Defense Department to the Federal Reserve are highly conservative and even Republican. Republicans will not even need to elect a President to have conservatives strewn about the government:
http://www.latimes.com/business/la-fi-neel-kashkari-federal-reserve-minneapolis-20151110-story.html
November 10, 2015
After failed GOP bid to be California's governor, Neel Kashkari will head Minneapolis Fed
By Jim Puzzanghera - Los Angeles Times

anne said in reply to anne...

Neel Kashkari is another Goldman Sachs kid, what would you expect?

anne said in reply to anne...

http://www.nytimes.com/2015/11/11/business/ex-treasury-official-kashkari-named-minneapolis-fed-president.html
November 10, 2015
Neel Kashkari, Ex-Treasury Official, Named Minneapolis Fed President
By BINYAMIN APPELBAUM
Neel Kashkari is the third new president of a regional reserve bank named this year, and all three previously worked at Goldman Sachs.
[ Really, well, creepy comes to mind. ]

[Nov 11, 2015] Valentin Katasonov - Banks Rule the World, but Who Rules the Banks (II)

Notable quotes:

"... do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system. ..."

Strategic Culture Foundation
Financial holding companies like the Vanguard Group, State Street Corporation, FMR (Fidelity), BlackRock, Northern Trust, Capital World Investors, Massachusetts Financial Services, Price (T. Rowe) Associates Inc., Dodge & Cox Inc., Invesco Ltd., Franklin Resources, Inc., АХА, Capital Group Companies, Pacific Investment Management Co. (PIMCO) and several others do not just own shares in American banks, they own mainly voting shares. It these financial companies that exercise the real control over the US banking system.
Some analysts believe that just four financial companies make up the main body of shareholders of Wall Street banks. The other shareholder companies either do not fall into the key shareholder category, or they are controlled by the same 'big four' either directly or through a chain of intermediaries. Table 4 provides a summary of the main shareholders of the leading US banks.
Table 4.
Leading institutional shareholders of the main US banks

Name of shareholder company Controlled assets, valuation (trillions of dollars; date of evaluation in brackets) Number of employees

Vanguard Group 3 (autumn 2014) 12,000

State Street Corporation 2.35 (mid-2013) 29,500

FMR (Fidelity) 4.9 (April 2014) 41,000

Black Rock 4.57 (end of 2013) 11,400

Evaluations of the amount of assets under the control of financial companies that are shareholders of the main US banks are rather arbitrary and are revised periodically. In some cases, the evaluations only include the companies' main assets, while in others they also include assets that have been transferred over to the companies' control. In any event, the size of their controlled assets is impressive. In the autumn of 2013, the Industrial and Commercial Bank of China (ICBC) was at the top of the list of the world's banks ranked by asset size with assets totaling $3.1 trillion. At that point in time, the Bank of America had the most assets in the US banking system ($2.1 trillion). Just behind were US banks like Citigroup ($1.9 trillion) and Wells Fargo ($1.5 trillion).

[Nov 11, 2015] 2 simple charts illustrate why low oil prices are so depressing

Nov 9, 2015 | Business Insider
The energy sector's capital expenditure, or capex, on spending for fixed infrastructure that secures future business activity, has slumped 8% this year according to Goldman Sachs.
Energy capex growth is set to fall another 20% next year, wrote the firm's strategists led by David Kostin to clients on Friday.

There's usually a lag between energy-sector capital spending and oil prices, with prices leading. That means even if oil prices defy most forecasts and rise sharply from current levels, capex will likely still fall.

[Nov 11, 2015] IEA World Energy Outlook New Hope For Civilization

Notable quotes:

"... In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go. ..."

"... The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance. ..."

"... A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?" ..."

Nov 11, 2015 | naked capitalism

Sandwichman, November 11, 2015 at 2:39 am

Green smoke. "These projected figures are a figment of our imagination. We hope you like them." (New Yorker cartoon from the 1980s

vteodorescu, November 11, 2015 at 5:31 am

The path to low carbon is nuclear. Anything else is a palliative. Technical fact: wind and solar have to be backed up with equal capacity of baseload generation, usually gas, to keep the grid balanced, to compensate the highly variable supply wind and solar produce. They are largely politically driven and a sop to the misinformed intelligentsia.
Energy scarcity is another tool to keep the huddled masses huddled.
Disclaimer: I am an organic farmer in the northeast of Brazil. I do not work for or have any financial interest in the nuclear industry.

TheCatSaid, November 11, 2015 at 6:54 am

These crystal-ball gazing exercises leave out the high likelihood like pandemics. Losing a significant % of population will impact demand but also supply (just imagine what losing key engineers and scientists could impact on development of better technologies, or on production facilities).

likbez -> TheCatSaid, November 11, 2015 at 9:34 pm

If I remember correctly in 1956 Hubbert correctly predicted the peak of the USA production in 1970. From Wikipedia
==== quote ===
Hubbert, in his 1956 paper,[3] presented two scenarios for US crude oil production:
most likely estimate: a logistic curve with a logistic growth rate equal to 6%, an ultimate resource equal to 150 Giga-barrels (Gb) and a peak in 1965. The size of the ultimate resource was taken from a synthesis of estimates by well-known oil geologists and the US Geological Survey, which Hubbert judged to be the most likely case.
upper-bound estimate: a logistic curve with a logistic growth rate equal to 6% and ultimate resource equal to 200 Giga-barrels and a peak in 1970.
Hubbert's upper-bound estimate, which he regarded as optimistic, accurately predicted that US oil production would peak in 1970, although the actual peak was 17% higher than Hubbert's curve.
Production declined, as Hubbert had predicted, and stayed within 10 percent of Hubbert's predicted value from 1974 through 1994; since then, actual production has been significantly greater than the Hubbert curve.

Nicholas Cole, November 11, 2015 at 8:51 am

Is the title of this article supposed to be funny?
To echo Paper Mac, I'd like to know more about their assumptions re: energy efficiency investments and improvements.

In The Economic Growth Engine Warr and Ayres have some interesting historical data on how most improvements in, say, fuel efficiency come not from actual technological innovation but a straightforward process of making vehicles lighter, suggesting that there's a hard cap on how far such work can go.

DanB, November 11, 2015 at 9:35 am

The report states, "The plunge in oil prices has set in motion the forces that will lead the market to rebalance, via higher demand and lower growth in supply. This may take some time, as oil consumers are not reacting as quickly to changes in price as they have in the past." Here we see the inability to perceive the unfolding consequences of peak oil playing out in a neoliberal world run for the benefit of the 1%. It's as if "The market" will "rebalance" because it is eternal and, well, since it's eternal it just has to rebalance.

The counter explanation that the price of oil fell because people are going broke while the cost of extracting oil is climbing cannot be conceived, let alone entertained.

And the peak oil scenario is actually hidden in plain sight in classical economics: if a resource becomes scarce what happens? Price increases and then encourages more exploration and recovery of the resource. If that does not work then price incentivizes the introduction of substitutes. And if that doe not work you get demand destruction, because the market always clears -- even if people go hungry the market clears.
A few generations from now our descendants will wonder, "What took them so long to figure out that we'd reached the limits to growth?" The answer, of course, is that growth is the core of the myth holding the American psyche together. If it's false, what's the meaning of "life, the universe, everything?"

IDG, November 11, 2015 at 9:50 am

Humans are awfully bad at predicting things, specially under radical uncertainty conditions (so basically this situation); yet we see this sort of rubbish published on daily basis. Call me back when we can predict what will happen in a year reliably, until then… 20y-30y projections are a joke, for all I know humanity could have self-exterminated itself in a nuclear war by then (one century with nuclear weapons around and no nuclear-conflict having happened yet looks like defying probability to me!).
But I guess economists need employment too after all, how would such useless profession be justified if wouldn't swallow rubbish like this.

[Nov 11, 2015] Friction is Now Between Global Financial Elite and the Rest of Us

Notable quotes:

"... But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs ..."

"... This means that the fracture in politics will move from left to right to the anti-establishment versus establishment. ..."

"... In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. ..."

"... when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital ..."

"... Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity. ..."

"... Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally. ..."

"... Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power. ..."

Economist's View

Friction is now between global financial elite and the rest of us, The Guardian:

... ... ...

But the standard explanation, as well as the standard debate, overlooks the increasing concentration of political power in a corporate and financial elite that has been able to influence the rules by which the economy runs. ...

Dan Kervick said...

"This means that the fracture in politics will move from left to right to the anti-establishment versus establishment."

I think this is probably right, but the established parties are doing their best to prevent it. Each of them has an interest in continuing to divide people along various cultural, religious and ethnic identity lines in order to prevent them from achieving any kind of effective solidarity along class lines.

Anyway, I fear we may be headed toward a turbulent and very unpleasant future.

Kenneth D said...

"Rethinking the Global Political Economy" By Jeff Faux April 24, 2002

In most cases, international agreements are negotiated by elites that have more in common with each other than with working people in the countries that they represent. As a retired U.S. State Department official put it to me bluntly a few years ago, "What you don't understand," he said, "is that when we negotiate economic agreements with these poorer countries, we are negotiating with people from the same class. That is, people whose interests are like ours – on the side of capital."

Accordingly, the fundamental purpose of the neo-liberal polices of the past 20 years has been to discipline labor in order to free capital from having to bargain with workers over the gains from rising productivity.

But labor is typically at a disadvantage because it usually bargains under conditions of excess supply of unemployed workers. Moreover, the forced liberalization of finance and trade provides enormous bargaining leverage to capital, because it can now threaten to leave the economy altogether.

Moreover, unregulated globalization in one stroke puts government's domestic policies decisively on the side of capital. In an economy that is growing based on its domestic market, rising wages help everyone because they increase purchasing power and consumer demand – which is the major driver of economic growth in a modern economy. But in an economy whose growth depends on foreign markets, rising domestic wages are a problem, because they add to the burden of competing internationally.

Both the international financial institutions and the WTO have powers to enforce protection of investors' rights among nations, the former through the denial of financing, the latter through trade sanctions. But the institution charged with protecting workers' rights – the International Labor Organization (ILO) – has no enforcement power.

[Nov 11, 2015] An Almost Perfect Storm of Incompetence and Felony

Notable quotes:

"... People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason. But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right. ..."

"... The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy. ..."

jessescrossroadscafe.blogspot.com

"People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. Intellectual myopia, often called stupidity, is no doubt a reason.
But the privileged also feel that their privileges, however egregious they may seem to others, are a solemn, basic, God-given right."

John Kenneth Galbraith, Age of Uncertainty

"Misdeeds, once exposed, have no refuge but in audacity. And they have accomplices in those who are fearful in their complicity."

Tacitus, Annals

I was discussing the markets this morning with my friends Dave and Bill Murphy as we generally do. This is what I just wrote back in response to a question from Bill. I read his columns at LeMetropoleCafe.com every day. His is an amazing crossroads for discussion of things that are interesting about precious metals. I have been a subscriber since 2000. Dave has a new site at Investment Research Dynamics that is quite good and different since he has a very different background in the heart of darkness as a NYC bond trader from mine as a Bell Lab rat and Silicon Valley roustabout.
We just saw a very historically significant decline in the precious metals in terms of days lower without relief. And we have seen a remarkable rise in the US dollar index against the Euro and the Swiss franc that cannot possibly be good for the real economy of the US, when every other developed nation is trying to devalue their currencies to stimulate their exports and inhibit imports.
I believe that a portion of the gold selling in particular is an effort to knock down the open interest in gold for December. If there was any serious attempt for holders of those contracts to stand for delivery, even JPM, which has been obviously building up its stores of gold to act as the 'fixer' in that market, would not be able to cover the demand.

JPM was consistently taking delivery for their house account in gold, and just transferred 70,000+ ounces over from Nova Scotia's warehouse, from whom they had been taking delivery.

As we know, in the last big delivery month, JPM stepped up with an enormous amount of their gold, 400,000+ ounces, to provide enough real bullion to satisfy the contracts standing for delivery. Even now their inventories remain somewhat depleted.

The dollar has also been soaring, because the Fed is trying to pretend that the US is recovering so that they can raise rates. A strong dollar and higher rates are very harmful to what is almost undoubtedly a fragile economic recovery in the US.

And it is fantasy to think that the US can somehow go it alone, and continue to improve while the rest of the world is cutting rates because their economies are slowing.

The Fed wants to raise rates for their own policy purposes, so they can cut them, without going overtly negative, when their latest financial bubble starts to collapse, which it may already be doing. They cannot really raise rates in a Presidential election year past June, so they will push ahead, to serve their own purposes, even as they harm the real economy.

There will be another financial crisis as the IMF warned today. There will be a serious dislocation in several financial markets, including the precious metals and the bonds at some point, that will rock the current system to its foundations. It is a portion of the credibility trap which inhibits any meaningful remedy and reform.

It is an almost perfect storm of incompetence and felony.

[Nov 09, 2015] Supervising Culture and Behavior at Financial Institutions

Notable quotes:

"... Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so. ..."

"... One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?" ..."

Nov 09, 2015 | naked capitalism

John Zelnicker, November 7, 2015 at 9:49 am

Fascinating research. Thanks for posting this, Yves.
Organizational culture and behavior is a critical factor in the success of any business. The intense emphasis most American businesses place on numbers to the exclusion of almost any other consideration is a major contributor to the vast amount of corporate control fraud we have witnessed in the past decade or so.
Unfortunately, I don't see any of these executive psychopaths putting themselves through the self-assessment that is one of the necessary steps mentioned in the study. At least, not voluntarily.

Sluggeaux, November 7, 2015 at 11:39 am

Important.
One of the fundamental tenets of Reaganism/Libertarianism is that "The Ends Justify the Means." The financial sector is not the only institution in our civilization that is failing due to this mind-set. The best form of regulation is simply holding up a mirror to a firm or agency and asking questions such as, "In this organization, when is it OK to lie?"

[Nov 09, 2015] Peak Oil Open Thread

Notable quotes:

"... Yergin predicts a 10 percent drop in US oil production, April 2015 to April 2016. That's a 960,000 bpd drop and will take us to 8,638,000 bpd in April 2016 if he is correct. ..."

"... U.S. crude output, which surged to the most in more than three decades this year and triggered a price collapse, will retreat by about 10 percent in the 12-months ending April, according to Yergin, vice chairman at IHS Inc. ..."

"... How big a drop do you expect? I think Yergin may be right in this case. The drop in output in the US, along with increased demand at low oil prices will eventually balance the oil market, prices will rise and output will level off and may increase slightly if oil prices get above $75/by the end of 2016. ..."

"... I have no idea when oil prices will get to $75/b, but my WAG is mid 2017 at the latest when World output will be struggling to increase. ..."

Peak Oil Barrel

Yergin predicts a 10 percent drop in US oil production, April 2015 to April 2016. That's a 960,000 bpd drop and will take us to 8,638,000 bpd in April 2016 if he is correct.

Yergin Sees Oil Price Near Bottom as U.S. Output Set to Fall

U.S. crude output, which surged to the most in more than three decades this year and triggered a price collapse, will retreat by about 10 percent in the 12-months ending April, according to Yergin, vice chairman at IHS Inc.

Guy Minton, 11/04/2015 at 8:59 pm

Actually, Yergin's estimate drop to 8,600,000 is in line with EIA's projection. Both are too conservative, my guess the drop will eventually surprise most.

Dennis Coyne, 11/05/2015 at 8:30 am

Hi Guy,
How about some numbers?
How big a drop do you expect? I think Yergin may be right in this case. The drop in output in the US, along with increased demand at low oil prices will eventually balance the oil market, prices will rise and output will level off and may increase slightly if oil prices get above $75/by the end of 2016.
I have no idea when oil prices will get to $75/b, but my WAG is mid 2017 at the latest when World output will be struggling to increase. That assumes no major World recessions (like 2008/9) between now and 2017, if the pessimists' forecast of an impending crash due to a stock market and debt bubble are correct, then output could fall much more than forecast by Yergin due to sustained low oil prices due to lack of demand for oil due to low income growth (or negative income growth).

[Nov 08, 2015] Why The Stock Buyback Spree Is Ending

Notable quotes:

"... Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back. ..."

Nov 08, 2015 | Zero Hedge
From Goldman:

Managements will remain committed to returning cash S&P 500 firms will return more than $1 trillion to shareholders in 2016 with buybacks and dividends each growing by 7%. We expect high cash return strategies to outperform given modest GDP growth, low rates, and slim equity returns. A similar macro environment in 2015 rewarded stocks with high cash returns to shareholders while firms investing in capex lagged.

So buy stocks the buy their own stock. Got it. Only.... any time Goldman tells its client to do something, the opposite usually happens. Could that be the case again?
Most certainly, and here is one explanation for the recent market revulsion with prolific repurchasers (see IBM, KORS, CAT). It comes from Citi which shows that contrary to conventional, and wrong, wisdom, gross corporate leverage has never actually been higher. Throw in rising rates, and blowing out spreads, and suddenly all these companies that enjoyed a free ZIRP lunch by engaging in the dumbest of capital allocation decisions, namely pushing their own stock higher (by issuing debt no less), are about to vomit it all right back.

Give up. Reality is not scientific nor even mathematical

Yes, and from all the ugliness will come an even tighter grip on the New American Century.
Get ready for the rate hikes that will follow by understanding, the dollar, not gold and certainly not the yuan, is going to rule the world.
Opportunity abounds for those who aren't the typical alternative media America hater, and who also have sense enough to see the next logical step in this march toward the future. Given the alternative, the world will welcome what they will see as a new golden age of prosperity and progress.
It won't be that, but only the old will be in on the massive deceit. Civilization merely rides the mercilous bucking bronco of reality.

Yen Cross

He's joking right? CapEx has been in the shitter since 2008-09.

" Furthermore, according to the latest forecast by Goldman's David Kostin, this surge in buybacks will continue for the simple reason that with Capex spending set for its first decline since 2009."

[Nov 06, 2015] US production might be down by something from 1.5 up to 3 mill bbl/d by end of next year

Notable quotes:

"... monthly low is forecast for June 2016 at 8.77 mb/d. ..."

"... It is interesting that the time lag between capex and production response for conventional production stands around 18 months. Therefore production in the Golf of Mexico is still rising (up 200,000 bbl/d in the last two months alone). This mitigates somehow the decline of shale production. This explains e.g. also the resilience of Russian production, which will in my opinion still rise over the next half year. ..."

"... However, if the oil price stays below $50 per barrel, production will keep falling at roughly 1% per month, which is the average decline of the FED oil and gas production index since April 2015. ..."

"... This scenario implies an at least 1.5 mill bbl/d decline until the end of next year – provided the oil price stays at the current level. My personal view is that US production will be down by more than 3 mill bbl/d by end of next year as there are strong signs of depletion of sweet spots, which accelerate the underlying decline. ..."

"... The projected decline in U.S. production comes primarily from shale plays, and to a much less degree from Alaska and other conventional fields, while production in the GoM is expected to increase. ..."

"... If, as you say, U.S. production drops by 3 mb/d by year-end 2016, that would mean a decline in LTO production by almost 2/3. That is impossible even if shale operators completely stop drilling new wells. According to the estimates I've seen, with no new wells, LTO production in the Bakken and the Eagle Ford would decline by between 30 and 40% within a 12-months period. ..."

"... 3mill bbl/d is a lot and it is the top end of my estimate, yet also conventional production will decline by end of next year. It is just my gut feeling and I guess it has to do something with depletion of sweet spots. ..."

peakoilbarrel.com

AlexS, 11/05/2015 at 1:13 pm

article in Bloomberg:
Cheap Crude Hasn't Crippled the U.S. Shale Boom, Shale drillers defy OPEC and double down on drilling.

http://www.bloomberg.com/news/articles/2015-11-05/cheap-crude-hasn-t-crippled-the-u-s-shale-boom

shallow sand, 11/05/2015 at 9:16 pm
AlexS. The title of the article does not exactly match the content. Good, short read.
The article states US will average 9.2 million bopd this year, 8.8 next year. This ignores that US climbed to 9.6 and will end below 12/14. The 2016 number assumes a rebound in the second half of the year. I am not sure about that.

If OPEC can keep a lid on oil prices through the end of 2016, I wonder what US production will average in 2017?

AlexS, 11/06/2015 at 5:54 am
shallow sand,
The EIA estimates annual average U.S. C+C production at 9.25 mb/d this year (+540 kb/d y-o-y) and 8.86 mb/d in 2016 (-390 kb/d y-o-y).
Monthly peak of 9.60 mb/d was in April 2015, monthly low is forecast for June 2016 at 8.77 mb/d.
Thus, projected decline in monthly average between 4/15 and 6/16 is 830 kb/d.

Projected decline for Lower 48 onshore between 3/15 and 6/16 is 910 kb/d.

The EIA expects U.S. production to rebound in 2H16, from 8.77mb/d in June to 9.02 mb/d in December.

The EIA assumes WTI to average $55.3 in 2H16 vs. $51.7 in 1H16 and $45.9 in 2H15.

So they think that $55 is sufficient to trigger an increase in drilling/completion activity.

Heinrich Leopold, 11/06/2015 at 3:20 am

AlexS, Shallow Sand,
Again I think there is a time lag of six months between lower capex and and actual production response. As shale companies have kept capex until recently quite high at the price of huge losses (http://wolfstreet.com/2015/11/05/giant-sucking-sound-of-capital-destruction-in-us-oil-gas-impairments/), they have finally responded with much lower capex in 3q15. This implies that the production decline will start in earnest during the first quarter 2016.

It is interesting that the time lag between capex and production response for conventional production stands around 18 months. Therefore production in the Golf of Mexico is still rising (up 200,000 bbl/d in the last two months alone). This mitigates somehow the decline of shale production. This explains e.g. also the resilience of Russian production, which will in my opinion still rise over the next half year.

Future production of oil will strongly depend on the oil price. If the oil price rises to over $80 per barrel in December (through a possible OPEC cut), US production will still be down until mid next year and then rise again. This is the scenario the above forecast implies.

However, if the oil price stays below $50 per barrel, production will keep falling at roughly 1% per month, which is the average decline of the FED oil and gas production index since April 2015.

This scenario implies an at least 1.5 mill bbl/d decline until the end of next year – provided the oil price stays at the current level. My personal view is that US production will be down by more than 3 mill bbl/d by end of next year as there are strong signs of depletion of sweet spots, which accelerate the underlying decline.

AlexS, 11/06/2015 at 7:12 am
Heinrich,
According to the EIA, U.S. LTO production at the peak earlier this year was about 4.6 mb/d (it is now 200-300 kb/d lower). The projected decline in U.S. production comes primarily from shale plays, and to a much less degree from Alaska and other conventional fields, while production in the GoM is expected to increase.

If, as you say, U.S. production drops by 3 mb/d by year-end 2016, that would mean a decline in LTO production by almost 2/3. That is impossible even if shale operators completely stop drilling new wells. According to the estimates I've seen, with no new wells, LTO production in the Bakken and the Eagle Ford would decline by between 30 and 40% within a 12-months period.

Heinrich Leopold, 11/06/2015 at 7:28 am
AlexS,
3mill bbl/d is a lot and it is the top end of my estimate, yet also conventional production will decline by end of next year. It is just my gut feeling and I guess it has to do something with depletion of sweet spots.

[Nov 06, 2015] Exxon Mobil Investigated for Possible Climate Change Lies by New York Attorney General

Notable quotes:

"... in another recent report , Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. "Meeting these needs will require all economic energy sources, especially oil and natural gas," it said. ..."

"... You legally aren't allowed to knowingly and purposely hide or distort data you are aware of which may materially affect your shareholders. ..."

"... The issue is based on oil companies selectively releasing data and research in exclusive support of their conclusions, while suppressing or distorting material that didnt fit the narrative. ..."

"... if I want to know about climate change, I dont seek reliable information from oil and gas companies, supermarket tabloids, or members of Congress. ..."

"... These are the United States of America, where corporations have (and use) the power to lie constantly to their detractors and their customers alike. For me to expect anything else would suggest a lack of basic skepticism on my part where the products and activities of the corporate world are concerned. ..."

www.nytimes.com

The New York Times

The people said the inquiry would include a period of at least a decade during which Exxon Mobil funded outside groups that sought to undermine climate science, even as its in-house scientists were outlining the potential consequences - and uncertainties - to company executives.

... ... ...

"This could open up years of litigation and settlements in the same way that tobacco litigation did, also spearheaded by attorneys general," said Brandon L. Garrett, a professor at the University of Virginia School of Law. "In some ways, the theory is similar - that the public was misled about something dangerous to health. Whether the same smoking guns will emerge, we don't know yet."

In the 1950s and '60s, tobacco companies financed internal research showing tobacco to be harmful and addictive, but mounted a public campaign that said otherwise and helped fund scientific research later shown to be dubious. In 2006, the companies were found guilty of "a massive 50-year scheme to defraud the public."

... ... ...

in another recent report, Exxon Mobil essentially ruled out the possibility that governments would adopt climate policies stringent enough to force it to leave its reserves in the ground, saying that rising population and global energy demand would prevent that. "Meeting these needs will require all economic energy sources, especially oil and natural gas," it said.

Jeff, Atlanta

This sounds like a fishing expedition on reports published 40 years ago that Exxon wasn't even obligated to do. On top of this, the allegations aren't even that Exxon lied or misled in the reports but financial impact of alleged lies (i.e. similar to misstating earnings). Also, aren't scientific climate reports the entire purpose of the IPCC, not private companies like Exxon? Sounds like a grandstanding opportunity for the NY AG.

Michael, is a trusted commenter North Carolina

I would like to think that Schneiderman has undertaken this investigation purely out of concern for our planet, and not primarily as a way to heighten his personal profile, and he may well have. That said, it is unrealistic to think that it will drive Exxon Mobil or any other major energy company out of business. But, given that the political climate in DC is such that there is zero chance for leadership on implementing a tax on carbon, which to me represents the single most powerful way to address climate change, this may be the next best thing. Hefty fines, if large enough, will inevitably find their way to the pump, and to the utility bill, and may finally alter our behavior, our collective behavior. Whether it might come in time to save the planet is the question.

Andy W, Chicago, Il

You legally aren't allowed to knowingly and purposely hide or distort data you are aware of which may materially affect your shareholders. The problem isn't that Exxon executives put forward biased opinions about the existence or extent of environmental impacts. The issue is based on oil companies selectively releasing data and research in exclusive support of their conclusions, while suppressing or distorting material that didn't fit the narrative.

Their legal and ethical obligation was to release all of the data and let the public and regulators judge if their conclusions were correct. In any sworn testimony provided through the years, executives were also obligated not to suppress or distort any requested information in their possession. That is the legal basis for any legal inquiry, your basic tobacco industry style cover-up.

David Nicholas, Centennial, Colorado

I am an Exxon Mobil shareholder. I am also a scientist who holds degrees from reputable universities, and if I want to know about climate change, I don't seek reliable information from oil and gas companies, supermarket tabloids, or members of Congress. These are often sources of misinformation where, as a moderately well educated and pragmatic adult, I expect to be provided with utter nonsense.
These are the United States of America, where corporations have (and use) the power to lie constantly to their detractors and their customers alike. For me to expect anything else would suggest a lack of basic skepticism on my part where the products and activities of the corporate world are concerned.

Companies like Exxon Mobil exist to make money in any way they can, for themselves and for stockholders like me. Do I condemn their unethical practices? Certainly, but I'm not foolish enough to think I can change them. I cash my dividend checks along with all the other stockholders -- and I vote for representation in Washington, D.C. that knows enough about the science of global climate change to do something meaningful about our role in it. So far, most of the elected officials in Washington, D.C. have been a dismal disappointment; they're the best politicians money can buy.

[Nov 06, 2015] Health Inequality

Notable quotes:

"... Low life expectancies in the South have been widely documented for decades ..."

"... methodology has advantages in that is it is doable, but limitations in that it was divided into quintiles solely by average income in the zipcode. Top quintile income group was 48000 average bottom quintile 22000. Of course the debt load was going down more for lower income zip codes compared to higher income zip codes ..."

Nov 06, 2015 | Economist's View

Health is a Key Component of Inequality

In terms of welfare (under standard assumptions on the welfare function), the elimination of the left tail of mortality would have a beneficial impact that is about 60 percent larger than full consumption equalization.
What are the policies that might eliminate the lower tail of the life-expectancy distribution? This remains a topic for further discussion. However, we observe that the increase in life expectancy that we need to achieve the elimination of the lower tail is not unprecedented. Over a span of twenty years, life expectancy increased on average by three years across U.S. counties, which would be sufficient to raise the lower tail substantially.

DrDick said...

Low life expectancies in the South have been widely documented for decades. I would note that most of the high mortality areas in Montana are associated with Indian reservations. The one in the NW corner is anti-government survivalists and libertarian whackaloons. Objectivist jerky indeed.

djb said...

methodology has advantages in that is it is doable, but limitations in that it was divided into quintiles solely by average income in the zipcode. Top quintile income group was 48000 average bottom quintile 22000. Of course the debt load was going down more for lower income zip codes compared to higher income zip codes, which goes counter to JohnH's assertions about monetary policy

[Nov 06, 2015] At 45 dollaris a well that produces 300K barrels over lifetime of 20 years will earn 250,000 dollars for the producer each year on a six million dollar investment, or 4.2 percent.

Edited for clarity.

Notable quotes:

"... If an oil company spends six million dollars to complete an oil well that produces 300,000 barrels of oil over a twenty year period and the average price of oil is $45, an income of $13,500,000 is what you will have in twenty years. ..."

"... Net $7.5 million realized in twenty years, $375,000 average annual income for the life of the well. Subtract 18% for royalties, 10% to pay for extraction taxes, costs to operate, hauling it to market. All-in-all 1/3 needs to subtracted on average. In our case this is $125,000 ..."

"... That means a whopping annual profit of $250,000 for the producer each from a six million dollar investment , or a return on the original investment of 4.2%. Not to mention the taxes to be paid at filing time or an accident that can happen during the lifetime of the well. ..."

peakoilbarrel.com

R Walter, 11/05/2015 at 6:35 am

When you want to have some gross income from the production and sale of any commodity, it is desirable to earn more then two dollars for every dollar of expense. A general rule of thumb for the life of the well the total costs can't be more then 1/2 of total earnings. Otherwise you are losing money.
If an oil company spends six million dollars to complete an oil well that produces 300,000 barrels of oil over a twenty year period and the average price of oil is $45, an income of $13,500,000 is what you will have in twenty years.

Net $7.5 million realized in twenty years, $375,000 average annual income for the life of the well. Subtract 18% for royalties, 10% to pay for extraction taxes, costs to operate, hauling it to market. All-in-all 1/3 needs to subtracted on average. In our case this is $125,000

That means a whopping annual profit of $250,000 for the producer each from a six million dollar investment, or a return on the original investment of 4.2%. Not to mention the taxes to be paid at filing time or an accident that can happen during the lifetime of the well.

You might as well invest your six million in a CD, and earn 2% return, sit at home to watch TV and drink coffee. The oil in the ground is making money just sitting there like you are. If you are going to be a fool, might as well be one while watching TV, not drilling for oil all day long and be making pennies. You'll be doing the world a favor. You'll be dancing, not drinking booze all day long and crying over all of the losses.

I know the numbers are not in any way near what they really will be, but you have the idea.

... ... ...

[Nov 06, 2015] Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere is dying off at exponential rates that will kill us

Jef, 11/05/2015 at 10:24 am

Its not that humans can't adapt to the changes, its all of the rest of the flora and fauna and biosphere in general all of which humans rely 100% on to exist which is dying off at exponential rates that will kill us.
Doug Leighton, 11/05/2015 at 10:37 am
You've got it wrong. We HAVE to kill off flora and fauna to make room for more humans. Getting rid of buffalo was a master stroke but now there's the other stuff to exterminate. Think about how many people we can fit into Africa by getting rid of that useless wildlife. And, all the bio-fuel we can generate with land wasted by jungle in the Amazon. The key is HUMAN CARRYING CAPACITY. That's what really matters guy.
BC, 11/05/2015 at 12:59 pm

http://www.weather.com/series/crazimals/video/baby-rhinos-play-at-rescue-center

http://www.mirror.co.uk/news/world-news/elephant-slayer-butchery-poacher-john-3112600

https://www.youtube.com/watch?v=N0umKb-A-UI

Who needs these large animals on our planet anyway? We are the dominant predator species, including prey on one another; these animals simply have failed to evolve and adapt with a neo-cortex, superior technology, will to power, and the imperative to grow numbers and resource consumption per capita perpetually.

Human apes are superior, and the 7 billion of us and counting is unambiguous proof of our superiority.

Doug Leighton, 11/05/2015 at 1:27 pm
Exactly, we're like rats: better at what we do than anyone else. And like rats we deserve to inherit the earth. But I do wonder what happens when all that's left is us and rats? Maybe they eat us.
MarbleZeppelin, 11/05/2015 at 6:48 pm
Or the rats will carry a new plague that eradicates the human population. Problem solved.

MarbleZeppelin, 11/05/2015 at 6:46 pm

Doesn't it seem very odd that we define progress as some new machine and superiority as the ability to kill off everything?

[Nov 06, 2015] Debt and energy

Notable quotes:

"... I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt. ..."

"... The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at. ..."

"... I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China. ..."

"... The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced. ..."

"... "Would an economy with 25% unemployment be good for them?" Dennis Coyne ..."

"... "There is nothing crappy or fake about the current economy," ~ ChiefEngineer ..."

"... "1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com ..."

"... "Do you need a job Caelan ?" ~ ChiefEngineer ..."

Doug Leighton, 11/05/2015 at 11:41 am

"This is the same as borrowing even more from the future to maintain today's over consumptive life styles and leaving their children and grand children with the bill." And, that says it all, thanks Rune.
Dennis Coyne, 11/05/2015 at 12:14 pm
Hi Doug,
Imagine your children were just graduating from college. Would an economy with 25% unemployment be good for them? That's what we get when we are too concerned over high public debt as the Hoover administration clearly was. You should read Keynes (it is a short book),
The General Theory of Employment, Interest, and Money

https://en.wikipedia.org/wiki/The_General_Theory_of_Employment,_Interest_and_Money

Or read Krugman's End This Depression Now, for an alternative view on debt from Gail's.

Doug Leighton, 11/05/2015 at 12:36 pm
I've seen my children's generation living a lifestyle kings and queens couldn't have dreamt of (in the not too distant past): their own furnished homes upon marriage, multiple new-ish cars, international travel, etc. This was a blip in history, one that was financed by – debt.
Dennis Coyne, 11/05/2015 at 5:36 pm
Hi Doug,
My daughter just graduated from University. You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?

Low government debt and balanced budgets (Herbert Hoover thinking) gets you low employment. Keynesian policies done properly get you higher employment.

Debt is important, of that there is no doubt.
When the economy is doing poorly it is usually because of too little debt rather than too much debt.

Greece is a notable exception and there are other cases where countries have taken on too much debt, in Greece's case the lack of control over its own monetary policy is a big problem. If they had the ability to increase their money supply to get some moderate inflation (5% or so), they could have eased their debt burden and gradually got there spending and taxation to sustainable levels. The Euro was not a good idea for this reason, that is why the United Kingdom did not join in the monetary union, a smart economic and political move.

Ron Patterson, 11/05/2015 at 1:16 pm

Dennis, there are two types of debt, public and private. If you read Gail's article, you will see that it deals exclusively with private debt and not public debt. Keynes theories deals primarily with public debt, efforts by the government to prime the economy with public money.
I don't think Krugman would disagree that strongly with Gail. I read some of the reviews of his book, End This Depression Now! It appears to me that they are talking about two entirely different subjects.

But back to Keynes, do you really believe that the economic theories of John Maynard Keynes, written in 1936 have more than a remote connection to today's financing in the oil patch.

The US government public debt today is totally different from the public debt during the Hoover administration. It is more than just silly to compare the US economy today with that of the Hoover administration. But even doing so would would have only marginal connection to the oil patch.

Nick G, 11/05/2015 at 2:22 pm
Ron,
The question here is: why would oil patch debt cause a systemic crisis? The 2007 real estate crisis was a crisis because it threatened to bankrupt very, very large banks. The Great Depression was caused by bank failures, and the failure of Lehman Brothers scared everyone with the possibility of a re-run of 1929. So, is there a threat that the oil patch will bring down Chase, or Bank of America?? I don't see any evidence of that – that's what needs to be looked at.
-------–

I suspect any mainstream economist, including Krugman, would think Gail is crazy to suggest that excess debt is causing the current commodity deflation. The straightforward explanation, AFAIK, is that commodity deflation is a long-term (secular) phenomenon, that was temporarily interrupted by a construction bubble in China.

Rune Likvern, 11/05/2015 at 3:07 pm

BIS (Bank for International Settlements) apparently gives some attention to the oil and gas sector total debt.

"First, the oil–debt nexus illustrates the evolving risks in the financial system. Rapidly rising leverage creates risk exposures in the non-financial corporate sector that may be transferred across the global financial system. Similarly, rising leverage puts a greater premium on the liquidity of the markets for the assets that back debt. Both developments underscore the need to better understand the functioning, behaviour and interaction of markets and intermediaries.
Second, the build-up of debt in the oil sector provides an example of how high debt levels can induce new linkages between individual markets and the wider economy. Such interaction needs to be taken into account in assessments of the economic implications of falling oil prices."
https://www.bis.org/publ/qtrpdf/r_qt1503f.pdf

Dennis Coyne, 11/05/2015 at 5:44 pm

Hi Ron,
Doug was talking about public debt, I used to read Gail's stuff at the Oil Drum, on economics she is not very good in my opinion.

One thing she may be missing is that when oil companies go bankrupt, they may sell off their assets to bigger companies with deeper pockets. When oil prices recover, these financially stronger companies will be able to get financing to drill profitable wells.

I won't comment further, there will be much less of a lag in new drilling once oil prices get above $75/b than Gail believes.

Rune Likvern, 11/05/2015 at 3:32 pm

There is something called a balanced budget (I am aware that there are pockets on this planet that this principles do not apply).
To run a deficit means spending more than what is received as income. This may work temporarily if that puts the economy back on an organic growth trajectory.

According to data (Warning these are predatory data!) the Office of Management and Budget (OMB)
https://www.whitehouse.gov/omb/budget/Historicals

The US has since 1945 accumulated a total debt of around $12Trillion from (total) fiscal deficits (OMB) and has not run a surplus since 2001 and OMBs estimates now is for deficits through 2020.

So solving the debt problem created by one generation by arguing that youth unemployment needs to be kept in check by adding more debt for them to service later is [insert appropriate description here].

The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced.

"Overall, unemployment in Spain stands at 22.4 percent."
http://www.reuters.com/article/2015/10/04/us-spain-apprentices-idUSKCN0RY09N20151004

Watcher, 11/05/2015 at 4:11 pm

and it gets harder to run a deficit, which means austerity measures are introduced.
Not if you have a central bank that finances the deficit via purchase of gov't securities.

Rather a lot of that going on right now.

Everywhere with a CB.

ChiefEngineer, 11/05/2015 at 5:38 pm

Rune says:
"The thing is as the total debt levels grows and it becomes apparent that the debtor is not capable of repaying the debt, trust is lost in the debtor (and its currency) and it gets harder to run a deficit, which means austerity measures are introduced."

If this is true, why do so many right wing conservatives have their panties in a wad about the United States ? The US is the strongest economy in the world and the dollar is at record strength. Why won't Republicans return to the tax policies of the year 2000 if debt is that important to them? The year of a record surplus.

History shows Conservatives only care about debt when a Progressive is in the White House. I never heard a word about debt from the Republicans during the Bushy and Raygun years. Remember, Dick Cheney said deficits don't matter.

http://www.ontheissues.org/Celeb/Dick_Cheney_Budget_+_Economy.htm

Dennis Coyne, 11/05/2015 at 5:58 pm

Hi Rune,
Yes when unemployment is low, a balanced budget makes perfect sense to me.

I am not in favor of unending deficits (though I probably don't sound like it). It would be better for the government to pay down debt when the economy is doing well (lets say 5.5% unemployment rate or lower).

When the unemployment rate is high (I was talking about unemployment in general rather than youth unemployment rates), government deficits make perfect sense, even if too much private debt initially caused the recession. Sometimes solving a problem caused by too much private debt, requires increasing public debt to get the economy growing. The economic growth should decrease the deficit as increased income will increase tax revenue and reduce government spending on unemployment benefits and government aid to low income citizens.

Caelan MacIntyre: On Dennis' Fake Stuff, 11/05/2015 at 6:25 pm

"Would an economy with 25% unemployment be good for them?" Dennis Coyne
Would it be a real economy or an uneconomy, helped run by an ungovernment?

If the latter, then I would answer, yes, if with 100% unemployment. (Because they would be employed in a real economy with a real government)

…Dennis, why is it that you seem to like crappy stuff like fake governments and fake economies?

ChiefEngineer, 11/05/2015 at 7:01 pm

There is nothing crappy or fake about the current economy, unless your on the outside looking in.
Do you need a job Caelan ?

Caelan MacIntyre, 11/05/2015 at 7:25 pm

"There is nothing crappy or fake about the current economy," ~ ChiefEngineer
The economy is uneconomical, so, yes, it's crappy.
…Well, ok, its much worse than crappy. Happy?

Economy:
"1. thrifty management; frugality in the expenditure or consumption of money, materials, etc." ~ dictionary.com

"Do you need a job Caelan ?" ~ ChiefEngineer

You mean like one that manufactures a need for a relatively useless, overpriced and/or otherwise crappy junk sweatshopped product that breaks more often and sooner than ever before and cannot be fixed or fixed easily or cheaply by the owner?

ChiefEngineer, 11/05/2015 at 8:28 pm

That crappy economy produced that crappy computer which keeps posting your crappy comments. All because of the crappy education you got from the fake school from a crappy fake government.
Caelan, I hope your having a real nice day

Caelan MacIntyre, 11/06/2015 at 7:56 am

Ya all this fake/virtual communication in place of the real, all the while those with an education (in what?) run around and help to perpetuate the above, the aforementioned and this kind of uneconomy that pushes the planet ever closer to the precipice.
Back to the ol' drawing board, ChiefEngineer.

Dennis Coyne, 11/06/2015 at 9:57 am

Hi Caelan,
I deal with what is rather than what might be, as far as governments. Your imaginary utopia is likely to remain just that.

I imagine everyone would vote for optional taxation, what could possibly go wrong?

Fred Magyar, 11/05/2015 at 7:28 pm

My daughter just graduated from University.
You avoided the question, if your daughter had just graduated do you think a World with a 25% unemployment rate would be better, or one with a 6% unemployment rate?
I think you are living far far in the past. I have a son who is still at a University, My brother's daughter also just graduated. so I think I can relate to your concerns. However I think what is happening now, is going to change how society views employment at a fundamental level. The idea of a career might not even apply at all anymore for the current crop of graduates.

https://goo.gl/EbR8lY

"We are in the middle of an economic transition, from the old industrial economy to the new collaborative economy" – Peers Inc.

New sharing practices, facilitated by information technology and pervasive networking, are disrupting the status quo in business, education and society. As co-founder of Zipcar, Robin Chase has been a pioneer and leading thinker in this movement since its emergence. Now, with Peers Inc, Robin aims to "combine the best of people power with the best of corporate power" to help realise the wider benefits when decentralisation, localisation and specialisation meet scale and resources.

On top of examples and success stories from this 'new collaborative economy', what could this mean for the economy as a whole? Are we in the midst of a transition from capitalism to something new and different? Are the rules of our current economic model being rewritten? If so, what are the new rules of the game and how do we play by them?

Dennis Coyne, 11/06/2015 at 10:06 am

Hi Fred,
The transition may be good for many, my point is that many University graduates are having a tough time finding work that utilizes what they have learned at University.

This is potentially much more of a problem for young people than excess government debt. In addition, the idle labor and capital is wasteful, there is work to be done to transition away from fossil fuel we should get to it. The ensuing economic growth will reduce government deficits so that the debt incurred to jump start the economy will be reduced if the government surplus that results is not given away in lower tax rates (as Republican presidents since 1980 have tended to do.)

BC, 11/05/2015 at 12:32 pm

Speaking of money velocity, it's acceleration is contracting at the fastest rate since 2008, 2001, and the early 1980s:
https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mPb

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n98

And a bear market for the broad equity market is underway (especially value and small-cap stocks, which typically is followed by the large-cap stocks "catching down" thereafter):

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2n96

So-called "health" care spending has been growing at twice the rate of final sales, which is characteristic of recessionary conditions:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qs5

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qrZ

Subprime auto loans are driving (bad pun) auto sales to bubbly heights vs. real wages, but the rate of growth of auto sales is decelerating:

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2oZu

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2qsp

Without subprime auto loans, vehicle sales would be 13M vs. 17-18.

Subprime debt and ACA-induced spending (subsidies to insurers) for "health" care is what is preventing the US economy from decelerating from around stall speed to recession since late 2014. But "health" care spending has become a net drag on the rest of the economy.

The recession-like contraction in the acceleration of money velocity to private GDP implies that the market is tightening financial conditions (credit/debt-money acceleration) before the Fed can begin raising rates and tightening reserves.

Therefore, rather than raising rates, the Fed (and ECB, BOJ, BOE, and PBoC) is more likely to resume QEternity to fund increasing deficits/GDP to prevent nominal GDP from contracting from the post-2007 trend rate per capita of below 2% (slowest since the Great Depression, 1890s, and 1830s-40s).

Moreover, don't be surprised if the Fed is compelled to resort to negative interest rate policy (NIRP) because of debt and price deflation hereafter, including for the service sector ("health" care, "education", law, personal services, etc.).

Petro, 11/06/2015 at 12:08 am

Mr. Likvern,
Normally I would think twice before commenting/correcting you, but this time I noticed you used "Credit" and "Debt" as equivalent terms, therefore I will try:
although many economists and finance people erroneously use those terms as equivalent – they are NOT!
Simply/shortly said: credit is a "worthiness" notion -economically not useful in practical terms.
In order for it to be "useful" economically (i.e generate economic activity/GDP), it has to become debt.
Signatory parties with COLLATERAL who are pledging/willing to circulate it (i.e. spend it) are necessary for credit to become debt.
Although this " concept" is altered by Glass_Stegal repeal and interest paying central bank reserves (i.e. FED) which erased the line between commercial and investment banking (today they are one and the same), it still holds generally true throughout economy.
Be well,

Petro

P.S.: an essential mistake most economic/finance luminaries make is: "money is backed by debt".
Today money is debt – debt is money!
If one does not clear that concept up, one is certain to stay in the fog when it comes to money/debt/credit…

[Nov 06, 2015] Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget

Notable quotes:

"... Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget ..."

peakoilbarrel.com

Matt Mushalik, 11/04/2015 at 10:36 pm

After my article on Saudi fiscal breakeven oil prices I did a similar exercise for Iraq:
30/10/2015
Iraq needs 1.3 mb/d additional oil exports and $70 oil to balance budget
http://crudeoilpeak.info/iraq-needs-1-3-mbd-additional-oil-exports-and-us-70-oil-to-balance-budget

[Nov 06, 2015] Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production

Notable quotes:

"... Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. ..."

"... Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. ..."

"... If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out. ..."

"... 63 Billion USD went poof in the Enron Collapse. ..."

"... Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive. ..."

"... Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization. ..."

peakoilbarrel.com

Heinrich Leopold, 11/06/2015 at 3:06 am

Shale Gas Economics,
Chesapeake CHK published its 3q15 results. Loss $5.4 bn on revenue of $880 mill. Total loss for the first nine months $16bn. See also http://wolfstreet.com/2015/11/05/giant-sucking-sound-of-capital-destruction-in-us-oil-gas-impairments/.

Total oil and gas industry loss of $25 bn during last quarter indicates deeply uneconomic production. As no economic system could carry on to produce at such losses, companies have already responded. Chesapeake has cut rig count to 18 from 69. Gross wells completed are down to 84 (from 309) and gross wells spud are down to 81 from 296. Activity is reduced threefold!!! As there is a time lag of six to nine months from lower capex to actual production, I expect a significant fall of natgas production for the first quarter 2016. As CHK is one of the leading producers in the US, this will also impact total US production.

MarbleZeppelin, 11/06/2015 at 6:56 am
Reminds me of some old cars I have had, keep pouring money into them and get poor performance all the way to the next time they suck your wallet dry. Answer, dump the old one, get a newer more efficient car.
So if oil is not working out for us, dump it. Get our energy elsewhere. Time to stop throwing money at it, it's in a death spiral.

AlexS, 11/06/2015 at 7:17 am

Heinrich,
Thanks for the link. The article has a link to the original research by Evaluate Energy on U.S. oil & gas companies' 3Q results. Recommended reading
http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments

Heinrich Leopold, 11/06/2015 at 7:37 am
AlexS,
Thank you for the link. As prices – especially natgas – are now even lower than in 3q15, this becomes even bigger this quarter. I get the feeling that this is very big and I am wondering what the consequences will be.
shallow sand, 11/06/2015 at 7:57 am
Wont their be even more impairments in Q4 as companies like CLR, who have held off, will be forced to write down assets?
Heinrich Leopold, 11/06/2015 at 8:26 am
shallow sand,
If oil prices do not take off, CLR will have no choice and make the impairment. The longer oil prices stay low, the more dramatic the situation. What strikes me is that OXY left the Bakken at a huge loss. Fidelity Oil&Gas closed…. There must be something going on here. There is probably more to asset impairments other than price (depletion of sweet spots, monster decline of monster wells?) I think we will see more when the next Bakken production numbers are out.

Enno Peters, 11/06/2015 at 8:34 am
It doesn't matter if prices will take off now, the impairment still has to be made. Only December may make a very small difference:
"The United States Securities and Exchange Commission (SEC) calculates the economics of proved reserves using the unweighted, trailing 12-month average of the closing prices from the first day of each month. Year-end 2014 impairment tests were evaluated using a $94.99/barrel of oil prices and a $4.31 per MCF gas price, with 2014's low year-end prices buoyed by strong prices from the first 10 months of the year."

http://press.ihs.com/press-release/ep-impairments/gloomy-price-outlook-signals-continued-impairments-likely-throughout-20

HR, 11/06/2015 at 10:36 am
I saw wolf richters article this mornings as well. Those are some ugly numbers mainly because of the write downs. I think I already know the answer, but without the write downs are any of these guys even cash neutral much less making money?
Wasn't it Harold Hamm that said by spring production will fall off a cliff?

Heinrich Leopold, 11/06/2015 at 2:23 pm
HR,
It would be interesting to know if the write downs are just related to price or is there any write down on the quantity of reserves?

AlexS, 11/06/2015 at 11:44 am

Heinrich Leopold said:
"What strikes me is that OXY left the Bakken at a huge loss"

Occidental was planning to sell its Bakken assets long before the drop in oil prices. But the actual price was far from what they were initially expecting. Occidental Reportedly Sells Bakken Assets To Lime Rock

October 15, 2015
http://www.ugcenter.com/occidental-reportedly-sells-bakken-assets-lime-rock-823211

As recently as last fall, Wall Street had expected Oxy's Bakken assets to sell for more than $3 billion. The sharp drop in the deal's value represents the most-significant pullback in valuation yet in the second-largest U.S. oil producing state.
=================================

Occidental Petroleum cuts spending, scales back in the Bakken

By Patrick C. Miller | February 03, 2015
http://www.thebakken.com/articles/1005/occidental-petroleum-cuts-spending-scales-back-in-the-bakken

Occidental Petroleum Corp. will scale back operations in the Williston Basin and is reducing its 2015 capital cost budget by 33 percent in response to low oil prices.
"Our capital program will focus on our core assets in the Permian Basin and parts of the Middle East," said Stephen Chazen, president and CEO. "We have minimized our development activities in the Williston Basin, domestic gas properties, Bahrain, and the Joslyn oil sands project, as these have subpar returns in this current product price environment."
========================================
Oxy Says Permian Operations Still Solidly Profitable

FRI, JAN 30, 2015
http://www.energyintel.com/pages/eig_article.aspx?DocId=875317

… while Hess regards the Bakken as a crown jewel in its portfolio, it is far less important to Oxy, which lacks the core acreage positions and sheer scale that Hess enjoys there.
In fact, Oxy is cutting spending in the Bakken to "virtually nil" this year, matching similar cuts across its gas-weighted Midcontinent holdings, Chazen said.
===========================================
Oxy sale of Bakken assets would make strategic sense -analysts

Reuters, Oct 7, 2014
http://www.reuters.com/article/2014/10/07/occidentalpetroleum-bakken-idUSL2N0S22HI20141007

Any sale of Occidental Petroleum Corp's roughly 330,000 acres in North Dakota's oil-rich Bakken shale formation would make strategic sense for the company, which is likely eager to strike a deal, two analysts said on Tuesday.
Oxy is looking to sell its Bakken holdings, which are largely undeveloped, for as much as $3 billion, according to a report from Bloomberg News.
Even with the recent dip in crude oil prices, the divestment "makes sense to us, strategically," Raymond James analysts Pavel Molchanov and Kevin Smith said in a note to clients on Tuesday.
"This is substantially undeveloped acreage, and Occidental has long cited it as a likely monetization candidate, so it's been puzzling why the company kept it this long," the analysts said.
Oxy is spending about $510 million this year on its North Dakota holdings, and any buyer would have to invest significant capital to boost production. Currently, Oxy is the 18th-largest oil producer in North Dakota with about 17,000 barrels per day as of July, trailing peers of the same size and even much-smaller rivals.
Oxy said last October that it would pursue "strategic alternatives" for some of its North American assets, including those in North Dakota. In a statement to Reuters on Tuesday, the company reiterated that position.
===============================================

Occidental said to seek buyer for $3 billion Bakken oil business

10/07/2014
http://www.worldoil.com/Occidental-said-to-seek-buyer-for-3-billion-bakken-oil-business.html

HOUSTON (Bloomberg) - Occidental Petroleum is seeking to sell oil assets in North Dakota for as much as $3 billion, people with knowledge of the matter said.
Occidental is working with investment bank Tudor Pickering Holt & Co. to sell about 335,000 net drilling acres in the Williston Basin, said the people, who asked not to be identified because they were discussing private information. The holdings include a part of North Dakota's Bakken formation, an area that has been less successful for Occidental because of higher costs, though it's one of the fastest-growing oil-producing regions in the U.S.
Melissa Schoeb, an Occidental spokeswoman, said the Houston-based company reported plans last year to "pursue strategic alternatives" for some assets, including in the Williston Basin.
Occidental, CEO, Stephen I. Chazen has embraced a restructuring plan that includes selling part of Occidental's Middle East business and spinning off the company's California operations. Chazen told investors in July that he might accelerate plans to sell assets in what the company calls its "midcontinent" operations in the Piceance and Williston basins.
==============================================

Will Oxy's Divorce Spur The Break Up Of Big Oil?

2/19/2014
http://www.forbes.com/sites/christopherhelman/2014/02/19/will-oxys-divorce-encourage-the-break-up-of-big-oil/

… Occidental Petroleum has decided to slim down as well.
Oxy's plan, announced last Friday, will be dramatic. Its California assets will be rolled into a separate publicly traded company … . Analyst Tim Rezvan with Sterne Agee expects Oxy to sell down its Middle Eastern and Bakken assets as well as its oil trading division in order to focus on Texas.
=============================================
Occidental Petroleum starts breakup plan in Middle East, North Africa

Bloomberg, 10/18/2013

The company said today it will pursue "strategic alternatives" for Mid-continent assets, including some in the oil-bearing Bakken shale of North Dakota as well as in the Hugoton gas field in Kansas and the Piceance gas fields in the Rocky Mountains.

Longtimber, 11/06/2015 at 11:35 am

OMG – 33 Billion poof ball for Q3, Top 10 From link above. http://blog.evaluateenergy.com/us-oil-gas-company-earnings-take-a-huge-hit-in-q3-2015-impairments
63 Billion USD went poof in the Enron Collapse.
http://usatoday30.usatoday.com/money/energy/2002-01-22-enron-numbers.htm..
Sportsfans- this is serious, and the train is still on the tracks.

Ron Patterson, 11/06/2015 at 11:50 am
I think this one was more impressive. These are "energy companies".
Evaluate Energy has analysed the preliminary Q3 earnings statements of 48 U.S. companies and compared it with their earnings in previous periods. The 48 companies had a combined total net loss of US$25.5 billion, which is a staggering 70% and 58% larger than these companies' significant combined net losses of US$14.9 billion and US$16.6 billion in Q1 and Q2 2015 respectively.

AlexS, 11/06/2015 at 12:23 pm

In fact, the sharp increase in combined net losses was largely due to the increase in asset impairments. "Impairments are clearly the main reason for this continued downward trend".
Impairments are a non-cash item. My preliminary analysis of companies' 3Q results suggests that operating cashflows remained close to 2Q levels, while capex was sharply reduced. As a result, cash burn was also considerably lower than in previous two quarters, and some companies were cash positive.

However lower capex will likely results in lower 1h16 production volumes.

shallow sand, 11/06/2015 at 12:38 pm

AlexS. I agree with you.
Do you have any statistics on gas/ oil ratio trend? Seems to me oil production is declining faster than gas and NGLs production for the oil weighted companies.

I think Enno has posted that associated gas is not falling to the extent oil is, and this masks oil decline in the company headline reports. Have to look at each report/10Q.

An example of this is SD, who saw Mid-Continent BOE production fall 10%, but oil fell 18%.

Heinrich Leopold, 11/06/2015 at 2:05 pm

AlexS,
Asset impairments relate to revisions of reserves and resources. However, the main question is now did the revisions relate to oil and gas prices only or is there also a revision of the quantity of reserves due to faster than expected decline? Is there any way to find this out?

AlexS, 11/06/2015 at 2:50 pm
Heinrich,
I think impairments mainly reflect the reduction in the value of the reserves (due to lower prices), rather than volumes. There was no mention of faster decline rates

shallow sand, 11/06/2015 at 3:52 pm
I think it should be noted in the SEC reserve reports there are the following categories:
PDP – Proved Developed Producing
PDNP – Proved Developed Non-Producing
PUD- Proved Undeveloped

Although admittedly simplistic, and I stand to be corrected, PDP are active wells, PDNP are inactive wells and PUD are where there are no wells, but the locations have been "proved" by offsetting wells, and there are plans to drill and complete the location within 5 years.

All categories will be hit by WTI and Henry Hub prices being half of 2014, but also there should be a hit due to a number of PUD locations being no longer economically viable.

Banks traditionally lend money only on PDP reserves, or if PUD is included, there is a large discount applied, per Office of the Comptroller of the Currency regulations. Also, it should be noted SEC reserve valuations and bank reserve valuations are not necessarily the same. SEC uses the average of the price of WTI and Henry Hub on the first day of each month, with no escalation in the event of contango, nor deceleration in the event of futures backwardization.

Banks, on the other hand, use a price deck, which should closely mirror the WTI and Henry Hub strips, subject to maybe a little of the banks' own forecasts on future prices.

As I have noted many times, total debt levels for all US companies operating in the Bakken, except for XOM, EOG and Abraxas will be greater than 65% of SEC PDP PV10 at 2015 year end, if my calculations are close. Prior to the shale boom, would have meant no further monies advanced using reserves as collateral, assuming bank price decks are close to the current strips.

Yes, this will include, companywide, the likes of COP, MRO, HES, QEP, CLR and WLL.

Another exception would be Statoil (not US), I did not include them, as I could not get a handle on their debt/PDP PV10. I did also not analyze Canadian firms operating in the Bakken. However, most Canadian shale firms have large amounts of long term debt, similar to US shale firms.

Rune Likvern, 11/06/2015 at 6:17 pm

Just dropping by and remembered an article (Linn Energy) from yesterday;
"Non-cash impairment of long-lived assets of approximately $2.3 billion for the third quarter 2015, primarily driven by lower commodity prices and the Company's estimates of proved reserves; and"
http://www.bloomberg.com/research/markets/news/article.asp?docKey=600-201511050650PRIMZONEFULLFEED6022751-1

More later if time allows……….

[Nov 06, 2015] Giant Sucking Sound of Capital Destruction in US Oil Gas

Notable quotes:

"... Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3. ..."

"... In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive. ..."

"... he game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction. ..."

"... Banks, when reporting earnings, are saying a few choice things about their oil gas loans ..."

"... Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again. ..."

"... If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down. ..."

"... Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning. ..."

"... Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going? ..."

"... You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. ..."

"... Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster... ..."

www.zerohedge.com

Wolf Richter www.wolfstreet.com

Chesapeake Energy is a good example. The second largest natural gas producer in the US, after Exxon, reported its debacle yesterday.

Revenues plunged 49% from the quarter a year ago, when the oil bust had already set in. The company has been slashing costs and capital expenditures. In June, it eliminated its dividend. And yesterday, it recognized $5.4 billion in impairment charges, bringing impairments for the nine months to a staggering $15.4 billion.

Impairment charges are a sudden accounting recognition of accumulated capital destruction. These impairments pushed its losses from operations to $5.4 billion in Q3 and to $16 billion for the nine months.

Chesapeake currently gets 72% of its production from natural gas, 17% from oil, and 11% from natural gas liquids. The oil bust has been going on since the summer of 2014. The US natural gas bust has been going on since 2009! Two natural gas producers have already gone bankrupt this year: Quicksilver Resources and Samson Resources.

Its annual free cash flow has been negative since 1994, even during good times, with only two tiny exceptions (Bloomberg chart). After living off borrowed money, it's now trying to hang on by selling assets and lowering its mountain of debt. But it still owes $16 billion, much of which QE-besotted, ZIRP-blinded, yield-hungry investors had handed it over the years, based on hype and false hopes.

Its shares last traded at $7.50, down 75% from peak hype in June 2014. Its 4.875% notes due 2022 and its 5.75% notes due 2023, according to S&P Capital IQ LCD yesterday, traded for 66 cents on the dollar.

In terms of capital destruction, Chesapeake is in good company, and not even the leader. A new report by Evaluate Energy, which covers Oil & Gas companies around the globe, examined the financial statements of the 48 US oil & gas companies that have reported earnings for the third quarter so far. The amounts and the speed of deterioration are just stunning.

Turns out, what started in Q4 last year is getting worse relentlessly. And now it's getting serious: plunging revenues, squeezed operating margins, whopping impairment charges, and horrendous losses are combining into a very toxic mix.

Evaluate Energy determined that net income of those 48 companies was a gigantic loss for the three quarters combined of $57 billion.

On a quarterly basis, the losses in Q3 jumped 58% from Q2 and 70% from Q1 to $25.5 billion. This fiasco, which has been spiraling down at a breath-taking pace, looks like this:

The biggest factor in these losses, as in Chesapeake's case, was the impairments. For this study, Evaluate Energy only counted impairments of property and equipment, not of financial assets such as "goodwill." Including charge-offs of goodwill, it would have been even worse (an example is Whiting Petroleum, which we'll get to in a moment).

Of the 48 companies, 38 recognized impairment charges totaling $32.8 billion in Q3 alone, a 79% jump from Q2, when impairments hit $18.4 billion. Since Q4 2014, these 48 companies recognized impairments of $84.6 billion; 39% of that in Q3.

Devon Energy was king of the hill, with $5.9 billion in impairments in Q3, after having recognized impairments every quarter this year, for a total of about $15.5 billion.

Our natural-gas hero Chesapeake is in second place, if only barely, with $5.4 billion in impairments this quarter, and $15.5 billion for the nine months.

Of note, Occidental Petroleum, with impairments of $3.3 billion in Q3, Murphy Oil, Whiting Petroleum, and Carrizo Oil & Gas all recognized over 90% of their respective impairments this year in this misbegotten third quarter. They were in no hurry to grant their investors a peek at reality.

However, Whiting's impairments of $1.7 billion do not include an additional $870 million in write-offs of goodwill in connection with its once highly ballyhooed acquisition of Kodiak Oil & Gas, which closed in December last year.

In Q4 2014, many investors thought the oil bust was a blip, that this was just a correction of sorts in oil prices and that they'd rebound in early 2015. But in 2015, oil and natural gas both have plunged to new cycle lows. And yet, over and over again, sharp sucker rallies gave rise to hopes that it would all be over pronto, that the price would settle safely above $80 a barrel, or at least above $65 a barrel, where some of the oil companies could survive.

But now that oil in storage is practically coming out of our ears, globally, the meme has become "lower for longer," and the game has boiled down to who can slash operating costs and capital expenditures fast enough without losing too much production, who has enough cash to burn through while this lasts, and who can still get new money at survivable rates. And that game is accompanied, as in Q3, by the giant sucking sound of capital destruction.

Banks, when reporting earnings, are saying a few choice things about their oil & gas loans, which boil down to this: it's bloody out there, but we made our money and rolled off the risks to others in a trade that has become blood-soaked.

Read… Who on Wall Street is Now Eating the Oil & Gas Losses?

NotApplicable

Which plays right into the hands of those manipulating Brzezinski's "Grand Chessboard," as energy choke-points grow ever more valuable to those who ultimately control them.

Frumundacheeze
You were a complete inbecile if you ever believed the US fracking industry was anything more than a false pretense for pump and dump schemes. If you did, you didn't do your homework, or you bought into the hype.
Benjamin123

Its a legitimate industry with high costs. It came online before its time. Fast forward 10 years and conventional depletion+Chinese/Indian demand will let it flourish again.

The conventional oil industry was also in trouble in the early 90s when oil slipped under $7. Oh, that was also a pump and dump.

Casey Jones

I was in North Dakota recently and was shocked, appalled and utterly devastated by the environmental damage up there, not to mention all the cheap ass construction of lousy housing and fact food outlets. The place is wrecked. Fracking is a cruel joke.

divingengineer

I guess that makes me a complete imbecile. The industry seems a little complex to reduce to a pump and dump.
If it was a scheme, it was a rather elaborate one, involving tens of billions of dollars and tens of thousands of workers. Also, they maintained the facade for years before winding it down.
Dunno, it's certainly a cluster-f*ck, but I think the dumb bastards actually believed the recoverable reserves numbers in the beginning.

philipat

Thank The Saudis for crashing the price of energy, perhaps with a little assistance on the broader political front to crush Russia? How is that going?

NotApplicable

I still say that this narrative is more of an after the fact blame-game, as prices would've crashed regardless of what the Saud's are doing. You simply cannot build up an industry on leveraged debt when there is no future of sustainable demand. Mises laid all of this out nearly a century ago.

new game

thank the fed with zirp and qe stimulas. without it and market discipline none of this would be happening. fascism, what is the future now. the fed is the enemy from within that is destroying freedom...

KnuckleDragger-X

Yep, the Fed created this monster, but the oil patch is the obvious problem. things are just as bad or worse in all the other economic sectors. Of course when all the defaults start, it will be a complete surprise to all the financial Frankensteins who created the monster...

[Nov 06, 2015] Who on Wall Street is Now Eating the Oil Gas Losses

Notable quotes:

"... Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves. ..."

"... fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead. ..."

"... Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil ..."

Nov 06, 2015 | Wolf Street

Banks have been sloughing off the risk: They lent money to scrappy junk-rated companies that powered the shale revolution. These loans were backed by oil and gas reserves.

... ... ...

Magnetar Capital, with $14 billion under management, sports an energy fund that is down 12% this year through September on "billions of dollars" it had invested in struggling oil-and-gas companies. But optimism reigns. It recovered a little in October and plans to plow more money into energy.

... ... ...

Brigade Capital Management, which sunk $16 billion into junk-rated energy companies, is "having its worst stretch since 2008." It fell over 7% this summer and is in the hole for the year. But it remained gung-ho about energy investments.

... ... ...

But fresh money is already lining up again. They're trying to profit from the blood in the street. Blackstone raised almost $5 billion for a new energy fund and is waiting to pounce. Carlyle is trying to raise $2.5 billion for its new energy fund. Someday someone will get the timing right and come out ahead.

Next year is going to be brutal, explained the CEO of oil-field services giant Schlumberger. But then, there are dreams of "a potential spike in oil prices." Read… The Dismal Thing Schlumberger Just Said about US Oil

[Nov 05, 2015] Silly Robots! by William Davies

Important point is that the answer to virtually any economic policy question was "education" is the neoliberal ploy. This is simply not true in the current environment. It is important what specialty to choose at the university. And taking into account shifting job market it is difficult to choose right (decimation of IT is one great story in this respect). Stories of university graduates working as bartenders are abundant. Especially graduates from such fields as psychology, public relations, English literature, etc.

Notable quotes:

"... The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism. ..."

"... Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. ..."

"... This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth. ..."

"... Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. ..."

"... The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s knowledge economy, and the answer to virtually any economic policy question was education. This no longer feels adequate ..."

"... An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. ..."

"... Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them. ..."

"... Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. ..."

Nov 01, 2015 | The Chronicle of Higher Education

Since the Victorian era, the labor market has been the arena in which the virtues and injuries of capitalism can been seen. Classical economic liberals look at the labor market and see a platform for social mobility, one in which individual effort is matched by monetary reward. The neoliberals of the 20th century took this optimism further still, adding the notion of human capital - that people could augment themselves through education or self-branding so as to increase their own value in the market.

The labor market is no less pivotal to Marxist analyses of capitalism. The treatment of labor as a commodity, to be bought and sold on a market, is what allows capitalists to acquire more value from workers than they actually pay for, which explains the accrual of profits. Without labor, there could be no value. Without labor markets, there could be no capitalism.

Marx liked to depict capital as a vampire that sucked the blood from living labor. But the fantasy of fully automated capitalism contains a different monstrosity altogether: the zombie that no longer needs us at all. As the economist Joan Robinson has written, if there is one thing worse than being exploited by capital, it is not being exploited by capital. The vision that Kaplan and Ford put before us is of a world in which machines don't even bother to extract value from us any longer - they're too busy trading with one another. What might capitalism look like if labor markets lose their political centrality? Would this even be capitalism?

This question lurks in Thomas Piketty's Capital, which highlights how the inheritance of capital is a far more effective route to riches than the exertion of effort in the workplace. Piketty's account forces us to pay attention to the family as a source of income - work is an increasingly unlikely path to acquiring wealth.

Theories of financialization, such as those of the economist Costas Lapavitsas or the sociologist Greta Krippner, point in a similar direction, showing how firms have deliberately sought to shift away from productive activities and toward balance-sheet manipulation and financial innovations as sources of profit. The vaudevillian horror show of machines broken free from human control is mirrored in the anxieties of contemporary political economy. The specter of autonomous machines is also the specter of autonomous capital, no longer anchored in society via the wage relation.

The neoliberal ploy that each individual be treated as a chunk of capital was present in the discourse of the 1990s "knowledge economy," and the answer to virtually any economic policy question was "education." This no longer feels adequate. As Kaplan and Ford point out, the market value of most qualifications is diminishing all the time. Given the possible scale of automation, Ford argues, the idea that education can achieve prosperity for all is like "believing that, in the wake of the mechanization of agriculture, the majority of displaced farmworkers would be able to find jobs driving tractors."

An economy in which capital has replaced labor may witness the rise of a few thousand well-paid YouTube stars, but it would also feature a promulgation of unpaid internships, adults living off their parents, and unpaid workfare contracts. As Ford points out, even where humans are cheaper than robots to employ, there are various reasons that automation may nevertheless be preferable. Robots bring less baggage than people. The prospects for inequality under these conditions are terrifying.

... ... ...

Ford advocates a basic income guarantee, an idea that is accumulating support right now. If the labor market will not provide the income that people need, some other institution will be required to take its place. He makes the case well, dismissing the simplistic policy narrative that people need to be cajoled and incentivized to work or else the economy will grind to a halt. On the contrary, neoliberal economies seem to be teeming with people wanting to do fulfilling and creative things but struggling to get paid for them.

The chance of such policy ideas being adopted is slim at best. As with Piketty's proposal for a global wealth tax, they require not only greater political coordination than seems available right now, but also a wholesale inversion of policy orthodoxy. Neoclassical economics, which provides the basis for so much policy, starts from the assumption that resources and time are scarce. Hence the curiosity that as our national productive capacity swells from year to year, political discourse seems ever more fixated on constraints and cuts.

... ... ...

...there is an unavoidable sense in which the robots can't understand what they're doing. Their inability to complain, which is precisely what makes them attractive to the likes of Uber and Amazon, is also what renders them somewhat stupid after all. They are locked into what Max Weber termed instrumental rationality. Endlessly performing, relentlessly producing, they are incapable of ever saying "enough's enough."

In this they hold up a daunting mirror for us to look in. They represent an impossible benchmark of success and efficiency, one that recedes so far into the distance ahead that the only sane response is to abandon the idea of humans as capital altogether.

... ... ...

William Davies is a senior lecturer in politics at Goldsmiths, University of London. He is the author of The Happiness Industry (Verso, 2015).

[Nov 04, 2015] Americas labour market is not working

Notable quotes:

"... the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. Everything is awesome. Repeat till it becomes fact. ..."

"... To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists. ..."

"... That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of greater transparency for the private sector, and we are the worlds police in their foreign policy. ..."

"... That, of course, almost every US academic would question, and call you nuts if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families. ..."

"... The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine. ..."

"... American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party. ..."

"... Wolf has a point. Im in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. Im also very physically fit and energetic. But after more than a year of hearing that I was well-qualified but too senior, I stopped looking. ..."

"... ordinary people who rely on jobs to supply lifes necessities - food, clothing and shelter - get short shrift when economic priorities are being set. ..."

"... Maybe it has something to do with the breakdown of the lower middle class family in the US ..."

"... In light of studies showing that low quality jobs are worse for folks mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists. ..."

"... @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported low level jobs. ..."

"... The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. ..."

"... I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys. ..."

"... Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. ..."

"... The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. ..."

"... In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. ..."

"... The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). ..."

"... Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago. ..."

"... the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting. ..."

"... @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is off the books ) the results look better. You cannot make an apples to apples comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different. ..."

"... You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period). ..."

"... Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it. ..."

"... I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents. ..."

"... Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number. ..."

FT.com

Ex NHS Surgeon

The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact.
To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.

The discovery mechanisms in America's so called free markets are terminally broken.

The whole charade is necessary to keep the terrifying monster that circles the deep below the surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal hyperinflation seem tame by comparison.

There is only one way the monster of debt can be tamed: war.

E. Scrooge, 3 hours ago

The rise of the underground economy, pay cash and you can get sizable discounts on construction, repairs, all sorts of things. Many, but not all of those able, are providing products and mainly services as part of the underground economy. This was and I still believe is the fastest growing segment of the US economy. Mostly out of necessity, but will likely remain a very significant part of the overall economy for quite some time, as many of these workers are years away from Social Security eligible.

ceteris paribus

The irony of this title. The American labour force--the people who do real jobs in the real economy are working harder than ever, for less and less money to keep themselves afloat. So American labour does work while the American labour market is apparently on a permanent vacation.

Kevin Alexanderman

"America's labour market is not working"?

You mean "America's government is not working".

That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy.

They can't even competently establish metrics to adequately assess performance of their economy.

Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour? Are you still mocking Greenspan-speak?

So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10% to 6.25%.

That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families.

Astrophysicist111

Interesting that the author doesn't consider the possible role of the increased death rate among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in the low labor participation rate. As one economist who studied the data observed: "There are a half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993 the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span - but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine.

Legal Tender

For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability situation in the US. Note that an adult need not be disabled themselves to collect payments and leave the workforce. Children are eligible for disability payments in the US for learning disabilities (including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for that parent to enter the workforce).

From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were added to the disability system.

http://apps.npr.org/unfit-for-work/

http://www.theatlantic.com/business/archive/2013/03/disability-insurance-americas-124-billion-secret-welfare-program/274302/

fmayer314

One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire clowns near the top of opinion polls? Go figure!

After the first course, one then moves on to the comments, littered with the aromatic excretions of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious, because respondents find it so hard to believe the amazing levels of stupidity on display.

American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party.

Thanks FT!

TJG

Thank you Mr. Wolf for pointing out that the declining employment participation rate portends significant community and social problems. I would like to suggest that two issues play a significant role in this decline. The low minimum wage combined with the high cost of competent child care make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially tinged mass incarceration has produced an ever growing number of unemployable people. The moment an applicant indicates he or she has been incarcerated it is pretty certain the application will be rejected. Until societal attitudes and public policies change the problems illuminated by Mr. Wolf's opinion piece will only continue to grow.

JMC22

The title of this piece -- that the US labour market is not working -- is way out of line with the content. A highly contentious issue regarding the fall in the measured participation rate is hardly an indication of a non-working labour market, especially given the huge increase in employment in recent years. One issue not discussed -- the fact of a very considerable increase in the employment in the grey markets. Self-employed persons, partly growing out of internet activities, are not properly measured. Nor are those who simply work outside the formal economy, including many illegal immigrants.

ciwp1

@JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers 'officially' self-employed who are not doing much; similar irregular work patterns afflict temps, part-time works, zero hours...

Mark Feldman

Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.

I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily available, then there will be more unemployment.

What I mean by "degreed but uneducated" should be obvious, but I do want to make one point with an example.

If you learn how to do calculus - just how to do it period - that will not make it easier to learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier to use a spreadsheet. That is because you will have trained your mind to think quantitatively. It's that simple.

In the 60's students who took calculus learned it. Now, they mainly just get certified in it. (If you doubt me, just compare today's AP Calculus with the one from 1970.)

This same phenomena is true across all disciplines. It is because the American higher educational system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting and analyzing the system. Thank you.)

But here is what is even worse.

The effect of this corruption has seeped down to America's K-12 system. To see how, just ask yourself where high school teachers go to learn, and within what system do "professors" at regional state schools get their "credentials", and why it might be in the interest of more "elite" schools to credential them.

For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples and documentation.

Veiled One

Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior," I stopped looking.

Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be happy to enjoy the guerdons of a career when very young.

Kevin Alexanderman

@Veiled One ,

Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is with the older people. Just as they slander the banks, (who have the money), and as the German national socialists slandered the Jews (who had the money), today's socialists slander older people.

The leftists are preparing some kind of way to swindle more experienced people out of their money, just haven't figured out how yet.

Gail Johnson

This is a political problem. Ordinary Americans are no longer represented by the national government. In other major industrialized democracies, the equivalent of US congressional districts include about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing about 64 million people. In a district with 100,000 people it is possible to contest an election without a $1 million war chest.

In the US congressional districts average over 700,000 people. There are 435 representatives for over 310 million people. Congress has an approval rating on the low teens, and yet in the last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the way big money tells them to in return for the funds needed to stay in office.

Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set.

http://www.twoyearstodemocracy.com/

LJH

The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all) has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading developed countries' of the world and is certainly vectored in the wrong direction.

Michael Moran

I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system provides every reason for a smart person to try and avoid formal employment through LLCs or other dodges. The LLC structure and their tax status is unique to the US, after all. It could be part of the explanation.

RDRAVID

@Michael Moran

If someone is self-employed they would be counted as actively participating in the Labour market. Rather than self-employment, I think the issue is a growth in informal activity in the US. Its becoming more common there for people to do undeclared work, whether of the handyman, domestic helper or running a mobile food shack.

The bottom 20% in the US are effectively living a third world style life.

Isaias

I always said that if US unemployment was measured by Spain unemployment standards ( the strictest in the EU ), it would probably be around 12 % if not more.

What free market?

While Martin Wolf explains a deeply worrying trend, particularly for those who have given up the struggle to find work, there is another bar to job creation.

Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion of form filling, record keeping, the tax authorities, local authorities etc, all of which have their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis - which the very young and old are happy to engage with the process.

The only common strategy for bureaucrats and tax men is job creation - theirs and those of the ilk - their role is job destructive in the real economy.

gkjames

@What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders can track the health of the enterprise? In most US states, by the way, it takes all of a single form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and tax men," you do realize, presumably, that it is elected legislatures who write the tax laws, laws that reflect extensive (and, not infrequently, exclusive) input from the business community.

What free market?

Yes, it is BIG business that controls the output of legislatures, small business does not get a look in - those running them are too busy running their businesses and coping with bureaucracy. It is often overlooked that rules and regulations that are imposed universally suit big business but place a disproportionate burden on small business who have to comply with the same dictats but without the administrative cohort and infrastructure that large firms can justify.

What free market?

Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between big business and legislators that allows big business to comply with onshore rules and forces competing small business to do the same.

Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have to be 100% complient and that suits big business as the administrative burden crushes incipient competition from small business.

Anon2

Maybe it has something to do with the breakdown of the lower middle class family in the US and the subsequent poor performance in school, crime, prison etc. I guarantee those not participating exhibit a higher percentage of having had no father in the home as a child.

LJH

@Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem is the ruling class of white rich men is morally and intellectually bankrupt.

Those that create the problems are usually not the first to suffer the consequences. That comes later as the empire crumbles.

M_T

@Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight American working age men are starving, my personal assumption would be that a large proportion of the remainder are working in the unregistered economy. That includes crime but would also include casual work where the employer doesn't pay proper taxes etc.

RiskAdjustedReturn

@M_T @Hell No --

"... casual work where the employer doesn't pay proper taxes etc."

In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their workers

Adam Bartlett

An issue that's only going to get more severe and widespread as technological unemployment continues its advance.

In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists.

The choice facing us is probably between the statist solution of a massive increase in public sector employment, or the relatively libertarian option of a generous universal basic income. Let's pray it won't be too many years before such options get to the table.

pangloss

Surely an American (or any other) worker is worth no more than say a Chinese worker + some translation factor. The translation factor includes the presence of infrastructure and human capital on both sides. The low skill worker suffers first because of an early and easy shift in the translation factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding nuclear war there is likely to be a flattening of wages across the developed world. This is especially bad news for those at the lower end of the ability scale, no credible amount of education or training will make enough difference. There are limits to human capital. Start thinking about redistribution and the niches that are immune from this effect.

nonuthin

The question that bothered me through this is what do they actually do if they're not "working". Clearly not all sustained by welfare, does this indicate a significant increase in either the black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically unachievable) to see the impact of a legally licenced drugs trade on the employment participation rates.

Adam Bartlett

@nonuthin Some in single earner households, having to accept a lower material quality of life than they would if both adults could earn. Others drawing down savings and living frugally. Many dependent on food banks and other forms of charity. Others subsisting in the informal economy, but activity one would call 'grey' at worst, not the black or criminal economy.

Big Dipper

There is more to life's responsibilities than your "men and women whose responsibilities should make earning a good income". Perhaps you could consider high-quality child raising, other care activity, community and education. The ratio is dangerous.

cg12348

Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can make stats sing if you know what you are doing........but the reality is easy to see. Americans have a work force that is seeing its jobs exported - notice he does not give the stats on companies moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they cant stop it that is true - but there is a way to stop it.

They would further tell you that the 11 million immigrant workers have little to no effect because they take jobs that we don't want - wrong again. As you age your are happy to be employed even if the job does not hold the allure of your previous job. What immigrant workers do is they take less money because they are willing to live at a lower standard. They will live many families to one home etc. In fact if they were not here to take the job the job would get done when the pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral of a work force.

There is nothing "decent" about our unemployment stats. We are not a nation of any one race we are a nation of opportunity with one of the most powerful economies and plenty of natural resources and demand and opportunity for innovation - so what sickness has befallen the US - large government - corporate taxation - political mediocrity - the same thing that has recently become apparent in Germany and France - idiots who give away what we worked hard for and expect us to pay more for those they choose to support.

Todays social programs breed a generation that no longer asks what they can do for their nation - but what their nation can do for them. Obama and his ilk have handed the world to those who were unwilling to fight to fix their own countries - instead they want to come here for opportunity that did not exist at home and then in a great act of irony turn our land into theirs - we do not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle east - instead what we want those who love our opportunity to come here and become American - but in numbers and within a legal process that does not exacerbate or marginalize those who were born here and should have the right to the first jobs here.

Profitsee

@cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat, I confess, you provide a lucid argument.

Tiger II

The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. Sclerotic labor laws and regulations make it impossible to create many jobs that can produce more than they cost, especially given the dumbing down of the work force by public monopoly schools. Regulated labor markets are one of the biggest drivers of unemployment on both sides of the Atlantic and should be abolished.

Brian Reading

While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail. Population estimates by age cohorts come from ten-yearly census data - the denominator for participation rates. These estimates are interpolated between censuses from births, deaths and migration data. The numerator, the number in each age cohort at work or seeking work, comes from regular household sample surveys. Using one source for denominator and another for numerator, which cannot be avoided, entails a margin of error. In looking into this, I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys.

DougInCalifornia

What I am seeing where I live is the emergence of a part-time, informal service economy. You might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal) living this way. And my guess is that most of it doesn't get picked up in official statistics. I think that "employment" will need to be measured differently in the post-internet era.

RiskAdjustedReturn

@cg12348 @Boston1

"Show me a middle class kid that expects to work his way up and willing to start at the bottom and I will show you..."

...a recent immigrant.

WL - Minneapolis

One clue into the declining labor force participation rate may have been discovered in a study reported in the NY Times today, that may account for a substantial portion. The death rate among middle-aged (45-54) whites with high school education or less has increased in recent years, reversing a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that result in death by drug/alcohol abuse and/or suicide.

Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But an increase in health problems of one sort or another may also be the cause of the lower participation rate as well.

http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html

Paul A. Myers

Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One problem is that children living in poverty in the US struggle to learn in the education system partially because overall public support for impoverished families is so poor in the US.

http://www.nytimes.com/2015/11/04/business/economy/school-vs-society-in-americas-failing-students.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region®ion=bottom-well&WT.nav=bottom-well&_r=0

KKB

If we think the current labor market is not working, wait till the Trans Pacific Partnership (TPP) trade deal passes the US Congress & signed into law .
Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled) Labor.

Paul A. Myers

A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure in the U.S. This is a prime age for construction employment and this industry provides a ladder of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction contractors in Southern California is that they are interested in individuals who can get to the job site and do the work and are often willing to overlook criminal records. A dollar of public spending on construction puts American workers to work, not someone in Korea. You can't import a highway or a building from the Far East.

The other major failure is the large urban school district. These "too big to succeed" institutions have a record for over a half a century of failure to turn out skilled young people. In the massive Los Angeles Unified School District, they shut down skill-based vocational education during the period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed educational establishment fostered by graduate schools of education and powerful job-protecting, mediocrity-fostering teachers unions have created the largest statist failure since the collapse of East Germany. (And you can remember how much Germany paid to clean up that mess!)

There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of skilled applicants.

A crummy labor market is almost always the creation of bad public policy. And today's America swims in bad public policies.

beforethecollapse.com

@Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?

beforethecollapse.com

Also, I must say that the family unit is far more influential and important to the youth than any teacher. The teacher can operate as a third parent, or second parent if the family breaks down, but a youth needs a stable environment for healthy emotional and instinctual development. Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents to blame teachers but I have noted that such complaints arise from personalities that resent strong authority figures and duty enforces. As such, they are incapable of disciplining their own child.

In China, society encourages the family to be unconditionally supportive to the child, this is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.

Philip Verleger

@Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. The employers cannot offer more because their customers - the large airlines and the big shippers will not pay more. The trained workers are there. They just will not accept the scarps.

The public policy mistake was allowing the creation of such large monopolies/monopsonies.

Look outside your silo!

Paul A. Myers

@Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. (I think I was seriously outside my silo and I think the FT editors were very receptive to this argument--then and now.)

Oligopolies (the only kind of major corporations and markets in the US today) produce lower volumes, at higher prices, and with fewer employees than a more competitive economic sector would employ, produce, price.

In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors; today is at most the Big Two.

The Progressives understood the economic concentration argument; the Democratic Leadership Council generation embraces concentration's contributory support.

Philip Verleger

@Paul A. Myers @Philip Verleger

Could not agree more. I am on the board of a family firm. We cannot find truck drivers although we pay well and train (to move gasoline - it takes an extra license). There is just little interest in joining the profession because the large companies keep wages down.

The FTC and Justice Department unfortunately failed to do their jobs.

BelCan

Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.

See http://blogs.ft.com/ftdata/2015/10/16/us-statisticians-are-in-the-dark-over-the-20-million-working-age-americans-who-dont-want-a-job/

nb

No cause for concern. The decline in the LFP rate is simply a social readjustment

https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate

The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s).

The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population.

Henry C

@nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:

"If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower than today's value of 63 percent. It is important to note that we normally consider the U.S. economy to have performed relatively well during this period, especially during the long expansion of the 1960s.

Evidently, low labor force participation does not equate with weak economic growth. Surely this is because the factors driving economic growth are different from the factors driving labor force participation."

https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf

beforethecollapse.com

Why are you surprised? You genuflected to my employer.. The People's Republic of China.

Where slavery is a tool for political control. Perhaps you should have thought harder and better when you and your friends were nattering on about The Great Moderation. What was your long game? Did you think there would be a revolution or revolt that you could manipulate? Or were you a true believer in The Circular Theory of Income?

Action? What action? How are you going to move production back to the West? How can you undo what you are responsible for?

Chinese Competition Exposes Americans to Cruelty

Henry C

I'm not sure I want to worry about the US LFPR, and whether it's it's indicative of Americans' feelings that they can't support a family.

The literature on US LFPR is pretty consensual on the main effect being demographic (ageing) and virtually nothing else. The St. Louis Fed's Bullard's recent talk is illustrative: see https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf .

As to family support, the other aspect one might look at is whether US household disposable income growth has been deficient relative to other G7 countries (which all have higher LFPR). But that's not the case: see

https://data.oecd.org/hha/household-disposable-income.htm

So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same approximate growth in US disposable income in the long run.

L'anziano

"What might explain the extent to which prime-aged men and women have been withdrawing from the labour market in the US over a long period?"

Heartless as this sounds (and I am sure I will not gain any friends for this on this page) the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive, middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has always been the case in every global firm in which I have worked. I am acutely aware of this as a middle aged man myself.

lennerd

Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.

This, of course, is the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting.

Olaf von Rein

@lennerd Those income statistics right? Frightening.

Legal Tender

@lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is "off the books") the results look better. You cannot make an "apples to apples" comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different.

If Europe admits millions of refugees over the next few years, I can assure you it will depress average male household earnings. But you always need to look at what has changed in the composition of the data before drawing conclusions about the data. The fact that there might be millions of Middle Eastern and African arrivals earning very little (officially) would impact the overall data for wages but may not accurately describe the experience of the pre-existing labour force.

You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period).

Cuibono

As somebody who has worked in both Europe and the US I would add to the list of underlying causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors for long periods of time and now declining benefits. The list goes on and on.

The employer gets everything and gives nothing more than an "at-will" commitment to continue employment.

It gets to a point where it's not profitable to bother.

Raver

@Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.

Banker

@Cuibono yea but salaries are 2-3x as much as in the UK.

Cuibono

@Banker @Cuibono Right, until you factor in the cost of health care and college tuition for your kids.

Banker

@Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of support. Health insurance also provided from employer covers everything. Have you even got any idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.

All public universities also charge minimum £9k/year fees here.

Learn your facts before you post.

Cuibono

Well I believe I know facts. I also have manners, and you apparently don't. So get off your high horse before you post!

Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it.

You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year for fees and board for a good university.

And if you are earning 60k per year how are you going to afford the basic second level education, complete with top SAT scores and cultural experiences that will get you selected to the mythical ivy.- especially if you are white and without legacy connections? You should take your own advice and read up on US colleges and their outrageous manipulation of statistics to hide the fact that they are little more than vehicles that allow the elite to transfer status across generations.

You are upset about an opinion I expressed based on my own experiences and you set yourself up as the comment police to challenge that opinion without.

Something to think about. . .

US corporations have the developed world's highest remuneration scale to executives and the lowest benefits to other employees. How else can these corporate executive maintain their life style without hiring from the two employee pools (young and old) that work for such low wages? Young are beginning and old augmenting income.

ForgottenHistory

I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France but haven't got a clue on the UK in this matter) policymakers and governments were very concerned for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and the government added some funds to that.

This way people retained and even improved their skills, in stead of losing skills and become unemployable and ultimately end up being a costly burden for society.

It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed to) but no proper sense of community in the sense of a government with a long term-planning; US has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor, or disadvantaged -that's equal opportunities in reality.

Smyrna Cracker

I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents.

Mr Passive

Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number.

Is it another function of very low bond yields & therefore pension rates, the side-effects of QE we may call it.

Time for the CBs to hold up their hands and admit they've done all they can and at the margin further extra-ordinary measures will be counter productive.

Massachusetts

@Mr Passive In the US the only age group that has seen incomes increase consistently is the 65-74 decile. I cannot speak to the UK.

http://www.nytimes.com/2014/09/13/business/economy/young-households-are-losing-ground-in-income-despite-education.html
http://www.nytimes.com/2015/06/15/business/economy/american-seniors-enjoy-the-middle-class-life.html

[Nov 04, 2015] America's labour market is not working

Notable quotes:

"... the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact. ..."

"... To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists. ..."

"... That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy. ..."

"... That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families. ..."

"... The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine. ..."

"... American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party. ..."

"... Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was well-qualified but too senior, I stopped looking. ..."

"... ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set. ..."

"... Maybe it has something to do with the breakdown of the lower middle class family in the US ..."

"... In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists. ..."

"... @cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported low level jobs. ..."

"... The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. ..."

"... I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys. ..."

"... Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. ..."

"... The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. ..."

"... In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. ..."

"... The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s). ..."

"... Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago. ..."

"... the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting. ..."

"... @lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is off the books ) the results look better. You cannot make an apples to apples comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different. ..."

"... You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period). ..."

"... Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it. ..."

"... I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents. ..."

"... Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number. ..."

FT.com

Ex NHS Surgeon

The causes are multi factorial, but what is really disturbing is the wilful DENIAL inherent in U.S. Govt. analysis of the American Labour (Labor) market. 'Everything is awesome'. Repeat till it becomes fact.

To me, this is the central problem: the corruption and demise of American democracy, leading to paralysis of fair, efficient, effective government. Instead, government serves as the enactor or enabler of rules, regulations, statutes and laws that protect the kleptocratic crony capitalists.
The discovery mechanisms in America's so called free markets are terminally broken.
The whole charade is necessary to keep the terrifying monster that circles the deep below the surface: debt. Irreconcilable, measured in numbers so stupendous it makes Zimbabwe's terminal hyperinflation seem tame by comparison.
There is only one way the monster of debt can be tamed: war.

E. Scrooge, 3 hours ago

The rise of the underground economy, pay cash and you can get sizable discounts on construction, repairs, all sorts of things. Many, but not all of those able, are providing products and mainly services as part of the underground economy. This was and I still believe is the fastest growing segment of the US economy. Mostly out of necessity, but will likely remain a very significant part of the overall economy for quite some time, as many of these workers are years away from Social Security eligible.

ceteris paribus

The irony of this title. The American labour force--the people who do real jobs in the real economy are working harder than ever, for less and less money to keep themselves afloat. So American labour does work while the American labour market is apparently on a permanent vacation.

Kevin Alexanderman

"America's labour market is not working"?

You mean "America's government is not working".
That the US cannot deliver an unemployment rate devoid of trickery and opacity is an indictment of their government, not their labour market, especially when they ride the holier-than-thou-art horse of "greater transparency" for the private sector, and "we are the world's police" in their foreign policy.
They can't even competently establish metrics to adequately assess performance of their economy.
Mr. Martin, you say "In all, the proportion of the fall in the unemployment rate because of lower participation cannot be more than a quarter." Is that your best attempt at one-liner humour? Are you still mocking Greenspan-speak?

So I gather you are saying that a fall from 10% to 5% is more on the order of a fall from 10% to 6.25%.

That, of course, almost every US academic would question, and call you "nuts" if not worse for standing up to their chicanery. Intelligent, honest people, on the other hand, would say that in 2014, the unambiguous US unemployment figure was 12 per cent. Your whole piece is not about splitting hairs, or even splitting limbs, but more to the point-breaking families.

Astrophysicist111

Interesting that the author doesn't consider the possible role of the increased death rate among middle aged U.S. whites - as recently reported, e.g. in the NY Times - to be a factor in the low labor participation rate. As one economist who studied the data observed: "There are a half million people dead who shouldn't be". This is over the interval 1993-2014. Prior to 1993 the specific age demographic, 45-64 years old, had enjoyed a 2 percent improvement in life span - but no more. The reasons: death from drug overdoses, suicide, other addictions and diseases resulting therefrom, i.e. kidney and liver failure. Perhaps this is a sign that something is indeed very wrong with the whole U.S. Neoliberal capitalist system which regards citizens as mere cogs in its money machine.

Legal Tender

For those interested, here is an NPR piece (and follow-up from The Atlantic) on the disability situation in the US. Note that an adult need not be disabled themselves to collect payments and leave the workforce. Children are eligible for disability payments in the US for learning disabilities (including ADD, ADHD, dyslexia, etc) with the income going to the parent (reducing the need for that parent to enter the workforce).
From 2009 to 2013, there were 2.5 million jobs created in the US while 5.9 million people were added to the disability system.

http://apps.npr.org/unfit-for-work/

http://www.theatlantic.com/business/archive/2013/03/disability-insurance-americas-124-billion-secret-welfare-program/274302/

fmayer314

One thing I enjoy a great deal is good comedy. And as an American reader I find plenty of fabulous comedy in these "what's wrong with America" articles. Soaring rates of morbidity among white middle-aged Americans? How can that be? Pathologically low LFP rates? What could possibly explain that? Billionaire clowns near the top of opinion polls? Go figure!
After the first course, one then moves on to the comments, littered with the aromatic excretions of right-wing American idiots. The incredulous replies subsequently posted are often quite hilarious, because respondents find it so hard to believe the amazing levels of stupidity on display.
American newspapers are quite droll by comparison because frank discussions of on-the-ground realities in this country are strictly taboo. Much more important is the burning question of which bathroom should be used by trans students, or - as in the New York Times - what are the best recipes for your next dinner party.
Thanks FT!

TJG

Thank you Mr. Wolf for pointing out that the declining employment participation rate portends significant community and social problems. I would like to suggest that two issues play a significant role in this decline. The low minimum wage combined with the high cost of competent child care make it financially pointless for a spouse earning less than $10.00/hour to work. Secondly racially tinged mass incarceration has produced an ever growing number of unemployable people. The moment an applicant indicates he or she has been incarcerated it is pretty certain the application will be rejected. Until societal attitudes and public policies change the problems illuminated by Mr. Wolf's opinion piece will only continue to grow.

JMC22

The title of this piece -- that the US labour market is not working -- is way out of line with the content. A highly contentious issue regarding the fall in the measured participation rate is hardly an indication of a non-working labour market, especially given the huge increase in employment in recent years. One issue not discussed -- the fact of a very considerable increase in the employment in the grey markets. Self-employed persons, partly growing out of internet activities, are not properly measured. Nor are those who simply work outside the formal economy, including many illegal immigrants.

ciwp1

@JMC22 Good points. Worth bearing in mind also, wrt self-employed, there are large numbers 'officially' self-employed who are not doing much; similar irregular work patterns afflict temps, part-time works, zero hours...

Mark Feldman

Mr. Wolfe, the problem is a lack of education. And I don't mean a lack of degrees.
I'm not an economist (I'm a former math professor.), but it certainly seems to me that if an economy needs educated (Again, don't confuse that with "degreed".), workers, and they aren't readily available, then there will be more unemployment.
What I mean by "degreed but uneducated" should be obvious, but I do want to make one point with an example.
If you learn how to do calculus - just how to do it period - that will not make it easier to learn how to use a spreadsheet; but, if you really learn calculus, you will find it much easier to use a spreadsheet. That is because you will have trained your mind to think quantitatively. It's that simple.
In the 60's students who took calculus learned it. Now, they mainly just get certified in it. (If you doubt me, just compare today's AP Calculus with the one from 1970.)
This same phenomena is true across all disciplines. It is because the American higher educational system, as a whole, is corrupt. (In a recent issue,The Economist has done an excellent job reporting and analyzing the system. Thank you.)
But here is what is even worse.
The effect of this corruption has seeped down to America's K-12 system. To see how, just ask yourself where high school teachers go to learn, and within what system do "professors" at regional state schools get their "credentials", and why it might be in the interest of more "elite" schools to credential them.
For anyone who wants to know more, I have a blog inside-higher-ed that has convincing examples and documentation.

Veiled One

Wolf has a point. I'm in the U.S., in my prime at 52, and have stopped looking for for work after losing a job for no fault of my own. My undergraduate and graduate education was at elite universities in technical disciplines, and I have much experience. I'm also very physically fit and energetic. But after more than a year of hearing that I was "well-qualified but too senior," I stopped looking.
Now, I'm a rentier with 100% free time, and read the FT every morning. I suppose I should be happy to enjoy the guerdons of a career when very young.

Kevin Alexanderman

@Veiled One ,
Sounds like you are a victim of age-racism. The leftist journalist crowd know the money is with the older people. Just as they slander the banks, (who have the money), and as the German national socialists slandered the Jews (who had the money), today's socialists slander older people.
The leftists are preparing some kind of way to swindle more experienced people out of their money, just haven't figured out how yet.

Gail Johnson

This is a political problem. Ordinary Americans are no longer represented by the national government. In other major industrialized democracies, the equivalent of US congressional districts include about 100,000 people. For example, in the UK there are 650 members of the House of Commons representing about 64 million people. In a district with 100,000 people it is possible to contest an election without a $1 million war chest.

In the US congressional districts average over 700,000 people. There are 435 representatives for over 310 million people. Congress has an approval rating on the low teens, and yet in the last election 95% of incumbents got reelected. Why? Their demonstrated willingness to vote the way big money tells them to in return for the funds needed to stay in office.

Thus, ordinary people who rely on jobs to supply life's necessities - food, clothing and shelter - get short shrift when economic priorities are being set.

http://www.twoyearstodemocracy.com/

LJH

The US is focused on Austerity. Cultural, Economic and Political Austerity. The right wing drive to kill everything for everyone ( save for the elite that are rapidly accumulating it all) has destroyed the infrastructure and the fabric of the country. The US is the laggard in the 'leading developed countries' of the world and is certainly vectored in the wrong direction.

Michael Moran

I wonder how much of this can be explained by furtive self-employment. The ridiculous tax system provides every reason for a smart person to try and avoid formal employment through LLCs or other dodges. The LLC structure and their tax status is unique to the US, after all. It could be part of the explanation.

RDRAVID

@Michael Moran
If someone is self-employed they would be counted as actively participating in the Labour market. Rather than self-employment, I think the issue is a growth in informal activity in the US. Its becoming more common there for people to do undeclared work, whether of the handyman, domestic helper or running a mobile food shack.

The bottom 20% in the US are effectively living a third world style life.

Isaias

I always said that if US unemployment was measured by Spain unemployment standards ( the strictest in the EU ), it would probably be around 12 % if not more.

What free market?

While Martin Wolf explains a deeply worrying trend, particularly for those who have given up the struggle to find work, there is another bar to job creation.
Small businesses find the bureaucratic hassle of taking on staff a nightmare: the intrusion of form filling, record keeping, the tax authorities, local authorities etc, all of which have their own, separate agendas, is sufficient deterrent to employing anyone except on a casual basis - which the very young and old are happy to engage with the process.
The only common strategy for bureaucrats and tax men is job creation - theirs and those of the ilk - their role is job destructive in the real economy.

gkjames

@What free market? Really? How so? What "bureaucratic hassle"? Are standard record-keeping and accounting practices an "intrusion" or, more likely, a useful mechanism by which shareholders can track the health of the enterprise? In most US states, by the way, it takes all of a single form and a modest fee to incorporate. As for the alleged "common strategy for bureaucrats and tax men," you do realize, presumably, that it is elected legislatures who write the tax laws, laws that reflect extensive (and, not infrequently, exclusive) input from the business community.

What free market?

Yes, it is BIG business that controls the output of legislatures, small business does not get a look in - those running them are too busy running their businesses and coping with bureaucracy. It is often overlooked that rules and regulations that are imposed universally suit big business but place a disproportionate burden on small business who have to comply with the same dictats but without the administrative cohort and infrastructure that large firms can justify.

What free market?

Indeed, without sounding too conspiratorial, I would say there is an unwritten pact between big business and legislators that allows big business to comply with onshore rules and forces competing small business to do the same.

Meanwhile offshore, big business can engage in tax evasion on a massive scale using offshore tax havens, transfer pricing and the freedom from jurisdictional control that obviates their need to remit revenues that would be taxable (viz Apple) . Small businesses are captive, they have to be 100% complient and that suits big business as the administrative burden crushes incipient competition from small business.

Anon2

Maybe it has something to do with the breakdown of the lower middle class family in the US and the subsequent poor performance in school, crime, prison etc. I guarantee those not participating exhibit a higher percentage of having had no father in the home as a child.

LJH

@Anon2 Yes, we don't like poor people in the US, or minorities - including women. The problem is the ruling class of white rich men is morally and intellectually bankrupt.

Those that create the problems are usually not the first to suffer the consequences. That comes later as the empire crumbles.

M_T

@Hell No -- Given the minimal welfare in the US, and that it seems implausible that one in eight American working age men are starving, my personal assumption would be that a large proportion of the remainder are working in the unregistered economy. That includes crime but would also include casual work where the employer doesn't pay proper taxes etc.

RiskAdjustedReturn

@M_T @Hell No --
"... casual work where the employer doesn't pay proper taxes etc."

In my local bank, on a Saturday morning, one will see lines of middle-aged white guys standing in line to take out thousands of dollars each in cash, which I'm assuming is meant to pay their workers

Adam Bartlett

An issue that's only going to get more severe and widespread as technological unemployment continues its advance.
In light of studies showing that low quality jobs are worse for folk's mental health than staying unemployed, further deregulation is only an answer to be entertained by sadists.
The choice facing us is probably between the statist solution of a massive increase in public sector employment, or the relatively libertarian option of a generous universal basic income. Let's pray it won't be too many years before such options get to the table.

pangloss

Surely an American (or any other) worker is worth no more than say a Chinese worker + some translation factor. The translation factor includes the presence of infrastructure and human capital on both sides. The low skill worker suffers first because of an early and easy shift in the translation factors. Sooner or later the high-end designers of Silicon Valley will suffer the same fate. Excluding nuclear war there is likely to be a flattening of wages across the developed world. This is especially bad news for those at the lower end of the ability scale, no credible amount of education or training will make enough difference. There are limits to human capital. Start thinking about redistribution and the niches that are immune from this effect.

nonuthin

The question that bothered me through this is what do they actually do if they're not "working". Clearly not all sustained by welfare, does this indicate a significant increase in either the black economy, the criminal economy or both. E.g. it would be statistically fascinating ( if politically unachievable) to see the impact of a legally licenced drugs trade on the employment participation rates.

Adam Bartlett

@nonuthin Some in single earner households, having to accept a lower material quality of life than they would if both adults could earn. Others drawing down savings and living frugally. Many dependent on food banks and other forms of charity. Others subsisting in the informal economy, but activity one would call 'grey' at worst, not the black or criminal economy.

Big Dipper

There is more to life's responsibilities than your "men and women whose responsibilities should make earning a good income". Perhaps you could consider high-quality child raising, other care activity, community and education. The ratio is dangerous.

cg12348

Every week Martin Wolf reminds me why the self proclaimed experts are really idiots - you can make stats sing if you know what you are doing........but the reality is easy to see. Americans have a work force that is seeing its jobs exported - notice he does not give the stats on companies moving out of the US over the past 30 years. Again the experts say we could not stop It - NO they cant stop it that is true - but there is a way to stop it.

They would further tell you that the 11 million immigrant workers have little to no effect because they take jobs that we don't want - wrong again. As you age your are happy to be employed even if the job does not hold the allure of your previous job. What immigrant workers do is they take less money because they are willing to live at a lower standard. They will live many families to one home etc. In fact if they were not here to take the job the job would get done when the pay increased to attract a willing worker - FACT. Finally what stats do not capture is the moral of a work force.

There is nothing "decent" about our unemployment stats. We are not a nation of any one race we are a nation of opportunity with one of the most powerful economies and plenty of natural resources and demand and opportunity for innovation - so what sickness has befallen the US - large government - corporate taxation - political mediocrity - the same thing that has recently become apparent in Germany and France - idiots who give away what we worked hard for and expect us to pay more for those they choose to support.

Todays social programs breed a generation that no longer asks what they can do for their nation - but what their nation can do for them. Obama and his ilk have handed the world to those who were unwilling to fight to fix their own countries - instead they want to come here for opportunity that did not exist at home and then in a great act of irony turn our land into theirs - we do not want to be Europe - nor do we want to be Mexico and we certainly do not want to be the middle east - instead what we want those who love our opportunity to come here and become American - but in numbers and within a legal process that does not exacerbate or marginalize those who were born here and should have the right to the first jobs here.

Profitsee

@cg12348 And this is why I read the FT Comments section. Bravo -- One fact was missing: US imports educated foreign naturals more than exported "low level" jobs. Even as a Democrat, I confess, you provide a lucid argument.

Tiger II

The employment numbers are a political fiction as with all developed economies. Unemployment is much higher than reported. Sclerotic labor laws and regulations make it impossible to create many jobs that can produce more than they cost, especially given the dumbing down of the work force by public monopoly schools. Regulated labor markets are one of the biggest drivers of unemployment on both sides of the Atlantic and should be abolished.

Brian Reading

While not disputing in any way Martin Wolf's analysis, the devil may still be in the detail. Population estimates by age cohorts come from ten-yearly census data - the denominator for participation rates. These estimates are interpolated between censuses from births, deaths and migration data. The numerator, the number in each age cohort at work or seeking work, comes from regular household sample surveys. Using one source for denominator and another for numerator, which cannot be avoided, entails a margin of error. In looking into this, I was amazed to discover that legal immigration averaged one million a year in the 1990s. I suspect estimated illegal immigrant, mostly prime-aged, are included in population estimates but do not appear in household surveys.

DougInCalifornia

What I am seeing where I live is the emergence of a part-time, informal service economy. You might call it the Craigslist/Ebay/PayPal economy. I think that a lot of people make a (minimal) living this way. And my guess is that most of it doesn't get picked up in official statistics. I think that "employment" will need to be measured differently in the post-internet era.

RiskAdjustedReturn

@cg12348 @Boston1
"Show me a middle class kid that expects to work his way up and willing to start at the bottom and I will show you..."

...a recent immigrant.

WL - Minneapolis

One clue into the declining labor force participation rate may have been discovered in a study reported in the NY Times today, that may account for a substantial portion. The death rate among middle-aged (45-54) whites with high school education or less has increased in recent years, reversing a long-term trend. The cause appears to be poor health/chronic pain/mental health issues that result in death by drug/alcohol abuse and/or suicide.
Clearly unskilled and low-skilled workers have more trouble finding well paying jobs, and the wages for those jobs have fallen around 19% since 2000 in real, inflation-adjusted terms. But an increase in health problems of one sort or another may also be the cause of the lower participation rate as well.
http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html

Paul A. Myers

Excellent article on education difficulties in the US by Edouardo Porter in today's NYT. One problem is that children living in poverty in the US struggle to learn in the education system partially because overall public support for impoverished families is so poor in the US.
http://www.nytimes.com/2015/11/04/business/economy/school-vs-society-in-americas-failing-students.html?hpw&rref=business&action=click&pgtype=Homepage&module=well-region®ion=bottom-well&WT.nav=bottom-well&_r=0

KKB

If we think the current labor market is not working, wait till the Trans Pacific Partnership (TPP) trade deal passes the US Congress & signed into law .
Capital ($), aided by misguided policies of the US economic elites, will prevail over (skilled) Labor.

Paul A. Myers

A major contributor to lack of hiring men age 25-54 is the massive underinvestment in infrastructure in the U.S. This is a prime age for construction employment and this industry provides a ladder of advancement from low and semi-skilled labor up to more skilled labor. My experience with construction contractors in Southern California is that they are interested in individuals who can get to the job site and do the work and are often willing to overlook criminal records. A dollar of public spending on construction puts American workers to work, not someone in Korea. You can't import a highway or a building from the Far East.
The other major failure is the large urban school district. These "too big to succeed" institutions have a record for over a half a century of failure to turn out skilled young people. In the massive Los Angeles Unified School District, they shut down skill-based vocational education during the period 1970-1990 with the lame excuse of everyone is going to college. The duopoly of a wooden-headed educational establishment fostered by graduate schools of education and powerful job-protecting, mediocrity-fostering teachers unions have created the largest statist failure since the collapse of East Germany. (And you can remember how much Germany paid to clean up that mess!)
There are recent reports that there are 4-5 million unfilled jobs in the US due to lack of skilled applicants.
A crummy labor market is almost always the creation of bad public policy. And today's America swims in bad public policies.

beforethecollapse.com

@Paul A. Myers As an educator, I wonder what role poor nutrition plays in the US?

beforethecollapse.com

Also, I must say that the family unit is far more influential and important to the youth than any teacher. The teacher can operate as a third parent, or second parent if the family breaks down, but a youth needs a stable environment for healthy emotional and instinctual development. Excellent diet, physical exercise and regimented sleep patterns are essential. It's easy for parents to blame teachers but I have noted that such complaints arise from personalities that resent strong authority figures and duty enforces. As such, they are incapable of disciplining their own child.
In China, society encourages the family to be unconditionally supportive to the child, this is balanced by the teacher who is a strict disciplinarian, often by way of corporeal punishment.

Philip Verleger

@Paul A. Myers A crummy labor market can also be the result of increased monopsonistic power of employers. Trucking companies cannot find drivers and regional airlines cannot find pilots. There are plenty available - but many will not accept the low wages offered. The employers cannot offer more because their customers - the large airlines and the big shippers will not pay more. The trained workers are there. They just will not accept the scarps.
The public policy mistake was allowing the creation of such large monopolies/monopsonies.
Look outside your silo!

Paul A. Myers

@Philip Verleger @Paul A. Myers Good points. The FT published my letter to the editor in about 2010 that economic concentration in virtually every economic sector of the US had reached unprecedented levels and represented a major threat to the US economy. (I think I was seriously outside my silo and I think the FT editors were very receptive to this argument--then and now.)
Oligopolies (the only kind of major corporations and markets in the US today) produce lower volumes, at higher prices, and with fewer employees than a more competitive economic sector would employ, produce, price.
In virtually every industrial sector of the US economy, the top competitors are way too big and way too dominant. In the 1950s and 60s, it used to be the Big Three in most sectors; today is at most the Big Two.
The Progressives understood the economic concentration argument; the Democratic Leadership Council generation embraces concentration's contributory support.

Philip Verleger

@Paul A. Myers @Philip Verleger
Could not agree more. I am on the board of a family firm. We cannot find truck drivers although we pay well and train (to move gasoline - it takes an extra license). There is just little interest in joining the profession because the large companies keep wages down.
The FTC and Justice Department unfortunately failed to do their jobs.

BelCan

Mr Wolf seems to have missed the fact that the FT already covered this issue on 16 October.

See http://blogs.ft.com/ftdata/2015/10/16/us-statisticians-are-in-the-dark-over-the-20-million-working-age-americans-who-dont-want-a-job/

nb

No cause for concern. The decline in the LFP rate is simply a social readjustment
https://www.stlouisfed.org/publications/regional-economist/october-2013/a-closer-look-at-the-decline-in-the-labor-force-participation-rate
The BLS lists the following factors as primary drivers of the decline in the LFP rate since 2000: (1) the aging of the baby boomer cohort; (2) the decline in the participation rate of those 16-24 years old; (3) the declining LFP rate of women (since its peak in 1999), and (4) the continuous decline of the LFP rate of men (since the 1940s).

The main factors that keep the aggregate LFP rate from falling further are the increase of the LFP rate of those 55 and older and the strong attachment to the labor force of Hispanic and Asian people, who constitute the main share of the immigrant population.

Henry C

@nb Your good post is reinforced plenty by the more recent talk by Bullard. He notes:
"If you know only one aspect of the data on labor force participation, it should be this: Labor force participation used to be relativelylow, it rose during the 1970s, 1980s and 1990s,peaking in 2000, and it has generally been declining since 2000.From 1948 to 1966, the labor force participation rate was relatively low and relatively stable, averaging 59.1 percent. That's substantially lower than today's value of 63 percent. It is important to note that we normally consider the U.S. economy to have performed relatively well during this period, especially during the long expansion of the 1960s.

Evidently, low labor force participation does not equate with weak economic growth. Surely this is because the factors driving economic growth are different from the factors driving labor force participation."
https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf

beforethecollapse.com

Why are you surprised? You genuflected to my employer.. The People's Republic of China.
Where slavery is a tool for political control. Perhaps you should have thought harder and better when you and your friends were nattering on about The Great Moderation. What was your long game? Did you think there would be a revolution or revolt that you could manipulate? Or were you a true believer in The Circular Theory of Income?
Action? What action? How are you going to move production back to the West? How can you undo what you are responsible for?
Chinese Competition Exposes Americans to Cruelty

Henry C

I'm not sure I want to worry about the US LFPR, and whether it's it's indicative of Americans' feelings that they can't support a family.

The literature on US LFPR is pretty consensual on the main effect being demographic (ageing) and virtually nothing else. The St. Louis Fed's Bullard's recent talk is illustrative: see https://www.stlouisfed.org/~/media/Files/PDFs/Bullard/remarks/Bullard_ExchequerClub_19Feb2014_final.pdf .
As to family support, the other aspect one might look at is whether US household disposable income growth has been deficient relative to other G7 countries (which all have higher LFPR). But that's not the case: see

https://data.oecd.org/hha/household-disposable-income.htm

So on the face of it, it seems to take a higher LFPR in other G7 countries to match the same approximate growth in US disposable income in the long run.

L'anziano

"What might explain the extent to which prime-aged men and women have been withdrawing from the labour market in the US over a long period?"

Heartless as this sounds (and I am sure I will not gain any friends for this on this page) the reason on the male side of the equation is that it is much easier to fire ineffective, unproductive, middle-aged, male dinosaurs in the US than it is in the UK, France or Japan. At least this has always been the case in every global firm in which I have worked. I am acutely aware of this as a middle aged man myself.

lennerd

Perhaps Mr Wolf should follow up this article with one about the abysmal record on male and household median earnings since 1970. Male median earnings are now lower than in 1973, more than 4 decades agao and household median earnings are back to the late 1980s, a generation ago.

This, of course, is the evisceration of the middle class by globalisation and other factors that has progressed further and faster in the US than elsewhere, resulting in the proceeds of growth being concentrated on the top 1 per cent, or even the top 10 per cent of the top 1 per cent. His views on why and what should be done would be interesting.

Olaf von Rein

@lennerd Those income statistics right? Frightening.

Legal Tender

@lennerd If you want to look at the data you need to realise the US imported 10-15 million low-skilled, non-English speaking immigrants during the 1990s and 2000s. If you take out the very bottom of the income distribution (note that their income is understated as a good portion of the earnings is "off the books") the results look better. You cannot make an "apples to apples" comparison between the US labour force of the 1970s and 1980s and the labour force of the 1990s and 2000s. The demographics are very different.
If Europe admits millions of refugees over the next few years, I can assure you it will depress average male household earnings. But you always need to look at what has changed in the composition of the data before drawing conclusions about the data. The fact that there might be millions of Middle Eastern and African arrivals earning very little (officially) would impact the overall data for wages but may not accurately describe the experience of the pre-existing labour force.
You might even say that the US has employed its native population AND created jobs for millions of unskilled, non-English speaking workers who are now earning two or three times what they were in their home countries and sending tens of billions annually back to those countries to increase wealth there. That sounds like a success story (well, I would not classify the current economy or labour market as a success story, but on par it does describe much of the 1990-2006 period).

Cuibono

As somebody who has worked in both Europe and the US I would add to the list of underlying causes mentioned. First employee rights in the US are abysmal. Poor conditions, no training or upward mobility, little or no personal privacy, cult like "motivation" exercises, passive aggressive annual reviews, drug testing, binding non-compete contracts that disallow moving to competitors for long periods of time and now declining benefits. The list goes on and on.

The employer gets everything and gives nothing more than an "at-will" commitment to continue employment.
It gets to a point where it's not profitable to bother.

Raver

@Cuibono Yes it's gotten pretty bad. The benefit packages are barely cheaper than what you can buy in the health insurance marketplace, maybe $20 less a month if you're lucky.

Banker

@Cuibono yea but salaries are 2-3x as much as in the UK.

Cuibono

@Banker @Cuibono Right, until you factor in the cost of health care and college tuition for your kids.

Banker

@Cuibono @Banker @Cuibono Ahm? Most ivies have $0 fees for families under $60k and a lot of support. Health insurance also provided from employer covers everything. Have you even got any idea how expensive private healthcare is in the UK? Unless you want to use 3rd world NHS ofcourse.
All public universities also charge minimum £9k/year fees here.
Learn your facts before you post.

Cuibono

Well I believe I know facts. I also have manners, and you apparently don't. So get off your high horse before you post!
Having experienced both the NHS and the private US system, I promise you the NHS wins hands down in every department, most especially in quality of care. I do know the UK private system, but if you want third world care with chaotic service delivery and outrageous hidden costs, please feel free to come to the US and pay over of thousand per month (for a family) with co-pays for it.

You 9k per year number is, frankly hilarious to any middle class US parent. Try 60k per year for fees and board for a good university.

And if you are earning 60k per year how are you going to afford the basic second level education, complete with top SAT scores and cultural experiences that will get you selected to the mythical ivy.- especially if you are white and without legacy connections? You should take your own advice and read up on US colleges and their outrageous manipulation of statistics to hide the fact that they are little more than vehicles that allow the elite to transfer status across generations.

You are upset about an opinion I expressed based on my own experiences and you set yourself up as the comment police to challenge that opinion without.

Something to think about. . .

US corporations have the developed world's highest remuneration scale to executives and the lowest benefits to other employees. How else can these corporate executive maintain their life style without hiring from the two employee pools (young and old) that work for such low wages? Young are beginning and old augmenting income.

ForgottenHistory

I recall how in the Netherlands and in Germany (and i think to a lesser degree also in France but haven't got a clue on the UK in this matter) policymakers and governments were very concerned for just this: an increase in the longer -and ultimately eternally- unemployed. Therefore people weren't just been laid off but held on and send on courses or only half-employed(=50% or so) and the government added some funds to that.

This way people retained and even improved their skills, in stead of losing skills and become unemployable and ultimately end up being a costly burden for society.

It doesn't surprise me at all this didn't happen in the US, as the US has equal opportunities(supposed to) but no proper sense of community in the sense of a government with a long term-planning; US has been doing the opposite, e.g. cutting-off anything which would help the unemployed, poor, or disadvantaged -that's equal opportunities in reality.

Smyrna Cracker

I suspect that declining levels of health, especially for those lacking a college degree may account for some of the falling work-force participation rates. Recent studies have uncovered a rise in death rates with this same population that may be part of the same phenomena. Rural populations seem especially venerable with declining access to mental health services and rising levels of substance abuse. Red America may have outsized political power but its leadership has no interest in serving the population it represents.

Mr Passive

Pensioners with no pensions; they are more reliable at shelf stacking and other such jobs. There are going to be so many people over 60 in the UK working in the future now that final salary schemes have been reducing in number.
Is it another function of very low bond yields & therefore pension rates, the side-effects of QE we may call it.
Time for the CBs to hold up their hands and admit they've done all they can and at the margin further extra-ordinary measures will be counter productive.

Massachusetts

@Mr Passive In the US the only age group that has seen incomes increase consistently is the 65-74 decile. I cannot speak to the UK.
http://www.nytimes.com/2014/09/13/business/economy/young-households-are-losing-ground-in-income-despite-education.html
http://www.nytimes.com/2015/06/15/business/economy/american-seniors-enjoy-the-middle-class-life.html

[Nov 04, 2015] Do Economists Promote Ideology as Science?

Notable quotes:

"... Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing? ..."

"... This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works. ..."

"... No - we dont allow MDs to prescribe or treat on the basis of theory alone. Its unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - First, do no harm. ..."

"... To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too. ..."

"... The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them). ..."

"... What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living? ..."

"... Keynes concluded that government direction was necessary for a viable economy. Keynes interpreters in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html ..."

"... It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not natural categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them as given is an ideological waffle that begs THE question. ..."

"... Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are. ..."

"... And so - though we proceed slowly because of our ideologies, we might not proceed at all without them. - Joseph Schumpeter ..."

Nov 03, 2015 | Economist's View

My latest column:

Do Economists Promote Ideology as Science?: Which is more important in determining the policy positions of economists, ideology or evidence? Is economics, as some assert, little more than a means of dressing up ideological arguments in scientific clothing?

This certainly happens, especially among economists connected to politically driven think tanks – places like the Heritage Foundation come to mind. Economists who work for businesses also have a tendency to present evidence more like a lawyer advocating a particular position than a scientist trying to find out how the economy really works.
But what about academic economists who are supposed to be searching for the truth no matter the political implications? Can we detect the same degree of bias in their research and policy positions? ...

rayward said...

Thoma's assessment seems fair enough. I'd make the point that, for some academic economists, no amount of evidence is sufficient to overcome their bias. "Where's the proof" is the refrain one hears often. And then there's the question: what is evidence? The availability of lots of data is often used to "prove" this or that theory, even when the "proof" is contrary to the historical evidence one can see with her own eyes. Data used as obfuscation rather than clarification. I appreciate that one historical event following another historical event does not prove causation, but what's better proof than history.

RogerFox said...

"Shouldn't theory be a guide when the empirical evidence is unconvincing one way or the other?"

No - we don't allow MDs to prescribe or treat on the basis of theory alone. It's unethical for any professional practitioner to give advice that is not supported by compelling evidence demonstrating that the advise is both safe and effective - 'First, do no harm.'

To a man, professional economists shill for the view that they are morally free to treat real economies and real people as their personal lab rats. As a group, economists are an ethically challenged bunch in this respect, and probably in other respects too.

DeDude said...

Economics as a science is mainly hurt by two things.

The rich plutocrats have a major stake in advocating very specific narratives, so they will throw large sums behind those narratives (and the fight against anything conflicting with them).

Economics does not have anything resembling the double blind placebo controlled trials that help medicine fight off the narratives of those with money and power.

RGC said...

What sort of opinions are economists allowed to have if they want tenure, want to be published in the major journals or want to make a living?

Keynes concluded that government direction was necessary for a viable economy. Keynes' "interpreters" in the US buried that idea, and thus became very important economists - guys like Paul Samuelson. The first ( and only) US book to faithfully represent Keynes' ideas faded away soon after publication: http://news.stanford.edu/pr/93/931011Arc3112.html

pete said...

I did not know there was a debate. Krugman summed it all up in Peddling Prosperity. Folks know who pays the rent, and opine accordingly.

Syaloch said...

I think problems arise when economists are called upon by politicians or the media to give expert advice.

Within the sciences, "We don't know the answer to that" is a perfectly acceptable response, and in scientific fields where the stakes are low that response is generally accepted by the public as well. "What is dark matter made of?" "We don't know yet, but we're working on it." But in politics, where the stakes are higher, not having a definitive answer is viewed as a sign of weakness. How often do you hear a politician responding to a "gotcha" question admit that they don't know the answer rather than trying to BS their way through?

Given the timeliness of news coverage the media prefer to consult experts who offer definitive answers, especially given their preference for pro/con type interviews which require experts on both sides of an issue. Economists who are put on the spot this way feel pressured to ditch the error bars and give unambiguous answers, even answers based purely on theory with little to no empirical backing, and the more often they do this the more often they're invited back.

Sandwichman said...

It is impossible to talk about economics without making essentially ideological distinctions. Private property and wage labor are not "natural" categories. Their adequacy as human practices therefore needs to be either defended or criticized. To simply take them "as given" is an ideological waffle that begs THE question.

Economists thus SHOULD have, acknowledge and fully disclose their ideological biases. When evaluating evidence they should make every effort to set aside and overcome their biases. And they need to stay humble about how Sisyphean, incongruous and incomplete their attempts at objectivity are.

Let's not forget that "The End of Ideology" was a polemical tract aimed at designating the ideology of the managers and symbol manipulators "above" and beyond ideology. Similarly, Marx's brilliant critique of ideology degenerated into polemic as its practitioners adopted the mantle of "science."

anne said in reply to Sandwichman...

Really excellent, and why I am immediately wary of self-described "technocrats."

anne said in reply to Sandwichman...

https://en.wikipedia.org/wiki/The_End_of_Ideology
The End of Ideology: On the Exhaustion of Political Ideas in the Fifties is a collection of essays published in 1960 by Daniel Bell, who described himself as a "socialist in economics, a liberal in politics, and a conservative in culture". He suggests that the older, grand-humanistic ideologies derived from the nineteenth and early twentieth centuries had been exhausted, and that new, more parochial ideologies would soon arise. He argues that political ideology has become irrelevant among "sensible" people, and that the polity of the future would be driven by piecemeal technological adjustments of the extant system.

anne said in reply to Sandwichman...

What precisely is "Marx's critique of ideology ?"

Sandwichman said in reply to anne...

A very big question! Like "what is the meaning of life?" At least a semester-long upper division seminar course. ;-)
In a nutshell (to put it crudely), Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.

anne said in reply to Sandwichman...

Marx labelled as ideologists a cohort of German followers of Hegel's philosophy who envisioned historical progress as the result of the progressive refinement of intellectual ideas. Marx argued instead that historical change resulted from struggle between social classes over the material conditions of life, fundamental to which was the transformation of nature through human intervention into means of subsistence.
[ What a superb introductory or summary explanation. I could not be more impressed or grateful. ]

DrDick said in reply to Sandwichman...

Well said. I would add "markets" to that list of relatively recent cultural constructs that needs greater scrutiny.

Chuck said...

"And so - though we proceed slowly because of our ideologies, we might not proceed at all without them." - Joseph Schumpeter, "Science and Ideology," The American Economic Review 39:2 (March 1949), at 359
http://www.jstor.org/stable/1812737

Sandwichman said in reply to Chuck...

Indeed.

Ignacio said...

Many guys are not driven by ideology, rather than evidence. The problem with this article is that we cannot compare with other professions and say "economists are more/less prone to promote ideology than the average".

DrDick said in reply to Ignacio...

All human endeavors are shaped by "ideology" in many different ways. What is important is to be aware of and explicit about their influences on our thought and action.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

If there are two sides to an argument that radically disagree then it is possible that both sides may be ideology, but both sides cannot be science. Only the correct argument can be science. Of course ideology is a bit too kind of a word since the incorrect argument is actually just a con game by people out to lay claim on greater unearned wealth.

ken melvin said...

Economists seem content with trying to figure out how to make 'it' work. Far better, I think, to try and figure out how it should be.
It was philosophers such as Hume, Locke, Marx, Smith, Rawls, ... who asked the right questions. Laws and economics come down to us according to how we think about such things; they change when we change the way we think. Seems we're in a bit of a philosophical dry patch, here. Someday, we will have to develop a better economic system, might be now. Likewise, there are laws rooted in antiquity that were wrong then and are wrong still.

RC AKA Darryl, Ron said in reply to ken melvin...

Exactly! They all know what they are doing. Some of them are just trying to do the wrong thing.

Arne said...

"Ideology certainly influences which questions academic researchers believe are the most important, but there is nothing wrong with that."

No "experiment" in economics comes with the degree of control that experiments in physical sciences take for granted, so there is tremendous room for ideology to come into the discussion of whether a data set really represents the conditions the model is supposed to consider. Since reviewing another economist's study entails asking questions those questions...

DrDick said in reply to Arne...

Please describe the "experimentation" which takes place in astronomy and geology. Ideologies also play important roles in experimental sciences, such as biology (for which we have a lot of evidence.

http://www.amazon.com/Anne-Fausto-Sterling/e/B001ILMB3E

http://www.nature.com/news/let-s-think-about-cognitive-bias-1.18520

http://annals.org/article.aspx?articleid=733696

[Nov 04, 2015] Fifty Shades of Tax Dodging: How EU Helps Support Unjust Global Tax Systems

www.nakedcapitalism.com

Yves here. Tax is a major way to create incentives. New York City increased taxes dramatically on cigarettes, and has tough sanctions for trying to smuggle meaningful amounts of lower-taxed smokes in. Rates of smoking did indeed fall as intended.

Thus the debate about whether corporations should pay more taxes is not "naive" as the plutocrats would have you believe; in fact, they wouldn't be making such a big deal over it if it were. In the 1950s, a much larger percentage of total tax collections fell on corporations than individuals. And the political message was clear: the capitalist classes needed to bear a fair share of the total tax burden. Similarly, what has been the result of the preservation of a loophole that allows the labor of hedge fund and private equity fund employees to be taxed at preferential capital gains rates? A flood of "talent" into those professions at the expense of productive enterprise.

And the result of having lower taxes on companies has been a record-high corporate profit share of GDP, with none of the supposed benefits of giving businesses a break. Contrary to their PR, large companies have been net saving, which means liquidating, since the early 2000s. The trend has become more obvious in recent years as companies have borrowed money to buy back their own stock.

Originally published at the Tax Justice Network

In the past year, scandal after scandal has exposed companies using loopholes in the tax system to avoid taxation. Now more than ever, it is becoming clear that citizens around the world are paying a high price for the crisis in the global tax system, and the discussion about multinational corporations and their tax tricks remains at the top of the agenda. There is also a growing awareness that the world's poorest countries are even harder impacted than the richest countries. In effect, the poorest countries are paying the price for a global tax system they did not create.
A large number of the scandals that emerged over the past year have strong links to the EU and its Member States. Many eyes have therefore turned to the EU leaders, who claim that the problem is being solved and the public need not worry. But what is really going on? What is the role of the EU in the unjust global tax system, and are EU leaders really solving the problem?
This report – the third in a series of reports – scrutinises the role of the EU in the global tax crisis, analyses developments and suggests concrete solutions. It is written by civil society organisations (CSOs) in 14 countries across the EU. Experts in each CSO have examined their national governments' commitments and actions in terms of combating tax dodging and ensuring transparency.
Each country is directly compared with its fellow EU Member States on four critical issues: the fairness of their tax treaties with developing countries; their willingness to put an end to anonymous shell companies and trusts; their support for increasing the transparency of economic activities and tax payments of multinational corporations; and their attitude towards letting the poorest countries have a seat at the table when global tax standards are negotiated. For the first time, this report not only rates the performance of EU Member States, but also turns the spotlight on the European Commission and Parliament too.
This report covers national policies and governments' positions on existing and upcoming EU level laws, as well as global reform proposals.

Overall, the report finds that:

• Although tweaks have been made and some loopholes have been closed, the complex and dysfunctional EU system of corporate tax rulings, treaties, letterbox companies and special corporate tax regimes still remains in place. On some matters, such as the controversial patent boxes, the damaging policies seem to be spreading in Europe. Defence mechanisms against 'harmful tax practices' that have been introduced by governments, only seem partially effective and are not available to most developing countries. They are also undermined by a strong political commitment to continue so-called 'tax competition' between governments trying to attract multinational corporations with lucrative tax reduction opportunities – also known as the 'race to the bottom on corporate taxation'. The result is an EU tax system that still allows a wide range of options for tax dodging by multinational corporations.
• On the question of what multinational corporations pay in taxes and where they do business, EU citizens, parliamentarians and journalists are still left in the dark, as are developing countries. The political promises to introduce 'transparency' turned out to mean that tax administrations in developed countries, through cumbersome and highly secretive processes, will exchange information about multinational corporations that the public is not allowed to see. On a more positive note, some light is now being shed on the question of who actually owns the companies operating in our societies, as more and more countries introduce public or partially public registers of beneficial owners. Unfortunately, this positive development is being somewhat challenged by the emergence of new types of mechanisms to conceal ownership, such as new types of trusts.
• Leaked information has become the key source of public information about tax dodging by multinational corporations. But it comes at a high price for the people involved, as whistleblowers and even a journalist who revealed tax dodging by multinational corporations are now being prosecuted and could face years in prison. The stories of these 'Tax Justice Heroes' are a harsh illustration of the wider social cost of the secretive and opaque corporate tax system that currently prevails.
• More than 100 developing countries still remain excluded from decision-making processes when global tax standards and rules are being decided. In 2015, developing countries made the fight for global tax democracy their key battle during the Financing for Development conference (FfD) in Addis Ababa. But the EU took a hard line against this demand and played a key role in blocking the proposal for a truly global tax body.

Not one single EU Member State challenged this approach and, as a result, decision-making on global tax standards and rules remains within a closed 'club of rich countries'.
A direct comparison of the 15 EU countries covered in this report finds that:

France, once a leader in the demand for public access to information about what multinational corporations pay in tax, is no longer pushing the demand for corporate transparency. Contrary to the promises of creating 'transparency', a growing number of EU countries are now proposing strict confidentiality to conceal what multinational corporations pay in taxes.

Denmark and Slovenia are playing a leading role when it comes to transparency around the true owners of companies. They have not only announced that they are introducing public registers of company ownership, but have also decided to restrict, or in the case of Slovenia, avoided the temptation of introducing, opaque structures such as trusts, which can offer alternative options for hiding ownership. However, a number of EU countries, including in particular Luxembourg and Germany, still offer a diverse menu of options for concealing ownership and laundering money.

Among the 15 countries covered in this report, Spain remains by far the most aggressive tax treaty negotiator, and has managed to lower developing country tax rates by an average 5.4 percentage points through its tax treaties with developing countries.

The UK and France played the leading role in blocking developing countries' demand for a seat at the table when global tax standards and rules are being decided.

To read a summary of the report, please click here.

A summary of the report is here.

The full report is here or here.

Stephen Rhodes, November 3, 2015 at 11:00 am

Or try this, kids:
Class Actions vs. Individual Prosecutions
Jed S. Rakoff NOVEMBER 19, 2015 NYRB
Entrepreneurial Litigation: Its Rise, Fall, and Future
by John C. Coffee Jr.
Harvard University Press, 307 pp., $45.00
http://www.nybooks.com/articles/archives/2015/nov/19/cure-corporate-wrongdoing-class-actions/

[Nov 04, 2015] Oil Market Needs Another Month to Decide If the Rebound Is for Real

Notable quotes:

"... Production in the U.S. will drop 1 million barrels a day from the peak by early 2016, Vitol SA Chief Executive Officer Ian Taylor said at a conference in London. ..."

"... "Prices have not gone down below $40 a barrel for the last three months so maybe it is at the bottom," Omair said. ..."

finance.yahoo.com

Oil prices will increase if global economic growth improves, and high-cost production is cut, Omair said. "If the situation is as it is then the only parameter will be the withdrawal of the high-cost production." Brent rose 0.4 percent to $50.72 a barrel at 12:31 p.m. on the London-based ICE Futures Europe exchange.
The number of rigs drilling for oil in the U.S. slumped to a five-year low last week as producers curbed investment because of low prices. Brent has slumped 38 percent in the past year, falling to as low as $42.23 a barrel in August.
More from Bloomberg.com: That Time I Tried to Buy an Actual Barrel of Crude Oil
U.S. crude output will retreat by about 10 percent in the 12 months ending April, according to Daniel Yergin, vice chairman of IHS Inc. Prices are near a bottom and global supplies look set to close the gap with demand amid declining output, he said in Tokyo on Oct. 30. Production in the U.S. will drop 1 million barrels a day from the peak by early 2016, Vitol SA Chief Executive Officer Ian Taylor said at a conference in London.
Oil failed to sustain a gain above $50 a barrel last month as OPEC pumped above its quota for the past 17 months. "Prices have not gone down below $40 a barrel for the last three months so maybe it is at the bottom," Omair said.

[Nov 02, 2015] Foreign Banks Such as Deutsche Using Variant of Lehman Repo 105 Balance-Sheet Tarting Up Strategy

Notable quotes:

"... Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales ..."

"... "It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…." ..."

"... Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly. ..."

"... The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105." ..."

"... Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that. ..."

"... In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was. ..."

"... Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense ..."

"... Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media. ..."

"... Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105 ..."

Nov 02, 2015 | naked capitalism
Deep Thought November 2, 2015 at 9:11 am

Lehman was engaging in blatant misreporting, treating these "repos" (in which a bank still shows them on its balance sheet as sold with the obligation to repurchase) as sales

Thank you for writing this bit. All the explanations I've read of Repo 105 seemed to be missing the step where liabilities were actually reduced – because what's the difference between an asset and an obligation/contract to buy said asset in X hours time?

So I'm glad a more financially astute mind than mind wrote down what I'd suspected, that real liabilities weren't actually reduced by Repo 105 and it's just window dressing to fool the regulators. I'd hazard that it actually makes the situation worse, because it's pretty expensive window dressing and that's real cash that has to head out the door once a quarter.

tawal November 2, 2015 at 10:44 am

Turning all the brokerages into bank holding companies, where now they all have a calendar year end and can't temporarily hide their trash on each other's books, but can all hide it on the Fed's unaudited balance sheet.

Why isn't Deutsche Bank doing this too, and are UBS, Barclays and HSBC the next to fail?

fresno dan November 2, 2015 at 10:34 am

"It also emerges that the NY Fed, and thus Timothy Geithner, were at a minimum massively derelict in the performance of their duties, and may well be culpable in aiding and abetting Lehman in accounting fraud and Sarbox violations…."

Upon finding this out, tire squeal, sirens wail, lights flash, and grim faced men rush to take into custody little Timmy Geithner and serve warrants a the New York FED….

LOL – of course not. Most government officials, of BOTH parties, would say Timmy Geithner and his ilk performed fantastically….
After all, he worked hard to prop it up…. If you remove the corruption, the double and self dealing, price fixing, fraud, ad infinitum, and how could the system continue as constituted? And the people at the top of the system thinks it works very well indeed.

Chauncey Gardiner November 2, 2015 at 12:30 pm

This issue is unsurprising to me. Many signs over the past couple years of deeply troubling matters at this TBTF: CEO resignations, NY Fed criticisms of systems and financial reporting (as Yves pointed out), participation in market manipulations, billions in writedowns, suicide death of bank's regulatory lawyer, massive derivatives exposures, central bank calls for increased capital, etc.

Although I hope the bank's newly appointed CEO is able to implement measures to rectify these problems, if DB "goes Lehman", I suspect it will occur much as Lehman did: quite suddenly.

Recalling Ernest Hemingway in "The Sun Also Rises":
"How did you go bankrupt?" Bill asked.
"Two ways," Mike said. "Gradually and then suddenly."

JustAnObserver November 2, 2015 at 1:42 pm

Deutche Bank = Germany's RBS (Royal Bank of Scotland) ?

All the Eurozone's nightmares since 2010 have been down to a desperate attempt to postpone DB's "Minsky Moment" ?

I did see a report that DB is withdrawing from a number of countries but Wall Street wasn't on that list. Interestingly the list includes all the Scandinavian countries as well as the usual suspects – Mexico, Turkey, Saudi, etc.

Oliver Budde November 2, 2015 at 2:03 pm

The 5% "fee" referred to in the fourth paragraph of the FT excerpt above is not the interest rate charged on the loan but instead is the over-collateralization amount provided by Lehman in exchange for a short-term cash loan. A normal repo loan is over-collateralized at perhaps 2%. Lehman's and its outside auditors Ernst & Young's 'genius' was in discovering some language in 2001 or so in the then recently amended FAS 157 accounting guidance (all such guidance has been revised and renumbered in the meantime) which suggested indirectly that if the rate of over-collateralization was bumped up enough, you could pretend you sold the collateral instead of pledging it as collateral. So instead of pledging the normal 102% of the loan amount in collateral, Lehman asked lenders to please take more than that: 105%, hence "Repo 105."

Most of Lehman's lenders wouldn't touch the scam because it was so obvious, but a few non-U.S. banks were happy to oblige Lehman. One was Deutsche Bank, to the tune of many billions of dollars over the years. Not that that had anything to do with ex-Deutsche General Counsel for the Americas Rob Khuzami's decision, once he became Obama's Enforcement Head at the SEC beginning in 2009, to give Lehman, EY, Deutsche and the other lenders a pass on all that.

The few banks who did dare to help out Lehman of course charged higher than market rates for those loans, even though they held an extra 3% in collateral, which was always made up of high quality Treasury bonds and the like. Those lenders charged more anyway, because they knew what Lehman was up to and knew they could wring out some extra cash in exchange for 'aiding' Lehman in its needs. Lehman gladly paid the higher interest.

In no way did the drafters of the accounting guidance ever say, here's a way to scam the market, have at it. But then again those drafters are a committee of CPAs from all the big firms and elsewhere, including several from EY. So who knows how deliberate the set up was.

The scam began in 2001 or so and while it may not have been what blew up Lehman in 2008, it did importantly mislead a lot of people in 2007 and 2008, when its use was ramped up dramatically. And it put extra bonus money into the Lehman executives' pockets, year in and year out. No wonder others seek to emulate it.

Tom November 2, 2015 at 3:56 pm

Deutsche Bank has hugely profited from the end of the Deutschland AG at which head it once was. Thanks to chancellour Schroeder and his finance minister Eichle (the successor after Lafontaine was kicked who went on to found the left party) Deutsche and the other big German banks got to sell their industry portfolios without paying a penny of tax. It is common knowledge among industry watchers that this money ended up as bonuses for the "masters of the universe" at the Anglo-Saxon part of the bank which basically took over the whole bank. First invisibly and then all to visible when Jain became CEO. German industry is now owned by Blackrock and the like. Homi soit qui mal y pense

RBHoughton November 2, 2015 at 8:04 pm

Geithner's amorality and dereliction of duty has been apparent since his testimony in Starr v USA. Somehow these big names are protected by the supine media.

Thank Heavens for NC – one of the most important of a handful of sites that fearlessly report. Fingers crossed we can build a new media industry around this nexus of quality.

Pearl November 2, 2015 at 8:41 pm

Yves,

Couldn't the NY State Superintendent of Financial Services pull Deutsche's U.S. Banking License? I thought this is what Ben Lawsky was intimating in this (nearly) one year old interview on Bloomberg, in which he (hints at?) the pulling of Deutsche's license, even though he was not at the time talking about Repo 105:

http://www.bloomberg.com/news/videos/2014-12-11/banks-are-taking-cybersecurity-seriously-lawsky-says-video

I know it may not be likely that Deutsche's U.S. banking license would get pulled, but it is possible, isn't it?

(btw, here is what Lawsky is doing now:)

http://nypost.com/2015/05/20/ny-financial-watchdog-ben-lawsky-leaving-to-start-firm/

If enough folks became vocal (enough) about the issue–couldn't we make a difference this time? ("We," as in ordinary housewives from Roswell, GA and humble bloggers such as the illustrious Yves Smith?".) ;-)

I think you are waaaay more famous than you think you are, Yves. Indeed, you are universally one of the most well-respected and straight-shooting authors/academics/authorities on such subjects. And I think Mr. Lawsky would take your call or reply to an email if written by you.

I spoke with his staff (yes, me–a housewife from Roswell, GA) when he was at DFS during my "Ocwiteration Perseveration" days of yore, and his staff was unusually generous with their time and they seemed genuinely appreciative to get info and feedback from just regular folks.

I think Mr. Lawsky himself would be thrilled to hear from someone like you. And I think the two of you would be an extremely formidable team.

I just don't want to give up on this. It's too important. At the very least, I will forward to him this post of yours.

Thanks again for everything you do, Yves.

[Nov 02, 2015] Low Oil Prices Could Persist Through 2016

This game became really interesting if prices will remain low for oil all 2016. That's another 200 billion stimulus for the US economy. People are genetically biased against change, because change means potential danger. People are also genetically biased against acknowledging this bias, because they wish to see themselves as being able to cope with both change and danger. Put together, this means that when changes come, people are largely unprepared or underprepared. This little bit of psychology 101 may seem redundant, but it is indispensable if we are talking about the current oil price slump...

Notable quotes:

"... The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016. ..."

"... U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015. ..."

"... ... ... ... ..."

"... However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April. ..."

Nov 02, 2015 | OilPrice.com

A group of investment banks are becoming increasingly gloomy about the direction of oil prices in the near-term. A Wall Street Journal survey of 13 investment banks found a growing degree of pessimism about the oil markets.
The average estimate from the banks for oil prices is for Brent to average just $58 per barrel in 2016, and WTI to trade for $54 per barrel. But just a few months ago, the same survey showed that the banks expected oil prices to average $70 per barrel in 2016.
The growing pessimism is in part due to the potential slowdown in demand, particularly from China. At the same time, Russia and OPEC nations continue to produce at elevated levels. Only U.S. production appears to be declining in any substantial way. U.S. oil output is down to around 9.1 million barrels per day from a peak of 9.6 million barrels per day reached in April 2015.

... ... ...

... producing in places like the Permian Basin is still very much profitable today, even with prices at $50 per barrel or lower. While North Dakota, Louisiana, or Colorado have seen drilling grind to a halt, drilling in the Permian Basin in West Texas is still going strong. In fact, many oil companies are scrapping drilling in other parts of their portfolio and expanding their footprint in the Permian. As a result, production from the Permian is still rising. The Permian stands out because of the abundance of oil and gas in place, making each well more lucrative than a similar well in another basin.

However, while the Permian will slow oil market balancing, it won't be able to compensate for the loss of production elsewhere. Overall, U.S. production is in decline. Most of the loss in U.S. output has come from the Eagle Ford in South Texas, which has shed over 227,000 barrels per day in output since April.

[Nov 02, 2015] It's Difficult to Make Predictions, Especially About the Future OIl Prices

Initially Statoil was looking for $60 in 2016, $70 in 2017 and $80 in 2018, for planning purposes.

Notable quotes:

"... Mark Hanson, an analyst for Morningstar in Chicago, said the days of huge price cuts are nearly over."I don't think there is going to be meaningful reduction from here," he said. "To use a baseball analogy, you are probably in the seventh or eighth inning." ..."

"... Given that many US oil companies were cash flow negative prior to the price collapse, do you think that US oil companies will be able to increase production in the future without being cash flow negative? ..."

"... As there is a time lag of six to nine months between initial capex decision and actual production, it is in my view premature to have a final say about current emerging capital efficiency. The production numbers we have now are the harvest of the capex in the last quarter of 2014. ..."

"... Range Resources had for example 400 mill capex in 4q14, which came down to just 188 mill in 3q15, when production went up 20% year over year. This is in my opinion not extremely capital efficient , yet is a harbiger of much lower production in the months ahead. ..."

"... "We think that the price level now is too low," Eirik Waerness, chief economist and vice-president at Statoil ASA, said in an interview in Singapore on Thursday. "Some people will stop exploring for oil. With oil prices around $50, you get a stimulus for demand growth. That will tighten the market." Crude is expected to climb to $80 a barrel in 2018 and increase gradually after that as existing supplies get used up, he said. ..."

"... the way this usually works the government will react and change taxes. As increased taxation takes effect production starts to drop. Evidently the Russian government is reluctant to change the current rates to signal it has a reliable tax system which allows investments to proceed with a very long term outlook. But I expect they'll be putting on the squeeze if they haven't done so. ..."

peakoilbarrel.com

R Walter , 11/01/2015 at 8:10 am

Using Mr. Peabody's Wayback Machine, I found this quote:
"We will never see eighty five dollar oil again except maybe as the whiplash negative feedback response to a sudden spike as happened the last time prices spiked very high. Think five hundred car pile up on a freeway after that happens with everybody flying and then traffic stopped or almost stopped with nobody buying but a lot of people contracted to take delivery- and the gasoline and diesel piling up at the retail end. Prices may collapse temporarily into the eighties or even lower but only for a few weeks or months." – Old Farmer Mac

http://peakoilbarrel.com/enno-peters-post/

Oil is at 45, so the price can fall and it did. 147 to 135, 125, 115, 105, 95, 85, 75, 65, 55, 45, then as low as 39, back to 45 and holding. Nowhere near 85, let alone 100. 45 dollars is a dead man walking.

Wendell Lawson, the character played by Burt Reynolds in the movie 'The End', was swimming out to sea to make his final exit, deciding he wanted to live, he turned back and began to swim to shore.

"90 percent, Lord, I'll give you 90 percent if you get me out of this." As he swam closer, the pledge began to decrease, it falls to 80 percent, then to 70 percent, by the time he got back to shore, the Lord was not getting much. When Sonny Lawson finally got there, Marlon Borunki, played by Dom Deluise, started to shoot rounds from a pistol at Sonny. He was helping out Wendell to kill himself.

It was funny.

The kind of help the oil industry is getting.

Dennis Coyne , 11/01/2015 at 11:34 am
I thought output would decrease at these prices much faster than they have. Until output drops prices will remain under 85 per barrel. Lots of people are wrong on oil prices. Only very wide guesses will be correct such as 5 to 200 per barrel.

Fernando Leanme , 11/02/2015 at 3:52 am
40 to 150 over the next 30 months.
Dennis Coyne , 11/02/2015 at 8:08 am
Hi Fernando,
That is probably wide enough to get it right. I have seen some really bold price predictions from others such as, the oil price will be a positive number.

I have lost confidence in my ability to predict future oil prices so $15/b to $200/b over the next 60 months(in 2015$) is about the best I could do. There are others who will only go so far as to say that oil prices will be "low" or "high" in the future which means very little with no number attached.

old Farmer Mac , 11/02/2015 at 6:46 pm
I made a fool out of myself that time sure enough by forgetting to add my usual weasel words such as barring miracle breakthroughs, the economy being in assisted living mode etc.
It ( warning attempted humor) is all the fault of them there pinko commie environmental types that hang out in forums such as this one misleading me into believing that oil comes out of holes in the ground and does not grow back, that the population is growing and wanting more oil, etc etc.

Seriously I forgot to consider the possibility that bankers would continue to loan money to tight oil losers at zero percent, that Russia and Saudi Arabia would be at war with the price of oil being the only real weapon the Saudis can bring to bear etc.

The industry moves a lot slower than I thought, no question. It is taking a LOT longer than I would have thought for high cost producers to cut back their money losing production. Everybody with a barrel to sell seems to be really desperate for cash and willing to run in the hole to put their hands on it. Sooner or later enough production is going to be curtailed to put the price back into black ink territory for high cost producers.

MarbleZeppelin , 11/01/2015 at 8:23 am
Referring to Ovi's graph above.
There is a 4.6% drop in production from March to August which gives a monthly loss of 0.92%.
Alternatively from January to March there was a 5,6% gain in production. That gives a gain of 2.8% per month.
Overall the graph shows a 1.4% gain in production or 0.14% gain in production per month.
The graph does indicate the ability to increase production generally faster than it declines.
The range is quite wide and the timescale short so it is not feasible to determine the typical range of variation or extrapolate future production.
The only conclusion that can be made from this graph requires other sources of information, such as the current economic situation in the oil fields. One might conclude that this particular downturn in production is due to economic constraints involving low cash flow and loan contractual terms. The economic constraints lead to the need for a further analysis of situational parameters in the economic environment, such as involvements with other energy sources, demand analysis, efficiency changes as well as psychological changes in the social/political structure.

AlexS , 11/01/2015 at 5:15 pm
Big U.S. shale oil savings fast becoming a thing of the past
http://www.reuters.com/article/2015/10/30/oil-results-costs-idUSL1N12M2KI20151030

Huge cost savings are waning for U.S. shale oil companies, marking an end to the drastic price cuts on equipment and services over the past 16 months that helped them survive the worst industry downturn in six years.

Companies including Anadarko Petroleum Corp, ConocoPhillips and Occidental Petroleum Corp have saved millions on drilling and fracking wells in Texas, Colorado and North Dakota since the oil price slide started by demanding that oilfield service companies slash prices by 20 percent to 30 percent or more.

Those savings, coupled with big gains in rig productivity that allowed more oil to be pumped with less equipment, created a lifeline for companies coping with a more than 50 percent drop in crude prices. But productivity gains have stalled in the last few months and deflation may be slowing as well, just as producers try to withstand a lower-for-longer price outlook.

ConocoPhillips has seen its onshore drilling and completion costs fall. More savings are expected, but not as much.

"If prices stay low and activity levels stay low I think you will see more pressure on deflation, but not another magnitude of the leg down we've seen so far," Jeff Sheets, Conoco's chief financial officer, told Reuters on Thursday.

The U.S. rig count has fallen by more than half from a year ago when nearly 1,600 rigs were working, so companies that lease rigs or do hydraulic fracturing have offered double-digit discounts to get work contracts.

When asked if cost deflation is likely to continue, Darrell Hollek, head of U.S. onshore exploration and production at Anadarko, told analysts on Wednesday the company continues to see decreases in prices, but those declines are not "as significant as what we saw earlier in the year."

In West Texas, Occidental said the cost for a 4,500-foot well has fallen 45 percent from a year earlier to $6.3 million now. The company said on a call with analysts it expects costs to come down more, but did not say by how much.

RigData, which tracks oilfield activity, forecast cost declines for U.S. onshore wells of $1.2 million on average in 2015, a drop that is unlikely to be repeated next year, Trey Cowan, senior industry analyst with RigData, said.

Currently, operators are drilling wells in so-called sweet spots that produce the most oil and gas. After they go through that inventory and move on to less prolific spots, it will cost more to drill, said Cowan.

The chief executive of Baker Hughes, Martin Craighead, on the third-quarter conference call of the oilfield services giant, downplayed more cuts when an analyst asked if his company could offer additional cost reductions of 15 percent to 30 percent.

"You are just not going to get out there and take your hats off to any customer," Craighead said. "They are going to obviously try to get as much as they can and there will be a point where it just doesn't make any sense."

Mark Hanson, an analyst for Morningstar in Chicago, said the days of huge price cuts are nearly over."I don't think there is going to be meaningful reduction from here," he said. "To use a baseball analogy, you are probably in the seventh or eighth inning."

shallow sand , 11/01/2015 at 7:15 pm
AlexS. Thanks for the post!
Given that many US oil companies were cash flow negative prior to the price collapse, do you think that US oil companies will be able to increase production in the future without being cash flow negative?

It seems to me that if oil prices shoot back up at some point, service rates will also.

Our lowest two OPEX years since 2006 will be 2009 and 2015. The highest 2008 and 2013.

I really question whether US oil companies will ever be able to be "growth" companies anytime soon.

Heinrich Leopold , 11/02/2015 at 3:40 am
AlexS,
As there is a time lag of six to nine months between initial capex decision and actual production, it is in my view premature to have a final say about current emerging capital efficiency. The production numbers we have now are the harvest of the capex in the last quarter of 2014.

It will be interesting how the production numbers will develop over the next few months. Range Resources had for example 400 mill capex in 4q14, which came down to just 188 mill in 3q15, when production went up 20% year over year. This is in my opinion not extremely capital efficient , yet is a harbiger of much lower production in the months ahead.

HR , 11/02/2015 at 9:30 am
Heinrich, I am using the same logic as you. I guess the question is how long before reduced capex turns into lower production.
shallow sand , 11/02/2015 at 7:44 am
Statoil sees no oil price recovery till 2018. Any guesses on what that scenario does to US oil production?
Dennis Coyne , 11/02/2015 at 8:19 am
Hi Shallow sand,
What does price recovery mean?

Is that an oil price below $60/b until 2018?

If so, I would expect US C+C output will fall to 6 Mb/d by 2018, possibly more, however, the oil price prediction will likely be incorrect as the fall in oil supply will lead to an earlier price recovery in 2016 or 2017 at the latest. By price recovery I mean an oil price above $75/b in 2015$.

shallow sand , 11/02/2015 at 10:09 am
Dennis. It is difficult to tell from the CNBC article, but looks to me that initially Statoil was looking for $60 in 2016, $70 in 2017 and $80 in 2018, for planning purposes. Now, possibly, they are looking at below $60 to 2018.
I still feel that OPEC will cut at some point, the question is when. Read an analyst who thought they should 12/4, but would not to save face, as US production has not fallen much and Russian production has not fallen at all (see AlexS post herein). So very possible there will not be a production cut until US production falls significantly, maybe not till late 2016

AlexS , 11/02/2015 at 10:55 am
shallow sand,
Statoil expects $80 by 2018. Here is a Bloomberg article:

'Too Low' Crude Prices Seen Rising to $80 in 2018 by Statoil

http://www.bloomberg.com/news/articles/2015-10-29/-too-low-crude-prices-seen-rising-to-80-in-2018-by-statoil

Supply growth seen falling amid industry cost-cutting

Current high oil inventories preventing price recovery

Crude prices that have almost halved in the past year are unsustainable at current levels as cuts to investments and postponement of projects will lead to a decline in supply growth, according to Norway's biggest oil company.

"We think that the price level now is too low," Eirik Waerness, chief economist and vice-president at Statoil ASA, said in an interview in Singapore on Thursday. "Some people will stop exploring for oil. With oil prices around $50, you get a stimulus for demand growth. That will tighten the market." Crude is expected to climb to $80 a barrel in 2018 and increase gradually after that as existing supplies get used up, he said.

Oil slumped more than 44 percent in the past year as U.S. stockpiles expanded at a time when OPEC producers bolstered output to retain market share, exacerbating a global supply glut that the International Energy Agency estimates will remain until at least the middle of 2016. Producers hurt by the collapse in prices have had to fire workers, cancel projects and sell oil fields to conserve cash. Statoil on Wednesday announced cuts to planned investments in 2015 by $1 billion to $16.5 billion.
"The question is how much of the current change in the industry will lead to long-term cost reductions," said Waerness. When "demand becomes larger than supply, and we will start drawing down storages. The market will suddenly realize that there's very little spare capacity out there."

"The underlying trend is that it's going to come up, but it's going to take a while," Waerness said, referring to prices. "One of the reasons why it takes a while is because the storage is too high, and therefore the price mechanism doesn't really work."

AlexS , 11/02/2015 at 8:43 am
Russian Crude Output Hits Post-Soviet Record Defying Price Slump
http://www.bloomberg.com/news/articles/2015-11-02/russian-crude-output-hits-post-soviet-record-defying-price-slump

October output averaged 10.776 million barrels a day

Oil exports increased 10% compared with October last year

Russian oil production broke a post-Soviet record in October for the fourth time this year as earlier investments boosted output and producers prove resilient to lower crude prices.

Production of crude and gas condensate, which is similar to a light oil, averaged 10.776 million barrels a day during the month, according to data from the Energy Ministry's CDU-TEK unit. That is an increase of 1.3 percent from a year earlier and up 0.3 percent from the previous month.

"Russian oil production is still reflecting oil prices above $100 a barrel due to long lead times in the investment cycle," Alexander Nazarov, an oil and gas analyst at Gazprombank JSC, said by e-mail from Moscow. "The reason behind growth this year dates back to 2010-2014, when a number of projects were financed."

---------------
My comment:
– Using 7.3 barrels per ton conversion rate, Russian C+C production was 10,731 kb/d.
– The industry only reduced production m-o-m in 2015 in April and July, indicating stable performance.
– The companies' upstream margins are supported by weaker rouble and progressive tax system with a very steep scale.
– There are no signs of reduced investment/drilling activity in the sector in rouble or volume terms.

Russian C+C production (mb/d) (7.3 bbl/ton conversion rate)
Source: Russia's Energy Ministry

Dennis Coyne , 11/02/2015 at 8:55 am
Hi AlexS,
Thanks. Has there been any slow down in new oil field developments in Russia due to the lower oil price environment? I wonder if lower capital investment today may result in a fall in Russian output (or possibly an end to the recent growth in output) a few years down the road. Is your expectation a continued plateau in output between 10.6 and 10.7 Mb/d, even if oil prices remain under $60/b (2015$) until 2018?

Fernando Leanme , 11/02/2015 at 9:42 am
Dennis, the way this usually works the government will react and change taxes. As increased taxation takes effect production starts to drop. Evidently the Russian government is reluctant to change the current rates to signal it has a reliable tax system which allows investments to proceed with a very long term outlook. But I expect they'll be putting on the squeeze if they haven't done so.

AlexS , 11/02/2015 at 3:46 pm
Dennis,
Development capex increased in local currency terms in 2015.

From the IEA OMR: "Record high output follows a boom in development drilling, up 8.9% y-o-y for the first 8 months of 2015 compared with the same period a year earlier, as well as a greater share of horizontal wells and a continued focus on brownfield maintenance."

The IEA now expects Russian oil production to decline by 85 kb/d in 2016. But in July they were expecting a decline of 120 kb/d.

Similarly, the IEA had projected a decline of 140 kb/d for 2015 (January 2015 OMR), and now they forecast an increase of 110 kb/d (October 2015 OMR).

As regards longer-term prospects, new projects, which are expected to come onstream in the next 5 years, are on schedule. Only some Arctic offshore projects were postponed, but they were not expected to start production before 2020-2025.

The Energy Ministry's long term projections anticipate more or less flat production until 2035. I think production can be maintained close to current levels in the next 5-6 years. Longer term prospects depend on the development of the new resource base in the Arctic offshore and unconventional resources, such as tight oil

Green People's Media , 11/02/2015 at 1:50 pm
Ron, have you (or your readers) seen this one yet? As a regular follower of Peak Oil Barrel I have to count myself a "BP Skeptic" with regard t o this headline "BP sees technology nearly doubling world energy resources by 2050."
It's the ancient "technology will save us" mantra re-applied. Wondering if you or any readers have any wisdom or insights on this article. Where is BP getting the claim of a doubling of "global reserves?" (Not daily production in MM Bbl/day, just "reserves," mind you.

http://finance.yahoo.com/news/bp-sees-technology-nearly-doubling-world-energy-resources-143523912–finance.html

Doug Leighton , 11/02/2015 at 3:32 pm
Well it was BP who developed (and deployed) wide azimuth towed streamer technology which totally revolutionized marine seismic acquisition and decades before that they invented hydraulic fracturing (in the 1940s, I think) plus they pioneered ways of refining so-called dirty oil so God knows what kind of stuff they've got up their sleeve. Actually, credit where it's due, wasn't it BP who gave birth of the offshore oil/gas industry with exploitation of the North Sea via development of the Forties platform, what, 50 odd years ago.

Fred Magyar , 11/02/2015 at 4:53 pm
Yes, I read that article and almost posted it myself. There is so much contradictory information in that article that I think one would really need to read BP's actual press release. It's quite the mish mosh.
Just this little tid bit should underscore what I mean:

When taking into account all accessible forms of energy including nuclear, wind and solar, there are enough resources to meet 20 times what the world will need over that period, David Eyton, BP Group Head of Technology said.

"Energy resources are plentiful. Concerns over running out of oil and gas have disappeared," Eyton said at the launch of BP's inaugural Technology Outlook.

Oil and gas companies have invested heavily in squeezing the maximum from existing reservoirs by using chemicals, super computers and robotics. The halving of oil prices since last June has further dampened their appetite to explore for new resources, with more than $200 billion worth of mega projects scrapped in recent months.

By applying these technologies, the global proved fossil fuel resources could increase from 2.9 trillion barrels of oil equivalent (boe) to 4.8 trillion boe by 2050, nearly double the projected 2.5 trillion boe required to meet global demand until 2050, BP said.

With new exploration and technology, the resources could leap to a staggering 7.5 trillion boe, Eyton said.

So basically BP is counting on alternative energy sources, electric vehicles, carbon taxes and reduced demand on top of new discoveries for which they no longer have financial incentives, to all come together to increase resources… Yeah, right!

The article stinks!

Watcher , 11/02/2015 at 5:53 pm
If profit is not relevant to the exercise, a great deal more oil can come out of the ground than we have believed.

[Nov 02, 2015] Peak Oil Review - Nov 2

Notable quotes:

"... Goldman Sachs continues to talk about the possibility of a major price drop in the next year as global capacity to store more crude and oil products runs out. There have been a number of analyses concluding that this will never happen, however, as there is still much storage space available. ..."

"... It is generally believed that US shale oil production will drop further in the coming year but that it will be offset by increased production overseas. ..."

"... Tehran will officially notify OPEC next month that it plans to increase production by 500,000 b/d and that it expects other OPEC members to cut production by enough to keep the cartel's production below the agreed-upon 30 million b/d ceiling. OPEC has been producing about 1.7 million b/d above this ceiling lately. ..."

www.resilience.org

originally published by ASPO-USA | TODAY

... ... ...

Goldman Sachs continues to talk about the possibility of a major price drop in the next year as global capacity to store more crude and oil products runs out. There have been a number of analyses concluding that this will never happen, however, as there is still much storage space available. People with greater insight into this issue point out the problem is much too complex to be determined with a simple recitation of EIA tank capacity. Serious storage problems could still arise due to the spare storage capacity being in the wrong place or being of the wrong type for the liquid needing to be stored. The EIA says it really cannot calculate the amount of "swing space" necessary to keep operations flowing smoothly. There have already been reports of shortages of distillate storage in the New York area.
It is generally believed that US shale oil production will drop further in the coming year but that it will be offset by increased production overseas. Iran announced this week that it is preparing to increase its production by 500,000 b/d, which should be enough to offset a large part of the decline in US production we have seen in recent months. This assumes that Tehran can sell its additional barrels which may be difficult without substantial price discounts. The future of the Chinese and US economies remains the major unknown. Chinese crude imports have held up pretty well this year despite its economic slowdown. Much of this is due to low prices which have allowed Beijing to fill its newly built strategic stockpile tanks and to feed new refining capacity. These new refineries are simply dumping more oil products on the world markets rather than increasing domestic oil consumption.
Like the Chinese economy, that of the US seems to be slowing of late. While there has been much publicity about growing gasoline consumption in the US, this is obviously due to low prices which now average about $2.18 a gallon. The weak earnings reports from the oil industry and announcement that GDP growth fell to 1.5 percent in the third quarter from 3.9 percent in the second quarter raises questions about how long US demand for oil products will hold up. There are already tentative indications that the recent growth in gasoline consumption is starting to slip despite the falling prices.
... ... ...

Iran: Tehran will officially notify OPEC next month that it plans to increase production by 500,000 b/d and that it expects other OPEC members to cut production by enough to keep the cartel's production below the agreed-upon 30 million b/d ceiling. OPEC has been producing about 1.7 million b/d above this ceiling lately.
Iran has proposed establishing an oil and gas swap with Russia as it has had in place with Turkmenistan, Kazakhstan, and Azerbaijan for over a decade. Under this arrangement, the Iranians would receive gas and oil along their northern border for domestic consumption and then ship a similar quantity from its Gulf ports to Russia's customers. This presumably would save on transportation costs and difficulties in moving oil and gas produced in Central Asia to world markets.
In the wake of the nuclear agreement Tehran has been feeling its oats by announcing plans to become the largest oil and gas producer. At a conference last week, the Iranians said they will need about $250 billion in new investment in the next ten years. Given the massive cutbacks by nearly all the international oil companies in recent months, the possibility of foreign investment on such a scale is remote.

[Nov 02, 2015] Interesting to see the large publicly traded companies are selling legacy assets

Notable quotes:

"... Edit: I found the answer. Per a 2013 National Geographic article, all Bakken and TFS wells require water flushing such that when the field is fully developed with 40-45K wells, the field will require in excess of 10 billion barrels of fresh water annually. ..."

"... Throw on top that the companies have added to product gathering and salt water disposal costs by selling of this infrastructure to raise cash, I believe long term ND oil production will be among the hugest cost in the lower 48 on strictly an operating basis. ..."

"... shallow sand, For big oil companies, selling and buying assets is a constant process. They are "optimizing asset portfolio" ..."

"... Sunk-cost fallacy occurs when people make decisions about a current situation based on what they have previously invested in the situation. For example, spending $100 on a concert and on the day you find that it's cold and rainy. You feel that if you don't go you would've wasted the money and the time you spent in line to get that ticket and feel obligated to follow through even if you don't want to. It's is cold and rainy in the oil industry right now. ..."

"... Yes, but if the $30,000/acre price Aubrey McClendon paid is typical, it looks like oil gas asset prices in the Permian Basin are hotter than ever. And this despite the drop in oil prices. ..."

"... Just imagine, McClendon paid over $30,000 per net acre for leasehold working interest, with oil at $45. ..."

peakoilbarrel.com

shallow sand, 10/31/2015 at 9:56 am

Interesting to see the large publicly traded companies are selling legacy assets.
In particular, Chevron is selling its interest in the Seminole San Andreas Unit in Gaines Co., TX. The unit is generating them over $400K per month. It is a CO2 flood still producing over 20K BOE per day gross, and is operated by Hess.

Shell is selling a large block of lower 48 royalty interests located in 10 states, generating over $250K per month.

Chevron is also selling another legacy block of conventional wells operated by them in the Permian Basin, which currently generates over $300K per month.

What is also interesting is of all is these are all listed for sale on the Internet auction. IMO they are selling these assets at a really poor time. Are even the super majors in need of cash to the extent they would sell premium onshore lower 48 assets at the low end of the market? Maybe they do not see a rebound anytime soon? Yikes. However, the same things happened in 1998 and many buyers hit it big with prices from late 1999-2014.

Also looked at conventional wells for sale in Dunn Co. ND. They are under water with oil at the well around $30. I note that the wells produce super saturated salt water and require fresh water flushes to operate. Watcher has mentioned this before. These wells are in the Duperow formation. Do middle Bakken and TFS require large amounts of fresh water also?

Edit: I found the answer. Per a 2013 National Geographic article, all Bakken and TFS wells require water flushing such that when the field is fully developed with 40-45K wells, the field will require in excess of 10 billion barrels of fresh water annually.

Looking at the production and lease operating statements for the older conventional wells I examined, I estimate 10+ year old middle bakken and TFS wells will need over $50 WTI just to break even on an operating basis, not including any work over expense.

North Dakota wells are at a distinct disadvantage due to the salt issue.

Throw on top that the companies have added to product gathering and salt water disposal costs by selling of this infrastructure to raise cash, I believe long term ND oil production will be among the hugest cost in the lower 48 on strictly an operating basis.
Doug Leighton,10/31/2015 at 10:09 am
Perhaps selling off assets looks better than borrowing money from a bank to pay dividends to your shareholders? Watcher would probably know the answer to this.
AlexS,10/31/2015 at 10:34 am
shallow sand, For big oil companies, selling and buying assets is a constant process. They are "optimizing asset portfolio"
Glenn Stehle,10/31/2015 at 10:46 am
shallow sand said:

IMO they are selling these assets at a really poor time.

It's hard to tell, since everything hinges on what happens in the future. One thing is for sure, and that is that Permian Basin O&G assets are, despite the low oil and gas prices, still selling for several times what they sold for in the pre-shale days.

Take Concho Resources purchase of Marbob in 2010, for instance:

Based on the acquisition price, Concho's purchase is equivalent to $19.84 per BOE of proved reserves and $104,167 per flowing barrel.

http://www.b2i.us/profiles/investor/NewsPrint.asp?b=1977&ID=40931&m=rl

Concho picked up 150,000 net acres in the deal. That's a little bit north of $8,000 an acre. At the time of the sale, the old timers thought Marbob's founder and president, Johnny Gray, had cut a fat hog. But if you compare $8,000 an acre to the more than $30,000 per acre Aubrey McClendon just paid, it looks like Gray sold too soon. One could find other comps, but I think the price of Permian Basin O&G assets over the past 15 years has been consistently upwards.

Ves, 10/31/2015 at 12:26 pm
Shallow,
Analyzing why the companies are selling legacy properties that make some money at this moment can lead you to the trap called "sunk cost fallacy". "Sunk cost fallacy" is exactly the same for big oil companies as for individuals.

Sunk-cost fallacy occurs when people make decisions about a current situation based on what they have previously invested in the situation. For example, spending $100 on a concert and on the day you find that it's cold and rainy. You feel that if you don't go you would've wasted the money and the time you spent in line to get that ticket and feel obligated to follow through even if you don't want to. It's is cold and rainy in the oil industry right now.

shallow sand, 10/31/2015 at 2:45 pm

Glenn. I got an email from Raymond James which detailed Q3 sales. Permian basin were substantially higher per flowing barrel than the rest of the US lower 48.
AlexS. I do agree companies are always selling assets, but interesting to see larger higher quality assets on the public block. Either no solid offers privately, or maybe companies are finding online sales are the best way to go.
Glenn Stehle, 11/02/2015 at 10:32 am
Yes, but if the $30,000/acre price Aubrey McClendon paid is typical, it looks like oil & gas asset prices in the Permian Basin are hotter than ever. And this despite the drop in oil prices.
Diamondback Energy, for instance, in September 2013 paid $440 million for 12,500 acres of net mineral rights in the shale play in Midland County. That's $35,000/acre, but for mineral interest, and back when oil was selling for well over $100/barrel.

http://ir.diamondbackenergy.com/releasedetail.cfm?releaseid=788419

Just imagine, McClendon paid over $30,000 per net acre for leasehold working interest, with oil at $45.

[Nov 02, 2015] A lessening of interest in cars

Notable quotes:

"... North American car sales appear to be flat and Europe's sales look like they have declined. Only Asia seems to show significant increases. ..."

"... Here in the US there are at least twice as many registered cars as there are licensed drivers. So there is little necessity to buy new. ..."

peakoilbarrel.com

Glenn Stehle,11/01/2015 at 6:39 am

Fred Magyar said:

"Like we all need a car to be free!"

Well, a lot of young people are no longer buying into that world view.

Well somebody's still "buying into that world view."

http://www.statista.com/statistics/200002/international-car-sales-since-1990/

Boomer II,11/01/2015 at 12:27 pm

North American car sales appear to be flat and Europe's sales look like they have declined. Only Asia seems to show significant increases.
Considering that populations have grown in most places in the world, I would say this chart does indicate a lessening of interest in cars.
MarbleZeppelin,11/02/2015 at 8:30 am

Boomer said "Considering that populations have grown in most places in the world, I would say this chart does indicate a lessening of interest in cars."
Maybe it is not so much interest as need or economics. Much of the new population is in the cities where cars are not generally essential. Also many people are way too poor to afford a car even if they needed one, a bicycle or scooter is about their peak ability to afford.
Here in the US there are at least twice as many registered cars as there are licensed drivers. So there is little necessity to buy new.

[Nov 02, 2015] US Oil Production by State

Oct 30, 2015 | Peak Oil Barrel

The EIA's Petroleum Supply Monthly is just out with production numbers, through August, for each state and offshore territories. The EIA's Monthly Energy Review is also out. This publication has US production data through September but not for individual states.

The Petroleum Supply Monthly June 15 production numbers were revised down considerably this month. And you can see they had a drop of 169,000 bpd in September. I think there will likely be an even larger drop in October. At any rate US production is finally starting to drop significantly.

The Gulf of Mexico is the one place that is bucking the trend. The GOM was up 146,000 bpd in July and up another 63,000 bpd in August for a total of 209,000 bpd for the two months.

Texas was down for the fifth straight month. North Dakota has been moving sideways but is now below their September 2014 level. Alaska is slightly above their August 2014 level but their average annual production will drop by between 25 and 50 thousand bpd this year. Oklahoma has dropped 59,000 bpd since March. New Mexico which holds part of the Permian recovered slightly in August. Montana which, holds part of the Bakken, has been in a downward trend since March. Wyoming had been bucking the trend but now looks like it has succumbed to low oil prices also.
Longtimber, 10/30/2015 at 5:03 pm

Cold winter in Alaska? Meanwhile on the other side of the pond, Mr Yergin thinks Frackers may invade the Old World.
"Europe has shale gas potential, but political obstacles prevent its development, he said. IHS research indicates that by the mid- 2030s Germany could be getting 35 of its natural gas from domestic shale gas produced from non-sensitive areas, equivalent to current import levels from Norway or Russia."
YERGIN: ENERGY HAS ENTERED 'NEW ERA OF SHALE' WITH BIG BENEFITS FOR PETROCHEMICALS
http://www.ogfj.com/articles/2015/10/yergin-energy-has-entered-new-era-of-shale-with-big-benefits-for-petrochemicals.html

shallow sand, 10/30/2015 at 8:44 pm

Ron. Thanks for the post!
Some interesting things, to me anyway.
After reading several company earnings releases and conference calls, it appears that all want to develop US shale over anything else they own. Unless foreign companies pick up the slack, it appears US majors' lack of foreign investment might result in some steep declines.
Second interesting tidbit. Read a Seeking Alpha article about ConocoPhillips today that indicated they lost $3 for every BOE they produced company wide on a GAAP basis, with the US lower 48 incurring the highest BOE losses at $9. These figures were for the third quarter, 2015.
Finally, read that Whiting is in process of selling its water disposal infrastructure. I touched on this earlier. I was unaware this is a common industry practice. To me, selling these assets at this time is a sign of desperation. IMO this permanently devalues the producing assets with an unnecesaary expense burden. If anyone has some data on how much of this infrastructure has been sold off by the shale companies, let me know. Likewise, as I am not familiar with this practice, and especially if you think I am off base, please chime in. I can't imagine us ever wanting to do such a thing. I note both clueless and John S posted this is quite common.
To me, selling these assets is like selling off the plumbing, wiring, furnace and air conditioner in your house and having to rent them forever.

gwalke, 11/02/2015 at 7:45 am

Beyond the infrastructure sale, Whiting's 3Q2015 results seemed like a real disaster to me, though many analysts thought it was a good quarter.
The three things that stood out to me were:

They announced 38% production increase – so they told investors that in response to prices falling 60%, they produced more oil (?!);

They announced that they have increased the sand per frack job, and intend to increase it further – telling investors that they are risking the long-term recovery factors of their wells for short-term production rate gains;

They announced they will update their EUR curves on the basis of the IP of these new "enhanced completions", and even used 24hr IP to discuss how amazing their 7 million lb of sand fracks are – essentially telling investors that they are juicing their IP in order to hoodwink them about well profitability.

BC, 10/30/2015 at 9:28 pm

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mA8

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRq

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRs

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRu

TX, ND, WY, and LA are in recession.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRC

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRB

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRE

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mRF

CO, OK, AK, and WV might have been/be in recession, or close enough.
VK, 10/31/2015 at 5:47 am
Down the slippery slope of descent and ruin. For 80% of Americans life has been getting harder and harder.
http://www.paulcraigroberts.org/2015/10/29/us-on-road-to-third-world-paul-craig-roberts/

The evidence is everywhere. In September the US Bureau of the Census released its report on US household income by quintile. Every quintile, as well as the top 5%, has experienced a decline in real household income since their peaks. The bottom quintile (lower 20 percent) has had a 17.1% decline in real income from the 1999 peak (from $14,092 to $11,676). The 4th quintile has had a 10.8% fall in real income since 2000 (from $34,863 to $31,087). The middle quintile has had a 6.9% decline in real income since 2000 (from $58,058 to $54,041). The 2nd quintile has had a 2.8% fall in real income since 2007 (from $90,331 to $87,834). The top quintile has had a decline in real income since 2006 of 1.7% (from $197,466 to $194,053). The top 5% has experienced a 4.8% reduction in real income since 2006 (from $349,215 to $332,347). Only the top One Percent or less (mainly the 0.1%) has experienced growth in income and wealth.

The Census Bureau uses official measures of inflation to arrive at real income. These measures are understated. If more accurate measures of inflation are used (such as those available from shadowstats.com), the declines in real household income are larger and have been declining for a longer period. Some measures show real median annual household income below levels of the late 1960s and early 1970s.

[Nov 01, 2015] U.S. economy keeps growing

Low oil prices are approximately $180 billion stimulus for the USA. I wonder why results are not better for 2015.

Notable quotes:

"... Yes the rich and their little wanna-bee sock puppets come up with all kinds of elaborate contraptions to support their self-serving narrative of "serve the investor class and all shall be good". ..."

"... Who the heck would build a new production facility if they don't have or predict increased demand. ..."

"... I would agree that demographics will hurt long run growth, but over the short run we should be seeing some disinvestment as people retire and tap into savings, which should stimulate demand. And when private sector consumption and investment are weak, government spending does not weaken the economy, it lifts it up. ..."

"... Too many of today's millionaires and billionaires made their money the old fashioned ways…inheritance and rent-seeking. I would suggest that you read some of the current literature on economic growth (long run growth). It's not capitalists who drive that growth, but ordinary people who innovate at the ground level. Innovation is what drives growth, not some cult of leadership personality, which is what you seem to have bought into. ..."

"... CFOs anticipate a marked deceleration of revenues, earnings, and spending hereafter. The aggregate of payroll receipts and reported wages and salaries implies that US employment is significantly overstated, and civilian employment is decelerating to ~0% YoY. ..."

"... Once a time, James predicted the future : at least 100 USD for oil per barrel forever (was it during the late 2007 speculator spike ?). ..."

"... The year over year change in real GDP is just 2%. Moreover, the second quarter strength was largely a bounce back from the first quarter when weather related problems contributed to real GDP growth of under 1%. ..."

"... Final demand looks OK, as you observed. But there is still extremely limited information suggesting the economy if breaking out of the past several years poor performance of some 2% plus real growth. ..."

Oct 30, 2015 | Econbrowser

The Bureau of Economic Analysis announced yesterday that U.S. real GDP grew at a 1.5% annual rate in the third quarter. Although the headline number sounds disappointing, the underlying fundamentals look solid.

It was encouraging that housing, nonresidential investment, and the government sector all made positive contributions. The one negative was a drawdown in inventories (goods sold but not produced during the quarter). Leaving inventories out, real final sales grew at a healthy 3% annual rate.

Paul Mathis, October 30, 2015 at 1:18 pm

In The General Theory (p. 104) Keynes famously said: "Consumption - to repeat the obvious - is the sole end and object of all economic activity."

Without consumption, it is obvious from the graph that there would be no recovery at all and we would still be in a recession. Why do economist today completely ignore the essential role of consumption in our economy? Why is there no emphasis on spurring consumer demand especially when government fiscal policy is MIA. We need to follow Keynes' advice:

"I should support at the same time all sorts of policies for increasing the propensity to consume. For it is unlikely that full employment can be maintained, whatever we may do about investment, with the existing propensity to consume." The General Theory, p. 325.

DeDude, November 1, 2015 at 7:50 am

Yes the rich and their little wanna-bee sock puppets come up with all kinds of elaborate contraptions to support their self-serving narrative of "serve the investor class and all shall be good". Yet simple 5'th grade math tells us that the GDP is driven by consumption. Consumption in itself is about 70% and investments (20%) rarely occur unless consumption is increasing.

Who the heck would build a new production facility if they don't have or predict increased demand. Looking at the observable world even a 5'th grader should have the sense of logic to understand that economic activity is driven by consumption (private or government). It is a pathetic spectacle to watch those whose ideology and self-interest dictate that they must reach another conclusion.

2slugbaits, November 1, 2015 at 1:14 pm

Making consumers pay too much, because of government policies and/or lawyers, doesn't improve consumption, but depletes saving.

Huh? Those things might reduce welfare through deadweight loss, but as one wise man noted, it takes a lot of Harberger holes to fill a recession…or words to that effect. And some government policies and a legal system with property rights vigorously defended by lawyers do contribute to growth. If you want to point a finger at non-productive actors who engage in rent seeking, then point your finger at many in finance and asset trading.

We're still in a weak recovery after the severe recession. The anemic economic growth is driven by population growth, federal borrowing, and emergency monetary policy.

More nonsense. I would agree that demographics will hurt long run growth, but over the short run we should be seeing some disinvestment as people retire and tap into savings, which should stimulate demand. And when private sector consumption and investment are weak, government spending does not weaken the economy, it lifts it up. Have you not learned anything after all these years visiting this blog?

We need to unleash the entrepreneurs and eliminate crony-capitalism to expand the economy. The new millionaires and billionaires will create lots of good jobs and a great deal of value to consumers.

Too many of today's millionaires and billionaires made their money the old fashioned ways…inheritance and rent-seeking. I would suggest that you read some of the current literature on economic growth (long run growth). It's not capitalists who drive that growth, but ordinary people who innovate at the ground level. Innovation is what drives growth, not some cult of leadership personality, which is what you seem to have bought into.

BC October 30, 2015 at 4:49 pm

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP3

Non-residential "investment" per capita is turning negative for the first time since Q3 2008 and Q2 2001.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP8

The differential growth of health care "consumption" to final sales is at a rate that previously occurred in Q3 2008 and Q2 2001.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mP9

Orders and wholesale sales and inventories are recessionary.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mPb

The acceleration of money velocity to private GDP is recessionary and deflationary.

http://www.cfosurvey.org/2015q3/Q3-2015-US-KeyNumbers.pdf

CFOs anticipate a marked deceleration of revenues, earnings, and spending hereafter. The aggregate of payroll receipts and reported wages and salaries implies that US employment is significantly overstated, and civilian employment is decelerating to ~0% YoY.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=2mA8

Texas (and the energy sector) is in recession.

Lookin' good.

Johnny, November 1, 2015 at 10:54 am

"The future is not ours to see."

Once a time, James predicted the future : at least 100 USD for oil per barrel forever (was it during the late 2007 speculator spike ?).

spencer, October 31, 2015 at 9:53 am

The year over year change in real GDP is just 2%. Moreover, the second quarter strength was largely a bounce back from the first quarter when weather related problems contributed to real GDP growth of under 1%.

Final demand looks OK, as you observed. But there is still extremely limited information suggesting the economy if breaking out of the past several years poor performance of some 2% plus real growth.

[Nov 01, 2015] A Market Worthy Of The Line Do You Feel Lucky

Notable quotes:

"... Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter. ..."

"... Gordon Gekko: The richest one percent of this country owns half our countrys wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. Its bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now youre not naive enough to think were living in a democracy, are you buddy? ..."

"... The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. ..."

"... I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but thats the gist of it. Anyway.... ..."

Nov 01, 2015 | Zero Hedge
The now immortal line spoken by Clint Eastwood as "Dirty Harry" (1971 Warner Bros.) has never fit as a descriptor these financial markets more so than it does today. For if you believe you're investing as opposed to gambling? These markets are now poised to show everyone the difference.
From an economic standpoint; not only has the current October surge in market prices been an absolute absurdity. Rather, just look to where the market as a whole has propelled itself right back to: within spitting distance of taking out the never before seen in the history of mankind highs. And why shouldn't it be up here? After all, the economy is absolutely booming right? Right?

So one has to wonder exactly how does an economy in which its latest GDP report prints a blazing 1.5% warrant such a valuation? I know, trick question – it doesn't. However, if one tuned into many (if not all) of the current financial media outlets this question or, reasoning was never addressed in any shape manner or, form.

As a matter of fact, there was praise by many of the next in rotation economists for how it was derived at in the first place, citing the "inventory" figures as a good news catalyst. Only an economist can find "good news" in a GDP print so pathetic it continues to warrant a continuation of extreme monetary policy by this very group.

Oh, and by the way, it was also this same so-called "smart crowd" who also touted this very monetary policy would bolster GDP prints far higher and consistent than they are now. And let's not forget – 1.5% GDP is now formulated with "double seasonally adjusted accounting." i.e., If the print isn't what you want or need; feel free to fudge the inputs as high or, low as needed without causing any obvious unwanted attention or, outright laughter.

What does it say when accounting standards have evolved into a discipline more suited for a massage parlor than anything resembling a house of academic standards – and 1.5% was the best print available? What one should infer from that data point alone is well worth contemplating by anyone truly serious about business or, their wealth. For that little number speaks volumes if one truly cares to dig deeper.

Looking at the markets "its hard to argue with price" is the old saw. And that price is, as iterated earlier, extremely high.

That's just fantastic if you're an "investor" with the tendencies of a river boat gambler. However, if you're someone trying to distinguish the subtleties of when to invest precious resource capital into cap-ex projects for the prospects of future growth, or whether or not to expend that capital in hedging strategies to help smooth out input costs – you're out-a-luck. You have just as good of a chance in flipping a coin for your macro business decisions. For hedging is now "What Fed. official will say what today?" Heaven help you if it's the opposite of what they said the previous day. Like the title implied, "Do you feel lucky?" doesn't seem that out of line.

Boris Alatovkrap

Ignore "invisible hand", but eventually is b*tch-slap those that defy.

Escrava Isaura

Invisible Hand?

How about the rabbit hand.

Gordon Gekko: The richest one percent of this country owns half our country's wealth, five trillion dollars. One third of that comes from hard work, two thirds comes from inheritance, interest on interest accumulating to widows and idiot sons and what I do, stock and real estate speculation. It's bullshit. You got ninety percent of the American public out there with little or no net worth. I create nothing. I own. We make the rules, pal. The news, war, peace, famine, upheaval, the price per paper clip. We pick that rabbit out of the hat while everybody sits out there wondering how the hell we did it. Now you're not naive enough to think we're living in a democracy, are you buddy?

antonina2

The way the fragmented market is set up there is no need for fundamentals, or anything really for it to go up or down. Price movement is no longer dependant on the true value of the underlying, but value is assigned to the underlying by the amount of market pieces or liquidity participants it attracts at any point in time. So, you could say the market or price action has been more or less decoupled from the true state of its underlying. Supply and demand due to fundamentals was true before hft and multiple exchanges, but can now be skewed in any direction for any length of time due to all the new technology and types of order flow that have been introduced. As long as people are getting paid to provide liquidity and other people are there to pay for taking liquidity away you can have a market that reaches the moon and beyond while the world is in a deep recession. So, if you think about it, while the pundits will have you believe that the market is priced at true valuations, it's not your Grandpa's market anymore, that is why the market can go up on relatively small volume and shitty data. It is a whole new game and beside disastrous glitches, the only time positive movement is threatened is when the big fish start placing large sell order blocks.

I was thinking about it today and it would be possible to have completely imaginary markets (no underlyings) that rely on the best algo to win, Darwinism for quantitation. I guess it would be like the Kentuky derby for computers, may the biggest and fastest server win. You could dump money into it/invest by betting on your favorite algo. In my mind the whole thing is pretty complicated, but that's the gist of it. Anyway....

It is my belief that things have developed in this manner to keep big money in the markets. So, I guess the question isn't what is up with the markets, but rather why do large holders continue to hold, my guess would be that they don't have anything else they want/need to do with their money. They say, who cares if Bob, Jen, Greg, and half of America can't find a decent job, we are making more money investing in the market (greater shareholder returns) than by helping to improve the actual economy and investing in more tangible things like people. It's pretty shitty, but that is how I have come to make sense of the whole thing. I mean yeah, the market should be about half of what it is now if it followed fundamentals, but it's not and I think that's why.

Basically, in order for there to be the big market crash that everyone constantly talks about, some pretty big institutions are going to have to fuck up big time and receive no help in getting out of it. As long as there is enough money out there this fiasco can go on as long as people see fit. We all say, oh the FED is dumb and they are doing the wrong thing blah blah blah and while they are destroying the economy they are keeping the TBTF in the clear and being rewarded handsomely for it, completely aware of their actions. And to the public, they say fuck em and feed em cake, so just watch, a Republican with a great tax package will be elected in 2016 to satiate the people for the next four years while they continue to go about their business, increasingly bad data is reported and retail investors are like wtf is up with the markets?

IDK, that's just my humble opinion

[Nov 01, 2015] Employment growth is submerged in stagnation

Notable quotes:

"... Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3]. ..."

"... The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation). ..."

"... This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7]. ..."

www.voltairenet.org

The ego of Janet Yellen has broken into a thousand pieces. The new data published some days ago by the US Department of Labor confirms the hypothesis of the economist Ariel Noyola Rodríguez, who had maintained since last year that the United States' labour market was much more fragile than was presumed by the head of the Federal Reserve. If the situation of the North American economy continues to get worse it is probable that in coming weeks new measures will be taken to mitigate structural unemployment.

In her public discourses, the president of the Federal Reserve, Janet Yellen, has avoided the serious problems that the United States economy suffers. When in mid-September the Federal Open Market Committee (FOMC) took the decision to maintain the federal funds rate between zero and 0.25% the target of Yellen's worries was directed to China [1] and the debts of emerging economies [2].

In accord with the President of the Federal Reserve, the process of recovery of the North American economy has been strengthening for considerable time. And, because of this, if the FOMC has not raised the cost of credit is due, above all, to a high rate of "obligation" and "responsibility" with the rest of the world.

Nevertheless, the truth is that the United States economy is not exactly in good health. The labour market data published during the 12 months before March of 2015 is not as robust as was presumed by the Federal Reserve: the Department of Labor recognized recently that it had overestimated the jobs created by the private sector by at least 255,000 [3].

On the other hand, during the month of September the non-agricultural employment reached 143,000, much less than the 200,000 hoped for [4]. The greatest reversals were in sectors tied to external trade and energy. The rise of the dollar, and the fall in prices of commodities and the extreme weakness of global demand with the rest of the world precipitated the structural deterioration of the US economy.

The bad news does not end here: the numbers of the jobs generated in July and August were also lower [5]. Now we know that in August only 136,000 jobs were created, rather than the 176,000 originally reported: while in the month of July there were created 21,000 fewer jobs than those counted in the previous revision.

Hence with the data actualized by the Department of Labor, in the United States there were registered an average of 167,000 new jobs between July and September, an amount that represents less than 65% of the 260,000 (average per month) that were created during the previous year.

The policies of the Federal Reserve are not capable of increasing the economy by their own efforts [6]. Yellen bet everything on a reduction of the unemployed, hence businesses would be pressured to increase wages, so that the acquisitive power of families and price levels would increase (inflation).

This has not happened. While the rate of unemployment fell from 5.7 to 5.1% between January and September of this year, hourly wages hardly increased 2.2% in annual terms the past month, still far from the levels reached before the crisis, when increases above 4% were noted. Inflation has not succeeded in passing 2% in more than 3 years, the objective of the US central bank [7].

Hence it is now clear that the fall of the unemployment rates in recent months depends more on the reduction of the rate of participation in the labour market - as a consequence of the despair of thousands of US citizens - and less on the creation of quality long range jobs: on Friday October 2 it was announced that in September 350,000 persons abandoned the search for work [8]. There is no turning around, in the United States job growth has been submerged in stagnation.

[Nov 01, 2015] Chevron Takes Drastic Measures, Lays Off Another 7000 Employees

"... And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier. ..."

OilPrice.com

Back in January, in the aftermath of the first plunge in commodity prices, and oil in particular, oil major Chevron had the unsavory distinction of being the first US oil giant to admit cash flow "constraints" when it was forced to scrap its buyback. And since oil's dead cat bounce fizzled just around the summer before resuming is slide, it was inevitable that Chevron would proceed with trimming even more cash outflows.
It did so for the first time in July, when as we reported at the time, Chevron would layoff 1,500 jobs globally, saying that "the cost reductions due to cuts in the corporate center are expected to total $1 billion with additional cost savings expected across the company."
And even though Chevron said in July that its cost-cutting initiatives would be "completed by mid-November of 2015" it decided to surprise everyone moments ago when on its earnings call it announced it would not only slash its capex by another 25%, but will shortly distribute another 7,000 pink slips. The reason: another terrible quarter in which the $2 billion in earnings were a 73% plunge from a year earlier.

[Oct 31, 2015] No Real Chance of Another Financial Crisis - Silly

Notable quotes:

"... The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it. ..."

"... But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective. ..."

"... Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be philosopher kings. ..."

"... The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be fragile. In this thinking Nassim Taleb is far ahead of the common economic thought as a real systems thinker. The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within. ..."

"... So Mr. Baker, rather than looking for the bubble, lets say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a new bubble as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way? ..."

"... A new crisis does not have to happen. This is the vain comfort in these sorts of black swan events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain, ..."

"... neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously. ..."

"... If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story... ..."

jessescrossroadscafe.blogspot.com

I like Dean Baker quite well, and often link to his columns. On most things we are pretty much on the same page.

And to his credit he was one of the few 'mainstream' economists to actually see the housing bubble developing, and call it out. Some may claim to have done so, and can even cite a sentence or two where they may have mentioned it, like Paul Krugman for example. But very few spoke about doing something about it while it was in progress. The Fed was aware according to their own minutes, and ignored it.

The difficulty we have in the economics profession, I fear, is a great deal of herd instinct and concern about what others may say. And when the Fed runs their policy pennants up the flagpole, only someone truly secure in their thinking, or forsworn to some strong ideological interpretation of reality or bias if we are truly honest, dare not salute it.

Am I such a person? Do I actually see a fragile financial system that is still corrupt and highly levered, grossly mispricing risks? Or am I just seeing things the way in which I wish to see them?

That difficulty arises because economics is no science. It involves judgment and principles, and weighs the facts far too heavily based upon 'reputation' and 'status.' And of course I have none of those and wish none.

But it makes the point which I have made over and again, that all of the economic models are faulty and merely a caricature of reality. And therefore policy ought not to be dictated by models, but by policy objectives and a strong bias to results, rather than the dictates of process or methods. In this FDR had it exactly right. If we find something does not stimulate the broader economy or effect the desired policy objective, like tax cuts for the rich, using that approach over and over again is certainly not going to be effective.

Economics are a form of social and political science. And with the political and social process corrupted by big money, what can we expect from would be 'philosopher kings.'

The housing bubble was no 'cause' of the latest financial crisis. More properly it was the tinder and the trigger event. The S&L crisis was just as great, if not greater. Why then did it not bring the global financial system to its knees?

The interconnectedness of the global system with its massive and underregulated TBTF Banks, the widespread and often fraudulent mispricing of risk, all make cause for a financial system to be 'fragile.' In this thinking Nassim Taleb is far ahead of the common economic thought as a real 'systems thinker.' The Fed is not a systemic thinking organization because they are owned by the financial status quo, and real systemic reform rarely comes from within.

I see the same fragility which existed from 1999 to 2008 still in the system, only grown larger, global, and more profoundly influencing the political processes.

The only question is what 'trigger event' might set it spinning, and how great of a magnitude will it have to be in order to do so. The more fragile the system, the less that is required to knock it off its underpinnings.

And a crisis is not a binary event. There is the 'trigger' and the dawning perception of risks, and the initial responses of the political, social, and regulatory powers.

There is no point in debating this, because the regulators and powerful groups like the Fed are caught in a credibility trap, which prevents them from seeing things as they are, and saying so.

So Mr. Baker, rather than looking for the bubble, let's say we have a fragile system still disordered and mispricing risk, with a few very large banks engaging in reckless speculation, mispricing risk for short term profits, manipulating markets, and distorting the processes designed to maintain a balance in the economy. Rather than hold out for a 'new bubble' as your criterion, perhaps we may also consider that the patient is still on full life support after the last bubble and crisis. Why do we need to find a new source of malady when the old one is still having its way?

I think if one exercises clear and open judgement, they can see that we have stirred up the same pot of witches brew that has made the system fragile and vulnerable to an exogenous shock, and has kept it so.

A new crisis does not have to happen. This is the vain comfort in these sorts of 'black swan' events, being hard to predict. But they can be more likely given the right conditions, and I fear little will be done about this one until even those who are quite personally comfortable with things as they are begin to feel the pain,

The problem is not a 'bubble.' The problem is pervasive corruption, fraud, and lack of meaningful reform. The 'candidate' is the financial system itself, with its outsized hedge funds and the TBTF Banks with their serial crime sprees and accommodative regulators in particular.

And if one cannot see that in this rotten system with its brazenly narrow rewarding of a select few with the bulk of new income, then there is little more that can be said.

Neil Irwin, a writer for the NYT Upshot section, had an interesting debate with himself about the likely future course of the economy. He got the picture mostly right in my view, with a few important qualifications.
"First, his negative scenario is another recession and possibly a financial crisis. I know a lot of folks are saying this stuff, but it's frankly a little silly. The basis of the last financial crisis was a massive amount of debt issued against a hugely over-valued asset (housing). A financial crisis that actually rocks the economy needs this sort of basis.

If a lot of people are speculating in the stock of Uber or other wonder companies, and reality wipes them out, this is just a story of some speculators being wiped out. It is not going to shake the economy as a whole. (San Francisco's economy could take a serious hit.)

Anyhow, financial crises don't just happen, there has to be a real basis for them. To me the housing bubble was pretty obvious given the unprecedented and unexplained run-up in prices in the largest market in the world. Perhaps there is another bubble out there like this, but neither Irwin nor anyone else has even identified a serious candidate. Until someone can at least give us their candidate bubble, we need not take the financial crisis story seriously.

If we take this collapse story off the table, then we need to reframe the negative scenario. It is not a sudden plunge in output, but rather a period of slow growth and weak job creation. This seems like a much more plausible story...

Anyhow, a story of slow job growth and ongoing wage stagnation would look like a pretty bad story to most of the country. It may not be as dramatic as a financial crisis that brings the world banking system to its knees, but it is far more likely and therefore something that we should be very worried about."

Dean Baker, Debating the Economy with Neil Irwin, 31 October 2015

And Now Trucking is Suddenly Slowing Down

Oct 28, 2015 | Zero Hedge
In this scenario of overcapacity and slack demand, the critical load-to-truck ratio has collapsed to the lowest level in years.
Transportation data provider DAT publishes load-to-truck ratios on a weekly and monthly basis. It calls them "a sensitive, real-time indicator of the balance between spot market demand and capacity." They're a function of the number of loads for every truck posted on DAT Load Boards. And here is the key: "Changes in the ratio often signal impending changes in rates."

Unusually "slack demand" in September – the beginning of shipping season – after "a quiet July and even quieter August," impacted most of the nation, except in the Pacific Northwest, where "fall harvests of apples, potatoes and onions rolled to market in vans as well as reefers," explained Mark Montague, a statistician at DAT.

September looks terrible compared to September in banner-year 2014. It still "looks anemic even when compared to the more typical freight movement of September 2013," Montague said. This slack demand whacked load-to-truck ratios. And that matters:

Load-to-truck ratios signal changes in the marketplace that are usually reflected in truckload rates. In the past five years, a change in the load-to-truck ratio has correlated at a rate of 0.8 with an immediate change in spot market rates, and a sustained change in spot market rates is typically followed by a change in contract rates, as well.

Since late last year, DAT's van load-to-truck ratios have been on a declining trend. Every month this year, the ratios were below the ratios in 2014. In July, August, and September, the ratios hit 1.8, the lowest in years. In September, the ratio was 42% below a year earlier:

... ... ...

Trucking is a thermometer for the merchandise economy. It doesn't track consumer expenses like rent or college. But it tracks exports and imports, manufacturing, distribution, retail, and other sectors. It tracks a big part of the real economy. And the sudden slowdown in the trucking industry is another wildly flashing signal in our recession watch.

... ... ...

scintillator9

Railroad freight levels are also trailing behind 2012 levels overall.
https://www.aar.org/Pages/Freight-Rail-Traffic-Data.aspx
The freight levels for coal and ore are not very good, and even oil is trailing 2013 levels.

Old_Dog

Just published the other day:

http://www.jsonline.com/business/trucking-industry-faces-severe-driver-shortages-b99602189z1-337272521.html
who knows?

Duc888

One of my bro's is an OTR trucker. He's busy, busy, busy...driving for JB Hunt. He drives a 40 ft Reefer down in NYC to all the boroughs sometimes... crazy route.
Every time I drive past a big truck depot I see signs for hiring from all the top companies....evidently it's damned hard to get anyone who can pass the druggie tests...

the grateful un...

I have noticed the LTFL truckers ABF, Yellow, etc, are not out there quite as much, and the constant stream of UPS trucks coming up my road has slowed. i also notice that some online vendors still charge way too much for freight and handling, but overall free shipping and low gas prices and no traffic. something wrong there.

wildbad

baltic dry index, trucking, empty container ratios..real world measurements that can't easily be faked. oh well, we know where we're headed and have know for years from an austrian standpoint. coming soon to a lot near you.. plenty o cheap trucks and planty o cheap drivers.

[Oct 28, 2015] The Full Details Of How Goldman Criminally Obtained Confidential Information From The New York Fed

Zero Hedge
Two days ago we reported that the saga of Rohit Bansal, Goldman's "leaker" at the Fed is coming to a close with the announcement of a criminal case filed against Goldman's deep throat who had previously spent 7 years at the NY Fed, and was about to spend some time in prison, and who had been providing Goldman with confidential information sourced from his contact at the NY Fed for months, as a result of which Goldman would be charged a penalty.
Moments ago the NY DFS announced that the best connected hedge fund in the world would pay $50 million to the New York State Department of Financial Services and "accept a three-year voluntary abstention from accepting new consulting engagements that require the Department to authorize the disclosure of confidential information under New York Banking Law"

Goldman Sachs would also admit that a Goldman employee engaged in the criminal theft of Department confidential supervisory information; Goldman Sachs management failed to effectively supervise its employee to prevent this theft from occurring; and Goldman failed to implement and maintain adequate policies and procedures relating to post-employment restrictions for former government employees.

Below are the unbelievable, details of just how Goldman was getting material information from the NY Fed, from the FDS:

Violation of Post-employment Restrictions

On July 21, 2014, an individual began work at Goldman, Sachs & Co. as an Associate in the Financial Institutions Group ("FIG") of the Investment Banking Division ("IBD"). The Associate reported to a Managing Director and a Partner at Goldman.

Prior to his employment at Goldman, from approximately August 2007 to March 2014, the Associate was a bank examiner at the U.S. Federal Reserve Bank of New York ("the New York Fed"). His most recent position at the New York Fed was as the Central Point of Contact ("CPC") – the primary supervisory contact for a particular financial institution – for an entity regulated by the Department (the "Regulated Entity").

In March 2014, the Associate was required to resign from his position at the New York Fed for, among other reasons, taking his work blackberry overseas without obtaining prior authorization to do so and for attempting to falsify records to make it look like he had obtained such authorization, and for engaging in unauthorized communications with the Federal Reserve Board.

The Associate was hired in large part for the regulatory experience and knowledge he had gained while working at the New York Fed. Prior to hiring him, the Partner and other senior personnel interviewed and called the Associate several times, and the Partner took him out to lunch and dinner.

Prior to starting at Goldman, in May 2014, the Associate informed the Partner of potential restrictions on his work, due to his previous employment at the New York Fed, and specifically as the CPC for the Regulated Entity. The Partner advised the Associate to consult the New York Fed to obtain clarification regarding any applicable restrictions.

Accordingly, the Associate inquired with the New York Fed Ethics Office and was given a "Notice of Post-Employment Restriction," which he completed and signed with respect to his supervisory work for the Regulated Entity. The Associate provided this form to Goldman. This Notice of Post-Employment Restriction read that the Associate was prohibited "from knowingly accepting compensation as an employee, officer, director, or consultant from [the Regulated Entity]" until February 1, 2015.

On May 14, 2014, the Associate forwarded this notice of restriction to the Partner, the Managing Director, and an attorney in Goldman's Legal Department. In his email, the Associate also included guidance from the New York Fed, stating, in short, that a person falls under the post-employment restriction if that person "directly works on matters for, or on behalf of," the relevant financial institution.

Despite receiving this notice and guidance, Goldman placed the Associate on Regulated Entity matters from the outset of his employment. As further detailed below, the Associate also schemed to steal confidential regulatory and government documents related to that same Regulated Entity in advising that client.

Unauthorized Possession and Dissemination of Confidential Information

During his employment at Goldman, the Associate wrongfully obtained confidential information, including approximately 35 documents, on approximately 20 occasions, from a former co-worker at the New York Fed (the "New York Fed Employee"). These documents constituted confidential regulatory or supervisory information – many marked as "internal," "restricted," or "confidential" – belonging to the Department, the New York Fed or the Federal Deposit Insurance Corporation (the "FDIC"). The Associate's main conduit for receiving information from the New York Fed was his former coworker, the New York Fed Employee, who has since been terminated for this conduct. While still employed at the New York Fed, the New York Fed Employee would email documents to the Associate's personal email address, and the Associate would subsequently forward those emails to his own Goldman work email address.

On numerous occasions, the Associate provided this confidential information to various senior personnel at Goldman, including the Partner and the Managing Director, as well as a Vice President and another associate who perform quantitative analysis for Goldman. In several instances where the Associate forwarded confidential information to other Goldman personnel, the Associate wrote in the body of the email that the documents were highly confidential or directed the recipients, "Please don't distribute." At least nine documents that the Associate provided to Goldman constituted confidential supervisory information under New York Banking Law § 36(10). Pursuant to the statute, such confidential supervisory information shall not be disclosed unless authorized by the Department. The documents included draft and final versions of memoranda regarding and examinations of the Regulated Entity, as well as correspondence related to those examinations.

At least 17 confidential documents that the Associate had improperly received from the New York Fed – seven of which constituted confidential supervisory information under New York Banking Law § 36(10) – were found in hard copy on the desk of the Managing Director. Additional hard copy documents were found on the desks of the Vice President and the other associate, including at least one document constituting confidential supervisory information under New York Banking Law § 36(10).

On August 18, 2014, the Associate shared three documents pertaining to enterprise risk management with the Managing Director, writing, "Below is the ERM request list, work program and assessment framework we used for ERM targets. Again this is highly confidential as its not public and has not been issued a[s] guidance yet. Not sure where it is at anymore due to internal politics. I worked on this framework and guidance within the context of a system working group with the Fed system. We ran several pilots to test it was well. Please don't distribute." The Managing Director replied, "I won't. Will review on plane tomorrow to DC." The documents were marked as "Internal-FR" or "Restricted-FR."

Part of Goldman's work for the Regulated Entity included advisory services with respect to a potential transaction. A certain component of the Regulated Entity's examination rating was relevant to the transaction. The Regulated Entity's examinations were conducted jointly by the FDIC, DFS and the New York Fed. As described below, the Associate used confidential information regarding the Regulated Entity's examination rating – obtained both from his prior employment at the New York Fed and from his contacts there – and conveyed this information to the Managing Director, who then conveyed the information to the Regulated Entity on September 23, 2014, in advance of it being conveyed by the regulators.

On August 16, 2014, the Associate emailed the Managing Director regarding the regulators' perspective on the Regulated Entity's forthcoming examination rating, writing "You need to speak to [the CEO of the Regulated Entity] about scheduling a meeting with all 3 agencies ASAP. He needs to meet with them and display and discuss all the improvements and corrections they have made during the last examination cycle."

On September 23, 2014, the Associate attended the birthday dinner of the New York Fed Employee at Peter Luger Steakhouse, along with several other New York Fed employees. Immediately after the dinner, the Associate emailed the Managing Director, divulging confidential information concerning the Regulated Entity, specifically, the relevant component of the upcoming examination rating. The Associate wrote, "…the exit meeting is tomorrow and looks like no [change] to the [relevant] rating. I heard there won't be any split rating… [The Regulated Entity] should have listened to you with the advice…hopefully [the CEO] will now know you didn't have phony info."

In this email, the Associate also provided advice to relay to the Regulated Entity's management, stating that they should "keep their cool, not get defensive and not say too much unless the regulators have a blatant fact wrong" as it "will go off better for them in the long run. Believe it or not the regulator's [sic] look for reaction and level of mgmt respectiveness [sic] during these exit meetings." The Managing Director replied "Let's discuss . . . I'm seeing [the CEO of the Regulated Entity] tmw afternoon alone."

Later that night, the Associate followed up with another email to the Managing Director, writing, "I feel awful not being there to wrap up 2013. I would have been able to pull all this through. I was a real advocate for all the work they have done." He also offered to join a meeting with the CEO of the Regulated Entity if the Managing Director wanted.

On September 26, 2014, Goldman had an internal call regarding the calculation of certain asset ratios, during which there was disagreement over the appropriate method. During the call, the Associate circulated an internal New York Fed document – which the Associate had recently obtained from the New York Fed Employee – relating to the calculation, to the call participants, writing, "Pls keep confidential?" Following the group call, the Partner called the Associate to discuss the document, including where he had obtained it, and the Associate told him that he had obtained it from the New York Fed. The Partner then called the Global Head of IBD Compliance to report the matter and forwarded the document.

Compliance Failures, Failure to Supervise and Violation of Internal Policies

After receiving notice of the Associate's prohibition on working on matters for the Regulated Entity, Goldman, including the Partner and the Legal Department, failed to take any steps to screen the Associate from such prohibited work. Instead, Goldman affirmatively placed the Associate on matters for the Regulated Entity beginning on his first day, and added the Associate to the official Goldman database as a member of the Regulated Entity "Team" – a team led by the Partner.

Goldman failed to provide training to personnel regarding what constituted confidential supervisory information and how it should be safeguarded. While Goldman policies provided that confidential information received from clients should only be shared on a "need to know" basis, Goldman did not distinguish between this broader category of confidential information and the type of confidential supervisory information belonging to a regulator or other government agency, which is protected by law, such as confidential supervisory information under New York Banking Law § 36(10). Indeed, Goldman policies failed to adequately address Department confidential supervisory information.

As noted above, the Associate also violated Goldman's internal policy on "Use of Materials from Previous Employers," which states that work that personnel have done for previous employers, and confidential information gained while working there, should not be brought into Goldman or used or disclosed to others at Goldman without the express permission of the previous employer.

* * *

The Managing Director is safe, as are all other Goldman employees: nobody aside for Bansal who was merely trying to impress his superiors, has anything to worry about.

Anyone else found to have obtained at least "35 confidential documents" from the Fed on at least "20 occassions" would be sent straight to jail with a prison sentence anywhere between several decades and life.

Goldman's punishment? 0.6% of its 2014 Net Income.

Duc888

How could this happen? Seriously. Aren't the FED and GS separate entities?
Oh, wait.....

LetThemEatRand

The fact that these documents were sent via email only tells me how widespread this is. Most of these guys are probably smart enough to put a paper copy in their briefcase and deliver it to Goldman the old fashioned way bankers do things (over drinks and coke at a strip bar).

But when "everyone is doing it," a guy may get careless and start using email, figuring what the fuck.

Urban Redneck

Did Goldman's Marketing Department write that release for their FRBNY subsidiary??? They deserve the $50 million fine for being an embarrassment to scheming bankers everywhere. This is a company that has destroyed companies, entire economies, and countless (not so little) investors by placing their own financial interests above their clients and regularly using inside information and access to do so. Then Goldman is "caught" when they turn themselves in (not that they had a lot of choice given the amateur hour performance) for actually "helping" one of their clients (for once)... This whole thing stinks, in more ways than one.

Sudden Debt

What a joke!!!
GS and JPM ARE THE FED!!!

and that "fine"... THAT'S THEIR DONUT BUDGET!!

J J Pettigrew

Bagels....please!

Elliott Eldrich

"Feel sorry for the poor schmuck, cuffed and heading to a sallyport, to be booked, and serve 6 months in jail, for stealing a carton of ciggs..."

Little crimes are punished with great fervor, while the biggest criminals get their wrists slapped. This is outrageous, and I just have to ask how much more we are supposed to bear before breaking?

Lord Ariok

I Love my Country and Hate Our Government. But If our government isn't "Gangster" well believe it there will be another "Government" that is even more "Gangster" then ours to take the number 1 spot in the Syndicate. The way I see it if we have to do this in order to compete with China's Level of Corruption. Damn Chinese Efficiency. ~ Lord Ariok

venturen

they have Bill Dudley...they were worried that this underling would do something. Heck Goldman gives the orders not the other way around

Bay of Pigs

The William Dudley is the main man at the FED (and the BIS), not Yellin or Fischer.
"Prior to joining the Bank in 2007, Mr. Dudley was a partner and managing director at Goldman, Sachs & Company and was the firm's chief U.S. economist for a decade. Prior to joining Goldman Sachs in 1986, he was a vice president at the former Morgan Guaranty Trust Company. Mr. Dudley was an economist at the Federal Reserve Board from 1981 to 1983.
In 2012, Mr. Dudley was appointed chairman of the Committee on the Global Financial System of the Bank for International Settlements (BIS). Previously, Mr. Dudley served as chairman of the former Committee on Payment and Settlement Systems of the BIS from 2009 to 2012. He is a member of the board of directors of the BIS and chairman of the Economic Club of New York."
http://www.newyorkfed.org/aboutthefed/orgchart/dudley.html

[Oct 27, 2015] OECD Chief Economist: Its Time To Temper The Frothiness In Markets

www.zerohedge.com
"... if you look at what is supporting equity prices - how much of that support is coming from real economic activity versus from using stock buybacks, using cash on balance sheet for stock buybacks, or mergers and acquisitions, to reduced competition in the marketplace.
These are the sort of stories that if there were a small increase in interest rates, you would temper some of that frothiness.

Eliminating the incentive to engage in that kind of activity seems to me to be a good idea... There would be a proportion of the population that would have less capital gains - but they've been enjoying very big capital gains, and it is a narrow segment of the population."

[Oct 24, 2015] How The U.S. Government Covers Up 72% Inflation Before Your Very Eyes

Notable quotes:

"... The Modern Survival Manual: Surviving the Economic Collapse, ..."

Zero Hedge

scatha

...Look at basic staples eggs, beef, chicken and other foods, rent/housing, education, even transportation and telecommunication cost are "effectively" raising, not to mention medical care, all those things people need to live are raising precipitously.

Even those 1%-ters facing massive inflation forced to buy risky bonds at unbelievable high prices to get any yield at all. The global inflation bubble is here while global demand is dying and commodity nominal prices are collapsing as we speak since with such a high "real" prices everybody expects loss or severe decline of income or profit in the future expressed by a dead body of CapEx and consumption.

On the top of it typical the inflation hiding maneuvers of the retailers producing serving size inflation, quality collapse inflation, component substitution inflation, choice narrowing inflation, package cost and quality inflation, air conditioning, freezing/heating power limitation inflation, shopping experience quality collapse inflation, and other manipulations to keep so called nominal "at the store" price marginal increase of few percent only per year but even that was impossible in 2015 so far.

.. ... ...

More on the scam of evaluating inflation in various forms including CPI I found at:
https://contrarianopinion.wordpress.com/2015/01/29/invisible-hand-and-ot...

nosam

The reduction in product sizes and quality is not so much a measure of inflation as a measure of the declining wealth of the population. People can afford less so the manufacturers change product size/quality to match.

The area I live in now has high inflation but salaries are growing at a faster pace. So I notice a gradual increase in quality and size of products. That said, if you can afford to pay premium prices, you can get good quality pretty much anywhere.

Canoe Driver

American culture is based on financial rape of the working class by a criminal elite. Always was. Part of the system is the illusion fed the common man that his interests are represented by the political class, who in reality are merely business agents for the rich. This illusion dies hard.

ebworthen

"1/2 gallon" of ice cream now 3 pints instead of 4 pints, canned vegetables going to 14 oz instead of 16 oz, "1 pound" bacon now transforming to 12 oz "healthier" packages with a "great price".
I swear to God they are going to sell a "bakers dozen" of 10 eggs instead of 12 for the same price 'ere long.

TeamDepends

It's nuts, sometime over the summer the cans of tomatoes we buy went from 14.75 oz to 14.0. Are they going to start making the cans thicker? Will the cans shrink to G.I. Joe size? Times is tough, people!

Whodathunkit

Buy the imported brand from Europe. They haven't caught on to the smaller size package same amount of $. YET

Escapeclaws

Not true that Europe doesn't have the same problem. Just look at tuna: smaller can, half-full, higher price. Same with everything. Inflation gets going because of corporate greed, which they "justify" by saying their costs are going up. It's a scam through and through. About time someone does a study to analyze when their costs really go up as opposed to them "claiming" their costs are going up.

This inflation is a form of SYSTEMIC PRICE FIXING. Because it is systemic it is not considered price fixing as such from a legal point of view, so they get away with it. Like everything the elite does, they have total control and we are obliged to accept it.

Same story with "gotcha capitalism". They pump a bag of potato chips full of air and then use the excuse that the the chips, which are cozily nestled in the bottom quarter of the bag, are being protected that way. Kind of like the mafia killing one of your kids and then offering to protect the others for a small stipend.
The Yurpeans also pay much higher prices due to how things are packaged. I buy dried beans and pressure cook them, but even there, you cannot buy beans in bulk. Instead you must pay an arm and a leg for a small package. It has gotten to the point that if a bean falls to the floor, I search for it like the widow searching for her lost penny. Pretty soon they will be packaging single beans. I figured that out using mathematical induction.

Eventually, we former middle class people will enjoy the same standard of living as the poor in the third world.

Normalcy Bias

This reminds me of Ferfal's The Modern Survival Manual: Surviving the Economic Collapse, written by a guy who lived through the collapse in Argentina. There are so many paralells to what's going on in the US, they're hard to count. Highly recommended...

http://www.amazon.com/The-Modern-Survival-Manual-Surviving/dp/9870563457

seek

That's "Ferfal." For what it's worth, he's super accessible via his own website forums and a couple of the larger survival forums (I think the ones on ar15.com and ovet at survivalistsboards.com) He's got a recent posting with information from people in the Ukraine that's especially interesting.
If anyone has any doubts about these adjustments, just buy a roll of TP and compare it to the size of the TP holder in any house older than 10 years, it's quite obvious. I have TP that predates the '08 collapse of the identical brand and product line, and it's at least 1/2" wider and wrapped more densely as well.
There is substantial inflation, and it's covered up, and there's no interest being paid by banks but they're charging the average credit card holder something around 14.9 percent. Meanwhile 51% of workers in the US now make under 30K a year. The financial system is absolutely raping the common people in the US, in part due to greed and in part in a desperate attempt to save itself from collapsed caused by their greed accumulated over the past 100 years.

TBT or not TBT

I am shocked, shocked, to find stealth inflation going on in this establishment!

Supernova Born

Every ZH'er should support FerFAL's books (it is the 7.62x51 rifle his "name" is referencing, FAL being an acronym for Fusil Automatique Léger ("Light Automatic Rifle"), and the first three letters are from his first name, Fernando).
Surviving the Economic Collapse is filled with great insights and has proven prophetic.
First thing I think when I see shrinking retail packaging and lowered quality (diluted in the case of SodaStream) was FerFAL said this would happen...

OceanX

Ya'll slam Castro and what he did was kick out the banksters you profess to hate. The way I see it, what happened to Cuba was the retalliation of the banksters. He was blocked from global trade and financing.
In addition, the conservation of their natural resources have preserved Florida's fishing waters!
http://www.amazon.com/Deep-Cuba-American-Oceanographic-Expedition/dp/082...
When therre is an offshore oil spill in Cuba, it will be carried by the Gulf Stream all across the Atlantic and destroy a lot of Florida beach.

[Oct 23, 2015] Middle Class Shrinks Further as More Fall Out Instead of Climbing Up

Notable quotes:

"... In the late 1960s, more than half of the households in the United States were squarely in the middle, earning, in today's dollars, $35,000 to $100,000 a year. ..."

"... But since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom. At the same time, fewer of those in this group fit the traditional image of a married couple with children at home, a gap increasingly filled by the elderly. ..."

"... regardless of their income, most Americans identify as middle class. The term itself is so amorphous that politicians often cite the group in introducing proposals to engender wide appeal. ..."

"... The definition here starts at $35,000 - which is about 50 percent higher than the official poverty level for a family of four - and ends at the six-figure mark. Although many Americans in households making more than $100,000 consider themselves middle class, particularly those living in expensive regions like the Northeast and Pacific Coast, they have substantially more money than most people. ..."

"... "I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment," said Christine L. Owens, executive director of the National Employment Law Project, a left-leaning research and advocacy group. ..."

JAN. 25, 2015 | The New York Times

The middle class that President Obama identified in his State of the Union speech last week as the foundation of the American economy has been shrinking for almost half a century.

In the late 1960s, more than half of the households in the United States were squarely in the middle, earning, in today's dollars, $35,000 to $100,000 a year. Few people noticed or cared as the size of that group began to fall, because the shift was primarily caused by more Americans climbing the economic ladder into upper-income brackets.
But since 2000, the middle-class share of households has continued to narrow, the main reason being that more people have fallen to the bottom. At the same time, fewer of those in this group fit the traditional image of a married couple with children at home, a gap increasingly filled by the elderly.

This social upheaval helps explain why the president focused on reviving the middle class, offering a raft of proposals squarely aimed at concerns like paying for a college education, taking parental leave, affording child care and buying a home.

"Middle-class economics means helping working families feel more secure in a world of constant change," Mr. Obama told Congress and the public on Tuesday.
Still, regardless of their income, most Americans identify as middle class. The term itself is so amorphous that politicians often cite the group in introducing proposals to engender wide appeal.
The definition here starts at $35,000 - which is about 50 percent higher than the official poverty level for a family of four - and ends at the six-figure mark. Although many Americans in households making more than $100,000 consider themselves middle class, particularly those living in expensive regions like the Northeast and Pacific Coast, they have substantially more money than most people.

"I would consider middle class to be people who can live comfortably on what they earn, can pay their bills, can set aside something to save for retirement and for kids in college and can have vacations and entertainment," said Christine L. Owens, executive director of the National Employment Law Project, a left-leaning research and advocacy group.

... ... ...

In recent years, the fastest-growing component of the new middle class has been households headed by people 65 and older. Today's seniors have better retirement benefits than previous generations. Also, older Americans are increasingly working past traditional retirement age. More than eight million, or 19 percent, were in the labor force in 2013, nearly twice as many as in 2000.

As a result, while median household income, on average, has fallen 9 percent since the turn of the century, it has jumped 14 percent among households headed by older adults.

[Oct 23, 2015] US. Shale Drillers Running Out Of Options, Fast

Notable quotes:

"... The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs. ..."

"... However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article. ..."

"... Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian. ..."

oilprice.com

Much has been made about the impressive gains in efficiency and productivity in the shale patch, as new drilling techniques squeeze ever more oil and gas out of new wells. But the limits to such an approach are becoming increasingly visible. The U.S. shale revolution is running out of steam.

The collapse of oil prices has forced drillers to become more efficient, adding more wells per well pad, drilling longer laterals, adding more sand per frac job, etc. That allowed companies to continue to post gains in output despite using fewer and fewer rigs.

However, the efficiency gains may have been illusory, or at best, incremental progress instead of revolutionary change. Rather than huge innovations in drilling performance, companies were likely just trimming down on staff, squeezing suppliers, and drilling in the best spots – perhaps all sensible stuff for companies dealing with shrinking revenues, but nothing to suggest that drilling has leaped to a new level of efficiency. Reuters outlined this phenomenon in detail in a great October 21 article.

For evidence that the productivity gains have run their course, take a look at the latest Drilling Productivity Report from the EIA. Production gains from new rigs – which have increased steadily over the past three years – have run into a wall in the major U.S. shale basins. Drillers are starting to run out of ways to squeeze more oil out of wells from their rigs. Take a look at the below charts, which show drilling productivity flat lining in the Bakken, the Eagle Ford, and the Permian.

[Oct 23, 2015] Saudi Arabia Russia, Iran Forge Energy Partnerships

Oct 23, 2015 | Zero Hedge

No, the "atmosphere is not well," because again, the Saudis are out to achieve "ancillary diplomatic benefits" (i.e. geopolitical advantages) by keeping crude prices low, and those benefits include squeezing the Russians and perhaps limiting the revenue Tehran can bring in when Iran returns to the market.

As you can see, all of this is inextricably linked and it looks as though Russia and Iran may be on the verge of attempting to challenge the Saudis for domination of the oil market (don't forget Moscow surpassed Riyadh as the number one supplier to China for the second time this year in September).

Is a "new oil order" in the works? We shall see.

pot_and_kettle

Can someone point out when Syria didn't sign off on the Qatar - Turkey pipeline and when the pipeline was first proposed? This is news to me and seems like the watershed event for what the zio-US fomented in that part of the world.

Sergeiab

http://ftmdaily.com/what-jerry-thinks/whysyria/

4shzl

Next step: open that eastern front on the Arabian Peninsula.

Freddie

Persia has been around thousands of years.

A person may not like the Russians or Iranaians but they "ain't" going anywhere. They are also pretty tough on the battlefield (see Hezbollah). They also stood up for Syrian and the Syrian people including Syrian Christians.

Persians are a lot smarter than Saudis too.

alphahammer

Yea lets take a look. Good of you to point that out.

---

China Not So In Love With Russia After All

JUN 17, 2015

Shunned by the West, Russia may want to promote its new Chinese love affair to the world these days, but Czar Romeo shouldn't get his hopes up.

Russia's second biggest lender, VTB Bank, said that most Chinese banks have foregone doing business with them. The reason? Western sanctions against VTB. China lenders don't want to get caught up in the drama and - having more business with the U.S. and Europe than with Russia - have opted to play it safe.

"China's ambiguous position regarding Russian banks in the wake of US and EU sanctions is a key issue holding back progress toward greater bilateral cooperation," VTB Bank First Deputy Chairman Yuri Soloviev write in an op-ed published by the FinanceAsia news agency on Tuesday.

Freddie

Anything that smacks the shit out of the Saudis or Qatar makes me happy. What they did to Syria with the help of the USA, Turkey, UK, Israel and others is sickening.

[Oct 23, 2015] Is Russia The King Of Arctic Oil By Default

This is a very expensive oil that Russians now selling at loss. Financial capitalism in action.

Notable quotes:

"... Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). ..."

"... No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields. ..."

Oct 23, 2015 | Zero Hedge
... ... ...
A cursory search of 'Arctic' and 'oil' elicits little in the way of positivity. Certainly, Shell's failure in the Chukchi Sea is notable. Combined with the Obama administration's waffling distaste for future offshore Arctic development, it marks what should be a period of relative dormancy in U.S. waters. Still, it's not indicative of the sector globally, which is seeing progress, albeit at a glacial pace.

The shining example of such development to date is Gazprom Neft's Prirazlomnaya platform. Located nearly 40 miles offshore in the Pechora Sea, the rig is the world's first Arctic oil project involving a stationary platform – though the general concept itself has been employed before (see: BP's Northstar Island).

Gazprom Neft began production at the Prirazlomnoye field in 2013 and reached commercial figures last year, with a total output of roughly 5,000 barrels per day (bpd). With production well number two (of 19) now online, output should reach somewhere between 10,000-15,000 bpd by year's end.

To be fair, several important tests lie ahead for Prirazlomnaya and Russia's Arctic shelf development in general. Chief among them is rapidly addressing its import dependence – one of the primary targets of U.S. and EU sanctions. No more than 10 percent of the equipment applied at the Prirazlomnaya installation is believed to be Russian-made, and this level of disparity is commonplace at both Russia's onshore and offshore fields.

Attention, domestic and international, has been given to the courting of China, India, and other backers – both financial and technological – but all eyes should be on the Russian solution, which will seek to demonstrate its efficacy by 2020.

At the Prirazlomnoye field, the Russian institute Omskneftekhimproekt has begun work on the modernization of the rig's drilling installations, technological equipment, and safety and telecommunications systems. The primary objectives are to boost production capacity (to ~120,000 bpd) toward 2020 and lay the building blocks for the future development of Russian-sourced platforms.

The work by Omskneftekhimproekt mirrors that of several institutes, companies, and universities across the country, rallying around the call for import substitution. However, just how much can actually be accomplished is the billion dollar question.

[Oct 23, 2015] Economic effects of shocks to oil supply and demand

Notable quotes:

"... Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016. ..."

"... Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues. ..."

"... If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex? ..."

"... Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. ..."

"... But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas. ..."

"... In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase. ..."

Oct 17, 2015 | Econbrowser
Jeffrey J. Brown October 17, 2015 at 5:15 am

Monthly EIA US Crude + Condensate (C+C) data (the short term energy report) show a decline in US production from 9.6 million bpd in May to 9.0 million bpd in September. The annualized exponential rate of decline, based on May to September data, would be about 20%/year. If this (net) rate of decline were to continue for another year, US C+C production would be down to about 7.4 million bpd in September, 2016.

Louisiana is an interesting case history. As drilling activity declined in the Hayneville Shale Gas Play, gas production from the play production initially continued to increase (as operators worked through the backlog of drilling but uncompleted wells), but production from the play ultimately showed a sharp decline, with annual marketed natural gas production falling at a rate of 20%/year from 2012 to 2014. Measured from the monthly peak in December, 2011, it took about two and a half years for the exponential rate of decline in Louisiana's monthly marketed gas production (from both shale gas + conventional production) to fall below 20%/year. The three year 12/11 to 12/14 rate of decline was 18.5%/year.

Regarding one of life's little ironies, we keep hearing that oil exports from a net oil importer, the US (with recent four week running average net crude oil imports of 6.8 million bpd), will have a meaningful impact on global oil markets, just as the US is currently showing a 20%/year annualized rate of decline in C+C production, implying that US net oil imports will be increasing in the months ahead, if the production decline continues.

And the question that I have periodically posed, to-wit:

If it took trillions of dollars in global upstream capex to keep us on an "Undulating Plateau," in actual global crude oil production (45 and lower API gravity crude, i.e., the quantity of the stuff corresponding to WTI & Brent oil prices), what happens to global crude oil production going forward given the ongoing cutbacks in global upstream capex?

Jeffrey J. Brown October 17, 2015 at 8:37 am

Re: US Crude and/or Condensate Exports

As noted above, it's more than a little ironic that there are so many claims that oil exports from a net oil importer, the US, will have a material impact on global oil markets, even as US Crude + Condensate (C+C) production is declining.

In any case, I just noticed something very interesting in the EIA Annual Energy Review data tables, which provide monthly and/or annual data back to 1950:

http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf

Note that US total liquids net imports were up year over year, from 4.9 million bpd in August, 2014 (2014 annual average of 5.1) to 5.6 million bpd in August, 2015, a 14% year over year increase in net total liquids imports.

Anonymous October 17, 2015 at 12:12 pm

Saw some analyst meeting (Genscape maybe) where the person projected rigs continuing to drop through 1Q16, ending up 200 more down (or about 400 remaining). This was based on prices staying in this ~$47-50 band, with commensurate strip. [A drop down to ~$40, with commensurate strip would lead to an additional 200 rigs going away.]

I think the Haynesville is a nice example to show the "lag" effect when rigs drop. And really, we can already use the US oil production as an example of this already. Another easy example is 2009 in the Bakken.

I would be leery of thinking too much that the Haynesville is some sort of example of Hubbert peak because a lot of the drop is price caused, not exhaustion. [In a classic Hubbert peak case for global oil or national gas, you would have the normal curve AND would have Hotelling price increase. In this case, it's not even constant price…it's reaction to a price crash.] Haynesville didn't drop because "they ran out of sweet spot" but because the price dropped. There is actually more resource available, now, if we go back to previous prices…because of improvements in drilling and completion efficacy. [This is Adelman's point of how you don't just eat away at lower cost oil and move to higher…yes, you may be doing that. But in addition, knowledge can grow the pool of available low cost oil or reduce the price of getting out what you already know about. Both effects can occur and they fight each other and you have to get into the specifics to see which is winning.]

In addition, concentrating on the Haynesville, when the Marcellus and Utica have occurred is missing the main story from an economic impact perspective. After all, volume is up and price is down for natural gas. So for all the H or the B dropped, the M and U more than made up for it. "The App" is the key place to look at in US natural gas.

In addition, FWIW, H did drop very beautifully in a Hubbert-like manner from the peak of 7, BUT for the last 18 months has been near flat at 4 BCF/day. Download the excel data (last figure at bottom of page) and graph it and you will see that. Peak oilers discussing the Haynesville as some sort of organic product life cycle analogy (born, grow, mature, die), never mention this key insight (how it has flattened out dramatically now). But it's in the data. Just graph to see it.

http://www.eia.gov/naturalgas/weekly/ (note this shows the shale only, not the conventional production. EIA DPR as a data source makes the fat tail look even more prominent, but includes conventional in the region.)

Jeffrey J. Brown October 18, 2015 at 12:01 pm

So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline?

In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil). Following is an essay, which I sent to some industry acquaintances a few weeks ago:

Regarding oil prices, I may be one of the worst prognosticators around, especially when it comes to demand side analysis. My primary contribution has been as an amateur supply side analyst, especially in regard to net exports.

In any case, earlier this year I thought that we had hit the monthly low in Brent prices for the current oil price decline ($48 monthly average in January, 2015), and I thought we were more or less following an upward price trajectory, from the 1/15 low, similar to the price recovery following the 12/08 monthly oil price low ($40 for Brent).

However, a key difference between the 2008/2009 price decline and subsequent recovery and the 2014/2015 decline is that Saudi Arabia cut production from 2008 to 2009 while they increased production from 2014 to 2015.

But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now, but I would not be surprised to learn that he is aggressively investing in oil and gas.

The bottom line for me is that depletion marches on.

A few years ago, ExxonMobil put the decline from existing oil wells at about 4% to 6% per year. A recent WSJ article noted that analysts are currently putting the decline from existing oil wells at 5% to 8% per year (in my opinion, the 8% number is more realistic). At 8%/year, globally we need about 6.5 MMBPD of new Crude + Condensate (C+C) production every single year, just to offset declines from existing wells, or we need about 65 MMBPD of new C+C production over the next 10 years, just to offset declines from existing wells. This is equivalent to putting on line the productive equivalent of the peak production rate of about thirty-three (33) North Slopes of Alaska over the next 10 years.

It appears quite likely that global crude oil production (45 and lower API gravity crude oil) has been more or less flat to down since 2005, as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014)–while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

Following are links to charts showing normalized production values for OPEC 12 countries and global data. The gas, natural gas liquids (NGL) and crude + condensate (C+C) values are for 2002 to 2014 (except for gas, which is through 2013, EIA data in all cases). Both data charts show similar increases for gas, NGL and C+C from 2002 to 2005, with inflection points in both cases for C+C in 2005. My premise is that condensate production, in both cases, accounts for virtually all of the post-2005 increase in C+C production.

Global Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/Global%20Gas%20NGL%20C%20amp%20C_zpskb5bxu6d.jpg

OPEC 12 Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Gas%20NGL%20C%20amp%20C_zpsox3lqdkj.jpg

Currently, we only have crude oil only data for the OPEC 12 countries and for Texas (note that what the EIA calls "Crude oil" is actually C+C).

Also following is a link to OPEC 12 implied condensate (EIA C+C less OPEC crude) and OPEC crude only from 2005 to 2014 (OPEC data prior to 2005 was for a different set of exporters than post-2005). Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes fuzzy. In any case, we have to deal with the data that we have.

OPEC 12 Crude and Implied Condensate:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Crude%20and%20Condensate_zps12rfrqos.jpg

As of 2014, OPEC and the US accounted for 53% of global C+C production (41 MMBPD out of 78 MMBPD). Implied OPEC condensate production increased by 1.2 MMBPD from 2005 to 2014 (1.2 to 2.4). The EIA estimates that US condensate production increased by about 1.0 MMBPD from 2011 to 2014. I'm estimating that US condensate production may have increased by around 1.2 MMBPD or so from 2005 to 2014. Based on the foregoing, increased condensate production by OPEC and the US may have accounted for about 60% (about 2.4 MMBPD) of the 4 MMBPD increase in global C+C production from 2005 to 2014.

Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD.

In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

If it took trillions of dollars of upstream capex to keep us on an "Undulating Plateau" in actual global crude oil production, what happens to crude production given the large and ongoing cutbacks in global upstream capex?

And given the huge rate of decline in existing US gas production (probably on the order of about 24%/year from existing wells), it's possible that we might see substantially higher North American gas prices this winter, given the decline in US drilling.

Furthermore, through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014. GNE fell from 46 MMBPD in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

Here are the mathematical facts of life regarding net exports:

Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 MMBPD in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.

Nony October 18, 2015 at 5:44 pm

"So, given the right price incentives, the sum of the output of discrete sources of oil & gas–that individually peak and decline–will never peak and decline? "

So again, the argument for imminent decline is some eventual limit to the amount of hydrocarbons on the entire planet? it is not cherrypicking to emphasize the Haynesville and Barnett as gas plays "peaking" when overall gas production in the US has grown 40%, even in the face of a huge price drop????

"In any case, in regard to price versus production, we have an interesting case history when it comes to actual crude oil production (generally defined as 45 API and lower crude oil)."

Nope. Lease condensate (~55) is legally considered crude oil. EF 47 is a normal listed form of oil in Platts price lists. Light oil and condensate is used to make gasoline and other products and runs through a refinery. It is easily and routinely blended with heavy oil and is actually needed for that (not just as a diluent for transport but for optimizing the subunits of complex refinery (non complex refineres, e.g. those without cokers or visbreakers or with less cracking actually function better on just light blends to start…the extreme are teakettle refineries).

Condensate and EF crude is withing a few dollars of WTI and correlates with price moves very closely. EF 47 is actually pricier than heavy sour crudes. Talk to any trader, refinery buyer, or even just a microeconomist familiar with looking at substitutes. It is crazy to say that growth of 45+ oil has not affected overall oil prices. Perhaps some small shrinking of spreads between qualities, but often not even a directionality change. The much larger impact though is on the overall supply demand balance for C&C. Does any economist think the goods are sufficiently different to justify a separate P-Q curve for 45- and 45+ oil? [Oh…and the extra funny thing is the peak oil meme of mid 2000s was that we wouldn't find more light sweet!]

P.s. If you really think 45+ isn't oil, then why not agree to remove the export restriction on at least them?

"Following is an essay, which I sent to some industry acquaintances a few weeks ago:"

Your cut and pasting the things on the net (ELM stuff, net export arguments) is almost spammy. Total conversation killer and often ignored by even your compatriots.

Erik Poole October 19, 2015 at 8:39 am

Nony: You make good arguments for lumping crude oil and condensates.

The problem with a net export perspective is that it ignores the global nature of the market place and at some point, an indifference to whether heavy oil imported into the US refinery complex hails from western Canada, Venezuela, Mexico or Colombia. Or even Iran some day.

If we could draw and compare distribution curves of oil grades over the last , I suspect we would see the distributions flattening out over time as extreme grades become more prominent. It may even be bi-modal at this point.

Given the expense of retooling refineries and the robust growth in US condensate production, one can see the interest in securing more pipeline access to Canadian bitumen. And perhaps the interest in hoping/praying for growth in Colombian heavy oil production as Mexican production declines and the populist Neo-Marxist experiment in Venezuela violently implodes stagnating heavy oil production in that country.

Jeffrey Brown: I don't want to suggest that the net export perspective is not useful. It clearly illustrates symptoms of the Resource Curse and the general difficulty experienced by citizens in weak societies to play and cooperate well together. It does not however say much about the US cheap energy entitlement and how that attitude has hurt US national security and economic performance over time. America's well earned reputation for killing grandchildren and grandparents in part stems from this ill-advized quest for cheap energy security (sic).

Jeffrey J. Brown October 19, 2015 at 3:58 pm

Erik,

I'm not arguing the relative merits of crude oil versus condensate, although distillate yield begins to drop off precipitously over an API gravity of about 40 or so.

I am arguing that the available data strongly suggest that global crude oil production probably peaked in 2005, while global natural gas production and associated liquids, condensate and natural gas liquids, have (so far) continued to increase.

In regard to net oil exports, here's the problem: Given an ongoing, and inevitable, decline in production in a net oil exporting country, unless they cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, it's a mathematical certainty that the resulting rate of decline in net exports will exceed the rate of decline in production and that the net export decline rate will accelerate with time.

Nony October 19, 2015 at 5:29 pm

I don't think it makes economic sense to put lease condensate with NGLs and away from crude. NGLs are more gas like, so you can put them with gas if you want instead of oil or just make a third grouping. [But don't forget them! If you cut the total liquid products to being C&C, they still belong somewhere…have use!]

NGLS are mostly (c2-c4) molecularly pure, separated, gaseous products. [minor amount of C5+ liquid ("plant condensate" obtained at the gas refrigeration separation plant].

Lease condensate is just the associated entrained liquid oil from a primarily gas well. It is obtained at the atmospheric, three phase separator at the wellhead. Similarly, wet gas is separated from predominantly oil streams. Eagle Ford 47 isn't even coming out of "gas wells" (in terms of phase) but single phase liquid oil wells that are very light. Lease condensate and Eagle Ford 47 look like oil, smell like oil, mess up your Nomex coveralls in a similar manner to 30 API oil. They are each that glorious natural product that contains a soup of hundreds of different molecules, of different lengths, aromaticities, branching. Oh and less sulfur (which makes them BETTER oil) but still with some. Lease condensate also tends to be a bit lower API and more variable in composition versus plant condensate (although higher than oil), but still pretty similar.

There is a reasonable argument to exclude NGLs entirely from crude time series or at least C3 and C2 from being lumped in with crude. Ethane in theory competes with naphtha and is an occasional substitute (and some crackers are convertible), but given the glut, prices have diverged and started to follow C1 a couple years ago. And like C1, it is quite difficult to transport across oceans. C3 is more exportable, but still has a pretty different market (mostly heating) than premium liquid petroleum products (mostly transport fuels: gasoline, diesel, jet). [In a sense, C1 is a substitute for oil, but it's a pretty weak substitute!]

So yeah, sure, strip out the NGLs. And throw in the C4 and C5+ with being stripped out, since they are minor…even though ARE mostly used for transport. Either direct gasoline mixing for butane or for C5+ mixed into crude (at refineries or upstream at heavy oil sites) or used as naphtha in crackers (thus competing with a refined liquid stream. But fine keep them all apart.

But keeping condensate (or Eagle Ford 47 oil) apart from other grades of crude makes no sense. That stuff goes through refineries and makes gasoline…a lot of gasoline, which is generally what the refinery is optimized for. (Other products have value and you go for a global optimum, not a local. Like you don't optimize production of RFO and make little gasoline! Diesel and jet have value of course and at times, pricing of diesel can beat out gasoline, but generally gasoline is top in both value. And certainly in volume (typical refinery cracks some product that could have been diesel to make more gasoline). Just look at Platts prices and the correlation of EF47 and DJ condensate versus WTI. It's the same stuff, but slightly different flavors, man. If you look at it on a world basis (where the explosion of light and super light is export-ban trapped on a continent that wants to refine 28 API), the correlations will be even stronger. But I bet even in the US, you find a very consistent correlation: maybe just look at annual average prices for 2008, 2009, 2014 and 2015 YTD. Condensate belongs with crude, from a supply-demand standpoint. Not with NGLs or with NG.
Nony October 20, 2015 at 6:58 am

Here's a link showing Saudi 50 API crude selling in the same setting as other grades of crude (i.e. considered a similar good, not considered an NGL). AND at a premium to medium grade Gulf oil. AND even at a greater premium than other light, but less light oils.

http://www.bloomberg.com/news/articles/2014-05-04/saudi-aramco-raises-all-june-crude-price-differentials-to-u-s- [scroll down to the header "Asia"]

[Oct 23, 2015] Unemployed and Older, and Facing a Jobless Future

Notable quotes:

"... "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself." ..."

"... More and more I have to accept this is the Third Act in Life and working for a traditional company in a traditional job is no longer a reality ..."

"... Without real income, you eventually become another victim of our perverse, experience-averse corporate economy. ..."

Jul 26, 2013 | The New York Times

For those over 50 and unemployed, the statistics are grim. While unemployment rates for Americans nearing retirement are lower than for young people who are recently out of school, once out of a job, older workers have a much harder time finding work. Over the last year, according to the Labor Department, the average duration of unemployment for older people was 53 weeks, compared with 19 weeks for teenagers.

There are numerous reasons - older workers have been hit both by the recession and globalization. They're more likely to have been laid off from industries that are downsizing, and since their salaries tend to be higher than those of younger workers, they're attractive targets if layoffs are needed.

Even as they do all the things they're told to do - network, improve those computer skills, find a new passion and turn it into a job - many struggle with the question of whether their working life as they once knew it is essentially over.

This is something professionals who work with and research the older unemployed say needs to be addressed better than it is now. Helping people figure out how to cope with a future that may not include work, while at the same time encouraging them in their job searches, is a difficult balance, said Nadya Fouad, a professor of educational psychology at the University of Wisconsin-Milwaukee.

... ... ...

Sometimes simply changing the way you look at your situation can help. My friend Shelley's husband, Neal, who also asked that I use his middle name, said the best advice he received from a friend was "don't tell people you're unemployed. Tell them you're semiretired. It changed my self-identity. I still look for jobs, but I feel better about myself."

He also has friends facing the same issues, who understand his situation. Such support groups, whether formal or informal, are very helpful, said Jane Goodman, past president of the American Counseling Association and professor emerita of counseling at Oakland University in Rochester, Mich.

"Legitimizing the fact that this stinks also helps," she said. "I find that when I say this, clients are so relieved. They thought I was going to say, 'buck up.' "

And even more, "they should know the problem is not with them but with a system that has treated them like a commodity that can be discarded," said David L. Blustein, a professor of counseling, developmental and educational psychology at the Lynch School of Education at Boston College, who works with the older unemployed in suburb of Boston. "I try to help clients get in touch with their anger about that. They shouldn't blame themselves."

Which, of course, is easy to say and hard to do. "I know not to take it personally," Neal said, "but sure, I wonder at times, what's wrong with me? Is there something I should be doing differently?"

It is too easy to sink into endless rumination, to wonder if he is somehow standing in his own way, like a cancer patient who is told that her attitude is her problem, he said.

Susan Sipprelle, producer of the Web site overfiftyandoutofwork.com and the documentary "Set for Life" about the older jobless, said she stopped posting articles like "Five Easy Steps to get a New Job." "People are so frustrated," she said. "They don't want to hear, 'Get a new wardrobe, get on LinkedIn.' "

As one commenter on the Facebook page for Over Fifty and Out of Work said, "I've been told to redo my résumé twice now. The first 'expert' tells me to do it one way, the next 'expert' tells me to put it back the way I had it."

Some do land a coveted position in their old fields or turn a hobby into a business. Neal, although he believes he'll never make as much money as in the past, recently has reason to be optimistic about some consulting jobs.

But the reality is that the problem of the older unemployed "was acute during the Great Recession, and is now chronic," Ms. Sipprelle said. "People's lives have been upended by the great forces of history in a way that's never happened before, and there's no other example for older workers to look at. Some can't recoup, though not through their own fault. They're the wrong age at the wrong time. It's cold comfort, but better than suggesting that if you just dye your hair, you'll get that job."

Flatlander, August 5, 2013

Age discrimination is a sad reality today and always has been. It is also very difficult to prove in a legal action. From what I have heard,...

Jay, August 5, 2013

Ok, I took some knocks on this, one that I deserve. I really do feel badly for the guys that didn't make it. I was wrong on that one. Yes,...

Walter, August 5, 2013

This is a great article. I'm in this situation but worse. Trying to entice myself to nowadays corporations I went and enrolled in a MBA program and got myself into a $40K student loan debt. I had already paid my previous loans long time ago so I figure, if I update myself educational-wise and prove these people that my mind is still fresh and sharp at a high level that I could raise my chances.

Now, I am 56 and I still cant get a job. Taking a minimum wage position is out of the question for me since all my salary would actually go to pay my debt and I would not have money even for transportation back and forth to work.

What I find amazing is that employer are failing to understand that old folks like us would really appreciate the opportunity and work harder to try to excel than probably any of nowadays young kids, that, like the article mentioned, are more prone to leave the company to get promotions. I keep telling my friends that I would even sign a contract guaranteeing that I would work for them until the day I die or retire.

I like the idea presented by one of the readers here that the government should provide some kind of economic incentive in the way of lower taxation for businesses that hire people over 50. They do it for career criminals. Why not for qualified and educated/trained people.

This is totally age discrimination and it is a federal offense. However, I try that channel also and I got no response from the Labor Dept. I thank the NYT for bringing this up.

Jovality, Las Vegas, NV. August 5, 2013

I'm 57 and have or had been employed in the high tech industry for over 25 years with never a period of more than two weeks unemployment until now. During that time I rose from a software developer to product manager, to VP of Sales and Marketing. I was laid off from that position at the end of 2012, but luckily I was able to reach out to an old colleague who was able to sneak me into a marketing position in his company at less than half my previous salary.

I was surprised by the younger people's reaction to me. They said things to me I had to take as compliments such as, "You're really cool for an older guy." "I would never expect someone your age would know so much or be so talented".

Unfortunately the company had a major layoff which I was caught in. Now I am like many of the others who have posted her, "A ghost with a resume". Since being laid off in June of 2013 I have sent out 100's of resumes with only a very limited response.

More and more I have to accept this is the "Third Act in Life" and working for a traditional company in a traditional job is no longer a reality. It's time to take the vast experience and talents I've built up or an entire career and use them to open my own business. It's a frighten challenge to be sure.

But as someone once told me there is only one real form of security in life, when life knocks you down you must have the drive and self-confidence to get up handle the situation and both survive and succeed.

Jon K. Polis, East Greenwich, Rhode Island August 3, 2013

Bohemienne: In answer to your question; look up the movie " Soylent Green " from 1973, that starred Charlton Heston and Edward G. Robinson....and see what fate be-fell Mr. Robinson's character....if our government today offered me the same options/opportunities to me that they offered to him; I would take advantage of them in a heartbeat...

Glenn, Cary, NC July 31, 2013

"People's lives have been upended by the great forces of history...."

Nonsense. People's lives have been upended by soulless capitalists and their lackeys in Congress (read Republicans). There are no great forces of history at work here, just good, old-fashioned GREED.

Rhea Goldman, Sylmar, CA July 31, 2013

I find it strange, very strange indeed, that all of us have so easily accepted our plight of hardship. Have we been so cowed that collectively we take no action to put a stop to this harsh treatment from employers? Re-read Dickens' Christmas Carol.....we are allowing the economics of the United States to make Bob Cratchets of us all.

J. Campbell, Chicago, IL July 31, 2013

I'm amazed that an article from the NYT (to which I subscribe) actually suggests that people in their 50's who are unemployed can somehow just "accept that they may *never* work again". How could we live? What legal source of income could we obtain that would bridge us to Social Security (even for those of us eventually eligible for SS retirement)? What are the people responsible for this article (including the NYT editors who released it) thinking? What if someone suggested that *they* accept a future where they never worked again, and had no income?

If there were several major American riots, that involved hundreds of thousands of unemployed people (a fraction of the millions of current long-term unemployed in the US), the NYT would be out front in demanding that order be restored *at any cost*. Where is the mainstream press demand that *economic stability for the working class* be restored at any cost?

Or do you think, because of our current corporate/NSA state, such riots are impossible? If so, look at Europe--right now.

Sam, Florida July 31, 2013

My husband was just laid off due to company merger. His entire department was eliminated. The only good news, is that we've been expecting the lay off for about a year or so, as such we had time to prepare. We also, have worked very hard to get our finances in order since we got married. We killed all our unsecured debt in 2007, $55,000+, and we have saved a good chunk every year since then. I'm still working on our lay off budget, but I hope that we will be able to cover our regular monthly expenses on my salary.

http://adventures-of-sam.blogspot.com/

Glenn, Cary, NC August 3, 2013

Been there. Done that. It didn't work. The money disappeared - slowly but surely. Without real income, you eventually become another victim of our perverse, experience-averse corporate economy.

MJ, New York City August 5, 2013

Actually, it is possible to live on one salary. Best way is to start early on in the marriage, keeping your first home rather than moving "up." Even if you have moved "up" it is possible and no shame at all to move "down." It is a brave journey and takes real guts, but in many cases it can be done.

Sam, Florida July 31, 2013

In addition to the costs to the individual and the families, their is a cost to society. Obviously there is a cost to support many of these people in their later years, but there is also an uncalculated cost to workers in their peak earning years, the height of their careers falling out of the job market.

There is a cost to society to lose this knowledge, to losing their mentoring and training skills for the next generation, to losing their consumer spending power, etc.

Melanie Dukas, Saugus, mass July 31, 2013

I am 59 years old, and I lost my job during the high tech bust in 2002 as marketing communications manager at a fiber optic start-up. In Massachusetts, this was for many of us worse than the Great Recession. At the height of my career at 48 years old, I was determined to get a job and interviewed for 5 years. I drove a taxi and limo 6 days a week, but still couldn't make ends meet, so I moved in with my parents 5 years ago and started my own business developing websites and marketing. I just couldn't take interviewing anymore! It was like heartbreaking, kind of like dating - I would go on the interview and get so excited and they never called.

It's been a long road, but at I am happy to be working in my field and making a living. Luckily, I had done this before and although I would have preferred to work at a company full time, at my age in marketing the jobs are few are far between and I need to work for the rest of my life because I have no retirement. Even if I get a job, it is unlikely to last and then I would be back in the same boat. Now I am in.

Henry, New York July 31, 2013

I think people must understand that the nature of WORK is changing. - In the past you worked from 9-5 for a Company and as long you performed adequately you continued on your Job...

Well, welcome to the New Economy ...

Companies can no longer afford to Hire all the people they need "full time" people. The cost is becoming prohibitive, especially if you add on the benefits costs ( avg. est. 30 % above salary).

In the future, I believe most people will become Independent Contractors and/or work on a Part-time basis - to be utilized when needed and working Jobs or "Gigs" for many different employers- with periods of " downtime."

This type of flexible Work will, soon become the mainstay. Therefore the "grayling" workforce must adapt and think and plan accordingly. - In fact, there are many Employment Firms or " Headhunters" who are already adapting this model. - and as the Baby Boomers retire en masse, they will be looking for people since, in my opinion, there will not be enough "younger" to fill all the jobs needed.

Splenetix, Muskegon August 3, 2013

The conversion of full-time workers into freelancers is an exploitation of capitalism, forcing you to waste your time self-marketing and administering. You won't have any of the scales of economy that larger businesses enjoy so you won't be competitive.You won't succeed, you won't be able to manage and get the work done. It's all about worker repression.

[Oct 23, 2015] Workers over 50 are the new unemployables

Notable quotes:

"... Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year. ..."

"... The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills. ..."

Feb. 26, 2013 | money.cnn.com
On one hand, they're too young to retire. They may also be too old to get re-hired.
Call them the "new unemployables," say researchers at Boston College.

Older workers were less likely to lose their jobs during the recession, but those who were laid off are facing far tougher conditions than their younger colleagues. Workers in their fifties are about 20% less likely than workers ages 25 to 34 to become re-employed, according to an Urban Institute study published last year.

"Once you leave the job market, trying to get back in it is a monster," said Mary Matthews, 57, who has teetered between bouts of unemployment and short temp jobs for the last five years. She applies for jobs every week, but most of the time, her applications hit a brick wall.

Employers rarely get back to her, and when they do she's often told she is "overqualified" for the position. Sometimes she wonders: Is that just a euphemism for too old?

Her resume shows she has more than 30 years of experience working as a teacher, librarian, academic administrator and fundraiser for non-profits.

"I've thought about taking 10 years off my resume," she said. "It's not like we're senile. The average age of Congress is something like 57. Joe Biden is 70. Ronald Reagan was in his 70s when he was president. So what's the problem?"

... ... ...

About 23,000 age discrimination complaints were filed with the Equal Employment Opportunity Commission in fiscal 2012, 20% more than in 2007.

Proving discrimination is next to impossible, though, unless it's blatant.

"It's very difficult to prove hiring discrimination, because unless somebody says, 'you're too old for this job,' you don't know why you weren't hired," said Michael Harper, a law professor at Boston University.

Related: Am I too old to be hired?

EconomistNC, May 5, 2015

As a former public servant teaching University Level Econometrics for nearly 15 years and possessing numerous 'Excellence' awards, this development is nothing short of shameful. I have had dozens of recruiters and HR 'specialists' debase my public service as not being 'Real World' experience despite the fact that without my commitment to 'Real World Applications' education, many of those with whom I apply for employment would not hold a college degree. Indeed, I find many of the hiring managers with whom I speak regarding positions for which I have both technical and applications experience, there is impenetrable discrimination once they meet me in person.

The point made in several articles of this nature revolve around lack of knowledge and experience with newer technologies. In an effort to address this issue, I went back to school (again) to obtain expertise in IT Networking and Security, PMP Path Project Management and ITIL. Now I am being told that my education is of no value since I do not have the requisite 'Real World' experience using these newly acquired skills.

Indeed, to meet the criteria for many positions I find open requires that I be a 'recent college graduate.' When I point out that I have been continually retraining and taking online courses to keep my IT skills current, I am once again met with the lack of 'Real World' experience requirement. For a society that purports itself to value education and hard work, for those among us that have worked very hard for substandard pay and benefits to be so casually cast aside is absolutely inexcusable.

Paul Stukin, Apr 24, 2015

This is nothing new, especially if you are in IT. I was laid off from IBM in August 2001, then 9/11, and the bottom fell out of the jobs market. I have not worked in IT since. I truncated my resume to show the last 10 years of "relevant" experience and then got interviews, but never the job.

DJM22, Apr 24, 2015

@Richard Thwaites

Where does this group turn; what is this demographic to do. For instance in my case based on the type of work I've done for a lifetime I've been laid off a total of 5 times. The monies you've had saved during these periods had to be used for survival and take care of family. No it wasn't wasted.

But now boomers are going into that area where as they are tooyoung to retire in order to just obtain social security. And then this won't be a whole bunch.

Are we suppose to give up everything we've worked for and live a less than mediocre livelihood? That's a good 10/15 years away. Then they will say next how the boomers are becoming more of a problem and mooching in order to survive. I'm not suggesting hand outs, but if ageism is going to be the problem for boomers then boomers need to press somewhere, someone, something so we don't end up with problems that will become even more major problems. What a way to end your career and what a legacy to leave your children.

Look at all the characters in our government. None of them worked, simply kept chairs warmed and signed papers they were told to sign and as stated they're up in their 70's + and have enough money to aid their next 10 generations and the normal joe can't even complete his generation.

[Oct 23, 2015] The unemployed and over-50 need help

Notable quotes:

"... The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times. ..."

May 15, 2013 | MarketWatch.com

When the most recent employment report was released, PBS NewsHour presented a segment on a group of people over 50 who had been out of work. The participants said that employers had little interest in even talking to them. Sometimes, when applying for jobs, these older applicants deleted up to 15 years of experience from their resumes to get through the door, but as soon as the interviewers saw how old the applicants were, their faces dropped and they cut the interview short.

... ... ...

Add to this mix the results of a recent study that explored the relationship between the number of weeks of unemployment and the likelihood of receiving a callback after submitting an application. The researchers submitted fictitious resumes to real online job postings in each of the largest U.S. metropolitan areas. They sent roughly 12,000 resumes to roughly 3,000 job postings in sales, customer service, administrative support and clerical job categories. They tried to make their fictitious resumes look as close as possible to real resumes posted on job boards. In some cases, the resumes showed the applicant as currently employed, in other cases as unemployed for spells of between one and 36 months. They found that the callback rate sharply declined during the first eight months of unemployment – from 7% to 4% – and then stabilized. This 45% decline compares to the results of another study where black-sounding names received 33% fewer callbacks than white-sounding names.

... ... ...

The problem is that when the stigma of being unemployed is added to the stigma of being old, the chance of getting a job becomes very, very small. This outcome is not only unfair, but also wasteful from a national perspective as a substantial amount of experience and talent goes unused. Extended periods of unemployment also destroy the lives of the individuals affected. They use up their savings, they tap their 401(k)s, they sell their homes, and then they are left with nothing. And the number of older unemployed workers is large. As of 2012, almost 2 million people over 50 had been unemployed for more than six months; 1.3 million for a year or more. We need a jobs corps for these individuals and we need it fast.

Robert E. Pin, May 15, 2013

I applied for one of the numerous jobs online and they asked point blank - what year did you graduate HS? OMG! It was a required field so it was either lie, or put 1979. I felt it was good Karma to say the truth.

So hard to prove age discrimination in this case but boy would I love to give them a piece of my mind.

Doc y, May 15, 2013

@Brady White What would it do to your karma if you told them you were a child prodigy and graduated at six years old? Also, for the math challenged, I often give my age as 28 years old, when counting in base 20.

Sort of like there are 10 types of people: Those who understand binary and those who don't.

Wayne MacNeil, May 15, 2013

Bravo Alicia. Finally someone who understands what is going on. Only the numbers are probably much higher. Age discrimination is supposed to be against the law. This needs to be enforced just as strongly as discrimination against women or religion. There is a crisis in unemployment for those over 50. Many of these people are the best educated and would be among the most capable workers in the country. Someone has to pave a path requiring companies to employ older capable workers. This is criminal and as mentioned by the author is destroying people, families, retirements. People who have been productive for 30 years are losing everything. And younger workers dont seem to get it. If they dont stand up to this - their time is coming too.

People think they will need to work until they are 70 to pay their debts. The shock comes when the system wont let the majority work after they are about 50.

Rainier Rollo, May 15, 2013

Wayne -- I once asked a friend in her late 50s who was lamenting her long term unemployment how many people over the age of 40 she hired when she was in a position to hire --- the answer was ZERO. So don't just say that today's young people are afflicted with this way of looking at people. Most of those now unemployed 50+ in poisitons of hiring also passed over older candidates.

Lois Land, May 15, 2013

In that PBS segment, it was amazing to watch that university woman (clearly over 60) talk about how people become less productive after the age of 40.

Then doesn't she owe it to the university to resign/retire? Or does she think she's special/different?

I might be special/different too. I'm 64 and I've never been sharper or more productive.

Doc y, May 15, 2013

@Lois Land I hate to admit it, but something that has enhanced my productivity now that I am 50+ is I no longer have to leave work to attend kids' events, or take them to their appointments, etc. I miss my children very much, but they are grown and on their own. I loved doing stuff with them, and I made their activities my number one priority while they were growing up. Being laid off three years after the youngest left home was never in the financial plan, and like others on this site, employers have not been breaking my door down to come work for them.

The NC Employment Security agent told a bunch of us to try to conceal our age when interviewing. When asked if age discrimination wasn't against the law, he said very candidly it is, but there is no penalty for it in these times.

richard harris, May 15, 2013

The root cause of massive unemployment in the over 50 crowd is legal immigration. The 2010 census reported 40 million legal immigrants were residing in the US. These 40 million immigrants translate to about 24 million potential workers. The real unemployment level is 23 million people. Thus the real unemployment level of 23 million people is approximately equal to the work force inflation caused by legal immigration.

Thus the only hope for the over 50 chronically unemployed is to ban all further legal immigration.

[Oct 22, 2015] Felix Zulauf Bear Market Is Coming Soon

Zulauf this that this is bear market rally and the slide will resume the next year. His forcast is at the beginning of the video clip. He expects S&500 drops to 1600 the next year.

Notable quotes:

"... Zulauf says he expects a global stock swoon next year. ..."

finance.yahoo.com

Speaking at Barron's Art of Successful Investing conference, Zulauf says he expects a global stock swoon next year. He sees short-term gains for e-commerce beneficiaries Amazon, Facebook and Google; longer term, hold bonds.

James 37 minutes ago

"What the American people cant take is their government not being square with them"

When the #$%$ have they EVER been square with us...the hypocrisy in this statement hurts my brain

[Oct 22, 2015] Peak Oil is a Function of Oil Price

Notable quotes:

"... The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar. ..."

"... My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way. ..."

"... In hindsight, our view on peak oil was pretty naïve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected. ..."

"... "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like ..."

"... ... ... ... ..."

"... we can say with a pretty high degree of certainty "The world has passed peak $20 oil." ..."

"... That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices. ..."

"... But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe ..."

"... When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up. ..."

"... This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. ..."

"... While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices. ..."

"... At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. ..."

"... What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. ..."

"... Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldnt use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. ..."

"... You are right as far as the EROEI of oil is concerned, but I believe that Joes comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. ..."

"... Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the worlds historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubberts models. ..."

"... One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such. ..."

"... I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the worlds oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like? ..."

"... I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the oceans depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient. ..."

"... Climbing for decades would not make PO bunk , it would only make Hubbert´s estimate a bit more inaccurate and drag the decline out by a generation. ..."

"... But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again. ..."

"... Isnt it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel.... ..."

"... The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and that too is peaking. Next will be peak population. ..."

"... I agree that the issue with Peak Oil isnt that were going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online. ..."

"... If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment. ..."

"... And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you? ..."

"... I think thats going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world. ..."

"... The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups. ..."

"... what you wrote above hit me: Its such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption. ..."

"... Peak oil isnt just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability. ..."

www.energytrendsinsider.com

The Origins of Peak Oil Awareness

The scientific study of peak oil began in the 1950′s, when Shell geophysicist M. King Hubbert reported on the evolution of production rates in oil and gas fields. In a 1956 paper Hubbert suggested that oil production in a particular region would approximate a bell curve, increasing exponentially during the early stages of production before eventually slowing, reaching a peak when approximately half of a field had been extracted, and then going into terminal production decline.

Hubbert applied his methodology to oil production for the Lower 48 US states and offshore areas. He estimated that the ultimate potential reserve of the Lower 48 US states and offshore areas was 150 billion barrels of oil. Based on that reserve estimate, the 6.6 million barrels per day (bpd) extraction rate in 1955, and the 52.5 billion barrels of oil that had been previously produced in the US, Hubbert's base case estimate was that oil production in the US would reach maximum production in 1965. He also estimated that global oil production would peak around the year 2000 at a maximum production rate of 34 million bpd.

Hubbert calculated a secondary case that if the US oil reserve increased to 200 billion barrels (about which he expressed doubts), peak production would occur in 1970, a delay of five years from his base case. Oil production in the US did in fact peak in 1970, so Hubbert is widely credited with precisely calling the US peak, but few know that he was actually skeptical that the peak would take place as late as 1970.

The US has now surpassed Hubbert's most optimistic estimate for US oil production. Through 2014, cumulative US production stands at ~ 215 billion barrels, with a remaining estimated proved reserve of 48.5 billion barrels (but with the caveat this reserves estimate is based on crude prices near $100/bbl).

The Modern Peak Oil Debate

In the ensuing decades since Hubbert's original work, discussion of peak oil ebbed and flowed. But the modern peak oil debates really heated up a decade ago. In 2005 the late Matt Simmons, an investment banker to the oil industry, published Twilight in the Desert. The book argued that Saudi Arabia had overstated its oil reserves, that its oil production was on the cusp of terminal decline, and that prices were set to soar.

... ... ...

Peak Oil Camps

At one extreme of this debate was the camp that believed peak oil was happening at that time (~2005), and that it was going to spell the end of civilization. This camp was often referred to as "doomers", because they believed that humanity was doomed. (And many haven't changed from that position). At the other extreme were those who believed technology could continue to squeeze ever more oil out of the ground. This camp was sometimes referred to as the "technocopians."

Most of us were somewhere in the middle. In 2005 I felt like we still had a few years to go before we reached peak oil. My general position was that we were 3-5 years away at that time, and I spent a lot of time debating the evidence with the imminent peakers. I wrote a number of articles addressing the topic of peak oil (e.g., Five Misconceptions About Peak Oil). My view was that peak oil would cause great hardship, but humanity would survive. We would muddle through and find our way.

Overconfidence in these discussions over peak oil (and peak natural gas) was prevalent. For instance, in 2003 Matt Simmons predicted, with "certainty," that by 2005 the US would begin a long-term natural gas crisis for which the only solution was "to pray." This sort of confidence was prominent in the debates. If you had argued at that time that by 2015 US and world oil production would be where they are today, you would have been deemed certifiably insane.

In hindsight, our view on peak oil was pretty naïve. Global oil production was not about to fall off a cliff. The potential for increased production was hand-waved away. But higher oil prices had a much bigger impact on production than most of us would have projected.

I had this idea bouncing around my head that higher prices would spur more oil production, but I agreed with those who argued that there were limits to this and we had to take steps to address the risks. The limits wouldn't necessarily be technological, but would rather depend on the amount of energy required to extract and process the oil. At some point it simply becomes too energy-intensive, and even if you are using a cheaper source of energy to do the extraction, there comes a point that the cost of energy inputs exceeds the cost of energy extracted. Since the energy inputs and outputs are related via price, it's a pretty good argument.

It's Not That Simple

Jeff Rubin - the former chief economist at CIBC World Markets - eventually crystallized in my mind the relationship between peak oil and oil prices. I saw Rubin give a presentation in 2011, and he said something like "Peak oil is a moving target. I think peak oil is in a different place if oil is $150 versus oil at $100." Then the notion crystallized. You can't talk about peak oil without talking about oil prices. Why? Because this is what the real world looks like

... ... ...

,,,the bottom line is that there is a lot of oil that will come online at higher oil prices. How much is truly unknown, but it is estimated to be in the 10′s of millions of barrels per day. (For those who believe this is unlikely, think back to 2005 and how much chance you would have given for the current levels of oil production). Similar graphics have been produced for the break-even price in shale oil plays, and the message is similar: Higher oil prices will spur oil production in more marginal areas.

So we should really talk about peak oil as a function of oil prices. In that case, we can say with a pretty high degree of certainty "The world has passed peak $20 oil." If we could magically freeze the price of oil at $20, we would see the sort of peak that the imminent peakers projected. That doesn't mean that oil prices will never again fall to $20, as supply/demand imbalances do wildly swing prices at times. It just means that $20 isn't a sustainable price for meeting current global demand. That also means that the average price of oil in the future will be much greater than $20, which is why I downplay those predictions of very low oil prices.

But has the world passed peak $100/bbl oil? The answer to that is clearly no. When oil was at $100/bbl, supplies were still rising. Now that prices are less than half that level, global production looks like it is set to fall. So maybe we have past peak $50/bbl oil.

The peak oil story turned out to be more complex than most of us who were debating it could have imagined back in 2005. What many thought was peak oil at that time was just one more cycle in the gyrations of the oil industry. When prices are rising, oil producers spend money as fast as they can to build out capacity. New oil plays become economical. Inevitably, supply outpaces demand and the price crashes. Capital spending slows, marginal oil plays are shut in, and demand catches back up to supply, which drives the price back up.

But what we have seen in this most recent cycle is that the trough isn't as deep as it has been in the past. This time oil didn't drop to $10/bbl, but it did spend a lot of time at $100/bbl. That is a sign that we are using up the cheapest oil supplies. The world is highly unlikely to return to an era of $20 oil. The floor has moved higher. Peak oil has moved past the $20 threshold, and most likely the $50 threshold.

... ... ...

Link to Original Article: Peak Oil is a Function of Oil Price

Joe Clarkson • a month ago

While maximum oil production is indeed a function of the price of oil, the price of oil that people can afford to pay is a function of the EROEI of oil extraction. As the oil extraction industry gets to be a larger and larger part of the overall economy, all the other parts of the economy suffer from the diversion of resources to oil production, limiting the ability of would-be oil purchasers to pay higher prices.
At some point, the price needed to stimulate new production will exceed the price purchasers can afford to pay. That will be when we see the peak of production. $100 oil may very well be incompatible with robust world-wide economic growth. If so, we will know that we have passed peak oil when oil prices again rise to record highs (over $100/bbl) and production fails to respond and exceed the volumes that were produced the last time oil was $100/bbl.

What really worries me about passing the peak is the economic consequence of having a critical mass of people come to the realization that we are indeed past peak oil. If the substitutes for oil are by then insufficient for economic growth, people will realize that the world economy will henceforth be subject to continuous recession, rising unemployment and increasing poverty, with no remedies in sight. If they haven't happened already for other reasons, debt deflation and financial panic will then exacerbate all our other resource depletion predicaments. It won't be pretty.

Robert Rapier Mod Joe Clarkson • a month ago

"people can afford to pay is a function of the EROEI of oil extraction."

Not entirely. I alluded to this point, but it depends on the cost of the energy input. You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline. So EROEI is something that tells us about the relative efficiency, but it doesn't address the economics. Nor does it include a time factor. I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis.

Advocatus Diaboli -> Robert Rapier • a month ago
Robert,

"You wouldn't use 1 BTU of gasoline to produce 1 BTU of gasoline, but you might use 3 BTUs of coal to produce 1 BTU of gasoline."

You are right as far as the EROEI of oil is concerned, but I believe that Joe's comment is valid in a broader sense, expanded to the EROEI of the total energy supply. What you seem to argue is that the EROEI of gasoline (or any particular energy carrier) may not have absolute limits. However, the EROEI of the economy on the whole does matter, as the economy needs free energy to operate on. Your example assumes that coal will continue to have a much higher EROEI than (marginal) oil, but to the extent oil needs to be cross-subsidized in energy terms, it ceases to be an energy source to the economy, it just becomes an expensive energy carrier. And the more we subsidize oil with coal (in energy terms), the faster will the EROEI of coal decline and more of society's resources will have to be invested in the energy sector.

"I could run a society on a process with an EROEI of 1.1 -- as long as I returned that on a daily basis."

Let's assume you can run your economy on the "right kind of energy" (let's call it gasoline) that has an EROEI of 1.1 I.e., every day you need to invest one unit of this energy to get 0.1 unit available to (and sufficient for) the rest of the economy. But if you need three units of the "wrong kind of energy" (coal) to produce one unit of this gasoline (meaning that gasoline has an EROEI of 1/3, i.e. it is not a net "source" of energy) and the actual process you are running the economy on (coal production) has an EROEI of 1.1, then returning that every day would only give you 1/30 units of gasoline a day, which is only a third of what you need for the rest of the economy. You would therefore have to return the 1.1 coal energy not on a daily basis, but every 8 hours to get your fix of gasoline. That would mean having to triple the throughput of coal, meaning three times more mines, rail transport, power capacity, etc.

Joe's argument may have been simplistic, but I think it is clear that there are limits that monetary cost cannot represent. Measuring the price of oil in dollars seems to assume that somehow dollars can represent a value independent of the cost of oil, which is questionable. Higher oil price cannot postpone peak oil indefinitely, as it can just crush society's ability to maintain the complexity needed to maintain (let alone increase) oil production from increasingly difficult places.

davidgmills1 -> Glen McMillian • 24 days ago
I guess its high time on this board that people learn about Liquid fluoride thorium reactors (maybe you do but you don't act like it). This was the nuclear power we should have had and never got because a decision was made by the US government to breed Uranium 238 instead of breeding Thorium 232. We proved at Oak Ridge that breeding 232 was feasible. But Uranium 238 won out because it could be used to make bombs easily while breeding thorium couldn't make bombs easy. Using uranium we got a two-fer. But a number of Uranium 238 breeder reactors were built and no one ever made them work successfully. By then though, the Oak Ridge program had been shut down and all of the developers of the program were either dead or retired.
People need to know that this form of energy is available to us, and it is capable of powering the world for thousands of years.

Ten major attributes of thorium:

http://energyfromthorium.com/2...

Solar and wind are fine for many applications, but if you want to power ships or go to deep space or even colonize the moon or other places, there are many times they just don't work.

Russ Finley -> davidgmills1 • 24 days ago
We can't hang our hats on unproven technology, but we certainly should be trying much harder to prove it. These reactors are not a done deal:
http://euanmearns.com/molten-s...

This is the kind of technology the Google Engineering team was talking about when they concluded that we don't have the weapons to fight climate change.

http://www.energytrendsinsider...

davidgmills1 -> Russ Finley • 24 days ago
We ran a reactor for 20,000 hours in the 60's and 70's. It would not take that much to get them going again if we had the will. I would say that 20,000 hours was a pretty good start at proving the technology.
And I looked at Euan Means' article. It clearly does not address LFTRs. LFTRs run in the thermal spectrum, not the fast spectrum.

The reason uranium breeders were not successful is that they ran in the fast spectrum, which has a target 1/25 the size of the thermal spectrum's target that a neutron has to hit.

It is much easier to breed fertile elements when having a neutron hit a target 25 times as big and splitting an atom 2/3 of the time than it is to hit a target 1/25 the size and splitting the atom 90% of the time. That is the difference between breeding in the thermal spectrum and the fast spectrum. The people who wanted to breed uranium believed uranium could be bred in the fast spectrum. It proved to be very difficult.

Only thorium breeds in the thermal spectrum. Uranium does not. Breeding thorium was much easier and consequently it is not surprising we were able to do it at Oak Ridge for 20,000 hours.

The only thorium reactor discussed in Means' article runs in the fast spectrum. Euan Means' article proves he does not know what LFTRs are and consequently his article is not a valid analysis of LFTR's capability.

Rob Andrews • a month ago
Peak Oil is also a function of demand, if alternate energy sources create an energy price that is lower than the $20 peak oil price you may end up with a lot of trapped oil that not extractable. Of course research on both sides seeks innovation to beat the floor price of the competition

davidgmills1 -> Robert Rapier • 24 days ago

Maybe not today. But China has begun work on Liquid Fluoride Thorium Reactors which we pioneered in the 60's. They hope to have one operational by 2020.
See my post about 4 comments above and the link I cited.

If the world starts to make them in the 2020's, by 2035 or 40, the world will drastically change from what it is now. The thorium age will be vastly different from the fossil fuel age.

Ed Dodge • a month ago
Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models (genius even) for conventional oil production, but that his models do not include unconventional production and the advance of technology. Most of the world's historically large oil fields have gone into decline in the 21st century as Hubbert predicted. But new technologies, partly driven by higher prices, have opened up vast new resources such as shale that were not considered producible before. Unconventional resources are quite large and that is why reserves have gone up despite that accuracy of Hubbert's models.
There are more unconventional resources to be tapped, so reserves can continue to grow. Tight oil recovery rates are very low with huge margin for improvement. CO2-EOR opens up billions of barrels, methane hydrates are massive and yet to be tapped (gas not oil but the point remains), and synthetic fuels can be produced from coal, biomass and garbage.

I agree that prices drive development, and obviously environmental concerns are huge, so we must be smart and manage carbon emissions and everything else, but we are certainly not about to run out of hydrocarbons though they would not be as cheap as they once were.

Robert Rapier Mod Ed Dodge • a month ago
"Robert, the way I understand Peak Oil was that Hubbert was basically correct with his models..."
He was WAY off on his numbers. He vastly underestimated future production rates. So his peak predictions are based on production rates that were much lower than they actually were. If he had plugged in what the numbers actually ended up being, he would have forecast peak years earlier than he did.

Cracker -> Robert Rapier • 21 days ago
Robert, I suspect he underestimated reserve growth (increase of proven reserves over time) in US oil over those decades, as well. Variables and unknowns are why long term numbers are seldom correct.
One thing I might add to your excellent analysis is the substitution of other hydrocarbon liquids for crude oil, yet calling it and counting it as crude. Global crude oil production has been pretty flat since 2005, while production of natural gas liquids, condensate, etc. has increased. It is interesting that while these do not have the energy content or utility of crude, they are counted as such.

I see this, along with tar sands and light tight oil (LTO, shale) as scraping the bottom of the barrel, with declining energy profits as you appropriately point out. The peak so far has been an undulating plateau for ten years, with the world's oil industry exploring itself into financial distress during that time trying to find new sources of quality crude, with little to show for it. Instead we have synthetic crude from Canadian tar sands, dumbbell crude from tight rock, Saudi Arabia develops its probably last field of heavy sour crude that no one wanted before, and on and on. Clearly we are chasing the dregs of oil. What else should peak look like?

Forrest • 18 days ago
Would it be more accurate to say oil production is a factor of price? As the market will be energized by future profits that in turn will spur innovation, technology, investment, R&D, tax incentives, etc..
I just read an article on technology that will boost deep ocean recovery something like 30%. A device that utilizes the ocean's depth water pressure to increase pressure differential at oil recovery zone. Also, articles on future robot technology that is proving itself per drilling equipment that makes deep water drilling safer and easier. Technology continues to make drilling, recovery, processing, and oil detection more efficient.

I can think of no reason the petrol fossil fuel supply will run out. It will get more expensive, but the earth makes a good storage container as such the supply will quietly and safely sit in place until needed. I remember reading of natural gas reserves of 100 or 200 years out, depending on exports and consumption.

That's the known (current) recoverable reserves of which should increase. Also, coal was rated the same. Maybe GW concerns will eliminate or limit the fuel source, but the enthusiast of such planet killing phenomenon seem to be fickle bunch that only concern themselves with political leadership and solutions of their choosing. For example they claim corn ethanol is worse than gasoline per CO2. The EPA follows suit with outdated data and unproven penalties and utilize illegal rule governing power to limit the production of the fuel. Contrast this with Energy department's evaluation of ethanol fuel upon GW very positive as compared and gaining strength wile the EPA buries it's head to avoid reality check. Think of the taxpayer cost and politics invested to promote wind and solar energy without accurate analysis and comparison. Think of the same costs and quality of evaluations of BEV. Then compare the taxpayer cost of the ethanol fuel solution and hydro power already in the position of solving problems and reducing cost. What's the holdup if as they say GW will destroy the planet. Shouldn't environmentalist be shouting for joy, for example, that a new auto company utilizing all American built material is about to debut it's 2016 production and drive a spike in auto pollution problems. A simple low cost safe and reliable auto that's rated at 84 mpg. A $6,800 vehicle that needs no taxpayer subsidy and should replace a large segment of the used car market. A market of 90 million clunkers that average less than 20 mpg. I don't hear shouts of joy? Why is that? You could double the GW emission benefit of this vehicle with mid level blend ethanol fuel. An easy move up to E85 fuel engine that would decrease carbon pollution 85% if fueled with cellulosic ethanol. The Energy Department's rating of Miscanthus grass ethanol drives the carbon rating to negative. Meaning you actually improve. Shouts of Joy per not needing horrendous taxpayer investment and no need to lose citizen and private market freedoms per government regulation should soon spout. Don't hold your breath as they will attempt to kill such solutions not aligned with their ideals.

Optimist • 20 days ago
More to the point, Peak Oil is bunk, thanks to markets.
When production dips below demand, price increases until either demand drops or supply increases (or both). May take months or years, but that's inevitably how it works. There are many options for adding to liquid fuel supply that have not even been seriously explored and therefore remains available as future options, including gas-to-liquid, coal-to-liquid, biomass-to-liquid, etc.

The main threat to the system are foolhardy politicians, a species that seem to be out-breeding the other kind at a most disconcerting rate. When, and only when, one of these dimwits attempt to put a ceiling on fuel prices, shortages ensue.

At least we still have Nixon to kick around, jackass...

Advocatus Diaboli -> Optimist • 18 days ago
Are you suggesting that the Earth has infinite reserves of oil? If there is no peak oil, then oil production would need to increase monotonously forever. That is only possible if the Earth has infinite amounts of the stuff. The volume of the Earth is finite, and most of it is not oil (consider the core, the mantle, most of the crust, etc.).
TimC -> Advocatus Diaboli • 17 days ago
"The volume of the Earth is finite, and most of it is not oil..."
Okay, so how much of it IS oil?

Modern drilling equipment can reach a depth of about 12 thousand meters beneath the surface of the earth. This makes the volume of the portion of the crust that can be explored by drilling about 6.2x10^18 cubic meters, equal to 3.9x10^19 barrels. The earth's ultimate recoverable reserves (URR) of oil has been estimated at two trillion (2x10^12) barrels. If that URR estimate is true, then the pre-industrial concentration of oil in the earth's crust was about 51 ppbv, or fifty-one parts per billion by volume.

It isn't possible to quantify any concentration accurately near the detection limit of the quantitative method. No one knows how to analyze the earth's crust to accurately quantify the concentration of recoverable oil remaining. It could be 25, 50, 100, 200, or 400 ppbv. When petroleum engineers or geologists estimate the global oil URR value, they use crude accounting methods that have very poor sensitivity, so the estimate that they produce is at or below the detection limit of any analytical method. Instead of two trillion barrels, there may be four trillion, or eight trillion barrels of recoverable resources yet to be discovered.

You are certainly correct that the earth's crust can only contain a finite quantity of fossil hydrocarbon resources. But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries.

Advocatus Diaboli -> TimC • 16 days ago

"But that quantity may be so large that production can continue to climb monotonously for decades, or even centuries."

Whether decades or centuries; it will peak (=reach an all-time maximum) at some point (if it hasn't done so already).

Rereading my earlier comment, I have to correct myself: a monotonous increase would not be necessary to disprove PO, as production could fluctuate or stabilise. But it would need to be infinite, which it won´t be.

Climbing for "decades" would not make PO "bunk", it would only make Hubbert´s estimate "a bit" more inaccurate and drag the decline out by a generation.

Climbing for "centuries" would probably require our understanding of the climate system to be proven wrong. I´d welcome that, but doubt that we are that lucky. I consider it more likely that we shall give up going after oil way before that, either deliberately (less likely) of for the lack of ability to maintain production.

Optimist -> Advocatus Diaboli • 16 days ago
Basically, as far as your lifespan is concerned, the supply of oil is infinite. It's just a matter of developing the technology that enables us to tap into those supplies. This is where the markets serve as an active encouragement to research when demand exceeds supply.
But let's take a step back and look centuries or millennia down the line, to the point where we really have exhausted all the planet's available oil: at this point oil prices increase, until some smart inventor, probably working for Big Oil discovers a process for converting ________* into liquid fuels. Crisis averted yet again. PO believers repeat their claim that PO will destroy civilization in the next 25 years. Some things never change.
* For _____ insert your choice of coal, natural gas, agricultural waste, solids municipal waste, sewage sludge, the one energy crop that might make sense: algae grown in the open ocean or any combination of the above.

Claims of Peak Oil, Peak Soil, Peak Water, etc. all rely on two assumptions: (1) we keep our consumption at the same levels as in the past and (2) we aren't able to expand supply beyond what we use today. Both are foolish assumptions. Both ignore the impact of markets on innovation.

Advocatus Diaboli -> Optimist • 16 days ago
You seem to ignore even the possibility that climate change may play an important role in our ability to cope or choice of energy. That alone disqualifies you from a civilized discussion. Not because climate change is a certainty (I think it is as certain as it gets, but it is always legitimate to ask questions), but to ignore a vast body of evidence that has made even stalwart skeptics shut up or even convert is simply not serious or honest (yoir choice).
But even ignoring climate for a second: Humans have not evolved much in the past millennia. The only thing that differentiates our 200-yr-old industrial society from previous agrarian ones is the reliance on abundant and cheap fossil fuels and, for the past century, oil. If you think that depleting oil will not hurt, think again.

Everything you eat comes from soil and oceans. Oceans are wrecked, even cornucopians don't predict an increase of food from the oceans. You'd better respect soil. Or suggest you eat your coal.

Optimist -> Advocatus Diaboli • 15 days ago
Wait, you are going to exclude people from the discussion who don't have the same priorities as you do? I hope you like talking to yourself.
Nice bait and switch, by the way. We were talking about Peak Oil and suddenly you want to exclude me for not mentioning climate change. The point remains: Peak Oil is bunk.

Climate change is a different topic. No doubt it needs some attention. We need to find a way to beam more heat into outer space. Where is NASA when you need them? Stop fooling around on Mars, already!

Food production is yet another matter. Japan better get used to importing rice, because sushi is going off the menu fast, as you point out. It is unfortunate that some cultures are so short-sighted, but what are you going to do? Have the US navy sink fishing boats taking more then their quota? The good news is that nature has a capacity to rebound.

BTW, who needs soil? Ever heard of hydroponics? There are even plants being developed that can grow using seawater while producing normal food. Hard to keep up with all the science, I know.

And, you're right future generations may eat coal, though I suspect natural gas would be the first fossil fuel to be converted to food. Basically you'd do a conversion of methane to something more biodegradable like methanol or one of the volatile fatty acids. Grow some fungus on that mix (think of it as related to mushrooms) and viola...

Science won't limit the future of mankind. If science was the only concern the future would be exceedingly bright.

Advocatus -> Diaboli Optimist • 15 days ago

Science is just science, a way to understand nature, and perhaps use it better.
The limitation is not imposed by science, but by the laws of nature, the limitations of our natural endowment and the needs of humans. Science can help us live better within the constraints, but cannot lift the constraints. Science allows us to understand and make use of the laws of thermodynamics, but it will never allow us to change those laws. It is utterly unscientific to expect that it would. Science can tell us about the role of phosphorous, it can help us find deposits of phosphorous, but cannot create those deposits.

I won't go into detail on your points as I do not have the time and don't see the point. Don't take it personally. I think you are delusional, but I wish you were right.

Optimist -> Advocatus Diaboli • 15 days ago

That's OK.
Typical, when a pessimist can't make his point, he just claims the optimist is delusional. End of argument.

You'll excuse me if I remain unconvinced.

Advocatus Diaboli -> Optimist • 15 days ago
No. All I dared to suggest was that science can tell us about the laws of nature, but cannot change the laws of nature. You and Forrest seem to believe otherwise, as suggested by your last comment (dismissing my argument) and a number of your expectations from science, which are unscientific. Beaming more heat into space without warming the planet? You don't even need NASA for that: Simply reducing GHGs in the atmosphere would do that. Too bad that you want to 'beam' so that you can continue releasing CO2.
Science tells you to to stop digging, and you propose buying a bigger excavator.

Forrest -> Advocatus Diaboli • 16 days ago
Diaboli, Optimist is right on this one. Your premise is correct, "the earth is finite", but given the scale, technology, etc. a poor restriction or arbitrary talking point. Just to many unknowns and the power of the market will make the transition automatically and effortlessly. Your 2rd premise of eating coal, totally wrong. We're actually upon a great historical revolution that is yet to be named. Every aspect of societal need is currently being evaluated, improved, reinvented. Think of the current magnitude of change upon us. All of it is very positive, unless one is a suffering pessimist. Farming is just entering the beginning stages of empowering the biological world by design. Agronomics, GMO, global positioning, drone workers, robotic workers, soil engineering, fungi exploitation, and the rest. Their is no limit in sight for improving production per acre, quality of food, and fuel feed stock. Most of it directed to negative carbon rating.
Metals and metallurgy continues to accelerate progress. Nuclear physics continue to accelerate, engineering skills and tools continue to accelerate improvements. Think of the short time span predicted for autonomous vehicles and resulting light vehicle fleet.

Miles per energy unit will no doubt be a magnitude improved. Heavy transportation and distribution equally being radically improved. Same for grid and green power. Fuel cell and bio energy chemistry making strides that will gradually offset petrol. Hydroponics, aquaponics, fish farming, and the rest already enable privatization of food production for those so motivated. Even to the extent of power and fuel supplies for those so motivated even upon small suburban house lots. The biggest threat to humanity is radicalism of terrorist that attempt to destroy society or destabilize. This will limit invention and progress and result in suffering. Same with radical ideals of "change" per some perceived danger. Politics can be very destructive if citizens lose historical understanding and clamor for quick solutions that require no work.

Advocatus Diaboli -> Forrest • 16 days ago
I agree on the " privatization of food production". You should have added water. As for the rest, I cannot quite tell whether you are being sarcastic or you really believe all this, but if the latter: dream on.
Optimist -> Advocatus Diaboli • 15 days ago
Forrest is serious. And right. The main challenge for mankind is the fact that democracy is giving us the leadership we deserve. Worldwide the results are utterly depressing...

Glen McMillian • a month ago

I think a lot of regular readers would like to see you update some of your older articles now that the costs of renewables have fallen so much in the last few years.

Advocatus Diaboli • a month ago
Robert,
I wonder what (if any) assumption Hubbert made on oil prices. I don't know his writings, but I do not suppose that he would discount the possibility that higher efforts could shift his curves. Isn't is so that he assumed (explicitly or implicitly) that prices would remain relatively stable. That would have been reasonable for his analysis of the US production, as he could assume that the (presumably much larger) production of other regions could take over (i.e., reduced supply from the US would not push prices up). In that case the US would essentially be a price taker, and its production would develop along a depletion curve as he predicted (although not necessarily at that level).

Such an assumption of relative price stability would be more difficult to assume for the global supply (with no alternative sources of oil). However, optimists who believe that other energy sources (renewables or CTL) would fully substitute oil above a certain price level could still assume a relative oil price stability at the global level.

I believe that the problem comes in when oil is considered critical and not practically substitutable. Then demand becomes inelastic and prices get volatile, represented by boom-and-bust cycles with an increasing overall trend, as you describe. I take this volatility as a sign of instability.

Isn't it so that Hubbert was largely correct in predicting what would happen in a world of stability, but he failed to take into account the economic instability caused by oil depletion itself? That would be quite understandable, as he was a geophysicist, not a social scientist. Not as if social scientists could predict what will happen when our oil-based society is deprived of its fuel....

Forrest • a month ago

Some of the commentators, share the idea that the days of no compete high cost of oil products may be numbered. This is juxtaposed with alternative energy decreasing in cost over time. This is new phenomena with no historical path to predict new trends. History is full of examples of supply problems such as war, threat to environment, high cost of capital, etc that impacted price. The economic ramifications always shot oil prices to extreme as traders worked the pricing to new highs. This threw the economies of the world into harsh inflation of energy costs that dampened economic growth.
Oil was the economic life blood and took much military investment to ensure the supply. Also, because of the crucial need for ample supply, gov't artificially amped up supply per subsidy such as regulated by tax code. So, are entering into a brave new world without this holdup reliance of corp oil supply? Appears so, with a positive trend line of diverse and renewable energy supply. Currently, most consumers do have some choice at the pump.

Limited, but economic analysis have studied this "competition" and have found a powerful dampening effect of gasoline per the U.S. ability to produce a million barrels of ethanol a day. It's not limited to FFVs either as the driving public have learned to utilize higher blends within entire light vehicle fleet. Also, diesel engine testing with ethanol describe a path way if diesel fuel price zooms up. Adding a alternative E85 fuel system to offset the diesel fuel consumption per intake air injection. Apparently, a quicker lower cost alternative as compared to CNG conversion. Ethanol processing plants have stored feed stock that can come to the rescue for short term increase supply needs. BEV's play into this alternative choice as consumers are increasing expected to have one of these vehicles sitting in garage. Same with small ultra efficient cars sitting next to the SUV that can take over transportation needs upon high price of fuel times.

Harquebus • a month ago

The global economy can not afford $100/bl oil and producers can not increase production without it. It is debt that has filled the void and
that too is peaking. Next will be peak population.
Glen McMillian • a month ago
Robert , what is your personal opinion on the minimum necessary energy return on energy invested as a practical matter given the nature of our present day economy?
I have seen figures as low as four to one and as high as ten to one or even higher.

fozzydabear • a month ago
"Oil prices did in fact rise sharply in the 2nd half of 2015" - Don't you mean 2005?
Robert Rapier Mod fozzydabear • a month ago
It seems that no matter how many times I proofread an article a typo always makes it through. Thanks for that. It's fixed.

Over the Hill • a month ago
I agree that the issue with "Peak Oil" isn't that we're going to run out of oil. The issue is that we are running out of economic benefit that is achievable given the cost to extract the oil. That is the current drag upon the world economy. And I really think that we will eventually be able to plot that economic benefit / bbl of oil as a function of time, and it will likely be a very familiar curve. That economic drag will increase no matter what new extraction technologies come online.
It won't be the end of the world. It will be a different world that we will have to make a commitment to adapt to, however.

Sam Taylor • a month ago
Robert,
If peak oil is a function of oil price (a stance which I largely agree with) then the key question becomes, what is the highest oil price that the world can sustain. In the advanced economies around $100 seems sufficient to cause stagnation or decline in demand, but in China or India demand seemed able to grow robustly at these prices. Presumably because filling your only moped with petrol gets you more utility than filling up your second SUV. So perhaps somewhere in the $100-150 range represents a ceiling, for the moment.

Then the question becomes, when do we reach this ceiling? Peak $20 oil was perhaps around the early 2000's, and maybe peak $50 is around now (inflation adjuested). The costs facing the majors appear to be accelerating quite rapidly, and if that breakeven chart is accurate the price curve seems to accelerate quite steeply, so perhaps an optimistic estimate might give us a decade or two.

And what with the more rapid decline rates of newer wells (deepwater and shale decline more rapidly than onshore conventional) depletion rates will probably accelerate. I think that perhaps the frequency of booms and busts in the oil price is going to accelerate a bit, as cycles of overinvestment lead to more gluts, then the price collapses, then underinvestment leads to shortages which manifest sooner, and so on. Does this sound plausible to you?

Robert Rapier -> Sam Taylor • a month ago

"what is the highest oil price that the world can sustain."

I think that's going to be different for different parts of the world. Ironically, $100 oil caused demand to decrease in the U.S., but it kept growing strongly across the developing world.

Dipchip -> Robert Rapier • a month ago
The reason is: If the retail price of oil is $4/Gal, the daily per capita consumption price in the USA is about $11.00. In India the daily per capita consumption price is about 61 cents. 2.7 Gallons versus 2.5 cups.
10% increase for one is $1.10 the other is 6 cents per day. A 5% increase in world consumption will bring back $100 oil. Who do you suspect will cause the increased consumption, developed or undeveloped nations?

Robert Rapier -> Dipchip • a month ago
Of course. I have written lots on this. A decade ago I thought poor countries would be priced out of the market. As prices rose, I saw that it wasn't impacting demand in developing countries. I also went to India in 2008 and saw 7 people on a motorcycle. And what you wrote above hit me: It's such a low per capita consumption in developing countries, and just a little more has a big impact on their lives. So they will drive future consumption.
It was an example of the data causing a 180 degree shift in my opinion.

Glen McMillian -> Robert Rapier • a month ago
A gallon of diesel fuel burnt in a tractor or irrigation pump generates hundreds of times more economic return than a gallon burnt fetching beer in an oversized pickup truck.

Forrest -> Glen McMillian • a month ago
What's the return on Prius owner driving coast to coast to demonstrate against use of oil? Maybe she or he is smoking pot and wrecks an expensive asset that cost the environment dearly. So, the multi use pickup driving to neighborhood grocery not so bad after all. The pickup utilized in providing services and supplemental income. The pickup life cycle extends multiples of the Prius and powered upon environmentally friendly fuel that per gallon provides more jobs and economic stimulus. The fuel supply will never diminish per continued use of processing plant and solar powered feed stock. No need to be on a continuous search and development cycle of diminishing supplies of raw material.

Dipchip -> Robert Rapier • a month ago
R Squared: The first time I ran across your name was back in 2005. I was having a disagreement with some Minnesota renewable fuel agency folks, when suddenly you came into the conversation. They were trying to say that ethanol was more efficient to produce than Gas; after reading your comment I decided to let you take over, as you seemed to be someone from the tail end of energy production and I was on the front end.
Been following your opinions ever since. Seems the internet is a good way to keep from becoming obsolete since retiring twenty years ago. Thanks for your years of effort to inform.

Robert Rapier -> Dipchip • a month ago
I remember that. It was one of those things that inspired me to start writing more. So much misinformation. I actually got the state of Minnesota to change that claim on their website after having several exchanges with them.

davidgmills1 -> Forrest • 24 days ago
For a different kind of nuclear technology, one which we developed at Oak Ridge in the 60's, see Liquid Fluoride Thorium technology. It's top ten attributes and why it will change the world:
http://energyfromthorium.com/2...

LuapLeiht1 • a month ago
I agree that peak oil is a function of price rather than raw supply numbers. However, I think that drawing conclusions from the price is still a bit naive. Prices spiked in the late 70s, early 2000's, and early 2010's. What do those three time periods have in common? The Middle East was on fire in all three periods (Arab oil embargo, Iraq war, and the "Arab Spring").
Peak oil isn't just a factor of supply as Hubbard proposed. Nor is it a function of price as the author proposes. It is a wobbly stool of both these factors couple with the third leg of political stability.

Like most things in life, reality is much harder to predict than theory would indicate.

[Oct 21, 2015] Devastating Shale Oil Losses

October 19, 2015 | Peak Prosperity

Sometimes it helps to examine one narrow slice of the pie as a means to understanding the entire pie. In the case of the shale oil Ponzi scheme, we can both wrap our minds around the scale of the predicament and also answer the question of who the losses will be foisted on.
Once we've done that, you should be able to simply apply the same logic and learning to other sectors of the financial universe. Learn one sub-bubble, learn them all; like a fractal foam of misadventure.

[Oct 21, 2015] How Much Longer Can The Oil Age Last

Notable quotes:

"... I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking). ..."

"... One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future? ..."

"... including all the costs currently externalized ..."

"... With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list. ..."

"... differently ..."

"... responsible ..."

"... responsible ..."

"... Population will plateau at some point during this century. ..."

"... The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now. ..."

"... It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets ..."

"... First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line. ..."

"... Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade.. ..."

"... Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while. ..."

"... My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change. ..."

"... Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more. ..."

"... The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure. ..."

"... The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives. ..."

"... Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration. ..."

"... Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use. ..."

"... Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story. ..."

"... Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade. ..."

Oct 21, 2015 | naked capitalism
Will October 21, 2015 at 6:17 am

I wish the author had discussed his current estimates of recoverable oil in the $50-70 range rather than just implying it's there for the taking. A lot of countries have had their own individual peaks in production (i.e. Egypt, Syria) and only much higher oil prices may reverse that (like how high prices lead the US to increase energy extraction w/fracking).

One question I'd really love to see tackled: if you could calculate the true, total cost of production and use of a barrel of oil, including all the costs currently externalized (such as the cost of repairing damage from earthquakes from fracking, or full ecosystem restoration and financial restitution to affected people from pipeline breaks, etc) and compare that to the market price, are a greater percentage of costs externalized than in the past? And where does that trend go in the future?

optimader October 21, 2015 at 5:20 pm

including all the costs currently externalized

With all the mountains of BS on the internetz, this fundamental mat'l you will not find. BTW add the cost of attributable MIC and Failed States to the list.

jgordon October 21, 2015 at 6:34 am

Rather than rehash things I've said before many times, I'll just provide a link to this classic post from Nicole Foss at the Automatic Earth website. I think it offers context and interpretation that's quite a contrast from the rosy and perhaps ill informed post above:

http://www.theautomaticearth.com/2012/10/renewable-energy-the-vision-and-a-dose-of-reality/

DanB October 21, 2015 at 7:56 am

I agree with you, but this is a hard sell at this site due to deeply entrenched mythological beliefs about 1. what money is and can do and 2. about infinite growth on a finite planet (collectively, we're at the bargaining stage on this latter one as the signs of the end of growth and ecological overshoot abound but are blocked from recognition by a paradigm that explains them as aberrations or human failures). I'd add to the Nichole Foss post the book "Green Illusions: The Dirty Secrets of Clean Energy and the Future of Environmentalism (Our Sustainable Future)," the webiste of Gail Tveberg, Our Finite World," and the site "Economic Undertow".

jsn October 21, 2015 at 9:45 am

It's not such a hard sell, I read plenty of comments here that understand what is in your references. The issue is how you get where we need to go from where we are. Calling everyone who disagrees ignorant doesn't help much: we all know what we know and don't know exponentially more. But it is very hard to propose actionable ideas beyond "personal virtues" which on their own have no chance. This is possibly the ultimate coordination problem: agreement on goals is much further along than agreement on means.

MikeNY October 21, 2015 at 10:14 am

+1

very perceptive comment

DanB October 21, 2015 at 12:01 pm

Please note I use "collectively" to refer to our culture, not to NC readers. Perhaps that was not clear. And i've been reading and commenting here since 2009.

washunate October 21, 2015 at 12:25 pm

This is a great exchange. Perhaps what I might add is I'm not so sure we do have agreement on goals. I think that does a disservice to those voices that quite passionately advocate moar.

They genuinely believe that more work, more output, more deficit spending, more higher education, more home equity, more development and infrastructure, more aggregate activity, will improve society. It is a moral calling they see, and it is quite distinct from the perspective that we should live differently. We can't paper over how deep that chasm is between those that want full employment and those that want a world where less is more. One irony of the post-Keynesian (and post-Bretton Woods) MMT world is that Keynes himself thought we'd only need to be working a few hours a week by now. Capital accumulation was the great liberator of our time, to allow us human beings to do more important and exciting (and less polluting) things than go to work. But the secularization of the puritan work ethic – the notion that human life is directionless without an authoritative (and fatherly) figure to give direction – dies hard.

bdy October 21, 2015 at 2:51 pm

And for whatever reason, the less-is-more crowd isn't so much in the habit of proposing actionable ideas. We might consider that dismissal and scorn are nothing more than rhetorical tools in a conversation about power. (See Ghandi or Nicholas Klein: "first they ignore you…")

– We can tax excessive consumption at the rate of its externalities, even (and especially) for necessities like food, water and housing
– We can publicly fund taking people and institutions off of the grid.
– We can publicly fund light industry and massive agricultural infill in our cities.
– We can lift property taxes and subsidize rents for anyone who walks or bicycles to work.
– We can tax energy in direct proportion to the loss rate of whatever grid carries it.
– We can enable the State to enter the Market wherever a discernible demand is not being met, as consumer or provider (see giving medicine to sick children or eating unadulterated food)
– We can scrunch city streets to the size of cart paths, confiscate any vehicle that exceeds 25 mph, shade everyone's windows, turn off our a/c, criminalize the use of drinking water for anything but drinking, locally compost all our bio-waste, end the industry of converting sunlight to meat, criminalize bulk possession of any bio-toxin, enforce a 25 hr / 3 day work week with no overtime, revoke the commerce clause (or not), buy back guns at triple the sticker price and melt them into strollers and windmills…

It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

Naomi Klein reads like USA Today, but The Shock Doctrine is right. The inevitability of scarcity means that crises will escalate. And with each escalating crisis, the most unthinkable ideas will become potentially acceptable (including comic-book nastiness like a nuclear first strike; ethnic cleansing in Kansas; a 0% capital gains tax; or declaring global, never-ending war against ~~non-christians~~ terror).

If enough of us agree that shit is really going South in a bucket, and that the Fiat dollar allows us to spend relatively freely on things like war in Iraq; QE; or mitigating the disruption of mass industrial shrinkage, then we should also agree that the "actionable" in actionable ideas is all encompassing. Because the next time someone flies a false flag or blows up a critical asset class, the table will be in dire need of transformative food for thought.

washunate October 21, 2015 at 7:24 pm

It's simply a matter of keeping the conversation on point (what works within the limits of our solar income?) and being willing to discuss policies that might or might not reduce our level of comfort and privilege.

Yep. I think that's one of the characteristics that makes proposals to do less (for example, tax the rich or end the drug war or scale back IP law) the most realistic in a system as corrupt intellectually and financially as ours is today.

It's the first rule of holes: stop digging. Almost all of the big ideas to do more require an infrastructure of good faith management that simply doesn't exist.

Brooklin Bridge October 21, 2015 at 11:15 am

Thanks for the link. That is a very interesting and well written article, worth reading and re-reading since it gives a good perspective on many issues. But you should also take into account that it (and all the links inside it) was written in 2012 and the costs of producing renewable energy are dropping to such an extent (like compound interest) that they are changing the nature of the issue.

Moreover, the argument the article makes doesn't negate the need to transition to renewables; rather it acknowledges that need but emphasizes the gains of doing so locally in support of (as alleviation to) the current centralized power model rather than immediately replacing it. My argument about corruption below, I think, is one of the reasons that this effort has not gone further. Example, Hawaii, where electric utilities have had considerable success in halting renewables at the local level by individuals due to fear of reduction in profits.

Brooklin Bridge October 21, 2015 at 11:40 am

Note, the fear of reduction in profits isn't entirely without merit. But what is without merit is the capitalist system that makes it possible for the utilities to win a battle for profits in a war for existence.

jgordon October 21, 2015 at 6:38 pm

The article is even more relevant than it was in 2012; the issue is not the cost of a solar panel, which is perhaps the least important cost in the process. Rather, it's the way our infrastructure is set up. The centralized utility/grid model is still just as incompatible with renewable energy today as it was in 2012.

It's possible that we could all have a solar panel array and a windmill directly adjacent to the demand–but we'll still have to cut our energy consumption by 95%. In that kind of a world, things like personal passenger vehicles and the internet will not exist. I'm looking forward to it.

hidflect October 21, 2015 at 6:55 am

The primary issue is one polite society refuses to address: population.

jsn October 21, 2015 at 9:49 am

That is the issue that makes it "possibly the ultimate coordination problem". The moral reality of billions of lives lie in the balance of the actions one takes or doesn't take. That weight may be among the biggest barriers to responsible action: those who aspire to be responsibleare the most unnerved by this issue.

washunate October 21, 2015 at 12:49 pm

I'm much more optimistic on that front. Population is not a large coordination problem because there is no scaling needed to have fewer kids later in life (at least until the authoritarians perfect their Huxley Bokanovsky groups, I guess). Those are individual choices that can be made at the ultimate local level.

It's already happening all around the globe, and outside of China, it's mostly happening as a genuinely free choice made available by the intersection of reproductive healthcare and a basic standard of living. It's almost like our species subconsciously recognizes the value of reducing the total population. Even against the stern worrying of the Serious People that declining birth rates threaten The Economy(TM).

Ignacio October 21, 2015 at 4:11 pm

+1, an other perceptive comment.

Also the 'population problem' is a relative problem to consumption, resources and distribution. Population will plateau at some point during this century.

There is no such thing as 'population problem' with the appropriate policies if the population does not go beyond 10 bill. (and old people consumes much less, by then humanity will be aging, damn, it already is in developed nations).

The problem is to get smart non-psychopaths in power, that's the #1 problem we have right now.

jsn October 21, 2015 at 4:51 pm

Right now the real resources ratchet is producing civil wars and mass migrations, for instance, among other problems that are just beginning to blossom.

It isn't population per se that is the coordination problem, it is equitable distribution of diminishing real resources in real time to support it without mass die offs that is.

So far industrial overshoot is playing out with all the harbingers of collapse which will solve the distribution problem by natural selection. The coordination problem is to solve the distribution problem ethically to prevent nature taking its course.

Nature bats last, so the trick is to keep the inning going.

MikeNY October 21, 2015 at 10:17 am

I think this is true, and there are two big reasons for it:

1. It flies in the face of capitalist orthodoxy and its requirement of ever-expanding markets
2. If flies in the face of certain religious teachings on sexuality

Both of these need to be rethought.

Eric Patton October 21, 2015 at 8:19 am

The article does not mention the word "capitalism" even once.

Private enterprise market economies - capitalism - are literally incompatible with reduced emissions. As long as we have a private enterprise economy with market-based allocation, we will simply continue to destroy the planet.

Private enterprise centrally planned economies, public enterprise centrally planned economies, and public enterprise market economies have all existed in real life: Nazi Germany, the former Soviet Union, and the former Yugoslavia. None of these are viable alternatives to capitalism, if the goal is reduced carbon emissions.

People are not yet ready to discuss the alternative though. This is not good.

JTMcPhee October 21, 2015 at 9:29 am

…it's not "market based allocation," unless one does a little trick with definitions and categories– I'd call it "corruption based allocation," with a secondary diagnosis of terminal metastatic idiotic greed…

Pwelder October 21, 2015 at 9:16 am

This post is OK as far as it goes, but it misses a couple of realities in the current situation that are relevant to finance and politics when viewed – as Yves does – from 50,000 feet.

First, a big piece of what's going on stems from happy memories among Western policy makers of how a similar Saudi-initiated oil price war played a big role in breaking the USSR back in the 1980's. It's true that the price cut attends to some necessary cartel-management housekeeping, but this is a side benefit – the motives are mainly geopolitical rather than commercial. War by other means, as somebody said. For Putin, of course, the 1980's memories are not so happy. His objectives include showing that Russian policy can't be jerked around via the oil price, and ideally setting up consequences so painful to the Saudis that they'll never want to try this again. So events won't follow the path you'd expect in a normal OPEC cartel management exercise – either in time or in plot line.

Second, there's a wicked price spike coming. It could be the day after tomorrow, if the Russians and Iranians engineer something kinetic around the export facilities and trade routes on the western shore of the Gulf. Or it could be a year or two from now, as the two sides – exhausted and poorer – settle for some kind of mutually livable compromise. In either case the capex cuts now in train will flip the oil supply from its present "glut" (very small in percentage terms as compared to the 1980's experience) to a shortage at least as severe as the one in the middle years of the last decade..

Why should progressives care? Many good reasons, but the big one I haven't seen mentioned is this: There's a good chance the spike lands smack in the middle of the 2016 election. That being the case, this is probably not a great time to be parading around bragging about successes in blocking pipelines and keeping the oil on trains.

MrColdWaterOfRealityMan October 21, 2015 at 10:57 am

There are a number of issues not mentioned that factor into any prediction:

1) Oil isn't electricity. It's not used the same way and currently can't be used the same way. There are no electric airplanes, freight trains or cargo ships. Despite innumerate claims to the contrary, no current battery technology is capable of replacing hydrocarbon fuels. The volumetric energy density is not there and won't be for the foreseeable future.

2) Price is a proxy for energy return. Prior to the current overproduction glut (the equivalent of squeezing a sponge harder for a few seconds), oil became expensive because acquiring it from fracking or drilling in deep water is more expensive, both energetically and economically. Despite the current overproduction blip, the upward pricing trend will inevitably continue.

3) Production breakdown will be nonlinear. The world's current interdependent, global, just-in-time supply chains depend on *cheap* oil to be economical. When oil prices jump again, as they inevitably will, these will start breaking down in unpredictable ways as production and transportation costs increase. This affects everything, including the price of oil

4) Oil price feedback will eventually kick in, though this is far in the future. High oil prices increase the prices of all things dependent on oil for production or transport. Eventually, the high price of oil starts to affect the price of oil itself. Those spikes will be numerous and rapid, for a while.

Oildusk October 21, 2015 at 10:58 am

I was involved in a book entitled the Carbon Conundrum, by Bob Kelly. Bob has a PDH in economics from Harvard. He mapped out the anticipated volume of fossil fuels remaining and it's impact on the world climate. His take was that we'd run out of oil in the not too distant future and that it would take the world about 500 years to get back to pre-industrial carbon levels.

My take in Oil Dusk was to leave global warming out of the book and focus on the importance of oil to the current infrastructure in the developed world and what a disruptive transition might look like. Also, oil is truly scarce and took many millions of years to produce a quantity that will mostly be gone within the next hundred years. Oil scarcity concerns me a lot more than climate change.

While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range, I remember twelve years ago when I couldn't persuade the bank to provide me with a price deck above $30 a barrel so that I could make some energy investments. Within the next five years, we will almost certainly see oil prices return to at least $90 a barrel – and perhaps considerably more.

The real alternative right now to oil is natural gas and it's likely that we transition from a oil to a natural gas energy infrastructure before we get to a solar and wind driven world structure.

Energy transitions are difficult and the actual path will make a huge difference in where we are as a species in the next 100 years.

Ignacio October 21, 2015 at 11:50 am

There are different ways of looking at the energy issue depending on where do you live and I appreciate very much the insigths from Mumbay, India. I live is Spain and I have a different view. India is growing briskly while spain is stagnated and will be so for years to come it seems. Instead of growing fossil fuel consumption we have seen a quite noticeably decline, particularly for petrol products. Since the beggining of the crisis, petrol products consumption has declined by 28% (From 75 million tons annually in 2015-2017 to 54 million tons in 2014). Domestic oil production covers less than 1% of total consumption. We depend almost totally on oil imports.

The observed decline has been caused of course by the financial crisis and high oil prices. Nevertheless, I bet that in Spain we have already seen an all-time peak oil consumption. Of course, lower oil prices are now playing in reverse and 2015 will see a modest rise in petrol products consumption for the first time since 2007. Nevertheless the observed decline shows clearly that an economy can function with much lower oil energy input. And there is still a lot of room to reduce consumption.

A country like Spain, totally dependent on oil imports and crushed by bad debt is very sensitive to oil price volatility and there are many economic incentives to reduce oil consumption and replacement with renewables. In a depressed economy like ours, every euro/dollar saved on imported petrol products has a multiplier effect on growth. Besides, pressure is mounting from the side of public health (toxic emissions from gasoil, fueloil and kerosene) and climate protection. Spain has not the size nor the population of India and its international impact is small. But it migth become an advanced laboratory trial to test the end of the Oil Age.

DanB October 21, 2015 at 12:39 pm

You write, "While a book about oil scarcity might seem unrealistic at this juncture with world prices hovering in the $45 – $50 range…" Actually, the reason the price is low is due to the scarcity of cheap light sweet crude oil. We're seeing more and more people unable to afford more and more of life's necessities while simultaneously the cost of extracting oil is increasing (along with bankruptcies and mergers among energy companies to fend off the inevitable consequences of peak oil on debt, finance and the economy.) Low prices do not mean a glut of oil; they signal just the opposite. And then we have a neoliberal political/economy that worsens the matter.

susan the other October 21, 2015 at 1:53 pm

I agree and I'm convinced that every government on Earth agrees. What I see playing out between the Saudis-Qataris and the Russians is a struggle to control natural gas. The Gulf wants to pipe gas thru Syria and turkey to the EU. Russia wants to pipe gas from the Caspian to southern Europe. France wants to gain a share of the gas fields belonging to Egypt and get in on the action. It looks like Iran intends to supply China with natural gas via a pipeline thru Pakistan. What this looks like is a pact among the producers to leave oil in the ground after a certain window of time needed to switch to natural gas and then the reduction of the use of natural gas as it is replaced by renewables. The Saudis are using their natural advantage to sell as much of their oil as they can before the window closes. Maybe.

john c. halasz October 21, 2015 at 3:37 pm

The Saudis have the largest reserves of high quality cheaply extractable oil. They are the highest rent producer. (There are likely further reserves of such cheap, high quality oil to be found in a couple of places, Libya and Iraq, but you can see the problem there, and after that there's nothing left to be found of conventional reserves). But they must also realize that the age of oil is coming to a close over the next few decades. Hence it is in their interest to make sure that they sell off their reserves to the last drop, before the end, and thus to squeeze out higher cost unconventional producers. In the meantime, they also have an interest in keeping the global economy from recession, since the value of their immense financial reserves depend on the health of the global economy, which can readily be sent into recession by high oil prices. SO likely they will try to keep the oil price from rising above , say, $70 for quite some time. so as to balance out their various objectives.

Gaianne October 21, 2015 at 6:19 pm

One hesitates to add to an overly long thread.

Conversion to renewables is just happytalk. Conversion to anything is just happytalk. A quick look at physical fundamentals would reveal that there is simply not the means to continue industrial civilization in anything vaguely like its current configuration.

Civilization will be seriously disrupted–more likely, ended. Any technology or process that would mitigate the resulting suffering would need to be robust against disruption. High technologies and complex systems will not be robust, and will be of no use.

Photovoltaic technology is a mid-term, niche, small-scale amelioration. It cannot power the grid, and it cannot replace the grid. Until panels can be made without rare-earth elements, the supply is seriously constrained by geology. Even if they are freed from rare-earths, the high technology and long suppy chains mean they will not go more than a few decades into the future.

The grid itself will go down, region by region, never to return.

Those of us who use photovoltaics know they are wonderful for the small-scale low-power applications to which we put them. And of no use for the high-energy large-scale schemes we keep hearing about.

Capitalism has been mentioned. The key point is that return on investment (on loans) is in fact usury, and fundamentally criminal on a finite planet. The Industrial West "got away with" usury for five centuries firstly because of imperialism (colonialism–the immiseration of the periphery to prop up the center) and secondly because of cheap fossil fuels. Now that both of those are at an end usury just means destroying the economy that already exists in the name of trying to pay back the unpayable. Usury drove expansion, when expansion was physically possible; now it accelerates decline. If we eliminated return on investment tomorrow, we would open a window for addressing our problems. But usury will not be eliminated, and thus the chance of addressing our problems is nonexistent. Won't happen–end of story.

There is much to be done nonetheless. Learning to live will less, and on things which can obtained locally, is both possible and necessary. Managing local, available sunlight for heating and cooling was well researched (and ignored) back in the 1970s. Much can be done on a small, local scale.

Meanwhile greenscams are everywhere, and will increase. Greenscams -- proposals for endless energy and stuff (delivered in an environmentally friendly way, of course)–are about to become their own proper industry. As everyone wants the impossible, greenscammers promise just that -– money up front (from you, the sucker) for unicorns delivered in the future. After all, who can prove the unicorns won't appear? This industry will be very profitable until we run out of suckers. I give it a decade.

–Gaianne

Steven October 21, 2015 at 7:17 pm

Just about the best take I've found on this subject – and on money and economics – is Frederick Soddy's "Wealth, Virtual Wealth and Debt" (2nd edition). Here are some samples:

…though as yet the applications of the knowledge to the economics of life are not generally realised, life in its physical aspect is fundamentally a struggle for energy,… p. 49

As Ruskin said, a logical definition of wealth is absolutely needed for the basis of economics if it is to be a science. p. 102

The vast potential productivity of the industrialised world, particularly in the engineering and chemical industries, must find an outlet. If that outlet is by financial folly denied it in the building up and reconstruction of the home-life of nations, it remains as a direct and powerful incentive to the fomenting of war. p. 303

The first bullet obviously goes far beyond mere oil wars. Ecology 101 says we can't turn the earth into one wriggling mass of humanity, that other forms of life are necessary to sustain our existence. You've heard variations of the second bullet before, e.g. Oscar Wilde describing the Anglo Saxon version of economics: "they know the price of everything and the value of nothing."

If the third bullet doesn't ring a bell, you have been listening to too much Fox news. The military industrial complex gained its death grip on the American economy in the aftermath of a Great Depression that left America's financial and political leadership with a profound fear of the return of peace. At stake was not just unparalleled political and military hegemony but the power to create money ex nihilo and exchange it for the world's wealth.

[Oct 21, 2015] US oil output on brink of dramatic decline

Notable quotes:
"... world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade. ..."

"... We are about to see a pretty dramatic decline in U.S. production growth, the former head of oil firm EOG Resources Mark Papa, told the conference. ..."

"... U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments ..."

"... The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. Producers are now looking for new cash to survive and they will probably struggle to get it, Ben van Beurden said. ..."

"... Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said. ..."

"... Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever. ..."

"... The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment. ..."

"... But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. I see the United States as a long-term growth producer, he said. If low oil prices prevail - then the correction in oil prices will be much more severe. ..."

Oct 6, 2015 | af.reuters.com

World prices seen too low to support U.S. shale oil output

Lack of bank financing seen for new shale developments

Risk low production levels may cause price spike

U.S. oil sector productivity improvements seen near limit (Recasts; adds U.S. production forecasts)

Oil executives warned on Tuesday of a "dramatic" decline in U.S. production that could pave the way for a future spike in prices if fuel demand increases.

Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade.

"We are about to see a pretty dramatic decline in U.S. production growth," the former head of oil firm EOG Resources Mark Papa, told the conference.

Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be a lack of bank financing for new shale developments.

Official data show that nationwide U.S. output has already begun to decline after reaching a peak of 9.6 million barrels per day (bpd) in April, although production in some big shale patches, including North Dakota, has held steady thus far. The Energy Information Administration forecast on Tuesday that output would reach a low of around 8.6 million bpd next year.

Until this year, U.S. oil output was growing at the fastest rate on record, adding around 1 million bpd of new supply each year thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But oil prices have almost halved in the last year on oversupply in a drop that deepened after the Organization of the Petroleum Exporting Countries in 2014 changed strategy to protect market share against higher-cost producers, rather than cut output to prop up prices as it had done in the past.

Benchmark Brent crude was up 5 percent, or $2.50 a barrel, at $51.75 on Tuesday as investors digested news from the London conference. It peaked in recent years above $115 a barrel in June 2014.

SPIKE

The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future. "Producers are now looking for new cash to survive and they will probably struggle to get it," Ben van Beurden said.

Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

If prices remained low for a long time and oil production outside OPEC and the United States declined due to capital expenditure cuts, there was not likely to be any significant spare capacity left in the system, he said.

"This could cause prices to spike upwards, starting a new cycle of strong production growth in U.S. shale oil and subsequent volatility," van Beurden said.

Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity. But this process could not continue forever.

"Now we are seeing the limits at least in the near term and it is beginning to impact production," Sieminski said. "We see (U.S. oil production declines) continuing into next summer."

The Secretary-General of OPEC, Abdullah al-Badri, said oil supply growth from non-OPEC producers might be zero or negative in 2016 because of lower upstream investment.

But Papa said if U.S. light crude oil prices went back up to $75 a barrel, U.S. oil production would resume growth at around 500,000 bpd - or around half the record growth rates observed in the past few years. "I see the United States as a long-term growth producer," he said. "If low oil prices prevail - then the correction in oil prices will be much more severe."

[Oct 20, 2015] Crude Tumbles As API Reports Another Huge Inventory Build

Notable quotes:

"... What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today. ..."

"... Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits. ..."

"... ... ... ... ..."

Zero Hedge
Escrava Isaura

This post is by Gail Tverberg. Worth reading:

I was also mystified by Kurt Cobb's statement,

What this implies is that limitations on future supplies may result from the price of oil being too low. Contrary to the public perception that such limits would be accompanied by high prices, it is precisely high prices that make it possible to exploit the marginal deposits that are unprofitable today.

Writer Gail Tverberg has developed this thesis in detail on her blog Our Finite World, a thesis first advanced by energy analyst and consultant Steven Kopits.

... ... ...

[Oct 19, 2015] Is Money Corrupting Research?

Notable quotes:

"... Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their opinions are bought and paid for. ..."

"... Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted. ..."

economistsview.typepad.com
Luigi Zingales:
Is Money Corrupting Research?: The integrity of research and expert opinions in Washington came into question last week, prompting the resignation of Robert Litan ... from his position as a nonresident fellow at the Brookings Institution.
Senator Elizabeth Warren raised the issue of a conflict of interest in Mr. Litan's testimony before a Senate committee... Senator Warren was herself criticized by economists and pundits, on the left and right. ... But at stake is the integrity of the research process and the trust the nation puts in experts, who advise governments and testify in Congress. Our opinions shape government policy and judicial decisions. Even when we are paid to testify..., integrity is expected from us. ...

Yet it is disingenuous for anybody (especially an economist) to believe that reputational incentives do not matter. Had the conclusions not pleased the Capital Group, it would probably have found a more compliant expert. And the reputation of not being "cooperative" would have haunted Mr. Litan's career as a consultant. ...

Reputational ... concerns do not work as well with sealed expert-witness testimony or paid-for policy papers that circulate only in small policy groups. ... A scarier possibility is that reputational incentives do not work because the practice of bending an opinion for money is so widespread as to be the norm. ...

He goes on to suggest some steps to strengthen the reputational incentive.

pgl said in reply to Larry...

"Businesses sometimes finance policy research much as advocacy groups or other interests do," the economists wrote. "A reader can question the source of the financing on all sides, but ultimately the quality of the work and the integrity of the author are paramount." They praised Litan's quality and integrity as having been "impeccable over a career of four decades."

The fact of the matter is that funding comes from all sorts of places. One should always disclose the sourcing of funding and then let one's writings stand scrutiny.
Of course, the Cato Institute, Heritage, and Team Republican economists are proud that their "opinions" are bought and paid for.

anne said in reply to Larry...
http://www.reuters.com/article/2015/09/30/us-brookings-warren-resignation-idUSKCN0RU00B20150930
September 29, 2015

Brookings fellow resigns after Senator Warren accuses him of conflicts
By SARAH N. LYNCH - Reuters

WASHINGTON

A prominent Brookings Institution fellow resigned on Tuesday, after Massachusetts Senator Elizabeth Warren accused him of failing to fully disclose industry funding tied to a study that criticized the U.S. Labor Department's plan to regulate brokerages.

The resignation of Robert Litan came just one day after Warren, a Democrat, sent Brookings' president a letter demanding to know more about the think tank's policies on financial conflicts and details about the communications between Litan and Capital Group, an investment firm that funded his research paper.

"He has acknowledged that he made a mistake in not following Brookings regulations designed to uphold the independence of the institution," Brookings President Strobe Talbott said in a statement provided to Reuters.

Warren's concerns center a study that Litan and researcher Hal Singer jointly conducted which examined a controversial plan by the Labor Department to try and rein in conflicts posed by brokers who offer retirement advice.

The proposal has garnered fierce opposition from Wall Street, and Litan's study concluded that the plan could harm consumers.

Litan testified about the study's findings in a July hearing before a U.S. Senate panel, in which he represented himself as a fellow at Brookings.

The study was conducted by Litan and Singer in their capacity as staffers for Economists, Inc., a consulting firm.

Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions.

In addition, he disclosed that Capital Group had paid Economists Inc $85,000 for the study, and his share was $38,800.

In her letter to Brookings, Warren said the lack of disclosure raises "significant questions about the impartiality of the study and its conclusions."

Litan, a former top official in the Clinton administration, did not respond to an email seeking comment.

He is a well-known economics expert in Washington who has authored or co-authored over 25 books.

"We greatly appreciate all the good work Bob has done for Brookings over the 40-plus years he has been connected to this institution," Talbott said.

mulp said in reply to Larry...
What did Brookings do to Litan???
According to Reuters, he failed to disclose his relationships when presenting his report and when testifying, and seems to have lied:

"Although his testimony and his study did disclose that Capital Group provided funding, Warren said that she later learned this was not the full story.

"In a series of follow-up questions Warren sent to Litan after the hearing, she said he disclosed that Capital Group also provided feedback and editorial comments on a draft.

"This, she said, ran counter to his claim at the hearing that he and Singer were "solely responsible" for the study's conclusions."

Can I edit anything you write and claim as solely your own work? I want to have my point of view endorsed by a much larger group of writers, and the best way is for me to fix their writings.

It was not Litan being paid that was the problem, but the fact he claimed the words written for him were his own as an "independent" authority.

Second Best said...
Money corrupts research as sure as the Pope is Catholic...
greg said in reply to anne...
Rumors of Thomas Malthus' irrelevance to humanity's future are greatly exaggerated.
Consider instead: "Human and nature dynamics (HANDY): Modeling inequality and use of resources in the collapse or sustainability of societies"
http://www.sciencedirect.com/science/article/pii/S0921800914000615

Authors: Safa Motesharreia, Jorge Rivasb, Eugenia Kalnayc
This is the actual paper of the model, but do not be afraid. Here are the highlights:

" HANDY is a 4-variable thought-experiment model for interaction of humans and nature.
The focus is on predicting long-term behavior rather than short-term forecasting.
Carrying Capacity is developed as a practical measure for forecasting collapses.
A sustainable steady state is shown to be possible in different types of societies.
But over-exploitation of either Labor or Nature results in a societal collapse."

There are equations. And graphs. The concluding paragraph of the abstract:

"The measure "Carrying Capacity" is developed and its estimation is shown to be a practical means for early detection of a collapse. Mechanisms leading to two types of collapses are discussed. The new dynamics of this model can also reproduce the irreversible collapses found in history. Collapse can be avoided, and population can reach a steady state at maximum carrying capacity if the rate of depletion of nature is reduced to a sustainable level and if resources are distributed equitably."

This made the press about a year and a half ago, was commented on, but has since been ignored. Google "Handy Model" for popular presentations and critiques.

You decide whether it should continue to be ignored, given the remarkable progress the world has made towards remedying inequality, conserving resources, and controlling population growth. (That's sarcasm.)

reason said...

There is another solution to this issue. Financing should never be direct to the researcher. That way there is a funding body (say a university) that decides who researches what, and the funding is channeled through them (through a public application process). If a firm is really interested in disinterested research, no problem.

If it wants to control the research, they have a problem. Of course the whole funding body could be corrupted but if there is a public review process that can be minimised.

cm said in reply to reason...

It is more subtle than asking for or implying a preference for specific results. Regardless how the funding is distributed, except perhaps by lottery, there is the issue of "repeat business" or expert shopping (cherry-picking research organizations that are known to fall in a particular camp).
Then there is the issue of fads - even in relatively apolitical tech science, funding and research flocks to certain hot topics, as people hunt for funding by trying to tie their proposal to the current hot topics. But then this is perhaps more a consequence of an already corrupted funding process that only supports R&D that conforms to current preconceived notions and business interests.

bakho said...

Money supports bias.

RC AKA Darryl, Ron said...

Money is power. Power corrupts.

mrrunangun said...

Most (all?) academic types are keenly aware of the importance of grantsmanship as a basic skill. Knowing the appropriate funding sources and, in some cases, the interests and biases of funding sources, is stock in trade. Scientific research has become so capital intensive that large grants from government and large foundations are necessary to carry it out. For the most part, the biases of the granting institutions are known and discounted.

Even in science, when research into a controversial area has been ambiguous enough for sustained disagreement, it is common to find that a given research shop's work consistently comes down on one side of the controversy and another shop's work consistently on the opposing side of the controversy. In such cases, only people who follow the research in the area closely are likely to be aware of this. Usually time and technical improvements in measuring equipment puts controversies to rest, but the time is often measured in years. In these cases, the biases come from the leaders of the research shops rather than the grantors.

There are politics among granting institutions as well. These are less often political biases and more often they are of a personal nature, and since the people on a granting committee are necessarily expert in the field that the grantee will be working in, they will often be personally acquainted with the grant applicants. Not uncommonly, former students of the members of the committee.

Economics and long range climate science are necessarily model-based. Their short-term predictions are often proven wrong which casts doubt on the reliability of their long-term predictions. As a result, there may be legitimate differences of opinion as to the applicability of a particular model to a particular situation.

In the case of Mr Litan, the fact that he acknowledged that his study was funded by Capital and that he was testifying on behalf of the industry announce his bias.

GeorgeK said...

Tainted research is the norm in most industries, research dollar come from corporations that expect their interest to be served. Currently Monsanto emails show how heavy handed this pay for research problem has become. ...""Professors/researchers/scientists have a big white hat in this debate and support in their states, from politicians to producers," Bill Mashek, a vice president at Ketchum, a public relations firm hired by the biotechnology industry, said in an email to a University of Florida professor. "Keep it up!"...

http://www.nytimes.com/2015/09/06/us/food-industry-enlisted-academics-in-gmo-lobbying-war-emails-show.html

DeDude said...

The antidote to this kind of crap is the public funded University with tenured professors and sufficient resources (endowed Chairs) to conduct research without need to go out and get external funding for a study. As the public funding is reduced in order to give tax cuts to the rich plutocrats such truly independent research become more rare -and the plutocrats increasingly manage to own the facts.

[Oct 19, 2015] Halliburton Cuts More Jobs as Fracking Hit Worst in Downturn

Notable quotes:

"... The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best, President Jeff Miller told analysts and investors Monday on a conference call. This is the segment that we expect to rebound the most sharply. ..."

Bloomberg Business

Halliburton Co. cut another 2,000 jobs in the past month as the worst oil market slump in decades saps demand for work at the world's largest provider of fracking services.
The Houston-based company said the first quarter of next year may represent the lowest point for its North American profit margin as customers start fresh with new spending budgets for 2016 and tap Halliburton's pressure-pumping expertise to start new wells. The comments came after the company reported a third-quarter loss of $54 million.
"The pumping business in North American is clearly the most stressed segment of the market today, but it's also the market we know the best," President Jeff Miller told analysts and investors Monday on a conference call. "This is the segment that we expect to rebound the most sharply."

Oil has swung between a bear and a bull market in North America this year as the drilling rig count slid. Explorers have cut more than $100 billion from global spending plans for the year after crude prices fell by more than half since June 2014.
Quarterly Loss

Halliburton had a loss of 6 cents a share in the third quarter compared with net income of $1.2 billion, or $1.41, a year earlier, according to a statement Monday. Excluding certain items, the per-share result was 4 cents more than the 27-cent average of 34 analysts' estimates compiled by Bloomberg. Sales dropped 36 percent to $5.6 billion.
The company has now cut its workforce by 18,000, or about 21 percent, since its peak last year, Emily Mir, a spokeswoman, said Monday in an e-mail.
Prices that service companies charge for hydraulic fracturing, which blasts water, sand and chemicals underground to release trapped hydrocarbons, are projected to fall as much as 37 percent in North America this year, according to IHS Inc. Fracking represents about 70 percent of the cost for an average U.S. well, Chief Executive Officer Dave Lesar said on the call.

[Oct 18, 2015] Everything You Need to Know about Laissez-Faire Economics -- Economist View discussion

Alan Kirman is a great economist. Amazingly clear exposition of complex subjects.

Notable quotes:
"... I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950s, to try to show that a market or an economy would converge on that. But we gave up on that in the 70s when there were results that showed that essentially we couldnt prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. ..."

"... Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic. ..."

"... The idea that anything even close to laissez faire ever exisited is silly ..."

"... Laissez faire has never existed; it is code for when the govt allows the rich to trample the poor, and the govt actively sides with the rich ..."

"... Too often, efficiency is modeled too simply, failing to capture important benefits. You may make widgets with fewer workers and more unemployed but at the loss of workforce training, most of which is on the job. ..."

"... You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. ..."

"... If industry is freed by reducing their investment in human capital, replacement investment in human capital must come from elsewhere in higher taxes on business to pay for training that may be less effective. Else workforce quality declines and becomes a drag on overall economic efficiency. ..."

economistsview.typepad.com

A few excerpts from a much longer interview of Alan Kirman (it was in yesterday's links)

Everything You Need to Know about Laissez-Faire Economics: ... DSW: I'm so happy to talk with you about the concept of laissez faire, all the way back to its origin, which as I understand it is during the Enlightenment. ...
AK: I think the basic story that really interests us is that with the Enlightenment and with people like Adam Smith and David Hume, people had this idea that somehow intrinsically people should be left to their own devices and this would lead society to a state that was satisfactory in some sense for everybody, with some limits of course–law and order and so on. That's the idea that is underlying our whole social and philosophical position ever since. ... I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. ...

DSW: ...This has been a wonderful conversation, by the way. Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic.

AK: I think that one obsession that economists have is with efficiency. We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. ...

I think what has happened is, because of this mythology about totally free markets being efficient, we push for that all the time and in so doing, we started to do things like-for example, we hear all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because then they'll be more competitive. You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When you do that, you make many people temporary workers. You have complete ease in hiring and firing so that people are shifting jobs all the time. When they do that, we know that employers then invest nothing in their human capital. ... We're reducing the overall human capital in society by having an arrangement like that. ... Again, the idea that people who are out of work have chosen to be out of work and by giving them a social cushion you induce them to be out of work-that simply doesn't fit with the facts. I think that all the ramification of these measures-the side effects and external effects-all of that gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up." That's what undermining the European system. European and Scandinavian systems work pretty well. ... The last remark I would make is that to say "you've got to get rid of all those rules and regulations you have"-in general, those rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't just appear, they got selected for. We put them in place because there was some problem, so just to remove them without thinking about why they are there doesn't make a lot of sense. ...

DSW: There's no invisible hand to save the day.

AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand is sometimes pretty useful. For example in the financial sector I think you really need a visible hand and not an invisible hand. ...

e abrams said...

The idea that anything even close to laissez faire ever exisited is silly

at all stages, the gov't actively intervened in the economy; eg, look at the rules for labor unions....

Laissez faire has never existed; it is code for when the gov't allows the rich to trample the poor, and the gov't actively sides with the rich

bakho said...

I enjoyed the interview with Kirman. Thanks for posting.

Too often, efficiency is modeled too simply, failing to capture important benefits. You may make widgets with fewer workers and more unemployed but at the loss of workforce training, most of which is on the job. This is important:

You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When ... you make many people temporary workers.... so that people are shifting jobs all the time. ..employers then invest nothing in their human capital. ... We're reducing the overall human capital in society .. If you're working for ... all your lifetime, they probably invest quite a lot in you. ... it is a much more stable arrangement. .. the ramification of these measures-the side effects and external effects... gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up."

If industry is freed by reducing their investment in human capital, replacement investment in human capital must come from elsewhere in higher taxes on business to pay for training that may be less effective. Else workforce quality declines and becomes a drag on overall economic efficiency.

[Oct 18, 2015] Alan Kirman interview: everything You Need to Know about Laissez-Faire Economics

Notable quotes:

"... That's the idea that is underlying our whole social and philosophical position ever since. Economics is trying to run along side that. Initially the idea was to let everybody do what they want and this would somehow self-organize. But nobody said what the mechanism was that would do the self-organization. John Stewart Mill advanced the same position. He had the idea that people had to be given, as far as their role would permit, the possibility of doing their own thing, and this would be in the interests of everybody. And gradually we came up against this difficulty that we couldn't show economically, in a market for example, how we would ever get to such a position. I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less? ..."

"... Theory of Moral Sentiments ..."

"... Nowadays, if you take a very primitive version of the invisible hand, people say something like "greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will get to a good position socially. Adam Smith didn't have that view at all. He had the view that people have other things in mind. For example he said that one of the strongest motivations men have is to be seen to be a good citizen and therefore would do things that would appear to other people to be good. If you have motivations like that then you can be altruistic and you're not behaving like the strict Homo economicus ..."

"... Walras wasn't someone who pushed hard for laissez faire, but he started to build the weapons for trying to understand whether all markets could get into equilibrium. He wasn't so interested, himself, on whether the equilibrium was good for society; in other words, Adam Smith's original position. I would say that Walras was more a person who was worried about the very existence of equilibrium and he tried desperately at various points to show how we might get there. I don't think he was arguing in favor of laissez faire. I wouldn't regard Walras as being strictly in that tradition. ..."

"... Pareto was concerned about the idea of the invisible hand himself. He said: "Look, what I want to show you is that the competitive equilibrium is a social optimum. He was the person to define what we now call a Pareto optimum, a situation in which you cannot make one person better off without making somebody else worse off-which is a pretty weak criterion, but still is a criterion for some sort of social efficiency. He was interested in the relationship between the two, so he brought us back on track to what I interpret as the invisible hand. Then, we can make a huge jump it you want to the first theorem of welfare of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it is nothing about the invisible hand. It just says that if you are in a competitive equilibrium, then that will be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better off without making someone else worse off. That's all it says. It does not say that if you leave a society alone it will get there, but thousands of people have interpreted it in that way. ..."

"... He had a different position from Walras company and he wasn't very consistent in his views. According to Hayek, Walras said that nobody influences prices but take prices as given, and then somebody, not specified, adjusts them until they get to equilibrium. There is some mechanism out there. ..."

"... The Road to Serfdom ..."

"... He believed that people with little information of their own, like ants, would somehow collectively get it right. It was a very different view of the world than Walras. ..."

"... he was a pioneer in two respects. First of all, he grasped the idea of self-organizing and decentralized processes-that the intelligence is in the system, not in any individual, and secondly cultural group selection, that the reason economic systems were like this is because of some past history of better systems replacing worse systems. The wisdom of the system was the product of cultural group selection, as we would put it today, and that we shouldn't question its wisdom by tampering with it. Is that a fair thing to say? ..."

"... Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't actually show how it would happen but you're absolutely right-I think that's what he believed and he thought tampering with this system would make it less perfect and work less well, so just leave it alone. I don't think he had in mind, strictly speaking, group-level selection, but that's clearly his idea. A system that works well will eventually come to outstrip other systems. That's why he was advising Thatcher. ..."

"... He was much less naïve than Friedman. Friedman has a primitive natural selection argument that if firms aren't doing better than other firms they'll go bust and just die. That's a summary of Friedman's evolutionary argument! But Hayek is much more sophisticated-you're absolutely right. ..."

"... Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek was actually very concerned that Friedman and other mathematical economists took over the Mont Pelerin Society, if I understand it correctly, but now let's put Friedman on center stage, and also the society as a whole and the creation of all the think tanks, which caused the society to become politically influential. ..."

"... "Greed is Good" sounds so simplistic, but what all of this seems to do is to provide some moral justification for individuals or corporations to pursue their own interests with a clear conscience. It's a moral justification for "Greed is Good", despite all of the complexities and all of the mathematics-that's what it seems to come down to. Am I wrong about that? ..."

"... Macroeconomic models are still all about equilibria, don't worry about how we got them, and their nice efficient properties, and so forth. They are nothing to do with distribution and nothing to do with disequilibrium. Two big strands of thought-Keynes and all the people who work on disequilibrium-they're just out of it. We're still working as if underlying all of this, greed-we don't want to call it greed, but something like greed-is good. ..."

"... Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. ..."

"... We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. ..."

"... just to make my position clear, the idea of no regulations is absurd. For a system that is basically well adapted to its environment, then most of its regulations are there for a reason, as you say, but one of the things that everyone needs to know about evolution is that a lot of junk accumulates. There is junk DNA and there is junk regulations. Not every regulation has a purpose just because it's there, and when it comes to adapting to the future, that's a matter of new regulations and picking the right one out of many that are wrong. The question would be, how do you create smart regulations? Knowing that you need regulations, how do you create smart ones? That's our challenge and the challenge of someone who appreciates complexity, as you do. How would you respond to that? ..."

evonomics.com

What you always wanted to know about the "let it be" philosophy
I'll bet money that Alan Kirman is the only economist with animated ants running around his email signature. Highly regarded by mainstream economists, he is also a critic of equilibrium theory and proponent of new economic thinking that takes complex systems theory into account. It was my privilege to work with Alan and Germany's Ernst Strungmann Forum to organize a conference titled "Complexity and Evolution: A New Synthesis for Economics" that was held in February 2015 and will result in a volume published by the MIT press in 2016.
After the conference was over, I sought Alan out to help me understand the complex history of laissez faire, the "let it be" philosophy that underlies mainstream economic theory and public policy.

DSW: I'm so happy to talk with you about the concept of laissez faire, all the way back to its origin, which as I understand it is during the Enlightenment. Then we can bring it up to date with some of its formalized versions in economic theory. Tell me what you know about the early history of laissez faire.

AK: I think the basic story that really interests us is that with the Enlightenment and with people like Adam Smith and David Hume, people had this idea that somehow intrinsically people should be left to their own devices and this would lead society to a state that was satisfactory in some sense for everybody, with some limits of course–law and order and so on. That's the idea that is underlying our whole social and philosophical position ever since. Economics is trying to run along side that. Initially the idea was to let everybody do what they want and this would somehow self-organize. But nobody said what the mechanism was that would do the self-organization. John Stewart Mill advanced the same position. He had the idea that people had to be given, as far as their role would permit, the possibility of doing their own thing, and this would be in the interests of everybody. And gradually we came up against this difficulty that we couldn't show economically, in a market for example, how we would ever get to such a position. I think what happened was on the one hand people became obsessed with proving there was some sort of socially satisfactory situation that corresponded to markets in equilibrium, and on the other hand, there was a lot of effort made, right up to the 1950's, to try to show that a market or an economy would converge on that. But we gave up on that in the 70's when there were results that showed that essentially we couldn't prove it. So the theoreticians gave up but the underlying economic content and all of the ideology behind it has just kept going. We are in a strange situation where on the one hand we say we should leave markets to themselves because if they operate correctly and we get to an equilibrium this will be a socially satisfactory state. On the other hand, since we can't show that it gets there, we talk about economies that are in equilibrium but that's a contradiction because the invisible hand suggests that there is a mechanism that gets us there. And that's what we're lacking–a mechanism. Is that clear more or less?

DSW: Yes, but it was very fast! I want to pull us back to the early times and make a couple of observations. First of all, that the first thinking about laissez faire came at a time when government was monarchy and absolutist rule. The whole struggle of the Enlightenment, to have a more egalitarian and inclusive society, was part of this. Am I right about that?

AK: Absolutely right. There was a social and philosophical revolution, precisely because of that. Men were trying to liberate themselves from a very hierarchical and monarchical organization. And economics tried to go along with that. There were good reasons and I think that even now there is no reason to say that there is anything wrong with the liberal position. On the other hand, what we can't show is that there is anything that would enable a liberal approach like that to get things under control. So you're right. It was a reaction to very autocratic systems that led the whole of the laissez faire and liberal position to develop.

DSW: Right. So laissez faire made a lot of sense against the background of monarchy and controlling church and so on. Now I know that Adam Smith invoked the invisible hand metaphor only three times in the entire corpus of his work and it is said that his first book on moral sentiments is much more nuanced than the popular notion of the invisible hand. Could you speak a little more on Adam Smith? On the one hand he's an advocate of laissez faire but on the other hand he is very nuanced in both of his books but especially in his Theory of Moral Sentiments. What do you have to say about that?

AK: Right. Adam Smith was fully cognizant of the fact that man is motivated by many things. Nowadays, if you take a very primitive version of the invisible hand, people say something like "greed is good". Somehow, if everyone is greedy and tries to serve their own interest, it will get to a good position socially. Adam Smith didn't have that view at all. He had the view that people have other things in mind. For example he said that one of the strongest motivations men have is to be seen to be a good citizen and therefore would do things that would appear to other people to be good. If you have motivations like that then you can be altruistic and you're not behaving like the strict Homo economicus. Adam Smith didn't take the strong position that people left entirely to their own selfish devices will make things OK. He had the view that man is much more complicated and governed by his emotions. He talks a lot about sympathy, which we would now call empathy.

DSW: That's great! Now let's talk about Walras and what his ambitions were to come up with the first mathematical justification for laissez faire, as I understand it.

AK: Actually, Walras himself didn't talk so much about laissez faire. He at that time had a very simple idea, that the amount of goods that people wanted to supply at a given price would be the amount that people would want to buy; i.e, demand at that price, so if those two were equal then that was the equilibrium price. Then he said that if we have many markets, how can we be sure that they will simultaneously be cleared, because after all if you raise the price in one market then that will effect the price in other markets. If you raise the price of bananas then the price of oranges will be effected, and so forth. He said "my problem is to solve the market clearing for all goods", but he was not so interested in the underlying philosophical context. Walras wasn't someone who pushed hard for laissez faire, but he started to build the weapons for trying to understand whether all markets could get into equilibrium. He wasn't so interested, himself, on whether the equilibrium was good for society; in other words, Adam Smith's original position. I would say that Walras was more a person who was worried about the very existence of equilibrium and he tried desperately at various points to show how we might get there. I don't think he was arguing in favor of laissez faire. I wouldn't regard Walras as being strictly in that tradition.

DSW: OK, that's new for me. So what about the rise of so-called neoclassical economics. At what point did it become toward demonstrating what I understand is the first fundamental theorem of economics-laissez faire leads to the common good and that being justified by some mathematical apparatus. Where does that come from, if not from Walras?

AK: We missed a very important step, which is [Vilfredo] Pareto. Pareto was concerned about the idea of the invisible hand himself. He said: "Look, what I want to show you is that the competitive equilibrium is a social optimum. He was the person to define what we now call a Pareto optimum, a situation in which you cannot make one person better off without making somebody else worse off-which is a pretty weak criterion, but still is a criterion for some sort of social efficiency. He was interested in the relationship between the two, so he brought us back on track to what I interpret as the invisible hand. Then, we can make a huge jump it you want to the first theorem of welfare of economics. That, mistakenly, is often referred to as the invisible hand theorem. But it is nothing about the invisible hand. It just says that if you are in a competitive equilibrium, then that will be a Pareto optimum, in the sense that I have just mentioned. You couldn't make someone better off without making someone else worse off. That's all it says. It does not say that if you leave a society alone it will get there, but thousands of people have interpreted it in that way.

DSW: OK. So where do we go from here? Tell me a little about agency theory, which is also something that seems to imply, if I understand it, that the only responsibility of corporations is to maximize their profits. The economy will work well if that's their only obligation.

AK: That's not exactly a sideline but a development where people are worrying about firms in addition to individuals. When you are just dealing with individuals in a simple economy, when they are exchanging goods there is no problem. When you get firms in there you need to ask "What's the objectives of these firms?" The objective, the argument is, is if they maximize profit then they are maximizing their shareholders' benefits and so therefore we get to the idea of increasing the welfare of society as a whole. But there is a huge leap there, because we haven't specified closely in our models who owns these firms and how ownership is transferred between these people. So I think there is a fuzzy area there, which is not completely included in the theory.

DSW: Please give me a thumbnail history of the Mont Pelerin Society and the role it played in advancing economic theory and policy. So this would be Hayek, Friedman and all that.

AK: The great hero of that society was Hayek. He had a different position from Walras & company and he wasn't very consistent in his views. According to Hayek, Walras said that nobody influences prices but take prices as given, and then somebody, not specified, adjusts them until they get to equilibrium. There is some mechanism out there. That was Walras. Hayek said "Not at all!" He said - actually he was a horrid man.

DSW: Wait a minute! Why was he a horrid man? You can't just glide over that!

AK: The reason I say that is-he had very clever ideas-but he was extremely bigoted, he was racist. There is a wonderful interview with him that you can find on You Tube, where he says (imitating Hayek's accent) "I am not a racist! People accuse me of being a racist. Now it's true that some of the Indian students at the London School of Economics behave in a very nasty way, typical of Indian people…" and he carries on like this. So that's one reason he is horrid. A second thing is that if you don't believe he is horrid, David, I will send you his book The Road to Serfdom, which said that if there is any planning going on in the economy, it will inevitably lead you to a fascist situation. When he produced that book it had a big success, particularly in the United States, and what is more, he authorized a comic book version of it, which is absolutely dreadful. One Nobel Prize winner, [Ronald] Coase, said "you are carrying on so much against central planning, you forget that a large part of our economy is actually governed by centrally planned institutions, i.e., big firms, and these big firms are doing exactly what you say they can't do. Hayek shrugged that off, but what he did in his book was say that if any planning goes on then eventually you are all going to wind up in a fascist state where you'll be shot if you don't do what you're told to do. At the end of the book there is some poor guy who's being shot because he wants to be a carpenter or a plumber, or something like that. It's terrible! And the irony of the whole situation is that comic book was issued and financed by General Motors, and GM of course is one of those corporations that Hayek didn't see were centrally planned institutions. That's way I say that Hayek was a dreadful person.

Hayek's idea was, there is no way that people could know what was going on and could know what the prices of goods are. Everyone has a little piece of information of their own, and in acting upon it, this news gets out into the market. So, for example I buy something such as a share, and you say "Oh, Kirman bought a share, so something must be going on there, based on information that he had that I didn't have", and so forth. Hayek's idea was that this mechanism-people watching each other and getting information from their acts, would lead you to the equilibrium that would be a socially optimal state. But again, he never specified closely what the mechanism was. He has little examples, such as one about shortage of tin and how people would adjust, but never really specified the mechanism. He believed that people with little information of their own, like ants, would somehow collectively get it right. It was a very different view of the world than Walras.

DSW: So he was a pioneer in two respects. First of all, he grasped the idea of self-organizing and decentralized processes-that the intelligence is in the system, not in any individual, and secondly cultural group selection, that the reason economic systems were like this is because of some past history of better systems replacing worse systems. The wisdom of the system was the product of cultural group selection, as we would put it today, and that we shouldn't question its wisdom by tampering with it. Is that a fair thing to say?

AK: Yes, that's a fair thing to say and I think it is what Hayek believed. He didn't actually show how it would happen but you're absolutely right-I think that's what he believed and he thought tampering with this system would make it less perfect and work less well, so just leave it alone. I don't think he had in mind, strictly speaking, group-level selection, but that's clearly his idea. A system that works well will eventually come to outstrip other systems. That's why he was advising Thatcher. Just trust the markets and let things go. Get rid of the unions, and so forth. So it's clearly he had in mind that interfering with that system would just lead you to a worse social situation. He was much less naïve than Friedman. Friedman has a primitive natural selection argument that if firms aren't doing better than other firms they'll go bust and just die. That's a summary of Friedman's evolutionary argument! But Hayek is much more sophisticated-you're absolutely right.

DSW: I think Hayek was explicit about cultural group selection, and Friedman-I've paid quite a bit of attention to his 1953 article on positive economics, in which he makes a very naïve evolutionary argument. Friedman and Hayek didn't see eye to eye at all, as I understand it. Hayek was actually very concerned that Friedman and other mathematical economists took over the Mont Pelerin Society, if I understand it correctly, but now let's put Friedman on center stage, and also the society as a whole and the creation of all the think tanks, which caused the society to become politically influential.

AK: Yes, I think that it coincided very nicely with conservative ideology and people who had really strongly liberal-not in the Mills sense (you have to make this distinction particularly in the United States where these words have different meanings), but really completely free market leave-everybody-to-their own-thing libertarian point of view. Those people found it a wonderful place to gather and reinforce themselves. And Hayek was a strong member of that. Another was Gary Becker, but I don't know how directly. Becker had the economics of everything-divorce, whatever. You'd have these simple arguments, but not necessarily selection arguments, often some sort of justification in terms of a superior arrangement. The marginal utility of the woman getting divorced just has to equal the marginal utility of not getting divorced and that would be the price of getting divorced, and that sort of stuff. Adam Smith would have rolled over in this grave because he believed emotions played a strong role in all of this and the emotions that you have during divorce don't tie into these strict calculations.

DSW: This is a tailor-made ideology for powerful interests, powerful people and corporations who simply do want to have their way. Is that a false statement to make?

AK: No, I think that's absolutely right. They can benefit from using that argument to advance their own ends. As someone once said, if you think of saying to firms, we're going to diminish their taxes, no firm in its right mind would argue with that. Even though they might think deep down that there are other things that could be done for society. There are some things which are part of this philosophy which is perfect for firms and powerful interest groups. You're absolutely right. And so they lobby for this all the time, pushing for these positions that are in fact in their own interest.

DSW: So, at the end of the day, "Greed is Good" sounds so simplistic, but what all of this seems to do is to provide some moral justification for individuals or corporations to pursue their own interests with a clear conscience. It's a moral justification for "Greed is Good", despite all of the complexities and all of the mathematics-that's what it seems to come down to. Am I wrong about that?

AK: I think you're absolutely right. What's interesting is that if you look at various economic situations, like today the first thing that people tell you about the Greeks is that they are horrid ideological people. But the people on the other side have an equally strong ideology, which is being justified by the sort of economic models that we are building. Remember that even though we had this discussion about how this became a real difficulty in theoretical economics, in macroeconomics they simply carried on as if these theoretical difficulties hadn't happened. Macroeconomic models are still all about equilibria, don't worry about how we got them, and their nice efficient properties, and so forth. They are nothing to do with distribution and nothing to do with disequilibrium. Two big strands of thought-Keynes and all the people who work on disequilibrium-they're just out of it. We're still working as if underlying all of this, greed-we don't want to call it greed, but something like greed-is good.

DSW: Could I ask about Ayn Rand and what role she played, if any? On the one hand she was not an economist, she was just a philosopher and novelist. On the other hand, she is right up there in the pantheon of free market deities alone with Smith, Hayek and Friedman. Do you ever think about Ayn Rand. Does any economist think about Ayn Rand?

AK: That's an example of my narrowness that I never read Ayn Rand, I just read about her. I think it would be unfair now to make any comments about that because I'd be as uninformed as some people who talk about Adam Smith. What I should do at some point is read some of her work, because she is constantly being cited on both sides as a dark bad figure or as a heroine in the pantheon as you said, with Hayek and everybody else. I just admit my ignorance and I don't know if Rand had a serious position on her own or whether she is being cited as a more popular and easily accessible figure.

DSW: Fine! I'd like to wrap this up with two questions. This has been a wonderful conversation, by the way. Nowadays, you hear all the time about how neoliberal ideology and thought is invading European countries and is undoing forms of governance that are actually working quite well. I work a lot in Norway and Scandinavia and there you hear all the time that Nordic model works and at the same time it is being corrupted by the neoliberal ideology, which is being spread in some sort of cancerous fashion. Please comment on that-Current neoliberalism. What justifies it? Is it spreading? Is that a good thing or a bad thing? Anything you would like to say on that topic.

AK: I think that one obsession that economists have is with efficiency. We're always, always, worrying about efficiency. People like to say that this is efficient or not efficient. The argument is, we know that if you free up markets you get a more efficient allocation of resources. That obsession with efficiency has led us to say that we must remove some of these restraints and restrictions and this sort of social aid that is built into the Scandinavian model. I think that's without thinking carefully about the consequences. Let me tell you my favorite and probably not very funny story about how economists are obsessed with efficiency. There were three people playing golf; a priest, a psychoanalyst, and an economist. The got very upset because the guy in front was playing extremely slowly and he had a caddy to help him. So these guys get very upset and they start to shout and say "Come on, can we play through please! You can't waste all of our afternoon!" They sent the priest up to find out what was going on and he came back absolutely crestfallen and said "You know why that poor guy is laying so slowly? It's because he's blind. I'm so upset because every Sunday I'm preaching to people to be nice to others." He turns to his psychoanalyst friend and say's "Joe, what do you think?" Joe says "I have these guys on my coach every week. I'm trying to help them live with this problem and here I am screaming at this guy. It's horrible!" Then they turn to the economist and say "Fred, what do you think?" Fred says "I think that this situation is totally inefficient. This guy should play at night!" As you can see, this is a very different attitude to how the world works.

I think what has happened is, because of this mythology about totally free markets being efficient, we push for that all the time and in so doing, we started to do things like-for example, we hear all the time that we have to reform labor markets in Europe. Why do we want to reform them? Because then they'll be more competitive. You can reduce unit labor costs, which usually means reducing wages. But that has all sorts of consequences, which are not perceived. In model that is more complex, that sort of arrangement wouldn't necessarily be one that in your terms would be selected for. When you do that, you make many people temporary workers. You have complete ease in hiring and firing so that people are shifting jobs all the time. When they do that, we know that employers then invest nothing in their human capital. When you have a guy who may disappear tomorrow-and we have a lot of these temporary agencies now in Europe–which send you people when you need them and take away people when you don't. Employers don't spend anything on human capital. We're reducing the overall human capital in society by having an arrangement like that. If you're working for Toyota, Toyota knows pretty much that you'll be working all your lifetime, so they probably invest quite a lot in you. They make you work hard for that, but nevertheless it is a much more stable arrangement. Again, the idea that people who are out of work have chosen to be out of work and by giving them a social cushion you induce them to be out of work-that simply doesn't fit with the facts. I think that all the ramification of these measures-the side effects and external effects-all of that gets left out and we have this very simple framework that says "to be competitive, you just have to free everything up." That's what undermining the European system. European and Scandinavian systems work pretty well. Unemployment is not that high in the Scandinavian system. It may be a little bit less efficient but it may also be a society where people are a little bit more at ease with themselves, than they are in a society where they are constantly worrying about what will happen to them next. The last remark I would make is that to say "you've got to get rid of all those rules and regulations you have"-in general, those rules and regulations are there for a reason. Again, to use an evolutionary argument, they didn't just appear, they got selected for. We put them in place because there was some problem, so just to remove them without thinking about why they are there doesn't make a lot of sense.

DSW: Right, but at the same time, a regulation is a like a mutation: for every one that's beneficial there are a hundred that are deleterious. So…

AK: You are an American, deep at heart! You believe that all these regulations are dreadful. Think of regulations about not allowing people to work too near a chain saw that's going full blast, or not being allowed to work with asbestos and so forth. Those rules, I think, have a reason to be there.

DSW: Well of course, but just to make my position clear, the idea of no regulations is absurd. For a system that is basically well adapted to its environment, then most of its regulations are there for a reason, as you say, but one of the things that everyone needs to know about evolution is that a lot of junk accumulates. There is junk DNA and there is junk regulations. Not every regulation has a purpose just because it's there, and when it comes to adapting to the future, that's a matter of new regulations and picking the right one out of many that are wrong. The question would be, how do you create smart regulations? Knowing that you need regulations, how do you create smart ones? That's our challenge and the challenge of someone who appreciates complexity, as you do. How would you respond to that?

AK: I think you're absolutely right. It's absolutely clear that as these regulations accumulate, they weren't developed in harmony with each other, so you often get even contradictory regulations. Every now and then, simplifying them is hugely beneficial. But that doesn't mean getting rid of regulations in general. It means somehow managing to choose between them, and that's not necessarily a natural process. For example, in France when I arrived here it used to take about a day and a half to make my tax return. Now it takes around about 20 minutes, because some sensible guy realized that you could simplify this whole thing and you could put a lot of stuff already into the form which they have received. They have a lot of information from your employer and so forth. They've simplified it to a point where it takes me about 20 minutes a year to do my tax return. It used to take a huge amount of time.

DSW: Nice!

AK: What's interesting is that you have some intelligent person saying "let's look at this and see if we can't make these rules much simpler, and they did. I have conflicting views, like you. These things are usually there for a reason, so you shouldn't just throw them away, but how do you select between them. I don't think that they necessarily select themselves out.

DSW: I would amend what you said. You said that some intelligent person figured out how to make the tax system work better in France. Probably not just a single intelligent person. Probably it was an intelligent process, which included intelligent people, but I think that gets us back to the idea that we need systemic processes to evaluate and select so that we become adaptable systems. But that will be systemic thing, not a smart individual.

AK: You're absolutely right. I shouldn't have said smart individual because what surely happened was that there was a lot of pressure on the people who handle all of these things, and gradually together they realized that this situation was becoming one where their work was becoming almost impossible to achieve in the time available. So there was some collective pressure that led them to form committees and things that thought about this and got it together. So it was a natural process of a system, but it wasn't the rules themselves that selected themselves out, as it were. It was the collectivity that evolved in that way to make it simpler.

DSW: There's no invisible hand to save the day.

AK: (laughs). Joe Stiglitz used to say that we also need a visible hand. The visible hand is sometimes pretty useful. For example in the financial sector I think you really need a visible hand and not an invisible hand.

DSW. That's great and a perfect way to end. I'm so happy to have had this conversation, Alan, and to be working with you at the conference we just staged and into the future.

AK: A pleasure. Always good to talk with you.

Alan Kirman is professor emeritus of Economics at the University of Aix-Marseille III and at the Ecole des Hautes Etudes en Sciences Sociales and is a member of the Institut Universitaire de France. His Ph.D. is from Princeton and he has been professor of economics at Johns Hopkins University, the Universite Libre de Bruxelles, Warwick University, and the European University Institute in Florence, Italy. He was elected a fellow of the Econometric Society and of the European Economic Association and was awarded the Humboldt Prize in Germany. He is member of the Institute for Advanced Study in Princeton. He has published 150 articles in international scientific journals. He also is the author and editor of twelve books, most recently Complex Economics: Individual and Collective Rationality, which was published by Routledge in July 2010.

[Oct 18, 2015] What Prosperity Is, Where Growth Comes from, Why Markets Work

Notable quotes:

"... In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output." ..."

"... In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. ..."

"... Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society. ..."

"... Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. ..."

"... And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous. ..."

"... This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems. ..."

December 1, 2014 | Democracy Journal ( also reprinted in Evonomics )

The Price of Everything, the Value of Nothing
The most basic measure we have of economic growth is gross domestic product. GDP was developed from the work in the 1930s of the American economist Simon Kuznets and it became the standard way to measure economic output following the 1944 Bretton Woods conference. But from the beginning, Kuznets and other economists highlighted that GDP was not a measure of prosperity. In 1959, noted American economist Moses Abramovitz cautioned that "we must be highly skeptical of the view that long-term changes in the rate of growth of welfare can be gauged even roughly from changes in the rate of growth of output."
In 2009, a commission of leading economists convened by President Nicolas Sarkozy of France and chaired by Nobel laureate Joseph Stiglitz reported on the inadequacies of GDP. They noted well-known issues such as the fact that GDP does not capture changes in the quality of the products (think of mobile phones over the past 20 years) or the value of unpaid labor (caring for an elderly parent in the home). The commission also cited evidence that GDP growth does not always correlate with increases in measures of well-being such as health or self-reported happiness, and concluded that growing GDP can have deleterious effects on the environment. Some countries have experimented with other metrics to augment GDP, such as Bhutan's "gross national happiness index."
Our issue isn't with GDP per se. As the English say, "It does what it says on the tin"-it measures economic activity or output. Rather, our issue is with the nature of that activity itself. Our question is whether the activities of our economy that are counted in GDP are truly enhancing the prosperity of our society.
Since the field's beginnings, economists have been concerned with why one thing has more value than another, and what conditions lead to greater prosperity-or social welfare, as economists call it. Adam Smith's famous diamond-water paradox showed that quite often the market price of a thing does not always reflect intuitive notions of its intrinsic value-diamonds, with little intrinsic value, are typically far more expensive than water, which is essential for life. This is of course where markets come into play-in most places, water is more abundant than diamonds, and so the law of supply and demand determines that water is cheaper.

After lots of debate about the nature of economic value in the nineteenth and early twentieth centuries, economists considered the issue largely settled by the mid-twentieth century. The great French economist Gerard Debreu argued in his 1959 Theory of Value that if markets are competitive and people are rational and have good information, then markets will automatically sort everything out, ensuring that prices reflect supply and demand and allocate everything in such a way that everyone's welfare is maximized, and that no one can be made better off without making someone else worse off. In essence, the market price of something reflects a collective judgment of the value of that thing. The idea of intrinsic value was always problematic because it was inherently relative and hard to observe or measure. But market prices are cold hard facts. If market prices provide a collective societal judgment of value and allocate goods to their most efficient and welfare-maximizing uses, then we no longer have to worry about squishy ideas like intrinsic value; we just need to look at the price of something to know its value.
Debreu was apolitical about his theory-in fact, he saw it as an exercise in abstract mathematics and repeatedly warned about over-interpreting its applicability to real-world economies. However, his work, as well as related work in that era by figures such as Kenneth Arrow and Paul Samuelson, laid the foundations for economists such as Milton Friedman and Robert Lucas, who provided a devastating critique of Keynesianism in the 1960s and '70s, and recent Nobel laureate Eugene Fama, who pioneered the theory of efficient markets in finance in the 1970s and '80s. According to the neoclassical theory that emerged from this era, if markets are efficient and thus "welfare-maximizing," then it follows that we should minimize any distortions that move society away from this optimal state, whether it is companies engaging in monopolistic behavior, unions interfering with labor markets, or governments creating distortions through taxes and regulation.
These ideas became the intellectual touchstone of a resurgent conservative movement in the 1980s and led to a wave of financial market deregulation that continued through the 1990s up until the crash of 2008. Under this logic, if financial markets are the most competitive and efficient markets in the world, then they should be minimally regulated. And innovations like complex derivatives must be valuable, not just to the bankers earning big fees from creating them, but to those buying them and to society as a whole. Any interference will reduce the efficiency of the market and reduce the welfare of society. Likewise the enormous pay packets of the hedge-fund managers trading those derivatives must reflect the value they are adding to society - they are making the market more efficient. In efficient markets, if someone is willing to pay for something, it must be valuable. Price and value are effectively the same thing.
Even before the crash, some economists were beginning to question these ideas. Robert Shiller of Yale University, who ironically shared this year's Nobel with Fama, showed in the early 1980s that stock market prices did not always reflect fundamental value, and sometimes big gaps could open up between the two. Likewise, behavioral economists like Daniel Kahneman began showing that real people didn't behave in the hyper-rational way that Debreu's theory assumed. Other researchers in the 1980s and '90s, even Debreu's famous co-author Arrow, began to question the whole notion of the economy naturally moving to a resting point or "equilibrium" where everyone's welfare is optimized.
An emerging twenty-first century view of the economy is that it is a dynamic, constantly evolving, highly complex system-more like an ecosystem than a machine. In such a system, markets may be highly innovative and effective, but they can sometimes be far from efficient. And likewise, people may be clever, but they can sometimes be far from rational. So if markets are not always efficient and people are not always rational, then the twentieth century mantra that price equals value may not be right either. If this is the case, then what do terms like value, wealth, growth, and prosperity mean?
Prosperity Isn't Money, It's Solutions
In every society, some people are better off than others. Discerning the differences is simple. When someone has more money than most other people, we call him wealthy. But an important distinction must be drawn between this kind of relative wealth and the societal wealth that we term "prosperity." What it takes to make a society prosperous is far more complex than what it takes to make one individual better off than another.
Most of us intuitively believe that the more money people have in a society, the more prosperous that society must be. America's average household disposable income in 2010 was $38,001 versus $28,194 for Canada; therefore America is more prosperous than Canada.
But the idea that prosperity is simply "having money" can be easily disproved with a simple thought experiment. (This thought experiment and other elements of this section are adapted from Eric Beinhocker's The Origin of Wealth, Harvard Business School Press, 2006.) Imagine you had the $38,001 income of a typical American but lived in a village among the Yanomami people, an isolated hunter-gatherer tribe deep in the Brazilian rainforest. You'd easily be the richest Yanomamian (they don't use money but anthropologists estimate their standard of living at the equivalent of about $90 per year). But you'd still feel a lot poorer than the average American. Even after you'd fixed up your mud hut, bought the best clay pots in the village, and eaten the finest Yanomami cuisine, all of your riches still wouldn't get you antibiotics, air conditioning, or a comfy bed. And yet, even the poorest American typically has access to these crucial elements of well-being.
And therein lies the difference between a poor society and a prosperous one. It isn't the amount of money that a society has in circulation, whether dollars, euros, beads, or wampum. Rather, it is the availability of the things that create well-being-like antibiotics, air conditioning, safe food, the ability to travel, and even frivolous things like video games. It is the availability of these "solutions" to human problems-things that make life better on a relative basis-that makes us prosperous.
This is why prosperity in human societies can't be properly understood by just looking at monetary measures of income or wealth. Prosperity in a society is the accumulation of solutions to human problems.
These solutions run from the prosaic, like a crunchier potato chip, to the profound, like cures for deadly diseases. Ultimately, the measure of a society's wealth is the range of human problems that it has found a way to solve and how available it has made those solutions to its citizens. Every item in the huge retail stores that Americans shop in can be thought of as a solution to a different kind of problem-how to eat, clothe ourselves, make our homes more comfortable, get around, entertain ourselves, and so on. The more and better solutions available to us, the more prosperity we have.
The long arc of human progress can be thought of as an accumulation of such solutions, embodied in the products and services of the economy. The Yanomami economy, typical of our hunter-gatherer ancestors 15,000 years ago, has a variety of products and services measured in the hundreds or thousands at most. The variety of modern America's economy can be measured in the tens or even hundreds of billions. Measured in dollars, Americans are more than 500 times richer than the Yanomami. Measured in access to products and services that provide solutions to human problems, we are hundreds of millions of times more prosperous.

[Oct 18, 2015] Oil Market Showdown Can Russia Outlast The Saudis

The author is pretty naive assuming the KAS can decide to move oil prices without the USA blessing and the US controlled financial market support of such a move. In a sense it's no longer KAS that determine the oil price, it's Wall street as volume of "paper oil" exceeds "real oil" by several times now. Making oil more like a play in another currency. Also probably some tangible or intangible compensation was promized for KAS for putting pressure on Russia.

Oct 18, 2015 | OilPrice.com

The Saudi government is also scrambling. After an eight year hiatus from issuing sovereign debt, the Saudi government announced a plan during the summer to borrow $28 billion in 2015 and launched the borrowing with a $5 billion offering in August. The Ministry of Finance has banned contracts for new projects, hiring and promotions, and purchase of vehicles or furniture in the fourth quarter, while the newly created Council for Economic and Development Affairs must now approve all government projects worth more than $27 million. The Saudi government also is preparing to privatize airports and contemplating seeking private financing for infrastructure projects.
Related: Airstrikes Have Yet To Stop ISIS Oil Industry
The budget situation puts the Saudi government in a difficult situation. On the one hand, the size of the deficits requires drastic cuts in spending, but such drastic cuts would impact politically sensitive areas such as energy subsidies, government employment opportunities for Saudi citizens, education, and economic development projects. On the other hand, depleting Saudi government reserves to finance the deficits will put the Saudi sovereign credit rating at risk, which would raise the cost of borrowing as well as pressure the Saudi currency (the consequences of which are discussed below).

[Oct 16, 2015] Wolf Richter Debt Fueled Stock Buybacks Now Eating into Earnings

"... This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar , which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser , what we've accomplished in the last year , and our second target , funding for travel to conferences and in connection with original reporting. ..."

"... These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. ..."

"... last thing ..."

"... As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased. ..."

"... "Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy. ..."

"... But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering ..."

"... It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living. ..."

"... "trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering" ..."

"... I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill ..."

"... Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar. ..."

"... 35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip. ..."

"... Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win. ..."

"... Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit? ..."

Oct 16, 2015 | naked capitalism
This is Naked Capitalism fundraising week. 329 donors have already invested in our efforts to combat corruption and predatory conduct, particularly in financial realm. Please join us and participate via our Tip Jar, which shows how to give via check, credit card, debit card, or PayPal. Read about why we're doing this fundraiser, what we've accomplished in the last year, and our second target, funding for travel to conferences and in connection with original reporting.

Yves here. As anyone who has been in finance know, leverage amplifies gains and losses. Big company execs, apparently embracing the "IBG/YBG" ("I'll Be Gone, You'll Be Gone") school of management, apparently believed they could beat the day of reckoning that would come of relying on stock buybacks to keep EPS rising, regardless of the underlying health of the enterprise. But even in an era of super-cheap credit, investors expect higher interest rates for more levered businesses, which is what you get when you keep borrowing to prop up per-share earnings. As Richter explains, the chickens are starting to come home to roost.

Companies with investment-grade credit ratings – the cream-of-the-crop "high-grade" corporate borrowers – have gorged on borrowed money at super-low interest rates over the past few years, as monetary policies put investors into trance. And interest on that mountain of debt, which grew another 4% in the second quarter, is now eating their earnings like never before.

These companies – according to JPMorgan analysts cited by Bloomberg – have incurred $119 billion in interest expense over the 12 months through the second quarter. The most ever. With impeccable timing: for S&P 500 companies, revenues have been in a recession all year, and the last thing companies need now is higher expenses.

Risks are piling up too: according to Bloomberg, companies' ability pay these interest expenses, as measured by the interest coverage ratio, dropped to the lowest level since 2009.

Companies also have to refinance that debt when it comes due. If they can't, they'll end up going through what their beaten-down brethren in the energy and mining sectors are undergoing right now: reshuffling assets and debts, some of it in bankruptcy court.

But high-grade borrowers can always borrow – as long as they remain "high-grade." And for years, they were on the gravy train riding toward ever lower interest rates: they could replace old higher-interest debt with new lower-interest debt. But now the bonanza is ending. Bloomberg:

As recently as 2012, companies were refinancing at interest rates that were 0.83 percentage point cheaper than the rates on the debt they were replacing, JPMorgan analysts said. That gap narrowed to 0.26 percentage point last year, even without a rise in interest rates, because the average coupon on newly issued debt increased.

And the benefits of refinancing at lower rates are dwindling further:

Companies saved a mere 0.21 percentage point in the second quarter on refinancings as investors demanded average yields of 3.12 percent to own high-grade corporate debt – about half a percentage point more than the post-crisis low in May 2013.

That was in the second quarter. Since then, conditions have worsened. Moody's Aaa Corporate Bond Yield index, which tracks the highest-rated borrowers, was at 3.29% in early February. In July last year, it was even lower for a few moments. So refinancing old debt at these super-low interest rates was a deal. But last week, the index was over 4%. It currently sits at 3.93%. And the benefits of refinancing at ever lower yields are disappearing fast.

What's left is a record amount of debt, generating a record amount of interest expense, even at these still very low yields.

"Increasingly alarming" is what Goldman's credit strategists led by Lotfi Karoui called this deterioration of corporate balance sheets. And it will get worse as yields edge up and as corporate revenues and earnings sink deeper into the mire of the slowing global economy.

But these are the cream of the credit crop. At the other end of the spectrum – which the JPMorgan analysts (probably holding their nose) did not address – are the junk-rated masses of over-indebted corporate America. For deep-junk CCC-rated borrowers, replacing old debt with new debt has suddenly gotten to be much more expensive or even impossible, as yields have shot up from the low last June of around 8% to around 14% these days:

Yields have risen not because of the Fed's policies – ZIRP is still in place – but because investors are coming out of their trance and are opening their eyes and are finally demanding higher returns to take on these risks. Even high-grade borrowers are feeling the long-dormant urge by investors to be once again compensated for risk, at least a tiny bit.

If the global economy slows down further and if revenues and earnings get dragged down with it, all of which are now part of the scenario, these highly leveraged balance sheets will further pressure already iffy earnings, and investors will get even colder feet, in a hail of credit down-grades, and demand even more compensation for taking on these risks. It starts a vicious circle, even in high-grade debt.

Alas, much of the debt wasn't invested in productive assets that would generate income and make it easier to service the debt. Instead, companies plowed this money into dizzying amounts of share repurchases designed to prop up the company's stock and nothing else, and they plowed it into grandiose mergers and acquisitions, and into other worthy financial engineering projects.

Now the money is gone. The debt remains. And the interest has to be paid. It's the hangover after a long party. And even Wall Street is starting to fret, according to Bloomberg:

The borrowing has gotten so aggressive that for the first time in about five years, equity fund managers who said they'd prefer companies use cash flow to improve their balance sheets outnumbered those who said they'd rather have it returned to shareholders, according to a survey by Bank of America Merrill Lynch.

But it's still not sinking in. Companies are still announcing share buybacks with breath-taking amounts, even as revenues and earnings are stuck in a quagmire. They want to prop up their shares in one last desperate effort. In the past, this sort of financial engineering worked. Every year since 2007, companies that bought back their own shares aggressively saw their shares outperform the S&P 500 index.

But it isn't working anymore. Bloomberg found that since May, shares of companies that have plowed the most into share buybacks have fallen even further than the S&P 500. Wal-Mart is a prime example. Turns out, once financial engineering fails, all bets are off. Read… The Chilling Thing Wal-Mart Said about Financial Engineering

Wolf Richter is a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

TomDority, October 16, 2015 at 8:01 am

One wonders where all that "investment" goes…pretty much into the CEO's pockets and investors pockets because banks do not create money by investing in real legitimate capital formation or producing anything tangible…..i

It spelled out in Micheal Hudson's – Killing the Host. Economics and investment banking wraps itself in the persona as the engine of growth when, in fact, it is the engine of dis-employment, stagnate wages, declining manufacturing, inflated property prices which raise the cost of food production and everything else including forcing a majority to spend more of their income on debt service leaving less for anything beyond subsistence living.

These trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering….at the expense of a habitable peaceful planet. Soon, I hope, this dislocation will be corrected. As I have said before, a good start would be to tax that which is harmful (unearned income and rent seeking) and de-tax that which is helpful – real capital formation, infrastructure and maintenance of a habitable planet and the absolutely necessary biodiversity that sustains us.

david, October 16, 2015 at 8:57 am

"trillions are wasted and misdirected into useless financial "engineering" as opposed to real world engineering"

I read yesterday that less than 6% of Bank financing is now going to real tangible assets – the balance goes in various forms to intangible goodwill
this is not "useless" from the standpoint of those who direct this game.
Tony Soprano called it a "bust up" – take over a business and use the brand to skim the profits, buy goods and services and roll them out the backdoor and declare BK and then buy it back for pennies on the dollar.

the money is used for dividends and buybacks all that money is accumulated by the LBO firms and management to maneuver the situation / process to the point of the bust up – this time they are all going simultaneously for the exit even the most high end S&P firm – the HY prices are deteriorating quickly beyond energy related as % LTV goes higher – before 82′ the LTV of Fortune Cos. was way below 20% – 35% was considered max –
the same characters / groups will be formed to get to 51% to buy and control the bonds at 20-30% on the dollar in BK and take the assets.
35 years ago, I spent a day at Ngorongoro Crater in Tanzania with a driver in a rover by myself watching the Hyenas take down a sick Buffalo culling him out in a gang, working the animal for hours, as he shuffled along until he fell and ten….. finally ate him in a ferocious climax. The most fascinating part of the entire trip.
USA, USA, USA !

cnchal, October 16, 2015 at 9:38 am

. . .Now the money is gone. The debt remains. And the interest has to be paid,. . .

Now there is a big fat tax deductible expense, and down the road, "value" is created when companies are bought for the tax carry forward losses. Win, win win.

Just Ice, October 16, 2015 at 10:53 am

"Companies with investment-grade credit ratings …"

With government-subsidized private credit creation, the whole concept of "creditworthiness" is suspect. Example, is Smith-Wesson "credit-worthy" to many Progressives? Yet, it's their credit, as part of the public, that would be extended should S&W take out a bank loan.
Is a company that eliminates thousands of jobs via automation or outsourcing worthy of the public's credit?

[Oct 14, 2015] The Financial Sector is Too Big

October 9, 2015 | naked capitalism

By Philip Arestis Professor and Director of Research at the Cambridge Centre for Economic & Public Policy and Senior Fellow in the Department of Land Economy at the University of Cambridge, UK, and Professor of Economics at the University of the Basque Country and Malcolm Sawyer, Professor of Economics, University of Leeds. Originally published at Triple Crisis

Has the financial sector become too large, absorbing too many resources, and enhancing instabilities? A look at the recent evidence on the relationship between the size of the financial sector and growth.

There has been a long history of the idea that a developing financial sector (emphasis on banks and stock markets) fosters economic growth. Going back to the work of authors such as Schumpeter, Robinson, and more recently, McKinnon, etc., there have been debates on financial liberalisation and the related issue of whether what was relevant to financial liberalisation, namely financial development, "caused" economic development, or whether economic development led to a greater demand for financial services and thereby financial development.

The general thrust of the empirical evidence collected over a number of decades suggested that there was indeed a positive relationship between the size and scale of the financial sector (often measured by the size of the banking system as reflected in ratio of bank deposits to GDP, and the size of the stock market capitalisation) and the pace of economic growth. Indeed, there have been discussion on whether the banking sector or the stock market capitalisation is a more influential factor on economic growth. The empirical evidence drew on time series, cross section, and panel econometric investigations. To even briefly summarise the empirical evidence on all these aspects is not possible here. In addition, the question of the direction of causation still remains an unresolved issue.

The processes of financialisation over the past few decades have involved the growing economic, political and social importance of the financial sector. In size terms, the financial sector has generally grown rapidly in most countries, whether viewed in terms of the size of bank deposits, stock market valuations, or more significantly in the growth of financial products, securitisation, and derivatives as well as trading volume in them. This growth of the financial sector uses resources, often of highly trained personnel, and inevitably raises the question of whether those resources are being put to good use. This is well summarised by Vanguard Group founder John Bogle, who suggests, "The job of finance is to provide capital to companies. We do it to the tune of $250 billion a year in IPOs and secondary offerings. What else do we do? We encourage investors to trade about $32 trillion a year. So the way I calculate it, 99% of what we do in this industry is people trading with one another, with a gain only to the middleman. It's a waste of resources" (MarketWatch, Aug. 1 2015).

Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening. The claims were often made by the mainstream that financial liberalisation had removed "financial repression" and stimulated growth. Yet, financial liberalisation in a country often led to banking and financial crises, many times with devastating effects on employment and living standards. Financial crises have become much more frequent since the 1970s in comparison with the "golden age" of the 1950s and 1960s. The international financial crisis of 2007/2008 and the subsequent Great Recession were the recent and spectacular crises (though the scale of previous crises such as the East Asian ones of 1997 should not be overlooked). The larger scale of the financial sector in the industrialised countries has been accompanied (even before 2007) with somewhat lower growth than hitherto. As the quote above suggests there has not been an upsurge of savings and investment, and indeed many would suggest that the processes of financialisation dampen the pressures to invest, particularly in research and development. Has the financial sector become too large, absorbing too many resources, and enhancing instabilities?

An interesting recent development has been a spate of research papers coming from international organisations and many others, which have pointed in the direction that indeed the financial sector in industrialised countries have become too big-at least when viewed in terms of its impact on economic growth. (See Sawyer, "Financialisation, financial structures, economic performance and employment," FESSUD Working Paper Series No. 93, for a broad survey on finance and economic performance.) These studies rely on econometric (time series) estimation and hence cover the past few decades-which suggests that their findings are not in any way generated by the financial crisis of 2007/2008 and the Great Recession that followed.

A Bank of International Settlements study concluded that "the complex real effects of financial development and come to two important conclusions. First, financial sector size has an inverted U-shaped effect on productivity growth. That is, there comes a point where further enlargement of the financial system can reduce real growth. Second, financial sector growth is found to be a drag on productivity growth." Cournède, Denk,and Hoeller (2015) state that "finance is a vital ingredient for economic growth, but there can also be too much of it." Sahay, et al. (2015) find a positive relationship between financial development (as measured by their "comprehensive index") and growth, but "the marginal returns to growth from further financial development diminish at high levels of financial development―that is, there is a significant, bell-shaped, relationship between financial development and growth. A similar non-linear relationship arises for economic stability. The effects of financial development on growth and stability show that there are tradeoffs, since at some point the costs outweigh the benefits."

There are many reasons for thinking that the financial sector has become too large. Its growth in recent decades has not been associated with facilitating savings and encouraging investment. It has absorbed valuable resources which are largely engaged in the trading in casino-like activities. The lax systems of regulation have made financial crises more likely. Indeed, and following the international financial crisis of 2007/2008 and the great recession a number of proposals have been put forward to avoid similar crises. To this day, nonetheless, the implementation of these proposals is very slow indeed (see, also, Arestis, "Main and Contributory Causes of the Recent Financial Crisis and Economic Policy Implications," for more details).

See original post for references

MartyH, October 9, 2015 at 10:28 am

Now that Michael Hudson's Killing the Host has been available for a while, one suspects a Picketty-like effect with folks "discovering" that Taibbi's Giant Vampire Squid characterization of Goldman-Sachs (one of many) wasn't funny.

blert, October 9, 2015 at 5:24 pm

It's a squid that squirts RED INK - onto everyone else.

susan the other, October 9, 2015 at 11:03 am

This is a great and readable essay. Sure sounds like Minsky. And even Larry Summers when he advocates for more bubbles. And Wolfgang Schaeuble said repeatedly that "we are overbanked." We just don't know how to do it any other way. When everything crashes it's too late to regulate. Unless Larry knows a clever way to regulate bubbles.

JTMcPhee, October 10, 2015 at 8:40 am

The Banksters' refrain:

"Don't regulate you,
Don't regulate me!
Regulate that guy over behind that tree…"

MY scam is systemically important!

Just Ice, October 10, 2015 at 3:34 pm

"We just don't know how to do it any other way. " STO

Yet there is another way, an equitable way :) Dr. Michael Hudson himself says that industry should be financed with equity, not debt.

Leonard, October 10, 2015 at 3:53 pm

Susan
There is way to manage bubbles before they get out of control. This article explains how. Go to wp.me/WQA-1E

ben, October 9, 2015 at 11:17 am

Wasted resources are way higher than the Vanguard example. They misdirect resources especially into land and issue new money as debt.

RepubAnon, October 10, 2015 at 11:29 pm

They think that they make their living by "ripping the eyes out of the muppets" – so they're opposed to regulations which would protect the muppets' eyes.

I look at the financial industry as sort of like sugar for the economy – the right amount is good for you, but too much will kill you.

Just Ice, October 9, 2015 at 12:35 pm

"The lax systems of regulation have made financial crises more likely."

Actually, it's the near unlimited ability of the banks to create deposits ("loans create deposits" but also debts) that causes large scale financial crises. And what is the source of this absurd ability of the banks? ans: government privileges including deposit insurance instead of a Postal Savings Service or equivalent and a fiat (the publics' money) lender of last resort.

Besides, regulations typically do not address the fundamental injustice of government subsidized banks – extending the publics' credit to private interests.

Synoia October 9, 2015 at 12:53 pm

There is something very wrong about money creation from loans. I'm not arguing that this is incorrect, I'm looking at money creation being a burden on the citizenry. I cannot see how this will end well, because of the asymmetric nature, money creation only benefits the banks, of the burden of money creation.

Just Ice October 9, 2015 at 1:40 pm

"There is something very wrong about money creation from loans."

More precisely, there is something very wrong about being driven into debt by government-subsidized private credit creation. Source of the rat race? Look no further.

zapster October 10, 2015 at 9:32 am

It's the bank-money vs. government money situation. The hysteria over "The Deficit (gasp)" insures that none of us have cash and must borrow to live. The bankers won.

Just Ice October 10, 2015 at 1:56 pm

"It's the bank-money vs. government money situation." zapster

More precisely, who gets to create the government's money since it is taxation* that drives the value of fiat. But it's an absurd situation since obviously the government ALONE should create fiat, not a central bank for the benefit of banks and other private interests, especially the wealthy.

As for the private sector, let it create its own money solutions and my bet is that we'll have a much more equitable (pun intended) society as a result.

The problem then is taxation. How does one tax someone's income in Bitcoins, for example? How does one preclude tax evasion? Unavoidable taxes such as land taxes (except for a homestead exemption) are one possibility.

*As well as the need to pay the interest on the debt the government subsidized banking cartel drives us into.

Yves Smith Post author October 10, 2015 at 5:17 pm

*Sigh*. The government alone does control the money supply in a fiat currency issuer. The government hasn't bothered to do so actively because the only time it DID try doing that (under Reagan and Thatcher) they found out, contra Friedman, that money supply growth bore no relationship to any macroeconomic variable. Monetarism was a failed experiment.

readerOfTeaLeaves October 9, 2015 at 10:58 pm

I happened upon a great link - about the probable origins of interest. Here's the link: http://viking.som.yale.edu/will/finciv/chapter1.htm

Scroll down to "The Idea of Interest". This author posits that back in the (ancient, herding) day, people lent cattle. I lend you my cow, your bull impregnates her, and I get a part of the calf.

What the author probably didn't understand, but is known to those of us interested in the history of metallurgy, is that there was a belief that metals 'grew' - after all, plants grew from the ground, vines grew from the ground, trees and bushes also grew from the ground. It was not a great stretch to suppose that metals also grew within the ground, and back in those ancient days they expected the same kind of 'growth' from metals that happened with agricultural products.

Perhaps if I ever get to retire, I can read Hudson's entire work, and possibly he covers this topic. But I do think that it is time for the rest of us to rethink the nature of money - particularly in an emerging digital era.

cnchal October 10, 2015 at 10:42 am

Thanks for that link. Here is a little nugget that relates to today.

The legal limit on interest rates for loans of silver was 20% over much of Dumuzi-gamil's life, but Marc Van De Mieroop demonstrates how Dumuzi-gamil and other lenders got around such strictures - they simply charged the legal limit for shorter and shorter term loans! Curiously, while mathematics during this era was extraordinarily advanced, the government failed to understand, or at least effectively regulate the close link between time and money.

Sound familiar. It's more like the banksters regulate government.

As for compound interest, it seems to be the most diabolical human invention yet, as it infers exponential growth without limits.

Here is Keynes discussing compound interest in his speech "Economic Possibilities for our Grandchildren" (1930)

From the earliest times of which we have record – back say to two thousand years before Christ – down to the beginning of the eighteenth century, there was no very great change in the standard of life of the average man living in the civilized centres of the earth. Ups and downs certainly. Visitations of plague, famine, and war. Golden intervals. But no progressive, violent change. Some periods perhaps 50 per cent better than others – at the utmost 100 per cent better – in the four thousand years which ended (say) in A.D. 1700.

This slow rate of progress, or lack of progress, was due to two reasons – to the remarkable absence of important technical improvements and to the failure of capital to accumulate.

The absence of important technical inventions between the prehistoric age and comparatively modern times is truly remarkable. Almost everything which really matters and which the world possessed at the commencement of the modern age was already known to man at the dawn of history. Language, fire, the same domestic animals which we have today, wheat, barley, the vine and the olive, the plough, the wheel, the oar, the sail, leather, linen and cloth, bricks and pots, gold and silver, copper, tin, and lead – and iron was added to the list before 1000 B.C. – banking, statecraft, mathematics, astronomy, and religion. There is no record of when we first possessed these things.

At some epoch before the dawn of history – perhaps even in one of the comfortable intervals before the last ice age – there must have been an era of progress and invention comparable to that in which we live today. But through the greater part of recorded history there was nothing of the kind.
The modern age opened, I think, with the accumulation of capital which began in the sixteenth century. I believe – for reasons with which I must not encumber the present argument – that this was initially due to the rise of prices, and the profits to which that led, which resulted from the treasure of gold and silver which Spain brought from the New World into the Old. From that time until today the power of accumulation by compound interest, which seems to have been sleeping for many generations, was reborn and renewed its strength. And the power of compound interest over two hundred years is such as to stagger the imagination.

Let me give in illustration of this a sum which I have worked out. The value of Great Britain's foreign investments today is estimated at about £4,000 million. This yields us an income at the rate of about 6 1/2 per cent. Half of this we bring home and enjoy; the other half, namely, 3 1/2 per cent, we leave to accumulate abroad at compound interest. Something of this sort has now been going on for about 250 years.

For I trace the beginnings of British foreign investment to the treasure which Drake stole from Spain in 1580. In that year he returned to England bringing with him the prodigious spoils of the Golden Hind. Queen Elizabeth was a considerable shareholder in the syndicate which had financed the expedition. Out of her share she paid off the whole of England's foreign debt, balanced her budget, and found herself with about £40,000 in hand. This she invested in the Levant Company – which prospered. Out of the profits of the Levant Company, the East India Company was founded; and the profits of this great enterprise were the foundation of England's subsequent foreign investment. Now it happens that £40,000 accumulating at 3 1/2 per cent compound interest approximately corresponds to the actual volume of England's foreign investments at various dates, and would actually amount today to the total of £4,000 million which I have already quoted as being what our foreign investments now are. Thus, every £1 which Drake brought home in 1580 has now become £100,000. Such is the power of compound interest !

From the sixteenth century, with a cumulative crescendo after the eighteenth, the great age of science and technical inventions began, which since the beginning of the nineteenth century has been in full flood – coal, steam, electricity, petrol, steel, rubber, cotton, the chemical industries, automatic machinery and the methods of mass production, wireless, printing, Newton, Darwin, and Einstein, and thousands of other things and men too famous and familiar to catalogue.

What is the result? In spite of an enormous growth in the population of the world, which it has been necessary to equip with houses and machines, the average standard of life in Europe and the United States has been raised, I think, about fourfold. The growth of capital has been on a scale which is far beyond a hundred-fold of what any previous age had known. And from now on we need not expect so great an increase of population.

This reminds me of the huge fortunes growing at compound interest today.

Take the Gates Foundation as an example.

From Wikipedia: It had an endowment of US$42.3 billion as of 24 November 2014.

If this were to grow at a compound interest rate of 7.2% annually, it would double every ten years, and in one hundred years would be $43 trillion dollars and in two hundred years $44,354 trillion or $44.354 quadrillion. It's as if Bill and Warren are playing a practical joke on the world, as their compound interest monster swallows every available dollar.

I wonder what a loaf of bread will cost in two hundred years?

nigelk October 9, 2015 at 3:20 pm

Fractional-reserve banking is anathema to human dignity itself. What was it Gandhi said about "wealth without work"…?

griffen October 9, 2015 at 12:56 pm

Top heavy might be the marginally better angle to take here. Although I recently left the state (N Texas, Dallas), Texas banks are being merged or acquired left and right. On some occasions it is necessary if very small institutions are unable to compete, unable to meet a decent ROE bogey (6.0% ROE is sorta low), or just unable to fend off progress.

Other occasions the larger regional and national banks can just win on scale.

Noni Mausa October 9, 2015 at 1:10 pm

I have long thought about the banking system as a beating heart. Of course it needs fuel, like the rest of the body, but when a heart gets larger and larger, and contains more and more blood, and uses more and more fuel, the rest of the body never fares well.

"Surging bank profits" is never a headline that makes me happy.

Carla October 9, 2015 at 11:43 pm

Yes, congestive heart failure kills the host - this is a great analogy - Thanks!

anders October 9, 2015 at 2:01 pm

The real question is: why was it that the "creation of wealth" had to turn to the financial sector. IMHO it's because the productive sector is lesser and lesser able to produce surplus value. So that free capital istn't attracted to it. Of course in the financial sector there isn't any value created at all.

Just Ice October 9, 2015 at 3:33 pm

" IMHO it's because the productive sector is lesser and lesser able to produce surplus value. "

Yes, because of unjust wealth distribution; the host has finally been exhausted. With meta-materials, nano-technology, genetic engineering, better catalysts, etc. and with practical nuclear fusion on the horizon (because of new superconducting materials) mankind has probably never been on the verge of creating so much value as now but can't because of lack of effective demand, not for junk but for such things as proper medical and dental care while the wealthy have more than they know what to do with.

blert October 9, 2015 at 5:22 pm

Is the sky blue ?

Decades of 'political – solvency' insurance has permitted 'the blob' to overwhelm all.

&&&

If all of society played Poker … would anything be produced ? THAT'S the aspect that has metastasized. It's not proper to term it the 'financial sector' - gambling// speculation emporium… now you're talking. When the government chronically intervenes to bail out highly sophisticated fools…. Jon Corzine is the result. - And he's not even the target of law enforcement !!!!

equote October 10, 2015 at 7:40 am

"A business that makes nothing but money is a poor business." -- Henry Ford

sd October 10, 2015 at 4:18 pm

Financial liberalisation and de-regulation were promoted as ways of releasing the power of the financial sector, promoting development of financial markets and financial deepening.

Release the Kraken comes to mind.

[Oct 14, 2015] Strategist We've Hit 'Peak Negativity' in the Energy Sector

"... a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther. ..."

"... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

"... In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be." ..."

"... Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects ..."

finance.yahoo.com

Earlier this year, Bank of Montreal Chief Investment Strategist Brian Belski called energy stocks a value trap.
He has become more constructive, upgrading the sector to market weight, from underweight.
A confluence of factors influenced the strategist's decision to "neutralize" his portfolio position for both U.S. and Canadian energy stocks. The first is that the sector has reached what he called "peak negativity," underperforming the Standard & Poor's 500-stock index by the most since 1986, when the last supply side-driven crash in oil prices occurred.
Second, a prolonged period of low oil prices is now baked into analysts' earnings expectations, although some Canadian analysts will probably have to ratchet down their estimates even farther.

"Earnings per share revisions are one of our most trusted contrarian indicators and the fact that they have hit extreme negative levels is encouraging to us for sector performance prospects," he wrote.
"Energy sector growth expectations in Canada have come down significantly, but still remain too optimistic given the oil price outlook and especially when compared to estimates for the U.S.," he added.

... ... ...

In December, he noted that his clients were consumed with in energy, and he cautioned against holding on to the previous cycle's winners. Two months later, he quipped that the short period of crumbling crude prices would not "cure a decade-long notion of oil and energy being the place to be."
But the "pain trade," Belski now says, is for energy stocks to move higher.

[Oct 13, 2015] Dont Tell My Mother Im In Finance (She Thinks I Work In A Brothel)

"... The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns. ..."

"... "The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors." ..."

"... The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be. ..."

May 13, 2008 | www.zerohedge.com

In medicine, they have something called the Hippocratic Oath. It requires physicians to swear to uphold certain ethical standards. In modern fund management, there is no Hippocratic Oath. Whereas doctors are expected to "First, do no harm", in modern fund management, iatrogenic illnesses hold sway. An iatrogenic illness is one that is caused by the physician himself.

Fund management doctors seem to be doing the best they can to kill their own patients. Science has a word for this, too. It's called parasite. There is a solution to all this insanity.

... ... ...
There is a solution to all this insanity.
The chief investment officer of the Yale Endowment, David Swensen, has written an excellent book entitled 'Unconventional Success'.

The title is an allusion to Keynes' famous observation that fund managers, courtesy of endemic groupthink, tend to prefer (and consequently often deliver) conventional failure as opposed to unconventional success. Swensen himself has steered the Yale Endowment through many years of impressive investment returns.

Swensen pulls few punches.

The fund management industry involves the

"interaction between sophisticated, profit-seeking providers of financial services [Keynes would have called them rentiers] and naïve, return-seeking consumers of investment products.

"The drive for profits by Wall Street and the mutual fund industry overwhelms the concept of fiduciary responsibility, leading to an all too predictable outcome: except in an inconsequential number of cases where individuals succeed through unusual skill or unreliable luck, the powerful financial services industry exploits vulnerable individual investors."

The nature of ownership is crucial. To Swensen, the more mouths standing between you and your money that need to be fed, the poorer the ultimate investment return outcome is likely to be.

In a rational world, investors would be well advised to favour smaller, entrepreneurial boutiques, or private partnerships, over larger, publicly listed full service investment operations – especially subsidiaries of banks or insurance companies – with all kinds of intermediary layers craving their share of your pie.

The rather sickening fight over the bonus pool at Pimco now being gleefully reported in the financial media is just one example of a large fund management organisation that appears to have entirely forgotten what its core purpose is, or should be.

This past week, and the conjunction of the Bill Gross lawsuit and the Investment Association's Daniel Godfrey debacle, is likely to go down as one of the biggest fund management public relations disasters in history.

Before buying any fund, ask yourself some questions:

How big is it? The tree cannot grow to the sky. But try telling that to Pimco, or to the average member of the Investment Association. Managers' pay is invariably linked to the size of funds under management. The more assets, the more pay. It takes guts, and principles, to turn money away and concentrate solely on investment performance. But that's precisely what many smaller investment boutiques do on a regular basis. And it's why we only invest with smaller investment boutiques.

Has the manager invested his own money? If he hasn't, why should you? Meaningful personal investment is by itself no guarantee of investment outperformance, but it shows the most basic alignment of interests between manager and investor.

Is it independent, and owner-managed? David Swensen has gone on record saying he prefers the smaller, private partnership over the larger, listed full service operator. How many mouths must your fees feed?

Is it an asset manager, or an asset gatherer? This gets to the heart of the challenge facing investors today. The investment world is polarised between asset managers, who focus their energies on delivering the best possible returns for their clients, and asset gatherers, who just want to maximize the number of clients.

Most fund management firms fall into the latter category. Favour the former.

How to distinguish between the asset managers and the asset gatherers? Try to find managers like the celebrated investor Jean-Marie Eveillard, who once remarked:

"I would rather lose half of my shareholders than half of my shareholders' money."

The managed fund marketplace is clearly much larger than it should be. It is oversupplied, and there is insufficient genuine talent and integrity to support the grotesque number of spurious, me-too funds out there all chasing a finite pot of capital.

After a disastrous week in the spotlight, asset management companies might wish to start cutting their fund ranges before the regulators force them to. >
Muddy1
Working in a brothel? Working in finance?
It's the same thing. You take people's money and then they get screwed.

[Oct 13, 2015] My comprehensive plan for US policy on the Middle East

"... US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction. ..."

Oct 04, 2015 | Crooked Timber

geo, 10.04.15 at 6:28 pm

JQ@9: the supposed need to control ME oil was always nonsense, but it's nonsense on stilts now
http://www.dreamscape.com/morgana/enforce.htm:

"Documents recently obtained from Cheney's Energy Task Force as the result of a Freedom of Information Act lawsuit filed by the public-interest group Judicial Watch indicate that Cheney and his colleagues had their sites on the black gold under the Iraqi desert well before Sept. 11.

"Last July, the Commerce Department finally turned over records that included "a map of Iraqi oilfields, pipelines, refineries and terminals, as well as two charts detailing Iraqi oil and gas projects and 'Foreign Suitors for Iraqi Oilfield Contracts'," according to Judicial Watch's subsequent press release. There were also similar maps and charts for Saudi Arabia and the United Arab Emirates. The documents were dated March 2001."

See also: http://www.informationclearinghouse.info/article4458.htm.

If only Bush and Cheney had listened to people who knew something about the oil industry and believed in the free market …

Layman 10.04.15 at 8:38 pm

"To cite just one example, cutting off aid to Saudi Arabia, Egypt, and Israel would cause a huge international crisis."

I'm afraid it's not at all clear that the resulting crisis would be 'huger' than the ones we get for the aid. U.S. aid to Israel (for example) is almost entirely military aid. We're sponsoring Israel's efforts to colonize the West Bank and to periodically destabilize Lebanon. These are international crises, and we're funding them.

Ze K 10.04.15 at 9:04 am

30 minutes before opening this page I read this: http://www.counterpunch.org/2015/10/02/a-useful-prep-sheet-on-syria-for-media-propagandists/
…and sent them $100.
@16 "the overwhelming majority of civilian deaths are down to the regime."
That is not what I get from The Angry Arab News Service, and no offense but I trust that As'ad AbuKhalil knows what he's talking about.

Peter T 10.04.15 at 9:17 am

Okay. So we airlift Allawis, Druze, Syrian Shia, Christians (30 per cent or so of the Syrian population) out, re-settle them in Arizona and leave the Islamists to fight it out. Oh, wait, we need to airlift out the Assyrians and Yezidi too. Then the Iraqi Shia and ISIS can fight it out. Iran will certainly intervene in force, but not our worry. Oh, and we'd better get most Jordanians out of the way too.
US policy is often clueless, often based on some Beltway fantasy, but there are very real people at stake here, not just tiresome geopolitics. Most US policy derives from stupid game-playing, but some part derives from genuine, well-founded fear of the consequences of inaction.

Donald Johnson 10.04.15 at 5:46 pm

And here is a link to a Physicians for Social Responsibility paper which discusses the various studies and estimates of the death toll in Iraq, Afghanistan, and Pakistan. Their numbers are on the higher side–
http://www.psr.org/assets/pdfs/body-count.pdf

[Oct 13, 2015] Steve Keen Mainstream Economics and Its Deadly Equilibrium Assumption

"... The biggest lie is money and the notion that issuers of fiat currencies, sovereign governments, are like households and need to balance deficit spending by borrowing the shortfall in tax revenues. ..."

Jun 16, 2003 | naked capitalism

Chris Williams, October 12, 2015 at 5:24 pm

As an economist who was taught at the Australian National University in the 1980s, I know, now, that the profession has more in common with PolSci than it has to do with math. Yet, we had all those demand and supply graphs, ISLM, Phillips curves and so on. Very mathy, we even did Economic Stats, Accounting and Comp Sci just to round off the notion that Economic theories were like, say Physics, full of 'laws' that were immutable.

Non economists, most of the rest of you, I hope, can only imagine what it feels like to know that much of what you read and thought about during those years of study was complete crap as the syllabus failed to account for fraud, corruption, how money and debt works in reality etc….

The biggest lie is money and the notion that issuers of fiat currencies, sovereign governments, are like households and need to balance deficit spending by borrowing the shortfall in tax revenues.

Hopefully, the new thinkers in the profession like Steve, can continue to spread their message

Knute Rife, October 13, 2015 at 12:05 am

When I was an undergrad, I took macro and micro in very classical courses. It didn't take long to see the "math" on the board was more conjuring than calculating. In law school I took Law and Economics from an econ prof. There were about three of us in the class who had any decent math. The prof's "calculations" had us constantly looking at one another. One day she finally hit the limit. We pointed out to her that she had the central fraction reversed. She stood back and said (I kid you not), "Oh well, it doesn't matter." I turned down the sound on economic "calculations" in general after that.

Furzy Mouse, October 12, 2015 at 12:42 pm

Keen's talk….cannot read the subtitles….the screen is too small, even when I go to YouTube…

Arthur Wilke,

October 12, 2015 at 1:33 pm

This link may be an aid: https://www.youtube.com/watch?v=x7uITEBqQvM

Vatch, October 12, 2015 at 1:44 pm

Have you tried your browser's zoom function? This is often CTRL-Plus. CTRL-Minus reduces the size, and CTRL-Zero restores the default size.

low_integer, October 12, 2015 at 2:00 pm

If you put your cursor on the bottom right corner of the video and click, the video will expand into full screen. It is one of the options in the bar that is only visible when your cursor is at the bottom of the video area, from which you can also turn the subtitles on and off. Also, press escape to exit full screen mode. Hope that makes sense

Arthur Wilke, October 12, 2015 at 2:32 pm

The embedded video is selected from this encounter and
is easy to expand to full-screen:
https://www.youtube.com/watch?v=x7uITEBqQvM

[Oct 12, 2015] OPEC Crude Little Change - Peak Oil BarrelPeak

"... Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon. ..."

"... It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again. ..."

"... Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not. ..."

Aug 30, 2012 | peakoilbarrel.com

Oil Barrel

OPEC says world upstream spending will be down only 20% in 2015 but North American upstream spending will drop by 35%. I guess that is because of the big drop in shale spending.

Ovi, 10/12/2015 at 10:52 am

3Q15–4Q15–1Q16–2Q16–3Q16–4Q16
-13.5-13.4-13.4-13.5--13.5-13.7
Above is the OPEC projection for US production out to Q4-16. Looks optimistic to me. For the above to be true, there must be some underlining assumption regarding increasing oil prices to restart drilling.

Ron Patterson, 10/12/2015 at 1:01 pm

Yes those numbers are totally unrealistic, just as unrealistic as the US Short Term Energy Outlook numbers. In the chart below US Total Liquids are the left axis while C+C numbers are the right axis.

Total liquids for the US STEO includes refinery process gain. And they even count refinery process gain on imported oil. So it looks like the OPEC MOMR numbers do not include refinery process gain.

AlexS, 10/12/2015 at 2:53 pm

The EIA expects U.S. non-C+C liquids supply to increase by 1.17mb/d between January 2014 and December 2016, of which 1.03 mb/d – NGPLs.

brian, 10/12/2015 at 1:40 pm

'God-trader' Andy Hall's fund loses $500M
http://www.cnbc.com/2015/08/06/god-trader-andy-halls-fund-loses-500m.html

Ves, 10/12/2015 at 2:05 pm

Was he trading based on IEA, EIA or OPEC forecast numbers? :)

Old Farmer Mac, 10/12/2015 at 2:31 pm

Ron's excellent charts are telling me that Opec is not going to be producing as much or MORE oil on a daily basis, if any, very much longer. With only three countries carrying the load, and all the others combined just holding steady over the last few years, DEPLETION is sure to take a bite out of those other smaller countries production pretty soon.

It looks as if the only countries with any REAL hope of increasing production enough to really matter on the world stage, near term, are Iran and Iraq and the USA. The USA is out of the running until prices go up and then, according to what I read here, it will take a year or maybe two to ramp up again.

Am I right about this? Are there any other countries that have any real hope of substantially increasing production near term?

I am thinking about buying a LOT (for an individual) of diesel fuel as soon as I think the price is starting up again. I know, predicting IS HARD , but a bigger stash of diesel is as good as silver and gold in a jar buried in the back yard. Will probably stock up on lime and fertilizer as well, these inputs are extremely sensitive to and correlate with oil and gas prices.

Dennis Coyne, 10/12/2015 at 2:53 pm

Hi Old Farmer Mac,
Just take my price predictions and assume the opposite will be true, or flip a coin :)
Nobody can predict when oil prices will rise with any accuracy. I will suggest it will be in the future, maybe late 2016, maybe not.

Petro, 10/12/2015 at 10:26 pm

…there will be no price rise, just the volatility of: "…a bomb went off here…", "…a war started there…" and "…a russian jet was shot down over there…somewhere…".
be well,

P.S: the "hoard" of diesel is not a bad idea, OFM

Old Farmer Mac, 10/12/2015 at 2:52 pm

This new SEC regulation might help people interested in peak oil and oil prices come by more and better data.
It will probably go into force second half next year from the looks of things.
http://thehill.com/blogs/congress-blog/economy-budget/256535-wind-at-secs-back-on-long-overdue-oil-transparency-rule

Chris, 10/12/2015 at 3:31 pm

OPEC has reached a plateau, oscillating between 28 mbpd to 31.6 mbpd since 10 years now. World production peaked so far in June. Saudi Arabia production in decline since June, US production in decline since several months. Peak oil in 2015? I am curious to see the December production…

Dennis Coyne, 10/12/2015 at 6:23 pm

It looks like the latest OPEC Monthly Oil Market Report predicts that World Oil Supply and Demand will be in balance by 3Q16, if OPEC output remains at 3Q15 levels. There will still be a supply overhang which may require another quarter or two of either decreased supply or increased demand (or both) to bring oil stocks back to normal levels.

As always, these forecasts are notoriously inaccurate so oil prices could remain low until 2018 if demand is lower or supply is higher than OPEC forecasts, or they might rise in early 2016 if the opposite is true. It's a coin flip.

Greenbub, 10/12/2015 at 7:43 pm

Wouldn't most oil producers go out of business if prices stayed low until 2018?

[Oct 12, 2015] Saudi Arabia Halts Government Spending Due To Oil Price Fall

Aug 30, 2012 | OilPrice.com

Saudi Arabia has reportedly resorted to spending cuts to cope with a budget deficit caused by the steep decline of oil prices over the past year.
Bloomberg reported Oct. 8 that the Saudi Finance Ministry has directed government agencies not to embark on any new spending initiatives for the rest of the year. It also froze government hiring and promotions, suspended the purchase of furniture and vehicles and urged revenue collectors to accelerate their operations.

...oil accounts for around 90 percent of Saudi revenue. But the kingdom's finances also have been strained by its involvement in wars in Syria and Yemen.
As a result, Saudi Arabia's ratio of debt to GDP is in danger of rising to 33 percent in five years, according to a new report by the International Monetary Fund (IMF). The report says the Saudi budget has gone from a surplus to a deficit of more than 20 percent of GDP, more than twice as deep as those that beset the United States and Britain in 2008 and 2009, the darkest period of the recent recession
... ... ...

The spending cuts aren't Saudi Arabia's first effort to manage its deficit. Bloomberg quoted other anonymous sources as saying Riyadh had planned to raise at least $24 billion from bond sales by the end of 2015. This was in response to a drop in the kingdom's foreign assets, which at that time had fallen for the seventh consecutive month to $654.5 billion, its lowest in more than two years.

[Oct 12, 2015] Problem of fracking wells decline in shale industry

"... this disaster would have overtaken the fracking patch even if oil prices had not tanked, because its root problem was the hideous decline rate of fracking wells, most of which are exhausted within four years. ..."

"... Imagine if they built houses of water-soluble materials. You buy a house for $200,000 or so, and at the end of four years its uninhabitable and worthless, and you have to buy another one. You might have been making good money those four years, but enough to set aside $50,000 a year? Thats been the fracking problem from the beginning, and virtually every company in the business has had to borrow heavily – actually, recklessly - to stay in the game. ..."

Oct 09, 2015 | peakoilbarrel.com
Another interesting article linked on Peakoil.com, which links to a Fortune article:
http://www.dailyimpact.net/2015/09/30/fortune-frackers-face-mass-extinction/

As I've reported here over and over, this disaster would have overtaken the fracking patch even if oil prices had not tanked, because its root problem was the hideous decline rate of fracking wells, most of which are exhausted within four years.

Imagine if they built houses of water-soluble materials. You buy a house for $200,000 or so, and at the end of four years it's uninhabitable and worthless, and you have to buy another one. You might have been making good money those four years, but enough to set aside $50,000 a year? That's been the fracking problem from the beginning, and virtually every company in the business has had to borrow heavily – actually, recklessly - to stay in the game.

Which is over. For most. There will always be some operators diligently wringing out the last few drops of combustibles, but the Brave New World of American oil supremacy in a cowed world, the age of American energy security, the renewed American oil economy - all creations of marketing departments in search of the proverbial greater-fool investors and lenders - are toast.

[Oct 12, 2015] Could oil prices really shrink to twenty dollars per barrel

"... When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up, ..."

"... So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking ..."

"... Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production. ..."

Oct 06, 2015 | finance.yahoo.com

... Fatih Birol, the executive director of the International Energy Agency (IEA), told CNBC on Tuesday that low prices would prompt U.S. producers to cut output, creating upward price pressure.

"When we look at the next few quarters, we expect U.S. oil production to decline because of low oil prices and in Iraq, production growth will be much slower than in the past. And the demand is creeping up," Birol told CNBC on Tuesday from the Oil & Money conference.

"So therefore, to think that [low] oil prices will be with us forever may not be the right way of thinking."

... ... ....

Whether or not U.S. shale players will cut production in response to ongoing low prices is a moot point however. They could instead respond by increasing production in order to satisfy creditors eager for results. Plus, against some odds, shale producers have managed to lower productions costs, although these remain high in comparison to conventional oil production.

Despite its warning, Goldman Sachs said there was a less than 50 percent chance of oil falling to $20 per barrel. Instead, its base case scenario for 2016 was $45 per barrel -a level that Birol said was still too low for U.S. shale producers to maintain current production.

"It is proven it is a very resilient type of production, but this level of prices, $45, $50 is not good enough to induce reinvestments and for production to continue to grow. Therefore, we expect as of next year, production growth will decline in the United States," Birol told CNBC.

The secretary general of OPEC, Abadall El-Badri, also forecast that oil production from countries outside his group would fall next year.

... ... ...

"We see that non-OPEC supply is declining and in 2016, we see there is an increase in demand … so in a nutshell, there is a balance in the market in 2016. How much this will reflect on the price I really cannot tell," he later added.

... ... ...

Standard & Poor's (S&P) appeared more bullish on oil prices than Goldman, forecasting on Tuesday that Brent oil would average $55 per barrel in 2016, up from an average of $50 for the remainder of this year.

[Oct 12, 2015] Oil rig count drops for a 6th week

According to driller Baker Hughes, the number of active oil rigs fell by 9 to 605, putting the count at the lowest level since the week ending July 30, 2010. The combined tally of oil and gas rigs fell 14 from last week to 795, the lowest since May 2002. We saw a renewed drop in the oil rig count last week, which fell by 26, the biggest decline since the rig count topped out a year ago.

Earlier this week, Baker Hughes reported that the average US rig count for September was 848, down 35 from the prior month.

[Oct 11, 2015] Why it's so easy to manipulate ordinary investors

That quote is a key theme in Phishing for Phools: The Economics of Manipulation & Deceptionby George Akerlof and Robert Shiller. The authors, two of America's leading economists, note that free markets are capable of generating unimaginable wealth and innovation. And yet, this system also "tends to spawn manipulation and deception." Because the goal of every business person is to get you to spend your money, they will often come up with ingenious ways of tricking you. This frequently results in consumers choosing things that aren't very good for them.
Akerlof and Shiller point to the Cinnabon breakfast treat as an amusing example of how the free market system exploits our weaknesses automatically. Humans are naturally attracted to the scent of cinnamon, so it was almost inevitable that an entire business would emerge to exploit that vulnerability. Life may indeed "need frosting" - as Cinnabon's motto declares - but most of us probably shouldn't start our day with a pastry containing 880 calories.

Understanding the two peculiar terms from the book's title is essential for grasping its central argument. The authors define the word "phish" as "getting people to do things that are in the interest of the phisherman, but not in the interest of the target." In other words, "phisherman" are those businesses that are trying to get you to buy something that may not be in your best interest.

A "phool," according to the authors, is "someone who for whatever reason is successfully phished." Each of us might get phished because our cognitive biases might lead us to misinterpret reality or we might just lack adequate information.

After defining these terms, the authors show us how the notion of "phishing for phools" works across various industries. For example, Big Pharma appears to be especially rife with manipulation. The authors describe how the pharmaceutical companies orchestrate the rollout of a new drug. There are journal articles and sales rep visits and ads on TV -- all designed to "create a story of the new wonder drug."
Vioxx was one such wonder drug, of course. Akerlof and Shiller tell us in considerable detail how the system broke down in that specific case.
The investing industry is another ideal "phishing" hole where financial professionals drop their lines in order to take advantage of phools. One big takeaway from their research just might help ordinary investors. After analyzing numerous industries and countless case studies, the authors conclude,

In every one of the phishes, it occurred because the phisherman took advantage of the phool's wrong focus. In some cases the phisherman, like the magician and the pickpocket, himself generated that wrong focus. We also checked Cialdini's [Ed. note: Robert Cialdini, author of The Psychology of Persuasion] list of psychological biases; each one of them could be considered to be the result of an errant focus by the phool.

This insight is extremely valuable when applied to the investing world. Financial professionals very frequently exploit the tendency of ordinary investors to focus on the wrong thing. That "wrong focus" can be extraordinarily costly in fees and poor investing performance.

Just consider how much "focus" the financial media places on the inscrutable actions of the Fed or the volatile movements of commodity prices or whether or not a recession is right around the corner. And think about how much emphasis some financial professionals place on their ability to generate "alpha" by pursuing some incomprehensible strategy that requires you to pay them hefty fees, even if they're not successful.

Phishing is everywhere in the financial industry and it's designed to make you lose your focus on the right things, while you fork over your hard-earned money to the phishermen. None of us can predict where markets are going in the short term, so worrying about what the Fed will do or about how much alpha-generating ability your advisor possesses (he'll tell you it's a lot) will only distract you from your long-term investing plan. If your financial advisor is calling you with a hot tip on a can't-miss fund based on the latest investing fad, then you might be in danger of focusing on the wrong thing. In other words, you're most likely a phool.

This fine book yields another crucial insight for investors. The authors argue that phishing is one of the prime reasons behind the volatility of asset prices. Misleading accounting, media hype, investor sales pitches -- these are just some of the ways that asset prices become inflated. When the inflated assets have been purchased with borrowed money, huge losses will eventually snowball and "then credit dries up; and the economy tanks." We experienced that back in 2008 and 2009, of course. Phishing hurts investors in a variety of ways.

So, what must be done? First, remember that the authors believe strongly in the power of free markets. They're not advocating for a "people's paradise" with centrally planned outcomes.

Instead, they just want us to recognize that people don't always do what is good for them. That's why we need sensible securities regulation in our public markets. We also need more prudent and smart oversight in both the economic and political realms. Leaving everything to free markets alone, the authors argue, will result in bad outcomes. There was a time in American history when that opinion wasn't terribly controversial.

I highly recommend this book, even for those who might disagree with the authors' outlook. Their case studies are illuminating, and their insights on the way markets work are fascinating. When you consider the sorry state of the personal finances of the median working age family in the United States today, it's hard to disagree with their central thesis that our current system isn't working properly.

Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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[Oct 11, 2015] Series of small earthquakes hit near Oklahoma crude oil storage hub

The US Geological Survey (USGS) reported that nine quakes ranging in magnitude from 2.5 to 3.7 were recorded between 5.07pm on Saturday and 5.27am on Sunday. No injuries or damage were reported. Geologists say damage is not likely in quakes below magnitude 4.0.
The latest seismic activity came after a 4.5 magnitude temblor on Saturday afternoon near Cushing and a 4.4 magnitude quake on Saturday morning south-west of Medford.
The Oklahoma Geological Survey has said it is likely that many recent earthquakes in the state have been triggered by the injection of wastewater from oil and natural gas drilling operations.
Cushing is home to the world's most important crude oil storage hub, which is used to settle futures contracts traded on the New York Mercantile Exchange.
Cushing emergency management director Bob Noltensmeyer said on Sunday that no significant damage was found at the oil facility, only "shattered nerves".

Orwell2015 11 Oct 2015 19:50

Oh the irony of it all, which sadly will be lost on most.

[Oct 10, 2015] US oil production would stall this month and begin to decline from early next year

U.S. shale oil needs $80 to grow

"... U.S. oil production growth will stop this month and begin to decline early next year due to low oil prices, the former head of oil firm EOG Resources, Mark Papa, said on Tuesday. ..."

"... He said the main reason for the decline would be the lack of bank financing for new shale developments. ..."

"... If U.S. light crude oil prices went back up to $75 a barrel, Papa said U.S. oil production would resume growth at around 500,000 bpd – or around half the record growth rates observed in the past few years. ..."

"... In its Short-Term Energy Outlook the EIA revised higher estimates of US oil production: by 62 kb/d on average for the second half of 2015, by 49 kb/d for 1H16 and by 22 kb/d for 2H16. I think this largely reflects the revision of its historical estimate for July. ..."

"... Of course, at an overall decline rate of 10%/year from existing production, operators need to put on line close to 1.0 million bpd of new C+C production per year, just to offset declines from existing wells. At a probably more realistic decline rate of about 15%/year from existing production, they would need to put on line about 1.5 million bpd of new C+C production per year, just to offset declines from existing wells (at current production levels). ..."

"... We see (U.S. oil production declines) continuing into next summer. ..."

"... About two weeks ago, as reported in the Daily Oklahoman, Harold Hamm (Continental Resources) said that by May of 2016, US production decline would be so significant and obvious that the crises would be over ..."

"... I wonder if Dennis might have been technically wrong, but actually fundamentally correct, about an oil price bottom in January, when Brent averaged $48. Brent averaged $47 in August, and probably about the same in September, and its currently trading at about $53 this morning. It seems to me that the bottom line is that monthly lows so far in his cycle have been in the high 40s. ..."

"... Incidentally, I had forgotten how rapid the run-up was in oil prices from 2007 to 2008. From June, 2007 to June, 2008, monthly WTI prices exactly doubled (hitting $134 in June, 2008), and Brent almost doubled (hitting $132 in June, 2008). Brent then fell to a monthly low of $40 in that price decline, in December, 2008. ..."

"... Do you think your numbers show that improvements in drilling efficiency have finally reached a limit? ..."

"... Enno. Saw you comment on the Seeking Alpha article re: CLR. Am I correct that a massive write down is coming for CLR at year end, and thus a massive loss in earnings? ..."

"... I think John Keller and Blaine brought up that banks are not on the hook for most of the debt, but unsecured bonds make up the bulk of it. It is odd, however, to see banks eager to loan funds to LTO companies who could possibly default on unsecured debt and who are insolvent, on paper, at least. ..."

"... Why do unsecured bond holders just take a bath and take no action? It would seem to me that upon default, the unsecured bond holders could obtain a judgment against the defaulting company and lien the assets. Seems this might be some leverage to get some money out of the defaulting company/first lien banks, who probably do not want to go through the foreclosure process? ..."

"... As mentioned before, my guess is that improvements in early production levels are temporary and technological – adding more sand to the frack, fiddling the engineering/choke – to improve IP, and thus asset bases and the potential size of loans, at the expense of ultimate recovery. Companies that need to do this far outnumber the genuine oil companies that merely try to extract oil for a lower price than they sell it for, and comprise at least two of the three top producers. ..."

Oct 10, 2015 | peakoilbarrel.com
U.S. shale oil needs $80 to grow
U.S. oil production growth will stop this month and begin to decline early next year due to low oil prices, the former head of oil firm EOG Resources, Mark Papa, said on Tuesday.

Papa, now a partner at U.S. energy investment firm Riverstone Holdings LLC, told an industry conference in London that the U.S. shale oil industry needed oil prices of at least $80 a barrel to resume production growth.

"We are about to see a pretty dramatic decline in U.S. production growth," said Papa, who was a key figure helping to spur the U.S. shale oil boom when he was at EOG Resources.

U.S. oil production has been growing by around 1 million barrels per day (bpd) year-on-year since mid 2012, thanks to the introduction of new drilling techniques that have released oil and gas from shale formations. But output in North America has started to slow in recent months as prices have fallen sharply.

Papa said U.S. oil production would stall this month and begin to decline from early next year. He said the main reason for the decline would be the lack of bank financing for new shale developments.

If U.S. light crude oil prices went back up to $75 a barrel, Papa said U.S. oil production would resume growth at around 500,000 bpd – or around half the record growth rates observed in the past few years.

AlexS, 10/07/2015 at 9:16 am

In its Short-Term Energy Outlook the EIA revised higher estimates of US oil production: by 62 kb/d on average for the second half of 2015, by 49 kb/d for 1H16 and by 22 kb/d for 2H16. I think this largely reflects the revision of its historical estimate for July.

From the report:

"Based on the latest survey-based reporting of monthly crude oil production estimates, U.S. production averaged 9.4 million b/d in the first half of 2015. This level is 0.2 million b/d higher than the average production during the fourth quarter of 2014, despite a more than 60% decline in the total U.S. oil-directed rig count since October 2014. However, crude oil production started to decrease in the second quarter of 2015, beginning with Lower 48 onshore production in April. Although the Lower 48 onshore decline was offset by production gains in the Gulf of Mexico that kept total production growth positive in April, total U.S. production began declining in May.

EIA expects U.S. crude oil production declines generally to continue through August 2016, when total production is forecast to average 8.7 million b/d. Forecast production begins rising in late 2016, returning to an average of 9.0 million b/d in the fourth quarter. A total of 12 projects are scheduled to come online in the Gulf of Mexico in 2015 and 2016, pushing up production from an average of 1.4 million b/d in the fourth quarter of 2014 to more than 1.6 million b/d in the fourth quarter of 2016.

Expected crude oil production declines from May 2015 through mid-2016 are largely attributable to unattractive economic returns in some areas of both emerging and mature onshore oil production regions, as well as seasonal factors such as anticipated hurricane-related production disruptions in the Gulf of Mexico. Reductions in 2015 cash flows and capital expenditures have prompted companies to defer or redirect investment away from marginal exploration and research drilling to focus on core areas of major tight oil plays. Reduced investment has resulted in the lowest count of oil-directed rigs in about five years and in well completions that are significantly behind 2014 levels.

Oil prices, particularly in the second quarter of 2015, remained high enough to support continued development drilling in the core areas within the Bakken, Eagle Ford, Niobrara, and Permian formations, with July and August showing the first consecutive month-to-month increases in the oil-directed rig count since September and October 2014. However, WTI prices below $60/b through the forecast period are anticipated to limit onshore drilling activity and well completion totals, despite continued increases in rig and well productivity and falling drilling and completion costs. The forecast remains sensitive to actual wellhead prices and rapidly changing drilling economics that vary across regions and operators.

While projected oil production in the Gulf of Mexico rises during the forecast period, oil production in Alaska falls. Production in these areas is less sensitive to short-term price movements than onshore production in the Lower 48 states and reflects anticipated growth from new projects in the Gulf of Mexico and declines from legacy fields in Alaska."

Jeffrey J. Brown, 10/06/2015 at 9:35 am
Of course, at an overall decline rate of 10%/year from existing production, operators need to put on line close to 1.0 million bpd of new C+C production per year, just to offset declines from existing wells. At a probably more realistic decline rate of about 15%/year from existing production, they would need to put on line about 1.5 million bpd of new C+C production per year, just to offset declines from existing wells (at current production levels).
Greenbub, 10/06/2015 at 11:59 am

If we returned to $80/barrel (and that could happen pretty easily if the dollar fell or other causes), that would mean we would have over 11 million bpd in four years. When would peak oil happen in that case?

Jeffrey J. Brown, 10/06/2015 at 12:58 pm

At the 1965 to 1970 rate of increase in US C+C production, the US would have been producing about 73 million bpd in 2015:

http://www.eia.gov/totalenergy/data/monthly/pdf/sec3_3.pdf

AlexS, 10/06/2015 at 1:14 pm

U.S. oil output on brink of 'dramatic' decline, executive says

http://www.reuters.com/article/2015/10/06/us-oil-outlook-usa-idUSKCN0S021Y20151006

Delegates at the Oil and Money conference in London, an annual gathering of senior industry officials, said world oil prices were now too low to support U.S. shale oil output, the biggest addition to world production over the last decade.

"We are about to see a pretty dramatic decline in U.S. production growth," the former head of oil firm EOG Resources Mark Papa, told the conference.

The chief executive of Royal Dutch Shell Plc agreed, saying U.S. oil producers would struggle to refinance while prices remained so low, leading to lower output in future.

"Producers are now looking for new cash to survive and they will probably struggle to get it," Ben van Beurden said.

Longer term, there was a risk that low levels of global production could bring a spike in oil prices, he said.

If prices remained low for a long time and oil production outside OPEC and the United States declined due to capital expenditure cuts, there was not likely to be any significant spare capacity left in the system, he said.

"This could cause prices to spike upwards, starting a new cycle of strong production growth in U.S. shale oil and subsequent volatility," van Beurden said.
Adam Sieminski, administrator at the U.S. Energy Information Administration, told reporters on the sidelines of the conference the U.S. oil industry had reacted to lower prices by improving its productivity.

But this process could not continue forever.

"Now we are seeing the limits at least in the near term and it is beginning to impact production," Sieminski said. "We see (U.S. oil production declines) continuing into next summer."

Clueless, 10/06/2015 at 4:06 pm
About two weeks ago, as reported in the Daily Oklahoman, Harold Hamm (Continental Resources) said that by May of 2016, US production decline would be so significant and obvious that the crises would be over [paraphrasing].
Steve, 10/06/2015 at 9:33 am
Utica showing signs of age? From an anti-fracing org, but more importantly, is the data valid?
The Curious Case of the Shrinking Utica Shale Play
September 29, 2015

http://www.fractracker.org/2015/09/shrinking-utica-shale-play/

Ted Auch, 10/07/2015 at 12:13 pm
First I would just like to clarify that while FracTracker might seem like an "anti-fracing org" we believe that the pro/con labels are typical of debates in US (i.e., you are either with us unconditionally or against us!).
There is plenty of room in the middle and at the margins for sound research and mapping with respect to hydraulic fracturing and the broader hydrocarbon industrial complex with respect to land-use/land-cover (LULC), waste generation and transport, water use and watershed resilience, Energy Return On Energy Invested (EROEI), and potential threats to ecosystem services.

That said we are very interested in modeling the spread between Utica production expectations and reality.

Herein we compiled a very robust data set of 1,100 Utica wells to construct this spacially explicit model using a technique called Empirical Bayesian Kriging.

The data we have compiled speaks to Ohio's Utica wells experiencing 84% declines in oil and gas production on a per day basis from years 1 to 2. From that point forward oil and gas declines by 25% and 10%, respectively. Furthermore, the newer wells are experiencing more pronounced exponential declines in productivity.

We aren't "set[ting] up a straw man premise" about production but simply showing that the Ohio DNR is woefully lagging behind in updating their constituents as to the realities of the Utica from an oil, gas, and brine perspective.

coffeeguyzz , 10/07/2015 at 9:58 pm
Mr. Auch
Straight up, if you honestly are unaware of the difference between flow back water and produced water, you may want to get an education right quick.
I checked the brine output for the three wells mentioned in the article, and found the 1,800 barrel was for TWO days after the well came online. The NEXT 91 days, this Chesapeake Trueshall well produced 170 bbl/d.

Exact same premise for the EM and Gulfport wells. (Gulfport's Bolton well is currently producing 15 barrels of water a day).

Anyone who remotely thinks the dry gas Utica is shrinking or diminishing in any way is simply uninformed.

Jeffrey J. Brown, 10/07/2015 at 5:30 am
I wonder if Dennis might have been technically wrong, but actually fundamentally correct, about an oil price bottom in January, when Brent averaged $48. Brent averaged $47 in August, and probably about the same in September, and it's currently trading at about $53 this morning. It seems to me that the bottom line is that monthly lows so far in his cycle have been in the high 40's.
Incidentally, I had forgotten how rapid the run-up was in oil prices from 2007 to 2008. From June, 2007 to June, 2008, monthly WTI prices exactly doubled (hitting $134 in June, 2008), and Brent almost doubled (hitting $132 in June, 2008). Brent then fell to a monthly low of $40 in that price decline, in December, 2008.

http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=RWTC&f=M

Dennis Coyne, 10/07/2015 at 1:45 pm
Hi Jeffrey,
I think I was just plain wrong on my guess at an oil price bottom in January.

I also was wrong about how fast LTO output would decline (I thought at under $50/b) the decline in LTO output would be much steeper and that the well completion and drilling rates would decrease much faster than has been the case.

If the LTO output had fallen as fast as I thought back in January, $48/b for Brent might have been the bottom. I have no clue what will happen going forward. Do you still expect oil prices might reach $65/b or higher by Jan 2016 (even with no OPEC cut)? Everything has moved much slower than I anticipated, certainly Steve Kopits forecast from Feb 2015 wasn't correct and I have not heard any new forecasts from him, what's your take, July 2016 oil prices reach $70/b?

robert wilson, 10/07/2015 at 3:51 am
Biography M. King Hubbert Available April 2016 http://www.oracleofoil.com
Enno Peters, 10/07/2015 at 5:47 am
Yesterday the NDIC released the latest update on the status of all wells in ND (no production numbers).
What I found most interesting is that a very low number of 66 wells were spudded in ND in September. The last time so few wells were spudded in ND was early 2010. This number may still be revised (I expect up to 10% higher), but it is much lower than the 121 wells spudded in August, and the 109 wells spudded in July. It also indicates that the trend of the rising number of spuds/rig/month has reversed, as shown in the chart below (latest data is for September).

A similar temporary rise in this 'drilling capacity factor" (wells spud/rig/month) was also visible during the 2009 downturn, as can be seen. I have no explanation for it.

So yes, drilling efficiency has increased over the last 4 years, from an average of 0.6 wells spud/rig/month, to recently almost 1.2 wells spud/rig/month, but it is still a far cry from 2, which Lynn Helms mentioned in a recent update.

I expect that this big drop in new wells spudded will show up as lower output, in a delayed response, somewhere mid/end next year, as the current fraclog is depleted slowly each month (meaning more wells are being brought online than drilled), as has been the case since December 2014.

AlexS, 10/07/2015 at 6:33 am
Thank you Enno, very interesting.
The average rig count in North Dakota in September was 67. If 66 wells were spudded, there is only 1 well spud/rig/month.

Do you think your numbers show that improvements in drilling efficiency have finally reached a limit? What is your estimate of the current fracklog in ND and what was its peak level this year?

Thanks again

Enno Peters, 10/07/2015 at 7:46 am
Alex,
"Do you think your numbers show that improvements in drilling efficiency have finally reached a limit?"

That appears to be the case based on the latest data. However, the last few months showed large fluctuations, so a few more months would be useful to come to a more firm conclusion.

"What is your estimate of the current fracklog in ND and what was its peak level this year?"

If I assume that 125 wells were brought online in August, and 115 in September (vs 136 in July), the below picture emerges.

I provide 2 measures for the fraclog:
1) Uncompleted well inventory: This is the well inventory counted from the start of spudding a well, and before first production. This is an accurate measure, as the data is available. It has been trending down since last November (1260), and could drop to about 940 by the end of September, based on the above assumption. It will never come close to 0, as there are always a few months between spudding a well and first production.

2) Estimated fraclog: This is the well inventory, counted from 5 months after spudding, and before first production. Historically, there used to be about 5 months (although this number has varied) in between these 2 activities, so I think this is a more reasonable estimate of the actual number of wells where completion is clearly being delayed. This number has been rising until June, as more wells spudded late last year past the 5 months waiting time, and I expect it to keep dropping since then. According to this measure the June peak was at 500 wells, and by the end of September dropped somewhat to 460. Now that the number of spudded wells has dropped significantly in September, I expect that this measure of the fraclog will start to drop more rapidly early next year, if a steady number of wells are completed.

I am quite curious of the quality of the wells in this fraclog. So far, despite high-grading, no improvement in well productivity has been seen in 2015, compared with 2014. This is somewhat surprising, but on the other hand it would make sense if operators typically have focused on their best areas in the past already. In the current price environment, I belief it is rational to expect that operators keep employing the same strategy, of bringing their best wells online first (except EOG, which is not bringing any wells online, some of which are known to be very good). If that is the case, the average well in the fraclog may be of lesser quality than the wells being brought online so far. For example, it could contain a greater ratio of Three Forks wells. This is just a theory, which may be revealed in the data in the coming year.

AlexS, 10/07/2015 at 8:35 am
Thank you Enno.
I think the best definition of the fracklog is "drilled but uncompleted wells" (DUC), but this information in unavailable. I agree that your "Estimated fraclog" better reflects the real trend than the "well inventory counted from the start of spudding a well, and before first production".

One question: how do you estimate the quality of the wells in this fraclog if these wells are not yet producing?

Enno Peters, 10/07/2015 at 8:46 am
"One question: how do you estimate the quality of the wells in this fraclog if these wells are not yet producing?"
I have no information on the quality of the wells in the fraclog, nor any estimate. What I meant was that I suspect that the quality of those wells may be less than the wells being brought online during the recent period. This could be confirmed once the fraclog wells are online, and we can measure their performance.

AlexS, 10/07/2015 at 8:49 am
O.K., thanks Enno
shallow sand, 10/07/2015 at 9:05 am
Enno. Saw you comment on the Seeking Alpha article re: CLR. Am I correct that a massive write down is coming for CLR at year end, and thus a massive loss in earnings?
Also, surprising to me how much shale stocks have rebounded with WTI just improving by about $4-$5 per bbl.

Enno. 10/07/2015 at 9:23 am
Shallow,
Correct. But it will be presented as "a one-off non-cash write-off, typically ignored by analysts", despite being massive and having been paid up front.

Indeed the rebound is somewhat surprising. Perhaps a short squeeze?

AlexS, 10/07/2015 at 10:25 am
Impairment charges at record levels for North American E&P peer group (IHS Herold)
1 September 2015
http://blog.ihs.com/impairment-charges-at-record-levels-for-north-american-ep-peer-group-ihs-herold

The elevated level of asset impairments in the first half of 2015 have exceeded the previous annual high of the past decade in 2008. Given continued low commodity prices, we predict continuing severe impairments for companies in our North American E&P peer group during the remainder of 2015, with companies with high DD&A expense and assets outside core areas of the best plays most at risk. With proved reserves used as collateral for debt financing, E&Ps taking major write-downs in 2015 could have difficulty obtaining financing from their banks if prices remain depressed.

• Our preliminary second-quarter 2015 data shows the North American E&P peer group (Large, Midsized, and Small) took a total of $31 billion in impairment charges during the quarter, surpassing the first-quarter total of $29 billion. This propels the first-half 2015 total to $60 billion, far exceeding the previous high of $49 billion in 2008, as well as the 10-year annual average of $18 billion.

shallow sand, 10/07/2015 at 11:58 am
It appears that some companies began taking charges in Q1, and are taking a charge each quarter, while others are waiting until the end of 2015.
What is the reason for this difference? Accounting methods?

It appears that there are just two months left for SEC reserve value calculations for year end, 2015. As I and others brought up several months ago, many companies will have PDP PV10 smaller in value than the amount of their long term debt.

I think John Keller and Blaine brought up that banks are not on the hook for most of the debt, but unsecured bonds make up the bulk of it. It is odd, however, to see banks eager to loan funds to LTO companies who could possibly default on unsecured debt and who are insolvent, on paper, at least.

Again, I do look for US conventional production to continue to absorb the hit, as many conventional producers tend to be small business owners, who actually have to be concerned about paying debt back, no matter to who it is owed.

Why do unsecured bond holders just take a bath and take no action? It would seem to me that upon default, the unsecured bond holders could obtain a judgment against the defaulting company and lien the assets. Seems this might be some leverage to get some money out of the defaulting company/first lien banks, who probably do not want to go through the foreclosure process?

Or once the interest payment is missed, do the defaulting companies immediately file BK?

Blaine, 10/07/2015 at 10:55 pm
I would think it would usually be in the interest of the junior creditors to to force bankruptcy as soon as possible, while it still looks as if there might be value left over after addressing more senior liabilities. Their problem is that unless they have a debt covenant, they can't force a bankruptcy until the company actually defaults on a payment, and for the most part, the bonds don't have one.
Remember how all the E&Ps made such a big deal about how they didn't have any debt due soon? Payments due are generally quite small. There's really no standard approach, but when they started realizing they were in trouble, a lot of the companies issued secured second lien bonds which cut ahead of the older bonds, and they've been using the cash from these (plus credit lines) to make all contracted payments.

gwalke, 10/08/2015 at 6:35 am
One way to achieve this might be to stratify them by county, using McKenzie, Mountrail, Dunn and Williams as 'core' counties, as well as by targeted formation (as you have said).
Our analysis was that high-grading was relatively difficult, at least geologically, as the industry was already completing 84% of its wells in core counties. The percentage has increased this year, but there was little headroom for them to improve. Obviously this excludes sub-county level high-grading, but it is not unreasonable to have expected companies to generally bring their best wells on first even in the absence of price pressure. In the daily reports companies have still been completing wells in peripheral counties like Bottineau and Bowman.

As mentioned before, my guess is that improvements in early production levels are temporary and technological – adding more sand to the frack, fiddling the engineering/choke – to improve IP, and thus asset bases and the potential size of loans, at the expense of ultimate recovery. Companies that need to do this far outnumber the 'genuine' oil companies that merely try to extract oil for a lower price than they sell it for, and comprise at least two of the three top producers.

Enno Peters, 10/08/2015 at 7:01 am
thanks for your comments gwalke, I agree with you.

Dennis Coyne, 10/07/2015 at 2:36 pm
Hi Enno,
So with a frac log of 450 wells and assuming 70 wells drilled per month and 140 wells completed, we run out of the frac log in less than 7 months, if the frac log is 900, this gets extended to 13 months under the same assumptions. So possibly output could be maintained until April or September if well quality doesn't deteriorate. Great stuff, thanks!

Blaine, 10/07/2015 at 10:39 pm
What is your source for the "Wells Spud" data, and why do we believe that this the date is accurate? Clearly the count from ND should be correct in the sense that it matches the actual wells, and the operators will eventually have to file paperwork with the correct spudding date.
But is there a reason they need to promptly report the spudding of a well? If your source is the ND well status reports, is there a reason why they shouldn't be a month or two stale?

Enno Peters, 10/08/2015 at 4:08 am
I get this data from:
– https://www.dmr.nd.gov/oilgas/
– Go to the GIS Map Server
– Click on "download shape files" (top right)
– download the wells.zip at the bottom
– open the wells.dbf in Excel

I have worked with this data over a year, and I found that every update typically contains minor revisions, mostly over the last few weeks. The revisions are typically changing the spud date with 1 day forwards/backwards, and a few new spud dates in the previous period. This was typically a minor occurrence, therefore I said above it could still be revised upwards with about 10% in my experience.

Blaine, 10/08/2015 at 9:18 pm
Thanks. Since that's actual spud date data and not a proxy, I agree that the older data should be quite accurate, and that the accuracy of the more recent data can be determined from the revision history, and is apparently accurate as well.
Increasing pad size should be causing an increase, but that should be longer term, and not this kind of spike.

The only thing that I can think of that would cause the spike is crewing. Maybe when they're about to lay people off, they have more people standing around waiting to fix anything that goes wrong? Even if they had the same number of people per rig, they wouldn't be busy with setting up the next pad. The effect is larger than I would have thought, but after all wells are drilled by people, not rigs. Maybe someone with some experience could comment if this seems reasonable?

Enno Peters, 10/09/2015 at 1:29 am
"The effect is larger than I would have thought, but after all wells are drilled by people, not rigs. "
That's a good point.

gwalke, 10/08/2015 at 6:39 am
Current daily report data is also very interesting. We are only five days in (of 22) to forecasting September production, but on current data new wells would only add around 25kbpd. That's compared to around 51kbpd added by July's new wells.
Enno Peters, 10/08/2015 at 7:03 am
One thing I noticed is that many (300+) inactive wells have been recently put back on active again. I am not sure how big an impact that will give.

[Oct 10, 2015] The danger of the succession war in Saudi Arabia

"... That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founders family could find themselves disenfranchised. ..."

"... Todays Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko ..."

"... In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdoms foreign policy for nearly four decades. ..."

"... But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the kings third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabias newly assertive stance in the region, including its military intervention in Yemen. . . . ..."

"... some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him rash and impulsive. And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . . ..."

"... The prince, one of the grandsons of the states founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January. ..."

Oct 10, 2015 | peakoilbarrel.com
coffeeguyzz, 10/07/2015 at 6:12 am

WTI just hit $49.50 this AM

Reports are coming out of KSA that King Salman is in a hospital in critical condition.

Jeffrey J. Brown, 10/07/2015 at 7:28 am

In regard to Saudi Arabia, I usually reference "On Saudi Arabia," which was published in 2013. Following is a link to, and excerpt from, Chapter One:
http://www.amazon.com/gp/product/0307473287?ie=UTF8&isInIframe=0&n=283155&ref_=dp_proddesc_0&s=books&showDetailProductDesc=1#product-description_feature_div

What scares many royals and most ordinary Saudis is that the succession, which historically has passed from brother to brother, soon will have to jump to a new generation of princes. That could mean that only one branch of this family of some seven thousand princes will have power, a prescription for potential conflict as thirty-four of the thirty-five surviving lines of the founder's family could find themselves disenfranchised. Saudis know from history that the second Saudi state was destroyed by fighting among princes. Older Saudis vividly recall how this third and latest Saudi state was shaken by a prolonged power struggle between the founder's two eldest sons after his death in 1953.

Today's Saudi Arabia is reminiscent of the dying decade of the Soviet Union, when one aged and infirm Politburo chief briefly succeeded another-from Brezhnev to Andropov to Chernenko-before Gorbachev took power with reform policies that proved too little too late. "They keep dying on me," Ronald Reagan famously said of the four Soviet leaders he dealt with in less than three years. The next U.S. president almost surely will have the same experience with ailing Saudi rulers.

An article from April, 2015:

King Salman of Saudi Arabia Changes Line of Succession
http://www.nytimes.com/2015/04/29/world/middleeast/king-salman-of-saudi-arabia-changes-line-of-succession.html?hp&action=click&pgtype=Homepage&module=second-column-region&region=top-news&WT.nav=top-news&_r=0

BEIRUT - King Salman of Saudi Arabia issued a series of surprise royal decrees early Wednesday, shaking up the line of princes slated to succeed him to the throne, replacing a number of ministers and further enhancing the power of his own line.

In moves announced on Saudi state television, Salman replaced Crown Prince Muqrin bin Abdulaziz and named the powerful interior minister, Prince Mohammed bin Nayef, as next in line. He also named his son, Prince Mohammed bin Salman, as deputy crown prince and relieved the long-serving foreign minister, Prince Saud al-Faisal, who has shaped the kingdom's foreign policy for nearly four decades.

The moves show Salman is shifting further away from the legacy of his predecessor, King Abdullah, who died in January.

Saudi Arabia has joined a United States-led coalition that is bombing the militants of the Islamic State in Syria and Iraq. It is also leading a bombing campaign against Houthi rebels who have seized a large portion of territory in neighboring Yemen. The new appointments are unlikely to lead to big changes in these policies.

Of all the changes, the reordering of the line to the throne is likely to draw the most scrutiny inside the kingdom because of competition between branches of the sprawling royal family for positions leading to the throne.

An article from June, 2015:

Surprising Saudi Rises as a Prince Among Princes
http://www.nytimes.com/2015/06/07/world/middleeast/surprising-saudi-rises-as-a-prince-among-princes.html?_r=0

RIYADH, Saudi Arabia - Until about four months ago, Prince Mohammed bin Salman, 29, was just another Saudi royal who dabbled in stocks and real estate. He grew up overshadowed by three older half brothers who were among the most accomplished princes in the kingdom - the first Arab astronaut; an Oxford-educated political scientist who was once a research fellow at Georgetown and also founded a major investment company; and a highly regarded deputy oil minister.

But that was before their father, King Salman bin Abdulaziz, 79, ascended to the throne. Now Prince Mohammed, the eldest son of the king's third and most recent wife, is the rising star. He has swiftly accumulated more power than any prince has ever held, upending a longstanding system of distributing positions around the royal family to help preserve its unity, and he has used his growing influence to take a leading role in Saudi Arabia's newly assertive stance in the region, including its military intervention in Yemen. . . .

The sweeping changes have thrust the young prince into power at a time when Saudi Arabia is locked in a series of escalating conflicts aimed at defending its vision of the regional order and holding back its chief rival, Iran. The kingdom is financially sustaining the rulers of Egypt and Jordan and propping up the Sunni monarchy in neighboring Bahrain against a revolt by its Shiite majority. It is also arming rebels in Syria against the Iranian-backed president, fighting in the United States-led air campaign over Iraq and leading its own air assault on an Iranian-backed faction in Yemen. And it is ramping up its military spending even as plunging oil prices and growing domestic expenditures have reduced its financial reserves by $50 billion over the last six months, to less than $700 billion.

"The king has put his son on an incredibly steep learning curve, clearly," said Ford M. Fraker, the president of the Middle East Policy Council and a former United States ambassador to Saudi Arabia. "The king is obviously convinced he is up to the challenge." But some Western diplomats, speaking on the condition of anonymity for fear of alienating the prince and the king, say they are worried about the growing influence of the prince, with one even calling him "rash" and "impulsive." And in interviews, at least two other princes in the main line of the royal family made it clear that some older members of the clan have doubts as well. Both questioned the costs and benefits of the Yemen campaign that Prince Mohammed has spearheaded. . . .

Prince Mohammed's three older half brothers - sons of their father's first wife, Sultana Bint Turki Al Sudairi, who died in 2011 - all have distinguished résumés and were once considered contenders for top government roles. . . .

Prince Mohammed, however, is the firstborn son of the King Salman's third and most recent wife, Fahda bint Falah bin Sultan, who worked hard to promote him as his father's successor, according to Western diplomats who know the family, several family members and associates who have worked for the family.

"He is her eldest," said one longtime associate who works closely with the clan. "For her, he is her glory at the end of the day."

Someone recently posted a story about a memo circulating among the Saudi Royal family that was highly critical of King Salman and his designated successors.

Saudi royal calls for regime change in Riyadh (September 28, 2015)
http://www.theguardian.com/world/2015/sep/28/saudi-royal-calls-regime-change-letters-leadership-king-salman

A senior Saudi prince has launched an unprecedented call for change in the country's leadership, as it faces its biggest challenge in years in the form of war, plummeting oil prices and criticism of its management of Mecca, scene of last week's hajj tragedy.

The prince, one of the grandsons of the state's founder, Abdulaziz Ibn Saud, has told the Guardian that there is disquiet among the royal family – and among the wider public – at the leadership of King Salman, who acceded the throne in January.

The prince, who is not named for security reasons, wrote two letters earlier this month calling for the king to be removed.

"The king is not in a stable condition and in reality the son of the king [Mohammed bin Salman] is ruling the kingdom," the prince said. "So four or possibly five of my uncles will meet soon to discuss the letters. They are making a plan with a lot of nephews and that will open the door. A lot of the second generation is very anxious."

"The public are also pushing this very hard, all kinds of people, tribal leaders," the prince added. "They say you have to do this or the country will go to disaster."

Saudi King Hospitalized for Dementia (October 6, 2015)

http://en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.

The sources also said that given the Saudi king's unstable and aggravating health conditions, officials have ceased plans to transfer him to US hospitals.

Old Farmer Mac, 10/07/2015 at 2:29 pm

http://www.cnbc.com/2015/10/07/russia-saudi-oil-cooperation-is-hogwash-kilduff.html

I agree with this guy, the chances imo of the Russians and the Saudis getting together to cut back on oil production are exceedingly slim to approaching zero.

My opinion is based not on their finances but on their rivalry. The Saudis have a LOT of reasons to fear and hate the Russians and to try to bankrupt them.

[Oct 10, 2015] Oilfield cannibals: to save cash, US drillers strip idle rigs

"... (Cannibalization) will slow the industrys ability to ramp the rig count back up so it will delay the production response from oil prices, ..."

"... While there are no official statistics available, cannibalization has been so pervasive in this slump that industry experts say it is possible a majority of the 1,100 rigs that are not working have been scoured for parts. ..."

"... Investors, still seeing an oversupply of rigs, and are encouraging companies to scrap more rigs to halt the slide in daily rental rates, now around $20,000, depending on the rigs speed and power. ..."

"... However, the scrapping of more rigs would likely increase the number of those ripe for cannibalizing, analysts said. ..."

"... Our U.S. domestic customers, the oil producers, are shutting off all capital spending on just about anything, said Hewell, whose Houston company is backed by Houston-based private equity firm Global Energy Capital LP. ..."

"... The current US active rig count is 809. The 2014 peak level was 1931. In 2011 rig count exceeded 2000. Total number of oil and gas rigs, including rigs idled for long-term, was close to 3000. The common view among experts is that when drilling activity rebounds active rig count will is unlikely to exceed 1200-1400 units. ..."

Oct 10, 2015 | peakoilbarrel.com

AlexS, 10/07/2015 at 8:50 am

Interesting trends in the US onshore drilling sector:

Oilfield cannibals: to save cash, U.S. drillers strip idle rigs

http://www.reuters.com/article/2015/10/07/us-oil-services-parts-idUSKCN0S109S20151007

In a bid to save cash, rig owners are cannibalizing parts such as motors and drill pipe from idled rigs to fix 800 active ones in the U.S. when stuff breaks.

In good times, they would buy new equipment … when parts fail. Now, they just pick over any of about 1,100 rigs idled by the price crash.

Cannibalization is so widespread in this downturn that services companies and others say even after oil prices recover it will take six months or more to see a significant rebound in drilling and production – a timeframe that will allay fears of a quick uptick in drilling promptly sinking prices again.

NOV [National Oilwell Varco] has said so many rigs are idled that firms could cannibalize drill pipe for up to a year before placing new orders.

"(Cannibalization) will slow the industry's ability to ramp the rig count back up so it will delay the production response from oil prices," said James West, oilfield services analyst with Evercore ISI.

While there are no official statistics available, cannibalization has been so pervasive in this slump that industry experts say it is possible a majority of the 1,100 rigs that are not working have been scoured for parts.

Land rig utilization is hovering around 60 percent for larger U.S. drilling contractors, according to data from Tulsa, Oklahoma-based Helmerich & Payne Inc, which has a higher utilization rate because it has a fleet of newer rigs.

There are lots of spares available because the U.S. rig fleet was near a 15-year high when prices started to tumble.

Investors, still seeing an oversupply of rigs, and are encouraging companies to scrap more rigs to halt the slide in daily rental rates, now around $20,000, depending on the rig's speed and power.

"Companies have to continue to scrap idle rigs and do all that they can to balance supply with demand," said Robert Thummel, a portfolio manager at Tortoise Capital Advisors.

However, the scrapping of more rigs would likely increase the number of those ripe for cannibalizing, analysts said.

To escape the downturn gripping the U.S. shale market, Premium Oilfield is expanding in the Middle East.

"Our U.S. domestic customers, the oil producers, are shutting off all capital spending on just about anything," said Hewell, whose Houston company is backed by Houston-based private equity firm Global Energy Capital LP.

AlexS, 10/07/2015 at 12:51 pm

Ves,

The current US active rig count is 809. The 2014 peak level was 1931. In 2011 rig count exceeded 2000. Total number of oil and gas rigs, including rigs idled for long-term, was close to 3000. The common view among experts is that when drilling activity rebounds active rig count will is unlikely to exceed 1200-1400 units.
Furthermore, there is a constant shift towards newest and most efficient rigs.
I am sure that most rigs that drilling companies are disassembling are relatively old and will never be needed.

Ves, 10/07/2015 at 1:44 pm

Alex,

I am not sure that I would agree that explanation on justification for disassembling the rigs.

1) "Experts" predict that rig count will not likely exceed 1200-1400 rigs.

Well then why these experts did not foresee collapse in 2013-14 and advise drilling companies to rain spending on the new rigs? The simple truth is that their opinion is worth it as much yours or mine.

2) Second justification that they are disassembling rigs are relatively old and will never be needed is also weak. They need them now because the parts that are taking from them are for the rigs that are drilling right now. So these are not obsolete rigs. They do serve the function.

3) And the third about constant shift towards newest and most efficient rigs. Well my question is did the drillers retired the loans that they got for the current rigs? With huge decline in the rig rates the answer is clearly not. So the question is where they will find capital to buy newer and fancier rigs? They will not get it. So that is why this is delusion on their part.

AlexS, 10/07/2015 at 2:39 pm

Ves,

U.S. oil & gas active rig count remained within a relatively narrow range between 1700 and 2000 for almost 4 years, while US C+C production increased from 5.5 mb/d to 9.5 mb/d, and natural gas and NGL production was also increasing.

Drilling companies were actively modernizing their drilling fleet, so there were also about 1000 permanently idled old rigs.

There is no doubt that all existing rigs will not be needed even if the drilling activity rebounds.

(1) Shale production will increase at much slower rates, and the drilling frenzy of 2011-14 will not be repeated.

(2) New rigs are more efficient and

(3) The is a constant shift to pad drilling

Thanks to (2) and (3) less rigs are needed to drill the same number of wells.

(4) If the demand for rigs start ito rise, customers (the E&P companies) will require newer and more efficient rigs, so there is no need to store old rigs.
Remember the 80's, when 3/4 of U.S. rigs were scrapped

Old Farmer Mac, 10/07/2015 at 2:25 pm

It has been common practice almost forever to strip parts off of idle equipment in slow times to keep equipment still on the job running.

For example, a couple of EXPERIENCED guys with a boom truck can remove a twenty thousand dollar (used) diesel engine from a dozer in half a day – and put it in a dozer on the job in another day and a half.

The bad engine that comes out can be put in the maintenance shop for a rebuild at leisure and installed in the donor dozer at leisure or kept on a pallet for a ready spare.

This way the mechanics are kept busy, helping keep the crew together, the dozer on the job gets fixed pdq, and the twenty or thirty grand needed to purchase a rebuilt or used running engine in a hurry is conserved to help the company get thru bad times.

Almost nothing is actually LOST except a day or two day of labor. The cost of that labor is apt to be less than the cost of a rental dozer for a couple of days.

Now I have never been around an oil rig, but I bet a five hundred horsepower weather proof electric motor can be removed in a day and that a new one would cost at least fifteen or twenty thousand and probably more.

Getting a bad one rewound would most likely take at least a week to a month because when times are slow for contractors, they are generally pedal to the metal for the specialists who fix stuff contractors cannot fix in their own maintenance shops.

Any large company that uses a lot of big diesel engines most likely has in house diesel mechanics. But electric motors are so dependable hardly any company has enough to maintain their own electric motor shop – so they get sent out.

Having said all this, older machines are indeed frequently robbed to the point they are never put back in service.

Manufacturers expect to make more money on parts than they do on selling new equipment, over the years. If you go to a heavy truck dealer and ask for the prices of the fifteen or twenty most expensive parts of a given truck, the total will exceed the price of a complete truck by a wide margin.There would be a thousand parts still to be bought to assemble a truck.

It doesn't cost THAT much to keep parts in a warehouse and ship them to a dealer. Parts are THE profit center- along with the service department of course.

It is totally common place for a dealer to bill labor at five or more times what a mechanic makes.

People who sell new parts like to make fun of used parts, but the fact of the matter is that as soon as you drive a car off the dealer lot, with ten miles or less on the odometer, EVERY single part of it is a USED part.

[Oct 10, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin

"... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."

"... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."

"... Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle. ..."

"... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."

"... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."

"... To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the worlds only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what its taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper. ..."

Oct 10, 2015 | Zero Hedge
According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).
While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.

As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.

The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.
Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.

If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.

In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.

For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.

Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.

Latina Lover

Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!

Lumberjack

Just in:

http://www.marketwatch.com/story/statoil-reports-oil-spill-of-norway-coa...

news printer
Muslim Press Claims Saudi King Salman bin Abdulaziz Hospitalized for Dementia

Informed sources told Arabic-language al-Ahd news agency that King Salman is now in the Intensive Care Unit (ICU) section of King Faisal Specialist Hospital in the Saudi capital.

The sources also said that given the Saudi king's unstable and aggravating health conditions, officials have ceased plans to transfer him to US hospitals.

According to witnesses, his exact state of dementia is a source of speculation but he is known to have held cogent conversations as recently as last October. !!!!!!!

He can also forget what he said minutes ago, or faces he has known all his life. This is typical of the disease.

en.abna24.com/service/middle-east-west-asia/archive/2015/10/06/713917/story.html

Jack Burton

"the world of petrodollar recycling"

The USA Dollar hegemony system was partly built upon Petro Dollar recycling. And of course Chinese trade surplus recycling. We have already seen the Chinese Treasury selling. That is a nail in the world reserve currency. Falling oil revenues dry up another major dollar recycling system.

Many on ZH have noted the not so gradual approach of World War. To be blunt, the prospect in Washington DC of the loss of dollar world wide hegemony is creeping closer and closer. What does this mean to the world's only super power and vast global empire? Well, it puts in threat the ability of Washington to print green paper and have all the rest of the earth to supply in return manufactured goods, energy, commodities and services. All in return for green paper. Washington spends twice what it's taxes return each year. That leaves 1/2 of the entire federal spending to come from printed green paper.

To be clear. When Washington loses the power to print, it has lost over half of it's global power in one stroke. The prospect of that can only lead to global war. The US Neoconservatives are laying the foundations for global war, World War Three. It is either go to war, or lose the global super power status built on Money Printing.

Unless you think America remains the global super power based on it's vibrant productive economy?

[Oct 09, 2015] Russian military operation in Syria bolsters oil market, domestic stocks

Oct 09, 2015 | RT Business

Oil prices have risen 12 percent in October to a two-month high. Rising crude coincides with Russia's airstrikes against Islamic State targets in Syria which began on September 30.

The price of Brent in London increased over one percent to $53 per barrel on Friday. US benchmark WTI is trading higher than $50 per barrel for the first time in three months after hitting six-year lows in late August. Other factors contributing to rising oil prices include a weakened dollar and shrinking US production.

Crude prices can be particularly responsive to unrest or violence in the Middle East, one of world's biggest oil-producing regions. While Syria does not have significant oil reserves, crude prices rise over fears the conflict could spread to the broader region.
"Syria is not a crude oil producer-its real significance to the energy markets is not a heightening of its ongoing internal conflict but rather the risk of contagion within the region at large," the Wall Street Journal quotes NUS Consulting Group as saying.

norbert kimar 4 hours ago

"Syria is not a crude oil producer.." the Wall Street Journal.." I thought ISIS etc made $1-2million/day from smuggling Syrian oil.

Nana Akosua -> Baakan Agyiriwah 6 hours ago

LOL, it's all about the war, the fighting, the blood and the gore that makes the stocks rise and the blood boil in delirium. Funny how war makes the cash registers ring and the banksters happy, they don't care who does it, just do it!! what a mad, mad, mad world we live in.

Illya Kuryakin 7 hours ago

So Russia's CIA-Saudi Extermination Policy is paying for itself. Nice!

PeterNZL 11 hours ago

grzeghh

Putin's the man. He scored 7 goals in the ice hockey match in Sochi and that was just
more...

Obama, too, was a skilled athlete. He scored 2000 civilians before winning his Nobel Peace Prize. Remarkable!

[Oct 09, 2015] As oil bust takes hold, Eagle Ford workers losing jobs, pawning goods -

Oct 09, 2015 | www.expressnews.com

Sep 5, 2015 | San Antonio Express-News

Eagle Ford production peaked in March at 1.7 million daily barrels, but then slid six straight months, the U.S. Energy Information Administration reports. The agency expects the field to pump 1.48 million barrels daily in September, still enough to fill 94 Olympic-sized swimming pools every day.

Allen Gilmer, CEO of Austin-based Drillinginfo, said dropping prices chip away at the Eagle Ford.

At $100 oil, most operators can make money.

Because costs for everything from drilling to fracking have come down 30 percent this year, vast swaths of the field still are profitable at $60 per barrel, the oil price for much of the spring.

"The Eagle Ford at $60 a barrel is not a whole lot different than the Eagle Ford at $100 a barrel," Gilmer said.

But crude oil prices around $40 turn the economics of the field upside down, and only 15 percent of the whole field makes money, Gilmer said.

... ... ...

The numbers show an industry fallen on hard times.

The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

... ... ...

Boom-bust cycle
In some ways, Texas still hasn't outrun the long shadow of the 1980s oil bust, an implosion that took down the state economy. So many people left the industry then, never to return, that there's a gap in the workforce. Nearly everyone is old or young. The industry calls it the "great crew change," and it means that a large part of the workforce never has seen a downturn.

,,, ,,, ,,,

Eric Bell of San Antonio energy services umbrella company Group 42, said the U.S. oil business has gone through the stages of grieving this year. "The first quarter was a complete sense of denial," Bell said.

Then came anger and a "bargaining and sad mopey phase" when everyone talked about how oil would pop to $70 or $80 by summer. It didn't. "Now finally it kind of seems like there's a sense of resignation or acceptance," Bell said. "Some companies are just in trouble."

And yet, the familiar grind of the oil patch continued in so many ways. The Eagle Ford this year still is expected to draw $20 billion in industry investment, far more than any other field, says research firm Wood Mackenzie.

Kim Triolo Feil

if only these guys had the foresight to do BTEX blood/urine baseline testing before a workday and then after a workday...nah these companies come and go so even if they had evidence of being exposed...who they gonna sue to pay their cancer bills if that happens down the road?

[Oct 09, 2015] Oil bust

Oct 09, 2015 | jdeanicite.typepad.com

I cite

excerpt from here

The number of drilling rigs working in the Eagle Ford dropped by half in the past year, from 203 to 93. Across the country, more than 1,000 drilling rigs have been stacked.

McMullen County pumped 2.7 million barrels of oil in June, down from 3.6 million barrels the same month last year.

DeWitt County's total property value, much of it based on oil and gas wealth, fell by $1.15 billion this year, down 16 percent.

The Eagle Ford's biggest oil producers have issued a series of gloomy announcements. Houston-based EOG Resources made just $5.3 million in the second quarter, down 99 percent from the same period last year. ConocoPhillips last week said it would lay off 10 percent of its workforce. Marathon Oil Corp. posted a $386 million net income loss for the second quarter.

Dennis Elam, associate professor of accounting at Texas A&M University-San Antonio, said the smaller, more overleveraged shale companies are drilling wells just to pay debt. "They're chasing the water right down the drain," he said.

South Texans track other economic measures - traffic jams on rural roads or the advertised prices for hotel rooms in the region, now as low as $40.

A few years ago, DeWitt County Sheriff Jode Zavesky lost seven employees in three weeks to the oil field. The police academy in Victoria had to cancel classes because everyone was going to work in the oil field instead. "We've got great benefits," Zavesky said. "But a young guy can't buy diapers on great health insurance."

Now, Zavesky has hired some of his old deputies back and said the police academy has seen a bump in enrollment.

He's also seen an uptick in oil field crime - the theft of tools from work sites and people stripping copper from the drilling rigs parked along the side of the road.

Joy Tipton, who owns the Little White House Country Store in Fowlerton, judges the oil market by what time she starts to hear traffic rumbling down Texas 97. The noise used to start around 5 a.m., with trucks hauling sand, water and oil flowing past her place like a mechanical river. In August, it stayed quiet until around 9 a.m.

Blink-and-miss-it Fowlerton, with 62 residents the last time the Census Bureau bothered to count in 2000, hugs the La Salle-McMullen county lines. In recent months, a small restaurant and oil field supply company closed their doors.

That left Tipton as the only one to give unsolicited advice to oil field workers who stop to buy a soft drink or after-work beer: "Don't speed. Don't eat your dessert before you eat that sandwich. There's a police officer down there."

[Oct 09, 2015] How do consumers respond to lower gasoline prices

Oct 09, 2015 | Econbrowser
The evidence thus is that consumers were indeed responding to the most recent price declines the same way they usually did, namely, by spending most of the windfall. The fact that we don't see this as clearly in the aggregate data suggests that the economy has been facing other headwinds that partly offset the stimulus from lower gasoline prices.
Another consumer response to lower gasoline prices is increased consumption of gasoline itself, though these adjustments take more time to develop. U.S. vehicle miles traveled, which had been stagnant while gas prices were high, have since resumed their historical growth.

... ... ...

And the average fuel efficiency of new vehicles sold in the United States, which had been improving steadily through most of 2014, has fallen with oil prices.

[Oct 09, 2015] Goldman Sachs This Oil Rally Is Not Going to Last

Oct 09, 2015 | www.bloomberg.com

Bloomberg Business

Currie claims that the oil glut is now being sustained by production outside the U.S.

[Oct 09, 2015] Free Markets are Fraudulent Markets

Oct 09, 2015 | www.economicpopulist.org

September 7, 2013 | The Economic Populist
How the Financial Elite Con Us into Wanting the Wrong Thing
Competitive or self-regulating market economies promote dynamic creative destruction and rebirth-led by people's needs, wants and desires, thus properly directing economic progress. Historically, competitive market economies are a relatively new economic system, and while very productive, they are not self-sustaining, are unstable and require significant state support and regulation to function properly.

Nevertheless, self-regulating market economies are superior to other political-economic systems-such as dictatorial fascism or autocratic communism-however, the state can mismanage them.

History of Market Economies

Market economies are nonexistent during primitive times, and even during feudal times, markets trade local goods and remain small, with no tendency to grow. External foreign markets carry only specialty items-such as spices, salted fish and wine. Foreign trade does not begin in feudal societies, between individuals, but is only sanctioned by civic leaders-between whole communities.

During feudal times, markets for local community goods do not mix with markets for goods that come from afar. Local and external foreign markets differ in size, origin and function-are strictly segregated, and neither market is permitted to enter the countryside.

Feudal society transitions into the mercantile society of the 16^th to late 18^th centuries, where the state monopolizes the economic system, for the state's benefit. Colonies are forbidden to trade with other countries, and workers' wages are restricted. However, mercantilism proves divisive; fostering imperialism, colonialism and many wars between the Great Powers. Market economies have yet to arrive, and would not do so until after 1790.

During the Industrial Revolution, production processes transition from hand crafting methods that supply only the local community, into mechanized manufacturing; thereby vastly increasing production, driving down costs and increasing wealth. The source of a person's income is now the result of product sales to far-off, unknown customers. Private business entrepreneurs are the driving force pushing the state to institute the market economy, thereby protecting the sale of their goods in far-off lands.

Unfortunately, in practice, market economies result in corporate monopolies. Corporations may use a product dumping predatory pricing strategy, by charging less than their cost to produce, in a specific market, in order to drive weaker, smaller competitors out of business, and then significantly raise prices at a later date, in order to gouge the consumer. If the monopoly is in a vital economic area and the company institutes monopoly pricing to overcharge the consumer, only the state has the power to protect the market economy from monopolistic inefficiencies and break up the offending company; thus reinstituting competitive pricing. As a result, government regulations and market economies develop simultaneously.

Laws & Regulations Are Necessary

Leaving business a free hand, especially when dealing with far off customers, leads to misrepresentations, shoddy practices and fraud. The food industry is an example.

Upton Sinclair writes The Jungle (1906), exposing the disgusting unsanitary conditions in the Chicago meatpacking industry, during the early 20^th century. Public uproar prompts President Theodore Roosevelt to pass the Pure Food and Drug Act of 1906 and the Meat Inspection Act. Roosevelt says that government laws and regulations are the only way to restrain the arrogant and selfish greed of the capitalist system.

Shocking examples of food fraud in 2013 highlight the need for enforcing government regulations. Inspectors uncover corporations selling horse meat as beef, and routinely mislabeling about 40% of the fish served in U.S. restaurants. Cheap rockfish and tilapia are substituted and sold as expensive snapper, and restaurateurs frequently switch escolar for white tuna, causing diners to suffer indigestion.

Over 70% of the tilapia sold in the U.S. is imported from Asia, and only 2% is inspected by the Food and Drug Administration. Much of this Asian farm raised tilapia is "filthy fish," where pesticides and manure run off into the tilapia raising ponds, causing infections. Or the tilapia is raised in polluted Asian rivers. Americans are impairing their health by unknowingly eating filthy Asian tilapia, fraudulently substituted in U.S. restaurants for the healthy fish ordered.

Other fraudulently mislabeled foods include sausage, organic foods, energy drinks, milk and eggs. Without sanitary food preparation standards, set and fairly enforced by the government-Americans will soon return to naively eating rat droppings-so, unknown to them, CEOs can meet Wall Street earnings expectations.

Departments of Weights and Measures (DWMs) at the state and federal level develop "uniform laws, regulations and methods of practice" that impact about 50% of U.S. GDP-to ensure there is equity between buyers and sellers in commercial transactions.

Because gasoline stations routinely pumped less gas then charged for, DWMs now ensure the accuracy of gasoline pumps, octane levels, labeling and restricting water in gasoline. Butchers used to add lead weights to the chest cavity of the poultry sold, prior to weighing, then noiselessly dumped the weights out into an unseen padded draw before the bird was held up for the customer's inspection, thereby swindling their trusting patrons.

Without the state to step in to punish fraudulent wrongdoers, dishonest business practices would be widespread. Consumer trust, in everyday market transactions, is paramount for market economies to function effectively and efficiently-making government regulations vitally important.

Without regulation and transparency, bad businesses drive out good businesses, following Gresham's Law. The economic system then atrophies, with a loss of trust in the marketplace. What is lost is not just the money on an inferior product or service, in the short run, but more importantly, the bad businesses may use their outsized profits to buy political protection and start changing laws, to make new laws favorable only for them-thereby damaging the market economy and reducing the state's economic growth and welfare.

Competitive Market Economies

An economic market system capable of directing the whole of economic life, without out-side help or interference, is called self-regulating. Once the self-regulating or competitive market economy is designed and implemented by the state, to give all participants an equal opportunity for success, the self-regulating market is to be let alone by the state and allowed to function according to laws and regulations, without after-the-fact government intrusions-regardless of the expected consequences.

Those in Western societies are told that competitive market economies, which have self-regulated prices for land, labor and money, set solely by the market, are normal, and that human beings develop market economies on their own, without help from the state, which is the proof of human progress. Also, that market institutions will arise naturally and spontaneously, if only persons are left alone to pursue their economic interests, free from government control. This is incorrect.

Throughout most of human history, self-regulating markets are unnatural and exceptional. Human beings are forced into the self-regulating market economy, by the state. Look at the following false competitive market economy assumptions.

We are told people naturally bartered goods. Actually, human beings, down through history, have no predilection to barter. Social anthropology says that assuming tribal and feudal men and women bartered are rationalist constructs, with no basis in fact. Market economies are the result of often violent government directives, implemented for society's eventual improvement.

The assumption is man is a trader by nature, and that any different human behavior is an artificial economic construct. By not interfering in human behavior, markets will spring up spontaneously. Social anthropology disproves this.

Neoliberal Economic Theory

Originally, neoliberal economic theory means, "free enterprise, competitive markets, the priority of the market price setting mechanism, and a strong and impartial state-to ensure it all functions properly."

The Mont Pelerin Society, led by Dr. Milton Friedman, supports Hayek's economic theories, based on "free market" ideology and help change neoliberal economic theory by rejecting government regulation-calling it inefficient. In addition, financial economists at the University of Chicago School of Business promote the efficient market hypothesis or theory (EMT), supporting the Mont Pelerin Society's conjecture. Thus, the primacy of deregulated or "free markets" becomes mainstream within academe in the 1970s. Large corporations then use "free market fundamentalism" to their advantage, by lobbying the U.S. Congress to pass legislation beneficial to them.

Some think that "free markets" are a matter of degree, and the practical issues of implementation are paramount. This is incorrect, and will not resolve the current "free market fundamentalism" debate. Instead, the real issue is semantics. Notice how quickly those with a political agenda change the debate from "competitive markets," which require state regulations and are highly productive-to "free markets," which result in fraudulent marketplace behavior, crony capitalism and weak economic growth.

Using the term "free markets" is an Orwellian ruse, designed to change the focus in the public's mind from, "those in authority have to do better" to "those in authority know best, therefore, let them have their way."

Today, neoliberal economic dogma promotes "free market fundamentalism" of reducing the size of government through the privatization of government services, deregulation and globalization. Privatization professes to reduce the state's authority over the economy, but state money is used by private companies to lobby legislators, to change laws, which will increase the government's demand for these same private corporation services. Privatization of government services by corporations does not promote the common good, only corporations' private profits.

Neoliberal "free market" economists have doubled down on the failed liberal economic theory, with the ongoing 2008 credit crisis as the result.

Free Markets Are Impractical

"Free markets" are free from state intervention, i.e., unfettered capitalism. Those who understand how markets function realize this is an impractical view-simply a rhetorical device-using the popular word "freedom" to mask its real purpose.

"Free markets" are a fantasy, far outside the realm of practicality, used by wealthy international corporations to bully governments and labor, to get their way. The reality is a competitive market economy requires powerful complex opposing interests, mediated by government, to produce an efficient and effective economy that supplies the most to the many, which includes the common good.

Free Market Fundamentalism Leads To Economic Disaster

Nowhere is "free market fundamentalism" more highly trumpeted by neoliberal economists than in the financial markets. The foundation of neoliberalism is, "a deregulated financial sector will regulate itself efficiently, making better use of capital, thus ushering in a new age of prosperity."

Tragically, the massive deregulation of the financial markets during the Clinton and Bush presidencies, results in the ongoing 2008 credit crisis-which the U.S. Government Accountability Office reports has cost the U.S. economy about $13 trillion dollars in lost GDP output.

"Free market" apologists ingenuously explain the 2008 credit crisis is not caused by "free markets," but because government regulations are not loose enough. All "free market" failures are dismissed by the financial elite, because of cognitive dissonance. Bankers and neoliberal economists want to believe in what is making them richer and more important. This is the same logic used by those in charge in the USSR, when communism failed, "it wasn't being applied purely enough."

Free Market Ideology in Practice

"Free market," ideology, as practiced today, is the opposite of what is stated. Instead, governments step in to save insolvent banks and large international corporations, when they make bankrupting mistakes, and give the bill to the taxpayer. This transforms the difficult but manageable ongoing 2008 credit crisis, into a much larger and dangerous sovereign bankruptcy crisis, with potentially calamitous political consequences.

"Free markets" usher in unfettered capitalism, unleashing the "law of the jungle" and a "dog-eat-dog world" that fosters fraud and corruption. Human beings, no matter their station in life, cannot be trusted to always do the right thing, especially in a competitive situation. Doing away with laws or regulations so those in power know it is impossible to be caught or penalized does not stop them from acting improperly. Only criminal punishment and public disgrace accomplish that.

The resulting "free market" business jungle includes monopolies, coercion, fraud, theft, parasitism, crony cabals and racketeering. Ironically, unfettered "free markets" are not free, but increase injustice, making the economic system inefficient. Only government laws and regulations can keep markets competitive.

The EMT Supporting Free Markets Is Wrong

New scientific evidence on the efficient market hypothesis or theory (EMT), shows University of Chicago School of Business researchers ask the wrong questions, use erroneous data and an incorrect research method to analyze the data, and then jump to false conclusions, based on half-truths-please read further in my journal articles: link, link and link.

The EMT and "free market fundamentalism" are false gods.

Conclusion

Markets are not efficient, based on the data. Consequently, "free markets" have no theoretical foundation. Therefore, reject the incorrect theory of "free market fundamentalism" It is impractical and dangerous, leading us into the ongoing 2008 credit crisis.

Competitive market economies only function properly by having fair laws and regulations, set up and impartially enforced, by a strong state. Dr. Robert M. Solow, 1987 Nobel Prize Winner in Economics and MIT Institute Professor Emeritus says, "The switch to talk about "free" markets diverts attention from these deficiencies and suggests that any attempts at corrective regulation are instead limitations on freedom."

Neoliberal" free market fundamentalists" in business use "free market" ideology as a negotiation ploy. Do not succumb to this ruse. The U.S. requires "competitive markets for economic growth," not "free markets for fraud."

[Oct 09, 2015] Bank Of England Tells British Banks To Reveal Their Full Exposure To Glencore And Other Commodity Traders

See Glencore - Wikipedia: "According to an Australian Public Radio report, "Glencore's history reads like a spy novel".^[14] The company was founded as Marc Rich & Co. AG in 1974 by billionaire commodity trader Marc Rich, who was charged with tax evasion and illegal business dealings with Iran in the US, but pardoned by President Bill Clinton in 2001.^[15] He was never brought before US courts before his pardoning, therefore there was never a verdict on these charges."... "In 2005, proceeds from an oil sale to Glencore were seized as fraudulent, in an investigation into corruption in the Democratic Republic of Congo (Allen-Mills 17 June 2008)" ... "In May 2011 the company launched an IPO valuing the business at US$61 billion^[26] and creating five new billionaires.^[27] Trading was limited to institutional investors for the first week and private investors were only allowed to buy the shares from 24 May 2011.^{" ... "}A BBC investigation in 2012 uncovered sale documents showing the company had paid the associates of paramilitary killers in Colombia. In 2011, a Colombian court had been told by former paramilitaries that they had stolen the land so they could sell it on to Glencore subsidiary Prodeco, to start an open-cast coal mine; the court accepted their evidence and concluded that coal was the motive for the massacre. Glencore refuted the allegations" ... ""In Ecuador, the current government has tried to reduce the role played by middle men such as Glencore with state oil company Petroecuador" due to questions about transparency and follow-through, according to Fernando Villavicencio, a Quito-based oil sector analyst." ... A visual Relationship Map of Glencore executive board and stakeholders with their connections.

Oct 09, 2015 | www.zerohedge.com

Overnight we got confirmation that Glencore has indeed become a systemic risk from a regulatory standpoint after the FT reported that the Bank of England has asked British financial institutions to reveal their full exposure to commodity traders and falling prices of raw materials amid concerns over the impact of the oil and metals slump. Or, in other words, their exposure to Glencore, Trafigura, Vitol, Gunvor and Mecuria.
Dr. Engali

The BOE is trying to figure out who is going to need a bail out before shit hit the fan.
Edit: Oh by the way, that 11% move to the upside is short covering not a sign that Glencore is okay you dumb fucks.
"The shares jumped as much as 11 percent in London". "Analysts promptly cheered the move"...., Idiots.
junction

Why is the Bank of England protecting Stemcor, the mining giant owned by the Oppenheimer family? Former PM Tony Blair is probably the person responsible, protecting MP Margaret Hodge She should have been sent to prison in 1994 for her role in protecting the pedophile ring operating in the London Borough of Islington instead of going to Parliament. Hodge is an Oppenheimer family member who backed Blair.

http://uk.reuters.com/article/2015/04/16/uk-stemcor-restructuring-steel-...

Dubaibanker

Glencore has closed Dubai office. https://www.difc.ae/glencore-investments-dubai-limited

Glencore has closed Singapore http://www.theaustralian.com.au/business/news/glencore-to-close-down-sin...

Glencore has sold Nickel project for pennies in Brazil http://www.reuters.com/article/2015/09/28/us-horizonte-glencore-idUSKCN0...

Glencore has fired hundreds in Australia http://www.abc.net.au/news/2015-10-09/glencore-slashes-queensland-jobs-n...

Glencore will fire thousands in Zambia and shut some operations http://www.reuters.com/article/2015/09/23/us-zambia-mining-glencore-idUS...

Glencore has closed a mine in South Africa and laid off hundreds http://uk.reuters.com/article/2015/10/07/uk-glencore-safrica-idUKKCN0S11...

I have heard they fired hundreds in Zug...does anyone have a link?
Kayman

"The BOE is trying to figure out who is going to need a bail out before shit hit the fan."

More precisely, the BOE is trying to figure out how much money will be needed to stiff the taxpayers on behalf of their swill drinking friends.

kliguy38

Glencore was a massive Ponzi from the start and designed to fail. When it goes it will pull a 2 Trillion in derivatives down its rabbit hole. They know it and they're stalling for another bagman to take the derivatives. gl with that one.

[Oct 09, 2015] Is russian oil production peaked ?

Oct 09, 2015 | peakoilbarrel.com

AlexS, 10/04/2015 at 5:11 pm

RE: Russian oil production statistics from various sources

Ron,

I personally never questioned the reliability of Russian oil statistics. But as you have repeatedly raised this issue, I did a brief assessment of the data from various sources.

The Russian Energy Ministry provides very detailed data on oil + condensate production by each Russian producer on a daily basis. As in Soviet times, these numbers are reported directly by the companies to the Ministry. They can be easily verified as all oil produced is transported by pipelines owned by the state –owned Transneft. Small quantities are processed for internal use by the companies at mini-refineries, but their throughput is also reported to the ministry.

The Ministry reports production in tons without converting it in barrels per day. However other sources (including Russian and foreign oil companies operating in Russia) use conversion ratios at 7.33 and 7.3 for Russian oil production. In the table below I calculate both numbers.
NGL production is reported separately and is not included in C+C numbers.

IEA oil production statistics include C+C+NGLs, however in their recent monthly Oil Market Reports the IEA is also mentioning C+C production for Russia. These numbers are very close to the data provided by the Russian Energy Ministry. In the past, the IEA did not disclose separate numbers for the Russian C+C, and it was first mentioned in the May OMR (p.25):

"Despite sanctions and lower oil prices, Russian producers managed to maintain crude oil output near record levels through April, hovering around 10.7 mb/d since the start of the year. Including gas liquids, Russian output exceeded 11 mb/d in both March and April."

Note, that the IEA works closely with Russia and gets data directly from the Russian Energy Ministry.

The EIA has detailed oil and other liquids production data for many countries and releases it excel format:

(International Energy Statistics, Petroleum Production http://www.eia.gov/cfapps/ipdbproject/IEDIndex3.cfm?tid=50&pid=53&aid=1). This is very useful when you don't have other sources of data. However in many cases the EIA does not get information directly from national sources and uses third party data. Besides these numbers are relatively rarely updated and in some cases look incorrect. For example, their newest international oil production data are for April 2015.

The EIA also publishes "Total liquids supply" data for the key producers in the STEO, where the numbers are updated monthly. (STEO excel file, Table 3b. Non-OPEC Petroleum and Other Liquids Supply).

Note that the updated numbers for Russia in the September STEO are 143 kb/d higher for April and 132 higher for March, compared with the EIA International Energy Statistics. Given that the EIA constantly estimates Russian refinery processing gains at 26 kb/d, we can easily calculate C+C+NGL production estimates up to August by subtracting 26 kb/d from the STEO Total liquids numbers.

As a result, as can be seen from the table below, EIA's C+C+NGL production estimates for Russia are only marginally below the IEA's numbers (the average discrepancy for Jan.-Aug. 2015 is ~40 kb/d).

You can also note that the EIA's estimate for Russia's NGLs output in the first 4 months of 2015 is around 755kb/d, while the IEA's number is only ~350 kb/d. I think that the EIA classifies all or part of Russian condensate production as NGLs, while in the IEA and the Russian Energy Ministry's statistics it is included in the C+C output.

Finally, JODI data is based on national statistics. As it says on its website: "The data are submitted by the national authority of the participating country. These data are considered authoritative and are not subject to alteration by any of the JODI partner organisations." (https://www.jodidata.org/about-jodi/faqs.aspx). Nevertheless, in some cases JODI
data differs significantly from national statistics. JODI does not explain its methodology, and its officials do not respond to emails to comment on why its data differs from figures provided by national agencies.
JODI provides data on both Russian oil and NGL production. NGL data is much higher than IEA's numbers, but slightly lower than the EIA.
JODI data is released with significant delay to the IEA and especially to national statistics. I also noticed that, unlike the IEA, they generally do not update the numbers released earlier. That can partly explain, why JODI numbers for Russia are lower than data from other sources. On average, JODI's C+C+NGL numbers for January-July 2015 are
203 kb/d lower than IEA and 164 lower than EIA.

In general, all serious experts on Russian oil industry use the official numbers provided by the Energy Ministry.

Russian oil production statistics from various sources

shallow sand , 10/04/2015 at 5:33 pm

I think Russian production would be easier to measure given it is much lower decline, there aren't as many companies nor as many governmental agencies measuring it.

It appears to me US data is the most variable and likely inaccurate.

Dennis Coyne, 10/05/2015 at 3:48 pm

Hi Ron,

I think AlexS has solved the discrepancy between the EIA/JODI data and the IEA/Russia data. It is mostly a matter of how pentanes plus should be classified.

The EIA puts some of these(field or wellhead pentanes plus) in the C+C category and the pentanes plus produced during natural gas processing (to produce dry gas to ship to customers) is included in the NGL category. Canada and Russia group all pentanes plus together in the condensate category (which makes perfect sense from a chemistry perspective), this accounts for about a 400 kb/d difference between EIA estimates for Russian C+C and the Russian Energy ministry estimates. The rest of difference might be due to the EIA assuming a different estimate for the density of Russian C+C (possibly they use the density of the Urals blend which would have a reciprocal of 7.25 barrels per metric ton) than the IEA (which uses about 7.31 barrels per metric ton).

AlexS, 10/05/2015 at 10:15 am

Dennis,

In fact, the lighter is the barrel, the more barrels are in 1 ton.
43961 ktons reported by the Energy Ministry for September
is 10741 kb/d with 7.33 conversion ratio
10697 kb/d with 7.3
10551 kb/d with 7.2
10404 kb/d with 7.1
10258 kb/d with 7.0
10111 kb/d with 6.9

As I said earlier, the most widely used ratio is 7.33 (the numbers in Reuters and Bloomberg articles, as well as all Russian statistics by Energy Intelligence, etc.) and 7.3 (apparently used by the IEA)
I also prefer 7.3, as I think the average Russian barrel is heavier than 7.33.

That said, the Russian oil output is getting lighter due to the growing share of new fields in eastern Siberia, Far East (Sakhalin) and some other regions. Thus, according to Platts, the Urals blend API is 31.55 API,
ESPO (East Siberia) is 34.8, Sokol and Vityaz (Far East) are 39.7 and 34.4 API degrees, respectively.
(Source: http://www.platts.com/im.platts.content/insightanalysis/industrysolutionpapers/espoupdate0510.pdf )
So in theory, as the share of lighter crudes rises, the conversion ration should also increase. But I doubt that the IEA, EIA or JODI are changing their conversion ratios.

The EIA and JODI do not specify which conversion ratios they are using for Russia. If they are using 7.2 or 7.1, that could partly explain the discrepancy between their numbers and Energy Ministry and the IEA numbers.

However the key difference is the volume of condensate and NGL output. It seems that JODI and the EIA account most of condensate production as NGLs. Therefore, their NGL volumes for Russia are much higher than the IEA, and their C+C volume estimates are lower than the numbers provided by the IEA.
The IEA normally reports only combined C+C+NGL volumes, but this year they also include C+C production numbers for Russia (in the OMR main text). By subtracting C+C from C+C+NGL we get the IEA's estimate for Russian NGL production at 340-350 kb/d in the past several months. This compares with the EIA's 755 kb/d average monthly estimates (January-April) and JODI's 710 kb/d estimate (January-July).

I think that the IEA's numbers are more accurate, as in 2010 they published a study on global NGL production, where they carefully analyzed NGL and condensate production for the key producing countries using national statistics, as well as information provided by individual companies.
("Natural Gas Liquids Supply Outlook 2008-2015." IEA, April 2010. http://www.iea.org/publications/freepublications/publication/ngl2010_free.pdf )
Here are their numbers for Russia's output levels in 2008:
Condensate: 356 kb/d
"Other NGLs": 180 kb/d
Total NGL and condensate: 536 kb/d

From the IEA report: "The Russian Ministry of Oil and Energy does not report NGLs per se, but they do report LPG and condensate production per company. In this study we have applied the reports of LPG and condensate production per company as a starting point to arrive at a proxy for Russian NGL production. Based on the reported figures at August 2009 the LPG production of Russian gas processing plants was 230 kb/d, while the condensate production was 361 kb/d, a total of 591 kb/d."

In this report, the IEA projected a sharp increase in Russia's "Condensate and other NGLs" production from 536 kb/d
In 2008 to 817 kb/d in 2015. Indeed, as we know now, both condensate and NGL output has increased even faster in the past few years due to: 1) increasing production of wet gas, 2) better utilization of previously flared associated gas, and 3) development of several new gas condensate fields. Thus, in the first quarter of 2015, gas condensate output jumped 18% year on year to 7.86 million tons (~640 kb/d) due to the launch of new production facilities in West Siberia, primarily by Novatek and Gazprom Neft. As per the IEA numbers, NGL output also almost doubled from 180 kb/d in 2008 to 340-350 kb/d in 2015.

Apparently, JODI did not researched as deep as the IEA into the Russian NGL and condensate output, so they account most of condensate as NGLs.
As regards the EIA, their list of sources for International Energy Statistics [http://www.eia.gov/cfapps/ipdbproject/docs/sources.cfm] does not include the Russian Energy Ministry. This is rather strange, as they get data from the national agencies of such countries, as Cuba, Mongolia and others. Apparently their numbers for Russia are based on statistics from JODI, the IEA and the "Russian Energy Monthly, Eastern Bloc Research" (never heard of it).

That said, I do not suspect JODI and the EIA of being biased against Russia. These are just different statistical methodologies.

Ronald Walter , 10/05/2015 at 10:34 am

If you measure 100 cc of oil in a graduated cylinder, since the density, specific gravity, is less than water, 100 cc of oil will weigh less than 100cc of water. 1 cc of agua weighs 1 gram, 1 cc of oil will weigh less than one gram, you will need more oil, a greater volume, to obtain a weight of one gram for the oil.

A metric ton of oil will occupy a volume greater than one cubic meter, more barrels.

AlexS , 10/05/2015 at 11:51 am

Russian crude oil and NGL production (kb/d)
Source: JODI

Longtimber, 10/06/2015 at 3:40 pm

Jan 2012 Refineries came on line (?) Mother Russia keeps the good stuff for value added high density i.e.. Diesel/jet fuel? Russian polymers in the 90's were terrible and next to useless for packaging. Many markets now well supplied with SABIC Polymers. https://www.sabic.com/americas/en/productsandservices/plastics/

AlexS, 10/06/2015 at 4:13 pm

In January 2012 JODI changed its methodology and started treating Russian condensate production as NGL

Stavros H, 10/05/2015 at 7:36 am

No, Russian production is genuinely at an all-time high. It's not like the Russians count Lukoil's production in Iraq as "Russian" LOL!
Consider also that Russia is under sanctions specifically designed by the West to harm its oil output.

Peak-oilers are over-eager to claim that country "X" or "Y" has peaked in terms of oil production. This is often not the case.

The only countries that have peaked in oil production, are the capital rich ones of the West. The reason for that is very clear. Those countries started exploiting their oil reserves earlier, and even more importantly have had the capital and technology to extract even the most marginal of deposits. Even in those cases, ultra-cheap financing can lead to temporary booms (US shale, Canadian sands) even if production takes place at a considerable financial loss.

Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

This also partly explains the current World Crisis that could even escalate into WWIII.

Glenn Stehle, 10/05/2015 at 7:45 am

There's an interesting article in OilPrice on Russia:

http://oilprice.com/Energy/Energy-General/Is-Russia-Plotting-To-Bring-Down-OPEC.html

The author uncritically accepts the myth of the "Great American Shale Revolution," which, as you say, is a play in which "production takes place at a considerable financial loss."

Nevertheless, the take-away is the importance that oil and gas play in geopolitics.

Frugal, 10/05/2015 at 8:51 pm

Countries like Iraq, Iran, Russia or Kazakhstan still have lots of untapped reserves.

Which oil reservoirs are untapped in these countries?

[Oct 09, 2015] Economist's View 'Faith in an Unregulated Free Market Don't Fall for It'

Oct 09, 2015 | economistsview.typepad.com
Robert Shiller continues to phish for book sales:
Faith in an Unregulated Free Market? Don't Fall for It: Perhaps the most widely admired of all the economic theories taught in our universities is the notion that an unregulated competitive economy is optimal for everyone. ...

The problem is that these ideas are flawed. Along with George A. Akerlof ... I have used behavioral economics to plumb the soundness of these notions. ...

Don't get us wrong: George and I are certainly free-market advocates. In fact, I have argued for years that we need more such markets, like futures markets for single-family home prices or occupational incomes, or markets that would enable us to trade claims on gross domestic product. I've written about these things in this column.

But, at the same time, we both believe that standard economic theory is typically overenthusiastic about unregulated free markets. It usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception. ...

Current economic theory does recognize that if there is an "externality" - say, a business polluting the air in the course of producing the goods it sells - the outcome won't be optimal, and most economists would agree that in such cases we need government intervention.

But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality...

david said...

"But the problem of market-incentivized professional manipulation and deception is fundamental, not an externality..."
Glad to see Shiller pushing this line.
But that's true of loads of what gets called externality -- that's the trouble with the term, it presumes some idyllic unregulated market with just a few troubling side effects to regulate away. The markets are made so that certain actors gain rewards and others bear costs, fundamentally. Externality suggests tweaks, but to go back to the Stavins bit from a few days ago, we need to be thinking structure and power.

JohnH said...

An unregulated free market is a recipe for oligopoly and monopoly, the very antithesis of a free market.

pgl said in reply to JohnH...

"The problem of market-incentivized professional manipulation and deception is fundamental, not an externality" goes well beyond anti-trust concerns."

Paul Mathis said...

Unregulated Free Markets Never Existed
Nearly 4,000 years ago the Babylonian King Hammurabi carved onto a large stone a code of laws regulating contracts: the wages to be paid to an ox driver or a surgeon, the liability of a builder for a house that collapses, property that is damaged while left in the care of another, etc. – Wikipedia.

Governments have been regulating and enforcing contracts ever since because no economy can function without such regulation and enforcement. And whenever government regulation is absent, businesses collude to fix prices, divide up markets and drive out competitors thereby nullifying any illusion of "free market" competition.

GeorgeNYC said...

Just ask any "free market" advocate if they believe that the stock market is a good example of their vision for a "free market". They will invariably say "yes" as the stock market is the cathedral of religious capitalism.
Point out to them that the "stock market" is actually one of the most highly regulated "markets" with strict disclosure requirements (enforced by the government) and insider trading prohibitions (also enforced by the government), to name but a few, without which much of our faith in the "market" would be completely eliminated (and whose weak enforcement invariably lead to concerns about fraud). Of course, there are also a huge number of "private" regulations that ultimately have the force of the government behind them in that they allow for exchanges to "self-regulate".
Most people do not understand that force is required to maintain the type of transparency needed to allow the proper information flow necessary to actually have a market work with true efficiency. "Free" is a complete misnomer. "Open" would probably be better term although that does not really fully capture the requirements.

likbez said in reply to GeorgeNYC...

That's brilliant: "the stock market is the cathedral of religious capitalism".
The term "free market" became symbol of faith for neoliberalism and obtained distinct religious overtones. Because neoliberalism is in reality a secular religion. That's why neoliberalism is often called casino capitalism.

And at the same time it is powerful instrument of propaganda of neoliberalism, a very skillful deception that masks what is in practice the advocacy of the law of jungle.

Advocates of "free market" (note that they never use the term "fair market") are lavishly paid by Wall Street for one specific purpose: first to restore and now to maintain the absolute dominance of financial oligarchy which now successfully positioned itself above the law. Kind of return to feudalism on a new level.

Bud Meyers said...

Great posts on this topic:
Free Markets are Fraudulent Markets (by Eric L. Prentis)
http://www.economicpopulist.org/content/free-markets-are-fraudulent-markets-5360
Capitalism Requires Government (7 pages: click through the page links near the bottom of each page):
http://www.governmentisgood.com/articles.php?aid=13

[Oct 09, 2015] Troubles with refinanciang in shale industry

Oct 09, 2015 | peakoilbarrel.com
AlexS, 10/06/2015 at 5:14 pm

Willbros Group amends credit facilities

October 5, 2015
http://www.ogfj.com/articles/2015/10/willbros-group-amends-credit-facilities.html

Willbros Group Inc. has completed amendments to its 2015 term-loan and ABL credit facilities. The amendments establish less-stringent term loan financial covenants beyond the end of the first quarter of 2016 that are designed to address the impact of current market conditions.
Consistent with the company's expected revenue levels for 2016, the ABL commitment has been reduced from $150 million to $100 million, with an accordion feature to expand up to $175 million to accommodate future revenue growth.
These amendments also enable Willbros to proceed with its asset sale initiatives, including the sale of its Professional Services segment, which will allow the company to strengthen its balance sheet through debt reduction.
The amended financial covenants are more aligned with current market conditions and the company's performance objectives, and the amendments approve the sale of certain assets, including discrete assets that it may market in future periods. Net proceeds will be used primarily for debt reduction and secondarily for working capital.
====================================================
PDC Energy extends maturity of revolving credit facility

October 2, 2015
http://www.ogfj.com/articles/2015/10/pdc-energy-extends-maturity-of-revolving-credit-facility.html

PDC Energy Inc. has extended the maturity of its revolving credit facility by two years to May 2020. The borrowing base has been reaffirmed at $700 million of which the company has elected to keep its commitment level at $450 million.
CFO Gysle Shellum stated, "We are very pleased with the support of our bank group and its agreement, given the current market conditions, to not only reaffirm our current borrowing base, but to also extend the maturity of the revolving credit facility by two years. This liquidity and flexibility provides us the ability to continue operating with a clear focus on maintaining favorable debt metrics and executing on our strategic vision of delivering shareholder value through continued production and cash flow growth, and strong returns."
PDC Energy's operations are focused on the horizontal Niobrara and Codell plays in the Wattenberg field in Colorado and on the condensate and wet gas portion of the Utica shale play in southeastern Ohio.
===============================================

Chesapeake amends revolving credit facility

October 1, 2015
http://www.ogfj.com/articles/2015/10/chesapeake-amends-revolving-credit-facility.html

Chesapeake Energy Corp. has amended its five-year, $4 billion revolving credit facility agreement maturing in 2019 with its bank syndicate group.
Key attributes include:
• Facility moves to a $4 billion senior secured revolving credit facility from a senior unsecured revolving credit facility
• The initial borrowing base is confirmed at $4 billion, consistent with current availability
• Previous total leverage ratio financial covenant of 4.0x trailing 12-month earnings before interest, depreciation and amortization (EBITDA) is suspended
• Two new financial covenants include a senior secured leverage ratio of 3.5x through 2017 and 3.0x thereafter, and an interest coverage ratio of 1.1x through the first quarter of 2017, increasing incrementally to 1.25x by the end of 2017.
Chesapeake's credit facility may become unsecured when specific conditions set forth in the credit agreement are met. During an unsecured period, the total leverage ratio would be reinstated and the senior secured leverage ratio and interest coverage ratio would no longer apply. While Chesapeake's obligations under the facility are secured, the amendment gives Chesapeake the ability to incur up to $2 billion of junior lien indebtedness. As of Sept. 30, Chesapeake has $12 million in outstanding letters of credit under the facility with the remainder of the $4 billion available.

AlexS, 10/06/2015 at 5:16 pm

New Source Energy Partners updates on pending borrowing base deficiency

September 29, 2015
http://www.ogfj.com/articles/2015/09/new-source-energy-partners-updates-on-pending-borrowing-base-deficiency.html

New Source Energy Partners LP, due to a pending borrowing base deficiency under its revolving credit facility, will be prevented from paying the quarterly cash distribution on its 11% Series A cumulative convertible preferred units.
"While it was the Partnership's intention to pay this distribution, there are covenants in our credit agreement with our reserve based lending group that prevent our ability to make the payment while in a deficiency," said Kristian Kos, chairman and CEO. "We are not in a deficiency at this time. However, based on initial communication from our reserve based lending group, we expect to be in a borrowing base deficiency after our biannual redetermination takes place in early October, which will prevent us from making a distribution on Oct. 15. We will be working with our lenders to finalize the new borrowing base over the next several days, as well as exploring alternatives to remedy the deficiency to allow the Partnership to resume making distributions on the preferred units as soon as possible."
New Source Energy Partners is an independent energy partnership engaged in the production of its onshore oil and natural gas properties that extends across conventional resource reservoirs in east-central Oklahoma and in oilfield services that specialize in increasing efficiencies and safety in drilling and completion processes.
=====================================================

Bill Barrett reaffirms borrowing base

September 29, 2015
http://www.ogfj.com/articles/2015/09/bill-barrett-reaffirms-borrowing-base-sells-certain-uinta-properties.html

Bill Barrett Corp.'s (NYSE: BBG) semi-annual borrowing base review has been completed with the bank group reaffirming the $375 million borrowing base related to its revolving credit facility maturing in April 2020. The credit facility has $375 million of commitments and there are currently no borrowings under the credit facility.
As part of the redetermination process, the company and its lender group agreed to amend the maintenance covenants in the revolving credit facility by replacing the leverage covenant limiting the maximum total debt to trailing 12-month EBITDAX ratio of 4.0x with a covenant limiting the maximum senior secured debt to trailing 12-month EBITDAX ratio of 2.5x through March 31, 2018, after which the leverage covenant reverts to a maximum total debt to trailing 12-month EBITDAX of 4.0x, as of June 30, 2018. In addition, an interest coverage ratio requirement was included, pursuant to which the ratio of EBITDAX to interest expense may not be less than 2.5 to 1.0 for each quarter through March 31, 2018.
=======================================================

Approach Resources confirms reaffirmation of lender commitments in credit facility at $450M

September 28, 2015
http://www.ogfj.com/articles/2015/09/approach-resources-confirms-reaffirmation-of-lender-commitments-in-credit-facility-at-450m.html

Approach Resources Inc. has completed the scheduled semiannual borrowing base redetermination of its revolving credit facility, and as a result, the bank group has set the lender commitment amount and borrowing base at $450 million.
Under the terms of the credit agreement, the bank group redetermines the borrowing base semiannually, using the banks' estimates of reserves and future oil and gas prices. The next borrowing base redetermination is scheduled to occur by April 1, 2016. As of Sept. 24, Approach had $276 million outstanding under its revolving credit facility, resulting in liquidity of $177 million.
Approach Resources is an independent energy company focused on the exploration, development, production, and acquisition of unconventional oil and gas reserves in the Midland Basin of the greater Permian Basin in West Texas.

AlexS, 10/06/2015 at 5:17 pm

Enterprise increases capacity of bank credit facilities to $5.5B

September 17, 2015
http://www.ogfj.com/articles/2015/09/enterprise-increases-capacity-of-bank-credit-facilities-to-5-5b.html

Enterprise Products Partners LP's operating subsidiary, Enterprise Products Operating LLC, has increased its bank credit facilities by $500 million to provide the company with up to $5.5 billion of aggregate borrowing capacity.
The facilities consist of an amended $4 billion multi-year revolving credit agreement that matures in September 2020 and a new $1.5 billion 364-day revolving credit agreement, both of which are unconditionally guaranteed by Enterprise on an unsecured and unsubordinated basis. As of today, aggregate available borrowing capacity under the increased bank credit facilities is $4.7 billion.
==================================================

Gastar borrowing base maintained at $200M

September 1, 2015
http://www.ogfj.com/articles/2015/09/gastar-borrowing-base-maintained-at-200m.html

Gastar Exploration Inc. has completed its second scheduled borrowing base redetermination of its revolving credit facility for 2015 and, as a result, the borrowing base has been reaffirmed by the lending participants at $200 million.
Currently, Gastar has drawn $65 million under its revolving credit facility, resulting in $135 million of unused borrowing capacity. The next scheduled borrowing base redetermination is to occur by May 1, 2016.
Gastar's principal business activities include an emphasis on unconventional reserves, such as shale resource plays. In Oklahoma, Gastar is developing oil-bearing reservoirs of the Hunton Limestone horizontal play and expects to test other prospective formations on the same acreage, including the Meramec shale play (middle Mississippi Lime) and the Woodford shale play, which Gastar refers to as the STACK play. In West Virginia, Gastar is developing liquids-rich natural gas in the Marcellus shale play, and has drilled and completed two dry-gas Utica/Point Pleasant wells on its acreage.
========================================

RSP Permian completes bolt-on Midland Basin acquisitions and increases borrowing base

August 26, 2015
http://www.ogfj.com/articles/2015/08/rsp-permian-completes-bolt-on-midland-basin-acquisitions-and-increases-borrowing-base.html

RSP Permian Inc. closed an amendment with the lenders under its revolving credit facility that, among other things, increases the borrowing base 20% to $600 million. The company currently has no amounts drawn under its revolving credit facility and the next scheduled borrowing base redetermination is May 1, 2016.

AlexS, 10/06/2015 at 5:21 pm

Exterran Holdings secures financing to enable spin-off of businesses

October 6, 2015
http://www.ogfj.com/articles/2015/10/exterran-holdings-secures-financing-to-enable-spin-off-of-international-services-and-global-fabrication-businesses.html

Exterran Holdings Inc. (NYSE: EXH) has provided an update to the planned financing in connection with its previously announced separation.
In November 2014, Exterran Holdings said that it intends to separate its international contract operations, international aftermarket services, and global fabrication businesses into a stand-alone, publicly traded company named Exterran Corp. Upon completion of the spin-off, Exterran Holdings, which will continue to own and operate its contract operations and aftermarket services businesses in the US, will be renamed Archrock Inc.

As previously announced, Exterran Corp. entered into a $750 million revolving credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Corp. amended and restated the credit agreement to provide for a new $925 million credit facility, consisting of a $680 million revolving credit facility and a $245 million term loan facility. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 2.75%. The term loan will carry an interest rate of LIBOR plus 5.75%, with a 1.00% LIBOR floor.

Availability under the new credit facility is conditioned upon the completion of the separation and the satisfaction of certain other customary conditions. The revolving credit facility will mature five years after the effective date of the separation transaction, and the term loan facility will mature two years after the effective date of the separation transaction.
The new credit facility includes, among other covenants, financial covenants requiring Exterran Corp. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 3.75:1.00. Should Exterran Corp. refinance the term loan facility with the proceeds of certain qualified unsecured debt or equity issuances, the financial covenants in the revolving credit facility will be modified to require that Exterran Corp. maintain a total leverage ratio of not greater than 4.50:1.00 and a senior secured leverage ratio of not greater than 2.75:1.00, while the interest coverage ratio will not change. Such capitalized terms are defined in the amended and restated credit agreement.
In connection with the spin-off, Exterran Holdings anticipates that Exterran Corp. initially will borrow under its new credit facility and transfer an amount of proceeds to Exterran Holdings which, when taken together with the proceeds from borrowings under the Archrock credit facility as described below, will enable Exterran Holdings to repay all of its existing indebtedness.
As of June 30, on a pro forma basis after giving effect to the spin-off, Exterran Corp. would have borrowed and transferred to Exterran Holdings approximately $539 million. Subsequent to June 30, and prior to the completion of the spin-off, Exterran Holdings expects to incur additional borrowings under its existing credit facility of between $40 million and $50 million to finance expenses related to the completion of the spin-off, which will increase the amount that Exterran Corp. borrows under its new credit facility and transfers to Exterran Holdings.
Also, Exterran Holdings entered into a $300 million credit facility on July 10 that would become available upon the completion of the separation and the satisfaction of certain other conditions. On Oct. 5, Exterran Holdings executed a first amendment to the credit agreement that, among other things, increases the aggregate commitments under the revolving credit facility from $300 million to $350 million. The revolving credit facility includes, among other covenants, financial covenants requiring Archrock Inc. to maintain (after the separation) an interest coverage ratio of not less than 2.25:1.00 and a total leverage ratio of not greater than 4.25:1.00 (except that the maximum total leverage ratio during a specified acquisition period will be increased to 4.75:1.00), as those capitalized terms are defined in the credit agreement. The revolving credit facility will have an interest rate subject to a leverage grid with an expected initial interest rate of LIBOR plus 1.75%.

[Oct 09, 2015] WTI Crude Tops $50, Energy Stocks Soar To Biggest Week Since 2008 (But Credit Aint Buying It)

"... output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees lower for longer suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed. ..."

"... at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez. ..."

"... ..."

Oct 09, 2015 | www.zerohedge.com

Zero Hedge
WTI Crude is back above $50 to its highest in almost 3 months following a 10%-plus gain on the week (the 2nd best since Jan 2009). This surge has sparked the biggest surge in European and US Oil & Gas stocks since 2008 as Bloomberg notes, output from the world's biggest consumer drops and Shell and PIMCO claim the worst may be over (while Goldman sees "lower for longer" suggesting this rally is a squeeze). However, while Energy stocks and raw materials are soaring, credit markets remain notably less impressed.
... ... ...

As Bloomberg reports,

Oil may rise to a "baseline" of about $60 a barrel in one year's time as the impact of supply cuts becomes more evident from early 2016, Greg Sharenow, an executive vice-president at Pimco, said in an e-mail. U.S. crude output is down about 440,000 barrels a day from a four-decade high of 9.61 million barrels in June.

Still, companies remain cautious after a rally earlier this year was shortlived. While production cuts may help draw a line under the rout, prices are set to remain "lower for longer" because of excess inventories, according to Pimco, which manages $15 billion of commodity assets. Shell plans for a long stretch of low prices, Van Beurden said this week in London.

"People could be thinking, how much worse can it get from here, so there's a rotation from short positions to long," Michael Powell, a managing director of investment banking at Barclays Plc, said in London this week. "Then you ask, is this the spring of this year all over again?"

buzzsaw99

at $50 big oil will maintain dividends and bonuses but cut capex to the bone. kick the can bitchez.

Herdee

Suckers rally, just manipulated like all markets in order to give big oil in the U.S. the chance to hedge on the downside for winter recession. All the crooks on Wall Street need another load of suckers for a big fat pay check before Christmas.

LawsofPhysics

Who gives a shit about paper bullshit?
Some people will have access to the calories and commodity chemicals required to maintain a decent standard of living. Most will not.
Same as it ever was...

[Oct 09, 2015] Problem of toxic water disposal in shale industry

"... An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer. ..."

"... If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone". ..."

"... Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil. ..."

"... He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry. ..."

"... I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old. ..."

"... I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff. ..."

"... So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%. ..."

"... Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense. ..."

Oct 09, 2015 | peakoilbarrel.com

Old Farmer Mac, 10/04/2015 at 1:05 pm

... ... ...

An oil crisis is eventually inevitable -- and it is inevitable that the oil will be burnt – somewhere. Where doesn't matter in environmental terms. The best imo we can hope for politically is to slow down oil consumption so it lasts a little longer.

We have a somewhat better shot at limiting coal consumption because wind and solar power plus gas can be readily substituted for coal.

This comment is about what WILL be rather than what OUGHT to be.

Ovi, 10/04/2015 at 8:00 pm

... ... ...

If Ron is right about Peak oil happening shortly, i.e. within a year or two, the tune might change. To quote OFM "In the event of a real crisis we may wish like hell for a non existent Keystone".

If the environmental lobbies were really concerned about CC, they should be pushing for a North American approach on how to deal with all oil production, not just focused on Canadian oil.

SRSrocco, 10/04/2015 at 1:58 pm

Ron & Group,

Maybe some of you that are working in the field can add to this. I had a phone conversation with a fella who has been looking for oil in Texas, Louisiana and Oklahoma for the past 30+ years. Says… he knows just about everyone looking for conventional plays in his neck of the woods.

Told me something very interesting. He said, that he and other guys in his industry aren't drilling for oil, but rather some were drilling "Water Injection Wells." Says, companies have to continue drilling these deep wells to get rid of the toxic water that comes from extracting oil, especially shale oil.

Says this could become a big issue going forward as the EPA may start cracking down on this further. He also says as shale wells get older and lose production it becomes even less commercially viable to keep the well pumping when they have to inject higher volumes of water back into the ground that are coming via the shale oil industry.

Would love to see if anyone else here can comment on this.

shallow sand, 10/04/2015 at 2:19 pm

Depends on the well.

Bakken wells seem to produce less water as they age. Mississippian production in KS and OK seems to have a high water cut, making same uneconomic. EFS and Permian more of a mixed bag.

Earthquake issues arise from these wells, not from the frac itself.

shallow sand, 10/04/2015 at 2:57 pm

Steve. I'm not entirely sure on water cut in Bakken, seems it does vary well to well.

Just as with any other oilfield, some wells are better than others.

As I have pointed out here many times before, OPEX per BOE usually is lowest immediately after the well is completed, especially if it is flowing.

I thought ROCKMAN'S post on peak oil.com, which Jeffrey referred to here recently was very telling. Something like 30% of the EFS wells completed in July, 2014 are presently shut in. That is a terrible percentage. Peruse the monthly ND well production report. Lots of shut in wells in ND too. Many are not Bakken, but quite a few are, which is not good considering the play is not ten years old.

LTO economic issues are coming home to roost. Just hard to say how much longer banks and investors keep propping it up.

I'd say a company such as Whiting is not looking good right now. SEC PDP PV10 will be less than long term debt at year end, production is falling, still cash flow negative and still must drill and complete wells to keep production from falling of a cliff.

However, no personal liability for debt and hype can keep extend and pretend going for a long time, maybe long enough to kill a lot of other high cost production.

SRSrocco, 10/04/2015 at 3:17 pm

shallow,

I couldn't agree more about your assessment of the current state of affairs in the U.S. Shale Oil Industry. Actually, I have found out a lot of data by reading many of your comments here in the blog. I have been a bit low-key in commenting lately, but I still enjoy reading many of Ron's posts and comments.

As you may be aware, I have my own blog, https://srsroccoreport.com/ . It's a precious metal website that includes energy into the mix. Energy is excluded by most precious metal analysts… which I find completely frustrating to say the least.

While some label me a Gold or Silver Bug, I look at the precious metals as stores of economic energy… whether that be oil, gas, coal or human-animal labor. I agree that the "Extend & Pretend" model has been going on longer than most realized. However, when it finally cracks, I would stand very far away from anything tied to debt… STOCKS, BONDS, REAL ESTATE and etc.

So, it will be interesting to see how things play out this fall if we finally get the Stock Market Crash from hell.

steve

Dennis Coyne, 10/06/2015 at 11:25 am
Hi Shallow Sands,
They started drilling in the Bakken in 1953. Very few wells that started producing in 2007 have stopped producing, only 3% in the Bakken/Three Forks. For wells starting production in 2008 about 5% of wells have stopped producing, for 2009 wells 3% have stopped producing.

I define "stopped producing" as 12 months or longer of zero output counting back from the most recent month reported. I used the data through Feb 2015 so these numbers may have changed somewhat over the past 8 months.

I question whether Rockman used a reliable method for reporting on the Eagle Ford. In many cases the RRC will report output as zero when the company has not yet reported output for a lease (or the data is pending review for accounting reasons), Drilling info gets its data from the RRC and the data is not very complete. The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.

Ron Patterson , 10/06/2015 at 1:21 pm
The 30% of wells that Rockman claims have stopped producing in the Eagle Ford may just be an artifact of this incomplete data.
I really don't think so. Rockman wrote:

So to summarize: of the 129 EFS wells that began producing in July 2014: 40 wells (31%) suffered a 100% decline rate per year. Actually it's higher since not all produced for the entire 12 months but I'll let that slide: there were 4 wells that stopped producing after a month or so and only recovered less than 6,000 bo each. And the 89 wells still producing in July 2015: they have suffered a decline rate of 73%.

I don't think Rockman would make such a silly mistake as you suggest. It appears to me that he is tracking each well and the 40 that dropped out did so at different times and simply never returned to production.

Dennis Coyne, 10/07/2015 at 11:43 am
Hi Ron,
I don't have access to the Drilling info database so perhaps you are correct. I am very skeptical of Rockman's claims. I think he assumes that because output is reported as zero, that the output is in fact zero.

I followed some Eagle Ford wells for a while and the "missing output" is often just delayed reporting which shows up later. For a better test Rockman would have to look at wells that started producing in July 2013 and see how many of those wells were still producing in July 2014, that would avoid most of the delayed reporting artifacts.

If he did so he would probably find that 5% or fewer wells had stopped producing (where this is defined as zero production for 12 consecutive months or more).

Rune Likvern, 10/04/2015 at 4:22 pm
Steve and FWIIW,
In December 2014 I presented an analysis based on work by Enno and I that showed actual developments for water cut for LTO wells in Bakken (lots of charts).
General trend is that water cut (and GOR) increases as the LTO wells ages.
http://fractionalflow.com/2014/12/11/will-the-bakken-red-queen-outrun-growth-in-water-cut/
shallow sand, 10/04/2015 at 5:18 pm
Rune. Thanks! I thought maybe you had addressed this.
I think an interesting exercise related to the high decline and increasing water cut would be to assume a company, such as Oasis, we're to cease all drilling, completion and refrac work.

Is there any way OAS, who I think is 100% ND and MT, could come close to retiring debt at the present strip.

I would note OAS is attempting to sell all of its non-Bakken/TF acreage and production.

A confidentiality agreement is required to view the data. The public data indicates 625 BOEPD from 95 wells. I looked at MT site, several wells are shut in. Looks the same for ND.

I read the article Jeffrey linked comparing LTO wells to water soluble houses. I can't really tell what is better for these companies. Keep drilling at a loss or stop and try to pay down debt. What a deal.

Might be amusing if we weren't in a pickle with much of our production also.

Jeffrey J. Brown, 10/05/2015 at 6:42 am
A rough metaphor for the shale players is the book and movie "Thinner," by Stephen King. A gypsy places a curse on the lead character, who weighs about 300 pounds. No matter how much he eats, he loses weight, and only by consuming vast quantities of food per day is he able to minimize the weight loss.
Rune Likvern, 10/05/2015 at 8:15 am
shallow,
I posted the chart below some weeks ago.
The chart shows Oasis credit and debts stacked (columns) along their retirement profile (time axis) and the growing lines (using October-15 as baseline) shows estimates on Oasis cumulative net cash flow with oil prices at respectively $50/b and $70/b [WTI] and no wells added post October-15 (this causes a steep decline in LTO production).

The chart assumes that the credit facility is fully utilized by October 2015.

With average oil price of $50/b Oasis may clear the first hurdle, the second one (due Feb 2019 becomes challenging).
With average oil price of $70/b Oasis may find it difficult to meet debt retirements as from 2022.

How oil prices develop is a big if, but I expect these to be low for some time. The other thing is possible rollovers of debts.
To me the best strategy in a low oil price environment would be to stop drilling (LTO) wells that has the prospects of becoming unprofitable [due to the high front end loaded production]…..and pray for a higher oil price.

Fred , 10/04/2015 at 2:20 pm

EPA's regulations require that all onshore "produced water" be reinjected, very few exceptions. Of course, as well age, the water cut increases and reinjection becomes a significant cost factor.
Boomer II , 10/04/2015 at 2:45 pm

Says this could become a big issue going forward as the EPA may start cracking down on this further.

Given the corporate and political opposition to the EPA, I can envision waste water wells being regulated at the state level.

Oklahoma Acts to Limit Earthquake Risk at Oil and Gas Wells – The New York Times

Watcher, 10/04/2015 at 2:59 pm

Noted last post, I suspect we have underestimated OPEX for shale out years. Lower oil output means the onsite tanks fill slower to be off loaded by less frequent truck visits.

But the trucks for production water still have to make the trip to drain the faster filling water tanks.

John S, 10/04/2015 at 9:49 pm

SRSRocco,

A water injection well is a different animal to me than a "water disposal well". An injection well is used in field operations to maintain reservoir pressure by injecting water or reinjecting gas into the reservoir and would be drilled by the operator not a third party service provider. Water would probably have to be treated chemically before injecting into a reservoir.

A salt water disposal well is used to dispose of produced water that is a by product of field operations. Often these are drilled and operated by 3rd party service contractors but many times an operator will drill and operate its own disposal wells.

In Texas, the general rule is that produced salt water from one surface tract can not be disposed of on a another surface tract without the consent of the surface owner. Consent is generally given in return for a per barrel fee. It is my experience, that operators take advantage of surface owners in this regard especially when the surface owner is absentee. Other times the surface owners operate these wells as a business and accept produced water from many different operators.

Some surface owners also sell fresh water to operators as a business too.

Large unitized fields generally have their own disposal wells for produced water and the operators run them as part of the unit operations.

Many salt water disposal operators try to convert old abandoned wells into disposal wells. There has to be a formation with enough porosity and permabilty to take the water either on a vacuum (which is the ideal situation) or on a pump which takes a lot of electricity to operate.

shallow sand , 10/04/2015 at 10:58 pm

John S, good comment.

How much electricity it takes to dispose of produced water makes a big difference in well economics right now.

In my experience, it takes more pressure, and thus more electricity, to inject water in the producing zone, as opposed to disposing of water in the most suitable non-producing zone.

Electric expenses are only second to labor in most water floods IMO, and many times can even be higher than labor. However, chemicals also are a major expense.

Having a salt water disposal well that can take a lot of water on a vacuum or at low pressure can be an asset. I have recently seen some commercial disposal wells for sale, with monthly net income as high as $30K.

A good water supply well is also very useful in water flood operations. However, very important that the water can easily commingle with water in the producing zone. Otherwise, tremendous chemical expense and/or down hole problems may result. Also, tends to clog lines.

I would say most US water floods are not doing well economically at present. In the last thread had a discussion about an MLP, Mid-Con, and their expenses.

Many MLP are heavy into water floods. Also, think OXY and Chevron are big water flood players in the Permian, in addition to CO2 floods. I think many CO2 floods originally were water floods.

MBP indicated secondary and tertiary production is still profitable in the Permian. Would be interested to see OPEX, taxes and G&A for some of the larger water and CO2 floods.

Kinder Morgan has two of the largest CO2 floods in SACROC and Yates. Might see if they break out those costs. I think they have an advantage in that they own a lot of CO2 transmission lines.

[Oct 09, 2015] Possible super spike in oil prices

"... CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand. ..."

"... In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market. ..."

"... Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me. ..."

"... I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct). ..."

Oct 09, 2015 | Peak Oil Barrel
AlexS, 10/06/2015 at 12:09 pm
Dennis,
You said: "Here is the problem if OPEC follows the path that you suggest. CAPEX cutbacks will bite hard after a lag period and supply will be unable to meet demand which may lead to a super spike in oil prices, followed by recession and lower demand."

In my view, that might happen not earlier than the beginning of next decade. There is still a surplus in the market of around 2 mb/d. It would take time before it is erased. As prices start to rise again, there will be additional supply from Iran, Iraq and Brazil. Libyan oil will also eventually return to the market.

Finally, while LTO output might indeed "begin to crash in 2016" if oil stays below $50, the shale industry will not be killed. After all, the necessary infrastructure remains in place; there is a vast fleet of drilling rigs and fracking equipment. Some companies might go bust, but their assets will be bought by bigger and stronger players. Financial markets will be cautious and access to capital for LTO producers will be more difficult, but it will not be cut. I agree that "LTO may not rebound as fast as some believe", but I think it will take no longer than 6 to 9 months. If and when WTI reaches $65 LTO industry will show first signs of life, and at $75-80 it will resume steady growth.
Annual growth rates of 1 mb/d are in the past, but 500 kb/d are quite possible, probably not for 7-8 years, as Mark Papa says (see Ron's link below), but at least for 4 -5 years.

Super spikes in oil prices are possible in the future. The oil industry is cyclical and is known for big fluctuations in prices. But I do not think that potential price spikes in the next decade is what is seriously worrying the Saudis at this moment. So their decision not to cut output now seems quite logical to me.

Dennis Coyne, 10/07/2015 at 12:21 pm
Hi AlexS,
Well if your assumptions about new oil coming to market are correct then there will be no danger of a superspike in oil prices.

I don't think $70/b oil will cause a lot of new output to come to market. The Saudis export about 8.8 Mb/d of crude and petroleum products, an extra $20/b amounts to $176 million per day or $64 billion per year.

For all of OPEC about 27 Mb/d of crude plus products are exported, so raising oil prices by $20/b increases revenue by $520 million per day (assuming 1 Mb/d lower output) or about $190 billion per year.

The oil market may adjust very smoothly in the absence of any cartel action, but this will be historically unprecedented.

I have a little faith in markets, but you must be a true believer in free markets. I am not, markets need some regulation and in the absence of the RRC or OPEC, the oil market will be Volatile.

Rune Likvern, 10/06/2015 at 3:45 pm
Shallow,
I am much on the same page as AlexS here.
It is hard to know what OPEC's true objectives are; there is a lot of chatter in the media.
I noticed KSA recently (again) cut the price to some of their Asian customers.
A lower oil price stimulates consumption (demand) and there are some new developments that still may grow the supply side. Then there is Brazil, Iran, Iraq and Libya (to name some).

To me the big unknown is how demand, especially in emerging Asian economies develops and the slowdown in China's imports of commodities (iron ore, coal, nat gas etc) are signs of a slowing economy. China has been pulling their neighbors, so as China slows so will others.

If one follow the commodities flows to China through the Chinese factories the end products normally ends up with consumers all over the world. Lower commodity prices may be a sign about consumer's general financial health (a demand issue). These are indicators that may be helpful in understanding directions for global oil demand.

There are also some reports about China now filling their strategic petroleum reserve. In other words, what one needs to do is break the demand into consumption and stock build.
OECD has a huge (and growing) stock overhang which needs to be worked through.

Now I hold it 70+% probable that OPEC will not cut during their next meeting later this year.

Dennis Coyne , 10/07/2015 at 1:22 pm
Hi Rune,
Interesting.

I would think that $50/b will not result in a lot of new oil coming from Brazil, Iraq is in chaos, Libya about the same so probably not a lot of new supplies coming from any of those 3. We might see some new output from Iran, the question for me is will this offset the declines in Canada, US, and the North Sea due to CAPEX cutbacks. You are correct that there are a lot of stocks out there, so any danger of a spike in oil prices is minimized by the excess stocks (roughly 250 million barrels based on OPEC's Monthly report in September).

I believe that Canadian oil sands and US LTO output will fall faster than OPEC anticipates and may bring supply and demand into balance by June 2016 (assuming OPECs demand forecast is correct).

The slowdown in China may be positive for many Asian nations that compete with China exporting their products to other nations, but only if there is not a bigger fall in exports to China than the increase in exports to other nations. The fall in the value of the Yuan in August may help China's exports.

Most economic forecasts have World growth at about 3% in 2015, these are not much better than long term weather forecasts so we will find out in time.

One thing I would say is that if AlexS and Rune agree on a forecast of the oil industry, it is likely correct.

On the other hand Jeffrey Brown and Steve Kopits seem to think the oil market will become tight sooner rather than later.

I just don't know what the future will bring.

AlexS, 10/07/2015 at 1:49 pm
Dennis,
IEA, EIA and OPEC forecast that supply and demand will be balanced by 4Q 2016 ,
and they anticipate relatively modest increase in Iran supply and no increase in Libya.
That means that global crude and products inventories will continue to increase for at least the next 3 or 4 quarters, although not as fast as in the first half of 2015.
Once the balance is reached and then demand starts to exceed supply, it will take time before the excess volume of inventories is wiped out.

[Oct 09, 2015] Open Thread, Oil and Gas

"... Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term. ..."

"... Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another. ..."

"... Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve. ..."

"... We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI. ..."

"... That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.) ..."

Oct 09, 2015 | peakoilbarrel.com

Oct 04, 2015 | Peak Oil Barrel

Longtimber , 10/05/2015 at 12:47 pm

Gotta wonder bout such an Ad in an article titled "us-shale-oil-industry-will-simply-vanish"

Most Likely it's the Investor that will vanish – the oil industry will be "right sized" when forced focus on fundamentals. Sad.. but the Ad title … OIL BOOM is spot on.

shallow sand, 10/05/2015 at 3:50 pm

Seems like that add pops up a lot. With WTI averaging about $46 for Q3 and right there yet today, seems like OIL BUST is now the more appropriate term.

Oil production and related liquids is generating about $5 billion per day less worldwide than it did in the 2012-2014 time frame. Big transfer of funds from one group to another.

KSA realizing around $180 billion less on an annual basis. Wonder how long before they feel backed into a corner enough to do something. Looks like Russia may outlast them, as KSA is pegged to dollar and Russia isn't.

Maybe Jeffrey can send KSA royals some good bean dish recipes and some free ice cream cone coupons from DQ. LOL!!

AlexS , 10/05/2015 at 4:47 pm
shallow sand,
Saudi Arabia, with its huge foreign reserves, could withstand for 3 or 4 years at $50 oil. By that time, prices will improve.

shallow sand , 10/05/2015 at 7:14 pm
AlexS. KSA could go longer than that as I assume many banks would be willing to loan them money with reserves as collateral. They also could issue many more billions of unsecured bonds.
However, OPEC did not go years without cutting in 1986, 1999 and 2009.

Each time the cut worked. The price went up significantly. 1986 was not as successful as the other two cuts.

I may be wrong, but for US producers, it is likely the only hope.

AlexS, 10/05/2015 at 8:49 pm

shallow sand,
In 1986, OPEC actually started increasing production after unsuccessfully trying to stabilize prices by cutting output over the previous 5 years. Their market share dropped from 45.4% in 1979 to 27.6% in 1985, but was constantly increasing from 1986 and has reached 41.9% in 1998. Over the whole period prices remained low (with only a short spike during the Gulf war in 1990). But, for OPEC countries, this was partially offset by the increased production volumes from 15.9 mb/d in 1985 to 30.7mb/d in 1998 (almost twice).

shallow sand, 10/05/2015 at 10:45 pm
AlexS.
I am just looking at history regarding a cut. The past may not be repeated, I agree.

1985-1986. WTI dropped 62.4% from 11/85 to 7/86, from around $31 to $11.50. In November, 1986, OPEC set a target price of $18. 1/87 WTI averaged $18.65. By 7/87 the average was up to $21.34. I do agree the price collapsed again in 1988, but recovered. The price typically was 60-70% of the $31 high in 1985 until the 1998 collapse.

1998-1999. The price dropped approximately 55% from late 1997 to 12/98, when the monthly average was $11.35. I remember that very well. Glum Christmas Party. We were at $8 and change. 3/23 OPEC announced 2.2 million barrel cut. 7/99 average $20.10. 12/99 average $26.10.

2008-2009. Price dropped 71%. June, 2008 average $133.78. February average $39.09. OPEC announced stages of cuts, 500K 9/08, 1.5 million 10/08, 2.2 million 12/08. By 6/09, monthly average 69.64. By 12/09, $77.99

2014-15. Price dropped almost 64% from June, 2014 to August, 2015. June averaged $105.79. August, 2015 averaged $42.87.

Maybe OPEC will not cut in December, 2015. Going by history they will soon. They have not let things go more than 18 months from the peak in the past. 12/4 meeting will be at 18 months from June peak.

Go read news stories from 1986, 1999 and 2008-2009. KSA was concerned about the price each time and stated such. Things are not peachy, contrary to both KSA and Russia official mantras.

Again, I could be wrong, just looking at history. Otoh, maybe lower for longer is needed to stifle the ridiculous North American CAPEX. When reading stories from late 2008, COP had announced a CAPEX budget cut of 18% to $2.8 billion for 2009. By 2014 the CAPEX budget had ballooned to over $17 billion. COP, of course, is a big player in tar sands and all major US LTO plays, so would be a good proxy for "out of control spending.".

shallow sand, 10/05/2015 at 10:56 pm

AlexS
We could live with 60-70% of the 6/14 high for quite awhile, which would be $63-74 WTI.

Apparently at this time the crude market does not believe this is enough to stifle North American (sans Mexico) production.

What do you think about this price range from maybe 7/16-12/20? Where do you see LTO in that scenario?

Dennis Coyne , 10/06/2015 at 9:53 am

Hi Shallow Sands,
That price range sounds about right for 2016, but I think we may see it creep up by 2017 (maybe at a 5 to 10% annual rate of increase) because those prices will not be enough to encourage much investment so demand will outstrip supply and drive oil prices up. I think it likely we will see $100/b by 2018 (possibly higher), if the peak has arrived by 2018 (and output is either on a plateau or slowly declining) then oil prices may head to about $150/b within 3 to 5 years, though a recession would put a damper on the oil price rise eventually (within 1 or 2 years of reaching $150/b is my WAG.)

Others predict a permanent recession (or very slow growth) due to high debt levels.

If that hypothesis is correct, the future economic outlook is indeed very grim, even in this scenario supply would decrease faster than demand (due to low prices and lack of investment) and oil prices would eventually rise (probably not until 2020), but at a slower rate of increase maybe reaching $100/b in 2025.

I don't find the excess debt story very compelling, but many do.

AlexS, 10/06/2015 at 9:41 am

Shallow sand,
Parallels with 1985-86, 1998-99, 2001-02 and 2008-09 may lead to erroneous conclusions.

Sharp oil price declines in 1998-99, 2001-02 and 2008-09 were caused by cyclical demand reduction during global recessions. It was relatively easy, for OPEC, to support prices by cutting output, as demand quickly rebounded. OPEC restored production levels in a few months and didn't lose its market share.

By contrast, oil price decline in the 80s was due not only to a deep recession (1980-83), but also to long-term trends triggered by the oil price shocks of 1973-74 and 1979-80. These included oil substitution by natural gas in power generation and industry, oil/energy saving measures, and a sharp increase in oil production in the North Sea, Alaska, Mexico and Western Siberia. OPEC initially tried to offset falling demand and the tide of rising non-OPEC supplies by cutting its own output, but this proved inefficient. Competitors were taking its market share and prices continued to decline. Therefore, Saudi Arabia and other OPEC members changed their market strategy from defending prices to defending market share.

The current oil price slump is due to long-term trends in supply (primarily LTO, but also Canada and some OPEC members). Cutting OPEC output to maintain prices would only support LTO and other non-OPEC supplies, including costly projects such as Arctic. As we have seen in 2Q15, even at $60 WTI tight oil producers are ready to increase drilling activity, but at the current $45 LTO production is declining.

Therefore, it doesn't make sense for Saudi Arabia and its neighbors to cut output and support competitors. They will wait until rising demand and stagnating or declining non-OPEC production will finally erase excess supply. That will take much less time than in the 80-90s, as current spare capacity is only about 2.5 mb/d vs. 11-12 mb/d in 1985.

[Oct 09, 2015] Another Petro-State Throws In The Towel The Last Nail In The Petrodollar Coffin

"... 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF). ..."

"... As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. ..."

"... In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016 ..."

"... For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US. ..."

Oct 09, 2015 | Zero Hedge
According to the proposed budget submitted by the current 'blue-blue' government the Norwegian deficit will reach another record high in 2016. Mainland taxes are expected to bring in 1,008 billion NOKs, while expenditures are estimated at 1,215 billion NOKs. In other words, 2016 will be another year of record mainland deficit which need to be covered by the offshore sector and its 6,900 bn NOK sovereign wealth fund (SWF).
While record mainland deficits covered by the petroleum sector is nothing new in Norwegian budget history, on the contrary it is closer to the norm, the 2016 budget did raise some eyebrows. The other side of the ledger, the net inflow to the SWF from activities in the North Sea will, again according to budget, be lower than the required amount to cover the deficit. This has never happened before and is testimony of the sea change occurring in the world of petrodollar recycling. Interestingly enough, the need to liquidate SWF holdings is helping to create further deflation in the Eurodollar system in a self-reinforcing loop.

As Eurodollar liquidity dries up and consequently pushes up the price of actual dollar (note, Eurodollars are international claims to domestic US dollars but for which no such dollars actual exists) the problem for petro-states compounds. One way this manifest itself is through international purchasing power of prior savings. A SWF as the Norwegian was created through a surplus of exports over imports meaning it can only be utilized through future imports over exports. When the Norwegians look at their wealth expressed in Norwegian kroner it all looks fine, but expressed in dollars the SWF has shrunk considerably in size. Thus, the surfeit imports expected by the Norwegian populace cannot be met. Norway rode high on a wave of liquidity which pushed up commodity currencies, leading Norwegians to consume more imported goods today, without realizing they were tapping into the principal of their future. When the tide turns the gross misconception is revealed.

The Government claims it is all fine though. The current down-cycle will, according to them, end early 2016 so despite a 2 percentage point reduction in corporate- and personal income tax, mainland tax revenues are expected to increase 1.9 per cent. That is obviously a pipedream, just as the expected 17.9 per cent increase in interest and dividend income which will make sure the SWF continue to grow at a healthy pace despite the massive mainland deficit.
Assuming oil prices remain low, mainland tax revenue will plummet as they are very much a function of what goes on offshore, while expenditure will rise as they do in all welfare states during a down cycle.

If we are right, a global recession is imminent, meaning the expected increase in dividend income will never materialize.

In other words, the drawdown of the SWF will exceed its inflow even after adding financial income flows. The last remnant of the petro-dollar will thus die in 2016.

For a country 100 per cent dependent on continued leverage in the Eurodollar system the absolutely best case scenario is for the US economy to grow just slowly enough for international monetary policy to again realign; reducing the value of the USD through continued ZIRP in the US.

Robust growth in the US will prompt Yellen to hike, spiking the dollar (as Eurodollar claims scramble for actual dollars) while paradoxically a recession in the US will lead to the exact same outcome. The goldilocks scenario of 1-2 per cent growth is the best that the Norwegian government can hope for. It will minimize the gap between the lies and propaganda spewed out by the Ministry of Finance and reality.

Latina Lover

Death to the Fed Reserve! Time for a currency reset. Down with the Banksters, or rather, hang them high!

[Oct 08, 2015] Crude Oil Surges Above $50 a Barrel for First Time Since July

Oct 08, 2015 | www.bloomberg.com
Oil surged above $50 a barrel in New York for the first time since July on speculation that demand is picking up.
... ... ...

WTI for November delivery rose $1.62 to settle at $49.43 a barrel on the New York Mercantile Exchange. It was the highest settlement since July 21. Futures touched $50.07. The volume of all futures traded was 45 percent higher than the 100-day average at 3:01 p.m.

... ... ...

Global oil demand will increase by 1.5 million barrels a day this year, El-Badri said in the statement to the IMFâ€™s International Monetary and Financial Committee. Commercial oil inventories in developed countries remain about 190 million barrels above the five year average , he said.

[Oct 08, 2015] Oil's Rally Was A Bunch Of Noise And Won't Last, Goldman Sachs Says

While financial market can dictate oil price for a considerable length of time then can't do it forever. At some point the fact that a lot of oil production need break-even price of 65 and realistic price $75 per barrel will change the game Wall Street is playing. Some "overenthusiastic" shorts might lose. Also credibility Wall Street is probably close to zero to attempt to manipulate market via MSM are not as effective as in the past.

Oct 08, 2015 | Barrons.com
Last month, Courvalin said that oil prices could fall as low as $20 as the global glut drags into next year. See last month's post, "There Will Be Blood: Goldman Slashes Oil Price Forecasts." Here's the laundry list of what Goldman says hasn't changed in the past week:

The global oil market is currently well oversupplied.

This oversupply is driven by strong production growth outside of the US with Lower 48 production already declining and gradually tightening light US crude balances.

Low prices are required in 2016 to finally bring supply and demand into balance by year-end and sustain a US production decline of 585 kb/d next year.

Although demand growth has surprised to the upside this year at 1.6 million b/d growth, risks are clearly to weaker demand growth in 2016.

Dave wrote:

Goldman has lost all credibility LONG ago. They are looking to load up before the rebound and are trying to drive prices down temporarily.

Earnst wrote:

Only about 20% of trade is between actual buyer's and seller's. There is a terrific bias towards longs and the use of technical analysis as well as conditioned responses to factors such as middle east conflict. It was a new day yesterday but by God it's an old day now; they'll capitulate.

Big Al wrote:

These are the same guys who called for oil in the $20s. They are either: trying to protect some short positions, clueless as to oil and gas industry fundamentals or incompetent at best. Everyone in the industry knows that shorting energy is like playing Russian roulette. You could get lucky, but if you keep playing long enough, you wind up dead.

Jeff wrote:

Hmmmm.... Rig count at lowest level in years. US production swinging lower. Saudis signaling for higher prices as they bleed $12B per month. Seems like higher prices up to $60 not unreasonable.

dsr wrote:

Not many know this, but Goldman owns a large interest in an oil refinery in Indiana. The lower oil is the higher the crack spreads for them, equals $$$$$. They also sell 70,000 barrels of crude per day to another refinery and then buy the product to sell on the market. Do a Google search on Goldman's forecast for energy over the last 18 months and you will see the light of absurdity. It's beyond funny. We have lost 1 million barrels of oil per day in non-opec production in the last 6 months, and at the same time demand is surging, and this guy says "not much has changed." No credibility.

kim wrote:

The vampire squids are having to eat crow right now and they are trying harder than ever to jawbone down the price of oil to save their credibility and probably make a few shekels in the process. Put a little salt and pepper on that 20 dollar per barrel crow that you are having to eat there Damien; makes it go down better.

Phil wrote:

If Goldman said it will go down, bet for oil, it will go up!

George wrote:

And where is the $200/barrel oil they predicted a couple of years ago? Oh, not here yet so now they are predicting $20. Losers.

anonymous33 wrote:

people should read the report. Nowhere does the analyst or Goldman predict $20 oil. That number is specified as a very specific condition which even they say is not going to happen. Typical over-reaction by the public.

[Oct 08, 2015] A Dell-EMC deal could choke the debt market

Oct 08, 2015 | fortune.com
The financial turmoil of the past month has brought the high yield debt market to a screeching halt. A number of deals have been called off or shifted to the loan market. Late last month, chemical company Altice had to cut back a bond offering and increase the interest rate to 11% on a portion of a multi-billion dollar deal.
Just $12 billion in high yield bonds were issued last week, down from $34 billion during the same week a year ago, according to S&P Leverage Commentary and Data. Total issuance of leveraged loans and high yield bonds is down by nearly $140 billion this year compared to 2014, to about $575 billion.

[Oct 08, 2015] IMF: Up to $3 trillion in over-borrowing in emerging markets

Oct 08, 2015 | news.yahoo.com
The biggest risks to the global economy are now in emerging markets, where private companies have racked up considerable debt amid a fifth straight year of slowing growth, the International Monetary Fund said Wednesday.

[Oct 08, 2015] Short-Term Energy Outlook - U.S. Energy Information Administration (EIA)

Oct 08, 2015 | www.eia.gov

The current values of futures and options contracts for January 2016 delivery (Market Prices and Uncertainty Report) suggest the market expects WTI prices to range from $32/b to $67/b (at the 95% confidence interval) in January 2016.

... ... ...

Projected U.S. crude oil production averages 9.2 million b/d in 2015 and 8.9 million b/d in 2016.

[Oct 08, 2015] Why Barrons Is Wrong On $75 Oil

Blast from the past. Note that key arguments still look reasonable... But prediction is not ;-)...

"... New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price. ..."

"... Barrons assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case. ..."

"... The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price. ..."

"... after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. ..."

"... This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015. ..."

Apr. 2, 2014 | Seeking Alpha
Barron's assumptions as to the leading factors of lowered oil pricing do not make sense after examining the supply side economics.
New unconventional oil reserves in the U.S. require an average break-even price of $65, which does not justify or support a $75 price.

Barron's assumes that all new unconventional reserves are here for the long term and will continue to increase production, which is not the case.

The cover of Barrons this past week read "Here Comes $75 Oil". The article highlights that due to several new "game changers" in the oil production market that within the next 5 years the oil market would fall to $75 a barrel. The three main reasons that would contribute to cheaper oil are deep-water oil, shale oil, and oil sands. All of these newfound resources are estimated at roughly one trillion barrels in newfound oil. Adding that onto the existing global oil reserve estimated at 1.5 trillion, makes this newfound oil a major factor in the future of oil pricing. The article references Citigroup energy analyst Eric Lee, who believes that most of this new oil could be recovered for around under $75 per barrel, leading to a global decrease in price.

As much as $75 oil sounds nice and would no doubt be a major boon to the U.S. and world economies. Yet after examining existing extraction cost data it is hard for the supply side economics to actually work out and support $75 oil for a sustained period of time. According to the U.S. Energy Information Administration (EIA), they expect worldwide consumption of petroleum products to grow by 1.2 million barrels per day in 2014 and 1.5 million barrels per day for 2015.

This increased demand would put worldwide oil consumption at 91.60 million barrels per day in 2014 and 92.97 million barrels per day in 2015.

[Oct 08, 2015] What's Next For Oil Prices

"... investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices. ..."

"... He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016. ..."

"... When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted. ..."

Oct 08, 2015 | OilPrice.com

In London, OPEC Secretary-general Abdallah Salem el-Badri said investments in new or expanded oil projects will be reduced by 22.4 percent to $521 billion this year – down $130 billion from 2014 – thereby reducing the supply of crude and putting upward pressure on prices.

"Less supply in the very near future. Less supply means high prices," el-Badri said in a speech at the Oil and Money conference.

El-Badri's expectations on investment were supported by the executive director of the International Energy Agency (IEA), Fatih Birol, who told the meeting that investments in oil projects this year will fall by about the same rate forecast by el-Badri.

"Upstream investment will be at least 20 per cent lower [this year] than in 2014," said the chief of the Paris-based IEA, which represents 29 oil-consuming countries. "In terms of money spent, it's the highest [drop] in history."

Oil prices will also rise, ironically, because the current low prices have encouraged consumers to buy more fuel, according to el-Badri. He said he expects global demand for oil will rise by 1.3 million barrels a day in 2016.

The current low price of oil has strained the budgets of many oil-producing countries, including wealthy Middle Eastern states. The price of oil is now less than $50 per barrel, less than half what it was in June 2014. Yet el-Badri argued, "We are not in disarray. We see some light at the end of the tunnel."

When will the end of that tunnel appear? Within the next 18 to 24 months, el-Badri predicted.

Ben van Beurden, the CEO of Royal Dutch Shell, doesn't see oil prices stabilizing quite that soon, however. He told the conference that while oil prices are due to recover, their rise won't be as fast as el-Badri expects

... ... ...

This [shale] technology can't make money unless oil sells for at least $60 per barrel.

Related: A Key Indicator Low Oil Prices Are Lifting Demand

[Oct 08, 2015] Oil prices are soaring as Saudi Arabia gets the upper hand over shale producers

"... At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year. ..."

"... The International Energy Agency now expects global demand to rise by 1.7 million b/d this year. ..."

"... Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business. ..."

"... Massive credit is required to drill, and it's not there. ..."

Oct 08, 2015 | fortune.com

October 7, 2015 | Fortune

Baker Hughes' closely-watched rig count showed that the number of drilling rigs in the U.S. turned down sharply in September after signs of a brief revival in the previous two months. At 848, the number of U.S. drilling rigs is only half what it was in January, and the lowest level since 2003. The Department of Energy said Tuesday it estimated U.S. oil production fell by 120,000 barrels a day last month, and will continue to fall through mid-2016. It now expects U.S. crude output to fall to an average of 8.9 million b/d next year from 9.2 million this year.

... ... ...

The International Energy Agency now expects global demand to rise by 1.7 million b/d this year.

KI time

Pretending that there's still some kind of competition between shale oil and OM's and ignoring the worldwide credit collapse is just plain stupid. OM's are clearly in liquidation because of the credit collapse, and not because they're winning some artificial competition against the shale oil producers who're themselves effectively out of business.

Massive credit is required to drill, and it's not there. Government has effectively provided more than $4.2 Trillion$ in bailouts since 2005 as cover for the worldwide credit collapse. Now Government is stone broke and can't do it anymore...

[Oct 08, 2015] Black Gold May Be Down, but Its Not Out

"... while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. ..."

"... the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. ..."

"... Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is â€œfalling relatively quickly.â€ As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result. ..."

Oct 08, 2015 | news.yahoo.com

For better or worse, oil never really seems to lose out in the long run. Youâ€™d think the case against it would be easy to make: Itâ€™s last centuryâ€™s go-to energy source and a nightmare for the environment. There are also those nagging concerns about peak oil and even peak car, given that millennials seem way less interested in their own wheels than their elders were at that age. But oil is still by far the biggest traded commodity in the world. Itâ€™s uniquely useful, and so far irreplaceable, as a cheap, liquid fuel â€" after all, you canâ€™t run a car on coal or fly a plane on solar, and while there are alternatives ranging from electric batteries to natural gas, none are as convenient or deliver the same energy-dense punch as plain old petroleum products. All the fracking in the world hasnâ€™t yet diminished the sense that the days of Texas Tea are far from over.

By contrast, the way oil is bought, sold and used has changed almost beyond recognition in less than a year. For the first time in generations, oil is being driven by markets [aka Wall Street speculators -- NNB] rather than giant cartels. OPEC, long the bogeyman of the oil market, has been neutered by a huge surge in U.S. production; at the same time, low gas prices donâ€™t seem to be encouraging people to drive longer or buy more gas guzzlers the way they have in the past. â€œThis time it is not business as usual,â€ said Maria van der Hoeven, executive director of the Paris-based International Energy Agency, in a recent speech.

The most jaw-dropping change by far: OPECâ€™s effective capitulation in its decades-old game of rigging oil prices. Last November, Saudi Arabia opened its oil taps in what experts considered an attempt to kill off â€œhigh costâ€ U.S. shale-oil production. But it turned out that U.S. operations havenâ€™t been so high cost after all; oil expert Daniel Yergin, vice chair of the research and consulting company IHS, notes that U.S. prospectors improved their efficiency by 65 percent in just a year. U.S. oil production is up to stay, he says â€" and that means oil prices are likely to stay low.

Bad for the bulls, right? Maybe not â€" oil always seems to bubble upward. Paul Horsnell, head of commodity research at Standard Chartered Bank in London, tells OZY that U.S. production is â€œfalling relatively quickly.â€ As a result, he says, a sharp price increase is in the cards, perhaps to near $75, compared with prices in the $50 range today. Philip Verleger, president of the consulting firm PKVerleger, also sees oil rising in the near term; he says U.S. companies have been laggards about reporting their cutbacks, and that government statistics overstate oil production as a result.

Some forecasters believe oilâ€™s great run wonâ€™t end for decades â€" most of us still love our cars, and demand for them continues to grow in the developing world. But thereâ€™s also the threat that governments worried about global warming and pollution might finally cap the gusher.

Says Verleger: â€œThe oil industry has no friends.â€

[Oct 07, 2015] This Month Could Make Or Break The Oil Markets

Russia forecasts that its production will be drop 2 million tons (to 528 from the current 530) .

"... ... ... ... ..."

Oct 07, 2015 | Zero Hedge

October could be a crucial month for struggling drillers. With drillers undergoing credit redeterminations, October could see a wave of debt restructuring and cuts to credit lines, potentially forcing deeper cuts in the shale patch.

... ... ...

In the U.S., production declines continue, although fitfully and inconsistently. After several months of large declines in production, the supply picture has become a bit murky. For example, output fell by 222,000 barrels per day between April and May, and then by another 115,000 barrels per day from May to June. But in July, production actually increased by 94,000 barrels per day. The gains came from the Gulf of Mexico, and not the shale patch. Offshore projects are long-term propositions and don't respond quickly to shifts in oil prices. However, even taking out the offshore gains, U.S. production would have only declined by 53,000 barrels per day, a slower pace than what was seen in previous months.

gcjohns1971

"Saudi Arabia will continue to seek a rebound in oil prices only by a contraction in production from countries such as Russia, Canada, and the United States."

This is a red herring because the United States, even in the unlikely event of an oil surplus, is by law not an oil exporter.
What the 'Shale Revolution' has done is send those formerly exporting to the US to fight for markets elsewhere.

... ... ...

cashtoash

But Garrrrrtman said on CNBS [yesterday on fast money] that oil has bottomed, time to buy buy buy

[Oct 07, 2015] Summers Global Economy The Case for Expansion

Oct 07, 2015 | economistsview.typepad.com

Economist's View

Larry Summers continues his call for fiscal expansion:

Global economy: The case for expansion: ...The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China. ... Industrialised economies that are barely running above stall speed can ill-afford a negative global shock. Policymakers badly underestimate the risks... If a recession were to occur, monetary policymakers lack the tools to respond. ...

This is no time for complacency. The idea that slow growth is only a temporary consequence of the 2008 financial crisis is absurd. ...

Long-term low interest rates radically alter how we should think about fiscal policy. Just as homeowners can afford larger mortgages when rates are low, government can also sustain higher deficits. ...

The case for more expansionary fiscal policy is especially strong when it is spent on investment or maintenance. ... While the problem before 2008 was too much lending, many more of today's problems have to do with too little lending for productive investment.

Inevitably, there will be discussion of the need for structural reform... - there always is. ...

Traditional approaches of focusing on sound government finance, increased supply potential and the avoidance of inflation court disaster. ... It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward.

[The full post is much, much longer.]
bakho said in reply to pgl...

If Bush would have done fiscal stimulus instead of tax cuts and low interest rates in 2001, we could have avoided the worst of the 2008 mess. When the wealthy hoard capital in an unproductive way and use their political power to increase their wealth, it leads to a stalled economy.

Peter K. said...

Everyone is for fiscal stimulus. Even Republicans like Ben Bernanke and Martin Feldstein.

"The problem of secular stagnation - the inability of the industrial world to grow at satisfactory rates even with very loose monetary policies - is growing worse in the wake of problems in most big emerging markets, starting with China."

Interest rates are low by historical standards but monetary policy isn't "loose."
If it was loose we'd see inflation and tight labor markets.

bakho said in reply to Peter K....

Monetary stimulus at the ZLB is weak and carries more risk than fiscal stimulus. The problem for Yellen and the Fed: fiscal policy is dragging the economy down. Monetary policy would be adequate if fiscal policy were doing its part. It does not even come close. The Fed can create more money, but the wealthy are positioned to grab it so very little goes to where it is needed.

Monetary policy, no matter how good cannot fully correct for bad or inadequate fiscal and regulatory policy.

D said in reply to Peter K....

"Even Republicans like Ben Bernanke..."
Maybe that should be: former Republicans like Ben Bernanke.
http://qz.com/518111/bernanke-im-not-really-a-republican-anymore/
"I didn't leave the Republican Party. I felt that the party left me."
-JJF

Peter K. said...

"It is an irony of today's secular stagnation that what is conventionally regarded as imprudent offers the only prudent way forward."
Summers borrows/steals from Krugman.

bakho said in reply to Peter K....

The Fed lacked the authority for Cramdown and Geithner who had the power block most of the help that should have bailed out home owners. Obama's Harvard buddies were against Cramdown, the GOP is a wholly owned subsidiary of the banksters so a good policy was blocked.

BigBozat said in reply to JaaaaayCeeeee...

"But why is Larry Summers saying that the problem before 2008 was too much lending? Said so baldly, doesn't it just support austerians, like the Tory argument that Labor caused the recession by spending too much on entitlements?"
Only if you conflate "lending" with "public debt" (and/or argue that spending on entitlements is a totally non-productive use of the public fisc). If the Tories are good at conflating (and/or believe entitlements are a complete waste of money), then yeah I guess they could make claims... 'tho they'd be either disingenuous or ignorant in doing so.
FWIW, I tend to associate "lending" more with private sector activity. What Larry means by "too much lending" - in this case, anyway - was the cheap & poorly/fraudulently underwritten credit-fueled housing sector bubble.

Dan Kervick said in reply to BigBozat...

The problem was private debt. There was long secular run of private debt to gdp prior to the crash. Eventually private debt was at its highest level since 1929.
http://www.ritholtz.com/blog/2012/09/private-debt-is-the-main-problem/

[Oct 07, 2015] Banks Glencore Exposure Is a $100 Billion 'Gorilla': BofA

Shadow of Lehman Brothers over Wall Street ?

Oct 07, 2015 | www.bloomberg.com

Global financial firms' estimated $100 billion or more exposure to Glencore may draw more scrutiny as regulatory stress tests approach after the commodity giant's stock plunge this year.

[Oct 07, 2015] Volatility and Oil

"... For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion. ..."

"... Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly. ..."

"... Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure. ..."

"... In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. ..."

Oct 07, 2015 | community.3dsbiovia.com
Petroleum is a volatile product. The chemistry that enables it as such a high density energy and ubiquitous energy source is volatile. The economic environment around oil is volatile, with a growing tide of alternative energy sources, and climate change issues. The political environment around oil is volatile. However oil currently is and will I believe remain for the foreseeable future, the essential underpinning of modern societies around the globe. This is why companies like Exxon call themselves energy organizations. Its not a vain attempt to change their image but rather a real understanding of the nature of chemicals and energy and the value they bring. if you need to understand this, image that we had no fuel for transportation, goods delivery, power-stations, and lights; it would be a very cold parochial world.
l

Recently we have seen a precipitous change in the energy or per barrel price of oil, across the broad markets. To many people this is shocking and upsetting; a sign of a global economic contagion. However this is not the first significant price shock in the energy sector. When I started in BP oil was about 65-70 dollars a barrel for Brent Crude and was projected to go to 80-90. Unfortunatley due to economics and supply or demand, it actually dropped. Well the oil majors learnt from that shock, the Gulf and early Oil crises. They became fully integrated corporations. The drill, produce, refine, blend, distribute and own end point of sales. They balance their exposure in the upstream and highly risky area, with that of continuous margin driven volume production in refining, and more batch driven specialty chemicals in the downstream and products domain. Now as the oil price drops, the margins and profit in upstream decreases, but the energy costs of running crackers and separating and converting columns decreases.
For example the energy cost to major chemicals of running their plants is significant in the united states this about 6% of the national energy consumption. Since 1994, Dow has reduced its energy intensity by 22 percent through a structured program targeting process improvements. This has saved 1.6 quadrillion BTUs, equivalent to the energy required to generate all of the residential electricity used in California for one year. The savings have totaled $8.6 billion on an investment of $1 billion.

So as prices drop the downstream parts of integrated petrochemicals is healthy. The gasoline stations, do not clearly make a lot of money, but the refineries and chemical production outlets are very healthy and currently running at maximum capacity, (a friend verified last week). This balanced portfolio is how the companies manage the significant shifts in costs. It also is why they really need an integrated systems view of the whole business. They need to manage, cost, risk and velocity across different sectors, with differing information, material and economic considerations. being able to have flexibility across a refinery to take advantage of local and global price shifts and consequent supply and material shifts (quality content etc) is important.

Further to this, oil and the exploration of oil has often been subject to regulations. There have been a number of very sad incidents involving oil companies that have affected the environment. In order to continue to operate, the petrochemical companies are very mindful of their "Green License to Operate". therefore they carefully track using inventory and supply chain technologies all of the products, their regulatory and environmental impact and their health, safety and fire code compliance. They do this across all their divisions, to both ensure information tractability and of course compliance to specified procedure.

Lastly oil has always been as a product subject to taxation regimes. These change and as many of you will have heard the allowances for drilling in for example the United States are considerable. Exploration and Production has always been the riskiest side of the vertically integrated, oil company's portfolio. Vertical means incorporating finding, processing, converting chemically modifying, distributing and selling products. However even in the present time it is interesting to note how BP beat its guidance in the last quarter and other companies such as Exxon are not doing too badly.
http://www.exxonmobilperspectives.com/wp-content/uploads/2011/10/Global-oil-price-factors-420x305.png

Note Exxon is an interesting case since it purchases more crude oil that it actually produces, and so a lower price helps its energy and raw materials cost structure.

In conclusion oil is, like it or loath it, a central pillar of our modern society. Alternative sources, such as solar cells (photovolteic), wave, wind and geo thermal, do not currently posses the necessary infrastructure to support the global energy need. In order to provide a mode complete energy portfolio, Petrochemical companies are actively investigating carbon capture and conversion to methanol for energy consumption. They are likewise working very hard to optimize their entire business processes, documentation and innovation activities along a systems model approach

[Oct 07, 2015] Uncertain Times Ahead For The Saudis

"... If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share ..."

"... However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic. ..."

Oct 07, 2015 | OilPrice.com

...between maintaining subsidies, defending the riyal peg, and fighting two proxy wars, Saudi Arabia's fiscal situation has deteriorated rapidly, forcing Riyadh to tap the bond market in an effort to help plug a hole that amounts to some 20 percent of GDP.

... ... ...

Referring to reports that the number of drilling rigs deployed by U.S. shale producers is falling, Naimi said: "Eventually, economic producers will continue to prevail," the paper reported.
Naimi disagreed with analysts who believe OPEC's market share would fall further, the paper reported. "On the contrary, OPEC's market share will be higher," he said.

Maybe so, but make no mistake, this is a precarious time for the Saudis. If the U.S. shale complex finally folds under the weight of its own debt, bad economics, and less forgiving capital markets allowing Riyadh to raise prices again having secured the future of the country's market share, and if Iran and Russia end up being content with preserving the regional balance of power and don't move to push the issue in Iraq and Yemen once they're done "saving" Syria, then the Saudis may well weather the storm.

However, there are quite a few things that can go wrong here that would serve to destabilize the situation and if the rumors about a rebellion within the royal family are true, the slightest misstep could end up being catastrophic.

[Oct 06, 2015] Oil jumps $2, breaking range as supply seen ebbing

Oct 06, 2015 | finance.yahoo.com

Global oil demand will grow by the most in six years in 2016 while non-OPEC supply stalls, according to a monthly U.S. energy report that suggests a surplus of crude is easing more quickly than expected.
Total world supply is expected to rise to 95.98 million barrels a day in 2016, 0.1 percent less than forecast last month, the U.S. Energy Information Administration said in its Short-Term Energy Outlook. Demand is expected to rise 270,00 bpd to 95.2 million barrels a day, up 0.3 percent from September's forecast.
Russia's energy minister said Russia and Saudi Arabia discussed the oil market in a meeting last week and would continue to consult each other.
OPEC Secretary-General Abdullah al-Badri said at a conference in London that OPEC and non-OPEC members should work together to reduce the global supply glut.
Iran's crude sales were on track to hit seven-month lows as its main Asian customers bought less than before.

[Oct 06, 2015] Oil needs a capitulation Goldman Sachs

"... The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say ..."

Oct 06, 2015 | finance.yahoo.com

Jeff Currie, global head of commodities research at Goldman Sachs, says the risk of crude oil reaching $20 a barrel is driven by "breaching storage capacity."

R.T. Arcand

The problem is, you can't believe anything these Racketeers masquerading as Bankers at Goldman Sachs say. After all they're the ones who will tell you to buy, so they can do a pump and dump against you.

Not to mention that these pathetic fools in 2008 had to go so low as to throw in the towel on Free Market Economics to become a bunch of pathetic Fascist TARP Welfare Queens because they were too stupid to keep their fraud with the Ratings Agencies alive with their fraudulent bundled mortgages. Goldman Sachs is the parasite that needs to be destroyed if this nation or even humanity is to advance.

Compare how much the Apollo program cost, compared to the Fascists in the banks and their fraud and bailouts. It's time Americans go after these fascists with the same urgency the "Greatest Generation" did.

[Oct 06, 2015] One True Measure Of Stagnation Not In The Labor Force

"... Submitted by Charles Hugh Smith from Of Two Minds ..."

"... This is a stark depiction of underlying stagnation: paid work is not being created as population expands. ..."

"... jobless ..."

"... Not in the Labor Force (NILF) ..."

"... population 220 million ..."

"... population 272 million ..."

"... population 232 million ..."

"... population 282 million ..."

"... population 322 million ..."

Oct 06, 2015 | Zero Hedge
Submitted by Charles Hugh Smith from Of Two Minds
One True Measure of Stagnation: Not in the Labor Force

This is a stark depiction of underlying stagnation: paid work is not being created as population expands.

Heroic efforts are being made to cloak the stagnation of the U.S. economy. One of these is to shift the unemployed work force from the negative-sounding jobless category to the benign-sounding Not in the Labor Force (NILF) category.

But re-labeling stagnation does not magically transform a stagnant economy. To get a sense of long-term stagnation, let's look at the data going back 38 years, to 1977.

NOT IN LABOR FORCE (NILF) 1976 to 2015

I've selected data from three representative eras:

The 20-year period from 1977 to 1997, as this encompasses a variety of macro-economic conditions: five years of stagflation and two back-to-back recessions (1977 - 1982), strong growth from 1983 to 1990, a mild recession in 1991, and growth from 1993 to 1997.

The period of broad-based expansion from 1982 to 2000

The period 2000 to 2015, an era characterized by bubbles, post-bubble crises and low-growth "recovery"

In all cases, I list the Not in Labor Force (NILF) data and the population of the U.S.

1977-01-01: 61.491 million NILF population 220 million

1997-01-01 67.968 million NILF population 272 million

Population rose 52 million 23.6%

NILF rose 6.477 million 10.5%

1982-07-01 59.838 million NILF (start of boom) population 232 million

2000-07-01 68.880 million NILF (end of boom) population 282 million

Population rose 50 million 22.4%

NILF rose 9.042 million 15.1%

2000-07-01 68.880 million NILF population 282 million

2015-09-01 94.718 million NILF ("recovery") population 322 million

Population rose 40 million 14.2%

NILF rose 25.838 million 37.5%

Notice how population growth was 23.6% 1977-1997 while growth of NILF was a mere 10.5% As the population grew, job growth kept NILF to a low rate of expansion. While the population soared by 52 million, only 6.5 million people were added to NILF.

In the golden era of 1982 - 2000, population rose 22.4% while NILF expanded by 15%. Job growth was still strong enough to limit NILF expansion. The population grew by 50 million while NILF expanded by 9 million.

But by the present era, Not in the Labor Force expanded by 37.5% while population grew by only 14.2%. This chart shows the difference between the two eras: those Not in the Labor Force soared by an unprecedented 26 million people--a staggering 15.6% of the nation's work force of 166 million. (Roughly 140 million people have some sort of employment or self-employment, though millions of these earn less than $10,000 a year, so classifying them as "employed" is a bit of a stretch).

This is a stark depiction of underlying stagnation: paid work is not being created as population expands. Those lacking paid work are not just impoverished; they lose the skills and will to work, a loss to the nation in more than economic vitality.

[Oct 06, 2015] Icahn Earnings numbers are a mirage

Oct 06, 2015 | finance.yahoo.com

I think it is very dangerous. and I am not taking about market next month here or the next quarter. Right now I can't understand why companies are sold at this multiple of earning, 22 for S&P500. A lot of those earnings are mirage. I remember times when 5 or 6 were good numbers. If you really dig in earning, that nobody wants to do. Earning are overstated in many cases.

[Oct 06, 2015] Marc Faber We Have Colossal Asset Inflation

Oct 06, 2015 | Bloomberg Business

Gloom, Boom & Doom Report Editor Marc Faber discusses how low interest rates have helped to raise asset prices with Bloomberg's Scarlet Fu, Joe Weisenthal and Alix Steel on "What'd You Miss?" (Source: Bloomberg)

[Oct 04, 2015] Funds To Play Oil's (Slow) Recovery: ETF.com

"... USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices. ..."

Oct 04, 2015 | Barrons.com
Unfortunately, Roy notes, the United States Oil Fund (USO), the most common way to play oil, has often backfired for investors. USO holds front-month futures, and to avoid taking physical delivery when those contracts mature, it rolls its position forward to the next futures contract-but the farther-dated contracts are often higher priced (due to storage costs and other factors), meaning that when USO sells its front-month contract it will be able to buy less of the next-month futures. This has led to underperformance for the fund this year, which has fallen nearly twice as much as spot oil prices.
Luckily, USO isn't the only way to play oil. The PowerShares DB Oil Fund (DBO) seeks to minimize the costs of rolling contracts forward by choosing the most advantageous futures contract to switch to, instead of always using the next month's, as USO does. Roy also notes that the United States Brent Oil Fund (BNO) holds Brent oil, popular in Europe, which in recent years has started to diverge in price more frequently from West Texas Intermediate, a grade of oil commonly sold in the U.S. In the first three quarters of 2015, Brent lost less than WTI.

However, none of those oil products were able to avoid the big drop in crude prices. For more buy-and-hold investors, Roy suggests the Energy Select SPDR (XLE) that holds energy-related stocks (like Exxon (XOM), Chevron (CVX) etc.). He concludes:

For long-term investors, an equity-based energy ETF like XLE is superior to the futures-based ETFs mentioned earlier, for several reasons: 1) an investor doesn't have to worry about roll costs; 2) the companies can grow their oil production, creating value for shareholders even in a flat oil price environment; 3) they often pay dividends. XLE currently has a yield of more than 3.3 percent.

Year-to-date, XLE is down by 21 percent, less than the futures-based ETFs. Over the past five years, XLE is up 20.4 percent, compared with losses ranging from 40 to 58 percent percent for the other three ETFs.

[Oct 04, 2015] Nonsense on data revisions

"... I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired. ..."

"... they are all of the neo-liberal religion; group-thinkers ..."

Oct 04, 2015 | mainlymacro.blogspot.com

mainly macro
Anonymous, 1 October 2015 at 01:04
When I reread my collection of BBC articles for the period 2008-15, some of which I have reposted on this blog in the past, I was surprised how well the BBC political correspondent and ex-Tory Party student Nick Robinson came out in his economic reporting compared to the woeful stuff that those BBC correspondents claiming some sort of economic expertise faired.
Since 2008, Robert Peston, Stephanie Flanders, Hugh Pym, and Andrew Neil have had terrible economic crises, and it must be more than just governmental pressure that has produced such concentrated ineptitude.

acorn, 1 October 2015
Alas, they are all of the neo-liberal religion; group-thinkers. Peston has never understood the difference between a currency issuing government and a currency using non-government sector. Hence, government financial accounts are totally different to a households financial accounts.
They all think that the government has to tax and/or borrow "money", before it has any to spend. Never stopping to think where the people it taxed or borrowed from, got such "money" in the first place.
Politicians and the IFS peddle the same myth. Liars and fakers the lot of them. Stick with the accountants.
http://www.icaew.com/en/about-icaew/newsroom/press-releases/2015-press-releases/fall-in-tax-receipts-hinders-progress-in-deficit-reduction-says-icaew

[Oct 04, 2015] Worries about a Global Economic Slowdown

Oct 04, 2015 | economistsview.typepad.com

Jim Hamilton:

... What evidence is there that worries about a global economic slowdown are figuring prominently in recent oil prices? Exhibit one is the remarkable comovement between commodity and asset prices. Concerns about global economic weakness show up in commodity prices and asset markets across the board. ...

Gavyn Davies:

The turbulence in the global financial markets in the past few weeks has been widely attributed to a "China shock" that has increased the risks of a major downturn in global activity. Last month, this blog concluded that our regular "nowcasts" for global activity had not yet corroborated this narrative.

This month, we have identified the first clear evidence that the global economy has slowed down since mid year, with emerging markets and advanced economies both now growing more slowly. ...

Posted by Mark Thoma on Sunday, October 4, 2015 at 10:24 AM in Economics | Permalink Comments (33)

Fred C. Dobbs said...

The world economy remains adrift in
choppy waters http://brook.gs/1NeDNZY
Brookings - Oct 2

The latest update of the Brookings-Financial Times TIGER (Tracking Indexes for the Global Economic Recovery) reveals sharp divergences in growth prospects between the advanced economies and emerging markets, and within these groups as well.

Growth prospects for the advanced economies have improved, but this is largely on account of good growth in the U.S. and the U.K. The euro zone remains mired in low growth and Japan's economy appears to have stalled again. Commodity-exporting countries, both advanced and emerging, have been hit by sharp growth slowdowns.

The U.S. economy continues to strengthen, with domestic demand picking up momentum, as reflected in rising retail sales and investment. Despite healthy employment growth and a falling unemployment rate, wage pressures remain muted. Inflation has stayed low, aided by a strong dollar and weak energy prices, and the CPI index has flirted on and off with deflation. Credit growth remains robust but U.S. equity markets, industrial production, and exports have all been held back by economic weakness in the rest of the world. The strong possibility that the Federal Reserve will commence its rate hike cycle in December points to how asynchronous the U.S. recovery is relative to business cycle conditions in most other advanced economies.

The euro zone and Japan face a difficult combination of weak growth, near-deflationary price changes, and the absence of fundamental reforms needed to revive domestic demand. Any growth at all in the euro zone is considered a victory and the zone has certainly kept to those expectations, growing at less than half a percent in the second quarter. The Japanese economy contracted in the second quarter. Despite highly expansionary monetary policies, inflation in both economies is barely positive.

Emerging market economies, which had become the main drivers of global growth in the aftermath of the financial crisis, are now leading the world economy into a slump. Growth has fallen, business and consumer confidence are eroding, and financial markets have taken a beating in these economies.

Most economic indicators point to a loss of growth momentum in China, with high-frequency indicators such as electricity consumption and freight volumes pointing to an even sharper manufacturing slowdown. While policymakers still have some room to boost growth closer to the 7 percent target, the inability of monetary policy measures to gain traction in raising growth has elevated risks to the financial system and shaken confidence in the economic management skills of the leadership. These concerns have been exacerbated by recent missteps in managing stock market volatility and the shift to a more market-determined exchange rate, both of which have been marred by an unclear strategy and weak communication.

Among the major emerging markets, India alone continues to maintain strong GDP growth, although industrial production and other indicators of economic activity suggest that the economy is in less robust shape. ...

Fred C. Dobbs said in reply to pgl...

Could be...

China is dumping U.S. debt http://cnnmon.ie/1Q4ENx0
via @CNNMoney - Sep 10

...to raise stimulus funds?

[Oct 04, 2015] Carl Icahn Warning About the High Yield Bond Market Bubble

Icahn predicts junk bind crash for almost a year now. that does not mean that he is wrong. But that does mean that he is a bad timer. Also he might be a buyer of CDS on junk bonds. Carl Icahn mentioned that although the short-term outlook for the energy sector is bad, the sector as a whole could make a comeback in a couple of years.

"... In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field. ..."

Oct 04, 2015 | marketrealist.com

May 15, 2015 | Market Realist

Oil price nosedive could trigger a crash in the junk bond markets

According to Sean Hanlon's December 16, 2014, article Oil's Price Decline Weighs On High Yield Debt in Forbes, US energy companies borrowed heavily using the junk bond market to finance hydraulic fracking operations. However, this occurred when oil prices were above the $100 per barrel level, resulting in an economically viable business model.

With the nosedive in oil prices in the latter half of 2014, the ability of these energy firms to retain their profitability was called into question-including their ability to service the payments on their high-yield debt.

... ... ...

As seen in the above graph, the prices of the iShares iBoxx $ High Yield Corporate Bond ETF (HYG) declined with the fall in oil prices. With the looming uncertainty over oil prices, the times ahead are probably not bright for the high yield bond market.

Credit default swaps and a correction in high yield bonds

In the context of the high yield bond market, activist investor Carl Icahn mentions the use of credit default swaps as a form of protection or insurance against credit events. However, he terms these products as "arcane" and implies that investors should possess sophisticated knowledge of the fixed income markets to enter that playing field.

Credit default swaps (or CDS) are analogous to insurance contracts. The buyer of the CDS makes periodic fixed payments to the seller of the CDS, who receives these premiums and in exchange, compensates the buyer in the event of a default involving the underlying reference entity.

ProShares launched the ProShares CDS North American HY Credit ETF (TYTE) and the ProShares CDS Short North American HY Credit ETF (WYDE) in August 2014. Although TYTE offers investors a long exposure to North American high yield bonds, WYDE offers a short exposure to the same. For instance, investment in WYDE could hedge a portfolio of high yield bonds against a drop in prices. The decreased prices typically result from increasing defaults by energy firms due to falling oil prices.

In the final part of this series, we'll discuss Carl Icahn's view on the energy sector. The analysis specifically focuses on the outlook for oil companies such as EOG Resources (EOG), Exxon Mobil (XOM), Phillips 66 (PSX), and Valero Energy Corporation (VLO). Phillips 66 and Valero are oil refiners, EOG Resources is independent and lacks downstream operations, and Exxon Mobil is an integrated company.

EOG Resources has an 8.2% weight in the iShares US Oil & Gas Exploration & Production ETF (IEO). Phillips 66 has a 7.2% weight in IEO, and Valero has a 4.9% weight in IEO. EOG is also part of the iShares US Energy ETF (IYE), with a 3.1% exposure.

[Oct 03, 2015] How the United States Oil Fund ETF Will Use Futures

Apr. 9, 2006 | Seeking Alpha

The United States Oil Fund, LP (NYSEARCA:USO) is the first oil ETF. Its launch is an important event for energy investors and those interested in ETFs. Here's an excerpt from the fund's S-1 SEC filing explaining its use of futures to replicate the price of oil:

What is USOF's Investment Strategy?

In managing USOF's assets the General Partner does not intend to use a technical trading system that issues buy and sell orders. The General Partner does intend to employ a quantitative methodology whereby each time a Creation Basket is purchased, the General Partner will purchase oil interests, such as an Oil Futures Contract for WTI light, sweet crude oil traded on the New York Mercantile Exchange, that have an aggregate face amount that approximates the amount of Treasuries and cash received upon the issuance of one or more Creation Baskets.

As an example, assume that a Creation Basket purchase order is placed on January 2, 2006. If one were to assume USOF's closing NAV per unit for January 2 is $66.79, USOF would receive $6,679,000 for the Creation Basket ($66.79 NAV per unit times 100,000 units, and ignoring the Creation Basket fee of $1,000). Assume that the price of an Oil Futures Contract for WTI light, sweet crude oil on January 3, 2006 is $66,800. Because the price of oil reflected in these Near Month futures contracts on January 3, 2006 is different (in this case, higher) than the price of oil reflected in USOF's NAV calculated as of January 2, 2006 (the day the corresponding Creation Basket was sold), USOF cannot invest the entire purchase amount corresponding to the Creation Basket in futures contracts-i.e., it can only invest in 99 Oil Futures Contracts with an aggregate value of $6,613,200 ($66,800 per contract times 99 contracts). Assuming a margin equal to 10% of the value of the Oil Futures Contracts which would require $661,320 in Treasuries to be deposited as margin with the futures commission merchant through which the contract was purchased, the remainder of the purchase price for the Creation Basket, $6,017,680, would remain invested in cash and Treasuries as determined by the General Partner from time to time based on factors such as potential calls for margin or anticipated redemptions.

The specific Oil Futures Contracts to be purchased will depend on various factors, including a judgment by the General Partner as to the appropriate diversification of USOF's investments in futures contracts with respect to the month of expiration, and the prevailing price volatility of particular contracts. While the General Partner anticipates significant investments in New York Mercantile Exchange Oil Futures Contracts, as USOF reaches certain position limits on the New York Mercantile Exchange, or for other reasons, it will invest in Oil Futures Contracts traded on other exchanges or invest in other Oil Interests such as contracts in the "over-the-counter

[Oct 03, 2015] They Just Dont Want A Job - The Feds Grotesque Explanation Why 94.6 Million Are Out Of The Labor Force

Oct 03, 2015 | Zero Hedge

In a note seeking to "explain" why the US labor participation rate just crashed to a nearly 40 year low earlier today as another half a million Americans decided to exit the labor force bringing the total to 94.6 million people...

... ... ...
... this is what the Atlanta Fed has to say about the most dramatic aberration to the US labor force in history: "Generally speaking, people in the 25–54 age group are the most likely to participate in the labor market. These so-called prime-age individuals are less likely to be making retirement decisions than older individuals and less likely to be enrolled in schooling or training than younger individuals."
This is actually spot on; it is also the only thing the Atlanta Fed does get right in its entire taxpayer-funded "analysis."

However, as the chart below shows, when it comes to participation rates within the age cohort, while the 25-54 group should be stable and/or rising to indicate economic strength while the 55-69 participation rate dropping due to so-called accelerated retirement of baby booners, we see precisely the opposite. The Fed, to its credit, admits this: "participation among the prime-age group declined considerably between 2008 and 2013."
two hoots

Just for reference see US, France, Germany, Japan labor participation rates: Seems we are joining global parity.

http://www.multpl.com/france-labor-force-participation-rate

http://www.tradingeconomics.com/united-states/labor-force-participation-rate

http://www.multpl.com/germany-labor-force-participation-rate

http://www.tradingeconomics.com/japan/labor-force-participation-rate

Not that it helps anyone get a job.

Bring the Gold

Yeah see what happens! Great idea! Remove the only thing keeping this country in one piece! Let's not close corporate tax loopholes and handouts, egregious MIC spending or in any significant way stop financial crime. Before we address those trifling concerns which amount to many trillions, let's cut TANF and SNAP benefits to recipients who statistically are mostly CHILDREN. I for one hate having cities that aren't on fire and have been pining for LA Riots times one hundred thousand. Yes let's not address elites crimes first let's crack down on single moms and children. We wouldn't want to do anything to address Jamie Dimon, Lloyd Blankfein and Hank Paulson's crimes. Let's go after the real power brokers who got us here, children in poverty. And by doing so let's unleash days of rage and an American Spring. Absolute genius!!!!

cynicalskeptic

Sadly that is exactly what will happen when the merde hits the fan. The poor and starving WILL riot in the streets - as they have throughout history when they lose all hope. Clearly TPTB know this - and know time is running out. They are preparing - militarized police and an obsession with monitoring the population, repressing ANY discontent (like Occupy Wall Street).
Things are as bad as they were in 1932 - government money is the only thing preventing 'Hoovervilles' and obvious signs of what has happened - minimal payments to keep people from taking to the streets. Yes, some people do abuse these programs and the abuse of things like disability is increasing as people run out of options, but the root cause of all this is the LACK OF JOBS. Our political leaders - following the wishes of corporate leaders - have embraced 'free trade' - sending American jobs overseas - and bringing in cheap labor (illegal at the low skill end and H1B's at the high skill end), all in a never ending effort to find the cheapest possible labor costs. Some goods may be cheaper but that means little if people are unemployed and cannot afford to buy anything. A toaster from China may cost less but who cares when you can't afford the bread to put in it?

Perimetr

Fed to the unemployed:
"Let them eat cake"
And remember what happened to the French aristocrats . . .

ZerOhead

DEA might be hiring... they are looking into possibly replacing their workers who are failing drug tests.
http://www.huffingtonpost.com/entry/dea-drug-tests_560abff4e4b0af3706de0211

[Oct 03, 2015] Reflections on Ten Years Deficits, the Financial Crisis, Textbook Economics and Data Paranoia

Oct 03, 2015 | Econbrowser

"When so many think the numbers are manipulated to some nefarious end, it is no wonder that empirical observations carry so little weight in informing thought on how the economy works."

[Oct 03, 2015] Huge Carl Icahn Energy Purchases Highlight Recent Insider Buying

"... Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. ..."

Oct 03, 2015 | 24-7 Wall St.

We cover insider buying every week at 24/7 Wall St., and we like to remind our readers that while insider buying is usually a very positive sign, it is not in of itself a reason to run out and buy a stock. Sometimes insiders and 10% owners have stock purchase plans set up at intervals to add to their holdings. That aside, it still remains a positive indicator.

Cheniere Energy Inc. (NYSE: LNG) was the clear highlight of the week. This liquefied natural gas player had a very high-profile buyer step up to the plate more than once. Activist investor and Wall Street legend Carl Icahn bought a gigantic amount of the company's stock. He purchased 2,042,928 shares at a price of $47.14 apiece. The total for the buy came to a massive $96.3 million. Not stopping there, Icahn purchased an additional 1,503,313 shares at $48.30. The total for second buy was a whopping $72.6 million.

ALSO READ: September Worst Month in History for Energy MLPs: 3 Bargains Right Now

Oddly enough, as Icahn was buying millions of shares of Cheniere Energy, the CEO of the company was selling. He parted with a total of 100,000 shares at between $46.25 and $50.42 per share. The total for the sale came to $4.8 million. It was also the only one major company that reported insider selling last week. Cheniere shares ended trading on Friday at $50.50, and it is pretty easy to assume that Icahn's high-profile purchase was viewed as very positive.

[Oct 03, 2015] Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps

Oct 03, 2015 | Bloomberg Business

The world's biggest crude oil tankers earned more than $100,000 a day for the first time since 2008, amid speculation that a surge in Chinese bookings is curbing the number that are left available for charter.

Ships hauling 2 million barrel cargoes of Saudi Arabian crude to Japan, a benchmark route, earned $104,256 a day, a level last seen in July 2008, according to data on Friday from the Baltic Exchange in London. The rate was a 13 percent gain from Thursday.

[Oct 03, 2015] Shale High depletion rates in Bakken

"... Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines. ..."

"... ... ... ... ..."

"... Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you. ..."

Oct 03, 2015 | www.oil-price.net

As you can see, Bakken is the star of the region. So, who wants to point that the Emperor has no clothes? In other words, the higher-than-normal rate of depletion of fracked wells?
Well, what is depletion? Depletion is a naturally occurring phenomenon. All non renewable resources undergo reduction over a period of time. Oil and gas aren't exempted from this equation, either

... ... ...

Fracked wells age very fast. The initial production is very high so is the rate of depletion. The point is, a newly fracked well may produce 1,000 barrels a day, but this falls by sixty percent the next year, thirty five by the third and fifteen percent by the fourth. Oil companies should replace forty to forty five percent of the current production each year to maintain/increase production. For now at least, the number of wells and cost of production can keep pace with profits because of the higher oil prices. But what happens when the price comes down?

The depletion rates will make the wells unviable and the search of oil will continue elsewhere. Roughly the US will need more than 9,000 wells at more than $50 billion to counterbalance the declines.

... ... ...

Sooner or later, you'd realize that Shale is an industry of diminishing returns. In plain terms, a temporary bubble waiting to burst thanks to depletion. SEST? Enjoy. But then, we've warned you.

[Oct 03, 2015] Oil Bulls Lose Faith in Recovery as Russia Adds to Global Glut

Looks like Bloomberg is becoming Fox of economic and financial news...

"Other countries, such as Russia, are pumping at full tilt" looks like a lie. Russia production might be cur if additional tax on oil producers is restored by government.

I also like ""The U.S. producers are the only ones doing their part to reduce the global glut," -- another lie. shale producers are uncompetitive at this level f prices and some can't even serve their debt. the same is true for oil sands. They are cutting all corners, endangering the environment.

There is no return to "cheap oil" regime despite period of overinvestment that was bright by prices above $80 per barrel.

The fact that "Retail investors which pulled $393 million in September" just confirm that they are a food for Wall Street sharks... Moreover investment in oil ETFs with their complex "futures based" algorithms of matching oil price is in itself probably a sign of not being too intelligent. The game on this table of Wall Street casino is a for professionals and HFT robots, not for lemmings (aka retail investors).

"... U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. ..."

Oct 03, 2015 | Bloomberg Business

Hedge funds trimmed bullish oil bets for the first time in six weeks, losing faith in a swift recovery as Russia boosted output to the highest since the Soviet Union collapsed.
Speculators reduced their net-long position in West Texas Intermediate crude by 9.1 percent in the week ended Sept. 29, according to data from the Commodity Futures Trading Commission. Longs dropped from a 12-week high while shorts increased.
U.S. crude output is down 514,000 barrels a day from a four-decade high reached in June, Energy Information Administration data show. The number of rigs targeting oil in the U.S. dropped to a five year low, Baker Hughes Inc. said Oct. 2. WTI traded in the tightest range since June last month as China's slowing economy and the highest Russian output in two decades signaled the global glut will linger.

"The U.S. producers are the only ones doing their part to reduce the global glut," John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by phone. "Other countries, such as Russia, are pumping at full tilt. The cutbacks by shale producers here aren't going to have much impact, especially given the slowing global economy."

... ... ...

Russian oil output rose to a post-Soviet record last month as producers took advantage of the weak ruble to push ahead with drilling. The nation's production of crude and condensate climbed to 10.74 million barrels a day, 1 percent more than a year earlier and topping a record set in June, according to data from the Energy Ministry's CDU-TEK unit.

... ... ...

Investors pulled $393 million in September from United States Oil Fund, the largest U.S. exchange-traded product that tracks crude futures, the biggest withdrawal since April.

See also:

Producers Reduce U.S. Rigs Drilling for Oil to Five-Year Low - Bloomberg Business, Oct 2, 2015

Oil Bust Hits the Sand Industry - Bloomberg Business, Oct 2, 2015

Oil Producers Moving to Balance Production, Demand - Bloomberg Business, Oct 2, 2015

Oil Tanker Rates Soar Above $100,000 a Day as China Hiring Jumps - Bloomberg Business, Oct 2, 2015

[Oct 03, 2015] Icahn to Yahoo Finance Its going to be a real bloodbath

"... Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users." ..."

Oct 03, 2015 | finance.yahoo.com

September 28, 2015

Yahoo Finance has obtained a policy paper written by Carl Icahn on income inequality that the billionaire financier recently sent to Donald Trump and others on Wall Street and in Washington. In the paper, Icahn warns of "dangerous systemic problems that will affect each and every American in the coming years."

The five and a half page paper has some similarities to the video that Icahn is releasing on www.carlicahn.com, but focuses more on imbalances in our society.

The paper was sent to Trump before the GOP presidential candidate revealed his economic proposals. "I sent it to a number of people," Icahn said. "A few of the ideas in the paper are reflected in Donald Trump's plan. I think that shows what an open-minded guy he is, which is what we need in the White House."

In the paper, Icahn takes a decidedly egalitarian tone, writing:

"The average worker makes approximately $50,000 per year. The average annual compensation of the thirty highest paid CEOs is approximately $47 million per year. (I don't believe this disparity was ever this great even in most dictatorships!) You will hear many politicians argue that government should not interfere with the 'business judgment', of our companies and, therefore they cannot pass laws to encourage 'income equality.' This is completely untrue – the sad fact is that the government has actually passed many laws that have brought about 'income inequality.'"

In a phone interview with Yahoo Finance Icahn says, "In this country, you talk about the wealth gap and politicians say, 'well, you can't legislate equality,' but we legislate inequality."

Of all the corporate raiders and junk bond kings that came of age in the 1980s, Carl Icahn has become the richest and most powerful. He shows little sign of slowing down. Now 79, and with a net worth of some $21 billion according to Forbes, Icahn has moved beyond being a fixture of CNBC and the business pages to being something of a general news subject. With unusual tentativeness and nuance Icahn has linked himself to Donald Trump thereby guaranteeing him a place at the grown-ups' table this news cycle. In the recent phone interview with Yahoo Finance, Icahn says that while he admires Trump, (the two worked with each other in the maw of the Atlantic City casino business) the two don't see eye to eye on everything. Icahn wouldn't comment specifically on where they disagree. As for being Trump's Treasury Secretary, Icahn apparently said he would and then retracted that point. "He's his own man," Icahn says of Trump.

In the policy paper, Icahn writes about the complicity of CEOs and Wall Street:

"…the American worker is also getting 'screwed' …boards and CEOS have allowed property, plants and equipment of our companies to become the oldest on record and, as a result, the growth rate in productivity per hour of our workers has also become the worst on record and has actually decreased compared to last year. The average age of corporate property, plants and equipment is an astounding 22.3 years, the oldest it has reached since 1941. But I do not believe that most boards and CEOs really give a damn. With many exceptions, CEOs only care about short term results. Perhaps you can't really blame them because unfortunately, Wall Street judges them based on quarter to quarter results and CEOs receive their egregious compensation based on those short-term results."

Icahn also writes about CEOs and how hard it is to remove them: "How would we feel if laws were passed that certain criteria had to be met to vote for President and there were no term limits on the President's ability to serve, thus making it almost impossible to remove Obama? Amazingly, there are many state laws in existence that protect the CEOs that are analogous to the example I just made."

Icahn slams using junk bonds for doing deals, comparing it to drug addiction, writing, "Making acquisitions with junk bonds may increase earnings for the short-term, but this gives companies a short-term high, just as heroin does to their users."

Icahn closes his piece by again coming back to the plight of the common man versus CEOs: "When it comes time to pay the Piper, CEOs will have taken their bonuses and again the workers will be left, holding the proverbially 'empty bag.'"

[Oct 03, 2015] Icahn's bold warning about… Icahn

Carl Icahn warn about junk bonks bubble. more then 2 trillion of junk bond spread in various ETF and mutual funds in case of crisis will be illiquid. Warning of many companies are fallacious. They are archived by tricks like mergers and acquisitions and stock back backs. It's all financing engineering. It's loading companies with bet.

Oct 03, 2015 | www.cnbc.com
Billionaire investor Carl Icahn reiterated his warnings about high-yield bond ETFs in a wide-ranging video released on his website overnight, complaining that these so-called junk bonds "are being sold en masse to the public" by companies such as BlackRock, whose high-yield bond ETF (HYG) holds about $13 billion worth of assets.
"People are buying these not really understanding what they're buying," Icahn said in the video, referring specifically to BlackRock's "junk bond" ETFs.

Ironically, nearly 1 percent of what those people are buying is debt issued by Icahn's company itself.

The HYG ETF holds four separate bonds issued by the investor's company, Icahn Enterprises. These four bonds cumulatively make up 0.7 percent of the ETF - for a total notional value of $91 million, according to data available from BlackRock's ETF arm, iShares.

It is worth noting that BlackRock does not have any say in the holdings of its ETF; the HYG simply tracks the Markit iBoxx USD Liquid High Yield Capped Index. Nor is the presence of Icahn Enterprises bonds in the ETF new; various Icahn Enterprises securities can be found in it going back to April 2012.

Icahn's broader point about high-yield debt is that stimulative Federal Reserve policies have created a stock and bond bubble that will be resolved messily, due to a lack of willing buyers and hence loss of liquidity. BlackRock, for its part, contends that ETFs can provide liquidity and improve market stability

Icahn's office did not immediately respond to a call for comment.

Read More5 things that keep Carl Icahn up at night

[Oct 03, 2015] U.S. manufacturing barely expands in September as global growth weakens, oil drillers cut back

Oct 03, 2015 | finance.yahoo.com

New orders and production both fell sharply and a measure of hiring also declined, according to the ISM, a trade group of purchasing managers. All three measures still barely remained in expansion territory.
U.S. manufacturers are getting hit by slower growth in China, the world's second-largest economy, and a stronger dollar, which makes U.S. goods more expensive overseas. The 15 per cent rise in the dollar's value in the past year has also made imports cheaper compared with U.S.-made goods. Oil and gas drillers are also cutting back on their orders for steel pipe and other equipment in the wake of sharply lower oil prices.

[Oct 03, 2015] What Blows Up First Part 5 Shale Oil Junk Bonds

Prediction "The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. " definitely proved to be false. But it looks like junk bond problem does exist. see Icahn warning Spe 26, 2015. Actually he issues similar varning in Ocr 2014 -- Carl Icahn says high-yield 'junk' bond market in a bubble - CNBC Reuters

"... As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads. ..."

"... ... ... ... ..."

Oct 03, 2015 | November 18, 2014

One of the surest signs that a bubble is about to burst is junk bonds behaving like respectable paper. That is, their yields drop to mid-single digits, they start appearing with liberal loan covenants that display a high degree of trust in the issuer, and they start reporting really low default rates that lead the gullible to view them as "safe". So everyone from pension funds to retirees start loading up in the expectation of banking an extra few points of yield with minimal risk.
This pretty much sums up today's fixed income world. And if past is prologue, soon to come will be a brutally rude awakening. Most of the following charts are from a long, very well-done cautionary article by Nottingham Advisors' Lawrence Whistler:
Junk yield premiums over US Treasuries are back down to housing bubble levels...

... ... ....

As for what might cause the junk market to crack, one prime candidate is the oil industry. The shale boom has led a lot of energy companies to ramp up production using other people's money, much of which is coming from junk bonds. Now, with oil down from $100/bbl to around $80, the nice fat coverage ratios on these bonds are looking disturbingly skinny. This chart shows the divergence between overall junk spreads and energy-sector junk spreads.

... ... ...

The weakest of these companies will default in the coming year, and if oil prices fall another $10, perhaps most of these companies will default. This will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around.

Bruce C

The whole "shale oil" theme is a "scam". The original investors fell for the very same thing that continues to be rehashed, so they engineered a way to unload it onto the "relatively dumb" money. That's where we are now. After those new INSIDE investors/suckers realized that projected resources were not the same as extractable ones (at certain price levels) and that current production rates were subject to (downward) change (because the whole process is basically insane and extreme) it only makes sense that more funding could only be obtained by issuing bonds (equity was extracted in the "first round" when new wells geysered, etc.)
But don't laugh too hard, yet. Between a totally foolish and pathetic Congress, a totally full of shit President, a desperate national central bank, and "TBTF" philosophy in general, this construct may well be supported way beyond its "natural" life.
History is a fascinating spectrum of human nature. There doesn't seem to be any limits to the lows or the highs, and especially the durations of effort and "pragmatism" to advance certain agendas and IDEALS. That's not always "good" or "bad", and it is definitely hard to know in real time.

socalbeachdude

John, you are 100% correct in your article, particularly with your conclusion that this "will of course be dismissed as a localized disturbance unlikely to spread to the broader economy - which is exactly what they said about subprime mortgages last time around."

Frank DiGiovanni

Funny.. Your website is about the demise of the dollar.. Than its about oil stocks who have plunged along with oil due to a strong dollar
.. Seems you are just looking for negatives..

digriff > Frank DiGiovanni

While you are assuming the strong dollar is the cause of the oil prices I would say "the last guy to drown in the pool is technically the best swimmer (dollar) but did still drown in the end".

Frank DiGiovanni > digriff

Point is .. You have been complete incorrect on the dollar.. Then write negatively on oil.. You are just a negative person.. Currency value is all relative to other currency; have to have winners and losers.. Not everybody drowns. You seem foolish with such a comment..

[Oct 02, 2015] EIA's Latest Petroleum Report Yields Few Surprises

"... If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday. ..."

Oct 02, 2015 | OilPrice.com

... ... ...

I took the Weekly Energy Review and averaged it into monthly average. As you can see it differs greatly from both the Monthly Energy Review and the Petroleum Supply Monthly. However for last July and August it agrees pretty closely with the Monthly Energy Review. And it says [USA] production dropped just over 200,000 barrels per day from August to September.

This is the weekly data, since December from the Weekly Petroleum Status Report. It has U.S. production dropping every month since June.

... ... ...

I thought the below article said a lot about Russia.
Russian Oil Producers Head for Tax Showdown Amid Output Warnings
Russia's Energy Ministry estimated last week that oil output would be stable until 2035 at a level of about 525 million metric tons a year, or 10.5 million barrels a day, as investment in new projects offset declines at older fields. If the government approves the planned tax hike, investments could slump by 50 percent and total oil production drop by 100 million metric tons over next three years, Energy Minister Alexander Novak said in an interview to state TV Friday.
"In a lower capex environment, the output decline at mature Russian fields may reach some 5 percent already next year," Alexander Nazarov, oil and gas analyst at OAO Gazprombank, said by phone. "New projects won't be able to cushion the total decline."
They are saying that if they get enough investment in new projects to offset declines in their old fields, then they can keep production flat for the next 20 years. Otherwise they are headed lower. Their old fields will be declining at about half a million barrels per year. I don't think even if they do get the tax breaks they can come up with that much new oil. And most certainly they cannot do it for 20 years.

[Oct 02, 2015] This Week In Energy Don't Be Fooled By Latest U.S. Production Data

"... Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era. ..."

Oct 02, 2015 | OilPrice.com

... ISIS attacks in Libya could have a much more direct impact. On October 1, ISIS militants attacked one of Libya's main oil ports, Es Sider. The port is under the control of the recognized government and has been closed since December 2014, preventing Libya from reviving oil exports. One guard at Es Sider was reportedly killed but the attack was repelled. Still, Libya has been torn apart by conflict, and the two warring factions are at a stalemate, with a security vacuum across most of the country.

Libya is producing less than 400,000 barrels per day, far below the 1.6 million barrels per day it produced during the Gaddafi era.

[Oct 02, 2015] Job Growth Weakens in September

Oct 02, 2015 | economistsview.typepad.com

Economist's View

Dean Baker:

Job Growth Weakens in September:
... ... ...

The average hourly wage dropped slightly in September, bringing the annual rate of growth over the last three months compared with the prior three to 2.2 percent, the same as its rate over the last year. The drop in the hourly wage, combined with the fall in hours, led to a 0.3 percent drop in the average weekly wage.

... ... ...

On the whole this report suggests the labor market is considerably weaker than had been generally believed. The plunge in oil prices is taking a large toll on the formerly booming mining sector. In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011. The strong growth in government jobs is not likely to continue with budgets still tight. With GDP growth hovering near 2.0 percent, weaker job growth is to be expected, but it will make it much more difficult for the Federal Reserve Board to raise rates this year.

Mike Sparrow:

This looks like a adjustment to the ADP's 2015 mean more than anything else. That is the trouble with the birth/death model. It misses turning points and this mid-cycle correction started in January. Yet, they kept NFP elevated in many of the next 7 months outside March which was another mess(created by the weather that time). ADP was much more tamed and consistent.
The good news is, it looks like the global economy may have bottomed in September and China's move to more consumption balance is panning out a bit, which will help growth there. Though the multi-national boom is over as investment driven growth necessarily reduces in these countries. Monthly wages also accelerated.

anne said in reply to Mike Sparrow...

I think the ADPs are better than the NFPs, though on a wet field field hockey in tricky and who knows which school will win. Anyway, Go ADPs! I was a midfielder.

am said...

Correct take off by DB that this weak report makes rate rises this year difficult to justify. Chair Yellen identified weakness in the labour market in her last report. This latest monthly labour report shows that that weakness continues.

DB concentrates on the weak stats for the prime age groups of men and women and states that it is clearly not retirement related. If he has any analysis on older cohorts continuing in employment longer than normal and impacting on the 25-54 cohort employment rates then I would appreciate a link.

anne said in reply to am...

http://data.bls.gov/pdq/querytool.jsp?survey=ln
January 4, 2015
Employment-Population Ratio, 2000-2015
2000 ( 81.5) *
2001 ( 80.2) Bush
2002 ( 78.8)
2003 ( 77.9)
2004 ( 78.1)
2005 ( 78.5)
2006 ( 79.2)
2007 ( 79.5)
2008 ( 78.5)
2009 ( 74.5) Obama
2010 ( 73.9)
2011 ( 73.8)
2012 ( 74.9)
2013 ( 75.2)
2014 ( 75.9)
September
2015 ( 76.5)
* Employment age 25-34

am said in reply to anne...

Thanks again.

It is clear that there is a structural change in employment. It may also be partly demographic but it is more than that hence I say structural.

cm said in reply to JohnH...

You can only offshore jobs that can actually be performed offshore. Not to deny offshoring which has been rampant in tech and various industries where services/labor can be delivered over the internet, but the probably more significant factors overall have probably been automation and computer/IT enabled "self service" i.e. pushing work off to the customer/client or just cutting the service level - e.g. "self help" web FAQs instead of printed manuals and phone support, or phone support (offshore or not) who basically read from the same documents/scripts you can search on the internet for yourself.

cawley said in reply to JohnH...

While I want to be cautious in thinking that I speak for anyone else, I would guess most of the QE supporters on this blog fully recognize that there are other factors besides interest rate/fed policy.
In fact, I would hazard (tho I may be wrong) that most of them would have preferred stronger fiscal policy.
Maybe I'm just projecting my own view which is that fiscal policy would have been preferable. Unfortunately, it was not happening. Clearly the republicans weren't in the mood - at least as long as there was a non white muslim atheist socialist communist dictator from the other party in the House f/k/a White. To me, it doesn't seem like Obama had a sufficient appetite either - altho some argue that didn't matter.
That being the case, monetary policy was pretty much the only game in town. Is it a panacea? Hell no. Has it been enough to get the economy back to full employment? Obviously not. Is it possible there are/will be some pernicious unintended consequences? Maybe, but I would argue they are second order concerns compared to employment and probably manageable.
But I've got no reason to think that withholding QE would have resulted in better fiscal policy - or any other change that would have improved employment. And I tend to think that the counterfactual consistent with no QE and the same fiscal policy would have been even worse employment.

Peter K. said in reply to JohnH...

"Strong dollar, weak dollar. It doesn't seem to matter. "
You're just a nihilist. Facts and theory don't matter. Dean Baker:

"In addition, the high dollar and the resulting trade deficit is a major hit to manufacturing. The 138,000 three-month average rate of private sector job growth is the lowest since February of 2011."

New Deal democrat said in reply to pgl...

This downshifting in the employment numbers was foreseeable, and foreseen:
http://bonddad.blogspot.com/2015/10/told-you-so-weakening-job-growth-edition.html
It is party strong US$, partly oil patch collapse, and part pass-through from last year's stall in housing starts.

Fred C. Dobbs said...
What the Terrible September Jobs Report Means for the
Economy http://nyti.ms/1Vsx2rO via @UpshotNYT
NYT - Neil Irwin - Oct 2
The September jobs numbers are easily the worst of 2015 so far. They offer an unpleasant combination of a bad overall headline, bad details and bad timing, amid a volatile and unsettling time in global markets.

The weak numbers offer some vindication for those Federal Reserve officials who preferred to hold off on interest rate increases last month to ensure the economy was on sound footing before tightening the money supply. They also give reason to worry that those wild market swings in August were less random fluctuations and more an indication that something deeper is wrong with the global economy - not so much that the stock market drop in August caused weak September jobs numbers, but that there is an underlying economic fragility causing both.
The question now is whether it means anything - whether the United States economic expansion, which seemed set to roar into 2015, is slowing in some meaningful way. We don't know that yet, and it would be a mistake to leap to that conclusion. But that possibility became quite a bit more plausible after the September numbers popped onto economists' computer screens.

As always, it is a useful exercise on jobs report Fridays to take a deep breath and remember that this is but one set of indicators, with a large margin of statistical error, that will be revised repeatedly. But the fact that the latest jobs numbers are consistent with another report, from the Institute of Supply Management, earlier this week that suggested United States manufacturing slowed to a standstill in September doesn't do anything to help an economy-watcher maintain that zen perspective.
The new numbers are poor on pretty much every level. American employers added a mere 142,000 jobs last month, far below the analyst forecast of 201,000 or the average over the last year of 229,000. Revisions pushed July and August numbers down substantially. The unemployment rate was unchanged at 5.1 percent.

This is usually the point in one of these stories where we would list the silver linings - the countervailing details that suggest it isn't as bad as all that. This report doesn't really offer any. Average weekly hours fell. Average hourly pay was unchanged. The number of people in the labor force fell by 350,000, and the number of people who reported having a job fell by 236,000.
We don't even have a major snowstorm or other weird weather event to blame, nor a strike in a major industry, nor some outsize shift in the results from one category of employer that might suggest an aberration.

The most positive angle I could come up with, with credit to the anonymous Twitter user @modestproposal1, is the possibility that with the unemployment rate scraping relatively low numbers, we should expect the rate of job creation to slow simply because the pool of potential workers is dwindling.

That said, that theory doesn't match up with the stagnant hourly pay and data in the survey of households suggesting people may be leaving the work force. ...

modest proposal @modestproposal1
Remain cognizant that job growth may naturally slow as we approach full employment and will instead be interpreted as economy slowing
Fred C. Dobbs said in reply to Fred C. Dobbs...
The pool of skilled/trained
workers dwindles; those who remain
are simply not worth hiring?

[Oct 02, 2015] Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline

"... Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff. ..."

Oct 02, 2015 | davidstockmanscontracorner.com

Bartenders And Wait Staff Dominate Jobs Added, Manufacturing Jobs Decline (Fed's Fischer See No Bubbles)

The September jobs report was nothing short of disastrous. Not only were far fewer jobs added than we expected, the jobs added were low wage, part-time jobs … such as bartenders and restaurant waitstaff.

Even worse, higher paying manufacturing jobs declined.

Any wonder why wage growth is so tepid?

[Sep 30, 2015] Becoming China From Shale Malinvestment Boom To We Are Overbuilt Bust

"... As Bloomberg reports ..."

"... The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion ..."

Sep 30, 2015 | Zero Hedge

many previous oil-boomtowns across Texas and North Dakota are facing a real-estate crisis. As Bloomberg reports, the former bustling "man-camps" of towns like Williston, ND are now desolate with hundreds of skeletons or wood & cement as predictions that fracking would sustain production and a robust tax base for decades have failed completely.

... ... ...

Chain saws and staple guns echo across a $40 million residential complex under construction in Williston, North Dakota, a few miles from almost-empty camps once filled with oil workers. As Bloomberg reports, after struggling to house thousands of migrant roughnecks during the boom, the state faces a new real-estate crisis: The frenzied drilling that made it No. 1 in personal-income growth and job creation for five consecutive years hasn't lasted long enough to support the oil-fueled building explosion.

Civic leaders and developers say many new units were already in the pipeline, and they anticipate another influx of workers when oil prices rise again. But for now, hundreds of dwellings approved during the heady days are rising, skeletons of wood and cement surrounded by rolling grasslands, with too few residents who can afford them.

"We are overbuilt," said Dan Kalil, a commissioner in Williams County in the heart of the Bakken, a 360-million-year-old shale bed, during a break from cutting flax on his farm. "I am concerned about having hundreds of $200-a-month apartments in the future."

The surge began in 2006, when rising oil prices made widespread hydraulic fracturing economically feasible. The process forces water, sand and chemicals down a well to crack rock and release the crude. Predictions were that fracking would sustain production and a robust tax base for decades.

Laborers descended on the state, many landing in temporary settlements of recreational vehicles, shacks and even chicken coops. Energy companies put up some workers in so-called man camps. In 2011, Williams County commissioners approved 12,000 beds, says Michael Sizemore, the county building official.

Everyone levered up on this "no-brainer"...

The camps were supposed to be an interim solution until subdivision and apartment complexes could be built.

Civic leaders across the Bakken charged into overdrive, processing hundreds of permits and borrowing tens of millions of dollars to pay for new water and sewer systems. Williston has issued $226 million of debt since January 2011; about $144 million is outstanding. Watford City issued $2.34 million of debt; about $2.1 million is outstanding.

and many remain delusional...

"We didn't build temporary housing on purpose because we viewed North Dakota as a long-term play," said Israel Weinberger, a principal at Coltown Properties, which invests in multi-family real-estate developments.

"We think the local production of oil is here to stay. Yes, prices have dropped, but it's a commodity and commodities fluctuate. There is always a risk."

Fracking's success has created another glut...

As the migrant workers leave, their castoffs pile up in scrap yards such as TJ's Autobody & Salvage outside Alexander, about 25 miles (40 kilometers) south of Williston. More than 400 discarded vehicles crowd its lot, including souped-up pickup trucks and an RV with rotting potatoes and a dead mouse in the sink.

"I wake up and RVs are in my driveway," said owner Tom Novak. "It's insane; there are empty campers everywhere."

HedgeAccordingly

welp.. was only matter of time..
IMF raises red flag about Canada's 'overheated' housing market

bluskyes

It's a golden age for the repo game

bluskyes

Oil has been boom/bust forever...
Unfortunately most are no longer from agrarian roots, and have no concept of living within one's means, and storing away excess in times of feast - for the times of famine that inevitably follow.

[Sep 30, 2015] Are American Schools Making Inequality Worse

Sep 30, 2015 | Economist's View

Education is not the only cause of inequality, but it's part of the problem:

Are American schools making inequality worse?, American Educational Research Association: The answer appears to be yes. Schooling plays a surprisingly large role in short-changing the nation's most economically disadvantaged students of critical math skills, according to a study published today in Educational Researcher, a peer-reviewed journal of the American Educational Research Association.
Findings from the study indicate that unequal access to rigorous mathematics content is widening the gap in performance on a prominent international math literacy test between low- and high-income students, not only in the United States but in countries worldwide.

Using data from the 2012..., researchers from Michigan State University and OECD confirmed not only that low-income students are more likely to be exposed to weaker math content in schools, but also that a substantial share of the gap in math performance between economically advantaged and disadvantaged students is related to those curricular inequalities. ...

"Our findings support previous research by showing that affluent students are consistently provided with greater opportunity to learn more rigorous content, and that students who are exposed to higher-level math have a better ability to apply it to addressing real-world situations of contemporary adult life, such as calculating interest, discounts, and estimating the required amount of carpeting for a room," said Schmidt, a University Distinguished Professor of Statistics and Education at Michigan State University. "But now we know just how important content inequality is in contributing to performance gaps between privileged and underprivileged students."

In the United States, over one-third of the social class-related gap in student performance on the math literacy test was associated with unequal access to rigorous content. The other two-thirds was associated directly with students' family and community background. ...

"Because of differences in content exposure for low- and high-income students in this country, the rich are getting richer and the poor are getting poorer," said Schmidt. "The belief that schools are the great equalizer, helping students overcome the inequalities of poverty, is a myth."

Burroughs, a senior research associate at Michigan State University, noted that the findings have major implications for school officials, given that content exposure is far more subject to school policies than are broader socioeconomic conditions.

Anonymous -> Anonymous...
do you think schools in China/India have funding on the level you are implicitly arguing for? As Eva Maskovich is showing in NYC - it takes better teachers, not more money.

pgl -> Anonymous...

I live in NYC

"According to Success Academy Charter Schools founder and President Eva Moskowitz".

Ah yes - the charter school crowd. As in Mayor Bloomberg's push for privatizing our public education system. They have a lot of really dishonest ads attacking our new mayor. So you are with these privatization freaks? Go figure!

Anonymous -> kthomas...

I am an Asian immigrant who came to the US to pursue the American dream. My education allowed me to run circles around most students at the university. I ended up with triple major and a post grad degree. So, go ahead. call the rigorous schooling horrifying all you want. It is silly to raise kids in an ultra sheltered environment. The jobs are going to go where qualified highly productive people who want less money are. Then they will have to face reality anyway. We can sit here and argue about it all we want. The truth is that kids in Asia can do the job I started with sitting there better for a fraction of the cost here. And this is a job requiring advanced degrees.

Anonymous -> Anonymous...

And you can add Eastern Europe to Asia. The competition is going to degrade our standard of living as it has whether we like it or not.

DrDick -> Anonymous...

Sorry, but this is pure BS. We are talking about the presence of AP, foreign language, and advanced math classes. Having new textbooks and enough textbooks for all students, class sizes, laboratory equipment for science classes, and building maintenance, among many other very significant differences.

https://edtrust.org/press_release/funding-gap-states-shortchange-poor-minority-students-of-education-dollars-2/

https://www.washingtonpost.com/news/local/wp/2015/03/12/in-23-states-richer-school-districts-get-more-local-funding-than-poorer-districts/

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=7&ved=0CEYQFjAGahUKEwiglsjRgZ_IAhWJOIgKHQgGAW8&url=http%3A%2F%2Fwww.schoolfunding.info%2Fnews%2Fpolicy%2FFundingGap2005.pdf&usg=AFQjCNGL7igeCiXrs8pI7cxcwgb0JTKdtg&cad=rja

Anonymous -> DrDick...

yes. they spend on things that count. instead of hockey rinks and olympics standard gyms for toddlers.

DrDick -> Anonymous...

None of which are characteristic of public schools. Have you ever even visited reality? Charter schools suck up a much greater share of available public resources and further starve the schools serving the poor and minorities, as happened in Chicago. Unlike you, I believe in fact based decision making.

http://www.washingtonpost.com/blogs/govbeat/wp/2013/10/15/charter-schools-are-hurting-urban-public-schools-moodys-says/

https://www.google.com/url?sa=t&rct=j&q=&esrc=s&source=web&cd=3&ved=0CCwQFjACahUKEwiB5ci8rZ_IAhWLRYgKHR5dCgU&url=http%3A%2F%2Fwww.luc.edu%2Fmedia%2Flucedu%2Flaw%2Fcenters%2Fchildlaw%2Fchilded%2Fpdfs%2F2015studentpapers%2FReyes.pdf&usg=AFQjCNFP1l3BdJ-Hjm0FFv-KDtYMk3E5FA&cad=rja

http://www.progressillinois.com/posts/content/2014/05/20/report-school-closures-charter-expansion-causing-catastrophic-harm-us-minor

EMichael -> Tom aka Rusty...

few anecdotes

geez

" The new school year has been marred for many students all over the country by severe budget cuts, shuttered schools, and decimated staff. Philadelphia, where students went back to school Monday, is seeing some of the most extreme effects of these budget cuts.

Nine thousand students will attend 53 different schools today than they did last fall after 24 were closed down. Class sizes have ballooned in many schools, with parents reporting as many as 48 students in one classroom. Meanwhile, the district laid off 3,859 employees over the summer.

A new policy also eliminates guidance counselors from schools with fewer than 600 students, which is about 60 percent of Philadelphia schools. Now one counselor will be responsible for five or six schools at once. Arts and sports programs have also been sacrificed.

Philly's new barebones regime was implemented after Gov. Tom Corbett (R) and the Republican-dominated legislature cut $961 million from the basic education budget, or 12 percent overall. Federal stimulus funds cushioned schools from state cuts for a couple of years, but they are now dwindling.

The district is struggling to fill a $304 million deficit. In order to open schools on time, the state gave an extra $2 million in funding and the city borrowed $50 million. Corbett is also withholding a $45 million state grant until teachers unions agree to concessions of about $133 million in a new labor pact. The district plans to sell 31 shuttered school properties. "

http://thinkprogress.org/education/2013/09/09/2588691/philly-schools-budget-cuts/

pgl -> Anonymous...

I love how the Aussies do the terminology:

"All Australian private schools receive some commonwealth government funding. So they are technically all "Charter" schools although the term is not used in Australia."

Charter schools are precisely what Milton Friedman recommended. He has the integrity to call this privatization. Anonymous does not. Funded by taxpayers but these schools are for profit entities.

Anonymous - have the courage to admit your agenda next time.

ilsm -> pgl...

Charter schools are like privatized arsenals, all cost cutting, profit and no performance.

US privatized the arsenals starting after WW I when a lot of "qui tammers" got to send arms to the Brits.

How long before the charter industry complex has enough unwarranted influence to ruin education?

djb -> Anonymous...

the charter schools cherry pick the best students and they don't deal with problem kids

this I known, they do poorly especially in new York city

as pgl said it is the fact that schools are fund locally that is the problem

to use a favorite right wing phrase

public education is an "unfunded mandate"

it should be paid for by the federal government

then all the mostly right wing politician could use property tax for divide and conquer politics

and funding can go where it is needed

djb -> djb...

then all the mostly right wing politician could NO LONGER use property tax for divide and conquer politics

DrDick -> pgl...

I think this is the primary issue. The schools in my hometown of 30K, national headquarters for Phillips Petroleum with a major research facility at the time, were excellent and most students went to college. Elsewhere in Oklahoma, students from similar sized towns were barely literate when they graduated. The primary reliance on local funding guarantees perpetuation of inequalities and the failure of the poor. This is exacerbated in larger communities by differential funding and resources allocated to schools within the district. When I lived in Chicago, Lincoln Park High School, in an affluent neighborhood, had world class programs. Meanwhile, schools on the predominately black west side and south side were literally falling apart with peeling lead paint and asbestos insulation falling on the students (along with occasional pieces of the cielings).

[Sep 29, 2015] Carl Icahn Says Market Way Overpriced, Warns God Knows Where This Is Going Zero Hedge

"... The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost. ..."

Sep 29, 2015 | www.zerohedge.com
Here's a list of Icahn's concerns:

Low rates and asset bubbles: Fed policy in the wake of the dot com collapse helped fuel the housing bubble and given what we know about how monetary policy is affecting the financial cycle (i.e. creating larger and larger booms and busts) we might fairly say that the Fed has become the bubble blower extraordinaire. See the price tag attached to Picasso's Women of Algiers (Version O) for proof of this.

Herding behavior: The quest for yield is pushing investors into risk in a frantic hunt for yield in an environment where risk free assets yield at best an inflation adjusted zero and at worst have a negative carrying cost.

Financial engineering: Icahn is supposedly concerned about the myopia displayed by corporate management teams who are of course issuing massive amounts of debt to fund EPS-inflating buybacks as well as M&A. We have of course been warning about debt fueled buybacks all year and make no mistake, there's something a bit ironic about Carl Icahn criticizing companies for short-term thinking and buybacks as he hasn't exactly been quiet about his opinion with regard to Apple's buyback program (he does add that healthy companies with lots of cash should repurchases shares).

Fake earnings: Companies are being deceptive about their bottom lines.

Ineffective leadership: Congress has demonstrated a remarkable inability to do what it was elected to do (i.e. legislate). To fix this we need someone in The White House who can help break intractable legislative stalemates.

Corporate taxes are too high: Inversions are costing the US jobs.

Here's more from Reuters:

... ... ...

In a video entitled "Danger Ahead" and released on Tuesday, Icahn said the Fed's rate policy had enabled U.S. chief executives - many of whom he describes as "nice but mediocre guys" – to pursue "financial engineering" that he said has exacerbated an already wide gap between rich and poor in America.

Icahn, who slammed money managers who benefit from the so-called "carried interest" loophole under which their earnings are taxed as capital gains rather than ordinary wage income, also endorsed Donald Trump's presidential bid.

Trump unveiled a tax plan on Monday that he said would eliminate the loophole.

"Those guys who run these companies are borrowing money very cheaply, leveraging up their companies, using it to do two things … They are going in and they are buying back stock or even worse, making stupid takeovers," said Icahn, adding some recent acquisitions have been done at a too high a price.

Much of this debt is bought via exchange-traded funds, a popular vehicle for trading baskets of bonds and stocks.

Icahn said retail investors had a false sense of security about how easy it would be to sell their holdings of such debt if the market turns.

"It's like a movie theater and somebody yells fire. There is only one little exit door," he said. "The exit door is fine when things are OK but when they yell fire, they can't get through the exit door … and there's nobody to buy those junk bonds."

[Sep 29, 2015] World set for emerging market mass default, warns IMF - Telegraph

"... Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress. ..."

"... We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. ..."

"... The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world. ..."

Sep 29, 2015 | telegraph.co.uk

TheBoggart

"The International Monetary Fund (IMF) has issued a double warning over higher US interest rates, which it said could trigger a wave of emerging
market corporate defaults"

https://www.youtube.com/watch?...

blueba • 7 hours ago

Exactly what was engineered, the oligarchs of the US Neoliberal Empire will now be able to pick up "emerging market" assets for pennies on the dollar increase their already vast holdings and secure Neoliberalism - or more correctly Neo-feudalism in fancy dress.

We have seen the Neoliberals do this kind of empire building for the last 30 years first the Savings and Loan "crisis" in the 1990s which transferred over 300 billion in middle class assets into the hands of the Bass brothers and a few other oligarchs including the Cargill family at the time the largest transfer of wealth in peace time. Then a few more small transfers and the the big "crisis" of 2007-8 which is ongoing and where close to a trillion in assets were consolidated in the hands of oligarchs.

First load on the debt with money created out of thin air by banks, then foreclose after the phony "bubble" bursts. Then walk away Scott free with the assets.

The Great Neoliberal Empire of the Exceptionals has a big big appetite which will not be satisfied until the own the entire planet and rather than 4 billion people living on $2 a day it will be 7.3 billion. The Neoliberal world view [is one] of a few thousand oligarchs and Bangladesh as the rest of the world.

[Sep 28, 2015] Why I Believe Paul Krugman Over Jim Hamilton Why a Chinese Slowdown Is by itself Little Threat to the U.S. Economy

"... that the U.S. economy was adjusting to and shrugging off ..."

"... until the financial crisis began the collapse of Wall Street ..."

"... With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). ..."

"... With 700 trillion in outstanding derivatives we don't know where the risks are and neither do the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in the world. ..."

Sep 28, 2015 | www.bradford-delong.com

Over at Equitable Growth: The collapse of housing investment in the U.S. after the bubble pop began in late 2005 was absolutely huge:

READ MOAR
Economic importance of China: "How important would an economic downturn in China be for the United States?...

...Paul Krugman reviews... reasons why... [we] shouldn't worry too much.... I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies.... While China may only account for 15% of world GDP, it has been a huge factor in commodity markets... 55% of the increase in global petroleum consumption between 2005 and 2013.... Arezki and Matsumoto note that China now accounts for about half of global consumption of iron ore, aluminum, copper, and nickel.... U.S. exports of goods and services to China... [are] only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch.... This development alone has already subtracted about 0.3% from U.S. GDP.... Another concern comes from financial linkages.... I don't know what the ultimate implications for the U.S. of a significant recession in China would be. But things I don't know cause me to worry.

If we take the current shock to oil-patch investment of 0.3% of GDP to be half the shock from China, right now the shock from China is one-quarter of the 2005-2007 shock from the housing market that the U.S. economy was adjusting to and shrugging off without much difficulty until the financial crisis began the collapse of Wall Street. Thus, IMHO, the major lesson of 2005-7 is that for the macroeconomy it is finance and only finance--plus the ability of the government to react properly and in a timely fashion--that matters. A sectoral shock one-quarter as large as 2005-7, or indeed one-sixth as large as 1999-2001, ought not to matter much at all.

J. Bradford DeLong on September 27, 2015 at 06:55 PM in Economics: Finance, Economics: Macro, Streams: Economics, Streams: Equitable Growth, Streams: Highlighted | Permalink
https://www.quandl.com/collections/economics/gdp-as-share-of-world-gdp-at-ppp-by-country

In the US prior to the bursting of the housing bubble in 2006, residential fixed investment had grown 6.6%, from its usual average of around 5%. That seems relatively small, but a collapse in that one market and its layers of overvalued derivatives led to a broader US collapse.

https://research.stlouisfed.org/fred2/graph/?g=1xJ2

So China is a larger component of the global economy now than US housing investment was in 2006. That wouldn't matter much for the rest of us is China were isolated from foreign investment. But China overtook the US this year as the number one spot for foreign direct investment.

http://www.bbc.com/news/business-31052566

Maybe the world has learned from the global financial crisis, and larger capital requirements and other regulatory measures are protecting us better than they did in 2007/8. But these facts all seem relevant, and I would like to see some analysis of the situation from a systemic financial risk perspective.

Dan Kervick said...

By the way, this quote utterly depresses me:

"That, at least, is the lesson I draw from 2005-2007. As long as aggregate demand is properly managed, a decentralized market economy is a wonderfully flexible thing. It can and does adjust swiftly to even big sectoral shocks."

If that is the main lesson you have taken away for 2005-07, then God help us all. Count me now as officially terrified that the neoliberal techno-democrats, under Hillary Clinton and her 20th century retro machine, are going to take the White House again in 2017.

I hope the view is nice, at least, from inside your rectum.

jonathan said...

The obvious counterpoint is that from August 2007 to August 2008, the Federal Funds rate fell 300 basis points. This monetary stimulus was likely responsible for the rise in exports and non-residential investment, and thus the stability of aggregate demand. The Fed doesn't have such an ability to offset negative AD shocks today.

[Very true--but the rest of the government does...]

jorgensen said in reply to Dan Kervick...

Dan, what lesson do you say should have been learned from 2005-2007 (I thought that main lesson was that the Bush tax cuts were a very, bad housing bubble producing, policy.)

T said...

Brad -
The level of certainty in your tone is , er, troubling.

And it's odd coming from you after you bravely admitted that you completely missed the financial crisis and still can't explain the effects of NAFTA.

It could well be that the macro boys will be furiously modelling international linkages just like they're trying to incorporate a financial sector if this all heads south. Best to stay humble on this China stuff. And you'd think you'd have started to figure out the distributional effects baked into the neoliberal agenda by now. Maybe that's one item you can add to the year end mea culpa list.

jorgensen said in reply to Dan Kervick...

China may be sixteen per cent of the world economy but most of that will be produced and consumed in China and a huge drop might be hard on China but not directly effect the U.S. very much.

Canada, Australia and Brazil are going to be much harder hit than the U.S. There may be some feed through effects - Canadian revenues from resources drop so its imports from the United States have to fall but most of the pain will be felt in Canada and American consumers benefit from lower commodity prices (lumber, copper, oil, steel).

We don't know how big the financial effects might be. We have reason to suspect that the Chinese financial system is a house of cards. But we know that China has been exporting massive amounts of capital for years so the amount of foreign exposure to the Chinese financial system should be limited.

I think that the biggest risk to America from China is not financial contagion or some diminution of China as a market for American goods and services but rather that a slowing China will become even more hyper-competitive than it already was in global markets for manufactured goods.

jorgensen said in reply to Dan Kervick...

"China's economy might be relatively small, but it's share of the global economy is now over 16%."

As an afterthought - the 16% is calculated at purchasing power parity which will probably inflate the relative importance of China in world trade.

Robert Waldmann said...

I have to say that I don't find strong support for your view in your graph. Up until December 2007, it shows huge increases in non-residential investment and exports balancing the decline in residential investment and government purchases,but for example is not solid statistical analysis. It seems to me equally possible that there was a strange coincidence causing aggregate demand to remain roughly constant from the peak of the housing bubble through December 2007.

In particular, I don't see the magic of the market in the increase in US exports (I see insane fluctuations in exchange rates which were obviously unpredictable since I didn't predict them).

As you note, the case of 2001 is another example, but that really looks to me like a housing bubble coming to the rescue after the dot com bubble burst. I don't know what bubble, if any, will protect the US from a Chinese recession.

Also, you seem to be discussing the actually existing USA, yet you discuss the hypothetical ability of "the government to react properly and in a timely fashion". That's the same government which might or might not be open for business on Thursday. I don't see how any discussion of the US government maybe, possibly, conceivably reacting properly has any relevance to the real world.

Dan Kervick said...

Jorgenson, in my opinion, the housing bubble was over a decade in the making and grew from overly-liberalized financial conditions that were put in place in the decade before that. And the housing bubble is only part of a larger, secular credit bubble that lead to an unsustainable rise in private debt to GDP. The surge in private indenturing and indebtedness goes hand in hand with the ongoing destruction of the social contract in the US, an obscene and decadent widening of inequality, the explosion of corporate power, the bloating of the financial sector of that corporate economy, and the erosion of the public sector as a coordinating driver of economic policy and long-term planning and public investment strategies.

Brad is an intellectual stakeholder in the economic philosophies of the administration for which he worked. He has become notorious - in my mind at least - for his blithe conviction that nothing is really wrong with the prevailing order other than some bad short-term technocratic management decisions in the (unexplained by him) implosion of much of the US financial sector in 2007/8. As much as I like him personally, I have zero interest in his brand of neoliberal political economy being given another crack at things.

I don't belong to a political party, and regard most of the economic policy of past 40 years as a mistake.

Kansas Jack said...

BDL, but you end by saying, "plus the ability of the government to react properly and in a timely fashion–that matters." BUT!! That is, to me, the key of it all. For what happens in the case of a commodity market slowdown -- even if it is a smaller share than Hamilton believes as you argue-- that we have governments who cannot react properly. Markets that spiral downward because the fiscal managers in Congress see no reason to intervene -- nay, believe it is morally wrong to do so and further believe that it means we ought to tighten our belts-- has a bigger multiplier than I think you are suggesting. So, while I agree with you that China OUGHT not to be a big deal, I think politics today makes is a VERY big deal. Why am I wrong about that?

jorgensen said in reply to Dan Kervick...

Dan

I agree that financial deregulation of the late 1990s was a mistake. I believe it to have been founded on a rather naive blindness (or corrupt looking the other way) on how many people in the financial industry are stupid or dishonest or both.

I see the housing bubble itself as a reaction to the Bush tax cut and the dot com bubble bursting - in 2003 people had money to invest and thought houses were safer than stocks.

Financial deregulation enabled the housing bubble by making it easier for fraud to go undetected but did not itself cause the bubble.

Pinkybum said in reply to jorgensen...

No the lesson was that deregulation of the financial industry forced the banks to give loans to people who could not repay them. Less government regulation is really more in the deranged right-wing world.

claudius said...

The crash in 2008 came from large financial institutions realizing that their collateral, hedges, and reserves were actually worthless. Lehman gone and AIG bankrupt, and the house of cards falls over.

So the only relevant question is, is there still a house of cards on wall st that will go tumbling down with the first stiff breeze?

In 1998 and 1995, there were major economic collapses elsewhere, with no major negative wall st impacts (LTCM aside). Are we back in 1998 with a robust system, or 2008 with a fragile system?

With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle).

Thomas More said...

Dan is unfortunately correct.

Let's sort out specifically what's wrong with Brad's analysis:

[1] The collapse in housing investment wasn't isolated. It was closely connected to the huge bubble in the stock market, much of which consisted of fraudulent mortgage-backed securities which were sold in tranches to investors as low-risk, but were actually extremely high risk.

[2] We need to recall that as late as late 2008 economists like Brad were still claiming that because the subprime mortgage market constituted only 5% of the total housing market, the broader economy was in no danger of collapse even if the subprime mortgage market imploded. Clearly neoliberal economists like Brad did not recognize that the huge amount of leverage created in the financial markets by the subprime mortgage securities generated an enormously sensitive and unstable financial situation in which a very small collapse in one sector could ripple outward nonlinearly to create a huge cascade of financial and housing collapses.

[3] Brad appears to base his reasoning on normative macro models. Those work well for equilibrium conditions in the markets. Normal macro models use linearized equations to model a system with relatively small shocks. If we want to get technical, the equations are typically linear ordinary differential equations with small Reynolds numbers. The problem is that since circa the mid-1990s the world has experienced extremely non-normal macroeconomic conditions. How so? Well, in 1991 the USSR imploded and turned capitalist, releasing some 800 million workers in the former communist countries. In 1989, the Tiananmen uprising forced Chinese leadership to pivot to a capitalist economic system, releasing some 1.3 billion workers. Together, the collapse of the USSR + China's switch to capitalism increased the global labor market by circa 60%. This exerted a tremendous shock on labor prices -- to put it technically, the Reynolds number became very very big. Adding in the gigantic shadow banking sector, which ballooned under Clinton/Bush deregulation to a size that dwarfed the regular financial sector, and include the exponential growth of bizarrely complex financial instruments like CDOs, and the equations themselves became nonlinear, because very small changes in a CDO could potentially produce enormous financial losses. Cap it off with the fact that the ex-physicists designing all the complex financial derivatives using computers themselves often did not know what the financial derivatives would do under boundary (extreme) conditions. You get a chaotic financial system not well modeled by linear equations.

What's the upshot of Brad's faulty reasoning here?

First: the underlying conditions creating financial bubbles and huge nonlinearities in the financial system have not been fixed.

"The Dodd-Frank legislation does not reform Wall Street. Rather it preserves the system that existed prior to the 2008 crisis, according to Martin Wolf of the Financial Times of London. According to former Treasury Secretary Tim Geithner, "The goal of financial reform was to make the system safe for failure. It wasn't to prevent the failure of individual firms that take on too much risk, but to make the aftershocks of failure less threatening to the system as a whole." Most importantly, Dodd-Frank amended the Federal Reserve Act of 1913 to prohibit the central bank from bailing out an insolvent financial institution on the verge of bankruptcy. It can only lend or inject capital if the bank is solvent. According to Harvard economist Larry Summers the Fed is simply not capable of understanding even when a member bank becomes insolvent.

"The Fed's monetary policy model at present does not take into consideration any factual or numerical input from events either in domestic financial markets or global markets. This lack of input means the Fed will always have trouble spotting a bubble that is developing out of speculation in the financial or commodity markets." ["The Ten Reasons Why There Will Be Another Systemic Financial Crisis," Forbes magazine, op. cit.]

Second: in 2007, America suffered from a single subprime real estate bubble and huge numbers of risky investments in the form of derivatives. Today, in 2015, America suffers from four different financial bubbles: the college loan bubble, the real estate rental-backed securities bubble, a second tech bubble, and a subprime auto loan bubble. Plus, in 2015 the deregulations and opportunities for fraud in the financial markets have *still* not been fixed. Viz., Gramm-Leach-Bliley repealing the Glass-Steagall act has still not been repealed.

These statements are well documented and noncontroversial. Let's start with the fragility of today's financial markets, unchanged since 2007:

"A major factor in the last crisis was, of course, the rapid growth of low-quality mortgages. Between 2000 and 2006, the combination of subprime and Alt-A loans rapidly grew their share of mortgage originations. Since the crisis, subprime alone has fallen from a peak of more than 20% of originations in 2006 to roughly 0.3% as of 2014. However, the spigot has opened elsewhere. Auto loans have grown rapidly to $970 billion. Through the middle of 2014, about 29% of all the securities based on auto loans to individuals were classified subprime, and defaults are now rising. Student loans are not broken out by quality (i.e., subprime), but there are two issues with them that are important to note. First, they have grown rapidly to $1.36 trillion. Moreover, as graduates and younger people are having a difficult time entering the work force, delinquencies on student loans in repayment are an estimated 27.3%. As it happens, the Federal government owns $883 billion (65%) of the student loans, so defaults will lead to more government bond issuances and, ultimately, more inflation." ["Are we headed for another financial crisis?" CFA institute, 11 June 2015]

"No one understands the derivative risk positions of the Too Big To Fail Banks, JP Morgan Chase, Citigroup, Bank of America, Goldman Sachs or Morgan Stanley. There is presently no way to measure the risks involved in the leverage, quantity of collateral, or stability of counter-parties for these major institutions. To me personally they are big black holes capable of potential wrack and ruin. Without access to confidential internal data about these risky derivative positions the regulators cannot react in a timely and measured fashion to block the threat to financial stability, according to a National Bureau of Economic Research study." ["Another Financial Crisis Is Inevitable, Promises The Fed Vice Chairman," Forbes, 19 July 2014]

We could go on to mention the enormous growth in high-speed trading which firms themselves can't predict and don't understand, ever larger disruptions as a result of these automated trading systems, including the "flash crash," but the point is clear: lack of transparency, the skyrocketing growth of the shadow banking system with its complex derivative financial instruments, and the failure to regulate or break up the "too big to fail" banks have resulted in a financial system _more_ fragile today than it was in 2007.

As for the college loan bubble, see "The scary reality of the student loan bubble in 5 charts." The rate of increase in student debt compared to inflation is now worse than at the peak of the subprime mortgage bubble, total student loans are now larger than the total outstanding amount of U.S. credit card debt:
http://moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/

As for the rental-back mortgage securities housing boom, see the following:

"Analyst: Housing bubble not a question of if but when - As in, when is it going to implode?"
http://www.housingwire.com/articles/33970-analyst-housing-bubble-not-a-question-of-if-but-when

"Here's what's driving up housing prices," CNN money, 4 May 2015.
"`Price increases -- even in the most desirable places -- can't continue to outstrip income growth forever,' said Keith Gumbinger, vice president of HSH.com. `At some point, no one will be able to afford a home.'"

http://money.cnn.com/2015/05/04/real_estate/real-estate-housing-bubble/

"Housing Market's Foundations Crack - Sales of New and Existing Homes Look Less Than Inspiring," Wall Street Journal, 29 December 2014.

"California Housing Market Cracks in Two, Top End Goes Crazy," Wolf Richter, 26 November 2014. The median price for a house in San Francisco is now $661,000: the median price for a house in San Diego is $520,000. For comparison, at the peak of the last real estate bubble the median price for a house in San Diego was $650,000 and San Francisco has now surpassed its previous median price peak at the top of the bubble.

As for the second tech bubble, see the article "Bubble 2.0?" techcrunch website, 16 May 2015. Fed chair Janet Yellen recently warned about this:

"Federal Reserve Chairwoman Janet Yellen weighed in on the prospects of an equity bubble at a meeting with International Monetary Fund Director Christine Lagarde earlier this month. The danger warnings beat to the drums of Mark Cuban's worse than 2000 prediction because the tech sector was singled out as the asset class with overinflated valuation.

"A quick glance at the NASDAQ Composite Index's breach of the infamous 5000 would seem to support these claims."

As for subprime auto loans. see the article "Next subprime bubble to burst: auto loans," New York Post, 7 February 2015.
http://nypost.com/2015/02/07/next-subprime-bubble-to-burst-auto-sales/

Third: there has been no progress in forcing transparency on the global shadow banking system since 2007. As a result, the economists at the Federal Reserve (and economists like Professor DeLong) are not even able to estimate the size and nature of financial risk in the shadow banking markets.

"Nor does the Fed have any oversight powers over the Shadow Banking System, which amounts to $75 trillion worldwide of financial activities by non-banks that in 2008 triggered runs on the system that threatened its stability. Shadow banking, which runs the gamut from money market mutual funds to short term repurchase financing agreements, commercial paper and other aspects of investment banking, are activities that can trigger panicky runs on the financial system. Shadow banking is also inherently fragile due to the lack of a central bank safety net or the deposit insurance that supports bank deposits. The whole inter-relationship between shadow banking and traditional banking is not very well understood. In short, shadow banking increases the likelihood that systemic risk will be triggered from the breakdown and gaps that exist between it and traditional banking." ["The Ten Reasons Why There Will Be Another Systemic Financial Crisis," Forbes magazine, op. cit.]

Given this evidence, it becomes incumbent on a reasonable observer to ask -- on what basis does Brad issue his confident claim that a small downturn in China will not produce a nonlinear ripple effect leading to the bursting of one or more of these new 2015 financial bubbles and a subsequent crash of the whole U.S. economy?

Did Brad predict the bursting of the last financial bubble? Was he even aware that it existed?

Economists like Professor DeLong seem to believe that the current financial system is perfectly fine and that only slight tinkering around the edges is needed to keep everything shipshape. By contrast, other people like Nassim Taleb have been warning about financial black swan events for a number of years. Given the track record of events since the year 2000, which of these two groups should we believe?

jorgensen said in reply to claudius...

"With Dodd-Frank, it seems we are closer to 1998 (or at least in the middle). "

With 700 trillion in outstanding derivatives we don't know where the risks are and neither do the banks or the regulators. One mistake in one spreadsheet could sweep away all the big banks in the world.

Another Scott said...

By the end of 2007, about $400 billion/year--2.5% of GDP--of spending on residential construction that had been there in 2005 was no longer. Yet the U.S. economy was not in recession.

I know you and Dean Baker have gone round-and-round about this, but I'm confused as to why you don't seem to agree on the scale of the problem.

In CEPR's Housing Bubble Fact Sheet from July 2005 he says:

5. The collapse of the housing bubble will throw the economy into a recession, and quite likely a severe recession.
Housing construction is equal to approximately 5 percent of GDP. Construction of new homes has been going on at a near-record pace over the last few years, in response to the run-up in housing prices. Home construction could easily fall back 40 percent (this was the drop off in the 1981-82 recession), which would imply a direct loss in demand equal to 2 percentage points of GDP.

In addition, the large wealth effect associated with the housing bubble, which has spurred a consumption boom in the last few years, will go into reverse as housing prices plummet. Research from the Federal Reserve Board shows that a dollar in additional housing wealth leads to 4 to 6 cents of annual consumption. This implies that a loss of $5 trillion in housing wealth would lead to a decline in annual consumption of between $200 billion and $300 billion. This loss in consumption is equivalent to 1.6 to 2.5 percentage points of GDP.

Combining the 2 percentage point drop in demand due to a falloff in housing construction with the 1.6 to 2.5 percentage point drop in demand due to the reversal of the housing bubble's wealth effect leads to a falloff in demand of between 3.6 and 4.5 percentage points of GDP. If employment fell in the same proportion, this would imply the loss of between 5.0 million and 6.3 million jobs. Since the federal government is already running a large deficit, and the country is running a very large trade deficit, the government's ability to use fiscal and monetary policy to boost the economy out of the recession will be severely restricted.

That seems to me to be a cogent prediction of what actually happened, though actually on the low side (8.8 M jobs were lost according to Google). But since there were still 2 years before the implosion, I can cut him a little slack on that. ;-)

Are you ignoring the "wealth effect" that he talks about? Or is your argument that the timing shows that the bursting of the housing bubble didn't correspond to the start of the Great Recession?

I think the timing can be explained as simply the fact that normal people knew that the bubble was deflating (I recall seeing new construction in-fill developments in my area listed for $1.4M and not going anywhere, then being listed at $1.0M a few months later....), but thought that it wasn't going to affect *themselves* before they could refinance or sell. Remember everyone talking about a "soft landing"? We were still saturated with "Flip this House" TV shows (which premiered in July 2005)and "refinance now!" TV ads until the day Lehman collapsed. And probably even later.

And the banksters were doing everything they could to keep their earnings inflated so they could keep collecting their fat bonuses. When they finally couldn't hide their housing losses any more, that's when the dominoes finally started tumbling (Countrywide, AIG, Lehman, etc., etc.). But it all goes back to the housing bubble.

Cheers,
Scott.

[Sep 28, 2015] Exuberance and Disappoin4tment at Shell's About-Face in the Arctic

Looks like Shell wants to wait out the period of low oil prices, cutting investments to bare minimum.

"... More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. ..."

Sep 28, 2015 | The New York Times

In Alaska, Shell's announcement that it would suspend drilling in the Chukchi Sea after a test well showed less promise than hoped for was one more blow to a state where energy-tax revenues - which pay for most of the budget - are drying up as prices and production have fallen. More than half of the state's $5.2 billion this year could not be collected, forcing budget cuts and a deep dive into a state savings account. The Trans-Alaska Pipeline that made the state rich after its completion in the 1970s is pumping only a quarter of its oil capacity.
"It's tough times," said Kara Moriarty, the president of the Alaska Oil and Gas Association, who said that rumors of layoffs in the next few weeks or months, in both the corporate offices of oil companies in Anchorage and in the drilling fields, were flying everywhere. "It's an incredibly sobering day," she added.

[Sep 28, 2015] Shell Exits Arctic as Oil Slump Forces Industry to Retrench

Sep 28, 2015 | The New York Times

As oil prices have continued their steady decline this year, rig after rig has been shut down, costing thousands of jobs in the United States. Yet major oil producers have been loath to pull the plug on their most ambitious projects - the multibillion-dollar investments that form the backbone of their operations.
Until now. On Monday, Royal Dutch Shell ended its expensive and fruitless nine-year effort to explore for oil in the Alaskan Arctic - a $7 billion investment - in another sign that the entire industry is trimming its ambitions in the wake of collapsing oil prices.

... ... ...

The industry has cut its investments by 20 percent this year and laid off at least 200,000 workers worldwide, roughly 5 percent of the total work force. Companies also have retreated from less profitable fields in places like the North Sea, West Africa, and some shale prospects in Louisiana and North Dakota.

American oil companies have decommissioned more than half of their drilling rigs over the last year, and production is beginning to drop in the United States...

... ... ...

With demand dwindling, the current market of 94 million barrels a day has roughly two million barrels in surplus supply.

Steve Projan

This decision was not based on the test results of a single well but the current glut of oil and its depressed price and renders the expensive to get arctic oil a poor investment, for now. But I'll bet that Shell isn't giving back its lease. The (short term) losers are the Alaskan citizens who are addicted to oil money that is rapidly running out (heavens these takers might actually have to pay taxes rather than getting a check from the government).

At least for today a modest, although probably short term, win for the environment.

rexl, phoenix, az. 1 hour ago

Just think what is going to happen when the price of oil goes back above one hundred dollars per barrel.

[Sep 28, 2015] Economic impo4rtance of China

"... China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet. ..."

"... I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, ..."

"... Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. ..."

"... US QEs went into the stock market and via the carry trade into EM debt. ..."

"... For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession. ..."

"... India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s ..."

"... Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time. ..."

"... Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together. ..."

Sep 28, 2015 | Econbrowser
U.S. exports of goods and services to China in 2014 were $167 billion, only about 1% of U.S. GDP. But U.S. investment in mining structures (explorations, shafts, and wells) amounted to $146B at an annual rate in 2014:Q4. By the second quarter of this year that number was down to $89B, largely a result of cutbacks in the U.S. oil patch. This means that in the absence of offsetting gains elsewhere, this development alone has already subtracted about 0.3% from U.S. GDP.
Of course, lower commodity prices will force layoffs for oil companies and miners but leave more money in the hands of consumers. However, additional spending from that channel has been more modest than many of us were anticipating.

Tom Warner, September 27, 2015 at 1:22 pm

China's import volumes of crude oil were up 9.8% y-o-y in 8m15, so the effect you're describing hasn't happened yet.

I think the US oil production decline is mostly a domestic cycle, following earlier overinvestment, which was to some extent driven by wrong hopes that the Saudis would accommodate higher US output by cutting theirs. The global knock-on effects are mainly among oil producers, many of which didn't pass on the oil price drop to their domestic consumers, and many of which have reacted to falling oil prices by increasing their net energy exports.

But the general tone of caution about China I agree with. The main effect from China globally has been to reduce prices of building materials and metals, especially iron ore.

BC, September 27, 2015 at 5:58 pm

Tom, WRT to China's oil imports, take a look at China's oil production, consumption, imports as a share of consumption, net imports of oil, the extent to which China is storing/hoarding oil as a share of consumption, and electricity consumption, and the aggregate suggests that the Chinese economy is growing at a fraction of the reported 7% real rate.

JBH, September 28, 2015 at 9:03 am

Tom: The main effect from China has been to wreak havoc on EM economies. Simultaneous with the reversal of the US dollar carry trade, this has caused an increasing number of EMs to tilt toward recession. EMs (ex China) have the largest ppt contribution to global growth this recovery.

When the locomotive slows, the train slows. EM currencies are plunging. To support them, monetary policies are being tightened. Much EM corporate and sovereign debt is denominated in dollars. Hence the need to support currencies to service debt and stave off default.

Debt now drives the globe – downward! The effects of decades of Keynesian deficit spending and central banking run amok are coming home to roost. Since 2014:Q1, the net export contribution to real GDP has been minus 0.6%. Another leg down coming. The daisy-chain from EMs to the US is multi-stemmed real and financial. Growing fissures in the financial system are the worry. US QEs went into the stock market and via the carry trade into EM debt. All this is unwinding, as it was always going to. Promises to become known the Great Unwind.

BC, September 27, 2015 at 1:23 pm

What must be understood is that China's "miracle" was not an organic process but one "made in the USA" (and in part Japan), in that US supranational firms have invested (via offshoring in search of labor arbitrage) trillions of dollars since the 1980s-90s, resulting in a scale and rate of growth per capita in China that otherwise would not have occurred.

US and Japanese FDI peaked in 2011-13 and began contracting in the past year or so, not coincidentally when China's "exports" (largely from US and Japanese firms' production of components, intermediate goods, and finished goods) and goods-producing sectors began to contract.

Since 2013, China's labor force has been contracting. Along with reported wage growth, contracting production, M1 and M2 growing 9-13%, and money supply at ~195-200% of GDP, China's productivity is growing no faster than ~1%. Then, at a population growth rate of 0.5%, in aggregate, China's real potential GDP per capita hereafter is effectively 0%, which is the post-2007 average trend rate (new normal of secular stagnation) for the US, EZ, and Japan.

This outcome was never in doubt, as it was implied by the precedent of the middle-income trap, excessive debt to GDP, and the demographic drag effects China is now experiencing, as is occurring for the countries that make up 70-75% of world GDP.

Moreover, under these conditions, it should be no surprise that growth of trade has peaked and begun contracting, as the US-China "trade" flows made up the largest share of global "trade" for what I refer to as the Anglo-American imperial trade regime, which is not unlike that of Britain from the 1870s-80s to WW I.

Now with the onset of the cumulative, self-reinforcing effects of Peak Oil, record debt to GDP coinciding with unprecedented asset bubbles to GDP, hyper-financialization of the economy (net flows to the financial sector absorbing all output), population overshoot, climate change, low labor share, decelerating productivity, extreme wealth and income inequality, decelerating money velocity, and fiscal constraints, the world faces the new normal/neutral of global secular stagnation, which is likely to be further entrained by another global deflationary recession and bear market possibly underway.

Tweaking tax, fiscal, and monetary policies under the foregoing conditions will make little difference. The assumptions and policies that were deemed appropriate during the inflationary and reflationary regimes of the Long Wave will be rendered ineffective or irrelevant during the current debt-deflationary regime. The primary causes of the malaise are demographics, low labor share, too much debt, overvalued assets hoarded by the top 1-10% at zero velocity, and extreme inequality exacerbating the effects on capital formation and productivity (and growth of profits) from low labor share and excessive debt.

Until debt is forgiven sufficiently and labor share/purchasing power increases (by higher wages or lower or no regressive taxation on earned income) for the bottom 80-90%, the secular stagnation will persist and its effects worsen until a crisis that risks the collapse of the mass-consumer economy and of the institutions that depend on growth of the economy per capita.

It's "different this time", but apparently most eCONomists don't know it, don't know why it's different and the implications, or they aren't paid to tell us.

Steven Kopits, September 27, 2015 at 3:06 pm

For those interested, please find the first edition of my China Tracker here: http://www.prienga.com/blog/2015/9/27/china-tracker-sept-2015

The evidence suggests that China most likely has been suffering the side-effects of an over-valued yuan since Q3 2014. Such a situation would benefit importers and consumers and hurt exporters and producers. And it has.

For example, gasoline and jet fuel demand in China were both up more than 20% in August year on year–absolutely a blow-out month. Oil demand was up an impressive 6.6%. Similarly, Nike saw fabulous results in China in the three months ended August, with sales there up more than 30%. http://www.bbc.com/news/business-34355627 All of these indicators directly contradict any notion of recession.

On the other hand, the Chinese have resisted devaluing the yuan in line with the won, yen or Euro, and so China's competitiveness has substantially eroded, and that's clearly visible in capital flows, exports, and industrial production. In principle, if China devalues, the demand for Nikes and oil should ease off a bit, and exporters should be revitalized.

I would add that China's private debt-to-GDP ratio is very high, indeed, at levels associated with financial crisis in many other countries historically. However, the proximate issue in China is the exchange rate. We would get a better sense of the state of the underlying economy once that issue is addressed.

Find more in the Tracker.

BC, September 28, 2015 at 6:49 am

Jeffrey, I suspect that the "Limits to Growth" (LTG) to global real GDP per capita from Peak Oil, falling GNE, population overshoot, etc., will force a decline in demand for oil imports in China and India as trade slumps and real GDP per capita decelerates to 0%.

India imports 100% of oil consumption. China imports 55-60% (?) of oil consumption. World oil supply per capita is no higher than in 2004-05 and where US oil production per capita was in the late 1970s, the onset of deindustrialization and financialization of the US economy. The world is where the US was in the late 1970s, i.e., peak industrialization. India is 40-45 to 80+ years too late to industrialization, and China's growth has peaked and will decelerate to ~0% real per capita.

http://www.thehillsgroup.org/

http://www.thehillsgroup.org/depletion2_018.htm

https://app.box.com/s/npygb8t139jm69yjcz5nhzm8ygibd5pd

https://app.box.com/s/0hroqkg7zym2us8em4k55a36affs4xmc

The oil/commodities cycle is contracting, implying $20-$30 oil in the years ahead.

https://app.box.com/s/s0wyvm4xh7kvd4fxcwyxx3mfevtf8yub

https://app.box.com/s/8rqnbk0mqgctg7vlt04su71711vumjs9

https://app.box.com/s/6aju2cctaq9wxck2y6xwxdfbqidq95op

https://app.box.com/s/u3icgvx6wbcddnijynhx257dshzm1dyr

That fits with the ongoing decline per capita for US oil production (now at the level of the late 1940s) as the log-linear US oil depletion regime inexorably continues. Despite the fastest 5- and 9-year rates of US oil production since 1927-30, the shale boom/bubble is but a blip for the long-term US oil depletion regime per capita.

At the long-term trend rate of US oil depletion, US oil production per capita will have declined by 50% since 1970 by no later than the early 2020s; however, the 50% threshold could occur sooner were another global deflationary recession to occur, which appears increasingly likely. In fact, as little as a decline in US oil production to 8-8.2Mbd in the next 3-5 years will achieve the 50% decline per capita. I suspect that we will see the 50% per-capita threshold exceeded before 2020.

And we know what the implications are for when the US reaches and sustains 50% oil depletion per capita. The structural effects have already begun to occur with real GDP per capita since 2007-08 averaging barely faster than ~0% for the US, EZ, and Japan, and now for China's real potential GDP. No amount of QE, ZIRP in perpetuity, and unprecedented asset bubbles can reverse the inexorable US depletion regime and its effects of real GDP per capita.

https://app.box.com/s/jemdqkdd23257oummtpjwl6348wigdlx

https://app.box.com/s/pfdk6c7a9g9n5i0e3s5txnej16q7biav

Neither will wind and solar (renewable energy or RE) make much of a difference during the remaining oil depletion regime's descent. In fact, growth of wind and solar has likely peaked with the price of oil and will follow the oil cycle into negative growth in the years ahead. In effect, given Peak Oil and LTG, we cannot afford to grow real GDP per capita AND build out RE to necessary scale AND maintain the fossil fuel infrastructure indefinitely hereafter. Something has to give and it will be growth of real GDP per capita and the RE build-out.

As a result, we are likely to experience a last-man-standing contest between the West and China for the world's remaining vital resources of finite planet Earth.

Jeffrey J. Brown, September 28, 2015 at 4:15 am

Through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014 (complete data not yet available from EIA). GNE fell from 46 MMBPD (million barrels per day) in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

Here are the mathematical facts of life regarding net exports:

Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

In addition, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

Jeffrey J. Brown

September 28, 2015 at 3:48 pm

Minor correction: In 2013, India's total petroleum liquids production + other liquids production was 25% of total liquids consumption, China's was 42%.

Jeffrey J. Brown September 28, 2015 at 6:57 am

Interesting article on Saudi Arabia:

The collapse of Saudi Arabia is inevitable

http://www.middleeasteye.net/columns/collapse-saudi-arabia-inevitable-1895380679

Steven Kopits September 28, 2015 at 12:23 pm

Here's a bit I wrote on oil prices and Arab unrest. Interestingly, unrest seems more correlated with high oil prices, rather than low prices.

Keep in mind, the Saudi fiscal model went to hell after 1983, and particularly after the big oil price drop from Feb. 1986–and this at a time when they were pumping only 3 mbpd. And yet the monarchy survived.

It's not entirely clear that low oil prices lead to revolution.

http://www.prienga.com/blog/2014/12/1/arab-unrest-linked-to-oil-price-spikes-not-price-collapses

And by the way (speaking of being quoted), I should be on NPR's Marketplace again tonight.

Steven Kopits September 28, 2015 at 7:32 am

Do you ever have a cheery day, BC?

Here are China's commercial inventories, just for you. They are a solid 19 mb below normal for oil, and 27 mb below for all crude and product inventories taken together.

BC September 28, 2015 at 1:08 pm

Thanks, Steven, but what's "normal" WRT inventories going forward? Do your data account for tanker oil storage?

http://www.bloomberg.com/news/articles/2015-09-17/even-a-slowing-china-is-oil-s-best-defense-against-deeper-slump

http://money.cnn.com/2015/06/04/news/economy/china-oil-supertanker-opec/

China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11.

What if "normal" for 2011-14 is well above the trend rate of growth of demand hereafter?

What is the source of your data? Thanks.

Cheers!

Ricardo September 28, 2015 at 4:56 am

The Professor wrote:

"I've long believed that to understand business cycles we need to consider not just net flows but also gross interdependencies. A downturn in China will affect some businesses much more than others. If specialized labor and capital do not easily move to other sectors, that can end up having significant multiplier effects.

Professor,

Thank you once again for a bit of reason in your analysis. Krugman as the leaders of the far-left Progressive economists leads so many astray with his ultra-aggregate economics.

Excellent article!

Steven Kopits September 28, 2015 at 8:36 am

"Demand out of China [for Apple iPhone 6s] looks white-hot," Ives said.

http://news.yahoo.com/apple-reports-record-sales-iphone-6-6s-plus-124914752–finance.html

Doesn't really scream recession, does it. It sure screams over-valued currency, though.

[Sep 28, 2015] No shelter for U.S. stocks as trapped global investors flail

After spectacular rise there should be spectacular fail. the neoliberal mechanism of redistributing wealth up in full swing. And I thin S&P500 is below 200 days average just for 21 day.

"... Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750. ..."

Sep 28, 2015 | finance.yahoo.com

The twelve-month average level of the S&P 500 has dropped for two straight months, something that has only happened twice since 1995 – both as bear markets got underway.

... ... ...

So many people are assuming the S&P 500 must at least "re-test" its August low of 1867, down more than 3% from here, it might be tempting to take the other side.

Plenty more are using the 2011 panic as a guide, which would mean a drop below 1750. Now that we have Congressional dysfunction and a threatened debt-ceiling standoff on the radar, maybe traders are over-extrapolating the similarities.

[Sep 27, 2015] Where Will 78 Million Boomers Retire Facing the Challenge of Aging in Place

They will be selling their 401K assets. Who will buy them?

Sep 27, 2015 | finance.yahoo.com

With roughly 78 million baby boomers at or near retirement and average life expectancies climbing, many independent-minded seniors are resisting the pressure to move to often costly retirement communities or assisted living facilities and are instead making plans to stay at home.

[Sep 27, 2015] How Russia and Iran Plan to Push Oil Prices Back above $100

"... And in turn, Remove the United States as a Superpower in the Middle East ..."

"... The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC ..."

"... This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the Wests Middle East petro partners. ..."

"... The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. ..."

"... Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed. ..."

"... Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a peace keeping role is viable, usurping the U.S. hegemony in the region. ..."

"... The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russias, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace. ..."

Sep 27, 2015 | johngaltfla.com

September 27, 2015 | Shenandoah

And in turn, Remove the United States as a Superpower in the Middle East

On post super blood moon Monday, Vladimir Putin will be meeting with President Obama to discuss the ISIS crisis in the Middle East. There are many within the U.S. media who are promoting this meeting as some strange idea that the Russians are about to ask the Americans for help against ISIS. While there might be a small gnat's hair bit of truth to this, in reality, Putin is about to dictate terms and the United States is ill prepared to deal with the consequences.

In 2014, I penned a piece reflecting the true reason ISIS was created so that the Arabian sheikdoms could establish pipelines through Iraq and Syri a to permanently shift Europe's dependency on Russian oil and natural gas over to their own private market where they can re-assert control over the world market price. The problem is that Russia failed to see the US, British, and Arab point of view and offered what they thought was enough support to block ISIS from overthrowing Bashir Al-Assad and keep this dream from becoming reality.

... ... ...

The bigger story however has not been the fighting but the subterfuge which was ignored by the Western mainstream media with regards to an economic war against Russia and Syria has been quite successful thus far in the guise of sanctions and destroying the price of crude oil( via CNBC as of Friday, 9/25 ):

This indiscreet economic and political war on Russia might have been perceived as a clever method to keep the bear trapped inside the Ukrainian box, contained so as to prevent any further impact on Western economies and enough to help the West's Middle East petro partners.

... ... ...

The Middle East is aflame right now and the economic situation along with terrorist Islamist ideologues have exported their problems into Europe with a massive migration of millions of refugees from Syria, Jordan, Libya, and Iraq. Mixed within these people are numerous terrorist operatives as was promised by ISIS and Al Qaeda years ago but ignored by the naive European Union. The future problems this will create are another story but the question has been promoted by some in the United States asking why the Arab nations of the Arabian Peninsula have not taken any of the refugees. That answer is obvious; their economies and domestic political situations are so tentative and fragile that an influx of millions of new residents would probably tip nations like Kuwait and Saudi Arabia closer to full blown civil war within their own borders.

... ... ...

The idea is a not so subtle message to the United States and Saudi Arabia; if you continue to support ISIS and the various rebel forces in Syria and Iraq, a new united front will push them back into your lap for your nation to deal with it. By later on this year and early next year their should be sufficient forces on the ground in Syria and Iraq to push the ISIS militants into a meat grinder, eventually cutting them off from their northern forces somewhere in north central Iraq. Without any supplies crossing from Turkey or Saudi Arabia, those forces will attempt to migrate into the Kurdish controlled portions of Iraq and Turkey where they will eventually be dispersed or destroyed.

Meanwhile in the southern part of Iraq, ISIS will be left unchecked for a short duration and eventually pushed into Saudi Arabia and the GCC states, to let the sponsors of this terrorist army deal with the problems they funded and created. The brilliance of this strategy by the new alliance of Egypt, Russia, Iran, Iraq, and Syria (which may soon include Jordan) is obvious; the return of the malcontents who will feel betrayed by the House of Saud and other various sheikdoms of the region will create domestic instability and as a result the destruction wrought on Iraq's oil infrastructure will now become a GCC problem.

Saudi Arabia is ill prepared to fight a two front war with Yemen on it south and ISIS/Al Qaeda to its north thus there is a high probability that terrorist units will have little trouble penetrating deep into Kuwait and the Saudi kingdom. Russia and Iran will view this as justifiable payback for the Sunni militias that the kingdoms sponsored and as such, destabilize the monarchies to the point where oil prices will be severely impacted in 2016; eventually driving the price of Brent Crude back over $100 per bbl. As China has already locked in their prices via long term supply contracts with Iran and Russia the opportunity for their forces to act in support of such an offensive in a "peace keeping" role is viable, usurping the U.S. hegemony in the region.

The idea by Europe, the United States, and Arab kingdoms that a pipeline was a viable plan using mercenaries funded and supplied in the name of Syrian liberation was a myth from the beginning. Now the incompetency of their strategy may soon backfire and impact their economies far more severely than Russia's, leaving a greater vacuum of power on the world stage; a void which will be filled by the new Sino-Russian alliance to purge American influence from the Middle East after twenty years of relative peace.

[Sep 27, 2015] Wall Street braces for grim third quarter earnings season

Sep 27, 2015 | finance.yahoo.com
Forecasts for third-quarter S&P 500 earnings now call for a 3.9% decline from a year ago, based on Thomson Reuters data...

[Sep 27, 2015] Shiller Stocks and housing are overvalued-- here's what to do about it

Sep 27, 2015 | finance.yahoo.com

The correction in August brought the market down ten percent," Shiller says. "But it's halfway back up. It's still looking pretty frothy."
Shiller adds that his valuation confidence index, known as the CAPE ratio, is far above the historical norm of 17. The ratio, which compares current stock prices to earnings over a ten-year period, currently measures 24.5, near the peak it reached before the financial crisis in 2007.
"On top of that, I have survey data showing that [a high percentage of] people think the market is overpriced," he says. "This this creates a little bit of fear that there could be a correction. When we saw the correction in August of this year, there was some anxiety thrown into people's hearts."

[Sep 27, 2015] A Few Less Obvious Answers on What is Wrong with Macroeconomics

"... ...IMF Survey ..."

"... there ..."

"... There is no and never has been "economics". Only political economy. That means that neoliberal "Flat Earth Theories" will be enforced, by force if necessary. ..."

"... Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand schools cacophony, it's simply to spread caution about government macro engineering ..."

Sep 27, 2015 | economistsview.typepad.com

Sep 26, 2015 | Economist's View

From an interview with Olivier Blanchard:

...IMF Survey: In pushing the envelope, you also hosted three major Rethinking Macroeconomics conferences. What were the key insights and what are the key concerns on the macroeconomic front?
Blanchard:

Let me start with the obvious answer: That mainstream macroeconomics had taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage equations, under the assumption that we did not need to look at who was doing what on Wall Street. That turned out to be badly wrong.

But let me give you a few less obvious answers:

The financial crisis raises a potentially existential crisis for macroeconomics. Practical macro is based on the assumption that there are fairly stable aggregate relations, so we do not need to keep track of each individual, firm, or financial institution-that we do not need to understand the details of the micro plumbing. We have learned that the plumbing, especially the financial plumbing, matters: the same aggregates can hide serious macro problems. How do we do macro then?

As a result of the crisis, a hundred intellectual flowers are blooming. Some are very old flowers: Hyman Minsky's financial instability hypothesis. Kaldorian models of growth and inequality. Some propositions that would have been considered anathema in the past are being proposed by "serious" economists: For example, monetary financing of the fiscal deficit. Some fundamental assumptions are being challenged, for example the clean separation between cycles and trends: Hysteresis is making a comeback. Some of the econometric tools, based on a vision of the world as being stationary around a trend, are being challenged. This is all for the best.

Finally, there is a clear swing of the pendulum away from markets towards government intervention, be it macro prudential tools, capital controls, etc. Most macroeconomists are now solidly in a second best world. But this shift is happening with a twist-that is, with much skepticism about the efficiency of government intervention. ...

pgl said...

"That mainstream macroeconomics had taken the financial system for granted. The typical macro treatment of finance was a set of arbitrage equations, under the assumption that we did not need to look at who was doing what on Wall Street. That turned out to be badly wrong."

Ah yes - the Efficient Markets Hypothesis (EMH). Nice academic theory but Wall Street exists because they are deviations from EMH. And the scale of operations there - even the slightest deviation can generate huge profits for them. And when the rest of us are not careful - huge costs to the rest of the world.

It is not that these deviations are not known and how to address the downsides of them are that complicated. What is complicated is making sure Congress and not and paid for by the Wall Street crowd. Dodd-Frank was a nice start. It is a same that our expert on everything - Rusty - has joined in the chorus to get rid of Dodd-Frank.

RC AKA Darryl, Ron said in reply to djb...

"now its getting spooky"

[Welcome to my world. I have always been ahead of trend, but usually by several decades rather than just a few hours :<)

I would venture that you don't know the half of it yet. Let me elucidate.]

"...Olivier Blanchard will step down as Economic Counsellor and Director of the IMF's Research Department at the end of September.

He will join the Peterson Institute for International Economics in October as the first C. Fred Bergsten senior fellow, a post named for the founder of the influential 35-year-old, Washington-based think tank..."

[Now tell me how that you can imagine anyone to be more mainstream status quo establishment than that in the general spectrum of academic research and study economics? The plot thickens. Like I said earlier today, we have been solidly in a Second Best world practically since FDR died from the perspective of economics as a socio-political discipline exercised for the common good in any manner discernible by the wage class.

The social expression of our anxiety and grief post-2008 is being played out in compartmentalized parallel tracts organized by socio-economic class. We are experiencing denial, anger, bargaining, depression and acceptance all at once now. Since the crisis was caused by the conservative agenda of financial innovation and deregulation then they are expressing most of the denial. People that lost their jobs and homes are expressing much of the anger, but a threatened white male population deeply invested in the emotional capital of white supremacy and chauvinism is even louder in their anger (and they are having a Tea Party to get to know each other and celebrate being white men). Elites are doing the bargaining because they really don't want to lose establishment control to populists. Folk that still don't have a job or a home are expressing the depression. Finally most people that do have a home and a job that do not fall into any of the other groups are expressing the acceptance.

Me? I recently got laid off, but was lucky enough having just turned 66 that with six years service credit taken from my severance benefits added to my pension plus what little I had in 457 and 401 plans then I could retire and still pay my bills including four more years of mortgage and HELOC payments. So, I am a bit cash strapped presently but have time to work on some projects. I have been waiting to get the establishment on the ropes for nearly fifty years. So, I am not healing from grief. I have been released and am looking for an opportunity to get the establishment on its intellectual ropes.

I thought it was getting spooky when I first began to learn about mainstream economic thought regarding capital gains windfalls, corporate mergers, and financial "innovation" in the mid-sixties. For the first time in my life I am beginning to see a tiny glimmer of it starting to get real.]

JohnH said...

"Mainstream macroeconomics had taken the financial system for granted."

It's actually worse than that. Mainstream macroeconomics willfully ignores the impact of rising asset prices on inequality, democracy, and power dynamics between the 1% and the rest.
Cui bono from their willful negligence? The powerful and wealthy, of course!

Amateur said...

I'm a fan of Olivier.
The leaders of the IMF were in a unique position to see new insights into our macro problems because they are largely caused by the globalization of capital flows and labor.
I think he's getting there, but I suspect the old frameworks are still going to be an impediment to mainstream economic thinking.
I'm glad to hear there are more people that we might be aware of that are rethinking macro in this context.

Dan Kervick said...

"The plumbing matters."

Yes, that's it. I hope that is the main lesson the economics profession takes away from the current crisis. It would be nice if we get a new generation of practitioners who think a bit more like engineers and technicians, and less like mathematical physicists.

Paul Mathis

"Some propositions that would have been considered anathema in the past are being proposed by "serious" economists: For example, monetary financing of the fiscal deficit."

Wasn't Keynes a "serious" economist? Monetary financing of the fiscal deficit was his idea 80 years ago. Today's economists are just getting the message.

likbez said...

There is no and never has been "economics". Only political economy. That means that neoliberal "Flat Earth Theories" will be enforced, by force if necessary.

greg said...

Pathetic half measures. No need to question any of the fundamental assumptions underlying the whole sorry mess, eh? Like what is money, really? Or: How does the production of the various sectors actually combine to create value in the whole economy?

Matt Young said...

Macroeconomists are not up to speed? How long has this been going on? Ever since the Kanosian dandy from England. Sick, sick and fraudulent science.

RC AKA Darryl, Ron said in reply to djb...

That is a good start. You just need to get the context switch straight and then you may find yourself in an epiphany (metaphorically speaking). Likbez up thread touches another live wire, but lacks faith in democratic alternatives. Shocking!

Larry said...

No mention of the end of the ZLB? Of NGDP targeting? Of the missing trade-off between inflation and unemployment? Of the abject failures of governments/CBs to respond to the crisis and restore normal times? Of new levers such as reverse repos, QE and IoER? Maybe the excerpt was ill-chosen...

Davis X. Machina said in reply to Larry...

"Of the abject failures of governments/CBs to respond to the crisis and restore normal times?"

"Normal" for whom, and at whose expense?
Squint just right, and this *is* normal.

Paine said...

Blanchard is a pro system guy. A maintainer not a disrupter. When he lauds the thousand schools cacophony, it's simply to spread caution about government macro engineering
We've recently learned doing the right sorts of interventions but too cautiously.
Works more like " Let the markets correct themselves "
We need to isolate those who try by various means to minimize state intervention

... ... ...

[Sep 27, 2015] Cash flows beat stocks for first time since 1990

Sep 27, 2015 | finance.yahoo.com

Investors piled into cash-equivalent, money-market funds over the last week, making the asset class more popular than bond and equity funds for the first time in 25 years, new data shows.

Some $17 billion was pumped into cash funds in the week to Wednesday, while $3.3 billion where pulled out of stocks through ETFs and mutual funds, according to research from Bank of America Merrill Lynch and EPFR Global published Friday.

Meanwhile bond funds saw just $400 million in inflows over the same period, meaning cash is outperforming both asset classes this year for the first time since 1990, the data reveals.
Money market funds invest in very short-term, liquid debt such as U.S. Treasurys and offer investors low volatility, meaning they are often thought of as a cash-equivalent.
Corporate bonds saw their twelfth straight week of outflows, with safe-haven Treasury bond funds picking up some of the slack.

Global chief investment officer at UBS Wealth management, Mark Haefele has cut his U.S. high-yield corporate bond position this month, having been overweight the asset class since the end of 2011.

... ... ...

As well as sticking to cash, investors pulled $7.4 billion from the State Street's SPDR S&P 500 ETF (NYSE Arca: SPY), the world's largest ETF.

[Sep 27, 2015] Paul Craig Roberts Warns The Entire World May Go Down The Tubes Together

The problem with Paul Craig Roberts thinking is that China and Russia are also neoliberal economies which exist within global financial system, controlled from Washington. But this not a typical ZeroHedge "dooms day porn". He manages to make some relevant observations about the current situation, without he definitely underestimates the resilience of the American financial empire.

"... Submitted by Paul Craig Roberts, ..."

"... China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats. ..."

"... he Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population. ..."

"... Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen. ..."

"... neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West. ..."

"... With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours. ..."

Sep 27, 2015 | Zero Hedge
Submitted by Paul Craig Roberts,
Washington's IQ follows the Fed's interest rate - it is negative. Washington is a black hole into which all sanity is sucked out of government deliberations.

Washington's failures are everywhere visible. We can see the failures in Washington's wars and in Washington's approach to China and Russia.

The visit of Chinese President Xi Jinping, was scheduled for the week-end following the Pope's visit to Washington. Was this Washington's way of demoting China's status by having its president play second fiddle to the Pope? The President of China is here for week-end news coverage? Why didn't Obama just tell him to go to hell?

Washington's cyber incompetence and inability to maintain cyber security is being blamed on China. The day before Xi Jinping's arrival in Washington, the White House press secretary warmed up President Jinping's visit by announcing that Obama might threaten China with financial sanctions.

And not to miss an opportunity to threaten or insult the President of China, the US Secretary of Commerce fired off a warning that the Obama regime was too unhappy with China's business practices for the Chinese president to expect a smooth meeting in Washington.

In contrast, when Obama visited China, the Chinese government treated him with politeness and respect.

China is America's largest creditor after the Federal Reserve. If the Chinese government were so inclined, China could cause Washington many serious economic, financial, and military problems. Yet China pursues peace while Washington issues threats.

Like China, Russia, too, has a foreign policy independent of Washington's, and it is the independence of their foreign policies that puts China and Russia on the outs with Washington.

Washington considers countries with independent foreign policies to be threats. Libya, Iraq, and Syria had independent foreign policies. Washington has destroyed two of the three and is working on the third. Iran, Russia, and China have independent foreign policies. Consequently, Washington sees these countries as threats and portrays them to the American people as such.

Russia's President Vladimir Putin will meet with Obama next week at the UN meeting in New York. It is a meeting that seems destined to go nowhere. Putin wants to offer Obama Russian help in defeating ISIS, but Obama wants to use ISIS to overthrow Syrian President Assad, install a puppet government, and throw Russia out of its only Mediterranean seaport at Tartus, Syria. Obama wants to press Putin to hand over Russian Crimea and the break-away republics that refuse to submit to the Russophobic government that Washington has installed in Kiev.

Despite Washington's hostility, Xi Jinping and Putin continue to try to work with Washington even at the risk of being humiliated in the eyes of their peoples. How many slights, accusations, and names (such as "the new Hitler") can Putin and Xi Jinping accept before losing face at home? How can they lead if their peoples feel the shame inflicted on their leaders by Washington?

Xi Jinping and Putin are clearly men of peace. Are they deluded or are they making every effort to save the world from the final war?

One has to assume that Putin and Xi Jinping are aware of the Wolfowitz Doctrine, the basis of US foreign and military policies, but perhaps they cannot believe that anything so audaciously absurd can be real. In brief, the Wolfowitz Doctrine states that Washington's principal objective is to prevent the rise of countries that could be sufficiently powerful to resist American hegemony. Thus, Washington's attack on Russia via Ukraine and Washington's re-militarization of Japan as an instrument against China, despite the strong opposition of 80 percent of the Japanese population.

"Democracy?" "Washington's hegemony don't need no stinkin' democracy," declares Washington's puppet ruler of Japan as he, as Washington's faithful servant, over-rides the vast majority of the Japanese population.

Meanwhile, the real basis of US power-its economy-continues to crumble. Middle class jobs have disappeared by the millions. US infrastructure is crumbling. Young American women, overwhelmed with student debts, rent, and transportation costs, and nothing but lowly-paid part-time jobs, post on Internet sites their pleas to be made mistresses of men with sufficient means to help them with their bills. This is the image of a Third World country.

In 2004 I predicted in a nationally televised conference in Washington, DC, that the US would be a Third World country in 20 years. Noam Chomsky says we are already there now in 2015. Here is a recent quote from Chomsky:

"Look around the country. This country is falling apart. Even when you come back from Argentina to the United States it looks like a third world country, and when you come back from Europe even more so. The infrastructure is collapsing. Nothing works. The transportation system doesn't work. The health system is a total scandal–twice the per capita cost of other countries and not very good outcomes. Point by point. The schools are declining . . ."

Another indication of a third world country is large inequality in the distribution of income and wealth. https://www.cia.gov/library/publications/the-world-factbook/fields/2172.... ">According to the CIA itself, the United States now has one of the worst distributions of income of all countries in the world. The distribution of income in the US is worse than in Afghanistan, Albania, Algeria, Armenia, Australia, Austria, Azerbaijan, Bangladesh, Belarus, Belgium, Benin, Bosnia/Herzegovina, Burkina Faso, Burundi, Cambodia, Cameroon, Canada, Cote d'Ivoire, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Ethiopia, Finland, France, Germany, Ghana, Greece, Guinea, Guyana, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Kenya, South Korea, Kyrgyzstan, Laos, Latvia, Liberia, Lithuania, Luxembourg, Macedonia, Malawi, Mali, Malta, Mauritania, Mauritius, Moldova, Mongolia, Montenegro, Morocco, Nepal, Netherlands, New Zealand, Nicaragua, Niger, Nigeria, Norway, Pakistan, Philippines, Poland, Portugal, Romania, Russia, Senegal, Serbia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Taiwan, Tajikistan, Tanzania, Timor-Leste, Tunisia, Turkey, Turkmenistan, Uganda, Ukraine, UK, Uzbekistan, Venezuela, Vietnam, and Yemen.

The concentration of US income and wealth in the hands of the very rich is a new development in my lifetime. I ascribe it to two things.

One is the offshoring of American jobs. Offshoring moved high productivity, high-value-added American jobs to countries where the excess supply of labor results in wages well below labor's contribution to the value of output. The lower labor costs abroad transform what had been higher American wages and salaries and, thereby, US household incomes, into corporate profits, bonuses for corporate executives, and capital gains for shareholders, and in the dismantling of the ladders of upward mobility that had made the US an "opportunity society."

The other cause of the extreme inequality that now prevails in the US is what Michael Hudson calls the financialization of the economy that permits banks to redirect income away from driving the economy to the payment of interest in service of debt issued by the banks.

Both of these developments maximize income and wealth for the One Percent at the expense of the population and economy.

As Michael Hudson and I have discovered, neoliberal economics is blind to reality and serves to justify the destruction of the economic prospects of the Western World. It remains to be seen if Russia and China can develop a different economics or whether these rising superpowers will fall victim to the "junk economics" that has destroyed the West.

With so many Chinese and Russian economists educated in the US [neoliberal] tradition, the prospects of Russia and China might not be any better than ours.

The entire world could go down the tubes together.
Oh regional Indian

PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...
And while there will be a lot of going down together (seems un-avoidable at this point), questions is who will rise back up first?
Hint: not nations considered "westerley". so to speak...

UndroppedClanger

'Leader' implies people at the front with some direction. Perhaps a different word would be more appropriate for this global circlejerk cadre!

ToSoft4Truth

The inverse of 'Leader' is 'follower'

Anytime you hear a person say, "There's no leadership"…. They are telegraphing to you, "I need someone to follow."

kaiserhoff

So Chomsky would rather live in Argentina?
Who's stopping him?

ebear

"I was once a DC insider"
You don't understand. I coulda had class. I coulda been a contender.

philipat

"You don't understand. I coulda had class. I coulda been a contender."
I do think that there is large dose of spite in PCR's writings, probably as a result of "The Establishment's" refusal to elect him to the CFR. However, better late than never? The one's that do get religion always do so after the event, which is, of course, part of the problem also....

Bach's_bitch

PCR is always good at rehashing crappy kabuki story-lines with a dose of "I was once a DC insider" gravitas...

"Kabuki story-lines"? Did you make that up yourself or something?

questions is who will rise back up first?

Whoever is least affected, meaning none of the big economies.

Oh regional Indian

I don't think you appreciate the subtle push of an old adage: The bigger they are, the harder they fall. You can keep nursing dreams of manifest destiny as they turn into mani-festering realities....

Jeffersonian Liberal

Any nations or ethnicities that have benefitted from parasiting on this failed, corrupt monetary system will also fall together.
The BRICS are sinking like stones. They tried to parasite off what they saw was an unending Western economic boom, unrealizing, or perhaps turning a blind eye to the fact that it has all been a bubble since the central banks took control of the currency.

TheEndIsNear

I doubt that American Generals could be bribed as easily as our government politicians.

Thick Willy

Actually, they are probably much cheaper to bribe. Dimon had to give Eric Holder a $77,000,000 per year salary to keep bankers out of prison. The generals are easily bribed with a mid 6 figure salary at some defense contractor. Some for even less.

algol_dog

I Strongly encourage people to read Mish's short blog and then check out the accompanying video. It will enlighten much more about China than this guys rant.

http://globaleconomicanalysis.blogspot.com/2015/09/how-us-corporations-c...

[Sep 26, 2015] Full text of Pope Francis speech before Congress

"... A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk. ..."

"... All of us are quite aware of, and deeply worried by, the disturbing social and political situation of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities, committed even in the name of God and of religion. ..."

"... We are asked to summon the courage and the intelligence to resolve today's many geopolitical and economic crises. Even in the developed world, the effects of unjust structures and actions are all too apparent. ..."

"... If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. ..."

"... At the risk of oversimplifying, we might say that we live in a culture which pressures young people not to start a family, because they lack possibilities for the future. Yet this same culture presents others with so many options that they too are dissuaded from starting a family ..."

Sep 26, 2015 | UPI.com

... ... ...

Each son or daughter of a given country has a mission, a personal and social responsibility. Your own responsibility as members of Congress is to enable this country, by your legislative activity, to grow as a nation. You are the face of its people, their representatives. You are called to defend and preserve the dignity of your fellow citizens in the tireless and demanding pursuit of the common good, for this is the chief aim of all politics. A political society endures when it seeks, as a vocation, to satisfy common needs by stimulating the growth of all its members, especially those in situations of greater vulnerability or risk. Legislative activity is always based on care for the people. To this you have been invited, called and convened by those who elected you.

... ... ...

All of us are quite aware of, and deeply worried by, the disturbing social and political situation of the world today. Our world is increasingly a place of violent conflict, hatred and brutal atrocities, committed even in the name of God and of religion. We know that no religion is immune from forms of individual delusion or ideological extremism. This means that we must be especially attentive to every type of fundamentalism, whether religious or of any other kind. A delicate balance is required to combat violence perpetrated in the name of a religion, an ideology or an economic system, while also safeguarding religious freedom, intellectual freedom and individual freedoms. But there is another temptation which we must especially guard against: the simplistic reductionism which sees only good or evil; or, if you will, the righteous and sinners. The contemporary world, with its open wounds which affect so many of our brothers and sisters, demands that we confront every form of polarization which would divide it into these two camps. We know that in the attempt to be freed of the enemy without, we can be tempted to feed the enemy within. To imitate the hatred and violence of tyrants and murderers is the best way to take their place. That is something which you, as a people, reject.

...We are asked to summon the courage and the intelligence to resolve today's many geopolitical and economic crises. Even in the developed world, the effects of unjust structures and actions are all too apparent. Our efforts must aim at restoring hope, righting wrongs, maintaining commitments and thus promoting the well-being of individuals and of peoples. We must move forward together, as one, in a renewed spirit of fraternity and solidarity, cooperating generously for the common good.

The challenges facing us today call for a renewal of that spirit of cooperation, which has accomplished so much good throughout the history of the United States. The complexity, the gravity and the urgency of these challenges demand that we pool our resources and talents, and resolve to support one another, with respect for our differences and our convictions of conscience.

In this land, the various religious denominations have greatly contributed to building and strengthening society. It is important that today, as in the past, the voice of faith continue to be heard, for it is a voice of fraternity and love, which tries to bring out the best in each person and in each society. Such cooperation is a powerful resource in the battle to eliminate new global forms of slavery, born of grave injustices which can be overcome only through new policies and new forms of social consensus.

...If politics must truly be at the service of the human person, it follows that it cannot be a slave to the economy and finance. Politics is, instead, an expression of our compelling need to live as one, in order to build as one the greatest common good: that of a community which sacrifices particular interests in order to share, in justice and peace, its goods, its interests, its social life. I do not underestimate the difficulty that this involves, but I encourage you in this effort.

... ... ...

The fight against poverty and hunger must be fought constantly and on many fronts, especially in its causes. I know that many Americans today, as in the past, are working to deal with this problem.

It goes without saying that part of this great effort is the creation and distribution of wealth. The right use of natural resources, the proper application of technology and the harnessing of the spirit of enterprise are essential elements of an economy which seeks to be modern, inclusive and sustainable. "Business is a noble vocation, directed to producing wealth and improving the world. It can be a fruitful source of prosperity for the area in which it operates, especially if it sees the creation of jobs as an essential part of its service to the common good" (Laudato Si', 129). This common good also includes the earth, a central theme of the encyclical which I recently wrote in order to "enter into dialogue with all people about our common home" (ibid., 3). "We need a conversation which includes everyone, since the environmental challenge we are undergoing, and its human roots, concern and affect us all" (ibid., 14).

In Laudato Si', I call for a courageous and responsible effort to "redirect our steps" (ibid., 61), and to avert the most serious effects of the environmental deterioration caused by human activity. I am convinced that we can make a difference and I have no doubt that the United States – and this Congress – have an important role to play. Now is the time for courageous actions and strategies, aimed at implementing a "culture of care" (ibid., 231) and "an integrated approach to combating poverty, restoring dignity to the excluded, and at the same time protecting nature" (ibid., 139). "We have the freedom needed to limit and direct technology" (ibid., 112); "to devise intelligent ways of . . . developing and limiting our power" (ibid., 78); and to put technology "at the service of another type of progress, one which is healthier, more human, more social, more integral" (ibid., 112). In this regard, I am confident that America's outstanding academic and research institutions can make a vital contribution in the years ahead.

... ... ...

...At the risk of oversimplifying, we might say that we live in a culture which pressures young people not to start a family, because they lack possibilities for the future. Yet this same culture presents others with so many options that they too are dissuaded from starting a family.

... ... ...

[Sep 26, 2015] Paul Krugman Dewey, Cheatem Howe

"... That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection! ..."

"... The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). ..."

Sep 26, 2015 | economistsview.typepad.com

Economist's View
Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.

Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.

Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

reason

"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

reason

"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

[Sep 26, 2015] The City Of London Has Turned Britain Into A Civilized Mafia State

"... Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that "the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK." ..."

"... The City is a semi-offshore state, a bit like the UK's crown dependencies and overseas territories, tax havens legitimised by the Privy Council. Britain's financial secrecy undermines the tax base while providing a conduit into the legal economy for gangsters, kleptocrats and drug barons. ..."

"... Yep. Socialism for us. Feudalism for the people. Because.....we're too big to fail. "They gotcha by the balls -- " - George Carlin ..."

"... London is an independent city-state, with mafia owners going back 1000+ years. Website admits it's a corporation http://www.cityoflondon.gov.uk/Pages/default.aspx ..."

"... assassination politics: http://www.forbes.com/sites/andygreenberg/2013/11/18/meet-the-assassinat... ..."

"... I'm not sure that author actually knows what he is talking about. "The City" has nothing do with domestic UK money laundering in real estate, because no one with money actually lives in "the City." They generally live in the West End or on country estates- that's the real estate that is being used to launder money. And the City is hardly the UK's only tax haven for corporations -- Jersey, Guernsey and Isle of Man are all short puddle jumper flights from LCY, and if you want to use long haul flights out of Heathrow- the list of Crown dependencies and overseas territories serving as tax havens is almost endless... the Cayman Islands, British Virgin Islands and the Bermuda Triangle being the most familiar to Americans trying to lose fiat in boating accidents. ..."

"... "What Do You Think of Western Civilization?" "I Think It Would Be a Good Idea" -- Gandhi

"...London is now the global money-laundering centre for the drug trade, says crime expert ..."

"... It's a big club and we ain't in it...... R.I.P. George Carlin ..."

"... "The City" = croupier and enforcer of the global casino. ..."

"... The lesson - a financial sector without a commensurate sized industrial base will rapidly evolve into organised crime. ..."

Sep 10, 2015 | Zero Hedge
Submitted by Mike Krieger via Liberty Blitzkrieg blog,
While an earlier post related to the likely bursting of the London real estate bubble, this one highlights a blistering critique of the role the City of London has played in transforming Great Britain into what George Monbiot calls a "civilized mafia state." But that's just an appetizer. This extremely well written and information article is a must read for anyone still in the dark regarding London's central role within the global financial crime syndicate.

Here are a few excerpts from the Guardian:

To an extent unknown since before the first world war, economic relations in this country are becoming set in stone. It is not just that the very rich no longer fall while the very poor no longer rise. It's that the system itself is protected from risk. Through bailouts, quantitative easing and delays in interest-rate rises, speculative investment has been so well cushioned that – as the Guardian economics editor, Larry Elliott, puts it – financial markets are "one of the last bastions of socialism left on Earth".

Public services, infrastructure, the very fabric of the nation: these too are being converted into risk-free investments. Social cleansing is transforming central London into an exclusive economic zone for property speculation. From a dozen directions, government policy converges on this objective.

Property in this country is a haven for the proceeds of international crime. The head of the National Crime Agency, Donald Toon, notes that "the London property market has been skewed by laundered money. Prices are being artificially driven up by overseas criminals who want to sequester their assets here in the UK."

It's hardly surprising, given the degree of oversight. Private Eye has produced a map of British land owned by companies registered in offshore tax havens. The holdings amount to 1.2m acres, including much of the country's prime real estate. Among those it names as beneficiaries are a cast of Russian oligarchs, oil sheikhs, British aristocrats and newspaper proprietors. These are the people for whom government policy works – and the less regulated the system that enriches them, the happier they are.

The speculative property market is just one current in the great flow of cash that sluices through Britain while scarcely touching the sides. The financial sector exploits an astonishing political privilege: the City of London is the only jurisdiction in the UK not fully subject to the authority of parliament. In fact, the relationship seems to work the other way. Behind the Speaker's chair in the House of Commons sits the Remembrancer, whose job is to ensure that the interests of the City of London are recognised by the elected members. (A campaign to rescind this privilege – Don't Forget the Remembrancer – will be launched very soon.)

The City is a semi-offshore state, a bit like the UK's crown dependencies and overseas territories, tax havens legitimised by the Privy Council. Britain's financial secrecy undermines the tax base while providing a conduit into the legal economy for gangsters, kleptocrats and drug barons.

Even the more orthodox financial institutions deploy a succession of scandalous practices: pension mis-selling, endowment mortgage fraud, the payment protection insurance con, Libor rigging. A former minister in the last government, Lord Green, ran HSBC while it engaged in money laundering for drug gangs, systematic tax evasion and the provision of services to Saudi and Bangladeshi banks linked to the financing of terrorists. Sometimes the UK looks to me like an ever so civilised mafia state.

The government also insists that there is no link between political donations and seats in the House of Lords. But a study by researchersat Oxford University found that the probability of so many major donors arriving there by chance is 1.36 x 10-38: roughly "equivalent to entering the National Lottery and winning the jackpot 5 times in a row". Why does the Lords remain unreformed? Because it permits plutocratic power to override democracy. Both rich and poor are kept in their place.

Governed either by or on behalf of the people who fleece us, we cannot be surprised to discover that all public services are being re-engineered for the benefit of private capital. Nor should we be surprised when governments help to negotiate, without public consent, treaties such as the Transatlantic Trade and Investment Partnership and the Comprehensive Economic and Trade Agreement, which undermine the sovereignty of both parliament and the law. Aesop's observation, that "we hang the petty thieves and appoint the great ones to public office", remains true in spirit, though hanging has been replaced by community payback.

Wherever you sniff in British public life, something stinks: I could fill this site with examples. But, while every pore oozes corruption, our task, we are told, is merely to trim the nails of the body politic.

To fail to confront this system is to collaborate with it.

Most people don't want to face this, but it's undeniably true.

umbotron

Yep. Socialism for us. Feudalism for the people. Because.....we're too big to fail. "They gotcha by the balls -- " - George Carlin

JoeSexPack

London is an independent city-state, with mafia owners going back 1000+ years. Website admits it's a corporation http://www.cityoflondon.gov.uk/Pages/default.aspx

Short vid explains.

https://www.youtube.com/watch?v=LrObZ_HZZUc

Why matters? The square mile is home to Bank of England (private corp), HQ of Freemasons & branch offices of all major banks on Earth. It is center of world finance, & has been for centuries. Privately-owned Bank of E was model later replicated with FED, ECB, WB, IMF & most others.

US revolutionary War was fought to fee US from having to use Bank of E's debt notes. Sound familiar? We're back there now. Same struggle against same institutions.

KnuckleDragger-X

If you read about the history of London, you'll notice it has always been a very bizarre and screwed up place. They are now reaching their Nirvana of fucked uppedness.....

two hoots

What they can no longer do with their Dutch East India Company and with the by-gone reach of the Empire they do in the M A Rothschild tradition with their global financial tenacles

Chuck Knoblauch

Civilized assassins needed.

sleigher

assassination politics: http://www.forbes.com/sites/andygreenberg/2013/11/18/meet-the-assassinat...

lawyer4anarchists

Of course the author is right. And of course this has always been the case, it is not new. The problem we have in this country is that the people have the laughable notion that there is some magical time to "go back to" where the "constitution and it's rights" were the law. lol. The people are so lost. The constitution is not what people think. It is there to enslave you. It was never a source of freedom. Until they wake up and realize this fact, well... they will keep getting what they are getting. http://www.thetruthaboutthelaw.com/the-peoples-case-for-what-happened-at...

Urban Redneck

I'm not sure that author actually knows what he is talking about. "The City" has nothing do with domestic UK money laundering in real estate, because no one with money actually lives in "the City." They generally live in the West End or on country estates -- that's the real estate that is being used to launder money. And the City is hardly the UK's only tax haven for corporations -- Jersey, Guernsey and Isle of Man are all short puddle jumper flights from LCY, and if you want to use long haul flights out of Heathrow -- the list of Crown dependencies and overseas territories serving as tax havens is almost endless... the Cayman Islands, British Virgin Islands and the Bermuda Triangle being the most familiar to Americans trying to lose fiat in boating accidents.

Peribanu

Unlike the Yanks, we Brits don't have a constitution written down from first principles. Our "constitution" is the body of laws of the country, but it goes back so far that any contemporary changes are minor, superficial, and irrelevant. Many of the formal institutional powers in the country are the unfortunate but necessary result of a compromise between landowning aristocrats of old and the bourgeoisie who wanted a slice of the cake. The workers are merely tolerated. The internal mafia are the oh-so-very-refined aristocracy, whose heads were never cut off unlike in France, together with the rather uncouth capitalists and self-made money men, who are also tolerated, since someone has to provide one with an income, ideally by devising ways to get the workers to pay 90%-100% of their income back to us as rent. The other mafia are the rich foreigners -- Russian oligarchs, and the "persecuted" rich of the world, who are allowed to reside in Britain on condition that: a) they bring in lots of lovely "investments"; and b) don't get involved, at least publicly, in any of that unnecessary "politics" that goes on overseas. In Britain we long ago abolished politics. The commoners come and go with their naive belief that they can actually change things, while the core institutions of the country are unchanging and eternal: Eton, Oxford, Cambridge, the Civil Service, MI5, MI6, the BBC, and, of course, the Monarchy. God Save the Queen! (Or should I call her the Godmother?)

q99x2

The scum of the world all located in one place. How convenient is that. Won't be long before they start going after one another. Then poof.

JustObserving

Re: The City Of London Has Turned Britain Into A "Civilized Mafia State"

Civilized?
"What Do You Think of Western Civilization?" "I Think It Would Be a Good Idea" -- Gandhi
London is now the global money-laundering centre for the drug trade, says crime expert

The City of London is the money-laundering centre of the world's drug trade, according to an internationally acclaimed crime expert.

UK banks and financial services have ignored so-called "know your customer" rules designed to curb criminals' abilities to launder the proceeds of crime, Roberto Saviano warned. Mr Saviano, author of the international bestseller Gomorrah, which exposed the workings of the Neapolitan crime organisation Camorra, said: "The British treat it as not their problem because there aren't corpses on the street."

http://www.independent.co.uk/news/uk/crime/london-is-now-the-global-mone...
London: A giant washing machine for the filthy cash of a corrupt elite: http://www.ibtimes.co.uk/london-giant-washing-machine-filthy-cash-corrup...
Calculus99

London: The money laundering capital of the world.

Fear not though because Prime Minister Cameron has said he's going to stamp down on it especially the offshore companies that are buying up all the property. BWHAHAHAHAHA.

ThroxxOfVron

...& Obama's new Affirmative Action figurehead at the DOJ has agreed with her underlings that since it is now well past the Statute Of Limitations for prosecuting anything even vaguely related to the fraud-induced economic disaster which culminated in the interbank and equities markets implosions that it is time 'to get touch on White Collar Crime.'

Dr. Engali

It's a big club and we ain't in it...... R.I.P. George Carlin

Salah

Been that way since their founders escaped from the Pope & the King of France, 10/13/1307

https://lordmayorsshow.london/history/gog-and-magog

Jonathan Living...

I'm fascinated by The City - so much of British law seems so weird ~ even just the status of Wales, which is in some ways its own country within the UK, some ways just part of England, but they have their own Parliament.

Anyway there's always google, but if anyone has come across any particularly good articles or books on the subject of the City's history and status, please share the wealth.

I wonder if, like our Electoral college, most people would agree it should be abolished but most people simply dont know about it.

22winmag

Let's dismantle Miami and sell it off in order to fund the criminal prosecution and incarceration of the CIA scum and drug runners who built that city thanks to decades of drug smuggling and money laundering. Then we move on to D.C.

Salah

No, make NYC & Long Island a US "City-State", but with no US Congressional representation, or taxation, or US financial insurance guarantees or citizenship.

1 crash later, they'll clean-up mightily and be a little Dubai.

jcdenton

We do have $100 BILLION for that on the way ..

http://www.veteranstoday.com/2015/01/11/another-thwarted-attempt-to-hija...

Another major disbursement scheduled is 100 Billion USD to set up an ongoing special Task Force to investigate and prosecute organized crime and government and corporate corruption at any level.

... Funds were disbursed on December 15, 2014 ...

https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp (see file with interview dated Dec. 3, 2014)

youngman

Well they still have a Royal Family...go figure......and remember any news or numbers that come out of London are probably wrong... Faked...or just fixed....they cheat well there

rufus66

Meanwhile in the news today, Revenue Canada uncovers something fishy regarding between kpmg's Great Britain connection and rich clients ......

http://www.cbc.ca/news/business/kpmg-offshore-sham-deceived-tax-authorit...

Solio

"So it just means that more of the tax burden is borne by the middle class."

What middle class?!!

Calculus99

The difference between Miami and London is Miami knows it's bent. London likes to hide/forget and think/preach it's honest.

homebody

This will be fixed by adding 800,000 economic refugees from Syria and Africa

XRAYD

London has always been thus ... from the age of Dickens, and the Colonial Empire Head Office - now masquerading as the "Commonwealth"!

NotApplicable

Indeed.

It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way - in short, the period was so far like the present period, that some of its noisiest authorities insisted on its being received, for good or for evil, in the superlative degree of comparison only.

Salah

"The City" = croupier and enforcer of the global casino.

1. Look for things to "break apart", i.e. Ottoman Empire, Hapsburg Empire, Russian Empire, Spanish Empire, USSR, et al

2. Look for things to "put together", i.e. USA, Chile (sans Bolivia on the Pacific), South Africa, Rhodesia, Oz, NZ, Hong Kong, Singapore, et al

They've been working this biz-model since the North Sea Knights Templars escaped the big deception in 1307

JessieSharpton

Ah the knights templar, the prototypical pre Rothschild banking mafia incarnation.

SillySalesmanQu...

Just my own personal observation here, but what do these three things have in common, why and who created them in the first place?

Most bad shit that happens to average people seem to emanate from:

1. Vatican City

2. City of London

3. Washington D.C.

Chosenpeople

Britain has become a classic dystopian state. They have cameras everywhere, and I mean everywhere. The state runs and controls everything. The place is swarming with foreigners, it is difficult to find a white Englishman in London. Britain is dead.

ajax

London became the mega-city in "Blade Runner" instead of L.A.

umblemore

Before the banking mafia looted Britain's industrial base and shipped it offshore industry was the dominant power and although the City was part crooked it was also kept part functional as a utility for industry.

Over the last 30 years or so since they offshored all the industry the financial power has become completely dominant and completely criminal. To a certain extent the London branches of the Wall St banks are where they do their dirtiest deeds because it's easier to get away with in London.

The lesson - a financial sector without a commensurate sized industrial base will rapidly evolve into organised crime.

MSimon

For several Centuries Brit banks have been running the dope racket.

You might recall "Opium Wars" or if you want to be modern - NATO in Afghanistan.

jcdenton

Next, we will have the courage to write about Dachau?

http://www.veteranstoday.com/2015/05/04/neo-so-much-more-than-nukes/

MSimon

Since 1840 - at least

http://www.zerohedge.com/news/2015-09-07/bed-despotic-house-saud#comment...

MSimon

The Brits have been at it for a long time: http://www.zerohedge.com/news/2015-09-07/bed-despotic-house-saud#comment...

[Sep 26, 2015] The Table Is Set For The Next Financial Crisis

"... The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. ..."

Sep 26, 2015 | Zero Hedge
The housing market peaked in 2005 and proceeded to crash over the next five years, with existing home sales falling 50%, new home sales falling 75%, and national home prices falling 30%. A funny thing happened after the peak. Wall Street banks accelerated the issuance of subprime mortgages to hyper-speed. The executives of these banks knew housing had peaked, but insatiable greed consumed them as they purposely doled out billions in no-doc liar loans as a necessary ingredient in their CDOs of mass destruction.
The millions in upfront fees, along with their lack of conscience in bribing Moody's and S&P to get AAA ratings on toxic waste, while selling the derivatives to clients and shorting them at the same time, in order to enrich executives with multi-million dollar compensation packages, overrode any thoughts of risk management, consequences, or the impact on homeowners, investors, or taxpayers. The housing boom began as a natural reaction to the Federal Reserve suppressing interest rates to, at the time, ridiculously low levels from 2001 through 2004 (child's play compared to the last six years).

... ... ...

Greenspan created the atmosphere for the greatest mal-investment in world history. As he raised rates from 2004 through 2006, the titans of finance on Wall Street should have scaled back their risk taking and prepared for the inevitable bursting of the bubble. Instead, they were blinded by unadulterated greed, as the legitimate home buyer pool dried up, and they purposely peddled "exotic" mortgages to dupes who weren't capable of making the first payment. This is what happens at the end of Fed induced bubbles. Irrationality, insanity, recklessness, delusion, and willful disregard for reason, common sense, historical data and truth lead to tremendous pain, suffering, and financial losses.

Once the Wall Street machine runs out of people with the financial means to purchase a home or buy a new vehicle, they turn their sights on peddling their debt products to financially illiterate dupes. There is a good reason people with credit scores below 620 are classified as sub-prime. Scores this low result from missing multiple payments on credit cards and loans, having multiple collection items or judgments and potentially having a very recent bankruptcy or foreclosure. They have low paying jobs or no job at all. They do not have the financial means to repay a large loan. Giving them a loan to purchase a $250,000 home or a $30,000 automobile will not improve their lives. They are being set up for a fall by the crooked bankers making these loans. Heads they win, tails the dupe gets kicked out of that nice house onto the street and has those nice wheels repossessed in the middle of the night.

The subprime debacle that blew up the world in 2008 was created by the Federal Reserve, working on behalf of their Wall Street owners. When interest rates are set by central planners well below levels which would be set by the free market, based on risk and return, it creates bubbles, mal-investment, and ultimately financial system disaster. Did the Fed, Wall Street, politicians, and people learn their lesson? No. Because we bailed them out with our tax dollars and have silently stood by while they have issued $10 trillion of additional debt to solve a debt problem. The deformation of our financial system accelerates by the day.

The $3.5 trillion of QE, six years of 0% interest rates for Wall Street (why are credit card interest rates still 13%?), and $8 trillion of deficit spending by the Federal government have provided the outward appearance of economic recovery, as the standard of living for most Americans has declined significantly. With real median household income still 6.5% BELOW 2007 levels, 7.3% BELOW 2000 levels, and about equal to 1989 levels, the only way the ruling class could manufacture a fake recovery is by ramping up the printing presses and reigniting a housing bubble and an auto bubble. They even threw in a student loan bubble for good measure.

... ... ...

The entire engineered "housing recovery" has had a suspicious smell to it all along. The true bottom occurred in 2009 with an annual rate of 4 million existing home sales. An artificial bottom of 3.5 million occurred in 2010 after the expiration of the Keynesian first time home buyer credit that lured more dupes into the market. The current rate of 5.31 million is at 2007 crash levels and on par with 2001 recession levels. With mortgage rates at record low levels for five years, this is all we got?

What really smells is the number of actual mortgage originations that have supposedly driven this 35% increase in existing home sales. If existing home sales are at 2007 levels, how could mortgage purchase applications be 55% below 2007 levels? If existing home sales are up 35% from the 2009/2010 lows, how could mortgage purchase applications be flat since 2010?

New home sales are up 80% from the 2010 lows, but before you get as excited as a CNBC bimbo over the "surging" new home sales, understand that new home sales are still 60% BELOW the 2005 high and 25% below the 1990 through 2000 average. So, in total, there are 1.5 million more annual home sales today than at the bottom in 2010. But mortgage originations haven't budged. That's quite a conundrum.

As you can also see, the median price for a new home far exceeds the bubble highs of 2005. A critical thinking individual might wonder how new home sales could be down 60% from 2005, while home prices are 15% higher than they were in 2005. Don't the laws of supply and demand work anymore? The identical trend can be seen in the existing homes sales market. The median price for existing home sales of $228,700 is an all-time high, exceeding the 2005 bubble levels. Again, sales are down 30% since 2005. I wonder who is responsible for this warped chain of events?

AlaricBalth

This FRED chart I have posted, which corresponds with the effective Fed Funds Rate chart in the article, will show exactly what a daunting problem the the US and the Federal Reserve is being forced to deal with. I have overlaid the Labor Force Participation Rate with M2 Velocity of Money, each beginning in 1960. M2 velocity refers to how fast money passes from one holder to the next. The labor force participation rate is a measure of the share of Americans at least 16 years old who are either employed or actively looking for work. If money demand is high, it could be a sign of a robust economy, with the usual corresponding inflationary pressure.

As you can see, each peaked around 1997-98 and have been in slow decline ever since. Unless the Fed has a plan to increase the LFPR, people are not going to be spending money they just do not have.

Demographically, this is not going to happen. Baby boomers will still be retiring at a rate of 10,000 per day and manufacturing is never coming back to the US until we are a third world country with a cheap labor force.

This is not an issue that can be fixed by political promises. So no matter which political party is in control, this will not be repaired with platitudes. This is a structural macro-economic phenomenon which is caused by demographics and poor long term fiscal planning.

https://research.stlouisfed.org/fred2/graph/fredgraph.png?g=1Vst

TeethVillage88s

Anyone have this video?

Elizabeth Warren Video, Late Night with Steven Colbert, 23 Sept 2015.

Defends Dodd-Frank and gave stats to prove the value of CFPB formed, like 650,000 complaints handled, and many changes forced on corporations.

Edit: Looks like CBS didn't release the segment of Elizabeth Warren only, so you have to go through whole show or just the 2:00 minute segment that only shows her saying she is not running for President.

Shame on CBS, as usual.

http://www.cbs.com/shows/the-late-show-with-stephen-colbert/video/jUNG_y...

Apparently I don't have the computer configured to play it anyway.

FreedomGuy

I do not think Wall Street and your local bankers or mortgage brokers are the bad guys here. Frankly, they look at the rules and try to make a living in the mortgage business. They are not angels but neither are they demons and I do not think they purposely write bad business.

I think the Wizard of Evil behind the curtain is first and last the government including a GSE like the Fed. They set this stuff up. You know you can load up Freddie and Fannie with smelly stuff and off-load risk. They hold rates near historic lows so people can buy more.

This drives prices and all the flipping crap and related stuff I hate.

I am in the middle of this. Being an avid reader of ZH I have become a proper pessimist. I did a cash-out refi and am paying off virtually all other loans...or more properly moving them to the tax deductible home loan. I was going to rent and move north because of work but after lots of research, breathtaking price increases and a few other cautions I decided to sit it out.

I am going to see what the economic terrain looks like in 6 months or more.

The thing is you have to play the game as it is, today, not as you think it should be.

marts321

Don't hate the player, hate the game.

TeethVillage88s

Check out the growth of Holding companies.

Financial Business; Credit Market Instruments; Liability, Level
2015:Q1: 14,104.57 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, TCMDODFS,

Holding Companies; Credit Market Instruments; Liability, Level
2015:Q1: 1,380.52 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBBHCTCMDODFS,
https://research.stlouisfed.org/fred2/series/CBBHCTCMDODFS

U.S.-Chartered Depository Institutions; Credit Market Instruments; Liability, Level
2015:Q1: 669.90 Billions of Dollars (+ see more)
Quarterly, End of Period, Not Seasonally Adjusted, CBTCMDODFS,

Now, we know that in 2007 the Biggest Wall Street banks wanted access to Deposits in the USA. So maybe I don't have the date, could have been planned from Lehman Request date to become a Deposit Bank while an Investment Bank.

So today we have Holding Companies that are allowed to have Deposits while doing commercial and investment work and proprietary trading... and now are 30% Bigger after all the Bailouts and transfer of Taxpayer and Retirement Funds to them.

Holding Companies have Doubled Liability since 3QTR 2007

Wow

TeethVillage88s

Too Bad we don't have Honest Brokers in DOJ, FBI, SEC, FINRA, FTC, GAO, CBO, FED, Treasury, OCC, FSOC, BCFP, CFTC, FDIC, FHFA, SIPC

I'm not sure how you can isolate or focus your condemnation or fault.

- Private & Public Pensions, Retirement Funds, Deposit Insurance, The Fact that our Wall Street Banks are Borg connecting to AI Technology,... and Complexity is increasing at an Exponential Rate meaning Risk is Exponential as well

- Big Concern -- pay outs for Pension Benefit Guaranty Corporation (federal Trust Fund), 1999 = $1.23 Billion, 2000 = $1.35 Billion, 2001 =$1.37 Billion. Okay, but today 2010 = $5.59 B, 2011 = $5.89 B, 2012 = $5.86 B, 2013 = $5.89 B. There is a continual need to supplement Pensions. 2010 PBGC's deficit increased 4.5 percent to $23 billion (Liabilities beyond assets)

- Federal direct student loan program 1999 = $52 Billion, INCREASED to 2013 = $675 Billion. (Risky)

- 2013 Total FDIC Trust Fund in Treasuries = $36.9 Billion + $18 billion in the DIF (Risky)

- 2013 Total National Credit Union Trust in Treasuries = $11.2 Billion

Edit: This applies, $8.16 Trillion in US Deposits

Total Savings Deposits at all Depository Institutions
2015-09-07: 8,164.3 Billions of Dollars (+ see more)
Weekly, Ending Monday, Not Seasonally Adjusted, WSAVNS,
https://research.stlouisfed.org/fred2/series/WSAVNS

dizzyfingers

"Sociopaths" (psychopaths) rise to the top. They are not like others. http://www.healthguidance.org/entry/15850/1/Characteristics-of-a-Sociopath.html

EndOfDayExit

To all hysterical critics of the FED, what do you suggest they do instead? The rich can do nothing, sit it out, the poor meanwhile will starve and die (and probably riot before they die).

The poor need jobs. Now almost at any cost, because those jobs are few and far in between as we are competing with China. So they do ZIRP, NIRP whatever, something, anything to at least marginally force the rich to spend. For, if people do not spend there will be even less jobs…and less tax revenue collected for the government to run and distribute around… and it all starts going downhill.

The FED is just trying to keep the system at the higher spending point. It does not seem to work very well, but the next option is a direct confiscation and redistribution of assets (to keep those poor jobless souls content). Nobody gives a f* about inequality until it becomes a riot-provoking problem itself. Ugly as it is there is actually logic in what the FED is doing.

Batman11

The globalists rush to take the profits in the good times but run and hide in the bad.

Where is the profit in sorting out the bad times? In the bad times national institutions, Governments and Central Banks, get left to sort out the mess loading the costs onto national tax payers.

When things go wrong nationalism rises as each nation is left to fend for itself. We should know how it works by now, this isn't the first time.

1920s/2000s - high inequality, high banker pay, low regulation, low taxes for the wealthy, robber barons (CEOs), reckless bankers, globalisation phase

1929/2008 - Wall Street crash

1930s/2010s - Global recession, currency wars, rising nationalism and extremism

1940s/? - Global war

We are nearly there with the Middle East on fire and the two nuclear super-powers at each other's throats.

Maybe next time we will know better, third time lucky.

mianne

Cherry picker, I agree with you : " All our government up here has to do is get out of NATO, disband our version of the CIA, divorce Homeland Security, duty and tax all imports to the hilt, keep our water, electricity and natural resources to ourselves and manufacture our own products... Then you can have all the wars you want in the middle east and we will watch it on television without worrying about whether to be part of the murder brigade or not."
But as for ourselves, as governed by the totalitarian EU whose representatives are non elected by people, but were chosen by the international finance tycoons ( our elected presidents deprived of any power by the supranational non elected entity, US- OTAN driven European Union), we are just powerless slaves .

However we won the referendum ( 52 % ) against the content of the Maastricht-Lisbon European Constitution, but they do not take it into account, submitting us to the ignominious treaty . Democracy ?

[Sep 26, 2015] Is the shale gas revolution over

"... natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years. ..."

"... While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom. ..."

Sep 20, 2015 | www.usatoday.com

While everyone is watching the oil bust, there is another bust going on - one for natural gas.

Before there was a boom in oil production in the United States, there was the "shale gas revolution." That is where we all became familiar with terms like "fracking." And the Marcellus, Haynesville, and Barnett Shales were famous long before the Bakken or Permian.

The surge in natural gas production crashed prices, fueling a huge increase in activity in petrochemicals and causing a major switch from coal to natural gas in the electric power industry. Aside from a few brief moments (such as the winter of 2014), natural gas has mostly traded around $4 per million Btu (MMBtu) or lower since the financial crisis of 2008.

But unlike oil, the boom in shale gas did not stop with plummeting prices. U.S. natural gas production continued to climb. For example, production from the prolific Marcellus Shale – which spans Pennsylvania, West Virginia and Ohio – skyrocketed from less than 2 billion cubic feet per day (bcf/d) in 2009, to a record-high of over 16.5 bcf/d this year. And the dramatic ramp up in production occurred over several years when prices were extremely low.

Much of that has to do with the huge innovations in drilling techniques, including fracking and horizontal drilling, which allowed for production to remain profitable despite the downturn in prices. But some of the credit also goes to drillers searching for more lucrative natural gas liquids and crude oil. Dry natural gas is produced in association with oil. With oil prices extremely high, especially in the period between 2010 and 2014, drillers continued to produce natural gas even if they were looking for oil.

So only after oil prices busted did natural gas production start to slow down. In fact, while the markets are eagerly watching for declines in oil production, few are noticing that natural gas production is also declining. The EIA reports that in October, several of the largest shale gas regions will post their fourth month in a row of production declines. With a loss of around 208 million cubic feet per day expected in October, the four-month drop off will be the longest streak of losses in about eight years.

It is no surprise that the Eagle Ford will represent the largest losses, with a decline of 117 million cubic feet per day expected in October. That is because oil is a much more prized commodity in South Texas, so the decline is largely attributable to disappearing crude oil rigs.

While U.S. shale gas remained resilient through several years of low natural gas prices, the collapse in oil prices are finally putting an end to the boom.

MORE:

Environmental groups target fossil fuel production on federal lands

Oil industry influence waning amid oil price slump

For Canadian oil sands, It's adapt or die
OilPrice.com is a USA TODAY content partner offering oil and energy news and commentary. Its content is produced independently of USA TODAY.

[Sep 25, 2015] Why Dont Commercial Bankers Understand the Interests of Their Class Fraction

" ...As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects."

" ...A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk."

Sep 25, 2015 | www.bradford-delong.com
Cervantes said: September 14, 2015 at 11:23 AM
Well, I'm just a medical sociologist, so what do I know, but my bank essentially pays zero interest on deposits and charges 4.5% interest on mortgages. So they seem to be in a perfectly good place as far as I can tell.

BruceJ -> Cervantes: September 14, 2015 at 11:48 AM

Beat me to it. My savings interest rate is 0.1%. The bank's (actually a credit union) current 30-year mortgage rate is 4.125%, inflation right now is 0.2%. (so in real world terms I'm losing money daily on my "savings").
By my admittedly non-R-programmed mere fingermath calculations they're making 412.5- 3=409.5 basis points on those loans, comfortably above their 300 point bar. They may not be maximizing their profits, but they're making them, and playing safe to boot.

And so long as the 0.01% have a stranglehold on profits and wages, inflation isn't going anywhere, except, of course, for yachts and Picassos.

Of course so long as the 0.01% have that stranglehold, not much of anything is going anywhere.

jorgensen said: September 14, 2015 at 12:13 PM

I do not understand Brad's faith in the magical ability of inflation to stimulate the economy.

Jerry Brown said: September 14, 2015 at 01:57 PM

To the extent that commercial bankers are able to exploit their very special access to the Federal Reserve, they are most certainly rentiers. At least if I am understanding that term correctly.

Michael Finn said: September 14, 2015 at 03:55 PM

`Brad, I don't think you get that a lot these people are not rational. These are people who think that as soon as inflation starts up then the entire bill of treasuries that the Fed has will come due.
They actually do believe in Glenn Beck and the rest of the psychos. A man that I knew who owns several million ft^2 of timber that got rid of it because he thought inflation was coming. He liquidated everything he had and I haven't seen him since.

These people are probably not the majority of their clients but they are definitely the LOUDEST.

Graydon said: September 14, 2015 at 06:41 PM

They certainly are part of the rentier class. They didn't used to be, and they shouldn't be, but iron and gold they are today.
Banks make their money on fees; the interest rate spreads are a mere bagatelle. This is a consequence of deregulation more than it's a consequence of electronic transaction technologies.

It's pretty darn near the power to tax; banks get a cut of the entire economy because they get at least a couple percent every time money changes hands. (Look at Square's pitch to merchants -- a consistent two-point-something percent rate for clearing credit card transactions. The bank version goes up to 10%.)

As long as that's true, the zero lower bound is annoying, but it doesn't really affect profitability. Profitability is guaranteed by the existence of an economy.

Graydon -> Graydon: September 14, 2015 at 06:45 PM

And I note that it purely doesn't matter what the fees are as long as the banks don't significantly vary among themselves as to what the fees should be.
That is, there isn't a market for commercial banking services. There's an ostensibly informal cartel.

Max Rockbin -> BruceJ: September 14, 2015 at 11:11 PM

I'm with you guys. This article makes no sense. What loans (of any kind really) is he seeing banks make at <3%? Even a 5/1 ARM (with points) is over 3% and most loans are fixed rate anyway.

reason said: September 15, 2015 at 12:19 AM

Jorgensen
I do not understand your magical faith in inflation arriving without stimulation.

kbis said: September 15, 2015 at 01:13 AM

Well I'm not very sure that commercial banks are intermediaries. Not anymore. They have a far bigger role in the financial landscape: money creation. There's no intermediation involved here, just leveraged money creation on the basis of the fractional reserve.
That's a huge role, one that private off-bank lenders cannot do.

bakho said: September 15, 2015 at 05:26 AM

The Fed's "official" reasoning:

"The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve's mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public's ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling--a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term. "

http://www.federalreserve.gov/faqs/economy_14400.htm

I don't know why they think a higher inflation rate would make it harder to make long term decisions.

bakho said: September 15, 2015 at 05:31 AM

Here's Stanley Fisher:
"It is important to keep inflation low enough so that people need not pay it any attention. At 2 percent annual inflation, a dollar loses half its value in about 36 years; at 4 percent inflation it takes about 18 years. When you start getting up to 4 percent inflation you begin to see signs of indexation coming back and a whole host of the inefficiencies and distortions. A 4 percent target a mistake."

Rob said: September 15, 2015 at 05:33 AM

"And commercial banks really do not want to sock their depositors with unexpected fees"
BWAHAHAHAAHAHA!

Wow Brad that is a good joke there! Of course banks use unexpected fees. Lock in with a bank is real. do you want to go and change your autopay every month? Banks compete for deposits on rates and "free" checking and then hit customers after lock in.

bakho said: September 15, 2015 at 05:52 AM

Two percent inflation might work if fiscal stimulus would reliably fill the output gap during steep recessions. Fiscal policy has proved unreliable and prone to making matters worse with austerity policy.
Current policy seems to be driven by failed models and misinformation.

Should the Fed make policy based on ideal fiscal policy? or the ugly reality of misguided fiscal policy?
What are the odds of a candidate from the Clown Car stepping into the driver's seat for fiscal policy?

bakho said: September 15, 2015 at 06:07 AM

From Money, Banking and Financial Markets. By Laurence Ball
Inflation and the Savings and Loan Crisis
In the early 1960s* U.S. inflation rates averaged less than 2 percent per year. This situation appeared stable, so people expected low inflation to continue in the future. However, inflation rose rapidly in the lace 1960s and 1970s. Because actual inflation over this period was higher than expected, ex post real interest rates were lower than ex ante rates. In real terms, lenders received less from borrowers than they expected to receive when they made the loans.

Losses to lenders were greatest for long-term loans, especially home mortgage. In 1965, the nominal interest rate on 30-year mortgage was less than 6 percent. This rate was locked in until 1995. Because inflation was expected to be less than 2 percent, the ex ante real interest rate was positive. However, the inflation rate averaged 7.8 percent over the 1970s, implying negative ex post rates.

Negative real interest rates on mortgages were a great deal for homeowners. But they caused large losses for banks that specialized in mortgages, such as savings and loan associations. These losses were one reason for the so-called S&L crisis of the 1980s, when many savings and loans went bankrupt.

The preceding case study illustrates a general point: uncertainty about inflation makes it risky to borrow or lend money. This is true for bank loans, and also when firms borrow by issuing bonds. In both cases, borrowers and lenders agree on a nominal interest rate but gamble on the ex post real rate. Borrowers win the gamble if inflation is higher than expected, and lenders win if inflation is lower than expected.

Can borrowers and lenders avoid this gamble? One tool for reducing risk is inflation-indexed bonds. This type of bond guarantees a fixed ex post real interest rate. Unlike a traditional bond, it does not specify a nominal interest rate when it is issued. Instead, the nominal rate adjusts for inflation over the life of the bond, eliminating uncertainty about the real rate."

After a decade of telling the markets that the interest rate would be 2%, the Fed does not want to change to a 4% target. ARMs and a move to 15 year largely solved the mortgage problem. However if the Fed wants tight control of the inflation rate, they can't do much about the unemployment rate unless fiscal policy cooperates. Fiscal policy has been not only uncooperative but in many cases in opposition to monetary policy.

jorgensen -> reason: September 15, 2015 at 08:11 AM

I don't want or expect inflation. I see no benefit flowing from inflation.

Altoid -> jorgensen: September 15, 2015 at 09:51 AM

If you have assets or non-fixed income, or if you're projecting returns from a capital investment, a slow and steady rise in the number that expresses the value means people can behave as though they expect larger numbers in the future. Expecting numbers that will grow, they're more likely to spend today's money on consumption goods and capital assets like houses, and more likely to make capital investments because they can project that the number used for today's investment will breed numbers that grow over whatever period they're planning for. Because people use nominal figures for almost everything in ordinary life, not real inflation-adjusted values, this tends to work.
About 15 or so years ago the Guardian had an economic columnist, Will something iirc (Will Self? don't really remember at this point), who explained this very well. Its prime virtue is that it works in a modern economy to make people feel better and act in ways that add to measurable GDP. It's a utilitarian, not a moral, view.

bakho -> jorgensen: September 15, 2015 at 10:59 AM

Inflation requires wage inflation meaning both wages and prices go up.
Deflation means downward pressure on sticky wages and sticky prices. Sticky wages mean that wages, do not deflate, instead, reduction in hours worked and increase in unemployment result. Sticky occur as businesses cannot sell below cost of production for long: price deflation leads to business failure. You want your economy managed so that relative wages and prices reset in the non-sticky direction: upward. This avoids recessions, high unemployment and broad business failure.
Inflation must be high enough that an economic shock can be absorbed by upward relative price reset. Inflation - deflation is a continuum. All economists agree deflation should be avoided for obvious reasons. A rate of inflation that is too low is only marginally less bad than deflation.

jorgensen -> Altoid: September 15, 2015 at 11:34 AM
An economic policy designed to trick the middle class into over spending and under saving (by confusing nominal and real gains) is a recipe for long run disaster.
To some extent since 2007 we have been reaping the consequences of that policy as carried out since 1980.

jorgensen -> bakho: September 15, 2015 at 11:39 AM

I'm in private business. In my world overall wages and prices are adjustable downward at a rate of at least two percent a year. High cost employees retire or rotate out to other jobs. Companies with high cost structures re-organize or go bankrupt and are replaced by companies with lower cost structures. There is enough natural churn in the market that downward stickiness is at worst a short term phenomenon. We are 8 years into this downturn. Downward stickiness is not the problem.
To believe that downward sticky wages are so big a problem as to justify inflation you have to believe that there are a material number of workers who are materially over-paid at the moment and whose real wages should be cut but who do not have the bargaining power to protect themselves from inflation.

jorgensen -> jorgensen: September 15, 2015 at 11:41 AM

sorry I should have added: If you believe in downward sticky wages then you should be able to identify the groups of workers whose real wages should be cut and could effectively be cut through inflation.

Thomas More said... September 15, 2015 at 03:33 PM

As a neoliberal technocrat, Brad DeLong naturally thinks of bankers as rational specimens of homo oeconomicus. Alas, bankers (like everyone in a real economy) does not act rationally in the way DeLong expects.
Bankers act perfectly rationally, but in ways DeLong and Krugman et al. do not expect. A banker observes that in the last epochal economic crash, the government bailed out all the biggest banks and refused to prosecute any bankers for fraud. The banker therefore rationally calculates that fraud represents an excellent business model, since it socializes all the risk of running a bank and privatizes all the profit. Moreover, since the government refuses to send bankers to prison for fraud, there's no social risk as well as no economic risk.

Consequently your typical banker finds it much more profitable to engage in control fraud today rather than the old boring business of making sensible loans at low interest to customers who are likely to pay the money back. Identifying good credit risks in a depressed economy takes a lot of work, and the result even if successful is low profits -- a squeezed profit margin of circa 300 basis points or less, as DeLong points out. But why settle for a measley 0.3% or 0.2% or less profit, when you can make 20% or 30% or 60% profit with no economic risk and no real risk of being indicted?

The way you make 20% or 30% or 60% as banker in 2015, obviously, is to buy up large numbers of foreclosed liar-loan houses and apartment buildings and then rent them out. Since most people can't afford a home today because they're got rotten credit and are burdened down with debt from the financial crash, rents are inflated in 2015. The bankers then aggregate speculative financial instruments based on these inflated rents and the inflated valuations of the homes and apartment buildings they've bought, and issue those speculative financial instruments as investment vehicles to a gullible public and other financial institutions desperate for decent returns on their investment capital. These bogus junk-quality financial instruments made up of shares in aggregated foreclosed properties generate income which is then used to buy more overvalued foreclosed properties which can be rented out in inflated prices, which then generate more bogus securities which then generate more income...and so on. In short, you get a vicious cycle and a real estate bubble 2.0, but this time based on buying and renting out foreclosed properties with money borrowed from investors based on fraudulent securities. As opposed to real estate bubble 1.0 -- which was based on buying and selling mortgages for newly-built homes with money borrow from investors based on fraudulent securities like CDOs etc.

Bankers in 2015 are behaving perfectly rationally and they understand with pellucid clarity the interests of their class. They simply are doing so in ways that neoliberal technocrats like Brad DeLong can't fathom, because bankers in 2015 are continuing the very profitable control fraud of real estate bubble 1.0...but by slightly different means (renting foreclosed properties, rather then mortgaging newly built properties). The bankers correctly deduce that there is no financial or criminal penalty for this kind of control fraud, since neither Bush nor Obama showed the slightest interest in prosecuting bankers for their role in robosigning fraud in real estate bubble 1.0. And when the whole ponzi scheme goes bust this time, the government will step in and bail the banks out. In the meantime, the bankers are making bank (all puns intended) on all those fees and that sweet, sweet income stream generated from all those fake liar-loaned forelosed properties being rented out.

So why wouldn't a banker choose to make 20% or 40% or 60% by spewing out liar-loan investment instruments based on foreclosed overvalued properties that are supposedly going to rise in value limitlessly while the rents increase every year without bound? Why would a banker ever settle for a mere 300 basis points return?
Brad DeLong, like so many neoliberal economists, is book-smart, but not street-smart when it comes to these matters.

Richard said: September 15, 2015 at 03:39 PM

Graydon: I'm sorry, you're wrong. Banks make their money off of the spread, loans, and markets. Fees are a negligible amount of income.
Brad:
One: banks are long duration/fixed income assets. Most mortgages are fixed rate mortgages. What happens to the value of a fixed rate loan when inflation or interest rates move up? What about mortgage production?
Two: bank executives are rich. There's no reason personally for them to cheer for inflation.

That said, yes, an upward sloping yield curve is a commercial banker's best friend.

In any case, I haven't seen much sentiment about rates one way or the other. Commercial banks, from what I've see, are fairly subdued about rates. The increase in regulation is another matter.

Altoid -> jorgensen: September 15, 2015 at 08:15 PM

So, the business world has no problem with deflation because, even though there's a consistent and ongoing squeeze between what's paid at the front end for something and what can be realized at sale time later as the secular nominal price level falls, the difference can always be made up by cutting labor costs?
I'm having trouble understanding what the desired state is: deflation, or neither deflation nor inflation but neutrality? If neutrality is the target, we know how to dampen inflation-- by raising interest rates the requisite amount. In times of deflation, how do we move out of that toward neutrality without mirror-image negative interest rates that make people pay to hold cash? Isn't there an asymmetry? What happens then?

ezra abrams -> Richard...

Richard, methinks it is you who is wrong on fees
http://www.nubank.com/downloads/ep_4qtr2004_part3_DeYoung_Rice.pdf
but maybe above is outdated, see
http://www.wsj.com/articles/banks-fee-bonanza-dries-up-1409699980

[Sep 25, 2015] If a counterparty liquidates, net exposure becomes gross,"

"... A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most." ..."

"... unfriendly ..."

Sep 25, 2015 | www.nakedcapitalism.com

abynormal September 24, 2015 at 8:12 pm

"This is the best recovery in all recorded history." Lambert

Is GS preparing to Sacrifice the next Lehman (at zh find it yourselves')
short list:
It goes without saying that courtesy of HFTs and China's hard landing, a 5% drop in commodities could happen overnight.

So if one is so inclined, and puts on the conspiracy theory hat mentioned at the beginning of this post, Goldman may have just laid out the strawman for the next mega bailout which goes roughly as follows:

** Commodity prices drop another 5%
** The rating agencies get a tap on their shoulder and downgrade Glencore to Junk.
** Waterfall cascade of margin and collateral calls promptly liquidates Glencore's trading desk and depletes the company's cash, leaving trillions of derivative contracts in limbo. Always remember: the strongest collateral chain is only as strong as its weakest conterparty. If a counterparty liquidates, net exposure becomes gross, and suddenly everyone starts wondering where all those "physical" commodities are.
** Contagion spreads as self-reinforcing commodities collapse launches deflationary shock wave around the globe.
** Fed and global central banks are called in to come up with a "more powerful" form of stimulus
** The money paradrop scenario proposed by Citigroup yesterday, becomes reality

Too far-fetched? Perhaps. But keep an eye out for a Glencore downgrade from Investment Grade. If that happens, it may be a good time to quietly get out of Dodge for the time being. Just in case.
**********************************************
i did a 4th course on Hunger http://marketwatch666.blogspot.com/2012/11/hunger-4th-course.html (scroll down to bold red, can't miss the Glen history that we WILL NOW BE BACKSTOPPING)
A Glencore spokesperson said: "Regardless of the business environment, Glencore is helping fulfil global demand by getting the commodities that are needed to the places that need them most."

craazyboy September 24, 2015 at 8:22 pm

" If a counterparty liquidates, net exposure becomes gross,"

This is the really, really important concept. Whenever someone mentions our $600 Trillion in global derivatives, Wall Street pipes up and says that is NOMINAL. It NETS out to ZERO (minus fees).

But yeah if the chain breaks, it is really two halves, $300 Trillion a piece. Which I think someone recently estimated is 1.5 times the dollar value of the planet. (just the $300T half) Which has me wondering where the regulators went to accounting school. But I never took accounting, so maybe it's me that's mixed up.

abynormal September 24, 2015 at 9:33 pm

i forgot most of my Glencore 411 is in the comments following the post…i don't think the swiss are prepared for this 'issue'

craazyboy September 24, 2015 at 10:37 pm

Yeah, I see you've been following this fine company for some time now. Sure, they are bigger than Swissistan. What's to worry?

craazyboy September 24, 2015 at 8:55 pm

Just read the full ZH article.

The only thing I'd point out is our sophisticated financiers always say don't wait for the rating agency downgrade – because they are always last to make a move.

Other than that, sounds about right.

Other thing I remember in 2008 was Goldman increased broker margin requirements maybe a month or two before Lehman.

abynormal September 24, 2015 at 9:19 pm

ck back i got a post waiting with a link that's unfriendly…don't know why IT'S THE BIS DOT ORG…my netbk should blow up any sec

[Sep 25, 2015] Big Business Is Economic Cancer, Part I Zero Hedge

It is under state capitalism that TBTF can't exists. Under neoliberalism they rule the country, so the question about cutting their political power of dismantling them is simply naive. Nobody give political power without a fight.

"... Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators". ..."

"... There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality. ..."

"... An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition. ..."

"... But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks. ..."

"... Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state. ..."

Sep 25, 2015 | www.zerohedge.com

Today, with governments which are nothing but literally the junior partners (of Big Business) in government-by-crime-syndicate, these laws might as well no longer exist, as they are practically never enforced. Indeed, an entity must be a political/economic pariah, or simply lacking "connections" if it is unable to sneak some merger or take-over past our totally compliant governments, and their fast-asleep "regulators".

Today we have corporate monoliths which are literally orders of magnitude larger than any remotely "optimal" size, with the ultimate and most-obvious examples being those hideously bloated financial behemoths which we now know as "the Big Banks". How ridiculously too-big have the Big Banks gotten?

Even the most-ardent admirer of the Big Banks in the entire media world, Bloomberg, couldn't stop itself from openly salivating about how much "profit" could be had, just by beginning to chop-down the financial fraud-factory which we know as JPMorgan Chase & Co.:

JPMorgan Chase & Co, the biggest U.S. bank by assets, would be worth 30 percent more if broken into its four business segments, an unlikely scenario, an analyst at Stifel Financial Corp.'s KBW unit said.

Note that there is not one word in the article indicating that there couldn't be a lot more profit to be made, by then smashing those pieces into much smaller pieces still. This article simply pointed to the instant profit of 30% which would be available just by beginning to chop-down this obscenely large behemoth, and in the simplest manner possible.

Why would "smaller" be much more valuable, in our forward-looking markets, in the case of smashing JPMorgan down-to-size (or at least beginning that process)? Obviously a major portion of that profit quotient would have to be derived from greater efficiency. Smaller is better.

However, pointing out that even the greatest admirer/biggest cheerleader of the Big Banks has observed how we would all be better off if the Big Banks were smaller is only a start. We then come to the heinous propaganda which the cheerleaders (including Bloomberg) have dubbed "too big to fail".

This is a very simple subject. "Too big to fail" is a pseudo-concept which is entirely antithetical to any economic system which even pretends to adhere to the principles of "free markets". Free markets demand that insolvent entities fail, it is the only way for such free markets to heal, when weakened by the misallocation of assets (such as in the case of insolvent enterprises). No business, or group of businesses could ever be "too big to fail".

There could never be an economic system, or economic argument where "too big to fail" could ever be a rational/legitimate policy. Put another way, no level of short-term economic harm or shock could possibly equal the long-term harm (and insanity) of institutionalized blackmail – which is all that "too big to fail" ever was/is. You must protect us, no matter what we do, no matter what the cost. Utter insanity. Utter criminality.

Understand that our own, corrupt governments embarked upon this criminal insanity long after the equally criminalized government of Japan already proved that too-big-to-fail was a failed policy. Not only could there never be an argument in favor of this criminality, our governments knew it would fail before they ever rubber-stamped this systemic corruption.

But all of these arguments against the insanity of perverting and skewing our economies in favor of Big Business, and against Small Business pale into insignificance compared to the principal condemnation of too-Big Business: the economic "cannibals" known as monopolies and oligopolies.

For readers unfamiliar with these terms because the Corporate media and charlatan economists try to pretend that these words don't exist, a brief refresher is in order. As most readers know, a monopoly is where a single enterprise effectively controls an entire market or sector. While a "monopoly" may be desirable when playing a board-game, in the real world these parasitic entities do nothing but blood-suck, from any/every economy they are able to "corner".

However, the majority of people, even today, are at least partially familiar with the evils of monopolies, thus the ultra-wealthy Oligarchs rarely attempt to perpetrate their systemic theft via these corporate fronts. Instead, they perpetrate most of their organized crime via oligopolies.

An oligopoly is where a small group of companies dominate/control an entire market or sector. Here it is important to understand that oligopolies are every bit as "evil" as monopolies (in every way), but the oligopoly puts a happy-face on this evil. Oligopolies represent pretend competition.

These corporate fronts cooperate as closely as possible in systemically plundering economies. How do monopolies/oligopolies rob from us? The "old-fashioned" way for these blood-suckers to do so was via simple price-gouging. When you have complete control over a sector/market, you can charge any price you want.

However, not surprisingly, the Little People tend to notice when the Oligarchs use their corporate fronts to engage in simple price-gouging. They actually begin to notice the general evil which oligopolies/monopolies represent, and that is "bad for business" (i.e. crime).

Instead, the Oligarch Thieves of the 21st century engage in their robbery-by-corporation in a different, more sophisticated/less-visible manner: via corporate welfare. What other crime can monopolies and oligopolies perpetrate, with overwhelming success? Naked extortion.

As previously explained; "too-big-to-fail" (and now even "too big to jail") is nothing but the most-obvious and most-despicable form of corporate extortion (or simply economic terrorism): give us all the money we want, or we'll blow up the financial sector. Small banks could never perpetrate such a crime (terrorism).

But such corporate extortion via oligopolies/monopolies is certainly not confined to the banking sector. The Oligarchs engage in such extortion (against corrupt governments which require absolutely no arm-twisting) in virtually every sector of our economies, but generally in not quite as extreme a form as what is perpetrated by the Big Banks.

Typically, the extortion which precedes even more Corporate welfare, occurs in this form: give us everything we want, or we will close our factory/business, and you will (temporarily) lose those jobs. Here we don't need to imagine this in the hypothetical, as we have a particularly blatant example of such Corporate extortion/welfare, courtesy of U.S. Steel:

U.S. Steel Canada Inc. is threatening to cease operations in Canada by the end of the year if an Ontario Superior Court judge rejects its request to stop paying municipal taxes, halt payments into pension funds, and cut off health care and other benefits to 20,000 retirees and their dependents. [emphasis mine]

... ... ...

kanoli

Like most of Jeff Nielson's rants, this one is nonsensical. If small business hires more people to produce the same product or service as a big business, they cannot do so at the same or lower price unless they are paying a lower wage.
The problem with big business isn't that it is big - it is their tendency to lobby government for regulations that stifle small business competitors.
If politicians were not for sale, it wouldn't matter whether a business is big or small. Neither would have undue influence on the law.
The problem is regulatory democracy where all laws are constantly subject to fiddling by an elected legislature.

Element

In practice a balanced mix of all sized businesses are necessary in a planetary civilization that trades products globally. Getting the mix 'right' and not having big business get away with preventing competition, or of govt throttling to skim and micro-control is most of the deleterious effect on business, and on human beings in general.
Unfortunately humans have been trained to like Logos, and to buy 'wants' accordingly.
iDroned on a bit,
2c

newnormaleconomics

Read Schumpeter beginning to end. He recognized the evolution of increasingly larger-scale, boom-and-bust "capitalism" from free-enterprise, entrepreneurial capitalism to industrial capitalism and eventually to various forms of state-capitalism, corporate-statism, or quasi-fascism we have today, or what I refer to as militarist-imperialist, rentier-socialist, or Anglo-American corporate-state.

The current state of the evolution of "capitalism" is its advanced, late-stage, financialized, globalized phase.

With Peak Oil, population overshoot, unprecedented debt to wages and GDP, Limits to Growth, climate change, a record low for labor share, decelerating productivity, OBSCENE wealth and income inequality, and increasing geopolitical tensions, growth of real GDP per capita is done, which means that growth of profits, investment, and capital formation/accumulation is done, which in turn means "capitalism" is done.

... ... ...

[Sep 25, 2015] Upstream oil execs agree Low, long and living within means

"...If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America"

Sep 25, 2015 | The Barrel Blog

•Capital spending for 2016 will be lower than in 2015 - which itself has been 35%-40% below last year and could actually come in steeper in relative cuts than that, given that some operators have further slashed 2015 outlays and may still do so.

... .,. ...

Said Barclays in a report on conference takeaways: "If prices throughout the budget development season … are consistent with the current 2016 forward price of around $50/b for WTI, capital spending could be down 25%-30% for the large-cap producers" in North America.

[Sep 25, 2015] Why Inequality Matters

"... Capital in the Twenty-First Century ..."

"... The Economist ..."

"... r > g ..."

"... capital ..."

"... consumption ..."

Sep 25, 2015 | www.gatesnotes.com

October 13, 2014 | gatesnotes.com

A 700-page treatise on economics translated from French is not exactly a light summer read-even for someone with an admittedly high geek quotient. But this past July, I felt compelled to read Thomas Piketty's Capital in the Twenty-First Century after reading several reviews and hearing about it from friends.

I'm glad I did. I encourage you to read it too, or at least a good summary, like this one from The Economist. Piketty was nice enough to talk with me about his work on a Skype call last month. As I told him, I agree with his most important conclusions, and I hope his work will draw more smart people into the study of wealth and income inequality-because the more we understand about the causes and cures, the better. I also said I have concerns about some elements of his analysis, which I'll share below.

I very much agree with Piketty that:

High levels of inequality are a problem-messing up economic incentives, tilting democracies in favor of powerful interests, and undercutting the ideal that all people are created equal.

Capitalism does not self-correct toward greater equality-that is, excess wealth concentration can have a snowball effect if left unchecked.

Governments can play a constructive role in offsetting the snowballing tendencies if and when they choose to do so.

To be clear, when I say that high levels of inequality are a problem, I don't want to imply that the world is getting worse. In fact, thanks to the rise of the middle class in countries like China, Mexico, Colombia, Brazil, and Thailand, the world as a whole is actually becoming more egalitarian, and that positive global trend is likely to continue.

But extreme inequality should not be ignored-or worse, celebrated as a sign that we have a high-performing economy and healthy society. Yes, some level of inequality is built in to capitalism. As Piketty argues, it is inherent to the system. The question is, what level of inequality is acceptable? And when does inequality start doing more harm than good? That's something we should have a public discussion about, and it's great that Piketty helped advance that discussion in such a serious way.

However, Piketty's book has some important flaws that I hope he and other economists will address in the coming years.

For all of Piketty's data on historical trends, he does not give a full picture of how wealth is created and how it decays. At the core of his book is a simple equation: r > g, where r stands for the average rate of return on capital and g stands for the rate of growth of the economy. The idea is that when the returns on capital outpace the returns on labor, over time the wealth gap will widen between people who have a lot of capital and those who rely on their labor. The equation is so central to Piketty's arguments that he says it represents "the fundamental force for divergence" and "sums up the overall logic of my conclusions."

Other economists have assembled large historical datasets and cast doubt on the value of r > g for understanding whether inequality will widen or narrow. I'm not an expert on that question. What I do know is that Piketty's r > g doesn't adequately differentiate among different kinds of capital with different social utility.

Imagine three types of wealthy people. One guy is putting his capital into building his business. Then there's a woman who's giving most of her wealth to charity. A third person is mostly consuming, spending a lot of money on things like a yacht and plane. While it's true that the wealth of all three people is contributing to inequality, I would argue that the first two are delivering more value to society than the third. I wish Piketty had made this distinction, because it has important policy implications, which I'll get to below.

More important, I believe Piketty's r > g analysis doesn't account for powerful forces that counteract the accumulation of wealth from one generation to the next. I fully agree that we don't want to live in an aristocratic society in which already-wealthy families get richer simply by sitting on their laurels and collecting what Piketty calls "rentier income"-that is, the returns people earn when they let others use their money, land, or other property. But I don't think America is anything close to that.

Take a look at the Forbes 400 list of the wealthiest Americans. About half the people on the list are entrepreneurs whose companies did very well (thanks to hard work as well as a lot of luck). Contrary to Piketty's rentier hypothesis, I don't see anyone on the list whose ancestors bought a great parcel of land in 1780 and have been accumulating family wealth by collecting rents ever since. In America, that old money is long gone - through instability, inflation, taxes, philanthropy, and spending.

You can see one wealth-decaying dynamic in the history of successful industries. In the early part of the 20th century, Henry Ford and a small number of other entrepreneurs did very well in the automobile industry. They owned a huge amount of the stock of car companies that achieved a scale advantage and massive profitability. These successful entrepreneurs were the outliers. Far more people - including many rentiers who invested their family wealth in the auto industry - saw their investments go bust in the period from 1910 to 1940, when the American auto industry shrank from 224 manufacturers down to 21. So instead of a transfer of wealth toward rentiers and other passive investors, you often get the opposite. I have seen the same phenomenon at work in technology and other fields.

Piketty is right that there are forces that can lead to snowballing wealth (including the fact that the children of wealthy people often get access to networks that can help them land internships, jobs, etc.). However, there are also forces that contribute to the decay of wealth, and Capital doesn't give enough weight to them.

I am also disappointed that Piketty focused heavily on data on wealth and income while neglecting consumption altogether. Consumption data represent the goods and services that people buy - including food, clothing, housing, education, and health - and can add a lot of depth to our understanding of how people actually live. Particularly in rich societies, the income lens really doesn't give you the sense of what needs to be fixed.

There are many reasons why income data, in particular, can be misleading. For example, a medical student with no income and lots of student loans would look in the official statistics like she's in a dire situation but may well have a very high income in the future. Or a more extreme example: Some very wealthy people who are not actively working show up below the poverty line in years when they don't sell any stock or receive other forms of income.

It's not that we should ignore the wealth and income data. But consumption data may be even more important for understanding human welfare. At a minimum, it shows a different-and generally rosier-picture from the one that Piketty paints. Ideally, I'd like to see studies that draw from wealth, income, and consumption data together.

Even if we don't have a perfect picture today, we certainly know enough about the challenges that we can take action.

Piketty's favorite solution is a progressive annual tax on capital, rather than income. He argues that this kind of tax "will make it possible to avoid an endless inegalitarian spiral while preserving competition and incentives for new instances of primitive accumulation."

I agree that taxation should shift away from taxing labor. It doesn't make any sense that labor in the United States is taxed so heavily relative to capital. It will make even less sense in the coming years, as robots and other forms of automation come to perform more and more of the skills that human laborers do today.

But rather than move to a progressive tax on capital, as Piketty would like, I think we'd be best off with a progressive tax on consumption. Think about the three wealthy people I described earlier: One investing in companies, one in philanthropy, and one in a lavish lifestyle. There's nothing wrong with the last guy, but I think he should pay more taxes than the others. As Piketty pointed out when we spoke, it's hard to measure consumption (for example, should political donations count?). But then, almost every tax system-including a wealth tax-has similar challenges.

Like Piketty, I'm also a big believer in the estate tax. Letting inheritors consume or allocate capital disproportionately simply based on the lottery of birth is not a smart or fair way to allocate resources. As Warren Buffett likes to say, that's like "choosing the 2020 Olympic team by picking the eldest sons of the gold-medal winners in the 2000 Olympics." I believe we should maintain the estate tax and invest the proceeds in education and research-the best way to strengthen our country for the future.

Philanthropy also can be an important part of the solution set. It's too bad that Piketty devotes so little space to it. A century and a quarter ago, Andrew Carnegie was a lonely voice encouraging his wealthy peers to give back substantial portions of their wealth. Today, a growing number of very wealthy people are pledging to do just that. Philanthropy done well not only produces direct benefits for society, it also reduces dynastic wealth. Melinda and I are strong believers that dynastic wealth is bad for both society and the children involved. We want our children to make their own way in the world. They'll have all sorts of advantages, but it will be up to them to create their lives and careers.

The debate over wealth and inequality has generated a lot of partisan heat. I don't have a magic solution for that. But I do know that, even with its flaws, Piketty's work contributes at least as much light as heat. And now I'm eager to see research that brings more light to this important topic.

[Sep 25, 2015] Paul Krugman Dewey, Cheatem Howe

The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.

"... So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell. ..."

"... The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust. ..."

"... Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model. ..."

"... But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go! ..."

"...

..."

Sep 25, 2015 | Economist's View
Republicans can't help but side with business, but there are very good reasons for the recent increase in regulatory oversight:
Dewey, Cheatem & Howe, by Paul Krugman, Commentary, NY Times: Item: The C.E.O. of Volkswagen has resigned after revelations that his company committed fraud on an epic scale, installing software on its diesel cars that detected when their emissions were being tested, and produced deceptively low results.
Item: The former president of a peanut company has been sentenced to 28 years in prison for knowingly shipping tainted products that later killed nine people and sickened 700.

Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ...

There are, it turns out, people in the corporate world who will do whatever it takes, including fraud that kills people, in order to make a buck. And we need effective regulation to police that kind of bad behavior... But we knew that, right?

Well, we used to know it... But ... an important part of America's political class has declared war on even the most obviously necessary regulations. ...

A case in point: This week Jeb Bush, who has an uncanny talent for bad timing, chose to publish an op-ed article in The Wall Street Journal denouncing the Obama administration for issuing "a flood of creativity-crushing and job-killing rules." Never mind his misuse of cherry-picked statistics, or the fact that private-sector employment has grown much faster under President Obama's "job killing" policies than it did under Mr. Bush's brother's administration. ...

The thing is, Mr. Bush isn't wrong to suggest that there has been a move back toward more regulation under Mr. Obama, a move that will probably continue if a Democrat wins next year. After all, Hillary Clinton released a plan to limit drug prices at the same time Mr. Bush was unleashing his anti-regulation diatribe.

But the regulatory rebound is taking place for a reason. Maybe we had too much regulation in the 1970s, but we've now spent 35 years trusting business to do the right thing with minimal oversight - and it hasn't worked.

So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell.

reason

"Item: Rights to a drug used to treat parasitic infections were acquired by Turing Pharmaceuticals, which specializes not in developing new drugs but in buying existing drugs and jacking up their prices. In this case, the price went from $13.50 a tablet to $750. ..."
That is brilliant - so Turing Pharmaceuticals is a classical - wait for it - parasitic infection!

reason

"So what has been happening lately is an attempt to redress that imbalance, to replace knee-jerk opposition to regulation with the judicious use of regulation where there is good reason to believe that businesses might act in destructive ways. Will we see this effort continue? Next year's election will tell."
Personally, I don't think this is really addressing the key point. You can't actually avoid regulation (the alternative to public regulation - as pushed by say Milton Friedman - ends up being private regulation - which is just as subject to regulatory capture). The point is we should be trying to make our regulation more intelligent (making it encourage not discourage innovation - cheaper and easier to police - less subject to regulatory capture etc.). The policy discussions about this a difficult enough with good faith - but bad faith politics makes this impossible. We need to throw the Gingrich revolution in the dustbin as soon as possible.

RC AKA Darryl, Ron said in reply to reason...

YEP!
What politicians can get away with is an artifact of the limited toolset that the electorate has to express its informed will. We need a well educated democracy and the democratic part of that requires Constitutional electoral reforms (e.g., gerrymandering, campaign finance). A bit of the educational aspect of a voting actually democratic republic would naturally work itself out with a more engaged and empowered electorate participating ACTIVELY.
With the system as it is then it takes a shock wave through the electorate for them to throw the bums out, but there is no follow through. There is a failsafe reaction function, but no more than that except on specific social issues that get overwhelming support where politicians can move with the electoral majority at zero cost while reactionary politicians can triangulate and pander some votes from the minority opinion of those too old or set in their ways to participate in the social sea change.

ilsm said in reply to RC AKA Darryl, Ron...

The threat is "faith voters", dogma developed by billionaires' propaganda to plunder the world.

DrDick said in reply to reason...

Krugman is far too kind to the businessmen. The reality is that, in the absence of effective regulation with substantial penalties, all of the incentives are to lie, cheat, and steal. In consequence, it really is the norm, if only in more minor ways than the ones that make the headlines. Wage theft, fraud, knowingly selling defective merchandise, and many other abuses are clearly rampant. This is exactly why markets cannot exist in the absence of effective government regulation to provide trust.

DeDude said in reply to reason...

Exactly; what we need is a detailed debate on each specific regulation. What it intends to accomplish, whether that could be accomplished in a less burdensome way, and whether the accomplishment is sufficient to justify the burden. However, that is not something that can happen in the 15 second soundbite that appears to be the attention span of the average voter.

Lee A. Arnold said in reply to Second Best...

Second Best: "Markets work if allowed to self regulate."

No. Never happened, except in local instances. For self-regulation you need proper prices, and for proper prices you need proper supply and demand.
For proper supply you need perfect competition, so there must be numerous competitors entering the same market, and this requires, among other things, almost no intellectual protection.
For proper demand, you need perfectly informed consumers, and this is not only impossible, but it is getting far far worse, because the complexity of the world is increasing.
The problem with state regulation is that it also falls prey to the same objections, although at a slower rate. We use votes not prices, but the same imperfection of information and lack of flexibility causes problems with the voting system.
When you combine this problem with the increase in inequality (which was masked temporarily by World War II and the subsequent spurt of blue-collar jobs productivity), we are headed into an accelerated amelioration of the market system by greater public ownership.

RC AKA Darryl, Ron said in reply to Lee A. Arnold...

"Peanut butter does not kill people, people kill people."
[If you can read a opening sentence like that and not recognize it as satirical parody, then you might want to look around to find the sense of humor that you lost. When the will of the people is no more than a euphemism for dollar democracy then parody, satire, sarcasm, and a healthy dose of cynicism are called for.]

JF said in reply to RC AKA Darryl, Ron..

Lee A Arnold - Think Jonathan Swift and his piece about the way to reduce subsidies for the orphaned poor infants, it is to reduce their number so we feel good about the fact that we help the few poor infants left alive.
I reacted a few times to Second Best's comments before I recognized the satire.
But I also have used his comments as a way to bring out the more logical, real-world of facts and rationality - so commentary helps either way. I suppose that serves 2nd Best's interests too.

JF said in reply to JF...

I believe the Jonathan Swift recommendations are the preferred republican-party approach to Social Security too. Really need fewer claimants, that will solve the accounting problems.

RC AKA Darryl, Ron said in reply to Second Best...

"Peanut butter does not kill people, people kill people. Car emissions do not kill people ... high drug prices do not kill people ... people do."
[This is an economics blog. You cannot be that "subtle (???)" and expect people to recognize your satire. Maybe there is a humorous math equation that economists can understand. I guess economics graduate school is so boring that most people lose all sense of humor. I am glad that Krugman has kept his.]

Richard H. Serlin said...

"Then there's for-profit education, an industry wracked by fraud - because it's very hard for students to assess what they're getting - that leaves all too many young Americans with heavy debt burdens and no real prospect of better jobs. But Mr. Bush denounces attempts at a cleanup."
And worse, wasting their incredibly valuable and rare young years, quite possibly their only chance before age and children make it extremely hard, not getting an education. Such a big thing. You don't do it when you're young, with the power and freedom and lack of dependents of youth, the opportunity may easily be gone forever. Such a brutal cost these predators and their Republican allies extract.

RC AKA Darryl, Ron said in reply to Richard H. Serlin...

https://en.wikipedia.org/wiki/College_tuition_in_the_United_States
Cost shifting and privatization
One cause of increased tuition is the reduction of state and federal appropriations to state colleges, causing the institutions to shift the cost over to students in the form of higher tuition. State support for public colleges and universities has fallen by about 26 percent per full-time student since the early 1990s.[10] In 2011, for the first time, American public universities took in more revenue from tuition than state funding.[9][11] Critics say the shift from state support to tuition represents an effective privatization of public higher education.[11][12] About 80 percent of American college students attend public institutions...

bakho said...

Economics Professors of the "free market" bent for years have indoctrinated youth with the misguided notion that "regulations are bad" and market methods, no matter how RubeGoldberg, are always better. " You don't need to regulate pollution, just put a tax on it," as an example. Even cap and trade would not work without stiff emissions regulations.

Economic idealists have popularized the notion that the world can work without much regulations because their models tell them so. Unless they are behavioral economists, they often fail to include fraud, scams & information asymmetry into their models. This produces garbage like efficient markets that only exist in an idealistic dream world. The real world markets are filled with fraud, scams and disreputable agents. Failure to account for bad behavior is the bane of many a model.

ilsm said in reply to bakho...

Sanctity of the "market"......
I got a jar of this snake oil here too!
The market they sell is the one that runs in Honduras

Tom aka Rusty said...

A couple of random observations:
Last time I looked about 150 Dodd-Frank regs had not been written yet, some of the key ACA regs are three years late.
Obama-ites have written some of the most complex, convoluted regs of the past 40 years, the health EMR regs have practically guaranteed a windfall for IT companies and a failure for EMR/EHR.
No mention of the Obama-Holder "too big to prosecute doctrine."
The new overtime regs will likely be in the "driving thumb tacks with a sledge hammer" mode.
But I love Obama because he has created a wonderland of money for lawyers and consultants, a river of chocolate and honey to make Willy Wonka jealous. Go Barry go!

pgl said in reply to kthomas...

Rusty wants us to believe he is the only one who understands health care so he is a persistent critic of ObamaCare. But now he wants to pretend he's the expert on financial markets too? Seriously? Dodd-Frank is complicated only because the Jamie Dimons of the world milk every opportunity to game financial markets. If Rusty thinks letting Jamie Dimon evade any financial market regulation is a good idea - he is the most clue person ever.

DrDick said in reply to pgl...

He was just trying to do us a favor and demonstrate exactly what is meant by "knee-jerk opposition to regulation ."

JF said in reply to Tom aka Rusty...

Have you ever looked at the multi-party derived hedging instruments in play now - they can hardly get more complex, and indeed most didn't understand them when they were made, and these are still complex now.
So I have to say, that the 'marketplace' makes Krugman's point about complexity. It comes from humans cunningly doing stuff that serves their interests at the time as they see it. Not always wisdom at work here.
But it is complex, and so regulation of such complexity, if the generally applicable rules seek some fairness (classes of people are usually affected differently) and stands a test of due process too - the regulations will also need to be complex. The complexity came first, the regulations come afterwards (after society learns of the stupidity the hard way).
Railing about this is a form of misleading sophistry, a rhetorical device to reverse the causality.
We can think with more foresight and regulate before the stupid complexity arises, but it does take a rational policy making environment for this exploration, discussion and policy-making to occur with good foresight - I am waiting for the new Congress in 2017.
If the Warren-Sanders people have any influence then, we may see a whole lot less complex financial system (it's a riot when you think how the Efficient Market Hypothesis, a theoretical justification for the marketplace's range of instruments in fact led to more complexity, less real efficiency and effectiveness, and ossification of the system when it needed to be resilient but stable as a well-behaved system can be).
We will probably be better off after the 2017 debates. After all, this community of actors are only intermediaries on behalf of real productive outcomes truly needed by society - right, they are just intermediaries? How much inter-mediation does the economy need?

david s said...

The Obama Administration has been friendlier to corporate America than W's was.
http://theweek.com/speedreads/454963/matt-taibbi-bush-far-tougher-than-obama-corporate-america

im1dc said...

While it was Ronald Reagan and his Republican Party that called for deregulation not much was done until Alan Greenspan, then Chairman of the Federal Reserve, gave federal deregulation his blessing in speeches from NY to Aspen to California in which he said "the market" will reign in excesses and regulate itself b/c of competition acting egregiously would create.
Oopsie, Old Alan got it ALL WRONG again!
I thought a little history would help in this thread.

likbez said...

My impression is that regulation always reflects the needs of who is in power today. One the key ingredients of political power is the ability to push the laws that benefit particular constituent. And to block laws that don't.
If we assume that financial oligarchy is in power today, then it is clear that there can be no effective regulation of financial services and by extension regulation of derivatives. And if on the wave of public indignation such regulation is adopted, it will be gradually watered down and then eliminated down the road.
And you can always hire people who will justify your point of view.
In this sense neither Milton Friedman nor Greenspan were independent players. They sold themselves for money and were promoted into positions they have for specific purpose. I am not sure the either of them believed the crap they speak or wrote.

[Sep 24, 2015] Tight Oil Reality Check

"... The EIAs 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. ..."

"... The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices. ..."

"... As it has acknowledged, the EIAs track record in estimating resources and projecting future production and prices has historically been poor. ..."

"... How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period? ..."

"... Americas energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy cant be overstated. Its for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIAs rosy projections at face value but rather to drill deeper. ..."

Sep 24, 2015 | www.resilience.org
In Drilling Deeper, PCI Fellow David Hughes took a hard look at the EIA's AEO2014 and found that its projections for future production and prices suffered from a worrisome level of optimism.
Recently, the EIA released its Annual Energy Outlook 2015 and so we asked David Hughes to see how the EIA's projections and assumptions have changed over the last year, and to assess the AEO2015 against both Drilling Deeper and up-to-date production data from key shale gas and tight oil plays.

Key Conclusions

The EIA's 2015 Annual Energy Outlook is even more optimistic about tight oil than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total tight oil production through 2040 has increased by 6.5 billion barrels, or 15%, compared to AEO2014.

The EIA assumes West Texas Intermediate (WTI) oil prices will remain low and not exceed $100/barrel until 2031.

At the same time, the EIA assumes that overall U.S. oil production will experience a very gradual decline following a peak in 2020.

These assumptions-low prices, continued growth through this decade, and a gradual decline in production thereafter - are belied by the geological and economic realities of shale plays. The recent drop in oil prices has already hit tight oil production growth hard. The steep decline rates of wells and the fact that the best wells are typically drilled off first means that it will become increasingly difficult for these production forecasts to be met, especially at relatively low prices.

Perhaps the most striking change from AEO2014 to AEO2015 is the EIA's optimism about the Bakken, the projected recovery of which was raised by a whopping 85%.

As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them. As Figure 13 shows, with the exception of the Eagle Ford, the EIA's projections for the major tight oil plays have shifted up or down significantly.

After closely reviewing the Annual Energy Outlook 2015, David Hughes raises some important, substantive questions:

Why is there so much difference at the play level between AEO2014 and AEO2015?

Why does Bakken production rise 40% from current levels, recover more than twice as much oil by 2040 as the latest USGS mean estimate of technically recoverable resources, and exit 2040 at production levels considerably above current levels?

How can the Niobrara recover twice as much oil in AEO2015 as was assumed just a year ago in AEO 2014?

What was the thinking behind the wildly optimistic forecast for the Austin Chalk in AEO2014 that required a 78% reduction in estimated cumulative recovery in AEO2015?

How can overall tight oil production increase by 15% in AEO2015 compared to AEO2014 while assuming oil prices are $20/barrel lower over the 2015-2030 period?

America's energy future is largely determined by the assumptions and expectations we have today. And because energy plays such a critical role in the health of our economy, environment, and people, the importance of getting it right on energy can't be overstated. It's for this reason that we encourage everyone-citizens, policymakers, and the media-to not take the EIA's rosy projections at face value but rather to drill deeper.

[Sep 24, 2015] Central Banks Have Made the Rich Richer

Sep 24, 2015 | economistsview.typepad.com

Economist's View
Paul Marshall, chairman of London-based hedge fund Marshall Wace, in the FT:
Central banks have made the rich richer: Labour's new shadow chancellor has got at least one thing right. ... Quantitative easing ... has bailed out bonus-happy banks and made the rich richer. ...
It is no surprise that the left is angry about this, nor that they are looking for other versions of QE that do not so directly benefit bankers and the rich. Instead of increasing the money supply by buying sovereign bonds from banks, central banks could spread the love evenly by depositing extra money in every person's bank account..., it might have been fairer.

Mr McDonnell and Jeremy Corbyn, the new Labour leader, advocate a second approach: targeting QE at infrastructure projects. The central bank would buy bonds direct from the Treasury on the understanding that the funds would be used to improve housing and transport infrastructure. ...

QE had clear wealth effects, which could have been offset by fiscal measures. All political parties should acknowledge this. So should those of us who want free markets to retain their legitimacy.

[Sep 24, 2015] The Oligarch Recovery 30 Million Americans Have Tapped Retirement Savings Early In Last Year

Sep 24, 2015 | www.zerohedge.com

Zero Hedge

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

The ongoing oligarch theft labeled an "economic recovery" by pundits, politicians and mainstream media alike, is one of the largest frauds I've witnessed in my life. The reality of the situation is finally starting to hit home, and the proof is now undeniable.

Earlier this year, I published a powerful post titled, Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery," which highlighted how a growing number of Americans have been taking out unconventional loans, not simply to overcome an emergency, but for everyday expenses. Here's an excerpt:

Families' savings not where they should be: That's one part of the problem. But Mills sees something else in the recovery that's more disturbing. The number of households tapping alternative financial services are on the rise, meaning that Americans are turning to non-bank lenders for credit: payday loans, refund-anticipation loans, pawnshops, and rent-to-own services.

According to the Urban Institute report, the number of households that used alternative credit products increased 7 percent between 2011 and 2013. And the kind of household seeking alternative financing is changing, too.

It's not the case that every one of these middle- and upper-class households turned to pawnshops and payday lenders because they got whomped by an unexpected bill from a mechanic or a dentist. "People who are in these [non-bank] situations are not using these forms of credit to simply overcome an emergency, but are using them for basic living experiences," Mills says.

Of course, it's not just "alternative financial services." Increasingly desperate American citizens are also tapping whatever retirement savings they may have, including taking the 10% tax penalty for the privilege of doing so. In fact, 30 million Americans have done just that in the past year alone, in the midst of what is supposed to be a "recovery."

From Time:

With the effects of the financial crisis still lingering, 30 million Americans in the last 12 months tapped retirement savings to pay for an unexpected expense, new research shows. This undercuts financial security and underscores the need for every household to maintain an emergency fund.

Boomers were most likely to take a premature withdrawal as well as incur a tax penalty, according to a survey from Bankrate.com. Some 26% of those ages 50-64 say their financial situation has deteriorated, and 17% used their 401(k) plan and other retirement savings to pay for an emergency expense.

Two-thirds of Americans agree that the effects of the financial crisis are still being felt in the way they live, work, save and spend, according to a report from Allianz Life Insurance Co. One in five can be called a post-crash skeptic-a person that experienced at least six different kinds of financial setback during the recession, like a job loss or loss of home value, and feel their financial future is in peril.

So now we know what has kept meager spending afloat during this pitiful "recovery." A combination of "alternative loans" and a bleeding of retirement accounts. The transformation of the public into a horde of broke debt serfs is almost complete.

Don't forget to send your thank you card to you know who:

* * *

For related articles, see:

The Oligarch Recovery – Study Shows Real Wages Have Plunged for Low Income Workers During the "Recovery"

The Oligarch Recovery – Low Income Americans Can't Afford to Live in Any Metro Area

The Oligarch Recovery – Renting in America is Most Expensive Ever

Another Tale from the Oligarch Recovery – How a $1,500 Sofa Costs $4,150 When You're Poor

The Face of the Oligarch Recovery – Luxury Skyscrapers Stay Empty as NYC Homeless Population Hits Record High

Census Data Proves It – There Was No Economic Recovery Unless You Were Already Rich

Use of Alternative Financial Services, Such as Payday Loans, Continues to Increase Despite the "Recovery"

[Sep 24, 2015] Michael Hudson – Episode 19

Sep 24, 2015 | store.counterpunch.org

Audio Player

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This week, Eric has an in depth conversation with economist Michael Hudson, author of the new book Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy. Eric and Prof. Hudson discuss the evolution of finance capital from its humble parasitical beginnings to the comprehensive global network of economic tapeworms and barnacles that it is today. They examine neoliberal terrorism, how debt is used as a weapon, and the disastrous effects of the financialization of the real economy. Hudson outlines the relationship between the parasites and their bloodsucking policies of austerity, providing insight using the example of Latvia, where he witnessed first hand the smash-and-grab nature of such prescriptions. Plus, Eric and Michael touch on Obama as Wall Street errand boy, the importance of left economic organizing, and much much more.

Musical interlude from the exciting new band GospelbeacH, and intro and outtro from David Vest.

[Sep 24, 2015] Is Goldman Preparing To Sacrifice The Next Lehman

Sep 24, 2015 | Zero Hedge

Wow, talk about a nice fit! The following image describes a speed wobble when going too fast on a bicycle.

Bay Area Guy

Paulson should most definitely be in prison. I was no fan of Lehman, but what happened to them was nothing short of a criminal conspiracy.
Thorny Xi

He's suffered so much though.

http://www.forbes.com/sites/morganbrennan/2012/06/05/billionaire-john-pa...

RopeADope

Hank not John.

John is the colossal failure that could not come up with a good trade idea on his own if his life depended on it.

Debt-Is-Not-Money

I was fascinated that Bear Stearns was the first to go as Bear was the only large company that failed to respond to the Fed's calls when LTCM almost brough down the house in 1998.
Not if_ But When

Well, you know........he also lied to Congress. (but that's small potatoes).

froze25

Very true, let them fall and then bailout the rest. Well played Goldman.

KnuckleDragger-X

Lehman had to die to save GS since GS were actually in more trouble......

Bay of Pigs

What ever happened to Douche Bank anyway?

Edit: Damn, good ole Marty beat me to the punch.
Deutsche Bank – the New Lehman Brothers?
http://www.armstrongeconomics.com/archives/37443

jeff montanye

the greatest control fraud in history, the 2008 seizure of the u.s. government's financial/regulatory apparatus by wall street's banks and trading houses to recapitalize themselves and avoid prosecution for their enormous crimes, is tremendously evil. it will never be prosecuted or its errors corrected until the psychopaths at the head of our society are neutralized.

only 9-11 can do this. it is the crime that is clear-cut, unambiguously wrong, provable, without a statute of limitations (treason/murder/kidnapping), sufficiently inflammatory (very important) and really comprehensive in its list of perps, especially after the fact (the editors of the new york times don't actually have to go to jail; just most people have to think they should).

https://www.youtube.com/watch?v=OsoY3AIRUGA.

https://www.youtube.com/watch?v=0GNww9cmZPo

http://www.luogocomune.net/site/modules/sections/index.php?op=viewarticl...

mind by mind. do your part.

Divine Wind

Bullish for PMs, right?

HardlyZero

After MF Global, it is not clear how the markets are safe for buyers, sellers, brokers, banks, etc.

But as always, have your physical setup and safe first before going out to see what's going on.

NoDebt

"If a counterparty liquidates, net exposure becomes gross [emphasis added by me], and suddenly everyone starts wondering where all those "physical" commodities are."

For those who may not quite grasp this, it means all your "hedging" against falling prices is null and void and you are left with full-in-the-face long exposure PLUS entities dealing in the physical commodity can suddenly be looking down a long tunnel of "failure to timely deliver" on contracts they've signed.

But, then again, 2016 is the last year for a lame duck president... traditionally a very good year to "clean house" and get the government to bail you out.

[Sep 24, 2015] Drilling Deeper

Sep 24, 2015 | Post Carbon Institute

Drilling Deeper reviews the twelve shale plays that account for 82% of the tight oil production and 88% of the shale gas production in the U.S. Department of Energy's Energy Information Administration (EIA) reference case forecasts through 2040. It utilizes all available production data for the plays analyzed, and assesses historical production, well- and field-decline rates, available drilling locations, and well-quality trends for each play, as well as counties within plays. Projections of future production rates are then made based on forecast drilling rates (and, by implication, capital expenditures). Tight oil (shale oil) and shale gas production is found to be unsustainable in the medium- and longer-term at the rates forecast by the EIA, which are extremely optimistic.
This report finds that tight oil production from major plays will peak before 2020. Barring major new discoveries on the scale of the Bakken or Eagle Ford, production will be far below the EIA's forecast by 2040. Tight oil production from the two top plays, the Bakken and Eagle Ford, will underperform the EIA's reference case oil recovery by 28% from 2013 to 2040, and more of this production will be front-loaded than the EIA estimates. By 2040, production rates from the Bakken and Eagle Ford will be less than a tenth of that projected by the EIA. Tight oil production forecast by the EIA from plays other than the Bakken and Eagle Ford is in most cases highly optimistic and unlikely to be realized at the medium- and long-term rates projected.

[Sep 24, 2015] Peak Oil Notes - 24 Sep

Sep 24, 2015 | www.resilience.org

The EIA also had US domestic oil production up by 19,000 b/d last week to 9.14 million and output in the lower 48 states flat at 8.65 million b/d. Analysts are not sure what these numbers mean. Some say they could indicate that the decline in production is slowing from what the EIA has been forecasting. However, some note that if there is any indication of production actually increasing, we would quickly see oil prices down in the $30s.

... ... ...

The financial press continues to highlight the woes of the global oil industry as it tries to contend with falling oil prices. Waterford International, one of the world's largest drilling contractors, failed in an attempt to borrow $1 billion from Wall Street because of its sagging stock price. ConocoPhillips is trying to sell off its Canadian assets. Total SA sold a 10 percent share in a $15 billion oil sands mine for $234 million and Wood Mackenzie says the world's oil companies have now cut $220 billion in planned investments. Wood Mackenzie also says that if oil prices stay below $50 a barrel, some $1.5 trillion worth of investments will be curtailed over the next few years. If these predictions come to pass it is difficult to foresee how world oil production can stay anywhere near current levels.

... ... ...

In the Middle East, the Libyan peace talks look like they are going to collapse. The Russian military buildup in Syria continues with more tanks, attack helicopters and aircraft arriving daily. While Moscow says it is in Syria to fight ISIL, the insurgents threatening Assad's power base in northwest Syria are made up of groups backed by Turkey, the US and the Gulf Arabs, with most of ISIL's forces hunkered down in the northeast to avoid the continuing US arterial bombardment.

Another cholera epidemic has broken out in Iraq where the sanitation and water systems continue to deteriorate. Temperatures in Iraq reached 122o F. in July and August which did not help the situation. The flow of middle class Iraqis to Europe is increasing. It becomes increasingly difficult to see how Iraq can continue to increase or even maintain its oil production given the numerous problems it is facing.

[Sep 21, 2015] The Mystery Of The Missing Inflation Solved, And Why The US Housing Crisis Is About To Get Much Worse

For the last 20 years, realistic US inflation rate was probably higher then official figures considerably. Some estimate it between 4% to 5% a year. Medical expenses rose probably 200%. Cost of higher education skyrocketed. We can say that rent alone from 1995 to 1996 rose probably 60% (assuming 3% a year official figure). Food prices are highly correlated with oil and they rose more (but they do not represent major expense item in most budgets).

"... Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400. ..."

Sep 21, 2015 | Zero Hedge
We hinted at the key features of this unprecedented conversion in June, when we wrote the following:

... by now everyone knows that the artificially suppressed, "hedonically-modified" and seasonally-adjusted inflationary readings is what has permitted the Fed to not only grow its balance sheet to $4.5 trillion but to keep rates at 0% for 8 years. Because "how will the economy recover if there is no broad inflation", the Keynesian brains in the ivory tower scream, demanding more, more, more easing just to push inflation higher.

There is only one problem with this: it is all a lie - just ask any average American whose cost of living has soared in the past decade.

Still, with reality diverging so massively from the government's official data, reality just had to be wrong somehow.

Turns out reality was right all along, as revealed by the latest "State of the Nation's Housing" report released by the Center for Housing Studies at Harvard, which showed that while inflation among most products and services may indeed be roughly as the Fed and BLS represent it, when it comes to rent - that most fundamental of staple costs - things have never been worse.

According to the report, for American renters 2013 marked another year with a record-high number of cost burdened households - those paying more than 30 percent of income for housing. In the United States, 20.7 million renter households (49.0 percent) were cost burdened in 2013.

It gets worse: a whopping 11.2 million, or more than a quarter of all renter households, had "severe cost burdens, paying more than half of income for housing." The median US renter household earned $32,700 in 2013 and spent $900 per month on housing costs. Renter housing costs are gross rents, which include contract rents and utilities.

... ... ...

And since there is an unprecedented demand for rental units across the US (as the "owning" alternative has become inaccessible), the median asking rent not only soared at an annual rate of over 6%, it has never been higher, with the Census Department recently reporting that the Median US asking just hit an all time high $803.

... ... ...

What is odd is that according to the BLS, rent inflation is far less: at just 3% in the most recent print. One wonders what seasonal adjustments American renters should use to make their monthly paycheck smaller, the way the BLS perceives it. Still, at 3.6% this is the highest annual rent inflation since 2008.

And herein lies the rub: because it is not so much what the real, honest inflation growth rate of rent is, it is what the offsetting income growth. Unfortunately, while the BLS can seasonally adjust rent payments to make them as low as a bunch of bureaucrats want, the bigger problem is that US household income is not only not keeping up with rent inflation, it is far below it. In fact, as reported last week, real income is now back at 1989 levels!

And here is the punchline:

"in the years following 2000, gains in typical monthly rental costs exceeded the overall inflation rate, while median income among renters fell further and further behind (Figure 3). As a result, the share of renter households facing severe cost burdens grew dramatically, reaching a new record high of 28 percent in 2011 before edging down to 26.5 percent in 2013. Adding in those with moderate burdens, just under half of all renters were cost burdened in 2013. These rates are substantially higher than a decade ago and roughly twice what they were in 1960."

... ... ...

Furthermore, rent inflation isn't going anywhere - in fact, it will only get worse: "as of 2013, the median rent of a newly constructed unit of $1,290 was equal to about half the median renter's monthly household income, underscoring the urgent need for policy makers to consider enhanced levels of support for rental housing particularly for lowest income households but across a range of income levels."

Hype Alert

Housing and healthcare are severely under reported on inflation. How healthcare can triple and not set off flashing red lights on inflation is unreal.

Never One Roach

I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% the past several years despite soaring food, health costs, utinilites, etc.

AGuy

"I don't know how seniors who relied on SS benefits to survive are living when their COLA has been 0.01% "

Simple: many still work while collecting SS. Some have part-time jobs (aka Wallmart) others maintained their full time jobs. If you look at the employment chart, Employment for those 55 and older has risen considerably. I believe employment for the 70+ group has also increased.

However, many 65+ have a lower cost of living. (ie no mortgage payments, no college loans, lower healthcare -on Medicare, etc). They can afford to take on one part time job to meet ends since they have SS.

Consuelo

"The reason for this is a simple, if dramatic one: the U.S. transformation from a homeownership society, to one of renters."

All well & good in the context of officialdom's lies and deceit, but there's just a ~tiny~ bit of clarification needed here...

Home 'ownership' is a misnomer, and just a plain bald-faced Falsehood in reality. You don't 'own' ~anything~ until that last mortgage payment is made - assuming you're not a $cash buyer. And even then, try skipping a property tax payment... And didn't we just find out a few years back, the real meaning of 'home ownership' to the ball & chain tied schlub paying (or not) his mortgage...?

WTF_247

Wage growth has lagged most other costs for at least a decade or more. Inflation and other cost increases are compound functions. The correction will take care of itself. Healthcare and rent are taking more and more of peoples $$ You can only stretch it so far - at some point there is no more money.

Either incomes will rocket up OR housing, including rent, will crash huge. You cannot get renters to pay for something they have no money for. No one is going to rent and choose not to eat or to eat ramen noodles permanently. You cant even get rid of health insurance now or the IRS comes after you - no matter how much it increases each year (estimated 15-20% increase next year). You can get 1 roommate, then 2. But most cities limit the number of renters based upon the number of bedrooms - this only goes so far.

The solution is to stop working or only work a bare minimum - get benefits. Section 8 housing. EBT. Free healthcare. Welfare benefits.

Something is wrong in the US when a working mother making 29k has a better standard of living that someone making 69k per year. If anyone thinks this is not lost on the population as a whole, they would be mistaken. As costs keep going up it is more lucrative to NOT fight anymore. Let the govt pay for it.

novictim

Tyler! "Missing Inflation" is not a mistake or a misunderstanding or an accounting glitch.

Inflation really is low. People have insufficient money.

Do not confuse asset inflation with real inflation. Stock overvaluations and real estate over-evaluations do not create real inflation because prices drop when people sell. Assets are self correcting and non-inflationary.

adr

I shouldn't have to worry about affording somewhere to live with the job I have, yet because of where the job is I have to.

The entire Northeast is fucking insane.

Absolute shit one bedroom apartments rent for $800 a month. A decent two bedroom apartment goes for $1600. A FUCKING APARTMENT. Not in the city of Boston or suburbs like Cambridge, but 40 miles west. A "three" bedroom 1100 sq ft house in a crap city like Fitchburg can rent for $1400.

I posted a three bedroom ranch that was renting for $3200 a month a little while ago. What do millionaires rent shitty 1950s ranch homes in a hick town?

Then you have property taxes. Up 100% in five years in almost every town even though assessments are actually down. I saw a home listed with a 2009 value of $364k and property taxes of $2800 a year. The current assessed value is $289k but taxes are $5200.

How are you supposed to live?

[Sep 21, 2015] Iran Deal May Redefine The Middle East

"... A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. ..."

"... The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons. ..."

"... Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. ..."

"... The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). ..."

"... They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death. ..."

Sep 21, 2015 | naked capitalism
This has led to a new emerging relationship between the Saudis and Russia, where negotiations between Russia and OPEC emerged over the possibility of coordination of oil production levels. OPEC hinted that it was open to coordinated production cuts with non-OPEC members in its latest bulletin report, saying that "if there is a willingness to face the oil industry's challenges together" then the future would "be a lot better." Russian officials held meetings with their counterparts from OPEC, fueling speculation of some sort of accommodation.
Despite positive language from the negotiators, the talks so far have not amounted to much. Rosneft's Igor Sechin seemed to rule out such a scenario on September 7 in comments to the press, in which he said that Rosneft can't operate the way OPEC can. It would be difficult for Russia to cut back on its production, even if that meant some chance of higher prices. Russia's economy is hurting, and it needs to sell every barrel that it can.

Although there won't be a deal on oil output, Saudi Arabia and Russia made more progress on discussions regarding the purchase of Russian nuclear power plants and military equipment, a likely wake-up call to the U.S. and UK, the Saudis' longtime military suppliers. Still to be determined is whether this is a new alliance or merely a show of Saudi independence.

... ... ...

The EIA reports that in the last five years, the U.S. 'shale oil revolution' has enabled the U.S. to more than halve its oil imports, making it far less dependent on imports from OPEC, and significantly changing the terms of the relationship.

There is a lively ongoing argument in the world press about the possibility of the nuke deal leading to an entente between the U.S. and Iran, or even the possibility of an actual alliance.

Hardcore opponents of the deal claim that Iran is already in a quasi-alliance with the U.S. in the fight against ISIS in Iraq. And, although both countries hotly deny any intent to form an alliance, there are many in the region who believe that perhaps 'the ladies doth protest too much'.

... ... ...

As reported by Nick Cunningham, on these pages, the recently announced agreement with European oil companies to extend Gazprom's Nordstream gas pipeline into Germany was a clear sign that the EU is willing to do business with Russia again; this despite the Ukraine crisis, which in the face of Middle Eastern conflicts, seems to be fading into the background.

Selected Skeptical Comments

Vince in MN, September 21, 2015 at 6:39 am

39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping.

EoinW, September 21, 2015 at 8:58 am

In my lifetime, the Middle East has had two problems: Wahabbism and Zionism. We've been on the wrong side of both. One can count on western leaders to always be on the wrong side.

If Putin appears the voice of reason, what does that make Obama? He often seems like a housewife reacting to the dramatic conclusion of his favourite soap opera…with a new episode to follow tomorrow. Almost want to write – same Bat time, same Bat channel – it's so cartoonish.

The refugee crisis has made Merkle seem almost like a compassionate human being. But we know she only cares about keeping the EU going on her watch and she can see what a threat the refugee crisis is to EU unity. How worse will that threat be when Ukrainian refugees start coming? Better make nice with Russia!

Bill Smith September 21, 2015 at 10:17 am

"Saudis offer to Israel to allow flyovers of Saudi territory in case an attack on Iran" This has been reported on and off for several years.

The "sudden military alliance between Israel and Saudi Arabia" seems overblown. There have been very scattered reports of intelligence cooperation in the past but that is it.

Of course FARS reports stuff like this:

"20 Israeli officers and 63 Saudi military men and officials were killed"

likbez September 21, 2015 at 11:22 am

"39 paragraphs of cliche ridden breathless rumor mongering. The heart veritably races waiting for the next shoe dropping."

I would agree. It is clear for me that the quality of reporting about Russia is on the level of presstitutes from WashPost.

Also it is unclear that is the USA game plan as for Iran and what this article tries to communicate does not look plausible. It might well be that the USA wants to spread their bets by including Iran into the cycle of vassals (the USA does not need allies, only vassal states) but I think Iran elite still remembers years of crippling sanctions pretty well to jump into Uncle Sam embraces. The deal is needed mainly to put additional pressure on oil prices and if it achieves its goals and Russia crumbles, Iran will be thrown under the bus by US neocons very soon and without any hesitation.

It also looks like SA leadership wants some kind of rebalancing of relations with Russia as after Egypt to rely on US neocons is simply stupid. They proved to be pretty treacherous folks and promises given are not worth the paper they were printed on.

But if we assume that neocons dominate the USA foreign policy in foreseeable future, then the key policy in Middle East will be usual "divide and conquer" policy like we saw in Iraq, Libya and Syria. And bloodshed financed from usual sources (is not ISIS the USA and friends creation ?) will continue.

What is interesting is that SA never managed considerably increase their oil exports as their internal consumption grows more rapidly then extraction. They just refused to drop the volume of their exports. Probably with tacit approval of the USA. So it looks like drastic oil price drop is mainly financial markets play (derivative and futures games) - and that means that one plausible scenario is that this is another attempt to hurt Russia and depose Putin, even by taking a hit for own shale industry and decimating Canadian oil sands. Lifting sanctions from Iran is just the second step of the same plan.

EoinW -> likbez, September 21, 2015 at 12:32 pm
If Vietnam can forget over 2 million murdered by Americans and cozy up to Washington then it must be possible to find elites in any society(even Iran) who will sell out for the right price.
Paul Tioxon September 21, 2015 at 12:34 pm

A Real Politik assessment that only can come from someone who covers the global oil producing nations as a whole industry. Not completely unsurprising, but unusual in that the only constant in the social order is change and the people making sense out of the change have to look ahead to consequences real and unintended from political decisions that impact global energy production, particularly oil. The breakup of the Soviet Union was not just the fall of a single nation, but the fall of one of 2 Post WWII Global Hegemons.

The failure of the Project for A New American Century as a bid for a unipolar, unilateral Militaristic American Hegemony has resulted in a shift back to the International as opposed to Global relations. The institutions of the Post WWII world, The United Nations, the IMF and the World Bank, with the emphasis on diplomacy as opposed to nation to nation warfare is being resurrected in the Iranian Nuclear Non-Proliferation Treaty. What has been nearly completely absent is the naming of the UN Security Councils permanent members, the victors of WWII were united in staring down Iran until they produced the desired results, namely, giving up on pushing its way into the nuclear power club. The re-establishment of normal diplomatic relations with Cuba is a corroborating development. Russia has worked with the US in Syria to eliminate the chemical warfare stockpiles of Syria as well as patiently worked to conclude a successful Iran re-approachment.

Unfortunately, the overwhelming jargon of business from the last 4 decades of unrelenting Neo-liberalism likes to refer to ¨deals¨ and Western values, as if we clip money saving coupons to be redeemed at the bargaining table with Iran. And the war party demanded that a better deal could be had, what, they could get it for us WHOLESALE! Nuclear Non Proliferation was what was at stake and the UN Permanent Security Council Members were all present to negotiate the re-integration of Iran into the United Nations.

Presidents Obama and Putin are more allied than not and the structure of an inclusive international social order are being worked out without the lies of the Bush family´s war party plans. The USA is not falling apart at the seams because other nations are finally enriching themselves, thus putting them beyond the simple command and control of Neo-con warlords. The USA is relatively weaker not due to being hood winked or conquered but because other nations have risen in their own capacity to direct self determination. Iran is welcomed to do so, just not with nuclear weapons. That is a good thing, in the eyes of the Iranians and the rest of world.

mark September 21, 2015 at 12:59 pm

Interesting article about the people that worked on this over the years.

"Who made the Iran deal happen? Here are some of the people behind the scenes.
PRI's The World"

http://www.pri.org/stories/2015-07-14/who-made-iran-deal-happen-here-are-some-people-behind-scenes

Praedor September 21, 2015 at 1:35 pm

I DO so hope it leads to a completely new alignment in the ME. I am sick to death of "Iran the great evil" bullcrap.

It has always struck me as purely a childish temper tantrum on the part of the USA because the Iranian people had the GALL to toss out OUR murderous dictator and actually run their own country for their own people. Who do they think they are?

How DARE they use THEIR oil for THEIR country rather than to serve Western oil company bottom lines and provide the US with oil that, by rights, belongs to it. Because America! That and the fact that the Iranians held some US neocolonials/neoliberals hostage for a year-ish. That's unacceptable! Americans can do anything they want to whomever they want, damnit!

The US still owes the Iranians much more than "regret" for overthrowing the first true and democratically elected SECULAR government ever in the ME (Mossedegh). Imagine what Iran and even the ME could have been by now if Mossedegh had been allowed to stay in rightful power? Iran would be a true beacon of liberty and freedom and modernity in the heart of the ME. Israel doesn't even come close. They COULD have been a true, natural ally of the West (except for the "privatize everything" schtick the West has been stuck in for the last 30 years). Such a waste. All we've left behind us is chaos, jihadis, instability, death.

[Sep 21, 2015] HUGE part of the problem is we have a energy illiterate general public

"... markets are less and less supportive of deja vu innovation. ..."

"... However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. ..."

"... US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita. ..."

"... It ..."

"... would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems. ..."

Sep 21, 2015 | ourfiniteworld.com
September 15, 2015
Thomas Simon, September 15, 2015 at 7:19 am

@CalifornuiaLiving you are right about the California economy booming. Record tourism, agriculture, fossil fuels, high tech, etc. all have been strong. Problem is drought , wild fires, and climate change have significant impact on the future. Also wage stagnation in non-elite worker sector is a deepening problem. And high tech sector is starting to feel the pinch as markets are less and less supportive of deja vu innovation.

The reality of ocean acidification, coastal marine life die off due to heat caused algae bloom and potential sea rise from Arctic ice melting are no longer deniable. This is is not doom and gloom – this is as you I am sure can recognize required input for planning how to adjust oir at the east manage the risk.

What I appreciate from Gail is her careful analytical models that provide data points to monitor as part of the risk assessment and adjustments that any pragmatist must consider.

kimgerly, September 14, 2015 at 5:28 pm

@CaliforniaLiving. Here you go. RE's only at 20% in California. http://energyalmanac.ca.gov/electricity/total_system_power.html
Massive EV rollout is only good in tandem with a MASSIVE increase in installed renewable energy systems technologies. It will take decades to do this based on today's generation mix. And based on the escalation of the 'undesirables' and 'indifference' of Mother Nature, I'm predicting there will be A LOT more pain in the near future.
Better if the leadership trains and educates the populous to conserve, leave these bad habits of hyper-consumption in the past, and to PREPARE. to RESPOND. and ADAPT., because Mother Nature is not going to wait.
BTW: I'm a renewable energy engineer.

kimgerly, September 14, 2015 at 7:16 pm

The way I see it is hyper-consumerism will be the bane of (wo)mans' and other species' existence.
However, a HUGE part of the problem is we have a (mostly) energy illiterate general public, AND a scientific community that often does not speak in a language that the general public can comprehend; there is A HUGE disconnect here. And so, why would those of us in the scientific/engineering realm expect the lay person to get onboard when we, although I try my best not to, spew in language that goes over most peoples' heads. More storytelling is needed…
On top of the fact that we have leaders who don't understand thermodynamics, so they make BAD policy. Right, I blame a great deal on leadership who is failing to plan and not the sheeple.
But it's happened before and it is quite likely happening again. And so it goes…

CL, September 15, 2015 at 1:14 pm

@Kimgerly
I agree with you that "illiterate general public" is a major problem in setting the world on a correct course and Gail with this blog is part of that problem. There is one simple proven way to get the public to learn what is needed to point them in the right direction. It is though the tax code. The government needs to taxes the public on the actions that are damaging our environment and give credits to behavior that improves our environment. The one thing the public understands is money. I'm sure the fools will come after me. When they read this post. Telling me I'm obstructing their freedom that is destroying mother earth.
I also don't buy your statement that " leaders who don't understand". There is one party that gets it and another that refuses to at knowledge the situation protecting it's special interest ( oil companies for one ). This site lead by Gail is part of that special interest infrastructure. I have yet to see since she fell out of favor at TheOilDrum. A solution to anything. It's always Fear, Collapse, Fear and more Collapse.
Obama gets it – https://www.youtube.com/watch?v=C23e_-5BdZM

PleaseExplain, September 15, 2015 at 1:25 pm

Please Gail, let us know the last time you offered a solution ? You've been calling for collapse for five years and it hasn't happened. When do you admit your wrong ?

PleaseExplain, September 15, 2015 at 2:56 pm

I'm sick of reading your negative doomsday scenario and disinformation that this site pushes on the public for special interest. That's who I am.

BC, September 15, 2015 at 3:25 pm

https://app.box.com/s/pfdk6c7a9g9n5i0e3s5txnej16q7biav

https://app.box.com/s/jemdqkdd23257oummtpjwl6348wigdlx

US electricity consumption per capita is at the levels of the late 1990s to early 2000s. Efficiency, demographics reducing the growth of household formations, and a halving of the growth of real GDP per capita since 2000 and a further deceleration to near 0% since 2007-08 are the primary factors reducing consumption per capita.
EV sales are plunging with the crash in the price of gasoline and coincident with a global recession that likely began in late 2014 to earlier this year.
Growth of wind and solar energy production overall and as a share of total energy production has likely peaked for the cycle and will decelerate to 0% or negative in the years ahead, as occurred in the 1990s.

Gail Tverberg, September 15, 2015 at 6:54 am

Yes, we do have a population problem.

Gail Tverberg, September 15, 2015 at 6:45 am

It would be nice if our only problem were with oil. We have a problem with electricity too, and with keeping the roads paved. Electric cars don't solve those problems.

[Sep 21, 2015] Is This The Bottom For Oil Prices

"... Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average. ..."

"... The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage ..."

Sep 21, 2015 | OilPrice.com
Global oil demand also continues to rise. The IEA again revised its demand projection for 2015 upwards, with consumption expected to grow by 1.7 mb/d, a five-year high. "The market's not as oversupplied as we think it is," David Pursell, managing director at Tudor Pickering Holt & Co., told Bloomberg in an interview.
The long-term picture shows even stronger signs of bullishness. For example, it is unlikely that Iraq will be able to reach its ambitious production targets for the future, and because energy forecasters like the IEA are counting on Iraq to make up a large share of global production growth in the coming decades, the failure to reach those targets could leave the world short of supply. The same can be said for Brazil. In June, Petrobras acknowledged it will be unable to meet its production goals as well. The several million barrels per day lost between just these two countries alone mean that the long-term supply picture looks a lot tighter than we once thought.

But it goes beyond Iraq and Brazil. Around the world, an estimated $1.5 trillion worth of oil and gas investment may not be viable, at least at today's prices, according to a new report from Wood Mackenzie. The report concludes that $220 billion worth of investment has already been scrapped, and another $20 billion could be cancelled as well. The number of new oil and gas projects to be approved in 2016 could be around one-fifth of the annual average.

Other market watchers concur. "The low oil prices are taking their toll, the main shale oil producing regions in particular likely to suffer lasting damage," Commerzbank concluded in another report. Lower production over the longer-term could send oil prices up.

However, it is short-term market conditions that dictate the huge gyrations in crude oil prices. And for now, based on the positions of oil speculators, prices may have bottomed out.

By Nick Cunningham of Oilprice.com

Related: Iran Deal May Redefine The Middle East

[Sep 21, 2015] Russian Oil Industry Braces For Tax Hike

Looks like Russian government take measures to cut oil production...

Sep 21, 2015 | OilPrice.com
The Russian government is moving to plug a whole in its budget by raising more revenue from its oil and gas industry.
According to Reuters , the Russian finance ministry will tweak the Mineral Extraction Tax on oil companies, slapping on a "rouble deduction," which could raise 1.6 trillion roubles ($24.1 billion) through 2018. In effect, oil companies pay a tax that is largely calculated based on the strength of the country's currency, leading to a decline in revenues as the rouble has lost a significant amount of its value over the past year.

Instead of using a previous formula that used an exchange rate based on when the tax was paid, the government will instead use a rate close to what the rouble traded for in late 2014. That means, instead of a projected 63.5 roubles per dollar that the government expects for 2016, the tax will instead by based on 43.8 roubles per dollar.

The effect will be much more tax paid by oil companies, since the rouble was dramatically stronger in 2014 compared to where the rouble has gone since then.

[Sep 21, 2015] Oil Prices Gain On Higher Investor Confidence In Tightening Markets

"... hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June: ..."

Sep 21, 2015 | OilPrice.com

The crude complex is ripping higher after Friday's lambasting, encouraged higher by signs of a tightening market and further closing of short positions in the latest CFTC data. As the below chart illustrates, hedge funds have cut their gross short position by almost a third in recent weeks to 111 million barrels. This is down from a peak of 163 million in mid-August, but still almost double the 56 million barrels seen in mid-June:

[Sep 21, 2015] Economic Outlook, Indicators, Forecasts - Your Business

"... More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. ..."

Sep 21, 2015 | Kiplinger

Then the Federal Reserve announced its decision to keep its benchmark interest rate at rock-bottom levels, citing concerns about the health of the global economy. Those worries promptly sent oil prices sliding, with WTI trading near $45 per barrel.
More ups and downs are assured. But we look for WTI to trade between $40 and $45 per barrel by December. Any sort of sustained price rally looks unlikely until global supply is dialed back from its current high level. Even though U.S. production is slipping a bit, output remains strong in the Middle East and Russia.

[Sep 21, 2015] Peak Oil Review - Sep 21

"... The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. ..."

"... According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down. ..."

"... US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas ..."

"... the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. ..."

"... The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices. ..."

"... In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump. ..."

"... the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production ..."

Sep 21, 2015 | www.resilience.org
The EIA released a report pointing out the impact the massive debt service US oil producers have accumulated in recent years is having on their cash flow. Last week Samson Resources joined a list of oil producers filing for bankruptcy in an effort to get out from under $4 billion it owes to 10,000 creditors. Only four years ago KKR & Co. and a group of other investors spent $7.2 billion in buying Samson. According to Bloomberg, more than half the companies on its list of oil producers have debts totaling 40 percent or more of their value. Bloomberg also says that 400,000 b/d of oil produced by companies in financial trouble is in risk of being shut down.
Moody's and Goldman's were out last week with pessimistic forecasts about the outlook for the oil industry over the next two years. Moody's says that earnings from the global oil and gas industry will decline by 20 percent this year and only recover modestly in 2016. Goldman's says the the current crude surplus may keep prices low for the next 15 years and reiterated that it could take prices as low as $20 a barrel to clear the oil glut which is threatening to overrun storage capacity.

The US Secretary of Commerce noted last week that interest in acquiring new drilling rights in the Gulf of Mexico is dropping due to low oil prices. This year the auction of drilling rights in the Western Gulf of Mexico yielded only $22.7 million as compared with $110 million last year. High-cost off shore drilling is in a lot of trouble with participants scrambling to mothball drilling rigs and fleets of support ships and to defer new equipment that was ordered during the boom years.

... ... ...

Lost in all the furor over oil prices and declining production is that US natural gas production has started to fall. Some of this is due to the drop in natural gas production that comes along with falling oil production, but some is due to the the extremely low price of natural gas which fell on Friday to $2.60 per million BTU's in NY. These prices have led to an increase in demand for gas by the power companies and the ongoing construction of several export terminals for LNG.

... ... ...

In the meantime, the Iranians are looking forward to increasing their oil production next year and regaining their former share of the international oil market. Tehran has announced that new types of oil contracts aimed at attracting foreign investment to the country's oil industry will be announced soon. Trade delegations from France and the UK are scheduled to visit Tehran soon.

... ... ...

Down in Iraq, the government is trying to cope with lower oil prices by increasing exports. The latest plan calls for shipments of Basra crude to increase by 26 percent next month. In the meantime, Baghdad has warned the foreign oil companies working in the country that it will not have much money to pay them for their drilling efforts in the coming year so they should cut back on capital expenditures.

... ... ...

There is unlikely to be much change in the oil situation unless there is some type of foreign intervention to contain the Islamic State or stop the refugee flow into the Mediterranean.

... ... ...

The Saudis are starting to feel the impact of lower oil prices as the kingdom faces the biggest financial deficit in decades. Steps to cut spending are underway and the privatization of state-owned companies and elimination of fuel subsidies are likely. The Saudis still have about $660 billion in foreign assets, enough to get them through five years of low oil prices.

Recent data shows that the Saudis are holding their own in efforts to maintain market share. In the first half, the Saudis exported an average of 4.4 million b/d to seven Asian nations, about the same as they did before the price slump.

... ... ...

Russia's economy continues to deteriorate. Moscow's labor minister said that real incomes in Russia are expected to contract by 5 percent this year. Efforts to ramp up domestic substitutes for food and goods previously imported from the West are going slowly and it may be years before they are implemented. To offset growing budget deficits, the government is studying an increased oil extraction tax that could increase the tax burden on oil producers by $9 billion. Given the shape of the Russian economy, there is little left to tax other than oil production which is still doing well thanks to the greatly devalued ruble and large export sales which have combined to leave oil export revenues largely unchanged when measured in rubles.

Work on the "Turkish Stream" pipeline which Moscow is planning to build to move natural gas to the EU while bypassing Ukraine has not begun. Delays have moved completion of the project into 2017.

... ... ...

China's diesel exports may surge to a record in the coming months as refinery output increases while domestic demand growth for the fuel slows. The nation's diesel shipments might have risen to a record last month, topping the previous high in June of 670,000 tons, and may climb to 1 million tons a month in the fourth quarter. (9/14)

... ... ...

Uganda/Kenya: Low crude prices have thrown the future of East African oil projects into doubt. With oil prices languishing below $50 a barrel, there's little incentive for companies such as Tullow Oil Plc, Africa Oil Corp., China's CNOOC Ltd. and France's Total SA to keep investing. (9/16)

... ... ...

Gasoline consumption: U.S. motor gasoline use has been rising after reaching an 11-year low in 2012. Although lower gasoline prices have been an important factor in the increase in gasoline use so far in 2015, changes in the labor market and in the vehicle sales mix over the past few years also have contributed to the rise in gasoline use. (9/16)

[Sep 21, 2015] The Pope the Market

"... Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone". ..."

"... Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes. ..."

"... MARKETS 'R' US! ..."

"...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."

"... The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years. ..."

Sep 21, 2015 | economistsview.typepad.com

ilsm -> RC AKA Darryl, Ron...

Gosar was educated by the "Jesuits" (they are a minority of Jesuits today) who brought you the Inquisition. Gosar is a cafeteria catholic, who ignores the thing about "loving thy neighbor", and "tossing the first stone".
Religious freedom is not the practice of bigotry and intolerance.
Gosar would be best served listening to the Pope. He needs the truth.

... ... ...

Sandwichman said...

"...market-based environmental policies such as carbon pricing..."

"...the fact that environmental problems are caused by market distortions rather than by markets per se..."

Who will teach the economists?
Carbon pricing is not "market based"; it is a regulatory intervention to correct "market distortions," which originate from... wait for it... HOW MARKETS FUNCTION! Nordhaus appears to mistake an imaginary image of an "ideal" competitive market in which all externalities are internalized for actual markets in which the ideal could never, never materialize. In fact, externalities are NOT "market failures"; they are cost-shifting successes.
And this is not Catholic theology -- it is economics as practiced by some of the most perceptive economists of the 20th century who must be ignored because... MARKETS 'R' US! Too bad, because I get the sense that Nordhaus's heart is in the right place even if his economic theory is in the wrong century.

Sandwichman...

"...In fact, externalities are NOT "market failures"; they are cost-shifting successes..."
[Priceless!]

Sandwichman -> RC AKA Darryl, Ron...

Credit to Joan Martinez-Alier, paraphrasing Karl William Kapp, "Externalities are not so much market failures as cost-shifting 'successes'."

Kapp, Karl William (1971) Social costs, neo-classical economics and environmental planning. The Social Costs of Business Enterprise, 3rd edition. K. W. Kapp. Nottingham, Spokesman: 305-318

Sandwichman -> Sandwichman...

K.W. Kapp:
"Environmental problems are being forced today into the conceptual box of externalities first developed by Alfred Marshall. In my estimation this concept was not designed for and is not adequate to deal with the full range and pervasive character of the environmental and social repercussions set in motion by economic activities of producers or the goods produced and sold by them to consumers. I agree with those who have criticized the use of the concept of externalities as empty and incompatible with the logical structure of the static equilibrium theory."

Sandwichman -> Sandwichman...

From "Social Costs of Business Enterprise" by K. W. Kapp. pp. 69-70:
http://www.kwilliam-kapp.de/documents/SCOBE_000.pdf
How the principles of business enterprise favor the emergence of the social costs of air pollution
"The initial concentration of industrial production in a few centers, as indeed the location of industries in general under conditions of unlimited competition, will take place in accordance with private cost-benefit calculations. Once established, the industry widens the market for a host of other industries; it offers employment and income opportunities to labor and capital; it provides a broader tax base for the emerging urban communities and the necessary public services. The locality becomes generally more attractive for additional investments, enterprise and labor and urban settlement. It is this expansionary momentum which serves to 'polarize' industrial development in certain 'nodal' centers, which soon gives rise to secondary and tertiary spread effects in the form of increasing outlets for agricultural products and consumers' industries in general. In the light of traditional economic theory the process seems to proceed in harmony with the principle of social efficiency. For, after all, internal economies combine with external economies (in the narrow Marshallian sense) to make it appear rational to concentrate production in centers which are already established and offer some guarantee that the necessary social overhead investments (in roads, schools, communication) can be shared by a larger community. What is overlooked is that the concentration of industrial production may give rise to social costs which may call for entirely new and disproportionate overhead outlays for which nobody may be prepared to pay. Thus by concentrating on the analysis of internal and external economies, and by stopping short of the introduction of the concept of social costs of unrestrained industrial concentration, traditional theory lends tacit support to the overall rationality of cumulative growth processes, no matter what their socially harmful effects may be. After all, what could be more 'rational' than to exploit to the fullest extent the availability of internal and external economies? As long as social costs remain unrecognized and as long as we concentrate on costs that are internal to the firm or to the industry we shall fail to arrive at socially relevant criteria.
"It may be argued that, while the neglect of social costs may contribute to the cumulative growth process it still would not explain the incomplete and inefficient process of combustion which gives rise to the emanation of pollutants into the atmosphere. For obviously, if air pollution is a sign of inefficient and incomplete combustion of coal or oil the question arises why would business enterprise permit such waste to continue? The answer is simply that what may be technologically wasteful might still be economical considering the fact that not only social costs can be shifted with impunity but, above all, that discounted private returns (or savings) obtainable from the prevention of the technological inefficiency and social costs may not be high enough to compensate for the private costs of the necessary abatement measures. The fact that the resulting pollution of the atmosphere may cause social costs far in excess of the costs of their abatement is not, and indeed cannot, be normally expected to be considered in the traditional cost-benefit calculations of private enterprise."

Sandwichman -> Sandwichman...

More K. W. Kapp:
"My central thesis was and has remained that the maximization of net income by micro-economic units is likely to reduce the income (or utility) of other economic units and of society at large and that the conventional measurements of the performance of the economy are unsatisfactory and indeed misleading. To my mind, traditional theoretical inquiry was neither guided nor supported by empirical observations and available data. I tried to show that micro-economic analysis ignored important relationships between the economy (wrongly viewed as a closed system) and the physical and social environment and that these intrinsic relationships gave rise to negative consequences of the economic process. It was and is my contention that the nature and scope of economic theory is too narrow. This restriction has affected economic theory at its foundation: i.e., at the stage of concept formation (e.g., costs and returns), in the choice of criteria of valuation and aggregation (in terms of money and exchange values) and hence in the delimitation of the scope of the inquiry. Not only the dynamic interconnection of the economy with the physical and social environment and the impact which the disruption of the environment has upon the producer (worker) and consumer but also the relationship between human wants and needs and their actual satisfaction have remained outside the scope and preoccupation of economic theory. Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development. In fact, the whole procedure "alienates" economic analysis from what I consider to be one of its most important objectives, namely the appraisal of the substantive rationality (Max Weber) of the use of society's scarce resources. Critics of the traditional approach from Marx and Veblen to Myrdal and more recently H. Albert and W.A. Weisskopf have pointed out that the restriction of the analysis is the result of specific analytical preconceptions as well as hidden value premises. In short, the critics have argued that the restriction of economic analysis reflects a subtle dogmatism on the part of its practitioners."

GeorgeK -> Sandwichman...

WSJ
Updated April 19, 2013 6:27 p.m. ET
"One of the great policy bubbles of our times has been cap and trade for carbon emissions, and on Tuesday it may have popped for good. The European Parliament refused to save the EU's failing program, which is the true-believer equivalent of the pope renouncing celibacy.
The Parliament in Strasbourg voted 334-315 (with 63 abstentions) against propping up the price of carbon credits in the EU Emissions Trading System. The failed proposal would have delayed the scheduled sale of 900 million ETS permits over the next seven years, thereby suppressing supply. After carbon traders realized they weren't getting more artificial scarcity, they drove the price of emissions permits down by 40% at one point on Tuesday."....
Maybe Mr Nordhaus miss this little gem when he was "researching" his article

anne -> GeorgeK...

http://www.wsj.com/articles/SB10001424127887324030704578426520736614486
April 19, 2013
Cap and Trade Collapses
Even the European Parliament rejects carbon price-fixing

ilsm -> Sandwichman...

The author does not think greed and failed distribution are market distortions.

Sandwichman -> ilsm...

No. Nordhaus appears to believe that general equilibrium describes a tendency of economies rather than a feature of abstract mathematical models. After all, didn't Arrow and Debreau "prove" its existence (given certain implausible assumptions)?
The mathiness fetish began long before Lucas and his bogus "critique." Only a profession that was desperately eager to "pay no attention to the man behind the curtain" could have fallen for such a blatant display of OzWizardry.

Sandwichman -> Sandwichman...

I repeat:
"Human wants and preferences (all subjective concepts), are treated as "given" and the analytical apparatus is designed to develop an instrumental logic of choice and allocation under these given conditions within a closed system.
"This traditional restriction of economic analysis is not only contrary to the empirical facts of the interdependence of the economy with the environment but also protects the analysis and its conclusions against its critics who present evidence of the negative impact of economic activities on human health and human development."

david -> Sandwichman...

I always find it very hard to get over this fundamental objection. And wonder why I think I should.

DrDick -> ilsm...

Why would he? They are the very heart and soul of capitalist markets.

anne said...

https://www.washingtonpost.com/opinions/pope-franciss-fact-free-flamboyance/2015/09/18/7d711750-5d6a-11e5-8e9e-dce8a2a2a679_story.html
September 18, 2015
Pope Francis' fact-free flamboyance
By George F. Will - Washington Post
Pope Francis embodies sanctity but comes trailing clouds of sanctimony. With a convert's indiscriminate zeal, he embraces ideas impeccably fashionable, demonstrably false and deeply reactionary. They would devastate the poor on whose behalf he purports to speak - if his policy prescriptions were not as implausible as his social diagnoses are shrill.
Supporters of Francis have bought newspaper and broadcast advertisements to disseminate some of his woolly sentiments that have the intellectual tone of fortune cookies. One example: "People occasionally forgive, but nature never does." The Vatican's majesty does not disguise the vacuity of this. Is Francis intimating that environmental damage is irreversible?
[ A wildly offensive essay from a typically offensive writer, but so much so as to be deserving of reading at least for the idea that environmental damage, damage to life as such, is inevitably and necessarily reversible. ]

Sandwichman -> anne...

Yuck. There is a reason I don't read George Will. He is a political pornographer whose intended audience is composed of post-adolescent crypto-fascists.

Sandwichman -> Sandwichman...

"[William F.] Buckley is survived by his hip satirical novelist son Christopher, his pale imitation of its former self magazine, and George Will's wardrobe and middle initial."
http://gawker.com/361402/william-f-buckley-crypto-fascist-is-correcting-usage-in-heaven

cm -> Sandwichman...

But in reference to your first comment in this post, there is a market for his writing, so ...

DrDick -> cm...

There is a market for underage prostitutes as well. That does not mean that we should encourage it.

Sandwichman -> Sandwichman...

Wikipedia: "A shill, also called a plant or a stooge, is a person who publicly helps a person or organization without disclosing that they have a close relationship with the person or organization."

Ben Groves said...

Follow the actual policy and reject the dialect. There has been almost no move against what is called "Climate Change". The "deniers" try to mutter dialectical nonsense there has been this great move, but they are lying. Look at the Rockefeller fortune split. While Jay has moved David's fortune to supporting moves to combat climate change, the Rockefeller Foundation has consistently financed denier bullshit globally and they own most of the money. Thus, the climate denier is a globalist. Why? Because global capitalism can't run without oil and specifically, cheap oil in the developed world for them to make profit.
If you want to enmass a battle against "climate change" (a word the deniers existed), you must use fear and nationalism. This is the weakness in the current response. When you don't use fear and nationalism, it creates a emasculated response and people don't drift to Beta's. Alpha response in politics cannot be underestimated. It is how the neocons suck in the fools and what they learned watching 100 years of anti-capitalism in action (especially the Cuban revolution, with mega alpha males Fidel and Che).

ilsm said...

From the start the carbon cabal has created immense externalities which governments have responded with coddling them with subsidies and defending their foreign "assets".

From wars (US since WW II), to support of corrupt royals and ruthless dictators, to cadmium in the livers of ungulates, to blighted cities and to massive degradation of the public health.

While the right wing is defending the soccer Mom's SUV!

The SUV and Saudi Arabia are not worth the pain of American soldiers suffered defending the past 70 years.

The Pope is being Jeremiah!

[Sep 20, 2015] Fed To Main Street Screw You - Wall Street Matters More

"... A troika of the military, Wall Street and spooks run the land of the free. ..."

"... The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess. ..."

"... Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika. ..."

"... it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back ..."

"... So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus. ..."

"... "The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008) ..."

Sep 20, 2015 | Zero Hedge
JustObserving
Fed To Main Street: Screw You
That is nothing new. That has been the official policy for a few decades.

A troika of the military, Wall Street and spooks run the land of the free.

Who cares about Main Street except pandering politicians before elections?

Who rules America?

The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.

https://www.wsws.org/en/articles/2013/06/10/pers-j10.html

The Fed Won: America's 0.1% Are Now Wealthier Than The Bottom 90%

http://www.zerohedge.com/news/2014-11-11/fed-won-americas-01-are-now-wea...

Usurious

USURY redistributes wealth from the bottom to the top......

BoNeSxxx

' I wonder how the Bank of International Settlements feels about this latest move?'

I am pretty sure they are aboard... The tail does not wag the dog

Atomizer

Jeb Bush And Mr. Slim connection:

Election 2016: Jeb Bush Got $1.3M Job At Lehman After Florida ...

numbers

This guy is fucking clueless. Anybody who thinks higher rates will help main street is delusional. I'm sure that higher rates will help the Fed meet its 2% inflation target. Right. I think there was a Fed Chairman who proved what higher rates do to inflation and economic activity. Yes, I believe his name was Paul Volcker.
As for the 5.1% UE rate. Anybody who believes that is the real UE is clueless and has never even heard of the LFPR. We have an LFPR that was last seen in the 1970s but we are supposed to believe clowns like St. Cyr when he says the UE is really 5.1%
Yup, higher rates will have the average consumer stampeding through bank doors to borrow money to buy homes, cars, appliances, everythng they couldn't afford to buy with rates at zero. Yeah, right.

besnook

it has always been about saving the banks at the expense of the people. the people are the real lenders of last resort only the money is usually taken and not to be paid back.
austerity economics is a great euphemism for depression.

polo007

http://news.goldseek.com/GoldSeek/1442494200.php

Try making up for a past mistake and make another? That's playing from behind, if you will, and it's not out of the question if you know the Fed's history:

Not a single post-war recession has been predicted by the Fed a year in advance, according to former U.S. Treasury Secretary Lawrence Summers; and

Neither of the last three recessions were recognized until they were already under way.

Incompetent or ulterior motives for policy?

Regardless, here we are with expectations ramped up for a rate hike, as the rest of the world is easing.

What's notable for investors is that since the 2008 crash, we have not been able to achieve new market highs without central bank stimulus. Full stop.

But it's only a quarter point…

According to a study released by McKinsey Global Institute in February of this year, global debt has increased by $57 trillion USD since 2008. With such an enormous amount liquidity in the system (M1 money supply near lifetime highs) financial markets are increasingly becoming nothing more than a currency game; and the currency game is a relative one. I print, you print, they print, but who's printing more and where is capital flowing in and out of? Within this context, a quarter-point rate hike would be much more than simply symbolic.

As we have seen since late 2012, the rise in the U.S. dollar has had major implications on global markets, whether it be currencies, commodities or interest rates. A rate hike would equate to further USD strength and will accelerate the deflationary spiral we have witnessed over the past few years. Raising rates into a slowdown could also place the U.S. firmly on a path to recession in 2016.

Conversely, no rate increase does not meet the expectations set by the Fed and will re-inflate commodities in the immediate term. Arguably, it pulls forward the possibility of QE4 as well.

So it seems the Fed finds itself in a self-imposed conundrum here: make a policy error and raise into a slowdown, don't raise and openly recognize growth is slowing. Which brings me back to my previous point: since 2008, no new market highs have been achieved without central bank stimulus.

As always, government remains the No. 1 risk to financial markets, and I will change my views as the facts change.

"The Federal Reserve is not currently forecasting a recession." – Ben Bernanke (January 2008)

[Sep 20, 2015] Which Shale Firms Will Cut Production

"... while existant production is profitable, new production may not be worthwhile. ..."

"... Fiscally that is certainly a sound move, but if many firms follow CLR's footsteps, then it could set the stage for the long awaited turn in production growth. And that would be good news for oil prices indeed. ..."

Sep 20, 2015 | OilPrice.com
...if production in the U.S. really is going to fall, it may come from firms like Whiting Petroleum and Continental Resources. Whiting announced at the end of July that it was cutting its capital spending budget and that it would run 8 drilling rigs for the year instead of the previous 11 it had planned to run. WLL's production in July was up 2 percent quarter over quarter, and production growth next year stands a good chance of turning negative for the firm.
Whiting's per barrel costs look like they may be a bit under $20 each excluding production taxes and Depreciation, Depletion and Amortization (DD&A). As a result, while existant production is profitable, new production may not be worthwhile.

Continental is taking similar steps and announced earlier in September that is was cutting its capital spending to align with its cash flow.

Fiscally that is certainly a sound move, but if many firms follow CLR's footsteps, then it could set the stage for the long awaited turn in production growth. And that would be good news for oil prices indeed.

[Sep 20, 2015]Deep State America

"...Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism."

The American Conservative,
It has frequently been alleged that the modern Turkish Republic operates on two levels. It has a parliamentary democracy complete with a constitution and regular elections, but there also exists a secret government that has been referred to as the "deep state," in Turkish "Derin Devlet."

The concept of "deep state" has recently become fashionable to a certain extent, particularly to explain the persistence of traditional political alignments when confronted by the recent revolutions in parts of the Middle East and Eastern Europe. For those who believe in the existence of the deep state, there are a number of institutional as well as extralegal relationships that might suggest its presence.

Some believe that this deep state arose out of a secret NATO operation called "Gladio," which created an infrastructure for so-called "stay behind operations" if Western Europe were to be overrun by the Soviet Union and its allies. There is a certain logic to that assumption, as a deep state has to be organized around a center of official and publicly accepted power, which means it normally includes senior officials of the police and intelligence services as well as the military. For the police and intelligence agencies, the propensity to operate in secret is a sine qua non for the deep state, as it provides cover for the maintenance of relationships that under other circumstances would be considered suspect or even illegal.

In Turkey, the notion that there has to be an outside force restraining dissent from political norms was, until recently, even given a legal fig leaf through the Constitution of 1982, which granted to the military's National Security Council authority to intervene in developing political situations to "protect" the state. There have, in fact, been four military coups in Turkey. But deep state goes far beyond those overt interventions. It has been claimed that deep state activities in Turkey are frequently conducted through connivance with politicians who provide cover for the activity, with corporate interests and with criminal groups who can operate across borders and help in the mundane tasks of political corruption, including drug trafficking and money laundering.

A number of senior Turkish politicians have spoken openly of the existence of the deep state. Prime Minister Bulent Ecevit tried to learn more about the organization and, for his pains, endured an assassination attempt in 1977. Tansu Ciller eulogized "those who died for the state and those who killed for the state," referring to the assassinations of communists and Kurds. There have been several significant exposures of Turkish deep state activities, most notably an automobile accident in 1996 in Susurluk that killed the Deputy Chief of the Istanbul Police and the leader of the Grey Wolves extreme right wing nationalist group. A member of parliament was also in the car and a fake passport was discovered, tying together a criminal group that had operated death squads with a senior security official and an elected member of the legislature. A subsequent investigation determined that the police had been using the criminals to support their operations against leftist groups and other dissidents. Deep state operatives have also been linked to assassinations of a judge, Kurds, leftists, potential state witnesses, and an Armenian journalist. They have also bombed a Kurdish bookstore and the offices of a leading newspaper.

As all governments-sometimes for good reasons-engage in concealment of their more questionable activities, or even resort to out and out deception, one must ask how the deep state differs. While an elected government might sometimes engage in activity that is legally questionable, there is normally some plausible pretext employed to cover up or explain the act.

But for players in the deep state, there is no accountability and no legal limit. Everything is based on self-interest, justified through an assertion of patriotism and the national interest. In Turkey, there is a belief amongst senior officials who consider themselves to be parts of the status in statu that they are guardians of the constitution and the true interests of the nation. In their own minds, they are thereby not bound by the normal rules. Engagement in criminal activity is fine as long as it is done to protect the Turkish people and to covertly address errors made by the citizenry, which can easily be led astray by political fads and charismatic leaders. When things go too far in a certain direction, the deep state steps in to correct course.

And deep state players are to be rewarded for their patriotism. They benefit materially from the criminal activity that they engage in, including protecting Turkey's role as a conduit for drugs heading to Europe from Central Asia, but more recently involving the movement of weapons and people to and from Syria. This has meant collaborating with groups like ISIS, enabling militants to ignore borders and sell their stolen archeological artifacts while also negotiating deals for the oil from the fields in the areas that they occupy. All the transactions include a large cut for the deep state.

If all this sounds familiar to an American reader, it should, and given some local idiosyncrasies, it invites the question whether the United States of America has its own deep state.

First of all, one should note that for the deep state to be effective, it must be intimately associated with the development or pre-existence of a national security state. There must also be a perception that the nation is in peril, justifying extraordinary measures undertaken by brave patriots to preserve life and property of the citizenry. Those measures are generically conservative in nature, intended to protect the status quo with the implication that change is dangerous.

Those requirements certainly prevail in post 9/11 America, and also feed the other essential component of the deep state: that the intervening should work secretly or at least under the radar. Consider for a moment how Washington operates. There is gridlock in Congress and the legislature opposes nearly everything that the White House supports. Nevertheless, certain things happen seemingly without any discussion: Banks are bailed out and corporate interests are protected by law. Huge multi-year defense contracts are approved. Citizens are assassinated by drones, the public is routinely surveilled, people are imprisoned without be charged, military action against "rogue" regimes is authorized, and whistleblowers are punished with prison. The war crimes committed by U.S. troops and contractors on far-flung battlefields, as well as torture and rendition, are rarely investigated and punishment of any kind is rare. America, the warlike predatory capitalist, might be considered a virtual definition of deep state.

One critic describes deep state as driven by the "Washington Consensus," a subset of the "American exceptionalism" meme. It is plausible to consider it a post-World War II creation, the end result of the "military industrial complex" that Dwight Eisenhower warned about, but some believe its infrastructure was actually put in place through the passage of the Federal Reserve Act prior to the First World War. Several years after signing the bill, Woodrow Wilson reportedly lamented, "We have come to be one of the worst ruled, one of the most completely controlled and dominated governments in the civilized world, no longer a government by conviction and the vote of the majority, but a government by the opinion and duress of a small group of dominant men."

In truth America's deep state is, not unlike Turkey's, a hybrid creature that operates along a New York to Washington axis. Where the Turks engage in criminal activity to fund themselves, the Washington elite instead turns to banksters, lobbyists, and defense contractors, operating much more in the open and, ostensibly, legally. U.S.-style deep state includes all the obvious parties, both public and private, who benefit from the status quo: including key players in the police and intelligence agencies, the military, the treasury and justice departments, and the judiciary. It is structured to materially reward those who play along with the charade, and the glue to accomplish that ultimately comes from Wall Street. "Financial services" might well be considered the epicenter of the entire process. Even though government is needed to implement desired policies, the banksters comprise the truly essential element, capable of providing genuine rewards for compliance. As corporate interests increasingly own the media, little dissent comes from the Fourth Estate as the process plays out, while many of the proliferating Washington think tanks that provide deep state "intellectual" credibility are similarly funded by defense contractors.

The cross fertilization that is essential to making the system work takes place through the famous revolving door whereby senior government officials enter the private sector at a high level. In some cases the door revolves a number of times, with officials leaving government before returning to an even more elevated position. Along the way, those select individuals are protected, promoted, and groomed for bigger things. And bigger things do occur that justify the considerable costs, to include bank bailouts, tax breaks, and resistance to legislation that would regulate Wall Street, political donors, and lobbyists. The senior government officials, ex-generals, and high level intelligence operatives who participate find themselves with multi-million dollar homes in which to spend their retirement years, cushioned by a tidy pile of investments.

America's deep state is completely corrupt: it exists to sell out the public interest, and includes both major political parties as well as government officials. Politicians like the Clintons who leave the White House "broke" and accumulate $100 million in a few years exemplify how it rewards. A bloated Pentagon churns out hundreds of unneeded flag officers who receive munificent pensions and benefits for the rest of their lives. And no one is punished, ever. Disgraced former general and CIA Director David Petraeus is now a partner at the KKR private equity firm, even though he knows nothing about financial services. More recently, former Acting CIA Director Michael Morell has become a Senior Counselor at Beacon Global Strategies. Both are being rewarded for their loyalty to the system and for providing current access to their replacements in government.

What makes the deep state so successful? It wins no matter who is in power, by creating bipartisan-supported money pits within the system. Monetizing the completely unnecessary and hideously expensive global war on terror benefits the senior government officials, beltway industries, and financial services that feed off it. Because it is essential to keep the money flowing, the deep state persists in promoting policies that make no sense, to include the unwinnable wars currently enjoying marquee status in Iraq/Syria and Afghanistan. The deep state knows that a fearful public will buy its product and does not even have to make much of an effort to sell it.

Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism. Ordinary Americans frequently ask why politicians and government officials appear to be so obtuse, rarely recognizing what is actually occurring in the country. That is partly due to the fact that the political class lives in a bubble of its own creation, but it might also be because many of America's leaders actually accept that there is an unelected, unappointed, and unaccountable presence within the system that actually manages what is taking place behind the scenes. That would be the American deep state.

rehypothecator

"It is difficult to get a man to understand something, when his salary depends on his not understanding it." - Upton Sinclair

Martian Moon

https://www.youtube.com/watch?v=n3xgjxJwedA
Latest on 911 by James Corbett
Educate yourself

All Risk No Reward

This is all you need to know to prove, beyond all doubt, that the official pile driving narrative is false.
The reality is that anyone can OBSERVE that the top of the building DID NOT DO WHAT A CUE BALL DOES EVERY SINGLE TIME IT HITS ANOTHER BILLIARD BALL - the top of the building did not decelerate.
It did not decelerate because IT DID NOT HIT THE LOWER SECTION OF THE BUILDING. For if it had hit the lower section of the building, IT WOULD HAVE DECELERATED.
The official story never addressed this point. They wisely stopped their investigation at the initiation of collapse. That was no accident.
AitT - Sir Isaac Newton Weighs in on the World Trade Center North Tower Collapse Official Narrative

http://www.weaponsofmassdebt.com/index.php/blog/aitt-sir-isaac-newton-we...

Now, some people will attack either me or this factual, observable, and repeatable information based on their programmed "crimestop" response...
crimestop - Orwell's definition: "The faculty of stopping short, as though by instinct, at the threshold of any dangerous thought. It includes the power of not grasping analogies, of failing to perceive logical errors, of misunderstanding the simplest arguments if they are inimical to Ingsoc, and of being bored or repelled by any train of thought which is capable of leading in a heretical direction. In short....protective stupidity."
http://www.newspeakdictionary.com/ns-dict.html

But what nobody will do - because they can't do it - is to explain a physics based scenario where the top of the building hit a structurally solid lower section of the building WITHOUT DECELERATING.
There are NO CONTRADICTIONS in reality. One leading blogger claimed he had done lots of research that showed the official story was correct.
But what he didn't do before he stopped the conversation (smart subconsciousness!) was to explain how the top of the building could have hit a structurally sound lower section of the building without experiencing marginal deceleration.
This is the video that needs to replace all the complex theories that are too easily dismissed by the masses.
No, make the masses exclaim the physics equivalent of 2+2=5 in order to continue believing in the Debt-Money Monopolist false narratives engineered to damage ordinary people across the globe.

NeoLuddite

Elections are just advance auctions of stolen goods.

junction

"Deep State" operatives killed Michael Hastings and Philip Marshall. Whether Paul Walker was also killed by the "Murder, Inc." - type agents of the "Deep State," to make flaming car crashes look normal, is an open question. When Tennessee Department of Motor Vehicles (DMV)employee Katherine Smith died in a flaming car crash in 2002, her death was called a murder (still unsolved) because a Tennessee state trooper driving behind her saw her car explode into flames before going off the road.

Smith was the DMV employee who sold driver's licenses to Arabs, licenses they used to identify themselves when they did work on the sprinkler systems at the World Trade Center before 9/11.

Sprinkler systems which all did not work on 9/11, even though they were ruggedized after the 1993 WTC truck bombing.

And who can forget the California policeman, on a 100% disability pension, who turned up in Orlando, Florida as the FBI agent who murdered a martial arts associate of Boston Bomber Tamerlan Tsarnaev. The guy murdered had just undergone knee surgery and could only walk with a cane, yet he supposedly lunged at this crooked FBI agent, illegally collecting a disabilty pension tax free of some $60,000 a year.

The initial report from the agent said this guy had a sword cane but that report was false.

doctor10

Politics is merely the entertainment wing of the MIC/Anglo-American Central Banking junta.
Has been since November 23rd 1963. Reagan required a 22 cal message to that effect after he thought he'd been elected President.

kliguy38

Of course I know that the United States of America is not Turkey. But there are lessons to be learned from its example of how a democracy can be subverted by particular interests hiding behind the mask of patriotism.

no of course its not Turkey......its a hundred times worse

Ms No

Turkey's deep state is our deep state with some local players. This is going global, I thought everybody knew that. Turkey has been a vassal for the Ziocons as long as anyone can remember and they are one of many. Most of our presidents seem to prefer the term The New World Order. It's funny how people snicker about that term but I didn't catch a grin off of any of our presidents going back to Bush I snickering about it when they mention it in their State of the Union addresses and this current clown is not an exception.
It's quite real and not at all funny. People need to take a look around they have even spelled it out for you. What do these guys have to do send us our own eulogies? Lets just hope that while everybody else is trying to figure this out that we don't end up getting too familiar with our torture state.

Majestic12

"America is in deep shit as are all governments run by central banks neo-Keynesian fascist economic policy."
I got you on the "deep shit" and "run by central banks", but lost you on "Keynesian Fascist economic policy".
ZH is full of half truths and obfuscation.
I do not agree with much of Keynes, but most here support Von Mises (the Rockefeller Foundation product) and the London School of Economics.
These "institutions" are profoundly contradictory, corrupt and were born of the 00001%.
At least Keynes decried relying soley on monetary policy and "supply side" economics.
Most here have only known "supply side" (Reagan and after), so they have nothing to compare it to.
Listen to boomers talk of the 60s and 70s...there were always jobs, it didn't take 2 earners, it didn't take a degree, everyone took vacation, and the "information" deluge ended at 11:00pm until the next morning.
And, you really didn't have to lock your doors, unless you lived in urban Chicago, NY, LA any other huge metropolis.
So, it was all "Keynes"'s fault?
Keynes, who promoted "demand-side" and "fiscal policy"...really? Fascist?
Remember, there are 94 Million people out of the work force...but the poulation is 100 million more than in 1977, and the dollar was worth 70% more.

Salah

Seminal piece on the US 'deep state': http://billmoyers.com/2014/02/21/anatomy-of-the-deep-state/
Why the Clintons & Obama are both CIA No-doubt-about-it.
2nd Big Question: why was the CIA rushed into existence (bill signed in an airplane at end of National Airport by Truman) 45 days after the crash at Roswell?

Freddie

David Rockefeller as a young man was an OSS officer in WW2. Mi6 is the Red Shield.
They are just instruments of terror used by the elites,

Majestic12

"2nd Big Question: why was the CIA rushed into existence 45 days after the crash at Roswell?"
I am glad you asked.....the CIA's involvement was temporary.
The NSA (who now administers the black space program) began as the Armed Forces Security Agency, just 2 years later in 1949.

... ... ...

unitwar

Bill Moyers? I wonder why he doesn't report on those Bilderberg meetings he attends? He reports what he is told to report. Everything he does is a limited hangout.

Usurious

the french called the guillotine the national razor.........just sayin...
monica jewinsky was a honey pot.....

JustObserving

The Deep State runs everything in America since at least Nov 22, 1963. Kennedy promised to shatter the CIA into a thousand pieces and scatter it to the winds. Instead, the CIA shattered his brains into a thousand pieces.

The NSA spies on the Supreme Court, Congress and the White House and you.

The most extraordinary passage in the memo requires that the Israeli spooks "destroy upon recognition" any communication provided by the NSA "that is either to or from an official of the US government." It goes on to spell out that this includes "officials of the Executive Branch (including the White House, Cabinet Departments, and independent agencies); the US House of Representatives and Senate (members and staff); and the US Federal Court System (including, but not limited to, the Supreme Court)."

The stunning implication of this passage is that NSA spying targets not only ordinary American citizens, but also Supreme Court justices, members of Congress and the White House itself. One could hardly ask for a more naked exposure of a police state.

https://www.wsws.org/en/articles/2013/09/13/surv-s13.html

Essay: Anatomy of the Deep State

There is the visible government situated around the Mall in Washington, and then there is another, more shadowy, more indefinable government that is not explained in Civics 101 or observable to tourists at the White House or the Capitol. The former is traditional Washington partisan politics: the tip of the iceberg that a public watching C-SPAN sees daily and which is theoretically controllable via elections. The subsurface part of the iceberg I shall call the Deep State, which operates according to its own compass heading regardless of who is formally in power.

http://billmoyers.com/2014/02/21/anatomy-of-the-deep-state/

Who rules America?

The secret collaboration of the military, the intelligence and national security agencies, and gigantic corporations in the systematic and illegal surveillance of the American people reveals the true wielders of power in the United States. Telecommunications giants such as AT&T, Verizon and Sprint, and Internet companies such as Google, Microsoft, Facebook and Twitter, provide the military and the FBI and CIA with access to data on hundreds of millions of people that these state agencies have no legal right to possess.

Congress and both of the major political parties serve as rubber stamps for the confluence of the military, the intelligence apparatus and Wall Street that really runs the country. The so-called "Fourth Estate"-the mass media-functions shamelessly as an arm of this ruling troika.

https://www.wsws.org/en/articles/2013/06/10/pers-j10.html

Ignatius

It's a big club, and we ain't in it.

jmcoombs

Institutions, left unchecked, eventually come to worship themselves. The Catholic Church during the Spanish Inquisition is a sterling example.

Majestic12

"What happened to all those bags of money that were in Iraq that disappeared?"
That was only $8 BBBBBillion in cash....chump change.
Remember last year the DoD stated that they cannot account for $8.5 TTTTTTTTrillion.....
1 Billion = One Thousand Millions.
1 Trillion = One Thousand Billions.
If your head has stopped spinning, then please, tel me....what could they spend $8.5 TTTTrillion on?
Remember, all the wars to date are paid for in the "open" and "public" military budget...so this is "extra"....
Now maybe you can see why some of us here take whistle blowers seriously about a secret space program.
Engineers, secret construction hangars and bases ain't cheap....the shoe fits.
So, there are a shit load of "Amercians" taking a big paycheck to help the elite and off-world assholes plan our demise.
I don't know how you feel about "sell-outs", but they make me think of guillotines.

jcdenton

Some believe that this deep state arose out of a secret NATO operation called "Gladio,"

Well it's more than logical, more than plausible ..

This Deep State arose out of ........................ you figure it out for your own sake, and convince yourself. I'll just assist ..

Directive 166

http://www.veteranstoday.com/2013/09/22/fraud-on-the-u-s-supreme-court-b...

The Deutsche Verteidigungs Dienst (DVD)

http://www.veteranstoday.com/2015/05/04/neo-so-much-more-than-nukes/

http://wantarevelations.com/2014/01/wanta-plan-macro-financial-economic-...

Tesla's Assistant

http://www.proliberty.com/observer/20070405.htm

(do a quick search for "Jesuit" and see how many hits you get. Notice who the DVD answer to.)

Go here: https://app.box.com/s/hfgvcqg7gqh7i27at6sv53ywu87lwarp

Go to Rulers of Evil, pg. 170. Start reading from Adam Weishaupt. Now you know the purpose of the creation of the United States of America ..

Ms No

I think Hitler was right about one thing, most people cannot see the big lie, it just seems to complex to them and thus ludicrous. Just look at a small portion of a military you have cores, divisions, brigades, betallions, generals, colonals, companies, Air Force, Navy, Special Forces, intelligence, espionage, propaganda depts, indoctrination depts, etc, all under one umbrella of centralized control.
Is it really that hard to believe that a organized self serving entity who has had plenty of time and very little opposition can grow to a gargantuan empire that nearly global in scale?
Two good reads among at least a hunderd that prove otherwise Sibel Edmonds and Tales of an Economic Hit Man.

tumblemore

"most people cannot see the big lie, it just seems to complex to them"

I think it's more to do with not being sociopaths.

People tend to think other people are like them so say the average person can only tell level 6/10 lies before they feel ashamed then they have a hard time believing other people can tell level 10/10 lies. They couldn't do it themselves so it's hard for them to imagine other people being that shameless - hence the bigger and more shameless the lie the more likely it is to be believed.

Only part-sociopaths can see it.

Ms No

There maybe an element of that occuring because a psychopath can identify another path immediately which would lead one to believe they may be able to identify their activities as well but over all there is something else going on.
There most certainly is something different about people who can go against the grain and challenge common propaganda but it isn't a lack of empathy. Some people are more resistant to indoctrination and we really don't know why. We do know that there has been a large amount of research on and use of subliminal technology and trauma disassociation. I would hazard a guess that there has been a ton of research on this subject that we will probably never see.

tumblemore

The thing about the deep state idea is generally they exist to keep the members in power *and* keep the state in question strong in the long-term so that power is worth something.

What's odd about the US deep state is it doesn't seem to care about the long term at all and seems only really interested in selling America piece by piece.

For example from their behavior it's pretty blatant now that lobbyists have bought the GOP's foreign policy position but the dark side of that is it probably means every other aspect of policy is for sale also.

It's like the US deep state is living off the capital rather than the interest.

JR

"On 9/11/2001, America received its new Pearl Harbor"…to strike fear into the hearts of Americans and pave the way for the perpetrators' profitable and soul-destroying global "war on terror"... Enough is enough! "There are at least 8.5 trillion reasons to investigate the money trail of 9/11" and to end the perversion of law that has bolstered the power of those who hold the reins in Washington, DC, and use the law, perverted, as a weapon for every kind of global control and personal greed!

NEW VIDEO: 9/11 Trillions: Follow The Money

Maori Warrior 1 week ago

One of the best documentaries on 9/11... "The first suspects of a big crime should be those who benefit from it."

Published on Sep 11, 2015

TRANSCRIPT, SOURCES AND MP3: https://www.corbettreport.com/?p=16167

"Forget for one moment everything you've been told about September 11, 2001. 9/11 was a crime. And as with any crime, there is one overriding imperative that detectives must follow to identify the perpetrators: follow the money. This is an investigation of the 9/11 money trail."

https://www.youtube.com/watch?v=n3xgjxJwedA&feature=youtu.be

RichardParker

Engagement in criminal activity is fine as long as it is done to protect the Turkish people...

I call bullshit on this one. More like engagement in criminal activity is fine as long as it is done to preserve/enhance the Turkish government's power.

ddsoffice

Ja, diese ist eine gutte fragge. Aber, es ist wie die 'Jetzt Neue Deutschland' uber alles vielleicht seit WWI! (Yes, this is a good topic. But, it is like the 'New Germany Now' perhaps since WWI!)
(laughing now that I still remember some of my high school German lessons over 25 years ago.)

Eine Gutte Fragge. (A good topic)
Sehr Gut. (Very good)
Jetz Deuschtland ober alles. (Now Germany over all)

krage_man

There are various terms for this - deep state, elite, etc.
But ultimately, current political system so-called democracy is far from original definition of democracy. And I dont mean that original "greek" democracy is the better one.
This is a feature of modern democracy to pretend to be old-fashioned peoples democracy. This is to make sure people do feel their power to elect (ans they have it to a degree)
This is a feature of modern democracy to have 2-3 alternative parties. Each is more attractive to a certain human personality category. This way each can find something to associate with and be associated against. This means satisfaction of citizens with having a choice even though the choice is created for them based on 2-3 major types of their personalities.
All 2-3 parties are really backed by this deep state or elite institution which manages all things behand the curtain. For instance, foreign policy basixally ghe same no matter which party has power.
Political elected officcials do not really manage the affairs, they commmunicate but the final decisions are not theirs but come deep from the state departments which are receiving instructions from deep state.
Elected president is supervised by a vise president with direct access to deep state. He would take state affairs in his hands if the president is not cooperaring or incapacited ( could be related)
Deep state controls 95% of mass media via proxy corporations. A special mass-media department of the deep state issues directives to the editors of mainstream TV/news media. This department coordinates with other depaetments like one managing foreign affairs linked or even located in official state department. One may notice a delay when a certain major events take place and mass media delays reporting by 24-48 hours while waiting for the right spin of the reporting to the nation.

Latitude25

Interesting that Turkey is mentioned. When I was in college my room mate was a Turkish guy who was definitely from the .001%, second richest family in Turkey. He said that turkey has 100s of years of experience keeping the masses occupied with one war or another and that the economy could not run without it. He also liked chasing the most beautiful blondes he could find and with his money he sure found them.

Burticus

"The few who understand the system will either be so interested in its profits or be so dependent upon its favours that there will be no opposition from that class, while on the other hand, the great body of people, mentally incapable of comprehending the tremendous advantage that capital derives from the system, will bear its burdens without complaint, and perhaps without even suspecting that the system is inimical to their interests." - Rothschild Brothers of London

withglee

Ordinary Americans frequently ask why politicians and government officials appear to be so obtuse, rarely recognizing what is actually occurring in the country.
Ordinary Americans are clueless ... witness less than 8% know anything about WTC7.
That notwithstanding, government officials "appear" to be obtuse to what is going on in the country because they "are" obtuse. At the Federal level, at best, a representative speaks for 500,000 people. He can't know those people and they can't know him.
Our system is a "fake" representative democracy. What we get is what we should expect from such a charade.

ISEEIT

"Deep State America"?
FRAUD is the singular truth. Deception, corruption.
"Rational actor" absent philosophically (and with increasing clarity, empirically via what little remains of classical scientific method)..a once socially respected 'norm' of ethics.
Morality has become hostage to maniacal narcissism. World "leaders" are simply apparatchiks of the now fully globalized machinations of failing souls.
History is repeating itself.
All indications are that death is just fine. Inevitable...
It's just the dying part that causes pain.

NuYawkFrankie

re In truth America's deep state (...) operates along a New York to Washington axis.

In an even bigger truth America's deep state (...) operates along a New York to Washington to TEL AVIV axis
- FIXED

Atomizer

Time to go to bed Zero Hedge family. Mrs. Atomizer is getting cranky for me to shut off the computer. I wanted to leave you with a Friday night boost of laughter. turn up the volume. See you bitchez in the morning!
Mortgage Thrift Shop (Macklemore WALL STREET parody ...

Usurious

good nite
John Coltrane

https://www.youtube.com/watch?v=TmD16eSy-Mg

[Sep 19, 2015] Disability Claims are not Skyrocketing

"... Disability claims are not skyrocketing . Rather, the population most likely to go on disability, those aged 50 to 64, is growing. The potential disability population is also larger now than in the past because today's older women are more likely to have worked enough to qualify for disability than in earlier generations. In any event, demographic pressures have already begun to subside. Adjusted for demographic factors, the share of workers on disability has gone from slightly below 4 percent in 2000 to slightly above 4 percent in 2014. ..."

"... The solution to fraud in the disability system is not to make it more difficult to qualify for disability or to question the usefulness of the system itself. The United States already has stricter eligibility requirements and stingier benefits than in almost all other advanced economies, according to the Organization for Economic Cooperation and Development. ..."

"... The solution to fraud is to prevent and detect it. So what has Congress done? It has refused to give the Social Security Administration the money it needs to keep up with fraud detection and maintain customer service. ..."

"... This is a powerful neoliberal wedge issue. Divide and conquer strategy in action directed toward instilling hostility in middle class toward lower class people. Which I would say is very successful (as a part of larger -- they are leaches living at our expense company.) Which strategists like Karl Turd Blossom Rove very skillfully exploit in elections. ..."

"... Such things also serve for an important purpose of decimation of union power, which is a key part of neoliberal strategy of domination. ..."

Sep 09, 2015 | Economist's View
From the last of several points on disability claims from Teresa Tritch at the NY Times:
Busting the Myths About Disability Fraud: ... Disability claims are not skyrocketing. Rather, the population most likely to go on disability, those aged 50 to 64, is growing. The potential disability population is also larger now than in the past because today's older women are more likely to have worked enough to qualify for disability than in earlier generations. In any event, demographic pressures have already begun to subside. Adjusted for demographic factors, the share of workers on disability has gone from slightly below 4 percent in 2000 to slightly above 4 percent in 2014.

The solution to fraud in the disability system is not to make it more difficult to qualify for disability or to question the usefulness of the system itself. The United States already has stricter eligibility requirements and stingier benefits than in almost all other advanced economies, according to the Organization for Economic Cooperation and Development.

The solution to fraud is to prevent and detect it. So what has Congress done? It has refused to give the Social Security Administration the money it needs to keep up with fraud detection and maintain customer service. Since 2010, the agency's resources have declined in real terms, even as claims have increased due to the aging of the population. ...

likbez

This is a powerful neoliberal wedge issue. Divide and conquer strategy in action directed toward instilling hostility in middle class toward lower class people. Which I would say is very successful (as a part of larger -- "they are leaches living at our expense" company.) Which strategists like Karl "Turd Blossom" Rove very skillfully exploit in elections.
Such things also serve for an important purpose of decimation of union power, which is a key part of neoliberal strategy of domination.
See What's the Matter with Kansas? for details.

Peak Oil Notes - 17 Sep

While it is clear that US shale oil production is declinong, the pace of the decline is rather murky. The EIA told us on Monday that production from the major shale-oil fields is likely to fall by 80,000 b/d between September, and October, but when the state data, which is six weeks behind but has been more accurate, comes in production does not look so bad. On Monday North Dakota reported that its shale oil production was down by only 5,400 b/d in July. The EIA says that last week US oil production was down by 17,000 b/d or 0.2 percent. In a world that produces some 93 million b/d, this should not have much of an impact. It seems clear that we have a way to go before the shale oil production picture is completely clear.
There has been much discussion in the press recently concerning the "financial reckoning" that is about to fall on the oil patch. For the last year US energy companies have borrowed billions of dollars to stay in operation with oil selling well below costs of production. Many expect that credit lines will be cut substantially in the near future and that many companies will have to merge or declare bankruptcy.

[Sep 19, 2015] Syria peak oil weakened government's finances ahead of Arab Spring in 2011

In May 2013 the Guardian had an article "Peak oil, climate change and pipeline geopolitics driving Syrian conflict"http://www.theguardian.com/environment/earth-insight/2013/may/13/1
In March 2015, a group of researchers led by climatologist Colin Kelley (University of California) published a study in the Proceedings of the National Academy of Sciences with the title "Climate change in the Fertile Crescent and implications of the recent Syrian drought"

"Between 2006 and 2009, the people of Syria suffered during the most severe drought that country has experienced since the beginning of its instrumental record. As water became scarce, crops failed and cattle died on a huge scale. As many as 1.5 million Syrians, out of a population of just over 20 million, moved from the countryside to the outskirts of already overflowing cities"
http://www.historicalclimatology.com/blog/is-climate-change-behind-the-syrian-civil-war
[Fig 2: Image of sandstorm, not shown here for licensing reasons.]

In this article we analyse to which extent peak oil contributed to a fiscal deterioration so that the Syrian government was forced to introduce unpopular policies (tax increases, removal of fuel subsidies, increasing cost of cement etc) which contributed to the unrest.

Oil production, exports and consumption

Fig 3: Syria oil production, exports and consumption

We see several tipping points

1996: peak production

2001: Crude oil exports start to drop sharply, albeit cushioned by rising oil prices

2006: Petroleum imports begin to increase at higher rate

2008: Increasing petroleum consumption approaches level of declining oil production

2011 Arab spring reaches Syria in March

2011 International oil companies suspend operations

oil embargo http://www.sanctionswiki.org/Syria

2012: Oil production falls precipitously as government loses control over Eastern oil fields.

2014: Oil production has completely collapsed

Fig 4: Map of oil & gas fields and IS control as of July 2015. [See original at full size.]
http://www.businessinsider.com.au/map-of-syria-shows-what-isis-is-truly-fighting-for-2015-6
Oil reserves

Fig 5: Syria's remaining oil reserves from different sources

Fig 6: Syrian Cumulative discovery, actual production and remaining reserves
Jean Laherrere's website: http://www.aspofrance.org/
So cumulative production plus remaining 2P (proved and probable) reserves is 7.5 Gb. Jean Laherrere's production projection on the basis of 8 Gb of ultimate recovery is depicted in the following graph:

Fig 7: Jean Laherrere's 2009 production profile for Syria

Of course Fig 7 is now very theoretical. No one can predict the future in Syria

IMF Reports
This article mainly uses IMF data. The last IMF Article IV consultation staff report 2009
http://www.imf.org/external/np/sec/pn/2010/pn1042.htm

was published in March 2010. Since then no IMF assessment was made due to the political/security situation. As a result of a 2 year long lag of preparing national accounts, lack of data and other discrepancies many calculations are estimates or projections. The earliest IMF report available on the internet is from October 2005 with data going back to 2000.

Revenue
Government revenue was 21 % of GDP in 2010. The following graph shows oil revenue compared to other revenue and total expenditure.

Fig 8: Syrian government revenue by source

Oil related revenue is in decline or stagnating since 2001. Its share of total revenue dropped from 45% in 2000 to 25% in 2010. Despite this, total revenue grew on average by 9.4% pa. This was achieved by increasing income tax and other indirect taxes, definitely not popular policies. Transfers from public enterprises (PE) also contributed to revenue growth. These PEs dominate the energy and financial sectors, play a privileged role in supply chains such as in cotton and cereals and hold monopolies in all utilities, oil and sugar refining, production of cement, fertilizers and mineral water. However, the PE surplus is not net of capital expenditure which comes under the big item "development expenditure" (Fig 10). Most PEs are loss making except those in the telecommunication sector.

However, expenditure grew faster at 10.8%. This difference resulted in a budget deficit of 17% of expenditure in 2010.

Fig 9: Composition of oil revenue
The largest contribution is the tax revenue from the Syria Petroleum Companyhttps://en.wikipedia.org/wiki/Syrian_Petroleum_Company.
Expenditure
Government expenditure was 25.9% of GDP in 2010.

Fig 10: Syria's government expenditure

Expenditure grew by an average of 10.8% pa, salaries by 16% pa.

Fig 11: Defense expenditure consumed all oil related revenue in 2007

Oil balance
The oil balance is defined as: oil exports – oil imports – repatriation of oil company profits.

Fig 12: Syria's oil balance

The graph shows that the value of net oil exports after 2007 was practically zero. Due to transfers of international oil company profits the zero point of the oil balance was passed 1 year earlier, in 2006, after which it was negative between 1 and 1.5 US$ bn pa.

Current account balance

Fig 13: Current account and oil balances

In the above graph, we start with the oil balance calculated in Fig 12 (blue line) and add the (positive) export balance from services, income and transfers. The trade balance of goods is negative and has to be deducted (hatched area) to arrive at the current account balance (red line). We see that the declining shape of the oil balance results in a similarly declining current account curve.

Inflation

Fig 14: Syria's average CPI

Inflation largely moved with oil prices up to 2008. The cumulative inflation over the period 2000-2010 was 54%.

Population

Fig 15: Syria's population development (age structure in background)
http://esa.un.org/unpd/wpp/DVD/

Per capita oil production peaked in 1993 at 15.2 barrels and had dropped to half of that by 2007.

Fuel Subsidies
The IMF praised the reduction of fuel subsidies as a reform, but this was certainly not popular.

Fig 16 : Increase in fuel prices 2008-09

In 2008, fuel prices were lifted, saving around 7% of GDP. In order to offset these higher prices, public wages were increased and coupons introduced which allowed each household to buy 1,000 litres of diesel at a lower price. This costed 4.5% of GDP. In 2009, the diesel coupons were replaced by targeted cash transfers based on income, asset ownership and utility bills.

Fig 17 : Energy subsidies as percent of GDP

The fuel subsidy reform in 2009 meant that the population had to save 8% of GDP.

Summary
There are many reasons for the disintegration of Syria and the tragic exodus of refugees. This article showed how Syria's declining oil production and increasing oil consumption impacted negatively on the budget, lead to tax increases and reduction of subsidies. These factors contributed to the population's dissatisfaction which sparked the Arab Spring in Syria.
It is absolutely necessary that the world wakes up to the problem of peaking oil production in geo- strategically important areas otherwise there will be more surprises. If countries with a high per-capita oil consumption could finally embark on a transition away from oil this would reduce future conflicts and wars.
But don't count on Australia where Federal and State governments have embarked on a new, huge program of road tunnels, tollways and airport expansions. The current Prime Minister Abbott even thinks that peak oil has no value for policy making.
Addendum

Australia has a new Prime Minister, Malcolm Turnbull
14/9/2015 21:45
http://www.abc.net.au/news/2015-09-14/malcolm-turnbull-wins-liberal-leadership-ballot-over-tony-abbott/6775464

Further Reading
SYRIA'S ECONOMY AND THE TRANSITION PARADIGM Samer Abboud, Ferdinand Arslanian 2009
http://ojs.st-andrews.ac.uk/index.php/syria/article/view/713

https://ojs.st-andrews.ac.uk/index.php/syria/article/download/713/617
Related posts:
4/7/2013 2/3 of Egypt's oil is gone 20 years after its peak
http://crudeoilpeak.info/23-of-egypt%e2%80%99s-oil-is-gone-20-years-after-its-peak
16/3/2013 Iraq war and its aftermath failed to stop the beginning of peak oil in 2005
http://crudeoilpeak.info/iraq-war-and-its-aftermath-failed-to-stop-the-beginning-of-peak-oil-in-2005
24/6/2011 War overshadows peak oil in Libya
http://crudeoilpeak.info/war-overshadows-peak-oil-in-libya
31/5/2011 Sudan's Nile blend in decline – why we should be concerned
http://crudeoilpeak.info/sudan-nile-blend-in-decline-why-we-should-be-concerned
http://crudeoilpeak.info/yemen

[Sep 19, 2015] Unemployment Insurance and Progressive Taxation as Automatic Stabilizers

"...We consider two classic automatic stabilizers: unemployment benefits and progressive taxation. Both of these policies have roles in redistributing income and in providing social insurance. Redistribution affects aggregate demand in our model because households differ in their marginal propensities to consume. Social insurance affects aggregate demand through precautionary savings decisions because markets are incomplete. In addition to unemployment insurance and progressive taxation, we also consider a fiscal rule that makes government spending respond automatically to the state of the economy."

Sep 19, 2015 | Economist's View

Some preliminary results from a working paper by Alisdair Mckay and Ricardo Reis:

Optimal Automatic Stabilizers, by Alisdair McKay and Ricardo Reis: 1 Introduction How generous should the unemployment insurance system be? How progressive should the tax system be? These questions have been studied extensively and there are well-known trade-offs between social insurance and incentives. Typically these issues are explored in the context of a stationary economy. These policies, however, also serve as automatic stabilizers that alter the dynamics of the business cycle. The purpose of this paper is to ask how and when aggregate stabilization objectives call for, say, more generous unemployment benefits or a more progressive tax system than would be desirable in a stationary economy. ...

We consider two classic automatic stabilizers: unemployment benefits and progressive taxation. Both of these policies have roles in redistributing income and in providing social insurance. Redistribution affects aggregate demand in our model because households differ in their marginal propensities to consume. Social insurance affects aggregate demand through precautionary savings decisions because markets are incomplete. In addition to unemployment insurance and progressive taxation, we also consider a fiscal rule that makes government spending respond automatically to the state of the economy.

Our focus is on the manner in which the optimal fiscal structure of the economy is altered by aggregate stabilization concerns. Increasing the scope of the automatic stabilizers can lead to welfare gains if they raise equilibrium output when it would otherwise be inefficiently low and vice versa. Therefore, it is not stabilization per se that is the objective but rather eliminating inefficient fluctuations. An important aspect of the model specification is therefore the extent of inefficient business cycle fluctuations. Our model generates inefficient fluctuations because prices are sticky and monetary policy cannot fully eliminate the distortions. We show that in a reasonable calibration, more generous unemployment benefits and more progressive taxation are helpful in reducing these inefficiencies. Simply put, if unemployment is high when there is a negative output gap, a larger unemployment benefit will stimulate aggregate demand when it is inefficiently low thereby raising welfare. Similarly, if idiosyncratic risk is high when there is a negative output gap,¹ providing social insurance through more progressive taxation will also increase welfare....

Posted by Mark Thoma on Saturday, September 19, 2015 at 12:23 AM in Academic Papers, Economics, Fiscal Policy, Social Insurance | Permalink Comments (15)

[Sep 19, 2015] A Knee-Jerk Free Trader Response is Faith-Based

"...Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice."
.
"...All conservative economics is faith based (along with everything else they believe). Delusional is another good descriptor."
.
"...Fair trade might actually be a good thing, but that is not what "Free trade" generally means. Mostly it means freedom for capital, chains for labor, and devastation for the environment."

Dani Rodrik:
Trade within versus between nations: ...economics does not offer unconditional policy prescriptions. Every graduate student learns that depending on the background specifications, any policy x can be good or bad. A minimum wage can lower or raise employment (depending on whether employers have monopsony power); a natural resource discovery can raise or lower growth (depending on the likelihood of the Dutch disease); fiscal consolidation can expand or contract output (depending on the respective strengths of expectational versus Keynesian effects). And yes, the dictum that free trade benefits a nation depends on a long list of qualifying conditions.

So the proper response to the question "is free trade good?" is, as always, "it depends." When an economist says "I support free trade" s/he must mean that s/he judges the circumstances under which free trade would not be desirable to be very rare or unlikely to obtain in the context at hand.

Many of the conditions under which free trade between nations is guaranteed to be desirable are unlikely to hold in practice. Market imperfections, returns to scale, macro imbalances, absence of first-best policy instruments are ubiquitous in the real world, particularly in the developing world on which I spend most of my time. This does not guarantee that import restrictions will be necessarily desirable. There are many ways in which governments can screw up, even when they mean well. But it does mean that a knee-jerk free trader response is faith-based rather than science-based. ...

[He goes on to answer a question about differential support for trade within nations versus trade between nations.]

Posted by Mark Thoma on Friday, September 18, 2015 at 10:50 AM in Economics, International Trade, Market Failure | Permalink Comments (16)

pgl

"economics does not offer unconditional policy prescriptions. Every graduate student learns that depending on the background specifications, any policy x can be good or bad."
Thank you Dani! This statement holds in general but in particular on the issue of free trade. I've loved his old post where he admitted he had to endure a class taught by William Kristol and Kristol gave this brilliant man only a C.

DrDick

All conservative economics is faith based (along with everything else they believe). Delusional is another good descriptor.

DrDick -> Paine ...

Fair trade might actually be a good thing, but that is not what "Free trade" generally means. Mostly it means freedom for capital, chains for labor, and devastation for the environment.

Stubborn1:

About the fact that economists do not offer unconditional policy prescriptions, especially when it comes to free trade and "the dictum that free trade benefits a nation depends on a long list of qualifying conditions". One thing I have to strenuously say about that: BULLSHALONEY!

All I heard in my econ classes were the benefits of free trade. EVERYONE drank the kool aid! I even had a prof who had worked in the Council of Economic Advisors and his role was to review trade policies. He told us flat out he would ALWAYS ALWAYS ALWAYS support any and all free trade agreements that came up, without ANY regard to damage done to domestic firms and/or workers. Paul Krugman wrote one of our text books which, like many econ textbooks at the time, had WHOLE chapters dedicated to debunking free trade myths! Now you are going to tell me that economists never take a stand on a policy position as being good or bad?! ARE YOU KIDDING?

Pgl I have seen you post and have agreed with you many times, but not on this one, hell no!

MacAuley -> Stubborn1...

You are so right, Stubborn1. I have taken at least six international econ courses, and in every case the prof was strongly in favor of "free trade", usually the more the merrier. Last year, as a refresher I took an internet Int'l Econ course at "Marginal Revolution University", which was surprisingly good except for the relentless free-trade propaganda.

Kenneth said...

Friday, May 15th, 2015, "Details of President Barack Obama's proposed trade deal, the Trans Pacific Partnership, have been kept secret, and the deal itself is kept in a locked room guarded by men with guns, with members of Congress having to schedule an appointment and jump through hoops just to actually read the massive proposed treaty.
Let me tell you what you have to do to read this agreement. Follow this: You can only take a few of your staffers who happen to have a security clearance, because - God knows why - this is secure. This is classified. It's nothing to do with defense," said Boxer.
Boxer then described how she was forced to turn over her cell phone and was prevented from even taking notes while looking over the 800-plus page trade treaty.
"So I go down with my staff that I could get to go with me, and as soon as I get there, the guard says to me, 'Hand over your electronics. Okay. I give over my electronics. Then the guard says, 'You can't take notes.' I said, 'I cannot take notes?'" said Boxer.
Some have taken to calling the TPP treaty "Obamatrade," in reference to the secretive nature in which Obamacare was written and how then-House Majority Leader Nancy Pelosi infamously claimed, "We have to pass it to find out what's in it."
At the heart of the TPP is something referred to as a "living agreement provision," which means the treaty can be amended or changed at any time after it is ratified, without congressional approval, essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers to international laws, according to CNS News.
While this treaty is being promoted as being about FREE TRADE, it is really just a massive corporatist agreement that gives increased authority to major international corporations, which will hurt both American labor unions and small businesses.
Conservatives need to look past the pleasant sounding platitudes put forward by the Establishment Republicans who are supporting this massive secret deal that only benefits major international corporations, and (gulp) team up with socialists like Sen. Elizabeth Warren to kill this deal, which will only hurt America in the long run.
It's sole purpose is to "level the playing field" - which means taking America down to the same level as everyone else."
http://conservativetribune.com/senator-reveals-obama-deal/

Second Best -> Kenneth...

'At the heart of the TPP is something referred to as a "living agreement provision," which means the treaty can be amended or changed at any time after it is ratified, without congressional approval, essentially handing over U.S. sovereignty and subjugating U.S. businesses and workers to international laws, according to CNS News.'
---
what's new, this is SOP in the U.S., don't bother to read the fine print, it's out of date before the ink is dry, like hospitals that don't accept same day payment on site, then submit individual bills showing up months later from every damn person within 50 ft of the patient and refuse to confirm if there's more
and Scott Walker is busting up unions with right to work laws so labor can have the same power under a 'living agreement' as hospitals to charge for services provided.

MacAuley -> Kenneth...

Kenneth,
It's not accurate to call TPP "Obamatrade" since the concept was developed and fleshed out in 2007 and 2008 under the Bush Administration. Most of the work was managed at the SES level, since the Bush Administration was pretty lame-duck by then and most of the political appointees were looking for jobs. But the Bush Administration at the cabinet level gave approval for the exploratory discussions and conceptual analysis of a TPP.
By the time Obama arrived in 2009 there was a coherent TPP initiative ready for the Obama Administration to consider. I doubt that Obama had heard of TPP before he came to Washington, but it wasn't long before the Obama Administration decided to go forward with it.

Paine said...

Dani is a source of wisdom and shrewdness
A combo rarely combined in one head

... ... ...

'The Typical Male U.S. Worker Earned Less in 2014 Than in 1973'

More on income stagnation and inequality:
The typical male U.S. worker earned less in 2014 than in 1973: The median male worker who was employed year-round and full time earned less in 2014 than a similarly situated worker earned four decades ago. And those are the ones who had jobs. ...
What about women? Well, they haven't closed the pay gap with men, but the inflation-adjusted earnings of the median female worker increased more than 30% between 1973 and 2014... But back to men. Why are wages for the typical male worker stagnating? ... I contacted Larry Katz, the Harvard University labor economist. He identified three factors to explain the stagnation of men's wages:

1. Although this is not the major factor, workers have been getting more of their compensation in benefits as opposed to the cash wages that the Census tallies. ...

2. Labor's share of national income has been declining since 2000 and capital's share has been rising. Labor's compensation (wages and benefits) has not been keeping pace with productivity growth. ...EPI's Josh Bivens and Larry Mishel argue, " This decoupling coincided with the passage of many policies that explicitly aimed to erode the bargaining power of low- and moderate-wage workers in the labor market."

3. The "most important factor," Mr. Katz says, is the rise in wage inequality, the gap between the earnings of the best-paid workers and the ones at the middle and the bottom that has been widening steadily since about 1980. Economists differ over how much of this is the result of globalization, technological change, changing social mores, and government policies, but there is no longer much dispute about the fact that inequality is increasing.

... It's not hard to understand why so many voters ... are drawn to candidates who acknowledge this reality, lambast incumbents for not doing more to address it, and style themselves as outsiders with fresh approaches to one of the nation's most alarming economic problems.

To me, it's interesting how much the explanation for inequality has shifted away from the "skill-biased technical change" and technological based arguments and towards "changing social mores, and government policies." Even so, I think these types of arguments -- those that explain the decline in bargaining power in wage negotiations -- have more explanatory power than many people acknowledge. But even if we acknowledge that we aren't sure about the degree to which inequality can be explained by market-based versus institutional structure arguments, what seems clear to me is that the market won't solve this problem by itself. There do not appear to be forces within capitalism that necessarily push us toward an equal distribution of income. Thus, there is no assurance that heeding calls for government to get out of the way would help to reduce inequality, and it could make it worse. To me, policies that increase the ability of workers to bargain for a fair share of what they produce holds the most promise for solving the inequality problem (in a way that avoids direct redistribution). How to actually accomplish this is a difficult problem, unions have less power in a world where the threat of moving production to another country is very real (or a region within the US where the laws are more favorable), but at the very least we ought to ensure that new legislation does not make the highly unequal wage bargaining problem any worse (see Scott Walker).

Posted by Mark Thoma on Friday, September 18, 2015 at 12:32 PM in Economics, Income Distribution | Permalink Comments (51)

[Sep 18, 2015] Big oil's broken model By Michael T Klare

If we assume that at each price point only a finite amount of oil can be profitably extracted from Earth (which is a small planet, that is now well researched for oil) , the current slump in oil prices looks extremely suspicious. It means robbing of future generations, as conservation efforts are now derailed.

The problem with the view expressed is that cost of production can't be changed dramatically. That should slow the rate of increase of consumption but such dramatic drop in prices requires special engendering and some backstage agreement between the USA and Saudi Arabia.

"...Demand will continue to rise -- that's undeniable, given expected growth in world income and population -- but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it's lowered that figure for this year to only 93.1 million barrels. Those 10 million "lost" barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil's multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse."

"...the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. "

Sep 18, 2015 | atimes.com/atimes

Many reasons have been provided for the dramatic plunge in the price of oil to about US$60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the US and elsewhere); and the increased value of
Big oil's broken model
By Michael T Klare

Many reasons have been provided for the dramatic plunge in the price of oil to about US$60 per barrel (nearly half of what it was a year ago): slowing demand due to global economic stagnation; overproduction at shale fields in the United States; the decision of the Saudis and other Middle Eastern OPEC producers to maintain output at current levels (presumably to punish higher-cost producers in the US and elsewhere); and the increased value of the dollar relative to other currencies.

There is, however, one reason that's not being discussed, and yet it could be the most important of all: the complete collapse of Big Oil's production-maximizing business model.

Until last fall, when the price decline gathered momentum, the oil giants were operating at full throttle, pumping out more petroleum every day. They did so, of course, in part to profit from the high prices. For most of the previous six years, Brent crude, the international benchmark for crude oil, had been selling at $100 or higher. But Big Oil was also operating according to a business model that assumed an ever-increasing demand for its products, however costly they might be to produce and refine.

This meant that no fossil fuel reserves, no potential source of supply - no matter how remote or hard to reach, how far offshore or deeply buried, how encased in rock - was deemed untouchable in the mad scramble to increase output and profits.

In recent years, this output-maximizing strategy had, in turn, generated historic wealth for the giant oil companies. Exxon, the largest US-based oil firm, earned an eye-popping $32.6 billion in 2013 alone, more than any other American company except for Apple. Chevron, the second biggest oil firm, posted earnings of $21.4 billion that same year. State-owned companies like Saudi Aramco and Russia's Rosneft also reaped mammoth profits.

How things have changed in a matter of mere months.

... ... ...

According to the Energy Information Administration (EIA) of the U.S. Department of Energy, world oil production rose from 85.1 million barrels per day in 2005 to 92.9 million in 2014, despite the continuing decline of many legacy fields in North America and the Middle East. Claiming that industry investments in new drilling technologies had vanquished the specter of oil scarcity, BP's latest CEO, Bob Dudley, assured the world only a year ago that Big Oil was going places and the only thing that had "peaked" was "the theory of peak oil."

That, of course, was just before oil prices took their leap off the cliff, bringing instantly into question the wisdom of continuing to pump out record levels of petroleum. The production-maximizing strategy crafted by O'Reilly and his fellow CEOs rested on three fundamental assumptions:

that, year after year, demand would keep climbing;

that such rising demand would ensure prices high enough to justify costly investments in unconventional oil;

and that concern over climate change would in no significant way alter the equation.

Today, none of these assumptions holds true.

Demand will continue to rise -- that's undeniable, given expected growth in world income and population -- but not at the pace to which Big Oil has become accustomed. Consider this: in 2005, when many of the major investments in unconventional oil were getting under way, the EIA projected that global oil demand would reach 103.2 million barrels per day in 2015; now, it's lowered that figure for this year to only 93.1 million barrels. Those 10 million "lost" barrels per day in expected consumption may not seem like a lot, given the total figure, but keep in mind that Big Oil's multibillion-dollar investments in tough energy were predicated on all that added demand materializing, thereby generating the kind of high prices needed to offset the increasing costs of extraction. With so much anticipated demand vanishing, however, prices were bound to collapse.

Current indications suggest that consumption will continue to fall short of expectations in the years to come. In an assessment of future trends released last month, the EIA reported that, thanks to deteriorating global economic conditions, many countries will experience either a slower rate of growth or an actual reduction in consumption. While still inching up, Chinese consumption, for instance, is expected to grow by only 0.3 million barrels per day this year and next -- a far cry from the 0.5 million barrel increase it posted in 2011 and 2012 and its one million barrel increase in 2010. In Europe and Japan, meanwhile, consumption is actually expected to fall over the next two years.

And this slowdown in demand is likely to persist well beyond 2016, suggests the International Energy Agency (IEA), an arm of the Organization for Economic Cooperation and Development (the club of rich industrialized nations). While lower gasoline prices may spur increased consumption in the United States and a few other nations, it predicted, most countries will experience no such lift and so "the recent price decline is expected to have only a marginal impact on global demand growth for the remainder of the decade."

This being the case, the IEA believes that oil prices will only average about $55 per barrel in 2015 and not reach $73 again until 2020. Such figures fall far below what would be needed to justify continued investment in and exploitation of tough-oil options like Canadian tar sands, Arctic oil, and many shale projects. Indeed, the financial press is now full of reports on stalled or cancelled mega-energy projects. Shell, for example, announced in January that it had abandoned plans for a $6.5 billion petrochemical plant in Qatar, citing "the current economic climate prevailing in the energy industry." At the same time, Chevron shelved its plan to drill in the Arctic waters of the Beaufort Sea, while Norway's Statoil turned its back on drilling in Greenland.

There is, as well, another factor that threatens the wellbeing of Big Oil: climate change can no longer be discounted in any future energy business model. The pressures to deal with a phenomenon that could quite literally destroy human civilization are growing. Although Big Oil has spent massive amounts of money over the years in a campaign to raise doubts about the science of climate change, more and more people globally are starting to worry about its effects -- extreme weather patterns, extreme storms, extreme drought, rising sea levels, and the like -- and demanding that governments take action to reduce the magnitude of the threat.

Europe has already adopted plans to lower carbon emissions by 20% from 1990 levels by 2020 and to achieve even greater reductions in the following decades. China, while still increasing its reliance on fossil fuels, has at least finally pledged to cap the growth of its carbon emissions by 2030 and to increase renewable energy sources to 20% of total energy use by then. In the United States, increasingly stringent automobile fuel-efficiency standards will require that cars sold in 2025 achieve an average of 54.5 miles per gallon, reducing U.S. oil demand by 2.2 million barrels per day. (Of course, the Republican-controlled Congress -- heavily subsidized by Big Oil -- will do everything it can to eradicate curbs on fossil fuel consumption.)

Still, however inadequate the response to the dangers of climate change thus far, the issue is on the energy map and its influence on policy globally can only increase. Whether Big Oil is ready to admit it or not, alternative energy is now on the planetary agenda and there's no turning back from that. "It is a different world than it was the last time we saw an oil-price plunge," said IEA executive director Maria van der Hoeven in February, referring to the 2008 economic meltdown. "Emerging economies, notably China, have entered less oil-intensive stages of development… On top of this, concerns about climate change are influencing energy policies [and so] renewables are increasingly pervasive."

The oil industry is, of course, hoping that the current price plunge will soon reverse itself and that its now-crumbling maximizing-output model will make a comeback along with $100-per-barrel price levels. But these hopes for the return of "normality" are likely energy pipe dreams. As van der Hoeven suggests, the world has changed in significant ways, in the process obliterating the very foundations on which Big Oil's production-maximizing strategy rested. The oil giants will either have to adapt to new circumstances, while scaling back their operations, or face takeover challenges from more nimble and aggressive firms.

Michael T. Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What's Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

Copyright 2015 Michael T. Klare

Michael T Klare, a TomDispatch regular, is a professor of peace and world security studies at Hampshire College and the author, most recently, of The Race for What's Left. A documentary movie version of his book Blood and Oil is available from the Media Education Foundation.

Follow TomDispatch on Twitter and join us on Facebook. Check out the newest Dispatch Book, Rebecca Solnit's Men Explain Things to Me, and Tom Engelhardt's latest book, Shadow Government: Surveillance, Secret Wars, and a Global Security State in a Single-Superpower World.

(Copyright 2015 Michael T Klare)

[Sep 18, 2015] China Is Hoarding the World's Oil by Grant Smith

"...China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11."

September 17, 2015 | Bloomberg Business

Goldman Sachs says Chinese hoarding may avert $20 oil scenario

....In the first seven months of the year, China purchased about half a million barrels of crude in excess of its daily needs, the most for the period since 2012, according to data compiled by Bloomberg. As the country gathers bargain barrels for its strategic petroleum reserve, the demand is cushioning an oversupplied market from a further crash, according to Columbia University's Center on Global Energy Policy.

"It throws a lifeline to the market" that safeguards against the risk of crude touching $20 a barrel, Jeff Currie, head of commodities research at Goldman Sachs Group Inc. in New York, said by phone. "That lifeline lasts through late 2016."

Over the next 18 month, the EIA estamates that China will put 132 million barrel of crude into storage. Another 149 million barrels of capacity is planned by 2020. 218.9 are filled.

...the U.S. Strategic Petroleum Reserve has been stable at about 700 million barrels for years

... ... ...

China's demand growth is set to slow to an annual rate of 2.3 percent by the fourth quarter compared with 5.6 percent in the second quarter, a reflection of "weak car sales data, declines in industrial activity, plummeting property prices and fragile electricity output," the IEA said in a report on Sept. 11.

... ... ...

When amassing inventories, China's import demand can swing by as much as 1 million barrels a day

... ... ...

"The surplus in the market at the moment is close to 2 million barrels a day," said Miswin Mahesh, an analyst at Barclays in London. "China's support for the SPR would only be able to take a fraction out of that.

... ... ...

By mopping up some of the surplus, China encourages a gentler scenario in which the "financial stress" of $40 oil gradually causes highly indebted shale producers to curb production, Currie said. "You reduce the likelihood of a scenario where the market only balances when prices collapse below production costs, at about $20 a barrel," he said.

[Sep 18, 2015] $50 Oil For 15 Years – Can Anyone Take Goldman Seriously Anymore By Evan Kelly

Sep 18, 2015 | OilPrice.com

Goldman gets a lot of attention with these types of headline-grabbing figures, but they seem to be off base on this one. The EIA has confirmed that U.S. oil production is declining, already down 500,000 barrels per day since peaking earlier this spring at 9.6 million barrels per day. At the same time, demand is rising. Throw in some other major sources of expected growth in oil production that won't pan out – a few million barrels per day of capacity that were expected from both Iraq and Brazil can probably be ruled out – and there is a recipe for a rather strong rebound in oil prices in the coming years. Obviously, the big question is when that will happen. The glut could persist through this year and next, but calling for oil to remain near $50 per barrel for 15 years seems like a stretch.

... ... ...

Statoil (NYSE: STO) brought the first subsea compression plant in the world online this week. The subsea facility, located at Asgard in the Norwegian Sea, will increase production by around 306 million barrels of oil equivalent, boosting output from the aging field. "This is one of the most demanding technology projects aimed at improving oil recovery. We are very proud today that we together with our partners and suppliers have realised this project that we started ten years ago," Margareth Øvrum, Statoil's executive vice president for Technology, Drilling and Projects, said in a statement. The subsea system will increase the ultimate recovery of the Midgard reservoir from 67 to 87 percent, and the Mikkel reservoir from 59 to 84 percent. Fields lose reservoir pressure over time, and compression boosts that pressure. But the closer you can get to the well, the more oil and gas can be recovered. Usually, compression is done at the sea surface on a platform. This is the first gas compression facility at the sea floor. It is illustrative of an important emerging trend in the offshore oil industry.

[Sep 18, 2015] Oil Prices Could Surge As This Country Fails To Meet Production Targets By Nick Cunningham,

Sep 17, 2015 | OilPrice.com

For years, Iraq has been central to the IEA's rosy scenarios for long-term sources of new oil supply. A few years ago, the IEA predicted that Iraq would more than double its output to 6.1 million barrels per day (mb/d) by 2020, and 8.3 mb/d by 2035 – nearly triple what Iraq was producing at the time the IEA published its report.

Any projection should be taken with a large degree of skepticism, but the IEA's prediction that the world would be well-supplied for the next several decades was largely predicated on Iraq coming through with a huge ramp up in production. The increase of 5 mb/d from Iraq over the next twenty years would account for about 45 percent of the total increase in global oil supply.

... ... ...

Against the odds, Iraq has thus far succeeded in achieving impressive gains in oil production, exceeding 4 million barrels per day in recent months, a record high. It is the second largest OPEC producer behind only Saudi Arabia.

... ... ...

Wood Mackenzie expects production to be essentially flat through the end of the decade, rising to just 4.4 mb/d.
Moreover, a large portion of the more than 3 mb/d in production gains by the end of the decade was expected to come from the south near Basra, where Iraq's super-giant oil fields are located. But the Wall Street Journal recently profiled one major project that is behind schedule, highlighting the precarious circumstances that Iraq's ambitious production targets are based upon.

... ... ...

The project near Basra involved injecting saltwater from the Persian Gulf into oil fields in order to increase reservoir pressure and thereby boost production. But the project won't be completed until at least 2020, seven years later than expected. Without the so-called Common Seawater Supply Facility, production from Iraq's southern oil fields, which account for about three-quarters of the country's output, could fall by 10 percent per year.

... ... ...

The evidence then points to Iraq not living up to the expectations of it making up such a large portion of global supply growth in the coming years. Taking away several million barrels per day of production capacity by 2020 that we had previously expected to come online suggests that the oil markets will tighten significantly in the not so distant future.

Michael Moran on September 18 2015 said:

I think more immediate question is 2016 and 2017. Can Iraq maintain 4+ million b/d given current situation. Or does production start to drop off in 2016 and 2017? One note in WSJ article was number of rigs working in Iraq had dropped in half from first of year. Could it be oil companies moved rigs because they were not being paid? Oil well decline in production, without rigs to drill new ones Iraq production may decline far sooner than expected.

[Sep 18, 2015] Peak Oil Review - Sep 14

When the IEA's monthly Oil Market Report came out last week, it seconded the gloomy outlook by forecasting that non-OPEC oil production will fall by 500,000 b/d in 2016, which would be the largest drop in 20 years. The IEA also has US production falling by 400,000 b/d next year.

... ... ...

The US House of Representatives passed a bill to repeal the oil export ban last week. Some in Congress are so enthusiastic about the prospects for exporting US crude, despite the circa 7.5 million b/d of US imports, that they are talking about "containing Iran" with US oil. The prospects for the bill in the Senate are still uncertain.

... ... ...

Before the sanctions can be lifted, Tehran has to ship 12 tons of partially-enriched uranium out of the country, dismantle and store more than 13,000 centrifuges and convert its underground nuclear enrichment facility into a research station. The Iranians must also dismantle the core of their heavy water reactor which is capable of making plutonium for atom bombs, make arrangements for IAEA inspections, and answer questions about past efforts to build nuclear weapons. Western experts expect that it will take six to nine months to accomplish these steps. Tehran, anxious to get its economy moving again, say they can be completed much quicker.
On October 19th, the US and EU are to lift many of the sanctions on doing business with Tehran and grant access to some $125 billion in frozen Iranian assets, only some $60 billion of which are liquid enough to be of much use...

Iran was producing some 3.6 million b/d before the sanctions and exporting to 21 countries. After the sanctions, Iran's customers were down to six countries and production fell to 2. 5 million b/d and is now thought to be about 2.9 million...

... ... ....

Wall Street analysts now are seriously contemplating the likelihood that a further slowdown in China's economy will lead to a global recession starting in countries that are dependent on exports to China. Trade data out last week showed a 14 percent drop in the value of China's imports in August. This was the 10^th consecutive fall in Beijing's imports.
The Shanghai International Energy Exchange is about to establish a crude derivatives contract to rival that of New York's West Texas Intermediate and London's Brent. As the world's biggest oil importer, China is likely to play a major role in the oil markets in coming years. Beijing will likely move to have its futures contracts denominated in yuan as a means of undercutting the dollar in the global oil markets.

... ... ...

Investment in U.K. North Sea oil and gas projects could drop as much as 80 percent by 2017 as the collapse in oil prices forces the industry to cut back. Capital investment across the industry of 14.8 billion pounds ($22.8 billion) last year will probably decline by 2 billion to 4 billion pounds annually to 2017. (9/9)
Norway said total revenues for the oil-rich economy were down by nearly 5 percent for the second quarter of 2015. Its oil-driven economy has been pressured by lower crude oil prices, with overall investments expected to decline by 12 percent this year. (9/9)
Norway's Statoil said development of the giant Johan Sverdrup field is moving swiftly. The field is expected to be operational during 2019. At peak Norway's 5^th largest field is expected to produce up to 650,000 b/d. (9/12)
Italian energy company Eni said the republic of Cyprus could serve as a strategic energy hub and a possible conduit for future Egyptian natural gas supplies. (9/11)
In Russia, at a time when the collapse in crude prices pushes the economy into a recession, the nation's oil producers are managing to beat their western counterparts. On measures including cash flow, profit margins and share prices, Rosneft, Lukoil – Russia's two largest oil producers - and Gazprom are performing better than Royal Dutch Shell, BP or Exxon Mobil. (9/8)

... .... ....

The US oil-rig count fell by 10 to 652 in the latest reporting week, the second straight decline after six consecutive weeks of increases, according to Baker Hughes. There are still about 59 percent fewer oil rigs working since a peak of 1,609 in October 2014. The number of gas rigs declined by six to 196. For all rigs, including natural gas, the week's total was down 16 to 848. (9/12

US imports: The EIA reports Saudi Arabian oil accounts for roughly 17 percent of all crude oil imported into the US, putting it at the No. 2 spot behind Canada. Total imports of Saudi crude for the week ending Sept. 4 were 1.06 million barrels per day, down 15.2 percent from the same week in 2014. (9/12)

Thousands of stripper-well operators in the US are losing money and some are shutting in their wells. This step could turn out to be a key element in ending the oil-price rout, rather than the difference being made by a large producing country like Saudi Arabia or a big public company. (9/8)

US shale producers lost more than $30 billion during the first half of 2015, as the prolonged slump in oil prices takes its toll. Bankruptcies and restructuring are on the rise as independent oil and gas companies do what they can to survive. Data company Factset reports that capital spending exceeded cash from operations by about $32 billion in the first six months of the year and is quickly approaching the deficit of $37.7 billion reported for the whole of 2014. (9/10)

[Sep 18, 2015] Age of the Unicorn How the Fed Tried to Fix the Recession, and Created the Tech Bubble By Doug Henwood

Sep 03, 2015 | The Nation

The number of "unicorn" tech companies is increasing dramatically-but the bubble will burst eventually.

... ... ...

The last tech bubble, in the late '90s, came with more utopian ambitions than quick mattress delivery. The web and the New Economy it made possible would flatten hierarchies, make work more meaningful, make recessions a thing of the past, and promote peace, love, and understanding. The classic statement of techno-utopianism and its new era of decentralization and abundance was former Wired editor Kevin Kelly's "New Rules for the New Economy," which featured such assertions as "1) Embrace the Swarm. As power flows away from the center, the competitive advantage belongs to those who learn how to embrace decentralized points of control" and "3) Plentitude, Not Scarcity. As manufacturing techniques perfect the art of making copies plentiful, value is carried by abundance, rather than scarcity, inverting traditional business propositions." On a more wonky yet no less exuberant note, the noted economist Rudi Dornbusch wrote in 1998: "The U.S. economy likely will not see a recession for years to come. We don't want one, we don't need one, and, as we have the tools to keep the current expansion going, we won't have one. This expansion will run forever." And who can forget Thomas Friedman's nonsensical declaration, made in 1999 as the new economy bubble was reaching extreme proportions, that "no two countries that both had a McDonald's had fought a war against each other," so powerful were the charms of globalization, one of the cornerstones of New Era thinking?

The last tech bubble, in the late nineties, came with more utopian ambitions than quick mattress delivery.

Exuberant rhetoric is often the accompaniment to financial exuberance. At the turn of the 21st century, labor markets were tight-the unemployment rate briefly broke below 4 percent for the first time since 1969-and wages grew across the board. The stock market was booming, led by tech stocks, and the mania pervaded the culture; Joey Ramone even wrote a love song to CNBC's Maria Bartiromo, who became a celebrity known as the Money Honey. According to the Federal Reserve's Survey of Consumer Finances, the share of US households directly owning stock (as distinguished from indirect ownership through mutual funds) rose from 15.2 percent in 1995 to 21.3 percent in 2001. Since that peak, it's fallen steadily; as of 2013, the most recent survey, the share was down to 13.8 percent. This time around, the exuberance seems more muted. Like the left, capitalism seems to have lost its utopian capacities. Exuberance is now a luxury good, and only a minority is participating in the new boom.

While bouts of irrational exuberance often end badly, it must be conceded that some degree of economic and technical progress can be their byproduct. The dot.com mania helped turn the internet from a niche product into one of life's essentials. This one is offering new ways to hail a cab and order takeout. But one shouldn't get carried away with that: most major technological advances of the last decades have been publicly financed. As Mariana Mazzucato shows in The Entrepreneurial State, all the major advances that made the iPhone possible were publicly funded, from the touch screen to GPS.

This bubble has been publicly financed in a more subtle way. While American finance is often subject to major bouts of irrational exuberance, the latest round has almost certainly been fueled by the Federal Reserve's extraordinary efforts to reflate the economy after the financial crisis. Since Lehman Brothers collapsed in September 2008, the central bank has pumped $3.6 trillion into the economy by buying Treasury and mortgage bonds. (Point of comparison: GDP is $17.8 trillion, so even by the standards of the US economy, $3.6 trillion is a large number.)

All the major advances that made the iPhone possible were publicly funded, from the touch screen to GPS.

While all this pumping has probably had some good effect on the real economy (though opinions differ), even proponents concede that it was fairly modest. But it looks to have been immensely stimulative to the financial markets. Stocks are up about 175 percent from their post-Lehman low. (They've come a few percentage points off their highs, thanks to jitters about the Chinese economy, but the gains remain largely intact.) Long-term interest rates fell from 4.3 percent in June 2008 to a low of 1.4 percent in July 2012; they've since come up but not by much-to 2.2 percent. When interest rates fall like that, bondholders enjoy huge capital gains (older, higher-yielding bonds become more valuable as rates fall), which they need to redeploy. And as interest rates fell to minimal levels-that July 2012 interest rate on 10-year Treasury bonds was the lowest since the Federal Reserve's historical series began in 1953-it became cheaper to borrow funds to speculate with. Investors, bored with sub-2 percent rates, were happier to "reach for yield"-invest in risky ventures in hope of earning higher returns. All this together is an ideal formula for unicorn feed.

The pump priming has, unfortunately, provided little fodder for working people. Though the labor market has recovered, it's hardly bubbly. In July 2000, 56 percent of respondents to the Conference Board's monthly consumer confidence survey described jobs as "plentiful"; in August 2015, just 22 percent did. And most of today's tech startups are tightly held, meaning financed by venture capitalists (who themselves work with money provided by institutional investors, like pension funds and your finer universities, and very rich people), and not by initial public offerings (IPOs) of stocks, which were widely held by affluent individuals, either directly or through mutual funds. And no CNBC personalities qualify as celebrities today, unless you count Rick Santelli, author of the 2008 rant that gave birth to the Tea Party.

The tech bubble is a byproduct of the Federal Reserve's extraordinary efforts to reflate the economy post-crisis.

Of course, when this bubble bursts-as it inevitably will, especially with the Fed having ended its massive money injections and now talking about raising interest rates in the fall-the narrow holding of tech investments means that fewer innocents will suffer collateral damage from the implosion. (So far, the market stumbles of late summer haven't dampened spirits among venture investors-yet. Should a more serious financial retrenchment ensue, that will change.) There aren't going to be as many busted 401(k) accounts as there were in 2000–01. But it means that the greatest benefits of the Fed's reinflation policy are tightly held, too.

There's something sad about this echo-bubble, with its constricted ambitions and minimal use of utopian rhetoric. We're accustomed to hearing that there's just "no money available" for all manner of excellent pursuits-though clearly we have plenty of money available to fund serial bubbles and busts, and few unreconstructed social critics ever denounce that with a "Remember last time?" I'm only partly thinking of social benefits like childcare and libraries; those are day-to-day expenditures, not big-ticket items financed out of long-term money, like transit and green-energy research.

GOP eagerness to slash Amtrak by $242 million got headlines while Uber has had no problem raising almost $7 billion.

Congressional Republicans' eagerness to slash Amtrak funding by $242 million got some headlines, but the railroad's $1.3 billion current level of federal funding was none too generous to start with. But Uber has had no problem raising almost $7 billion so far, and rival Lyft another $1 billion. This is a staggering misallocation of capital. Nor do we have the imagination or funding to follow up on the suggestion by Mike Konczal and others to "socialize Uber," by turning the thing into a driver-owned cooperative. There really are some more urgent tasks than devising a better way to hail a cab-or buy a mattress-and it would be nice to steer some money towards them instead of towards capitalist phantasms.

[Sep 18, 2015] The least Russia has held of American securities in the last two years was in April this year, when it held only $66.5 Billion

Sep 17, 2015 | marknesop.wordpress.com

Moscow Exile, September 17, 2015 at 2:00 am

Russia has invested another $10 billion in the US national debt

In July Russia increased its investment in US Treasury bonds by $9.7 billion of dollars, according to information given by the United States Treasury and Federal Reserve.

Moscow Exile, September 17, 2015 at 2:03 am
Source of the above: lenta.ru, Kommersant etc.
et Al, September 17, 2015 at 5:54 am
Curious. Just as China has been deleveraging itself from its US bonds/debt, Russia is taking some on. There must be something more to this.
marknesop, September 17, 2015 at 10:40 am
It's odd, but $10 Billion doesn't really represent much of an adventure. The least Russia has held of American securities in the last two years was in April this year, when it held only $66.5 Billion. The most during the period shown was in August last year, when Russia held nearly twice that, $118.1 Billion. And China, while media mythology has them shoveling dollars out the windows, held $1.24 Trillion at the end of July this year, up slightly from January. Nobody seemed to notice that Belgium sold of $20 Billion more than China did.
https://smaulgld.com/foreign-holdings-u-s-treasuries/

However, look at the vulnerability the USA itself has taken on through QE, and government buying of its own securities, just in 2014.

[Sep 18, 2015] Oil prices weak on economic concerns, OPEC target on market share

finance.yahoo.com

U.S. West Texas Intermediate (WTI) crude futures were trading at $46.74 per barrel at 0535 GMT, down 16 cents from their last settlement. Brent prices were at $49.12 per barrel, up 4 cents.
Kuwait, a key producer of the Organization of the Petroleum Exporting Countries (OPEC), said on Thursday the oil market would balance itself but that this would take time, indicating support for the group's policy of defending market share despite falling prices.

... ... ...

Analysts had suggested a weaker greenback - a usual result of low interest rates - would support oil, as it makes dollar-traded crude cheaper for countries using other currencies.

[Sep 18, 2015] I would summarize the Keynesian view in terms of four points

I would summarize the Keynesian view in terms of four points:

1. Economies sometimes produce much less than they could, and employ many fewer workers than they should, because there just isn't enough spending. Such episodes can happen for a variety of reasons; the question is how to respond.

2. There are normally forces that tend to push the economy back toward full employment. But they work slowly; a hands-off policy toward depressed economies means accepting a long, unnecessary period of pain.

3. It is often possible to drastically shorten this period of pain and greatly reduce the human and financial losses by "printing money", using the central bank's power of currency creation to push interest rates down.

4. Sometimes, however, monetary policy loses its effectiveness, especially when rates are close to zero. In that case temporary deficit spending can provide a useful boost. And conversely, fiscal austerity in a depressed economy imposes large economic losses.

Is this a complicated, convoluted doctrine? ...

But strange things happen in the minds of critics. Again and again we see the following bogus claims about what Keynesians believe:

B1: Any economic recovery, no matter how slow and how delayed, proves Keynesian economics wrong. See [2] above for why that's illiterate.

B2: Keynesians believe that printing money solves all problems. See [3]: printing money can solve one specific problem, an economy operating far below capacity. Nobody said that it can conjure up higher productivity, or cure the common cold.

B3: Keynesians always favor deficit spending, under all conditions. See [4]: The case for fiscal stimulus is quite restrictive, requiring both a depressed economy and severe limits to monetary policy. That just happens to be the world we've been living in lately.

I have no illusions that saying this obvious stuff will stop the usual suspects from engaging in the usual bogosity. But maybe this will help others respond when they do.

I would add:

5. Keynesian are not opposed to supply-side, growth enhancing policy. They types of taxes that are imposed matters, entrepreneurial activity should be encouraged, and so on. But these arguments should not be used as cover for redistribution of income to the wealthy through tax cuts and other means, or as a means of arguing for cuts to important social service programs. Not should they be used only to support tax cuts. Infrastructure spending is important for growth, an educated, healthy workforce is more productive, etc., etc. Economic growth is about much more than tax cuts for wealthy political donors.

On the other side, I would have added a point to B3:

B3a: Keynesians do not favor large government. They believe that deficits should be used to stimulate the economy in severe recessions (when monetary policy alone is not enough), but they also believe that the deficits should be paid for during good times (shave the peaks to fill the troughs and stabilize the path of GDP and employment). We haven't been very good at the pay for it during good times part, but Democrats can hardly be blamed for that (see tax cuts for the wealthy for openers).

Anything else, e.g. perhaps something like "Keynesians do not believe that helping people in need undermines their desire to work"?

Axel Merk Warns Investors Are In For A Rude Awakening Zero Hedge

LawsofPhysics

LOL! Almost. You really think that growth can continue forever and ever in a biosphere with finite resources?
Tell us another fairytale and good luck with that!

But yes, let the truly insolvent fucks and worthless fucks go to the guillotine already!

Bro of the Sorrowful

using metrics in economics and applying mathamatical formulas to quantify all aspects of the economy has been a major and far reaching disaster. none worse, perhaps with the exception of unemployment and inflation, than the totally fraudulent metric "GDP". youll notice in von mises' magnum opus human action that there is not a single formula.

were it not for the measurement of the ambiguous "GDP", we would not be so concerned with growth.

pods

We sure as hell would be concerned with growth.
Expansion is what is required by our monetary system.
That is why inflation of 2% is "stable prices" and everyone and their mother talks about growth.
Fraction reserve currency requires expansion (exponential) to function.
No growth=no currency system.
That is why sustainability is a no go right out of the gate.
pods

Bro of the Sorrowful Figure's picture

i was speaking more of an ideal world in which we would be operating under a sound monetary system. my problem with using economic metrics for everything is that it takes the focus off of real problems and gives huge power to the international banking cartel by allowing them to manipulate the numbers without end. we start from a false monetary system, then apply a metric system based on false logic to justify that monetary system, while also making those metrics esoteric enough that the average person simply stops paying attention or freezes up when such metrics are mentioned. that way the economy can be absolute shit, with obvious signs to anyone with eyes, and yet your average person will still say, well GDP is up and unemployment is down so things must be good.

Harry Balzak

Are you implying that reality exists without accounting?
Blasphemy! Burn him!

[Sep 16, 2015] Is This America's Biggest Problem... And Why It Wasn't Always Like This

The inflation-adjusted household income for half the US population is back at 1989 levels. Meanwhile the S&P500, which impacts the net worth of about 10% of the US population is six times higher than where it was in 1989. America has a problem.

[Sep 16, 2015] Oil war Is Saudi Arabia walking into its own trap

"...Saudi Arabia is now the world's largest importer of defense equipment. Its spending is expected to reach$9.8 billion in 2015."

Sep 16, 2015 | Asia Times
... ... ...
While the US imported 45.62 million barrels of oil every month from Saudi Arabia in 2005, the figure dropped to as low as 25.42 million in January 2015. In June 2015, the import figure went slightly high again, reaching 32.32 million barrels of oil per month...

The US' overall production jumped by 1.2 million barrels per day in 2014, to 8.7 million barrels per day...

... ... ...

...For instance, the kingdom earned almost 1.05 trillion riyals in 2014. ...Saudi Arabia's budget deficit may rise this year to 20% of GDP, or $140 billion. Highly reduced oil revenues have already forced the Saudi authorities to issue two series of government bonds in a row this summer.

The Saudis were forced to tighten down to make up for the reserves they had used to the tune of $65 billion. These two series of bonds would help the Saudis earn $27 billion by year's. But this is far from adequately recovering their monetary loses.

... ... ...

Due to Saudi Arabia's direct and indirect involvement in various wars across the Middle East and beyond (funding right wing religious parties in Pakistan, for instance), it's defense spending is also reaching an all-time high. Saudi Arabia is now the world's largest importer of defense equipment. Its spending is expected to reach $9.8 billion in 2015.

... ... ...

Salman Rafi Sheikh is a freelance journalist and research analyst of international relations and Pakistan affairs. His area of interest is South and West Asian politics, the foreign policies of major powers, and Pakistani politics.

[Sep 16, 2015] For Canadian Oil Sands It's Adapt Or Die

"...Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace."

Sep 16, 2015 | Zero Hedge

In June 2015, the Canadian Association of Petroleum Producers (CAPP) revised down its 2030 production forecast to 5.3 million barrels per day (mbd). A year earlier the group predicted Canada would be able to produce 6.4 mbd by 2030. This is compared to the 3.7 mbd produced in 2014. Most experts agree that capital intensive oil sands projects are marginal – if not loss-making – in the $45 – $60 range. Yet production continues apace.

The implications for Canada should not be understated. Of the nation's estimated 339 billion barrels of potential oil resources, oil sands account for around 90 percent. The Canadian dollar is at a decade low, which softens the blow for exporters in the short term but the long-term economic consequences are less rosy.

Projects are being delayed, and many experts wonder if the current oil sands model has a future. Peter Tertzakian of ARC Financial told Alberta Oil Magazine that the era of oil sands mega projects was over.

... ... ...
Currently, Canada sends 99 percent of its oil exports - 2.9 million barrels per day - to the United States. Much of this is headed to refineries in the North East and on the U.S. Gulf Coast.
The U.S. has been suffering its own oil glut as increased productivity and efficiency gains in shale production have kept many operators afloat. However, even in the United States, oil production is finally starting to decline.
... ... ...

In the short-term, there may be no obvious relief for Canada's oil sands producers. Further credit rating cuts may force operators' hands. Oil sands production was always going to be a risky venture, even in a high oil price environment. Volatility will have a far more lingering effect on current and future production.

bubbleburster

Despite all the childish rhetoric from the ZH crowd, I would say that it is pretty much a safe bet that all of the major investors in the Tar Sands oil deposit knew full well that there were as many upsides as downside risks to the price of crude oil on the world markets. Sure, it makes no sense to us mere mortals when the Goldman Sachs of this world tell us that $200/bbl oil is within sight and that cheap oil is OVER. Sure, that was 5 earth history minutes ago. And you can bet that they are going to be placing heavy bets in the market depending on what they are selling to the yokels.

However, the Tar Sands is expensive, the oil companies knew this and they knew that if the floor fell on crude, which it still might do, that they would have to drastically reduce output and for a while, cancel all knew exploration and expansions. They have been through more booms and busts than we have.

If the weak fail, that is the fate that all must face in the capitalist system. It's their system and they thrive or die inside it. And, if the Iran deal continues to move towards peace with them, there is all that oil that they could flood the market with in a heartbeat. Goodbye Lethbridge and Calgary? Maybe, or maybe not. We'll have to see.

Deus Irate

I totally agree. And I am pleased you are using the correct moniker for it: Tar Sands. Full name Athabasca Tar-sands. Has been called that for as long as I can remember, but then Levant and his oil-soaked cronies and backers decided "oil" sands sounded better for some unknown reason. They just set themselves up by doing that, but I digress.
The real reason production is still growing is that the current government has all it's economic eggs in one oily basket, so they are likely shoveling out tax breaks and just plain old kick-backs by the truck-load right now to keep things "growing". They are only a few weeks shy of disaster if they let that greasy cat out of the bag.

Expect the real crash to occur in a few short weeks, once the election is over. Won't matter who wins cause it's just a shit-sandwich for a prize.

Niall Of The Nine Hostages

Oh, Calgary's not going anywhere. The real question is who will be earning all those oil revenues when oil returns to fair value at USD200+. If Bay Street and the Saudis have anything to do with it, it won't be Albertans.
Not to mention that the only national government at all likely at the moment to be toppled by the Saudi oil dumping caper and replaced by something more to Wall Street's taste will be Stephen Harper's. (You have to laugh. They did this because they were too chicken to start a real war with Russia. Uncle Sugar could have overthrown Harper the old-fashioned way in a matter of hours.) Alberta is in for a world of hurt with socialists in office in Edmonton and Ottawa.

Gold...Bitches

I was in Quebec and Ontario earlier this year and it was crazy how much street level retail was empty. Prime downtown areas and many many buildings empty. They are getting kicked in the balls.

fasTTcar

Here is an example of the fall out. 3 day auction starting today. Over $30 MM worth of equipment.

http://gagp.auctionhq.net/view-auctions/catalog/id/150/

[Sep 16, 2015] Record 46.7 Million Americans Live In Poverty; Household Income Back To 1989 Levels

Sep 16, 2015 | Zero Hedge

At this moment, president Obama is taking to the Business Roundtable where as noted previously he will discuss "the turnarounds in the stock market, housing iprices [sic?] and job growth."

In other words: helping wealth inequality hit record levels, permitting Chinese and other offshore "investors" to push high-end US real estate prices to never before seen levels, while everyone else "benefits" from record jobs for bartenders and waiters.

As for the stock market, other socialist leaders will laugh at Obama's puny returns.

Obama: Stocks have doubled since 2009

Maduro: Stocks are up 44,584% since 2009

- Tim Backshall (@credittrader) September 16, 2015

That said, here are some things Obama will not discuss.

According to the just released Census Bureau annual report on Income and Poverty, in 2014 the official poverty rate was 14.8% as a result of a record 46.7 million Americans living in poverty. This is the fifth consecutive year since the end of the recession that the number of impoverished Americans has barely not budged. What recovery?

Worse, while there was no material change for the percentage of Americans in poverty, there was a statistical increase in the number of people in poverty who had at least a bachelor's degree (rising from 3 million to 3.4 million in one year) and married-couple families. Because through higher education and debt, to poverty.

The people living in extreme poverty, i.e. below 50% of the poverty minimum, also rose to an all time high of 20.8 million.

Of the 91 million Americans who were out of the labor force in 2014 and otherwise did not work, a record 24.2% or 22 million, lived in poverty.

But the most damning fact about the total failure of the US recovery, and one thing Obama will certainly not mention, is that the median real household income, after posting a modest increase in 2013 to $54,462, dropped once again, sliding 1.5% in 2014 to $53,657 and down from a high of $57,843 record in 1999.

This was nearly the same as the $53,306 median household income recorded in... 1989.

So all those talking about Japan's lost three decades, perhaps it is time to mention America's lost 25 years...

AlaricBalth

Cost Of Living 1989
How Much things cost in 1989 Yearly Inflation Rate U.S.A. 4.83% Year End Close Dow Jones Industrial Average 2753 Interest Rates Year End Federal Reserve 10.50% Average Cost of new house $120,000.00 Average Income per year $27,450.00 Average Monthly Rent $420.00 Average Price for new car $15,3500.00 1 gallon of gas 97 cents US Postage Stamp 25 cents BMW 325 $21,400 Ford Probe $12,695 Ham and Cheese Pizza $2.59 Rib Eye Steak Lb $3.79 Ritz Crackers $1.79 Barb

Zirpedge

I could sure go for one of those 1989 Ham and Cheese Pizza $2.59

All these metrics fail to capture the technological improvements and overall improved quality of living. You moonbats and the distorted lense you put on the past in your failed atttempts to relive a glory day that never was. Give

Thick Willy

Yea, the 1980's were absolute shit. One of the worst and most forgettable decades in the past 100 years. 90's kicked ass though. America was triumphant in the cold war. Bombing Iraq and whoever the fuck else we wanted. Internet became a thing. Broad band introduced. Economy was rocking. All the way up until the .com crash and 9/11.

cowdiddly

I prefer to use 1970 the last year of sound money.

Cost of new house 23,450

Avg Income 9,400

Minimum wage 2.10

Movie ticket 1.55

Gasoline .36 cents gal

Postage stamp 6 cents

Sugar .39 cents 5lb

Milk .62 cents gal

Coffee 1.90 lb

Eggs .59 doz

Bread .25 cents

Thats your real basket of goods and services. Thank you Janet, may we have another

larz

I cannot listen to that pompous pathological liar and his fawning press muppets It makes me ill it truly is beyond my comprehension American liberal progressives eat it up and I still hear people say "best president ever" i just cant wrap my mind around this

LawsofPhysics

"Winning!" that is all...

Legal_US_Immigrant_Citizen

The median income is back to where it was 25 years ago but Stock market has been close to all time highs, recent 10% correction notwithstanding. The Government is controlled by the Oligarchs.

Dapper Dan

Have you heard this one "one in six Americans are hungry and don't get enough to eat"

In 2013, 49.1 million Americans lived in food insecure households, including 33.3 million adults and 15.8 million children.

http://www.feedingamerica.org/hunger-in-america/impact-of-hunger/hunger-and-poverty/hunger-and-poverty-fact-sheet.html

Food insecurity is the most broadly-used measure of food deprivation in the United States. The USDA defines food insecurity as meaning "consistent access to adequate food is limited by a lack of money and other resources at times during the year."

However, More than one-third (35.7 percent) of adults are considered to be obese. More than 1 in 20 (6.3 percent) have extreme obesity. Almost 3 in 4 men (74 percent) are considered to be overweight or obese. The prevalence of obesity is similar for both men and women (about 36 percent).

PoasterToaster

When they first set up this system of slavery, the Protestant work ethic was leveraged to enforce it on the public. A false morality was laid over people's natural inborn morality, and this was the morality of the slave that we currently enjoy.
The promise of buying your freedom was "retirement". If you were a good slave your whole life, you could be put out to pasture in your last few useless years. When they took that away by zero interest rates and high taxes, they lost their moral authority to crack the work ethic whip on the "lazy". Their public narrative is falling apart.
Now that it is becoming widely known that there are no open slave positions, and that 90% of the slave positions that do exist will not pay enough to live and prosper, further cracks in the current public moral paradigm are appearing. These will widen into fissures and discontent will grow.
These numbers in this article, as surprising as they may be to some, are understating the problem greatly. They are far lower than the truth, but this is as much as they will admit. They have been piss poor stewards of the public trust, as they term their position in the social hierarchy. If the peasants start learning the truth it will be all over for this incarnation of the system and its elite. No one will comply anymore, and that's all it takes for the edifice to crumble.

[Sep 16, 2015] Axel Merk Warns Investors Are In For A Rude Awakening

Sep 16, 2015 | Zero Hedge
Why should investors care?
Investors need to care because the above is just a proxy for all risky assets, including what is sometimes referred to the ultimate risk asset, the stock market.
All else equal, economic theory suggests that when volatility (risk premia) is lower, asset prices are higher. Investors are more willing to pay for an asset when the future appears less uncertain. As volatility increases, for whatever reason, asset prices should tend adjust lower to provide the higher expected future return needed to compensate the investor for the increased risk level.

Stock prices were rising on the backdrop of low volatility. Such an environment, in our assessment, fosters complacency: investors have been lured, courtesy of the Fed, to buy the stock market.

The trouble is that risky assets are, well, still risky. So while central bankers can mask risk, they cannot eliminate it.

As a result, our analysis suggests many investors may be holding assets that are riskier than they think.

Where we are
The Fed's hope was that the economy would be on sound enough footing by now, so that the 'extraordinary accommodation' can be removed. Alas, hope is not a plan.

In our assessment, the Fed has tried to boost economic growth through asset price inflation. While we don't think printing money creates jobs in the long-run, it does impact various sectors of the economy and, well, asset prices. Housing, for example, is affected by monetary policy: as home prices rise, fewer home-owners are "under water" in their mortgage (there are more implications, such as rather hot housing markets in places such as San Francisco).

Relevant to this discussion, though, is that if asset prices were to deflate, there might be higher headwinds to economic growth than had asset prices not previously been artificially boosted. And that's exactly where we are: in our analysis, the reason the markets are so nervous about a rate hike is because it signals a shift towards rising risk premia. As the Fed is trying to engineer an exit, risky assets, from junk bonds to stocks, warrant a higher risk premium. In our analysis, all else equal, we don't even need a Fed "exit:" even a perceived Fed exit warrants higher volatility and, with it, lower asset prices.

Where we may be heading
Think about it: we have investors that have enjoyed years of bull market; investors that have been told to "buy the dip;" investors that have invested in the markets under the faulty assumption that the markets are a low risk endeavor. Now let volatility spike for any reason - blame the Chinese if you wish - and our assessment is that an increasing number will say: "I didn't sign up for this. I didn't know investing in the market is risky."

Differently said, rather then the glass being half full, it may be half empty. Rather than buy the dips, investors may now sell the rallies. Investors may scramble to preserve their paper profits. It will take a while for most investors to embrace this new regime, but we believe the tide may well have shifted.

So will we get a rate hike?

It doesn't matter. What matters is what the Federal Reserve Open Market Committee (FOMC) has been arguing since the spring of 2014 in their Minutes:

The Committee currently anticipates that, even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.

To us, this is a promise to be "behind the curve," i.e. to be late in raising rates. The Fed will try to keep rates lower than the Fed itself 'views as normal.' Presumably, it will try to avoid risk premia to blow out too much too quickly. Maybe they'll succeed, but I would not want to bet my house on it.

What should investors do?

Just as with every bubble that has been built, investors have been most reluctant to take chips off the table when times were good. We urge all investors to have a close look at whether they are comfortable with the risk profile of their portfolio. Based on our discussions with both retail and professional investors we believe many are over-exposed to risky assets. We don't expect everyone to do what I did in early August, which is to actually go short the market (please read: Coming Out - As a Bear!), but we urge everyone to do some serious stress testing on his or her portfolio.

Which asset classes do we think will outperform?

In August, any trade that appeared to have worked, went into reverse. In fact, one could argue there is no such thing as a risk free asset anymore, and given that risky assets were in decline, most investors lost money. It's one reason why looking at alternative strategies, such long/short strategies (in currencies, equities or otherwise) might be worth considering.

The so-called "flight to safety" did not benefit the greenback; instead, the euro surged on days when U.S. equities plunged. While the media was highlighting how some emerging market currencies plunged, the greenback was down versus all major currencies on numerous days when the S&P was down sharply. We are not suggesting that the euro, or any one currency, will necessarily, be the bastion of strength. Instead, what's been happening is that investors had been piling in to the same trades, such as "the dollar must rally because the U.S. has the cleaner shirt, will raise rates, because ..." well, a good trade works even better with leverage; except that when "risk is off," i.e. when the pessimists take over, de-leveraging is the mode du jour. As such, all those out of favor investors are suddenly outperforming.

In our assessment, different asset classes adjust at different speeds. The currency markets, when it comes to free-floating currencies at least, adjust faster than equity markets. In the equity market, we expect downward pressure to persist for an extended period until public sentiment is firmly in bearish territory (this may take months, more likely years).

... ... ...

[Sep 16, 2015] Bankers Will Be Jailed In The Next Financial Crisis

"...For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organized crime. "

Sep 16, 2015 | Zero Hedge

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

– From the excellent article: The Banking Criminals Exposed

My prediction is that bankers will be jailed in the next economic/financial crisis. Lots and lots of bankers.

It may seem to many that those working within this profession will remain above the law indefinitely in light of the lack of any accountability whatsoever since the collapse of 2008. It may seem that way, but extrapolating this trend into the future is to ignore a monumentally changed political environment around the world. From the ascendancy of Donald Trump and Bernie Sanders here in the U.S., to Jeremy Corbyn becoming Labour leader in the UK, big changes are certainly afoot.

I have become convinced of this change for a little while now, but we won't really see evidence of it until the next collapse. However, something I read earlier today really brought the point home for me. Rowan Bosworth-Davies recently attended the 33rd Cambridge International Symposium on Economic Crime and provided us with some notes in an excellent piece titled, The Banking Criminals Exposed. Here are a few excerpts:

Jesus College, Cambridge hosted, once more, the world's leading Symposium on Economic Crime, and over 500 distinguished speakers and panelists drawn from the widest possible international fora, gathered to make presentations to the many hundreds of delegates and attendees.

This Symposium has indeed become an icon among other international gatherings of its knd and over the years, it has proved to be highly influential in the driving and development of international policy aimed at combating international financial and economic crime.

What became very quickly clear this year was the general sense of deep disgust and repugnance that was demonstrated towards the global banking industry.

I can say with some degree of certainty now that a very large number of academics, law enforcement agencies, and financial compliance consultants are now joined, as one, in their total condemnation of significant elements of the global banking sector for their organised criminal activities.

Many banks are widely identified now as nothing more than enterprise criminal organisations, who engage in widespread criminal practice and dishonest conduct as a matter of course and deliberate commercial policy.

Speaker after speaker addressed the implications of the scandalous level of PPI fraud, whose repayment and compensation schedules now run into billions of pounds.

Some speakers struggled with the definition of such activity as 'Mis-selling' and needed to be advised that what they were describing was an institutionalized level of organised financial crimes involving fraud, false accounting, forgery and other offenses involving acts of misrepresentation and deceit.

One of the side issues which came out of this and other debates, was the general and genuine sense of bewilderment that management in these institutions concerned, (and very few banks and financial houses have escaped censure for this dishonest practice) have walked away from this orgy of criminal antics, completely unscathed. The protestations from management that these dishonest acts were carried out by a few rogue elements, holds no water and cannot be justified.

In the end, I sat there, open-mouthed while evidence against the same old usual scum-bag financial institutions, was unrolled, and a lengthy list of agencies, all apparently dedicated to dealing with fraud and financial crime, lamely sought to explain why they were powerless to help these victims.

This was followed by a lengthy list of names of major law firms, and Big 5 accounting firms who were willing to join with these pariah banks to bring complex and expensive legal actions against these victims, bankrupting them, forcing them from their homes, repossessing properties they had worked for years to create, while all the time, the regulators and the other agencies, including to my shame and regret, certain spineless police forces, stood by and sought to justify their inaction.

At one stage, we were shown how banks ritually and deliberately take transcripts of telephone calls made between complainants and the bank, and deliberately and systematically go through these conversations, re-editing them and reproducing them in a format which is much more favourable to the bank.

For the first time, I found routine agreement among delegates that the banking industry had become synonymous with organised crime. Many otherwise more conservative attendees expressed their grave concern and their repugnance at the way in which so many of our most famous banking names were now behaving. It is becoming very much harder to believe that the banks will be able to rely on the routine support they have traditionally enjoyed from most ordinary members of the public.

The election of Jeremy Corbyn to the leadership of the labour Party means that banking crime and financial fraud will now become an electoral issue.

But now, the new Labour leadership will focus the attention of the electorate on the relationship between the Tory party and their very crooked friends in the City, and the degree of protection that the Square Mile gangsters and their Consiglieri, their Capos, and their Godfathers will become much more identifiable. Bank crime will now become much more identifiable as a City practice and their friends in the Tories will be seen as being primary beneficiaries.

Things are moving in the direction of justice. At a glacial place for sure, but moving they are.
pot_and_kettle

When they're swinging from lamp posts lining Broadway and Water St,
*then * I'd call it progress.
Til then, same old same old...

11b40

There were over 1,000 felony prosecutions that came out of the Savings & Loan fiasco in the 80's, with a 90% conviction rate.
But, to your point, these were not the big Wall Street Bankers. Mostly just your local common banker thief and his cronies, with a few politicians thrown in for good measure. No big fish were prosecuted during the Depression era, either.

vincent

A reminder of how JPM saved its own ass in 2008. Worth bookmarking....

The Secret Bailout of JP Morgan
http://www.webofdebt.com/articles/banking-bailout.php

Ulludapattha

Dream on, Mike. Just who will jail the banksters? They own the governments of USA, Canada, and Western Europe. Not a chance in my lifetime.

GCT

Politicians and the judicial branch are in the banks pockets. I will believe it when I see it to be honest. I have yet to see real bankers or for that matter politicians go to jail. As long as the big fines are paid nothing will change. Must be nice to create money from nothing to pay these fines and fucking your customers over at the same time.

Fahque Imuhnutjahb

Wishful thinking. If any justice is to be meted out then the "little people" will have to take it upon themselves.
And by little people I mean the plebes, not dwarves; but the dwarves are welcome to help, unless of course
some of them are little bankers, then they're not welcome, but the rest are. Glad we got that cleared up.

[Sep 16, 2015] The pernicious effects of corporate bonuses by Michel Santi

"...Such payouts generate conflicts between top management and their salaried workforce and clearly contribute to demotivation among subordinates. "

"...The University of Jerusalem found out that the granting of bonuses tended to reduce the effort of their beneficiaries if the latter were not properly supervised."

"...This glaring income inequality substantially reduces the job satisfaction and reduces the productivity of employees and workers (Berkeley study). Inequality also reduces the confidence of these employees in their own companies and their management, with negative effects on general economic growth. In the words of Joseph Stiglitz at the recently held World Economic Forum in Mexico, the time when it was believed that growth and equality were disconnected notions is over. "The two are complementary, and we will necessarily have higher growth if we reduce extreme inequalities." "

May 14, 2015 | michelsanti.fr

The cash bonuses, stock options, pensions and mega salaries received by corporate executives are clearly a wealth transfer mechanism. In this regard, the Euro 300,000 annual pension to be paid to Philippe Varin, departing CEO of PSA Peugeot Citroën, pales in comparison to the remuneration of the great American bosses.
The transparency imposed by the U.S. Dodd-Frank Act and the implementation of similar legislation in France is evidently not enough. Apart from the immoral aspect of such income (almost "against nature"), recent studies have shown that high bonuses hurt productivity. Such payouts generate conflicts between top management and their salaried workforce and clearly contribute to demotivation among subordinates. According to studies by Jorg Oechssler, Anwar Shah and Nikos Nikiforakis, boards of directors should carefully weigh these outsized bonuses taking into account those employees who do not benefit from them so as not to have a devastating impact on the profitability of their companies.
It also seems that the effort and spirit of initiative of an employee collapses when he has to work with a team leader who enjoys an enormous salary or bonus. This situation calls for the bonus to be shared by an entire team in lieu of it only benefiting the team leader. But let us not ignore the perverse effects of the famous "Yerkes-Dodson" law because a recent study by Uri Gneezy has indeed confirmed that high bonuses reduce the performance of their eager recipients. Have not slightly older experiments unequivocally demonstrated that giving high bonuses to financial traders generate 'bubbles' because they become "naturally" inclined to manipulate prices or only worry about short-term profitability?

The University of Jerusalem found out that the granting of bonuses tended to reduce the effort of their beneficiaries if the latter were not properly supervised. In this study, in order for bonuses to be effective they should be paired with constant supervision from senior management so that the results produced are observable. If management is non-engaged and unseen, bonuses will therefore have the exact opposite of the intended effect, i.e., they will lower the employee's productivity and dedication. Has the London School of Economics and Political Science not reached a similar conclusion in a research study where it found perverse effects in the granting of compensation linked to the company's performance?

Finally, Jean Tirole has often referred to significant losses in efficacy caused from bonuses that, within the same company, implicitly assign greater importance to those receiving them to the detriment of those who are excluded. The most striking illustration of this effect is to award large bonuses to traders and none to the "back office" employees who are tasked to controlling the risks taken by those same traders. In short, this inequality obviously demotivates those who are not fortunate enough to have received any bonus. They thus feel at a disadvantage and, hence, do not have the desire to show more initiative.

This glaring income inequality substantially reduces the job satisfaction and reduces the productivity of employees and workers (Berkeley study). Inequality also reduces the confidence of these employees in their own companies and their management, with negative effects on general economic growth. In the words of Joseph Stiglitz at the recently held World Economic Forum in Mexico, the time when it was believed that growth and equality were disconnected notions is over. "The two are complementary, and we will necessarily have higher growth if we reduce extreme inequalities."

[Sep 16, 2015] To save the rich, relieve the poor! by Michel Santi

April 29, 2015 | www.michelsanti.fr

A debate rages on, mostly in the United States, regarding the secular stagnation of our economies. This secular stagnation is due, in my opinion, to the extraordinary productivity of capitalism. The very low, zero-boundary or even negative interest rates are simply the consequence of capital's very efficient productivity.

[Sep 16, 2015] Oil, Iraq War, & Neoliberalism

"... Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, "[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales." Of course, Bush not only wants to keep oil out of his enemies' hands, he also wants to put it into the hands of his friends. "

"...Guaranteeing access to Iraq's oil, however isn't the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war-and the most ignored. Just two months after declaring "mission accomplished" in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it."

"...In 2004, Michael Scheuer-the CIA's senior expert on al-Qaeda until he quit in disgust with the Bush administration-wrote, "The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages." How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq's economic infrastructure.

"...Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity."

"...Put simply, U.S. oil companies want access to as much of Iraq's oil as they can get and on the best possible terms. The fact that Iraq is a war-ravaged and occupied nation works to the companies' benefit. As a result, the companies and the Bush administration are holding U.S. troops hostage in Iraq until they get what they want. Once the companies get their lucrative contracts, they will still need protection to get to work. What better security force is there than 144,000 American troops? {Following this pattern, we can know understand why the U.S. has not completed medical clinics, re-establish electric service, etc. They are holding the country hostage, with a promise of approve the sale of the oil fields and then these projects will be completed--jk.}"

January 15, 2007 | skeptically.org

Both parties support neoliberalism, and this is sufficient to explain the course of events leading up to and following the invasion of Iraq. Biparticism and media support of neoliberalism has left a gap in debate and reporting. The article below fills that gap-jk.

From In These Times @ www.inthesetimes.com

Features > January 15, 2007

Spoils of War: Oil, the U.S.-Middle East Free Trade Area and the Bush Agenda

By Antonia Juhasz, Antonia Juhasz, a visiting scholar at the Institute for Policy Studies, is the author of The Bush Agenda: Invading the World, One Economy at a Time, on which part of this article is based. She is working on a new book that will make the case for the break-up of the largest American oil companies. Learn more at www.TheBushAgenda.net.

Remember oil? That thing we didn't go to war in Iraq for? Now with his war under attack, even President George W. Bush has gone public, telling reporters last August, "[a] failed Iraq … would give the terrorists and extremists an additional tool besides safe haven, and that is revenues from oil sales." Of course, Bush not only wants to keep oil out of his enemies' hands, he also wants to put it into the hands of his friends.

The President's concern over Iraq's oil is shared by the Iraq Study Group, which on December 6 released its much-anticipated report. While the mainstream press focused on the report's criticism of Bush's handling of the war and the report's call for (potential) removal of (most) U.S. troops (maybe) by 2008, ignored was the report's focus on Iraq's oil. Page 1, chapter 1 laid out in no uncertain terms Iraq's importance to the Middle East, the United States and the world with this reminder: "It has the world's second-largest known oil reserves." The group then proceeds to give very specific and radical recommendations as to what should be done to secure those reserves.

Guaranteeing access to Iraq's oil, however isn't the whole story. Despite the lives lost and the utter ruin that the war has brought, the overarching economic agenda that the administration is successfully pursuing in the Middle East might be the most enduring legacy of the war-and the most ignored. Just two months after declaring "mission accomplished" in Iraq, Bush announced his plans for a U.S.-Middle East Free Trade Area to spread the economic invasion well-underway in Iraq to the rest of the region by 2013. Negotiations have progressed rapidly as countries seek to prove that they are with the United States, not against it.

The Bush Agenda

Within days of the 9/11 terrorist attacks, then-U.S. Trade Representative Robert Zoellick announced that the Bush administration would be "countering terror with trade." Bush reiterated that pledge four years later when he told the United Nations, "By expanding trade, we spread hope and opportunity to the corners of the world, and we strike a blow against the terrorists. Our agenda for freer trade is part of our agenda for a freer world." In the case of the March 2003 invasion and ongoing occupation of Iraq, these "free trade"-or corporate globalization-policies have been applied in tandem with America's military forces.

The Bush administration used the military invasion of Iraq to oust its leader, replace its government, implement new economic and political laws, and write a new constitution. The new economic laws have transformed Iraq's economy, applying some of the most radical-and sought-after-corporate globalization policies in the world and locking in sweeping advantages to U.S. corporations. Through the ongoing occupation, the Bush administration seeks to ensure that both Iraq's new government and this new economic structure stay firmly in place. The ultimate goal-opening Iraq to U.S. oil companies-is reaching fruition.

In 2004, Michael Scheuer-the CIA's senior expert on al-Qaeda until he quit in disgust with the Bush administration-wrote, "The U.S. invasion of Iraq was not preemption; it was … an avaricious, premeditated, unprovoked war against a foe who posed no immediate threat but whose defeat did offer economic advantages." How right he was. For it is an absolute fallacy that the Bush administration had no post-invasion plan for Iraq. The administration had a very clear economic plan that has contributed significantly to the disastrous results of the war. The plan was prepared at least two months prior to the war by the U.S. consultancy firm, Bearing Point, Inc., which then received a $250 million contract to remake Iraq's economic infrastructure.

L. Paul Bremer III-the head of the U.S. occupation government of Iraq, the Coalition Provisional Authority (CPA)-followed Bearing Point's plan to the letter. From May 6, 2003 until June 28, 2004, Bremer implemented his "100 Orders" with the force of law, all but a handful of which remain in place today. As the preamble to many of the orders state, they are intended to "transition [Iraq] from a … centrally planned economy to a market economy" virtually overnight and by U.S. fiat. Bremer's orders included firing the entire Iraqi military-some half a million men-in the first weeks of the occupation. Suddenly jobless, many of these men took their guns with them and joined the violent insurgency. Bremer also fired 120,000 of Iraq's senior bureaucrats from every government ministry, hospital and school. {By removing the Sumi bureaucracy, they removed opposition to globalization. The U.S. could now shop for support from what would soon be a newly elected factionalized parliament-jk.} His laws allowed for the privatization of Iraq's state-owned enterprises (excluding oil) and for American companies to receive preferential treatment over Iraqis in the awarding of reconstruction contracts. The laws reduced taxes on all corporations by 25 percent and opened every sector of the Iraqi economy to private foreign investment. The laws allowed foreign firms to own 100 percent of Iraqi businesses (as opposed to partnering with Iraqi firms) and to send their profits home without having to invest a cent in the struggling Iraqi economy. Iraqi laws governing banking, foreign investment, patents, copyrights, business ownership, taxes, the media, agriculture and trade were all changed to conform to U.S. goals.

After the U.S. corporate invasion of Iraq

More than 150 U.S. companies were awarded contracts for post-war work totaling more than $50 billion. The American companies were hired, even though Iraqi companies had successfully rebuilt the country after the previous U.S. invasion. And, because the American companies did not have to hire Iraqis, many imported foreign workers instead. The Iraqis were, of course, well aware that American firms had received billions of dollars for reconstruction, that Iraqi companies and workers had been rejected and that the country was still without basic services. The result: increasing hostility, acts of sabotage targeted directly at foreign contractors and their work, and a rising insurgency.

Halliburton received the largest contract, worth more than $12 billion, while 13 other U.S. companies received contracts worth more than $1.5 billion each. The seven largest reconstruction contracts went to the Parsons Corporation of Pasadena, Calif. ($5.3 billion); Fluor Corporation of Aliso Viejo, Calif. ($3.75 billion); Washington Group International of Boise, Idaho ($3.1 billion); Shaw Group of Baton Rouge, La. ($3 billion); Bechtel Corporation of San Francisco ($2.8 billion); Perini Corporation of Framingham, Mass. ($2.5 billion); and Contrack International, Inc. of Arlington, Va. ($2.3 billion). These companies are responsible for virtually all reconstruction in Iraq, including water, bridges, roads, hospitals, and sewers and, most significantly, electricity.

U.S. Air Force Colonel Sam Gardiner, author of a 2002 U.S. government study on the likely effect that U.S. bombardment would have on Iraq's power system, said, "frankly, if we had just given the Iraqis some baling wire and a little bit of space to keep things running, it would have been better. But instead we've let big U.S. companies go in with plans for major overhauls."

Many companies had their sights set on years-long privatization in Iraq, which helps explain their interest in "major overhauls" rather than getting the systems up and running. Cliff Mumm, head of Bechtel's Iraq operation, put it this way: "[Iraq] has two rivers, it's fertile, it's sitting on an ocean of oil. Iraq ought to be a major player in the world. And we want to be working for them long term."

And, since many U.S. contracts guaranteed that all of the companies' costs would be covered, plus a set rate of profit (known as cost-plus contracts), they took their time, building expensive new facilities that showcased their skills and would serve their own needs should they be runing the systems one day.

Mismanagement, waste, abuse and criminality have also characterized U.S. corporations in Iraq-leading to a series of U.S. contract cancellations. For example, a $243 million contract held by the Parsons Corporation for the construction of 150 health care centers was cancelled after more than two years of work and $186 million yielded just six centers, only two of which are serving patients. Parsons was also dropped from two different contracts to build prisons, one in Mosul and the other in Nasiriyah. The Bechtel Corporation was dropped from a $50 million contract for the construction of a children's hospital in Basra after it went $90 million over budget and a year-and-a-half behind schedule. These contracts have since been turned over to Iraqi companies.

Halliburton's subsidiary KBR is currently being investigated by government agencies and facing dozens of charges for waste, fraud and abuse. Most significantly, in 2006, the U.S. Army cancelled Halliburton's largest government contract, the Logistics Civil Augmentation Program (LOGCAP), which was for worldwide logistical support to U.S. troops. Halliburton will continue its current Iraq contract, but this year the LOGCAP will be broken into smaller parts and competitively bid out to other companies.

The Special Inspector General for Iraq Reconstruction (SIGIR), a congressionally-mandated independent auditing and oversight body, has opened 256 investigations into criminal fraud, four of which have resulted in convictions. SIGIR has provided critical oversight of the U.S. reconstruction, but this fall it nearly fell prey to a GOP attempt to shut down its activities well ahead of schedule. Fortunately, it survived.

SIGIR's October 2006 report to Congress reveals the failure of U.S. corporations in Iraq. In the electricity sector, less than half of all planned projects in Iraq have been completed, while 21 percent have yet to even begin. Even the term "complete" can be misleading as, for example, SIGIR has found that contractors have failed to build transmission and distribution lines to connect new generators to homes and businesses. Thus, nationally, Iraqis have on average just 11 hours of electricity a day, and in Baghdad, the heart of instability in Iraq, there are between four and eight hours on average per day. Before the war, Baghdad averaged 24 hours per day of electricity.

While there has been greater success in finishing water and sewage projects, the fact that 80 percent of potable water projects are reported complete does little good if there is no electricity to pump the water into homes, hospitals or businesses. Meanwhile, the health care sector is truly a tragedy. Just 36 percent of planned projects are reported as complete. Of 20 planned hospitals, 12 are finished and only six of 150 planned public health centers are serving patients today.

Overall, the economy is languishing, with high inflation, low growth, and unemployment rates estimated at 30 to 50 percent {being part of a militia is providing employment} for the nation and as high as 70 percent in some areas. The International Monetary Fund has enforced a structural adjustment program on Iraq that mirrors much of Bush's corporate globalization agenda, and the administration continues to push for Iraq's admission into the World Trade Organization.

Iraq has not, therefore, emerged as the wealthy free market haven that Bush & Co. had hoped for. Several U.S. companies are now preparing to pack up, head home and take their billions of dollars with them, their work in Iraq left undone. The Bush administration is likely to follow a dual strategy: continuing to pursue a corporate free-trade haven in Iraq, while helping U.S. corporations extricate themselves without consequence. The administration will also focus on the big prize: Iraq's oil.

Winning Iraq's oil prize:

The Bush Agenda does have supporters, especially those corporate allies that have both shaped and benefited from the administration's economic and military policies. In the 2000 election cycle, the oil and gas industry donated 13 times more money to Bush's campaign than to Al Gore's. The Bush administration is the first in history in which the president, vice president and secretary of state are all former energy company officials. In fact, the only other U.S. president to come from the oil and gas industry was Bush's father. Moreover, both George W. Bush and Condoleezza Rice have more experience running oil companies than they do working for the government.

Planning to secure Iraq's oil for U.S. companies began on the tenth day of the Bush presidency, when Vice President Dick Cheney established the National Energy Policy Development Group-widely referred to as "Cheney's Energy Task Force." It produced two lists, titled "Foreign Suitors for Iraqi Oilfield Contracts as of 5 March 2001," which named more than 60 companies from some 30 countries with contracts for oil and gas projects across Iraq-none of which were with American firms. However, because sanctions were imposed on Iraq at this time, none of the contracts could come into force. If the sanctions were removed-which was becoming increasingly likely as public opinion turned against the sanctions and Hussein remained in power-the contracts would go to all of those foreign oil companies and the U.S. oil industry would be shut out.

As the Bush administration stepped up its war planning, the State Department began preparations for post-invasion Iraq. Meeting four times between December 2002 and April 2003, members of the State Department's Oil and Energy Working Group mapped out Iraq's oil future. They agreed that Iraq "should be opened to international oil companies as quickly as possible after the war" and that the best method for doing so was through Production Sharing Agreements (PSAs).

PSAs are considered "privatization lite" in the oil business and, as such, are the favorite of international oil companies and the worst-case scenario for oil-rich states. With PSAs, oil ownership ultimately rests with the government, but the most profitable aspects of the industry-exploration and production-are contracted to the private companies under highly favorable terms. None of the top oil producers in the Middle East use PSAs, because they favor private companies at the expense of the exporting governments. In fact, PSAs are only used in respect to about 12 percent of world oil reserves {such as Nigeria}.

After the invasion

Two months after the invasion of Iraq, in May 2003, the U.S.-appointed senior adviser to the Iraqi Oil Ministry, Thamer al-Ghadban, announced that the new Iraqi government would honor few, if any, of the dozens of contracts signed with foreign oil companies under the Hussein regime.

At the same time, Bremer was laying the economic groundwork for a "U.S. corporate friendly" Iraq. When Bremer left Iraq in June 2004, he bequeathed the Bush economic agenda to two men, Ayad Allawi and Adel Abdul Mahdi, who Bremer appointed interim Prime Minister and Finance Minister, respectively {viz., two sell the oil lackeys to head the Iraq government}. Two months later, Allawi (a former CIA asset) submitted guidelines for a new petroleum law to Iraq's Supreme Council for Oil Policy. The guidelines declared "an end to the centrally planned and state dominated Iraqi economy" and advised the "Iraqi government to disengage from running the oil sector, including management of the planned Iraq National Oil Company (INOC), and that the INOC be partly privatized in the future."

Allawi's guidelines also turned all undeveloped oil and gas fields over to private international oil companies. Because only 17 of Iraq's 80 known oil fields have been developed, Allawi's proposal would put 64 percent of Iraq's oil into the hands of foreign firms. However, if a further 100 billion barrels are discovered, as is widely predicted, foreign companies could control 81 percent of Iraq's oil-or 87 percent if, as the Oil Ministry predicts, 200 billion barrels are found.

On December 21, 2004, Mahdi joined U.S. Undersecretary of State Alan Larson at the National Press Club and announced Iraq's plans for a new petroleum law that would open the oil sector to private foreign investment. "I think this is very promising to the American investors and to American enterprise, certainly to oil companies," said Mahdi. He described how, under the proposed law, foreign companies would gain access both to "downstream" and "maybe even upstream" oil investment in Iraq. ("Downstream" refers to refining, distribution, and marketing of oil. "Upstream" refers to exploration and production.)

The draft petroleum law adopted Allawi's recommendation that currently producing oil fields are to be developed by Iraq's National Oil Company, while all new fields are opened to private companies using PSAs.

The Bush administration and U.S. oil companies have maintained constant pressure on Iraq to pass the petroleum law. The administration appointed an advisor to the Iraqi government from Bearing Point to support completion of the law. And in July 2006, U.S. Energy Secretary Samuel Bodman announced in Baghdad that oil executives told him that their companies would not enter Iraq without passage of the new oil law. Petroleum Economist magazine later reported that U.S. oil companies considered passage of the new oil law more important than increased security when deciding whether to go into business in Iraq.

The Iraq Study Group, recognizing as it did the primacy of oil in its Iraq calculations, recommended that the U.S. "assist Iraqi leaders to reorganize the national oil industry as a commercial enterprise" and "encourage investment in Iraq's oil sector by the international community and by international energy companies."

Put simply, U.S. oil companies want access to as much of Iraq's oil as they can get and on the best possible terms. The fact that Iraq is a war-ravaged and occupied nation works to the companies' benefit. As a result, the companies and the Bush administration are holding U.S. troops hostage in Iraq until they get what they want. Once the companies get their lucrative contracts, they will still need protection to get to work. What better security force is there than 144,000 American troops? {Following this pattern, we can know understand why the U.S. has not completed medical clinics, re-establish electric service, etc. They are holding the country hostage, with a promise of approve the sale of the oil fields and then these projects will be completed--jk.}

Three days after the release of the Iraq Study Group Report, the al-Maliki government announced that Iraq's oil law was near completion. The law adopts PSAs and not only opens Iraq to private foreign companies, but permits "for the first time-local and international companies to carry out oil exploration in Iraq."

To ensure that this model prevails, the Iraq Study Group recommends that Iraq's constitution be rewritten to give the central government of Iraq-as opposed to individual regions-the ultimate decision-making authority over all of Iraq's developed and undeveloped oil fields.

Standard Oil Company's John D. Rockefeller famously said, "Own nothing, control everything." He would be proud of the U.S. oil companies and the Bush administration, as they seem poised to get exactly the control they want over Iraq's oil.

Beyond Iraq: the U.S.-Middle East Free Trade Area

But the Bush agenda has never been limited to Iraq. As the Wall Street Journal reported in May 2003, "For many conservatives, Iraq is now the test case for whether the U.S. can engender American-style free-market capitalism {neoliberalism} within the Arab world." To this end, the administration has used the "stick" of the Iraq war to convince nations across the Middle East to adopt its free trade agenda. The mechanism for doing so is the president's U.S.-Middle East Free Trade Area (MEFTA).

The corporate lobbying group behind the MEFTA, the aptly named U.S.-Middle East Free Trade Coalition, includes among its 120 members Chevron, ExxonMobil, Bechtel and Halliburton-companies intimately connected to the Bush administration that have already been big winners in Iraq.

Insulated by oil revenue, the Middle East has largely avoided succumbing to the sacrifices required under free trade agreements. But since the war began, negotiations for the MEFTA have progressed rapidly.

The Bush administration devised a unique negotiating strategy for the MEFTA. Rather than negotiate with all of the nations as a bloc, the United States negotiates one-on-one with each country. This means that every nation-some half the size of one state in the United States-must try to make a deal that serves its own interests with the most economically and militarily dominant nation in the world. The reality is that there can be no "negotiation" between such thoroughly unequal pairings.

These individual free trade agreements are then united under the MEFTA. If successful, the MEFTA would be concluded by 2013 and include 20 countries: Algeria, Bahrain, Cyprus, Egypt, Palestine, Iran, Iraq, Israel, Jordan, Kuwait, Lebanon, Libya, Morocco, Oman, Qatar, Saudi Arabia, Syria, the United Arab Emirates, Tunisia and Yemen.

To date, the Bush administration has signed 13 Trade and Investment Framework Agreements (TIFAs), which demonstrate a country's commitment to the MEFTA, and are considered the key step towards passage of a full Free Trade Agreement (FTA). Things have moved briskly since the invasion of Iraq. Algeria and Bahrain signed before the war, while agreements with Lebanon (the most recent, signed in December), Tunisia, Saudi Arabia, Kuwait, Yemen, the United Arab Emirates, Qatar, Egypt, Morocco, Oman and Iraq all followed the war. The United States has signed FTAs with five Middle Eastern countries: Israel, Jordan, Morocco, Bahrain, and Oman. The last three were signed after the 2003 invasion of Iraq. Negotiations with the United Arab Emirates are underway and near completion.

The winners, of course, are U.S. corporations. On January 19, 2006, for example, then-U.S. Trade Representative Robert Portman sent a letter to Oman's minister of commerce and industry affirming that, when it signs contracts, the Omani government may not give preference to the government's state-controlled oil companies. As for Oman's apparel industry, the U.S. International Trade Commission estimates that the U.S.-Oman agreement will lead to a 66 percent increase in U.S. imports of apparel manufactured in Oman. What are the likely effects? In May, a report by the National Labor Committee detailed the cost of the first Middle East trade agreement signed by Bush in December 2001-the U.S.-Jordan FTA. After that agreement was implemented, new factories arrived in Jordan to service American companies, primarily apparel firms such as Wal-Mart, JC Penney, Target and Jones New York. These factories have engaged in the worst kinds of rights violations, including 48-hour shifts without sleep, physical and psychological abuse, and, in the case of imported foreign workers, employers who hold passports and refuse to pay. (Wal-Mart also is a member of the U.S.-Middle East Free Trade Coalition. The Bush administration will spend the next two years aggressively pushing the MEFTA as it seeks to expand the economic invasion of Iraq to the entire region.

What's next?

Throughout his presidency, George W. Bush has claimed that we will live in a safer, more prosperous, and more peaceful world if the United States remains at war and if countries throughout the world change their laws and adopt economic policies that benefit America's largest multinational corporations. The Bush Agenda has proven to have the opposite effect: increasing deadly acts of terrorism and economic insecurity, reducing freedom, and engendering more war. To replace the Bush Agenda, we must address each of its key pillars individually-war, imperialism and corporate globalization.

The most urgent first step is ending the war in Iraq by ending both the military and corporate occupations. We in the peace movement have already made tremendous progress in reaching these ends. Most Americans now oppose the war. The peace movement has welcomed with open arms U.S. soldiers and their families who share this opposition and unity has made us all stronger. Counter-recruitment efforts are blossoming across the country. The U.S. labor movement has joined forces with its counterpart in Iraq. Protests at corporate headquarters and shareholder meetings have led to U.S. war profiteers being called to account for their abuses in Iraq. Our success was made concrete with the dismissal of the president's party from power in both the House and the Senate.

According to "Election 2006: No to Staying the course on Trade," by Public Citizen, 18 House races saw "fair traders" replace "free traders" in the midterm election, and not a single "free trader" beat a fair trade candidate. {Staying the course translates into holding the Iraq nation hostage until they pass PSA-jk.} In every Senate seat that changed hands, a fair trader beat a free trader. One of their most important tasks this year will be to deny Bush the renewal of Fast Track negotiating authority when it expires in July. Fast Track allows the president to move trade bills through Congress quickly by overriding core aspects of the democratic process, such as committee deliberations, full congressional debate and the ability to offer amendments. In addition to the newcomers, several existing allies have been elevated to new positions of power. Rep. Ike Skelton (D-Mo.) is now chairman of the House Armed Services Committee. He has pledged to resurrect the subcommittee on oversight and investigations. Rep. David Obey (D-Wisc.) will use his chairmanship of the House Appropriations Committee to exercise greater oversight of Bush's war spending. The most important ally, however, will likely be Rep. Henry Waxman (D-Calif.), the new chairman of the House Government Reform Committee. Waxman has been one of the most effective and aggressive critics of Halliburton's work in Iraq, greatly contributing to Halliburton's loss of its LOGCAP contract.

Our allies in the new Congress should put forward two key demands:

First, all remaining and future U.S. reconstruction funds must be turned over to Iraqi companies and Iraqi workers. SIGIR found that when Iraqi companies receive contracts (rather than subcontracts from U.S. companies), their work is faster, less expensive and less prone to insurgent attack. There are literally hundreds of both private and public Iraqi companies-and millions of Iraqi workers-ready, able and willing to do this work. U.S. military commanders and soldiers in Iraq have repeatedly made this demand as they have learned firsthand that a person with a clipboard or a shovel in his or her hands is far less likely to carry a gun.

Second, U.S. corporations must not be allowed to "cut and run." Every U.S. corporation with reconstruction contracts in Iraq must be individually audited and each project investigated by SIGIR. Misspent funds must be returned and made available to Iraqis for reconstruction. SIGIR has begun this process with plans for a full audit of Bechtel's work due out early this year. SIGIR needs more staff, greater oversight authority and more money to complete this work in a timely manner.

The Democrats must abandon the Bush administration's plan to remake Iraq into an economic wonderland for U.S. corporations. Iraq must belong to the Iraqis to remake as they see fit. Nowhere is this demand more critical than in the case of Iraq's oil. It is clear that Iraq needs to develop its oil sector to survive and that it needs to retain as much of the proceeds from its oil as possible. It is also clear that it should be the Iraqi public-freed of the external pressure of a foreign occupation, the Bush administration and U.S. corporations-that decides how its oil is developed. U.S. oil corporations cannot be permitted to "win" the war in Iraq while we-Iraqis and Americans-pay the price for their victory.

IMF policy is to sell of the assets of each nation-which was consistent with the Whitehouse plan. From the point of view of Muslim zealots, this Americanization of the Arab world is the greatest immediate threat to their faith. Our presence on their turf and our plans for free trade turns these zealots into freedom fighters--jk.

Read about how neoliberalism brought about the war in Iraq, and the plans to sell off the oil field through our puppet government there.

What we all thought about the cause of the war, oil. However this article ties in international corporations and their wanting to upon up markets with the war. The politicians are not about informing through debate what is going on, but rather about selling their product and making their opponents look bad.

[Sep 16, 2015] Checkmate for Saudi Arabia

For how much longer will Saudi Arabia be in a position to defend its Riyal as pegged to the Dollar at 3.75? Urgently needing oil to be at $106 per barrel in order to balance its budget, it is nowhere near seeing such prices again in the presence of a fracking industry as dynamic as it is innovative and which has managed to slightly alleviate its predatory behaviour. This is a warning of a wholesale sandstorm to come for the Wahhabi kingdom."

Notable quotes:

"... Basically, Saudi Arabia is going to have great trouble in about two years and will be confronted by an existential crisis in around five! The collapse of oil prices by nearly 55% in one year is effectively melting away this country's cash reserves, a country which is suffering the torment and humiliation of budgetary deficits, and which has been reduced to issuing a public loan (of more than $5 million) in order to subsidise its needs. ..."

www.michelsanti.fr

The debacle of oil prices has greatly exceeded that of the global financial crisis of 2008 and the Asian crisis of 1998. And it is much more severe. At the end of this summer of 2015, OPEC is just a shadow of its former self: simply put, it has been de facto dissolved and this cartel would be better off closing its offices in Vienna in order to save some cash… Similarly, it is easy to see that the Saudi tactic of flooding the market with petrol has backfired. Already in decline and very fragile due to the fact that the only income from exportation comes from the sale of just one product (oil), Saudi Arabia's war using ancient weapons is dwindling.

The oil markets have indeed fundamentally changed since the time when investments became lucrative only after ten years. The Saudis were of course the undisputed masters when vast sums of money had to be handed over to make extractions from oil wells that would only come good many years later. This is why they got up to their dirty tricks in November 2014 when they decided to lower prices in order to stifle American oil shale producers, whom they had been banking on wiping off the map. As for the lost revenue due to the fall in oil prices, they would inevitably gain it back after the renewed rise in prices thanks to the disappearance of US producers. However, this venture, which consisted of making prices drop in order to harm competitors before putting them back up again in order to monopolise and maximise profits, is now an invalid practice. Also, this insane gamble taken by Saudi Arabia last winter to increase its own production to 10.6 million barrels per day at the climax of the fall in prices was already lost because it reveals a deep misconception of fracking, which is by no means a classical resource extraction method, and one which doesn't require substantial investment nor elevated oil prices in order to be viable.

Far from being a traditional production model, fracking allows the operation of wells with as little as $1 million while ensuring immediate gains. What's more is that extraction techniques are improving basically every day and allow the use of up to ten sites per day, while sophisticated computer programs detect cracks over a large area. To sum it up, the explosion in the development of fracking techniques – which will lead to the reduction of costs associated with extraction by nearly 45% in 2015 alone – is revolutionising the oil industry, previously the exclusive domain and prerogative of certain States, and which once demanded massive prior investment. Extremely responsive and flexible, the operators of shale oil would remain the beneficiaries even in the case of a rise in prices: this would in turn allow for the opening of many more extraction sites…acting on their part to squeeze prices due to increased supply.

Saudi Arabia is therefore no longer the go-to producer, since it is no longer capable of influencing oil prices. Having opened the floodgates in order to massacre the fracking industry, it is realizing that its extraction rates are ridiculous and any attempt on its part to manipulate prices in order to let prices rise again will be seized upon by the frackers who will immediately open even more sites to profit from this goldmine. Basically, Saudi Arabia is going to have great trouble in about two years and will be confronted by an existential crisis in around five! The collapse of oil prices by nearly 55% in one year is effectively melting away this country's cash reserves, a country which is suffering the torment and humiliation of budgetary deficits, and which has been reduced to issuing a public loan (of more than $5 million) in order to subsidise its needs.

For how much longer will Saudi Arabia be in a position to defend its Riyal as pegged to the Dollar at 3.75? Urgently needing oil to be at $106 per barrel in order to balance its budget, it is nowhere near seeing such prices again in the presence of a fracking industry as dynamic as it is innovative and which has managed to slightly alleviate its predatory behaviour. This is a warning of a wholesale sandstorm to come for the Wahhabi kingdom.

Michel Santi is a French-Swiss economist, financier, writer, advisor to central banks and sovereign funds. For several years, he was a Professor of Finance in Geneva, Switzerland, a member of the World Economic Forum, the IFRI and a qualified member of the NGO "Finance Watch".

Born in Beirut, Lebanon, he is the son of a French diplomat. He lived in Saudi Arabia, Bahrain, Lebanon, Egypt and Turkey.

[Sep 15, 2015] Common factors in commodity and asset markets

"...OECD oil demand is up 800 kbpd over last year, and I am still trying to find another 300-400 kbpd of refined products in the OECD which have disappeared, statistically speaking. So OECD demand growth could be up as much as 1.1-1.2 mbpd, depending on where those missing barrels end up. No visible weakness in the demand in the OECD. "

Sep 15, 2015 | Econbrowser
Ricardo September 14, 2015 at 5:08 am

Menzie wrote:

"Increases in oil production in the United States and the Middle East were certainly key factors in the huge drop in oil prices over the last year."

Don't you have this backward? Actually, huge drops in oil prices have reduced production. Reductions in production would tend to lower supply and tend to creare higher prices than if the supply did not change.

Understanding this gives us the answer to your second sentence.

"Nevertheless, one can't help but be struck by the fact that the weekly changes in oil prices correlate with dramatic moves in other commodity and financial markets."

We would expect overall commodity prices to drop – especially oil – with an appreciating currency.

Steven Kopits

September 14, 2015 at 9:36 am

Scott Sumner might point out that we are reasoning from price changes.

As I recall, shale oil production has moved the trade deficit by 2% of GDP since 2012. I believe this is not a small adjustment.

The OECD seems to be doing fine. OECD oil demand is up 800 kbpd over last year, and I am still trying to find another 300-400 kbpd of refined products in the OECD which have disappeared, statistically speaking. So OECD demand growth could be up as much as 1.1-1.2 mbpd, depending on where those missing barrels end up. No visible weakness in the demand in the OECD.

The global economy, ex-China and China-derived demand (eg, Brazil, Australia, Indonesia, Canada, Norway, and some other commodity exporters) is doing fine. So if we're talking weakness in the global economy, we're talking about weakness in China. And if we're talking weakness in China, we're talking first and foremost an over-valued yuan. See the second graph ("Rush to Exit") in the article below, and tell me the yuan doesn't need a write-down. And note flight of capital from China corresponds to the collapse of the oil price, the devaluation of other currencies against the dollar (excluding China), and that in turn corresponds to the acceleration of shale oil production in Q3 2014.

One could argue that China collapsed just as shale oil production was accelerating, but that seems a bit too coincidental.

http://www.bloomberg.com/news/articles/2015-09-11/these-four-charts-show-how-obama-s-leverage-over-xi-is-increasing

I have written an analysis of the impact of shale oil production on the US trade deficit, and by implication, the dollar exchange rate.
Find it here: http://www.prienga.com/blog/2015/9/15/impact-of-shales-on-the-us-trade-deficit

[Sep 15, 2015]A Fiscal Policy Rule for Oil Exporters

"...On the high side, oil spend equaling 5% of GDP implies 'stagflation', 'secular stagnation' or outright recession in the advanced oil importing countries....Today, 5% of GDP equals about $110 / barrel"
.
"... Indeed, surplus capacity is probably not more than 1-2% (1-2 mbpd) of oil consumption, a level which would ordinarily be considered critically low."
.
"...At current prices, many shale operators are facing bankruptcy, the oil majors are liquidating themselves, and OPEC governments are suffering for a lack of revenues. The situation looks untenable for producers."
.
"... For now, let it suffice to say that maintaining current oil prices depends intrinsically on weakness in China, not on the ability of oil producers to flood the market at $50 / barrel Brent."

Princeton Energy Advisors

... ... ...

Oil is the life-blood of the global economy, and therefore GDP and oil prices tend to be related. Therefore, it seems appropriate to use a model is based on global spend on crude oil as a percent of world GDP. If oil prices are too low, supply will falter, the global economy will sooner or later become starved of oil, and prices will rise. On the other hand, if prices are too high, then the consumer economies will stagnate, new oil production will come on line, and oil prices will decline.

On the high side, oil spend equaling 5% of GDP implies 'stagflation', 'secular stagnation' or outright recession in the advanced oil importing countries. Oil prices are not sustainable at that level without ascribing to some variation of peak oil. Today, 5% of GDP equals about $110 / barrel. That's a very high price historically, and not suitable for fiscal planning purposes given current realities.

... ... ...

I would add that our expectations depend heavily on the experience after 1986, when oil prices last collapsed in such great magnitude. At the time, a period of extended low prices was readily foreseeable. High oil prices had been maintained by progressive OPEC production cuts, which in turn created global spare capacity equaling 13 mbpd, or 25% of global consumption. This enormous surplus required almost 20 years to clear-two decades known as The Great Moderation. However, there is no such surplus today. Indeed, surplus capacity is probably not more than 1-2% (1-2 mbpd) of oil consumption, a level which would ordinarily be considered critically low.

... ... ...

If one allows the 1986 precedent, then fiscal policy should be set assuming oil prices will equate to 2.3% of GDP, as they did from 1986 to 1990. In dollar terms, that would imply a spot Brent oil price of $50 / barrel today, rising to $60 / barrel in 2020. As Brent currently hovers around $48 / barrel, the sustainable price would appear to be above the current price.

On the supply side, maintaining such low prices looks quite a challenge. At current prices, many shale operators are facing bankruptcy, the oil majors are liquidating themselves, and OPEC governments are suffering for a lack of revenues. The situation looks untenable for producers.

To maintain low prices, China would have to suffer a recession--GDP growth of 2% or less -- thereby pushing its neighbors into outright recession. The script would follow the Asian financial crisis of 1998. At the time, oil spend fell to 1.1% of global GDP, equal to $25 / barrel into today's terms. Of course, assessing China's outlook is a complicated matter. For now, let it suffice to say that maintaining current oil prices depends intrinsically on weakness in China, not on the ability of oil producers to flood the market at $50 / barrel Brent.

Those oil exporters who believe that oil is not a shortage commodity should plan for sustainable prices over the next five years at 2.3% of GDP, approximately $50-60 / barrel on a Brent basis. For those who believe that China still has a future, and that oil is still hard to find, well, your analysis will be more complicated.

[Sep 14, 2015] Jeffrey Brown To Understand The Oil Story, You Need To Understand Exports

It's amazing that several trillion dollar was spend in exploration and oil recovery for the last several years. That suggests low EROEI.. Earth does not contain unlimited amount of cheaply extractable oil. Opposite is true ("peak cheap oil"). "Real oil" became more and more scars, but production of oil substitutes greatly increased as side effect of national gas exploration.

The closer you follow MSM on oil, the more you are misled. Not all oil is created equal. condensate that account for most production increase (as a byproduct of national gas extraction).

"Real" crude oil extraction did not increased since 2005. Shift to other oil substitutes by-and-large accounts for increase in oil production in stars reports.

In you production if flat or falling or your internal consumption is rising them you export less and less. Net export for several current oil exporting countries can go zero in just nine years. Saudi Arabia probably already shipped 50% of oil they can ever export. And their internal consumption is increasing rapidly due to population growth. Unless they cut their internal consumption they can export less and less.

Sep 14, 2015 | Zero Hedge

Submitted by Adam Taggart via PeakProsperity.com,

Despite the attention-grabbing economic volatility that is dominating headlines, it's important to keep our eye on the energy story firmly in focus. This is especially true as the headlines we regularly read about Peak Oil being dead " are "manifestly false" according to this week's podcast guest, petroleum geologist Jeffrey Brown.

As concerning as the fact that global oil production has plateaued over the past decade, despite trillions invested in trying to goose it higher, are Brown's forecasting model for oil exports. His Export Land Model shows how rising internal consumption can swing (and has swung) countries from major exporters to permanent importers within a dizzyingly short period of time:

The crucial issue to understand about what has happened after 2005 is that we've had a very large increase in global gas production and natural gas liquids, but a much slower increase in crude plus condensate.

So, what I think has happened is the actual crude oil production has basically flatlined while the liquids associated with natural gas production, condensate and natural gas liquids, have continued to increase. So, we ask for the price of oil, we get the price of Brent or WTI; but when you ask for the volume of oil, you get some combination of crude, condensate, natural gas liquids, biofuels. So, the fact is that substitution has worked and is working in that they're bringing on alternative substitutes, but they're only partial substitutes. The actual, physical volume of crude oil production has probably been flat to down since 2005. Over the past ten years, it has taken us trillions of dollars, basically, to keep us on an undulating plateau in actual crude oil production. What happens going forward?

So, basically, the conventional wisdom is the fact that we've seen an increase in liquids production, seems there's no evidence of the peak in sight. And, I think in regard to crude oil production, that argument is manifestly false. I think that we've probably seen a peak in actual crude oil production, 45 and lower API gravities, despite trillions of dollars of upstream capex expenditures.

I started wondering in late 2005 what happens to oil exports from an exporting country, given a production decline and rising consumption. And, so I just started, I just constructed a simple little model. I assumed a production of about two million barrels a day or so at peak, consumption of one, and assumed production falls about 5% per year, basically what the North Sea did, and assumed consumption increases to 2.5% per year. What the model showed was that exports, net exports would go to zero in only nine years, even though a roughly modest production decline. So, the easy way to state it is giving an ongoing, inevitable decline in production, unless an exporting country cuts their domestic oil consumption at the same rate as the rate of decline in production, or at a faster rate, it's a mathematical certainty that the net export decline rate, what they actually ship out to consumers will exceed the rate of decline in production. And, furthermore, it accelerates.

Click the play button below to listen to Chris' interview with Jeffrey Brown (43m:48s)

https://www.youtube.com/watch?feature=player_embedded&v=2evwXpejl_M

buzzsaw99

...despite trillions of dollars of upstream capex expenditures.

Trillions?

SHRAGS

See this talk by Stephen Kopits, yes, trillions
http://energypolicy.columbia.edu/events-calendar/global-oil-market-forec...

Uncletommy

Export what you can make money on Great examination of the variables in the oil business. Funny that a graph on Canadian exports wasn't included in this analysis. Watching the performance on the Canadian crud (oops, I mean't crude) stocks tumble, his analysis hits the nail on the head. Canadian heavy crude producers are facing huge discounts and they have had to use the condensate to blend heavier sources just pipe it to market.

And if it doesn't hit the refiner's specs, it is either rejected or priced even lower, as Mr Brown points out. The CAPEX on these Alberta sources has been cut way back and they are only shipping existing heavy crude and conventional production just to keep the lights on. Layoffs in western Canada haven't been this high in a long time. I wonder why?

The interesting thing I see is that the major refiners in the US are making comfortable margins on finished products that most of the exporting countries are importing. Has your gasoline dropped as much as the price of crude? Doubt it.

I'm not saying the refiners are having a cakewalk, but low priced base products certainly don't hurt. Bottom line - the good stuff is getting scarce. The 7 billion of us will soon be 9 billion. Just one more affirmation of PP's message. Great discussion and another good slant on the topic. Keep up the good work, Chris.

Export Numbers

To understand the oil story we need to understand exports. Well I listened to the podcast twice and I am shocked and confused. It sounds to me like the Bobble Heads in charge aren't on top of the export data or are minimizing, obfuscating or ignoring the information. Isn't this information and data that should be shouted from the roof-tops?

The Bobble Heads said the Titanic was UNSINKABLE, oops wrong. Now it's we are awash in petroleum, don't worry be happy. Soon it's oops, wrong again ..... really?

And people are using "implied numbers" or the "available data" this tells me there is some room for error. This wasn't an - "ah ha" podcast this was a Holy Shit podcast.

Looking forward to others feed back.

AKGrannyWGrit

[Sep 14, 2015] A Flock Of Black Swans

Sep 14, 2015 | Zero Hedge
Submitted by Jeff Thomas via InternationalMan.com,
"What Will the Fatal Trigger Be?"

Here's a brief list of possible triggers:

Creditors dump US debt back into the US market

Commodity prices spike

A crash occurs in the stock or bond market

A backlash occurs from countries sanctioned by the US

European countries default on their debt

The US dollar ends as the petrocurrency (causing a sale in US treasuries)

The US or EU introduce significant tariffs, diminishing world trade

Interest rates rise, as they did in 1929

The paper gold market crashes, when the shortage of physical gold is revealed

Banks freeze or confiscate deposits

FATCA accelerates the demise of the US dollar as the default currency

A credit collapse occurs (followed by dramatic inflation or hyperinflation)

Any of the above is capable of triggering a collapse (and, as stated, this is not by any means an exhaustive list). Therefore, it would be wise to keep an eye out for indicators that one of them may occur. Any one of them that appears to be nearing the point of becoming a reality would suggest that the tipping point may occur soon.
"How Will I Know in Advance?"
Whatever advance warning you may have will be based on how closely you're following the indicators that any of the possible triggers may be nearing fruition. Some, like the overbought stock market or the rise in commodity prices could kick in at any time.

Others, such as a bank freeze on deposits, or the collapse of the ETF market in gold, could happen quite suddenly and without any warning at all.

In discussing the above condition with investors, they often say, "Well, if it's inevitable and I can't time the event, there's no use thinking about it. We're all going to go down with the ship, so why bother?"

Quite frankly, I'm astonished that so many investors are so complacent that they're prepared to shrug their shoulders and accept their own economic demise, yet this assumption is very common.

The enemy is not the coming events; the enemy is complacency toward those events.

The investor therefore has two viable choices: to either get blindsided by events and become an economic casualty, or be prepared (as much as possible) for the crashes, regardless of what the trigger might turn out to be.

[Sep 14, 2015] Conceptual pitfalls and monetary policy errors VOX, CEPR's Policy Portal by Andrew Levin

September 11, 2015 | voxeu.org

The conventional unemployment rate (U3) is now close to assessments of its longer-run normal level, but other dimensions of labour market slack remain elevated:

U3 does not reflect the incidence of hidden unemployment, namely, about 2½ million Americans who are not actively searching for work but are likely to rejoin the labour force as the economy strengthens; and

U3 does not incorporate the extent of underemployment (individuals working part-time who are unable to find a full-time job), which remains significantly higher than its pre-recession level.

Thus, the 'true' unemployment rate – including hidden unemployment and underemployment –currently stands at around 7¼%, and the total magnitude of the US employment gap is equivalent to around 3½ million full-time jobs.

Non-farm payrolls have been expanding at a solid pace, but that pace will need to be maintained for about two more years in order to close the employment gap.

In particular, recent analysis indicates that the potential labour force is expanding by about 50,000 individuals per month due to demographic factors. Thus, if non-farm payrolls continue rising steadily by about 200,000 jobs per month (the average pace over the past six months), then the employment gap will diminish next year and be eliminated in mid-2017. By contrast, a tightening of monetary conditions would cause the economic recovery to decelerate and the pace of payroll growth might well drop below 100,000 jobs per month, in which case the employment gap would barely shrink at all.

The contours of the inflation outlook

The FOMC has established an inflation goal of 2%, as measured by the personal consumption expenditures (PCE) price index. Its recent communications have stated that the tightening process will commence once the FOMC is "reasonably confident" that inflation will move back to the 2% objective over the medium term.

It seems unwise for such a crucial policy decision to place so much weight on the FOMC's inflation outlook and little or no weight on the observed path of wages and prices.

FOMC participants' inflation forecasts over the past few years have proven to be persistently overoptimistic (see Figure 1).

Figure 1. The recent evolution of core PCE inflation

Note: In this figure, the core PCE inflation rate is given by the four-quarter average change in the PCE price index excluding food and energy, and the FOMC's outlook is given by the midpoint of the central tendency of core PCE inflation projections, as published in the FOMC Summary of Economic Projections (SEP) at each specified date.

For example, in early 2013, when core PCE inflation was running at about 1½%, FOMC participants generally anticipated that it would rise to nearly 2% over the course of 2014 and 2015, whereas in fact it has declined to around 1.2%. Indeed, its underlying trend has been drifting steadily downward since the onset of the last recession.

Despite some recent suggestions to the contrary, there is a strong empirical linkage between the growth of nominal wages and the level of the employment gap.

Moreover, as shown in my recent joint work with Danny Blanchflower, the wage curve exhibits some flattening at high levels of labour market slack, which explains why nominal wage growth has remained subdued over the past few years even as the employment gap has declined from its post-recession peak (see Figure 2). This empirical pattern also implies that the pace of nominal wage growth is likely to pick up somewhat over coming quarters as the employment gap declines further.

Figure 2. The wage curve

Note: In this figure, each dot denotes the pace of nominal wage growth (as measured by the 12-month change in the average hourly earnings of production and non-supervisory workers) and the average level of the employment gap (including hidden unemployment and underemployment) for each calendar year from 1985 to 2014 and for August 2015 (the latest BLS employment report).

Gauging the stance of monetary policy

Fed officials have recently characterised the current stance of monetary policy as "extremely accommodative." Such characterisations may be helpful in motivating the onset of "policy normalisation" but seem inconsistent with professional forecasters' assessments of the equilibrium real interest rate and with the implications of simple benchmark rules.

The distance between the current federal funds rate and its longer-run normal level depends crucially on the magnitude of the equilibrium real interest rate.

Most FOMC participants have projected the longer-run normal rate to be about 3¾%, consistent with an equilibrium real rate only slightly lower than its historical average of about 2%.

Over the past few years professional forecasters have made substantial downward revisions to their assessments of the 'new normal' level of interest rates.

Surveys conducted by the Philadelphia Fed indicate that professional forecasters expect short-term nominal interest rates to be around 2¾% in 2018 and to remain at that level on average over the next ten years, corresponding to an equilibrium real interest rate of only ¾%.

Such revisions presumably reflect the downgrading of the outlook for potential output growth as well as prospects for headwinds to aggregate demand persisting well into the future.

If professional forecasters' assessments are roughly correct, then the current funds rate is by no means extremely accommodative.

In June 2012, then-Vice Chair Yellen noted that "simple rules provide a useful starting point for determining appropriate policy" while emphasising that such rules cannot be followed mechanically. That speech considered the Taylor (1993) rule along with an alternative rule analysed by Taylor (1999) that Yellen described as "more consistent with the FOMC's commitment to follow a balanced approach." Thus, it is instructive to evaluate each of these simple rules using the current core PCE inflation rate (which is 1.2%), the CBO's current assessment of the output gap (3.1%), and professional forecasters' consensus estimate of the equilibrium real interest rate (r* = 0.75).

Using these values, the Taylor rule prescribes a funds rate of 0.1%, exactly in line with the FOMC's current target range of 0 to 0.25%; and

The Taylor (1999) rule prescribes a funds rate well below zero (-1.4%).

Neither of these two benchmarks calls for a tighter stance of policy. Indeed, the 'balanced approach' rule preferred by Yellen (2012) indicates that macroeconomic conditions will not warrant the initiation of monetary policy tightening until sometime next year.

Assessing the balance of risks

Over the past 18 months, FOMC statements have regularly characterised the balance of risks to the economic outlook as "nearly balanced." Of course, that assessment has recently come into question due to a bout of financial market volatility in conjunction with shifting prospects for major foreign economies (most notably China).

Regardless of how financial markets may evolve in the near term, however, it seems clear that the balance of risks remains far from symmetric. If the US economy were to encounter a severe adverse shock within the next few years (whether economic, financial, or geopolitical in nature), would the FOMC have sufficient capacity to mitigate the negative consequences for economic activity and stem a downward drift of inflation?

For example, if safe-haven flows caused a steep drop in Treasury yields along with a sharp widening of risk spreads, would a new round of QE still be feasible or effective? Alternatively, would the Federal Reserve implement measures to push short-term nominal rates below zero, as some other central banks have done recently?

In the absence of satisfactory answers to such questions, it is essential for the FOMC to maintain a highly accommodative stance of monetary policy as long as needed to ensure that labour market slack is fully eliminated and that inflation moves back upward to its 2% goal. Such a strategy will help strengthen the resilience of the US economy in facing any adverse shocks that may lie ahead.

Concluding remarks

The FOMC's near-term strategy has become so opaque that even the most seasoned analysts can only guess what policy decisions may be forthcoming at its upcoming meetings. Moreover, the FOMC has provided no information at all (apart from the phrase "likely to be gradual") about how its policy stance will be adjusted over time in response to evolving macroeconomic conditions.

Unfortunately, such opacity is likely to exacerbate economic and financial uncertainty and hinder the effectiveness of monetary policy in fostering the goals of maximum employment and price stability. Therefore, it is imperative for the FOMC to formulate a systematic monetary policy strategy and to explain that strategy clearly in its public communications.

References

Blanchflower, D G and A T Levin (2015), "Labor Market Slack and Monetary Policy," NBER Working Paper No. 21094.

Federal Reserve (2015), "Minutes of the Federal Open Market Committee", 28-29 July 28-29.

Taylor, J B (1993), "Discretion Versus Policy Rules in Practice", Carnegie-Rochester Series on Public Policy 39, pp. 195-214 (also released as SIEPR Publication No. 327, November 1992).

Taylor, J B (1999), "An Historical Analysis of Monetary Policy Rules", in J. B. Taylor (ed.), Monetary Policy Rules, Chicago, IL: University of Chicago Press

Yellen, J L (2012), "Perspectives on Monetary Policy", speech at the Boston Economic Club Dinner, Boston, MA, 6 June.

[Sep 14, 2015] The Intellectual History of the Minimum Wage and Overtime

This is the conclusion to "The intellectual history of the minimum wage and overtime," by Oya Aktas:

...The intellectual history of maximum hours and minimum wages is a story of debates over which groups should be protected from exploitation and what form this protection should take. Concerns over women's health, ambivalence toward African American rights, and advocating for unorganized workers dominated the debate at different points. As social views changed, so did economic policies. Today, women account for two-thirds of minimum wage earners and people of color account for two-fifths. Studying the history of the minimum wage should compel policymakers to question how social priorities influence different groups, who is considered worthy of protection, and to what extent their welfare is considered. By implementing effective maximum hour and minimum wage regulations, policymakers can protect vulnerable workers' standard of living to encourage productivity, push companies to increase their efficiency, and consequently cultivate long-term equitable growth.

Lafayette said...

{By implementing effective maximum hour and minimum wage regulations, policymakers can protect vulnerable workers' standard of living to encourage productivity, push companies to increase their efficiency, and consequently cultivate long-term equitable growth.}
As much as the above is all-goodness, it is also a lot to swallow, and the author does little to justify the results purported.
Still, a $15/hour minimum wage is long overdue.
No doubt, at $30K per year, the minimum-wage salary will pull a lot of people out from below the Poverty Threshold. If you are a two- or three-children (under 18) family, then that threshold is $24K* a year. So, definitely, there is goodness in raising the amount to 30K per annum.
But, let's face it - that amount is not going to get a child through Tertiary Education even at a state school. So, I submit, yet again, that as secondary-education was made public-provided in the last century, it is our duty in this one to make tertiary-education the same.
(If Madam Europa can do it, so can Uncle Sam!)
In this manner, and only this way, we help guaranty that future generations the skills/competencies that will obtain them a decent salary in a decent job - and we'll not need subvent their UI ...
*https://www.census.gov/hhes/www/poverty/data/threshld/

Denis Drew said in reply to Lafayette...

Lafayette, update: the official federal poverty line is based on 3X the price of an emergency diet (dried beans only; no expensive canned). Unless you are using a slightly updated version which gives a number about 25% higher -- no idea what it's based on.

My 2001 version of the MS. Foundation book Raise the Floor gives a minutely worked out minimum needs line of $51,046 for a family of two adults and two children if they have to pay for their own medical insurance(you have to adjust for 1999 dollars -- I don't know how you will adjust for expanded 2015 medical premiums.
http://data.bls.gov/cgi-bin/cpicalc.pl?cost1=35637&year1=1999&year2=2015
http://www.amazon.com/Raise-Floor-Wages-Policies-That/dp/0896086836/ref=sr_1_1?s=books&ie=UTF8&qid=1441978735&sr=1-1&keywords=raise+the+floor

My shortcut: $11,000 med insurance (w/deductibles -- Brill, p. 346) + $4,000 FICA on $50,000 income + $15,000 rent and utilities -- and you haven't even put the dried beans in the water to soak overnight.

MS. calculations and Census family (of 3.3) income tables would put true poverty line at 37% if all families had to pay their own med insur -- 18% if none had to pay insu. Figure the real line at about 30% (in 2001 -- probably worse now).

cm said in reply to Lafayette...

Recently in a local retail store I overheard part of a conversation between an apparently new employee (a guy over 50 by the looks of him BTW) and somebody who looked like an HR or office person, that seemed to be about how many "hours" the former would get and on what the number of hours would depend.
One cannot just jump to the conclusion that everybody necessarily works 2000 (paid) hours.

cm said in reply to Lafayette...

Nobody bitched and moaned, I don't know whether the guy had complained or whether this was his on-the-floor new employee orientation.
Have you been a union member when you worked in IT in the US and then France? If not, why are you berating others for not unionizing?
And as your union example shows, a union is of limited help when the employer has other options. In this case moving to another jurisdiction. That seems to be a common reason why as Denis Drew says municipalities and states are soft pedaling labor law - they are in competition with each other also for "job creators". In fact they are *paying* for companies to come to their jurisdiction and "create jobs", e.g. "helping" with office construction, tax breaks and other financial subsidies, "fast tracking" permits and project reviews, etc.

reason said...

1. Ban unpaid overtime - should not be allowed full stop (although transferable hours are in the interests of both parties) - it amounts to theft. Overtime defined based on a
2. A basic income (prefer to call it national dividend) is superior to a minimum wage for reducing exploitation in every way (and enforcement is simpler).

DrDick said in reply to reason...

No, it is not, since that constitutes a federal subsidy for the employer. A high minimum wage and basic income for those who cannot find full time work is the way to go here. We need to remember that the minimum wage was, explicitly, intended to be enough for a family to live modestly, but comfortably on.
Roosevelt said at the time:
"It seems to me to be equally plain that no business which depends for existence on paying less than living wages to its workers has any right to continue in this country. By "business" I mean the whole of commerce as well as the whole of industry; by workers I mean all workers, the white collar class as well as the men in overalls; and by living wages I mean more than a bare subsistence level-I mean the wages of decent living."
http://docs.fdrlibrary.marist.edu/odnirast.html

[Sep 13, 2015] Heart of Gold

"... There will be quite a bit more economic data released next week compared to this holiday shortened trading week we have just seen. The big event will be the FOMC rate decision on Thursday the 17th. This has become more of a psychological issue than a substantial policy action. 25 basis points will not be making or breaking anything, but it does signal a 'change' in the long period of easy money, policy errors, and financial bubbles which we have seen since the big bailouts of the one percent and Wall Street since 2008."

"...The financial system is sick, and incapable of repairing or reforming itself. The problem is that it has also badly infected the political and professional classes."

Can you believe that this was over seven years ago, and here we still are, muddling along?

"Capable of giving alms, perhaps, but incapable of stripping themselves bare, the comfortable will be moved to the sound of beautiful music, at the thought of Jesus's sufferings, but His Cross, the reality of His Cross, will horrify them.
They want it all out of gold, bathed in light, costly and of little weight; pleasant to see, and hanging from a beautiful woman's throat."
Léon Bloy

"Beware the leaven of the Pharisees, which is hollow hypocrisy. There is nothing covered that shall not be revealed, and hidden, that shall not be made known. Whatever has been said in the darkness shall be heard in the light: and what has been whispered behind closed doors shall be shouted from the roof tops."
Luke 12:1-3

There will be quite a bit more economic data released next week compared to this holiday shortened trading week we have just seen.
The big event will be the FOMC rate decision on Thursday the 17th.
This has become more of a psychological issue than a substantial policy action. 25 basis points will not be making or breaking anything, but it does signal a 'change' in the long period of easy money, policy errors, and financial bubbles which we have seen since the big bailouts of the one percent and Wall Street since 2008.
Can you believe that this was over seven years ago, and here we still are, muddling along?

... ... ...

The financial system is sick, and incapable of repairing or reforming itself. The problem is that it has also badly infected the political and professional classes.
These things happen from time to time. It seems almost common when one glosses over history, ignoring the dull periods of honest families and their progress, skipping along from crisis to cataclysm, most often fomented by the folly of proud and selfish men.
Please remember the poor, and those who have no one to care for them.
People can too often fall in love with an almost paganistic fascination with the words, the ritual, the glamour and the shine of the outward trappings and the gleam of the gold on their altars. But in their misapprehension they do not want anything to do with the message which they can for a time ignore, but without which what they do has no meaning, no significance, no substance, nothing. Without love it is all just a vanity. This is 'the leaven of the Pharisees,' which is hypocrisy.

... ... ...

[Sep 13, 2015] A Major Bank Just Made Global Financial Meltdown Its Base Case The Worst The World Has Ever Seen

"...China is building islands in the SCS as a shot at Japan; Japanese brokerage takes a shot at China's economy. Shots fired. But, not saying they're wrong."

"...Yet another instance of a person or entity that is fucking causing this meltdown with their fraud and theft suddenly warning about it. Just like that brit douche bag, just like greenspan, and now this. Just trying to protect themselves when the disaster they have wrought comes unglued, so they can say something along the lines of "it wasn't me, I was trying to warn you this would happen, remember?""

"...This is very obviously preemptive damage control. This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart."

"...The meltdown is coming and well known to the elites ... thus we have more war intensity in the MENA areas. The West classically uses war as a tool to fight depressions. Now is no exception.

Of course the politicans and business leaders want not only war but massive flooding of refugees so they can justify stealing taxpayer money to build houses for them [and line their pockets at the same time] ... using "humantitarian" purposes as the ruse."

"...The Western Oligarchs want to keep China, Russia and other emerging economies in their place. They control capital flows AT ALL COSTS "

Sep 13, 2015 | Zero Hedge

One bank that is now less than optimistic that China can escape a total economic meltdown is the Daiwa Institute of Research, a think tank owned by Daiwa Securities Group, the second largest brokerage in Japan after Nomura.
Actually, scratch that: Daiwa is downright apocalyptic.
In a report released on Friday titled "What Will Happen if China's Economic Bubble Bursts", Daiwa - among other things - looks at this pernicious relationship between debt (and thus "growth") and China's capital stock. This is what it says:

The sense of surplus in China's supply capacity has been indicated previously. This produces the risk of a large-scale capital stock adjustment occurring in the future.

Chart 6 shows long-term change in China's capital coefficient (= real capital stock / real GDP). This chart indicates that China's policies for handling the aftermath of the financial crisis of 2008 led to the carrying out of large-scale capital investment, and we see that in recent years, the capital coefficient has been on the rise. Recently, the coefficient has moved further upwards on the chart, diverging markedly from the trend of the past twenty years. It appears that the sense of overcapacity is increasing.

Using the rate of divergence from past trends in the capital coefficient, we can calculate the amount of surplus in real capital stock. This shows us that as of the year 2013, China held a surplus of 19.4 trillion yuan in capital stock (about 12% of real capital stock).

Since China is a socialist market economy, they could delay having to deal directly with the problem of capital stock surplus for 1-2 years through fiscal and financial policy. However, there is serious risk of a large-scale capital stock adjustment occurring in the mid to long-term (around 3-5 years).

Daiwa then attempts to calculate what the magnitude of the collapse of China's economic bubble would be. Its conclusions:

Even in an optimum scenario China's economic growth rate would fall to around zero
We take a quantitative look at the potential magnitude of the collapse of China's economic bubble to ensure that we can get a good grasp of the future risk scenario. If a surplus capital stock adjustment were to actually occur, what is the risk for China and how far would its economy fall?

Chart 7 shows a factor analysis of China's potential growth rate. The data here suggests that (1) China's economy has gradually matured in recent years, and this has slowed progress in technological advancement, (2) Despite this fact, it has continued to depend on the accumulation of capital mainly from public spending to maintain a high economic growth rate, and (3) As a result, this has done more harm than good to technological advancement. Between the years 2012-15 China's economy declined, yet still was able to maintain a high growth rate of over 7%.

However, 5%pt of the growth rate was due to the increase in capital stock. Labor input and total factor productivity contributed only 2%pt.

The major decline in the rate of contribution from total factor productivity is especially noteworthy, as it had maintained an annualized rate of 5% for thirty years straight since the introduction of the reform and opening-up policy and on through the era of rapid globalization.

According to a DIR simulation, if a capital stock adjustment were to occur under such circumstances, China's potential growth rate would fall to around 4% at best. This adjustment process is shown in the bottom left Chart 7. As far as can be determined from the capital stock circulation diagram, capital spending at the level seen in 2014 should not have been allowable without an expected growth rate of over 10%. Hence if adjustment progresses to the point where the potential growth rate is only 4%, the situation for capital spending will continue to be harsh.

If the adjustment process lasts from the year 2016 to 2020, capital spending will likely continue in negative numbers on a y/y basis. If this scenario becomes a reality, the real economic growth rate will hover at around zero as is shown in the lower right portion of Chart 7.

... ... ....

The stunning punchline:

"Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario. The point at which the capital stock adjustment is expected to hit bottom is at a much lower point than in the previously discussed capital stock adjustment scenario (see Chart 8). As shown in the bottom right portion of this chart, the actual economic growth rate will continue to register considerably negative performance. If China's economy, the second largest in the world, twice the size of Japan's, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."

greenskeeper -> carl

Yet another instance of a person or entity that is fucking causing this meltdown with their fraud and theft suddenly warning about it. Just like that brit douche bag, just like greenspan, and now this. Just trying to protect themselves when the disaster they have wrought comes unglued, so they can say something along the lines of "it wasn't me, I was trying to warn you this would happen, remember?"

FinalEvent

Not only warn, but blame it on china as well.

chunga

I'm curious how the squid will profit by making it all worse.

A Lunatic

I guess the same way they have always profited from death and hell and misery...

THX 1178

This is very obviously preemptive damage control. This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart.

CheapBastard

The meltdown is coming and well known to the elites ... thus we have more war intensity in the MENA areas. The West classically uses war as a tool to fight depressions. Now is no exception.

Of course the politicans and business leaders want not only war but massive flooding of refugees so they can justify stealing taxpayer money to build houses for them [and line their pockets at the same time] ... using "humantitarian" purposes as the ruse.

jeff montanye

the report cited early above, by mckinsey, is quite interesting; it can in its entirety here http://www.mckinsey.com/insights/economic_studies/debt_and_not_much_dele...
to me, there are some internal inconsistencies: e.g. sometimes financial debt is included in the ratios, sometimes not. in any case there are many more-leveraged countries than china, the u.s, and south korea: japan and much of europe for instance.

CheapBastard

Good read. Lax lending standards are rampant again and I am not sure they ever tightened much, esp in places like the usa where lenders know they will get bailed out. it also sounds as if we are going to have brutal deflation before any serious inflation due to austerity, defaults, etc.

Arnold

Lax lendig is social policy in the US.

ThroxxOfVron

"This bank knows the crash is coming and is announcing that it is china's fault before they get dragged out into the street and killed. Very very smart. "

China's fault, huh? All by themselves?
Somehow I think that the globalists and banksters that made billions if not trillions on this misadventure might be as much to blame as the Party Poobahs that welcomed the chance to farm the peasants out and pave the whole country over in 30 short years...
I say we drag them ALL, Party/Politcal hacks, Globalist Feudalist, Banksters, THE LOT: out into the street anyway.
As the Cultural Revolution proved all too well: 'cleaning the slate' is 'morally acceptable' to 'civilization' in both the East and the West.

Groundhog Day

the only solution for the banksters (and elites) is to cause a major economic meltdown, where rich (small business owners, doctors, lawyers) and poor people are starving to death for a long time. This way they won't really care about the trillions lost but will only be concerned about thier next meal. same as it ever was throughout history. Then the elite can come in and start the game all over again with new rules and clean hands

yogibear

Being on the right side of the trade. Since Goldman knows first hand which way the Fed is blowing it knows how to set itself up.
William Dudley is a former Goldman boy. Goldman will be the first to know.

TeethVillage88s

A Goldman Boy!! How can the EU, Russia, China, and vassal states like the PIIGS not fight back?
- Well there were a few and still are a few rebels, but you have to search your soul about supporting their ideas:
1) PIIGS
2) Venezuela
3) Argentina
4) Brazil
5) Russia
6) China
7) India
8) South Africa
9) Indonesia
10) Cuba
(BRIICS)
Who gets a pass on Global Principals and their participation in Global Events:
1) Belgium
2) Luxembourg
3) Nederland
4) United Kingdom (and Vassal States)
5) France
6) Germany
7) Switzerland
8) Asian Tigers (Singapore, Hong Kong, Indonesia, Malaysia, Thailand, Vietnam, Burma)
9) Australia, New Zealand, Canada
Are there other Alternative Societies or Constructs?
A) Off Shore Structures in the Sea
B) Vessels that declare sovereignty
C) Regions or Places declared communes or under the command of a Captain of the Sea
D) Islands or Arctic Areas with no permanent settlements
**If the USA reclaims it's US Constitution and forces the 3 Branches of Federal Government to comply then the USA could be born again

ZippyDooDah

China is building islands in the SCS as a shot at Japan; Japanese brokerage takes a shot at China's economy. Shots fired. But, not saying they're wrong.

JRobby
Chicken Little? No, I think not. The people that have profited most by creating the scenario for collapse now calling for it is what is to be expected.
The Western Oligarchs want to keep China, Russia and other emerging economies in their place. They control capital flows AT ALL COSTS
Radical Marijuana

Superficially correct, Supernova Born, but actually WAY WORSE, because all of that "money" made out of nothing was being used to strip-mine the natural resources of the planet.

Visualizing China's Mind-Boggling Consumption Of The World's Raw Materials

China jumped in the deep end with both feet, when it decided to imitate and out-do the Western systems based on fundamentally fraudulent financial accounting, and therefore, created something about three times more "money" out of nothing as debts. The Chinese economy deliberately adopted those systems, and therefore, what we thought of as their economic systems was more like ENFORCED FRAUDS ON STEROIDS.

The ways that most people think about "economics" are as absurdly backwards as possible, because those ways of thinking tend to take completely for granted that the public "money" supplies are being made out of nothing, as debts, while then that "money" does NOT actually "pay" for anything, but rather, is the expression of ENFORCED FRAUDS, where having been able to ENFORCE FRAUDS never stopped those FRAUDS BEING FALSE.

Sure, it appears that "Nobody but the house wins in a rigged casino." However, that casino is way more profoundly rigged, to the degree to which nobody wins. The world's political economy is based upon governments ENFORCING FRAUDS by privately controlled banks. Since China could not beat them, China decided to join them, and indeed, create flabbergastingly more "money" out of nothing than the previous "leaders" in those areas had ever done!

As the saying goes:

"I do not know who discovered water, but is was not fish."

For generation after generation, almost everyone has been used to living inside of a political economy based upon ENFORCING FRAUDS. That drove almost everyone to develop attitudes which deliberately ignored the principle of the conservation of energy as much as possible, while also deliberately misunderstanding the concept of entropy in the most absurdly backward ways possible. The ways that people think about economic activities could not be more absurdly backwards, because they could not be more based on ENFORCING FRAUDS than they already are, which is pretty well more than 99%, which is matched by the ratios between physical realities versus financial frauds, being about 1 to 100, while automatically still getting worse, since the political economy is still based upon governments ENFORCING FRAUDS by privately controlled banks.

While it may well appear that those privately controlled banks are "winning" fantastically, inside of the casinos that they have rigged, that perception is relatively superficial, because their fundamentally fraudulent financial accounting systems were simultaneously based upon deliberately ignoring the laws of nature as much as possible, both by building everything on the basis of strip-mining, as well as discounting the consequences of doing that as much as possible.

The appearance of those who rigged the casinos "winning" ONLY exists within the fundamentally fraudulent accounting systems that operated through those rigged casinos, which became based on governments ENFORCING FRAUDS by privately controlled banks. The intense paradoxes of social systems based on ENFORCING FRAUDS is that the more successful they become, the more they get locked into vicious spirals of psychosis. Those who appear to be "winning" inside of their rigged casinos are actually playing while they are burning that casino down.

By and large, it is practically impossible for most people to go through the cognitive dissonance it would take for them to come to terms with the degree to which everything "economic" was built on the basis of being able to ENFORCE FRAUDS. While it is theoretically possible to do that, by developing the intellectual scientific revolutions necessary to approach understanding human being and civilization as entropic pumps of environmental energy flows, it is politically impossible to do that, since one has to go through profound paradigm shifts, in order to comprehend how and why everything became based upon ENFORCING FRAUDS, and that China decides to embrace that kind of political economy, and do it more than anyone else had previously done.

There are intense paradoxes, in the form of consistent contradictions, which arise from better understanding how and why civilization actually operates according to the principles and methods of organized crime. On a superficial level, it may well appear that those who rigged their casinos were the only ones "winning." However, on deeper levels, they were also lying to themselves, because those systems which privatized the profits, while socializing the losses, were based upon being able to deliberately ignore that those socialized losses were accumulating to become greater than the privatized profits.

As stated in the recent article, A Major Bank Just Made Global Financial "Meltdown" Its Base Case: "The Worst The World Has Ever Seen"

"Of all the possible risk scenarios the meltdown scenario is, realistically speaking, the most likely to occur. It is actually a more realistic outcome than the capital stock adjustment scenario. If China's economy, the second largest in the world, twice the size of Japan's, were to lapse into a meltdown situation such as this one, the effect would more than likely send the world economy into a tailspin. Its impact could be the worst the world has ever seen."

Since everything the globalized political economy has been doing was based upon ENFORCING FRAUDS, and China enthusiastically jumped on that bandwagon, the basic problems regarding having done that were almost totally globalized. Since the world is run by people who degree of social successfulness was based upon their abilities to be the best available professional liars and immaculate hypocrites, in order to be socially successful within the established systems ENFORCING FRAUDS, it continues to be politically impossible for most of those people to admit the magnitudes to which they were lying to themselves, and to everyone else, regarding how the political economy was really doing, due to how it really worked.

Collectively, the globalized political economy was based upon runaway triumphant organized crime, whose excessive successfulness became runaway criminal insanities. While it appeared to those who had rigged their casinos were "winning" that was their own delusional sense of what was actually going on, due to the degree that short to medium term social successes could be based on continuing to ENFORCE FRAUDS.

However, at the same time, the deeper underlying realities were actually developing, because the fundamentally fraudulent financial accounting systems were able to trick human beings, but that did not change the underlying laws of nature. Despite human beings dominated by social systems based upon ENFORCING FRAUDS feeling like they were "winning" inside of the casinos that they had rigged, what was actually really happening was that they were behaving in ways where the only connections between human laws and natural laws were the abilities to back up lies with violence. Hence, those runaway systems of ENFORCED FRAUDS were actually directing civilization to behave in ways that deliberately ignored the basic laws of nature as much as possible.

The interesting questions that arise are what could the possible "corrections" to that become, after the development of systems of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic bombs. Of course, the laws of nature are still there, and human beings never actually violated any of those laws of nature when human societies became based on more and more be able to back up lies with violence, while most people adapted to that by adopting those systems, such as the Chinese did, when they decides to make vastly more "money" out of nothing as debts than ever before done by anybody else.

I am NOT asserting that human beings' ERRORS will never be corrected. Rather, I am am attempting to point out the magnitude of those ERRORS. While the global political economy more and more became a rigged casino, based upon governments ENFORCING FRAUDS by privately controlled banks, in my view it was a dangerous delusion for those who appears to be "winning" to believe that they actually were "winning."

Those who appeared to thereby be able to privatize the profits from controlling the political economy through ENFORCING FRAUDS were actually always also accumulating their own shares of the collective losses. Those collective losses tended to be deliberately discounted and disregarded as much as possible. However, those were always actually accumulating in the real world. Hence, those who appears to be privately winning inside of their rigged casinos were NOT actually winning, but rather, driving the human species as a whole towards committing collective suicide, due to the degree to which civilization thus became psychotic and manifested runaway criminal insanities.
tumblemore
Yeah it's like when China adopted Communism and then took it to even worse extremes. This time they adopted the western banking system and took that to even worse extremes. The lesson for them should be don't copy ****** inventions because (reasons).

durablefaith

corrections are illegal...

Self reliance = isolationism. Grouping up with like-minded people is racism. Promoting an ideology that reveals the morally bankrupt current state = hate speech. Anarchy = extremism. Protests = terrorism.

The countermeasures being employed against us are asymetrical in nature due to legality and technology.

The collective herd, ridden hard by their psychopath overlords, are approaching the Cliff.

Those of us who are awake and mindful swim upstream, because of duty, regardless of outcome

sun tzu

Lions don't attack the entire buffalo or wildebeest herd. They pick the weakest ones.

yogibear

Only when the riggers dump all their holdings on the sheeple will they take this baby down.
Much faster making money on the way down. Usually those not well connected never see it coming.

Oldballplayer

How much money flows into 401k accounts each week.
Those are the ultimate rip off. Get two entire generations pumping 4% of their gross in every payday. And when they think they are all set--pull the rug from under them.
At this point, take the penalty, pay the taxes and but as many 2017 dec puts as you can get. You will make it all back. And more.

Chuck Knoblauch

US doom a certainty. Yuan devaluation exposing USD$ weakness.
Global dumping of US Treasuries.
Stop the bullshit. It's really obvious, captain.

TeethVillage88s

Daiwa Securities Group Inc.,Daiwa Securities Group Inc.*,,,,
Ticker,8601 JP Equity,,,,
Includes Loans to:,Daiwa Securities Group Inc. and Daiwa Securities Group Inc.,,,,
Identified in Fed Documents as:,Daiwa Securities America Inc. and Daiwa Securities America Inc.,,,,
Capital Raised From Home Governments,,,,,
Programs,"PDCF, ST OMO",,,,
Country,Japan,,,,
Industry,Diversified Financial Services,,,,
"Average Daily Balance
From 8/1/2007 to 4/30/2010",$76.32 ,,,,
Peak Amount of Debt,"$1,000.00 ",,,,
Peak Date,12/24/2008,,,,
Number of Days In Debt to the Fed,99,Market Cap,Percent of Market Cap,ST OMO,PDCF
So looks like the FED loaned them peak amount of $1 Billion.

- No such thing as conservative Banking at the FED or Wall Street.

- We are still seeing the fall out from US Created problems

1) Bubbling Housing, Derivatives, Stock Market Prices

2) Poor Stewardship of the US Petro Dollar/World Reserve Currency

3) Out of Control US Federal Budget Spending and resulting mal-investing in MIC & Police State

4) US Control over Global Politics and Press/Media

5) US & EU Sponsored Globalization and Trade resulting in Mal-investment and greater wealth Gaps and concentration of Capital into Financial Schemes

6) US Globalization & War has thrown Europe into chaos with mass immigration and Cultural Destruction

but maybe it is just me.

SHADEWELL

Experience hath shewn, that even under the best forms of government those entrusted with power have, in time, and by slow operations, perverted it into tyranny.

falak pema

A socialist market economy; aka a CP classical totalitarian model under the surface of market manipulation drowning in debt and malinvestment; as opposed to the west's version of the same beast :
A capitalistic oligarchical economy; now more and more CP'd under CB print and debt accumulation just like China; inverted totalitarianism.
When Charybdis MOCKS Scylla, the Gods of Capitalism and Statism have gone as mad as their mortal look alikes running around the financialized world like headless chickens.
Diogenes can truly mock Alexander's expedition on its march to his fool's paradise in Persepolis.
When Syrac dreams burn like Babylon.

ndree

I personally am not concerned with the prophecies of doom and gloom about China. Of course, they could not maintain a 7-10% growth forever. The economy is pivoting, not just to another level, but also to a different nature. Once the projects of the New Silk Road are ramped up (and I am certain they would accelerate this), all talk of slow growth, doom and gloom would be moot. Why should the Chinese be responsible for overall world growth, or providing Wall Strret gamblers and junkies with more ill gotten gains, and additional cocaine for their pipes?

withglee

a vast debt build up (by now everybody should be familiar with McKinsey's chart showing China's consolidated debt buildup) leading to a just as vast build up of excess capacity, also known as capital stock accumulation. And/or vice versa.

Has the writer looked at his own linked chart? It shows in 2000 a ratio of non-financial corporate debt to total debt to be 69%. In 2Q14 it shows it to be 44%.

Isn't it non-financial corporate activity that leads to "excess capacity"?

It's becoming more and more difficult to make sense of these articles.

http://www.zerohedge.com/sites/default/files/images/user5/imageroot/2015...

[Sep 12, 2015] David Stockman Sums It All Up In 3 Minutes

Sep 09, 2015 | Zero Hedge

Stockman unleashes truthiness hell on Bloomberg TV: "Federal Reserve [actions] will have disastrous long-term consequences... when you deny price-discovery in the market for so long, it is a massive subsidy to speculation... In an era of peak debt, the only thing zero interest rates achieve is create an enormous incentive for Wall Street to gamble more and more recklessly..."

195 seconds... watch, listen, and think...

Spitzer

Stockman is the best writer out there. His book is 32 hours of epic Stockman ranting. Worth every penny

khakuda

His analysis and the points he makes are spot on, yet he really needed an editor. He has brilliant and important things to say, but the general public will never read the 700 pages of it. He needs a cliffs notes edition or a 40 page kids version with some pictures, pop-ups and maybe some soft porn.

Tinky

Fair criticism, though it is more damning of the general quality of the readers than the author.

franzpick

Brief, concise, pointed summaries of the numerous ongoing bubbles, misallocations and dysfunctional markets are available daily at Stockman's website, giving new meaning to 'cliff notes':

http://davidstockmanscontracorner.com/

Keyser

And of course the shill from Bloomberg attempted to bait Stockman into saying he was against the Fed... For no other reason to brand him a whack-job... It's time for all the pundits be forced to pledge transparency and stick to it, or they get to walk the plank...

cheeseheader

Yes, that shill would be one Tom Keane, a permabull, and whose picture adorns the word 'idiot' in any dictionary.

Next time you feel like upchucking, turn him on Bloomberg radio for 4 seconds.

Bloppy

Most people don't want to hear his truth though. They won't want the cliff notes version either. They've been conditioned to believe markets are a one-way ride up up up. His work requires thinking.

Sex Pistol John Lydon wonders if Hillary 'really is that clumsy'

http://tinyurl.com/ovgut87

Winston Smith 2009

"Most people don't want to hear his truth though."

True, but even worse, the vast majority are economically illiterate and wouldn't have a clue about what he was talking about. Besides, his book is #31,738 in books on Amazon and that's among the minority of people who read more than the tweet from a fellow twit about what they had for lunch.

Don't judge the majority by yourself or those you associate with. To quote Carlin, "Just think of how stupid the average person is, and then realize half of them are even stupider!" We didn't get to this point via an intelligent voting public.

Jack Burton

Excellent points Winston. Too many people assume others have built up the same background of knowledge and are critical thinkers looking for truth. Ha! They are anything But! Have you ever had a deep discussion withsome you repsected for their high level career in business, science, education or technology? I have many times. I leave bewildered at how such people advance to high levels of performance. They are narrow minded, stick to their one field of expertise, and prosper in it, as for knowing anything else, they are like 3 year old toddlers.

new game

i've met a few too many and yea, box of rocks looked smart, ha...

unfortunately, future schoolers are not gonna be anymoar economically smarter.

an app for it. ha...

doesn't matter; dear honorable david, understand we are past the point where this can be straightened out. 18.x trillion, and sir, you know math. right? so . you must throw in the towel, spike the bowl and party on like its 1999, ha again.

RaceToTheBottom

His rant here was short, concise, and on target, with focus and prioritization. So he can do it when he wants to.

ebworthen

The dopes in D.C. could read all 700 pages and not get it, or understand it perfectly and not give a shit.

Twice as true for the Criminals of Wall Street and the banking/corporate/insurance cartel because they are getting rich off of it at the expense of the future itself.

Hang 'em high!

ebworthen

Five word version: "Hey People, you're getting raped!"

DanDaley

Download it from Audible...put it on an ipod and listen to it in the car, doing the lawn, walking. Who has time to actually read much now days?

Meat Hammer

I haven't read him but plan to. I'm disturbed, however, that he isn't bothered by the existence of the Fed, just by its practice of going far beyond its original intent.

Mr Poopra

I don't trust anyone that wants to "reform" the Fed. If you cannot admit that it was a treasonous conspiracy from its inception, it makes me question your allegience or at the very least your judgment.

Yohimbo

simple, just end the abomination and be done with it. let the markets with myriads of participants make the policies on the fly; through market forces.

InsanityIsWinning

He makes perfect sense to me . . . that scares me, maybe he's wrong. I remember him ranting about Reaganomics back in the 80's, if he's correct, there's an unwind coming of biblical proportions.

Vlad the Inhaler

Since he served as Reagan's budget director for the first term, I'd think he would be well qualified to rant about Reaganomics.

chinoslims

The rich, the banks, hedge funds, etc get all the low interest financing to buy all the assets esp equities. Sell their positions at the top and watch the whole thing crumble while most suffer. This is the greatest transfer of wealth to the rich ever. How is any of this legal? (Because the idiots trust the govetnment.)

[Sep 12, 2015] Declining oil prices: OPEC vs. (future) Shale?

December 16, 2014 | english.alarabiya.net

When the late John D. Rockefeller, one of America's earliest global business barons, was asked the secret of success, he quipped: "Get up early, work late and strike oil." Of course, as founder of Standard Oil in the year 1870, he certainly got up early, and worked late as he built an empire of oil that made him the richest man in the world by the early 20th century.

Since then, oil has come to rival water as one of the most essential commodities necessary for modern human life and, thus, the countries and companies that produce, extract, refine, and sell it are among the richest on earth. Rockefeller's advice still holds.

Norway's sovereign wealth fund is not far off a trillion dollars and Saudi cash reserves clock in at nearly $800 billion. The world's leading energy companies report earnings in the billions every quarter.

Partly as a result of the U.S. energy boom, oil prices have hit a five-and-a-half-year low
Afshin Molavi

Thus, it's no surprise that the current near 50 percent drop in oil prices since June of this year has captured global headlines and spawned numerous narratives: OPEC and/or Saudi Arabia vs U.S. shale oil, one of the more popular ones, and Saudi Arabia/UAE vs Iran/Russia a secondary one. But as with most popular narratives, there is a deeper issue at play here.
Bristling theories
First, let us dispense with the Russia/Iran squeeze play story. Theories are rife about a Saudi squeeze play on Iran, a country with far less cash reserves than the UAE, Kuwait, or Saudi Arabia. Iran, the theory goes, will face far more difficulty with the declining oil price than Arab members of OPEC. That's why Saudi Arabia chose not to "defend" the price through cuts in production, the theory goes.

With a break-even budget price of oil ranging in the $130-$140 range, according to the IMF, a sanctioned Iran with little access to capital markets can hardly handle a sustained oil price decline. Russia, too, faces a tide of rising sanctions and they, too, are hurt by the global decline in prices. By squeezing Russia, the argument goes, Riyadh would be "punishing" Moscow for its support of President Bashar al-Assad.

There may be some truth to this, but to truly do significant damage to Iran or Russia, the price decline would need to be larger and over a longer period of time. With large, fiscal expansionary budgets in Saudi Arabia and the UAE, such a move would risk cutting off the nose to spite the face.
Larger play
No, there is a larger play here than Iran or Russia. So, is it U.S. shale oil? Is the play to let the price drop squeeze out U.S. shale oil producers who need a higher global price to make their projects sustainable?

Today, the U.S. is producing more oil than it has done in three decades. Over the summer, the U.S. surpassed Russia and Saudi Arabia as the world's largest oil producer. The U.S. shale boom has added significantly to global inventories of oil and posed a direct challenge to OPEC.

Partly as a result of the U.S. energy boom, oil prices have hit a five-and-a-half-year low, falling by almost 50 percent since June. Brent crude hovers in the $60 range, and U.S West Texas Intermediate has fallen to $57 per barrel. In some parts of the United States, shale oil is being sold for under $40 per barrel.

The key question at play here is this: Is the decline in oil price a cyclical or structural phenomenon? Have the tectonic plates of energy shifted?

To answer that, let us begin with a group of engineers and geologists who, in the early 1980s, began using a technology known as hydraulic fracturing to try to coax gas from tight rock formations in the United States by injecting chemicals and water into the wells. Nothing worked, until a uniquely driven businessman by the name of George Mitchell, laid down the gauntlet for his team of engineers in the early 1980s: get me some shale gas in a decade, or the company collapses.

Mitchell and his team got up early, worked late, and eventually, after seventeen years of trying, they "cracked the code," as industry observers often say. They became the first company to discover the right combination of water and chemicals to extract so-called tight gas. Those gas fields eventually began producing oil, and today, the shale oil and gas revolution has fueled U.S. economic growth, changed global energy dynamics and transformed global geopolitics.
Radically transforming global energy markets
But will U.S. oil radically transform global energy markets over the next decade or two? The answer is no. Middle East oil, Russian oil and African oil will still be in high demand over the next two decades, according to forecasts by the International Energy Agency. Indeed, most forecasts suggest that by the 2020s, U.S. shale will decline and OPEC oil will be needed to pick up the slack.

So, new U.S. oil will put downward pressure on the price, but will not be a game changer in and of itself. The real question is: Will the U.S. fracking revolution expand globally? If it does, that could have a truly transformational effect on global energy. That would be the game changer.

Imagine a China that fracks. Or an India. Or some of the other large emerging markets that are driving future demand. Or fracking in Europe? In that scenario, we could see both the cost of fracking fall and the world come awash in new supplies of oil, putting tremendous downward pressure on the price, and reordering world energy markets and world power.

Some have suggested that we are still in the early stages of shale oil and gas, something akin to the first clunky computers that hit the shelves in U.S. stores, and were being purchased for office use for the first time. In that pre-Internet, pre-high speed computing era, few could have imagined the growth of the information revolution and how it would transform the world.

The problem with that analogy, however, is that the costs of fracking are so high that only a high oil price environment will allow for companies to take the necessary capital expenditure risks to develop new projects. The declining oil price will not squeeze U.S. shale entirely, but it will make new projects far less feasible. These are not projects that can be hatched in a garage with a couple of engineers and a bit of angel investing money. These are projects that carry massive debt.

In this context, the OPEC decision to let the market find its own price makes sense. After all, a world of Chinese and Indian fracking would pose tremendous challenges to OPEC producers.

So, this is not a fight between OPEC and U.S. shale oil. It's a battle between OPEC and future shale. Because what is most dangerous to the future of OPEC is not U.S. production, but a world in which China, India and Europe all begin their own fracking revolution.

_____________________

Afshin Molavi is a senior fellow and director of the Global Emerging and Growth Markets Initiative at the Foreign Policy Institute of the Johns Hopkins University School of Advanced International Studies (SAIS) and a senior research fellow at the New America Foundation, a Washington DC-based think tank. A former Dubai-based correspondent for the Reuters news agency, Molavi has also been based in Riyadh, Jeddah, and Tehran. His articles and essays have been published in the Financial Times, Washington Post, Newsweek, Foreign Policy, and dozens of other publications. He is currently writes a global affairs column for Newsweek Japan.

[Sep 12, 2015] The 20-Year Stock Bubble - Its Origin In Wholesale Money Zero Hedge

Sep 12, 2015 | Zerohedge

Faith in the QE world is waning everywhere and with very good reason. If the "wholesale money" eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that starting point rather than the irrelevant and overstated federal funds monkeying.
In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it.
... ... ...
...the former Fed chair wrote on June 1:

Stock prices have risen rapidly over the past six years or so, but they were also severely depressed during and just after the financial crisis. Arguably, the Fed's actions have not led to permanent increases in stock prices, but instead have returned them to trend. To illustrate: From the end of the 2001 recession (2001:q4) through the pre-crisis business cycle peak (2007:q4), the S&P500 stock price index grew by about 1.2 percent a quarter. If the index had grown at that same rate from the fourth quarter of 2007 on, it would have averaged about 2123 in the first quarter of this year; its actual value was 2063, a little below that. There are of course many ways to calculate the "normal" level of stock prices, but most would lead to a similar conclusion.

From this view, the Fed acted quite appropriately with regard to stock prices in order to get them back to their own established trend; therefore no bubble. It isn't surprising that his math works out, as you can plot his figures on a chart of the S&P 500 and see his reasoning painted forth.

Starting at the end of the dot-com recession sometime in the last quarter of 2001, a 1.2% per quarter trend nicks the top of the market in 2007. Ignoring the implications of panic and crash through March 2009, as he does, filling out the rest of the chart puts the current (before August 24) stock index directly within the path of his trend.

It is a ridiculously weak argument for obvious reasons, not at all unlike his defense of QE in the real economy via the unemployment rate without mentioning the denominator. It isn't clarified in his post, but it seems equally evident that he picked the end of the dot-com recession as a start date because that is when Greenspan's Fed brought forth "ultra-low" interest rates (see below). So if you believe that "ultra-low" interest rates are responsible for the current stock bubble, there you go.

... ... ...

If the eurodollar takeover was instead responsible for the serial asset bubbles of the past two decades, then it would make far more sense to extrapolate stock trends from that point rather than the irrelevant and overstated federal funds monkeying. So where Bernanke's stock trend aligns the peaks as if that were "fair" and of the real market, the troughs instead just as easily conform traced back to the plainly obvious eurodollar deviation.

In this context, the panic in 2008 makes perfect sense as it was a total failure of the eurodollar/wholesale system which not only reversed in total the prior bubble levels it crushed the global economy with it. The failure of the eurodollar standard to heal or rebuild to its prior upswing (ended on August 9, 2007) was seen more so in the real economy (the 2012 slowdown) but also in the stock market in 2010 and again in 2011; both those outbreaks appeared to revert back to that "dollar baseline."

The fact that asset inflation can continue on its own apart from any financial contribution of the wholesale "dollar" is due to partially separate liquidity and funding sources. Liquidity isn't everything always, but when it is failing it takes over for the dominant marginal direction. In other words, corporate repurchases and retail flows might be sufficient for stock prices to rise and rise rapidly where the "dollar" isn't as supportive, but those are easily overwhelmed where the "dollar" is acutely retreating (as August 24).
When we plot Bernanke's 1.2% per quarter benchmark at a start date of January 1995, that compounding growth works out to a "target" S&P 500 level of 1236.09 for Q3 2015.

Where his 1.2% per quarter within the bubble mechanics calculates to 2123 (as of June) for the S&P 500, applying the same idea to starting outside the serial bubbles is vastly different (-42%).

I'm not making any claims about whether 1236.09 is "fair value" for the S&P 500, only realizing the true nature of the stock bubble makes a huge difference. He isn't quite taking the full weight of the Yellen Doctrine here (I define that as her notion that a bubble isn't really a bubble unless it doesn't "work" in the real economy) but you can see how he is, by the construction of his trend narrative, thinking in at least that direction. Both are attempts to justify asset inflation by moving the perspective to within the bubble period so as not to have to explain how it all arrived in the first place (inferring from Bernanke's intent: since the dot-com bubble predates "ultra-low" interest rates it can't possibly be the Fed's fault, and therefore the Fed has been successful in simply re-establishing what the "market" did on its own beforehand).

I think that is true but only in the narrow view that interest rate targeting didn't actually do much of anything – which was and remains the whole problem. If interest rate targeting didn't directly cause the asset bubbles, it didn't restrain them either. This is not a small or trivial reflection, as the whole point of controlling the liquidity rate was to not just "stimulate" but also to restrict where "necessary." To say that there was no limitation upon the eurodollar advance is an understatement since banks simply wrote their own, to the point that they even manufactured their own currency (collateral) far outside of what these economists considered to be well-aligned financial behavior.

The relevant point to consider for stocks is which trend is closer to the "truth" of asset inflation. That is, of course, amplified in 2015 by the revisiting of eurodollar decay in much more strained and openly chaotic fashion. If the "dollar" is again to fail, what might that do to stocks? While that isn't knowable we do have some methods of gaining insight, for which only certain central bankers will provide useful perspective.

Secret Treaties

Retail Sweep Programs and Bank Reserves, 1994-1999

Richard G. Anderson and Robert H. Rasche

"In January 1994, the Federal Reserve Board permitted a commercial bank to begin using a new type of computer software that dynamically reclassifies balances in its customer accounts from transaction deposits to a type of personal-saving deposit, the money market deposit account (MMDA).1 This reclassification reduces the bank's statutory required reserves while leaving unchanged its customers' perceived holdings of transaction deposits.

The use of deposit-sweeping software spread slowly between January 1994 and April 1995, but rapidly thereafter. Estimates of the amounts of transaction deposits reclassified as MMDAs at all U.S. depository institutions, prepared by the Board of Governors' staff, are shown in Figure 1.2 By late 1999, the amount was approximately $372 billion. In contrast, the aggregate amount of transaction deposits (demand plus other checkable deposits) in the published M1 monetary aggregate, as of December 1999, was $599.2 billion."

So . . .

"Our analysis suggests that the willingness of bank regulators to permit use of deposit-sweeping software has made statutory reserve requirements a "voluntary constraint" for most banks. That is, with adequately intelligent software, many banks seem easily to be able to reduce their transaction deposits by a large enough amount that the level of their required reserves is less than the amount of reserves that they require for day-to-day operation of the bank. For these banks at least, the economic burden of statutory reserve requirements is zero."

https://research.stlouisfed.org/publications/review/01/0101ra.pdf

DontWorry

Don't worry. Many things changed in 1995, some permanently, and this article takes a rather myopic view. Remember the Netscape browser that hailed the beginning of the commercial Internet? That was released in December of 1994. This article doesn't even mention the Internet! That changed the world economy as much or more than the invention of the railroad! Preposterous!
The world is awash in central bank money for the forseeable future, and as things get worse in the rest of the world, that money will come to the US stock market. Invest with confidence, and always with a qualified investment professional who can design a diversified portfolio based on your risk tolerance.

daveO

Why the Japanese, who import over 90% of their oil, put up with this guy is a testament to their gullibility. It really should be more apparent to them what a fool he is.
"I'm still really, really worried," Krugman said at a conference in Tokyo on Wednesday. A big problem remains building enough momentum in the economy to escape deflation, he said.

Krugman said he is concerned that Abenomics is getting bogged down as the Bank of Japan fails to spur inflation to a 2 percent target, hampered by falling oil prices.

Clowns on Acid

What happened in 1995? That's easy .. the repeal of Glass Steagal. Baks, brokers, and Insurance companies no longer competing for funds ...at a market price . cost.
Once the Banks, brokers and insurance get "centralized" they use one balance sheet to lever all risk ... chasing the same asset groups. With a ZIRP policy the respective demand of funds does not cause an increase in interest rates.

Thus they all bid up all asset groups usig the same risk metrics ... until 2007/08 when it all crashes ... until the Fed shows how printing money is the answer.... to lack of liquidity and falling asset prices.

[Sep 11, 2015] These Four Charts Show How Obama's Leverage Over Xi Is Increasing

"...China still holds $1.27 trillion of U.S. Treasuries, making it the biggest foreign holder of the government debt as of June. But its share of all foreign holdings of Treasuries has been steadily declining. "

Sep 11, 2015 | Bloomberg Business

With sluggish demand around the world, China is increasingly reliant on American consumers and companies to buy its goods. In fact, if current trends hold, China will pass Canada this year as America's biggest trading partner. China's exports to the U.S. have climbed 6.1 percent in the first eight months of 2015 from a year earlier, compared with a 1.4 percent drop in exports worldwide. So Xi needs to ensure that America remains a happy customer, while President Barack Obama can rest easier from a trade standpoint, given that U.S. exports to China are a proportionally much smaller slice of the U.S. economy.

... ... ...

Capital has flowed out of China to the tune of $610 billion in the 12 months through July 2015, compared with an inflow of $224 billion through July 2014, based on data compiled by Bloomberg. That's the worst pace in data going back to 2007. Because of the sharp pullback in investment, China has become and will remain a next exporter of capital "for the foreseeable future," putting money into manufacturing and real estate in the U.S., said David Dollar, a senior fellow with the Brookings Institution in Washington who was previously a U.S. Treasury official in Beijing.

... ... ...

China still holds $1.27 trillion of U.S. Treasuries, making it the biggest foreign holder of the government debt as of June. But its share of all foreign holdings of Treasuries has been steadily declining. That proportion stands at 20.6 percent, down from a peak of 28.2 percent in 2011. And it could be poised to fall even further: China's foreign-exchange reserves plummeted by a record $94 billion in August, after a $43 billion drop in July, as the government sold assets to defend the yuan.

... ... ...

Willem Buiter at Citigroup said that China in reality is growing at closer to a 4 percent pace, far below the government's stated rate of 7 percent. (The U.S. reported an annual pace of 3.7 percent GDP expansion for the second quarter.)

[Sep 11, 2015] How Low Can Oil Go Goldman Says $20 a Barrel Is a Possibility

The first question is standard: Is squid, like always, trying to talk his own book ? Now it looks like the key idea behind Iran deal is to use them as a Trojan horse to keep oil prices low.

"...Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share."

Sep 11, 2015 | Bloomberg Business

The global surplus of oil is even bigger than Goldman Sachs Group Inc. thought and that could drive prices as low as $20 a barrel.
While it's not the base-case scenario, a failure to reduce production fast enough may require prices near that level to clear the oversupply, Goldman said in a report e-mailed Friday while cutting its Brent and WTI crude forecasts through 2016. The International Energy Agency predicted that crude stockpiles will diminish in the second half of next year as supply outside OPEC declines by the most since 1992.
"The oil market is even more oversupplied than we had expected and we now forecast this surplus to persist in 2016," Goldman analysts including Damien Courvalin wrote in the report. "We continue to view U.S. shale as the likely near-term source of supply adjustment."

... ... ...

Goldman trimmed its 2016 estimate for West Texas Intermediate to $45 a barrel from a May projection of $57 on the expectation that OPEC production growth, resilient supply from outside the group and slowing demand expansion will prolong the the glut. The bank also reduced its 2016 Brent crude prediction to $49.50 a barrel from $62.

... ... ...

The Paris-based IEA forecast Friday that production outside the Organization of Petroleum Exporting Countries will fall by 500,000 barrels a day to 57.7 million in 2016. Shale oil production in the U.S. will drop by 385,000 barrels a day next year as a crude price below $50 a barrel "slams brakes" on years of growth, the agency said in its monthly market report.

... ... ..

The U.S. pumped 9.14 million barrels a day of oil last week, according to data from the Energy Information Administration. While the EIA this week cut its 2015 output forecast for the nation by 1.5 percent to 9.22 million barrels a day, production this year is still projected to be the highest since 1972. U.S. crude stockpiles remain about 100 million barrels above the five-year seasonal average.
Saudi Arabia, Iraq and Iran will drive supply growth from OPEC, Goldman said. The group, which supplies about 40 percent of the world's crude, has produced above its 30-million-barrel-a-day quota for the past 15 months.
Iranian Oil Minister Bijan Namdar Zanganeh has vowed to increase output by 1 million barrels a day once sanctions are removed as the nation seeks to regain market share.

[Sep 11, 2015] IEA Sees U.S. Shale Oil Shrinking in 2016 on Price Slump

Sep 11, 2015 | Bloomberg Business

U.S. shale oil production will drop 9 percent next year as a crude price below $50 a barrel "slams brakes" on years of supply growth, the International Energy Agency said.
"Oil's downward spiral to fresh six-year lows below $50 a barrel has dimmed the prospects for a recovery in U.S. drilling activity," the Paris-based IEA said in its monthly market report Friday. Unless oil prices "bounce back in coming months," supply is forecast to fall by 385,000 barrels a day next year to 3.9 million barrels a day.

...Unless oil prices "bounce back in coming months," supply is forecast to fall by 385,000 barrels a day next year to 3.9 million barrels a day.

... ... ...

Drilling activity and output levels are unlikely to rebound following the cuts in oil producers' capital spending, the agency said. The number of oil rigs active in the U.S. has fallen by almost 60 percent over the past year, standing at 662 in the week to Sept. 4, according to Baker Hughes Inc.
This has translated into five weeks of declines in U.S. production, the longest retreat in almost 11 years. Total output currently stands at 9.13 million barrels a day, a 5 percent drop from the all-time high of 9.61 million reached on June 5, according to Department of Energy data.

Continuous investment is needed for production to keep flowing from U.S. shale oil wells, which have "steep decline rates," the IEA said. Output per well tends to decline by an average of 72 percent from initial production rates within 12 months of the well having started, forcing operators to keep drilling to offset the decline.

U.S. shale oil producers may have to contend with a funding squeeze from capital markets that's seen impacting their ability to drill, Citigroup Inc. said earlier this week. The U.S. bank estimates as much as half a million barrels a day may be cut by year-end.

... ... ...

Drilling and completion of wells will drop by a further 20 percent to 70 percent next year, the IEA predicted. "Impressive increases in productivity" have helped offset the slowdown in drilling and tempered ensuing drop in production, it said. U.S. shale oil producers would also be the first ones to respond should market conditions improve, the IEA said

[Sep 11, 2015] Iranian Oil Minister Output to Return After Sanctions Lift, $80 Crude Would Be 'Fair'

Contradictory statements. On one hand Iran wants $80per barrel prices, on the other is ready to serve as a Trojan horce to keep oil prices low. That's probaly the ffect of Bloomberg reporting ;-).

Bloomberg Business

Oil at $70 to $80 a barrel would be "fair," he said. Brent crude, the global benchmark, fell as much as 2.3 percent to $48.40 a barrel on the London-based ICE Futures Europe exchange and traded at $49.12 at 3:36 p.m. local time. Brent sold for as much as $102.86 a barrel a year ago.

... ... ...

OPEC said in a bulletin from its Vienna-based secretariat on Monday that the group won't shoulder the burden of propping up prices by cutting supply on its own, and non-member producers would have to contribute. OPEC will protect its interests and there is "no quick fix" for market instability, it said.

... ... ...

Iran plans to produce 3.8 million to 3.9 million barrels of oil a day by March, with output rising by 500,000 barrels a day soon after sanctions are lifted and by 1 million barrels within the following five months, Zanganeh said. Iran is producing 2.8 million barrels a day, its highest level in three years, and is exporting more than 1 million barrels a day, he said.
Iran has about 60 million barrels of condensate in floating storage and has no crude stored offshore, Zanganeh said.

"Immediately after lifting sanctions, it's our right to return to the level of production we historically had," Zanganeh said. "We have no other choice," he said. A slump in oil prices won't slow Iran's return to the market, he said.

[Sep 11, 2015] Deflationary Collapse Ahead?

"..."Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C [crude + condensate] ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD." "

Aug 26, 2015 | Our Finite World
Overview of What is Going Wrong

The big thing that is happening is that the world financial system is likely to collapse. Back in 2008, the world financial system almost collapsed. This time, our chances of avoiding collapse are very slim.

Without the financial system, pretty much nothing else works: the oil extraction system, the electricity delivery system, the pension system, the ability of the stock market to hold its value. The change we are encountering is similar to losing the operating system on a computer, or unplugging a refrigerator from the wall.

We don't know how fast things will unravel, but things are likely to be quite different in as short a time as a year. World financial leaders are likely to "pull out the stops," trying to keep things together. A big part of our problem is too much debt. This is hard to fix, because reducing debt reduces demand and makes commodity prices fall further. With low prices, production of commodities is likely to fall. For example, food production using fossil fuel inputs is likely to greatly decline over time, as is oil, gas, and coal production.

The electricity system, as delivered by the grid, is likely to fail in approximately the same timeframe as our oil-based system. Nothing will fail overnight, but it seems highly unlikely that electricity will outlast oil by more than a year or two. All systems are dependent on the financial system. If the oil system cannot pay its workers and get replacement parts because of a collapse in the financial system, the same is likely to be true of the electrical grid system.

Our economy is a self-organized networked system that continuously dissipates energy, known in physics as a dissipative structure. Other examples of dissipative structures include all plants and animals (including humans) and hurricanes. All of these grow from small beginnings, gradually plateau in size, and eventually collapse and die. We know of a huge number of prior civilizations that have collapsed. This appears to have happened when the return on human labor has fallen too low. This is much like the after-tax wages of non-elite workers falling too low. Wages reflect not only the workers' own energy (gained from eating food), but any supplemental energy used, such as from draft animals, wind-powered boats, or electricity. Falling median wages, especially of young people, are one of the indications that our economy is headed toward collapse, just like the other economies.

The reason that collapse happens quickly has to do with debt and derivatives. Our networked economy requires debt in order to extract fossil fuels from the ground and to create renewable energy sources, for several reasons: (a) Producers don't have to save up as much money in advance, (b) Middle-men making products that use energy products (such cars and refrigerators) can "finance" their factories, so they don't have to save up as much, (c) Consumers can afford to buy "big-ticket" items like homes and cars, with the use of plans that allow monthly payments, so they don't have to save up as much, and (d) Most importantly, debt helps raise the price of commodities of all sorts (including oil and electricity), because it allows more customers to afford products that use them. The problem as the economy slows, and as we add more and more debt, is that eventually debt collapses. This happens because the economy fails to grow enough to allow the economy to generate sufficient goods and services to keep the system going–that is, pay adequate wages, even to non-elite workers; pay growing government and corporate overhead; and repay debt with interest, all at the same time. Figure 2 is an illustration of the problem with the debt component.

philsharris, August 26, 2015 at 8:08 am

Gail,

Modern industrial expansion has clearly been driven by the key enabling fuel, petroleum. Not all petroleum, however, has the same potential value as the original stuff of the 1950s to 2005. Nevertheless 'condensate' (gas condensate derived from expanding NG fields) is included in world 'total oil' as if it was.
US geologist Jeffrey Brown, who has specialised in studying the quantities of oil available to economies round the world – particularly amounts available to the larger economies who are net importers, – that includes US, EU, Japan & China, – has a long comment just now on peakoilbarrel (Ron Patterson blog). He includes an interesting apparent statistic concerning condensate. We should note that the amount of 'real stuff' to go round the industrial world is probably stalled since 2005. The world generally appears to have a lower-value resource to enable any future expansion. The exlixir of youth is going to be in short supply, it seems.
Jeffrey: "Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C [crude + condensate] ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD."

Gail Tverberg, August 26, 2015 at 8:55 am

Yes, the high quality crude has been flattening in supply. I am not sure how important this is in the whole scheme of things, however.
When we look at energy consumption vs GDP on a world basis, the correlation is best with total energy, rather than with just oil. Also, our oil production has been growing at both the long carbon chain end of the spectrum (oil sands, etc.), and the short carbon chain end (Bakken, etc). In some sense, the mix changes tend to offset.
I think it is probably more important that world coal consumption grew at an unusually slow rate in 2014, and perhaps is even shrinking in 2015. China's consumption is down, and its electricity use seems to be something like flat in 2015. Natural gas consumption worldwide also grew at an unusually low rate in 2015. These are indications of a world-wide slowdown.

Harry Gibbs, August 26, 2015 at 10:02 am
We've also seen global trade contract by over 2% in the first half of 2015:
http://www.gtreview.com/news/global/global-trade-slumps-in-first-half-of-2015/

And global capex is likewise shrinking:

http://www.smh.com.au/business/markets/global-capex-set-to-shrink-as-commodities-crunch-bites-20150803-giqv80.html

It does seem very much like global growth is peaking, just as your look at global energy demand suggested:

http://ourfiniteworld.com/2015/06/23/bp-data-suggests-we-are-reaching-peak-energy-demand/

Reverse Engineer, August 26, 2015 at 7:38 pm
There is a lot in Part 3 of the Collapse Cafe TSHTF Vidcast with Gail's view on Renewables, as well as Nicole Foss's views and my own
You can find all 3 Parts we got recorded last Sunday on the Collapse Cafe You Tube Channel,

RE

John Doyle , August 26, 2015 at 8:17 am

We certainly need an economic model which accommodates a downturn in our civilization. I don't think it is impossible but the longer we remain inactive the less likely we will be to avoid chaos no matter what we do. Governments need to survive but the way they behave these days is not conducive to trust, being so partisan and polarised one one side and head in the sand ignorant on the other. It all looks just so unlikely that we will pull any rabbit out of the hat, even temporarily.
Michael , August 26, 2015 at 8:02 pm
Mr. Doyle, I agree with your statement on a need for an economic which accommodates a downturn. Have you found any proposals yet? I've done some jury rigging of models for such but have not found any good alternatives.
Gail Tverberg , August 28, 2015 at 4:08 pm
The continuing debt part is the hard part. Very short term works, but longer term doesn't.

[Sep 11, 2015] End Of Cheap Fossil Fuels Could Have More Severe Consequences Than Thought By Kurt Cobb

"...The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels."

"...Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates."

Sept 02, 2015 | OilPrice.com

The characteristic feeling of the post-2008 world has been one of anxiety. Occasionally, that anxiety breaks out into fear as it did in the last two weeks when stock markets around the world swooned and middle class and wealthy investors had a sudden visitation from Pan, the god from whose name we get the word "panic." Pan's appearance is yet another reminder that the relative stability of the globe from the end of World War II right up until 2008 is over. We are in uncharted waters.
Here is the crux of the matter as expressed in a piece which I wrote last year:
The relentless, if zigzag, rise in financial markets for the past 150 years has been sustained by cheap fossil fuels and a benign climate. We cannot count on either from here on out....
Another thing we cannot necessarily count on is the remarkable geopolitical stability that the world experienced for two long stretches during the fossil fuel age. The first one lasted from the end of the Napoleonic Wars in 1815 to the beginning of World War I in 1914 (interrupted only by the brief Franco-Prussian War). The second lasted from the end of World War II in 1945 until now.

Following the withdrawal of U.S. military forces from Iraq, the Middle East has experienced increasing chaos devolving into a civil war in Syria; the rapid success of forces calling themselves the Islamic State of Iraq and Syria which are busily reshaping the borders of those two countries; and now the renewed chaos in Libya. We must add to this the Russian-Ukranian conflict. It is no accident that all of these conflicts are related to oil and natural gas.

... ... ...

But hidden from the view of most is the role that increasingly expensive energy has played since the beginning of this century in slowing economic growth. The shorthand way of understanding this is that in the last century we extracted all the easy-to-get fossil fuels. Now we are going after the hard-to-get remainder which are costly to extract. That takes resources away from the energy-consuming part of the economy and creates a drag on economic growth. Hence, a dramatically slower economy in 2015 after four years of record or near record average daily prices for the most critical fossil fuel, oil. (The recent drop in oil prices is primarily a reflection of slowing demand that comes from a slowing economy.)
The financial industry through the media has intervened forcefully during the recent stock market sell-off to tell us all not to panic. These corrections are normal, they say, and long-term investors--that is, virtually everyone except Wall Street--should ignore them. What the industry and the media do not tell us is that these are not normal times.

Circumstances have changed dramatically. The evidence is there if only we have eyes to see it. Interest rates in much of the world are still stuck at or near zero seven years after the last worldwide downturn. How will the world's central banks stimulate the economy after the next inevitable recession? By lowering interests that are already at zero? In the post-World War II paradigm, rates would be at much higher levels today, say four or five percent, and economic growth would be much faster.
Annual world economic growth from 1961 through 2000 according to the World Bank was 3.8 percent per year. From 2000 to 2013, an era of increasingly expensive energy, it slowed to 2.4 percent. From the initial spurt of 4.1 percent growth in 2010 (after a contraction of 2.1 percent in 2009), growth settled down to 2.3 percent in 2012 and 2013, slightly below the recent average. This is despite unprecedented efforts to stimulate the world economy through large increases in government spending and record low interest rates.

... ... ...

...Franklin Roosevelt is famous for saying: "The only thing we have to fear is fear itself." But fear is a protective mechanism. We are right to fear things that can hurt us and to act accordingly. We cannot solve our problems if we refuse to accept that we have them.

... ... ...

[Sep 11, 2015] Why Vladimir Putin Won't Be Helping OPEC to Cut Oil Production

Is this unfounded speculation of hidden attempt to form expectations? Will Iran able or willing to do that taking into account low oil prices? Increase need substantial capital investmant which at current price point might not pay for themselves for a lon, lon time. So why bury money into the ground just to please the USA?

Sep 11, 2015 | Bloomberg Business

Iran, which produces a similar grade of crude to Russia, is preparing to ramp up production by as much as 1 million barrels a day next year after reaching an agreement to lift international sanctions.

[Sep 11, 2015] IEA Sees Oil Supply Outside OPEC Falling by Most Since 1992

"...futures contracts for 2016 trade below the price needed for most projects to break even"

Sep 11, 2015 | Bloomberg Business

Oil supplies outside OPEC will decline next year by the most in more than two decades as the price rout curbs U.S. shale output, according to the International Energy Agency.
Production outside the Organization of Petroleum Exporting Countries will fall by 500,000 barrels a day to 57.7 million in 2016, the Paris-based adviser said Friday in its monthly report. While fuel demand this year will be the strongest since 2010, record-high oil inventories in developed nations won't start to diminish until the second half of next year, and the revival of Iranian exports with the removal of sanctions may swell supplies further, it said.

... ... ...

U.S. shale output will shrink by almost 400,000 barrels a day next year as futures contracts for 2016 trade below the price needed for most projects to break even, the agency said. As recently as July, the IEA had projected that U.S. shale supply would expand by 60,000 barrels a day in 2016.

The decline in total non-OPEC supply next year will be the biggest since a drop of 1 million barrels a day in 1992 following the collapse of the Soviet Union, it said.

... ... ...

U.S. output will need to decline by 585,000 barrels a day next year and other non-OPEC production will need to fall by 220,000 barrels a day for the global surplus to end by the fourth quarter of 2016, Goldman said.

Global oil demand will climb by 1.7 million barrels a day this year to 94.4 million as low prices stoke consumption, before growth eases in 2016 to 1.4 million barrels a day. China, the world's second-biggest oil consumer, will "keep up its purchases" even as signs of slowing growth and the country's surprise devaluation of its currency fan concerns about its economic stability, the IEA said.

[Sep 11, 2015] Citi's Chief Economist Says China Is Financially Out of Control

"...The economist isn't too optimistic about the prospects for the powers in Beijing to resolve their bloated credit situation. Chinese policymakers are playing a game of "extend and pretend," said Buiter, drawing a parallel to the European Union's penchant for reaching short-term solutions to the crisis in Greece."

Sep 11, 2015 | Bloomberg Business

Willem Buiter, Citigroup chief economist, sees a storm brewing in China.

This week, he estimated that there is a 55 percent chance of a made-in-China global recession in the not too distant future, which he defines as a period of sub-2 percent global growth.

Without a massive, consumer-focused stimulus plan, he argues, Chinese growth will slip below 4 percent. This would constitute a recession for the world's second-largest economy, according to Buiter, and the rest of the world wouldn't be insulated from the slowdown.

Buiter appeared on BloombergTV to discuss his headline-grabbing call.

The cause of his consternation is the immense debt that Chinese non-financial companies have racked up in a short period of time. Over the past decade, the indebtedness of China's private sector has exploded and exceeded that of the U.S., which Buiter pointed out has a much more advanced economy and sophisticated financial system:

... ... ....

"I think things are financially out of control in China and we are waiting for the regulators and supervisors to bring things back under control and to do for the financial system the kind of things - recapitalizing banks and other systemically important financial institutions - that would give you the underpinning for continued growth," he said.
The economist isn't too optimistic about the prospects for the powers in Beijing to resolve their bloated credit situation. Chinese policymakers are playing a game of "extend and pretend," said Buiter, drawing a parallel to the European Union's penchant for reaching short-term solutions to the crisis in Greece.

"Until the problems in the banking sector, the financial sector generally, and in the corporate sector - the excessive debt burden - is tackled by the government, the only entity that can do it, I think the prospects for resumption of healthy growth in China are dim," he concluded.

[Sep 09, 2015] Disability Claims are not Skyrocketing

Economist's View
From the last of several points on disability claims from Teresa Tritch at the NY Times:
Busting the Myths About Disability Fraud: ... Disability claims are not skyrocketing. Rather, the population most likely to go on disability, those aged 50 to 64, is growing. The potential disability population is also larger now than in the past because today's older women are more likely to have worked enough to qualify for disability than in earlier generations. In any event, demographic pressures have already begun to subside. Adjusted for demographic factors, the share of workers on disability has gone from slightly below 4 percent in 2000 to slightly above 4 percent in 2014.

The solution to fraud in the disability system is not to make it more difficult to qualify for disability or to question the usefulness of the system itself. The United States already has stricter eligibility requirements and stingier benefits than in almost all other advanced economies, according to the Organization for Economic Cooperation and Development.

The solution to fraud is to prevent and detect it. So what has Congress done? It has refused to give the Social Security Administration the money it needs to keep up with fraud detection and maintain customer service. Since 2010, the agency's resources have declined in real terms, even as claims have increased due to the aging of the population. ...

likbez

This is a powerful neoliberal wedge issue. Divide and conquer strategy in action directed toward instilling hostility in middle class toward lower class people. Which I would say is very successful (as a part of larger -- "they are leaches living at our expense" company.) Which strategists like Karl "Turd Blossom" Rove very skillfully exploit in elections.
Such things also serve for an important purpose of decimation of union power, which is a key part of neoliberal strategy of domination.
See What's the Matter with Kansas? for details.

[Sep 09, 2015] The Fed Must Act Soon Why

"...You're an econ prof, no? In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation."

"...The Fed does absolutely nothing to require that the money it creates pays workers to build anything. Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow."

Sep 08, 2015 | Economist's View

JohnH -> to pgl...

pgl still hasn't demonstrated the iron economic law that says that inflation increases must necessarily be passed along to labor, not stolen by capital.
The precedent of productivity increases stolen by capital over the past 40 years is not encouraging, but there are economists like Janet Yellen who still disingenuously are that productivity increases get passed along! And despite the evidence, pgl chooses to believe her!

mulp said...

But printing more money just forces the exiting money to be spent paying workers slower and slower.
The national economic policy selected by We the People is clearly:
DO NOT PAY WORKERS TO BUILD ANYTHING.
The Fed does absolutely nothing to require that the money it creates pays workers to build anything.
Instead the only thing the Fed money does is cause existing asset churn which inflates asset prices to a bubble as seen by the bubbly stock price indexes globally. Dollars are abundant and being spent buying old labor in hopes that the value of the decades old labor will be worth more tomorrow.
We the People understand that paying labor to build new assets will crater the prices of all the inflated asset prices, eg, creating the kind of excess supply we see in fossil fuels which will cause cratering prices, profits turning to losses, and the asset price bubble popping in a big way.
The 21st century has proved to me that I was totally wrong to believe in monetary theory based on the arguments and data of Milton Friedman, and that led me to reexamine the policies of FDR in the face of a populist Congress.
Insight one: deep crisis is required to motivate We the People.
Insight two: the only way to create a better economy is to pay more workers to work more
Insight three: the only way to pay more workers more to work more is for taxes taking money from those who have money which is basically everyone in the upper half who will then demand benefits NOW for all their taxes
Doing the liberal thing to prevent massive poverty in 2008 was the wrong thing. Democrats should have made demands that Bush and Republicans would totally refuse to agree to, so all the money market funds experienced runs and 50% of the depository banks got taken over by the FDIC, and half the businesses in the US stopped paying workers because they could get their cash in their banks because the banks were taken over by the FDIC. And in 2009, Democrats should have kept increasing demands and demanding ever higher tax hikes every time Republicans fought to block Democratic budget bills keeping the economy sinking deeper and deeper making more and more people poor.
The ideal outcome of 2009 would have been corporate tax rates of 50% on business profits of 5% ROIC or lower and 90% on all profits in excess of 5% ROIC, but with 100% deduction for all capital investment excluding buying existing corporations or partnerships. And 90% income tax rates in excess of twice the median income, excluding buying tax exempt infrastructure construction bonds or investing in energy efficiency capital assets.
Or a carbon tax that was set to rise every year until tax revenue was zero with all the tax revenue used to repay Federal debt.
Tax dodging is the biggest incentive to pay workers to build stuff that lasts and that is productive.
The Fed can't do anything but prevent the required crisis to force the required political change.
Or cause the crisis that will create change.
The Fed needs to jack up interest rates to, if nothing else, increase the Federal deficit rapidly by increasing the interest costs.
One of two things would happen: Republicans would win in 2016 and crash the economy by massive spending cuts driving tens of millions into poverty, homelessness, etc.
Or taxes rates would be greatly increased to reduce the deficit but the high tax rates would make hiring workers the cheapest way to cut taxes due and get some benefit.
If I were in the Fed I'd be calling for a 1% hike every year (.25% a quarter) for the next three years.

likbez said...

The USA now reminds me the USSR in a sense that government figures are not using open verifiable methodology. Some thing that those metrics became yet another "number racket". Some measures like inflation and GDP are definitely politicized.
That gives an impetus for sites like http://www.shadowstats.com
Those people who operate using pure government statistical figures without questioning their error range are just another brand of highly paid charlatans. And their papers and articles should be viewed as exercise in "tail wags the dog"
Actually that can be viewed as another dimension of mathiness.
For example government announced that GDP is 3.7%. And everybody jumps in admiration. And nobody asks what was GDI released for this period. Suckers...

Peter K. said in reply to likbez...

"The USA now reminds me the USSR in a sense that...
Republicans are dynamic scoring in order to massage the numbers to that their favored policies look better?

likbez said in reply to Peter K....

My point is the USA now reminds the USSR with its tendency to "beautify" economic data.
Think about all those birth-death adjustments, substitution of U6 with U3 (concepts of "discouraged workers" and "marginally attached workers"), redefining full employment metric (which no longer means 40 hours a week employment), hedonic adjustments/substitutes, "managing" inflation by changing the way it is calculated, price anomalies that bump GDP up, like tremendously overpriced military hardware, etc.
Please don't throw the baby out with the bathwater

Dan Kervick

"Finally, why the huge fear over a little bit of inflation rather than huge fear over higher than necessary unemployment?"
It is a good question, and frankly I have trouble believing that people like Fisher actually *are* worried about a little bit of inflation. Fisher set out his fuller position over a year ago, and I doubt it has changed much:
http://www.dallasfed.org/news/speeches/fisher/2014/fs140716.cfm
He's mainly afraid that the Fed might blow a bubble, and he's afraid that the independence of the political Fed is being compromised by it's being dragged into service to compensate for the lack of fiscal and regulatory action by Congress.
I would suggest that, on the second point at least, everyone should get used to the fact that central bank policy is inevitably a response to politics. That's because central bank policy is always based on general economic conditions, and general economic conditions are always to a substantial extent a function of government policy. So central bank policy has to be responsive to government policy. Tough cookies for all of those believers in an "independent" central bank. There is no such thing as an autonomous "economy" that is independent of political choices.
Other not fully acknowledged factors driving the recent debate are equally political. The Fed is worried that if normalization is delayed, then some time next year the Fed will *have to* reverse course, one way or another. If that takes place after the parties have chosen their nominees and the political race is in full gallop, the Fed will be accused of intervening (in some way, on behalf of someone) in the campaign, and will become a political football. (As far as I'm concerned that would be great, because the US central banking system needs radical reform - but the Fed guys wouldn't like it.)
The other thing they are obviously worried about is a recession. If the US experiences a recession for any reason over the next 18 months, and the Fed is still stuck down close to the zero bound, then it will not be able to exert a substantial stimulative impact - at least not without radical new measures like helicopter money. Again, that's something that wouldn't both me personally, but Independent Fed establishmentarians would freak.

John said...

You're an econ prof, no?
In the first year macro I just finished, it was explained that inflation is a tax on the rentiers class. Thus the power elite hates inflation.

[Sep 09, 2015] Neoclassical economic reforms were colossal failures

"...The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures."

"...Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison. But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears. "

"..."Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal.""

"...Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.) "

"...China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions. "

EMichael said in reply to Ron Waller, September 07, 2015 at 09:52 AM

I see no purpose in comparing the present with a period of time so vastly different from the present.

Ron Waller said in reply to EMichael, September 07, 2015 at 10:27 AM

Yes the laws of physics change every 35 years too.

The reason the Friedmanian era turned out to be vastly different from the Keynesian era was because the neoclassical economic reforms were colossal failures.

Tax cuts did not pay for themselves or create prosperity, they created skyrocketing government debt. Deregulation didn't create prosperity, but produced numerous disasters including financial meltdowns. Free-trade exported wealth and jobs and killed real income growth. Modern Monetary Theology brought back pre-Keynesian boom-to-bust business cycles, drove down real incomes and the employment rate (now expect a decade before the economy can recover from a recession.)

Nothing in the history of the universe has failed more than neoclassical ideology. If one is to call that failure, one would have to redefined the word failure to include all other failures that pale by comparison.

But according to the Medieval Barbers, their policies were a resounding success. Anyone who questions them is a philistine. Thankfully, these modern high priests aren't able to burn dissenters at the stake like their forebears.

EMichael said in reply to Ron Waller, September 07, 2015 at 10:35 AM

No, the Laws of Physics do not change.

Economic facts do. Are you trying to state there has not been a sea change in the world economy since the post WWII era?

Sorry, but Japan, China and Europe are an awful lot different than they were in 1950. And that is not saying that I disagree with everything you say. Actually, I agree with a lot of it.

But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s.

Bruce Webb said in reply to EMichael, September 07, 2015 at 11:02 AM

"But thinking solutions lie in the policies of the 50s and 60s ignore that the problems that exist did not exist in the 50s and the 60s."

EMichael there is a logical hole here. I am not sure I disagree with you on the substance but there is a coherent argument that the problems that exist NOW are precisely BECAUSE of changes away from the polices of the 50s and 60s. And that the reason we didn't have the same problems then is that the policies prevented them. And that a change back to those policies would serve to ameliorate them.

What you would need to do to rescue your argument is to prove that current problems could NOT have existed in the 50's and 60's, that there is something unique to today's problems that make them resistant to yesterday's solutions.

I am not saying you couldn't do that. Merely that you haven't attempted it. Instead you present a circular argument. What EXACTLY about today's problems make them incurable by yesterday's solutions?

EMichael said in reply to Bruce Webb, September 07, 2015 at 01:33 PM

The main thing that did not exist in the US was competition for labor. Free trade is a marvelous thing when you are the only one selling.

Take a look at trade balances from that period and the last couple of decades.

You can almost trace the trade balance changes to the changes(or lack of changes) to the income of the vast majority of Americans.

People in here(and myself) talk about the need for a tighter labor market. And we applaud the actions that create one. But I am almost totally committed to the idea that the only way to create a tight labor market is protectionism. We have to protect our workers.

Of course there is a price to be paid, but I think the increased costs of some goods will be overwhelmed by the benefits to be gained by a tight labor market.

Then again, we would be harming other countries trying to move into a industrialized state. But the last time I looked, none of them were helping me pay for SS; or Medicare; or education; or the keep the street lights working.

I know it is not politically correct, but charity begins at home. Especially in a home which has seen such decline in only three or four decades.

cm said in reply to Bruce Webb, September 08, 2015 at 09:51 AM

Economic policy doesn't happen in a vacuum. Before the 90's there was no internet. There were its precursors of a sort, e.g. fax and data transmission over the phone, and computer networks/links based on that (90's comms technology existed but only in the lab or at the high end). In the post-WW2 decades, there weren't built out telephone networks at the national and international level, only few high end players could arrange to make instant international calls. Even electrification wasn't completed.

This meant obviously more bottlenecks and more intermediation and control, barriers to globally distributed operations, and in addition everything happened at a slower speed.

In addition most of the world, including large parts of Europe and the US, was agricultural or sparsely populated and un"developed".

In the decades after, the "second" and "third" world invested big time in education and technological development. It really took off when international business logistics and global IT/telecom became ubiquitous, and "first world" companies eagerly "helped" build the offshore know-how.

Ron Waller said in reply to EMichael, September 07, 2015 at 11:14 AM

Generalizations don't identify any problems, provide any solutions, justify failed policies or rule out successful policies. Japan and Europe are in hot water because of bad economic policy. (Not demand-side Keynesian economic policy.)

China is in hot water because neoclassical reforms have killed demand in the Western economy. Its economy is founded on importing more and more Western jobs and manufacturing, not to mention GHG emissions.

It's only a matter of time before the entire house of cards collapses. Then people will be looking to the 1930s for policy solutions

Peter K. said in reply to EMichael, September 07, 2015 at 01:27 PM

I agree with the others. To say that the economy was different back then is to minimize the manner in which policy has changed for the worse.

I don't think fundamentally the laws of economics have changed that much because of technology or globalization or vague "productivity changes."

This is like being like Martin Feldstein who says we should be happy with what we got. No policy has changed much to the worse since the 1950s and 1960s. For one thing unions have been politically destroyed.

EMichael said in reply to Peter K

Not the laws of economics, the facts. Y'know the old Keynes thing(supposedly):

"When the facts change, I change my mind. What do you do, sir?"

I'll give you one change.

In the 70's China had almost no foreign exchange reserves. Now they have around $4 Trillion.

That is a real fact. And the reasons behind it are obvious.
Reply September 07, 2015 at 01:40 PM
likbez said in reply to Ron Waller

"Krugan's free-trade ideology rhetoric shows he's more New Keynesian (neoclassical synthesis) than Keynesian. More neoliberal than liberal."

Very true. Thank you

[Sep 09, 2015] How Rising Inequality Increases Political Polarization

Economist's View
Lafayette : Wednesday, September 09, 2015 at 01:55 AM

History of US Poverty: http://www.census.gov/hhes/www/poverty/data/incpovhlth/2013/figure4.pdf

Regardless of the times or the economy, there is not much historically that changes for those truly incarcerated below the Poverty Threshold as the above infographic shows.

People spend their lives there. That is undignified of a country as rich and dynamic as the US that simply is not doing enough for its poor.

Btw, 14.5% of the American population being 45.3 million people is a bit more than the combined populations of California and New York ...

New Deal democrat : Wednesday, September 09, 2015 at 03:49 AM

While I wish your graduate student well in his career, the idea that the primary political polarization is that the democratic party has been driven to the left is, historically, utter nonsense, at least as to economic issues.

Compare the "mainstream" positions of the GOP now with that of the GOP in the 1950s or 1960s, or for that matter, the 1980s. The extreme right is now the mainstream. Now do the same with the democratic party. The "New Deal democrats" are out of power and are called "socialists" and "the far left" by the media, while the actual power-holders in the Democratic party are to the right of Eisenhower and Nixon. Obama has called himself a Reagan Republican.

I suspect what the trio actually found is that Dixiecrats became the Republican base. With the racists out of the democratic party, the remaining party wasn't racist. Not the same thing.

Lafayette said in reply to New Deal democrat... Wednesday, September 09, 2015 at 04:10 AM

The "Left" in the Democratic Party is, I suggest, the 15% of the Progressive Dems who are members of the Progressive Caucus. They sit in the HofR. Plus one more, a senator by the name of Bernie Sanders, the only one who is a member of that caucus.

Never heard of a Progressive Democrat? Wow!

Try this on for size (The Progressive Promise): http://cpc.grijalva.house.gov/the-progressive-promise/

If Americans are really fed up with both the Dems and the Replicants, they could elect more progressives to the HofR. They would have to be, however, Democrats. (A progressive party hasn't a chance in the US.)

(Donald Trump in drag is a "progressive Replicant"! ;^)

RC AKA Darryl, Ron said in reply to New Deal democrat... Wednesday, September 09, 2015 at 05:04 AM

You are certainly closer to the truth than this "research." What we have locally in central VA is a bit more colorful story than you draw, but essentially the same causation. We have a lot more black legislators from the less prosperous zip codes who, unlike upper middle class white folk, actually have personal connections to those affected by inequality and poverty.

Also, why do people enter local politics? Who enters politics to help their own people? Who enters politics to move up the ladder of social class?

Double Capitulation :
"
mutually reinforcing: income
inequality leads to political polarization, and the gridlock induced by polarization
"
~~John Voorheis~
When these synergistic forces spawn inevitable inequality, we need to utilize inequality to the max. Without inequality large projects are less likely to advance our economy. You got to have some rich gals/guys to build some of the large ships and locomotives.

So long as the excess income is pointed in direction capitalization, we cool. Once the excess liquidity ends up in Vegas, we lost our cool. Do you see the difference?

Veblen goods, things like gambling, prostitution, and drugs like alcohol need to have proper disincentive, proper pigouvian taxation on Veblen activities and Veblen goods.

Do you see how Americans are happy to see more millionaires in China, more Chinese billionaires? Knowing that Chinese economic development will spill over into our market-share? We enjoy their inequality, their economic expansion. We don't have same attitude about our own inequality. We don't like corruption and racketeering IOB, in our backyard. This needs to be tweaked to higher precision.

precision piston ring!

Get
it
!

[Sep 09, 2015] How an Area's Union Membership Can Predict Children's Advancement

Sept 9, 2015 | The New York Times

It is well established that unions provide benefits to workers - that they raise wages for their members (and even for nonmembers). They can help reduce inequality.
A new study suggests that unions may also help children move up the economic ladder.
Researchers at Harvard, Wellesley and the Center for American Progress, a liberal think tank, released a paper Wednesday showing that children born to low-income families typically ascend to higher incomes in metropolitan areas where union membership is higher.

The size of the effect is small, but there aren't many other factors that are as strongly correlated with mobility. Raj Chetty of Stanford and Nathaniel Hendren of Harvard, who pioneered this method of examining economic mobility, established five factors that are strongly correlated with a low-income child's likelihood of making it into the middle class: the rate of single motherhood in an area, the degree of inequality, the high school dropout rate, the degree of residential segregation, and the amount of social capital, as measured by indicators like voter turnout and participation in community organizations.
Single motherhood is the most strongly correlated factor with mobility. The latest study, which relied on the Chetty/Hendren data, says union membership is roughly as strongly correlated with mobility as the other four factors.
"It's a striking relationship," said Lawrence Summers, the former Treasury secretary and Obama economic adviser, who is participating in a discussion with some of the study's authors on Wednesday. "It's further grounds for concern about the decline of unionism in the United States."
The authors posit a variety of reasons for why higher rates of unionization tend to coincide with greater mobility, beyond the effect on parents' wages, which would seem to be the most obvious way unionization could matter.
Their most interesting explanation is that unions are effective at pushing the political system to deliver policies - like a higher minimum wage and greater spending on schools and other government programs - that broadly benefit workers. Perhaps not surprisingly, three cities that appear to reflect the union effect - San Francisco, Seattle and New York - are all jurisdictions where the minimum wage is rising substantially (though for New York it is only for workers in fast-food chains.).

The researchers looked at the expected income of people ages 29 to 32 whose parents were at the 25th percentile of income nationally when they were teenagers. They found that a 10-percentage-point increase in the rate of unionization in an area coincided with a rise of an additional 1.3 points on the income distribution as the average child becomes an adult.
Let's take the example of the average metro area where about 16 percent of workers were unionized, and children whose parents were in the 25th percentile of income earners nationally ended up at the 40.7 percentile on average as adults. A simple application of the author's finding implies that, in a metro area where 26 percent of workers were unionized, the average child from the same place in the income ladder would end up in the 42nd percentile.

The correlation remains statistically significant even when the researchers controlled for a variety of other social and economic variables, like the child poverty rate and median house value.
"I would have thought we could have found things that might have killed off the effects," said Richard B. Freeman, a labor economist at Harvard who was one of the study's authors. "And we basically didn't."
Moreover, the benefits aren't exclusive to low-income children. The researchers also find that a 10-percentage- point increase in the rate of union membership is associated with a 3 percent to 4.5 percent increase in the incomes of all children - regardless of their parents' income. (The differences in the 3 percent and 4.5 percent arise from the number of demographic variables the researchers control for.)
Because there is more upward mobility in areas with greater unionization generally, the researchers concluded that the result was not because the children of union members seized opportunities from other children.
It's important to emphasize that the study does not establish causality - the authors can't prove that unions are driving the improvement in mobility. For that matter, they don't attempt to. The finding establishes only that, in their words, "mobility thrives in areas where unions thrive."
As Scott Winship, a fellow at the conservative Manhattan Institute points out, this is not a minor limitation. It's entirely possible that unobserved features of a given metro area cause both the increase in unionization and the increase in mobility.
Mr. Winship notes, for example, that both unionization and mobility tend to be relatively low in Southern cities like Atlanta and Charlotte. "There may be a regional difference" that explains both, he said.
To help pin down causality, he said, it would be helpful to look at variations across geographically similar areas, like cities that have different rates of unionization and variations in mobility on either side of a state border.
Still, the result is especially telling given a common critique of unions - that they may raise wages for workers in an area, but they lower employment by making marginal workers unaffordable. Even if that's the case, the current study suggests that the benefits of greater unionization are outweighing the costs: Children are doing better on average when unionization for their parents' generation is higher, even if the higher rates of unionization could theoretically lower employment.
If unions were doing more harm than good, we wouldn't expect to see mobility rise as the rate of unionization does. (For what it's worth, Mr. Freeman notes, most studies find that unions have little negative effect on employment.)

It comes when the authors use a second, more detailed data set to analyze whether parents' union membership tends to increase the wages of their children. (The second data set pairs specific individuals with their parents, rather than relying on metro-area averages, and controls for a variety of demographic characteristics that might also affect wages - like race, ethnicity, marital status and education - so they can isolate the effect of union membership.)
The authors find that children with fathers who belong to a union have significantly higher wages than children who don't. But when it's the mother who belongs to a union, only the wages of daughters rise.
What might be going on here? It's possible that the explanation is sociological: Daughters with a mother who belongs to a union may be more likely to work themselves, which means they're more likely to have higher wages. Or, put differently, union membership is helping to change social norms.
"I like to think it's the role model effect," said Brendan V. Duke, another one of the study's authors at the Center for American Progress, who concedes that the explanation is speculative. (Eunice Han of Wellesley and David Madland of the Center for American Progress were the other authors.)
And that, in turn, suggests something potentially important, though equally speculative, about the effects of unions more broadly: Higher rates of unionization may give rise to certain norms that instill a greater sense of agency in workers.
For example, people who belong to unions are generally aware that they have certain rights in the workplace and are encouraged to speak up if they believe they've been mistreated. It's the kind of norm that could leach out into a broader population - to both union members and their nonunion peers - if unions are sufficiently visible and active, which could in turn help boost economic mobility.
Mr. Freeman believes there may be something to this, but notes that the study did not explicitly pursue this line of inquiry. "I'm thinking of which student might we get to do an undergraduate thesis on this," he said.

Whatever the possible mechanism, the study highlights the potential of policies and institutions that are important both to the individuals directly affected by them and to those affected only indirectly. Union membership can lead to a virtuous cycle, Mr. Summers asserts, improving outcomes for union members who then positively affect their peers, who then positively affect the union members, who then positively affect their peers, and on and on.
"When you work all that out, things that have a small effect at the individual level can have a larger aggregate effect," he said. "Freeman et al have demonstrated that one of those things is the incidence of unionism."

[Sep 09, 2015] One Shale Boom That Is Bulletproof To The Current Market Chaos

Sep 09, 2015 | OilPrice.com

Argentina is home to 27 billion barrels of recoverable oil and 802 trillion cubic feet of natural gas and its two shale basins could end up being bigger than the Eagle Ford and Bakken. But adding to the attraction is another significant aspect at a time of slumping oil prices: For producers in Argentina, the price of natural gas and oil is fixed at $7.5 per million British Thermal Units (BTU) for new gas developments and U.S.D $75 to $77 per barrel respectively, well above international oil prices.

[Sep 08, 2015] Weak economic outlook and oversupply weigh on oil markets

U.S. crude (CLc1) was at $44.31 per barrel at 0425 GMT, down $1.74 since Friday's close, weighed down by the closure of the largest crude distillation unit at Exxon Mobil Corp's (XOM.N) 502,500 barrel-per-day (bpd) Baton Rouge, Louisiana, refinery.

... ... ...

"Brent will likely be range-bound and volatile over the next 12 months as the supply overhang is worked off," Morgan Stanley said, adding that it expected the glut to be worked off and result in higher prices by the fourth quarter of next year.

"In the interim, non-fundamental factors (FX, macro themes, fund flows, etc.) and headlines will likely remain key price drivers," the bank said.

Oil prices have fallen almost 60 percent since June 2014 ...

On the supply side, recent speculation that Russia might be willing to cooperate with the Organization of the Petroleum Exporting Countries (OPEC) to curb output in support of prices was given a blow on Monday after the chief executive of Russian oil major Rosneft ruled out a Russian cut.

... ... ...

[Sep 08, 2015] Mystery Buyer Of US Treasurys Revealed

Zero Hedge

This makes one wonder if the wiz kid is a proxy for the Fed... Where is does one come up with billions of $$$ for this purchase program?

TSA Thug

http://www.aipac.org/~/media/Event%20Forms/2012/Northeast%20Region/NY%20...
Search for Mara & Jeffrey Talpins.

Also check for Sachs.

mtl4

His hiring of Richard Tang is a pretty good clue and it seems his strategy changed around the same time.......spidey sense is tingling on this one for sure.......he's a proxy but not sure for who exactly at this point.

ZD1

"This makes one wonder if the wiz kid is a proxy for the Fed..."

He is a donor to both political parties... but the links as to a proxy for the Fed will be harder to find

http://individual-contributors.insidegov.com/d/c/Jeffrey-Talpins

pods

Not that tough:

http://lmgtfy.com/?q=Jeffrey+Talpins+AIPAC

pods

TSA Thug

https://en.wikipedia.org/wiki/Hain_Celestial_Group

McCormick No. 9

Yale, Goldman, Bernanke (How well do you have to know someone to "test their patience"? A: pretty fucking well.)

This is a set-up. He's not buying billions of Treasuries with his own money. This fucker is a front/cut-out. He is doing the dirty, er "God's" work. Someone has to buy this Chinese paper, or else yield contagion screws the pooch. Where is he getting the money? Bernanke knows.

... ... ...

Freddie

Just like Citadel and Ken Griffin and a few other HFT trading front companies. They all are run by Fed, Goldman et al.

AGuy

How the hell does a fund make money by accumulating low yield bonds? Where is the source of capital to purchase all this? I can't imagine hes managed to get that much OPM (Other People's Money).

RopeADope

By using multiple lenders and not letting them find out that collateral has already been overpledged by 700%. It is the LTCM model after all.

Argenta

A glaring example of what counts as math these days, and who's a whiz at it, lol. If a math genius loves US Debt, so should you!

-Argenta

Irishcyclist

Amen.

maths whizz my arse.

VinceFostersGhost

Compared to all our youth learning Common Core math.....everyone is a math whiz.

[Sep 07, 2015] US, Canadian Shale Sectors Doomed if Oil Price Drops Below $45 Per Barrel

Muhammad Sahimi, professor of chemical engineering and materials science at the University of Southern California, agreed that the tumbling global oil price was likely to be followed by a dramatic shrinkage in the US oil and gas sector.
"Clearly, if the oil price is too low, shale fracking become un-economical," Sahimi, co-founder and editor of the website, Iran News & Middle East Reports, told Sputnik. "Many of the shale formations are [only] economical for fracking, if the oil price is in the range of $60-$70 a barrel."

Sahimi explained that if the oil price stays low, it would not be economical to continue fracking. "Many of the oil companies that depend on fracking will have a net negative balance sheet this year."

Sahimi warned that 50 percent of all US companies dependent on fracking were at risk of ruin in the current global energy glut.

"I estimate that at least half of such companies are already bankrupt, or will go bankrupt by the end of the current year, if the oil price does not change upward dramatically," he said.
Eventually, Sahimi predicted, the combination of bankruptcies, mergers and acquisitions in the United States and Canada with cutbacks in production by some other major global producers would stabilize global oil prices again.
"It will probably hover around $40-50," he explained. "It may last for a while, but cannot last too long. Saudi Arabia can cut back production to raise the price."

Although the Saudi Arabia had maintained high production in the short term to bring economic pressure to bear on Iran, their own need to ensure high annual income meant they had to cut production at some point to restore higher prices, he said.

[Sep 07, 2015]The divergence between pay and productivity

"...A lot of productivity gains, almost total failure to trickle down is one of the most striking features of American economics these past 40 years. "
.
"...For decades following the end of World War II, inflation-adjusted hourly compensation (including employer-provided benefits as well as wages) for the vast majority of American workers rose in line with increases in economy-wide productivity. Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards. Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. "
.
"...Finally, the economic evidence indicates that the rising gap between productivity and pay for the vast majority likely has nothing to do with any stagnation in the typical worker's individual productivity. For example, even the lowest-paid American workers have made considerable gains in educational attainment and experience in recent decades, which should have raised their productivity."

anne

http://krugman.blogs.nytimes.com/2015/09/06/productivity-and-pay/

September 5, 2015

Productivity and Pay
By Paul Krugman

Still in Sydney (next stop Tokyo), where it's much too beautiful a day to sit inside blogging. But I did want to flag an excellent report by Josh Bivens and Larry Mishel * on the productivity-pay gap.

The divergence between pay and productivity - a lot of productivity gains, almost total failure to trickle down - is one of the most striking features of American economics these past 40 (!) years. It's also the subject of endless attempts at debunking, of claims that the divergence is somehow a statistical artifact. What Bivens and Mishel do is take on these arguments carefully, not dismissing them completely, but showing that they explain only a fraction of what we see. Rising benefits are mainly a pre-1979 issue, explaining almost nothing since then; the "terms of trade" - consumer prices rising faster than the prices of U.S. output - is also mostly pre-1979, and in any case only a fractional concern. And so on.

One thing they don't say explicitly, but is important: the next time you hear someone claiming that middle-class families have, in fact, seen a big rise in living standards, you should know that to the extent that this is true (which is less than claimed), it's mainly about working more hours. Pay really has almost stagnated despite rising productivity.

* http://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/
Reply Sunday, September 06, 2015 at 05:03 PM
anne -> anne
http://www.epi.org/publication/understanding-the-historic-divergence-between-productivity-and-a-typical-workers-pay-why-it-matters-and-why-its-real/
September 2, 2015

Understanding the Historic Divergence Between Productivity and a Typical Worker's Pay: Why It Matters and Why It's Real
By Josh Bivens and Lawrence Mishel

Key findings from the paper include:

For decades following the end of World War II, inflation-adjusted hourly compensation (including employer-provided benefits as well as wages) for the vast majority of American workers rose in line with increases in economy-wide productivity. Thus hourly pay became the primary mechanism that transmitted economy-wide productivity growth into broad-based increases in living standards.

Since 1973, hourly compensation of the vast majority of American workers has not risen in line with economy-wide productivity. In fact, hourly compensation has almost stopped rising at all. Net productivity grew 72.2 percent between 1973 and 2014. Yet inflation-adjusted hourly compensation of the median worker rose just 8.7 percent, or 0.20 percent annually, over this same period, with essentially all of the growth occurring between 1995 and 2002. Another measure of the pay of the typical worker, real hourly compensation of production, nonsupervisory workers, who make up 80 percent of the workforce, also shows pay stagnation for most of the period since 1973, rising 9.2 percent between 1973 and 2014. Again, the lion's share of this growth occurred between 1995 and 2002.

Net productivity grew 1.33 percent each year between 1973 and 2014, faster than the meager 0.20 percent annual rise in median hourly compensation. In essence, about 15 percent of productivity growth between 1973 and 2014 translated into higher hourly wages and benefits for the typical American worker. Since 2000, the gap between productivity and pay has risen even faster. The net productivity growth of 21.6 percent from 2000 to 2014 translated into just a 1.8 percent rise in inflation-adjusted compensation for the median worker (just 8 percent of net productivity growth).

Since 2000, more than 80 percent of the divergence between a typical (median) worker's pay growth and overall net productivity growth has been driven by rising inequality (specifically, greater inequality of compensation and a falling share of income going to workers relative to capital owners). Over the entire 1973–2014 period, rising inequality explains over two-thirds of the productivity–pay divergence.

If the hourly pay of typical American workers had kept pace with productivity growth since the 1970s, then there would have been no rise in income inequality during that period. Instead, productivity growth that did not accrue to typical workers' pay concentrated at the very top of the pay scale (in inflated CEO pay, for example) and boosted incomes accruing to owners of capital.

These trends indicate that while rising productivity in recent decades provided the potential for a substantial growth in the pay for the vast majority of workers, this potential was squandered due to rising inequality putting a wedge between potential and actual pay growth for these workers.

Policies to spur widespread wage growth, therefore, must not only encourage productivity growth (via full employment, education, innovation, and public investment) but also restore the link between growing productivity and the typical worker's pay.

Finally, the economic evidence indicates that the rising gap between productivity and pay for the vast majority likely has nothing to do with any stagnation in the typical worker's individual productivity. For example, even the lowest-paid American workers have made considerable gains in educational attainment and experience in recent decades, which should have raised their productivity.

anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1LLW
January 4, 2015

Nonfarm business productivity and real compensation, 1948-2015

(Percent change)

https://research.stlouisfed.org/fred2/graph/?g=1KKg

January 4, 2015

Nonfarm business productivity and real compensation, 1948-2015

(Indexed to 1948)

anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1KK7
January 4, 2015

Difference between nonfarm business productivity and real compensation, 1948-2015

(Indexed to 1948)

anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1LLW
https://research.stlouisfed.org/fred2/graph/?g=1LLT

January 4, 2015

Nonfarm Business Productivity & Compensation, 1948-2014

Output & Real Compensation * Per Hour

(Percent Change)

1948 ( 2.5) ( 1.0)
1949 ( 3.2) ( 3.9) Truman

1950 ( 6.6) ( 4.7)
1951 ( 2.6) ( 0.8)
1952 ( 1.9) ( 3.2)
1953 ( 2.5) ( 4.8) Eisenhower
1954 ( 2.0) ( 2.8)

1955 ( 4.3) ( 3.9)
1956 (- 0.6) ( 4.6)
1957 ( 2.6) ( 2.4)
1958 ( 2.3) ( 1.2)
1959 ( 3.5) ( 2.9)

1960 ( 1.2) ( 2.8)
1961 ( 3.3) ( 2.2) Kennedy
1962 ( 4.6) ( 2.8)
1963 ( 3.4) ( 2.1) Johnson
1964 ( 2.9) ( 1.8)

1965 ( 3.2) ( 1.7)
1966 ( 3.6) ( 2.8)
1967 ( 1.9) ( 3.0)
1968 ( 3.5) ( 3.1)
1969 ( 0.2) ( 1.3) Nixon

1970 ( 1.5) ( 1.0)
1971 ( 3.9) ( 1.8)
1972 ( 3.4) ( 3.0)
1973 ( 3.1) ( 1.3)
1974 (- 1.7) (- 1.4) Ford

1975 ( 2.7) ( 1.2)
1976 ( 3.5) ( 1.9)
1977 ( 1.7) ( 1.6) Carter
1978 ( 1.3) ( 1.5)
1979 (- 0.2) ( 0.1)

1980 (- 0.1) (- 0.3)
1981 ( 1.6) ( 0.1) Reagan
1982 (- 1.0) ( 1.1)
1983 ( 4.4) ( 0.3)
1984 ( 2.2) ( 0.1)

1985 ( 1.6) ( 1.4)
1986 ( 3.0) ( 3.9)
1987 ( 0.5) ( 0.5)
1988 ( 1.6) ( 1.4)
1989 ( 0.9) (- 1.3) Bush

1990 ( 1.9) ( 1.2)
1991 ( 1.9) ( 1.3)
1992 ( 4.3) ( 3.4)
1993 ( 0.1) (- 1.2) Clinton
1994 ( 0.9) (- 0.8)

1995 ( 0.7) (- 0.4)
1996 ( 2.7) ( 1.4)
1997 ( 1.6) ( 1.3)
1998 ( 3.0) ( 4.4)
1999 ( 3.3) ( 2.0)

2000 ( 3.2) ( 3.8)
2001 ( 2.8) ( 1.6) Bush
2002 ( 4.3) ( 0.7)
2003 ( 3.7) ( 1.4)
2004 ( 3.1) ( 1.8)

2005 ( 2.1) ( 0.3)
2006 ( 0.9) ( 0.7)
2007 ( 1.6) ( 1.4)
2008 ( 0.8) (- 1.0)
2009 ( 3.2) ( 1.4) Obama

2010 ( 3.3) ( 0.3)
2011 ( 0.2) (- 0.9)
2012 ( 0.9) ( 0.6)
2013 ( 0.0) (- 0.4)
2014 ( 0.7) ( 1.1)

* Includes wages, salaries, and employer costs for employee benefits.

anne

http://twentycentparadigms.blogspot.com/2015/09/china-and-solow-model.html

September 5, 2015

China and the Solow Model

China's rapid, but decelerating, growth is broadly consistent with the implications of the classic Solow growth model we teach our intermediate macroeconomics students. This model predicts that low-income countries should grow quickly, but growth will slow down as they approach the leading countries, whose per-capita growth is constrained by the rate of technological progress. That is, there should be "convergence" in per capita GDP.

-- Bill Craighead

anne -> anne
Among the aspects of Chinese development since 1976 that interest me, along with the 38 years of unparalleled per capita economic growth has been the dramatically increasing multifactor factor productivity that from my perspective shows no reason China cannot continue to growth at a rapid pace:
http://research.stlouisfed.org/fred2/graph/?g=VYR

November 1, 2014

Total Factor Productivity at Constant National Prices for China, Japan and Korea, 1976-2011

(Indexed to 1976)

anne -> anne
What is important to me is that after having graphed country after country about the world, there is no country that approaches the gains in total factor productivity made by China since 1976. Why not any other Asian country? Why not any Latin American country? African? European?
anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1Hdw
November 1, 2014

Total Factor Productivity at Constant National Prices for China, Japan, Korea and Taiwan, 1976-2011

(Indexed to 1976)

http://research.stlouisfed.org/fred2/graph/?g=10zf

November 1, 2014

Total Factor Productivity at Constant National Prices for China, Korea, Hong Kong and Singapore, 1976-2011

(Indexed to 1976)

anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1eV1
November 1, 2014

Total Factor Productivity at Constant National Prices for United States, United Kingdom, France, Germany, Netherlands and China, 1976-2011

(Indexed to 1976)

http://research.stlouisfed.org/fred2/graph/?g=VJj

November 1, 2014

Total Factor Productivity at Constant National Prices for China, India, Brazil and South Africa, 1976-2011

(Indexed to 1976)

anne -> anne
https://research.stlouisfed.org/fred2/graph/?g=1IkB
November 1, 2014

Total Factor Productivity at Constant National Prices for China, Indonesia, Philippines, Thailand and Malaysia, 1976-2011

(Indexed to 1976)

https://research.stlouisfed.org/fred2/graph/?g=1u95

November 1, 2014

Total Factor Productivity at Constant National Prices for Brazil, Argentina, Chile, Mexico and China, 1976-2011

(Indexed to 1976)

anne -> anne
https://research.stlouisfed.org/wp/2015/2015-006.pdf
June, 2015

The Making of an Economic Superpower―Unlocking China's Secret of Rapid Industrialization
By Yi Wen

Abstract

The rise of China is no doubt one of the most important events in world economic history since the Industrial Revolution. Mainstream economics, especially the institutional theory of development based on a dichotomy of extractive vs. inclusive political institutions, is highly inadequate in explaining China's rise. This article argues that only a radical reinterpretation of the history of the Industrial Revolution and the rise of the West (as incorrectly portrayed by neoliberalism and the institutional theory) can fully explain China's growth miracle and why the determined rise of China is unstoppable despite its current "backward" financial system and political institutions. Conversely, China's spectacular and rapid transformation from an impoverished agrarian society to a formidable industrial superpower sheds considerable light on the fundamental weakness of mainstream "blackboard" economics and the institutional theory, and provides more-accurate reevaluations of historical episodes such as Africa's enduring poverty trap despite radical political and economic reforms, Latin America's lost decade and debt crises, 19th century Europe's great escape from the Malthusian trap, and the Industrial Revolution itself.

[Sep 07, 2015] The Thirty-Year Boom

September 06, 2015 | Economist's View
Part of an essay by David Warsh:

... For the old lions, Paul Samuelson and Milton Friedman, the '80s meant a bittersweet departure from the center stage of economics after forty years of dominating the scene. The two had entered their sixties; neither was out of steam. But the leaders of the next generation had become apparent: Lucas, in macroeconomics; Kenneth Arrow in nearly everything else.

The election of Ronald Reagan was a triumph for Friedman; they had known each other since Friedman spent a quarter at the University of California at Los Angeles, shortly after Reagan had been elected Governor of California.He was invited to lecture in China. And the international success of Free to Choose kept Friedman in the public eye.

But Paul Volcker took a different approach to monetary policy from the one Friedman advocated, and Friedman's forecasts became markedly worse. The editorial page of The Wall Street Journal adopted as its champion Friedman's long-time rival in currency matters, Robert Mundell, now teaching at Columbia University, and went all in for Mundell's young associate, consultant Arthur Laffer. A research appointment at the Federal Reserve Bank of San Francisco was not the same platform as the University of Chicago. Friedman still had his membership on the President's Economic Policy Board, but after he "savaged" Volcker to his face before the president in a meeting in 1983, both men lost influence. Pointing a finger at Volcker, Friedman said (according to Newsweek's account), "because of the policies of the Fed under that man we have had an inflationary surge in the money supply that is going to have to be corrected." Volcker was not reappointed. Edward Nelson, of the Federal Reserve Bank of St. Louis is writing a scientific biography of Friedman. It will make interesting reading when it is done.

In March 1981, Friedman wrote his Newsweek column in the form of a letter to Philip Handler, president of the National Academy of Sciences, advocating major cuts in the budget of the National Science Foundation, as a step towards the abolition of the NSF. The Reagan administration had proposed sharp cuts in the economics program. Friedman argued the government shouldn't pay for any scientific research. True, the NSF had funded much good science; but it had paid for much bad science, too, including, he wrote, overmuch mathematical economics. The great scientists of the past had done without NSF funding. Einstein did his work in a government patent office; general relativity might never have made it past a peer-review panel. "The innovative ideas that have stirred controversy in economics since NSF funding of economics began two decades ago owe little or nothing to NSF funding," he wrote.

Thus did Friedman dismiss the agency that Paul Samuelson had brought to life in 1945. Perhaps more important, by extension he dismissed the program of government fellowships, awarded by competitive exam, that had sent Samuelson to graduate school in 1935, all expenses paid – and countless others since, many of them as impecunious as Friedman had been in 1932. The NSF ran similar programs in mathematics and many ciences, and the principle had been extended, by Sen. Jacob Javits (R-NY) to humanities. NSF research grants funding had helped build the Massachusetts Institute of Technology into a powerhouse to rival Harvard, and played a similar role at many other public and private universities.

No Samuelson column followed Friedman's. Samuelson never wrote again for Newsweek . He resigned the column he written for fifteen years. When, many years later, I asked him about his timing, he firmly denied that it had anything to do with Friedman's column, and wrote me a letter for the file the next day repeating what he had said. I have always wondered if he sought to defuse the matter out of habit. That he and Friedman had remained on civil terms for seventy-five years was clearly a source of pride, though privately he grew less tolerant of his rival after 1980.

Samuelson, too, was in mild recession in the '80s. Keynesian economics hadn't yet rebounded from the biting criticism of the New Classicals in the '70s. Tensions were growing within the MIT department over appointments and the direction of future research. Samuelson formally retired in 1985, at 70, to make room for others. He had plenty to engage his professional attention. Commodities Corp., which had discovered such natural traders as Paul Tudor Jones and Bruce Kovner, was winding down, but Samuelson's interest in Warren Buffet's Berkshire Hathaway was gearing up. The Vanguard Group, whose godfather he had been ever since founder John Bogle introduced the first index fund, was thriving. Samuelson's friends and colleagues James Tobin, Franco Modigliani, and Robert Solow received Nobel Prizes.

Young Lions at Large

To the young lions of Keynesian economics in the '80s, rational- expectations macroeconomics and real business cycle theory posed a considerable bar. To work in the new traditions required a considerable investment in new tools and mathematical techniques, and, even fully teched-up, didn't seem to speak very directly to policy. A strong corps of economists went to work to fashion a "new Keynesian" version of the latest general equilibrium economics. But gradually one rising star of saltwater economics after another left academia for a policy job.

Martin Feldstein, of Harvard University, was the first. As something of an acolyte of Milton Friedman, Feldstein was never very high in salinity, but he demonstrated plenty of professional backbone as Chairman of the Council of Economic Advisers under Ronald Reagan for two years in the early days of the controversies over deficits before returning in 1984 to Harvard and his position as president of the National Bureau of Economic Research. Stanley Fischer, of MIT, was next, wrapping up a highly successful research career in order to serve as chief economist of the World Bank (a path that led to leadership positions in the International Monetary Fund, governor of the Bank of Israel and, currently, vice chairman of the Fed). Lawrence Summers, Feldstein's student, served as campaign economist to Democratic candidate Michael Dukakis in the 1988 presidential campaign and succeeded Fischer at the World Bank before joining the Clinton administration, where he advanced to Secretary of the Treasury.

Soon the flood was on: Jeffrey Sachs, Joseph Stiglitz, Olivier Blanchard, Kenneth Rogoff, Gregory Mankiw, Glen Hubbard, and Christina Romer were among those MIT- or Harvard-trained economists who served in government jobs or NGO positions. Paul Krugman retooled as a journalist. Lists of MIT and Harvard graduates in high positions in European, South American, and Asian governments were even longer. Did this differ in kind, and not degree, from the trajectory of academic economists dating back to to the New Frontier, if not the New Deal? I think so.

In 2006, Harvard's Mankiw, in an article for the Journal of Economic Perspectives argued, as I did in a book, that the differences in interests among economists were best understood as being similar to those between scientists and engineers. The early macroeconomists, led by Samuelson and Friedman, had resembled engineers seeking to solve practical problems, Mankiw wrote; macroeconomists of the past several decades, led by Tjalling Koopmans, Jacob Marschak, Kenneth Arrow, and others had been more interested in developing analytic tools and establishing theoretical principles. Their students the '80s had joined teams along similar lines. "Recently Paul Romer, of New York University, introduced a different distinction to elucidate some of the controversies in present-day macro – between bench science and clinical medicine. Both analogies will get plenty of elaboration in future years, for this is what changed in kind in the '80s: economics developed a clinical/engineering wing.

... ... ...
likbez said...

Due to his role in neoliberal transformation of Chile after Pinochet coup of 1973, Friedman can be viewed as a one of the first economic hitman for multinationals, member of organized crime disguised as an economist. According to the 1975 report of a United States Senate Intelligence Committee investigation, the Chilean economic plan was prepared in collaboration with the CIA. In 1987 45% of Chile's population was below poverty line. From Wikipedia:

==Start of quote ===
Milton Friedman gave some lectures advocating free market economic policies in Universidad Católica de Chile. In 1975, two years after the coup, he met with Pinochet for 45 minutes, where the general "indicated very little indeed about his own or the government's feeling" and the president asked Friedman to write him a letter laying out what he thought Chile's economic policies should be, which he also did.[26] To stop inflation, Friedman proposed reduction of government deficits that had increased in the past years and a flat commitment by government that after six months it will no longer finance government spending by creating money. He proposed relief of cases of real hardship among poorest classes.[2] In October 1975 the New York Times columnist Anthony Lewis declared that "the Chilean junta's economic policy is based on the ideas of Milton Friedman…and his Chicago School".[26]
=== End of quote ===

In her book The Shock Doctrine, Naomi Klein criticized Friedman's recipe for neoliberal scheme of the economic rape of the countries under disguise of transformation toward "free" market economics -- the neoliberal restructuring that followed the military coups in several countries using suspiciously similar schemes. She suggested that the primary role of neoliberalism was to be an ideological cover for capital accumulation by multinationals. Chilean economist Orlando Letelier considered that the main driving force behind Pinochet's dictatorship violence toward opponents was the level of opposition to Chicago School policies in Chile.

And Friedman himself was a coward who never personally acknowledged his role in the events. After a 1991 speech on drug legalization, Friedman answered a question on his involvement with the Pinochet regime, saying that he was never an advisor to Pinochet (also mentioned in his 1984 Iceland interview), but that only his students (Chicago boys) were involved.

He was followed by Harvard mafia with their economic rape of Russia in early 90th. Probably also prepared in collaboration with the CIA...

It is interesting that the paper does not mention Galbraith who was important opponent of Friedman (see "Friedman on Galbraith, and on curing the British disease", 1977) . In those two lectures Friedman disagrees with Galbraith's four most popular works: "Countervailing Power," "The Great Crash of 1929," "The Affluent Society," and "The New Industrial State". Friedman consistently repeats the neoliberal dogma that it is unfettered free market, with minimal rules and regulations, is the best economic system.

So it might be useful to distinguish between two instances of Friedman: the first is Friedman before "Capitalism and Freedom" and the second is after. Friedman after Capitalism and Freedom is a pitiful figure of a prostitute to power that be.

chris herbert said...

The best observation was the one by Wojnilower that the animals in the zoo were let out of their cages.. They are still roaming around, not yet put back in their regulatory cages. The list of financial crises beginning in the 1980s looks as bad and as frequent as those of the 1800s. Technology gives a sheen to the past 35 years or so, but underneath there's been immense intellectual damage. A degradation of morals and honesty. Today, greed is good. I'll be gone, you'll be gone (IBGUBG), rules politics and finance today. The animals are still lose, more trouble will visit the Kingdom.

bakho said...

Interesting history lesson.
Needs more links.
Friedman's spat with Volcker:

In Friedman's view, Volcker was too vulnerable to political pressures from Congress and the White House, Condemned by liberals and conservatives for plunging the country into recession and worried that continued high interest rates would cause massive default by Third World debtors, Volcker in mid-1982 shifted his sights away from the monetarist approach, loosening the Fed's targets for money growth and restoring interest-rate manipulation as a policy tool. In the five months before the November 1984 elections, the Fed increased the money supply to bring down interest rates and thus fuel the recovery to better Reagan's chances at re-election. After Reagan's reelection victor in November, the Fed again tightened the money supply, "This is not monetarist policy," Friedman says, "The key element of monetarism is to define what you are going to do and then stick with it."

For any Fed chairman, Friedman thinks, the temptation to linker with money-supply targets is probably irresistible. According to the monetarist doctrine, the Fed chairman's job is purely technical, "a matter of every month looking at the money base and making sure it increases by about a quarter of one percent," Friedman explains, "If the Fed chairman were to do a good job, he would become an unknown, a faceless bureaucrat."

Cooper, M. H. (1987). Economics after Reaganomics. Editorial research reports 1987 (Vol. II). Washington, DC: CQ Press. Retrieved from http://library.cqpress.com/cqresearcher/cqresrre1987082100

I wonder if so many of the young economist went into policy because the people involved: Volcker, Friedman, Laffer etc were pretty clueless and made bad predictions.

bakho said...

Just how wrong was Friedman?
DARPA turned the internet over to NSF and NSF spun it off into a large commercial engine.

NSF funds high risk investment, the kind that most corporations cannot. High risk research means many projects that don'r pan out, a small pool of winners and a handful that hit jackpot. It takes a large organization with very deep pockets to fund enough high risk research over long periods to have a good likelihood of getting a large hit. Industry cannot fund at that level, government can.

Another example: NSF funded obscure biochemistry into esoteric research on enzymes that could degrade DNA. That research became the foundation of genetic engineering. Who could have known?

pgl said in reply to Paine ...

Warsh did write an incredible amount of BS in this silly essay. I didn't think Mundell ever endorsed Laffer's stupid cocktail napkin.

Lafayette said...

REAGANOMICS

From WikiP: {According to Keynesian economists, a combination of deficit spending and the lowering of interest rates slowly led to economic recovery. However, conservatives insist that the significantly lower tax rates caused the recovery. From a high of 10.8% in December 1982, unemployment gradually improved until it fell to 7.2% on Election Day in 1984.}

Even Reagan, a good friend of Friedman, when push-came-to-shove, indulged is stimulus spending to get his presidency out of the deep-doodoo.
Which the Replicants stonewalled in 2010 when a Great Recession was in full sway, but the PotUS was a Democrat ...

pgl said in reply to Lafayette...

Wikipedia gets another wrong. It was Reagan's 1981 tax cut (deficit spending) that led Volcker to do round 2 of his tight money. Volcker kept trying to make a deal withe White House - reverse the fiscal stimulus in exchange for lower interest rates. The White House did not even know what was going on. And Wikipedia does not either.

[Sep 07, 2015] Why The New Car Bubbles Days Are Numbered

"...Well, of course, I'm going to buy the Biggest chartreuse Escalade I can! I got to fill that 4.872 sf subprime house garage with something.' Yes I can! ' "
.
"...Sum total? if we've unreasonably pulled forward sales, and further greased the skids of over production / unsustainable sales with low interest rates, plus exacerbated the problem by overproducing - then the comparably few new car buyers have something to look forward to."

Sep 07, 2015 | Zero Hedge

Having recently detailed the automakers' worst nightmare - surging new car inventories - supply; amid rapidly declining growth around the world (EM and China) - demand, it appears the bubble in new car sales is about to be crushed by yet another unintended consequence of The Fed's lower for longer experiment. As WSJ reports, Edmunds.com estimates that around 28% of new vehicles this year will be leased - a near-record pace - leaving 13.4 million vehicles (leased over the past 3 years in The US) - compared with just 7 million in the three years to 2011 - set to spark a massive surplus of high-quality used cars. Great for consumers (if there are any left who have not leased a car in the last 3 years) but crushing for automakers' margins as luxury used-care prices are tumbling just as residuals have surged.
To sum up...

The only way automakers are making sales is by lowering credit standards to truly mind-numbing levels and increasing residuals to make the monthly nut affordable.... that cannot last.

China's economic collapse has crushed forecasts for the automakers.

Inventories of new cars are already at record highs.

Inventories of luxury high-quality used cars is at record highs and prices are tumbling.

And July saw a massive surge in producton.

What comes next is simple... a production slump - just ask The Atlanta Fed.

Secret Treaties

Everything you need to know, right here . . .

https://research.stlouisfed.org/fred2/graph/?g=1A8n

Never One Roach

<< Consumers focused on the dollar amount of their monthly payment have taken advantage of low interest rates to sometimes buy more car than they might otherwise be able to afford. >>

Well, of course, I'm going to buy the Biggest chartreuse Escalade I can! I got to fill that 4.872 sf subprime house garage with something.

' Yes I can! '

Canadian Dirtlump

Over producing is definitely an issue, but that is separate - yet further exacerbated by the issue mentioned here.

Historically, companies like BMW, Toyota / Lexus and Honda could lease vehicles for a few years on the cheap, then sell the used returns for a profit - relying on their comparably high resale value. As they suggest, this becomes tougher when in addition to BMW and Honda.. Infiniti, Cadillac, Mercedes, Buick, Acura, and a panoply of other plebian manufacturers do the same thing. In addition to pulling forward future sales due to low interest rates, many people leased due to favorable conditions.

So in addition to average car loan duration being historically high, dealer inventory being historically high - thanks to an unreasonable expectation of low interest rate new normal environment, we have set the stage for a flood of "leaseback" used vehicles to hit the market soon.

Sum total? if we've unreasonably pulled forward sales, and further greased the skids of over production / unsustainable sales with low interest rates, plus exacerbated the problem by overproducing - then the comparably few new car buyers have something to look forward to.

... ... ...

JMT

In Boston, seems like every 20 something has a new BMW or a Ford F250.. Of course the yuppies who live in Back Bay & the South End all have several cars one of which is always a Prius with the $1,000 Thule bike rack

JMT

where exactly can you find a 3 year old (i assume Tacoma or the F250 which all 'real men' need to have for some type of ego boost?) for a 30% discount? and with "sub 20K miles on it)?
Also, most cars are still only made to last to around 100,000 miles when you get past 80,000 you find all those 'problems' that quicly add up - ex. suspension parts, hub bearings, brakes, tires. Any "sensor" can cost $500 + with parts, labor + sales tax.

Full Nelson

Fuck any car built after '06. Trackers and hacks and who knows what they'll be able to do next.
I'll take a set of carburetors and elbow room for wrenching before dealing with modern BS, circle-feeding California-emission, mechanical loopery headache disposable lighter cars.

[Sep 07, 2015] Central banks can do nothing more to insulate us from an Asian winter

"...Central banks are independent. Independent of their nations best interests."
.
"...Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy. Just a con trick."
.
"...Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market. "

Sep 07, 2015 | The Guardian

okisthislongenough 7 Sep 2015 06:39

Nothing more -- they have collectively destroyed the diligent savers, pensioners and even the value of small taxed gifts to children.
To many central bankers are interested in their own existence, hang the rest who rely on a perceived value that they under right in Fiat currencies.

kimdriver -> miceonparade 6 Sep 2015 16:07

Agreed. It's all a con trick.
Sometimes con tricks can be justified, but this one is so piss poor, and has such adverse consequences (the inflation of the price of financial assets, not through the injection of money but through the lowering of long term interest rates and the desire for yield).
Bernanke is on the record as saying that there is no theory to justify QE. And therefore there can be no model to justify the amount of QE undertaken and calibrate it to the needs of the economy.
Just a con trick.

soundofthesuburbs 6 Sep 2015 15:54

Many years ago when Alan Greenspan first proposed using monetary policy to control economies, the critics said this was far too broad a brush.
After the dot.com crash Alan Greenspan loosened monetary policy to get the economy going again. The broad brush effect stoked a housing boom.
When he tightened interest rates, to cool down the economy, the broad brush effect burst the housing bubble. The teaser rate mortgages unfortunately introduced enough of a delay so that cause and effect were too far apart to see the consequences of interest rate rises as they were occurring.
The end result 2008.
With this total failure of monetary policy to control an economy and a clear demonstration of the broad brush effect behind us, everyone decided to use the same idea after 2008.
Interest rates are at rock bottom around the globe, with trillions of QE pumped into the global economy.
The broad brush effect has blown bubbles everywhere.

miceonparade 6 Sep 2015 15:14

Whatever the diagnosis for the less-than-impressive post-crisis recovery – the debt overhang from the boom years, chronic underinvestment, weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease – the cure is unlikely to lie with the central banks.

That is correct. All central banks can do is swap assets with banks. That is not economically stimulative. Changing the composition of bank portfolios does nothing to get money to people to spend. They still have to borrow it, and who wants to borrow right now in order to invest in an economy in which nobody is spending? The answer lies in fiscal policy. The treasury must increase net spending to get money directly in the hands of people so they can spend it and turn it into somebody else's income (and so on).

And the market gyrations of recent weeks have been a reminder of a lesson the world learned in the crisis of 2008 and beyond: central banks are not the omniscient puppet masters of the global economy they seemed before the crash. Instead, in resorting to trillions of dollars' worth of quantitative easing, they may have conjured up forces they can barely control.

Central banks have little effect on economies. But that also means that quantitative easing won't have conjured up any forces beyond their control. It's just a fruitless exercise in changing the composition of bank holdings. Unsurprisingly, no reasons are given for this assertion in the article.

soundofthesuburbs soundofthesuburbs 6 Sep 2015 12:07

The BIS directors:
Mark Carney, London
Agustín Carstens, Mexico City
Jon Cunliffe, London
Andreas Dombret, Frankfurt am Main
Mario Draghi, Frankfurt am Main
William C Dudley, New York
Stefan Ingves, Stockholm
Thomas Jordan, Zurich
Klaas Knot, Amsterdam
Haruhiko Kuroda, Tokyo
Anne Le Lorier, Paris
Fabio Panetta, Rome
Stephen S Poloz, Ottawa
Raghuram Rajan, Mumbai
Jan Smets, Brussels
Alexandre A Tombini, Brasília
Ignazio Visco, Rome
Jens Weidmann, Frankfurt am Main
Janet L Yellen, Washington
Zhou Xiaochuan, Beijing
The banking cartel that runs the world.

soundofthesuburbs 6 Sep 2015 12:03

Central banks are independent. Independent of their nations best interests.
But the heads of all major Central Banks are directors of the Bank of International Settlements in Switzerland (including China). Our policy makers are the same the world over and they reside in the BIS in Switzerland. The policy is to prop up the global banking system and stock markets.

Dunbar1999 6 Sep 2015 10:16

The common-sense relationship between lending and borrowing seems to have been lost since computer programs started working out profit-and-loss equations to ten decimal places in micro-seconds for the benefit purely of agents -- middlemen, or facilitators Ordinary people with even a little cash to spare used to be able to lend it, probably to a bank; and then the bank would lend it to someone else who would pay the bank enough for the use of the money to enable the bank to pay the lenders. About 3 per cent over the general rate of inflation was generally agreed to be fair, I believe, for years and years. But now that the act of lending money (to a bank, lets say, i.e. saving) gets a lot less back than what inflation actually costs the saver, it makes more sense for millions of people with a bit of spare cash to put it where they think they'll get a bit more back -- like a posher house, maybe. Or stock in a snazzy new tech company. And then economists start worrying about asset bubbles, and things get out of whack and start going to hell in a handbasket. I have never understood why professional economists, especially those labeled in America "freshwater" economists, never seem to have studied psychology along with all those charts and equations. There are actually real people living their daily lives in every part of every economy, after all.

burgermeister 6 Sep 2015 09:43

I suspect, for many normal people, the 2008 crash was a wake-up call. Too much private debt and not having any spare money lying around for an emergency is no way to live when the economy can change on a whim.

We've certainly been tightening our belts here since the Tories got in, stockpiling spare cash in an easy-access savings account (on top of existing investments) and making over-payments on the mortgage. I have no faith at all in this recovery or in the government to provide a decent safety-net if it all goes tits-up so this consumer's spending will not be doing what the economy wants it to.

NWObserver -> MattyTwo 6 Sep 2015 08:56

Gold is merely another token of wealth, although not something that can be created out of thin air. The true source of wealth is the ability and willingness to create it out of the resources available in nature and those who possess it are the best positioned to ride out the storm. Of course, also holding time-tested tokens of wealth like gold can't hurt either.
But those who think creating tokens of wealth in endless supply can make them skim the wealth produced/owned by the others and do so forever will get a harsh dose of reality.

candidliberal 6 Sep 2015 08:46

Growth under free market capitalism largely functions through bubbles - following the explosion of tech consumerism and ill-advised financial speculation on property assets, North America has recently benefitted from the fracking explosion as well as the fall in the oil price; the UK always has its property market.

Social market Europe will have to liberalise substantially to return to anything approaching old patterns of growth - only Germany has managed this if under now dusty Schroeder reforms from the late 90s.

Shakerman 6 Sep 2015 08:46

According to legend, the location of Wall Street, the New York financial district, was chosen because of the presence of a chestnut tree enormous enough to supply tally sticks for the emerging American stock (stick) market.
There was a time when the English government created money debt free using wooden (Tally) sticks.
As Ellen Brown points out in her book "The Public Bank Solution" when debt based money was forbidden in Medieval England, despite the Black Death and other scourges that had to be contended with, the economy itself seems to have provided quite easy living conditions.
Introduced by King Henry I (son of William the Conqueror) to thwart the debt creating money changers, wooden tallies were wooden sticks with notches cut in them and then split length-ways.
One half of such a stick, which was given to the party advancing funds, had a handle and was called the "stock", while the other half was called the "foil".
The "foil" was the origin of the term "the short end of the stick."
The term "stock" has evolved to describe shares in publicly listed corporations today.
Thorold, Rogers, a nineteenth century Oxford historian, wrote that during this time (Middle Ages) when money was not created bearing debt, "a labourer could provide all the necessities for his family for a year by working 14 weeks."
Fourteen weeks is only a quarter of a year and so for the rest of the time some men worked for themselves, some chose to study and some fished or engaged in other leisure activities.
Indeed some helped to build the cathedrals and churches that appeared all over England during that time – massive works of art that were built mainly with VOLUNTARY labour.
Over one hundred thousand pilgrims had the wealth and leisure to visit Canterbury and other shrines yearly.
William Cobbett, author of the definitive "History of the Reformation," wrote that Winchester Cathedral "was made when there were no poor rates; when every labouring man in England was clothed in good woollen cloth and when all had plenty of meat and bread."
Money was available for inventions and art, supporting the Michelangelo's, Rembrandt's, Shakespeare's and Newton's of the period.

windwheel 6 Sep 2015 07:42

'weak consumer demand as a result of deep-seated inequality, or some other as yet undiagnosed economic disease' Wow! Has the author not heard of the Permanent Income Hypothesis? Is he not aware that Technology is changing unpredictably - we don't know what sort of education and training is worth investing in, let alone which Companies have a robust business model - as is Demographics - with the result that Uncertainty has increased and, assuming the Ellsburg effect holds, expected Permanent Income must have declined more than proportionately?

What is this guff about Central Bankers having been considered omniscient gods prior to 2007? Greenspan mania had nothing to do with Monetarism but was about American exceptionalism and Randian animal spirits.

Britain is differently placed and may well see some tightening even if the Market continues to misunderstand what Hu is up to.

NicholasB 6 Sep 2015 06:58

The Shanghai Stock Market is still up on the year. Don't get carried away by the hype. There was a stock market bubble and it burst. This is not a sudden collapse of the Chinese economy.

JaneThomas 6 Sep 2015 05:42

That tree is such a metaphor- like a version of the story of King Midas who received his wish and turned everything into gold, including his child.
'"A piece of bread," answered Midas, "is worth all the gold on earth -- Oh my child, my dear child I" cried poor Midas, .wringing his hands.'
A real forest is worth all the gold on earth.
Perhaps a better sculpture would be this one- http://www.sculptor.com.au/#!/zoom/cay5/imagebv0

andydav 6 Sep 2015 05:23

the problem is in europe and america people are not buying therefore in asia the maker's of the product have to downsize .The problem is not in Asia but the lack of buyer's in america and europe .So why do people not buy.Simple they don't have a jobs no saving's

johnbig 6 Sep 2015 04:32

Central banks can do nothing more to insulate us from an Asian winter
I did hear of an intelligent proposal from a Labour politician, which was supported by several respected economists. It was called People's Quantitative Easing to be used for investment in infrastructure. Perhaps though we should not spend a much as the £200bn already channeled through the banks

someoneionceknew 6 Sep 2015 04:18

The way out of depression is fiscal policy. All this rubbish about central banks is a distraction. They don't have the tools to lift aggregate demand.

The European Central Bank proudly announced on Friday that it is erecting a 17-metre-high bronze and granite tree outside its Frankfurt headquarters – an artwork intended to "convey a sense of stability and growth"

A cruel joke. The Stability and Growth Pact is a suicide cult. Macroeconomic madness.

[Sep 06, 2015] The Dangerous Separation of the American Upper Middle Class

"...Maybe this is why economics has gotten so boring lately. For the upper 20%, which includes most academic economists, there is a 100% recovery. So they have stopped talking about what is wrong with American society, and gone back to talking about methodological issues, and about that time someone called them a mean name in graduate school."

gs:
The dangerous separation of the American upper middle class: The American upper middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income-where the top fifth have been prospering while the majority lags behind. But the separation is not just economic. Gaps are growing on a whole range of dimensions, including family structure, education, lifestyle, and geography. Indeed, these dimensions of advantage appear to be clustering more tightly together, each thereby amplifying the effect of the other.
In a new series of Social Mobility Memos, we will examine the state of the American upper middle class: its composition, degree of separation from the majority, and perpetuation over time and across generations. Some may wonder about the moral purpose of such an exercise. After all, what does it matter if those at the top are flourishing? To be sure, there is a danger here of indulging in the economics of envy. Whether the separation is a problem is a question on which sensible people can disagree. The first task, however, is to get a sense of what's going on.

Skipping the extensive analysis covering:

"We are the 80 percent!" Not quite the same ring as "We are the 99 percent!" ...
Defining the upper middle class...

Upper middle class incomes: on the up...

"Where did you get your second degree?" The upper middle class and education...

Families, marriage and social class...

Voting and Attitudes...

The conclusion is:

Conclusion The writer and scholar Reihan Salam has developed some downbeat views about the upper middle class. Writing in Slate, he despairs that "though many of the upper-middle-class individuals I've come to know are good, decent people, I've come to the conclusion that upper-middle-class Americans threaten to destroy everything that is best in our country."
Hyperbole, of course. But there is certainly cause for concern. Salam points to the successful rebellion against President Obama's plans to curb 529 college savings plans, which essentially amount to a tax giveaway to the upper middle class. While the politics of the reform were badly bungled, it was indeed a reminder that the American upper middle class knows how to take care of itself. Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

In the long run, an even bigger threat might be posed by the perpetuation of upper middle class status over the generations. There is intergenerational 'stickiness' at the bottom of the income distribution; but there is at least as much at the other end, and some evidence that the U.S. shows particularly low rates of downward mobility from the top. When status becomes more strongly inherited, inequality hardens into stratification, open societies start to close up, and class distinctions sharpen.

Posted by Mark Thoma on Thursday, September 3, 2015 at 01:55 PM in Economics, Income Distribution | Permalink Comments (46)

Mike Sparrow
The upper middle class will also be the ones who will be thrown to the wolves if everything falls apart. Hubris is a bitch.
DrDick -> Mike Sparrow...
There is also this possibility (given the large number in the tech industry):
"I really don't know what you do about the "taxes are theft" crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people's fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch.

That'll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools." (John Scalzi, http://whatever.scalzi.com/2010/09/26/tax-frenzies-and-how-to-hose-them-down/)

Sandwichman said...
Factitious values and cost-shifting. It's all that's left, really. Everything else is just resource depletion and overpopulation. Malthus was wrong! Then.
Sandwichman -> Sandwichman
But not to worry. Nothing a little QE can't fix. Every time I get a bump or scrape I just rub some QE on it and... all better!
Peter K. -> Sandwichman...
Hoho!
Like what Krugman predicted about Obama's stimulus, it wasn't enough and so it was discredited as being an expensive waste.

Larry said...
My litmus test about the liberalness of (homeowning) liberals is whether they favor replacing the mortgage interest deduction with a tax credit of fixed size. Those deductions are a huge UMC subsidy.
Then you could talk about the massive federal aid to universities, again helping the 30% who go but not the 70% who don't.

Sandwichman -> Larry...
Yep. The "Upper Middle Class" is nothing but cost-shifting and factitious values. Smoke and mirrors. Punch one some time. It's like they are made out of twinkies.
Sandwichman -> Sandwichman
I am talking about people who have made a career out of toad swallowing and being pushed around by blood-sucking plutocrats.
America is a political cesspool. And the professional and intellectual classes occupy themselves knitting nappies for the issue of the Great Whore of Babylon.

Sandwichman -> anne
Oh, yeah? Well I've had it up to here with "substance".
Ever hear of climate change denial or neo-Nazi Holocaust denial? Well, you had it big in the U.S.A. in the neo-Confederacy "Lost Cause" slavery denialism. And that denialism wrote the textbooks. And it elected the Senators and the Representatives and the Presidents (Nixon? Reagan? Bush?) and I'm getting fed up watching people palaver about the doilies on the armchairs when the Sons and Daughters of the slaveowner plutocrats are busy sending out checks to slobbering army of pundit propagandists to keep themselves perpetually in power.

Why should I worry though. Folks have their problems and their troubles but they're generally happy, like the textbooks and reality TV says they are:

"How the Negroes Lived Under Slavery
"Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."

anne -> Sandwichman
Fine, this is well argued, I think I understand and I am sorry in any event.
I am sorry.

Dan Kervick:
Maybe this is why economics has gotten so boring lately. For the upper 20%, which includes most academic economists, there is a 100% recovery. So they have stopped talking about what is wrong with American society, and gone back to talking about methodological issues, and about that time someone called them a mean name in graduate school.
pgl -> Dan Kervick
I trust you know that a lot of academic economists are not being paid that much. Unless they shill on the side for some tax attorney the way William Baumol has of late.
Peter K. -> Dan Kervick...
Your prolier-than-thou shtick is boring.
Examples? Maybe you're talking about Thoma?

You want Thoma to talk about what's wrong with American society instead of methodological issues?

Maybe you should go bore some other website?

Dan Kervick -> Peter K....
No, I'm talking about Romer, Krugman and the others who have been having a debate about why the New Classicals and New Keynesians stopped hugging each other.
Peter K. -> Dan Kervick...
So you have to be poor to be a good economist is what you're saying?
Krugam talks about more than the history of academic economics.

I don't think economics or writers like Krugman are boring at all.

"For the upper 20%, which includes most academic economists, there is a 100% recovery."

That's why DeLong, Stiglitz and Dean Baker were at the Fed Up conference.

Like I said, your straw man arguments bore me to tear.

Reality and the truth are more interesting.

pgl -> Dan Kervick

Krugman is not exactly the run of the mill academic economist. Nobel Prize for example. Now Dan - when did you get a Nobel Prize?

Pinkybum -> Dan Kervick...

Has there ever been another economist who has talked about the inhumanity of the policies during the great recession more than Krugman?

JF:

President Obama might direct that all economic data become reported first on the data associated with population who fit within the 90% strata and announce that this is being done to remind people every day that the public's govt is supposed to govern with the bulk of society in mind.
The President's budget submission to Congress will discuss matters in this way too; that is, how are the 90% affected. And as you know, I'd prefer that this grouping is done mostly on a Net Worth basis, not income, so we have a constant reminder to consider economics looking at both wealth and income - not just income for the coming year.

Of course the data that includes the 1% and the other 9% will be available too.

JF -> JF

And I'd like academia to mirror this too. All studies will focus on the 90% and discuss from this perspective.
Let the Koch-backed researchers do the other studies.

It really would be interesting to have all professors tell their students to only use data for the 90% in their discussion papers.

fledermaus:

They use average and not median income to say the upper middle class is doing well, but the top 20% includes the 1% by definition. So measuring the average income without even mentioning median.
And even using average, top 20% incomes look to be stagnant since the late 90s.

Jeff -> fledermaus...

Yes. There appears to be a blatant equivocation (or outright misrepresentation) in the piece as to "middle" in "upper middle", including as it does the ENTIRE top quintile. That is more accurately, if colloquially, referred to as "upper crust". At minimum the upper 1% needs excluded before "middle" is at all accurate.

Lord:

Top 20% is rather broad. It isn't about envy. It's about greed.

pgl:

Let's see. My job pays me nearly $200K a year and every gold digging hottie in Manhttan tells me that I must vote Republican. Sorry dolls - I grew up a blue collar Democrat and I will forever be one. But the gals in Brooklyn are liberals so who needs those Uppity East Sider gold diggers? Not to make this personal but!

Denis Drew:

Ricard Reeve's great. I used to watch him and a black woman journalist and a Jewish NBC vice-president on a Sunday morning news show in NYC on our 10 inch screen RCA.
Same old diagnosis and treatment for almost every American social problem. Core pathology is complete loss of economic (Reeves seems to concentrate on politics) and political power by the vast majority of us -- caused by exclusively and only by DE-UNIONIZATION.

Easy solution: make union busting a felony. Why are labor market laws the only fair market restrictions with no teeth at all (can we say "dentures" -- we just have to plug them and everything else is good to go).

A couple of progressive states start the roll (RICO auto-invoked) -- people in the next state over will wonder why they are not as free to collectively bargain. Spread like a grass fire. I say grass fire because it really is a superficial action -- labor laws already in place/core issues presumably settled -- JUST NEED TO BE ENFORCEABLE.

Re-unionize thoroughly enough and we wont even need an LBJ to steam roller progressive laws through the US Senate. :-)

Denis Drew -> Denis Drew

Whoops! Looks like it's a new (young) Richard V. Reeves. Wonder if there's any relation?

Don Quixote:

Yes, let's invent more enemies. First the 1%, then the 20%, then ... some other percent between 0 and 100. "White privilege", "male oppression"... Come on, give me more. This is what the liberal left has always been good at: finding fictitious enemies to blame for the plight of the world and launching wars against windmills.

Peter K. -> Don Quixote...

I thought it was progress that the left narrowed it down to 1 percent.
Reihan Salam is a young conservative. It's conservatives who usually blame the liberal elite who are running academia, the media and government. The trial lawyers. Hollywood.

But yeah lefties like nothing more than internecine warfare. It was the left who invented the term politically correct to describe fellow lefty assholes like Kervack.

"Liberals" and "Leftists" are not the same thing. Most Leftists don't play much in politics and have a seek and destroy mantra to modern society. Capitalism is unpure and needs to be destroyed.
What you call conservatives are inventions of the intellect themselves. Maybe more so because what they believe needs the intellect to survive.

Peter K.:

off topic, but I'm wonder when or if wages will pick up soon. The last two tightening labor markets were cut short by bubbles popping, no? Will the Fed allow tight markets as Greenspan did?
http://www.nytimes.com/2015/09/04/upshot/this-was-to-be-the-year-of-bigger-wage-gains-its-not.html?rref=upshot

This Was to Be the Year of Bigger Wage Gains. It's Not.
SEPT. 3, 2015
by Neil Irwin

....

"If we continue to get good job reports where we're adding over a couple hundred thousand jobs a month, eventually we'll see the pace of wage growth accelerate," Mr. Bernstein said. "I think that connection remains a viable one. It just hasn't happened yet because there's a lot more slack in the job market than the topline numbers suggest."

You could even imagine a story where the complaints of businesses that it is hard to find good workers, and the voluntary increases of entry-level wages, fit with this story of a large shadow work force that is glacially coming back into the market.

When there is a large pool of people who fit the official definition of unemployed - people actively looking for work - finding them is relatively easy. It can be a simple matter of picking the most promising applicants and paying a competitive wage.

But when the pool of potential workers is heavily tilted toward people who are not actively seeking work, as appears to be the case today, it may be that employers have to work harder to find them. Perhaps employers are having to expend more effort to find their new workers, and paying more for the lowest-paid, entry-level staff, even as they are keeping the lid on pay increases for those at middle levels and are ultimately finding the staff they need after more difficulty than usual.

A hiring manager had an easy job between 2009 and a year or two ago, with hordes of unemployed Americans beating down the door in search of work. It's getting harder to attract and keep good staff, and some companies may be having trouble with the adjustment, said Paul McDonald, a senior executive director at the staffing firm Robert Half International.

"If I'm an employer, I'm asking, 'When was the last time I gave my employees, especially my high performers, a bump in compensation?' " Mr. McDonald said. "I'm asking myself, 'What am I doing to retain my workers?' That's a wake-up call for some clients."

In other words, right now companies may be having to work harder to find staff given a low unemployment rate. As more of the shadow work force finds its way back into jobs, employers will most likely have to back their efforts with cold, hard cash, and when that happens higher wage gains should follow.

Mike Sparrow -> Peter K....

There is always a shadow workforce. Wages go by inflation and productivity, which is influenced by several facets. Little surprise that the best gains happened during the digital influenced productivity boom's height during the last 40 years.
Cold hard cash may not be needed unless unemployment goes very low to get people not needing to work, to work. I don't see that kind of demand happening globally. Maybe it is a good thing if it doesn't.

Pinkybum -> Peter K.

Wages will increase when the participation rate gets closer to what it was before the recession. It could take about 4-5 years.

reason:

Larry,
(re subsidies to education) - you do realise of course that services are a highly competitive industry and that supply is determined by access to higher education. Now take a look again at medical costs in the US (with relatively low subsidies to higher education) and compare them with France (with higher subsidies). Also where do you get that 30% number? I suspect it is somewhat dated.

[Sep 06, 2015] China's stock market crash 11 things you need to know by Ezra Klein and Max Fisher

They actually managed to stop the slide. But factor listed are interesting and some of them are applicable to the USA stock maket as well.

August 24, 2015 | Vox
China's stock market is crashing, and the Chinese government can't seem to stop it
On Monday, China's benchmark Shanghai Composite index fell another 8.5 percent, bringing the market's total losses to almost 40 percent since its June peak. The drop comes after large losses earlier in the summer.

How large were those losses, exactly? This July tweet from Zero Hedge gives a useful sense of scale:

China has lost 15 Greeces in market cap in three weeks

What's perhaps more worrying than the actual losses is the Chinese government's inability to stop them.

As Tim Lee wrote after the July slide, the Chinese government basically destroyed their stock market to save it: The central bank pumped cash into the China Securities Finance Corp, a state-run company that lends people money so they can buy stocks; many initial public offerings were suspended so newly issued shares wouldn't compete with those already on the market; major shareholders in companies were banned from selling stocks; China's securities regulator ordered companies to either buy their own shares or encourage their executives or employees to do the same; and so on.

This was a tremendous amount of intervention - so much so that it basically wrecked the ability of China's stock market to function as a normal stock market, where companies trade at a price that reflects their real value, and those prices help investors efficiently allocate capital. But it at least seemed to prove that the Chinese government could stop the sell-off it it wanted to. Monday's drop throws even that into doubt.

"This is a real disaster and it seems nothing can stop it," Chen Gang, the chief investment officer at Heqitongyi Asset Management Co., told Bloomberg.
2) China's stock market boom is built on debt
Investing borrowed money used to be heavily restricted in China, but the authorities have loosened the regulations since 2010. The result has been an explosion of debt-fueled trading.

"By official count, margin debt on the Chinese stock market has tripled since June 2014," wrote Ruchir Sharma, head of emerging markets and global macro at Morgan Stanley Investment Management, in the Wall Street Journal. "As a share of tradable stocks, margin debt is now nearly 9%, the highest in any market in history."

And it's not just margin debt. People have been finding creative ways to evade the regulations the Chinese government left on the books (as detailed in a helpful May report from Credit Suisse). So there's yet more risky debt, and yet more risky trades, than that chart suggests.
3) Most of China's new investors don't even have a high school education
"Unlike other major stock markets, which are dominated by professional money managers, retail investors account for around 85 percent of China trade," reports Reuters.

Or consider this data point: "A majority of the new investors in China's market don't have a high school education (6% are illiterate)." There are now more retail investors in the Chinese stock market (90 million) then there are members of China's Communist Party (88 million).

There's an optimistic spin to put on this: Individual borrowers don't create systemic risks. A bunch of farmers going bankrupt doesn't imperil the global financial system.

But there's a pessimistic read, too: These borrowers - and there are a lot of them - got into the stock market because the Communist Party, in word and deed, was pushing them into the stock market. Then the market crashed. They will be justified in partially blaming the government for their losses, and the Communist Party has never been particularly good at dealing with widespread anger at the regime. In that way, even if the economics of individual borrowers are simpler, the politics can be much worse.

"This is a real testing moment for the leadership," Zhao Xijun, deputy dean of Renmin University's School of Finance, told Bloomberg. "The evaporation of fortunes of more than 80 million individual investors would pose unthinkable social problems for the country."
4) The Chinese government's failure to stop the crash is rattling markets even more
As the Economist wrote in July, the government has put on "a spectacle of ever-more drastic actions to save the market. Regulators capped short selling. Pension funds pledged to buy more stocks. The government suspended initial public offerings, limiting the supply of shares to drive up the prices of those already listed. Brokers created a fund to buy shares, backed by central-bank cash. All the while, state media played cheerleader."

My favorite bit of media cheerleading: "Rainbows always appear after rains," promised The People's Daily.

The fact that all this intervention hasn't been enough has scared markets yet more. "Beijing's inability to stop the recent decline has rattled investors who have long been used to seeing the government use its power to control markets," reported the Wall Street Journal in July. This most recent sell-off follows months of overwhelming, and seemingly successful, intervention from the Chinese government, and so it's yet more proof that the situation may be spiraling out of their control.
5) China's stock market is big - but it's not that big
As the Economist notes, "Lost in all the drama about the stock market is that it still plays a surprisingly small role in China. The free-float value of Chinese markets-the amount available for trading-is just about a third of GDP, compared with more than 100% in developed economies. Less than 15% of household financial assets are invested in the stock market: which is why soaring shares did little to boost consumption and crashing prices will do little to hurt it."

You might think, given that, that the Chinese government wouldn't much worry over the gyrations of the stock market - after all, it's still up from last year. But the stock market's crash comes on the back of broader woes in the Chinese economy. Growth has been slowing for years, and economists broadly agree that the country's export-driven economic model needs a (possibly painful) overhaul.

In this, the stock market is as much symbol as anything. The Chinese government is good at hiding the country's economic problems from outside eyes, but it can't hide a plunging stock market. Given that, officials have tried to intervene directly to stop the market from plunging, and that just made them look weak and has focused more attention on the Chinese economy's problems.
6) The deeper problem: China's export-based model has stopped working
China's stunning economic rise has been fueled by low-cost exports. But as its economy has grown, the export model has begun to crack apart.

"It has outgrown the export-led growth model that led it to rely on external demand and high internal investment," says Patrick Chovanec, a longtime China watcher who is currently chief strategist at Silvercrest Asset Management. "So now it needs to shift to a model that is more balanced between investment and consumption."

Around the 2008 recession, in particular, global demand fell, and China couldn't keep its growth going through exports. And its own citizens weren't consuming enough to create the demand necessary to keep the growth engine revving.

The Chinese government's answer was to use monetary policy, state-owned banks, local governments, and other tools under its control to push internal investment. The result was a massive buildup in factories, highways, airports, real estate, and much more. Some of these investments were wise. Many weren't. China has become famous for its profusion of empty stadiums, skyscrapers, and even cities. The result, says Chovanec, is "a lot of overcapacity and bad debt."

This is part of why the Chinese government encouraged the stock market boom, Sharma said in an interview. "The Chinese government basically comes up with this plan. They see they have these heavily indebted companies that need to raise money to clean up their balance sheets. They realize there are these huge savings in China that can be put into the stock market. So they begin talking up the stock market and they make it easier to use margin debt. And margin debt exploded."

So the stock market crash speaks to a much larger problem: China has not transitioned to the kind of consumption-driven economy that it needs to have. It is stuck in an outdated economic model that is unsustainable.
7) China's Communist Party is unusually scared of slow growth

China's official inflation-adjusted growth rate in 2014 was 7.4 percent, and the economy is growing, according to official (and, some believe, inflated) statistics, at about 7 percent in 2015.

Sound pretty good? Not for China. It's almost an article of faith among senior leaders in the Chinese government that 7 percent growth is the bare minimum needed to keep the society stable. In the Communist Party's view, this is the basic bargain they have made with the citizens of China: The people give them power, and they give the people growth. If they stop giving the people growth, well, the people might stop giving them power - and no one knows what happens in that scenario.

Here's the other problem: That 7 percent number might be bunk. Some Chinese officials have privately admitted that the official GDP statistics are unreliable. "The headline number of 7 percent in China is not something that's corroborated by other data, like electricity production or import growth," Sharma says. "That data paints a picture of an economy growing at more like 5 percent."

But even if the official data is right, it's still a 25-year low for the country. And that's part of why the Communist Party is so desperate to get growth back on track.
8) China's leaders have less power to direct the economy than many think
So why hasn't China made this transition to a new, healthier kind of economy? Why is it stuck in an unsustainable model? One reason is that its leadership, though it may appear monolithic and all-powerful from the outside, actually isn't.

One place you can see this play out is in steel production. China has long produced and exported way too much steel, flooding global markets and keeping China's economy on the export-led model it needs to drop. So, just about every year, China's leadership comes out and announces that it's going to cut steel production. And, every year, steel production does the opposite: It goes up. It only finally dipped for the first time in 20 years this spring, after US and EU producers called for tariffs to punish Chinese overproduction.

Beijing can make all the declarations it likes, but there are a lot of high- and mid-level officials, not to mention the powerful state-run industries, that might not see it as in their interest to go along. Those officials are really invested in the status quo - often quite literally so, with corruption rampant.

This gets to the larger problem with China's needed economic transition to a consumer economy: The leadership can't pull it off unless the larger Chinese system wants to make it happen, which is very hard for the simple reason that it would be bad for the people who dominate that system.
9) China's government is terrified of economic problems leading to social unrest
The countercurrent here is that the Chinese Communist Party is deeply paranoid. It fears that economic crisis could lead to social unrest, and that social unrest could lead to utter catastrophe. That was a chief lesson it took from the 1989 Tiananmen Square protests, which were spurred in part by economic problems, and which Beijing saw as so dangerous it deployed tanks into the streets.

China's leaders are willing to go to extraordinary lengths to prevent that from happening again, which in economic terms means keeping growth up. This makes them at times very risk-willing; the stakes, in their minds, justify it. At the same, their fear of the consequences of disaster can make them risk-averse and conservative.

You can see these dual impulses play out, for example, in the leadership's handling of the stock crash. Chinese leader Xi Jinping had promised since 2013 to let market forces play a larger role in the economy, but over the past couple of months has gone back on that, intervening heavily to prevent a bigger crash.
10) China's leadership has managed to resolve economic crises in the past
One reason there is tremendous debate among China watchers over the health of China's economy is that on the one hand, there are many indicators that the system is fundamentally unhealthy, but on the other, the leadership has shown time and again that it can resolve the crises these problems create. The current stock market crash is just the latest in a very long series of economic and political crises that have hit the country: the 2011 Wukan village protests, for example, or the 2013 credit crunch.

Every time, it looked like a crisis that got right to the heart of China's fundamental weaknesses and could perhaps bring the system tumbling down. Every time, the leadership managed to pull through and to keep the system in place; within a couple of weeks or months, the supposedly existential crisis was over, and things were more or less back to normal. The result has been growing market trust in China's government, as the pessimists who keep predicting collapse keep being proven wrong.

Of course, past performance is no guarantee of future results.
11) It's dangerous for the world to lose faith in China's government
Financial crises happen when markets have to reevaluate an important investment premise all at once. In 2007, for instance, markets were forced to abandon the idea that subprime loans were low-risk. In 2010, they were forced to abandon the idea that loans made to eurozone members like Greece were safe. The biggest danger here is that a series of bad decisions by the Communist Party will force the world to reevaluate a truly critical investment premise: that China's government knows what it's doing.

"People are seeing now that the Chinese economy might now be too large and too complex for the government to be in control of it, and that would lead to a fundamental reassessment of the risk for China," says Sharma.

China's stock market isn't that big, and because of regulations sharply limiting foreign investment, it isn't that integrated into the world economy. So the consequences of a stock market crash aren't that severe. But China is huge and fully integrated into the world economy. The consequences of political unrest in China, or a true crisis in its economy, could be very real, not least of all for the Chinese people.

Additional reporting by Timothy B. Lee.

[Sep 06, 2015] The Margin Debt Time-Bomb

"... "At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."

How much debt is on the books of corporations that was used for share buybacks?

Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?

How much leverage is in the Interbank Repo Market?

How much leverage is in the Derivatives Market?

Yeah, yeah, yeah, I know. Ok: net it out and tell me how much. "

Sep 05, 2015 | Zero Hedge
The final important observation germane to our current circumstances is that when market prices turn down, margin debt levels drop like a rock. Think about leverage. It works so well when the price of assets purchased using leverage rise. Yet leveraged equity can be eaten alive in a declining price environment. Forced liquidations are simply price insensitive selling. Of course, this will only occur after prices have already dropped meaningfully enough to either force margin calls, or cause margined investors to liquidate simply in order to remain solvent or limit loss. We have certainly seen a bit of this in recent weeks.
Why is all of this talk about margin debt important?

In Part 2: The Criticality Of Monitoring Margin Debt Closely From Here we explore how ever higher levels of margin debt represent tomorrow's heightened price volatility in some type of a stressed market environment, whether that be a meaningful correction or outright bear market.

Both are an eventuality, the only question is When?

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
AlaricBalth

nmewn, that is what the pit boss says at a casino.

When the odds are in the houses favor or it's a rigged game, why not loan money to the suckers at the table.

Casino markers can be issued to just about anyone who requests one. It is a zero-interest line of credit that is intended to make gambling easy and accessible to everyone. A gambler fills out an application for the line of credit, and pursuant to NRS 205.130, a gambler is given 30 days to pay back the debt.

nmewn

"nmewn, that is what the pit boss says at a casino."

Exactly my friend, its all in how one interprets the question being posed.

"What have you got to lose? ;-)"

BullyBearish

CREDIT==invented by Banksters to enslave the weak

Insurrexion

Fuck you Brian.
This article is more bullshit marketing to sell more bullshit.

The fucking fear of raising interest rates is an acknowledgment that the Fed has supported a phoney recovery that no one believed in anyway.
The taper tantrum was the first wheel removed. The interest rate rise will be the second wheel removed. Ending the Fed will be the last wheel removed.
Love, Alexa

ThroxxOfVron

"At July month end, the S&P traded above 2100, while margin debt balances fell just shy of $18 billion."

How much debt is on the books of corporations that was used for share buybacks?

Is the Fed's balance sheet considered off balance sheet commercial banking system debt that is merely being rolled at the Fed's discretion?

How much leverage is in the Interbank Repo Market?

How much leverage is in the Derivatives Market?

Yeah, yeah, yeah, I know. Ok: net it out and tell me how much.

[Sep 06, 2015] The Unemployment rate is misleading given the numbers of people who want to be employed but have given up looking for a job.

im1dc said...

Another below forecast Employment report, not good but not bad either.

The Unemployment rate is misleading given the numbers of people who want to be employed but have given up looking for a job.

http://www.usatoday.com/story/money/business/2015/09/04/august-jobs-report-unemployment-rate-economy-labor/71662044/

"Employers added 173,000 jobs in Aug., jobless rates falls to 5.1%" by Paul Davidson, USA TODAY...9:33 a.m. EDT...September 4, 2015

"Payroll growth slowed in August as employers added 173,000 jobs in a key report that could help the Federal Reserve decide whether to raise interest rates later this month.

The unemployment rate fell from 5.3% to 5.1%, lowest since March 2008.

Economists surveyed by Bloomberg expected employment gains of 218,000, according to their median forecast.

Businesses added 140,000 jobs last month, fueled by strong advances in health care, professional and business services, and leisure and hospitality. Federal, state and local governments added 33,000.

Partly offsetting the disappointing report is that job gains for June and July were revised up by a total 44,000.

Wage growth picked up moderately as average hourly earnings rose 8 cents to $25.09 after dipping in June, and are up 2.2% the past year, slightly faster than the tepid 2% pace so far in the recovery. The Fed is seeking signs of faster wage that would indicate stronger inflation as it considers increasing its benchmark interest rate.

The report is the most significant the Fed will review before its September 16-17 meeting. Until recent financial market turmoil..."

[Sep 06, 2015] Why the $20 Oil Predictions are Wrong By Robert Rapier

"...I don't like predicting prices short term, because they are less influenced by fundamental factors. Longer term, irrational markets return to pricing based on fundamental factors like the cost to produce something and make a profit. In the long run, $40/bbl oil is not a price sufficient to entice enough oil producers to produce at a level that can satisfy global demand. Hence, prices will rise. How long will it take? Hard to say. Oil prices stayed above $100/bbl for a lot longer than I thought they would. Maybe they will remain depressed longer than I think they will. Personally, I believe prices will be back up to the $60/bbl level in 6 months or a year – and that's without any action from OPEC. If OPEC announced a 10% across the board production cut, that's a Black Swan that would drive prices back to $100/bbl very quickly."

"...Not only did U.S. oil production grow faster than production in Saudi Arabia and Russia, but it outpaced production growth in all of OPEC, as well as the entire Middle East. Yet even with U.S. shale oil production, oil prices exceeded $100/bbl. And while U.S. shale oil producers have been getting more efficient, they aren't going to invest in new production at current prices. Hence, the handwriting is on the wall. (For an explanation of BP's crude oil accounting, see Is the U.S. Really the World's Top Oil Producer?)."

Aug 20, 2015 | energytrendsinsider.com

... ... ...

U.S. Crude Production is Falling

No, U.S. crude oil production is now falling. The Energy Information Administration (EIA) reported in its most recent Short Term Energy Outlook (STEO) that U.S. crude oil production declined by 100,000 bpd in July compared with June, and they expect these declines to continue because of the steep cuts shale oil producers have made to their budgets. The EIA reduced its forecast for oil production next year to 400,000 bpd less than this year. More on the significance of this below.

So why did inventories increase last week? It was actually because crude oil imports surged. Crude oil imports were 465,000 bpd higher than the previous week. That means 3.3 million barrels more oil came into the country than arrived in the previous week. Add that to the BP outage, and there was a surplus of oil of 4.9 million barrels relative to the previous week. This more than explains the 2.6 million barrel weekly gain in inventories. The question is "Will that continue to happen?"

In my opinion, "No." The BP outage will continue for an indefinite period, but the import surge was an anomaly. Crude imports from Canada surged by 404,000 bpd from the previous week. But guess what? Canadian oil producers are in an even deeper bind than U.S. oil producers. A recent article stated that at $40/bbl WTI, Canada's largest synthetic crude project is losing about $10 on every barrel. How long do you suppose that can continue? The larger producers will hang in as long as they can, but some of the smaller guys are going to be shutting in production at $40 WTI (which implies an even lower price for them due to the distance to market). That will reduce imports from Canada - the very imports that surprisingly drove crude inventories higher this week.

The U.S. Role in the Global Supply Picture

U.S. crude oil production is falling because investments into shale oil production dried up as the price of crude oil fell below $60/bbl. Companies aren't interested in putting new capital to work, and because these oil fields deplete, that means crude production is falling. Why is that significant? Because most of the world's new oil production in the past 6 years has come from U.S. shale oil fields. It is hard to overstate the global importance of the new crude supply that came online in the U.S. since 2008. Perhaps this graphic will help put it into perspective:

Since 2008, U.S. oil production growth is equivalent to 83% of the global supply added during that time. (Some countries had declines in oil production, which is why the increases shown on the chart add up to more than the global total.) Not only did U.S. oil production grow faster than production in Saudi Arabia and Russia, but it outpaced production growth in all of OPEC, as well as the entire Middle East. Yet even with U.S. shale oil production, oil prices exceeded $100/bbl. And while U.S. shale oil producers have been getting more efficient, they aren't going to invest in new production at current prices. Hence, the handwriting is on the wall. (For an explanation of BP's crude oil accounting, see Is the U.S. Really the World's Top Oil Producer?).

Insatiable Demand

But what about demand? Isn't it declining? No. Our Western-centric view of the world may give us the impression that oil demand is declining, but the truth is quite different:

Over just the past decade global oil consumption increased by an average of 900,000 bpd each year, and consumption has risen in 18 of the past 20 years. If we look back 30 years, global oil consumption increased by an average of 1.1 million bpd annually. Demand did decline in member countries of the Organisation for Economic Co-operation and Development (OECD) - the grouping of the world's developed countries. But demand growth in developing countries overwhelmed the declines in the developed world. In just the past five years, demand in developing countries has increased by an average of 1.6 million bpd annually, and now exceeds OECD demand.

Note that there was hardly any negative impact on demand in developing countries even with oil prices at $100/bbl. What drives consumption in these countries is a very large number of people using just a little bit more oil than they did before. High oil prices will do little to dissuade them from buying a little bit more when it can make such a big impact on their lives, especially when incomes are rising.

Global demand growth for crude oil is projected to continue. The International Energy Agency recently forecast that global demand will increase by 1.4 million barrels per day this year, and a further 1.2 million bpd in 2016. The bulk of that demand growth is expected to come from developing countries in Asia. With U.S. supply falling, where are the new oil supplies coming from to satisfy global demand at $40/bbl oil? There simply isn't enough to go around. Another way of looking at this is "We are past peak $40/bbl oil."

Iran Can't Close the Gap

Yes, Iran may be putting another half million barrels per day on the export market over the next year. However, oil production in Iran has historically grown slowly. In the past 20 years the most they ever increased production by in a single year was 423,000 bpd. The 2nd most was 249,000 bpd. I am a bit skeptical about some of the optimistic forecasts for their ramp up. A year from now Iran's half million barrels per day may be on the market, but then oil demand will be another 1.4 million bpd higher.

Further, if U.S. production begins to decline in earnest, that production will have to be made up as well. So if the IEA is correct we need another 1.4 million bpd plus the losses that will happen as a result of lower oil prices - and if Iran is stepping up then it will be taking place in an unstable region of the world. Is this really a scenario that can support $40 oil?

This is why, in my opinion, oil can't go to $20/bbl. Despite very vocal predictions of much lower oil prices, many people are aware of the dynamics I have laid out here. They know that if you look at this moment in time, today, the market is slightly oversupplied. That is why oil prices are in the $40′s. But 6 months or a year from now? No way. Demand will keep growing, and there aren't enough producers willing to grow oil production at these prices. Thus, prices will rise, so every time WTI gets down to the sort of unsustainable level it is at now buyers start stepping up.

The OPEC Wild Card

This scenario presumes that OPEC doesn't blink. If you recall, at OPEC's meeting in late November 2014, they decided to defend market share instead of reducing production quotas, as some expected, to prop up the price of crude. OPEC's rationale was that such a move would only help shale oil producers grow their market share by allowing them to maintain high margins. Instead OPEC decided to produce all out, and the falling oil prices that began in the summer accelerated following OPEC's meeting. (See OPEC Crashed the U.S. Rig Count for additional background).

At their June 5th meeting this year, they once more decided to leave production unchanged. But this strategy is inflicting a lot of pain on OPEC countries, and many are becoming more vocal about the issue. This week Algeria wrote a letter to OPEC questioning the wisdom of their current strategy. The letter asked OPEC to consider taking some form of action to bolster oil prices, as many OPEC countries need oil prices to be at least $100/bbl to balance their budgets. CNN recently reported that this year Saudi Arabia alone has burned through $62 billion of its cash reserves. By my calculations, the steep slide in the price of oil has cost Saudi Arabia around $200 billion in the past year.

Personally, I think Saudi made a monumental miscalculation. While I have seen some claim that the rise of shale oil has effectively neutered OPEC, keep in mind that the organization still produced 41% of the world's oil last year. 36.6 million bpd of global production came from OPEC. Had they decided to cut production by 5% or so last fall, they would have lost some market share, and yes, the shale oil producers would have kept growing production. But oil prices would probably be at least twice what they are now. The net outcome for OPEC, despite the loss of market share, would have been much higher revenues than what they ended up with.

Another problem for Saudi Arabia now is one of saving face. If they announce an emergency cut to the quotas, or even announce this at their next meeting in December, they will be admitting defeat. They may argue that if they can hold out just a bit longer, they can set the shale oil industry back by years, and then when prices go back up OPEC will be the biggest beneficiary. That is not the decision I would make, but certainly a decision that has benefited U.S. consumers.

Conclusions

I don't like predicting prices short term, because they are less influenced by fundamental factors. Longer term, irrational markets return to pricing based on fundamental factors like the cost to produce something and make a profit. In the long run, $40/bbl oil is not a price sufficient to entice enough oil producers to produce at a level that can satisfy global demand. Hence, prices will rise. How long will it take? Hard to say. Oil prices stayed above $100/bbl for a lot longer than I thought they would. Maybe they will remain depressed longer than I think they will. Personally, I believe prices will be back up to the $60/bbl level in 6 months or a year – and that's without any action from OPEC. If OPEC announced a 10% across the board production cut, that's a Black Swan that would drive prices back to $100/bbl very quickly.

Here is a closing thought. If you could freeze the price of oil at $40/bbl for the next year, what do you think would happen? Supply would be lower in a year, and demand would be higher. In the real world, the price of oil will rise. Granted, the oil markets are notorious for over-correcting, which is the situation they are in right now, in my opinion. Could the price of oil drop to $20/bbl briefly? Well, these are predictions and opinions, and I am on the record predicting that WTI would not close below $40/bbl this year, but you never say never. I think it's highly unlikely though. If WTI shocks me and does fall to $20/bbl I will scrape together every penny I can and buy oil, and just sit back and wait for the inevitable swing in the other direction.

Link to Original Article: Why the $20 Oil Predictions are Wrong

(Follow Robert Rapier on Twitter, LinkedIn, or Facebook.)

Forrest

Liquid fuels will dominate transportation sector for foreseeable future. Technology improvements will make the common ICE very competitive. A $40k Chevy Bolt is far from being competitive to comparable MSRP $14,455 '16 Ford Fiesta. Also, biofuels will continue to increase production as a result the negative rating of motor fuel will decrease. Inner city mass transit may be the only exception as autonomous technology and computer control would really magnify the benefit of EV with the ensuing loss of roadway congestion, parking, and pollution. This seems to be the perfect application for EV.
More economist fear the world economies may be intertwined within a vicious deflation pressure per the older generational logistics and our past leveraging of future wealth. Meaning the long time future a slow slog of low growth, high unemployment, low wages, and dwindling standard of living. This would endure until we slowly pay down debt and start to rebuild. This is the "change" that was once was hyped as good. But, saying that the U.S., especially, has a very impressive flow of invention such as the likes from Amazon, Apple, and the internet trading community that may empower our economy. Think of the biofuel, grid, solar, wind, nuclear, oil technology, auto technology, communications, entertainment, housing, materials, fuel cell, education and the rest. We need to, as a country, to become very flexible and agile and to bust roadblocks to improvement. We need to accept even demand invention and reinvention and eliminate holy political cows of Union organizations, Public ed, and corrupt politicians protecting powerful constituencies from Wall Street to Hollywood.

ben

Well, this '15 prediction was wrong, yet, underlying factors promoting sustainably higher oil prices remain in play despite temporary price relief. Is this surprising? Not at all, if the influences of the Fed's financial repression policies are taken to their logical conclusion; artificially suppressed interest rates will eventually sow the seeds of dysfunction across the whole spectrum of financial markets and assets with a concomitant impact on national economies. Artificial stimulants temporarily aiding a run-up in financial assets and equity markets cannot ultimately alter the underlying, real-world forces of supply & demand for both capital and labor.

In short, monetary manipulations of central bankers attempting to orchestrate soft landings in relief of mismanaged fiscal policies on the part of the 'ruling class' will inevitably fall short of the objective.

Indeed, these manipulations only serve to hide the mismanagement in such a way as to ensure that the ultimate corrections are far more traumatic than is otherwise necessary or advisable. Alas, the pretensions of such orchestrations must necessarily attend arrangements wherein political leadership, in tandem with the money manipulators, since the instinct to put off until tomorrow the demands of today naturally attend the temptation of expedient characters.

Regrettably, contemporary politicians have made an art form of deflecting on the real issues while promoting their more popular (and their own) interests. Don't believe it? Well, just tune in for a Donald Trump rally and see what it looks like when entertainment "trumps" serious reasoning ;)
Thanks for the straight talk, RR. No apologies required nor sought!

TimC • 14 days ago

"If WTI shocks me and does fall to $20/bbl I will scrape together every penny I can and buy oil."
Me too. But why not buy oil at $40/bbl, if you believe it's going to $60 within a year? Or, if you don't like the risk in oil, diversify with an ETF. I recall one analysis at the start of the year that predicted the S&P500 Energy Select SPDR ETF (XLE) would rise 10% in 2015. XLE is down 20% YTD, so it should go up 37.5% in the next four months. How can you go wrong?

"I don't like predicting prices short term..."

Robert Rapier Mod > TimC

"But why not buy oil at $40/bbl, if you believe it's going to $60 within a year?"
I did the last time oil dipped toward $40. Not putting your eggs in one basket is good advice, so I keep a little powder dry. But at $20? I am all in.
"How can you go wrong?"
If you make predictions, you are going to be wrong sometimes. The key is being right more often than you are wrong. Then you make money.

Common Sense

What about the impact of potentially rising interest rates in the U.S. And its impact on the strength of the dollar?
Wouldn't further US dollar appreciation stem some increase in emerging market demand and thus impact the price of oil?

Robert Rapier Mod > Common Sense

Demand growth in developing countries didn't flinch at $100 oil, so I don't think it's going to flinch with a stronger dollar and lower oil prices.

Arthur_Henderson

Robert,
In my opinion - fantastic analysis! You took all of the variables into account. I think one of those most important variables to emphasize is depletion rates. With producers in the US and across the world pumping as much as they can, they are doing it at a cost of running into diminishing production rates (depletion) on those existing wells even sooner.
I think the oil market will have turned a corner and prices will be back in the $60 - 70 range within about 18 months. I really think the oil market is going to get blindsided by this and all of a sudden, the reactions will be swiftly to the upside.
I think we'll bottom out around $30 per barrel as the media broadcasts negative, emotional headlines through their propaganda bullhorns, and that's when we'll spike back into the $40s immediately before seeing more bullish data in the 1st and second quarter of 2016 - driving prices into the $50s.
This is under the assumption that OPEC stubbornly refuses to budge. If they DO budge, oil markets are going to be on a tear into the $80s at the very least. US producers wouldn't be able to ramp up production quick enough to catch up at that point - and we'd be in the exact opposite situation we're in today!

Benjamin Cole

Well, probably right, this analysis is. But then, we did see $10 oil in the 1990s, not that long ago.

In the longer run, I think there is a ceiling on oil, somewhere in the $70 to $100 range. Alternatives and conservation make a lot of sense once oil gets too expensive, And I guess better and better fracking techniques can go global.
Plenty of wild cards out there in next 20 years. Mexico, Venezuela, Iran, Iraq, Libya, Nigeria, Russia --- gobs of oil, but can it be extracted? Even Saudi Arabia is cutting output artificially (in free-market terms).

BTW, GS Yuasa says they will have a battery with double the power at half the cost on the market in two to five years. That company is a publicly held, Japanese, and already a major commercial battery maker, so I do not think this is pie on the moon stuff, ala cellulosic ethanol or $200 barrel oil.

Urban regions with lots of battery cars? You can rent a car for cross-country drives, when you really need the gasoline. Fleets--UPS trucks, etc---will gravitate to batteries.

It may be soon EVs will actually make commercial sense.

Not sure oil is a good long-run bet. That said, oil back o $70? Very possible.

[Sep 06, 2015] Oil Shale Reserves

The Daily Reckoning
Oil Shale Technology – Old & New
Extracting oil from the shale is no simple task. The earliest attempts to extract the oil utilized an environmentally unfriendly process known as "retorting." Stated simply, retorting required mining the shale, hauling it to a processing facility that crushed the rock into small chunks, then extracted a petroleum substance called kerogen, then upgraded the kerogen through a process of hydrogenation (which requires lots of water) and refined it into gasoline or jet fuel.

But the difficulties of retorting do not end there, as my colleague, Byron King explains:

"After you retort the rock to derive the kerogen (not oil), the heating process has desiccated the shale (OK, that means that it is dried out). Sad to say, the volume of desiccated shale that you have to dispose of is now greater than that of the hole from which you dug and mined it in the first place. Any takers for trainloads of dried, dusty, gunky shale residue, rife with low levels of heavy metal residue and other toxic, but now chemically-activated crap? (Well, it makes for enough crap that when it rains, the toxic stuff will leach out and contaminate all of the water supplies to which gravity can reach, which is essentially all of 'em. Yeah, right. I sure want that stuff blowin' in my wind.) Add up all of the capital investment to build the retorting mechanisms, cost of energy required, cost of water, costs of transport, costs of environmental compliance, costs of refining, and you have some relatively costly end-product."

But a new technology has emerged that may begin to tap the oil shale's potential. Royal Dutch Shell, in fact, has recently completed a demonstration project (The Mahogany Ridge project) in which it produced 1,400 barrels of oil from shale in the ground, without mining the shale at all.

Instead, Shell utilized a process called "in situ" mining, which heats the shale while it's still in the ground, to
the point where the oil leaches from the rock. Shell's Terry O'Connor described the breakthrough in testimony before Congress earlier this summer (And Congress may have an acute interest in the topic, since the U.S. government controls 72% of all U.S. oil shale acreage):

"Some 23 years ago, Shell commenced laboratory and field research on a promising in ground conversion and recovery process. This technology is called the In-situ Conversion Process, or ICP. In 1996, Shell successfully carried out its first small field test on its privately owned Mahogany property in Rio Blanco County, Colorado some 200 miles west of Denver. Since then, Shell has carried out four additional related field tests at nearby sites. The most recent test was carried out over the past several months and produced in excess of 1,400 barrels of light oil plus associated gas from a very small test plot using the ICP technology…

"Most of the petroleum products we consume today are derived from conventional oil fields that produce oil and gas that have been naturally matured in the subsurface by being subjected to heat and pressure over very long periods of time. In general terms, the In-situ Conversion Process (ICP) accelerates this natural process of oil and gas maturation by literally tens of millions of years. This is accomplished by slow sub-surface heating of petroleum source rock containing kerogen, the precursor to oil and gas. This acceleration of natural processes is achieved by drilling holes into the resource, inserting electric resistance heaters into those heater holes and heating the subsurface to around 650-700F, over a 3 to 4 year period.

"During this time, very dense oil and gas is expelled from the kerogen and undergoes a series of changes. These changes include the shearing of lighter components from the dense carbon compounds, concentration of available hydrogen into these lighter compounds, and changing of phase of those lighter, more hydrogen rich compounds from liquid to gas. In gaseous phase, these lighter fractions are now far more mobile and can move in the subsurface through existing or induced fractures to conventional producing wells from which they are brought to the surface. The process results in the production of about 65 to 70% of the original "carbon" in place in the subsurface.

"The ICP process is clearly energy-intensive, as its driving force is the injection of heat into the subsurface.
However, for each unit of energy used to generate power to provide heat for the ICP process, when calculated on a life cycle basis, about 3.5 units of energy are produced and treated for sales to the consumer market. This energy efficiency compares favorably with many conventional heavy oil fields that for decades have used steam injection to help coax more oil out of the reservoir. The produced hydrocarbon mix is very different from traditional crude oils. It is much lighter and contains almost no heavy ends.

"However, because the ICP process occurs below ground, special care must be taken to keep the products of the process from escaping into groundwater flows. Shell has adapted a long recognized and established mining and construction ice wall technology to isolate the active ICP area and thus accomplish these objectives and to safe guard the environment. For years, freezing of groundwater to form a subsurface ice barrier has been used to isolate areas being tunneled and to reduce natural water flows into mines. Shell has successfully tested the freezing technology and determined that the development of a freeze wall prevents the loss of contaminants from the heated zone."

It may seem, as O'Conner said, counter-intuitive to freeze the water around a shale deposit, and then heat up the contents within the deposit. It's energy-intensive. And it's a lot of work. What's more, there's no proof yet it can work on a commercial scale.

Yet both technologies, the freeze wall and the heating of shale, have been proven in the field to work. The freeze wall was used most recently in Boston's Big Dig project. It was also used to prevent ground water from seeping into the salt caverns at the Strategic Petroleum reserve in Weeks Island, LA.

But still, you may be wondering, does it really make sense to heat the ground up a thousand feet down for three or four years and wait? Of course it does. In case you missed O'Conner's math, Shell could harvest up to a million barrels per acre, or a billion barrels per square mile, on an area covering over a thousand square miles.

It's still early days in the oil shale fields of Colorado and Wyoming, but it looks to me like someone's gonna make a lot of money out there. I'm working hard to discover how we outside investors can play along.

Shell's Mahogany Ridge

Last week, I paid a visit to Royal Dutch Shell's oil shale project in Colorado. The visit left me with more questions than answers, but I came away from the place with the sense that this opportunity is very real…or, at least, it soon will be.

After driving across a vast expanse of "Nowhere," Colorado, my brother and I met up with a few geologists from Shell. Of course it's just those large, unpopulated tracts of high desert that make the area so appealing from a geopolitical point of view. Tapping into the oil shale 2,000 feet underground isn't going to bother too many people. And there are no spotted owls around either. If the technology to turn shale into oil works, the entire area will become a new American boom patch.

Soon after we arrived, the geologists escorted us around the facility, chatting all the while about the successes and challenges of their venture.

The two trickiest aspects of oil shale development, as the geologists and engineers explained, are heating the shale to extreme temperatures, while simultaneously surrounding the heated area with a subterranean ice wall. Shell doesn't know, or isn't saying, which part of the project will be the most challenging. If you were about to change the world by making it economic to tap into as much as 2 trillion barrels of oil under the Colorado plateau, you'd be pretty careful about showing your competitors how you were going to do it.

First, anything that heats up rock around it to around 600 or 700 degrees Fahrenheit has to conduct electrically generated heat well. The most conductive metals on the Periodic Table of Elements are, in order, silver, copper, and gold. Naturally, the number of heaters you put in a place affects the amount of time it takes to turn the shale goo into API 34 crude. The more heaters, the more cost, though.

And given the fact that Shell does not know yet if the heaters will be recoverable, you can see that sticking silver, copper, or gold heaters 2000 meters underground and then leaving them there once the kerogen has been pumped has a serious effect on the economics of your operation.

At the moment, Shell is not sure what the optimal size of production zones ought to be. The big issue here is how big can a freeze-wall be to be effective and freezing the groundwater surrounding a shale deposit? The test projects, as you can see, were quite small. Shell doesn't know, or isn't saying, what the optimum size is for a each "pod" or "cell". That's what they'll have to figure out at the next stage…and the picture with the dirt is a football field sized project….where rather than creating the freeze-wall at 50 meters down…they will do it at 1,000 ft. down…. with 2,000 being the desired and necessary depth for commercial viability. I'm not sure anyone has ever created a freeze-wall at that depth….neither is shell. But we'll find out. The oil itself that comes from the process looks like…oil. No heavy refining needed.

Shell thinks the whole thing is economic at a crude price of $30. So barring a major reversal of geopolitical trends, they're forging ahead.

Since the Bureau of Land Management owns about 80% of the oil shale acreage in Colorado, there is no investment play on private companies that might own land with rich shale deposits. Although, if Shell and the DOE are right that you can recover a million barrels of oil per acre…it wouldn't take much land to make a man rich out here.

Oil Shale: Testing Public Lands

The Bureau of Land Management recently received ten applications (by eight companies) for a pilot program to develop Colorado's shale reserves. The program allows the companies access to public lands for the purpose of testing shale-extraction technologies. You see below an interesting mix of large, publicly traded oil giants and small, privately held innovators.

Natural Soda, Inc. of Rifle, Colorado.

EGL Resources Inc. of Midland, Texas.

Salt Lake City-based Kennecott Exploration Company.

Independent Energy Partners of Denver, Colorado

Denver-based Phoenix Wyoming, Inc.

Chevron Shale Oil Company.

Exxon Mobil Corporation.

Shell Frontier Oil and Gas Inc

There is dispute within the industry over how long, if ever, demonstration extraction technologies can become commercially viable. I've spoken with some of the smaller companies that have applied for leases from the BLM. Some of them will have to raise money to conduct the project. And some of them have been less than forthcoming about how exactly their extraction technology is different or better than previous methods.

How will it all unfold? Well, for starters, it could all utterly fail. To me, Shell's in-situ process looks the most promising. It also makes the most sense economically. There may be a better, less energy-intensive way to heat up the ground than what Shell has come up with. But Shell, Chevron, and Exxon Mobil clearly have the resources to scoop up any private or small firm that makes a breakthrough.

And there are a host of smaller firms involved with the refining and drilling process that figure to play a key role in the development of the industry, should that development pick up pace.

The Energy Policy Act of 2005, otherwise known as a listless piece of legislation without any strategic vision, does, at least, make provision for encouraging research into the development of shale. But government works slow, when it works at all. It's going to take an external shock to the economy to really ratchet up interest and development of the nation's energy reserves…say…something like a nuclear Iran.

Dan Denning
for The Daily Reckoning

[Sep 06, 2015] U.S. tight oil production decline

"...In any case, what causes a peak is the inability to offset declines from existing wells, and therefore the higher the production rate, the closer we are to a peak, because the volumetric decline from existing wells increases in tandem with the increase in production (it's pretty amazing that so few people are willing to admit this)."

"...I am sorry James but why aren't economists looking at the 10-Ks and noticing that none of the companies were cash flow positive even when oil prices were very high and the wells drilled were in the more productive areas? Why haven't they noticed that when the big players came into the shale space they got burned even though they paid less for the properties than what the sellers were saying they were worth on the conference calls. "

"...the shale story was a big scam driven by easy access to borrowing. Given the massive increase in debt on the balance sheets of most producers and the high depletion rates I just can't see how the sector can go on selling its narrative for that much longer. Note that in June 2012 the Bakken data showed 4162 wells producing an average of 144 barrels per day. The June 2015 data, which is the last month available, shows 9912 wells producing 116 barrels per day. The number of wells has more than doubled yet the production rate has fallen has fallen by 19.4%. The new wells are high IP wells yet the production rate has fallen has fallen by 19.4%. Sorry for the repetition but most people gloss over the implications. The simple fact is that when you look at the math and the 10-Ks, the narrative being told by the EIA, USGS, and the Wall Street analysts does not work very well.
"

"...Peak, shale and tar production is a not-for-profit business, not unlike the US gov't, the Anglo-American imperial military, the USPS, the Corporation of Communist China, Amazon, Twitter, Tesla, and many biobubbletech companies, some with no REVENUES and a market cap of many billions of dollars."

"...I interpret this remark as there being far too many gratuitous prognostications that do nothing other than inject noise into the airwaves. Or equally as bad, heavily-hedged puffed-up bets that hold no water when held up to the light of day. Academic papers are major offenders in this regard. Over half are not worth the paper they are printed on. If it doesn't forecast, it is not science. "

"...Corruption at the highest level - crony capitalism as it is now called, otherwise since time immemorial known as vested interests – is strangling economic growth. It is an open question if Fed officials are corrupt. I do not want to think that of them. But certainly they are imbecilic in the mass devastation they have wrought since the time of Greenspan. We cannot yet look back from the vantage point of ten years out. But unless something changes regarding vested interests, coercive big government, and central banks run amok, the miserable last ten years will look like a walk in the park. This is an easy-to-make prediction in light of the crippling debt burden Keynesian economics has inflicted on this and future generations …"

Sep 01, 2015 | Econbrowser
U.S. oil production has begun to drop in response to low oil prices, but not as dramatically as many had anticipated.

Oil companies have cut back spending significantly in response to the fall in the price of oil. The number of rigs that are active in the main U.S. tight oil producing regions– the Permian and Eagle Ford in Texas, Bakken in North Dakota and Montana, and Niobrara in Wyoming and Colorado– is down 58% over the last 12 months.

Number of active oil rigs in counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to July 2015. Data source: EIA Drilling Productivity Report.

Nevertheless, U.S. tight oil production continued to climb through April. It has fallen since, but the EIA estimates that September production will only be down 7%, or about 360,000 barrels/day, from the peak in April.

Actual or expected average daily production (in million barrels per day) from counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to September 2015. Data source: EIA Drilling Productivity Report.

This is despite the fact that typically output from an existing well falls very quickly after it begins production. The EIA estimates that tight oil production from wells that have been in operation for 3 months or more has declined by 1.6 mb/d since April, as calculated by the sum of the EIA estimated monthly declines in legacy production from May to September.

Legacy production change (month-to-month production change, in thousands of barrels per day, coming from wells in operation 3 months or more) in counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, Jan 2007 to Sept 2015. Data source: EIA Drilling Productivity Report.

One would think that these decline rates from existing wells and the drop in the number of rigs drilling new wells would mean that production would have fallen much more dramatically. Why didn't it? The answer is that there has been a phenomenal increase in productivity per rig. For example, the EIA estimates that operating a rig for a month in the Bakken would have led to a gross production increase of 388 barrels/day two years ago but can add 692 barrels today.

Average productivity (added gross daily barrels per month) per drilling rig from counties associated with the Permian, Eagle Ford, Bakken, and Niobrara plays, monthly Jan 2007 to September 2015. Data source: EIA Drilling Productivity Report.

A key factor in the productivity gains is that companies are finding ways to complete wells faster, so that more wells can be drilled each month from the same number of rigs. For example, The Barrel reports that Occidental Petroleum "has seen a 40% decrease in spud to rig release time in the Wolfcamp area of its Permian holdings from 43 days in 2014 to 26 days in March this year with a target of eventually reaching 16 days."

The modest drop in U.S. production has been enough to start to bring inventories down. U.S. crude oil stocks last week were down more than 30 million barrels from April. But that still leaves them way above normal.

Source: EIA This Week in Petroleum.

The drillers' cash flow is assisted not only by the improvements in efficiency just mentioned but also by the fact that the drop in demand for rigs means companies are seeing drops in day rates and other costs. Even so, major shale producers like EOG, Whiting, Pioneer, and Devon reported before-tax losses each of the last two quarters.

West Texas Intermediate averaged $53/barrel the first six months of this year. Last week it went as low as $38 before rebounding back to $45 by the end of the week.

Losing money is obviously not a sustainable business model, yet inventories have to come down further. Meanwhile, elsewhere in the world, Iraq oil production is up half a million barrels a day from a year ago, and Iran hopes to raise oil production by up to a million barrels a day once sanctions are lifted. Economic prospects for China, the world's second-biggest oil consumer after the United States, are cloudy.

Another part of the adjustment process is also underway, coming from the big cuts in capital expenditures for exploration and production for more conventional oil fields. This will also affect supply, but with significantly longer lead times than is the case of production of tight oil.

Gains in efficiency, lower costs of inputs, and, in the case of production outside the United States, appreciation of the dollar have all helped lower the marginal cost of producing oil.

Even so, the current price is well below the marginal cost, meaning one of two things has to happen. Either the price must rise or output from the higher-cost producers must fall further.
Bruce Hall August 30, 2015 at 2:18 pm

Prof. Mark Perry had a slightly different perspective on the dynamics of shale oil in the U.S.
http://www.aei.org/publication/shale-oil-a-tremendous-development-for-u-s-oil-production-shovel-ready-jobs-economic-growth-and-energy-independence/

The drop in U.S. production is reasonable considering the no-return on investment at current prices. The point is that current prices are most likely temporary and U.S. shale production can be geared up rather quickly if prices recover a bit. There seems to be quite a range of where the break-even point for shale oil is: http://www.cnbc.com/2015/08/20/us-crude-oils-break-even-cost-how-low-can-it-go.html

Jeffrey J. Brown, August 31, 2015 at 6:43 am

Drilling and completion activity can be geared up, but how quickly is a very interesting question, given the loss of experienced personnel and the loss of equipment, and given the damage to inactive rusting equipment. Also, given the enormous losses that bond investors have sustained in the value of their loans to shale players, one would think that capital will be harder to come by.

Ricardo, August 31, 2015 at 12:51 pm

Jeffery,
Bingo!!
We are close to seeing a repeat of the late 1990s when WTI went down to $10/bbl, essentially the cost of production. Then as the economy began to recover after the Bush supply theory tax cuts oil demand pushed prices through the roof. With a House, Senate, and Presidency of supply theory Republicans we could see a repeat of the oil conditions of early 2000s.
Hopefully the efficiencies that the Professor notes will help the supply shortages and hopefully the Republicans will resist the restrictionists who will cry "over-heating economy". They must remove production wedges allowing the markets to produce at prosperity levels.
A large part of this is the current deflationary policies of the FED. Yellen has done well to use restraint, reminiscent of Greenspan in the early 1990s, but she must resist falling prey to Greenspan's hubris and bringing on a deflationary decline.

Nony, September 6, 2015 at 10:27 am

I don't know. Six months? A year? Obviously there's spare capacity if rigs are sitting "rusting". And if there are people laid off. Probably a lot quicker to bring back a rig from cold stack than to build it new. And faster to get back laid off workers than to train new ones. (Some will still be sitting around and even those that got other jobs didn't likely get ones that pay as much.) Net, net: easier with spare capacity than without it. [And, FWIW, you can't simultaneously bemoan the laid off workers and stacked rigs, as some peakers have, and then say no one/nothing is available for the next boom.]
Capital is a commodity. It seeks returns. At $100/bbl there was a lot of opportunity (peakers really overplayed the whole "cashflow" story, etc.) At $50/bbl, there's way less opportunity. New opportunities will just be judged based off of price. If we go back to $100 with a strip, then the money comes back. They could care less if someone else lost money before. Just look at it rationally and mathematically as NPV optimization. [Plus with high decline, you can even hedge most of the price risk.]

Jeffrey J. Brown August 31, 2015 at 7:07 am

It's an article of faith among the Cornucopian Crowd, e.g., Mark Perry, that there is no sign of any kind of peak in sight, but in my opinion this assertion is manifestly false when it comes to actual global crude oil production (generally defined as crude oil with an API gravity of less than 45 API crude oil). Note that what the EIA calls "Crude oil" is actually Crude + Condensate (C+C).

When we ask for the price of oil, we generally get the prices of two grades of crude oils, WTI and Brent, both of which have average API gravities in the high 30's. But when we ask for the volume of oil, we get some combination of crude oil + condensate + natural gas liquids (NGL) + biofuels. In other words, we get the volume of actual crude oil + partial substitutes. This is analogous to asking a butcher for the price of beef, and he gives you the price of steak, but when you ask him how much beef he has on hand, he gives you total pounds of steak + roast + ground beef.

Shouldn't the price of an item directly relate to the quantity of that item and not to the quantity of the item being priced + partial substitutes?

But in any event, the fact that partial substitution has so far worked, in response to higher crude oil prices, does not mean that crude oil has not peaked.

Following is an essay, which I sent to some industry acquaintances, that I put together about a week ago:

Regarding oil prices, I may be one of the worst prognosticators around, especially when it comes to demand side analysis. My primary contribution has been as an amateur supply side analyst, especially in regard to net exports.

In any case, earlier this year I thought that we had hit the monthly low in Brent prices for the current oil price decline ($48 monthly average in January, 2015), and I thought we were more or less following an upward price trajectory, from the 1/15 low, similar to the price recovery following the 12/08 monthly oil price low ($40 for Brent).

However, a key difference between the 2008/2009 price decline and subsequent recovery and the 2014/2015 decline is that Saudi Arabia cut production from 2008 to 2009 while they increased production from 2014 to 2015.

But for what it's worth (perhaps not much), I think that this is a tremendous buying opportunity, in regard to oil and gas investments. I don't have any idea what Warren Buffet is doing right now*, but I would not be surprised to learn that he is aggressively investing in oil and gas.

The bottom line for me is that depletion marches on.

A few years ago, ExxonMobil put the decline from existing oil wells at about 4% to 6% per year. A recent WSJ article noted that analysts are currently putting the decline from existing oil wells at 5% to 8% per year (in my opinion, the 8% number is more realistic). At 8%/year, globally we need about 6.5 MMBPD of new Crude + Condensate (C+C) production every single year, just to offset declines from existing wells, or we need about 65 MMBPD of new C+C production over the next 10 years, just to offset declines from existing wells. This is equivalent to putting on line the productive equivalent of the peak production rate of about thirty-three (33) North Slopes of Alaska over the next 10 years.

It appears quite likely that global crude oil production (45 and lower API gravity crude oil) has been more or less flat to down since 2005, as annual Brent crude oil prices doubled from $55 in 2005 to $110 for 2011 to 2013 inclusive (remaining at $99 in 2014)–while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

Following are links to charts showing normalized production values for OPEC 12 countries and global data. The gas, natural gas liquids (NGL) and crude + condensate (C+C) values are for 2002 to 2014 (except for gas, which is through 2013, EIA data in all cases). Both data charts show similar increases for gas, NGL and C+C from 2002 to 2005, with inflection points in both cases for C+C in 2005. My premise is that condensate production, in both cases, accounts for virtually all of the post-2005 increase in C+C production.

Global Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/Global%20Gas%20NGL%20C%20amp%20C_zpskb5bxu6d.jpg

OPEC 12 Gas, NGL and C+C:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Gas%20NGL%20C%20amp%20C_zpsox3lqdkj.jpg

Currently, we only have crude oil only data for the OPEC 12 countries and for Texas (note that what the EIA calls "Crude oil" is actually C+C).

Also following is a link to OPEC 12 implied condensate (EIA C+C less OPEC crude) and OPEC crude only from 2005 to 2014 (OPEC data prior to 2005 was for a different set of exporters than post-2005). Obviously, data quality is an issue, and the boundary between actual crude and condensate is sometimes fuzzy. In any case, we have to deal with the data that we have.

OPEC 12 Crude and Implied Condensate:
http://i1095.photobucket.com/albums/i475/westexas/OPEC%20Crude%20and%20Condensate_zps12rfrqos.jpg

As of 2014, OPEC and the US accounted for 53% of global C+C production (41 MMBPD out of 78 MMBPD). Implied OPEC condensate production increased by 1.2 MMBPD from 2005 to 2014 (1.2 to 2.4). The EIA estimates that US condensate production increased by about 1.0 MMBPD from 2011 to 2014. I'm estimating that US condensate production may have increased by around 1.2 MMBPD or so from 2005 to 2014. Based on the foregoing, increased condensate production by OPEC and the US may have accounted for about 60% (about 2.4 MMBPD) of the 4 MMBPD increase in global C+C production from 2005 to 2014.

Combining the US and OPEC estimates, the US + OPEC ratio of condensate to C+C production may have increased from about 4.6% in 2005 to about 10% in 2014. If this rate of increase in the global condensate to C+C ratio is indicative of total global data, it implies that actual global crude oil production (45 and lower API gravity) was approximately flat from 2005 to 2014, at about 70 MMBPD.

In other words, the available data seem quite supportive of my premise that actual global crude oil production (45 API and lower gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have (so far) continued to increase.

If it took trillions of dollars of upstream capex to keep us on an "Undulating Plateau" in actual global crude oil production, what happens to crude production given the large and ongoing cutbacks in global upstream capex?

And given the huge rate of decline in existing US gas production (probably on the order of about 24%/year from existing wells), it's possible that we might see substantially higher North American gas prices this winter, given the decline in US drilling.

Furthermore, through 2013 we have seen a post-2005 decline in what I define as Global Net Exports of oil (GNE, the combined net exports from the Top 33 net exporters in 2005), which is a pattern that appears to have continued in 2014. GNE fell from 46 MMBPD in 2005 to 43 MMBPD in 2013 (total petroleum liquids + other liquids). The volume of GNE available to importers other than China & India fell from 41 MMBPD in 2005 to 34 MMBPD in 2013.

Here are the mathematical facts of life regarding net exports:

Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.

In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.

For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

And a massively under-appreciated aspect of what I call "Net Export Math" is that the rate of depletion in the remaining cumulative volume of net oil exports, after a net export peak, tends to be enormous. Saudi Arabia is showing a year over year increase in production and net exports, but based on available annual data through 2014, Saudi Arabia's net exports fell from 9.5 MMBPD in 2005 to 8.4 MMBPD in 2014 (total petroleum liquids + other liquids), and I estimate that Saudi Arabia may have already shipped close to half of their total post-2005 supply of cumulative net exports of oil.

Jeffrey J. Brown, September 1, 2015 at 5:58 am

Increased oil production in a net oil importing country would reduce their demand for net oil imports, but I'm not an expert on Chinese oil production, although I do believe that a significant portion of their production is in long term decline.
In any case, once again, following are the mathematical facts of life regarding net exports, which are not statements of opinion, but are instead statements about mathematical certainties:

Given an ongoing, and inevitable, decline in production in the net oil exporting countries, unless the exporting countries cut their liquids consumption at the same rate as, or at a faster rate than, the rate of decline in production, the resulting rate of decline in net exports will exceed the rate of decline in production and the net export decline rate will accelerate with time.
In addition, while we are currently seeing signs of weak demand in China, given an ongoing, and inevitable, decline in GNE, unless China & India cut their net oil imports at the same rate as, or at a rate faster than, the rate of decline in GNE, the rate of decline in the volume of GNE available to importers other than China & India will exceed the rate of decline in GNE, and the rate of decline in the volume of GNE available to importers other than China & India will accelerate with time.
For example, from 2005 to 2013 the rate of decline in the volume of GNE available to importers other than China & India (2.3%/year) was almost three times the observed rate of decline in GNE from 2005 to 2013 (0.8%/year).

Jeffrey J. Brown, September 1, 2015 at 8:08 amRe: Global Gas Production

The reason that I have spent so much time on crude versus crude + condensate is that the conventional wisdom is that there is no evidence of any kind of peak in sight, and my contention is that this is manifestly false, in regard to actual crude oil production (45 API gravity and lower crude oil). And if actual global crude oil production has probably peaked, it's when, not if, that we see similar peaks in global gas and associated liquids, condensate and NGL. In that regard, the global gas data (BP) are pretty interesting. Some rates of change:
2005 to 2010:

Global Gas: +2.8%/year
Global Gas, Excluding North America: +3.2%/year

2010 to 2014:

Global Gas: +1.9%/year
Global Gas, Excluding North America: +1.3%/year

Note that the rate of increase in global gas, excluding North America, fell from 3.2%/year for 2005 to 2010 to 1.3%/year for 2010 to 2014. And of course, "Net Export Math" works for both oil and gas (as well as for domestic food consumption versus production).
The shale advocates would argue that shale plays around the world will keep up us on an indefinite rate of increase in production, but global results have been disappointing in many areas, e.g., Poland, and high costs are a problem, combined with the very high decline rates.
In any case, what causes a peak is the inability to offset declines from existing wells, and therefore the higher the production rate, the closer we are to a peak, because the volumetric decline from existing wells increases in tandem with the increase in production (it's pretty amazing that so few people are willing to admit this).

Nony, September 6, 2015 at 10:39 am

Brown:
You are the only one "generally defining" oil as less than 45 API. 47 API Eagle Ford runs through refineries. It's price is correlated to WTI. And it actually gets a better price than 30 API sour (e.g. "Basra light"). I don't think any economist would look at lighter oils as anything other than a substitute and significant economically. This is an econ blog. You may pay a little less for an EF cargo. And there are some in the weeds concerns with fluffing the barrel (light ends). But this is really a nuance. From any reasonable economic evaluation, that stuff is OIL.
Even classic lease condensate (like 55-60 API) is pretty much oil. Sure it gets blended with heavy before hitting the distillation tower, but it still makes a lot of gasoline, has a decent price (some delta with WTI) and follows WTI. It's not like methane or even propane.
And that's just within the US (where we have export restrictions and a new volume of light). Light oils are even more reasonable on a world basis. And in the US, classically the spreads were much closer or even to the benefit of condensate in the past.
By the way, it's fascinating that we actually ended up with too much light oil. The peaker trope was that new sources would be heavy and non-WTI-like. And Bakken is very close to classic WTI! Also, current peakers never seem to mention the advantage of low sulfur content (and S and API are broadly speaking inversely correlated.)

rjs, August 30, 2015 at 6:38 pm

inventories are clearly in a seasonal (driving season) decline, but still way above historical levels because of the contango tradiing…we never saw 400 million barrels before this year….
in reporting on EIA data weekly, i've noticed that the weekly fluctuatons in inventories are a function of imports…if two extra VLCCs unload in the same week, your inventories rise…

SecondLook, August 30, 2015 at 9:59 pm

I think, very relevantly: what is the current cost of production of oil, or even what is the significant distribution range.
I find discussions about oil, or for that matter any finite commodity, without having an agreed upon cost basis factor sort of meaningless.

JBH, August 31, 2015 at 8:37 am

SecondLook Quite so. Technological progress in fracking is nothing short of astounding. Global economic growth is decelerating with no end in sight. So the only meaningful constraint on price is MC. No curve would be more informative than the historic MC of fracking for say the last two or three years. I do not for a moment believe the current price of $44 is well-below MC.

It may be somewhat below, but the all-important technology dynamic is moving the MC curve lower by the day. The solidest, most-well-backed-up projection I've seen is that by Mark Mills at the Manhattan Institute: costs are ultimately heading to the $5 to $20 range! Thus far I've found very little on what to me has gravitated to the forefront as the next biggest question: What happens when fracking goes global at ever-falling marginal cost?

Jeffrey J. Brown, August 31, 2015 at 9:10 am

The Economist Magazine suggested an outlook for an extended period of oil prices in the $5 to $10 range:
http://www.economist.com/node/188181

Yet here is a thought: $10 might actually be too optimistic. We may be heading for $5. To see why, consider chart 1. Thanks to new technology and productivity gains, you might expect the price of oil, like that of most other commodities, to fall slowly over the years. Judging by the oil market in the pre-OPEC era, a "normal" market price might now be in the $5-10 range. Factor in the current slow growth of the world economy and the normal price drops to the bottom of that range. . . .
The supply situation is even gloomier for producers. Unlike 1986, oil supplies have been slow to respond to the past year's fall. Even at $10 a barrel, it can be worth continuing with projects that already have huge sunk costs. Rapid technological advances have pushed the cost of finding, developing and producing crude oil outside the Middle East down from over $25 a barrel (in today's prices) in the 1980s to around $10 now. Privatisation and deregulation in such places as Argentina, Malaysia and Venezuela have transformed moribund state-owned oil firms. According to Douglas Terreson of Morgan Stanley Dean Witter, an investment bank, this has "unleashed a dozen new Texacos during the 1990s", all of them keen to pump oil.
Meanwhile OPEC, which masterminded the supply cuts that pushed prices up in the 1970s and 1980s, is in complete disarray. The cartel will try yet again to agree upon production cuts at its next meeting, on March 23rd, but, partly thanks to its members' cheating on quotas, the impact of any such cuts will be small. OPEC members fear that Iraq, whose UN-constrained output rose by 1m barrels a day in 1998, may some day be able to raise production further. Last week Algeria's energy minister declared, with only slight exaggeration, that prices might conceivably tumble "to $2 or $3 a barrel."
Nor is there much chance of prices rebounding. If they started to, Venezuela, which breaks even at $7 a barrel, would expand production; at $10, the Gulf of Mexico would join in; at $11, the North Sea, and so on (see map). This will limit any price increase in the unlikely event that OPEC rises from the dead. Even in the North Sea, the bare-bottom operating costs have fallen to $4 a barrel. For the lifetime of such fields firms will continue to crank out oil, even though they are not recouping the sunk costs of exploration and financing. And basket-cases such as Russia and Nigeria are so hopelessly dependent on oil that they may go on producing for some time whatever the price.

BC, August 31, 2015 at 2:34 pm

https://app.box.com/s/npygb8t139jm69yjcz5nhzm8ygibd5pd
https://app.box.com/s/0hroqkg7zym2us8em4k55a36affs4xmc
https://app.box.com/s/6qtqg4w41mrzfn8dhgoq27z3j1n20sg5
https://app.box.com/s/858zgmul9yfhdi1j5fmybhd54jpuexkz
https://app.box.com/s/m4d2o0kl8bqf850e6e2ptu3m3rf2c0tb
https://app.box.com/s/be72m6g0e3pmdss2apjamoswvq7jxe1i
https://app.box.com/s/41k6v2nfqgqs2jcrixrn5bybjdov3hhv
https://app.box.com/s/qml1c2s6fdihreha51dr1x2epxv8bg0u
US oil production per capita is down 40-45% since 1970 and 25% since 1985 (onset of deindustrialization and financialization).
The oil cycle is turning lower (CPI and US$ terms) as in the early to mid-1960s and 1986.
However, this time we have much more debt to wages and GDP; real GDP per capita is growing at half the 1960s and 1980s rates; labor share of GDP is much lower; peak Boomer demographic effects are bearing down in the US, UK, Canada, Oz, EZ, Japan, and now China and the Asian city-states; financial assets are in a MASSIVE bubble and about to burst again as in 1929, 2000, and 2007; wealth and income inequality is obscene and pernicious; health care and debt service costs are precluding any discretionary income for the bottom 90%; and labor productivity is decelerating due to deindustrialization, regressive taxes on earned income, demographics, labor share, debt, and inequality.
http://www.bloombergview.com/articles/2015-02-16/oil-prices-likely-to-fall-as-supplies-rise-demand-falls
I don't know about Shilling's speculation about $10 oil, but $25-$32 fits the cycle, technicals, and price-supply-demand for implied global real GDP per capita rate of growth indefinitely hereafter, notwithstanding a possible seasonal technical rally to $55-$60.

Jeffrey J. Brown, September 1, 2015 at 5:51 am

Incidentally, the Economist Magazine article I linked to, and that I showed an excerpt from, was published in early 1999.
The Economist Magazine ran their "Drowning in oil" cover story in early 1999, in which they suggested that we would see $5 to $10 oil for the indefinite future. At the time of the story, annual Brent crude oil prices were then in the early stages of three approximate price doublings:
From $13 in 1998 to $25 in 2002;
From $25 in 2002 to $55 in 2005;
From $55 in 2005 to $110 range for 2011 to 2013 inclusive (remaining at about $99 for 2014).
And . . . .
In late 2004, Daniel Yergin predicted that oil prices would be down to a long term index price of $38 by late 2005 (which caused me to suggest that we price oil in "Yergins" with One Yergin = $38).
Also in 2004, the Saudi oil minister reiterated their support for the OPEC price band of $22 to $28.
In August, 2009, Michael C. Lynch predicted that oil prices would soon be back to a long term price in the low 30's.
In early February of this year, Ed Morse predicted that oil prices could fall as low as the "$20 range for a while."
My prediction is that global net exporters will continue to deplete their remaining volume of post-2005 CNE (Cumulative Net Exports of oil) at an accelerating rate of depletion.
I estimate that Saudi Arabia shipped about 5% of their post-2005 CNE in 2006, and I estimate that they shipped about 9% of their remaining post-2005 CNE in 2014, AKA an accelerating rate of depletion.

Jeffrey J. Brown, August 31, 2015 at 6:37 am

An Interesting Gas Play Case History
The Haynesville Shale Gas Play, which covers part of both Texas and Louisiana, is an interesting case history. Following is a chart showing the monthly production versus the rig count. Note the significant time lag, a little more than a year, between the beginning of the decline in the rig count (late 2010) and the beginning of the decline in production (early 2012). Also, note that that there was about a three year gap between the beginning of the late 2010 decline in the rig count and the end of the steep production decline (late 2013):
http://i1095.photobucket.com/albums/i475/westexas/Haynesville-rig-count-and-natural-gas-production1_zpsb1n95tiz.jpg
In any case, the decline in production from the Haynesville Play contributed to the observed 20%/year exponential rate of decline in marketed gas production from Louisiana from 2012 to 2014 (dry gas production for 2014 not yet available). Note that this was the net rate of decline in gas production, after new wells were put on line (for both conventional and unconventional production). The gross underlying decline rate from existing wells in 2012 and 2013 in Louisiana was even higher than 20%/year.
The Louisiana data provide strong support for the Citi Research estimate that this gross underlying rate of decline in existing US gas production is on the order of about 24%/year (again, gross being the rate of decline, before new wells are added).
With an underlying gross decline rate of about 24%/year, the US needs about 17 BCF/day of new production per year, just to offset the declines from existing production. Note that this volume of gas–that the US needs just to offset declines from existing wells–exceeds the dry gas production levels of every country in the world, except for the US and Russia. In other words, in order to maintain current gas production, we need to put on line–every year–more gas production than Canada, or Norway, or Iran, or Qater, etc.
The gross underlying decline rate from existing US oil production is probably not as high, but a plausible estimate is that it is on the order of 15%/year, which would imply that we need about 1.5 MMBPD (million barrels per day) of new Crude + Condensate (C+ C) production every year, just to offset annual declines from existing wells.

Vangel Vesovski, August 31, 2015 at 8:22 pm

I am sorry James but why aren't economists looking at the 10-Ks and noticing that none of the companies were cash flow positive even when oil prices were very high and the wells drilled were in the more productive areas? Why haven't they noticed that when the big players came into the shale space they got burned even though they paid less for the properties than what the sellers were saying they were worth on the conference calls.
I think that the evidence shows that the shale story was a big scam driven by easy access to borrowing. Given the massive increase in debt on the balance sheets of most producers and the high depletion rates I just can't see how the sector can go on selling its narrative for that much longer. Note that in June 2012 the Bakken data showed 4162 wells producing an average of 144 barrels per day. The June 2015 data, which is the last month available, shows 9912 wells producing 116 barrels per day. The number of wells has more than doubled yet the production rate has fallen has fallen by 19.4%. The new wells are high IP wells yet the production rate has fallen has fallen by 19.4%. Sorry for the repetition but most people gloss over the implications. The simple fact is that when you look at the math and the 10-Ks, the narrative being told by the EIA, USGS, and the Wall Street analysts does not work very well.

I think that some time in the next few months the picture will be much clearer and the fingers will start pointing. Given what I have been reading and hearing the problems were created by the Fed and SEC, not the oil company executives who disclosed everything to people who were willing to pay attention.

Nony, September 1, 2015 at 8:40 pm

A company that is growing production at 30% should not be expected to be cash flow positive. Especially when there is a heavy upfront capital investment (the drilling and completion) involved in production.
Lots of people pointed out the companies were not cash flow positive, but they tended to be peak oil advocates who lacked a good understanding of the basics of investment (as simple as NPV). See Copeland's Valuation or Brealey and Myers Corporate Finance.

Vangel Vesovski, August 31, 2015 at 8:06 pm

@Nony
The problem for the industry is the very high decline rate. Most wells lose more than 50% of their production rate in less than a year so the decline after the lag period clears will be much steeper. Think of the Yibal production rate and you won't be far off for the US shale sector.

BC, August 31, 2015 at 2:17 pm

http://www.thehillsgroup.org/
http://www.thehillsgroup.org/depletion2_018.htm
Peak, shale and tar production is a not-for-profit business, not unlike the US gov't, the Anglo-American imperial military, the USPS, the Corporation of Communist China, Amazon, Twitter, Tesla, and many biobubbletech companies, some with no REVENUES and a market cap of many billions of dollars. 😀
But, hey, Mr. Musk is using Tesla as a loss leader at thousands of dollars per unit (tens of thousands counting subsidies) to become the techno-optimist exemplar to get us to the Moon, Mars, and ultimately to join our extraterrestrial ancestors inhabiting the Rings of Uranus.
How will be accomplish this? Not by nuclear, wind, or solar. Please! The word is that Musk discovered HUGE deposits of dilithium crystals in Mexico, the Atacama Desert, and not far from where he is building his gigafactory, locations revealed to him by time-traveling Mr. Spock, who himself was informed by the aforementioned extraterrestrials centuries in the future.
Soon we will upload our consciousnesses into virtual humachines, leaving behind our concerns about Peak Oil, population overshoot, resource depletion per capita, and climate change, and go off planet to explore the cosmos as immortal beings for millennia to come.
This is going to be so exciting!

Anonymous, August 31, 2015 at 3:16 pm

In my view, there world is awash in mis or bad information. Oil prices are anything but linear either positively or negatively. The past 3 days of trading is showing this. Great to read that opec members may begin to discuss a reasonable output level to help restore prices to a fair level. I agree with the bull Boone Pickens as his experience and expertise in energy is par excellence. On his blog, he expects oil to exit this year at 70 per boe. I have a bet with a friend that wit exits this year at at least 60 per boe and I am also long crude, happily long that is…

JBH , September 1, 2015 at 7:12 am

Anonymous Re your remark on mis or bad information. I could not agree with you more. I interpret this remark as there being far too many gratuitous prognostications that do nothing other than inject noise into the airwaves. Or equally as bad, heavily-hedged puffed-up bets that hold no water when held up to the light of day. Academic papers are major offenders in this regard. Over half are not worth the paper they are printed on. If it doesn't forecast, it is not science.
Your own prediction re the yearend price of crude is certainly reasonable. I do not put it in the above category. That said, I do disagree with it. What gives my disagreement gravitas is it has teeth, as the following will confirm.
What this site needs is a neutral holder of escrow for legal bets of token amount so commenters can put their money where their mouth is. Claims would be written to pay at a specific date for a specified price, growth rate, or quantity. My reasoning is along the lines of what you were driving at. It is to leaven sense into academics and others who say anything fool thing they want to students, or on sites like Econbrowser, without being called on it. That some people have a belief structure so impervious to the real world that leavening sense into them would not be possible is beside the point. Others would be watching, and that would be value enough for a project like this.
Take the stock market forecast in a comment of mine here on Econbrowser in late-July. I said in no uncertain terms the Dow was in a bear market. That bet would pay off if and when the Dow reached 20% down from its May 19th high; if instead the Dow goes to a new all-time high without first going down 20% I will have lost.

There is no shame in losing. This is an uncertain world. The shame comes otherwise. Most notably in making a highly amorphous statement about the future, and then at some future date crowing about having been right.

Allow me to flesh this out more. Using the WSJ print for the 2015 yearend WTI price of crude as the basis, I'll take even money crude will end the year below $60 per barrel. Even money that over the next four quarters – Q3 thru Q2 next year – real GDP growth will be below the current WSJ consensus estimate (a known number available to all). That real GDP growth will be below 2% over the next three years (distant payoff date yet noteworthy for what it says). I would, however, require a clause that this latter bet be negated if Donald Trump becomes president. The Iowa winner-take-all presidential market has the Dem candidate priced at (valued at) 59 cents vs. 41 cents for the Rep. My prediction here is this spread will narrow considerably in coming months.

I base this last on the venerable methodology of the 13 Keys to the Presidency (original version). As for my Dow prediction, it is based on a proprietary technical model of mine constructed from market internals. At present, market internals are more negative than at their worst in the 2008 crisis! This brings a further thing to light – technical analysis is a highly valuable tool. Economists would do well to master it, since the market is a fine leading indicator of recessions. Paul Samuelson's often quoted statement about the market's ability to predict recessions borders on gibberish. Of course, a bear market does not mean impending recession. No good forecaster ever said it did. Other things have to fall in place. At present they have yet to do so. But in advance of the next recession – whenever that is – stocks will have entered a bear market. The caveat is that stocks go down in both nominal and real terms. Never since the inception of the Dow has the real Dow not led the economy down. Ditto for on the way up.

BC, September 1, 2015 at 8:52 am

JBH, agree about the bear market, and it is setting up like 2007, 2000, and 1929 given a list of rarely occurring coincident indicators that occurred only during those periods since the early 20th century:
https://app.box.com/s/vs7kkhuw96x9rksodwbwvnxxek3nis3b
https://app.box.com/s/sqpdwrin8dt40t3ri6n0n5ksx88gtoqz
https://app.box.com/s/5q46eovoo137r3z8xemetj4jipz54jt1
BTW, since the late 1990s and the onset of hyper-financialization of the economy, the stock market has become a "lagging" indicator rather than the widely believed "leading" indicator. If the phenomenon still maintains, the US economy entered recession as long ago as Q4 '14 to Q1 '15.
And as is historically characteristic of debt-deflationary regimes of the Long Wave, including Japan since 1992, there will be no persistent capacity constraints, accelerating wages and inflation, a yield curve inversion, and central bank tightening prior to the next recession and bear market. The Fed will much more likely resume QEternity and maintain ZIRP indefinitely.

JBH, September 1, 2015 at 8:04 am

Peak Trader Word usage is incredibly important. "We" don't do anything. There is a natural economy driven by the entrepreneurial spirit inherent in humans. It's part of the survival instinct coded by DNA. The Federal Reserve and big government are world-class obstacles to the economy's natural rate of growth. Natural growth is the birthright of common man in a civilization as advanced as ours. The Federal Reserve, politicians, and government officials at all levels create impediments to and worsen the drains on natural growth. "They" should get out of the way. There are nuances around this, one notable being reasonable tariff protection like our nation had in its heyday. Another is reasonable-yet-not-onerous regulation of the environment.
Corruption at the highest level - crony capitalism as it is now called, otherwise since time immemorial known as vested interests – is strangling economic growth. It is an open question if Fed officials are corrupt. I do not want to think that of them. But certainly they are imbecilic in the mass devastation they have wrought since the time of Greenspan. We cannot yet look back from the vantage point of ten years out. But unless something changes regarding vested interests, coercive big government, and central banks run amok, the miserable last ten years will look like a walk in the park. This is an easy-to-make prediction in light of the crippling debt burden Keynesian economics has inflicted on this and future generations …

Kirby thibeault, August 31, 2015 at 3:25 pm

Oil prices will exit, wti, this year at a min of 60 per boe and the extreme pessimists are wrong and I completely disagree with Gary shillings 10-20 call. The past few days should make everyone aware of how quickly prices can change.

Jeffrey J. Brown, September 4, 2015 at 5:55 am

All glory is fleeting

"For over a thousand years Roman conquerors returning from the wars enjoyed the honor of triumph, a tumultuous parade. In the procession came trumpeteers, musicians and strange animals from conquered territories, together with carts laden with treasure and captured armaments. The conquerors rode in a triumphal chariot, the dazed prisoners walking in chains before him. Sometimes his children robed in white stood with him in the chariot or rode the trace horses. A slave stood behind the conqueror holding a golden crown and whispering in his ear a warning: that all glory is fleeting."
― George S. Patton Jr.
The EIA shows that US Crude + Condensate (C+C) production was 5.0 MMBPD (million barrels per day) in 2008. Let's assume that the current estimate of 9.6 MMBPD in US C+C production in April, 2015 is correct. And let's assume that the gross rate of decline in existing US C+C production in 2008 was about 5%/year. So, in order to offset the decline from existing 2008 wells, US operators had to put on line 0.25 MMBPD of new production (which they clearly achieved, given the observed net increase in production).
Here's the problem.
Even with no increase in the decline rate, as production increases, the volumetric decline from existing wells increased in tandem with the production increase. A peak occurs when the production from new wells (and workovers, secondary, tertiary recovery efforts, etc.) can no longer offset the decline from existing production. Therefore, the higher the production rate, the closer that we are to a production peak, i.e., "All glory is fleeting."
US operators are, in effect, fighting a two front war–an increase in the decline rate from existing wells and an overall increase in the volumetric decline from existing wells, because of the increase in production. This is of course also largely true of total world production, and my contention is that in all likelihood, virtually all of the new actual crude oil production (45 and lower API gravity crude) that was put on line from 2006 to 2014 inclusive globally only served to approximately offset the declines from existing wells, i.e., it took trillions of dollars in upstream capex to keep us on an "Undulating plateau" in actual crude oil production for the past decade.
In any case, the estimated annualized volumetric declines (rounded off to nearest 0.5 MMBPD) in April, 2015 US C+C production at three rates of decline from existing wells:
5%/year: 0.5 MMBPD
10%/year: 1.0 MMBPD
15%/year: 1.5 MMBPD
At the 15%/year rate, which IMO is the most likely, in order to maintain 9.6 MMBPD, US operators would have had to put on line, from April, 2015 to April, 2016, production that would be approximately equivalent to all of Norway's 2014 C+C production.

Jeffrey J. Brown, September 4, 2015 at 8:13 am

Late August US net crude oil imports (four week running average data, MMBPD):
2008: 10.1
2009: 9.1
2010: 9.6
2011: 9.2
2012: 8.6
2013: 8.1
2014: 7.3
2015: 7.1
Of course, when we look at total production less consumption, overall net imports on a total liquids basis are lower, but it certainly appears that the decline in US net crude oil imports has slowed considerably, and US net imports will in all likelihood be increasing in future months, as US C+C production declines.
It looks like the recent low in net US crude oil imports was in early November, 2014, at 6.6 MMBPD (four week running average), which was down quite a bit from the early November, 2013 number (7.5).
In any event, it seems to me that the bottom line is that for every one bpd of new production that US operators had to put on line in 2008 to offset declines from existing wells, they will need about six bpd of new production now.

Nony, September 6, 2015 at 11:05 am

I always felt that high price impact was the best fallback position of peakers after US production explosion surprised them as did worldwide gradual up plateau. It was something that cornies needed to concede. At the end of the day, for the US, as a big net importer we gain more from low prices than from the production itself.
Now, I'll take the low price as a win. Feels like the peak oil skeptics have won twice now over the peak oil advocates (even the more moderate ones). First with the production. Second with prices.
I don't even like the "no one could have predicted shale". Peak oil advocates (even the more moderate ones) were slow to look at the warning signs (but quick to look at things like Staniford and Simmons Saudi concerns). They tended to talk it down on the way up. And FWIW, I didn't predict shale, but I'm not surprised that something came out of the bag. Seems like it has often happened over the history of the industry when back against the wall. And we probably could have done the same impact, by approving ANWR, Keystone, and VACAPES drilling (which were known options). The whole US can't affect world prices looks pretty wrong in retrospect.

[Sep 05, 2015] Tribes

"...Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise."

"...read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects. "

Sep 04, 2015 | Stephen Williamson New Monetarist Economics

So, within economics, is macro unusual? Of course not. Indeed, the whole emphasis of post-1970 macroeconomics is to do it like everyone else. Before 1970, no one would have been discussing macro and Dixit-Stiglitz in the same sentence. Should economics work like physics? Of course not. We're studying very different problems requiring very different methods. Why would you expect economists to behave like physicists?
What's my bottom line? Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything.

Anonymous, September 4, 2015 at 4:42 PM

"Romer is just leading us through an unproductive conversation - one that's not going to persuade anyone of anything."
It's almost as if Romer is wandering around testing the waters seeing how far he can push things before he actually says what he wants to say coherently.

Anonymous September 4, 2015 at 5:38 PM

Personally, I think he senses that RE/New Classicalism is in decline, not comprehending why, struggling to understand, looking for scapegoats (Solow, tribal behaviour, mathiness) and is essentially mourning its demise.
Henry.

Constantine Alexandrakis, September 4, 2015 at 6:16 PM
Steve, Solow agrees with you on Romer's contribution.
https://www.minneapolisfed.org/publications/the-region/interview-with-robert-solow

Norman, September 5, 2015 at 4:45 AM

Actually, Romer doesn't argue that physicists are not tribalists – he just asserts it, on the basis of a thought experiment based on two particular statements. It may well be true that there is a lot of consensus on the particular physics statements in his post, but no doubt you could also find a couple of statements in economics that most economists agree about. For evidence of tribalism in physics, google "superstring controversy," or at a more personal level, Newton and Hooke, Einstein and Lenard.

Or read Kuhn famous book on The Structure of Scientific Revolutions, in which he argues persuasively (or shows definitively, for those who prefer), that "Competition between segments of the scientific community [tribes?] is the only historical process that ever actually results in the rejection of one previously accepted theory or in the adoption of another," though at the same time, most progress comes from working within an established paradigm. My own intuition is that economics if very much like physics in both those respects.

As to how tribalism has arisen in economics, the answer is easy: economists are people, and people are tribal. Search the psychology of "ingroup bias".

[Sep 05, 2015] Range of reactions to realism about the social world by Daniel Little

My recent post on realism in the social realm generated quite a bit of commentary, which I'd like to address here.
Brad Delong offered an incredulous response -- he seems to think that any form of scientific realism is ridiculous (link). He refers to the predictive success of Ptolemy's epicycles, and then says, "But just because your theory is good does not mean that the entities in your theory are "really there", whatever that might mean...." I responded on Twitter: "Delong doesn't like scientific realism -- really? Electrons, photons, curvature of space - all convenient fictions?" The position of instrumentalism is intellectually untenable, in my opinion -- the idea that scientific theories are just convenient computational devices for summarizing a range of observations. It is hard to see why we would have confidence in any complex technology depending on electricity, light, gravity, the properties of metals and semiconductors, if we didn't think that our scientific theories of these things were approximately true of real things in the world. So general rejection of scientific realism seems irrational to me. But the whole point of the post was that this reasoning doesn't extend over to the social sciences very easily; if we are to be realists about social entities, it needs to be on a different basis than the overall success of theories like Keynsianism, Marxism, or Parsonian sociology. They just aren't that successful!
There were quite a few comments (71) when Mark Thoma reposted this piece on economistsview. A number of the commentators were particularly interested in the question of the realism of economic knowledge. Daniel Hausman addresses the question of realism in economics in his article on the philosophy of economics in the Stanford Encyclopedia of Philosophy (link):

Economic methodologists have paid little attention to debates within philosophy of science between realists and anti-realists (van Fraassen 1980, Boyd 1984), because economic theories rarely postulate the existence of unobservable entities or properties, apart from variants of "everyday unobservables," such as beliefs and desires. Methodologists have, on the other hand, vigorously debated the goals of economics, but those who argue that the ultimate goals are predictive (such as Milton Friedman) do so because of their interest in policy, not because they seek to avoid or resolve epistemological and semantic puzzles concerning references to unobservables.

Examples of economic concepts that commentators seemed to think could be interpreted realistically include concepts such as "economic disparity". But this isn't a particularly arcane or unobservable theoretical concept. There is a lot of back-and-forth on the meaning of investment in Keynes's theory -- is it a well-defined concept? Is it a concept that can be understood realistically? The question of whether economics consists of a body of theory that might be interpreted realistically is a complicated one. Many technical economic concepts seem not to be referential; instead, they seem to be abstract concepts summarizing the results of large numbers of interactions by economic agents.
The most famous discussion of realism in economics is that offered by Milton Friedman in relation to the idea of economic rationality (Essays in Positive Economics); he doubts that economists need to assume that real economic actors do so on the basis of economic rationality. Rather, according to Friedman this is just a simplifying assumption to allow us to summarize a vast range of behavior. This is a hard position to accept, though; if agents are not making calculating choices about costs and benefits, then why should we expect a market to work in the ways our theories say it should? (Here is a good critique by Bruce Caldwell of Friedman's instrumentalism; link.)
And what about the concept of a market itself? Can we understand this concept realistically? Do markets really exist? Maybe the most we can say is something like this: there are many social settings where stuff is produced and exchanged. When exchange is solely or primarily governed by the individual self-interest of the buyers and sellers, we can say that a market exists. But we must also be careful to add that there are many different institutional and social settings where this condition is satisfied, so there is great variation across the particular "market settings" of different societies and communities. As a result, we need to be careful not to reify the concept of a market across all settings.

[Sep 05, 2015] Fed Watch: If You Ever Wondered Whose Side The Federal Reserve Is On...

"...Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners."
.
".When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers."
.
"...Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%."

Sep 05, 2015 | Economist's View

Sep 05, 2015 | economistsview.typepad.com
Tim Duy:
If You Ever Wondered Whose Side The Federal Reserve Is On..., by Tim Duy: Catching up with Richmond Federal Reserve Jeffrey Lacker's speech. His dismissal of low wage growth numbers:
Some argue there must be excessive slack in labor markets if wage rates are not accelerating. But real wages are tied to productivity growth, and productivity growth has been slow for several years now. Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated.

Real wage growth is consistent with productivity, thus there is no excess slack in the labor market. If you think this is some crazy hawk-talk, think again. Fed Chair Janet Yellen in July:

The growth rate of output per hour worked in the business sector has averaged about 1‑1/4 percent per year since the recession began in late 2007 and has been essentially flat over the past year. In contrast, annual productivity gains averaged 2-3/4 percent over the decade preceding the Great Recession. I mentioned earlier the sluggish pace of wage gains in recent years, and while I do think that this is evidence of some persisting labor market slack, it also may reflect, at least in part, fairly weak productivity growth.

For more than three decades, the pace of productivity growth has exceed that of real compensation:

Another view from real median weekly earnings:

Real median weekly earnings have grown 8.6% since 1985. Nonfarm output per hour is up 79% over that time. Yet the instant that there is even a glimmer of hope that labor might get an upper hand, the Federal Reserve looks to hold the line on wage growth. It still appears that the Fed's top priority is making sure the cards remain stacked against wage and salary earners.

Posted by Mark Thoma on Saturday, September 5, 2015 at 09:48 AM in Economics, Fed Watch, Monetary Policy | Permalink Comments (52)

pgl :

Let's unpack this spin:

"But real wages are tied to productivity growth, and productivity growth has been slow for several years now."

Productivity by definition is output per worker. So when a recession lowers output, it lowers measured productivity. So much for this garbage circular "reasoning".

Oh and the canard that JohnH does a lot - look at only what has happened of late:

"Wage growth in real terms has at least kept pace with productivity increases over that time period, which is perfectly consistent with an economy from which labor market slack has largely dissipated."

Tim Duy has already exposed this fallacy by looking at this over a longer period of time.

pgl -> Paine ...

Dude - this is a whole literature on this. Recessions do lower output by more than it lowers employment but this is not exactly because firms are nice. Recessions are bad news for everyone. Wages do not keep up with what is even limited inflation - again firms are not exactly nice. So recessions sort of screw firms but unbelievably screw workers. Eventually the economy gets back to full employment but workers never fully recovery.

This is why recessions are bad for everyone in the short fun but especially bad for workers short-run and long-run.

Which brings me to why I did not go after Yellen. It seems she and hubbie Akerlof have written some of the best papers on this topic.

Paine - stop being an arrogant lazy ass and actually check up on this literature.

Now if your point is that the FED borg (I coined this term) is about to take over Yellen's mind, I fear this too. It seems to have taken over Stan Fischer's mind and he used to be brilliant.

ilsm -> Paine ...

The fed hawks are like pentagon version hawks since 1946.....

we cannot have any more pearl harbors

or inflation......

DrDick :

DrDick :

When you recruit from the banksters, as the Fed does, you have to expect that their interests align with the kleptocratic rentiers.

mrrunangun :

Domestic US wage rates have been flat. In the graph, the lines cross between 1975 and 1985. During those years, international competition increased in the tradable goods sector, IMO due to the recovery of Japanese and European industrial economies from the destruction suffered in WWII. The divergence between the curves expands more rapidly as more free trade agreements come on line in the 90s (e.g. NAFTA in 1992 and PNTR for China in 1999).

It may be that intensifying competition in the tradable goods sector has slowed wage gains in the US by a supply and demand imbalance for labor. The increasing wage premium to education over the past 40 years and the capture of the domestic political system, and thus capture of the government, by the very rich, has made it impossible for the political system to make adjustments to the change in international competition that would benefit the unskilled or semiskilled worker.

Mike Sparrow -> mrrunangun...

The trade agreements are vastly overrated in terms of competition and instead, they are what help surge productivity. The US began to have offshoring in the 1950's, especially after the Korean war era boom. Companies began to bail as the US had developed a consumer base. This is very typical of capitalism. It happened in Europe in the 19th century because of the same reason.

Keeping a strong consumer base and industrial base would liquidate capitalist positions and turn the economy into laborism.

Mike Sparrow :

I would argue productivity is too high, still. Real productivity really zoomed from the mid-90's and really never came back down. The late 00's recession made it worse.

Persistently high productivity causes real wages to struggle to keep up. I think many hobbyists have it backwards with wages including myself. Yes, real wages rose rapidly between 1997-2000, but that was only because productivity surged. The long run problem of that was wage stagnation due to the previous high productivity, which has been there since the 80's. Real wage acceleration coupled with correcting productivity is a good sign and the Fed doesn't like it because they want high productivity all the time.

The Rage -> Peter K....

I think what he is trying to say, reading through his posts: technology is driving down the need for labor investment and the information/computer/plastic/whatever you want to call it revolution really drove that point home to the end.

So productivity is high, creating profits from reduced pace of hiring and keeping pipelines of credit open for future output. However, productivity is slowing lately and real wages have accelerated implicating that near term output will be higher than while future output will be lower. Yeah, that part is a bit confusing, but the drift is that productivity/real wages need to track together closer or you get problems. When they come unglued, the offender, this case productivity, needs to come down for wages to catch up. Real wages were to high before 1980 and productivity should run a bit higher than wages. So by 1995, the problems that helped spur the great inflation had ebbed, but a new problem started: rapid productivity growth.

I read this in 2009 believe it or not in a article. Their belief was if productivity stayed high and growing, the economy would be in permanent recession. They believed to maintain stability, productivity had to decline for the next decade. Mercy, I wish I could remember where I read that from. 6+ years leaves a large gap. I do think the chart shows the "panic" over slowed productivity is pure noise. Between 95-00 it when "boom boom". Notice the pre-95 trend and the post-95 trend. To the productivity must decline squad, a decline in productivity will help real wages rise boosting real incomes and reducing nominal debt, creating a more stable economy.

Dickeylee :

We are still in a slave labor economy. The whole world is looking for the next labor market to enslave. Nike in Vietnam, Apple in China, and China looks poised to take over Africa.

If you can't get your slaves shipped to you, go to your slaves!

pgl -> Dickeylee...

China looks poised to take over Africa? I guess the Chinese capitalists hate paying $3 an hour and so will pay Africans less. If you check - multinationals are in Africa and they are mainly US and European based companies. It seems we beat the Chinese to this.

ilsm -> pgl...

Pentagon deploying to keep the peace in Africa for the job creators........

Lafayette -> pgl...

PITY AFRICA

The plight of Africa is that it has been plundered by both Europe and America over the past two centuries. By America principally for cheap labor brought over on slave-ships.

Do not overlook the fact that damn few African countries can seem to develop a leadership that does not plunder its country's assets for their own personal profit.

This plague of profiteering has existed since time immemorial and China is just the newest entrant to the game ...

DrDick -> pgl...

China has been making significant inroads there for over a decade and are currently the largest single player there.

http://www.businessinsider.com/why-china-has-become-so-big-in-africa-2015-1

pgl -> Dickeylee...

Your comment actually has some merit in two senses. China has recognized that its habit of investing in government bonds of other nations (e.g. US) is giving them a lower return than what foreign direct investment offers. And Africa is attracting a lot of foreign direct investment. I went searching for who the big players are and this gave an interesting list:

http://theafricachannel.com/5-multinational-corporations-making-significant-investments-in-africa/

But it shows the BRIC nations (C for China) has been doing FDI in Africa for a while.

If multinationals are going global, maybe the labor movement should do the same. Workers of the world unite!

Julio :

Rasputin explained why the Fed must raise rates before the next recession, so it can lower them later:

"Certainly our Savior and Holy Fathers have denounced sin, since it is the work of the Evil One.
But how can you drive out evil except by sincere repentance?
And how can you sincerely repent if you have not sinned?"

anne :

https://research.stlouisfed.org/fred2/graph/?g=1Jpv

January 30, 2015

Labor Share of Nonfarm Business Income and Real After-Tax Corporate
Profits Per Employee, 2000-2015

(Respectively indexed to 2000 and 2014)

Decline in labor share index:

100 - 89.4 = 10.6%

Increase in real dollar profits per employee:

15,139 - 6,218 = 8,921

8,921 / 6,218 = 143.5%

anne -> anne...

Notice that the labor share of business income has declined by 10.6% since 2000, while real after-tax corporate profits have increased by 143.5%.

[Sep 05, 2015] RE: Inflation, the Fed, and the Big Picture (Links for 09-04-15)

"...Much of Macro is still operating under the Friedman myth of Monetary policy domination. Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
.
A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination "
.
"...1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
2) Nominal and Real GDP are on the way up.
3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth."

September 04, 2015 | Economist's View

RC AKA Darryl, Ron said...

RE: Inflation, the Fed, and the Big Picture

[Actually Carmen Reinhart deserves a better pitchman here than the little comment pgl posted above. Carmen presents a expressly well written and concise picture. Since it is international then the same focus on core CPI that we get for domestic inflation is not referenced nor implied. She includes commodities in the inflation. The full text following the short excerpt given by pgl is below:]

https://www.project-syndicate.org/commentary/jackson-hole-banking-conference-inflation-by-carmen-reinhart-2015-09

...
Most of the other half are not doing badly, either. In the period following the oil shocks of the 1970s until the early 1980s, almost two-thirds of the countries recorded inflation rates above 10%. According to the latest data, which runs through July or August for most countries, there are "only" 14 cases of high inflation (the red line in the figure). Venezuela (which has not published official inflation statistics this year) and Argentina (which has not released reliable inflation data for several years) figure prominently in this group. Iran, Russia, Syria, Ukraine, and a handful of African countries comprise the rest.

The share of countries recording outright deflation in consumer prices (the green line) is higher in 2015 than that of countries experiencing double-digit inflation (7% of the total). Whatever nasty surprises may lurk in the future, the global inflation environment is the tamest since the early 1960s.

Indeed, the risk for the world economy is actually tilted toward deflation for the 23 advanced economies in the sample, even eight years after the onset of the global financial crisis. For this group, the median inflation rate is 0.2% – the lowest since 1933. The only advanced economy with an inflation rate above 2% is Iceland (where the latest 12-month reading is 2.2%).

While we do not know what might have happened were policies different, one can easily imagine that, absent quantitative easing in the United States, Europe, and Japan, those economies would have been mired in a deflationary post-crisis landscape akin to that of the 1930s. Early in that terrible decade, deflation became a reality for nearly all countries and for all of the advanced economies. In the last two years, at least six of the advanced economies – and as many as eight – have been coping with deflation.

Falling prices mean a rise in the real value of existing debts and an increase in the debt-service burden, owing to higher real interest rates. As a result, defaults, bankruptcies, and economic decline become more likely, putting further downward pressures on prices.

Irving Fisher's prescient warning in 1933 about such a debt-deflation spiral resonates strongly today, given that public and private debt levels are at or near historic highs in many countries. Especially instructive is the 2.2% price decline in Greece for the 12 months ending in July – the most severe example of ongoing deflation in the advanced countries and counterproductive to an orderly solution to the country's problems.

Median inflation rates for emerging-market and developing economies, which were in double digits through the mid-1990s, are now around 2.5% and falling. The sharp declines in oil and commodity prices during the latest supercycle have helped mitigate inflationary pressures, while the generalized slowdown in economic activity in the emerging world may have contributed as well.

But it is too early to conclude that inflation is a problem of the past, because other external factors are working in the opposite direction. As Rodrigo Vergara, Governor of the Central Bank of Chile, observed in his prepared remarks at Jackson Hole, large currency depreciations in many emerging markets (most notably some oil and commodity producers) since the spring of 2013 have been associated with a rise in inflationary pressures in the face of wider output gaps.

The analysis presented by Gita Gopinath, which establishes a connection between the price pass-through to prices from exchange-rate changes and the currency in which trade is invoiced, speaks plainly to this issue. Given that most emerging-market countries' trade is conducted in dollars, currency depreciation should push up import prices almost one for one.

At the end of the day, the US Federal Reserve will base its interest-rate decisions primarily on domestic considerations. While there is more than the usual degree of uncertainty regarding the magnitude of America's output gap since the financial crisis, there is comparatively less ambiguity now that domestic inflation is subdued. The rest of the world shares that benign inflation environment.

As the Fed prepares for its September meeting, its policymakers would do well not to ignore what was overlooked in Jackson Hole: the need to place domestic trends in global and historical context. For now, such a perspective favors policy gradualism.
Friday, September 04, 2015 at 02:44 AM

bakho said in reply to RC AKA Darryl, Ron...
Here conclusion was weak with a vague take home message.
Much of Macro is still operating under the Friedman myth of Monetary policy domination.

Monetary policy can have strong effects, but at other time Fiscal and Regulatory Policy are much stronger and needed for the best economic outcomes.
A problem with the US Fed is limited powers to set monetary and regulatory policy and it can be totally uncoordinated from fiscal and regulatory policy that are under control of Congress and the Executive. In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. Do the Fed an Executive even try to coordinate policy now? This Congress is the anti-Fed and operates on a playbook from the gamma quadrant. Total lack of policy coordination

pgl said in reply to bakho...
My take was that she was advocating more aggressive aggregate demand stimulus in general. And you are right - we need the fiscal side to step up to the plate.
Story in NYC as how bad just the subway stops are. The rails suck as well and we need to expand the system. But at the rate this is going this decaying stops which are very dangerous will not be fixed until 2065. Why? Lack of funding is the stated reason. No one in this stupid nation can say - well provide more funding? We are ruled by idiots.

RC AKA Darryl, Ron said in reply to bakho...
[Well, yeah but that would have diverged a long way from her topic:]
"Inflation – its causes and its connection to monetary policy and financial crises – was the theme of this year's international conference of central bankers and academics in Jackson Hole, Wyoming. But, while policymakers' desire to be prepared for potential future risks to price stability is understandable, they did not place these concerns in the context of recent inflation developments at the global level – or within historical perspective..."

[She stuck with just inflation and monetary policy because that is what she chose to write about at this time. However, Carmen is the other intellectual half of Rogoff of the debt limit for economic growth flameout. So, we should not depend upon her for fiscal policy recommendations. That even someone this popular with the establishment Republican elite can understand monetary policy is notable in contrast to the inflationistas.

Peter K. said in reply to RC AKA Darryl, Ron...
Yes she did the 90 percent government debt cutoff with Rogoff that Krugman attacked.
Also the vaguely righwing blogger from the St. Louis Fed, Andolfatto or something, recently had link where they said inflation wasn't a problem and the Fed shouldn't raise rates until inflation is apparent.

Peter K. said in reply to bakho...
"In the mid 1990s, the Fed and Clinton administration were using the same playbook and cajoled a reluctant Congress. "
I thought Clinton cut the deficit and the tech stock bubble helped balance the budget so they had surpluses. Some people say those surpluses were a problem because of a lack of safe assets. That drove money to seek safe returns in mortgage backed securities for instance.

Peter K. said in reply to Peter K....
Maybe he didn't cut the deficit - I think Dean Baker argues that - but at the beginning of his Presidency, Clinton dropped his middle class spending bill in a deal with Greenspan who said he'd keep interest rates low in return.
Peter K. said in reply to bakho...
"This Congress is the anti-Fed and operates on a playbook from the gamma quadrant."
haha yes. The Fed regularly complained about fiscal "headwinds."

Anonymous said in reply to RC AKA Darryl, Ron...
http://www.bankofengland.co.uk/publications/Documents/quarterlybulletin/qb110301.pdf
Chart 1 is key to understanding the rough timing. In the US and UK, we are a little past the dashed vertical line (impact phase). UK has had a little more success importing inflation.

1) Real asset prices have gone up a lot as a result of QE. Now they are headed down as QE is done with no real hope of another round.
2) Nominal and Real GDP are on the way up.
3) Inflation will be the last to respond. Waiting for inflation to show up is a mistake.
4) That still does not tell us the timing of getting off the zero bound. As I have said before, the Fed has let asset prices go up too much (much has been said including Shiller's recent analysis).
The stock prices are now coming down. The fact that Netflix (which has zero exposure to China) is down 25% should give pause to anyone who believes parts of the market are not in a bubble. Add to that crashing commodity prices and growth overseas in important economies. I think the Fed needs to wait and see how it shakes out. It = asset prices, commodity prices, EM growth and finally, how all this impacts US growth.

[Sep 05, 2015] Is Effective Demand showing the limit of the Business Cycle… again

"...To me the US economy means much more than the current short sighted-term artificially inflated stock price buy back capital gains game that is being played out again on Wall St. for the benefit of the 1% "

Angry Bear

William Ryan, September 4, 2015 8:54 am

Yes the FRED chart does not lie. It has been almost 8 years since the last bubble burst. Soon will be the China bubble or maybe another financial engineering bubble from Wall St. The graph is trying to tell us that the time is near the 8 year mark. My only problem is that there is nothing we, any of us can do about it when 95% of all corp. earnings go to stock buy backs, dividends and acquisitions. Nothing is going to capital or people long term investment… Even Trump will get trumpted on this one.

JimH, September 4, 2015 9:50 am

Inventories are going up.
Consumers can not spend what they do not have and producers will not produce what they can not sell.
Or stated another way, unless labor share is increased, consumer spending on discretionary goods must decrease. (As the prices on non discretionary goods increase.)

William Ryan, September 4, 2015 11:15 am

JimH you are so right but this is what happens when we fully participate in the greed that perpetuates the race to the bottom in supporting other countries economies rather than our own. We must create new domestic demand and raise the tide of our own economy for a change.. Not China's, Mexico's, South Korea's or Vietnams.

Artificially inflating stock prices on Wall St. does not constitute a growing economy or economic recovery.

We need to actually make things here again to create new wealth of which our economy will grow again and not to be gamed by the greedy few at the top. Then real wages will rise along with greater domestic consumer demand.

To me the US economy means much more than the current short sighted-term artificially inflated stock price buy back capital gains game that is being played out again on Wall St. for the benefit of the 1% . Please go read today's PCR.com if you cannot see what is really happening to our country.

[Sep 05, 2015] Global Economic Fears Cast Long Dark Shadow On Oil Price Rebound by Evan Kelly

Sep 05, 2015 | Zero Hedge via OilPrice.com,

After bouncing around, oil prices finished off the week with just a bit less volatility than when it started the week. WTI stayed at around $46 per barrel as of midday on September 4, with Brent holding at $50 per barrel.

Aside from supply and demand fundamentals in the oil markets, central bank policymaking is another major factor determining the trajectory of oil prices. The European Central Bank hinted that it might consider more monetary stimulus to help the stagnant European economy. Oil prices rose on the news. The markets, however, are waiting on a much more significant announcement from the Federal Reserve this month on whether or not the central bank will raise interest rates. This summer's market turmoil – the Greek debt crisis and the meltdown in the Chinese stock markets – has dimmed the prospect of a rate increase.

Moreover, the global economic unease may begin to reach American shores. On September 4, the U.S. government released data for the month of August, revealing that the U.S. economy added only 173,000 jobs, a mediocre performance that missed expectations. Although an economic slowdown is no doubt a negative for oil prices, the news could provide enough justification for the Fed to hold off on raising interest rates. A delay in a rate hike could push up WTI and Brent.

Although a slew of Canadian oil sands projects have been cancelled due to incredibly low oil prices, several large projects were already underway before the downturn. With the costs of cancellation too high, these projects continue to move forward. When they come online – several of which are expected by 2017 – they could add another 500,000 barrels per day in production, potentially exacerbating the glut of supplies not just in terms of global supply, but more specifically in terms of the flow of oil from Canada. Canadian oil already trades at a discount to WTI, now at around $15 per barrel.

That means that when WTI dropped below $40 per barrel last week, Western Canada Select was nearing $20 per barrel. With the latest rebound to the mid-$40s, WCS is only around $30 per barrel. But with breakeven prices for many Canadian oil sands projects at $80 per barrel for WTI, oil operators in Alberta are no doubt losing sleep over their current situation. One important caveat to remember is that unlike shale projects, Canada's oil sands [mines] operate for decades, so the immediate downturn does not necessarily ruin project economics. However, with a strong rebound in prices no longer expected in the near-term, high-cost oil sands projects are probably not where an investor wants to be.

Low oil prices continue to take their toll. Bank of America downgraded BP to "underperform" and warned that its dividend policy faces risks.

... ... ...

Saudi Arabia's King Salman arrived in Washington on September 4 to meet with U.S. President Barack Obama. The two leaders will discuss the Iran nuclear deal, a deal that the Saudi King had strongly opposed from the start, but has since begrudgingly warmed up to following security promises from the United States. If they can manage to stay on the same page with the Iran deal, the two leaders will then discuss the ongoing conflicts in Syria and Yemen. There is obviously little to no prospect that such intensely complicated conflicts will get sorted out in the near future, so more modest goals for the trip include simply building trust between the two countries. Although long-term allies, Saudi Arabia has become more mistrustful of the U.S. President following the thaw in relations between the U.S. and Iran. The trip follows what the media has called a "snub" when King Salman declined to come to Washington this past spring for a summit of other Gulf state leaders.

... ... ...

Russian President Vladimir Putin met Venezuelan President Nicolas Maduro in China this week, and the two sides apparently discussed ways to stabilize oil prices. Maduro says that they agreed on "initiatives" to address low oil prices, but did not elaborate with details. In all likelihood, Maduro is engaging in a degree of bluster and wishful thinking. Neither side has the capacity to cut oil production as both are facing varying degrees of economic and financial crisis. However, earlier this week oil prices briefly spiked on news that Russia might be willing to negotiate coordinated action. Prices subsequently retreated once expectations subsided.

... ... ...

[Sep 05, 2015] WORLD TRADE IS FALLING

"...so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future…at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit…but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December…so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader…they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts… "

Angry Bear

rjs August 23, 2015 2:39 pm

dan, when you brought up oil imports and exports in your comment here Friday, i almost responded, because i already knew our imports the prior week were the highest since April 3, since i watch the reports and write about that stuff every weekend…maybe since i didn't, i continued to think about that and took a closer look at it yesterday than i normally do, which i have just posted online…turns out our net imports of oil and oil products, ie imports minus exports, were the highest they've ever been this year in the week ending August 12th…here's the relevant excerpt, without the links to the data sets i cited:

US crude oil output fell this week, but our oil imports were the highest since early April, and with a major refinery idled, that unexpectedly led to the largest increase in our inventories of oil in storage in 4 months, precipitating yet a further crash in the price of oil…US field production of crude oil fell for the third week in a row in the week ending August 14th, from 9,395,000 barrels per day last week to 9,348,000 barrels per day in this week's report…while that was down 2.7% from the modern record of 9,610,000 barrels per day set in the week ending June 5th, it was still 9.6% higher than our output of 8,556,000 barrels per day in the same week last year…our imports of crude oil, meanwhile, rose for the 3rd week in a row, jumping from 7,573,000 barrels per day in the week ending August 7th to 8,038,000 barrels per day in the current report…while that's 2.4% more than the same week last year, our 7.6 million barrels per day average crude imports of the last 4 weeks is still 0.9% lower than the same 4 week period of last year…

however, even with the increased oil supply brought about by that large increase in imports, that oil was not being put to use to the same degree as last week…due in large part to the unexpected August 8 outage at the BP refinery in Whiting, Indiana, the largest BP refinery and the largest in the US Midwest, U.S. crude oil refinery inputs dropped to 16,775,000 barrels per day, from the 17,029,000 barrel per day level of the week ending August 7th…so with greater supply and less refinery throughput, our crude oil inventories in storage rose by 2,620,000 barrels to 456,213,000 barrels in week ended August 14th, 24.3% more oil than the 367,019 ,000 barrels we had stored at the end of the 2nd week of August last year…that was, of course, more than was ever stored anytime in August in the 80 years that the EIA has records for, which had never seen the 400 million barrel inventory level breached before this year…that news of even higher inventories during the summer driving season when inventories usually fall sent oil prices down by 4.8% to a six and a half year low at $40.57 a barrel on Wednesday, and although the expiring September contract price inched up on Thursday on news of the first hurricane of the Atlantic season, oil prices for October delivery crashed again on Friday in the midst of a global market panic, briefly slipping below $40 a barrel, before closing the week at $40.45, capping the longest weekly losing streak for oil prices in 29 years…

so, if we've got plenty of oil stored, and with at least two refineries operating below capacity, why do we continue to import near fracking-era record amounts of crude oil? one reason is the contango trade that we've talked about in the past, wherein contracts for oil to be delivered in the future are at a price somewhat higher than the cost of buying oil now, such that it pays for speculators to buy oil and pay for its storage, and enter into a contract to sell it back at a higher price in the future…at one point last week, the contract for oil to be delivered in December was more than a dollar a barrel higher than the current price, meaning that a speculator could buy oil at today's price, pay the fees to have it stored at Cushing or elsewhere, and sell it back in December with a clear profit…but as we should all know, for every contract there has to be a counterparty, and for everyone who's buying oil now with a contract to sell it in December, there was a seller of that oil at today's price and a someone else buying a contract to take delivery of that oil for a dollar more a barrel in December…so for every one who's trading oil like this, there is someone on the other side of those trades, be it a bank, commodities house, or an oil company, taking the other side of those contracts, and effectively betting against the contango trader…they both can't be right, and those who bet on higher prices in March and a month ago have since lost their shirts…

another reason for continued high imports of oil is that we're exporting more refined products than ever before…in the 2nd week of August, our total exports of refined petroleum products averaged 3,884,000 barrels per day, up 10.6% from the 3,512,000 barrels per day we were exporting in the same week last year…but that's also more than double the 1,851,000 barrels per day of refined products we were exporting in August 2009, and more than quadruple the 964,000 barrels per day of refined products we were exporting in August of 2004…we're also exporting more crude oil too, mostly mostly to Canada, where the lighter grades of distillates are blended with tar from the oil sands to produce diluted bitumen, or dilbit, which can then be delivered by pipeline…on a monthly basis, our total exports of crude and petroleum products hit a record 4,943,000 barrels per day in April, more than double the 2,432,000 total exports of April five years earlier…

but the week just ended was somewhat an anomaly, in that with the aforementioned refinery constraints, our total exports did not rise, and our total imports of refined products rose to 2,614,000 barrels per day, up from 1,927,000 barrels per day of refined product we imported just two weeks ago …that was only the 2nd time in the past two years wherein our refined product imports topped 2.6 million barrels per day, and as a result our total imports of crude oil and petroleum products rose to 10,652,000 barrels per day, for our highest weekly total imports this year…subtracting the 4,460,000 barrels per day of crude and products that we exported this week means our net petroleum and product deficit was at 6,192,000 barrels per day for the week, which was also the greatest excess of crude and products imports over exports that we've seen this year…

despite that, the industry is pushing to have the 40 year old crude oil export ban repealed; it's already passed the House. why? simple; international oil prices have been running between $5 and $10 a barrel more than US oil prices. dont have to tell you what will happen to US prices if that happens…

run75441 , August 23, 2015 3:19 pm

RJS:

Like oil production, refining is a cartel in itself and matching refining to demand is profitable.

Anyhoo here is a chart to help you along. http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MOPUEUS2&f=M

rjs , August 23, 2015 3:52 pm

yeah, bill, i mine the EIA datasets every week, and the weekly EIA reports are where all the numbers above came from…not surprisingly, the refiners are not passing through all of their lower costs to the consumers…

the difference between crude oil and gasoline prices has increased by more than 50% from a year ago, so the pure refiners are making a bundle…the oil majors are using refinery profits to offset exploration and exploitation losses, and they all saw big downturns in 2nd quarter earnings anyway…

and probably half the independent drillers i looked at in the first two weeks of August saw losses in the 2nd quarter, and that was when oil prices were 50% higher than they are now…

Spencer England , August 24, 2015 10:37 am

I monitor the Census real trade data and it shows that POL ( petroleum, oils & lubricants) is now equal to almost 50% of exports. that is partly a function of weaker imports, bottleneck but real exports have been growing at double digit rates for several years.

West Texas Intermediate is selling at a discount to Brent, partially because of transportation bottlenecks. The Gulf Coast refiners are taking advantage of this discount to refine WTI and sell it in Europe where the refiners use Brent oil.

The Keystone pipeline could eliminate this unusual spread and the US refiners would lose their price advantage - oil companies should be careful of what you wish for. Of course at today's prices the Keystone pipeline is not profitable.

rjs , August 24, 2015 10:55 am

the BP refinery in Whiting i mentioned above was one of the main processors of heavy crude such as dilbit from Canada, which is coming in to the US through the Enbridge pipeline system (Steve Horn at Desmogblog has had a series on how the "Keystone clone" , from Alberta to Lake Superior to the Fleming pipeline in Illinois, was quietly approved under the radar)

at any rate, with Whiting down, maybe for a month, there's no one around to process West Canada Select…i saw it quoted with an $18 handle last week, when WTI was in the 40s…WTI has been trading with a $38 handle all morning, so they're probably having trouble giving that tar sands output away by now…

[Sep 05, 2015] Deflation and Money

"...Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones."
.
"...I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity."
.
"...But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag "
.
"..."if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"..."

Sep 05, 2015 | Economist's View
The summary "Deflation and money" by Hiroshi Yoshikawa, Hideaki Aoyama, Yoshi Fujiwara, and Hiroshi Iyetomiof says:
Deflation and money, Vox EU: Deflation is a threat to the macroeconomy. Japan had suffered from deflation for more than a decade, and now, Europe is facing it. To combat deflation under the zero interest bound, the Bank of Japan and the European Central Bank have resorted to quantitative easing, or increasing the money supply. This column explores its effectiveness, through the application of novel methods to distinguish signals from noises.

The conclusion:

...all in all, the results we obtained have confirmed that aggregate prices significantly change, either upward or downward, as the level of real output changes. The correlation between aggregate prices and money, on the other hand, is not significant. The major factors affecting aggregate prices other than the level of real economic activity are the exchange rate and the prices of raw materials represented by the price of oil. Japan suffered from deflation for more than a decade beginning at the end of the last century. More recently, Europe faces a threat of deflation. Our analysis suggests that it is difficult to combat deflation only by expanding the money supply

bakho said in reply to pgl...

Monetary policy weak is at the ZLB. Fiscal and regulatory can have much stronger effects and complete swamp monetary like a tidal wave to a ripple.
Exchange rates and other economic shocks have more effect than monetary policy at the ZLB.

Friedman and Schwartz were wrong about the cause and the cure of the Great Depression. Those who learned monetarism as the "new truth" are having a difficult time unlearning it. We need re-education courses for older economists and a new curriculum for younger ones.

bakho said in reply to pgl...

Efficiency standards backed by a carbon tax would be much more effective that a carbon tax alone.
Efficiency standards work for electric appliances and prevent a races to the bottom.

pgl said in reply to bakho...

True. It seems Carly and Jeb! do not want to regulate but rather to encourage innovation by giving subsidies to rich people. Not only is this Republican reverse Robin Hoodism on steroids - it will not has as much effect as a tax combined with regulations.

Simply put - conservatives should not be listened to as their agenda is not economic efficiency but rather making the Koch Brothers ever richer.

Peter K. said...

As a thought experiment I would wonder what bakho's re-education course would look like.

There is this paper, but could it be it says the same thing as those graphs which show the large increases in the monetary base would just sit there with at the Zero Lower Bound because of the liquidity trap?

The inflationistas were wrong that all of that monetary policy would cause runaway inflation.

But considering what needed to be done to move long-term interest rates, was it really large enough?

David Beckworth's blogpost in today's links suggests the Fed did what they wanted to do.

http://macromarketmusings.blogspot.com/2015/09/revealed-preferences-fed-inflation.html

And maybe part of that was to offset the unprecedented fiscal austerity we say after Obama's stimulus ran out. (And that stimulus was pretty much canceled out by 50 little Hoovers.)

If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe.

Maybe fiscal policy works better and more directly but if it is blocked or even reversed with austerity, monetary policy shouldn't be ruled because it is supposedly ineffective.

Maybe Friedman and Schwartz's maximalist claims aren't true, but that doesn't mean one should flip to the opposite extreme.

Bernanke says in a speech that Tobin suggested that the Fed could have mitigated the Great Depression by lowering long-term rates.

Peter K. said in reply to Peter K....

"What is the total number of months during the Ford, Carter, Reagan and Bush I administrations, plus the first term of Clinton, when the unemployment rate was lower than today?"

http://www.themoneyillusion.com/?p=30495

https://twitter.com/ObsoleteDogma/status/639877889979228160

Peter K. said in reply to Peter K....

"The inflationistas were wrong that all of that monetary policy would cause runaway inflation."

When confronted they always say that once the economy normalized, all of those reserves will go rushing out into the economy causing inflation.

But the Fed says it will use Interest on Excess Reserves to manage that outflow.

Peter K. said in reply to Peter K....

"If monetary policy supposedly didn't move prices, I found it surprising that austerity didn't give us deflation as it did in Europe."

I don't have the neo-classical faith in the "natural" healing powers of the economy as some people do. Seems more likely that the economy would settle in to a lower equilibrium given enough fiscal austerity.

Paine said in reply to Peter K....

Very agreeably presented

But what if the FED is a rational captain of corporate capitalism. Better then the opportunistic demagogues in the congress. But still dedicated to wage stag

Egmont Kakarot-Handtke said...

Deflation? Uupps, price theory, too, is wrong
Comment on 'Deflation and Money'

The current economic situation is a clear refutation of both commonplace employment and quantity theory. The core of the unemployment/deflation problem is that the price mechanism does not work as standard economics claims.

The correct formula for the market clearing price in the simplified consumption good industry is given here
https://commons.wikimedia.org/wiki/File:AXEC41.png

Roughly, the formula says that the consumer price index declines if (i) the average expenditure ratio falls, (ii) the wage rate falls, (iii) the productivity increases, and (iv) the employment in the investment good industry shrinks relative to the employment in the consumption goods industry. The formula follows from (2014, Sec. 5).

The more differentiated and therefore better testable formula is given here
https://commons.wikimedia.org/wiki/File:AXEC39.png

The crucial message is that the wage rate is the numéraire of the price system. If at all, the quantity of money plays an indirect role via the expenditure ratio and the employment relation of the investment good and the consumption good industry.

The rule of thumb says: if wage increases for the business sector as a whole lag behind productivity increases deflation occurs (the rest of the formula kept constant).

For the rectification of the naive quantity theory see (2011) (I)/(II).

Egmont Kakarot-Handtke

References
Kakarot-Handtke, E. (2011). Reconstructing the Quantity Theory (I). SSRN Working Paper Series, 1895268: 1–28. URL http://ssrn.com/abstract=1895268.
Kakarot-Handtke, E. (2014). The Three Fatal Mistakes of Yesterday Economics: Profit, I=S, Employment. SSRN Working Paper Series, 2489792: 1–13. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2489792.

Patrick said in reply to Egmont Kakarot-Handtke...

"if wage increases for the business sector as a whole lag behind productivity increases deflation occurs"

That certainly has the ring of truth to it.

The paradox of productivity?

Jason Smith said...

The relationship between money and prices is more complicated than a simple linear relationship can capture:

http://informationtransfereconomics.blogspot.com/2015/03/japan-inflation-update.html

spencer said...

Despite deflation in Japan, over the last five years real per capita GDP growth has been greater than in the US.

Of course you have to be careful of these types of comparisons when the Japanese population is actually falling.

anne said in reply to spencer...

https://research.stlouisfed.org/fred2/graph/?g=1LK4

August 4, 2014

Real per capita Gross Domestic Product for United States and Japan, 2010-2014

(Indexed to 2010)

[ These last 5 years real per capita GDP has increased by 5.6% in the United States and 3.6% in Japan. ]

Peter K. said in reply to spencer...

Good point. This is why I am skeptical when I read people claim that Japan's extraordinary monetary policy has had no effect.

And even if Japan has done more than before courtesy of Abe and Yoda Kuroda, they also mitigate it with contractionary policy like by raising consumption taxes.

[Sep 04, 2015] Belabored and Befuddled - 'Error and Repair'

"...The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.
And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'"

Sep 03, 2015 | Jesse's Café Américain

"Andrew Jackson was compelled to fight every inch of the way for the ideals and the policies of the Democratic Republic which was his ideal. An overwhelming proportion of the material power of the Nation was arrayed against him. The great media for the dissemination of information and the molding of public opinion fought him. Haughty and sterile intellectualism opposed him. Musty reaction disapproved him. Hollow and outworn traditionalism shook a trembling finger at him. It seemed sometimes that all were against him- all but the people of the United States."
Franklin D. Roosevelt

The Non-Farm Payrolls report came in much weaker than expected, but the quixotic drop in the unemployment rate to 5.1% gives the Fed cover to take a policy action of 25 basis points, which is exactly what they would like to do at their next meeting on September 16-17.
And I suspect they will, unless the wheels fall off global markets. They are caught in a vicious cycle of 'error and repair.'

... ... ...

[Sep 04, 2015] What Happened to the Moral Center of American Capitalism?

"...The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete."
.
"...The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)"

The latest from Robert Reich begins with:
What Happened to the Moral Center of American Capitalism? : An economy depends fundamentally on public morality; some shared standards about what sorts of activities are impermissible because they so fundamentally violate trust that they threaten to undermine the social fabric.
It is ironic that at a time the Republican presidential candidates and state legislators are furiously focusing on private morality – what people do in their bedrooms, contraception, abortion, gay marriage – we are experiencing a far more significant crisis in public morality.

We've witnessed over the last two decades in the United States a steady decline in the willingness of people in leading positions in the private sector – on Wall Street and in large corporations especially – to maintain minimum standards of public morality. They seek the highest profits and highest compensation for themselves regardless of social consequences.

CEOs of large corporations now earn 300 times the wages of average workers. Wall Street moguls take home hundreds of millions, or more. Both groups have rigged the economic game to their benefit while pushing downward the wages of average working people.

By contrast, in the first three decades after World War II – partly because America went through that terrible war and, before that, the Great Depression – there was a sense in the business community and on Wall Street of some degree of accountability to the nation.

It wasn't talked about as social responsibility, because it was assumed to be a bedrock of how people with great economic power should behave.

CEOs did not earn more than 40 times what the typical worker earned. Profitable firms did not lay off large numbers of workers. Consumers, workers, and the community were all considered stakeholders of almost equal entitlement. The marginal income tax on the highest income earners in the 1950s was 91%. Even the effective rate, after all deductions and tax credits, was still well above 50%.

Around about the late 1970s and early 1980s, all of this changed dramatically. ...[continue]...

Peter K. said...
Krugman speculated it started when sports fans began discussing star baseball players' salaries. CEOs went Galt and asked why not us also?
Workers are just inputs like fixed capital nothing more.

What's good for GE and Goldman Sachs - profits - is good for America.

DeLong asks the more central question. When did business leaders decide that growth, aggregate demand and full employment wasn't in the interest of their companies?

In the 1950 and 1960s they were in favor of a high-pressured economy. That changed.

Maybe it was the 1970s and "take this job and shove it."

Peter K. said in reply to Peter K....

They also forget about the Great Depression as it faded from memory.
And the Cold War ended. Would they risk Western nations like Greece and Spain going to the other side because of sky high unemployment? No they'd govern them with military dictatorships.

Ben Groves said in reply to Peter K....

US investment/capital markets were semi-nationalized from WWII into the mid-70's. The whole basis was to fight the Nazis then Soviets. The economic crisis of the mid-70's, detente and excessive growth beyond cohort changed things. For all the 79-89 hype, the cold war died with that global economic crisis of the 1970's as the Soviet Union never recovered and China bailed.
Business view was that the pre-WWII order needed to be restored. I think many people mistake the 50's and 60's as "normal", but they weren't. They were a time of war.

Peter K. said in reply to Ben Groves...

"War is the health of the state."
We need an invasion from aliens.

mulp said in reply to Ben Groves...

Well, given the US has been at war since Reagan, elected because Carter would not go to war, how do you explain the punishment of workers to reverse the glorifying of workers from the 30s through even the 70s??
It was not war that made the period before 1980 better over all, but the understanding that consumers could only spend as much as they were paid, and the problem for a corporation seeking to grow was making sure all the other corporations paid their employees well.

By the end of the 80s, the iconic corporations of the 60s in terms of growth and loyalty to employees were criticized by free lunch MBAs for sticking with the old ways of treating employees as assets because they were being creamed by competitors who treated employees as liabilities. Eg, IBM was badly managed because it was not screwing its workers like Dell, HP was doomed because it was not firing all its US factory workers and contracting with Asia factories.

You see, the MBAs were teaching that US workers are liabilities to replaced with the cheapest non US workers and the US consumer needs to be mined for ever more dollars of spending. And if consumers were not spending enough, the problem was they were taxed too much, so the calls for tax cuts to put money in consumer pockets so consumers could shop 24 by 7.

Before 1980, everything was zero sum. If you want that $1000 car or boat, you had to first earn $1000, unless the manufacturer float you a loan with a threat of the repo man. That meant manufacturers needed every consumer to have a job. And every dollar paid to workers came back to them in consumer spending. And government was the same way - if you wanted better roads, you first had to agree to taxes to pay for it.

After 1980, the idea economies were zero sum were thrown in the trash can. Want something, borrow and spend. Republicans would get government out of the way of the loan sharks. The loan sharks became bank owners and got rid of their enforcers, turning that over to Congress. Think of all the debt you can not shed but that government collects by force by the IRS and attaching your Social Security benefit.

Once consumers could borrow and spend, workers are now purely liabilities. Get rid of them.

In the real world, the ivory tower of business and economics is not able to be applied 100% or even 20%, but that even 20% of the connection between payroll and business sales is lost means an ever deepening pit of debt.

Federal debt declined from before the end of WWII as a burden on GDP until Reagan and then it grew as if the US were waging a war larger than the Korean war or Vietnam war or WWI or maybe the Civil war.

With the exception of the Clinton years which were not free of war, the budget has looked like a major war was going on.

DrDick said...

The fact that he believes that capitalism has or ever had a "moral center" (other than "greed is good!") is absolutely touching in its naivete.

Paine said in reply to DrDick...

Sweet bobby

bakho said in reply to DrDick...

Indeed. Greedy "Malefactors of Great Wealth" don't become wealthy by fair play. Nothing obtained by workers was ever got without a fight. Many bloody union battles over dead bodies won worker's rights. Once the unions lost power, workers went backward.

mulp said in reply to bakho...

And union leaders were all choir boys....
raping their members like priests.

As a liberal, I can play the game of name calling, character assassination, etc.

How do you think it is that there are capitalists with loyal workers? Do you think there are capitalists who understand that economies are zero sum and that you can't have customers wealthier than employees are wealthy?

I see lots of worker advocates who seem to think that every worker can be paid $1000 and only pay $500 for everything produced.

Paine said in reply to mulp...

Reading this is like chewing glue

DrDick said in reply to Paine ...

Which he was obviously huffing while writing it.

Paine said in reply to Paine ...

A system is not judged by its functioning components but by its malfunction components and the emergent failures of the system of components
U know that
Social production systems often grow and develop

they re not zero sum !

They produce a social surplus when functioning well

That social surplus gets ex appropriated by an exploiter class in class systems

The primary producers may add 1000 in value and receive only 600 of that value as compensation

Suggesting radicals or at least some radicals want more then one hundred percent of the social product for the producers themselves is blatant Tom foolery

bakho said in reply to mulp...

"How do you think it is that there are capitalists with loyal workers?"
The same way plantation owners had "loyal slaves". Loyalty lasted until Sherman's boys came and said, "You are free and if you show us where the silverware is hid, we'll split it with you."

Loyalty only goes as far as the next better offer.

anne said...

Assuming there was at least a superficial acknowledgement of a "moral center of American capitalism," that surface acceptance was methodically worn away from the 1970s on. An early sign of the wearing away and the need to turn away from a moral center of capitalism came with this article in 1970:
http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

September 13, 1970

The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York Times

The carefully cultivated "Chicago Boys" not long after the article in the New York Times even gained a country to play with, Chile.

anne said in reply to anne...

http://www.nytimes.com/2015/07/24/opinion/paul-krugman-the-mit-gang.html
July 23, 2015

If you don't know what I'm talking about, the term "Chicago boys" was originally used to refer to Latin American economists, trained at the University of Chicago, who took radical free-market ideology back to their home countries. The influence of these economists was part of a broader phenomenon: The 1970s and 1980s were an era of ascendancy for laissez-faire economic ideas and the Chicago school, which promoted those ideas....

-- Paul Krugman

Paine said in reply to anne...

A charming little toad that Milty
Swallow him and die of his poisons

Paine said in reply to Paine ...

Street value of milty's elixir: Oligopolistic Corporate free range capitalism

Sandwichman said...

1. The prototype and kickstarter for capitalist industry was sugar plantation slavery (15th century, Madeira, Canary Islands)
2. Slavery was extolled by Southern slaveowner aristocratic "ethics and theology" as the pinnacle of bible-based Western Civilization.

3. After defeat of the Confederacy, the neo-Confederate heirs of the old slaveowner plutocrats rewrote history to deny that the South fought the Civil War to retain slavery.

4. The big lie of "Lost Cause" neo-Confederacy is the secret sauce of the Republican Party "Southern strategy" emulated by the "centrism" of the Democrats.

5. What happened to the "moral center" of American Capitalism?

6. Just what "moral center" are you referring to, Bob?

Sandwichman said in reply to Sandwichman...

John Cairnes, 1862:
"in spite of elaborate attempts at mystification, the real cause of the war and the real issue at stake are every day forcing themselves into prominence with a distinctness which cannot be much longer evaded. Whatever we may think of the tendencies of democratic institutions, or of the influence of territorial magnitude on the American character, no theory framed upon these or upon any other incidents of the contending parties, however ingeniously constructed, will suffice to conceal the fact, that it is slavery which is at the bottom of this quarrel, and that on its determination it depends whether the Power which derives its strength from slavery shall be set up with enlarged resources and increased prestige, or be now once for all effectually broken."

Ben Groves said in reply to Sandwichman...

Don't forget about 1600's Amsterdam. That was the kickstarter for finance capitalism. William the Orange exported it to the Brits and the rest is history. The link between the 2 is indeed "bible based".

Sandwichman said in reply to Sandwichman...

James Henley Thornwell:
"The parties in this conflict are not merely abolitionists and slaveholders - they are atheists, socialists, communists, red republicans, jacobins, on one side, and the friends of order and regulated freedom on the other. In one word, the world is the battleground - Christianity and Atheism the combatants; and the progress of humanity at stake."

Ben Groves said in reply to Sandwichman...

Thornwell was a Rothschilds bagman fwiw. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the Rothschilds business interests.
That is why quotes never workout. You create a dialect when it is all personal motive. Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

anne said in reply to anne...

Not all socialists were against slavery. Many thought it was better than capitalist production cycles.
[ I am waiting for the documentation of the many socialists who thought.... ]

Paine said in reply to anne...

Socialist is a very eclectic catch all term Anne
Some socialist by self description probably believed in human sacrifice

Oh ya that was us Stalinists

anne said in reply to Paine ...

http://economistsview.typepad.com/economistsview/2015/09/what-happened-to-the-moral-center-of-american-capitalism.html#comment-6a00d83451b33869e201b7c7c9199f970b
September 4, 2015

Ben Groves said in reply to Sandwichman...

Not all socialists were against slavery. Many thought it was better than capitalist production cycles.

[ I know precisely what I have been asking for. I am still waiting for the documentation of the many socialists who thought.... ]

anne said in reply to Ben Groves...

Thornwell was a ----------- bagman for what it's worth. The whole basis of the planters was slaves. They couldn't make it without them. Without the production, Europe would be in shortage. Hurting the ----------- business interests.
[ Again, where is the documentation, the "----------- bagman" documentation, to what I consider simply calumny? ]

Sandwichman said in reply to Ben Groves...

Wikipedia:
James Henley Thornwell (December 9, 1812 – August 1, 1862) was an American Presbyterian preacher and religious writer from the U.S. state of South Carolina. During the American Civil War, Thornwell supported the Confederacy and preached a doctrine that claimed slavery to be morally right and justified by the tenets of Christianity.

"Thornwell, in the words of Professor Eugene Genovese, attempted "to envision a Christian society that could reconcile-so far as possible in a world haunted by evil-the conflicting claims of a social order with social justice and both with the freedom and dignity of the individual."

Sandwichman said in reply to Sandwichman...

The "cornerstone speech"
https://en.wikipedia.org/wiki/Cornerstone_Speech

"The ideas entertained at the time of the formation of the old Constitution," says the Vice President of the Southern Confederacy [Alexander Stephens],

"...were that the enslavement of the African race was in violation of the laws of nature; that it was wrong in principle, socially, morally, and politically. Our new government is founded on exactly opposite ideas; its foundations are laid, its corner-stone rests, upon the great truth that the negro is not equal to the white man; that slavery-subordination to the superior race-is his natural and moral condition. This our Government is the first in the history of the world based upon this great physical, philosophical, and moral truth. It is upon this our social fabric is firmly planted, and I cannot permit myself to doubt the ultimate success of the full recognition of this principle throughout the civilized and enlightened world.... This stone which was rejected by the first builders 'is become the chief stone of the corner' in our new edifice."

Sandwichman said in reply to Sandwichman...

Harry Jaffa: "this remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy."
But not just the Jim Crow South, also the enduring white supremacy that permeates and dominates the American (incarceration nation) political discourse under code word dog whistles like "law and order" and orchestrated abhorrence of "political correctness".

Where is the "moral center" of a cesspool whose "cornerstone" is hatred? Ask Dante.

Mike Sparrow said in reply to Sandwichman...

True, but accepting Jim Crow allowed the capitalists to expand down south slowly but surely. By 1950 the south was becoming industrialized and Jim Crow was under attack. Their agriculture had been automated. Jim Crow just delayed history.
The problem I think people have with white neo-confeds is not so much "black slavery", but that white's were basically being starved and living standards reduced by the same system. The 1% of white's made it big with a global system at the expense of country. The anti-confeds are basically in a race war against what they see as foreign invasion. While the neo-confeds think they are protecting white "traditions" that really aren't really traditional to the white population as a whole. It is a good reason why socialists who patriot nationalism and organic unity can't unite with them. What they view as "white" is different. It leads toward political divide and conquer.

Paine said in reply to Mike Sparrow...

Jim crow delayed southern development
Only if you abstract from the northern social formation that hatched and husbanded it. For 100 years
Much as the slave system was husband by unionist northerns for 80 years

Paine said in reply to Paine ...

One could talk of a moral core to capitalists like thadeus Stevens
But the north ended reconstruction not because of southern white resistance
But because nothing more was need at that time and level of development
Of the north and of the union

Paine said in reply to Paine ...

The Grant years were like a sign in the sun and a sign in the moon
The sympathetic nations of Ameriika would remain in mortal struggle

Race Injustice would rule to the horizon of time and space

Paine said in reply to Paine ...

We would and will live side by side and yet turn away from each other
One side in torment the other in wrath

Sandwichman said in reply to Sandwichman...

I think it would be useful to cite the whole paragraph of Harry Jaffa's comment on the cornerstone speech. Who was Harry Jaffa, anyway? Some politically correct Marxist America hater? Jaffa was the guy who wrote Barry Goldwater's 1964 Republican nomination acceptance speech. You know, "Extremism in defense of liberty is no vice; moderation in pursuit of justice is no virtue." That's who.
"This remarkable address conveys, more than any other contemporary document, not only the soul of the Confederacy but also of that Jim Crow South that arose from the ashes of the Confederacy. From the end of Reconstruction until after World War Il, the idea of racial inequality gripped the territory of the former Confederacy-and not only of the former Confederacy-more profoundly than it had done under slavery. Nor is its influence by any means at an end. Stephens's prophecy of the Confederacy's future resembles nothing so much as Hitler's prophecies of the Thousand-Year Reich. Nor are their theories very different. Stephens, unlike Hitler, spoke only of one particular race as inferior. But the principle ot racial domination, once established, can easily be extended to fit the convenience of the self-anointed master race or class, whoever it may be."

Paine said in reply to Sandwichman...

The battle between the declaration of independence and the constitution

Sandwichman said in reply to Sandwichman...

A MEASURING ROD FOR TEXT-BOOKS
"The Committee respectfully urges all authorities charged with the selection of text-books for colleges, schools and all scholastic institutions to measure all books offered for adoption by this "Measuring Bod" and adopt none which do not accord full justice to the South. And all library authorities in the Southern States are requested to mark all books in their collections which do not come up to the same measure, on the title page thereof, "Unjust to the South."

Reject a book that says the South fought to hold her slaves.

Reject a book that speaks of the slaveholder of the South as cruel and unjust to his slaves.

Sandwichman said in reply to Sandwichman...

"How the Negroes Lived Under Slavery
"Life among the Negroes of Virginia in slavery times was generally happy. The Negroes went about in a cheerful manner making a living for themselves and for those for whom they worked. They were not so unhappy as some Northerners thought they were, nor were they so happy as some Southerners claimed. The Negroes had their problems and their troubles. But they were not worried by the furious arguments going on between Northerners and Southerners over what should be done with them. In fact, they paid little attention to these arguments."
What's a "coffle"? http://tinyurl.com/pkdxuvq

anne said in reply to Sandwichman...

Excellent series of posts.

anne said in reply to Sandwichman...

http://www.nytimes.com/2014/10/05/books/review/the-half-has-never-been-told-by-edward-e-baptist.html
October 4, 2014

A Brutal Process
By ERIC FONER

THE HALF HAS NEVER BEEN TOLD
Slavery and the Making of American Capitalism
By Edward E. Baptist

For residents of the world's pre-eminent capitalist nation, American historians have produced remarkably few studies of capitalism in the United States. This situation was exacerbated in the 1970s, when economic history began to migrate from history to economics departments, where it too often became an exercise in scouring the past for numerical data to plug into computerized models of the economy. Recently, however, the history of American capitalism has emerged as a thriving cottage industry. This new work portrays capitalism not as a given (something that "came in the first ships," as the historian Carl Degler once wrote) but as a system that developed over time, has been constantly evolving and penetrates all aspects of society.

Slavery plays a crucial role in this literature....

Eric Foner is the DeWitt Clinton professor of history at Columbia.

DrDick said in reply to Sandwichman...

As Sydney Mintz showed, capitalism was founded on and made possible by slavery.

Paine said in reply to DrDick...

Marx sounds this theme powerfully in his chapter in Kap I
on primitive or primal accumulation

Sandwichman said in reply to Paine ...

Sounded the theme... but then failed to develop it. Maybe it was too obvious in those days, soon after the Civil War and before the "measuring rod" of neo-Confederate censorship rewrote history.

anne said in reply to Sandwichman...

http://www.common-place.org/vol-10/no-03/baptist/
April, 2010

Toxic Debt, Liar Loans, and Securitized Human Beings
The Panic of 1837 and the fate of slavery
By Edward E. Baptist

Early in the last decade, an Ayn Rand disciple named Alan Greenspan, who had been trusted with the U.S. government's powers for regulating the financial economy, stated his faith in the ability of that economy to maintain its own stability: "Recent regulatory reform coupled with innovative technologies has spawned rapidly growing markets for, among other products, asset-backed securities, collateral loan obligations, and credit derivative default swaps. These increasingly complex financial instruments have contributed, especially over the recent stressful period, to the development of a far more flexible, efficient, and hence resilient financial system than existed just a quarter-century ago."

At the beginning of this decade, in the wake of the failure of Greenspan's faith to prevent the eclipse of one economic order of things, Robert Solow, another towering figure in the economics profession, reflected on Greenspan's credo and voiced his suspicion that the financialization of the U.S. economy over the last quarter-century created not "real," but fictitious wealth: "Flexible maybe, resilient apparently not, but how about efficient? How much do all those exotic securities, and the institutions that create them, buy them, and sell them, actually contribute to the 'real' economy that provides us with goods and services, now and for the future?" ...

chris herbert said...

I don't think Capitalism has much to do with morality. Capitalists employed 8 year olds and a workweek of 60 hours at subsistence pay was the norm. Even today, look what American capitalists do to their employees in the Far East! Adam Smith figured that capitalism improved people's lives unintentionally. Not much of a moral statement, that one. That's why capitalism fails so miserably if not tightly regulated. Democracy, on the other hand, has pretty well defined moral foundations; Liberty, rights, equality etc. etc. Social democracies, in my opinion, have a stronger tether to the moral side of Democracy than we currently have here in the U.S. Our moral tether was shredded by the political right turn accomplished in the 1980s under Reagan. A similar degradation began in the U.K. about the same time under Thatcher. Oddly enough, that 30 plus year period between the end of WWII and 1980, was a period of strong progressive policy making. Pro labor laws, steeply progressive tax rates, voting rights, sensible retirement funding and Medicare for the elderly were all products of that time period. Maybe it was all an anomaly. A brief period of egalitarian ideals that created a middle class and produced a manufacturing hegemon. No longer. We are a military hegemon now. We are no longer a Democracy either. Most people haven't realized it; most especially working men and women who freely give up their rights and protections by voting for Republicans. We have the government we deserve. We are the most entertained and least informed citizens of any of the rich countries.

Paine said in reply to chris herbert...

Exploitation has a morality
All that exists must be torn apart
Rest is sin
The future is blocked only by the present

Faust

Peter K. said...

Off topic but everyone's favorite subject: monetary policy.
http://macromarketmusings blogspot.com/2015/09/revealed-preferences-fed-inflation.html

http://tinyurl.com/povj6qe

Friday, September 4, 2015

Revealed Preferences: Fed Inflation Target Edition
by David Beckworth

Over the past six years the Fed's preferred measure of the price level, the core PCE, has averaged 1.5 percent growth. That is well below the Fed's explicit target of 2 percent inflation. Why this consistent shortfall?

Some Fed officials are asking themselves this very question. A recent Wall Street Journal article reporting from the Jackson Hole Fed meetings led with this opening sentence: "central bankers aren't sure they understand how inflation works anymore". The article goes on to highlight some deep soul searching being done by central bankers in the Wyoming mountains. It is good to see our monetary authorities engaged in deep introspection, but let me give them a suggestion. Dust off your revealed preference theory textbooks and see what they can tell you about the low inflation of the past six years.

To that end, and as a public service to you our beleaguered Fed officials, let me provide some material to consider. First consider your inflation forecasts that go into making the central tendency consensus forecasts at the FOMC meetings. The figures below show the evolution of these forecasts for the current year, one-year ahead, and two-years ahead. There is an interesting pattern that emerges from these figures as you expand the forecast horizon: 2 percent becomes a upper bound.

....

So rest easy dear Fed official. No need for any existential angst. According to revealed preferences, you are still driving core inflation--which ignores supply shocks like changes in oil prices--it is just that you have a roughly 1%-2% core inflation target corridor rather than a 2% target. So even though you may not realize it, you are doing a bang up job keeping core inflation in your target corridor."

Peter K. said in reply to Peter K....

Our Neo-Classsical single equilibrium friend Don Kervack says the economy "naturally" healed itself despite unprecedented fiscal austerity, a trade deficit and strong dollar.
I don't buy it. Economics isn't broken. Politics is.

The center-left party for the job class should be calling up the Fed and asking "WTF?"

SomeCallMeTim said...

In the mid-1970s, at some universities economics was still called 'political economy', micro began with consideration of equity vs. efficiency, and the legitimacy of countercyclical social programs wasn't so widely questioned.
Was there a loss of nerve, at least in the U.S., following the Vietnam War, the 1973 oil shock, and the following recession that led to a quantum shift in generosity of spirit / belief in children exceeding their parents material well-being (or as politicians would later put it, voting one's fears instead of one's hopes)?

Second Best said...

http://www.counterpunch.org/2015/08/21/the-plague-of-american-authoritarianism/
The Plague of American Authoritarianism

by Henry Giroux

Authoritarianism in the American collective psyche and in what might be called traditional narratives of historical memory is always viewed as existing elsewhere.

Viewed as an alien and demagogic political system, it is primarily understood as a mode of governance associated with the dictatorships in Latin America in the 1970s and, of course, in its most vile extremes, with Hitler's poisonous Nazi rule and Mussolini's fascist state in the 1930s and 1940s. These were and are societies that idealized war, soldiers, nationalism, militarism, political certainty, fallen warriors, racial cleansing, and a dogmatic allegiance to the homeland.[i] Education and the media were the propaganda tools of authoritarianism, merging fascist and religious symbols with the language of God, family, and country, and were integral to promoting servility and conformity among the populace. This script is well known to the American public and it has been played out in films, popular culture, museums, the mainstream media, and other cultural apparatuses. Historical memory that posits the threat of the return of an updated authoritarianism turns the potential threat of the return of authoritarianism into dead memory. Hence, any totalitarian mode of governance is now treated as a relic of a sealed past that bears no relationship to the present. The need to retell the story of totalitarianism becomes a frozen lesson in history rather than a narrative necessary to understanding the present

Hannah Arendt, the great theorist of totalitarianism, believed that the protean elements of totalitarianism are still with us and that they would crystalize in different forms.[ii] Far from being a thing of the past, she believed that totalitarianism "heralds as a possible model for the future."[iii] Arendt was keenly aware that the culture of traditionalism, an ever present culture of fear, the corporatization of civil society, the capture of state power by corporations, the destruction of public goods, the corporate control of the media, the rise of a survival-of-the-fittest ethos, the dismantling of civil and political rights, the ongoing militarization of society, the "religionization of politics,"[iv] a rampant sexism, an attack on labor, an obsession with national security, human rights abuses, the emergence of a police state, a deeply rooted racism, and the attempts by demagogues to undermine critical education as a foundation for producing critical citizenry were all at work in American society. For Arendt, these anti-democratic elements in American society constituted what she called the "sand storm," a metaphor for totalitarianism.[v]

Historical conjunctures produce different forms of authoritarianism, though they all share a hatred for democracy, dissent, and human rights. It is too easy to believe in a simplistic binary logic that strictly categorizes a country as either authoritarian or democratic and leaves no room for entertaining the possibility of a mixture of both systems. American politics today suggests a more updated if not different form of authoritarianism or what some have called the curse of totalitarianism. In this context, it is worth remembering what Huey Long said in response to the question of whether America could ever become fascist: "Yes, but we will call it anti-fascist." [vi] Long's reply indicates that fascism is not an ideological apparatus frozen in a particular historical period, but as Arendt suggested a complex and often shifting theoretical and political register for understanding how democracy can be subverted, if not destroyed, from within.

(more at link above)

Anonymous said...

1) Gut all regulation in the name of free markets.
2) Sprinkle with the fairy dust of zero or negative real interest rates.
3) Let it rip.
I mean the moral fiber of society. this had a big hand in it.

Anonymous said in reply to Anonymous...

If anyone thinks incentives have nothing to do with deteriorating moral fiber, you are delusional.

ezra abrams said...

Is this the same RR who crossed a picket line at huff post, or someplace like that ?
cause ya know, his views are just so critical...
as my dad use to say, a scab never has to worry bout getting by, he can always steal from blind mens cups
and liberals wonder why blue collars hate hi falutin people

anne said in reply to ezra abrams...

Where is the precise reference to this nastiness?
Since Robert Reich provides his essays to any publication through a Creative Commons license, I cannot imagine how he could have crossed any picket line. Any essay by Reich can be used on any Internet site.

Returning now to the nastiness....

ilsm said...

Thuglican Jesus, thuglican God......
Factitious values based on thuglican God ordained "lesser people" should be property and the 98% exploited for the chosen .01%.......

See Sandwichman at Angry Bear.

cm said...

I suspect the moral center has been declared as a cost center, and not only yesterday.

[Sep 04, 2015] Four-fifths of the Economy is a Complete Waste of Time

EconoSpeak
Four-fifths of the "Economy" is a Complete Waste of Time

There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"

Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory. -- Paul Romer, "The Assumptions in Growth Theory"
Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.
As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'

Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

Name one.

Carry on, growth theorists.

[Sep 04, 2015] 6 reasons the bear market has just begun by Michael Pento

Sep 04, 2015 | finance.yahoo.com

Here are six reasons why I believe the bear market in the major averages has only just begun:

1) Stocks are overvalued by almost every metric. One of my favorite metrics is the price-to-sales ratio, which shows stock prices in relation to the company's revenue per share and omits the financial engineering associated with borrowing money to buy back shares for the purpose of boosting EPS growth. For the S&P 500 (INDEX: .SPX), this ratio is currently 1.7, which is far above the mean value of 1.4. The benchmark index is also near record high valuations when measured as a percentage of GDP and in relation to the replacement costs of its companies.

2) There is currently a lack of revenue and earnings growth for S&P 500 companies. Second-quarter earnings shrank 0.7 percent, while revenues declined by 3.4 percent from a year earlier, according to FactSet. The Q2 revenue contraction marks the first time the benchmark index's revenue shrank two quarters in a row since 2009.

3) Virtually the entire global economy is either in, or teetering on, a recession. In 2009, China stepped further into a huge stimulus cycle that would eventually lead to the largest misallocation of capital in the history of the modern world. Empty cities don't build themselves: They require enormous spurious demand of natural resources, which, in turn, leads to excess capacity from resource-producing countries such as Brazil, Australia, Russia, Canada, et al. Now those economies are in recession because China has become debt disabled and is painfully working down that misallocation of capital. And now Japan and the entire European Union appear poised to follow the same fate.

This is causing the rate of inflation to fall according to the Core PCE index. And the CRB Index, which is at the panic lows of early 2009, is corroborating the decreasing rate of inflation.

But the bulls on Wall Street would have you believe the cratering price of oil is a good thing because the "gas tax cut" will drive consumer spending - never mind the fact that energy prices are crashing due to crumbling global demand. Nevertheless, there will be no such boost to consumer spending from lower oil prices because consumers are being hurt by a lack of real income growth, huge health-care spending increases and soaring shelter costs.

4) U.S. manufacturing and GDP is headed south. The Dallas Fed's manufacturing report showed its general activity index fell to -15.8 in August, from an already weak -4.6 reading in July. The oil-fracking industry had been one of the sole bright spots for the US economy since the Great Recession and has been the lead impetus of job creation. However, many Wall Street charlatans contend the United States is immune from deflation and a global slowdown and remain blindly optimistic about a strong second half.

Unfortunately, we are already two-thirds of the way into the third quarter and the Atlanta Fed is predicting GDP will grow at an unimpressive rate of 1.3 percent. Furthermore, the August ISM manufacturing index fell to 51.1, from 52.7, its weakest read in over two years. And while gross domestic product in the second quarter came in at a 3.7 percent annual rate, due in large part to a huge inventory build, gross domestic income increased at an annual rate of only 0.6 percent.

GDP tracks all expenditures on final goods and services produced in the United States and GDI tracks all income received by those who produced that output. These two metrics should be equal because every dollar spent on a good or service flows as income to a household, a firm, or the government. The two numbers will, at times, differ in practice due to measurement errors. However this is a fairly large measurement error and it leads one to wonder if that 0.6 percent GDI number should get a bit more attention.

5) Global trade is currently in freefall. Reuters reported that exports from South Korea dropped nearly 15 percent in August from a year earlier, with shipments to China, the United States and Europe all weaker. U.S. exports of goods and general merchandise are at the lowest level since September of 2011. The latest measurement of $370 billion is down from $408 billion, or -9.46 percent from Q4 2014. And CNBC reported this week that the volume of exports from the Port of Long Beach to China dropped by 10 percent YOY. The metastasizing global slowdown will only continue to exacerbate the plummeting value of U.S. trade.

6) The Fed is promising to no longer support the stock market. Back in 2009, our central bank was willing to provide all the wind for the market's sail. And despite a lackluster 2 percent average annual GDP print since 2010, the stock market doubled in value on the back of zero interest rates and the Federal Reserve 's $3.7 trillion money-printing spree. Thus, for the past several years, there has been a huge disparity building between economic fundamentals and the value of stocks.

But now, the end of all monetary accommodations may soon occur, while markets have become massively over-leveraged and overvalued. The end of quantitative easing and a zero interest-rate policy will also coincide with slowing U.S. and global GDP, falling inflation and negative earnings growth. And the Fed will be raising rates and putting more upward pressure on the U.S. dollar while the manufacturing and export sectors are already rolling over.

I am glad Ms. Yellen and Co. appear to have finally assented to removing the safety net from underneath the stock market. Nevertheless, Wall Street may soon learn the baneful lesson that the artificial supports of QE and ZIRP were the only things preventing the unfolding of the greatest bear market in history.

Read More

Stock turmoil: This is bigger than China

Read More Gartman: We may have seen commodity bottom

Read More S&P 500 to hit 2225 by year end: Strategist

Michael Pento produces the weekly podcast "The Mid-week Reality Check," is the president and founder of Pento Portfolio Strategies and author of the book "The Coming Bond Market Collapse."

[Sep 04, 2015] S&P 500 may fall further 10-15% Nomura's Janjuah

"...He now predicts that a further selloff for the S&P is "likely" and says that the benchmark 10-year Treasury yield could reach roughly 1.80 percent "in the next six weeks" with investors flocking to bonds as a safe-haven asset. The yield on the 10-year note currently stands at about 2.17 percent."

"..."What I think the global investor needs to understand is that globally there's not enough growth, there's way too much capacity and we've hidden that gap with this thing called liquidity - actually liquidity is debt," he said."

"..."The workers of the world have no pricing power, without pricing power you cannot get a sustained cycle of inflation. And a world where we have got excess capacity and not enough demand, that's deflation." "

Nomura's widely-watched strategist, Bob Janjuah, believes that the S&P 500 is likely to fall another 10 to 15 percent in the near term, causing the U.S. Federal Reserve to unleash more stimulus policies in 2016.
"When we were up at 2100 points I thought we would see 1,700 points at some point in late (third quarter), early (fourth quarter)," Janjuah, a senior independent client adviser at the investment bank, told CNBC Tuesday. "We made some progress towards that target, I think there's a bit more to go."

The S&P 500, a broad measure of U.S. stocks, closed on Monday at 1,972 points, a key level some analysts are watching for support. The index has just suffered its worst month since May 2012 on the back of Chinese growth concerns and jitters that the Fed is about to raise interest rates.

Janjuah, who argued in a research note in early July that a "flash crash" was imminent, told CNBC that his prediction was now in danger of coming true, although he conceded that he was slightly inaccurate with the timing of the plunge in stocks and how U.S. Treasury yields have reacted.
He now predicts that a further selloff for the S&P is "likely" and says that the benchmark 10-year Treasury yield could reach roughly 1.80 percent "in the next six weeks" with investors flocking to bonds as a safe-haven asset. The yield on the 10-year note currently stands at about 2.17 percent.
China and the Federal Reserve will continue to be the two dominant themes for markets, according to Janjuah. He believes that the Chinese authorities have "lost control" over their own stock market and other global central banks - like the Bank of Japan and the Fed - will continue to pump more liquidity into their economies to account for softening growth in the world's second largest economy.

"What I think the global investor needs to understand is that globally there's not enough growth, there's way too much capacity and we've hidden that gap with this thing called liquidity - actually liquidity is debt," he said.

"The workers of the world have no pricing power, without pricing power you cannot get a sustained cycle of inflation. And a world where we have got excess capacity and not enough demand, that's deflation."
Janjuah is no stranger to gloomy predictions, and has made several bold calls in recent years. In November 2013, he said that the end of 2013 till the end of the first quarter of 2014 would be a buying window followed by a 25-50 percent sell-off over the last three quarters of 2014 – a forecast that failed to materialize.
Goldman Sachs is a little more positive with its outlook. Peter Oppenheimer, the chief global equities strategist at the bank, has a "neutral" outlook on the S&P 500 but disagrees that a sharp selloff is on the horizon.
"I wouldn't say the bull market was over in equities," he told CNBC Tuesday. "The valuation driven part of the equity market bull (in the U.S.) is probably over, in other words, the period where the multiples have risen very sharply as interest rates have fallen."
William Bruce Wilhite

Analysts and prognosticators are basically in the entertainment business. Jack Bogle said it best: "Your best move is to stay invested and keep your fingers crossed."

Jeffrey2013 > William Bruce Wilhite

Seems like a lot depending on faith.

Take profits

Blah blah blah. Another "genius" making big claims with no accountability.

[Sep 04, 2015] The political reasons for the opposition to the policy of creating employment

We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

RGC said...

Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian:
Krugman:
So, am I a Keynesian because I want bigger government? If I were, shouldn't I be advocating permanent expansion rather than temporary measures? Shouldn't I be for stimulus all the time, not only when we're at the zero lower bound? When I do call for bigger government - universal health care, higher Social Security benefits - shouldn't I be pushing these things as job-creation measures? (I don't think I ever have). I think if you look at the record, I've always argued for temporary fiscal expansion, and only when monetary policy is constrained. Meanwhile, my advocacy of an expanded welfare state has always been made on its own grounds, not in terms of alleged business cycle benefits.
In other words, I've been making policy arguments the way one would if one sincerely believed that fiscal policy helps fight unemployment under certain conditions, and not at all in the way one would if trying to use the slump as an excuse for permanently bigger government.

http://krugman.blogs.nytimes.com/2015/06/06/why-am-i-a-keynesian?

Keynes:

In some other respects the foregoing theory is moderately conservative in its implications. For whilst it indicates the vital importance of establishing certain central controls in matters which are now left in the main to individual initiative, there are wide fields of activity which are unaffected. The State will have to exercise a guiding influence on the propensity to consume partly through its scheme of taxation, partly by fixing the rate of interest, and partly, perhaps, in other ways. Furthermore, it seems unlikely that the influence of banking policy on the rate of interest will be sufficient by itself to determine an optimum rate of investment. I conceive, therefore, that a somewhat comprehensive socialisation of investment will prove the only means of securing an approximation to full employment; though this need not exclude all manner of compromises and of devices by which public authority will co-operate with private initiative. But beyond this no obvious case is made out for a system of State Socialism which would embrace most of the economic life of the community. It is not the ownership of the instruments of production which it is important for the State to assume. If the State is able to determine the aggregate amount of resources devoted to augmenting the instruments and the basic rate of reward to those who own them, it will have accomplished all that is necessary. Moreover, the necessary measures of socialisation can be introduced gradually and without a break in the general traditions of society.

Whilst, therefore, the enlargement of the functions of government, involved in the task of adjusting to one another the propensity to consume and the inducement to invest, would seem to a nineteenth-century publicist or to a contemporary American financier to be a terrific encroachment on individualism. I defend it, on the contrary, both as the only practicable means of avoiding the destruction of existing economic forms in their entirety and as the condition of the successful functioning of individual initiative.

https://www.marxists.org/reference/subject/economics/keynes/general-theory/ch24.htm

Kalecki:

We have considered the political reasons for the opposition to the policy of creating employment by government spending. But even if this opposition were overcome -- as it may well be under the pressure of the masses -- the maintenance of full employment would cause social and political changes which would give a new impetus to the opposition of the business leaders. Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure. The social position of the boss would be undermined, and the self-assurance and class-consciousness of the working class would grow. Strikes for wage increases and improvements in conditions of work would create political tension. It is true that profits would be higher under a regime of full employment than they are on the average under laissez-faire, and even the rise in wage rates resulting from the stronger bargaining power of the workers is less likely to reduce profits than to increase prices, and thus adversely affects only the rentier interests. But 'discipline in the factories' and 'political stability' are more appreciated

http://mrzine.monthlyreview.org/2010/kalecki220510.html
Friday, September 04, 2015 at 06:59 AM

anne said in reply to RGC... Friday, September 04, 2015 at 08:08 AM
Krugman explains why he is a Keynesian and proceeds to prove that he is not a Keynesian....
[ Interesting argument. ]

Peter K. said in reply to RGC...

"We have considered the political reasons for the opposition to the policy of creating employment by government spending.

...

Indeed, under a regime of permanent full employment, the 'sack' would cease to play its role as a 'disciplinary measure."

There's no reason full employment can't be done via monetary policy which is government intervention.

Business leaders just want monetary policy that rations credit so that labor markets hit the goldilocks spot, not too tight.

[Sep 04, 2015] An Indicator of Tribalism in Macroeconomics by Paul Romer

Paul Romer just want personal recognition and posts junk. It's not tribalism, it is complete subservience to financial oligarchy.

"...Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orwellian loops that allow anything to mean anything."

Sep 03, 2015 Paul Romer

Second Best said...

An Indicator of Tribalism in Macroeconomics - Paul Romer
'If we replace statements 1 and 2 with statements 3 and 4, we could construct a comparable measure of tribalism in physics. If we did, I suspect that we would find little tribalism there. I suspect that in comparison, this indicator would reveal that macroeconomists are very tribal.
The positive question that this assessment prompts is how this tribalism emerged in macroeconomics. To me, this is what makes the recent intellectual history of the field so interesting.'
---

The normative question is should anyone be allowed to don the credentials of an 'economist' and reduce the entire discipline to a sophmoric smattering of random thoughts that just happen to fill a particular tribal 'objectivist' standard?
Peer review matters when peers matter. Peers matter when neither government nor markets can guide progress. When peers don't matter tribalism takes over to redefine 'progress' into a conundrum of redundant repetitive Orewellian loops that allow anything to mean anything.

[Sep 03, 2015] America's terrible roads are good for Michelin's business CEO

"...The Federal Highway Administration estimates it will take $170 billion a year to make significant improvements on America's roads and bridges."

Sep 03, 2015 | finance.yahoo.com

"The fact that fuel prices are low today is driving more driving miles…so our business right now is very strong," claimed Pete Selleck, Michelin North America chairman and president.

... ... ...

"Right now demand is extremely strong right in the core of our business which is passenger car and medium truck tires," said Selleck.
And America's deteriorating road conditions are helping the company's sales in that market. "Bad roads is actually good for our business because tires then get damaged," said Selleck.
In its most recent infrastructure report, the American Society of Civil Engineers graded U.S. roads a "D". But Selleck puts the financial responsibility solely on the government. "At the federal level and at the very state levels, there has to be more money put into maintaining roads, bridges and other aspects of the infrastructure," he said.

The Federal Highway Administration estimates it will take $170 billion a year to make significant improvements on America's roads and bridges.

... ... ...

[Sep 03, 2015] Why Did Oil Prices Just Jump By 27 Percent in 3 Days by David Dayen

September 3, 2015 | naked capitalism

Dave here. A very good look at the various issues. Optimism reigns supreme among oil traders, it seems…

By Nick Cunningham, a Vermont-based writer on energy and environmental issues. You can follow him on twitter @nickcunningham1. Originally published at OilPrice

Oil prices have posted their strongest rally in years, jumping an astounding 27 percent in the last three trading days of August.

While much of the recent price movement defies reason and is enormously magnified by speculative movements by traders to take and cover their bets on oil, still, there were a series of rumors, events, and fresh data that helped contribute to the spike.

For example, on August 31, the oil markets woke up to the news that Russian President Vladimir Putin will meet his counterpart from Venezuela to discuss "possible mutual steps" to stabilize oil prices. The meeting will take place in China on September 3. Venezuelan President Nicolas Maduro has already called for an emergency meeting of OPEC, a call that has fallen on deaf ears, at least in the most important country of Saudi Arabia.

It is still highly unlikely, but the one country that might be able to change the minds of Saudi oil officials is Russia. Again, even if Russia promised to cut back oil production to boost prices (which it has not shown a willingness to do), Saudi Arabia has little trust in Moscow to follow through on those promises. Similar understandings to cooperate in the past have fallen apart, making coordinated action unlikely.

Moreover, it is not at all clear that Russia's best move is to cut back on production. Sure, it wants higher oil prices, but selling less oil will arguably offset price gains. And the depreciation of the ruble has cushioned the blow of low oil prices – Gazprom just reported a 29 percent gain in net profit for the second quarter compared to a year earlier, largely due to a weaker ruble. So, Russia is eager for oil prices to rebound, but the Kremlin is not as desperate as Venezuela.

Yet, bringing Russia to the table was enough to raise the prospect of OPEC production cuts, at least for oil traders, which bid up the price of oil on August 31.

Adding to the speculation was a new OPEC bulletin, which included a commentary about the state of the oil markets, entitled, "Cooperation holds the key to oil's future." Most of the article was unremarkable analysis about rising oil demand, but the article concludes with this:

"Cooperation is and will always remain the key to oil's future and that is why dialogue among the main stakeholders is so important going forward. There is no quick fix, but if there is a willingness to face the oil industry's challenges together, then the prospects for the future have to be a lot better than what everyone involved in the industry has been experiencing over the past nine months or so."

In all likelihood, that is a throwaway line paying lip service to collective action, with no substance behind it. But the oil markets saw a glimmer of hope in a reevaluation of the group's strategy, possibly portending a production cut. No doubt the Venezuela-Russia meeting added fuel to that speculation. Oil markets, as irrational as they are, don't need confirmation to bid up prices. Oil prices jumped by more than 8 percent on the last day of August.

But another major reason that oil prices shot up at the end of August was due to very significant revisions by the EIA on U.S. oil production data, pointing to sharper contraction than was previously assumed. The EIA released new survey-based data, which is more accurate than their mere estimates based on extrapolation, and the new data showed that between January and May, the U.S. actually produced 40,000 to 130,000 fewer barrels per day than the agency previously reported. Then, in June, oil production dropped by 100,000 barrels per day from the month before, hitting just 9.3 million barrels per day (mb/d).

The largest downward revision came from Texas, which has been producing 100,000 to 150,000 fewer barrels than previously reported for the first half of this year.

To put that in perspective, consider the agency's own weekly data, which comes out every Wednesday, and although it is less accurate than the retrospective looks, oil prices move up and down in response to the results. In its weekly data, the EIA shows U.S. oil production above 9.5 mb/d through the middle of July. For the week ending August 21, the EIA says the U.S. is producing 9.33 mb/d, above what the agency now says the U.S. produced in June.

In other words, for several months the oil markets had believed the U.S. was producing much more oil than it actually was. Instead of continuing to climb through much of the spring and leveling off into the summer, oil production actually peaked in April and has declined consistently since then. When the EIA released this latest revision on August 31, oil prices shot up.

Finally, although probably not quite as important as the OPEC rumors and the EIA data revisions, Canada suffered some outages at its oil facilities that could lead to a disruption in supplies. Canadian Oil Sands had to shut down production of its synthetic crude oil facility after a fire damaged equipment. And Nexen Energy, an oil producer in Canada and subsidiary of China's CNOOC, had to close 95 pipelines after inspectors found problems with them. Neither company offered specifics on what the disruptions mean for their production levels, but if the outages persist, they could cut down on supplies. Canada's benchmark for synthetic crude rallied on the news.

Citigroup analysts think the recent rebound is overdone, calling it a "false start," and the 27 percent gain in just three days was "driven by a misread of market data and financial headlines." Indeed, the largest three-day price rally since 1990 was driven by headlines, but given the severe volatility and huge price swings, oil prices are not trading on the fundamentals right now. Nobody knows what will happen next.

Russell, September 3, 2015 at 4:02 am

Could it be that the search for safety in the turbulent markets view oil as the more recoverable commodity? Yet another diversification?

PlutoniumKun, September 3, 2015 at 6:17 am

It seems weird that just rumours about Opec and revised data figures could lead to such a huge upsurge in prices. The revised data figures for the US seems particularly odd – surely if it turns out there wasn't so much crude in the market, but this didn't put the price up, this indicates that demand is weaker than everyone thinks? Seems an odd logic.
I suspect that for whatever reason the market is expecting a huge surge in price and are, a bit like 100 metres sprinters on the line, occasionally jumping the gun. This would match up with the news a few weeks ago that some hedgies are betting big on domestic oil producers. I wonder if they are assuming that the US government will start putting pressure on the Saudis to reign back production after the election? Received wisdom of course is that the US always wants low prices, but now that expense tight oil is so important, it may be that someone important feels that $100 a barrel oil is in the US strategic interest. Now that the Iran deal is sealed, maybe they will be looking for an excuse to pick a fight with the Saudis.

Bam_Man, September 3, 2015 at 1:11 pm

"When the capital development of a country becomes a by-product of the activities of a casino, the job is likely to be ill done." - J.M.Keynes

Welcome to the casino, boyzz.

[Sep 03, 2015] Economics Has a Math Problem - Noah Smith

Comment from Economist's View Links for 09-02-15
Dan Kervick said...

Noah Smith:

"Econ developed as a form of philosophy and then added math later, becoming basically a form of mathematical philosophy."

Interesting! And true I think.

My own academic background was in analytic philosophy, and we too used and studied those various technical models of decision-making under uncertainty that the economists love. The difference is that philosophers use those tools to address purely conceptual puzzles and conundrums about the behavior of idealized super-rational agents in conceptually possible circumstances that are generally quite distant from actual world people and behavior: circumstances such as Newcomb problems or the Sleeping Beauty Problem.

When I first began to look into economics, I was surprised to learn how similar it was to philosophy in its tools and arguments. The difference was that economists put forward the same conceptual idealizations as descriptions of *the actual world*!

My impression is that a lot of economists are people who wandered into the field from math, theoretical physics and philosophy. Despite the fact that economics pretends to be a behavioral or social science, these wanderers from the other conceptual realms of the academy lack the empirical discipline to be real scientists, and aren't really terribly interested in the understanding and studying the behavior of actual human beings and societies. So they gravitate toward the areas of the field in which pulling sophisticated and rigorous conceptually fantasies out of one's butt is admired and glorified. These are the glamour pusses who intimidate everyone else with displays of pure mathematical and conceptual intelligence, and seem to lord it over the field and define the ground for pertinent discussion.

I have read a lot of interesting papers over the past few years that were based on serious data. But doing that kind of work doesn't seem to be the way you get famous in economics.

[Sep 03, 2015] Links for 09-01-15

Economist's View

pgl said...

That paper that Matty Boy Bot obviously did not read is quite good. A highlight:

"Two years after a 1 percentage point increase in the short-term interest rate, real house prices are estimated to decline by over 6%, while real GDP per capita declines by nearly 2%. This implies a ratio of 3.3 in terms of the decline in house prices for a 1% decline in the level of output after two years. Looking at a longer time horizon of three or four years (not shown in the figure), the ratio rises to about 3½. Although imprecisely estimated, inflation also responds negatively to a monetary policy shock after a two-year lag."

Once our favorite gold bug recovers from his chocolate coin hangover I wonder if he was unpack this. After all his recommendation of tight money does lower inflation. Cheers! And the fall in nominal interest rates is less so his 80 year old girl friend sees a rise in her real interest rates. Cheers!

But real housing prices fall. That's bad for home owners - right? JohnH still says cheers as he is under the illusion that this actually benefits the banks. EMichael by now is going WTF?

And real GDP per capita falls. That is really bad - right? Not to fret. JohnH will find some data source to manipulate and tell us that people actually benefit from a fall in real income per person.

More evidence to manipulate. Cheers!

JohnH said in reply to pgl...

Of course, interest rates affect houses prices. Well, duh!

The problem is, that house prices have been going up mostly in wealthier neighborhoods, reflecting the Fed's focus on driving the wealth effect for top incomes, which is supposed to trickle down, but hasn't.

The second problem is that low interest rates haven't driven new housing starts, which is where you get real, direct economic impact--construction jobs.

IMO this is just another superfluous study that does nothing to address the real problem of Fed policies not trickling down.

pgl said in reply to JohnH...
You have evidence for all your assertions. Of course you do - your 80 year old girl friend lives in the hood.
"just another superfluous study". One you could not cherry pick and misrepresent so it is "superfluous"!

JohnH said in reply to pgl...
pgl treats the self-evident findings of this report as if they were some kind of divine revelation, which in fact they probably are for him.
After all, this is the same pgl who spent weeks trying to convince me that low interest rates have no effect on stock prices, although even the Fed admits as much.

JohnH said in reply to JohnH...
Of course, pgl's campaign to convince me that interest rates don't affect stock prices came on the heels of his campaign to convince me that Obama didn't propose cutting Social Security... His rationale? Congress didn't pass his proposal; therefore Obama didn't propose it! You have to love pgl's contorted logic.
And this is the idiot who is convinced that the Fed is doing a great job. Of course, pgl's probably a Mets fan (who haven't won anything in a decade), so his standard of success is clearly
bizarre.

With the Fed, like with the Mets, there's always next year!

Anonymous said in reply to JohnH...
for these people, Fed only effects housing and asset prices on the way up and not on the way down. pgl probably works for CNBC
Paine said in reply to Anonymous...
House LOTS are very much assets. So housing markets are coosite markets both asset and durable product
It's the asset component that needs to be regulated by the state

pgl said in reply to JohnH...
See my comments agreeing with Dean Baker. Low interest rates increased P/E ratios. Do you know what a P/E ratio even is? Price of stock over earnings per share. And you are stupid enough to write:
"pgl's campaign to convince me that interest rates don't affect stock prices".

Oh that's right. You are campaigning for stupidest man alive. Well, you won - hands down!

Anonymous said in reply to pgl...
This is a stupid comment from a novice. When stocks go down, interest rates go down. When you say low interest rates increase PE ratios, you have no idea what you are talking about. Japan has had rock bottom interest rates and low PEs for decades. At the end of 2008, we had 2% bond yield; 0% fed funds and very low PE. Why? ask yourself. You are nothing but a novice. Armed with this kind of logic, you would lose a fortune in the stock market in no time.
pgl said in reply to Anonymous...
LOL! Let us known when you are teaching finance so we can tell the undergrads to run. Run far away! But yea - there is something here JohnH never got. Shift of an investment demand schedule versus shift along an investment demand schedule. Oh wait - you don't quite get this either. Idiots to the left of me. Idiots to the right of me.
pgl said in reply to Anonymous...
Did you know that during the 2001 recession the P/E ratios of stocks like Cisco doubled? Surprised I bet. Oh yea - Cisco's market valuation fell by 60% but then its earnings fell by 80%. Do the math - we'll wait a few days for you to do so.
Of course the finance has something to do with how valuations respond to permanent versus temporary changes in earnings. We'll still be here in 10 years when you finally figure that one out.

By then you good buddy JohnH may have read Finance for Dummies.

Paine said in reply to Anonymous...
Not a novice
He's a side walk superintendent with a phd in textbookery and some information please almanac
Fat of the land facts
Paine said in reply to Paine ...
Nothing more ridiculous then an academic on wall street [payroll]...

[Sep 03, 2015] Non-intuiti4ve Neo-Fisherism

Sep 01, 2015 | Noahpinion

Comments from Economist's View Links for 09-01-15

RogerFox said...

'Non-intuitive Neo-Fisherism - Noahpinion'

"So when the Fed lowers interest rates, it prints money in order to do so. But in a Neo-Fisherian world, that makes inflation fall ...."

That has been the counter-intuitive observed phenomenon in the wake of QE3 - why?

IMO it has to do with locking up ALL the QE$, all $4-trillion of it, at the Fed as 'excess reserves', and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation.

Stop paying and start charging banks to keep such reserves and see what happens to inflation and asset prices - that would be informative, and dramatic IMO.
Anonymous said in reply to RogerFox...
Everytime, they announced a new QE, nominal yields on 10 year bonds rose and vice versa. That is evidence that we are living in a neo-Fisherian world.

QE-1 was formally adopted in March 2009, when the U.S. T-Bond yield was 2.53%, but by the end of QE-1, in March 2010, the yield had moved up to 3.83%, for a rise of 1.3% points. When the Fed launched QE-2 in November 2010 the T-Bond yield was 2.62%, but 3.16% when QE-2 was ended in June 2011 – a rise of 0.5% points. QE-3 began at the end of 2012, when the T-Bond yield was 1.76%, by the end of QE, it was 2.4%.
Peter K. said in reply to Anonymous...

Everytime inflation expectations dipped, they did a new QE and inflation expectations went back up.

Anonymous said in reply to Peter K....

Yes. Another way to say the same thing. Question is isn't that neo Fisherian?

Peter K. said in reply to Anonymous...

Looks paleo-Keynesian to me, anonymous, whoever the fuck you are.

The dipping of inflation expectations means the market expects less aggregate demand going forward.

The central bank does a little stimulus.

The market sees that and expects higher inflation going forward.

JohnH said in reply to Peter K....

Every time they did a new QE, stock prices rose. Asset inflation was right on target to serve the vast majority of stockholders ... the 1%.

Peter K. said in reply to JohnH...

So what? You want asset price deflation so that the economy tanks?

How can we decouple the two? Usually the stock market goes up as the economy grows. Sorry.

JohnH said in reply to Peter K....

Usually the stock market goes up when the economy grows. Exactly! But this time around the stock market goes up when the real economy flat lines...which is pretty good proof that the Fed's low interest rates were used for speculation, not productive investment.The 1% figured out how to game a system that was already rigged in their favor.

As a result monetary policy must be changed to discourage abuse and encourage productive investment, which is what ultimately drives job creation.

pgl said in reply to Anonymous...

a neo-Fisherian world? There is no neo-Fisherian world. The economists who have read these neo-Fisherian rants see them as just that - insane rants. Next discussion - what is it like to live in a world where trees grow sideways and the earth is flat.

EMichael said in reply to RogerFox...

"and paying the banks that make the deposits an above-market rate of interest to continue to keep the cash out of circulation."

Any chance you know what that interest rate is?

Any chance you think banks would not do this if they had real options to earn a higher interest rate?

RogerFox said in reply to EMichael...

Any banker who can't earn better than 0.25% on marginal AUM should be fired. Banks keep funds at the Fed because that was part of the deal for the Fed to buy them out of their largely worthless MBS stuff, and save them from the MTM-insolvency they were in up to their kosher necks.

EMichael said in reply to RogerFox...

So, can you tell me how much of the MBS purchases were owned by banks?

In terms of the ability of bankers, they do need borrowers.

EMichael said in reply to RogerFox...

BTW, if you can find out which MBSs the FED bought I would love to see it.

OTOH, there are some things I know for sure.

1) Prior to QE in 2009, US depository institutions owned about a third of agency MBSs, or $1.3 Trillion.

2) It is not possible that those banks owned only "worthless MMS stuff".

pgl said in reply to RogerFox...

Go to the income statement and balance sheet of JPMorgan Chase. A return on its assets. Yes banks do better. A lot better. But how would you know? This is accounting 101 - way over your head.

EMichael said in reply to RogerFox...

Oh, before I head out to lunch.

I would love to see the conversation between the FED and Jamie Dimon where they tell him that now that all of his toxic MBSs are gone, you still have to keep excess reserves with the FED.

Anonymous said...

As Bernanke outlined over the years, monetary policy success is to be measured, in good part, by stock prices. Welcome to the hell created by Bernanke, Ms Yellen.

http://www.washingtonpost.com/wp-dyn/content/article/2010/11/03/AR2010110307372.html?hpid=topnews

http://www.federalreserve.gov/newsevents/speech/bernanke20120831a.htm

kthomas said in reply to Anonymous...

Why not cut to the chase and tells about how wealthy youve become trading in Gold?

Share with us your financial wisdom.

And Im thinking, as well, you are drawing false conclusions from former Chairman Bernanke. Perhaps you did not read any of this material, as pgl suggests.

I also detect a subtle woft of anti-semitism in this post. It has an odor.

Anonymous said...

The great unresolved question in central banking today is: Should monetary policy be used to foster financial stability, even at the expense of achieving other macroeconomic goals such as inflation and employment?

It is completely un symmetric. Always one way. ok to boost house prices, never to restrain them. why don't they leave regulation to boost prices? or regulation to say interest rates are too broad a tool to use in a situation?

meanwhile, they will never use regulation.

Second Best said...

Will Americans Become Poorer? - Martin Fedlstein

'Gordon argues that the major technological changes that raised the standard of living in the past are much more important than anything that can happen in the future. He points to examples such as indoor plumbing, automobiles, electricity, telephones, and central heating, and argues that all of them were much more important for living standards than recent innovations like the internet and mobile phones.'

---

Plastics are also highly underrated in the contribution to living standards. Plastics show up in 90% of seabirds that eat them and die which makes more room for humans to consume plastics in peace and quiet, free of noise pollution from screeching seabirds.

RC AKA Darryl, Ron said...

RE: A Tale of Two Theories

[We must choose between Larry Summers' sec stag theory and the hard money supply side theory of the BIS which is a repulsive idea. Thankfully though secular stagnation theory came about during the Great Depression from the works of Keynes and Alvin Hansen. So, I guess that I can stomach Summers given that consideration. There may be a bit more to it though, but I don't have another lifetime to become an economists and put together a better theory.

The BIS is not entirely wrong about structural issues not getting addressed by purely demand side policies, but it was supply side policy going way back to Schumpeter and the consolidation of firms and wealth for efficient and innovative monopolies and capital formation that created this huge mess and now they suggest more supply side economics will get us out of it. We got more supply side with Reagan (and Thatcher in the UK) and that just made matters worse.]

Peter K. said in reply to RC AKA Darryl, Ron...

Your pet theory appears to be about monopoly (influenced by Sweezy?) while mine is about insufficient demand and more specifically an insufficient monetary-fiscal mix.

Maybe the reality is a mix of both?

The BIS is the Death Star/Sauron's Eye of bad economic theory. All of the trolls regurgitate their theories in one form or another.

Summers's idea is that we can't have full employment without bubbles. What if hadn't deregulated the financial sector and cut taxes on capital gains?

If Larry were Fed Chair, I bet he would be telling us "sorry we can't have rising wages because that would give us bubbles which would cause downturns and unemployment. We will have to raise rates even though there is labor market slack." Circular reasoning and a Hobson's choice.

James Hamilton et al have a paper which is sited to counter the secstags theory. During the housing bubble, supposedly, the large trade deficit and high oil prices were subduing demand such that the Fed was in a fix as the housing bubble blew. It had rates at the right price.

If oil prices had been lower and there was no trade deficit, then the Fed could have had higher interest rates and no housing bubble.

Seems like Summers is saying the same thing in a way. Better fiscal policy and no secstags.

Thanks to Kervick, I'm moving away from the fiscalist position to more of a monetarist or fiscal-monetarist agnositic mix.

There are no secstags because the Fed didn't exhaust its powers or employ all of its tools. It hit the ZLB and then employed the weakest possible QE just to avoid deflation. It's no wonder people believe QE doesn't work.

Reply Tuesday, September 01, 2015 at 05:38 AM

RC AKA Darryl, Ron said in reply to Peter K....
Understood. I'm could say I am moving to fiscal-monetarist gnostic mix but I have been there all along. Either if done wrong in context can defeat the other. An unflinching bold application of both in tandem are necessary for rapid results.

Reply Tuesday, September 01, 2015 at 06:13 AM

Peter K. said in reply to RC AKA Darryl, Ron...
Ah but do you believe an unflinching bold application of monetary policy would work?

I don't know. It hasn't been tried.

No I believe it may be sufficient if combined with other robust regulatory measures - all things anathema to a Republican Congress:

stronger financial regulations
financial transaction taxes
stronger anti-monopoly and anti-trust policies
stronger safety net
stronger workers rights
etc.

given all of those things a robust monetary policy could provide tight labor markets and wage gains without Kervack's politburo's picking winners and losers in the economy.

Reply Tuesday, September 01, 2015 at 06:35 AM

RC AKA Darryl, Ron said in reply to Peter K....
Granted - eventually. If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy. No interest loans at long terms to households might not even have been enough unless defaults were easy on households. Sending out checks free of debt is fiscal policy regardless which agency sends them out.

Under ordinary circumstances then monetary policy is entirely sufficient. I am not sure that any cognizant being says otherwise.

Reply Tuesday, September 01, 2015 at 08:59 AM

Peter K. said in reply to RC AKA Darryl, Ron...
"If we wanted a speedy recovery from a calamity such as 2008, then households would have needed relief not available from what we technically call monetary policy."

Again, I don't know if I agree with you. It hasn't been tried.

With short term rates, the Fed says "we'll lower the rate to .25 percent..."

With long term rates and MBS they said "we'll do QE and buy a certain amount each month" and we'll see what happens.

What if they said, "we'll buy enough to lower long term rates and mortgages" to .5 percent?

We don't know because they didn't try.

Reply Tuesday, September 01, 2015 at 10:23 AM

RC AKA Darryl, Ron said in reply to Peter K....
"Your pet theory appears to be about monopoly (influenced by Sweezy?)"

[My pet theory is of my own design and monopoly is just part of it. I am for tax preferences on dividends and interest earnings, and penalizing levels of taxation on capital gains for assets held less than one year. That would do more about the BIS complaints on how well money is invested than tight fiscal and monetary policy, but BIS would not like the public investment aspect that goes along with the other part of my pet theory. Increased oligopoly enabling mergers were just one aspect of the capital gains tax preference, especially since the dividends tax credit was permanently rescinded in 1954. The entire gamut of the financialization of non-financial firms has troubled me from my earliest understanding of it in high school in the 60's. It just kept getting worse as time passed.

Who is Sweezy? ]

Reply Tuesday, September 01, 2015 at 08:54 AM

RC AKA Darryl, Ron said...
RE: Whither inflation?

[I must leave this to pgl to tackle. Is the goal of monetary policy to lower output? I guess that is one way to get inflation, but I doubt that it would do anything for real wages.]

Reply Tuesday, September 01, 2015 at 04:42 AM

Peter K. said in reply to RC AKA Darryl, Ron...
"But in 2008, interest rates hit zero. The broom handle could not move. The conventional view predicted that the broom will topple. Traditional Keynesians warned that a deflationary "spiral" or "vortex" would break out [if the Fed didn't take extraordinary measures which it did including recommending Obama's fiscal stimulus]. Traditional monetarists looked at QE, and warned hyperinflation would break out."

Fixed. Cochrane is a dishonest ideologue who enjoys expensive bottles of wine with the likes of villians like Republican Paul Ryan and hedge fund manager Clifford Asness. Let them eat cake!

http://www.slate.com/blogs/browbeat/2011/07/12/so_what_if_paul_ryan_drank_a_350_bottle_of_wine_.html

Reply Tuesday, September 01, 2015 at 05:50 AM

Peter K. said in reply to Peter K....
Oh he does admit he was being dishonest later on in the post:

"Maybe the Fed is so wise it neatly steered the economy between the Great Deflationary Vortex on one side with just enough of the Hyperinflationary Quantitative Easing on the other to produce quiet. Maybe the great Fiscal Stimulus really did have a multipler of 6 or so (needed to be self-financing, as some claimed) and just offset the Deflationary Vortex.'

Reply Tuesday, September 01, 2015 at 05:53 AM

pgl said in reply to Peter K....
Great Fiscal Stimulus? WTF? OK, there was that 2009 thing where Cochrane said the multiplier was zero as he never understood his own Ricardian Equivalence proposition. Now he says it is 6? Talk about malleable opinions. Cochrane is insane.

Reply Tuesday, September 01, 2015 at 06:17 AM

RC AKA Darryl, Ron said in reply to Peter K....
We still drink way more beer than wine in my part of the country. I have a bottle of port on my bar that has been there since last year and I have not had any other wine at all this year. But I agree with the article in that all of those people are assholes regardless of what they are drinking.

But I know that pgl really loves Cochrane, loves as in can resist screwing with him. Too mathy for me, but framing the idea of raising interest rates to increase inflation while lowering output as an economic solution does not pass the sweat shirt test (H. Pat Artis's euphemism for reality check).

Reply Tuesday, September 01, 2015 at 06:44 AM

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...
can't resist - oops

Reply Tuesday, September 01, 2015 at 06:45 AM

Peter K. said in reply to RC AKA Darryl, Ron...
Agreed. Maybe he'd a have a problem with lowering output if it hurt profit margins.

Reply Tuesday, September 01, 2015 at 06:47 AM

Peter K. said in reply to Peter K....
This is what DeLong has a tough time understanding. He's too naive or something. Or things have changed with the financialization of the economy.

Businesses and business leaders should want more demand for their products and services. They *should* want full employment and full output.

And yet the creditors and bankers really run things. Inflation is more of problem for them. And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity.

Reply Tuesday, September 01, 2015 at 06:50 AM

Peter K. said in reply to Peter K....
DeLong points out that in the post-war golden years business leaders were for full employment and full output.

I tend to believe it was because of the Cold War. Would Europe risk sky high unemployment in the Spain, Greece, Italy etc. now if the Cold War was still on? They'd risk those countries falling under the control of the Communists.

Reply Tuesday, September 01, 2015 at 06:53 AM

RC AKA Darryl, Ron said in reply to Peter K....
"DeLong points out that in the post-war golden years business leaders were for full employment and full output.

I tend to believe it was because of the Cold War..."

[Yep, Paine has mentioned that fairly often. Maybe it is just a way that commies like Paine can take credit for the post war boom in the free world :<) - LOL}

Reply Tuesday, September 01, 2015 at 09:06 AM

Dan Kervick said in reply to Peter K....
Well CEOs have managed to increase their own compensation dramatically over the past several decades with less than full employment. The chronically under-employed workforce keeps labor costs down and the return to capital high; and the shareholders reward the CEO for treating the firm as a dividend farm, not a long term project. And if they do need to boost output, they can always hire poor people in other countries in the global supply chain. So from their point of view, why should they do anything differently?

Reply Tuesday, September 01, 2015 at 06:44 PM

RC AKA Darryl, Ron said in reply to Peter K....
"...And perhaps managers prefer loose 'flexible' labor markets where their employees are less uppity."

[Yep to that and all you said before it.]

Reply Tuesday, September 01, 2015 at 09:02 AM

pgl said in reply to RC AKA Darryl, Ron...
Cochrane seems to know a bit of finance although sometimes he gets a little sloppy. I love it when finance types think they are also masters at macroeconomics. Modigliani and Tobin could walk in both worlds but Cochrane could not hold their shoes in either.

Reply Tuesday, September 01, 2015 at 08:56 AM

RC AKA Darryl, Ron said in reply to pgl...
Understood. Commenting on Cochrane's piece was all in fun. Even I got the problem with increasing the output gap in his model of interest rate increases; not good for full employment.

Reply Tuesday, September 01, 2015 at 09:09 AM

Peter K. said in reply to Peter K....
"Traditional monetarists looked at QE, and warned hyperinflation would break out."

Actually monetarists like Scott Sumner predicted it wasn't enough to do the job.

Goldbugs predicted runaway inflation.

Cochrane is wrong again.

Reply Tuesday, September 01, 2015 at 06:57 AM

pgl said in reply to RC AKA Darryl, Ron...
I started to read John Cochrane's insane modeling but as usual it made me sea sick. He has a habit of making easy things hard. The stated twin goals of monetary policy are to avoid accelerating inflation and to get us as close to full employment as possible. While one can argue that obtaining the latter jeopadizes the former, I don't see any real tradeoff at the moment. Expected inflation has been incredibly low for many years now and the output gap is still really high. I know some FED members are freaking out over INFLATION but I suspect they hate too much of that chocolate candy at Jackson Hole. Cochrane? Apparently he's been putting away too much of that expensive wine.

Reply Tuesday, September 01, 2015 at 06:15 AM

RC AKA Darryl, Ron said in reply to pgl...
Since Cochrane appears quite sanguine about lowering output then that implies he does not really care much about employment either.

I know that Cochrane is one of your favorite snack foods along with Taylor, the two too conservative Johns.

Reply Tuesday, September 01, 2015 at 06:33 AM

pgl said in reply to RC AKA Darryl, Ron...
Cochrane is a New Classical type. Shorter version of their school - what recession? After all - the market is perfectly efficient and always clears in their ivory tower world.

Reply Tuesday, September 01, 2015 at 08:57 AM

RC AKA Darryl, Ron said in reply to pgl...
Yep. I place neo-classical economics next to "natural law" (meaning social laws - not science laws) in the circular filing cabinet.

Reply Tuesday, September 01, 2015 at 09:12 AM

ilsm said in reply to RC AKA Darryl, Ron...
Cochrane leaves a lot to the imagination, sensitivity to assumptions etc.

Then there is the main issue with Social Sciences validation and accrediting the models.

While the fresh water school depends on belief resulting in epistemic closure.

Reply Tuesday, September 01, 2015 at 03:19 PM

Anonymous said...
Shiller's CAPE debate:

Saying that high PEs are fine because they just mean lower expected returns is like saying a blind man's eyes are fine just means he sees less than other people. Low expected returns do not come in 2%, 2%, 2%... kind of stream. They go down a lot and go up a lot. In 99-2000, people said high PE just meant low future returns. Yes, S&P had a zero return over almost a decade. But it had two huge drawdowns in the middle. Bernanke said the same of house prices in 2006 - they will be zero for a while. Yes, average is zero. does not mean you will go there in a straight line.

Reply Tuesday, September 01, 2015 at 04:43 AM

RC AKA Darryl, Ron said in reply to Anonymous...
Yep! There are more troubles here than can be covered by Shiller's CAPE and Dick Serlin's robots are not likely to fix them either.

Reply Tuesday, September 01, 2015 at 05:51 AM

pgl said in reply to Anonymous...
Hey is one thing a lot of us keep trying to tell Anne. There is not a single P/E ratio that is the right number for all times. This ratio depends on fundamentals with one of the fundamentals being the cost of capital. And I thought everyone knew by now that interest rates are currently a lot lower than they were in the 1980's.

Reply Tuesday, September 01, 2015 at 06:18 AM

Peter K. said in reply to pgl...
Isn't that what Dean Baker was saying also?

http://www.cepr.net/blogs/beat-the-press/robert-shiller-s-case-for-a-stock-bubble

"The other reason why the current PEs in the stock market might be justified is that interest rates are well below their historic averages. With the nominal rate on 10-year Treasury bonds at just over 2.0 percent and the inflation rate around 1.6 percent, the real interest rate is roughly 0.5 percent. This compares to a long-period average in the range of 2.5-3.0 percent.

With the alternatives to holding stock offering returns that are far lower than they have in the past, it makes sense that people would be willing to accept a much lower return on their stock. The current PE should still allow a premium in the range of 4.0 percentage points relative to bonds, which is roughly the long period average. Of course if we had reason to expect that the real returns on bonds would rise sharply in the near future, then this argument would not carry much weight, but there does not appear to be any good story as to why real bond yields should be headed much higher in the near future."

Reply Tuesday, September 01, 2015 at 06:22 AM

pgl said in reply to Peter K....
Deano has this exactly right. Of course they are the idiots like JohnH who just claimed that Dean and I are saying lower interest rates have no effect on stock prices. Hmm - P/E ratios are defined as stock prices relative to earnings per share. So someone should ask JohnH how a P/E ratio is supposed to rise if P does not change. Oh that's right - his 80 year granny girl friend has no earnings (E).

Reply Tuesday, September 01, 2015 at 09:00 AM

JohnH said in reply to Peter K....
pgl still can't admit that he tried to convince me that high stock prices (and the wealth of the 1%) were not fueled by low interest rates.

pgl was so desperate to defend historically low interest rates, that he lied about their most obvious effect--higher asset prices and wealth redistribution upwards.

Question is, why is pgl so zealous about defending the gains of the 1%?

Reply Tuesday, September 01, 2015 at 09:59 AM

pgl said in reply to JohnH...
Find the comment where I allegedly made this statement. Either you are lying (which you often do) or you failed to get what I was really saying. Maybe it was the latter given how incredibly stupid you are.

Reply Tuesday, September 01, 2015 at 11:47 AM

RGC said...
Low-Income Workers Have Nowhere Affordable To Live, New Report Shows

Even the most affordable metropolitan areas in the country are beyond the reach of millions of American families.

Daniel Marans
Reporter, The Huffington Post
Posted: 08/27/2015 07:34 AM EDT

Low-income workers and their families do not earn enough to live in even the least expensive metropolitan American communities, according to a new analysis of families' living costs published Wednesday.

The analysis, released by the left-leaning Economic Policy Institute, is an annual update of the think tank's Family Budget Calculator that reflects new 2014 data. The Family Budget Calculator is a formula designed to determine the income "required for families to attain a secure yet modest standard of living" in 618 different communities across the country that the U.S. Census Bureau defines as metropolitan areas. The formula uses data collected by the government and some nonprofit groups to measure costs of housing, food, child care, transportation, health care, "other necessities" like clothing, and taxes for families of 10 different compositions in these specific locales.

The updated Family Budget Calculator shows that even the most affordable metropolitan areas in the country are beyond the reach of millions of American families with incomes above the official federal poverty level. The official federal poverty level for a family of two parents and two children in 2014 was $24,008, according to the EPI. But the least expensive metropolitan area in the country for this family type is Morristown, Tennessee, where a family needs an income of $49,114, according to the Economic Policy Institute's budget calculator.

The Economic Policy Institute also estimates that minimum-wage workers -- who almost universally earn less than the federal poverty level -- lack the income needed to make an adequate living in any of the communities surveyed, even if they are single and childless. The think tank notes that this includes minimum-wage workers living in cities or states with a higher minimum wage than the federal minimum of $7.25 an hour, or $15,080 a year for a full-time worker.

Even families with incomes closer to the middle of the earnings spectrum lack the means to maintain an adequate standard of living. The nation's median household income was $51,939 in 2013 -- the most recent year in which data were available -- not much higher than the cost of living in the relatively inexpensive Morristown.

The median household income nationwide is also significantly less than is needed to live in the metropolitan area of Des Moines, Iowa, which is the median in costliness for a family with two parents and two children among the communities included in the Economic Policy Institute's budget calculator. A family of that makeup in Des Moines requires an income of $63,741 to live adequately.

In addition, the updated Family Budget Calculator found that Washington, D.C., is the most expensive metropolitan area in the country for a family to raise children. A family with two parents and two children requires $106,493 to maintain an adequate living standard in the D.C. metropolitan area. Following D.C., the most expensive metropolitan areas for a family of the same makeup were Nassau-Suffolk, New York (Long Island); Westchester County, New York; New York City; Stamford-Norwalk, Connecticut; Honolulu; Poughkeepsie-Newburgh-Middletown, New York; Ithaca, New York; San Francisco; and Danbury, Connecticut.

The Economic Policy Institute argues in a paper accompanying the release of the updated data that its Family Budget Calculator more accurately reflects people's actual living needs than traditional measurements like the federal poverty level, which does not account for the myriad geographic differences in living costs. (The federal government only provides separate, statewide poverty measurements for Alaska and Hawaii.) Critics have long argued that the federal poverty level formula, which was created in the 1960s, is outdated, significantly undervaluing the costs of essential goods like health care for contemporary families.

The more recent Supplemental Poverty Measure developed by the U.S. Census Bureau tries to account for more current expenses and geographic differences in housing, as well as income from new benefit programs. But the Economic Policy Institute says that the measure still does not weigh child care costs sufficiently, or account for local variability in expenses other than housing.

The Economic Policy Institute hopes the new figures strengthen the case for policies that augment the incomes of workers, particularly on the lower end of the earnings spectrum.

"Wage growth has been stagnant for most workers for decades and, as a result, there is a mismatch between what workers are paid and what it takes to live and support a family," said Elise Gould, senior economist at the Economic Policy Institute, in a statement. "We need a variety of policies to boost wage growth, which includes a higher minimum wage, stronger overtime rules, collective bargaining rights, and enforcement of labor standards as well as the pursuit of a full-employment economy."

http://www.huffingtonpost.com/entry/low-income-workers-have-nowhere-to-live-new-report-shows_55de2b29e4b029b3f1b17e4c?ncid=txtlnkusaolp00000592&kvcommref=mostpopular

Reply Tuesday, September 01, 2015 at 05:00 AM

Death B. Y. Humidity said in reply to RGC...

"
; Poughkeepsie-Newburgh-Middletown, New York
"
~~Daniel Marans~

If you like cucarachas, you will simple love Honolulu.

Reply Tuesday, September 01, 2015 at 05:28 AM

JohnH said in reply to RGC...
And pgl continues to insist that current economic policy, presided over by the Fed, is just great! And that it's trickling down to workers!

But ordinary Americans get it, even if ivory tower 'economists' don't--a new Quinnipiac University Poll shows that by more than 7 to 1, Americans are "dissatisfied" with the way things are going in this country, including 41 percent who are "very dissatisfied."
http://finance.yahoo.com/news/two-polls-show-exactly-why-190000376.html

Reply Tuesday, September 01, 2015 at 10:06 AM

pgl said in reply to JohnH...
So many lies today and your 80 year old girl friend still refuses to have sex with you? Try Viagra. Oh wait - she is waiting for you to bring home the bacon. Which means you won't get laid until her 100th birthday!

Reply Tuesday, September 01, 2015 at 11:48 AM

JohnH said in reply to RGC...
After seven years of an economic quagmire, presided over by the Fed, it's amazing that the Fed has any credibility left at all.

I'm reading increasing numbers of articles that consider the Fed to be a laughing stock...

Reply Tuesday, September 01, 2015 at 10:10 AM

Peter K. said in reply to JohnH...
So you obsolve Congress's fiscal austerity of any blame. They brought the deficit down from 10 percent to 2.3 percent and lo and behold, no confidence fairy.

The Fed's QEs offset that to a degree, otherwise we'd have deflation, declining incomes and growing unemployment.

Reply Tuesday, September 01, 2015 at 10:27 AM

pgl said in reply to Peter K....
That's what chocolate coin JohnH wants - declining incomes and growing unemployment. He seems to think this will get granny all hot and bothered!

Reply Tuesday, September 01, 2015 at 11:50 AM

RC AKA Darryl, Ron said in reply to RGC...
Maybe metropolitan American communities are hoping that gentrification can cure urban blight.

Reply Tuesday, September 01, 2015 at 10:30 AM

RC AKA Darryl, Ron said...
RE: Picasso: the price of everything

[Best for the classic quote at the end:]

...There is, of course, a danger of confusing high prices with aesthetic value; as Oscar Wilde put it, of knowing 'the price of everything and the value of nothing'.

[Oscar Wilde has often been quoted in discussions of economics and economists. This is the first time that I ever read it used with respect to art.]

Reply Tuesday, September 01, 2015 at 05:59 AM

Peter K. said...
Obama and the National Labor Review Board and Clinton.

"We're really digging out of a 40-year hole," Mr. Mishel said. "The Clinton years were ones where they more triangulated between business and workers rather than weigh in on the side of workers."

One area where I believe Krugman and DeLong aren't on the up and up - for whatever reason - is the history of the Clinton years. Here's another example of where the Clinton years don't look so good and Obama looks better in comparison.

Krugman had a column about paleoliberalism making a comeback not long ago. In reality it was never gone. The Clintonoids moved the Democrats to the right.

Reply Tuesday, September 01, 2015 at 06:00 AM

Peter K. said in reply to Peter K....
That's why I supported Obama over Hillary and support Bernie over Hillary. If Hillary is elected hopefully she has moved to the left along with the Democrats but I wouldn't hold my breath.

It's possible that she'll do better than her Senate career would suggest. Finance is New York's local business and she was being cautious in order to run for President.

Reply Tuesday, September 01, 2015 at 06:04 AM

JohnH said in reply to Peter K....
Yeah, it only took a lame duck Obama seven years to realize that workers needed some help. Now there was change you could believe in...

It's amazing that there are still Democrats who can't admit that Obama is just another neo-liberal tool.

Peter K. said...
Noah Smith and the neo-Fisherians.

Seems like Cochrane ignores fiscal policy. The Republican Congress hit the economy with unprecedented austerity. There was the sequester and debt ceiling clown show. The deficit went from 10 percent to 2.3 percent. Bernanke and the Fed complained regularly about fiscal headwinds. It's no wonder the Fed never managed to hit their 2 percent inflation target ceiling, given that all they tried was a few weak QEs.

Whenever inflation expections dipped, they did a QE, and they went back up. That's it. They weren't trying to raise inflation quickly. They are paranoid about inflation getting out of hand and becoming "unmoored."

Nothing surprising to me about inflation's behavior. Look at the employment-population ratio.

Perhaps it's surprising that we didn't hit sustained deflation early on in the financial crisis, but perhaps the markets believed the Fed would get things back on track relatively quickly.

That is they believed in the Fed's long-term inflation / implicit NGDP target and in the ability of the Fed to manage the economy.

Reply Tuesday, September 01, 2015 at 06:18 AM

anne said...
http://krugman.blogs.nytimes.com/2015/08/31/the-china-debt-zombie/

August 31, 2015

The China-Debt Zombie
By Paul Krugman

Matthew Klein notes that Very Serious People are now worried that China's troubles, which have caused it to switch rather suddenly from a buyer of Treasuries to a seller, will cause U.S. interest rates to spike. He rightly finds this unconvincing. What he doesn't note is we're looking at another instance of an economic zombie in action.

For the new concern about China is, in economic terms, the same as the old concern – that the Chinese could destroy our economy by cutting off funding, either for political reasons or out of disgust over our budget deficits. This always reflected a fundamental failure to understand the economic logic, as was pointed out many times not just by yours truly * (and much earlier here ** ) but also by people like Dan Drezner. *** But scare stories about our supposed financial dependence on China just keep shambling along, propounded by people who don't even realize that there are other views, let alone that they're talking nonsense.

* http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

** http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

*** http://belfercenter.ksg.harvard.edu/publication/19622/bad_debts.html

Reply Tuesday, September 01, 2015 at 06:24 AM

anne said in reply to anne...
http://krugman.blogs.nytimes.com/2010/03/15/chinas-water-pistol/

March 15, 2010

China's Water Pistol
By Paul Krugman

Dean Baker * gets upset by this line in today's very useful Keith Bradsher article: **

"China is the biggest buyer of Treasury bonds at a time when the United States has record budget deficits and needs China to keep buying those bonds to finance American debt."

As I said, this was a very good article about China; the debt line was probably inserted because it's considered obligatory to say this in any article about US-China relations. As it happens, however, while it's part of what everyone knows, it's also completely false.

Why don't people get this? Part of the answer is that it's really hard for non-economists - and many economists, too! - to wrap their minds around the Alice-through-the-looking-glass nature of economics when you're in a liquidity trap. *** Even if they've heard of the paradox of thrift, they don't get the extent to which we're living in a world where more savings - including savings supplied to your economy from outside - are a bad thing.

Also, and I think harder to forgive, is the way many commentators seem oblivious to how we got here. Yes, we have large budget deficits - but those deficits have arisen mainly as the flip side of a collapse in private spending and borrowing. Here's what net borrowing by the US private and public sectors looks like in the Fed's flow of funds report:

[Private and public net borrowing, 2003-2009]

The US private sector has gone from being a huge net borrower to being a net lender; meanwhile, government borrowing has surged, but not enough to offset the private plunge. As a nation, our dependence on foreign loans is way down; the surging deficit is, in effect, being domestically financed.

The bottom line in all this is that we don't need the Chinese to keep interest rates down. If they decide to pull back, what they're basically doing is selling dollars and buying other currencies - and that's actually an expansionary policy for the United States, just as selling shekels and buying other currencies was an expansionary policy for Israel **** (it doesn't matter who does it!).

As Dean nicely puts it, "China has an unloaded water pistol pointed at our heads." Actually, it's even better: China can, if it chooses, throw some cold water on us - but it's a hot day, and we would actually enjoy it.

* http://prospect.org/article/nyt-spreads-nonsense-china-buying-us-debt

** http://www.nytimes.com/2010/03/15/business/global/15yuan.html

*** Near zero short term Treasury interest rates

**** http://krugman.blogs.nytimes.com/2010/03/14/israel-china-america/

Reply Tuesday, September 01, 2015 at 06:24 AM

anne said in reply to anne...
http://krugman.blogs.nytimes.com/2013/10/18/the-china-debt-syndrome/

October 18, 2013

The China-Debt Syndrome
By Paul Krugman

Matthew Yglesias notes * an uptick in Very Serious People warning that China might lose confidence in America and start dumping our bonds. He focuses on China's motives, which is useful. But the crucial point, which he touches on only briefly at the end, is that whatever China's motives, the Chinese wouldn't hurt us if they dumped our bonds - in fact, it would probably be good for America.

But, you say, wouldn't China selling our bonds send interest rates up and depress the U.S. economy? I've been writing about this issue ** a lot in various guises, and have yet to see any coherent explanation of how it's supposed to work.

Think about it: China selling our bonds wouldn't drive up short-term interest rates, which are set by the Fed. It's not clear why it would drive up long-term rates, either, since these mainly reflect expected short-term rates. And even if Chinese sales somehow put a squeeze on longer maturities, the Fed could just engage in more quantitative easing and buy those bonds up.

It's true that China could, possibly, depress the value of the dollar. But that would be good for America! Think about Abenomics in Japan: its biggest success so far has been driving down the value of the yen, helping Japanese exporters.

But, you say, Greece. Well, Greece doesn't have its own currency or monetary policy; capital flight there led to a fall in the money supply, which wouldn't happen here.

The persistence of scaremongering about Chinese confidence is a remarkable thing: it continues to be what Very Serious People say, even though it literally makes no sense at all. As Dean Baker once put it, "China has an empty water pistol pointed at our head."

* http://www.slate.com/blogs/moneybox/2013/10/17/china_bond_purchases_stop_being_wrong.html

** http://krugman.blogs.nytimes.com/2013/10/03/phantom-crises-wonkish/

Reply Tuesday, September 01, 2015 at 06:25 AM

Peter K. said...
http://krugman.blogs.nytimes.com/2015/09/01/multipliers-what-we-should-have-known/

Multipliers: What We Should Have Known
by Krugman

SEPTEMBER 1, 2015 9:19 AM

There's a very nice interview* with Olivier Blanchard, who is leaving the IMF, in which among other things Olivier says the right thing about changing one's mind:

"With respect to outside, the issue I have been struck by is how to indicate a change of views without triggering headlines of "mistakes,'' "Fund incompetence,'' and so on. Here, I am thinking of fiscal multipliers. The underestimation of the drag on output from fiscal consolidation was not a "mistake'' in the way people think of mistakes, e.g., mixing up two cells in an excel sheet. It was based on a substantial amount of prior evidence, but evidence which turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. We got a lot of flak for admitting the underestimation, and I suspect we shall continue to get more flak in the future. But, at the same time, I believe that we, the Fund, substantially increased our credibility, and used better assumptions later on. It was painful, but it was useful."

Indeed. There are a lot of people out there whose idea of a substantive argument is "you used to say X, now you say Y" - never mind the reasons why you changed your view, and whether it was right to do so.It's important not to fall into the trap of being afraid to let new evidence or analysis speak.

One thing I would say, however, is that on this particular issue the Fund should have known better. Olivier says that the evidence "turned out to be misleading in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts", but didn't we know that? I certainly did.

And let me also beat one of my favorite drums: the prediction that multipliers would be much larger in a liquidity trap came out of IS-LMish macro (or, to be fair, New Keynesian models) and has been overwhelmingly confirmed by experience. So this was yet another victory for Keynesian analysis, the success story nobody will believe.

-------------------
* http://www.imf.org/external/pubs/ft/survey/so/2015/RES083115A.htm

Reply Tuesday, September 01, 2015 at 06:24 AM

Peter K. said in reply to Peter K....
John Cochrane doesn't give an honest assessment of the Keynesian side of the argument. He pulls a Don Kervack and presents a straw man in order to knock it down.

"Keynesians predicted a deflationary vortex!"

And then when conservatives are confronted with what they actually said in the past, they dishonestly change their story. Kervack does the same thing.

Reply Tuesday, September 01, 2015 at 06:26 AM

pgl said in reply to Peter K....
Cochrane goes on and on about nothing. Kervack goes on and on about nothing. Twins separated at birth?!

Reply Tuesday, September 01, 2015 at 09:01 AM

Peter K. said in reply to Peter K....
"in an environment where interest rates are close to zero and monetary policy cannot offset the negative effects of budget cuts. "

Or rather monetary policy *will not* offset the negative effects of budget cuts.

Fixed.

Reply Tuesday, September 01, 2015 at 06:45 AM

anne said in reply to Peter K....
http://krugman.blogs.nytimes.com/2009/11/10/depression-multipliers/

November 10, 2009

Depression Multipliers
By Paul Krugman

Barry Eichengreen and Kevin O'Rourke have lately been scoring a series of research coups, based on the combination of historical perspective and a global view. Most famously, they showed that on a global basis the first year of the current crisis was every bit as severe * as the first year of the Great Depression.

Now they and collaborators have a new piece on policy effects, ** especially fiscal multipliers.

The background here is that there are two problems with estimating multipliers relevant to our current situation. First, you need to look at what happens under liquidity-trap conditions - and except in Japan,these haven't prevailed anywhere since the 1930s. The second is that in the United States, fiscal policy was never forceful enough to provide a useful natural experiment. We didn't have a really big fiscal expansion until World War II; and WWII isn't a good experiment because the surge in defense spending was accompanied by government policies that suppressed private demand, such as rationing and restrictions on investment. ***

What E&R do here is use a broad international cross-section to overcome this problem. This works because a number of countries had major military buildups during the 1930s - fiscal expansions that can be regarded as exogenous to the economic situation, since they were

"driven above all by Hitler's rearmament programmes and other nations' efforts to match the Nazis in this sphere, and by one-off events like Italy's war in Abyssinia."

What do E&R find? Initial fiscal multipliers of 2 or more, although they shrink over time. Yes, fiscal expansion is expansionary.

* http://www.voxeu.org/index.php?q=node/3421

** http://www.econ.berkeley.edu/~eichengr/great_dep_great_cred_11-09.pdf

*** I really, really don't understand why this point has been so hard to get across.

Reply Tuesday, September 01, 2015 at 06:48 AM

Peter K. said...
http://www.cepr.net/blogs/beat-the-press/a-public-service-announcement-the-bureau-of-labor-statistics-budget

A Public Service Announcement: The Bureau of Labor Statistics Budget
by Dean Baker

Published: 31 August 2015

The sequester put in place as part of the 2011 budget agreement is continuing to bite, as most areas of discretionary spending are seeing their budget cut in real terms. One of the areas slated for the biggest proportional cuts in the Bureau of Labor Statistics (BLS). Ready to head for the barricades?

Okay, I know that the data produced by the BLS doesn't sound especially sexy. After all, we aren't talking about children going hungry or pregnant women being denied medical care. But on a per dollar basis, I would argue that BLS funding is among the best investments out there.

The purpose of the data collected by the BLS is to let us know how the economy is doing. Based on the data it produces we can know who is getting ahead and who is falling behind. We can know whether college degrees are really paying off, or paying off equally for everyone. We can know how long people spend being unemployed after losing a job or how much less they are likely to make when they find a new job.

Yes, we all have common sense understandings of these issues. We have friends, neighbors, and co-workers all of whom have experiences in the labor market, dealing with health care insurance, planning for retirement. These impressions are valuable, but sometimes our impressions are wrong. Our immediate circles of contacts may not be typical. The data from BLS lets us get beyond these impressions to get a fuller picture of the economy.

This matters hugely for important policy decisions. Right now there are many people who are anxious to have the Federal Reserve Board raise interest rates to slow the economy and the pace of job creation. The key factors in whether this makes sense are the pace of inflation, the pace of wage growth, and the extent of unemployment or various forms of under-employment.

We should want the best possible data on all of these items. It would be an enormous tragedy if the Fed raised rates and prevented hundreds of thousands of workers from getting jobs, and millions from getting pay increases, because it thought the inflation rate was higher than it actually is.

The BLS budget in 2015 was about $90 million less in real dollars than the 2010 budget. (That's roughly 0.002 percent of the total federal budget.) The BLS is looking at still further cuts in 2016. Suppose it would take another $100 million a year to keep BLS funded adequately. If a mistaken Fed decision on interest rates costs us just 0.2 percent in GDP growth, it would imply a loss of $36 billion in GDP and mean roughly 300,000 fewer people have jobs. (It probably also means some number of children are going hungry and pregnant women are being denied health care.)

If it sounds far-fetched that the Fed may make a wrong decision because of bad data, consider the fact that the consumer price index (CPI) overstated the inflation rate that would be shown using current methods by roughly 0.5 percentage points annually in the early and mid-1990s. This means that if the current BLS methodology showed a 2.0 percent rate of inflation, the methodology used to construct the CPI in the early and mid-1990s would have reported the inflation rate as 2.5 percent.

The Fed did in fact raise interest rates from 3.0 percent to 6.0 percent over the period from February of 1994 to March of 1995. This proved to be unnecessary, since inflation remained well-contained and the Fed eventually lowered interest rates in the second half of 1995. It's hard to say whether the wrong data on inflation contributed to the Fed's mistaken rate hikes. The problems with the CPI were known at the time and hopefully the Fed was able to adjust for them, but we can't know for sure if they did.

There is a real cost to mistaken policy decisions. While the folks at Fed and other policy making bodies are perfectly capable of making bad decisions even when they have the right data, we should want to do everything we can to avoid preventable mistakes. This means ensuring that they have good data, which means giving the BLS the money it needs to do its job.

One last point, this is not a partisan issue. There are plenty of economists across the political spectrum who support full funding for BLS. We all like to think that our arguments are based on data, but we can't know that is the case if the data are not available.

--------------------------------

Republicans: We're not scientists, but we just defund data collection so that the scientists are unable to do their science which may contradict our preferred policies.

Reply Tuesday, September 01, 2015 at 06:41 AM

pgl said in reply to Peter K....
Bruce Bartlett has never forgiven Newt Gingrich for starting this trend in 1995. This is why we like the last honest conservative - Bruce that is!

Reply Tuesday, September 01, 2015 at 09:02 AM

Dan Kervick said in reply to Peter K....
Always one of the easiest ways for reactionary forces to ward of social challenges, class conflict and criticism: destroy the data so that people can't figure out how bad things are.

Note that Republicans have also had an obsession with the US Census. They don't want Americans to understand America.

A couple of years ago, some interesting studies were carried out on public perceptions of inequality. It turns out that until they are presented with the actual data on economic distribution in the US, Americans tend to have a much rosier perception about how equal the US is than is actually the case.

Apart from these cases were the politicians are trying to make the existing data worse, there are also important kinds of data which we need but do not yet collect. We're still in the dark ages when it comes to putting together a complete social inventory and accounting of all forms of private wealth, so that we know who owns what and where the stuff that is owned is located.

Reply Tuesday, September 01, 2015 at 09:53 AM

pgl said in reply to Dan Kervick...
Uh Dan? It is the Census - not BEA - that reports on income inequality measure. FYI!

Reply Tuesday, September 01, 2015 at 11:52 AM

Dan Kervick said in reply to pgl...
Yes, I know. But it doesn't collect that data nearly as frequently, and has no straightforward and reliable methods for combining the inequality data with the other economic measurements that the BEA does routinely.

When the BEA reports on the growth of national income, Americans should be able to pull out right away information on what that growth looks like across income deciles. We deserve to know what an aggregate 3.7% growth quarter looks like for most Americans.

Reply Tuesday, September 01, 2015 at 01:19 PM

anne said...
http://krugman.blogs.nytimes.com/2015/09/01/gravity/

September 1, 2015

Gravity
By Paul Krugman

Now that's fun: Adam Davidson tells us * about trade in the ancient Near East, as documented by archives found in Kanesh - and reports that the volume of trade between Kanesh and various trading partners seems to fit a gravity equation: trade between any two regional economies is roughly proportional to the product of their GDPs and inversely related to distance. Neat.

But what does the seemingly universal applicability of the gravity equation tell us? Davidson suggests that it's an indication that policy can't do much to shape trade. That's not where I would have gone, and it's not where those who have studied the issue closely ** have gone.

Here's my take: Think about two cities with the same per capita GDP - we can relax that assumption in a minute. They will trade if residents of city A find things being sold by residents of city B that they want, and vice versa.

So what's the probability that an A resident will find a B resident with something he or she wants? Applying what one of my old teachers used to call the principle of insignificant reason, a good first guess would be that this probability is proportional to the number of potential sellers - B's population.

And how many such desirous buyers will there be? Again applying insignificant reason, a good guess is that it's proportional to the number of potential buyers - A's population.

So other things equal we would expect exports from B to A to be proportional to the product of their populations.

What if GDP per capita isn't the same? You can think of this as increasing the "effective" population, both in terms of producers and in terms of consumers. So the attraction is now the product of the GDPs.

Is there anything surprising about the fact that this relationship works pretty well? A bit. Standard pre-1980 trade theory envisaged countries specializing in accord with their comparative advantage - England does cloth, Portugal wine. And these models suggest that how much countries trade should have a lot to do with whether they are similar or not. Cloth exporters shouldn't be selling much to each other, but should instead do their trading with wine exporters. In reality, however, there's basically no sign of any such effect: even seemingly similar countries trade about as much as a gravity equation says they should.

Calibrated models of trade have long dealt with this reality, somewhat awkwardly, with the so-called Armington assumption, *** which simply assumes that even the apparently same good from different countries is treated by consumers as a differentiated product - a banana isn't just a banana, it's an Ecuador banana or a Saint Lucia banana, which are imperfect substitutes. The new trade theory some of us introduced circa 1980 - or as some now call it, the "old new trade theory" - does a bit more, and possibly better, by introducing monopolistic competition and increasing returns to explain why even similar countries produce differentiated products.

And there's also a puzzle about both the effect of distance and the effect of borders, both of which seem larger than concrete costs can explain. Work continues.

Does any of this suggest the irrelevance of trade policy? Not really. Changes in trade policy do have obvious effects on how much countries trade. Look at what happened when Mexico opened up starting in the late 1980s, as compared with Canada, which was fairly open all along - and which, like Mexico, mainly trades with the US:

[Graph]

So what does gravity tell us? Simple Ricardian comparative advantage is clearly incomplete; the process of international trade is subtler, with invisible as well as visible costs. Not trivial, but not too unsettling. And gravity models are very useful as a benchmark for assessing other effects.

* http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

** https://www2.bc.edu/~anderson/GravitySlides.pdf

*** http://wits.worldbank.org/wits/wits/witshelp/Content/SMART/Demand%20side%20the%20Armington.htm

Reply Tuesday, September 01, 2015 at 06:54 AM

anne said in reply to anne...
http://www.nytimes.com/2015/08/30/magazine/the-vcs-of-bc.html

August 29, 2015

The V.C.s of B.C.
By ADAM DAVIDSON

One morning, just before dawn, an old man named Assur-idi loaded up two black donkeys. Their burden was 147 pounds of tin, along with 30 textiles, known as kutanum, that were of such rare value that a single garment cost as much as a slave. Assur-idi had spent his life's savings on the items, because he knew that if he could convey them over the Taurus Mountains to Kanesh, 600 miles away, he could sell them for twice what he paid.

At the city gate, Assur-idi ran into a younger acquaintance, Sharrum-Adad, who said he was heading on the same journey. He offered to take the older man's donkeys with him and ship the profits back. The two struck a hurried agreement and wrote it up, though they forgot to record some details. Later, Sharrum-Adad claimed he never knew how many textiles he had been given. Assur-idi spent the subsequent weeks sending increasingly panicked letters to his sons in Kanesh, demanding they track down Sharrum-Adad and claim his profits.

These letters survive as part of a stunning, nearly miraculous window into ancient economics. In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal. Through a series of incredibly unlikely events, archaeologists have uncovered the comprehensive written archive of a few hundred traders who left their hometown Assur, in what is now Iraq, to set up importing businesses in Kanesh, which sat roughly at the center of present-day Turkey and functioned as the hub of a massive global trading system that stretched from Central Asia to Europe. Kanesh's traders sent letters back and forth with their business partners, carefully written on clay tablets and stored at home in special vaults. Tens of thousands of these records remain. One economist recently told me that he would love to have as much candid information about businesses today as we have about the dealings - and in particular, about the trading practices - of this 4,000-year-old community.

Trade is central to every key economic issue we face. Whether the subject is inequality, financial instability or the future of work, it all comes down to a discussion of trade: trade of manufactured goods with China, trade of bonds with Europe, trade over the Internet or enabled by mobile apps. For decades, economists have sought to understand how trade works. Can we shape trade to achieve different outcomes, like a resurgence of manufacturing or a lessening of inequality? Or does trade operate according to fairly fixed rules, making it resistant to conscious planning? ...

Reply Tuesday, September 01, 2015 at 06:56 AM

Dan Kervick said in reply to anne...
One trading region, at one moment in history, based on "GDP" estimates from fragmentary records. From this, an economic law is abducted and proposed.

There is the science of economics for you.

Reply Tuesday, September 01, 2015 at 09:57 AM

RC AKA Darryl, Ron said in reply to Dan Kervick...
A lot of economics is an art, particularly surrounding financialization and globalization, and the primary practice of that art is equivocation. The science act in this case is a shell game. Under which shell is the arbitrage?

Mineral resources, water, and land exist where they do, but the industrial revolution produced the means for sufficient skilled labor to reside almost anywhere.

Reply Tuesday, September 01, 2015 at 10:51 AM

pgl said in reply to RC AKA Darryl, Ron...
"In general, we know few details about economic life before roughly 1000 A.D. But during one 30-year period - between 1890 and 1860 B.C. - for one community in the town of Kanesh, we know a great deal."

Dan K. is mad that the BEA for not reporting on GDP data back then. And he insists that they should have been reporting on income distribution during the Roman Empire as well.

Reply Tuesday, September 01, 2015 at 11:55 AM

pgl said in reply to Dan Kervick...
FYI for the clueless one. GDP accounting was only invented in the 1940's. And you expect the BEA is report on information from centuries ago.

Reply Tuesday, September 01, 2015 at 11:53 AM

Dan Kervick said in reply to pgl...
You're confused. I said nothing about the BEA in this comment. I talking about *economists* using limited data to propose grand laws.

Reply Tuesday, September 01, 2015 at 01:21 PM

anne said...
http://www.cepr.net/publications/op-eds-columns/the-china-panic

August 31, 2015

The China Panic
By Dean Baker

One of the benefits of the massive inequality in the distribution of wealth is that the vast majority of us can sit back and enjoy the show when stock markets go into a worldwide panic, as they have been doing for the last couple of weeks. In spite of what you hear in the media, fluctuations in the stock market generally have little direct or indirect impact on the economy.

This means that if you don't have a lot of money in the stock market, you don't have much to lose. And, according to data from the Federal Reserve Board, three quarters of households have less than $36,000 in the stock market, including their 401(k)s.

But the markets have been putting on quite a show, so it is worth asking what is going on. At the most basic level, it seems evident that China's market had a very serious bubble. Its main index had increased by more than 150 percent from June of 2014 to its peak in June of this year. While it's possible that China's market has hugely undervalued in 2014, it seems more likely that this rise was bubble-driven. This means that people were buying into the market because they saw it going up, not because they had done an assessment of the future profit prospects for Chinese companies and decided that they were worth two-and-half times as much as they had been worth a year earlier.

Bubbles inevitably burst. At some point there are no longer people willing to pay too much for stock, houses, tulips, or whatever. That seems to have been the story in China, where many new investors were buying into the market on credit. At some point they have trouble borrowing further and the upward spiral goes into reverse. The clumsy efforts of China's government to stop this correction proved largely futile.

The next question is why did the fun spill over to Europe, the United States, and the rest of the world's stock markets? Most of these markets are high by historic standards, but they are not obviously experiencing bubbles. To use one common metric, Robert Shiller's ratio of the S&P 500 to trailing ten years' earnings peaked at just over 26 to 1 in June. This is higher than the long term average of 15 to 1, but well below the peak of 44 to 1 in the late 1990s bubble. There would be a similar story with most other major markets.

Furthermore, in the late 1990s there was an obvious investment alternative. Ten-year U.S. Treasury bonds paid a nominal interest rate of over 5.0 percent which translated into roughly a 2.5 percent real rate at the time. Currently 10-year Treasury bonds are paying a bit over 2.0 percent interest, which translates into a real interest rate of roughly 0.5 percent. Given these fundamentals, there is no reason to expect sharp declines in the U.S. and other major markets, but nothing says that they can't be 5–10 percent below current levels.

But there are some stories for the real economy that do go along with the stock market turbulence. First, China is going through a process of adjustment where it goes from growth led by investment and exports to growth led by domestic consumption. The stock market run-up was helping this transition as people increased their consumption based on bubble-generated wealth. The plunge in prices will hurt this process, but it is important to remember that stock prices are still almost double their level of last summer.

While predictions of a collapse of the Chinese economy will almost certainly be proven wrong, it is likely to be on a slower growth path going forward. This is a major factor in the falloff in commodity prices, most notably oil, the price of which has dropped below $40 a barrel. This drop in oil prices will exacerbate the economic troubles of major oil exporters like Russia and Venezuela.

However, the drop in commodity prices could have even more far-reaching effects. The economies of Canada and Australia have also been driven to an important extent by booming commodity exports. These economies recovered much more rapidly from the 2008 crash than most other wealthy countries. Part of this story is that that house prices in both countries quickly returned to bubble levels.

The price of a typical home in Canada is 13 percent higher than in the United States despite the fact that its per capita income is more than 20 percent lower. In Australia, with an average income that is 93 percent of the U.S. level, the median house price is almost twice the U.S. level. It's pretty hard to tell a story where this gap is justified by the fundamentals of the market. After all, neither country is notably short of land (not that this explanation generally makes sense).

It may turn out to be the case that the plunge in commodity prices will be the factor that will teach homebuyers and potential homebuyers in these countries the arithmetic they need to recognize the bubbles in their markets. If that proves to be the case, then we may see the unraveling of these bubbles, and that will not be a pretty picture.

Unlike stock, middle income people do have a real stake in the value of their house. If prices in these countries were to fall to U.S. levels, it would imply a massive loss of wealth. This will almost certainly lead to a large drop in consumption and in all probability a serious recession....

Reply Tuesday, September 01, 2015 at 08:00 AM

RC AKA Darryl, Ron said in reply to anne...
Ouch! THANKS!

Reply Tuesday, September 01, 2015 at 10:56 AM

anne said...
http://www.cepr.net/publications/op-eds-columns/the-china-syndrome-bubble-trouble

August 31, 2015

The China Syndrome: Bubble Trouble
By Dean Baker

The financial markets have been through some wild and crazy times over the last two weeks, although it appears that they have finally stabilized. The net effect of all the gyrations is that a serious bubble in China's market seems to have been at least partially deflated. After hugely over-reacting to this correction, most other markets have largely recovered. Prices are down from recent peaks, but in nearly all cases well above year ago levels.

But the stock market is really a side-show; after all back in 1987 the U.S. market fell by almost 25 percent for no obvious reason, with little noticeable effect on the U.S. economy. The more serious question is what is happening with the underlying economy, and there are some real issues here.

China's economy had become a major engine for world growth just as the U.S. economy had been a major engine for world growth in the last decade. While predictions of an economic collapse in China will almost certainly prove wrong (many China experts have a long history of such predictions), it does seem likely that its growth going forward will be considerably slower than it has been in the past.

This will be bad news for exporters of oil and other commodities, the price of which were being sustained by the rapid growth in China. But a slowdown in China will also be bad news for the United States and other rich countries who were expecting that continued strong growth in China would boost their net exports, thereby lifting their weak growth rates.

Over the longer term it is reasonable to expect that China will continue to move from large trade surpluses to trade deficits or at least near balanced trade, the movement will likely be in the other direction in the immediate future. This means that trade with China will be a factor slowing growth in Japan, Europe, and the United States for the immediate future.

While we can be unhappy with China for slowing our growth, the important point to remember is that we do still possess the keys for more rapid growth. After all, the problem is simply a lack of demand in the U.S. and world economy. We can create more demand by having the government spend money or give out tax cuts. Larger deficits will boost the economy.

If the private sector isn't prepared to spend, the government can increase demand by repairing and improving the infrastructure, increased funding for health care, child care, and education, or subsidizing wind, solar, and other forms of clean energy. With interest rates at extraordinarily low levels and no signs of inflation anywhere in sight, there is no economic barrier to spending in these and other areas. Such spending would both help to make up the demand gap resulting from our trade deficit, thereby creating jobs, and also increase our economy's longer term potential and the country's well-being.

The only obstacle to such spending is political. This spending would mean larger budget deficits and our politicians are scared of talking about budget deficits.

The current economic situation is more than a bit absurd. Essentially, we have a worldwide shortfall in demand. Countries that have their own currencies, like the United States, United Kingdom, and Canada could deal with their own shortfalls simply by running larger budget deficits. But for political reasons these countries don't want to run large budget deficits. Instead, they are praying that their trading partners will increase their budget deficits, which will increase net exports and lead to more economic growth.

If the path to increase growth and employment remains blocked for political reasons, we should always remember that we can look to increase employment by going the opposite direction of decreasing supply. This can begin with work sharing, the policy of encouraging companies to reduce work hours rather than lay off workers. This was the key to Germany's low unemployment rate even at the worst points in the recession.

And, we can look to measures such as mandated paid sick days, parental leave, and vacation, which have the effect of reducing the average number of hours worked in a year. These are all policies that can be implemented without running large budget deficits. Furthermore, since the reduced labor supply is likely to tighten up the labor market, it could lead to stronger wage growth. And, these measures will provide for a better balance between work-life and family life.

The best part is that these policies may be more politically feasible than other approaches....

Reply Tuesday, September 01, 2015 at 08:00 AM

RC AKA Darryl, Ron said in reply to anne...
THANKS! Dean is the best.

Reply Tuesday, September 01, 2015 at 11:00 AM

Peter K. said...
http://uneasymoney com/2015/08/31/economic-prejudice-and-high-minded-sloganeering/

http://tinyurl.com/nv8uw2j

Economic Prejudice and High-Minded Sloganeering
by David Glasner
Published August 31, 2015

In a post yesterday commenting on Paul Krugman's takedown of a silly and ignorant piece of writing about monetary policy by William Cohan, Scott Sumner expressed his annoyance at the level of ignorance displayed people writing for supposedly elite publications like the New York Times which published Cohan's rant about how it's time for the Fed to show some spine and stop manipulating interest rates. Scott, ever vigilant, noticed that another elite publication the Financial Times published an equally silly rant by Avinah Persaud exhorting the Fed to show steel and raise rates.

Scott focused on one particular example of silliness about the importance of raising interest rates ASAP notwithstanding the fact that the Fed has failed to meet its 2% inflation target for something like 39 consecutive months:

"Yet monetary policy cannot confine itself to reacting to the latest inflation data if it is to promote the wider goals of financial stability and sustainable economic growth. An over-reliance on extremely accommodative monetary policy may be one of the reasons why the world has not escaped from the clutches of a financial crisis that began more than eight years ago."

Scott deftly skewers Persaud with the following comment:

"I suppose that's why the eurozone economy took off after 2011, while the US failed to grow. The ECB avoided our foolish QE policies, and "showed steel" by raising interest rates twice in the spring of 2011. If only we had done the same."

But Scott allowed the following bit of nonsense on Persaud's part to escape unscathed (I don't mean to be critical of Scott, there's only so much nonsense that any single person be expected to hold up to public derision):

"The slowdown in the Chinese economy has its roots in decisions made far from Beijing. In the past five years, central banks in all the big advanced economies have embarked on huge quantitative easing programmes, buying financial assets with newly created cash. Because of the effect they have on exchange rates, these policies have a "beggar-thy-neighbour" quality. Growth has been shuffled from place to place - first the US, then Europe and Japan - with one country's gains coming at the expense of another. This zero-sum game cannot launch a lasting global recovery. China is the latest loser. Last week's renminbi devaluation brought into focus that since 2010, China's export-driven economy has laboured under a 25 per cent appreciation of its real effective exchange rate."

The effect of quantitative easing on exchange rates is not the result of foreign-exchange-market intervention; it is the result of increasing the total quantity of base money. Expanding the monetary base reduces the value of the domestic currency unit relative to foreign currencies by raising prices in terms of the domestic currency relative to prices in terms of foreign currencies. There is no beggar-thy-neighbor effect from monetary expansion of this sort. And even if exchange-rate depreciation were achieved by direct intervention in the foreign-exchange markets, the beggar-thy-neighbor effect would be transitory as prices in terms of domestic and foreign currencies would adjust to reflect the altered exchange rate. As I have explained in a number of previous posts on currency manipulation (e.g., here, here, and here) relying on Max Corden's contributions of 30 years ago on the concept of exchange-rate protection, a "beggar-thy-neighbor" effect is achieved only if there is simultaneous intervention in foreign-exchange markets to reduce the exchange rate of the domestic currency combined with offsetting open-market sales to contract – not expand – the monetary base (or, alternatively, increased reserve requirements to increase the domestic demand to hold the monetary base). So the allegation that quantitative easing has any substantial "beggar-thy-nation" effect is totally without foundation in economic theory. It is just the ignorant repetition of absurd economic prejudices dressed up in high-minded sloganeering about "zero-sum games" and "beggar-thy-neighbor" effects.

And while the real exchange rate of the Chinese yuan may have increased by 25% since 2010, the real exchange rate of the dollar over the same period in which the US was allegedly pursuing a beggar thy nation policy increased by about 12%. The appreciation of the dollar reflects the relative increase in the strength of the US economy over the past 5 years, precisely the opposite of a beggar-thy-neighbor strategy.

And at an intuitive level, it is just absurd to think that China would have been better off if the US, out of a tender solicitude for the welfare of Chinese workers, had foregone monetary expansion, and allowed its domestic economy to stagnate totally. To whom would the Chinese have exported in that case?

Reply Tuesday, September 01, 2015 at 08:09 AM

Peter K. said...
http://jwmason.org/slackwire/is-capital-being-reallocated-to-high-tech-industries/

Is Capital Being Reallocated to High-Tech Industries?

by J.W. Mason
Posted on September 1, 2015

Readers of this blog are familiar with the "short-termism" position: Because of the rise in shareholder power, the marginal use of funds for many corporations is no longer fixed investment, but increased payouts in the form of dividends and sharebuybacks. We're already seeing some backlash against this view; I expect we'll be seeing lots more.

The claim on the other side is that increased payouts from established corporations are nothing to worry about, because they increase the funds available to newer firms and sectors. We are trying to explore the evidence on this empirically. In a previous post, I asked if the shareholder revolution had been followed by an increase in the share of smaller, newer firms. I concluded that it didn't look like it. Now, in this post and the following one, we'll look at things by industry.

In that earlier post, I focused on publicly traded corporations. I know some people don't like this - new companies, after all, aren't going to be publicly traded. Of course in an ideal world we would not limit this kind of analysis to public traded firms. But for the moment, this is where the data is; by their nature, publicly traded corporations are much more transparent than other kinds of businesses, so for a lot of questions that's where you have to go. (Maybe one day I'll get funding to purchase access to firm-level financial data for nontraded firms; but even then I doubt it would be possible to do the sort of historical analysis I'm interested in.) Anyway, it seems unlikely that the behavior of privately held corporations is radically different from publicly traded one; I have a hard time imagining a set of institutions that reliably channel funds to smaller, newer firms but stop working entirely as soon as they are listed on a stock market. And I'm getting a bit impatient with people who seem to use the possibility that things might look totally different in the part of the economy that's hard to see, as an excuse for ignoring what's happening in the parts we do see.

....

Reply Tuesday, September 01, 2015 at 08:11 AM

Peter K. said in reply to Peter K....
Part of the backlash Mason mentions and links to.

http://www.newyorker.com/magazine/2015/08/24/the-short-termism-myth

AUGUST 24, 2015 ISSUE

The Short-Termism Myth
BY JAMES SUROWIECKI

In recent years, it's become a commonplace that American companies are too obsessed with the short term. In the heyday of Bell Labs and Xerox PARC, the argument goes, corporations had long time horizons and invested heavily in the future. But now investors care only about quarterly earnings and short-term stock prices, so companies skimp on R. & D. and waste hundreds of billions propping up their stock with share buybacks. This "tyranny of accountants" has damaged both the long-term prospects of companies and the U.S. economy as a whole.

The latest public figure to embrace this diagnosis is Hillary Clinton. In a speech a couple of weeks ago, she unveiled a solution: changing the capital-gains tax in order to encourage investors to hold stocks longer. Right now, there are only two capital-gains categories: anything held for less than a year is short-term; anything longer is long-term. Clinton's plan, which would apply only to investors in the highest tax bracket, would expand the definition of short-term to include any investment held for less than two years, and it would create a sliding scale of rates. For every extra year (up to six) that you keep a stock, you pay a lower rate.

The political appeal of the plan is clear. It targets wealthy investors, is friendly to executives, and is aimed at getting companies to spend more money. Unfortunately, it almost certainly won't work. The simplest reason for this is that the plan would affect only a small slice of the market. Len Burman, a tax expert at the Urban Institute, told me, "The plan's unlikely to have a major impact on stock prices, since most of the money in the market is controlled by institutions that don't pay capital-gains taxes, like endowments and pension funds." Burman also made the point that pushing people to hold stocks they would rather sell is hardly conducive to productive investment. "Even if short-termism is the problem, locking people into unprofitable transactions for long periods of time doesn't really seem like a great solution," he said.

Aside from these practical problems, the plan rests on two common but ultimately questionable assumptions. The first is that corporate decision-makers care only about the short term. The second is that it's the stock market that makes them think this way. These assumptions are widely shared and long-standing, in both business and academe. A famous report from the Council on Competitiveness in the early nineties concluded that, compared with Germany and Japan, the U.S. was greatly underinvesting in the future. In 2005, the C.E.O. of Xerox, Anne Mulcahy, described the pressure from Wall Street for short-term profits as "a huge problem," and, in a survey of executives that same year, more than half said they would delay valuable new projects in order to boost short-term earnings.

That sounds pretty bad. Yet when you actually look at the numbers the story gets more complicated. There is reason to think that some companies are investing too little in the future. As a whole, though, corporate spending on R. & D. has risen steadily over the years, and has stayed relatively constant as a share of G.D.P. and as a share of sales. This year, R. & D. spending is accelerating at its fastest pace in fifty years and is at an all-time high as a percentage of G.D.P. Furthermore, U.S. companies don't spend notably less on R. & D. than their international competitors. Similarly with investors: their alleged obsession with short-term earnings is hard to see in the data. Several studies in the nineties found that companies announcing major R. & D. investments were rewarded by the markets, not punished, and that companies with more institutional investors (who typically have shorter time horizons) spent more on R. & D., not less. A 2011 Deutsche Bank study of more than a thousand companies found that those which spent significantly more on R. & D. than their competitors were more highly valued by investors. And a 2014 study of companies that cut R. & D. spending in order to meet short-term earnings goals found that their stocks underperformed after earnings had been announced-hardly what you'd expect if the market cared only about the short term.

Of course, there's no shortage of investors who are myopic. But the market, for the most part, isn't. That's why companies like Amazon and Tesla and Netflix, whose profits in the present have typically been a tiny fraction of their market caps, have been able to command colossal valuations. It's why there's a steady flow of I.P.O.s for companies with small revenues and nonexistent earnings. And it's why the biotech industry is now valued at more than a trillion dollars, even though many of the firms have yet to bring a single drug to market. None of these things are what you'd expect from a market dominated by short-term considerations.

To the extent that companies are underinvesting in the future, the blame lies not with investors but with executives. The pay of many C.E.O.s is tied to factors like short-term earnings, rather than to longer-term metrics, which naturally fosters myopia. That 2014 study of companies that cut R. & D. spending found that the executives responsible saw their pay rise sharply, even though the stock didn't. If Clinton really wants to deal with short-termism, she'd be better off targeting the way executive compensation works, instead of the way capital gains are taxed. Ultimately, the solution to short-termism isn't on Wall Street. It's in the executive suite.

Reply Tuesday, September 01, 2015 at 08:12 AM

Peter K. said...
http://www.avclub.com/article/stephen-colberts-second-week-guests-includes-berni-224697

Bernie Sanders will be on Colbert's show in the second week.

What are Sanders's views on monetary policy? He should have attended the Fed Up counter conference. Just as he should have attended black lives matter protests.

If his views on monetary policy are like Kervick's I'll be voting for Hillary.

Reply Tuesday, September 01, 2015 at 08:29 AM

Peter K. said in reply to Peter K....
Corbyn has some sophisticated, cutting edge ideas about macro policy. Here's Richard Murphy, not to be confused with the Austrian Robert Murphy.

http://www.taxresearch.org.uk/Blog/2015/08/30/corbynomics-four-weeks-on/

Corbynomics Four Weeks On

....

So, what of the most contentious one, People's Quantitative Easing? Let's break this down. For ease I will use The Economist again, but will refer to the many others who have made similar points.

First, the debate on investment has been welcomed, from the Economist, to the FT, to the Guardian and in the blogosphere: indeed, one of the criticisms is I have not made it strongly enough. As the Economist says:

"As a percentage of GDP, Britain's government investment is the seventh-lowest of 26 countries tracked by Eurostat (though it is higher than in some big economies, like Germany) and lower now than during the financial crisis."

The first success of this policy has been to put this issue back into debate.

Second, the idea of a National Investment Bank has been pretty widely welcomed. The Economist said:

"To increase investment he wants to set up a "national investment bank", which would, under government direction, spend on roads, houses and green energy. Nothing wrong with that."

Many agreed.

Third, the argument on Bank of England independence has been shown to be a red-herring. All QE has been Treasury approved: the idea that the BoE had operational control of this policy cannot be supported by any evidence.

Fourth, it has been agreed, by Chris Giles in the FT and Larry Elliott in the Guardian for example, that PQE would have made sense in 2012 when stimulus was needed. In other words, PQE could have directed funds to the real economy more effectively then than actually happened at that time. Their argument is that PQE is, however, no longer relevant because we were now growing and they assume that will continue to be the case. Technically, the case was won at that point: the argument that PQE might work was over when it was conceded it was all down to timing.

Fifth, the argument that it is not legal has lost all head wind: it's been effectively authorised in the UK and my design is Article 123 of the EU compliant. I have made clear I would expect some of the bond sales from the NIB, at least, to be held by the public, especially by pension saving institutions.

Sixth, some technical arguments on cost have been resolved: it is agreed that PQE would create new central bank reserves on which it has been conventional to pay bank rate interest, but as Adair Turner ha argued, that is just convention: there is no need to do so. Funding via PQE will then be cheaper than bond funding of the same investment and this matters when a significant part of UK gilts are owned overseas.

Seventh, the inflation argument got silly. The Telegraph turned up with the Zimbabwe argument, on cue. The fact that PQE is either clearly intended to stop if there is a risk of inflation because full employment is achieved, or would be countered (in that case only) by tax was not noticed by them. That's just indication of the poverty of their thinking. There is no serious argument on this point: PQE is another tool in the armoury to create inflation when we do not have it, and need it.

Eighth, along came China. A week after I told the FT that another recession was likely and tools to deal with it would be needed China tried to deliver one. Now, of course, we have no clue what will happen as yet on that front, but markets are down and will stay down in my view, whilst people are very worried about what will happen if the Fed and BoE are daft enough to raise rates. Whether or not they do the risk of long term export of both recession and deflation from China itself via the emerging markets looks very real indeed. In other words, the need for a new fiscal tool when all monetary options have now failed became very starkly apparent and the prescient adoption of PQE by Jeremy Corbyn began to look like a good move: even the Telegraph seemed to note that.

Ninth, Mark Carney admitted monetary policy is near enough dead yesterday. He has said real interest rates of more than 1% (that means 1% over inflation) look unlikely for a long time to come. Thirty years ago real rates could be vastly higher: they have fallen 4.5% in real terms over that period, he says. The impact is significant. He is effectively saying that the room to manage the economy using interest rates has largely disappeared. With QE also largely discredited for creating asset price hikes, fiscal policy is now the only game in town. PQE is fiscal policy, but of course not the only fiscal policy. That is why it may well be important. What else is anyone going to use when the next crisis comes when no one else has suggested anything new: they just declare the cupboard bare?

Tenth, discussion of modern monetary theory has increased as a result, and that has clearly upset those dedicated to bond financing and / or central bank control of monetary policy. This is not an academic debate: it is about whether or not unelected people and bond markets control the choices governments make. PQE is not just a technical issue: it is about making clear who is in control, and I am emphatic it must be politicians accountable to parliament who are. PQE is intended to achieve that goal. No wonder that this has become a key point of contention. This is not about economics at all, per se: it is about the politics of power and in whose interests the economy is run. Difference here is not an issue of right or wrong: it is about belief. Many have not spotted this: I make it explicit.

And last, not everyone agrees on this issue. But haven't you heard the one about asking two economists for an opinion and you will get three answers?

So, to summarise on PQE I suggest we've got somewhere near the following position:

1) Austerity can be opposed and PQE has fuelled that debate.

2) Investment is widely acknowledged to be needed. PQE delivers it.

3) A National Investment Bank is needed: PQE can help fund it

4) Private investors should not be excluded from these ideas: my suggestions on linking the NIB to pension saving as well as PQE should ensure that is possible. It also means the legality question goes away.

5) Questions of Bank of England independence have been raised but those doing so are going to have a much tougher time defending their case in future

6) Whether PQE is a policy only for recession is to be resolved: I certainly think it may have more use in that scenario but stress I do not think the state fills in the gaps left by the private sector. Sometimes it has to meet need and the curtail the private sector at the same time if social priorities are to be met. PQE and higher taxes can achieve that goal simultaneously. Those making the timing argument ignore this altogether and that is their mistake in my opinion.

7) The cost issue remains out there, although I am not sure why.

8) The bond preference issue is interesting, but is most often (but not always) used by those who have opposed their use for deficit funding, and so is in too many cases disingenuous. It also ignores the cost issue and the leakage out of the UK economy whilst still supporting the view that we are constrained by bond markets. We are not, and PQE indicates that fact. I fully admit that part of PQE is about changing narratives and power relationships and think that important.

I stress: I hope it is clear that I am listening and I do note the points made. But I also think PQE is still, very firmly, on the agenda after all that. It will change (it has already in some ways) but I can't see it going away.

No doubt omissions will be pointed out. But please keep to the arguments: I am bored by the rest.

Reply Tuesday, September 01, 2015 at 08:38 AM

im1dc said...
US ECONOMIC INDICATORS - 1h ago

"US construction spending rises 0.7% in July, reaches highest level in 7 years - @USATODAYmoney"

Reply Tuesday, September 01, 2015 at 08:31 AM

im1dc said...
FORD MOTOR COMPANY - 1h ago

"Ford senior economist Yong Yang says Chinese economic slowdown's effect on US is 'likely modest' - @NathanBomey"

see original on twitter.com

Reply Tuesday, September 01, 2015 at 08:32 AM

pgl said in reply to im1dc...
Ford has never been able to sell their cars to the Chinese before. Why start now?

Reply Tuesday, September 01, 2015 at 11:56 AM

im1dc said...
US ECONOMIC INDICATORS - 1h ago

"Dow Jones average sinks 300* points in early trading following weak China manufacturing data - @AP"

*323 points as I type this

Reply Tuesday, September 01, 2015 at 08:34 AM

im1dc said in reply to im1dc...
I don't think the China Data had anything much to do with this mornings weakness. It is more probable that this weekends bullish statements by FedRes member Stanley Fischer and other Interest Rate Hawks that put the notion of a September interest rate hike in play again caused market bulls to sell instead of buy in an effort to jiggle their portfolios with more cash and less exposure to volatile equities in a raising interest rate environment.

That's just me thinking out loud.

Reply Tuesday, September 01, 2015 at 08:39 AM

pgl said in reply to im1dc...
Yep - Stanley Fischer took some chocolate coins from JohnH, ate them, and then made JohnH happy by talking about higher interest rates. Stock values down - JohnH applauds, real GDP down - JohnH applauds. Inflation may fall - JohnH's 80 year old girl friend is getting all happy.

Reply Tuesday, September 01, 2015 at 11:58 AM

im1dc said...
A major trading partner of the US is and will be buying less from us for awhile

I do not understand the FedRes rush to raise Interest Rates under weaker global economic conditions given that the USA is doing well but obviously has limited upside until a global economic drivers return.

CANADA - 3h ago

"Canada slumps into technical recession after 2nd consecutive quarterly contraction of GDP - @CBCAlerts"

Reply Tuesday, September 01, 2015 at 08:44 AM

pgl said in reply to im1dc...
Canada does buy more from us than China. This is worrisome.

Reply Tuesday, September 01, 2015 at 11:59 AM

im1dc said...
Update re EL NIÑO

Growing up in SF Bay Area EL NIÑO was a friendly force of nature. Will have to wait and see if that friendly force has returned or not.

EL NIÑO - 3h ago

"El Niño weather conditions to strengthen before the end of 2015, UN weather agency says - @Reuters"

Reply Tuesday, September 01, 2015 at 08:47 AM

pgl said in reply to im1dc...
Let it rain!!!

Reply Tuesday, September 01, 2015 at 11:59 AM

im1dc said...
US Construction up, car sales not so much

So the pendulum swings to neutral?

HONDA - 2m ago

"Honda US sales down 6.9% in August; Honda Division down 7.5%, Acura down 1-1% - @Automotive_News"

Reply Tuesday, September 01, 2015 at 08:59 AM

im1dc said in reply to im1dc...
US auto sales top expectations in August - expect this to be to due fleet sales not individual sales as with Honda

AUTO INDUSTRY - 31m ago

"US auto sales top expectations in August; Fiat Chrysler sales rise 1.7%, Ford 5.4%, General Motors slips 0.7% - @forbes"

read more on forbes.com

Reply Tuesday, September 01, 2015 at 09:49 AM

im1dc said...
Everyone reading these emails will see Hillary Clinton and her team as the best of the best in DEM policy, realpolitik, and analysis, and therefore the best person for President in 2016.

The import of Tumulty's article is that it fully comports with and lends substantial real-time inner circle proofs to Ron Suskind's "Confidence Men" take of the first term of the Obama presidency. I hope you all read it when I recommended it earlier this year.

Hillary Clinton and her team have been and are far better analysts, strategists, and Policy makers than President Obama and his team were through 2011.

Read the emails for yourself:

http://www.washingtonpost.com/news/post-politics/wp/2015/09/01/within-clintons-circle-resentments-against-obama-persisted-for-years/

"Within Clinton's circle, resentments against Obama persisted for years"

By Karen Tumulty...September 1, 2015...10:00 AM

"Within Hillary Clinton's inner circle, resentment over her defeat by President Obama in the bitter 2008 Democratic primary festered well into his presidency, as evidenced by a string of e-mails from one of her most frequent correspondents, who often passed along unflattering reports about Obama.

In the latest trove of her emails, released late Monday night, Clinton confidant Sidney Blumenthal frequently makes subtle and not-so-subtle digs..."

Reply Tuesday, September 01, 2015 at 09:32 AM

Fred C. Dobbs said...
Between Iraq and a Hawk Base
http://nyti.ms/1JzngLJ
NYT magazine - ROBERT DRAPER - SEPT. 1

GOP presidential candidates struggle to craft a foreign
policy that can please the gung-ho and win in 2016 -
without overpromising military force.

The first sign that the Republican Party's 17 presidential candidates might have trouble explaining what a conservative foreign policy should look like - beyond simply saying that it should not look like Barack Obama's - emerged on May 10. That's when the Fox News host Megyn Kelly asked Jeb Bush a rather predictable question about the Iraq war: ''Knowing what we know now, would you have authorized the invasion?''

Bush said yes. Shortly after that, he said that he had misheard the question; later, that the question was hypothetical and thus unworthy of an answer; and finally, upon further review, that he in fact would not have authorized the invasion. The jittery about-face suggested that Bush had spent little, if any, time digesting the lessons of the war that defines his older brother's presidency.
The shadow that George W. Bush's foreign policy casts over Jeb Bush's quest for the White House is particularly prominent. But it also looms over the entire G.O.P. field, reminding the candidates that though Republican voters reject what they see as Obama's timid foreign policy, the public has only so much appetite for bellicosity after more than a decade spent entangled in the Middle East. At some point, even the most conservative of voters will demand an answer to the logical corollary of Megyn Kelly's question: How does a president project American strength while avoiding another Iraq?

Among the many advisers recruited to help Jeb Bush answer that question is Richard Fontaine, the president of the Center for a New American Security, a policy group based in Washington. Fontaine was a senior foreign-policy adviser for Senator John McCain's 2008 presidential campaign, where he first learned that winning over voters was a radically different task from those he navigated during his career in the Bush administration. ''Diplomacy is about minimizing differences,'' he told me. '' 'Pol Pot and the Pope - surely there's something they can agree on.' A political campaign is exactly the opposite. It's about taking a minor difference and blowing it up into something transcendent.''

Watching Jeb Bush flub the Iraq question confirmed a theory about that war and its unheeded lessons that Fontaine had been nurturing for several months. In February, he co-wrote an essay in Politico Magazine arguing that Congress should not authorize Obama to use military force against ISIS until it had done the kind of due diligence that Congress utterly failed to do before authorizing Bush to invade Iraq in 2002. In response to the essay, Fontaine said, many of his peers acknowledged to him ''that there actually hasn't been a lot of thinking on this from the entire foreign-policy establishment other than the knee-jerk 'Well, we're never gonna do that again.' ''

Fontaine, who is 40, Clark Kentish in appearance and wryly self-deprecating in conversation, has been doing quite a bit of thinking on the matter of Iraq. He worked in the State Department as well as the National Security Council during the first year of the Iraq war before signing on as McCain's foreign-policy aide in 2004. Over the next five years, he and McCain traveled to Iraq 10 times. His boss had been one of the loudest advocates of toppling Saddam Hussein and then one of the most candidly chagrined observers when the war effort began to crumble before his eyes. ''We'd been running this experiment from 2003 to the end of 2006 of trying to make political changes in Iraq and hoping this would positively influence the security,'' Fontaine recalled. ''It only got worse and worse. Things got to the point where there was no political or economic activity in the country, because the violence was so bad.''

The troop surge in 2007 succeeded in stabilizing the country. By then, however, Americans were weary of military aggression. In 2008, they elected president a one-term U.S. senator who had consistently opposed the war in Iraq and vowed to end it so he could devote most of his attention to a foundering economy. Four years later, the electorate awarded Obama a second term, with the same priorities in mind. Exit polls showed that 60 percent of voters regarded the economy as the predominant issue in 2012, while a mere 4 percent cited foreign affairs as their chief voting issue.

Three years later, this has changed - especially for Republican voters, who, according to several polls, now say national security rivals the economy as a foremost concern. Several factors explain this. While the economy has continued to improve, the Obama administration has watched with seeming helplessness as ISIS dominates swaths of Iraq and Syria while beheading American hostages; as Iran threatens to make good on its nuclear ambitions unless the United States agrees to lift sanctions; as Vladimir Putin reasserts Russian primacy by invading the Crimean Peninsula; and as China spreads its influence across Asia and Africa. These and other developments have revived concerns that the United States has become dangerously weaker under a Democratic president, one whose first secretary of state happens to be the apparent favorite for that party's presidential nomination.

The swaggering rhetoric of Donald Trump, the current Republican front-runner, seems deftly calibrated to reflect the mood of a G.O.P. base spoiling for fights abroad. According to a Quinnipiac University poll in July, 72 percent of registered Iowa Republican voters (where the first contest for presidential delegates will be held early next year) favor sending American ground troops into Syria and Iraq to fight ISIS. In August, Quinnipiac found that 86 percent of all Republicans opposed the Iran nuclear deal. ...

Reply Tuesday, September 01, 2015 at 09:40 AM

Fred C. Dobbs said in reply to Fred C. Dobbs...
Why the 2007 surge in Iraq actually failed http://www.bostonglobe.com/opinion/2014/11/17/why-surge-iraq-actually-failed-and-what-that-means-today/0NaI9JrbtSs1pAZvgzGtaL/story.html?event=event25 via @BostonGlobe
Alex Kingsbury - November 17, 2014

"We had it won, thanks to the surge. It was won." - John McCain, Sept. 11, 2014

The goals of the Iraq surge were spelled out explicitly by the White House in Jan. 2007: Stop the raging sectarian bloodletting and reconcile Sunnis, Shiites, and Kurds in the government. "A successful strategy for Iraq goes beyond military operations," then-President George W. Bush said.

In light of all that has happened since that announcement, it is jaw-dropping to still hear the surge described as a success. Yet the myth of its success is as alive as it is dangerous. It's a myth that prevents us from grappling with the realities of the last effort in Iraq, even as we embark on another.

To believe in the myth of the surge is to absolve Iraqis of their responsibility to resolve their differences. It gives the US government an unrealistic sense of its own capabilities. And it ignores the roots of the conflict now stretching from Damascus to Baghdad. ...

For Americans, the myth of the victorious surge is so seductive because it perpetuates an illusion of control. It frames the Iraq War as something other than a geostrategic blunder and remembers our effort as something more than a stalemate. What's more, it reinforces the notion that it's possible to influence events around the world, if only military force is deployed properly. It's a myth that makes victory in the current Iraq mission appear achievable.

Dispelling the myth of the successful surge begins by measuring it against its own metrics for success: violence and reconciliation.

There is far too little written on the Iraqi perspective, but their evaluation of the surge is illustrative: In 2008, only 4 percent of Iraqis said additional US forces were responsible for the decline in violence. They know their own country well.

Violence in Iraq began to decline before the surge started. Civilian deaths peaked in July 2006, at more than 3,250 per month, a full six months before the surge policy was even announced. This was the result of many factors, including the completion of the ethnic cleansing of Baghdad's neighborhoods. Some 80 percent of the casualties in the Iraqi civil war pre-surge occurred within 30 miles of Baghdad. ...

Reply Tuesday, September 01, 2015 at 10:46 AM

ilsm said in reply to Fred C. Dobbs...
The Iraq surge [like Vietnam versions] was as successful as US "victory" in Tet '68 and the next year Tet II.

Neither made it so the Iraqis would be nice to each other.

Bombing and trillions from poor kids and the elderly cannot make it so US boys can do it for them when they want ISIS.

Reply Tuesday, September 01, 2015 at 05:07 PM

anne said...
http://techscience.org/a/2015081104/

August 11, 2015

Larger Issuers, Larger Premium Increases: Health insurance issuer competition post-ACA
By Eugene Wang and Grace Gee

Abstract

The Patient Protection and Affordable Care Act (ACA) has substantially reformed the health insurance industry in the United States by establishing health insurance marketplaces, also called health exchanges, to facilitate the purchase of health insurance. The ACA has increased transparency in insurance pricing and in issuer pricing behavior. Using 2014 and 2015 Unified Rate Review (URR) data, this study examines changes in health insurance premiums made by individual health insurance issuers in 34 federally facilitated and state-partnership health insurance exchanges.

Results summary

Our study shows that the largest issuer in each marketplace had a 75% higher premium increase from 2014 to 2015 compared to other same-state issuers. On average, the largest issuers raised rates by 23.9%, while the other issuers only raised rates by 13.7%. Moreover, the largest issuers' premium increase affects a larger proportion of plans and do not seem justified from the standpoint of incurred claims-to-premium ratio. Projected Index Rate from the rate review process is used as a summary of an issuer's premiums across different plans and Projected Member Months as a proxy for on-exchange market share. Our findings suggest that even after the Affordable Care Act, the largest on-exchange issuers may be in a better position to practice anti-competitive pricing compared to their same-state counterparts.

Reply Tuesday, September 01, 2015 at 09:43 AM

im1dc said...
ISIL will not like this nor will Turkey, Iran, Iraq, SA, Emirates, et. al., Islam Consersatives

http://news.discovery.com/history/religion/fragments-of-worlds-oldest-koran-may-predate-muhammad-150901.htm

"Fragments of World's Oldest Koran May Predate Muhammad"

by FoxNews.com/Science...Sep 1, 2015...09:10 AM ET

"British scholars have suggested that fragments of the world's oldest known Koran, which were discovered last month, may predate the accepted founding date of Islam by the Muslim prophet Muhammad.

The Times of London reported that radiocarbon dating carried out by experts at the University of Oxford says the fragments were produced between the years 568 A.D. and 645 A.D. Muhammad is generally believed to have lived between 570 A.D. and 632 A.D. The man known to Muslims as The Prophet is thought to have founded Islam sometime after 610 A.D., with the first Muslim community established at Medina, in present-day Saudi Arabia, in 622 A.D.

"This gives more ground to what have been peripheral views of the Koran's genesis, like that Muhammad and his early followers used a text that was already in existence and shaped it to fit their own political and theological agenda, rather than Muhammad receiving a revelation from heaven," Keith Small of Oxford's Bodleian Library told the Times.

The two sheets of Islam's holy book were discovered in a library at the University of Birmingham in England, where they had been mistakenly bound in a Koran dating to the seventh century. They were part of a collection of 3,000 Middle Eastern texts gathered in Iraq in the 1920s.

Muslims scholars have disputed the idea that the Birmingham Koran predates Muhammad, with Mustafa Shah of the University of London's School of Oriental and African Studies telling the Times: "If anything, the manuscript has consolidated traditional accounts of the Koran's origins."

The first known formal text of the Koran was not assembled until 653 A.D. on the orders of Uthman, the third caliph, or leader of the Muslim community after Muhammad's death. Before that, however, fragments of the work had circulated through oral tradition, though parts of the work had also been written down on stones, leaves, parchment and bones. The fragments of the Birmingham Koran were written on either sheepskin or goatskin.

Small cautioned that the carbon dating was only done on the parchment in the fragments, and not the actual ink, but added "If the dates apply to the parchment and the ink, and the dates across the entire range apply, then the Koran - or at least portions of it - predates Mohammed, and moves back the years that an Arabic literary culture is in place well into the 500s."

Reply Tuesday, September 01, 2015 at 09:45 AM

Fred C. Dobbs said in reply to im1dc...
A Find in Britain: Quran Fragments Perhaps
as Old as Islam http://nyti.ms/1VtMTns
NYT - DAN BILEFSKY - JULY 22, 2015

LONDON - The ancient manuscript, written on sheep or goat skin, sat for nearly a century at a university library, with scholars unaware of its significance.

That is, until Alba Fedeli, a researcher at the University of Birmingham studying for her doctorate, became captivated by its calligraphy and noticed that two of its pages appeared misbound alongside pages of a similar Quranic manuscript from a later date.

The scripts did not match. Prodded by her observations, the university sent the pages out for radiocarbon testing.

On Wednesday, researchers at the University of Birmingham revealed the startling finding that the fragments appeared to be part of what could be the world's oldest copy of the Quran, and researchers say it may have been transcribed by a contemporary of the Prophet Muhammad. ...

Birmingham Qur'an manuscript dated
among the oldest in the world
http://www.birmingham.ac.uk/news/latest/2015/07/quran-manuscript-22-07-15.aspx

Reply Tuesday, September 01, 2015 at 10:03 AM

im1dc said...
A look at today's business climate. Doesn't seem to shout 'time to raise interest rates' to me.

http://money.cnn.com/2015/09/01/investing/stocks-plunge-china/index.html?section=money_latest

"Uh-oh! Dow falls 400 points on more China fears
CNN" - ‎2 hours ago‎

http://www.wsj.com/articles/china-boosts-efforts-to-keep-money-at-home-1441120882

"China Boosts Efforts to Keep Money at Home"
Wall Street Journal - ‎22 minutes ago‎

http://www.bloomberg.com/news/articles/2015-09-01/dollar-tree-falls-after-sales-forecast-lags-analysts-estimates

"Dollar Tree Shares Fall as Sales Forecast Trails Estimates" Bloomberg - ‎1 hour ago‎

and

http://www.wsj.com/articles/ism-manufacturing-index-falls-to-51-1-in-august-1441116755

"ISM Manufacturing Index Falls in August"
Wall Street Journal - ‎51 minutes ago‎

Reply Tuesday, September 01, 2015 at 09:54 AM

Fred C. Dobbs said...
Specialists see no criminal
trouble for Clinton in e-mail flap http://www.bostonglobe.com/news/nation/2015/08/31/legal-specialists-see-criminal-trouble-for-clinton-thus-far/aSX8r2PtvCdCz26sDVpqaK/story.html?event=event25 via @BostonGlobe
Ken Dilanian - AP - September 1, 2015

WASHINGTON - Specialists in government secrecy law see almost no possibility of criminal action against Hillary Rodham Clinton or her top aides in connection with now-classified information sent over unsecure e-mail while she was secretary of state, based on the public evidence thus far.

Some Republicans, including leading GOP presidential candidate Donald Trump, have called Clinton's actions criminal and compared her situation to that of David Petraeus, the former CIA director who was prosecuted after giving top secret information to his paramour. Others have cited the case of another past CIA chief, John Deutch, who took highly classified material home.

But in both of those cases, no one disputed that the information was highly classified and in many cases top secret. Petraeus pleaded guilty to a misdemeanor; Deutch was pardoned by President Bill Clinton.

By contrast, there is no evidence of e-mails stored in Hillary Clinton's private server bearing classified markings. State Department officials say they don't believe that e-mails she sent or received included material classified at that time. And even if other government officials dispute that assertion, it is extremely difficult to prove anyone knowingly mishandled secrets.

''How can you be on notice if there are no markings?'' said Leslie McAdoo, a lawyer who frequently handles security-clearance cases.
The State Department posted 4,368 documents totaling 7,121 pages online Monday night.

Parts of several e-mails, however, have subsequently been declared classified.

On Monday, the State Department released a batch of about 7,000 e-mails - the largest such release to date. Those include about 150 that have been partially or entirely censored because the State Department determined they contain classified material.

Department officials said the redacted information was classified in preparation for the public release of the e-mails and not identified as classified at the time Clinton sent or received the messages. All the censored material in the latest group of e-mails is classified at the ''confidential'' level, not at higher ''top secret'' or compartmentalized levels, they said.

Still, the increasing amounts of blacked-out information from Clinton's e-mail history as secretary of state will surely prompt additional questions about her handling of government secrets while in office and that of her most trusted advisers.

The Democratic presidential front-runner now says her use of a home e-mail server for government business was a mistake, and government inspectors have pointed to exchanges that never should have been sent via unsecured channels.

Reply Tuesday, September 01, 2015 at 09:56 AM

im1dc said in reply to Fred C. Dobbs...
NPR this morning said it more simply this way, Hillary Clinton's emails were not Classified until well AFTER she read them, not when she read them, thus there is no there there for Boehner and the Boys of the Incompetent GOPster Hater Inner Circle to use against her.

Nor for FOXNews, Rush Limbaugh, Mark Levine, Savage et. al., although that will not stop them all from claiming otherwise or for Republican Congressmen blaming her, calling her a traitor, and unfit for the presidency.

The Republican Party's Propaganda Spin machine does not let facts stand in the way of their rhetorical smears, hate speech, or nonsensical idiotic diatribes.

Reply Tuesday, September 01, 2015 at 11:03 AM

Fred C. Dobbs said in reply to im1dc...
So you would say it's ok for the
most senior State Dept official
to ignore rules that require e-mail
activity to be conducted on servers
under government control.

Ok, fair enough. Such bad judgment
should not preclude being president.

Or maybe it's mandatory to hold the office.

Reply Tuesday, September 01, 2015 at 12:28 PM

im1dc said in reply to Fred C. Dobbs...
Perhaps bad official administrative judgment for junior officials and those not running for president one day, however no rules were broken and no classified emails sent or received.

If Hillary Clinton had departed from prior SoS behavior her own State Dept would have told her to use the .gov server or the White House, which did know about but chose to ignore her use of her own email account, would have enforced the administrative rule to use .gov.

But FAR more importantly as SoS she knew her emails would become political football if she were to run for president so she kept them away from the prying eyes of her foes.

I think her decision to use her own email server and keep absolute control over her personal correspondence, so prying eyes of foes could not see, was both politically smart and shows elite Presidential temperament, i.e., 'badges, I don't need no stinkin' badges'.

Reply Tuesday, September 01, 2015 at 01:12 PM

ilsm said in reply to Fred C. Dobbs...
Fred I was a US gumint guy for years (overlapped Hil's time at State) never heard of any rule about not using my home computer.......

Bad judgment seems to be a required trait of thuggie presidents since Nixon.

Wonder where the e-mails of Iran Contra went?

Oh yeah North was a Marine not techie.

Reply Tuesday, September 01, 2015 at 05:12 PM

Fred C. Dobbs said in reply to im1dc...
Clinton private email violated
'clear-cut' State Dept. rules - March 2015
http://www.politico.com/story/2015/03/state-department-email-rule-hillary-clinton-115804

The State Department has had a policy in place since 2005 to warn officials against routine use of personal email accounts for government work, a regulation in force during Hillary Clinton's tenure as secretary of state that appears to be at odds with her reliance on a private email for agency business, POLITICO has learned.

The policy, detailed in a manual for agency employees, adds clarity to an issue at the center of a growing controversy over Clinton's reliance on a private email account. Aides to Clinton, as well as State Department officials, have suggested that she did nothing inappropriate because of fuzzy guidelines and lack of specific rules on when and how official documents had to be preserved during her years as secretary. ...

http://www.state.gov/documents/organization/88404.pdf

Reply Tuesday, September 01, 2015 at 07:32 PM

anne said...
http://www.cepr.net/blogs/beat-the-press/washington-post-ed-board-federal-reserve-board-cultists

September 1, 2015

Washington Post Editorial Board: Federal Reserve Board Cultists

It's always dangerous when followers of an insular cult gain positions of power. Unfortunately, that appears to be the case with the Washington Post editorial board * and the Federal Reserve Board Cultists.

The Federal Reserve Board Cultists adhere to a bizarre belief that the 19 members (12 voting) of the Federal Reserve Board's Open Market Committee (FOMC) live in a rarified space where the narrow economic concerns of specific interest groups don't impinge on their thinking. According to the cultists, when the Fed sits down to decide on its interest rate policy they are acting solely for the good of the country.

Those of us who live in the reality-based community know that the Fed is hugely responsive to the interests of the financial sector. There are many reasons for this. First, the twelve Fed district banks are largely controlled by the banks within the district, which directly appoint one third of the bank's directors. The presidents of these banks occupy 12 of the 19 seats (5 of the voting seats) on the FOMC.

The seven governors of the Fed are appointed by the president and approved by Congress, but even this group often has extensive ties to the financial industry. For example, Stanley Fischer, the current vice-chair, was formerly a vice-chair of Citigroup.

The third main reason why the Fed tends to be overly concerned with the interests of the financial sector is that its professional staffers are often looking to get jobs in the sector. While jobs at the Fed are well-paying, staffers can often earn salaries that are two or three times higher if they take their expertise to a bank or other financial firm. As economic theory predicts, this incentive structure pushes them toward viewpoints that often coincide with those of the industry.

The net effect of these biases is that the Fed tends to be far more concerned about the inflation part of its mandate rather than the high employment part, even though under the law the two goals symmetric. If the Fed tightens too much and prevents hundreds of thousands or even millions of workers from getting jobs, most of the top staff would not be terribly troubled and it is unlikely anyone would suffer in their careers. On the other hand, if they allowed the inflation rate to rise to 3.0 percent, it is likely that many top officials at the Fed would be very troubled.

There is very little basis in economic research for maintaining that a stable 3.0 inflation rate is more costly to the country that having 1 million people being needlessly unemployed, but the view coming from the Fed is that the former is much worse than the latter. The Fed cultists at the Washington Post and elsewhere want us to just accept that this is the way the world works. It's not surprising that some folks don't quite see it that way.

* https://www.washingtonpost.com/opinions/the-federal-reserves-independence-is-a-strength/2015/08/31/511a3932-5010-11e5-933e-7d06c647a395_story.html

-- Dean Baker

Reply Tuesday, September 01, 2015 at 10:38 AM

im1dc said in reply to anne...
"Federal Reserve Cultists"

Loved every word of Dean Baker's glimpse behind the curtain at the Federal Reserve.

He is 100% SPOT ON.

Reply Tuesday, September 01, 2015 at 10:54 AM

im1dc said...
NYMEX Crude Oil off 7%

http://www.marketwatch.com/investing/future/crude%20oil%20-%20electronic

"Crude Oil - Electronic (NYMEX) Oct 2015"

NMN: CLV5

$45.67...Change -3.53... -7.18%

Market still open

Reply Tuesday, September 01, 2015 at 10:50 AM

im1dc said in reply to im1dc...
@ 2:36p

"Oct. oil drops $3.79, or 7.7%, to settle at $45.41/bbl on Nymex"

Lost most of its gain from Monday.

Reply Tuesday, September 01, 2015 at 11:39 AM

im1dc said...
Dow Indu close 16,058 -470 ... 2.84%

The squirrels were putting up nuts for winter's storms.

Reply Tuesday, September 01, 2015 at 01:16 PM

Fred C. Dobbs said in reply to im1dc...
(Thank you sir, may I have another.)

Kevin Bacon - Animal House
https://youtu.be/qdFLPn30dvQ

'The stock market's losses in August may be foreshadowing more declines in September, if history is any guide. ...

In the 11 instances since 1945 when the S&P 500 fell more than 5% in August, September returns were negative 80% of the time, averaging a decline of 4%, said Sam Stovall, U.S. equity strategist at S&P Capital IQ.' ...

History points to more pain on Wall Street
in September http://on.mktw.net/1PH9N61

Reply Tuesday, September 01, 2015 at 03:47 PM

im1dc said...
How to capture pervasive scientific fraud in the Health Care Industry in an econ model?

http://www.marketwatch.com/story/amgen-finds-data-falsified-in-obesity-diabetes-study-featuring-grizzly-bears-2015-09-01-121032242

"Amgen finds data falsified in obesity-diabetes study featuring grizzly bears"

By Jonathan D. Rockoff...Sept 1, 2015...12:23 p.m. ET

"A scientific paper that had captured widespread attention because its subjects were massive grizzly bears was retracted on Tuesday after one of the authors was said to have manipulated some of the data.

The paper attracted news coverage around the world after its publication in August 2014 in the journal Cell Metabolism, which put on its cover an image of a grizzly bear clutching a fish between its jaws.

The paper discussed how grizzly bears' metabolisms adjust to hibernation, and the key role of a certain fat protein, which offered a clue to a new kind of treatment for diabetes. Biotech Amgen Inc. was working on the bear research to get a better grip on the biology behind diseases like obesity and diabetes.

But Amgen AMGN, +0.71% said it discovered late last year, in reviewing the computer files of one of its researchers, that some experimental data cited in the Cell Metabolism paper had been changed in a way the company said made some of the results look stronger.

Amgen and its collaborators at Washington State University and the University of Idaho said they quickly asked Cell Metabolism for a retraction. The journal then reviewed the matter, resulting in the paper's retraction."

Reply Tuesday, September 01, 2015 at 01:25 PM

im1dc said...
Boston Fed agrees with me, do not raise in September

http://www.wsj.com/articles/feds-rosengren-global-economic-weakness-argues-for-rate-rise-caution-1441127405

"Fed's Rosengren: Global Economic Weakness Argues for Rate Rise Caution"

'Boston Fed president says global weakness makes reaching 2% inflation more difficult'

By Michael S. Derby...Sept. 1, 2015...2:45 p.m. ET

"NEW YORK-Federal Reserve Bank of Boston President Eric Rosengren said Tuesday that global turmoil argues in favor of being cautious about starting the process to normalize monetary policy, in a speech that emphasized central-bank interest-rate increases likely would come at a slow pace.

"Indications of a much weaker global economy would at least increase the uncertainty surrounding policy makers' economic growth and inflation forecasts," and that could affect how officials should proceed in boosting the Fed's target off its current near zero levels, Mr. Rosengren said in a speech given to an economists' group here..."

Reply Tuesday, September 01, 2015 at 01:35 PM

im1dc said...
It is official, Mickey D's is rolling out breakfast all day1

http://www.wsj.com/articles/mcdonalds-set-to-offer-all-day-breakfast-1441134058

"McDonald's Set to Offer All-Day Breakfast"

'National rollout marks company's biggest initiative in 6 years, will require menu changes'

By Julie Jargon...Sept. 1, 2015...3:00 p.m. ET

"McDonald's Corp. is embarking on its biggest operational change in years as it tries to juice flagging sales, with plans to offer breakfast items all-day at its more than 14,300 U.S. restaurants starting Oct. 6.

The move to all-day breakfast, which McDonald's has been testing since March, was approved in a vote by franchisees last week and affirmed on Tuesday by a franchisee leadership council, the company said..."

Reply Tuesday, September 01, 2015 at 01:37 PM

ilsm said in reply to im1dc...
Lovin' it...... (not me my cardiologist!)

Reply Tuesday, September 01, 2015 at 05:14 PM

im1dc said...
Well it isn't secret anymore WaPo...what the hell is wrong with the MSM?

Fight against Islamic State militants - 1h ago

"CIA, US special operations forces launch secret campaign to hunt terrorism suspects in Syria - @washingtonpost"

Read more on washingtonpost.com

Reply Tuesday, September 01, 2015 at 02:54 PM

im1dc said in reply to im1dc...
"U.S. Makes Secret ISIS Drone Program"

Turns out to be a Drone program. Drone programs are all secret until they kill someone.

Reply Tuesday, September 01, 2015 at 03:09 PM

ilsm said in reply to im1dc...
Sending US spooks to hunt former Protege's.

Reply Tuesday, September 01, 2015 at 05:16 PM

im1dc said...
Due to crude oil's low prices jobs go missing in the USA, 500 in Houston, TX all good paying jobs in the oil sector

http://www.fox26houston.com/home/14925423-story

"By: Carolina Sanchez...Sep 01 2015...02:40PM CDT

"ConocoPhillips announced on Tuesday that it expects to cut 10% of its global workforce.

The largest percentage of the layoffs will be in North America.

Currently, the global company employs around 18,000 people.

ConocoPhillips employs 3,753 workers in Houston. The expected reductions will be more than 500 of our Houston employees.

In a statement the company said it took several steps to strengthen its position but ultimately decided workforce reductions were needed.

Read part of the statement below:

"We have taken several significant steps as a company to strengthen our position, including reducing our capital spending and future deepwater exploration program. However, the workforce reductions are necessary to become a stronger, more competitive company."

Reply Tuesday, September 01, 2015 at 02:59 PM

im1dc said...
Original thinking or wishful thinking?

http://www.thedailybeast.com/articles/2015/08/31/petraeus-use-al-qaeda-fighters-to-beat-isis.html

"Petraeus: Use Al Qaeda Fighters to Beat ISIS"

by Shane Harris & Nancy A. Youssef...08.31.15...9:00 PM ET

'To take down the so-called Islamic State in Syria, the influential former head of the CIA wants to co-opt jihadists from America's arch foe.'

"Members of al Qaeda's branch in Syria have a surprising advocate in the corridors of American power: retired Army general and former CIA Director David Petraeus.

The former commander of U.S. forces in Iraq and Afghanistan has been quietly urging U.S. officials to consider using so-called moderate members of al Qaeda's Nusra Front to fight ISIS in Syria, four sources familiar with the conversations, including one person who spoke to Petraeus directly, told The Daily Beast..."

Reply Tuesday, September 01, 2015 at 03:07 PM

Fred C. Dobbs said in reply to im1dc...
Could be he's looking for a
job as a jihadist commander.

Can the US Use al Qaeda Fighters to Defeat ISIS? David Petraeus Has a Plan http://www.thefiscaltimes.com/2015/09/01/Can-US-Use-al-Qaeda-Fighters-Defeat-ISIS-David-Petraeus-Has-Plan

Reply Tuesday, September 01, 2015 at 05:04 PM

ilsm said in reply to im1dc...
A new surge from the guy who sold the last mistake.

Like arming VC to fight NVA!

Reply Tuesday, September 01, 2015 at 05:17 PM

ilsm said in reply to ilsm...
Hahhhh!, Haaaqaa!

No regrets!

US already doing this recruiting Sunnis to fight Sunnis ISIS.

They have a few hundred 'recruits'.

Obama already tried it to quiet Iraq down to get out: guns and money to Sunni tribes in Mosul, Tikrit and Fallujah. All of it ended up going to ISIS.

I sold my war bonds in the 80's seeing how Reagan was tossing money out the door in cargo planes.

No regrets there.

Reply Tuesday, September 01, 2015 at 05:21 PM

im1dc said in reply to im1dc...
OK, it is a bad idea!

Reply Tuesday, September 01, 2015 at 06:52 PM

anne said...
https://personal.vanguard.com/us/funds/vanguard/all?sort=name&sortorder=asc#hist=upperTB%3ApyldTBI%3A%3AlowerTB%3AdailyTBI

September 1, 2015

The 3 month Treasury interest rate is at 0.03%, the 2 year Treasury rate is 0.70%, the 5 year rate is 1.48%, while the 10 year is 2.17%.

The Vanguard Aa rated short-term investment grade bond fund, with a maturity of 3.1 years and a duration of 2.6 years, has a yield of 1.83%. The Vanguard Aa rated intermediate-term investment grade bond fund, with a maturity of 6.4 years and a duration of 5.5 years, is yielding 2.77%. The Vanguard Aa rated long-term investment grade bond fund, with a maturity of 22.3 years and a duration of 13.1 years, is yielding 4.09%. *

The Vanguard Ba rated high yield corporate bond fund, with a maturity of 5.3 years and a duration of 4.3 years, is yielding 5.60%.

The Vanguard unrated convertible corporate bond fund, with an indefinite maturity and a duration of 5.9 years, is yielding 1.79%.

The Vanguard A rated high yield tax exempt bond fund, with a maturity of 16.2 years and a duration of 6.3 years, is yielding 2.87%.

The Vanguard Aa rated intermediate-term tax exempt bond fund, with a maturity of 8.7 years and a duration of 4.9 years, is yielding 1.78%.

The Vanguard Government National Mortgage Association bond fund, with a maturity of 6.5 years and a duration of 4.3 years, is yielding 2.22%.

The Vanguard inflation protected Treasury bond fund, with a maturity of 8.5 years and a duration of 8.1 years, is yielding 0.27%.

* Vanguard yields are after cost. Federal Funds rates are no more than 0.25%.

Reply Tuesday, September 01, 2015 at 04:55 PM

anne said...
http://www.multpl.com/shiller-pe/

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015

(Standard and Poors Composite Stock Index)

September 1, 2015 PE Ratio ( 24.27)

Annual Mean ( 16.62)
Annual Median ( 16.01)

-- Robert Shiller

Reply Tuesday, September 01, 2015 at 04:55 PM

anne said...
http://www.multpl.com/s-p-500-dividend-yield/

Dividend Yield, 1881-2015

(Standard and Poors Composite Stock Index)

September 1, 2015 Div Yield ( 2.19)

Annual Mean ( 4.40)
Annual Median ( 4.34)

-- Robert Shiller

Reply Tuesday, September 01, 2015 at 04:55 PM

im1dc said...
5 months in a row

Hong Kong - 41m ago

"Hong Kong retail sales decline for 5th month amid fewer tourist arrivals and stock market turmoil - @SCMP_News"

Read more on scmp.com

[Sep 03, 2015] The Dangerous Separation of the American Upper Middle Class

Sep 03, 2015 | Economist's View

Richard Reeves at Brookings:

The dangerous separation of the American upper middle class: The American upper middle class is separating, slowly but surely, from the rest of society. This separation is most obvious in terms of income-where the top fifth have been prospering while the majority lags behind. But the separation is not just economic. Gaps are growing on a whole range of dimensions, including family structure, education, lifestyle, and geography. Indeed, these dimensions of advantage appear to be clustering more tightly together, each thereby amplifying the effect of the other.

In a new series of Social Mobility Memos, we will examine the state of the American upper middle class: its composition, degree of separation from the majority, and perpetuation over time and across generations. Some may wonder about the moral purpose of such an exercise. After all, what does it matter if those at the top are flourishing? To be sure, there is a danger here of indulging in the economics of envy. Whether the separation is a problem is a question on which sensible people can disagree. The first task, however, is to get a sense of what's going on.

Skipping the extensive analysis covering:

"We are the 80 percent!" Not quite the same ring as "We are the 99 percent!" ...

Defining the upper middle class...

Upper middle class incomes: on the up...

"Where did you get your second degree?" The upper middle class and education...

Families, marriage and social class...

Voting and Attitudes...

The conclusion is:

Conclusion The writer and scholar Reihan Salam has developed some downbeat views about the upper middle class. Writing in Slate, he despairs that "though many of the upper-middle-class individuals I've come to know are good, decent people, I've come to the conclusion that upper-middle-class Americans threaten to destroy everything that is best in our country."

Hyperbole, of course. But there is certainly cause for concern. Salam points to the successful rebellion against President Obama's plans to curb 529 college savings plans, which essentially amount to a tax giveaway to the upper middle class. While the politics of the reform were badly bungled, it was indeed a reminder that the American upper middle class knows how to take care of itself. Efforts to increase redistribution, or loosen licensing laws, or free up housing markets, or reform school admissions can all run into the solid wall of rational, self-interested upper middle class resistance. This is when the separation of the upper middle class shifts from being a sociological curiosity to an economic and political problem.

In the long run, an even bigger threat might be posed by the perpetuation of upper middle class status over the generations. There is intergenerational 'stickiness' at the bottom of the income distribution; but there is at least as much at the other end, and some evidence that the U.S. shows particularly low rates of downward mobility from the top. When status becomes more strongly inherited, inequality hardens into stratification, open societies start to close up, and class distinctions sharpen.

Mike Sparrow
The upper middle class will also be the ones who will be thrown to the wolves if everything falls apart. Hubris is a bitch.
Sandwichman said in reply to Mike Sparrow
Lucky them if they're thrown to the wolves.

DrDick said in reply to Mike Sparrow
There is also this possibility (given the large number in the tech industry):

"I really don't know what you do about the "taxes are theft" crowd, except possibly enter a gambling pool regarding just how long after their no-tax utopia comes true that their generally white, generally entitled, generally soft and pudgy asses are turned into thin strips of Objectivist Jerky by the sort of pitiless sociopath who is actually prepped and ready to live in the world that logically follows these people's fondest desires. Sorry, guys. I know you all thought you were going to be one of those paying a nickel for your cigarettes in Galt Gulch. That'll be a fine last thought for you as the starving remnants of the society of takers closes in with their flensing tools." (John Scalzi, http://whatever.scalzi.com/2010/09/26/tax-frenzies-and-how-to-hose-them-down/)

Sandwichman
Factitious values and cost-shifting. It's all that's left, really. Everything else is just resource depletion and overpopulation. Malthus was wrong! Then.

Sandwichman said in reply to Sandwichman
But not to worry. Nothing a little QE can't fix. Every time I get a bump or scrape I just rub some QE on it and... all better!

Larry
My litmus test about the liberalness of (homeowning) liberals is whether they favor replacing the mortgage interest deduction with a tax credit of fixed size. Those deductions are a huge UMC subsidy.

Then you could talk about the massive federal aid to universities, again helping the 30% who go but not the 70% who don't.

Sandwichman said in reply to Larry
Yep. The "Upper Middle Class" is nothing but cost-shifting and factitious values. Smoke and mirrors. Punch one some time. It's like they are made out of twinkies.

anne said in reply to Sandwichman
Rubbish, not even sarcasm.

Dan Kervick
Maybe this is why economics has gotten so boring lately. For the upper 20%, which includes most academic economists, there is a 100% recovery. So they have stopped talking about what is wrong with American society, and gone back to talking about methodological issues, and about that time someone called them a mean name in graduate school.

JF
President Obama might direct that all economic data become reported first on the data associated with population who fit within the 90% strata and announce that this is being done to remind people every day that the public's govt is supposed to govern with the bulk of society in mind.

The President's budget submission to Congress will discuss matters in this way too; that is, how are the 90% affected. And as you know, I'd prefer that this grouping is done mostly on a Net Worth basis, not income, so we have a constant reminder to consider economics looking at both wealth and income - not just income for the coming year.

Of course the data that includes the 1% and the other 9% will be available too.

JF said in reply to JF
And I'd like academia to mirror this too. All studies will focus on the 90% and discuss from this perspective.

Let the Koch-backed researchers do the other studies.

It really would be interesting to have all professors tell their students to only use data for the 90% in their discussion papers.

[Sep 03, 2015] Uber Strategy of Monopolization Through Sidestepping Labor Law May Be Coming to an End

"...Uber's "disruption" derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing."
.
"...In other words, if you are driving around carrying passengers (or pizza) for money, you have NO COVERAGE under your auto policy."

September 3, 2015 | naked capitalism

The best thing I've seen about Uber recently comes from about a month ago. The Wall Street Journal wrote up a perfunctory story about the company's $50 billion valuation, and it included a very truthful passage. So truthful, in fact, that presumably some PR flak got on the horn and made them change it for the online edition. @NeilAnAlien captured it on Twitter.

Online edition: "The company hopes to attract enough drivers and passengers that its business model becomes profitable."

Print: "The company hopes to build enough loyalty that it can charge customers more and pay drivers less."

At this point I should mention that attempted monopolization is a criminal action under the Sherman Antitrust Act.

But Uber has far bigger problems than that. A California judge is threatening their fiendish "Let's arbitrage state and federal law and replace a monopoly with a different monopoly" plan:

Northern District Court Judge Edward Chen determined that 160,000 current and former Uber drivers in the state could be treated as a class, which will allow a lawsuit against the company to go forward. At stake are questions about the future of jobs in America and potentially billions of dollars for one of the world's fastest-growing companies.

The lawsuit alleges that those drivers were misclassified as independent contractors rather than employees, and that Uber has thus cheated them out of things that employees get under California law, like reimbursements for gas, worker's compensation and other benefits. The lawsuit also claims that the company failed to pass on tips to the workers.

Whether they'll get gas reimbursed is up in the air, it'll get decided later.

Class action lawsuits have become VERY difficult to certify at the federal level. I wrote about this a couple years ago in conjunction with the Bank of America HAMP modification case, where employees for their servicing arm charged in testimony that they were told to lie and given bonuses for putting people into foreclosure. That was tossed, because of minor differences in the individual homeowner cases. The Supreme Court set the precedent for this in Walmart v. Dukes, creating a more stringent class certification test, forcing the complainants to prove up-front whether the commonality of their claims was the most important factor in the case. Indeed this is what Uber's lawyers argued – that Uber drivers are so diverse in their dealings with the company that they can't possibly make up a single class. The goal is to divide and conquer, to force individuals to pursue litigation alone (and be outgunned by Uber's legal team).

So if a federal judge is certifying the Uber class, in many ways they've cleared the biggest hurdle. Uber has already lost a misclassification case like this at the California Labor Commission, but because it was an individual driver suing and not a class, they only had to pay $4,000. But Judge Chen saw right through Uber's gambit, writing: "Uber argues that individual issues with respect to each driver's 'unique' relationship with Uber so predominate that this Court (unlike, apparently, Uber itself) cannot make a class wide determination." In other words, Uber insists that all their drivers are independent contractors, but when challenged on it, claim they're all little snowflakes, no two alike.

Judge Chen did exclude drivers from the class who didn't opt out of a forced arbitration clause in their driver contracts starting in May 2014. That's also fallout from a 2011 Supreme Court ruling, AT&T Mobility v. Concepcion, which effectively legalized putting mandatory arbitration in the fine print. Still, since Uber was late to that scheme, the class could be substantial – Uber says 15,000 but they're almost certainly lowballing.

That's why you can expect Uber to appeal, and the same Supreme Court that backed up big business and closed the courthouse door to workers in the Walmart case might get a shot to do that for Uber. However, the rank stupidity of their argument – that everyone's a contractor but nobody's the same – might be too much even for the Roberts Court.

If Uber ultimately loses this fight, forcing them to classify their drivers as employees, they become just another car service. Anyone can build an app to hail and pay for a ride – the New York City taxi system just unveiled one this week, and e-hailing apps do very well globally. Uber's "disruption" derives mostly from skirting around labor laws and getting a lot of VC money amid promises to gouge their workers and customers once they put the taxi industry out of business. So having to pay back wages and payroll taxes and reimbursements would kind of blow up the whole thing.

Citing Matt Stoller on Uber from last year:

Uber is quietly gaining enormous power, almost feudal power, over its drivers. Remember, Uber wanted to 'reward' drivers with a great paycheck. This works both ways. Are you an Uber driver who is complaining too much about Uber stealing your tips? Well, gosh, it seems like the magic algorithm keeps giving you bad customers. Or no customers. Or think a few years down the road, when there is nothing but Uber in certain localities. Then Uber can raise prices on consumers, who may have other options and can squeal. But it can also lower prices paid to drivers, and these drivers are dependent on Uber for their livelihood. In fact, Uber is even starting a financing program for its drivers, so they can get loans for cars.

Remember, the customer doesn't even pay a driver, the payment goes through Uber. What are these drivers going to do when Uber totally controls the market? Sue? Ha, not if they want the algorithm, I mean the market pricing, to 'reward' them. And let's be clear, when a company offers low cost financing for capital investment for independent contractors and controls all aspects of the transaction and customer relationship, these are no longer independent contractors. They are employees. Only in this case, they are employees who have taken on debt to work for Uber. Uber has figured out that it is cheaper to trick people into thinking they are independent contractors and get them to risk their capital. Then Uber can happily take the profits.

These are just the troubles Uber is having locally. In Mumbai the still-robust taxi union has been on strike for two days, protesting Uber's expansion after getting a ban overturned in June. In China there's a local rival that has 80 percent of the car-hailing market and has been buying up competitors. Korea's version, Kakao Taxi, is emerging as a strong competitor as well.

There's no special sauce to what Uber does. And if they are prevented from breaking the law in the U.S., they'll just be another face among many, struggling for profitability.

NotTimothyGeithner, September 3, 2015 at 9:35 am

The insurers are in issue. Uber will inevitably be in lawsuits left and right as accidents pile up. Judges go ballistic on pizza deliverers anyone working for tips, they will always favor a non-uber claimant/plantiff/whatever with mind blowing evidence. A pizza delivery guy and my older sister had a quirky run in, and the judge asked where they were driving. When he heard pizza delivery, he ruled in favor of my sister. Taxis deal with regulatory structures which at least requires a certain level of competence. A taxi driver would not have hit my sister.

When insurers have to start dealing with lawsuits because Uber drivers weren't taking care of their brakes, they are done. Uber and similar services will go the way of 30 minute pizza delivery promises.

My guess is auto insurers want to get rid of Uber because they won't be able to determine who is running a unregulated taxi service.

weinerdog43, September 3, 2015 at 10:04 am

Virtually every single personal auto policy in the US contains the following language under the Exclusions section: "We do not provide Liability Coverage for any Insured; for that Insured's liability arising out of the ownership or operation of a vehicle while it is being used to carry persons or property for compensation or a fee." Go ahead and check your policy; it's there.

In other words, if you are driving around carrying passengers (or pizza) for money, you have NO COVERAGE under your auto policy. You are 'going bare'. This is why Domino's has to buy commercial auto coverage for their drivers. The insurers don't care about Uber because it is not their problem. (I'm an insurance coverage lawyer.)

washunate, September 3, 2015 at 7:45 pm

I'm mildly optimistic actually on that front. The independent contractor loophole to employment law has become so egregious that I think there is serious interest in reigning in the more extreme excesses a tad, releasing some pressure if you will, and Uber works great for that. High public profile, low interconnectedness with the established power structure, specific industry that heavily regulates workers.
Or to say it differently, I think Uber has violated the fundamental law of looting: don't be so blatant about it that the legal system can't justify it without completely destroying their own credibility. Face saving is key. If Uber drivers aren't employees, then even hugerer numbers of workers are not employees than already aren't employees today, and I don't think TPTB are in tight enough control to weather the fallout from that kind of logic. Especially with how much political capital went into entrenching employment-based health insurance with PPACA. Something the Roberts court found Constitutional, by the way.

[Sep 03, 2015] JPM Omen 2.0 Sparks Stock Pump'n'Dump After Crude Surges'n'Purges Zero Hedge

hobopants

Everybody is screaming "This fall", but after so many false alarms I have a feeling this shit show will continue on alot longer.

To paraphrase Zappa
The illusion of the market will continue as long as it's profitable to continue the illusion. At the point where the illusion becomes too expensive to maintain, they will just take down the scenery, they will pull back the curtains, they will move the tables and chairs out of the way and you will see the brick wall at the back of the theater."

[Sep 03, 2015] Risk of big stock drops grows Robert Shiller

According to Shiller S&P 500 can go as low as 1300 based on "return to normal" of his, currently elevated, CAPE index. " I think this is dangerous time" he said.

"... The historic average is around 17, a level that would correspond with about 11,000 on the Dow and 1,300 on S&P 500. A retracement to those levels would represent more than 30 percent declines. "

finance.yahoo.com

Based on his research of historical stock market valuations, Nobel Prize-winning economist Robert Shiller said Thursday he sees the "risk of substantial declines" ahead.

Even with the recent turmoil, which pushed the Dow industrials, S&P 500, and Nasdaq into correction last week and again this week, "the market is high now," the Yale University professor told CNBC's " Squawk Box ."

As of Wednesday's close, the Dow remained in a correction, despite strong gains. But the rally in the S&P and Nasdaq composite pulled those measures out of correction territory.

Shiller measures valuation with his cyclically adjusted price-to-earnings (CAPE) ratio, which looks at price divided by 10-year average earnings.

"The CAPE ratio right now is around 25. It's high," he said. The historic average is around 17, a level that would correspond with about 11,000 on the Dow and 1,300 on S&P 500. A retracement to those levels would represent more than 30 percent declines.

Shiller said he's not saying that will happen, just the CAPE ratio serves as a "warning signal."

In fact, based on history, the stock market could more higher because the CAPE has been much higher in the past before the air came out of the market, he said.

"The monthly CAPE ratio reached a peak of 44 in the year 2000 and that was followed by an important [market] drop. It went down to 13 and came back up to 27 in 2007 and it was followed by another drop," he said.

"Nobody can really forecast the market accurately. But I think this is a risky time," Shiller concluded-adding he personally has been reducing his portfolio's exposure to U.S. stocks. "[But] everyone's different. People need to look at their own risk situation."

[Sep 03, 2015] Mapping The Crisis Contagion Process The Flowchart

Sep 03, 2015 | Zero Hedge
In the paraphrased words of JPMorgan's head quant, "We're halfway there" for the selling... and yes it appears "we are living on a [Fed/PBOC/ECB/BOJ] prayer"
JustObserving

US leads the world in too much debt - $1,720,000 per taxpayer compared to $65,000 per taxpayer for bankrupt Greece. We may be getting dumber but at least we lead the world by a long shot in that category

Forward

Economist Tells Congress: U.S. May Be in 'Worse Fiscal Shape' Than Greece
"The first point I want to get across is that our nation is broke," Kotlikoff testified. "Our nation's broke, and it's not broke in 75 years or 50 years or 25 years or 10 years. It's broke today.

http://cnsnews.com/news/article/barbara-hollingsworth/economist-tells-co...

KnuckleDragger-X

Yep, but its magic debt and subject to even more magic money. The problem with the above chart is that it makes no accounting for chaotic events since they can't be predicted, but they will likely be the driver of the collapse.....

junction

So, instead of saying the truth, that looters have taken over the world economy, someone calls the situation "crisis contagion." Who are the disease vectors that are the carriers of this pathogen causing the crisis? Mostly Goldman Sachs banksters like Mario Draghi and Henry Paulson. Banksters and their cohorts like Obama and Eric Holder and David Cameron who have poisoned the world economy. What we need are fewer weasel words like crisis contagion and more words like "You are under arrest, Eric Holder, for criminal conspiracy."

Groundhog Day

if only it were that easy... a friend of mine stopped reading financial blogs like ZH, all news outlets including the web (funny considering he's a programmer and on the web all day) and he is much happier. he knows the inevitable will come but doesn't care. He figures he is single, has no debt and a house paid off and is relativiely intelligent working for a 100k give or take a few thousand....so his way of beating the system is not to particate in a 401k, ira, brokerage at all and spend his money on vacations in different parts of the world spending all his money so he loses no purchasing power in a savings account and spending on small mom and pop business owners as to not feed the corporate beast..

saints51

I agree with him too. I think we all need a break from this website time to time. This place is addictive, but it is not the articles I'd miss, it is the members. I enjoy everyone's company even the trolls.

RaceToTheBottom

I don't believe the music on the Titanic ever stopped. They just kept playing until they were underwater. Expect more of the same.

Also expect the same actions of the few .01% as they do the present day equivalent of dressing up like ladies to get onto the lifeboats. At least those not already on safe land.

Implied Violins

...he says to Schopenhauer, who authored:
"...all human action (is) the product of a blind, insatiable, and malignant metaphysical will."
I think he had something there...

[Sep 02, 2015] Bill Gross Fed tightening now could create self-inflicted instability

"...He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply. "

"...He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply. "

"...Overall, Gross said "super-size" August movements in global stocks are but one sign that something may be amiss in the global economy itself, China notwithstanding."

"..."Cash or better yet 'near cash' such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments," Gross said. "The reward is not much, but as Will Rogers once said during the Great Depression – "I'm not so much concerned about the return on my money as the return of my money.""

NEW YORK (Reuters) - Bond guru Bill Gross, who has long called for the Federal Reserve to raise interest rates, said on Wednesday that U.S. central bankers may have missed their window of opportunity to hike rates earlier this year and doing so now could create "self-inflicted" instability.

He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply.

The neutral rate is the point at which the rate is neither stimulative nor contractionary.

The Fed seems intent on raising the federal funds rate at its policy meeting this month if only to prove that it can begin the journey to normalization, said Gross, who runs the $1.5 billion Janus Global Unconstrained Bond Fund (JUCAX.O).

"They should, but their September meeting language must be so careful," that "one and done" is an increasing possibility, Gross said. The "one and done" approach represents the Fed raising rates once and not again, at least for the next six months, Gross said.

"The Fed is beginning to recognize that 6 years of zero bound interest rates have negative influences on the real economy – it destroys historical business models essential to capitalism such as pension funds, insurance companies, and the willingness to save money itself."

A decline in saving would lead to other problems like decreases in investment and long-term productivity, he added.

Gross said: "The global economy's finance-based spine is so out of whack that it is in need of a major readjustment. In this case, even the best of chiropractors could not even attempt it. Nor would a one-off fed fund increase straighten it out."

He suggested that major global policy shifts should emphasize government spending as opposed to austerity, adding that countries should recognize that competitive devaluations do nothing but allow temporary respite from the overreaching global problem of too little aggregate demand versus too much aggregate supply.

"It is demand that must be increased – yes, China must move more quickly to a consumer-based economy but the developed world must play its part by abandoning its destructive emphasis on fiscal austerity, and begin to replace its rapidly decaying infrastructure that has been delayed for decades," Gross said.

Overall, Gross said "super-size" August movements in global stocks are but one sign that something may be amiss in the global economy itself, China notwithstanding.

Fiscal and monetary policies around the world now are not constructive or growth enhancing, nor are they likely to be, Gross said. "If that be the case, then equity market capital gains and future returns are likely to be limited if not downward sloping."

Gross said cash is king in this environment.

"Cash or better yet 'near cash' such as 1-2 year corporate bonds are my best idea of appropriate risks/reward investments," Gross said. "The reward is not much, but as Will Rogers once said during the Great Depression – "I'm not so much concerned about the return on my money as the return of my money."

High-quality global bond markets offer little reward relative to durational risk, he added. Private equity and hedge related returns cannot long prosper if global growth remains anemic, Gross said.

(Reporting By Jennifer Ablan; Editing by Chizu Nomiyama)

[Sep 02, 2015] West Texas Fracker Uses Toilet Water To Cut Cost By Michael McDonald

Sep 02, 2015 | OilPrice.com

Water costs in fracking are expensive, but most major firms including Pioneer have been working on improving efficiency on that front

... ... ...

The firm looks set to buy water for around $6.33 per thousand gallons in the first year of the deal.

... ... ...

...Pioneer will receive roughly 18 billion gallons of water (18 billion gallons * an average price per thousand gallon of about $6.75 = a total of $120 million) over the next 10 years. Since Pioneer would have had to get that water from somewhere else if it didn't get it from Odessa, the deal is the equivalent of annually freeing up about 16,000 gallons of water per person in the city of 110,000.

[Sep 02, 2015] US Oil Production Nears Previous Peak

Sep 01, 2015 | Peak Oil Barrel
MarbleZeppelin, 09/01/2015 at 9:45 pm
Roads cost the US $155 billion dollars per year and that is a shortfall of what is needed to keep everything in good repair. So the cost of keeping the road system operable is similar to the cost of fuel to use it.
We need to find ways to minimize the amount of roads in the US and ways to make the necessary ones less expensive. I am sure a lot of energy is tied up in that $155 billion dollar figure.
Boomer II, 09/02/2015 at 11:26 am
It just occurred to me last night that while not intended, letting the roads and bridges fall apart is one way to deal with peak oil.
Where I live, there's been a lot of expanding and repairing roads. While some of it has been to add express lanes to encourage car pool and bus use, other parts of the work are just to add lanes to busy roads.

Some of us would rather the transportation budget be used for more trains, and that has happened in some places around here, but the focus is still on vehicle transportation.

Unlike my area, it appears that in other parts of the country there is no money to fix the roads. If, of course, you don't want more cars and trucks moving about, letting the roads fall into disrepair may make economic sense. Why keep pumping money into an infrastructure you may not need in the future?

MarbleZeppelin , 09/02/2015 at 2:46 pm
The trucks do account for significant damage to highways and roads. Road damage from one 18-wheeler is equivalent to 9600 cars. Freeze-Thaw, corrosion, erosion, and large temperature shifts are also culprits.
Fact is we need to get rid of a lot of the roads because even if all trucks were reduced in weight, there would still be significant cost to the public.
Truck weight damage:
http://archive.gao.gov/f0302/109884.pdf
Patrick, 08/30/2015 at 10:09 pm
"There will be substantial amounts of fossil fuels available to us for many decades to come."
1. How can you be so sure?
If Ron is right (http://peakoilbarrel.com/peak-oil-right-now/), global oil production will start declining soon. It will be double-squeezed due to the other phenomenon of Export Land Model (https://en.wikipedia.org/wiki/Export_Land_Model). There is also the Energy Trap (http://physics.ucsd.edu/do-the-math/2011/10/the-energy-trap/). I personally think that assumption (MANY decades) way too optimistic. We will not have that "luxury".

2. To us, or to the U.S.?
When you write "us" I tend to include myself, European, in your "us". But I guess what you really meant was "you", the United States, am I right?

[Sep 02, 2015] ConocoPhillips Fires 10% Of Global Workforce, Warns Of Dramatic Downturn To Oil Industry

"...Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs "the dark side of the golden age of shale". In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011. "

Zero Hedge

...Houston based ConocoPhillips announce that the E&P giant is about to terminate 10%, or 1,800 people, of its global workforce, in the next several weeks as it copes with low oil prices.

As the Houston Chroncile's FuelFix blog writes, "Daren Beaudo, a company spokesman, confirmed that an internal communication was sent to employees earlier this week informing them of the upcoming staff reductions. Most of those affected workers will receive layoff notifications next month."

But don't worry: the great(ly fabricated) US jobs recovery myth will not be impaired: all these formerly highly-paid engineers, technicians, drillers and chemists will find minimum wage jobs flipping burgers at their local recently IPOed Shake Shack.

Publicus

Zerohedge logic: oil going up is bad for the economy, oil going down is bad for the economy.

While gold going up means you should buy more, and gold going down means you should buy more.

LOL

El Vaquero

That's because both are true. If oil is too expensive, people cannot afford to buy as much random crap in this "consumer economy," and if oil is too cheap, well, there's always the $550 billion in energy sector junk bonds floating around that aren't going to get repaid. This is the result of years upon years of economic manipulation.

Berspankme

El Vaq- that requires critical thinking

Winston Smith 2009

"that requires critical thinking"
Always, unfortunately, a very rare commodity... which explains why we're where we're at.
"Five percent of the people think, ten percent of the people think they think, and the other eighty-five percent would rather die than think." - Thomas A. Edison

Magooo

HIGH PRICED OIL DESTROYS GROWTH According to the OECD Economics Department and the International Monetary Fund Research Department, a sustained $10 per barrel increase in oil prices from $25 to $35 would result in the OECD as a whole losing 0.4% of GDP in the first and second years of higher prices. http://www.iea.org/textbase/npsum/high_oil04sum.pdf

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil production has quadrupled, and that shift will permanently shackle the growth potential of the world's economies. http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

THE END OF CHEAP OIL Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years

Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://www.scientificamerican.com/article/the-end-of-cheap-oil/

BUT WE NEED HIGH OIL PRICES: Marginal oil production costs are heading towards $100/barrel http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

The marginal cost of the 50 largest oil and gas producers globally increased to US$92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

Steven Kopits from Douglas-Westwood said the productivity of new capital spending has fallen by a factor of five since 2000. "The vast majority of public oil and gas companies require oil prices of over $100 to achieve positive free cash flow under current capex and dividend programmes. Nearly half of the industry needs more than $120," he said http://www.telegraph.co.uk/finance/newsbysector/energy/oilandgas/11024845/Oil-and-gas-company-debt-soars-to-danger-levels-to-cover-shortfall-in-cash.html

Sanford C. Bernstein, the Wall Street research company, calls the rapid increase in production costs "the dark side of the golden age of shale". In a recent analysis, it estimates that non-Opec marginal cost of production rose last year to $104.5 a barrel, up more than 13 per cent from $92.3 a barrel in 2011. http://www.ft.com/intl/cms/s/0/ec3bb622-c794-11e2-9c52-00144feab7de.html#axzz3T4sTXDB5

JustObserving

Obama's war on oil to hurt Russia and Iran having unintended consequences. Maybe he can drone short-sellers of US stocks

lehmen_sisters

Good paying oil workers going to get jobs at Chili's and Flingers....talk about a recovery! Drinks on me!

Magooo

THE PERFECT STORM (see p. 59 onwards)

The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy.

But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel.

http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

crazybob369

ConocoPhillips Fires 10% Of Global Workforce, Warns Of "Dramatic Downturn" To Oil Industry
"Dramatic Downturn", really? These morons are in the energy business and they just figured this out now? Or, are they simply justifying the layoffs?

Jack Burton

the massive upcoming reserve liquidation (read Treasury selling) that is about to be unleashed as a result of the soaring dollar
Don't discount Russia in this treasury sell off. No they are not a player like China, but they have a roll to play, they were sitting on 350 billion dollars in FX if you believe some, of 450 billion to believe others. They have been bullsih gold for ages. But if China sells treasuries, Russia will continue to sell theirs also. The economic war on Russia is already worthy of WWIII, thus Russia should have only one goal, "To kick T-Bills in the balls when they get the most kick for their efforts."
America lives by the Dollar, prints it and buys a consumer bonanza, energy and the greatest military on earth. I suggest to you that fully 1/2 of that spending is deficit, money printing or T-Bill selling. China, Russia and Iran should likely do what they can to hurt the dollar, as the dollar is America's primary support, 1/2 our federal spending is borrowed.

johmack2

From magooo post, http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf is highly recommend everyone read that report or have one of the tylers post it, very comprehensive report

[Sep 02, 2015] Financial Sector To Cut Credit Supply Lines For Oil And Gas Industry By Nick Cunningham

Sep 02, 2015 | OilPrice.com

As time passes, more and more hedges are expiring, leaving oil companies fully exposed to the painfully low oil price environment. "A lot of these smaller guys who had bad balance sheets have pretty good hedge books through full-year 2015," Andrew Byrne, an analyst with IHS, told the Houston Chronicle. "You can't say that about 2016."

In fact, about one-fifth of North American production is hedged at a median price of $87.51 per barrel. Smaller companies rely much more heavily upon hedging as they are more vulnerable to price swings and are not diversified with downstream assets. Across the industry, IHS estimates that smaller companies had about half of their production hedged at a median oil price of $89.86 per barrel in 2015.

... ... ...

More worrying for the oil and gas companies that are struggling to keep their lights on is the forthcoming credit redeterminations, which typically take place in April and September. Banks recalculate credit lines for drillers, using oil prices as a key determinant of an individual company's viability. With oil prices bouncing around near six-year lows, more companies will find themselves on the wrong side of that equation.

Banks were more lenient in April when oil prices were a bit higher and many analysts expected prices to rise. This time around the pain is mounting and there will be a lot less leeway. Somewhere around 10 to 15 percent credit offered to drillers could be cut back on average, a move that could slash $15 billion in credit capacity, according to CreditSights Inc.

... ... ...

According to the FT, banking regulators are pushing banks to take a more conservative approach to their energy loans.

[Sep 02, 2015] The Mirage Of An Iranian Oil Bonanza By Dalan McEndree

Total world production is around 86 mmbl (millions barrels a day). Iran probably can contribute additional one million barrels a day). Drop of the US shale production and Canadian sands production might be higher then that. Also Iranian internal consumption (currently 2 million barrels a day) also will rise substantially after lifting of the sanctions.

"...Projecting from International Energy Agency (IEA) data, Iran is on track to produce an average ~2.85 mmbl/day of crude in 2015. The IEA puts Iran's current sustainable capacity at 3.6 mmbl/day (defined as a level achievable in 90 days and sustainable for an extended period). "

"... it is possible that Iran will lack the domestic and foreign resources necessary to increase crude output to and over 4 mmbls/day by 2020."

Sep 02, 2015 | OilPrice.com

The P5+1 agreement with Iran on Iran's nuclear program has generated (sometimes fevered) anticipation of an Iranian oil bonanza at the end of the nuclear agreement rainbow, both in terms of the increase in Iranian crude output and the business opportunities for foreign firms in driving the increase.

The anticipation comes from several sources. Iran's crude potential is one. According to the U.S. Energy Information Administration (EIA), Iran's proven crude reserves, 158 billion barrels, are the world's fourth largest (and among the cheapest to produce at $8-to-$17/barrel, depending on the source).

Iranian public statements expressing determination to increase crude output significantly are another (to 5.7 mmbl/day, according to Mehdi Hosseini, chairman of Iran's oil contracts restructuring committee). The third is the value of potential contracts for foreign suppliers. Hossein Zamaninia, Iran's deputy oil minister for commerce and international affairs, indicated the government hoped to conclude nearly 50 oil and gas projects worth $185 billion by 2020.
Projected Output and Exports to 2020
Projecting from International Energy Agency (IEA) data, Iran is on track to produce an average ~2.85 mmbl/day of crude in 2015. The IEA puts Iran's current sustainable capacity at 3.6 mmbl/day (defined as a level achievable in 90 days and sustainable for an extended period). This is roughly comparable to Iranian Oil Minister Bijan Namdar Zanganeh's assertion Iran could increase output 500,000 barrels per day within a few months after international sanctions on Iran's economy are lifted and another 500,000 barrels per day in the following months .

... ... ...

Iran won't be able to finance this on its own. It has three "internal" sources of investment-frozen Iranian funds in foreign accounts, government budget resources (oil revenues flow to the Iranian government, a portion of which the government returns to the industry), and oil in storage. (Iranian banks evidently can't provide meaningful funding). Rough conjectures of the investment Iran could generate from these three sources in current low price environment are as follows:

Perhaps $2-$4 billion annually through 2020 from frozen Iranian funds in foreign accounts. Some estimates put the total at $100 billion (or $20 billion annually). U.S. Treasury Secretary Lew, in testimony before Congress, put the available funds at $50 billion ($10 billion annually). Since Iran's oil industry is only one of many claimants on the frozen funds, including the natural gas industry, the Iranian military, Iran's proxy clients in Lebanon, the Gaza Strip, Syria, Iraq, and Yemen, the commercial aviation industry (replacing the passenger jet fleet), other industries, and the Iranian people, maybe it will receive 20 percent of the frozen funds, or between $2 and $4 billion annually.

For the sake of argument, $10 billion annually through 2020 from government budget resources, which is very generous given the share of crude export revenues this level of support would consume (see last row of above table), the demands from other Iranian claimants, and Zanganeh's data (investment fell from an average $20 annually in 2011 and 2012, when the OPEC basket crude averaged $107.46 and $109.45 per barrel respectively, to $6 billion in 2014, when it averaged $96.29, and virtually nothing this year, when it averaged $53.97 through August).

Perhaps $1-$1.5 billion as a one-time contribution from oil currently in storage.

... ... ...

The possibility of direct military conflict between Iran on the one hand and Saudi Arabia and its Gulf Arab allies on the other is another factor. The two sides are already essentially at war indirectly in Yemen, Iraq, Lebanon, and Syria. Moreover, just the threat of direct military conflict or an increase in regional tensions is enough to cause foreigners anxiety.

The deal structure the Iranians will offer foreign companies-Hosseini described it as a "risk service contract"-will increase rather than mitigate risk. Given their lack of capital, the Iranians will be asking foreigners to bear the upfront investment burden in return for payment (cash and/or crude) in the (perhaps distant) future. Foreigners must take into account the possibility that negative changes in the internal and/or external environment will damage the value of their investment.

Foreign investors cannot be confident Iran's internal political dynamics will be conducive to foreign investment. Not all influential Iranians or Iranian interest groups (for example, the powerful Revolutionary Guards) welcome the nuclear agreement and détente with the United States and Europe. Should the balance of power tip in their favor-or further in their favor-foreign investments could face anything from unpleasant pressure to expropriation.

Moreover, absent a binding agreement within OPEC and between OPEC and Russia on production levels, Saudi and Gulf Arab production policies will threaten the value of foreign investment in the Iranian crude industry. Saudi Arabia's sustainable capacity is 2.5 mmbl/day more than its average 10.01 mmbl daily output in 1H 2015, while the UAE has announced plans to increase output 600,000 barrels per day in the next few years, and Kuwait by 1.4 mmbl/day by 2020.

... ... ...

In Sum
While it is likely Iran will increase crude output once sanctions are lifted, it is possible that Iran will lack the domestic and foreign resources necessary to increase crude output to and over 4 mmbls/day by 2020. Absent a thaw in its relations with Saudi Arabia, the Gulf Arab states, and the West, higher and more stable crude prices, and initial positive experience for foreign companies in negotiating and implementing projects, it is more likely foreign investment will trickle into the Iranian energy industry than gush into it.

[Sep 01, 2015] No fundamental reason for oil's 'meltdown' energy analyst

China oil demand is growing modestly 3% a year, which is actually extremely fast for such a large economy. Moderation in China demands started long ago so this is no news. so what we are seeing is sentiment. Sentiment on all commodities is negative right now Capital investment in new oil development this year at least 25% globally and 50% in the USA. The next year it can be worse. Oil supply will eventually reflect this.

Worries about China and near-record production from OPEC and the U.S. have knocked oil prices below $40 a barrel. But the markets may have beaten up crude a little too much, according to one energy analyst.

[Sep 01, 2015] Marc Faber We Have Reached Some Kind of Tipping Point

Sep 01, 2015 | Fox Business
"The markets have moved sideward for essentially the last 12 months and this year, when the crash really happened, we were 2% lower on the S&P year-to-date…we were down 13% for the transportation index, so the internal of the market has been weak," Faber said during an interview on FOX Business Network's Cavuto: Coast to Coast.
He added that global markets have realized deceleration in China's economy is worse than "optimistic" fund managers and strategists predicted.

Faber said it would not be easy for China to get its economy growing the way it once was. It it decellerating more then most expect.

"An economy like China is not like a car where you just drive around the corner," he said. "The Chinese economy cannot be stimulated meaningfully for the time being-it will take time."

Recently, China's stock market troubles hit U.S. markets. Faber explained why Wall Street is impacted by negative news out of China.

"You look at announcements of Hewlett-Packard, United Technologies, car manufacturers… they have a large exposure to China, and when the Chinese economy slows down, what really drove the growth, namely capital spending in China, and consumption in China slows down, so in July, car sales in China were down 7% year-over-year," he said.

[Sep 01, 2015] Leveraged Bubbles

"...When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting."

"..."Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?"

"...

"When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

"In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets."

"...Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?"

economistsview.typepad.com

The conclusion to "Leveraged bubbles," by Òscar Jordà, Moritz Schularick, and Alan Taylor:

... In this column, we turned to economic history for the first comprehensive assessment of the economic risks of asset price bubbles. We provide evidence about which types of bubbles matter and how their economic costs differ. Our historical analysis shows that not all bubbles are created equal. When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial. The damage done to the economy by the bursting of credit boom bubbles is significant and long lasting.

In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms. This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles. The findings presented here can inform ongoing efforts to devise better macro-financial theory and real-world applications at a time when policymakers are still searching for new approaches in the aftermath of the Great Recession.

Posted by Mark Thoma on Tuesday, September 1, 2015 at 09:25 AM in Economics, Financial System | Permalink Comments (8)
Double Capitulation said...

"bursting of credit boom bubbles is significant and long lasting.

In the past decades, central banks typically have taken"
~~Òscar Jordà, Moritz Schularick, and Alan Taylor:~

Did Kurt Vonnegut once quip

"Each fed governor likes to live on the edge, further out on a limb where she can see more then hope against hope that limb will not break until she leaves office." ?

Imprecisely, yet left us with a memorable hint of both his genius and fed governor's stupidity.

djb said...

of course if wages kept up with productivity, there would not have been as much of a bubble because people could have paid more, and borrowed less

but I doubt BIS was worried about that particular issue

Peter K. -> djb...

"This way of thinking has been criticised by some institutions, such as the BIS, that took a less rosy view of the self-equilibrating tendencies of financial markets and warned of the potentially grave consequences of leveraged asset price bubbles."

Likewise I don't the believe the BIS is big on tighter regulation of the banks. As Krugman and others have pointed out, the BIS is always for raising rates but switches rationals. Sometimes it's about inflation, sometimes bubbles.

mulp -> djb...

We need a Fed that sets as policy buying long term debt that funds new infrastructure projects that are required by Federal regulation to pay prevailing aka higher wages.

If in 2010, the Fed had bought $3 trillion in bonds for such projects as building the NE HSR, for all the cities fixing their century old water and sewer systems, California's HSR, bonds for replacement bridges with tunnels as option, rerouting rail to eliminate grade crossings to speed for freight and truck traffic, then the Fed could have done what Republicans have done up until the Republicans decided to punish all the We the People for electing Obama.

Any debt issued that does not build new capital assets requiring American labor, ie, debt paying labor costs, is totally worthless to the economy.

Other than for some existing constant wealth redistribution purposes - during 2008-2011 savers were protected against having their wealth taken from them and given to the borrowers who had long ago spent it.

Arne said...

Is there some data on the extent to which asset price rises are credit fueled or not. My memory (which does not qualify as a data source) says that the housing bubble was much more so than the dot-com bubble.

Blissex said...

"When credit growth fuels asset price bubbles, the dangers for the financial sector and the real economy are much more substantial."

So M Minsky 50 years ago and M Pettis 15 years ago (in his "The volatility machine") had it right? Who could have imagined! :-)

"In the past decades, central banks typically have taken a hands-off approach to asset price bubbles and credit booms."

If only! They have been feeding credit-based asset price bubbles by at the same time weakening regulations to push up allowed capital-leverage ratios, and boosting the quantity of credit as high as possible, but specifically most for leveraged speculation on assets, by allowing vast-overvaluations on those assets.

Central banks have worked hard in most Anglo-American countries to redistribute income and wealth from "inflationary" worker incomes to "non-inflationary" rentier incomes via hyper-subsidizing with endless cheap credit the excesses of financial speculation in driving up asset prices.

Not very hands-off at all.

mulp -> Blissex...

Are you questioning creating wealth by price inflation of decaying asset which are churned in pump and dump?

Do you believe selling and reselling the same fixed quantity of assets creates jobs through the wealth effect of workers spending money they don't have to buy things on credit they can't pay back to keep up with the rich?

Wealth. Creating wealth. Wealth effect. Capital gains. Money in your pocket.

Signs of free lunch economic smoke and mirrors.

Wealth is created by paid labor or hard labor by the owner of the created wealth. But paying labor costs as a virtue is not something an economist is allowed to say in the post Reagan victory world.

[Sep 01, 2015] Some Day, We'll Look Back at This, and Laugh

Exemplary of The Guardian's forecasting where Russia is concerned – and The Guardian never met a Russian it didn't hate, unless they were an oligarch expat, a political dissident or a member of Pussy Riot – is this gem by The Guardian's "Economics Editor", Larry Elliott;"Russia Has Just Lost the Economic War With the West".
For those who don't remember when the west's economic war against Russia started, it actually kicked off with a skirmish, in which the USA stopped service in Russia to holders of Visa and Mastercard at certain sanctioned banks in Russia, back in the spring of 2014. Customers found that their cards did not work and their accounts were frozen. Russian media promptly pointed out that American credit-card companies "had a record of bowing to political decisions from Washington"; the government imposed a security deposit fee equal to two days worth of transactions in Russia, which would cost the companies $1.9 Billion (Visa) and $1 Billion (Mastercard), and Morgan-Stanley issued a report which suggested the two credit-card giants would be better off terminating their operations in Russia, where they together had 90% of market share. For his part, the Russian president announced that Russia would develop its own national payment system and greatly reduce its dependence on western credit-card companies.

It's hard for me to see that as a western victory. Visa and Mastercard squealed like pigs, Russia introduced a prototype domestic card (Mir) which Mastercard signed on to co-brand, and Mastercard and Visa both humbly signed on to Russia's national payment system, which moves processing to Russia. This results in a huge loss of financial control for the western-based cards, and a bigger one is coming when Russia introduces its national replacement for SWIFT, the Society for Worldwide Interbank Financial Telecommunication. Western regulatory authorities have long been accustomed to using SWIFT to read other countries' financial mail, and a few years back, the USA pressured the supposedly non-partisan system to shut out Iran. It's unlikely America would have tried that with Russia – especially since European courts ruled that it was illegal – but a couple of big-mouthed American senators started hollering for it to be done, and that was enough.

You would think Larry Elliott would have learned something from that, but it is apparent that he did not. He had all summer and autumn to form an assessment of how things were lining up, and he guessed wrong.

"The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."

Is that so? Well, at least one insight in that passage was accurate – the damage caused to the U.S. shale industry was considerable. Have a look at this comical piece in The Economist, which is almost as big a failure at presenting the world as it actually is as The Guardian; the anonymous author hedges his analysis so hard that his regular reversals make the reader dizzy. Goodrich Petroleum's debts are six times the size of its market-value equity – but it says it has ample liquidity and may sell some stuff. At the start of 2015, it looked like the slaughter among the frackers would be horrific – but only 5 companies actually went bankrupt. The Saudis (treacherous dogs all) have failed to put Houston out of business – but big services companies such as Halliburton have fallen into losses and small ones are on life support.

Here's another, in which The Economist does not make the link: the United States has increased its oil production to 13% of global output – but it supplies only about half its own consumption. It puts a happy face on this by describing its increase in production as far larger than its increase in consumption. That is indeed a bit of good news, but the USA still consumes more daily oil output than something like the next four nations combined (figures are from 2011), and about 20% of the world's output.

The global economy is faltering as the World Bank lowers its projections for growth. Saudi Arabia, originally a partner in the effort to crush Russia's economy, has continued to flood a glutted oil market that is now oversupplied by 800,000 barrels per day, and shows no sign of letting up. Meanwhile, Saudi Arabia and Russia inked 6 new trade agreements in June, one of which will see Rosatom operate up to 16 nuclear reactors in Saudi Arabia.

The USA put its head together with its Saudi partners, and worked out a scheme whereby OPEC would administer a short, sharp shock to the energy markets which would tip Putin out of bed – colour revolution successful at last, America gets to pick a new government, we've got momentum, baby! But that's not the way it worked out at all. Who benefits from a weaker ruble? The resource exporters who are a main source of revenue for the Russian government. Putin remains as popular with Russians as he has been since his introduction to upper-echelon politics.

Meanwhile, in Europe, Russian sanctions coincided with perfect growing conditions and consequent overproduction to kick the British dairy industry in the slats. The Russian dairy market, by contrast, is surging, with some varieties of artisan goat cheese selling for $14.00 a pound at the supplier level. German cars and car parts exports to Russia fell more than 27% between January and August 2014. The Russian food ban is "a nightmare" for French farmers. Even mighty Apple saw its smartphone sales cut in half in 2014 – although, despite the crisis, Russian smartphone sales overall were up 39%. American car brands joined the plunge as car sales in Russia tanked; however, the ruble began to regain strength in the first quarter and was the best-performing of more than 170 currencies tracked by Bloomberg – bear in mind that this is in the face of deliberate efforts to force it down. The tumble in car sales slowed in July as government incentives began to have an effect – but the gains were all felt by Lada and Asian brands, and the only American car to even get on their scoreboard was the Chevrolet Cruze. Expect western brands across the board to continue to suffer, as market replacement continues apace.

Let us not gild the lily: the economic war against Russia hurt, and for a day or two there was reason for western optimism that their attempt to backstab Putin out of office would bear fruit. But it didn't, and Elliott's brainless rah-rah cheerleading for Washington was torpedoed by Russian resolve and resilience. The west now has the global opponent it thought it wanted, but market replacement and a rejection of western institutions within Russia signifies a decisive turning away from the west that will not easily be reversed, if ever. Vladimir Putin could run over a pensioner with his car on election day and still cruise to victory without breaking a sweat. None of the west's goals of economic warfare against Russia have been realized. Not one.

It's still too soon to say whether Russia will weather the storm Washington deliberately set in motion. But there is every reason to be optimistic if you are Russian, and no reason at all to be optimistic if you are one of Barack Obama's foreign-policy drones. And John Kerry might as well just run off a cliff, because he has been an even worse Secretary of State than Hillary Clinton was – a benchmark I did not ever think to see surpassed, never mind so quickly.

As a recent Russia Insider article warned, there's no surer way to lose the next war than to live in delusion about your own strength.

Oddlots, August 26, 2015 at 8:31 pm

Hard to pick a favourite line but I think mine is this: "Of course America makes mistakes – grievous ones, which are scrutinised sharply in its political system and media."

Comical. Errr… Haven't seen much evidence of that for quite awhile friend.

This guy barely has the intellectual ability to run a golf club though his prejudices would make him welcome in any of them.

Warren, August 27, 2015 at 3:55 am

Lucas is an odious sanctimonious hypocrite. He merely preaches to people who share his prejudices.

ucgsblog, August 24, 2015 at 6:48 pm

Just reread this:

"The west knows all about the vulnerability of Russia's economy, its creaking factories and its over-reliance on the energy sector. When the introduction of sanctions over Russia's support for the separatists in Ukraine failed to bring Vladimir Putin to heel, the US and Saudi Arabia decided to hurt Russia by driving down oil prices. Both countries will face some collateral damage as a result – and this could be considerable in the case of the US shale sector – but both were prepared to take the risk on the grounds that Russia would suffer much more pain. This has proved to be true."

Dang. Oh, oh. Where do I even start? First, I know a few US oil traders; they're in it for long term profit. They didn't want the risks and don't give two shits about Ukraine. It's why you don't see them lining up to donate to Ukraine. Second, in order to kill US shale, the Saudis drove down the price, after informing Russia of their actions. Third, it's not US shale that's currently driving up the prices, it's Saudi Arabia, and, yep, Russia. US shale is crying "uncle, uncle!" On top of this, the oil price effectively busted Obama's green energy legacy, or as a commentator said: "da, ne vezet cheburashke, ne vezet!" Student loans also busted his education legacy, he's going to be an all around failure. Ouch!

But none of what I said makes that comment stupid. Not a thing. What makes said comment absolutely asinine, is that by claiming that the Oil Wars were started by US and Saudi Arabia to hurt Russia, and by additionally claiming that said Oil Wars are continued to be ran by US and Saudi Arabia to hurt Russia, those idiots effectively gave Russia a powerful weapon to hurt the US financially, and because Obama got pwnd on the Iranian Deal, (Bob Gates' words, not mine,) the Saudis want to answer to Russia, which is why they're signing energy deals with Russia like there's no tomorrow.

To be absolutely blunt: the US media gave Putin a proverbial gun to shoot themselves with, while claiming that they're actually holding said gun to Putin's head. When the proverbial shot goes off, hilarity will ensue.

As if this wasn't enough, in order to keep US shale somehow functioning, low cost loans are being made, and the current demand is a must. Low cost loans will only work by keeping the interest rate at 0.1%. What does that mean? It means that the "poorly performing" Russo-Chinese currencies have done something that I thought would be impossible a few months ago: they checked the dollar's aggressive stance. Yes, the dollar is still a power to be reckoned with, but the US can no longer lead with the dollar; rather, the US must wait until Russia and China attack the dollar, which they won't do.

Furthermore, demand is dropping. Supply is increasing. US shale is slowly but surely going bankrupt. In order to prevent that, US must keep interest rates low, meaning that the dollar's effectiveness is checked, which, according to Elliot, is Obama holding a proverbial gun to Russia's head. As if this wasn't enough, there's still the potential Greek Switch, which could lead to the collapse of the Euro. Add the rise of Nationalist Parties in Europe, and you'll see the shift towards Russia, thus giving Putin the Lisbon to Vladivostok trade route. Combine that with the Silk Route, as well as India and Pakistan's dispute being solved peacefully by the SCO… do I really need to keep going here? And remember, according to Elliot, the US has the proverbial gun, so Putin better give Crimea back, pronto!

marknesop, August 24, 2015 at 9:17 pm

Certainly a much more optimistic forecast, what?? I wonder if Russia actually does know this, and it is calculated, or is it just a series of big dominoes falling over one by one? It's certainly true that Saudi Arabia and Russia are a lot chummier than you would expect, given that the former is supposed to be part of a deal to screw the latter. And you are correct that the further out on the limb U.S. shale goes to prove to the world that it's still unhurt, the further the drop will be when the fiction can't be maintained any longer.

I don't really wish the USA any harm – although I despise its government and more or less its entire political class – and I hope there's no collapse like that because it would hurt a lot of decent people who didn't do anything worse than believe in The American Dream. Not to mention our economic fate is inexorably tied to yours. But the global economy does appear to be unraveling – for the second time in our lives – right before our eyes. Whose economy is hurting, Mr. President?

That's a hell of an analysis. And it's always easier to spot a trend if you're looking for it. So let's see if you're right – if you are, you're a visionary, because nobody who feels they're authorized to talk about it sees a picture like that. I don't dispute that some in the back room see things starting to come apart, but of course they won't say that. Running panics the troops.

ucgsblog, August 25, 2015 at 6:31 pm

Thank you! Russia doesn't know this, but simply reacts in the best possible way possible. It's like racing a track for the first time, you don't know where it turns, but when it does, you do the best you can, and eventually, someone is going to have the record time, and someone else will ask: "did they know?" Nope, they simply adapted, and when it comes to resurging and adapting, Russia's numero uno.

In terms of US shale, it's not so much that it's going to collapse, but rather, that the capitalization of US shale will hold back the dollar. The problem with the US political class is rooted in the two party system, which reduces political debates to "my side yay, your side boo" type of arguments. These in turn rely more on messaging power, i.e. dollars, which enables those with the money to work the electoral college to play a hefty role in elections. If we simply abolished the electoral college… that'd be an improvement, but Republicans and Democrats jointly oppose that.

I'm coming from the trend that was first displayed when Russo-Chinese leaders called the SCO a "success beyond our wildest dreams". That's my perspective. It's hilarious to see others suggest that Russia and China will break apart, and even paid analysts are getting pissed off at the bullshit they have to write, which is why you get articles with "Russia is China's junior partner… Russia and China treat each other as equals…" where any analyst reading that knows that the writer was very pissed off at the editor.

As far as panicking the troops, the truth's that there's massive divestment from internationalism and more and more people are pushing for the Moneyball Model. By the time the rout hits, poor saps like Julia Ioffe will look around and go "waaa!" but no one will be there to defend them. And then those whom they fucked in the 1990s will have their vengeance in a trollish way. As for me, I'll be deciding which brand of popcorn to buy. We have more varieties in California than almost anywhere else, it's a tough, tough choice. BTW, I'm open to suggestions.

Guy, August 24, 2015 at 10:37 pm

Something i would like to add. There's one more point that i think everyone has overlooked. Fact that the US dollar is backed by other peoples traded oil means that the US is effectively relying on that traded oil to support it's currency. International trade, commodities and the shuffling of paper are what keeps the dollar afloat. If the price of oil drops by let's say $10, the demand for dollars to buy that oil also falls by $10 across the entire spectrum of the oil market. This amounts to a direct attack on the dollar price as if a country had dumped that many dollars. Now we're seeing Chinese trade slow down, also a reduction in demand for dollars, and the're going out of their way to defend their markets which also involves dumping of dollars.

ucgsblog, August 25, 2015 at 6:33 pm

Thank you! And you're right that both of those processes hurt the dollar; where we might disagree is a matter of scale. I think that it hurts the dollar slightly, akin to an artillery barrage to prevent a charge, but leaves the unit in cohesion. I'm unsure if you share that view, or if you think that it does extensive damage to the dollar/unit.

Guy, August 25, 2015 at 9:40 pm

Well if it really did do extensive damage on it's own would think that it would be more visible by now. I think the damage i not visible due to the fact that people won't necessarily dump their dollars just because they don't immediately need them to buy oil. But your analogy is absolutely correct. I think in the long term this will prevent the fed from printing too much more and facilitate de-dollarisation by freeing that capital up to be invested in other assets, perhaps not dollar denominated. It all depends on where the extra capital goes. If it goes back into more trade or assets that require dollars then there would be no effect. However on it's own the quantity that we're talking about is rather immense. This effect will become more pronounced when China opens up it's own gold and commodities exchange because this allows the freed up capital to be funneled elsewhere.
Regarding your views on the oil market i think you would be interested to read my analysis below. Ehhh.. it's somewhere down there, not sure how i can link to it. My views are that US shale will be allowed to die so that the companies can be bought up for penny's on the dollar by predatory hedge funds and restarted once the price rises again and the crash in oil prices is solely orchestrated by US banks which have the capital and leverage to short it on the paper market.

karl1haushofer, August 25, 2015 at 12:14 am

But generally low oil benefits the West (because they are net importers) and hurts Russia (because they are a major exporter). The losses in US shale industry is not a doomsday scenario for the US economy. The cheap imported oil more than compensates for that. The shale industry can always be restarted once the oil price goes up again (whether it happens in a year or after ten years).
Russian economy has always been dependent on oil prices though. The fall of Soviet economy started after the oil price collapsed in the 1980's. The two biggest GDP drops of Russian economy happened when the oil price bottomed in 2008-2009 and in 2015.
So the writer is right that low oil price hurts Russia while the West mainly benefits from it.

karl1haushofer, August 25, 2015 at 12:27 am

The biggest question for Russia is that if the period of low oil price lasts for a decade how can Russia cope with it. Easy oil money is not flowing to the economy anymore. Russia needs to find new (and harder, more difficult) ways to earn money and generate wealth. They have no other choice if they want to keep the country intact (since economically weak Russia would become an easier target for disintegration by the West).

Guy, August 25, 2015 at 12:45 am

It won't be priced low for decades. The cure for low oil prices is low oil prices. Eventually high cost suppliers will go bankrupt, keep in mind that countries such as Venezuela and even Saudi are struggling. The US most likely won't save it's shale producers. It will use this opportunity to cannibalism them and then yes restart production when oil prices have gone up, however this doesn't impact the fact that they will stop production in the short term, which is already putting hundreds and thousands of people out of jobs.
The recent hiccup by China saw $250billion wiped off the EU markets. Even if they go into a death spiral Russia is far less affected by this than the EU, US, Japan Etc… due to it's limited exposure to the global financial system. From what i can see THEY DEFINITELY WILL FOLD FIRST. IMO this also strengthens Russia's position vis a vis China.
Lastly no ones going to be sitting still and twiddling their thumbs for decades. While i do feel that more could be done in some sectors, the initiative is there to reorient the economy.

ucgsblog, August 25, 2015 at 6:41 pm

No one is saying that it's a doomsday scenario for either economy, but one has to look at the greater picture. If Putin was truly worried about the price of oil, he would've screwed over the Iranian Deal, which would've increased oil price. He didn't. It's more complex than a-good and b-bad.
Russia needs to divest from oil. Badly. The fall of the oil price is forcing the Russian economy to do that, when the Russian economy can take the damage. Think of it as having a great workout – yes, it'll hurt, but you need to go through the pain to make the gain. Russia needs the low price oil pain to divest. And Russia can take said pain.
Similarly, the US also needs more green energy development, but the low prices of oil is hurting said development. The US economy isn't recovering as fast as it should. So while Russia's hitting the gym, US is slouching around, if we are to use my comparison. Which one is going to be better off in the long term?
The Soviet Economy was stagnating, not falling. The USSR fell due to propaganda damage from within, not economic damage, i.e. the combination of Perestroika and Glasnost. The EU is repeating said mistake with Open Borders and Austerity.
As thus, the writer's right in the short term. But most analysts don't care about the short term. If we did, we'd be working in shorting stocks. We care about the long term, where the effect is the exact opposite.
That said, thank you for your responses Karl!

Warren, August 25, 2015 at 2:52 am

So How's That Economic War on Russia Faring? #Russia pic.twitter.com/KQVeVAwBHy
- Russia Insider (@RussiaInsider) August 24, 2015

Warren, August 25, 2015 at 2:55 am

Londongrad: TV comedy shows London through eyes of its Russian inhabitants
Russian comedy detective series centres around a 'fixing' agency set up to troubleshoot problems for rich Russians in London
http://www.theguardian.com/world/2015/aug/21/londongrad-portrait-of-london-russian-inhabitants

[Aug 31, 2015] China can ride out this crisis. But we're on course for another crash

"... There is every reason to fear more fallout from casino capitalism ..."

"... A dysfunctional model of capitalism, built on deregulation, privatisation and low wages, crashed and burned seven years ago. But the fallout from that crisis is still ricocheting around the world, from Europe to the "emerging economies", as the attempt to refloat a broken model with cheap credit inflates asset bubbles and share buybacks – or enforce it with austerity – fuels new crises. ..."

"... That's one reason why the anti-austerity movement and the demand for economic alternatives is growing across Britain, Europe and the US. The elites so evidently don't know what they're doing, even as they rake in the spoils. ..."

"... Conclusion: dramatic market fluctuations of the past few weeks were primarily irrational !! Most losses have already been recouped and for all of the sound and fury, corrections appear to be marginal, not precipitous. ..."

"... Steve Keen, for example, saw the 2008 crash coming, and continues to provide very good, reasoned analysis about what continues to occur. ..."

"... First, we all know that markets have been rigged since QE was introduced to pull the Establishment's irons out of the fire. But surely there is an uncomfortable paradox in the knowledge that, in this latest saga, while the world's greatest totalitarian regime was signally unable to rig its market, conversely it took only a day for the great champion of free market capitalism to do so? ..."

"... "In 2013, 45.3 million people (14.5 percent) in the USA were in poverty. ..."

Aug 30, 2015 | The Guardian

Market mayhem is the product of the aftershocks of 2008. No wonder calls for alternatives are growing

It may not yet be the moment to get in supplies of tinned food. That was what Gordon Brown's former adviser during the 2008 crash, Damian McBride, suggested on Monday as stock markets crashed from Shanghai to New York and $1tn was wiped off the value of shares in one day. But seven years after the collapse of Lehman Brothers brought down the global financial system and plunged half the world into a slump, it's scarcely alarmist to see the financial panic as the harbinger of a new crisis in a still crippled world economy.

The market gyrations that followed "Black Monday" this week and the 40% drop in the value of Chinese stocks since June have only underlined the fragility of what is supposed to be an international recovery. For all the finger-wagging hubris of western commentators over the fact that the latest mayhem has erupted in China, this is a global firestorm. And after three decades of deregulation punctuated by financial crises and a systemic meltdown, there is every reason to fear more fallout from casino capitalism.

Financial markets pumped up with credit and quantitative easing to keep the real economy afloat are in any case ripe for a crash – or "correction", as the market players like to call it. The only question is how far and fast they go – and how great is the price paid by the rest of us.

Paradoxically, Beijing may be better placed than others to ride out this storm. China's economy is slowing down, as it shifts from export-led growth to consumption. But it's still growing at 7%, nearly three times as fast as Britain and the US, which are supposed to be the west's current star performers. Even if China's figure is overstated, its growth is still at least double the Anglo-American rate: the kind of economic problem the rest of the world would be happy to have.

That follows three decades when Chinese growth averaged 10% a year, delivering the fastest economic development and reduction in poverty in world history – as well as rising inequality and environmental degradation. But China's stock market is small compared with its western equivalents and relatively insulated from the rest of the economy.

Despite its huge private sector, China is still a hybrid economy, dominated by state banks and publicly owned corporations. That means its financial system is shielded from the impact that a stock market crash on this scale would have in a western-style private banking system.
China rode out the 2008 crash by pumping public investment into the economy, delivering 78% growth between 2007 and 2014, while the US managed 8%. That has left it with a huge debt pile, estimated at 282% of national income, which some now believe will bring China's economy to a juddering halt.
But that is mostly debt between state-owned institutions, so there is no basis for a speculative Lehmans-type collapse. In fact, some of the problems China is now facing as it tries to bring the stock market crisis under control, such as capital outflow, stem from the liberalisation urged on it by the World Bank and its own home-grown would-be oligarchs.

There is every reason to fear more fallout from casino capitalism
China's room for manoeuvre would certainly be much narrower if it had gone for their full deregulation and privatisation package. But the main drag on the Chinese economy isn't the failings of its own economic model, but stagnation in the rest of the world. Global trade suffered its largest contraction since 2008 in the first six months of this year, partly as a result of the ongoing crisis in the eurozone. Eight years after the financial crisis erupted in the US, its aftershocks are still being felt across the world.
A dysfunctional model of capitalism, built on deregulation, privatisation and low wages, crashed and burned seven years ago. But the fallout from that crisis is still ricocheting around the world, from Europe to the "emerging economies", as the attempt to refloat a broken model with cheap credit inflates asset bubbles and share buybacks – or enforce it with austerity – fuels new crises.
That is what has been played out across financial markets this week, in which China has been a transmission belt rather than the motor. Any idea that the western economies that generated stagnation have been fixed is not serious. Their recoveries have been the slowest on record and interest rates remain at a historic low – because owners of capital are prepared to invest in anything except the productive economy. The likelihood must be that this stagnation continues indefinitely, punctuated by financial upheavals. Without far-reaching change in economic policy, they can be expected to trigger crises that will tip western economies, and others, back into full-blown recession.
That's one reason why the anti-austerity movement and the demand for economic alternatives is growing across Britain, Europe and the US. The elites so evidently don't know what they're doing, even as they rake in the spoils. In such a context, calls for large-scale public investment, ownership and quantitative easing for the real economy made by Labour's leadership frontrunner, Jeremy Corbyn, look far more realistic than the business-as-usual offered by his rivals.
If the current market chaos turns into another crash, the demand for much stronger measures will become unstoppable.

the_thoughtful_one 29 Aug 2015 06:47

well said article - and in the BBC news the ex Sainsbury's boss attacks a living wage - while he earns 176 times that wage and hardly presided over a great Sainsbury's did he - because their share price dropped 30% after his shift, his foundations
and they still pay 3p/hr less than Tesco after a 4% pay rise so you can see this was forced on the company
people of his ilk "ARE" the problem.

HeinzH 29 Aug 2015 06:37

With todays capitalism ,which derailed under Thatchers/Reagans reign,the problem is not deregulation and privatisation but looting of the economy.Free hands to the bank establishment has given us a never ending criminality in the markets and a rising number of extremly rich people in the industrialized world.Is it that difficult to understand that the amassment of riches amongst the already rich is no way for creating a just and sustainable society?

soundofthesuburbs 29 Aug 2015 06:26

The timeline for the collapsing global economy.
Japanese banks had been on a maniacal lending spree into real estate and the bubble popped in 1989. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.
Japan then had the rest of the world to trade with that was still doing well but it never really recovered.
US banks went on a maniacal lending spree into real estate and the bubble popped in 2008. Rather than own up to losses and admit their bankers were fools, they covered up the problems with loose monetary policy.
US banks used complex financial instruments to spread this problem throughout the West.
"It's nearly $14 trillion pyramid of super leveraged toxic assets was built on the back of $1.4 trillion of US sub-prime loans, and dispersed throughout the world" (pg 404, "All the Presidents Bankers", Nomi Prins).
Rather than own up to losses and admit their bankers were fools, the UK and Euro-zone
covered up the problems with loose monetary policy.
Japan, the UK, the US and the Euro-zone had the BRICS nations to trade with that were still doing well but they never really recovered.
The BRICS nations are now heading for recession.
Doesn't look good does it.

coplani 29 Aug 2015 04:45

The fundamental question is simply this....
Can millions of people continue to make a living from sitting on their backsides and investing or gambling on the stock markets.
"Loads of Money" and "Money Making Money from Investing"...
Is it sustainable in a World where growth is no more...
Markets and asset values at an all time high...Can this money making money from investing continue indefinitely...Especially when others are joining in by the million.
Our whole way of life is now dependent on the markets and they cannot be allowed to go down in value...Thus Q.E. and record low interest rates....Currency devaluation could be next as has already happened elsewhere...
Investment funds, Pension Schemes, Banks, Massive Financial Institutions etc now depend wholly on money making money....
Any enterprise started, which seems to be profitable is snapped up by the market looking for money to make money...
For how long can this be sustained....That is the question.

KassandraTroy 28 Aug 2015 19:06

Yup. The definition of insanity is doing the same thing over and over and expecting different results.

Yet here we are, courtesy of the new "free trade agreements", ready to turn 40% of the global economy over to these same players right when we need to put on the brakes. Because, of course, the oligarchs have bought our governments. I shudder to think of a world ruled by the multi national corporations. It'll probably collapse in 6 months...maybe a few more for the planet to just stop

nnedjo 28 Aug 2015 15:16

Their recoveries have been the slowest on record and interest rates remain at a historic low – because owners of capital are prepared to invest in anything except the productive economy.

Well, something like this, only more exclusively, says also a former Greek Finance Minister Yanis Varoufakis. In his article "How I became an erratic Marxist" Varoufakis says:

Today, turning to the European crisis, the crisis in the United States and the long-term stagnation of Japanese capitalism, most commentators fail to appreciate the dialectical process under their nose. They recognise the mountain of debts and banking losses but neglect the opposite side of the same coin: the mountain of idle savings that are "frozen" by fear and thus fail to convert into productive investments.

So, indeed, it seems that rich people of today are chosen only to remain rich, and to enjoy life. So they keep their money in banks, not taking anything with them, nor even think to invest it in something and so increase their capital. Accordingly, in addition to reducing the number of workers as a result of the automation of production, modern capitalism is faced with another phenomenon. He is in danger of losing the capitalists too.

And, capitalism that has no workers, and at the same time has no capitalists too, in many ways resembles Marx's ideal of a classless society by the name of communism. :-)

konga76 28 Aug 2015 15:08

The author's message is suspect. The stock market crash of the last week was mostly panic. Fundamentals in China market are unchanged, Western investor participation in said market was severely limited by Chinese law, and Western exposure to market contraction was meager.

In US, where biggest Western drop was seen, only 1% of economy hurt by China contraction. Additionally, there is considerable doubt that the author's 7% growth in China is accurate. Many economists inside and out of China believe it to be significantly less, and these suspicions are not of recent vintage. And, recent data corrections have shown US economy grew at 3.5% earlier this year, not the 2% previously reported.

Conclusion: dramatic market fluctuations of the past few weeks were primarily irrational !! Most losses have already been recouped and for all of the sound and fury, corrections appear to be marginal, not precipitous.

ID401112 -> goodlife9 28 Aug 2015 13:28

Good post. Economics is imprecise, granted, and it doesn't help that most world leaders are completely financially illiterate. But there are different schools of thought and economist that offer very robust analysis of the current economic situation. They're just not listened to because the needed measures are both in direct conflict with the needs of party donors, and expectations of the voting public.
Steve Keen, for example, saw the 2008 crash coming, and continues to provide very good, reasoned analysis about what continues to occur.
Similary, the Austrian school of economics gives very good critique on the inherent dangers and problems associate with fiat money.
But who in power would significantly reduce the value of housing or return to a gold standard as party policy.

OstanesAlchemy 28 Aug 2015 09:57

Who thought a debt based monetary system was a good idea? Oh yes, it was those people who had capital they wanted to "leverage" (multiply) without obligation.
So why don't we face the fact that over 90% of the money in the economy was issued as debt, and that leads to the mathematical certainty that the debt is, not only never going to be paid off, but thanks to the compound interest, completely unsustainable.
We must be so stupid as a species to allow the massive excess capacity in our economies to go to waste, and for our populations to go without for the want of the right numbers, in the right places on a computer chip. A problem that could literally be solved (or at least alleviated) at the stroke of a few keys.

nishville -> Limiting_Factor 28 Aug 2015 02:14

Is it the West's fault?
In this case, a resounding yes. West caused this crisis by promoting and exporting neoliberal capitalism, a system that thrives on instability. You can regard it as a virus infecting the organism of interconnected world economy.

RalphTheStaller 28 Aug 2015 01:17

As the dust settles on the latest "correction", one is left with a sense of unease.
First, we all know that markets have been rigged since QE was introduced to pull the Establishment's irons out of the fire. But surely there is an uncomfortable paradox in the knowledge that, in this latest saga, while the world's greatest totalitarian regime was signally unable to rig its market, conversely it took only a day for the great champion of free market capitalism to do so?
Secondly, we all know that when a market is challenged it is either the earnings base which is called into question or the multiplier used to capitalise the income. Would it not have been healthier for the philosophical base of neo-capitalism if the challenge to valuation had come from bond investors seeking a real return rather than fears that corporate earnings would not fulfil expectations?

nnedjo lib410 28 Aug 2015 00:36

And some of the former Soviet and Communist bloc countries have already reached about 50% of this level, after only about 10 years of EU membership?

More precisely, only one of the former socialist countries and it is Slovenia. Also, it should be noted that Slovenia was the most developed of the former Yugoslav republics. And former Yugoslavia had never belonged to the eastern bloc - Warsaw Pact, and besides that, by its economic development was roughly at the level of the least developed European countries, like for example Greece.

So the fact that Slovenia, which had previously been economically developed as Greece, after 25 years of capitalism has again reached Greece in average salaries, for you is "an incredibly fast transformation".

A very interesting observation, I must admit. :-)

OneCommentator 27 Aug 2015 21:49

Hunger eliminated in the developed world?? You must be a comedian.
Here's a statistic for you to chew on:
"According to the United States Department of Agriculture (USDA), 15.8 million children under 18 in the United States live in households where they are unable to consistently access enough nutritious food necessary for a healthy life.
And another:
"In 2013, 45.3 million people (14.5 percent) in the USA were in poverty.
You say "very few cases" -
You mean 15% or 1-in-7 qualifies as "very few"?
Here's another fact:
"Nearly 70 percent of the households served by food banks report that their most common spending tradeoff was between paying for utilities or food.
If you're saying that 15% of American households are in poverty because they're drug-addicted, that's delusional. They're in jobs & paying their bills - But they can't keep up with expenses.

eminijunkie 27 Aug 2015 19:24

Henry Ford is one of the very few people of the modern, or near modern perhaps, age who actually understood the basic concept of a consumer based economy. There must be consumers, consumers must have the means to obtain what the consume, and if they consume those that produce that which is consumed can make a living by selling the goods that are consumed.
Cut back on the money people have with which to purchase things and you strangle the economy as a whole. This is called austerity, and so naturally it does not work. The less one pays consumers to consume, the less they consume and the less the producers produce and eventually the whole scheme grinds to a point of catharsis of some sort.
The idea of a small number of people becoming extravagantly by gained vast wealth is something that is entirely destructive of the whole idea of any economy, whether you call it communistic or capitalistic.
The problem, of course, is that the earth just might not have unlimited resources, but there is such a thing as recycling and alternate forms of energy etc. The one thing there can't is a rich of inordinately wealthy hoarding all the money and mobs of consumers who don't have the wherewithal to consume.
Ultimately, of course, if that continues too long and too seriously, history tells us the day will come when the consumers consume the wealthy.
Perhaps some compromise will come first.
As a side note, there was a problematic gentleman in Germany in the 1930's that listened to Ford and got himself on the cover of time magazine a number of times as an economic miracle worker, but we no longer pay any attention to him or what he accomplished by implementing the above concept of solving a server economic crisis by just giving citizens money to spend.
People without wealth who are given money go right out and spend it all, and that's good for business everywhere.
And a person who works hard enough and/or smart enough to make a billion dollars will, for the most part, work just as hard to earn a million if that's all he or she can get, because a measly million beats the public dole any day of the week.

smalltownboy shaun 27 Aug 2015 19:15

It means that the question is, who will now buy US treasuries? (Who will now back-stop the dollar?).

Don't worry your pretty little head about it, shaun. There are lots of takers for US treasuries. China had no problem selling some of their stockpile in an an effort to prop up the yuan, which is still pegged to a basket of world currencies, including the dollar. You need to stop getting your financial news from Zero Hedge and RT.

nnedjo nnedjo 27 Aug 2015 17:48

Thus, the average EU-28 wage per hour amounts to about 18 euros, according to this chart.

Realworldview 27 Aug 2015 17:48

China can ride out this crisis. But we're on course for another crash

We are certainly in for another crash, and its scale will be beyond all previous crashes, also China will not ride it out, it will crash along with other nations. The consequences of the looming financial collapse will last for centuries, because the era of economic growth is over meaning debt cannot be paid down. How Economic Growth Fails provides a plausible explanation, with the consequences explored in Deflationary Collapse Ahead? These extracts reveal a major blind spot in the discipline of economics that means economic and political elites fail to understand the impact of limits on the economy and why their "conventional" economic policies are failing:

Today's general level of understanding about how the economy works, and energy's relationship to the economy, is dismally low. Economics has generally denied that energy has more than a very indirect relationship to the economy....

Economics modelling is based on observations of how the economy worked when we were far from limits of a finite world. The indications from this modelling are not at all generalizable to the situation when we are reaching limits of a finite world. The expectation of economists, based on past situations, is that prices will rise when there is scarcity. This expectation is completely wrong when the basic problem is lack of adequate wages for non-elite workers. When the problem is a lack of wages, workers find it impossible to purchase high-priced goods like homes, cars, and refrigerators. All of these products are created using commodities, so a lack of adequate wages tends to "feed back" through the system as low commodity prices. This is exactly the opposite of what standard economic models predict.

For a comprehensive overview of our situation and just how limited our future options are, this article by Nicole Foss posted on The Automatic Earth website is a must read: Nicole Foss: The Boundaries and Future of Solution Space. These extracts reinforce the role of plentiful cheap fossil fuel based energy in our industrial civilisation, and the unwelcome consequences of its future unaffordability once a global deflationary collapse has occurred:

We are facing limits in many ways simultaneously – not surprising since exponential growth curves for so many parameters have gone critical in recent decades, and of course even more so in recent years. Some of these limits lie in human systems, while others are ecological or geophysical. They will all interact with each other, over different timeframes, in extremely complex ways as our state of overshoot resolves itself (to our dissatisfaction, to put it mildly) over many decades, if not centuries. Some of these limits are completely non-negotiable, while others can be at least partially mutable, and it is vital that we know the difference if we are to be able to mitigate our situation at all. Otherwise we are attempting to bargain with the future without understanding our negotiating position.

The vast majority has no conception of the extent to which our modernity is an artefact of our discovery and pervasive exploitation of fossil fuels as an energy source. No species in history has had easy, long term access to a comparable energy source. This unprecedented circumstance has facilitated the creation of turbo-charged civilization.

Huge energy throughput, in line with the Maximum Power Principle, has led to tremendous complexity, far greater extractive capacity (with huge 'environmental externalities' as a result), far greater potential to concentrate enormous power in the hands of the few with destructive political consequences), a far higher population, far greater burden on global carrying capacity, and the ability to borrow from the future to satisfy the insatiable greed of the present. The fact that we are now approaching so many limits has very significant implications for our ability to continue with any of these aspects of modern life. Therefore, any expectation that a future in the era of limits is likely to resemble the present (with a green gloss) are ill-founded and highly implausible.

nnedjo Hippokl, 27 Aug 2015 17:43

Well, these are the data obtained from Eurostat, the statistical office of the European Union. And on the left side of the graph you have data for the EU-28, and the Euro area EU-18. In the previous post I am slightly increased earnings per hour in the EU-28 at 25 euros, because it is in fact the information when other labour costs are added to the wages and salaries.

nnedjo 27 Aug 2015 17:16

Let's simplify things a bit. Technological development leads inevitably to the fact that things that were previously available only to a few individuals become available to most average people. The reason is that the development of technology increases the productivity of the average man, so that someone who previously could produce goods only for a few people, now can produce goods for the huge number of people.
So, if we neglect the economy, judging solely on the basis of technological development should not be such a thing as stagnation in production, and every man would become constantly richer and richer because he would have received more and more goods, as well as other values in the field of health care, education, entertainment, recreation, ... etc.
And, since even today is nothing wrong with technology, it is obvious that this is not a technological crisis, but this is the economic crisis.
And, how did it come to this economic crisis? Well, advocates of austerity measures obviously claim that the crisis was created so that people are spending more than they earn, and this is why they must now spend less, or to agree to austerity measures. However, if someone is spending more than it earns, then someone else had to earn more than what he spent. In other words, if this is true, then the economic crisis would have occurred only in some countries and not in all countries of the world, including the most developed ones. That's the obvious flaw of this argument, and it is clear that this is a classic crisis of capitalism, like many that have occurred previously, and on which, among others, Karl Marx also was talking about.
So the basis of Marx's teaching is precisely the fact that the employer pays employees based on quantitative measures of labor, ie the number of hours spent at work, and not on the basis of what he can really produce for the same number of hours. In this way, the worker always produces more values than it receives from the employer as wages. And in this way the owner appropriates this surplus of created values , and thus becomes more and more rich.
However, that the surplus of produced values turned into capital, the owner must sell goods in the market. But who is going to buy the goods, if most customers are workers who also produced more goods than they get money for it? In other words, on the market appears surplus of goods, which nobody can buy. You have on one side the huge number of empty houses, and on the other side, you have a huge number of the homeless. (Does this sound familiar?). You have overproduction of food on one side, and on the other side, you have an army of hungry. Or, on the one hand, the huge number of cars, and on the other hand, people go on foot.
And, since it is impossible to sell previously manufactured goods, it is clear that there is no purpose to increase the new production. In other words, production is decreasing, and the economy falling into recession.
And how this crisis of capitalism can be overcome? Advocates of austerity say that capitalism can be saved only "by becoming more capitalist". Or in other words, so that the workers will be paid even less than before, either from private owners or by the state, and commodity (electricity, gas, water, etc ...) will become even more expensive. But, whether is not the main cause of the crisis precisely because the goods have become expensive for people who are not paid enough to be able to buy it? And then, how austerity measures may increase production and pull the economy out of recession? It is obvious that they can not, which means that the solution is not "capitalism that will become more capitalistic". Recession can be solved only in that way that capitalism will become more socialist, or roughly with the introduction of those measures that Jeremy Corbyn suggests. In that sense I would say that Seumas Milne is right because he gives Jeremy Corbyn for the right.

MarkThomason 27 Aug 2015 17:11

I should add that I know of three stores near me that had been in business a long time, and closed because their usual suppliers were unable to extend the usual terms for inventory, because the suppliers had lost their credit lines. None had new risks or new problems, they just had their long-standing arrangements cancelled on them due to the financial crisis.
Meanwhile, the casino ran full blast with borrowed money provided by the government.

[Aug 31, 2015] Forget China Oil price main driver for market turmoil

The story that really matters right now is oil derivatives and hedges

"...Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. "

"...Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these loses. "

"...The problem, as with everything, was the financialization of oil."

Aug 29, 2015 | GEFIRA

Commentators are linking the current market turmoil to problems in China. Our team sees the oil price as the main driver behind the market route. Low oil prices are positive for consumers and it will lower production costs for numerous industries. However it will also lower the investments in energy such as sustainable energy and oil producers will see their high profits turn into losses. Low oil prices have devastating effects on the financial sector that is involved in lending to the oil industry and in the trade of oil related derivatives. World oil production is about 90 million barrels a day, representing a cash flow of about nine billion dollars a day which comes down to three trillion dollars a year. With the oil price 40 to 50% lower, this flow is also cut by 40 to 50%. This amounts to 10% US GDP. Compare it with the 0.5% growth we are now missing in China, we prefer to keep our eyes on the oil price. These extreme moves can not be without consequence.

Many oil producers receive a fixed price for their oil as they covered their production with price insurance in the form of derivatives. With the current oil price, we just guess insurance providers paid out about 35 dollars a barrel to compensate the losses of the producers. Only for the US shale production this amounts roughly to 120 Million dollars a day. Somehow the financial sector has to cover these loses.

Comments from Zero Hedge
adr

The problem, as with everything, was the financialization of oil.

Had oil not been turned into the latest greatest leveraging scheme by Wall Street, it probably never would have gone north of $40 in the first place.

Rebalancing and true price discovery is needed. Oil needs to settle at $45 a barrel and allow this price to filter all the way through the supply chain. $45 still represents a 100% increase to the price of oil at the close of the 20th century.

The USA can have $1.65 gasoline. Shipping rates can come down and perhaps the economy can truly mend.

[Aug 31, 2015] Is China's Devaluation a Game Changer

"...I don't believe the Western financial system is axiomatically all bad. It's under contest. Dodd-Frank. Who knows, maybe it is. Look at Greece.
What they need are capital controls and financial transaction taxes to slow down the hot money. All economies need that. "

Aug 31, 2015 | Economist's View

rayward

Too complicated. China's politicians are no different from our politicians (well, a little different - ours may be sent into exile but theirs, well), they respond to their constituency: the investor class. Until they don't.
Ridiculing China's government for not understanding markets is a little rich given the recent history in the U.S. What I find interesting is the similarity between China and the U.S.: both share a high level of inequality and a bubble in financial assets.

What they don't share is fiscal stimulus: China with a fiscal stimulus on steroids, the U.S. fiscal stimulus non-existent. If China's economy ascends and the U.S. economy doesn't, how ironic that China understands capitalism better than us. How else does one explain all the China bashing in the U.S.: it's the insecurity, stupid.

JF said in reply to rayward...

Rayward, very nice.
I am hopeful that chinese officialdom is not measuring themselves or their society on the basis of whether they obtain hegemon status within the financial system.
I am hopeful that they want stability, rising living standards, and other elements within their society that fulfill the promises of the US Constitution's Preamble and the 'life, liberty and pursuit of happiness' phrase from the Declaration.
They believe in money, they believe in markets (not idolatry though), they understand systems and freedoms-of-order, and they have the US to emulate for their 1.3+ Billion people. Financial hegemon??

anne said in reply to anne...

The Chinese economy needs to resist global integration of both
The RMB
And
The domestic credit system
The only cost to credit systems are opportunity costs
China has more directions of opportunity than any economy on earth
Throw a dart at a board and grant credit
What is necessary
A viciously punitive system for fraudsters and looters
[ I think the Chinese leadership agrees, but Western analysts seldom understand. No matter, the passage is interesting, clever and important. ]

Peter K. said in reply to Paine ...

"The Chinese economy needs to resist global integration"
Some random thoughts and brainstorming:
The Chinese economy is delivering rising living standards and wages. Full integration into the global (Western) system will halt that, you suggest.
However partnership with Western corporations has allowed them access to Western markets and know-how (tech, etc.)
Their living standards are going up at the expense of the Western job class and to the benefit of Western corporations and finance.
Is this the "Chinese economy" or their partnership with Western corporations?
What they need to do is sell to their own workers rather than the Western consumer market.
I don't believe the Western financial system is axiomatically all bad. It's under contest. Dodd-Frank. Who knows, maybe it is. Look at Greece.
What they need are capital controls and financial transaction taxes to slow down the hot money. All economies need that.
The neoliberals will argue it will slow growth and probably it will but growth will be more sustainable. Growth needs to be driven by the job class and income gains, not finance and debt.

Peter K. said...

Barkley Rosser has asked how China is different and how to define it. This appears to go some of the way. I don't know how much of it is true.
"Last August, we posted our most popular blog piece to date: China's Capital Controls and the Exchange Rate Regime.
In it, we explained how capital controls make it possible for China to maintain a fixed exchange rate while policymakers could adjust interest rates to stabilize their domestic economy.
We also highlighted how these same capital controls are incompatible with the objectives of making Shanghai a global financial center and the renminbi (RMB) a leading international currency.
Given the risks inherent in freeing cross-border capital flows, we concluded that the process of financial liberalization (both domestically and externally) would remain gradual. Yet, having seen China develop in unprecedented ways in the past, we have been watching to see if China could also alter conventional paradigms of finance and monetary policy. Could China do what no one else has done?"

anne said...

Well, it turns out that the "impossible trinity" or "trilemma" – which compels policymakers to choose only two of three from among free capital flows, discretionary monetary policy, and a fixed exchange rate – may be more like a physical law than nearly any economic principle we know....
-- Cecchetti and Schoenholtz

Using a technique Brad DeLong employs:
a) free capital flows and discretionary monetary policy but not fixed exchange rate

b) free capital flows and fixed exchange rate but not discretionary monetary policy

c) discretionary monetary policy and fixed exchange rate but not free capital flows

d) free capital flows, discretionary monetary policy and fixed exchange rate

a, b and c are possible, but d is impossible

Which then should China choose a, b or c?

anne said in reply to anne...

A problem is that I find no reason to believe Chinese leaders want free capital flows, which would mean that c) discretionary monetary policy and fixed exchange rate would be possible. China should be able to have a discretionary monetary policy and a fixed exchange rate as long as capital flows are controlled.
The question then is why would China need free capital flows? Should the Chinese leadership control capital flows, monetary policy would be effective in limiting or quickening growth at a given exchange rate or over a narrow currency value range as Chinese leadership are evidently choosing.

JF said in reply to anne...

My answer to your question about why they might want free capital flow is not telling for those who invest in China - my view is that they want the flow of commodities and some currencies to come into China. Flowing out, not freely. They can create credit and money all they want for flow within their jurisdiction, they don't need outsider's 'capital' - but really like other currencies of value and other things of value to come in.
I think only a few should be putting their hard-money into China. It is their risk, and I wish them well.
If this population attains an economic system and society like we had in 1965 (not counting the warfighting stuff at all here) - all the more power to them, and it will be a great place to invest then - just like the US was in 1965.

[Aug 31, 2015] Price of Oil Jumps Above $48 Per Barrel for WTI by Doug Madson

Daily violatility was over 13%.

August 31, 2015 | dakotafinancialnews.com

Share on StockTwits

Oil traders recently scared off due to an apparent glut of oil in the U.S. received good news on Monday.

The price of the dominant blend of North American oil jumped by close to 6% in a bit less than two hours on Monday. It was trading at $48 per barrel for the first time in nearly one month.

By midmorning on Monday, West Texas Intermediate's price was down slightly from its close on Friday or changing hands at approximately $43.75 a barrel. However, at that time the Energy Information Administration lowered forecasts for oil output in the U.S. The U.S. pumped over 9.3 million barrels daily of oil during June, about 100,000 less than what had been initially reported.

It was less than was churned out by the country in May, which was good news to the oil traders who were scared off due to the oil glut that has been seeing the world pump up to as much as 2 million more barrels per day that the overall world economy needs during this period of the year. All the excess oil that sits in storage tankers is what drove the price of oil per barrel down to $38 recently.

The new numbers by the EIA were sufficient to send WTI soaring in price to as much as $48 per barrel only two hours after the report had been released. Crude prices also were buoyed by an OPEC statement that suggested the oil cartel might be willing to reduce production until prices were to come back to levels that were higher.

Some traders had interpreted the statement as new evidence that the group, which is led by Saudi Arabia could be willing to turn the taps off in what is considered a meaningful way. Monday also is the last day of August, and the oil future contract often times has a volatile day during its last day of a particular month as the traders rush to settle positions prior to the activity of the previous month starting.

[Aug 31, 2015] Bernie Sanders Interview: The Business Model of Wall Street Is Fraud

"... And so we have the ascendancy of the Wall Street wing of the Democratic Party, and the Koch Brothers wing of the Republicans. ..."

"... And so we have the more focused, non-establishment campaigns of Bernie Sanders and Donald Trump shaking up the accepted norms in political campaigning wisdom. ..."

Aug 30, 2015 | Jesse's Café Américain

Most people are sick and tired of the system as it is now. And they are once again attempting to reject the status quo, having been badly disappointed by Obama and the Congress. And this gives rise to popular movements and even third parties.

The biggest problem with popular movements is that they either tend to be co-opted by the most powerful in the status quo and used badly, misdirected and deceived, as in the case of the Tea Party, or diffused by too many factions and lack of prioritization resulting in a lack of effective cohesion, as in the case of the Occupy Movement.

And so we have the ascendancy of the Wall Street wing of the Democratic Party, and the Koch Brothers wing of the Republicans.

And the corrupting power of Big Money underlies all of it, in part thanks to the Supreme Court ruling in Citizens United that defined corporations as having the rights but not the obligations of people, and money as free speech, while doing nothing to remediate the actual use of free speech by real people except in special zones and restricted venues, subject to some of the most oppressive abuse of the secrecy laws..

Contrast this with the anti-War movement of the 1960's which was driven by a single issue: end the war in Vietnam. The message was simple and clear, and it took hold, frightening the political establishment and hounding first Johnson to withdraw, and then Nixon to be so weakened and desperately foolish that he caused his own downfall.

And so we have the more focused, non-establishment campaigns of Bernie Sanders and Donald Trump shaking up the accepted norms in political campaigning wisdom.

I would like to think that finally, after all these misspent years, the 'same old same old,' no matter how artfully the spin machines may brand them, cannot win again.

The probability for change is higher now than in the past. But how it eventually turns out is another question. The electoral process is still very young, and many things may happen between now and next November. And the power of money and of powerful connections between the shadow government and the moneyed interests is still there, still lurking in the shadows and pulling strings.

https://www.youtube.com/watch?feature=player_embedded&v=QRztZ7p_65k

Interesting times.

[Aug 31, 2015] The Case for Realism in the Social Realm

"...So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless."

"...We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time."

Aug 31, 2015 | Economist's View

RC AKA Darryl, Ron -> djb...

[Yes, I know mine is exactly 6.25 inches because I measured it, but I can only guess that yours is shorter because there is no way that I am ever going to measure it :http://economistsview.typepad.com/economistsview/2015/08/us-inflation-developments.html

Egmont Kakarot-Handtke said...

Always clueless, never speechless
Comment on 'U.S. Inflation Developments'

For a dispassionate observer Stanley Fischer's speech and the tidal wave of blog comments makes it pretty clear that there is an intellectual black hole where something like a true economic theory should be.

There is absolutely no use in entering into the morass of conflicting nonsense. Here are two fixpoints to secure some orientation.

• Inflation theory has never risen much above the commonplace Quantity Theory. The QT is plausible but ultimately untenable. The correct formula for the overall price level is given herehttps://commons.wikimedia.org/wiki/File:AXEC64.pngfor details see (2015, eq. (12)).

• Alternative macroeconomic approaches like Krugman's IS-LM are fundamentally flawed since Keynes and Hicks (2014) without any economist ever spotting the provable formal defect.

So there is nothing to choose. Current economics consists of political economics, which is scientifically worthless, and theoretical economics, which is logically and materially inconsistent. Luckily, Jackson Hole shows: economists are clueless but never speechless.

Egmont Kakarot-Handtke

References
Kakarot-Handtke, E. (2014). Mr. Keynes, Prof. Krugman, IS-LM, and the End of Economics as We Know It. SSRN Working Paper Series, 2392856: 1–19. URL
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2392856
Kakarot-Handtke, E. (2015). Major Defects of the Market Economy. SSRN Working Paper Series, 2624350: 1–40. URL http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2624350

RC AKA Darryl, Ron -> RC AKA Darryl, Ron...

[WOW! Typepad really screwed up that post. Here is what it dropped.
Keynes' definitions are debatable. I am in no way advocating the comment from yesterday's 'U.S. Inflation Developments' thread that I copy here nor its linked academic papers. I am actually defending Little's poorly written paper on this thread because there is a cogent point buried in his muddled over elaborated treatise on the distinctions between physical and social sciences. After reviewing the following and considering the sources of the actual "metrics" used in macro (e.g., interest, GDP, unemployment) then you might ask whether formalization or usefulness are the more important goals for macroeconomics.

For my part, then I find no fault in a heuristic approach as long as we know where we are trying to go. I am a huge fan of Keynes.]

RogerFox said...

"First, there are no theories in the social sciences that have the predictive and explanatory success of the physical sciences ..."
That admission necessarily puts the sword to social science theorizing, including interventionist macro, as an ethical guide to real world decision-making - the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better.

Away with all the charlatans who insist on meddling anyway.

ilsm -> RogerFox...

Admission? Nah!
But there are no pentagon theories for war that can be relied upon.
See Vietnam, Iraq three times, Afghanistan.......
Fox admission only applies if you ignore reality.

djb -> RogerFox...

Yes RogerFox
Daniel Little who represents all people who have ever studied economics has let the cat out of the bag
That economists don't know anything
We were all hoping no one would notice, but of course, you are too sharp for us
Now of course it is probably too difficult for your shrunken brain to understand that your laissez faire philosophy is an economic concept, the results of which be studied and tested
But that's alright you got us
DAMN !!!

Peter K. -> RogerFox...

"interventionist macro,"
How can macro not be interventionist? In the middle of Krugman's latest blog post, he writes:

"What determines where we end up on that curve? Monetary policy. The Fed sets interest rates, whether it wants to or not - even a supposed hands-off policy has to involve choosing the level of the monetary base somehow, which means that it's a monetary policy choice."

"the intervenors themselves admit they don't know whether the consequences of their interventions will make things worse or better."

Not so, it's often easy to judge result.
What is Mr. Fox's school of thought? Know-nothingism? The Austrian school?

Peter K. -> Peter K....

https://en.wikipedia.org/wiki/Know_Nothing

"The immigration of large numbers of Irish and German Catholics to the United States in the period between 1830 and 1860 made religious differences between Catholics and Protestants a political issue. Violence occasionally erupted at the polls. Protestants alleged that Pope Pius IX had put down the failed liberal Revolutions of 1848 and that he was an opponent of liberty, democracy and Republicanism. One Boston minister described Catholicism as "the ally of tyranny, the opponent of material prosperity, the foe of thrift, the enemy of the railroad, the caucus, and the school."
"The origin of the "Know Nothing" term was in the semi-secret organization of the party. When a member was asked about its activities, he was supposed to reply, "I know nothing." Outsiders called them "Know-Nothings", and the name stuck."
One can imagine an old-timey Donald Trump railing against Irish and German immigrants.

Lafayette said...

{We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research. And we will understand too that claims about the reality of "capitalism", the world financial system, or fascism are to be understood less weightily than they first appear. Capitalism exists in a time and place; but it is understood to be an ensemble of relations and actions by the people of the time.}
Good point.
Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context.
Have all property owned by the state, then all profits will also be owned by the state, since individuals will receive only income. Of course, they tried that (calling it commune-ism), and it worked very badly.
Having property owned by individuals is just as bad if said properties generate Income that trickles-up to Wealth, then is used to manipulate political outcomes that favor uniquely a certain class of individuals. (Which, for lack of a better word, we can call "Plutocrats".)
Who then, because they think they are good-parents, leave their riches to their children thus extending dynastically the inherent Income Disparity into Wealth Disparity. That's not the case? Then why does Domhoff show this class breakdown of Net Worth (Wealth - Debt) in 2010:
Top 1% Next 19% Bottom 80%
35.4% .....53.5% .....11.1%
No wonder the relatively poorer classes remain poor. Because if you don't have the educational qualifications (vocational, college, university) to scramble into the next class breakdown (the 20Percenters), then forget of any pretense to an existence without constant worry about how solid your job-prospects will be throughout your lifetime.
And, with that, any social coverage for either illness or pension, etc. - ad nauseam.

ilsm -> Lafayette...

Capitalism is a tool [scam] to keep useful fools asking for more flogging.

likbez -> Lafayette...

"Capitalism is a mechanism, a tool. All outcomes depend upon how it is employed in a given socioeconomic context."

I think outcomes can be by-and-large predicted from the form of social relations capitalism enforces. Looks like Marx prediction about increasing misery of the proletariat (or bottom 80%, if you wish) holds, despite temporary reversal of the trend in 1945-1985.
Yes, the current form of capitalism which is neoliberalism is a tool, but it is a tool only for financial oligarchy. The tool of oppression to be exact.
For workers of Asian sweatshops and Mexican maquiladoras and probably for a large part of Americans who face shrinking working hours (with the redefinition what full employment means -- now it does not mean 40 hours a week) and push into contractors without any social protection and McJobs, it is more of a prison then a tool.
Here we get into the concept of countervailing force. Without countervailing force capitalism inevitably degrades into horrible, comparable with feudalism and slavery level of oppression of human beings. And in a way it creates such forces by the mere fact of its existence. In this sense the collapse of the USSR, while improved fortunes of top 20% in the USSR region, was a huge blow to lower 80% of Americans.
Despite Margaret Thatcher pronouncement about TINA, now mankind (including large part of commenters of this blog ;-) is trying to find another viable countervailing force that can held neoliberalism in check.

Very high oil prices might do the trick, as they will reverse globalization but they also can lead to the collapse of Western civilization as we know it.

Some countries, like several in Latin America, try to revive elements of socialism on a new (post USSR crash) level, some elements of religious fundamentalism (with the most strong trends in Islam and Catholicism), some like Russia and China -- elements of state capitalism.

But those development should be probably be understood in the context of the reaction on neoliberalism, not as completely independent developments.

EugenR said...

You speak here about Social sciences about economic factors that drive the society, about the political power in the society, and out there it is not relevant at all. Out there in the other half of the world, which is banging on the doors of your world, the main agenda is tribalism, cultural and ethical belonging.

The leading agenda of these people, in the other half of the world is the faith in their local tribal myths. Their myth is not about God and submission to it, but about conspiracy theory of being victims. Victims of whom? Not of political and spiritual leaders from their tribes, who dragged them to the desperate existential problems. Not against the belief system, that pushes them to legitimize self imposed slavery, submission to the cruelest authority, and above all faith causing self imposed ignorance to knowledge. They don't see themselves victims of those among them, who by using force and violence, actively oppose learning and adaptation of modern teachings about social justice, political correctness, ethical systems of morality, legality, equality, fraternity.

No! They will chose to be stuck in their old belief system familiar to them. Ancient tribal stories full of contradictions, indoctrinating and legitimating hatred, murder of the different, slavery, inequality, female discrimination, minority suppression, racism, etc. All these values, that created the political social systems and brought all this destruction in their homeland, from where they try in these days to run away, still remains to be THEIR value system. They will blame all the "others" who caused them their misery. The European colonists, the US Imperialists, the Zionists, the infidels, the homosexuals, the women exposing their natural beauty to admiration of man and women, the atheists, the scientists who still stick to their rational way of thinking, etc. But most of all will be hated those who gave them hand, when they most needed it, the humanitarian volunteers, because they are the first others, whom they encounter, when they exited from their burning world of destruction, and hate.

They will start a fight against all the ideas of Western philosophers from Descartes to the post modernists, who seemingly successfully brought to the awareness of most of the "Western world" population the idea of human-centralism, following the disastrous WWII caused by similar myth imitators . After they settle down in their now homes, they will not torn their "Holly books", indoctrinating hate and violent action against the humanists, who put in front of their God the human being. They will not torn the burqa, the symbol of women's submission to arrogant male domination upon the women. Their spiritual leaders, when they will stand up in their legal or illegal houses of "GOD", and point to those who have to be hated. And it is not to hard to guess who they will be.

RC AKA Darryl, Ron -> EugenR...

Colonialism breeds reactionary radicalism among indigenous souls. On a grand scale nations do eventually reap a bit more than they sewed. Call it karma for lack of a better word.

EugenR -> RC AKA Darryl, Ron...

You are right, colonialism was a creepy, disastrous idea, even if at certain stage of human history it helped in the development of human understanding of the realities of the world. In the late nineteen century it became a very lousy business, and partially brought the first world war. Still to blame the Western colonialism that ended more than 50 years ago, for all the misery of Africa and the Arab world is just self deception...

ilsm said...

Observations on economics are blurred by the con artists and snake oil salesmen ruining civil society.

Observer and instrument effects are symptoms.

Peter K. said...

"If this is the approach we take, then our claims about what is "real" in the social realm will be more modest that some have thought. We will understand that there are real social processes, mechanisms, and powers; that they derive from the actions and agency of actors; and that these processes can be traced out through fairly direct sociological and historical research."

It's all shorthand. What needs to be kept in mind is that words and phrases are shorthand and don't really capture the concept or "real thing" they are relating between the person who employs them and the listener or reader. Math and equations too obviously are shorthand. You can follow the word or phrase with qualifying sentences to specify and clarify what you mean by it.

So when we talk about inflation, or full employment or "real" full employment or potential GDP or the Wicksellian Natural Rate or expected inflation, they are often contested concepts because they are shorthand and don't apply in an obvious manner to something "real" out there we can touch.

Because of all of this, people disagree on some basic ideas about the social realm. Monetary policy doesn't work they say. Fiscal policy doesn't work they say. Even if most of the smart, objective, honest, knowledgeable people you meet - or dead authors you read - say otherwise.

Just look at Mr. Fox. Language (shorthand) and contestable ideas bend easily to those under the influence of power, privilege and money.

[Aug 30, 2015]The Dollar Now What

Aug 30, 2015 | Zero Hedge
Canada's fundamentals are poor and this seemed to outweigh the recovery in oil prices. Also, the US two-year premium over Canada recouped most of the ground it had lost earlier in the week. Canada is expected to report a contraction in Q2 GDP in the coming days and a softening of the labor market in August. The US dollar's pullback from the CAD1.3355 spike on August 25 fizzled near CAD1.3140. Another run at the highs looks likely. Over the longer term, we look for the Australian dollar to fall toward $0.6000 and the US dollar to rise toward CAD1.40.
Oil prices staged a strong rebounded in the second half of last week after falling to $37.75 on August 24. The bounce carried the October light crude futures contract to $45.25, which completes a 61.8% retracement of the slide in prices since July 29. The next objective is seen near $46.80 and then $48.00. There is good momentum, and the October contract finished the week above its 20-day moving average (~$42.95) for the first time since June 23. The October contract posted a potential key reversal on the weekly bar charts. It made a new multi-year low early in the week and then proceeded to rally, taking out the previous week's highs. It closed at its highest level since the end of July.
... ... ...
7. The net long speculative light sweet crude oil futures positions were pared by 5k contracts, leaving 215.6k. Given the large movement in prices, it is surprising to see how small of a position adjustment took place. The longs added 1k contracts, lifting the gross position to 474.2k contracts. The bears trimmed their gross position by 4k contracts, leaving 215.6k.

[Aug 30, 2015] 15 Science-Backed Way4s To Fall Asleep Faster

"A power nap is a sleep session that happens during the day (ideally between 1:00 to 4:00 PM) lasting between 10 and 30 minutes. Any longer and you run the risk of developing "sleep inertia" - that unpleasant groggy feeling that takes a considerable amount of time to shake off. And naps later than 4:00 PM can disrupt your regular nighttime sleep."

[Aug 30, 2015] Brace for Quantitative Tightening, As China Leads Forex Reserves Purge

Aug 30, 2015 | NDTVProfit.com

Faith in the power of "quantitative easing" has prompted central banks, led by the US Federal Reserve, to pump trillions of dollars of stimulus into the global financial system to cushion the impact of the 2007-08 market crisis and recession.

This supply of liquidity continues to flow. The European Central Bank has taken the baton from the Fed and is leading the way with its 1 trillion euro ($1.1 trillion) bond-buying programme that will run through September next year. The Bank of Japan is also buying large quantities of bonds.

But a counter flow - call it "quantitative tightening" - is gathering force as China sells foreign exchange reserves to protect its economy and markets from the recent surge of capital out of the country. Other emerging markets are following suit.

Analysts at Citi estimate that global FX reserves have been depleted at an average pace of $59 billion a month in the past year or so, and closer to $100 billion over the last few months. A source at another large global bank said emerging market central banks may have sold up to $200 billion of FX reserves this month alone, of which $100-$150 billion likely came from China.

[Aug 30, 2015] The Scary Number Hiding Behind Today's GDP Party

"...Hmm. Which to believe? As the old joke goes: "A person with one clock always knows what time it is. A person with two is never quite sure.""

Aug 30, 2015 | Bloomberg Business

The federal government today released two very different estimates of the U.S. economy's growth rate in the second quarter. The one that got all the attention was the robust 3.7 percent annual rate of increase in gross domestic product. Not many people noticed that gross domestic income increased at an annual rate of just 0.6 percent.

That's a big discrepancy for two numbers that should theoretically be the same, since they're two ways of measuring the same thing: the size of the economy. If you believe the GDP number, you're happy. If you believe the GDI number, you're thinking the U.S. is skating close to a recession.

The Bureau of Economic Analysis always gives more prominence to the GDP number in its quarterly press release. But today, for the second time in a quarterly report, it released an average of GDP and GDI growth rates. That average came in at 2.1 percent after rounding-and in this case, that's probably closer to the truth than either number alone.

There is no name for the new hybrid data series, which was described rather prosaically as "the average of real GDP and real GDI." President Obama's Council of Economic Advisers nicknamed it gross domestic output in a July issue brief. Here's what it wrote:

GDP tracks all expenditures on final goods and services produced in the United States, whereas GDI tracks all income received by those who produced that output. Conceptually the two should be equal because every dollar spent on a good or service (in GDP) must flow as income to a household, a firm, or the government (and therefore must show up in GDI). However, the two numbers differ in practice because of measurement error.

[Aug 30, 2015] Under the Hood of U.S. GDP Was Divide Between Growth, Incomes

Aug 30, 2015 | Bloomberg Business

Here's one key takeaway from the Commerce Department's report on gross domestic product Thursday in Washington: Gross domestic income climbed at a 0.6 percent annualized rate, well short of the rebound in growth.
* The increase in GDI last quarter followed a 0.4 percent advance in the first three months of the year, marking the weakest back-to-back gains since mid-2012
* The 3.1 percentage-point gap between GDI and GDP, which climbed at a 3.7 percent rate, was the largest in favor of GDP since the third quarter of 2007

* While GDI and GDP should theoretically match over the long run, they can diverge from quarter to quarter. There has been a debate about which is more accurate, with some Federal Reserve researchers finding incomes give better signals

[Aug 30, 2015] China Sneezes, Europe Catches a Cold

Aug 30, 2015 | naked capitalism

… the concerns of German firms,"
Stock market declines around the world would in this view only represent some short-term financial contagion without a connection to real economic activity.
The second hypothesis is that the collapsing stock prices are linked to a slowdown in economic activity in China. Such a slowdown will then be passed on through trade linkages to China's trading partners.
We want to investigate whether the stock market falls in Europe are primarily a financial contagion problem or whether they are linked to trade exposure to China. We look at the decline since the start of August until now, compared to the extent to which the respective OECD economy is linked to China, measured in gross exports to China as a share of GDP.
Contrary to the first hypothesis that this episode is just a matter of turbulence in financial markets, we can see that in Europe those countries with stronger trade connections to China have generally suffered bigger losses in their stock markets. We take this as an indication that there is a disruption in the real economy in China, leading to less demand for European exports to China that is passed on to European stock markets through trade channels.
For example, if we look at Germany, we can see that the DAX has fallen by around 12% (second highest in the sample), and also has the highest exports to China as a share of GDP at 2.66%.
Overall, we would warn European policy makers not to take the Chinese crisis lightly. The health of the Chinese economy is of essence to the global economy and there are reasons to believe that this could turn out to be a more fundamental cooling of China than previously thought.

[Aug 30, 2015] Why The Great Petrodollar Unwind Could Be $2.5 Trillion4 Larger Than Anyone Thinks

"...The US has already destroyed Iraq, Lybia, and Syria to secure oil flows and ensure the dollar supremacy. Only Iraq cost them over 2 trillions, projected to go as high as 6 trillion over the next decades once veteran medical care and pensions are factored in, says Reuters. But according to ZH, they are somehow going to allow the Saudis to break the dollar regime as if it was a cheap plastic toy. They will just stand by and watch how their world domination project goes down the drain because of a small desert kingdom of 18 million people. How realistic is this scenario?"

Aug 30, 2015 | Zero Hedge
In short, China's FX management means that Beijing has joined the global USD asset liquidation party which was already gathering pace thanks to the unwind of the petrodollar system. To understand the implications, consider what BofAML said back in January:

During the oil-boom era, oil-exporters used oil earnings to finance imports of goods and services, and channeled a portion of surplus savings into foreign assets. 'Petrodollar' recycling has in turn helped boost global demand, liquidity and asset prices. With the current oil price rout, external and fiscal balances of oil exporters are undermined, and the threat of lower imports and repatriation of foreign assets is cause for concern.

Recycling of Asia-dollars might partly replace the recycling of petrodollars. Asian sovereign wealth funds ($2.8tn) account for about 39% of total sovereign wealth funds, and will likely see their size increase at a faster clip. Sovereign wealth funds of China (CIC & SAFE), Hong Kong (HKMA), Singapore (GIC & Temasek) and Korea (KIC) rank in the Top-15 globally

Yes, the "recycling of Asia-dollars might partly replace the recycling of petrodollars." Unless of course a large Asian country is suddenly forced to become a seller of USD assets and on a massive scale. In that case, not only would the recycling of Asian-dollars not replace petrodollar recycling, but the "Eastern liquidation" (so to speak) would simply add fuel to the fire - and a lot of it. That's precisely the dynamic that's about to play out.

A careful reading of the above from BofA also seems to suggest is that looking strictly at official FX reserves might underestimate the potential size of the petrodollar effect. Sure enough, a quick check across sellside desks turns up a Credit Suisse note on the "secular downtrend in EM reserves" which the bank says could easily be understated by focusing on official reserves.

First, note the big picture trends (especially Exhibit 2):

And further, here's why the scope of the unwind could be materially underestimated.

Taken into context, the year-to-date fall in EM reserves accounts for only 2% of the total stock of EM reserves. However, the change in the behavior of EM central banks from persistent buyers to now sellers of reserve assets carries important implications. Importantly, official reserves will likely underestimate the full scale of the reversal of oil exporters' "petrodollar" accumulation.

Crucially, for oil exporting nations, central bank official reserves likely underestimate the full scale of the reversal of oil exporters' "petrodollar" accumulation. This is because a substantial part of their oil proceeds has previously been placed in sovereign wealth funds (SWFs), which are not reported as FX reserves (with the notable exception of Russia, where they are counted as FX reserves).

Currently, oil exporting countries hold about $1.7trn of official reserves but as much as $4.3trn in SWF assets.

In the 2009-2014 period, oil exporters accumulated about $0.5trn in official reserves but as much as $1.8trn of SWF assets.

Now that the tide has turned, it is likely that not only official reserves drop but that SWF asset accumulation slows to nil or even reverses. SWF selling may be a slower process as assets tend to be less liquid, but the opportunity might still be taken to repatriate some investments, for instance to boost domestic rather than foreign infrastructure projects.

In other words, looking at the total amount of official reserves for oil exporters understates the potential for petrodollar draw downs by around $2.5 trillion. Now obviously, it's unlikely that exporters will exhaust the entirety of their SWFs. Having said that, the fact that EM FX reserve accumulation turned negative for the first time in history during Q2 underscores how quickly the tide can turn and how sharp reversals can be. If one fails to at least consider the SWF angle then the effect is to underestimate the worst case scenario by $2.5 trillion, and if 2008 taught us anything, it's that failing to understand just how bad things can get leaves everyone unprepared for the fallout in the event the situation actually does deteriorate meaningfully.

So that's the big picture. In other words, the above is a discussion of the pressure on accumulated petrodollar investments and is an attempt to show that the pool of assets that could, in a pinch, be sold off to finance things like massive budget deficits (Saudi Arabia, for instance, is staring down a fiscal deficit that amounts to 20% of GDP) is likely being underestimated by those who narrowly focus on official reserves. Switching gears briefly to consider what $50 crude means for the flow of petrodollars (i.e. what's coming in), RBS' Alberto Gallo has the numbers:

If petroleum prices continue in to year end at their current YtD average ($52), this would represent a 60% decline in Petrodollar generated in 2015 vs between 2011 and 2014. Assuming that 30% of gross Petrodollars generated per year are invested in financial markets, this would imply $288bn ready for investments in 2015 vs a $726bn average between 2011 and 2014. Lower purchasing power from oil-exporting countries may in turn reduce demand for $-denominated fixed income assets, including $ IG and $ HY. US IG and HY firms have issued $918bn and $220bn YtD, which in total marks a record-high vs past years.

And while all of this may seem complex, it's actually quite simple: less petrodollars coming in without a commensurate reduction in what's going out means the difference has to be made up somewhere and that somewhere is in the sale of USD reserve assets which are prone to being understated if one looks only at official FX reserves. Contrast this with the status quo which for years has been more petrodollars coming in than what's going out (in terms of expenditures) with the balance being reinvested in USD assets.

Simplifying even further: the virtuous circle (for the dollar and for USD assets) has not only been broken, but it's now starting to reverse itself and the potential scope of that reversal must take into account SWF assets.

Where we go from here is an open question, but what's clear from the above is that between China's FX reserve drawdowns in defense of the yuan and the dramatic decrease in petrodollar flow, the self-feeding loop that's sustained the dollar and propped up USD assets is now definitively broken and we are only beginning to understand the consequences.

JustObserving

Obama's plan to attack Putin by crashing oil prices is backfiring. But then Obama has failed at everything but killing brown people and defending the NSA/CIA infinte spying on the American people and signing NDAA.

Forward

Think about how the Obama administration sees the state of the world. It wants Tehran to come to heel over its nuclear programme. It wants Vladimir Putin to back off in eastern Ukraine. But after recent experiences in Iraq and Afghanistan, the White House has no desire to put American boots on the ground. Instead, with the help of its Saudi ally, Washington is trying to drive down the oil price by flooding an already weak market with crude. As the Russians and the Iranians are heavily dependent on oil exports, the assumption is that they will become easier to deal with.

John Kerry, the US secretary of state, allegedly struck a deal with King Abdullah in September under which the Saudis would sell crude at below the prevailing market price. That would help explain why the price has been falling at a time when, given the turmoil in Iraq and Syria caused by Islamic State, it would normally have been rising.

http://www.theguardian.com/business/economics-blog/2014/nov/09/us-iran-r...

CaptainAmerika

An empire founded by war has to maintain itself by war
http://www.philiacband.com/propaganda.html

johngaltfla

Nicely done Tyler. And the funny part is all the nations stupid enough to buy and peg reserves to the USD which will get destroyed in the process. When Singapore and Hong Kong de-peg, it is over boys and girls.

Son of Captain Nemo

And what a fine strategy it is?...
Create massive over capacity to the market by looting the hell out of every other ME country's reserves (which has been non-stop since 9/11) to destroy Russia and Iran's revenue "party" which everyone by now knows was the objective 14 years ago... Trouble is according to the town crier of the Aspen Institute General "Let's start a nuclear war over an airport in the Balkans"... It was only supposed to take 5 years and ended up taking much longer and at a much more exorbitant price than was previously anticipated!
That "overcapacity" can be systematically fucked in a major way... Sabotage to those reserves comes to mind and will be the perfect segue for either side in the event the Anglo-American team decides to get another "wild hair up it's ass"to put it's helmet back on again only this time for the last major ass kicking unlike any they have ever had before!!!
I guess for the truly delusional and criminally insane it's a fun way to end both the party and your life!
Trouble with this behavior is that the rest of the 99% probably don't see it this way?!!!

Jack Burton

Always good posts Captain Nemo! The Iranians have said that should Israel, the USA or Saudi Arabia participate in an attack on Iran, then Saudi oil fields would see a hail of missiles arrive on refineries, Shipping facilities , key pipeline junctions. Iran has build crusise and ballistic missiles to spread their attack around both low altituded and high altitude. So YES, IF the USA plays it's cards Too hard, Iran will burn the fucking Saudi Oil.
Russia, while still bending over backwards to please the EU, can be counted on to burn some Saudi Oil if need be. Russia has till now been peaceful. But they might just begin to fund their own favorite anti Saudi groups! Then things will change fast.

Bluntly Put

Just guessing, but it seems to me the fed doesn't print currency directly, they issue credit, reserves at least in loans. I agree when they monetize debt like buying MBS they are essentially printing money, but what if they sold those assets?
So, some of their actions result in hot currency, while other actions are more related to the interdependent network of banks as capital flows related to interest and principle payments on outstanding loans/bonds/debt.
If all those channels get mucked up, then liquidity freezes and you get a credit crisis. If the fed actually just printed money it would retain it's value however much that value might drop over time and depreciation via debasement.

Son of Captain Nemo

Good points BP
The problem is we know how derivatives laden those "assets" are, especially with respect to paper vs. physical in the COMEX.
Suffice it to say eventually the "Emperor" will default what is underneath the "kimono"...And when he does the ladies (shall we say) will be disappointed!

cherry picker

Everything is so convoluted I don't understand it. Maybe it is designed that way so main street can't see it.
I can understand shipping tonnages dropping, means less goods bought and sold.
I can understand selling oil at margins to kill off competition.
I can understand China selling Treasuries to either bolster their finances or to "pay' back the USA for 2008 and sticking their noses in the South China Sea.
I can understand tax revenues going down among other recession/depression indicators as people have no money, affecting business, labor markets and so on.
I don't understand at all how this 'reserve currency' stuff will play out and the above post really does not clarify it in my mind.

DanDaley

I don't understand at all how this 'reserve currency' stuff will play out and the above post really does not clarify it in my mind.

I think of it like this:
As other countries decide that they prefer something other than dollars for trade settlements, all of those FRNs sitting in foreign banks (estimated to be several trillions) will make their way home. When they do, you get big-time inflation.
Also, when noone overseas wants to take dollars any more for payment, then our we have less cheap stuff...our standard of living takes a nose-dive. Everything that you need or want becomes more expensive and harder (or impossible) to obtain.

There are going to be a lot of surprised and unhappy muppets out there, and none of them will have the faintest clue of what went wrong.

Winston Churchill

Missing a big piece of the puzzle here Tyler.A very big piece.
$14tn in shadow banking 'assets'.
Some is within the Venn intersection, but how much ?
The elephant sitting in the room.

Urban Redneck

Counter parties, custody chains, leverage and capitalization ratios... at this point, what difference does it make?

Urban Redneck

After MF Global blew up, I stepped up my atypically thorough and anal due diligence to full retard. I discovered that the physical certificates for JBSICA I own through through a US trust with a US account at EuroPac are sitting in a vault at ShitiBank in London! I couldn't find any documentation of the custodial relationship between the two entities even after going though mountains of account/fund paperwork and corporate disclosures and filings. Ratscam tested taking physical delivery of JBSICA here in Switzerland a while back and I have friends at Julius Baer who can do everything short of breaking Swiss law to reissue certificates... But if this thing actually blows up, it won't make any difference, there's simply too much interdependence and complexity to reverse direction if it starts gaining momentum. Midnight harvesting of yesteryear's midnight gardening and wreck diving past boating accidents will be about it.
Hope your lawyer didn't bill you too much and only confirm what you already knew.

AC_Doctor

What do you think King Salman is going to say to Obozo, when he visits next week?
A. We are going to start taking Yuan for payment of crude
B. We are going to start liquidating US Treasurys like our buds the Chinese
C. Both A & B and Oboza doesn't get a reach around

Aaron Hillel

Obamas handler will answer *well, my dear king, look out to the sea, do you see the MAU cruising out there, and that? oh thats just a carrier group, nothing to be afraid of, its for your protection.Of course, if they ever land on your hallowed shores, they could install a TrueDemocracy(c) in here and what would you do then?So, what were you saying?*
The rotten house of Sa'ud is as much puppet of Washington-TelAviv axis as Merkel or Hollande, perhaps more.

JD59

Bath house Barry is sending the U.S. Carrier Group back home, no more on station in the Persian Gulf.

wrs1

What are they going to buy with Yuan? If so, wasn't it utterly stupid to dump crude at way below market for $ they didn't want anymore? Seems really, really unlikely that your scenario in anyway connects wth their previous actions. Will they sell other assets before Treasuries to get $? You bet and the first thing on the list is stocks and HY bonds no doubt.

lasvegaspersona

The flow of surplus oil revenues reversing course does not surprise me. What does is the quantities. We are talking about a few trillion probably over a few years. That is a lot but compared to the 16 trillion in currency swaps and other dollar movement the Fed is said to have engaged in during the 2008 to 2009 period it is trivial.
I'm thinking that if the Fed could play hide the weiner with 16 trillion or so they can probably pull this off.
The difference of course is that then the money was probably used to buy worthless assets to prevent global deflationary collapse.
This time it will be dollars hitting the international currency market and being spent into the economy.
16 trillion protecting bad assets did not change the number of dollars being spent. A few trillion affecting prices at the margin...that could be an inflationary force to be reconned with.

cherry picker

It is humorous to note that the words "In God We Trust" are printed on the greenback.
Does that mean "In God We Trust" is only true if there is money?
If there is no money you can't trust "God" anymore?
A few decades ago all the evangelicals were always crying for donations to help with "God's Work" and Goldman Sach's states it is doing "God's" work too.
I think that may be a problem for many. They may feel God can't do anything without money, which strips the divine out of the "God" belief, doesn't it?
For many, God is the big financier in the sky :)

VW Nerd

A few years ago, the Social Security fund went into the negative also, meaning that extra revenue used to mask the Federal deficit was gone. I'm thinking that between these two major changes, the American way of life (social and economic) might experience some profound changes going forward. Much more than we've witnessed thus far.

Also, for decades the petrodollar monopoly has been used by USG, Wall St. and Corp. USA as a political and economic weapon, fomenting hatred toward the US. The only ones who don't get this are the American public. They keep believing "they hate us for our freedom".

Glorious Kataifi

I agree. The US has already destroyed Iraq, Lybia, and Syria to secure oil flows and ensure the dollar supremacy. Only Iraq cost them over 2 trillions, projected to go as high as 6 trillion over the next decades once veteran medical care and pensions are factored in, says Reuters.
But according to ZH, they are somehow going to allow the Saudis to break the dollar regime as if it was a cheap plastic toy. They will just stand by and watch how their world domination project goes down the drain because of a small desert kingdom of 18 million people. How realistic is this scenario?
Whatever the game is, the US elites are certainly running it. At least that's my two pennies.

[Aug 29, 2015] Great Recession Job Losses Severe, Enduring

Nothing particularly surprising here -- the Great recession was unusually severe and unusually long, and hence had unusual impacts, but it's good to have numbers characterizing what happened:

Great Recession Job Losses Severe, Enduring: Of those who lost full-time jobs between 2007 and 2009, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs.

The economic downturn that began in December 2007 was associated with a rapid rise in unemployment and with an especially pronounced increase in the number of long-term unemployed. In "Job Loss in the Great Recession and its Aftermath: U.S. Evidence from the Displaced Workers Survey" (NBER Working Paper No. 21216), Henry S. Farber uses data from the Displaced Workers Survey (DWS) from 1984-2014 to study labor market dynamics. From these data he calculates both the short-term and medium-term effects of the Great Recession's sharply elevated rate of job losses. He concludes that these effects have been particularly severe.

Of the workers who lost full-time jobs between 2007 and 2009, Farber reports, only about 50 percent were employed in January 2010 and only about 75 percent of those were re-employed in full-time jobs. This means only about 35 to 40 percent of those in the DWS who reported losing a job in 2007-09 were employed full-time in January 2010. This was by far the worst post-displacement employment experience of the 1981-2014 period.

The adverse employment experience of job losers has also been persistent. While both overall employment rates and full-time employment rates began to improve in 2009, even those who lost jobs between 2011 and 2013 had very low re-employment rates and, by historical standards, very low full-time employment rates.

In addition, the data show substantial weekly earnings declines even for those who did find work, although these earnings losses were not especially large by historical standards. Farber suggests that the earnings decline measure from the DWS is appropriate for understanding how job loss affects the earnings that a full-time-employed former job-loser is able to command.

The author notes that the measures on which he focuses may understate the true economic cost of job loss, since they do not consider the value of time spent unemployed or the value of lost health insurance and pension benefits.

Farber concludes that the costs of job losses in the Great Recession were unusually severe and remain substantial years later. Most importantly, workers laid off in the Great Recession and its aftermath have been much less successful at finding new jobs, particularly full-time jobs, than those laid off in earlier periods. The findings suggest that job loss since the Great Recession has had severe adverse consequences for employment and earnings.

[Aug 29, 2015] Shiller: Rising Anxiety That Stocks Are Overpriced

"...You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake."

Robert Shiller (a reason to agree with Tim Duy):
Rising Anxiety That Stocks Are Overpriced: Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent - the official definition of a "correction," with similar or greater drops in other countries. ...
But there are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment. ...

It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S. & P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.

Or maybe this could be another 1998. We have no statistical proof. We are in a rare and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

Mark Thoma on Thursday, August 27, 2015 at 10:08 AM in Economics, Financial System | Permalink Comments (65)

Dan Kervick -> Peter K....

The post-2008 recovery has been the worst on record in terms of the recovery of both growth rates and jobs. As has been well-discussed and well-recognized by almost everyone here, the employment-to-population rate was dramatically lowered as a result of the recession, and has grown at a snails pace since then, and come nowhere near to recovering its previous level. There is no clear evidence that extraordinary monetary policy measures have had any significant impact on recovery whatsoever relative to the baseline recovery trend that could be expected anyway in the absence of such policies.

I admit it is an extremely hard question to answer, since the economy has had to deal with an MIA federal government this time.

anon said...

The Fed wants to raise interest rates:

- in the hope of preserving there institutional economic significance,

- out of a sense of loyalty to the Fed's history of financial influence using interest rates,

- because using rates to influence economic events increases their professional comfort,

- and because their economic grad school training was to fear wage push inflation above all else (they seem to believe that if inflation exceeds 2% it is a harbinger of hyper inflation).

Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect.

Dan Kervick -> pgl...

This is an area in which you seem to be persistently incapable of avoiding lies. You know very well that are a large number of ambitious long-term projects the US could do that are non-military, have nothing to do with immigration and could boost output tremendously.

You're becoming part of the LPTS crew: "liberal pundits terrified of socialism."

That's why Brad DeLong has an embargo on any talk about Bernie Sanders and his ideas.

That's why Paul Krugman is also avoiding Sanders like the plague and using daily red meet partisan servings to keep Democrats' attention riveted on the foibles of the Republicans.

That's why Brendan Nyhan has yet another column warning us all about the dangers of "Green Lanternism".

You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake.

40% of this country has household income of under $40,000 per year. If we remove the plutocratic capitalist stranglehold on this economy, use government to more efficiently distribute and invest our national wealth, and demote private enterprise to its proper subordinate place, we could double that rapidly and drive a wave of high-growth social transformation with all of the liberated economic energy.

This is going to happen. Take your pick: we're either going to get the somewhat fascistic and racist Trump version on strong government or democratic socialist version. The Ivy League twits hanging on for dear life to their established networks, revolving doors, tit-for-tatting, sinecures and don't-rock-the-boat regime of stagnant managerialism are going to butts handed to them by history.

pgl -> Dan Kervick...

Blah, blah, blah. I guess we could employ more economists at the BEA to do what they are already doing at Census.

Dan Kervick -> pgl...

The Census doesn't and can't combine income distribution numbers with growth numbers on a monthly and quarterly basis. The BEA could collect this data, but doesn't, because it is part of their mission to pretend class conflict doesn't exist.

The top quintile in the US pulls down about 50% percent of the income. That means we could get 3.7% annualized growth if their income grew by 6% while everybody else's income grew by less than 1/2 a percent.

Is that what's happening? Inquiring minds want to know. It seems like a natural mission for the BEA to track this. But they don't.

[Aug 29, 2015] The Fed Looks Set to Make a Dangerous Mistake

economistsview.typepad.com

Larry Summers says "Raising rates this year will threaten all of the central bank's major objectives":

The Fed looks set to make a dangerous mistake: Will the Federal Reserve's September meeting see US interest rates go up for the first time since 2006? Officials have held out the prospect that ... rates will probably be increased... Conditions could change... But ... raising rates ... would be a serious error that would threaten all three of the Fed's major objectives- price stability, full employment and financial stability.

Like most major central banks, the Fed has ... a 2 per cent inflation target. The biggest risk is that inflation will be lower than this - a risk that would be exacerbated by tightening policy... Tightening policy will adversely affect employment levels... Higher interest rates will also increase the value of the dollar, making US producers less competitive... This is especially troubling at a time of rising inequality. Studies ... make it clear that the best social program for disadvantaged workers is an economy where employers are struggling to fill vacancies.

There may have been a financial stability case for raising rates six or nine months ago, as low interest rates were encouraging investors to take more risks... That debate is now moot. With credit becoming more expensive, the outlook for the Chinese economy clouded at best, emerging markets submerging, the US stock market in a correction, widespread concerns about liquidity, and expected volatility having increased at a near-record rate, markets are themselves dampening any euphoria or overconfidence. The Fed does not have to do the job. ...

It is no longer easy to think of economic conditions that can plausibly be seen as temporary headwinds. ... This is the "secular stagnation" diagnosis...

New conditions require new policies. There is much that should be done, such as steps to promote public and private investment so as to raise the level of real interest rates consistent with full employment. Unless these new policies are implemented, inflation sharply accelerates, or euphoria in markets breaks out, there is no case for the Fed to adjust policy interest rates.

[Aug 29, 2015] Here's Why The Markets Have Suddenly Become So Turbulent

Aug 29, 2015 | Zero Hedge
Submitted by Charles Hugh-Smith via PeakProsperity.com,
When stock markets are free-falling 10+% in a matter of days, it's natural to seek some answers to the question "why now?"

Some are saying it was all the result of high-frequency trading (HFT), while others point to China's modest devaluation of its currency the renminbi (a.k.a. yuan) as the trigger.

Trying to finger the proximate cause of the mini-crash is an interesting parlor game, but does it really help us identify the trends that will shape markets going forward?

We might do better to look for trends that will eventually drag markets up or down, regardless of HFT, currency revaluations, etc.
Five Interconnected Trends
At the risk of stating the obvious, let's list the major trends that are already visible.
1. The China Story is Over
And I don't mean the high growth forever fantasy tale, I mean the entire China narrative is over:

That export-dependent China can seamlessly transition to a self-supporting consumer economy.

That China can become a value story now that the growth story is done.

That central planning will ably guide the Chinese economy through every rough patch.

That corruption is being excised from the system.

That the asset bubbles inflated by a quadrupling of debt from $7 trillion in 2007 to $28 trillion can all be deflated without harming the wealth effect or future debt expansion.

That development-dependent local governments will effortlessly find new funding sources when land development slows.

That workers displaced by declining exports and automation will quickly find high-paying employment elsewhere in the economy.

I could go on, but you get the point: the entire Story is over. (I explained why in a previous essay, Is China's "Black Box" Economy About to Come Apart? )

This is entirely predictable. Every fast-growing economy starting with near-zero debt and huge untapped reserves of cheap labor experiences an explosive rise as the low-hanging fruit is plucked and the same abrupt stall and stagnation when the low-hanging fruit has all been harvested, leaving only the unavoidable results of debt-fueled speculation: an enormous overhang of bad debt, malinvestment (a.k.a. bridges to nowhere and ghost cities) and policies that seemed brilliant in the good old days that are now yielding negative returns.
2. The Emerging Market Story Is Also Done
Emerging currencies and markets have soared on the back of the China Story, as China's insatiable demand for oil, iron ore, copper, soy beans, etc. drove global demand to unparalleled heights.

This demand pushed prices higher, which then pushed production (supply) higher, as the low cost of capital globally enabled marginal resources to be put into production with borrowed money.

Now that China's demand has fallen off-by some accounts, China's GDP is actually in negative territory, despite official claims that it's still growing at 7% annually-commodity prices have crashed, taking the emerging markets' stock and currency markets down. (Source)

Here is a chart of Doctor Copper, a bellwether for industrial and construction demand:

Here is Brazil's stock market, which has declined 54% in the past 12 months:

These are catastrophic declines, and with China's growth story over, there is absolutely nothing on the global horizon to push demand back up.
3. Diminishing Returns on Additional Debt
The simple truth is that expanding debt has fueled global growth. Though people identify China as the driver of global demand for commodities, China's growth is debt-driven. As noted above, China quadrupled its officially tracked debt from $7 trillion in 2007 to $28 trillion as of mid-2014-an astonishing 282 percent of gross domestic product (GDP). If we add the estimated $5 trillion of shadow-banking system debt and another year's expansion of borrowing, China's total debt of $35+ trillion is in excess of 300% of GDP-levels associated with doomed to default states such as Greece and Spain.

While China has moved to open the debt spigot in recent days by lowering interest rates and reserve requirements, this doesn't make over-indebted borrowers good credit risks or more empty high-rises productive investments.

Borrowed money that poured into ramping up production in emerging nations is now stranded as prices have plummeted, rendering marginal production intensely unprofitable.

In sum: greatly expanding debt boosted growth virtually everywhere after the Global Financial Meltdown of 2008-2009. That fix is a one-off: not even China can quadruple its $35+ trillion debt to $140 trillion to reignite growth.

Here is a sobering chart of global debt growth:

4. Limits on Deficit-Spending (Borrowed) Fiscal Stimulus
When the global economy rolled over into recession in 2008, governments borrowed money by selling sovereign bonds to fund increased state spending. In the U.S., federal borrowing soared to over $1 trillion per year as the government sought to replace declining private spending with public spending.

Governments around the world have continued to run large deficits, piling up immense debts since 2008. The global move to near-zero yields has enabled governments to support these monumental debt loads, but even at near-zero yields, the interest payments are non-trivial. These enormous sovereign debts place some limits on how much governments can borrow in the next global recession-a slowdown many think has already started.

Here is a chart of U.S. sovereign debt, which has almost doubled since 2008:

As noted on the chart: what structural inadequacies or problems did governments fix by borrowing gargantuan sums to fund state spending? The basic answer is: none. All the same structural problems facing governments in 2008 remain untouched in 2015. These include: over-indebtedness, bad debts that haven't been written down, insolvent banks, soaring social spending as the worker-retiree ratio slips below 2-to-1, externalized environmental damage that has yet to be remediated, and so on.
5. Central Bank Stimulus (Quantitative Easing) as Social Policy Has Been Discredited
In the wake of the Global Financial Meltdown of 2008-2009, central banks launched monetary stimulus programs aimed at pumping money into the economy via bank lending. The stated goals of these stimulus programs were 1) boost employment (i.e. lower unemployment) and 2) generate enough inflation to stave off deflation, which is generally viewed as the cause of financial depressions.

While it can be argued that these unprecedented monetary stimulus programs achieved modest successes in terms of lowering unemployment and pushing inflation above the zero line, they also widened wealth and income inequality.

Even as these programs made modest dents in unemployment and deflation, they pushed asset valuations to the moon-assets largely owned by the few at the top of the wealth pyramid.

Here is a chart of selected developed economies' income/wealth skew:

The widespread recognition that the benefits of central bank stimulus mostly flowed to the top of the pyramid places political limits on future central bank stimulus programs.
The 2008-09 Fixes Are No Longer Available
In summary, the fixes for the 2008-09 recession are no longer available in the same scale or effectiveness. Expanding debt to push up demand and investment, rising state deficit spending, massive monetary stimulus programs-all of these now face limitations. This means the central banks and states have very limited tools to reignite growth as global recession trims borrowing, investment, hiring, sales and profits.
What Ultimately Matters: Capital Flows
In Part 2: What Happens Next Will Be Determined By One Thing: Capital Flows, we'll look at the one dynamic that ultimately establishes assets prices: capital flows.

I personally don't think the world has experienced a period in which capital preservation has become more important than capital appreciation since the last few months of 2008 and the first few months of 2009. Other than these five months, the focus has been on speculating to obtain the highest possible yield/appreciation.

This suggests to me that the next period of risk-off capital preservation will last a lot longer than five months, and perhaps deepen as time rewards those who adopted risk-off strategies early on.

Click here to read Part 2 of this report (free executive summary, enrollment required for full access)
A_MacLaren

Sure would be nice if the the Tylers would post up a real discussion about the Markets vs the Real Economy, policy failures and problems aren't resolved with the same thinking that created them.

Except the Central Wankers aren't really interested in the real economy, only the fictious one that wears the mask of financial markets.

https://www.youtube.com/watch?v=lA0BbDe2RL4

Are we experiencing the Great Recession of 2015 or merely a painful paradigm shift in how the global economy is run? Many in the West quickly blame China for mismanagement of its economy and currency. This may or may not be true, but this is only a small fraction of a much bigger story. Has anything been learned since the financial crisis of 2008?

CrossTalking with Mitch Feierstein, Stephen Keen, and Mark Weisbrot.

thunderchief

Last week, 28 billion pulled out of the Market.

28 billion pumped in by the PPT, to keep the market from accelerating into margin calls and panic.

Ready, set, go on Monday. .Anyone else want out while the fed props this crap up a little longer?

junction

The markets are turbulent because people with insight are pulling their money out of the market, flight capital in the face of a fast spreading global war. Obama's ISIS is now out of control, there is a mass migration from war zones in the Middle East and North Africa and, worse of all, jihadists are pouring into Western Europe and America. Smiling, friendly jihadists like the guy who wanted to kill everyone on that French train. I wonder if, behind that smile, Obama also is a jihadist? Nah, he is a NWO follower through and through.

Stroke

What Ultimately Matters: Capital Flows.....

Sounds like somebody's been reading Martin Armstron's blog

B2u

"We will not have any more crashes in our time."
- John Maynard Keynes in 1927

novictim

...he said, assuming that his sound policies would be followed to the letter.

That the fiscal policies of Keyenes have been ingored in favor of monetary policy that just feeds asset bubbles lets Keynes off the hook.

I might add that Keynes believed in cutting deficits and increasing taxes in prosperious years and the opposite in down years. No one can say that his policies have been followed in the least.

polo007

http://www.barrons.com/articles/quantitative-easing-redux-1440826605

Quantitative Easing Redux?

Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference.

By Vito J. Racanelli

August 29, 2015

If a "rate hike" is Wall Street's obsession this year, the effective opposite, "quantitative easing," gets much less mention after three mammoth rounds of central-bank asset buying, or quantitative easing, in the past few years. But what's that we hear? Another thing the Fed's Dudley said last Wednesday was, "I'm a long way from quantitative easing. The U.S. economy is performing quite well."

Fed officials always try to disconnect the bank's actions from stock-market gyrations, but history doesn't support that indifference. "It will take less than a 20% decline in U.S. stock prices for the Fed to begin discussing a new round of quantitative easing," says Darren Pollock, a portfolio manager with Cheviot Value Management.

On several occasions in recent years, a Fed official has stepped in with easing statements following market routs. The Fed knows it can't let the stock market fall without backpedaling on its tough monetary talk, Pollock says. It must try to keep stock prices from plummeting and pulling down consumer confidence, which could affect the economy.

Stocks recovered big-time last week, but remain vulnerable. Should the market fall some more, Pollock says, "It may force the Fed to do a U-turn and speak of a willingness to provide more stimulus-like QE."

The Fed won't let all the effort and money invested in propping up the economy since 2008 go to waste. It won't stand at the plate and strike out looking. The Yellen put lives.

Temerity Trader

If the Fed bankers are so f***ing omnipotent, then they would NEVER let the markets drop at all. Why should they? It just makes the highly trained and obedient lemmings, get fearful and panic. The Dow tumbled almost 3,000 points from its recent Fed-enabled all time-high. Why did they not stop it, and stop EVERY fall, at -250 or so? Why did they not stop the last big decline to below 7K? Everyone would remain blissfully ignorant and living happily ever after in their personal 'Matrix'. If the Fed wound up owning 50% of the entire market float, who cares so long as millions of 401K's go up?

Or, are these falls engineered conspiracies only designed to allow the wealthy to put billions in cash to work, before the next Fed pump begins? Maybe. At any rate, if the "growth" story is really dead and millions more immigrants just accelerate the decline of America, than more debt to hide the mess will fail. Entitlements will have to be cut, sowing the seeds of more anger in the entitled masses.

In the end, Mr. Market will tame and humble even the arrogant Fed bankers and the multitudes who worship them.

I Write Code

CHS swings, and misses.

QE as social policy was never more than an academic's vaporous apparition, like the succubus scene in Ghostbusters.

Here's my take on the "China Story", which is they've now stolen all the manufacturing they can and now, for the first time in twenty years, can no longer grow by mere theft (of course I mean "theft" in a good way, they work smart and hard to "steal" manufacturing from the US and Europe, it's the vulture capitalists at *our* end who are the criminals).

And, maybe their vaunted central planners didn't see this coming and they smashed through the wall and over the cliff. Oops.

But y'know, it's not a disaster for all that, just an overshoot that requires a correction. It's not like China is about to dry up and blow away.

TeethVillage88s

Charles Hugh Smith has done twice as well as I could have done here.
I like what he explained about China for instance. I'm still reading through it, think this would be great to forward to the DNC, RNC, and Congressmen.
The Federal Reserve Created our Banking System.
I think it is fair to place the blame on the FED and to end the FED on this basis... while stressing the S&L Crisis, the Deregulation, and the 2008 Global Financial Collapse which surely might have triggered a war with Europe. And the fact that the US TBTF Banks are much bigger than European Banks since the crisis even though the are responsible for poor stewardship of the World Reserve Currency and for Toxic Paper spread to pension funds world wide.
Of course the solutions will be more controversial than this article that lays out part of the problem or symptoms.
Solutions are like the Third Rail.

tall sarah

The multiple rounds of QE and ZIRP put the markets and the economy on a course for failure. There were four trends in place before the Great Depresion and FED POLICIES cemented those trends in place for this time period.
1. the rich got richer- thanks to QE/ZIRP
2. investing turned to speculation- on steroids thanks to QE/ZIRP
3. soaring market credit- thanks to QE and ZIRP
4. lagging business investment- stock buybacks are at all time highs since tracking began in 1990. Stock buy backs are not a business investmet. They are a disinvestment. A stock buy back is a loud and clear signal that there is no reason to invest in the business because economic conditions are not present that would allow the business to recoup those monies.
The FED is the ultimate cause of all our woes as everyone at this site knows. Spread the word to those who do not. Preaching to the choir will not bring the end to the FED.

Berspankme

Don't forget to mention that US and EU enables China's corruption to continue by providing a safe place for money laundering. Asset prices in US are dramatically effected by China and other EM's corrupt practices

[Aug 29, 2015] Fly Me To the Moon

Qualis dominus talis est servus.
As is the master, so is the servant.
Titus Petronius

Stocks came in weakly, but managed to rally in the last hour to closely largely unchanged.
The GDP revision for 2Q yesterday was a bit much.

The conversation on financial tv today was replete with interviews from that moveable feast of finance, from the rarified world at Jackson Hole, where the black swans of monetary policy return every so often to molt old forecasts and acquire new ones that are certain to work better than the last seven years of the same old thing.

Mostly it is just the usual nonsense. Alan Blinder had some interesting and surprisingly realistic things to say. Most of the others were just mouth breathing the talking points about our exceptional and improving economy which will allow the Fed to raise interest rates.

The research paper from the Fed asserting that the US is relatively immune (ok they said insulated) from global currency and economic shocks because of the position of the dollar as the settling currency of choice for international invoices was-- interesting. Why is it that so many economic, and especially monetary, theories feel so comfortable inhabiting an alternate universe where trees are blue and pigs can fly?

And as a particularly astute reader observed, if this is actually true, is there any wonder why the rest of the world would resent the dollar hegemony if it grants that sort of power to the single nation that controls it? That they are able to wreak havoc on the rest of the world, exporting malinvestment and willfully fraudulent financial instruments, without having to endure any consequences?

Well it doesn't work so nicely as that, but yes they do resent it for other reasons, and they have been doing more than resenting it for some time now. And that is the basis for the 'currency war' that these jokers still do not understand. They think it is only 'currency devaluations' which, along with tariffs, was the tactic of choice in the last currency war in the 1930's.

But the one that left me gaping was the tendentious conversation this afternoon on Bloomberg about how fragile China and its markets are. And as evidence they cited the 'obvious interventions' in their stock market this week, wherein the Chinese markets slump, but then miraculously recover in the last hours of trading. They are obviously doing this so the leadership will not be embarrassed for their 70th commemoration of the end of WWII next week. Which by the way, the US is gracelessly boycotting.

Knock, knock, hello? Is self-awareness or unintentional irony at home?

Is there any doubt that we have been seeing the exact types of intervention by a powerful unseen hand in our own stock markets this week, on steroids, after the Monday flash crash? Does that mean that our economy is fragile and doomed as well?

Do these people actually believe what they are saying, or is this just some clumsy attempt to try to reassure our public that if their public gets into trouble there is no need to panic because, wait for it, we are so much better, more wisely and so much more virtuously blessed to be led by those archangels of benevolent wisdom in Washington and New York.

One can only wonder.

Have a pleasant weekend.

[Aug 29, 2015] Maintaining Confidence - Keep On Dancing

Aug 29, 2015 | Jesse's Café Américain

The action was a bit heavy in the metals today, as the Powers-That-Be quietly attempted to restore confidence and a sense of well-being and recovery after the somewhat disconcerting equity market plunge of Monday.

There was intraday commentary here about some interesting Goldman Sachs activity in an otherwise exceptionally sleepy week at The Bucket Shop.

People often ask me for a possible motive as to why central banks might care about gold and silver. Willem Middelkoop does a decent job of briefly explaining why in the first pictorial below. It is all a part of the confidence game, when a series of bad decisions place a strain on one's full faith and credit.
The goal of the financial class is to keep the music going, and the public out there on the floor dancing so they don't have time to think.
Still out there bottom watching.
Have a pleasant weekend.

[Aug 29, 2015] Leveraged Financial Speculation to GDP in the US at a Familiar Peak, Once Again

Aug 29, 2015 | jessescrossroadscafe.blogspot.com

"I believe myriad global "carry trades" – speculative leveraging of securities – are the unappreciated prevailing source of finance behind interlinked global securities market Bubbles. They amount to this cycle's government-directed finance unleashed to jump-start a global reflationary cycle.
I'm convinced that perhaps Trillions worth of speculative leverage have accumulated throughout global currency and securities markets at least partially based on the perception that policymakers condone this leverage as integral (as mortgage finance was previously) in the fight against mounting global deflationary forces."

Doug Noland, Carry Trades and Trend-Following Strategies

The basic diagnosis is correct. But the nature of the disease, and the appropriate remedies, may not be so easily apprehended, except through simple common sense. And that is a rare commodity these days.
Like a dog returns to its vomit, the Fed's speculative bubble policy enables the one percent to once again feast on the carcass of the real economy.

'And no one could have ever seen it coming.'

Once is an accident.

Twice is no coincidence.

Remind yourself what has changed since then. Banks have gotten bigger. Schemes and fraud continue.

What will the third time be like? And the fourth?

Do you think that Jamie bet Lloyd a dollar that they couldn't do it again?

Should we ask them to please behave, levy some token fines, watch the politicans yell and posture in some toothless public hearings, let all of them keep their jobs and their bonuses? And then bail them out, wind up the old Victrola, and have another go at the same old thing again?

Maybe we can vote for one of their hired servants, or skip the middlemen and vote for one of the arrogant hustlers themselves, and hope they get tired of taking us for a ride before we all go broke.

This policy we have now is the trickle down stimulus that the wealthy financiers have been sucking on with every opportunity that they have made for themselves since the days of Andrew Jackson. Whenever the ability to create and distribute money has been handed over by a craven Congress to private corporations and banking cartels without sufficient oversight and regulation, excessive speculation, financial recklessness, and moral hazard have acted like a plague of misery and stagnation on the real economy.

"Gentlemen! I too have been a close observer of the doings of the Bank of the United States. I have had men watching you for a long time, and am convinced that you have used the funds of the Bank to speculate in the breadstuffs of the country. When you won, you divided the profits amongst you, and when you lost, you charged it to the Bank.
You tell me that if I take the deposits from the Bank and annul its charter I shall ruin ten thousand families. That may be true, gentlemen, but that is your sin! Should I let you go on, you will ruin fifty thousand families, and that would be my sin!

You are a den of vipers and thieves. I have determined to rout you out, and by the Eternal, (bringing his fist down on the table) I will rout you out."

From the original minutes of the Philadelphia bankers sent to meet with President Jackson February 1834, from Andrew Jackson and the Bank of the United States (1928) by Stan V. Henkels

I believe all of the above is entirely possible. Because we still have an unashamed cadre of quack economists and their ideologically blind followers blaming the victims, prescribing harsh punishments for the weak, laying all the blame on 'government' and not corrupt officials on the payrolls of Big Money, and giving the gods of the market and their masters of the universe a big kiss on the head, and expecting them to just do the right thing the next time out of the natural goodness of their unrestrained natures the next time. What could go wrong with that?
Genuine reform. It's too much work, and too much trouble.

Related: Comprehensive Tally of Banker Fraud

h/t Jesse Felder for the chart

[Aug 29, 2015] U.S. Inflation Developments

This establishment stooge can't care less about employment. All he cares is 0.1%.
.
"..."and the labor market is approaching our maximum employment objective..." I stopped reading there."
.
"...The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike."
.
"..."The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus." We are ruled by idiots. "
.
"...Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class. A skirmish in the class wars, maybe Bernie would comment."
.
"...Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.
The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess. "
.
"...What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to."

[A speech by Stanley Fischer at Jackson Hole turned into a pretend interview]
Hello, and thank you for talking with us.

Let me start by asking if you feel like it gives the Fed a bad image to have a conference in an elite place like Jackson Hole. Why not have the conference in, say, a disadvantaged area to send the signal that you care about these problems, to provide some stimulus to the area, etc.?

I am delighted to be here in Jackson Hole in the company of such distinguished panelists and such a distinguished group of participants.

Okay then. Let me start be asking about your view of the economy. How close are we to a full recovery?:

Although the economy has continued to recover and the labor market is approaching our maximum employment objective, inflation has been persistently below 2 percent. That has been especially true recently, as the drop in oil prices over the past year, on the order of about 60 percent, has led directly to lower inflation as it feeds through to lower prices of gasoline and other energy items. As a result, 12-month changes in the overall personal consumption expenditure (PCE) price index have recently been only a little above zero (chart 1).

Why are you telling us about headline inflation? What about core inflation? Isn't that what the Fed watches?

...measures of core inflation, which are intended to help us look through such transitory price movements, have also been relatively low (return to chart 1). The PCE index excluding food and energy is up 1.2 percent over the past year. The Dallas Fed's trimmed mean measure of the PCE price index is higher, at 1.6 percent, but still somewhat below our 2 percent objective. Moreover, these measures of core inflation have been persistently below 2 percent throughout the economic recovery. That said, as with total inflation, core inflation can be somewhat variable, especially at frequencies higher than 12-month changes. Moreover, note that core inflation does not entirely "exclude" food and energy, because changes in energy prices affect firms' costs and so can pass into prices of non-energy items.

So are you saying you don't believe the numbers? Why bring up that core inflation is highly variable unless you are trying to de-emphasize this evidence? In any case, isn't there reason to believe these numbers are true, i.e. doesn't the slack in the labor market imply low inflation?

Of course, ongoing economic slack is one reason core inflation has been low. Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment. Even so, with inflation expectations apparently stable, we would have expected the gradual reduction of slack to be associated with less downward price pressure. All else equal, we might therefore have expected both headline and core inflation to be moving up more noticeably toward our 2 percent objective. Yet, we have seen no clear evidence of core inflation moving higher over the past few years. This fact helps drive home an important point: While much evidence points to at least some ongoing role for slack in helping to explain movements in inflation, this influence is typically estimated to be modest in magnitude, and can easily be masked by other factors.

If that's true, if the decline in the slack in the labor market does not translate into a notable change in inflation, why is the Fed so anxious to raise rates based upon the notion that the labor market has almost normalized? Is there more to it than just the labor market?

...core inflation can to some extent be influenced by oil prices. However, a larger effect comes from changes in the exchange value of the dollar, and the rise in the dollar over the past year is an important reason inflation has remained low (chart 4). A higher value of the dollar passes through to lower import prices, which hold down U.S. inflation both because imports make up part of final consumption, and because lower prices for imported components hold down business costs more generally. In addition, a rise in the dollar restrains the growth of aggregate demand and overall economic activity, and so has some effect on inflation through that more indirect channel.

That argues against a rate increase, not for it. Anyway, I interrupted, please continue.

Commodity prices other than oil are also of relevance for inflation in the United States. Prices of metals and other industrial commodities, and agricultural products, are affected to a considerable extent by developments outside the United States, and the softness we've seen in these commodity prices, has in part reflected a slowing of demand from China and elsewhere. These prices likely have also been a factor in holding down inflation in the United States.

So you must believe that all of these forces holding down inflation (many of which are stripped out by core inflation measures, which are also low) that these factors are easing, and hence a spike in inflation is ahead?

The dynamics with which all these factors affect inflation depend crucially on the behavior of inflation expectations. One striking feature of the economic environment is that longer-term inflation expectations in the United States appear to have remained generally stable since the late 1990s (chart 6). ... Expectations that are not stable, but instead follow actual inflation up or down, would allow inflation to drift persistently. In the recent period, movements in inflation have tended to be transitory.

Let's see, lots of factors holding down inflation, longer-term inflation expectations have been stable throughout the recession and recovery, remarkably so, yet the Fed still thinks a rate raise ought to come fairly soon?

We should however be cautious in our assessment that inflation expectations are remaining stable. One reason is that measures of inflation compensation in the market for Treasury securities have moved down somewhat since last summer (chart 7). But these movements can be hard to interpret, as at times they may reflect factors other than inflation expectations, such as changes in demand for the unparalleled liquidity of nominal Treasury securities.

I have to be honest. That sounds like the Fed is really reaching to find a reason to justify worries about inflation and a rate increase. Let me ask this a different way. In the Press Release for the July meeting of the FOMC, the committee said it can be " reasonably confident that inflation will move back to its 2 percent objective over the medium term." Can you explain this please? Why are you "reasonably confident" in light of recent history?

Can the Committee be "reasonably confident that inflation will move back to its 2 percent objective over the medium term"? As I have discussed, given the apparent stability of inflation expectations, there is good reason to believe that inflation will move higher as the forces holding down inflation dissipate further. While some effects of the rise in the dollar may be spread over time, some of the effects on inflation are likely already starting to fade. The same is true for last year's sharp fall in oil prices, though the further declines we have seen this summer have yet to fully show through to the consumer level. And slack in the labor market has continued to diminish, so the downward pressure on inflation from that channel should be diminishing as well.

Yet when these forces were absent -- they weren't there throughout the crisis -- inflation was still stable. But this time will be different? I guess falling slack in the labor market will make all the difference? More on labor markets in a moment, but let me ask if you have more to say about inflation expectations first.

...with regard to expectations of inflation, it is possible to consult the results of the SEP, the Survey of Economic Projections, which FOMC participants complete shortly before the March, June, September, and December meetings. In the June SEP, the central tendency of FOMC participants' projections for core PCE inflation was 1.3 percent to 1.4 percent this year, 1.6 percent to 1.9 percent next year, and 1.9 percent to 2.0 percent in 2017. There will be a new SEP for the forthcoming September meeting of the FOMC.

Reflecting all these factors, the Committee has indicated in its post-meeting statements that it expects inflation to return to 2 percent. With regard to our degree of confidence in this expectation, we will need to consider all the available information and assess its implications for the economic outlook before coming to a judgment.

You will need to consider all the available information, I agree wholeheartedly with that. I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations.

What might deter the Fed from it's intention to raise rates sooner rather than later?

Of course, the FOMC's monetary policy decision is not a mechanical one, based purely on the set of numbers reported in the payroll survey and in our judgment on the degree of confidence members of the committee have about future inflation. We are interested also in aspects of the labor market beyond the simple U-3 measure of unemployment, including for example the rates of unemployment of older workers and of those working part-time for economic reasons; we are interested also in the participation rate. And in the case of the inflation rate we look beyond the rate of increase of PCE prices and define the concept of the core rate of inflation.

I find these kinds of statement difficult to square with the statement that labor markets are almost back to normal. Anyway, what, in particular, will you look at?

While thinking of different aspects of unemployment, we are concerned mainly with trying to find the right measure of the difficulties caused to current and potential participants in the labor force by their unemployment. In the case of the core rate of inflation, we are mainly looking for a good indicator of future inflation, and for better indicators than we have at present.

How do recent events in China change the outlook for policy?

In making our monetary policy decisions, we are interested more in where the U.S. economy is heading than in knowing whence it has come. That is why we need to consider the overall state of the U.S. economy as well as the influence of foreign economies on the U.S. economy as we reach our judgment on whether and how to change monetary policy. That is why we follow economic developments in the rest of the world as well as the United States in reaching our interest rate decisions. At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual.

I know you won't answer this directly, but let me try anyway. When will rates go up?

The Fed has, appropriately, responded to the weak economy and low inflation in recent years by taking a highly accommodative policy stance. By committing to foster the movement of inflation toward our 2 percent objective, we are enhancing the credibility of monetary policy and supporting the continued stability of inflation expectations. To do what monetary policy can do towards meeting our goals of maximum employment and price stability, and to ensure that these goals will continue to be met as we move ahead, we will most likely need to proceed cautiously in normalizing the stance of monetary policy. For the purpose of meeting our goals, the entire path of interest rates matters more than the particular timing of the first increase.

As expected, that was pretty boilerplate. When rates do go up, how fast will they rise?

With inflation low, we can probably remove accommodation at a gradual pace. Yet, because monetary policy influences real activity with a substantial lag, we should not wait until inflation is back to 2 percent to begin tightening. Should we judge at some point in time that the economy is threatening to overheat, we will have to move appropriately rapidly to deal with that threat. The same is true should the economy unexpectedly weaken.

The Fed has said again and again that it's 2 percent inflation target is symmetric with respect to errors, i.e. it will get no more worried or upset about, say, a .5 percent overshoot of the target than it will an undershoot of the same magnitude (2.5 percent versus 1.5 percent). However, many of us suspect that the 2 percent target is actually a ceiling, not a central tendency, or that at the very least the errors are not treated symmetrically, and statements such as this do nothing to change that view.

I have quite a few more questions, and I wish we had time to hear your response to the charge that the 2 percent target is functionally a ceiling, but I know you are out of time and need to go, so let me just thank you for talking with us today. Thank you.

bakho said...

The wealthy special interests really want a rate hike. There must be a large amount of profit riding on a rate hike.
The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus. Wealthy special interests would like the economy to be less good by this time next year to tilt the presidential election their way.

ilsm -> pgl...

The fed (Cossacks) works for the .1% (Tsar).

Sandwichman

"and the labor market is approaching our maximum employment objective..."
I stopped reading there.

Peter K. -> Sandwichman...

Yeah. Nice appointment, thanks Obama....

ilsm -> Sandwichman...

Mc Donald's may have to start paying $7.75!!

pgl -> ilsm...

Actually some are paying $9. Oh my - a Big Mac might actually cost something.

ilsm -> pgl...

The big mac is helping out your embalmer.
Joke is most of us cannot afford anything more than a cremator.
Cardiologists follow Mickey D sales!

anne -> Sandwichman...

"and the labor market is approaching our maximum employment objective..." I stopped reading there.

[ Really, really awful comment but limiting employment is what Stanley Fischer is all about so the only surprise is in the saying so. ]

pgl -> Sandwichman...

But later he admitted there was ongoing economic slack. He sounded very confused.

Peter K. -> pgl...

On the one hand he's trying to inspire confidence in the economy, cheerlead, and clap his hands to conjure the confidence fairy.
On the other he's being more realistic which hopefully is their frame of mind when making interest rate decisions.
One is public relations, one is where the rubber hits the road.

RC AKA Darryl, Ron -> Peter K....

A rubber chicken in every pot :<0

Peter K. said...

"Although the economy has made great progress, we started seven years ago from an unemployment rate of 10 percent, which guaranteed a lengthy period of high unemployment."
It didn't guarantee it. An insufficient monetary-fiscal mix guaranteed a lengthy period of high unemployment, wage stagnation and increasing inequality.
But at least inflation remained low and the deficit came down!

ilsm -> Peter K....

If UE rate counted people out longer than 26 weeks......

anne said...

http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R
January 4, 2015
Employment-Population Ratios, 2014
United States ( 76.7) *
Australia ( 78.8)
Austria ( 83.4)
Belgium ( 79.1)
Canada ( 81.2)
Denmark ( 82.0)
Finland ( 80.4)
France ( 80.5)
Germany ( 83.5)
Greece ( 62.4)
Iceland ( 85.7)
Ireland ( 72.3)
Israel ( 78.2)
Italy ( 67.9)
Japan ( 82.1)
Korea ( 75.7)
Luxembourg ( 83.7)
Netherlands ( 81.7)
New Zealand ( 81.8)
Norway ( 83.9)
Portugal ( 77.4)
Spain ( 67.4)
Sweden ( 85.4)
Switzerland ( 86.9)
United Kingdom ( 82.0)
* Employment age 25-54

anne said...

http://stats.oecd.org/Index.aspx?DatasetCode=LFS_SEXAGE_I_R
January 4, 2015
Employment-Population Ratios for Women, 2014
United States ( 70.0) *
Australia ( 72.0)
Austria ( 80.3)
Belgium ( 74.9)
Canada ( 77.4)
Denmark ( 78.4)
Finland ( 78.0)
France ( 76.2)
Germany ( 78.8)
Greece ( 53.1)
Iceland ( 82.1)
Ireland ( 66.6)
Israel ( 74.3)
Italy ( 57.6)
Japan ( 71.8)
Korea ( 62.7)
Luxembourg ( 76.8)
Netherlands ( 76.5)
New Zealand ( 74.9)
Norway ( 81.4)
Portugal ( 74.3)
Spain ( 62.3)
Sweden ( 82.8)
Switzerland ( 81.8)
United Kingdom ( 76.1)
* Employment age 25-54

anne -> anne...

As in the child's game, one of these things is not like the other, the United States employment-population ratio for men and women, and for women, from 25 to 54 was remarkably lower than 19 of 24 developed countries in 2014. The exceptions were the austerity beset countries Ireland, Spain, Italy and Greece as well as Korea in which women are just entering the workforce in significant numbers.

pgl -> bakho...

"The Fed is being clear. They are not going to be responsible for full employment. Full employment is up to Congress, fiscal policy and the administration. Of course, the GOP Congress will block fiscal stimulus."
We are ruled by idiots.

ilsm -> pgl...

Idiots [pandering to those who will get a larger piece of the pie, and] who don't care that the "pie" shrinks. When the fed goes insane on rates the shorters (wall st gamblers/hedgers) and the cash hoarders will celebrate. It is not idiocy it is [class treachery] selling out the masses for the rentier class.

A skirmish in the class wars, maybe Bernie would comment.

Mike Sparrow said...

Industrial Deflation is what causes inflation to look "low". This was a problem in the 00's when consumer price inflation was being covered up by deflation in industrial prices. The way prices are computed and trimmed don't always reflect reality. The deflation caused by the tech revolution for industrial production needs to be outright stripped out of indices.
The mythical "full employment" or a overheated economy doesn't imply inflation is coming either. This is where I reject most of the analysis on this board. Inflation didn't see it in 97 or especially in 05. It failed. All you have left is to guess.

Peter K. said...

Scroll, scroll, scroll:
Thoma:
"I just hope that information includes how poor forecasts like those just cited have been in the past, and the Fed's own eagerness to see "green shoots" again and again, far before it was time for such declarations."
Well put. This is probably why markets don't fear an uptick in inflation anytime soon. Quite the contrary. It's probably partly why longterm inflation expectations are "stable."

anne said...

http://www.project-syndicate.org/commentary/fed-monetary-policy-tightening-risks-by-j--bradford-delong-2015-08
August 28, 2015
A Cautionary History of US Monetary Tightening
By J. Bradford DeLong
BERKELEY – The US Federal Reserve has embarked on an effort to tighten monetary policy four times in the past four decades. On every one of these occasions, the effort triggered processes that reduced employment and output far more than the Fed's staff had anticipated. As the Fed prepares to tighten monetary policy once again, an examination of this history – and of the current state of the economy – suggests that the United States is about to enter dangerous territory.
Between 1979 and 1982, then-Fed Chair Paul Volcker changed the authorities' approach to monetary policy. His expectation was that by controlling the amount of money in circulation, the Fed could bring about larger reductions in inflation with smaller increases in idle capacity and unemployment than what traditional Keynesian models predicted.
Unfortunately for the Fed – and for the American economy – the Keynesian models turned out to be accurate; their forecasts of the costs of disinflation were dead on. Furthermore, this period of monetary tightening had unexpected consequences; financial institutions like Citicorp found that only regulatory forbearance saved them from having to declare bankruptcy, and much of Latin America was plunged into a depression that lasted more than five years.
Then, between 1988 and 1990, another round of monetary tightening under Alan Greenspan ravaged the balance sheets of the country's savings and loan associations, which were overleveraged, undercapitalized, and already struggling to survive. To prevent the subsequent recession from worsening, the federal government was forced to bail out insolvent institutions. State governments were on the hook, too: Texas spent the equivalent of three months of total state income to rescue its S&Ls and their depositors.
Between 1993 and 1994, Greenspan once again reined in monetary policy, only to be surprised by the impact that small amounts of tightening could have on the prices of long-term assets and companies' borrowing costs. Fortunately, he was willing to reverse his decision and cut the tightening cycle short (over the protests of many on the policy-setting Federal Open Markets Committee) – a move that prevented the US economy from slipping back into recession.
The most recent episode – between 2004 and 2007 – was the most devastating of the four. Neither Greenspan nor his successor, Ben Bernanke, understood how fragile the housing market and the financial system had become after a long period of under-regulation. These twin mistakes – deregulation, followed by misguided monetary-policy tightening – continue to gnaw at the US economy today.
The tightening cycle upon which the Fed now seems set to embark comes at a delicate time for the economy. The US unemployment rate may seem to hint at the risk of rising inflation, but the employment-to-population ratio continues to signal an economy in deep distress. Indeed, wage patterns suggest that this ratio, not the unemployment rate, is the better indicator of slack in the economy – and nobody ten years ago would have interpreted today's employment-to-population ratio as a justification for monetary tightening.
Indeed, not even the Fed seems convinced that the economy faces imminent danger of overheating. Inflation in the US is not just lower than the Fed's long-term target; it is expected to stay that way for at least the next three years. And the Fed's change in policy comes at a time when its own economists believe that US fiscal policy is inappropriately restrictive.
Meanwhile, given the fragility – and interconnectedness – of the global economy, tightening monetary policy in the US could have negative impacts abroad (with consequent blowback at home), especially given the instability in China and economic malaise in Europe....

Dan Kervick said...

"At this moment, we are following developments in the Chinese economy and their actual and potential effects on other economies even more closely than usual."

I think this is probably the most important sentence in the entire speech.

What Fisher and the other governors can't and won't say is that they are very worried about another major global downturn, and they are worried about the fact that if interest rates are not higher when that recession hits, they will have no room to lower them sharply when they need to.

Richard H. Serlin said...

But what about asymmetric loss Dr. Fischer?!
You have to know what that is.
Why don't you think the loss and overall risk is much bigger from pulling the trigger too early than from pulling the trigger too late?
How is inflation that gets up to 3%, 4%, even higher single digits more of a danger than a lost decade, severe unemployment (low labor force participation) and underemployment? Especially when overly high inflation is far easier to remedy?
I really really wonder what you're really thinking.

Richard H. Serlin -> Richard H. Serlin...

And I also seriously wonder how much of it has to do with the fact that no one ever making these decisions ever has any risk of ever being unemployed without means and with a family to support.

[Aug 28, 2015] A third scenario for stock markets

The key problem is that there is natural limit to offshoring, layoffs and stock buyouts, which was three game that corporate brass way playing since 2008. May be one or more of those limits was already reached or we are close to it.

Antonio Fatas on the Global Economy

Robert Shiller on the New York Times argues that the stock market is expensive by historical standards using the cyclically-adjusted price earnings ratio (CAPE) that he has made popular through his writings since the late 1990s.
There is no doubt that the CAPE ratio for the US stock market is high by historical standards. Using Shiller's estimates it stands around 26 today, clearly above the historical average of about 17. What a higher CAPE means is that you are paying more for the same earnings.

... ... ...

How much do we need those numbers to change to justify higher-than-normal CAPE ratios? A quick calculation using current bond interest rates would tell us that the stock market at a 25 CAPE ratio offers a risk premium over bonds that is similar to what the stock market offered when the CAPE ratio was 17 (around 6-7%). In that sense, the stock market is not expensive, it is prices in a way that is consistent with historical levels. If you want to make the stock market cheap you just need to argue that risk premium should be lower than that. If you want to make the stock market very expensive you need to argue that interest rates on bonds will soon go back to historical levels. In that scenario the US stock market should go down by about 30-40% relative to current levels.
Predicting which scenario will be realized is not easy, as Shiller argues. But I wished that he would have considered as well the third possible scenario where current CAPE levels are fine and investors should get used to lower-than-historical returns but returns that are consistent with what is going on in other asset classes. Maybe we put too much emphasis on the bouncing back and crashing scenarios when we talk about stock prices and we forget a much more boring but as plausible one that delivers a less volatile stock market.

Antonio Fatas is the Portuguese Council Chaired Professor of European Studies and Professor of Economics at INSEAD, a business school with campuses in Singapore and Fontainebleau (France), a Senior Policy Scholar at the Center for Business and Public Policy at the McDonough School of Business (Georgetown University, USA) and a Research Fellow at the Center for Economic Policy Research (London, UK).

[Aug 28, 2015] Q2 GDP Revised up to 3.7%

Aug 28, 2015 | Economist's View

anon

The Fed wants to raise interest rates:
- in the hope of preserving there institutional economic significance,

- out of a sense of loyalty to the Fed's history of financial influence using interest rates,

- because using rates to influence economic events increases their professional comfort,

- and because their economic grad school training was to fear wage push inflation above all else (they seem to believe that if inflation exceeds 2% it is a harbinger of hyper inflation).

Economists are post-industrial shamans whose witch doctor modeling impedes macro economic understanding. The precision of models is ersatz, more or less inversely proportional to its real world relevance. The delusion of being a scientist is critical to their professional self-respect.

Dan Kervick -> lower middle class...

A 3.7% quarter with several hands tied behind our backs by a don-nothing government. Think about what we could do if we were really trying.

pgl -> Dan Kervick...

YEA! Let's build that Mexican wall. Let's wage war on China. Lord - the stupidity here is multiplying!

Dan Kervick -> pgl...

This is an area in which you seem to be persistently incapable of avoiding lies.

You know very well that are a large number of ambitious long-term projects the US could do that are non-military, have nothing to do with immigration and could boost output tremendously.

You're becoming part of the LPTS crew: "liberal pundits terrified of socialism."

That's why Brad DeLong has an embargo on any talk about Bernie Sanders and his ideas.

That's why Paul Krugman is also avoiding Sanders like the plague and using daily red meet partisan servings to keep Democrats' attention riveted on the foibles of the Republicans.

That's why Brendan Nyhan has yet another column warning us all about the dangers of "Green Lanternism".

You're all pants-wetting terrified that the American people are tired of do-nothing neoliberal government, and will figure out that with a more assertive and economically engaged central government dynamic growth and social transformation are possible, and that the stagnation, predatory exploitation, cruel subjugation and social destruction wrought 40 years of neoliberalism was a horrible and completely avoidable mistake.

40% of this country has household income of under $40,000 per year. If we remove the plutocratic capitalist stranglehold on this economy, use government to more efficiently distribute and invest our national wealth, and demote private enterprise to its proper subordinate place, we could double that rapidly and drive a wave of high-growth social transformation with all of the liberated economic energy.

This is going to happen. Take your pick: we're either going to get the somewhat fascistic and racist Trump version on strong government or democratic socialist version. The Ivy League twits hanging on for dear life to their established networks, revolving doors, tit-for-tatting, sinecures and don't-rock-the-boat regime of stagnant managerialism are going to butts handed to them by history.

pgl -> Dan Kervick...

Blah, blah, blah. I guess we could employ more economists at the BEA to do what they are already doing at Census.

Dan Kervick -> pgl...

The Census doesn't and can't combine income distribution numbers with growth numbers on a monthly and quarterly basis. The BEA could collect this data, but doesn't, because it is part of their mission to pretend class conflict doesn't exist.

The top quintile in the US pulls down about 50% percent of the income. That means we could get 3.7% annualized growth if their income grew by 6% while everybody else's income grew by less than 1/2 a percent.

Is that what's happening? Inquiring minds want to know. It seems like a natural mission for the BEA to track this. But they don't.

pgl -> Dan Kervick...

You have no clue what these people do or the task you are whining about. With all you incessant babbling and whining - your keyboard is likely ready to just rot away.

Me? I'm headed down to the Starbucks to whine that they don't make tacos. Duh.

Dan Kervick -> pgl...

I know what they do, and I know what they don't do. Their mission should be expanded.

likbez -> Dan Kervick...

Dan,

I think you are mistaken about "a natural mission for the BEA to track this". Our elected officials and Wall Street executives all have a vested interest in keeping the perception of a robust economy alive. The economy growth numbers and the employment data announced are critical to this perception, but a thorough analysis of the data suggests something quite different that what we are told.

Statistics now became more and more "number racket" performed, like in the USSR, in the interest of the powers that be.

Think about "substitution" games in measuring consumer inflation.

Think about "Birth/Death adjustment" in employment data.

Think about tricks they play with GDP measurement.

The net result of this tricks is that the error margin of government statistics is pretty high. And nobody in economic profession is taking into account those error margins.

So in no way we can accept this 3.7% annualized growth figure. This is a fuzzy number, a distribution from probably 2.7% to 3.7%. Only upper bound is reported. And if you delve into the methodology deeper this range might be even wider. What is actually the assumption of quarterly inflation in the USA used in calculation of this number?

Which is another factor that makes neoliberal economics a pseudoscience, a branch of Lysenkoism.

JohnH -> Dan Kervick...

This is very revealing...nobody provides regular statistics on distribution. That lack of interest makes it blatantly obvious that policy makers only care about the top number--GDP--and are totally uninterested in knowing whether most Americans are prospering or not.

There is one source that updates Census data on a monthly basis. It shows that real median household income is still 3.8% below where it was in 2008 or in 2001. In fact, it's back where it was in the 1980s.

Of course, the 'recovery' has trickled down a bit, just as you would expect from trickle down monetary policy. Real median household incomes are no longer 9.6% below where they were in 2008...they're now only 3.8% below.
http://www.advisorperspectives.com/dshort/updates/Median-Household-Income-Update.php

Meanwhile, Saez and Montecino have pointed out that the 1% got 58% of the gains from the 'recovery,' while the 99% got 42%.

Of course, pgl doesn't even care enough about this to know where the data is...and, apparently, most 'liberal' economists are just as indifferent to distribution as he is.

Dan Kervick -> JohnH...

If it weren't for Piketty and Saez, we'd still be fumbling around in the dark on income and wealth distribution.

JohnH -> JohnH...

There's more here: real median household income by quintile 1967-2013
http://www.advisorperspectives.com/dshort/updates/Household-Income-Distribution.php

It shows the dramatic the separation between the top quintile and the bottom 80% during the Clinton years. Separation was even greater for the top 5%.

Yet the only thing that most economists ever notice is GDP growth...

pgl -> JohnH...

"Yet the only thing that most economists ever notice is GDP growth".

There you go again. Clueless as can be and lying your ass off.

likbez -> pgl...

And what you actually know about methodology of calculation of this GDP number. Inquiring minds want to know.

Correct calculation of nominal GDP depends on correct calculation of inflation, which is the most politicized of economic metrics and as such subject to tremendous level of manipulation.

Simon Kuznets, the economist who developed the first comprehensive set of measures of national income, stated in his first report to the US Congress in 1934, in a section titled "Uses and Abuses of National Income Measurements":

=== Start of quote ====
The valuable capacity of the human mind to simplify a complex situation in a compact characterization becomes dangerous when not controlled in terms of definitely stated criteria. With quantitative measurements especially, the definiteness of the result suggests, often misleadingly, a precision and simplicity in the outlines of the object measured. Measurements of national income are subject to this type of illusion and resulting abuse, especially since they deal with matters that are the center of conflict of opposing social groups where the effectiveness of an argument is often contingent upon oversimplification. [...]

All these qualifications upon estimates of national income as an index of productivity are just as important when income measurements are interpreted from the point of view of economic welfare. But in the latter case additional difficulties will be suggested to anyone who wants to penetrate below the surface of total figures and market values. Economic welfare cannot be adequately measured unless the personal distribution of income is known. And no income measurement undertakes to estimate the reverse side of income, that is, the intensity and unpleasantness of effort going into the earning of income. The welfare of a nation can, therefore, scarcely be inferred from a measurement of national income as defined above.

JohnH -> JohnH...

Another look at the ineffectiveness of trickle down monetary policy: all but the top decile have suffered decreases in wages and compensation since 2007.
http://www.epi.org/publication/pay-is-stagnant-for-vast-majority-even-when-you-include-benefits/

[Aug 27, 2015] Oil Industry Needs Half a Trillion Dollars to Endure Price Slump

"...Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years."

"... In the U.S., the number of bonds yielding greater than 10 percent has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. Twenty-six European oil companies have bonds in that category, including Gulf Keystone Petroleum Ltd. and EnQuest Plc."

"...Some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available."

"...Credit-rating downgrades are putting additional strain on the ability of oil companies to raise money cheaply. Standard & Poor's cut the rating of Eni SpA, Italy's biggest oil company, in April while Moody's Investors Service downgraded Tullow Oil Plc's debt in March."

"...The biggest companies, with global portfolios that span oil fields to refineries, will probably emerge largely intact from the slump, Norton Rose's Wood said. Smaller players, dependent on fewer assets, could have problems, she said."

Aug 27, 2015 | Bloomberg Business

... ... ...
"The look and shape of the oil industry would likely change over the next five to 10 years as companies emerge from this," Wood said. "If oil prices stay at these levels, the number of bankruptcies and distress deals will undoubtedly increase."
Debt repayments will increase for the rest of the decade, with $72 billion maturing this year, about $85 billion in 2016 and $129 billion in 2017, according to BMI Research. About $550 billion in bonds and loans are due for repayment over the next five years.

U.S. drillers account for 20 percent of the debt due in 2015, Chinese companies rank second with 12 percent and U.K. producers represent 9 percent.

In the U.S., the number of bonds yielding greater than 10 percent has increased more than fourfold to 80 over the past year, according to data compiled by Bloomberg. Twenty-six European oil companies have bonds in that category, including Gulf Keystone Petroleum Ltd. and EnQuest Plc.

... ... ...

Slumping crude prices are diminishing the value of oil reserves and reducing borrowing power, even as pressure builds to find replacement fields.

Some earnings metrics are already breaching the lows of the 2008 financial crisis. The profit margin for the 108-member MSCI World Energy Sector Index, which includes Exxon Mobil Corp. and Chevron Corp., is the lowest since at least 1995, the earliest for when data is available.

"There are several credits which simply won't be able to refinance and extend maturities and they may need to raise additional equity," said Eirik Rohmesmo, a credit analyst at Clarksons Platou Securities AS in Oslo. "The question is: Would they be able to do that with debt at these levels?"

Credit Ratings

Some U.S. producers gained breathing space by leveraging their low-cost assets to raise funds earlier this year and repay debt, Goldman Sachs Group Inc. wrote in a Aug. 6 report. This helped companies shore up their capital and reduce debt-servicing costs.

That may no longer be an option because energy companies have been the worst performers in the past year among 10 industry groups in the MSCI World Index.

Credit-rating downgrades are putting additional strain on the ability of oil companies to raise money cheaply. Standard & Poor's cut the rating of Eni SpA, Italy's biggest oil company, in April while Moody's Investors Service downgraded Tullow Oil Plc's debt in March.

Spokesmen for Eni and Tullow declined to comment.

The biggest companies, with global portfolios that span oil fields to refineries, will probably emerge largely intact from the slump, Norton Rose's Wood said. Smaller players, dependent on fewer assets, could have problems, she said.

"Clearly, those companies with debt to pay will have one eye firmly on oil prices," said Christopher Haines, a senior oil and gas analyst at BMI in London. "With revenues collapsing and debt soon to mature, a growing number of companies may find themselves unable to meet repayment schedules."

Oil Prices Driven Lower By Everything Except Fundamentals
By Leonard Brecken

"...According to Reuters, 50 to 60 hedge funds have taken short positions that account for around 160 million barrels of oil in near term contracts. In fact, the amount of short positions in oil options and futures now exceeds levels in the great financial meltdown of 2008, believe it or not, despite talk of a good economy and the Fed needing to raise interest rates. Madness, right?"

"...All these things still don't explain the panic in oil markets other than financially driven events that aren't directly tied to the supply and demand of oil which, as I stated, has improved vs. the start of 2015. "

Aug 24, 2015 | OilPrice.com

It is clear that it is no longer supply and demand for oil that is dictating the price but is instead the financial markets and more importantly money flows tied to central bank policy.

Bearish sentiment in the oil markets is taking over as net short positions near record highs. According to Reuters, 50 to 60 hedge funds have taken short positions that account for around 160 million barrels of oil in near term contracts. In fact, the amount of short positions in oil options and futures now exceeds levels in the great financial meltdown of 2008, believe it or not, despite talk of a good economy and the Fed needing to raise interest rates. Madness, right?

... ... ...

Fundamentally, almost every bear case presented by the media in 2015 has been proven false. Doomsday events such as rig count (vertical rigs being dropped vs. horizontal), Cushing overflowing, China demand slowing, to Iran floating storage of 50 million barrels being unleashed, U.S. production rising, have all been dispelled.

In fact, as I said, the fundamentals have even improved as U.S. production has entered into decline, crude stocks have been drawing down since the spring, and demand for gasoline is at record highs (much higher vs. expectations going into 2015). Furthermore, the worries on Iran are completely overblown given that the hype on floating storage – the millions of barrels of crude oil sitting in tankers turned out to be low quality condensate that is hard to process. Also, the 500,000 to 1 million barrels per day (mb/d) increase tied to the nuclear deal will be absorbed by higher demand, which has averaged 1 million barrels or more each year (in 2015, it has been even higher than that; closer to 1.4 mb/d or higher).

Furthermore, China alone will add 600,000 barrels per day in refinery capacity, as it allows independent refineries to process oil. What has been incrementally negative has been additional capacity added by Iraq and Saudi Arabia since the start 2015. However, aside from Iran, OPEC doesn't have any spare capacity left and, Saudi Arabia has already announced intentions of reducing output by 200,000-300,000 barrels per day post their seasonally strong domestic period.

Yet even though the dollar has weakened recently, oil has still collapsed some 35 percent. The E&P equities have fallen even further as in addition to shorts, there are also pressing bets on the upcoming fall credit redetermination and hedge funds taking positions in E&P bonds while shorting equities.

All these things still don't explain the panic in oil markets other than financially driven events that aren't directly tied to the supply and demand of oil which, as I stated, has improved vs. the start of 2015. In fact, demand is soaring while days of supply are improving dramatically as evidenced by the charts the charts below:

... ... ...

Leonard Brecken, Brecken Capital LLC. Leonard is a portfolio manager and principal at Brecken Capital LLC, a hedge fund focused on domestic equities

[Aug 27, 2015] Oil Prices Must Rebound. Here's Why

OilPrice.com

You can see two things on this chart, the first is that when capacity exceeds demand, prices are low (and vice versa); the second is that, since about 2005, despite the oil price being rather high, outside North America the world has struggled to add any oil production capacity at all. In fact, since 2010 oil production capacity outside North America has been in decline. If it weren't for the USA & Canada, where production growth has been driven by LTO & SAGD, we would have been in a right pickle.

... ... ...

In the short term, the oil market is in the doldrums and projects are being delayed or cancelled, left right and center. That will mean that, outside North America, oil production capacity will decline even faster and with the growth knocked out of the shale producers and SAGD projects being put on the back burner, it is only a matter of months before demand starts to exceed world oil production capacity again.

A nasty recession might put a dent in demand growth and turn those months into quarters, but eventually capacity will wane, demand will wax, and the oil price will climb once again.

In fact if traders looked hard at these charts they might wonder if the continued weakness in the 2022 Brent Oil future was a tad overdone. For this time, I think the price response might be even stronger and more sustained than before.

[Aug 27, 2015] Smoke and Mirrors of Corporate Buybacks Behind the Market Crash

"...What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term."
.
"...Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation."
.
"...HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.
.
So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring."
.
"...What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce."

Michael Hudson, the author of Killing the Host: How Financial Parasites and Debt Destroy Global Economy, says the stock market crash on Monday has very little to do with China and all to do with shortermism and buybacks of corporations inflating their own stocks - August 25, 2015

... ... ...

And this is what most of the commentators don't get, that all this market runoff we've seen in the last year or two has been by the Federal Reserve making credit available to banks at about one-tenth of 1 percent. The banks have lent out to brokers who have lent out to big institutional traders and speculators thinking, well gee, if we can borrow at 1 percent and buy stocks that yield maybe 5 or 6 percent, then we can make the arbitrage. So they've made a 5 percent arbitrage by buying, but they've also now lost 10 percent, maybe 20 percent on the capital.

What we're seeing is that short-term thinking really hasn't taken into account the long run. And that's why this is very much like the long-term capital market crash in 1997, when the two Nobel prize winners who said the whole economy lives in the short term found out that all of a sudden the short term has to come back to the long term.

Now, it's amazing how today's press doesn't get it. For instance, in the New York Times Paul Krugman, who you can almost always depend to be wrong, said the problem is there's a savings glut. People have too many savings. Well, we know that they don't in America have too many savings. We're in a debt deflation now. The 99 percent of the people are so busy paying off their debt that what is counted as savings here is just paying down the debt. That's why they don't have enough money to buy goods and services, and so sales are falling. That means that profits are falling. And people finally realize that wait a minute, with companies not making more profits they're not going to be able to pay the dividends.

Well, companies themselves have been causing this crisis as much as speculators, because companies like Amazon, like Google, or Apple, especially, have been borrowing money to buy their own stock. And corporate activists, stockholder activists, have told these companies, we want you to put us on the board because we want you to borrow at 1 percent to buy your stock yielding 5 percent. You'll get rich in no time. So all of these stock buybacks by Apple and by other companies at high prices, all of a sudden yes, they can make that money in the short term. But their net worth is all of a sudden plunging. And so we're in a classic debt deflation.

PERIES: Michael, explain how buybacks are actually causing this. I don't think ordinary people quite understand that.

HUDSON: Well, what they cause is the runup–companies are under pressure. The managers are paid according to how well they can make a stock price go up. And they think, why should we invest in long-term research and development or long-term developments when we can use the earnings we have just to buy our own stock, and that'll push them up even without investing, without hiring, without producing more. We can make the stock go up by financial engineering. By using our earnings to buy [their own] stock.

So what you have is empty earnings. You've had stock prices going up without really corporate earnings going up. Although if you buy back your stock and you retire the shares, then earning the shares go up. And all of a sudden the whole world realizes that this is all financial engineering, doing it with mirrors, and it's not real. There's been no real gain in industrial profitability. There's just been a diversion of corporate income into the financial markets instead of tangible new investment in hiring.

PERIES: Michael, Lawrence Summers is tweeting, he writes, as in August 1997, 1998, 2007 and 2008, we could be in the early stages of a very serious situation, which I think we can attribute some of the blame to him. What do you make of that comment, and is that so? Is this the beginnings of a bigger problem?

HUDSON: I wish he would have said what he means by 'situation'. What people don't realize usually, and especially what Lawrence Summers doesn't realize, is that there are two economies. When he means a bad situation, that means for his constituency. The 1 percent. The 1 percent, for them they think oh, we're going to be losing in the asset markets. But the 1 percent has been making money by getting the 99 percent into debt. By squeezing more work out of them. By keeping wages low and by starving the market so that there's nobody to buy the goods that they produce.

So the real situation is in the real economy, not the financial economy. But Lawrence Summers and the Federal Reserve all of a sudden say look, we're not really trying–we don't care about the real economy. We care about the stock market. And what you've seen in the last few years, two years I'd say, of the stock runup, is something unique. For the first time the stock, the central banks of America, even Switzerland and Europe, are talking about the role of the central bank is to inflate asset prices. Well, the traditional reason for central banks that they gave is to stop inflation. And yet now they don't want, they're trying to inflate the stock market. And the Federal Reserve has been trying to push up the stock market purely by financial reasons, by making this low interest rate and quantitative easing.

Now, the Wall Street Journal gets it wrong, too, on its editorial page. You have an op-ed by Gerald [incompr.], who used to be on the board of the Dallas Federal Reserve, saying gee, the problem with low interest rates is it encourages long-term investment because people can take their time. Well, that's crazy Austrian theory. The real problem is that low interest rates provide money to short-term speculators. And all of this credit has been used not for the long term, not for investment at all, but just speculation. And when you have speculation, a little bit of a drop in the market can wipe out all of the capital that's invested.

So what you had this morning in the stock market was a huge wipeout of borrowed money on which people thought the market would go up, and the Federal Reserve would be able to inflate prices. The job of the Federal Reserve is to increase the price of wealth and stocks and real estate relative to labor. The Federal Reserve is sort of waging class war. It wants to increase the assets of the 1 percent relative to the earnings of the 99 percent, and we're seeing the fact that this, the effect of this class war is so successful it's plunged the economy into debt, slowed the economy, and led to the crisis we have today.

PERIES: Michael, just one last question. Most ordinary people are sitting back saying well, it's a stock market crash. I don't have anything in the market. And so I don't have to really worry about it. What do you say to them, and how are they going to feel the impact of this?

HUDSON: It's not going to affect them all that much. The fact is that so much of the money in the market was speculative capital that it really isn't going to affect them much. And it certainly isn't going to affect China all that much. China is trying to develop an internal market. It has other problems, and the market is not going to affect either China's economy or this. But when the 1 percent lose money, they scream like anything, and they say it's the job of the 99 percent to bail them out.

PERIES: What about your retirement savings, and so on?

HUDSON: Well, if the savings are invested in the stock market in speculative hedge funds they'd lose, but very few savings are. The savings have already gone way, way up from the market. And the market is only down to what it was earlier this year. So the people have not really suffered very much at all. They've only not made as big of gains as they would have hoped for, but they're not affected.
... ... ...
Michael Hudson is a Distinguished Research Professor of Economics at the University of Missouri, Kansas City. He is the author of The Bubble and Beyond and Finance Capitalism and its Discontents. His most recent book is titled Killing the Host: How Financial Parasites and Debt Bondage Destroy the Global Economy.

[Aug 27, 2015] Oil markets catch breath after biggest gains in six years

"A short covering rally, led by crude oil pushed commodities higher across the board. Better than expected U.S. GDP numbers was the main spark, although the force majeure on BP's exports from Nigeria extended the gains," ANZ said in a note on Friday morning.

"The recovery in commodity prices looks fragile with concerns over China's growth still weighing on market activity," the bank added.

The U.S. economy grew faster than initially thought in the second quarter on solid domestic demand. Gross domestic product expanded at a 3.7 percent annual pace instead of the 2.3 percent rate reported last month, the Commerce Department said on Thursday in its second GDP estimate for the April-June period.

Shell's Nigerian unit, Shell Petroleum Development Company (SPDC), declared force majeure on Bonny Light crude oil exports on Thursday after shutting down two key pipelines in the country due to a leak and theft.

China's falling auto sales have been at the forefront of concerns that its economy is slowing much faster than expected, weighing on oil prices.

Venezuela has been contacting other members of the Organization of the Petroleum Exporting Countries (OPEC), pushing for an emergency meeting with Russia to come up with a plan to stop the global oil price rout, the Wall Street Journal reported.

[Aug 27, 2015]Where Is Neo When We Need Him

Aug 27, 2015 | zerohedge.com

In The Matrix in which Americans live, nothing is ever their fault. Nowhere in the Western media other than a few alternative media websites is there an ounce of integrity. The Western media is a Ministry of Truth that operates full-time in support of the artificial existence that Westerners live inside The Matrix where Westerners exist without thought. Considering their inaptitude and inaction, Western peoples might as well not exist. More is going to collapse on the brainwashed Western fools than mere stock values.

In The Matrix in which Americans live, nothing is ever their fault. For example, the current decline in the US stock market is not because years of excessive liquidity supplied by the Federal Reserve have created a bubble so overblown that a mere six stocks, some of which have no earnings commiserate with their price, accounted for more than all of the gain in market capitalization in the S&P 500 prior to the current disruption.

In our Matrix existence, the stock market decline is not due to corporations using their profits, and even taking out loans, to repurchase their shares, thus creating an artificial demand for their equity shares.

The decline is not due to the latest monthly reporting of durable goods orders falling on a year-to-year basis for the sixth consecutive month.

The stock market decline is not due to a weak economy in which after a decade of alleged economic recovery, new and existing home sales are still down by 63% and 23% from the peak in July 2005.

The stock market decline is not due to the collapse in real median family income and, thereby, consumer demand, resulting from two decades of offshoring middle class jobs and partially replacing them with minimum wage part-time Walmart jobs without benefits that do not provide sufficient income to form a household.

No, none of these facts can be blamed. The decline in the US stock market is the fault of China.

What did China do? China is accused of devaluing by a small amount its currency.

Why would a slight adjustment in the yuan's exchange value to the dollar cause the US and European stock markets to decline?

It wouldn't. But facts don't matter to the presstitute media. They lie for a living.

Moreover, it was not a devaluation.

When China began the transition from communism to capitalism, China pegged its currency to the US dollar in order to demonstrate that its currency was as good as the world's reserve currency. Over time China has allowed its currency to appreciate relative to the dollar. For example, in 2006 one US dollar was worth 8.1 Chinese yuan. Recently, prior to the alleged "devaluation" one US dollar was worth 6.1 or 6.2 yuan. After China's adjustment to its floating peg, one US dollar is worth 6.4 yuan. Clearly, a change in the value of the yuan from 6.1 or 6.2 to the dollar to 6.4 to the dollar did not collapse the US and European stock markets.

Furthermore, the change in the range of the floating peg to the US dollar did not devalue China's currency with regard to its non-US trading partners. What had happened, and what China corrected, is that as a result of the QE money printing policies currently underway by the Japanese and European central banks, the dollar appreciated against other currencies. As China's yuan is pegged to the dollar, China's currency appreciated with regard to its Asian and European trading partners. The appreciation of China's currency (due to its peg to the US dollar) is not a good thing for Chinese exports during a time of struggling economies. China merely altered its peg to the dollar in order to eliminate the appreciation of its currency against its other trading partners.

Why did not the financial press tell us this? Is the Western financial press so incompetent that they do not know this? Yes.

Or is it simply that America itself cannot possibly be responsible for anything that goes wrong. That's it. Who, us?! We are innocent! It was those damn Chinese!

Look, for example, at the hordes of refugees from America's invasions and bombings of seven countries who are currently overrunning Europe. The huge inflows of peoples from America's massive slaughter of populations in seven countries, enabled by the Europeans themselves, is causing political consternation in Europe and the revival of far-right political parties. Today, for example, neo-nazis shouted down German Chancellor Merkel, who tried to make a speech asking for compassion for refugees.

But, of course, Merkel herself is responsible for the refugee problem that is destabilizing Europe. Without Germany as Washington's two-bit punk puppet state, a non-entity devoid of sovereignty, a non-country, a mere vassal, an outpost of the Empire, ruled from Washington, America could not be conducting the illegal wars that are producing the hordes of refugees that are over-taxing Europe's ability to accept refugees and encouraging neo-nazi parties.

The corrupt European and American press present the refugee problem as if it has nothing whatsoever to do with America's war crimes against seven countries. I mean, really, why should peoples flee countries when America is bringing them "freedom and democracy?"

Nowhere in the Western media other than a few alternative media websites is there an ounce of integrity. The Western media is a Ministry of Truth that operates full-time in support of the artificial existence that Westerners live inside The Matrix where Westerners exist without thought. Considering their inaptitude and inaction, Western peoples might as well not exist.

More is going to collapse on the brainwashed Western fools than mere stock values.
Average: Barnaby Barnaby's picture

One of the youngest states in the world is hardly a threat. Client status means they're held by the balls. Any other understanding is simple paranoia.

What you should be worried about is that your UN sponsor allows ethnic cleansing on such a scale in Palestine. That makes you culpable.

DontWorry
Don't worry, the USA is recognized as a beacon of freedom and democracy throughout the world. There are always multiple viewpoints, but the US media represents a fair, unbiased and mainstream view. Our press is the freest in the world, and supported by our Constitution. The US will be the center of western democracy, culture and commerce for the forseeable future.

lasvegaspersona

Many of the problems of modern life, including the actions of the US government, are founded in the very currency that enables it to act seemingly without effort.The ability to create the medium of exchange for the entire world has given this same government the appearance of invulnerability. It has allowed the federal government to make demands upon the states that comprise it. It can control citizens whose consent used to be required for it to act. It seems to have the ability to control the entire world.

This is an illusion. It has been granted these abilities, it has not earned them nor won them. The world needed a monetary system post WW2 and even post 1971. The final stages of this whole episode was seen by Rueff and triffin quite clearly considering they spoke 40 plus years ago.

Now the world has changed. It is withdrawing the permission it granted every time it bought treasuries or did other things that kept all those excess dollars from coming back to their country of birth to cause rising prices. The chinese are selling, the Arabs are selling and the ECB stopped buying long ago. They are not going to kill the dollar (and cause a war). They are going to let it fail through inaction. The actions of our nation do not make much sense to most folks who viewed thenUS as a good country. It seems to have been taken over by evil people.

I think these are the actions of spoiled children who don't have to pay for what they get.
Now the trust fund has run out. Daddy took the T-Bird away. Soon we will have to get a real job.
About 50% of American exceptionalism is due to the exorbitant privilege. The other part is actually real...if we can salvage those things that once made us truly great. Most Americans, who pay attention, are shocked and angry by what they see their government doing.
Both the government and the American people are not worse than any other country would have been if it was granted the same power over money itself. I just hope the ending of this chapter comes smoothly before we wreck the car and kill a lot more people.
It is time to grow up and get a real job.

Renfield

<<Many of the problems of modern life, including the actions of the US government, are founded in the very currency that enables it to act seemingly without effort.The ability to create the medium of exchange for the entire world has given this same government the appearance of invulnerability. It has allowed the federal government to make demands upon the states that comprise it. It can control citizens whose consent used to be required for it to act. It seems to have the ability to control the entire world... Now the world has changed. It is withdrawing the permission it granted every time it bought treasuries or did other things that kept all those excess dollars from coming back to their country of birth to cause rising prices. The chinese are selling, the Arabs are selling and the ECB stopped buying long ago. They are not going to kill the dollar (and cause a war). They are going to let it fail through inaction. The actions of our nation do not make much sense to most folks who viewed thenUS as a good country. It seems to have been talen over by evil people. I think these are the actions of spoiled choildren who don't have to pay for what they get. Now the trust fund has run out. Daddy took the T-Bird away. Soon we will have to get a real job.>>

Bravo. THIS is why the idea of any fiat "world reserve currency" needs to die for the good of the planet.

On a national scale, I don't mind a fiat currency as long as it is not 1) issued by the government, 2) fraudulently claimed to be anything but fiat, or 3) mandated as the sole currency allowed for a nation. (Or city, or town, or any group.) That way people are free to ignore it in favor of real money.

"Counterfeiting" laws should be scrapped in favor of good old-fashioned anti-fraud enforcement. But no government should ever be allowed by its people to traffic in a fraudulent, fiat currency, let alone to mandate it as the only currency legal to use. This puts criminals at the top of the system and riddles your financial system with fraud, and with such a foundation, of course bad money drives out good and eventually 'malinvestment' in unproductive or evil commerce becomes its entire result.

buzzsaw99

Without Germany as Washington's two-bit punk puppet state, a non-entity devoid of sovereignty, a non-country, a mere vassal, an outpost of the Empire, ruled from Washington, America could not be...

AWESOME!

MalteseFalcon

The USA still has bases, army and air force in Germany. So the Germans are not completely feckless punks.
What about France?

[Aug 27, 2015] Shiller: Rising Anxiety That Stocks Are Overpriced

"...So people sold what may have been just under $2 T in positions. "

"...But if E were unsustainably high due to an output gap leaving businesses to operate under-capacity for their capital stock while simultaneously cutting wage expenses via layoffs and increased use of part time workers to boost E (earnings) then what would that say about P (share price)? Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that."

"...[ Interesting, when wealth is significantly invested in nonproductive assets, what then? ] Nonproductive, like corporate stock buybacks. When buybacks exceed investment in R&D, plant & equipment, systems, etc. for a decade or more, then growth in the subsequent decade is likely to be merde, n'est-ce pas? Uncreative destruction. Schumpeter *rolls over in grave*"

Robert Shiller (a reason to agree with Tim Duy):
Rising Anxiety That Stocks Are Overpriced: Over the five trading days between Aug. 17 and Aug. 24, the U.S. stock market dropped 10 percent - the official definition of a "correction," with similar or greater drops in other countries. ...

But there are reasons to question whether this was a quick, effective slap on the wrist, or if the market is still too overactive, and thus asking for a more extended punishment. ...

It is entirely plausible that the shaking of investor complacency in recent days will, despite intermittent rebounds, take the market down significantly and within a year or two restore CAPE ratios to historical averages. This would put the S. & P. closer to 1,300 from around 1,900 on Wednesday, and the Dow at 11,000 from around 16,000. They could also fall further; the historical average is not a floor.

Or maybe this could be another 1998. We have no statistical proof. We are in a rare and anxious "just don't know" situation, where the stock market is inherently risky because of unstable investor psychology.

JF said...

So people sold what may have been just under $2 T in positions.

Well, we do hope they invest in a real business with some of this, and maybe people will just enjoy themselves a bit and spend where there are lots of multiples that follow.

But otherwise, where do they put their money to get a return? The basic "psychology" is that worldwide it is still better to put your money into an equity compared to a bond, and into the US for safety and for returns, compared to most other choices.

More might go directly into real-economy businesses if we can get the economy moving and less into the stock market, but then again if the economy moves out smartly then the stock market will also benefit from improvements in the fundamentals and profits of real businesses too.

sanjait said in reply to JF...

What you describe is the main story.'

Stocks are highly valued, relative to historic P/Es, because the opportunity cost of capital is low. Earnings yields on stocks have gone down, driving up their prices, because the alternatives aren't great either.

This is what Shiller's CAPE ratio misses. It's designed to capture cyclical changes in earnings to make P/E a more reliable metric, but it leaves out cost of capital. So when we have this unusual situation with massive decline in interest rates, that projects to persist for a number of years, of course multiples expand...

Anonymous said in reply to sanjait...

What you are describing is true. Low interest rates means higher multiples can persist. However, we saw that scenario in Japan in the 90s for years. The low interest rates made Japanese stocks look like good value (even though PE was high). That did not prevent big big 30% drawdowns multiple times. I am not sure that low interest rates are a guarantee that high PEs are ok. Just putting in an observation to add to the discussion.

mulp said in reply to JF...

Investors sold shares of private companies and bought Federal government debt signalling the market wants more government spending.

Yet the claimed free market loving Republicans keep bucking the free market that is begging for much more government spending.

And there is so much needed capital assets to be built by government because We the People will not build the capital assets we want to see as individuals, nor do We the People want private corporations to build the capital assets We the People call for. The free market clear is calling for the Republican controlled legislatures to borrow and invest in big government capital asset building:

Big investments in transportation infrastructure

Big investments in water management infrastructure

Big investments in power and communications infrastructure

Corporations are demanding lots of investment in human capital because they claim they can't find qualified machinists, welders, engineers, technicians, plumbers, carpenters, architects, and on and on, to hire, saying that without Americans being invested in, they need to import skilled workers or move the jobs out of the US

Every bit of the above we know how to do at twice or three times the rates currently being done based on the rate of investment from about 1920 to 1970. The number of miles of paved highway in the 20s was massive. The electric grid built was massive. Post WWII the investment in human capital accelerated from the rate in the 30s and 40s when the minimum standard education for every citizen shifted from grade 8 to grade 12.

Dan Kervick said...

FWIW, anybody who has iTunes U can listen to a whole semester-long Shiller Yale class on financial markets. Highly recommended.

pgl said...

I can't seem to post the WSJ to the 8/26/2015 P/E ratios but they are near 17. Not that high in light of current interest rates.

RC AKA Darryl, Ron said in reply to pgl...

But if E were unsustainably high due to an output gap leaving businesses to operate under-capacity for their capital stock while simultaneously cutting wage expenses via layoffs and increased use of part time workers to boost E (earnings) then what would that say about P (share price)? Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that.

pgl said in reply to RC AKA Darryl, Ron...

Granted we should address cyclical issues as the issue is not historical earnings but rather expected future earnings. But here's the puzzle. Let's assume we get a quick return to full employment. Would earnings rise or fall? A lot of folks might argue that they would rise as we returned to full capacity. But you are right - a lot of the extra production would finally go to higher real wages.

Ray Fair - we need your 93 equation CC model!

mulp said in reply to pgl...

Extra production requires higher wages first.

No business is idiot enough to produce stuff without knowing that buyers already have the cash or credit to buy it.

On the other hand, government can offer to buy increased production knowing it will be able to charge the people who benefit by its power to tax. For example, the US has built tens of thousands miles of highways to nowhere, train rail lines to nowhere, knowing it would pay for it all by levying taxes. Water and sewer to nowhere.

I'm old enough to remember Interstate highways off to the side of the crowded two lane highway my family drove year after year on vacation or church business. It was easy to buy right of way across farm fields and easy to lay down high quality payment, but building overpasses on existing heavily used roads too what seemed like forever. In Indiana, bulldozing subsoil into hills took a year or more. It is the weight of the soil that compresses the soil to the required compaction, but that requires time. And then building interchanges in or near cities requires even more planning.

While those Interstates built in my youth require constant rebuilding because entropy obeys no economist, the bill for building them is long paid while the utility value of the Interstates increases constantly. And the highest utility value is seen when a bridge goes out and the cost of rerouting traffic hits the users. Bundles of cash get showered on replacing the bridge because government, We the People, can shower cash if We the People demand it.

sanjait said in reply to RC AKA Darryl, Ron...

"Shiller puts a lot of faith in Cyclically Adjusted Price Earnings ratio (CAPE). My guess is there is a reason for that."

Yeah, he invented it.

It's a nice way of smoothing PE data to account for some cyclical factors, but it doesn't account for everything.

JF said in reply to RC AKA Darryl, Ron...

Ratio of workforce hours to the Investment Base and value of Intangibles. This is different from how the stock market "prices" a share (it can't know, I'd expect very few people know these ratios for a company and few understand them by sector and over time - while accounting for intangibles was a very late development too).

Shiller recognizes the psychology of these financial asset markets. We know the participants in these markets; i.e., buyers, seller, market-makers, demonstrate herd behaviors. Shiller does want to teach about more rational methods for the pricing of stocks. But markets price as they do - not always "rational" expectations here.

Stocks are good - participants are sharing in risks, unlike debt instruments. Stocks are, fundamentally, better economics for society, imho.

JF said in reply to JF...

So put your money directly into a business or buy ownership shares in some market (different forms of taking risk in the making of business). US is still the best place to do that.

mulp said in reply to JF...

Investment must result in wages and benefits paid, or else its just asset trading or pump and dump asset churn.

sanjait said in reply to pgl...

That's what I'm saying.

What everyone needs to realize is that low interest rates change the *fundamentals* of stock valuation.

Sure, we could be experiencing some degree of pop in corporate earnings due to weak labor demand, competitive washout during the crash and the unusual way that low investment can in the short term lead to higher profitability. All of that is worth examining.

But none of that changes the other side of the coin, which is that ... cost of capital matters.

pgl said in reply to sanjait...

Check out James Glassman's What We Got Wrong (re DOW 36000). He never admits either one of his two bizarre errors. It is more the world changed after 9/11. Really? What changed? The cost of capital fell which should have meant higher valuations. OK - maybe steady state growth is no longer 3% as some say it is 2%. But wait? Glassman tells Jeb! steady state growth should be 4%. So what changed should have had him change his book to DOW 72000!

RC AKA Darryl, Ron said...

The stock market is almost always experiencing a speculative bubble except for a few blue chips that are less volatile.

Justin Cidertrades said in reply to RC AKA Darryl, Ron...

"almost always experiencing a speculative bubble except for a few blue chips"
~~AKA~

buy low, but sell high, Hawaii!
Go through your portfolio! Mark up the price on everything you have! Put it up for sell on limit order! Then commit all your cash to limit orders to buy but at very low bid. Buy things that are a cinch to grow with the underlying business but only after researching the business for debt levels etc. Whoops! You can't use that rent money for stock bid. Remember! All stocks are equally worthless until proved otherwise.

Ben Groves said...

A speculative commodity bubble. Not sure that has every happened before by itself. Don't know what that really means. Stocks may have been overinflated or its damage to the real economy may mean stocks are underinflated.

sanjait said...

I don't think we're seeing a Minsky Moment in stock valuations.

What instead I think we're seeing is a Minsky Moment in China. Or, at least, people openly wondering how far off their previous assumptions were about growth and demand in China, and whether there is risk of contagious defaults somewhere there.

In other words, they aren't worried about multiples, they are worried about fundamentals.

rayward said...

What's the alternative to speculative financial assets? It's been conventional wisdom that the rate of return on productive capital (r) has been falling for 30 plus years. Larry Summers has repeated this often.

But now along comes Paul Gomme, B. Ravikumar, and Paul Rupert (https://research.stlouisfed.org/publications/es/article/10406) who conclude that the rate of return on productive capital is actually high not low as Summers and others claim. Both can't be right.

It depends on the meaning of "is", or "productive capital". My take is that Gomme et al. (in their 2011 paper cited in the August paper referenced and on which the August paper is based) are not altogether clear on what they mean by "productive capital" (which they refer to as "business capital"). In a footnote to the 2011 paper, they indicate that it "includes" such things as plant and equipment, but "includes" is not the same as "is". If Summers et al. are correct (and this view goes back to research conducted by James Tobin), then unless and until r is improved, we are stuck with speculation in financial assets and the financial instability that goes with it. Why haven't economists devoted more research to r?

anne said in reply to rayward...

It's been conventional wisdom that the rate of return on productive capital (r) has been falling for 30 plus years. Larry Summers has repeated this often....

[ Where would a specific reference be where this argument has been made by Summers? The argument makes no sense to me and I wonder what I have missed or possibly I do not understand the passage. ]

pgl said in reply to anne...

Summers calls this Secular Stagnation. Of course some people think this Summers thesis is not quite right.

ilsm said in reply to anne...

Conventional wisdom is a signal that the rest of the sentence is epistemic closure........

pgl said in reply to anne...

That's the paper that takes Summers on. But check out my post on this issue as well as Noah Smith's doubts.

Sandwichman said...

What? People are afraid the imaginary money doesn't really exist?

anne said...

http://www.multpl.com/shiller-pe/

Ten Year Cyclically Adjusted Price Earnings Ratio, 1881-2015

(Standard and Poors Composite Stock Index)

August 27, 2015 PE Ratio ( 25.12)

Annual Mean ( 16.62)
Annual Median ( 16.01)

-- Robert Shiller

pgl said in reply to anne...

OK - his ratio is near 25. Sanjait is right - this is not that high given the low real interest rates.

anne said...

http://www.multpl.com/s-p-500-dividend-yield/

Dividend Yield, 1881-2015

(Standard and Poors Composite Stock Index)

August 27, 2015 Div Yield ( 2.11)

Annual Mean ( 4.40)
Annual Median ( 4.34)

-- Robert Shiller

anne said...

http://www.econ.yale.edu/~shiller/data.htm

January 15, 2015

Ten Year Mean Price Earnings Ratio, 1960-2015

(Standard and Poors Composite Stock Index)

1960 ( 18.3)
1961 ( 18.5) Kennedy
1962 ( 21.0)
1963 ( 19.0) Johnson
1964 ( 21.3)

1965 ( 22.9)
1966 ( 23.8)
1967 ( 20.1)
1968 ( 21.2)
1969 ( 20.8) Nixon

1970 ( 16.9)
1971 ( 16.4)
1972 ( 17.1)
1973 ( 18.6)
1974 ( 13.4) Ford

1975 ( 8.9)
1976 ( 11.3)
1977 ( 11.5) Carter
1978 ( 9.2)
1979 ( 9.2)

1980 ( 8.8)
1981 ( 8.5) Reagan
1982 ( 7.4)
1983 ( 9.6)
1984 ( 9.4)

1985 ( 10.7)
1986 ( 13.4)
1987 ( 16.0)
1988 ( 14.4)
1989 ( 16.6) Bush

1990 ( 16.5)
1991 ( 17.9)
1992 ( 19.5)
1993 ( 20.8) Clinton
1994 ( 20.5)

1995 ( 22.7)
1996 ( 25.9)
1997 ( 31.0)
1998 ( 36.0)
1999 ( 42.1)

2000 ( 41.7)
2001 ( 32.1) Bush
2002 ( 25.9)
2003 ( 24.1)
2004 ( 26.4)

2005 ( 26.0)
2006 ( 26.0)
2007 ( 26.8)
2008 ( 20.8)
2009 ( 16.9) Obama

2010 ( 20.7)
2011 ( 21.8)
2012 ( 21.4)
2013 ( 23.2)
2014 ( 25.5)

July

2015 ( 26.5)

-- Robert Shiller

anne said in reply to anne...

The price earnings ratio for stocks in July 2015 was 26.5 as compared to 26.7 in 1929. Such a price earnings ratio would have seemed especially high, however rationalized, before 1996 but since then no matter the bear markets that have occurred such a ratio has come to be taken as reasonable by a range of economists.

The ratio may well be reasonable, I would however like an understanding as to why.

pgl said in reply to anne...

1929? 1929's financial markets were a lot like those in 2007. About to see a huge increase in interest rates on corporate bonds rated BBB even as government bond rates fell. Krugman noted a small increase in credit spreads but no where near 2009 or 1930.

You can't just compare P/E ratios without thinking through the fundamentals. Interests are low and credit spreads are modest.

anne said in reply to anne...

Robert Shiller found indexing stock prices from 1881 through 2015 important. I would agree.

Possibly 1996 when the stock market price earnings ratio was 25.9 and Shiller suggested stock investors might be too optimistic and Alan Greenspan wondered about what made for irrational exuberance, possibly a 25.9 p/e ratio for 1996 should never have been compared with any ratio in the past but I think otherwise.

Sandwichman said in reply to anne...

That settles that!

Numbers go way up then they go down a bit then back up a bit. Clearly the numbers will either go up or down in the future.

and the wheels on the bus go 'round and 'round...

anne said in reply to Sandwichman...

I have no idea how the prices of investment assets will change from here, what I do know however is what the price patterns have been for better than a century and that rationales that have been used to justify prices for investment assets in the past do not make sense presently.

Sandwichman said in reply to Sandwichman...

To be clear, these numbers are index numbers. That means they are constructed by assembling together various bits of data that are ASSUMED to indicate this or that, so the resulting index is then ASSUMED to indicate some other thing. This is fine in an analytical context but becomes mystification when the indexes take on a life of their own. People forget about the analytical context. They forget the qualifications and the artificial nature of the indexes. They think they are talking about something analogous to a measurement taken with a standardized yardstick.

Same yardstick fallacy.

If my height is the yardstick by which I measure my height, then I am always exactly one my height high.

All of economics seems now to revolve around a glaring silence about the composition of the yardstick.

What is a "Real Home" anyway? Is it anything like a Fun Home?

https://youtu.be/PK-FJRtB7SY

anne said in reply to Sandwichman...

Investing for long periods of time in the stock market index and a range long-term investment grade bonds, which is essentially an index, has been remarkably successful. Stock and bond indexes or near indexes then strike me as quite real, quite tangible:

https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard 500 Stock Index Fund

Average annual returns as of 7/31/2015

7/31/2014 ( 11.05%)
7/31/2012 ( 17.40)
7/30/2010 ( 16.07)
7/29/2005 ( 7.60)

08/31/1976 ( 11.02)

https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard Long-Term Investment-Grade Bond Fund

Average annual returns as of 7/31/2015

7/31/2014 ( 3.45%)
7/31/2012 ( 2.83)
7/30/2010 ( 7.27)
7/29/2005 ( 6.46)

07/09/1973 ( 8.50)

anne said in reply to Sandwichman...

What the real home price index was remarkably good for was for showing analysts that homes generally and home especially in relatively high priced markets were becoming increasingly risky to buy from about 2002 on if a buyer was counting on price appreciation, especially counting on price appreciation to pay a mortgage.

The work of Robert Shiller has been remarkably helpful for analysts trying to understand market movements.

anne said in reply to anne...

Looking to real home prices, Shiller found that over time prices generally tracked inflation so that where the real home price index was 100 in 1890 the index was at 113 in 1996. Between 1996 and 2006 the real home price index increased from 113 to 194.7 which was an altogether unprecedented level.

In June 2015, however, after the supposed deflating of the housing bubble the real home price index was 155.9 which is a level never even approached before 2003 when the housing bubble should have been obvious.

What does this mean?

Sandwichman said in reply to anne...

"What does this mean?"

A decade and a half of Potemkin Village Economy.

http://www.counterpunch.org/2010/02/26/the-potemkin-village-economy/

anne said in reply to Sandwichman...

http://www.counterpunch.org/2010/02/26/the-potemkin-village-economy/

February 26, 2010

The Potemkin Village Economy
By ALAN FARAGO

US politics are in gridlock because elected officials, Democrats and Republicans alike, are fighting to revive an economic model based on construction, development and housing. Instead of breaking with the past– and confessing that trillions of taxpayer handouts have been given to banks to shore up a failed economic model– elected officials in the US are maintaining a steadfast silence to paper over their ruined circular logic.

In the New York Times yesterday, "New-Home Sales Plunged To Record Low in January", the chief economist of Metrostudy described that logic with crystalline clarity, "You're not going to have a robust housing market until you have more jobs, and you're not going to add jobs fast enough to bring down the unemployment rate until you have robust housing market."

In "Florida struggles to carve out new jobs: spurred by state unemployment soon expected to top 12 percent," (St. Pete Times) Mark Wilson, head of the Florida Chamber of Commerce, says, "There is no silver bullet." The Chamber, this year, will be using all its bullets to shoot down the citizens' petition to amend the Florida constitution, Florida Hometown Democracy, providing for local elections on changes to growth plans. The measure was born from the public revulsion with rampant overdevelopment that created temporary jobs in construction but permanently scarred the Florida landscape, wrecking Floridians' quality of life, the environment, and undermined the potential for "jobs" that legislators are desperate to create.

The core of the problem is not just Florida's. An economy so dependent on housing is, by definition, a Potemkin Village. Potemkin Villages in 18th century Russia were "fake settlements" built to impress the political upper class. Imperial Russia's delusions of grandeur have much in common with the ours....

JF said in reply to anne...

"savings glut" comes to mind - too much wealth and some of it chases homes- then and still.

But also, the "wealth" was created in the period you mention by leveraging positions, and we know many of these new lending-account-deposits bought positions (e.g. MBS) that lacked any reality. So it isn't just too much wealth but also the fact that many gained it, not from running a business and earning it, but via endogenous leverage, and this made home prices even more disconnected from real economics.

A tax-cut-and-borrow scheme of public finance, in concert with the already wealthy also transferred huge sums, unearned.

Rent-seeking led to imprudent leveraging and the investors all gained new wealth positions (but homeowners picked up the pieces and the rest of society too). So too much unearned wealth chases all kinds of assets (homes, stocks, luxury items and collectibles).

Only public policy can remedy once the financial positions become lawfully established (again, even though these were obtained by rent-seeking and distortion of markets).

anne said in reply to JF...

"Savings glut" comes to mind - too much wealth and some of it chases homes - then and still....

[ Interesting, when wealth is significantly invested in nonproductive assets, what then? ]

JF said in reply to anne...

We need economic policy to intervene. Can the FED change its regulations to encourage investments in non-financial matters within the core of society's needs (housing, durables, education come to mind)?

Right now the FED is paying banks .25% IOER to hold their "reserves" - accounting matters is what Keynes would call this type of action - we need them to sponsor rules that get reserves into the real economy (certainly not leveraging other debts, even margin buying support for stocks, imo). Seems to me this is in their current authority. The FED can redeem the public debt on their books and take the current fiscal position of the govt to primary surplus (via remittance/offset) and this will cause public debt markets to change, and hopefully push investors to put their money elsewhere (public debt markets will not see interest rates rise where they are). Perhaps they should consider altering the margin rules too, again forcing owners of this excess wealth to invest outside these financial-asset trading marketplaces. Or spend - which would at least be taxed by capital gains provisions and by sales taxes.

Oh well. What are they going to talk about in Wyoming??

anne said in reply to JF...

BigBozat said in reply to anne...

[ Interesting, when wealth is significantly invested in nonproductive assets, what then? ]

Nonproductive, like corporate stock buybacks. When buybacks exceed investment in R&D, plant & equipment, systems, etc. for a decade or more, then growth in the subsequent decade is likely to be merde, n'est-ce pas? Uncreative destruction. Schumpeter *rolls over in grave*

anne said in reply to anne...

Looking to real home prices, Shiller found that over time prices generally tracked inflation so that where the real home price index was 100 in 1890 the index was at 113 in 1996. Between 1996 and 2006 the real home price index increased from 113 to 194.7 which was an altogether unprecedented level.

In June 2015, however, after the supposed deflating of the housing bubble the real home price index was 155.9 which is a level never even approached before 2003 when the housing bubble should have been obvious.

What does this mean? Possibly homes should be considered remarkably inexpensive, remarkably fine investment currently, but a real home price index of 155.9 which had never been approached between 1890 and 2003 suggests that I, at least, need to understand why home are really so inexpensive currently.

ThomasH said... \

Yes, we are in one of these rare, anxious "just don't know situations" in which stock prices could go up or down, particularly if you ask about the future.

pgl said in reply to ThomasH...

That was Shiller's final thought. He does not if the market is overvalued or not - so the rest of us clearly do not know. Oh wait - James Glassman and Kevin Hassert are writing their DOW 72000! You say Glassman is an idiot? Yea but he is one of Jeb!'s economic advisers.

[Aug 27, 2015] Lies You Will Hear As The Economic Collapse Progresses

Aug 27, 2015 | Zero Hedge
Public statements by globalist entities like the IMF on China, for example, have argued that their current crisis is merely part of the "new normal"; a future in which stagnant growth and reduced living standards is the way things are supposed to be. I expect the Fed will use the same exact argument to support the end of zero interest rates in the U.S., claiming that the decline of American wealth and living standards is a natural part of the new economic world order we are entering.
That's right, mark my words, one day soon the Fed, the IMF, the BIS and others will attempt to convince the American people that the erosion of the economy and the loss of world reserve status is actually a "good thing". They will claim that a strong dollar is the cause of all our economic pain and that a loss in value is necessary. In the meantime they will, of course, downplay the tragedies that will result as the shift toward dollar devaluation smashes down on the heads of the populace.

A rate hike may not occur in September. In fact, as I predicted in my last article, the Fed is already hinting at a delay in order to boost markets, or at least slow down the current carnage to a more manageable level. But, they WILL raise rates in the near term, likely before the end of this year after a few high tension meetings in which the financial world will sit anxiously waiting for the word on high. Why would they raise rates? Some people just don't seem to grasp the fact that the job of the Federal Reserve is to destroy the American economic system, not protect it. Once you understand this dynamic then everything the central bank does makes perfect sense.

A rate increase will occur exactly because that is what is needed to further destabilize U.S. market psychology to make way for the "great economic reset" that the IMF and Christine Lagarde are so fond of promoting. Beyond this, many people seem to be forgetting that ZIRP is still operating, yet, volatility is trending negative anyway. Remember when everyone was ready to put on their 'Dow 20,000' hat, certain in the omnipotence of central bank stimulus and QE infinity? Yeah...clearly that was a pipe dream.

ZIRP has run it's course. It is no longer feeding the markets as it once did and the fundamentals are too obvious to deny.

The globalists at the Bank for International Settlements in spring openly deemed the existence of low interest rate policies a potential trigger for crisis. Their statements correlate with the BIS tendency to "predict" terrible market events they helped to create while at the same time misrepresenting the reasons behind them.

The point is, ZIRP has done the job it was meant to do. There is no longer any reason for the Fed to leave it in place.

Get Ready For QE4

Again, don't count on it. Or at the very least, don't expect renewed QE to have any lasting effect on the market if it is initiated.

There is truly no point to the launch of a fourth QE program, but do expect that the Fed will plant the possibility in the media every once in a while to mislead investors. First, the Fed knows that it would be an open admission that the last three QE's were an utter failure, and while their job is to dismantle the U.S. economy, I don't think they are looking to take immediate blame for the whole mess. QE4 would be as much a disaster as the ECB's last stimulus program was in Europe, not to mention the past several stimulus actions by the PBOC in China. I'll say it one more time – fiat stimulus has a shelf life, and that shelf life is over for the entire globe. The days of artificially supported markets are nearly done and they are never coming back again.

I see little advantage for the Fed to bring QE4 into the picture. If the goal is to derail the dollar, that action is already well underway as the IMF carefully sets the stage for the Yuan to enter the SDR global currency basket next year, threatening the dollar's world reserve status. China also continues to dump hundreds of billions in U.S. treasuries inevitably leading to a rush to a dump of treasuries by other nations. The dollar is a dead currency walking, and the Fed won't even have to print Weimar Germany-style in order to kill it.

It's Not As Bad As It Seems

Yes, it is exactly as bad as it seems if not worse. When the Dow can open 1000 points down on a Monday and China can lose all of its gains for 2015 in the span of a few weeks despite institutionalized stimulus measures lasting years, then something is very wrong. This is not a "hiccup". This is not a correction which has already hit bottom. This is only the beginning of the end.

Stocks are not a predictive indicator. They do not follow positive or negative fundamentals. Stocks do not crash before or during the development of an ailing economy. Stocks crash after the economy has already gone comatose. Stocks crash when the system is no longer salvageable. Since 2008, nothing in the global financial structure has been salvaged and now the central banking edifice is either unable or unwilling (I believe both) to supply the tools to allow us even to pretend that it can be salvaged. We're going to feel the hurt now, all while the establishment tells us the whole thing is in our heads.

[Aug 26, 2015]Peter Schiff The market's 'pipe dream' is ending

"For awhile, people thought that the stock market can handle higher interest rates. That was just a pipe dream. They can't," Schiff said Tuesday on CNBC's " Futures Now ." "That's the only thing propping up the market."

[Aug 26, 2015] What If The Crash Is As Rigged As Everything Else

"...Oh yeah... EVERYTHING is rigged now. So we can't blame ourselves for any of it. Duhhhh. It's the fucking greed of all the Muppets to blame as well."
.
"...The reason why I know this was no engineered event is the damage control I have seen due to it. Even the lowliest podunk local talk show host was able to have on some talking head who was talking about why this was just an over reaction and macro is golden and our economy is the cat's meow."
.
"...Most of the actions taken by government are taken to increase debt. In the USA, the housing bubble was blown because of the dumb thought of "everyone should own a home" or, as the bankers like to think of it "Everyone should have a mortgage". Same shit with subprime auto loans, student loans. All these things involve creating massive new conduits for debt creation. If you don't exponentially grow, you blow. But, when these bubbles get blown, the extra $$ created has to go somewhere. And it chases yield that is greater than the inflation the debt creation creates. Before you know it BOOM."

Aug 26, 2015 | Zero Hedge
Submitted by Charles Hugh-Smith of OfTwoMinds blog,
Take your pick--here's three good reasons to engineer a "crash" that benefits the few at the expense of the many.

... ... ...

3. Settling conflicts within the Deep State. I have covered the Deep State for years, in a variety of contexts--for example:

Is the Deep State Fracturing into Disunity? (March 14, 2014)

The Dollar and the Deep State (February 24, 2014)

Surplus Repression and the Self-Defeating Deep State (May 26, 2015)

Without going into details that deserve a separate essay, we can speculate that key power centers with the Deep State have profoundly different views about Imperial priorities.

One nexus of power engineers a trumped-up financial crisis (i.e. a convenient "crash") to force the hand of opposing power centers. As I have speculated here before, the rising U.S. dollar is anathema to Wall Street and its apparatchiks, while a rising USD is the cat's meow to those with a longer and more strategic view of dollar hegemony.

Take your pick--here's three good reasons to engineer a "crash" that benefits the few at the expense of the many.

remain calm

Everything is managed for control. They think they have control and can manage everything. They can't and then they lose control. They will lose control again. But the loss of control is not staged. Again, they think they can manage eveything. Their models fail. We are about to see a big failure. Some of you need to add another layer of tin foil added to your head. They will manage after the failure, again, because they think they know what they are doing.

Captain Debtcrash

I wrote on the "planned crash" scenario several months ago. Why would the fed raise rates into poor macro economic conditions, officially no inflation, with bubbles popping throughout the world, if not to cause or exacerbate a crash, all to allow them to try some new policy tools. After all the st Louis fed did come out and say QE is ineffective. I think they really want to ban cash and push rates significantly negative. Not possible under current statute, but that's easy enough to change with the politicians shitting themselves.

Crash N. Burn

"They will manage after the failure, again, because they think they know what they are doing."

Could be because "they" have done it before. People should be taught who "they" are

"The Rothschilds were universally acknowledged as the wealthiest clan on the planet in the 19^th century. They never lost that wealth. We simply lost all knowledge of it. The House of Rothschild has effectively erased itself from our (so-called) history books. That takes power.

Are children taught in our classrooms that most of the (endless) wars between European powers during the 19^th century were examples of House Rothschild already "playing" the governments of Europe against each other, like puppets? Are the children taught that a basically unknown cabal of bankers created the Bank for International Settlements in the early part of the 20^th century, so that these Western bankers could do the money-laundering necessary to allow Western industrialists to supply armaments to the Third Reich?

They certainly aren't taught that one of those "industrialists" – Prescott Bush – was convicted of "trading with the Enemy". Because if they had been, clearly it would not have been possible for both his son and grandson to be elected as presidents of the United States, where they could serve the bankers.

Postulating a group of ringleaders for this banking crime syndicate other than House Rothschild is problematic. It involves manufacturing an entire mythology around such hypothetical ringleaders, whereas with this clan of megalomaniacs, the historical, financial, and political context is already in place.

Their wealth is undeniable. Their intentions are unequivocal. The amoral malice they hold toward the rest of humanity is documented, historical fact."
How Western Governments Will Steal Your Land, Part III
"They" are Rothschild!

"People without homes will not quarrel with their leaders."

- The Bankers Manifesto of 1892

"Simply put, there was/is no other clan on the planet that already possessed the wealth and power to make the pledges contained in The Bankers Manifesto of 1892, in 1892 – and then to (finally) pursue that crime-against-humanity to (near) fruition, in 2015."

pods

They aren't that powerful. Why give them the benefit of the doubt? They (if there really is a they that has control) would like nothing more than for you to sit home whimpering, worried about how much control "they" have.
Macro has been in the shitter for years. China was bubblicious and bound to crack.
The reason why I know this was no engineered event is the damage control I have seen due to it. Even the lowliest podunk local talk show host was able to have on some talking head who was talking about why this was just an over reaction and macro is golden and our economy is the cat's meow.
Don't buy into it.
And fuck numerology too. The only way where they can set the closing price is if we are all stuck in a damn powerplant with tubes coming out of our body.
If that is the case, where the fuck are you Morpheus?

Beam Me Up Scotty

I'm not so sure. This article might be spot on. Consider this:

Federal Reserve can print and create INFINITE digital and physical dollars. With infinite dollars, they can control EVERYTHING. Both UP and DOWN. We can't audit the Fed, how do you know their balance sheet is really 4 trillion? Because they say so? They could literally decide the prices of every single thing in dollar terms with unlimited dollars at their disposal.

messymerry

Yo pods, next time you get a bag of M&Ms, eat the red ones first,,,
;-D
I don't think the Skxawng in charge have the organizational capability to pull off an event of this magnitude with any reasonable expectation of success. They manipulate where they can and surf the waves just like the rest of us...

pods

Most of the actions taken by government are taken to increase debt. In the USA, the housing bubble was blown because of the dumb thought of "everyone should own a home" or, as the bankers like to think of it "Everyone should have a mortgage". Same shit with subprime auto loans, student loans. All these things involve creating massive new conduits for debt creation. If you don't exponentially grow, you blow. But, when these bubbles get blown, the extra $$ created has to go somewhere. And it chases yield that is greater than the inflation the debt creation creates. Before you know it BOOM.

tc06rtw

I truly wish it were all rigged… There could be some comprehensible intelligence behind all this disaster
Oh, no -- They were smart enough to wreck the machine in stripping out all its wealth, but THEY ARE NOT SMART ENOUGH TO UN-WRECK IT!

pods

You blow a bubble.
As the bubble gets bigger, you know it is getting weaker. But a crowd cheers you to keep going cause they love the bubble. So you keep blowing.
Can someone step in and buy some futures to sway the futures market, sure. But the problem is that the price of credit is below market. When that happens, you get too much credit. Too much credit sloshes around wreaking havoc on all things of substance or fancy that might increase your worth (in your mind).
Now, crashes are a known side effect of the system, and they do take advantage of it, but they are not planned.

Payne

The horrible secret is that no one is manipulating the system. Instead it is run by the Greedy self interest of multiple parties a conspiracy of sorts with no real organization. The TARP program is an excellent example of bubblegum and bandaid repairs.

Usurious

the system was designed to crash............all debt money systems are.....they knew in 1913 and they know it now

DeadFred

The UN will be meeting up next month to figure out how to replace the worthless Agenda 21 with the next step, what a wonderful time to have the markets in turmoil. Maybe we should schedule the Pope to talk to them and Congress about his vision of replacing evil capitalism with a benevolent world-wide central control, oops they already have him scheduled?

My question is what happens if you hold a 'fake' meltdown and something real happens when volatility is already really high? Nothing like people playing Russian roulette only they point the gun at your head, not theirs.

PTR

Russian roulette only they point the gun at your head, not theirs.

That, sir, is an awesome quote and should be used repeatedly.

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Wed, 08/26/2015 - 09:33 | 6472428 ThroxxOfVron

IF it is possible to move specific securites higher via HFT/deliberate buying/spoofing/etc. and concerted buying by institutions and/or the fabled PPT, then it is only logical to assume that the same activities and entities can move those same securites lower via HFT/spoofing/deliberate selling/naked shorting/etc...

I believe that the desks sell what they do not have and buy with funds that do not exist/re-hypothecated client funds ( 'MF Global-ation' ) interbank and/or inter-affiliate leverage.

NON DELIVERY? WHAT DOES THAT MEAN?

"This Act (the Federal Reserve Act, Dec. 23rd 1913) establishes the most gigantic trust on earth. When the President signs this bill, the invisible government by the Monetary Power will be legalized. The people may not know it immediately, but the day of reckoning is only a few years removed. The trusts will soon realize that they have gone too far even for their own good. The people must make a declaration of independence to relieve themselves from the Monetary Power. This they will be able to do by taking control of Congress. Wall Streeters could not cheat us if you Senators and Representatives did not make a humbug of Congress... The greatest crime of Congress is its currency system. The worst legislative crime of the ages is perpetrated by this banking bill. The caucus and the party bosses have again operated and prevented the people from getting the benefit of their own government."
"The new law will create inflation whenever the trusts want inflation...they can unload the stocks on the people at high prices during the excitement and then bring on a panic and buy them back at low prices...the day of reckoning is only a few years removed."

"When the President signs this act [Federal Reserve Act of 1913],
the invisible government by the money power -- proven to exist
by the Monetary Trust Investigation -- will be legalized.
The new law will create inflation whenever the trusts want inflation.

*** From now on, depressions will be scientifically created. ***"

-Senator Charles A. Lindbergh

[Aug 25, 2015] Oil rallies but still near six-and-a-half-year lows

U.S. crude <CLc1>, also known at West Texas Intermediate or WTI, was up $1.40 at $39.64 a barrel by 1320 GMT, while Brent <LCOc1> was up $1.50 at $44.19.

... ... ...

Several members of the Organization of the Petroleum Exporting Countries are producing record volumes of oil in an attempt to squeeze out competition.
Adding to supply glut concerns, OPEC member Iran said on Tuesday it would increase crude production and reclaim its lost export share after international sanctions are lifted, even if prices remain low.

gigi

This is what causes high prices in gas and makes the 10% rich.

The Commodity Futures Modernization Act of 2000 Signed by Bill Clinton was ® Senator Phil Gramm's desire to prevent the SEC from regulating swaps, and against CFTC regulation preventing "bank products." derivatives passed allowing banks to invest in risky OIL and farm commodities such as corn, wheat and soybeans Driving the prices up for the consumer and creating large profits for a few people and doing nothing for 90% of the people. Thus SPECULATION in the futures trades in commodities OIL , paper trades, was made possible and is a main driver for higher PRICES at the pump and in groceries at the store. This was good for 10% of America and HURT 90% of of the people and we still are feeling the effects every day!

Wrekins

coincidentally, phil gramm's wife worked at the CFTC and puhsed for deregulation that Enron was lobbying for, and then later GRamm's wife left the CFTC and joined the board of directors of Enron. Somehow they managed to stay out of jail. Incredible. As corrupt as the day is long. "Serving their country"

Rudy

that was "better self service".

[Aug 25, 2015] Bulls back in charge; Intervention the 'new normal'; Hollywood's China love story

Braden

A bounce back to pre-correction levels will prove once and for all that the 1% are completely manipulating the Casino through the use of the media for their gain. It would mean that the news about China and the world markets was somehow false. Why would the market correct and then go back up within a week unless it were pure manipulation? We shall see. This is a real test as to how rigged the game really is. We have not had a correction like this in about 4 years and I don't see how the market continues to march upward based on the reasons it just corrected unless they are false.

[Aug 25, 2015] It Feels Like 1997 Warns Art Cashin, Watch High Yield

"... The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up. "

Aug 25, 2015 | Zero Hedge

Another scary development is the crash in energy markets. On Monday, the price of WTI oil dropped temporarily below 38 $. How does that affect the stock market?
People keep talking that cheap oil means more money to spend. But we're not seeing that at all. I think that the weakening of the oil price is counter-beneficial: Here in the United States, a lot of the employment that we picked up after the recession came from energy related areas like fracking. And now they're certainly not employing any extra people and in some cases they're laying off. Also, as oil is going down it is putting more pressure on stocks. You see the big oil companies trading lower and they're all prominently represented in different stock market averages.

... ... ....
ready to raise interest rates.
What are the signals you are looking for to stay on top in such a market?
I continue to monitor the high yield market and see where that goes. The high yield market has been of some concern of the last several weeks. If that begins to show appreciable weakness than I would think the caution flags stay up.

[Aug 25, 2015] Oil Traders Race for Cover as Light at End of Tunnel Dims

Bloomberg Business

The most active WTI options Monday were October $35 puts, which surged 38 cents to 66 cents a barrel on volume of 14,240 lots. It was the highest price since April. The second-most active were November $30 puts, with 8,138 contracts trading.
The so-called skew, measuring the premium for December 25-delta put options versus 25-delta calls, almost doubled in the past two trading sessions.

WTI crude for October delivery fell $2.21, or 5.5 percent, to $38.24 a barrel on the New York Mercantile Exchange Monday. It was the lowest settlement since Feb. 18, 2009. The December contract fell 5.4 percent to $39.65. Tuesday, October futures rose $1.37, or 3.6 percent, to $39.61 at 9:22 a.m.
The Chicago Board Options Exchange Crude Oil Volatility Index surged 12 percent to highest level since April. The gauge measures hedging costs on the United States Oil Fund LP, an exchange-traded fund tracking crude futures. Shares of the ETF dropped 5.6 percent to $12.49.

[Aug 25, 2015] Out in the Real World, Oil Market Is Much Better Than It Looks

Aug 25, 2015 | Bloomberg Business

The global oil market is healthier than it looks, signaling that crude's plunge to six-year lows has probably gone too far.
While futures tumbled below $45 a barrel in London for the first time since 2009, Morgan Stanley and Standard Chartered Plc say other measures suggest physical markets for crude have stabilized or even strengthened in recent weeks. China, the world's second-biggest oil consumer, will keep buying extra barrels to fill its strategic reserve this year, according to Goldman Sachs Group Inc.
"While oil fundamentals aren't strong, physical markets do not corroborate the substantial weakness in flat price," New York-based Morgan Stanley analyst Adam Longson said in a report Monday. The "latest oil pricing pressure appears more financial than physical."

... ... ...

The gap between the price of the first-month Brent contract, October, and futures for settlement 12 months forward hasn't widened enough over the past few weeks to suggest the world is running out of space to store crude, according to Longson. The spread was more than $11 a barrel in January, compared with about $6 on Tuesday, ICE data show. This suggests the supply surplus is smaller today than it was at the start of the year, said Horsnell.
The spread between Brent and Dubai, the grade used as Asia's regional crude benchmark, is at its narrowest for this time of year in several years, according to Morgan Stanley. This signals continued strength in demand from Asia for Middle Eastern crude, Longson said. Prices for West African crude grades relative to Brent have strengthened in recent weeks, he said.

... ... ...

"Despite poor headline macro data, most China oil demand data points remain resilient," Longson said. The nation's apparent demand for gasoline rose 17 percent last month, the highest growth rate all year, he said.
The filling of emergency crude reserves in China "gives the market a lifeline" that distinguishes the current situation from the Asian crash of 1998, Jeff Currie, head of commodities research at Goldman Sachs, said in an interview on Bloomberg Television Aug. 21. Brent crude dropped to as low as $9.55 a barrel in December 1998, according to ICE data.

... ... ...

Another weight lifted from the oil market is the conclusion of Mexico's annual hedging program, Morgan Stanley's Longson said. The Latin American producer locked in 2016 prices for 212 million barrels, its Finance Ministry said on Aug. 20. The biggest hedge undertaken by any national government, the program was an "under-appreciated negative" for prices and its completion "removes a bearish overhang for oil," he said.

[Aug 25, 2015] Norway's Oil Minister Says Crude Price at $40 Can't Last

Bloomberg Business

Crude at $40 a barrel is unsustainable and prices will have to rise as supply drops out of the market, according to Norway's Oil Minister.
"There has developed a surplus capacity on the production side and the supply side -- the supply side will be reduced in today's oil prices," Tord Lien said in an interview in Oslo on Tuesday. "But $40 oil prices? They are clearly unsustainable in the medium- to long-term."

... ... ...

"There's no reason to think we will see oil prices last under $55 a barrel but we will have to adjust to lower oil prices," Lien said. "It's important for Norway to make the adjustments and prepare for a lower price-range than we were getting used to."

[Aug 25, 2015] What cheap oil means, and where do prices go from here

Let's take the unassailable good news first: The price of benchmark West Texas Intermediate crude oil recently dipped below $39 a barrel, which is down from $140 in 2008. That's an incredible 72% drop. And, yes, lower oil prices have pushed down gas prices. At $2.60 a gallon, gas is now about a dollar below where it was last year at this time. And it could continue to fall. Some analysts are looking for prices to drop below $2, maybe even down toward $1.60 a gallon, the low during the Great Recession in early 2009. When President Obama predicted in his State of the Union Address in January that "the typical family this year should save $750 at the pump," he was probably right. Multiply that by the nation's 115 million households and you get a total savings of over $86 billion. That's huge.

Lower gas prices help poor people in particular; households with incomes of less than $50,000 spent 21% of their income on energy in 2012, according to analysts at Bank of America Merrill Lynch, while households earning more than $50,000 spent 9%. Additionally, Americans who live in chillier regions like New England and the Midwest could save another $750 or so on energy bills.

... ... ...

But the biggest problem with cheap oil may well be the destabilizing effect that it can have on oil-dependent nations around the world. Yes, some may cheer the pain Saudi Arabia and other OPEC nations will feel, but they should be careful of what they wish for as a raft of difficulties looms here. There are 19 countries that produce over a million barrels of oil a day, and it's a diverse group, including, of course, the U.S., Saudi Arabia and Kuwait, but also the likes of Brazil, Norway and Angola, and Canada. Each country will have to adjust to less income and lower employment in oil-related businesses. The nation's that stand to lose the most, though, are Russia, Saudi Arabia, Iran and Iraq-in order, the biggest oil exporters in the world.

... ... ...

bur

Well this was a crock of manure.... A 72% decrease in oil cost only provides approximately a $1 difference at the gas pump??? Who is making all the money? The price at the pump should be around $1.25 at the most. Seems like the oil refineries making fuel are paying significantly less for oil and minimally reducing costs at the pump based on their savings! Also, this whole thing was directed at fuel.

Many of our daily use products (plastics etc.) are petroleum based. Has consumption of those items gone down? Did Coca Cola, Pepsi, etc. quit putting their product in plastic bottles? Did the world quit using plastics over night? Its all an attempt to make the general public feel guilty about low fuel prices.

Give us a small break here. The Middle East has raped the United States for years with the oil prices and we are supposed to feel sorry for them? I don't think so.

Lou

I was pleasantly surprised to read such a sober and balanced article. Cheap energy and lots of it is what has made America the industrial leader of the world. Although low oil prices hurt my income (I am a Petroleum Engineer), easy-to-find-and-produce oil is not unlimited in supply and demand for innovation in oil recovery will continue.

So, I am bullish on Industrial America thriving with these low prices and on the future of the oil industry in meeting future demand. We will not only survive as a nation and as an industry, we will continue to lead the world.

Mica

I see the drop in oil prices this way - everything should be cheaper. Truckers can transport products cheaper. Manufacturers can produce a less expensive product. Travel will be more plentiful because the price of fuel is cheaper. Unemployment will go down because businesses will need to employ more people because the demand will go up. People will have more money to spend.

People don't generally save their money so they will spend more. I'm not really losing sleep over the people struggling in Russia or Saudi Arabia because quite frankly it will be the kings not the general public who will suffer. The general public is suffering already in these countries. As for the people here in the US who work in the oil industry, they have reaped the benefits that we had to pay for so what goes around comes around, Lets face it - there is not an endless supply of oil so the price will soar again.

Joe

Translation: We the left hhhhaaaaattttteeee cheap oil, cheap oil means people are free to do as they please, drive wherever they want, and worst of all drive an SUV!. We MUST put stop to this STAT, quick find someone who will write an article and throw in a bunch of BS that weak minded people with buy into, in other words tell them to ignore common sense and only believe what we tell you. "We are the left you will be assimilated, resistance is futile"

drp

Peak oil was a valid theory. Hubbert was referring to cheap conventional oil. The new oil which has come onto the market as on late amounts to a world surplus of about 3%. Since world demand is about 93 Million BOPD, the 3% represents about 3 MBOPD. The US brought about 4 to 5 million bbls of new expensive unconventional oil online over the past 5 years. The companies that brought that oil online are mostly cashflow negative, and most of them will go broke due to owing more money than they are bringing in. The new shale oil cost more than conventional oil, and the expensive new oil was financed by low interest rates. About 40 million bbls of the world 93 million bbls of demand comes from expensive unconventional oil (such as deep water oil, tar sands, offshore deep water Brazil oil, shale oil, etc.). Once the OPEC countires become unstable to the point where they could lose their regime, they will cut back on production of oil in order to raise the price of crude oil so that they can finance their countries socal programs and finace their armies to protect the regimes which allows the OPEC countries to stay in power and under civil law. Again, the world needs both cheap oil and also unconventional more expensive oil. We do not have enough cheap conventional oil to meet world demand. So, expect the price of world crude oil to increase again once the CAPEX programs that have already been cut result in less oil production. Again, the 5 million bbls of new shale oil that has been brought on the market in the US is not economic, thus prices will have to increase, or this shale oil will not be produced economically and the companies will go out of business. ZIRP -- zero interest rate production cannot last forever, and shale oil, deep water oil, unconventional oil cost more than $40/bbl to produce. Hopefully we will see the need for increased prices in oil so that the price doesnt go up in a whipsaw way, and cause disruptions in production. $65-$80/bbl will be about the price where OPEC might be stable (although their budgets call for about $112 to $86/bbl to remain out of debt and able to remain stable regimes). There is much more to the world oil picture than this articles brings to folks who would like to know. Regards.

Gene

"Another problem with cheap oil, though, is that it will likely derail efforts to develop alternative sustainable energy sources like solar, wind and hydro. These businesses suddenly become uneconomical when the price of oil drops precipitously."
That is a bad argument. Those alternative energy sources were uneconomical and unpractical when oil price was $140 per barrel. We are not ready technologically yet to deliver efficient solution for alternative source of energy, regardless of what Hollywood said. All other arguments such as feeling of Saudi Arabia and other Arabs - are not our "primary" concern at all.

paul

don't let yahoo fool you! What this really means it they cannot pursue further drilling developments without the high price of oil. It cost almost a billion dollars to drill deep and without oil at 80 dollars a barrel they will no longer be able to dig deep. But Alas we have a overflow of oil so why do we need to dig deep still? This is all about big oil not lining their pockets will thousand dollar bills but instead with hundred dollar bills!

[Aug 24, 2015] Advice After Stock Market Drop Take Some Deep Breaths, and Don't Do a Thing

"...I think low bank interest is a scam to force people into the markets. That's one result of banking deregulation."

"...Whenever the stock market falls sharply the "professionals" advise the "amateurs" not to do a thing, to stick with their long term goals. Then the professionals sell and the amateurs take the loss."

"... If you are near retirement or in retirement, think twice about the advice here to not adjust your portfolio. Can you sustain a 30 to 40 percent drop in the value of your retirement account and wait, perhaps, years for it to recover? If not, question the advice here and act accordingly. One strategy: Lighten up your equity position, but stay invested. The middle ground, safer approach."

"...Consider this: In 1929 your portfolio (i.e. life savings) disappeared - down 86% overnight. So you held on - for 26 years, until 1955. Now, you are even! Then, ten years later (1965), the market stalled for 17 years…"

"...My question is - why does the average American who isn't a financial expert have to risk his/her money in the stock market at all?... I have no interest in spending all of my spare time educating myself about the market and what it may or may not do. I do have a financial advisor, but if the bank gave a much better rate on savings accounts I wouldn't need one. Me thinks this is a grand conspiracy to steal people's money. "

Aug 24, 2015 | The New York Times
Rutger Fitz, Sweden, 2015/08/22
On your 4th point: Are you seriously comparing selling off at (probably) almost the pinnacle of a seven year fantastic bull market to selling off at the low point of an 18 month crash in 2009?
Of course it's a good idea to get rid of everything you've got now and investing in something extremely stable, if you're 70 years old. Don't be stupid with your money.
jeffgs, home
The Times has, on a number of occasions, printed such articles as this. It may be good advice. It may also be that the Times is part of the corporate body that would loose if more people sold, and so the Times' encouragement to hold is to protect itself, and Capitalism in general. And that it would be in many peoples' advantage to sell now.

I trust that you read me to say I don't know...and it well could be possible. Certainly those who have sold, and so have moved so many markets so far, most of whom [with the big accounts, who effect the prices] think its in their best interest to sell.
Which raises the question: why would it be that so many of those who are paid so much to be 'right', and can make arguments that they are likely to be so, have sold so much? They, and others who care about such things, certainly think that it was right to sell. Why would it be in their best interest, and not in yours or mine?

mancuroc, is a trusted commenter Rochester, NY

The market is perfect for people with money. You can afford the losses, then buy cheap and make a bundle when the market goes up. Meanwhile, the rest of us are at the mercy of the market, depending on its timing.
I think low bank interest is a scam to force people into the markets. That's one result of banking deregulation.
And if some politician seeking your vote proposes converting Social Security to private account, vote the other way.

Kenneth Ranson, Salt Lake City 2 hours ago

Whenever the stock market falls sharply the "professionals" advise the "amateurs" not to do a thing, to stick with their long term goals. Then the professionals sell and the amateurs take the loss.
My advice, sell, sell everything, and when the Dow goes to 4,000 the professionals will have to rethink their investment strategies since they can no longer count on long term investors to stabilize the markets.

wmeyerhofer, New York 2 hours ago

I hate to brag, but I shifted everything to bonds - and insisted my husband shift everything to bonds - about 2 months ago. It was starting to feel downright greedy to expect anything more out of the equity markets. So I'm sitting pretty and I'll put a toe back into equities in, say, a year or two. Meanwhile, I'm whistling a happy tune. Don't hate me. I put everything into bonds in Autumn of 2007 too, so I have a perfect record so far of knowing when I've made too much money and it's time to calm down and batten down the hatches and not get greedy.

treabeton, new hartford, ny

If you are near retirement or in retirement, think twice about the advice here to not adjust your portfolio. Can you sustain a 30 to 40 percent drop in the value of your retirement account and wait, perhaps, years for it to recover?
If not, question the advice here and act accordingly. One strategy: Lighten up your equity position, but stay invested. The middle ground, safer approach.

Fourteen, Boston 2 hours ago

Majortrout and Ron Lieber. Neither of you have it right. Anyone who still believes in buy and hold as a viable investment strategy is a person who will never sleep well at night.
Consider this: In 1929 your portfolio (i.e. life savings) disappeared - down 86% overnight. So you held on - for 26 years, until 1955. Now, you are even! Then, ten years later (1965), the market stalled for 17 years…
Remember 2008? You lost 50%! How did that feel? Now, your life savings are teetering again, so how well are you sleeping, Mr. Buy and Hold?
Buy and hold has been dead for at least ten years, when globalization and algo trading took over. Note that the big money does not "buy and hold".
Don't listen to the big money shills, journalists, or neophyte day-traders....

Jake, Pittsburgh

Famous quote from JP Morgan, when asked what the stock market will do: "It will fluctuate".

Angela, Elk Grove, Ca

My question is - why does the average American who isn't a financial expert have to risk his/her money in the stock market at all? Why can't we get better rates for pass book savings accounts and other safer, government protected investments? Yes, I know that interest rates are set by the Fed, however, many banks and quite a few credit unions seem to have a lot of money for some pretty frivolous things. Are they allowed to set a higher savings rate? Or are they required by law to set their rates at a certain amount. You are lucky if you can get 1% on a passbook savings account. Banks have many sources of interest income and should be able to increase what they pay on their savings accounts.
A case in point, Golden 1 Credit Union in California just recently spent over a million dollars for the naming rights to the new Kings stadium in downtown Sacramento, yet, I am getting about 1% on my passbook account. First of all NO credit union should have that kind of slush fund, second, if they can spend that kind of money on naming rights, then they should be able to give me a much better ROI on my passbook account as well as other savings instruments. Not being a financial person, I have no interest in spending all of my spare time educating myself about the market and what it may or may not do. I do have a financial advisor, but if the bank gave a much better rate on savings accounts I wouldn't need one. Me thinks this is a grand conspiracy to steal people's money.

Ignatius Pug, NYC 59 minutes ago

Yes indeed. There seems to be a periodic sucking sound that pulls the meager profits out of my 401k into the accounts of those who are better off financially. Surely some big players will be profiting from this plunge at the expense of the retirement accounts of the masses. Meanwhile those of us who do something more socially constructive for a living-- as opposed to playing elaborate slot machines-- are forced to fritter away our time and money in support of the "financial industry." I'm sure that members of congress all know this and also have very healthy portfolios.

[Aug 24, 2015] A bedside guide for Henry Paulson By Julian Delasantellis

Blast from the past ;-)

Dec 9, 2008 | Asia Times

It was the unique genius of Woody Allen that turned Dr David Reuben's daring (for the time, anyway) 1969 question-and-answer book, Everything You Always Wanted to Know About Sex (but were afraid to ask) into a 1972 skit comedy film. To illustrate the book's inquiry "Why do some women have trouble reaching orgasm?", Allen presents the story of a modern Italian couple, Fabrizio (played by Allen) and Gina (played by Allen's real-life former paramour, Louise Lasser).

In response to Fabrizio describing to a worldly friend Gina's aforementioned problem, Fabrizio is advised that perhaps what Gina needs is the spark of danger, of risk, in their lovemaking. The pair start cautiously, making love in a friend's house, but before long they are locked in erotic embrace in a restaurant, even in front of a church. Fabrizio is pleased that he has solved the couple's problem, but he worries. He realizes that it is getting harder and harder, that he is having to subject himself and Gina to more and more risk, in order to create a satisfactory conclusion. What must he do next?

Lately, the US stock market is proving equally as hard to please as Gina. ...Much like Gina, it seems the government is being called to engage in ever-more vigorous and extensive endeavors to stimulate the stock market.

[Aug 24, 2015] It might well be the forth neoliberal financial crash on the horizon so it is time to update "Protecting your 401K savings" page

I started to update again Protecting your 401K savings -- the pages that are widely read during periods of extreme uncertainty and almost never during "good" periods of rising stock market ;-).

Neoliberal economics (aka casino capitalism) function from one crash to another. This is given taking into account hypertrophied role of financial sector under neoliberalism, the sector that introduces strong positive feedback look into the economic system. As attempt to put some sand into the wheels in the form of increasing transaction costs or jailing some overzelous bankers or hedge fund managers are blocked by political power of financial oligarchy, which is the actual ruling class under neoliberalism for ordinary investor (who are dragged into stock market by his/her 401K) this in for a very bumpy ride. I managed to observe just two two financial crashed under liberalism (in 2000 and 2008) out of probably four (daving and loan crisis was probably the first). The next crash is given, taking into account hypertrophied role of financial sector under neoliberalism. Timing is anybody guess but it might well be close.

Actually some people are worried. This month the most read pages include:

Greenspan legacy bulletin, 2008

Financial Humor Bulletin, 2008

Financial Skeptic Bulletin, September 2008

[Aug 24, 2015] Black Monday Brings Global Market Rout, Investors Mourn The Death Of Central Bank Omnipotence

Aug 24, 2015 | Zero Hedge
NoDebt

My central premise since joining ZH was that we were all going to turn into Japan. As I always pointed out, the only thing not lining up with that theory was a persistent bear market in equities.

What's that? 1200 Dow points in two days? On NO NEW NEWS.

Hey, if you've enjoyed the crash so far you're really going to like the multi-year slow grind lower that follows it.

Bay of Pigs

Its been a long wait for some of us NoDebt.

To see the bulls utterly crucified will be heartwarming to me.

Oldwood

Delusion's greatest enemy is truthiness. Truth is becoming more popular if not also more hated, and this will let the air out. People know its all fake but they choose to ignore that fact as long as they think everyone else will do the same. After all, why not when their economic gains are at stake. Reality always wins however and that inevitability is what people hear ringing in their ears.

Not My Real Name

Multi-year slow grind to be preempted this time by a currency crisis -- and then reset.

gatorengineer

I cannot see how this is possibly going to go slow. Another day or so and Hedgies will start blowing up.

[Aug 24, 2015] Why $20 Oil Won't Happen

"...U.S. crude oil production is now falling. The Energy Information Administration (EIA) reported in its most recent Short Term Energy Outlook (STEO) that U.S. crude oil production declined by 100,000 bpd in July compared with June, and they expect these declines to continue because of the steep cuts shale oil producers have made to their budgets. The EIA reduced its forecast for oil production next year to 400,000 bpd less than this year. "

"...Canadian oil producers are in an even deeper bind than U.S. oil producers. A recent article stated that at $40/bbl WTI, Canada's largest synthetic crude project is losing about $10 on every barrel."

Aug 24, 2015 | OilPrice.com

There is no evidence whatsoever to suggest we have bottomed. You could have $15 or $20 oil - easily," influential money manager David Kotok told CNNMoney. "I'm an old goat. I remember when oil was $3 a barrel," said Kotok, whose clients include former New Jersey Governor Thomas Kean.

Yes, and you could get a candy bar and soda for a nickel. But I will bet him $10,000 we don't see WTI at $15/bbl unless he has access to a time machine. Today I want to address this argument. I got into a debate on this topic with a person yesterday, and I am seeing enough of these predictions that I thought it warranted addressing. Again. The $20/bbl argument goes something like this: Crude oil inventories are extremely high. U.S. oil production keeps rising. Demand is falling. Something has to give.

Crude Inventories Did Rise

The problem is that this conventional wisdom argument is wrong on 2 counts. It is true that crude oil inventories are high. Last week there was a surprise build in U.S. crude oil inventories. Analysts were expecting inventories to fall - which they have been doing since April - but instead crude inventories rose by 2.6 million barrels. Following this week's release of the Weekly Petroleum Status Report announcing the surprise build in inventories, I saw more than one person claim "We are definitely going below $40/bbl today."

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Didn't happen. Now it could happen within the next few days. We are close, so one really bad day could drop us below $40, disproving my January prediction that WTI would not close below $40/bbl in 2015. But the price won't stay there because that is well below the marginal cost of production at the current level of world demand. More on that below.

I don't believe the people predicting $20 oil are seeing the whole picture. The person I debated this week essentially argued "High inventories = much lower oil prices." But you have to dig down a bit more than that. Why did inventories rise last week? There were two primary drivers.

The first is that the BP refinery in Whiting, Indiana - one of the largest in the country - is dealing with unexpected maintenance problems. They have 235,000 barrels per day (bpd) of crude oil refining capacity offline. (For those who think this is some sort of conspiracy by BP to drive up gasoline prices, get real. This helps all the other refiners - not BP). So BP didn't consume about 1.6 million barrels of crude during the week that they otherwise would have consumed. Yet inventories rose even more than that. Why? Did U.S. production surge?

U.S. Crude Production is Falling

No, U.S. crude oil production is now falling. The Energy Information Administration (EIA) reported in its most recent Short Term Energy Outlook (STEO) that U.S. crude oil production declined by 100,000 bpd in July compared with June, and they expect these declines to continue because of the steep cuts shale oil producers have made to their budgets. The EIA reduced its forecast for oil production next year to 400,000 bpd less than this year. More on the significance of this below.

So why did inventories increase last week? It was actually because crude oil imports surged. Crude oil imports were 465,000 bpd higher than the previous week. That means 3.3 million barrels more oil came into the country than arrived in the previous week. Add that to the BP outage, and there was a surplus of oil of 4.9 million barrels relative to the previous week. This more than explains the 2.6 million barrel weekly gain in inventories. The question is "Will that continue to happen?"

In my opinion, "No." The BP outage will continue for an indefinite period, but the import surge was an anomaly. Crude imports from Canada surged by 404,000 bpd from the previous week. But guess what? Canadian oil producers are in an even deeper bind than U.S. oil producers. A recent article stated that at $40/bbl WTI, Canada's largest synthetic crude project is losing about $10 on every barrel. How long do you suppose that can continue? The larger producers will hang in as long as they can, but some of the smaller guys are going to be shutting in production at $40 WTI (which implies an even lower price for them due to the distance to market). That will reduce imports from Canada - the very imports that surprisingly drove crude inventories higher this week.

[Aug 23, 2015] Are Stock Markets Setting Up For A New 'Black Monday'

Aug 23, 2015 | Zero Hedge

atthelake

Depends on how long tptb want to keep this Ponzi floating. If they're not ready for a crash, they'll do something to stop it. If they're ready for a crash, this will be it. If they've lost control of it, hold on to your hats. It's going to be a memorable ride.

Jungle Jim

But what I'm afraid of is that nothing much will happen tomorrow. Just another Big Nothing. No fireworks. No walls come tumbling down. No heads roll.
Instead, the Nice Government Men will just push a few buttons and pull a few strings and click a few mouse clicks and the stock market will soar right back up to its all-time highs again.
Or they may even dump 24.7 Billion ounces of "gold" in a nanosecond in the wee hours of the morning, strictly to move the price. Move it *down*, that is. I don't think there even *are* 24.7 Billion ounces of physical gold, actual physical three-dimensional metal, on this planet. But that never stopped them before.
Honestly, I'm not psychic, but something just tells me tomorrow's going be a dud, just another non-happening.

farmboy

Who knows, one thing is for sure :
1. Margin requirements will rise that is not good with margin debt at all time high.
2. Option expiration on Friday will mean a lot of people get a call to cover this "free put premium"
3. Momo player must switch sides.
But he expect also tap dancing FED members singing with Krugman for "Fly me to the moon" Frank sinatra.

ebworthen

Take away, the bailouts, 7 years of ZIRP, and Trillions in QE slathered on Wall Street and what do you get?
Dow 6,000 and S&P 666!

silverer

I was thinking about 8,500. But you know what? I don't think I'd bet against your #. The only thing we have to look forward to now is how many people Trump will fire in the first two months if he's elected Prez. Best entertainment ever!

Hope Copy

Don't count earning, as the company still controls the money... they can hold for a crash and do a stock buyback at the bottom and the remaining stock holders get no income.. You guys need to get off the mythical earnings horse as it can break a leg at anytime and you are dumped having gone no where (still on the race track and not in the real world)... gambling without a clue but the horse's name...
In a crash, cash is king, as margins have to be covered. The tals will ose some also and will be bought by those that have cash and want a safe haven, but only at a discount. It is when Bonds also dive and liquidity is provided, the metals will rise.

The FED will buy gold and all refinable metals that are easily transportable. This I suggest to them if they are to do another QE.. at least get omething of value for the release of cash.

the grateful un...

nirvana in the stock buyback game is when you have almost all your float, you buy it back (from yourself) and you go private. the problem with buybacks is when you start losing share value jsut because the indexes are crashing, the only shares being traded are being sold, as bob prechter says it only take two a buyer and seller to make a market, buying up your own stock only works on the upside, with low volume. at the bottom there is no easy money to buyback stock and theres a good chance you held on and still have most of the float, worth less than half what you paid for it with borrowed money. a crash is the one thing the share buyback program is not going to like

the grateful unemployed

the 87 drop included a pretty good snapback rally before we got to monday, (this is august and the crash came in october) then the USG pledged money (we will outdo the Chinese on buying back our stock market I wager) more to the question is this the 2000 nasdaq selloff, which was steady and relentless. that crash came about because of a RATE HIKE. greenspan wanted to pop the tech bubble. the 87 event was as nearly as postiive a crash as you could hope for, most stock had their precrash value back within a year, and the market went bullish, from 2500 precrash to 1500 to 12000 by 2000. it was classic bubble reflating. the nasdaq crash wiped out some really big names, MS never came back instead there were new faces, apple and google. the Nasdaq victims had no earnings, while the current DOW companies have financially engineered earnings (pretty similar on that account) the BTFD crowd was amply rewared on black monday and punished in 2000. currently commodities are in the L shaped recovery, which will confound the BTFD crowd this time, down and flat for a long long time. if the government owns the stock market what should it be worth?

[Aug 23, 2015] IMF official says 'premature' to speak of Chinese crisis

Aug 23, 2015 | Reuters

China's economic slowdown and a sharp fall in its stock market herald not a crisis but a "necessary" adjustment for the world's second biggest economy, a senior International Monetary Fund official said on Saturday.

Fresh evidence of easing growth in China hammered global stock markets on Friday, driving Wall Street to its steepest one-day drop in nearly four years.

"Monetary policies have been very expansive in recent years and an adjustment is necessary," said Carlo Cottarelli, an IMF executive director representing countries such as Italy and Greece on its board.

"It's totally premature to speak of a crisis in China," he told a press conference.

[Aug 23, 2015] Investors Race to Escape Risk in Once-Booming Emerging-Market BondsBy LANDON THOMAS Jr

"...While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell - especially in a bear market."

"...In January, economists at the Bank for International Settlements, or B.I.S., a clearinghouse for global central banks, published a study that highlighted how fast dollar-based lending to companies and countries outside the United States had increased since the financial crisis - doubling to over $9 trillion."

"...For example, Pimco's Total Return bond fund, which last year suffered the loss of its star manager, William H. Gross, and is a mainstay for investors with fairly conservative investment goals, has 21 percent of its $101 billion in assets invested in emerging-market bonds and derivatives."

Aug 22, 2015 | The New York Times

... ... ...

The currency devaluation increased concerns that growth in China was slowing and that other countries might follow with their own devaluations. The notion unnerved bond investors, who began to retreat out of fear they would not be repaid. General uneasiness about a global economic slowdown spread to stocks, which many have believed to be overvalued and due for a decline.

"The growth rates for many of these countries were vastly overstated," said Dani Rodrik, a professor at the Harvard Kennedy School of Government who has studied the impact of foreign capital flows in developing economies. "It was all very unsustainable." The selling spree has raised concerns among regulators and economists about a broader contagion that could make it difficult for individual investors to withdraw money from their mutual funds.

While these funds do not use borrowed money, as did the banks that failed during the mortgage crisis, they have invested large sums in a wide variety of high-yielding bonds and bank loans that are not easy to sell - especially in a bear market.

If investors ask to be repaid all at once - as happened in 2008 - a run-on-the-bank scenario could unfold because funds would have difficulty meeting the demands of people wanting their cash back.

During previous global investment booms and busts, large commercial banks were the dominant overseas lenders. These institutions were just as prone to making bad lending decisions as bond investors, but they also tended to have longer-term relationships with their borrowers and were less likely to cut and run.

Because large global banks suffered significant losses during the financial crisis and were forced to rein in their lending, more nimble - and fickle - bond investors stepped in.

In January, economists at the Bank for International Settlements, or B.I.S., a clearinghouse for global central banks, published a study that highlighted how fast dollar-based lending to companies and countries outside the United States had increased since the financial crisis - doubling to over $9 trillion.

What struck the authors most was that this growth was coming not from global banks but from American mutual funds buying the bonds of emerging-market issuers.

Large fund companies like BlackRock, Franklin Templeton and Pimco and have been inundated with money from investors eager to invest in the high-yielding bonds of emerging-market corporations and countries.

For example, Pimco's Total Return bond fund, which last year suffered the loss of its star manager, William H. Gross, and is a mainstay for investors with fairly conservative investment goals, has 21 percent of its $101 billion in assets invested in emerging-market bonds and derivatives.

Among the many beneficiaries of this largess were commodity-driven borrowers such as the state-owned oil companies Petrobras in Brazil and Pemex in Mexico, the Russian state-owned natural gas exporter Gazprom, and real estate developers in China.

One of the more extreme cases of this bond market frenzy was Mongolia. In 2012, with expectations high that the relatively tiny economy would reap the benefits from China's ceaseless appetite for raw materials, the government sold $1.5 billion worth of bonds, with demand from investors reaching $10 billion.

That meant, in effect, that the country was in a position to borrow an amount twice the size of its $4 billion gross domestic product.

Three years later, the International Monetary Fund is warning that Mongolia may not be able to make good on these loans - 14 percent of which are owned by Franklin Templeton, according to Bloomberg data - and the yields have shot up to about 9 percent from 4 percent.

Of course, a Mongolian bond deal gone bust does not spell disaster. But it illustrates the risks global mutual fund investors were willing to take on in their desire to load up on high-yielding securities.

Mongolia, which was able to sell an additional $500 million in bonds this spring, was not the only dubious borrower to attract cash from global bond investors. Russian train companies easily sold dollar bonds, despite the fact that their revenues were earned in rubles. Even Ecuador, a country that defaulted in 2008, was able to raise $2 billion last year.

Brazil, China, Malaysia, Russia, Turkey and others have sold more than $2 trillion in bonds, mostly to American mutual fund companies, since 2009. As this money flowed into their countries, financing skyscrapers in Istanbul and oil exploration in Brazil, economies and currencies strengthened.

Now the reverse is occurring, led by a slowing Chinese economy, and as that money heads for safety, local currencies are plunging.

In a follow-up paper this month, B.I.S. economists warn of the consequences if bond investors sell these positions in a panic at more or less the same time. And they point out that because bond funds have become so large and own so many of the same securities (many of which tend to be hard to sell), a bond-selling panic can spread quickly.

For example, there has been explosive growth in so-called unconstrained bond funds, which operate somewhat like a hedge fund, with a mandate to buy any security in any part of the world.

According to Morningstar, these funds have increased to $154 billion from $9 billion in 2009, with many of them invested in emerging-market bonds. Because these funds tend to take on more risk and buy securities that are harder to sell - such as emerging-market bonds - the fear is that the managers of these funds will not be able to provide cash to investors when they demand it.

Pimco's unconstrained bond fund, to name one, has 42 percent of its $7.9 billion in assets in emerging-market bonds - mostly Brazilian government securities. (Last month, investors withdrew $492 million from the fund.)

Exchange-traded funds, a type of mutual fund that trades like a stock and promises instant liquidity, have also been large investors in emerging markets.

What worries many regulators and economists is how much mutual fund money is now tied up in these hard-to-sell bonds - an amount that far exceeds the exposure investors had to these markets in earlier emerging-market crises.

EPFR Global, a fund-tracking company, calculates that global bond funds have allocated 16 percent of their holdings to emerging-market bonds. Relative to the 2.5 percent recommended benchmark for these securities suggested by the Barclays aggregate bond index, that is a very aggressive bet.

Ricardo Adrogue, an emerging-markets-debt investor at Babson Capital in Boston, says it is the extreme declines in the currencies of Malaysia, Mexico, Russia and Turkey that worry him - not so much the Chinese devaluation.

"People are saying, 'I want out,' " he said. "It is difficult to see the bottom with all these depreciating currencies."

[Aug 23, 2015] Thomas Piketty: New Thoughts on Capital in the Twenty-First Century

"...growing wealth concentration is kind of a natural tendency of capitalism"

[Transcript]
Thomas, I want to ask you two or three questions, because it's impressive how you're in command of your data, of course, but basically what you suggest is growing wealth concentration is kind of a natural tendency of capitalism, and if we leave it to its own devices, it may threaten the system itself, so you're suggesting that we need to act to implement policies that redistribute wealth, including the ones we just saw: progressive taxation, etc.
In the current political context, how realistic are those? How likely do you think that it is that they will be implemented?

djb said...

If you can't read his book
This short clip covers all his basic ideas

[Aug 23, 2015] This Wasnt Supposed To Happen Crashing Inflation Expectations Suggest Imminent Launch Of QE4

"...They have to raise rates if only to appear to be doing anything more than pushing on a string."
.
"...What does credibility matter when the sheeple can't remember further back than the last commercial and will tout the wonders of the apparel of the emperor because that's what their TV tells them to do, despite their fair emperor standing right in front of them naked as the day they were born?"

Aug 23, 2015 | Zero Hedge/The New York Times

Here is a better way of summarizing it: the last three times inflation expectations tumbled this low, the Fed was about to launch QE1, QE2, Operation Twist and QE3.

And the Fed is now expected to hike rates in less than a month even as inflation expectations are the lowest since Lehman?

Good luck. The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year ) - is now truly boxed in.

James_Cole

The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year )

Talk is cheap. Unexpected china, unexpected greece, unexpected weather... qe4eva.

NihilistZero

WHAT THE FUCK ARE THEY GONNA BUY WITH A QE4???

There's no big increase in government spending coming with a GOP congress and a Dem President. Mortgage originations are at historic lows because Housing Bubble 2.0 has made real-estate MORE UNAFFORDABLE than during Bubble 1.0. The FED is in a complete liquidity trap.

They have to raise rates if only to appear to be doing anything more than pushing on a string. Unless equities continue to crash and the recession actually starts there's no way to get the government spending going to support another round of QE. And there sure as fuck aren't going to be enough MBS for them to purchase without a return to 2012 RE prices at least.

NorthernPike

$5.00 on Biflation for next 36 months @ .05%/month average both lines.

Line 1 = LIfe support items = Inflate

Line 2 = Non life support = Deflate

Winston Smith 2009

"as it loses all verbal jawboning credibility it worked so hard to establish in the past year"

Bullshit. It should have lost credibility so many times before and didn't. Extend and pretend can easily continue but will fix nothing, of course, just delay the eventual crash as it has done so far.

Question Reality

What does credibility matter when the sheeple can't remember further back than the last commercial and will tout the wonders of the apparel of the emperor because that's what their tele tells them to do, despite their fair emperor standing right in front of them naked as the day they were born?

cougar_w

There is a lot of virtue in delaying the crash. Every one wants the crash delayed including you. And in this case whoever crashes last might crash best, I'm pretty sure the Chinese were betting on it anyway.

El Vaquero

I'd rather get it over with. If I survive, it'll be like taking a giant shit after being constipated for a week. An extremely painful process that needs to be done with, and delaying it only makes it worse.

cougar_w

The metaphor is not a good one. Taking a shit is a normal thing.

The Crash will be more like; having a diseased limb removed with a bone saw without anesthesia, by a guy who never cut off a limb before, and who frankly doesn't like you much because you married his ex.

Yeah extremely painful but also potentially lethal, probably crippling too so that even should you survive it you'll be disfigured for the rest of your life.

We need to get our framing down here folks. And I don't think you really want your wife's ex hacking off your limbs.

Temerity Trader

<"...The Fed - which is damned if it hikes rates (and crushes financial conditions by tightening, sending deflationary signals surging even higher and undoing 7 years of stock market levitation), and damned if it launches QE4 (as it loses all verbal jawboning credibility it worked so hard to establish in the past year ) - is now truly boxed in...">

Couldn't agree more, and I think most everyone can see it now. To even hint at QE4 is to admit total failure and, most importantly, that more QE is worthless except to create another momentary algo-driven pop. Just to not go through with the tiny rate hike will be further evidence the Fed is f***ed. We are so close to the final collapse that nothing can stop it. The markets are now 98% based upon Fed worship and hope.

I will be a lonely voice that says more QE is likely impossible to do. Behind the scenes Janet may have to push back and tell the oligarchs quietly, it just won't work. Mr Market is about to exact punishment for the intervention that should never have happened. The spiral down will be self-reinforcing and very ugly...

[Aug 23, 2015] Gold Driving Higher: Spec Flambé

"...A short squeeze, also known as speculator flambé."
.
"...It requires some 'juice' to get the minions in the media and the pros on the exchanges to all dance to the same tune, and lure the specs in for 'Pee Wee's Big Adventure' with their Big Bad Short, not only on the metals, but the miners, the ETFs, yada yada. "\
.
"...Official reports will no doubt cite an excess of animal spirits in the bearish outlook that took them to an excess, and the markets, in their glorious efficiency, were merely reverting to the mean."

What do you get when you add the volatile sauce of a 'flight to safety' to the hot pan of a record net short in the large and small speculators?
A short squeeze, also known as speculator flambé.
They probably caught a lot of the other peoples' money crowd as well, momentum players and the managed mayhem merchants.
But don't blame the poor beleagured goldbugs for this one. They are just glad for a break from the pounding they have been taking.
It requires some 'juice' to get the minions in the media and the pros on the exchanges to all dance to the same tune, and lure the specs in for 'Pee Wee's Big Adventure' with their Big Bad Short, not only on the metals, but the miners, the ETFs, yada yada.
Finger lickin' good. A lot of cool money, and a lot of powerful connections. The grifters giveth to themselves, and the grifters taketh away, from everyone else.
Official reports will no doubt cite an excess of animal spirits in the bearish outlook that took them to an excess, and the markets, in their glorious efficiency, were merely reverting to the mean.
That might be plausible except that it took a lot of energy to drive the futures prices as low as they had gone, starting with that $50 overnight mugging in the quiet early hours of the gold markes few weeks ago. No one sees Mackie Messer, and no one knows.
Especially with China dragging gold in by the tonne. About 302 of them in July according to the second chart below. Nothing to see there, move along.
No one wants a pet rock, until you have to provide the one you sold but didn't have.
And lets not forget about silver. That's in chart three. Plenty of tinder for a short squeeze there.
Or a bonfire of the inanities.
Let's see how far it goes. Is it just a flash in the pan, or the first act in something different.
Must be nearly time to tighten up those margin requirements.

[Aug 23, 2015] 330 Ramp Capital™ on Twitter @BarbarianCap not what I'm seeing

Extreme fear

[Aug 22, 2015] Scientists Do Not Demonize Dissenters. Nor Do They Worship Heroes.

Paul Romer's latest entry on "mathiness" in economics ends with:
Reactions to Solow's Choice: ...Politics maps directly onto our innate moral machinery. Faced with any disagreement, our moral systems respond by classifying people into our in-group and the out-group. They encourage us to be loyal to members of the in-group and hostile to members of the out-group. The leaders of an in-group demand deference and respect. In selecting leaders, we prize unwavering conviction.
Science can't function with the personalization of disagreement that these reactions encourage. The question of whether Joan Robinson is someone who is admired and respected as a scientist has to be separated from the question about whether she was right that economists could reason about rates of return in a model that does not have an explicit time dimension.

The only in-group versus out-group distinction that matters in science is the one that distinguishes people who can live by the norms of science from those who cannot. Feynman integrity is the marker of an insider.

In this group, it is flexibility that commands respect, not unwavering conviction. Clearly articulated disagreement is encouraged. Anyone's claim is subject to challenge. Someone who is right about A can be wrong about B.

Scientists do not demonize dissenters. Nor do they worship heroes.

[The reference to Joan Robinson is clarified in the full text.]

Adam Eran said...

Max Planck would disagree: "The truth never triumphs. Its opponents simply die out. Science advances one funeral at a time."

Friday, August 21, 2015 at 04:02 PM
anne said in reply to Adam Eran...

https://en.wikiquote.org/wiki/Max_Planck

1948

A new scientific truth does not triumph by convincing its opponents and making them see the light, but rather because its opponents eventually die, and a new generation grows up that is familiar with it.

-- Max Planck

[ Thomas Kuhn would later write of this. ]

likbez said...

Now science became highly political occupation. This is especially true about economics.

So dismal behavior of scientists and flourishing of pseudoscience are to be expected. Rewards offered to conformists are just too great not to seduce people.

Actually it looks like Lysenkoism is the mark of the present and the future, not so much of the past.

[Aug 22, 2015] Investors Flood Oil ETFs Looking For Bottom ETF.com By Cinthia Murphy

... ...

Investors poured more than $2 billion into energy-linked ETFs in the past week alone, more than doubling the assets in funds such as United States Oil Fund (USO | A-70), and adding nearly $740 million to the Energy Select SPDR (XLE | A-96) in just five days.

... ... ...

Sam Stovall, U.S. equity strategist for S&P Capital IQ, says the energy sector is looking downright "compelling" from a relative strength perspective at these levels. ETF asset flows suggest investors are taking notice.

"There have been six times in the past quarter-century that the S&P 500 energy index traded this low, or lower," Stovall said in a recent webcast. "Over the subsequent 24 months, however, the energy index was positive six of six times, and beat the S&P 500 five of six times. It also outpaced the broad stock market by an average 16 percentage points."

Value Opportunity Brightens

Past performance is no indication of future outcomes, as Stovall noted, but the numbers do cast a positive light on the prospects for energy stocks going forward.

USO is largely considered the closest ETF proxy to oil prices, and a very liquid one at that. The fund invests only in near-month Nymex futures contracts on WTI crude oil, and trades more than $350 million, on average, every day, making it a popular choice with investors who want to tap in to oil through energy-futures-based ETFs.

XLE, meanwhile, is an equity energy fund, and owns some 44 stocks as it tracks a market-cap-weighted index of U.S. energy companies in the S&P 500. The fund has almost $11 billion in assets.

As a segment, energy-linked ETFs had more than $48.6 billion in total assets as of Dec. 18, up 4.3 percent from a week earlier.

Top 5 Commodity ETF Creations Dec. 12-18, 2014

Ticker Fund Net Flows ($,mm) AUM
($, mm) AUM % Change

XLE Energy Select SPDR 738.14 11,085.38 7.13%

USO United States Oil 392.54 1,162.14 51.01%

DJP iPath Dow Jones-UBS Commodity Total Return ETN 354.48 1,755.75 25.30%

OIH Market Vectors Oil Services 198.62 1,091.21 22.25%

VDE Vanguard Energy 171.97 3,102.97 5.87%

[Aug 22, 2015] Paul Krugman Debt Is Good
But debt slavery is not...

August 21, 2015 | Economist's View

JF said in reply to reason...

Good. I made a similar point last night on another thread when talking about a 1996 Vickery paper surfaced by Paine. There is a myopia in economics, in my opinion, focused only on annual flows (GDP) and completely disregarding the importance of wealth and as you call it, "economic resilience."
If Piketty has any influence, I am hoping that economic discourse and public finance no longer just focuses on annual flows and that it always also discusses Net Worth (as economic capacity of the individual and in the aggregate is also constituted by using wealth and any new income you get too).

anne said in reply to JF...
I made a similar point last night on another thread when talking about a 1996 William Vickrey paper surfaced by Paine....
[ Would there be a reference to the paper? ]

JF said in reply to anne...
Actually, it was Dan Kervick who added the link, in response to a recommendation from Paine (who apparently also went to Columbia, so can spell Vickrey's name):
http://www.columbia.edu/dlc/wp/econ/vickrey.html

For what it is worth, last night late, I then said this, and had to chuckle to my wife when I say Krugman's blog article this am:

JF - "Paine and Dan Kervick - I would prefer that this paper be re-written in light of the Piketty remonstrance that you need to look at economics and society not just in terms of income and flow but also in Net Worth terms. Plainly, a very wealthy society can raise taxes with little harm to aggregate demand if the new taxes fall on those with a lower/lowering propensity to spend, at least to some degree (see Saez and others who comment on the taxation of income tax bases).

I am one who will always make note that the public should not cut taxes on the already wealthy so that the subsequent borrowing of the cash comes from the same class of people. Clearly, we need to think in more balanced ways here. Borrow for long term assets to spread the costs to those who benefit over time, especially when interest rates are low. Borrow from foreign sources as this brings money into the US economy for the trade of a piece of paper and cash management dollops of principal and interest. But otherwise a wealthy society should tax, otherwise it is transferring wealth upward by foregoing taxation in trade for giving the wealthy class a tradeable asset.

Ouch, I'd prefer we just helicopter the money over to Treasury than the tax-cut and borrow scheme of the republican party.

Oh wait, as we redeem the public debt purchased by the FED and they offset the principal with the Treasury, we will be doing helicoptering, just had to wait six years or so.

Anyway, rambling point: public debt is not always better than taxation, and for the most part in a wealthy society like the US where we have a deep financial system with all kinds of instruments of trading efficiency, including trillions of debt products, I suspect it seldom is right to borrow anew when you can tax and target the taxation so it does not harm aggregate demand.

I think in 1996 when this was written almost everyone was myopically focused solely on flows (GDP/income)."

JF said in reply to JF...
When a new Congress comes in 2017, perhaps we can change the finance law of the US to permit the FED and Treasury to sell US public debt direct to foreigners without having to go into the open market and dealer-community.
Alas, if we can only get through this next national election with heads screwed on straight! Good to hear that Mrs. Clinton at least is saying that economic policy is the centerpiece of her campaign. We will see our well she does from a strategic communications perspective.

Perhaps some economists can help here too.

reason said...
P.S. One thing that PK doesn't say, that I think needs to mentioned is that for countries with their own currencies, they can print money rather than issuing bonds. The distributional implications are important. Even at low interest rates, government bonds are a promise of a stream of income to the already rich (and taking money out of circulation, which selling bonds does is a deflationary thing to do - increasing the real value of financial wealth). Printing money, and spending it or giving it to the poor, on the other hand does not make the government the supporter of existing wealth. This should not be forgotten.
Paine said in reply to JF...
Beware the false value the scheinvert the bubble value
The better notion is the inter temporal payments grid

We need a way other then inflation deflation to adjust this grid to on going production value and wage value. Stiglitz is very keen on wealth v productive capital

And he's on to something deep that seems to be in large part invisible to most model builders

[Aug 22, 2015] From Russia to Iran, the consequences of the global oil bust

I always was low opinion about Farid Zakaria. He is just a tool.

Notable quotes:

"... A primary reason for the accelerated price decline is that Saudi Arabia, the world's "swing supplier" - the one that can most easily increase or decrease production - has decided to keep pumping. ..."

"... Major oil-producing countries everywhere are facing a fiscal reckoning like nothing they have seen in decades, perhaps ever ..."

Aug 22, 2015 | The Washington Post

Nick Butler, former head of strategy for BP, told me, "We are in for a longer and more sustained period of low oil prices than in the late 1980s." Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years. Leonardo Maugeri, former head of strategy for the Italian energy giant Eni, says, "There is no way to stop this phenomenon." He predicts that prices could actually drop to $35 per barrel next year, down from more than $105 last summer.

A primary reason for the accelerated price decline is that Saudi Arabia, the world's "swing supplier" - the one that can most easily increase or decrease production - has decided to keep pumping. The Saudis "know it hurts them but they hope it will hurt everyone else more," says Maugeri, now at Harvard. One of Saudi Arabia's main aims is to put U.S. producers of shale and tight oil out of business. So far, it has not worked. Though battered by plunging prices, U.S. firms have used technology and smart business practices to stay afloat. The imminent return of Iran's oil - which markets are assuming will happen, but slowly - is another factor driving down prices. So is the increasing energy efficiency of cars and trucks.

Major oil-producing countries everywhere are facing a fiscal reckoning like nothing they have seen in decades, perhaps ever . Let's take a brief tour of the new world.

... ... ...

Many American experts and commentators have hoped for low oil prices as a way to deprive unsavory regimes around the globe of easy money. Now it's happening, but at a speed that might produce enormous turmoil and uncertainty in an already anxious world.

[Aug 22, 2015] Carnage Worst Week For Stocks In 4 Years, VIX Soars Most Ever

Aug 22, 2015 | Zero Hedge

Dow enters correction... this was the 9th largest point drop in the history of The Dow...

And The VIX ETF saw its biggest 2-day rise since 2011 (no wonder with 61.7mm shares short agaionst just 60.6mm outstanding)

Dropping for 8 straight weeks for the first time since 1986...

Shanghai stock tumble hits global markets

Commodities slide as growth worries mount

[Aug 21, 2015] What Will It Take For The Fed To Panic And Bail Out The Market Once Again BofA Explains

"...Nobody but Madoff went to jail in '08 the last time they were bailed out. -No "Pecora" investigation(s) took place with officer(s) of AIG, Bear Sterns, Lehman, Citigroup, JP Morgan and our favorite bank in the whole World that had their fingers among other appendages up the sphincty of everyone and has a revolving door to the Federal Reserve, U.S. Treasury EU and IMF -Leadman Sucks..."

Aug 20, 2015 | Zero Hedge
One of the main reasons a month ago we started carefully following the commodity trading giants, the Glencores, Mercurias and Trafiguras of the world...

Which will be first: Trafigura, Mercuria or Glencore

- zerohedge (@zerohedge) July 22, 2015

... is because nobody else was.

Perhaps due to their commodity-trading operations, these companies were expected to be immune from the mark-to-market vagaries of the commodity collapse on their balance sheet, and as such presented far less interest to market participants than pure-play miners whose stocks have gotten crushed since the commodity collapse and subsequent relapse.

And then, yesterday, Glencore "happened" and everyone was so shocked by the company's abysmal results, which as we explained may servce as "The Next Leg Of The Commodity Carnage: Attention Shifts To Traders - Glencore Crashes, Noble Default Risk Soars." This took place a day after we penned "Noble Group's Kurtosis Awakening Moment For The Commodity Markets" in which we profiled the ongoing slow-motion trainwreck of Asia's largest commodity trader.

Of course, Glencore's problems should not have been reason for surprise: after all it was a bet on a surge in Glencore's default risk that prompted us to write "Is This The Cheapest (And Most Levered) Way To Play The Chinese Credit-Commodity Crunch?" in March of 2014 as a levered and relatively safe way to trade crashing copper prices (since then, Glencore CDS have doubled).

And so others started to notice.

So with Wall Street's attention suddenly focused, with the usual delay, almost exclusively on the commodity hybrids, it was none other than Bank of America which earlier today reserved a very special place for a possible collapse of these companies. In fact, the "credit event" (read "failure") of a company like Glencore is precisely what BofA's Michael Hartnett said "may be necessary to cause policy-makers to panic."

Bank of America starts with a chart that ZH readers are all too familiar with: a comparison of the CDS of Noble and Glencore which as duly noted many times already, have recently spiked:

And here is why Bank of America decided to suddenly focus on a small subset of the commodity sector, one which we have been fascinated with for over a month: to BofA the collapse of either of these two companies is the necessary and/or sufficient condition for the Fed to exit its recent trance, and reenter and bailout the market.

That's right: Bank of America is begging for another Fed-assisted market bailout, which gladly hints would be accelerated should Glencore experience a premature "credit event." To wit:

Short-term, markets seem intent on forcing either the Fed to pass in September, or the Chinese to launch a more comprehensive and credible policy package to boost growth expectations. Alternatively, a credit event in commodities (note CDS is widening sharply for resources companies – front page chart) may be necessary to cause policy-makers to panic. Markets stop panicking when central banks start panicking. We think that is increasingly likely in September, thus arguing that risk-takers should soon look to add risk, particularly on any further weakness.

We thank Bank of America for making it quite clear what the catalyst for QE4 will be (and why we should double down on the Glencore long CDS trade), but we are confused: how is the Fed expected to "panic" in September when that is when BofA's crack economists predict the Fed will hike rates. If anything, a rate hike is supposed to calm the market and give confidence that the Fed is on top of the situation, even if as has been clearly the case, the US economy, not to mention the global one, are both going into reverse.

And while that is a major loose end to any trading thesis BofA may want to present, it does hedge by saying that all bets on a market bailout are off if the Fed and other central banks have now "lost their potency", i.e., if the market's faith in money printing has ended.

Finally, we believe the inexorable rise in volatility as QE programs wane leads to the ultimate risk. In our view, all investment strategies have been tied in recent years to the power of central banks. There are few bond vigilantes willing to punish profligate governments, fewer currency speculators willing to defy central bank intervention, and investors have become adept at front-running policy-makers and/or expecting central banks will "blink" at signs of market volatility. We believe a loss of central bank potency is an unambiguous risk-off.

Indeed, we too believe that if not even central banks can boost this market, then the time to get the hell out of Dodge is at hand. And while exiting, make sure to have a lot of gold, silver and lead. Because if the days of Keynesian voodoo and fiat are almost over, then absolutely nobody has any idea what lies ahead.

Son of Captain Nemo

That's right: Bank of America is begging for another Fed-assisted market bailout, which gladly hints would be accelerated should Glencore experience a premature "credit event."
And why the fuck "not"?...
Nobody but Madoff went to jail in '08 the last time they were bailed out. -No "Pecora" investigation(s) took place with officer(s) of AIG, Bear Sterns, Lehman, Citigroup, JP Morgan and our favorite bank in the whole World that had their fingers among other appendages up the sphincty of everyone and has a revolving door to the Federal Reserve, U.S. Treasury EU and IMF -Leadman Sucks...
If you don't put them on the top of the Federal Reserve headquarters and the Freedom Tower to be thrown off the roof 7 years after the irreparable harm they continue to carry out...
This is what you get and what you deserve!

OldPhart

We're just waiting for the Statute of Limitations to run out. Then we'll investigate. [Obama Administration]

Crocodile

Quote: "if not even central banks can boost this market, then the time to get the hell out of Dodge is at hand."

Got that right; seems like they are losing the handle and ready to implement "Plan B"; massive short squeeze followed by "pulling the plug" and letting the chips fall. Seems we are at or near the end-game. I was hoping the DJIA would not go below 17K and it did, so tomorrow will give strong forward guidance that will answer the question; "have they lost control altogether?". I hope not.

Pareto

News flash Dundee. The FED has NEVER been in control. Being forced to react to redemptions is not becoming of someone who is "in control". Short of buying stocks, like the PBOC, or more MBS and CDS (QE1,2, Twist, 3), or, more Treasuries (QE forever), they're done. The thing about the market is that eventually it exposes the reality of central planning - that it doesn't work, hasn't worked, and never will work. It is simply naiive to think that any central bank has been in control of anything - ever. If they have been in control of anything at all, it would be that they own one of the greatest wealth redistributions that has ever occurred in history. They own that, And they also own every major recession since 1913. And they will own this cluster fuck too when it is all said and done. Because there is no free lunch. Sooner or later - everybody pays.

Angry Plant

Do higher interest rates represent a greater threat than lower growth to the 1% is the question?
The Fed will always serve the interests of the 1%.
Current stock, housing, car loan, and college loan bubble will all get worse if Fed does more QE. More QE really just means more malinvestment while no QE means that current malinvestment will come due. Those bubbles popping is inevitable so popping them now while they're smaller is maybe the best course.
China and Europe are now in position where they have to QE to stop economic implosion so US can exploit that to shut down US QE and let China and Europe carry the load.
In regards to the 1% the big loser of this would be Hillary and the likely big winner would be Jeb. Both candidates are completely in the pocket of the 1% so the rest of the 1% really don't care.

Angry Plant

I don't think I explained it well.
To be more clear I believe the fed will let the stockmarket tank instead of raising interest rates. The drop in stocks will have same impact as rate increases. That will allow fed to keep rates low and avoid a surge in US dollar.

It will also correct one of the bubbles currently in the US economy. The oil buble got popped last year now it's time for the stock bubble to be popped.

[Aug 21, 2015] Is The Oil Crash A Result Of Excess Supply Or Plunging Demand The Unpleasant Answer In One Chart

"...I, for one, feel much better that we have returned to depleting our natural resources at a record pace. This will help to ensure that our children and our children's children have a bright future. "

"..."Breaking Russia has become an objective [for US officials] the long-range purpose should be to integrate it," the 92-year-old told The National Interest in a lengthy interview for the policy magazine's anniversary that touched on most of the world's most pertinent international issues. "If we treat Russia seriously as a great power, we need at an early stage to determine whether their concerns can be reconciled with our necessities." "

Aug 21, 2015 | Zero Hedge

One of the most vocal discussions in the past year has been whether the collapse, subsequent rebound, and recent relapse in the price of oil is due to surging supply as Saudi Arabia pumps out month after month of record production to bankrupt as many shale companies before its reserves are depleted, or tumbling demand as a result of a global economic slowdown. Naturally, the bulls have been pounding the table on the former, because if it is the later it suggests the global economy is in far worse shape than anyone but those long the 10Year have imagined.
Courtesy of the following chart by BofA, we have the answer: while for the most part of 2015, the move in the price of oil was a combination of both supply and demand, the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy.

Here is BofA:

Retreating global equities, bond yields and DM breakevens confirm that EM has company. Much as in late 2014, global markets are going through a significant global growth scare. To illustrate this, we update our oil price decomposition exercise, breaking down changes in crude prices into supply and demand drivers (The disinflation red-herring).

Chart 6 shows that, in early July, the drop in oil prices seems to have reflected primarily abundant supply (related, for example, to the Iran deal). Over the past month, however, falling oil prices have all but reflected weak demand.

BofA's conclusion:

The global outlook has indeed worsened. Our economists have recently trimmed GDP forecasts in Japan, Brazil, Mexico, Colombia and South Africa, while noting greater downside risks in Turkey due to political uncertainty. Asian exports continue to underwhelm, and capital outflows are adding to regional woes. Looking ahead, we still expect the largest DM economies to keep expanding at above-trend pace but global headwinds have intensified.

And yet, BofA's crack economist Ethan Harris still expects a September Fed rate hike. Perhaps the price of oil should turn negative (yes, just like NIRP, negative commodity prices are very possible) for the Fed to realize just how cornered it truly is.

Ms No

I'd say it is more like the answer in one quote, Kissinger the corpse is squealing again.

"Breaking Russia has become an objective [for US officials] the long-range purpose should be to integrate it," the 92-year-old told The National Interest in a lengthy interview for the policy magazine's anniversary that touched on most of the world's most pertinent international issues. "If we treat Russia seriously as a great power, we need at an early stage to determine whether their concerns can be reconciled with our necessities."

Budnacho

Yep, Zero demand at $3.75 a Gallon for gas....

Antifaschistische

I, for one, feel much better that we have returned to depleting our natural resources at a record pace. This will help to ensure that our children and our children's children have a bright future.

Jumbotron

"Meh - our children's children will farm or die."
Howard Kunstler talked about this in his book "The Long Emergency" back in 2005. And continues to do so on his web site.
http://kunstler.com/
The "JIT" (Just In Time) model based on cheap global energy and cheap wage slave labor arbitrage is breaking down. This is a multi-decade issue. There will be recoveries....but each drop will see the world get, poorer, slower, and more local as the decades pass.
However, the elites of the world will try the very last trick in their bag of horrors......CASHLESS. With a cashless, purely digital credit system, they can manipulate all they want, even to the point of doing "buy-ins" if the need arises...you know...to "save the children".
That's when the last attempt at total control will happen. But when there are still too many people, and not enough cheap, easily extracted and easily obtained resources for those people......shit will hit the fan none the less. Cashless or not.
Then......war. Global war....and the big reset to farming or dying.

Jumbotron

" The JIT model has exactly nothing to do with cheap energy. More like accountants telling us "we don't need to put capital into holding a stock of materials." "

Bull...Fucking...Shit.
Ever heard of Fed-Ex ? Ever heard of UPS ? Ever heard of 24/7 trucking ? Ever heard of 24/7 rail service ? Ever heard of Cloud Computing ? Ever heard of Amazon ? Ever heard of 24/7 overseas shipping ?
Ever heard of paved Interstate Highways ? What about the Internet ? What about all the steel mills, and the coke factories and the plastic factories and the asphalt makers......etc....etc....and fucking etc.
ALL of these, including so much more, rely SOLEY on cheap energy.

Go back to your magical X-Box and the comfort of your mother's basement. And her magical microwave which just made you some magical popcorn.

Apply Force

Not like when we were 16... I bought my own 1st (and 2nd, and 3rd) cars in cash that I earned working (mowing lawns/yard work) from 12 on. I worked on my own cars, which was not so hard, and usually Dad or another in the neighborhood could help out. I paid for my own ins. and my own gas.
Not so easy to buy a used car now - way more expensive per what a child can earn prior to being driving age. And good luck working on your own car now - way more complex, and parts are way, way more expensive. And insurance costs are higher as well. No need to drive to a job for a 16 year old if the wage they earn can not even pay for car maintenance - if they could even find a job to begin with!
The Age of Less is upon us - adjust accordingly!

Shaznardickleze...

No jobs, no money, no where to go, internet social life. Whats your point?
Would you pay $3 a gallon if you were paid $7 an hour?

nope-1004

Fed will raise rates? lmao. As BOP noted a few days ago, the last rate hike was in 2006.
NINE YEARS OF BULLSHITTING THE PUBLIC about raising rates. Enough.

Apply Force

The chart is Brent oil and world demand - not so sure US local gas prices and demand are reflected so well there.
"Demand" at any rate really means "affordability" and oil production lags affordability changes by quite a bit - - hence what appears to be excess production to many people. Reality just takes a while to catch up to long-term endeavors like drilling for oil.
It is simply a whipsaw in prices that is generally on it's way down... Down for the count within the decade, imo.

Cloud9.5

The demand for gasoline is to a large extent inelastic. Cougar is right that we are trapped in the car culture. I picked up my mother in law's maid this morning. She was walking the three miles from her house to my mother-in-laws. She could not afford the repairs on her car. We have no mass transit so she either walks or quits. Most people would quit and go on welfare. For all I know she may already be on welfare.

Dr_Snooz

Dr_Snooz's picture

"Yep, Zero demand at $3.75 a Gallon for gas...."
Yeah, the price of oil has halved, but the price of gas is unchanged. How does that work? If we yell loud enough at our Congresscriminals, they'll launch some price-gouging investigation, determine that there is none, sweep it all under the rug and get back to servicing their corporate constituencies.
The problem is that you can only steal so much from the people before it's all gone and the whole system crashes...
Oh wait. That's already happening.
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Fri, 08/21/2015 - 10:50 | 6451448 BustainMovealota

BustainMovealota's picture

It works when the people put their ass in the air and let their elected "representatives" have their way with that ass. ie, not good for you.

cougar_w

cougar_w's picture

People will buy gas -- at any price -- before they buy groceries. Because they have to get to work as an urgent matter, because they cannot afford to lose their job, because half the people they know are already out of work. They have to keep that job no matter what -- and work two jobs 20 milesa part maybe three -- so that later in the week they can then think about buying groceries.
I'm kind of surprized the ZH crowd doesn't get this part.
The price of gas will go down when a lot of people are homeless or dead.

samsara

"Calling Gail Tverberg, whose finite world is looking ominously true."

Yes, GailTheActuary of course was correct. Smart lady, read her comments/articles for years on TheOilDrum.

Falak, Try this one from AutomaticEarth. Nicole(aka StoneLeigh) nails the future I believe very correctly.

Nicole (and Ilargi) used to run TheOilDrum Canada before AutomaticEarth.

http://www.theautomaticearth.com/2015/08/nicole-foss-the-boundaries-and-future-of-solution-space/

Nicole Foss: The Boundaries and Future of Solution Space

falak pema

thanks I enjoyed it.
Local area networks and value chains, not cancerous globalization. Minimal mercantile exchanges to starve the Oligarchy beast, to sustain human chains; except where labour lacks like in Germany.
Peak Oil and peak RM were already in the cards in 1979 with world population exploding. We should have learned from second oil shock.
Help Africa grow don't rape it! Respect Che Guevara's legacy by doing same in Land of Latinos. All those guys who died for what : Che, Gandhi, Mandela, even Giap!
But Pax Americana was on another page : Reaganomics!
I said this back in 2007 -2010, to the wind!
I wrote it all down but haven't published it.
Lol, it blows back now.

moneybots

"the most recent plunge has been entirely a function of what now appears to be a global economic recession, one which will get far worse if the Fed indeed hikes rates as it has repeatedly threatened as it begins to undo 7 years of ultra easy monetary policy."

The boom causes the bust. Years of QE is the problem, not potential rate hikes. Can't burst a bubble, until you build one. A bubble is 100% guaranteed to burst.

DaveyJones

Gail the Actuary (The Oil Drum) and many others have been predicting this phenomenon for some time now. The (modern) world (and their economic models) are entriely built on the fiction of never ending growth. Since energy drives everything and since the economic world has exponentially bet way out into the future, the economic structure will fall (completely apart) before the energy structure does. Even though it will take more and more money (read energy) to get the same energy out of the ground, the people will not be able to afford the price the companies need to charge and, as Ruppert said, everything wil just shut down.

ejmoosa

Central planners who pushed electric vehicles to the tune of 8,000 dollar tax credits and forcing fuel standards higher and higher despite the cost are baffled by the drop in oil demand.

[Aug 21, 2015] Feels like 1986 Oil on track for longest weekly losing streak in 29 years

In late 1985, oil prices slumped to $10 from around $30 over five months as OPEC raised output to regain market share following an increase in non-OPEC production.

BP CEO Bob Dudley said in late-July, when oil prices were some $8 a barrel higher than now, that "it does feel like 1986".

U.S. crude for October delivery was 46 cents lower at $40.86 a barrel at 0656 GMT. The September contract, which expired on Thursday, ended 34 cents higher. The U.S. benchmark hit a 6-1/2 year low of $40.21 a barrel on Thursday.

Brent was on track for its seventh weekly decline in the past eight, trading 41 cents lower at $46.21 a barrel, after settling 54 cents lower on Thursday.

The dollar continued retreating on shrinking expectations of an U.S. interest rate hike in September, providing some support for oil prices.

... ... ....

"The only silver lining we are seeing coming from the United States is that refining rates remain high and that crude production continues to fall," Singapore-based Philip Futures said in a note to clients.

Despite the rout in oil prices, some mutual funds keep ploughing money into oil exploration and production companies in the United States in a bet that production will retreat sharply over the next 12 months, setting the stage for a rebound towards $65-70 per barrel.
... ... ...

Spot prices of Western Canada Select (WCS), a marker for heavy, diluted bitumen from Alberta's oil sands sank to a 12-year low near $20 per barrel.

SCOTT USMC VET 2 hours ago

Tomorrow we will be in short supply and need to raise prices. Too many people with the poker in the fires. All scam artists need to reported to sec for fraud and manipulation of commodities.

Larry 3 hours ago

IN 1986 Reagan enlisted the Saudi's to flood the market in an economic attack against Russia, in 2014 US gov. repeated the attack. Now, with the internet, US citizens can learn the truth and see that the US gov. acts unconstitutionally against it's own citizens by market manipulation.

[Aug 20, 2015] Low Oil Prices Could Break The "Fragile Five" Producing Nations By Nick Cunningham

August 20, 2015 | naked capitalism

By Nick Cunningham, a Vermont-based writer on energy and environmental issues. You can follow him on twitter at @nickcunningham1. Originally published at OilPrice

... ... ...

Meanwhile, in southern Iraq, which produces the bulk of the country's oil and has been far from the violence associated with ISIS, protests have threatened oil operations there. Protests at the West Qurna-2 oilfield operated by Russian firm Lukoil have raised concerns within both the company and the Iraqi central government about disruptions. The Prime Minister even traveled to the site to reassure Lukoil about the stability of its operations.

... ... ...

Low oil prices could also push Venezuela into a deeper crisis.

... ... ...

For Libya, already torn apart by civil war and the growing presence of ISIS militants, low oil prices are the last thing the country needs. ISIS violently crushed a civilian rebellion last week in the coastal city of Sirte, according to Al-Jazeera. Libya's internationally-recognized government has called upon Arab states for help in fighting ISIS, something that the Arab League has endorsed. Meanwhile, the country's oil sector – the backbone of the economy – is producing less than 400,000 barrels per day, well below the 1.6 million barrels per day Libya produced during the Gaddafi era. In other words, Libya is selling far less oil than it used to, and at prices far below what they were as recently as last year.

... ... ...

Saudi Arabia could run a fiscal deficit that is equivalent to about 20 percent of GDP. To finance public spending, Saudi Arabia has returned to the bond markets for the first time in eight years, issuing 15 billion riyals ($4 billion) in July, only to be followed up by an additional bond offering of 20 billion riyals ($5.33 billion) in August. The government plans on taking on more debt in the coming months as well.

... ... ...

Praedor, August 20, 2015 at 9:01 am

I am always automatically dubious about instability in Latin America, particularly Brazil, Ecuador, Venezuela. I cannot but assume that the CIA and State Dept are all over it, pushing it beyond what it would otherwise be organically, perverting it towards coup if a rightwing US-selected leader cannot be "elected". The US wants nothing MORE than instability and overthrow of these national governments and will do anything possible to manufacture disaffection inside their borders. There's water to privatize, oil to privatize, schools to privatize, corporations to feed.

shinola, August 20, 2015 at 10:56 am

My local newspaper carried a story this a.m. about low oil prices becoming a problem for Mexico too.

Sam Kanu, August 20, 2015 at 12:41 pm

Any clarity yet on who is funding Boko Haram in Nigeria?

PlutoniumKun, August 20, 2015 at 3:27 pm

The War Nerd (Gary Brecher) is required reading on Boko Haram, although unfortunately his work is increasingly being screened by paywalls. From memory, he was pretty clear that much of its funding comes from the usual suspects among 'our allies' in the Middle East.

Sam Kanu, August 20, 2015 at 6:22 pm

Local opinion on the source of funding seems to settle on certain elements of the Nigerian military, and possibly them acting as a conduit from global suspect #1.

Never mind the so called allies and the so called "experts" who have never set foot in the country.

Now start adding up 2 and 2.

Charles Fasola, August 20, 2015 at 1:16 pm

More bull crap from the controlled main stream media concerning Venezuela. Which is a target for regime change by the empire and its CIA organized criminal syndicate. Any nation that attempts to serve public purpose in any form becomes a target. Assassinations, overthrowal of legitimately elected governments, opium and narcotics production in Afghanistan and now Ukronazistan, money laundering for drug cartels, theivery and human trafficking are the specialties of this vile cesspool called the USA.

[Aug 20, 2015] Rosneft Doubling Down To Survive Oil Price Storm

A very weak article. The actual volumes Rosneft produces and volume growth dynamics are left behind...

Notable quotes:

"... With a production of more than 10 million barrels per day in month of July, Russia's oil output has reached its post-Soviet era production levels. ..."

"... According to a study by Citigroup, Russia's exports are still as profitable as they were during the $100 per barrel oil price levels, because of the currency devaluation. ..."

OilPrice.com

In fact, some market analysts and traders are even predicting oil prices will fall to $30 per barrel.

... ... ...

In contrast, the drilling volumes at Rosneft have increased by 27 percent during the first seven months of 2015 where more than 800 new wells were drilled. At a time when oil companies are shying away from newer acquisitions, Rosneft is all set to buy Trican Well Service Limited's Russian Hydraulic Fracturing business. So how does Rosneft manage to increase spending on its operations and acquisitions when other major oil companies are struggling?

....the ruble has weakened substantially against the U.S. dollar and is now trading at almost half of the value it was a year ago. The devaluation in the ruble has reduced the operational costs as oil companies would earn in dollar and pay their expenses in rubles.

Moreover, Russian tax laws have resulted in domestic oil companies bearing just one fifth of the burden related to the total drop in the crude oil prices. "As we expected, changes to Russia's taxation mechanism on the oil sector at the start of 2015 are cushioning domestic companies within the sector from the effects of lower oil prices," said Julia Pribytkova of Moody's. With a production of more than 10 million barrels per day in month of July, Russia's oil output has reached its post-Soviet era production levels.

... ... ...

According to a study by Citigroup, Russia's exports are still as profitable as they were during the $100 per barrel oil price levels, because of the currency devaluation. It is therefore quite obvious that Russia is set to increase its exports (and add to the supply glut) as the country has no other choice but to produce more oil in order to maintain its market share. This is highlighted by Rosneft's first quarter profits, which fell by more than 35%, yet it still decided to increase its production levels

... ... ...

Gaurav Agnihotri, a Mechanical engineer and an MBA -Marketing from ICFAI (Institute of Chartered Financial Accountants), Mumbai

[Aug 20, 2015] Wolf Richter It Starts – Broad Retaliation Against China in Currency War

Aug 20, 2015 |

naked capitalism

Kazakhstan saw what's happening to oil, its main export product, and to the currencies in China and Russia, its biggest trading partners. The yuan devaluation was relatively small, compared to the ruble, which is now allowed or encouraged to drop with oil. It has plunged 14% against the dollar over the past 30 days and 45% over the past 12 months, to 66.7 rubles to the dollar. With the Russian economy losing its grip, the ruble is dropping perilously close to the panic levels of last December and January.
And Kazakhstan freaked out and devalued the tenge by 4.5% today, to 197.3 per dollar, the biggest drop since that infamous day in February 2014 when the central bank let the tenge plunge 20%. So today's move is likely just a foretaste of what is still to come.

... ... ...

But devaluations are not free lunches. They're desperate measures that demolish domestic consumption and real incomes (see Japan), business investment, and overall credibility. And capital flees. They can also heat up inflation. But many emerging market countries and their banks and corporations borrow in other currencies to get access to lower interest rates. That foreign-currency debt can't be devalued or inflated away.
Instead, the opposite happens. Their struggling or battered economies have to service foreign-currency debt with their own devalued currencies. Commodity exporters are getting sapped additionally by plunging commodity prices. Then that foreign currency debt, that cheap easy money everyone got to used playing with, becomes an insurmountable pile of expensive debt in a currency they can't control and whose exchange rate might run away from them.
This is when a debt crisis begins to spiral elegantly through the emerging markets, taking down banks, entire economies, and gobs of investors as it goes – or taxpayers in other countries if there is a bailout. It's always the same story. But this time, it's different: after years of global QE, low interest rates, and hot money sloshing through the system, the sums are larger, and the risks are higher.

MyLessThanPrimeBeef, August 20, 2015 at 12:47 pm

Only one nation is exceptionally lucky with an import-driven/global reserve currency circulated model that's free from this need to devalue or to service foreign currency loans.

Mike Sparrow, August 20, 2015 at 12:59 pm

Currency war? Not seeing it.

'International Money Mania'

Aug 16, 2015 | Economist's View

Paul Krugman:
International Money Mania: China is claiming that it's not devaluing the renminbi to gain competitive advantage, it's adding flexibility to prepare for the yuan as an international reserve currency, becoming part of the basket in the IMF's SDRs and all that. That's highly implausible as a story about what's happening right now; but it may be true that China's urge to loosen capital controls is driven in part by its global-currency ambitions. ...

So what are the advantages of owning a reserve currency? ...

What you're left with, basically, is seigniorage: the fact that some people outside your country hold your currency, which means that in effect America gets a zero-interest loan corresponding to the stash of dollar bills - or, mainly $100 bills - held in the hoards of tax evaders, drug dealers, and other friends around the world. In normal times this privilege is worth something like $20-30 billion a year; that's not a tiny number, but it's only a small fraction of one percent of GDP.

The point is that while reserve-currency status may have political symbolism attached, it's essentially irrelevant as an economic goal - and definitely not worth distorting policy to achieve. Someone needs to tell the Chinese, you shall not crucify this country on a cross of SDRs.

am said...

Wo! Prof K pulls the reins on the reserve currency objective. I think that prestige is the main objective in China's moves in this direction and they wouldn't mind a bit of the seignorage too. But to get prestige fully they will have to let the currency float.
China won't peg the yuan forever and doesn't want to either, I think. Their long term objective is surely international bonds in yuan to rival the USA dollar bonds.

RogerFox said...

'Reserve' status tends to make a currency stronger that it otherwise would be. When they think it through, the Reds will eventually come to the realization that such an outcome might not be to their benefit, any more than it has been for blue-collar-types in the States.
Manipulating their currency down, then up, then down again - that's hardly demonstrative of an embrace of market-forces, is it?

RC AKA Darryl, Ron said in reply to RogerFox...

'Reserve' status tends to make a currency stronger that it otherwise would be.
[Krugman doesn't seem to believe in the Triffin dilemma, but you are correct. What you mean by "stronger than it otherwise would be" is having a higher foreign exchange value relative to its surplus trading partner's currencies than if they were not holding securities denominated in the reserve currency. So, the reserve currency does have a higher import purchasing power in the face of persistent trade deficits. Whether that increases or decrease the overall trade deficit for the reserve currency nation depends upon the real balance of trade relative to the effect of exchange rates. If US based MNCs were going to offshore production regardless of exchange rates just because of arbitrage over regulation and standard of living (real wages) and the US was going to import the same amount of oil anyway then the over-valued dollar actually reduced the US trade deficit. That may be why Krugman just tiptoed past the Triffin dilemma. ]
*
...When they think it through, the Reds will eventually come to the realization that such an outcome might not be to their benefit, any more than it has been for blue-collar-types in the States...
[The US had developed a higher standard of living including higher environmental quality and higher labor safety standards. There are plenty of Reds and they do not have much leverage in their political system. Most importantly China can liberalize their financial system while still practicing protectionists industrial policy. What China needs to grow is a switch to domestic consumption and that will take a lot more imported oil. China wants to make this transition. China wants the Triffin dilemma to lower the cost of their oil imports. They are ready to let lower wage countries perform more of the low skill labor while China raises their standard of living and switches from surplus to deficit on trade. China will be smart about what it choses to import though unlike the US. The US was smart about making the rich even richer until they controlled the media and even the political system. The Chinese government would want to avoid that embrace.]

Reply Thursday, August 13, 2015 at 04:44 AM

Lafayette said...

WAKEY, WAKEY …
From Forbes : {Technically, the news that many rich people in China have personal ties to China's top leaders is not really news anymore. Nor is it news that many rich Chinese have placed their assets in offshore accounts or even that many rich people in China get that way through peddling influence or corruption.
After all, the top 50 members of China's National People's Congress boast a combined wealth of $94.7 billion, making their American congressional cousins across the Pacific-whose top 50 members are worth only $1.6 billion-look positively poverty stricken. The link between politics and money in China is well-established.*}
And we thought that Uncle Sam had a problem with too many plutocrats fixing policy from the top?
Wakey, wakey. The sun rises in the east … !
*From here: http://www.forbes.com/sites/elizabetheconomy/2014/01/28/the-political-plight-of-chinas-wealthy/

Reply Thursday, August 13, 2015 at 08:25 AM

anne said in reply to Lafayette...

After all, the top 50 members of China's National People's Congress boast a combined wealth of $94.7 billion...
[ Not that the crazed viciousness directed against the Chinese will stop, but it is not conceivable that Forbes could know this. ]

Reply Thursday, August 13, 2015 at 08:43 AM

Lafayette said in reply to anne...

Anne, don't be naive.
I have seen this figure confirmed by Chinese, in China, on TV reports here in France. In fact, the reportage was done by some very brave Germans who would not dare set foot again in China.
The report was very well done, in that it interviewed dissenters in hiding as well as those who had been in jail. It even went to the backwaters of large cities and out into the countryside.
In fact, I heard quotes for the position of regional leadership that are bantered about and even well-known. Meaning this: The corruption is so wide-spread that those in command are no longer even hiding it.
I cannot imagine how they (the reporters) got away with it, because the Political Police go right down to the village level. You cannot believe what's going in China from abroad.
But when it implodes, and it WILL implode, the economic earthquake caused is going to be enormous ...

Reply Thursday, August 13, 2015 at 09:02 AM

anne said in reply to Lafayette...

"In fact, the reportage was done by some very brave ------- who would not dare set foot again in China."
Rubbish, though no doubt self-sacrificing and bravely gathered rubbish, but what is now all important through the West is the destroying of China.

Reply Thursday, August 13, 2015 at 09:14 AM

pgl said in reply to anne...

How is reporting that a few people have gotten very rich destroying China? You are paranoid here.

Reply Thursday, August 13, 2015 at 09:23 AM

anne said in reply to anne...

"After all, the top 50 members of China's National People's Congress boast a combined wealth of $94.7 billion..."
"In fact, the reportage was done by some very brave ------- who would not dare set foot again in China."
Rubbish, though no doubt self-sacrificing and bravely gathered rubbish, but what is now all important through the West is the destroying of China. What is being reported cannot conceivably be known and is simply making up stuff with the intent of destroying China.

Reply Thursday, August 13, 2015 at 09:36 AM

kthomas said in reply to Lafayette...

Mao is turning in his grave at Ludicrous Speed.

Im enjoying the hell out of this.

Reply Thursday, August 13, 2015 at 10:31 AM

Lafayette said in reply to kthomas...

Witnessing what is happening in China from afar is a privilege.
They are flocking to France this summer because French "style" is highly prized. And what do they find here ... gangs of Romanian pick-pockets.
They are a decent people, the Chinese, but haven't the slightest sense of "individualism". Quite unlike Americans, who have little sense of "solidarity".
So, the Chinese are easy to manipulate. And they ARE being manipulated by a corrupt caste-system that has replaced the iron-fist of communist rule.
These billionaires are "communists" in sheep-clothing - they are no different from Putin's kleptocrats ...

Reply Thursday, August 13, 2015 at 11:55 AM

Lafayette said in reply to Lafayette...

NICE MONEY IF YOU CAN GET ... AND YOU CAN GET IT, IF YOU TRY
{... whose top 50 members are worth only $1.6 billion}
Only? That's more than a cool $300M each on average.
Now who the hell "needs" 300M dollars ... ?

Reply Thursday, August 13, 2015 at 08:56 AM

am said in reply to Lafayette...

How do they define a billion. If it is 1000 million then 50 into 1.5 billion is 30 million.

Reply Thursday, August 13, 2015 at 09:20 AM

pgl said in reply to am...

$94.7 billion collectively. Almost $1.9 billion per person. I know - Forbes needs better writers. But the DONALD would still call these rich dudes "light weights". When they each have $10 billion, then he'll be nice to them.

Reply Thursday, August 13, 2015 at 09:28 AM

am said in reply to pgl...

My comment was about the US combined wealth. Laf says it works out at 300million each for the top 50 but if a billion is 1000 million then he should have said 30million each. All rounded down, of course. I think there are different definitions of a billion which is why I asked the question in the first comment.

Reply Thursday, August 13, 2015 at 09:39 AM

Lafayette said in reply to am...

Your right, it's ONLY $30M. That changes EVERYTHING, doesn't it!
Dammit, where's that delete button when you need it ... ;^)

Reply Thursday, August 13, 2015 at 09:38 AM

pgl said in reply to Lafayette...

I thought the figure was $94.7 billion. Now it is $1.6 billion? Let's get the accounting straight. BTW - $300 million is what the DONALD spends in just a couple of months.

Reply Thursday, August 13, 2015 at 09:24 AM

pgl said in reply to pgl...

"the top 50 members of China's National People's Congress boast a combined wealth of $94.7 billion, making their American congressional cousins across the Pacific-whose top 50 members are worth only $1.6 billion".
Oh wait - I get this story. Sort of. But 94.7/50 is a bit more than 1.6. Right?

Reply Thursday, August 13, 2015 at 09:26 AM

pgl said in reply to pgl...

Oh good grief - the original story reads:
"MANY Americans grumble about the wealth of their politicians. An annual survey released this month by CQ Roll Call, part of The Economist Group, showed that the median net worth of all Congressmen was $440,000, compared with American household net worth of around $70,000. Indeed, the 50 richest members of Congress hold a staggering $1.6 billion. But that's nothing compared with China. The wealthiest 50 delegates to the National People's Congress (NPC), China's rubber-stamp parliament, control $94.7 billion, according to the Hurun Report's latest rich list. That's about 60 times more than their American confrères. Darrell Issa, a Republican from California, is the richest man in Congress, with $355m. But that is pocket money compared with the riches of Zong Qinghou, an NPC delegate and boss of Hangzhou Wahaha Group, a drinks-maker, whose wealth totals almost $19 billion (including assets distributed to family members). Americans might not take much succour in being trumped by China, but it certainly brings new meaning to the idea that the seat of political power is called the capital."
Better writing. The DONALD is still laughing at this as he is worth $10 billion but he has decided that Zong Qingjou is not a light weight.

Reply Thursday, August 13, 2015 at 09:32 AM

Lafayette said in reply to pgl...

Does the exact number really matter? Nobody knows for sure what the real figure is, so its's just an estimate for the moment.
I quoted that figure from Forbes ...
If any division is of - mea culpa, mea culpa, mea maxima culpa ...

Reply Thursday, August 13, 2015 at 09:44 AM

pgl said in reply to Lafayette...

One of these dudes has raked in $19 billion? Damn - what did he give away to make that?
And notice - any story on China that says anything other than their growth rate is the highest in a long time sends Anne off in another one of her tantrums. Just sad.

Reply Thursday, August 13, 2015 at 09:53 AM

pgl said...

China's real exchange rate has doubled over the past 20 years:
https://research.stlouisfed.org/fred2/series/RBCNBIS
Krugman notes this fact and writes:
http://krugman.blogs.nytimes.com/2015/08/13/china-2015-is-not-china-2010/?module=BlogPost-Title&version=Blog%20Main&contentCollection=Opinion&action=Click&pgtype=Blogs&region=Body
"It's true that China's real exchange rate has trended upward for a long time, and that this didn't lead to a loss of competitiveness until recently - mainly because of Balassa-Samuelson and other effects of rising productivity. But with Chinese growth slowing and the pace of appreciation rising - and with rising competition from other emerging markets - the past five years almost surely have brought a major reduction in competitiveness. It's perfectly consistent to believe that China was destructively undervalued in 2010 but overvalued now."
We used to lecture the Chinese on alleged currency manipulation but maybe we should stop lest we become clowns like the DONALD!

Reply Thursday, August 13, 2015 at 08:41 AM

am said...

http://www.afr.com/markets/chinas-central-bank-moves-to-calm-markets-20150813-giy9w9
A good Aussie report on the new Chinese policy. Basically the peg has a range for the day's trading. The value at close of business is then the new starting peg the next day. Hence the devaluation each day this week.

Reply Thursday, August 13, 2015 at 10:28 AM

am said in reply to am...

http://www.afr.com/markets/currencies/hockey-backs-china-central-bank-moves-to-calm-markets-20150813-giyihc
The Aussies seem to like what is happening with the yuan.

Reply Thursday, August 13, 2015 at 10:37 AM

pgl said in reply to am...

"China's central bank said it would keep the exchange rate at a "reasonable" and stable level at a press conference on Thursday".
In other words, pegged at a different level than earlier but still pegged. I say this because Matty Boy Bot thought this meant floating. OK - the Boy Bot gets everything wrong.

john c. halasz said...

Umm... the "advantage" of having a reserve currency is that one can borrow cheap and long and then invest at much higher returns elsewhere, especially abroad. Why does PK miss that, instead focusing on the trivial seigniorage? Of course, that's not an advantage for the economy as a whole necessarily, just for certain factions of the elite, but should macroeconomic abstraction blind one to the different interests in play?

Peter K. said in reply to john c. halasz...

The carry trade?
"and then invest at much higher returns elsewhere,"
And then pull it out in a panic as they did during the East Asian crisis in the late 90s and the European periphery's debt crisis recently.
or with subprime and mortgage-backed securities with the housing bubbble.

[Aug 16, 2015] The Ron Paul Institute for Peace and Prosperity Republicans Cant Face the Truth About Iraq

"...For Cheney and his oil pals, conquering Iraq would secure the Arab world's biggest oil reserves for Uncle Sam and offer a central military base in the region. For Washington's bloodthirsty neocons, pulverizing Iraq would remove one of Israel's most determined enemies, crush the only Arab nation that might challenge Israel's nuclear monopoly, and cost Israel nothing. Invading Iraq produced the slow disintegration of the Mideast so long sought by militant Zionists."
.
"...It all worked brilliantly, at least from Israel's viewpoint. Not, however for the US. Bush's invasion shattered Iraq, led to al-Qaida and ISIS, and left Washington saddled with a $1 trillion-dollar bill instead of the $60 million cost estimated by Wolfowitz. The Mideast is in a tailspin, Palestinians are totally isolated, and Egypt, the region's key nation, is run by an Arab-fascist military dictatorship."

August 15, 2015 | ronpaulinstitute.org

Gov. Jeb Bush repeated one of the biggest falsehoods of our time during the recent presidential candidate debate: "we were misled (into the Iraq War) by faulty intelligence."

US intelligence was not "misled." It was ordered by the real, de facto president, Dick Cheney, to provide excuses for a war of aggression against Saddam Hussein's Iraq.

PM Tony Blair, forced British intelligence services to "sex up" reports that Iraq had nuclear weapons; he purged the government and the venerable broadcaster BBC of journalists who failed to amplify Blair's lies. Bush and Blair reportedly discussed painting a US Air Force plane in UN colors and getting it to buzz Iraqi anti-aircraft sites in hope the Iraqis would fire on it. Bush told Blair that after conquering Iraq, he intended to invade Iran, Syria, Libya and Pakistan.

In fact, Iraq had no "weapons of mass destruction," save some rusty barrels of mustard and nerve gas that had been supplied by the US and Britain for use against Iran. I broke this story from Baghdad back in late 1990.

Tyler Drumheller, who died last week, was the former chief of CIA's European division. He was the highest-ranking intelligence officer to go public and accuse the Bush administration of hyping fabricated evidence to justify invading Iraq.

Drumheller was particularly forceful in denouncing the Iraqi defector codenamed "Curveball," whose ludicrous claims about mobile Iraqi germ laboratories were trumpeted before the UN by former Secretary of State Colin Powell. "Curveball's" claims were outright lies and Powell, whose career was ruined by parroting these absurd allegations, should have known better.

"Curveball" was an 'agent provocateur' clearly sent by a neighbor of Iraq to help promote a US attack on that nation. Whether it was Kuwait, Saudi Arabia or Israel that sent Curveball," we still don't know. All three fabricated "evidence" against Iraq and passed it to Washington. That is where US intelligence was indeed misled. But that's only a minor part of the story.

A Washington cabal of pro-Israel neocons, oil men, and old-fashioned imperialists joined to promote a grossly illegal invasion of oil-rich Iraq. One of its senior members, former Pentagon official Paul Wolfowitz, admitted that weapons of mass destruction was chosen as the most convenient and emotive pretext for war. Orders went out to CIA and NSA to find information linking Iraq to 9/11 and weapons of mass destruction.

Some of the worst torture inflicted on suspects kidnapped by CIA's action teams was designed to make them admit to a link between 9/11 and Saddam Hussein. There was, of course, none. But administration officials, like the odious Condoleeza Rice, kept broadly hinting at a nuclear threat to America.

Prior to the 2003 invasion of Iraq, polls showed a majority of Americans believed Iraq was threatening the US with nuclear attack and was behind 9/11. Amazingly, a poll taken of self-professed evangelical Christians just before the US attacked Iraq showed that over 80% supported war against Iraq. So much for turning the other cheek.

Most of the US media, notably the New York Times, Washington Post and Wall Street Journal, amplified the lies of the Bush administration. TV networks were ordered never to show American military casualties or civilian dead. Those, like this writer, who questioned the rational for war, or who wouldn't go along with the party line, were blanked out from print and TV.

For example, I was immediately dropped from a major TV network after daring mention that Israel supported the 2003 Iraq war and would benefit from it. I was blacklisted by another major US TV network at the direct demand of the Bush White House for repeatedly insisting that Iraq had no nuclear capability.

Very few analysts, journalists, or politicians took time to ask: even if Iraq had nuclear weapons, how could they be delivered to North America? Iraq had no long-range bombers and no missiles with range greater than 100kms. Perhaps by FedEx? No one asked, why would Iraq invite national suicide by trying to hit the US with a nuclear weapon?

The most original answer came from George W. Bush: nefarious Iraqi freighters were lurking in the North Atlantic carrying "drones of death" that would attack sleeping America. This hallucination was based on a single report that the bumbling Iraqis were working a children's model airplane that, in the end, broke and never flew. What inspired such a phantasmagoria? Pot, too much bourbon, LSD, or thundering orders from Dick Cheney to find a damned good excuse for invading Iraq.

For Cheney and his oil pals, conquering Iraq would secure the Arab world's biggest oil reserves for Uncle Sam and offer a central military base in the region. For Washington's bloodthirsty neocons, pulverizing Iraq would remove one of Israel's most determined enemies, crush the only Arab nation that might challenge Israel's nuclear monopoly, and cost Israel nothing. Invading Iraq produced the slow disintegration of the Mideast so long sought by militant Zionists.

It all worked brilliantly, at least from Israel's viewpoint. Not, however for the US. Bush's invasion shattered Iraq, led to al-Qaida and ISIS, and left Washington saddled with a $1 trillion-dollar bill instead of the $60 million cost estimated by Wolfowitz. The Mideast is in a tailspin, Palestinians are totally isolated, and Egypt, the region's key nation, is run by an Arab-fascist military dictatorship.

Tyler Drumheller was the only senior CIA officer to stand up and tell Americans they were lied into an unnecessary, illegal war. Today, we have Iraqi déjà vu anew as the lie factories and fear mongers work overtime to promote war with Iran.

Reprinted with permission from EricMargolis.com.

[Aug 16, 2015] Deal or War': Is Doomed Dollar Really Behind Obama's Iran Warning?

"..."At that point, I think much of the world would have had enough of the US use of the international payments system to dictate to others, and they would cease transacting in dollars."
The US dollar would henceforth lose its status as the key global reserve currency for the conduct of international trade and financial transactions..."
.
"...Many analysts have long wondered at how the US dollar has managed to defy economic laws, given that its preeminence as the world's reserve currency is no longer merited by the fundamentals of the US economy. Massive indebtedness, chronic unemployment, loss of manufacturing base, trade and budget deficits are just some of the key markers, despite official claims of "recovery.""
.
"..."If the dollar lost the reserve currency status, US power would decline," says Roberts. "Washington's financial hegemony, such as the ability to impose sanctions, would vanish, and Washington would no longer be able to pay its bills by printing money. Moreover, the loss of reserve currency status would mean a drop in the demand for dollars and a drop in willingness to hold them. Therefore, the dollar's exchange value would fall, and rising prices of imports would import inflation into the US economy.""
.
"...Doug Casey, a top American investment analyst, last week warned that the woeful state of the US economy means that the dollar is teetering on the brink of a long-overdue crash. "You're going to see very high levels of inflation. It's going to be quite catastrophic," says Casey. He added that the crash will also presage a collapse in the American banking system which is carrying trillions of dollars of toxic debt derivatives, at levels much greater than when the system crashed in 2007-08.... "Now, when interest rates inevitably go up from these artificially suppressed levels where they are now, the bond market is going to collapse, the stock market is going to collapse, and with it, the real estate market is going to collapse. Pension funds are going to be wiped out… This is a very bad situation. The US is digging itself in deeper and deeper," said Casey, who added the telling question: "Then what's going to happen?"..."
.
"...President Obama's grim warning of "deal or war" seems to provide an answer. Faced with economic implosion on an epic scale, the US may be counting on war as its other option..."

August 15, 2015 | ronpaulinstitute.org

US President Barack Obama has given an extraordinary ultimatum to the Republican-controlled Congress, arguing that they must not block the nuclear accord with Iran. It's either "deal or war," he says.

In a televised nationwide address on August 5, Obama said: "Congressional rejection of this deal leaves any US administration that is absolutely committed to preventing Iran from getting a nuclear weapon with one option: another war in the Middle East. I say this not to be provocative. I am stating a fact."

The American Congress is due to vote on whether to accept the Joint Comprehensive Plan of Action signed July 14 between Iran and the P5+1 group of world powers – the US, Britain, France, Germany, Russia and China. Republicans are openly vowing to reject the JCPOA, along with hawkish Democrats such as Senator Chuck Schumer. Opposition within the Congress may even be enough to override a presidential veto to push through the nuclear accord.

In his drastic prediction of war, one might assume that Obama is referring to Israel launching a preemptive military strike on Iran with the backing of US Republicans. Or that he is insinuating that Iran will walk from self-imposed restraints on its nuclear program to build a bomb, thus triggering a war.

But what could really be behind Obama's dire warning of "deal or war" is another scenario – the collapse of the US dollar, and with that the implosion of the US economy.

That scenario was hinted at this week by US Secretary of State John Kerry. Speaking in New York on August 11, Kerry made the candid admission that failure to seal the nuclear deal could result in the US dollar losing its status as the top international reserve currency.

"If we turn around and nix the deal and then tell [US allies], 'You're going to have to obey our rules and sanctions anyway,' that is a recipe, very quickly for the American dollar to cease to be the reserve currency of the world."

In other words, what really concerns the Obama administration is that the sanctions regime it has crafted on Iran – and has compelled other nations to abide by over the past decade – will be finished. And Iran will be open for business with the European Union, as well as China and Russia.

It is significant that within days of signing the Geneva accord, Germany, France, Italy and other EU governments hastened to Tehran to begin lining up lucrative investment opportunities in Iran's prodigious oil and gas industries. China and Russia are equally well-placed and more than willing to resume trading partnerships with Iran. Russia has signed major deals to expand Iran's nuclear energy industry.

American writer Paul Craig Roberts said that the US-led sanctions on Iran and also against Russia have generated a lot of frustration and resentment among Washington's European allies.

"US sanctions against Iran and Russia have cost businesses in other countries a lot of money," Roberts told this author.

"Propaganda about the Iranian nuke threat and Russian threat is what caused other countries to cooperate with the sanctions. If a deal worked out over much time by the US, Russia, China, UK, France and Germany is blocked, other countries are likely to cease cooperating with US sanctions."

Roberts added that if Washington were to scuttle the nuclear accord with Iran, and then demand a return to the erstwhile sanctions regime, the other international players will repudiate the American diktat.

"At that point, I think much of the world would have had enough of the US use of the international payments system to dictate to others, and they would cease transacting in dollars."

The US dollar would henceforth lose its status as the key global reserve currency for the conduct of international trade and financial transactions.

Former World Bank analyst Peter Koenig says that if the nuclear accord unravels, Iran will be free to trade its oil and gas – worth trillions of dollars – in bilateral currency deals with the EU, Japan, India, South Korea, China and Russia, in much the same way that China and Russia and other members of the BRICS nations have already begun to do so.

That outcome will further undermine the US dollar. It will gradually become redundant as a mechanism of international payment.

Koenig argues that this implicit threat to the dollar is the real, unspoken cause for anxiety in Washington. The long-running dispute with Iran, he contends, was never about alleged weapons of mass destruction. Rather, the real motive was for Washington to preserve the dollar's unique global standing.

"The US-led standoff with Iran has nothing to do with nuclear weapons," says Koenig. The issue is: will Iran eventually sell its huge reserves of hydrocarbons in other currencies than the dollar, as they intended to do in 2007 with an Iranian Oil Bourse? That is what instigated the American-contrived fake nuclear issue in the first place."

This is not just about Iran. It is about other major world economies moving away from holding the US dollar as a means of doing business. If the US unilaterally scuppers the international nuclear accord, Washington will no longer be able to enforce its financial hegemony, which the sanctions regime on Iran has underpinned.

Many analysts have long wondered at how the US dollar has managed to defy economic laws, given that its preeminence as the world's reserve currency is no longer merited by the fundamentals of the US economy. Massive indebtedness, chronic unemployment, loss of manufacturing base, trade and budget deficits are just some of the key markers, despite official claims of "recovery."

As Paul Craig Roberts commented, the dollar's value has only been maintained because up to now the rest of the world needs the greenback to do business with. That dependency has allowed the US Federal Reserve to keep printing banknotes in quantities that are in no way commensurate with the American economy's decrepit condition.

"If the dollar lost the reserve currency status, US power would decline," says Roberts. "Washington's financial hegemony, such as the ability to impose sanctions, would vanish, and Washington would no longer be able to pay its bills by printing money. Moreover, the loss of reserve currency status would mean a drop in the demand for dollars and a drop in willingness to hold them. Therefore, the dollar's exchange value would fall, and rising prices of imports would import inflation into the US economy."

Doug Casey, a top American investment analyst, last week warned that the woeful state of the US economy means that the dollar is teetering on the brink of a long-overdue crash. "You're going to see very high levels of inflation. It's going to be quite catastrophic," says Casey.

He added that the crash will also presage a collapse in the American banking system which is carrying trillions of dollars of toxic debt derivatives, at levels much greater than when the system crashed in 2007-08.

The picture he painted isn't pretty: "Now, when interest rates inevitably go up from these artificially suppressed levels where they are now, the bond market is going to collapse, the stock market is going to collapse, and with it, the real estate market is going to collapse. Pension funds are going to be wiped out… This is a very bad situation. The US is digging itself in deeper and deeper," said Casey, who added the telling question: "Then what's going to happen?"

President Obama's grim warning of "deal or war" seems to provide an answer. Faced with economic implosion on an epic scale, the US may be counting on war as its other option.

Reprinted with permission from RT.

Welcome To The World Of ZIRP Zombies Zero Hedge

Bay of Pigs

It is amazing that most people don't realize the last time the FED actually raised rates.
June 2006

RaceToTheBottom

Central Banksters are afraid, because they have nowhere to backtrack to.
Economics profession is also scared because they have been acting like a one religion Religious Studies department for over 50 years. They only now just realized that their livelihood has become tied to that one religion and that one religion is a religion based on having a Spaghetti strainer on your head.

MagicMoney

What Mises means by:
falling value of money = rising interest rate is that people prefer to buy goods versus saving money. They prefer goods over money. Higher interest rates is a regulatory price that prevents over consumption of loan-able funds.

Rising value of money = falling interest rate, because people prefer to save more money versus spending their money on goods. Interest rates can be lower, because there is less demand for present goods, which means funds are cheaper for entrepreneur can engage in new types of production today to bring about consumption in the future.
I will repeat..
When people prefer goods over money, there is high demand for funds to buy it, thus like any supply and demand law, prices rise for those funds. When people prefer money over goods, it's inverse. Demand for funds is lower, means consumers are not spending as much, and this allows room for capital investment, because funds are not competing for consumption. Consumption levels have subsided, and the investment period can began today to bring about new goods for consumers tommorrow.
I don't know how you missed that.

withglee

I don't know how you missed that.
My concern is with anyone who thinks they got it!
When people prefer goods over money, there is high demand for funds to buy it, thus like any supply and demand law, prices rise for those funds.
A properly managed Medium of Exchange (MOE) does not respond to a supply/demand relationship for the MOE. It responds to the default/interest collection relationship. But with proper management, the process "guarantees" both these ratios are unity ... all the time and everywhere. And such proper management is trivial. How? Monitor defaults. When there is one, immediately collect an equal amount of interest.
Money is "a promise to complete a trade". It is an efficiency that allows simple barter trades to proceed over time and space. Money is created by traders making trading promises and getting them certified. The certificates are destroyed when the trader delivers. If the trader defaults, the orphaned certificates are recovered with interest collections. During the delivery process, the certificates circulate as the most desired object of simple barter. This is because, under a properly managed MOE process, they never lose their value. Thus they are universally accepted.
Supply and demand for these certificates (money) is in perpetual perfect balance ... it's the nature of trade.
Demand for funds is lower, means consumers are not spending as much, and this allows room for capital investment, because funds are not competing for consumption.
This is a "capitalists" notion and was imposed by capitalists. It gives capitalists control over traders and their desire and ability to trade where no such natural control exists.
It is ridiculous to require that someone first save before he, or someone else using money, can trade. In the beginning there was "no" capital. Yet trade got started and has continued ever since.
Consumption levels have subsided, and the investment period can began today to bring about new goods for consumers tommorrow.
Consumption and savings have nothing to do with proper management of an MOE process. Under a properly operating MOE process, reliable traders (those who don't default) enjoy zero interest load. Thus, in time value of money calculations (i.e. (1+i)^n) the zero "i" term makes all these "buy it now with future money or save present money for a future purchase" considerations go away. With inflation guaranteed to be zero, a consideration to trade is governed only by the traders desire to do so and ability to deliver.
Without some capitalist jacking the system with their farming operation (i.e. diddling interest rates and restricting traders ability to get their promises certified) traders are far less likely to default ... and there is no cascading effect if they do.
A properly managed MOE process "automatically" increases interest collections in the face of defaults. This is what the capitalists claim to be doing with all the nonsense described in this article.
So again... if you "get that", you are putty in the capitalists hands and you are a major part of the problem.

NoWayJose

We had the chance in 2007-2009 to re-set everything and come out with a stable growing economy and severe limitations on banks. It did not happen. We will get another chance, but the pain threshold will be much higher!

[Aug 16, 2015] And Quiet Flows the Con

"As flies to wanton boys are we to the gods.
They kill us for their sport."
William Shakespeare, King Lear

That disruption was caused by the China currency devaluations which reminded those who have not been paying attention that

a) there is a currency war underway,

b) there is no sustainable economic recovery despite rosy reassurances and the facade of statistical growth, and

c) there are a number of bubbles in financial assets that have been functioning primarily as wealth transfer mechanisms, and are wobbling in a manner that could bring the economy back to the brink once again.

[Aug 16, 2015] You Don't Need to Hire Rapacious Private Equity Firms to Get Their Returns by Yves Smith

August 14, 2015 | naked capitalism

A myth that has allowed private equity to persist in its predatory ways is that private equity delivers returns that investors can't obtain through other investment strategies.

We've described the large body of research that demonstrates otherwise. Private equity has conditioned investors to use IRR, a return metric that exaggerates their performance. Average private equity industry performance does not beat the S&P 500, which is a much more flattering metric than smaller-cap indicies that would make for better comparables. Moreover, investors need to be compensated for the illiquidity of private equity and most investors use a rule of thumb of 300 to 400 additional basis points. Even the mighty CalPERS, which has better access to private equity funds than just about any market participant, has failed to meet its private equity performance benchmarks for the last 10, 5, 3, and one years. If CalPERS can't eke out an adequate risk-adjusted return out of private equity, pray tell who can?

The justification for investing in private equity has rested almost entirely on the idea that investors could gain access to the best funds. If they could invest only in top quartile funds, private equity looks like a winner. But that notion has also been roundly debunked. It was once true that top quartile firms stayed in the top quartile, so investors could in theory target them. But top quartile outperistence no longer holds, so investors might as well throw darts at a list of private equity fund managers. Moreover, even in the days when top funds were able to maintain a performance lead over their peers, the also-rans were able to muddy the selection waters. One study found that 77% of the funds were able to claim top quartile status. Oops.

As we wrote last year:

Rather than question the logic of investing in private equity at all, everyone in the industry has convinced themselves that it is reasonable to believe that they can be the Warren Buffett of private equity. The investment consultants go through the shooting-fish-in-a-barrel exercise of convincing their institutional clients that each of them is prettier, smarter, and more charming than average, and therefore capable of achieving sparking results. Needless to say, flattery is an easy sell….

Fundamentally, this is an intellectually dishonest exercise, and diametrically opposed to the way many public pension funds construct other parts of their investment portfolios. With public equity in particular, it's almost certain that a significant majority of U.S. pension fund assets are invested in index funds. That's because pension funds have recognized that, collectively, they cannot do better than average, and that after paying active management fees, actively managed public equity portfolios typically perform worse than the market average.

So it's not as if these investors are so clueless that they can't grasp the point that all of them cannot achieve above average results, let alone significantly above average results. Instead, with private equity, there is a desperate desire to be in the asset class for reasons that probably reflect a combination of intellectual capture by the PE managers, political corruption in legislatures that control public fund board appointees, and the need to have a strategy that could conceivably solve the pension underfunding problem over time.

In other words, the very long term, illiquid nature of private equity investments allows limited partners to fool themselves about how realistic it is for them to achieve their desired returns, and there's a well-honed industry of private equity professionals and consultants who stoke those illusions.

But it's going to be hard to keep those fantasies alive when academics show how to beat private equity returns with much cheaper public equity strategies. Matthew Klein of FT Alphaville summarizes a new paper by Brian Chingono and Dan Rasmussen that shows how to exceed the average private equity fund's return by a solid margin. We've embedded the article at the end of the post. Klein does a fine job of recapping it, so we'll quote liberally from his post.

The Chingono/Rasmussen strategy, in simple form, seeks to replicate what private equity funds do with a portfolio of public stocks by creating a portfolio of leveraged but low-priced yet solid cash flow generating firms. They focus on midsized stocks, in the 25th to 75th percentile of market capitalization, that are cheap (bottom 25% in enterprise value to EBITDA terms) and are leveraged more than average. The academics then tested several ways for selecting the best performers from this bunch. They found the best measures to be sales growth relative to assets and debt repayment ability (as in cash flow relative to debt levels). The only anomaly seems to be that rejiggering the portfolio annually in the 4th quarter produces sub-par returns; all the other variants produced impressive results of an average of 9.1% to 11.7% outperformance. That puts private equity to shame.

From Klein's post:

It's well known among finance academics that the performance of the average private equity fund is overwhelmingly determined by 1) junk bond spreads and 2) the amount of capital invested in PE funds. General partners overpay for their target companies when they have too much money to play with, which kills returns. But when credit is tight and few investors are willing to commit to private equity, general partners can get better deals and deliver the massive gains that underfunded pension plans salivate over.

In other words, returns are cyclical and can be predicted by the purchase multiples being paid, which in turn can be predicted by macro factors. (That's not surprising, since basically all asset returns are inversely related to how much you pay.) You may want to have some exposure to this kind of thing, but you shouldn't be paying pay 2 and 20 for it. Plus, there's no telling that the particular funds you invest in generate returns representative of the strategy.

And get a load of the margin of outperformance over time:

Looking at US data going back to the early 1960s, they found that if you'd bought a portfolio consisting of companies in the top quartile according to each of these filters, you would have made around 23 per cent per year between 1965 and 2013. You would have done slightly better with an equal-weighted portfolio and slightly worse with a value-weighted portfolio.) Compare that to the roughly 10 per cent annual returns you would have gotten over the same period if you invested in the S&P 500 index and reinvested all dividends, or the long-run net of fees returns of the Cambridge Private Equity Index of around 13 per cent per year.

So what's the fly in the ointment? Public stocks are more volatile than private equity funds. But that in large degree is a fallacy, by virtue of turning the defect of private equity, its illiquidity and infrequent valuations, into a trumped-up virtue. Moreover, PE firms flat out lie about what their portfolios would be worth in a bad market, like the fall of 2008. The authors mention the importance of this fibbing to private equity's perceived superiority:

The key advantage of private ownership of leveraged businesses, however, is that the private equity investor can mask volatility because the equity securities are not publicly listed.

This truncating the bottoms of the worst of market cycles gives private equity the illusion of lower price volatility than it really has. Or put it another way, the valuation consultants haven't adequately priced the fact that the investors have handed over the option as to when they get their money back to the general partners, which is not the same as "illiquidity". That option is a very long-dated option, and long dated options are extremely expensive. It's a virtual certainty that if this option were properly priced, limited partners would need to seek a far higher premium than the 300 to 400 basis point the industry has agreed upon as a heuristic.

But even handicapping the higher volatility using conventional metrics, this levered public equity strategy still beats private equity. As Klein sums up:

True, you would have endured extreme volatility to go along with your leverage-fueled returns, but the risk to return ratio would still have been somewhat better than the market as a whole…

But we can easily imagine investment committees lacking the stomach for this kind of strategy even if it is far more liquid than the private-market equivalent. Some may prefer to take comfort in the apparent stability of made-up numbers generated from appraisals of untraded assets even if that means leaving money on the table.

Yet we see CalPERS, which is better run than any other public pension fund, assuming more risks to eke out mere single-digit basis point improvements in performance, while ignoring what amounts to free money opportunities by getting out of the high-fee private equity regime, either by moving to cut out the middleman, as Canadian pension funds are doing, or by employing public market strategies to achieve equity like returns (Chingono/Rasmussen isn't the only approach we've heard about, but it appears to be the most rigorously tested one). But until investors feel more pressure, either due to evidence of more private equity chicanery or faltering private equity returns, they aren't likely to kick their private equity bad habit.

[Aug 15, 2015] Paul Krugman Bungling g's Stock Markets

Aug 14, 2015 | Economist's View

kthomas said in reply to Mitch...

...As for this particular article from PK, its garbage. Completely subjective, and repeating much of what most of us know. He does it rarely, thank God, but nobody is perfect and he can be allowed an occasiional rant.
Im far more interested in his opinions on Fed response.

sanjait said...

This is concerning, because it's amateurish behavior for a national government. China is essentially acting like the London Whale - throwing money at the market in a vain attempt to avoid having asset prices shift, hoping beyond reason that the market will just favorably make it's own adjustments sometime in the future.

Paine said in reply to sanjait...

What ? Amateurish ? How can you know the underlying plan here? I certainly don't
And I made my living for a while analyzing currency markets

Sanjait said in reply to Paine ...

They are trying to arrest market movements, and it's amateurish because it's a strategy doomed to fail.
I suppose it's always possible that someone's apparently dumb actions are actually part of an intelligent 12-dimensional chess strategy that is not apparent to outsiders ... but I'm pretty comfortable that's not the case when we are talking about China's attempts to prop up the stock market.

nikbez said in reply to Sanjait ...

You are incredibly naïve if you think there was no geopolitical play in using the bubble Chinese created to crash Chinese market.
I wonder what was the role in all this of vampire squid and friends

anne said in reply to sanjait...

There is no reason to think Chinese policy makers are trying to set stock market prices as opposed to dampen market movements. Hong Kong authorities were able to dampen market movements during the Asian currency crisis by buying shares in the Hong Kong index. Similarly, Malaysia employed capital controls limiting flows of money from stock sales from be taken out of the country.

sanjait said in reply to anne...

Even if it's merely dampening market movements, which is totally plausible, its an extremely stupid thing to do.
It tells every investor in the market that the national government is providing a backstop on their losses. In the very short term this reduces market volatility but in the less short run it just encourages leveraging up and reduced risk premia, which increase market volatility. Even on that measure it's a dumb and amateurish move.
And that's putting aside the fairly obvious fact that the state is covering the losses of wealthy private investors with this move, enacting a form of post facto lemon socialism.
If Hong Kong did the same thing, it was dumb for them too.
Malaysia (or any other country) implementing capital controls is definitively *not* the same thing.

Eric Blair said in reply to sanjait...

PK himself does not take this position. In fact the 1998 Malaysia currency controls were imposed after Malaysia's leader read a Krugman column in Fortune suggesting exactly that. So far as I know, though, he has never spelled out exactly where "slap in the face" ends and "post facto lemon socialism" begins.

nikbez said in reply to Eric Blair...

Eric,
all free market fundamentalists are "true believers". They can't be influenced by arguments.

Eric Blair said in reply to sanjait...

PK himself does not take this position. In fact the 1998 Malaysia currency controls were imposed after Malaysia's leader read a Krugman column in Fortune suggesting exactly that. So far as I know, though, he has never spelled out exactly where "slap in the face" ends and "post facto lemon socialism" begins.

RC AKA Darryl, Ron said in reply to RC AKA Darryl, Ron...

Wealth breeds greed. Greed breeds elitism. Elitism breeds isolation. Isolation breeds ignorance.
"Power tends to corrupt, and absolute power corrupts absolutely. Great men are almost always bad men." Lord Acton

anne said in reply to sanjait...

Suggested by Branko Milanovic:
http://www.marketwatch.com/story/heres-the-map-of-the-world-if-size-was-determined-by-market-cap-2015-08-12?link=MW_home_latest_news
August 14, 2015
Here's the map of the world, if size were determined by market cap
In billions of dollars, the world according to free-float stock market capitalization.
By STEVE GOLDSTEIN
D.C. BUREAU CHIEF
Bank of America Merrill Lynch this month published a report transforming many of their investment themes into maps.
One of note is what the world would look like if sized by market capitalization.
The U.S. is still looking like the U.S. - and Japan is pretty hefty - but where did China go? And how is Hong Kong bigger than the mainland?
Some readers have noted that China looks unusually small - that's because the methodology here is to use MSCI's numbers. The index provider still keeps out the so-called A-shares * from inclusion in its indexes, for reasons including capital mobility. Were the A-shares included, even after the rout in that country, the market cap of China would swell by tenfold.
Russia, on this map, is basically the size of Finland. (A country that reportedly Vladimir Putin has designs for, though that's a story for another day.)
The U.S. market capitalization is $19.8 trillion, or 52% of world market cap, which the brokerage says is the highest since the 1980s.
Russia, for what it's worth, is the largest country by area.
* http://www.investopedia.com/terms/a/a-shares.asp
Shares in mainland China-based companies that trade on Chinese stock exchanges such as the Shanghai Stock Exchange and the Shenzhen Stock Exchange. A-shares are generally only available for purchase by mainland citizens; foreign investment is only allowed through a tightly-regulated structure known as the Qualified Foreign Institutional Investor (QFII) system.

sanjait said in reply to anne...

Not sure what the point is ... but ok.
So it seems China's equities market is dominated, in market cap terms, by shares that are limited to domestic purchasers. This indicates they have significant capital restrictions on foreign ownership of companies.
But I didn't think that fact was in dispute, nor that they have other significant capital restrictions, nor that capital restrictions themselves are necessarily stupid policy.

Dan Kervick said...

"The response of the Chinese authorities was remarkable: They pulled out all the stops to support the market - suspending trading in many stocks, banning short-selling, pushing large investors to buy, and instructing graduating economics students to chant "Revive A-shares, benefit the people." "
"All of this has stabilized the market for the time being. But it is at the cost of tying China's credibility to its ability to keep stock prices from ever falling. And the Chinese economy still needs more support."
I don't understand this. China did not act to "keep stock prices from ever falling." They acted to put a floor under a very precipitous decline.
Clearly China has a mixed economy that relies on a heavier degree of political management than the US economy, and has a more flexible, less doctrinaire reliance on "the market thing". They also don't like political drama, and are willing to intervene when the changes underway produce more volatility than they want.

Paine said in reply to Dan Kervick...

Managing equity markets is relatively novel state craft
Bonds are another matter
And forex yet a third
Not to mention land lots
Socializing markets is a state activity we are learning
China right now is operating at the knowledge frontier practically speaking
It's amazing to watch political economist reflexes here

Most are giddy

The earths joblings benighted by a socially constructed black out
Cant see what's at stake

pgl said in reply to Paine ...

"Managing equity markets is relatively novel state craft".
Maybe but CEOs have been doing this in the US for decades. Yep - we mastered this game by privatizing corporate corruption.

anne said in reply to Paine ...

China right now is operating at the knowledge frontier practically speaking
[ Really, really important. China has for decades used direct, specific market sector controls in generating and smoothing growth.
A sharp increase in international oil prices is not taken as a general problem, but a problem in agricultural communities where the cost of fuel can be a significant problem during planting and harvest time, so the Chinese have at times directly lowered the price of oil for rural China. However, such market interference should not work since a low price for oil in rural China should mean oil flowing to urban China. China has made price discrimination work however, work without bottlenecks. ]

Paine said in reply to anne...

It's interesting and pgl gets this nicely
It's okay tautly to manipulate markets if you're an oligopoly corporation
God forbid if you're the sovereign

Dan Kervick said in reply to Paine ...

"Managing equity markets is relatively novel state craft."
Agreed, but the principle isn't that much different. China recently began encouraging ordinary households to invest in their smallish stock market. That's part of the plan for long-term "capital deepening" and development that doesn't rely so much on state-fostered credit and bubbles. Perhaps they concluded now is not the time for some kind of Chinese Black Friday.

Paine said in reply to Dan Kervick...

Agreed
However I'd prefer the state just keep relying on its own credit mill
And yuan mine
It's cost less
As to households
Private Savings give them a limited extra freedom
Fine
In fact a universal comprehensive social transfer system cradle to grave
Could make private savings a luxury product
Which it ought to be
Providing a safe place to store purchasing power is enough once the state creates a complete transfer system .

Paine said in reply to Paine ...

This private holding of equities is vey dangerous if it becomes wide spread enough
And horns into pensions etc

pgl said in reply to Dan Kervick...

So you think all this fuss is an overreaction. OK. I said the fuss over that tiny change in the exchange rate peg was much ado about nothing.

Dan Kervick said in reply to pgl...

Yes, I think it's probably an overreaction. The issue is, what if the devaluation doesn't stop, but China continues to expose the exchange to market forces, and market forces push the yuan down?

This will make confused capitalist heads explode across the United States! The devaluation will be bad for the US, but will be a result of the Chinese practicing US-beloved market principles.

The politicians and pundits will then have to come up with some conspiracy theory to explain how the commies are manipulating the markets that are driving down the currency, so that they can keep calling the Chinese "manipulators".

pgl said in reply to Dan Kervick...

"This will make confused capitalist heads explode across the United States! The devaluation will be bad for the US, but will be a result of the Chinese practicing US-beloved market principles."
I'm all for heads exploding. But is the yuan really overvalued. Krugman's latest says maybe not. If it is not overvalued, maybe their devaluation is on the same order of the devaluation of the Euro. In fact, Bernanke noted that the German trade surplus is much more of a problem than the shrinking Chinese trade surplus.

Paine said in reply to pgl...

PK countered that that peg shift pre staged more peg shifts and the regime change in policy would change expectations of forex marketeers

Gist

The market players now expect major moves down and will validate any such plan. On his other hand the marketeers will hammer at any floor

pgl said in reply to Paine ...

He is Dornbusch's student so the overshooting model rules his brain. Which in my view is a good thing.

Dan Kervick said in reply to EMichael...

Well, this criticism would make sense coming from some Austrian defender of pure free markets. But it's coming from people who don't think interest rates in the credit market should be set by the market, but should be guided and targeted by deliberate central bank policy that prevents them from going where the market otherwise wants to push them.

Paine said in reply to Dan Kervick...

Dan god bless u
You think past the paper barriers . Exactly. The present progressive mind is only slightly liberated from the iron dictatorship
Of capitalist dominated markets

... ... ...

EMichael said in reply to Paine ...

Gotta' tell you, I can't figure out how you think it is possible that China is not being run by "an iron dictatorship Of capitalist dominated markets"
Only difference is in the number of people in that "special" group.
The average Chinese citizen has not seen a whole lot of the impressive Chinese gains these past decades.

Paine said in reply to EMichael...

You might want to look into gains at the level of Chinese wage workers since Deng reforms in 1979-80

EMichael said in reply to Dan Kervick...

Yeah, setting FED rates is almost exactly the same thing as what the Chinese are doing.
Meanwhile, I believe I can go into the archives here and find examples where you thought it made sense to let speculators have a "hard landing".

Dan Kervick said in reply to EMichael...

Speculators, yes. The general public, no.

Paine said in reply to EMichael...

Interesting you bring up speculators. Rough housing them is just what the PBC needs to do over the yuan
Will they ? What if he bastards have personal skin in the game ?

pgl said in reply to Dan Kervick...

"should be guided and targeted by deliberate central bank policy that prevents them from going where the market otherwise wants to push them".
WTF? Unless you are advocating having interest rates rise - this makes no sense. Interest rates are near zero. Letting them rise but invite another recession. Is that what you want?

Dan Kervick said in reply to pgl...

No. What I am saying is it is somewhat inconsistent for people who have no problem with US government price-setting in credit markets - which are a vast share of the US economy - to criticize the Chinese for interfering in the price mechanisms in other markets.

Paine said in reply to pgl...

You are suggesting the PBC run around plugging holes
When a comprehensive strategy for asset markets and land lot markets is in order here
Taxation your favorite gig
Must play a huge strategic role here

Paine said in reply to Paine ...

Or perhaps you feel like Mitterrand in the mid 80's
And maybe Syriza now
---I hope not ---

The Chinese communist politbureau should simply bow to he marketeers will
Abdicate power over asset markets.
And call for open elections

Paine said in reply to Paine ...

Castro brothers oughta cave similarly right

Julio said in reply to EMichael...

No, what's "more flexible" is being willing to try different methods not allowed by "the market thing".
If they stick to only one method, applied rigidly, then your criticism will apply.

Paine said in reply to Julio...

Excellent

pgl said in reply to EMichael...

Go over to DeLong's place where he was mocking Jeb! 4% and DONALD! 10% read Kervick's attack on the Solow growth model. About the dumbest rant I have ever seen in my life. And as Kervick tried to school Solow, I offered what I would suspect Solow would fire back.
Looking at changes in real GDP during the Great Depression as a measure of changes in potential GDP. Really stupid.

Dan Kervick said in reply to pgl...

I didn't really attack the Solow model. I implied that economists can't predict the impact of political decisions on growth rates or growth ceilings by using that model, since the predictions come from pumping numbers into the model that are extrapolations from current conditions.
The model contains an exogenous variable for "multifactor productivity". If multifactor productivity changes, then the steady state equilibrium changes along with the calculated growth path for getting there. And multifactor productivity is a factor that, while unpredictable, changes in response to innovation and investment in human capital.
It also treats the savings rate as an exogenous variable. But clearly states can increase the savings rate of their societies.
Clearly societies have experienced periods of dramatic economic progress in the past because of technological innovations or political interventions that would not have been predictable ahead of time from the Solow model.
The model has limited use in predicting growth paths for societies in which some important basic parameters stay the same (or change according to some simple quantitative rule). It loses applicability when applied to situations in which either private or public sector developments result in dramatic changes in the values of variables the model treats as exogenous.

Dan Kervick said in reply to pgl...

Right. But the Chinese did not at all prevent stock prices from "ever falling." Nor did they announce or commit to such a crazy policy. They announced a temporary measure to prevent them only from falling below a certain level. They applied some brakes - that's all.
It's not that much different than what we do in the US to prevent a automated trading "flash crash" from turning into a Black Friday market rout.

Paine said in reply to Dan Kervick...

Exactly. Except here the various market players ..inside players call the shots. Not the state

Sanjait said in reply to Dan Kervick...

It's not at all the same. A temporary trading halt is not the same as having state backed entities buy shares.
Neither is it similar to conventional monetary policy.
Your argument for these Chinese policies seems to consist of a long string of false equivalences such as these.

Dan Kervick said in reply to Sanjait ...

It's the same thing. Just two different mechanisms for getting out of a doom loop. You just think there is something evil or out of bounds about states intervening in market mechanisms. I say big deal. If a few giant market participants stepped in to buy up shares to stop a panicky selloff, people would say, "Thank, Citizen Moneybucks and Citizen Morgan for stopping this terrible panic." The state is just another public spirited and powerful agent with a stake in preventing instability.
As for "conventional monetary policy", I'll ask you to recall that QE is generally classified as "unconventional" monetary policy. Of course, what is conventional or unconventional depends only on what people are used to. Once upon a time, in the early 20th century, central bank open market purchases of all kinds were an unconventional emergency measure. Then people got used to them. Now large-scale asset purchases have probably moved into the conventional category. Some central banks have already been involved in buying and selling equities, and perhaps some day those interventions will be "conventional" as well.
It really doesn't matter, though, whether they are conventional or unconventional. The questions should be what the goals are, and how well they accomplish them.
Just because "the markets" decide they want to carry out some Mellonite liquidation of overvalued assets in a rapid, elephant stampede style doesn't mean it is good public policy to let it happen.

Peter K. said in reply to Dan Kervick...

I'm leaning towards John Cassidy's take, who suggests they're having a "Minsky moment."
"Underlying all of this is the fact that China is still dealing with the consequences of an enormous credit and real-estate bubble that has accompanied, and prolonged, the latter stages of the growth miracle. Between 2007 and 2014, total private debt in China rose from about a hundred per cent of G.D.P. to about a hundred and eighty per cent-a jump even larger than those seen in countries such as Ireland and Spain, which subsequently endured deep recessions. In 2010 alone, the amount of debt taken out by Chinese businesses and households jumped by about thirty-five per cent of G.D.P.

...

So far, however, the Chinese government, which enjoys the luxury of having relatively little debt of its own, plus enormous foreign currency reserves, has managed to avoid such a nasty outcome. By intervening in ways obvious and opaque, it has sought to substitute a managed deleveraging of the economy for a chaotic collapse. Until pretty recently, the consensus among economists and investors was that this policy was generally working. G.D.P. growth was falling, but not cratering. The Chinese shadow-banking system, which issued a lot of the dodgy credit, was shaky, but it hadn't collapsed. And China's stock market was soaring.

The events of the past months have prompted a reassessment of the true state of China's economy, and of the competence of its policy makers. In the aftermath of the effort to prop up the stock market, the Times' Paul Krugman said Chinese officials were demonstrating that they "have no idea what they are doing." This week's devaluation prompted more critical comments from Krugman, while, over at Bloomberg View, Justin Fox suggested that China might not have a master plan.

I think it probably does-the question is whether the plan will ultimately work. In seeking to deflate a huge credit bubble and rebalance the economy without subjecting China to an outright recession, the government in Beijing is seeking to defy the economic laws of gravity. That was never going to be easy."

sanjait said in reply to Peter K....

^^THIS
Peter describes the situation very well I think.
Basically, China is attempting to dance past its Minsky moment.
It would be like if the US decided in 2008, instead of buying MBS and its own bonds, to coerce state-backed investors into issuing more loans and buy equities. China is essentially doing what the obtuse free-market ideologues accused the US of doing with its various bailouts and monetary policy activities.
But these things aren't the same. China is actually trying to prevent the corrections, or at the very least slow them, not through macro policy but through purchase flows.
At best these policies will result in massive losses for the Beijing Whale. Perhaps some would argue it would be worth it to ensure macro stability, though I can think of a whole lot of other better ways to achieve that goal.
And at worst these policies will just delay or even exacerbate the inevitable corrections, and leave the state with fewer resources and weaker credibility to deal with the aftermath.

Dan Kervick said in reply to sanjait...

"...or at the very least slow them."
That's the ticket. Also, we need to remember that markets are stupid and herd-like some times, and the direction they decide to go isn't always smart. Maybe the full "correction" will never happen. Maybe it was partly based on an excessive fear that Chinese equities were overvalued that was just as irrational as the excessive exuberance that overvalued the equities in the first place.

EMichael said...

"The common theme in these wild policy swings is that China's leadership keeps imagining that it can order markets around, telling them what prices to reach."
But of course this is what China's leadership has done for decades. They ordered their economy around, and it should be no surprise that this is their reaction to the changing world.

Peter K. said...

http://www.cepr.net/blogs/beat-the-press/the-4-trillion-that-no-one-can-see
The $4 Trillion That No One Can See
by Dean Baker
Published: 14 August 2015
Economists and people who are write about the economy are not known for being especially astute when it comes to economic issues. After all, there were almost no people in this group who were able to see the $8 trillion housing bubble whose collapse sank the economy. More recently we have a substantial clique running around yelling that the robots will take all the jobs. This is at the same time that we continue to have most of the Washington elite types fretting that the retirement of the baby boomers will leave us without any workers. These concerns are 180 degrees opposite, sort of like complaining that the soup being too hot and too cold, but that's the sort of conceptual absurdities folks have come to expect from people who write about the economy.
The usually astute Catherine Rampell is one of the guilty parties today, telling readers that the recent drop in the value of the Chinese yuan is a response to the market, not the result of currency management by China's government. The problem in this story is that it ignores that China's central bank is holding more than $4 trillion of reserves, about $3 trillion more than would be expected for an economy of China's size. This stock of reserves has the effect of raising the value of the dollar and other reserve currencies against the yuan.
If that is not obvious, consider the analogous situation with the Federal Reserve Board and its holding of more than $3 trillion in assets as a result of it quantitative easing (QE) policy. Under this policy, the Fed bought up large amounts of government bonds and mortgage backed securities. The idea was that the Fed's purchases would drive up the price of these bonds and thereby directly lower long-term interest rates.

While the Fed's act of buying bonds almost certainly drove up bond prices and lowered interest rates (it is the same thing), the fact that the Fed continues to hold a huge amount of bonds means that bond prices are higher and interest rates are lower than they otherwise would be. If the Fed didn't hold this stock of $3 trillion of bonds, there would be a much greater supply in the market, which would lead to lower bond prices and higher interest rates. In other words, the Fed's QE policy is still putting downward pressure on interest rates, even though it is no longer in the process of buying bonds.
Applying this logic to China's holding of $3 trillion in excess foreign exchange reserves, if China did not hold these reserves then we would have another $3 trillion worth of foreign exchange floating around on world markets (most of it in dollars). This would lead a lower price of the dollar against other currencies, including the yuan if it was allowed to float freely.
So Rampell has missed the boat completely in telling readers that the downward movement in the yuan is the result of free market conditions. As long as China holds a huge amount of excess reserves it is still holding down the value of the yuan. This is just a market fluctuation, like a fall in long-term interest rates in the United States, against a backdrop of very large government intervention.
There is another item that Rampell gets badly wrong in this piece. She tells readers:
"There are a lot of Chinese policies that are unambiguously bad for American companies and workers, including disrespect for intellectual property rights, ..."
No, that one is wrong. Unless you happen to own lots of stock in Pfizer or Microsoft, you have no particular stake in China's disrespect for intellectual property," in fact you might be hurt if China respected it more. "Respect" in this context means paying more money for royalties and licensing fees. If China pays our software and drug companies more money for their patents and copyrights it means that it has less money for other products from the United States. Other things equal, the more money being paid to Pfizer and Merck, the lower the value of the yuan against the dollar. This means that people who work in steel and auto factories will find it harder to compete against the goods produced in China. It's hard to see why this is a good story for them.
In fact, since patents and copyrights are archaic and inefficient mechanisms for supporting innovation and creative work, most people in the United States might be better off if China were to ignore U.S. property claims in these areas. This could allow, for example, people suffering from cancer to get drugs in China that would cost $1,000 or even less, rather than the $100,000 plus charged for new cancer drugs protected by patent monopolies. Pushing a free market in this area would also eliminate the corruption associated with monopoly prices, such as efforts to mislead the public about the safety and effectiveness of drugs, which leads to bad health outcomes and sometimes death.
So it is not true that most workers in the United States should want to see China have more respect for the intellectual property claims of U.S. companies.

Peter K. said in reply to anne...

During the East Asian crisis of the late 90s, China sidestepped it via capital controls. Other east Asian countries had to go to the IMF and suffer structural adjustment programs. Look at what happened to Greece.
China's $4 trillion reserves means it probably won't ever have to go to the IMF.

anne said in reply to Peter K....

During the East Asian crisis of the late 90s, China sidestepped it via capital controls. Other east Asian countries had to go to the IMF and suffer structural adjustment programs. Look at what happened to Greece....
[ Importantly so. China has repeatedly adopted policy to directly control markets. Of course, Alan Greenspan as Chair of the Federal Reserve designed policy to directly control stock prices immediately after a decline in the market of nearly 23% on October 17, 1987. ]

Peter K. said in reply to anne...

These are all guesses but I think he sees the anti-democratic Communist elite as he sees the Republican leadership - not knowing what they are doing.
But I don't really understand the evidence for this. Like Cassidy writes, the Communist government is doing the best they can and they're in a tough position if they are having a Minsky moment.

Compare Ireland or Spain during the European debt crisis.

China has no public debt and trillions in foreign reserves. Spain didn't have much public debt had to follow the ECB tight monetary policy and suffer austerity in order to follow EU budgetary rules.

But Spain and Ireland suffered bad downturns with the people enduring the suffering. The Chinese leadership are worried that a downturn would spark a revolt and a demand for democratic reforms.

What do they have to worry about in a Minsky moment? A slowdown in growth and an outflow of capital that worsens the situation.
How would Krugman recommend they manage the slowdown?
Paine's system of transfers via a Social Security-like system? A better welfare state and safety net like Obamacare? Work-sharing and shorter hours like Germany which would minimize job loss?

Peter K. said in reply to Peter K....

Of course to be cynical one could say Krugman in insulating himself from red baiting - his opponents on the Right consider him to be a communist who loves government spending and debt - by heavily criticizing the Chinese Communists as being insufficiently pro-market.

Dan Kervick said in reply to Peter K....

That could be. Frankly I have had a difficult time figuring out exactly what PK has been arguing over the past few days, and his reaction seems very strong. The article in today's Links above does help clarify some of the thinks he's thinking about, economically and politically:
http://krugman.blogs.nytimes.com/2015/08/13/china-2015-is-not-china-2010/?_r=1
For years, US and other western economists have argued that the Chinese were artificially suppressing the value of their currency, and that this was hurting US exports and US employment. They argued that China should let the markets set the value of their currency, a policy change that would have lead to an appreciating yuan, increased domestic Chinese consumption of imports; boosted US, Japanese and European exports; decreased offshoring of production to China, etc.
In 2010, Krugman strongly argued something must be done about the Chinese currency-fixing:
http://www.nytimes.com/2010/03/15/opinion/15krugman.html
But by 2012, Krugman said the situation had changed, and that the political issue the Republicans were making out of the Chinese currency was bluster:
http://krugman.blogs.nytimes.com/2012/10/22/an-issue-whose-time-has-passed/
Since the Chinese have allowed the yuan to appreciate over the past few years, the markets now seem to think that the currency is overvalued, not undervalued. So a move to let currency markets set the exchange rate in 2015 might actually lead to a falling yuan, a reduction of Chinese imports, increased Chinese exports, increased attractiveness of offshoring production to China, etc.
This might tip the US back into recession. But Krugman - and many others - might be worried that people will then say, "Hey, we're having another lousy recession because the Chinese did the very thing Paul Krugman and other US economists have always said they should do: let the markets rule!"
Krugman initially responded that China isn't really letting the market set the exchange rate. It has only taken a weak half-measure ("bite of the cherry") in that direction. This raises the question: if the Chinese actually did move suddenly to a free float, would Krugman support it, even if the move caused a major shock to the US economy?
Krugman also points out, though, that liberals haven't been complaining about Chinese currency manipulation lately. Cynics might argue that Americans complain about currency manipulation if that manipulation happens to hurt them, and support it if that manipulation happens to help them.
Krugman has been in a variety of different places lately on currency issues:
The Swiss used to manipulate the franc and maintain a peg, and when they dropped it Krugman was very put out by it. In that case, he was pro-peg and anti-float.
The Greeks are part of the EZ, so their currency is pegged to their EZ partners. Krugman argued the Greeks should leave the Eurozone. In that case he was anti-peg and pro-float.
Now with China, it seems he was pro-float before, when floating would have helped the US, but not so much pro-float now, when floating could hurt the US.
I don't know what all of this amounts to, other than the fat that people are often going to be torn a bit between the general principles they support, other things being equal, and the short-term national interests they are concerned about in the the here and now.
Anyway, I think we need a lot more evidence before we can conclude the Chinese "don't know what they are doing." A country that has increased the GDP of a quarter of the world's population by 162% over ten years, while their developed world colleagues were languishing in stagnation, deserves the benefit of the doubt.

Paine said in reply to Peter K....

Right now the party thru the state must demonstrate the macro control of the system is in the hands of the party elite thru control of the commanding heights of the social production system

Ie credit and forex and even asset market price levels both paper and real

Ie land lots

Nothing prevents this demonstration from achieving ultimate success except a failure of determination

Paine said in reply to Paine ...

The party leaders are in uncharted waters here
And reflective dogma from a ivory tower new Keynesian is not of huge value

Hey pk is great
He's a terrier
After the right rat none better
But the terrier is not a useful police dog
Let alone Shepard of a wooly flock

kthomas said in reply to Paine ...

How pathetically optimistic.
Stop providing cover. They pigged out. Time to pay the piper.

Paine said in reply to kthomas...

You may mistake my point
The party leaders HAVE to decide to win this struggle
I'm certain they are not in harmony on this
What's at stake ?
The party abdicating control of the domestic economy

Paine said in reply to Paine ...

The venality of elite members of the party plays no role one way or other here

If indeed the very hold on state power depends on the eventual outcome

Right now the politbueau is poised either to vindicate the TINA parties of the planet

Or demonstrate there is another way

Paine said in reply to Paine ...

We share a value ..we Americans
We trust in periodic open popular elections to certify or to de certify state policy
Directly some times most often indirectly thru our elected agents
Here in china we have the enlightenment construct
The despot fully in command of progressive methods and goals for
Social development
Hobbes leviathan
Battle lines are drawn
The state versus the corporations

anne said in reply to Paine ...

"TINA" is an intolerable term, meant to make sure a reader has no understanding of what is being written.

Paine said in reply to anne...

Anne
Please
This term is in common currency now
Tina is
Like neo liberal A term that sumerizes a movements mind
There is no alternative to corporate capitalism
You are the last one to buy this big lie

sanjait said in reply to anne...

That seems hyperbolic, Anne.
Krugman was very explicitly commenting on the Communist Party ruling China, not all of its 1.4 billion people.
Not the same thing.

anne said in reply to sanjait...

The government of China indeed reflects the people of China, just as does the government of Japan or Australia. Western analysts tend to write as though the government in China were illicit or there by trickery but there is every reason to think the government generally reflects the collective thinking of Chinese people.
Issues are fought over, there are a range of dissidents but China has a stable political system. Writing as though a the Chinese government were unstable is a Western conceit that shows a lack of understanding of or possibly concern with Chinese history.

sanjait said in reply to anne...

"The government of China indeed reflects the people of China, just as does the government of Japan or Australia. "
I couldn't disagree more.
First, even in a democracy, the government is a highly imperfect reflection of the people and their will.
And China is not a democracy. It's a one-party state. That one party has to serve the people to an extent in order to hold power, but that certainly doesn't justify a claim that any criticism of the government is a criticism of the people.

anne said in reply to sanjait...

I repeatedly find analysts in the New York Times and the like writing as though the Chinese leadership were continually "panicky," continually insecure about the government in general and this is completely lacking in understanding. President Xi is as secure as is Prime Minister Abe or Cameron or President Hollande.
So when the Chinese government is criticized as though completely detached from the people of China, I know the analyst lacks understanding or simply wished the government of China gone.

anne said in reply to Paine ...

Imagine trying to use China as a warning about the limits on the state to regulate market outcomes
For assets, etc
And pretending or at least relying on tacit presumption
That state-owned enterprise debt is the twin of private for-profit corporate debt

kthomas said in reply to anne...

That last statement needs clarification. If I am an analyst, debt is debt. As an investor, I rely on accuracte data, not semantics.

Paine said in reply to kthomas...

Look the debt is held by some player
If it's not the State the state can buy it on the market out of its limitless mr mine
If it's a state enterprise no private profiteers benefit
Moral hazards exists but so do state prisons
Plenty of room in them
for fraudsters and looting managers of state enterprises
This is not easy to see if you refuse to understand qualitative differences
At the macro level
Debt swallowed by the state
Can vanish
The state can be a black hole for its own debt
And when we are talking about any real social production system
The only cost is lost better uses
Only arrogant fools can believe private banks in toto driven by profits
Reach better allocations then state credit systems
No theorem can definitively and generally prove this..or it's opposite really

Paine said in reply to Paine ...

China is running way below capacity
There's hundreds of millions of underutilized hands and minds
Any spending that adds one more shovel full of useful activity directly or indirectly
Has no REAl zero sum type cost
There is more likely zero crowding out of the otherwise done
Only one project scheme selected over another
Wise or unwise honest or corrupt
It trumps idleness
Policy quandary time lost is opportunity lost

Paine said in reply to Paine ...

This is absolutely a crucial insight
Without it
Keynes wrote in vain

anne said in reply to Paine ...

China is running way below capacity
There's hundreds of millions of underutilized hands and minds
Any spending that adds one more shovelful of useful activity directly or indirectly
Has no REAL zero-sum-type cost

anne said in reply to anne...

China is running way below capacity
There's hundreds of millions of underutilized hands and minds
[ Remember the vastness of China and advances made in basic industries, especially in agriculture, there are many young men and women who are capable but "underutilized." Advances in agricultural production, for a country that was traditionally rural, allow for different uses of many, many people. ]

kthomas said in reply to Paine ...

Now I really disagree. All evidence points or suggests massive over capacity. And obviously, low demand internally. They need to raise wages or start flat out buying more foreign goods, besides real estate. Instead, they have done the opposite.

The longer the Central Committee waits, the more severe the pain later on, we all know this.

Paine said in reply to kthomas...

The over capacity is precisely a partial result of inadequate imperfect mobilization
There's a nice passage somewhere in Keynes about building over capacity
Let this suffice
Over capacity in infra structure and urbal housing and office space etc today in inland china
Will soon be utilized as the wave of expansion radiates
Inwards from the coast

anne said in reply to Paine ...

At the macro level
Debt swallowed by the state
Can vanish
The state can be a black hole for its own debt
And when we are talking about any real social production system
The only cost is lost better uses
[ Nice. ]

kthomas said in reply to Paine ...

You may be right. And I do admire your optimism.

Paine said in reply to kthomas...

Hey -- I wish I were optimistic. The party leadership is poised to take he plunge into private profit guided development
The market will no longer be a mediator regulators filter and incentivized. It will be liberated. The state abdicating control to the corporations
Most crucially abdicating control of the commanding heights. Precisely where this present struggle is centered

BigBozat said in reply to Paine ...

Bravissimo!

am said...

They appear to have been taken completely by surprise by the market's predictable reaction; namely, the initial devaluation of the renminbi was ... a sign of much bigger declines to come. Investors began fleeing China, and policy makers abruptly pivoted from promoting currency devaluation to an all-out effort to support the renminbi's value.
Above from the Prof K post. What was this all out effort. Did it use reserves in China. Any ideas. If using reserves does that show up in reduction in US bond purchases or sales of same. Higher coupon rates to come in US. Just asking, don't know. But surely a few days this week of minor devaluations couldn't knock much of a hole in China's big cash pot.

anne said in reply to am...

They appear to have been taken completely by surprise by the market's predictable reaction; namely, the initial devaluation of the renminbi was ... a sign of much bigger declines to come. Investors began fleeing China, and policy makers abruptly pivoted from promoting currency devaluation to an all-out effort to support the renminbi's value....
[ No, China is different. China has for many years limited short term capital flows. The capital that a General Motors or a Boeing or a Proctor & Gamble or an Apple has in China is long term capital and will remain.
A critical aspect of Chinese development has been that if a company wants to sell in China, the company has to invest in China and invest in a technically advanced way.
The Chinese central bank can manage the relative value of Yuan just as adeptly as Secretary of Treasury Robert Rubin managed the value of the dollar, though reacting according to the actions of international currency traders. ]

Richard H. Serlin said...

China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations. It's just the investment may not be so much in the classical infrastructure. They can still really invest in education and the health and welfare of their people for future human capital and production, and absolutely Heckman-style early human development investment. These things would stimulate the economy just as much as consumption with no lasting value, and be far better for the future.

anne said in reply to Richard H. Serlin...

China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations. It's just the investment may not be so much in the classical infrastructure. They can still really invest in education, and the health and welfare of their people for future human capital and production, and absolutely Heckman-style * early human development investment. These things would stimulate the economy just as much as consumption with no lasting value, and be far better for the future.
* https://en.wikipedia.org/wiki/James_Heckman
[ Agreed, but hard infrastructure investment as well is not nearly done with. ]

pgl said in reply to Richard H. Serlin...

"China still has tons of great high return investment it can do. It doesn't have to throw money instead into big screen TVs and vacations."
The same could be said about the US. But then our political leaders are not that bold.

Richard H. Serlin said in reply to pgl...

Very very true. Heckman has a mountain of evidence, but personally, as a father, and thus constant reader on early human development and education, I see this more and more.
And obviously it's not symmetric, the more we vote Democratic, the more of this investment we'll have, instead of trillions in tax cuts for the rich.

chris herbert said...

China doesn't consider infrastructure funding as deficit. It has the reserves because the central bank keeps the net foreign reserves from exports, exchanging those reserves by pegging the exchange value by fiat and paying export companies in RMB. In effect the central bank pumps RMB into the Chinese economy by doing this. They do this because you can't do any commerce in China without exchanging your currency for RMB (actually this is the same as the dollar). My confusion comes from wondering why the Communist Party allowed the private debt to balloon--and to balloon in foreign currency? They don't really need the foreign capital--they have $4 trillion in dollar reserves. Anyway, I'm a little skeptical of claims that private debt in foreign currency is so large the flight of capital could be a problem.

chris herbert said...

In the past China used capital controls, and required all domestic banks to slow loan growth (including central bank lending for infrastructure)to dampen any inflation tendencies. Not interest rates. If the stock market plunges, devaluing the RMB to help exports makes some sense to me. What would also make sense is to pump money into the domestic economy; to increase infrastructure spending; to raise minimum incomes.

The real danger here, in my opinion, is the Beijing power structure most especially that of the military. China has never been shy about purging politicians and businessmen who become so rich they challenge the traditional power structure. They've done it many times, long before Communism even existed.

If that happens then the world economy will be seriously hit, unless the purge leaves the markets alone to the central bank and the technocrats, who from my view, have been doing a remarkable job of directing economic activity.

anne said in reply to chris herbert...

There has been a serious campaign against economic corruption since Xi became President in November 2012, there has been no slowing of the campaign as reflected even in the type of personal spending in China or the progressive limiting of spending on luxury goods.

sanjait said in reply to anne...

I was looking at some statistics recently about a marked decline in whiskey sales in China, after years of relatively rapid increases. This decline was attributed to crackdowns on corruption, which often took the form of state employees going out drinking at taxpayer expense.
This crackdown, of course, should be lauded.

anne said in reply to sanjait...

Gambling has been significantly reduced, especially high stakes gambling in Macao. Casino revenue has been falling for about 2 years. Purchases of cars have tended to Buicks at the high end, but away from showy models. Expensive gift giving has declined, as Tiffany and the like have reported....
Corporate influence peddling has been a target, by domestic and international corporations in China. There have just been several executive replacements at a couple of partly state-owned energy companies....

pgl said...

Bonus coverage. The start of Dan Kervick's dumbest rant ever (go to DeLong's place for the rest of this long winded rant):
""long-run steady-state growth path"???
Perhaps there is no such thing?
Economists are limiting our potential with their backward Ptolemaic ideas about steady states and equilibria, dampened further with input numbers extrapolated from decades of neoliberal capitalist stagnation.
In 1937, real GDP grew at a negative 3.3% rate. By 1939 it was plus 7.8%, and by 1941 in was 18.9%. And yet I wonder what kinds of fictional limits economists would have declared in 1937 regarding our potential if they had plugged some numbers into a Solow growth model."
I gave what Solow might have replied to him over at DeLong's place. But measuring changes in potential GDP by the change in actual GDP for one year when one is in the middle of a prolonged large output gap. This hits a new low in ultimate stupidity.

sanjait said in reply to pgl...

Well ... I'm not saying it makes sense, but as Krugman has pointed out, the IMF also calculates structural deficits in such a way that a crash in output automatically implies a decline in potential.
It's a recipe for self-fulfilling prophesy (when macro policy fails to be sufficiently stimulative, and then cyclical employment eventually turns structural...), and deeply wrong, but not unique apparently.

anne said...

About Chinese monetary policy, though we do not fully understand how monetary policy is employed through the country, policy changes are usually not meant to be generalized but rather are linked to specific credit and investment objectives.
A published loosening of Chinese monetary policy can be directed just at broadening and easing construction credit, even credit construction specifically only in interior provinces. Loosening monetary policy for construction can go along with tightening credit for stock purchases.

anne said in reply to anne...

Good grief, I just read on article about monetary policy in Brazil and realized how decidedly and importantly different monetary policy is in China. We need to study Chinese monetary policy, but it not different than monetary policy as we understand it.

anne said in reply to anne...

http://www.nytimes.com/2015/08/14/business/dealbook/in-good-times-or-bad-brazil-banks-profit.html
August 13, 2015
In Good Times or Bad, Brazil Banks Profit
By DAN HORCH
SÃO PAULO, Brazil - Political parties whose symbol is a red star tend to be unfavorable for bankers, but Brazil's ruling party has been a lucrative exception.
When the Workers' Party of former President Luiz Inácio Lula da Silva and current President Dilma Rousseff took power in 2003, it promised, and for many years delivered, a rising standard of living for the country's poor and working classes.
Yet the gains have been much more impressive for the nation's banking industry, even as the manufacturing sector has stagnated and the broader economy has ridden the ups and downs of global commodity prices. The combined annual profits of Brazil's four biggest banks have grown more than 850 percent to just over $20 billion, from $2.1 billion, in the 12 years of Workers' Party rule.
Even as a corruption scandal centered in the government-owned petroleum giant Petrobras has paralyzed important sectors of the economy, bank profits have kept growing.
Bank earnings made up more than half of the total profits for companies on the São Paulo stock exchange in both 2013 and 2014, according to the consulting firm Economatica. While the stock market is a poor reflection of Brazil's economy - agribusiness and carmakers are barely represented - bank profits were never above a quarter of the total all through the previous decade.
Brazil's largest and third-largest banks, Banco do Brasil and Caixa Econômica Federal, do not even have profit as their sole mandate. The government, which controls both, often obliges them to engage in less profitable operations as a public service.
The two giant private sector banks, Itaú and Bradesco, consistently earn returns on equity - a measure of the earnings a company can squeeze out of each dollar invested - of around 20 percent. Big banks in the United States usually manage only about half as much.
Government policies and economic trends have helped the banks here.
One is interest rates at levels so high that they would leave borrowers in most other countries speechless.
In the so-called non-earmarked or free credit market, which excludes government-subsidized loans for housing and infrastructure, Brazilian consumers pay on average 58.6 percent interest, and businesses pay 27.5 percent to borrow money.
Brazilian academics argue over the reasons for such high rates, but a history of high inflation, sharp currency fluctuations and large government budget deficits mean that the government itself must pay a steep price to borrow money.
The central bank's basic rate, which it pays on the local equivalent ofTreasury bills, is 14.25 percent.
Since banks can make good money by just buying government bonds, to take the effort and risk of actually making loans, they need an even greater profit.
They can often find it. The average spread - the difference between what banks pay to gain access to capital and what they charge to lend it out - is 30.7 percentage points in the free credit market.
Not all of that is profit. Taxes and regulatory costs are high, and the government just announced a plan to further increase taxes on bank profits. And default is a serious risk. Nearly 56 million Brazilians, more than a quarter of the country's population, have missed enough debt payments to be on the blacklist of Serasa Experian, a credit reporting bureau.
But the spreads are easily wide enough to compensate, especially when the economy is growing.
And when times are bad, the banks can look to the government.
Brazil's Treasury not only sells bonds that protect investors against inflation, as certain United States Treasury bonds do; it also offers bonds that increase their payouts when interest rates rise or the currency devalues.
When banks sense that the economy is about to deteriorate, they scale back their loans and migrate into these government-backed investments....

anne said in reply to anne...

http://www.cepr.net/publications/op-eds-columns/brazil-will-need-to-reverse-course-in-order-to-revive-economy
August 7, 2015
Brazil Will Need to Reverse Course In Order to Revive Economy
By Mark Weisbrot
Lula da Silva won the presidency of Brazil on his fourth attempt, in an overwhelming victory in October 2002. His Workers' Party (PT) ushered in a new era for the country's previously disenfranchised majority, with the economy from 2004 to 2010 more than doubling its rate of growth of the previous 23 years. Poverty declined by 55 percent and extreme poverty by 65 percent from 2003 to 2012. Unemployment hit record lows, the real (inflation adjusted) minimum wage doubled, and the gains from growth were more equally distributed than in previous decades.
A large majority of Brazilians are still vastly better off today than they were before the PT came to power. But the economy slowed sharply from 2011 to 2014, with GDP growth returning to the rates of the pre-PT era. Job creation in the formal sector - regular employment covered by taxes and legal benefits, as opposed to the underground economy - fell from an average of 1.46 million jobs annually for 2004 through 2010 to just 829,000 for 2011 to 2014 and just 152,000 in 2014. Economic growth was about zero last year and will turn negative this year.
Approval ratings for Lula's successor, Dilma Rousseff, have plummeted, and most of the news about Brazil is woefully pessimistic - corruption scandals, including one involving the state-run oil company, Petrobras; Standard and Poor's lowering its outlook for the country's bond rating after downgrading it to one notch above junk; the real falling about 35 percent against the U.S. dollar over the past year.
What went wrong? Many analysts have blamed external conditions. The growth of the world economy and trade plummeted after 2010, and the price of Brazil's commodity exports also fell. However, as Brazilian economists Franklin Serrano and Ricardo Summa explain in a new paper * on the slowdown, this is only a relatively small part of the story. Brazil's exports are not that big a part of its economy and didn't change that much - from 11.9 percent (2004 to 2010) to 11.3 percent (2011 to 2014).
The problem is that on top of the worsening external conditions, the government piled a series of policy decisions that weakened the economy. Beginning in February 2010, the Central Bank began to raise short-term interest rates, from 8.5 to 12.5 percent the following August, just as the economy was slowing. (This rate, called the Selic rate in Brazil, is analogous to the U.S. Federal Reserve's benchmark federal funds rate, which has remained at 0 to 0.25 percent since December 2008). The government tightened consumer credit, which had expanded considerably in the previous years. Some of these measures were reversed the next year, with interest rates coming back down, to 7.5 percent in October 2012, but the changes were too little and too late.
Then the government began another cycle of raising interest rates in April 2013, which has continued through last week, with the Selic rate at 14.25 percent - one of the highest in the world - in spite of the forecast recession for this year. Beginning in 2011, the government tightened its fiscal policy - for example, by cutting public investment by 18 percent in real terms.
Not surprisingly, these policy changes sent private investment and consumer spending plummeting. Although the government threw a lot of money at private investors in the form of tax breaks and public-private partnerships for infrastructure, most investors aren't attracted by an economy in which the growth of disposable income and consumer spending is plummeting.
Unfortunately, Brazil hasn't even gotten the benefit of lower inflation from the slowing economy: Its consumer price index is rising at a 9.25 percent annual rate. This is partly due to the fall in the real, which raises the price of imports, and a steep rise in government-set electricity prices. The increase in inflation has eroded real wages and has been seized on by the opposition, some of whom have called for Rousseff's impeachment - although there is no legal or constitutional basis for doing so.
How can Brazil get out of this mess? The private sector clearly cannot lead an economic recovery at this time, any more than it can in Greece. The government is going to have to create the climate for increased private investment and consumption the way it did before 2011, by increasing its spending, especially on public investment in badly needed infrastructure.
One way to free up money for this is to lower Brazil's debt service. The Brazilian government is spending more than 6 percent of its GDP - about 20 percent of its national budget - on net interest payments. This is one of the highest rates of debt service in the world. Even the International Monetary Fund has pointed out ** that this is "exceeding the typical volume of spending on education." There is absolutely no sane reason for this, and it is relatively easy to change by simply lowering the Selic rate to a level comparable to those of the rest of the Americas....
* http://www.cepr.net/documents/publications/Brazil-2015-08.pdf
** http://www.imf.org/external/pubs/ft/scr/2015/cr15121.pdf

anne said...

http://www.cepr.net/blogs/beat-the-press/because-oil-is-priced-in-euros-china-will-buy-less-oil-now-that-the-value-of-the-yuan-has-fallen
August 13, 2015
Because Oil Is Priced in Euros, China Will Buy Less Oil Now That the Value of the Yuan Has Fallen
Yes, I know, oil is priced in dollars, not euros, but it doesn't make one iota of difference. In an article on the meaning of the drop in the value of the yuan on people in the United States, USA Today told readers: *
"China, the world's second largest economy, consumes a lot of oil, second only to the U.S. However, oil prices are denominated in dollars, so a gutted yuan means China's purchasing power is reduced, which could prompt the Chinese to spend less on oil-based products. That reduction in demand could lower prices, an upside for American drivers."
Everything in this paragraph would be equally true if oil was priced in euros. The Chinese currency is now worth less measured in dollars, euros, yen, or oil. The loss of purchasing power will lead China to buy less of everything that is produced abroad, including oil. The fact that oil is priced in dollars matters not at all.
As a practical matter, anyone hoping to get super cheap gas due to less demand from China is likely to be disappointed. If we assume that the 2 percent drop in the value of the yuan leads to 2 percent higher gas prices in China, and we assume an elasticity of demand of 0.3, then China's gas consumption will fall by roughly 0.6 percent as a result of the devaluation. This almost certainly has less impact on the demand for gas than even a one-year reduction in China's growth rate by 2 percentage points. If the devaluation and other stimulatory policies speed growth in China, then we may see increased rather than decreased demand for oil from China.
The piece also gets the story of U.S. companies manufacturing in China somewhat confused. It tells readers:
"Many U.S. companies do a considerable amount of their business abroad, either selling directly to Chinese consumers, manufacturing or via overseas units that produce income in the local currency. Apple, for example, relies on China to make its iPhone and iPad. A stronger dollar compared to the yuan means any income generated in China loses value as it is repatriated back to America."
Actually the impact is the opposite. The lower valued yuan increases the profits from manufacturing in China rather than the United States. Apple will likely still sell its iPhones and iPads at the same price in the United States and other countries, even though it now costs them less money to manufacture them because of the lower price of the yuan. This means greater profits.
This is an important point because the issue of currency values is often presented as one pitting the United States against China. That is not accurate. Many companies that manufacture in China or rely on importing low cost goods produced in China, like Walmart, have a real stake in keeping down the value of the yuan against the dollar. These powerful interests are a main reason that the United States has not made raising the value of the yuan a top priority in trade negotiations with China.
If it really was the case that the United States government considered it a top priority to raise the value of the yuan against the dollar, and was prepared to make concessions in other areas, like enforcement of Microsoft's copyrights and Pfizer's patents, then China would almost certainly have agreed to raise the value of the yuan by more than it has.
* http://www.usatoday.com/story/money/business/2015/08/12/yuan-and-you-how-chinas-devalued-currency-affects-us-consumers/31524925/
-- Dean Baker

Jesse said in reply to anne...

I think this *might* be true if one disregards the fact that China has already negotiated major energy deals, including oil, that are settled in yuan and not dollars.
I posted this same comment at Dean's site when he first wrote this.
Am I the only one who is watching China closely? There are some very big changes in the world economy underway, particularly with regard to the long standing Bretton Woods II agreement as some have called it, and few are noticing them.

anne said in reply to Jesse...

I think this *might* be true if one disregards the fact that China has already negotiated major energy deals, including oil, that are settled in yuan and not dollars.

[ Right, right, China has negotiated a range of important long term oil and gas, and delivery, agreements this year. ]

Jesse said...

China should listen to Paul, and just mint up some 'trillion dollar Platinum coins' and forsake their tinkering with the economy.

Peter K. said in reply to Jesse...

The Fed should mint some trillion dollar coins if the Republicans try to shut down the government again this fall over funding Planned Parenthood.

David said...

I hold shares in Baidu, the Chinese google. It's down this year but up from 2 years ago. I suspect it's the same for most big cap stocks in China. I don't think China is doing this cause they're stupid, as it is routine for export countries to toy with their currency in Asia.
I think Chinese leadership is not scared, maybe, but worried. Manipulating a stock market is very risky in terms of capital flight. If you show investors the game is rigged only suckers will play that game. And eventually get burned. And that could lead to political unrest.
So really I think this is about politics and the grip on power. That's what's scary.

[Aug 15, 2015] Are Automakers About To Hit The Panic Button

Notable quotes:

"... $30-50k for a car? Does it run on angel tears? Was it made with Cecil mane plush seats? ..."

"... I have heated seats in my 2003 king ranch...IMHO - 2003 should have been the year to stop adding electronics and more complex bullshit ..."

"... Indeed. I like to work on cars as a hobby but I refuse to work on cars made after 2000. After that it's not fun anymore. ..."

"... Audi's are high maintenance and break a lot. Everyone I know that owns an Audi had nothing but problems. ..."

Zero Hedge
To sum up...
The only way automakers are making sales is by lowering credit standards to truly mind-numbing levels.... that cannot last.

China's economic collapse has crushed forecasts for the automakers. Inventories are already at record highs. And July saw a massive surge in producton.

What comes next is simple... a production slump - just ask The Atlanta Fed.

Save_America1st

Ummmmm....remember this, folks????

http://www.zerohedge.com/news/2014-05-16/where-worlds-unsold-cars-go-die

I think I know a way how they can take care of excess car inventory:

http://www.zerohedge.com/news/2015-08-13/one-way-china-deals-its-massive...

pods

If they start making cars that are simply cars again, I will buy a new one.

Not ones with wifi and bluetooth and ways to tell your friends when you just jacked off in a traffic jam without taking your hands off the wheel.

Just make a damn car. I only need AC. That's it. I will put in my own stereo if needed and I dont even need power windows or locks.

$30-50k for a car? Does it run on angel tears? Was it made with Cecil mane plush seats?

Maybe they should spend more time on finding out how to make shit that doesn't break in 4 years.

If they can re-master an ignition switch then we will talk.

pods

Hitlery_4_Dictator

I have heated seats in my 2003 king ranch...IMHO - 2003 should have been the year to stop adding electronics and more complex bullshit

ConanTheLibertarian

Indeed. I like to work on cars as a hobby but I refuse to work on cars made after 2000. After that it's not fun anymore.

Tinfoil Hat

Still driving the $14k kia rio from off the lot in 2007. manual transmission, windows, locks. Hatchback and folding seats to hold lots of stuff. Perfect little people/stuff mover. It took a while to detach my sense of self worth from the instantly depreciating financial liability that is an automobile, but I must say I'm glad for it now. Costs about $120/month to run all in. It blows my mind when the young guys I work with are financing $40-50k cars and trucks dropping $8-900/month between payments and insurance.

separating "self" from "stuff" seems to be a pretty big step to sound personal financials.

AGuy

"Tellin you man, I've become pretty accustomed to Audi interiors and handling."

Audi's are high maintenance and break a lot. Everyone I know that owns an Audi had nothing but problems.

For the most part, cars have replaced boats. Cars have become a hole in the road that you pour money into. Your better off buying a $25K import and upgrade the interior (replace cloth seat with leather for about $1K) and pocket the $10K to $15K difference. Generally Americans by luxury imports to impress other people and to give themselves a bit of self-importance and feed their narrasism.

"American cars - at least the recent ones I've driven"

American car manufacturers produced decent cars in the 1990s and early 2000s, after about 2003-2004, it all started rolling down hill, but the prices went up. With GM, your risk your life (recall the Ignition probably that caused the death of more than 100 people).

[Aug 12, 2015] Unwavering Fealty to a Failed Theory

Notable quotes:

"... Just as FDR laid out the solution in 1935: you start by paying workers to build productive assets that will earn the money needed to pay the workers. ..."

"... Republican economic "thinking" is akin to a religion. No deviation from the gospel is allowed or you become an apostate. Like Huckabee, who is running for president, believes that the world (universe?) is only 6500 years old. ..."

Aug 12, 2015 | Economist's View
Bad economic theory (but good if you are rich) has trickled down to this cycle's Republican presidential candidates:
Unwavering Fealty to a Failed Theory, by David Madland, US News and World Report: With their first debate set for tonight, Republican candidates have been trying mightily to claim they can help address the economic problems most Americans face. ...
While Jeb Bush declared in February that "the opportunity gap is the defining issue of our time," more recently he's been forced to backtrack from his statement that Americans "need to work longer hours" in order to boost their incomes. Sen. Marco Rubio's argument that if the United States is to "remain an exceptional nation, we must close this gap in opportunity," rings a bit hollow next to his tax plan that disproportionately benefits the wealthy. Gov. Scott Walker says he wants to help families achieve the "American Dream," but thinks the minimum wage is "lame," has stripped the words "living wage" from state laws, and has attacked workers' right to join together to collectively bargain for better wages.

Looking beyond the rhetoric and individual policies, however, lies the Republican Party's major problem: unwavering fealty to trickle-down economics. Virtually all Republicans since Ronald Reagan was elected president have run on a platform of supply-side policies, and the 2016 election will be no different. But it should be, because there is now a growing recognition that trickle-down economics has failed....

Posted by Mark Thoma on Thursday, August 6, 2015 at 10:16 AM in Economics, Politics, Taxes | Permalink Comments (21)

pgl :

The following is exactly right. We should note that a few pretend progressives around here are praising Jeb! for this 4% proposal even if what Jeb! is really proposing is the same old Art Laffer lies:

"Looking beyond the rhetoric and individual policies, however, lies the Republican Party's major problem: unwavering fealty to trickle-down economics. Virtually all Republicans since Ronald Reagan was elected president have run on a platform of supply-side policies, and the 2016 election will be no different. But it should be, because there is now a growing recognition that trickle-down economics has failed due to the fact that it rests on a fundamentally flawed premise. Trickle-down economics, the misguided theory that has controlled economic policymaking for more than three decades, is built on the idea that high levels of economic inequality are good. Tax cuts for the rich and less regulation of business supposedly provide incentives for the wealthy to invest and work more. Enabling "job creators" to get richer helps us all, the theory goes. So the fact that the top 1 percent now take home a greater share of the nation's income than they ever have, while incomes for the typical household are lower than they were in 1989, is not a problem in this way of thinking. In the trickle-down mindset, these facts are seen as good for the economy."

mulp said in reply to JohnH...

I see you, JohnH are equally brainwashed or brain damaged by the dominant free lunch economics principles that avoids the TANSTAAFL nature of the dismal science.

You stated absolutely nothing as an alternative that works because you do not want to pay anything, but just want a free lunch.

Just as FDR laid out the solution in 1935: you start by paying workers to build productive assets that will earn the money needed to pay the workers.

Given government is putting people to work who the private sector will not pay, the way they get paid is with taxes and fees associated with the things they build.

Conservatives call it tax and spend, but its really invest and tax.

Republicans totally oppose the bill that Reagan spoke of glowingly in 1983 which hiked taxes 125% to pay to create probably a million jobs building transportation capital assets.

Obama picked up the conservative free lunch alternative to invest and tax: public private partnerships. But conservatives expecting free lunch political solutions realized it was just dismal science: corporations would be collecting tolls that are higher than taxes would be to pay for monopoly profits.

Taxes and fees need to be higher on everyone.

Sorry Bernie, TANSTAAFL - taxing the rich is not the solution.

djb :

so much of this seems to come from the impact of Milton Friedman

his academic papers may have be somewhat restrained, but when you see him on tape talking, he sounds just like any supply sider or right wing politician talking today

especially negative on any possibility of fiscal interventions, and ridicules the concept that interventions can improve aggregate demand and thus the economy

according to Keynes, Ricardo did not believe that inadequate aggregate demand was even possible

David :

I don't think the appeal of trickle down is based on econ or empirical evidence, and as such whether it fails or not is completely irrelevant to the right.

It is a perversion of identity politics as a moral prejudice. Rich people by dint of their wealth are superior and poor people are inferior and deserve their lot. Race is key here. Poor Southern whites on Medicaid and food stamps vote against their interest bc they're not those people.

It's always divide and conquer with the right.

Fred C. Dobbs

(This ought to be a prominent Dem issue,
but it isn't. Why is that? The GOPsters
will pervert it, make it about turning
1%ers into .01%ers)

Why the New Research on Mobility Matters:
An Economist's View http://nyti.ms/1F0ZQQb
via @UpshotNYT - Justin Wolfers - May 4

Hundreds of studies have demonstrated that the odds of economic success vary across neighborhoods. The far more difficult question is whether that's because neighborhoods nurture success (or failure), or whether they just attract those who would succeed (or fail) anyway.

A new study by the Harvard economists Raj Chetty and Nathaniel Hendren, when read in combination with an important study they wrote with Lawrence Katz, makes the most compelling case to date that good neighborhoods nurture success. ...

http://www.equality-of-opportunity.org/

http://www.equality-of-opportunity.org/images/nbhds_exec_summary.pdf

reason :

How about an alternative, bubble up economics. Money doesn't flow down - it flows UP. Spread money around and it will spent on things that companies owned by the wealthy produce, instead of concentrating on cutting costs, those companies can concentrate instead on increasing productivity and expanding production. The trick is that the market will pick the best producers, but the best producers of WHAT. Goods for everyman or trinkets for the wealthy.

gunste :

Republican economic "thinking" is akin to a religion. No deviation from the gospel is allowed or you become an apostate.
Like Huckabee, who is running for president, believes that the world (universe?) is only 6500 years old.

[Aug 12, 2015]The Macroeconomic Divide

"...Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'"

Economist's View
Paul Krugman:
Trash Talk and the Macroeconomic Divide: ... In Lucas and Sargent, much is made of stagflation; the coexistence of inflation and high unemployment is their main, indeed pretty much only, piece of evidence that all of Keynesian economics is useless. That was wrong, but never mind; how did they respond in the face of strong evidence that their own approach didn't work?

Such evidence wasn't long in coming. In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.

In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion.

These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects. But there was no reconsideration on the part of the freshwater economists; my guess is that they were in part trapped by their earlier trash-talking. Instead, they plunged into real business cycle theory (which had no explanation for the obvious real effects of Fed policy) and shut themselves off from outside ideas. ...

RogerFox said...

Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents, at the expense of being demolished themselves - meaning none of them are left standing in the eyes of anyone except their own partisan groupies, who are well-represented on this site. That's nothing but good.
Too much of macro is ideologically driven conjecture, or worse. None of it rises to the level of demonstrated reliability necessary to ethically inform decision-making. Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

RC AKA Darryl, Ron said in reply to RogerFox...

Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level - that will permit the profession to at long last begin to honor its highest ethical duty ... 'First, do no harm.'

[That is some pretty ironic BS that you are totin' around. The profession does a very good job of NOT intervening in things that any one with half a brain should understand. How on earth do you think the 2008 financial crisis ever even happened? Economists could not intervene because they had black swans squatting on their hands, particularly those economist like Greenspan and Bernanke that were actually in a position to do something to prevent the crisis. Krugman wrote some articles warning about the risk, but undersold his case even to himself. Only Mike Stathis (an investments adviser and trader - not an economist) formally warned (in America's Financial Apocalypse: How to Profit from the Next Great Depression. 2006. ISBN 978-0-9755776-5-3) of the full scope of the coming disaster and that formal warning came a bit late and was almost entirely ignored. Nouriel Roubini (a.k.a. Doctor Doom), who is an economist, ran Stathis a close second on getting it correct. Dean Baker, also an economist, was in there too. It was entirely ignored by Greenspan and Bernanke, although I believe they knew what was going to happen but would rather clean up the mess than stop the party and get blamed for the fallout.

After the crisis several economists recognized the scale of the necessary stimulus to get the economy back on track, but a world of idiots, some of whom you may know, precluded an adequate response to prevent prolonged high unemployment.

Are you a market trader or just a rich man's tool? Anything else would make you just a plain ol' fool.]

DrDick said in reply to RogerFox...

"Both sides in this macro cat-fight have succeeded in demolishing the credibility of their opponents"

You, on the other hand. never had any credibility to begin with.

"Confronting that reality and the limits of the profession's knowledge and ability, and reining-in it's obsession to intervene in things it doesn't actually understand except at a political level"

You might take your own advice, as it is evident that you know nothing about economics or policy.

Peter K. said in reply to RogerFox...

Partisan groupies? Nope. We're the objective ones in this discussion.

Mr. Fox has no criteria upon which to judge and measure things, so of course he has no basis to criticize.

"First do no harm." How can you tell that harm has been done when you don't believe in anything?

You automatically believe that taking no action and the sin of omission is the better choice? But you have no basis on which to make that assumption.

"First do no harm" when it comes to government policy is conservative propaganda.
Paine said in reply to RogerFox...

If rog refuses to entertain any notion of macro nautic efficacy

He. Has taken his position
And perhaps he ought to be left to
sit on it
as long as he likes

However

If he has a test of say Lerner's
fiscal injections model he'd like to propose
A test that if past would change is mind

> Paine said in reply to Paine ...
Cockney takes over
when I sez his
it comes out is

RogerFox said in reply to Paine ...

I don't have a dog in this fight - but I do know that it's dangerously irresponsible and unprofessional to offer advice, or act on it, unless there is adequate evidence to justify the opinion that the advice will not plausibly make the situation worse than it is otherwise destined to be. The compiled track record of all theories of macro demonstrate that none of them yet meet that test - and this ongoing internecine cat-fight has done much to reinforce that view IMO.

Academics need to understand what real economy people who give advice professionally know very well - that an idea or theory could well be right and beneficial isn't enough to justify acting on it without proper consideration to the consequences should the approach prove to be wrong. Candidly assessing down-side risks seems to be anathema to all academics - almost as if they regard the entire matter as some sort of affront to their dignity.

The Crash of '08 and the Crash of '29 both happened, with academic macro-mavens leading us straight into both of them - eyes wide shut. Better for everyone if they'd just kept their mouths shut too.

pgl:

"In the early 1980s the Federal Reserve sharply tightened monetary policy; it did so openly, with much public discussion, and anyone who opened a newspaper should have been aware of what was happening. The clear implication of Lucas-type models was that such an announced, well-understood monetary change should have had no real effect, being reflected only in the price level.In fact, however, there was a very severe recession - and a dramatic recovery once the Fed, again quite openly, shifted toward monetary expansion. These events definitely showed that Lucas-type models were wrong, and also that anticipated monetary shocks have real effects."

Note Krugman is referring to the 2nd Volcker monetary restraint which happened under Reagan's watch. Rusty needs to get his calendar out as he thinks this was all Carter. Actually Volcker was following the advise of JohnH. How did the early 1980's work out for workers?

Back in 1982/3 I heard some economist seriously saying that this recession was due to some notion that people still had high expected inflation. When I asked them WTF - they response was the Reagan deficits.

Yes macroeconomics confuses some people terribly. Look at a lot of the comments here for how confused some people get.

Paine said in reply to pgl...

Confused or partisan ?

Egmont Kakarot-Handtke said...

No divide
Comment on 'The Macroeconomic Divide'

Keynes's employment function was indeed incomplete (2012). So far, Lucas/Sargent had a point. But the NAIRU expectation-wish-wash was even worse. So far, Krugman has a point. The deeper reason is that economics not only has no valid employment theory but that it is a failed science.

Neither the loudspeakers of the profession nor the representative economists of the various schools have a clue about how the actual economy works. What unites the camps is scientific incompetence.*

Egmont Kakarot-Handtke

References
Kakarot-Handtke, E. (2012). Keynes's Employment Function and the Gratuitous Phillips Curve Desaster. SSRN Working Paper Series, 2130421: 1–19. URL http://ssrn.com/abstract=2130421

*For details see the cross-references
http://axecorg.blogspot.com/2015/07/incompetence-cross-references.html

[Aug 09, 2015] Stephen Schork: The Commodity Crash Is A Canary In The Coal Mine For The Global Economy

"..."this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all.""
.
"...On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year. "
.
"...That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices."
.
"...So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.
.
So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all. "

Aug 09, 2015 | zerohedge.com

The best thing about the commodity crash relapse taking place so quickly after the last swoon - recall tha we have had two oil bear markets within 8 months - is that all those hollow chatterboxes and econo-tourists who swore that tumbling oil is "unambiguously good" and "great for the economy" (first and foremost Larry Kudlow and then proceeding with every single sellside strategist and economissed), have been laughed out of even CNBC's studio, and are nowhere to be found this time around because not only did all those promises of a surge in consumer spending never materialize (for reasons, or rather one reason which we explained extensively before), but the observent public still remembers all too well how countless 'experts' confusing cause (a gobal slowdown in the economy) with effect (crashing commodities).
Therefore, we were delighted when someone who actually understands the energy market for a change, The Schork Report's Stephen Schork, appeared on BBG's Pimm Fox yesterday to explain not only what the immediate future holds for both oil and gasoline prices, but why, when one actually gets cause and effect right, "this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, and that is a concern for us all."

The full interview is below, here are the key spot-on highlights, first about the futures of commodity prices :

... from a demand perspective on the seasonal front, it's August 7. We only have four more weeks left of summer driving, then the peak gasoline season is over. Then we head into the fall where the fall turnaround; that is the refinery maintenance season begins. So refineries will scale back in their crude oil purchases. So right now we are at the peak of the demand season. Demand is only going to fall between now and the end of the year.

On the supply side we are still producing. Regardless of what the oil bulls will tell you about the pullback in production, or the anticipated pullback in production, we have not yet seen it, and we will not see significant pullback I believe through the end of this year. So you marry those two facts together, fall in demand, strong production, i.e. I do think oil prices are headed below $40 a barrel in the latter half of this year.

Then a repeat of what we first explained in "It's Official: Americans Spent All Their "Gas Savings" On Obamacare"

FOX: All right. So, Stephen, let's say that gasoline ends up being around $2.00, $2.10 a gallon by the end of the year, that extra money that people are not spending on gasoline, going to go somewhere else?

SCHORK: Yes. It's going to go to a big government health care. Look, I spend $100 -- and I'm saving $100 a week at the pump, excuse me, $25 a week, $100 a month, but my health care premium went up $160 a month for my family. So I'm still diggings $60 in.

And so that's the big misnomer here, Pimm. People tend to think that this pullback at the pump is somehow good. No. It's a zero sum game because, yes, those dollars are being spent elsewhere, but those are not additional dollars being spent elsewhere. We're just moving the pieces around on the chessboard. We're not creating economic growth.

Putting it all together:

And this is the big concern because we keep on thinking that lower energy prices are somehow good for the economy. That can't be, because energy prices or commodity prices in general don't drive economic growth. Economic growth drives commodity prices.

So we have the rout in oil prices. We have the rout in copper prices, in aluminum prices. If we look at the industrial metals complex, that's now trading at lows not seen since the recession. We're looking at bellwethers such as Caterpillar, a bellwether of industrial production. That stock is trading again at a post-great recession low.

So there are a lot of telltales out there that this drop in oil prices, this drop industrial metal prices, this is not good. It's a canary in the coal mine that something is not right in the global economy, Pimm. And that is a concern for us all.

Full interview with Stephen Schork after the jump:

[Aug 09, 2015] The Link Between Oil Reserves and Oil Prices

Aug 05, 2015 | energytrendsinsider.com

Last December the Energy Information Administration (EIA) released its latest estimate of U.S. Crude Oil and Natural Gas Proved Reserves. Although natural gas reserves rose, the real story was crude oil reserves. The EIA reported that U.S. proved reserves of crude oil and lease condensate had increased for the fifth year in a row, and had exceeded 36 billion barrels for the first time since 1975:

There are two reasons for this increase in proved reserves. The first is that despite >150 years of oil production in the U.S., new fields are still being discovered. In March 2015 the EIA released its update to the Top 100 U.S. Oil and Gas Fields as a supplement to the December report. This was the EIA's first update on the Top 100 fields since 2009. The most significant addition to the list was the Eagleville field (in the Eagle Ford Shale), which was only discovered in 2009 but is now the top producing oil field in the U.S. In addition to the Eagleville, there were 4 other fields in the Top 100 that were only discovered in 2009. Several others in the Top 100 were discovered in 2007 and 2008.

But the largest additions to reserves weren't via new discoveries at all. The largest reserves additions have been a result of rising oil prices, and this is a source of frequent misunderstanding on the topic on reserves.

An oil resource describes the total amount of oil in place, most of which typically can't be technically or economically recovered. For example, it is estimated that the Bakken Shale centered under North Dakota may contain several hundred billion barrels of oil (the resource). However, what is technically and economically recoverable in the Bakken may be less than 10 billion barrels. The portion that is technically AND economically recoverable is the proved reserve. Because of the requirement that the oil be economically recoverable, proved reserves are a function of oil prices and available technology.

Thus, as oil prices rise, oil resources that may have been discovered decades ago can be shifted into the category of proved reserves. Venezuela provides a perfect case study of this phenomenon. Venezuela has an enormous heavy oil resource in the Orinoco region of the country. But this oil is very expensive to extract. In 2003, Venezuela's proved oil reserves were only 77 billion barrels. At that time Saudi Arabia's reserves were tops in the world at 263 billion barrels.

After the past decade saw oil prices rise to above $100/barrel, more of Venezuela's heavy oil resource became economic to produce. Thus, by 2013 Venezuela's proved reserves were estimated to be tops in the world - 289 billion barrels. Saudi Arabia has now slipped to second with 266 billion barrels.

But that economic argument cuts both ways. Oil and gas resources that became proved reserves as prices rose will be declassified as proved reserves should lower prices render them uneconomical to produce. This is often the reason that companies have to write down proved reserves. It's not that a company believed there was oil or gas and found out later that there wasn't (although that of course also happens), it's generally because a period of depressed prices has rendered those proved reserves to be no longer economical. See the dip in gas reserves in 2012? That was caused by lower prices in 2012, which rebounded somewhat in 2013.

... ... ...

Because of the crash in oil prices, it is likely that many companies will have to write down their proved reserves - especially those in the PUD category. Thus, for the first time in several years, many companies - and indeed countries, including the U.S. - are likely to see a big drop in their proved reserves at year-end when they file their annual reports. I will discuss this in more detail in an upcoming article.

Note: This is a slightly edited version of an article that originally appeared in the Oil and Gas Monitor called Proved Oil Reserves the Real Story.

[Aug 08, 2015] How Russian energy giant Gazprom lost $300bn

Notable quotes:

"... Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies. ..."

"... Therefore, he said, "today there are no conditions under which all thought that if tomorrow Russia will cease to supply gas, this same gas would be supplied by Iran." "Our production is still far from this stage", - said the president. ..."

"... "Competition should not be problematic, it should be healthy competition, should not do so to the profit only for the buyer, and the exporters suffering damage ". ..."

"... the recent Security Council vote ending the Iran sanctions also enabled was the release of ~$150 billion that was held in foreign accounts. ..."

"... When Russia responded at the sanctions by its sanctions in the agriculture I heard here the malevolent sneers there'd be a famine in Russia. Now the collapse of Gasprom, the failure of the deal with China. What a shame for The Guardian to become an yellow shit ..."

"... Seems the author is a warrior in the camp of the unnamed competitor which would like to supply its liquid costly gas.I know one direction where his bid will be welcomed at any price but for free- Ukraine ..."

"... What is happening in the oil market is a very complicated process. Do not simplify the process of digestion by eating only the headlines. The headlines are not very high-calorie product, if you certainly do not pursue the goal to lose weight. Including lose money. ..."

"... Putin has tried to shrug off the economic sanctions as no big deal, but the secret agreement between the West and Saudi Arabia to keep oil supplies high and gas prices low is really hurting Russia. ..."

"... Kuwait and Abu Dhabi can live with crude at its current level: Saudi Arabia cannot. It requires an oil price of $106 a barrel to balance the books... Not $20 ..."

www.theguardian.com

...energy giants ExxonMobil and Petro China, Gazprom's financial contemporaries back in mid-2008, have remained top performers . Norway boosted its market share and overtook Russia as western Europe's top gas supplier over the 2014-2015 winter.

... ... ...

Russia is looking to channel gas through Turkey and adding two new lines to the Baltic Nord Stream network, transporting gas over the top of Europe.

The total costs of the projects, without taking into account overruns, will reach about $25.4bn.

Beyond the construction expenses, transit costs for North Stream appear to be significantly more expensive than through Ukraine. Experts estimate that in 2014 it cost Gazprom $43 to transport1,000 cubic metres via Nord Stream compared to $33 via Ukrainian . Factored over the tens of billions of cubic metres that Gazprom wants to send through the Baltic pipes, that's a mighty extra cost just to avoid Ukraine.
Willinilli 8 Aug 2015 02:36

Lazy, lazy, lazy journalism.. Even for a business /economics journalist .. Saudi Aramco has a much larger potential market cap..

Though to be fair, it was the original FT study that was lazy.. This is just uninformed churnalism..

annamarinja airman23 8 Aug 2015 09:09

Poor airman23. Have you ever heard about Dick Cheney? Have you ever looked at the Wolfowitz Doctrine? If not, then you are very much behind the nowadays understanding of fascism and fascists. On the other hand, you are such a concrete success of Mrs. Nuland-Kagan' (and likes) travails.

annamarinja -> psygone 8 Aug 2015 09:03

Fracking? Are you serious to monger this this barbaric technique that has spurred a mass movement in the US and Canada against the ecological dangers generated by fracking? Each and every of your posts is in line with MSM "reports." It seems that you value FauxNews above else.

yemrajesh -> psygone 8 Aug 2015 07:36

Difficult to say. If the costs are true'ly low it would have reflected at the Pump. But it hasn't. Another flaw is how can oil pumped from deeper well ( Fracked Oil) is cheaper than conventional oil. It looks more like US flexing its muscles to subdue Russia. Besides its not Just Gazprom , shell, BP, Exxon , Gulf, Mobil etc also many of US vassal states are affected. It would be interesting to see how long this artificial price drop continue with zero benefit to the customers.

Kaiama 8 Aug 2015 06:07

Since the Russians haven't rolled over the first time, the US is trying again. These days, the price of oil is determined by activity in the futures market impacting the spot price. Likewise, I expect for shares and wouldn't be surprised if someone is shorting the stock. Any oil and gas not pumped today is available to be pumped tomorrow - possibly at higher prices. Gazprom isn't going bankrupt. Neither are any of the other major oil companies.

AlbertEU -> alpamysh 7 Aug 2015 17:09

The crisis of one industry necessarily will hurt other sectors. Hard-hit banking sector, which is credited US shale industry. The effect can be like an avalanche. Especially if it is strengthened by additional steps. I think for anybody is not a secret the existence of a huge number of empty weight of the dollar, which is produced by running the printing press. Oil trade is in the dollar, which in turn keeps the volume of the empty weight of the dollar. Now imagine a situation where part of the oil market has not traded more in dollars. It is equally affected, the USA and Russia.

But there is one important detail. Russia has never in its history, was a rich country (if you count all the inhabitants of Russia, not individuals). In the country there is no cult of consumption. The traditional religions of Russia, that is, those that have always existed in Russia (Orthodox Christianity, Islam and Buddhism) did not contribute to the emergence of such a cult.

Orthodoxy says plainly that material wealth is not important for a man. Wealth is only supplied in addition to achieve the main goal in the life of an Orthodox Christian. Therefore, to be poor in Russia is not a problem. This is a normal way of life. Hence the stoic resistance to any hardship, challenges, wars and so on. Expectations of great social upheaval in Russia, caused by the lowering of the standard of living is a little naive. Russia used to run in the marathon. Who would have more strength, intelligence and endurance is a big question. Geopolitics is a very strange science...

airman23 7 Aug 2015 16:31

Ooops, It's just been announced that the U.S. is adding the Yuzhno-Kirinskoye oil and gas field that belongs to Gazprom to it's sanctions list. It looks like Gazprom is gonna loose even more money. This is certainly not what the Fuehrer had in mind when he started his imperialist war of conquest in Ukraine and illegally annexed Crimea. Unintended consequences to be sure but what comes around, goes around.

John Smith -> William_Diaz 7 Aug 2015 16:05

From Iranian president from October last year:

Therefore, he said, "today there are no conditions under which all thought that if tomorrow Russia will cease to supply gas, this same gas would be supplied by Iran." "Our production is still far from this stage", - said the president.

He also said that Iran is ready to cooperate with Russia in the gas sector. "For several years we have been making efforts that countries that export gas would be able to cooperate" - he recalled. - "Competition should not be problematic, it should be healthy competition, should not do so to the profit only for the buyer, and the exporters suffering damage ".

John Smith -> William_Diaz 7 Aug 2015 15:56

Your ignorance only, with whom do you think Iran will coordinate their actions?
Who brokered them a deal? Do you think Russians are stupid?
Turkey will be not just a transit country but a hub. The EU got to built they own pipeline if they want Russian gas in 2019. Turkey will set prices.

William_Diaz -> John Smith 7 Aug 2015 15:13

Your ignorance is astounding, lol. Iran doesn't need anyone else to 'jump in', among the other things that the recent Security Council vote ending the Iran sanctions also enabled was the release of ~$150 billion that was held in foreign accounts.

There is more than enough money available for domestic investment, including a natural gas pipeline to Europe.

Have a great day!

oleteo -> JanZamoyski 7 Aug 2015 14:23

When Russia responded at the sanctions by its sanctions in the agriculture I heard here the malevolent sneers there'd be a famine in Russia. Now the collapse of Gasprom, the failure of the deal with China. What a shame for The Guardian to become an yellow shit

oleteo 7 Aug 2015 14:12

Seems the author is a warrior in the camp of the unnamed competitor which would like to supply its liquid costly gas.I know one direction where his bid will be welcomed at any price but for free- Ukraine

AlbertEU 7 Aug 2015 12:59

To kill a competitor, had to endure their own pain. Are you sure that these actions will kill the Russian oil production instead of US shale oil? In this case, Saudi Arabia has nothing to lose by increasing oil production, the same does and lowering the price of Russian oil. Recently, the Crown Prince of Saudi Arabia visited Russia.

They have a lot of something talked with Putin. Russia, the USA, Iran, Saudi Arabia are competitors.

Over the past year the United States increased the number of purchased crude oil from Russia. Saudi Arabia's oil squeezed out of the US market by their own shale oil. If Saudi Arabia could bankrupt the US oil shale industry, it (Saudi Arabia) will regain US market.

What is happening in the oil market is a very complicated process. Do not simplify the process of digestion by eating only the headlines. The headlines are not very high-calorie product, if you certainly do not pursue the goal to lose weight. Including lose money.

Yankee_Liberal 7 Aug 2015 11:37

Putin has tried to shrug off the economic sanctions as no big deal, but the secret agreement between the West and Saudi Arabia to keep oil supplies high and gas prices low is really hurting Russia. Eventually the Russian people will realize that a lot of economic pain will go away when Putin goes and they start respecting their neighbors boundaries.

andydav 7 Aug 2015 11:18

The Guardian has no idea what it is printing. Fact's are not a requirement in there story's any more EG:: Like many oil-producing countries, Saudi had got used to an era of high oil prices.

Kuwait and Abu Dhabi can live with crude at its current level: Saudi Arabia cannot. It requires an oil price of $106 a barrel to balance the books... Not $20

[Aug 08, 2015] The "petrodollar" is a pillar of American power

"...I would completely agree that the "petrodollar" is a pillar of American power but am frankly confused by what the essential mechanism of this is. To my mind to institute the petrodollar it is not sufficient to say that oil will be denominated in dollars or even sold only in dollars. The key is that the proceeds need to STAY in dollar assets. This was only achieved once Kissinger brokered Petro-dollar recycling, meaning that the dollars earned in this way would be recycled into treasury securities or used to purchase American weaponry or the engineering skills of the American firms that basically built the Kingdom as it now exists. This is what I was hinting at when I was talking about the circular nature of trade between currency blocs. No non-circular trade patterns can persist for long.
.
We emphasize different things. I suspect that the simple scale of the dollar value of trading of financial claims on things – trading in which London and New York are dominant – contributes more to the maintenance of the dollar reserve system than you are proposing. The upshot being that America's "debt" problem is actually a demonstration of its financial power. "

.
"..."The result was a depreciation of the dollar and other industrialized nations' currencies. Because oil was priced in dollars, oil producers' real income decreased. In September 1971, OPEC issued a joint communiqué stating that, from then on, they would price oil in terms of a fixed amount of gold."
.
So it seems that the oil sellers, seeing that their "real" income from selling oil was decreasing (they were selling oil at the same price in terms of dollars, but at a lower price in terms of gold), were determined not to let the depreciating dollar erase a big chunk of their earnings. I think this goes to show how deep is entrenched in the collective psyche the idea that gold is THE medium for storing wealth. Barbarous relic? I think not…
.
After all, value is a social construct and economic relations are social relations mediated through these things we call "commodities". Gold has proven itself to be a very good mediator of these social relations, not because some magical qualities, but because of obvious practical advantages. So, although its role is significantly smaller these days, I think it still retains the roles of "medium of last resort" and "measuring stick of wealth"."

james@wpc, August 4, 2015 at 11:35 pm

I had to start a new thread, Mark. Your first question – "does the fact that the USA's debt is more than 100% of its GDP not make it insolvent?"
I take it you are using the definition of insolvency being when an organizations liabilities exceed it's assets. The nation's GDP does not belong to the government and so cannot be seen as an asset of the govt. So the question, as framed, is not 'well English', speaking economically :) Perhaps you could rephrase it?

Insolvency can also be defined as an inability to meet current liabilities as they fall due which is a cash flow problem rather than an asset problem. A government that owns and controls its central bank cannot ever have a cash flow problem; that would be Iran, for instance, or Libya before Terror Inc was unleashed on it.

A govt that does not own and control its central bank cannot have a cash flow problem so long as its debt is denominated in its own national currency and the privately owned central bank continues to monetize the government's newly issued bond/treasury certificates; that is countries like the US and the UK.

A government that has its debt nominated in a foreign or external currency, such as Greece and other Euro zone countries, is in the position of any other business and can be declared insolvent and its assets sold up for the creditors. This situation with Greece was always going to come right from the beginning.

I don't follow what you are asking with your second question – "Would it, if there were a deliberate run on the dollar to drive it down and reduce its circulation, by refusing to use it as a medium of exchange?" Could you rephrase it also?

astabada, August 4, 2015 at 11:51 pm

@james, TimOwen

A government that has its debt nominated in a foreign or external currency, such as Greece and other Eurozone countries, is in the position of any other business and can be declared insolvent and its assets sold up for the creditors. This situation with Greece was always going to come right from the beginning.

Bang! I do not follow all of your points, but on this one I totally agree. To reconnect with what Tim was writing about Italy, the problem with Italy (and Greece) is that they both have:

– a currency which is grossly overvalued with respect to their economies (this makes import artificially easier than it should be, and export artificially harder)

– no control on what the value of that currency is (e.g. by devaluing its currency Italy could keep its products competitive in the past)

When did the Italian crisis start? Answer: when Italy pegged its currency to the future Euro, with the Maastrich Treaty.

marknesop, August 5, 2015 at 7:34 am

In the second question, I meant ""Would it (be insolvent), if there were a deliberate run on the dollar to drive it down and reduce its circulation, by refusing to use it as a medium of exchange?" That is, would a deliberate turning-away from the dollar put the USA in a position where it had to pay its debts and live within its means? And the answer is, not likely, because the government does not control the bank or own the money, although there is most definitely a very close relationship between the governors and the bankers. Still, there must be a relationship between the whole world using the dollar and U.S. power, because if there were not the U.S. would not attack a country on some made-up excuse as soon as it made noises about dropping the dollar. Unless that's just a crackpot conspiracy theory.

james@wpc, August 5, 2015 at 8:28 am

Thanks for the clarification, Mark. The US could well find itself in trouble and that is my expectation but "insolvent" is the wrong word to use.

First, the basics of the relationship between the Fed and the US Treasury dept. I think someone here (Tim?), about a year ago, spelt out the actual mechanics of it all but a rough Idea will suffice for our purposes. When the US govt wants to get more money, they have the Treasury Dept draw up treasury certificates which are essentially IOU's and hand them to the Fed. The Fed creates the credit to the value of the IOU's and places it in the US govt's a/c (at interest). The govt can then meet all future expenses including maturing loans with this money because all of the US's trade and loan contracts are written in US$.

There is no limit to the debt that the US can run up in this manner so there will always be money to meet commitments. So the US govt cannot become technically insolvent.

Crystal ball stuff now – the problem for the US govt (and the Fed) is that it is committed to printing ever more money at a time when the demand for it internationally is shrinking because the BRICS countries and others are avoiding using the US dollar when possible. This will lead to inflation for the dollar. In other words, it will lose value and make it less and less attractive for people, companies and govts to hold it and thus further decreasing demand. We now have a self fuelling downward spiral for the dollar.

The inflation happens because the US dollar is backed not only by the domestic GDP of the US but also by all the international trade that is conducted using the dollar. As the total amount of dollars in circulation increases and the demand decreases (because people are avoiding using it) we have more dollars to buy less goods (because sellers do not want US dollars for their goods) so the prices on the goods that are still available for US dollars will be bid upwards by the excess money over goods available causing the inflation. I have been very impressed how the FED/govt and Wall st generally have been able to stave off this inevitable inflation so far.

As for the US ever 'living within its means' that will only come when other trading partners en masse refuse to accept US dollars for their goods (incl military materiel). The US will then have to sell something tangible to raise the foreign currency (as most other countries now have to do) to buy Chinese clothing and uniforms and ammunition etc. They may not be able to pay for the military occupation in foreign countries using US dollars and so the Empire will start visibly shrinking.

If this happens, countries like israel and Saudi Arabia will be left high and dry and have to fend for themselves – and good luck with that! But psychopaths never say die so they just might pull something out of the hat other than a rabbit. We'll see soon enough, I think. You can see, though, that time is not on the side of the usual suspects.

I hope that answers your question adequately, Mark. If not, come on back to me!

Jen, August 5, 2015 at 3:52 pm

" … Still, there must be a relationship between the whole world using the dollar and U.S. power, because if there were not the U.S. would not attack a country on some made-up excuse as soon as it made noises about dropping the dollar. Unless that's just a crackpot conspiracy theory."

I mentioned earlier in this thread that in 2000, Iraqi President Saddam Hussein switched to trading oil for euros and then Iraq began conducting all its trade in euros. Not long afterwards, the euro appreciated in value, perhaps in part as a result of its use as a trading currency, and the value of Iraq's gold reserves also shot up as a result.
http://www.theguardian.com/business/2003/feb/16/iraq.theeuro

Iran and North Korea then switched to trading in euros. Next thing you know, all three countries became the New Axis of Evil.

If the world has to use the US dollar for trade, this means there will always be a demand from exporters and importers for US dollars and this keeps the value of the US dollar high relative to other currencies. To an extent this means that in a situation where all currencies are free-floating (that is, not subjected to any controls on their value or supply by governments in the countries where they are legal tender) and are completely subject to market supply and demand, the US dollar will not experience high and low extremes when its value against other currencies fluctuates. This keeps the US dollar's value high and steady.

The use of the US dollar as a world currency for trade was adopted during the Bretton Woods conference in the late 1940s just after the Second World War. At the time, the US was the pre-eminent manufacturing economy in the world and could dictate its terms to a ruined Europe. If the rest of the world were to catch up with the US in manufacturing and trading capability, then everyone needed to use US dollars to buy US goods, services and intellectual know-how in the form of patents, advice and training. Few people at the time foresaw what would happen to the US economy if the US dollar became the world's trading currency: the US economy would start to suffer persistent trade and balance of payment deficits and the US government would be unable to control the supply of US dollars. This is known as the Triffin Dilemma.

https://en.wikipedia.org/wiki/Triffin_dilemma

The British economist John Maynard Keynes who attended Bretton Woods was one of the few who knew – that was partly why he advocated for adopting an international trade currency (bancor) and an international clearing house for balance-of-payments surpluses and deficits – but as he was the representative of an exhausted and defeated empire, his ideas were given short shrift by the US attendees.

Tim Owen, August 5, 2015 at 8:22 pm

Posted this on earlier thread one page back before I saw this:

Here's where I think you, James and I agree: the reserve status of the dollar allows the U.S. to fund it's deficit at the expense of other countries.

Here's' where I think (?) we disagree:

my point is that the reserve status makes it possible for the U.S. to run persistent trade deficits but the ability to run a deficit is a virtue of all fiat systems. The fact that the reserve status of the dollar means those deficits can be much higher doesn't change the fact. Nor should it discredit deficit-spending by association.

I would completely agree that the "petrodollar" is a pillar of American power but am frankly confused by what the essential mechanism of this is. To my mind to institute the petrodollar it is not sufficient to say that oil will be denominated in dollars or even sold only in dollars. The key is that the proceeds need to STAY in dollar assets. This was only achieved once Kissinger brokered Petro-dollar recycling, meaning that the dollars earned in this way would be recycled into treasury securities or used to purchase American weaponry or the engineering skills of the American firms that basically built the Kingdom as it now exists. This is what I was hinting at when I was talking about the circular nature of trade between currency blocs. No non-circular trade patterns can persist for long.

We emphasize different things. I suspect that the simple scale of the dollar value of trading of financial claims on things – trading in which London and New York are dominant – contributes more to the maintenance of the dollar reserve system than you are proposing. The upshot being that America's "debt" problem is actually a demonstration of its financial power. *

Could it become it's greatest weakness? It's possible I suppose but I don't see this happening when western finance dwarfs the trading clout of its rivals. The system develops over time and, with time it gains scale and so momentum. In other words I'm suggesting that a dollar collapse is less likely than one might suppose.

*This was the point I was trying to make with the dollar as "safe haven" comments above. If the dollar zigs (strengthens) when your mental model of the world says it should zag (weaken) then this should really suggest that your model is missing some important part of the complex mechanism it is trying to simulate.

james@wpc, August 6, 2015 at 12:05 am

Tim, I'll quote your words back to you and insert some clarifying (for me) words to demonstrate my understanding and to see if it is the same as yours-

– my point is that the reserve status makes it possible for the U.S. to run persistent (international) trade deficits but the ability to run a (domestic budgetary) deficit is a virtue of all fiat systems. The fact that the reserve status of the dollar means those (international trade and domestic budgetary) deficits can be much higher doesn't change the fact. Nor should it discredit (domestic budgetary) deficit-spending by association."

The Bretton Woods agreement specified that the US would make gold available for purchase at an agreed fixed price. This condition was thought to inhibit the US from printing money to excess. But the Vietnam War came along and the US was printing money to pay for it. This extra money was not financing extra productive capacity or creating wealth. Quite the opposite, in fact. So we had an increasing supply of US dollars around the world but no commensurate extra production to absorb the extra dollars.

This is exactly what the French thought would happen and they started demanding gold for their US dollars. Eventually, the US had to stop selling gold now that it was greatly undervalued because the dollar was overvalued. So Nixon took the US dollar off the gold standard. Inflation ensued.

Something was needed to soak up the extra purchasing power of the extra US dollars sloshing around the world. This money was called "EuroDollars" at the time. Oil was the answer. The Saudis (at the behest of Wall St) and OPEC jacked up the price of oil by a factor of four (IIRC) and rapidly increased the demand for dollars and reversed the inflationary trend and the subsequent loss of value.

As Tim points out, the Saudis had to not only sell oil exclusively for US dollars but they had to deposit their surplus with New York banks. This way the banks won in three different ways. 1. they had overnight increased the international demand for US dollars and boosting its strength and prestige (perceptions are everything)
2. They had handed a fortune to the Saudis but by keeping the money in the NY banks, the bankers still controlled the Saudis
3. This surplus money was also kept out of other international banks and so could not be used by them to effectively compete with the NY banks and so kept those other banks under control as well and Wall St dominant.

Point 1 was the most important for the bankers, in my view. This created the petrodollar – a dollar that used to be covered by gold as well as international trade and the US domestic GDP. Then gold dropped out of the equation and was replaced with oil at a hugely inflated price.

At a bankers symposium during the eighties (I think from memory), the head of Citibank at the time, Walter Wriston, answered a question concerning what his bank would do if the Saudis wanted their money back. He replied blithely, "No problem. We'll write them a cheque!" His reply was met with dumbfounded silence which told me told me that most of the audience of bankers did not understand banking at that level. There should have been laughter because the money cannot escape the system. It can only get transferred from one bank to another and each bank is dependent on remaining in the system to keep operating.

It's just a matter of borrowing from each other. If Citibank has the Saudi's money to cover their other loans, then this will be more profitable for them than having to borrow it from other banks. But it is not a system breaker if they do have to borrow it from other banks. That's what the system is for.

Jen, August 6, 2015 at 12:33 am

It would be interesting to know when the Saudis also started buying up weapons and military hardware from the US and the UK. If they began some time in the early / mid 1970s to buy such equipment, and it were possible to find out where the money was coming from, that would be another piece in a big puzzle that links the collapse of the Bretton Woods agreement, the Vietnam War, the 1973 oil crisis and subsequent decline in the US car manufacturing industry, the Yom Kippur War and maybe more besides.
https://en.wikipedia.org/wiki/1973_oil_crisis#End_of_the_Bretton_Woods_accord

James, thanks for the extra detail.

spartacus, August 6, 2015 at 1:45 am

Hello Jen! From the Wiki article you linked, I found this paragraph to be very interesting:

"The result was a depreciation of the dollar and other industrialized nations' currencies. Because oil was priced in dollars, oil producers' real income decreased. In September 1971, OPEC issued a joint communiqué stating that, from then on, they would price oil in terms of a fixed amount of gold."

So it seems that the oil sellers, seeing that their "real" income from selling oil was decreasing (they were selling oil at the same price in terms of dollars, but at a lower price in terms of gold), were determined not to let the depreciating dollar erase a big chunk of their earnings. I think this goes to show how deep is entrenched in the collective psyche the idea that gold is THE medium for storing wealth. Barbarous relic? I think not…

After all, value is a social construct and economic relations are social relations mediated through these things we call "commodities". Gold has proven itself to be a very good mediator of these social relations, not because some magical qualities, but because of obvious practical advantages. So, although its role is significantly smaller these days, I think it still retains the roles of "medium of last resort" and "measuring stick of wealth".

marknesop, August 6, 2015 at 9:42 am

The currency Gaddafi had moved to introduce was the gold dinar, an actual negotiable gold coin, and he proposed all African and Muslim nations accept only the dinar for oil. The sources speculating on this look a little tabloid-ey, but as with many such subjects, the mainstream press just never mentions it, as if deciding not to talk about it removes it from consideration as an issue.

Similarly, the disappearance of Libya's gold is easily explained – unscrupulous people, including Gaddafi himself, stole it. The guy who was planning to introduce a gold currency to Africa actually stole all the gold for himself, the tricky devil.

james@wpc , August 6, 2015 at 1:48 am

Jen, my recollection is that the Saudi's started buying armaments big-time during the seventies because I remember asking myself, "what's wrong with this picture?" Here is a supposed enemy of Israel buying huge amounts of military equipment, particularly fighter jets, from the country it has just imposed sanctions on, the US. Added to that, the US is THE big supporter of Israel and indeed, saved its bacon during the Yom Kippur war!

The money for the military hardware could only have come from the increased price of oil and looking back it is increasingly obvious that these sales were part of the original deal to increase the price of oil. It is part of the circular trading that Tim was talking about.

The petrol rationing exercises in the US and elsewhere are looking more and more like theatre to condition the punters that we have to pay more. The whole crisis was stage managed and nothing has changed in forty years!

marknesop, August 6, 2015 at 9:14 am

The USA has a similar arrangement with Israel, in which it transfers billions in foreign aid to this prosperous country and Israel then uses it to buy U.S. weapons and military equipment. It would be simpler to just gift them the military equipment, but that would look as if the USA was building a military ally to extend its own power – which it is – and the former way helps create the need for more dollars.

[Aug 08, 2015] Global Oil Supply More Fragile Than You Think

"... the delay of 46 major oil and gas projects that have 20 billion barrels of oil equivalent in reserves mean that global production several years from now could be much lower than anticipated. Due to long lead times, decisions made today will impact the world's production profile towards the end of this decade and into the 2020s. It makes sense for companies to cut today, but collectively that could lead to much lower supplies in the future."

Aug 05, 2015 | Oilprice.com

Many oil companies had trimmed their budgets heading into 2015 to deal with lower oil prices. But the rebound in April and May to $60 per barrel from the mid-$40s suggested that the severe drop was merely temporary.

But the collapse of prices in July – owing to the Iran nuclear deal, an ongoing production surplus, and economic and financial concerns in Greece and China – have darkened the mood. Now a prevailing sense that oil prices may stay lower for longer has hit the markets.

Oil futures for delivery in December 2020 are currently trading $8 lower than they were at the beginning of this year even while immediate spot prices are $4 higher today. In other words, oil traders are now feeling much gloomier about oil prices several years out than they were at the beginning of 2015.

The growing acceptance that oil prices could stay lower for longer will kick off a fresh round of cuts in spending and workforces for the oil industry.

"It's a monumental challenge to offset the impact of a 50% drop in oil price," Fadel Gheit, an analyst with Oppenheimer & Co., told the WSJ. "The priorities have shifted completely. The priority now is to discontinue budget spending. The priority is to live within your means. Forget about growth. They are now in survival mode."

And many companies are also recalculating the oil price needed for new drilling projects to make financial sense. For example, according to the Wall Street Journal, BP is assuming an oil price of $60 per barrel moving forward. Royal Dutch Shell is a little more pessimistic, using $50 per barrel as their projection. For now, projects that need $100+ per barrel will be put on ice indefinitely. The oil majors have cancelled or delayed a combined $200 billion in new projects as they seek to rein in costs, according to Wood Mackenzie.

But the delay of 46 major oil and gas projects that have 20 billion barrels of oil equivalent in reserves mean that global production several years from now could be much lower than anticipated. Due to long lead times, decisions made today will impact the world's production profile towards the end of this decade and into the 2020s. It makes sense for companies to cut today, but collectively that could lead to much lower supplies in the future.

That is a problem because the oil majors were struggling to boost oil production even when oil prices were high. 2014 was one of the worst in over six decades for major new oil discoveries, even though oil prices were high for most of the year. Despite high levels of spending, exploration companies are simply finding fewer and fewer reserves of oil.

Shale production has surged in recent years, but it could be a fleeting phenomenon. Precipitous decline rates from shale wells mean that much of a well's lifetime production occurs within the first year or two. Moreover, after the best spots are drilled, the shale revolution could start to come to a close. The IEA predicts that U.S. shale will plateau and begin to decline in the 2020s. That means it would not be able to keep up with rising demand. Add in the fact that oil wells around the world suffer from natural decline rates on the order of 5 percent per year (with very wide variation), and it becomes clear that major new sources of oil will need to come online.

One other factor that could tighten oil markets over the long-term is the fact that Saudi Arabia has churned through much of its spare capacity. As one of the only countries that can ramp up latent oil capacity within just a few weeks, Saudi Arabia's spare capacity is crucial to world oil market stability.

Many energy analysts like to compare the current oil bust to the one that occurred in the 1980s. But one of the major differences between the two events is that, in addition to the glut of oil supplies in the 1980s, was the fact that Saudi Arabia dramatically reduced its output from 10 million barrels per day (mb/d) down to less than 4 mb/d in response. As a result, on top of the fact that the world was awash in oil throughout the 1980s and 1990s, there were also several million barrels per day of spare capacity sitting on the sidelines, meaning there was virtually no chance of a price spike for more than a decade.

That is no longer the case. Today OPEC has only 1.6 mb/d of spare capacity, the lowest level since before the 2008 financial crisis. So while Saudi Arabia is currently flooding the market with crude, it has exhausted its spare capacity, leaving few tools to come to the rescue in a pinch.

That brings us back to the large spending cuts the oil majors are undertaking. With spare capacity shot and major new sources of oil not coming online in a few years, the world may end up struggling to meet rising oil demand. That could cause oil prices to spike.

More Top Reads From Oilprice.com:
•Could WTI Trade At A Premium To Brent By Next Year?
•How Russia's Energy Giant Imploded
•US Oil Production Finally Starting to Decline

1. Oil Guru Who Called 2014 Slump Sees a Return to $100 Crude Bloomberg
2. Oil Warning: The Crash Could Be the Worst in More Than 45 Years Bloomberg
3. Oil bulls' hope for quick price dip dimmed by 2020 crude under $70 Reuters
4. How Iran Impacts The Price and Supply of Oil Investopedia
5. Shell to Cut 6,500 Jobs as Profit Drops The Wall Street Journal

The elites not stupid: they need a crash to justify their draconian repressive and warmaking moves

bolasete, August 5, 2015 at 4:18 pm
daily i review articles on zerohedge, full of doom and gloom. unfortunately they are written by ron paul types, not even socialists, let alone communists. the way i see it a crash really is coming but the ones calling the shots are not stupid: they want a crash that will demand/justify their draconian repressive and warmaking moves.
(what i find amazing – given my slant – is the large number of smart, knowledgeable people who must understand yet go along with it, like your immortal cyborg comment: why aren't these people moving to tropical isles?) my point being that analysis of armageddon and calling to account the enemy is for the future.
ignore the provocateurs! he's not worth the increased bp

[Aug 08, 2015] Don't Expect An Oil Price Rebound This Side Of 2017

"...with most market participants now resigned to at least another year of low oil prices, a lot of hope has gone out of the markets."
.
"...Second, firms will keep pumping in many cases until their wells run dry. Fortunately for oil investors, shale wells have a much faster decline rate than traditional wells. Shale wells decline at a rate of between 60 percent and 90 percent over the course of three years."
.
"...Rapid decline rates mean that U.S. oil production could begin declining as fewer and fewer new wells are drilled. But it will take time for production to come down sufficiently enough to support a major oil price rebound. Given that, investors need to focus on oil stocks that can get through the next two years on minimal (if any) profit, and they themselves need to be prepared to wait for a price rebound until 2017."

OilPrice.com

...firms have an incentive to produce now rather than waiting. Previously, some firms likely hoped that oil prices would spring back by the end of 2015 and that the firm's hedges could keep sales receipts high enough to avoid dealing with the dramatic fall in prices. But prices have not bounced back, and with most market participants now resigned to at least another year of low oil prices, a lot of hope has gone out of the markets.

... ... ...

This will take time though. First, many firms were propped up by their hedging programs. Those hedges are only just now starting to expire and exposing firms to the full depth of the oil price drop. Second, firms will keep pumping in many cases until their wells run dry. Fortunately for oil investors, shale wells have a much faster decline rate than traditional wells. Shale wells decline at a rate of between 60 percent and 90 percent over the course of three years.
Rapid decline rates mean that U.S. oil production could begin declining as fewer and fewer new wells are drilled. But it will take time for production to come down sufficiently enough to support a major oil price rebound. Given that, investors need to focus on oil stocks that can get through the next two years on minimal (if any) profit, and they themselves need to be prepared to wait for a price rebound until 2017.
By Michael McDonald for Oilprice.com

[Aug 08, 2015]Top 6 Myths Driving Oil Prices Down

"...The Saudis, as OPEC's largest producer and largest contributor to growth in 2015, have already stated that they will reduce output by 200,000-300,000 by summers end. "

OilPrice.com
"Whoever would overthrow the liberty of a nation must begin by subduing the freeness of speech."
Benjamin Franklin, Silence Dogood, The Busy-Body, and Early Writings

I start with that quote because once the media, as well as politicians for that matter, have no accountability for actions or words then liberty will dissolve. Over the last few weeks I have witnessed another litany of lies that the media insists on putting forth. They come in the form of statements presented as facts to sway opinion while others are opinions quoted by others. Either way, the bias in talking down oil prices, reinforcing the "glut" that is fueled in part by misleading EIA and IEA data, is readily apparent.

Earlier in the year I documented half a dozen media reports which turned out to be 100 percent false. Now I expose another half dozen in just the past few weeks. Prices remain unchanged as a result of the largest drop in production in a year, as well as a large inventory draw this week via the EIA. The very fact that prices haven't responded demonstrates my points. This comes despite the dollar index (UUP) over the last month remaining essentially flat while USO has fallen over 15 percent (so much for that relationship, except when the dollar rises right?)…

Related: A Reality Check For U.S. Natural Gas Ambitions

Even at the time of this article the dollar index is down 1 percent yet oil is down as well.

Here is a list of the latest lies:

Iran Agreement to flood market. FALSE. OPEC has even stated that the natural 1.0 to 1.5 million barrels per day (MB/D) rise in demand in 2016 will more than offset any production rises in Iran which, contrary to earlier reports, won't come on line until early 2016. In addition, China will open up refining to third party, non-state-owned refineries which will reportedly add another 600,000 B/D in demand in 2016.

Iran floating storage will flood market. FALSE. As initially reported in the media, it was Iranian oil floating in storage but it now turns out to be low grade condensate as stated by PIRA on Bloomberg a few weeks back and then supported by tankers attempting to move inventory to Asia. Later media reports corrected earlier ones that the storage is in fact condensate while failing to report on its grade.

U.S. production resilient. FALSE. The latest EIA data refutes this as does data via EPS calls at Whiting Petroleum (WLL) & Hess Corporation (HES). Yes, some are increasing production such as Concho resources (CXO), but in the Bakken both companies confirm that 2H15 production will decline due to lower rigs and depletion. HES raised production for the year as a result of 1H15 production being higher than expected by some 5 percent. All in all, next week should see further production drops.

U.S. Inventory resilient. FALSE. EIA data would have fallen last week by some 4MB as it did this week ex import surges and continues to be overstated by "adjustments" made to production that amount to millions of barrels in daily production.

Cushing inventory fears revived. FALSE…see above.

OPEC supply will continue. The Saudis, as OPEC's largest producer and largest contributor to growth in 2015, have already stated that they will reduce output by 200,000-300,000 by summers end. Yes true, OPEC as an entity won't formally announce a cut but isn't it misleading to report this?

... ... ...
I should note that WLL also refuted Goldman Sachs' call that, at $60, U.S. production and rig count increases would resume. Before the most recent fall in oil, that call admittedly looked true as rigs did rise and Pioneer Natural Resources (PXD) was reportedly going to add 2 rigs a month until early 2016.
WLL, however, finally drew a line in the sand as they stated on their EPS call that they would not add a rig until 4-6 months after oil remained at $60 or better. PXD, if they are smart, will follow suit and, I suspect, the oil industry has finally come to realize that the "Trillion Dollar Swindle" in oil is very real and normal supply and demand dynamics no longer apply. The law of diminishing returns in more supply is real thanks to media hype.

Lastly, I wish to emphasize that freedom of speech not only comes as the freedom to express yourself, as I am doing here now, as others have done freely in the media, presenting both bullish and bearish cases. However, the number of statements that have been proven false and not retracted, as well as the obvious bias should raise serious questions about the role of media in the current oil bust. Which industry will be under attack next?

Meanwhile, an industry which by simple math cannot generate free cash flow (FCF) on $100 oil is disintegrating before our eyes, with millions affected by the fallout. Targeting individuals has become a regular theme in the media but now it appears to have moved to certain industries.

Below demonstrates that even on $100 oil shale isn't self-sustainable on a FCF basis, never mind $50 oil.

Below is the estimated CF deficits for 2016 according to Jefferies with hedges:

(Click to enlarge)

How one on the sell side or media can argue for even lower oil to balance the market demonstrates the lack of detailed research and understanding of shale economics.

By Leonard Brecken of Oilprice.com
steve from virginia on July 31 2015 said:
- Oil prices are declining because oil product end users around the world are broke and cannot borrow. They cannot borrow b/c they are insolvent, they are insolvent b/c they cannot borrow.
- Oil prices are declining as a direct result of worldwide QE and other forms of easing. Easing shifts purchasing power proportionately to banks and large firms away from product end users. Without funds the end users cannot retire the drillers' expanding debts => drillers fall bankrupt.
- Oil prices are declining because using fuel does not offer any real returns, only vaporous 'utility' which is really pleasure. Oil is an indispensable form of capital, it has been squandered for 'thrills', we are now facing the consequences: end users who lack the means to support extraction efforts.
Keep in mind, ongoing fuel supply constraints (!) adversely affect end users faster than declining prices can subsidize them; this is a self-amplifying process. When it takes hold there is no escape from it; oil prices will decline to near-zero and the price will still be too high.
Joseph Castillo on August 01 2015 said:
Thank you for your insights, Leonard. No one seems to be noticing the production rollover here in Texas, nor the growing disparity between the Texas numbers and the EIA numbers and forecasts. Yesterday the market punished oil because of a very small increase in the rig count. Amazingly, the market completely missed that the EIA finally reported a significant drop (on the order of 150,000 bbls/day) for both their monthly volumes as well as their July 31st weekly numbers. At some point these facts will have to be recognized.
I am at a loss for how this goes unnoticed by the media and why "reputable" researchers at groups like Goldman-Sachs continue trumpeting the oil glut horn in direct conflict with the facts. Anyway, thanks for your work. It gives little guys like Bold Energy hope that we can survive.

Mike on August 02 2015 said:
Timothy. Your statement about demand growth is wrong. There has been significant demand growth and if you look at actual statistics you will see that.
I would not believe the fairy stories in Media news about demand though, because like most media stories at present, they seem to perpetuate a desired view rather than any effort to represent and true and honest account. .
Shakespit on August 03 2015 said:
Tone of article seems angry and strident, maybe desperate. How dare the media print anything that negatively affects oil pricing. The news stories are "myths," read "lies." Well surely if the stories are myths, reality will soon correct the price.
I am no expert but have read energy news with interest since the first oil shock in 1973, I know that the statement that "...$100 oil shale isn't self-sustainable ..." is a joke. Shale oil certainly is very sustainable at $100 per barrel; a lot of shale is sustainable at $50, as are Canadian tar sands.

The cost floor for unconventional oil to be sustainable has been wildly exaggerated for several years. Not four months ago Shell's head of tar sands production in an NPR interview corrected a young-sounding reporterette, who was stating the tar sands production needed $70 a barrel to break even, to say that the actual break even point was $36 a barrel. A $36 a barrel price for most unconventional oil is about the break even point cited for decades in the literature -- I think I'll stick with that figure as my understanding as the sustainable floor for most unconventional oil. Cheer up, myths can only hurt for so long, then the market will catch up and make it all better! So don't you worry about a thing! Thank you!!

Andrew on August 03 2015 said:

Agree with Steve from Virginia. QE was the most blatant and convoluted blow at the laws of economics, supply and demand. By seeking to undermine the cyclical nature of the economy and save those who would have been justly taken down the Fed and the politicians have created huge distortions which will echo through the economy for years to come. They stopped the market from adjusting itself, rebalancing wealth distribution and asset values, removing inefficiencies and restoring consumers purchasing power.
How this tinkering (this word is obviously inadequate to describe the meddling, a wrench in the gears is more appropriate) will propagate through the system is anybody's guess. I suppose the stats perversion in the oil industry and its subsequent degradation so aptly described by the author is one of them. .

zorro6204 on August 03 2015 said:

Myths don't drive the oil markets, supply and demand does. And the facts are that in spite of the price drop, production is not falling. I'm hard pressed to find any companies guiding to lower production, and neither could these guys:

"Barclays said a group of 101 oil companies that it tracks, which cover around 40% of global oil production, show no slowdown in the pace of production growth in 2015. After growing by one million barrels a day in 2014, the companies plan to accelerate output growth to 1.4 million barrels a day this year and maintain that level into 2016." - WSJ .

Matt on August 03 2015 said:

What the large independents should've done (the majors never would. Heck, they may be behind this driving down of the price of oil so they can snatch up a CLR or someone cheap) is stack every rig. Not drill a darn well at all in 2015, pay all of their hands from cash flow,and reevaluate at year end. Most of us little guys have already done that.
Shakespit is correct. If production is truly declining, the market will correct itself even if it is being manipulated psychologically or otherwise. When a buyer needs physical oil and it's not so easy to come by, the price offered will go up.

[Aug 07, 2015] U.S. adds Russian oil field to sanctions list

U.S. Ambassador to the U.N. Samantha Power says Washington is very concerned about reports of a visit to Russia by Iran's Quds Force chief to Russia in breach of U.N. sanctions. Rough Cut (no reporter narration). Reported Russia visit by Iran military chief' "very concerning" to U.S.

yahoo.com

(Reuters) - The United States has added a Russian oil and gas field, the Yuzhno-Kirinskoye Field, to its list of energy sector sanctions prompted by Moscow's actions in Ukraine, drawing a prompt rebuke from the Kremlin on Friday.

The federal government said on Thursday the field, located in the Sea of Okhotsk of the Siberian coast and owned by Russia's leading gas producer Gazprom, contains substantial reserves of oil in addition to reserves of gas.

"The Yuzhno-Kirinskoye Field is being added to the Entity List because it is reported to contain substantial reserves of oil," according to a rule notice in the Federal Register.

A Kremlin spokesman criticized the move.

"Unfortunately, (this decision) further damages our bilateral relations," spokesman Dmitry Peskov told reporters.

Gazprom declined to comment.

Adding the field to the list means a license will be required for exports, re-exports or transfers of oil from that location, it said. The gas and condensate field was discovered in 2010, according to Gazprom.

Douglas Jacobson, an international trade lawyer in Washington, said the addition "represents a new arrow in the quiver of U.S. sanctions on Russia."

He said the addition means that no U.S. origin items or non-U.S. origin items containing more than 25 percent U.S. content can be exported or re-exported to the field without a Commerce Department license, which he said was not likely to be issued.

"This goes beyond the current Russia sanctions, which prohibit certain items to be exported to Russia when they are used directly or indirectly in the exploration for, or production of, oil or gas in Russian deepwater (greater than 500 feet)," Jacobsen said in an email.

The action builds on those taken since last year by the United States and the European Union after Russia's annexation of Crimea and its use of force in Ukraine.

Last week, the United States imposed additional Russia and Ukraine-related sanctions, adding associates of a billionaire Russian gas trader, Crimean port operators and former Ukrainian officials to its list of those it is penalizing in response to Russia's actions in Ukraine.

(Additional reporting by Yeganeh Torbati in Washington and Ekaterina Golubkova and Maria Tsvetkova in Moscow; Editing by Andrew Hay)

[Aug 06, 2015] Crude Carnage Continues As Goldman Warns Storage Is Running Out

"... $58/bbl the 3-year forward oil price is at its lowest in a decade"
.
"...Not only has emerging market growth slowed, but any benefits from lower prices are mostly behind us now, as the benefits only last 6 to 9 months. "
.
"...The oil industry on average is not earning its cost of capital. The distinction between cash costs and total costs, also applies to 'well' versus 'company' returns. While the returns at the well can be economical at prices near $50/bbl, the returns for the company can be deeply underwater due to large-scale investments when prices were at $100/bbl. "
.
"...While the supply and demand for the barrels of oil will likely find a balance between now and sometime in 2016 with an increasing likelihood of this being driven by operational stress, this doesn't mean a sharp rebound in prices will occur quickly as so many other factors will likely weigh on prices. "
.
"... Iran has the potential to add 200 to 400 kb/d of production in 2016 and with significant investment far greater low-cost volumes in 2017 and beyond. Iran, like other OPEC countries, needs the revenues through volume. "
.
"...I can almost foresee a crude [production] liquidation throughout all non OPEC and OPEC nations"

Aug 06, 2015 | Zero Hedge

WTI Crude is back below $45 again this morning - pressing towards 2015 and cycle lows -after Goldman Sachs' Jeffrey Currie warns 'lower for longer' is here to stay, with price risk "substantially skewed to the downside." His reasoning are manifold, as detailed below, but overarching is oversupply (Saudi Arabia has a challenge in Asia as it battles to maintain mkt share, the Russians are coming, andother OPEC members want a bigger slice) and, even more crucially, storage is running out. As Currie concludes, this time it is different. Financial metrics for the oil industry are far worse.
As Goldman Sachs' Jeffrey Currie explains...
1)Although spot oil prices have only retraced to the lows of this winter, forward oil prices, commodity currencies and energy equities/credit (relative to the broad indices) have now all retraced to levels not seen since 2005, erasing a decade of gains. This creates a very different economic environment as the search for a new equilibrium resumes: financial stress is higher, operational stress as defined below is more extreme and costs have declined further due to more productivity gains, a substantially stronger dollar and sharp declines in other commodity prices. These differences reflect not only a further deterioration in fundamentals, but also the financial markets' decreasing confidence in a quick rebound in prices and a recognition that the rebalancing of supply and demand will likely prove to be far more difficult than what was previously priced into the market. This is all in line with our lower-for-longer view. While we maintain our near-term WTI target of $45/bbl, we want to emphasize that the risks remain substantially skewed to the downside, particularly as we enter the shoulder months this autumn.

2) In January, we argued that one of the key tenets of the New Oil Order was that capital is now the new margin of adjustment. As shale has dramatically reduced time-to-build (the time between when producers commit capital and when they get production) from several years to several months, oil prices now need to remain lower for longer to keep capital sidelined and allow the rebalancing process to occur uninterrupted. This spring's rally in prices did prove to be self-defeating. Not only did all the capital markets reopen as oil prices rose, but producers began to redeploy rigs and remained under hedged, which is a reflection that the industry simply had not faced enough pain to create real financial stress that would create change.

3)This time it is different. Financial metrics for the oil industry are far worse. Forward oil prices are c.10% lower (at $58/bbl the 3-year forward oil price is at its lowest in a decade). At the same time leverage for the industry is rising as hedge books are much lighter, with 2016 hedge ratios at 9% versus a five-year average of 25%. Energy equity markets relative to the equity indices are at the lowest level since 2005 and at 3-year lows on an absolute basis. Energy high yield as an OAS spread ratio has also pushed above December 2014 highs. Although financial stress is higher, it alone is still unlikely to create the rebalancing needed due to the unique market structure of the New Oil Order, sidelined capital and declining costs.

4) The market structure of the New Oil Order is unprecedented. In January we showed that high-quality producing assets were on average owned by weak balance sheets while strong balance sheets on average owned the lower-quality producing assets. In other words, the IOCs and some NOCs own most of the higher-cost production while E&Ps, particularly US E&Ps, own much of the lower-cost production. Historically, weak balance sheets typically owned high-cost assets and vice versa, creating a linear relationship between lower prices and financial stress, which historically led to more financially motivated supply cuts as prices dropped. Yes, we have seen some of the few companies with weak balance sheets and high-cost assets run into trouble and go into maintenance mode, but they are not sufficient to shift the market balance. In contrast, the weaker balance sheets with high-quality assets issued equity during the spring, when capital markets were open, to buy more longevity by reducing leverage by half a turn. On net, from a financial perspective, the adjustment process is now likely to take longer.

5) Logistical and storage constraints are also tighter this time. We have argued for decades now that modern energy markets mostly rebalance through operational stress. Operational stress is created when a surplus breaches logistical or storage capacity such that supply can no longer remain above demand. Although perceptions this past April were that the market was near operational stress, it is now far closer. We estimate that the industry has added c.170 million barrels of petroleum to crude and product storage tanks since January and c.50 million barrels to clean and dirty floating storage. With increased operational stress in the system versus six months ago, we now attach a substantially higher probability to this being the margin of adjustment than we did in January. While the probability of blowing out storage this autumn is higher, the market will need to balance or adjust before next spring's turnarounds.

6) Should the market breach logistical and storage capacity constraints, this would kill the storage arbitrage between spot and forward prices and create a significant flattening of the entire forward curve (though front timespreads would likely blowout initially). Historically, once storage capacity is breached across all crude and products, supply must be brought back below demand immediately. To create the rebalancing physical constraints create a collapse in spot prices below cash costs as supply is forced in line with demand (late 1998 is a good example), creating the birth of a new bull market. Breaching crude storage capacity alone is not sufficient, as it simply leads to an increase in refinery runs creating product where storage capacity is available, so both crude and product storage needs to be breached. Further, this only requires breaching capacity in one or two of the key product markets given constraints on refinery product yields. In the current market, the likely candidate is distillate as inventories, particularly outside of the US, are extremely high and margins are weak. As the curve flattens, long-dated oil prices historically have drifted down toward cash prices. As producers face increasing financial stress, covering operating costs and surviving becomes more important than future growth.

7) It is important to separate cash costs from total costs. As oil markets are substantially oversupplied by nearly every measure (see below), the need for new incremental capacity is limited at the margin. New incremental capacity requires prices above 'total' costs, defined as fixed (capex) plus variable/cash costs (opex). However, in an environment where the market only needs to produce from existing capacity, prices only need to cover variable/cash costs to keep existing capacity operating. And herein lies the paradox, for the high-cost, strong balance sheet producer, cash costs are $40-$45/bbl versus total costs closer to $75/bbl. In contrast, the low-cost, weak balance sheet producer faces cash costs near $20/bbl with total costs near $55/bbl. As the high-cost production is mostly oil sands and other costly to shut in conventional oil, the stronger balance sheet producers with this production will resist the costs of shutting in, leaving the easier-to-shut, lower-cost production held by the weaker balance sheets as the more likely candidate. This suggests the volatility and risks to the downside are significant. Furthermore, a stronger US dollar, productivity gains and other commodity price declines only creates more cost deflation, via the negative feedback loop, making cash costs a moving target to the downside.

8) Commodity and emerging market currencies have also erased a decade of gains, reflecting the significant macroeconomic imbalances many of these countries are facing, created in part by the sharp decline in all commodity prices. This not only impacts emerging market demand for oil, Latin American demand in particular, but also lowers the costs to produce oil and commodities in these countries. To illustrate the sensitivity of oil cash costs to the Brazilian real (BRL) and Canadian dollar (CAD), we find that a 10% move in BRL or CAD shifts cash costs by 3% and 5% respectively. The BRL and CAD have weakened year-to-date by 31% and 14% respectively. Further, as we argued late last year, 2015 supply growth in regions facing sharp currency depreciation have been revised up since March by the IEA: Brazil (+24 kb/d), North Sea (+65 kb/d) and Russia (+145 kb/d). It is important to emphasize that markets have never seen such a large appreciation in the US dollar at the same time they have seen such a large surplus in the oil market. While it is unprecedented in the current direction, the weakest US dollar ever recorded on a trade-weighted basis was when oil prices peaked above $147/bbl in July 2008. As we have emphasized in all of our research since 2013, it is the same macro forces working in reverse today that pushed markets to the highs during the previous decade. The crude market didn't go to $147/bbl on oil fundamentals alone, nor would it be collapsing like this on oil fundamentals alone.

9) Nonetheless, fundamentals are weaker today than in 1Q. Global supply is currently up 3.0 million b/d (and averaged up 3.2 million b/d over the past 12 months), driven in large part by a surge in low-cost production from Saudi Arabia, Iraq and Russia. The largest demand growth ever observed was in 2004 when China and the emerging markets kicked off the previous decade's commodity boom and drove a 3.15 million b/d demand growth number. In 2004 the emerging markets had clean balance sheets in strengthening currencies which reflected their good health. Today, that boom decade has been brought to a halt. These countries are facing large macro imbalances and debt. Not only has emerging market growth slowed, but any benefits from lower prices are mostly behind us now, as the benefits only last 6 to 9 months. We estimate that current oversupply is c.2.0 million b/d versus c.1.8 million b/d in 1H15.

10) The oil industry on average is not earning its cost of capital. The distinction between cash costs and total costs, also applies to 'well' versus 'company' returns. While the returns at the well can be economical at prices near $50/bbl, the returns for the company can be deeply underwater due to large-scale investments when prices were at $100/bbl. Even assuming an aggressive company decline rate of 25% over the past year, that would make 75% of the assets legacy production. While commodity markets don't care about legacy fixed costs, and only about today's cost to bring on a marginal barrel, potential equity and credit investors do care about those legacy costs and what they do to company long-run returns. In general, energy companies at present cannot earn their cost of capital over the long-term (defined as the past 50 years). Long-run returns are 10% versus a cost of capital of 12.5%. In other words, they are wealth-destroying propositions from the get go. The reason for this is the industry constantly invests in new capacity during the investment phase of the super cycle, i.e. high and rising prices, and brings on line this new capacity during the exploitation phase of the super cycle, i.e. low and declining prices.

11) While the supply and demand for the barrels of oil will likely find a balance between now and sometime in 2016 with an increasing likelihood of this being driven by operational stress, this doesn't mean a sharp rebound in prices will occur quickly as so many other factors will likely weigh on prices. Not only will the macro forces keep prices under pressure, but historically markets trade near cash costs until new incremental higher-cost capacity is needed (even the IEA has revised 2015 non-OPEC output growth from existing capacity up by 265 kb/d since March).

In addition, low-cost OPEC producers are likely to expand capacity now that they have pushed output to near max utilization. At the same time Iran has the potential to add 200 to 400 kb/d of production in 2016 and with significant investment far greater low-cost volumes in 2017 and beyond. Iran, like other OPEC countries, needs the revenues through volume.

Even Venezuela accepted another $5 billion last week from China to produce oil from older fields. Finally, the capital markets for energy need to be rebalanced through consolidation and capital restructuring. This takes time to achieve. In the previous cycle this took from 1986 to 1998 and ended with the creation of the super majors. Today we expect it to go more quickly, just as we erased a decade in the matter of months, but it will take time.

JustObserving

Goldman always talks their book. How many hundreds of billions worth of oil is Goldman short?

cn13

Goldman predicted $32/barrel crude oil earlier this year right before the market rallied higher by nearly 50% in just a few weeks.
Why would anyone listen to these crooks? They are the worst of the worst.

I Eat Your Dingos

ZH its not like you haven't reported on this several times! [sarc]

Wait for Goldman to catch up. I can almost foresee a crude [production] liquidation throughout all non OPEC and OPEC nations . I wonder how long US shale producers can holdout during this continued crude drop in WTI and Brent

[Aug 06, 2015]US layoffs hit nearly 4-year high in July Challenger

UA wage are declining: Payroll taxes and related withholding are declining 8% in q1 of the last year, 6% in Q2 of the last year and only 2.5% in q3. 70K layof in oil industry were good paing jobs, almmost twise national average. Now they are gone and when they return is unclear.

finance.yahoo.com
U.S. job cuts soared to a nearly four-year high in July as the military announced plans to reduce troop and civilian workforce payrolls, according to outplacement consultancy Challenger, Gray & Christmas.

Employers based in the United States announced 105,696 layoffs last month, the first time monthly reductions exceeded 100,000 since September 2011. A year ago, U.S. companies announced plans to cut 46,887 jobs.

The Challenger report comes a day before the Labor Department's crucial July jobs report. A weak report would make it less likely for the Federal Reserve to announce its first interest rate increase in nine years at its September meeting.

July's reductions bring the year-to-date total to 393,368 cuts, a 34 percent increase from the period last year. The Army accounted for more than half of the total with 57,000 cuts expected over the next two years.

"When the military makes cuts, they tend to be deep," Challenger CEO John A. Challenger said in a statement. "With wars in Afghanistan and Iraq winding down and pressure to cut government spending, the military has been vulnerable to reductions."

The technology sector also contributed to July's announced job reductions, with computer and electronics companies announcing 18,891 layoffs in July.

Microsoft (NASDAQ: MSFT)'s decision to close its Nokia division resulted in 7,800 job losses, while Qualcomm (NASDAQ: QCOM) said it would hand out 4,500 pink slips. Intel (NASDAQ: INTC) also announced it would shed 3,180 jobs.

Read More

US private sector jobs fall short in July

More Army plans to cut 40,000 troops

[Aug 03, 2015] Freshwater's Wrong Turn

"... This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).

Aug 2, 2015 | Economist's View

Paul Krugman follows up on Paul Romer's latest attack on "mathiness":

Freshwater's Wrong Turn (Wonkish): Paul Romer has been writing a series of posts on the problem he calls "mathiness", in which economists write down fairly hard-to-understand mathematical models accompanied by verbal claims that don't actually match what's going on in the math. Most recently, he has been recounting the pushback he's getting from freshwater macro types, who seem him as allying himself with evil people like me - whereas he sees them as having turned away from science toward a legalistic, adversarial form of pleading.

You can guess where I stand on this. But in his latest, he notes some of the freshwater types appealing to their glorious past, claiming that Robert Lucas in particular has a record of intellectual transparency that should insulate him from criticism now. PR replies that Lucas once was like that, but no longer, and asks what happened.

Well, I'm pretty sure I know the answer. ...

It's hard to do an extract capturing all the points, so you'll likely want to read the full post, but in summary:

So what happened to freshwater, I'd argue, is that a movement that started by doing interesting work was corrupted by its early hubris; the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems, and sent them off on the path Paul now finds so troubling.

Recent tweets, email, etc. in response to posts I've done on mathiness reinforce just how unwilling many are to confront their tribalism. In the past, I've blamed the problems in macro on, in part, the sociology within the profession (leading to a less than scientific approach to problems as each side plays the advocacy game) and nothing that has happened lately has altered that view.

Posted by Mark Thoma on Sunday, August 2, 2015 at 11:54 AM in Economics, Macroeconomics, Methodology | Permalink Comments (20)
pgl said...
When I first heard this Lucas island - also known as Friedman-Phelps - story about business cycles being driven by unanticipated inflation, it initially stuck me as interested. Then I thought about the fact that the Rational Expectations version would have trouble explaining why nominal shocks affect real events for more than a few months.
No - it did not take long to realize that this nice neat model could not explain the real world. But what we usually got back then is a large parade of statistical techniques that just confused matters even more.

At which I began to wonder what I was interested in macroeconomics in the first place.

eightnine2718281828mu5 said in reply to pgl...
---
the braggadocio and trash-talking of the 1970s left its leaders unable to confront their intellectual problems
---
iow, assigning a higher value to their accumulated research (reputation?) than it was actually worth.

sticky prices indeed.

RC AKA Darryl, Ron said in reply to eightnine2718281828mu5...
:<)
[For most of us then:]

"...Freedom's just another word for nothing left to lose
Nothing don't mean nothing honey, if it ain't free
Feeling good was easy, Lord, when he sang the blues
You know, feeling good was good enough for me
Good enough for me and my Bobby McGee..."
ARTIST: Kris Kristofferson
TITLE: Me and Bobby McGee

*

[For most of them then freedom is just a matter of low-regulation low-tax supply side economic policy. TO which end their statistics demand many degrees of "freedom" and they have taken increasingly more extensive "freedoms" with their theories ever since Uncle Milty taught us about "Capitalism and Freedom," why the initial conclusions reached by Keynes were all wrong, and why monetarism was sacred. (barf)

I remember the 1970's well. The terminal punctuation was Reagan's election in 1980. When I was drafted in 1969 I still retained some hope, although much diminished since MLK was murdered a year earlier. By the time I returned from Viet Nam it was just one slap in the face after another. All our (the social movement that happened alongside the hippies) hopes from the 60's were dashed. Blacks were to be "locked" into ghettos by public policy and the working class was to be sacrificed on the alter of corporatism one merger or outsource at a time. ]

anne said...
https://en.wikipedia.org/wiki/Real_business_cycle_theory

Real business cycle theory models (RBC theory) are a class of New classical macroeconomics models in which business cycle fluctuations to a large extent can be accounted for by real (in contrast to nominal) shocks. Unlike other leading theories of the business cycle, RBC theory sees business cycle fluctuations as the efficient response to exogenous changes in the real economic environment. That is, the level of national output necessarily maximizes expected utility, and governments should therefore concentrate on long-run structural policy changes and not intervene through discretionary fiscal or monetary policy designed to actively smooth out economic short-term fluctuations.

anne said in reply to anne...
http://krugman.blogs.nytimes.com/2014/02/17/the-trouble-with-being-abstruse-slightly-wonkish/
February 17, 2014

The Trouble With Being Abstruse (Slightly Wonkish)
By Paul Krugman

Political scientists who write clearly for a broader audience are upset * with Nick Kristof ** for saying that political scientists no longer write for a broader audience. I'm not going to get into that fight. I do want to register one point, however: In my field there is indeed a problem with abstruseness, with the many academics who never even try to put their thoughts in plain language.

And what is the nature of that problem? It's not that laypeople don't understand what the academics are saying. It is, instead, that the academics themselves don't understand what they're saying.

Don't get me wrong: I like mathematical modeling. Mathematical modeling is a friend of mine. Math can be a powerful clarifying tool. So, in some cases, can jargon, which used right can both save time and add clarity to the discussion. If I talk about Dixit-Stiglitz preferences, or for that matter the zero lower bound, technically trained economists immediately know whereof I speak, where plain English would both take longer and leave room for misunderstanding.

But it's really important to step away from the math and drop the jargon every once in a while, and not just as a public service. Trying to explain what you're doing intuitively isn't just for the proles; it's an important way to check on yourself, to be sure that your story is at least halfway plausible.

Take real business cycle theory – I know it's a horse I beat a lot, but it's not dead, and it's a prime example within economics of what I have in mind. I still want to spend at least some time explaining that theory to my undergrads, so I've been looking for a simple, intuitive explanation by an RBC theorist of what's going on. And I haven't been able to find one!

I mean, I could do it myself. Strip the story down to basics – make it a steady-state model, not a growth model, and drop the capital accumulation; what you're left with is fluctuations in the marginal productivity of labor, which have a magnified impact on output because workers choose to work less when the technology is bad and more when the technology is good. As I've written before someplace, it's the story of a farmer who stays inside when it's raining and puts in extra hours when the sun is shining.

But the RBC theorists never seem to go there; it's right into calibration and statistical moments, with never a break for intuition. And because they never do the simple version, they don't realize (or at any rate don't admit to themselves) how fundamentally silly the whole thing sounds, how much it's at odds with lived experience.

I once talked to a theorist (not RBC, micro) who said that his criterion for serious economics was stuff that you can't explain to your mother. I would say that if you can't explain it to your mother, or at least to your non-economist friends, there's a good chance that you yourself don't really know what you're doing.

Math is good. Sometimes jargon is good, too. But plain language and simple intuition are important to keep you grounded.

* http://crookedtimber.org/2014/02/16/look-who-nick-kristofs-saving-now/

** http://www.nytimes.com/2014/02/16/opinion/sunday/kristof-professors-we-need-you.html

mulp said in reply to anne...
Freshwater economists, free lunch economists, speak very clearly.
Its too good to be true which makes everyone who wants a free lunch to believe it.

For example, free lunch economists say lower prices are achieved by lower wages, fewer workers, tax cuts, and higher profits, which creates wealth, and the unemployed and working poor spend more using money the will never pay back because of the wealth effect, with mathiness to backup their claims.

What they never do is put them all together like I have done so the words are revealed as nonsense and the math is 1+2-3 = 10 and thus obviously bogus.

Note fresh water economists NEVER state that consumer spending is driven by wage income, as in real wage income, not the income from capital gains which sorta lots like wages but is really rent seeking aka private tax on the savings of workers.

How can lower wages to get lower prices ever result in higher GDP without lots of debt that can never be repaid?

Lafayette said in reply to anne...
TO APE ONE ANOTHER
{PK: with the many academics who never even try to put their thoughts in plain language.}

Ha! I like that!

Tis True. How many times do we see the word "exogenous". Many. How often, "endogenous"? Never.

Anybody for a hard look at the "endogenous" factors causing economic cyclicity? How about the human ability to "ape" one another's consumer habits that builds patterns increasing in intensity - until the "bubble" bursts? ("Cyclicity"? Wow! Nice word? Hardly used! Here we go again!!!;^)

Like lemmings falling off a cliff - cyclic in nature but deadly in consequence.

DeDude said...
When your math is incompatible with the observations from the real world - its the math that's wrong. I don't have a 3 page formula, but just trust me on this one.
GeorgeK said...
You will find the answers to all your questions in this book
http://www.amazon.com/Wiser-Getting-Beyond-Groupthink-Smarter/dp/1422122999/ref=sr_1_1?s=books&ie=UTF8&qid=1438554831&sr=1-1&keywords=Group+think+getting+beyond

bakho said...

Science advances one funeral at a time. - Max Planck
They are too invested in their mistakes to accept criticism.
The next generation of economists will accept that they were wrong.

likbez said...
Before becoming columnist Krugman was mathiness practioner ;-)

reason said...

Anne
"That is, the level of national output necessarily maximizes expected utility"

We could stop right there. Clear nonsense. (You can always INCREASE utility by redistributing from rich to poor - at least with any sensible definition of utility.

See this discussion
http://crookedtimber.org/2015/07/24/utilitarianism-with-the-potentially-left-wing-bits-stripped-out/comment-page-2/

Egmont Kakarot-Handtke said...

Here it comes: the sexit
Comment on 'Freshwater's Wrong Turn'

There is political economics and theoretical economics. In political economics it suffices to tell a plausible story, in theoretical economics scientific standards are observed. Because economists since Adam Smith pursued these two hares simultaneously, coherence got eventually lost. As a result, economists never developed a theory about how the market economy works that satisfies the scientific criteria of material and formal consistency (Klant, 1994, p. 31).

Economics is a failed science. Therefore, Paul Romer is in for a second big surprise. Until now he thought: "As you would expect from an economist, the normative assertion in 'X is wrong because it undermines the scientific method' is based on what I thought would be a shared premise ..."

Now he learns: "In conversations with economists who are sympathetic to the freshwater economists ... it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists'."

What is the difference between political and theoretical economics?

"A genuine inquirer aims to find out the truth of some question, whatever the color of that truth. ... A pseudo-inquirer seeks to make a case for the truth of some proposition(s) determined in advance. There are two kinds of pseudo-inquirer, the sham and the fake. A sham reasoner is concerned, not to find out how things really are, but to make a case for some immovably-held preconceived conviction. A fake reasoner is concerned, not to find out how things really are, but to advance himself by making a case for some proposition to the truth-value of which he is indifferent." (Haack, 1997, p. 1)

The fact of the matter is that theoretical economics has from the very beginning been hijacked by the agenda pushers of political economics. Smith and Mill were agenda pushers against feudalism. Marx and Keynes were agenda pushers and so were Hayek and Friedman. However, all these economists insisted that they were doing science. This has changed now: "... the evidence ... suggests that freshwater economists differ sharply from other economists."

The freshwater economists simply state the obvious, that is, that they are committed to politics and not to science. This marks the beginning of a voluntary scientific exit (sexit for short). What Romer has not yet realized is that most saltwater economists have to leave through the same door.

Egmont Kakarot-Handtke

References
Haack, S. (1997). Science, Scientism, and Anti-Science in the Age of Preposterism. Skeptical Inquirer, 21(6): 1–7. URL http://www.csicop.org/si/show/science_scientism_and_anti-science_in_the_age_of_preposterism.
Klant, J. J. (1994). The Nature of Economic Thought. Aldershot, Brookfield, VT: Edward Elgar.

lagarita said...

This reminds me of the "we create reality" stuff from the neo-cons. Maybe it's just more infection of Straussian "ethics" at UofC (see Shadia Drury).

Lafayette said in reply to lagarita...

APART FROM BERNIE
{"we create reality"}

Their entire existence revolves around such vapid, empty simplisms because they have no theoretical substance to their politics. It is either their lack of intelligence or their selfish perfidy that reduces their theoretical foundation of political views.

They are hooked on the fallacy of wealth-creation as the sole credible goal/consequence of an economy. Piketty put that thought to shame in his work on Income Disparity, as did Domhoff on Wealth Disparity. The statistical facts (ie., the "numbers") could not be more clear.

What should bother us most is not only the generation of enormous wealth, and the influence it has on a moneyed electoral system, but the dynastic tendency of such riches. The Koch Bros are already the first generation - will we be contending with the political antics of second, or third, or fourth generations?

The last time historically that happened in Europe, called Inheritance Aristocracy, it all came apart in bloodshed.

And yet the better notion of Social Justice, which supposes that all humans are created with the equal right to fairness and equitability, has taken decades upon decades to come to the fore.

It is still no where near dominating political thought in America. Apart from Bernie, that is ...

Lafayette said...

LOOK IN THE MIRROR
{the braggadocio and trash-talking of the 1970s}

Of the 1970s?

This type is still the mainstay of American parlance, whether political or business or just blogging. The aggressiveness of the language employed knows no bounds.

The intent in commentary, whether verbal or written, whether political or otherwise, is overly combative and largely "ad hominem". The real subject of controversy is lost in the personalization of the rebuttals. The issues that largely determine the political consensus thus become secondary and confused.

Really 'n truly puerile ... like the children they were and they remain, particularly in politics. Propelled by one and only one goal - to win, win, win.

And without politics or politicians, what is a democracy? It's an autocracy. With them, its a manifested willfulness by a moneyed few to dominate electoral outcomes - and we are pawns in the game.

My point? As an electorate, the people we chose to represent us personify as well the kind of people we are. So, complaining about the politicos in LaLaLand on the Potomac is useless.

Seeking someone to blame? Look in the mirror ...

[Aug 02, 2015]Shale Gas Reality Check

Key Conclusions

The EIA's Annual Energy Outlook 2015 is even more optimistic than the AEO2014, which we showed in Drilling Deeper suffered from a great deal of questionable optimism. The AEO2015 reference case projection of total shale gas production from 2014 through 2040 is 9%, or 36 tcf, greater than AEO2014. Cumulative production from the major plays in AEO2015, which account for 80% of this production, is 50% higher than Hughes's "Most Likely" case in Drilling Deeper, and the projected production rate in 2040 is 170% greater. In AEO2015, the EIA is counting much more on unnamed plays or ones-like the Utica Shale-that aren't as yet producing very much shale gas.

The only way to meet projections for most of these plays would be for production to ramp up massively years from now. But because the best wells are drilled first, and decline rates are so steep, this means that the EIA is likely counting on new technologies that aren't yet proven or even developed.

It's very difficult to see how unknown new technologies would be brought online, and be sufficient to overcome poorer and poorer quality drilling locations, without the price of natural gas going up well beyond what the EIA forecasts.

As it has acknowledged, the EIA's track record in estimating resources and projecting future production and prices has historically been poor. Admittedly, forecasting such things is very challenging, especially as it relates to shifting economic and technological realities. But the below-ground fundamentals- the geology of these plays and how well they are understood-don't change wildly from year to year. And yet the AEO2015 and AEO2014 reference cases have major differences between them; production rates have been revised both down and up by amounts exceeding 40% in some plays.

[Aug 02, 2015]Peak Oil Notes - July 30

The Turks have taken out after the Kurds again by intensive bombing of Kurdish military units in Turkey and Iraq. The Kurds have retaliated by blowing up the gas pipeline into Turkey from Iran and the line that was exporting oil from northern Iraq to the export terminal at Ceyhan, Turkey. The revival of open hostilities between Ankara and the Kurds almost certainly has many important ramifications for the future of the region.
Russia's economy has taken another a big hit from falling oil prices. The ruble was back above 60 to the dollar for a while on Tuesday before the government stepped in to stop the slide. If oil prices continue to fall, Moscow will be in a lot of economic trouble before the year is out.

[Aug 01, 2015] Paul Romer: Freshwater Feedback on Mathiness

"...Freshwater economists seem to think, as far as I can tell, that the purpose of science is to make neat widgets, and that any theory you come up with that seems reasonable and points to a possible way of making neat widgets is as good as any other, and you can just shove the universe into your mold and saw off all the bits that don't match.

The Bush administration had a quote about it: basically, 'you people on the left want to measure reality and figure out how to cope with it, whereas we on the right will just forge ahead and create it.' In other words, understanding is not required in order to achieve your goals. This is not true for any goal more complex than nailing two boards together, but it doesn't stop them from laying waste to everything, and then pointing at themselves, blinking, and saying, 'Who, ME?' every time you call them out at it."

economistsview.typepad.com

More from Paul Romer:

Freshwater Feedback Part 1: "Everybody does it": You can boil my claim about mathiness down to two assertions:

1. Economist N did X.
2. X is wrong because it undermines the scientific method.

#1 is a positive assertion, a statement about "what is …"#2 is a normative assertion, a statement about "what ought …" As you would expect from an economist, the normative assertion in #2 is based on what I thought would be a shared premise: that the scientific method is a better way to determine what is true about economic activity than any alternative method, and that knowing what is true is valuable.

In conversations with economists who are sympathetic to the freshwater economists I singled out for criticism in my AEA paper on mathiness, it has become clear that freshwater economists do not share this premise. What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form "we ought to behave like scientists."

In a series of three posts that summarize what I have learned since publishing that paper, I will try to stick to positive assertions, that is assertions about the facts, concerning this difference between the premises that freshwater economists take for granted and the premises that I and other economists take for granted.

In my conversations, the freshwater sympathizers generally have not disagreed with my characterization of the facts in assertion #1–that specific freshwater economists did X. In their response, two themes recur:

a) Yes, but everybody does X; that is how the adversarial method works.
b) By selectively expressing disapproval of this behavior by the freshwater economists that you name, you, Paul, are doing something wrong because you are helping "those guys."

In the rest of this post, I'll address response a). In a subsequent post, I'll address response b). Then in a third post, I'll observe that in my AEA paper, I also criticized a paper by Piketty and Zucman, who are not freshwater economists. The response I heard back from them was very different from the response from the freshwater economists. In short, Piketty and Zucman disagreed with my statement that they did X, but they did not dispute my assertion that X would be wrong because it would be a violation of the scientific method.

Together, the evidence I summarize in these three posts suggests that freshwater economists differ sharply from other economists. This evidence strengthens my belief that the fundamental divide here is between the norms of political discourse and the norms of scientific discourse. Lawyers and politicians both engage in a version of the adversarial method, but they differ in another crucial way. In the suggestive terminology introduced by Jon Haidt in his book The Righteous Mind, lawyers are selfish, but politicians are groupish. What is distinctive about the freshwater economists is that their groupishness depends on a narrow definition of group that sharply separates them from all other economists. One unfortunate result of this narrow groupishness may be that the freshwater economists do not know the facts about how most economists actually behave. ...[continue]...

Posted by Mark Thoma on Friday, July 31, 2015 at 03:33 PM in Economics, Methodology, Politics | Permalink Comments (9)

Gibbon said...

""a) Yes, but everybody does X; that is how the adversarial method works.""

This is how law works not science. The take away is the fresh water economists mission is not science, their mission is political.

RueTheDay said...
"What I did not anticipate was their assertion that economists do not follow the scientific method, so it is not realistic or relevant to make normative statements of the form 'we ought to behave like scientists.' "
That's mind boggling. It's precisely how you end up with Ptolemaic Epicycles, Phlogiston Theory, Aether Theory, etc.

As Keynes said, "starting with a mistake, a remorseless logician can end up in Bedlam".

If economists are going to claim that theirs is an a prior method, with no need for empiricism, no need to attempt falsification, then they ought to abandon any pretense of relevance to the real world and certainly need to acknowledge they have no business providing policy prescriptions.

Fred Fnord said...

I think Romer is being rather too nice. It is clear that saltwater economists, however flawed (and oh lord are they ever), view their job as trying to find a way to describe and predict the behavior of economies in the real world. Thus, if you know something about your model which makes it useless for this job, then hiding it is not just underhanded but is ridiculous. Which is to say, 'the purpose of science [and economics] is to accurately describe the world so that we might come to understand it and manipulate it.'
Freshwater economists seem to think, as far as I can tell, that the purpose of science is to make neat widgets, and that any theory you come up with that seems reasonable and points to a possible way of making neat widgets is as good as any other, and you can just shove the universe into your mold and saw off all the bits that don't match.

The Bush administration had a quote about it: basically, 'you people on the left want to measure reality and figure out how to cope with it, whereas we on the right will just forge ahead and create it.' In other words, understanding is not required in order to achieve your goals. This is not true for any goal more complex than nailing two boards together, but it doesn't stop them from laying waste to everything, and then pointing at themselves, blinking, and saying, 'Who, ME?' every time you call them out at it.

RogerFox said...

Enthralling - but then cat fights among competing peddlers of different brands of snake-oil so often are.
Lee A. Arnold said...
I see three different things that might explain Paul Romer's basic complaint, and they are all going on, at once:
1. Many economists work within the individual-methodological assumption of "rationality", and thus believe that individual preferences are paramount. (Romer himself takes this assumption as the baseline in his approach to the question of how and why it is that innovation is adopted in some locations and not others.) Thus the economists who are less artful and subtle than he, are usually given to suppose that the best "natural" way to get to where we all want to be (collectively speaking), is by defending and promoting the "market system" against any and all hindrances or even alleviations by government institutions.

2. Political scientists have identified a pervasive social-cognitive bias, which combines individual risk perception with "in-group" validation, and which is intimately involved in individual emotions, preferences, and existential fears -- and to which about half the population, including about half of the economists, falls prey. It is prevalent on the political Left and Right, each in its own way, but because it is involved with justifications for the status quo of the economic system, the Right currently exhibits more outbursts, because that status quo is evidently not working for everybody, as once was advertised, and indeed most people perceive a crisis. This bias has very deep emotional and cognitive correlates, and so is not easy to get out of, even by psychotherapy. Here is a short collation of its characteristics, taken from solid research literature in political science:
http://crookedtimber.org/2014/07/17/condemned-by-history-crosspost/#comment-543475

3. Romer has already spoken against the following view, but this does not excuse us from its consideration: it is possible that the economy, being a complex system, is beyond complete description by mathematics or even by computer modeling. Or even beyond much useful partial description by math. (This would follow from formal limitations in mathematics as well as cognitive or epistemological limitations in human observers.) If that is so, it would lead us to the situation which we do in fact observe: where economic science, as presently formulated, never finds adequate solutions, and never finds agreed closure upon policy formulations. If this is the case, then we would expect that, for many economists, "behaving like scientists" will naturally segue to "political discourse" -- in pursuit of, or driven by, the imperatives in my #1 and #2.

DeDude said...

Excellent observations.
a) Is basically saying: "its OK to cheat if your "opponent" is doing it.
b) Makes the goal one of fighting the "opponents"

Both are turning economics into tribal warfare, and that is a bad idea.

The "fighting" in economics should be a "fight" to discover the truth (rather than to defend a specific narrative). In that "fight" there should be no "us" and "them" because we are all on the same team (of truth), and nobody should want to cheat, because cheating defeat the purpose.

[Jul 31, 2015] Dentists and Skin in the Game

"...Dental patients who live close to an international border form the majority of dental health travelers. US citizens living in Arizona, California, and Texas can easily cross the border into Mexico, an hour's drive can save them thousands of dollars in dental costs."
.
"...This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either - they're not in business for their health, or yours."
.
"...I used to have dental insurance through work, and looked at the IEEE plan when I lost that, but decided to go cash instead. Have been on a cash basis for the last 10 years. Prefer it that way, insurance was always pretty much a wash."
.
"...By casting " routine expenses like visits "(prevention) as undesirable the racket decreases prevention thus increases the lucrative intervention. The surgery plus the pain for the victim. Look! Prevention is the most cost effective item that GGG can push at us."

Paul Krugman:

Dentists and Skin in the Game: Wonkblog has a post inspired by the dentist who paid a lot of money to shoot Cecil the lion, asking why he - and dentists in general - make so much money. Interesting stuff; I've never really thought about the economics of dental care.

But once you do focus on that issue, it turns out to have an important implication - namely, that the ruling theory behind conservative notions of health reform is completely wrong.

For many years conservatives have insisted that the problem with health costs is that we don't treat health care like an ordinary consumer good; people have insurance, which means that they don't have "skin in the game" that gives them an incentive to watch costs. So what we need is "consumer-driven" health care, in which insurers no longer pay for routine expenses like visits to the doctor's office, and in which everyone shops around for the best deals. ...

As it turns out, many fewer people have dental insurance than have general medical insurance; even where there is insurance, it typically leaves a lot of skin in the game. But dental costs have risen just as fast as overall health spending...

Posted by Mark Thoma on Thursday, July 30, 2015 at 10:41 AM in Economics, Health Care, Market Failure | Permalink Comments (17)
anne:
http://krugman.blogs.nytimes.com/2009/07/25/why-markets-cant-cure-healthcare/
July 25, 2009

Why Markets Can't Cure Healthcare
By Paul Krugman

Judging both from comments on this blog and from some of my mail, a significant number of Americans believe that the answer to our health care problems - indeed, the only answer - is to rely on the free market. Quite a few seem to believe that this view reflects the lessons of economic theory.

Not so. One of the most influential economic papers of the postwar era was Kenneth Arrow's "Uncertainty and the Welfare Economics of Health Care," * which demonstrated - decisively, I and many others believe - that health care can't be marketed like bread or TVs. Let me offer my own version of Arrow's argument.

There are two strongly distinctive aspects of health care. One is that you don't know when or whether you'll need care - but if you do, the care can be extremely expensive. The big bucks are in triple coronary bypass surgery, not routine visits to the doctor's office; and very, very few people can afford to pay major medical costs out of pocket.

This tells you right away that health care can't be sold like bread. It must be largely paid for by some kind of insurance. And this in turn means that someone other than the patient ends up making decisions about what to buy. Consumer choice is nonsense when it comes to health care. And you can't just trust insurance companies either - they're not in business for their health, or yours.

This problem is made worse by the fact that actually paying for your health care is a loss from an insurers' point of view - they actually refer to it as "medical costs." This means both that insurers try to deny as many claims as possible, and that they try to avoid covering people who are actually likely to need care. Both of these strategies use a lot of resources, which is why private insurance has much higher administrative costs than single-payer systems. And since there's a widespread sense that our fellow citizens should get the care we need - not everyone agrees, but most do - this means that private insurance basically spends a lot of money on socially destructive activities.

The second thing about health care is that it's complicated, and you can't rely on experience or comparison shopping. ("I hear they've got a real deal on stents over at St. Mary's!") That's why doctors are supposed to follow an ethical code, why we expect more from them than from bakers or grocery store owners.

You could rely on a health maintenance organization to make the hard choices and do the cost management, and to some extent we do. But HMOs have been highly limited in their ability to achieve cost-effectiveness because people don't trust them - they're profit-making institutions, and your treatment is their cost.

Between those two factors, health care just doesn't work as a standard market story.

All of this doesn't necessarily mean that socialized medicine, or even single-payer, is the only way to go. There are a number of successful healthcare systems, at least as measured by pretty good care much cheaper than here, and they are quite different from each other. There are, however, no examples of successful health care based on the principles of the free market, for one simple reason: in health care, the free market just doesn't work. And people who say that the market is the answer are flying in the face of both theory and overwhelming evidence.

* http://www.who.int/bulletin/volumes/82/2/PHCBP.pdf

pgl:
Krugman is right as far as he goes but he has buried the lead from this excellent discussion:
http://www.washingtonpost.com/news/wonkblog/wp/2015/07/29/why-dentists-are-so-darn-rich/

There is an American Dental Association just like there is an American Medical Association and their game is the same. Limit the competition to drive dentist salaries higher. Economists from Dean Baker to Greg Mankiw and Milton Friedman agree. End these cartels and allow competition for doctors and for dentists.

DrDick -> pgl...
That was my thought as well, and you can add the ABA to that list. The problem with all of those markets is that it is difficult to impossible for consumers to get accurate information on local prices and relative quality of services provided.
JohnH:
Horrified at outrageous dental expenses, I tried to find a cheaper dentist...unsuccessfully. They all charge the same. So much for competition in a free market. Somehow they rigged the market.
Worse, insurance companies pay far less for the same procedure than uninsured, so it is the uninsured who make dentists profitable.

pgl -> JohnH...
"Somehow they rigged the market". Yep - the American Dental Association is a lot like the American Medical Association. The WaPo blog was an excellent discussion.
anne -> JohnH...
Can dental insurance be bought, say through a professional organization or an AARP-like non-profit? AARP by the way enrolls adults at 50.
Observer -> anne...
Yes, here's an example from IEEE ...
http://www.ieeeinsurance.com/us/PersonalInsurance/DentalInsurancePlan.aspx

I used to have dental insurance through work, and looked at the IEEE plan when I lost that, but decided to go cash instead. Have been on a cash basis for the last 10 years. Prefer it that way, insurance was always pretty much a wash.

Very competitive market, lots of dentists running adds in my area.

My single practitioner dentist provides a ten percent cash discount, written quotes on any non-routine work, and calls that evening to follow up an any work beyond routine cleaning. Excellent service, on time, up to date technology, and I'd say the best managed medical provider office I've ever seen.

For routine medical care, its a great model, and I wish my other providers operated the same way.

anne -> Observer...
Nice description.
JohnH -> Observer...
Agree. Insurance is pretty much a wash. Anything not routine that you would want insured has big co-pays.
RC AKA Darryl, Ron -> JohnH...
"...insurance companies pay far less for the same procedure than uninsured, so it is the uninsured who make dentists profitable."
[That is certainly a big part of it. The family dentist does not make nearly so much per hour as any of the specialists, periodontist, endodontist, oral surgeon, or orthodontist. One dentist may run an office with up to a half dozen dental hygienists.]

bakho -> JohnH...
Dental patients who live close to an international border form the majority of dental health travelers. US citizens living in Arizona, California, and Texas can easily cross the border into Mexico, an hour's drive can save them thousands of dollars in dental costs. Canadians and US citizens along the East Coast, from Maine to Florida, are flocking to Costa Rica. The dental clinics of San José are only a short hop from Miami, and the dentistry is generally excellent, at costs 50-80 percent lower than those in the US. Three to check out in San José are Advance Dental Clinic, Nova Dental, and Meza Dental Clinic.
Europeans find similar advantages in hopping over to Hungary, where they are spoiled for choice among high-quality, low-cost dental clinics. Most people don't realize that Hungary boasts more dentists per capita than any other country, and some of the best and least expensive clinics are found in rural areas. For example, the small town of Mosonmagyaróvár near the Austrian border is home to more than 160 dental offices! While it's economical for Europeans to travel to Hungary for a dental checkup or a cleaning, most North Americans who travel to Hungary are looking for more extensive care, including cosmetic oral surgeries, full-mouth restorations, and implants. Such work can be had at less than half the US price, including travel and accommodations.
http://www.patientsbeyondborders.com/procedure/dentistry

JohnH -> bakho...
I have a friend who picks a Central American country and shows up unannounced at a dentist to have a root canal, etc. He can't afford US care and so far has had no problems. I'm not that adventurous.
Now he's cycling by himself in Cuba...

Whee Telephone:

"insurers no longer pay for routine expenses like visits"
~~Paul Krugman~

The *come on* from the prostitutes on 42nd street is mild, but the *come on* from the protection racket called "health insurance" is purified evil. Do you see the trap they set?

Obviously GGG can pay insurance racketeers for the preventive procedures or for the surgical intervention. Paying for prevention increase prevention utilization thus decreases demand for surgery. Got it?

By casting " routine expenses like visits "(prevention) as undesirable the racket decreases prevention thus increases the lucrative intervention. The surgery plus the pain for the victim. Look!

Prevention is the most cost effective item that GGG can push at us. By contrast, when GGG pays directly to surgeon what happens to supply/price/demand

? Do you see what happens? Doesn't increase resource. Doesn't decrease pain. Merely raises the price of surgery plus the wealth of the surgeon. Now do you see why all surgeons are Socialists, Communists, Democrats?

Think, My People!

Think!

Second Best:
Veblen theory of conspicuous consumption, dentists who pay to shoot lions like fish in a barrel mount them in their office to prove their manhood comes at a price they can afford.
Lyle:
For more expensive dental work dental tourism makes sense. If you can ID a good dentist in say Costa Rica you might get the trip and the dental work for the price of the dental work in the US. In particular for implants and the like. Unless the dental guild has rules against this. (How do dental prices in Europe compare and does European insurance include dental work?)

[Jul 31, 2015] Paul Krugman China's Naked Emperors

Jul 31, 2015 | Economist's View

What can we learn from the response of the Chinese government to the problems in China's stock market?:

China's Naked Emperors, by Paul Krugman, Commentary, NY Times: ... We've seen ... strange goings-on in China's stock market. In and of itself, the price of Chinese equities shouldn't matter all that much. But the authorities have chosen to put their credibility on the line by trying to control that market - and are in the process of demonstrating that, China's remarkable success over the past 25 years notwithstanding, the nation's rulers have no idea what they're doing. ...
China is at the end of an era - the era of superfast growth... Meanwhile, China's leaders appear to be terrified - probably for political reasons - by the prospect of even a brief recession. ... China's response has been an all-out effort to prop up stock prices. Large shareholders have been blocked from selling; state-run institutions have been told to buy shares; many companies with falling prices have been allowed to suspend trading. ...
What do Chinese authorities think they're doing?
In part, they may be worried about financial fallout. It seems that a number of players in China borrowed large sums with stocks as security, so that the market's plunge could lead to defaults. This is especially troubling because China has a huge "shadow banking" sector that is essentially unregulated and could easily experience a wave of bank runs.
But it also looks as if the Chinese government, having encouraged citizens to buy stocks, now feels that it must defend stock prices to preserve its reputation. And what it's ending up doing, of course, is shredding that reputation at record speed.
Indeed, every time you think the authorities have done everything possible to destroy their credibility, they top themselves. Lately state-run media have been assigning blame for the stock plunge to, you guessed it, a foreign conspiracy against China, which is even less plausible than you may think: China has long maintained controls that effectively shut foreigners out of its stock market, and it's hard to sell off assets you were never allowed to own in the first place.
So what have we just learned? China's incredible growth wasn't a mirage, and its economy remains a productive powerhouse. The problems of transition to lower growth are obviously major, but we've known that for a while. The big news here isn't about the Chinese economy; it's about China's leaders. Forget everything you've heard about their brilliance and foresightedness. Judging by their current flailing, they have no clue what they're doing.

[Jul 31, 2015] Greed Is King - What We Learned Talking To Chinese Stock Investors

"...Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?"

"...Same for the short selling: peasant rice farmers or JPMorgan? Inquiring minds want to know."

Jul 31, 2015 | Zero Hedge
Early birds get the worms
This goes completely against most prudent and established norms. While the standard advice is to avoid "hot" bubbly assets, in China the experience has actually been to jump in early and fully instead. Many of the bubbles or "hot" investments mentioned earlier have in truth made many of the people I've talked to a lot of money. China real estate today is a poor investment but those who got in early doubled or tripled their investments. Similarly with wealth-management products, more people have benefited from their high-interest-rate payouts than have suffered. While the Shanghai market has dropped 20%-30% from its peak a few weeks ago, it still represents a 100% gain from a year ago and a 30% gain over the last 6 months. Those participants who jumped in early are still more than happy.

Greed is king

Despite recognizing it's a bubble, almost everyone was still all-in on stocks. Why? Quite simply - greed with a dash of jealously. Seeing constant market gains in the news along with daily sharing and boasting from friends and family getting rich is simply too tempting and thus caution was thrown to the winds. Subsequently, this fueled a massive amount of equity exposure followed by leveraging and margin borrowing to go even more all-in.

But fear is the emperor

The only emotion more powerful than greed is fear. Almost everyone I talked to was still all-in on stocks but everyone had a foot halfway out the door, ready to bolt at the first sign of trouble. While not uniquely a China problem - market drops are almost always more violent than the initial rise - in China, it's several times more volatile. Look no further than solar-panel firm Hanergy's Hong Kong listed stock, which lost 47% in one hour, or the numerous days the Shanghai market rose or dropped by 5% or more.
bid the soldier...

Confucius say "With Chinese greed you get greedy one hour later. With American greed you greedy your whole life."

Greed and fear - two intrinsic emotional states relating to the topic of unpredictability of stock market. Vulnerability to those two emotional states might be a result of investors' low comfort level due to the market instability.

Greed and fear relate to an old Wall Street saying: " financial markets are driven by two powerful emotions – greed and fear".

While sticking to this statement would be an oversimplification, it can also prove to be very truthful. Resisting these emotions can have an utter and deleterious effect on investors portfolios and stock market.

This old Wall Street saying predates Kublai Kahn's duplex pleasure dome at the Xanau at 66th and Fifth.
bid the soldier...

The author hangs his hat on this stat:

Chinese retail investors make up 85% of the market, a far cry from the U.S. where retail investors own less than 30% of equities and make up less than 2% of NYSE trading volume for listed firms in 2009.

Of the 85% of the small retail investor, how many of them were in the market before China allowed foreign investors to trade their market in March 2014? How many rice farmers doubled down and margined further stock purchases when the foreign investors tried to take Shanghai to the moon? Or was it just the foreign investors (Goldman Sachs) who rode that roller coaster bought into the Shanghai market on 50% margin?

Were stocks whose trading was halted, halted to prevent further selling or halted to prevent the "malicious sellers" from covering at lower prices as the authorities slowly forced the stock prices higher?

Of the huge spike in margin loans, how much of it was caused by the rice farmers in the provinces and how much was taken on by the giant investment houses in New York and London?

Same for the short selling: peasant rice farmers or JPMorgan?

Inquiring minds want to know.

Just as we snicker when we see statistics from the Bureau of Economic Analysis (BEA) and National Bureau of Economic Research (NBER) shoundn't we all have a giggle at the numbers from The Peoples Statistics of China?
******************************************************
Their government told them it was the right thing to do. "Trust us," their government said.
Do you really think the Chinese Authorities were completely unaware of what happened in the Tokyo Stock Exchange in 1989, 3 years after the Nikkei allowed Wall Street in?
Either the Chinese are the major dumfuks on the planet or Goldman, Morgan Stanley will soon be singing the Song of Roland to deaf ears.

GRDguy

70 trips for Goldman-Sach's Hank "The Hammer" Paulson to teach certain Chinese leaders (sociopaths) on how to take candy from a baby. Big payoffs for some of them.

Crush the Infame

Stock markets need to change from being stock price based to dividend based. Investing should be about putting cash up today with the hope of getting more back tomorrow, not about making a quick casino win on market timing.
Imagine if Vegas changed the odds on all the slots so that people starting winning a lot more than they were losing. The mania would be surreal, but then they pulled back and all of these people who now depend on that money begin to panic. Of course let's add in that a large chunk of the nation's pension funds and insurance companies were sending people to Vegas to play these rigged slots as an "investment."
So what's next? Now the government steps in and tells the Vegas casinos that they will provide the cash to keep the party going. If this happened with slot machines people would be up in arms, but swap out slots for stocks and it's about keeping the "system" going.
Capitalism doesn't require a stock market. Corporate bonds and private equity could replace the selling of stock in a rigged market. There would less boom but also less bust and no need for governments to intervene when the whole thing teetered on the verge of collapse.

Moonrajah

"Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A." (c) Gordon Gekko
Uhh... about that...

Batman11

Did you find any shoe shine boys giving stock tips?

[Jul 31, 2015] Say A Little Prayer Bill Gross Warns, Zombie Corporations Now Roam The Real Economy

"...The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries." "

"...There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history"

"...In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon."

Jul 30, 2015 | Zero Hedge

Corporate investment has been anemic. Structural reasons abound and I have tried to convey that ever since my well-advertised New Normal, in 2009, which introduced the probability of a future generation of low real growth due to aging demographics, tighter regulations, and advancing technology permanently displacing workers. But there are other negatives which seem to be directly the result of zero bound interest rates.

3 month Libor rates have rested near 30 basis points for 6 years now and high yield spreads have narrowed and narrowed again in the quest for higher investment returns. Because BB, B, and in some cases CCC rated companies have been able to borrow at less than 5%, a host of zombie and future zombie corporations now roam the real economy. Schumpeter's "creative destruction" – the supposed heart of capitalistic progress – has been neutered.

The old remains in place, and new investment is stifled. And too, because of low interest rates, high quality investment grade corporations have borrowed hundreds of billions of dollars, but instead of deploying the funds into the real economy, they have used the proceeds for stock buybacks. Corporate authorizations to buy back their own stock are running at an annual rate of $1.02 trillion so far in 2015, 18% above 2007's record total of $863 billion.
But perhaps the recent annual report from the BIS – the Bureau for International Settlements – says it best. The BIS is after all the central banks' central banker, and if there be a shift in the "feed a fever" zero interest rate policy of the Fed and other central banks, perhaps it would be logically introduced here first. The BIS emphatically avers that there are substantial medium term costs of "persistent ultra-low interest rates". Such rates they claim, "sap banks' interest margins…cause pervasive mispricing in financial markets…threaten the solvency of insurance companies and pension funds…and as a result test technical, economic, legal and even political boundaries."

Greece is not specifically mentioned, nor the roller coaster ride of Chinese equity markets, nor the rising illiquidity of global high yield bond markets, nor the…well a reader should get the point. Low interest rates may not cure a fever – they may in fact raise a patient's temperature to life threatening status. Yellen, Fisher, Dudley and company may not be in total agreement, but they assuredly are listening as this week's Fed meeting will likely attest.
There is no statistical reason per se for the Fed to raise interest rates, yet absent a major global catastrophe we are likely to get one in September. But the reason will not be the risk of rising inflation, nor the continued downward push of unemployment to 5%. The reason will be that the central bankers that are charged with leading the global financial markets – the Fed and the BOE for now – are wising up; that the Taylor rule and any other standard signal of monetary policy must now be discarded into the trash bin of history. Low interest rates are not the cure – they are part of the problem. Say a little prayer that the BIS, yours truly, and a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change

nobodysfool

"... a growing cast of contrarians, such as Jim Bianco and CNBC's Rick Santelli, can convince the establishment that their world has change."
Rick Santelli Gets it....it's the other MSM sled dogs on Obama's leash that are too stupid too think for themselves or too realize there is no improving economy....guess it'll have to hit them in the face when they're fired for bad ratings.

RMolineaux

Two slips: BIS stands for Bank for International Settlements, and if Gross is refering to the Vice Chairman of the Fed, it is Stanley Fischer (with a "c"), former Chairman of the Central Bank of Israel. Otherwise an excellent piece of work, IMHO.

In other countries, and in other times, low interest rates and monetary easing have resulted in speculation and stock market inflation rather than job-creating investment. Someone is not doing his homework. The massive use of stock buy backs is a relatively new phenomenon. In more serious times, the use of treasury stock by corporations to influence the market price was frowned upon, and attempts were made to make it illegal. Corporations over a certain size need to be required to have Federal charters (under the interstate commerce clause of the Constitution), and this kind of behavior prohibited.

[Jul 30, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History

"...In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman."
.
"...The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile."
.
"..."It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters,""
.
"..."When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold", With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim."

economistsview.typepad.com

Jul 21, 2015 | Zero Hedge

"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

"It's a wonderful idea," Friedman told him. "You must do it!"

Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

*****

Source: The Great Deformation by David Stockman
falak pema

Hahaha, for the FIRST time I see a post here on ZH where the "profoundly erroneous monetarist doctrine" of Milton Friedman gets blamed for what follows : the greatest monetary sin of the West (after the gold exchange standard according to Jacques Rueff).

The Friedmanite floating rate regime is what started the instability in the world monetary casino and yes the futures market did the rest.

Yipeeee, we have it right there. The monetary SIN laid out here at ZH and it had NOTHING to do with Keynesian plays. The Casino was a PURE product of the CHICAGO school so dear to Hayek. Who approved the supply side "liberalisation" of Reaganomics that followed.

ZH has vindicated that very important piece of the puzzle in the global financial time line of our present age.

Now Keynes's ghost can rest in piece. Monetarism will have to carry its own Cross on its Golgothan march.

The Delicate Genius

I think there may be a middle you're excluding...

falak pema

May be a middle called Nixonian petrodollar anchoring. But that did not change the Casino mantra. It just anchored "our money your problem" to Saud's Oil guzzler.
All that did was to suck the Oil into the fiat bonanza world.
Something the Sauds don't appreciate anymore as the Fiat pile is making Pax Americana fragile and it cannot zero hedge its support of Sunni Saudi hubris. It has to HEDGE with IRAN...now having showed its resilience after 40 years of confronting the USA.
C'mon Genius don't just mumble in your libertarian beard, put up or shut up.

hxc

Not all monetarists are chicagoan. They became book cookers for Keynesian discretionary policy... Hence NK's, New Classicals, "market monetarists," et cetera. Friedman's been reduced to the guy in the back room, wearing a green visor and rigging up Keynes' insane monetary system.

Check it out

The Perversion of Monetarism

MASTER OF UNIVERSE

Agreed, but only because you know more than I do when it comes to Economics, and because I always thought that cocksucker Freidman, and the Chicago School, were crooked snakes-in-the-grass all along. And frankly, Z/H does kind of beat on Keynes a bit too much sometimes, but the SOB is dead, so who cares anyhow. Historiography has a nothing to do with reality in this day and age, methinks.

falak pema

1946 Keynes dies. 1965 De Gaulle starts talking about "exorbitant privilege" and US hubris.

At the end of the 60s the London Gold club that tries to bridge French concerns about US spending profiglacy (Vietnam war, great society) and US balance of trade deterioration, collapses. Harold Wilson caves in to "gnomes of Zurich" and London loses pivotal role with a devalued £.

By 1969 the French have put the fear of God up Nixon when a french gunboat arrives reclaiming French gold deposited in NY. SO...1971 and Nixon makes the plunge.

You can say what you like about Keynes. He had nothing to do with Nixon/Johnson's spending spree which made gold revoke inevitable. It was not his philosophy which was à la mode in 1969 but the Chicago school.

MASTER OF UNIVERSE

From what I have read about Keynes he was appropriately characterized as 'brilliant'. Of course, no amount of Keynesian Stimulus could have shut down the Bear Stearns bear raid, or the Lehman Bros. Chapter 11. Ergo, the downfall of Freidman's orthodoxy was bound to occur as soon as Glass-Steagall deregulation provided the leverage via the FCC. Since the exemption on leverage for Bear Stearns it took five years to melt down to a systemic Worldwide intractable problem. Keynes was right about CB intervention, but he had no way of knowing that certain fundamentals would be altered beyond logic of failsafe.

p.s. thanks for going into detail on history. I always appreciate historical background given my background in Experimental Psychology/Personality/Biography/Historiography and Sociology.

withglee

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar.
Oh really? What would you have done ... with the street price of gold at over $70, the official price at $35, and the French choosing to be compensated in gold rather than dollars, as they were supposedly the same thing.
What would you have done?

knukles

Another reason the Chitown Loop banks were not supportive of Melamed's currency futures ideas was that the Harris primarily was at the time "the" Bulge Bracket Big Swinging US Based Dick of the cash and forward 4X markets as well as one of the largest financers of the futures businesses on the CME and CBoT. They saw Leo not as a product extension, but a threat to their dominance.

withglee

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold,
With, then as now, less than an ounce of gold per person on Earth, a third grader had arithmetic skills enough to know this was a ridiculous claim.

armageddon addahere

Everybody acts like Nixon closing the gold window was the beginning of something. It wasn't. It was the end. At that point the US had been spending money like water overseas for everything from the Marshall Plan, Volkswagens and Japanese transistor radios to the Korean and Vietnam wars. There was a net inflow of gold during the depression and WW2, but after that there was a steady outflow all through the fifties and sixties.
The whole world wanted American dollars, and a lot of it got turned in for American gold. The gold was nearly gone. At the rate it was going, the last ounce would leave Fort Knox in less than two years. They had no choice but to end the convertability of gold - sooner or later. Nixon's only choice was to take action and make a smooth transition or let everything go to hell at once.

most-interesting-frog-world

Bear

"The Great Deformation by David Stockman" ... This is the most remarkable treatise on economic history ever written. If you haven't read it you are still in the dark.You will continue to see many excerpts from this book on ZH ... and well deserved.

David Stockman should be given a Nobel Prize for Economics ... for exposing Economics as the insanity it is and fully captive to politics.

[Jul 29, 2015] Using Math to Obfuscate - Observations from Finance

Notable quotes:

"... then from Romer's assumptions the rival inputs cannot be earning their marginal product. ..."

"... The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ... ..."

"... Four-fifths of the "Economy" is a Complete Waste of Time ..."

"... I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output. ..."

"... The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output. ..."

"... "In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness." ..."

"... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models." ..."

"... why do economies grow vulnerable over time ..."

"... On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. ..."

"... Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment ..."

economistsview.typepad.com
More from Paul Romer on "mathiness" -- this time the use of math in finance to obfuscate communication with regulators:
Using Math to Obfuscate - Observations from Finance: The usual narrative suggests that the new mathematical tools of modern finance were like the wings that Daedalus gave Icarus. The people who put these tools to work soared too high and crashed.
In two posts, here and here, Tim Johnson notes that two government investigations (one in the UK, the other in the US) tell a different tale. People in finance used math to hide what they were doing.

One of the premises I used to take for granted was that an argument presented using math would be more precise than the corresponding argument presented using words. Under this model, words from natural language are more flexible than math. They let us refer to concepts we do not yet fully understand. They are like rough prototypes. Then as our understanding grows, we use math to give words more precise definitions and meanings. ...

I assumed that because I was trying to use math to reason more precisely and to communicate more clearly, everyone would use it the same way. I knew that math, like words, could be used to confuse a reader, but I assumed that all of us who used math operated in a reputational equilibrium where obfuscating would be costly. I expected that in this equilibrium, we would see only the use of math to clarify and lend precision.

Unfortunately, I was wrong even about the equilibrium in the academic world, where mathiness is in fact used to obfuscate. In the world of for-profit finance, the return to obfuscation in communication with regulators is much higher, so there is every reason to expect that mathiness would be used liberally, particularly in mandated disclosures. ...

We should expect that there will be mistakes in math, just as there are mistakes in computer code. We should also expect some inaccuracies in the verbal claims about what the math says. A small number of errors of either type should not be a cause for alarm, particularly if the math is presented transparently so that readers can check the math itself and check whether it aligns with the words. In contrast, either opaque math or ambiguous verbal statements about the math should be grounds for suspicion. ...

Mathiness–exposition characterized by a systematic divergence between what the words say and what the math implies–should be rejected outright.

Posted by Mark Thoma on Wednesday, July 29, 2015 at 10:52 AM in Economics, Financial System, Methodology | Permalink Comments (2)

[Jul 20, 2015] The Rivals (Samuelson and Friedman)

Jul 19, 2015 | Economist's View

pete said...

I always loved Boulding's somewhat critical review of Samuelson, discussing the limits of the mathematicization of economic theory. Of course Samuelson was the tip of the iceberg, and since then many overconfident economic mathematicians have led to very serious financial problems. I had one stats professor who called a complex theory on the blackboard "graffiti."
http://www.jstor.org/stable/1825768?seq=1#page_scan_tab_contents

pgl -> pete...
Samuelson did not do math for math's sake. He figured out first what the real world issue was and then used math to help explain his insights.
likbez -> pgl...
You need to distinguish "math" from "mathematical masturbation", or as they are now more politically correctly called "mathiness".
Many economic works that use differential equations belong to the latter category ;-). A lot of pitiful clowns pretending to be mathematicians do not even bother to understand what is the precision and error bounds of the input data. As in "garbage in, garbage out".

This is probably a unique case when mathematic equations are used to support particular political ideology. Support via "scietification" (as in Church of Scientology) of essentially political statements. Especially about unemployment and poverty.

anne -> anne...

All in all, the past 7 years have been a very good time for old-fashioned macroeconomics. But of course nothing will make the Germans, or the U.S. right, concede that Keynesian ideas have worked.
[ Keynesian ideas have worked? Influential among policy makers in general or not, Keynesian ideas have worked. ]

pgl -> anne...

Keynesian theory explains what happened. But what happened was the our policy makers failed to do the right thing. Had they listened to Keynes - the recoveries would have been much faster.

likbez -> pgl...

"Had they listened to Keynes - the recoveries would have been much faster."
This was impossible. There is such thing as "Intellectual capture". As Keyes noted
"The ideas of economists and political philosophers, both when they are right and when they are wrong are more powerful than is commonly understood. Indeed, the world is ruled by little else. Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually slaves of some defunct economist."

[Jun 15, 2015] What Assumptions Matter for Growth Theory

Jun 15, 2015 | Economist's View
Dietz Vollrath explains the "mathiness" debate (and also Euler's theorem in a part of the post I left out). Glad he's interpreting Romer -- it's very helpful:
What Assumptions Matter for Growth Theory?: The whole "mathiness" debate that Paul Romer started tumbled onwards this week... I was able to get a little clarity in this whole "price-taking" versus "market power" part of the debate. I'll circle back to the actual "mathiness" issue at the end of the post.

There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not? We can answer the first without having to answer the second.

Just to refresh, a production function tells us that output is determined by some combination of non-rival inputs and rival inputs.

Non-rival inputs are things like ideas that can be used by many firms or people at once without limiting the use by others. Think of blueprints.

Rival inputs are things that can only be used by one person or firm at a time. Think of nails.

The income earned by both rival and non-rival inputs has to add up to total output.

Okay, given all that setup, here are three statements that could be true.

Output is constant returns to scale in rival inputs

Non-rival inputs receive some portion of output

Rival inputs receive output equal to their marginal product

Pick two.

Romer's argument is that (1) and (2) are true. (1) he asserts through replication arguments, like my example of replicating Earth. (2) he takes as an empirical fact. Therefore, (3) cannot be true. If the owners of non-rival inputs are compensated in any way, then it is necessarily true that rival inputs earn less than their marginal product.
Notice that I don't need to say anything about how the non-rival inputs are compensated here. But if they earn anything, then from Romer's assumptions the rival inputs cannot be earning their marginal product.

Different authors have made different choices than Romer. McGrattan and Prescott abandoned (1) in favor of (2) and (3). Boldrin and Levine dropped (2) and accepted (1) and (3). Romer's issue with these papers is that (1) and (2) are clearly true, so writing down a model that abandons one of these assumptions gives you a model that makes no sense in describing growth. ...

The "mathiness" comes from authors trying to elide the fact that they are abandoning (1) or (2). ...

[There's a lot more in the full post. Also, Romer comments on Vollrath here.]

Paine

Excellent
Lots of conclusions are per determined by simple assumptions like constant returns to scale
If by scale we mean replication of the existing production system on a larger scale
Where say we triple every plant and highway etc
The model nicely captures the reality of a static production system
Where all factors are expandable even if at a cost
This is a very narrow notion of scale effects
If for example markets for oust expand and a different technique is optimal
Then there's a dynamic transition
Where residuals emerge.

anne -> Paine ...

I assume this is the reference which the writer is too inconsiderate to mention:
http://worthwhile.typepad.com/worthwhile_canadian_initi/2015/06/are-ideas-really-non-rival.html
June 13, 2015
Are ideas really non-rival?
By Nick Rowe

Paine -> anne...

Rowe thinks he is making a great joke
But in actuality there is nothing but assertion of various hypothetical entities behind the entire neo classical construct

No matter how carefully these atoms are defined they remain figments
That one can conjure like epicycles
Example

Advertising Is a production factor -- Once we move away from he material basis of production lots of spirits dance in the air around us

Once a non rival good has been discovered or invented or created etc it's cost to replicate is nearly zero

To lay the bulk of profits at its feet is ridiculous of course. But intellectual property none the less is a growing means of exploitation...

Paine -> Paine ...

My definition of non rival is wrong of course. The meaning of non rival is castlessly inexhaustible
Nothing fits this description exactly. And almost is as bad as not at all.

Non rival -- Example of belief in the divinity of Jesus. I can believe as much whether you believe or not

anne -> Paine ...

All exchange value flows from labor time. Even if in complex patterns easily mystified by simple definitions. Of imaginary objects like non-rival production factors

[ I understand and am pleased. ]

Sandwichman said...

Four-fifths of the "Economy" is a Complete Waste of Time
"There are really two questions we are dealing with here. First, do inputs to production earn their marginal product? Second, do the owners of non-rival ideas have market power or not?" -- Dietz Vollrath "What Assumptions Matter for Growth Theory?"
"Dietz Vollrath has a new post that goes a long way toward clarifying the battle lines in the fight over the foundations of growth theory." -- Paul Romer, "The Assumptions in Growth Theory"
Huh? These fellows omit the main assumption, the analogy -- "growth is a concept whose proper domicile is the study of organic units..." (Kuznets, 1947). Kuznets cited with approval Sidney Hook's discussion of the dangers of the use of this analogy.

"As an argument it is formally worthless and never logically compelling. An argument from analogy can be countered usually with another argument from analogy which leads to a diametrically opposed conclusion.... The belief that society is an organism is an old but fanciful notion. It can only be seriously entertained by closing the eye to all the respects in which a group of separate individuals differs from a system of connected cells, and by violently redefining terms like 'birth,' 'reproduction,' and 'death.'"

Growth "theory" gets around this objection to the uncritical use of analogy by ignoring it -- by 'closing the eye' to explicit caveats in the seminal contribution to the measurement of growth. Let's pretend that the economy really is an organism that grows perpetually but never dies.

Name one.

Carry on, growth theorists.

anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/the-chimerical-analogies-of-growth-and.html
June 6, 2015
The Chimerical Analogies of Growth and Distribution

http://econospeak.blogspot.com/2015/06/four-fifths-of-economy-is-complete.html
June 14, 2015
Four-fifths of the "Economy" is a Complete Waste of Time

-- Sandwichman

Sandwichman -> Sandwichman...

1. "growth is a concept whose proper domicile is the study of organic units..."
2. "The belief that society is an organism is an old but fanciful notion."
3. ?
4. Growth!

Sandwichman -> anne...

"the meaning of per capita growth in China over these last 38 years of 8.6% yearly"

It means, literally, that if you ate one bowl of rice for dinner in 1977, in 2015 you would eat 23 bowls of rice for dinner. Of course it doesn't *really* mean that. The "measurement" is actually a figure of speech.
Figuratively, it means something more like: many more Chinese own cars today than 38 years ago and those cars are worth hundreds of times what the old bicycle was worth. Never mind that the car is used to commute to work, that it takes as long to drive to work through congested traffic as it once did to ride a bike to work and that the air is unbreathable so it would be suicide to go back to riding a bike.

Still, growing 8.6% per year for 38 years is a prodigious achievement even if we don't know what it means.

Sandwichman -> anne...

A large part of that gain in life expectancy is attributable to an enormous decline in infant mortality. Expenditures on improved infant health care would be only a miniscule portion of the total economic growth.
When I say "prodigious" I mean remarkable or immense without attaching any value judgement about whether it is a good or a bad thing. There have obviously been some good things associated with that growth -- see infant mortality. There has also been an explosion of GHG emissions. If 2/3 of that growth was good things (reduced infant mortality, improved nutrition etc.) and 1/3 bad things (police surveillance, cost of commuting to work, etc.) then China would have been better off with a 6% growth rate.
Can't we just forget about the confounded aggregate and get on with promoting the good? No, apparently not. Two pieces of pie is better than one if it's cherry pie but not if it's "dirt" pie.

anne -> Sandwichman...

Can't we just forget about the confounded aggregate and get on with promoting the good?
[ Surely so, but if a part of the good is life span, well, that of India is 66 years which shows how far China has come and I really do know of the problems. ]

anne -> Sandwichman...

Again, I am waiting for an explanation of or a description showing what the past 38 years of per capita growth in China represent. What does the past 38 years of astonishing gains in Chinese productivity represent and how to depict these gains?

Paine -> anne...

We need a welfare index. And that greatly increases the degree of difficulty over a simple output index

Sandwichman -> Paine ...

"If the GDP is Up, Why is America Down?" Clifford Cobb, Ted Halstead, and Jonathan Rowe, The Atlantic, 1995.

http://www.theatlantic.com/past/politics/ecbig/gdp.htm

And do you know what the overwhelming response of economists was to that article? "Nothing new here." "We know GDP is not a measure of welfare. But it's useful because it tells us about the capacity to produce goods that could enhance welfare."

Or to paraphrase Orwell, "If this boot wasn't stamping on your face, you could put it on your foot and it would keep your toes warm -- FOREVER!" Paul Samuelson's version, "Evaluation of Real National Income":

"Production possibilities as such have no normative connotations. We are interested in them for the light they throw on utility-possibilities. This is why economists have wanted to include such wasteful output as war goods in their calculations of national product; presumably they serve as some kind of an index of the useful things that might be produced in better times."

I repeat, NO NORMATIVE CONNOTATIONS. What part of "no" do people not understand? It's neither good nor bad that the economy ACTUALLY produces wasteful output.

The amount of wasteful output "serves as an index" for the amount of useful output that could be produced if the economy wasn't producing wasteful output.

anne -> Sandwichman...

http://econospeak.blogspot.com/2015/06/some-kind-of-index-no-normative.html
June 14, 2015
Some Kind of an Index -- No Normative Connotations
-- Sandwichman

Julio -> Sandwichman...

A question for you folks in this subthread:
"In a perfect free market world where the price mechanism adjusts production to our wishes and all externalities are priced in, GDP measures economic happiness."
Proposition: That myth underlies our world.
Conclusion: In our world, "GDP is not correlated to happiness" is, therefore, a subversive statement.

Is this sensible, and if so, does it make alternative measures of economic well-being difficult to construct?

Julio -> Sandwichman...

Aggregate is not the same as average.

The "prices as the driver" argument is that you will buy a yellow car and I a green one, and Detroit will make just enough of each, and that's the closest we'll ever come to an economy that reflects our wishes, and that's in turn the closest we'll ever come to (economic) happiness.
But this may be an aside: is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?

We could measure economic decisions by using economics as far as it takes us to evaluate their consequences, and then using our moral compass to do the measuring.

A more ad-hoc method which, for our collective decisions, has political pitfalls; but politics is the appropriate forum for those fights. We would no longer know (or care) what "progress" is, as a national aggregate.

Sandwichman -> Julio...

"is your point that a "welfare index", as paine proposes, is unrealistic and so irrelevant?"
No, it's not entirely unrealistic and irrelevant but it IS very limited and, like GDP subject to misinterpretation as more substantive than it is.
The thing about GDP that won't be gotten away from is that it does provide information that is useful for projecting revenues for business and for government.

A welfare index wouldn't do that. You can tax income but you can't tax happiness -- at least not literally.

anne -> Sandwichman...

The measurement of economic well-being is inherently difficult (impossible) because it involves the aggregation of subjective judgments....
[ Agreed. ]

anne -> Sandwichman...

The sort of growth-happiness surveying referred to is to my mind no more than pseudo research. As empirical as bumble bees.

Sandwichman -> anne...

anne, I tend to agree with your skepticism about happiness surveying. However, I have also worked on so-called real survey research -- Canadian census. If you saw how the sausage was made...

The Case of the Missing Minsky by Paul Krugman

"...On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models."

NYTimes.com

Gavyn Davis has a good summary of the recent IMF conference on rethinking macro; Mark Thoma has further thoughts. Thoma in particular is disappointed that there hasn't been more of a change, decrying

the arrogance that asserts that we have little to learn about theory or policy from the economists who wrote during and after the Great Depression.

Maybe surprisingly, I'm a bit more upbeat than either. Of course there are economists, and whole departments, that have learned nothing, and remain wholly dominated by mathiness. But it seems to be that economists have done OK on two of the big three questions raised by the economic crisis. What are these three questions? I'm glad you asked.

As I see it, it makes sense to think of what happened in terms of three phases.

First, a buildup of vulnerability, with rising leverage and an increasingly fragile financial system.

Second, the acute phase of crisis, with bank runs or their functional equivalent, collapsing liquidity, and more.

Then a long period of depressed employment and activity, which still isn't over.

The questions then are how and why each of these things can/did happen. I think of these as the Minsky question - why do economies grow vulnerable over time ; the Bagehot question - why does all hell break loose now and then; and the Keynes question - how economies can stay depressed, and how such depressed economies work.

On the Keynes question, it's true that we haven't had a radical change in thinking, but that's mainly because the old thinking still works pretty well. That is, the answer for people asking who would be the new Keynes turns out to be that Keynes is the new Keynes. Or maybe that's Hicks - anyway, IS-LMish analysis worked well, and the economists who made fools of themselves were those who rejected the time-tested approaches.

What is new is that we have had a flowering of empirical work, and have much more econometric evidence on monetary and especially fiscal policy, price behavior, and more than we used to. Look, for example, at Nakamura/Steinsson's survey, or at the Blanchard work on multipliers in the euro area. So this is a happy story: the existing framework worked fairly well, and is now buttressed by a lot of really good empirical evidence.

On the Bagehot question, economists were initially caught flat-footed, for two reasons: failure to realize that shadow banking had recreated the risk of bank runs, and failure to appreciate the problems of leverage because there is no room for such problems in representative-agent models. But it wasn't very hard to fix these problems, or at least apply workable patches. Once you realized that repo was the new bank deposits, the basic crisis framework was already there; and there was already enough existing analysis of balance-sheet constraints and all that to make creation of a somewhat messy, inelegant, but usable set of models quite easy.

And here too we have seen a flowering of empirical work, e.g. Mian and Sufi on household debt.

Where we have not, as far as I can tell, made much progress is the Minsky question. Why did the system become so vulnerable? Was it deregulation (or failure of regulation to keep up with institutional change)? Simple forgetting, as memories of past crises faded? Excessively loose policy? I have views, but I have to admit that there isn't a lot of either fresh thinking or hard evidence here.

Why is Minsky still mostly missing? Partly because asking how we got here may be less urgent than the question of what we do now. But also, I'd guess, because it's hard. Bubbles, excessive leverage, and all that probably have a lot to do with the limits of rationality, and behavioral economics doesn't provide anything like as much guidance as it should.

Still, I'm relatively positive in my assessment of the state of macroeconomics. Against mathiness and political ideology, the gods themselves contend in vain, but that's not a problem with the models

kbaa, The Irate Plutokrat

It is good to see Krugman write in opposition to 'mathiness', economists' misuse of mathematics to justify their pet theories. And his suggestion that 'behavioral economics doesn't provide anything like as much guidance as it should' is probably as close to an admission as we are ever likely to get from an academic economist that it's human psychology that drives the economy after all, and that all of the various high minded macroeconomics theories are nothing more than propaganda to be used by lobbyists who present them as scholarship.
Economics is a subject that is driven by data, i.e. numbers. Wherever there are numbers there is always the possibility of misusing mathematics to intimidate. Any paper that cites game theory or the Euler consumption equation to promote public policy should be regarded as fraudulent until shown to be otherwise. Mathematics serves the same function for academic economists as Latin theology did for medieval clerics: both provide an aura of erudite wisdom where there is no wisdom at all to be found.
NB For those who have never studied Calculus, "Euler" is pronounced "oiler", but there's no connection with the price of oil or any other commodity, and don't let any academic economist try to tell you otherwise.

Book Review "Keynes The Return of the Master"

WSJ.com

Yet Mr. Skidelsky chooses to make Mr. Lucas sound like some kind of idiot savant, more interested in playing with mathematical models than in trying to understand how the world actually works. Mr. Lucas, we are told, is following in the tradition of the "French mathematician Leon Walras [who] pictured the economy as a system of simultaneous equations." The very idea is made to sound slightly crazed.

This brings us to the biggest problem with "Keynes." Mr. Skidelsky admits to being poorly trained in the tools that economists use: "I find mathematics and statistics 'challenging,' as they say, and it is too late to improve. This has, I believe, saved me from important errors of thinking."

Has it, really? Mr. Skidelsky would like to think that his math-aversion allows him to focus on the big ideas rather than being distracted by mere analytic details. But mathematics is, fundamentally, the language of logic. Modern research into Keynes's theories-I have conducted such research myself-tries to put his ideas into mathematical form precisely to figure out whether they logically cohere. It turns out that the task is not easy.

Keynesian theory is based in part on the premise that wages and prices do not adjust to levels that ensure full employment. But if recessions and depressions are as costly as they seem to be, why don't firms have sufficient incentive to adjust wages and prices quickly, to restore equilibrium? This is a classic question of macroeconomics that, despite much hard work, is yet to be fully resolved.

Which brings us to a third group of macroeconomists: those who fall into neither the pro- nor the anti-Keynes camp. I count myself among the ambivalent. We credit both sides with making legitimate points, yet we watch with incredulity as the combatants take their enthusiasm or detestation too far. Keynes was a creative thinker and keen observer of economic events, but he left us with more hard questions than compelling answers.

[Jul 29, 2015] Chevron cutting 1,500 jobs to help cut costs by $1B

"...The cuts, which will take place across 24 business groups ... about 270 are existing vacant positions that will not be filled; the company also plans to eliminate an additional 600 contracting positions as well. "

Jul 28, 2015 | cnbc.com

Energy giant Chevron will eliminate about 1,500 job positions in an effort to cut costs, the company said in a statement Tuesday.

The cuts, which will take place across 24 business groups in its corporate center, will result in cost reductions of about $1 billion.

"In light of the current market environment, Chevron is taking action to reduce internal costs in multiple operating units and the corporate center," Chevron said, in the statement. "These initiatives, which are currently underway, are focused on increasing efficiency, reducing costs and focusing on work that directly supports business priorities."

Of the announced cuts, about 270 are existing vacant positions that will not be filled; the company also plans to eliminate an additional 600 contracting positions as well.

Chevron shares were little-changed in after-hours trading. It and Exxon Mobil are both slated to report quarterly earnings Friday morning.

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How Its All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

- Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.
And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 29, 2015] Bill Gross Explains (In 90 Seconds) How It's All A Big Shell Game

07/29/2015 | zerohedge.com

"There is no doubt that the price of assets right now is a question mark... and ultimately when Central Banks stop manipulating markets where that price goes is up for grabs... and probably points down"

As Gross tweeted...

Gross: All global financial markets are a shell game now. Artificial prices, artificial manipulation. Where's the real pea (price)?

- Janus Capital (@JanusCapital) July 29, 2015

This clip carries a public wealth warning...

Jim Shoesesta

He is short, he is a loser, shell game or not.

ebworthen

Very rich loser.
And the markets are a .gov sanctioned and supported three card monti scamming folks all day, every day.

[Jul 29, 2015] Fed staff error reveals "potential" output is mostly nonsense by Matthew C Klein

Jul 27. 2015 | ftalphaville.ft.com | 12 comments

On June 29, someone at the Fed inadvertently included the staff's June economic projections, which are supposed to be secret, into publicly available computer files. On July 24, the Fed decided to let the world know that it goofed, while also letting you download the charts and tables for yourself. Then it turns out that some of the information released was incorrect and had to be updated yet again.

For convenience, here's a link to the table, which is somewhat useful to compare to the published projections of FOMC members. You'll notice that the staff is much more pessimistic about real growth for 2015 than the entire range policymakers, and more pessimistic for 2016 growth than most policymakers polled for their projections. Otherwise there isn't much new there.
Read

[Jul 29, 2015]World Natural Gas Shock Model

"...I mean, I know WTI is around $47.00 due to the temporary lull in world oil consumption (leading to a temporally local oversupply of 2 million or so barrels a day), but that won't last (after all, what's the solution for low prices? Low prices, which spurs consumption. Duh! Econ 101 right?). Still though, it does seem like some optimism is perhaps not out of place."
.
"...A sustainable industrial civilization IS at least technically possible."
.
"..."Looks like any oversupply won't be around much longer" depends on the time span, and the human factor: how many investors are willing to bet oil prices will recover to $80-90 per barrel by 2017? The key is to understand there's a large dose of unquantifiable human behavior in this game."
.
"...BREAKING: US #oil production fell 145 kb/d according to latest #EIA weekly data to 9413 kb/d http://ir.eia.gov/wpsr/overview.pdf #crude"
Jul 29, 2015 | Peak Oil Barrel
The Wet One: 07/28/2015 at 3:30 pm
I've been on holidays, taking a break from it all and flying all over the western hemisphere burning up precious fuel.
Now that I'm back to reality, is there any reason to believe that the world will not go to hell in handbasket before I die in about 40 or so years?

I mean, I know WTI is around $47.00 due to the temporary lull in world oil consumption (leading to a temporally local oversupply of 2 million or so barrels a day), but that won't last (after all, what's the solution for low prices? Low prices, which spurs consumption. Duh! Econ 101 right?). Still though, it does seem like some optimism is perhaps not out of place.

But then I read Albert Bartlett's comments about the exponential function and, yeah, I'm hoping against hope aren't I? World population growth, carbon continues to be added to the atmosphere, and bad things will still probably arrive before I die in about 40 years.

And my planned for, but presently non-existent children, will be going into that maelstrom along with my grandchildren.

Ok, I'm properly depressed again now.

I need to go back on holidays. Perhaps somewhere a little closer this time (seriously, no need for another 15,000 km round trip. That was a lot of travel).

Dennis Coyne: 07/28/2015 at 3:55 pm
Hi Wet one,
There is a good possibility (better than 50% chance) that within 5 to 10 years of the beginning of oil decline (more than 0.5% per year for 3 years or more so people recognize it) that there will be an economic depression. My guess is between 2028 and 2033 for the start of Great Depression 2.

How the world responds is key, will we also repeat WW2 or worse or will there be a focus on solving the energy problem and associated environmental problems with wise social investments? A build out of rail, light rail and High Voltage DC transmission would be a start. Tax credits for non fossil fuel energy production and development might also help along with a stiff tax on carbon emissions.

Much is possible, higher fossil fuel prices as they deplete will help move society towards alternative energy, but it probably won't be fast enough to avoid a crisis. The response to crisis will determine the ride.

old farmer mac: 07/28/2015 at 9:41 pm
Don't let people like Bartlett get you too far down.
Back when I was an agriculture undergrad in the fabled sixties I heard all the doom and gloom predictions made up until that time in the biology classes that made up well over a third of my studies. Those classes sometimes carried ag id such as Ag BioChem 201 as opposed to Intro BioChem 201 etc but they were taught in the same classrooms at the same hour by the same professors to the biology majors.I had a long conversation with Erlich himself, the guy who wrote The Population Bomb, when he came to Va Tech as a visiting scholar.

Back in those days I had a "hot young blossom" ( Twain) of my very own, who although she was a hot blooded Baptist farm girl with four sisters and a brother make it perfectly clear that SHE would never have more than two kids. Of course being young and intellectually arrogant and extremely well read (for a youngster) and all that sort of thing it never even occurred to me in my ignorance that women all over the world might be thinking the same way in a couple of generations.When I look back the width and depth of my ignorance in those amazes the hell out of me. Nowadays I am so far behind when it comes to really understanding the new technological realities the youngsters look at me with pity if not outright contempt. But I know ONE thing they have not yet learned – that thing being that they just might be WRONG about the future.

I looked at people like Erlich as demigods back in my youth and promptly forgot about them -believing that the shit would hit the fan SOMEDAY just as they predicted but also believing that someday was too far down the road to concern myself with it.

There is NOTHING wrong with Bartlett's actual science but as Yogi sez, predicting is HARD, especially the future. Bartlett and Erlich know (knew) their stuff but they failed to anticipate falling birth rates and they grossly underestimated or ignored the rate at which progress was being and is still being made in energy efficiency and conservation measures.

They did not foresee the computer and electronic communication revolution that is making it possible for poor people's kids in backward countries to get a basic education formerly totally out o their reach.

They did not foresee the coming of cheap photovoltaics or the sort of genetic engineering that allows modern farmers to grow more food on less land without the topsoil washing away due to plowing over and over.

There is as much critical knowledge to be gained from the study of history and literature as there is from the hard sciences themselves.

A sustainable industrial civilization IS at least technically possible. Anybody who tells you otherwise is basing his arguments on outdated assumptions such as the EROEI of renewables being too low to get the job done. Plenty of capable physicists will tell you the same. I have asked four personally. None of the four is willing to predict such a civilization WILL come to pass but all four believe it is within the realm of the possible.

Falling birth rates and changing life styles in combination with new technology mean we DO have a chance – some of us at least.

There is no reason to assume that the entire world is going to suffer a silmantaneous hard crash, although the cards might fall that way-especially if we fight a flat out WWIII which is a real possibility.There ARE plenty of good reason to believe large parts of the world WILL suffer such a crash at somewhat different times. This is what overshoot is all about.

Western European countries will sooner or later do whatever they must do to stop the flow of immigrants from Africa and other nearby places. If it takes machine guns at the borders, machine guns will eventually be deployed.

I anticipate our southern American border being closed up tight within ten years or so regardless of which party controls the country. As times get tougher the voters are not likely going to tolerate much immigration legal or otherwise.

Life IS a Darwinian affair and while we have a great capacity to show empathy and assist each other in times of trouble, we look after our nested "in" groups starting with the immediate family, the extended family, the local community… right on up to the nation state we call home.

With a little luck – more than a little – the USA, Canada, and a few other nations possessed of plenty of resources, defensible borders, large educated populations, very powerful armed forces or very powerful allies etc etc have a decent shot at pulling thru the coming crisis, although I expect some very hard times even here in the USA.

There really isn't ANYTHING at all that we MUST have to survive and live decent lives that we do not possess already within our borders.

Stay well away from places such as Egypt and Detroit and go ahead and have a couple of kids.

It times past they would have been at high risk of dieing from starvation, a dozen different contagious diseases, war, snake bite, exposure, food poisoning, a broken bone or an abscessed tooth or old age at thirty five due to working themselves to death.

Pick a good spot to raise them and teach them how to think for themselves and to work hard and smart and they will probably have about as good a shot at living to be old and providing you with grandchildren as any generation that has ever lived.

There is a LOT to be said for the Bible Belt mountains of the southeastern USA. In the event the shit hits the fan really hard, there is no better place to be. In the lottery of life I am a damned lucky individual, having been born to a family with the right color skin and a suitable name etc in the strongest and best situated nation on earth. I got lucky again coming from one of the best spots in the USA. Call my hand four of a kind. If my parents had been rich and connected, I would have drawn a royal flush. I am guessing that you are holding not less than a full house yourself but I don't know where you are from.

Safety is an illusion. The grave worms WILL have their way with us unless our carcasses are pumped full of nasty chemicals and in that case the anaerobic bacteria will get the carcass anyway. When we quit believing in God we did not just immediately start believing in NOTHING. Without something bigger and grander to look up to we have gotten to looking at our navels too often and want to live forever since death is so scary.

I don't have any qualms about life being dangerous. Life has always been dangerous until very recently indeed. Quite a few of the people buried in the church cemetery where I will rot away next to my parents met violent ends. Men who wear panties feel compelled to call the police when troubles come to them but men around here just make it clear that trouble is met with more and BIGGER trouble. Consequently we have very little trouble excepting domestic troubles and occasional burglaries etc. Home invasions and armed robbery are just about unheard of.

Something will get us all sooner or later but later might very well be a century or ten centuries down the road for YOUR bloodline. That something might be ten thousand years down the road.

Your kids and grandkids will not miss what they did not experience themselves. They might have to fight and they might have to work themselves to death but there is nothing new about such fates.
Fernando Leanme: 07/29/2015 at 4:55 am
"Looks like any oversupply won't be around much longer" depends on the time span, and the human factor: how many investors are willing to bet oil prices will recover to $80-90 per barrel by 2017? The key is to understand there's a large dose of unquantifiable human behavior in this game.

islandboy: 07/28/2015 at 10:31 pm
This presents a nice opportunity for me to present the results of this months EIA Electricity Supply Monthly or more accurately Tables 1.1 and 1.1A. The graph shows production as a percentage of total by source and it is worthy of note that while coal regained it's prominence over all other sources particularly Natural Gas, between April and May, all sources except renewables (both hydro and non hydro) are up in absolute terms. April seems to have been the low point so far for this year, as it has been for the two previous years.

old farmer mac: 07/28/2015 at 11:37 pm
From the same report:
lectric Utilities
Year-to-Date
Receipts Cost Receipts Cost
(Physical Units) (Dollars / Physical Unit) Number of Plants (Physical Units) (Dollars / Physical Unit)
Fuel May 2015 May 2014 May 2015 May 2014 May 2015 May 2014 May 2015 May 2014 May 2015 May 2014
Coal (1000 tons) 47,094 50,122 45.07 48.21 222 237 239,155 239,638 44.57 46.85
Petroleum Liquids (1000 barrels) 1,192 895 75.86 131.40 109 119 6,842 7,534 74.47 131.26

Petroleum Coke (1000 tons) 357 383 56.26 60.11 9 8 1,657 1,794 54.27 56.52
Natural Gas (1000 Mcf)

Unless my mental arithmetic is off this chart indicates that utilities spent about two billion bucks buying coal in May. Say for conversational purposes twenty four billion for the 2015 calendar year.

I have found that hard numbers are hard to come by but my best guess is that wind and solar power are saving us very close to what it would have cost to buy another four percent of either coal or gas.

And when you do things to reduce the sale of a commodity, you are doing things that reduces the price of that commodity. EVERYBODY all across the economy, excepting coal and gas producers and their employees gets just about everything a little cheaper.

The avoided expense of purchasing that much MORE coal and gas will be repeated month after month year after year for the entire life of EXISTING wind and solar farms. The price reduction resulting from utilities buying less coal and gas will spread out all thru the entire economy benefitting ALL of us for that same lifetime.

Excepting a mere handful of railroad employees the coal industry produces damned few jobs except in the coal fields and not very many even there.

Renewables on the other hand create a lot of jobs spread out over the entire country. A wind or solar farm built in Podunk pays taxes locally and provides employment locally.

Fernando Leanme: 07/29/2015 at 5:02 am
U.S. Gas producers pay taxes. Almost everything used to build wells and facilities is USA sourced. The labor is mostly natives, and a lot of that work is well paid.
The cheap gas price is caused by over drilling, not by renewables. On the other hand wind turbines and solar require subsidies and increase electricity bills. This reduces disposable income, which in turn cuts business for barbers, hairdressers, plastic surgeons, and dentists. This in turn increases the crime rate, which leads to higher prison costs on society.

old farmer mac: 07/29/2015 at 6:42 am
The very cheap price of gas is caused MOSTLY by excess supply at this time-you are right about this.Your entire comment is on the money- so far as it goes if you consider only the SHORT term.
But in your usual mule stubborn way you refuse to recognize any fact that does not reflect well on your own positions. Gas is not always going to be cheap and not everybody believes the good jobs should always go to people who live far away and that property taxes should always be paid to people in far away places.

You just flat out refuse to put any weight at all on the perfectly well understood and universally accepted (except by Watcher) relationship known as supply and demand-except when it suits YOUR argument.

CHEAP gas is the result of OVERSUPPLY. Oversupply is as a matter of fact mostly brought on by over drilling FOR NOW but part of the oversupply is due to renewable power cutting into the demand for gas and coal.

As time passes renewables will produce a larger and larger share of our energy and thus hold down gas prices to a substantial extent.

Overshoot is a VERY real problem and we are deep into overshoot already and the end result is going to be that barring miracles most of the seven billion people on this planet are going to continue to live very hard lives and meet untimely hard ends.

But you may be forgiven the typical engineers fault of near total ignorance of the life sciences since they were not taught in the engineering curriculum back in the dark ages and are seldom taught in that field even today.

People by the BILLION cannot afford coal and gas TODAY. The capital to extend grid system electricity to them does not exist and they would have nothing to export to pay for oil and gas in any case. There is a limit to the amount of throw away junk the rich countries can consume and the supply already overwhelms demand for it.

Renewables are the closest thing we have to a pressure relief valve on the boiler of overshoot. The valve is going to prove to be TOO SMALL to get the job done PROPERLY but it will nevertheless DELAY the violence of the eventual baked in explosion.

Karen Fremerman: 07/28/2015 at 7:07 pm
Thanks Dennis. I have a question. Won't oil declines really rule over natural gas in the short and long run? If/when oil starts it's real relentless decline, won't that limit how much natural gas (or any other resource/commodity for that matter) can be delivered because extraction and transportation all take oil to get to market? Isn't oil the limiting factor?
Thanks
Karen
old farmer mac: 07/29/2015 at 7:04 am
Oil is for very good reasons known as the lifeblood of the economy but it is NOT absolutely necessary for the economy to continue to thrive IF the supply declines slowly and the supply of gas increases fast enough to compensate for the decline of oil.
Gas can be substituted as a motor fuel in the gas and oil fields and most mining is already electrified anyway. Heavy industries such as the manufacture of steel and all the things made out of steel depend on only to the extent that they depend on highway trucks to deliver input materials and output product.Otherwise they run on electricity generated mostly with coal and gas.

Trains can be electrified and so can mining machinery used for surface mining – machinery such as bulldozers and excavators.Trucks can run on natural gas.

Shrinking oil supplies are going to hurt us and hurt us a LOT but if gas is as plentiful as some think it is then a lack of plentiful oil is not going to KILL us but the pain may well extend to the economy going into the longest and deepest depression of modern times.This would be the MOTHER of ALL DEPRESSIONS and the worst one EVER.

Eventually both oil and gas are going to come up very short indeed and then the fall back position will probably be coal to liquids.

The proof that we can get by with less oil is crystal clear. Take a look at the per capita consumption in places such as France and consider that the French will have a totally electrified rail system within the next few years.

It sounds very mean and harsh to say it but the billions of poor people in the world who use next to no oil at all are going to CONTINUE to use next to no oil at all and stay poor given that the oil they would like to consume does not exist for the most part.

The rest of us are going to learn to get by with electrified automobiles, mass transit,bicycles and shoe leather sooner or later.

UNLESS renewables get to be incredibly cheap. In that case we might MANUFACTURE motor fuels using renewable electricity but the odds of this coming to pass look to be exceedingly slim.

Dennis Coyne: 07/29/2015 at 8:30 am
Hi Karen,
I am glad I read Mac's response before ing. I agree with him that it is possible that oil decline will not affect natural gas output very much. Note that in the past, oil shocks have not affected natural gas output very much, this may or may not continue in the future, but the effect will be limited by substitution as Mac suggests IMO.

SAWDUST: 07/28/2015 at 9:46 pm
In a world with less oil. The use of other sources of energy will grow exponentially. Unless you believe people will stop doing things that require energy. Or believe there will soon be far fewer people using energy.
In all likelihood oil shock will bring the day of gas shock forward in time a good bit. As gas consumption will rise a good bit in the wake of oil shock.

shallow sand: 07/28/2015 at 9:58 pm
Off topic.
To Rune. Also to Doug, who I recall has a connection in the industry in Norway.

Read over Statoil earnings release. They beat estimates due to better than expected domestic results, but their international operations lost money for the third quarter in a row. The Wall Street Journal article said the company was the most disappointed in its North American operations, which I presume means shale and tar sands.

Would be interested in your take on this or any additional information you may have.

shallow sand: 07/28/2015 at 11:39 pm
Looked at SM Energy Q2 10Q. Production dropped from 186K BOE per to 181K BOE per day from Q1 to Q2. Full year guidance is 168-175K BOE per day. So will drop significantly in second half.
Majority of production in EFS. Next most in Bakken, Divide County, which is not sweet spot but wells cost much less also.

They sold $317 million of assets and used 100% of the proceeds to pay down debt.

They reduced rigs from 17 to 9 and will pull two more from the Bakken in the fall.

They did lower OPEX significantly from Q1 to Q2. They greatly benefitted from hedges, and have around 40-45% of production hedged through 2015. Caused realized oil price after hedges to be $65 per barrel and $4.30 for gas. 2016 hedged volumes much less than 2015.

Playing it smart in my opinion. Should be close to cash flow neutral in second half, due to greatly reduced CAPEX and hedges.

IMO a company that is playing the down turn smarter than others. Still have over $2 billion of debt, but are choosing reduced production over adding even more debt.

shallow sand: 07/29/2015 at 8:34 am
Looked at Hess Corporation second quarter 10Q/earnings release.
Company wide production up to 391,000 boepd from 361,000 boepd in first quarter.

Bakken production also up to 119,000 boepd from 108,000 boepd in first quarter.

Company burned over $1.5 billion in cash from 1/1/15 to 6/30/15

Report that cost to Drill and Complete a well in Bakken decreased to $5.6 million, which to me is a tremendous cost reduction. This to me is very noteworthy.

Sold interest in their Mid Stream assets for $3 billion dollars, which will (unfortunately) provide them with a lot more cash to keep increasing production.

For the second quarter of 2015, company posted a loss of ($1.99) per share v. earnings per share in second quarter of 2014 of $2.96 per share. For first six months, posted loss of ($3.37) per share v. earnings of $4.13 per share in first six months of 2014. The ($1.99) includes a large impairment due to much lower commodity prices, operating loss for Hess was ($.52) for the second quarter of 2015.

Hess did not add debt. That still stands at just about $6 billion. The asset sale gives them a ton of cash to either pay down debt, drill more wells, or both. It closed this month, will be reflected in Q3 numbers.

Given that they raised production in the Bakken by 11 thousand barrels per day from Q1 to Q2, I think it is doubtful we will see much of a decrease in June Bakken production. Whiting releases after the close, but they have already guided higher production in the Bakken as well, I believe. Will be interesting to see if they disclose similar lower costs per well as Hess. If we are going from $10 million dollar wells, to $5-6 million dollar wells, I assume US production will not decrease and there could be an even more prolonged period of low oil prices. The US companies will not make money, but I really don't think management like Hess cares about that as much as increasing production, given that they sold a major asset in order to fund more drilling at such low commodity prices.

coffeeguyzz: 07/29/2015 at 9:07 am
Shallow
To continue the meme of increasing output despite horrific financials, the July 27 piece on Seeking Alpha by Mike Filloon (Mega fracs increasing production …), discusses the 'halo effect' whereby operators are not only increasing production via new frac'ing designs, they are also boosting offset wells' output, sometimes to a startling degree.

One CLR well doubled output after a new nearby well was frac'd, and its decline rate practically ceased. Furthermore, the two wells were in different formations, one TF and one Middle Bakken.

Should these operators continue to successfully implement this, as new wells are frac'd one by one, offset wells will see ongoing elevated production causing all prior predictive decline curves to be inaccurate.

Could be a lot more hydrocarbons coming to market, shallow.

Dean: 07/29/2015 at 9:42 am
BREAKING: US #oil production fell 145 kb/d according to latest #EIA weekly data to 9413 kb/d http://ir.eia.gov/wpsr/overview.pdf #crude
Lower48 down 151 kb/d to 8953 kb/d.First big fall in US #oil production: is fracklog no more sufficient to compensate the fall in rigs?#crude

Why are these investors avoiding stocks in 401(k)s

One of the most important investment maxims consists of just one word: diversification. Almost any investment professional will urge you to hold a mix of stocks, bonds and other assets for protection from sudden market swings and the prospect of steadier returns.

But a stubborn subset of investors persists in ignoring that advice. Some 10.2 percent of the savers in a study by the Employee Benefit Research Institute, or EBRI, had no exposure to stocks in their 401(k) account as of 2013, and 11.8 percent had 90 percent or more of their money in equity funds.
A separate analysis for CNBC.com by Federal Reserve analysts, using data from the Survey of Consumer Finances, found that among households of all ages with a 401(k), IRA or both, 18 percent had less than 10 percent of their retirement assets in equities, and 20 percent of households had more than 90 percent in 2013.

... ... ...

Between Dec. 31, 1985, and Dec. 31, 2014, T. Rowe Price found that a diversified portfolio invested 60 percent in equities, 30 percent in bonds and 10 percent in cash would have delivered 91 percent of the returns generated by 100 percent stock exposure, with about 83 percent of the volatility.

... ... ...

[Jul 29, 2015]Is oil price set for rebound after losing streak

"...JP Morgan, for instance, expects Brent prices to hit $65 a barrel in the third quarter, and $67 dollars in the fourth quarter of this year."
.
"...Barclays analysts, meanwhile, expect Brent to trade around $61 a barrel in the third quarter and $66 in the last quarter of the year – although it did acknowledge the threats to its forecast."

Jul 20, 2015 | cnbc.com

JP Morgan, for instance, expects Brent prices to hit $65 a barrel in the third quarter, and $67 dollars in the fourth quarter of this year.
"We view July and August as the most likely time within 3Q 2015 when crude markets should be at their tightest, given peak summer demand for gasoline and the fact that refinery crude runs are forecast to peak in August," the bank said in a note on Friday.

... ... ...

Barclays analysts, meanwhile, expect Brent to trade around $61 a barrel in the third quarter and $66 in the last quarter of the year – although it did acknowledge the threats to its forecast.

... ... ...

Barclays analysts added that, from a fundamental perspective, 2016 looked undervalued.

[Jul 29, 2015] Oil groups have shelved $200B in new projects as low prices bite

"...The plunge in crude prices since last summer has resulted in the deferral of 46 big oil and gas projects with 20 billion barrels of oil equivalent in reserves "
.
"...Deepwater drilling rigs cost hundreds of thousands of dollars a day to hire and these projects could yet proceed if contractors' costs fall far enough. "
.
"...Canada is the biggest single region affected, with the development of some 5.6 billion barrels of reserves, almost all oil sands, having been deferred."

Jul 26, 2015 | cnbc.com

The plunge in crude prices since last summer has resulted in the deferral of 46 big oil and gas projects with 20 billion barrels of oil equivalent in reserves - more than Mexico's entire proven holdings - according to consultancy Wood Mackenzie.

... ... ...
More than half the reserves put on hold lie thousands of feet under the sea, including in the Gulf of Mexico and off west Africa, where the technical demands of extracting crude and earlier inflation have pushed up the cost of projects. Deepwater drilling rigs cost hundreds of thousands of dollars a day to hire and these projects could yet proceed if contractors' costs fall far enough.

Canada is the biggest single region affected, with the development of some 5.6 billion barrels of reserves, almost all oil sands, having been deferred.

[Jul 29, 2015]Are Chinas Problems Responsible For Recent Market Slides

"... I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from investing.com, but it did not work. So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics. One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported. He snarkily noted that China had just reported that the most recent quarterly growth report was at 7%, just what the government had forecast, but...|"
.
"...In May, oil imports were down 11% from a year before."
.
"...Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out. But, I think there is reason to be concerned."

Jul 29, 2015 | EconoSpeak

So, WTI oil has slid below$49 per barrel; gold has gone below $1100, although it jumped today. The US stock markets have been down in recent days for no obvious reasons, and some others are not looking so hot either. Is there a common thread? The big Greece crisis is over, although that could yet blow up, although I think most markets already know about that.
There have been lots of rumbling that problems in China might have something to do with all that. There is no way to know this for sure, especially given China's long record of manipulating data. Furthermore, serious observers are dismissing all this as a bunch of bad hype, most notably Dean Baker recently, accurately dumping on an incompetent story out of the NYTimes (who seem to be pretending that they were secretly bought by Rupert Murdoch lately). The Times had a story about the decline of the Chinese stock market, making a big deal about it. Dean accurately noted that it is still above where it was in February, so the NYT looks pretty silly making such a big deal about it, especially since the Chinese stock market seems to have stabilized, as have the housing markets in Shanghai and Beijing, even if it is still falling in a lot of lower tier cities.

I have tried to link to a report from just over a week ago by Pete Wargent, an Australian with an accounting background who reports from investing.com, but it did not work. So, I am just going to lay out a bunch of reported data from a bunch of sources that suggests that while Dean is right about the NYTimes story, things are going on in China that are negatively affecting the world economy and are not being reflected in more aggregated statistics. One reason I wanted to link to Wargent was not just his immediate report that capital flight from China has been steadily soaring, probably at least quadrupling from about two years ago, he linked to an older report laying out how the Chinese government messes with its GDP accounts, pointing out foreign trade data as one area where things get misreported. He snarkily noted that China had just reported that the most recent quarterly growth report was at 7%, just what the government had forecast, but...
So, what he noted is that while these aggregate number can say one thing, looking at more micro data can tell very different stories. Here are some numbers, each taken from a different source:
1. In March, electrical power production (from all sources) was down 2% from a year before.
2. In May, oil imports were down 11% from a year before.
3. Truck sales have fallen by nearly a half between last year and now.
4. Capital flight numbers are accelerating, possibly more dramatically than the quadrupling figure reported by Wargent.
So, maybe these are consistent with an aggregate 7% growth rate, but does not look like it. Many outside observers are arguing that the Chinese GDP growth rate is more like 4%, with some saying that in the first quarter it hit zero or even lower, although picking up more recently.
A final point regards the stock market bubble story. While Dean Baker sneered at the story from the NYTimes, an aspect not reported by them or him, but in Wargent reports and some other sources says that the methods used by the Chinese government in its efforts to halt the stock market slide (so far successful) were very extreme, including simply forbidding many stocks from being sold, and also forcibly confining stock dealers in rooms until they engaged in purchasing some stocks, with portions of the market still shut down with no transactions allowed. So, the stock market is not at all really stabilized. We are seeing the ugly side of the old Chinese system, trying to keep a lot of problems under control that they have not had to deal with.
Anyway, declines in oil purchases by them and rumors that the Chinese have guaranteed a gold price floor of $1000, well, I guess we do not know what is really going on with any of this, whether or not declines in these and other markets are really due to a bigger slide in the Chinese economy than is being officially reported at the aggregate level, this cannot be ruled out. But, I think there is reason to be concerned.
Barkley Rosser

[Jul 27, 2015] 185 Billion Reasons Why The US Agreed To Nuclear Deal With Iran

"...Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin."
.
"...There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy."
.
"...It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margins of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a desperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present."

Jul 27, 2015 | Zero Hedge
Many have questioned just why President Obama was so keen to get the Iran nuclear deal done - apparently with almost no real concessions - in the face of allies home and abroad deriding the agreement. Well, if one were so inclined, OilPrice.com explains that Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...
Submitted by Dave Forest via OilPrice.com,

Important news last week -- from a place that's quickly becoming the world's focus for high-impact oil and gas projects.

That's Iran. Where government officials said they are on the verge of revolutionizing the country's petroleum sector. Which could provide big profit opportunities for foreign investors.

Iran's deputy oil minister for commerce and international affairs, Hossein Zamaninia, told Reuters that the country has already identified 50 oil and gas projects it will offer for bids. With the government pegging the value of these properties at $185 billion.

And officials are hoping to get these fields licensed out soon. With Zamaninia saying that the government plans to offer all of the blocks over the next five years.

Perhaps most importantly, Iranian officials say they have designed a new petroleum contract structure for international investors. Which they are calling the "integrated petroleum contract" or IPC.

Officials said that the IPCs will last for a term of 20 to 25 years. A substantial improvement over the older, shorter-term contracts -- which have been a major stumbling point for the world's oil and gas companies.

Few other details on the IPC structure have yet been provided. But the government noted that the new contracts will address "some of the deficiencies of the old buyback contract".

Deputy Minister Zamaninia said that full details on the new contracts will be announced within the next two to three months. Along with specifics on the fields being offered by the government for bids.

Of course, all of this is predicated on the lifting of Western sanctions against Iran -- which is still not a certainty. But if and when the country does open for investment, it appears there will be substantial prizes to won. Watch for further announcements on projects and fiscal terms over the next few months.

* * *

Billions of dollars for the firms that lobbyists represent can be one hell of a motivation to do a deal with the devil it seems...

JustObserving

Iran's energy supplies also devalue the energy exports from Russia. It's all part of Obama's full spectrum war against Putin.

JustObserving

Lot more energy becomes available as sanctions against Iran are lifted. So energy prices fall and it hurts Russia.
Russia and its oil are likely to be losers in Iran deal
http://www.cnbc.com/2015/07/16/russian-and-its-oil-are-likely-to-be-lose...

Billy the Poet

"Peace, commerce, and honest friendship with all nations-entangling alliances with none." -- Jefferson

Fahque Imuhnutjahb

There are so many factions vying for power, many with ulterior motives, who are forming counter intuitive alliances based on "the enemy of my enemy is my friend" strategies. The whole shit show has become so convoluted that at this point we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks. Better yet, we could mind our own business, and take care of problems here on the home front. It seems like the linked picture is emblematic of world foreign policy.

http://static.tvtropes.org/pmwiki/pub/images/backwardgImage1.jpg

Billy the Poet

we (the west) might as well air drop weapons to all inhabitants, then step back and watch the fireworks.

That's called American history, 1945-2015.

Fahque Imuhnutjahb

Agreed, but it seems we used to at least make the pretense of choosing sides, hell now it's a damn free for all, literally free arms for all. It's no damn wonder 2.3 trillion of tax dollars fell down the rabbit hole, and we,

the damn taxpayers didn't even get offered any rabbit stew.

insanelysane

It's easier to go to war with someone that you have a treaty with because breaking the treaty is a slam dunk justification. No one cared what was really in the treaty as long as Iran agreed to the treaty because they know Iran will break it.

roadhazard

uh, Russia was in on the deal. You mean they fucked themselves.

CrazyCooter

Or maybe in three to five years when that huge frack ramp has run its couse and the US mean reverts to its production trend line the additional global supply coming online around that time will be sorely needed.

Don't forget one of the largest oil fields in the world is in Iran ... and it was discovered in the 80s. Saudis big field was discovered in the 40s.

If the game is going to continue, it has to have oil - and they can't print that.

Regards,

Cooter

Winston Churchill

Iran could'nt become a full SCO member with sanctions on.

None of that money,which is theirs anyway, will be going to US companies.

You can bet the farm on that.

Colonel Klink

Just goes to further prove how our politican's sell out to corporations. That's called Fascism!

Billy the Poet

Isn't it better to trade for energy than to bomb for freedom? Each scenario can be seen as supporting corporations but assuming that the corporatist paradigm is presently inescapable which corporations would you rather see prevail?

greenskeeper carl

Say what you will about the deal, but aside from all the noise, anything that avoids another war that kills a few thousand more Americans, a few hundred thousands innocent civilians, and racks up another 2-4 trillion in debt is a good thing.

Who knows, maybe those lobbyists not wanting to get their investments nationalized by the Iranian govt(which would happen in the event of a conflict) will exert more influence on whatever stooge occupies the White House than the regular neocon cheerleaders constantly looking for a new war.

Probably not , but one can hope.

roadhazard

But it's an OBAMA deal so fuck all that saving lives crap. BushCo would have hung another banner and the repubicans would cheer.

FreeMoney

There was no need for deal to made at all. Iran's oil can sit in the ground un used and unsold, while the West continued to block trade with the Mullahs. I think the Mullahs were loosing power over the prople slowly drip by drip.

No we have eliminated barriers to Iran going NUC, are dropping import and export sanctions against a regeme that calls for our destruction daily, and next we are going to give them billions of dollars for their oil so they can buy or develope weapons to use against us.

Without question, this is the stupidest course of action we could take for America.

Billy the Poet -> FreeMoney

No we have eliminated barriers to Iran going NUC

Cite the specifics or shut the fuck up. Iran was already a signatory to the NNPT which barred them from developing nuclear weapons and this treaty sets the bar even higher.

DutchBoy2015 -> FreeMoney

Stop with your stupid goddam LIES.

Iran never threatened the USA , you fucking MORON. You believe bullshit.

A group of 30 paid agents screaming ''Death to America'' does NOT a revolution make.

I bet you have never been to Tehran. You just parrot the bullshit your lying ZioNazis feed you.

Pathetic.

DutchBoy2015 -> FreeMoney

Morons like you don't have a fucking clue about the real world. YOu support despotic regimes like Saudi where women can't drive, and they behead people daily , and have actually asked Pakistan for nukes.

monoloco

So many logical fallacies there I don't know where to start. For one, what would be the motive to "buy or develop weapons to use against us" ? If the sanctions are lifted and they are participating in the world's economy by selling oil on the open market, it would be completely counter-productive to attack a country that could totally destroy the economy that lifting the sanctions enabled. But don't let logic or facts get in the way of pushing the Zionist/corporate agenda.

Babaloo

There is so much wrong with this post it almost defies belief. Let's start with this quote: "...in the face of allies home and abroad deriding the agreement." How can the writer seriously expect sentient humans to believe this? Our "allies" England, France, Germany, as well as non-allies, China and Russia were signatories to the deal! If by "allies" we're saying Israel, well, that's a whole different set of "allies" isn't it?

ajkreider

This is brilliant stuff. Obama is such a darling of the oil services industry. Is Cheney still VP?

$185 billion is chump change, and the U.S. isn't getting that anyway.

Do the people who write this garbage have paying jobs?

DutchBoy2015

German and French company CEOs are already in Tehran making deals. Not oil companies but companies like Bosch,AEG, Stihl, Miele etc.

Iranians use washing machines, power tools etc etc also.

Everything in my home is German or Korean. NOT one USA product because they don't make anything but weapons and burgers anymore.

assistedliving

185 Billion Reasons
You got a problem with that?

I lived in Iran awhile back. Imo, best place in entire Near East except maybe Lebanon. Only Iran far richer, culturally and every other way except maybe cuisine.

Jack Burton

How do you say "American frackers are dead, and several hundred thousand jobs will die." already identified 50 oil and gas projects it will offer for bids - with the government pegging the value of these properties at $185 billion...

It was not long ago that media was abuzz with the fracking miracle, energy independence, USA the new Saudi Arabia etc. etc. What everyone failed to realize is all energy is not the same. Some is low cost to produce and transport, others are high cost, out at the margines of profitability. We know where Fracking stood on that scale. Not to mention Canadian Tar Mines, coming in at the top of production costs. Harper bet Canada's future on a total Tar Sands development policy. That investment is looking questionable. And I for one can find few if any new media coverage of North Dakota. Though they still produce in a deperate bid to keep meeting debt repayments. Their hedges are the only thing keeping companies alive at present.

smacker

OK. Obola bends over for Big Oil and gets his kicks by stuffing the US workforce that will go to Iran full of CIA spies.

[Jul 27, 2015] Can You Hear the Fat Lady Singing - Part III

"...I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?"

Jul 27, 2015 | Zero Hedge
Renfield

Loved your description of the irrelevant cocktail party! Reminded me of Tom Wolfe's description: social x-rays and lemon tarts. I've been to way too many of those, and now avoid them like the plague. Even if it means pretending I've caught the plague. They're boring and irrelevant except for those who really can win by networking, fewer and fewer these days.

I've been fascinated by the currency markets this year. The US satellite currencies are also falling, along with EM. This is sending the USD up, but that just means it's dying last. Like when a body freezes, the limbs freeze first and all the blood moves in to protect the heart, so the heart dies last -- but you can't call it a healthy body, or a healthy heart, just because the blood is there rather than at the limbs.

I wonder if the Chinese aggression re: their stock market is because they perceived it as a Wall Street attack on their markets. That's what they said at the time, and I believe that is the way they see it. (Maybe that's even what happened.) The rumour was that Wall Street attacked Chinese stock market right around the same time that the BRICS New Development Bank opened for business, as retaliation. The Chinese didn't make these protective moves in 2008, right? But this time they did, along with a lot of rhetoric about how it was a US attack, along with a lot of rhetoric about how the West 'wished' them to fail and their growth numbers would never lie, unlike the West, etc. And the US suffered a few hacking attacks at that time as well. So I wonder if this aggressive protection is b/c that stock market dive was perceived to be part of the WW3 Currency War, which the 'west' has been waging on pretty much everyone else, and the Chinese felt the need to display that such an attack will not work on them?

Anyway, thanks for the focus on the currency wars waging out there. It isn't just emerging markets that are suffering; USD satellite economies are suffering too. It will take a real miracle to turn this around. Bond markets have been most volatile over the last few months, and second-most volatile have been currencies. Last May Wolf Richter posted this article with an Otterwood Capital Management chart, showing how "capital markets are completely backwards":

http://wolfstreet.com/2015/05/18/buyers-beware-capital-markets-completel...

with a chart showing the most volatility in bonds, second in currencies, third commodities, and last, equities. Christine Hughes wrote that "The important thing to take from this chart is that bonds and currencies (blue and red lines) are becoming more volatile than equities (black line).This is completely backwards to how capital markets typically behave. It is stock market volatility that is well known and feared, but we are seeing the reverse unfold". When equities get the memo, as they appear to be getting it now, then the central banks' pretence of control is over. As equities are now the last to get the memo, this 'contained, everything under control' leg of the Depression is about up as the facade starts to crack wide open.

[Jul 27, 2015]Watching Yields Rise Are Treasuries a Buy

"...It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries."
.
"...Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames."

Jul 22, 2015 | Safehaven.com

Setting aside the often-heard "certificates of confiscation" phrase, treasuries are a reasonable buy if one believes yields are going to stay steady or decline. They are to be avoided if the expectation is for yields to rise.
Part of the question is whether or not the Fed hikes, and by how much. But it's more complicated than the typical "yes-no when" analysis that we see in the media.
It's very conceivable for short-term rates to rise but long-term yields to decline if the market becomes convinced that Fed hikes will slow the economy. There's even a recent hint of that possibility looking at the action in treasuries since mid-July (the yield on 5-year treasuries has risen faster than yield on 10- and 30-year treasuries.
I am still not convinced the Fed is going to hike this year. Much will depend on retail sales, housing, and jobs.
A good retail sales report will send yields soaring, likely across the board.
Finally, even if economic data is weak, there is a chance yields rise if inflation picks up. Thus, one needs to keep inflation in mind, especially over longer time-frames.
That said, the recent decline in crude, commodities in general, does not lend much credence to the notion the CPI is going to take big leaps forward any time soon.

All things considered, the long end of the curve seems like a reasonable buy here provided one believes as I do, that economic data is unlikely to send the Fed on a huge hiking spree, and that if and when the Fed does react, yields on the long-end of the curve may not rise as everyone seems to expect.
Anonymouse

Agreed ... any Fed rate hike will slow the economy, but they won't (can't) raise rates.
We have entered the black-hole of zero-interest, squarely caused by the incestuous relationship between the Fed and the Treasury whereby check-kiting and theft have become our central bankers' legal and institutional 'right.'
Through debt monetization, bond speculation has been made risk-free .. an anomaly in nature yet over 34 years in its bull cycle.
Risk-free bond speculation creates and maintains a falling interest rate structure which destroys the capital of virtually every market player. This is the greater danger .... which can only result in broad-based serial bankruptcies unless the parasitic system is abandoned for one that embraces sound money.

[Jul 27, 2015]Which is more likely, $33 or $75 oil

http://finance.yahoo.com/news/more-likely-33-75-oil-130102167.html

The trouble with ETFs

Trading futures is not suitable for most investors. Fortunately, there are many ETFs such as United States Oil Fund LP (USO) ProShares Ultra Bloomberg Crude Oil (UCO), iPath Goldman Sachs Crude Oil Total Return Index ETN (OIL), VelocityShares 3x Long Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (UWTI) and United States 12 Month Oil Fund LP (USL).

There are also inverse ETFs that profit from oil going down. These include United States 12 Month Oil Fund LP (SCO), DB Crude Oil Double Short ETN (DTO), DB Crude Oil Short ETN (SZO) and VelocityShares 3x Inverse Crude ETN linked to the S&P GSCI Crude Oil Index Excess Return (DWTI).

Investors may choose to focus on USO and SCO, as they offer the most liquidity.

The trouble with these ETFs is that they exhibit significant tracking errors. An investor can easily be right on oil, but the ETF may not perform in line with the oil move.

The reason behind these tracking errors is that most of these ETFs invest in oil futures instead of buying or selling oil. Oil futures expire, and the funds have to go into the next contract. The price adjustment does not always work in the ETF holders' favor. Typically, an ETF is buying high and selling low as it rolls into new futures.

For the foregoing reasons, oil ETFs are not suitable for holding more than a few months.
... ... ...
Oil is the most volatile commodity, and our price forecast is revised weekly. We expect it to trade in a very wide range. Here are our forecast ranges at this time.
2015 - $33.00 to $62.00
2016 - $33.00 to $75.00
2017 - $55.00 to $85.00

[Jul 27, 2015]The Nuclear Deal is Mostly about Oil by John Browne

Jul 27, 2015 | Safehaven.com

The recent nuclear non-proliferation agreement between Iran and the U.S. has created a firestorm debate in the Middle East and both sides of the Atlantic. While the deal is supposedly all about nuclear power and nuclear bombs, its practical implications are all about oil. But the conclusions we should make about its impact on the energy sector are far from clear. A ratification of the deal would allow Iran to make lucrative long term production and distribution contracts with foreign energy firms. However, freely flowing oil from Iran would add significant new oil supply into the world markets, disrupt U.S. plans to become an energy exporter, and could potentially put further downward pressure on prices.

The U.S. Energy Information Administration (EIA) reports Iran's proven oil reserves as the fourth largest in the world, at 158 billion barrels, or about 10% of the world's crude oil reserves. It also has the world's second largest reserves of natural gas (Oil & Gas Journal, January 2015). But as a result of the series of sanctions laid on Iran by the United States and the United Nations for Iran's failure to abide by nuclear inspections, which have essentially blockaded the nation, these reserves have done little good for the Iranian economy or the theocratic Muslim government that holds the country in its tight grip.

The IMF estimates that Iran's oil and natural gas export revenue had been $118 billion as recently as 2011/12. But by 2012/2013 revenues fell by 47 percent to $63 billion. Revenues declined another 10 percent in 2013/14 to $56 billion (Islamic Republic of Iran, Country Report, April 14, 2014). By May 2015, Iran's daily oil production had fallen from 4 million barrels in 2008 to just over 2.8 million barrels.

It goes without saying that the removal of the sanctions regime will allow Iran to resume exports at levels seen in the past. And if Iran is true to its word, and that its nuclear program is indeed focused on the development of nuclear power plants, then it is likely that its domestic demand for fossil fuels will fall, thereby allowing for even greater exports.

The first issue regarding Iran's new oil flow is how easily will it be able to reestablish its former customer links and sell its oil, regardless of increased production. Having destabilized the Middle East by killing Saddam Hussein, the U.S. may wish now to leave the areas' nations alone to sort out the resulting mess. Into this void we can be sure that the Chinese and Russians will stride forcefully and deliberately.

Even if Iran is successful in regaining former customers, and selling down its inventory, how quickly can its production be increased? The Iranian oil infrastructure has been neglected for years and Iran needs to rebuild it desperately. Fortunately, Western expertise in energy development is by far the most advanced, which will give Western interests a leg up on Chinese and Russian rivals. But Chinese cash and strategic support may prove decisive.

Reuters reports that, in the opinion of 25 economists and oil analysts, Iran could be able to increase its oil production by up to 500,000 barrels a day this year and reach 750,000 a day by mid-2016. This will add to a current global oversupply of some 2.6 million barrels a day.

Meanwhile, as the price of oil remains relatively depressed, production wells in the U.S. and other producing nations, planned and established when oil prices were much higher, are drifting off stream. Finally, there is increasing evidence that recession may be felt internationally, reducing at least the rate of growth of oil demand if not the absolute level of demand in some countries.

Today's oil market faces a global supply overhang and price weakness. Iran's new oil production and exportation is not likely to come on line for at least a year or two, provided the treaty is ratified. But when that oil does start to flow, the new supply could add to downward price pressures. However, the amounts are unlikely to greatly affect the totality of the global marketplace and by that time whatever inflationary effects there may be of continued monetary expansion in America and Europe should act as a stronger force pulling prices upward.

In total then, the return of Iran to the global energy market should have a beneficial effect on the global economy, both in pushing down prices and providing lucrative development work for oil companies around the world. However, the economic aspects of the deal are largely insignificant in comparison to the geopolitical ramifications.

President Obama's nuclear arms deal leaves open to debate whether Iran will become a nuclear power within the next decade, if not earlier. Unleashing a nuclear arms race in a highly unstable area of the world would render oil supplies sourced from there considerably less secure and unattractive, possibly even at lower prices, to consumer nations, including the 500 million strong EU.

The deal will also threaten the longstanding alliance between the United States and Saudi Arabia. The implicit arrangement between the two countries has always been that the Saudis would direct the lion's share of its oil exports to the United States in exchange for American support of regional Saudi security interests. Shiite dominated Iran has always been one of Sunni-led Saudi Arabia's top concerns. If the U.S. and Iran drift closer together, Saudi Arabia will surely seek other partners who are more supportive of its interests.

No one knows what such a Middle East will look like. But given the volatility of the region, change is unlikely to be pretty

John Browne is a Senior Economic Consultant to Euro Pacific Capital. Opinions expressed are those of the writer, and may or may not reflect those held by Euro Pacific Capital, or its CEO, Peter Schiff.

[Jul 26, 2015] What Is Wrong with the West's Economies?

"...The jarring market forces? It was a political project with the desired results."
.
"..."We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.""
.
"...AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting."
.
"...Our financial leaders don't want a thriving economy. The want to crush the opposition and keep people under their thumb"
.
"...Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html"

This is from Edmund Phelps. It was kind of hard to highlight the main points in brief extracts, so you may want to take a look at the full article:

What Is Wrong with the West's Economies?: What is wrong with the economies of the West-and with economics? ...
Many of us in Western Europe and America feel that our economies are far from just...

With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end. The setback has cost the less advantaged not only a loss of income but also a loss of what economists call inclusion-access to jobs offering work and pay that provide self-respect. And inclusion was already lacking to begin with. ...

How might Western nations gain-or regain-widespread prospering and flourishing? Taking concrete actions will not help much without fresh thinking: people must first grasp that standard economics is not a guide to flourishing-it is a tool only for efficiency. Widespread flourishing in a nation requires an economy energized by its own homegrown innovation from the grassroots on up. For such innovation a nation must possess the dynamism to imagine and create the new-economic freedoms are not sufficient. And dynamism needs to be nourished with strong human values.

Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. ... The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education.

We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life.

I'm skeptical that this is the answer to our inequality/job satisfaction problems.

Posted by Mark Thoma on Friday, July 24, 2015 at 10:38 AM in Economics, Income Distribution, Productivity | Permalink Comments (14)

Peter K. said...

"With little or no effective policy initiative giving a lift to the less advantaged, the jarring market forces of the past four decades-mainly the slowdowns in productivity that have spread over the West and, of course, globalization, which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end."

The jarring market forces? It was a political project with the desired results.

JohnH said in reply to Peter K....

Indeed! And there is currently no meaningful effort to fix the problem, only to worsen it through TPP and TAFTA.

Rune Lagman said...

"We will all have to turn from the classical fixation on wealth accumulation and efficiency to a modern economics that places imagination and creativity at the center of economic life."

Well, ain't gonna happen by "reforming" the education system.

Everybody (more or less) knows what it takes to "fix" the western economies; lots of infrastructure investment (preferable green) and higher wages. I'm getting fed up with all these "economists" that keep justifying the status quo (probably because their paycheck depends on it).

dan berg said...

Could it possibly be that your skepticism arises from the fact that -precisely because you are an academic economist - you haven't got an imaginative or creative bone in your body?

RC AKA Darryl, Ron said in reply to dan berg...

Dear AH,

Doc Thoma wrote "I'm skeptical that this is the answer to our inequality/job satisfaction problems."

Everybody has imagination and creative potential. Most people just lack the mean to express it in a way that will enter the economy. Even Edmund realized that people got to eat. The obstacles run from there. It was Edmund's answer that Doc Thoma was skeptical of. This was Phelps answer to the question:

"... Of the concrete steps that would help to widen flourishing, a reform of education stands out. The problem here is not a perceived mismatch between skills taught and skills in demand. (Experts have urged greater education in STEM subjects-science, technology, engineering, and mathematics-but when Europe created specialized universities in these subjects, no innovation was observed.) The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy.

It will also be essential that high schools and colleges expose students to the human values expressed in the masterpieces of Western literature, so that young people will want to seek economies offering imaginative and creative careers. Education systems must put students in touch with the humanities in order to fuel the human desire to conceive the new and perchance to achieve innovations. This reorientation of general education will have to be supported by a similar reorientation of economic education..."

If you agree with Edmund Phelps on his answer then at least we must all admit that you have an astronomical imagination.

djb said...

Our financial leaders don't want a thriving economy

The want to crush the opposition and keep people under their thumb

Give people real hope and the economy will thrive

anne said...

By way of Branko Milanovic, referring to randomized trials in economics:

http://www.sccs.swarthmore.edu/users/08/bblonder/phys120/docs/borges.pdf

1658

On Exactitude in Science
Suarez Miranda

…In that Empire, the Art of Cartography attained such Perfection that the map of a single Province occupied the entirety of a City, and the map of the Empire, the entirety of a Province. In time, those Unconscionable Maps no longer satisfied, and the Cartographers Guilds struck a Map of the Empire whose size was that of the Empire, and which coincided point for point with it. The following Generations, who were not so fond of the Study of Cartography as their Forebears had been, saw that that vast Map was Useless, and not without some Pitilessness was it, that they delivered it up to the Inclemencies of Sun and Winters. In the Deserts of the West, still today, there are Tattered Ruins of that Map, inhabited by Animals and Beggars; in all the Land there is no other Relic of the Disciplines of Geography.

(1946

Viajes de varones prudentes
Jorge Luis Borges)

cm said...

"The problem is that young people are not taught to see the economy as a place where participants may imagine new things, where entrepreneurs may want to build them and investors may venture to back some of them. It is essential to educate young people to this image of the economy."

He left out the part who will pay for all these new things. Aggregate demand. I don't know where this idea comes from that young people don't imagine creating new things. They do it all the time, until the rubber hits the road and they have to get a corporate job because there is just not enough interest and funding for what they are interested in offering. No amount of education will help there.

Not to put words in his mouth, but its sounds like an impersonalized form victim blaming - schools suck and young people have no imagination.

RC AKA Darryl, Ron said in reply to cm...

Schools suck and young people have too much imagination. But Edmund Phelps has more imagination that anyone that I have ever known :<)

cm said in reply to RC AKA Darryl, Ron...

Not sure how this relates to my point. How will "better education" fix the fact that when you have a good idea, more likely than not there is no market for it? A lot of tech innovation "rests" in actual or metaphorical drawers because of no ROI or no concrete customer/market to sell it. And this is not a recent phenomenon.

RC AKA Darryl, Ron said...

AN excellent paper up until Eddie tries to solve the problem. His description of the long term societal effects of consolidation of corporations into corporatist behemoths and wealth into obscene levels of power, isolation, and self-indulgence was unerring. Too bad he had no idea what he was depicting.

Lafayette said...

{... which has moved much low-wage manufacturing to Asia-have proceeded, unopposed, to drag down both employment and wage rates at the low end.}

Yes, unopposed. Just what should any nation do about it? Forbid it?

That's not the way economies work.

The Industrial Revolution took a lot of people off the farms, brought them into large cities, where accommodations were created for their families, and gave them jobs in factories with which to pay the rent.

Many then moved on to purchase those properties an become homeowners, which was a typical example of "economic progression".

Of course, the Industrial Revolution, which started in western developed nations, aided by a couple of wars, inevitably progressed from more developed to lesser developed societies.

We in the industrially developed West should not have permitted the Chinese, Vietnamese or Filipinos from bettering their lot by making exactly the same societal progression?

Where is the Social Justice in that, pray tell?

If there has been any failure in Social Justice, it is in the US. Piketty was very clear about that in this info-graphic: https://www.flickr.com/photos/68758107@N00/14266316974/

The income unfairness that has occurred since the US ratcheted down drastically upper-income taxation was not replicated in the EU. Is a third of all income going to only 10% of the population in Europe unfair? Perhaps.

But not quite as unfair as the nearly 50% in the United States. And as regards Wealth, the societal impact is even worse. As Domhoff's work shows, 80% of the American population obtain only 11% of America's wealth historically. See that tragic bit of unfairness here: http://www2.ucsc.edu/whorulesamerica/power/images/wealth/Net_worth_and_financial_wealth.gif

Lafayette said in reply to Lafayette...

Perhaps well worth a rather long read, is Domhoff's piece titled, "The Class Domination Theory of Power, here: http://www2.ucsc.edu/whorulesamerica/power/class_domination.html

Excerpt: {The argument over the structure and distribution of power in the United States has been going on within academia since the 1950s. It has generated a large number of empirical studies, many of which have been drawn upon here.

In the final analysis, however, scholars' conclusions about the American power structure depend upon their beliefs concerning power indicators, which are a product of their "philosophy of science". That sounds strange, I realize, but if "who benefits?" and "who sits?" are seen as valid power indicators, on the assumption that "power" is an underlying social trait that can be indexed by a variety of imperfect indicators, then the kind of evidence briefly outlined here will be seen as a very strong case for the dominant role of the power elite in the federal government.}

Thanks to RR in the 1980s.

No wonder "they" make statues of Reckless Ronnie. Can't believe that? See this from WikiPedia: "List of things named after Ronald Reagan", here: https://en.wikipedia.org/wiki/List_of_things_named_after_Ronald_Reagan

[Jul 24, 2015] The End Of The Supercycle Commodity Capitulation Arrives

Jul 24, 2015 | Zero Hedge
The fund flow details indicate a "Great Rotation" out of commodities, Emerging Markets and, curiously, the US, and into bonds and continued flows into Europe, which has now seen 10 straight weeks of inflows with the latest one of $6.0 billion also the largest in the past 4 months.
Inflows into fixed income have been across the board:

$1.9bn inflows to IG bond funds (first inflows in 3 weeks)

$0.5bn inflows to HY bond funds (2 straight weeks)

$0.3bn inflows to EM debt funds (modest inflows but largest in 11 weeks)

$2.1bn inflows to govt/tsy funds (3 straight weeks)

$0.2bn inflows to muni bond funds (first in 7 weeks)

While in equities it has been a tale of two flow directions: out of the US and into Europe (and to a lesser extent Japan):

Japan: first outflows in 8 weeks ($0.5bn)

Europe: $6.0bn inflows (10 straight weeks & largest in 4 months)

EM: $3.3bn outflows (2 straight weeks)

US: $3.7bn outflows (outflows from both mutual funds & ETFs)

By sector, inflows to secular growth areas of healthcare ($1.3bn) & technology ($0.4bn)

To be sure, the best example of the paper flow capitulation is where else but gold, where in the past week algo, 1% of total gold/silver AUM has been wihdrawn!

[Jul 24, 2015] Fed inadvertently publishes staff forecast for 2015 rate hike

"...The staff views were less optimistic about the economy than several key policymaker forecasts."

"...The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.74 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent."

... ... ...

ONE HIKE IN 2015
In the projections prepared in June, the staff expected policymakers would raise their benchmark interest rate, known as the Fed funds rate, enough for it to average 0.35 percent in the fourth quarter of 2015.
That implies one quarter-point hike this year, as the Fed funds rate is currently hovering around 0.13 percent. (USONFFE=)
Analysts at JPMorgan and Barclays said this suggested the staff expected a rate hike before a scheduled December 15-16 policy meeting. The Fed also has policy meetings scheduled for July 28-29, September 16-17, and October 27-28.
All but two of the Fed's 17 policymakers said last month they think rates should rise in 2015. They were divided between whether it would be best to raise rates once or twice this year.
The staff views were less optimistic about the economy than several key policymaker forecasts.
In the projections, which stretched from 2015 to 2020, the staff did not expect inflation to ever reach the Fed's 2.0 percent target. By the fourth quarter of 2020, they saw the PCE (personal consumption expenditure) inflation index rising 1.94 percent from a year earlier.
The Fed's staff also took a dimmer view of long-run economic growth, expecting gross domestic product to expand 1.74 percent in the year through the fourth quarter of 2020. The views of Fed policymakers for long-term growth range from 1.8 percent to 2.5 percent.

[Jul 24, 2015]Peak Oil Review - July 23

I think much more the 23 billion is distressed. And this is by design...

"...More than $22 billion of the $235 billion of the debt owed by 62 North American oil companies, however, is "distressed" and unlikely to be paid back."

Jul 23, 2015 | resilience.org

As prices continue to fall, concerns are increasing on Wall Street as to the quality of their loans to unprofitable oil and gas companies. Many banks are starting to set aside money to cover bad loans which eat into banking industry profits. In recent years Wall Street has been the biggest ally of the "shale revolution" by allowing companies to exceed their debt limits time after time in hopes that they would someday turn profitable. With US oil prices now below $50 a barrel and unlikely to climb significantly during the next year or so, bankers are demanding that drillers reduce their credit lines and increase equity. In response US oil producers have raised some $44 billion by selling bonds and shares in the first half of this year. More than $22 billion of the $235 billion of the debt owed by 62 North American oil companies, however, is "distressed" and unlikely to be paid back.

The recent drop in oil prices is giving Moscow second thoughts about the economic recovery in 2016 that President Putin has been talking about. Russia will face recession or stagnation if oil trades near $50 a barrel next year. If oil is trading near $40 a barrel, Moscow is facing a 7 percent decline in its GDP next year.

[Jul 24, 2015] guaranteed retirement accounts

"The government would invest the money and guarantee a rate of return" So this is duplicate of TIPS. That money is going to WALL STREET one way or other.

http://www.nakedcapitalism.com/2015/07/200pm-water-cooler-72415.html#comments

Clinton advisor Teresa "Ghilarducci's big idea is to create government-run, guaranteed retirement accounts ("GRAs," for short). Taxpayers would be required to put 5 percent of their annual income into savings, with the money managed by the Social Security Administration. They could only opt out if their employer offered a traditional pension, and they wouldn't be able to withdraw the money as readily and early as with a 401(k). The government would invest the money and guarantee a rate of return, adjusted to inflation" [National Journal]. Because fiat money is only for banksters.

Push to lift minimum wage now "serious business" [New York Times].
jrs, July 24, 2015 at 2:15 pm

Alright policy. At a certain point does one really even want to know what the new thing they have for us to bend over for is? So WHERE is the money going to be "invested" in these new retirement plans. Yes I know it's possible to have a retirement plan without investing, it would be something like social security. But if that's what they wanted they could just increase social security, not propose a new plan (yes even increase funding but not while it covers current outgo at least). A new plan rather than expanded social security is entirely unnecessary so by proposing one they are up to no good. That money is going to WALL STREET one way or other.

... ... ...

Brindle, July 24, 2015 at 3:07 pm

The optics of this look like part of Clinton's feint left-for the base of the Dem party:
-For the Clinton campaign, Ghilarducci offers significant benefits, too. As Clinton tries to move away from the centrist economic legacy of her husband's administration, with its welfare reform and deregulation of banks, Ghilarducci offers a fresh take-and a fresh face-on economic-policy debates long dominated by a small, sharp-elbowed cast of white men who have advised the Clinton or Obama administrations.

[Jul 24, 2015] Though the Heavens May Fall

"...As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet. "

Jul 24, 2015 | jessescrossroadscafe.blogspot.com

There was intraday commentary titled The Epicenter of the Next Financial Crisis and overnight commentary on the precious metals, Free Markets at Work.

I get the feeling sometimes that we have become a nation of conmen and their servants, who plague the great mass of people who are preoccupied with raising families and just getting by.

As we have seen, in the latter part of the 20th century, people had forgotten, or more properly had been persuaded to disregard, the lessons of history and the reforms put in place in the 1930's. And to our regret the conmen and their enablers were able to get their hands in our pockets, and grab hold of our wallets. And we have not been able to get their slimy hands out of pockets yet.

How fitting that in the next election we can once again consider voting for a Bush or a Clinton. Some choice.

[Jul 23, 2015] The Cost of Free [Trades]

The CIO that Eric Peters is quoting above is fortunate that markets aren't a 24/7 affair with wide open access. I believe that most investors are as well.
Silicon Valley is enamored with a slew of new tech startups that offer free and instantaneous trading. The technology is cool and the price is, well, as good as it gets, but the larger question to me is "Why?" If an investment isn't promising enough to justify paying seven dollars to execute the trade, maybe it's not an investment worth making. Maybe there's an unexpected benefit to there being some layer of friction between people and their ability to make moves.

Perhaps the relatively minor gateway of a trade confirmation screen – "Are you sure you'd like to place this order?" – or a small trading commission ends up being the thing that stands between the kind of frivolous transacting that undoubtedly destroys more value than it creates.

Warren Buffett and Charlie Munger say it is very unlikely that they can make hundreds of smart decisions each year. They can get the relatively few big decisions mostly right, which is why their investment process is oriented away from having to make a lot of good calls all the time. Can a guy trading out of boredom from his phone say otherwise with a straight face?
I'm all for efficiency and the trend toward lower investment costs. It's a huge win for investors in the long run. But at what point do lower short-run costs create larger long-run costs by encouraging self-defeating behavior? Investors who are free and unfettered to act on their every impulse and whim are not necessarily being empowered – in many cases they are being endangered. Jack Bogle has made this case in terms of the ETFs that have gradually sucked assets away from traditional '40 act mutual funds. He views them as carrying a built-in incentive to trade rather than invest because they're moving up and down all day. He's partially right – but a tool is only as good or as bad as the end user.

Free is never free; there's always a price. This includes market access.

[Jul 23, 2015] Bernard Baruch's 10 Rules of Investing

Posted February 17, 2013 by Joshua M Brown

You want someone to emulate?

Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as "The Lone Wolf".

In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:

"Being so skeptical about the usefulness of advice, I have been reluctant to lay down any 'rules' or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:"

Don't speculate unless you can make it a full-time job.

Beware of barbers, beauticians, waiters - of anyone - bringing gifts of "inside" information or "tips."

Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

Don't try to buy at the bottom and sell at the top. This can't be done - except by liars.

Learn how to take your losses quickly and cleanly.

Don't expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

Don't buy too many different securities. Better have only a few investments which can be watched.. Don't try to be a jack of all investments. Stick to the field you know best.

Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

Study your tax position to know when you can sell to greatest advantage.

Always keep a good part of your capital in a cash reserve. Never invest all your funds.10

Baruch would later go on from Wall Street to Washington DC as an advisor to both Woodrow Wilson and to FDR during World War II.

Later, he became known as the Park Bench Statesman, owing to his fondness for discussing policy and politics with his acquaintances outdoors.

He lived til a few days shy of his 95th birthday in 1965. You could do worse than to invest and live based on these simple truths.

[Jul 23, 2015] Big Trouble In Not So Little China...

Looks like china decided to repeat the US dot com bubble "with chineses characteristics"....

Jul 23, 2015 | Zero Hedge

Why hasn't the panic of the recent decline followed by the government induced rally spilt over into other markets? While there was obvious concern that answer is simple enough… The Shanghai Stock Exchange Composite index rose 150% for the 12 months through June 12th. The rally, however, wasn't based on any material upswing in economic fundamentals. Instead, over much of this period, the economy slowed with both exports and domestic demand weakening as did corporate profits. Capital outflows increased and even with high trade surpluses, the balance of payments turned negative for two quarters. Importantly, the authorities continued to guide public expectations towards lower medium-term growth as they had done over the past two years.

But after a very lackluster performance at best for the preceding four and half years, sometime at the start of 2H14, market sentiments changed. It is likely that talks of market liberalization, including an opening of the capital account, and in particular the authorities' presumed intention to "rebalance" the economy's portfolio from the excessive and worrisome dependence on bank credit to more equity and bond financing is likely to have been the catalyst.

Starting last November, the PBOC also began cutting lending rates and bank reserve requirements. While the easing was intended to support growth and liquidity, which had dried up because of increased capital outflows, market participants took this as corroboration of the government's intended "support" for equity market expansion.

Talks of A-share's inclusion in the MSCI index that could potentially bring in significant foreign inflows added to the froth and the rally accelerated. China's onshore stock market has historically been thin on institutional participation with previous rallies largely driven by retail investors. Between 80% to 90% of the China's market is dominated by retail investors, many of which subscribe to domestic investor newsletters that have been bullish on China's push towards new tech IPOs. The all led to speculative excess in the ChiNext and Shenzhen exchanges primarily. Hundreds of new brokerage accounts were opened and amateur investors bought on margin. An estimated 4,000 new hedge funds were opened in China in one month, and China had over 200 companies list their shares for the first time, the most of any other country. Studies have shown that most of China's day traders are working class investors that do not have a college education. They tend to treat stock investing like a day at the horse track.

This time it wasn't different. For instance, during the past twelve months, the number of individual investor accounts rose from 93 million to 115 million in the Shanghai stock exchange, and rose from 113 million to 142 million in the Shenzhen stock exchange.

Initially this correction was driven by high valuations, accelerated pace of IPOs, market fears that the monetary easing would slow down, and a tightening of rules on margin financing. Subsequently, the correction intensified as policy measures were seen as inadequate or ill-targeted.

However this latest correction is not remarkable in the history of China's stock market. There have been at least two previous cycles since 2000 where the price volatility has been much larger. The previous stock market volatility during 2006-08 was much more dramatic (up 450% between June 2005 and October 2007, and down 70% between October 2007 and October 2008). The impact on the real economy in these cycles was limited, including through wealth effects and contagion to other financial assets.

The development of new market instruments (futures & options), in particular the extensive use of margin financing, hints at potentially more extensive wealth destruction among household and corporate retail investors. For example, margin financing provided by brokerage firms rose from 0.4 trillion yuan in June 2014 to 2.3 trillion yuan at the recent peak level on June 18th (coming back down to about 1.4 trillion yuan by July 9). Compared to previous episodes of stock market correction, this time round there is greater concern over the potential spillover to the real economy, especially as the economy doesn't have the buffer from strong export growth. China's export growth has fallen to 0.6%oya during the first five months of this year, after continuously slowing in the past five years from the heady days of high double-digit growth before 2008. In the absence of the buffer from export growth, the burden of keeping up the pace of activity and income has fallen squarely on domestic drivers that could be adversely affected.
The government's attempt to stem the free fall has involved a number of intrusive interventions in market operations .

• June 27th 2015: Interest rate and RRR cut (China Financials: Reinforcing the Policy Put vs Deleveraging)
• June 29th 2015: pathways for national pension funds to invest in the equities market;
• July 1st 2015: a) reduce transaction costs; b) CSRC abolished mandatory requirement on margin calls and liquidation for margin loans; c) broaden financing channels for brokers (China Securities: Policy makers roll out further "market-saving" measures)
• July 4th 2015: a) 21 brokers pledged to buy blue chips stocks; b) suspending 28 IPOs; (China Securities: A pledge to "national service")
• July 5th 2015: PBOC to provide liquidity support to CSFC to stabilize the market (More measures to support the A-share market: PBOC to provide liquidity support to CSFC)
These interventions, along with the voluntary suspension of trading by 43% of the listed companies, do not help promote the orderly development of the equity and corporate bond markets. While these measures are likely to be short-lived and one expects them to be removed once the market stabilizes, the interventions could discourage foreign institutional participation. While the government has recently changed investment norms to encourage local pension and other long-term funds to invest in the stock market, an orderly growth of the equity market typically also requires foreign institutional participation to add depth and maturity as evidenced in other emerging market economies. In the absence of the equity market providing a reliable source of funding, the burden of financing China's growth would again fall back on bank credit. The experience could also make the authorities more cautious in liberalizing the corporate bond market and outward capital account transactions.
The mainland Chinese stock market only recently opened to investors this year. A handful of qualified institutional investors have had access to that market for less than two years. It's never been opened to the world.
The market is still immature and although the Chinese have an interventionist mind set, over here we have hardly set the greatest example..we stopped the shorting of stocks during the financial crisis; we bailed out AIG and engaged in massive quantitative easing which at best has altered the price discovery process and put the stock market at major risk on the longer term and although on the face of it they are doing similar actions there are stories of people being arrested or disappearing for minor infractions, brokerage houses that can do nothing but recommend buys….this is not the type of thing to encourage institutional investment. The whole idea of socialism with Chinese characteristics, which is the government mantra, is paradoxical. Chinese communism in charge of a very capitalistic economy has always been a bit mysterious, and something that those from capitalist countries have been puzzled by.

At first glance, it might appear strange to argue that even after a roughly $3.5 trillion loss of market capitalization, the wealth effect on consumption will be limited, but this is likely to be the case While retail participation had increased substantially in the rally, this had not translated into a consumption boom. In fact, retail sales growth slowed when the stock market was rallying. While increases in wealth may not have been immediately translated into higher consumption, the slide could sour consumer sentiment. Moreover, there could be threshold effects if the stock prices continue to downward trend.

The effect on commodity markets, cart or horse?

Much of the global commodity markets have for sometime now been weighed down by the slowdown in China's growth. With commodities being used as collateral for borrowing, it is worth noting that the The risk comes when prices fall by a large magnitude within a short time, driving down the value of the collateral.

With Hong Kong and Singapore's ratio of bank credit to GDP close to multi-year highs, the risk is that a worsening of credit quality could further tighten credit conditions and dampen domestic demand. In the coming weeks While the Chinese stock market appears to have calmed down, this may not be the true reflection of market sentiments.
People have been drawing similarities between US 1929-1935 and the Japanese lost decades, but there are two things tip a country from recession into depression: too much debt, and the way dealing with that debt pushes down prices (i.e. deflation). In 1929 the US messed up by failing to counteract falling prices by freeing up money-in fact, it catastrophically raised interest rates in the immediate wake of the 1929 crash.
When deflation sets in, falling prices cause the relative cost of debt to rise. That sinks debtors in even deeper, and makes would-be borrowers unwilling to take out loans to build their businesses. As people desperately sell off assets to pay back what they owe, they drive prices down even further-exactly what happened in the Great Depression. Unemployment surged to a quarter. More than 5,000 banks failed, taking with them untold sums of household wealth. It wasn't until 1939 that the US truly emerged from the Great Depression. Although Bureaucrats and bankers believed that with enough time and loose money, they could grow out from under the debt burden.

... ... ...

gregga777

There are three kinds of people:
Type I: people who learn from the mistakes made by other people;
Type II: people who learn from their own mistakes;
Type III: people who learn nothing.
Collectively, Japan and China are Type III. The USA is tending overwhelmingly towards Type III.

Fahque Imuhnutjahb

One man's mistake is another man's windfall, ain't that right Lloyd ?

KnuckleDragger-X

You can either learn form past disasters or from your own disasters. China's problem is they tend to be inward facing and live in an ego-centric universe. Too bad reality is a bitch and really enjoys inflicting its lessons on the foolish and unprepared.....

[Jul 23, 2015] US Recession Imminent - World Trade Slumps By Most Since Financial Crisis

Remember this is ZeroHedge... It "predicts" that the US recession is coming for the last five years. But, please note, one day it will be right. Still I would subscribe under the following:

"...We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population."

Jul 23, 2015 | Zero Hedge
nope-1004

Everything from Wall Street is "since the financial crisis".

Wish some truth would be told at some point, that the "recovery" since 2008 has been a smoke & mirrors recovery with cooked books, fake employment stats, FASB accounting changes marking asset values to fantasy, and back door bailouts of the financial institutions because they are 100% insolvent.

We have not had a recovery since 2008. In fact, one could argue that the housing bubble that started in 2002 up to 2008 was also a band aid attempt at creating a fictitious recovery by stoking asset values, hyperinflating housing, and further debasing savings at the expense of the productive population. The FED is sucking the life out of anyone not chasing bubbles, unicorns, and rain bows.

The financial system is a crooked lie and WE ARE IN A PROLONGED DEPRESSION.

Let's call a spade a spade.

[Jul 23, 2015]Bernard Baruch's 10 Rules of Investing

Posted February 17, 2013 by Joshua M Brown

You want someone to emulate?

Bernard Baruch (August 19, 1870 – June 20, 1965) was the son of a South Carolina physician whose family moved to New York City when he was eleven year old. By his mid-twenties, he is able to buy an $18,000 seat on the exchange with his winnings and commissions from being a broker. By age 30, he is a millionaire and is known all over The Street as "The Lone Wolf".

In his two-volume 1957 memoirs, My Own Story, Baruch left us with the following timeless rules for playing the game:

"Being so skeptical about the usefulness of advice, I have been reluctant to lay down any 'rules' or guidelines on how to invest or speculate wisely. Still, there are a number of things I have learned from my own experience which might be worth listing for those who are able to muster the necessary self-discipline:"

Don't speculate unless you can make it a full-time job.

Beware of barbers, beauticians, waiters - of anyone - bringing gifts of "inside" information or "tips."

Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities for growth.

Don't try to buy at the bottom and sell at the top. This can't be done - except by liars.

Learn how to take your losses quickly and cleanly.

Don't expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.

Don't buy too many different securities. Better have only a few investments which can be watched.. Don't try to be a jack of all investments. Stick to the field you know best.

Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.

Study your tax position to know when you can sell to greatest advantage.

Always keep a good part of your capital in a cash reserve. Never invest all your funds.10

Baruch would later go on from Wall Street to Washington DC as an advisor to both Woodrow Wilson and to FDR during World War II.

Later, he became known as the Park Bench Statesman, owing to his fondness for discussing policy and politics with his acquaintances outdoors.

He lived til a few days shy of his 95th birthday in 1965. You could do worse than to invest and live based on these simple truths.

Financial_skeptic/ Stagnation/ /energy. Fighting_russo*/

[Jul 23, 2015] The Effect of New Production Methods on U.S Oil Output

The Effect of New Production Methods on U.S Oil Output
Tags: Bakken, fracking, oil production, oil shale, shale oil, WTI inShare

Since 2005, the "total oil supply" for the United States as reported by the Energy Information Administration increased by 2.2 million barrels per day. Of this, 1.3 mb/d, or 60%, has come from natural gas liquids and biofuels, which really shouldn't be added to conventional crude production for purposes of calculating the available supply. Of the 800,000 b/d increase in actual field production of crude oil, almost all of the gain has come from shale and other tight formations that horizontal fracturing methods have only recently opened up. Here I offer some thoughts on how these new production methods change the overall outlook for U.S. oil production.

Let me begin by clarifying that "shale oil" and "oil shale" refer to two completely different resources. "Oil shale" is in fact not shale and does not contain oil, but is instead a rock that at great monetary and environmental cost can yield organic compounds that could eventually be made into oil. Although some people have long been optimistic about the potential amount of energy available in U.S. oil-shale deposits, I personally am pessimistic that oil shale will ever be a significant energy source.

By contrast, the expression "shale oil", or the more accurate term "tight oil", is often used to refer to rock formations that do contain oil and that sometimes might actually be shale. The defining characteristic is that the rock is not sufficiently porose or permeable to allow oil to flow out if all you do is drill a hole into the formation. However, enterprising drillers have discovered that if you create fissures in the rock by injecting water (along with sand and some chemicals to facilitate the process) at high pressure along horizontal pipes through the formation, oil can seep back through the cracks and be extracted.

As seen in the figure above, these horizontal fracturing methods have been the main factor behind recent increases in U.S. field production. The key question is how much more growth we should expect. Leonardo Maugeri, senior manager for the Italian oil company Eni, and Senior Fellow at Harvard University, has a new paper in which he predicts that the U.S. could get an additional 4.17 million barrels per day from shale/tight oil plays by 2020, though he notes that any such predictions are problematic:

the huge differences in permeability, porosity, and thickness of a shale/tight oil formation require many more exploration wells be drilled in different areas of the field before making it possible to have an idea of the effective recoverability rate from the whole formation…. it is impossible to make any reasonable evaluation of the future production from a shale/tight oil formation based on the analysis of a few wells data and such limited activity.

To put the 4.17 mb/d number in perspective, total U.S. field production of crude oil in 2011 was 5.68 mb/d. If 4.17 mb/d could be added to that, it would almost put us back to where we were in 1970. Alternatively, 4.17 mb/d represents 22% of the 18.8 mb/d currently consumed by the U.S. and 4.7% of total world consumption.

Crude oil production (in millions of barrels per day) from entire United States, 1859-2011, with contributions from individual regions as indicated. Updated from Hamilton (2011)
Maugeri describes the assumptions under which he arrived at his estimate for the Bakken tight formation in North Dakota and Montana as follows:

A price of oil (WTI) equal to or greater than $70 per barrel through 2020;

A constant 200 drilling rigs per week;

An estimated ultimate recovery rate of 10 percent per individual producing well (which in most cases has already been exceeded) and for the overall formation;

[original oil in place comes to 300 billion barrels];

A combined average depletion rate for each producing well of 15 percent over the first five years, followed by a 7 percent depletion rate;

A level of porosity and permeability of the Bakken/Three Forks formation derived from those experienced so far by oil companies engaged in the area.

The above assumptions detail the total quantities that Maugeri estimates can eventually be extracted (a stock variable), but they clearly are not enough to calculate an annual production rate for the year 2020 (a flow variable) which is the key number Maugeri is reporting. His analysis also makes use of a proprietary database of results for existing wells. What he evidently did was to calculate average well completion rates and flow rates per well from that database and extrapolate those forward, though he does not tell the reader what were the actual summary averages that he used for this calculation nor indicate in what way the $70 assumed price enters the calculations. His paper really just seems to provide his own summary judgment as to what his private database implies rather than specifics that other analysts could use to evaluate or reproduce his claims.

I recently attended an excellent conference on oil market fundamentals, whose proceedings can be viewed online if your budget allows for a hefty registration fee. One of the presentations was by Morningstar analyst Jason Stevens, who estimated the 2015 potential U.S. tight crude oil production using two different approaches. The first approach, which Stevens called a "top-down" approach, was to "use best-in play curves and assume repeatability and similar results in emerging plays," which sounds identical to Maugeri's methodology, and indeed, Stevens' calculations used the identical 200 rigs per week assumption for Bakken as did Maugeri. But whereas Maugeri predicted we'd see 1.5 mb/d additional Bakken production by 2010, Stevens calculated that the area might only add 150,000 b/d or so by 2015. On the other hand, Stevens' calculations suggested about a 900,000 b/d gain for the Eagle Ford in Texas by 2015, compared with 1.47 mb/d anticipated by Maugeri for 2020.

Source: Jason Stevens, 2012 Symposium on Oil Supply and Demand.
Stevens also calculated a forecast using a second method that he described as "bottom up", which used specific production forecasts for 16 of the individual firms involved in these plays, and assumed that the fraction of each area's total production represented by these particular firms would stay constant. This bottom-up calculation leads to an expected additional flow by the particular firms studied of almost 1 mb/d by 2015, implying perhaps 3 mb/d combined production from all drillers in the plays. Thus Stevens' bottom line was similar to that of Maugeri's, although the specifics differ.

Source: Jason Stevens, 2012 Symposium on Oil Supply and Demand.

In addition to the uncertainties noted above about extrapolating historical production rates, the rate at which production declines from a given well over time is another big unknown. Another key point to recognize is the added cost of extracting oil from tight formations. West Texas Intermediate is currently around $85/barrel. With the huge discount for Canadian and north-central U.S. producers, that means that producers of North Dakota sweet are only offered $61 a barrel. Tight oil is not going to be the reason that we return to an era of cheap oil, for the simple reason that if oil again fell below $50/barrel, it wouldn't be profitable to produce with these methods. Nor is tight oil likely to get the U.S. back to the levels of field production that we saw in 1970. But tight oil will likely provide a source of significant new production over the next decade as long as the price does not fall too much.

It is a separate critical question how much additional production may come worldwide from other sources, and how far this new production will go toward offsetting declining production from existing mature fields. Maugeri is also quite optimistic about these issues as well. I hope to take up a discussion of these separate questions in a subsequent post.

This article originally appeared on Econbrowser.

[Jul 22, 2015] Far Worse Than 1986 The Oil Downturn Has No Parallel In Recorded History, Morgan Stanley Says

"...[There are] strong similarities between the current oil price downturn and the one that occurred in 1985/86. The trajectory of oil prices is similar on both occasions. There were also common reasons for the collapse. "
.
"...Folks, we are in the throes of economic war and most of us haven't a clue as to the enemy. It isn't really OPEC, but they may be an ally of the enemy. The true enemy is the financial system itself - the big banks. To the extent the Fed enables this behavior, it is part of the problem, not the solution. Easy credit is creating dilemas that constrain policy choices. By issuing too much high risk credit the banksters have made it tough for the Fed to raise rates. Welcome to Japan."
.
"...Summary: Morgan Stanley is trying to talk down the price of oil even more, so they can buy oils stock at ridiculoulsy low values. I'll be buying too, when the time comes."

Jul 22, 2015 | Zero Hedge

In a ZIRP world, there's plenty of demand for new HY issuance and ill-fated secondaries, which means the digging, drilling, and pumping gets to continue indefinitely in what may end up being one of the most dramatic instances of malinvestment the market has ever seen.

Those who contend that the downturn simply cannot last much longer - that the supply/demand imbalance will soon even out, that the market will clear sooner rather than later, and that even if the weaker hands are shaken out, the pain for the majors will be relatively short-lived - are perhaps ignoring the underlying narrative that helps to explain why the situation looks like it does. At heart, this is a struggle between the Fed's ZIRP and the Saudis, who appear set to outlast the easy money that's kept US producers alive.

Against that backdrop, and amid Wednesday's crude carnage, we turn to Morgan Stanley for more on why the current downturn will be "worse than 1986."

From Morgan Stanley

Worse than 1986? Really?

We have been expecting the current downturn to be as severe as the one in 1986 – the worst for at least 45 years – but not worse than that. Still, if oil prices follow the path suggested by the forward curve, our thesis may yet prove too optimistic.

Our constructive stance on the majors is based on four factors: 1) supply – we expected production growth to moderate following large capex cuts and the sharp decline in the rig count; 2) demand – we anticipated that the fall in price would boost oil products demand; 3) cost and capex – we foresaw both falling sharply, similar to the industry's response in 1986; and 4) valuation – relative DY and P/BV indicated 35-year lows.

So far this year, we can put a tick against three of them [but] our expectation on supply has not materialised: US tight oil production growth has started to roll over, but this has been more than offset by OPEC, which has added ~1.5 mb/d since February.

On current trajectory, this downturn could become worse than 1986: An additional +1.5 mb/d is roughly one year of oil demand growth. If sustained, this could delay the rebalancing of oil markets by a year as well. The forward curve has started to price this in: as the chart shows, the forward curve currently points towards a recovery in prices that is far worse than in 1986. This means the industrial downturn could also be worse. In that case, there would be little in analysable history that could be a guide to this cycle.

[There are] strong similarities between the current oil price downturn and the one that occurred in 1985/86. The trajectory of oil prices is similar on both occasions. There were also common reasons for the collapse.

A high and stable oil price in the preceding four years stimulated technological innovation and led to a high level of investment. This resulted in strong production growth outside OPEC, exceeding the rate of global demand growth. When it became clear that OPEC would no longer rein in production to balance the market (as it did during both the Nov 1985 and Nov 2014 OPEC meetings) the price collapsed.

And although MS notes that similar to 1986, costs and capex are likely to come in sharply while demand growth should materialize, the supply side of the equation is not cooperating thanks to increased output from OPEC.

Due to the sharp slowdown in drilling activity and the high decline rate of tight oil wells, we expected production in the US to flatline and start declining in 2H. This seems to be happening: according to the US Department of Energy, tight oil production in June was 94 kb/d below the April level, and it forecasts further falls of 90 kb/d in both July and August.

Now that capex is falling, we anticipated non-US production to be flat at best. Still, this has not yet been the case. At the time of our 'Looking Beyond the Nadir' report in February, OPEC production stood at ~30.2 mb/d. This increased substantially to 31.3 mb/d in May and 31.7 mb/d in June, i.e. OPEC has added 1.5 mb/d to global supply in the last four months alone.

Our commodity analyst Adam Longson argues that the oil market is currently ~800,000 b/d oversupplied. This suggests that the current oversupply in the oil market is fully due to OPEC's production increase since February alone.

We anticipated that OPEC would not cut, but we didn't foresee such a sharp increase. In our view, this is the main reason why the rebalancing of oil markets had not yet gained momentum.

If oil prices follow the path suggested by the forward curve, and essentially remain rangebound around levels seen in the last 2-3 months, this downturn would be more severe than that in 1986. As there was no sharp downturn in the ~15 years before that, the current downturn could be the worst of the last 45+ years.

If this were to be the case, there would be nothing in our experience that would be a guide to the next phases of this cycle, especially over the relatively near term. In fact, there may be nothing in analyzable history.

Needless to say, this does not bode well for everyone who has unwittingly thrown good money after bad on the assumption that the Saudis will cut production and trigger a rebound in crude.

In addition to the immense pressure from persistently low prices, US producers also face a Fed rate hike cycle and thus the beginning of the end for easy money.

Of course, the more expensive it is to fund money-losing producers, the less willing investors will be to perpetuate this delay-and-pray scheme, which brings us right back to what we've been saying for months: the expiration date for heavily indebted US drillers is fast approaching, and if Morgan Stanley thinks the oil downturn has no parallel in "analysable history," wait until they see the carnage that will unfold in HY credit when a few high profile defaults in the oil patch send the retail crowd running for the junk bond ETF exits.

aVileRat

Yes it is worse than 87, and 83. In fact you have to reach all the way back to 1860 and the brief 1931-33 period to figure this one out. And given that most of the majors will require fresh credit roll over and drilling capital for the 2016 drill programs, this could get nasty. Most bonds are pricing that debt will be rolled over at the same terms, with at best 500 basis point moves for some of the most horrible offenders of debt binge drilling. Those were financed at 80/bbl projections on Par. Most corporates have locked in their hedges down at the low 60's. (all USD). For some corporates the capital programs needed to keep production flat, plus roll their bonds over at the 80/bbl interest rate are nearly 4x their current cash flows. Yet most HYG still trades at 80/100 or better.
This salient fact is what is keeping the 51 billion in special situations PE money on the sidelines. Who wants to buy into the next GDP or PVA ? and then see a 50% haircut in 6 months. Very few on a standard 5% WACC (going to 8). That is also what keeps most of the major Pensions, Endowments and bond managers awake at night. What happens when a BBB+ rolls the yield at 300 bps. What happened to the money markets when nobody knew what was economical.

MonetaryApostate

I believe that banking institution are more dangerous to our liberties than standing armies. If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around [the banks] will deprive the people of all property their fathers conquered. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs. - Thomas Jefferson
There are two ways to conquer a nation. One is by the sword. The other is by debt. - John Adams
http://galeinnes.blogspot.com/2015/07/the-invisible-enslavement.html

steelhead23

I would assume that MS sent a forward copy of this to the FOMC because this information is likely to encourage the Fed to continue ZIRP. Those with rose colored glasses should stop reading this comment now.
The U.S. economy is a virtual zombie, kept alive by easy credit. Even those seemingly good numbers coming out of the car biz is simpy another credit bubble, including a huge amount of high risk credit. Let's use autos as a metaphor here. If interest rates increase, tight oil producers would not be able to roll their debt and would go bankrupt. U.S. oil production would decline. If OPEC did not fill the supply gap, prices would rise. If they did fill the gap, the U.S. trade balance would get worse, but let's assume OPEC sits tight (not a great assumption, but I want to make a point). The effect of increasing interest rates would be to reduce production. Prices would then rise. Now, let's look at our new car owner. The increased cost of gas would consume more of his/her cash flow. They could either buy less, causing an economic downturn, or default. If either the economy goes down or defaults increase the Fed would be looking to juice the economy and would reduce rates, reinitiating ZIRP. The Fed is a reactionary organization, not a leader.
Folks, we are in the throes of economic war and most of us haven't a clue as to the enemy. It isn't really OPEC, but they may be an ally of the enemy. The true enemy is the financial system itself - the big banks. To the extent the Fed enables this behavior, it is part of the problem, not the solution. Easy credit is creating dilemas that constrain policy choices. By issuing too much high risk credit the banksters have made it tough for the Fed to raise rates. Welcome to Japan.
From where I sit the best answer is a painful one. The Fed should do a Volcker; raise rates and keep raising rates until credit is being created at a rate equal to or lower than economic growth. Yes, there would be an absolute hemorroage in the markets. Lots of folks would lose lots of money. As long as this global Ponzi scheme continues we will be seeing rampant insider looting and other criminality because prosecution could cause the systemic collapse the entire regulatory apparatus fears most. End ZIRP now!

Dr. Engali

Cracks me up every time I read that we are facing a fed rate hike cycle. Fucking hilarious. Here's some food for thought; we have an over supply of oil because we have no demand thanks to the global depression we are currently in.

Carpenter1

You falsely assume our rulers are benevolent and actually want to hold the financial system together.

In that assumption, you are incorrect.

Carpenter1

Here's some food for thought; we have an over supply of oil because we have no demand thanks to the global depression we are currently in.

Your own words, no assumptions necessary. Or is this statement supposed to be the lead in to why there WILL be a rate hike? Because we're in a depression right?

Doubt that very much, obviously you're saying there'll be no hike cause the economy sucks.

So I repeat, you falsely assume our leaders are benevolent and want to keep the system up. In that you are incorrect.

Dr. Engali

What the fuck does that statement you highlighted have to do with the powers that be wanting to hold the system together? You make no fucking sense. I will repeat what I have said in the past. We will never see a fed funds rate above 1% again. We may get a little hike to prolong the illusion that all is well, but we will never see "normal" rates again. When TPTB do collapse the system, and they will, there will be a false flag to give them cover.

Meremortal

Well yes, governments are in the oil biz. The feds collect 22.3 cents a gallon and the states average around 18 cents a gallon. They make that by sticking their hands out.
So, subtract out the 40 cents a gallon the various levels of govt make and the cost of boutique fuels and prices would be a good bit lower.
Of course there's also the big bad oil companies' profits, which average 9 cents a gallon. Horrors. To get that profit, they have to permit, explore, produce, refine, ship and retail the product.
There's also the fact the almost 30% of all oil use is non-fuel in nature.
Oil has been a boom-bust biz for a century and some people are just noticing.

Carpenter1

No, that's not why.
Super major producers have been reducing their reserves for decades, some thought this was a sign they were losing ground. To the contrary, they, being insider elites, knew this day was coming and would be far more than a typical cyclical downturn in oil prices.

We are witnessing the destruction of every non-super major producer worldwide.

In the meantime, super majors are making their money refining and manufacturing instead of producing. Thus, they've kept prices high to offset whatever losses they take from their leftover production business. So, they'll survive this thing just fine, and notice they aren't raising bloody hell in government with their extremely powerful lobbyists.

Seem odd? It should, cause big oil gets what big oil wants. Apparently big oil doesn't want higher prices, cause big oil has planned for this event long ago.

Meremortal

Lots of "ifs" in that article.
WTI prices in this downturn so far:
116.75 - 49.92
WTI prices in last downturn, 2008:
146.12 - 46.56.

http://www.macrotrends.net/1369/crude-oil-price-history-chart

Take a look of what has happened after each crash in oil prices, adjusted for inflation.

Jus7tme

Summary: Morgan Stanley is trying to talk down the price of oil even more, so they can buy oils stock at ridiculoulsy low values. I'll be buying too, when the time comes.

piratepiet2

Can this not be explained by the following :
1. renewable energy revolution->downward pressure on demand
2.fracking in US->downward pressure on demand on world market (as still ban on exports)
3.nuclear deal with Iran in return for sanctions relief-> increase in supply
4.Global warming narrative with potential deal in Paris in december 2015->downward pressure on demand
5.economic depression ?
6.I have the impression that peak oil hysteria was possibly a scare tactic to justify high prices. Are people waking up to that ?
7.Young generation is too hooked to their internet connected devices to want a car to drive anywhere ? Or the sharing economy makes having your own car less of a must ? Think Uber,...
Your thoughts ?

Radical Marijuana

piratepiet2,
my answers:
Primarily, it is the counter-intuitive results of systems which were based upon presuming endless exponential growth running into real limits of diminishing returns making that no longer possible. Civilization was based upon being able to make "money" out of nothing as debts, in order to "pay" for strip-mining the natural resources of the planet. Running into the real limits of diminishing returns, after we have high-graded ourselves to hell, show up first and foremost through the fundamentally fraudulent financial accounting systems. However, since those systems ARE ENFORCED FRAUDS, the intrusions of physical realities into those integrated systems of legalized lies backed by legalized violence results in various sorts of psychotic breakdowns, which manifest through a wide variety of counter-intuitive ways, because none of the mental models that people are using to perceive the real world were remotely close to being realistic, since those were based on being able to operate as professional liars and immaculate hypocrites.
As was recently concluded in another article that I also commented upon $900 Million Payday Is Billionaires' Reward For Crushing Twinkie-Maker's Labor Unions

"... an entire world filled with lunatic central bankers who have clearly taken over the asylum."

In every way possible, on every possible level, it is a gross understatement to assert that: "In fact, there may be nothing in analysable history."
As I also explained in my reply under:
So You Say You "Don't" Want A Revolution?
There is nothing in human history to compare to the development of globalized electronic monkey money frauds, backed by the threat of force from apes with atomic bombs. The only thing that compares to the progress in physical science is the development of photosynthesis, which had profoundly revolutionary effects upon the evolution of life on planet Earth.

Morgan Stanley thinks the oil downturn has no parallel in "analysable history."

Nothing during "analysable HUMAN history" can be compared to advances in physical science enabling technologies to be developed that are trillions of times more powerful and capable, which then were primarily applied through social pyramid systems based upon ENFORCING FRAUDS.

The wild swings in the price of oil are due to hyper-complicated interactions within systems that were always based upon being able to back up lies with violence, so that everything that happens occurs through those infinite tunnels of deceits.

The renewable revolution is not yet sufficiently significant to explain the wide price swings in oil. Being able to make "money" out of nothing to speculate with is much more related to the wild price swings in oil. DEMAND DESTRUCTION is the single best explanation for the collapse of the price of oil, which in turn is related to those who are able and willing to make more "money" out of nothing to speculate with continuing to do that.

Nothing regarding the objective supply of oil explains the wild oscillations in the price of oil. Rather, the background steady deterioration due to diminishing returns from investments to extract oil ends up being leveraged up and down by many orders of magnitude, through fundamentally fraudulent financial accounting systems, such that those have intensely counter-intuitive manifestations, because there is nothing like that which was ever globally faced before, by the Neolithic styles of social pyramid systems, based upon being able to back up lies with violence.

The global warming narrative exists inside of that overall context that civilization is controlled by backing up lies with violence. Therefore, nothing can be trusted. Even although the greenhouse gas mechanisms exist, the overall climate includes more cosmic factors, such as the Sun and Earth magnetic fields, which are changing significantly in ways that nobody understands, and which factors were deliberately ignored by the mainstream climate models. In any case, there are not yet any sufficiently significant impacts from laws that are supposed to limit carbon emissions, but rather, only more scam "solutions" designed to deceptively be able to make more privatized profits, in ways which do not really resolve the bigger problems.

Economic depression is what I believe in the currently most significant reason for the DEMAND DESTRUCTION, that hit the price of oil. However, that cannot be comprehended outside of the extremely counter-intuitive aspects of how everything is priced through fundamentally fraudulent financial accounting systems.

Peak oil was not "hysteria," although the statistics can not be trusted regarding that, due to all of the vested interests that are behind misrepresenting that data. However, the basics appear to me to be irrefutable, without some series of technological miracles, none of which have been sufficiently proven to be possible, as far as I now know, our current kind of industrial civilization has sailed itself way up its shit creek without enough of a paddle, by presuming that there surely would be some technological miracles to save us from ourselves.

However, the basic problems are that money is measurement backed by murder, or that the debt controls depended upon the death controls. The history of oil can not be separated from the history of warfare, nor separated from the basic ways that civilization actually operates according to the principles and methods of organized crime. Again, there "nothing in analysable history" to be able to compare to what happens to petroleum resources, after the human murder systems have to adapt to the existence of weapons of mass destruction.

At the present time, we are cruising on the autopilot of human habits, to have developed globalized electronic frauds, backed by atomic bombs, in the forms of MAD Money As Debt, backed by MAD Mutual Assured Destruction. We have NOT adapted to that, other than mostly by continuing to follow our morbid psychological and political habits, which were based upon thousands of years of social successfulness through backing up deceits with destruction, and then through enforcing frauds.
The ways that the industrial revolution developed were never done with any overall rationality, but rather, were done in the expedient ways directed by the continued triumphs of organized crime. Therefore, the petroleum resources' real past was wrapped up in the paradoxical triumphs due to enforcing frauds, and so, the future of those must also continue to be wrapped upon in their continuing enforced frauds, which has wildly counter-intuitive consequences, related to the wild oscillations in the price of oil, that have no direct relationship to the relatively overall steady supply of oil, which has perhaps overall been plateauing.
The oil markets, like all other markets, are being rigged to the maximum possible degree by the people who most control the SOURCES of the public "money" supply as ENFORCED FRAUDS, which therefore, are able to create as much of that "money" out of nothing as they want to, in order to speculate with that, which are the primary reasons how and why the price of oil can be MADLY manipulated, in counter-intuitive ways, which will increasingly have even more MAD counter-intuitive consequences, because, overall, those ENFORCED FRAUDS are reaching their turning or tipping points, towards reaching the cusps of various psychotic breakdowns.
We are NOT analyzing a "rational" market, we are actually analyzing runaway criminally insane markets. It is only from that perspective that one can comprehend the otherwise astonishingly counter-intuitive ways that the oil markets have been behaving. Personally, I believe that Peak Oil is real, however, I therefore think that that will provoke Peak Insanity.
The younger you are, the more you are being lied to, cheated and robbed by the political system that you were born into. Some young people may have an intuitive bullshit detector. However, the circuits of that have probably burned out due to the overload placed upon those detectors. The entire system was based on maximizing the short-term benefits, while that also simultaneously maximized the longer term costs, which was facilitated through fundamentally fraudulent financial accounting systems. Overall, therefore, the debts have been deferred onto future generations, and even more so, the deaths have been deferred onto future generations, in order that past and present generations could indulge in strip-mining the planet's natural resources as fast as possible, regardless of the overall eventual consequences from having done that ...
The more one learns about that, the worse it gets. Furthermore, the younger you are, the worse that will probably become. For generation after generation, people have been the victims of the best scientific brainwashing that money could buy. That continues to be the case now more than ever before. All in all, I can quite sympathize with young people who have turned their intuitive bullshit detectors off, because otherwise those would have their sirens blaring louder and louder, while their warning lights blinked brighter.
In order to become more realistic about human energy systems, one has to go through series of intellectual revolutions, in order to encompass how and why we have ended up operating our civilization through fundamentally fraudulent financial accounting systems, whereby those frauds by privately controlled banks were enforced by governments to achieve leverage levels which appear to have become so extremely unbalanced as to be criminally insane (as I just recited in my other comment I posted today under $900 Million Payday Is Billionaires' Reward For Crushing Twinkie-Maker's Labor Unions

"... an entire world filled with lunatic central bankers who have clearly taken over the asylum."

In my view, it is impossible to exaggerate the degree to which that is literally the case, and since petroleum resources are the single most important component in our current kind of industrialization, those are also subject to being the most criminally insane, and therefore, the oil markets manifest the maximum counter-intuitive events.

PrimalScream

OIL has tanked
COAL has tanked
COPPER has tanked
The Baltic Dry Index is at generational lows.
But no worries - the Dow continues to have record values !!!!!
HAS IT OCCURRED to anyone ... how stupid and corrupt our Financial System looks, when this kind of stuff goes on? I know Banana Republics that that have better "price discovery" mechanisms than this. And they only deal in bullets and bananas!

Youri Carma

Halliburton secures $500 million to fund drilling in old wells
20 July 2015, by Amrutha Gayathri (Reuters)
http://www.reuters.com/article/2015/07/20/us-halliburton-results-idUSKCN0PU11H20150720
Halliburton said it had tapped BlackRock for $500 million to help fund drilling in existing shale wells, the first such move by a major oilfield services provider at a time when oil producers are shying away from drilling new wells.

HardlyZero

bullish. They have to keep up appearances to keep the entire show on the road. It's going to take years to wipe out all this fiat financed capex and stop the madness.

adr

In the late '90s there was a lot of talk at very high levels about the discovery that oil is abiotic and the supply is just about limitless. New oil massive oil fields were being discovered and ones that should have run dry kept on producing. Oil looked to go below $10 a barrel. Cheap energy and low cost raw materials are the lifeblood of small business and the true economy.
This, like Tesla's discovery of free limitless electricity generated from the Earth itself didn't work for the powers that be. It sounds like a wacky conspiracy theory but there is plenty of evidence that true world changing innovation has been stifled.
The Saudis could still rake in billions with oil selling for $10. US oil companies were making billions with oil selling for less than $20 and still exploring and expanding deep sea rigs. I remember talking with some of my college friends who went on to work at Exxon that a price of $50 for a barrel of oil was seen as impossible. When prices first started creeping up I was told that at $50 it would be profitable to drill anywhere on Earth, even the bottom of the deep sea. If $20 oil still allowed for massive exploration, why is $50 oil seen as the end of the world now? Either oil really is that expensive, or we have been lied to by investment banks and traders who can't make a profit if a commodity falls below the price they paid for it.

The world functioned quite well with commodities at a fraction of their current prices. It is pretty clear that the global economy can't function the way things are right now. We have had fifteen years of absolute economic hell since the Commodity Futures Modernization Act was passed. I don't think anyone even knows what commodities should be selling for since we haven't had anything close to real price discovery for coming up on two decades. Just look at the inflation caused by the massive increase in contract volume. Did growing corn, cutting trees, mining ore, or drilling for oil really get that expensive? Or did everything skyrocket in price because contracts became the next great speculative investment.

The global depression started when total economic control was handed over to investment bankers. The passage of that piece of legislation along with the repeal of Glass Steagall has caused more damage than every war in history combined.

Wed, 07/22/2015 - 18:12 | 6342998 piratepiet2

two words for you : petro and dollar.

Wed, 07/22/2015 - 19:30 | 6343312 Pareto

Inflation. Eventually, $50 oil will be viable when the prices of labor, equipment, services, housing, food, etc., all come down. And the longer the commodity rout continues, the more likely these adjustments will occur. Talking to a kid the other day - figured his time is worth $30/hr. Hasn't worked a fucking day in his life - but - thats just what he figures he's worth........ When the reset occurs I think most (conscious) people will do just fine. Others, like this kid will have an incredibly rude awakening. The way commodities are headed and their duration, nominal wages need to come down at least 40%. Which means the nominal prices of all other things have to come down commensurately as well. And they will.

It just takes time for the shock effect to etch permanently in the minds of people, that things are never going to be the same. We are still in the denial stage. That will change and give way to a more realistic expectation once the greatest monetary experiment completes its cycle.

Wahooo's picture

How do you get a 40% drop?

Winston Churchill

None of the historic ratios mean anything.
We are truly in uncharted waters, without a paddle.
It is different this time, but not in the way CNBC says.

KJWqonfo7

OK, I know im going to regret saying this but... could the Obama policy for Iran be right?
Ignore the nukes and the fact that they hate our guts..
Strategically are we better off if the Saudis have an enemy that is well funded, strong and close by? It will force them to build capacity, spend political capitol and treasure to face off against an Iran that has a VERY young population and has been living like the red headed stepchild of the middle east? Hell their lives are already shit what can the Saudis do to them.
Will it focus their anger more on each other and less on the Tribe (in the short term)? Is a locked and loaded ME with a weak Amerika a strategy to turn them on each other and weaken the region over the long term?
Has Obama been playing chess while the rest of us were playing checkers?
Are dogs and cats living together? Is there mass histeria (or just localized to me)?
Fuck I can feel the downvotes like a chill running down my spine....

rsnoble

Who knows. Possible. Neo-cons are capable of anything, including killing off their own, if they think they can come out ahead.

RaceToTheBottom

Compare the response of the FED to the 2007 Bankster crisis and the Oil Crisis (especially shale) now.

Banksters get bailed out so much that they have their largest bonuses ever.

Shale companies go down the toilet.

This country really needs a come to Jesus moment, and it isn't a stupid "Black lives matter" or "save unborn lives" or "Gays marrying is the most important thing in the world".
We are sliding into some Sci Fi crazy world reminiscent of some Star Trek show, only this one won't get solved in an hour.

DOT Vehicle Miles Driven increased 2.7% year-over-year in May, Rolling 12 Months at All Time High

http://www.calculatedriskblog.com/2015/07/dot-vehicle-miles-driven-increased-27.html
aleister perdurabo wrote on Tue, 7/21/2015 - 9:02 am

Urban Institute Predicts Rental Surge Among Millennials, Minorities, Seniors | Multifamily content from National Real Estate Investor

Many apartment experts think the number of vacant apartments will rise this year, despite strong rent growth this spring. But in the long term, an increasing number of researchers expect the demand for rental apartments to keeping growing for more than a decade.

"A rental surge is coming," according to "Headship and Homeownership: What Does the Future Hold?" a new report from the Urban Institute. "Over the next 15 years, new renters will outnumber new homeowners-causing a sustained surge of rental housing demand that will significantly affect Millennials, seniors and minorities, and expose important gaps in our current housing policies."

Millions of new renters and fewer new homeowners will push the percentage of households that own their own home down to 61.3 percent by 2030, according to the Urban Institute. That's a steep fall from 63.6 percent in 2013. The homeownership rate has already fallen from 66.2 percent in 2000-before the distortions of the housing boom push the homeownership rate upwards.

Rob Dawg wrote on Tue, 7/21/2015 - 9:49 am

Sticker shock sales taxes in Chicago

The city of Chicago alone has a $20 billion unfunded liability and when Moody's Investors Service dropped the city's debt rating to junk, it forced $2.2 billion in accelerated debt payments. So Cook County has to borrow more money now at higher interest rates to pay those newly due bills AND it has to increase sales taxes to that whopping 10.25% rate effective in January to help pay the interest on it all. It's an endless cycle.

merchants of fear wrote on Tue, 7/21/2015 - 10:13 am

People outside that interest group see what's happened with Libya, what almost happened in Egypt. The total shit show that is now Iraq and Syria. The continuing mess that is the West Bank and Gaza, and the terrifying situation in the Ukraine. They think interests that front McCain are a liability that needs to be squelched.. - Comrade Gibbon

You may be on to something.

KarmaPolice wrote on Tue, 7/21/2015 - 10:25 am

Auto-loan defaults lowest in at least 11 years - MarketWatch

I believe that this was another Doomer theme.

Subprime car loans.

[Jul 22, 2015] How A Pork Bellies Trader And Milton Friedman Created The Greatest Trading Casino In World History
Jul 21, 2015 | Zero Hedge

"I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

Nixon's estimable free market advisors who gathered at the Camp David weekend were to an astonishing degree clueless as to the consequences of their recommendation to close the gold window and float the dollar. In their wildest imaginations they did not foresee that this would unhinge the monetary and financial nervous system of capitalism. They had no premonition at all that it would pave the way for a forty-year storm of financialization and a debt-besotted symbiosis between central bankers possessed by delusions of grandeur and private gamblers intoxicated with visions of delirious wealth.

In fact, when Nixon announced on August 15, 1971, that the dollar was no longer convertible to gold at $35 per ounce, his advisors had barely a scratch pad's worth of ideas as to what should come next.

Its first attempted solution was a Burns-Connally hybrid known as the Smithsonian Agreement of December 1971. The United States needed precisely a $13 billion favorable swing in its balance of trade. This was not to be achieved the honest way-by domestic belt tightening and thereby a reduction of swollen US imports that were being funded by borrowing from foreigners. Instead, America's trading partners were to revalue their currencies upward by about 15 percent against the dollar.

Connally's blatant mercantilist offensive was cut short in late November 1971, however, when the initially jubilant stock market started heading rapidly south on fears that a global trade war was in the offing.

As it turned out, a few weeks later Connally's protectionist gauntlet ended in an amicable paint-by-the-numbers exercise in diplomatic pettifoggery. The United States agreed to drop the 10 percent import surtax and raise the price of gold by 9 percent to $38 per ounce.

Quite simply, the United States had made no commitment whatsoever to redeem paper dollars for gold at the new $38 price or to defend the gold parity in any other manner. At bottom, the Smithsonian Agreement attempted the futile task of perpetuating the Bretton Woods gold exchange standard without any role for gold.

During the next eight months, further international negotiations attempted to rescue the Smithsonian Agreement with more baling wire and bubble gum. But the die was already cast and the monetary oxymoron which had prevailed in the interim, a gold standard system without monetary gold, was officially dropped in favor of pure floating currencies in March 1973.

Now, for the first time in modern history, all of the world's major nations would operate their economies on the basis of what old-fashioned economists called "fiduciary money." In practical terms, it amounted to a promise that currencies would retain as much, or as little, purchasing power as central bankers determined to be expedient.

In stumbling to this outcome, Nixon's advisors were strikingly oblivious to the monetary disorder they were unleashing. The passivity of the "religious floaters" club in the White House was owing to their reflexive adherence to the profoundly erroneous monetarist doctrines of Milton Friedman.

A Friedmanite Fed would keep the money growth dial set strictly at 3 percent, year in and year out, ever steady as she goes.

Friedman's pre-1971 writings nowhere give an account of the massive hedging industry that would flourish under a régime of floating paper money. This omission occurred for good reason: Friedman didn't think there would be much volatility to hedge if his Chicago-trained central bankers stuck to the monetarist rulebook.

Most certainly, Friedman did not see that an unshackled central bank would eventually transform his beloved free markets into gambling halls and venues of uneconomic speculative finance.

It thus happened that Leo Melamed, a small-time pork-belly (i.e., bacon) trader who kept his modest office near the Chicago Mercantile Exchange trading floor stocked with generous supplies of Tums and Camels, found his opening and hired Professor Friedman.

THE PORK-BELLY PITS: WHERE THE AGE OF SPECULATIVE FINANCE STARTED

Leo Melamed was the genius founder of the financial futures market and presided over its explosive growth on the Chicago "Merc" during the last three decades of the twentieth century.

At the time of the Camp David weekend that changed the world, the Chicago Merc was still a backwater outpost of the farm commodity futures business.

The next chapters in the tale of Melamed and the Merc are downright astonishing. In 1970, Melamed made an intensive inquiry into currency and other financial markets about which he knew very little, in a desperate search for something to replace the Merc's rapidly dwindling eggs contract. The latter was the core of its legacy business and was then perhaps $50 million per year in annual turnover.

Four decades later, Leo Melamed's study program had mushroomed into a vast menu of futures and options contracts-covering currencies, commodities, fixed-income, and equities, which trade twenty-four hours per day on immense computerized platforms. The entire annual volume of the old eggs contract is now exceeded in literally the blink of an eye.

The reason futures contracts on D-marks and T-bills took off like rocket ships is that the fundamental nature of money and finance was turned upside down at Camp David. In effect, Professor Friedman's floating money contraption created a massive market for hedging that did not have any reason for existence in the gold standard world of Bretton Woods, and most especially under its more robust pre-1914 antecedents.

When currency exchange rates were firmly fixed and some or all of the main ones were redeemable in a defined weight of gold, exporters and importers had no need to hedge future purchases or deliveries denominated in foreign currencies. The spot and forward exchange rates, save for technical differentials, were always the same.

Even more importantly, the newly emergent need of corporations and investors to hedge against currency and interest rate risk caused other fateful developments in financial markets; namely, the accumulation of capital and trading resources by firms which became specialized in the intermediation of financial hedges. Purely an artifact of an unstable monetary régime, this new industry resulted in prodigious and wasteful consumption of capital, technology, and labor resources.

The four decades since Camp David also show that the Friedmanite régime of floating money is dynamically unstable. Each business cycle recovery since 1971 has amplified the ratio of credit to income in the system, causing the daisy chains of debt upon debt to become ever more distended and fragile.

Currently, the daily volume of foreign exchange hedging activity in global futures and options markets, for example, is estimated at $4 trillion, compared to daily merchandise trade of only $40 billion. This 100:1 ratio of hedging volume to the underlying activity rate does not exist because the currency managers at exporters like Toyota re-trade their hedges over and over all day; that is, every fourteen minutes.

Due to the dead-weight losses to society from this massive churning, the hedging casinos are a profound deformation of capitalism, not its crowning innovation. They consume vast resources without adding to society's output or wealth, and flush income and net worth to the very top rungs of the economic ladder-rarefied redoubts of opulence which are currently occupied by the most aggressive and adept speculators. The talented Leo Melamed thus did not spend forty years doing God's work, as he believed. He was just an adroit gambler in the devil's financial workshop-the great hedging venues-necessitated by Professor Friedman's contraption of floating, untethered money.

THE LUNCH AT THE WALDORF-ASTORIA THAT OPENED THE FUTURES

According to Melamed's later telling, by 1970 he had "become a committed and ardent disciple in the army that was forming around Milton Friedman's ideas. He had become our hero, our teacher, our mentor."

Thus inspired, Melamed sought to establish a short position against the pound, but after visiting all of the great Loop banks in Chicago he soon discovered they weren't much interested in pure speculators: "if you didn't have any commercial reasons, the banks weren't likely to be very helpful."

The banking system was not in the business of financing currency speculators, and for good reason. In a fixed exchange rate régime the currency departments of the great international banks were purely service operations which deployed no capital and conducted their operations out of hushed dealing rooms, not noisy cavernous trading floors. The foreign currency business was no different than trusts and estates. Even Melamed had wondered at the time whether "foreign currency instruments could succeed" within the strictures designed for soybeans and eggs, and pretended to answer his own question: "Perhaps there was some fundamental economic reason why no one had before successfully applied financial instruments to futures."

In point of fact, yes, there was a huge reason and it suggests that while Melamed might have audited Milton Friedman's course, he had evidently not actually passed it. There were no currency futures contracts because there was no opportunity for speculative profit in forward exchange transactions as long as the fixed-rate monetary régime remained reasonably stable.

Indeed, this reality was evident in a rebuke from an unnamed New York banker which Melamed recalled having received in response to his entreaties shortly before the Smithsonian Agreement was announced. "It is ludicrous to think that foreign exchange can be entrusted to a bunch of pork belly crapshooters," the banker had allegedly sniffed.

Whether apocryphal or not, this anecdote captures the essence of what happened at Camp David in August 1971. There a motley crew of economic nationalists, Friedman acolytes, and political cynics supinely embraced Richard Nixon's monetary madness. In so doing, they opened the financial system to a forty-year swarm of "crapshooters" who eventually engulfed capitalism itself in endless waves of speculation and fevered gambling, activities which redistributed the income upward but did not expand the economic pie.

As it happened, Melamed did not waste any time getting an audience with the wizard behind the White House screen. At a luncheon meeting with Professor Friedman at the New York Waldorf-Astoria on November 13, 1971, which Melamed later described as his "moment of truth," he laid out his case.

After asking Friedman "not to laugh," Melamed described his scheme: "I held my breath as I put forth the idea of a futures market in foreign currency. The great man did not hesitate."

"It's a wonderful idea," Friedman told him. "You must do it!"

Melamed then suggested that his colleagues in the pork-belly pits might be more reassured about the venture if Friedman would put his endorsement in writing. At that, Friedman famously replied, "You know I am a capitalist?"

He was apparently a pretty timid capitalist, however. In consideration of the aforementioned $7,500, Melamed got an eleven-page paper that launched the greatest trading casino in world history. It made Melamed extremely wealthy and also millionaires out of countless other recycled eggs and bacon traders that Friedman never even met.

Modestly entitled "The Need for a Futures Market in Currencies," the paper today reads like so much free market eyewash. But back then it played a decisive role in conveying Friedman's imprimatur.

In describing the paper's impact, Melamed did not spare the superlatives: "I held in my hand the Holy Grail for the Chicago Mercantile Exchange. The most influential economic mind of the twentieth century provided the CME with the intellectual foundation upon which to build its financial superstructure."

*****

Source:
[Jul 22, 2015]Oil falls, U.S. crude settles below $50 as inventories rise

"... Oil is trading at inflation adjusted price equal to 1974 pricing. "

U.S. September crude (CLc1) fell $1.67 to settle at $49.19 a barrel, first settlement below $50 since April. The $49.06 intraday low was a September contract low.
U.S. crude dropped below $50 on Monday for the first time since April and its 14-day Relative Strength Index is below 28. A reading below 30 is considered an indication of an oversold condition by technical traders.

DSR

The reason inventories are not going down is mostly due to imports of heavy sour grade, which the US does not produce in substantial quantities. Over the years, most US refiners have upgraded to run lower priced heavy crude versus WTI sweet. Thus, refiner demand for WTI has been tempered. Thus our inventory problem at Cushing, etc. BUT, the WTI supply is going to come down and probably faster than most think.

Chris

The API is usually off by about double whatever they report, so we'll see a little bit later how much of build there really is in the USA.

doubtingthomas1 6 hours ago

4/26/09 9/23/10 7/21/15 50 75 50 cost of barrel oil 1.43 1.91 1.91 RBOB wholesale 1.86 2.44 2.45 price seen at the pump

Data from the commodity Exchange and my local pump prices.

p2i

Saudis step up diesel export? Their refineries were only using 2.4M barrels a day in the last report for June. They can't export a lot of product when it's been reported by Wikipedia that they consume 3M barrels a day themselves.

Joseph

Somebody is really trying to keep oil above $50/bbl. It's going to be interesting if Oil dips below 50 and possibly triggers some automatic selling. It seems like $50 is a technical indicator.

IC

In CA we're getting reamed as usual. We're paying at the $100/bbl level, $4.25/gal. Hell, at the rate these thieves are going, the gas taxes alone will end up being the national avg of the price of gasoline.

David

When will the media stop reporting fudged numbers. Media that broadcasts numbers that are obvious estimated aka fudged are just as guilty as the perpetrators. The reality is that fracked oil is not the same quality, estimates of production include distillates that cannot be used as Oil or Gas production. World oil demand is estimated at about 95 million barrels per day, while Saudi's supply is about 31 million per day. The demand is going to quickly outpace the so called 2.5 million bpd surplus. Oil is trading at inflation adjusted price equal to 1974 pricing.

jim

This is good news for Americans.
Bad news for speculators, banksters, Putin, and Texans!

Jay 5 hours ago

Low oil prices?
It's not just overproduction, the world economy is in bad shape and demand is falling.

Lars Mors

It is interesting that Saudi Arabia came up short $4 billion in just the last month, and has run short of capacity. Something is gonna break ... either prices shoot up or economies collapse.

[Jul 22, 2015] Metals are getting crushed

And following gold's plunge, analysts are getting increasingly bearish on the commodity.
Goldman Sachs now sees the price of the metal dropping below $1,000 an ounce, according to Bloomberg's Debarati Roy. .
Goldman's head of commodities research Jeff Currie told Bloomberg: "With the more positive outlook on the dollar, and with debasement risk starting to fade, the demand to use gold as a diversifying asset against the U.S. dollar becomes less and less important."
Currie also said the firm prefers to approach gold "on the short side" for the longer term.

Math-Chem-Physics

U.S. Treasury Yields are falling today July 22 due to Safe-Haven flight of Investment Money due to the impending military actions in the China Sea between the U.S. & China ; other areas such as Ukraine are also likely now to explode in conflict. This will soon attract Safe-Haven Investment into Gold and Silver also and the Gold & Silver Mining Stock Equities in XAU and HUI. My previous blog on July 20, 2015 below explains this in detail , and also explains why the FRB won't raise its Fed Funds Rate until 2017 :
China is a very shrewd Investor, and so some of its Gold was obviously sold near the top of 2011 and 2012 when Gold was approximately $1,900 per ounce. Of course, China is today buying hundreds of tons of Gold so that when the October 2015 IMF Adjustment is made to Voting Rights giving China equal weight to the U.S.A., China's Gold holdings will be at least 4,000 tons instead of the 1645 tons reported last week. The P8 Reconisance Flight over China's Manmade Military Islands in the China Sea by U.S. Admiral Swift today was vehemently protested by China, and likely will lead to shoot-down of a P8 by China soon, thus sparking powerful Gold and Silver gains for coming weeks throughout 2015 --
The sell-off that drove gold down to $1080.50 today within a few minutes of the Shanghai Stock market opening is yet another case of Manipulation of Gold price lower by some large Banks using "Naked Gold Shorts". The authorities will soon fine those responsible and thereby halt that, just as they have recently in 2015 in the cases of Currency Manipulation, and also Manipulation of the Libor Rate.
Gold is now rallying sharply off its bottom of $1080.50 hit within a few minutes of the Shanghai Market opening; Gold price has now recovered more than one-half of its loss, which loss is in spite of the strong Fundamentals of Gold; those strong Gold Fundamentals are related to the impending 86 Billion Euros Bailout for Greece that will strongly bolster the Euro and Gold as the U.S. Dollar sinks sharply, thus allowing the all-important Large Speculators today to sweep up thousands of Gold Contracts based on those strong Gold Fundamentals -- The weekly Commodity Report on Wednesdays will illustrate this on July 22; of course , today's panicked small speculators won't know this until it is too late on July 22. At 3:05 a.m. EDT, Bloomberg News reported that Greece will pay all 7.05 Billion Euros Debt Repayment on time that is due near-term. Gold has so far rallied up to $1119, and Silver has also rallied sharply to be down only a few cents, and the Euro is up 0.2%. Additionally, the FRB cannot raise its Fed Funds Rate according to FRB Vice Chair Fisher on July 17 because the Annual 1.2% PCE Core Inflation Rate fell from 1.3% of the previous month, which is far below the 2% Mandate; FRB Member Mester's notion to use a Interest Rate increase to improve "financial stability" was totally rejected by FRB Member Williams --
The German Parliament on July 18 voted overwhelmingly to immediately start the Bailout Negotiations with Greece, and German Chancellor Merkel then stated that the Greece Bailout must be agreed to quickly so that lengthening of the maturity of those loans by decades with lower Interest Rates will quickly make the Greece Debt "sustainable", thus allowing the IMF to quickly loan their fair share of the 86 Billion Euros -- July 20, 2015 at 7:30 a.m. PDT

[Jul 22, 2015] The current "gangbusters" wealth effect on consumption

"...Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation ata level never seen before in history."
.
"...In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect."

July 20, 2015 | angrybearblog.com

Pulled back from comments. (bolding mine)

Marko, July 20, 2015 7:01 am
These days , more people may own stocks , but the vast majority own trivial amounts. Look up Edward Wolffs stuff on wealth distribution and try to estimate how much stocks would have to go up to tease out any meaningful consumption out of the bottom 90% of the wealth distribution.

The dotcom bubble was unusual in that from the mid-90s to just after the crash decent income gains were achieved across the distribution , something that hadn't been seen for a couple of decades. That may have contributed to any apparent consumption anomaly , as more-than-usual income flowed to high MPC households.

You can find people who can econometrically manufacture stock market wealth effects of 5-10 cents on the dollar , but they're almost always those of a certain "persuasion" , politically speaking , i.e. mouthpieces for the 1%. Greenspan was a famous example.

Other asset prices certainly respond to a stock market bubble , like art and other collectibles , but that doesn't do much for the economy either.

Shiller has never believed much in the stock market wealth effect , and I tend to think he's on the right track. A couple pennies on the dollar in the US , maybe :

http://www.pragcap.com/robert-shiller-debunks-stock-market-wealth-effect

Housing wealth is more potent , I'm sure , but when you back out the collateral-enhanced borrowing increase , I doubt that it amounts to more than a penny or two attributable to wealth "animal spirits".

Finally , 'splain this :

https://research.stlouisfed.org/fred2/graph/?g=dGy

If there's any kind of generalized wealth effect , it should be going gangbusters right now , bigger even than the dotcom or subprime booms. That's hard to square with this economy's performance , which has limped along right through the wealth boom. Maybe some would argue that without the wealth boom we'd be entirely dead , but my feeling is we've designed the economy to generate wealth instead of gdp. In that sense , we're doing great !

My reply

Indeed the ratio of personal consumption expenditures to personal disposable income is the highest its been since 1950 except for 2005 2006 and 2007 (the height of the housing bubble).

Note in the discussion that Brad DeLong, Dean Baker and I all agree that housing wealth has more effect on aggregate demand than stock market wealth. I argued as you do that the wealth of the rich has little effect on their consumption (which is I think limited by 24 hours in a day not a budget).

I have no idea why it is that people who assert there is a stock price effect on consumption tend to be right wing. They often argue that promoting saving is very important (hence capital income shouldn't be taxed). In general they argue that consumption is too high not too low (and that it crowds out investment). Thus they should argue that causing low consumption is a good thing about low stock prices.

In fact, I think that usually (when the economy is not in a liquidity trap) lower consumption would be better. This is one of many reasons why I would like to effectively confiscate part of the value of stock by taxing dividends. It is exactly the wealth effect that makes the optimal tax on capital income (as correctly calculated using the standard model used by critics of capital income taxation) very high.

In any case, I don't think one should decide what is true by group affinity for people who say one thing or another. Rather I think it is better to look at data (as I did following your absolutely correct albeit rhetorical gangbusters prediction).

GDP is way below trend because of low residential investment and low government consumption and investment. Consumption is high - much higher than one would guess with the most empirically successful model with no wealth effect (which is the paleo Keynesian consumption function).

Warren, July 20, 2015 11:12 am

I agree 100% with your assessment of the (lack of) "wealth effect" of a stock market bubble.

You get a stock market bubble by having more people wanting to buy than to sell, so the prices get bid up. "Investment" in stock (except for IPO's), does nothing for the economy - except to raise stock prices. In general, it is still a good idea for people themselves to invest in the stock market, but a stock market bubble does not help the economy at all, because to get money out to buy something else (which would help the economy), someone else has to take their money, which he might have used to buy something else, to pay you for that stock.

Stock market purchases (again excepting IPO's), are a wash - whatever price is paid by the purchaser just goes to the seller and the broker. There is no net gain anywhere.

Indeed, the wealth of the rich does not affect their consumption, not because there are only twenty-four hours in a day, but because their goal is the accumulation not consumption. That's how they got wealthy in the first place.

Housing prices, however, are a different matter, because some people will take out equity loans on their houses and spend it on something - usually consumption, not accumulation. This takes money that people want to save (the lenders), and puts it back into the economy to buy goods and services. It is the flow of money that is important in an economy, not the amount of money. (Yes, one can take loans against stock holdings, but it is riskier, and most people just do that so they can buy more stock - again doing nothing for the economy.)

Now, I do believe that promoting saving is very important, not for the economy, but for the individuals themselves. I agree with the idea that "consumption crowds out investment," but only at the individual level, not economy-wide. For one person to consume, someone else must produce. To produce, he must invest in the means of production. The only way for consumption to be higher is for production to also be higher.

While it seems we agree on all that, I don't understand where you are going with the dividend tax. Dividends are already taxed. A company earns some income, that income is taxed, and from the remainder dividends are paid. Then the recipients of those dividends are taxed on them. Dividend payments are not tax deductible, so they are taxed at both the corporate and individual levels. (True, those in the 10% and 15% brackets pay no dividend tax, but they hold a negligible amount of the dividend-paying stocks.)

Assuming a marginal corporate tax rate of 35%, and a dividend tax of 15% (for most people - some will be taxed at 20%), that's already a 50% tax on that income. How much do you think the government should take?

Lastly, I can understand how low residential investment reduces GDP - it is less production. But I do not see how lack of government consumption reduced GDP. The government, generally, produces little of value. (Yes, the F35 is very expensive, but I think you will agree that its value is much lower.) Government consumption must be paid for by taxes, which means that those paying the taxes will not be spending that money on something else (like residential improvements). Or it can be paid for by borrowing money, in which case the people lending the money to the government won't be spending it on something else or lending it to someone else.

The primary way for federal government spending (investment) to really increase GDP is in infrastructure. Roads, bridges, trains, and public transportation in general have a beneficial effect on the economy in general ("the General Welfare… of the United States").

Now, to contradict myself, maybe I need to go back to the FLOW issue. If those paying the taxes or buying the bonds would otherwise just sit on that money, then perhaps it is better to take or borrow it, even to seemingly waste it on those who don't (won't) work, the government contractors who charge $800 for a MILSPEC hammer, failed health insurance exchanges, etc. Generally, the people who "earn" that money are going to go out and spend it. So perhaps keeping the FLOW moving, even if the reason for the flow is itself worthless, is itself a net positive.

Even so, our debt levels scare the $H!T out of me.

Sorry I've gone on so long. It's a fascinating topic. Thanks for letting me ramble.

bkrasting, July 20, 2015 12:17 pm

Marko dismisses the consequences of the wealth effect with this:

but they're almost always those of a certain "persuasion" ,
politically speaking , i.e. mouthpieces for the 1%.
Greenspan was a famous example.

Since 2009 it has been the stated policy of the Federal Reserve to "Increase asset prices". Ben Bernanke, and now Janet Yellen, have pursued monetary policy accommodation at a level never seen before in history.

Both Ben an Janet have repeated the mantra that aggressive policy and strong Dow Jones are good for the economy. They have pushed this policy to a much greater extent that Greenspan ever did.

Yellen and Ben do not fit Marko's mold.

In Japan, the Central Bank is buying common stocks with the objective of increasing wealth. They have been doing this for two years in large amounts. The Japanese believe in (and are now dependent on) the wealth effect.

In the past month China's market fell a jaw dropping 30%! The government stepped in to prop up the market. Hundreds of billions of printed money was needed to avoid an even deeper sell off. There was concern of social pressures if the sell off got out of control. The Chinese clearly believe in (and fear) the wealth effect.

Again, It's a mistake to paint stripes on those who gear economic policy around equity markets. It's also a mistake to underestimate the consequences of the markets on overall economic performance. After all, we have 1929 and 2009 to point to.
Daniel Becker, July 20, 2015 1:29 pm

In the end, the vast majority of citizens of a given economy still need to be able to make the payments. Wealth means nothing to them if they don't have the income to cover the monthly bill.

The liquidity trap was the results of banks having nothing but air under their loan portfolios because the people who were making the payments could not.

That "could not" make the payments part as I've noted and then Kreger noted in is Gatsby Effect that $1.1 trillion in income had shifted to the 1% from the 99% and in his calculations represented $450 billion in consumption.

How stupid was this economic design? Build a money machine that depends on people being able to make payments while the machine works also reduces the money used to make payments by those who need to make payments.

The money boys and girls played both ends against the middle and the ends smacked into each other causing the big crash.
Bruce Webb, July 20, 2015 2:54 pm

Warren let me disagree on a few points. In two comments.

One it is too reductionist to say that the rich are motivated by accumulation rather than consumption, in part because there are only 24 hours in the day. First of all people like Larry Ellison have proven there ARE ways to consume conspicuously no matter how much money you have. For example you can essentially buy the America Cup competition AND buy 99% of one of the major Hawaiian Islands. But more generally you have omitted the third possibility: which is display. As a medievalist by training I have seen abundant evidence that what motivated chieftains and then kings and emperors was not personal consumption as much as the chance to display wealth and hospitality. Meaning that you could become famed by being KNOWN to be so rich that you could spend without care, and not just on yourself but on your supporters or simply via charity. In this way display has a function in between accumulation and consumption and where a thousand years ago that might manifest itself in palaces and cathedrals today it can happen with the pages of the Forbes 400 issue.
coberly, July 20, 2015 3:24 pm

Well, I agree about the Big LIe, or the Big Befuddlement. You have to reember that these people have been lying to themselves since they were freshmen at Harvard and were let in on the Big Secrets by Famous Men.

On the other hand, you could just as well, or better, tax ONLY corporations. Since the corps would adjust the wages they pay and the prices they charge, the effect on "the economy" would be zero. and since the people would not be paying any tax, they would vote for larger taxes and we could get some work done.

Or, as long as you are not running a system where the rich pay no taxes and the poor pay what the traffic will bear, you could leave things as they are and let the market sort them out.

I don't know anyone who is paying the "double tax" who is going without supper.

[Jul 22, 2015] The Cost of Free [Trades]

The CIO that Eric Peters is quoting above is fortunate that markets aren't a 24/7 affair with wide open access. I believe that most investors are as well.
Silicon Valley is enamored with a slew of new tech startups that offer free and instantaneous trading. The technology is cool and the price is, well, as good as it gets, but the larger question to me is "Why?" If an investment isn't promising enough to justify paying seven dollars to execute the trade, maybe it's not an investment worth making. Maybe there's an unexpected benefit to there being some layer of friction between people and their ability to make moves.

Perhaps the relatively minor gateway of a trade confirmation screen – "Are you sure you'd like to place this order?" – or a small trading commission ends up being the thing that stands between the kind of frivolous transacting that undoubtedly destroys more value than it creates.
Warren Buffett and Charlie Munger say it is very unlikely that they can make hundreds of smart decisions each year. They can get the relatively few big decisions mostly right, which is why their investment process is oriented away from having to make a lot of good calls all the time. Can a guy trading out of boredom from his phone say otherwise with a straight face?
I'm all for efficiency and the trend toward lower investment costs. It's a huge win for investors in the long run. But at what point do lower short-run costs create larger long-run costs by encouraging self-defeating behavior? Investors who are free and unfettered to act on their every impulse and whim are not necessarily being empowered – in many cases they are being endangered. Jack Bogle has made this case in terms of the ETFs that have gradually sucked assets away from traditional '40 act mutual funds. He views them as carrying a built-in incentive to trade rather than invest because they're moving up and down all day. He's partially right – but a tool is only as good or as bad as the end user.

Free is never free; there's always a price. This includes market access.

[Jul 21, 2015] Fat Tails & The Invisible Vulnerability Of Markets

Jul 21, 2015 | Zero Hedge
Authored by Michael Mauboussin, via ValueWalk.com
Fat Tails & Nonlinearity, Dec 2007

Diversity Breakdowns and Invisible Vulnerability

For he who is acquainted with the paths of nature, will more readily observe her deviations; and, vice versa, he who has learned her deviations will be able more accurately to describe her paths.

Francis Bacon
Novum Organum 1

The Memo Went Out

If you are involved in financial markets, you have gotten the memo about fat tails by now.

But awareness of extreme events is not enough. Thoughtful investors must understand two interrelated aspects of the market. The first is the statistical properties of price movements, including important deviations from the bell-shaped distribution. Academics, risk managers, and quantitative investors have explored this aspect extensively. Researchers recognized decades ago that the distribution of price changes includes fat tails.

The second aspect, and one often overlooked or misunderstood, is the mechanism that leads to the statistical imprint. Much of the work on the market's statistical properties is divorced from the propagating mechanism, while traditional theories of market efficiency assume the mechanisms. Crucially, understanding the mechanism provides insight into how and why markets fail.

Our focus here is on nonlinearity. Many complex systems, including markets, have critical points where small incremental condition changes lead to large-scale effects. Researchers in both the physical and social sciences have known about these critical points for a long time; so much so that terms like phase transition and tipping point have slipped into our day-to-day language. Still, critical points throw a monkey wrench into our mostly linear cause-and-effect thinking.

Critical points help explain our perpetual surprise at fat-tail events: We don't see them coming because the state change is much greater than the perturbation suggests. Water does not undergo a dramatic change as it drops from 35 to 33 degrees Fahrenheit, but two degrees of additional cooling changes its state from liquid to solid. Likewise, large changes can occur in markets without visible manifestation in asset price change, while small additional changes can flip the price switch.

Critical points are also important for proper counterfactual thinking. For every critical point we do see, how many were lurking but never triggered? Like water temperature dropping to 33 degrees and again rising, there are likely many nearmisses in the markets that elude our detection.

We survey three ideas: black swans and why patterns set us up for surprise; the conditions for crowds to be wise and the role of nonlinearity; and, finally, three examples of nonlinearity, including a physical system, an agent-based model, and a recent market dislocation.

Don't Feed the Turkey

Nassim Taleb uses the black swan metaphor to help popularize the fat-tail idea. He defines a black swan as an outlier event that has an extreme impact and that humans seek to explain after the fact. Recent market turmoil fits the definition well.

The black swan reference reflects Karl Popper's criticism of induction. Popper's point is that to understand a phenomenon, we're better off focusing on falsification than on verification. Seeing lots of white swans doesn't prove the theory that all swans are white, but seeing one black swan does disprove it.

Taleb relates the story of a turkey that is fed 1,000 days in a row. The feedings reinforce the turkey's sense of security and well-being, until one day before Thanksgiving an unexpected and uninvited bad event occurs. All of the turkey's experience and feedback is positive until fortune takes a turn for the worse. Recent comments by a senior executive at one of the world's largest banks evoke the turkey story: "Our losses [from instruments based on U.S. subprime mortgages] greatly exceeded the profits we made in this field over several years."

Here's the point: rising asset prices provide investors confirming evidence that their strategy is good and everything is fine. This induction problem lulls investors into a sense of confidence, and sets the stage for the shock when events turn down. That nonlinearity causes sudden change only adds to the confusion.

See full PDF here

[Jul 21, 2015] Take Cover - Wall Street Is Breaking Out The Bubblies

"... After all, what's a 61X trailing PE among today's leading tech growth companies?"

Zerohedge

This charmed circle includes Google, Amazon, Baidu, Facebook, Saleforce.com, Netflix, Pandora, Tesla, LinkedIn, ServiceNow, Splunk, Workday, Yelp, Priceline, QLIK Technologies and Yandex. Taken altogether, their market cap clocked in at $1.3 trillion on Friday. That compares to just $21 billion of LTM net income for the entire index combined. The talking heads, of course, would urge not to be troubled.

After all, what's a 61X trailing PE among today's leading tech growth companies?

[Jul 20, 2015] The Complete Guide To ETF Phantom Liquidity

Jul 20, 2015 | Zero Hedge
Two months ago, in "ETF Issuers Quietly Prepare For Meltdown With Billions In Emergency Liquidity," we outlined the rather disconcerting circumstances that have led some large fund managers to quietly line up emergency liquidity facilities that can be tapped in the event of a sudden retail exodus from bond funds.
"The biggest providers of exchange-traded funds, which have been funneling billions of investor dollars into some little-traded corners of the bond market, are bolstering bank credit lines for cash to tap in the event of a market meltdown. Vanguard Group, Guggenheim Investments and First Trust are among U.S. fund companies that have lined up new bank guarantees or expanded ones they already had, recent company filings show," Reuters reported at the time, in a story we suspect did not get the attention it deserved.

At a base level, these precautionary measures are the result of the interplay between central bank policy and the unintended consequences of the post-crisis regulatory regime. ZIRP creates a hunt a for yield and simultaneously incentivizes companies (especially cash strapped companies) to tap the bond market while borrowing costs remain artificially suppressed. Clearly, this is a self-fulfilling prophecy. The longer rates on risk free assets remain near, at, or even below zero, the more demand there is for new corporate issuance (the rationale being that at least corporate credit offers some semblance of yield). More demand means rates on corporate credit are driven still lower, and once yields on high grade issues get close to the lower limit, yield-starved investors are then herded into HY.

All of this supply in the primary market comes at a time when liquidity in the secondary market for corporate credit is non-existent thanks to the shrinking dealer books that resulted from the government's (maybe) well-meaning attempt to crack down on prop trading. The result: a crowded theatre with a tiny exit.

This situation has been exacerbated by the proliferation of bond ETFs which have allowed retail investors to pile into corners of the fixed income world where they might not belong.

All of the above can be summarized as follows.

"MF assets too large versus dealer inventories" (via Citi)...

... clear evidence of "structural damage in corporate bond trading liquidity" (via JP Morgan)...

... and the rapid growth of bond funds in the post-crisis world (via BIS)...

So given the above, the question is this: if something were to spook the market - a rate hike cycle for instance, or an October revolver raid on HY energy names, or an exogenous geopolitical shock - causing an exodus from these funds, what would happen to prices if fund managers were suddenly forced to transact in size in an illiquid secondary market in order to meet redemptions?

"Nothing good", is the answer.

The solution is to avoid selling the underlying bonds - even when investors are selling their shares in the funds.

But how is this possible?

To a certain extent, outflows in one fund can be offset by inflows to another. These "diversifiable flows" are one happy byproduct of the great ETF proliferation. Here's a refresher on how this works courtesy of Barclays.

* * *

Portfolio Products Replace Dealer Inventory

While diversifiable flows limit the risks to portfolio managers in principle, the reality of the high yield market is more complicated. Managers have specific views on tenor, callability, sectors, covenants, and, most importantly, individual credits, such that actually finding buyers for specific bonds can be quite difficult. In the pre-crisis period, dealers ran large inventories that effectively facilitated the netting of flows across funds (Figure 1). A fund with an outflow would sell bonds into the dealer community, and funds with outflows would buy bonds out of the dealer inventory. When inventory is large, the fact that the specific bonds bought and sold did not match was largely irrelevant. Funds with outflows could sell the bonds of their choice, and the funds with inflows could pick investments from the large variety of inventory held by dealers.

The matching problem has become more acute as dealer inventories have declined. Even funds can net flows in principle, dealers are much less willing to warehouse bonds, and are much more likely to buy only when they believe they can quickly offload the risk. Under this scenario, the fact that flows can theoretically be netted is of little practical use to fund managers – actually netting individual bonds is extremely difficult, particularly in the short time frame required by funds offering daily liquidity to end investors.

This is where portfolio products come in. Investors can use portfolio products to fund outflows/invest inflows immediately and execute the necessary single-name bond trades over time as liquidity in the underlying bond market allows (Figure 2). In this scenario, funds with inflows and outflows simply exchange portfolio products, sidestepping the immediate need to trade single-name corporate bonds.

* * *

Ok great, so ETFs provide a kind of "phantom" liquidity if you will. There are two problems with this:

It only works when flows are diversifiable. Once flows become unidirectional, it all goes out the window.

It makes the underlying markets even more illiquid.

Here's how we put it last month in "How Fund Managers Use ETF Phantom Liquidity To Avert A Meltdown":

In other words, if I'm a fund manager, the idea that ETFs provide liquidity rests on the assumption that when I experience outflows, someone else will be experiencing inflows and thus I can sell ETFs and avoid offloading my bonds into an illiquid corporate credit market. Put another way: I am depending on new money coming into the market to fund redemptions from previous investors who are exiting the market, all so that I can avoid liquidating assets that are declining in value and that I believe will be difficult to sell. There's a term for that kind of business. It's called a ponzi scheme and just like all other ponzi schemes, when the new money dries up (so, for example, when HY bond ETF flows are all headed in the wrong direction), the only way to meet redemptions is to get what I can for the assets I have and when the market for those assets is thin (as the secondary market for corporate credit most certainly is), I may incur substantial losses.

Note also that the more often ETFs are used as a way of avoiding the underlying bond market, the more illiquid that market becomes, making the situation still more precarious in the event of a panic.

So what is a fund manager to do?

This is where we come full circle to the emergency liquidity lines mentioned at the outset. In order to avoid tapping the underlying illiquid bond market in a situation where flows are unidirectional, fund managers may instead pay out redemptions in borrowed cash.

This is, to quote Citi's Matt King, "creative destruction destroyed."

Only worse.

That is, this represents the willful delay of a long overdue episode of creative destruction layered atop another delay of the much needed Schumpeterian endgame. Stripping out the metaphysics and philosophy references, that can be translated as follows: this strategy is yet another example of delaying the inevitable. If fund managers are forced to tap these liquidity lines it likely means investors have found a reason to sell en masse and if that reason turns out to be something that permanently impairs the value of the underlying bonds (as opposed to a transitory, irrational panic) then all the funds are doing by borrowing to meet redemptions is employing leverage to stave off the recognition of losses, which is ironically the same thing (in principle anyway) that the companies whose bonds they're holding have done to stay in business. It's a delay-and-pray scheme designed to avoid selling the debt of companies whose similar delay-and-pray schemes have run their course.

In closing, it's important to note that no fund manager in the world will be able to line up enough emergency liquidity protection to avoid tapping the corporate credit market in the event of panic selling in the increasingly crowded market for bond funds.

In other words, when the exodus comes, the illiquidity that's been chasing markets for the better part of seven years will finally catch up, and at that point, all bets are officially off.

[Jul 20, 2015] Which Is A Bigger Act Of Faith - Owning Gold Or Stocks?

07/19/2015

The WSJ has released yet another gold hit piece calling it a "pet rock' and gold bugs "subjects of a laboratory experiment on the psychology of cognitive dissonance" just one day after the PBOC reveals it has added the biggest amount of gold in history in order to "ensure security." But the biggest irony is that none other than Citigroup made a far bolder case that it is not the ownership of gold but of stocks that is the ultimate act of faith: "investors remain united in their faith in the central banks – if not for their ability to create growth, then at least in their ability to push up asset prices. And yet the limits of that faith are increasingly on display." So who is right?
Financial_skeptic/ Casino_capitalism/ Systemic_instability*/ Stagnation/

[Jul 19, 2015] How The Fed And Wall Street Are Eating Their Seed Corn

Jul 19, 2015 | Zero Hedge
Submitted by Mark St.Cyr,
When it comes to the stock market these days the overriding theme you hear from the financial media is "You've got to get in." Another is, "Buy on the dips and average in." Or, "You can't profit if you aren't in it" and more. So many more it would fill its own multi-volume set. However, there was some truth to many of those quips just a few years ago. Today, the amount of hidden reality to the actual destruction of one's wealth is far more factual than any will let on. Let alone reveal.

I hear and speak to a lot of entrepreneurs who are absolutely mystified by not only the rise in the markets since the financial crisis in 2008. Rather, what many just can't wrap their heads around is: "If the markets are a reflection of the economy. Then how in the world did we get up here?" That line of thought I rendered down to be the overwhelming theme when discussing the current state of business affairs throughout the economy. This confusion is coming from a group of people who at one time would seek out Wall Street aficionados for insight or expertise. Today, they tend more to distrust what they hear. For what they lack in stock market expertise – they make up in spades with an acutely precise B.S. meter honed by years of business acumen. And many confirm today; it's off the charts far more than they can ever remember. So much so, as to avoid stepping in any of it – they just avoid it all together.

At one time entrepreneurs were not only sought out by Wall Street, rather, entrepreneurs did the same in kind. Before the advent of 401K plans and more it was entrepreneurs with the sale of their business, or profits from something else that fueled many a brokerage firms bottom line. And in many cases that relationship did well for both sides. There was true expertise needed to help one navigate the pitfalls of exactly how and where one was to put their money to work (usually a substantial amount such as after a business sale etc.) in relative safety as to finance the remainder of one's years. Today, not only in much of that expertise gone – so too is the safety.

There's probably no better example of this than what transpires at any bank branch today (those that are left that is). Opening a checking or savings account? You used to be incentivized to do so. But what this initial transaction is really designed for today is more along the lines of "a soft opening" to ask…"So, do you have a 401K account elsewhere?" Then the sales pitch is on by some seemingly just out of grad school quota seeking "financial adviser" with an array of pamphlets, jargon, and sales phrases anyone with any financial sense can see through. "Index this… diversify that…dividend paying yields " and on and on. Along with whatever might be the latest tagline from the financial shows.

This is the true face of Wall St. today. As much as Wall St. would like to think of itself as it was in the glory days of a Gordon Gekko – that image is long gone. Today, what most people see is nothing more than some recent college grad trying desperately to say anything that might convince one to switch 401K accounts as to possibly make this months quota. For if not they too will have to join the hordes of recently dislocated tellers they once worked with. And the numbers show this to be true because not only is the vast majority not switching – they aren't even staying, let alone "getting in."

Let's use a few scenarios that are emblematic to the challenges facing the likes of both the recently cashed out entrepreneur as well as a recent retiree of any sorts. I'll use the dollar amount of $3,000,000.00 ($3MM). To some this may seem high, to others it's not all that great. However, for many entrepreneurs it's an amount easily understood as well as feasible. I also use if because it's a representative amount even Julian Robertson of Tiger Management™ has used to describe the dilemma many entrepreneurs find themselves in with navigating today's financial morass.

(The following of course is over simplified, I mean it as such. However, the questions, answers, as well as premise can not be over stated as to their importance.)

The "buy and hold" strategy. Sounds great, makes perfect sense – unless you can't hold. Retirement for many means just that: no more working to generate income. Income is now derived via their stock holdings. If one doesn't sell (e.g., their stocks) – there's no money to eat. Better to "stay and hold" in one's business and take their chances rather than try to "cash out" and place their livelihoods (i.e., money) in someone else's hands. Especially what constitutes as today's "investment adviser."

"Buy stocks that pay out dividends!" Again, sounds great and seems to solve the problem of the above. Problem is, in a stock rout, what's the first thing companies cut? Dividends. You had just better hope and pray the companies that do cut – aren't the ones you were sold. Or, you're now cut out. But not too worry, they say skipping a meal or two here and there is healthy. And that's what you'll need to remember when there's no food on the table because – there's no "dividend" in the mailbox. I'll also add: it's probably safe to assume in another financial rout, the "financial adviser" that sold you those "dividend" plays is no longer employed themselves. So calling them for further "advice" might be more challenging than it is frustrating.

"Buy the dips!" Sure, there's only one problem. If there is a "dip" doesn't that mean the markets lost value? So if one didn't sell at the heights where is the money to buy on the dip? And if one is selling on the high to fund retirement as to eat and pay bills: That money is now gone. There is no money to now "buy the f'n dip!"

"A stock market correction of 20% to 30% is a gift to buy great companies that are now on sale!" No. A 20% to 30% market correction is a loss of $600,000.00 to just shy of $1,000,000.00 of ones net worth. More than likely a "net worth" that was to be "worth" food to eat, and pay living expenses.

"If you're nervous about the markets just be diversified." This line means squat. Diversified as in what? Other markets? Other vehicles? Lot of good that did during the financial crisis of '08 when everything was going down and coming apart together. And if one believes the markets to be more stable today, and better fortified to withstand another such calamity, even one only half as extreme – I have some beautiful oceanfront property here in Kentucky I'd love to sell you. Cheap!

Don't like the "markets?" Don't worry – you can be safe in bonds. Only problem? Today they pay next to nothing. The bigger problem? Tomorrow they may charge you. All while having to be willing to accept: if you want out sooner than later – it's gonna cost you a plenty if that sooner is at the wrong time. But don't worry. It's not like you need to eat or pay bills anytime sooner or later, right?

Want to keep your money as safe as possible? "Keep it in liquid instruments such as C.D.'s or savings accounts here at our bank." Unless of course it's over $100K. Then depending on the bank not only might you have to pay for the privilege, if they deem you have too much they might ask you to take your money elsewhere. Why? Easy. Your "cash" is now a hindrance that needs to be protected as well as accounted for. And that's not what a "bank" is in business for any longer. Silly you for thinking "bank" today means anything what "bank" meant in the past.

"Don't like banks? Put you're money in a money market!" Right. Only problem there is after the financial meltdown of 2008 where it was shown a great deal of distress was caused by funds needing to keep 1 for 1 notional values in their cash accounts, it's now been deemed that pesky thing of trying to preserve someones cash balance was just too hard. So a new rule was implemented where this pesky detail is no longer relevant. Now if your "cash" value in a money market account resembles an equation of cents on the dollar rather than a dollar for a dollar – oh well; it is 2015 after all. And the times – they have a changed. I'll bet you didn't even get a toaster when you opened that six or seven figured account. So there should be no need to whine about not having any bread to cook in it. After all it's no longer even clear when you may gain or regain access to it (if there's anything left) in another market rout. For any doubts on this just look to the bottom of your latest statement. it's written right there in black and white. (Just have your 10X magnifying glass at the ready is all I'll say.)

I could go on and on, yet I believe, you get the point. Ask just one of the above scenarios to what constitutes a "Wall St. maven" today and I'll bet dollars to doughnuts you'll hear more back peddling or more evasive, jargon laced, mumbo-jumbo – it will have you questioning humanity itself let alone just financially.

What both Wall Street in general as well as the Federal Reserve has wrought is a market so adulterated, so anemic, and so mistrusted the euphemistic "money on the sidelines" has more in common with nursery rhymes than it does with anything reality based. There is no money on the sidelines. Nobody wants "in" to this market. Anyone with half a brain and a modicum of common sense wants out – and the outflow numbers show it still to be true.

"Buying the right index, diversification, and thinking like a billionaire" is not only nonsensical in today's marketplace. It can cause one a whole lot of pain when one is unable to fully comprehend as well as separate euphemisms for real world panic and dismay. All one needs to do is look east to see just how well that type of thinking is doing in China today. For "bubbles" no matter the culture when it comes to one's money "pop" the same way: First panic – then distrust – then the repeating of another euphemism that sometimes lasts for generations: Never trust a bank or the markets. Never, ever, ever!

[Jul 19, 2015] Shell Warns, Oil Price Recovery To Take 5 Years

"...The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel."

"...It will take several years [for oil prices to recover fully], but we do believe fundamentals will return"

Jul 19, 2015 | Zero Hedge
Submitted by Andy Tully via OilPrice.com,
Ben van Beurden, the CEO of Royal Dutch Shell, and one of his senior executives envision low oil prices for some time unless energy producers cut production and the demand for fuel doesn't rebound.

In a wide-ranging interview with Oil & Gas Technology published July 14, van Beurden spoke of competing benefits of the low price of oil for fuel demand, and its liabilities for those who produce it.

"Low prices have big implications for exporting countries like Iran, Russia and Venezuela," he said.

"But also for shale-producers in the U.S., and even the domestic budgets of producers in the Gulf states. In consuming nations, low oil prices are an economic boon stimulating growth and demand."

For the near term, van Beurden pointed to one key forecast that this year will see more worldwide demand than in 2014. "Compared to last year, the International Monetary Fund expects the global economy to grow [in 2015]," he said. "So global oil demand is expected to grow as well."

But he stressed that many oil producers also are reluctant to explore and drill for oil because of smaller profit margins. Therefore, he said, "Supply … may even decline." As for Shell itself, though, he said, "We're determined to avoid a start-stop approach to investment."

As for the global market, Van Beurden said that at best, "a rapid recovery could occur if projects are postponed or even canceled. This would lead to less new supply – not so much now, but in two or three years. Combined with economic growth, the market could tighten quickly in this scenario."

But he pointed to one major snag in that view: U.S. shale oil. A boom in North American production over the past few years helped to create the glut that led to the steep decline in oil prices that began a year ago. OPEC, under the leadership of Saudi Arabia, decided to fight shale producers with a price war, hoping that keeping prices low would make shale extraction, already costly, unprofitable.

But if shale producers cut costs and take other steps to keep producing, van Beurden said, "With moderate economic growth, prices could stay low for longer."

Van Beurden qualified his outlook by stressing that "I can't predict the future," but his director of oil and gas production outside America gave a more specific view of Shell's expectations in a separate interview with Reuters, published July 16.

Andy Brown, a top Shell official, said the Anglo-Dutch oil giant forecasts no quick rebound in the average global price of oil, but only a gradual recovery lasting five years. He attributed this sluggishness to a slowdown in China's economy, leading a drop in demand for fuel, and the continuing oversupply of oil.

The price of oil has fallen from more than $100 per barrel in June 2014 to under $60 today, and Brown said the company has believed for months that it will take until 2020 for the price to rise to a mere $90 per barrel.

In fact, he said, that was a key driver for Shell to offer of $70 billion to buy rival BG Group more than three months ago. This not only supports van Beurden's insistence that low oil prices won't cause Shell to trim investments, but also expands Shell's capabilities in deepwater oil production and gives it immediate entree to markets for liquid natural gas (LNG).

"It will take several years [for oil prices to recover fully], but we do believe fundamentals will return," Brown said. "Until such time, we, like other companies, will have to make sure we stay robust."

Paul Krugman: Liberals and Wages

We can do more to encourage firms to raise wages:

Liberals and Wages, by Paul Krugman, Commentary, NY Times: Hillary Clinton gave her first big economic speech on Monday, and progressives were by and large gratified. For Mrs. Clinton's core message was that the federal government can and should use its influence to push for higher wages. ...

Mrs. Clinton's speech reflected major changes, deeply grounded in evidence, in our understanding of what determines wages. And a key implication of that new understanding is that public policy can do a lot to help workers without bringing down the wrath of the invisible hand.

Many economists used to think of the labor market as being pretty much like the market for anything else, with the prices of different kinds of labor - that is, wage rates - fully determined by supply and demand. So if wages for many workers have stagnated or declined, it must be because demand for their services is falling.

In particular, the conventional wisdom attributed rising inequality to technological change, which was raising the demand for highly educated workers while devaluing blue-collar work. And there was nothing much policy could do to change the trend... But the case for "skill-biased technological change" as the main driver of wage stagnation has largely fallen apart. ...

Meanwhile, our understanding of wage determination has been transformed by an intellectual revolution...

The ... market for labor isn't like the market for, say, wheat, because workers are people. And because they're people, there are important benefits, even to the employer, from paying them more: better morale, lower turnover, increased productivity. These benefits largely offset the direct effect of higher labor costs, so that raising the minimum wage needn't cost jobs after all.

The direct takeaway from this intellectual revolution is, of course, that we should raise minimum wages. But there are broader implications, too: Once you take what we've learned from minimum-wage studies seriously, you realize that they're not relevant just to the lowest-paid workers.

For employers always face a trade-off between low-wage and higher-wage strategies - between, say, the traditional Walmart model of paying as little as possible and accepting high turnover and low morale, and the Costco model of higher pay and benefits leading to a more stable work force. And there's every reason to believe that public policy can, in a variety of ways - including making it easier for workers to organize - encourage more firms to choose the good-wage strategy.

So there was a lot more behind Hillary's speech than I suspect most commentators realized. ...

Posted by Mark Thoma on Friday, July 17, 2015 at 01:08 AM in Economics, Income Distribution, Technology, Unemployment | Permalink Comments (103)

[Jul 16, 2015] It looks like Morgan Stanley absolutely nailed the end of the oil rig plunge

Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (relative in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

JamesB

there is another data set that matters more and that is the rig productivity data. Almost all of he older and smaller rigs have been take off line. One of the aspects of shale work is the huge leap in technology, perhaps the single largest advance ever in the industry. Traditional vertical drilling produced on average only 1 producing well out of every three drilled. The shale producers have almost completely eliminated dry holes with the newer wells which can steer the drill bits to hit tiny pockets. It is a huge change. The second thing is the first shale wells were drilled only 3/4 of a mile and one rig could cover about 2-3 square miles. They are now drilling 15 miles in shallow wells and one rig drilling site covers 150-180 square miles. What is also interesting is it takes only a couple days longer to drill the 15 miles than the 1 mile. The drilling rig count dropped in half, but the feet drilled actually dropped only about 10%. Deep well drillers are also seeing similar leaps forward. A well in the Gulf of Mexico recently hit a record 25 miles of horizontal reach. Morgan Stanley probably nailed it because they were watching the types of rigs.

Dave

These guys can drill all they want but it will just help keep prices down. The demand is simply not going to be there. Oil will remain oversupplied for a long time as long as they keep pumping and squeezing it out of the ground. And OPEC nations are sure not going to slow down. They have social programs to fund to keep their citizens happy. Now, lets get the price for gas in the US down to $2 a gallon where it should be.

LOREN

The rig count is all off, as far as judging how much oil is being discovered. Don't put much stock in rig counts based on past history. New drill bits have been developed and are now in wide us. They can now drill a well in half the time. So the rig count could be half of what it was years ago, but they can drill twice as many wells. This is what happens when you take your advice from bankers who sit in offices in NY. And the effect is clear, even with drastically reduced rig counts, US oil production continues to increase.

southerncomfort

I work in the oil field in Texas and was making over a $100,000 a year will barely make $60,000 this year. I have already secured a job in the healthcare field and will finish my last year to get my BA in Healthcare Administration. Oil field sucks

dan

The real data is the cost of production... We can't compete until the American Oil Companies decide to reduce profits and share revenue...
Period.

I work in the Middle East and I know.

How much money do you need ExxonMobil?...Texaco?

All of the people that you contract to drill your wells by running, non-stop, for 24 hours don't realize that they will be out of work in a few years...

I do... I am 3rd generation of an Oilfield Drilling Contracting family and I know who profits during the "bust" cycles.... You do!!!

ed

The time for claiming something actually happened is maybe a half year to a year after it happened. This is the problem today with everyone thinking that they MUST KNOW everything immediately, and even then, still make foolish mistakes.
Please, someone tell me why we "must know" which idiot won an election, one minute after the polls closed. Thank you in advance.

Steve

The IB's also were calling for oil to sink to $30 or below, which was ludicrous. Their call on rig count vs. actual data was coincidental at best. You can't make legitimate calls when your butt is sitting in a chair in a cubicle in NYC. My experience is most of these guys, while certainly intelligent and well educated, are arrogant and clueless of day-to-day decisions at the field level.

JamesB

The are nothing more than desk jockeys.
Oil's floor is based on the price to produce it AND ship it. The MSM's have no clue. It costs the Saudis $20 per barrel to deliver the stuff to the dock and load the tankers. (realtive in Aramco) It costs them another $18 to ship it to Europe or Houston. With other costs and taxes, the floor for the cheapest oil in the world is about $44 at Houston or a European refinery with not a dime of profit for the Saudis with 10% of the output. Most of the rest need $15 to 20 per barrel more to break even which is why oil hovers around $60. That is the harsh reality and why the true floor is $50-60.

[Jul 15, 2015] The Stock Market Is Too Important To Leave To The Vagaries Of An Actual Market by Babar Rafique of Setter Capital

"..."The primacy of politics over markets must be enforced." -Angela Merkel "

"...The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."

"...Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think."

"...Because criticizing a nation's economic ideology is just like declaring its people subhuman."

Jul 15, 2015 | Zero Hedge

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

G.O.O.D

The stock market is just too important to leave to the vagaries of an actual market now. Too much depends on good-looking numbers now. It must be guided and controlled, or else the stilts on which our global financial system balances become shakier and more visible. The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system.

Welcome to 1984. Has there ever been anything more Orwellian? We have to destroy it to save it? Around the world everything is officially rigged. It is hard to wrap my mind around how these people running things think.

JustObserving

The stock market is just too important to leave to the vagaries of an actual market now. Levitating the stock market has been happening in the land of the free since at least 2009. Fraud and manipulation is the fastest way to wealth.

KnuckleDragger-X

It's getter harder for the propaganda to work when more and more people are going under and the systems like utilities are becoming less stable. The thing that'll likely start the collapse are things like race baiting the free shit army and destroying the working and middle class lifestyle. There are a lot of people who are giving up, but there are also a lot of people starting to get really pissed and it won't be a big thing but a little thing that starts the avalanche....

DOGGONE

http://showrealhist.com
Q: What is going on?
A: F__k the people!

alphamentalist

yes to 2009. and longer if you consider the discounting effect of ever lower rates that has been happening for decades. but the real damage to the micro structures of the market has happened since 2011/2012. single name stocks stopped effectively discounting information in 2012 (except for discounting that there was a lot of QE happening, with the hope of more to come, that all got discounted properly, of course). nowadays, very, very rarely do you see a stock actually trade off when it becomes obvious its management/model is flawed (maybe you get a -5% move for a situation that should have been a -25% move). aside from the obvious misallocation issues, this is a generation crime: it is forcing younger investors to bailout the boomers by paying 2-3x the fair price for their own retirement assets.

Falling Down

OT:
Poor Kruggers:

http://krugman.blogs.nytimes.com/2015/07/15/angry-germans/?module=BlogPo...

Renfield

hehe - first time I've voluntarily read anything on the NY Times site since - oh, I don't even know how many years.
But I must admit that article was kinda fun, short & sweet.
From the article:
<<Because criticizing a nation's economic ideology is just like declaring its people subhuman.>>
I wonder if he realises what he just said, there?
Thanks for that little snack. I guess you're one of those who reads the NY Times so I don't have to. One of the almost-never times I have any sympathy for a Krugman whine. Krugman's hit his stopped-clock correctness quota with this one.
ETA: First the IMF, now the NY Times. Looks to me like Someone Up There is seizing this opportunity to put Germany firmly in its place. Hmmm... wonder what else is happening behind the scenes, to cause this sudden anti-German sentiment from TPTB? I suspect that whatever it is, it has very little to do with Greece.

Fun Facts

Until the current "financial system" fails, we will have a managed stock market. Just like the Chinese and everyone else.
Why ? If they stopped it would lose 50% or more until it found fair value. Interestingly, more and more inside the establishment see central bank stock market management as the proper course.
"And you may ask yourself, how did I get here ?"

Dr. Engali

It's not that hard to understand. The stawk "market" is a policy tool. The illusion of prosperity must be maintained even if the whole country is slowly going to shit right before our own eyes.

MASTER OF UNIVERSE

The NeoLiberals/NeoConservatives have lost control over the markets since March 10th 2008 @ 11:00am Bear Stearns NYC time. What controls the markets, and the future of all economies throughout the World is a Mandelbrot Set, or fractal, of actual economic destruction that continues to replicate itself each and every successive business quarter. The old 'growth models' that the Wall Street 'Quants' based their projections on was seriously flawed, and now the sand they built the American Economy on has shifted much like the World Trade Centers shifted on their foundations when the USA Military Grade Nano-Thermite cut into the support steel beams to control the demolition of WTC 1 & 2, plus Building #7.

NOTE: The appropriate algorithm to control the Mandelbrot Set that was triggered in 2008 when Bear Stearns was subject to a bear run has not been utilized yet because the 'Quants' do not understand what they did on a Quantum Mechanical level. Nor do they understand how the same fractal has been replicated each successive business quarter. Until they understand what is controlling the markets they will not be able to increase the growth model whatsoever. Each business quarter will be a repeat of the last with an increase in contraction until all the superstructure that was built by the 'Quants' is deconstructed and destroyed outright. In brief, the fractal replication is very aggressive, much like a runaway freight train on a Hegelian Spiral downwards.

moneybots

"The market must be rendered increasingly meaningless simply because it's too meaningful to our current economic system."

A manipulated market always returns the favor in the opposite direction.

farmboy

"The primacy of politics over markets must be enforced." -Angela Merkel

Clowns on Acid

Fed policy = Stock and Awe !

BoPeople

So, WE are saddled with massively inefficient markets that allocate money to the least deserving and least productive and THEY are saddled with the knowledge that vast numbers of people, not on the inside, now know that the they and those they serve control things ... and when there is the next crisis (and there will be some day) that EVERYONE will quickly know who is responsible (just as the Chinese knew who to blame... and the Greek people know who to blame).
They cannot escape this responsibility and the consequences of that responsibility.

[July 13, 2015] Janet Yellen's Unusual Optimism

Teresa Tritch of the NY Times editorial board:
Janet Yellen's Unusual Optimism: ...To my ears, most of Ms. Yellen's speech expertly laid out why the economy is not ready for interest rate increases anytime soon. Then, toward the end, she said that based on her views, she expected to begin raising rates "at some point later this year." ...

Granted, it takes time for the effects of an interest-rate move to be felt in the economy. So if the Fed thinks the economy is going to start overheating, say, next year, it would choose to raise rates before that. But I didn't hear any good reason in the speech to believe that a full-steam-ahead economy lies ahead. ...

And yet, Ms. Yellen's take is that a gradual process of steady improvement is underway that, if continued, could justify the start of rate hikes this year.

That is guarded optimism. But six years into an economic recovery that has been consistently disappointing, I find it hard to share even guarded optimism. ...

Ms. Yellen stressed, as she always does, that actual economic developments in coming months would determine when to begin raising rates. The question is whether more of the same fitful, inconclusive growth will count as reason to act or reason to wait.

Posted by Mark Thoma on Monday, July 13, 2015 at 10:32 AM in Economics, Monetary Policy | Permalink Comments (25)

[Jul 13, 2015] OPEC expects a more balanced oil market in 2016

This is Reuter interpretation which is by definition slanted toward energy consumers, who are interesting in low prices bonanza to continue. Should be taken with a grain of salt.

"...In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year."

"...Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014."

"...OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016."

"...The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come."

Jul 13, 2015 | Reuters

Group expects world oil demand growth to increase in 2016

U.S. oil output growth to fall sharply next year

Saudi Arabia says it pumped at record high in June (Updates throughout)

The oil market should be more balanced next year as China and the developing world use more oil while supply of fuel from North American shale grows more slowly, OPEC said on Monday.
In its monthly report, the 12-member Organization of the Petroleum Exporting Countries said it expected world oil demand to increase by 1.34 million barrels per day (bpd) in 2016, up from growth of 1.28 million bpd this year.

World oil demand growth should outpace any increase in oil supply from non-OPEC sources and ultra-light oils such as condensate, increasing consumption of OPEC crude, it said.

"This would imply an improvement towards a more balanced market," OPEC's in-house economists said in the report.

OPEC has increased production sharply over the last year as its most powerful member, Saudi Arabia, and other core producers in the Middle East Gulf attempt to build market share, leading to higher inventories worldwide.

OPEC said Saudi Arabia reported that it pumped 10.56 million bpd last month, up 231,000 bpd from May. According to industry data, that would be a record high.

Higher OPEC production has been a major factor behind a collapse in oil prices, which are now around half their levels of a year ago.

Benchmark Brent crude traded around $58.70 a barrel at 1230 GMT on Monday, down from a peak above $115 in June 2014.

Lower prices have squeezed high-cost oil producers and brought a sharp fall in the number of oil exploration rigs in operation, particularly across North America.

OPEC said supply of oil from non-OPEC producers was expected to grow by only 300,000 bpd in 2016, down sharply from growth of 860,000 bpd this year.

U.S. oil output, which has seen rapid increases over the last five years thanks to the development of huge shale resources by "fracking", is expected to log much more modest supply growth in 2016.

"Total U.S. liquids production is expected to grow by 330,000 bpd, just one third of the growth of 930,000 bpd expected this year," it said.

That should mean more demand for OPEC oil next year.

OPEC said it expected demand for its own crude to rise by 860,000 bpd in 2016 to 30.07 million bpd. But it cut its estimate of demand for its crude this year by 100,000 bpd to 29.21 million bpd.

The group said it estimated, based on figures from secondary sources, that its own collective crude output rose by 283,000 bpd to 31.38 million bpd in June, led by Iraq, Saudi Arabia and Nigeria. That is still well ahead of current demand for OPEC oil and should help ensure global inventories continue to build for some time to come.

(Editing by Dale Hudson and Jason Neely)

[Jul 12, 2015] The Best Way to End Homelessness Alana Semuels

The first-ever large-scale study on the topic finds that permanent, stable housing can be more cost-effective than shelters.

America has the largest number of homeless women and children in the industrialized world. It's a depressing statistic exacerbated by a housing crisis that forced thousands of families out onto the street. The stories of the 1.6 million children who experience homelessness every year-like that of Dasani, an 11-year-old homeless child profiled by The New York Times last year-are reminiscent of tales from developing countries or disaster zones.

[Jul 12, 2015] Why Investing Is So Complicated, and How to Make It Simpler By SENDHIL MULLAINATHAN

"...Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules."

"...For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win."

"...Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio."

"... The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. "

"...Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite."

"...The take away from my experience is that you simply cannot trust financial advisers. "

"...The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location. "

Jul 11, 2015 | The New York Times

As with the simple advice "buy index funds," this is also imperfect. If everyone starts buying target date funds, or life-cycle funds, how long before these terms attract companies that create expensive and not-so-effective products? In fact, it may have happened already. As Pierluigi Balduzzi and Jonathan Reuter found and reported in a recent paper, some target date funds may already be taking an expansive view of what it means to invest in equities: They seem to produce a wide range of returns and risks across the year. As a result, I was careful to verify a few things about the fund I chose. First, I made sure that the stocks held by the fund were contained in a simple, broad-based index such as the Standard & Poor's 500-stock index or the Russell 2000. Second, I verified that the costs were very low: The annual fees came to less than 0.2 percent. If the fees aren't obvious, or if they are much higher than this, watch out.
Even armed with this knowledge, there were hiccups. First, choosing the retirement date raised existential quandaries. Since these funds come in increments of five years (2025, 2030 and so on) I ended up choosing two dates to leave me with mental wiggle room. ("I'm not that close to retirement," I told myself, choosing one fund. "I might want to retire earlier," I said, choosing another.)
Then I developed a second problem: I was afraid that picking only one kind of fund was imprudent. The economists Shlomo Benartzi at U.C.L.A. and Richard Thaler at the University of Chicago refer to the urge to buy many kinds of funds as "naïve diversification." One fund can be enough if it's diversified: What feels like one basket is really a great many baskets.

The biggest lesson, I realized, was one that faces me all of the time: The biggest cost of fear is paralysis.
It is easy to make a mistake in choosing investments. But in an effort to avoid an error, I had been making an even bigger error. As I procrastinated, my money was uninvested and earning zero returns.
That, surely, is not the path to a happy retirement.

SENDHIL MULLAINATHAN is a professor of economics at Harvard.

David, Nevada Desert 7 minutes ago

Dumb luck, I guess.
I let the folks at New York City Teachers Retirement System lay out the choices for me. You know: you can save more or you can save less. TRS does a good job of keeping costs down.
In retirement, I have moved all my bank and brokerage IRAs to Vanguard because their management fee is about 0.17%. Since I must take RMD each year (to be taxed) and have no need for the extra cash, I have put the money in to Vanguard's 529 college fund for my grandchildren...which should pay for tuition in just about any public or private college in future years.
Some poor investing choice in my lifetime:
1. Buying an ocean front condo in Atlantic City.
2. Thinking the Nikkei was cheap at 20,000 and believing it would quickly go back to 40,000.
A good decision based on rumor:
I overheard from a colleague at work that she was moving out of equities into fixed income investments because Hong Kong investors were jumping out the window in the late 1990's.
Suggestion: Read comments on Bogleheads.com from Vanguard fans.

Yeti, NYC 12 minutes ago

The fact that a professor of economics at Harvard has problems investing his money shows that we should stay away from investing in other businesses at all costs. Investing in businesses we know very little about is not different from playing the slot machine. It's probably best to invest in your own business, assuming it still has a future. You know where the money goes, the fee is 0% and your motivation to succeed is guaranteed.

VSB, San Francisco 27 minutes ago

Good Morning: While I agree that the author has made a few mistakes, commentators should realize that this only confirms (accidentally!) the truth of what this economist has written. Planning for one's retirement can be tricky, confusing, and the "paralysis of choice" is a very real thing! Especially since no one can foresee the future -- for example, who knows what climate change might do to your portfolio.
However, aren't index funds and target date *not* the same thing? The paragraph beginning "As with the simple advice..." seems to indicate some confusion about the nature of these products.

None of my index funds cost more than 25 basis points, and my S&P 500 index fund only costs 4. I suspect that any "index fund" that costs 1% (as written in a different paragraph) is not an index fund at all.

Doug Piranha, Washington, DC 49 minutes ago

I agree with other commenters, who have pointed out how awful this piece is, because of the discussion of index funds. What if there were standards in presentation? Can the professor really be great unaware that these standards exist already?
There is something called an expense ratio for a mutual fund! The SEC requires every fund to publish it in a standard format. It isn't complicated, or difficult to find.
Do domestic index funds really charge 1 percent? Hmmm . . I don know. But you can easily see this, and as others have pointed out, run straight to Vanguard. And thereare other index funds now competitive on fees with Vanguard.
When it comes to index funds, it really isn't that hard. Don't be scared away by this misleading article.

Madeline Conant, Midwest 54 minutes ago

I read through all the comments and Bob Garcia was the only person to get the point. The author writes a column about how the average American is not equipped, mentally or emotionally, to invest their life savings, and expect not to get fleeced. Then the comment column is full of scornful responses about how easy it is to invest if you just try.
No. No, it isn't. This is one more area where our leaders are FAILING in their responsibility to serve the interests of the citizens of our country.
The voracious money-vampires have succeeded in eliminating private pensions, and now the common working man has no other choice than to invest (read: gamble away) his life savings in investment vehicles he cannot comprehend. As Mr. Garcia noted, responsible leaders would develop a government-backed savings option that working people could safely put their money into, that guaranteed a modest return. Instead, our elected leaders collude with Wall Street to let the blood-suckers "feast on investors." Indeed, they want to privatize Social Security so they can rook old people out of their SS checks.
Do we hear our candidates addressing this??

Larry R. , Bay Shore, NY 54 minutes ago

The professor's article really offers no solution about how to make investing simpler, and yet the advice from others on this thread remains sound: choose index funds from a low-cost provider like Vanguard or Fidelity Spartan, diversify among US and international equities as well as bonds, set a target allocation for your age (more aggressive in equities when young, less when older so as to preserve capital), rebalance every year or two to preserve your allocation, and that's that.
On the contrary, stay away from actively managed funds where fees eat into your returns, stay away from individual stocks, and stay away from sectors except possibly real estate. As for target funds, they may be OK so long as you don't pay high fees. All my retirement income is in 6 Vanguard index funds (Total Stock, Total International, Total Bond, REIT, Short-Term Bonds, and TIPS). I once compared my results to what I would have earned from a Vanguard Target fund; I came out ahead with my own allocation, but only slightly.

Neal, NJ 1 hour ago

My second thought was that the essay is a misplaced April Fool's joke.
My first thought was to wonder how a distinguished economist with a specialization in behavioral economics could be so naive about his own behavior.
My third thought was that here we have another example of why economics is known as the dismal science.

Ed Perkins, University of Southern California 1 hour ago

The best answer for persons seeking advice is to select the retirement target date mutual funds offered by Fidelity and Vanguard. In discussing the issue with my history department colleagues at the Univ. of So. California, I usually recommend choosing three target dates. The expected target date fund plus one fund five years earlier and one fund five years later.

njglea, is a trusted commenter Seattle 1 hour ago

Good People of America, make it very simple. Get your 401k money out of the stock market and put it in local credit unions and banks or invest only in U.S. treasuries. Get your money off the "financial market" craps table before you use it. Greed is only good for the top 1% global financial elite.

Bill F., Paducah, KY 1 hour ago

I was fortunate to have a father who was in the retail investment business, first as a stock broker and then working as a bank trust officer. That did not make him rich. He was much too concerned about his fiduciary responsibility to his customers to platy the games that make some advisers rich. But growing up with him meant I learned a lot about the pitfalls of investing when the lessons were cheap. I saw my college fund go from $1700 to $500 during the 73-74 bear market (I was 13). Living through that made it easy not to panic during 2008-9. I read Reminiscences of a Stock Operator and The Money Game (by Adam Smith, aka George Goodman) in high school. Those two books will inoculate you against the latest fads on Wall Street.
Dad could pick stocks, because it was his career. I know I don't have the time to do it successfully, so I don't. The bulk of my money is in very low fee index funds. I re-balance about once a year. Fewer bonds than anyone would recommend (<5%), but dad always said, "Bonds are Boring." It doesn't have to be complicated. Don't pay someone to make it more complicated than it has to be.

bernard, washington, dc 1 hour ago

I agree with lots of other commentators: the only retirement investment problem is to ignore the investment advice noise, buy cheap index funds, and wait. I guess it sounds like advertising to tell people to go to Vanguard and forget the rest. That is what I have done. It has been very easy and the results are good.
The big problem among investors is to resist the urge to try to beat the market by being cute. The key insight is that markets are efficient enough to make up-to-date "investment advice" worth nothing extra.

blgreenie, New Jersey 1 hour ago

This piece is rather wordy, not very helpful, about a subject that is covered more concisely and exhaustively elsewhere. Morningstar is a valuable information source for mutual funds with endless measurements, comparisons and responsible commentary. Read Bogle too. I find him very common sense and easy to understand. Avoid reading the daily internet financial sites which gain clicks by frightening their readers with too much doomsday. When considering both general index and target date funds, I find that Vanguard is the most often mentioned as having an advantage. No matter your source or steps taken, it nonetheless comes down to what you decide to do.

Robert Bradley, USA 1 hour ago

Investing is mysterious only for those who refuse to spend a few hours reading a book on the subject and mastering the modest body of knowledge required (stocks, fixed income, market efficiency, diversification and mutual funds, fees and taxes being the core topics).
For these slackers, a target retirement fund, as the author concludes, is the way to go. Prefer Vanguard funds over for-profit competitors, and avoid financial advisors.
Robert Bradley
Author, Investing in Four Hours

Raj S, Westborough, MA 1 hour ago

The basis for this article is wrong is out of sync with the current scenario. Investing is really simple and the proven method is to invest in Index Equity, Bond funds provided by large entities like Fidelity, Vanguard e.t.c.. We should not indulge in excessive trading and be patient with a long term horizon. The author confuses readers and does a great disservice by providing references that are at-least a decade old. I recommend reading John Bogle's investing theories for all young people in this country and around prior to determining their investing plans.

whatever, nh 1 hour ago

Wow. Talk about a verbose article that creates strawmen, complicates what is rather straightforward topic, and distorts or exaggerates some simple facts.
I could provide many examples, but let me provide just one. The author states, "Consumers have been buying index funds, and the market has responded by providing hundreds of them. Nearly all E.T.F.s are index funds. But the market has also responded by charging high fees for this standardized product" and then he quotes a 2004 study from the University of Chicago supporting this claim.
Leave aside the fact that it's silly to quote a 2004 study in 2015 on a topic like this. The fact is, there are dozens of index funds, offered by such large, well-known, stable, well-managed organizations like Fidelity, Vanguard, etc., whose fees today are in the region of 0.1%, i.e., one-tenth of one percent!
Why doesn't he point this out, instead of scaring a potential investor away from a good index fund!?
(I don't work in anything resembling the investment industry).

james doohan, montana 2 hours ago

The take away from my experience is that you simply cannot trust financial advisers. I was referred by friends to someone affiliated with a major company with a warm and fuzzy advertising campaign featuring Tommy Lee Jones. She recommended transferring our diversified mutual funds into what turned out to be a catastrophic, illiquid mess of REITs involved in resort properties. Then she sent periodic newsletters detailing her vacation travels. When I tried to complain to Ameriprise, and asked them if she was essentially receiving kickbacks, they explained that she was not an employee, but paid Ameriprise to use their name. I have taken over my finances, not because I am confident I know what I'm doing, but because those people who want to make money off us simply cannot be trusted to work in our interests.

Susan Josephs, Boulder, Colorado 2 hours ago

For years and years, and through a series of investment advisors, I thought investing was too complicated and difficult for me to understand. The advisors didn't make it any easier, convincing me that this was best left in their hands. I woke up about ten years ago, thanks to a class I took with a retired engineer whose avocation is investing. He never told us what to buy, just taught the basics of what good investing is and why the buy and hold strategy, that convinced me to do nothing during the 2008 crisis, is a good one. Gradually, the world of investing became less and less complicated to me and I took over our investments myself.

I went to Vanguard because this company seems the most transparent and the fees are the lowest. I find that most people, especially women, are completely intimidated about investing. It's not that complicated, and with a little time spent understanding it, as the author illustrates, one can easily learn enough to make good decisions. The target funds are made up of four indexes, total international stock, total international, bond, total US stock market, and total US bond market. Every five years the managers adjust the ratios among these four holdings. The Target Funds are a no-brainer way to invest, at low cost, and with good returns. If one doesn't want to go any deeper, this is a good solution. Vanguard offers them and the management fees are low.

Martha Pattillo, Illinois 2 hours ago

The average person has a better chance to make good choices if given the important data in a clear, meaningful format. I find a big difference in the design of websites for selecting mutual funds. I use the Fidelity and Prudential websites for my 401(k)s and the Fidelity website is far superior at presenting key information in ways that allow me to make fact-based judgments. The Fidelity website presents mutual fund choices clearly with fees, Morningstar ratings and historical returns over several time intervals, all in one location.
The Prudential website requires me to scroll through multiple pages to get the relevant information and I cannot readily see choices side-by-side.
Fidelity is far superior showing the performance of my portfolio. It shows the sources of change in portfolio value: market value, dividends, deposits or withdrawals. It offers graphs and dynamic analysis. Prudential shows only changes, so it looks as if it's doing well, because I contribute to it every month. I have to download PDF files of each individual fund, so comparison is tedious and incomplete.
Good, clear information can lead to better choices.

skeptonomist, is a trusted commenter Tennessee 2 hours ago

How can small investors hope to beat the market picking stocks? They don't have the knowledge themselves. An advisor who makes a living from small investors is probably not a real expert - if there are real experts, they probably work for real big money, and they may have access to inside information. So, advisors may be better than the many fools who play the market with no expertise at all, but probably no competition for big operators and manipulators. For most people index funds are the answer. Of course you can still try to time the market overall.

**ABC123**, is a trusted commenter USA 2 hours ago

I read this article thinking it was written by a twenty-something fresh out of college. Then at the end, I saw this guy is a professor of economics at Harvard. Dude... purchase "Personal Finance for Dummies" written by Eric Tyson. That will start you off where you need to be- it's well written and even funny/entertaining. And for index investing... VANGUARD! And not sure why you think indexing is so expensive (???). Vanguard charges a fraction of a fraction of a percentage.

SteveD, Marlborough CT 3 hours ago

After all is said and done above average returns depend on finding people with that special and relatively rare skill to beat the market. What is needed is more transparency to check out investment decision records of individuals, not just funds. Maybe trackers like myinvestmentrecord.com will help eventually.

Dan Green, Palm Beach 3 hours ago

For those who have to become deeply involved in financial planning, as most do, since corporations got out of the pension responsibility, the first rule of thumb is, financial planners, like Vegas , always win. Human nature when you sit across the deak from your advisor, he or she is calculating their cut. If like my spouse and I do , manage our own affairs, she has a MBA in economics, you have to be with it all the time. So so many non related forces, affect many investments, much less all the manipulation that goes on. I have a family member who is a classic Gold Bug, those theories are fascinating. Learned the hard way an segement I stay away from.

Glassyeyed, Indiana 3 hours ago

Easy question. Investing is complicated so that it's easier for investors to be fleeced, because fleecing the middle class is how the elite make money. It's not going to get simpler because the elite don't want it to, and they make the rules.

[Jul 11, 2015] Gold Daily and Silver Weekly Charts - Some Group Is Sitting On These Markets

Jul 11, 2015 | jessescrossroadscafe.blogspot.com

"Gold is looking like the dog that just did not bark -- but not uniquely so. Most safe-haven assets are looking distinctly lackluster, including the VIX index. Either 5,000 years of safe-haven buying has just become bunk, or there is a desire to portray what is evidently a financial and economic crisis as nothing to be concerned about."
Ross Norman, Sharps Pixley

"In keeping silent about evil, in burying it so deep within us that no sign of it appears on the surface, we are implanting it, and it will rise up a thousand fold in the future. When we neither punish nor reproach evildoers, we are not simply protecting their trivial old age, we are thereby ripping the foundations of justice from beneath new generations."

Aleksandr Solzhenitsyn, The Gulag Archipelago

At least in my judgement, the precious metal markets are being consistently rigged.
I believe the reason that they are being rigged is that the financiers have convinced the political class that this is a necessary action in order to prevent a panic, a run on the dollar and the bonds, and a seepage of critical funds into an unproductive investment as compared to equities for example.

We are just defending what is ours, right? And what is ours is the global dollar hegemony.

This is really just another excuse for looting, picking both the global public pockets and the Treasury's.

This sort of thing seems to happen periodically, at least once per generation, and the system generally has to get washed out badly, and then reform may come. You can see a clear trend back to the early Reagan years for this particular dalliance with the overreach and madness of the moneyed interests.

Protracted market rigging tend to distort supply profoundly. And there should be no doubt that the distortions and excesses of our current round of economic quackery have caused an historic imbalance of wealth and power. And the rigging of the gold and silver markets have badly affected the ability of supply to meet demand.

Oh well. Interesting times.

Have a pleasant evening.

[Jul 10, 2015]200PM Water Cooler 7-9-15

Jul 09, 2015 | naked capitalism
Anon July 9, 2015 at 2:18 pm

Maybe there's some formatting goodness still going on behind the scenes, but shouldn't that be New Hampshire? Reading the tweets from the bettermarkets account, brought me to this article by Taibbi:

Eric Holder: Double Agent.

What I especially love about this is that it really makes you realize how milquetoast Holder was during his stint as AG, with moments like this:

One is that he failed to win a single conviction in court for any crimes related to the financial crisis. The only trial of any consequence brought by his Justice Department for crimes related to the crisis involved a pair of Bear Stearns nimrods named Ralph Cioffi and Matthew Tannin, who confided in each other via email that the subprime markets were "toast" but told their clients something very different to keep them invested.

After a jury acquitted both in early 2009, the Holder Justice Department turtled. Sources inside the DOJ told me over the years that both Holder and his deputy, fellow Covington & Burling alum Lanny Breuer, were obsessed with winning and refused to chance any case where they felt a jury might go sideways on them. Thus the Cioffi-Tannin case was the last financial crisis case they dared to bring into to a criminal courtroom – virtually every other case ended in settlements.

It sure must be nice to be rich – I can utterly fail at the main responsibility of my job AND land a cushy job with no real effort on my part! Going on that tangent reminds me of that PBS parody video with Lanny Bruce.

[Jul 10, 2015] Are Big Banks Using Derivatives To Suppress Bullion Prices

Jul 9, 2015 | Zero Hedge
Submitted by Paul Craig Roberts and Dave Kranzler via PaulCraigRoberts.org,
We have explained on a number of occasions how the Federal Reserves' agents, the bullion banks (principally JPMorganChase, HSBC, and Scotia) sell uncovered shorts ("naked shorts") on the Comex (gold futures market) in order to drive down an otherwise rising price of gold. By dumping so many uncovered short contracts into the futures market, an artificial increase in "paper gold" is created, and this increase in supply drives down the price.

This manipulation works because the hedge funds, the main purchasers of the short contracts, do not intend to take delivery of the gold represented by the contracts, settling instead in cash. This means that the banks who sold the uncovered contracts are never at risk from their inability to cover contracts in gold. At any given time, the amount of gold represented by the paper gold contracts ("open interest') can exceed the actual amount of physical gold available for delivery, a situation that does not occur in other futures markets.

In other words, the gold and silver futures markets are not a place where people buy and sell gold and silver. These markets are places where people speculate on price direction and where hedge funds use gold futures to hedge other bets according to the various mathematical formulas that they use. The fact that bullion prices are determined in this paper, speculative market, and not in real physical markets where people sell and acquire physical bullion, is the reason the bullion banks can drive down the price of gold and silver even though the demand for the physical metal is rising.

For example last Tuesday the US Mint announced that it was sold out of the American Eagle one ounce silver coin. It is a contradiction of the law of supply and demand that demand is high, supply is low, and the price is falling. Such an economic anomaly can only be explained by manipulation of prices in a market where supply can be created by printing paper contracts.

Obviously fraud and price manipulation is at work, but no heads roll. The Federal Reserve and US Treasury support this fraud and manipulation, because the suppression of precious metal prices protects the value and status of the US dollar as the world's reserve currency and prevents gold and silver from fulfilling their role as the transmission mechanism that warns of developing financial and economic troubles. The suppression of the rising gold price suppresses the warning signal and permits the continuation of financial market bubbles and Washington's ability to impose sanctions on other world powers that are disadvantaged by not being a reserve currency.

It has come to our attention that over-the-counter (OTC) derivatives also play a role in price suppression and simultaneously serve to provide long positions for the bullion banks that disguise their manipulation of prices in the futures market.

OTC derivatives are privately structured contracts created by the secretive large banks. They are a paper, or derivative, form of an underlying financial instrument or commodity. Little is known about them. Brooksley Born, the head of the Commodity Futures Trading Corporation (CFTC) during the Clinton regime said, correctly, that the derivatives needed to be regulated. However, Federal Reserve Chairman Alan Greenspan, Treasury Secretary and Deputy Secretary Robert Rubin and Lawrence Summers, and Securities and Exchange Commission (SEC) chairman Arthur Levitt, all de facto agents of the big banks, convinced Congress to prevent the CFTC from regulating OTC derivatives.

The absence of regulation means that information is not available that would indicate the purposes for which the banks use these derivatives. When JPMorgan was investigated for its short silver position on Comex, the bank convinced the CFTC that its short position on Comex was a hedge against a long position via OTC derivatives. In other words, JPMorgan used its OTC derivatives to shield its attack on the silver price in the futures market.

During 2015 the attack on bullion prices has intensified, driving the prices lower than they have been for years. During the first quarter of this year there was a huge upward spike in the quantity of precious metal derivatives.

If these were long positions hedging the banks' Comex shorts, why did the price of gold and silver decline?

More evidence of manipulation comes from the continuing fall in the prices of gold and silver as set in paper future markets, although demand for the physical metals continues to rise even to the point that the US Mint has run out of silver coins to sell. Uncertainties arising from the Greek No vote increase systemic uncertainty. The normal response would be rising, not falling, bullion prices.

The circumstantial evidence is that the unregulated OTC derivatives in gold and silver are not really hedges to short positions in Comex but are themselves structured as an additional attack on precious metal prices.

If this supposition is correct, it indicates that seven years of bailing out the big banks that control the Federal Reserve and US Treasury at the expense of the US economy has threatened the US dollar to the extent that the dollar must be protected at all cost, including US regulatory tolerance of illegal activity to suppress gold and silver prices.

Pinto Currency

The price is set in London where they trade 200 million oz spot every day.
It is a paper spot market fraud.
http://www.safehaven.com/article/36534/lbma-data-points-to-gold-and-silver-default

SafelyGraze

supply and demand still set the price as PCR points out, the demand is not for physical hugs,
mark dice and a handful of chocolate bars

"you can't eat chocolate!"

SafelyGraze

spoiler:
https://www.youtube.com/watch?v=bYhTFz_SGw0

Oldwood

I thought Kyle Bass told us that there was no way near enough physical to cover paper gold. This would mean that they are simply printing gold to push "supply" up and prices down. On the other side we have stocks and with exception to splits or IPOs, they aren't making more, but companies are buying them up which decreases supply and with a little QE stimulus, pushes prices up. To me it all looks manipulated, but I'm sure they are only trying to make us all rich.

Captain Debtcrash

As shown in China, manipulation eventually always fails. Any manipulation of gold and silver will too. Those that say zero is the correct allocation to gold and silver these past weeks are using it as evidence that it doesn't even serve as a safe haven, exactly what a manipulator would want.

BaBaBouy

Its A Dirty Stinking Putrid Trading World For GOLD SILVER And Now Also Most Other Commods...

[Jul 09, 2015] Fed Watch: Mediocre Tranquility

"...A huge scam run by Angela the Hun."

"...On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]"

Jul 09, 2015 | economistsview.typepad.com

Tim Duy:

Mediocre Tranquility, by Tim Duy: The US economy is an island of mediocre tranquility in the midst of the stormy sea of the global economy. Tranquil enough to keep the Fed eyeing its first rate hike despite the surrounding storm, but sufficiently mediocre that they feel no reason to rush into that hike. As such, the Fed will remain on the sidelines until the forecast points toward sunnier skies. Uncertainty from Greece and China are likely raising the bar on the domestic conditions that would justify a rate hike

ilsm said in reply to pgl...

A huge scam run by Angela the Hun.

The troika is demanding Greeks take the international version of payday loans, to tighten their belt and need to borrow more at the next payday.
Unlike what US thugs these paydays are paydays to the banksters, the Greek has to go hungry.

New Deal democrat said in reply to pgl...

I agree with this comment. The Troika should allow Greece to meet its target by raising taxes rather than cutting benefits.
But ... here is an argument I don't have a good answer to: Slovakia asks why it should agree to a debt cramdown, and also extend a further bailout, to Greece, when Greece has more generous benefits than Slovakia? I haven't heard any good answer to that at all.
The Eurozone is sometimes contrasted to the USA, in that part of the fiscal union is that prosperous states like NY (analogous to Germany) see their taxes go to help poor states like Alabama (analogous to Greece). But isn't Alabama's state motto "Thank God for Mississippi!" because Mississippi is even poorer? But in the case of the Euro, Mississippi is also being asked for debt forgiveness and a bailout to aid Alabama.

Now I am fully on board with the idea that Germany is failing miserably (to put it politely) in the role of benevolent hegemon. But I just don't see how that can be extended to poorer European states.

pgl said...

Jeb! tells those earning low wages that they need to work more hours. Like this is a full employment economy. Jeb! is an idiot.

ilsm said in reply to pgl...

jeb1 thinks we are.......
As do the rest of the GOPster choir and Hil.
The candidate that insists on thought is Bernie.

pgl said...

The letter to Merkel that Simon Wren Lewis notes:
http://www.thenation.com/article/austerity-has-failed-an-open-letter-from-thomas-piketty-to-angela-merkel/
Message - no more austerity. Nice and the lead signature is Piketty.
Huh - JohnH keeps citing Piketty in his usual cherry picked way to support JohnH's gold bug insanity. But it seems Piketty does not support this gold bug insanity. I wonder if JohnH will finally take note or just find some way to misrepresent what Piketty has written again.

reason said...

Glad to see Robert Waldmann's excellent piece http://rjwaldmann.blogspot.de/2015/07/the-structural-problems-ideology-is-not.html linked to here.
I think Robert Waldmann is massively underappreciated.

RC AKA Darryl, Ron said in reply to Mitch...

"Yeah, I read his piece..."
[Really? Assumes facts not in evidence.]
"...he cited the stock market crash of 87 as the cause of structural employment..."
[Waldman states "the stock market crashed in 1987 and the lady who was not for turning turned to monetary stimulus" which means the reaction was to treat the crash as cyclical unemployment rather than structural. Then Waldman states "This caused increased inflation and an actual shortage of skilled labour" which one can safely assume indicated the counter-cyclical monetary policy was effective and ended the recession.]
"Do Europeans even understand the idea of structural employment?"
[Waldman states "The focus on the structural is free floating ideology" and that after the 1987 recession and recovery "Then the border of the stagnating swamp of structural stupidity shifted from the Atlantic to the English channel. The good tough rigorous market based structure became anglophone not American. The case of an inadvertant shift to excess aggregate demand and the long lasting consequences had no effect on the conviction that Europes problems were structural.
French and German technocrats can ignore aggregate demand, because they have learned to ignore double digit unemployment..."
Do you even understand Waldman? Apparently not.]

RC AKA Darryl, Ron said in reply to reason...

"...I think Robert Waldmann is massively underappreciated."
[I think Robert Waldmann is massively under-understood. TO say Waldmann is often misunderstood would be under-statement. He is not for the lazy casual reader. Now, I like that just fine, but he is really too clever by half for the average reader. I have had that same problem myself at times, but no one pays me anything for my idiosyncratic self-indulgence. Waldmann is less sophisticated than Sandwichman. Paine does not get a pay check for his idiosyncrasies either.
On the case in point then neither Waldmann's nor Delong's explanation of the structural unemployment obsession precludes the other also being true and I would not write off " the Marxist faith that ideology must have some basis in someone's material interests somehow" either. Greedy people are often neurotically obsessive as well.]

reason said...

This piece from Robert Waldmann is also excellent: http://angrybearblog.com/2015/07/a-case-for-grexit.html

RC AKA Darryl, Ron said in reply to reason...

Agreed. This Waldmann article was excellent. When he writes for his own blog then it may not be paid, but maybe at Angry Bear he is paid in some way. In any case, it was well written and thorough. Even Mitch should be able to comprehend this Waldmann article.
THANKS!

pgl said in reply to RC AKA Darryl, Ron...

I use to write for Angrybear. I never got paid. But I did enjoy a lot of back and forth discussions including some from the host here.

ilsm said...

From Krugman on Deflation:
Deflation had nothing to do with it, it was "German morals".
In 1932 no one was lending except payday loans like imposed by the ECB on Greece.
The link between Weimar inflation, and Hitler is imagery used to sell pillorying the economic victims, aka austerity.
In 1932 Germany and the rest of the world suffered the "disastrous attempt to stay on gold."
The UE was one of many factors that made "moral Germans" love Hitler.
There was a vast sea of issues beyond the economy: "German morals" favored politicians with brutal para-militaries (the SS was organized in 1933 from standing Nazi thug units) with propaganda organs to spew hatred and illogical blither like we see from Fox News and much more.

[Jul 09, 2015] A Case for Grexit

Jul 09, 2015 | Angry Bear
beene , July 9, 2015 5:19 am

It is a shame that our educators fail to teach during early education period the falsehood of the need for private banks.

"I believe that banking institutions are more dangerous to our liberties than standing armies.

If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around the banks will deprive the people of all property – until their children wake-up homeless on the continent their fathers conquered." Thomas Jefferson said in 1802

Matt McOsker , July 9, 2015 12:05 pm

Robert Writes:
3) Greece will have to be austere - deficits will be impossible if no one wants their bonds.
This requires the typical refusal to believe that the balanced budget multiplier is positive. If Greece can tax the rich (and it certainly can tax wealth) it can stimulate without borrowing.

Long term this might only work in a closed economy with no trade, or with a trade surplus. By accounting identity they must run a government deficit with a trade surplus if they want growth unless the private sector can run up private debt (i doubt they can right now) to offset the negative balance of trade. If the new spending flows externally you will not have declining growth, and you will drain bank reserves.

(I-S) + (G-T) + (X-M) = Change NGDP

Also, they don't need to issue bonds at all. How will they distribute the new currency? Most likely they will spend it into existence with all future government expenditures in the new currency only, they will literally print it up and spend it out there. They functionally don't need borrowing to print (they could implement some combination of TANs tax anticipation notes). This goes to basic chartalism or MMT on why will Greeks demand the new currency? The greek government will demand all tax payments be made in the new currency. A VAT and property tax should accomplish this, and be hard to evade. Plus tourism will automatically cause the selling of other currencies to buy the new one to pay the VAT taxes. Of course, they would need to default on their debts to a large extent under this scenario – or just say they will defer dealing with payments until their economy stabilizes.

Spending without issuing bonds will drive the short term rate to zero as banks get flooded with reserves. Their new central bank can manage short rates with IOR, rather than bond sales to drain reserves. But in reality they should leave rates at near zero. Yes there will be inflation, but employment would be more important initially.

Matt McOsker, July 9, 2015 12:19 pm
Correction to my post above:

By accounting identity they must run a government deficit with a trade DEFICIT (not surplus)

Also here is a good article comparing Argentina to Greece – http://bilbo.economicoutlook.net/blog/?p=24010

[Jul 09, 2015] More Work Hours Jeb Bush, Try Talking to the Employers

It's not Jeb Bush. It's Jeb Romney
.
"...Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs."
.
"...this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out…."

Jul 09, 2015 | Forbes

The economic world is obsessed with growth - bigger revenues, more profits, broader markets (and just not regulation). The bias came across today via Jeb Bush who, in answer to a question from the Manchester, New Hampshire Union Leader, said the following:

My aspiration for the country and I believe we can achieve it, is 4 percent growth as far as the eye can see. Which means we have to be a lot more productive, workforce participation has to rise from its all-time modern lows. It means that people need to work longer hours" and, through their productivity, gain more income for their families. That's the only way we're going to get out of this rut that we're in.

https://www.youtube.com/watch?feature=player_embedded&v=P5RERORKXNU

Erik Sherman,

I remember once getting into a discussion with a number of corporate executives from public companies. I was giving a talk on some plain-English filing requirements. The executives were complaining roundly about more regulations. "It's killing us - KILLING US!" one literally said. I turned to him and asked, "Did you have higher revenues this year than last?" He said, "Yes." I asked, "Did you have higher profits?" "Yes," he answered. "Then you're not getting killed," I said. Yes, there are costs of regulations and there are times legislators can overdo things because they're either justifying their own existence or trying to position themselves for reelection.
However, costs *have* been reduced. Companies are generally far more profitable now than in the past. Regulations are necessary as companies have proven that without being compelled, they will often do things that are bad for the environment, bad for communities, and bad for the economy. That's why we have environmental legislation, anti-bribery laws, labor laws like overtime requirements, and a host of other things. If companies are finding it too tough, they can raise their prices (and they do that anyway on a regular basis) or make their operations more efficient. If they can't, maybe they shouldn't be in business. If you want to take a market view, then take a full one.

Elarie Rose

Amazing. I never thought to see a business oriented publication like Forbes tell the truth about employers. A few weeks ago I had a casual conversation with a young women that I met casually at a lecture. She was really lovely, well-spoken and intelligent. She works for minimum wage at a supermarket, is trying to afford a few classes at a time at a community college, never expects to own a house and assumes that she will never have children. The most chilling thing about the whole conversation was her calm acceptance that this is just the way the world is, with no expectations that life in America should be any different. She wasn't angry because everyone else in her age group was in the same situation and thought it was normal.

Having grown up in an era when Americans had hope for the future, I was the one who walked away angry, for her sake. People want to work – they just need real jobs.

wigglwagon

The only reason America ever had the MOST PROSPEROUS economy was because America had the BEST PAID employees and consequently, American businesses had the customers with the most money to spend. American business owners are SO GREEDY that they are using free trade agreements, immigration, and deregulation to drive down wages and destroy benefits. In their quest for short term profits, employers are destroying their own customer base.

Gregory A. Peterson

most of the hourly laborers that I know are more than happy to work a "few" hours of overtime for a few extra bucks….here's the problem….a fair number of employers absolutely refuse to pay overtime and IF an employee happens to get some overtime they are promptly reprimanded or written up (I have actually worked for a couple of those companies)…..

companies want all their income to go into their pockets they seem to have forgotten the old saying that one has to spend money to make money…..

this country has been abused by people who have no concept of working for a living, for way too long Jeb has no concept of actually "working" for a living therefore it's not surprising that when he opens his mouth stupidity falls out….

apparently it's a genetic issue within the Bush family…..

[Jul 04, 2015] Yanis Varoufakis accuses creditors of terrorism ahead of Greek referendum

Like any neoliberal country Greece is a divided country with 20% of population representing "fifth column of globalization" and benefiting from it and 80% suffering from it.
.
"...Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value."
.
"...Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?
"
.
"...The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal."
.
"...The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss."
.
"...The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs."
.
"...Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.
"
.
"...Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.
I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down."
.
"...No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks! "

Jul 04, 2015 | The Guardian

Banksterdebtslave -> conor boyle 4 Jul 2015 11:15

Yes it should have been, by letting the banks go under as per Iceland. Or were too many people (living in vacuums ?) unprepared to deal with the short term pain ? Now it seems the world of people must suffer to service the Banks' bad debt.....what good slaves we are! The Emperor has no clothes!

Duncan Frame -> Brasil13 4 Jul 2015 11:10

Well that is the rub. Western banks effectively control the cost of credit globally. You either fall into line or you're perpetually behind the curve until you sell all your goods of any value.

W61212 -> Brasil13 4 Jul 2015 11:08

Careful what you wish for. From the EC
'In 2013 the EU recorded a trade surplus in goods (more than double the surplus registered in 2012). The EU also has a surplus in commercial services trade.
The EU is the biggest foreign investor in Brazil with investments in many sectors of the Brazilian economy. Around 50% of the FDI flows received by Brazil during the last 5 years originated in the EU.'
This debacle with Greece demonstrates the EU can't run itself and yet it has huge holdings with Brazil and has recently reversed to a trade surplus in to Brazil, a nation with huge natural, industrial and human resources of its own. Brazil exports mainly agricultural and mining products to the EU and imports manufactured products. See the imbalance? Brazil exports primary products and imports finished products made elsewhere and those jobs are elsewhere. See the problem?
http://ec.europa.eu/trade/policy/countries-and-regions/countries/brazil/

GordonGecko 4 Jul 2015 11:07

There's only one letter difference but choice for the Greeks is to become either the new Ireland (and suffer self-inflicted austerity for decades to come) or the new Iceland (by tearing up the rule book and starting again).
I hope they watch this before voting;
https://www.youtube.com/watch?v=xu5sTyAXyAo

usufruct -> Laurelei 4 Jul 2015 11:07

Germans (for the most part) are not Nazis or terrorists, and should not have to take the blame for this crisis. They are, however, dupes, like people living under capitalism everywhere. They are willing to let the international banksters and their political cronies in the European parliament run their lives and create whatever mischief they believe is in their interest.

ToddPalant -> Scaff1 4 Jul 2015 11:06

Tell us suckers then, about how Ukraine, a run down country that was just made worse by regime change. From bad Yanukovich to much worse American puppet and idiot Poroshenko plus a catastrophic war. Tell us about Lybia and bad Qaddafi, who in his life time killed 3-4000 people and the much worse UK-France that caused at least a 100000 dead with their pet invasion at the behest of our friends from across the Atlantic.

May be you need to dust your mirror.

Duncan Frame -> Laurelei 4 Jul 2015 11:05

Terrorists primary aim is to promote fear rather than harm. That's far more effective in getting their way. You close the banks you show the public what you're capable of.

Saaywar Montana -> thisisafix 4 Jul 2015 11:04

Their economies are naff. Spain and Italy are the two countries most likely to join Greece in a new union. Portugal and Ireland are too far gone but Ireland has been rebelling. Once people see a progressive union to compete with the rubbish EU then these countries will gain support for joining a new southern European union.
These countries are not out of the water and won't get out of it either. Austerity will do what it does and the people will rise up. It's inevitable. The EU doesn't have a monopoly on unions lol.
Greece, as did every other country, got left with the bill of the private banking sector. Yes, it was their fault for running a deficit but a significant proportion of the debt owed by the Greek gov is bank bailouts.
It's the same here. The UK paid £700bn to private banks to make sure they didn't fail. The deficit has nothing to do with that. so around 50% of the debt is a mixture or deficit spending and capital investments made by the government.

Robape Laurelei 4 Jul 2015 10:57

Financial terrorists, just interested in the bottom line, not countries.

elcomm W61212 4 Jul 2015 10:56

When fascist governments get in trouble at home they start wars to distract people. It's not that far out.

Duncan Frame Laurelei 4 Jul 2015 10:56

Yes everything's exceptional. 2008 was the biggest economic collapse since the great depression. And Greece was the most exposed country. No difference.

Alfie Silva karlmiltonkeynes 4 Jul 2015 10:55

My mistake, I thought you were intelligent.

It is common knowledge that only around 10% of bailout monies went to the real economy. You are correct indeed in that creditors got a haircut, mainly hedgefunds and most foreign banks by 2015 had reduced their exposure to Greece. The issue today is sovereign debt. Do you realise that sovereign debt is the senior collatoral for Eurozone banks?
So we are back to banks again Mr Banker.

Duncan Frame ID13579 4 Jul 2015 10:53

I don't have to excuse giving voice to the victims of those in power to you or anyone else. And it seems to me Tsipras is taking the same line. You confuse the Greek people with the people who actually profited from that debt. Why should they be forced to starve on the back of decisions over which they had influence?

usufruct -> HoorayHenrietta 4 Jul 2015 10:44

Like Americans and most other people around the globe, the German people have allowed the international banks to pull the wool over their eyes. There is no reason for taxpayers to bail out the banks as we are still doing here in the U.S. For the past six years my wife and I have been paying down mortgages on real estate hoping to reestablish equity in properties whose value was gutted by cavalier banksters on Wall Steet. A few clicks to gamble away the hard work of millions! These people should be arrested and tried for their crimes. In a fair court they would be sent away for life.

Chris Hindle 4 Jul 2015 10:42

'Yanis Varoufakis accuses creditors of terrorism.'

So what is wrong with that? Financial terrorism is a much more protracted and painful process to the victims than sudden violence, but the end result is the same.

The Vermin Who Would Be Kings have discovered they no longer need the fuss and expense of maintaining a standing army of occupation, far simpler to get countries/continents/ the world in deep debt (via bent politicians making private bankster debt into sovereign debt - just like they did in Greece ) and exert control through that.

BTW the UK has some £9 trillion in foreign debt (much of which is the bad debts of the City - and the highest of any stand-alone country on earth) So now you know what next months austerity drive is all about

InjunJoe -> degardiyen 4 Jul 2015 10:24

The "slovakian tax payer" will not be paying to maintain the Greek standard of living,
but to shore up the ECB, the IMF and the private lenders to Greek banks, as 90% of the "bail-out" goes to serving interest. Haven't you been reading the news?

Duncan Frame -> karlmiltonkeynes 4 Jul 2015 10:20

That's weird because at the same time the banks collapsed in 2008 the deficit went up from 57% to 82%, lots of people lost their jobs or had to take pay cuts. I'm sure it was just a coincidence.

LeftToWrite -> ID6487190 4 Jul 2015 10:17

Yeah the EU has shown itself to want a compromise. All those nice compromised offers it made. Yep we all remember those.
Compromise means both sides giving ground, not one side accepting everything the other demands. Use a dictionary next time.
For once a nation is standing up to EU bullying and we have ignorant fools like you turning it the other way in an attempt to change the narrative.

LeftToWrite 4 Jul 2015 10:11

How can the Troika have fucked up this badly? It seems they forgot that Greece is actually a construct that represents the people who live there, and you can't just impose misery after misery on a people without expecting them to finally have enough. Even if they vote yes, all it does is postpone that that time when they will have had enough.
Honestly, this has shown the true greed at the hearts of Merkel et al, and by extension the people they represent. Save the French and German banks, fuck over the Greek people. If people think anti German rhetoric in Greece is extreme now, decades of resentment is about to follow.

שוקי גלילי Steve Collins 4 Jul 2015 10:09

You probably meant to say "when you ask for it back from someone ELSE, who didn't actually get your money". Are you even aware that this is not actually loans that the Greek people got? If I loan money to your corrupt banker and than ask YOU to return it, will you be less offensive?

duke_widin -> dniviE 4 Jul 2015 10:06

01

Sorry: its Wednesday 8th, I wrote Tuesday ;-))

email from Green Party Brussels office.
TTIP and ISDS - Call to action by Keith Taylor MEP!

Breaking news! We've just been informed that the postponed vote on the European Parliament resolution on TTIP has been put on the agenda for Wednesday 8th July.

MEPs will be voting on the resolution as a whole, but also on a whole array of amendments to the text.
Among these is a compromise amendment on the investor-state dispute mechanism, or ISDS. The compromise amendment suggests replacing ISDS courts with some kind of 'new' system, but there is no further explanation or details. As long as there is any system in place for investors to sue governments, as the compromise calls for, it is still ISDS. The fact that the Parliament's President is trying to spin this as something different by giving it a new name does not change anything.

The compromise amendment has been agreed by the largest groups in the European Parliament: the centre-left Socialists & Democrats (which includes the UK's Labour MEPs), the centre-right European People's Party, and the European Conservatives and Reformists group (which includes the UK's Conservative MEPs) and the Alliance of Liberals and Democrats (which includes the UK's Liberal Democrat MEP).

On Wednesday, all MEPs will get a chance to vote on this amendment and the resolution as a whole.

The Greens are calling on citizens, trade unions, NGOs, towns and regions and businesses to speak out and contact their elected representatives and hold them to account on this attempt to privatise justice and infringe democratic rights.

How you can help
This is our last chance to make sure that damaging ISDS provisions are not given the green light by the European Parliament. MEPs need to know the full force of public opinion on this threat to our national laws and our democratic rights.
Contact your other MEPs before Wednesday asking them to oppose TTIP and the Investor State Dispute Settlement (ISDS).
- use Write To Them to email your MEPs directly with your own concerns
- use the 38 Degrees campaign to send a quick template email
- call your MEPs in Brussels to let them the reasons you're opposed
- spread the word! Share your concerns on social media, tweet your MEPs, encourage your friends and family to contact their MEPs, use Greens/EFA resources to campaign.
Message from Keith

"I've been extremely heartened to receive so many emails from constituents voicing their opposition to ISDS and the TTIP proposals in the last few weeks. It's clear that there's a powerful and growing democratic movement to protect our laws, our public services and our regulatory standards from potential devastation.

The decision to postpone the vote on TTIP earlier in the month stinks of political parties running scared of the huge public opposition to TTIP.

TTIP represents a monumental power grab by corporations and it must be stopped in its tracks.

The sudden re-scheduling of this vote means we are now short on time to make our voices heard. The Greens need all the help we can get to spread the word and put pressure on other MEPs to do the right thing and represent the views and interests of their constituents."
You can keep up-to-date with the Greens/EFA campaign and what the Greens are doing in the European Parliament via their TTIP campaign website and their twitter feed.

Thank you for your support.
Best wishes,

LeftToWrite ID105467 4 Jul 2015 10:14

To bail out German banks, get your facts straight before posting nonsense.

Kalandar 4 Jul 2015 10:14

Propoganda galore from the mainstream media but its fooling no one, except perhaps themselves.

ID345543 4 Jul 2015 10:04

This Is Why The Euro Is Finished

The 2010 bailout was the one that allowed private French, Dutch and German banks to transfer their liabilities to the Greek public sector, and indirectly to the entire eurozone's public sector. There was no debt restructuring in that deal.

http://www.zerohedge.com/news/2015-07-04/why-euro-finished

Ninetto owl905 4 Jul 2015 10:03

The loans were made by a cabal of high-financiers in Europe to a cabal of corrupt finianciers in Greece. The game of lending rules are: you bet that the party you lend money to will pay back the loan with interest. Which is what the German banks did, making a profit on the interest for quite some time. But now the high-financiers in Europe have lost the game, i.e. Greece/the-old-displaced-guard-in-Greece can no longer pay them back. That's the financiers problem: not the problem of Greece's normal citizens nor other EU taxpayers! Is that so difficult to understand? Class war for beginners... privatize the profit, socialize the loss.

NeverNotHereTV gsxsure 4 Jul 2015 09:59

Syriza does not want "free money". They want a fraction put toward economic growth, and then payments as a meaningful fraction of that growth. It is simple enough.

Alfie Silva 4 Jul 2015 09:50

Please can anyone explain to me why we are letting the bankster cabal turn European against European?
The banksters, multi-national corporations and their political lackeys, have engaged in an extend and pretend fantasy which is passing their private debt onto taxpayers across Europe. Once the shoulders of the Greek taxpayer have been broken, it will pass onto the shoulders of the taxpayers from the rest of Europe. God, I want to shake the anti Greek/pro EU lobby to wake them up. Greece, please, please, please vote NO, so we can begin the long process of getting control of Europe out of the hands of these maniacs.

Finnbolt 4 Jul 2015 09:49

"Debt relief was "politically highly toxic for many eurozone member states"."
Here you have the problem. The creditor state governments are responsible to their voters and many have said that their taxpayers will not finance the Greeks and money lent will be paid back in full.
Syriza says they have a mandate from the Greek people to force other euro countries to continue financing them and take a haircut. In other words, lose most of the money lent to Greece.
EU is a collection of nation states with pretensions of a federation. One of the pretensions about to be busted is a transfer union, meaning taxpayers in richer countries tranferring part of their wealth to poorer countries.

APSAPS 4 Jul 2015 09:49

A $22.6 billion International Monetary Fund and World Bank financial package was approved on 13 July 1998 to support reforms and stabilize the Russian market. Despite the bailout, July 1998 monthly interest payments on Russia's debt rose to a figure 40 percent higher than its monthly tax collections. Additionally, on 15 July 1998, the State Duma dominated by left-wing parties refused to adopt most of the government anti-crisis plan so that the government was forced to rely on presidential decrees. On 17 August 1998, the Russian government devalued the ruble, defaulted on domestic debt, and declared a moratorium on payment to foreign creditors. It was later revealed that about $5 billion of the international loans provided by the World Bank and International Monetary Fund were stolen upon the funds' arrival in Russia on the eve of the meltdown.
Sounds very similar.
Oh, wait, maybe some referendum could have helped?

Insomnijazz hertsman 4 Jul 2015 09:48

Nah - these are just lies for the gullible to swallow.
Without risking depositors' cash, governments had the ability to sit back ready to nationalise any banks whose lending to Greece was so irresponsible that they were unsustainable. This would have wiped out the shareholders and sent a clear message that lending as well as borrowing has to be responsible and that shareholders need to earn their fat returns by exerting oversight.

Instead they chose the worst option: bailing out the bank shareholders by assuming responsibility for their risky lending, but refusing to then pay the price for their political cowardice and shifting the blame onto a largely guiltless Greek population which has already suffered hugely from the economic devastation.

Brent1023 4 Jul 2015 09:46

Debt relief not on the table.
It comes down to the Greek people or the banksters. Who needs a bailout more?
The EU has sided with the banksters.
Not just in Greece but in Ireland, Spain, Portugal.
Only Iceland was able to force banksters to swallow their losses.
Everywhere else bankster fraud was rewarded with a 100% bailout.
Should be renamed the European Bankster Union.
Surprising that the UK does not want it - it also bailed out its banksters.

NWObserver sunnytimes 4 Jul 2015 09:39

The creditors are not looking to get their money back. Debt is the leverage being used to destroy the social and public infrastructure in the country.
So their worst nightmare is Greeks voting 'No', staying in default and surviving or prospering while remaining in the Eurozone. Then they will not be able to use the same fear tactics against another EZ country. They are psychopaths out to destroy, not creditors looking to get their money. So if Greeks vote 'No' , they will spare no effort to destroy Greece, beginning with the continuation of the liquidity freeze. However, there are some simple steps that Greece can take to end the liquidity freeze and I think they have already taken them.

Gottaloveit 4 Jul 2015 09:28

Read this article from 2010 by Michael Lewis and get a glimpse of what a mess Greece is
http://www.vanityfair.com/news/2010/10/greeks-bearing-bonds-201010
The people of Greece are not finished paying penance yet

W61212 Fritz72 4 Jul 2015 09:28

Albrecht Ritschl: During the past century alone, though, at least three times. After the first default during the 1930s, the US gave Germany a "haircut" in 1953, reducing its debt problem to practically nothing. Germany has been in a very good position ever since, even as other Europeans were forced to endure the burdens of World War II and the consequences of the German occupation. Germany even had a period of non-payment in 1990....but we were also extremely reckless -- and our export industry has thrived on orders. The anti-Greek sentiment that is widespread in many German media outlets is highly dangerous. And we are sitting in a glass house: Germany's resurgence has only been possible through waiving extensive debt payments and stopping reparations to its World War II victims.'
Enough said now?

W61212 hhnheim 4 Jul 2015 09:21

http://www.spiegel.de/international/germany/economic-historian-germany-was-biggest-debt-transgressor-of-20th-century-a-769703.html

North2011 kizbot 4 Jul 2015 09:04

Don't worry. The nappy business is doing well in Brussels...
EU sources: possible extra Eurogroup on Monday and EU leaders Summit on Wednesday #Greferendum via GR media http://www.dimokratiki.gr/04-07-2015/pithano-ektakto-eurogroup-ti-deftera-ke-sinodos-korifis-tin-tetarti/ …
They are pissing in their pants the lot of them...

rafela Bogoas81 4 Jul 2015 09:00

Austerity didnt work. In the last five years the economy shrinked by 19%. Unemployment rose to 27%. Tsipras wanted more debt relief. The IMF report sustain that an improvement is impossible without debt relief.

sunnytimes 4 Jul 2015 08:58

German people are industrious and inventive. They play by the rules. Unfortunately they are also rather naive and believe generally what the state tells them. In history the role of such people has always been to pay the bills.

GuillotinesRUs 4 Jul 2015 08:45

Yanis Varoufakis has a point. The proposals put by the EU would cause the Greek economy to contract further, this effectively would increase the debt ratio to GDP. Nowhere have I heard any talk on how to build up the Greek economy, it has all been about collecting taxes.
I have also read commentators on here talk about how Greece lied to get into MU, this has a great deal of truth in it, but one must remember the EU knew what a basket case Greece was financially, therefore they are equally complicit in this debacle.
The question has to be why the EU is doing this to Greece, they know their actions will do nothing other than cause more misery in the country. The reason this is happening is to protect German banks. Greece is the domino that could bring the whole system down.

U77777 -> CassiusClay 4 Jul 2015 08:40

Austerity isn't the answer - but when you have put yourself into the situation that the Greeks have, it is part of the solution. A small part and nothing like the media like to portray, but something has got to give.
As for electing Tsipras and varoufakis......Seriously, stop drinking. They're a bunch of cowboys with some well intended principles and a load of rather deluded ideas. Worse still, neither of them have actually come up with anything like a constructive plan how to stimulate the economy and help Greece stand on its own 2 feet again

Dimitris Chloupis -> sylvester 4 Jul 2015 08:39

Any sensible Greek realizes without deep reforms no economy is going forward. This is not even debatable in my country. We already reduced public sector by 500.000 employes thats a juicy 50%. High pensions of the past are long gone. The result is that now it costs 6 billion to pay for wages in public sector and another 5 billion to pay for pension, total 10 billion. But we need another 10 billion for paying back loans each year. This year alone we paid back 25 billion !!!
Tax evasion should be our next focus, its not reasonable for an economy that makes 200 billions per year to need loans . There is a will to fix all that, because the alternative is far worse.
Of course the same can be said about Germany , why a country that make 3.1 trillion euros per year has a 80% debt ? Tax evasion of course ;) Time to open those swish bank accounts , but does Germany want that ? How many vested Greek interest are connected with German vested interest ?
Denying corruption is to deny the foundation of modern economies.

W61212 -> RussBrown 4 Jul 2015 08:39

I made a point earlier about the birth of a new Brussels based dictatorship which controls all EZ 'national governments', which are national governments by name only, ergo Syriza has to go for straying from the script. Brussels has already proven it would rather deal with corrupt Greek politicians by doing so in the past

Continent Renato -> Timotheus 4 Jul 2015 08:37

Inequality of opportunity in the Eurozone is now so great -- young people in Greece have an unemployment level of 60% and the rate is 33% in the austerity "success story" of Portugal

The systems are different. Northern countries have the dual education system, i.e. only about 10 p.c. of the youth go to college/university, and 90 p.c. go through a 3 or 4 year education "learning by doing".
In addition, the "dirty work" in Greece (farming/harvest/construction) is done by temporary migrants from Macedonia, Albania, Romania, Bulgaria because the Greek parents wanted their children to have a better life and sent them to universities without an employment market for so many acdemics. Many of them land in a job with in the bloated govt.

sunnytimes 4 Jul 2015 08:36

The true parasites are the bond markets of London and New York. The create nothing. All they do is swap pieces of paper with ech other all day long, skimming every transaction. The UK and US have run trade deficits or decades, that is by definition they produce less than they consume. Time to tear down this edifice of debt and get back to a capital-based economy.

LeftOrRightSameShite FOARP 4 Jul 2015 08:35

Greece already has been bailed out

No, the original package lent to Greece was to bailout Greek and EU banks. The subsequent bailout (to pay for the bailout) is 60% owned/facilitated by EFSF. It raised it through selling bonds, no doubt to financial institutions. So now we're in the bizarre situation of banks befitting from the bailout of banks with the Greek people carrying the can and Europeans (who are liable to honour EFSF bonds+intererst) blaming Greece and defending the banks!

Bit thick really innit!

RussBrown 4 Jul 2015 08:35

Myth 1 - Greece do nothing to solve the problem (they have had years of austerity)
Myth 2 - Germany is bailing out the Greeks. The money that goes to Greece goes straight back into the German Banks. But by making it impossible for business to run in Greece the businesses move their resources to Germany and pay taxes their in a massive transfer of wealth from a poor EU country to the richest. This is a capitalist scam and all of lot on here shouting their propaganda should be ashamed of yourselves. The rich bankers are using you to justify the destruction of the poor!

[Jul 03, 2015] Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

Jun 30, 2015 | theguardian.com

AGuenther -> sztubacki

"...Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE. "

30 Jun 2015 09:30
Utter nonsense fed to the masses by the current corrupt government.

Should make one blush to state that Greece is synonymous with creative accounting, when we had the head of the BoC trained for years at Goldman Sachs and now planted in the BoE.

October 10 2008: http://www.ctvnews.ca/banks-trim-prime-rate-as-ottawa-offers-mortgage-relief-1.332371

September 24 2009: http://www.ctvnews.ca/feds-to-reap-billions-from-mortgage-help-to-banks-1.437280

A couple of years ago this scheme was still going strong at almost $200 billion.. the max for CMHC is $600 billion and was then at something like $565 billion. And yes, this scheme was losing money.

No wonder Flaherty found it necessary to tighten up mortgage rules for ordinary Canadians, making it even more impossible for them to buy a home.

The EIA's Questionable Numbers - Peak Oil BarrelPeak Oil Barrel

"...For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries."

"...Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world. "

"...I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching. "

Jeffrey J. Brown, 07/02/2015 at 6:47 am
The WSJ has discovered "Net Export Math."
WSJ: As Saudis Keep Pumping, Thirst for Domestic Oil Swells
Kingdom is poised to break records for crude output, but its ravenous energy needs threaten its ability to ramp up exports

http://www.wsj.com/articles/as-saudis-keep-pumping-thirst-for-domestic-oil-swells-1435786552

RIYADH-Saudi Arabia is poised to break records for oil production this summer, analysts said, as domestic-energy needs soar during its scorching summer and the holy month of Ramadan and threaten its ability to ramp up exports.

Saudi Arabia has said it produced a near-record 10.3 million barrels a day in May, a mark that industry observers said could increase to 11 million barrels this summer as air-conditioning use increases with temperatures reaching 110 degrees Fahrenheit. The country has the ability to produce 12.3 million barrels a day for 90 days, but it has never pumped this much. Saudi output averaged 9.22 million barrels a day from 2006 to 2014, according to the U.S. Energy Information Administration. Most of its oil is exported.

For the past three years, Saudi domestic energy demand has been rising by about 8% due to an expanding population and new construction and large-scale projects. More than 25% of the country's crude is consumed domestically by cars, planes, homes and businesses, a figure that rises in the summer and is almost double what the kingdom used in the early part of the last decade. The kingdom's population has increased 17% since 2005, faster than most developed countries.

At this pace, the kingdom would have to start importing oil by 2030, Citigroup Inc. has predicted, a once unthinkable prospect for the linchpin of the world's oil market. Khalid al-Falih, the current chairman and former chief executive of the kingdom's state-owned oil company, Saudi Arabian Oil Co., known as Saudi Aramco, said in 2011 that, if left unchecked, domestic energy consumption would rise to 8.2 million barrels of oil a day by 2030.

Link to my comment on BP + EIA data on Saudi Arabia's net exports:

http://peakoilbarrel.com/bakken-april-production-data/comment-page-1/#comment-521843

Marcus, 07/02/2015 at 7:21 am
Whilst the Saudi population in common with the rest of the middle east has grown substantially and its consumption with it in recent years I sometimes wonder if we are dealing with a case of Muhammad Saeed al-Sahhaf aka Baghdad Bob or Comical Ali.
What I mean by that is that hyping their production level is such an important part of their bragging rights that they are willing to do so even when it is clearly not in their interest. Well before the US shale boom they were apt to do this even when logic would dictate that they talk down their production (obviously the quota system also plays a significant role). When their production finally nose dives I think they will claim the same or higher production while increasing their consumption estimates more and more in fact this will likely be the message that all the last great net oil exporters will give us towards the end.
Jeffrey J. Brown, 07/02/2015 at 7:28 am
Interesting admission by Khalid al-Falih:
Reuters (January, 2015): Saudi Aramco to renegotiate some contracts on low oil price -CEO

http://www.reuters.com/article/2015/01/27/saudi-oil-aramco-idUSL6N0V60Z320150127

Jan 27 (Reuters) – Saudi Aramco will renegotiate some contracts and postpone some projects due to falling oil prices, the head of Saudi Arabia's state oil company said on Tuesday, stressing the top crude exporter will not single handedly balance the global oil market. . . .

Saudi Aramco Chief Executive Khalid al-Falih, speaking at a conference in Riyadh, did not specify which projects or contracts would be affected by low prices. . . .

Falih said the imbalance in the oil market had nothing to do with Saudi Arabia, and a fair price is what would ultimately balance supply and demand, a sign Riyadh is sticking to its strategy of allowing the market to stabilise itself.

"Saudi Arabia has a policy, the policy is set by the government through the Ministry of Petroleum, and they have said that Saudi Arabia will not single handedly balance the market," he said.

"The math will tell you that our exports are gradually declining. So the reason for the imbalance in the market absolutely has nothing to do with Saudi Arabia."

old farmer mac, 07/02/2015 at 7:48 am
The politics of oil prices are complicated indeed.
While the Saudis have plenty of reasons to want to put the screws to the Russians they can't trust the rest of OPEC to honor the cartel's production sharing decisions.

But it appears they are willing to cut a deal with the Russians who do have at least ONE thing in common with them. They both want a higher price for their oil.

http://finance.yahoo.com/news/saudi-arabia-leaving-u-behind-215428719.html;_ylt=AwrC0F9wMJVVCHUA4SyTmYlQ;_ylu=X3oDMTByMDgyYjJiBGNvbG8DYmYxBHBvcwMyBHZ0aWQDBHNlYwNzYw–

By the way " our" Jeff Brown and host Ron ought to be on the talking head shows. The fact that they aren't proves that the MSM is not really competent, perhaps by choice, when it comes to energy.

I am an hopeless amateur when it comes to oil compared to the pros who hang out here but to the best of my knowledge the Russians have until recently always done what they promised in terms of delivering oil and gas.

I predict that if they cut a deal with the Saudis to cut production they will honor it.

shallow sand, 07/02/2015 at 9:05 am
Jeffrey, are the other Gulf OPEC states similar to KSA, in that their exported oil is also falling due to rising internal consumption?
Jeffrey J. Brown, 07/02/2015 at 10:00 am
I can shoot you the data base for the (2005) Top 33 net exporters. It's only updated through 2013 (still waiting on EIA consumption data), and there have been some revisions since we compiled the data base.
My email: westexas AT aol Dot com.

As I have repeatedly pointed out, what almost everyone is missing is the enormous difference between rates of change in production and CNE (Cumulative Net Exports) depletion*. I estimate that we may have already burned through around 30% of post-2005 Global CNE.

*As combined production from the Six County Case History increased by 2% from 1995 to 1999, they had already shipped 54% of post-1995 CNE (major net exporters, excluding China, that hit or approached zero net exports from 1980 to 2010).

AlexS , 07/02/2015 at 10:24 am
the decline in net exports was largely offset by the drop in US net imports
Jeffrey J. Brown, , 07/02/2015 at 10:42 am
The decline in US net imports certainly affected the demand for Global Net Exports of oil (GNE*). But within OECD countries, we also had some countries with increasing net imports, e.g., the UK.
Of course, on the demand side, the key factor has been the ongoing decline in what I define as Available Net Exports (GNE less Chindia's Net Imports, CNI). ANE fell from 41 MMBPD in 2005 to 34 MMBPD in 2013, and BP/EIA data indicate that the ANE decline probably continued in 2014.

Based on most recent EIA data, the US is still dependent on net crude oil imports for about 40% of the crude + condensate (C+C) processed daily in US refineries, and a plausible estimate is that our existing C+C production is declining at about 20%/year (we have to run very fast to stay in place production-wise). The US is one of about 157 net oil importing countries in the world.

Based on current trends (rate of decline in GNE/CNI Ratio), in about 16 years China & India alone would theoretically consume 100% of GNE, leaving no net exports available to about 155 net oil importing countries.

*Combined net exports from top 33 net exporters in 2005 (EIA)

Javier, 07/02/2015 at 6:24 pm
So we have current trends saying that:
– Saudi Arabia will become a net importer in 15 years.
– China & India are to consume 100% of net exports in 16 years.
As those trends become unsustainable, we are going to have lots of interesting things happening during the next decade.

I am surprised that most people don't seem to notice how things are taking a turn for the worse lately. At the same time the world is radicalizing, (Isis, Syriza, French National Front, Spanish Podemos, etc) and the world economy is worsening (Greek bankruptcy, fake recovery, world commerce diminishing, China growth reducing). To me is like seeing storm clouds approaching.

Paulo, 07/02/2015 at 8:35 am
Terrific confirmation, Jeffrey. I have sent your comments on to others many times these past few years. Unfortunately, the confirmation by a major MSM publication is what John Q Public needs to see in order to accept reality. I have already sent it on!!

[Jul 03, 2015] Fed Watch Ahead of the Employment Report

Jul 03, 2015 | Economist's View

This is in-line with Fischer's assessment of the economy:

The U.S. economy slowed sharply in the first quarter of this year, with the most recent estimate being that real GDP declined 0.2 percent at an annual rate. Household spending slowed, while both business investment and net exports declined. Much of this slowdown seemed to reflect transitory factors, including harsh winter weather, labor disputes at West Coast ports, and probably statistical noise. Confirming that view, the latest monthly data on real consumption provide welcome evidence that consumer demand is rebounding, and that economic activity likely expanded at an annual rate of about 2.5 percent in the second quarter.

What about Greece? St. Louis Federal Reserve President James Bullard dismissed Greece as a reason for concern. Michael Derby at the Wall Street Journal reports:

What's happening in Europe "would not change the timing of any rate hike. I would say September is still very much in play" for raising rates, Mr. Bullard told reporters after a speech in St. Louis. More broadly, he said "every meeting is in play depending on the data," which he said had been "stronger" recently. He also described recent inflation data as being "more lively" and set to rise further over time.

I doubt other Federal Reserve officials are quite as confident, but they have plenty of time between now and September to assess the situation. As I said Monday, they will be looking for evidence of credit market spillovers. If they don't see it, the economic data will rule the day. Bullard also argued the case of a faster pace of rate hikes:

"The Fed should hedge against the possibility of a third major macroeconomic bubble in coming years by shading interest rates somewhat higher than otherwise" would be the case based on historical norms, Mr. Bullard said. "The benefit would be a longer, more stable economic expansion."
Mr. Bullard warned "my view is that low interest rates tend to feed the bubble process." He did not point to any major imbalances right now even as he flagged high stock market levels as something to watch, acknowledging the role of technology could be changing how the economy interacts with financial markets.

Derby correctly notes, however, that this places Bullard out of the Fed consensus:

Mr. Bullard's suggesting that rates may need to be lifted more aggressively in the future puts him at odds with some of his central bank colleagues. Many key Fed officials are now gravitating to the view that changes in labor market demographics and other forces may mean the Fed could keep rates at a lower level relative to historic benchmarks. Most officials now expect that the long-term fed funds rate target, now at near zero levels, will likely stand at around 3.75%.

Fischer, for example, still argues for a gradual pace of normalization and is much more sanguine on the financial market excess:

Once we begin to remove policy accommodation, the Committee's assessment is that economic conditions will likely warrant raising the federal funds rate only gradually. Thus, we expect that the target federal funds rate will remain for some time below levels viewed as normal in the longer run. But that is only a forecast, and monetary policy will, in practice, be determined by the data--primarily data on inflation and unemployment.
What about financial stability? We are aware of the possibility that low interest rates maintained for a prolonged period could prompt an excessive buildup in leverage or cause underwriting standards to erode as investors take on risks they cannot measure or manage appropriately in a reach for yield. At this point, the evidence does not indicate that such vulnerabilities pose a significant threat, but we are carefully monitoring developments in this area.

Fischer is closer to the FOMC consensus than Bullard on these points.

Bottom Line: Incoming data continues to support the case that the underlying pace of activity is holding, alleviating concerns that kept the Fed on the sidelines in the first half of this year. I anticipate the employment report, or, more accurately, the sum of the next three reports, to say the same. Accelerating wage growth could very well be the trigger for a September rate hike, while Greece could push any rate hike beyond 2015. I myself, however, tend to be optimistic the Greece situation will not spiral out of control.

[Jul 02, 2015] When People Jump In Even Though It's Overpriced, That's A Bubble Shiller Warns

"...Shiller also slams the bull$hit adage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly..."

Jul 02, 2015 | Zero Hedge

Bob Shiller moves beyond his normal fence-sitting perspective and goes full Marc Faber in this brief clip. Noting that his CAPE indicator of equity market valuation is flashing red (highest since 1929, 2000, and 2007), Shiller warns it is "when people jump into stocks even though they know valuations are high... that's a bubble," slamming CNBC's rosy perspective reflecting that this is the same as the dotcom rise. Notably he warns specifically "The US equity market is one of the highest in the world," and now is a good time to diversify away from it. Additionally Shiller warns of the slowing momentum in the housing market... warning that mean-reversion is likely with risk for further decline.
Shiller also slams the bull$hit addage that "booms don't die of old age..." warning that inventories across goods-producing industries are building worryingly...

As Shiller explains...

https://youtu.be/Q3MgxKeUoSc

Temerity Trader

Well duh! Another pedestrian article telling us all how the Fed's loose money blows bubbles, and likely benefits the wealthy the most. Yes there is a huge property bubble in N.Y. but it pales in comparison to the Silicon Valley bubble; the largest the world has ever seen. Propelled by 40-years of tech innovation and high pay; culminating in the useless I-watch. They bring in more cheap Indian labor and export the rest. It will be interesting to see how these people will make those $10k/mo mortgage payments working at Wal-Mart. Living in a small house and upside-down $1mil or more. They will walk away in droves! The repo man will snatch the Lexus and the Tesla. The debt-ridden fools will have nothing! Then the banks will fail and demand bailouts…Greece times 1,000. Delay and pray…more debt will fix it all. Just try to take away all the entitlements and watch the riots start. Bankrupt Medicare, Medicaid, Obamacare, 40 million using EBT cards, broke pensions, thousands of veterans claiming every disability known, but never left the U.S. Everyone wants to sit on their asses and collect government handouts. Why work? Sit around and play with a new I-Toy, watch 'Dancing With The Stars. Yes, just try to take it all away…

scatha

Bubbles are credit expansion/contraction, government policy driven monetary intervention cycles well described in "Money Masters" which now are completely divorced from economic cycle, which is stuck in US in depression levels over thirty years now.
In other words boom and bust cycles are only fueled now through credit policy into specific market tradable assets selected and ordered by policy makers.
The world central banking system is trying to moderate bubbles' deflations or collapses through creation bubbles in another asset class just to maintain values of collateral from the initial bubbles.
For example if you overpaid for your house and prices are falling and you cannot sell without massive loss, windfall from another bubble is able to cover your mortgage, losses and/or margin requirements, so you hope and wait for better times. And so you go from one bubble to another and this relates all abstract paper assets and derivatives including, debt, oil and gold etc.
Hence, crash may occur only when CBs run out of bubbly and no more bubbles could be created otherwise party will go on while more and more weaker rats in this rat race are being eliminated via attrition and slide into socio-economic margins like most of us even if we do not know it yet, we are next.
Such practice, in essence denying basic tenet of capitalism namely capital re-production and recycling into productive assets, which is in the first place is labor, was and is widely implemented over last 30 years by world ruling elites and now even in China rendering population obsolete in grand scheme of illustrious progress of civilization.
The real economy is dead so its real economic cycle that included revolving commodity and labor investment assets, recycled in and out economy a classical capitalistic re-production cycle. This type of process is dead and buried.
There is no revitalization of labor power as well as commodity demand due to collapse of labor income and collapse of asset or commodities prices controlled by vast majority of population subjected to deadly deflation spiral due to removal of money from circulation among ordinary people a devastating process, getting stronger and more intense as bubbles become bigger and more numerous.
The only thing that keeps us from massive unrest, hunger and ultimately extinction now is money supply from government social programs such pensions, SS, social welfare, technical/scientific funding, military or security/police non-productive funding which ironically fuel spiral of debt needed to keep it blowing.
It's like on Titanic, party was going on as usual while in lower decks people were slowly drowning. I hope that there would be not enough boats for all those murderous and gluttonous oligarchs when water reaches their noses.

[Jul 02, 2015]Current Oil Price Slump Far From Over

I think the author is wrong. Neither production nor demand drastically changed to justify 50% oil price drop. Cost of production is the most interesting question here; my hypothesis is that it is close to $90 for large part of shale wells as most shale companies issued junk bonds and are heavily in debt even while prices were around $100. In any case it is clearly above $60 for most. So the current prices in three-five years will drastically diminish the role of shale in the USA oil production, if (big if) they can be sustained. They also alreasy started the wave of to bankruptcies and acquisition on minor players by major oil players (aka consolidation of industry). In other word this is destruction of shale industry as a sacrificial pawn in a larger geopolitical game. Destruction, in which, paradoxically, Saudi Arabia is the major player, but not for the reasons published in MSM as it is essentially the kingdom is a Washington vassal on Middle East.
.
The key factor in increasing shale oil production in the USA was the ability of producers to sell junk bonds. This channel is destroyed and might not recover in a decade. Junk bonds from those guys now have a distinct smell of subprime mortgages. That means that as soon as existing and under construction wells production decline (in three years or so let's talk about 2018) many of those companies will be acquired by stronger competitors and losses will be written off.
.
"...$90 per barrel appears to be the empirical threshold price above which demand destruction begins."

Jun 29, 2015 | OilPrice.com
The availability of capital to fund unconventional production is the key to how long low oil prices will last going forward. If the flow of capital continues, then the production surplus and lower oil prices will also continue, assuming that OPEC is able to maintain higher production levels and that demand growth remains relatively low.
Eventually, price will win and unconventional production will fall. The market will rebalance and prices will rise. If oil prices stay low for long enough, demand will increase to support a return to higher prices. I doubt that prices will increase to levels before mid-2014 barring politically driven shock events. $90 per barrel appears to be the empirical threshold price above which demand destruction begins.

It is more difficult to predict how the second- and third-order effects of economic uncertainty and geopolitical risk may affect supply and demand fundamentals and, therefore, price. These are the wild cards that could change the outcome that I describe.

The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.
We have crossed a boundary and things are different now.

*I am indebted to James K. Galbraith for introducing me to the idea of boundaries and phase changes as they may apply to economics and oil prices in The End of Normal: The Great Crisis and The Future of Growth (2014).

Rick on June 30 2015 said:

Art,

You completely ignore data from the states. You appear to have a blind faith in the infallibility of the EIA and IEA. For a guy with the background you claim to possess to believe the Saudis and OPEC can increase maxed out production, or that a decimated economy with badly neglected facilities and fields can so dramatically increase production, is simply astounding. Are you serious?

Jim on June 30 2015 said:

"Low" is a relative term. WTI averaged about $30 in current dollars between 1985-2005. If we see a new normal around $50 over the next decade or two, then it has become much more expensive in real terms. It is important to remind readers that cheap natural gas has allowed US industry to remain competitive and to keep consumers warm in the winter and cool in the summer. Internet technologies and computer-aided logistics also are helping the US economy control demand for driving. Since the 1970's though, oil has become an increasingly expensive building block in our civilization.

[Jul 02, 2015] Shale Drillers About To Be Zero Hedged As Loss Protection Expires

"...access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up. "

"...Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are. "

"...The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014."

"...The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies."

"...In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it. "

Jul 02, 2015 | Zero Hedge
In many ways, the US shale industry is emblematic of why failing to normalize monetary policy after seven years of largesse can be extremely dangerous.
As discussed at length in these pages and then subsequently everywhere else, access to cheap cash via capital markets allows otherwise insolvent producers to keep drilling even as prices collapse, creating what are effectively zombie companies (to use Matt King's words) on the way to delaying the Schumpeterian endgame and embedding an enormous amount of risk in HY credit by flooding the market with supply just as demand from investors (who are delirious from hunger after being starved of yield by the Fed) peaks and secondary market liquidity continues to dry up.

This dynamic has served to create a supply glut in a number of industries and has suppressed commodity prices in a self-feeding deflationary loop.

Thanks to SEC rules on how drillers are required to value their reserves, producers are effectively forced to overstate the value of their O&G businesses by nearly two-thirds, which can lead unsophisticated investors who don't bother to read the 10K fine print to believe that the businesses are healthier than they actually are.

Furthermore, the next round of revolver raids for the industry isn't due until October, meaning investors may also believe the industry has easier access to liquidity than it actually does. As a reminder:

As if all of the above weren't enough, there's yet another reason why the shale default cascade has thus far been forestalled, giving many the impression that perhaps a "crude" awakening (pardon the terrible pun) has been averted: hedges.

Here's Bloomberg with more on why some US shale drillers may soon be zero hedged (ahem):

The insurance protecting shale drillers against plummeting prices has become so crucial that for one company, SandRidge Energy Inc., payments from the hedges accounted for a stunning 64 percent of first-quarter revenue.

Now the safety net is going away.

The insurance that producers bought before the collapse in oil -- much of which guaranteed minimum prices of $90 a barrel or more -- is expiring. As they do, investors are left to wonder how these companies will make up the $3.7 billion the hedges earned them in the first quarter after crude sunk below $60 from a peak of $107 in mid-2014.

"A year ago, you could hedge at $85 to $90, and now it's in the low $60s," said Chris Lang, a senior vice president with Asset Risk Management, a hedging adviser for more than 100 exploration and production companies. "Next year it's really going to come to a head."

The hedges staved off an acute shortage of cash for shale companies and helped keep lenders from cutting credit lines, many of which are up for renewal in October. With drillers burdened by interest payments on $235 billion of debt, $89 billion of it high-yield, a U.S. regulator has warned banks to beware of the "emerging risk" of lending to energy companies.

Payments from hedges accounted for at least 15 percent of first-quarter revenue at 30 of the 62 oil and gas companies in the Bloomberg Intelligence North America Exploration and Production Index. Revenue, already down 37 percent in the last year, will fall further as drillers cash out contracts that paid $90 a barrel even when oil fell below $44.

For SandRidge and other drillers, the hedges, required by some lenders, gave them enough time to cut spending. Costs in shale fields have fallen by 20 to 30 percent and productivity has increased as producers moved rigs to the most prolific regions. Producers were able to raise about $44 billion in equity and debt in the first quarter, according to UBS AG.

"That postponed the day of reckoning," said Carl Tricoli, co-founder of private-equity firm Denham Capital Management.

At Goodrich Petroleum Corp., hedges accounted for 35 percent of revenue in the first three months of 2015. Most of its insurance runs out at the end of the year, company records show.

In short, the last line of defense against terminal cash burn for the beleaguered US shale complex is about to fall and when it does, it's going to take bank credit lines down with it.

This means October is the expiration date for heavily indebted US drillers and perhaps for HY credit as well, because once the defaults begin in earnest and HY spreads start to blow out, the BTFD-ing retail crowd will head for the exits, triggering a very non-diversifiable, unidirectional flow for bond fund managers who will then be forced to hold their noses and dive into the ever-thinner secondary corporate credit market.

It is precisely at that point when everyone's worst nightmares about shrinking dealer inventories and illiquid credit markets will suddenly be realized.
The Shape

Someone's getting what they want.

http://peakoilbarrel.com/the-eias-questionable-numbers/

[Jul 01, 2015] Continued

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[Jul 01, 2015] Path to Grexit Tragedy Paved by Political Incompetence

"...I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal."

Jul 01, 2015 | Economist's View

Ellis said...

How many austerity plans do the Greek people have to suffer through? How much unemployment? Half the young population? Is the plan to to cut living standards in half?
And for what? To repay a debt that the Greek people had nothing do with! To reimburse usurious interest rates that cut the economy in a trap by the banks!

What a bunch of predators!

djb said in reply to Ellis...

i like how the advocates of austerity get all pissed off at the greek people as if they are just being obstinate
its like someone is trying to punch someone else in the face and they are getting all pissed off at the other guy because he keeps lifting his hands to block the punches

"come cut it out, just let me get good shots in at you , whats a matter with you"

And Greece will not go to the drachma - Greeks are now demanding paper Euro notes, and everyone outside Greece shipping into Greece is demanding paper Euro notes up front. Greeks are now not able to get food and medicine and fuel if they don't have Euro currency.

But let's be clear - the Greeks are to blame because they refuse to pay Greeks to work by buying only Greek production, or by trading Greek produced goods for imported goods.

Charles Carlstrom said...

Strikes at first glance don't seem rational. But they occur. Somestimes you swerve too late to avoid ruin.
But even now it appears Greece is starting to swerve.

DrDick said in reply to Charles Carlstrom...

Only if you are a member of management. For the workers they are the only logical recourse. When management will not provide safe/decent working conditions or pay you what you are worth, your best recourse is to withhold your labor.

anne said...

http://www.nakedcapitalism.com/2015/07/tsipras-accepts-most-terms-as-merkel-insists-on-referendum.html
July 1, 2015

Tsipras Accepts Most Creditor Terms as Merkel Insists on Referendum
By Yves Smith

Post-bailout expiration dynamics are likely to produce even worse outcomes for Greece than it had on offer from the creditors last month. It isn't just that the bailout funds of €7.2 billion are gone; it's that Greece has gone over an event horizon with stringent capital controls on and the European Central Bank ready and able to push the Greek banking system over the brink.

Greece's weak negotiating position is even weaker now. Even with a boost via a "no" vote on the referendum this Sunday, if the Greek government were to take a firmer stance, the creditors have the means and the incentives to keep crushing the economy via financial strangulation. The ruling coalition would not be able to hold on to power for more than a month or two as the economy continued to decay at an accelerating rate.

This is a ruthless, brutal power play in progress. Too many key actors are driven by their own narrow imperatives, most important of all, their domestic politics, as well as institutional rigidities. Those constraints work against taking a broader view and recognizing that the immolation of Greece will blow back and damage the European project and their own economies. But that would require much bolder, visionary thinking and action. The current crop of leaders has instead become habituated to incremental patches even though it is widely recognized that the architecture of the Eurozone is incomplete and wobbly. But no one is willing to move to a higher level of integration, in large measure because, particularly for Germany, that entails the loss of power and privilege at the national level.

Tsipras has recognized the weakness of his position too late. Yesterday, he tried making a desperate, last-minute deal to ward off an IMF default and secure the bailout funds before the program expired. But that clearly could never happen. It would require approval from all of the other 18 states in the Eurozone, including parliamentary approval in Germany. There was no way that would occur without German legislators having had Greece pass legislation before they voted on the release of funds; the Greek government had been told that that was a requirement and that needed to be done by the end of last weekend, June 28. *

Moreover, Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt. Given that it was obviously impossible at that late juncture for the other Eurogroup members to release the bailout funds before they went poof (at a bare minimum, there was no way the Germany MPs would approve it), the Tsipras appeal was a sign of utter desperation or delusion. And that in turn was an admission of tremendous weakness. Less than two days of capital controls and a bank holiday, and the ruling coalition was folding....

* Some pundits have depicted these deadlines as artificial. They weren't. There are many areas where the lenders' conduct can correctly be called unreasonable, but the hard deadlines were the result of past agreements and Eurozone procedures make them extremely difficult to change. This is one reason for the current creditor hostility. Greece consumed an enormous amount of time, running up against deadlines in what the other side saw as brinksmanship, which was a bizarre strategy given that Greece had a weak bargaining position. But the lenders felt compelled to accommodate Greece on that front as much as possible because the optics would be terrible if they didn't, particularly if the situation were to devolve into a Grexit. Compounding that problem, an lawyer with considerable knowledge of European practice pointed out by e-mail: "Europeans have a very hidebound and literal view about their EU rules and documents. Americans see a contract as a basis for negotiation."

Fred C. Dobbs said in reply to anne...

'Germany wasn't even the most hardline country; Portugal, Spain, and Latvia are more hostile to cutting Greece any slack since their leaders had their citizens wear the austerity hairshirt.'
Every country in the EU is angry with Greece.

In Greece's bailout talks, why it's 18 eurozone countries versus one http://on.wsj.com/1B7hOIy via @WSJ

... Some eurozone governments-Ireland, Portugal, Spain and the Baltic states-see themselves as having swallowed tough, politically costly but ultimately successful medicine and see no reason why Greece should be spared such rigor. Some, like Slovakia and the Baltic states, are poorer than Greece and pay their workers a lower minimum wage.

Another element is that further debt relief for Greece in whatever form means losses for governments-Athens owes other eurozone governments €195 billion ($212 billion)-and therefore for eurozone taxpayers. Germany is owed the largest sum-more than €60 billion-followed by France and Italy. But, as a percentage of their gross domestic product, other countries have more on the line than Germany. According to a Bloomberg Brief analysis, Greece's debts to Slovenia exceed 3% of Slovenian GDP, compared with 2.4% for Germany. ...

DeDude said in reply to Fred C. Dobbs...

"see no reason why Greece should be spared such rigor"
Yes their rulers have convinced them that the depression they threw Greece into is no big deal compared to what they themselves have suffered. As long as your corporate media hide the facts from people, you can convince them of all kinds of stuff.

"debt relief for Greece in whatever form means losses for governments"

Yes - and the real story there is that almost all the debt that was held by private banks and plutocrats back when this problem surfaced (and the debt should have been written down) is now owned by governments. But that is not the debate in the corporate media - instead it is about how terribly irresponsible the Greek government is (I guess you can fool the fools every time).

Nathanael said in reply to anne...

Yves has been mis-analyzing the Greek crisis from beginning to end. It's seriously lowered my opinion of her, and I think she's a complete idiot at this point.
Syriza has played this out exactly right, whether intentionally or not.

Given that the Troika will never, ever make a functional offer of major fiscal stransfers to Greece, and has as much as said so, default was inevitable.

Greece doesn't have to leave the euro, of course; Greece could unilaterally print euros (in violation of the Troika's insane deflationary policies) and wait for Germany to leave the euro. But it has the same effect.

GIVEN that default is inevitable, Syriza needs to be seen as:
(1) Trying as hard as it can to offer a deal
(2) Not knuckling under to the foreign powers

They've done this.

The referendum will either go "yes" or "no".

If it's "yes", then Syriza will resign. The new government of Greece will implement stupid policies forced by the Troika which will make their situation even WORSE; they will be blamed for it and will be thrown out. Syriza survives.

If it's "no", Syriza can exit and allow the economy to recover through devaluation.

The worst case scenario for Syriza was that the Troika accepted one of Syriza's overly generous offers of surrender; the economy continued to get worse; Syriza was blamed for this and thrown out of office; and Golden Dawn was elected.

Golden Dawn would, of course, immediately leave the euro and revive the economy. By pressganging, if necessary. :-P Having a glowing example of successful fascist economic management in Europe is the LAST thing the world needs. Thank goodness we seem to be avoiding that.

anne said in reply to anne...

Yves Smith has from my perspective been remarkably sensitive to the needs of the Greek people, thorough in reporting and analysis, and evidently, however sadly, all too correct in analysis compared with other Greek-sympathetic economists.
I am aware that the analysis of Smith has been criticized, but I am also aware and impressed that even leaders of liberal Podemos in Spain have shared in criticisms of Syriza.

paine said in reply to anne...

Just a side comment
The private greek banks can go to hell in a chariot for all I care

The greek government should worry about small dipositors only

paine said in reply to paine...

Eichenberry seems poorly briefed
On the negotiations here
Syriza has not acted incompetently

The troika is out for regime change

Reply Wednesday, July 01, 2015 at 02:24 PM

anne said in reply to paine...

Eichengreen seems poorly briefed
On the negotiations here
Syriza has not acted incompetently

The troika is out for regime change

[ Understood as to what the European leadership is after, but Syriza has puzzled me. ]

ilsm said in reply to paine...

ecb the usa of the europa.
troika deals like nukes.

widespread drone strikes without deflation.....

Chris Herbert said...

I have a problem with the exit=disaster scenario. As a monetary sovereign and with a central bank, both recapitalization and devaluation can be accomplished without the armageddon stuff. China's currency, for example, is not traded on Forex. China's central bank pegs its value by fixing what it will pay in its currency for another currency--and its currency is the only one that can be used in China. Once Greece goes back to the drachma and once they've got a central banker and a currency that is exclusive to domestic commerce (no Forex speculative trading) I think a good central banker can do a lot to help Greece maintain its balance. Even better, said recapitalization can be debt free. I'm not saying it won't cost anything, I'm just saying a monetary sovereign need not issue debt. Greece could put people to work doing infrastructure improvements, which build assets not liabilities. Without issuing debt. Greece has to learn how to collect taxes, obviously. And some reforms to government size is probably in order. But the 'end of days' scare is just that, a scare.

pgl said in reply to Chris Herbert...

I have a similar problem with the criticism is Grexit. Let's roll the tape back to 1967 when Prime Minister Harold Wilson decided to devalue the UK pound:
http://news.bbc.co.uk/onthisday/hi/dates/stories/november/19/newsid_3208000/3208396.stm

The UK did not suffer a financial crisis. It did manage to raise its net exports. So why can't the Greeks do the same?

am said in reply to pgl...

Fine, so why do the Greek people want to keep the euro as the official currency. Professor Krugman mentioned as a reason that people like to have a strong currency. They have had the drachma before and it was never very good and neither was the economy. I suggest the reason they want to keep the euro is it is strong in the sense of a stable currency and inflation is kept low in Greece as most of their imports are in euros. With a weak drachma they just get inflation on imports. With the euro they get steady prices. Add in to that payment of salaries and pensions in euros and then you have the advantage of earning in the currency of import purchases. Hohum, I'm probably wrong.

Chris Herbert said in reply to mulp...

Leaving the euro is not cost free. The dollar/drachma after Grexit is set by the central bank. Maybe Greece needs to become more efficient in their use of energy. Maybe Russia will sell oil to them at advantageous prices. A central bank can price the drachma advantageously between different suppliers. And don't forget the Greeks have a primary surplus right now and Grexit will eject its creditors, which is what I think Greece needs to to. The collapse scenarios are scare stories aimed at the Greeks. They should reject them and become independent. Only by being a monetary sovereign can Greece regain control of its economy. Right now they are in debtors prison.

Peter K. said in reply to am...

with the Euro they get humanitarian disaster. You know the economic stats, don't you?

am said in reply to Peter K....

Yes but why do they want to keep the euro, as is reported. They may suddenly change that in the referendum vote but it is reported that the euro is what they want.

foofootos said in reply to am...

easy, the depositors want to keep the euro because they don't have a lender of last resort. They will loose their deposits. That's all, that and scare tactics.

Paine said in reply to foofootos...

Yes that's a good part of it
But I'd like to know the value of euros held on deposit now
by the bottom three quarters of the population

Dan Kervick said in reply to am...

I don't think it's really entirely economic. They view the euro symbolically as a special European club membership, and don't want to be excluded from that club.

anne said in reply to Chris Herbert...

http://www.cepr.net/blogs/beat-the-press/who-uses-the-euro
July 1, 2015

Who Uses the Euro

The Washington Post ran a map * showing which countries in Europe use the euro and which use other currencies. The map is wrong. It shows Montenegro and Kosovo as using currencies other than the euro. This is not accurate, both countries do use the euro as their official currency although they are not have been accepted into the euro zone.

This is important in the context of the discussions on Greece because it illustrates the point that Greece cannot be forced off the euro. The European Commission and the European Central Bank can impose incredibly onerous conditions on Greece, but they cannot prevent the country from using the euro if it so chooses. The decision to leave the euro could only be made by the Greek government, not its creditors.

* https://www.washingtonpost.com/blogs/wonkblog/wp/2015/06/30/7-questions-about-greeces-huge-crisis-you-were-too-embarrassed-to-ask/

-- Dean Baker

John Cummings said in reply to Anonymous...

I never saw the "big" Greece problem before the Euro. The problem is the credit bubble starting in 73 creating a redic surge in consumer products that really took hold in the 80's/90's for the US and spread after that. It created the "look" of growing personal wealth via personal assets, but it was a bubble. Without this borrowing, the US economy probably would have struggled to grow much in the 80's as inflation fighters went on a rampage(which is what partially triggered the bubble to grow faster). They still maintain much of the growth from the bubble, only thanks to the market being scared to live without it. About the only thing it did, was force Russia away from the Stalin era Soviet fast, but now, they are stepping back while no one is watching. This is late capitalism.
The 80's and 90's would have been a lot more Escape from New York rather than Morning in America.

Nathanael said in reply to Anonymous...

Argentina's main problems were US-backed military coups and fascism. Argentina has quite impressively managed to get itself out from under both of those problems -- seemingly permanently.

foofootos said in reply to Anonymous...

Greece only got to comparable trouble after the Balkan wars (they defaulted), during the second world war, and then during civil war. Hardly a counter-example of "drachma troubles". Many a time I see Greece described as a serial defaulter. And then I read the History of the Greek state after it's independence from the Ottoman empire, and I see a war happening every 15-20 years or so. It seems this way of looking the Greek economy just goes with the Greek stereotype.

ilsm said in reply to foofootos...

Greece seems to spend about 150% of the NATO standard war spending for GDP. While the rest of the EU spends <75% of NATO standard.
Still only 3% compared to US' 5 to 7% according to how you count.

US spends more in VA than total of Russia, China and UK for their military.

Darrell in Phoenix said in reply to anne...

Pegging to the Euro will not counter trade imbalances, which is the real source of Greece's troubles.
They need a currency that floats. They need to decrease imports and increase exports (or more likely tourism) to eliminate their trade imbalance, which is the root cause of their debt.

pgl said in reply to Darrell in Phoenix...

Exactly!

foofootos said in reply to Darrell in Phoenix...

Greece currently has a balanced current account.

pgl said in reply to foofootos...

Link? Evidence? Even if this is true, it is mainly because of the imposed austerity and weak economy.

pgl said in reply to foofootos...

Darrell in Phoenix notes:
"Check the CIA world factbook for Greece.

Exports $35B. Imports $62B.

Trade imbalance of $27B compared to GDP of $290B = 9.5%!"

Your source?

am said in reply to anne...

In Simbabwe which has no currency of its own apart from small coins for change shop goods are priced in US dollars. So consumers can buy a basket of goods and then pay the value of the us dollars in us dollars, south African rand, Botswanan pula, euro or pound. These are all calculated up by a routine in the software system operating at the checkout. The tax which is vat is then sent up to the government. The government staff are paid in us dollars. But the government can't do stimulus because they can't print any of these currencies and they don't have one of their own. But for an interim solution it is workable.

Darrell in Phoenix said in reply to am...

And the dollars flow out of the country, and them when there are no dollars left, the economy collapses.
What you need is exactly what Ben Franklin argued for nearly 300 years ago. A government issued script currency that can be used to pay your taxes, and taxes high enough to create sufficient demand for the script to give it value. You then let the value of that government issued script currency to float on the international exchange markets to balance trade.

OH, and NEVER take on debt denominated in a foreign currency.

Nathanael said in reply to Darrell in Phoenix...

That's even a good rule for households, frankly. I never take debt denominated in a currency I can't print. :-)

Peter K. said in reply to Chris Herbert...

What the critics of the Greek fail to mention is that before the Troika began bringing the hammer down on Syriza and refused to negotiate with them, the Greeks were running a primary surplus.
Krugman pointed to this. That is, they were in the black without interest payments. With default and saying no to the bailout packages they are free of the interest payments and free of the onerous austerity measures which killed their economy.

What the critics of defaults say is that the defaulters will never be able to borrow again, but in the real world that hasn't been the case. They're just blowing smoke to bully the Greeks into more, fruitless austerity measures.

Dan Kervick said in reply to Peter K....

Agreed. There will always be attractive economic opportunities in Greece. Even if Greece defaults, there will be new investors willing to gamble that they wont default again.

pgl said...

"Instead, the creditors first calculated the size of the primary budget surpluses that Greece would have to run in order to hypothetically repay its debt. They then required the government to raise taxes and cut spending sufficiently to produce those surpluses.They ignored the fact that, in so doing, they consigned the country to an even deeper depression. By privileging their own balance sheets, they got the Greek government and the outcome they deserved."
This is precisely the problem Keynes warned about after WWI when the French demanded too much from the Germans. Of course the Germans never really did pay all of those cursed repatriations. Modern day European leaders have forgotten everything Keynes tried to teach us.

Darrell in Phoenix said in reply to pgl...

The austerity proponents are following the typical NeoCon mind-set of ignoring macroeconomic principles. "Keynesian hokum" is their preferred name for macroeconomics I believe.

DrDick said in reply to pgl...

This is exactly why Eichengreen's piece is pure garbage. Greece made lots of compromises, too many in fact. It was the creditors who refused to compromise. Every bank that had made irresponsible loans (and their were huge numbers of these) in Greece should have been forced to eat all their losses. After all, they had charged a risk premium to cover this already. Instead the Troika has decided that they should be fully indemnified and only the Greeks should suffer.

Peter K. said in reply to DrDick...

Yeah it's almost as if he criticizes the Greeks so he can criticize the Troika even more.
"Still, this incompetence pales in comparison with that of the European Commission, the ECB and the IMF."

Nonetheless I agree with you and disagree with Yves Smith and the like. Syriza and the Greeks did the best they could under impossible circumstances.

The Troika's plan didn't work and they refused to negotiate. The problem is Greeks want to stay in the Eurozone nonetheless. Sunday we'll find out if they still do no matter what.

pgl said in reply to DrDick...

This is why I prefer what Krugman wrote.

DrDick said in reply to pgl...

Likewise, and the same for Stiglitz, who is quite good on this.

Paine said in reply to pgl...

Running these nakedly in humane pub sec pruning exercises was the entire project
The debt
A pretext

Let that be a lesson to you long run fiscal space fuss budgets

Paine said in reply to Paine ...

A yes on Sunday simply means
Go back and get the best deal you can

Darrell in Phoenix said...

Exchange rates fluctuate to counter trade imbalances. The concept of a common currency, without controls to ensure no trade imbalances exist, is fundamentally flawed.
Money flows out of Greece. THE ONLY way money can get back into Greece is debt.

Trade imbalances cannot be persisted indefinitely. They result in the buildup of debt on the side with the deficit, and interest on the debt just widens the trade imbalance until the debt collapses.

Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt.

RGC said in reply to Darrell in Phoenix...

"Either Europe needs to take MAJOR steps to reverse existing trade imbalances, or the Euro is ultimately doomed to collapse under unrepayable debt."
Yep. Varoufakis had a "Modest Proposal" to fix this:

4. THE MODEST PROPOSAL – Four crises, four policies

The Modest Proposal introduces no new EU institutions and violates no existing treaty. Instead, we propose that existing institutions be used in ways that remain within the letter of European legislation but allow for new functions and policies.

These institutions are:

· The European Central Bank – ECB

· The European Investment Bank – EIB

· The European Investment Fund – EIF

· The European Stability Mechanism – ESM

Here are the four policies that will re-deploy the above institutions in a manner that deals a decisive blow at, respectively, (1) the banking crisis, (2) the public debt crisis, (3) the under-investment and internal imbalances crisis, and (4) the social emergency crisis afflicting countries were absolute poverty is becoming a major issue...

http://yanisvaroufakis.eu/euro-crisis/modest-proposal/4-the-modest-proposal-four-crises-four-policies/

Chris Herbert said in reply to Darrell in Phoenix...

Darell writes "Money flows out of Greece. THE ONLY way money can get back into Greece is debt." Not so with a monetary sovereign. Euros are worth what the Greek central banks says they are worth, in drachmas. And only drachmas can be used in domestic commerce. You have squirreled away euros in Swiss bank accounts? Fine. Spend them anywhere but in Greece. If you have cheated on taxes, and for sure you have if you are Greek and rich, then face extradition for crimes in Greece. A monetary sovereign does not have to issue debt. It can recapitalize without debt. Look at China, which has used this banking system successfully for more than two decades! China understand the difference between liabilities and assets. It's not the debt that matters it's what you build that matters.

Darrell in Phoenix said in reply to Chris Herbert...

Chris, I was saying now... With Greece on the Euro and unable to print their own currency.
Yes, if they return to drachma, they can issue money. Until then, the only way they have been able to make their economy liquid in the face of large trade deficit is with debt.

Darrell in Phoenix said...

Check the CIA world factbook for Greece.
Exports $35B. Imports $62B.

Trade imbalance of $27B compared to GDP of $290B = 9.5%!

Of, Germany LOVED loaning Greece money so they could buy German products.... but the problem is that the debt can't possibly be repaid unless the trade imbalance is reversed. Germans have the money that Greece needs to repay the debt!

This echos the problems in the USA. The poor go into debt, creating money that they spend, which then flows through into the economy into the hands of billionaires. It is mathematically impossible for the poor to repay the debt unless the rich first spend the money! Oh, we say it is a legal, moral and social obligation to repay the debt, but suggest it is a moral and social obligation (and should be a legal obligation through a steeply progressive income tax code with deductions for most spending and capital investments) and OH HOW THE RICH SCREAM!

pgl said in reply to Darrell in Phoenix...

Good research - and analysis.

RueTheDay said...

I struggle to understand the path forward from the referendum. Putting aside the obvious question of "what exactly are they voting on", there are some serious logistical challenges.
It will likely take a day or two (or three) for the votes to be counted and the result certified. Assuming a best case scenario of a YES vote, Tsipras will likely resign, a snap election will be called, and a new government will have to form. How long will this take? What if Syriza is re-elected? What if there is no clear winner and we're back to having to form a coalition government, which may or may not happen?

Time is one thing this situation does not have. There are significant upcoming dates:
-July 10 €2B Rollover of treasury bills
-July 13 €452M IMF
-July 14 €73M in Japanese Samurai bonds due
-July 17 €1B Rollover of treasury bills
-July 20 €2.1B ECB
-July 20 €1.4B National central banks
-July 20 €25M European Investment Bank

I can't imagine any scenario under which the ECB can avoid having to yank the ELA if the July 20 payments are missed. But there are plenty of opportunities for an accident before then. It is assumed that the treasury bill rollovers will not be an issue since they are almost entirely held by Greek banks. Is it really safe to assume that? I might be thinking about a switch into safer, more liquid assets if I were a Greek banker. Or are they just going to avoid an auction altogether and deem the bills rolled over by fiat? The Samurai bonds are tiny, but they are still a commercial obligation, will require money the Greek government likely will not have, and a default will not be able to be brushed aside as easily as the missed IMF payment. Speaking of which, the IMF will be unable to assist in any way throughout this period, unless the arrears are cleared.

But wait, there's more. With the previous programme having expired, there will need to be a new MoU, a vote by the Greek Parliament, a vote by other European parliaments, including Germany. This is no longer something Finance Ministers can decide at a late night meeting.

Yet, the official position is no more talks until after the referendum.

Darrell in Phoenix said in reply to RueTheDay...

I think the Germans think that if things get bad enough in Greece, they'll kick out Tsipras and elect a government more willing to deal.
A vote of NO to the "Should we accept these terms?" means the Greek people support Tsipras's hardline demand for write downs. This puts the Germans in the position of having to accept his terms or face Greece leaving.

In short, the referendum may take the "well just wait until the Greeks replace you, then deal with the new guy" threat off the table.

Reply Wednesday, July 01, 2015 at 11:53 AM

RueTheDay said in reply to Darrell in Phoenix...

My point is that regardless of which way the vote goes on Sunday, by the time the results are in there simply may not be enough time left to avoid a default. Note well that default does not automatically imply Grexit, but it certainly ratchets things up a notch.

Reply Wednesday, July 01, 2015 at 11:59 AM

Peter K. said in reply to RueTheDay...

It's all up to the ECB and Troika. The money involved is small to them. It's all political. Looks like they want a regime change in Greece. Either that will happen or there will be Grexit.
Syriza caved on austerity but wanted more taxes and less spending cuts. The Troika said no. And the Troika spins it like the Greeks left the negotiation table. The Troika said no and then the ECB refused to back Greek banks as the "deadline" passed causing the bank holiday.

Darrell in Phoenix said in reply to RueTheDay...

Oh, I think default is inevitable. All the referendum does is clarify the options AFTER that.
If it fails, and the Greeks vote that they want to accept the Eurozone offer, then there will be a change in Greek government, a new round of austerity, and a delay of another year before the crisis explodes again.

If it passes with a resounding vote of "NO, we're not paying" then Eurozone will have to take major cuts in the debt or accept Greece leaving the Eurozone.

Nathanael said in reply to Darrell in Phoenix...

Darrell has the analysis correct.
The political key here is that SOME party is going to either leave the euro. (Or massively and permanently default and start printing euros. If they simply ignore all the ECB rules entirely, they may be able to stay in the euro. Same thing; in this case, Germany is the one who leaves the euro.)

If it's Syriza and they do it with public support, there are good things in the future.

If it's Golden Dawn and they do it with public support, there are bad things in the future.

If Syriza does it without public support, Golden Dawn benefits, and there are bad things in the future.

If Golden Dawn does it without public support, they'll just cancel elections to avoid losing power, so they'll again benefit and there will be bad things in the future.

In a sense, the democratic parties are handcuffed in their options relative to the fascist parties, so it's harder for Syriza to succeed than for Golden Dawn.

And it's really REALLY bad if Golden Dawn becomes a big economic success by defaulting or leaving the euro!!!

Paine said in reply to RueTheDay...

Default is a label easily applied and un applied
In arrears delinquent these are objective terms
Use em instead of the Halloween word default

[Jul 01, 2015]Syriza can't just cave in. Europe's elites want regime change in Greece

"...But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms."
.
"...No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union."
.
"...I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong. "
.
"...Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon."
.
"...After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years. "
.
"...we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.
"
.
"...I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order. I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites."
.
"...This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe "
.
"...My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves."
.
"...Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010."
.
"...Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you."
.
"...The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands. "
.
"...This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should."
.
"..."Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project."
.
"...The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt."
.
"...I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??"

Jul 01, 2015 | The Guardian

It's now clear that Germany and Europe's powers that be don't just want the Greek government to bend the knee. They want regime change. Not by military force, of course – this operation is being directed from Berlin and Brussels, rather than Washington.

But that the German chancellor Angela Merkel and the troika of Greece's European and International Monetary Fund creditors are out to remove the elected government in Athens now seems beyond serious doubt. . Everything they have done in recent weeks in relation to the leftist Syriza administraton, elected to turn the tide of austerity, appears designed to divide or discredit Alexis Tsipras's government.

They were at it again today, when Tsipras offered what looked like almost complete acceptance of the austerity package he had called a referendum on this Sunday. There could be no talks, Merkel responded, until the ballot had taken place.

There's no suggestion of genuine compromise. The aim is apparently to humiliate Tsipras and his government in preparation for its early replacement with a more pliable administration. We know from the IMF documents prepared for last week's "final proposals" and reported in the Guardian that the creditors were fully aware they meant unsustainable levels of debt and self-defeating austerity for Greece until at least 2030, even on the most fancifully optimistic scenario.

That's because, just as the bailouts went to the banks not the country, and troika-imposed austerity has brought penury and a debt explosion, these demands are really about power, not money. If they are successful in forcing Tsipras out of office, a slightly less destructive package could then be offered to a more house-trained Greek leader who replaced him.

Hence the European Central Bank's decision to switch off emergency funding of Greece's banks after Tsipras called the referendum on an austerity scheme he had described as blackmail. That was what triggered the bank closures and capital controls, which have taken Greece's crisis to a new level this week as it became the first developed country to default on an IMF loan.

The EU authorities have a deep aversion to referendums, and countries are routinely persuaded to hold them again if they give the wrong answer. The vote planned in Greece is no exception. A barrage of threats and scaremongering was unleashed as soon as it was called.

One European leader after another warned Greeks to ignore their government and vote yes – or be forced out of the eurozone, with dire consequences. Already the class nature of the divide between the the wealthier yes and more working-class no camps is stark. The troika's hope seems to be that if Tsipras is defeated by fear of chaos, Syriza will split or be forced from office in short order. The euro elite insists it is representing the interests of Portuguese or Irish taxpayers who have to pick up the bill for bailing out the feckless Greeks – or will be enraged by any debt forgiveness when they have been forced to swallow similar medicine. The reality is the other way round.

... ... ...

Tsipras and Syriza's determination to stay in the eurozone come what may has seriously weakened Greece's hand. The economic dislocation of jumping off the euro train would doubtless be severe in the short term, though the costs of permanent austerity would almost certainly be greater thereafter.

But Syriza insiders say there is little preparation for what anyway may be forced on them. The relentless pressure of the EU bureaucracy demands a strong and clear-headed response. Right now, for example, that means the Athens government immediately taking control of its banks, currently shutting down all transactions.

The worst outcome of this crisis would be for Syriza to implement the austerity it was elected to end. A yes vote in next weekend's referendum, , if it goes ahead, would probably lead to the government's fall, and almost certainly new elections.

Papistpal rredge 1 Jul 2015 21:21

"Implicit in your argument"

Always a ploy of course, when you find implicit, tacit, implied arguments in someone else's thought, and then argue with it. No, I am not saying anything about the money.
No, I think Berlin and Brussels are behaving abominably, not so much in terms of what is decided, but, as Pope Francis implied (there you are) without any consideration for the dignity of the Greek people. Shaming, blaming, demonizing, threatening, giving the cold shoulder, to a small marginal country who is supposedly part of your union. There is NO excuse for your behavior

Ritoras Tijger 1 Jul 2015 20:57

I am against Syriza mate, but many commentors ignore the socioeconomic impact on the Greek population and simplify or generalize things. Syriza is in power the past 3 or 5 months. The previous gov were in power since 1974. Two parties, two families. Nepotism in politics is strong.

As said, because none answers your question that doesn't mean no is the answer.

Be open minded and less emotional. Few of the questions you ask you can google them and share the findings with us. That will be more convincing!

peekaboo -> summicron 1 Jul 2015 20:54

The public in the 18 countries have not been consulted. Critical decisions affecting all other members need direct approval. In fact referendums have almost never been held for EU membership in candidate countries.

ineluctable2u -> tsimshatsui 1 Jul 2015 20:50

That's naive. Merkel is only making the Greek people suffer now in the hope that they will lose their will and vote yes. This is ruthless politics by the troika and Merkel in particular.

martyc73 -> Gearóid Ó Loingsigh 1 Jul 2015 20:49

The North is a diversion - it cant raise taxes and relies on subvention from the British State etc and you know this so don't be using that as an argument. The bank guarantee was also sold in a totally different way to what was rolled out subsequently. And you know this too. Hums and Haws???

Seamus is correct in his analysis. What is happening in Greece is akin to Democratic asphyxiation by financial means. And those of us that believe in basic Democracy should be standing with Syriza and the Greek people at this time. Neo-liberal dogma was always ugly. It's practical application is even uglier. This will have serious implications for the Left in Europe as a whole but more imminently for the British referendum vote due pretty soon.

Ritoras Tijger 1 Jul 2015 20:46

Bud, first of all you repeat you you you, it is very instructional, chill. Bravo to you as well for making so focussed comments. I mean it even though you put all the fault on the Greek gov.. Don't see you challenging yourself enough? Are the rest of stakeholders here perfect?

But, how do you know what Greece has done and what not?

Why the Troika have not reacted the same and with the same persistence as it does now during the last 5 years to correct the direction of travel? You're 100% right about the Lagarde list. The ministers who did not do nothing are in trials now.. However, I was in fact hoping that the Troika could play a more active role in this and exercise influence to clear corruption. After all, based on a leak of series of emails , Greek government was strictly following the instructions of Troika during the past 5 years.

About the military expenses. I like defense and the military in fact. But! In a recession, the Troika should have first said, save money there to invest in sectors like healthcare, education etc. After all, Greece is very well equipped and supposedly is backed up by NATO allies.

calsation miceonparade 1 Jul 2015 20:43

I must say I enjoyed your takedown of oldships immensely. It seems he doesn't realise we wouldn't be having this conversation if the private companies that lent money to Greece had been made to eat their own losses.

But then neoliberalism isn't capitalism, not in the traditional sense. As has been proven beyond reasonable doubt, neoliberals magically turn into socialists at the drop of a hat. Gains privatised, losses socialised. In other words, they use the power of the state to collect economic rents. To call this sure thing investing or risk-taking is pure propaganda.

Papistpal 1 Jul 2015 20:40

Never thought I'd agree with you, but I have to say, from this American capitalist perspective, Berlin and Brussels have no sense of fair play and no respect for democracy. How can the EU call itself a democracy if Germany has a veto because it has the big bucks. The US, I admit, would like to do something similar, but we are constrained by maintaining at least some vestige of democratic practice and sensibility. What is with the moralism, anyway. "Greece is wrong, so we get to do whatever we want to them." Moralistic platitudes are not policy statements. Damn Merkel to hell

TheNerveInstitute 1 Jul 2015 20:36

Greeks must not cave in. This is interesting !

http://therealnews.com/t2/index.php?option=com_content&task=view&id=31&Itemid=74&jumival=14132

lawrenceab 1 Jul 2015 20:29

I agree the EU élites are out to topple Syriza. The invective against Tsipras and ruthless shut down of bank support to strike fear in the population show that clearly enough. Syriza is a mortal threat to the noe-liberal order.

I don't agree that Syriza is innocent in this drama, though. Its crisis management has been abysmal. They know, or should, what is coming. when they threaten the EU élites. Why for instance did they not impose capital controls the very first weekend after coming to power?? The the country could have put up its defenses at a time of its own choosing, husbanded its resources while negotiating - paid the IMF, keep banks open during this crucial referendum week. You don't negotiate with 17 adversaries who all want to crush you, with one hand tied behind your back and € billions flowing out weekly. In three months you are on the floor.

castalla 1 Jul 2015 20:17

This is a clash of ideologies. It's obvious if you listen to the spokepersons of Syriza and the Left compared with the clapped out so-called politicians of ND and the Right. The Greeks and the Spanish are the only countries where there's a popular moblisation against the robber barons who created the crisis and are continuing to profit from the consequences. The left have been emasculated throughout Europe ... let's hope the OXI vote wins the day and Syriza gets a mandate to argue for a restructure of the debt programme.

someoneionceknew -> FactPatrol 1 Jul 2015 20:10

The – European Social Model – is built on the fundamental principles built into Treaty establishing the European Community (TEC):

… promotion of employment, improved living and working conditions … proper social protection, dialogue between management and labour, the development of human resources with a view to lasting high employment and the combating of exclusion.

It combines with the EU Charter of Fundamental Rights to define an "underlying principle is one of solidarity and cohesion: that economic growth must serve to boost overall social wellbeing, and not take place at the expense of any section of society".

The ILO book says that while "there is no official definition of the European Social Model" there is a long history of practice and dialogue that allows one to map out the main characteristics.

The ILO define "six main pillars":

1. "Increased Minimum Rights on Working Conditions".

2. "Universal and Sustainable Social Protection Systems".

3. "Inclusive Labour Markets".

4. "Strong and Well-Functioning Social Dialogue".

5. "Public Services and Services of General Interest".

6. "Social Inclusion and Social Cohesion".

miceonparade -> Exodus20 1 Jul 2015 20:08

Remember what Greece were like before joining the euro, in the 1990's?

Greece in the 1990s did not have 30% unemployment or 60% youth unemployment or a depression. Things can only begin to get better after exiting the euro and reclaiming fiscal sovereignty which can be used to put Greek people back to work.

someoneionceknew FactPatrol 1 Jul 2015 20:07

The European Social Model in Crisis: Is Europe losing its soul?

PDF 52 page precis.

while the European Social Model may have been called into question here and there before the crisis, the list of changes in most elements and pillars of the European Social Model since the crisis is formidable. While there are a few exceptions … all other trends show a general withdrawal of the state from social policy, first through massive cuts in social expenditure and reduced funding of education, health care and other public services, and second through radical reforms in a number of areas, such as social dialogue, social protection, pensions, labour market and social cohesion in general …

the changes are particularly severe in those countries that implemented an austerity package under the direct influence of the Troika …

Hill0fBeans sjorsnotmine 1 Jul 2015 20:05

There are no poor Greeks in Greece any more...

You're a disgrace. Instead of trolling, read some facts every now and then.

- like the 4 out of 10 Greek children living beneath the poverty line

- or 44.8% of pensioners living on less than 665 euros/month

- or the 27% unemployed

Go crawl back underneath your bridge. This is not a place for trolls.

camerashy 1 Jul 2015 19:56

The closet fascists are all out in force to get rid of a democratically elected government! Rule by corporations and banks is what you deserve and is what you are going to get in next 5 years ... so enjoy it.

deskandchair -> Danny Sheahan 1 Jul 2015 19:56

It can't go any other way, fiscal control means political control. The tragedy is that the EZ was formed in the first place.

Lafcadio1944 1 Jul 2015 19:52

My fear is that Syriza has lost the momentum, they have been unable to make the subject what it should be, Neoliberal ideological economics. The fear mongering and the bank run neatly engineered by Draghi and now the threat of shutting down the entire banking system - I'd be scared too. That's hardball politics - but the main thing is people obey authority and the EU has authority as far as the Greek people are concerned and they will back them into their very own graves.

xsyfer John Smith 1 Jul 2015 19:51

It has that already. Don't forget they are beyond the Great Depression now in terms of the economic catastrophe. Population has been sliding since 2010. There will be friends. I reckon UK, us and Sweden might do something bilateral after the mess to keep Greece away from Russia.

Might be too late then though

deskandchair Markdoug1 1 Jul 2015 19:51

You don't live in EZ or EU (although superficial thinking isn't exclusive to those outside EZ) however you're correct, Greeks elected Syriza out of desperation. The rest is just the usual anti-left cliches, not that there's anything wrong with anti-left, however your understanding of the situation would be greatly enhanced if you spent a minute Googling origins of this crisis. Perhaps EU/EZ is a bit complex for you.

Eleutheros 1 Jul 2015 19:46

But it has nothing to do with morality and everything to do with a dysfunctional currency union, a destructive neoliberal economic model enforced by treaty and an austerity regime maintained to ensure a return to profitability on corporate terms.

And that's the essence of the current situation, not just in the EU, but most "western" societies, including Australia, where I live; our present government follows the policies of Thatcher and Reagan and is trying to bring austerity to a rich and prosperous country.

Excellent article Seumas Milne, thank you.

Oscarinho 1 Jul 2015 19:43

Yes, there is a potential danger of a right-wing, if not neo-nazi, turn in Greece (and maybe, only maybe in other places, too). But just tell me why does the author doesn't mention that without the support of the right-wingers and neo-nazis called Anel and Golden Dawn Syriza would not have a majority in their own country??? Syriza does not represent a European leftist alternative (ask Renzi) but mere 2 million Greek voters supported by the far right that are taking their own society hostage playing the nationalistic card.

Yes, we need another haircut and, yes, this radical austerity policies needs to be changed. It's just not sustainable as we learned the hard way- But Syriza is looking for a system change by any means with any partners (Golden Dawn, Putin's Russia, and even Erdogan). No thanks.

Forthestate ID5590609 1 Jul 2015 19:40

you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living...

Just more bollocks! How do you square "this new and vastly improved standard of living" with the reality since the crisis hit? Most analysts agree that the decline has seen Greece lose everything that it acquired during the years you refer to, and more, and I repeat, it is a decline probably unparalleled in peacetime. Where is the recognition of the catastrophe that has hit the Greek people in your ridiculous assertion that they are enjoying a new and vastly improved standard of living?

John Smith 1 Jul 2015 19:32

Looking at the headline photo of Merkel, the caption: Who will rid me of this troublesome Greek
popped into my head.

Then I read the article above.

Nothing would please the Euromeddlers more than a military coup, or a revolt by the coalition partners.

Because what this crisis is exposing is how after five fruitless years, the geniuses at the heart of the EU, couldn't grasp that among their many errors of judgement, it's no good loaning a bankrupt money to pay off debt, the Euro has actually worked against the economic expansion of the Eurozone both before and after the crash, and by failing to spot the dishonesty of previous Greek administrations or act, it has shown the world that their system is weak, cannot tackle a crisis, and despite years of rhetoric will have to do the one thing it said would never ever happen, expel a member state and write off tens of billions of wasted euros.

In my earlier analysis I have already explained why the Euro was a currency launched half cocked, and that without taking into account the needs of individual nations, it is doomed in the long term, to fall to pieces.

I fear that whatever happens now, Greece is going to find itself with few friends, and at least five years of pain and emigration of its youth.

ID5590609 Forthestate 1 Jul 2015 19:26

The level of Greek tax collection from all sectors and classes in Greek society is abysmal. Tspiras and Varoufakis do not deny this is a problem, and other than pride or foolishness, I question why you do. Some economists suggests that as much as 39% of the Greek economy is effectively underground. The other purported statistics are simply red herrings to confuse this simple fact (and also avoid dealing with the rampant other corruption and incompetence inherent in the Greek economy).

The reason why the Troika objected to increases in certain taxes as part of Greece's economic plans is twofold: (i) due to this historical lack of tax collection, increased revenue projections based on increased taxes would be almost entirely illusory, and (ii) they targeted weak industries that Greece needs to prosper and grow, and risked making Greece's economic situation worse. Many of the larger and stronger of these multinational industries also had the capability of simply leaving Greece. Tsipras refused to discuss sources of real and easy tax revenue, like tourism on the Greek islands.

The fact that Greece's economy has contracted over 25% is also not particularly relevant. The larger GDP since joining the Euro represented a tremendously bloated bubble based on irresponsible public and private debt. The current GPD still has ample room to decrease before it accurately reflects the true size, scope and productivity of the Greek economy (and even reflects Greece's pre-Euro GDP). Also noteworthy is the fact that Greek incomes nearly tripled since it joined the Euro Apparently, you and others believe that Greeks are now somehow inherently entitled to this new and vastly improved standard of living (more impressive than some other Eurozone members who are poorer and helped fund Greece's bailout) despite the fact that it was entirely unearned and based on fraud and the largesse of the taxpayers of other nations.

Exodus20 Tijger 1 Jul 2015 19:26

This is another round of banking bailouts using public money, cynically misnamed as bailing out Greece. The troika need to launder the money through Greece to give to the banks. Greece get to keep a very small percent for their troubles and taking more blame than they should.

JordiLlull neilmack 1 Jul 2015 19:24

Who are "Most people"? I dont think there are polls, but few people in Europe believe that the fault lies exclusively on a government who has been there for 6 months, and is trying to prevent the policies that have led to a 25% loss of GDP. Particularly since the troika has made it damn clear that it does not plan to accept ANY plan. Sure, some have bought Daily Mirror arguments that the Greeks spent the bailouts on Ouzo, but informed people know that the vast majority was used to pay back interests, and that Greek retirement pensions are around 300 euro/month. I would rather argue that "most people" in Europe who have traditionally supported EU are starting to raise questions about what EU's role in this crisis.

"Europe is not under obligation to Greece" is nonsense. If Greece is a member state then EU is indeed under obligation to support it, and it should do this effectively. It should not carry out a policy that undermines its economy. Even if EU officials do not do this out of principles, they should to do it to avoid loosing the support of the EU project.

deskandchair truecomrade 1 Jul 2015 19:22

Fiscal control = political control, it can be no other way.

FourtyTwo sjorsnotmine 1 Jul 2015 19:21

More than 30% of the population are officially below the poverty line.

http://www.enetenglish.gr/?i=news.en.article&id=2040

FourtyTwo Exodus20 1 Jul 2015 19:17

The preliminary report of the Greek debt investigation (yes, there is one) will be out shortly. From what I've read, much of the debt went to Greek banks and their foreign partners that indulged in an aggressive loaning orgy and created a debt bubble inside the Greek economy. The banks were recapitalised during the bailout with €80bn of state money that ended up as sovereign debt.

MTSK87 privateindustry44 1 Jul 2015 19:13

You are an ignorant piece of work aren't you Sir? Look at the facts before spreading lies. The Greeks work (the ones still in employment that is) work more hours than any other EU citizen ( http://www.bbc.co.uk/news/magazine-17155304 ), the rich and powerful did not pay taxes no, but your average 20-30 something year old with a wage of 400 euros a month that has to go back to living with his/her parents can barely afford coffee never mind pay taxes. And free money? Please the "creditors" have NEVER given anyone "free" money. Germany never gave away anything for free (see treaties imposed on Greece to buy old German weapons). Greece was manipulated and suffered for that "free money".

emordnilap Mark Riggle 1 Jul 2015 19:10

I had thought that Angie, Wolfie and Christine were perhaps just inept, but now I'm afraid they may be executing a well laid plan. Perhaps they want to form a new entity: The People's Neo-liberal Puppy Republic Of Greece. The steps: Blame all others; extort impossible amounts of invented "debts";people who oppose you are labeled as traitors; prioritize German and French banks so they can be saved from their own shitstorm and nationalize (i.e. charge the ordinary punter) all the fantasy cash that no-one's ever seen; call a national emergency and impose martial law. Next is destroy all opposition and hand everything over to private industry. A week ago, this would be very far-fetched, but now??

[Jul 01, 2015] Massive downward revisions to oil output in Brazil and Iraq

Prediction three years too early...

Massive downward revisions to oil output in Brazil and Iraq have increased the risks for oil markets of going from the current feast to famine within just a few years, leading to a price spike that would give a new boost to the U.S. shale industry…
…"All these project cancellations and deferral and cut backs are setting the world up for tighter oil markets in the medium term (2017-19) unless the record Middle East oil rig count successfully translates into significantly higher production," said Seth Kleinman from Citi.

"Demand will have its say but from a supply perspective it is hard not to believe the seeds of the next price spike are being sown today," Deutsche Bank said in a note on Tuesday….

…Several oil industry heavyweights, including former BP (BP.L) boss Tony Hayward, have predicted a new bull market could arrive sooner than expected given the scale of capital and workforce withdrawal from the U.S. oil industry.

U.S. oil output growth has indeed stalled in recent months as companies drastically cut the number of drilling rigs following a steep fall in oil prices after OPEC decided against cutting output last November….

[Jun 30, 2015] Russian culture minister calls for tax on Hollywood films

Jun 30, 2015 | The Guardian

DavidEG 30 Jun 2015 00:26

They (Hollywood staple) should be taxed the same way as tobacco or controlled substances. Full of violence, harmful to mental well-being of children an adults alike.

HollyOldDog wereallfuckedboy 29 Jun 2015 18:54

The UK government should have given the Hollywood WWW2 films the the J rating for JUNK.

Doors2distant 29 Jun 2015 18:29

What an excellent idea, the quality can only improve. No car chases, cop porn, war porn or saccharin sentimentality.

Ieuan 29 Jun 2015 17:15

" he wants to introduce a sales tax that will be used to increase funds for local productions."

In just about every market Hollywood films gross the most. But in many markets (fewer and fewer as US companies take over their own local distribution) they are distributed by local distributors, who then invest some of their profits into local productions - hence some of the Hollywood blockbusters' moneymaking gets routed into supporting the local industry.

If (as I suspect) the Russian distributors of Hollywood product are owned by Hollywood studios, and do not produce anything locally, then I think it's fair enough that the government steps in and routes some of the money made into local industry.

olliemaple 29 Jun 2015 16:52

Exceptionally right decision indeed. It's only fair that whoever watches that Hollywood crap should be extra taxed in favor of positive domestic productions. Not unlike cigarette sales.

Alderbaran 29 Jun 2015 10:36

Many Russian films could be considered to be great and to me trump much of what comes out of Hollywood. However, it was a shame that Medinsky saw no merit in Leviathan and I'm probably one of many who see Medinsky's actions as political in nature, especially given the criterea for state funding of films in Russia.

It is a shame to see the state increasingly policing the film industry in Russia but I'm certain that creative directors will still be able to work within the constraints.

Tilipon -> dropthemchammer 29 Jun 2015 08:24

countries who passed through state coup. Look in root but not in a peak...

[Jun 30, 2015] The Limits to Growth and Greece Systemic or Financial collapse

Jun 30, 2015 | resilience.org

The results of the "standard run" (or "base case") scenario of "The Limits to Growth" 1972 study. Could it be that the ongoing Greek collapse is a symptom of the more general collapse that the model generates for the first two decades of the 21st century?
So, we have arrived to an interesting point, to be intended in the Chinese sense of a curse. It is the point where the people of Greece are being asked to choose between starvation and slavery and this is supposed to be a triumph of democracy
As the tragedy unfolds, people take sides, aiming their impotent rage at this or that target; the Euro, the bureaucrats of Brussels, the Greek government, Mr. Tsipras, some international conspiracy, and even Mr. Putin, the usual bugaboo of everything.
But, could it be that all the financial circus that we are seeing dancing in and around Greece is just the effect of much deeper causes? The effect of something that gnaws at the very foundations not only of Greece, but of the whole Western World?
Let's take a step back, and take a look at the 1972 study titled "The Limits to Growth" (LTG). Look at the "base case" scenario, the one which used as input the data that seemed to be the most reliable at the time. Here it is, in the 2004 version of the study, with updated data in input.

[Jun 30, 2015] Greek failure to make IMF payment deals historic blow to eurozone

I can only imagine the intensity of "consultations" between Washington and Berlin now...
.
"...The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika. However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame."
.
"...The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded. "
.
"...This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free"."
.
"...The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election."
.
"...Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF. And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard."
.
"...I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for."
.
"...If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece."

Jun 30, 2015 | The Guardian

ShibbyUp -> peter nelson 30 Jun 2015 21:30

The Greek banks and former conservative governments, you mean.
You and plenty of other brainwashed idiots around here seem to think that individual, working class Greeks had something to do with this. Of course, as always, the banks and politicians who actually caused this got off scott free, with taxpayer money, to cause the next big financial crisis.

HaroldP -> Nottodaymate 30 Jun 2015 21:29

Banksters, what did you expect, honesty, morality, humanity, financial expertise? Bailouts from citizens, that's what you expected? The poor darlings can't even run a bank when they can print money. Incompetant scum. Regards, Harry.

Jazzfunk23 -> workingclass2 30 Jun 2015 21:28

In recent years most of this mess was presided over by liberal conservatives...

https://en.wikipedia.org/wiki/New_Democracy_(Greece)

PeregrineSlim 30 Jun 2015 21:25

Germania offers a regime of permanent debt servitude to pay for its failed banks:

The documents, drawn up by the so-called troika of lenders, support Greece's argument that it needs substantial debt relief for a lasting economic recovery.
The documents show that the IMF's baseline estimate – the most likely outcome – is that Greece's debt would still be 118% of GDP in 2030, even if it signs up to the package of tax and spending reforms demanded.

clematlee Danny Sheahan 30 Jun 2015 21:25

What you have in the USA is TENS of millions of people who don't have any US dollars while in Manhattan flats sell for millions.

AlamoSexual 30 Jun 2015 21:20

This is nothing more than a large-scale payday loan scam. Greece will never get past the loan sharks and will constantly have to borrow just to pay off the interest. I'd rather default and eat beans for a year while starting fresh than eat beans for 20 years paying off old debt. You can call them lazy, you can call them thieves but - if they play their cards right - you can also call them "debt free".

UnevenSurface Danny Sheahan 30 Jun 2015 21:12

Greece will still be here. There will of course be enormous poverty (in various forms) in the short term - but even the FT says that the GDP will bounce up 6% quite quickly. After that, they'll be the cheapest holiday destination in Europe, exporting the cheapest wine and olive oil. The GDP could expand by 25%, up to pre-austerity levels. Excluding macro economic factors out of our control, I would be truly surprised if they aren't better off - overall - within five years.

HaroldP -> owl905 30 Jun 2015 21:12

The public debt of Greece existed BEFORE the recent election. The cruel conditions inflicted upon Greece by its "partners" existed BEFORE the recent election. The crisis existed BEFORE the recent election. Obviously Tsipras did not "wreck his country." His fellow citizens elected his party to fix an existing crisis. He won the election with a proposal of how to do that. He has deviated only slightly from his promises. I find him to be a "hero" in that he could teach the political class of Europe the importance of keeping the agreement between the state and the citizens. It is heroic indeed to be the honest politician of Europe. He has my respect. Regards, Harry.

Paul Collins 30 Jun 2015 21:12

Lending more billions to Greece so they can repay the interest on previous billions loand and those new loans repayed by cuts to pensions and more privatisation of public assets...blatant transference of cash from those who can't afford it to those who don't need it. Hopefully the Greek people give a resounding middle finger to the EU/IMF.

And if I hear another muppet crack on about 'the Greeks ought to pay their taxes' I'll bloody lose my temper. D some reading for gawds sake. It really isn't that hard.

malenkylitso -> owl905 30 Jun 2015 21:08

Greece was forced into a corner, then took a bailout which less than 10% went to the Greeks. The rest went to the banks.
Sounds like a protection racket.

SystemD 30 Jun 2015 21:07

This is not just about Greece; the impact of a Greek default go much wider. The IMF (and the Troika) has to be seen to be taking a hard line. If they don't, then their credibility with the rest of the world diminishes, particularly in Africa. The Germans are worried about the Euro as a currency; the Deutchmark was given up on the promise of stability, and the 1920's are still - just - within living memory. There is a lot of fear behind their stance. Stock markets generally are worried about the instability the situation is causing. They don't want Greece crushed - they just want a stable situation with predictable outcomes. Volatility is not in their interest. And Greece needs money and help to try to cure the cancer of corruption in its economy.
Greece cannot pay back its debt. Unless the creditors agree to a very long term of repayment (at least 50 years) at reasonable rates, the only real options are for Greece to leave the Euro zone and go back to the drachma, or the debt must be written off, with the proviso that there will be no new loans, and Greece will have to rebuild and finance its economy from its own resources.

Stanley Wallings 30 Jun 2015 21:06

I feel sorry for the Greek people - they've had 5 hard years and for nothing. Grexit will be horrible for those who have to stay in Greece. The 'haves' have already moved their money and can just hop on a flight out. I hope Tsipras isn't driving the bus over a cliff for no reason other than to piss off the Troika. I hope he has a plan C

medicynic RobWilson73 30 Jun 2015 21:06

What a great idea! Let's get rid of pensions worldwide, then no one has any cause for complaint. I'm pleased to see that you are one of those who, when pensions in the UK increase say: "No thanks. I don't need it and don't deserve it. It only makes me fat anyway".
In my experience in British industry, workforces are rife with 'tax-dodging, CSA dodging, mendacious, lazy wankers', a lot of who deserve a cut in wages never mind a pension.

Monkeybus 30 Jun 2015 21:06

SQUEEZE THE GREEKS, WRING THEM OUT, RINSE THEM. Other xenophobic pronouncements are available. SHIFTLESS, LAZY, FECKLESS. Can't they print their own money like more advanced nations?
We are all in this together, err, hang on.
Imagine if Gordon Brown had taken us into the Euro after all?

clematlee FakeyWilson 30 Jun 2015 21:06

and the west arms heart eating loonies in North Africa and invades and kills millions of people in the process, Vietnam, Iraq, Libya, Grenada, Korea, Panama, Syria and the list goes on. Watch the EX USA secetary of state on youtube saying the starvation of 500,000 children was a price worth paying, by the west imposed on Iraq. It was starvation to death. Her name was Madalin Allbrite. Don't worry about losing some so called freedoms to stop Allbite and her ilk.

Tappert Heintz 30 Jun 2015 21:03

"Greek failure to make IMF payment deals historic blow to eurozone"
Sounds like the Daily Mail. Nonsense.

owl905 Iheartbill 30 Jun 2015 21:02

They're not barred from international trade, but it's really scewed to cash and barter. There simply isn't the mechanism to manage the exchange rates. No one outside the country will want rapidly devaluating and 'only-good-in-Greece' drachmas. Greeks don't realize what's coming after 15 years of Euro stability.

One big surprise from them is that pipeline deal with Russia. That needs a lot of capital - Russia is walking into even more problems if it starts forwarding debt financing to Greece to get the pipeline built.

The tourist industry won't be hit by it (except for foreign import items that are part of the industry) - it will be hit by the drachma, that has the profit from the industry shrink to nothing.

Danny Sheahan Justitiadroit 30 Jun 2015 21:01

Look at the Eurozone growth rates for the last 5 years, its a basket case.
The Greeks have messed up over the years but the Euroland is no case study in growth.

rberger ArundelXVI 30 Jun 2015 21:00

Actually there is very little debt servicing involved. The 29 billion actually includes debt repayments (principal, not interest). Greece is not paying any interest for most of its bailout money until after 2020, but of course needs to pay interest on the bonds that it has issued itself.

ScanDiscNow Danny Sheahan 30 Jun 2015 21:00

Pre Euro Greek total production increased by some 600% between 1960 and 2001 while German total production increased by a mere 255%. However, throw in the Euro and the subsequent 15 years has German total production up 20% while Greece total production is down 26%
ZeroHedge.

Anthony Apergis owl905 30 Jun 2015 20:57

And herein lies the issue my friend! The strictly monetary considerations that underpin your rationale betray the disintegration of what started in Rome as a visionary peace project for the peoples of Europe to an economic, neoliberal construct whose only concern is %s and profits. Surely, you must be able to see this. I would strongly advise you to read the preamble to the Treaty of Rome (1957).

MonsieurBoombastic FilthyRichBanker 30 Jun 2015 20:54

The capital controls in Greece apply to cash withdrawals and overseas transfers so this won't affect things like internet banking where cash is transferred within the system. The things you mention are probably still going on in most cases.

moderatextremist 30 Jun 2015 20:51

When Greece joined the EU, the corrupt government went on a spending spree of EU money, and used Goldman Sachs to cover it up. It is those politicians and Goldman Sachs, the vampire squid on the face of the world, that should be put on trial. I fear this development will be hurtful to an awful lot of good people, while the arseholes that created the mess will get away with it...... yet again.

sefertzi7 30 Jun 2015 20:48

The worst possible outcome. Now the crooks who caused the debt mountain in the first place (Papandreou x2, Simitis, Karamanlis, Samaras et al) will come back to power, reluctantly do what they are told with the quid pro quo of a blind eye turned while they carry on in their corrupt old ways.
Call that a revolution? More like crash and burn to me.

raymundlully -> Kaiama 30 Jun 2015 20:45

If the debt is forgiven and goes away.
Greece has in arrears to private pharma companies ,I doubt they'll extend credit orwant paying in toy Drachmas.
Cash-strapped Greece has racked up mounting debts with international drugmakers and now owes the industry more than 1.1 billion euros ($1.2 billion), a leading industry official said on Wednesday.
The rising unpaid bill reflects the growing struggle by the nearly bankrupt country to muster cash, and creates a dilemma for companies under moral pressure not to cut off supplies of life-saving medicines.
Richard Bergstrom, director general of the European Federation of Pharmaceutical Industries and Associations, told Reuters his members had not been paid by Greece since December 2014. They are owed money by both hospitals and state-run health insurer EOPYY.

MalleusSacerdotum 30 Jun 2015 20:45

If Greece were a private or public company and continued to 're-finance' in the manner proposed by the IMF, its directors would be charged with insolvent trading.
They are getting a lot of stick for admitting that they are effectively bankrupt.
It is at least an honest admission of the state of play.

Omniscience Jazzfunk23 30 Jun 2015 20:42

They turned a primary deficit into a surplus within the last 5 years
Greece have never run a primary surplus.
http://www.forbes.com/sites/timworstall/2015/02/16/greece-still-has-a-vast-problem-it-doesnt-have-a-primary-budget-surplus/

Dannybald George Purcell 30 Jun 2015 20:40

Right wing conservative neo-libs corrupt elitists. The Troika is refusing to allow Greece to tax the wealthy corrupt tax avoider thieves, while forcing more of the workers into poverty.

Vee1984 30 Jun 2015 20:40

It is a well known fact that many Greeks like to avoid paying taxes just as there are many other European countries who avoid paying tax whether on an individual or on a company basis.

The European Union has created this problem over a long period of time by allowing countries to borrow more than required and funds being used to build eg airports in Spain which are unused and unnecessary due ro their geographical location and many speculative projects undertaken throughout the EU. The reason for lending such sums, with a total disregard as to how interest payments can be repaid, never mind repaying the loans, has been done to enrich the lenders who, as we all know, love to gamble on how much money can be made. A risk game, played out every day, and, I suspect, some bets even being placed on the odds of Greece defaulting in some hedge fund offices somewhere in Europe. It should be noted that Spain and Italy have loaned money to Greece. How can this be when both countries have loans via the EU etc? Again, investors after interest on the loans with a total disregard as to their own countries finances. Greece is a democracy and should not give in to the rhetoric coming from the IMF or ECB. Why not? Neither can afford to and neither can Germany. Interesting days ahead. I truly hope that in the name of Democracy, the Greek people will vote NO in the referendum no matter the increasing hardship this will bring. The EU really need to be extremely mindful of the fact that abject poverty and the continuation of austerity gives rise to discontent and a surge in popularity to right-wing extremist views.

Anthony Apergis Justitiadroit 30 Jun 2015 20:39

Indeed, the EU has mutated from a union of the peoples of Europe, into a market-driven transnational institution governed by bankers and solely concerned with GDP growth rates (and I mean this in a strictly non-communist/leftist way).

Dannybald DavidRees 30 Jun 2015 20:36

As a German voter I would never vote for the right wing neo-lib corporatist Fascist scum in government. The hypocrisy of this regime is turning millions of Europeans against Germany and rightly so. The London conference of 1953 halved German debt owed for destroying Europe. Greek debt was 100% of GDP in 2008 and that had nothing to do with Tspiras.
The 'Eurogroup' only cares about a tiny elitist group of Europeans and not about the majority of it's people. Wake up DavidRees and the rest of you indoctrinated half wits.
http://www.theguardian.com/commentisfree/2013/feb/27/greece-spain-helped-germany-recover

Omniscience 30 Jun 2015 20:35

If the EU are the enemy now, imagine the bed wetting and howls of protest if Greece had to make real repayments.
http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628
Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

FlashRat 30 Jun 2015 20:35

I would have thought that a "senior german conservative politician" telling the Times that whatever happens Tsipras must be forced from office is an historic blow to the EU. Now, at least, people know what it is and who it is for.

PennyForYourComment DavidRees 30 Jun 2015 20:35

Which is why the Eurozone concept is fundamentally broken.
Imagine if every time one US went into a bad recession, all the other states had to vote on whether to send them money, with all the governors having to agree... and then trying to post their own conditions on how that States economy be run before the money were delivered. It would be an unworkable mess, especially given acrimony and resentment between states and regions (North vs. Deep south vs. midwest, vs. west coast, etc)... The country would sooner or later fall apart as States started rebelling and quitting. It would be absurd.
But somehow Europe is supposed to run on exactly this system. If you are going to have a single currency, then you need common fiscal mechanism binding the areas together, because these act as automatic financial stabilizers when there's a regional crash. If Florida's economy crashes, money automatically pours in from everywhere else to cover unemployment insurance, etc, via the Federal government. No similar thing happens with Greece in Europe.

BunyipBluegum theoldgreyfox 30 Jun 2015 20:34

The default you are referring to is a recent one (2014) - I was referring to the previous default in 2001, which was followed by a significant period of economic growth and recovery. I am not suggesting that a default is always the best solution in such circumstances, nor that the immediate fallout won't be problematic. However in any case the example of Iceland clearly demonstrates that a default can be the best option economically in some circumstances.
It's the same principle as bankruptcy: if your debts reach a level that can never be paid back, it's better to wipe the slate clean and start again, even though the cost of doing this may be to slide back down the snake to the bottom of the board.

Anthony Apergis 30 Jun 2015 20:33

To sum up:
Roughly €170b initial Greek debt +
Roughly €150b financial aid to Greece aimed at repaying initial creditors (NOT the restructuring of the Greek economy) + austerity measures while doubling an already unsustainable debt = EU solidarity to a member- state.
And the above does not even take into account whose economy did the initial debt prop up. I cannot believe that the people of Europe cannot see what the REAL problem is.
The EU - and by extension Europe - is truly in trouble.

raymundlully Franco87 30 Jun 2015 20:32

UK had third world inflation in the 1970s it took the IMF medicine broke the unions in the 80s and created a home fit for bankers.
www.whatsthecost.com/historic.cpi.aspx

1980, 18.00%. 1979, 13.40%. 1978, 8.30%. 1977, 15.80%. 1976, 16.50%. 1975, 24.20%. 1974, 16.00%. 1973, 9.20%. 1972, 7.10%. 1971, 9.40%. 1970, 6.40%

Danny Sheahan Omniscience 30 Jun 2015 20:31

What about economic slums like Portugal and Italy.
They are much worse off now than Greece was at the start of its crisis. It will not take much to have Italy in crisis.
Portugal is heading for an abandoned state after its crisis so its not much of a threat now, how it will pay its debt in the future is anyone's guess. Though it is safe to presume that a country in such decline will have less people paying tax.
They'll want more than billion.

RGBargie 30 Jun 2015 20:31

It looks like Greece might soon be sailing into uncharted waters.

I can just imagine what the consequences will be for the EZ if Greece goes alone, and then makes a success of their new found freedom. I imagine there might well be others ready to abandon ship if that happens.

Westmorlandia BunyipBluegum 30 Jun 2015 20:31

Point taken, but whatever the Greeks don't pay back to the EFSF will have to be paid by other Eurozone countries, as that's how the EFSF guarantees work. So it isn't just about whether it's fair for Greeks to pay for what their government borrowed, but whether it's more fair for Greeks to pay or for everyone else in the Eurozone to pay for what elected Greek governments borrowed.

Reality has said for some time that Greece can't pay, and therefore some of it should have been written off. But that's more about pragmatism than fairness.

FilthyRichBanker Wily Ways 30 Jun 2015 20:30

He could do what the rest of Europe does and make paying taxes compulsory rather than voluntary for a start.
Cut the bloated Public sector and halve the defence budget in line with the rest of Europe - and sell off the $50bn of assets they previously agreed to.

Bardamux Michael Richard Allen 30 Jun 2015 20:29

Ignorant it is then. So i'll explain it to you step by step.
1) If you deposit money in a bank, you are loaning the bank your money. And in many countries you will get a small interest rate for it.
2) it is considered a short term loan, because you can withdraw it at (almost) any time.
3) Remember Icesave in the UK ? That bank did not pay its depositors
4) Other banks received hundreds of billions of euro's / pounds / dollars
5) Banks could loan money at almost 0% even with terrible collateral to help them survive
6) Greece will pay its debt if they receive half or even less help than the Dutch and UK banks did.
Get it now or do you need more steps to help you out ?

Omniscience Danny Sheahan 30 Jun 2015 20:29

Most of the Debt is dormant thanks to the EU
http://uk.reuters.com/article/2015/06/28/uk-eurozone-greece-debt-factbox-idUKKCN0P80XU20150628
Euro zone countries have already extended the maturities of their loans to Greece from 15 to 30 years and reduced the interest rates on some to just 0.5 basis points above their borrowing cost. They also granted Greece a 10-year moratorium on interest payments on the second bailout loan from the euro zone rescue fund.

Omniscience 30 Jun 2015 20:27

To be fair, they have only been lying about reform since joining the Euro.
2005 : Greece faces up to taxing times
Greece plans to offset a projected shortfall this year in tax revenues with a €2bn securitisation deal, in spite of European Commission strictures against the use of one-off measures to reduce the budget deficit. George Alogoskoufis, finance minister, said in an interview with the Financial Times that the transaction would enable Greece to achieve this year's budget deficit target. He also stressed securitisation was "a temporary measure that will give us time to bring about permanent structural corrections".
Joaquin Almunia, the European Union's budget commissioner, signalled acceptance of this year's planned transaction during a visit to Athens last week but urged Greece to accelerate structural reforms next year.
http://www.ft.com/intl/cms/s/0/0c99809c-3abd-11da-b0d3-00000e2511c8.html

TerryChandler OnTheRobertELee 30 Jun 2015 20:26

The problems of Greece haven't happened since "a radical populist party" was elected. On the contrary, the present government was elected because of the problems.

Danny Sheahan outsiderwithinsight 30 Jun 2015 20:23

Not at all, it means that Italy and Portugal are next.
If Greece leaves and its hard to see how they will not at this stage then the Euro has become a non-permanent currency arrangement that the EU or ECB will not defend its integrity.
That marks it out as different from every other currency in the world. Only currencies that have allowed that in the past went on to be all failed entities.

CambridgeAfterDark 30 Jun 2015 20:25

Splendid, send a message to all banker gangsters everywhere.
Best way to deal with a bully, is hit them back.
Guess the right-wing trolls on here look pretty silly now, all saying last week the FTSE would rally upwards upon a Grexit!

BunyipBluegum robbyevans 30 Jun 2015 20:20

The present circumstances in Greece were inherited by the current government from the previous right-wing government, which managed to bring them out by faithfully following the austerity prescriptions of the Troika.
However both left and right-wing governments of the past, who created and hid the enormous debt, are also to blame.

coxinutant 30 Jun 2015 20:16

A continued austerity programme makes it unlikely that Greece will be able to grow economically. Continued economic pain-> lower ability to repay debt. So all those people who get on their hig horse and demand that Greece repay its debts should keep in mind that debt cannot be repaid when you have 25% unemployment, when wages plummet and people cannot spend to make the economy grow. If austerity had been the miracle cure, it would have worked years ago. So stop bandying about terms like 'communist' and 'marxist' and all that BS. The current government in Greece did not create the crisis, the austerity, the 25% unemployment. The crisis was created by an irresponsible banking sector, which was then bailed out by your money (yeah ordinary Joe, looking at you). Austerity was hatched by The IMF, against the advice of sensible economists...

And it hasn't worked. And I am sure the 'marxist' policies of Syriza did not create the enormous unemployment that Greece faces. Last time that occured in Europe, fascist governments came to power, aided by pro-fascist symptahies in France and the UK...

BunyipBluegum -> peter nelson 30 Jun 2015 20:14

It was the Greek governments of the mid 2000s, who were corrupt and nepotistic. If it was them and their wealthy friends who were going to carry the can for this, then I'd say well deserved.
But the whole reason why Syriza is against the austerity program is that it doesn't greatly affect these people, but it DOES greatly affect ordinary Greeks, especially the working class, elderly and vulnerable.
Also it hasn't worked. If you were prescribed a foul medicine by your doctor that made you feel sick and weak, and then failed to cure your problem, would you be inclined to go back for another dose?

AtomsNest -> echoniner 30 Jun 2015 20:14

If they actually wanted payment, they'd be reasonable. But payment isn't their priority, these organisations want power over Greece.

World Oil Energy Consumption by Sector, 1973-2010

World Oil Energy Consumption by Sector, 1973-2010
Oil can be put to a variety of uses, with transportation accounting for a growing share of the oil consumed. While the transport sector consumed 42% of the oil in in 1973 this share climbed to 61.5% in 2010. The growing level of global motorization is a core component behind this relative growth, particularly the growth of international trade. Non-energy uses mostly relate to the petrochemical industry where petroleum is used to manufacture products such as plastics or fertilizers. Other sectors concern agriculture (powering farm equipment), commercial and public services (power generation) and residential (heating oil).

[Jun 30, 2015] Stiglitz: Troika has Kind of Criminal Responsibility

"...Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
By Ian Traynor - Guardian"
.
"...Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs)."
.
"...For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.
What good is the "will of the people" and democracy when it goes up against the banks?"
.
"...Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts. ...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate. This is the END GAME a perpetual smash-and-grab operation by the plutocrats. "

Jun 30, 2015 | economistsview.typepad.com

From Time:

Joseph Stiglitz to Greece's Creditors: Abandon Austerity Or Face Global Fallout: ... "They have criminal responsibility," he says of the so-called troika of financial institutions that bailed out the Greek economy in 2010, namely the International Monetary Fund, the European Commission and the European Central Bank. "It's a kind of criminal responsibility for causing a major recession," Stiglitz tells TIME in a phone interview.

Along with a growing number of the world's most influential economists, Stiglitz has begun to urge the troika to forgive Greece's debt – estimated to be worth close to $300 billion in bailouts – and to offer the stimulus money that two successive Greek governments have been requesting.

Failure to do so, Stiglitz argues, would not only worsen the recession in Greece – already deeper and more prolonged than the Great Depression in the U.S. – it would also wreck the credibility of Europe's common currency, the euro, and put the global economy at risk of contagion. ...
JohnH said...

Some background on the stakes in Greece AKA why Greece must be made to heel--Aegean gas, banking and oil company profits, and, yes, the Clintons.
http://seekingalpha.com/article/782961-the-u-s-looks-to-exploit-the-greek-re-default

pgl said in reply to JohnH...

Note when Stiglitz writes this:

"Of course, the economics behind the program that the "troika" (the European Commission, the European Central Bank, and the International Monetary Fund) foisted on Greece five years ago has been abysmal, resulting in a 25% decline in the country's GDP. I can think of no depression, ever, that has been so deliberate and had such catastrophic consequences: Greece's rate of youth unemployment, for example, now exceeds 60%."

The troika economics he is condemning was the refusal of the ECB to do QE earlier. Troika's bad economics is exactly what you have been advocating for the US for a long time. Just in case you missed this.

mulp said in reply to pgl...

Should Congress give Puerto Rico $150 billion to get it out of debt?

Or should Puerto Rico be forced out of the dollar zone and thus face drastic spending cuts.

Larry said in reply to pgl...

Agree on QE. But even that would not have fixed Greece. It doesn't belong in the EZ and never did.

pgl said in reply to Larry...

I agree. Cyprus made a mistake by entering the EZ as well.

Dan Kervick said in reply to pgl...

And yet economists have been extremely slow to react to this massive economic derailment with anything close to the kinds of bold emergency recovery plans they would be ginning up if the same disaster was taking place in their own countries.

Why aren't the kinds of figures Stiglitz just cited the headlines here? Why has the Great Greek Depression been treated by the media, and most economists, as though it is fundamentally just a disagreement between Greece and its creditors?

What is the plan for putting the 20% of the Greek over-15 population that is not working, but should be working, back to work?

Maybe people think that millions and millions of Greek people without jobs is just Greece being Greece? That profound economic dysfunction and failure is a case of "well, what do you expect from those people?"

Economists seem to have been so zombified by the inscrutable bureaucratic rhetoric and psychopathic insanity of the Eurocrats, and the bumbling incoherence of the Greek government, that most of them aren't able to think clearly. The Euros have convinced them all that any outside-the-narrow-box thinking will cause chaos, panic, unraveling, The Unthinkable, the Complete End of Europe as We Know It and the Return of the Satanic Hordes. So they sit on sidelines hoping that someone will make some deal that allows Greece to keep paying forever, grindingly, in a way that isn't too, too, too, too painful.

Part of the problem maybe is that mainstream economists have too many buddies in the Eurocracy. They can't believe that all those nice people they went to graduate school with have gone so bonkers.

The situation with the Eurocrats reminds me a little bit of Alec Guinness in The Bridge on the River Kwai. A noble project (in this case, the Europe project) evolves over time into a demented and fanatical religion whose ultimate purpose is forgotten by its architects, who lose the capacity to adapt to evolving circumstances with common sense.

Larry said in reply to Dan Kervick...

McArdle notes today that US pundits have been more supportive of Greece than the Europeans. Proximity breeds contempt?

Dan Kervick said in reply to Larry...

It's not surprising. European governments own most of the debt now and want to get paid; and they don't want any special deals that weren't available to them.

And the Greeks themselves are in denial. They haven't yet come to grips with what it's going to take to rebuild their collapsed economy.

Dan Kervick said in reply to pgl...

Krugman has been better than most in calling out some of the bad actors, but what is Krugman's plan for ending Greece's depression?

Is it the same plan he would recommend to American leaders if America were in Greece's position?

Would Krugman, an expert on depressions, advocate that the US run a surplus in a depression - just not a very big one - so it can pay its creditors?

Dan Kervick said in reply to Dan Kervick...

His column today on crippling austerity is pretty good though. The problem, as he says, is the grip of the notion that leaving the Euro is "unthinkable".

A lot of Europeans have gotten too tied to the idea that one country leaving the Euro is some kind of continental catastrophe. To read some of the hysteria - such as a recent Guardian piece - Greeks first leave the euro and then its back to Bolsheviks, Nazis, trench warfare slaughter or Mongol invasions or something.

But the euro isn't the UN Charter or the Magna Carta or the Treaty of Versailles. It's just money. The unity of Europe does not stand or fall on whether a country decides to use a particular form of money. There are several EU members, in perfectly good standing, who do not use the euro. Big deal.

I understand that most of the Greeks themselves cannot wrap their heads around this idea. But economists can easily.

Anyway, Greece and the rest of the world have gotten themselve so tangled up in the obsessive attention to the secondary matter of the Greek "debt crisis" that they don't seem to have time to think about the primary crisis - the Nobody has a Job and Our National Output is in the Toilet Crisis.

Benedict@Large said in reply to pgl...

QE? Oh nonsense. The Euro banks knew Goldman had washed Greece's books, and that Greece was not a suitable candidate for the initial loans, much less the subsequent ones. This is onerous debt, and is simply uncollectible. Banks must relearn to live and die by their ability to make good loans. And if the elites get burned in the process? Maybe they'll learn to stop staffing their banks with assclowns.

JohnH said in reply to pgl...

The Troika won't allow Greece to use Aegean gas as collateral precisely because Greece is supposed to hand over its wealth without much if any compensation...

pgl said in reply to JohnH...

I despise this Troika. Whether they are evil or whether they are dumbass liquidionists like you are - it does not matter. They are being very destructive. OK, you are not evil but you are stupid with your fear of using aggregate demand stimulus. Same horrific results.

Sandwichman said...

Joe! Joe! Joe!

(and as for "Chief Economist" Blanchard: M-I-T... I-M-F... M-O... U-S-E: Mickey Mouse).

http://econospeak.blogspot.com/2015/06/m-i-teee-squeeze-you-next-week-i-m-f.html

Sandwichman said in reply to Sandwichman...

No to austerity! Yes to democracy!

http://www.altersummit.eu/accueil/article/no-to-austerity-yes-to-democracy?lang=en

"Europe is at a crossroads. The institutions of the Troika are not only trying to destroy Greece; they are trying to destroy us all. Now is the time to raise our voices against this blackmail by the European elites.

"Next Sunday the Greek people will be able to vote to reject the blackmail that is austerity and vote for dignity – with hope for another Europe. This historic moment requires everyone in Europe to speak up and take a stand.

"We all say NO to austerity, pension cuts, and VAT increases; We all say NO to poverty and privileges; We all say NO to blackmailing and to the dismantling of social rights; We all say NO to fear and the destruction of democracy.

"We all say YES to dignity, sovereignty, democracy, and solidarity with the citizens of Greece.

"This is not a conflict between Greece and Europe. It is about two antagonist visions of Europe: our Europe of solidarity and democracy, created from below and without closed borders; and their vision, which denies social justice, dismantles democracy, opposes the protection of the weakest and the taxation of the wealthy."

Basta -- Enough -- Another Europe is possible !

DrDick said in reply to Sandwichman...

He certainly nailed this one. The Troika are demanding that the Greek people protect the plutocrats (mostly foreign) for paying any price for their reckless and feckless action and democracy (and the "little people" be damned.

mulp said in reply to DrDick...

We should not have expected debt repayment from Mexico in 1994?

More important, all the debt of Puerto Rico should be forgiven and then we should give them all the money they ask for to keep the country afloat?

DrDick said in reply to mulp...

People who cannot pay their debts will not pay them. Everything else is a pipe dream. You cannot privilege capital over human welfare.

Peter K. said in reply to Sandwichman...

Agreed. The IMF research dept had been looking good. (And the IMF asked the Fed not to raise rates this year).

But their behavior regarding Greece is criminal.

anne said in reply to Paine ...

http://time.com/3939621/stiglitz-greece/?xid=tcoshare

If the Greek economy collapses without the euro, "you have on the edge of Europe a failed state," Stiglitz says. "That's when the geopolitics become very ugly."

By providing financial aid, Russia and China would then be able to undermine Greece's allegiance to the E.U. and its foreign policy decisions, creating what Stiglitz calls "an enemy within."

[ This is xenophobic rubbish, showing a mean-spirited and wrong-headed disdain for China and Russia. ]

anne said in reply to anne...

http://www.theguardian.com/world/2015/jun/29/alexis-tsipras-must-be-stopped-the-underlying-message-of-europes-leaders

June 29, 2015

Alexis Tsipras must be stopped: the underlying message of Europe's leaders. Germany's vice-chancellor has become the first senior EU politician to voice the private views of many - that the Greek PM is a threat to the European order
By Ian Traynor - Guardian

Sandwichman said in reply to anne...

Except that Tsipras is only a symbol of what must be stopped. What must be stopped is democratic interference in the affairs of finance capital. What do "the people" know about such important matters? Besides, they might favor their own interests over those of the system (meaning those of the oligarchs).

mulp said in reply to Sandwichman...

You are saying "yes, the Greece and Puerto Rico can drain my retirement savings because Stiglitz says its democratic"?

I speak as someone who had lots of savings in BofA which bought the bank that bought my local bank listening to people calling for BofA to be liquidated and all the debt it held written off.

Jeffrey Stewart said...

It never ceases to amaze the number of human lives must be destroyed through unemployment and poverty due to "austerity" so that financial capitalists are repaid in full.

JohnH said in reply to Jeffrey Stewart...

It's how they keep the rest of the world under their thumbs...

Ellis said...

For finance capital, the stakes in Greece are high. They must make the Greeks pay a very high price for defiance. If not, Spain, Portugal, etc. will try the same thing.

What good is the "will of the people" and democracy when it goes up against the banks?

Sandwichman said in reply to Ellis...

"For finance capital, the stakes in Greece are high."

Yes, the stakes are high for finance capital. The choice is between euthanasia of the rentier and suicide-bomber-style financial terrorism. Finance capital opts for the latter.

We should all be clear on what the choices are and why finance capital chooses the reckless strategy it does. Finance capital CANNOT win this fight to the death. There is no win-win compromise that will enable the continuation of business-as-usual to be sustainable.

'Tis the final conflict. Greece is only an episode but there will be episode after episode based on the same scenario. The "wages-rut system" no longer has the "beautiful" capacity of ensuring the continued accumulation of capital merely through an imbalance in the economic power of labor and capital.

Sandwichman said in reply to Sandwichman...

Finance capital now MUST take untenable speculative risks. The state now MUST bail out finance capital when their bubbles burst. The international institutions now MUST enforce draconian austerity to pay for the bailouts.

...because otherwise there wouldn't be enough value produced for the finance sector to appropriate and accumulate.

This is the END GAME a perpetual smash-and-grab operation by the plutocrats.

Glen said in reply to Ellis...

It's well understood in modern economics that when banks and ultra rich speculators make horrible investments that wreck the world economy, then the innocent must pay. That whole capitalism risk/reward thing is so passe.

Ellis said in reply to Glen...

What's behind the debt? In 2004, the government paid through the nose to host the Summer Olympics. The Greek military sucks up 3 or 4 per cent of GDP buying expensive weapons and ammo from the U.S. Germany and France. When Greece entered the EU, it employed the services of Goldman Sachs to hide their debt -- paying a pretty penny for their services. And when the crisis hit in 2008, the fear that Greece might default boosted interest rates for the Greek government to usurious levels. In other words, it's pillage pure and simple.

And now, the IMF figures that the best way forward is to starve the population even more.

[Jun 30, 2015]Joseph Stiglitz: how I would vote in the Greek referendum

"...Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country."
.
"...So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?"
.
"... Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't."
.
"...Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy. If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.
It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price."
.
"...Tsipras called them "criminals". I guess it is more close to the truth."
.
"...Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution."

Jun 30, 2015 | The Guardian

colin2d -> colin2d 30 Jun 2015 10:10

The big problem right now in Greece is lack of liquidity to operate the economy. There simply is not enough money in circulation.

If newly issued Greek euros are not traded on international markets and they are legal tender in Greece and the Greek government accepts them as tax payments, there is no market value. You have an assigned value, like in other controlled systems. So you can have a high velocity of circulation as people spend them quickly, but no problem of devaluation - unless the Greek government would issue Greek euros to total excess.

Suppose you are a shopkeeper in Greece and your pensioner customers pay you in Greek euros. And suppose, the Greek law says you can pay your suppliers in Greek euros and the supplier can pay his taxes in Greek euros. In that case, the Greek government will need capital controls to ration the supplier's euros to buy imports. But that's likely to stimulate local production and be a plus for the Greek economy.

Local fiat currencies do work.

It is a rather different and probably not very acceptable example, but the Cuban 'CUC', is not backed at 1:1 against the US dollar in an open market. Its value is the fiat of the Cuban government. No open market trading means no devaluation by market forces.

Trumbledon 30 Jun 2015 10:03

We never had an advanced economy actually asking for that kind of thing, delayed payment

They still haven't - Greece is no more an advanced economy than a person who buys a houseful of luxury items using credit cards is a wealthy person.
Greece has virtually no industry worth mentioning and virtually no agriculture; the Greek economy is almost entirely reliant on tourism.
Greece has a smaller GDP than Thailand or Argentina, Greece's economy is roughly half the size of Vietnam's. How on earth can Greece be considered an 'Advanced economy'? That's claptrap.

mikeyk1 Omniscience 30 Jun 2015 10:03

Actually 90% of the money went off to pay the private creditors (French and German banks who had invested in Greece). Only 10% amount of the loan ever went into the Greek economy but that was more than balanced by the the damage that austerity politics did to the country.

Adam Fo 30 Jun 2015 09:57

It's probably worth adding here that Argentina did pay off it's IMF loans in full as well as the modest amount of interest charged. One of the reasons they could do that is they are a more resource based economy than Greece. Increasing commodity prices during that period helped them.
Like Greece holders of Governments bonds saw massive haircuts. 50% (100 billion euro) in the case of Greece in 2012.

Thalia01 ThinBanker 30 Jun 2015 09:55

Only because the banks were too big to fail and therefore letting them crash would have crashed the entire economy.
If you ignore that, in theory holding the banks responsible for the crisis they created and making them insolvent instead of using QE to bail them out could theoretically have been something that held the right people to blame, and didn't punish ordinary people with austerity.
It's pretty smart of the banks as they got themselves into a position where, when they screw up, other people have to pay the price.

Hottentot 30 Jun 2015 09:40

Sorry, but the Guardian can't compare Argentina, Zimbabwe, Somalia and Sudan, to Greece, as none of them were / are in the Euro. Lagarde, is getting smacked and rightly so; she, Merkel et al, all thought they could dictate to and bully Greece, and Greece would roll over, well it hasn't. It's about time others started telling the IMF (interesting that it's referred to as the Washington-based organisation) and the EU who are all about 'protecting' their interests, to sod off.

So the IMF and the Eurozone have in effect been playing debt collectors for French and German banks, and have attempted to bestow the costs on Greece. Is there any way that could possibly ever have worked?

bonkthebonk -> Adam Fo 30 Jun 2015 09:50

True, but how many of them are in a flawed currency union that actively contributed to their demise, saw their mainly foreign reckless, speculative lenders' liabilities socialised and how many of these poorer countries have been lent ever more money just to service the their debts and nothing more?

CaptainGrey -> colin2d 30 Jun 2015 09:26

Calling it a Greek Euro as opposed to a new Drachma won't make any difference. It will crash overnight. Greece has no reserves to prop it up.

optimist99 30 Jun 2015 09:24

The Greeks need to look hard at Argentina - once one of the richest countries in the world....

"By 1908 it had surpassed Denmark, Canada and The Netherlands to reach 7th place-behind Switzerland, New Zealand, Australia, the United States, the United Kingdom and Belgium. Argentina's per capita income was 70% higher than Italy's, 90% higher than Spain's, 180% higher than Japan's and 400% higher than Brazil's". (Bolt & Van Zanden 2013)

Now it is number 55....

(At the moment Greece is at 44 - similar to Portugal).

CaptainGrey -> EricthePenguin 30 Jun 2015 09:24

Mexico didn't default, it devalued. Completely different. As I note above/below (depending on your settings)

Argentina was shut out for a decade, but was able to get through it thanks to it's vast natural reserves of mining, farming and forestry, plus strict financial discipline. Greece has none of those things.

Default could be a disaster for a generation of more.

Actually, nobody knows for certain how bad a default will be. But it will not be a walk in the park

ThinBanker -> Gelion 30 Jun 2015 09:24

"But of course that's not debt, that's just a way of lowering currency values to keep your exports competitive and put your citizens into Austerity"
Huh? Without QE, 'austerity' would have been all the greater ...

PeterHG 30 Jun 2015 08:50

It seems inconceivable to me that Greece will leave the Euro. The loss of face to the Brussels European Union bureaucracy would be too great for them to bear . Such a happening is beyond their imagination so they will find some means to keep Greece in. The Greek politicians sense this and that knowledge dictates their actions.

ApfelD -> Johanes 30 Jun 2015 09:13

Tsipras called them "criminals". I guess it is more close to the truth.

optimist99 -> sandywinder 30 Jun 2015 09:15

"is that borrowing and spending too much will always get you in the end. In case people have forgotten, the UK has a £1.5 trillion national debt."

But the folk who lend money to the UK are perfectly happy to continue to do this... So it's not "borrowing and spending too much" in the UK... (HMG can borrow money over 30 years at less than 3% interest...).

kentspur 30 Jun 2015 08:36

It's a default.
This semantic dancing on a pinhead just shows the absurdity of the situation. Greece cannot pay, but no one can say that as it undermines the whole financial system, which is based on confidence. We can't 'write off Greek debt' (as Jeremy Corbyn helpfully suggests) as no indebted countries would feel the need to pay off debts again - they'd just wait for the 'Greece' solution.

[Jun 30, 2015]Cramer Danger alert-dont buy on the market dip

Beth

The economic recovery of so many countries, especially the U.S. has been fueled by cheap money. Many countries do not have actual assets to support or backup that huge amount of paper. That is why you get problems like Greece, Puerto Rico, etc. These situations were caused by both the creditor and the debtor.

B.O. Stinks

The economy won't recover until the voters decide to put some politicians in office who represent the voters. Right now there's not a one of them that listen to the constituents.
It's all about the super pac campaign contributions and lobbyist pumping up the politicians pockets.

John

Cramer is right on this one this time.
1. Who knows how much of that Greek debt has been pledged as collateral for derivatives trades?
2. Contagion could happen. The total debt of Greece, around $350 billion, isn't that big relative to a lot of other countries or the market capitalization of many world markets, but that isn't the whole story here.
3. Cramer warned about the banks on July 29, 2007 in his now-famous "they know nothing rant." You may think the guy is a tout and pumper, but I would give his words some heed since he proved correct on that significant call.
4. More damage to come? We, the public, don't know all the stuff that is going on under the radar about this general bank default. There could easily be more damage to come.
5. Signaling from top authorities. Christine Lagarde, IMF head, publicly asked the Fed on June 4 not to raise rates until 2016. It's now clear she was signaling rough waters ahead for banking. Ordinarily the heads of major world finance organizations don't engage in such public statements. She could just pick up the phone and call Janet Yellen. Why did she make the public speech? I suggest signaling. We all just witnessed it live on TV.
6. Q2 earnings releases will buoy up the market soon but weaker outlooks in Europe for Q3 and Q4 will drag down earnings projections for US multi nationals. That will serve as a drag on share prices.

7. Unless you're prepared to use inverse ETFs, put options on futures, or more complex options strategies, I would consider keeping some powder dry (i.e. cash). The SP500 was at 1862 on October 14, 2014, only 8 1/2 months ago and could easily retrace most of the current gains back to that level of major support.

jim b

Cramer is a shill for hedge funds and banksters, obviously a few will try and day trade this but think about it, 2007 Dow 7000 today Dow 17000 you know the money will disappear and a 4000 point correction will be an evening out and then interest rates will rise and the market will be on tailspin then flat for 3 years until the next president starts to borrow more money from the fed and the charade will try to start again .

Bat

Summer often sees corrections and while 2% is not a correction it may be the start. The market is overvalued and while it can stay that way for years on occasion it corrects to fairer valuations.

Fish

Japan and US can take heed of Greece. Bailing out Japan and US will be impossible.

James

Keep in mind that Cramer, by virtue of having his own show, is a safety-minded entertainer. The stock market is an overpriced casino and none of the negatives have changed in the last fifteen years. If you feel lucky, go for it. Remember: winners know when to walk away.

James

Cramer is so full of it, just look at what he said about Greece before. They are no impact for us or Europe, it only 2% of Europe, which accounts for only 3/4% for us. He is trying to get a quick trade to the downside to make his options pay off big time, Allegedly.

GJ

"It is important to note that this list of warning signs does not mean that the U.S. is headed into another Lehman Brothers situation. That was systematic"
huh! you mean "systemic' right, Cramer?

Todd

Cramer taught us you always buy the dip! The Federal Reserve is always going to be there! The ECB, the IMF, the JCB are printing money like mad and you always buy the dip!! Don't worry, buy the dip! Buy the dip! All the expert money managers on CNBC buy the DIP!!

Masterblaster 1 hour ago

You should all see the You Tube video of Cramer explaining how they manipulated the market. Priceless. In short He/they would run the futures up and then sell all day. He said it was very satisfying to say the least.

Ed

How about don't buy Cramer. That would be smarter!

[Jun 29, 2015] Top Private Equity Reporter CalPERS is Either Lying or Has a Massive Breakdown in Financial Controls

Jun 29, 2015 | naked capitalism
Tom Stone June 29, 2015 at 7:12 am

These are not mutually exclusive categories, dishonesty and incompetence are frequent companions.

Demeter June 29, 2015 at 7:44 am

plus, it's California. What more does one expect?

Rhondda June 29, 2015 at 7:37 am

"The general partners have managed to convince even powerful investors like CalPERS that they must play nicely with the general partners or they'll be late on the list to be solicited for investment, which in theory could mean they'd miss being in a hot fund (in practice, this theory is absurd since private equity fund outperformance does not persist)."

To my eyes it seems that "play nicely" really just means looks the other way while we skim off your participants' money.

diptherio June 29, 2015 at 8:48 am

Can't you be sued for dereliction of fiduciary duty? Can't someone be held personally accountable for being so willfully stupid? Most of the CalPERS board, for instance, seems liable…

flora June 29, 2015 at 9:15 am

If Yves earlier case is any indication, the CA courts seem CalPERS friendly. So a suit by pensioners would have an extra hill to climb. my opinion. But, yes, this situation does call for remedial action.

Sluggeaux June 29, 2015 at 11:47 am

The California Judicial Retirement System, JRS, is wholly administered by CalPERS. The state judiciary has a powerful incentive to keep CalPERS solvent, and I can assure you that the scores of California judges with whom I am personally acquainted are very aware of where their retirement contributions are going.

TheCatSaid June 29, 2015 at 9:39 am

Yves, the quote from Phalippou in the endnote seems very important. I don't have enough familiarity to understand what the impact would be of the various scenarios he mentions.

Please consider posting a table with worked out simple examples for the sample scenarios, showing how the different fine-print calculation methods impact fees and/or the billed cost & return paid out to investors such as CalPERS. (And also a table showing how the various calculation methods might impact the financials of the PE firm. So we can understand what terms are in their best interest.)

Without understanding the implications of the various fee methods, it's hard to ask questions or read a contract with sharp enough eyes to spot crucial terminology and understand what is or isn't in a pensioner's or investor's best interest.

Such a table could be of immeasurable value to NC readers, allowing people to ask smarter questions and apply pressure more effectively on PE firms, pension fund board members, etc.

Sluggeaux June 29, 2015 at 10:01 am

I just love the phrase so often used here at NC: "It's a feature, not a bug."

I've been a CalPERS contributor for over 30 years, and hope to become an annuitant in a couple of years hence. I also have colleagues who have left government employment to work with firms that place or invest CalPERS money. A dozen years ago I came to the realization that campaign contributions from placement agents and PE firms to the various Governors, Senators, and Assembly-members is the grease that lubricates the wheels at CalPERS. Staff have no intention of answering JJ Jelincic's questions - obscuring the over-paying of fees is how the graft works here in California. Investments always just happen to go to the "friends" of those in political power in Sacramento.

Unfortunately, in the Age of ZIRP there is no more "slop" left in the system like there was during the various bubbles blown by Wall Street's looting of the economy over the past 40 years. Historic rates of return can no longer be realized. I just hope that I can draw my pension for a while before graft gets turned off and those politicians who have been living off of the corruption turn into looters themselves.

[Jun 29, 2015] Greek Tale(s)

"...From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. "
.
"...The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions."
.
"...Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece."
.
"...... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one."

June 27, 2015 | Angry Bear

by Joseph Joyce

No matter what new twist the Greek debt crisis takes, there can be no question that it has been a catastrophe for that country and for the entire Eurozone. The Greek economy contracted by over a quarter during the period of 2007 to 2013, the largest decline of any advanced economy since 1950. The Greek unemployment rate last year was 26.5%, and its youth unemployment rate of 52.4% was matched only by Spain's. But who is responsible for these conditions depends very much on which perspective you take.

From a macroeconomic viewpoint, the Greek saga is one of austere budget polices imposed on the Greek government by the "troika" of the International Monetary Fund, the European Commission and the European Central Bank in an attempt to collect payment on the government's debt. The first program, enacted in 2010 in response to Greece's escalating budget deficits, called for fiscal consolidation to be achieved through cuts in government spending and higher taxes. The improvement in the primary budget position (which excludes interest payments) between 2010-11 was 8% of GDP, above its target. But real GDP, which was expected to drop between 2009 and 2012 by 5.5%, actually declined by 17%. The debt/GDP level, which was supposed to fall to about 155% by 2013, actually rose to 170% because of the severity of the contraction in output. The IMF subsequently published a report criticizing its participation in the 2010 program, including overly optimistic macroeconomic assumptions.

To address the continuing rise in the debt ratio, a new adjustment program was inaugurated in 2012, which included a writedown of Greek debt by 75%. Further cuts in public spending were to be made, as well as improvements in tax collection. But economic conditions continued to deteriorate, which hindered the country's ability to meet the fiscal goals. The Greek economy began to expand in 2014, and registered growth for the year of 0.8%. The public's disenchantment with the country's economic and political status, however, turned it against the usual ruling parties. The left-wing Syriza party took the lead position in the parliamentary elections held this past January, and the new Prime Minister, Alexis Tsipras, pledged to undo the policies of the troika. He and Finance Minister Yanis Varoufakis have been negotiating with the IMF, the ECB and the other member governments of the Eurozone in an attempt to obtain more debt reduction in return for implementing new adjustment measures.

The macroeconomic record, therefore, seems to support the position of those who view the Greek situation as one of imposed austerity to force payment of debt incurred in the past. But because of the continuing declines in GDP, the improvement in the debt/GDP ratio has remained an elusive (if not unattainable) goal. (For detailed comments on the impact of the macroeconomic policies undertaken in the 2010 and 2012 programs see Krugman here and Wren-Lewis here.) Another perspective, however, brings an additional dimension to the analysis. From a public finance point of view, the successive Greek governments have been unable and/or unwilling to deal with budget positions-and in particular expenditures through the pension system-that are unsustainable.

Pension expenditures as a proportion of GDP have been relatively high when compared to other European countries, and under the pre-2010 system were projected to reach almost 25% of GDP by 2050. Workers were able to receive full benefits after 35 years of contributions, rather than 40 as in most other countries. Those in "strenuous occupations," which were broadly defined, could retire after 25 years with full benefits. The amount that a retiree received was based on the last year of salary rather than career earnings, and there were extra monthly payments at Christmas and Easter. The administration of the system, split among over 100 agencies, was a bureaucratic nightmare.

Much of this has been changed. The minimum retirement age has been raised, the number of years needed for full benefits is now 40, and the calculation of benefits changed so as to be less generous. But some fear that the changes have not been sufficient, particularly if older workers are "sheltered" from the changes.

Moreover, government pensions are important to a wide number of people. The old-age dependency ratio is around 30%, one of the highest in Europe. The contraction in the Greek economy means that the pension is sometimes the sole income payment received by a family. It is hardly surprising, therefore, that the pension system is seen as a "red line" which can not be crossed any further in Greece.

The challenge, therefore, is for the government to establish its finances on a sound footing without further damaging the fragile economy. This will call for some compromises on both sides.

... if the European governments insist that Greece must also pay back all its outstanding debt, then there is only one possible ending for this saga, and it will not be a happy one.

cross posted with Capital Ebbs and Flows

[Jun 29, 2015] Capped

Jesse's Café Américain

With the VIX soaring and the US equity markets seeing their first 2% correction in many moons, the capping on the precious metals was determined and obvious.
So much for 'Greek capitulation.'
I think Syriza realized they were being presented an untenable solution, the 'generous offer' of extend and pretend by Merkel and the Eurocrats, with the IMF playing heavy. This bailing out of private creditors while extracting a pound of flesh from the Greek people, facilitated by corporate friendly governments, was exactly how Greece came into this situation in the first place.
I thought forcing of a bank closure on Greece by the EU was a bit tough, and probably senseless. Showing them the lash to get them to fall to heel and all that.
Most economic commentators in the US are completely clueless about money these days, and global economics as well.
More surprises will therefore be coming I am sure.

US equity markets had about a two percent correction, with the SP 500 testing its 200 DMA.

Forget the domestic economic news, it was all geopoliticals and mostly about Greece.

The markets do not like the uncertainty of what will happen in Greece, as well as Puerto Rico and the Ukraine, not to mention the wavering financial assets bubble in China.

I am treading slowly through the commentary and news about Greece. The least helpful are those who are mostly projecting their egos or some ideology.

This is primarily a political problem. Greece has a left wing government that the Western powers find unattractive compared to the puppet governments which have facilitated the bailing out of Greek's private creditors while sustaining an unsustainable economic situation.

I am puzzled by Jeffrey Sachs who suggest that Greek default on their debt, but remain in the Eurozone. I am not quite sure how they might do that, and while Jeff says their is no mechanism to actually kick them out it does seem a bit too cute. The EU does not have a mechanism for forgiving one member's debts ...

[Jun 29, 2015]European Leaders Insist Greek Deal Is Still Possible

The neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.
.
"...Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later."
.
"...Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!" What a rotten, selfish, greedy, antisocial game."
.
"...The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?"

Jun 29, 2015 | NYT

Jerry Harris, Chicago

European bankers can't stand the idea of a democratic vote on economic problems that impact millions of people. Neo-liberalism is a zombie economic policy, alive long after it should be dead. How much more suffering must the Greek people endure before anti-austerity policies are accepted as the only way out of the crisis?

Todge, seattle 36 minutes ago

When Merkel and Juncker say "compromise", it means " do what we tell you" . Tsipras recognizes that the creditor nations have a double standard and is calling it.

The EU leaders are not happy. Unclear why. It's only Greek pensioners who'll have to eke out a misery on $250 a month.

Sherry Jones, Washington 4 minutes ago

Far too little attention has been paid to the darkest cloud on the horizon, the rise of right-wing extremism in Europe. As a result of austerity measures forced on Greek workers, such as reducing the standard minimum wage of $750 by 22 percent, people are increasingly, and quite rightly, bitter and angry. Punishing the working class and ignoring its 25 percent unemployment rate energizes destructive political forces in Greece such as the Golden Dawn party, which channels working class rage into rage against the "other", such as minority citizens and immigrants. This is a particularly bad time for anti-immigrant sentiment to take hold. It is worrisome to watch European leaders in this debt crisis fueling such nationalist and racist extremism.

Tommy, yoopee, michigan

It's unfortunate that the European Union will dissolve simply because European oligarchs refuse to pay higher taxes. This type of sickness that has occurred in the U.S. has apparently spread overseas.
Sad to say, but even the rich are so blind to know that they won't have a pot to urinate in if the earth is burning up and the people are in revolt. Austerity worked in this country, meaning it worked to keep America in a prolonged depression after they first tried it in 1937. Will we ever learn? If history is a guide, the quick answer is 'no'.

george, coastline

Last week the Troika insisted that Greece further cut pension benefits and not raise taxes, If Syriza had agreed to that, they would have been discredited by their own electorate. One wonders if that wasn't the real goal of Europe's leaders- to send a message to the Spanish who vote in November and can express their opinion of austerity by giving power to Podemos.

Now they're shocked and petrified that the Greeks will vote on their own destiny and say they are willing to compromise. But in the end, the neo-liberals running Europe have too much to lose by giving the Greeks a break -- especially the 'socialists' who have acquiesced in the suffering of their traditional supporters since the economic crisis began in 2007.

condo, France

I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

Jason, DC 6 minutes ago

""Europe cannot give permanent financial aid with no conditions," he said."
But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

condo, France

I'm afraid today's slump in the markets has cost much much more than the money expected from Greece. Ideology has overcome economics in this instance, but pointing the finger at Ms. Merkel is not fair: the worst seem to be the visionless technocrats of the Eurogroup, not mentioning the IMF

Jason, DC

""Europe cannot give permanent financial aid with no conditions," he said."
But, they aren't asking for that. They are asking for a specific amount of aid with different conditions than what you want.

Bill Appledorf, is a trusted commenter British Columbia

Austerity is precisely the opposite of policies required to revitalize a depressed economy. But it is exactly what a predatory financial cabal uses to squeeze the lifeblood out of victims it manages to snare with its promises of money now, pay later.

American homeowners suckered with teasers to purchase balloon mortgages that cost them their homes; college students roped into lifelong indebtedness with student loans issued by financial institutions that never in a million years would pay their fair share of taxes to fund free public education; third world countries driven to financial ruin by the tried-and-true strategy being employed in Greece: transnational PayDay loans on which interest payments are only made possible by rolling them over in perpetuity and loaning just enough to pay that interest every time another tranche is issued.

Sharpies in expensive suits take three-martini lunches at the expense of millions of people ensnared in their delightful little game and suffering to fund their luxuries for them. Debt is such a wonderful product. The gift that keeps on giving. You can even blame your victims by waging a moralistic finger at them: "You never should have borrowed the money in the first place!"
What a rotten, selfish, greedy, antisocial game.

dolly patterson, silicon valley

I really don't understand what the big deal is about keeping Greece in the Eurozone...their economy only makes up 2%. They can still stay in the EU along with 9 other countries who don't trade the euro dollar.
If the EZ gives in to Greece, it set a precedence for others like Italy and Spain, etc., to not have to pay their dues.

Jason, DC

"If the EZ gives in to Greece..."
Exactly...all those countries should be conquered, not treated like they were part of an equal union.

Matthew, Auckland

At least Merkel gets that berating/telling the Greek people what to vote in their own referendum proooobably won't help. The rich, angry technocrats doing the berating? Er, not so much.

tony silver, Kopenhagen

The Capitalist West lent billions of Dollars, for Greece to realize its Olympic Games, knowing that it was a risk, as Greece is one of the poorest country in EU.
Now they demand their money back? Seems unrealistic.
If Greece has no more money to pay its obligations, then someone should have transferred it to foreign banks. Money cannot evaporate like smoke.
Billions of Dollars were driven by European and American money-men and invested in their banks.

David, Sacramento

Money can evaporate. Recall the Great Depression where stock prices plummeted between 1930 and 1932. That's when people jumped out of high-rise buildings, not 1929-1930.

change, new york, ny 39 minutes ago

Are we that careless and gullible? Greece does not have the money to pay today or at the end of the year. Kicking the can down the road is only for political reasons. Economically nothing will change.
The Europeans are looking for something to stem the fallout, something they themselves created. The best for the Eurozone is for Greece to quietly exit from the group. The fallout will be less damaging for all if the Europeans are willing to make a simple but hard choice.
That Greece will exit, should not be seen as a failure on the part of the Group. That is exactly what they are making this crisis to be.

anon,

Heather, a civil war would add MORE problems! Who wants more problems?
I'm surprised no one has in-depth investigated a population of 11M people has over 350B euro debt in its euro lifespan. I believe savvier crooks have left them with their debts also.
If Cyprus was offshore Asset banking, Greece appears to be offshore Debt banking. Not fair for 11M people to live like they abused the EMU by the decisions of a few. What is the history of Greek financials? Were they solvent before entering the Euro?

What if crooks got Greece into the Euro, performed numerous financial crimes, used Greece, robbed Greece, deposited the money into Cyprus and crooked banks of Greece and Cyprus. In recent years Europe has confiscated illegal money and closed illegal banks. Greek bankers and businessmen look crooked also. So they play the part, while others ran off with over 300B euros.

If you were to balance the funds, where did the 350B euros go? Each Greek should be a rich on the average. Only the average citizen suffers. THIS is a recurring pattern.

KeithNJ, NJ

Greek banks did not 'overlend'. The excessive lending to the Greek government was by non-Greek banks (perhaps the Greek banks knew better?).
The Greek government used the money to double state worker's salaries over less than ten years and greatly expand the headcount. Some money was left over for benefits to the public.
The Greek people, not surprisingly, apparently see their State as hopelessly corrupt and avoid funding it if at all possible. Now, other Europeans have come to the same conclusion.
So the question was, and remains, what will the Greek people do about their State? That question does not go away regardless of whether they stick with the Euro or devalue with the Drachma. Either way the State cannot fund itself and has run our of people willing to plug the gap, whether Greek or non-Greek.

su, ny

As of today, If Greece leaves Eurozone, Greece some part of population will leave Greece permanently too. so Meanwhile EU incompetent bureaucrats couldn't even figure out how to deal with Mediterranean immigrants, now in their hand there is a legitimate prospective millions immigrant Greek people.
EU is showing it's inner workings and that say only one thing :INCOMPETENT.

su, ny

No body in the world can say that 500 billion USD credit is given with under normal banking and financial procedures to 10,815.000 population country.
That is not right.
EU cannot wash its hands, this is entirely Greek's problem, EU and it's lenders are in this game and they did this to Greece knowingly and intentionally and now they are trying to capitulate a nation in pretext of World War one time Europe mentality.
This is a very nasty game and power play, nothing else.
German's bankers and Greek politicians collaborative work nothing else.
P.S: some credit in this scheme also goes to Goldman Sachs.

Carlos, Long Island, NY

Tsipras responded to their 'take it or else' ultimatum with a referendum; what's wrong with it? What are the EU leaders afraid off? I would said that after 5 years of austerity that only shrunk their economy, Greek people have a good reason to say no more.

They will go into a very bad couple of years but even that is better than eternal austerity with no economic growth. After the economy stabilizes, they will start growing and will do better. Just look what happened in Argentina.

Simon, Tampa

The Greeks need to call it a day and reject the Trioka's blackmail.

Jon Davis, NM

The Greeks need to exit the euro, align themselves economically with Russia, and lead NATO but remain neutral. Let the rest of Europe worry about Ukraine, ISIS and the flood of immigrants into southern Europe via Spain and Italy.

NYCLAW, Flushing, New York

Tsipras just called Merkel's bluff. By closing the Greek banks and stock exchange, Tsipras is signaling that he is willing to take great risk to get a deal that he and his voters can live with. Merkel, on the other hand, maybe was assuming that the Greeks would never risk an EU membership and accept further cuts.
Caveat to Merkel: the Chinese have a old saying: "Those wear shoes are better off not stepping on the barefooted ones." Watch out, Ms. Merkel, the Greeks may have been pushed to a point that they have nothing to lose.

Peter Czipott, is a trusted commenter San Diego

It seems that Krugman, in his op-ed today, must be right: it's not about analysis but about power. Analysis of the problem would yield a solution that, while not ideal, minimizes losses for all parties involved -- or, equivalently, maximizes the ultimate payout to creditors over time. That alternative dictates setting up a situation facilitating the eventual regrowth of the Greek economy, to the point where it can (a) provide for its own citizens' well-being, and (b) repay as much as possible of its outside debts.

Instead, Merkel and company, ostensibly representing the interests of their citizens, lay down terms that, as Krugman says, lead to endless Greek austerity and a depression of unforeseeable duration, which also harms the interests of the very citizens Merkel is presuming to protect.

And all for what? To assert the moral upper hand? It's counterproductive to the point of craziness; and Merkel, as a physicist and problem-solver, used to dealing with quantitative data, should know better: perhaps better than some of her economic advisers.

Michael Collins, Oakland

Greece will never be able to pay it's debt with an unemployment rate of 25%. Young Greeks are leaving in droves to find opportunity elsewhere. While it's true that Greek still needs to implement some economic reforms, like cutting down on tax evasion and cutting back on pensions, it's also clear that purpose of austerity is punishment without regard to viability.
Austerity will be the end of the Greek Economy, so why not exit?
If the Europeans are serious about keeping Greece (and Spain, and Portugal) in the EU, they need to temper Austerity with a serious plan to raise employment and give the younger generation a reason to stay in their home country.

John M, is a trusted commenter Oakland, CA

Indeed - Greece has suffered through a full-on depression for 5 years, and all the Troika said in response was "more of the same." To my mind, the whole purpose of this exercise is to force massive social safety net cuts and privatization not only upon Greece, but upon all of Europe - including Germany.
This is not merely a European perspective - look at the way pensioners were treated in Detroit, and how the Governor of Illinois proposes to treat Chicago city workers' pensions: bankruptcy, and then massive pension cuts. The theory seems to be that competing with Third World workers requires the 99% to accept Third World salaries and conditions... how else can the 0.1% keep their multi-billion dollar lifestyles?

Bob Dobbs, Santa Cruz, CA

In following a politically expedient course that utterly ruins a country considered "expendable," the European Community sowed the wind. And as you suggest, it may reap the whirlwind.
Europe's leaders are apparently no wiser or better than they were in 1919, when they imposed the same sort of austerity on -- Germany. Whose leaders also seem curiously blank on the matter.

[Jun 29, 2015] Shares slide as deepening Greek crisis shakes global markets

Jun 29, 2015 | The Guardian

The commission reiterated on Monday that the door remained open to a deal.
Jean-Claude Juncker, the European commission president, was expected on Monday to appeal to Greece to return to the negotiating table, but would not make any fresh proposals.

On Sunday, the commission took the unusual step of releasing the draft bailout agreement that creditors had been negotiating with Greece before talks broke down.

"We are some centimetres away from an agreement," tweeted Pierre Moscovici, France's European commissioner, adding that there was an open door to further talks. "We must find a compromise. I want a reformed Greece to stay in the eurozone without austerity."

A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions.
A bank manager explains the situation to pensioners waiting outside a branch of the National Bank of Greece hoping to get their pensions. Photograph: Yannis Behrakis/Reuters

Meanwhile, Angela Merkel will hold emergency talks with senior German politicians on Monday afternoon.

The German chancellor spoke to the US president, Barack Obama, on Sunday, with the two leaders agreeing it was "critically important to make every effort to return to a path that will allow Greece to resume reforms and growth within the eurozone", according to a White House statement.

The US Treasury secretary, Jack Lew, spoke to his counterparts in Germany and France, as well as Tsipras and the head of the IMF, Christine Lagarde. The US is urging all sides to resolve the crisis: it has called for Greece's creditors to discuss debt relief ahead of Sunday's referendum, but is also counselling Athens to adopt "difficult measures to reach a pragmatic compromise".

In a brief, televised address to the nation on Sunday night, Tsipras blamed the eurozone leaders. He did not say how long the banks would remain shut, nor did he give details of how much individuals and companies would be allowed to withdraw once they reopened.

In the early hours of Monday morning, Tsipras published a decree in the official government gazette setting out the capital controls to be imposed. The decree – entitled "Bank Holiday break" – was signed by Tsipras and the Greek president, Prokopis Pavlopoulos.

It said all banks would be kept shut until after the referendum on 5 July and that withdrawals from cash machines would be limited to €60 – about £40. Cash machines were not expected to reopen until later on Monday.

Foreign transfers out of Greece are prohibited, although online transactions between Greek bank accounts are to continue as normal. Tsipras insisted that pensions and wages would be unaffected by the controls.

Greece's finance ministry later announced that the strict ATM withdrawal limits would not apply to holders of credit or debit cards issued in foreign countries. This was viewed as a necessary move as tourists were spotted joining locals in front of ATMs on Sunday. Any similar restriction would hurt tourism, Greece's sole thriving industry, which accounts for at least a fifth of economic activity.

Tsipras said Saturday's move by the eurozone's finance chiefs to halt Greece's bailout programme was unprecedented. He called it "a denial of the Greek public's right to reach a democratic decision".

The commission said on Monday that Greece's capital controls were "necessary and proportionate", but free movement of capital would need to be be reinstated "as soon as possible in the interests of the Greek economy, the eurozone and the European Union's single market as a whole".

Tsipras added that the finance ministers' initiative had prompted the ECB to curb its assistance, forcing the government's hand. The Greek prime minister, who has always insisted the crisis can only be solved at the highest political levels, said he had once again appealed for an extension of the bailout until after the referendum, sending his proposal to the president of the European council, Donald Tusk, the leaders of the other 18 member states of the single currency, the commission and the ECB.

[Jun 29, 2015] Greece crisis: markets begin to tumble as investors flee

Jun 29, 2015 | The Guardian

Markets suffered across Asia on Monday as Greece shut down its banks for a week ahead of an increasingly likely debt default.

Oil prices declined and the euro edged down against the dollar, while Tokyo's Nikkei 225 index fell 2% to 20,283.98 points. The Shanghai Composite Index was off 0.4% at 4,178.56 despite China's surprise weekend interest rate cut.

Hong Kong's Hang Seng lost 1.7% to 29,192.67. Seoul's Kospi shed 1.6% to 2,057.52 and Sydney's S&P/ASX 200 was off 1.8% to 5,447.80. Market benchmarks in Taiwan, Singapore and New Zealand also fell sharply.

Turmoil in Asia had been widely expected after the failure of 11th-hour talks in Europe over the weekend raised the possibility of a Greek exit from the eurozone.

More than $35bn was wiped off the Australian stock market in the first hour of trading on Monday as investors braced for what could become a torrid week.

Earlier the euro dropped more than 3% to 133.80 yen, its lowest level for five weeks. The common currency fell as much as 1.9% to $1.0955, its lowest level in almost a month.

More on this topicGreek debt crisis: the key points of Athens bank controls

The US Treasury secretary, Jack Lew, stressed the need for Greece "to take necessary steps to maintain financial stability" ahead of the referendum.

He told the Greek prime minister, Alexis Tsipras, on Sunday that Athens and its creditors needed to continue working toward a resolution ahead of a Greek referendum on 5 July on the creditors' demands for austerity.

US stock futures dived 1.8%, hitting a three-month low, while US Treasuries futures price gained almost two points.

A cash-strapped Greece looks certain to miss its debt repayment on Tuesday as Greece's European partners shut the door on extending a credit lifeline after Greece's surprise move to hold a referendum on bailout terms.

robtal 29 Jun 2015 08:43

We can print all the money we want all over the world to save every banker, financial wizard, and insurance company . But one little country like Greece is the scape goat these financial criminals use to bring fear and control to the rest of the world. These are evil less than human monsters that run these world banks.

Paul Hawkins 29 Jun 2015 08:31

The World is being run by a group of financial gangsters such as the Rothschilds and 30 to 40 of the richest people in the world: Karen Hudes is a graduate of Yale Law School and she worked in the legal department of the World Bank for more than 20 years. In fact, when she was fired for blowing the whistle on corruption inside the World Bank, she held the position of Senior Counsel.

She was in a unique position to see exactly how the global elite rules the world, and the information that she is now revealing to the public is absolutely stunning. According to Hudes, the elite uses a very tight core of financial institutions and mega-corporations to dominate the planet.

Austerity is a lie as Countries use the Fiat monetary system and can produce money when they want, such as quantitative easing. It is the greed of the banks, that had to be bailed out across the world, that is causing the problem.

The sooner these greedy selfish power hungry bankers are brought to book the sooner the financial markets would recover.

Mark Foster Kenneth Stephen Besig 29 Jun 2015 08:17

A large part of Syriza wanted out of the Euro because they were sure the Troika would not compromise on it's insane 'reforms' which had already destroyed most of the economy. Debtors prison's were abolished years ago in the UK, primarily because creditors realized it meant they would never get any compensation for losses while debtors were in gaol. Yet by insisting on repayments on an odious debt, we effectively put the whole of Greece into a debtors prison, and insisted on all the wrong IMF/ECB reforms that have always failed to resurrect economies in the past. We are still caught up in the idiotic Washington consensus/Jeffrey Sachs/ Hernando de Sotos models of development.

In truth Greece should have left the failed euro project years ago. Iceland had the sense to get out of the Banks clutches, file bankruptcy and impose capital controls and start again. For the most part that as worked very well for them. Some will say Greece isn't Iceland, or nonsense like the Greeks are lazy (they work longer hours than the Germans), Greece has deep problems for sure and i'm not saying I'm confident Syriza have the program to fix them. But I'm 100% confident the demands of the Troika would only cripple them further.

Myrtle7 29 Jun 2015 08:14

Save Greece! A Kind Request to the EU Leaders and Creditors (Myrtle 7)

I am writing this because today we are hours before a bitter end, perhaps, for Greece and the beginning of problems for the EU.
A lot has been said about the Greeks living above their income for a long time or partying for a long time and these may have been true in many cases but the Greeks should not be punished now as they followed the example and attitude of some of their leaders. And, moreover, now, it is the poorer people, those with lower income, that are suffering, those that did not have the right "connections."

The referendum arranged by the government seems like a democratic move but in fact it will be a desperate choice as the Greek people are asked to choose between suicide by drowning and suicide by hanging.

If Greece goes into default it will be a catastrophe for the country; there is no currency to devalue. They have to re-create the drachma (it will take perhaps a year or more) which will be immediately devalued. How would these people, who are suffering already, cope? And if Greece defaults, I am not sure whether the Creditors will get their money within the next 50 years, anyway. Most seriously, the tense situation in the defaulted country, the low morale and possible disorder, would invite & unleash unforeseen dangers for Greece first, for other European countries later and the EU eventually; as we all know such situations can spread to the detriment of the people. Historic recurrence is here: the specifics and the actors change, but the result is similar. Moreover, it is common knowledge that there are forces, (they have their own agenda) which, wish, discuss in conferences, and even envision, the break up of the European Union, even as 'we speak'. If I am aware of this, I am sure the European leaders are aware too, for, as wise leaders, are conscious (or should be) of emerging situations long before they get out of hand. With around 6 million Muslims outside its northern borders, (excluding Turkish territories), Greece, will be an open, unprotected theatre for anyone who wants an easy passage to the west.

The Creditors are part of the leadership or the Hegemony of European Union as they form the powerful financial aspect of it; usually, leaders who push think they facilitate progress; in fact they are blocking it. Yet, there are certain characteristics that wise leaders have and magnanimity is the most important one. They do not expect a poor, proud nation to fall on their knees. They would always offer opportunities for relief and growth. Lawrence Summers, US Treasury Secretary, suggested something which sounds as a good solution: the Creditors can write off a small amount of the debt now and perhaps ask for something that Greece, could, comfortably, add to their plan that would help growth; e. g. taxing certain accounts many Greeks keep in Swiss banks. Such a move by the Creditors would be wise, intelligent and humane.

With this magnanimous act the Greeks would feel uplifted and stronger to face the odds. In my view, the most important attitude of the Leader is to make people feel they mean something within the group, but I may be wrong.

John Kakkos DazzlingKarina 29 Jun 2015 07:04

Lazy Greeks is a very racisti thing to say, espesially since Greeks work-hours exceed that of oher EU countries (including Germany). War reparations agreement was not accepted. Since in 1942, the Greek Central Bank was forced by the occupying Nazi regime to loan 476 million Reichsmarks at 0% interest to Nazi Germany. In 1960, Greece accepted 115 million Marks as compensation for Nazi crimes. Nevertheless, past Greek governments have insisted that this was only a down-payment, not complete reparations. The 300 bn were not given to Greeks but to banks. 30% of Greeks are iving below the povery line. Unemployment is 26% (60% to young) and 16% cant even provide daily food needs. EU is not to blame, nor it is Greece. This financial system is just not working.

Aboutface 29 Jun 2015 06:47

There are "invisible hands" weaving the thread of EU-Euro through the IMF needle in this Greek tradegy. One of the comment here by Steven Tracy on the Rothschilds and Rockerfeller seems about right...a force majeure / fire sale of prime assets and not to dismiss, there are very wealthy Greeks with offshore accounts, like vultures over a soon to be cadaver. Next move, the "Alexis Tsipras surprise" call option.

pauline7883 29 Jun 2015 06:40

the greek people have the right to this referendum they have to decide if the deal is acceptable whether they can cope with the continuing austerity. the financial institutions of europe have acted disgracefully
the greek government should begin an audit of the books looking at the loans/debts owed by greece to see if there was any illegality and prosecutions should follow

SEADADDY 29 Jun 2015 06:35

So, as Greece slips into the financial abyss, it's the common man/woman that gets the pain, the punishment and the price tag of bankers ineptitude, greed and Houdini escapism. The bankers, corporate investors and politicians get away with grand gambling and larceny of incredible scale, without so much as a slap on the wrist. It wasn't the small man in Greece that caused the crisis. It was the Niarchos's and the Onassis's & etc that caused the downfall, with getting away with not paying their fair taxes, flags of convenience, double dealing and tax havens world wide. It's high time that some government agency woke up and
NorthernFella,29 Jun 2015 06:00

They weren't ready to join the EU...

I would say, weren't ready to join the euro. Interesting that you don't mention anything about the role of Goldman Sachs in this big scam.

"Humiliation" - what idiocy.

If accusing all the Greek of the ongoing (bank)crisis, using austerity (cuts directed to the disadvantaged groups mostly) as a medicine and calling them lazy is not humiliating I don't know what is.

And the idea that they were being 'starved by austerity' is ridiculous. They were starved by their corrupt practices.

Let's take measures of that how much the neoliberalist austerity policy has affected those in the most vulnerable position and let's compare it to the times before austerity. Sure the situation has been bad for a long time before the crisis but austerity brought real hell.

Luckyspin marcus_rm 29 Jun 2015 05:34

The Greeks accuse the IMF of colluding in an EMU-imposed austerity regime that breaches the Fund's own rules and is in open contradiction with five years of analysis by its own excellent research department and chief economist, Olivier Blanchard.

Objectively, it is acting as an imperialist lackey. The IMF enforced brute liquidation without compensating stimulus or relief. It claimed that its policies would lead to a 2.6 % contraction of GDP in 2010 followed by brisk recovery.

What in fact happened was six years of depression, a deflationary spiral, a 26 % fall in GDP, 60 % youth unemployment, mass exodus of the young and the brightest, chronic hysteretic that will blight Greece's prospects for decades to come, and to cap it all the debt ratio exploded because of the mathematical – and predictable – denominator effect of shrinking nominal GDP.

George Vasilakakos deskandchair 29 Jun 2015 05:27

very poorly served Greece is by its media

That's the key point. You see the Greek media groups are run by the same oligarchs who've been buying our politicians. They owe hundreds of millions to the Greek banks, along with the political parties, between them it must be around a billion. The banks were unwilling to collect on those debts, got bailed out and we are footing the bill...

NorthernFella Phil Murray 29 Jun 2015 05:25
Well, that's why I'm writing about "near-racism". Greece is schizophrenically seemed as the cradle of democracy and the Western culture but as Gerold reveals the opinion of many by the comment:

Nonsense. The Greek nation and people have failed to grow into a modern responsible state. They are still living like an Ottoman Province, trying to short-change the Sultan.

Many are still romanticizing the ancient times and are disappointed as they see the times have changed. Many are wondering (bitterly) how the modern day Greek are so different from the ancient times. In one book (a Finnish version of Traveler's history of Greece, I think) it was written (in introduction) something like this: "are those hot-tempered noisy people really descended from the ancient Greek?".

When adding to it Gerold's views on Greece as a nation that is still living like "an Ottoman Province" it's easy to extend near-racist stereotypes even further. Now we're talking about "lazy Greek who just lie down under the palm trees, waiting for the next bailout". Of course there are stereotypes related to each nation but they get always stronger when we are going to the south and they are told by "harder-working northerners" ...

I'm looking forward to the Greek people correcting their previous election error

Should the Greek vote only for "rationalist", pro-euro, business-oriented right-wing parties who are ready to starve their own people to death? It sounds travesty of democracy and would prove that economy has replaced democracy.

Theo Krom 29 Jun 2015 05:14

The markets. already have lost much more money than if they were agree to restructure, not necessarily write-off, the Greek debt. If we count the profits the markets would gain after such deal would have been announced then it seems that whatever is happening is a clear and utter irrational thinking orchestrated by the allegedly proponents of rational economic thinking...

Policy for the contemporary markets, seems to be much more important than free markets. Free market is an illusion, an excuse for the banks to suffocate democracy, using pseudo-politicians as their most valuable gatekeepers....Well, the actual neo-liberalism has been implemented in a very distorted manner, exactly as happened with socialism... Actually, both lead to utter misery!!!

Steven Tracy 29 Jun 2015 05:12 ;
This is what the private FMI corporation owned by the private federal reserve corporation of USA has planned for ALL our countries. I's the Rothschields, the Rockfellers etc... The 1% that are behind all this.
Can't you see USA is deep in debt and nearly bankrupt, just like most of the western countries and Africa. They lend us money, put us deeper in debt, and we pay them back only the interest of the debt ???

This has all been carefully planned since the creation of the private federal reserve corporation in 1913 to rob our assets and control us.

One example. Watch Karen Hudes, former lawyer of the FMI for 20 years, reveal it all : https://www.youtube.com/watch?v=MhTvsDuP-rg

This is why the BRIC countries have come together to ditch the US dollar.

Better than Eduard Snowden on the NSA.

GRJones Mark Foster 29 Jun 2015 04:51

Iceland is often held up on these pages as a shining example of the wealth and riches that flow to you if you reject austerity. It shouldn't be. Iceland suffered enormous economic contraction after its rejection of bailout conditions, and while the economy is growing, GDP is at about the level it was in 2004, unemployment is still well above pre-crash levels, and prices are 50% higher than they were before the crash. The steep devaluation of the currency by 50% meant that everyone in Iceland took an enormous hit in terms of real wages, and because most Icelandic mortgages are linked to the Euro theses have effectively doubled, while their homes have halved in value, leaving much of the population in negative equity. They have enacted massive austerity, more than any country in Europe bar Greece, slashing their deficit from 15% to less than 1%. The fall in living standards has been severe enough that the Icelandic people voted the parties that came into power after the rejection of bailout terms out of office, and reelected the party that was in power before the crash. The lesson to be learned from Iceland is that economic collapse means pain, no matter what you do.

someoneionceknew ID5590609 29 Jun 2015 04:50

Do you realize that the European rules prevent the ECB from funding member countries, as well as prohibiting national bailouts

Sure. But why aren't you Germans subject to the rules too?

The rules don't work. They can be changed fairly easily. Why not if it stops people starving and otherwise being persecuted through no fault of their own?

ID5590609 mjmizera 29 Jun 2015 04:38

Creditors already took a 50% haircut on Greece debt, and the conditions of Greece's bailout loans were extremely generous, with very low interest rates and exceptionally long payment terms. The terms and conditions were better than what was offered to Spain, Portugal and Ireland, and those countries actually implemented the demanded austerity reforms and are now experiencing growth.

Greeks don't need their debt forgiven. Greeks need to start paying taxes and reforming and managing their economy like a respectable first world nation, not some banana republic. Why should Europeans and others show solidarity with Greeks when Greeks fail to show solidarity with their own people and their democratically elected government?

Overdog81 29 Jun 2015 04:36

The past Greek politicians are responsible for bringing this debt to current levels. There's no doubt about this.

However, the current government found itself at the edge of a cliff. 6 months of negotiations and the issue of restructuring or writing off a non viable debt never came on the table by Greece's creditors. Basically Greece is begging for money that only go towards paying this huge debt and never into the real economy. Austerity measures are applied just to pay the debt's interest which has become huge (twice the size of Ireland's and Portugal's combined) .

What Syriza is doing now is the only option it has in order to make the debt viable and end austerity for its people. The timing of the referendum on friday night and capital controls on Sunday night (banks closed for a week and stock market closed on Monday) point towards this way. Its a huge gamble in order to reach an agreement but possibly the only hand Greece could play in order to shake off the markets and thus its creditors.

I truly hope an agreement is reached before the referendum so that everyone walks out happy especially Varoufakis and the Greek people who would get the best deal they could ever dream of. On the other side, a debt relief decision seems the only road for the imf and eu partners. Its a debt that could never be paid anyway so why risk?

Arthur Buse 29 Jun 2015 04:36

I had thought it was only Samuri that chose harakiri. But Alexis has done the EU a great kindness by throwing the Greek people to the dogs of famine. He has helped the cause of breaking up the Euro and even, dare we hope, the EU. Ever closer union was always a grave danger. It never went well for the USSR and it ended in tragedy. The EU will eventually go the same way. The USA is quite different. They adopted a common language before trying for a common currency and common Federal taxes. The EU will not manage the former and has not got the will to manage the latter. The Euro was therefore always doomed and now the EU needs to return to individual currencies and the EEC.

someoneionceknew -> ID5590609 29 Jun 2015 04:34

Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece.

If Germans bear any loss then it is their own foolishness for trusting their politicians. Why are Germans on the hook for bailing out their own banks?

Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

That's just cut and paste racist cant. Germans should know better given their history.

Your feelings about capitalism

Oh, you still don't understand what mercantilism means? Good lord.

but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma.

Depends on many factors I'd say. But what are you offering?

ID5590609 someoneionceknew 29 Jun 2015 04:23

Germany is the largest net contributor to the EU. They will bear the brunt of any aid extended to Greece. That is why the opinion of the Germans is so important when considering any action on Greece.

Greece has been an economic failure for their entire modern history, including well before they joined the Euro. They want to be live and be treated like a rich first world economy, yet run their country like banana republic. It's readily apparent that other Europeans will no longer fund or subsidize a lifestyle that Greeks cannot independently afford. Greece essentially partied on northern European largesse, but the bill is now due.

Your feelings about capitalism notwithstanding, things must drastically change in Greece. You claim to oppose the Eurogroup's and IMF's purportedly cruel demand for austerity and reform. That's fine, but what do you think is going to happen when Greece is "independent" and has to reintroduce the Drachma. Socialist solidarity is not going to fund imports of food, fuel, medicine and other essentials. There will be austerity in Greece, either organized with their European partners, or resulting from the chaos of financial incompetence. Greece is going to have to continue to painfully adjust to a lifestyle commiserate with their true GDP, earnings and economic value. The good old days are gone.

someoneionceknew -> ID5590609 29 Jun 2015 04:05

They're not asking for money or aid?

They are not asking for Herr Schauble's (or his ilks') money or aid.

major economic reforms

More counterproductive austerity. More poverty, more privation, more labour bashing, more suicides.

"mercantilism" (which I assume is meant as a juvenile reference to capitalism)

So I'm dealing with an idiot.

Germany has generally learned the political and economic lessons from their own unfortunate history, everyone from WW1 reparations and the risks of inflation, the horrors of WWII,

Clearly it has not. Quite the opposite.

Carlo47 29 Jun 2015 04:03

Only the American Treasure understood the gravity of the situation, but it's odd that they don't give appropriate instructions to the IMF and namely to the chauvinist Ms Lagrande, who continues in its absurd hard line more on measures that on the debt.

On the other end Mr Schäuble and Mr Dijsselbloem must be happy that investors flee.

They have only have a bit of patience, until the contagion will arrive in Germany and Holland.

Anyhow, if they are honest, both should resign for clear inability to do their job and to understand the heavy drawbacks of their dummy hard line, as supposed and false financial experts.

The German Government and the EU heads should slap the door in their face and send them away.

CanadaChuck ID9492736 29 Jun 2015 03:53

I had thought that Greece was unimportant overall in the EU. What will happen when Italy and Spain collapse? I guess the UK won't have to bother leaving the EU.

Ian Crowther slingsby1000 29 Jun 2015 03:49

Agreed Slingsby, so a lot depends on the post management of crisis as we see in Argentina and Turkey, its not plain sailing, far from it. But being enslaved is worse, and paying on the never never, feeding German and French income is not the way to go Fault lies on both sides, nobody comes out of this smelling of roses.

The EU construct was a nonsense form the very start, a union of unequals, instabilities and too many externalities to manage that technocrats have little idea on how to manage in complex situations.

Lanceowenmorgan Kompe75 29 Jun 2015 03:42

Ya the Forth Reich is coming and it seems Putin is the only one smart enough to see it

ID9492736 29 Jun 2015 03:40

Barely half an hour after opening, the German Stock Exchange index (DAX) is down almost 5%, which is dangerously close to a system meltdown. The German moneymasters are trying to intervene by pumping money into the exchange, but it's like putting a band-aid on the collapsing levee. The German nuclear reactor is overheating uncontrollably.

Xenkar Stivell 29 Jun 2015 03:34

True, ordinary people in Europe need to stand up and support the people of Greece, but sadly as spiceof so eloquently put it

"These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain."

MrEurope Lupick 29 Jun 2015 03:31

You do realize that what you wrote is beyond ignorance...? While I agree that the way market-news is brought is excessively dramatic, markets ARE for a large part a reflection of human productive activity, and productive activity tends to be... you know... the stuff that makes people money. Jobs. Earnings... roof over your head, and so forth... these things quite obviously matter.

The problem is that humans absolutely suck at understanding the long term consequences and impact of small, tiny little (negative, but also positive) changes that accumulate over time.

You know the famous example that if Jesus would have put one dollar in his bank account, he would (assuming 3% per annum interest) by the year 1000 he would have 7,080,467,438,104.71 dollars. (and more money than ever has or will exist in the history of Earth by 2015...) 3% does not sound like much... but all these small little additions do add up. And so if you're living in a world where every week or two there is a minor crisis here or there.... eventually it starts to matter. A lot. People put off investing. They spend less. There are less jobs... (which in turn compounds the problems...) and on it goes.

Bottom line is - you and I know fuck all about advanced economics, just like the vast majority of posters here.

Stivell 29 Jun 2015 03:28

Lagarde and the European leaders have forced Greece into this corner and really should expect nothing more than the Greeks turning and baring their teeth. Ordinary people in Europe need to stand up and support the people of Greece against these relentless scaremongering money-obsessed bastards. Go Greece, bite that hand!

Kompe75 29 Jun 2015 03:25

If the Schaueble , Merkel and Jean Claude don't resign after the upcoming fiasco , then the investors will fire them.Remember my prediction.They will have a bitter end than DSK.

D9492736 royaldocks 29 Jun 2015 03:16

If you really, seriously believe that EU economy is so competitive that it can turn on the dime and adjust to the coming global economic meldown to its advantage and do so in the current political and economic timespace , I have a BIG surprise for you: you are dangerously delusional.

First of all, the prices of ALL commodities, raw and unprocessed material EU economy needs to keep going are going to get sky-high because EUR will be hemorrhaging value until cows come home. And even if Mario Draghi and the idiots from Eurogroup come back to their senses tomorrow, it will have been too late: they already committed an act of economic suicide, and it is really too late to stop the head exit wound from bleeding to death now. Secondly, with the investors quitting the stock bubble like crazy, the amount of discretionary spending and funded demand is going to go down like a rock: Europe will be hit with AT LEAST a quadruple -whammy: (a) rigid and dogmatic austerity and money-supply strangulation (b) supply chain disruption (c) extremely weak demand and massively negative growth and (d) catastrophic consumer confidence index. Add to this list of nightmares a never-ending flow of migrants and refugees, ever-increasing pressure on social services, cost of funding of wars and military operations in Iraq, Syria, Libya, Aghanistan and elsewhere, the massive losses caused by the American-imposed sanctions against Russia (by most accounts, somewhere between $100 and $150 billion), the cost of containing the situation in Ukraine and bankrolling the bankrupt Ukrainian government and - on top of it all - servicing the sovereign debt, and you get a much clearer picture. There is absolutely no way - not even a hypothetical chance - that European economy can weather out this tsunami unaffected and unharmed. EU should consider itself lucky if they do not lose 20-30% of its entire economy in the next month or so.

If I were a German retiree, I would be queuing up at the local ATMs as we speak. Because, yes, it's the end of the Eurozone as we know it.

spiceof 29 Jun 2015 03:12

Amazing how the Greek subject matter brings forth the establishment sadists out en masse, demanding that punishment, penury and the bubonic plague be visited upon that rebellious country.

These little conformists, the lowly prison guards of the elites, are the lowest form of humanity. Spiteful and small minded, they always want to "punish" those who dare raise their heads and complain.

iruka Lupick 29 Jun 2015 02:56

Important point.

Of course it's worth bearing in mind that people like StrategicVoice213 aren't really concerned with contrasting good people and bad people, lazy people and hard-working people, etc..

Take a closer look, and 99 times out of 100 it's amply clear that their only real interest is in defending the authority and legitimacy of the institutions that they see being threatened or insulted by those they're calumnying.

The actual behaviour or character of this person or that nation is of no real consequence to 213's . Any old lie, projection or blinkered misconstruction will do.

It's the need to preserve sanctified hierarchies of power that engages them.

Or more accurately (since they're clearly all sad little creatures of no importance whatsoever, and no capacity to preserve anything, for whom an identification with power provides them with something clearly lacking in their actual lives) it's the need to glorify power, and all its ways and entitlements.

Lanceowenmorgan slingsby1000 29 Jun 2015 02:55

Who the fuck was the dumb ass(es) who would lend Greece all that money?
€386,000,000,000 to a country with a population of what 6-10 million? That's mathematics son you can argue with me but you can't argue with figures. Apologies to Foghorn Leghorn. But I think all comes down to greed.

truthbetold13 borninthe80s 29 Jun 2015 02:50

Such a pathetic cliche, a real twatcherite/conmoron lie. By bloated public sector you just mean that more things are run by the government instead of by big business. Nobody here being ripped off by utilities/ rail/private landlords etc thinks this is a better arrangement. What you have is higher prices, worse service, less equal pay within those sectors, systemic tax evasion by business and its bosses. Give me a state controlled service any day.

JohnnyMorales 29 Jun 2015 02:45

This should be the quote of the day:

Mitsuo Shimizu, deputy general manager at Japan Asia Securities Group in Tokyo, told Bloomberg News: "In the face of pressure from the eurozone to accept austerity measures, the Greeks answered that it's hard to live just on water."

The Japanese have never been considered softies. If they are describing the EU demands as too much, then they are definitely too much.

FactualEvidence 29 Jun 2015 02:45

The EU needs Britain to stay in the EU for one reason only and its financial.

The EU have ploughed in billions and billions of tax payers money into several different countries bailouts not just Greece, including Portugal, Spain, Cyprus, Ireland, Hungary, Latvia and Romania.
A total amount of 487.75 BILLION Euros has been given to these countries and that's since just 2008.
So rather than the EU getting stronger as united nation's it is getting worse.

The EU Commission, MEP's, LIBLABCON parties and BBC don't tell you that information. You have to research it yourselves on Wikipedia.

So my three questions to all those Europhiles are.
If being in the EU is so great how come so many countries have to rely on hand out?

If so many countries need billions to even provide essential services to survive. Where is this great trading economy?

Why is it not working for so many millions of people?

Go to Wikipedia and see how the monetary crisis is getting worse for all the countries not better.
Google : European Debt Crisis, and check out the chart around the middle of a very long page.

Were would the EU be without the billions we put in to it and on top of that all the VAT tax they get from us, YES VAT. Did you know that it was through EU ruling you pay VAT on your utility bills?

philbo Miamijim 29 Jun 2015 02:36

The IMF is mainly responsible for this mess.

ID9492736 stringvestor 29 Jun 2015 02:36

http://www.reuters.com/article/2015/06/29/markets-global-idUSL4N0ZE0IK20150629

betrynol 29 Jun 2015 02:32

Good thing Europe is ring-fenced to the risk of contagion....

The ECB will have to buy more Spanish and Italian bonds this week than the entire Greek debt, and then bailout these countries so they can buy back the bonds (Greek style). Oh well, if they say they've got it covered, it's fine I suppose... (shakes head in haughty derision).

ID9492736 29 Jun 2015 02:32

A picture worth $60 trillion words:

http://www.allstocks.com/markets/World_Charts/world_charts.html

The only markets still in the black are the markets that haven't opened yet. When DAX and FTSE open, the shit tsunami is REALLY going to hit the austerity fans.

JohnnyMorales 29 Jun 2015 02:29

The loss of value across the world even if most of it is just temporary is many many times more than Greece's entire debt.

Yet because the EU troika wanted to win a moral battle and teach a wayward Greece a moral lesson and make impossible demands and accept the humiliation entailed in caving they opted to create those losses.

Greece only asked for some extra help. They did not make outrageous demands like the troika.

If anything good comes out of this may it be the end of the careers of those who think the financial world is the proper place to stage morality plays devoid of any financial purpose which cost far more than the alternative.

Ian Crowther 29 Jun 2015 02:28

This is the end game, and has been Greece's plan from the new Government taking power. The left want Grexit, and they will get what they wish for now, independence from a failing political and financial EU construct.

This may work well for Greece in the mid term, sure, its going to be tough on the people, but at least the Government will not be debt slaves now, reset the currency, devalue the economy so it can compete again, lower taxation to bring in big business, and begin to build a new economy based on what the Greek people want, rather than 85% of the money Greece leant eventually being paid back to the rentiers from which the cash came. Now zero will be repaid, and EU banks will have to suffer the losses, a drop in recapitalisation, and a hit to the recovery.

Lanceowenmorgan ID9492736 29 Jun 2015 02:24

I agree. FUCK ALL YOU NEOLIBERAL & NEOCON mother fuckers

LeonardPynchon borninthe80s 29 Jun 2015 02:24

Some perspective in the below piece - might help you:

https://theconversation.com/greece-woes-show-how-the-politics-of-debt-failed-europe-42787

The Financial Times' leading commentator Martin Wolf recently argued that "the vast bulk of the official loans to Greece were not made for its benefit at all, but for that of its feckless private creditors", that is, primarily, European banks and financial institutions. After exposing the futility of austerity, ex-IMF economic advisor Jeffrey Sachs recently declared: "Europe's leaders are hiding behind a mountain of pious, nonsensical rhetoric" risking an economic and social disaster "in order to insist on collecting some crumbs from the country's pensioners".

Describing the treatment of Greece as "the Iraq War of finance", Daily Telegraph's Ambrose Evans-Pritchard wrote: "rarely in modern times have we witnessed such a display of petulance and bad judgement by those supposed to be in charge of global financial stability."

dzogchen 29 Jun 2015 02:23

Five lost years for the Greeks it seems. From the market's perspective those years have been all about maneuvering the banks from out of risk. Now that work is done as the losses are laid squarely in the public lap. The markets of course don't give half a toss about Greek people, empathy isn't part of their nature, so might as well do what should have been done five years ago. All the best to the people who will pay the price for all this shenanigans. Kali tihi!

BeamEcho Tim Roberts 29 Jun 2015 02:21

This is not new for the IMF, their mandate includes providing policy advice to their members. They review the economic policies of their members. When they lend money they require economic policy changes...

Ian Crowther IndependentScott 29 Jun 2015 02:18

Greece will not have to repay the debt, they will walk away, default and never repay. It is the banking system and rehypothecated debt that will suffer, and the banks that have leant the money to France and Germany. European banks have only just been recapitalised, and losing another €300-400bn will hit the Euro recovery hard at a time when QE is being rolled out. The answer will be print more money.

Normin 29 Jun 2015 02:17

The banksters are just waiting for a scapegoat to pin their non sustainable economic system failure on. Meanwhile the elite will profit as the masses bleed. It can't go on like this forever it's just a matter of when.

Kompe75 29 Jun 2015 02:14

Juncker announces a campaign to support "YES" at the greek referendum..

Another sign these people consist the out-of-touch neoliberal elite..

Does he really believe Greeks , who have suffered enormously , will sign a appalling deal that's going to define the misery of generations for the next decades ? Just because he wants to remain President in the dictatorship of Brussels ? I live for the moment Juncker comes in Athens...the whole place will go up in flames.

john4108 29 Jun 2015 02:09

yes all going acording to plan the sacred " markets" are indulging in the usual lemmng like behaviour while the banksrs try to convince everyone that,the have the medicine that we all need . Casino capitalism writ large. Eventually, unless we want endlessly repeated crises and utter destruction on this plant, mankind will have to come up,with a more resilient economic system.

Islam is waiting in the wings and usory is a crime in the Koran. Of course Jesus threw the money lenders out of the temple....but Judeo-christianity has conveniently forgotten that.

[Jun 28, 2015] Former Finance Minister of Cyprus on the Greek Crisis

"...The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals...."
.
"...This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would help build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. "
.
"..."IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece" "Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome." "
.
"...Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins."
.
"...There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago."
.
"...Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds."
.
"...Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time."

Jun 28, 2015 | Economist's View
Peter K.:

Mr Sarris seems a little like a Davos Man.

http://www.nytimes.com/2015/06/29/business/dealbook/panic-among-hedge-fund-investors-in-greece.html

Panic Among Hedge Fund Investors in Greece

By LANDON THOMAS Jr.

JUNE 28, 2015

ATHENS - For investors around the world looking at Greece, there was but one question Sunday: What is going to happen when the markets open on Monday?

That question is particularly acute for the hedge fund investors - including luminaries like David Einhorn and John Paulson - who have collectively poured more than 10 billion euros into Greek government bonds, bank stocks and a slew of other investments.

This weekend, Nicholas L. Papapolitis, a corporate lawyer here, was working around the clock comforting and cajoling his frantic hedge fund clients.

"People are freaking out," said the 32-year-old Mr. Papapolitis, his eyes red and his voice hoarse. "They have made some really big bets on Greece.

But there is no getting around the truth of the matter, he said. Without a deal with its European creditors, the country will default and Greek stocks and bonds will tank when the markets open.

On the ground here, the surprise decision of the Greek prime minister, Alexis Tsipras, to hold a referendum has turned what was a bank jog into more of a sprint with most Greeks now fearing that the country's depleted banks will be closed on Monday.

Panicky depositors spent the weekend pulling an estimated one billion euros from the banking system, stashing the cash in their houses or exchanging them for bulging bags of gold coins.

The yields on Greek government bonds, now around 12 percent are expected to soar as investors rush to unload their positions in a market that of late has become extremely hard to trade.

Bank stocks, if the stock market, in fact, opens, will also be hit with a selling wave, as they cannot survive if the European Central Bank withdraws its emergency lending program.

There are not as many hedge funds in Greece as there were a year ago, when it is estimated that around 100 foreign funds were sitting on big investment stakes. Their bet was that the previous Greek government would be able to complete the arduous process of economic reform in Greece that started five years ago.

When it became clear that a radical Syriza government under Mr. Tsipras would come to power, many investors quickly turned heel, dumping their Greek government bonds and bank stocks in large numbers before and after the election.

But a brave, hardy few stayed put - around 40 to 50, local brokers estimate - taking the view that while the new left-wing government could hardly be described as investor friendly, it would ultimately agree to a deal with Europe. It would be a bumpy ride for sure, but for those taking the long view that Greece would remain in the eurozone, holding onto their investments as opposed to selling them in a panic seemed the better course of action.

For now, at least, that seems to be a terrible misjudgment, especially if Greece defaults and leaves the euro.

Most of the hedge fund money in Greece is invested in about 30 billion euros of freshly minted Greek government debt securities that emerged from the 2012 restructuring of private sector bonds.

The largest investors include Japonica Partners in Rhode Island, the French investment funds H20 and Carmignac and an assortment of other hedge funds like, Farallon, Fortress, York Capital, Baupost, Knighthead and Greylock Capital.

A number of hedge funds have also made big bets on Greek banks, despite their thin levels of capital and nonperforming loans of around 50 percent of assets.

They include Mr. Einhorn at Greenlight Capital and Mr. Paulson, both of whom have invested and lost considerable sums in Piraeus Bank. Fairfax Financial Holdings and the distressed investor Wilbur Ross own a large stake in Eurobank, one Greece's four main banks.

Big positions have also been taken in some of Greece's largest companies. Fortress Capital bought $100 million in discounted debt belonging to Attica Holdings, Greece's largest ferry boat holder. York Capital has taken a 10 percent stake in GEK Terna, a prominent Greek construction and energy firm.

In 2014, Blackstone's credit arm bought a 10 percent chunk of the Greek real estate developer Lamda Development. And Third Point, one of the earliest, most successful investors in Greek government bonds, has set up a $750 million Greek equity fund.

Many of these forays were made during the heady days of 2013 and early 2014 when the view was that, in a rock bottom global interest rate environment, risky Greek assets looked attractive, especially if the reform process continued.

Among the most dubious of these, was a 10 percent equity stake, then worth about $137 million, that Mr. Paulson's hedge fund took last year in the Athens water monopoly. The company had little debt and was slated to be privatized, making it an attractive prospect at the time.

But the privatization process is now frozen and the monopoly is struggling to collect payment on its bills from near broke government entities, making it unlikely that Mr. Paulson will get much of his money back.

To be sure, many of these hedge funds are enormous and their Greek investments represent a fairly small slice of their overall portfolio.

Mr. Papapolitis, who used to work at Skadden Arps law firm in New York structuring exotic real estate deals, moved back to Greece in 2008 and has led some of the biggest hedge fund deals in the market.

Of the same age and generation as many of his clients, he feels their pain.

"These guys are my friends," he said. "They invested in Greece when the economy was improving. And now this happens - I feel obliged to be there for them."

He is not the only point man for hedge funds coming to Greece.

Last week, a group of about 12 of the largest remaining hedge funds arrived in Athens to attend a seminar organized by George Linatsas, a founding partner of Axia Ventures, an investment bank that specializes in Greece, Cyprus, Portugal and Italy, as well as shipping.

With all the large investment banks and law firms having largely given up on Greece, Mr. Linatsas and his team of analysts became the main port of call for hedge funds that started buying Greek government bonds in 2012.

Then, the bonds were trading at 12 cents on the euro and they soon shot up to 60 cents, making billions of dollars for those early investors.

"People made their careers on that trade," Mr. Linatsas said. "The problem now is politics and whether there is a government that can take this country to the next stage."

The outlook seems grim.

Indeed, in recent months these investors have spent little time breaking down balance sheets or discounting cash flows. Instead, they have spent every effort trying to figure out what the Syriza government is up to.

Some have tried to get an edge by listening to Greek radio. Others have hired outside firms to study video clips of Mr. Tsipras and his finance minister, Yanis Varoufakis, to try and discern from body movement and voice tone whether they are telling the truth. And an increasing number have resorted to begging journalists for inside scuttlebutt.

Because few Syriza officials will meet with the investors, a large number of them have banded together, an unusual occurrence in an industry that puts the highest of premiums on secrecy. They exchange tips and theories via emails when they are apart and over wine-soaked dinners in Athens during their frequent trips here.

At times the swankiest hotel in town, the Hotel Grande Bretagne (or G.B. as it is commonly known) is so chock full of hedge fund executives (mostly in their 30s) that some have called it the G.G.B. - the acronym for Greek government bonds.

In recent days, as it has become clear that the Syriza government was not going to accept the latest proposal from its creditors, stress and anxiety has, in some cases, turned to outright anger.

"I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email. "They thought this was a game. Now, when the supermarkets run out of food, gas stations run out of gas, hospitals have no medicine, tourists flee, salaries don't get paid because banks shut - what are they going to do?"

Peter K. -> Peter K....

""I just can't believe these guys are willing to torch their own country," one investor with a large holding of Greek bonds lamented in an email."

How ideological do you have to be to not understand that the Troika already torched the country and that the Greeks voted in Syriza becasue 5 years on there was no light at the end of the tunnel.

I hope there's a Grexit even if the Troika forces it because the referendum took place after Monday's deadline. Syriza should really study all of the past defaults of other countries.

Paine -> Peter K....

This Sarris gent suggest the Syriza team should have proposed " bold reforms " early on

List em mr S... List em

He however seems to understands the original sin was
The elites decision to bail the private northern banks out

Of course the people of Greece must pay for that sin.

RGC:

"IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece"

"Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."
http://www.truth-out.org/news/item/31596-imf-and-germany-are-hell-bent-on-finishing-off-even-a-moderate-left-in-greece

pgl:
Real GDP per person in Cyprus:
http://www.tradingeconomics.com/cyprus/gdp-per-capita

The crash has brought this done to where it was in 2000. Why did they join the Euro system in the first place? Why would anyone listen to the finance minister of this nation?

Paine -> pgl...

Precisely put

Only a corporate lackey corrupted stooge or stool pigeon

Peter K. -> Peter K....

Greece's own central banker, Yannis Stournaras said in a statement after the European Central Bank decision on Sunday that the Greek central bank would "take all measures necessary to ensure financial stability for Greek citizens in these difficult circumstances."

Before negotiations broke off on Saturday between Athens and its creditors, the Tsipras government had been hoping to reach terms that would free up a €7.2 billion allotment of bailout money that the country needs to meet its short-term debt obligations.

Because European officials said on Saturday that Greece's €240 billion bailout program would not be extended, the big question had been whether the central bank's president, Mario Draghi, would continue financing the country's depleted banks.

Guidelines of the European Central Bank dictate that it can keep supporting troubled banks as long as there is a possibility that the country in question will come to terms with its creditors on a bailout - as was the case with Cyprus.

If Athens and its creditors do not resume talks before Tuesday, the promise of European support for Greece may no longer be on the table. But the European Commission, the executive arm of the European Union and a key broker in the debt talks, seemed on Sunday to reach out to the Greek people, unexpectedly publishing the offer made to Greece before Prime Minister Alexis Tsipras ended the negotiations and announced a national referendum.

The publication was designed to show the lengths to which the creditors, including the I.M.F. and the European Central Bank, had gone to satisfy Athens's demands for a deal that avoided hurting ordinary Greeks, said one European Union official with direct knowledge of the decision to publish the offer. The official spoke on condition of anonymity because the institutions had not ruled out a resumption of talks with Mr. Tsipras on the sensitive issue of extending the bailout.

"This is a last bridge we are building for them," said the official. The goal of publishing the document was also to pressure "Mr. Tsipras to change course and choose to mount a 'yes' campaign" in the upcoming referendum, the official said.

The official acknowledged there was a slim chance that Mr. Tsipras would accede to the terms so soon after abandoning the negotiations. But if Mr. Tsipras did change course, that could lead to a meeting of leaders of the eurozone member states on Monday night to try one more time to reach a deal before the expiration of the bailout.

On Saturday, amid intense discussions between Greece and its creditors, officials representing the I.M.F., to which Greece owes €1.6 billion on Tuesday, were trying to persuade European leaders and Mr. Draghi to keep the bank emergency assistance flowing. And on Sunday, the head of the I.M.F., Christine Lagarde, waved an olive branch toward Greece.

In a statement, Ms. Lagarde expressed her "disappointment'' in the "inconclusive outcome of recent discussions on Greece in Brussels.''

"I shared my disappointment and underscored our commitment to continue to engage with the Greek authorities," she said, adding that the I.M.F. would ''continue to carefully monitor developments in Greece and other countries in the vicinity and stands ready to provide assistance as needed.''

Early Sunday, the Greek Parliament approved Mr. Tsipras's request for a public referendum on the proposal offer by Greece's creditors, with the vote to be held next Sunday. Mr. Tsipras and other Greek officials had asked European officials and Mr. Draghi to keep the central bank assistance in place until the vote.

The European Central Bank's decision on Sunday to cap the emergency loan program, as opposed to canceling it, "allows the Greek banks to remain in a sort of coma – not functioning but not dead," said Karl Whelan, an economics professor at University College in Dublin. That way, he said, the Greek financial system might be revived if at some later point if Greece secures a deal with its creditors.

Raoul Ruparel, an economist and co-director of Open Europe, a London-based research group, said the rupture between Greece and its creditors on Saturday was unlikely to mean a definitive end to negotiations, instead becoming "merely a prelude" to yet more talks in a week or so after Greece holds its referendum.

"I think we are just getting started on this merry-go-round," Mr. Ruparel said, predicting that Greek voters would probably vote to endorse proposals put forward by creditors and rejected by the Tsipras government. "We would then be back where we started, only in a worse situation," he added. Because the current program will have expired by then, Greece and its creditors would need to negotiate a new bailout - most likely a short-term deal - in an atmosphere poisoned by even deeper distrust than before.

"The whole thing is absolute nightmare,'' Mr. Ruparel said. ''I have been following this saga for five years, and it is depressingly tedious."

leoFromChicago:

Guy is totally business-as-usual.
I'm hardly an expert on Greece but if you were about to make a difficult decision -- say, exit the Euro -- you might want a dramatic display of public backing say, in the form of a referendum.

Peter K.:

For JohnH and Mr. Roger Fox:
http://www.cepr.net/blogs/beat-the-press/the-warnings-from-the-bank-of-international-settlements-have-been-ignored-because-they-have-been-wrong
The Warnings from the Bank of International Settlements Have Been Ignored Because They Have Been Wrong

by Dean Baker

Published: 28 June 2015
The Wall Street Journal passed along warnings from the Bank of International Settlements (BIS) that central banks should start to curtail monetary expansion and that governments need to reduce their debt levels. The piece tells readers:
"The BIS has issued similar warnings in recent years concerning an overreliance on monetary policy, but its advice has gone largely unheeded."
It is worth noting that the BIS has been consistently wrong in prior years, warning as early as 2011 about the prospects of higher inflation due to expansionary monetary policy:
"But despite the obvious near-term price pressures, break-even inflation expectations at distant horizons remained relatively stable, suggesting that central banks' long-term credibility was intact, at least for the time being.

"But controlling inflation in the long term will require policy tightening. And with short-term inflation up, that means a quicker normalisation of policy
rates."

Since that date, the major central banks of the world have been struggling with lower than desired inflation and doing whatever they could to raise the rate of inflation. It would have been helpful to readers to point out that the BIS has been hugely wrong in its past warnings, so people in policy positions appear to have been right to ignore them. This is likely still the case.

anne:

http://krugman.blogs.nytimes.com/2015/06/28/grisis/
June 28, 2015
Grisis
By Paul Krugman
OK, this is real: Greek banks closed, capital controls imposed. Grexit isn't a hard stretch from here - the much feared mother of all bank runs has already happened, which means that the cost-benefit analysis starting from here is much more favorable to euro exit than it ever was before.
Clearly, though, some decisions now have to wait on the referendum.
I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.
Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals.
A strange logistical note: I'm on semi-vacation this week, doing a bicycle trip in an undisclosed location. It's only a semi-vacation because I didn't negotiate any days off the column; I'll be in tomorrow's paper (hmm, I wonder what the subject is) and have worked the logistics so as to make Friday's column doable too. I was planning to do little if any blogging, and will in any case do less than I might have otherwise given the events.

anne -> anne...
http://krugman.blogs.nytimes.com/2015/06/28/grisis/
June 28, 2015

Grisis
By Paul Krugman

Clearly, though, some decisions now have to wait on the referendum.

I would vote no, for two reasons. First, much as the prospect of euro exit frightens everyone - me included - the troika * is now effectively demanding that the policy regime of the past five years be continued indefinitely. Where is the hope in that? Maybe, just maybe, the willingness to leave will inspire a rethink, although probably not. But even so, devaluation couldn't create that much more chaos than already exists, and would pave the way for eventual recovery, just as it has in many other times and places. Greece is not that different.

Second, the political implications of a yes vote would be deeply troubling. The troika clearly did a reverse Corleone - they made Tsipras an offer he can't accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don't like Syriza, that has to be disturbing for anyone who believes in European ideals....

* European Union Commission, EuropeanCentral Bank, and International Monetary Fund

Paine -> anne...

Pk has really shown a leadership side here
Not contrarian
Progressive leadership

Vote no !

Praise be to PK

Ben Groves:

This is nothing more than a neo-liberal play. They just don't want to strip their pensions, but infrastructure as well. They should be making the requirements of the loan for deep pension cuts and money for investments which would hel build up Greece's economy and the end for these bailouts. The fact they aren't doing that, but trying to confiscate it instead, which is the real issue. If Greece wants their fat pension system, that is their choice.
I don't see anything different than post WWI Germany. This is what Libertarianism will bring to the West if implemented. They would dismantle the current power structure and replace it with a privately controlled syndicate dictating wealth much like today. This is not new, it has been going on since the rise of Abrahamic religions in the west.

Fred C. Dobbs -> Lafayette...

Greece is doomed - Matt Yglesias - June 27 http://www.vox.com/2015/6/27/8856297/greece-referendum-euro via @voxdotcom

(Various useful links, at the link.)

... to understand the deeper causes of what's been going on since Tsipras' government swept to power in January, you really need to set the finance and economics aside and focus on the politics. Greece has been drawing dead this whole time, and the future outlook appears bleak for one simple reason - nobody else in Europe who holds power has any interest in making things anything other than painful for Greece.

1) Giving Greece a better deal would be a political disaster

Tsipras' fundamental miscalculation has been that he thought that by cloaking his specific requests for more lenient terms in the larger cause of anti-austerity politics, he could build a coalition of political support throughout Europe for his position. The reality was just the opposite. While politicians in Europe's creditor nations were naturally reluctant to grant Greece a better deal, politicians in Europe's debtor nations were even more opposed.

After all, if electing a bunch of far-left types to parliament so they can demand a better deal actually worked, then voters in Portugal and Spain and Italy and Ireland would take note of that fact. And the last thing the current crop of elected officials in Lisbon and Madrid and Rome and Dublin want is to all be turned out in favor of a bunch of far-left types.

2) Letting Greece default gracefully would be a disaster

Even if Greece's European partners weren't inclined to give Greece a better financial deal, they could have at least smoothed the path to default. A Greece that doesn't pay what it owes would be instantly cut off from credit markets and forced to run a very austere fiscal policy.

It's in Europe's interest to make things as hard as possible for Greece

Things could have been left at that. Instead, throughout the year, the European Central Bank has been saying that it will cut the Greek banking system off from emergency funding if Greece doesn't keep paying its debts. That means default will lead to the collapse of Greek banks, and the end of Greek membership in the euro.

That's a political decision the ECB isn't legally required to make. But politically it's the only possible decision. After all, if a default works out non-disastrously for Greece then other countries could be tempted to default. And international investors might worry that other countries could be tempted to default, raising interest rates and slowing the European economy. Only making default as painful as possible can safeguard the interests of other countries.

3) Letting Greece leave the Eurozone gracefully would be a disaster

Here's where the news gets really bad for Greece. Leaving the Eurozone could, in theory, go better or worse. But Europe needs it to go as badly as possible. After all, if Greece leaving goes pretty well, then other countries might be tempted to leave. And that raises the prospect of debt defaults, higher interest rates, and slowing European growth.

Once again, it's in Europe's interest to make things as hard as possible for Greece.

4) This is the time to fold 'em

The tragic irony, if you are Tsipras, is that his plan very well might have worked back in 2010 when his predecessors originally agreed to the terms of a bailout. Back then, the whole situation was considerably more fluid. Greece could have threatened to default and essentially commit a murder/suicide on the entire European economy unless it got better terms. That would have been a very risky strategy and you can see why the Greek government didn't pursue it. But it might have worked.

Yet as the song says, you need to know when to hold 'em and know when to fold 'em. ...

(Alternatively, persuade various major German
corps to re-locate to Greece, for tax-breaks,
warm weather, great beaches, warm weather,
'right-to-work' labor policies, tax breaks,
warm weather & great beaches, and - voilà - problem solved!)

Fred C. Dobbs:

The Next Few Days Have the Potential to Transform
Greece and Europe http://nyti.ms/1Nr7fbd via @UpshotNYT
NYT - Neil Irwin - June 28

As it turns out, the Greek crisis ends not with a bang, but with a referendum.

It has been easy to ignore the doings in Greece for the last few years, with the perpetual series of summits in Brussels that never seem to resolve anything. But it's time to pay attention. These next few days are shaping up to become a transformational moment in the 60-year project of building a unified Europe. We just don't yet know what sort of transformation it will be.

The immediate headlines that got us to this point are these: After an intractable series of negotiations over a bailout extension with Greece's creditors, the nation's left-wing government left the table Friday and said it would hold a referendum on July 5. Greek leaders think the offer on the table from European governments and the International Monetary Fund is lousy, requiring still more pension cuts and tax increases in a depressed economy, and intend to throw to voters the question of whether to accept it.

Whatever the exact phrasing of the question (and assuming the referendum goes forward as planned), it really boils down to this simple choice:

A "Yes" vote means that Greece will continue the grinding era of austerity that has caused so much pain to its citizens over the last five years, in exchange for keeping the euro currency and the monetary stability it provides.

A "No" vote almost certainly means that the country will walk away from the euro and create its own currency (which will surely devalue sharply), bringing financial chaos in the near term, but creating the possibility of a rebound in the medium term as the country becomes more competitive with its devalued currency.

The Greek government, led by Alexis Tsipras, disputes this framing, and argues that Greece could in fact reject the creditors' offer to extend the bailout program while sticking with the euro. Events over the weekend show how untenable that is. Thousands of Greeks lined up to withdraw euros from money machines, and the European Central Bank said it would not increase the size of the emergency lending program that Greek banks have been using to secure euros.

Ergo, the Greek banks are, or will soon be, out of money, and the E.C.B. will be disinclined to open the floodgates again in the absence of a bailout deal. That's why the Greek government has effectively frozen its financial system, closing banks and the stock market on Monday. ...

Greece Will Close Banks to Stem Flood of Withdrawals http://nyti.ms/1QXdEB2

LANDON THOMAS Jr. and NIKI KITSANTONIS - JUNE 28

ATHENS - Greece will keep its banks closed on Monday and place restrictions on the withdrawal and transfer of money, Prime Minister Alexis Tsipras said in a televised address on Sunday night, as Athens tries to avert a financial collapse.

The government's decision to close banks temporarily and impose other so-called capital controls - and to keep the stock market closed on Monday - came hours after the European Central Bank said it would not expand an emergency loan program that has been propping up Greek banks in recent weeks while the government was trying to reach a new debt deal with international creditors. ...

[Jun 28, 2015] The Greek Tragedy: Curtain Closes On Most Absurd Act

moonofalabama.org

Nothing was posted here so far on the Greece tragedy. I did not touch the issue as there was excellent coverage elsewhere and what the whole issue produced so far was more absurd theater than serious economic policy. But one act of the drama is now coming to a preliminary end and the tragedy may now unfold into something new with potential serious geopolitical consequences.

Greece took up a lot of debt when banks were giving away money without caring for the ability of the debtor to pay back. When that game ran out, some six years ago, Greece could not no longer take up new credit to pay back its old debts. That is the point where it should have defaulted.

But the Greece government was pressed on to pay back the debt to the commercial banks even when it had no money and not enough income to ever do so. Bank lobbyists pressed other EU governments to raid their taxpayers to indirectly cover the banks' losses. These other governments then pushed Greece to take on "emergency loans" from their states to pay the foreign commercial banks.

Nothing of that money ever reached the people in need in Greece. Here is a gif that explains what happened to all those foreign taxpayer loans treats "given to the Greek".

To get these new loans Greece had to agree to lunatic economic measures, an austerity program and neoliberal "reforms", to fix its balance of payments. But austerity has never worked, does not work and will never work. It crashes economies, lowers tax incomes and thereby further hinders a government to pay back it debts. It creates a vicious cycle that ends in an economic catastrophe.

After six years of austerity nonsense the Greece voted for a new party that promised to end the cycle and stop the austerity measures. But the new Syriza government misjudge the situation and the nastiness and criminal energy of the other governments and organizations it was negotiating with. It early on said it would not default and thereby took away its own best negotiation argument. The negotiations failed. The creditors still demand more and more austerity. Now it will have to default but under circumstances that will make it much more difficult for Greece to get back on its feet.

Yesterday the Syriza prime minister Tsirpas, in a speech to his people, called for an end of the blackmail and for a referendum to decide on the way forward:

Fellow Greeks, to the blackmailing of the ultimatum that asks us to accept a severe and degrading austerity without end and without any prospect for a social and economic recovery, I ask you to respond in a sovereign and proud way, as the history of the Greek people commands.
To authoritarianism and harsh austerity, we will respond with democracy, calmly and decisively.

Greece, the birthplace of democracy will send a resounding democratic response to Europe and the world.

Paul Maison of Channel 4 news sees this as a positive and likely successful step. The people will vote no to austerity and the IMF, European Central Bank and various country governments will still keep giving fresh money to Greece. Yves Smith at Naked Capitalism does not believe that this will happen. She calls the referendum a sham. Greece will default and the only thing the referendum will do is to keep Syriza in the political business. She blames Tsirpas for having misjudged the situation and for being unprepared of what is likely to come:

Greek defiance of its creditors will make it more, not less dependent on them in the next year. How badly things turn out for Greece will depend in significant degree on how much they do to ameliorate the impact of the implosion of the banking system, whether they take extreme measures to keep Greece in the Eurozone, and if Greece tumbles out, how much they provide in humanitarian aid and targeted trade financing (most important, for petroleum imports).

Greece should have defaulted six years ago. Tsirpas should have prepared for default immediately after he became premier. He should have used it as a threat during the negotiations. Greece will now have to default in the worst possible situation and with little thought given to the consequences of the default.

But the consequences will not be limited to Greece.There will be consequences for the EU, for NATO and for the political balance in the Mediterranean. Greece may now decide to leave the "western" realm and thereby set an example others could follow.

The German and other European governments promised their taxpayers that Greece will not default and that the austerity program pushed onto it will succeed. They will now rightfully lose some of their political and economic credibility. The Greece default will be a somewhat harsh and expensive lesson for the voters in those countries too. Let's hope that they will draw the right conclusions.

Selected Skeptical Comments

Posted by: madrone | Jun 27, 2015 10:50:12 AM | 2

While there is nothing easy about the path forward I think finance minister Varoufakis has played things pretty well dragging it out letting the people get all those euros out of the banks to help contribute to rebuilding but most of all blocking the ability of the Banksters to "Cyprusize" Greece. The referendum obviously comes from the study of Iceland and anybody that studies Argentina can only come away thinking Syriza is doing the right thing.

Posted by: nmb | Jun 27, 2015 11:33:51 AM | 3

The global financial mafia fully exposed through Greece

[Jun 28, 2015]The Troika pretends to suffocate Greece at all costs

"...Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority"
.
"...Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party."
.
"...Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors."
.
"...There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc."
.
"...Panic would boost interest rates, severely shrinking the financial liquidity between countries."
.
"...Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia."

Jun 28, 2015 | voltairenet.org/RT

the Central Bank of Greece surprised everyone with the publication of their monetary politics for 2014-2015. Besides revealing the consequences of the economic suffocation imposed by Brussels, it concluded that in case of not getting to a prompt deal with its European partners, a crisis of great proportions will be detonated.

"A crisis with a manageable debt as we are currently facing with the help of our partners will transform into an uncontrollable crisis, with great risk for the banking system and for the financial stability", it quoted [1]. It was the first time this institution seriously contemplated Greece's separation from the Eurozone.

The most influencing media immediately began to stress that the majority of Greek's population is against abandoning the Monetary Union. Approximately a 70% according to a recent poll published by the GOP. For keeping the "common currency" the norms in the Maastricht Treaty have to be complied, therefore the occidental media concludes that the Greek citizens are willing to accept the European authorities conditions: Austerity is the price for a membership in the Eurozone.

However, media emporiums omit mentioning that same majority opposes to measures that the Troika (formed by the International Monetary Fund, the European Central Bank and the European Commission) pretends to impose. That same majority is currently convinced that the original 245 billion euros rescue program has only brought economic affliction. The increase of inequality and poverty, lock of housing, mental illness and suicides, are evidence of the "humanitarian crisis" Greeks are daily suffering [2].

A change regarding to economic matters in urgent. In that sense, the Greek government has insisted in solving the more immediate needs (taxes on investment, creation of employment, a better distribution of income, etc.) and less in questioning terms of the debt. Despite this, Brussels has blocked any agreement that would help Greece's recovery; debt repayments are maximum priority [3].

Alexis Tsipras, prime minister, is practically "hands tied", he can't implement an alternative economic policy, this situation is contrary to his intentions, therefore it slowly diminishes the trust citizens have put into Syriza, his political party.

Disqualifications between the Greek government and the Troika were quite prompt on dates near the meeting with the Eurogroup. Tsipras addressed that the International Monetary Fund (IMF) had "criminal responsibility" for the crisis. He also repeated that his government wouldn't falter before the pressure imposed by the Troika. The objective of this proposal is to "humiliate Greece" and there he committed to reject the adjustment plans at every moment [4].

The finance minister, Yanis Varoufakis, has delivered the same message by declining on presenting proposals that would finally include a list of "credible" commitments for the creditors: raising the primary surplus, additional tax raises, dismantling the pension system, etc [5].

As consequence, the negotiations stalled once again [on July 18th, 2015, Editor's note] The Troika remains intransigent in applying its "structural reforms" no matter what, while Tsipras declines on betraying the Greeks. Therefore this dispute is ones more to be adjourned.

Greece has 10 days to liquidate the four monthly maturities of debt to the IMF (1.5 billion euros) and to open a new financing plan for 5.2 billion euros. By next July, Athens will have to pay 3.5 billion euros to the European Central Bank (ECB), 465 million euros to the IMF and 2 billion euros to additional creditors.

Debt and more austerity, in the end impose more debts, this situation puts Greece in a "depressive spiral" that seems not to have an end. How will the resources for complying with these commitments de delivered?

There is no doubt that if Tsipras decides abandoning the Euro, the consequences will be dramatic for Greece's economy and so for the rest of economies in the region [6], including of course, Germany and France. Berlin fears a massive spread. If Greece collapses, speculators will bet against the most fragile economies: Finland, Spain, Italy, Netherlands, Portugal, etc.

Considerably affected by the weak economic growth and the deflation (price breakdown), the Eurozone would loose even more confidence from international investors. The crescent 'aversion to risk' due to Greece's exit would provoke an increase in the performance of sovereign bonds (currently at minimum levels). Panic would boost interest rates, severely shrinking the financial liquidity between countries.

Uncertainty will increase and the capital flows would be victim of a 'butterfly effect': slight increase of volatility in sovereign bond markets, light drops in stock exchanges and any change in the monetary policy, would be enough to detonate huge turbulences in credit circuits.

Nevertheless, the Troika seems decisive on backlashing the left's economic program. Syriza have inaugurated the electoral failure of neoliberalism in Europe and due to that, it has become the lender's favorite prey, who are ready to impose their will at any price. However, the Greeks should trust themselves, establish partnership beyond its continental borders and aim for utopia.

Democracy was born in the ancient Greece and there is where the foundations of a new Europe, free from the 'dictatorship of the creditors' should be built, if there is any alternative…

[Jun 28, 2015] Keynes, The Great Depression And The Coming Great Default

Jun 28, 2015 | Zero Hedge
falak pema

you guys have it ALL wrong.

Keynes was there to check OLIGARCHY neo-feudalism. This crisis is about Oligarchy neofeudalism.

We need a balance between state and private enterprise. Right now we have "inverted totalitarianism" :an alliance between state and private Oligarchs where, unlike Mussolini model; its private enterprise that RUNS THE WORLD; the 1%.

The state is their slave; even FED belongs to its paymasters : the TBTF aka JP Morgan and now GS. Since Glass Steagall revoke; engineered by the GS squid cabal allowing Investment banks to rule the roost to MAXIMISE shareholder returns, the whole shooting match of supply side deregulated Reaganomics; all based on asset hiking based on short term quarterly reports; has morphed capitalism beyond recognition.

The world of capital changed in 1981...the day all that mattered was shareholder value based on short term steroid pumping that the 1971 "our money your problem" had initiated based on petrodollar hegemony fueled on perpetual DEBT.

The cumulative effect of 1971/1981/1991 outsourcing NWO mantra post Iraq 1 and SU default was what we have spawned today: a three step process where petrodollar debt + FIRE economy oligarchy enrichment+ NWO outsourcing based on cheap oil and cheap labour have built this casino capitalism model now compounded by derivative financialisation toxic shenanigans.

Now tell me WHAT has KEYNES got to do with this monetarist construct based on Friedman's 1971 mantra?

You guys deny the time line of facts and its irrefutable logic all based on petrodollar hegemony, and arms bazar supremacy.

[Jun 28, 2015] IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

"...Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome."
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"...Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal."
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"...as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.""

IMF and Germany Are Hell-Bent on Finishing Off Even a Moderate Left in Greece

Jun 28, 2015 | Truthout

...Reflecting a political organization/party that had invited and accepted under the same roof extremely diverse political and ideological groups, the Syriza-led government not only failed to set out a clear strategic vision for getting the country out of its current crisis but walked straight into the trap that the euromasters and the "criminal IMF" were setting up for them throughout the course of the negotiations.

Indeed, the leftist Greek government failed to see that what Europe's neoliberal elite was after, especially after being fully aware of the fact that Athens had no alternative plan, was not merely a humiliating Greek deal for the Syriza-led government but finishing them off completely to send a message to all potential "troublemakers" in the euro area of the fate awaiting them if they dared challenge the neoliberal, austerity-based orthodoxy of the new Rome.

Working in collaboration with the IMF (whom Mr. Tsipras has charged with "criminal responsibility" for the economic and social catastrophe of Greece), Germany's plan (a nation that has failed to pay its debts repeatedly in modern times and had the bigger part of its foreign debt wiped off in 1953, yet has the audacity now to try to teach moral lessons to Greece) is to have Mr. Tsipras and his one-night "superstar" finance minister tied up with a dog chain and paraded in front of the European political stage for all to see - utterly defeated and humiliated, with their political futures up in the air, whether they accept or reject a humiliating Greek deal.

... ... ...

The members of the Greek government negotiation team had submitted a list of proposals for the June 22 Euro summit that were fully in line with the logic of the EU/IMF bailout program for Greece: more austerity and additional structural adjustments. All in all, the proposals they made amounted to over 8 billion euro in additional cuts between 2015 and 2016! The leftist Greek government even proposed a tax increase to incomes above 30,000 euro, thus suggesting that individuals in that income bracket rank among the wealthy! Basic food items and services were to carry a 23 percent VAT. The special VAT rate on Greek islands, which is so crucial for the tourist sector of the economy, was to be removed. The early retirement age was to be increased as of the start of 2016, and a benefit for low-income pensioners was to be gradually substituted, beginning from 2018.

The obvious capitulation on the part of the Syriza-led government to the euromasters and the IMF thugs, which was not the first one, was made just to get a deal done as time was running out for Greece (it has a huge payment to make to the IMF at the end of June in the tune of 1.6 billion euro) and thus to remove the dark clouds of a Grexit that had begun to spread dangerously over Greece, as it had finally become clear that Germany and the IMF were calling Syriza's bluff and were ready for the unthinkable, i.e., the possibility of a Grexit.

But as it usually happens in situations of negotiations between ordinates and subordinates, master and slave, rich and poor, strong and weak, the more compromises the latter makes, the more compromises the former demands.

Thus, the Greek proposals were found to be inadequate, and there were demands for more blood and tears. Germany and the IMF wanted to force the Syriza-led government to cross its last and final "red line," which was over additional antisocial measures in the nation's social security and pension system. Among other things, the Lagarde/Schäuble duo wants the benefit for low-income pensioners to be completed eliminated by 2017. This would mean that a person who receives today a monthly pension for the amount of 500 euro (close to 50 percent of Greek pensioners receive pensions below the official poverty line) would be deprived of about 200 euro, which come as a welfare payment of sorts.

... ... ...

Footnotes:

1. The political babel of Syriza consists of right-wing and ultra-nationalist camps (ie., the Independent Greeks party, Syriza's coalition partner in government) to defunct social democrats and outdated Keynesians who saw primarily the crisis in Greece as a threat to capitalism itself and were suggesting, accordingly, all sort of interventionist schemes to keep Greece in the euro area and the emergence of an alternative socio-economic system at bay, including recycling unemployment schemes with the minimum wage so as not to upset the exploitation rate in the private sector (!) and IOUs, and from remnants of euro-communism and the old communist left to post-leftism, postmodernist tendencies devoid of any true understanding of contemporary political realities and without structured support at the popular, working-class level. Indicative of its political nature, not even one large, mass protest or demonstration has ever been organized or successfully carried out by Syriza. Its official organ Avgi still sells thousands of copies less on a daily and a weekly basis than the official organ of the Greek Communist Party, which in the elections of January 2015 barely got over 5 percent of the popular vote.

2. Syriza had been converted long ago into an utterly confusing, "non-left" left political organization, and the restructuring of the Greek economy and its moribund political culture, the abandonment of outworn, antediluvian modes of political thinking and behaviors, and the transformation of capitalism and its transition to a socialist economy had been completely removed from its political radar. For an argument along those lines, see C. J. Polychroniou, "To Change Greece Requires Changing the Political Culture - and This Could Be a Tall Order, Especially for the Left." Truthout (September 1, 2013).
... ... ...
C.J. Polychroniou is a research associate and policy fellow at the Levy Economics Institute of Bard College and a former columnist for a Greek major national newspaper. His main research interests are in European economic integration, globalization, the political economy of the United States and the deconstruction of neoliberalism's politico-economic project. He has taught for many years at universities in the United States and Europe and is a regular contributor to Truthout as well as a member of Truthout's Public Intellectual Project. He has published several books and his articles have appeared in a variety of journals, magazines, newspapers and popular news websites. Many of his publications have been translated into several foreign languages, including Croatian, French, Greek, Italian, Portuguese, Spanish and Turkish.

[Jun 27, 2015] Greece: Its the Politics, Stupid!

"...The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers."

Jun 27, 2015 | Economist's View

Gloomy European Economist Francesco Saraceno:

It's the Politics, Stupid!: I have been silent on Greece, because scores of excellent economists from all sides commented at length...

But last week has transformed in certainty what had been a fear since the beginning. The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path. No, they were interested in a complete and public defeat of the "radical" Greek government. ...

What happened...? Well, contrary to what is heard in European circles, most of the concessions came from the Greek government. On retirement age, on the size of budget surplus (yes, the Greek government gave up its intention to stop austerity, and just obtained to soften it), on VAT, on privatizations, we are today much closer to the Troika initial positions than to the initial Greek position. Much closer.

The point that the Greek government made repeatedly is that some reforms, like improving the tax collection capacity, actually demanded an increase of resources, and hence of public spending. Reforms need to be disconnected from austerity, to maximize their chance to work. Syriza, precisely like the Papandreou government in 2010 asked for time and possibly money. It got neither.

Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large coroporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.

What the past week made clear is that this, and only this was the objective of the creditors. This has been since the beginning about politics. Creditors cannot afford that an alternative to policies followed since 2010 in Greece and in the rest of the Eurozone materializes.

Austerity and structural reforms need to be the only way to go. Otherwise people could start asking questions; a risk you don't want to run a few months before Spanish elections. Syriza needed to be made an example. You cannot survive in Europe, if you don't embrace the Brussels-Berlin Consensus. Tsipras, like Papandreou, was left with the only option too ask for the Greek people's opinion, because there has been no negotiation, just a huge smoke screen. Those of us who were discussing pros and cons of the different options on the table, well, we were wasting our time.

And if Greece needs to go down to prove it, so be it. If we transform the euro in a club in which countries come and go, so be it.

The darkest moment for the EU.
RGC said...

by MICHAEL HUDSON

Many readers of the European and American press must be confused about what actually is happening in the negotiations between Greece (Alexis Tsipras and Yannis Varoufakis). The European Troika (the IMF, European Central Bank and European Council now object to the name and want to be called simply "the Institutions") have stepped up their demands on Syriza. What is called "negotiation" is in reality a demand for total surrender. The Troika's demand is to force Syriza to go back on the campaign promises that it made to voters who replaced the old right-wing Pasok ("socialist") and Conservative New Democracy coalition, or else simply apply the austerity program to which that coalition had agreed:cutbacks in pensions, deeper austerity, more privatization selloffs, and a tax shift off business onto labor. In short, economic suicide.

Last weekend a group of us met in Delphi to discuss and draft the following Declaration of Support for Greece against the neoliberal Institutions. It is now clear that finance is the new mode of warfare. The creditors' objective is the same as military conquest: they want the land, the natural resource rights and monopolies, and they want tribute (in this case, debt service). And they don't want sovereign Greece to tax the economic rent from these assets. In short, the negotiation between The Institutions and Greece is a bold exercise in rent extraction.

http://www.counterpunch.org/2015/06/26/the-delphi-declaration/

Peter K. said...

I agree with what Saraceno wrote. "The troika, backed by the quasi totality of EU governments, were not interested in finding a solution that would allow Greece to recover while embarking in a fiscally sustainable path."

The austerity program they forced Greece to follow was a failure and the troika doesn't care what Syriza was elected to do. It can overrule democracy.

As good as the IMF research department has been regarding Keynesian policies lately, the IMF is coming off really bad here, just going along with insane policy.

If Greece doesn't pay by the 30th do they get kicked out? If they kicked out will they hold the July 5th referendum anyway?

Maybe the troika don't kick them out immediately and the referendum votes no on the bailout package. Then Greece defaults but possibly stays in the EU on the drachma with capital controls. Possibly Greece can rejoin the EU later on.

anne said in reply to anne...

What still puzzles me is whether and by what authority Greece can be forced to leave the European Union, even if Greece has to abandon the Euro.

As for the leadership of the European Union, no matter the title of the various governing parties, there has been an increasingly conservative political-economic bent to the leadership in domestic, Europe-wide and international affairs.

DeDude said in reply to anne...

They can not be forced to leave the European (political) Union. The may have to abandon the Euro currency, but a number of other EU countries have their own currency (enjoying the free trade and political advantages of being an EU country). They would likely be forced to either back out of the Euro or face a complete collapse of their banks and economy (without banks no business) if the ECB close their banks access to funds. But there is no way that they could be kicked out of the Euro if they refused to leave.

anne said in reply to Larry...

http://www.cepr.net/blogs/beat-the-press/greece-and-the-euro

June 26, 2015

Greece and the Euro

James Stewart has a piece * in the New York Times telling readers that if Greece were to leave the euro it would face a disaster. The headline warns readers, "imagine Argentina, but much worse." The article includes several assertions that are misleading or false.

First, it is difficult to describe the default in Argentina as a disaster. The economy had been plummeting prior to the default, which occurred at the end of the year in 2001. The country's GDP had actually fallen more before the default than it did after the default. (This is not entirely clear on the graph, since the data is annual. At the point where the default took place in December of 2001, Argentina's GDP was already well below the year-round average.) While the economy did fall more sharply after the default, it soon rebounded and by the end of 2003 it had regained all the ground lost following the default.

[Graph]

Argentina's economy continued to grow rapidly for several more years, rising above pre-recession levels in 2004. Given the fuller picture, it is difficult to see the default as an especially disastrous event even if it did lead to several months of uncertainty for the people of Argentina. In this respect, it is worth noting that Paul Volcker is widely praised in policy circles for bringing down the inflation rate. To accomplish this goal he induced a recession that pushed the unemployment rate to almost 11 percent. So the idea that short-term pain might be a price worth paying for a longer term benefit is widely accepted in policy circles.

At one point the piece refers to the views of Yanis Varoufakis, Greece's finance minister, on the difficulties of leaving the euro. It relies on what it describes as a "recent blogpost." Actually the post * is from 2012.

To support the argument that Greece has little prospect for increasing its exports it quotes Daniel Gros, director of the Center for European Policy Studies in Brussels, on the impact of devaluation on tourism:

"But they've already cut prices and tourism has gone up. But it hasn't really helped because total revenue hasn't gone up."

Actually tourism revenue has risen. It rose by 8.0 percent from 2011 to 2013 (the most recent data available) measured in euros and by roughly 20 percent measured in dollars. In arguing that Greece can't increase revenue from fishing the piece tells readers:

"The European Union has strict quotas to prevent overfishing."

However the piece also tells readers that leaving the euro would cause Greece to be thrown out of the European Union. If that's true, the EU limits on fishing would be irrelevant.

The piece also make a big point of the fact that Greece does not at present have a currency other than the euro. There are plenty of countries, including many which are poorer than Greece, who have managed to switch over to a new currency in a relatively short period of time. While this process will never be painless, it must be compared to the pain associated with an indefinite period of unemployment in excess of 20.0 percent which is almost certainly the path associated with remaining in the euro on the Troika's terms.

In making comparisons between Greece and Argentina, it is also worth noting that almost all economists projected disaster at the time Argentina defaulted in 2001. Perhaps they have learned more about economics in the last 14 years, but this is not obviously true.

* http://www.nytimes.com/2015/06/26/business/an-echo-of-argentina-in-greek-debt-crisis.html

** http://yanisvaroufakis.eu/2012/05/16/weisbrot-and-krugman-are-wrong-greece-cannot-pull-off-an-argentina/

-- Dean Baker

anne said in reply to Mel at onin...

Tsipras had only two red lines it would and it could not cross: Trying to increase taxes on the rich (most notably large corporations), and not agreeing to further cuts to low pensions. if he crossed those lines, he would become virtually indistinguishable from Samaras and from the policies that led Greece to be a broken State.

-- Francesco Saraceno

[ I believe that this passage is wrong. Prime Minister Tsipras, to my understanding, was willing and had offered to increase taxes on the rich or "large corporations."

I will try to find a reference, but I am fairly sure I read this in regard to the offer by Tsipras. I recall the insistence on preserving low pension levels came with an express proposal to increase taxes on those with relatively high incomes. ]

DeDude said...

The troika had two goals from the start. First to give the banksters and plutocrats enough time to exit the country they had plundered (with help from local plutocrats). There was a large amount of privately held debt that could not be unloaded during a crisis, so they needed a pretend bailout such that most of that private risk could be transferred onto public organizations. Second they needed to keep the public in the other European countries from understanding that the fault was with their own banksters and plutocrats, not the people of Greece; and that the bailout plan (rather than immediate debt restructuring) actually was a plan to move the inevitable cost away from the banksters and onto the taxpayers.

Unfortunately, European tribalistic politics (further inflamed by the second goal) forced such austerity upon the people of Greece that they rebelled and elected a socialist government. Now there is a third goal for the troika (as dictated by their plutocrat masters); to punish the people of Greece (and scare voters in other countries) for electing socialist leaders. Be ready for an all out war of sabotaging any and all Greek economic recovery. They are desperate to set the example and scare away any thought of rebellion against economic tyranny in countries like Portugal, Spain, Ireland (Italy, France). They are not even trying to hide their sabotage of the Syriza government – just compare what they demand to what Syriza is offering. The objectives are for the same goals, it is just that Syriza has a plan that can reach those goals without sinking the Greek economy into an even deeper hole.

Fred C. Dobbs said...

If you owe your bank a million euros
and can't pay, YOU have a problem.

If it's a billion euros, THEY have a problem.

If it's a trillion, *you* are back
to having a problem, as it turns out.

Who knew?
RGC said...

IMF policy re Greece and Ukraine:

Greece: IMF Warns No Leeway on Payment as Merkel Urges Greece to Bow

http://www.bloomberg.com/news/articles/2015-06-18/lagarde-affirms-greece-s-june-30-deadline-to-make-imf-payments

Ukraine: IMF Violates IMF Rules, to Continue Ukraine Bailouts

http://rinf.com/alt-news/editorials/imf-violates-imf-rules-to-continue-ukraine-bailouts/

Sandwichman said...

DS-K weighs in on the IMF not learning from mistakes

http://fr.slideshare.net/DominiqueStraussKahn/150627-tweet-greece?ref=https://fr.slideshare.net/slideshow/embed_code/key/yT0ZJNQMSAStzy

Reply Saturday, June 27, 2015 at 11:51 AM
anne said in reply to Sandwichman...

http://www.nytimes.com/2015/06/25/business/dealbook/businesses-worry-about-shouldering-burden-of-greek-debt.html

June 24, 2015

Businesses Worry About Shouldering Burden of Greek Debt
By LANDON THOMAS Jr.

THESSALONIKI, Greece - From the beginning, officials at the International Monetary Fund, one of the country's creditors, have criticized the proposal's reliance on raising corporate tax, arguing that such increases will only hurt the country's already fragile economy....

[ This is the IMF; sacrifice ordinary already damaged Greek people for the sake of corporate or relatively rich Greeks. ]

Reply Saturday, June 27, 2015 at 11:59 AM
Sandwichman said in reply to Sandwichman...

Unconfirmed rumors that DS-K was originally going to refer to "the IMF's rape of Greece" but decided that might backfire.

Reply Saturday, June 27, 2015 at 12:04 PM
anne said in reply to Sandwichman...

Having read the Dominique Strauss Kahn memo carefully again, I am not sure just what is being argued other than a little more generous debt forgiveness a little earlier.

Reply Saturday, June 27, 2015 at 02:39 PM
Sandwichman said...

"Jeroen Dijsselbloem, president of the eurogroup of finance ministers, said before the meeting he was 'disappointed' by the surprise plans to stage a popular vote on debt financing proposals.

"'It's a very sad decision for Greece because it's closed the door to further talks, a door that was still open in my mind,' he said."

Democracy? Can't have that! This is FINANCE.

Reply Saturday, June 27, 2015 at 12:24 PM
anne said in reply to Sandwichman...
I am reminded of "Yes, Minister" on the EU.

Reply Saturday, June 27, 2015 at 01:53 PM
mrrunangun said...

I think of my dad's friend Phil in these cases of indebtedness. Phil was a successful businessman who functioned as a lender of last resort for a number of his acquaintances. Phil wanted his money first and foremost. When a borrower could not pay on time, Phil gave a brief grace period. If the borrower still could not pay, Phil would counsel the guy to get an honest job if he didn't already have one or get a second job if he had one and only one. If the guy already had two jobs or was ineligible for honest work, he was advised to consult a pawnbroker. If necessary, stealing and fencing outside of Phil's network might be a last resort. If the borrower still could not pay, Phil was not above resorting to strong collection methods that might persuade the borrower to come up with some cash courtesy of friends and family. Like legal collection methods Phil's cost money so was only resorted to in unusual cases. If the borrower still could not come up with the money, Phil had to face the loss. Needless to say, no further credit would be forthcoming.

It may be impossible for Greece to pay its debts because its prospects for growth are inadequate given the nature of its politics, the size of the debt, and relatively small size of its economy. If its lenders have concluded that that is the case, Greece would have to default and take the consequences. Its lenders will have to take the consequences as well. Phil would not have felt obliged to continue to make loans to a customer who had demonstrated an inability to repay his loan after the usual forbearance.

Chris Herbert said...

Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes:

"The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

anne said in reply to Chris Herbert...

http://www.polyarchy.org/enough/texts/keynes.1933.html

1933

National self-sufficiency
By John Maynard Keynes

RC AKA Darryl, Ron said in reply to Chris Herbert...

Terrific!

anne said...

http://krugman.blogs.nytimes.com/2015/06/27/europes-moment-of-truth/

June 27, 2015

Europe's Moment of Truth
By Paul Krugman

Until now, every warning about an imminent breakup of the euro has proved wrong. Governments, whatever they said during the election, give in to the demands of the troika; meanwhile, the ECB steps in to calm the markets. This process has held the currency together, but it has also perpetuated deeply destructive austerity - don't let a few quarters of modest growth in some debtors obscure the immense cost of five years of mass unemployment.

As a political matter, the big losers from this process have been the parties of the center-left, whose acquiescence in harsh austerity - and hence abandonment of whatever they supposedly stood for - does them far more damage than similar policies do to the center-right.

It seems to me that the troika - I think it's time to stop the pretense that anything changed, and go back to the old name - expected, or at least hoped, that Greece would be a repeat of this story. Either Tsipras would do the usual thing, abandoning much of his coalition and probably being forced into alliance with the center-right, or the Syriza government would fall. And it might yet happen.

But at least as of right now Tsipras seems unwilling to fall on his sword. Instead, faced with a troika ultimatum, he has scheduled a referendum on whether to accept. This is leading to much hand-wringing and declarations that he's being irresponsible, but he is, in fact, doing the right thing, for two reasons.

First, if it wins the referendum, the Greek government will be empowered by democratic legitimacy, which still, I think, matters in Europe. (And if it doesn't, we need to know that, too.)

Second, until now Syriza has been in an awkward place politically, with voters both furious at ever-greater demands for austerity and unwilling to leave the euro. It has always been hard to see how these desires could be reconciled; it's even harder now. The referendum will, in effect, ask voters to choose their priority, and give Tsipras a mandate to do what he must if the troika pushes it all the way.

If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point. But they have, and I can't at all blame Tsipras for turning to the voters, instead of turning on them.

RGC said in reply to anne...

"If you ask me, it has been an act of monstrous folly on the part of the creditor governments and institutions to push it to this point."

The US banks promoted loans that obviously could not be repaid. They committed massive fraud. They caused a horrendous debt deflation and concomitant great recession. Yet they were bailed out by Obama. Why shouldn't the European banks expect the same of their politicians?

[Jun 27, 2015] Breaking Greece

Paul Krugman:

Breaking Greece: I've been staying fairly quiet on Greece... But given reports from the negotiations in Brussels, something must be said...

This ought to be a negotiation about targets for the primary surplus, and then about debt relief that heads off endless future crises. And the Greek government has agreed to what are actually fairly high surplus targets, especially given the fact that the budget would be in huge primary surplus if the economy weren't so depressed. But the creditors keep rejecting Greek proposals on the grounds that they rely too much on taxes and not enough on spending cuts. So we're still in the business of dictating domestic policy.

The supposed reason for the rejection of a tax-based response is that it will hurt growth. The obvious response is, are you kidding us? The people who utterly failed to see the damage austerity would do - see the chart, which compares the projections in the 2010 standby agreement with reality - are now lecturing others on growth? Furthermore, the growth concerns are all supply-side, in an economy surely operating at least 20 percent below capacity. ...

At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen.
Sandwichman said...

The class nature of the IMF position is evident to anyone who chooses to see. Olivier Blanchard is the IMF's chief economist. Professor Krugman politely omits mentioning that salient fact. Professional courtesy, I presume.

anne said in reply to Sandwichman...

Olivier Blanchard is the IMF's chief economist.

[ Meaning what exactly? ]

Sandwichman said in reply to anne...

Meaning if "unserious" Olivier (see below) was serious about his unseriousness maybe he would publicly repudiate the economics of the policy of the organization that he is presumably chief economist for.

Sandwichman said in reply to anne...

"The IMF's 'Tough Choices' on Greece," Jamie Galbraith

http://www.project-syndicate.org/commentary/imf-greece-debt-restructuring-by-james-k-galbraith-2015-06#I3bKPImqEIzi2QYu.99

"Blanchard should know better than to persist with this fiasco. Once the link between "reform" and growth is broken – as it has been in Greece – his argument collapses. With no path to growth, the creditors' demand for an eventual 3.5%-of-GDP primary surplus is actually a call for more contraction, beginning with another deep slump this year.

"But, rather than recognizing this reality and adjusting accordingly, Blanchard doubles down on pensions. He writes:

"'Why insist on pensions? Pensions and wages account for about 75% of primary spending; the other 25% have already been cut to the bone. Pension expenditures account for over 16% of GDP, and transfers from the budget to the pension system are close to 10% of GDP. We believe a reduction of pension expenditures of 1% of GDP (out of 16%) is needed, and that it can be done while protecting the poorest pensioners.'

"Note first the damning admission: apart from pensions and wages, spending has already been "cut to the bone." And remember: the effect of this approach on growth was negative. So, in defiance of overwhelming evidence, the IMF now wants to target the remaining sector, pensions, where massive cuts – more than 40% in many cases – have already been made. The new cuts being demanded would hit the poor very hard."

anne said in reply to Sandwichman...

Understood completely, darn.

Sandwichman said in reply to Sandwichman...

So Galbraith and Krugman basically agree on the stupidity of the policy. Galbraith names the name. Krugman hesitates. Basic social psychology.

Sandwichman said in reply to Sandwichman...

Final paragraph of the Jamie Galbraith piece:

"Blanchard insists that now is the time for "tough choices, and tough commitments to be made on both sides." Indeed it is. But the Greeks have already made tough choices. Now it is the IMF's turn, beginning with the decision to admit that the policies it has imposed for five long years created a disaster. For the other creditors, the toughest choice is to admit – as the IMF knows – that their Greek debts must be restructured. New loans for failed policies – the current joint creditor proposal – is, for them, no adjustment at all."

Final two paragraphs of Krugman's:

"Talk to IMF people and they will go on about the impossibility of dealing with Syriza, their annoyance at the grandstanding, and so on. But we're not in high school here. And right now it's the creditors, much more than the Greeks, who keep moving the goalposts. So what is happening? Is the goal to break Syriza? Is it to force Greece into a presumably disastrous default, to encourage the others?

"At this point it's time to stop talking about "Graccident"; if Grexit happens it will be because the creditors, or at least the IMF, wanted it to happen."

Do those "IMF people" have names? I guess not.

anne said in reply to Sandwichman...

Perfectly contrasted and argued, and important.

pgl said in reply to Sandwichman...

This is sounding a lot like our Federal government. Nondefense purchasing is not that high even though we need a lot more infrastructure. Republicans have bitched about Social Security retirement benefits for decades. Cut taxes to hell and then demand a balanced budget even during weak aggregate demand. OK, Greece's problems are enormous but listen to Paul Ryan enough and we will become a banana republic.

[Jun 27, 2015] Tsipras Bailout Referendum Sham naked capitalism

"...not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states."
.
"...He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S. "
.
"...Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies. "
.
"...The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece."

June 27, 2015 | economistsview.typepad.com

Chris Herbert said...

Greece doesn't need any loans. Greece doesn't need any debt. Once you are a monetary sovereign you call the shots. Just ask the United States, or China, or Japan. Or Iceland. The central bank can recapitalize the economy with a new drachma, the only currency that can be used domestically. It can fund infrastructure projects that invigorate the Greek economy without issuing debt because it is producing assets, not liabilities. It can do so by avoiding what Keynes describe as 'a bookkeepers nightmare.' Keynes: "The divorce between ownership and the real responsibility of management is serious within a country when, as a result of joint-stock enterprise, ownership is broken up between innumerable individuals who buy their interest today and sell it tomorrow and lack altogether both knowledge and responsibility towards what they momentarily own. But when the same principle is applied internationally, it is, in times of stress, intolerable - I am irresponsible towards what I own and those who operate what I own are irresponsible towards me. There may be some financial calculation which shows it to be advantageous that my savings should be invested in whatever quarter of the habitable globe shows the greatest marginal efficiency of capital or the highest rate of interest. But experience is accumulating that remoteness between ownership and operation is an evil in the relations between men, likely or certain in the long run to set up strains and enmities which will bring to nought the financial calculation....

National self-sufficiency, in short, though it costs something, may be becoming a luxury which we can afford if we happen to want it. Are there sufficient good reasons why we may happen to want it? The decadent international but individualistic capitalism, in the hands of which we found ourselves after the War, is not a success. It is not intelligent, it is not beautiful, it is not just, it is not virtuous - and it doesn't deliver the goods. In short, we dislike it and we are beginning to despise it. But when we wonder what to put in its place, we are extremely perplexed."

anne said in reply to Chris Herbert...

http://www.polyarchy.org/enough/texts/keynes.1933.html

1933

National self-sufficiency
By John Maynard Keynes

RC AKA Darryl, Ron said in reply to Chris Herbert...
Terrific!
Swedish Lex June 27, 2015 at 7:27 am

Thanks for long analysis.

Not sure I agree with all.

While Tsipras, Syriza & Co. certainly are not the team that would win the Super bowl, far from it, they are nevertheless not worse than the Troika in terms of incompetence, internal inconsistencies, having made populistic and crazy promises to voters on false pretenses, etc. Greece is the unruly teenager and the Troika are supposed to be the enlightened and responsible parents, even if it means being harsh. What we have instead is one entirely dysfunctional family.

My point is that even a 24 karat Greek Government would have an impossible task in negociating with the Ayatollahs of the Troika.

This game is therefore (unfortunately) not about acting rationally. Doing the right and responsible thing will not make you win or at least lose less.

Therefore I think that Tsipras move to launch a referendum is not bad. If the ECB shuts off the ELA – a couple of days before the citizens of Greece get to vote on the situation – then the ECB will (again) be confirmed at the Institution that kills democracy.

The Greek referendum has in my view been an option for the Greeks all the time. By doing it now "Ach mein Gott, way too late", the Greeks show that the creditors, and their parliaments, do not own the agenda (and hence cannot use it as pressure point).

What we are witnessing is clearly not a negotiation. It is political warfare with one pygmy state against a totally overwhelming force. I do not expect Greece to win this, in the end, but I hope that they will lose with dignity while the creditors win in infamy. This is not irrelevant since the next generation of Greeks will need to know that their parents refused to surrender to the, objectively, suicidal demands of the creditors....

Swedish Lex, June 27, 2015 at 7:33 am

I also believe that a Greek default would blow a big hole in the ECB's balance sheet, meaning that the euro states would have to inject tens of billions of new equity. Real money. TBC.

Freddo, June 27, 2015 at 7:52 am

I wonder how Merkel is feeling right now. I would interpret telling Tspiras to "shut up" as a sign she sees her legacy disappearing down a drain. Powerful leaders holding all the cards don't talk like that. Maybe she has suddenly realized she doesn't hold all the cards.
ennui, June 27, 2015 at 10:06 am

not just greece. the collusion between the ECB and the French and German governments/banks, along with the IMF sends a clear message to all the European "junior" states. the fact that the ECB has conducted a slow bank run in Greece destroys any trust national political leaders might have in a European banking system. you can't have a central bank which is willing to destroy the banking system of a member state to advance the political aims of other member states….

steviefinn, June 27, 2015 at 7:56 am

Swedish Lex

Agreed – & what is the difference in the end result between bowing & scraping & at least putting up some sort of fight ? Strikes me that it would eventually end up in much the same place anyway. Maybe morals don't count in this counting house world anymore, but however it ends, I personally am grateful to Syriza for allowing us more insight into the dealings of the EU Junta – which hopefully others will learn from, leading to a way of destoying this hydra.

Lambert Strether, June 27, 2015 at 1:23 pm
Not sure what mechanism you have in mind. From the post:
[Syriza's] assumption appears to have been that the national governments would find it too politically toxic to recognize losses on the debt they had extended to Greece through the EFSF and the Greek Bailout Fund. But maturities on these facilities have been extended and payments deferred. And the national governments do not have to mark to market. They will recognize losses only if and when Greece fails to make payments, which is years down the road. And even then, the pain is spread out over decades. That means Greece's supposed nuclear weapon turns out to be a pop gun.

Granted, these are country losses (after they were left holding the bag for German banks) but you do't explain how the ECB would lose. Would you, please?

Cugel, June 27, 2015 at 7:42 pm

Varoufakis last year explained everything before Syriza even took power. He stated that default would be "catastrophic" and that he saw his job as "attempting to save capitalism from itself." In short exactly the role that FDR played in the U.S.

The difference of course is that the U.S. had a sovereign currency and could run deficits and FDR didn't have to answer to the Troika. So, Syriza tried to get the creditors to see reason and see that it was in their long-term best interests to grant debt-relief. They failed because of EU arrogance, blind adherence to dogma, and short-term thinking. But, they certainly didn't have any other choice.

Yves has criticized them severely for not negotiating better. It is impossible to prove she's wrong that Syriza missed opportunities for finding a workable compromise, but I've never seen it as remotely plausible that the creditors would agree to anything Greece could accept.

The attempt at a referendum is obvious political theater and will be rejected by the Troika. It wouldn't work anyway. It is just another political ploy by Tsipras to cast the blame on the Troika by making them look bad, but they are long past the point of caring and just want Greece out of the EU.

Ben Johannson, June 27, 2015 at 3:35 pm

I can see no evidence that eurozone CB's must be in positive territory regarding its balance sheet or that member states must make any "hole" whole. They may demand it anyway given the leaders of the eurogang are likely as stupid as they look but it isn't an inevitability given the ECB does not require balance sheet solvency to conduct its operations.

ennui, June 27, 2015 at 1:15 pm

As Varoufakis notes in his recent statement, an agreement now would leave Syriza with a Greek economy in a deep depression, a banking system that has been strangled by the ECB with no commitment to confidence building, a requirement to create a fiscal surplus and monthly reviews by the IMF culminating in a repeat performance of this whole charade in November.

Surely you can't believe Syriza is going to come out of that stronger? The banking system has basically collapsed, deal or no deal. Plus. the Troika proposal also contains the poison pill of VAT increases for the islands, which would drive a wedge between Syriza and it's nationalist allies.

Whether it was intentional or not, Syriza's dogged commitment to this "negotiation" has illustrated just the degree to which the Troika are acting in bad faith. There were just two outcomes that were possible from this process: Syriza signing a deal which would be politically suicidal or Greek exit, and this was by design by the powers of Europe.

The combination of political cravenness combined with short-sightedness and a recklessness built on arrogance displayed by the Troika should be truly sobering and is the real story, regardless of what now happens in Greece.

[Jun 27, 2015] Warmongering vs Economic Progress

Notable quotes:

"... "And you, son of man, will you judge, will you judge the bloody city? Then cause her to know all her abominations." Ezekiel 22:2 ..."

"... See Israel is the Problem ..."

"... See The War on Christianity ..."

"... See The Truth about the Conflict with Russia. ..."

"... "Woe to the bloody city!" Ezekiel 24:9 ..."
Jun 25, 2015 | Biblicism Institute
C H U R C H   R E F O R M    S E R I E S
By Biblicism Institute

"And you, son of man, will you judge, will you judge the bloody city? Then cause her to know all her abominations." Ezekiel 22:2

All Empires throughout history have their foundation in war and blood.

The American Empire is no different.

With more than 1,000 military bases and installations spanning the globe and a foreign policy that causes almost every nation on earth to cower to its will, the United States of America is the most powerful Empire the world has ever known. But instead of being an Empire of benevolence and peace, the US has been at perpetual war and expansion since its creation.

Unfortunately for the imperial citizenry, warmongering and economic progress are anathema to each other. If economic progress leads to empire-building, sooner or later empire-building leads to economic catastrophe and bankruptcy; said woes are usually the upshot of foreign entanglements and unholy alliances that lead to unsustainable expansions and wars.

However, in the absence of such imperialistic formula, the opposite usually takes place.

When WW2 caused the irrevocable dissolution of the Japanese and German Empires, the then emerging American hegemon quickly shackled these defeated countries with the trammel that paralyzed (and eliminated) their military machines which had facilitated their expansions. The happy result was that Japan became the economic power of Asia and Germany that of Europe.

Today these two countries have more robust economies than that of the US. Both are major centers of technological achievements, years ahead of their American jailer.

Even China managed to surpass the US by becoming the No 1 economy in the world. That's because China is not (yet) building an Empire. Its focus is on profit, not war.

As the 21st century dawned, America thought it wise and necessary to embark upon war after war by aiming to destroy the MENA (Middle East and North Africa) region.

The delusional Promised Land of the Israelis

" we're going to take out seven countries in five years, starting with Iraq, and then Syria, Lebanon, Libya, Somalia, Sudan and, finishing off, Iran," revealed Gen. Wesley Clark in 2007 referring to America's war plans drawn before the invasion of Iraq.

But why wage war on all these Arab and Muslim countries that wished and caused no harm to the US Empire? To benefit Israel and its plan of conquest (i.e., the delusional Greater Israel or Promised Land). See Israel is the Problem

In order to eliminate all opposition to Israel's Machiavellian design to steal more Arab lands, the more powerful and influential Arab and Muslim countries of the region (not firmly in the US orbit) had to be weakened to the point of exhaustion through war and the so-called Arab Spring's color revolutions (orchestrated by the Jewish neocons in Washington, DC).

Given that the Israelis could not start such an ambitious project by themselves, let alone bring it to fruition in its entirety, the only solution was to wag the American dog to implement most of it. After all, the dog couldn't possibly decline since AIPAC has it by the groin. So far, all these conflicts have drained trillions upon trillions of dollars from the US Treasury, hatched an economic depression, and resulted in over 5 Million refugees and 2 Million dead including Christians. See The War on Christianity

As if that were not enough, the American Eagle swooped down into the Russian Bear's cave and ensnared it into a whole new conflict. Now why did the Eagle that's less than a mouthful to a Bear risk such a move?

When the Imperial tsunami was about to hit Syria's shores, Syria called on its Russian patron for help. Russia of course intervened and halted the American war on Syria which was planned by AIPAC for the benefit of Israel. The end result is the current tug-of-war in Ukraine as payback (and more). See The Truth about the Conflict with Russia. This contrived dispute with Russia, if it were to get out of hand, could start WW3.

So while the American Empire is warmongering overseas, thereby wasting valuable resources that could have been directed toward its depressed and flailing economy, China has been steadily encroaching on and even surpassing America as the world economic hegemon while siphoning every industry that used to call America home.

For such a catastrophe, Americans only have Israel and its whorish minions in Congress to thank.
"Woe to the bloody city!" Ezekiel 24:9
[Jun 27, 2015] The Bankruptcy of Americas Elites naked capitalism

"...The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away."
.
"...What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray."
.
"...modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal. "
.
"...Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host."

June 26, 2015 | nakedcapitalism.com

If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work. But as the 1% and 0.1% amass more and more of total income and wealth, so too have they come to believe their interest diverge from those of the rest of us (and in a literal sense, they often do, since in too many cases, their wealth rests at least in part on predatory conduct). And now that that gap has become obvious, it has reshaped the role of the ruling class, as in the people who are in charge of the administrative apparatus of society. While some members of these top income groups play a direct role in running powerful organizations (CEOs of large an/or strategically important businesses, for instance), it also includes much less affluent individuals, like government officials and those who influence values and collective perceptions, like major publishers and public intellectuals.

Increasingly, these administrators, influencers, and top professionals seek to use their roles as an entry ticket to the top cohort. The prototype is the revolving door regulator, but there are plenty of other embodiments.

A recent example is Raj Date, who was the Deputy Director at the Consumer Financial Protection Bureau after having worked at Deutsche Bank, Capital One, and McKinsey. I'm told consumer groups were never comfortable with him; he was too slick to be seen as trustworthy. And he tried to elbow Elizabeth Warren aside and he grab the directorship of the new agency before Warren put a stop to that by throwing her weight behind Richard Cordray. Date founded Fenway Summer, a "venture investment firm focused on financial services." It sought to compete with Promontory Group, a money and influence machine headed by former Comptroller of the Currency Gene Ludwig. Established readers may recall the prominent role that Promontory played in the Independent Foreclosure Review fiasco, in which Promontory walked away with over $600 million in fees for a job badly performed and never completed (for details, see Regulatory Looting, Promontory-Style: Botched Foreclosure Reviews Alone Generate More than Double Goldman's Revenues per Employee, Bank of America Foreclosure Reviews: Why the OCC Overlooked "Independent" Reviewer Promontory's Keystone Cops Act (Part VB)) and Bank of America Foreclosure Reviews: How Promontory Became a Shadow Regulator (Part VA).

Date just sold Fenway Summer to Promontory. As a well-recognized banking expert said via e-mail:

Not surprised. I read it as a failure of Fenway Summer. It was supposed to be a rival to Promontory, not bought out by it. I sure as hell wouldn't pay for Raj's advice.

But members of the elite like Raj manage to fail upwards, or at worst sideways. And that helps preserve the widening gap between them and everyone else.

This Real News Network interview with Robert Scheer, which is number six in a ten part series, discusses how the self-serving attitudes among the supposed leaders of our society became entrenched.

PAUL JAY, SENIOR EDITOR, TRNN: Welcome back to Reality Asserts Itself on The Real News Network. We're continuing our discussion with Bob Scheer. Bob is a veteran U.S. journalist, currently the editor-in-chief of the Webby Award-winning online magazine Truthdig. And his whole biography you'll find beneath the video player.

We're just going to pick up where we were.

So here's what I'm accusing you off, that you seem to be suggesting that there's some rationality left in this system within the elites. And I'm not talking–of course there are some individuals that have some rational long-term view. I mean, even people like Soros has been crying about the lack of banking regulation. And there's people in different sectors of the elites who realize this is a train wreck and about go over a cliff. But those voices are actually marginalized. Even somebody who's got as much money as Soros within the banking and financial elite is completely marginalized. Nobody really listens to a word he says–people with power, at any rate. [1:07]

PROF. ROBERT SCHEER, JOURNALIST AND AUTHOR: Well, they listen to–.

JAY: Let me finish the point.

SCHEER: They listen to Buffett.

JAY: Well, maybe. But Buffett doesn't raise as much alarm as Soros does. But within there–they don't even seem to be able to rule in their own interest. It would be in the interest of global capitalism to have more rational banking regulations as they introduced in the 1930s. It would be in the interest of global capitalism to deal with the threat of catastrophic climate change. It would be in the interest of any rationality not to let fossil fuel and the arms industry so dominate U.S. foreign policy, particularly in the Middle East, I mean, this fueling of a Saudi-Iranian conflict. The idea that, you know, could there be a United States without a massive military, yeah, there could, but not this United States, not this economic system, not this elite. These guys aren't going to come around to some kind if view of we could be an equal, modest country.

SCHEER: Well, you're absolutely right that the current configuration of power in America is irrational. We don't have adults watching the store. And we go from one disastrous pursuit to another. I mean, there was no reason whatsoever, if we had adults watching the store, you'd go knock off Saddam Hussein in Iraq, who had nothing to do with al-Qaeda, was a force against Iran, which–you know, we backed him in his war with Iran. So the contradictions are obvious, that we don't have adults watching the store, we don't have rational policy.

However, I think you are not the only person that now knows that.

JAY: Oh, I'm sure lots of–I would say most ordinary people kind of know it.

SCHEER: No, I think even in those circles there's an awareness that we're not doing very well, and there are reminders that we're not doing well. You know, our economy is stagnant. We're up against some real problems in terms of our future. Income inequality is one. You don't have to be some wild lefty liberal to see that. I mean, the whole foundation of our country was always on a stable middle class and an expanding middle class, opportunity, equal playing field. I'm not saying that was the reality, but that was always the expectation. You know. And, you know, whether it's de Tocqueville or the founding fathers, there was always an assumption that at least for what you thought was the base population there would be this opportunity. You know. And we have been forced over the last couple of decades to recognize that no, it's going alarmingly in a different direction.

Internationally, we know we're not doing very well. I mean, we don't produce a whole lot of products that everybody in the world is dying to get their hands on. The main thing that we've been effective on is this tech stuff, and our tech companies are the ones that are most concerned that our political model is not a good one. They're the ones that are out there having to sell this stuff, and this stuff involves getting confidence and knowing the culture, caring about other people, winning their confidence. And that's been endangered.

So the only thing I would–I don't disagree with you at all as to whether our model is in trouble. It's in trouble. I disagree with you only on whether–the number of people who know it's in trouble.

JAY: I would say even most of them–I would probably think most of the elite know it's in trouble. They're just going to cash in on it, and it's going to be someone else's problem to do something about it.

SCHEER: Okay. You're putting your finger on something that I feel is very critical. And I have spent my life interviewing people generally around power, in government and so forth. I've traveled with Nelson Rockefeller and David Rockefeller. You know, I have interviewed people who became president, from Richard Nixon, Clinton, and so forth and so on.

And if I were to try to explain, the big shift that I've seen is long-term as opposed to short-term, that most of the people I had interviewed in the first stage of my career, say somewhere up until 1970, were people that at least were concerned what their grandchildren might think. You know? There was either through family, inherited wealth, or going to certain schools, or there was some sense of social responsibility, you know, that you could find, that we have to leave our mark, we have to leave it a better place, we have to–and just for our place in history, that it mattered. Okay? So you could be concerned, oh, we'd better get with the civil rights movement, because otherwise we're going to fall apart, or we'd better care about the economic condition of the rest of the world, because otherwise it will rebel, we'd better worry about the living condition of our own people here or they'll rise up with pitchforks and toss you out.

I think what happened is we went into this madcap period of short-term greed.

JAY: And let me just–Bob wrote a book called The Great American Stickup: How Reagan Republicans and Clinton Democrats Enriched Wall Street While Mugging Main Street. And this was a kind of turning point you're talking about.

SCHEER: Yeah, that's really what my book is about, because you had sensible rules of the road that came out of the New Deal, and there was a recognition, because of the Great Depression, that you just can't have this madcap, crazy, Gilded Age society. Again I overuse this concept of adults watching the store, but I remember going back to just being a kid in the Bronx, and you didn't leave the children to run the fruit stand, 'cause they'd give everything away or they'd go off themselves and play stickball. Somebody had to be there to make sure the stuff got sold and money was paid and things. And you lost that. You got people coming out of the law schools and the business schools that were shysters. You know, they just wanted some hustle, some scam. That's how you got into credit default swaps and collateralized debt obligations.

JAY: Yeah, but the bubbles are euphoric,–

SCHEER: Yeah.

JAY: –if you're in on cashing in on the bubble.

SCHEER: And anybody who looked at that knew. I mean, I was interviewing people during those years, and they'd say, this is, you know, as Buffett said, financial instruments of mass destruction. You know, how could you believe in any of this stuff? How could anybody believe if you–this is what my book was about–you take all these loans and you redefine them and you talk about the risk in stupid ways and you give loans to people who can't support it, and somehow, okay, and whether you were in Fannie Mae, Freddie Mac, or whether you were in the private sector, 'cause Fannie Mae and Freddie Mac were being traded on the stock market, you had to know that this was going to explode. They knew it. And they got the laws to change to make it legal. It should have been illegal.

You know. I mean, the Commodity Futures Modernization Act, which Bill Clinton signed off as a lame duck president in 2000, after it was already–you know, the election was over, he was now a lame duck, and he signed this bill. What was the purpose of it? It was to make all of this garbage legal. It said–I think it was Section 3 of the Commodity Futures Modernization Act–a Republican-Democratic bipartisan bill–said no existing law or regulatory agency will have jurisdiction over credit default swaps or collateralized debt obligations or any of these new financial mechanisms. Why? Because they said this is modern. We have to compete with Europe. You have to be able to do these things. We can't let–we have to give legal certainty–Lawrence Summers, you know, secretary of the Treasury–we have to have legal certainty for these financial instruments; otherwise, they won't be effective. Right? Legal certainty meant no one's going to look at it, no one's going to challenge it, no one's going to set any standards, no existing regulatory agency or law will apply. So it was a license to steal.

JAY: Now, for people that don't understand the concept, quickly.

SCHEER: Well, quickly, what happens is they developed all these new financial gimmicks. You know, a credit default swap was something that was an insurance policy, but it was not an insurance policy. It's what AIG did and got into so much trouble. They said, you do these collateralized debt obligations, you take all these different loans, subprime mortgages–.

JAY: Which were invented in Baltimore, by the way.

SCHEER: Yeah, auto loans, or any of these things, and then they don't make sense on their own and they all seem quite risky, but we'll put them into a pool and we'll assess their value and we'll get these credit rating agencies that have a stake in saying, yeah, they're all good to go because they're going to get money from it. So there was no regulation. And then you pass a law that says you're allowed to do this, no one will look at it carefully, no existing regulatory agency will have control. So you've got a license to steal. Go knock yourself out. You know? And they, selling all these loans, packaging them, and then reselling them to people over the world. Right? And we can predict, you know, get this income and so forth. And then, if it looks shaky, we're going to give you these phony insurance policies, right, that will seem to back them up. But there's no money behind it. It's not like a real insurance policy. Nobody's putting any resources.

So, suddenly, you've got this thing that's going to explode, and AIG, which is supposed to be backing up the insurance, says, hey, we can't do that; we have no money for that. So now your housing bubble has collapsed and AIG can't support it. And it's nothing more than the mafia doing a scam, only you have passed laws that say that's all legal, that's all legal.

Now, you're absolutely right. You wouldn't do that if you were worried about how even you would appear to your grandchildren. Okay? People looking back now know these people were crooks, whether they went to–they didn't go to jail, 'cause they they get the law passed to make it that it's not a crime to defraud people. It's legal. It wipes out half of the wealth of African Americans in this country, wipes out the economic gains of the civil rights movement, 'cause they were particularly a group that was particularly victimized. It wipes out two-thirds–these are Pew Research Center figures–wipes out two-thirds of the wealth, the collected wealth over generations of Hispanics in this country because they were subject to these subprime. They lose everything when they lose their house. But the guys putting it all together, they escape with their billions. They don't go to jail. So, yes, if what you mean by your opening statement was we don't have solid, responsible people who even care how they will appear to their grandchildren–.

You've got a guy like Robert Rubin, okay? Robert Rubin was secretary of the Treasury under Bill Clinton. He had come from Goldman Sachs. He had convinced Clinton you could do all this stuff, this is all great, we'll do all this crap. He brings in Lawrence Summers. Timothy Geithner, who's a younger person working in there, he becomes the Treasury secretary under Obama. They do all this stuff. They get Clinton to sign off on it. He does it with Phil Gramm, the Republican, so it's bipartisan. Very few people challenge it. You know, now, I think if you ask anybody about Robert Rubin, they say, God, yeah, he wasn't too good for it. I'll bet you his own family members think he got his–you know, what happens? He leaves the Clinton administration; he goes to work for a bank that he makes legal, right? The merger of Citibank and Travelers Insurance they make legal with their reversal of Glass-Steagall, the Financial Services Modernization Act, and then they got the Commodity Futures [Modernization Act], which makes these gimmicks legal. He gets $10 million a year for the next decade. Sure, he's got money salted away. But I don't think he's got a reputation that's worth anything. I don't know. Lawrence Summers, again, I don't think people particularly treat those with respect. But they have money. You know, they can take care of their nephews and nieces. But I think it's generally accepted they caused a lot of damage to the economy.

JAY: But it's not, like, that it's just a bad group of people happened to get into power. And I'm not suggesting you're suggesting that.

SCHEER: No, it's the best and the brightest that Halberstam wrote about in Vietnam. These are very well educated people who know what they're doing and, I believe, have to know it's going to destroy the lives of millions of people, and they go ahead and do it. It's just like–.

JAY: Yeah, 'cause they say if it ain't me doing it, it's going to be him doing it, or her.

SCHEER: Whatever their rationalizations, they surround themselves with lawyers and PR people who tell them this is all wonderful, and they get away with it.

JAY: But it's the way the system has evolved that so much money is in so few hands. There's not much else for them to do with it than bet and gamble against each other, create this massive speculative sector of the economy, which is financializing everything. Even when they talk about climate change, all they really have in mind is a way to financialize it. So whether it's this group or the other group, the sort of system itself is created where there's–so much capital has become completely parasitical.

SCHEER: Yes, but they could also be decent people. They could actually wonder about what would Jesus do. They could actually think about what does their lives mean.

JAY: I think some do and drop out.

SCHEER: A few.

JAY: Some do, and they can't take it anymore, and they drop out.

SCHEER: Yeah.

JAY: But they're not in any position to change the course of the ship.

SCHEER: Well, but also the question you should ask is why aren't they being observed in doing this. And the reason is because they can buy off everyone.

JAY: Especially the media.

SCHEER: The media, but the universities, the grants of–you know, build buildings at universities. Come on.

JAY: I want to stress the media 'cause they have this theatrical show going in the elections–I'm not saying there isn't a real contention for power, but when you have unlimited contributions, unlimited spending, what are they spending it on? They're spending it on TV advertising.

SCHEER: Yeah, and they're spending it on candidates who will not give them a hard time. There's no question about it.

But it's not just the media. I mean, I don't want to exonerate the media, but you–you know, in the day of the internet, you should have more critical voices, right, 'cause–but even there you look at where could–you know, okay, to understand the economy or foreign policy requires a little brainwork, okay? Most people have got to take care of their job and their family and pick the kid up and how do I pay this bill and am I going to lose my job and/or how am I going to make that sale. And so their lives are taken up. And then we have a group of people, whether they're called journalists or professors or consultants or what have you who actually have the time and are really charged with figuring stuff out.

Now, most of this stuff is not all that difficult to figure out. So then you have to ask yourself the question, why didn't you figure it out? I mean, why didn't the media–in my book I describe how The New York Times was a cheerleader for this radical deregulation. They used words like modernization. They said long overdue. Now, why? You know, because they were living in a culture and benefiting from a culture that was benefiting from the ripoff. These are the people who advertise. These are the people who invest in your venture, in your media. These are the people who buy chairs at the schools where you're teaching. These are people who support the charities or political causes that you happen to agree with. There is a culture of corruption, I mean, 'cause anyone else looking at this, they say, wait a minute, this is nonsensical, this is bad. Why are you selling–I remember writing about this stuff. I would go out to what they call the Inland Empire in California where they're building all of these–. I said, who's going to live here? How are they going to get to work? Who's paying for this? Why are they making the loans? And then you realize there is no there there. Don't confuse the thing–I remember an old advertising [incompr.] don't confuse the thing being sold with the thing itself. They're not selling a house to somebody who needs a house and is going to live and be able to afford the payment; they're selling this collateralized debt obligation that's 1,000 of those houses that you have made and chopped up and iced and diced and everything and sliced, and then you're going to make that seem like a good bet to somebody. Where? In Saudi Arabia or in France or–.

JAY: Knowing it's all going to default.

SCHEER: Yeah, but you're going to get in and out before it defaults.

JAY: Yeah

William C, June 26, 2015 at 4:05 am

O tempora O mores.

Little changes really?

Benedict@Large, June 26, 2015 at 8:08 am

Scheer understates (just a bit) what the Commodities Futures Modernization act was all about. What all these credit default swaps and other exotic new derivative instruments were all about was recreating and expanding the list of instruments in use on Wall Street. CFMA's purpose was to insure that this parallel market was unregulated. I one fell swoop, CFMA gave Wall Street the ability to recreate itself, only the recreation was to be entirely without government oversight.
I'm sure there were a few incompetent fools (like Alan Greenspan and Phil Gramm) who actually believed the toxic hype that this was all about leading the curve to the new Nirvana, but pretty much everyone else knew that is was nothing more than a government-sanctioned heist, because almost at once, everyone started acting like it was. Even as early as 2000, the national association of real estate appraisers was petitioning the government for relief from bankers forcing them to scam their appraisals or get kicked out of business.

By 2002, Dean Baker was complaining that the rent-vs-own ratios that had been constant for a hundred years were careening wildly, with no apparent cause.

By 2004, the FBI was begging Congress to fund more investigators, saying that the mortgage industry had become a swamp of corruption.

By the end of 2005, the entire mortgage market began collapsing, and the only thing that delayed it for another 30 or so months was that the Bush administration forced Fannie and Freddie to take their hundreds of billions of wealth … OUR WEALTH … and throw it against that market's collapsing edifice.

The only thing left was that the next President would have to owe his election to the very people who needed to be indicted, convicted, and jailed.

LifelongLib, June 26, 2015 at 4:48 am

The wealthy's acceptance of the New Deal was always grudging, and lasted only as long as they thought their wealth/safety depended on some of the rest of us being fairly prosperous. When they found a way out of it (globalization) they were happy to toss the New Deal away.

Ben Johannson, June 26, 2015 at 5:45 am

Bubble talk leads us back to the mainstream of economic thought. The notion of bubble is a deviation from some normal state of affairs, namely a growing, self-equilibrating economy and markets (called growth theory among neoliberals.) Some event, it is presumed, external to the normal state forces the economy out of kilter but once this is dealt with economic growth and employment will return to the trajectory everybody knows and loves.

What happens to the concept of economic bubbles if we do not assume that markets are self-correcting? It goes out the window because there is no norm from which to stray.

Maju, June 26, 2015 at 8:08 am

Actually what happens is that we reach an overproduction crisis, which is the natural thing to do for Capitalism, at least according to Marx.
But while we are in that overproduction crisis, the financier capitalists still grow in power and wealth, because they speculate with it, being almost the only ones able to still make a sustained profit, and use that power to contain any attempt of reform and rather promote even greater deregulation, like the triple-T secret treaties. All very natural and expectable, albeit unfortunate, in good economic and political science.

Maju, June 26, 2015 at 6:26 am

TRNN are generally very worth watching, thank you. Although they may have overdone the interviewer's makeup on this occasion.
This links very well with what I was saying in another thread: modern financier capitalism has no plan other than "loot while you can". The last comment of Scheer points to pyramidal or Ponzi schemes being all what is, and, if that's the backbone of the economy, we are certainly in for a massive shock that will make the 2007-08 one look almost anecdotal.
Another interesting comment of Scheer is that a key "rational" (or "productive") US economic sector is the technological one, what is no doubt true. I am under the strong impression that the USA could for example be leading the transition to renewables, as most technological advances in solar energies, for instance, happen in the USA. But paradoxically the republic is actually betting heavily on oil and not using that advantage to reaffirm itself as avant-guard global economic power, what could well give Washington another whole century of hegemony.
So indeed there is no plan, only short-termism and loot-while-you-can.

ambrit, June 26, 2015 at 6:33 am

I'm glad that the concept of 'elites' is finally gaining widespread acceptability. It is a sorry state of affairs when a class of people develops an "us or them" worldview, but there it is. If I understand it correctly, MMT is a system based on a rational and pragmatic view of how money works. 'Elites,' as an organizing model serves a similar function in the socio political sphere of human endeavour. Each contends with 'official' ideologies promoted by the system itself.
I agree with Feynmans' contention that the system architecture of a human institution defines and circumscribes it's functionality. His addendum to the Space Shuttle Challenger Accident Report lays out his contention. Essentially, the idea is something I've read in other accounts of how the government bureaucracies work. Functionaries are punished for presenting facts and analysis counter to the perceived desired outcome. The perceptions guiding the process are generally internally produced and shaped. No sinister 'master criminal' is required. The group as a whole develops it's own world view, and designs systems to support and expand that "World."

It has been asserted that Bernays et. al. applied the scientific method to crowd control and manipulation. That generation is now long gone, and with them the concept of 'public service.' Even if one were to apply a maximum degree of cynicism, that bygone generation of 'elites' had an infinitely greater regard for the 'public good' than today's 'elites.' As the article above plainly states, even that degree of concern for out groups is gone.

Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

ambrit, June 26, 2015 at 6:55 am

Blast! I forgot to append Feynmans appendix to the Rogers Report. (I've put this up once before, so please excuse the redundancy.)
http://history.nasa.gov/rogersrep/v2appf.htm

H. Alexander Ivey, June 26, 2015 at 11:52 pm

Thanks for the link, interesting report.
Am struck with the NASA managers over-riding their engineers' concerns. This is not a result of a "bureaucratic mind-set" but of people not being held responsible for their actions. The managers were paid to have a flight go on time. The engineers held to their belief that the flight should be as safe as they could make it.
The fault is not in our stars, but in our compensation systems. I don't think any NASA manager lost their job, got demoted, or a letter of reprimand over the Challenger accident.

ambrit, June 27, 2015 at 10:27 am

Yes, but that very "flight go on time" consideration is a part of the "bureaucratic mind set." When a functionary believes that adherence to an even unstated expectation will determine that bureaucrats future career arc, ways will be found.

The other dimension of this, seldom voiced, is the fact that President Reagan was scheduled to give the annual State of the Union speech the night of the launch day, January 28, 1986. Rumours have since circulated that Christina McAuliffe was scheduled to participate by remote camera link from orbit. Having a cameo in the State of the Union speech by Americas favourite teacher in space is exactly the sort of stunt a trained Hollywood actor would endorse. I blame Ronnie Reagan and "politics as usual" for this disaster.

As for bureaucrats overriding the opinions of technocrats, well, that's life. The political actors keep pushing the envelope regarding safety, and especially cost, until someone gets killed. Then the game is reset. I have personally seen this dynamic play out several times.
Even better than the Challenger fiasco was the outright negligence that caused the Columbia 'event' in 2003. There had been serious concern voiced by engineers about the big piece of foam that broke off of the main tank and struck the underside of the shuttle during launch. This was no love tap. The foam chunk hit the shuttle going approximately 1900 miles per hour. This made a hole in the underside left wing heat tile array. Hot gasses from re-entry entered the wing root and broke up the shuttle. The defining factor again was the mindset of the NASA bureaucracy. This excerpt from the Columbia disaster wiki shows how it happened.

In a risk-management scenario similar to the Challenger disaster, NASA management failed to recognize the relevance of engineering concerns for safety for imaging to inspect possible damage, and failed to respond to engineer requests about the status of astronaut inspection of the left wing. Engineers made three separate requests for Department of Defense (DOD) imaging of the shuttle in orbit to more precisely determine damage. While the images were not guaranteed to show the damage, the capability existed for imaging of sufficient resolution to provide meaningful examination. NASA management did not honor the requests and in some cases intervened to stop the DOD from assisting.[11] The CAIB recommended subsequent shuttle flights be imaged while in orbit using ground-based or space-based DOD assets.[12]

Details of the DOD's unfulfilled participation with Columbia remain secret; retired NASA official Wayne Hale stated in 2012 that "[a]ctivity regarding other national assets and agencies remains classified and I cannot comment on that aspect of the Columbia tragedy."[13]

So, there you have it. Bureaucracies, large and small, exhibit definable and consistent patterns of behavior. The fault lies not in our stars, as you observed, but in our Chairs.

ewmayer, June 27, 2015 at 7:40 pm

NASA also exhibited such managerial fubar-ness in the run-up to the Hubble main mirror fiasco – here is a 1990 NYT piece on that. The punchline: For more than a year pre-launch NASA had not one but TWO fully finished main mirrors in storage – the flawed one made by Perkin-Elmer, and a perfectly sound one subcontracted by P-E to Eastman Kodak. Did NASA bother to do the simple "let's comparison-test these 2 mirrors and use the better one, if one proves superior, in the Hubble" thing? Of course not. Hell, a simple scaled-up Foucault test of the kind amateur telescope makers have been doing for over 150 years using primitive tools would have revealed the problem right quick. Classic other-people's-money insular elite stupidity.

Vatch, June 26, 2015 at 10:16 am

Something will eventually break, if only for the reason that the 'elites' have forgotten the basic rule of parasitism: Do not kill your host.

I like that! Biologically true, and also true in the realm of political economy.

John Smith, June 26, 2015 at 2:57 pm

Except the parasites think TINA and therefore are unaware that they ARE parasites and thus don't have the good sense to recognize that their lucre is filthy.

Paul Tioxon June 26, 2015 at 9:04 am

Capitalism. What is most exceptional about this site is its name. The mere fact that it uses the name capitalism at all, even nakedcapitalism, is the most taboo breaking aspect announcing a real discussion about a real topic. Notice how Yves preambles this discussion to pre-2006 conformity of thought:

"If someone had used the word "elites" in 2006, they would have been seen as a hair-on-fire hysteric, long on conspiracy theories and short on sober understanding of How Things Work."

You might as well add "capitalism" to ill chosen words.

The apex of American power in the aftermath of the Clinton years coupling robust job creation and technological advancement of an extensive internet infrastructure to produce the capitalist propaganda theme of the coming the 21st Century: Supertanker America! Remember when the unbroken quarters of growth, low interest rates, steady stock market index rising and company after company emerging from the pages of science fiction to launch from NASDAQ into the real economy? The American Economy would ride out any boom or bust, out sail any crashing waves of stormy global contraction and lead the world economy out of any doldrums just as our military stood dominant across the oceans to the West and East of the continental hegemon. Our military might, our economic resilience and now, our triumphant ideology of capitalism would be consumed by the world more readily than any other export. There was a plan drawn up for a bold new global order of the ages, The Project for a New American Century PNAC. Of course, that failed miserably, unleashing WWIII across the Arab/Muslim world.

But amidst all of the talk of globalization, world trade organization, international summits of G-7s and G-20s, NATO and NAFTA, we have Davos. The Woodstock for capitalists, but never spoken of any such terms. In the above TRNN interview, "the system" and its "elites" are discussed. But as usual, there is always an internalize euphemism, socialized squeamishness for giving the system a formal name and giving its actors a title. Capitalism and the capitalists who love it. There, I said it, the love that dare not speak its name! And the key to breakdown from long term perspective to short term greed came from banking deregulation. Not surprising for capitalism to turn its longing eyes to banking, the platform it was built upon 500 years ago from the banking centers of Genoa, Venice, Florence etc. Despite Simon Johnson's supposed revelation of a silent financial coup, capitalism all along has ruled implicitly, with the only silence coming from the people who master the rules of capitalism not resorting to its name.

Giovanni Arrighi in an essay points out the disappearance of capitalism from academic research, almost in its entirety from economics. Notice, there are Marxist Economists or Keynesian Economics, and then there is just plain Economics. Not Capitalist Economics, that would not be value free positivism, the purest of methodological based scientific endeavors.

http://krieger.jhu.edu/arrighi/wp-content/uploads/sites/29/2012/08/NewEconomicSoc_000.pdf

Arrighi finds in an almost 800 page " THE HANDBOOK OF ECONOMIC SOCIOLOGY", sparse mention of capitalism. Basically, a small usage of the word and a single reference, but mostly, a great number of writings by Marx, Weber and what others have had to say about capitalism, but not much about capitalism by its presume supporters. Much of this Arrighi attributes to the micro focus of the social sciences and its failure and or unwillingness to deal with long term structural features of capitalism. Basically, an ahistoric or short term approach has capitalism disappearing altogether under the weakened methodology too attenuated to measure the processes that compose capitalism. It is not there because the unit of analysis is too small, too short in time or too segmented by focusing on one nation or one enterprise and not the whole economy of one nation connected with and trading with other nations in a global system.

An entire generation of myopia induced social science, including economics has produced nothing less but the short term crisis producing best and brightest, who can't see beyond the next quarter. The motto is; "Are we there yet?". Impatience, hyper frequency trading, dedicated fiber optic fast as the speed of light trading cables from where ever to Wall St, all to shave off a few seconds or micro seconds or quantum seconds, in order to turn a profit of pennies a few billion times over a second or a minute, hour after hour, day after day. No wonder this cognitively captured educated elite can not see anything larger than a minute portion of reality that their algorithms symbolically represent.

Jim A June 26, 2015 at 9:19 am

There's nothing inherently wrong with managing risk by aggregation. In fact insurance companies have been doing that for centurie as the fact that the mortgage insurance business (where traditional underwriters and experts set the price for insurance) was effectively pricing the risk of default for riskier mortgages VERY differently than the bond market was pricing the exact same risk.

Noonan June 26, 2015 at 9:23 am

The godly person has perished from the land,
And there is no upright person among men.
All of them lie in wait for bloodshed;
Each of them hunts the other with a net.
Concerning evil, both hands do it well.
The prince asks, also the judge, for a bribe,
And a great man speaks the desire of his soul;
So they weave it together.

Micah 7: 2-3

TG June 26, 2015 at 9:49 am

Don't forget MIT economist Lester Thurow's classic essay "An Establishment or an Oligarchy?"

http://www.ntanet.org/NTJ/42/4/ntj-v42n04p405-11-establishment-oligarchy.pdf

Some if it's a little dated, but the key points remain pertinent.

"The central goal of an establishment is to insure that the system works so that the country will in the long run be successful. An establishment is self-confident that if the system works and if their country does well, they will personally do well. Being self-confident they don't have to make their own immediate self-interest paramount when they influence public decisions."

"In contrast an oligarchy is a group of insecure individuals who amass funds in secret Swiss bank accounts. Because they think that they must always look out for their own immediate self-interest, they aren't interested in taking time and effort to improve their country's long-run prospects. They aren't confident that if the country is successful, they will be successful."

nat scientist June 26, 2015 at 10:13 am

Bad science makes bad law.
When kindness is kicked to the curb, the jungle is free to grow.

Ivy June 26, 2015 at 10:49 am

William K. Black at UM-KC is instructive about so much of what has gone on in regulatory and financial circles.

For reference, see his website including archived articles

readerOfTeaLeaves June 26, 2015 at 11:14 am

Depressing, but important, interview

Belongs in a time capsule

susan the other June 26, 2015 at 11:28 am

Sheer talks about the aftermath of going off the gold standard. After 1970 there was a long hysteria (still in motion) that translated into austerity (supply side nonsense) because maintaining the value of the dollar meant everything. If the dollar took a dive, both our military and our finance complex would begin to fail. There would be no confidence in the once great USA.

Witness the EU today. Those guys would rather bleed Greece to death than allow the euro to slide too much. They only pretend that they are protecting the EU taxpayers. It is such a fiction to try to maintain austerity for a strong currency because it defeats itself every time, and in order to surface an economy must do bubbles because there is no economy left after austerity. So it all turns into froth. There is a reason derivatives were invented and laws were passed making them legal. Because Larry Summers et.al. all knew their own positions were at stake if capitalism no longer produced profits for the elite. As Stephanie Kelton has informed us, we do not need to worry about the "value" of the dollar – the exchange rate – all we need to do is manufacture products that people want to buy. But that won't save the bloated ranks of the elite.

Crazy Horse June 26, 2015 at 1:57 pm

I must say that the moral and intellectual depravity of the world's elites is great news for the planet. From the point of view of the robin building her nest in the tree outside my window, humans are a toxic cancer, poisoning the soil that produces the worms she needs to feed her hatchlings. (assuming they survive the overly thin eggshells that agricultural chemicals have caused her to produce).

Indeed, for most of the planet's inhabitants homo sapiens are the biggest threat to their continued survival. So rapid economic collapse brought on by the Masters of the Universe's insatiable greed and the human species fatal inability to behave as part of an interconnected ecosystem is the best hope for the survival of a planet capable of supporting all the other life forms that have evolved with it.

Lambert Strether June 26, 2015 at 3:03 pm

Thinking back to elites past, at least civilization got some great art or architecture or literature out of the surplus. Sure, the Italian elites were adept at poisoning each other, but the world got Michelangelo and DaVinci. The Elizabethan elites had the Star Chamber, but the world got Shakespeare. The Victorians had the empire, but also Alice in Wonderland and Dickens. The Bourbons lost their heads, but the world got the Louvre. And on and on and on.

But for this elite, I'm trying to think of one great artist and I can't come up with one. Jeff Koons?

OK, the meta, I get it. But still. Am I wrong on this? Is there a squillionaire Medici out there somewhere?

Stupidest, most vile, and destructive elites in the history of the world and that is saying something.

Vatch June 26, 2015 at 4:40 pm

Nowadays, the members of the top 0.01% just seem to buy and sell, at ever escalating prices, the art that was created in previous generations:

https://en.wikipedia.org/wiki/List_of_most_expensive_paintings

Jerry Denim June 26, 2015 at 5:23 pm

I really appreciate Paul Jay insisting on calling out the media for their role in all of this. It really puts me up the wall how supposedly left wing media outlets always insist on having a right wing propagandist sit in as a counter weight to the lefty when conducting an interview, but then NOBODY calls out the right wing propagandist on his/her blatantly obvious, totally false bullshit regardless of crazy their claims.

Perfect example was the Amy Goodman hosted "Democracy Now" segment on the TPP which was linked here yesterday. They had a guy from Public Citizen on to denounce the TPP and a professional liar from the Cato institute to defend it and no one batted an eye or piped up to say word when the Cato guy floated this howler:

"You know, I certainly do think that the TPP, to the extent that it liberalizes trade, is going to increase wages. It's going to improve the economy of the United States. By opening markets to exports, the TPP will help create jobs. By opening up access to imports, the TPP will help create jobs. Most of the imports that come to this country are used by American manufacturers. It will increase productivity, increase wages and promote growth. So I think that for the criteria that Hillary Clinton sets out, the TPP will most likely be a good deal."

Why in the world Amy Goodman the host of the show or her guest from Public Citizen doesn't even make an attempt to counter this blatant lie in the interest of truth or journalistic ethics is beyond me. Why not something like this: " Excuse me Bill, what did you just say? Did you just claim the TPP is going to raise wages and create jobs in the United States? My god Bill, that is the biggest fucking lie I have ever heard and you know it. As I'm sure you know Bill the entire point of the TPP and other Free Trade pacts is to open the borders of low wage, low regulation countries so companies in the United States can offshore more jobs or at least use the threat of relocating as leverage to further drive down wages, so don't you dare sit there with a straight face and your little American Flag lapel pin and insult this show and my audience with such blatantly false lies. Shame on you Bill, you're a disgrace."

How hard would that be?

Huh? June 26, 2015 at 8:41 pm

Jerry, I agree with you on the Democracy Now show (I listened to it, too) … but what really got me was this lovely exchange:

"JUAN GONZÁLEZ: And, Bill Watson of the Cato Institute, your reaction to the impending, now appears to be, passage of the fast-track legislation?

BILL WATSON: Well, I'm really looking forward to seeing the TPP be completed, find out what's in the agreement and how well it liberalizes trade between the United States and the other 11 members in the agreement."

Um … explain to me how you're looking forward to the TPP being completed, but you still need to "find out what's in the agreement …"

WHAT? You don't know what's in it, but it's all good?

different clue June 27, 2015 at 9:14 pm

If only someone had quoted Pelosi's very words . . . . " you mean we have to pass it to find out what's in it?"

Tony Wikrent June 26, 2015 at 8:28 pm

I read comments like Scheers, that "these are educated people" and they knew what they were doing, and I just am not sure how correct they are. It just does not make sense to me that these people allowed what is essentially a "crimogenic environment" (as Bill Black often writes) to devolve into the open sociopathy and psychopathy we have today. Something is missing; it all just does not fit together.

The one thing nobody ever mentions is the role of organized crime. The mergers and acquisitions and the leveraged buy outs of the 1960s through 1990s was heavily financed and influenced by organized crime. Look at Penny Pritzker's family, and its roots in The Outfit of Chicago. Look at Lord Hanson and his connections to organized crime. Look at the historical legacy of HSBC as the Hong Kong and Shanghai Bank in the opium trade and opium wars. Good lord, look at Ronald Reagan – who is fingered as organized crimes' favorite politician by Gus Russo in his book Supermob.

Was it a good thing that organized crime "went legit"? Or is the true legacy the "crimogenic environment" we have today?

Lambert Strether June 26, 2015 at 11:34 pm

"heavily financed and influenced by organized crime" Sourcing?

[Jun 27, 2015] The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors

Patient Observer, June 26, 2015 at 8:10 pm

This is big:
http://rt.com/news/270046-greece-debt-deal-referendum/
"The Greek PM has announced a national referendum on July 5 on the conditions of the debt deal with international creditors. It's up to the Greek people, Tsipras said, to make a fateful decision on the country's sovereignty, independence and future.
"These proposals, which clearly violate the European rules and the basic rights to work, equality and dignity show that the purpose of some of the partners and institutions was not a viable agreement for all parties, but possibly the humiliation of an entire people," Greek Prime Minister Alexis Tsipras said in a televised address to the nation, as cited by Reuters.

The referendum will be held on July 5, a few days past the June 30 deadline, Tsipras announced. "

A clever move – what can EU do if the debt deal is voted down? Putin-like in its directness and effectiveness.

yalensis, June 27, 2015 at 3:09 am
Hallelujah!
And holding the referendum just a week from now is smart too.

EU/USA don't have enough time to organize election fraud.

[Jun 26, 2015] Why Jim Rogers is buying what everyone else is selling By Michael Sincere

Jun 26, 2015 | MarketWatch

Is the bond market in a bubble?
Whether it's a bubble or not we will find out one day, but it probably is. For the stock market to go down, something has to happen, and it could happen if the bond market scares the socks off everyone. The previous bear market in bonds was from 1946 to 1981. Since 1981, the bond market has been in a bull market. When bonds start going lower, and rates go higher, rates will go much, much higher. Interest rates go to levels we cannot conceive right now. I cannot tell you how high interest rates could go but in 1981 U.S. government bonds were at 15%. Right now, there is inflation, but the U.S. Bureau of Labor Statistics say there is no inflation. I don't know where they go to shop, or where they send their kids to school, or go to baseball games. There is inflation all over the world, not just in the U.S.
'The only thing that works is when people fail, go bankrupt, and start over.'

Write this down for June 2015: This low interest rate environment will not continue forever. Bonds could go down for a long time, which will scare the bureaucrats in the central banks. This is why we might have a 10% to 13% decline in stocks.

... ... ...

What do you think of gold?

Gold (GCQ5, +0.16%) is in a correction, and the correction has gone on for four years. Although I am not buying gold, I am expecting an opportunity to buy gold sometime in the next year or two. For instance, if gold goes under $1,000, I hope I'm smart enough to buy a lot more gold.

[Jun 25, 2015]We Are Reaching Peak Energy Demand, BP Data Suggests

Submitted by Gail Tverberg via Our Finite World blog,

Some people talk about peak energy (or oil) supply. They expect high prices and more demand than supply. Other people talk about energy demand hitting a peak many years from now, perhaps when most of us have electric cars.

Neither of these views is correct. The real situation is that we right now seem to be reaching peak energy demand through low commodity prices. I see evidence of this in the historical energy data recently updated by BP (BP Statistical Review of World Energy 2015).

Growth in world energy consumption is clearly slowing. In fact, growth in energy consumption was only 0.9% in 2014. This is far below the 2.3% growth we would expect, based on recent past patterns. In fact, energy consumption in 2012 and 2013 also grew at lower than the expected 2.3% growth rate (2012 – 1.4%; 2013 – 1.8%).

Figure 1- Resource consumption by part of the world. Canada etc. grouping also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

Recently, I wrote that economic growth eventually runs into limits. The symptoms we should expect are similar to the patterns we have been seeing recently (Why We Have an Oversupply of Almost Everything (Oil, labor, capital, etc.)). It seems to me that the patterns in BP's new data are also of the kind that we would expect to be seeing, if we are hitting limits that are causing low commodity prices.

One of our underlying problems is that energy costs that have risen faster than most workers' wages since 2000. Another underlying problem has to do with globalization. Globalization provides a temporary benefit. In the last 20 years, we greatly ramped up globalization, but we are now losing the temporary benefit globalization brings. We find we again need to deal with the limits of a finite world and the constraints such a world places on growth.

Energy Consumption is Slowing in Many Parts of the World

Many parts of the world are seeing slowing growth in energy consumption. One major example is China.

Figure 2. China's energy consumption by fuel, based on data of BP Statistical Review of World Energy 2015.

Based on recent patterns in China, we would expect fuel consumption to be increasing by about 7.5% per year. Instead, energy consumption has slowed, with growth amounting to 4.3% in 2012; 3.7% in 2013; and 2.6% in 2014. If China was recently the growth engine of the world, it is now sputtering.

Part of China's problem is that some of the would-be buyers of its products are not growing. Europe is a well-known example of an area with economic problems. Its consumption of energy products has been slumping since 2006.

Figure 3. European Union Energy Consumption based on BP Statistical Review of World Energy 2015 Data.

I have used the same scale (maximum = 3.5 billion metric tons of oil equivalent) on Figure 3 as I used on Figure 2 so that readers can easily compare the European's Union's energy consumption to that of China. When China was added to the World Trade Organization in December 2001, it used only about 60% as much energy as the European Union. In 2014, it used close to twice as much energy (1.85 times as much) as the European Union.

Another area with slumping energy demand is Japan. It consumption has been slumping since 2005. It was already well into a slump before its nuclear problems added to its other problems.

Figure 4. Japan energy consumption by fuel, based on BP Statistical Review of World Energy 2015.

A third area with slumping demand is the Former Soviet Union (FSU). The two major countries within tithe FSU with slumping demand are Russia and Ukraine.

Figure 5. Former Soviet Union energy consumption by source, based on BP Statistical Review of World Energy Data 2015.

Of course, some of the recent slumping demand of Ukraine and Russia are intended–this is what US sanctions are about. Also, low oil prices hurt the buying power of Russia. This also contributes to its declining demand, and thus its consumption.

The United States is often portrayed as the bright ray of sunshine in a world with problems. Its energy consumption is not growing very briskly either.

Figure 6. United States energy consumption by fuel, based on BP Statistical Review of World Energy 2014.

To a significant extent, the US's slowing energy consumption is intended–more fuel-efficient cars, more fuel efficient lighting, and better insulation. But part of this reduction in the growth in energy consumption comes from outsourcing a portion of manufacturing to countries around the world, including China. Regardless of cause, and whether the result was intentional or not, the United States' consumption is not growing very briskly. Figure 6 shows a small uptick in the US's energy consumption since 2012. This doesn't do much to offset slowing growth or outright declines in many other countries around the world.

Slowing Growth in Demand for Almost All Fuels

We can also look at world energy consumption by type of energy product. Here we find that growth in consumption slowed in 2014 for nearly all types of energy.

Figure 7. World energy consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at oil separately (Figure 8), the data indicates that for the world in total, oil consumption grew by 0.8% in 2014. This is lower than in the previous three years (1.1%, 1.2%, and 1.1% growth rates).

Figure 8. Oil consumption by part of the world, based on BP Statistical Review of World Energy 2015.

If oil producers had planned for 2014 oil consumption based on the recent past growth in oil consumption growth, they would have overshot by about 1,484 million tons of oil equivalent (MTOE), or about 324,000 barrels per day. If this entire drop in oil consumption came in the second half of 2014, the overshoot would have been about 648,000 barrels per day during that period. Thus, the mismatch we are have recently been seeing between oil consumption and supply appears to be partly related to falling demand, based on BP's data.

(Note: The "oil" being discussed is inclusive of biofuels and natural gas liquids. I am using MTOE because MTOE puts all fuels on an energy equivalent basis. A barrel is a volume measure. Growth in barrels will be slightly different from that in MTOE because of the changing mix of liquid fuels.)

We can also look at oil consumption for the US, EU, and Japan, compared to all of the rest of the world.

Figure 9. Oil consumption divided between the (a) US, EU, and Japan, and (b) Rest of the World.

While the rest of the world is still increasing its growth in oil consumption, its rate of increase is falling–from 2.3% in 2012, to 1.6% in 2013, to 1.3% in 2014.

Figure 10 showing world coal consumption is truly amazing. Huge growth in coal use took place as globalization spread. Carbon taxes in some countries (but not others) further tended to push manufacturing to coal-intensive manufacturing locations, such as China and India.

Figure 10. World coal consumption by part of the world, based on BP Statistical Review of World Energy 2015.

Looking at the two parts of the world separately (Figure 11), we see that in the last three years, growth in coal consumption outside of US, EU, and Japan, has tapered down. This is similar to the result for world consumption of coal in total (Figure 10).

Figure 11. Coal consumption for the US, EU, and Japan separately from the Rest of the World, based on BP Statistical Review of World Energy data.

Another way of looking at fuels is in a chart that compares consumption of the various fuels side by side (Figure 12).

Figure 12. World energy consumption by fuel, showing each fuel separately, based on BP Statistical Review of World Energy 2015.

Consumption of oil, coal and natural gas are all moving on tracks that are in some sense parallel. In fact, coal and natural gas consumption have recently tapered more than oil consumption. World oil consumption grew by 0.8% in 2014; coal and natural gas consumption each grew by 0.4% in 2014.

The other three fuels are smaller. Hydroelectric had relatively slow growth in 2014. Its growth was only 2.0%, compared to a recent average of as much as 3.5%. Even with this slow growth, it raised hydroelectric energy consumption to 6.8% of world energy supply.

Nuclear electricity grew by 1.8%. This is actually a fairly large percentage gain compared to the recent shrinkage that has been taking place.

Other renewables continued to grow, but not as rapidly as in the past. The growth rate of this grouping was 12.0%, (compared to 22.4% in 2011, 18.1% in 2012, 16.5% in 2013). With the falling percentage growth rate, growth is more or less "linear"–similar amounts were added each year, rather than similar percentages. With recent growth, other renewables amounted to 2.5% of total world energy consumption in 2014.

Falling Consumption Is What We Would Expect with Lower Inflation-Adjusted Prices

People buy goods that they want or need, with one caveat: they don't buy what they cannot afford. To a significant extent affordability is based on wages (or income levels for governments or businesses). It can also reflect the availability of credit.

We know that commodity prices of many kinds (energy, food, metals of many kinds) have been have generally been falling, on an inflation adjusted basis, for the past four years. Figure 13 shows a graph prepared by the International Monetary Fund of trends in commodity prices.

Figure 13. Charts prepared by the IMF showing trends in indices of primary commodity prices.

It stands to reason that if prices of commodities are low, while the general trend in the cost of producing these commodities is upward, there will be erosion in the amount of these products that can be purchased. (This occurs because prices are falling relative to the cost of producing the goods.) If, prior to the drop in prices, consumption of the commodity had been growing rapidly, lower prices are likely to lead to a slower rate of consumption growth. If prices drop further or stay depressed, an absolute drop in consumption may occur.

It seems to me that the lower commodity prices we have been seeing over the past four years (with a recent sharper drop for oil), likely reflect an affordability problem. This affordability problem arises because for most people, wages did not rise when energy prices rose, and the prices of commodities in general rose in the early 2000s.

For a while, the lack of affordability could be masked with a variety of programs: economic stimulus, increasing debt and Quantitative Easing. Eventually these programs reach their limits, and prices begin falling in inflation-adjusted terms. Now we are at a point where prices of oil, coal, natural gas, and uranium are all low in inflation-adjusted terms, discouraging further investment.

Commodity Exporters–Will They Be Next to Be Hit with Lower Consumption?

If the price of a commodity, say oil, is low, this is a problem for a country that exports the commodity. The big issue is likely to be tax revenue. Governments very often get a major share of their tax revenue from taxing the profits of the companies that sell the commodities, such as oil. If the price of oil, or other commodity that is exported drops, then it will be difficult for the government to collect enough tax revenue. There may be other effects as well. The company producing the commodity may cut back its production. If this happens, the exporting country is faced with another problem–laid-off workers without jobs. This adds a second need for revenue: to pay benefits to laid-off workers.

Many oil exporters currently subsidize energy and food products for their citizens. If tax revenue is low, the amount of these subsidies is likely to be reduced. With lower subsidies, citizens will buy less, reducing world demand. This reduction in demand will tend to reduce world oil (or other commodity) prices.

Even if subsidies are not involved, lower tax revenue will very often affect the projects an oil exporter can undertake. These projects might include building roads, schools, or hospitals. With fewer projects, world demand for oil and other commodities tends to drop.

The concern I have now is that with low oil prices, and low prices of other commodities, a number of countries will have to cut back their programs, in order to balance government budgets. If this happens, the effect on the world economy could be quite large. To get an idea how large it might be, let's look again at Figure 1, recopied below.

Notice that the three "layers" in the middle are all countries whose economies are fairly closely tied to commodity exports. Arguably I could have included more countries in this category–for example, other OPEC countries could be included in this grouping. These countries are now in the "Rest of the World" category. Adding more countries to this category would make the portion of world consumption tied to countries depending on commodity exports even greater.

Figure 1- Resource consumption by part of the world. Canada etc. groupng also includes Norway, Australia, and South Africa. F Soviet Union means Former Soviet Union. Middle East excludes Israel. Based on BP Statistical Review of World Energy 2015 data.

My concern is that low commodity prices will prove to be self-perpetuating, because low commodity prices will adversely affect commodity exporters. As these countries try to fix their own problems, their own demand for commodities will drop, and this will affect world commodity prices. The total amount of commodities used by exporters is quite large. It is even larger when oil is considered by itself (see Figure 8 above).

In my view, the collapse of the Soviet Union in 1991 occurred indirectly as a result of low oil prices in the late 1980s. A person can see from Figure 1 how much the energy consumption of the Former Soviet Union fell after 1991. Of course, in such a situation exports may fall more than consumption, leading to a rise in oil prices. Ultimately, the issue becomes whether a world economy can adapt to falling oil supply, caused by the collapse of some oil exporters.

Our Economy Has No Reverse Gear

None of the issues I raise would be a problem, if our economy had a reverse gear–in other words, if it could shrink as well as grow. There are a number of things that go wrong if an economy tries to shrink:

Businesses find themselves with more factories than they need. They need to lay off workers and sell buildings. Profits are likely to fall. Loan covenants may be breached. There is little incentive to invest in new factories or stores.

There are fewer jobs available, in comparison to the number of available workers. Many drop out of the labor force or become unemployed. Wages of non-elite workers tend to stagnate, reflecting the oversupply situation.

The government finds it necessary to pay more benefits to the unemployed. At the same time, the government's ability to collect taxes falls, because of the poor condition of businesses and workers.

Businesses in poor financial condition and workers who have been laid off tend to default on loans. This tends to put banks into poor financial condition.

The number of elderly and disabled tends to grow, even as the working population stagnates or falls, making the funding of pensions increasingly difficult.

Resale prices of homes tend to drop because there are not enough buyers.

Many have focused on a single problem area–for example, the requirement that interest be paid on debt–as being the problem preventing the economy from shrinking. It seems to me that this is not the only issue. The problem is much more fundamental. We live in a networked economy; a networked economy has only two directions available to it: (1) growth and (2) recession, which can lead to collapse.

* * *

Conclusion

What we seem to be seeing is an end to the boost that globalization gave to the world economy. Thus, world economic growth is slowing, and because of this slowed economic growth, demand for energy products is slowing. This globalization was encouraged by the Kyoto Protocol (1997). The protocol aimed to reduce carbon emissions, but because it inadvertently encouraged globalization, it tended to have the opposite effect. Adding China to the World Trade Organization in 2001 further encouraged globalization. CO2 emissions tended to grow more rapidly after those dates.

Figure 14. World CO2 emissions from fossil fuels, based on data from BP Statistical Review of World Energy 2015.

Now growth in fuel use is slowing around the world. Virtually all types of fuel are affected, as are many parts of the world. The slowing growth is associated with low fuel prices, and thus slowing demand for fuel. This is what we would expect, if the world is running into affordability problems, ultimately related to fuel prices rising faster than wages.

Globalization brings huge advantages, in the form of access to cheap energy products still in the ground. From the point of view of businesses, there is also the possibility of access to cheap labor and access to new markets for selling their goods. For long-industrialized countries, globalization also represents a workaround to inadequate local energy supplies.

The one problem with globalization is that it is not a permanent solution. This happens for several reasons:

A great deal of debt is needed for the new operations. At some point, this debt starts reaching limits.

Diminishing returns leads to higher cost of energy products. For example, later coal may need to come from more distant locations, adding to costs.

Wages in the newly globalized area tend to rise, negating some of the initial benefit of low wages.

Wages of workers in the area developed prior to globalization tend to fall because of competition with workers from parts of the world getting lower pay.

Pollution becomes an increasing problem in the newly globalized part of the world. China is especially concerned about this problem.

Eventually, more than enough factory space is built, and more than enough housing is built.

Demand for energy products (in terms of what workers around the world can afford) cannot keep up with production, in part because wages of many workers lag thanks to competition with low-paid workers in less-advanced countries.

It seems to me that we are reaching the limits of globalization now. This is why prices of commodities have fallen. With falling prices comes lower total consumption. Many economies are gradually moving into recession–this is what the low prices and falling rates of energy growth really mean.

It is quite possible that at some point in the not too distant future, demand (and prices) will fall further. We then will be dealing with severe worldwide recession.

In my view, low prices and low demand for commodities are what we should expect, as we reach limits of a finite world. There is widespread belief that as we reach limits, prices will rise, and energy products will become scarce. I don't think that this combination can happen for very long in a networked economy. High energy prices tend to lead to recession, bringing down prices. Low wages and slow growth in debt also tend to bring down prices. A networked economy can work in ways that does not match our intuition; this is why many researchers fail to see understand the nature of the problem we are facing.
Financial_skeptic/ /energy. Stagnation/

[Jun 24, 2015] Russia overtakes Saudi Arabia as largest supplier of oil to China

Jun 24, 2015 | The Guardian

Russia has overtaken Saudi Arabia as the largest supplier of oil to China for the first time, sending almost 930,000 barrels a day last month – up 21% on April.

China imported 3.92m tonnes of crude oil from Russia in May. In comparison, oil imports from Angola and Saudia Arabia totalled 3.26m tonnes and 3.05m tonnes respectively.

Popeyes 24 Jun 2015 16:33

Just another example of Russia and China working together at the expense of the U.S. Currency swaps between Russia (ruble) and China (yuan) for an initial US$ 25 billion equivalent have already been implemented, to allow direct transactions between the two countries. Similar swaps are under way between China and Russia with other countries, primarily the BRICS and the Shanghai Cooperation Organisation.

In other words, a large junk of hydrocarbons are no longer being traded in US (petro) dollars, but in rubles and yuans and their partners respective local currencies, thus reducing worldwide demand for the petro dollar.

PlatonKuzin -> 6i9vern 24 Jun 2015 16:28

True. And what the US is now doing - to prevent the above said from happening - is preparing a war against Russia in Europe by proxy, using the same Europe. There is only one, but very important aspect crossing its dirty criminal intentions.

And that is that, if the US wages a war in Europe, this time, number one target of Russia will be the United States and the war will go on its territory. The States will not survive this time overseas. It must keep it in mind all the time.

6i9vern 24 Jun 2015 15:09

"Russia now accepts yuan for oil payments"

And so it begins - the end of the petro-dollar, the end of virtually all international trade being mediated in dollars.

And when that ends, the ability of the USA to run trillion dollar deficits at minimal cost goes. The state will have to shrink. The military industrial complex and entitlements will be radically cut.

70 million lower middle-class Americans will cease having First World lifestyles.

Kaiama -> sasha19 24 Jun 2015 15:04

Actually, I am aware that a deal was signed by Tsipras in St Petersberg to construct a gas pipeline to carry Russian gas from Turkey. But, and this is the crucial point, Russia's trade with China is growing: goods, energy and military technology. In the future, I would expect most of the petrochemicals and natural resources to be redirected to Asia rather than Europe. Yes, the Russians are trying to keep their European Business, but they are also developing the Asian alternative where people aren't trying to screw Russia at the same time. Long term, I suggest that trade with Europe, including gas, will decline permanently or at least for a generation until people have forgotten about everything.

Petar -> Peter iangio 24 Jun 2015 14:58

You probably meant ukrainian fascist butchering innocent children and women in Novorossia..but not for long .Russia is redirecting its exports to Asia to break independence on corrupt western money..once it is done..ukraine is doomed.

BMWAlbert -> Chirographer 24 Jun 2015 14:55

I think the 'out-of-ground' price in RU is Globally speaking, very low, but China tends to low-ball producing of all energy and materials with a provision of large volume and importantly, high reliability. It was the same with the NG, it was priced something like 30USD below the Euro-rate mean.

tiojo 24 Jun 2015 13:43

One of the expected consequences of US and EU economic sanctions on Russia. It finds other partners with which to trade. With the NATO sabre rattlers doing their best to keep themselves and their armed forces in employment combined with economic sanctions that build barriers rather than ties any thought of constructive dialogue seems to have gone out of the window. A pity that Ms Merkel seems to be sidelined in Greece. She seemed to be the only one who saw a future in a positive relationship between Europe and Russia.

MaoChengJi 24 Jun 2015 13:27

Calculations at the time shows Russia needs an oil price of $105 a barrel for its budget to break-even

Well, of course the budget is not sent down by God. They planned for $105/barrel, and now they'll have a different budget. Or they'll compensate by selling more oil. Or they'll use a part of their large rainy-day fund.

Phil_Paris -> oleteo 24 Jun 2015 12:52

It is not a coincidence that the huge increase of production of gas thanks to fracking has the consequence of lowering the sales of oil from the Saudi Arabia to the US.
Now China is buying a lot of oil from a Saudi Arabia.

Then the USA is not as dependant of Saudi Arabia, which is a reasonnable move after 9/11, but undoubtebly must retain good connections in the oil industry there which can be usefull when China is highly dependant on imported oil.

Phil_Paris -> quarrytone 24 Jun 2015 12:38

China doesn't "cement ties in South America", China for example makes agreements with Brasil to build a railway across the Amazonia to carry GM soya and cut the forest to export logs to China, and eliminate indigenous tribes if necessary
It's colonial.
As regards China and Russia, Russia has signed an agreement whereby it will sell gas to China with Chinese financing through a pipeline (built by Chinese firms, Chinese workers probably too as it would be naive to think that China will pay to employ Russians) not connected to the grid to Europe ie for the sole destination of China, hence China will hold Russia by the b....
In the South China Sea China is violating the International Law of the Sea and occupies islands and islets included in the EEZ of states thousands of km from its own shores.

quarrytone -> Phil_Paris 24 Jun 2015 11:49

However the biased press likes to dress it up, China does have a historic claim to uninhabited islands and reefs, however tenuous in Western law. Comparing that old KMT claim to a sudden annexation across a long settled border is faintly hysterical.

And no, there are not millions of Chinese on Russia's border. Clearly geography isn't your strong point. There are one or two cities with a couple of million doing well thanks through trade with Russia, and Russians doing very well in trade with China. If China wants farmland produce then that will only cement ties with Russia, as it does with South America.

[Jun 24, 2015] US productivity – the dog that isn't barking at the Fed by Gavyn Davies

"...The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. "

"...Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?"

Jun 21, 2015 | blogs.ft.com | 15 comments | Share

Before last week's FOMC meeting, there was much debate about whether the Fed would officially draw attention to the awful US productivity data that have been published lately. Both William Dudley and Janet Yellen have highlighted the problem in recent speeches, and there was speculation that some members of the FOMC might revise down their estimates for potential GDP growth at the June meeting.

In fact, however, they did not do so, preferring to sweep the problem under the carpet for at least another meeting. Instead, they focused attention on the "gradual" nature of the likely upward path for interest rates after lift-off, which now seems marginally more likely to start in December than in September 2015.

The FOMC's range for long run GDP growth fell sharply from 2011 to 2013, but has not been changed now for about a year. Potential GDP growth depends on underlying productivity growth, and on the projected growth in the labour force, which is about 0.4 per cent per annum at present. So the Fed's central projection of 2.15 per cent for potential GDP growth implies a productivity projection of about 1.75 per cent.

The problem, however, is that this range is not consistent with the actual productivity numbers that have been published at any stage during the present economic recovery. Since 2009, productivity has risen at an average of 1.5 per cent per annum while over the past two years it has risen at only 0.5 per cent. Normally, as a recovery matures, productivity growth should be speeding up, but that is not happening this time. At some point soon, the FOMC will need to acknowledge this.

Why does this matter for policy and markets? After all, in the period since 2009, the slowdown in productivity growth has occurred without this having any effect on Fed decisions, and without doing any damage to equity or bond prices. But that was in an environment of excess capacity in the economy, even with a very low estimate for potential GDP growth. Now that excess capacity has been nearly eliminated on many estimates, the growth rate in potential GDP could suddenly become a binding constraint on the economy.

A major downgrade to the FOMC's productivity projections would have very adverse implications for markets. Short term interest rates would need to rise more rapidly, for any given rate of growth in real GDP. Long term rates may rise by less, because the Fed's estimate of real long term interest rate – the eventual destination for rates during the tightening cycle – would probably decline with the underlying GDP growth rate.

That means the yield curve would probably invert, which is normally not a good signal for equities. Furthermore, a rise in unit labour costs, following lower productivity growth, could result in a decline in the profits share in GDP, which has been one of the key fundamental underpinnings for the equity bull market.

But before leaping into action, members of the FOMC will have to ask themselves at least three difficult questions about the productivity challenge. These are:

Is the slowdown being exaggerated by mismeasurement in the official economic data, because the impact of IT on productivity is being under-stated? This issue is now being widely debated, as it was in the late 1990s, when Fed Chairman Greenspan used the same argument to justify running the economy "hotter" than otherwise would have been justified. As far as we can tell, the current Fed is not as persuaded by the IT argument as Greenspan was. In her recent speech, Ms Yellen was agnostic on this debate: "I do not know who is right". Furthermore, there is no sign that the official statisticians are planning to reconsider the inflation and productivity statistics, as they did with the Boskin Commission report in the 1990s. Therefore, the current Fed will have no "cover" from an impending change in the official data to make a controversial judgment on productivity growth. They are unlikely to use this escape route.

Will productivity growth rebound automatically if the recovery in GDP accelerates? Ms Yellen has often suggested that this might be the case and she remarked in last week's press conference that this assumption has been built into the Fed's latest economic projections. But there is very little evidence that it is actually happening as the recovery matures. If that remains the case, there is scope for disappointment here, rather than the reverse.

How should monetary policy respond to an acceleration in unit labour costs driven by rising wage inflation at a time of slow productivity growth? The FOMC is aware that wage inflation is now starting to rise slightly on some measures, but it has shown no signs of alarm over this trend so far. Recent Fed research has suggested that the link between labour costs and price inflation is much less robust than it was in earlier decades, but it is questionable whether the FOMC will feel they can rely on this if the rate of increase in unit labour costs rises above 3 per cent. That may happen in the not too distant future.

What is the bottom line? The median of the FOMC's "dot plot" for the future path for short rates remains substantially above the path that is priced into the bond markets, though the gap has narrowed with the slight downward revisions to the dots that emerged after last week's policy meeting. Furthermore, there have been suggestions, after forensic analysis of the "dots", that the key members of the FOMC might be bunched around the dovish end of the range, so the difference between them and the market may no longer be very significant.

This means that, in the immediate future, the danger that a really hawkish Fed might shock the markets is still fairly slight:

The risk, however, is that neither the Fed dots, nor the markets, are making sufficient allowance for the looming threat to the path for short rates stemming from low productivity growth. The markets are increasingly aware that this threat exists. For example, Bruce Kasman of J.P. Morgan has been warning about "demand side optimism and supply side pessimism", a combination that sounds bad for US bonds and equities.

It will be hard for the FOMC to skirt round this issue for much longer.

MarkGB, 3 days ago

"Is the slowdown being exaggerated by mis-measurement in the official economic data, because the impact of IT on productivity is being under-stated? "
No - the whole picture of what is happening in the real US economy is being distorted by mis-measurement in the official economic data, through:
1. GDP figures that are being inflated by politically motivated 'seasonal adjustments', which conveniently support the Fed's jawboning of the stock market
2. Inflation figures that bear very little resemblance to rises in the cost of living, particularly for poor people, but which do very conveniently hold down annual rises in benefits and social security
3. Unemployment figures that:
a) Count 1+ hours a week as a job
b) When three of these jobs are being carried out by the same person that's counted as three 'jobs'

c) The jobs being lost are 50k+ jobs whilst the 'jobs' being gained are part-time low wage jobs

d) The majority of these jobs are being taken by the 50 plus age group, not young people

In short, the official presentation of what is happening in the US economy is as bent as a nine dollar note...garbage in, garbage out.

You are right Mr Davies, productivity is being eroded - the life is being sucked out of the US economy by the distortions and mal-investments generated by Federal Reserve monetary policies, coupled with governmental taxation, regulatory and fiscal policies that urgently need reform, which, amongst other things make it increasingly difficult for small businesses to create new jobs.

Politicians and government academics typically don't 'get' productivity. Most of them have never produced anything. They are like kids who want a McDonald's but have never even seen a cow, let alone worked on a farm.

/B
3 days ago

@MarkGB plus GDP itself is nuts. Most credit creation is through lending against land. We have the inversion of demographics now the boomers are retiring and have (thank god) started to end borrowing against land. Therefore GDP will fall, even as we see fantastic increases in wealth creation due to an IT revolution.

GDP is just not useful. For the life of me I can't understand why when most newly created money is via housing that we are not spending more time discussing land.

Imputed rent alone accounts for 10% of GDP. Yet the FT just never ever talks about any of this in detail.

Paul A. Myers, 4 days ago

The estimate of US GDP growth at 2 percent is somewhat above Andrew Smithers' blog posts which suggests it might be lower at around 1.5 percent or less. So productivity puts a low ceiling on possible noninflationary US growth. This contrasts sharply with Jeb Bush's assertion that he can achieve 4 percent GDP growth (which an FT editorial characterizes as absurd). But the key point is that the US political establishment in Congress is at best very confused about the drivers of current GDP growth.
My surmise is that to increase US GDP potential would require a significant increase in public spending on infrastructure and research -- that there is private capital sitting on the sidelines due to a lack of public investment. If so, then further tax cuts and less government spending -- the bromides the Republican party are bringing to the 2016 election -- are the wrong medicine.
So better private sector growth will require more public spending. Obviously this is a counterintuitive argument to most voters. It will be interesting to see where the US government goes in 2017 and beyond with regard to public investment. And will this even be an issue in the 2016 campaign.

Michael McPhillips, 3 days ago

@Paul A. Myers
As public spending is already included in GDP from those who pay the taxes and deficit spending still the only way government can increase growth (IT figures for it) are you saying that only with infrastructure spending can private capital also invest and not from tax cuts and lower public spending, which would increase demand and slow the rate of future tax increases, which would encourage investment.
Correct me if I'm wrong but if less of the taxes paid are spent in the economy won't that reduce growth and could that not explain why it's a problem for the FED i.e. not enough taxes are coming back to the economy? Too much going on military spending abroad and servicing foreign debt perhaps?

cg12348, 3 days ago

Reality is starting to set in - the US is in decline - due to demographics and global competitive forces. Now as with all liberal governments - social programs try to compensate for those things productivity is expected to make ore available - far less efficient coming from social programs than private markets - the spiral continues.

joshuak2077, 3 days ago

To consider expanding Inflationary forces because of trailing productivity does not take in considerations the exogenous forces coming from abroad that suppress Inflation. The ways economists evaluate and predict at the moment is profoundly endogenous and therefor shortminded.

FRUSTRATED SAVER
3 days ago

If the us is now running near full capacity surely we should expect domestic investment to
accelerate isnt that the indicator the fed should be watching alternatively there is excess capacity in other parts of the world(china for instance) and in a world of competetive devaluations
this is going to worsen the trade deficit as it has in the past. and may not be inflationary
making the conundrum worse

[Jun 23, 2015] Rumors of bond Armageddon are exaggerated By Agnes T. Crane, Neil Unmack

Economy is too weak to survive series of Fed rate raises. So there will be just minimal token gestures. The article below is from 2013. So it is more the two years old.

May 28, 2013 | breakingviews.com/
Rumors of a credit bubble are only partially exaggerated. Tell-tale signs of a boom seem to be everywhere. Yet, most investors aren't panicked. Who's right? Breakingviews offers a bubble-meter for the credit market.
Raw yields aren't a clear indicator. Central-bank buying helps keep returns down on government bonds so fixed income investors who want higher returns have to buy debt issued by companies more prone to default. The dash for yield makes a bubble more likely.

The five-part bubble-meter marks on a scale of one to 10, with one indicating ridiculous caution, five healthy moderation and 10 a mania in the style of 2007.

1) Are yields too low?

The premium investors charge to compensate for default risk has fallen by nearly a percentage point on average, helping to knock down yields to around 5.5 percent, according to JPMorgan. Moreover, there are signs that investors are failing to discriminate between borrowers. The 3 percentage point premium for bottom-of-the-barrel CCC-rated debt over comparable single-B paper is less than half the historical differential.

As of May 17, U.S. junk bond spreads were 1.33 percentage points too low to compensate for default risk, according to a model devised by bond veteran Marty Fridson. But then again, the average junk spread in 2007 fell to 2.5 percentage points, a little more than half today's levels. Bubble rating: 8/10
2) Is there too much debt?

A surge in high-yield issuance is normally a pretty good sign of a bubble. There has certainly been a lot recently. So far this year global high yield bond sales have topped $200 billion. That's already above the highest full year in the last cycle, according to Thomson Reuters data. Leveraged loans are also smoking hot, with new issuance on track to beat the $688 billion high-water mark hit in 2007, according to LPC data.

But there's a hopeful caveat. New leveraged buyouts aren't driving the fundraising. Much of the recent burst has actually been risk-reducing, as companies have refinanced old debt at lower rates and longer maturities. For example, in 2009 a seemingly-impossible $204 billion worth of debt from junk-rated U.S. companies was set to mature this year. Thanks to refinancing, the actual sum will be a tenth of that. Bubble rating: 7/10
3) Are terms and conditions too generous for borrowers?

In hot markets, issuers can get away with higher leverage ratios and looser lending terms. Currently, they are doing both.

The average debt-to-EBITDA multiples on U.S.-sponsored LBO deals has averaged 5.5 times this year and last, up from 4.2 times in 2009, according to LPC. Yet it's still below the 6.5 average in the 2007 LBO peak year. Meanwhile, issuance of so-called covenant-lite loans, which give lenders weak or no enforcement rights when borrowers' profits fall, has soared to all-time highs. And issuance of particularly lender-unfriendly Payment in Kind (PIK) loans was up around 13-fold last year from 2010, according to Morgan Stanley. Bubble rating: 9/10
4) Are financial engineers too active?

In the last credit bubble, banks' whizz kids created imaginative securities - collateralized debt obligations, structured investment vehicles and complex derivatives - to juice up leverage and inject liquidity into markets. In 2006, global CDO issuance reached half a trillion dollars. In the first quarter of this year, only $23.5 billion have hit the market, according to SIFMA.

True, exchange-traded funds are booming, but they mostly don't use leverage. Still, the ETFs are untested in a downturn, and a rush to sell could precipitate a rout. Even if financial engineering is subdued, the growth in funds owned by retail investors, like mutual funds, could be a source of turmoil. Bubble rating: 4/10
5) Are investors too complacent?

When credit conditions are loose, even the weakest companies can find funding. That puts a lid on defaults and breeds investor complacency. In 2007, defaults were less than 1 percent of outstanding debt defaulted. Two years later the ratio was over 8 percent.

Cheap funding provided by central banks has kept defaults low, even though GDP growth has been slow. The average default rate for single-B credits over the last four decades was 5 percent, according to Deutsche Bank, but only 1.6 percent in the last decade, despite two financial crises. In a world where credit risk is banished, investors are bound to get sloppy. Bubble rating: 7/10
Tot it all up: there's an abundant amount of cheap debt on increasingly loose terms. But the unweighted average score of seven on the bubble-meter indicates credit markets aren't yet showing the kind of excesses seen in the 2006/2007 boom. The bad news: it may not take long before they get there.

[Jun 23, 2015] "The End Of The Road" - Debt-Funded Buyback Boosts Are Finite

"...inorganic measures to boost profitability, like cost-cutting, wage suppression, layoffs, and stock buybacks, are finite in nature."

"...The question that investors need to be asking is what happens when companies inevitability reach "the end of road." Importantly, with the Fed determined to begin hiking interest rates, despite weak economic data, the end may be nearer than most are currently expecting."

"...More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year's record.""

Jun 23, 2015 | zerohedge.com

The problem for investors is that inorganic measures to boost profitability, like cost-cutting, wage suppression, layoffs, and stock buybacks, are finite in nature.

Eventually, these options are exhausted. There are only so many employees that can be terminated, wages can only be suppressed for so long, and there is a finite number of shares that can ultimately be repurchased from shareholders.

The question that investors need to be asking is what happens when companies inevitability reach "the end of road." Importantly, with the Fed determined to begin hiking interest rates, despite weak economic data, the end may be nearer than most are currently expecting.

... ... ...
This aggressive use of this tactic was brought to light recently in a Bloomberg article by Oliver Renick which stated:

It's official, using proceeds from debt sales to send cash to stockholders has never been more popular.

Standard & Poor's 500 Index companies listed buybacks or dividends among the use of proceeds in $58 billion of bond deals in the past three months, the most on record, according to data compiled by Bloomberg and Sundial Capital Research Inc. More than $460 billion in repurchases were announced during the first five months of 2015, on pace to top last year's record."

While there is much talk about the end of the "bond bull market," recent data suggests that this is far from the case. Investors, yield-hungry in a near zero interest rate environment, remain eager buyers of any and all debt issued, even if that debt is "junk rated."

[Jun 23, 2015] If you are heavely invested In stocks be ready for surprises

This one is from Hussman's weekly letter. He is based his prediction of the current value of the Q Ratio. The fact that we saw such pronouncements for a couple of years from ZH does not mean that current situation is healthy. That only means that the timing of correction in unpredictable. ECRI's most recent article presents slides and notes from ECRI's Lakshman Achuthan talk at the Madrid Fund Forum conference. He discussed the relationship between lower trend growth and recessions. "ECRI believes that minimally we're returning to a period of more frequent recessions, as we saw in much of the twentieth century....Going back to at least the 1970s, growth has been stair-stepping down during each successive expansion."

Jun 22, 2015 | zerohedge.com

Today will go down in history as one of the worst times in history to be invested in the stock market. Virtually no one believes this statement. That is why it will prove to be true. Every valuation method known to mankind is flashing red. A crash is baked in the cake. Will the trigger be Greek default, a Chinese market crash, a Fed rate increase, a derivative bet going boom, a Middle East event, someone doing something stupid in the South China Sea, a Ukrainian eruption, or a butterfly flapping its wings? When greed turns to fear, for whatever reason, the house of cards will collapse for the 3rd time in 15 years. Thank the "brilliant" bankers at the Federal Reserve.

[Jun 21, 2015] Game of chicken over Greece risks slipping out of control

Greece's bailout program expires in 10 days and money is draining from the country's banks. The resulting financial blowup could slip out of control and lead to Greece's departure from the 19-nation eurozone.

... ... ...

One crunch date is June 30. That's when Greece's bailout program expires and the last 7.2 billion euros ($8.1 billion) left in it will no longer be available.

On the same day, Greece has to pay the International Monetary Fund 1.6 billion euros ($1.8 billion) and it doesn't have the money to do so. If it doesn't pay, it won't be immediately declared in default by ratings agencies. But the IMF also says it wouldn't be able to lend Greece new funds until the arrears are taken care of.

the days go by and Greece and its creditors bet the other side will fold, the risk is that the politicians will be overtaken by events. The threat many economists cite as the major one: the possibility of a run on the banks in Greece.
The Greek government could try to stem that by imposing limits on withdrawals.

If the banks are seen as failing and the government is defaulting on its obligations, the European Central Bank would eventually face a decision on whether to end the emergency credit it allows Greeks banks to draw on to survive. The ECB, which represents all 19 eurozone countries, would be risking losing central bank money on a failing banking system.

Out of euros, the Greek government might have to print a new currency to rescue the banks and to pay its bills.

... ... ...

JJbama

If they don't default now, Greece will continue to take up all the administrative energy of the EU for the foreseeable future. That is until Spain, Italy and Portugal realize the consequences aren't so bad for ignoring budgetary guidelines, then all four will be basket cases. The EU won't be able to print money fast enough to prop up all four, so it will sink under its own weight. That will be a REAL shock to the world banking system. Let Greece default now, leave the Euro, and suffer the short-term consequences before the contagion spreads. They will be better off in the long run being able to devalue their currency as needed, and the Euro will survive.

Patrick M

I'm from Ireland. I agree with JJbama. If they allow Greece to it their way , the other countries will see Germany blinked and will elect Politicians that will allow them to go back to their "footloose and fancy free" ways.

Even though there are anti-austerity folks in Ireland, we do not forget the '80's and the "Mac the Knife" austerity combined with Foreign Direct Investment that produced the "Celtic Tiger" (Of course it also produced the materialist and greedy form of capitalism championed by the USA) which thankfully most Irish have now abandoned.

NAVYNUKE

Most people living today have never seen a good old fashioned bank run except watching "It's A Wonderful Life".

Fractional reserve banking requires only 10% reserves in cash, and those depositors slow to react will find the euros they deposited have been converted to worthless drachmas, or just vanished into thin air.

Monday should be a free-for-all.

Michael

There is no way in this world economy, with the coming political wars, and the real live wars, that the EU can continue to hold up Greece and they will not do anything to make it work, they are socialist and now as you see they do not want to pay back what they borrowed, they want it forgiven and more loans given.

The EU is crazy to keep such a weak link in their organization, they have several more that will fold in the future if the economy goes the way of the world conflicts on the horizon.

I think eventually the EU will fold under world tension and world economic pressures coming down the road for the whole world to contend with.

G

A committee convened by the Greek parliament has claimed much of the country's debt of 320bn euros was illegally contracted and should not be paid. Bail-out discussions should not take one more step until the Greek parliament votes to repudiate this position and affirms the full and legal debt obligation that the country owes its creditors.

Wolfowitz Doctrine

The US benefits greatly if Greece leaves the Eurozone and EU crashes.
As the world's ONLY universal currency. where we have exclusive keys to the printing press to make as many new dollars out of thin air as we want, nobody with threaten the US Empire.

FREEDOM

There is no solution to this mess- The Greeks can never repay the money loaned to them and the IMF and ECB knows this- this is a giant dog and pony show to help mitigate the fallout to what is the inevitable outcome. And to my fellow American peasant citizens - we too can never repay our debts - the only reason we are not in default is that we are the world's reserve currency status. This enables us the ability to manufacture and print money endlessly. When that privilege ends ( and it WILL end ) we will be in a position exponentially worse than Greece.

[Jun 21, 2015] China's stock market dream could bring about its worst nightmare

"..."The tide is going to go out, and there's going to be a lot of people without their swimming trunks on,""

China's ruling Communist Party has made it clear that it has a mortal enemy: social unrest.
Separately, it has also made it clear that the Chinese people should be heavily invested in the stock market.
And so, dutifully, the Chinese people have done just that, spurring the longest bull market in the country's history - the glorious 100% rally of the Shanghai Composite over the past year.
Unfortunately, it looks as if that rally may be coming to an end. This week, the Shanghai composite had its worst week since 2008, falling 6.5% on Friday. It is now officially in correction territory.

"The tide is going to go out, and there's going to be a lot of people without their swimming trunks on,"

Ewen Cameron Watt, chief investment strategist at BlackRock - which oversees $4.8 trillion as the world's biggest money manager - said in an interview on Bloomberg Television in London. "We're seeing it deflating quite rapidly."
When that happens, these two separate ideas - investing in the stocks and social unrest - could come together and turn China's Shanghai Composite dream into a nightmare.

[Jun 20, 2015] Wave of Defaults, Bankruptcies Spook Bond Investors

naked capitalism

For the week ended June 17, investors yanked "a whopping" $2.9 billion out of junk bond funds, according to S&P Capital IQ/ LCD's HighYieldBond.com, on top of the $2.6 billion they'd yanked out in the prior week.

Those redemptions dragged down the year-to-date inflows to $3.6 billion, nearly 40% below last year at this time. But $201.5 billion remain in those funds.

Jill, June 20, 2015 at 8:12 am

Henry Ford was a fascist who hated Jewish people. Still, he got something right. People need to earn enough money to buy your product. If they can't, your business is going down.
I know several local small business owners who have successfully been in business for a long time. They are now struggling to stay open. People cannot afford to patronize them as before. They are scared. These are people who have worked really hard to make their business a success. It's not working any more.
The ruling elite thinks its going to be fine forever. In this, they are mistaken. As they bring down the economy again (really they never stopped since 2008 and before), they apparently believe they will thrive when the vast majority of people can't pay for housing, food, utilities, etc and get to live on a poisoned planet. Yes indeed, these are our "best and brightest".

Eileen Appelbaum, June 20, 2015 at 11:05 am

Private equity firms stepping in to fill the gap created by exits from junk bond funds and limits that regulators have placed on leveraged loans by banks http://www.bloomberg.com/news/articles/2015-02-02/kkr-seizing-on-banks-withdrawal-amid-leveraged-loan-clampdown.

Interest rates higher than junk on loans to oil and gas.

susan the other, June 20, 2015 at 11:43 am

Another catastrophe for pension funds? CDO holders might follow the MBS lead and sell everything to the Fed. So that might be a new QE. Or it might just be business as usual for the Fed that has never stopped buying this stuff.

[Jun 20, 2015] Paul Krugman Voodoo, Jeb! Style

"...Selling tax cuts for the wealthy with unrealistic promises about growth"
.
"...Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
By Josh Barro"
.
"...Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years."
.
"...We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world. Then the neolibs took over and screwed it all up."
.
"...If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growingthat state at 4% is based on blowing a "...catastrophic bubble"
.
"...And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.
.
Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.
.
Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity."
.
"... Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right. So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
.
"...Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity."

Jun 20, 2015 | Economist's View

Selling tax cuts for the wealthy with unrealistic promises about growth:

Voodoo, Jeb! Style, by Paul Krugman, Commentary, NY Times: On Monday Jeb Bush - or I guess that's Jeb!,... gave us a first view of his policy goals. First, he says that if elected he would double America's rate of economic growth to 4 percent. Second, he would make it possible for every American to lose as much weight as he or she wants, without any need for dieting or exercise.

O.K., he didn't actually make that second promise. But he might as well have. It would have been just as realistic as promising 4 percent growth, and considerably less irresponsible. ...

Mr. Bush ... believes that the growth in Florida's economy during his time as governor offers a role model for the nation as a whole. Why is that funny? Because everyone except Mr. Bush knows that, during those years, Florida was booming thanks to the mother of all housing bubbles. When the bubble burst, the state plunged into a deep slump... The key to Mr. Bush's record of success, then, was good political timing: He managed to leave office before the unsustainable nature of the boom he now invokes became obvious.

But Mr. Bush's economic promises reflect more than self-aggrandizement. They also reflect his party's habit of boasting about its ability to deliver rapid economic growth, even though there's no evidence at all to justify such boasts. It's as if a bunch of relatively short men made a regular practice of swaggering around, telling everyone they see that they're 6 feet 2 inches tall. ...

Why, then, all the boasting about growth? The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.

There is, of course, a term for basing a national program on this kind of self-serving (and plutocrat-serving) wishful thinking. Way back in 1980, George H.W. Bush, running against Reagan for the presidential nomination, famously called it "voodoo economic policy." And while Reaganolatry is now obligatory in the G.O.P., the truth is that he was right.

So what does it say about the state of the party that Mr. Bush's son - often portrayed as the moderate, reasonable member of the family - has chosen to make himself a high priest of voodoo economics? Nothing good.
Dan Kervick said in reply to pgl...

That's the kind of short-term thinking we could use a lot less of. Clinton unleashed the banks and neutered the regulatory apparatus, which directly set the stage for the financial crisis of 2007/8. He himself has expressed regret about these policies, but many in the Clinton loyalist bloc in his party still have trouble grasping the point.

He also happened to be sitting in the Oval Office when a (harmful) dot-com bubble and (useful) productivity surge took place, driven by tech developments coming to fruition that Bill Clinton did absolutely nothing to catalyze. Those developments were the outcome of decades of government-driven R&D in the various components of computer and internet technology. Clinton reaped the political benefits of that earlier big government investment, but presided himself over further reductions in government driven by the reigning neoliberal small government philosophy.

The stagnation we are currently experiencing is, in part, the result of four decades of failure by both parties to accept the responsibilities of government leadership in the technological and infrastructure development ares, and to seize opportunities for transformative national and global development of the kinds that that only governments are capable of carrying out.

Inequality also surged dramatically under Clinton. Of course this was not all attributable to Clinton himself, but was an outcome of the reigning neoliberal approach to political economy, and long term trends in finance, corporate organization and tax policies that prevailed throughout the neoliberal era under Reagan, Bush I, Clinton, and Bush II - and which have sadly continued under Obama.

anne said in reply to anne...

http://www.nytimes.com/2015/06/18/upshot/economists-advise-us-not-to-hold-our-breath-on-jeb-bushs-growth-target.html

June 17, 2015

Economists on Bush's Promise: Close to 0 Percent Chance of 4 Percent Growth
By Josh Barro

Jeb Bush set out an aggressive economic growth target in his campaign announcement speech Monday: four percent real G.D.P. growth, for a decade.

"It's possible," he said. "It can be done."

Don't bet on it.

Over the last 40 years, the American economy has grown at an average of 2.8 percent per year. That's slower than the 3.7 percent average from 1948 to 1975, but the future looks even gloomier because that 2.8 figure relied on two favorable trends that are now over: women entering the work force, and baby boomers reaching their prime earning years.

After 2020, with the percentage of the American population that is of prime working age shrinking, the Congressional Budget Office expects growth to stabilize at 2.2 percent. Hitting Mr. Bush's target would require nearly doubling that pace. It would mean exceeding the economic performance of every presidential administration since the Kennedy-Johnson years despite demographic headwinds caused by baby-boom retirements....

Dan Kervick said in reply to pgl...

It was more than that. We still had a Vietnam war post-1966, but growth began to fall. And the Iraq War never gave us growth rates of 5%, 6% and 7%. Something else was going on. Some of it was just the baby boom, but we were also carrying out massive public investment projects: GI Bill, highway plan, space program and more.

Why are you so eager to disparage the progressive achievements of the postwar period that took place under assertive, forward-leaning government, and make it look like it was all military? Democrats should try to take credit for that stuff. We had a two decade continuation of the Rooseveltian spirit of can-do ambition and government leadership moving energetically to re-shape our country and build a new society. It was awesome. The US was the economic wonder of the world.

Then the neolibs took over and screwed it all up.

Stop trying to run away from all the things we did right. We can do that kind of thing again, but the challenges are different now. We have to remake the global system because otherwise we will destroy the planet. Our social system is crumbling. Water resources are in jeopardy. Our consumption patterns are irrational, inefficient and unbalanced. If we don't act now we are headed toward a future of pollution, resource wars, caste fragmentation and impoverishment.

The Pope just sent you guys another big fat hanger to hit out of the park and you seem to want to take it off your head again.

Wake up. Think bigger. Good lord; it's not about the freaking interest rates.

DeDude said in reply to anne...

If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic. But the reason people are laughing at Jeb is that he is taking his own record as Florida governor as proof that he can do it again. His record of growing that state at 4% is based on blowing a catastrophic bubble - is that what he will do to grow the national economy by 4%? The only way to grow the economy by 4% is to increase the income of the consumer class by 4% - that is not going to happen with another Bush in the white house.

anne said in reply to DeDude...

If the population doesn't grow then the 4% growth rates would require 4% per capita growth rates. That is part of what makes the 4% rate unrealistic....

[ Population growth is 0.7% yearly, while total factor productivity growth has averaged 1.2% yearly since 1948. That leaves 2.1% growth with an employment-population ratio that is far below that of other healthy developed countries.

China has averaged 8.6% per capita GDP growth yearly since 1977, or for 38 years, and how this has been done should be thoroughly studied. ]

DeDude said in reply to pgl...

Agree, the conversion of their population from dirt poor subsistence farmers to productive factory workers (and consumers) has been a substantial driver of Chinese GDP growth rates. The appear to understand that they have reached a size where they can no longer rely on mercantilism and need to transform to a true consumer economy - so they probably will be able to continue outpacing the US growth for at least another decade or two. Especially if we continue to elect people who fail to "get" such a basic concept as that economic growth originate in increased consumption.

Peter K. said...

This is the Krugman I don't like. I understand what he's doing - a Jeb! presidency with a Republican Congress would be a nightmare - pace Paine and Kervack - but he should spare a paragraph why Obama's growth rate sucks so bad and why long term growth rates are coming down from the Golden Era of rising living standards.

Marco policy. Unions. Inequality. Boom/bust cycle. Obama picked Bernanke and Geithner and listened to them. That's why his growth rate sucks, not demographics. And a crappy economy doesn't help with race relations.

Dan Kervick said...

I responded briefly to this in the other thread where Fred Dobbs posted it, but I'll expand a bit here.

Paul Krugman thinks we don't know how to make make long-run growth happen as a matter of deliberate policy, and that changes in long-run growth patterns are unpredictable. But I think he's much overstating the case. We know that if we shift overall spending at the national level from wasteful consumption into investment, R&D and capital development, we can build up the productive capacity of the country and achieve much higher levels of GDP growth for some years in the short term, and much higher overall GDP in the long run. It's true that we can't sustain annual growth at some arbitrarily chosen high level over a long run. But even 10 years or so of surging growth followed by a leveling off would mean we level off at a higher level of prosperity than we get from perpetuating our current pattern of sluggish growth indefinitely.

And politicians who set high and ambitious economic targets for a country that has fumbled along for far too long with stagnant growth and a neglect of long-term economic development and strategic thinking should be welcomed into the discussion.

Democrats should leap at the chance to have a debate about how to get to 4% growth! That kind of ambition represents a major potential turnaround from the current radical Republican agenda of laissez faire do-nothingism.

Now we know what the Republican formula is going to be: cutting taxes, cutting red tape, cutting restrictions, de-fanging the FDA and the EPA and the Department of Labor, etc. Democrats should come back with the historical data that is on their side, and that shows that the highest levels of US growth in the 20th century coincided with an activist US government that played a much bigger role than our government currently plays. You know why America is stagnant? Because modern Republicans like Mitch McConnell, Paul Ryan and the Kochs don't have the right stuff. They're incredibly committed to selfish libertarian plans to help the fortunate keep their stuff; but they lack the vision and patriotic public spirit chutzpah of earlier generations who knew how to use the US government to mobilize resources to build the country and spread broad prosperity.

We don't know how to create sustained high growth over many years? Tell that to the Chinese. Tell it to the economic engineers who doubled US annual output between 1939 to 1944, when failure was not an option. Tell it to the people who engineered high average growth between 1950 and 1965 by sustaining government investment at a much higher level than we do currently. Marianna Mazzucato, among others, gets this stuff. Loser liberals from the boomer generation often don't. They are stuck in the neoliberal paradigm of an economy that is "self-adjusting" over the long run, and where the only role for government is short-term stabilization and running a safety net.

The only thing standing between us and a major American liftoff is ideological stupidity and lack of political will. The visionary engineering portfolios of the worlds creative people are overstuffed with incredible plans: entirely new kinds of cities; transoceanic tunnels, redesigns of entire energy grids and transportation systems. What is lacking is leaders with a clue and the willingness to call for the kind of organization, planning and mobilization to make these things happen.

Suppose a president shoots for 4% and we only get 3.5%. How have we lost? And who pays the political price? The guy who set the high target and then laughs, "Hey we only got 3.5% - just shoot me." Or the snarky smart guys on the sidelines who say, "I told you we didn't have it in us."

Krugman has been writing some good stuff lately, but these recent kneejerk columns about Jeb Bush are Krugman at his absolute worst. Whenever he puts on his blue team baseball cap and descends into this kind of shallow hackitude, his IQ goes down 50 points. If Jeb Bush said, "We're going to end cancer in our lifetime!" I now fully expect Krugman to come back with, "That's so unrealistic; we don't know where cancer comes from."

Peter K. said in reply to Dan Kervick...

If you push the monetary-fiscal mix (and trade) you can get higher growth and higher productivity.

That means looser monetary policy and more fiscal policy until inflation picks up. That also means distributing income more widely, via unions and better labor laws and regulating banks effectively, including better credit policy.

If Obama had better monetary and fiscal policy (and a competitive dollar) during his Presidency his growth rates would have been better.

Instead they were worried about the deficit and inflation becoming "unmoored" or a problem some day.

Phantom issues.

Dan Kervick said in reply to Peter K....

Yes, too much concern about restrictive target rates and parameters. And although some of the economic goals can be described in abstract macroeconomic terms, the policy instruments can't be addressed purely macroeconomically. It's a matter of choosing the world we want to live in and then building it - on purpose, deliberately. You can't just shoot for an interest rate and inflation rate and then expect that better world to emerge from from private enterprise on its own.

Businesses have already had the most favorable credit conditions anyone can reasonably want, and still very few of them are building the future we need or expanding ambitiously. They lack courage and a sense of direction because of an absence of leadership. So their hunger for "safe assets" and rent-collection schemes is endless.

DeDude said...

"He managed to leave office before the unsustainable nature of the boom he now invokes became obvious."

Yes Jeb Bush has a slightly better timing than his big brother George, who did not get out before the collapse of the bubble he had created and lived high on. Unfortunately, the only way GOP presidents can get growth is by blowing bubbles. That will create additional "money" in the system which can be used to push the main/only driver of GDP growth - consumption.

As much as GOPsters try to avoid dealing with the "gravitational law" of economics they can only postpone it. Economic growth is driven by increases in consumption, which means either bigger government or increases in money to the consumer class.

The only palatable way for the party of the rich to get to that is by blowing bubbles in some asset class held by the upper half of the consumer class. But then they have to time those bubbles such that they blow up during a democratic presidency (to avoid being blamed for what was their fault)

Lafayette said...

{PK: The short answer, surely, is that it's mainly about finding ways to sell tax cuts for the wealthy..., low taxes on the rich are an overriding policy priority on the right - and promises of growth miracles let conservatives claim that everyone will benefit from trickle-down, and maybe even that tax cuts will pay for themselves.}

It is amazing that "getting rich" should be so ingrained as part and parcel of the "American Way of Life".

People, since antiquity, have always wanted to praise their "heroes". Typically, Roman generals would return to Rome to parade their booty in front of the population. No doubt, those generals then got involved in Roman politics. Otherwise, why risk your life on the battle field.

Fast-forward 2000 years, and in its place we see an America floundering in an exaggerated adoration for the Really-Rich. I suggest the "Urge to Get Rich" is much more ingrained in American mentalities than any notion of correcting Income Disparity.

Why, otherwise, would stupendous lottery wins be such an attractive way to waste one's money ... ?

[Jun 20, 2015]I Agree with Milton Friedman!

June 15, 2015 | The Baseline Scenario | 7 comments
By James Kwak

In Capitalism and Freedom, Milton Friedman asks what types of inequality are ethically justifiable. In particular (pp. 164–66):

"Inequality resulting from differences in personal capacities, or from differences in wealth accumulated by the individual in question, are considered appropriate, or at least not so clearly inappropriate as differences resulting from inherited wealth.

"This distinction is untenable. Is there any greater ethical justification for the high returns to the individual who inherits from his parents a peculiar voice for which there is a great demand than for the high returns to the individual who inherits property? …

"Most differences of status or position or wealth can be regarded as the product of chance at a far enough remove. The man who is hard working and thrifty is to be regarded as 'deserving'; yet these qualities owe much to the genes he was fortunate (or fortunate?) enough to inherit."

I think Friedman is correct here. This is basically the same point that I made in my earlier post: the money that you make because you are smart and hard working is the product of good fortune just as much as the money that you inherit directly from your parents.

Read more at Medium.

William Fairburn | June 15, 2015 at 3:26 pm |
But outcomes are path dependent. If my hard work is valuable because a drug lord values my services, then one could argue that my income is not morally justified. Similarly, if capital is distributed the way it is because of generations of unlevel playing fields, different sets of rules, criminal behavior etc, and capital dictates the value of various types of hard work, I think similar logic applies. (If people like me controlled all wealth, there would be no Wall Street and no hedge fund managers to complain about)

Pavlos | June 15, 2015 at 3:44 pm |
If you unpick the chain of causality, very little difference in income ends up being attributable to a difference of preferences between leisure and work. Differences in disposition between, say, artistry and banking would be more significant but does that justify a difference in reward? Perhaps selfishness makes you rich, is that a good thing?

In the end almost no differences in wealth is a matter of free choice. Right-wing people would say it's all preference between industry and idleness.

Differences in income would be much better justified as different power to allocate resources than different license to consume. If I started a bakery, tech startup, etc. maybe it's fair that I get to control how that thing evolves. Control as reward for success seems fair and efficient. Consumption as reward for success much less so.

anijioforlawrence | June 15, 2015 at 4:58 pm |
Reblogged this on xdayschocolate.

Aaron Parr | June 15, 2015 at 5:45 pm |
I see such distinctions as getting lost in the weeds and thus meaningless.

The problems of our economy do not stem from the differentials of merit between different kinds of wealth acquisition. The problems with our economy stem from the inherent class conflict in the Capitalist system. You have one class of owners/decision makers and another of workers. Instead of a system that all of us have influence over and work hard to improve, we have a system which concentrates wealth in fewer and fewer hands, and thus tends to the same kind of structure as in the moribund, totalitarian systems it is said to be superior to.

This is not even remotely complicated. Those of us in the middle classes however are so desperate to justify our relative positions of comfort and privilege with the myth of meritocracy that we lose sight of the real world around us. The most essential work is the least paid. The higher paid work is important only to an increasingly smaller group of people.

Until we have a society in which workers, owners, and directors of enterprise are 100% integrated (meaning that when there is no separation between workers and capitalists) it will never be even close to a meritocracy in the long run, and we will be less and less capable of directing our labor toward things that we actually need to be doing. Instead we are busy working to make the rich richer and anything that doesn't help the rich in the short term is sacrificed by those making the decisions. And while in theory Capitalism embraces market structures which are supposed to distribute decision making, the concentration of wealth and power renders the market impotent int his regard.

In short: Capitalism over time becomes less and less capable of directing the economy to work of any merit to the majority of the population because its basic structure ensures the concentration of wealth and centralization of control in the hands of the few who are not properly motivated to care or even be particularly good at managing the wider economy. (In fact they are particularly bad at it)

It would be much better to have all enterprises run, owned and directed by the workers with no capitalists as we know them today involved at all. Capital is thus decentralized (rather than dominated by a wealthy individual or a state run bureaucracy), and individuals running the enterprise are not motivated to acquire wealth at the expense of the enterprise and other workers.

Ron the Jew | June 16, 2015 at 9:22 am |
Have y'all actually read real history? myth of meritocracy? while there is a difference between working hard and working smart, I have lifted myself out of the low end and can now pay for many others comfortable lives via the taxes I pay. In my case, meritocracy has worked really well to reward behavior that pushes all of society forward.

No other system in the history of the world has done more to lift the average Joe than this system. It's not perfect. But, it is by far the best one yet. At least if results matter at all.

Ann | June 16, 2015 at 4:16 pm |
I want a divorce, "Ron the Jew".

Sure, I had the "right" to make my life less miserable through honest work, I just wasn't allowed to own anything that I worked to create to make me less miserable – like food clothing shelter and the company of good people living with the same values – the "rule of law".

Steve Vallo | June 19, 2015 at 4:56 pm |
It is not money as a thing but the ancillary byproducts – education, connections, influence, etc. With money I can buy the expertise of someone when I have no inherent expertise or abilities of my own. I get as many chances as I want but you don't. In fact, I would have a greater ability to be criminal and immoral without consequence, so you could legitimately ask of wealth concentration by inheritance actually sets back all of humanity by granting greater control to people with those type of personality characteristics.

[Jun 20, 2015] Junk Bonds Are Not Leading Stocks Yet

Jun 20, 2015 | Jeremy L. Hill's Blog

Focus for a moment on how bonds and fixed income volatility affect the stock market. There is little doubt that a bond market crash (or melt up) will highly impact the U.S. stock market. We've already seen U.S. Treasury Notes rise in yields which has fired the racing gun for bond repositioning. Yesterday, Lipper reported that investors withdrew $2.6 billion from high yield bond funds last week while equity funds saw an inflow of $2.8 billion.

Here's the rub. High yield bonds have outperformed stocks so far in 2015 in many respects. Looking at the high yield indices published by Merrill Lynch, both higher rated and triple C rated high yield bonds have outperformed the S&P 500 which is up 2.45% year to date.

OK, actually that is slightly inaccurate if you include dividends which juices the total return to 3.40% year to date. The point is that high yield bonds have done pretty well in 2014 relative to other bonds and other asset classes? Why? Because high yield bonds are generally about idiosyncratic risk at the company and paper level, rather than about a sector or a market. The implication is that some level of market risk can be avoided in high yield debt when investing in individual companies (not ETFs or funds).

The question now becomes whether the U.S. high yield market will lead equities lower? There has been much discourse as to whether a selloff in the high yield market would bleed into equities. Conversely, some commentators have posited that a selloff in the bond market will be constructive for stock prices as money coming out of bonds will gravitate to stocks. Maybe. Maybe both are right and wrong and at the same time and for different reasons.

The correlation coefficient between U.S. high yield bonds and stocks – using the iShares iBoxx High Yield Corporate ETF (ticker: HYG) and the S&P 500 as benchmarks – shows a very strong correlation between the two assets classes: 85% roughly.

This does not mean that high yield bonds lead U.S. stocks, or vice versa. Markets and the punditry tend to overstate these types of relationships but they are frequently temporal in nature. It makes sense that stocks and high yield bonds are correlated – both assets depend upon the general state of the economy for earnings growth and minimalizing of credit risk. However, the notion that one can trade stocks based upon high yield market is a generalization and void of the much higher level of analysis that should be employed when trading asset correlations. More simply and importantly, watch for (all of a sudden) high levels of bond market volatility. That is what can be stated as a "risk off" factor and will likely bounce stocks indices around in its wake.

For more information on Old Blackheath Companies and our services go to http://www.oldblackheath.com/

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[Jun 19, 2015] United States of Amnesia

May 19, 2015 | jessescrossroadscafe.blogspot.com

"We are the United States of Amnesia, we learn nothing because we remember nothing." -- Gore Vidal
Stocks backed off their exuberant rally high from last Friday after that 'goldilocks' job number.
The 'global bond rout' has investors nervous, and well they might be.

We are led by narcissists and sociopaths, in a most unwholesome partnership between the public and private sector.

And the most feral, counterproductive response of self-proclaimed 'reformers' is to eliminate government, to nullify it, so that in their very deluded and romantic imaginations the monied interests can refrain from acting as lawbreakers, since at their core these most selfish and cunning of predators and sociopaths are really yearning to be, think, and act like angels.

And what will we do, having deregulated our markets, freed them from restraint, and eliminated the laws so that none may be lawbreakers. What will we do when the very heart of darkness has a freer reign to blow the winds of plunder and power over the lands, with nothing to provide us a foothold or an anchor, the laws which are the pillars of justice having been all overturned?

Have a pleasant evening.

[Jun 19, 2015]BLS Twenty-Five States had Unemployment Rate Increases in May

sum luk wrote on Fri, 6/19/2015 - 8:15 am (in reply to...)

josap wrote:

First-Quarter Growth Disappoints, but Outlook Robust

… yes, but now, cpi / pce have been saved by rising gasoline prices: http://floatingpath.wpengine.netdna-cdn.com/wp-content/uploads/2015/06/CPI-Table-820x567.png

arthur_dent wrote on Fri, 6/19/2015 - 8:29 am

we all know by now, but it does not hurt to be reminded,

The Fed Sucks At Economic Forecasting

(second topic down)

KarmaPolice wrote on Fri, 6/19/2015 - 8:42 am

Why U.S. is producing but not using more oil and gas - MarketWatch

"One offshoot: the number of busses on the road has surged."

All going to Colorado.

yuan, wrote on Fri, 6/19/2015 - 8:58 am
Let Greece Go - Bloomberg View

Regardless, it is now in Greece's own best interests to show itself the door. There should be no doubt, as Martin Wolf points out in the Financial Times, that like most divorces, this one will be acrimonious. But the sooner it starts, the sooner Greece can begin the process of starting an economic recovery.

Here are a few that might persuade Greece to pack its bags and leave the abusive relationship it's in with the EU:...

Default!
Default!
Default!

yuan wrote on Fri, 6/19/2015 - 9:02 am
The Track Record for Austerity in the Euro Crisis Countries | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research

This table compares the I.M.F.'s projections for per capita GDP and employment in 2015 with the 2007 level in each of the four countries.

Reality has a Keynsian bias...

Citizen AllenM wrote on Fri, 6/19/2015 - 9:31 am

A fine birthday present for me on Monday- A Grexit!
I am so excited to finally see what happens when the pseudo gold standard collapses again, bit by bit.
Someday this war's gonna end...

Comrade Janošik wrote on Fri, 6/19/2015 - 9:31 am

i too sense the Dooooooooooooooom!!!

Citizen AllenM wrote on Fri, 6/19/2015 - 9:39 am (in reply to...)

Bank runs starting, so out they go!
Using the Argentine model, they are toast monday.
Or one more episode of can kicking could occur, but the writing is now on the wall.
Someday this war's gonna end...

Sebastian wrote on Fri, 6/19/2015 - 9:44 am

Timetable of potential Greece default.

Greek debt crisis: Key dates on the road to a possible Grexit - FT.com

If no agreement can be reached, worst-case scenarios begin to kick in, including capital controls to limit withdrawals from Greek banks and prevent a complete financial meltdown.

If a Greek bank run were to begin, the European Central Bank - which is keeping Greek banks on life support by approving emergency central bank loans to local financial institutions - could be forced to declare them insolvent and withdraw all assistance.

Without the emergency loans, Greece's banks would collapse and the only way to restart them would be creating a new central bank with a new currency.

Sebastian

josap wrote on Fri, 6/19/2015 - 9:53 am

Today.
ECB approves rise in emergency loans to Greek banks - FT.com

Greece and Europe look into the abyss, with one last chance looming - The Washington Post
Fears that Greece's cash-strapped banks might imminently close their doors eased Friday afternoon as the European Central Bank agreed to pump even more emergency loans into the Greek banking system. It was the second time this week that the ECB had come to the rescue, following an infusion Wednesday. But the new loan was only expected to cover the country's lenders through Monday, and ECB officials made clear it was just a temporary patch for a much bigger problem.

Fair Economist wrote on Fri, 6/19/2015 - 10:01 am

I don't understand the ECB's game. They made a statement yesterday that the Greek banks were going to be in trouble soon, setting off a run - and then loan more money to these insolvent institutions. This makes no sense whether they're trying to be tough or gentle. Unless, I suppose, they're trying to assume all the bad debt by letting the banks run off entirely, and I can't believe they're trying to do that.

bearly wrote on Fri, 6/19/2015 - 10:02 am (in reply to...)

Fair Economist wrote:

I don't understand the ECB's game.

They're trying to reel in the IMF to spread the losses outside of the eurozone.

Fair Economist wrote on Fri, 6/19/2015 - 10:10 am (in reply to...)

They're trying to reel in the IMF to spread the losses outside of the eurozone.
Well, right now the IMF is as exposed as it's ever going to be. Right now a big chunk of the loans are already from the IMF. The next tranche, if it ever comes, will be a loan from the EC and will be used to pay off the IMF. If the EC wants to minimize their losses and dump as much as possible on the IMF, ending it now is in their interest - but then why would they assume even larger amounts of bad bank debt?

There have been, according to one site, 3.4 billion in euro withdrawals already this week - that's almost half the size of the tranche currently under negotiation (7.2 billion IIRC).

Private debt, as usual, dwarfs public debt.

[Jun 19, 2015] Another Fed Insider Quits, Tells The Truth

Jun 19, 2015 | Zero Hedge

Once more, an "insider" from The Fed exposes the reality of an academic ivory tower clueless of the real financial markets. Former adviser to Dallas Fed's Dick Fisher, Danielle DiMartino Booth speaking in a CNBC interview slams The Fed for "allowing the [market] tail to wag the [monetary policy] dog," warning that "The Fed's credibility itself is at stake... they have backed themselves into a very tight corner... the tightest ever." As she writes in her first Op-Ed, "The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive... All retirees' security is thus at risk ith ign monetary policy had encouraged malinvestment, the scourge that Austrian Ludwig von Mises warned of in the early 20th century. An overabundance of debt, if left unchecked, inevitably leads to the misallocation of resources. In the case of the first years of the 2000s, the target was, of course, the housing market.

The hope today is that the current era of easy monetary policy will have no deep economic ramifications. Such thinking, though, may prove to be naive. It goes without saying that the heat of the financial crisis merited a monumental response on policymakers' part. That said, the most glaring outgrowth has been politicians' exploiting low interest rates to their benefit. While it's conceivable that well-intentioned central bankers want no part in encouraging Congressional malfeasance, the fact remains that the lack of action on politicians' part would not have been possible absent the Fed's allowing Congress to abdicate its responsibilities to the manna of easy money.

Of course, we all appear to have been spoiled over the last 25 years. A funny thing happened when the Fed placed a floor under stock prices with assurances that investors' pain and suffering would be mitigated – recessions faded from the norm. Over the past 25 years, the economy has contracted one-fourth as often as it did in the 25 years that preceded this benign era. Hence the illusion of prosperity, one that has rendered investors complacent to the point of being comatose. That's what happens when entire industries are able to run with more capacity than demand validates simply because the credit to remain in operation is there for the taking. To take but one example, capacity utilization is at 78.1 percent, shy of the 30-year average of 79.6 percent some six years into the current recovery. The downside is that the cathartic cleansing that takes place when recession is allowed to play out all the way to the bitter end of a bankruptcy cycle never occurs – winners and losers alike stay in business.

The savvy fellows in the C-suites are not blind to reduced competitiveness. As such they are remiss to expand their core businesses too much, that is, until the time they can truly assess the operating environment in a post-easy money world. The tricky part is that the credit is still there for the taking. What's to be done? In the words of one of the wisest owls on Wall Street, UBS's Art Cashin, such environments raise the not-so-fine art of financial engineering to a "botox state". It's no secret that companies have been gorging themselves on share buybacks and mergers and acquisitions, non-productive but highly lucrative endeavors. When combined the results are magnificent – costs are cut, profits juiced and bonus season becomes the most wonderful time of the year.

The insult added to the economic injury is the players who are compelled to underwrite the not-so-virtuous cycle. Broken pension accounting and incentives continue to force the hands of the individuals tasked with allocating the portfolios underlying the nation's $18 trillion in public pension obligations. One of the least discussed consequences of easy monetary policy is the damage wrought on the nation's pension system. Not only have low interest rates compounded underfunded statuses, they have driven pension assets into riskier and less liquid investments than anything prudence would dictate. The catalyst is the perverse rate of return assumptions that are wholly disconnected from reality. Averaging 7.75 percent, these bogeys have forced allocations into credit plays, many of which are caged in the least liquid corners of the debt markets. The irony is that many pensions have sought to diversify away from their bloated equity holdings by seeking out what they perceive to be the traditional safe harbor of fixed income investments, much of which flows straight back into the stock market via debt-financed share buybacks and M&A.

All retirees' security is thus at risk when the massive overvaluation in fixed income and equity markets eventually rights itself. Pension math, however, will forestall the day of reckoning in the financial markets given the demographic surge in retiring beneficiaries that require states and municipalities to top off pensions' coffers. Pensions will thus dig themselves into a deeper grave than they would otherwise by buying the credit craze more time.

Meanwhile, would-be retirees who don't have the safety of promised pensions continue to be punished by low interest rates. The past seven years have criminalized conservative cash savings. The Swiss Re report quantified what U.S. savers have lost in interest income at $470 billion, while debtors had an easier time. It's no coincidence that the balance for a household nearing retirement will only cover two years based on the nation's median income. Nor is it any wonder that the labor force participation rate for those aged 55 and older has increased by three percentage points over the past decade. If only they were all earning what they did in their prime years.

And the lesson to be learned when making ends meet is simply not feasible? That would be the tried and true economic offset, the magic behind the miracle of our consuming nation, which for too long now has been debt that pulls forward the demand that should have to wait. Despite the collapse in mortgages, overall household debt remains elevated; it isn't that far below its pre-recession level, and households are now splurging on cars as lending standards have caved. Even credit card borrowing is making a comeback – the average household's credit card balance of $7,177 is the highest in six years. Meanwhile, student debt is scaling record heights as families struggle to keep pace with the most egregious inflation plaguing household budgets, that of higher education.

As for the gravest sin of the QE era, in the fiscal year 2015, the U.S. government paid 1.8 percent on public debt. One would be hard pressed to identify any other debtor whose borrowing costs decrease despite its trebling in debt outstanding. Actually, that's a privilege we need to protect. As for indemnifying the nation's balance sheet, that opportunity has been squandered by spineless politicians who would rather maintain the veneer of scant deficits rather than extend the maturity of the nation's debts. Our wise neighbors to the south recently issued a 100-year bond. Where, one must ask, is our leaders' wisdom when we need it most?

Could it be that hiding behind the Fed's largesse is the path of least resistance? It would certainly appear to be the case. All the while, the excesses in the financial markets continue to build unchecked. The time has long come and gone to abandon the model-driven decision framework that pushes the Fed into an ever-shrinking corner. It is high time central bankers acknowledge their complicity in enabling Congress to fiddle while the country burns. As was the case with the revelation that the Great Moderation was but a myth, it is crucial that our leaders retake the country's reins thus also bringing to an end the deeply damaging era of The Great Abdication.

[Jun 16, 2015] Credibility Trap

"While we were not watching, conspiracy theory has undergone Orwellian redefinition. A 'conspiracy theory' no longer means an event explained by a conspiracy. Instead, it now means any explanation, or even a fact, that is out of step with the government's explanation and that of its media pimps... In other words, as truth becomes uncomfortable for government and its Ministry of Propaganda, truth is redefined as conspiracy theory, by which is meant an absurd and laughable explanation that we should ignore." Paul Craig Roberts
The Bucket Shop was quiet last Friday and today, as the usual punters were swapping stories and matching dollar bills for side bets.
There was a little spike in the precious metals as it was announced that the EU is preparing capital controls in the event of a Greek Default.

Keep an eye on these developments as I think that the powers that be are increasingly concerned that their fantastic (as in born of fantasy) plans are coming unraveled.

They do not know what they are doing but, of more concern, it is not clear that they even care, as long as they think that they are winning.

[Jun 16, 2015] A few sturdy sectors are preventing a market breakdown

"...speculative hedge funds now have more bearish positions than at any time since October."

The pressure of global market weakness is finally, slowly being felt by stocks in the U.S., where the Standard & Poor's 500 (^GSPC) is threatening to sag beneath the lower end of its stubborn, tight trading range.

It's been a low-drama, grinding pullback that has cost the U.S. benchmark some 2% over the past 16 trading days, taking it down to levels seen three times before over the past three months.

The retreat has not escaped the notice of tactical professional traders, as speculative hedge funds now have more bearish positions than at any time since October. Short selling in the broad market is also back up to October levels.

This rebuilt wall of worry and active hedging instinct are potentially good things for stocks, as caution can provide some insulation from steeper declines.

[Jun 16, 2015] This Is the Maximum Benefit You Can Get from Social Security

Top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today's dollars ($42,182 a year)

Social Security bases your benefits on your highest 35 years of earnings after adjusting each year's earnings to reflect wage inflation. In other words, your top 35 years, as documented via your payroll stubs, may not be your top 35 once they're adjusted for wage inflation. Still, you can be certain that if you've earned at or above the annual payroll-tax ceiling for at least 35 years-lucky you!-a benefits bonanza awaits.

The size of that benefit check will also depend on wage inflation.

This year's top monthly benefit at 66, or full retirement age (which is the benchmark the agency uses), is $2,663 ($31,956 a year). By contrast, the average Social Security payout is a more modest $1,287 ($15,444 a year).

If you wait until age 70 to claim, delayed retirement credits will boost your payment to $3,515 in today's dollars ($42,182 a year). The actual amount you'd receive in four years also would include accumulated cost of living adjustments.

[Jun 15, 2015] Academics Who Defend Wall St. Reap Reward

"... What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found. ..."

"... The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton. ..."

December 27, 2013 | NYTimes.com

Signs of the energy business are inescapable in and around Houston - the pipelines, refineries and tankers that crowd the harbor, and the gleaming office towers where oil companies and energy traders have transformed the skyline.

And in a squat glass building on the University of Houston campus, a measure of the industry's pre-eminence can also be found in the person of Craig Pirrong, a professor of finance, who sits at the nexus of commerce and academia.

As energy companies and traders have reaped fortunes by buying and selling oil and other commodities during the recent boom in the commodity markets, Mr. Pirrong has positioned himself as the hard-nosed defender of financial speculators - the combative, occasionally acerbic academic authority to call upon when difficult questions arise in Congress and elsewhere about the multitrillion-dollar global commodities trade.

Do financial speculators and commodity index funds drive up prices of oil and other essentials, ultimately costing consumers? Since 2006, Mr. Pirrong has written a flurry of influential letters to federal agencies arguing that the answer to that question is an emphatic no. He has testified before Congress to that effect, hosted seminars with traders and government regulators, and given countless interviews for financial publications absolving Wall Street speculation of any appreciable role in the price spikes.

What Mr. Pirrong has routinely left out of most of his public pronouncements in favor of speculation is that he has reaped financial benefits from speculators and some of the largest players in the commodities business, The New York Times has found.

While his university's financial ties to speculators have been the subject of scrutiny by the news media and others, it was not until last month, after repeated requests by The Times under the Freedom of Information Act, that the University of Houston, a public institution, insisted that Mr. Pirrong submit disclosure forms that shed some light on those financial ties.

Governments and regulatory agencies in the United States and Europe have been gradually moving to restrict speculation by major banks. The Federal Reserve, concerned about the risks, is reviewing whether it should tighten regulations and limit the activities of banks in the commodities world.

But interviews with dozens of academics and traders, and a review of hundreds of emails and other documents involving two highly visible professors in the commodities field - Mr. Pirrong and Professor Scott H. Irwin at the University of Illinois - show how major players on Wall Street and elsewhere have been aggressive in underwriting and promoting academic work.

The efforts by the financial players, the interviews show, are part of a sweeping campaign to beat back regulation and shape policies that affect the prices that people around the world pay for essentials like food, fuel and cotton.

Professors Pirrong and Irwin say that industry backing did not color their opinions.

Mr. Pirrong's research was cited extensively by the plaintiffs in a lawsuit filed by Wall Street interests in 2011 that for two years has blocked the limits on speculation that had been approved by Congress as part of the Dodd-Frank financial reform law. During that same time period, Mr. Pirrong has worked as a paid research consultant for one of the lead plaintiffs in the case, the International Swaps and Derivatives Association, according to his disclosure form.

While he customarily identifies himself solely as an academic, Mr. Pirrong has been compensated in the last several years by the Chicago Mercantile Exchange, the commodities trading house Trafigura, the Royal Bank of Scotland, and a handful of companies that speculate in energy, according to the disclosure forms.

The disclosure forms do not require Mr. Pirrong to reveal how much money he made from his consulting work, and a university spokesman said that the university believed it was strengthened by the financial support it received from the business community. When asked about the financial benefits of his outside activities, Mr. Pirrong replied, "That's between me and the I.R.S."

Debating to a Stalemate

No one disputes that a substantial portion of price increases in oil and food over the last decade were caused by fundamental market factors: increased demand from China and other industrializing countries, extreme weather, currency fluctuations and the diversion of grain to biofuel.

But so much speculative money poured into markets - from $13 billion in 2003 to $317 billion at a peak in 2008 - that many economists, and even some commodities traders and investment banks, say the flood became a factor of its own in distorting prices.

Others assert that commodities markets have historically gone through intermittent price bubbles and that the most recent gyrations were not caused by the influx of speculative money. Mr. Pirrong has also argued that the huge inflow of Wall Street money may actually lower costs by decreasing what commodities producers pay to manage their risk.

Mr. Pirrong and the University of Houston are not alone in publicly defending speculation while accepting financial help from speculators. Other researchers have received funding or paid consulting jobs courtesy of major commodities traders including AIG Financial Products, banks including the Royal Bank of Canada or financial industry groups like the Futures Industry Association.

One of the most widely quoted defenders of speculation in agricultural markets, Mr. Irwin of the University of Illinois, Urbana-Champaign, consults for a business that serves hedge funds, investment banks and other commodities speculators, according to information received by The Times under the Freedom of Information Act. The business school at the University of Illinois has received more than a million dollars in donations from the Chicago Mercantile Exchange and several major commodities traders, to pay for scholarships and classes and to build a laboratory that resembles a trading floor at the commodities market.

Mr. Irwin, the University of Illinois and the Chicago exchange all say that his research is not related to the financial support.

Underwriting researchers and academic institutions is one part of Wall Street's efforts to fend off regulation.

The industry has also spent millions on lobbyists and lawyers to promote its views in Congress and with government regulators. Major financial companies have also funded magazines and websites to promote academics with friendly points of view. When two studies commissioned by the Commodity Futures Trading Commission, the financial regulatory agency, raised questions about the possible drawbacks of speculation and of high-frequency trading, lawyers for the Chicago exchange wrote a letter of complaint, saying that its members' proprietary trading information was at risk of disclosure, and the research program was shut down.

The result of the various Wall Street efforts has been a policy stalemate that has allowed intensive speculation in commodities to continue despite growing concern that it may harm consumers and, for example, worsen food shortages. After a two-year legal delay, the futures trading commission this month introduced plans for new limits on speculation. Some European banks have stopped speculating in food, fearing it might contribute to worldwide hunger.

Mr. Pirrong, Mr. Irwin and other scholars say that financial considerations have not influenced their work. In some cases they have gone against the industry's interests. They also say that other researchers with no known financial ties to the industry have also raised doubts about any link involving speculation and soaring prices.

But ethics experts say that when academics fail to disclose financial ties, they do a disservice to the public and undermine the perception of impartiality.

"If those that are creating the culture around financial regulation also have a significant, if hidden, conflict of interest, our public is not likely to be well served," said Gerald Epstein, an economics professor at the University of Massachusetts, Amherst, who in 2010 released a study about conflicts of interest among academics who advised the federal government after the financial crisis.

Speculation in the Market

Financial ties among professors promoting speculation and the banks and trading firms that profit from it date back to the beginning of the recent commodities boom, which got an intellectual kick-start from academia.

After Congress and the Clinton administration deregulated the commodities markets in 2000, and the Securities and Exchange Commission lowered capital requirements on investment banks in 2004, the financial giants began developing new funds to capitalize on the opportunity.

AIG Financial Products commissioned two highly respected Yale University professors in 2004 to analyze the performance of commodities markets over a half-century. The professors - who prominently acknowledged the financial support - concluded that commodities markets "work well when they are needed most," namely when the stock and bond markets falter.

Money flowed into the commodities markets, and although the markets have cooled in the last two years, the price of oil is now four times what it was a decade ago, and corn, wheat and soybeans are all more than twice as expensive.

A public uproar about the rising prices became heated in the spring of 2008, as oil soared and gas prices became an issue in the presidential campaign. Congress scheduled public hearings to explore whether speculation had become so excessive it was distorting prices.

Financial speculators are investors who bet on price swings without any intention of taking delivery of the physical commodity. They can help smooth the volatility of the market by adding capital, spreading risk and offering buyers and sellers a kind of price insurance. But an assortment of studies by academics, congressional committees and consumer advocate groups had found evidence suggesting that the wave of speculation that accelerated in 2003 had at times overwhelmed the market.

Financial speculators accounted for 30 percent of commodities markets in 2002, and 70 percent in 2008. As gasoline topped $4 a gallon in the summer of 2008, Congress tried to soothe angry motorists by pushing for restrictions on oil speculation.

Mr. Pirrong jumped into the fray. He wrote papers, blog posts and opinion pieces for publications like The Wall Street Journal, calling the concern about speculation "a witch hunt."

Mr. Pirrong also testified before the House of Representatives in 2008 and, identifying himself as an academic who had worked for commodities exchanges a decade earlier, he warned that congressional plans to rein in speculators would only make matters worse.

"Indeed, such policies are likely to harm U.S. consumers and producers," he said. When oil company executives, traders and investment banks cited speculation as a major cause of surging prices which, by some estimates, was costing American consumers more than $300 billion a year, Mr. Pirrong dutifully contradicted them.

Mr. Pirrong's profile grew as he sat on advisory panels and hosted conferences with senior executives from the trading world as well as top federal regulators. Last year, Blythe Masters, head of commodity trading at JPMorgan Chase, approached him to write a report for a global bank lobbying group, the Global Financial Markets Association.

The report was completed in July 2012, but the association declined to release it. Mr. Pirrong said it was because he had reached the conclusion that banks should be regulated more heavily than other commodity traders. "I wouldn't change the call, so they sat on the report," he wrote on his blog, The Streetwise Professor.

What Mr. Pirrong did not reveal in his public statements about the report is that he had financial ties to both sides of that debate: the commodities traders as well as the banks. Ms. Masters declined to comment. Over the years, Mr. Pirrong has resisted releasing details of his own financial dealings with speculators, and when The Times first requested his disclosure forms in March, the University of Houston said that none were required of him. The disclosure forms Mr. Pirrong ultimately filed in November indicate that since 2011, he has been paid for outside work involving 11 different clients. Some fees are for his work as an expert witness, testifying in court cases on behalf of the Chicago Mercantile Exchange and a bank and a company that makes futures-trading software. The commodities firm Trafigura contracted him to conduct a research project.

Mr. Pirrong is also a member of the advisory board for TruMarx Partners, a company that sells software to energy traders, a position that entitles him to a stock option package.

It was reported in The Nation magazine in November that the University of Houston's Global Energy Management Institute, where Mr. Pirrong serves as a director, has also received funding from the Chicago exchange, as well as financial institutions that profit from speculation, including Citibank and Bank of America.

On his blog, Mr. Pirrong has dismissed suggestions that his work for a school that trains future oil industry executives creates a conflict of interest.

"Uhm, no, dipstick," he wrote in 2011, replying to a reader who had questioned his objectivity. "I call 'em like I see 'em." In a telephone interview last week, Mr. Pirrong said that his consulting work gave him insight into the kind of real-world case studies that improve his research and teaching. "My compensation doesn't depend on my conclusions," he said.

When asked about Mr. Pirrong's disclosure, Richard Bonnin, a university spokesman said only that all employees were given annual training on the school's policy, which requires researchers to report paid outside consultant work.

Professors as Pitchmen

Concerns about academic conflicts of interest have become a major issue among business professors and economists since the financial crisis. In 2010, the documentary "Inside Job" blasted a handful of prominent academic economists who did not reveal Wall Street's financial backing of studies which, in some cases, extolled the virtues of financially unsound assets. Two years later, the American Economic Association adopted tougher disclosure rules.

Even with the guidelines, however, financial firms have been able to use the resources and credibility of academia to shape the political debate.

The Chicago Mercantile Exchange and the University of Illinois at Urbana-Champaign, for example, at times blur the line between research and public relations.

The exchange's public relations staff has helped Mr. Irwin shop his pro-speculation essays to newspaper op-ed pages, according to emails reviewed by The Times. His studies, writings, videotaped speeches and interviews have been displayed on the exchange's website and its online magazine.

In June 2009, when a Senate subcommittee released a report about speculation in the wheat market that raised concerns about new regulations, executives at the Chicago exchange turned to Mr. Irwin and his University of Illinois colleagues to come up with a response.

Dr. Paul Ellinger, department head of agriculture and consumer economics, said, "The interactions that have occurred here are common among researchers."

A spokesman for the exchange said that Mr. Irwin was just one of a "large and growing pool of esteemed academics, governmental editors and editors in the mainstream press" whose work it follows and posts on its various publications. While the C.M.E. has given more than $1.4 million to the University of Illinois since 2008, most has gone to the business school and none to the School of Agriculture and Consumer Economics, where Mr. Irwin teaches. And when Mr. Irwin asked the exchange's foundation for $25,000 several years ago to sponsor a website he runs to inform farmers about agricultural conditions and regulations, his request was denied.

Still, some of Mr. Irwin's recent research has been funded by major players in the commodities world. Last year, he was paid $50,000 as a consultant for Gresham Investment Management in Chicago, which manages $16 billion and runs its own commodities index fund. He noted Gresham's sponsorship in the paper and on his disclosure form, and said it gave him the opportunity to use new data and test new hypotheses.

Mr. Irwin also works for a business called Yieldcast that caters to agricultural producers, investments banks and other speculators, selling them predictions of corn and soybean yields. Mr. Irwin has said he does not consider it a conflict because he works only with the mathematical forecasting models and never consults with clients.

"The debate about financialization is primarily about the large index funds, none of whom are clients," he said.

Mr. Irwin declined to provide a list of his clients, and the university said its disclosure requirements did not compel him to do so.
This article has been revised to reflect the following correction:
Correction: December 31, 2013

An article on Saturday about financial rewards from Wall Street to academic experts whose research supports the financial community's views on commodity trading misidentified a Canadian bank and commodities trader that financed the work of academic researchers or paid consultants. It is the Royal Bank of Canada, not the Bank of Canada, which is that nation's central bank. The article also rendered incorrectly the university affiliation of Scott H. Irwin, a prominent defender of speculation in agricultural markets. He is a professor at the University of Illinois at Urbana-Champaign - not Champaign-Urbana. And a picture caption with the continuation of the article misidentified the subject of one of several pictures. The lower right photograph showed the atrium of the University of Illinois's business school - not its Market Information Lab, which was shown behind Professor Irwin in the photograph at the left.

Response from the academic criminal: Streetwise Professor

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[Jun 15, 2015] Stocks are not cheap Carlyle's Rubenstein

Jun 15, 2015 | finance.yahoo.com

Billionaire private equity pro and philanthropist David Rubenstein on Monday said stock prices "are not cheap" right now, creating a tough environment for dealmakers looking for bargains.

[Jun 15, 2015] Res Publica, Res Imperium, Res Corporata

Keep an eye on Deutsche Bank and the Ukraine. I have a bad feeling about this market.

jessescrossroadscafe.blogspot.com
What is happening in Greece is clearly about more than just money. How can they blithely give Ukraine a pass and a free lunch, and Greece the Iron Heel?
I am wondering what will satisfy the Troika, short of tossing out the elected government of Greece and putting a Stellvertretender Reichsprotektor in place to administer their newly taken territories to the south.

Keep an eye on Deutsche Bank and the Ukraine.

I have a bad feeling about this market.

[Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?

Notable quotes:

"... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."

"... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."

"... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."

"... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."

"... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."

"... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."

"... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."

"... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."

Jun 12, 2015 | The Guardian

Hristos Dagres 12 Jun 2015 11:50

Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].

These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ

[http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]

I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.

Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.

MachinePork 12 Jun 2015 11:30

Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.

At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.

God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.

The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.

Maria Christoulaki 12 Jun 2015 10:43

Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.

mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08

It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!

mgtuzairodtiiasn Angkor 12 Jun 2015 08:55

Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.

Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.

elenits -> Anton Brasschaat 12 Jun 2015 07:57

"Loans" imposed by IMF against its mandate = Odious debt.

Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt

Loans to Greece that were not used by Greeks = Odious debt

IMF breaking its own rules to loan without debt restructure = Odious debt

This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.

elenits -> asiancelt 12 Jun 2015 07:49

If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.

Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.

There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.

dawisner -> Constantine Alexander 12 Jun 2015 07:30

Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.

seaspan -> Anton Brasschaat 12 Jun 2015 05:50

French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.

And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.

It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?

And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.

It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...

Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43

My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.

If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).

The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.

PyrosT -> Enoch Arden 12 Jun 2015 05:32

destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.

IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.

If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.

Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.

But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.

But...

Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.

DANIELDS 12 Jun 2015 05:10

Yesterday briefing by G.RICE of IMF

...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.

http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015

......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.

This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.

Angkor Renato -> Timotheus 12 Jun 2015 04:53

Renato on your checklist for Greece's solution to its current problems, a few questions:

1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.

2. Secure Russian and Chinese support for the new currency
How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.

3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?

4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.

5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.

zchabj6 -> JimVxxxx 12 Jun 2015 04:37

The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.

This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.

As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.

But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.

And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.

AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.

REDLAN1 12 Jun 2015 04:29

What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...

We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?

Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?

REDLAN1 -> galava 12 Jun 2015 03:52

You can do the math yourself for the UK...

http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html

I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.

Scipio1 -> Angkor 12 Jun 2015 03:27

In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.

The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.

The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.

Hypatia415 -> Quaestio 12 Jun 2015 03:07

Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisis

PeregrineSlim 12 Jun 2015 02:47

Leaving the negotiation table is negotiation.

The IMF are not going anywhere. They are just negotiating.

Greece can take heart. They'll do anything for a deal.

ShiresofEngland 12 Jun 2015 02:35

http://www.telegraph.co.uk/finance/economics/11654639/IMF-has-betrayed-its-mission-in-Greece-captive-to-EMU-creditors.html

This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.

For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.

It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.

JimVxxxx -> madrupert 12 Jun 2015 02:35

The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!

The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.

JimVxxxx -> zchabj6 12 Jun 2015 02:28

Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).

The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.

I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?

hermanmitt -> piper909 12 Jun 2015 02:22

This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.

"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.

That process is now well under way in the form of TTIP.
Q: Ever wondered how something this important could be discussed in secret?
A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.

Constantine Alexander 12 Jun 2015 02:16

It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?

That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.

Renato Timotheus 12 Jun 2015 02:13

I think the solution for Greece is becoming clearer by the day.
1. Default.
2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
4. Massive drive to attract British and Russian tourists to a cheaper Greece.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup.

eastofthesun -> Faith Puleston 12 Jun 2015 02:07

it is a country that thinks the EU is a source of income to make up for them not doing their sums at home

I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.

If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)

That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.

AlexLeo 12 Jun 2015 01:33

A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.

Chris Hindle 12 Jun 2015 01:23

IMF to Alexis Tsipras: 'Do you feel lucky, punk?'

Good to see this 'economist' sitting astride the neutral position

I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
I wonder if this 'economist' was trained in the dreamworld of neo-classical economics

To put it clearly - Bollox to the IMF -- People first!

Notaterrorist 12 Jun 2015 01:00

The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.

If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.

"Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.

What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)

Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."

Quaestio -> MikeBenn 11 Jun 2015 23:00

Why? Because US investment banks were involved in the Greek debt.

Wall St. Helped to Mask Debt Fueling Europe's Crisis

By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
The New York Times

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.

Glen Killoran -> Pomario 11 Jun 2015 22:49

Based upon what?

Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.

Shipping? Too late, that ship has already sailed.

Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.

Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.

Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.

And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?

Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.

Mark Richardson 11 Jun 2015 22:46

It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.

Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.

Andrew Paul -> Wood Pomario 11 Jun 2015 22:16

There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?

fflambeau -> Glen Killoran 11 Jun 2015 22:01

I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.

You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.

As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.

fflambeau 11 Jun 2015 21:42

Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.

General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).

What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.

Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430

Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.

So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.

AnhTay 11 Jun 2015 19:10

One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.

fceska -> Bowhill 11 Jun 2015 19:07

That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:

Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.

could be rewritten as:

Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.

aretzios -> mariandavid 11 Jun 2015 18:37

You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.

The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.

Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.

At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody

[Jun 12, 2015]3 Questions Amy Glasmeier on the living wage

"...When I look at the minimum wage compared to the living wage, in many places in the United States, it would take working two-and-a-half to three minimum wage jobs to make ends meet. So from the standpoint of how families are doing, we can say clearly that minimum wage as a baseline is making it very difficult for families. That's the first thing that jumps out to me. The second thing is that we have the notion that it should be cheaper to live in rural places than in urban places, but the calculator helps to identity that the actual cost of living is usually about highly local circumstances. In some rural places, rental housing is basically unavailable, because most people own their own homes. So if you are searching for rental housing, the cost can be very high. Some factors that we take for granted, like being able to find a rental unit, actually end up presenting a much higher cost than you might think."

June 11, 2015 MIT News

MIT professor and expert in regional economies calculates how far salaries stretch.

How far does a typical salary stretch? An increasingly visible movement in the U.S. to raise the minimum wage has gained traction recently. Yet according to the research of MIT Professor Amy Glasmeier, a minimum wage does not go very far: In a family with two parents and two children, the adults would each have to work 77 hours per week at minimum wage levels to make ends meet. That's one of several noteworthy new numbers emerging from the latest update to Glasmeier's Living Wage Calculator, a tool she and other researchers developed at MIT to present a realistic estimate, tailored by region, of the cost of living. Nationally, Glasmeier has found, over one-third of families earn less than a living wage. MIT News recently spoke with Glasmeier about the issue.

Q. What is the Living Wage Calculator you have developed, and how does it work?

A. In most industrial countries there is either a minimum wage or a living wage, which is an agreed rate of pay for work. This type of calculation occurs partly to put a floor underneath wage rates, so that people make enough money to pay their bills. This tool was developed to try to put a real value, based on local data, on the cost of living. … The difference between us and other countries is that we have an absolute value for the minimum wage, and they have a relative value that's related usually to 60 percent of the median [wage]. From a global perspective, our minimum wage is very low.

The living wage calculator includes the basic elements of a cost of living: housing, food, child care, transportation costs, miscellaneous - which includes clothing, as well as taxes. It's designed to be a minimum living wage that someone would need to be able to pay the basic expenses of their daily lives.

Q. You have just released an updated set of data that sheds new light on the disparity between the minimum wage and your estimated living wage. What is most striking to you about the new numbers?

A. When I look at the minimum wage compared to the living wage, in many places in the United States, it would take working two-and-a-half to three minimum wage jobs to make ends meet. So from the standpoint of how families are doing, we can say clearly that minimum wage as a baseline is making it very difficult for families. That's the first thing that jumps out to me. The second thing is that we have the notion that it should be cheaper to live in rural places than in urban places, but the calculator helps to identity that the actual cost of living is usually about highly local circumstances. In some rural places, rental housing is basically unavailable, because most people own their own homes. So if you are searching for rental housing, the cost can be very high. Some factors that we take for granted, like being able to find a rental unit, actually end up presenting a much higher cost than you might think.

Another thing is that despite the fact that we know more than 50 percent of women work, we still as a society haven't embraced the fact that child care is a critical element in our working families. It is a good that families need, for both parents to be able to make a living wage. Now the problem is, in a lot of places, child care is very expensive. Families are often faced with very difficult circumstances because they can't live on one salary, but if they have the second person work, almost all of that salary goes to buying child care. Or, if they get child care, it may not be a certified licensed program. So what do families do? They will pool child care, use neighbors, siblings, their parents if they can, or find low-cost babysitting. But there is now pretty convincing research that children living in poor households lack a whole host of socialization skills and life skills. There are some issues associated with the psychological wellbeing and the knowledge acquisition capacity of kids when they're not in situations of economic security.

Q. Recently we have seen companies such as IKEA pledging to pay a living wage, and Wal-Mart raising wages, though not to the living wage level. Is the landscape changing in this regard?

A. We are seeing a growing recognition of the need to have adjustments in wages that brings families above the minimum wage. There are cases that are not in the press, but where committed individuals, like the city manager of Elk Grove, Illinois, recognizes that the people they have on government contracts are making insufficient incomes to live in those communities.

A lot of it is motivated by a sense of fairness. I get emails 365 days a year from people using the tool [the living wage calculator], which gets 100,000 hits a month, and those people strongly feel the nation would be better off if we paid higher wages, because people would have more stability, and would actually be able to engage in consumption, which would be important as a driver of the economy.

In terms of companies, there are well-known ones such as IKEA, which philosophically realize people need to make a living wage. Other companies are perhaps more pragmatic. They're in labor markets where they realize the cost of living is high and want to make sure they're getting employees who are matched well with the job. There are companies that are not famous - like one I know of in Savannah, Georgia, that works in alignment with the port, which trains people, and tries to negotiate for workers to get better wages in their next jobs.

In terms of regions, probably the calculator is used slightly more in the South, because in general, the South is the low-wage region of the U.S., but it has high costs. On the West Coast, you have dynamic economies, and there is social pressure for higher wages, and you also have enlightened employers - that applies to municipalities where the economy is dynamic. There are also places with a history of unionization, trying to use the calculator to demonstrate to employers the value of the living wage. There are also a lot of religious organizations deeply committed to social justice and make arguments for the living wage. … If you work eight hours a day, you deserve to be able to make it - I hear that all the time.

[Jun 12, 2015] IMF to Alexis Tsipras: Do you feel lucky, punk?

Notable quotes:

"... Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". ..."

"... If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. ..."

"... What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table... ..."

"... The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them! ..."

"... Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers? ..."

"... A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. ..."

"... "Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU. What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU) ..."

"... Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts. ..."

Jun 12, 2015 | The Guardian

Hristos Dagres 12 Jun 2015 11:50

Basically, the IMF should officially admit their fatal errors in the development of the first MoU that "saved" Greece [well, we all know now that the first plan was nothing more than an attempt to save euro and the French-German banks that was cunningly presented as a token of "European solidarity" - in reality, they didn't give a sh..t about Greece].

These "errors" were immediately identified by other members of the IMF board, like Brazil, Argentina, China and .... Switzerland, according to the IMF documents presented by WSJ

[http://blogs.wsj.com/economics/2013/10/07/imf-document-excerpts-disagreements-revealed/ ]

I believe that Christine should pick up her pieces and crawl back to the table - and this time she should present a plan that will restore the damage done.

Or else, they should not get a single euro back - and we should start negotiating with the BRICS for a fair plan to restructure our economy.

MachinePork 12 Jun 2015 11:30

Make no mistake about it a Greek default is a calamity for the global financial system. Debt on the periphery is in the trillions. It is carried on the books in banks and treasuries at face value only because national administrators understand – with the blessing of the automatons at BIS -- what it would mean if this crap was subjected to a proper stress test or marked-to-market.

At stake in this battle is the entire global financial system. Should a NATO government summon the cheek to opt out of the prevailing international credit system, issue debt-free capital, invest in its people, grow exports and prove to succeed; the entire compound interest earning, system of rent-making privilege would collapse. My sense is the kingdom of Finance, its banking lords and its lickspittles in policy will never let this happen.

God bless the Greek people. This is going to get messy. They should be commended for their bravery in the face of endless threats of financial serfdom for intransigence.

The international debt monkey is a doppelgänger. He looks so inviting at first glance but is more than prepared to reach back and lob a compound interest bearing shit bomb your direction in a bid to save privilege in the global financial zoo.

Maria Christoulaki 12 Jun 2015 10:43

Mr Eliot how you dare to call our prime minister a "punk"? Who do you think you are you or other journalist around the world? Why you don't write the truth that the hard working Greeks have lost the 60 % of their income and they can't live with less money. Your article as well as other around the world is called "bulling". What do you think that Greeks are? all these articles except of bulling show a racism against us. You must ask an excuse for this article which offends both our prime minister and the Greek people, who voted him.

mgtuzairodtiiasn asiancelt 12 Jun 2015 09:08

It is funny! The German bankers stole your money, and you still believe that all this money went to the Greeks. This money went from the German banks to the German enterprises. Because they gave bribes to win contracts for useless military equipment. For example, Greece bought 4 submarines that doesn't need. Even today, only one has been delivered, because there were major design faults, although the German company has received the money. Regarding the loans of the previous years, do you believe that the total amount of the Greek debt was to expire in just 3 years? Obviously, the gang that rules EU today, gave 240 bn Euros to banks of Germany, France, Netherlands etc, and used Greece as a scapegoat to hide this fraud. Wake up!

mgtuzairodtiiasn Angkor 12 Jun 2015 08:55

Firstly, negotiation is not that you agree to what the institutions require. Secondly, you are right. The Greek economy and society have been carried many parasites until now.

Remember the German companies like Siemens, Ferrostaal, ThyssenKrupp which gave bribes to many politicians and Media owners. Or Hochtief, which still has not paid 500 mn Euros of VAT to the Greek state. It is time to get rid of all this parasites.

elenits -> Anton Brasschaat 12 Jun 2015 07:57

"Loans" imposed by IMF against its mandate = Odious debt.

Greeks shouldering 340 bn of EU, ECB, IMF "loans" to shore up foreign malinvesting banks = Odious debt

Loans to Greece that were not used by Greeks = Odious debt

IMF breaking its own rules to loan without debt restructure = Odious debt

This is without considering ECB acting outside its mandate, i.e. politically, from Feb 2015 by illegally cutting Greece from bond markets and out of QE.

elenits -> asiancelt 12 Jun 2015 07:49

If you had read even the anti-greek newspapers in the last 5 years you would understand that 90% of the "loans" Greece "took" - i.e. had imposed on them - went directly to German, French and Dutch banks. The 10% Greece was allowed to keep paid for the interests on these "loans" - topped up with money screwed out of the Greek taxpayers.

Apropos the IMF they acted illegally against their own rules by lending to a first world country [not a "developing" country] and by accepting a greek program that did not include debt restructure, i.e. the same German, French and Dutch banks having to accept some losses.

There is no such thing as "risk" anymore for banks, corporations or the 1%. Risk and poverty is only for ordinary people like yourself.

dawisner -> Constantine Alexander 12 Jun 2015 07:30

Constantine, as an American expat living in Greece for the past 21 years now (I was married in Thessaloniki in 1988), I, too, have frequently lamented how many armchair experts appear in these chat rooms. I published an e-book last year (Still at Aulis) with a view toward trying to explain to the casual observer how complex the local situation can be, and how worthy and hard-working my Greek peers often are. Keep up the good work.

seaspan -> Anton Brasschaat 12 Jun 2015 05:50

French and German banks were generously bailed out of any risk by "taxpayers" from the EU, including Greeks.

And Greek leverage is honesty: they have a clear understanding of current economic reality, and a better plan to payback their debts to Euro taxpayers. Anyone who says different is suspect as to their interests and intentions.

It isnt Syriza you should be questioning if you are sincere about your concern for the taxpayer. It is the financial advisers and ideologues backing austerity you should question. Are they merely driven by their egos and reputations as pro austerity hawks? Afraid for their secure positions as Yes Men in financial institutions?

And anyone in the negotiating process who has loyalties to Russia should be severely scrutinised, since Putin's interests are for a failure in negotiations, for a Grexit, all toward a long term desire of an EU breakup.

It could come down to questions of treason why there is no negotiated settlement,,, if such a word is applicable to the EU project...

Constantine Alexander -> Renato Timotheus 12 Jun 2015 05:43

My life's experiences - including beginning work at 8 years of age; 3 years military service; professional activities including U.S. investment banking, employment development in Eastern Europe (e.g. job creation at a Belarus agricultural production facility which is still thriving), 10 years devoted to my passion for wildlife conservation projects with worthy BirdLife Int'l NGO partners (not as you coyly suggested as a result of "untoward" behaviour); and having a doctor threaten to refuse to perform my father's surgery unless he receives a 10,000 euro cash bribe in addition to his customary doctor's fee and the hospital costs - have shaped my perspective on the factors that contribute to or undermine civil society.

If Greece exits the euro, the resulting cost of vital goods will soar due to the country's heavy reliance on imports. This will hit the middle class and the poor much harder than the current austerity measures -- most of which have not been implemented by any Greek gov (e.g. opening up business sectors to competition, privatization of debt-ridden public institutions, tax collection which has for decades suffered due to customary and widespread bribery demanded by tax officials, privatization of public assets).

The long term solution lies in the govt starting to do what most of us have to do - we prioritize spending based on worthiness and needs (food, health, education, etc), keep a reserve for contingencies, and spend in relation to our incoming revenue. But rather than contributing to long term stability and security for the country which benefits everyone's work activities, the society insists upon short term benefits (e.g. public sector hiring for my children, tax evasion) that it clearly cannot afford. The broader issue is not lender's conditions vs. austerity relief, but rather a way of organizing govt and society which, in the Greek model, has gotten way out of hand due to low interest rates for excessive borrowing by a series of governments. We'll see how the story unfolds.

PyrosT -> Enoch Arden 12 Jun 2015 05:32

destroyed economy was not an alternative to the IMF "help", it was its result, carefully planned and systematically implemented. It was in a way a remarkable achievement of IMF: to inflict a greater damage to the Soviet economy than WW2, with the help of the local compradors.

IMF will not do anything about your or anyone elses local corrupt elites or lack of governance. That is not within their mandate or nature.

If you think that it is possible to convert a centrally planned soviet style (the core of it to boot) to anything resembling a market economy without major disruption.

Even East Germany, despite the endless billions thrown into it, went through a period of high unemployment and hardships.

But I guess it is easier to "blame the IMF". Yes the interventions will almost always lower your GDP - for a quite simple reason that the previous GDP is probably bloated with G (government spending) and any significant restructuring always causes some depression. And yes, it typically isn't a "walk in the park". And some measures are probably misguided, inadequate or ineffective.

But...

Why does a country asks for the IMF help in the first place? Because it is sporting unsustainable policies? Sometimes it could even correct itself, but having an outside partner makes some policies easier to deploy.

DANIELDS 12 Jun 2015 05:10

Yesterday briefing by G.RICE of IMF

...Greek pension system is unsustainable. The Greek pension funds receive transfers from the budget of about 10 percent of GDP annually. Now, this compares to the average in the rest of the Euro zone of two-and-a-half percent of GDP. The standard pension in Greece is almost at the same level as in Germany and people, again on the average, retire almost six years earlier in Greece than in Germany. And GDP per capita increase, of course, is less than half that of the German level.......Terrible errors? reported to justify killing policies of troica and imf......Here is Greek butjet.

http://www.minfin.gr/?q=en/content/state-budget-execution-january-march-2015

......For pensions 6,3 billion eur.GDP OF 2014 179 bill euros and for pensions goes ONLY 3.5% OF IT.

This the big obstacle of negotiations.10% of GDP is 18 billion euros .3.5% is only 5.4 billions.They are killers of a country with false reports.

Angkor Renato -> Timotheus 12 Jun 2015 04:53

Renato on your checklist for Greece's solution to its current problems, a few questions:

1. Default. Well that's a given. It's going to happen anyway whether the Greeks want it to or not.

2. Secure Russian and Chinese support for the new currency
How will Greece secure Russian and Chinese support for its new currency? Aren't they going to do a credit check and find out that the Greeks don't honour their loans? They're bound to find out and its pretty unlikely that they'd be silly enough to line themselves up to be stiffed by the Greeks. They are not mugs you know.

3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments. Why stop at Germany and Luxembourg? Poland was part of Germany (the Governor Generalate) during WWII. As were Austria (the Anschluss), and the Czech Republic and Slovakia (the Munich Agreement). Why not seize all of the property owed by the nationals of those countries as well? It only seems fair. Also Italy had a role in the invasion of Greece in WWII. In fact the Germans would never have invaded but for the Italians botching the job. Shouldn't you be stiffing the Italians as well?

4. Massive drive to attract British and Russian tourists to a cheaper Greece. A few questions here. First the Russians. Where will their tourists come from given the parlous state of their economy? And why would they go to Greece now that they have lovely Crimea, the Pearl of the Black Sea, back in their hands? Now for the British. What has Greece got that a British tourist would want that Magaluf doesn't have? Don't say culture because Greece has little of it (and the Italians do it better anyway) and British tourists don't want it. If they wanted Greek culture they'd go to the British Museum where it's been sitting for the last 200 years.

5. Threaten to join the SCO, if NATO starts conspiring for a military coup. Don't you think that the SCO's dialogue partners, Turkey, may have something to say about that? Nothing kind, of course. That would be a bit too much to expect of the Turks when talking about Greek matters.

zchabj6 -> JimVxxxx 12 Jun 2015 04:37

The debt jubilee is a very old idea, mentioned in biblical times, but has also had plenty of implementation in medieval and later times where every 10 years or so all debt is wiped out and debt issuing starts again.

This was essentially to stop debt slavery where one class monopolizes resources and lends it out to others to do work for the asset owners to do nothing but live off of the interest on the loans, which is caustic to society.

As for no compound interest. It essentially is my own idea, based on say religious texts that ban interest or usury on loans because of the negative debt slavery consequences.

But the question is, who would then lend to business and people, where is the incentive? So there could be fixed interest on the original sum and no more, unlike today where you pay interest on the intiial sum and the interest on that.

And if you miss payments and there are delays to paying, interest breeds interest, rather than having a known fixed sum of interest to pay back which is much more just.

AER and other formulas are really eating up the entire economic structure, it seems to me there is merit to justice and prosperity too from religious texts, they seem to have a lot of experience in unseating entrenched oligarchs.

REDLAN1 12 Jun 2015 04:29

What I found entertaining, was the statement by Rice, which went "As our managing director has said many times, the IMF never leaves the table," except of course when the entire team gets called back to Washington, and errr... leaves the table...

We are meant to presume that this is a negotiating tactic, and that the IMF is Dirty Harry? In the final scene, Dirty Harry goads the perp into going for his gun so that he can legally kill him in self-defence. Although in the first scene where this is used Dirty Harry's gun is empty. So which is it?

Have they got an empty gun, or are they trying to goad Greece into defaulting, so they can blow them away?

REDLAN1 -> galava 12 Jun 2015 03:52

You can do the math yourself for the UK...

http://www.ukpublicspending.co.uk/uk_welfare_spending_40.html

I assume UK public spending on pensions at 8.6% of GDP. This 2% average sounds like nonsense.

Scipio1 -> Angkor 12 Jun 2015 03:27

In terms of purchasing power parity China does have the largest economy in the world. The US GDP is roughly $17 trn and China's is roughly $8trn, but a dollar in China goes twice as far as a $ in the US. Moreover China does not have the same debt levels as the US. US public debt is over 100% of GDP. When you count how rich a country is remember to factor in the LIABILITIES as well as the assets. The US is the world's biggest debtor country and China is the biggest creditor.

The US only enjoys (if this is the right word) its current living standards since it controls the world currency. But this is coming to and end as the BRICS nations are de-dollarizing and setting up their own institutions which circumvent the dollar. Institutions such as the AIIB and the BRICS investment bank.

The world is changing old chap, and of course the Americans don't like it; their dominant position is under threat which is why they are trying to arrest this development by any means - financial, economic, political and military - at their disposable.

Hypatia415 -> Quaestio 12 Jun 2015 03:07

Yes, Greece has been fleeced of so many of its assets. Prescient warnings over time of the world's anarchic banking system wreaking havoc and yet never held to account:
http://www.theguardian.com/business/2010/apr/18/goldman-sachs-regulators-civil-charges
http://www.alternet.org/economy/how-goldman-sachs-may-provoke-yet-another-major-financial-crisis

PeregrineSlim 12 Jun 2015 02:47

Leaving the negotiation table is negotiation.

The IMF are not going anywhere. They are just negotiating.

Greece can take heart. They'll do anything for a deal.

ShiresofEngland 12 Jun 2015 02:35

http://www.telegraph.co.uk/finance/economics/11654639/IMF-has-betrayed-its-mission-in-Greece-captive-to-EMU-creditors.html

This is the real problem. The IMF should never have been involved in the first place. They should stick to their mandate of only ever loaning money where that debt is sustainable.

For the IMF to walk out that might not be a bad thing, but they should walk out on Merkel and the EU for refusing an OSI, the debt writedown which Greece needs.

It has always been a solvency issue and not a liquidity issue. Until the Troika accept that then no progress can be made.

JimVxxxx -> madrupert 12 Jun 2015 02:35

The IMF is not only about money. They have an ideological mandate too. Now, you may agree with this ideological mandate or not. However, if you do not, then it is best to not borrow money from them!

The IMF would argue that they do put people before money; by increasing the competitiveness of a country they are ultimately benefiting everyone who lives there.

JimVxxxx -> zchabj6 12 Jun 2015 02:28

Some interesting points there... the IMF is a bank, just like any other, with a mandate to encourage free-market policies (as far as I know).

The ECB are far better positioned to provide tools which would lessen the impact for individual EU countries facing sovereign debt funding issues, however, it is not explicitly mandated to do so.

I have never come across the term 'debt jubilee' but it sounds fun; perhaps you could explain what it is? Also, how would abolishing compound interest help?

hermanmitt -> piper909 12 Jun 2015 02:22

This entire situation is a foreshadowing of what's to come in a world that allows international banking cabals and corporate investors to dictate policies to sovereign states, regardless of the will of the people as expressed in open elections.

"Give me control of a nation's money and I care not who makes it's laws" - Mayer Amschel Bauer Rothschild

This is just the money phase of a process that takes power away from elected government and hands it to a few bankers. The next stage is to hand the management of that power to the few who run the corporations.

That process is now well under way in the form of TTIP.
Q: Ever wondered how something this important could be discussed in secret?
A: Because these elites do not consider ordinary people to be part of the process, so why would they need to consult us.

Constantine Alexander 12 Jun 2015 02:16

It is very obvious that many of you who have commented have never lived in Greece. Although I have lived and worked in 5 countries, I was born, raised, served my military service and have returned to work in this country that I have always loved but ... the daily corruption, tax evasion on a massive scale, refusal to honour the terms of ordinary contracts that Greeks willingly sign only to later cherry-pick the terms by which they wish to abide and the inherent sense of always feeling victimized by the rest of the world are not productive features in civil society. Did you know that 29 billion (yes - Billion) euros of income tax were not paid by Greek professionals (doctors, lawyers, etc.) in 2009 according to Univ of Chicago researchers?

That figure does not include the tax evasion by the rest of (and the majority of) Greek working people. I am disappointed in the educational system that is ranked lowest in the EU and, most of all, in my fellow citizens who cling to this system of daily corruption and bribe-taking but refuse to recognise this behaviour in themselves. Please stop blaming financial creditors who have a right to request loan conditions (just as we have home loan conditions) that the Greeks could have declined. The financial mismanagement in this country is staggering, so, for those of you who criticize the lenders - don't forget there are two sides to every story and you may not be seeing everything that goes on here.

Renato Timotheus 12 Jun 2015 02:13

I think the solution for Greece is becoming clearer by the day.
1. Default.
2. Secure Russian and Chinese support for the new currency for a period of 2 years or so.
3. Requisition all German and Luxembourg-owned property/assets in Greece in lieu of WWII reparation payments (yes, Luxembourg was a part of Germany in WWII, so it too owes reparations, and many Luxembourg-registered companies have assets in Greece).
4. Massive drive to attract British and Russian tourists to a cheaper Greece.
5. Threaten to join the SCO, if NATO starts conspiring for a military coup.

eastofthesun -> Faith Puleston 12 Jun 2015 02:07

it is a country that thinks the EU is a source of income to make up for them not doing their sums at home

I'm thinking that if lenders have the right to enforce policy decisions, then maybe they ought also to bear a share of responsibility. By which I mean that when the IMF was busy throwing money at Greece's erstwhile administrations it must have been well aware of what was happening with its money (including that bled away into corruption), yet it tolerated it; certainly the IMF had more potential say in Greek policy at the time than the current administration.

If the politicians of earlier administrations abused their access to EU funding, they did so knowing that it would ultimately not be them to pick up the bill. Like most elected politicians they needed only a short-term perspective. The lenders indulged this when the money was being spent in the first place, now they're cracking down on the people who inherited the debt - not those who ran it up. (Of course, the lenders inherit the debt too.)

That's the nature of long-term debt. We need to learn that this lending process is dysfunctional - but both parties to the debt are complicit in that. This is why it is incumbent on the lenders to negotiate.

AlexLeo 12 Jun 2015 01:33

A very irresponsible and simplistic, really sensationalistic summary. The hallmark of a pseudointellectual, a journalist who has never held a real job and seen how money is made and value is created and lives in the imaginary world of movie one liners and simple messages. Holding a gun to his head - are you speaking to a juvenile delinquent trying to get a message across? Pathetic, Cannot see anyone paying money to read this analysis.

Chris Hindle 12 Jun 2015 01:23

IMF to Alexis Tsipras: 'Do you feel lucky, punk?'

Good to see this 'economist' sitting astride the neutral position

I thought everyone realised the Greek people are innocent in all this - that the debts were accrued illegally and probably only as little as 5-10% actually benefitted the Greek people - the rest, inevitably, benefitting Greek bent banksters and politicians.
I wonder if this 'economist' was trained in the dreamworld of neo-classical economics

To put it clearly - Bollox to the IMF -- People first!

Notaterrorist 12 Jun 2015 01:00

The best writing on this subject (not just a regurgitation of "she said, he said" like the above useless piece of "journalism") is by Ambrose Evans-Pritchard in the Daily Telegraph. Below is what he writes today.

If he is correct, I finally understand Schauble - and to my astonishment agree. Neither Greece nor the Eurozone can function while Greece remains in the Euro. It's time for Grexit and a Marshall Plan.

"Mr Schauble is the proponent of a "velvet divorce" for Greece: an orderly exit from the euro and a return to the drachma, with the ECB playing a crucial role in stabilizing the new currency. Germany and other creditors would then step in with a "Marshall Plan" to put the country back on its feet within the EU.

What Mr Schauble is not prepared to accept is a breach of contract by Greece on the terms of its previous "Troika" rescue, which he fears would lead to moral hazard and the collapse of fiscal discipline across Southern Europe. He is backed by much of the ruling Christian Democrat party (CDU) and its Bavarian allies (CSU)

Mrs Merkel appears to have concluded that "Grexit" is fraught with risk and would inevitably be blamed on Germany, leaving a toxic political and emotional legacy."

Quaestio -> MikeBenn 11 Jun 2015 23:00

Why? Because US investment banks were involved in the Greek debt.

Wall St. Helped to Mask Debt Fueling Europe's Crisis

By LOUISE STORY, LANDON THOMAS Jr. and NELSON D. SCHWARTZ
Published: February 13, 2010
The New York Times

Wall Street tactics akin to the ones that fostered subprime mortgages in America have worsened the financial crisis shaking Greece and undermining the euro by enabling European governments to hide their mounting debts.

As worries over Greece rattle world markets, records and interviews show that with Wall Street's help, the nation engaged in a decade-long effort to skirt European debt limits. One deal created by Goldman Sachs helped obscure billions in debt from the budget overseers in Brussels.

Even as the crisis was nearing the flashpoint, banks were searching for ways to help Greece forestall the day of reckoning. In early November - three months before Athens became the epicenter of global financial anxiety - a team from Goldman Sachs arrived in the ancient city with a very modern proposition for a government struggling to pay its bills, according to two people who were briefed on the meeting.

The bankers, led by Goldman's president, Gary D. Cohn, held out a financing instrument that would have pushed debt from Greece's health care system far into the future, much as when strapped homeowners take out second mortgages to pay off their credit cards.

It had worked before. In 2001, just after Greece was admitted to Europe's monetary union, Goldman helped the government quietly borrow billions, people familiar with the transaction said. That deal, hidden from public view because it was treated as a currency trade rather than a loan, helped Athens to meet Europe's deficit rules while continuing to spend beyond its means.

Athens did not pursue the latest Goldman proposal, but with Greece groaning under the weight of its debts and with its richer neighbors vowing to come to its aid, the deals over the last decade are raising questions about Wall Street's role in the world's latest financial drama.

As in the American subprime crisis and the implosion of the American International Group, financial derivatives played a role in the run-up of Greek debt. Instruments developed by Goldman Sachs, JPMorgan Chase and a wide range of other banks enabled politicians to mask additional borrowing in Greece, Italy and possibly elsewhere.

In dozens of deals across the Continent, banks provided cash upfront in return for government payments in the future, with those liabilities then left off the books. Greece, for example, traded away the rights to airport fees and lottery proceeds in years to come.

Critics say that such deals, because they are not recorded as loans, mislead investors and regulators about the depth of a country's liabilities.

Glen Killoran -> Pomario 11 Jun 2015 22:49

Based upon what?

Tourism? Tried that, it allowed the 1950 Greek economy to rocket into the 20's.

Shipping? Too late, that ship has already sailed.

Manufacturing, yeah, Greece will be #1, right after Bangladesh, Vietnam and Cambodia.

Agriculture? Equipment bought with what money, the Drachma? Hmm, that'll be a competitive business model.

Real-estate? Just how expensive do you think homes will be when the local populace is cash poor, in debt, and has no access to credit? Can you say buyers market? It will be the foreign fire sale buyer that buys low, sells high, not the Greeks.

And, all of this assumes the Greek economic model is reformed, and that is what the troika is trying to do right?

Seems to me default is really just the long hard road to reform, if it ever gets there because, there surely no demand for it now.

Mark Richardson 11 Jun 2015 22:46

It is kind of difficult for the new Greek government to give the IMF and its other creditors anything in new austerity measures considering that the Greek unemployment rate is over 25% and the youth unemployment rate is 60%. How much more pain would you be willing to force on your own people if you were a new reform leader considering that this entire crisis was caused when the previous conservative Greek government hid and failed to report half of its entire deficit? I don't see a viable future for Greece that includes having to repay the IMF and other major lenders as any more reforms will just drive the jobless rate and their GDP loss rate higher too.

Basically either the IMF and Germany agree to restructure the Greek debt or Greece will pull-out of the Eurozone, and right after that happens Italy and Spain will be next, which will cause another Great Depression in the major lending countries.

Andrew Paul -> Wood Pomario 11 Jun 2015 22:16

There probably won't be a tourism boom if Grexit triggers a global recession when the EU markets spin into chaos. So why can't they collect tax revenues from the wealthy now and clear up all their problems in the first place?

fflambeau -> Glen Killoran 11 Jun 2015 22:01

I agree that past Greek governments have made huge mistakes. But the main problem is not in pension funds, as you claim, but in military spending. In the 1980's the Greek government spent 6% of its GDP on military expenditures. That is now about 2% of GDP but that is still the second highest of all NATO countries, second only to America.

You seem to miss the point that the current Greek government had nothing to do with the mistakes made by former governments and has done a noble job of righting the ship.

As for your comments about the overly generous nature of Greek pensions, you are off base. Maybe that was the case many years ago, but not in the past couple of years.

fflambeau 11 Jun 2015 21:42

Let's compare the "bailouts" that President Obama worked out with huge Wall St. companies and corporations that failed in 2007-2009. They got enormous funding, trillions of dollars, at virtually no interest and no oversight.

General Motors took $6 billion of its $50 billion bailout and built an automobile manufacturing plant (in Thailand, no less!).

What did the USA's taxpayers make off the billions of dollars it gave GM, at the time the largest corporation in the world? Nothing. In fact, they LOST money.

Reuters and Time both report that the US government LOST money, $11.2 billion, by loaning $50 billion to GM. Source: http://www.reuters.com/article/2014/04/30/us-autos-gm-treasury-idUSBREA3T0MR20140430

Did the US government put pressure on GM to make them pay back the lost $11.2 billion? Nope.

So those complaining here about giveaways to a lazy Greek people should look at what is really happening in their countries and what the IMF and other international organizations are really doing.

AnhTay 11 Jun 2015 19:10

One possibility is obvious. Greece is prepared to default. They are, quite rationally, waiting to see if they can get a deal with the IMF that would be acceptable as an alternative to default. Even if they cannot, what is the harm in playing out their hand to see if it is possible? There is no point in getting childish about the issue. Negotiations are about business. If Greece chooses to default, so be it. No reason for the IMF to get all gnarly on the point.

fceska -> Bowhill 11 Jun 2015 19:07

That's not the only thing that's wrong. The whole article is completely one-sided. This paragraph for instance:

Up until now, the view in Athens has been that the troika – made up of the IMF, the European Central Bank and the European commission – has been bluffing. The view has been that there is always room for a bit more haggling, always time to cut a better deal that would avoid the need to make the changes to pensions, VAT and collective bargaining being demanded in exchange for fresh financial assistance.

could be rewritten as:

Up until now, the troika – made up of the IMF, the European Central Bank and the European commission – has been of the view that Athens has been bluffing. The view has been that there is always room for a bit more arm-twisting, always time to force a tougher deal that would ratify the need to make the changes to pensions, VAT and collective bargaining which they were demanding in exchange for yet more unsustainable financial assistance.

aretzios -> mariandavid 11 Jun 2015 18:37

You have it all wrong. You should read the IMF reports. The IMF actually urged the EU to write-off part of the Greek debt. The IMF felt that it was put in a bad situation, brought in by the EU to manage the problem without any of the tools usually allowed in these situations, such as debt write-off and devaluation. In its 2014 report, the IMF stated that the whole "bailout" deal was not to rescue Greece but to rescue the Euro. Now, knowing that it is not going to get any assistance from the EU, it is putting the pressure on Greece to get its funds from there. I think that the IMF feels trapped in a situation that it was not of its making.

The issue of the pensions is the most galling one. During the 2012 write-down, the EU protected all its assets; the 50 billion euros in Greek bonds held by the ECB were not subject to the write-down. However, all Greek pensions funds were forced (literally forced) to participate. They collected just 17 cents to the Euro (or thereabouts) in the bond exchange. Of course, now the EU claims that there is no money to service the current pensions, thus the pensions need to be reduced! Considering that the average pension is about 600 euros (and living costs in Greece are very much the same as in the UK), one can see how galling this is (and they already have gone down by 40% in the last five years). If you add to this the demanded tax increases, the whole thing almost sounds like a Mafia protection racket.

Even though the IMF is not "impressed" with the concessions that the Greek government has made thus far, this government would not really survive if it brings this package to the parliament. A good number of its MPs would not vote for it and many of its ministers would resign. The resulting turmoil would only deepen the political crisis.

At the end, the EU will find a very anti-EU militant country in its southeast corner with more to follow. Not really good for anybody

[Jun 12, 2015] Europe Gives Greece 24 Hours To Comply; Germany Draws Up Capital Control Plans

Jun 12, 2015 | Zero Hedge
EU officials turned up the heat on Athens Thursday after the IMF withdrew its team and sent its lead negotiators back to Washington.
In what can only be described as a half-hearted effort, Greek PM Alexis Tsipras submitted two three-page proposals earlier this week that were dismissed by creditors as "not serious." We suggested that perhaps that was intentional as Tsipras, having bought Greece some time by opting for the "Zambian" IMF payment bundle, is simply keeping up appearances while the real negotiating is going on behind the scenes with Syriza party hardliners who Tsipras desperately needs to support any proposal before it goes to parliament in order to avoid what could quickly deteriorate into a political and social crisis.

One has to believe that Brussels understands this, but it could very well be that between Tsipras' scathing op-ed (published two Sundays ago) and the PM's fiery speech to parliament last Friday, creditors are becoming concerned that Tsipras might actually be starting to believe that he can effectively blackmail the EMU by threatening to prove, once and for all, that the currency bloc is in fact dissoluble no matter what manner of protestations one might hear in polite company.

So, with the IMF having thrown in the towel, and with German lawmakers set to rally behind the incorrigible FinMin Wolfgang Schaeuble in what amounts to a mutiny on the SS Merkel, Europe appears to have finally had enough because by Thursday evening, reports indicated that EU officials have given Greece 24 hours to come back with a proposal that includes pension reform and VAT increases.

Via Bloomberg:

Greece was warned by a group of European Union officials in Brussels it had less than 24 hours to come up with a serious counter-proposal, according to a person familiar with the discussion.

Greek delegate told by EU officials that a list must includes reform on pension and VAT.

Greece told by the officials that they are taking seriously all scenarios.

EU official didn't specifically say what would happen to Greece if there was no plan presented tomorrow.

And meanwhile, Reuters (citing Bild) says Germany is now engaged in "concrete" discussions over how to handle a Greek bankruptcy :

The German government is holding "concrete consultations" on what to do in the case of a bankruptcy of the Greek state, German newspaper Bild said, citing several people familiar with the matter.

This includes discussions about introducing capital controls in Greece if the crisis-stricken country goes bankrupt, Bild said in an advance copy of an article due to be published on Friday.

It said a debt haircut for Greece was also being discussed, adding that government officials were in close contact with the European Central Bank on that.

The German government did not, however, have a concrete plan of how it would react if Greece goes bankrupt and much would have to be decided on an ad-hoc basis, Bild cited the sources as saying.

The takeaway here is that come hell, high water, or "Grimbo," the EU is going to extract its pension cuts and VAT hikes from Tsipras, and not because anyone seriously thinks it will make a difference in terms of putting the country on a 'sustainable' path, but because the EU simply cannot afford for Syriza sympathizers in more economically consequential countries like Spain to get any ideas about rolling back austerity (of 'fauxsterity' as it were) and using EMU membership as a bargaining chip.

The only question now is whether Tsipras has been successful at convincing party hardliners to support further concessions, because if this turns into a protracted political battle, it's entirely possible that the country will descend into chaos, if only for a few weeks.

Stay tuned, and as a reminder, here's a flowchart that outlines various political and economic ramifications as well as a guide to what's being negotiated...

Haus-Targaryen

Ja, vee zee Germanz are giving you 24 hours to surrender. Wenn you do not surrender, you vill be given another 30 day grace period, followed by another 60 day emergency grace period.
YOU HAVE 24 HOURS!

cookie nookie

I agree with the Germans. Greece should be invaded, and her citizens should be sold into slavery. That's what happens to deadbeats.

Haus-Targaryen

I wondner if this is why the two Deutsche CEOs threw in the towel.
Greece is approximatly 20x Lehman.
DB is way more exposed Greek debt than AIG was.
Someone told the "inner circle" the game is over, and they were like "welp, um ....

I think its time to retire, and I am going to be diversifying my personal accounts into Russia & China. Königsburg is nice this time of year. You all have fun."

r00t61

Your theory is similar to Dave Kranzler's.

Fund Manager A Derivatives Bomb Exploded Within The Last Two Weeks SilverDoctors.com

I for one am getting tired of all the "stuff" being the worst Since Lehman®. Maybe soon it will be all the stuff being the worst Since DeutscheB®.

TeethVillage88

I think he is asking for a vote on if this is the "Final Event".

VinceFostersGhost

Draws Up Capital Control Plans

The smart money got out weeks ago.

Haus-Targaryen

They say those who panic first panic best.
I imagine the paranoid money left years ago. The smart money left in Jan/Feb, and now its just the average idiots dragging their heels.

Watson

FWIW:
1. My understanding was that although DB _did_ have a lot of Greek exposure, they have now moved it on (mostly to German state(AKA German taxpayers));

2. I still think that unless Greeks themselves pull out of EUR, at any genuine crisis Merkel will simply use German taxpayers to pay any Greek bills falling due - so I don't see why any Greek politico will ever pull out (doesn't mean situation is stable, sensible or even desirable);

3. I agree with another poster that Greece is basically distraction - if you want to worry about EUR-zone/EU breakup, look at Spain.

Haus-Targaryen

Watson,
This makes sense if you only look at primary debt exposure. That DB did shift to the Bund. However, I could not care less about the $330 billion or so in primary debt the Greek government could default on.
I care about CDS and then the subsequent margin calls from the chaos that follows, and then the subsequent CDS as the first round of CDS holders (secondary debt exposure) get margin called into oblivion.
This is what keeps me awake at night.

Wolferl

There´s so much talk about the DB´s CDS over the past years but in fact nobody knows exactly about the amount of liabilities in case of a Greek default. In my view the real dangers within the international finance system are alway there were the public cannot see them. So my gut feeling is that it´s not DB that will be the cause of a crash in the events of a Greek default, but something else. Of course, all the big players will be in danger in that event, including DB. And btw,

Throw those pathetic Greek dead beats out of Europe already.

Watson

DB Greek exposure via CDS would surely show up in DB's total Greek exposure.
Wouldn't this show up in published accounts?

Wolferl

If you have a public account that shows exactly DB´s Greek exposure provide a link or source please, i don´t have one. The only thing i know that they have a huge exposure in the derivative markets in general, which isn´t a good thing in general in the event of an overall market crash, but it´s possible too that they will be "winner" in such an event.

wiser

A restructuring of Greece's debt is absolutely essential, otherwise the chances of a recovery for the country are extremely slim, political economist Philippe Legrain said on Thursday, in a public hearing before the "Debt Truth" Committee in the Greek Parliament.
http://www.amna.gr/english/articleview.php?id=10041

The troika saved banks and creditors – not Greece
The funds were, to a large degree, channelled back to the creditor countries. This entailed a double shift in liabilities: from the banks of the periphery to the governments (and citizens) of the periphery; and from the banks of the core to the governments (and citizens) of the eurozone as whole, since most of the troika bailout funds came from EMU countries.

With most of the bailout money going to banks and creditors, Greece doesn't just need debt relief, it deserves it.
https://www.opendemocracy.net/can-europe-make-it/thomas-fazi/troika-save...

Haus-Targaryen

While you are correct, Greece cannot restructure debt within the EMZ. Its just impossible.

Haus-Targaryen

No, DB's CDS exposure is lumped into DB's Derivative Exposure, which is not subject to the same reporting requirements as other normal liabilities until they are realized. A.k.a. -

These won't show up on the balance sheet until they become due, at which point the game is over. No one knows their exact exposure, as this is internal to DB and there are no reporting requirements.

So, DB must report its direct exposure to Greek debt, it has no obligation to report its exposure to Greek debt via CDS.

wiser

The Elephant In The Room: Deutsche Bank's $75 Trillion In Derivatives Is 20 Times Greater Than German GDP
http://www.zerohedge.com/news/2014-04-28/elephant-room-deutsche-banks-75...

Haus-Targaryen

Even if just 1% of that is tied to Greek GDP, thats 750 Billion €.
That would be the end of DB.

new game

why cant the ecb stabilize the "out of balance" derivitives? they will keep the train on the tracks. behind the scenes they will do whatever it takes. and you and i will hear very little about the ugly print pledged to keep this shit show going. just another huge kick of da can...

Wolferl'

Because those derivatives are written in the branches of all the TBTF banks in the City of London, which is not part of the UK and not part of the EU.

Sirius Wonderblast

Don't forget that Spain retains a law which makes it legal not to disclose debts. Hence the likes of Santander get to perpetuate the myth that they escaped exposure to the Spanish property bubble. The published property market losses in Spain remain greatly understated, imho.

[Jun 11, 2015] Disaster Risk and Asset Pricing

Jun 11, 2015 | economistsview.typepad.com

Jerry Tsai and Jessica Wachter at Vox EU:

Disaster risk and asset pricing, Jerry Tsai, Jessica Wachter, Vox EU: A persistently puzzling feature of the US stock market is the high return to holding a diversified equity portfolio. On average, over the last 60 years, equities have outperformed short-term bonds by 7.5% a year. The difference, when cumulated over time, is dramatic. ...$1 invested in 1947 in a value-weighted portfolio of equities traded on major exchanges would have increased 100-fold (in 1947 dollars), while a strategy of rolling over short-term Treasury bills would have barely kept up with inflation. The 2008 Global Crisis resulted in a very temporary dip in this performance. ...
Why do equities earn such a high rate of return?

The most obvious possibility is that this high return is a compensation for risk. However, while equity markets are very risky (the standard deviation of the above portfolio is 18% per year), this risk is not reflected in the broader economy. For long-run investors who are willing to ride out the ups and downs of the stock market, the risk that matters is the risk in actual consumption. And that standard deviation has historically been less than 2% a year, even when taking the Great Recession into account. This disconnect between the return to holding stocks and the risk of the overall economy, is known as the equity premium puzzle (Mehra and Prescott 1985).

In a recent article (Tsai and Wachter 2015), we argue that this equity premium reflects the risk of an economy-wide disaster. Our argument builds on work by Robert Barro (2006), further developed with co-authors Emi Nakamura, John Steinssen and Jose Ursua (Barro and Ursua 2008, Nakamura et al. 2011). ...

Once we account for the possibility of rare disasters, the equity premium is no longer a puzzle. High equity returns do not represent a 'free lunch' in which investors receive high returns without taking on risk. On the other hand, equities do not represent something that prudent investors should avoid. Rather high returns on equities reward investors for bearing the risk of a large decline in stock prices during an economic disaster.

Stock market volatility

Another basic question about the stock market pertains to the level of volatility. Various studies, beginning with Shiller (1981) have concluded that the volatility in the stock market is too great to represent forecasts of future dividends or other measures of cash flows of corporations. As memorably described by Shiller, the stock market appears to exhibit 'excess' volatility, namely volatility that cannot be attributed to rational factors and rather reflects (in the words of Keynes) the 'animal spirits' of investors.

Rare disaster models offer an alternative way to understand excess volatility. Rather than reflecting the day-to-day whims of investors, stock market fluctuations could reflect investors' changing views of the probability of a rare disaster..., stock returns, which incorporate these probabilities, can be far more volatile than dividends or consumption, which reflect (primarily) the disaster itself. ...

Low interest rates

As is well-known, the Global Crisis and its aftermath have been characterised by interest rates that are extremely low by historical standards. ... Of course, many factors influence interest rates. However, the same model that can explain a high equity premium and high stock market volatility, can also explain this seemingly anomalous interest rate behaviour. When the risk of a rare disaster rises, investors want to save to protect their assets for the future. This lowers the required return on savings, namely the interest rate, even as it raises the implicit rate of return on equities. This could contribute to the challenge facing central banks when conducting monetary policy. According to this view, raising interest rates may not be a matter of a simple policy decision, and may require the far-harder task of altering investors' perceptions of risk. ...

Conclusion

Recent research demonstrates how rare disasters can explain both a high equity premium and high stock market volatility. Time-varying disaster risk offers a compelling explanation for the patterns in equity values, consumption, and interest rates during the recent Global Crisis and its aftermath. While significant attention has rightly been paid to reducing or eliminating risk in the aftermath of the Crisis, research on disasters suggests that this is a risk that, to some extent, has long been present and accounted for in equity markets. While policymakers struggle with strategies to avoid crises, investors may have decided that a risk of a crisis can never be truly eliminated, and have acted accordingly. ...

Selected Skeptical Comments
Matt Young said...

http://www.fedprimerate.com/wall_street_journal_prime_rate_history.htm
The prime rate is what credit worthy corporations pay, and it has been in line with the price rise of stock values. The prime rate currently is 3%, but in all of the studies it has been 5% and higher.

Query, not a conclusion. Why are we comparing treasury safe rate to the market index, not the prime rate?

likbez

Stock market is the major tool of redistribution of wealth under neoliberalism. So management of corporations takes action to maximize "shareholder value" and that includes means such as cutting workforce, outsourcing or moving production to low wage countries.
401K was also quite devious scheme to get prols to finance fat cats and deprive them of garanteered pension forcing them to assume all the investment risk. If made stock ownership almost universal hugely benefitting Wall street and creating new breed of "fat cat" in mutual fund companies (Fidelity, Vanguard, PIMCO, etc. )
The third factor was "helicopter money" which found its way into stock market. I think this one explains quite a bit of S&P500 amazing run since 2008.

[Jun 10, 2015] Peter Schiff Warns This May Be The First Bubble To Burst Without A Pin

Jun 10, 2015 | Zero Hedge

Submitted by Peter Schiff via Euro-Pacific Capital,

It is well known that I don't think much of the ability of government officials to correctly forecast much of anything. Alan Greenspan and Ben Bernanke have made famously clueless predictions with respect to stock and housing bubbles, and rank and file Fed economists have consistently overestimated the strength of the economy ever since their forecasts became public in 2008 (see my previous article on the subject). But there is one former Fed and White House economist who has a slightly better track record...which is really not saying much. Over his public and private career, former Fed Governor and Bush-era White House Chief Economist Larry Lindsey actually got a few things right.
Back in the late 1990s, Lindsey was one of the few Fed governors to warn about a pending stock bubble, and to suggest that forecasts for future growth in corporate earnings were wildly optimistic. He also famously predicted that the cost of the 2003 Iraq invasion would greatly exceed the $50 billion promised by then Secretary of Defense Donald Rumsfeld, a dissent that ultimately cost him his White House position. (But even Lindsey's $100-$200 billion forecast proved way too conservative - the final price of the invasion and occupation is expected to exceed $2 trillion). Now Lindsey is speaking out again, and this time he is pointing to what he sees as a painfully obvious problem: That the Fed is creating new bubbles that no one seems willing to confront or even acknowledge. Interviewed by CNBC on June 8th on Squawk Box, Lindsey offered an unusually blunt assessment of the current state of the markets and the economy. To paraphrase:
"The public and the political class love to have everything going up. We had "Bubble #1" in the 1990s, "Bubble #2" in the 00s, and now we are in "Bubble #3." It's a lot of fun while it's going up, but no one wants to be accused of ending the party early. But it's the Fed's job to take away the punch bowl before the party really gets going."
To his credit, however, Lindsey sees how this is sowing the seeds for future pain, saying:
"The current Fed Funds rate is clearly too low, the only question is how we move it higher: Do we do it slowly, and start sooner, or do we wait until we are forced to, by the bond market or by events or statistics, in which case we would need to move more quickly. By far the lower risk approach would be to move slowly and gradually."
In other words, he is virtually pleading for his former Fed colleagues to begin raising rates immediately. I would take Lindsey's assertion one step further; the party really got going years ago and has been raging since September 2011, the last time the Dow corrected more than 10%. (That correction occurred at a time when the Fed had briefly ceased stimulating markets with quantitative easing.) Since then, the Dow has rallied by almost 58% without ever taking a breather. With such confidence, the party has long since passed into the realm of late night delirium. As if to confirm that opinion, on June 8th the Associated Press published an extensive survey of 500 companies (using data supplied by S&P Capital IQ) that showed how corporate earnings have been inflated by gimmicky accounting. Public corporations, upon whose financial performance great sums may be gained or lost, are supposed to report earnings using standard GAAP (Generally Accepted Accounting Principles) methods. But much like government statisticians (see last month's commentary on the dismissal of bad first quarter performance), corporate accountants may choose to focus instead on alternative versions of profits to make lemonade from lemons. Using creative accounting, bad performance can be explained away, moved forward, depreciated, offset, or otherwise erased. Given the enormity and complexity of corporate accounting, investors have deputized the analyst community to sniff out these shenanigans. Unfortunately, our deputies may have been napping on the job. The AP found that 72% of the 500 companies had adjusted profits that were higher than net income in the first quarter of this year, and that the gap between those figures had widened to sixteen percent from nine percent five years ago. They also found that 21% of companies reported adjusted profits that were 50% more than net income, up from just 13% five years ago. But with the fully spiked punch bowl still on the table, and the disco beat thumping on the speakers, investors have consistently looked past the smoke and mirrors and have accepted adjusted profits at face value. In a similar vein, they have looked past the distorting effect made by the huge wave of corporate share buybacks (financed on the back of six years of zero percent interest rates from the Fed). The buybacks have created the illusion of earnings per share growth even while revenues have stalled. So kudos to Lindsey for pointing out the ugly truth. But I do not share his belief that the economy and the stock market can survive the slow, steady rate increases that he advocates. I believe that a very large portion of even our modest current growth is based on the "wealth effect" of rising stock, bond, and real estate prices that have only been made possible by zero percent rates in the first place. In my opinion, it is no coincidence that economic growth and stock market performance have stagnated since December 2014 when the Fed's QE program came to an end (it has very little to do with either bad winter weather or the West Coast port closings). Prior to that, the $80+ billion dollars per month that the Fed had been pumping into the economy had helped push up asset prices across the board. With QE gone, the only thing helping to keep them from falling, and the economy from an outright recession (which is technically a possibility for the first half of 2015), is zero percent interest rates. Given this, even modest increases in interest rates could be devastating. Lindsey's gradual approach may be equally as dangerous as the rapid variety. But the quick hit has the virtue of bringing the inevitable pain forward quickly and dealing with it all at once. Call it the band-aid removal approach; it may seem brutal, but at least it's direct, decisive and makes us deal with our problems now, rather than pushing them endlessly into the future. The last attempt made by the Fed to raise rates gradually occurred after 2003-2004 when Alan Greenspan had attempted to withdraw the easy liquidity that he had supplied to the markets in the form of more than one years' worth of 1% interest rates. But by raising rates in quarter point increments for the succeeding two years, Greenspan was unable to get in front of and contain the growing housing bubble, which burst a few years later and threatened to bring down the entire economy. In retrospect, Greenspan may have done us all a favor if he had moved more decisively. Today, we face a similar but far more dangerous prospect. Whereas Greenspan kept rates at 1% for only a year, Bernanke and Yellen have kept them at zero for almost seven. We have pumped in massively more liquidity this time around, and our economy has become that much more addicted and unbalanced as a result. Arguably, the bubbles we have created (in stocks, bonds, student debt, auto loans, and real estate) in the years since rates were cut to zero in 2008 have been far larger than the stock and housing bubbles of the Greenspan era. When they pop, look out below. Unfortunately, the gradual approach did not save us last time (worse, it backfired by making the ensuing crisis that much worse), and I believe it won't work this time. In fact, the current bubbles are so large and fragile that air is already coming out with rates still locked at zero. However, unlike prior bubbles that pricked in response to Fed rate hikes, the current bubble may be the first to burst without a pin. It appears the Fed fears this and will do everything it can to avoid any possible stress. That is why Fed officials will talk about raising rates, but keep coming up with excuses why they can't. Lindsey will be right that the markets will eventually force the Fed to raise rates even more abruptly if it waits too long to raise them on its own. But he grossly underestimates the magnitude of the rise and the severity of the crisis when that happens. It won't just be the end of a raging party, but the beginning of the worst economic hangover this nation has yet experienced.

I would suspect the DB resignations are related to Greece exposure.
Fraud is being used to cover negligence.
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Wed, 06/10/2015 - 16:49 | 6183927 clooney_art

clooney_art's picture

If all the secrecy everywhere has any foreboding, we won't even know when the market crashes.
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Wed, 06/10/2015 - 18:00 | 6184191 El Vaquero

El Vaquero's picture

Yeah we will. We'll wake up one morning to hard capitol controls as opposed to the soft ones that we have now, and people who actually had FRNs in the bank will find them replaced with worthless shares of bank stock.
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Wed, 06/10/2015 - 16:54 | 6183960 gmak

gmak's picture

Don't think so unless it has something to do with the collateral market. The actions of the FED and other CBs have created the interesting situations where many CSAs are being modified to permit cash instead of T-bills (or the .gov /sovereign debt instrument of the underlying currency in the derivatives).
If a Derivatives' bomb exploded, it would be creating all sorts of panic in back offices as re-hypothecation of collateral comes home to roost.

El Vaquero

El Vaquero's picture

You may be correct, as I think we would have heard something more about it by now, but Douche Bank is one to keep an eye on anyway. They have the largest known pile of derivatives in the world, their CEOs just got nixed, Greece is probably a problem for them and they're in a country that has seen its YoY exports decline by 18%. Not a good position to be in.

cowdiddly

Geeze again? They have been jawboning about raising rates since 2010. Go ahead Punks make my day. Once again for the math challenged dreamers.
Interest payments on the national debt at Zero is running about 270 billion. at a mere 1 percent this becomes a 550 billion. at 2 percent 1.1 trillion a year with a tax base of about 3.1 trillion or 33% of Govt Income just to pay interest.
3% yea whatevea.
So quit yer yammerin and get after it you broke ass lying Sacks O S. I dare ya.

jmeyer

The Fed will not do anything serious about interest rates unless the markets show evidence of a need. They can also raise by less than 25 bps. The Fed is not certain about the direction of the economy. We may be entering a Japan style deflation, although it would be faster here. Raising rates in that case would be destructive. There is still room do QE. And the Fed can legally trade in any market it wants to trade in even soybeans, gas, whatever. The Fed cannot control a derivative mother of all bombs bringing long bank holidays and frozen accounts; SHTF Defcon 1 mess. IMO.

taggaroonie

Cowdiddly, can you educate me further - sincerely. How would an increase in interest rates apply to existing treasuries?
I would have thought a 10-year bond yeilding 1% only paid out that amount of interest at maturation.

By this reckoning, the increase in rates would affect deficit spending, rather than existing debt.

Mind you, I've been wrong before.

mendigo

The talk of impending collapse is an effort to distract from the reality that the collapse has been under way since about 2000. All the fed gyrations are in effort to mask this.
Immigration is also being used to grease the skids - supressing wage pressure.

El Vaquero

It has been a gradual drop into misery for the last 10-15 years. Labor force participation rate has been on the decline since ~2000, and the costs of living have not been declining. At some point, because of the decline, we won't be able to support this overly complex system that we've built up around us, and it will come down. This is probably going to be the next financial crisis, or a war, which will probably be remembered as the collapse. That is wrong. Whatever event it is, it will be the end of the collapse, not the entire collapse itself.

FranSix

You have had a massively inverted yield curve with the rise in the $U.S. and the spread between U.S. Treasury bills and Euro long dated bonds. Massively inverted. Screamingly inverted. Doomsday inverted.

konputa

Have you guys looked at the performance of Schiff's funds?
Get a load of this horseshit:
EPLAX -5.24% YTD, -19.32% 1Y
EPASX +0.17% YTD, -8.16% 1Y
EPHCX +8.76% YTD, +9.57% 1Y
EPGFX -3.69% YTD, -20.13% 1Y
SHTF is already here if you've been investing with Schiff.

TeethVillage88s

EP China Fund (EPHCX) - His only Fund doing well is China Fund. How Ironic that he is complaining about the US Exchange Markets & the FED who has been pumping them up.
Why has the FED been Pumping up Stocks?
Because they are Bankers and all Bankers care about is their damn Stock Market.

ElixirMixer

Not that I disagree with the general premise, but Peter Schiff is basically now the financial equivalent of those 19th century religious fanatics that predicted the world would end every single year.

philosophers bone

Poor Analogy. He's more like the drug counsellor predicting that the addicted drug addicts (Central Banks) can't stop coming back for more (QE). Till the addict kills himself (Market Collapse / Hyperinflation). The fact is that the drug addict is hanging on a little longer than predicted. But the underlying assumption and predicted end game - total destruction - is dead on.

Fun Facts

Valid but people in the US tend to be too US centric.
The western CB cabal/cartel is global and it operates globally in a coordinated fashion.
They communicate every day and persue the same global policies. This explains the FED loaning 13 trillion to foreign banks in 08 [covertly].
They conduct coordinated open market operations [covertly].
In this sense, QE has not ended. It rotates from bank to bank. Today, the ECB and BOJ are supporting the UST market as well as their own markets with QE printing.
QE cannot end. The ponzi math behind it all prohibits that.
The only difference between this and madoff is that in this case the printing press is the substitute for ever greater "new investor" money.
It will end only when the "money" [which is not money at all but an unpayable debt] loses it's value, and it will. It would have already absent open market operations and a quadrillion dollar derivative ticking time bomb.

TeethVillage88s

Fun Facts Yes Open Market Operations need an Audit Badly.
You sound like you know FED Banking. I'll have to refresh my memory.
But I don't think it is common knowledge to know that Open Market Ops are going on, nor that it is not normal.
I have thought it was normal the last year... since I don't read enough about the FED.

Pareto

The FED has essentially lied (and I know everybody is going to say "duh", but, I'm trying to defeat them at least intellectually), when Bernanke essentially mandated the Phillips curve as his key economic policy with 6.5 and 2 on the unemployment inflation tradeoff as the trigger for halting/reversing the expansion of their balance sheet. By my estimate they have surpassed this objective - comfortably. Regardless of whether you believe the Phillips curve theoretical cosntructs is another matter, but, what is important and ought to not be overlooked is that the FED has made a complete mockery of living up to even this - this Keynesian line in the sand - that they themselves defined and set as THE criterion for changing their monetary policy. They keep moving the fucking goal posts - goal posts which are themselves - not even real.
There are a lot of things that piss me off about the FED - too various and many to talk about here - but this - this fabricated bullshit doublespeak economic hocus pocus bunk - of never intending to do what they said they were going to do - even if you think that what they said they were going to do was bunk anyways (Phillips curve crap).......ITS THIS that pisses me off most.
They are just making shit up. There is absolutely no credibility and therefore no respect for this institution - because in addition to the severe economic damage it has created - it continues to ignore its responsibilityas a steward of the people's money; distort and destroy meaningful capital formation (and instead has promoted sharebuy backs for crony capitalist gains that benefit no-one but people like Carl Icahn and Warren Buffet) - continue to create all sorts of incentive distortions in capital and derivative markets - and through all of it - they continue to lie about it - the whole fucking lot of them. They are so dogmatic and fixated on saving their own ass that they are willing to fuck everybody else in the process of spilling their continuous lies and deceit. Its fucking embarrassing!!
At least - at least when Volker took the chair (he flatly ignored 1/2 of the Phillips curve and never ever believed the other), he cut price inflation off at the head. He did exactly what he said he was going to do. I'm not arguing Volker was a hero - I'm arguing Volker was the last credible chair of the most important insitution in the world and that since him we have had nothing but bat shit crazy clowns running things. Its a shit show that is out of control and we all ought to be writing our repsective .......fuck that - just something - anything to start igniting the idea that weought to be returning to some sort of normalcy before it is no longer recognizable or AFFORDABLE.
Its a fucking joke.
And its fucking embarrassing.
END the FUCKING FED!!

Citxmech

If the fed substantially raised rates the US economy would pretty much implode instantly.

El Vaquero

You are correct, excepting maybe a tolken 0.25% raise. However, if the Fed doesn't raise rates, the US economy will implode anyway. If you're on the top of a burning building, do you let the fire kill you, or do you jump? That's the kind of situation the Fed is in.

Magooo

THIS is the DISEASE - the financial crisis is the symptom --- the disease is fatal for civilization

THE PERFECT STORM (see p. 59 onwards)
The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

TeethVillage88s

TeethVillage88s's picture

All Citizens & Investors need correct data & Info in order to make decisions, influence communities & Nation, build families & Security, and Balance our Time & Service here.
Thanks. Looks like a good Read.
I needed to make some bullets from the above, but wanted to ask what a Financial Adviser is likely not to include in his analysis:
- part one: the end of an era
- four critical factors: debt bubble, globalization; obscured economic trends, energy-returns cliff-edge.
- part two: this time is different
- implosion of the credit super-cycle (3 Decades)
- part three: the globalisation disaster
- use of debt for consumption
- part four: loaded dice
- distorted data driving policy
- Economic data (including inflation, growth, GDP and unemployment) used for government spending,
- part five: the killer equation, the decaying growth dynamic
What is missing:
- Huge Compensation for those at the top
- Gaming of Investments is known, but often the safe Dividends are not there for the little guy(more of a Game than real business)
- Cutting Public Jobs & Benefits is primary cost cutting measure
- Only now are people asking what is the effect of cutting jobs and Decapitalizing Industry, Outsourcing, Off Shoring, and Greed that sends wealth to Accounts Offshore
- Automation, Robotics Displacing Jobs
- Loss of Middle Class is Loss of Consumer Market to a Large Degree
- Expensive Health Care Industry, Education & Housing are Deadly Trends unless people agree to live in single room apartments like Orientals sometimes do
Now I just have to read it I guess.
Seriously the Outsized Compensation in the USA while providing lousy Health Care Service, Lousy Education, Lousy Government, Lousy News & Reporting (MSM), Lousy Government Spying, Dirty Wars, Corrupt Defense Spending, Private for Profit Prisons... just smacks of Greed and lack of Humanity as Jobs & Middle Class Disappear.

harrybrown

the fed IS NOT fighting for its life, its serving it spurpose as planned to "transfer the worlds wealth" to the FED owners, plain & simple, just look at the ideology of those who control it below. any of it seem familiar?

The Protocols of Zion in Modern English A one page summary…
Goyim are mentally inferior to Jews and can't run their nations properly. For their sake and ours, we need to abolish their governments and replace them with a single government. This will take a long time and involve much bloodshed, but it's for a good cause. Here's what we'll need to do:
• Place our agents and helpers everywhere
• Take control of the media and use it in propaganda for our plans
• Start fights between different races, classes and religions
• Use bribery, threats and blackmail to get our way
• Use Freemasonic Lodges to attract potential public officials
• Appeal to successful people's egos
• Appoint puppet leaders who can be controlled by blackmail
• Replace royal rule with socialist rule, then communism, then despotism
• Abolish all rights and freedoms, except the right of force by us
• Sacrifice people (including Jews sometimes) when necessary
• Eliminate religion; replace it with science and materialism
• Control the education system to spread deception and destroy intellect
• Rewrite history to our benefit
• Create entertaining distractions
• Corrupt minds with filth and perversion
• Encourage people to spy on one another
• Keep the masses in poverty and perpetual labor
• Take possession of all wealth, property and (especially) gold
• Use gold to manipulate the markets, cause depressions etc.
• Introduce a progressive tax on wealth
• Replace sound investment with speculation
• Make long-term interest-bearing loans to governments
• Give bad advice to governments and everyone else
Eventually the Goyim will be so angry with their governments (because we'll blame them for the resulting mess) that they'll gladly have us take over. We will then appoint a descendant of David to be king of the world, and the remaining Goyim will bow down and sing his praises. Everyone will live in peace and obedient order under his glorious rule.

bluskyes

Usery is a moral issue, not an economic issue.
If money were sound, one would not have to charge interest to retain the purchasing power of loan's principle.

The Delicate Genius

"Lindsey is famous for spotting the emergence of the late 1990s U.S. stock market bubble back in 1996 while a Governor of the Federal Reserve. According to the meeting transcripts for September of that year, Lindsey challenged the expectation that corporate earnings would grow 11½ percent a year continually. "

Maybe the problem is people laboring under the misconception that economics is anything like real science?

TeethVillage88s's picture

Nice quote.
I am a little slow and thought about that for year maybe three years ago. I've only been on here a year. So maybe I posted something about questioning if Economics could even be considered a Soft Science. Hard Science deserves Respect. Medicine is just a practice based on observations and is not a hard science.
Anyway I think even the slubs that don't read business, finance, or economic don't believe the government or economics. They know policy comes from an Interest group and this leads at least to Bias in gov admins, but more likey is complete Influence by the Wealth & TPTB.
Krugman & Greenspan are likely smart people, but I just think of them as insiders, paid shills like MSM, or CIA/NSA/FCC types.

Dre4dwolf

Its not about a recovery or higher asset prices.
What people do not realize is that we are at war, financially.... NOT ECONOMIMCALLY, but FINANCIALLY.
The Fed + U.S. Govt is actively going at it with China and Europe and Russia trying to destabilize their banking institutions so that they can force them into joining some sort of "one world" bank organization . . . a global unified currency...
In order for the Fed + collection of Rothschild owned banks to pull this off they will have to destroy all the national banking institutions (collapse them all at the same time).

In order to collapse them all they have to force them to "play a game".
Just like the U.S. managed to defeat Russia during the cold war, they tricked them into expanding their military and govt expenditures to the point of collapse.

The Central Banks of the world are engaged in the same "game" again. . . this time govts will push themselves over the edge with debt to finance debt, instead of debt to finance a war machine.

This time when the banks go down, it will be for good and all the chips will endup in one mega bank, which will in turn become the One-World Bank.

This is the plan.
This was always the plan.

9/11 was about putting into motion a chain of events that would eventually lead to this "Final solution".

9/11 failed to complete the task, which is why they expanded monetary policy post 9/11 in order to push the markets over the edge ala 2007~2009.... which again failed to produce the results they were seeking,so now having failed with terrorism, and financial fraud, the elitists will simply resort to a "combined disaster" of sorts.... and if that fails. . . it will be full on martial law rule by decree/fiat.

They will get their "one world order" one way or another... at any cost even though they know full well a unified system of governance and monetary policy for the entire globa will fail misserably as socio-economic pressures boil over to uncontrollable levels at which point no amount of tear gas can hold it together.

Hohum

You might as well sit back and enjoy the show because it's one of two paths. One, total debt rises faster than total output and we all feel wealthier for a while. Or, two, debt falls off and our precious consumer society circles the drain.

[Jun 10, 2015] Why you4 should care that Robert Prechter is warning of a 'sharp collapse' in stocks

MarketWatch
Who is Robert Prechter, and why should investors care that he is warning them to be on high alert for a potential collapse in the stock market?
The president of Elliott Wave International, Prechter may not be a household name on Main Street, but he's widely known on Wall Street as the foremost authority on the Elliott Wave principle, a forecasting methodology used by generations of technical analysts that is based on the belief that financial markets trend in five waves, and retrace in three waves.

Don't miss the slide show: 5 charts to help unravel the Elliott Wave mystery

Prechter is also the executive director of the Socionomics Institute, founded to study how those same wave patterns define changes in social mood and govern social events.

'If the cycle is still operating, the stock market is at high risk of a sharp collapse. Near term, we're prepared to see the Dow make one more high. But it doesn't have to happen.'
Robert Prechter, Elliott Wave International

Elliott Wave analysis, which was devised by Ralph Nelson Elliott in the 1930s, is much more than a bunch of numbers and letters placed on a chart to denote which wave, or degree of waves, the market is traversing. Those who fully embrace it say it is the only form of technical analysis that can incorporate and explain all the other techniques used by chart watchers.

Walter Zimmerman, chief technical analyst at energy research firm United-ICAP, calls it the "grand unified field theory of chart pattern analysis." Head-and-shoulders reversals, technical divergences, candlestick charts - they can all be explained within the framework of the Elliott Wave principle, Zimmerman said.

Based on Prechter's analysis of where the stock market is positioned within its wave structure, he believes the bull market is in a "precarious position."

For one, he said the sentiment indicators he follows have reflected extreme optimism for over two years. That is often viewed as a contrarian signal, because it suggests those looking to buy have already done so, leaving fewer buyers to step in if the market starts slipping.

Plus: Read more about bullish exuberance.

In addition, Prechter said a number of momentum indicators have been revealing a "dramatic lessening" in the number of stocks and indexes that have participated in the rally in recent months.

For example, when the Dow Jones Industrial Average DJIA, +1.40% reached a record closing high on Feb. 27, there were 172 NYSE-listed stocks that achieved new 52-week highs, and 31 stocks that hit 52-week lows. But when the Dow rose to it is latest record on May 19, the number of new highs had fallen to 118, while new lows rose to 38.

[Jun 10, 2015] This Is What Happened The Last Time Pimco Dumped Its US Treasuries

"...The reason the bond market sells off before / during the "first" Fed hike is because investors start pricing in a series of rate hikes. Bonds always get crushed around the time of the "first" hike."

Jun 10, 2015 | Zero Hedge
taketheredpill

The reason the bond market sells off before / during the "first" Fed hike is because investors start pricing in a series of rate hikes. Bonds always get crushed around the time of the "first" hike.

However bonds do very well around the time of the "last" hike, when the market looks around the macro landscape and figures out that the Fed has "done enough".

So take a look around at the US economy. Imagine you had just come out of a coma and were not allowed to look at rates, only GDP, Employment Particiopation, %yoy Wages, % yoy Retail Sales, %yoy CPI. Then someone asked you whether we were at the start of a Fed rate hike cycle, about to see the "first" hike, OR, are we at the end of a Fed rate hike cycle, about to see the "last" hike.

If the Fed does hike it will be "One & Done" and any bond sell-off is a chance to buy cheap.

However if the Fed hikes and there is a severe Equity correction beware Fed-speak that hints of an emergency round of QE (aka Bond Killer).

Bam_Man

It's called "front-running the front-runners".
And it's why Treasury yields will actually fall once the Fed starts to raise rates.

[Jun 10, 2015] Fragility What Has the Watchers Worried In the US Debt Markets

"...The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart. What was most shocking was how quickly it happened once the dominos started falling."

"...The gross mispricing of risks in financial paper, again, and the lack of reform in the financial system along with excessive leverage and mispricing of risk, the fragility of long distorted markets if you will, has certainly risen to impressive levels again."

"...It is a familiar template of recklessness, fraud, and then reckoning. Afterward there is the usual attempt to blame the government officials which have been corrupted, and the people who have been duped and swindled. Quite often some scapegoat will be found to be demonized."

"...Tell us why you think it might be different this time. What has really changed? From what I can tell, it has not only stayed the same for the most part under the cosmetics of change, and significant portions of the financial landscape have gotten decidedly more dangerous, larger, and more leveraged."

Jesse's Café Américain

As you know I am on the lookout for a 'trigger event' that might spark another financial crisis, given the composition of the economy and the financial markets.

In the last financial crisis 2008, it was the failure of the two Bear Stearns hedge funds that exposed the grossly mispriced risks in mortgage backed financial assets, and the generally flawed nature of the market's collateralized debt obligations. This led to a cascade of failures in fraudulently priced assets, and resulted in increasingly large institutional failures, including the collapse of Lehman Brothers.

One can draw some parallels with the financial crisis before that, which was the gross mispricing of risk and inflated values of internet-related tech companies that had grown to obviously epic proportions by 2000. A failure of several key tech bellwethers to make their numbers, and some negative results in the economy, showed the flaws in the underlying assumptions in what was clearly an asset bubble. And once the selling started, it was Katy-bar-the-door.

The failure of two relatively minor hedge funds was not a great event. The failure of a tech bellwether to make its quarterly numbers is not either. But their interconnectedness to the other portions of the world markets through the financial institutions on Wall Street, and more importantly, the fragile nature of the entire pyramid scheme of fraudulently constructed and mispriced risk of financial assets, caused an inherently shaky system to fall apart. What was most shocking was how quickly it happened once the dominos started falling.

The debt market in the US, with its deep ties to private equities, is probably not a trigger event, the fuse itself. But it well might serve as the powder keg that will transmit the effects of some more individual event throughout the world's markets and economies.

The gross mispricing of risks in financial paper, again, and the lack of reform in the financial system along with excessive leverage and mispricing of risk, the fragility of long distorted markets if you will, has certainly risen to impressive levels again.

It is a familiar template of recklessness, fraud, and then reckoning. Afterward there is the usual attempt to blame the government officials which have been corrupted, and the people who have been duped and swindled. Quite often some scapegoat will be found to be demonized.

I am thinking that this time the problem will arise overseas, with the failure of some major financial institutions there. Perhaps Greece will provide the spark. Or the Ukraine, or Mideast, or something yet unforeseen. The failure of some major European bank certainly has historical precedent.

And if we do experience another crisis, do not be surprised if the moguls of finance come to the Congress through their proxies again, with a sheet of paper in hand demanding hundreds of billions of dollars, or else.

Last time it was a bail-out, which was the printing of money by the Fed to monetize the banking losses and shift them to the public. This time they are thinking of something more direct, talking about a bail-in. What if they eliminated cash, and started utilizing and redploying financial assets like savings and pensions. The uber-wealthy already have their wealth parked in hard income-producing assets and offshore tax havens. Who would stop them?

Tell us why you think it might be different this time. What has really changed? From what I can tell, it has not only stayed the same for the most part under the cosmetics of change, and significant portions of the financial landscape have gotten decidedly more dangerous, larger, and more leveraged.

... ... ...

Read the entire article here.

[Jun 10, 2015] Here Is What's Fraying Nerves Among the Financial Stability Folks at Treasury By Pam Martens and Russ Martens

"...the investment grade corporate bond market, which had heretofore held up "reasonably well" during the ongoing tumbles in government debt markets, has now joined the chaos."

"..."Adding to the concerns of bond bears, the market's liquidity - the ability of traders to buy and sell securities smoothly and without moving prices excessively - has diminished dramatically. That exacerbates sell-offs and could in the worst case turn a natural correction into a crash - especially if retail investors are frightened by the fact that their supposedly safe bond funds can lose money and dump the asset class.""

June 10, 2015 | Wall Street On Parade

On Monday, Richard Berner worried aloud at the Brookings Institution about what's troubling the smartest guys in the room about today's markets.

Berner is the Director of the Office of Financial Research (OFR) at the Treasury Department. That's the agency created under the Dodd-Frank financial reform legislation to, according to their web site, "shine a light in the dark corners of the financial system to see where risks are going, assess how much of a threat they might pose," and, ideally, provide the analysis to the folks sitting on the Financial Stability Oversight Council in time to prevent another 2008-style financial collapse on Wall Street.

Two notable concerns stood out in Berner's talk. First was a concern about liquidity in bond markets evaporating rapidly for reasons they don't yet "sufficiently understand."

... ... ...

Another major concern are the bond mutual funds and ETFs that have mushroomed since the 2008 crisis and are stuffed full of illiquid assets or assets which might become illiquid in a financial panic. Berner quoted SEC Commissioner Michael Piwowar on this issue, who has said:

"The growth of bond mutual funds and exchange-traded funds (ETFs) in recent years means that these funds now hold a much higher fraction of the available stock of relatively less liquid assets than they did before the financial crisis…their growth heightens the potential for a forced sale in the underlying markets if some event were to trigger large volumes of redemptions."

Within 24 hours of Berner delivering his warnings, Bloomberg News was out with this nail biter:

"BlackRock's $14.3 billion high-yield bond ETF plunged 1.6 percent in the six days through Monday as $940.5 million exited the fund, Bloomberg data show. State Street Corp.'s $10.7 billion junk-debt ETF dropped 1.7 percent, with $571.7 million of withdrawals."

The Financial Times threw more fresh worry into the bond market disarray this week by noting that the investment grade corporate bond market, which had heretofore held up "reasonably well" during the ongoing tumbles in government debt markets, has now joined the chaos. According to the Financial Times, "The average yield of debt issued by investment-grade companies has jumped from 2.8 per cent in mid-April to about 3.3 per cent, erasing investor gains made earlier this year." (Bond prices move inversely to interest rates; when yields rise on existing bonds, their value falls in the market place.)

The Financial Times article noted the same concerns as those of the OFR, writing:

"Adding to the concerns of bond bears, the market's liquidity - the ability of traders to buy and sell securities smoothly and without moving prices excessively - has diminished dramatically. That exacerbates sell-offs and could in the worst case turn a natural correction into a crash - especially if retail investors are frightened by the fact that their supposedly safe bond funds can lose money and dump the asset class."

According to Bloomberg data, corporations have issued an astounding $9.3 trillion of bonds since the start of 2009 as borrowing costs have plummeted as the Fed cut and maintained its Fed Funds rate in the zero bound range. Much of the proceeds of those corporate bond offerings found their way into the stock market through corporate share buybacks, pushing stock prices artificially higher.

When you put all of these factors together, it's clear this is an unprecedented era of risk with little visibility on how markets will behave during periods of extreme stress.

[Jun 09, 2015] Wholesale Inventory Ratio, Sales Stabilize At Recessionary Levels

Jun 09, 2015 | Zero Hedge

Despite continued slowing in the pace of inventory builds in the past few months, the ratio of inventory-to-sales remains mired in a recessionary quagmire; but today's data showed some hope - which stocks hated. Inventory-to-Sales dropped from 1.30 to 1.29 (still recessionary) as Wholesale Inventories rose 0.4% (againmst +0.2% expectations) and Wholesale Sales rose a notable 1.6% (against expectations of a 0.6% rise). YoY Wholesales Sales remain in negative territory however and confirm the recessionary warning that the ratio is sending.

Inventories rose...

[Jun 09, 2015] Interest Rates Natural or Artificial

"...When you move from a investment driven economy to a consumer driven economy, interest rates will decline."

"...The US can grow slower than in say the 1970's, yet the people can feel richer and more materially satisfied because of the rate of consumption is much larger in many respects to the 1970's despite slower gdp growth from recession to recession."

"...There are truly 3 notches to evolution :

investment into heavy industry and infrastructure

consumer subsistence economy

consumer economy of Veblen Goods

Each notch ushers in less inflation but more disinflation. Add to that disinflation is the type of deflation provided by *Moore's Law*, economy of scale provided by labour division and years of experience. Each of above forces fuel our march toward a natural rate of deflation which provides an end to the complexities of finance, complexities that are exploited by rentiers galore. Recently our banking *industry* has been laying off and firing droves of *employees*. Banks have seen the handwriting on the graffiti wall."

"...What seems lacking in all this discussion is the issue of currency interdependence - the Fed isn't just setting rates for the USA, it is in a sense a central bank for the world economy. I would prefer that it wasn't, but it is. So long as the rest of the world keeps sucking up dollars, the Feds ability to control what happens in the US will be reduced."

"...Fiscal authorities have conducted austerity and decreased demand and sending inflation negative or too low. Monetary policy has attempted to counter bad fiscal policy by supporting lower interest rates. Underinvestment by governments including austerity is the biggest reason for low interest rates. Another is failure to adequately tax the wealthy leaving too much wealth that is not being spent looking for safe bonds to invest in. Collecting the excess as taxes would lower demand for bonds and help raise interest rates. "

"...The whole point of conservative economic policy is to preserve the haves and distract the have-nots. It is not about a thriving economy but about who wins and who loses. When you have enough money and never fight in wars then all of life just seems like a game."

"...I think what is missing from the discussion is effect of energy prices on interest rates. High oil prices lead to diminished profitability and as such depress interest rates."

Jun 09, 2015 | Economist's View

John Cummings

When you move from a investment driven economy to a consumer driven economy, interest rates will decline. It started in the mid-80's not the mid-90's as the US shifted its portfolio and tax policies around to support consumption over investment as means to reduce inflation and bring in cash to bonds.

This was the main mistake the Federal Reserve made in 2003. They saw weak investment, but ignored rapid growth in consumption. Were to slow to move off the floor and allowed the housing bubble to crest at full nadir instead of 'taking off the edge' like they promised to do. I have always heard whispers about Republican involvement as well.

Taylor's pov is to look historically at consumption, which is a extremely large share of GDP right now. The US can grow slower than in say the 1970's, yet the people can feel richer and more materially satisfied because of the rate of consumption is much larger in many respects to the 1970's despite slower gdp growth from recession to recession.

Lido Tuxedo said in reply to John Cummings...

"investment driven economy to a consumer driven economy, interest rates will decline. It started in the"
~~John Cummings~

There are truly 3 notches to evolution :

investment into heavy industry and infrastructure

consumer subsistence economy

consumer economy of Veblen Goods

Each notch ushers in less inflation but more disinflation. Add to that disinflation is the type of deflation provided by *Moore's Law*, economy of scale provided by labour division and years of experience. Each of above forces fuel our march toward a natural rate of deflation which provides an end to the complexities of finance, complexities that are exploited by rentiers galore. Recently our banking *industry* has been laying off and firing droves of *employees*. Banks have seen the handwriting on the graffiti wall.

They see that with short rates near 0% FG, fed gubernatorial has run out of ammo. Congress has run out of excuses for blowing the stagflation payer's buying power and the taxpayers cash.

As long rates drift downward towards the event horizon, perhaps just short of 2%, there is the probability of a sudden collapse of long rates to less than 0%.

A the moment of collapse there will be no more excuse for printing t-bonds. Fiat, treasury notes, silver certificates, gold certificates, cash will be printed up instead.

The end game for high finance will be the game of sudden death analogous to the breaking the sound barrier with

a loud
bang --

reason said...

Mention Fed and interest rates and all sorts of funny ideas come to the surface!

What seems lacking in all this discussion is the issue of currency interdependence - the Fed isn't just setting rates for the USA, it is in a sense a central bank for the world economy. I would prefer that it wasn't, but it is. So long as the rest of the world keeps sucking up dollars, the Feds ability to control what happens in the US will be reduced.

bakho said...

Interest rates vary with demand and risk of the loan.

Payday loans are exorbitantly high reflecting high risk and few lenders.

Student loans are excessively high because demand is high and a small set of lenders.

Credit card loans are variable dependent on risk. There is stiff competition for low risk borrowers and lower rates. Some still borrow at 15% plus.

Mortgage loans have gone up recently to reflect the increased number of buyers.

Interest rates on bonds have fallen as investment as the risk premium for many investments (such as business expansion due to overcapacity) skyrocketed in the wake of economic crises. When bonds have high demand the interest paid is lower.

Fiscal authorities have conducted austerity and decreased demand and sending inflation negative or too low. Monetary policy has attempted to counter bad fiscal policy by supporting lower interest rates. Underinvestment by governments including austerity is the biggest reason for low interest rates. Another is failure to adequately tax the wealthy leaving too much wealth that is not being spent looking for safe bonds to invest in. Collecting the excess as taxes would lower demand for bonds and help raise interest rates.

Chris Herbert said...

I'm not certain whether this is important or not, but I suspect it is. Our tax laws, and apparently much of our economy, funnels income gains to the owner of capital almost exclusively. Capital and cash pool in private bank and investment accounts amongst the top two tenths of the top one percent. Meanwhile poverty spreads below. This is the classic Adam Smith notion of a rich nation going to ruin, by the way. Also, at the national account level we fail to fund any reasonable level of infrastructure development, and that which we do is considered 'deficit' spending because we no longer collect taxes, a la Greece. Why we consider this deficit spending as opposed to what it actually is, investment, is beyond me. As a result of this mistake, we cannot make the investments we need to remain a modern society. China can spit out bullet trains by the half dozen and we can't manage to build a single one. Apparently the real enemy of rich countries are conservatives who do not understand what makes an economy robust.

We need to relearn how to collect taxes and we need to relearn the difference between consumption and investment spending. It isn't the deficit that matters, it's what you spend your deficit on.

Darryl FKA Ron said in reply to Chris Herbert...

Well said.

The whole point of conservative economic policy is to preserve the haves and distract the have-nots. It is not about a thriving economy but about who wins and who loses. When you have enough money and never fight in wars then all of life just seems like a game.

Darryl FKA Ron said...

If money is artificial then interest rates would have to be artificial too, but that is not the point. First off, we are talking about Fed interest rates, which can be out of line with market rates at rare times. If Fed rates were too low given the demand for loanable funds then the market would take a higher interest rate spread for itself. What matters most is the effect on output, consumption demand, wages, and investment as Fed interest rates go up or down. If Fed rates are too high then the market tells this to the Fed by a collapse in demand for loanable funds.

If Fed rates are too low then the market tells this to the Fed by a boom in demand for loanable funds and lenders taking a higher spread. For those that invoke the natural interest rate euphemism then what they really mean is market rates.

What is the market telling them? Make them tell us how the market is saying that to them.

JF said in reply to Darryl FKA Ron...

Darryl FKA Ron - Good points, but can I get you to stop using the term "loanable funds" - it is a term that has theoretical meanings that are questioned as not being true in fact (though of theoretical and analytic interest).

You can simply substitute: "demand for lending"

JF said in reply to JF...

Here is a read, published July 2014, though you can also look at the most recent discussion from the Bank of England's bulletins.

http://web.stanford.edu/~kumhof/banks-lf-fmc.pdf

"Abstract

In the loanable funds model of banking, banks accept deposits of resources from savers and then lend them to borrowers. In the real world, banks provide financing, that is they create deposits of new money through lending, and in doing so are mainly constrained by expectations of profitability and solvency.

This paper presents and contrasts simple loanable funds and financing models of banking. Compared to otherwise identical loanable funds models, and following identical shocks, financing models predict changes in bank lending that are far larger, happen much faster, and have much larger effects on the real economy. "

Darryl FKA Ron said in reply to JF...

Yeah, I use the terms interchangeably too often. Demand for lending is appropriate for ordinary commercial banking. Loanable funds only has real meaning for lending by bond buyers, ordinarily through investment banking financial intermediation. For home loans commercial banks are often the loan originators, but they are not the lenders.

likbez said...

I think what is missing from the discussion is effect of energy prices on interest rates. High oil prices lead to diminished profitability and as such depress interest rates.

The Warren Buffet Economy, Part 1: Why Its Days Are Numbered

This central bank fueled boom will ultimately be paid for in the form of a prolonged deflationary contraction. Then, trillions of uneconomic assets will be written off, industrial sector profits will collapse and the great inflation of financial assets over the last 27 years will meet its day of reckoning. On the morning after, of course, it will be asked why the central banks were permitted to engineer this fantastic financial and economic bubble. The short answer is that it was done so that monetary central planners could smooth and optimize the business cycle and save world capitalism from its purported tendency toward instability, underperformance and depressionary collapse.

[Jun 09, 2015] Possible Q2 earnings recession nothing to lose sleep over

Rising price of oil should be the factor depressing earning, not increasing them. Drogen is wrong in this respect...

Jun 09, 2015 | finance.yahoo.com

Leigh Drogen of Estimize said an earnings recession is unlikely for the next quarter, citing low estimates and rising oil prices.

Last quarter yielded a 1.2% growth in earnings despite Wall Street's prediction of negative 2%.

"Most of that was in energy, so obviously with the price of oil going down we saw a huge drop in energy earnings," Drogen said. "But what happened was the analysts took their numbers way too far down."

In Q2, similarly pessimistic predictions from Wall Street can be expected to produce further disparity in projections.

"When we see the price of oil this quarter, or last quarter which will affect this quarter's earnings, it has gone up," Drogen added. "And so we're looking for better numbers than the Street is this quarter again and we don't think there's going to be an earnings recession."

[Jun 07, 2015] I'm so, so tired of political journalists by Beverly Mann

June 2, 2015 | Angry Bear

Politico's top article today is titled "Did Elizabeth Warren go too far this time?" But it's subtitled "The Massachusetts senator's attack on Securities and Exchange Commission Chair Mary Jo White causes backlash on Wall Street." The article, which is lengthy, discusses a 13-page letter Warren sent this morning to SEC Chairwoman Mary Jo White, absolutely ripping White for … well, you should read the article, all the way to the end.

By the end of the article, you'll wonder why somewhere in the middle of it, it says that Warren's influence seems to be on the wane and that the letter probably will hasten the waning. The article has two co-authors, and the headline would not have been written by either of them. So that might be why the article is part details and background, and part what Wall Street and the White House want as the media's take on the letter's contents and fallout. I did a double-take when I read this sentence: "The backlash against Warren was the latest indication that populist firebrand's efforts to push for tougher financial regulation may be losing some momentum."

The backlash against Warren is from Wall Street, the SEC, Mary Jo White's office, and the CEOs and lobbyists who want the TPP treaty ratified and are selling it as a trade agreement even though, mostly, it's not. Warren (and others) object not to the actual trade provisions but to parts of it that do not concern trade as such. And the SEC rules under Dodd-Frank that Warren angrily says the SEC keeps delaying concern transparency of corporations concerning the CEO's pay as compared to that of the company's ordinary employees, and concern disclosure of the identities of the tax-exempt organizations that receive corporate donations, and the amounts of the donations.

The public backlash against this has begun, the Politico article says. Just call JPMorgan's corporate offices and lobbying firms. They'll tell ya!

As for Wall Street's public relations offering on it, the part of it that the article discusses with specificity sounds to me ridiculous:

"I don't understand Sen. Warren's criticism of White for recusing herself where there is a conflict of interest," said Wayne Abernathy, a top lobbyist for the American Bankers Association, referring to Warren's criticism that White isn't involved in SEC actions when her husband's law firm represents the companies involved. "Is it that she would prefer that the chairman go forward and participate in enforcement cases despite the conflict of interest?"

No, actually, it's that because her husband is a partner in one of the premier New York law firms that represent the biggest financial institutions against the SEC and Justice Department during investigations and in civil and criminal litigation. And that her recusal means that the SEC is routinely deadlocked about whether to bring charges in such cases because the remaining SEC commissioners are equally divided between Republicans and Democrats. How convenient.

Relatedly, Roger Cohen has a terrific column today in the New York Times. But you have to read to the end to get the relation.

[Jun 07, 2015] CEO Pay Fueled Top 1% Income Growth

Larry Mishel:

New Research Does Not Provide Any Reason to Doubt that CEO Pay Fueled Top 1% Income Growth: A new paper, Firming up Inequality, has been receiving substantial attention in the media for its claim that wage inequality is not occurring within firms but only occurs between firms. The authors claim that their results disprove the claim made by me and others, such as Thomas Piketty and Emmanuel Saez, that the growth of top 1 percent incomes was driven by the pay of executives and those in the financial sector. Though the authors present valuable new data, which offers the possibility of great insights, their current analysis does not disprove that executive pay has fueled top 1 percent income growth. In fact, the study neither examines nor rebuts claims about executive pay.
The authors also offer a "we live in the best possible world" interpretation of their findings-inequality is due to high productivity growth of "superfirms." This is pure speculation and is completely disconnected from their actual empirical work. A similar study examined productivity trends and contradicts their narrative about superfirms.
Last, there are reasons to be skeptical of their findings because they imply huge wage disparities have opened up between median workers across firms within an industry that are implausible. ...

He goes in to explain in detail.

anne said...
There is a trick played by the writers of "Firming up Inequality," the trick is that the writers begin the study after there had been a dramatic increase in the relative wage levels of top corporate executives. By 1980, the difference in wages of ordinary workers and top executives was largely in place.

The 1970s was a time of corporate manager or executive "revolution," as John Bogle remarked in a lecture I heard, and I have wondered for several years whether the ideas of Milton Friedman * provided a basis for this revolution.

http://www.colorado.edu/studentgroups/libertarians/issues/friedman-soc-resp-business.html

September 13, 1970

The Social Responsibility of Business is to Increase its Profits
By Milton Friedman - New York Times
anne said in reply to anne...
http://g-mond.parisschoolofeconomics.eu/topincomes/

March, 2015

Wages, Salaries and Pensions as Share of Income for Top .1%, 1970-1980

1970 ( 32.20) *
1971 ( 34.00)
1972 ( 37.41)
1973 ( 36.92)
1974 ( 36.23) Ford

1975 ( 40.69)
1976 ( 43.39)
1977 ( 45.39) Carter
1978 ( 45.89)
1979 ( 46.76)

1980 ( 49.09)

-- Thomas Piketty and Emmanuel Saez

[Jun 05, 2015]May Employment Report 280,000 Jobs, 5.5% Unemployment Rate

This 280 figure is birth-death adjusted, so it might well be lower. Still it is better then 150K.

Rajesh wrote on Fri, 6/5/2015 - 5:49 am

U-3
Feb: 5.5%
Mar: 5.5%
Apr: 5.4%
May: 5.5%
Has the unemployment rate flat-lined?

Sebastian wrote on Fri, 6/5/2015 - 5:52 am

CR said: "This was above expectations of 220,000 jobs, and combined revisions were up ... a strong report."

And Belmont said: "And a tick up in rate = more people coming back into the fold."

Both right.

One of the methods of data-torture that I use to support my unfounded Pollyanna point of view is to measure the growth of the total labor force available and compare it to the growth of the labor force that's actually employed.

As long as the growth in "employed" is greater than the growth of "available", no worries.

No worries.

Bureau of Labor Statistics

Rajesh wrote on Fri, 6/5/2015 - 5:53 am (in reply to...)

Belmont wrote:

Are you really trying to find something negative?

A flat unemployment rate is good news. It indicates that we are finally pulling people into the labor force. So far, we are not doing it in the numbers that would move labor force participation. We can't really talk about a tight labor market when we have millions of people who was unemployed for more than 26 weeks.

dilbert dogbert wrote on Fri, 6/5/2015 - 5:55 am

I Blame obummmers and Killery for forcing people to work!!!!! Impeach Now!!!!
More cooked books numbers!!! Dooooooooooooooom!!! Dooooooooooooooom!!! Dooooooooooooooom!!!

KarmaPolice wrote on Fri, 6/5/2015 - 5:57 am (in reply to...)

Sebastian wrote:

Bureau of Labor Statistics

This gummint agency cannot be trusted. I know this, I read the HCN, Breitbart, and Zombie nation.

Rob Dawg wrote on Fri, 6/5/2015 - 6:01 am (in reply to...)

Belmont wrote on Fri, 6/5/2015 - 5:54 am

Fuck you Rob! How bout that. People read just fine here.

What they read is you incessantly setting up straw men. You've set in your mind a static view of these HCN doomerati because they were so eloquent and accurate about how bad things really were a long time ago. You should have taken away that they are eloquent and accurate instead you fixated on the negative message and merely assume that message never changed.

sum luk wrote on Fri, 6/5/2015 - 6:11 am

Lets take a coffee break
US May Average Hourly Earnings +0.32%, or +$0.08 to $24.96; Over Year +2.3%
…
Unit labour cost in sel EZ countries : https://twitter.com/cigolo/status/606794251297558528

homedad43 wrote on Fri, 6/5/2015 - 6:16 am

Slightly different tack from unemployment...the "older" commenters might recall that almost five years ago, I began tracking a marketbasket of 47 grocery store items at three separate local grocers. I was curious about what was really happening with inflation/deflation and all of that. Of these 47 common items, 37 are foodstuffs (pound of ground beef, etc...); I've kept a baseline of 100 as of November 2010 for both the Total Index of the 47 items as well as the Food-Only Subindex of 37 foodstuffs. Pricing has been done on or about the 1st of each month since November 2010 (I'm a dog with a friggin' bone).
The Food-Only Subindex has always been higher than the larger Total Index and when the Total Index was at 111.18 in December 2014 (November 2010 = 100), the Food-Only Subindex maxed at a peak of 115.33 (November 2010 = 100). Since that high in December, both have dropped but the Food-Only Subindex has crashed to 106.46...more than four years of pricing activity for a marketbasket of commonly purchased items has been wiped out in six months.

When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining. In the past six months, each of the unrelated grocers has instituted new pricing policies and the effect is rather stunning.

Practical Dad

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:24 am (in reply to...)

homedad43 wrote:

When you look beyond the single items that grab everybody's attention, the foodstuffs as a whole are declining.

But not inconsistent. Did you see this index recently? US Daily Index " The Billion Prices Project @ MIT

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:30 am (in reply to...)

Mook wrote:

But can we at least all agree that (un)employment is at best a coincident (if not a lagging) indicator?

I think that's still the case. Popular wisdom held that housing was a lagging indicator but that was back in the dark days when houses were primarily a place to live and only secondarily an inflation-protected savings account and only tertiarily a hedge fund for the common man that doubled as shelter.

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:35 am (in reply to...)

KarmaPolice wrote:

40 percent of all home purchases are cash.

And we know the average (median) joe has that much cash just laying around in savings accounts. It's easy to save when median rent is only $4500/mo in San Francisco, which also represents accurately average (median) joe and average (median) joe's income.

Bruce in Tennessee wrote on Fri, 6/5/2015 - 6:50 am

...18 trillion in taxpayer debt nationally, wonderful reverse mortgage commercials for the elderly who've been gutted, student loan burdens for the young, 7 year car loans for the subprime, huge stock buybacks rather than capital investment, and yada yada...

Mook wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

lawyerliz wrote:

This behavior may reassert itself with new borrowers only.

Key phrase, that one.
The marginal new borrower may scramble to lock in a 4.5% rate before it moves to 4.75%. All well and good, if you believe that the population of marginal new borrowers (generally millennials with uncertain job prospects, little liquidity, and a Steinway worth of student loan debts strapped to their backs) is sufficient to maintain existing sales volumes and rising prices.
Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

Blackhalo wrote on Fri, 6/5/2015 - 6:50 am (in reply to...)

Rajesh wrote:

Has the unemployment rate flat-lined?

Probably reached equilibrium, at the point where folks who had given up, can find work, and any increase in demand, is off-set by added supply.

KarmaPolice wrote on Fri, 6/5/2015 - 6:51 am (in reply to...)

ResistanceIsFeudal wrote:

Of course there is. The Tale of Two Economies continues unabated.

It's nothing new. And pretty much on-pace since the seventies for the US.
Although I did see an interesting statistic that the majority of people moving into Houston are renters even though their salaries are more than acceptable for purchasing a home. Perhaps they are getting smarter about boom/bust cycles.

sum luk wrote on Fri, 6/5/2015 - 6:51 am

DeutscheBank: wage growth acceleration: https://twitter.com/fxmacro/status/606810704813916161

ResistanceIsFeudal wrote on Fri, 6/5/2015 - 6:52 am (in reply to...)

Mook wrote:

Because the entrenched homeowner sitting on a 3.75% rate probably isn't gonna scramble anywhere.

Except the voting booth.

KarmaPolice wrote on Fri, 6/5/2015 - 6:54 am (in reply to...)

ResistanceIsFeudal wrote:

Except the voting booth.

Good luck with that as well.

burnside wrote on Fri, 6/5/2015 - 6:55 am (in reply to...)

Rates will have to rise quite a bit, I should think. That became very common in the late seventies. Very.

sum luk wrote on Fri, 6/5/2015 - 6:55 am

Average hourly earnings have increased 2.04% (nominally) from a year ago
chart: https://twitter.com/NickatFP/status/606814645551251456

umop apisdn wrote on Fri, 6/5/2015 - 6:56 am (in reply to...)

18 trillion in taxpayer debt nationally

The Treasury is not the taxpayer.

sum luk wrote on Fri, 6/5/2015 - 6:57 am

U.S. Economy Adds 280k New Jobs In May - Floating Path

Blackhalo wrote on Fri, 6/5/2015 - 6:57 am (in reply to...)

lawyerliz wrote:

it will be really hard for a borrower with a 3.5% to 4.25% rate to decide to move up to 5.5---7% rate.
It would seem that you'd get a lot less house, moving from 3.5% to 7%, for the same monthly nut.
Let's see: a 250K home at 3.5% vs 170K house at 7%... $1150/mo...

KarmaPolice wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

homedad43 wrote:

The decreases are happening but in the things that are more common...bananas, potatoes, canned veggies. Hell, even cooked deli ham and deli cheese went down in the past two months.

Oil prices.....

homedad43 wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

Average hourly earnings have increased 2.04% (nominally) from a year ago

Yep...but if you're paying more for health insurance and doing without other benefits that you now have to cover, then that situation is still a net loss.

Belmont wrote on Fri, 6/5/2015 - 6:58 am (in reply to...)

I was told that this would never happen. That we would all be searching the forests for edible mushrooms till the end of time.

sum luk wrote on Fri, 6/5/2015 - 6:59 am (in reply to...)

18 trillion in taxpayer debt nationally
umop apisdn wrote:

The Treasury is not the taxpayer.

… that's ok, 18 trillion is just the headline ~ not the actual number

homedad43 wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

One of the items that I price is a 48 oz container of canola oil for cooking. When oil prices spiked, the canola oil went up across all three stores since canola seeds are also used in bio-fuels...since then the price for that size container has dropped but not as much...elastic upwards and inelastic downwards. Somebody's making money.

Rob Dawg wrote on Fri, 6/5/2015 - 7:00 am (in reply to...)

Bruce in Tennessee wrote:

18 trillion in taxpayer debt nationally,...
Debt Maturity Chart
We either pay off $3 trillion in the next year or cough up an extra $35 billion for every increase of 1% when rolling over.

KarmaPolice wrote on Fri, 6/5/2015 - 7:02 am (in reply to...)

homedad43 wrote:

Somebody's making money.

That's called capitalism.

Mike_PNW wrote on Fri, 6/5/2015 - 7:03 am

Pending layoffs at Intel...
Intel plans job cuts across the company, internal memo says | OregonLive.com

[Jun 05, 2015] Gross Says Bond Rout Scary as Hell Even Without Bear Market By Wes Goodman

Bloomberg

The turmoil has sent U.S. government securities maturing in 10 years and longer down 7.4 percent since the end of March, heading for the biggest quarterly loss since 2010, based on Bloomberg World Bond Indexes. The decline is part of a global selloff, led by German bunds and fueled by what traders say is a lack of liquidity.

"I recognize the tremendous liquidity problems and the ups and the downs on a daily basis -- or even on a minute basis -- and it scares the hell out of me," Gross said in an interview Thursday. "But I don't think we're in for a bear bond market just yet."

Gross ... said Treasuries have fallen to fair levels. The benchmark Treasury 10-year yield rose three basis points, or 0.03 percentage point, to 2.34 percent at 6:56 a.m. New York time, according to Bloomberg Bond Trader data. It reached 2.42 percent on Thursday, the highest since October, having climbed from a year-to-date low of 1.64 percent.

Gross said 2.30 percent is "fair value."

Treasury market volatility climbed to a three-month high this week, according to the Bank of America Merrill Lynch MOVE Index. The gauge increased to 91.81 Wednesday, from as low as 70.99 on April 27.

"People's faces are within inches of their screens, eyes are glued to the screens, to the news sources, to the price action," said Craig Collins, managing director of rates trading at Bank of Montreal in London. "You see the market move and it's 'what's out, what's out?' Risk appetite is very, very low with the liquidity in the market being very low and that's made for this really choppy price action."

Trading activity is declining because of regulations such as the Volcker Rule and Basel III that require banks to cut back on risky activities and holdings, according to Hajime Nagata, who invests in Treasuries for Tokyo-based Diam Co. Bond-market moves have become exaggerated as a result, he said.

The primary dealers that underwrite America's bonds have cut U.S. government debt holdings to $30.3 billion as of May 27, from a record $146 billion in October 2013, Federal Reserve data show.

... ... ...

Gross said he doesn't see the threat of a bear market in bonds with inflation falling short of the Fed's 2 percent target. The central bank's preferred measure of costs was 0.1 percent as of the most recent report in April.

A period when returns aren't positive is generally considered a bear market in bonds. While securities with the longest maturities have suffered the brunt of the global selloff, other debt investments fared better.

The Vanguard Total Bond Market Index Fund, the biggest bond mutual fund in the world with $118 billion in assets, is little changed this year, according to data compiled by Bloomberg. It's returned 2.6 percent over the past 12 months.

The debt-market selloff probably doesn't have much further to go, said Peter Jolly, the Sydney-based head of market research at National Australia Bank Ltd. "It's been violent, and it's happened in a short few days," Jolly said. "We're getting to the point where some investors are starting to see value in buying bonds again."

ABC

There is no value in buying bonds unless it gets 3% and above while slowly getting to the average norm of the past. Ten years is a long time to get little to live on, right. If you die, then the government gets their take and not much left for the children.

Wall Street can be very risky at this time for the elderly. Got to eat and have a roof over your head. The eyeball gouging guys do not care if granny eats or has a roof over her head.

JB

Only "scary" for the idiots who piled in at the top - but not for "fund managers". They are gambling with someone else's money; they are ALL unaccountable.

[Jun 05, 2015] Vanguard guidance

Noni Robinson: Joe, when do you think the Fed will start to raise short-term interest rates and at what pace?

Joe Davis: Good question. You know, we certainly stated at the beginning of the year, Noni, in our past conversations, that the Fed was very likely to raise rates this year. And that is still the case. There's been a great deal of fixation in the marketplace around whether it would be June or September, perhaps even as late as December. And depending upon the data, I think, ultimately [that] will determine when the Fed raises rates. I think right now central tendencies are around September. I think that's clear from the Federal Reserve in the minutes, and the weak data we had in the first quarter, some of which is [because of] weather, some of it is not.

Joe Davis More importantly, what we've talked for some time Noni, is much more important than when the Fed raises rates, is-to your question-the pace, and where they ultimately stop. And in our minds, for some time, we've been of the thought that the Fed was unlikely to raise rates very high, and they were going to do so at a very gradual pace. And in fact we thought that the Federal Reserve would pause, perhaps as low as 1%, to reassess the economy and to see the performance. Particularly since the Federal Reserve is extremely likely to be the only central bank in the developed world that will be raising rates in the near future.

So again, I still think it's going to be a very gradual and slow pace. I think it's ultimately a positive for the U.S. economy. There is a limit to how far the Fed can raise rates. Two important points. First is, inflation is below where they want it, it's been there for four years and it's not near 2% on the official rate. And so, unlike previous tightening cycles, they may be raising rates with their inflation below where they want it, as opposed to the past when it was higher than they wanted, and they wanted to push it down.

And then secondly, whether or not they may directly acknowledge it, is the recent strength in the U.S. dollar, given in part due to the strength of the U.S versus other developed markets, there's a tightening bias in the appreciation of the dollar. So that, in itself, I think will be self-limiting in terms of how far the Federal Reserve will need to raise rates.

Noni Robinson: Roger, have the markets already priced in higher rates? Or do you think we'll see some volatility as rates start to rise?

Roger Aliaga-DiazRoger Aliaga-Díaz: Yes, Noni. In part, they have priced in some of the rate rise that's expected for 2015. But still there is a little bit of disconnect between the market-inferred path of rates, and what the Fed is stating. It's not a large disconnect, we're looking at a half of a percentage point. The market seems to be a little bit impacted by technical factors. Basically the flight to safety into the U.S. dollar, and dollar-denominated debt we've been seeing over the past few months. And that tends to push U.S. yields down below what economic fundamentals would determine.

On the other hand, the Fed projections are assuming, at the moment, that the Fed is going to raise rates to closer to historical levels, or to about 4% for what's called a terminal rate, long-term. But we believe that over time-and the Fed is basically acknowledging this gradually-that over time due to the low growth environment and subdued inflation environment, that terminal rate may come down closer to where the market is.

So [there could be] a little bit of volatility [because] the market may catch up to the Fed in the short-term as we get closer to lift off. The Fed is over time, gradually reducing that long-term rate. But volatility, yes. Usually at turning points we should expect some volatility. Not necessarily in one direction, it's not all bad. It's more uncertainty around the path of rates, the gradual path that Joe was referring to. So the best basic strategy for that is to stay well diversified across the maturity curve, accessing a broad bond benchmark

[Jun 05, 2015] 5 things to think about on your journey to retirement

May 04, 2015 | https://personal.vanguard.com/us/insights/article/5-things-journey-to-retirement-052015

... ... ...

Deji Akintoye: Figuring out how much you need to accumulate gets to the heart of the matter: the dollar amount you'll need to "afford" retirement.

... ... ...

By looking at a few factors (including your age, the amount you save, and your anticipated rate of return), you can project whether you're on track to meet your savings goals. The key is to set realistic expectations for retirement and create a plan.

... ... ...

Kahlilah Dowe: I've heard people say that retirement starts to seem "real" when it's about 5 years away. This can be a good time to think about how much income you'll need to make your vision of retirement a reality.

... If your portfolio will be your primary income source, it may be smart to invest more conservatively to preserve the value of your portfolio.

... focus on your asset mix. The level of risk you take on should correspond with how much your investment portfolio will have to shoulder the weight of supporting your daily living expenses in retirement.

... ... ...

Jane Simpson: For some investors, retirement means transitioning to a life of relaxing and spending-from a life of working and saving. In the midst of the transition, consider how your lifestyle changes can potentially impact your finances.

Using projected fixed expenses (costs that are the same every month) and discretionary expenses (costs that cover wants rather than needs), come up with a spending strategy to balance your expectations with your limitations.

Although it's prudent to plan ahead, it's also necessary to remain financially flexible-you can make a plan based on what you know right now, but you have to monitor your actual spending and make adjustments as needed. I encourage all newly retired clients to remember that the first few years of retirement are often about fulfilling lifelong dreams (like relocating or taking a trip of a lifetime), so it's unlikely that subsequent years of retirement will include the same expenses. It's okay to take some time to figure it out.

Julie Edwards: About 5 years after you retire, consider asking yourself whether or not retirement is what you thought it would be. Compare the vision you had for retirement with the reality of being retired. But before you place the blame on your finances for any unmet expectations, review your budget. Is your spending on track?

If you're overspending, you can either supplement your income (by getting a job) or reduce your expenses. Because you're on a fixed income, it's a good idea to periodically review your discretionary expenses and potentially give up or cut back on a membership, an activity, or a recurring expense that isn't crucial to your happiness.

... ... ....

[Jun 05, 2015] BONDS: U.S. government bond prices rose, pushing yields down. The yield on the 10-year Treasury note dropped to 2.30 percent from 2.36 percent late Wednesday.

[Jun 04, 2015] Pickens Saudis bluffing on oil production

Quotes:
.
"...OPEC is "all in at 31 million barrels a day. That's about all they can do,"
.
"...They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do."

Notable quotes:

"... "They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do." ..."

"... The cartel is now pumping about 2 million bpd more than needed, analyst say, feeding a glut that has left millions of barrels stored on tankers without a buyer and kept prices at close to half their peak levels last year. ..."

"... "If you're trying to grow production, you've first got to maintain production." ..."

"... Oil wells-whether conventional or unconventional-reach peak production soon after they yield the first drop of crude. The U.S. industry is dominated by unconventional wells. ..."

"... Conventional wells go through a long period of steady, flat production between peak and decline. In contrast, production falls rapidly in the first three years of unconventional wells-those in shale, sandstone and carbonates. They then enter a long phase of very low production. ..."

"... "Just as soon as you get an oil well, put it on production, it starts to decline," Pickens said. "Now how fast is it going to decline is very important." ..."

Jun 04, 2015 | finance.yahoo.com

OPEC is "all in at 31 million barrels a day. That's about all they can do," Pickens said on CNBC's " Squawk Box ."

"They talk a lot about it, what they can do, and the Saudis say 12 and half. Well show me. I'm ready to see 12 and a half. They're making 10.3, and they struggle at 10, I think. I think 10 is about all the Saudis can do."

Oil Minister Ali al-Naimi said Saudi Arabia produced some 10.3 million bpd of crude in March, eclipsing a previous high of 10.2 million in August 2013.

The Organization of the Petroleum Exporting Countries is expected at a meeting on Friday to keep a group output target of 30 million bpd, a ceiling it has been exceeding for most of the last two years, weakening prices.

The cartel is now pumping about 2 million bpd more than needed, analyst say, feeding a glut that has left millions of barrels stored on tankers without a buyer and kept prices at close to half their peak levels last year.

Production declines in the United States will also support prices, Pickens said, noting that output has dropped off in North Dakota's Bakken formation and Texas's Eagle Ford play as drillers have taken about 1,000 rigs out of oilfields since December.

"Now, you shut down 1,000 rigs, we're dealing with decline curve," said Pickens, chairman of BP Capital Management. "If you're trying to grow production, you've first got to maintain production."

Oil wells-whether conventional or unconventional-reach peak production soon after they yield the first drop of crude. The U.S. industry is dominated by unconventional wells.

Conventional wells go through a long period of steady, flat production between peak and decline. In contrast, production falls rapidly in the first three years of unconventional wells-those in shale, sandstone and carbonates. They then enter a long phase of very low production.

"Just as soon as you get an oil well, put it on production, it starts to decline," Pickens said. "Now how fast is it going to decline is very important."

Read More

CNBC Survey: No action at OPEC, but what about shale?

The looming threat to American oil output

Oil falls more than 1 percent on high OPEC output, firmer dollar Reuters

OPEC may condemn the world to an oil glut for years as big meeting looms MarketWatch

Oil falls as OPEC output stays high, dollar rises Reuters

Gulf producers to resist cuts at OPEC meet: analysts AFP

Oil market 'comfortable' with violence risk: Saudi AFP

[Jun 04, 2015] There is 'sheer panic' in the bond market

According to Bloomberg, bonds wiped out all their gains for the year. The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

There is chaos in global markets. Bonds sold off sharply on Thursday morning for a second day in a row. They've reversed the decline, but stocks are still lower, after the chaos spilled over.

... ... ...

The International Monetary Fund slashed US growth forecasts, and urged the Federal Reserve to delay its first interest rate hike until 2016, in a statement that crossed as the stock market opened.

In a speech last month, Fed chair Janet Yellen said it would be appropriate to raise interest rates "at some point this year" if the economy continues to improve.

In a morning note before the open, Brean Capital's Peter Tchir wrote: "It is time to reduce US equity holdings for the near term and look for a 3% to 5% move lower. The Treasury weakness is NOT a 'risk on' trade it is a 'risk off' trade, where low yields are viewed as a risk asset and not a safe haven."

The sell off in global bonds started Wednesday, as European Central Bank president Mario Draghi gave a news conference in which he said markets should get used to episodes of higher volatility.

Draghi also emphasized that the ECB had no intention to soon end its €60 billion bond-buying program, called quantitative easing, before its planned end date of September 2016.

Bond yields, which move in the opposite direction to their prices, spiked across Europe on Wednesday, and on Thursday this move is continuing, with German bund yields and US Treasury yields hitting new 2015 highs and continuing to climb overnight.

According to Bloomberg, bonds wiped out all their gains for the year.

... ... ...

The benchmark US 10-year treasury yield pushed higher to about 2.42% overnight, a level it hadn't touched since October. German bund yields rose to about 0.99%.

[Jun 04, 2015] U.S. economy slow, disappointing and not about to change for the better

Notable quotes:

"...the primary culprit is the decline of main street citizen's spendable income. That is why the windfall of lower gas prices had no lasting effect. Many pundits talk about the lack of inflation but this too is inaccurate - ask main street citizens. Since our economy is regrettably tied to buying our country's "stuff", and the fed policies are moving wealth away from the majority of our citizens, our system is critically flawed. New wealth is not being returned to the economy. The horrible truth is killing entitlement programs, and the fact that other world nations are following the same pattern, does not bode well for a genuine recovery. "

"...No Central Banker is going to stick their neck out and raise rates..."

finance.yahoo.com

The U.S. economy shrank in the first quarter, the third such decline since the expansion officially began in mid-2009. But when the data came out last week most economists chalked up the 0.7% contraction to temporary factors like weather, the strong dollar and the West Coast port strike. The calendar has turned to June and the data now coming in for April and May suggest any second-quarter rebound will be limited, at best: The Atlanta Fed's real-time GDPNow model predicts growth of just 0.8% for the April-June timeframe.

"At the beginning of this year there was a hope and expectation things would pick up," recalls Kevin Logan, chief U.S. economist at HSBC. "Now it's five months in [to 2015] and we're reassessing everything. This is a slow, disappointing expansion [and] doesn't seem like it's changing now."

A big reason for the econo-optimism at the start of the year was the sharp drop in gasoline prices, which many economists predicted would be a "windfall" for U.S. consumers. But Logan notes the biggest part of the decline came at the end of 2014, helping spur a 4.5% growth rate in consumption in the fourth quarter. "There was a shift upward in spending and now we're trending [flat] again," he says, as reflecting the 0% consumption growth in the personal income/spending figures released Monday. "Consumer spending has picked up a bit but not to drive the economy to the rate of growth we thought we were going to get."

(As an aside, when I suggested in mid-April the U.S. economy may have already peaked, people thought I was nuts. It's still a variant few but fewer people are laughing now. On the other hand, with personal incomes up 0.4%, the savings rate has risen, which is good for the individual but not so good for the overall economy, aka the paradox of thrift.)

But Yes, We Have No Inflation

The other big news in that same personal income/consumption release Monday was the Core Personal Consumption Expenditures (PCE) index, the Fed's preferred inflation gauge, rose just 0.1% in April and is now up only 1.2% on a year-over-year basis, down from 1.4% in March.

"Fed officials want to be reasonably confident inflation will return to the 2% level they're targeting but the data is moving in the opposite direction," says Logan.

Barring a sharp rebound in both growth and inflation, Logan believes the Fed will postpone its first rate hike until September or December, noting the strong dollar presents another headwind for both U.S. inflation and growth. Exports suffered the biggest drop in six years in the first quarter and although the greenback's strength has moderated of late, the Fed's own model shows the impact of a rising dollar occurs with a lag and increases over time, The WSJ reports.

"Domestically things have picked up...but the appreciation of the dollar is going to hold the economy back," says Logan, whose forecasts have been below consensus for both growth and inflation in recent years -- meaning he's been more accurate than most of his peers, not to mention the Fed.

Aaron Task is Editor-at-Large of Yahoo Finance. You can follow him on Twitter at @aarontask or email him at atask@yahoo-inc.com.

proposedsolutionsblogspot

...double on food stamps than in 2008 plus food pantries and soup kitchens all over the country getting swamped and no media coverage given to these, we are flooded with stock pumping propaganda...

Just Some Guy Figuring

Since the "expansion began" the only common thread was the Federal Reserve was printing $3T worth of money that did not exist before and put it in the streets where the big guys did nothing but buy everything up on the cheap.

Six months ago the printing press was shut down.

With the well known lag of 6-12 months from when the Fed adjusts policy to actually seeing it in the economy, Guess what? No more "growth" because of money supply pumped into the economy.

The overall employment picture speaks to the fact no growth has happened since 2008.

In the prime 16-64 year old working age bracket 64M of 203M have left the labor force, are not in the labor force or are and unemployed.

203M 16-64 year olds is the largest number ever population wise in the history of the labor force.

The more than a third with of that number with no job is the highest since the depressions of 1929 and 1933.

MacDaddyWatch

Hillary Down the Crapper:

(CNN): More people have an unfavorable view of Democratic front-runner Hillary Clinton now than at any time since 2001, according to a new CNN/ORC poll on the 2016 race. The poll shows that her numbers have dropped significantly across several key indicators since she launched her campaign in April.

A growing number of people say she is not honest and trustworthy (57%, up from 49% in March), less than half feel she cares about people like them (47%, down from 53% last July) and more now feel she does not inspire confidence (50%, up from 42% last March).

Duane

He makes the point that everyone that works and owns/drives a car got a rise last year in the form of lower gas prices. Gas is a buck (+ -) than last year at this time-as the story goes; you may not have received a raise at your job, you none the less have one in the form of lower gas prices. This reasoning can be applied to beer prices, clothing, or any 'on sale' item. I know this is convoluted but this is how many see economics. And, if your told this over and over you may start to believe it too.

Happy

Mr. Task, with all due respect, your article is neither informative nor newsworthy. Much has been said about weather, higher dollar, and west coast ports being responsible for the decline of the US first quarter's economy. All perhaps influenced the decline (originally reported to be an increase) but the primary culprit is the decline of main street citizen's spendable income. That is why the windfall of lower gas prices had no lasting effect. Many pundits talk about the lack of inflation but this too is inaccurate - ask main street citizens. Since our economy is regrettably tied to buying our country's "stuff", and the fed policies are moving wealth away from the majority of our citizens, our system is critically flawed. New wealth is not being returned to the economy. The horrible truth is killing entitlement programs, and the fact that other world nations are following the same pattern, does not bode well for a genuine recovery.

wow

Do not worry, our propaganda (just look around) works great! It will solve all our problems! Remember that we claim that we had 5.4%,2.2% (now negative 0.7%) solid and thriving growth! China had 9%, 7.4% (now 7%) slowing and stagnant growth and will collapse like Japan; and ours will not (it is all our weather's faults and China has great weather!???). Foreign investments are flowing in US, and flowing out in China. We are the only booming economy in the world!

With Chinese collapsing economy, no way they will become a major power; and of course we should pull out from their market (and thus most of our investors here missed the bully market of the last few years there!). Their dictatorship government would never work! We are much better off than they are! Once China collapsed, no other country can support Russia and they will collapse also! We just need to chant this repeatedly in mind! Everything will be fine! We will be rich and powerful! LOL!

goldchest

No Central Banker is going to stick their neck out and raise rates. They have left that job to Investors who when they become wise stop buying Bonds that yield nothing but peanuts, thereby allowing Bond prices to fall and yields to rise. The Bond bubble is the biggest bubble seen in a century and when it bursts the flood will destroy all in its path. Slowly Investors are realizing that gimmickry has produced only spurious gains that will be washed away in a flash. Need to have the life jacket on at all times.

Clay

After all those trillions in central bank bond purchases . . . and this is what we've got to show for it? And it's the same all over the globe.

These central banks will soon have to make a decision. How much risk are they willing to take? Do we eat the frog now, or do we continue pumping? My bet is that they're in too deep to stop now.

[Jun 03, 2015] The Fed's low rates may be harming the middle class By Rick Newman

"...there's new concern that the abnormally low interest rates resulting from central bank quantitative easing are creating perverse incentives for many companies to deploy cash in ways that benefit the wealthy without doing much, if anything, for workers or ordinary consumers. "

....nearly seven years on, aggressive monetary stimulus may now be hurting those it's meant to help.

Fed critics have long warned that the gusher of liquidity opened by the Fed will generate runaway inflation, which hasn't happened. But there's new concern that the abnormally low interest rates resulting from central bank quantitative easing are creating perverse incentives for many companies to deploy cash in ways that benefit the wealthy without doing much, if anything, for workers or ordinary consumers. "Flooding the system with more cheap money is the wrong solution," former FDIC chief Sheila Bair recently told Yahoo Finance. "It has made income inequality worse. We need to get back to real economic growth, not artificially stimulated growth with cheap interest rates."

Wall Street barons and other one-percenters have gained the most from super-low rates that have diverted a flood of money out of low-yielding bonds and into stocks and other risky assets, producing an epic bull market that's now in its sixth year. But a growing chorus of one-percenters, including BlackRock CEO Lawrence Fink and hedge-fund billionaire Stanley Druckenmiller, argue that raising rates is now the best way to help workers still struggling to join the economic recovery.

The reasoning goes like this: Low rates make debt so cheap that companies are borrowing to finance mergers, acquisitions, stock buybacks and other types of "financial engineering" instead of investing in ways that boost the real economy and create jobs. Mergers and acquisitions tend to eliminate jobs as firms consolidate, rather than creating them as a company might by expanding a factory, purchasing new equipment or directly taking on new workers.

Recent research by economist William Lazonick of the University of Massachusetts Lowell argues that a surge in stock buybacks in recent years has "concentrated wealth among the richest households" while wiping out middle-income jobs that used to sustain many families. "Low interest rates are currently doing more to encourage buybacks than productive investment," Lazonick says.

A doubling of corporate debt

Druckenmiller points out that the amount of corporate debt in circulation has doubled from $3.5 trillion in 2007-which we now know was the peak of the debt bubble that preceded the 2008 crash-to $7 trillion today, largely because low rates make it so appealing for companies to borrow. Much of the new debt on the market is rated below-investment grade, or "junk." In a downturn, higher-than expected default rates on those risky bonds could leave unprepared investors shouldering heavy losses. "The risk of a credit bubble is extremely high," Druckenmiller recently told Bloomberg. "If not addressed pretty soon, things could get pretty difficult three or four years down the road." And just about every downturn hurts those living paycheck to paycheck a lot more than those with substantial savings.

... ... ...

Rick Newman's latest book is Liberty for All: A Manifesto for Reclaiming Financial and Political Freedom. Follow him on Twitter: @rickjnewman.

Related Stories

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Gundlach: Federal Reserve won't raise interest rates this year MarketWatch

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[Jun 02, 2015]The Current Overproduction Crisis And War

Ian Welsh makes Fourteen Points on the World Economy as the US GDP Drops .7 Percent. He believes that the economy is again turning towards a global recession. This recession comes even as there has not been a real recovery from the last global economic crisis:

Let me put this another way: The developed world is in depression. It has been in depression since 2007. It never left depression. Within that depression, there is still a business cycle: There are expansions, and recessions, and so on. Better times and worse times.

The business cycle is again turning down and is doing so sharply. Not only in the U.S. but also in Europe and Asia.

Every central bank has been throwing money at the local economies but that money finds no productive use. Why would a company invest even at 0% interests when nobody will buy the additional products for a profitable price? How could consumers buy more when wages are stagnant and they are already overburdened with debt taken up in the last expansion cycle? The central banks are pushing on a string while distorting normal market relations. This intensifies the original crisis.

My believe is that the global crisis we see is one of overproduction, an excess or glut of supplies and on the other side a lack of consumption. The exceptional cheap money created by the central banks makes investment in machines preferable over employment of a human workforce. The result: Manufacturing hub starts work on first zero-labor factory

Chen predicted that instead of 2,000 workers, the current strength of the workforce, the company will require only 200 to operate software system and backstage management.

The (Central) bank gave Mr. Chen cheap money and at an interest rate of 0% a complete automation of his company may indeed be profitable. It is unlikely though that he would make the same move at an interest rate of 10%. But on the larger macro economic scale Mr Chen needs to ask this question: "How will the 1,800 laid off workers be able to buy the products my company makes?" Some of the laid off people may find marginal "service" job but the money they will make from those will likely be just enough to keep them alive. And over time flipping burgers will also be automated. And then?

Karl Marx described such overproduction crises. Their cause is a rising share of an economy's profits going to an ever smaller class of "owners" while the growing class of marginal "workers" gets less and less of the total pie. In the last decades this phenomenon can be observed all over the developed world. The other side of the overproduction crisis is an underconsumption crisis. People can no longer buy for lack of income.

While a realignment of central bank interest rates to historical averages, say some 6%, would help to slow the negative process it would not solve the current problem. Income inequality and overproduction would still increase though at a lesser pace. The historic imperialist remedy for local overproduction, capturing new markets, is no longer available. Global trade is already high. There is little land left to colonize and to widen the markets for ones products.

There are then two solutions to such an crisis.

One is to tackle the underconsumption side and to change the distribution of an economy's profits with a much larger share going to "workers" and a smaller share going to "owners". This could be achieved through higher taxes on "owners" and redistribution by the state but also through empowerment of labor unions and like means. But with governments all over the world more and more captured by the "owners" the chance that this solution will be chosen seem low.

The other solution for a capitalist society to a crisis of overproduction is the forced destruction of (global) production capabilities through a big war. War also helps to increase control over the people and to get rid of "surplus workers".

The U.S. was the big economic winner of World War I and II. Production capacities elsewhere got destroyed through the wars and a huge number of global "surplus workers" were killed. For the U.S. the wars were, overall, very profitable. Other countries have distinct different experiences with wars. In likely no other country than the U.S. would one find a major newspaper that arguing that wars make us safer and richer.

I am therefore concerned that the intensifying crisis of overproduction and its seemingly casual preference for war will, in years to come, push the U.S. into starting a new global cataclysmic conflict.

Neoconservatives like Victoria Nuland tried to goad Russia and the EU into a big war over Ukraine. The top lobbyist of the military industrial complex, U.S. Secretary of Defense Ash Carter is trying to instigate a war between China and its neighbors over some atolls in the South China Sea. The U.S. is at least complicit in the rise of the Islamic State which will leave the Middle East at war for the foreseeable future.

Are these already, conscious or by chance, attempts by the U.S. to solve the problem of global overproduction in its favor?

Posted by: r@rtalk.com | Jun 1, 2015 2:05:50 PM | 2

Marx's early writings, including the Communist Manifesto, did indeed focus on crises of overproduction. But, in Capital, he explained that falling rates of profit are the key dynamic. For a popular blog on these issues, see Michael Roberts:

https://thenextrecession.wordpress.com/

Of course, there is plenty of debate on these matters within Marxian political economy. The best academic source is the journal, Historical Materialism:

http://booksandjournals.brillonline.com/content/journals/1569206x

Posted by: Mike Maloney | Jun 1, 2015 2:38:15 PM | 5

I think you're right, b. The U.S. will not allow regional hegemons who are not clients let alone a global one to challenge its unipolar world. That's why we're seeing all these wars in various stages -- hot in the Middle East; hot and cold in Ukraine; cold in Southeast Asia. The U.S. prefers smashed failed states to anything remotely challenging its full-spectrum dominance.

The neoliberal prescription for low growth/no growth is the complete cannibalization of the state. Privatized health care is being exported to Europe, while in the U.S. public education is being devoured by corporations.

Posted by: VietnamVet | Jun 1, 2015 3:01:36 PM | 7

Since the subject is blacked out by corporate media, we have to decipher the news to try to figure what is actually happening. The only stimulus acceptable to the elite and their politicians is war. 2,300 Humvees seized by Islamic State. Instead of containment, ship thousands of anti-tank missiles to Baghdad; more money in the pocket of the Military Complex.

The problem is that it is psychotic. The Islamic State's end game is Mecca. The shutoff of 11% of the world's oil supply will collapse the world economy. Yet, this is not an aberration.

A civil war was started in Ukraine right on Russia's border; a nuclear power who has said they will use them if there is a shooting war with NATO.

The Greeks are being pillaged to pay debts that cannot ever be paid back. Unless the debt is written off, the Eurozone will splinter asunder.

The only description for this is greed. Get rich today; the hell with tomorrow and the rest of mankind.

Posted by: Mike Maloney | Jun 1, 2015 3:57:03 PM | 9

The good news is that this U.S.-led neoliberal hegemony (what Tariq Ali calls the "Radical Center") is rapidly losing any popular legitimacy. Syriza in Greece, Podemos in Spain, Sinn Fein in Ireland, SNP in the UK, even Bernie Sanders in the U.S. His first day of campaigning last week in Iowa 700 hundred people showed up to hear him speak, compared to 50 for Martin O'Malley, another corporate shill.

Sanders is no antiwar crusader, but his basic ideas -- cutting military spending, breaking up the big banks, raising marginal tax rates on the wealthy, creating jobs by investing in infrastructure -- have proven the most popular, at least based on turnout, in Iowa of any candidate, Republican or Democrat, so far.

Posted by: tom | Jun 1, 2015 4:17:23 PM | 10

We have to look at the perspective of the class war too, where the corporate and elite class have growing contempt for the lower/middle classes more than they already do. So, how can one grow the economy, when the elite and corporate class are exploiting, growing inequality, and hate for us even more ?

Posted by: Bill | Jun 1, 2015 5:15:09 PM | 12

The prime vote holder of the IMF himself states the IMF has "served US National and economic interests" since it's inception, across Latin America, Europe and the world, and that "US Leadership" in the IMF is "critical".

http://www.foreign.senate.gov/imo/media/doc/Sobel_Testimony.pdf

The ideas behind the institutions that came out of Bretton Woods were already in the mind of FDR and Keynes long before the conference. One of FDR's key advisors was James Warburg whose father had funded Hitler as well as the USSR, and founded the Federal Reserve Bank.

https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_Hitler.pdf
https://www.voltairenet.org/IMG/pdf/Sutton_Wall_Street_and_the_bolshevik_revolution-5.pdf

US financiers funded Russian manufactured trucks which went to the North Vietnamese forces, and today BP hold stakes in Russian energy firms while Hilary Clinton sells Russia the US Uranium supply.

As Major General Smedley Butler said in 1935 "War is a Racket". All that has changed is the quality of the supporting propaganda.

Posted by: Piotr Berman | Jun 1, 2015 5:50:10 PM | 16

I think that it is not "overproduction", but the result of improved transportation, communication and more free trade. What is the advantage of paying wages in USA or Western Europe if you can put all labor consuming operations in China, where there is good infrastructure, or in countries where infrastructure is not as good but the labor much cheaper, like Bangladesh? The answer is that while some advantages do exists, there are less and less frequent. Even automation can be performed elsewhere.

Historically, in 16-th century The Netherlands were the chief European center of non-agricultural production, international trade and banking, and afterwards there was less and less production, but the country retained for a while its position in trade and banking. That cycle affected northern Italy earlier, and England, later. I think that one part of the solution would be a moderate, and yet effective, policy supportive of domestic production and domestic employment.

But there is also a bit of overproduction. Average American could perfectly well live in a smaller home, drive a smaller vehicle, buy fewer gadgets etc. with hardly decreasing the quality of life. Those below the average income can be out of luck, but they do not consume much anyway. Additionally, there is an excessive gap between "micro-economic" and "macro-economic" optimum behavior.

Most American household has so little savings that the suffer a crisis very easily, so it would be better for them to spend less, e.g. by cooking more and eating out less, cutting down impulse buying etc. However, the cut in demand is recessionary on a macro-scale. It would be sensible to have policies that would concentrate not on "growth" but on satisfaction of needs.

Posted by: PokeTheTruth | Jun 1, 2015 6:11:12 PM | 18

America is drowning in the sewer of the national political system. There is no candidate or incumbent in Washington, DC who serves the country. These elitists rape our liberties, steal our wealth, entice our grandchildren into killing people in foreign lands and subject the future of the nation to be slaves to the debt masters.

The American people must exercise the only peaceful option left to restore the federal republic which is rapidly being transformed into a unitary style government like much of Europe. On November 8, 2016, the nation must stay home and not give its consent to continue being abused by the plutocracy of puppets bribed by the global bankers, multinational corporations and foreign state lobbyists.

Abstinence is not benign as some would believe, it is a very powerful check on government when it becomes so infested with opportunists who pursue their own self-serving aggrandizement through the passage of law and regulation to benefit themselves and their criminal syndicate. Without a democratic mandate the cabal cannot hold power and therefore the legislative function of law making is extinguished. The bureaucracy remains in place until the fiscal budget ends in October of the following year which means social security payments will still be made, Medicare claims will still be processed and other central government functions will continue. During those 10 months, the people must demand from the governors of each of their respective States new elections with candidates who are independent of the two-party dogma that has corrupted Washington, DC.

An implied vote of 'No Confidence" or "None of the Above" is the only sensible way to end this long running nightmare of tyrannical fascism and nationalism that is destroying the country.

The motto of new liberty must be, "Dissolve it, start over!"

Posted by: chuckvw | Jun 1, 2015 7:26:53 PM | 19

So much for the surplus value of labor... All surplus and no labor... The global capitalist system has become bulimic.

Posted by: Tom Murphy | Jun 1, 2015 8:59:08 PM | 20

I remember in school in the early 1980's a teacher said something really disgusting to the class: "want to boost an economy, have a war" (clearly the powers that be have made sure that there propaganda gets fed to the public) another ugly thing a teacher tried to push was the notion that WWII's economic effect was some sort of special boost yet at the same time trying to obscure the basic fact that it was government spending that took us out of the depression so war was not needed at all. A lot of work has gone into pushing the manipulative propaganda which is meant to manipulate and sell the agenda of the powerful.

How it was presented was "FDR tried the New Deal but it took WWII to get us out of the Great Depression." The framing of it that way is intentionally manipulative in order to obscure the role government spending had in getting us out of the depression and it is phrased that way to sell war.

Posted by: rufus magister | Jun 1, 2015 9:08:58 PM | 21

in re 14 --

Nor did they suffer from overproduction of T-34's,, even though they cut cost and production time in half. But they still had sufficient to defeat Hitler, thank Ford! The Space Station is in trouble if there are shortages of Proton rockets. And the Federation is still enjoying some Union leftovers in education and healthcare, see Lisa Marie White's accounting of why American liberals are wrong about Russia.

For an artistic take on overproduction in capitalism, see Brave New World. Ending is better than mending!

Whatever happened to waste not, want not? Just a throwaway line....

Posted by: Copeland | Jun 1, 2015 9:12:41 PM | 22

Piotyr Berman @ 16

I think you're on the right track. Before capitalism ran amok and metastasized into a global zombie, there were guilds. I believe the Netherlands had a rich history of those organizations. These were created to protect the rights and privileges of members (to be sure); but they also preserved and improved the skills, and passed these on through apprenticeship. The obsession in consumerism is about having something brand new, and also relies on planned obsolescence, which needs to produce shoddy goods such as plastic footwear, that will be discarded as junk in a few months. Having things made which are durable enough to go through several cycles of repair, would moderate the overheated production.

If labor is expunged by automation-crazed corporations; then war or revolution, or even both at once, is possible. The cataclysmic outcome that b sketched out is then possible. Of course it's all very short-sighted; but I once read somewhere that at the onset of the 1930s Great Depression, the capitalists examined the option of reducing working hours for everyone so that workers might still muddle through.

On closer examination, capitalists calculated that dumping workers into the trash heap would add a few dollars more to the corporate bottom line, and be more agreeable to shareholders.

Posted by: Lone Wolf | Jun 1, 2015 9:46:47 PM | 23

@b

Since you mentioned Karl Marx, the exclusion of a very valid third option, revolutionary war/class struggle, makes itself evident. From the trend we witnessed after WWII, we cannot expect as you correctly noted, a redistribution of wealth out of the greedy and gluttonous transatlantic empire and its minions, since concentration, centralization and consolidation of capital has been the order of the day ever since. The other major trend after WWII has been imperial wars, either by proxy or direct intervention, fought against countries that followed the path to independence from colonial powers by means of revolutionary wars, in Asia, Africa and Latin America. The potential for another period of revolutionary war is real, given the abject misery of the wretched of the earth, which have been left with nothing to lose but their chains. The main obstacle they face is the lack of a scientific tool to interpret their current predicament, and at the same time provide them with a vision of the social paradigm they aspire at, out of the ruins left of their societies. With its inherent limitations given by dogma, Marxism was that tool for Mao, Lumumba, Ben-Bella, Ho Chi Minh, Castro, and many other African, Asian and Latin American leaders who took upon their shoulders to shake their peripheral dependency. Many of them were successful in their revolutionary endeavors, and were able to trace an independent path for their societies, even if burdened with all the problems typical of the "third world." Nevertheless, even before the fall of the Soviet Union, Marx and Marxism were thrown under a pile of dead dogs, even more after the fall, which was attributed to the utter failure of Marxism as a social science.

Marx and Marxism were part of the "end of history," a thing of the past, a post-Hegelian utopian philosophy whose ultimate results were the creation of dystopian societies…until the crisis of 2007, when suddenly everybody wanted to understand WTF is a cyclical crisis, and why do they happen. Das Kapital became a best seller in Germany and beyond; becoming a model for new works tailored after Marx's statistically saturated magnus opus, e.g. Thomas Piketty's "Capital in the Twenty-First Century, " and others. Despite all the intellectually gifted resisters to the empire, and the vast expansion of knowledge of the digital age, no new revolutionary theory has appeared, able to inspire the masses of dispossessed as Marxism did at the turn of the XIX c., one that changed the course of history forever during the XX c.

It is in this vacuum, a modern epistemological crisis, that the neocons, bastard children of Trotskyism, took ownership of Trotsky's "Theory of Permanent Revolution," and turned it into a counterrevolutionary instrument for their nefarious global domination purposes. Hence revolutions became bastardized, categorized by "colors" or "seasons" according to the whims of the vulgar ruling elites, and lost their power to change societies from the bottom up. This crisis of knowledge of their own socio-economic/political conditions are having a profound effect on the masses worldwide, who in many instances rise up against their oppressors, e.g. Egypt/Arab "Spring," without a leadership, without a clear vision of their goals, without a social agenda that guides their movements, and they end up getting crushed or coopted by the new rulers, toys for the empire games of regime change. These are the "Twitter" and "Facebook" so-called "revolutions," mass movements with no direction, no aim, and no strategy for social change. What kind of society did the Egyptians, Tunisians, et al want? Did they have a program for the society they wanted to build? Was there a clear strategy and tactics to achieve their goals? "Crisis," say Gramsci, that giant of Italian Marxism, "is when the old has not died and the new has not been born." Humanity is now facing an epistemological crisis of galactic proportions, in serious need of a new revolutionary theory that, like Marxism in the XIX/XX c., gives the masses a vision of a future to build with their own hands, and hope there is a better world other than sweat-shops, slavery, toiling without rewards, exploitation, misery, crime, and an ever-growing gap between the ruling elites and the working masses.

Posted by: Nana2007 | Jun 1, 2015 10:11:44 PM | 24

There could be a helicopter drop ala Ben Bernanke.

I like Gail Tverberg on diminishing returns/oversupply.

I like Andrew Kliman on the declining rate of profit.

Thanks for connecting the dots on this B.

Posted by: ruralito | Jun 1, 2015 10:11:54 PM | 25

@12, Sutton is an ass. He pushes the theory that Communism and Fascism are equally bad and what is needed is some mystical third way: Libertarians with their squirrel rifles hunkerin down behind cotton bales. So Wall St. offered Lenin free cash, and he took it! Well, duh!

Posted by: Nana2007 | Jun 1, 2015 10:19:49 PM | 26

The motto of new liberty must be, "Dissolve it, start over!"

PokeTheTruth@18- I tend to agree, with the caveat that plenty people need to be held accountable.

Texas might be getting that idea.

Posted by: rufus magister | Jun 1, 2015 10:44:18 PM | 27

PB @ 16, Copeland at 22

Historians of the United Provinces point out that Holland and her allied provinces lacked a sufficient population base to administer and defend the holdings she gained in her revolt against Spain ("The Eighty Years War"). With the loss of revenue, croqetten and circuses became less affordable. The House of Orange were elevated from elected Statholders to Kings, the thinking being a monarchy would better keep the lower classes down than a republic. This environment proved conducive to the spread of revolutionary ideas in the Low Countries after 1789.

Historian of the later Renaissance attribute the decline of the urban republics to several factors. The prevailing aristocratic values induced merchant families to move their capital from commercial and industrial operations to urban and rural real estate -- especially country tracts that came with patents of nobility. Failing that, you could, like the Medici, subvert the Republic with wealth and buy a title from the Papacy or Holy Roman Emperor. And a more mundane factor -- they ran out of good shipbuilding timber.

England for her part had a large population. It had plenty of timber -- North America was a shipwright's wet dream, and before this, measures prioritized available timber for maritime uses.

When elites think protecting domestic markets and workers will add to their bottom line, they will. But if the see money to be made in "outsourcing" and "off-shoring", well, away the factories, jobs, salaries, and purchases from suppliers go.

England began to lose her superiority in textiles and iron and steel to cheaper American and German production. And these two rivals took advantage of what Gershenkron has called "the advantage of the latecomer." The major industrial expansions of both took place in the Second Industrial Revolution, where steel, chemicals, and electrics were the new driving technologies, and both were leaders in these fields. After a rearguard action up to World War II, they accepted de-industrialization whole-hearted under Thatcher.

PTT at 18 -- The elite will be totally fine with abstention. Less voters to bribe. Not only will things continue as they were, we'll have to endure fools like David Brooks lecturing us on our lack of civic engagement.

Go to the polls. If you can't bring yourself to vote for the left(over) parties down the ballot, write in you favorite choice -- "none of the above" will do. And not just for President, do it for all the races. The rightists will bring more of the same, only with more Pharisee-style false piety or boring Ayn Rand novels. Friends don't let friends vote Tea Party.

Lone Wolf at 23 -- Time permits me only to say -- Gramsci Rules!

Posted by: meofios | Jun 1, 2015 10:55:26 PM | 28

I think the over-production we see is caused by zombie companies all around the world, that don't generate any profit, sustained by zero interest rate loans, over produce goods, causing a glut of products, and cause price deflation.

Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

RM@27

The 'elites' spend billions of dollars every election cycle to encourage or frighten people into the voting booth. Without that 'consent of the people' their minions have no mandate or legal right to rule over us. Throwing your vote away by voting for or against someone or even writing FU on the ballot is still supporting the corrupt system that they will continue to use to rule and if voting could change anything, it would be illegal.

This doesn't mean that elections and voting may not someday be useful again but there is no possibility they can now be used to change our corrupt system.

Posted by: Hoarsewhisperer | Jun 2, 2015 1:32:21 AM | 30

Posted by: Wayoutwest | Jun 1, 2015 11:58:39 PM | 29

I agree with that.
Lone Wolf @ #23's Gramisci perspective is on the money.

Russell Brand, my favourite non-revolutionary revolutionary, makes the (laboured) point that a govt elected by less than 50% of eligible voters cannot claim legitimacy.

But Gramisci was righter than everyone else in pointing out that "Crisis is when the old has not died and the new has not been born."

It should be obvious to everyone, by now, that Twitter and Facebook "revolutions" aren't revolutions, or journeys, and have no useful or coherent destination.

Posted by: Chipnik | Jun 2, 2015 7:25:37 AM | 31

b

This is the 'atto-fox problem' in biology, addressed by the Lotka-Volterra equation in Brauer, F. and Castillo-Chavez, C., Mathematical Models in Population Biology and Epidemiology, Springer-Verlag, (2000), and many others, the bifurcation relationship allowing two mutually independent steady-state solutions, one with higher predation and lower prey population used to justify higher resource extraction rates, ...but it remains just a theory and requires a rigorous definition of who is the 'prey'.

Is the prey the poor and downtrodden? No, those are the losers.

We can all agree the 'prey' is ultimately the energy needed to continue surviving for another day, not the staid pedantic 19thC Marxist 'Das Kapital', but just the 'real' value of evolutionary currency and trade. We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them. They'really part of a non-viable fractional-reserve usury-based ecosystem that's running out of balance, Koyaanisqatsi.

The rich prey on the energy developed by the poor through usury and credit, but also, the socialist state preys upon the destitute as a source of $Bs public program, using public tax extraction to generate private wealth in much the same way as usury and credit. More rice tents!!

If we de-anthropomorphize the Marxist class-struggle dialectic, and the rabbinical Maker-Taker meme, the answer pops right out like a jujube: not overproduction, not QEn, not oligarchs and monopolies, but usury and taxes.

Wah-lah. Usury. Taxes. Same as it ever was. Que sera, sera.

Posted by: rufus magister | Jun 2, 2015 8:16:58 AM | 32

Wayout at 29 --

The standard line of us reds is that participation in elections is a useful tool for educating the masses and marshaling and mobilizing progressive forces. And that mass action, e.g., the general strike, is the real means of social change.

Bhagavan Chippy at 31 --

I'd stick to physics and Eastern mysticism.

Predation occurs between, not within species. Socialism is about the workers controlling the means of production that they service. Social welfare capitalism bought their birthright for "a mess of pottage" (Gen. 25: 29-34). But austerity is taking that off the table.

I find the overtones of the "rabbinical meme" and the emphasis on usury and taxes disturbing. See this handy comparative chart; fascism is "Strongly against international financial markets and usury." The Abolition of Income Tax and Usury Party is recent spawn of that brood.

Our own home-grown TeaBaggers don't feel too good about it either.

You might consider a clarification or restatement of your position.

Posted by: paulmeli | Jun 2, 2015 8:28:43 AM | 33

"We've transferred the value of energy into gold, then fiat paper today 1's and 0's, and now there's too many of them"

Well, there's too much savings (accumulated financial wealth) but not enough spending. We know this because we have too much unemployment. Properly targeted spending cures unemployment.

Spending is a function mainly of money printing, existing money (previously created) mostly just earns interest and so is parasitic to the system in the net (economic rent), which leads to a paradox.

In the old days in the U.S. between 1933 and the mid-1960's the top marginal tax rate remained around 90% and then around 70% until Reagan was elected.

This maintained some sort of balance between money printing and saving. Now, money creation just piles up at the top which creates huge inequalities of power.

Posted by: geoff29 | Jun 2, 2015 9:24:35 AM | 34

It's simple to conclude that the "ruling class" and their spokes-people are if not absolutely greedy and mendacious, then at least criminally stupid.

But I think that's short-sighted. The financial crisis could be resolved in a moment's notice, since money is more or less an "imaginary" construct, especially now that it's just 1s and 0s, as was mentioned. The population is clamoring for "higher wages," but if we here were the small ruling class, we must know that "higher wages" means more mouths to feed from a growing population. Or, it means more disgruntled minions crying for "revolution" carrying pitch forks to the very gates of the gated communities and wilderness tracts where the very wealthy keep themselves concealed, when calamity strikes and food is scarce.

And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc. What wars are being threatened between great powers, are are not about the resolution of world wide perils in terms of repairing the global over indulgence in carbon based technologies, in fact they seem to be based on increasing their use and further extracting scarce resources and more rapidly burning down the house.

Intelligent discussions are conducted here at MOA, it would be foolish to conclude that some semblance of intelligent discussions are not also held in the upper rooms and chambers of power, stripped of pretense and falsehood. If so, if one of us were sitting with those chosen few, I'm sure we would come to the conclusion that we were in a serious fix. And our backs are up against the wall. "Austerity" would be pushed to its extremities to decrease productivity and reduce the population through Urie's principle of immiseration.

Put yourself in the shoes of this ruling class, our primary MO would no doubt be self-preservation from the encroaching revolutions and chaos, and destruction, and a preservation of some kind of status quo. Otherwise, all that we had, were we sitting on the porch overlooking our estate, would be gone.

If nothing else works like the current financial immiseration to reduce the current state of affairs to a simpler and more manageable system where our ruling class rank and stature in society remained permanent and secure (because really our whole being has been reduced to measuring ourselves by our imagined sense of self-worth determined by our wealth, etc.) but the elimination of so many annoying minions through some kind of controlled burn, like a war, then certainly we would go about that?

I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

===

Posted by: ralphieboy | Jun 2, 2015 10:25:43 AM | 36

There is a famous anecdote about a General Motors executive showing off their newest automated assembly line to a United Auto Workers Union boss and remarking "Not one of them is a union member!"

To which the UAW boss replied, "And not one of them is a GM customer, either."

Posted by: Willy2 | Jun 2, 2015 11:15:49 AM | 40

There's a lack of demand worldwide because since say 1981 workers/employees have received wage increases below inflation. In that regard workers have seen their purchasing power being reduced for over 30 years. No wonder, households/workers aren't able or willing spend lots of money.

From 1981 up to 2008 households/workers were willing to increase their debtload. By going deeper into debt those households were able to keep their spending at a reasonable level.

But since 2008 households are reluctant to go deeper into debt and that has weakened the worldwide economy.

As long as workers don't get wage increases at or above inflation (levels) or are willing increase their debtloads (again) there's no chance for a economic recovery.

Posted by: HnH | Jun 2, 2015 11:23:22 AM | 41

b,

you normally publish highly insightful analyses and information nuggets that I have trouble finding elsewhere. On this topic, however, you jumped short.

Yes, we are struggling with overproduction and lack of consumption, but it is important to know where this development comes from. If you look at historical data, then you might realize that the purchasing power of people in the Western World started decreasing at the start of the 80s last century. The *growth* in purchasing power decreased since the 1960s. And debt is a significant, but small, part of it. The average growth in GDP has been consistently shrinking since the 1960s. Can you even remember a time, when the economy in one of the Western countries has been growing by more than 4% YoY? I don't. For Germany you have to go back to before the 70s oil crisis to find two years with a consecutive growth of 4% for more than one year. I wasn't even born then.

The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food. And there are more and more people living right now.

This main problem, the diminishing returns, makes it that people have to spend more and more to afford the basic necessities. Corporations and enterprises react to their diminishing sales by cutting their costs to pay their loans. The easiest way to cutting costs is letting go of workers.

Since 2008, the crash happened after the crash of the oil price, Western Central Banks needed to keep their interest rates a 0%, because there was no growth. If they are ever crazy enough to raise interest rates, they will be blamed for the worst market crash in human history.

The reason is that we have reached the limits to growth. There is no more growth to be had for the industrialized civilization. That is over. For good. Unless we find an unlimited energy source that is very, very cheap. None is on the horizon so far.

Currently, a country can only produce growth, for a very short time, at the expense of others. That too will stop. Then, in a few years at the latest, global GDP will start to shrink. That is when the wars will start in earnest. That is when the killing and dying will start in earnest.

That killing and dying will not stop, until the world will have found a means to reduce its energy consumption to the physical and geological realities out there. That will take a while, and I have no clue how the world will look like.

Best wishes,
HnH

Posted by: ǝn⇂ɔ | Jun 2, 2015 11:38:36 AM | 43

Sorry, but I again disagree.

First of all, the robots in the example are there because there the Chinese labor pool has been growing slower than the economy for years now.

Secondly, robots need to be made by somebody. They cost lots of money. They have to be maintained and often upgraded. The physical operation of the plant might take 90% less workers, but the remaining workers are paid as much or more as the previous entire work force.

Thirdly, the production noted in the article isn't for China - at least, not yet. It is for the 1st world. Thus the "replacement" of the worker is a dynamic of cheaper labor elsewhere rather than actual replacement with mechanization.

As for economics: an entire series of fallacies.

a) Overproduction. While I will certainly agree that the 1st world can do with less, this is irrelevant. Every labor saving device ever created has ultimately had the labor savings spent on higher standards of living. There is nothing to indicate any change in this dynamic. Thus while we no longer have tens and hundreds of thousands of workers making automobiles, we now have tens and hundreds of thousands of workers doing other things like fracking oil and natural gas, servicing the cars via a nationwide array of repair, refueling, and upkeep (car washes, etc). Equally, we don't drive Model T's anymore. Ford used to be nearly entirely self sufficient outside of the metals - this is no longer true. Ford doesn't make computer chips or any of hundreds of parts in present day Fords.

b) Labor isn't the problem - consumption is. In terms of overall productivity, Americans as a whole are producing more than ever before. Hours worked has been inching down, but hours of work isn't what dictates the actual output - it is a function of productivity times hours worked, and that product continues to increase overall.

The primary difference between today and post World War II is that of the economic rewards. Americans who aren't in the managerial class get paid a smaller percentage of the overall production created than ever before. This also has been decreasing for decades.

Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money.

Posted by: Lone Wolf | Jun 2, 2015 12:08:31 PM | 44

Right on cue...

Why America's color revolution strategy of global domination is doomed to fail: the case of Egypt

Posted by: paulmeli | Jun 2, 2015 12:16:13 PM | 45

"The main problem is this: We have to invest more and more energy to pump the same amount of oil, mine the same amount of ores and produce the same amount of food."

This may well be true, but if one looks at the history of spending growth (or more accurately public investment) by the U.S. federal government one will see that spending growth suddenly dropped by 1/3rd in the early 1980's (around the beginning of Ronald Reagan's presidency). This can be observed visually very easily by looking at the FRED series FGEXPND on a log scale…the breakpoint is obvious and so is the one at around 2010.

U.S. federal spending has averaged 7% since WWII overall…about 9% through 1985 dropping to about 5% thereafter. Since 2010 growth has been an anemic 1.6%.

It's no wonder GDP growth has been on decline since the 80's, and it's no wonder we are experiencing a slowdown now.

Posted by: james | Jun 2, 2015 12:34:50 PM | 46

@43 ǝn⇂ɔ quote.. "Thus the problem isn't one of too much productivity or too much automation - the problem is one where the rich get all the money."

who is buying the produce ǝn⇂ɔ ?

Posted by: dh | Jun 2, 2015 12:38:22 PM | 47

@46 A lot of money goes into remodelling. Look at the proliferation of home improvement stores.

Posted by: james | Jun 2, 2015 1:22:48 PM | 48

@47 dh.. the big money is in the mic/fic complex... chump change in most other areas relatively speaking.. i think the big money is coming from gov't spending.. it is a self sustaining vicious circle for everyone.. that's my simplistic rendition of it! who pays for those orange jump suits anyway?

Posted by: dh | Jun 2, 2015 1:33:19 PM | 49

@48 Not everybody in the US is in jail or on food stamps. There is a lot of disposable income in the US. People buy new vehicles, improve their homes, upgrade their entertainment systems, send kids to college, go on trips. The trick is to keep interest rates low and keep printing money. So far it seems to be working.

Posted by: Lone Wolf | Jun 2, 2015 3:09:14 PM | 52

@geoff29 @34
And the "ruling class" despite their equivocations, surely discusses amongst themselves the growing unsustainability of the ever encroaching environmental calamities, and dwindling resources, etc.
I am sure they discuss those and many other subjects under heaven, problem starts with their conclusions. Ever heard of the "smart idiot effect"?

(...)Buried in the Pew report was a little chart showing the relationship between one's political party affiliation, one's acceptance that humans are causing global warming, and one's level of education. And here's the mind-blowing surprise: For Republicans, having a college degree didn't appear to make one any more open to what scientists have to say. On the contrary, better-educated Republicans were more skeptical of modern climate science than their less educated brethren. Only 19 percent of college-educated Republicans agreed that the planet is warming due to human actions, versus 31 percent of non-college-educated Republicans.
For Democrats and Independents, the opposite was the case. More education correlated with being more accepting of climate science-among Democrats, dramatically so. The difference in acceptance between more and less educated Democrats was 23 percentage points.

This was my first encounter with what I now like to call the "smart idiots" effect: The fact that politically sophisticated or knowledgeable people are often more biased, and less persuadable, than the ignorant. It's a reality that generates endless frustration for many scientists-and indeed, for many well-educated, reasonable people.(...)

I'm sure nothing pleases these folks more but for us to deride them constantly and poke fun at their ineptitude and call them all sorts of "evil," because that would just be so much more grist for the mill.

Well, their lack of awareness is legendary, and their indifference to their damage on the planet and the suffering of others is their trademark. They might laugh all the way to the bank, in total ignorance of the legacy their greed and possessiveness are leaving in their wake.

Posted by: Lone Wolf | Jun 2, 2015 3:52:00 PM | 53

From Cooperation to Competition -
The Future of U.S.-Russian Relations

May 2015

A Report on an Interdisciplinary Wargame conducted by the
U.S. Army War College

Carlisle, Pennsylvania

Posted by: james | Jun 2, 2015 4:04:04 PM | 54

@49 dh.. i know that but thanks for the reminder..almost zero interest rates is the name of the game and has been for some time.. if people had a different interest rate on their line of credit - the jig would be up.. for now it is 'free money' with anyone silly enough to not 'invest' in the wall st casino, or is in any way pragmatic financially - will watch what money they have devalue quicker then you can say 'quicksand'..and, i am always reminded of the racial divide when i think of the states - food stamps verses big brand new automobiles.. what a weird culture.. canada isn't a lot different in some regards.. it is and it isn't..

Posted by: okie farmer | Jun 2, 2015 4:13:02 PM | 55

http://www.truthdig.com/report/item/karl_marx_was_right_20150531
by Chris Hedges

Karl Marx exposed the peculiar dynamics of capitalism, or what he called "the bourgeois mode of production." He foresaw that capitalism had built within it the seeds of its own destruction. He knew that reigning ideologies-think neoliberalism-were created to serve the interests of the elites and in particular the economic elites, since "the class which has the means of material production at its disposal, has control at the same time over the means of mental production" and "the ruling ideas are nothing more than the ideal expression of the dominant material relationships … the relationships which make one class the ruling one." He saw that there would come a day when capitalism would exhaust its potential and collapse.
~~~
The final stages of capitalism, Marx wrote, would be marked by developments that are intimately familiar to most of us. Unable to expand and generate profits at past levels, the capitalist system would begin to consume the structures that sustained it. It would prey upon, in the name of austerity, the working class and the poor, driving them ever deeper into debt and poverty and diminishing the capacity of the state to serve the needs of ordinary citizens.
~~~
The corporations that own the media have worked overtime to sell to a bewildered public the fiction that we are enjoying a recovery. Employment figures, through a variety of gimmicks, including erasing those who are unemployed for over a year from unemployment rolls, are a lie, as is nearly every other financial indicator pumped out for public consumption. We live, rather, in the twilight stages of global capitalism, which may be surprisingly more resilient than we expect, but which is ultimately terminal. Marx knew that once the market mechanism became the sole determining factor for the fate of the nation-state, as well as the natural world, both would be demolished. No one knows when this will happen. But that it will happen, perhaps within our lifetime, seems certain.

"The old is dying, the new struggles to be born, and in the interregnum there are many morbid symptoms," Antonio Gramsci wrote.

What comes next is up to us.

Posted by: ToivoS | Jun 2, 2015 8:18:47 PM | 57

lonewolf #52

Your comment reminds me of something once said by a retired law professor. "We spend considerable effort looking for bright young students for admittance into law school. Then we spend the next three years beating out their common sense".

Having been involved in graduate school education during my career that statement also applies to grad student education in English and Social Science departments.

[Jun 01, 2015] Fischer Says Bankers Should Be Punished for Financial Crimes

Jun 01, 2015 | finance.yahoo.com/ Bloomberg

Federal Reserve Vice Chairman Stanley Fischer said bankers who have engaged in wrongdoing should be punished, and he chided the industry for pushing back against financial regulations adopted to prevent another conflagration.

"Individuals should be punished for any misconduct they personally engaged in," Fischer said in a speech to bankers Monday in Toronto. While massive fines are being imposed on banks, "one does not see the individuals who were responsible for some of the worst aspects of bank behavior, for example in the Libor and foreign-exchange scandals, being punished severely."

Some of the world's biggest banks, including Citigroup Inc., JPMorgan Chase & Co., and Barclays Plc, have agreed to pay more than $10 billion to U.S., U.K. and Swiss authorities to settle probes into rigging of foreign-exchange rates.
Financial firms have also paid about $9 billion to settle allegations they were involved in rigging the London interbank offered rate, a benchmark used in more than an estimated $300 trillion of securities, from interest-rate swaps to mortgages and student loans.

Fischer, who leads a committee to avoid the emergence of asset-price bubbles, also said central bankers shouldn't rule out using interest rates to maintain financial stability. Policy makers want to ensure that six years of near-zero rates don't lead to a repeat of the U.S. housing boom and subsequent financial crisis.

"I don't at present see a major financial crisis on the horizon, but whenever you say that you know you're looking for trouble," Fischer said in response to an audience question after his speech.

With the costs of the crisis still being felt in the form of persistently slow growth, Fischer warned central bankers against complacency about the risks of another crisis.

"There is now growing evidence that recessions lead not only to a lower level of future output, but also to a persistently lower growth rate," Fischer, 71, said in a speech that surveyed the lessons of financial crises over the past 20 years.

He cited a "lively discussion" led by former Treasury Secretary Lawrence Summers, who has argued the U.S. could face a period of "secular stagnation." Others, including economists Carmen Reinhart and Kenneth Rogoff, say the U.S. and other economies are slow to recover from crises fueled by debt.

"It may take many years until we know the answer to the question of whether we are in a situation of secular stagnation or a debt supercycle," Fischer said to the International Monetary Conference.

Fischer criticized efforts to roll back financial regulation.

Banker Complaints

"Often when bankers complain about regulations, they give the impression that financial crises are now a thing of the past, and furthermore in many cases, that they played no role in the previous crisis."

Fischer joined the Fed a year ago. He led the Bank of Israel from 2005 to 2013. He was the International Monetary Fund's No. 2 official from 1994 to 2001, years that encompassed the Asian crisis, and the World Bank's chief economist from 1988 to 1990.

Fischer didn't comment on the outlook for monetary policy. Fed officials led by Chair Janet Yellen are considering when to raise their benchmark lending rate, with the next meeting scheduled for June 16-17.

Yellen said on May 22 that the central bank plans to raise interest rates at some point this year, even though the economy contracted in the first quarter. She said that "the pace of normalization is likely to be gradual."

Growth Potential

A slowdown in the long-run potential growth rate of the economy has lowered the bar that gross domestic product must clear for the central bank to increase rates, according to Fed watchers including Michael Feroli of JPMorgan Chase & Co. Feroli estimated the long-term growth rate at 1.75 percent, which is lower than Fed estimates.
Gross domestic product shrank at a 0.7 percent annualized rate in the first quarter. Since the recession ended in June 2009, GDP has grown at an average annual pace of 2.2 percent.

[Jun 01, 2015] Monday Personal Income and Outlays, ISM Mfg Index, Construction Spending

Jun 01, 2015 | calculatedriskblog.com

From Jim Hamilton at Econbrowser: Current economic conditions: not as bad as it sounds

The new BEA data also allow us to calculate an alternative estimate of GDP, building the estimate up from income data instead of expenditures. In terms of the underlying concepts, the income-based and expenditure-based calculations should produce the identical number for GDP. But because the data sources are different, in practice the two estimates differ, with the difference officially reported as a "statistical discrepancy." While the expenditure-based GDP estimate showed a 0.7% decline at an annual rate, the income-based GDP estimate implied 1.4% growth for the first quarter. Moreover, using the statistical method for reconciling and combining the different estimates proposed by Aruoba, Diebold, Nalewaik, Schorfheide, and Song (ADNSS), the best estimate of first-quarter real GDP growth based on the existing data might be about 2%.

1 currency now -yogi wrote on Sun, 5/31/2015 - 7:14 pm

The Obama Administration continues to brush aside warnings from legal experts and policymakers that "fast track" and free trade deals could threaten the Dodd-Frank Act and other protections against recklessness on Wall Street.
That's despite the fact that the fact check by Bloomberg News headlined "Why Obama is Wrong and Warren is Right on Trade Bill Quarrel" stated simply that "Elizabeth Warren has got the law on her side" and that trade deals do pose a threat to Wall Street reform.

Lead trade negotiator Michael Froman is a former executive at banking giant Citigroup. While he helped staff the Obama Administration with bank-friendly officials as a senior member of the 2008 presidential transition team, he was still getting a salary from Citigroup – all while Citigroup was making history with history-shattering bailouts. Then he got a golden parachute worth millions from the bank when he went into government.

Demand Progress | No "fast track" to killing Dodd-Frank

Outsider wrote on Sun, 5/31/2015 - 7:49 pm
A global workforce will mean lower wages for Americans and higher wages for (previously) 3rd world countries. It's hard to argue against that because they're entitled to a decent standard of living as well. It is what it is. GDP is a strange barometer.
robj wrote on Sun, 5/31/2015 - 7:49 pm
The pattern has remained pretty much intact for 3-4 years. The doomerians jump on the winter/spring numbers like a cat on a lizard; instead it's slow, disappointing growth. Onwards and sideways.
The doom crash will come and we'll all be Raptured.

Outsider wrote on Sun, 5/31/2015 - 8:06 pm

"Robert Samuelson Does Battle With the Bureau of Labor Statistics | Beat the Press | Blogs | Publications | The Center for Economic and Policy Research"

Addendum:

The most obvious explanation for the continuing weakness of the economy is that there is nothing to fill the gap in demand created by a $500 billion annual trade deficit (@ 3 percent of GDP). In the last decade, the demand generated by the housing bubble filled the gap, while in the 1990s the demand from a stock bubble filled the gap. In the absence of another bubble and a refusal to run large budget deficits, there is no obvious source of demand to fill this gap.

I'm thinking the only way out of this pickle is virtual reality.

America's binky.

Outsider wrote on Mon, 6/1/2015 - 4:37 am

Record highs of Americans leasing vehicles

Officially, the latest report on automotive lending by Experian Automotive found the average new vehicle lease monthly payment in the first quarter was $405 while the average monthly payment for a new vehicle loan was $488.

Absurdity.

In Q1, the average length of new vehicle loans hit an all-time high of five years and seven months according to the report. Furthermore, a record 29.5 percent of those taking out a new vehicle loan stretched their loans out between six and seven years according to Experian. The report also found the 18.6 percent increase in those new vehicle loans with terms between 73 and 84 months.

How's the fed interest rate hike going to (eventually) affect this market?

Bruce in Tennessee wrote on Mon, 6/1/2015 - 4:45 am

Peering Toward Q2 | Alhambra Investment Partners – We Are Different.

"To make that even more plain and obvious, nominal final sales (a much better, if still flawed, view of the economy than GDP) were revised down by almost $30 billion. That doesn't sound like a lot, but it is a massive downgrade for a first revision. Nominal final sales had already been negative for only the fourth time in the last five decades (with the other three being in the Great Recession itself), going from just slightly negative to now no doubt.

Again, that makes it difficult to accept that a sharp rebound is coming this very quarter, instead placing much more emphasis on the Atlanta Fed's current estimate of just 0.8% for Q2 – particularly since, as of these revisions, it will take 0.8% just to get the economy back to zero for all of H1. So far the revisions suggest even that might be optimistic, as well as the current state of data coming in for April and now May."

...Should be a very interesting time for equity prices, this quarter.....

[Jun 01, 2015] Current economic conditions not as bad as it sounds

Jun 01, 2015 | econbrowser.com | 19 Replies

On Friday the Bureau of Economic Analysis released its second estimate of U.S. 2015:Q1 real GDP growth. The BEA now estimates that the economy contracted at a 0.7% annual rate rather than grew 0.2% as originally estimated. The number is discouraging, though I see some silver linings.

The primary factors that brought GDP growth down from the BEA's original estimate were stronger growth of imports and a smaller inventory build than originally anticipated. Both components can be volatile, and I would not interpret the latter as a sign of fundamental weakness.

The new BEA data also allow us to calculate an alternative estimate of GDP, building the estimate up from income data instead of expenditures. In terms of the underlying concepts, the income-based and expenditure-based calculations should produce the identical number for GDP. But because the data sources are different, in practice the two estimates differ, with the difference officially reported as a "statistical discrepancy." While the expenditure-based GDP estimate showed a 0.7% decline at an annual rate, the income-based GDP estimate implied 1.4% growth for the first quarter. Moreover, using the statistical method for reconciling and combining the different estimates proposed by Aruoba, Diebold, Nalewaik, Schorfheide, and Song (ADNSS), the best estimate of first-quarter real GDP growth based on the existing data might be about 2%.

Alternative estimates of real GDP growth at an annual rate. Solid black: expenditure-based estimate reported by BEA. Dotted black: income-based estimate calculated directly from BEA-reported statistical discrepancy and GDP price deflator. Red: estimate calculated using the Aruoba, et al. method. Source: Federal Reserve Bank of Philadelphia.

Another factor contributing to the weak first-quarter GDP number was harsh winter weather. This is becoming a pattern, with the "seasonally adjusted" Q1 estimates coming in consistently below the other three quarters for the last decade. Jason Furman had this comment:

The debate so far over the cause of first-quarter underperformance has tended to treat residual seasonality and weather effects as analytically distinct explanations. However, to the extent that worsening winter weather is part of a long-term trend rather than a random occurrence, changing weather patterns may be related to residual seasonality. A seasonal adjustment algorithm should adjust for effects of normal weather within a particular quarter-and to the extent that global climate change leads to a new "normal" for weather, seasonal adjustments will eventually catch up.

Source: White House Council of Economic Advisers.

But others caution that we shouldn't simply dismiss the Q1 GDP numbers. Here's Richard Moody, chief economist at Regions Financial Corp.:

Many analysts seem tempted to simply brush aside the contraction in real GDP in [the first quarter] as a function of transitory factors– harsh winter weather, the port strike– that will have no lasting effect. We caution against treating the first-quarter GDP data so cavalierly, as doing so overlooks the more structural forces that weighed on the economy in [the first quarter]– the ongoing pullbacks in job counts and investment in the energy sector and related industries, still uncertain global growth prospects, and the stronger U.S. dollar.

It's certainly true that signs of weakness are not just showing up in GDP and are not confined to the first quarter. The latest numbers on industrial production, retail sales, and durable-goods orders all suggest the economy may have hit a soft spot that extended into April.

Source: FRED.

Source: FRED.

Source: FRED.

But Bill McBride explains why he's still sanguine about housing:

Total housing starts in April were solid and well above expectations– and at the highest level since 2007…. Note the exceptionally low level of single family starts and completions. The "wide bottom" was what I was forecasting several years ago, and now I expect several years of increasing single family starts and completions.

Source: Calculated Risk.

But the key is ongoing gains in employment, which still show solid momentum that should carry the economy forward.

Source: FRED.

Overall, I can't quarrel with this summary by Council of Economic Advisers Chair Jason Furman:

The first-quarter slowdown was the result of harsh winter weather, tepid foreign demand, and consumers saving the windfall from lower oil prices. The combination of personal consumption and fixed investment, the most stable components of GDP, has grown 3.4 percent over the past four quarters. This solid long-term economic trend complements the robust pace of job growth and unemployment reduction over the last year.

Source: White House Council of Economic Advisers.

mp123 May 31, 2015 at 9:50 am

Great piece. Thanks

PeakTrader May 31, 2015 at 10:47 am

If the country was at full employment in 2007, we gained only 3 million jobs since then.

If 125,000 jobs were needed each month to keep up with population growth, we needed 11 1/4 million jobs, since 2007, to get back on track.

And, too many jobs, since 2007, have been part-time jobs.

PeakTrader May 31, 2015 at 11:17 am

And, part of the "train wreck" is declining real income of younger workers, while older workers postpone retirement to pay-down debt or build-up saving, that has to weigh on spending and borrowing, particularly in housing, and housing-related goods, while student loan debt continues to soar.

John Cummings May 31, 2015 at 1:06 pm

This is totally wrong. Older workers aren't postponing retirement at all. They are speeding it up as the stock market recovered.

PeakTrader May 31, 2015 at 4:28 pm

Then why, since the last recession, has the 55 and older labor force participation rate held up near the highest level in over 50 years, while the total labor force participation rate had a steep decline and reached the lowest level in 40 years.

And, why is the 55 and older unemployment rate so much lower than the overall unemployment rate.

PeakTrader May 31, 2015 at 4:56 pm

And, there's a lot more to it than the stock market:

"In 2012, 62 percent of survey respondents aged 45 to 60 said that the recent recession has made them consider postponing retirement, up significantly from 42 percent in 2010.

"Job losses, pay cuts, and significant declines in home values were among the major factors driving these planned delays…Workers who drew from their savings to help get through the tough financial times of recent years were also more likely to plan a delayed retirement.

Falling interest rates on even relatively stable investments…The yield on a 10-year Treasury bond was just about 3.5 percent two years ago; today it is below 2 percent.

The ongoing shift from employer-sponsored pension plans to employee-managed retirement savings…Without guaranteed benefits, more people may feel the need to work more years, in order to guarantee sufficient income after retirement."

http://www.salary.com/older-workers-are-delaying-retirement/

New Deal democrat May 31, 2015 at 11:31 am

I take issue with one part of this analysis: failure to include the effect of the 20% appreciation of the U.S. $ in late 2014. The collapse in exports didn't just happen because of foreign weakness. It happened because U.S. goods became 20% more expensive. Of the 5 times since 1973 that the dollar has appreciated this sharply, 3 were associated with U S recessions.

John Cummings May 31, 2015 at 1:03 pm

Yeah, but that was DX over 110. This is a historically "average" DX.

BC May 31, 2015 at 11:41 am

The sum of real per capita after-tax profits, disposable income, and gov't receipts decelerated to historical "stall speed" after Q3 2014 to date, coincident with the crash in the price of oil and gasoline.

Retail sales imply sub-1% SAAR real GDP so far for Q2, which in turn implies "stall speed" for the 4-qtr. average or real GDP through Q2.

US Treasury withholding receipts have decelerated from the cyclical peak to a level similar to Mar-May 2008 and Jun-Aug 2001, implying that employment is overstated and growing below 1% for the 12-month average, supporting the weakness in reported retail sales (ex autos financed increasingly by subprime loans) and real GDP.

The proportional aggregate of real GDP per capita for 70-75% of the world economy decelerated below historical "stall speed" in 2014, which historically coincided with recession.

FDI and trade are not growing.

Housing remains weak because Millennials do not have the financial capacity to become mortgage debtors given their meager average real, after-tax incomes, lack of job tenure, inability to save, indebtedness, and medical insurance costs.

The level and rate of increase of household health care spending as a share of income, PCE, and GDP is recessionary for household spending and thus for GDP.

Moreover, housing as a share of GDP no longer contributes materially to GDP growth. Given the cyclical slow or no growth of gov't spending since 2010-11 (accelerating recently because of Obamacare subsidies) , the net of growth of housing and gov't spending as a share of GDP is a wash.

The energy sector is in an incipient bust, manifesting in various surveys in the Texas Fed region and parts of the Midwest and Mountain regions dependent upon the shale and energy-related transport sectors. The weakness in these sectors is dragging on orders, IP mfg., and mfg. employment.

The consensus continues to believe that there can't be a recession without the Fed raising rates and the yield curve inverting, but this condition is not historically consistent during a debt-deflationary regime, which began in 2008 and has persisted in Japan since 1998.

Additionally, with the post-2007 trend for real final sales per capita at ~0% and slightly above 1% since 2010-11, the secular trend rate of growth since 2007-08 is within the margin or error of the estimates for the deflator and import prices. Therefore, the US economy is perpetually vulnerable to experiencing "stall speed" or contraction owing to any number of shocks, including weather, drought, natural disasters, labor actions, energy, popping financial bubbles, and geopolitics.

Finally, as the peak Boomer demographic drag effects bear down in the US, Canada, UK, EZ, Japan, China, and the Asian city-states, we will experience an intensification of the effects of a once-in-history shift in the composition of US household spending from high-multiplier housing, autos (not yet), and child rearing to a permanent, structural transition to low- or no-multiplier spending for property taxes, house maintenance, utilities, insurance, and out-of-pocket costs for medical services and medications. The coincident lack of growth of the labor force and wages/GDP at a record low will continue to cause productivity to decelerate along with the 10-year rate of real GDP per capita hereafter.

Therefore, there will be no "escape velocity" for real GDP growth, despite the Fed's obligatory forward guidance. ~0% growth of post-2007 real final sales per capita is the "new normal" of "secular stagnation", i.e., as good as it gets. Therefore, the Fed cannot raise the funds rate (or not much before reversing course) under these conditions. The deceleration of real GDP will cause the deficit/GDP to increase this year, making it more likely than not that the Fed will resume QEternity later in the year.

John Cummings May 31, 2015 at 12:47 pm

That isn't real retail sales. Adjust out for the deflation adjusted to oil price decline, that means real pce is being underestimated. GDP boomed between Q3-2013 and Q4-2014. They have it at 2.95% during that time, but I have it at 4.4% in the same timeframe and may have been 5% without the port strike(which will accelerate the 2nd quarterly). That would change things quite a bit, quite a bit. My guess they under estimated the domestic energy boom was having on fixed non-residential spending. It created a good deal of catchup speed in the economy. So we slow down "real time" to 2.5%. My guess the "weakness" persists until Residential investment accelerates over the course of 2015 and the Arabs run out of gas and drive prices back up. I see domestic energy production in a mid-cycle slump. Lets note low gas prices are fueling a boom: in restaurants. Total bar/restaurant spending is at a bush era high.

Interbank lending has accelerated rapidly in since the 4th quarter of 2014.

Steven Kopits May 31, 2015 at 1:48 pm

The logic would suggest that underlying GDP was higher in Q1 than the reported figures. We added 550,000 jobs, which is a very solid quarter for the US and converts into 1.6% annualized GDP growth assuming only labor (no productivity) effects and assuming new entrants have average productivity rates (which I believe Menzie's post suggested a couple of months back).

We just missed initial unemployment claims falling to the lowest since 1973–so that's also a strong indicator. They are currently at the lowest level as a percent of the labor force since 1960.

The rig data suggest the US shale recession is ending. My view is that we'll see a hard re-start of the sector before the end of the summer. To wit: Friday's BH rig report indicated the Canadian horizontal oil directed rigs rose by 95% last week, and up three fold in the last three weeks, albeit from a low base. We don't really have more than a leveling from the US side, but I think we'll see a solid rebound pretty soon. That should also help Q3 GDP data.

Overall, Q1 data was pretty weak, but, like Jim, I don't think we should read too much into it.

I'm on CNBC tomorrow in the 12-1 pm time slot.

New Deal democrat May 31, 2015 at 3:01 pm

Steve,

Well, we are 2/3 the way through Q2, and the weekly reports also show:
1. Johnson Redbook and Gallup consumer spending still stink (Gallup just had its most negative YoY 14 day average this year)
2. Steel production still stinks, down between -5% to -10% YoY
3. Rail carloads still stink, down about -9% YoY in the most recent week
4. The American Staffing Association's staffing index turned flat YoY in the last two weeks, for the first time since the Great Recession ended.
Bottom line: the most up-to-date evidence is that the weakness in Q1 has persisted more than halfway through Q2.

Steven Kopits May 31, 2015 at 4:30 pm

I'm not sure I see what you see in the data.

Take rail. Coal shipments are down, but we expected that. Oil is flat, which is perhaps a bit better than I expected. Grains are down modestly but within recent averages.

Temporary and contract staffing is flat year over year. But wouldn't we expect temporary workers to move into full time jobs as the economy recovers? Wouldn't we expect to see weakness in 'part time for economic reasons'?

As for steel, 2/3 of steel output goes to automotive or construction, and both these sectors seem to be doing well. About 10% of steel goes to energy, and it's pretty clear that sector is taking a breather.

New Deal democrat May 31, 2015 at 6:01 pm

Steve, metals shipments by rail are also down. Coal for export is down as the US's competitors have picked up some demand, due to USD strength.

Steel is also down due to a big increase in steel imports in the last year, again coinciding with USD strength.

As to staffing, first of all, there are plenty of full time temp jobs. Secondly, part time employment peaked about 4 or 5 years ago, and the temp staffing index had gone up almost relentlessly since.

Meanwhile, April industrial production and real retail sales declined.

Weekly steel, rail, and retail sales all turned down between the first of the year and mid-February, and have stayed down. Why shouldn't we conclude that the part of the economy responsible for the Q1 decline is still down as well?

Steven Kopits May 31, 2015 at 8:06 pm

Don't know what to tell you. Maybe you're right. It's clear that the strength of the dollar has taken a toll. But is that a reflection of economic weakness?

In April, hotels had the best month ever, according to McBride.
http://www.calculatedriskblog.com/2015/05/hotels-best-april-ever.html

Auto sales are the best in fifteen years
http://www.calculatedriskblog.com/2015/04/vehicle-sales-forecasts-best-april-in.html

Housing starts best since 2007, with plenty of running room ahead
http://www.calculatedriskblog.com/2015/05/housing-starts-increased-to-1135.html

Maybe things fall apart, but the data are not uniformly bad. I'll wait to see until passing judgment.

BC May 31, 2015 at 4:04 pm

John, adjust retail sales and PCE for core CPI/PCE deflator and the effect of accelerating costs of so-called "health care", and the real disposable income and potential spending capacity of the bottom 90-99% is weak and poised to weaken further.

Moreover, real, after-tax profits are contracting, which portends further weakness in real non-residential investment per employee, IP mfg., and thus further deceleration of real GDP per capita.

One has to understand the once-in-history transition of the composition of household spending to discern this clearly and its implications hereafter for the next 5-10 years.

BC May 31, 2015 at 4:29 pm

Steven, employment is being overstated/overreported since Aug-Nov 2014, as is typical at the peak of the business cycle and deceleration to, and below, "stall speed" prior to recession, i.e., a "banana".

Moreover, the US economy is now increasingly dependent upon (1) the unprofitable, unusustainable energy costs of growth of energy extraction, (2) the discretionary spending of the top 1-5%, mostly for luxury imports and no-multiplier domestic spending, and (3) the working class bottom 90% borrowing via subprime loans for "higher education" and autos that they can't afford to service.

IOW, the US is exhibiting increasing evidence of becoming (already is) a Third World economy/society.

Granted, I concede that no one of vetted professional legitimacy and standing can publicly concede or admit this, and I deeply empathize, believe ME.

But you and I are faithful students of history and human nature, and it will escape neither of us that the collective resources and intention of Anglo-American-Zionist empire, Wall St., the int'l banking syndicate, and the Anglo-American-Zionist imperial military war machine is now preparing for the full application of resources and power against the Middle Kingdom (that the empire created, incidentally) in the Pacific, Central Asia, the Middle East, Africa, and the western hemisphere, which will likely include, if history is our guide, blockades and embargoes against China, as in the case of Japan in the 1930s, precipitating the increasing risk of war of the West against China in the years hence.

Achilles last stand: https://www.youtube.com/watch?v=YWOuzYvksRw

sherparick June 1, 2015 at 4:08 am

I do think Jim underestimates the impact of the a 20% appreciation of the dollar over the last year (even with the slippage since the peak in March). When nominal economic growth is low in a a low inflation/disinflation environment, even a 1% increase in -net exports is going to flatten the economy and slow growth below the real 2% trend (growth in labor force plus productivity increases). Further, dollar appreciation not only weakens demand for U.S. exports, it reduces demand for U.S. goods and services that compete with foreign imports and places downward pressure on the wages in these sectors, a downward pressure that spreads out through the whole economy. Finally, as Dean Baker points out, the U.S. personal consumption level is not low (except in comparison to the bubble/HELOC fueled spending of the housing bubble years) when examined over the long term. Neoliberals who want to cut social security and medicare and other safety net programs should expect that ordinary people will reduce consumption and try to build savings in order to achieve "the self-reliance" they believe the hoi-polloi should have as their goal. The problem is that as U.S. consumer adopts private austerity, and states around the world adopt public austerity, a question arises as what to do with all the "supply" of stuff and labor coming into the world from societies previously not part of the global capitalistic economy.

rjs June 1, 2015 at 4:37 am

i have trouble with the revision to imports….recall that our imports jumped in March when the West coast dock strike ended and the ships were unloaded, and as a result the March trade deficit increased 43%…i went through the itemized list of March imports and found for instance, that imports of consumer goods rose by $9,013 million to $54,164 million on a $1,677 increase in imports of cell phones and similar household electronics, a $1,293 increase in imports of synthetic textiles, and a $981 million increase in our imports of furniture and similar household goods..in addition, our imports of cotton apparel and household goods, footwear, pharmaceutical preparations, toys, games, and sporting goods, televisions and video equipment. other consumer nondurables, non textile apparel and household goods, household appliances cookware, cutlery, tools, and camping apparel and gear all also rose by more that $250 million each…those increases almost certainly did not indicate an increase in consumption of consumer goods by that much, but rather just an offloading of ships…there were similar increases in every other catagory of imports except petroleum and similar industrial supplies…

since those goods were not consumer, i expected they'd show up as an increase in wholesale or retail inventories…did not show up in March business sales, business inventories, or anywhere in investment…so while BEA applied their GDP formula to subtract imports from 1st quarter GDP as they normally would, the reason imports are subtracted is because they represent consumption inventories or investment that was previously added to GDP that was not produced here…considering that those March imports don't seem to have been added to any of the other national accounts, they shouldn't subtract from GDP…where those March imports went is still a mystery, perhaps they'll show up in consumption or inventories in the 2nd quarter, but from here it appears that the subtraction of the March jump in imports was misallocated by the automated GDP algorithm …

[May 31, 2015] Something Smells Fishy

May 30, 2015 | Zero Hedge

Submitted by Jim Quinn of The Burning Platform
It's always interesting to see a long term chart that reflects your real life experiences. I bought my first home in 1990. It was a small townhouse and I paid $100k, put 10% down, and obtained a 9.875% mortgage. I was thrilled to get under 10%. Those were different times, when you bought a home as a place to live. We had our first kid in 1993 and started looking for a single family home. We stopped because our townhouse had declined in value to $85k, so I couldn't afford to sell. In 1995 I convinced my employer to rent my townhouse, as they were already renting multiple townhouses for all the foreigners doing short term assignments in the U.S. We bought a single family home in 1995 with the sole purpose of having a decent place to raise a family that was within 20 minutes of my job.

Considering home prices on an inflation adjusted basis were lower than they were in 1980, I was certainly not looking at it as some sort of investment vehicle. But, as you can see from the chart, nationally prices soared by about 55% between 1995 and 2005. My home supposedly doubled in value over 10 years. I was ecstatic when I was eventually able to sell my townhouse in 2004 for $134k. I felt so smart, until I saw a notice in the paper one year later showing my old townhouse had been sold again for $176k. Who knew there were so many greater fools.

This was utterly ridiculous, as home prices over the last 100 years have gone up at the rate of inflation. Robert Shiller and a few other rational thinking people called it a bubble. They were scorned and ridiculed by the whores at the NAR and the bimbo cheerleaders on CNBC. Something smelled rotten in the state of housing. We now know who was responsible. Greenspan and Bernanke were at least 75% responsible for the housing bubble and its eventual implosion, which essentially destroyed our economic system. They purposely kept interest rates at obscenely low levels, encouraging every Tom, Dick and Julio to buy a home with a negative amortization, no doc, nothing down, adjustable rate mortgage, so they could live the American dream of being in debt up to their eyeballs.

Greenspan and Bernanke were also responsible for regulating the Wall Street banks. They allowed them to leverage themselves 30 to 1. They allowed them to create fraudulent high risk mortgage products. They looked the other way as Wall Street sliced and diced these guaranteed to default mortgages into AAA rated derivatives that were then spread throughout the global financial system like ticking time bombs. As home prices rose three standard deviations above the long term average, these Ivy League educated geniuses cheered it all on. Bernanke saw no bubble, just as it was bursting. He saw no mal-investment or systematic risk from this orgy of greed and fraud. And then it all blew up in our faces, while the perpetrators walked away unscathed to pillage and rape once more.

And now we come to present day and something really smells fishy again. Home prices crashed by 40% between 2005 and 2012, putting prices back to 1978 on an inflation adjusted basis. All of the bubble gains were wiped out in the blink of an eye. Bernanke and his Wall Street owners had a real problem with this development. Wall Street banks had/have billions in toxic mortgages on their books and only accounting fraud by not having to mark them to market has kept these banks from having to declare bankruptcy. Bernanke, Geithner, and the Wall Street banks hatched their master plan to save themselves at the expense of young people in 2011/2012.

We know for a fact that real median household income is still 7% below 2007 levels and sits at the same level as 1989. We know for a fact that wages have been stagnant since 2007. We know for a fact GDP has barely broken 2% since 2009. We know for a fact the price of healthcare, food, energy, tuition, rent, and a myriad of other daily living expenses are dramatically higher since 2009. We know mortgage originations are at 1997 levels. We know housing starts are 60% below the 2005 highs and at levels seen during the 1991 and 1981 recessions. Existing home sales are 30% below the 2005 high, only up 10% from 2012 levels, and sitting at levels reached in 1999 before the boom.

A critical thinking person might wonder how median single family home prices could possibly skyrocket by 37% in the last three years when household incomes are falling, living expenses rising, and the number of houses being sold are at recessionary levels. The stinking rotting fish again sits in the hallways of the Eccles Building in Washington D.C. Janet "Yellowfish" Yellen has inherited the bubble blowing machine from Ben "Blowfish" Bernanke and has continued to inflate a new housing bubble, because one housing bubble just isn't enough.

There is nothing free market about the 37% increase in home prices. It has absolutely nothing to do with supply and demand. It has nothing to do with normal families looking for a home. It has everything to do with the Federal Reserve's 0% interest rates, the $3.5 trillion of QE injected into the economic gambling system, Wall Street banks withholding foreclosures from the market, hedge funds buying up tens of thousands of foreclosed homes and renting them out to the former middle class, Fannie and Freddie guaranteeing 70% of all sales, the government encouraging 3.5% subprime loans again, Chinese and Russian billionaires parking their ill gotten wealth in US real estate, and flippers reappearing in the same old places (Las Vegas, Phoenix, Florida, California).

The Federal Reserve created the last housing bubble and they've created the new housing bubble, along with stock and bond bubbles, with their easy money policies designed to enrich their Wall Street owners and the parasites who feed off the financial industry. Their entire plan smells to high heaven. They have thrown young people and most of the middle class overboard, while the bankers, billionaires, politicians, and connected cronies party like it was 2005 on their $250 million yachts.

Now what? The Fed says they are going to raise rates. The QE spigot has been turned off. The hedge funds are selling their buy and rent hovel investments, cash buyers are dwindling, the flippers who appeared in 2005 are back, Boomers are looking to sell and downsize, young people are already in debt up to their eyeballs thanks to the government doling out student loans like candy, the number of full-time good paying jobs continue to dwindle, and the rigged 37% price increase has priced millions of people out of the market.

The good news is the Wall Street banks have inflated their balance sheets and celebrated by giving themselves $20 billion in bonuses for a job well done. If mortgage rates rise to 4% or God forbid 5%, the entire housing complex would implode faster than a blowfish out of water. If you've bought in the last two years you will be underwater sleeping with the fishes like Luca Brasi in the not too distant future.

bdc63

The FED works for the banks. The FED will always take actions that are in the best interest of the banks. Any benefits to the american public is unintended happenstance.

Any negative impacts on the american public is blamed on the policies of the political party not currently in power.

Wash. Rinse. Repeat.

stoneworker

Yeah you are right they are not going to screw themselves. Which is why imho all that this article do is provide evidence to the theory that they will not raise interest rates by any significant amount any time soon....and not in an election year either.

New_Meat

bdc:

"The FED works for the banks."

Actually The FED IS da banks.

- Ned

doctor10

Local, state and Fed.gov have trashed American business so badly that since 1995, the only remaining collateral underpinning the mountain of debt is real estate. The title-trashing that occurred in the mid-2000's as part of the securitization process instigated by WallSt to pump the balloon higher, has in reality trashed many property's for decades until their title provenance gets sorted out again at a local level.

The debt balloon breaks when finally real estate has to be "priced to reality'

It will be a double-whammy then, because the international derivative house of cards will detonate simultaneously with the domestic muni-bond market as property tax revenues will disappear.

depending upon how Fed.gov decides it will respond will then determine whether a modern multi-generational "dark-ages" can be avoided

[May 30, 2015] BYRON WIEN The Fed basically put $3 trillion into the stock market

Stocks have catapulted through the recovery.

Among the things that have driven the expansion, a key factor has been the role of the Federal Reserve.

In market commentary Wednesday, Blackstone's Byron Wien pegs a number on this: $3 trillion.

Even though we've seen company earnings more than double between 2009 and 2014, there has been concern that the market rally has largely been driven by so-called easy money the Fed supplied through its bond-buying program, or quantitative easing.

Wien quantifies its contribution:

It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. The Federal Reserve was providing this stimulus to improve the growth of the economy, but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low. If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion. You could argue that the monetary stimulus financed the multiple expansion in this cycle.

Wien also sees an increased likelihood that we could be headed for a 10% correction, something the market hasn't seen in over three years.

It has been three years since the last one. Sentiment among investors is optimistic or complacent, not a condition conducive to a sustained upward market move. I still maintain a positive outlook for the S&P 500 for 2015, but perhaps we have to endure a little pain first.

It is possible, however, that stocks will rise another 10% before the end of the year, Wien says. But they'll have to achieve that without the Fed's help.

Recently, there's been a focus on liquidity in the markets - how easily investors will be able to buy or sell securities at a given price.

And with the Fed getting ready to tighten monetary policy, commentators have said said we may see wild price swings as investors rush for the exits.

Read Wien's full commentary here "

SFS123

This is nothing but bubble. Simple arithmetic tells stock buy back should not effect the real price of remaining stocks because the company buying back is loosing cash reserve. In other words the balance sheet will have equal negative effect. Any increase has to be only short term. The reason this stock increase is sustaining long term is because buy back is not happening using company's cash reserve but using debt, which will have to be paid back. So all the stock increase even more unreal. When all this ends we will be left with bloated stock price of companies with huge negative balance sheets. In other words shell corporations. Many of these shells will blow up into nothingness. This is exactly what happened with housing market in previous round.

Boubou

So the $3T has raised asset prices to bubble levels, but the real US economy and wages are stagnant and ordinary savers are now beggars. This is flagrant pandering to the rich - the owners of assets, and total disregard for the working majority. If this has not produced any momentum from workers, the unions and the AARP then nothing will. And where is the party of the workers and the so called middle class in all this ??. Not a word from Obama or Hillary on this.

Jorge Fernandez

Yes, and possibly much more than just $3 trillion. That is the primary reason why the stock market has been manipulated into record levels. This allows the criminals to continue their Ponzi scheme at the expense of the suckers of the working class - you and me. They get to reap $billions; we get stuck with the bill. Meanwhile, our government -- which is supposed to protect us from such crimes -- is not only doing nothing, they are actually an active participant in the grand theft.

Wags

Earnings doubled because they lowered their borrowing costs due to the low interest rates. A lot of companies did share buybacks where they borrowed money to buy their own stock. There wasn't any real economic growth. We'll see how it ends, but I'd be cautious buying here.

5 Things To Ponder Is The Stock Market Rational Or Nuts

May 29, 2015 | Zero Hedge

Submitted by Lance Roberts via STA Wealth Management,

This past week, Houston, where I live, was flooded by a torrential down pour. However, it was not the rain itself that was the problem, it was the surge in rivers that flow through Houston. As far away as Austin and Dallas, rainfall had already began to flow into the San Jacinto and Colorado rivers which eventually culminated in rising water levels in Houston.

Furthermore, Houston is designed so that water flows into the streets and eventually into the bayou and rivers out to the Gulf of Mexico. It didn't take much more rainfall to send the rivers cresting over their banks creating a catastrophe following Memorial Day.

Like Houston, the financial system has been flooded with liquidity over recent years which has ultimately only had one place to flow - the financial markets. That excess liquidity has sent prices soaring to record highs despite weakling macro economic data. While many hope that the Central Banks can somehow figure out how to keeps the rivers of liquidity from overflowing their banks, history suggests that eventually bad things will happen. Of course, for investors, that translates into a significant and irreparable loss of capital.

As I discussed earlier this week, the next decade will likely be rather disappointing for investors. To wit:

"When using a relative comparison, in this case 10-years, what Shiller's data does provide is a key understanding as to what market returns should be. The chart below compares Shiller's 10-year CAPE to 10-year actual forward returns from the S&P 500."

... ... ...

OTHER STUFF OF INTEREST
19 Things That Actually Happened In 1999 by Michael Johnston via Poseidon Financial

"Although the events of 1999 are ancient history by many standards, some very clear memories no doubt remain for many investors. With technology and biotech stocks once again hot, a number of comparisons to the last bubble have been made. But the current environment can't come close to matching 1999, either in terms of valuations or in the sheer madness of the markets."

About Bulls, Bears & Pigs by Lvaylo Ivanov vis Ivanhoff.com

"The first thing I heard when I got in the business, not from my mentor, was bulls make money, bears make money, and pigs get slaughtered. I'm here to tell you I was a pig. And I strongly believe the only way to make long-term returns in our business that are superior is by being a pig. I think diversification and all the stuff they're teaching at business school today is probably the most misguided concept everywhere."

7 Lies Investors Tell Themselves by Jonathan Clements via MarketWatch

"'In a bull market, there's a tendency for investors to think they're brilliant,' says Brad Barber, a finance professor at the University of California, Davis, and an expert in behavioral finance. Indeed, as share prices climb, investors' confidence grows and they start making all kinds of dubious claims.

Here are seven comments you have probably heard from friends-and that may have escaped your own lips."

Robert Shiller Unlike 1929 This Time Everything - Stocks, Bonds And Housing - Is Overvalued

May 29, 2015 | Zero Hedge

Robert Shiller is a professor of economics and finance at Yale University. He is the author of Irrational Exuberance, which in 2000 predicted the collapse of the tech bubble and is now in its third edition. He was awarded the Nobel Prize in Economic Sciences in 2013 for his work on asset prices and financial market behavior.

In the attached interview he observes that the recent equity run-up seems to be driven more by fear than by exuberance, as a lack of confidence in the future prompts investors to save more and thereby bid up asset prices.

Below is an interview he gave to Goldman Sachs' Allison Nathan

Allison Nathan: Are US stocks overvalued today?

Robert Shiller: I think that compared with history, US stocks are overvalued. One way to assess this is by looking at the CAPE (cyclically adjusted P/E) ratio that I created with John Campbell, now at Harvard, 25 years ago. The ratio is defined as the real stock price (using the S&P Composite Stock Price Index deflated by the CPI) divided by the ten-year average of real earnings per share. We have found this ratio to be a good predictor of subsequent stock market returns, especially over the long run. The CAPE ratio has recently been around 27, which is quite high by US historical standards. The only other times it has been that high or higher were in 1929, 2000, and 2007-all moments before market crashes.

But the CAPE ratio is not the only metric I watch. In my book Irrational Exuberance (3rd Ed., Princeton 2015) I discuss several metrics that help judge what's going on in the market. These include my stock market confidence indices. One of the indicators in that series is based on a single question that I have asked individual and institutional investors over the years along the lines of, "Do you think the stock market is overvalued, undervalued, or about right?" Lately, what I call "valuation confidence" captured by this question has been on a downward trend, and for individual investors recently reached its lowest point since the stock market peak in 2000. The fact that people don't believe in the valuation of the market is a source of concern and might be a symptom of a bubble, though I don't know that we have enough data to prove it is a bubble. In general, I try to get a sense of investors' excitement and anxieties through these kinds of measures and even by just reading the news. You might say that's very unscientific, but I do what I can to understand the state of mind of investors, which I think is very important in understanding market moves.

Allison Nathan: Wharton professor Jeremy Siegel argues that using S&P 500 earnings data for the CAPE ratio inflates it. What is your response to this?

Robert Shiller: Jeremy Siegel's 2013 paper that makes this argument does say that the CAPE ratio is useful. He just wants to make an improved CAPE ratio. And he proposes an alternative based on National Income and Product Account (NIPA) earnings, which he says yields a CAPE ratio that has predicted returns better, at least over the time period for which he has these earnings data. I think it is an interesting paper. But I am not ready to endorse the switch to NIPA earnings partly because they are conceptually a little different, valuing not just publicly traded stocks but also other companies. But the critical point he makes is that NIPA earnings-at least as of 2013-were higher than S&P 500 earnings, which made the market look less overvalued. Given that market valuations have continued to rise, I think that discussion has faded somewhat.

Allison Nathan: Is the equity market a bubble today?

Robert Shiller: I define a bubble as a social epidemic that involves extravagant expectations for the future. Today, there is certainly a social and psychological phenomenon of people observing past price increases and thinking that they might keep going. So there is a bubble element to what we see. But I'm not sure that the current situation is a classic bubble because I'm not certain that most people have extravagant expectations. In fact, the current environment may be driven more by fear than by a sense of a new era. I detect a tinge of anxiety and insecurity now that is a factor in markets, which is quite different from other market booms historically.

Allison Nathan: How else does this period of apparent equity overvaluation compare to equity booms in the past?

Robert Shiller: This time around, bonds and, increasingly, real estate also look overvalued. This is different from other over-valuation periods such as 1929, when the stock market was very overvalued, but the bond and housing markets for the most part weren't. It's an interesting phenomenon.

Allison Nathan: What explains this phenomenon of asset valuations looking high across the board?

Robert Shiller: There are multiple answers to that question. But if I had to oversimplify with just one idea, it would be what I just alluded to a moment ago-that people are not confident in their future. They remember the financial crisis, and they worry. They hear about inequality through the Occupy Wall Street Movement and in many other places, and they worry where they will fall on the inequality spectrum in a decade or so. They observe the amazing but perhaps unsettling rise of information technology (IT), and they worry. As a result of all of this anxiety, they want to save more. But given the lack of options to invest in at a high return, they end up just bidding up the prices of existing assets. That, in turn, creates disappointment, more concern, and perhaps the feeling that they might be too late because of how much the market has already risen. But they still invest in it because of their anxieties.

Allison Nathan: What does this mean for market stability?

Robert Shiller: It means that the market could keep going up like this for some time. Its been an amazing run and looks like something that can't keep going indefinitely, but it might continue for several more years. So market bulls may be right that the market runs further. I think that could happen too. But I take a different view of the drivers of these runs; I tend to view them as more irrational. I just don't know when this bull market will end. And it might end very badly.

Allison Nathan: How concerned are you about a meaningful correction in the next six months to a year?

Robert Shiller: My concern has risen with the market. There could certainly be a correction in the next year. But the problem is that a correction might not come for five years. We just don't have any way to forecast when it will come.

Allison Nathan: Was it appropriate for Fed Chair Janet Yellen to express concern about equity valuations?

Robert Shiller: I think that there is a moral imperative for Fed leadership to express some opinion about the market. They have a staff of experts-a whole research army-to study these issues, and people look to the Fed as an authority. Believers in efficient markets would say that we shouldn't care about these opinions; that the market is smarter than any individual or any research team. But I disagree. I think that the market is not smart about these sorts of things and that we do need leadership from people who study these questions. And so I applaud Janet Yellen for making that statement, which helped put the current state of the market in perspective.

One reason why the boom in the 1990s went on as long as it did is that Fed Chairman Alan Greenspan made very little of worries about the market. At one point he used the term "irrational exuberance," which led to a sharp drop in markets, but he never came back to that theme.

Allison Nathan: Of all the expensive asset classes today, which looks the most convincingly like a bubble?

Robert Shiller: The bond market looks the most unusual relative to history, with real US yields just off record lows of recent years. The difference, though, between the stock market and the bond market is that historically the bond market doesn't seem to crash like the stock market. Notably, if you go back to 1929, there was a huge crash in the stock market and not much action in the corporate bond market. That might come across as a surprise, but it's history. We are now in different times, though, with a very long run of very low interest rates that has affected many countries in the world. So there could be a big correction in the bond market. I'm not forecasting that because I don't like to forecast things that almost never happen. But it could happen. And that's the problem we face.

Allison Nathan: What should investors do when so many assets look expensive?

Robert Shiller: I am not an investment advisor. But I would say that the main implication for most people is that they should save more because their portfolio probably won't do as well as they imagined. And if they're saving for some distant goal like retirement, they might be disappointed. People have learned about the power of compound interest. But what they don't understand is that if interest rates are zero, you don't get any compound interest. I think that there is complacency among investors today. People have seen how well the stock market has done over the last century. But the market might not do so well the next time. So you have to consider whether you are saving enough.

And as a general principle, I think people should diversify across assets and geographies because there is no way to predict what any one asset will do with any accuracy. I've been talking down US stocks because of their high valuation, but I would invest something into US stocks; I would just put a heavier contribution in stocks around the world, where CAPE ratios look lower. I keep coming back to the theme that there are lots of places outside of the US to invest. And I would also own bonds, real estate and commodities. Commodities are overlooked by many investors but they are an important part of an investing portfolio.

The reality is that people are not very good at diversifying. This has been documented in studies. They tend to be distracted, and focus too much on one sector or one thing that they have heard. They also tend to focus on their own country. There's no reason why one should invest only in one's own country. Quite the contrary, some people make the extreme statement you should short your own country and invest only elsewhere. I wouldn't go to that extreme, but it is a plausible argument.

Allison Nathan: But is the strong US growth story relative to elsewhere enough to warrant buying US stocks?

Robert Shiller: The US looks pretty good and in some ways brilliant. The exciting news about technology seems to come largely from the US. For example, fracking, which is predominantly a US technology, transformed the energy market, and just within the last five years or so. And many electronics and IT advances are also coming from the US. So there is reason to believe in this country.

But I think that we also have to understand that we tend to be biased. One sees and appreciates one's own country; that's human nature that one has to correct for. Amazing things can happen elsewhere as well. You see that in much of the developing world; over the last half-century, there's been remarkable economic progress and growth. And we're going to see more and more advancement in those countries. So maybe the high US CAPE ratio is partly justified.

But I think we have to nourish a healthy skepticism as investors and not get swayed too much by the idea that we're living in a new era here.
bwh1214

To keep the credit created boom alive took a stock bubble in the 90's, took a stock and real-estate bubble in the 2000's, now takes a stock, bond and real-estate bubble.

So we made it to where they were in 1929 in 2000. We are going to find out what the crash looks like if the fed had kept the music playing for another 15 years in 1929.

Ham-bone

Perhaps it because there's fewer of them with fewer jobs that generally pay less and they have more debt???

Consider...

The reason WHY the Fed and CB's did what they and did since '08 needs better publicity.

Why they changed from marginal manipulation to outright "being the market" since '08...why the big change??? And once you understand the problem, you understand why the Fed's actions are criminal because they were never going to work or "help" the nation...only offer a small and shrinking cadre an opportunity to strip mine the nation on the way out.

It was a "flow" (not "stock") issue of new consumers that killed an already very flawed model. The annual "flow" of new population growth in the US, EU, Japan, elsewhere all peaked in the '80's and annual new population growth began ebbing. By 2008 in the US, the 25-54yr/old annual population change went negative. The sliding #'s of new consumers had been hiden for years by lower interest rates, more available credit (subprime, etc.), longer duration credit. But the '08 outright annual fall of the consumer base was too much.

The Fed and CB's had to "suspend the free markets to save the free markets" (but what they really meant was they needed to suspend free markets because what a market would have done is found real pricing between lots of sellers and declining buyers).

Everything now is simply trying to hide the fact we have shrinking consumer bases and will for a decade...and maybe for the rest of our lifetimes.

I try to outline in the following links...all data from Fed's FRED...

http://econimica.blogspot.com/2015/05/2008-was-tremorwhy-main-event-is-still.html

http://econimica.blogspot.com/2015/05/reality-check.html

Mini-Me

I find it ironic that his only explicit mention of the Fed was that they need to exhibit leadership and voice their opinions. Baloney. They flap their gums all damn day, and most of it is a pack of lies.

Shiller needs to pull his head out of his ass and call a spade a spade. The world is in this mess because of excessive debt. And we have excessive debt because the central banks punish savings and incentivize spending.

Nothing changes for the better until central banking is discredited and abolished.

Pancho Villa

Asset prices are above historical norms because the average age is increasing. In general, net worth peaks around retirement age. The baby boomers are nearing retirement age or have just recently retired, which is creating an unprecedented demand for investment assets causing their prices to soar.

The baby boom peaked in 1957. Add 65 years to arrive in 2022. If this theory is correct, the late 2020's are going to be very interesting. And not in a pleasant way.

[May 29, 2015] Non-Farm Payrolls Next Week - Risk Management

If there has been any major adjustment it has been the timing elements. These things seem to unfold much more slowly than one would expect. And the audacity of the oligarchs, which is a counterpart to the surprising apathy of the public to scandal after scandal, is also a bit surprising.

Jesse's Café Américain

There is a lot of macroeconomic data coming out for the US next week. I have included the calendar below.

Among these will be the Non-Farm Payrolls number for May, which will be released on Friday.

This data will be watched closely because while the markets are sloughing off the newly revised contraction for GDP in the 1Q, they are nervously trying to maintain their belief in the story that this was some sort of weather-related anomaly. The more contemporaneous data is showing higher than expected unemployment claims and a truly awful Chicago PMI has them edgy to say the least. So next week's data will be very important since it is so current.

There was overnight commentary on the gold market. It is a broad summary of the market that paints a broader picture of what may be going on. It also sets the stage for the currency war. I urge you to read it here.

Of course there are other ways to explain all these things. I have read these explanations presented by very serious people. But I have been following this map or model of what is unfolding since roughly 2000, and it continues to surprise me as encompassing many more pieces of data from different places quite well without major modifications.

If there has been any major adjustment it has been the timing elements. These things seem to unfold much more slowly than one would expect. And the audacity of the oligarchs, which is a counterpart to the surprising apathy of the public to scandal after scandal, is also a bit surprising.

Moreso than ever I am convinced that the lack of reform and gross mispricing of risk is going to catch up with the US financial system, and the results may be quite impressive. There are bubbles which are being ignored again with a cavalier dismissal. So I do now think we are going to see a third financial crisis sometime within the next two years. And there may be noticeable political consequences because of this.

Fed's Policy Errors and Gross Mispricing of Risks: Nuts

And given the track record of the American ruling elite, I have little doubt they will keep doing the same things until they crash the financial system for the third time in less than twenty years. And they will recklessly view this as just 'another opportunity.'

"It took the Fed 95 years to build up a balance sheet of $1 trillion and only six years to go from there to the present level. "

The Federal Reserve was providing this stimulus to improve the growth of the economy,but it is my view that three quarters of the money injected into the system through the purchase of bonds went into financial assets pushing stock prices up and keeping yields low.

If I am right, the Fed contributed almost $3 trillion (some may have gone into bonds) to the $13 trillion rise in the stock market appreciation from the 2009 low to the current level, earnings increases explained $9 trillion (1.5 x $6 trillion) and other factors accounted for $1 trillion.

You could argue that the monetary stimulus financed the multiple expansion in this cycle."

Byron Wien, The Fed basically put $3 trillion into the stock market

I think Byron is being generous with the contribution of earnings, which are increasingly questionable artifacts of dodgy accounting and stock buybacks fueled by cheap debt.

But this is the very point on which I have been pushing so hard for what, six years now? There is nothing wrong with stimulus, but stimulus for its own sake being pushed top down into a largely unreformed financial system is a willful kind of policy error, bordering on an insular world view, if not collective madness.

And the great majority of economists have been on board with this latest financial folly, either through active rationalization or timid acquiescence. Professions that are build on powerful connections and 'reputations' often degenerate into a stubborn sort of herd mentality.
Let's not talk around this, or expend too many words on it.

This is nuts.

Stocks were sagging after the expected revision of the 1Q GDP to a contraction, which is what we said when the first 'positive' reading came out a month or so ago. Ho hum. So now we are 'looking forward' and the Chicago PMI, which is a reasonably current number, missed by a mile, and threw cold water all over this anomaly story for 1Q's slump.

And given the track record of the American ruling elite, I have little doubt they will keep doing the same things until they crash the financial system for the third time in less than twenty years. And they will recklessly view this as just 'another opportunity.'

Currency Wars, Gold Pools, and Comex Potential Claims Per Deliverable Ounce

Based on some interactions with newer patrons of Le Café, I thought it might be a good time to restate the general lay of the land in the gold market. The occasion for this is the latest measure of what might be called leverage in the futures market, what it is, and what it may or may not mean and why.

Clearly the paper markets, involving associated trades in ETFs, mining company stocks, derivatives, and so forth are much broader than the futures market alone. But the futures market is what one might call the locus of execution for our drama.

The potential claims number for gold at the NY Comex is calculated by Nick Laird at Sharelynx.com by taking the amount of gold bullion marked as 'registered' for delivery at current prices by the number of contracts open on the futures market at 100 ounces of gold per contract.

Yes there is more gold that the 373,000 ounces currently marked for delivery in all the warehouses. But that gold is merely there in storage by its owners, so counting it towards delivery, without the prior consent of the owner, is a bit presumptuous to say the least. One might safely assume that market rules apply, and more gold will become deliverable at higher prices.

With a potential 111 claims per ounce of gold marked 'registered' for delivery at these prices, one might expect to see quite a move higher in prices to reach a market clearing price, and perhaps even a significant short squeeze.

But we probably will not see any such short squeeze, and maybe not even a breakout from this price range, unless something unusual happens outside of the New York and London markets.

The Comex, aka The Bucket Shop on the Hudson, does not set prices in the usual supply and demand dynamics. And London and New York are playing a tag team with any number of markets these days, from forex to LIBOR to bonds.

Gold could break out in a big way. It would not take all that much for a large hedge fund, or even a well-heeled world class individual, to turn about three thousand of those contracts in for delivery AND take the gold bullion out of the warehouses, moving them to Asia and pocketing a substantial profit on the gain.
This assault on an unsustainable price peg is how Soros and associates in Zurich took the Bank of England for over a billion in their selling of the pound against an unrealistic price point.

Why doesn't anything like this happen?

Is it because people do not have the money to do it? In times of billion dollar art auctions and $500M homes being built on spec? Don't make us laugh.

Is it because people do not want gold bullion? The Shanghai Gold Exchange is routinely moving physical thirty to forty tonnes per week out of its warehouses. Thirty tonnes is about 965,000 troy ounces, about three times the total deliverable at the Comex now in total.

No, it will probably not happen because the big money has been warned off the Banks' turf, and their game is to keep the wash and rinse price cycles running to provide a steady profit as long as they can.
As long as price is the 'only component' in the market dynamics, with demand and supply artificially dampened by a 'no withdrawals' house rules, the liar's pokers carney games based on very loosely regulated price action can continue.

It is not all that dissimilar to a poker game in which there are unlimited raises, the rule of table stakes does not apply, and one does not have to show their cards, and can only be called if the house allows it. Those with the biggest wallets can keep selling paper gold as long as they wish at whatever price they wish, and never have to even show their cards, and cannot effectively be called unless they permit it.
I know this example is a bit rough, but not all that much. It almost looks like a scam, rigged in favor of the deepest pocketed players, doesn't it? And what if they get additional information about the hands of the other players and the size of their wallets. Well, now you know why I consider those smaller players who keep coming back to the action in that casino to be a bit out of touch.

So the bullion banks and their friends can keep cranking out steady profits while holding bullion prices within a range that is a comfort to the nervous money printers in the Federal Reserve. This keeps the government happy, the regulators off their backs so to speak, and the wash and rinse cycles rolling.
The reason why this sort of imbalance could get sorted out in the currency markets but not in commodities is illustrated by the relative experiences of George Soros and the Hunt Brothers.

Lucky for Soros that the forex markets are so broad and deep that no single group of cronies can control the exchange rules in the 'cash markets' to suit their plays. Yes some central banks can make it quite risky, even painful, but the solution is not so neat as what happened in with the Hunt Brothers and silver. There the exchange the US regulators just changed the rules of the game and that was that.
If one were to do something about a price imbalance in a commodities market, as opposed to an unregulated global market, you would tend to wish to do it off exchange by slowly accumulating a large portion of the available global supply, as quietly as possible. This only works obviously with a commodity that has inherently has a relatively stable supply.

The spoiler in the gold paper game might then be expected to be those 'outside' the range of the gold pool. They are those who do not do their business primarily in the betting parlors of New York and London.

If one cannot secure a sizable portion of supply via paper on the exchange where the cronies make the rules, one just cuts out the middlemen and buys it directly, and it works as long as they do it off exchange and have an unimpeachable line of credit. And then one would keep stacking their physical metal while enjoying what they think are very attractive prices.

Some analysts think that they know 'what China wants.' Who is China? Have the Chinese had a meeting and hammered out a single, unified policy plan? How about the Americans, and the Russians? Or are there various competing domestic factions in every country? And even more significantly perhaps, are there special interest groups, a self-defining elite, without preferences except for themselves? As you can see this is a complex scenario with many variables.

And in compressing the complexity of the scenario, we lose information and applicability, always, and sometimes intentionally. Simple sells, and is successful depending on your sales objective. Nothing was simpler and more powerful than the efficient markets hypothesis with perfectly rational actors. It led to an otherworldly market ideology that caused one of the greatest financial crises in history.

This is not the first time we have seen such a de facto pooling arrangement. There was the London Gold Pool, which sought to 'stabilize the gold price' at $35 dollars from 1961 until it collapsed in 1968. That mispricing caused a 'run' on the gold in the US, and led to the Nixon shock in 1971, the closing of the gold window, and the eventual rise in the price of gold to $850 in 1980.

Or we could point to the long bear market in gold, which reached its trough with the sale of England's gold in Brown's Bottom around $250 between 1999-and 2002, This was resolved with the so-called Washington Agreement, which provided a plan for more measured selling and leasing of Western central bank gold to control the price of bullion largely amongst the Europeans.

Their intention was to have had this agreement continue until 2009, but alas, the rising economies of Asia and the BRICS were not sharing their vision of the future. And so the purchasing of central bank gold reserves turned positive for the first time in over twenty years around 2006-7, ahead of the collapse of the US housing and credit bubble.

As you may recall, gold subsequently rose to around $1900 in a fairly short period of time, and has now fallen back to the current price range in dollars of $1180-1230.

And where are we now?

The BRICS are still buying. There is quite a bit of secrecy and jawboning surrounding the actual levels of bullion available and unencumbered in the Western central banks. The IMF, a ringmaster for the States if you will, has offered (threatened) to sell the same gold on about ten occasions.

Not all the Western banks are holding to plan. Some are even taking the unusual steps of repatriating their gold from the Anglo-American vaults where it has been since the Second World War. They fear that if things go off the rails, and there is a reckoning of ownership claims, possession will once again be nine-tenths of the law.

It will be interesting to see where the market forces take us eventually, if they are allowed to do so. I do not assume necessarily that they will.

However the fact remains that the existing 'Bretton Woods II' de facto reserve currency arrangement for global trade, based on a fiat US dollar, which was unilaterally put in place by the US in 1971 on the closing of the gold window, has reached its point of unsustainability.

I do not believe that there has ever been a purely fiat global currency of this magnitude before in recorded history. So we should not be too surprised if the situation seems to evolve rather slowly,
There is already a great deal of posturing by cross national special interest groups, with 'negotiation' on multiple levels from financial to diplomatic. We may even expect the abusive use of the military to push certain proposals forward rather forcefully.
Bureaucrats can become quite draconian when their schemes for personal power go awry. And in my own monetary thinking a purely fiat currency for international trade ultimately implies the development, or imposition, of a global government controlled by the monetary authority, whatever they may choose to call themselves. The imposition of fiat valuation relies on control, which means power, and often plenty of it.

The future composition of any world government is a very open question. There is very obviously an Anglo-American faction for 'the New American Century.' But there are also Pan-Asian, Pan-Pacific, sub-Saharan, Eurasian and Pan-European elements as well. Although it is most likely a bit of a reach, one has to wonder if this odd construction of the European Monetary Union is not some sort of a testbed for the future cooperation of regional oligarchies. I am not saying that there is 'A Plan' but there are certainly plans that some groups are clearly pushing towards their own objectives and agendas, and have been doing so for some time. Professor Carroll Quigley, Bill Clinton's mentor at Georgetown, has been instructive on this subject.
We are in exciting times with history being made it seems. There are a number of possible outcomes, which quite frankly no one can accurately forecast at this point. There are too many degrees of freedom, so they literally cannot. But they can throw up theories and strawmen of what may happen, and charge you to read about it. It is an honest source of income, rather like writing racing forms or novellas, or the weather report in the 1950's. And it is fun to talk about while we watch things develop.

But make no mistake, when some of these fellows overreach with their claims of certainty, if they really knew what will happen they would not be telling it to you. They would be playing with their own money in the casino, for all they were worth. Or running funds that increased their leverage for their theories, while providing a steady management income. This is a longer term play after all, and so speculative leverage is a short term risk to be managed. Banks like to catch the players indisposed.

And then, alas, there are those who play for pay, who promulgate their ideas for the special interests, spreading disinformation. Or just make the most dramatic sort of stuff up, selling a kind of financial pornography.

This landscape is what I, and several others some more notable certainly, have called The Currency Wars.

Going Off the Rails on a Crazy Train

28 May 2015

"And what happens when PR turns a profit, and truth goes penniless?"
Bill Moyers

"Insanity is doing the same thing, over and over again, and expecting different results."
Albert Einstein

"Has he lost his mind? Can he see or is he blind?
Now the time is here for Iron Man to spread fear." Ozzy Osbourne, Iron Man

Most Americans are completely unaware of FIFA or what it does, and only a bit more aware of the World Cup and non-US football. Unless they are school age children perhaps, the parents of same, or recent immigrants from Europe and South America. The official reason for the US to proceed with prosecutions of FIFA this week, after a 24 year investigation, is that the payoff schemes involved some of the Wall Street Banks. Since it is unlikely that there will be any action against these same Banks, one wonders as to the reason and the timing for this. This week FIFA was expected to sanction Israel on Wednesday for their truly terrible treatment of Palestinian football clubs. And the US was perturbed that Qatar was chosen as the 2022 World Cup host, despite their awful human rights record, and record donations to the Clinton Fund, and loyalty to the US ambitions in the Mideast. And finally, FIFA dared to award the 2018 World Cup to Moscow. Have you noticed that this FIFA prosecution, which so few understand and care about in the States, is getting so much more media coverage than the latest massive thefts by the Banks in wholesale rigging in the forex markets, for which no one is being prosecuted and no serious reforms are being undertaken? There are risks in standing in any way against the will of an empire.

And besides, FIFA is THEIR scandal, and it serves to distract from OUR scandals. Speaking of gold, it appears that Austria has decided that the risks of storing its sovereign gold in London are too great, and are repatriating it home. As well they may, because in the times that are just ahead, we might suspect that possession will be nine-tenths of the law, MF Global-style. Gold and silver are quite obviously in some sort of locked down trading range. Gold will become much more interesting next week as June is an active month, and the leverage on the deliverable portion of the Comex gold warehouses is historically rather high, indicating higher prices ahead. Of course, that is not the way things work necessarily in The Bucket Shop on the Hudson. The gold game in the US benefits The Central Bank storytelling, and the Banks, who 'make markets,' or make-up markets to suit themselves and their trading profits. It is quite lucrative as we have seen in so many other cases like is such as LIBOR, forex, derivatives, and so forth. On a final note, it must seem like madness to the non-US observers, what the Fed is doing with QE and top down stimulus.

Well not to the Brits, because they have taken such madness to heart, or the Continent, which is visiting senseless misery now on Greece, and a number of the usual suspects yet to come, until they finally make they way around to the volks at home. And so here we are, running off the rails on the neo-con and neo-liberal crazy train. Have a pleasant evening.

"In the eyes of empire builders, men are not men but instruments."

Napoleon Bonaparte

Stocks had a bit of a bobble this morning on the much worse than expected unemployment claims number.

But Wall Street came to its senses, and realized how little the average American matters in the greater scheme of things anymore.

Let's see how stocks go into the weekend.

Nothing New

27 May 2015

"This disposition to admire, and almost to worship, the rich and the powerful, and to despise, or, at least, to neglect persons of poor and mean condition, though necessary both to establish and to maintain the distinction of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments.

That wealth and greatness are often regarded with the respect and admiration which are due only to wisdom and virtue; and that the contempt, of which vice and folly are the only proper objects, is often most unjustly bestowed upon poverty and weakness, has been the complaint of moralists in all ages.

We desire both to be respectable and to be respected. We dread both to be contemptible and to be contemned. But, upon coming into the world, we soon find that wisdom and virtue are by no means the sole objects of respect; nor vice and folly, of contempt."

Adam Smith, Theory of Moral Sentiment

אֵין כָּל חָדָשׁ תַּחַת הַשָּׁמֶשׁ

Nihil sub sole novum.

There is nothing new under the sun.

Ecclesiastes 1:9

Their is surely nothing new under the sun, except those who are called and will be held accountable for their labor, under it. Our moderns believe that they have learned to lie, to cheat, and to kill with unsurpassed skill, cleverness, and shamelessness.

They have discovered their will to power. Or perhaps, the will to power has discovered them. They think that they have gained some impunity, and have risen above humanity to become as gods. This week will see the last of the May contracts, and the beginning of the active month of June for gold.

[May 28, 2015] Why America's Debt Bomb Won't Explode... Yet by Samuel Rines

May 26, 2015 | The National Interest

Debt levels may be enormous, but interest payments aren't at historical highs.

In Schrodinger's famous thought experiment, a cat is placed in a sealed box with a mechanism rigged to possibly release cyanide in an hour, depending on the rate of atomic decay. It is a quirk of quantum mechanics that, until the contents of the box are observed, the cat can be considered to be both alive and dead-simultaneously.

The thought experiment is well suited to pondering the U.S. federal government's current debt situation. Currently, there is an unprecedented amount of debt in the proverbial "box," and the outcome is difficult to observe until after the fact.

And this is part of the problem. Much like Schrodinger's cyanide, the level of U.S. debt could be safely contained or mortally high, it depends on when, if, and by how much interest rates rise in the future. We neither know the timing or the extent interest rates will rise in the future-not to mention the level of debt that will need to be refinanced. This means that the debt situation is in a sort of limbo. We simply do not know when, or if, it will explode.

There are certainly reasons to be concerned. The absolute amount of debt amassed by the federal government is at an unprecedented $18.1 trillion with $13 trillion held by the public. These are astounding amounts, but the level of debt is not the end of the story, as the level of debt does not determine the amount of interest expense tied to the accumulated debt.

Debt to GDP is an often cited metric. It is catchy, simple to use and calculate, and sounds ominous. (A 100 percent debt-to-GDP really means that if all of GDP were used to repay debt, it would take one year to do it.) But it is a deficient measure. GDP itself cannot be used to repay the national debt, and then there is the question of real or nominal GDP use. GDP is a measure of consumption, but also contains government spending, inventories, and transfer payments-none of which should be counted in a metric that is attempting to convey information about a country's indebtedness or ability to repay.

A far more relevant figure would be the amount of revenue the government is receiving-its tax receipts. GDP does not provide an indication of future government revenues, or even potential government revenues. Stepping back for a minute, we should remember that other countries have spent decades far above the 100 percent debt/GDP ratio (Japan) with little consequence.

Much the same criticism could be levied against the overuse of the "debt" number. The amount of debt is (to an extent) irrelevant-so long as the interest payments are manageable.

A more relevant and straightforward way to evaluate the seriousness of a country's debt addiction is comparing a government's revenues to the interest expense of its debt-"payment to revenue." Simply, how much does the government collect during a fiscal year, how much does the government spend on interest in a fiscal year, and how does this compare to history.

This gives a useful indication of the actual costs of debt accumulation-not simply the size of the stockpile. It also provides a more complete context to the evolution of the federal debt by implicitly including interest rates and changes to the tax code.

Using this measurement, America's federal debt picture brightens significantly. Whereas debt to GDP is 100 percent and has persistently crept higher, payment to revenue has consistently moved lower. While the total debt outstanding is sitting at an all-time high above the $18 trillion mark, both net interest expense and total interest expense are off their highs. Net interest subtracts the payments on the roughly $5 trillion in intra-governmental debt holdings, thereby reducing the reported number.

Exiting 2014, net payment to revenues is similar to the level of 1970's, and the repayment dollar figure is below the level in 1995 with more than double the revenues. For perspective, the net interest payment in 1995 was $232.1 billion or 17 percent of revenues. In 2014, the net interest payment was $229 billion or 8 percent of revenues. Despite the ominous debt/GDP headlines, net interest payments are the same as 20 years ago.

Granted, the Federal Reserve's low interest rate policy and subsequent QE program has caused borrowing rates to decline. And the aforementioned decline of interest payments to revenues was due to interest rates declining over the past couple decades. Therefore, the Fed is principally responsible for the phenomenon of low interest expenses, and some credit for the better economy and increasing revenue should be given to the Fed for its monetary intervention.

But there are still worrying possibilities. The potential for interest rates to rise in the future poses the most danger. A doubling of the interest payments would return the total interest payments to about 29 percent. This is a bit higher than 1992, when the debt level was lower, but the debt payments as a percent of revenues were far higher than today. A doubling of the net interest to about 15 percent would bring it to a level similar to the mid-90's, but below the high teen figures that dominated the 1980's.

There is a much higher debt level now, but a lower relative cost of debt service to revenues. This indicates interest rates and the resultant interest payments can move significantly higher without the debt becoming too much to handle.

There is no denying the debt amassed by the U.S. federal government is considerable, and has the potential to cause problems down the road. But looking at the issue through the narrow lens of debt/GDP would be a fallacy. Well publicized papers have argued that beyond a certain threshold level of debt/GDP, economic growth slows. In reality, the slowing was probably more attributable to changes in the costs of servicing the debt. The economics of debt change and so do the situations and context.

The U.S. "debt problem" is either nearing a crisis point-as it careens over the "slow growth" threshold-or is in fine shape-because revenue increases have outstripped interest payments. At the moment, there are plenty of revenues to cover the interest expenses, regardless of the absolute level of debt. Interest rates may rise, and with it the interest paid. The U.S. economy has dealt with higher revenue to interest paid, before. There is good reason to think that the cyanide is still contained, and the cat is still alive.

Samuel Rines is an economist with Chilton Capital Management in Houston, TX. Follow him on Twitter @samuelrines.

[May 27, 2015] The Art of the Gouge NYU as a Model for Predatory Higher Education

" a mind-numbing and degrading set of scams perpetrated on students, including the bait and switch of hitting them with extra charges they can't possibly find out about before they have committed to the school, to the tune of an estimated $10,000 per year; providing mediocre education" That's the essence of neoliberal university. Be careful and check facts before getting into "predatory neoliberal university". The list of scams they're running is impressive, but you can avoid them. Just go to your in-state public University, kids, you'll be glad you did (or at least glad you didn't go to NYU).

Under Chairman of the Board Martin Lipton and President John Sexton, New York University has been operating as a real estate development/management business with a predatory higher-education side venture. A group of 400 faculty members at NYU, Faculty Against the Sexton Plan (FASP), have been working for years against what Pam Martens has called "running NYU as a tyrannical slush fund for privileged interests." FASP just published a devastating document, The Art of the Gouge, which describes how NYU engages in a mind-numbing range of tricks and traps to extract as much in fees as possible from students, while at the same time failing to invest in and often degrading the educational "product".
The first part of the report goes through a mind-numbing and degrading set of scams perpetrated on students, including the bait and switch of hitting them with extra charges they can't possibly find out about before they have committed to the school, to the tune of an estimated $10,000 per year; providing mediocre education in programs that require "study abroad" while also requiring them to stay in grossly overpriced university housing; admitting a high proportion of foreign students, precisely because they pay higher fees (and predictably, NYU's premiums are even higher than that of other schools), and offering shamelessly overpriced, narrow, and not very good health services.

Mind you, that list only scratches the surface.

The second part, which describes how the funds are used, describes in gory detail how the school throws money at real estate empire-building, disproportionately for administrative space and housing when teaching facilities are in short supply. The third document describes how NYU is an even more extreme practitioner of squeezing the incomes of faculty while gold-plating administrator pay and perks. Consider one famous example that we discussed in 2013, Jacob Lew, who was then the presumed incoming Treasury Secretary:

Remember, Lew came from a job at NYU where he already looks to have been considerably overpaid. He received over $840,000 for the academic year 2002-2003, which had him earning more than most university presidents, including NYU's president. And on top of that, as Pam Martens ferreted out, he was apparently given a $1.3 million house. I'm not making that up, go read her piece. The mechanism was that NYU lent the $1.3 million to buy the house to Lew and then forgave it over five years. Oh, and they paid him the money to pay the interest too. We will assume that the forgiveness of debt was reported properly to the IRS.

Pam Martens has long been bird-dogging the grifting at NYU. As she wrote later in 2013:

In September 2009, the New York Times published a remarkable exercise in inanity, profiling John Sexton, President of NYU..

We don't, for example, learn from the interview that his home on Fire Island has been financed since 1994 by several million dollars in loans from the NYU School of Law Foundation and NYU itself…

This is not the only residence that NYU has made possible for its President. He has the use of two well appointed apartments owned by NYU in Manhattan. Sexton, who turned 70 in September, is also set to receive a length of service bonus of $2.5 million in 2015 and an annual pension of $800,000 when he retires. That pension is the equivalent of NYU taking $10 million of its assets and placing them in an immediate annuity for Sexton.

Sexton has plenty of company when it comes to getting out of the city in the summer through the generosity of NYU. Richard Tsien, Director of the NYU Neuroscience Institute, bought a house in East Fishkill, New York, 76 miles from the university, for $1,125,000 in February 2012 with $500,000 in financing from NYU. According to an online description, it's a stone house on 7 park-like acres with a flowing stream and a functioning 12-foot water wheel.

Numerous other NYU professors have country homes financed by the NYU School of Law Foundation or NYU. Between primary residences and vacation homes, NYU and its affiliated nonprofits have an estimated $72 million to $96 million outstanding in loans to faculty and administrators. The university has acknowledged 168 loans.

So the sort of conduct documented in these three reports is no surprise if you've been following this story, but having them documented in so much detail is devastating. I hope you'll read them and circulate them widely, above all to parents whose children might be considering applying to NYU.

The-art-of-the-gouge-Part-1

The-art-of-the-gouge-Part-2

The-art-of-the-gouge-Part-3

Elizabeth, May 22, 2015 at 7:54 am

I'm an NYU grad and my son started there a few years ago. In that 30 years, the cost of housing roughly doubled, while the cost of tuition roughly quadrupled. So, Forbes' "pocketbook demands of living in New York" rationale doesn't really fly. The cost of educating a student there must be less now, in the era of faculty serfdom. I wonder if one reason the tuition has skyrocketed is because student loans are so easy to get – often "guaranteed." Maybe the university charges as much as the families can borrow?

sufferin'succotash, May 22, 2015 at 8:12 am

It's known as preparing students for the wider world.

hemeantwell, May 22, 2015 at 8:26 am

Here's another link to a Doug Henwood KPFA interview, this time with Christy Thornton, a grad student at NYU who was part of a recent successful organizing drive among teaching assistants. It's particularly good on NYU's corporate-mimicking multinational strategy, funded by jacking up student fees. The Thornton interview is the second half.

http://shout.lbo-talk.org/lbo/RadioArchive/2013/13_12_19_16.mp3

Jim Haygood, May 22, 2015 at 9:45 am

Higher education, comrades: as with options, the big profits accrue to the seller, not the buyer. Is anyone surprised that, like our Dear Leader, NYU's John Sexton is a Harvard Law grad? It's not the musty old tomes on torts and trusts, but the lifelong networking with fellow toffs and racketeers that pays off big time.

An NYT article just revealed the biz model:

Seen from the Internet [sic], it is a vast education empire: hundreds of universities and high schools, with elegant names and smiling professors at sun-dappled American campuses.

Their websites, glossy and assured, offer online degrees in dozens of disciplines, like nursing and civil engineering.

Yet on closer examination, this picture shimmers like a mirage. The news reports are fabricated. The professors are paid actors. The university campuses exist only as stock photos on computer servers. The degrees have no true accreditation.

http://www.nytimes.com/2015/05/18/world/asia/fake-diplomas-real-cash-pakistani-company-axact-reaps-millions-columbiana-barkley.html

What other kind of biz gets customers lined up and pounding on the door to get in? I love it!

So I'm starting my own educational empire: Harward, Yates and Princetown. They're all members of the prestigious Hanseatic League, and are accredited by IATA (the International Academic Transcript Authority).

Don't miss our summer sale, at only $995 a credit hour. We accept Paypal and Bitcoin. Enter to win a free PhD Econ degree if you sign up by June 30th!

washunate, May 22, 2015 at 5:33 pm

His bio really is a fantastic who's who of what's wrong with our leadership class. He's a banker lawyer professor extraordinaire. And he's got quite a doctor running the med center.

President Sexton is Chair of the Independent Colleges and Universities of New York, Chair of the New York Academy of Sciences, and Vice Chair of the American Council on Education. He is a fellow of the American Academy of Arts and Sciences and a member of both the Association of American University Presidents and the Council on Foreign Relations. He has served as the Chairman of the Board of the Federal Reserve Bank of New York (2003-2006) and Chair of the Federal Reserve Systems Council of Chairs (2006). He served as a Board Member for the National Association of Securities Dealers (1996-1998), and was Founding Chair of the Board of NASD Dispute Resolution (2000-2002). He also serves on the Boards of the Council on Foreign Relations, the Institute of International Education and the Association for a Better New York. While Dean of the Law School he was President of the Association of American Law Schools.

http://www.nyas.org/whoweare/bog/sexton.aspx
http://nyulangone.org/our-story/our-leadership/executive-leadership/robert-i-grossman-md

sd, May 22, 2015 at 10:05 am

NYU had a scam going with student loans back in the 1980s that finally got exposed in the 1990s. It's almost impossible to find anything about it now. The story never seemed to grow legs.

Michael Hudson, May 22, 2015 at 10:18 am

NYU is to education what Scientology is to religion.

Remember a generation ago, when NYU bought a spaghetti factory and claimed tax deductibility for its profits because the spaghetti was part of a tax-exempt "educational institution."

There's a metaphor here.

diptherio, May 22, 2015 at 10:29 am

But, but…they're in New York City and everybody knows that whatever happens in NYC is better, and more advanced and more important–and just more real–than things that happen anywhere else in the country! Everybody knows that. NYU may have it's share of problems, but at least it's not located in some lame city in Missouri….jeesh!

Jim Haygood, May 22, 2015 at 11:00 am

"NYU bought a spaghetti factory"

How else are you gonna learn to write C code?

Plus it served as a case study for vertical integration of campus food services.

Got my doctorate in Motorcycle Mechanics there, based on lifetime experience in benching and wrenching.

diptherio, May 22, 2015 at 10:26 am

I'll just note that "non-refundable deposit" is an oxymoron.

The list of scams they're running is impressive, but in a bad way…go to your in-state public University, kids, you'll be glad you did (or at least glad you didn't go to NYU).

George Phillies, May 22, 2015 at 11:04 am

Readers may find of some interest
https://www.insidehighered.com/news/2013/06/19/nyu-vacation-home-loans-pay-narrative-administrative-excess

The high salaries sometimes percolate down the ladder.

Rosario, May 22, 2015 at 2:49 pm

Today's universities only offer potentially three valuable opportunities for students: facilities (at huge cost covered by tuition), faculty (sometimes), and peers (the best of the three, think students as laborers versus employer with the potential for unionizing).

Students no longer attend universities as hubs of knowledge or information. They are hubs of opportunity. By analogy, it is like paying for the opportunity to get an interview at some high paying job.

Thus why attending NYU, Harvard, MIT, etc. is a must for any social climber, and what a dream in NYC with cocktail parties and beautiful people abound in the midst of perpetual fantasy.

craazyman

May 22, 2015 at 4:17 pm

The top 10 reasons why NYU bureaucrats get pay and perks worth millions . . .

Reason $10. You gotta show the kids how da woiled woiks

Reason $9. When you hire the students as hookers, you can afford to pay an internationally competitive fee

Reason $8. They want their own rung in Dante's inferno! Whoa!

Reason $7. Take a look at Raphael's School at Athens then think about all the marble and pillars. That's not a low rent operation.

Reason $6. They're too old to have their toga parties in a frat house.

Reason $5. When you live and work in NYU mansions, you're always on the job! Isn't that worth overtime pay?

Reason $4. They say they're salesmen and salesmen make a lot of money. OK bucko?

Reason $3. Buildings are taller in New York than most other places. So there's more to administer

Reason $2. They say they don't need a reason.

and Reason $1 why NYU bureaucrats get pay and perks worth millions . . . drum roll please . . . They're not really sure, but they've hired themselves as high-priced consultants to figure it out!!! . . whoa! ka-ching!

ginnie nyc, May 22, 2015 at 7:20 pm

Wow, Yves, thanks for posting this report. I made the very expensive mistake of enrolling in grad school at NYU in the early '90's – the degree of fraud and shaving, simply in the academic sense, was astonishing. My advisor was nowhere to be found after classes began for the entire first year; they lied about who headed my department (no one), and when someone was finally hired at year's end, he was an administrative hack from within who had absolutely no foundation in the department, the division, or any related discipline. All my 'professors' except one were much-abused adjuncts.

The main library, Bobst, is a fitting monument to its pederast donor (look it up). A good deal of the collection was 'missing' or heavily vandalized; the NY Public Libraries books in circulation are in much better shape with far more users. There were no carrells for masters candidates in the library, for love or money. Most of the library's cubic footage is occupied by a vast, central atrium that travels the height of the building, with the book collection squeezed around the periphery. This atrium is a favorite place for stressed students to end it all.

I decided to take some courses at their IFA (Institute of Fine Arts), which is near the Metropolitan Museum. The administrator there refused to let me enroll as I was not "in the school". I thought about this, called the professors directly, got signed letters from them (naturally), and happily returned to give the admin apoplexy. None of this crap took place when I was an undergrad at Penn – I never had a problem enrolling in PhD classes, administratively, whether inside or outside my school.

New York University is not a university, it's a random collection of isolated departments and special institutes created around famous, very expensive names, who usually do not stay beyond 4 or 5 years. It costs more than Columbia, which is Ivy League, for what that's worth, and took me 15 years to pay off. Even after I had to go on SSDI, which was helluva lot of fun.

Michael Fiorillo, May 22, 2015 at 8:40 pm

As a lifelong Villager, NYU has always been The Enemy, and it has been a stock phrase of mine for a generation that it's a real estate development company with a higher education subsidiary.

The university is a classic example of how geography is destiny, since for years it was a second-tier commuter school that happened to be located in a globally-hyped youth ghetto (which it then institutionalized). In many respects, it's still a second-tier school (worse, given their extreme grabbiness) tarted up with some celebrity academics that students, treated like rubes, will never see.

From personal experience, I know that most departments are profit centers. Twenty years ago, I got a Master's degree in education (and, to be fair, they gave me a fairly generous financial aid package). I had young children, so it was mostly a matter of convenience. Of the dozen classes I took, apart from student teaching and observations, only three were taught by full-time, tenured faculty. The others were taught by adjuncts and TAs who ranged from OK to really terrible.

That was graduate school; I hate to think of the poor, deluded kids who can't afford the extortionate hustle of attending this school, indebting themselves for many years to do so.

Fool, May 23, 2015 at 5:00 pm

You're not alone. NYU ruined New York City for all of us.

lord koos, May 24, 2015 at 12:03 am

Universities are now just another institution to loot. This piece reminds me of a scene in the 2014 documentary "Ivory Tower", which if people haven't seen, they really need to. Although I'm sure many readers here are familiar with the story of Cooper Union, there is an interview with the University president that is a priceless peek at the looting class.

He basically squandered Cooper Union's legacy by taking the college's money and gambling it in the stock market a little before the crash of 2008 and by spending $170,000,000 of the college's money on a building that was not really needed. A school that had been pretty much funded in perpetuity (Cooper Union owns the land under the Chrysler building), became indebted for millions of dollars and they now must charge students to attend, as well as having to sell off assets. I can't believe the guy is still president of the school.

https://en.wikipedia.org/wiki/Cooper_Union_financial_crisis_and_tuition_protests

Lambert Strether, May 24, 2015 at 12:41 am

NC: "How Is It Possible That the Trustees at Cooper Union Have Not Resigned in Shame?"

[May 24, 2015] Restoring the Public's Trust in Economists

May 19, 2015 | economistsview.typepad.com

I have a new column:

Restoring the Public's Trust in Economists: The belief that economics has become politicized is a big reason the general public has lost faith in the ability of economists to give advice on important policy questions. For most issues, like raising the minimum wage, the effects of government spending, international trade, whether CEOs deserve their high compensation, etc., etc., it seems as though economists who also happen to be Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other. Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration or follow the side that agrees with their preconceived notions and ideological beliefs.

But why is it so hard to sort out? Why can't the press do a better job of avoiding "he said – she said" reporting and give the public direct and specific answers to these important policy questions? One reason is the "mathiness" that has infected our economic models, something economist Paul Romer recently identified as a big problem with economic theory. :

Posted by Mark Thoma on Tuesday, May 19, 2015 at 08:10 AM in Economics, Fiscal Times, Politics, Press | Permalink Comments (55)

ken melvin:

Was this twisting, manipulation of data and results ever so endemic politics as today?

Sandwichman -> ken melvin:

Frederic Harrison called political economy "this magazine of untruth" in 1872.

"The complaint one makes against that anti-social jargon, which so easily passes for economic science, is that it is in ludicrous opposition to the common observation of facts. Political economy professes to be a science based on observation. But the bitter pedantry which often usurps that name usually assumes its facts, after it has rounded off dogmas to suit its clients. In practice this magazine of untruth escapes detection for two reasons. One is that the facts relating to labour are invariably seen through the spectacles of capital.

The employing class is virtually in possession of the whole machinery of information; and all judgments are tinged with the tone current among them. Thus we see the very newspapers which celebrate the amusements of the rich in a hundred different forms, scandalized at the coal miners objecting to grub in the pits every day in the week. Laziness, ingratitude, and extortion, seem the proper terms for sportsmen and fine ladies to apply to the men and children who swelter half their lives underground. The second reason which obscures the truth about industry is, that the facts about capital are almost never honestly disclosed:."

mrrunangun

The public is correct to be skeptical of the value of economics as a prescriptive science at its current stage of development. Bill Black's critique of the econ profession as being unwilling to take account the effects of fraud or corruption in its models renders the models useless as a basis for prescriptions for public policy.
Medicine in the late 18th century was inaccurate even as a descriptive science. john Hunter in Britain and Claude Bernard in France began to report organized observations in surgery and medicine. Many medical men subscribed to the theory of the four humors and its prescriptive capacity was limited to bleeding or purging and debates as to which was appropriate for which condition were taken seriously. Much as debates as to whether financially insupportable debt loads or socially insupportable austerity and inequality are seen among contemporary economists.
Economics is stil not accurate as a descriptive science, as its practitioners are unwilling to make unwelcome observations. The problems of Chicago and Illinois are largely related to the longstanding custom of using public office for private gain among the political leaders here and the willingness of the local press and public to tolerate it. Economics provided no diagnosis for this problem before it became a crisis. Economics has no prescription for this, though its baneful effects are clearly economic in nature.

Darryl FKA Ron -> mrrunangun:

Yes sir!

JohnH -> mrrunangun:

I would only add that economists, macro-economists in particular, have become advocates rather than dispassionate analysts and educators. In this role they tend to tout the benefits of their position without discussing the costs or downsides.
For example, Stiglitz notes that while the Fed and economists touted the advantages of low interest rates, they omitted the costs:

"There was a cost, however: all those retired individuals who had invested prudently in government bonds suddenly saw their incomes disappear. In this way, there was a large transfer of wealth from the elderly to the government, and from the government to the bankers. But little mention of the harm to the elderly was made, and little was done to offset it.
The lower interest rates might have dampened spending in other ways. Persons nearing retirement, seeing that they would have to put away that much more in safe government bonds to get the retirement income they desired, would have to save more. As would parents saving to put their kids through school. Even cursory attention to the distributional consequences of such policies would have raised doubt about the effectiveness of the low interest rate policy." (The Price of Inequality)

Economists, by championing certain policies which are ostensibly "good for the economy," are too often oblivious to the harmful effects on significant portions of the population. Rather than acknowledge the negative effects, economists seem to say, "just suck it up!" Well, that's fine for a short time. But for a decade?
How can the public retain trust in economists when they advocate positions that directly harm their pocketbooks for a long period of time?

JF:

Economists position themselves as being against self government when they misuse the "distortion" conceptualization.
Academic institutions should teach business, finance and economic students that govt rules are part of markets, like other parts, and take care in casting the impression that govt rules are per se, distortionary when they explain modeling, models and in their theoretical discussions.
I'd like to see more blog articles and papers on the notion of distortion, and when markets are distorted by actors involved in the markets.
Of course, I would also like to see all economists when imparting advice to govt policy discussions to upfront say something about how govts are not distortionary, per se. Ideally they'd say that self-govt institutions are most likely to produce uniform and fair marketplaces, but I suppose that is asking for too much.
There is an academic and research agenda here too. Find all basic equations containing a G in them, and figure out ways to separate out govt as just another purchaser versus govt as a rule maker. Rewrite all the equations, teach them as re-written, and we may avoid the quite-silly notion that markets make themselves and self-adjust availing themselves of unlimited freedoms of order bound only by immutable governance rules that have come from somewhere other than from human institutions.
How can economists be trusted if they are undermining confidence and trust in self-government?

Conelrad -> JF:

Thank you for this reply.
As you suggest, "the economy" is not independent of the society in which it's embedded--contrary to the dominant teaching of economists. The reality is that every "economy" is a set of relationships established via societal rules and regulations, many if not most emanating from government.
Among the sins of the prevailing economics is the fallacy of misplaced concreteness, i.e., "mistak[ing] an abstract belief, opinion, or concept [such as "the economy"] about the way things are for a physical or 'concrete' reality" (Wikipedia).
The pervasive notion of "the economy" shared by liberals and conservatives forms a set of blinders. With such tunnel vision, economists generally end up, intentionally and not, creating a smokescreen. This smog helps obscure rule-making that, e.g., redistributes wealth and income upward and risk downward.
Despite economists' failure to anticipate the Great Recession, economics has not undergone a needed paradigm shift. Until that happens, pronouncements from the discipline must be taken with a very large grain of salt.

pgl:

Simon Wren Lewis in a recent post linked to something he wrote in August 2012. It was an excellent discussion of how Greg Mankiw and John Taylor was lying on behalf of Mitt Romney. SWL found this repugnant. I agree.

Syaloch:

Perhaps economics can learn something from studying the dynamics of the global climate change "debate"?
As in economics, climate science deals with a complex, dynamic global system where you have to rely more on data gleaned from the historical record than running controlled experiments. In both cases you have strong ideological agendas to have the research point to a predetermined conclusion. And even more so than in econ, in climate science you have ideologues trying to blatantly interfere with, pollute, deny, and suppress results they do not wish to hear. And yet climate science seems to have weathered these attacks quite well, with the scientists generally maintaining their integrity and continuing to speak with one voice, whereas economics is a mess. Why the difference?

Peter K.:

"In many other cases, the data do point in a particular direction but this is ignored or denied because it gives results that disagree with someone's previous work, goes against their political leanings, or contradicts their preconceived conclusions. The tactic in this case is to just cite the few papers that support your position while ignoring, dismissing, or clouding the considerable amount of evidence that points in the other direction. This cherry picking and obfuscation of the evidence leaves the impression that there is uncertainty over issues that are largely settled. To me, this is one of the more frustrating aspects of communicating economic policy to the general public."
This is tactic used by JohnH, Don Kevack, Jeffrey Sachs, and Niall Ferguson among others.
I can't imagine what they believe they're accomplishing other than annoying people who know better. Perhaps that's all they want to do.

Tom aka Rusty:

Sorry to bust your bubble, but those who comment here will probably read more economics this week than most people will read this decade, or this lifetime.
Most people are too busy working and getting on with their lives to study economics. They depend on whatever "business news" they have time to pick up during a busy day, if at all.
And since both sides of most debates claim to have the gospel truth, who can sort it out? Both sides are tainted with politics, both sides claim to have data on their side, blah, blah.
Back to the real world:.and real work.

Roger Gathmann:

Nice article!
However, it is premised on an idea that I am extremely skeptical about: that there exists a value free, neutral economics that we can point to when discussing policy. That economists line up with different parties or ideologies is, I think, a good thing, not a bad thing. That doesn't mean they should blur the results of their work - it does mean that they approach the work from a certain angle. There is a reason for this. One of the great premises of economics is that people work in their own self interest. However, I think that premise relies too much on a hard notion of self that doesn't exist in real life - most people I know have a distant notion that what they are doing every day will somehow benefit them, but their direct actions are more likely to be linked to the benefit of others, whether its a company, a family, a lover, a friend, the country, the community, etc. But the one place where self interest is magnified n the classic economic sense is in economics itself. This is the conclusion of a number of surveys, which are referenced here: https://bcps.org/offices/lis/researchcourse/images/econ-selfish.pdf
This paragraph sums up the state of research:

"Inquiry into the question of whether economists are less apt to engage in what Frey and Meyer (2004) refer to as pro-social behavior begins with Marwell and Ames (1981), who find that economics graduate students are more likely than other groups to free ride in a public-goods experiment. Additional experiments produced similar results: economics students offer less in ultimatum games (Carter and Irons 1991), they are more likely to defect in prisoners' dilemma games (Frank, Gilovich and Regan 1993), they are more likely to defect in a solidarity game (Selten and Ockenfels 1998), and they are more likely to accept bribes (Frank and Schulze 2000).

Other research relies on survey data. Rubenstein (2009) describes various business scenarios and asks students, as hypothetical employers, to make a series of decisions with respect to their employees; he finds that economics students are more likely to place profit maximization ahead of the welfare of the workers. Economists among Frey and Pommerehne's (1993) and Haucap and Just's (2003) survey respondents are more apt to view allocation based on prices as a fair mechanism for allocation."

What Mark is pointing to is what I'd call ideology maximization. It is what I'd expect to arise from a group that begins by viewing human action as governed by self interest, and that self interest as being more socially beneficial in the long run than altruism.

Frankly, I think that this will always be the case in economics. It is one of the many reasons that economics is not social physics. Culture counts.

pgl -> Roger Gathmann:

"ideology maximization" strikes me as an excuse for deceiving people. Sorry but I find this incredibly insulting. There are economists who want an honest exchange of ideas. Our host is one of those people.
So way to go - telling Mark Thoma that he cannot exist. Duh!

Roger Gathmann -> pgl:

No, I was telling Mark that if he thinks he is doing value neutral economics, I don't believe it. It doesn't have to do with his existence.

So, to upgrade this comment to something that has some intellectual respectability - you don't believe the surveys that repeatedly show economics classes make people act in more selfish ways? Do you have any countering evidence whatsoever? And if you don't, and you think that the surveys are correct, what would you predict for the discipline as a whole?

Myself, this is where ideological maximization starts - to maintain, on the one hand, that models which are explicitly premised on narrowly selfish behaviors describe social action, and then to maintain, on the other hand, that economists never act on their ideological interests. Either loosen up the first premise - in which case economics needs a much more extensive overhaul than is proposed by Mark - or get used to the consequence, which is a selfish culture that leads to, at least, unconscious ideological bias.

That doesn't, by the way, mean that the work is bad. It is bad from the standpoint of value neutrality, but if you reject that Weberian standard, it becomes part of a dialogue. In the second case, conflict is not a sign of untrustworthiness, but of vigor.

pgl:

In Krugman's mis-selling of TPP, he references what he considered the best blog post ever - "Good ideas do not need lots of lies told about them in order to gain public acceptance". It was about the lies told to get us to invade Iraq but it had this gem over whether to include the true cost of stock options on the income statement:
"Good ideas do not need lots of lies told about them in order to gain public acceptance. I was first made aware of this during an accounting class. We were discussing the subject of accounting for stock options at technology companies. There was a live debate on this subject at the time. One side (mainly technology companies and their lobbyists) held that stock option grants should not be treated as an expense on public policy grounds; treating them as an expense would discourage companies from granting them, and stock options were a vital compensation tool that incentivised performance, rewarded dynamism and innovation and created vast amounts of value for America and the world. The other side (mainly people like Warren Buffet) held that stock options looked awfully like a massive blag carried out my management at the expense of shareholders, and that the proper place to record such blags was the P&L account.
Our lecturer, in summing up the debate, made the not unreasonable point that if stock options really were a fantastic tool which unleashed the creative power in every employee, everyone would want to expense as many of them as possible, the better to boast about how innovative, empowered and fantastic they were. Since the tech companies' point of view appeared to be that if they were ever forced to account honestly for their option grants, they would quickly stop making them, this offered decent prima facie evidence that they weren't, really, all that fantastic."
Awesome!

pgl -> pgl:

Warren Buffet's term blag was new to me so I went to Urban Dictionary:
"To gain, usually entrance to a restricted area or club, or some material good, through confidence trickery or cheekiness. Lying is also acceptable."
Perfect! Tech companies lying to their shareholders. And when FAS 123 ended that - they still lie to the IRS.

Denis Drew:

" Members of the general public, not knowing who to believe and unable to rely upon the press to sort it out, either throw up their hands in frustration "
Maybe if the Democrats would beat to death just a couple of issues (I have two really big issues in mind) where the eighth-grade math is indubitably in progressive favor, then, folks might tend to take progressive economists word for it on everything else (or at least lean our way) -- and forever see the Republicans as dolts.
I can envision some Democrat campaign organization working up a couple of commercials that can be used by any Democrat (or anybody else) in the country for free.
The most indefensible Republican nonsense is states refusing to expand Medicaid for 90% payback from the federal government. Half (okay a guess) the patients who would have been covered by expansion will show up somewhere for treatment anyway -- and the (unpaid) expenditure is going to be packed into the price of private premiums or paid through other government channels. Often these folks wont show up until their illness is much further advanced and extremely more expensive to treat and for the public or inflated premium channel to cover.

The same makes it foolish to minimize on even the 65% payback for current Medicaid.
The states send the fed the money; don't they want it back? The same states will give away billions in tax abatements to attract jobs. How does that song go: Money for nothin; jobs for free? Don't have to mention any bleeding heart, liberal stuff about needy patients; it's all bottom line.

* * * * *

Another damn the damn fool-Republicans commercial could be the win/win math of the minimum wage. Republicans forget that the price of labor is a price within a price -- sometimes allowing large wage hikes at minimal product price hike (if the price of labor has been underpaid for a long time). I call this the magnifier effect (cab driver econ). Card and Kruger showed that fast food (highest labor costs, lowest wage starting point) sale grew after minimum wage raises.
What could these raises have been: a dollar or two? 20% X 33% fast food labor costs? Adding 5-6% to fast food prices? But the same wage hike hit businesses with only 10-15% wage costs -- adding negligible to their prices -- but a lot to the wages of fast food customers: the magnifier effect.
The eighth-grade math: 50% of the workforce averaging $8,000 raise ($15 being the 45 percentile wage + 5 percent getting full $16,000)= 75 million employees X $8,000 = $600 billion = about 4% shift of GDP to raise almost half the country to $30,000 a year. What were they doing below that anyway?! 4% is how much we grow every couple of years -- save more than that on jails, etc. -- half the country better educated, more productive economy in the long run.
Just run these two commercials until they sink in (what Obama gets paid to do for free) -- the Republicans will never be the same. Go on saying nothing beyond hanging on to the Democrats paltry past :
: Obamacare that leaves tens of millions out -- too expensive for many;
General support for some kind of minimum wage hike (min now several dollars below 1968 -- double per capita income later!)
Hang on to SS, Medicare, Medicaid;
Hang on to Dodd-Frank;
Nothing to say about the defining economic -- and political -- pathology of our time: de-unionization. Nothing to wake voters out of their deep sleep and rouse them to the polls and nothing will ever change.

Sandwichman:

"Restoring the Public's Trust in Economists"?
Why would you want to do a silly thing like that? Sort of like restoring People's Temple members' appetite for kool-aide.
Why not restore members of the public's capacity to THINK FOR THEMSELVES, instead?

Syaloch -> Sandwichman:

Having individuals think for themselves is well and good, but in most cases it's simply not possible or practical for the general public to be as well informed about a subject as scientists with graduate-level training who study it every day. That's why trustable experts are needed.

Sandwichman -> Syaloch:

There is such a thing as learned incapacity, too. There are quite a few bits of cult belief that circulate amongst those so-called "scientists" with graduate level training that wouldn't occur to the general public. I mean weird stuff that hearkens back to late 18th century polemics against mercantalism and fascination with mechanical analogies.
"There is an INFINITE amount of work to be done!"
No, there isn't, there is only as much work to be done as can be PAID FOR.
"There is a BUILT-IN MECHANISM that ensures we will never exhaust natural resources."
Nope. There is more than one "built-in mechanism" and they produce contradictory outcomes. Exchange is reversible in principle, at least. but PRODUCTION is not.
"A change is a potential Pareto improvement if the winners could compensate the losers."
No, no, no, no. The claim is based on a same yardstick fallacy.
"Economic Growth is at the heart of Keynesian economics."
Uh-uh. Keynes was dead two years when Leon Keyserling launched the growth-pimp swindle.

Sandwichman -> Sandwichman:

Kenneth Galbraith:

"The Council of Economic Advisers became in turn, a platform for expounding the Keynesian view of the economy and it was brought promptly Into use. Leon Keyserling, as an original member and later chairman, was a tireless exponent of the ideas. And he saw at an early stage the importance of enlarging them to embrace not only the prevention of depression but the maintenance of an adequate rate of economic expansion. Thus in a decade had the revolut1on spread."

Leon Keyserling:

"Coming over to economic growth in particular, everybody talks about the influence of Keynesian economics. The Keynesian economics is really a static economics. It doesn't deal with economic growth at all. Furthermore, it was developed at a time of worldwide depression. Even Ken Galbraith, in an article in the New York Times a couple of years ago, when he was talking about the influence of Keynesian economics, mentioned me specifically as the one who had introduced the fundamental new factor of the dynamics of economic growth."

pgl:

Google Master JohnH pulls another one out of his ass. A cherry picked quote from Stiglitz that JohnH abuses to suggest that the FED never considers income inequality. Janet Yellen - current head of the FED - begs to differ:
http://blogs.wsj.com/economics/2015/04/02/yellen-economic-inequality-long-an-interest-of-the-fed/
And of course Stiglitz would strongly blast the gold bug nonsense from JohnH as well as the Cameron fiscal austerity that JohnH hearts. Who to believe - the very smart Janet Yellen or the serial piss ant known as JohnH?

JohnH -> pgl:

Wow two speeches (now three) in eight years about inequality!!! That's what I call lip service.
"'Economic inequality has long been of interest within the Federal Reserve System,' [Yellen] said, citing a 2007 speech by then-Chairman Ben Bernanke on the matter. Her own speech last October was in that same tradition, she said."
I'll believe Stiglitz on this one: "standard macroeconomic models don't even recognize that the distribution of income matters, and so it's not surprising that the Fed in its policies has often seemed oblivious to the distributional implications of its decisions." (The Price of Inequality)

pgl -> JohnH:

You have not read what Yellen has written. If you did - you might know something besides how to attack people. Have Cameron give his pitbull cheerleader a new bone.

pgl:

Rather than wasting one's time listening to JohnH's blovating about how we need to screw the overall economy with tight money if we care about income inequality, here's something from a couple of folks who actually understand economics. James Kwak goes back and reads Lawrence Summers:
http://baselinescenario.com/2015/05/19/over-at-medium-the-importance-of-taxing-capital/
Part of what Summers noted was:
http://larrysummers.com/2015/05/04/okuns-equality-and-efficiency

"At present, when zero interest rates make capital costs as low as they have ever been but corporate profits are at record levels, there needs to be much less concern with capital costs and more concern with the distributional aspects of capital taxation."

This is an insight you'd never get from Greg Mankiw's blog!

pgl:

A nice review of Stiglitz's Price of Inequality. Check it out as JohhH is incredibly misrepresenting Stiglitz's book to claim that Stiglitz agrees with JohnH's gold bug insanity:
http://www.nytimes.com/2012/08/05/books/review/the-price-of-inequality-by-joseph-e-stiglitz.html?_r=0
Quite the contrary - Stiglitz wants us to get back to full employment. He prefers using fiscal stimulus. JohnH hearts Cameron's fiscal austerity. Stiglitz in the past has been critical for pulling the plug on monetary stimulus but this is exactly what gold bug JohnH advocates.
JohnH once again cherry picks a quote out of context to misrepresent what someone had said. But that is all JohnH is good for.

JohnH -> pgl:

Maybe you should read the book. Quotes are from Stiglitz's criticism of macroeconomics and the Fed.

pgl -> JohnH:

PeterK got this right. Another out of context cherry picked quote. FYI - Krugman just called you a right winger. Check it out!

Matt Young:

"Republicans will mostly line up on one side of the issue, while economists who are Democrats mostly take the other."
------------
Here is a clue, hard to get, but let me help. Two groups, Dem and Repub. Having that distinction, thinking it matters and making it part of the theory then, right away, we have bad economics.

pgl -> Matt Young:

Bad economics? Boy Bot has bad programming. Babble on!

Matt Young:

Is the economy stationary? - Jérémie Cohen-Setton
------
Take this post for example. This is about one thing, economists are acknowledging that the economy cycles at eight year presidential elections with an 85% probability. If you just say presidential elections, then it is a 90% probability. We are now undergoing a slow down right on schedule.

Now, I wath who sees the pattern. A lot of economists see it, but of public intellectuals, I count actually two who can say the words out loud, Jerry Brown mentions it and Roger Farmer brings it up.
That is the problem right there, cyclic behavior in aggregate statistics are topic number three, I think, in most probability classes. But, just now, after looking and staring at the obvious evidence for six years, economists can see the grey bar pattern? This is not theory, this is something very fundamentally wrong with economics, a very deep fraud.

Matt Young:

Let me go on.
In the Southwest we have two economies, Texas and California in the top 20 largest economies in the world. There major foreign policy concern is trade with Mexico. Probably 4% of the ballot isses on the voting booth out here are federal votes, and about 65% of the issues are non-partison local measures. Yet one of the two behemoths is solidly Republican, the other solidly Democrat; and neither has any real voice in the Senate.
Yet, this amazing and obvious condition is not even up for study at UC Berkeley, which is supposed to be one of the top political economic schools. Nor will you see this studied at Harvard, which should know better. And now we discover that DC cycles, an obvious connection needing to be studied. We have conscious fraud in the economic sciences. It pervades almost every large economic school, except UCLA and UCSD, from my limited look. (There are many economic schools not so fraudulent, I cannot count them all.)

[May 23, 2015] Former Fed Governor Says Fed Lost Credibility To Stay On Top Of Ticking Monetary Bomb

05/21/2015 | Zero Hedge
Submitted by Wolf Richter via WolfStreet.com,
Lawrence Lindsey, a Governor of the Federal Reserve from 1991 to 1997, was right before. And got fired for it. Reality was too inconvenient.

In December 2002, as George W. Bush's economic adviser and Director of the National Economic Council at the White House, he fretted out loud that the invasion of Iraq would be a lot more expensive than supporters of it were claiming. Clearly he'd failed to drink the Kool-Aid. Instead of peanuts, it would cost as much as $200 billion, he said. It shook the White House at its foundations, the fact that he had the temerity to say this.

The Atlantic explains:

Bush instead stood by such advisers as Paul Wolfowitz, who said that the invasion would be largely "self-financing" via Iraq's oil, and Andrew Natsios, who told an incredulous Ted Koppel that the war's total cost to the American taxpayer would be no more than $1.7 billion.

As it turns out, Lawrence Lindsey's estimate was indeed off - by a factor of 10 or more, on the low side.

So maybe people should listen to him. And maybe, if his record repeats itself, the disaster he warns about is going to be a lot more costly in the end than the worst-case scenario he is now predicting.

Lindsey was speaking during a panel discussion on Fed policy at an event sponsored by the Peterson Foundation, MarketWatch reported. And once again, he dared to say what everyone already knew, but what the financial establishment on Wall Street fights tooth and nail:

The Fed has dragged out the normalization of interest rates "way beyond what is prudent."

He explained that in graduate school, if you suggested that the federal funds rate should be kept at zero while the unemployment rate is 5.4%, which is exactly what the Fed has been doing, "you would have been laughed out of the classroom."

"At some point we're going to get a series of bad numbers, showing a little higher inflation, and the market is going to say 'on my god, we're so far behind the curve' and force an adjustment that is going to be wrenching," he said.

According to his calculus, when this "wrenching" adjustment kicks in, it would turn into a market disruption at a level "seven or eight" on a scale of 10, with 10 being the worst.

But that's the guy that warned that the total cost of the Iraq invasion would be $200 billion, instead of peanuts, and later it turns out to amount to $2 trillion. So by how much is he underestimating the ultimate debacle with his prediction of a "wrenching" adjustment of "seven or eight" on a scale of 10? Maybe we're better off not knowing the answer.

So what should the Fed do to mitigate the risk of this sort of bone-chilling bond market? Start hiking rates. Start with modest hikes. But start in June.

But it may already be too late.

He said the Fed "has almost no credibility" with his clients about its ability to "stay on top of ticking monetary bomb."

Stocks are at all-time highs. The party is just too fun to walk away from. Money is once again flooding into even distressed energy-related junk-rated companies that are once again able to sell bonds on a wing and a prayer because yield-starved investors, brainwashed by the Fed's interest-rate repression, are chasing yield wherever they can find it, no matter what the risks.

Times are good, and everyone is having fun now. But it won't last: "the market is going to take the Fed and the Treasury curve to task in a very painful way," he warned.

Rate hikes would have a long way to go: If the Fed raised rates by a quarter percentage point at every other meeting starting this June – oh my, can you see the tantrum already? – monetary policy would not actually be restrictive until December 2016, he said.

Going that far, ever, though it would only mean going back to "normal," would be plain unthinkable for Wall Street hype mongers that have conniptions every time the Fed contemplates raising rates just once, and just a quarter point, just to show that it's still there, even if it has no intention whatsoever of staying on "top of the ticking monetary bomb."

A disturbing scenario is already playing out for folks fretting about "financial instability," as it's called in central-bank jargon. Read… "Buyers beware": Capital Markets "Completely Backwards"

[May 23, 2015] The Children of the Abyss

May 20, 2015 | Jesse's Café Américain

"He shows you how to become as gods. Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."
J.H.Newman, The Times of Antichrist

People do not wake up one day and suddenly decide to become monsters, giving birth to unspeakable horrors.

And yet throughout history, different peoples have done truly monstrous things. The Americans were pioneers in forced sterilization and state propaganda. The British invented concentration camps, and were masters of predatory colonization. They even turned a large portion of the capital of their Empire into a festering ghetto through the Darwinian economics of neglect. None have clean hands. No one is exceptional.

What do they have in common? They all take a walk down a long and twisted path, one cold-hearted and 'expedient' decision at a time, shifting responsibility by deflecting the choice for their actions on their leaders.

There is always some crackpot theory. some law of nature, from scientists or economists to support it. What else could they do? It is always difficult, but necessary.

They cope with their actions by making their victims the other, objectified, different, marginalized. And what they marginalize they cannot see. What they cannot see, by choice, is easily ignored.

And so they destroy and they kill, first by neglect and then by more efficient and decisive actions.

They walk slowly, but almost determinedly, into an abyss of their own creation.

But they all seem to have one thing in common. First they come for the old, the weak, the disabled, and the different, in a widening circle of scapegoats for their plunder.

"There is one beautiful sight in the East End, and only one, and it is the children dancing in the street when the organ-grinder goes his round. It is fascinating to watch them, the new-born, the next generation, swaying and stepping, with pretty little mimicries and graceful inventions all their own, with muscles that move swiftly and easily, and bodies that leap airily, weaving rhythms never taught in dancing school.
I have talked with these children, here, there, and everywhere, and they struck me as being bright as other children, and in many ways even brighter. They have most active little imaginations. Their capacity for projecting themselves into the realm of romance and fantasy is remarkable. A joyous life is romping in their blood. They delight in music, and motion, and colour, and very often they betray a startling beauty of face and form under their filth and rags.

But there is a Pied Piper of London Town who steals them all away. They disappear. One never sees them again, or anything that suggests them. You may look for them in vain amongst the generation of grown-ups. Here you will find stunted forms, ugly faces, and blunt and stolid minds. Grace, beauty, imagination, all the resiliency of mind and muscle, are gone. Sometimes, however, you may see a woman, not necessarily old, but twisted and deformed out of all womanhood, bloated and drunken, lift her draggled skirts and execute a few grotesque and lumbering steps upon the pavement. It is a hint that she was once one of those children who danced to the organ-grinder. Those grotesque and lumbering steps are all that is left of the promise of childhood. In the befogged recesses of her brain has arisen a fleeting memory that she was once a girl. The crowd closes in. Little girls are dancing beside her, about her, with all the pretty graces she dimly recollects, but can no more than parody with her body. Then she pants for breath, exhausted, and stumbles out through the circle. But the little girls dance on.

The children of the Ghetto possess all the qualities which make for noble manhood and womanhood; but the Ghetto itself, like an infuriated tigress turning on its young, turns upon and destroys all these qualities, blots out the light and laughter, and moulds those it does not kill into sodden and forlorn creatures, uncouth, degraded, and wretched below the beasts of the field.

As to the manner in which this is done, I have in previous chapters described it at length; here let Professor Huxley describe it in brief:-

"Any one who is acquainted with the state of the population of all great industrial centres, whether in this or other countries, is aware that amidst a large and increasing body of that population there reigns supreme . . . that condition which the French call la misere, a word for which I do not think there is any exact English equivalent. It is a condition in which the food, warmth, and clothing which are necessary for the mere maintenance of the functions of the body in their normal state cannot be obtained; in which men, women, and children are forced to crowd into dens wherein decency is abolished, and the most ordinary conditions of healthful existence are impossible of attainment; in which the pleasures within reach are reduced to brutality and drunkenness; in which the pains accumulate at compound interest in the shape of starvation, disease, stunted development, and moral degradation; in which the prospect of even steady and honest industry is a life of unsuccessful battling with hunger, rounded by a pauper's grave."

In such conditions, the outlook for children is hopeless. They die like flies, and those that survive, survive because they possess excessive vitality and a capacity of adaptation to the degradation with which they are surrounded. They have no home life. In the dens and lairs in which they live they are exposed to all that is obscene and indecent. And as their minds are made rotten, so are their bodies made rotten by bad sanitation, overcrowding, and underfeeding. When a father and mother live with three or four children in a room where the children take turn about in sitting up to drive the rats away from the sleepers, when those children never have enough to eat and are preyed upon and made miserable and weak by swarming vermin, the sort of men and women the survivors will make can readily be imagined."

Jack London, The People of the Abyss

[May 21, 2015]Consistent With

May 21, 2015 | Economist's View
Chris Dillow:
"Consistent with": ...Peter Dorman criticizes economists' habit of declaring a theory successful merely because it is "consistent with" the evidence. His point deserves emphasis. ...

This is a point which some defenders of inequality miss. Of course, you can devise theories which are "consistent with" inequality arising from reasonable differences in choices and marginal products. Such theories, though, beg the question: is that how inequality really emerged?... And the answer, to put it mildly, is: only partially. It also arose from luck, inefficient selection, rigged markets, rent-seeking and outright theft. ...

Quite often, the facts are consistent with either theory. For example, the well-attested momentum anomaly - the tendency for assets that have risen in price recently to continue rising - is "consistent with" both a cognitive bias (under-reaction) and with rational behaviour; fund managers' desire to avoid benchmark risk.

My point here should be well-known. The Duhem-Quine thesis warns us that facts under-determine theory: they are "consistent with" multiple theories. ...

So, how can we guard against the "consistent with" error? One thing we need is history: this helps tell us how things actually happened. And - horrific as it might seem to some economists - we also need sociology: we need to know how people actually behave and not merely that their behaviour is "consistent with" some theory. Economics, then, cannot be a stand-alone discipline but part of the social sciences and humanities...

[May 19, 2015]Oil Prices Will Fall A Lesson In Gravity

The problem with this line of thinking is that people are betting that real price of oil extraction is higher then the current level. And such long bets are in itself is a powerful factor that limit speculators flexibility and ability to short the "paper oil". There is strong evidence that "peak cheap oil" is upon us, so the current situation can be only temporary. What "temporary" means here is unclear, but as Herbert Stein put it "If something cannot go on forever, it will stop," This saying is applicable to low oil prices, if "peak cheap oil" hypothesis is right.

May 19, 2015 | Zero Hedge

Submitted by Arthur Berman via OilPrice.com,

The oil price collapse is not over yet. It is more likely that the Brent price could fall back into the mid-$50 range than that it will continue to rise toward $70 per barrel.

That is because oil prices have risen based on sentiment alone. The fundamentals of supply and demand indicate a dismal reality: oil prices will fall and may fall hard in the near term.

Our present situation is like that of the cartoon character Wile E. Coyote. He routinely ran off of a cliff and as long as he didn't look down, everything was fine. But as soon as he looked down and saw that there was no ground beneath him, he fell. Hope and momentum cannot overcome gravity.

Neither can ignoring the data.

When I look down from $60 WTI and almost $68 Brent, I see no support except sentiment. Like Wile E. Coyote, we need a gravity lesson about oil prices. What goes up for no reason, will come down sooner than later and it may fall hard.

Let's examine the facts.

The principal reason for the oil-price collapse is a production surplus–more supply than demand for oil. The latest data from EIA (Figure 2) indicates that the surplus is the greatest since the current oil-price collapse began. In other words, the cause of the price collapse is getting worse, not better!

The latest data from IEA indicates that the production surplus in first quarter of 2015 is the greatest of the last decade and much greater than during the 4 previous quarters (Figure 3).

With data like this from EIA and IEA, how can anyone be optimistic that even higher oil prices may be coming? How can anyone say that the price increase in recent months has any relationship to reality whatsoever?

Both IEA and OPEC offered grave concerns about persistent over-supply in their recent monthly reports that seem to have been ignored or dismissed in the jubilance of higher oil prices.

Analysts may be hopeful that the drop in U.S. rig counts–which has almost stopped in the last two weeks–will result in a decrease in tight oil production. I believe that is true but the U.S. is not the world and the world continues to add production.

With somewhat higher prices, some tight oil producers like EOG say they are ready to aggressively grow production again if prices stabilize around $65 per barrel. If other producers do the same, so much for the as-yet-to-be seen production decline from lower rig counts.

Many point to signs of increased oil demand because of low product prices as a positive trend. I agree, but as long as production is growing faster than consumption, we have an over-supply problem.

I hope that the rebound in oil prices over the past two months is sustainable and that prices continue to rise. But hope doesn't count much for very long in global markets. The data so far says that the problem that moved prices to almost $40 per barrel in January has only gotten worse. That means that recent gains may vanish and old lows might be replaced by lower lows.

Wile E. Coyote never learned the lesson of gravity but that was in a cartoon. This is real.

junction

In the spring of 2008, oil spiked to near $140 a barrel. Then, I read that an expert said that oil should be trading at $65 a barrel, that the higher price was market manipulation. In short order, as the Wall Street collapse took hold, oil's barrel price dropped by over a $100, to about $38 a barrel by September. That $65 a barrel price is still what the benchmark price should be. The problem for frackers is that at $65, frackers can't make any profits.

Serfs Up

Also the other problem for frackers was they couldn't make any positive free cash flows with oil at $100.

papaya

It's not just frackers, but producers from oil sands, too.
Not even 10 years ago, teh Saudi's claimed that their economy required a minimum of $80 /bbl for crude.

MSimon

I think they require $70 a bbl now to keep their oil socialism afloat.

LawsofPhysics

The planet seemed to do just fine and there was plenty of water before all humanity starting extracting all that oil. What the fuck are you talking about? What is oil? Oil is in fact consumable calories and reduced hydrocarbons. The fact is, these are very useful things, especially when it comes to maintaining a high standard of living.

Niall Of The Nine Hostages

Well, of course oil prices will never recover! Goldman told us so! Goldman wouldn't lie, would they?
In any case, in markets surpluses are self-correcting. The North American shale oil industry has essentially collapsed, leaving more room for dirty Muslim oil to take its place....

Paul451

Summer stock gasoline (lower reid vapor pressure so your car's fuel system doesn't vapor lock) means an automatic price increase this time of year.
Most/all price pressure (if there is actually such a thing anymore) on crude is down. As long as The Crazies are running the Middle East asylum, the price will not hit absolute bottom. Risk has to be incorporated into the price somehow.

[May 19, 2015]How To Spot Groupthink Among Economists

May 19, 2015 | Zero Hedge

As GMO's James Montier says in his latest white paper today "it seems one can hardly open a financial newspaper or read a blog these days without tripping over some academic-cum-central banker talking about the once arcane notion of the equilibrium real interest rate."

Sure enough, it is the laughable concept of the equilibrium real interest rate (laugable because if it can be quantified and put into an equation, it becomes tangible and central banks are convinced they can recreate it, perfect it and implement it to "fix the economy"... usually with disastrous results) that is the topic of his latest must read piece "The Idolatry of Interest Rates Part I: Chasing Will-o'-the-Wisp", which not only makes a mockery of central planners but also the intellectual conceits they all hold so dear, and which they will all hold dear all the way until the now inevitable collapse of "New Keynesian" economics.

And while there is much to discuss in his full 13 page paper, the following excerpt discussing how to spot groupthink in crowds (of economists) is what we found most relevant and amusing, perhaps because the entire world is now caught in a groupthink mode, and what's worse, a groupthink that is peddling the wrong solution to the worldwide problem that can be summarized as simply as "$200 trillion in debt."

From Jim Montier:

Wisdom of crowds or groupthink extraordinaire?

One could take the view that so many bright individuals all coalescing around a single framework was evidence of the wisdom of crowds. However, rather than representing the power of consensus, it appears to me to be evidence of extreme groupthink – it is very telling that not one of the aforementioned luminaries has questioned the framework itself.

One of the preconditions for the wisdom of crowds to hold is that people must be independent. This clearly isn't the case with the above coterie of economists, many of whom trained at the same university under the same teacher. As Steve Keen pointed out, "If I were describing a group of thoroughbred horses, alarm bells would already be ringing about a dangerous level of in-breeding."

The term "groupthink" was coined by Irving Janis in 1972. In his original work, Janis cited the Vietnam War and the Bay of Pigs invasion as prime examples of the groupthink mentality. However, modern examples are all too prevalent.

Groupthink is often characterised by:

A tendency to examine too few alternatives;

A lack of critical assessment of each other's ideas;

A high degree of selectivity in information gathering;

A lack of contingency plans;

Poor decisions are often rationalised;

The group has an illusion of invulnerability and shared morality;

True feelings and beliefs are suppressed;

An illusion of unanimity is maintained;

Mind guards (essentially information sentinels) may be appointed to protect the group from negative information.

Perhaps it is just me, but these traits seem to pretty much capture the nature of mainstream economics these days.

SMG

Groupthink among economists only? Heck most of Western Civilization is in groupthink. Everything is Awesome! TM Remember.

NoDebt

Guys, again, let's think a little deeper here. It's not so much that they all believe it to be true, it's because they all NEED it to be true.
First off, the alternative to the current "low interest rates will stimulate the economy" (i.e. throw money at anything that moves) is what, exactly? Either it doesn't stimulate the economy or has no effect. Leaving them in a heluva lurch.
But this is small beans. Here's what really matters: their own self-interest.
If this argument (fairy tale) is shown not to be true or correct, their little ivory tower crashes down, their plum positions get vacated for another, their friends experience similar catastrophe and their self-supporting power network will be swept away and replaced with another, including their buddies in "academia" from which they sprang.
Given that even the slowest-witted among them must by now realize this fantasy of money printing stimulating the economy didn't work and is NEVER going to work, they have no choice but to either circle the wagons and close ranks or start getting picked off one by one. They are a union, a cabal, a society and, as such, must provide a united front, unassailable by mere facts.
The word has already been spread: hang together or hang separately. For this and other reasons they MUST have groupthink.

[May 18, 2015] Stock Market Valuation Exceeds Its Components' Actual Value - Slashdot

An anonymous reader writes: James Tobin, a Nobel Prize-winning economist, developed a concept called "Q-value" - it's the ratio between two numbers: 1) the sum of all publicly-traded companies' stock valuations and 2) the value of all these companies' actual assets, if they were sold. Bloomberg reports that the continued strength of the stock market has now caused that ratio to go over 1 - in other words, the market values companies about 10% higher than the sum of their actual assets. The Q value is now at its highest point since the Dot-com bubble. Similar peaks in the past hundred years have all been quickly followed by crashes.

Now, that's not to say a crash is imminent - experts disagree on the Q-value's reliability. One said, "the ratio's doubling since 2009 to 1.10 is a symptom of companies diverting money from their businesses to the stock market, choosing buybacks over capital spending. Six years of zero-percent interest rates have similarly driven investors into riskier things like equities, elevating the paper value of assets over their tangible worth."

Others point out that as the digital economy grows, a greater portion of publicly traded companies lack the tangible assets that were the hallmark of the manufacturing boom.

[May 17, 2015] This May Just Be The Start Of The Oil Price War Says IEA

05/16/2015 | Zero Hedge
Submitted by Andy Tully via OilPrice.com,
Saudi Oil Minister Ali al-Naimi may be one of the most powerful individuals in the global oil industry. After all, as the top oil official in arguably the world's most influential oil-producing country, he has enormous influence.

But for all his power, is he the most ingenious? That question arises from the release of two reports on the current state of the oil industry that look at whether or not OPEC's strategy of forcing US shale to cut back is succeeding.

The first, issued on May 12 by OPEC, says, in essence, that Saudi Arabia's effort to keep its own oil production at near-record highs is succeeding in wresting market share back from US producers of shale oil, also called "light, tight oil" (LTO). The second, issued a day later by the International Energy Agency (IEA), agrees, but only up to a point.

"In the supposed standoff between OPEC and U.S. light tight oil (LTO), LTO appears to have blinked," the IEA reported. "Following months of cost cutting and a 60 percent plunge in the U.S. rig count, the relentless rise in U.S. supply seems to be finally abating."

But the report from the Paris-based IEA, which advises 29 industrialized countries on energy policy, also pointed to a rebound in oil prices that could benefit US shale producers.

As both the OPEC and IEA reports point out, the decline in US shale oil output has somewhat reduced the oil glut and led oil prices to rally up to about $65 per barrel. And the IEA adds that this brings LTO back above the threshold where its production becomes profitable again.

But that, evidently, isn't good enough for both domestic and foreign shale drillers in the United States, and this is where ingenuity enters the picture. "Several large LTO producers have been boasting of achieving large reductions in production costs in recent weeks," the report said.

For example, Statoil, Norway's huge state-owned energy company, is trying out new techniques of hydraulic fracturing, or fracking, in Texas' Eagle Ford shale field. They include using different grades of sand to mix with water and chemicals, and drilling at varying depths, to increase oil yields.

"There's a proverb in Norway that says necessity teaches the naked woman how to knit," Bjorn Otto Sverdrup, a Statoil vice president, told The New York Times, during a tour of the company's shale operations in Kennedy, Texas.

Evidently this mother of invention is showing some success. Statoil may have cut the number of its rigs at Eagle Ford from three to two in 2014, but its production from the shale field is up by one-third. The new fracking method has also cut the cost of extraction from an average of $4.5 million per well to $3.5 million, in part because it's been able to reduce drilling time from an average of 21 days to 17.

Against this backdrop, then, it's not surprising that the IEA isn't so sure that OPEC in general, and al-Naimi in particular, have the upper hand – yet. "It would thus be premature to suggest that OPEC has won the battle for market share," the agency's report said. "The battle, rather, has just started."

[May 17, 2015]Dumping only works if you destroy, buy or otherwise acquire control on your competitor s

astabada, May 14, 2015 at 9:06 pm
This article is from Sputnik News.
Six months ago, OPEC, led by Saudi Arabia, announced a surprising decision to counter rivals' energy production. Instead of cutting back on oil production to match global demand, member states would hold steady.

[…] by flooding the market, global prices would plunge, and more high-priced competitors would be forced to respond. The main target, US shale companies, would hopefully collapse as they were forced to cut spending.

Six months later, the plan seems to be working.

Well done Saudi Arabia, well done. Except oil is a finite resource, so US oil (and Venezuelan, Russian, Iranian oil, …) are still there, and eventually will get sold at even higher prices.

Dumping works if you destroy, buy or otherwise acquire control on your competitors.

If you had ten canvas from van Gogh, would you sell them at half price to prevent your competitors from selling theirs?

If you answered yes to the above question, congratulations! You are eligible to be Oil Minister of the Kingdom of Saudi Arabia! Contact us immediately (please outside lunch hours).

[May 14, 2015] A Short History of Financial Euphoria by John Kenneth Galbraith

Amazon.com Books
Sergio Da Silva, July 1, 2001
Bubble Story
IN THIS SMALL but witty and well-crafted book, Galbraith chronicles the major speculative episodes, from the seventeenth-century tulipmania to the junk-bond follies of the eighties. The book was first published in 1990 and thus the recent dotcom-bubble burst is not covered. Nevertheless, the Harvard professor's book is still worth reading. A reason is that he claims to have identified common patterns in the history of financial euphoria. `In small ways the history of the great speculative boom and its aftermath does change. Much, much more remains the same', he predicts.

The perennial features are these. Some seemingly new and desirable artifact or development captures the financial imagination of a large number of people (say, group 1). The arrival of tulips in Western Europe, gold in Louisiana, the advent of joint-stock companies (corporations), real estate in Florida, or the economic designs of Reagan are all examples. The price of the object of speculation goes up. The object when bought today is worth more tomorrow. This attracts new buyers and assures a further price increase. Those in group 1 are persuaded that the new price-enhancing circumstance is under control, and expect the market to stay up and go up, perhaps indefinitely. The individual or institution that discovered the novelty (in group 2) is thought to be ahead of the mob. Fewer in number, individuals of group 2 perceive the speculative mood of the moment, try to get the maximum reward from the increase as it continues, and plan to be out before the eventual crash. The affluence of group 2 is wrongly associated, by group 1, with a miraculous financial genius. When something triggers the ultimate reversal, group 2 decides now is time to get out. Group 1 finds its illusion abruptly destroyed. Both groups sell or try to sell. The market collapses.

Galbraith observes that, in this process, `speculation buys up the intelligence of those involved'. The crowd converts the individual in group 1 from possessing reasonable good sense to stupidity. Those in group 2 also make errors of vanity by thinking they will beat the speculative game. It seems that `all people are most credulous when they are most happy'. Reputable public and financial opinion reinforces euphoria by condemning those who express doubt or dissent by warning of a crash. The celebrated Yale economist Irving Fisher, for instance, spoke out sharply against Roger Babson, who foresaw the crash of 1929. But the critic must wait until after the crash for any approval, Galbraith laments.

Despite the fact that common features in speculative episodes recur, history counts little because a financial disaster is quickly forgotten by a new, self-confident generation. Something is perceived as a financial novelty merely because the financial memory is short: `financial operations do not lend themselves to innovation'. Insightfully, Galbraith notices that all financial innovation involves the creation of debt leveraged against more limited assets. This is the case of banks, whose debt is leveraged on a given volume of hard cash. This is also the case of the holding companies created in the 1920s, whose stockholders issued bonds and preferred stock to buy other stocks. And this is the case, too, of the junk bonds of the mergers-and-acquisitions mania in the 1980s, when high-risk, higher-interest bonds were issued in greater volume against the credit of the companies being taken over. As Galbraith puts it: `the world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version'.

However a crisis may strike at any moment whenever a debt is perceived to become dangerously out of scale in relation to the underlying means of payment. After the crash, group 1 expresses anger against the `financial genius' of group 2. `Financial genius is before the fall', Galbraith prophesies.

Group 1 finally realizes that having more money may mean that a person in group 2 is indifferent to moral constraints. Group 2 could have even gone beyond the law, as far as leverage is concerned. Incarceration of some individuals of group 2 may follow. Leverage is seen as morally disputable at last.

Talks of regulation and reform follow. However, the speculation itself or the aberrant optimism that lay behind it will not be discussed. `Nothing is more remarkable than this: in the aftermath of speculation, the reality will be all but ignored.' Why? Because it is easier for group 1 to blame one individual or a few individuals in group 2 than to take responsibility for its own widespread naivety. And also because there is a need to find a cause for the crash that is external to the market itself. After all, the market is believed to be `a neutral and accurate reflection of external influences; it is not supposed to be subject to an inherent and internal dynamic of error'. The deficit in the federal budget was, for instance, blamed for the 1987 crash. Another anecdotal account of Black Monday has been that the crash was caused by portfolio insurance computer programs which sold stocks as the market went lower.

Galbraith's book is compulsory reading for economists, especially those working on behavioural finance or econophysics. Being an antidote to illusory financial euphoria, the book is thus of interest to the general public as well. Galbraith's own sense of déjà vu towards speculative financial bubbles enabled him to predict the crash of 19 October 1987. People really seem to be intrinsically unable to prevent getting stuck in the error-prone dynamics of bull markets, as in his `bubble story'.

But perhaps they have already learned some minor lessons on how to better protect themselves in the aftermath of crashes. Indeed despite the fact that the Black Monday crash was nearly twice as severe as the stock market collapse of 1929, it did not trigger a depression. Likewise the internet-bubble burst of 2000 had a surprisingly modest effect on wealth. Will we finally learn to learn from history?

[May 14, 2015] Russia crisis to hit ex-Soviet states harder than expected EBRD

In Ukraine, whose economy has been drained by the deadly separatist conflict in the country's east, "GDP is now expected to shrink by 7.5 percent this year -- a worsening outlook since January, when a five percent contraction was forecast," the EBRD said.
Mike

Ukraine's economy is not only being drained by the separatist war in the east, but the lack of work, foreign investment and the returning of thousands of Ukraine workers who live/work in Russia (just like other workers who have had to returned home to other ex-Soviet republics, something is not being mentioned here in the case of Ukraine) but the jobs have dried up do to the sanctions imposed by the West.

Real

That's exactly what Washington wanted -- weaken the economy and stability of Russia's neighboring countries to damage Russia in a long run.

[May 14, 2015] US Economy Collapses Again by JACK RASMUS

May 14, 2015 | CounterPunch
4th Time in 4 years
Data released last week by the U.S. government showed the U.S. economy came to a near halt in the first three months of 2015, falling to nearly zero – i.e. a mere 0.2 percent annual growth rate for the January-March quarter. The collapse was the fourth time that the U.S. economy in the past four years either came to a virtual halt or actually declined. Four times in four years it has stalled out. So what's going on?

In 2011, the U.S. economy collapsed to 0.1 percent in terms of annual growth rate. At the end of 2012, to a mere 0.2 percent initial decline. In early 2014, it actually declined by -2.2 percent.

And now in 2015, it is essentially flat once again at 0.2 percent. The numbers are actually even worse, if one discounts the redefinitions of GDP that were made by the US in 2013, counting new categories as contributing to growth, like R&D spending, that for decades were not considered contributors to growth – in effect creating economic growth by statistical manipulation. Those highly questionable 2013 definitional additions to growth added around US$500 billion a year to U.S. growth estimates, or about 0.3 percent of U.S. GDP. Back those redefinitions out, and the U.S. experienced negative GDP four times in the last four years. We get -0.2 percent in 2011, 0 percent in 2012, -2.5 percent in 2014 and -0.1 percent earlier this year.

It is therefore arguable that the U.S. has also experienced at least one mild 'double dip' recession, and perhaps two, since 2010.

All the four U.S. economic relapses occurred following preceding month gains in growth sufficient to generate claims by politicians and pundits alike that the U.S. economy had finally 'turned the corner' and was now on a path of sustained economic recovery. Yet every time such claims were made, reality contradicted their predictions within a few months, and the economy collapsed again, creating a scenario not of sustained economic recovery but of a 'stop-go' trajectory.

The consequence of this 'stop-go' recovery is that the U.S. economy since 2009 – the official end of the last recession – has experienced the weakest recovery from recession in the last fifty years, just about half the normal post-recession recovery. And this 'half normal' recovery since 2009 occurs after an annual growth averaging only 1.7 percent during the years 2001-2010 in the U.S. Something new is happening to the U.S. economy since 2000. What is it?

Recessions in the U.S. have occurred on average every 7 years. It's now year five since the last one officially ended in June 2009. What happens if the current weak recovery reaches its end at around 7 years, i.e. in mid-2016 a year from now? Will the next recession prove even worse, perhaps much worse, occurring as it will on a base recovery half of normal?

Unfortunately, such questions aren't asked by most mainstream economists, and certainly not by politicians and business media pundits.

Stop-Go On A Steady Slowing Global Economy

The problem of weak, stop-go, recovery in the U.S. today is further exacerbated by a global economy that continues to slow even more rapidly and, in case after case, slip increasingly into recessions or stagnate at best.

Signs of weakness and stress in the global economy are everywhere and growing. Despite massive money injections by its central bank in 2013, and again in 2014, Japan's economy has fallen in 2015, a fourth time, into recession.

After having experienced two recessions since 2009, Europe's economy is also trending toward stagnation once more after it too, like Japan, just introduced a US$60 billion a month central bank money injection this past winter. Despite daily hype in the business press, unemployment in the Eurozone is still officially at 11.4 percent, and in countries like Spain and Greece, still at 24 percent. Yet we hear Spain is now the 'poster-boy' of the Eurozone, having returned to robust growth. Growth for whom? Certainly not the 24 percent still jobless, a rate that hasn't changed in years. Euro businesses in Spain are doing better, having imposed severe 'labor market reforms' on workers there, in order to drive down wages to help reduce costs and boost Spanish exports. Meanwhile, Italy remains the economic black sheep of the Eurozone, still in recession for years now, while France officially records no growth, but is likely in recession as well. Elites in both Italy and France hope to copy Spain's 'labor market reforms' (read: cut wages, pensions, and make it easier to layoff full time workers). In order to boost its growth, Italy is considering, or may have already decided, to redefine its way to growth by including the services of prostitutes and drug dealers as part of its GDP. Were the USA to do the same redefinition, it would no doubt mean a record boost to GDP.

Across the Eurozone, the greater economy of its 18 countries still hasn't reached levels it had in 2007, before the onset of the last recession. Unlike the U.S.'s 'stop-go', Europe has been 'stop-go-stop'.

Even beyond the Eurozone, in the broader Euro area the picture is not much better. After a brief, artificial real estate boom fueled by foreign investment, the UK is now growing again at a mere 0.3 percent rate. And then there's China, where economic growth continues to slow, despite multiple fiscal and monetary stimulus programs introduced the past two years to try to boost the economy further. And the global slowdown applies not just the largest economies. Emerging market economies in Latin America, Africa, and elsewhere that are especially dependent on commodities production and exports have been descending one by one into recession, or at best stagnating.

Yet despite this growing global economic weakness, and the U.S. economy's repeated annual economic relapses and 'half normal' recovery rate, we are still being told that the U.S. economy is sound and that it will lead the rest of the world economy toward sustained economic growth this year and next.

It's the Weather!

We're told the declines in U.S. growth the last two years – January to March 2015 and before that 2014 – have been due to 'bad weather'. And that this coming summer 2015 the U.S. economy will 'snap back' again, as it did last summer 2014.

But is economic forecast by weather metaphor really the cause of the recent U.S. slowdown? Not really. Even economists themselves admit that, at the very most, only 0.5 percent of last quarter GDP decline can be attributed to weather. If the fourth quarter 2014 U.S. GDP was 2.2 percent, in other words, then only -0.5 percent of the drop was due to weather. So what about the other -1.5 percent drop from the fourth to the first quarter 2015?

A closer look shows that at least -1.25 percent of that -1.5 percent was due to the sharp decline in U.S. exports. That decline was due largely to the US dollar's sharp rise in value compared to other currencies since last fall. A rising dollar makes U.S. exports more expensive. U.S. exporters lose out to European, Japanese and Chinese competitors. Since U.S. exports are largely manufactured goods, that means U.S. manufacturing slows – which it has. And that in turn means U.S. growth slows.

The reason for the dollar's rise is threefold. First, the U.S. central bank's repeated signaling of intent to raise U.S. interest rates this year. Second, the collapse of world oil prices that also drive up the dollar. Third, the massive money injections by Europe and Japan central banks in the form of 'quantitative easing' (QE) programs that are designed to drive down the value of the Euro and the Yen in order to achieve a competitive advantage for their region's exports at the expense of U.S. exporters.

What's going on globally today is rolling 'competitive devaluations' of currencies by means of massive central bank monetary injections. In ways this is somewhat like the 1930s depression. Then countries devalued their currencies by legal declaration, as they tried to boost their economies by stealing exports from competitors. The problem with that strategy is that all could do it, and they did. So no one gained in the end and the global economy and trade sank further. Today's new form of competitive devaluation is no different. It signals the major capitalist regions of the world – i.e. north America, Europe, Japan, and now even China – are beginning to fight over a slower growing global economic pie. The devaluations are just assuming a different form. Not legal declaration but monetary injection by central banks.

In early 2014 Japan introduced its QE and central bank injection. It gained a temporary trade advantage. But then Europe did the same. Japan lost its advantage, which Europe gained. The U.S. lost the most in terms of exports, since its dollar rose for two reasons – Japan and Europe currencies falling and talk of U.S. interest rate hikes as well.

But most recently, the U.S. central bank has signaled that interest rates may not rise this year. Oops. There goes the Euro and Yen losing its advantage once more and their economies slipping again. This see-saw, back and forth, fighting over a shrinking trade pie only reveals a new instability growing in the global economy. Europe in particular will soon be hammered by a potential Greek debt default, a continually imploding Ukrainian economy it has committed to bail out at US$40 billion so far, and now the U.S. indicating it won't raise rates. Watch Japan, which will likely again devalue still further to offset U.S. and Europe measures. Meanwhile, as China continues to slow, it could eventually reduce the Yuan to boost its exports as well.

What this global scenario means is that the U.S. economy significantly weakened in the first quarter 2015 due not to weather, but because of loss of global exports due to the reasons noted. But trade competition and currency wars are not the only explanation for the near collapse of the U.S. economy last quarter.

Collapse of Oil Prices and U.S. Economic Slowdown

Another major development in 2014 in the U.S., that disappeared by early 2015, was the Oil/Shale Gas boom. After having surged to record levels in the first half of 2014, contributing largely to the summer 2014 U.S. 5 percent GDP rise, after mid-year the global price of oil collapsed. By end of year 2014 the collapse was in full swing. Investment in this sector fell by nearly half, regional construction activity in the Dakota-Texas area also fell abruptly, as did the mining activity as oil/gas wells were shut down, and as railroad and trucking transport activity declined. A major contributor to 2014 economic growth in the U.S. thus fell through by early 2015. What's significant, moreover, is that it won't come back in 2015. So the 'recovery' in the summer of 2014 won't have this contributing factor behind it in 2015.

One-Time Consumer Spending on Health Care

Another temporary factor that contributed to the summer 2014 surge in U.S. growth, that has also since disappeared, is first time consumer household spending on healthcare services. Last summer was the first full year of sign-ups by 10 million households to Obama's 'Affordable Care' Insurance Program. Spending on new insurance premiums, and on healthcare services by millions of new customers for the first time, together served to give U.S. GDP last summer 2014 another major boost. But those sign-ups have leveled off. Most of those who wanted to sign up have done so. Future growth in health insurance and health care services has therefore leveled off.

So like the shale/oil gas surge and the export-trade advantage, the health care spending surge contribution to U.S. economic growth is most likely temporary as well.

Why the US Economy Will Continue A 'Stop-Go' Trajectory

There are three fundamental causes why the U.S. economy will continue on its 5 year long, stop-go recovery trajectory until the next recession in 2016 or after.

First, there is insufficient wage and income growth for the approximate 100 million wage earning households that constitute the bulk of consumer spending in the U.S., which accounts for roughly 70 percent of the US economy annually. In turn, the reason for the lack of wage and income growth by these households is the lack of full time, decent paying jobs creation in the US. Jobs that are being created are low pay, no benefit jobs. Part time and temp jobs. Service jobs, and few manufacturing or construction jobs. Working class consumption is also compressed by inability to earn interest on basic savings accounts. Then there's household debt, for past education borrowing, for auto purchases, and credit cards, which also takes a toll on spending.

Second, there's the lack of investment spending by business. Large, multinational corporations in particular continue to prefer to invest outside the U.S. rather than in it. When not investing abroad, they prefer to 'spend' their record profits on stock buybacks and dividend payouts to shareholders. More than US$5 trillion worth since 2009. Another trillion dollars projected in 2015 alone as well. Then there's their growing investing in financial asset markets and securities, which now constitute about 25 percent of all multinational corporate investing. And what they don't invest in financial assets, invest abroad, or spend in buybacks and dividends, they just hoard as cash on their balance sheets, reportedly now in excess of US$1.7 trillion in their offshore subsidiaries. None of these alternatives and diversions result in real investment that create real decent paying jobs, at decent pay and benefits. Hence, consumption by the 100 million households stagnates or lags-except for more debt based spending perhaps.

Third, there's no sustained recovery on the near horizon because the U.S. government has clearly decided on growing only defense spending. The new Republican Party dominated U.S. Congress insists on cutting social programs further, including long time once sacrosanct programs like Medicare for seniors. In the first quarter U.S. GDP numbers, spending by State and Local governments slowed noticeably, as did US federal spending on non-defense products and projects.

Instead of sustained growth, the scenario is 'stop-go', as this or that temporary factor occur to boost U.S. GDP and growth temporarily, followed by other temporary developments that in turn subsequently drag U.S. GDP back to zero or negative growth. Add further to this scenario the Eurozone's continuing economic instability, the UK's new stagnant growth, Japan's descent into yet another recession, China's deepening struggle to maintain 7 percent growth that is almost certain to fall below that level soon, oil and commodity producing emerging markets that are already in recession, and an historic weak recovery already in its 5th year of an average 7 year cycle-then what remains is a likely further long term, stop-go US economy as the global economy continues to slow as well.

Jack Rasmus is the author of the forthcoming book, 'Systemic Fragility in the Global Economy', by Clarity Press, 2015, and the prior book's, 'Epic Recession: Prelude to Global Depression', 2012, and 'Obama's Economy: Recovery for the Few', 2012. He blogs at jackrasmus.com.

This article first appeared in teleSUR.

[May 13, 2015] What is neoliberalism

"...Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts."

"...Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy)."

"...The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship. "

"...One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector. "

"...one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit. "

anotherangryvoice.blogspot.com

Neoliberalism is a very important, yet often misunderstood concept. To give a short, oversimplified definition: Neoliberalism is a small-state economic ideology based on promoting "rational self-interest" through policies such as privatisation, deregulation, globalisation and tax cuts.

People often boggle at the use of the word "neoliberal" as if the utterer were some kind of crazed tinfoil hat wearing conspiracy theorist raving about insane lizard-man conspiracies, rather than someone attempting to concisely define the global economic orthodoxy of the last three decades or so.
One of the main problems we encounter when discussing neoliberalism is the haziness of the definition. Neoliberalism is certainly a form of free-market neoclassical economic theory, but it quite difficult to pin down further than that, especially since neoliberal governments and economists carefully avoid referring to themselves as neoliberals and the mainstream media seem to avoid using the word at all costs (think about the last time you saw a BBC or CNN news reporter use the word "neoliberal" to describe the IMF or a particularly right-wing government policy).
The economic model that the word "neoliberalism" was coined to describe was developed by Chicago school economists in the 1960s and 1970s based upon Austrian neoclassical economic theories, but heavily influenced by Ayn Rand's barmy pseudo-philosophy of Übermenschen and greed-worship.
The first experiment in applied neoliberal theory began on September 11th 1973 in Chile, when a US backed military coup resulted in the death of social-democratic leader Salvador Allende and his replacement with the brutal military dictator General Pinochet (Margaret Thatcher's friend and idol).
Thousands of people were murdered by the Pinochet regime for political reasons and tens of thousands more were tortured as Pinochet and the "Chicago boys" set about implementing neoliberal economic reforms and brutally suppressing anyone that stood in their way. The US financially doped the Chilean economy in order to create the impression that these rabid-right wing reforms were successful. After the "success" of the Chilean neoliberal experiment, the instillation and economic support of right-wing military dictatorships to impose neoliberal economic reforms became unofficial US foreign policy.
The first of the democratically elected neoliberals were Margaret Thatcher in the UK and Ronald Reagan in the US. They both set about introducing ideologically driven neoliberal reforms, such as the complete withdrawal of capital controls by Tory Chancellor Geoffrey Howe and the deregulation of the US financial markets that led to vast corruption scandals like Enron and the global financial sector insolvency crisis of 2007-08.
By 1989 the ideology of neoliberalism was enshrined as the economic orthodoxy of the world as undemocratic Washington based institutions such as the International Monetary Fund (IMF), the World Bank and the US Treasury Department signed up to a ten point economic plan which was riddled with neoliberal ideology such as trade liberalisation, privatisation, financial sector deregulation and tax cuts for the wealthy. This agreement between anti-democratic organisations is misleadingly referred to as "The Washington Consensus".
These days, the IMF is the most high profile pusher of neoliberal economic policies. Their strategy involves applying strict "structural adjustment" conditions on their loans. These conditions are invariably neoliberal reforms such as privatisation of utilities, services and government owned industries, tax cuts for corporations and the wealthy, the abandonment of capital controls, the removal of democratic controls over central banks and monetary policy and the deregulation of financial industries.
Neoliberal economic policies have created economic disaster after economic disaster, virtually wherever they have been tried out. Some of the most high profile examples include:
South Africa: When the racist Apartheid system was finally overthrown in 1994, the new ANC government embraced neoliberal economic theory and set about privatising virtually everything, cutting taxes for the wealthy, destroying capital controls and deregulating their financial sector. After 18 years of neoliberal government, more black South Africans are living in extreme poverty, more people are unemployed and South Africa is an even more unequal society than it was under the racist Apartheid regime. Between 1994 and 2006 the number of South Africans living on less than $1 a day doubled from 2 million to 4 million, by 2002, eight years after the end of Apartheid 2002 the unemployment rate for black South Africans had risen to 48%.*

Russia: After the fall of communism, neoliberal economists flooded into Russia to create their free-market utopia, however all they managed to do was massively increase levels of absolute poverty, reduce productivity and create a few dozen absurdly wealthy oligarchs who siphoned their $trillions out of Russia to "invest" in vanity projects such as Chelsea FC. Within less than a decade of being one of the world's two great super-powers, the neoliberal revolution resulted in Russia defaulting on their debts in 1998.
Argentina: Praised as the poster-boys of neoliberalism by the IMF in the 1990s for the speed and scale of their neoliberal reforms, the Argentine economy collapsed into chaos between 1999-2002, only recovering after Argentina defaulted on their debts and prioritised repayment of their IMF loans, which allowed them to tear up the IMF book of neoliberal dogma and begin implementing an investment based growth strategy which boosted the Argentine economy out of their prolonged recession. The late Argentine President Néstor Kirchner famously stated that the IMF had "transformed itself from being a lender for development to a creditor demanding privileges".
The Eurozone: The right-wing love to drivel on about how the EU is a "leftie" organisation, but the unelected technocrats that run the EU (the European commission and the European Central Bank) are fully signed up to the neoliberal economic orthodoxy, where economic interests are separated from democratic control. Take the economic crisis in Greece: The EC and the ECB lined up with the neoliberal pushing IMF to force hard line neoliberal reforms onto the Greek economy in return for vast multi-billion "bailouts" that flowed directly out of Greece to "bail out" their reckless creditors (mainly German and French banks). When the neoliberalisation reforms resulted in further economic contraction, rising unemployment and worsening economic conditions the ECB, EC, IMF troika simply removed the democratic Greek government and appointed their own stooge, an economic coup trick they also carried out in Italy. Spain and Ireland are other cracking examples of neoliberal failure in the Eurozone. These two nations were more fiscally responsible than Germany, France or the UK in terms of government borrowing before the neoliberal economic meltdown, however their deregulated financial sectors inflated absurd property bubbles, leaving the Irish and Spanish economies in ruins once the bubbles burst around 2007-08.

The United Kingdom: Here is a short article summarising how three decades of neoliberal policy have undone many of the gains made during the mixed-economy era.
Despite this litany of economic failures, neoliberalism remains the global economic orthodoxy. Just like any good pseudo-scientific or religious orthodoxy the supporters of neoliberal theory always manage to come up with a load of post-hoc rationalisations for the failure of their theories and the solutions they present for the crises their own theories induced are always based upon the implementation of even more fundamentalist neoliberal policies.

One of the most transparent of these neoliberal justification narratives is the one that I describe as the Great Neoliberal Lie: The fallacious and utterly misleading argument that the global economic crisis (credit crunch) was caused by excessive state spending, rather than by the reckless gambling of the deregulated, neoliberalised financial sector.
Just as with other pseudo-scientific theories and fundamentalist ideologies, the excuse that "we just weren't fundamentalist enough last time" is always there. The neoliberal pushers of the establishment know that pure free-market economies are as much of an absurd fairytale as 100% pure communist economies, however they keep pushing for further privatisations, tax cuts for the rich, wage repression for the ordinary, and reckless financial sector deregulations precicely because they are the direct beneficiaries of these policies. Take the constantly widening wealth gap in the UK throughout three decades of neoliberal policy. The minority of beneficiaries from this ever widening wealth gap are the business classes, financial sector workers, the mainstream media elite and the political classes. It is no wonder at all that these people think neoliberalism is a successful ideology. Within their bubbles of wealth and privilege it has been. To everyone else it has been an absolute disaster.
Returning to a point I raised earlier in the article; one of the main problems with the concept of "neoliberalism" is the nebulousness of the definition. It is like a form of libertarianism, however it completely neglects the fundamental libertarian idea of non-aggression. In fact, it is so closely related to that other (highly aggressive) US born political ideology of Neo-Conservatism that many people get the two concepts muddled up. A true libertarian would never approve of vast taxpayer funded military budgets, the waging of imperialist wars of aggression nor the wanton destruction of the environment in pursuit of profit.
Another concept that is closely related to neoliberalism is the ideology of minarchism (small stateism), however the neoliberal brigade seem perfectly happy to ignore the small-state ideology when it suits their personal interests. Take the vast banker bailouts (the biggest state subsidies in human history) that were needed to save the neoliberalised global financial sector from the consequences of their own reckless gambling, the exponential growth of the parasitic corporate outsourcing sector (corporations that make virtually 100% of their turnover from the state) and the ludicrous housing subsidies (such as "Help to Buy and Housing Benefits) that have fueled the reinflation of yet another property Ponzi bubble.
The Godfather of neoliberalism was Milton Friedman. He made the case that illegal drugs should be legalised in order to create a free-market drug trade, which is one of the very few things I agreed with him about. However this is politically inconvenient (because the illegal drug market is a vital source of financial sector liquidity) so unlike so many of his neoliberal ideas that have consistently failed, yet remain incredibly popular with the wealthy elite, Friedman's libertarian drug legalisation proposals have never even been tried out.
The fact that neoliberals are so often prepared to ignore the fundamental principles of libertarianism (the non-aggression principle, drug legalisation, individual freedoms, the right to peaceful protest ...) and abuse the fundamental principles of small state minarchism (vast taxpayer funded bailouts for their financial sector friends, £billions in taxpayer funded outsourcing contracts, alcohol price fixing schemes) demonstrate that neoliberalism is actually more like Ayn Rand's barmy (greed is the only virtue, all other "virtues" are aberrations) pseudo-philosophical ideology of objectivism than a set of formal economic theories.
The result of neoliberal economic theories has been proven time and again. Countries that embrace the neoliberal pseudo-economic ideology end up with "crony capitalism", where the poor and ordinary suffer "austerity", wage repression, revocation of labour rights and the right to protest, whilst a tiny cabal of corporate interests and establishment insiders enrich themselves via anti-competitive practices, outright criminality and corruption and vast socialism-for-the-rich schemes.
Neoliberal fanatics in powerful positions have demonstrated time and again that they will willingly ditch their right-wing libertarian and minarchist "principles" if those principles happen to conflict with their own personal self-interest. Neoliberalism is less of a formal set of economic theories than an error strewn obfuscation narrative to promote the economic interests, and justify the personal greed of the wealthy, self-serving establishment elite.
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[May 12, 2015]Infinity And The Bond Market Wormhole

Zero Hedge

The infinite loop continues.
Central banks ease, cajole, fluff up their feathers and push markets to where they don't belong. Markets try to reprice themselves closer to normalcy (sanity). Central banks see their main equity index fall and panic. Central bank pushes more chips in and everyone has to cover. Central banks declare victory. Smart investor sells.

It is so utterly appropriate that in the definition of infinite loop on Wiki it is pointed out that a synonym is "unproductive loop."

Like any table stakes game, running out of wherewithal is a killer. What if the other player doesn't value the keys to your car? It certainly feels that way when debating how clever it would be to juice inflationary expectations by increasing the inflation target, which will ignite the animal spirits of the economy, even though (wink, wink) we will pull back before it becomes a problem.

Another conceit being floated -- by the same central bankers who get night sweats thinking about the day after they raise rates some nominal amount -- is that their communication strategy has been so straight-forward and consistent that surely markets and the banks are on the same page.

Yes, it will be a "regime change," but surely we are all seeing and evaluating the data the same way. That is code for, we don't have a clue either, but we desperately can't threaten the wealth effect of higher equity prices. This supposed wealth effect is used to celebrate (see a chart of Chinese equities) what in an alternative universe would be viewed as a bubble.

Bonds are down because they are overpriced. They use the elevator rather than the stairs because the conceit of getting out right before it gets ugly never works unless there is massive official support, but even that is not always enough, let alone appropriate.

The numbers out of Europe have been getting better. 1Q growth in Europe was better than in the U.S. or U.K. QE is working and the economy is building momentum. So explain to me again why 10-year rates should be negative? The EUR is up over a percent this morning. That may look nice, but that is precisely what they don't need and shouldn't want. Let the rally continue and we can dust off the negative yield talking points.

[May 12, 2015] An Open Letter to Bill McNabb, CEO of Vanguard Group

Economist's View
Stephen G. Cecchetti and Kermit L. Schoenholtz (sort of a follow up on the claim that financial reform is working -- perhaps -- but as noted in the post below this one there is more to do):
An Open Letter to Bill McNabb, CEO of Vanguard Group: Dear Mr. McNabb,

We find your WSJ op-ed (Wednesday, May 6) misleading, short-sighted, self-serving, and very disappointing.

Vanguard has been in the forefront of providing low-cost, reliable access to U.S. and global capital markets to millions of customers, including ourselves. Following the financial crisis of 2007-2009, the firm naturally should be a leader in promoting a more resilient financial system. Your op-ed sadly goes in the opposite direction.

Let's start with the most stunning example: your defense of money market mutual funds. MMMFs are simply banks masquerading as professionally managed investment products. Like banks, they engage in liquidity and maturity transformation. Like banks, they faced runs in 2008 that ended only when the federal government provided a guarantee that put taxpayers at risk. Even with that guarantee, the government still had to support many healthy U.S. corporations with household names that – having previously relied on MMMF purchases of their commercial paper – suddenly faced a severe credit crunch. And, to limit a fire sale amidst the crisis, the Federal Reserve had to provide special funding to buyers to help MMMFs unload their assets.

Unsurprisingly, fund sponsors and their clients – both creditors and borrowers – want to keep these opaque federal subsidies (especially the implicit guarantees that only become explicit and transparent in a crisis). Like them, you make the false, but popular claim that power-hungry regulators (who wish to limit the subsidies that make future crises more likely) are attacking (taxing!) Main Street instead of Wall Street.

In fact, the investment company industry captured its primary regulator long ago, and hasn't let go. The Securities and Exchange Commission's 2014 "reform" of MMMFs is exhibit A. It almost surely makes these funds more, not less, liable to runs (see here and here). And – what a surprise – Congress seems to find protecting U.S. taxpayers from contingent liabilities (like implicit financial guarantees to your industry) less attractive than the largesse of financial lobbyists. Even the voluminous Dodd-Frank Act didn't address MMMFs! :

After quite a bit more, they conclude with:

As the CEO of one of the largest mutual fund companies in the world that is dedicated to serving and protecting small investors, you should be in the vanguard of advocating reforms that enhance stability.

Instead of complaining about regulation under the guise of protecting Main Street, you should highlight the vulnerabilities in our financial system and make the case for efficient regulation that treats all activities equally. You should also promote investment vehicles that are likely to prove robust in a crisis, while warning about existing products that probably won't be.

Only greater resilience in the system can make investors confident that capital markets here and elsewhere will remain strong. That is in Vanguard's interest, too.

Sincerely,

Stephen G. Cecchetti and Kermit L. Schoenholtz
anne -> anne:

Stephen Cecchetti and Kermit Schoenholtz are intent on undermining the most important stock and bond investment vehicle for moderately wealthy investors. Vanguard sets the finest of examples for the entire investment industry.

pgl -> anne:

Maybe you are being paid by Vanguard but you are wrong. You are not qualified to comment on financial economics. Stephen Cecchetti and Kermit Schoenholtz are.

And they are not trying to undermine anyone. They are simply telling the truth. Repeat your garbage all you want but it is garbage.

mulp -> anne:

Anne, unless you call the FDIC bailout of the money market funds, and the Fed providing liquidity to them in 2008-9 totally wrong and you should have suffered losses in your holding in MMMF as they marketed to market (breaking the buck) and froze withdrawals until they could liquidate their holdings, or alternatively, declared bankruptcy, then you are totally bought into the free lunch economics of Friedman, Reagan, and all the bank lobbyists dependent on government handling the losses while they reap the profits.

I remember the debate in the late 60s and early 70s on money market funds. We (the People) were assured that MMFs would never be seen as banks by any one investing in them because everyone would know the MMF would someday lose value and in the process freeze the assets for some length of time until the fund could be liquidated.

In other words, not one person putting money in a MMF would see it as a bank that pays higher interest. More importantly, no business or corporation would ever confuse a MMF with a bank.

In 2008, it is clear that the promises made four decades earlier to allow unsophisticated investors access money market funds without lengthy notice of intent to withdraw funds was all a lie, or a belief in tinker bell, pixie dust, and free lunches.

The money market funds should have been left to collapse in 2008 to destroy all faith in them as safe for individuals to use, and in the process, "destroy trillions in wealth" held by tens of millions of upper middle class workers.

I would have lost more than I did in 2008, but the demand for greater government control of the financial sector plus greater social safety nets would have followed.

This is the first time I've seen someone besides me state that mutual funds are banks as we knew them in the 60s, except they pay nothing for the protection of FDIC and Federal Reserve membership.

anne:

http://www.nytimes.com/2015/05/10/your-money/fees-on-mutual-funds-fall-thank-yourself.html

May 9, 2015

Fees on Mutual Funds Fall. Thank Yourself.
By JEFF SOMMER

Wall Street is reaping mounting revenue from mutual funds and exchange-traded funds, yet investors are paying lower fees.

That sounds like a good deal for the millions of people who use the funds to invest their savings, and a great deal for the companies that run and sell the funds.

But that win-win situation is not quite as benign as it would seem. Many investors are still - often unwittingly - paying huge fees that cut into retirement savings.

A new Morningstar study offers an excellent explanation of what is happening. The report, "2015 Fee Study: Investors Are Driving Expense Ratios Down," found that, by one measure, mutual fund and E.T.F. fees paid by individual investors had dropped significantly - 27 percent - over the last 10 years. But it isn't mainly because Wall Street fund managers have been reducing fees. The study found that investors have been voting with their feet, moving money from expensive funds into cheaper ones, like index funds. That drives down the asset-weighted cost of mutual funds, skewing the statistics.

"It's not mainly thanks to the efforts of the fund companies," Michael Rawson, an author of the Morningstar study, said in an interview. "It's mainly because people have gravitated toward lower-cost funds."

There's a good reason for the migration to lower-cost funds: They tend to outperform higher-cost ones. As I've written recently, most actively managed mutual funds don't beat the market; those that do beat it rarely manage the feat consistently. Many consumers have gotten the message. Of the 100 lowest-cost funds on the market in March, 95 were index funds that merely try to match the market, not beat it, according to an unpublished study by the Bogle Financial Markets Research Center. Many investors have chosen index funds.

Yet because of the peculiar economics of the asset management industry, fund companies are still doing great. The companies that run the funds have been reaping outsize rewards because as fund assets have grown - thanks in part to the market's terrific performance over the last six years - the companies' own costs have declined.

That's because of economies of scale that the companies don't share fully with customers. "The cost of individual funds has dropped, but the assets have gotten so much bigger that the companies' revenue from fees has grown tremendously," Mr. Rawson said. "They could be sharing more of those revenues with consumers, but they're not."

Using publicly available documents, the Morningstar researchers estimated that in 2014, fee revenue from all stock and bond mutual funds and E.T.F.s reached a record high of $88 billion, up from $50 billion a decade earlier. Assets under management grew 143 percent, and industry fee revenue surged more than 75 percent. The asset-weighted expense ratio - the funds' publicly declared expenses divided by the actual money that investors put into them - declined, too, but only by 27 percent. "The industry - rather than fund shareholders - has benefited most," the report said. Mr. Rawson, a Morningstar analyst, wrote the report with Ben Johnson, director of global E.T.F. research at the company.

The details are fresh, but the economic machine that propels the asset management business has been whirring along for decades. In a telephone interview last week, John C. Bogle, the founder of Vanguard, the industry's low-cost leader, said that in some ways, running a fund company is like operating a factory. As you ramp up production, it becomes cheaper to produce additional items because important costs - fixed costs - don't rise.

For an asset management company, he said, a stock or bond portfolio is the core product and the intellectual exercise of selecting stocks and bonds for it is a fixed cost. "When you set up and run the portfolio, it's not much more expensive to do it when your fund has, say, $1 billion in assets, than when it had only $30 million," Mr. Bogle said.

"Unless you cut your fees drastically, you're going to generate a lot more money for your company as assets grow," Mr. Bogle said. "But do you think the industry wants you to understand that? Absolutely not. Most fund companies aren't passing those savings on to investors."

Vanguard, which is owned by shareholders of its funds, passes along most of the savings. Morningstar found that Vanguard's average asset-weighted expense ratio in 2014 was 0.14 percent, lower than any of the other top asset management companies and lower than 0.64, the current asset-weighted expense ratio for all funds.

Mr. Bogle says companies should charge a modest, flat fee for setting up a portfolio - not a percentage of assets, charged annually, which is the current practice - and give fund investors the rest of the money. That would not generate the splendid profits that asset management companies and their owners have enjoyed, however.

No wonder that in a rising market, shares of publicly traded asset management companies tend to outperform their own stock portfolios. For example, since the beginning of March 2009, the start of the current bull market, through April, the stock of BlackRock, the giant E.T.F. company, returned 27.1 percent, annualized, compared with 20.8 percent annualized in the iShares Core S&P 500 E.T.F., a BlackRock fund that tracks the Standard & Poor's 500-stock index, according to Bloomberg. You would have been better off investing in BlackRock, the company, than in its own S.&.P. 500 index fund.

Why should mutual fund and E.T.F. investors care about the economics of fund expenses? Because it's the dark side of compounding, a force that can be magical when it works in your favor:.

anne:

https://personal.vanguard.com/us/funds/snapshot?FundId=0040&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard 500 Stock Index Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 12.56%)
3/30/2012 ( 15.93)
3/31/2010 ( 14.29)
3/31/2005 ( 7.89)

08/31/1976 ( 11.05)

https://personal.vanguard.com/us/funds/snapshot?FundId=0028&FundIntExt=INT#hist%3A%3Atab=1&tab=1

Vanguard Long-Term Investment-Grade Bond Fund

Average annual returns as of 3/31/2015

3/31/2014 ( 14.54%)
3/30/2012 ( 8.42)
3/31/2010 ( 10.34)
3/31/2005 ( 7.49)

07/09/1973 ( 8.71)

anne -> anne:

This is what Vanguard has meant for modestly wealthy conservative long term investments since the 1970s. From Warren Buffett to David Swenson, the chief investment officer at Yale, Vanguard has been the recommended vehicle for ordinary stock and bond investors.

Harming Vanguard would be a tragedy.

anne -> anne:

"Harming Vanguard would be a tragedy."

The point is harming Vanguard would be harming the ordinary investors who in effect own Vanguard since Vanguard is indeed a "mutual" fund company, a company owned by fund investors.

Dan Kervick -> anne:

The well-being of modestly wealthy long-term investors is only one factor to consider in relation to the well-being of the entire US and global economy. Shouldn't we broaden the discussion?

anne -> Dan Kervick:

Vanguard forms a model for investment well-being in the United States.

Bob:

Anne, having liquidity requirements is not a tax on investors. When McNabb represents it as such, he is lying. There are no new fees or taxes imposed. It just requires that stock funds hold a percentage of assets in safe bonds in order to handle redemptions in panic situation rather than rely on taxpayer bailouts.

Investors are still entitled to 100% of the returns from the fund. Yes, it is true that the total return may be somewhat less because bond returns are typically less than stock returns. However, that isn't a tax or fee on investors.

Almost no investors maintain a 100% stock portfolio. The typical investor my have anywhere from 20% to 80% bonds. So with the liquidity proposal, some portion of the bond assets they hold anyway will be in their stock fund. They can adjust their stock vs bond allocation accordingly, taking into account the bonds held in their stock fund. After this adjustment, they will receive exactly the same total portfolio return as previously.

The idea that this is a tax or fee is simply a lie. Investors still receive 100% of their investment return.

Dan Kervick -> anne:

Well, it seems prima facie plausible that the ability of some firms to deliver very high returns at low cost is due to the amount they have invested in high-risk, high-yield assets. An economy filled with many such firms is going to be an economy with a higher level of systemic risk. If we want a financially safer world, then some rich people are going to have to get richer much more slowly than they did in the past.
JohnH: I don't believe Vanguard needs any liquidity requirements because none of its investments use leverage. If money is needed, they would just sell the assets at the current market value and disburse the proceeds.
MMMFs are a little different, because there is the presumption that that value of each share will always be $1, which it will be if short term treasuries are kept to term. In case of a run, the Fed could also buy the treasuries and keep them a few weeks to maturity, as they do under QE.

For funds that use leverage, the risk of a run is entirely different:

Longtooth:

My interpretation of Anne's issue is that she simply favors individualism's credo for the "moderately wealthy" over the rest of our society, and rationalizes her position by believing (in faith) that Vanguard is immune to failure and thus would not be a participant in any new liquidity meltdown, ergo the nation's taxpayers should shoulder the burden of for profit financial investors when such financial markets fail.
I'm not sure what Anne's position is/was related to the meltdown just past.. but she's caught on the horns of dilemma --- either taxpayer's bail out private investors or they suffer an even greater financial and economic calamity.
The whole point of Cecchetti & Schoenholtz open letter is that a) Vanguard is not immune, and b) taxpayers should NOT be placed on the horns of that dilemma again, and thus the Vanguard letter was indeed self-serving and misleading.

EMichael -> Longtooth:

Perfect.

McMike:

Well, the critiques may be technically accurate enough as far as they go.
But I fail to see how attacking one of the last pockets of low-fee, consumer-facing investment helps anyone in the long run, except those who wish to herd all money into complex, opaque, high-fee vehicles.
Money Market "reform" may have found some reasonable-sounding talking points on which to promote itself, but stepping back, one cannot help but see it is simply one more wave in the voracious plunder and elimination of any and all alternatives to the relentless and jealous Wall Street flim flam machine.

anne:

A democratic investment company is a company that is investor owned, that offers the finest quality long term stock and bond funds with minimal transactions or turnover at low management cost for investors with $10,000. For those men and women who prefer to deal with a Goldman Sachs, a suggest giving that company a call and finding the difference.
The idea that a Warren Buffett is paid by Vanguard for recommending Vanguard only shows a failure to understand that Vanguard is owned by investors and there are no payments made to financial advisers for recommending the company.

DeDude -> anne:

If you think the leadership if Vanguard is controlled by and serving its investors - then you need to get out of the Ivory tower a little more.

Leadership in any Wall Street company are always serving themselves first, second and third. It is just that some of them are better at hiding that fact than others.

DeDude:

As much as Vanguard is trying to sell itself as the investors friend on Wall street, their leadership is just as much a part of the Wall street vampire tribe as the rest of them. Yes, they suck less less blood from each victim, but they are still blood-suckers. When I see Vanguard offering a fund that restrict its investments to companies that compensate CEOs less than average (for that industry and size), then I will know they have left the blood-sucker tribe. The one product that would truly serve the interest of investors is not available from any investment company, because as useful as it would be for us it is dangerous for them.

anne:

The descent to profane and violent language on this thread, the descent to intimidation and bullying, is intolerable, horrifying, and meant only to destroy this thread and this blog.

EMichael -> anne:

Personally, I think the constant repetition of a Edwardian rant about language is "intolerable, horrifying, and meant only to destroy this thread and this blog."
As Keynes said, "words ought to be a little wild".

Syaloch -> EMichael:

Amen to that.

Syaloch -> anne:

Am I missing something? Neither "vampire" nor "blood-sucker" is profanity -- unless you mean it in the sense of blasphemous, i.e. criticism of something sacred.
Do you think that this "class of people" who work on Wall Street are holy deities and therefore beyond reproach?

You attitudes toward Vanguard certainly seem to point in that direction:

anne -> Syaloch:

These very terms were used to characterize and dehumanize a class of people in the 1930s. These are terrible, fearful terms to use to describe and stereotype people.

anne:

The use of profanity and a metaphor from the 1930s in describing a class of people is intolerable. Paul Krugman made a serious mistake in using a 1930s metaphor in description, both for the dismissing of the decency of the humanness of an entire class of people and for setting an example as to use of the metaphor.
Millions of people were methodically murdered during the 1930s in the wake of a campaign to stereotypically deny their decency, to deny their humanness by using dehumanizing metaphors to describe them.

likbez -> anne:

While behavior that you mentioned are unacceptable, a part of the blame is on you: you demonstrated a perfect example of the psychology of rentier, Anna.
Rentier capitalism is a term used to describe the belief in economic practices of parasitic monopolization of access to any kind of property, and gaining significant amounts of profit without contribution to society.

DeDude:

No, I think people are just having a little fun with your stuttering failure to address the issues. However, I will stop now (before being called a Nazi again – but don't think your bullying has worked, its just that I am tired)

DrDick -> DeDude:

Nothing I love more than passive-aggressive bullies, but that is Anne's schtick.

likbez

The key question to Anne is whether Vanguard is really better for unmanaged funds then ETFs. You need to provides us with solid evidence or all your post with belong to the category that Prince Hamlet defined as:

The lady doth protest too much, methinks.

And for managed funds Vanguard experienced several high profile disasters such as with their flagship Primecap fund around 2008. In this sense there is not much to talk about here. Thir managed funds is just a typical example of "go with the crowd" approach.
Issue of fees was important in 90th. But now IMHO Vanguard belongs to "also run" category: for each Vanguard fund you probably can find other fund or ETF with comparable fees.
So why you so adamant in defending Vanguard Anne? It' just one of Wall Street sharks which was broght to the surface by establishing 401K in 1978
P.S. I also consider Vanguard to be among more decent category of Wall Street sharks. But it is still a shark.

[May 12, 2015] Crude Prices 'Spike' Despite Saudis Increasing 'Surge' Production

May 12, 2015 | Zero Hedge
As Barclays recently noted, there is a complete decoupling between futures and physical markets for crude oil and nowhere is that more evident than the high volume spike in crude that just happened after Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.
As Bloomberg reports,

Saudi Arabia boosted crude production for a second month to the highest level in at least three decades, helping to raise OPEC output as U.S. growth showed signs of slowing.

The Middle Eastern country increased daily crude output by 13,700 barrels in April to an average of 10.308 million, according to data the country communicated to the Organization of Petroleum Exporting Countries' secretariat in Vienna.

Prices collapsed by almost half last year as Saudi Arabia led OPEC in maintaining production rather than cede market share to booming U.S. output. The group has become more unified about keeping its daily output target of 30 million barrels because prices are now rising, according to Kuwait's oil minister. Oil in New York has surged more than 40 percent from its March low amid as U.S. drillers pulled a record number of rigs from fields.

"The Saudis must be content that their policy of protecting their market share has worked so well and prices did not stay below $50 for long," said Christopher Bellew, senior broker at Jefferies International Ltd. in London, who had not seen the report. "They held their nerve and now see a stable market with their share preserved."

...

OPEC maintained projections for supply growth from oil producers outside the group in 2015 at 680,000 barrels a day. It also kept its 2015 estimate for demand for the group's crude at 29.3 million barrels a day. That's about 1.5 million barrels a day less than the group produced in April.

Looney

The Saudis are really pissed now. They are in the full tantrum mode. Within just a few years they went from Bush's dearest friend to Obama's bitch. ;-)

Secret Weapon
The Saudis can go fuck themselves in the neck. 9/11 Truth.
samsara
They were just the drivers in the crime, the CIA and Mossad via dual citizenship Americans were the brains of the crime....

samsara

"...Saudi Arabia boosted crude production for a second month to the highest level in at least three decades..."

SA has seen the writing on the wall, Their tenure is almost up, and anticipate losing control of the infrastructure.
They are pumping out, and Cashing OUT as fast as they can.
Making as much as they can while they can before they are overthrown and move to a 'Safe Place" somewhere.
To know what I mean, look at this story.

Iran Responds To US Naval Escalation, Sends Warship Escort For Yemen Aid Vessel

[May 12, 2015] China overtakes US as biggest crude importer

May 11, 2015 | RT News

China has become world's biggest importer of crude oil in April, reaching a record number of almost 7.4 million barrels per day, compared to America's estimated 7.2 million bpd, Reuters reported. The growth came despite a slowing economy and was spurred by relatively low oil price and recent interest rate cuts in China as the government tries to stimulate growth. While the US may retake top spot in the months to come, China is expected to be the biggest importer of crude oil in the long run, while becoming the world's leading exporter of almost all major commodities, including coal and most metals.

[May 11, 2015] Avoid Fraud

May 11, 2015 | FINRA.org

Even if you have never been subjected to an investment fraudster's sales pitch, you probably know someone who has. Following the legendary Willie Sutton principle, fraudsters tend to go "where the money is"-and that means targeting older Americans who are nearing or already in retirement.

Financial fraudsters tend to go after people who are college-educated, optimistic and self-reliant. They also target those with higher incomes and financial knowledge, and have had a recent health or financial change. If you believe you've been defrauded or treated unfairly by a securities professional or firm, file a complaint. If you suspect that someone you know has been taken in by a scam, send a tip.

To entice you to invest, fraudsters use high pressure and a number of "tricks of the trade." Here are some common tactics:

The "Phantom Riches" Tactic-dangling the prospect of wealth, enticing you with something you want but can't have. "These gas wells are guaranteed to produce $6,800 a month in income."

The "Source Credibility" Tactic-trying to build credibility by claiming to be with a reputable firm or to have a special credential or experience. "Believe me, as a senior vice president of XYZ Firm, I would never sell an investment that doesn't produce."

The "Social Consensus" Tactic-leading you to believe that other savvy investors have already invested. "This is how ___ got his start. I know it's a lot of money, but I'm in-and so is my mom and half her church-and it's worth every dime."

The "Reciprocity" Tactic-offering to do a small favor for you in return for a big favor. "I'll give you a break on my commission if you buy now-half off."

The "Scarcity" Tactic-creating a false sense of urgency by claiming limited supply. "There are only two units left, so I'd sign today if I were you."

Protect yourself with these strategies:

End the conversation. Practice saying "No." Simply say, "I'm sorry, I'm not interested. Thank you." Let them know you'll think about it and get back to them. Have an exit strategy so you can leave the conversation if the pressure rises.

Turn the tables and ask questions. Before you give out information about yourself, ask and check.

Talk to someone before investing. Be extremely skeptical if the salesperson says, "Don't tell anyone else about this special deal!" A legitimate professional will not ask you to keep secrets. Even if the seller and the investment are registered, discuss your decision first with a family member, investment professional, lawyer or accountant.

Take your name off solicitation lists. To reduce the number of sales pitches you receive, use the Federal Trade Commission's National Do Not Call Registry.

FINRA offers an array of information and resources to help you outsmart investment fraud.

Red Flags of Fraud
Knowing the important warning signs of financial fraud puts you in charge.

Ask and Check
Ask the right questions and verify the answers before you work with an investment professional or buy an investment product.

How Social Pressure Cost One Family $30,000
It's often hard to resist an investment tip from someone in your social circle. Before handing over any money, you need to check out the investment and the person selling it.

Spot a Scam in 6 Steps
Financial fraudsters use sophisticated and effective tactics to get people to part with their money. Here are six steps you can take to help you spot an investment scam.

Investor Alerts
Don't be taken in by these frauds and scams. Learn how to protect yourself and your money.

More

Risk Meter
Use our Risk Meter to see whether you share characteristics and behavior traits that have been shown to make some investors vulnerable to investment fraud.

Scam Meter
In just four questions our Scam Meter will help you tell if an investment you are thinking about might be a scam.

[May 08, 2015] Capitalizing on Crisis The Political Origins of the Rise of Finance by Greta R. Krippner

August 31, 2014 | Amazon.com
Stephen Thompson on August 31, 2014

an attempt to understand financialization without applying class analysis
Krippner defines financialization as "the growing importance of financial activities as a source of profits in the economy." The excellent second chapter of Capitalizing on Crisis makes clear that a process of significant financialization has indeed occurred in the United States. The share of total corporate profits made by financial corporations rose from around 15% in the 1950s to about 45% (!) in 2000. At the same time, for nonfinancial corporations, the ratio of portfolio income to total cash flow increased sharply. These changes mark a structural change in the US economy, with corporations apparently channeling more of their retained earnings toward the finance of consumer credit and other unproductive activities, rather than fixed capital investment. It is also worth noting that by driving up rentier incomes, financialization has played a major role in making the distribution of income more regressive. Obviously there are a number of questions one could ask about all this. Krippner focusses on one of the most fundamental: why did financialization occur?
Krippner's answer goes essentially as follows. Starting in the late 1960s, various social movements (especially groups of women, African Americans, and unionized workers) in the United States became more powerful and demanded a larger share of national income for their members. The government responded by offering a bunch of expensive new public programs. At the same time, the government was ramping up military spending for the Vietnam war. This "guns and butter" policy, when coupled with the declining growth rate of the US economy, was highly inflationary. At the same time, since, under the New Deal regulatory system, the *nominal* interest rates on both bank deposits and mortgages were essentially fixed, the high rate of inflation drove the corresponding *real* rates of interest to low or negative levels, leading to a massive reallocation of credit in the economy. On the one hand, money flowed out of mortgage financing, so many middle-income people suddenly could not buy homes; on the other hand, banks lost deposits and were at risk of becoming insolvent. All of this set off a wave of financial innovation and political lobbying that undermined, and eventually destroyed, the policy of fixed interest rates that was at the heart of the New Deal bank-regulation system; this set off the process of financialization.

I think several aspects of the above account are correct; it explains why *some* powerful social groups would be willing to support and agitate for financial deregulation. The problem comes when Krippner tries to explain why policy makers ultimately supported the interests of these particular social groups over the others, which had strong reasons to oppose deregulation. For example, Krippner describes in the book how early experiments (during the mid-1970s) with adjustable-rate mortgages were met with fierce public opposition, and quickly fell apart as a result. But then this opposition seems to simply disappear by the end of the 1970s, when interest rates were completely deregulated. What happened? And why did policy makers ultimately deregulate interest rates?

The answer, according the Krippner, is that the deregulation of interest rates was part of a larger package of reforms, which allowed policy makers to avoid dealing with the conflict over income distribution that boiled over in the 1970s. It is argued that the expanded supply of credit in the US economy after the 1970s – which would not have been forthcoming without the deregulation of interest rates – made it possible to appease the various social groups that were demanding a better standard of living, and to do so without squeezing profits, increasing taxes or feeding inflation. The argument is that, by borrowing the money from abroad to finance social programs, and by increasing the amount of credit available to consumers, policy makers did not have to choose between different social priorities. Thus Krippner writes in the concluding chapter that financialization deferred "questions that first confronted U.S. society in the late 1960s and 1970s regarding which social actors should bear the burden of a fading prosperity."

I see two major problems with that argument.

The first problem is that the questions about "which social actors should bear the burden of a fading prosperity" were NOT deferred. In a process that started in the late 1970s (under Carter!) and accelerated in the 1980s, politicians and wealthy people initiated an onslaught of new policies that were clearly intended to both redistribute income upward and also crush the social movements which had been working to redistribute income downward in the 1960s and 1970s. Various forms of aid to the poor were cut, the tax system became much more regressive, huge sums of money flowed to right-wing advocacy groups and think tanks, the Fed implemented a tight-money policy which drove the unemployment rate sharply upward, there was an all-out assault on unions, government and foundation support for community activist groups was cut, etc. (For a detailed account of all this, I recommend the book Right Turn by Ferguson and Rogers). The success of this project is evidenced by the sharp change in the income distribution trends after the 1970s. In fact, far from *deferring* the conflict over income distribution, the financialization of the US economy seems to have actually been one of the biggest factors which helped to *settle* the conflict in favor of the upper socio-economic strata (see the paper "Financialization and US Income Inequality, 1970-2008" by Lin and Tomaskovic-Devey, published March 2013 in the American Journal of Sociology).

Second, it is far from clear that the increased availability of consumer credit did much of anything to compensate for the stagnating incomes received by the poor and working-class people after the 1970s. I have read, for example, that the consumption-fueled boom during the 1990s was financed entirely by loans taken out by *upper-income households* – the people who saw their share of income RISE during the era of financialization. And even if consumer credit did become significantly more available to the poor and working people in the 1980s (and I am not convinced this is true), why would they passively accept this as an alternative to the rising incomes they were demanding in the 1970s? I think the obvious explanation is that increased flows of credit were not what resolved the crisis of the 1970s; policy makers resolved the crisis of the 1970s by curtailing the political power of poor and working people, and by crushing progressive social movements.

Thus Krippner's argument that financialization, rather than being a class project, was simply an inadvertent result of policy makers' attempts to make voters happy, seems unconvincing to me. And I could go on much longer; I think Krippner's refusal to apply class analysis creates unnecessary problems throughout the book. Nevertheless, Capitalizing on Crisis is interesting and informative, and should be read by anyone who wants to better understand financialization. I found the chapter on Fed policy, in particular, to be illuminating. And like I said above, chapter 2 is excellent. But there are better books on financialization. I particularly recommend the work of Dumenil and Levy.

[May 08, 2015] Power The Essence of Corrupt Banking and Politics Is to Grow and Control the Debt

May 04, 2015 | Jesse's Café Américain

"Events have satisfied my mind, and I think the minds of the American people, that the mischiefs and dangers which flow from a national [central] bank far over-balance all its advantages. The bold effort the present bank has made to control the Government, the distresses it has wantonly produced, the violence of which it has been the occasion in one of our cities famed for its observance of law and order, are but premonitions of the fate which awaits the American people should they be deluded into a perpetuation of this institution or the establishment of another like it."

- Andrew Jackson, Sixth Annual Message, December 1, 1834

"Another cause of today's instability is that we now have a society in America, Europe and much of the world which is totally dominated by the two elements of sovereignty that are not included in the state structure: control of credit and banking, and the corporation.

These are free of political controls and social responsibility and have largely monopolized power in Western Civilization and in American society. They are ruthlessly going forward to eliminate land, labor, entrepreneurial-managerial skills, and everything else the economists once told us were the chief elements of production.
The only element of production they are concerned with is the one they can control: capital."

- Professor Carroll Quigley, Oscar Iden Lecture Series 3, 1976

Money is power. And those who control the money, if they have the will for it, can use it as a means to incredible power, to create debt, and to control it, thereby controlling the debtors, both as individuals, as communities, as regions, and whole nations.
This is the story of global trade deals, the Dollar, and the foul marriage between politics, money, and central banking. The more discretion and secrecy that is granted to those who create money and debt, the more vulnerable is the freedom of the people.
This is the story of Cyprus, of Greece, and of the Ukraine.
And there will be more.
This will to power is as old as Babylon, and as evil as hell.

"The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world's central banks which were themselves private corporations.
Each central bank, in the hands of men like Montagu Norman of the Bank of England, Benjamin Strong of the New York Federal Reserve Bank, Charles Rist of the Bank of France, and Hjalmar Schacht of the Reichsbank, sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent economic rewards in the business world."

Professor Carroll Quigley, Tragedy and Hope, 1966

"He promises you illumination, he offers you knowledge, science, philosophy, enlargement of mind. He scoffs at times gone by; he scoffs at every institution which reveres them.
He prompts you what to say, and then listens to you, and praises you, and encourages you. He bids you mount aloft. He shows you how to become as gods.
Then he laughs and jokes with you, and gets intimate with you; he takes your hand, and gets his fingers between yours, and grasps them, and then you are his."
John Henry Newman

Posted by Jesse at 8:03 PM

Category: audacious oligarchy, central banks, debt slavery, Federal Reserve, financial corruption, modern monetary theory, money corruption, political corruption

[May 08, 2015] Will oil prices keep rising. Signs say yes

May 08, 2015 | usatoday.com

Oil prices are up and could continue to see some strength coming from a very unlikely source: Eurozone growth.

That's not a typo. The European Union published a forecast on May 5 that pointed to a higher rate of economic expansion in the months ahead on the back of monetary stimulus and low oil prices. The EU could see growth of 1.8%, an upward revision from its previous forecast in February of 1.7%. That is not exactly lightning-speed growth, but it is a solid performance for the debt-ridden continent that has been fighting off recession.

Still, there is a massive hangover from the Eurozone crisis from the last few years – debt, high unemployment, banking fragility, and an unclear path forward. And, ironically, the improved outlook stemmed in part from low oil prices, but a stronger EU economy could contribute to higher oil prices. For the oil markets, a stronger European performance is an unlikely, but welcome, development.

With all of the quarterly earnings in from the oil majors, there is one common thread that runs through all of the reports. Profits from upstream oil and gas production were way down for the first quarter in 2015, but the damage was largely mitigated by downstream refining, which saw a large boost in revenue. Lower oil prices provide a larger margin for refiners to sell their products. But with WTI trading at a discount, refiners earn a little extra – buying crude at a discounted (WTI) price, and selling their refined products at a higher global price (more closely linked to Brent). By and large, the oil majors have their fingers in a lot of pies, and robust downstream operations provide a hedge against lower oil prices. That is not the case with smaller upstream companies that are more singularly focused on extraction. Those are the companies that are clearly hurting much worse.

ExxonMobil (XOM) saw its refining profits double even as its upstream activities suffered. BP (BP) saw downstream earnings more than double. Total (TOT) managed to triple its earnings from refining. And on it goes. Still, overall, profits for all the oil majors are down on balance, but the first quarter performances show the benefits of an integrated business model.

Another strategy that oil producers are using to alleviate the damage done from low oil prices is through financial mechanisms. Hedging their production at stable price levels could keep losses at a certain level, even if it means putting a ceiling on potential profits. Reuters reported that oil producers are stepping up their hedging, locking in prices that allow them to sell oil within a range of between, say, $45 and $70 per barrel. If prices drop below $45, these companies would be protected. Still, that means that they would miss out on higher profits if prices jump above $70. But after a year of extreme volatility, an increasing number of companies find it beneficial to hedge their future production to ensure some stability.

... ... ...

Russia continues to produce oil at a near-record rate. For the month of April, Russia produced 10.71 million barrels per day, a high in the post-Soviet era. The higher production is helping offset the decline in revenues from low prices and western sanctions. The Russian economy shrank by a painful 3.4% in March from the year before. The ruble has taken on a high degree of volatility, interest rates were jacked up to rein in inflation and capital flight, and government revenues have taken a hit. Russian President Vladimir Putin is surely breathing a sigh of relief with the recent uptick in oil prices, a rise of nearly 40% in the last few weeks. Brent is now trading above $66 per barrel, a level not seen since OPEC made its decision to leave its output unchanged last November.

Russian officials are set to meet with their OPEC counterparts in early June, with discussions covering the possibility of a coordinated output cut. But there is little scope for Russia to cut back on its production, given the aforementioned economic struggles. Russia declined to cooperate last time around. However, having seen OPEC's resolve in the face of low oil prices in the intervening months since their last meeting, perhaps Russia will reconsider balking at coordination.

OilPrice.com is a USA TODAY content partner offering oil and energy news and commentary. Its content is produced independently of USA TODAY.

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[May 06, 2015] Dangerous Markets Here Are Some Levels and Triggers to Watch

Jesse's Café Américain

We typically do not get major market corrections in May. They tend to cluster in the Spring and the Fall. By major correction I mean 15+%.

For example, in 1929 there was a 'market break' in March, and then the exchange shook it off and went on to have a bumpy summer of ups and downs with a final climb to a top in October.

Every market decline has its own specific course of events, but they do tend to have some things in common. There is generally a build up of conditions that make it the right kind of market, and then some trigger event occurs to set things in motion. It is much like what occurs in the build up to an avalanche, or a wildfire.

So we are talking about 'avalanche conditions.'

That does seem to be a little counter-intuitive, because we seem to have markets that are almost sleep walking within ranges with short term algo-driven volatility. These are very 'cynical markets.' The masters of the universe believe that they are firmly in control.

Looking at the composition of this market and the economies, I see bubbles both in the US and especially in China, in bonds and in stocks.

I see a paucity of liquidity of the right sorts, of determined investment money of the durable sort, and economies that are narrowing, with most of the discretionary money shoved well into the top tier of consumers and investors.

And the money is hot, compliments of the Fed, and the focus is for the most part short term. I think my opinion of the Fed is well known by now to any regular readers, and the ECB is no better.

So in surveying this mountain with its potentially dangerous conditions, one looks for potential trigger events.

Greece looms large. Despite the pooh-poohing and brinksmanship by both sides, a Greek failure could prove to be the underanticipated Lehman event that would set the cascade of dominos falling.

And then there are the many confrontational hotspots around the world, in the Mideast of course, in the South China Sea, and in the Ukraine among others.

What makes this particularly dangerous is the cavalier attitude of the neo-con chicken hawks towards military action, especially in some of the English speaking countries.
Two articles this morning brought this thinking into focus. But I have been having this conversation off and on with some trading friends for the past few weeks, and I also noted in the beginning of the year some signs of trouble. What 2000, 2008, and 2015 May Have In Common
The first, Shrinking Liquidity Exposes Markets to Crunch, sounds like a prelude to 'no one could have seen this coming.'

And the second from my friend Adam Taggart, For Heaven's Sake Hedge, shows some of the other aspects that make markets dangerous.

I have not yet seen the classic 'crash patterns' on the charts that I have documented extensively over the years, but as I am saying, and I hope I am clear about this, I see dangerous market conditions that, given the right kind of trigger event, could unleash quite a bit of mispriced risk and concealed fragility.

I don't get into sentiment or contrarian indicators all that often, because from my experience they can be very much in the eye of the beholder. But the tenor of the discussion on financial TV is especially disconnected from reality now, with a clueless bravado that is characteristic of a coming conflagration.

The discussion of the TPP this morning on Bloomberg and of gold on CNBC in particular were striking.

I am taking a defensive posture, not because I think we are going to crash the markets, since only mugs make those calls and bet on them with their own money. Rather, I think we are seeing dangerous markets, with the danger exacerbated by the willful arrogance of the market masters and their money men.

I extend this watch to October, and will keep looking for changes. I do not expect much to come of this. This is just a caution, but given a trigger event of sufficient magnitude, this could become a problematic market even during the dog days of Summer. Our leadership and financial management is just that bad, reckless and irresponsible.

One thing I learned, most painfully, is that the Fed can and will keep an obvious asset bubble going much longer than one might expect, given the lack of a major trigger event. And they have absolutely demonstrated a disregard for the consequences from doing so several times in the past fifteen years.

US Shale Sector Crashes After David Einhorn Repeats What Everyone Knows Already

Zero Hedge

Greenlight's David Einhorn has come out swinging at the Fed-fueled fracking frenzy and, after pointing out facts that are extremely widely known, and have been explained innumerable times here, sent Shale stocks tumbling... led by the so-called "MotherFracker" - Pioneer Natural Resources... Einhorn concludes, "Either way the frackers are fracked."

[May 04, 2015] Peak Oil Optimism

Zero Hedge

Speculative bets on rising Brent crude oil prices reached a new record last week but under the surface futures and options market positioning among managed money accounts is flashing a very red warning signal...

As Saxobank's Ole Hanson notes, the long/short ratio has reached 6.4 meaning that for each lot of shorts more than 6 lots are long.

Historically, this looks extreme and on three previous occasions since early 2013 a reading above 6 subsequently triggered sell-offs of which the most recent was last June when the price peaked at $115.

[May 04, 2015] Stephen Roach Derides Central Bankers' Mass Delusion

May 04, 2015 | Zero Hedge

Authored by Stephen Roach, originally posted at Project Syndicate,
The world economy is in the grips of a dangerous delusion. As the great boom that began in the 1990s gave way to an even greater bust, policymakers resorted to the timeworn tricks of financial engineering in an effort to recapture the magic. In doing so, they turned an unbalanced global economy into the Petri dish of the greatest experiment in the modern history of economic policy. They were convinced that it was a controlled experiment. Nothing could be further from the truth.

The rise and fall of post-World War II Japan heralded what was to come. The growth miracle of an ascendant Japanese economy was premised on an unsustainable suppression of the yen. When Europe and the United States challenged this mercantilist approach with the 1985 Plaza Accord, the Bank of Japan countered with aggressive monetary easing that fueled massive asset and credit bubbles.

The rest is history. The bubbles burst, quickly bringing down Japan's unbalanced economy. With productivity having deteriorated considerably – a symptom that had been obscured by the bubbles – Japan was unable to engineer a meaningful recovery. In fact, it still struggles with imbalances today, owing to its inability or unwillingness to embrace badly needed structural reforms – the so-called "third arrow" of Prime Minister Shinzo Abe's economic recovery strategy, known as "Abenomics."

Despite the abject failure of Japan's approach, the rest of the world remains committed to using monetary policy to cure structural ailments. The die was cast in the form of a seminal 2002 paper by US Federal Reserve staff economists, which became the blueprint for America's macroeconomic stabilization policy under Fed Chairs Alan Greenspan and Ben Bernanke.

The paper's central premise was that Japan's monetary and fiscal authorities had erred mainly by acting too timidly. Bubbles and structural imbalances were not seen as the problem. Instead, the paper's authors argued that Japan's "lost decades" of anemic growth and deflation could have been avoided had policymakers shifted to stimulus more quickly and with far greater force.

If only it were that simple. In fact, the focus on speed and force – the essence of what US economic policymakers now call the "big bazooka" – has prompted an insidious mutation of the Japanese disease. The liquidity injections of quantitative easing (QE) have shifted monetary-policy transmission channels away from interest rates to asset and currency markets. That is considered necessary, of course, because central banks have already pushed benchmark policy rates to the once-dreaded "zero bound."

But fear not, claim advocates of unconventional monetary policy. What central banks cannot achieve with traditional tools can now be accomplished through the circuitous channels of wealth effects in asset markets or with the competitive edge gained from currency depreciation.

This is where delusion arises. Not only have wealth and currency effects failed to spur meaningful recovery in post-crisis economies; they have also spawned new destabilizing imbalances that threaten to keep the global economy trapped in a continuous series of crises.

Consider the US – the poster child of the new prescription for recovery. Although the Fed expanded its balance sheet from less than $1 trillion in late 2008 to $4.5 trillion by the fall of 2014, nominal GDP increased by only $2.7 trillion. The remaining $900 billion spilled over into financial markets, helping to spur a trebling of the US equity market. Meanwhile, the real economy eked out a decidedly subpar recovery, with real GDP growth holding to a 2.3% trajectory – fully two percentage points below the 4.3% norm of past cycles.

Indeed, notwithstanding the Fed's massive liquidity injection, the American consumer – who suffered the most during the wrenching balance-sheet recession of 2008-2009 – has not recovered. Real personal consumption expenditures have grown at just 1.4% annually over the last seven years. Unsurprisingly, the wealth effects of monetary easing worked largely for the wealthy, among whom the bulk of equity holdings are concentrated. For the beleaguered middle class, the benefits were negligible.

"It might have been worse," is the common retort of the counter-factualists. But is that really true? After all, as Joseph Schumpeter famously observed, market-based systems have long had an uncanny knack for self-healing. But this was all but disallowed in the post-crisis era by US government bailouts and the Fed's manipulation of asset prices.

America's subpar performance has not stopped others from emulating its policies. On the contrary, Europe has now rushed to initiate QE. Even Japan, the genesis of this tale, has embraced a new and intensive form of QE, reflecting its apparent desire to learn the "lessons" of its own mistakes, as interpreted by the US.

But, beyond the impact that this approach is having on individual economies are broader systemic risks that arise from surging equities and weaker currencies. As the baton of excessive liquidity injections is passed from one central bank to another, the dangers of global asset bubbles and competitive currency devaluations intensify. In the meantime, politicians are lulled into a false sense of complacency that undermines their incentive to confront the structural challenges they face.

What will it take to break this daisy chain? As Chinese Premier Li Keqiang stressed in a recent interview, the answer is a commitment to structural reform – a strategic focus of China's that, he noted, is not shared by others. For all the handwringing over China's so-called slowdown, it seems as if its leaders may have a more realistic and constructive assessment of the macroeconomic policy challenge than their counterparts in the more advanced economies.

Policy debates in the US and elsewhere have been turned inside out since the crisis – with potentially devastating consequences. Relying on financial engineering, while avoiding the heavy lifting of structural change, is not a recipe for healthy recovery. On the contrary, it promises more asset bubbles, financial crises, and Japanese-style secular stagnation.

[May 04, 2015] Federal Reserve 1 - 0 Saudi Arabia

May 04, 2015 | Zero Hedge

Since we last updated the state of Saudi Arabia's reserve stash, things have gone from bad to worse. It appears the battle to crush US Shale producers is taking its toll as The FT reports, Saudi Arabia is burning through its foreign reserves at a record rate as the kingdom seeks to maintain spending plans (and thus social stability) despite lower oil prices. All the time The Fed remains 'easy', no matter how negative US Shale cashflows are, the muppets will buy their debt and keep the mal-invested market alive. Saudi reserves are now their lowest in almost 2 years (but they have plenty more to chew through to out-wait The Fed).

Saudi Reserves have dropped to 2 year lows and fallen by the most ever in the last 2 months...

As The FT reports,

The central bank's foreign reserves have dropped by $36bn, or 5 per cent, over the past two months, as newly crowned King Salman bin Abdulaziz al-Saud dips into Riyadh's rainy-day fund and increases domestic borrowing to fund public sector salaries and large development projects.

The latest data show Saudi's foreign reserves dropped by $16bn to $698bn in March, driven by public sector bonuses paid by King Salman after he assumed power in January. This follows a fall of $20bn in February. Saudi Arabia has spent $47bn of foreign reserves since October.

As one analyst noted, "There is a need to rationalise spending," as King Salman promised a bonus payment for military personnel engaged in the kingdom's month-long bombardment of Houthi rebels in Yemen, a campaign that itself added pressure to state coffers.

...

"The [military] bonuses are not an encouraging sign," said Steffen Herthog of the London School of Economics. "It shows the knee-jerk reaction to political challenges is to distribute more money."

* * *
The royal family, whose social contract with the people offers cradle-to-grave care in return for loyalty, is seeking to reduce state subsidies without sparking popular anger. But analysts are unclear how quickly the government can move on such a sensitive topic.

* * *

Simply out, as long as The Fed keeps ZIRP, it will cost Saudi Arabia.
TeethVillage88s

Business is Business. SA has Oil Clout, but USA would look askance at returning Gold.

However, when you are cash starved, when you have an Obvious Reserves problem, but can't stop till you ruin the Industry... SA could get a way with a short term request for Gold Reserves.

Short term 2 years. 5-7 years would not help with the Driving of Oil Price to $50. USA would stall, stall, stall.

[May 04, 2015] Bill Gross Investment Outlook

Having turned the corner on my 70th year, like prize winning author Julian Barnes, I have a sense of an ending. Death frightens me and causes what Barnes calls great unrest, but for me it is not death but the dying that does so. After all, we each fade into unconsciousness every night, do we not? Where was "I" between 9 and 5 last night? Nowhere that I can remember, with the exception of my infrequent dreams. Where was "I" for the 13 billion years following the Big Bang? I can't remember, but assume it will be the same after I depart – going back to where I came from, unknown, unremembered, and unconscious after billions of future eons. I'll miss though, not knowing what becomes of "you" and humanity's torturous path – how it will all turn out in the end. I'll miss that sense of an ending, but it seems more of an uneasiness, not a great unrest. What I fear most is the dying – the "Tuesdays with Morrie" that for Morrie became unbearable each and every day in our modern world of medicine and extended living; the suffering that accompanied him and will accompany most of us along that downward sloping glide path filled with cancer, stroke, and associated surgeries which make life less bearable than it was a day, a month, a decade before.

Turning 70 is something that all of us should hope to do but fear at the same time. At 70, parents have died long ago, but now siblings, best friends, even contemporary celebrities and sports heroes pass away, serving as a reminder that any day you could be next. A 70-year-old reads the obituaries with a self-awareness as opposed to an item of interest. Some point out that this heightened intensity should make the moment all the more precious and therein lies the challenge: make it so; make it precious; savor what you have done – family, career, giving back – the "accumulation" that Julian Barnes speaks to. Nevertheless, the "responsibility" for a life's work grows heavier as we age and the "unrest" less restful by the year. All too soon for each of us, there will be "great unrest" and a journey's ending from which we came and to where we are going.

A "sense of an ending" has been frequently mentioned in recent months when applied to asset markets and the great Bull Run that began in 1981. Then, long term Treasury rates were at 14.50% and the Dow at 900. A "20 banger" followed for stocks as Peter Lynch once described such moves, as well as a similar return for 30 year Treasuries after the extraordinary annual yields are factored into the equation: financial wealth was created as never before. Fully invested investors wound up with 20 times as much money as when they began. But as Julian Barnes expressed it with individual lives, so too does his metaphor seem to apply to financial markets: "Accumulation, responsibility, unrest…and then great unrest." Many prominent investment managers have been sounding similar alarms, some, perhaps a little too soon as with my Investment Outlooks of a few years past titled, "Man in the Mirror", "Credit Supernova" and others. But now, successful, neither perma-bearish nor perma-bullish managers have spoken to a "sense of an ending" as well. Stanley Druckenmiller, George Soros, Ray Dalio, Jeremy Grantham, among others warn investors that our 35 year investment supercycle may be exhausted. They don't necessarily counsel heading for the hills, or liquidating assets for cash, but they do speak to low future returns and the increasingly fat tail possibilities of a "bang" at some future date. To them, (and myself) the current bull market is not 35 years old, but twice that in human terms. Surely they and other gurus are looking through their research papers to help predict future financial "obits", although uncertain of the announcement date. Savor this Bull market moment, they seem to be saying in unison. It will not come again for any of us; unrest lies ahead and low asset returns. Perhaps great unrest, if there is a bubble popping.

Policymakers and asset market bulls, on the other hand speak to the possibility of normalization – a return to 2% growth and 2% inflation in developed countries which may not initially be bond market friendly, but certainly fortuitous for jobs, profits, and stock markets worldwide. Their "New Normal" as I reaffirmed most recently at a Grant's Interest Rate Observer quarterly conference in NYC, depends on the less than commonsensical notion that a global debt crisis can be cured with more and more debt. At that conference I equated such a notion with a similar real life example of pouring lighter fluid onto a barbeque of warm but not red hot charcoal briquettes in order to cook the spareribs a little bit faster. Disaster in the form of burnt ribs was my historical experience. It will likely be the same for monetary policy, with its QE's and now negative interest rates that bubble all asset markets.

But for the global economy, which continues to lever as opposed to delever, the path to normalcy seems blocked. Structural elements – the New Normal and secular stagnation, which are the result of aging demographics, high debt/GDP, and technological displacement of labor, are phenomena which appear to have stunted real growth over the past five years and will continue to do so. Even the three strongest developed economies – the U.S., Germany, and the U.K. – have experienced real growth of 2% or less since Lehman. If trillions of dollars of monetary lighter fluid have not succeeded there (and in Japan) these past 5 years, why should we expect Draghi, his ECB, and the Eurozone to fare much differently?

Because of this stunted growth, zero based interest rates, and our difficulty in escaping an ongoing debt crisis, the "sense of an ending" could not be much clearer for asset markets. Where can a negative yielding Euroland bond market go once it reaches (–25) basis points? Minus 50? Perhaps, but then at some point, common sense must acknowledge that savers will no longer be willing to exchange cash Euros for bonds and investment will wither. Funny how bonds were labeled "certificates of confiscation" back in the early 1980's when yields were 14%. What should we call them now? Likewise, all other financial asset prices are inextricably linked to global yields which discount future cash flows, resulting in an Everest asset price peak which has been successfully scaled, but allows for little additional climbing. Look at it this way: If 3 trillion dollars of negatively yielding Euroland bonds are used as the basis for discounting future earnings streams, then how much higher can Euroland (Japanese, UK, U.S.) P/E's go? Once an investor has discounted all future cash flows at 0% nominal and perhaps (–2%) real, the only way to climb up a yet undiscovered Everest is for earnings growth to accelerate above historical norms. Get down off this peak, that F. Scott Fitzgerald once described as a "Mountain as big as the Ritz." Maybe not to sea level, but get down. Credit based oxygen is running out.

At the Grant's Conference, and in prior Investment Outlooks, I addressed the timing of this "ending" with the following description: "When does our credit based financial system sputter / break down? When investable assets pose too much risk for too little return. Not immediately, but at the margin, credit and stocks begin to be exchanged for figurative and sometimes literal money in a mattress." We are approaching that point now as bond yields, credit spreads and stock prices have brought financial wealth forward to the point of exhaustion. A rational investor must indeed have a sense of an ending, not another Lehman crash, but a crush of perpetual bull market enthusiasm.

But what should this rational investor do? Breathe deeply as the noose is tightened at the top of the gallows? Well no, asset prices may be past 70 in "market years", but savoring the remaining choices in terms of reward / risk remains essential. Yet if yields are too low, credit spreads too tight, and P/E ratios too high, what portfolio or set of ideas can lead to a restful, unconscious evening 'twixt 9 and 5 AM? That is where an unconstrained portfolio and an unconstrained mindset comes in handy. 35 years of an asset bull market tends to ingrain a certain way of doing things in almost all asset managers. Since capital gains have dominated historical returns, investment managers tend to focus on areas where capital gains seem most probable. They fail to consider that mildly levered income as opposed to capital gains will likely be the favored risk / reward alternative. They forget that Sharpe / information ratios which have long served as the report card for an investor's alpha generating skills were partially just a function of asset bull markets. Active asset managers as well, conveniently forget that their (my) industry has failed to reduce fees as a percentage of assets which have multiplied by at least a factor of 20 since 1981. They believe therefore, that they and their industry deserve to be 20 times richer because of their skill or better yet, their introduction of confusing and sometimes destructive quantitative technologies and derivatives that led to Lehman and the Great Recession.

Hogwash. This is all ending. The successful portfolio manager for the next 35 years will be one that refocuses on the possibility of periodic negative annual returns and miniscule Sharpe ratios and who employs defensive choices that can be mildly levered to exceed cash returns, if only by 300 to 400 basis points. My recent view of a German Bund short is one such example. At 0%, the cost of carry is just that, and the inevitable return to 1 or 2% yields becomes a high probability, which will lead to a 15% "capital gain" over an uncertain period of time. I wish to still be active in say 2020 to see how this ends. As it is, in 2015, I merely have a sense of an ending, a secular bull market ending with a whimper, not a bang. But if so, like death, only the timing is in doubt. Because of this sense, however, I have unrest, increasingly a great unrest. You should as well.

-William H. Gross

[Apr 22, 2015] Guess What Happened The Last Time Bond Yields Crashed Like This...

Long term bond prices and now really up. So what's next?

Apr 22, 2015 | Zero Hedge
If a major financial crisis was approaching, we would expect to see the "smart money" getting out of stocks and pouring into government bonds that are traditionally considered to be "safe" during a crisis. This is called a "flight to safety" or a "flight to quality". In the past, when there has been a "flight to quality" we have seen yields for German government bonds and U.S. government bonds go way down. As you will see below, this is exactly what we witnessed during the financial crisis of 2008. U.S. and German bond yields plummeted as money from the stock market was dumped into bonds at a staggering pace. Well, it is starting to happen again. In recent months we have seen U.S. and German bond yields begin to plummet as the "smart money" moves out of the stock market. So is this another sign that we are on the precipice of a significant financial panic?
Back in 2008, German bonds actually began to plunge well before U.S. bonds did. Does that mean that European money is "smarter" than U.S. money? That would certainly be a very interesting theory to explore. As you can see from the chart below, the yield on 10 year German bonds started to fall significantly during the summer of 2008 – several months before the stock market crash in the fall…

... ... ...
Sadly, most people are not willing to learn from history. Even though it is glaringly apparent that we are in a historic financial bubble, most investors on Wall Street cannot see it because they do not want to see it. They want to believe that somehow "things are different this time" and that stocks will just continue to go up indefinitely so that they can keep making lots and lots of money.
And despite what you may think, I actually want this bubble to continue for as long as possible. Despite all of our problems, life is still relatively good in America today – at least compared to what is coming.

I like to refer to this next crisis as our "third strike".

Back in 2000 and 2001, the dotcom bubble burst and we experienced a painful recession, but we didn't learn any lessons. That was strike number one.

Then came the financial crash of 2008 and the worst economic downturn since the Great Depression. But we didn't learn any lessons from that either. Instead, we just reinflated the same old financial bubbles and kept on making the exact same mistakes as before. That was strike number two.

This next financial crisis will be strike number three. After this next crisis, I don't believe that there will ever be a return to "normal" for the United States. I believe that this is going to be the crisis that unleashes hell in our nation.

So no, I am not eager for that to come. Even though there is no way that this bubble of debt-fueled false prosperity can last indefinitely, I would like for it to last at least a little while longer.

Because what comes after it is going to be truly terrible.
Goldilocks

Stockholm syndrome
http://en.wikipedia.org/wiki/Stockholm_syndrome

Stockholm syndrome, or capture-bonding, is a psychological phenomenon in which hostages express empathy and sympathy and have positive feelings toward their captors, sometimes to the point of defending and identifying with the captors. These feelings are generally considered irrational in light of the danger or risk endured by the victims, who essentially mistake a lack of abuse from their captors for an act of kindness.[1][2] The FBI's Hostage Barricade Database System shows that roughly 8 percent of victims show evidence of Stockholm syndrome.[3]

Stockholm syndrome can be seen as a form of traumatic bonding, which does not necessarily require a hostage scenario, but which describes "strong emotional ties that develop between two persons where one person intermittently harasses, beats, threatens, abuses, or intimidates the other."[4] One commonly used hypothesis to explain the effect of Stockholm syndrome is based on Freudian theory. It suggests that the bonding is the individual's response to trauma in becoming a victim. Identifying with the aggressor is one way that the ego defends itself. When a victim believes the same values as the aggressor, they cease to be perceived as a threat.[5]

[Apr 21, 2015] 'Dollar valueless, about to crash' - World Bank whistleblower

This article from 2013 now is about danger of relying on expert judgment. In this case highly skeptical judgment about the US financial system. Is this woman just three years ahead of events? Or is she completely off the mark? Nobody knows.

Oct 8, 2013 | youtube.com
The US government shutdown - a temporary ailment or a symptom of a grave disease? Are the Republicans right in their move to block Obamacare spending? Who gains from the shutdown turmoil? Do the politicians care about their citizens? Our guest comes from the very heart of the banking system: Karen Hudes was World Bank lawyer when she blew the whistle on major corruption cases in the system and was fired as a result.
Follow@SophieCo_RT

Sophie Shevardnadze: Our guest today is whistleblower Karen Hudes, former senior counsel at the World Bank. Karen, it's great to have you on a show today.

Karen Hudes: Thanks for having me. Sophie, I'm glad to be with you.
Read the full transcript
SS: So, the government shutdown. Is the move on the part of the Republicans justified? Is fighting off Obamacare worth all this mess?

KH: I think there is something more going on behind the scenes. A lot more, actually.

SS: What do you mean?

KH: Well, there is terrible currency problem. We're on the verge of the currency war. The Federal Reserve is printing dollars like there is no tomorrow, and if they keep going, the rest of the world is not going to accept them. As it is, the BRICS countries – Brazil, Russia, India, China and South Africa – have decided that they are going to finance the trade among these countries with assets and pay for the difference in gold. And this is the right move for them...

SS: But how is that connected with a shutdown though?

KH: The US Congress has been fighting with the presidency, because the presidency have been in total contempt, and the highest legal officer of the United States government has also been in contempt of Congress in fighting this international corruption that is ruining the dollar as an international reserve currency.

SS: But you know, economists have been predicting the dollar will fall ever since the crisis in 2008. But the Government has managed to keep it afloat.

KH: Well, not for long. If you look at what's going in the gold and other precious metals markets, silver as well, we're headed towards something called "permanent gold backwardation"- that means there is a loss in confidence in the fiat currencies that are issued by those private banks. They like to consider themselves as 'public banks' but they really are owned by private entities. And these currencies are about to crash because they are valueless, that's what always happens to paper currencies that aren't backed by assets.

SS: Like you've mentioned - "gold backwardation", gold is often chanted as perfectly safe investment and alternative to the dollar, even. But how come the price of gold is falling?

KH: Because of market manipulation - but that can only continue for so long because the Central Banks are running out of gold and the rest of the world are lining up to buy them. If you want to buy gold today, you have to pay a premium. What they are offering in the future is called 'a naked short'. They don't have the gold to back those offers, that's illegal what they are doing.

SS: I will get back to gold in a bit. But for now I would like to focus on Obamacare. In your opinion, is Obamacare really that crucial for the US economy?

KH: What you have is something that's very good for the medical insurers because most of the other countries that offer medical coverage do this through a single issuer. And that's not what we have here. What we have here is a bill that was drafted by the medical insurance companies. It's not good for this economy. It never was.

SS: Why do you say it's not good?

KH: Because what's happening is that workers that worked full-time are being put deliberately on part-time basis, so that the companies can avoid giving the medical insurance coverage under the provisions of the law.

SS: You know this Obamacare thing.. I've heard it many times being compared to Socialism, Communism sometimes even. Do you trace the resemblance?

KH: That's just because the mainstream media, when they report about what's going on, are doing it by telling lies and anything that's good for the powers that be. The mainstream media is completely owned and controlled by the same companies, private companies that own the Federal Reserve System. Most of the American citizens are clueless about the corruption that's rifling their economy.

SS: But just to make sure - are you saying that everything about Obamacare is bad? Or are there good things about it?

KH: No, of course, there are good things about it. But the problem is that the people that wanted to get up decent coverage were not given the tools, they were not given the equipment, they were not given the press coverage – the honest press coverage, that society needs to enact just legislation. The Congress people are all bribed by these corrupt forces and the American citizens have zero confidence in their Congress.

SS: So, at this point you side with the Republicans for blocking the medicare.

KH: I'm not siding with Democrats or Republicans, because both of those parties have been co-opted by these terrible corrupt forces I'm talking about.

SS: What we have right now is Americans being forced to get health insurance. How does it go with their love of liberties and freedom of choice?

KH: It's not so much a question of being forced; you have to look at those parts of the society that have been thrown under the bus. The uneducated children, who are not given superior education, like we used to have. We are society that is giving short shrift to the people that need us. I'm not saying that we ignore the health needs of our country. I'm saying that we ignore the mainstream media, because they are not telling us the truth.

SS: You know, I've also heard Obama supporters argue that the American Capitalism is on the verge of death in its present form, the way it is existing now, and the social injections, meaning the medical care and Obamacare, are needed as the only way to reform it or save it. Do you agree or disagree with that?

KH: The problem is not with the American citizens, they are a wonderful group, their values are good. It's just that they are not given the tools that they need to have a just society. They are not given the basic information about what is really going on and who is benefiting from the economies that they are being told… they are being told that they have no money, they have taken an entire city, Detroit, and declared it bankrupt. When what's actually happening is their tax dollars are not even staying in the society, their tax dollars are going by treaty to the United Kingdom, and then they are being transferred to the Vatican, to the bank of the Vatican. This is not a society that is going to be sustainable on any basis, for any reason.

SS: Do you feel like American economy is picking up because we hear President Obama saying the shutdown hurts American economy but at the very sensitive moment, word is it has just started to catch up. Do you feel like it's catching up really?

KH: Those numbers about the employment are completely fabricated because they are not counting those people who have given up ever finding a job as unemployed. That's ridiculous! The real rate is just about double what they reported as being.

SS: So the American debt looks like a doomed patient. Is there any other possibility for it than just grow into eternity forever? I mean raising debt ceiling once or twice a year, what's the problem?

KH: The problem is actually when you talk about debt, is that our currency is financed by debt; our currency is issued by the Federal Reserve instead of the Treasury which is unconstitutional. When the Federal Reserve System was instituted in 1913 most of the Congress was on break, they sneaked that legislation through. So the debt is there simply for those bankers to put in interest on it and have it grow and compound every year. The debt is a fabrication, it's probably should be repudiated. But it can be repudiated until you'll have looked that all of the implications.

SS: Do you think it's going to go on and on forever?

KH: No, what I think it's going to happen is that at the upcoming Bretton Woods meeting on October 9th the countries of the world, the foreign ministers of the world are going to sit down and have a rational basis for currency rather than this fiat currency which is absolutely... what can I say, it makes no sense to anyone but the bankers that are issuing it.

SS: So, when you look at the concept of the debt, it's much more than just borrowing money - it makes you controllable. For example, in the case of US - who controls it, you mean the big corporations, or countries like China and Japan, who control large chunks of the debt?

KH: Well, that's a very good question and, fortunately, some mathematicians at the Swiss Federal Institute of Technology have given us a very precise answer. They did a study of who owns and controls the companies on the capital markets - 43 000 companies. They found out that there is "a secret super-entity", they call it, that owns 60% of the earnings every year and 40% of the assets. They did this by putting the same people on the boards of these companies. So, they have ten times the economic power than there are entitled to. And they thought that none would catch them at it. This is a huge conglomerate that has been rigging the labor prices, it has been rigging all of the commodity's prices, and it has been trading in the securities markets with the insider information. It has got to be stopped. It also bought up the media and has been lying to people deliberately. This is going to stop.

SS: So just to answer my question - the government is controlled by the conglomerate or the corporations rather than countries that are up and coming economically, right? Why haven't these corporations or conglomerate, as you call it, been caught? Why is nothing changing?

KH: That's the whole point about it. They'd like to think they are in control but they are not, they are not above the law. And we, citizens, know exactly what they are up to, we've been working on this problem, all of the governors of the States have been working on this terrible corruption, so have the Attorneys-General, so have the Sheriffs, and it's not going to continue. The American people are taking back their government and they are stopping this terrible corruption.

SS: As of today, the United States is a financial heart of the world. Whether it collapses or keeps on going, it's obviously wrong – this much power is concentrated in one place. Asia is a rising monster right now; could it be stealing this financial role from the US? Do you think China, for example, could steal its financial role from the US? Or are they also controlled by that same financial elite you're mentioning?

KH: Well, I can tell you that the Jesuits have a very strong stranglehold on China as well but I can also tell you that the transition of economic strengths from the western countries to the east is going to happen, but it's going to happen in a smooth way. It's not going to be a transition through a currency war like that terrible corrupt group is trying to manipulate everyone into. No, we're going to have a peaceful power transition this time around; we're not going to have the World War III. They try to pull it off in Syria, they are now thinking they can pull it off in Iran, it's not happening. The citizens of the world see what they are doing and we're not letting them get away with it this time.

SS: Foreign governments keep buying US Treasury bonds despite obvious problems US economy is facing. What's making them do that, in your opinion?

KH: I think the biggest market for the Federal Reserve notes is the US Treasury and there is a gut of dollars right now. But, yes, there is also a small market, unfortunately, the market is weakening as the dollar weakens because of all of this, what they call quantitative easing, where every month so many additional dollars are printed with absolutely no backing.

SS: Should we be buying gold?

KH: Well, yes and no, I think gold is probably a wise purchase right now, but more as insurance than investment, because there is actually a great deal of gold, there is even more gold than people know about. For example, the amount of gold in the deposit in the Bank of Hawaii is 170 000 tonnes, this is more than the World Gold Council says is available for all the gold on the Earth. People don't know how much gold there is, there is a lot of gold.

SS: Are you buying gold?

KH: I did actually, yes. But not because it's an investment, but because I'm not 100% certain that we're going to get to act together before all of the paper fiat currency falls apart. So I see it as insurance, but because of the amount of gold that's actually around in the world in deposit all over the world I'm not so sure it's a great investment.

SS: So you think the return to the gold standard is a realistic thing? It could be a possibility?

KH: Well, actually, that's not such a good thing. The currency ought to be backed by value, but there is no reason why it should be restricted to precious metals, it could be any of the commodities that are valuable. The important thing is that, yes, the currency should be backed by assets rather than by debt as we now have.

SS: But if a financial collapse happens , let's say, will gold be of any use? I mean, there is shortage of food, look at the world today, the biggest problem we're facing is the clean drinking water. What gold is going to do about that?

KH: First of all, I think that we're going to manage to get our act together; I'm not expecting a collapse. Very accurate game-theory model is showing that we're going to manage to make a transition in a very smooth way; maybe there'll be a few fits and starts, but I think most of the countries in the world are in favor of working together and not to have a collapse. The only thing that you're saying is that some of these crooks haven't figured out, they haven't seen the writing on the wall, they haven't seen that we understand that there is a way to work together and avoid these problems, which are definitely avoidable.

SS: So, Karen, you were a senior counsel at the World Bank. Tell me something, honest banking is this an oxymoron?

KH: No, we have examples all over the place - in the United States, the state of North Dakota has its own state bank and many of the other states are looking at that - at the moment 22 other states are looking at it, and we're urging the other 28 states to look at it. There was a bank in Amsterdam that, I think, went on for 300 years with no problem. We know how to do banking, it should be like infrastructure to support the economy, it shouldn't be for the benefit of elites that think they are above the law as we currently have. If you look at the Bank for International Settlements (BIS) - that institution was established when the war reparations were being exacted from Germany after the World War I. That's when it was started in 1930 and I believe its 60 central banks, that are members of the BIS - those are the corporates, those are the ones that really needs to go out of business.

SS: You first blew the whistle over corruption in the World Bank. Tell us more about your revelations?

KH: Well, that's actually what happened: I was working in the Philippines and there was a bank… this was at the end of the East Asia financial crisis in the end of the 1990s. And the second largest bank in the Philippines, the Philippine National Bank, there was a loan to strengthen the banking sector and, what happened, that there was a man who own Philippine airlines, Lucio Tan, who ended up buying more than 10% of the shares of the Philippine National Bank without informing the security authorities in the Philippines - that was against the law. And then I told the person who was in charge of the World Bank Lending Program that they should tell the government of the Philippines that the conditions of the loan were not going to be met. And instead I was reassigned, and I didn't accept that, so I went to the meeting, where it was decided whether or not to disburse the loan and I said that the board was not being informed that the conditions were not met. And then what happened was the loan wasn't disbursed, but the people who had their money on deposit in that bank withdrew their money and the Philippine Deposit Insurance Corp. had to withdraw, had to back up the bank, for five hundred million dollars, and then we didn't disburse our loan for two hundred million and the Japanese didn't disburse their loan for two hundred million. So, that was nine hundred million dollars worth of a poor loan performance and when the evaluation department in the World Bank said that the World Bank had performed satisfactorily, I corrected that report and my correction was never given to the board. That was a cover up. You can't have a cover up in a bank - that shows that money is going the wrong way. I've been working together with other whistleblowers at the World Bank, because we know that the board has to be informed about what's actually going on. Other whistleblowers have reported double accounting, we reported this to the UK Parliament, I reported it to the European Parliament in 2011 and the European Parliament wrote the letter to the World Bank. I had a very detailed chronology - and the World Bank never responded. Then I've been reporting this to the US Congress and when the US Congress was asked to give a capital increase to the World Bank, they had asked for a government accountability office audit which never took place. I was reporting this to the International Organization of Supreme Audit institutions and then I asked the board to require KPMG to do an audit of the World Bank Internal Controls. KPMG did not follow the auditing standards, so I reported this to the public company accounting oversight board, I reported this to the SEC. But since the SEC couldn't be bothered to sort out the insider trading for the Federal Reserve System, they certainly weren't going to straighten out the bonds in the World Bank. So I bought a World Bank bond and I sued under the securities laws, and I also went to each and every Attorney-General in the States, and I told the States that they were responsible for making sure that there was accurate financial information going to the bond holders in their States, and I also went to the International Organization of the Securities Commissioners. So, the World Bank has got to be brought into compliance and there has to be transparency in the capital markets, and the insider training of the Federal Reserve System is going to be history in short order.

SS: Do you feel safe after all these leaks, I mean you were fired?

KH: You know I have been working with some very wonderful whistleblowers; in particular, I'd like to mention Mark Novitsky who has been reporting about insider trading and inaccurate financial reporting for Teletech, which is a company that had been spying on American citizens. So, when whistleblowers work together, and compare notes and share information you get a very accurate picture. In addition, I'd like to mention Larry Harrison, who has been my PR guy. So when you have people who you're working with it's not so easy to shut the whistleblowers down, we just gain in strength. We're going from strength to strength.

SS: Do you feel like you are being heard? Is anything changing?

KH: Well, that's what I like to ask your audience.

SS: Do you feel like anything changing in the system by whistleblowing on it?

KH: Yes, I absolutely do. I think the number of people they are hearing my message and that are looking into this information, and every day they are sending me e-mails. They are going out and they are getting their neighbors to find out what's really going on. I don't think this mainstream media is going to have too big of an audience at the rate we're going.

SS: There are liberty movements that are actually picking up now, the likes of Bitcoin, for example. Can they ever grow into a solid rival to the conventional system?

KH: I think they're going to be a force to be reckoned with, yes. It's a matter of fact. There are other similar kinds of payment systems that are now gaining currency. Yes, I think we're going to have a world where there's a lot of choice and the legal tender is not going to be used to put people into debt and to imprison them.

SS: Are you using a Bitcoin as of now?

KH: That's a good question. I'm trying to learn how. There is a conference that is taking place and I'm going to try to get myself sorted out on that.

SS: Karen, thank you very much for your time. That's all for today. Our guest was a former insider at the World Bank, ex-senior counsel Karen Hudes. Thanks for watching and we will see next time here in SophieCo.

[Apr 20, 2015] Stop The Presses Nobel-Prize Winning Economist Slams QE

Apr 20, 2015 | Zero Hedge
Whether it is due to pervasive groupthink, a chronic lack of vision, the perpetuation of failed ideas, or just because the alternative casts grave doubts about the value of their very existence, conventional economists and their media lackeys have almost without exception been supportive of the Fed's "recovery" efforts, be it ZIRP or QE. After all, neoclassical economics demands it, and if the Fed is wrong about its response to the second great depression, then the value of every single economist likewise goes out the window.
... ... ...

... Nobel-prize winning economist Robert Merton (of expanded Black-Scholes fame) with Arun Muralidhar as co-author, released an Op-Ed in Pensions and Investments magazine titled "Monetary policy: It's all relative", in which they slammed not only the current monetary policy response to economic ills (as observed through the prism of pension math and the adverse impact of low rates), but question if instead of leading to an improvement, QE isn't in fact making the situation even worse.

Here are the key excerpts from the op-ed:

... while QE has increased absolute wealth, it has simultaneously lowered relative wealth for a large class of investors. This could lead to the opposite of the desired effect for this group of investors. Lower relative wealth means investors need to save more to improve their funded status, especially where regulations are strict, and it results in less consumption and investment, and may not remove the deflationary overhang.

...

An alternate, more sophisticated approach to explaining why QE may not work to stimulate aggregate consumption is, perhaps, because the demographic mix of the U.S. (and most parts of the developed world) has shifted toward older people. Unlike 30 or 40 years ago, the enormous baby boomer generation, and even retirees, are much wealthier (including human capital) than in the past, and they are wealthier than current generations earlier in their life cycle. So the wealth effect does not lead to an increase in consumption and, potentially, has the opposite outcome.

When baby boomers were in the sweet spot for housing needs, expenditures on children and cars, etc. 30 to 40 years ago, the effect the central banks were expecting from QE might have worked better, as they expected it would, but that need not be a reliable prediction under the changed current demographic and wealth distribution.

...

We believe it is imperative for central banks and academia to examine this perspective immediately and develop a new monetary policy toolkit, because it would be tragic if the central banks' attempts to improve economic security with the current orthodoxy leads, instead, to less consumption, less investment and greater retirement insecurity.

And the punchline:

A recent study by the Center for American Progress shows that millions of Americans (as high as 50% of households) are in danger of retiring with insufficient money to maintain the standard of living to which they are accustomed, and the problem is getting progressively worse. Your previous editorial argues that QE by the central bank may impose unintended costs on pensions, at both the institutional and retail level. This suggests more research needs to be conducted to examine how monetary policy affects relative wealth, not just absolute wealth, and whether traditional approaches are outdated given the current retirement landscape. This may call for central banks to use a different set of policy tools than manipulating long-term rates, and may even argue for the Fed to actually raise long-term rates faster than what is recommended by traditional monetary policy.

Alas, with central banks now proudly owning $22 trillion in "assets", it is far too late. The best one can hope for is that the social collapse the results after QE's failure is finally accepted by all, and that includes all other economists, will be somewhat contained.

Needless to say, all it would take for the Fed to "lose credibility" (if only among its "very serious" peers; it has long since lost all credibility across the broader population) is for a few more economists to have a comparable epiphany and declare that the money-printing emperor is naked, and then all bets - at least for the current failed economic and monetary regime - are off.

NoDebt

Yes, I have a nail gun. You can borrow it at any time. Just wash the blood off before you give it back.

And, just FYI, I am an economist by training (but I'm feeling much better now). I never throught QE was a good idea and have stated bluntly many times why I always thought QE was a bad idea, sounding somewhat similar to the points made in this article. But, sadly, with no PhD, nobody gives a crap what I think. Fortunately, I never ran a well known financial company up on the rocks 20 years ago, either.

NOT ALL ECONOMISTS THINK ENDLESS MONEY PRINTING IS GOING TO SOLVE ANYTHING OR EVEN "WORK" IN ANY MEANINGFUL WAY. Dissenting opinions are regularly filtered out of the discussion by the media, much like climate change 'deniers' opinions are filtered out in discussions of the environment, or the way no 'environmentalist' ever mentions anything bad about radiation leaking from Fukushima. I could go on and on, but the basic point is, not every economist is a clueless moron worshipping at the altar of stimulating aggregate demand.

Ham-bone

Somebody should write a book about this stuff...oh, er...somebody did and all major publishers rejected it??? Shocker...

http://econimica.blogspot.com/2015/02/fundamentally-flawed-chapter-1-advanced.html

http://econimica.blogspot.com/2015/02/fundamentally-flawed-outline-how-us-eu.html

williambanzai7

Yes the same Long Term Capital Management Merton

Blankenstein

Why is anyone listening to this guy? He blew his credibility back in the 90s.

"Members of LTCM's board of directors included Myron S. Scholes and Robert C. Merton, who shared the 1997 Nobel Memorial Prize in Economic Sciences for a "new method to determine the value of derivatives".^[3] Initially successful with annualized return of over 21% (after fees) in its first year, 43% in the second year and 41% in the third year, in 1998 it lost $4.6 billion in less than four months following the 1997 Asian financial crisis and 1998 Russian financial crisis requiring financial intervention by the Federal Reserve, with the fund liquidating and dissolving in early 2000."

http://en.wikipedia.org/wiki/Long-Term_Capital_Management

kchrisc

"They lie even when they are telling the truth." Hence this scumbag's statement.

My belief is that they are preparing to kill off the dollar, which is why it is "up." As part of the setup they need to prepare a fall-guy, and that is to be the FedRes.

Of course, part of the plan is to not allow their fiat-dollar debts to evaporate, but be converted to SDRs--"Pay us now in gold or euros." (Remember, they own the courts.)

Liberty is a demand. Tyranny is submission.

Is the dollar up on "exit," or "strength?"

kchrisc

I personally think that instead of another QE, which they may still do, the goal is to assure those so connected and the Amongst be permitted a golden exit to the euro, shekel, or other. They will then "pull it" and lay it all at the feet of the FedRes so as to prepare the sheeple for their worldwide central bank and SDRs.

Fits in with the Saudis price war collaboration as well. As a reward for their cooperation, they can be permitted the ability to reapportion their assets while their Zionist friends prop the "markets" up and the "exit" open, and be spared when they "pull it."

We shall see. At any rate, the dollar is doomed.

Liberty is a demand. Tyranny is submission.

"When did daylight get a train whistle?"

economessed

We don't need more mathematical models. We need to embrace common sense.

It was excessive borrowing and casual accounting standards that caused the problem. QE didn't counter-act those situations -- it embraced them. The only question left to ask is "when will this experiment arrive at the inflection point of impact?"

divedivedive

QE (and ZIRP) really pushed this retirement couple out of the US. Gosh - I remember years(as savers) when we were making more money on the interest from our savings than our actual earnings. Personally - I think monetary policy in the US today is all about trying to maximize the tax base. The longer ZIRP continues the fewer retiree aged people can walk away from their jobs, the more tax revenues coming in.

MEFOBILLS

Keen had forecast debt deflation prior to 2008. Hudson also knew it was coming.

http://www.debtdeflation.com/blogs/#PIX&kdntuid=1&p=52041&s=undefined&a=undefined

MMT theorists have analyzed the problem ad-infinitum.

It takes a Nobel prize winner, when others have been yelling the answers from the rooftops for 7 years?

It is simple, those that are in the back pocket of banking will always promulgate banker solutions. For example, QE swapping fresh FED keyboard money for debt instruments. All this does is change composition of the money supply from less debt to more money, and the money in turn channels into finance or gets caught up in banker reserve loops. If in finance, it finances yet more debt. This particular type of financialized debt has no connection to the real economy other than being extractive. QE money in banker reserve channels gets stuck because cash reserves now get FED interest, to then prevent rate collapse to zero on overnight market. You heard right, cash - which is not a debt instrument - gets paid interest and thus it gets stuck, with banks enjoying being fully capitalized.

But, bankers don't really own monetary policy, even though as a parasite they have usurped money creation, to then loan their credit into existence, Bankers certainly don't own fiscal (taxation) policy. For them to give up their pretender control over monetary policy, they will have to admit that money is actually law, and not private credit.

To admit that, their entire market theory of credit money will have to be shoved into history's trash bin, and they will also lose their easy rentier lifestyles. Better to keep peddling lies and keep humanity hypnotized.

Like Tyler's often say, 12T of QE money already spent, would have paid off all mortgages in U.S. If 12T had been SPENT into existence and channeled into mortgages, debt depression most certainly would be over. Effectively, mortgage debt instruments would have been erased, especially as the new money would have vanished into ledger as it bought down principle.

People's future labor (which is now) would then have had extra wallet money to buy from their producing neighbors, rather than having their output vector to credit destruction on banker ledger. This action would have created a wealth cycle as people work with each other to create and produce. Debt depression also pays banker usury, thus further draining credit money supply. Finance has an upper loop where they trade debt instruments and do financial games, and real economy has a lower loop that is in constant drain.

A land tax via fiscal policy would have been required to prevent a new debt bubble against land though -so had we paid off mortgages, it would have had to come with new fiscal stipulations.

Did Obama ever hear this from Geithner, Bernanke or any other members of the tribe and their sayanim fraternity? Its highly doubtful; parasitism runs deep when money creation power is so lucrative and ordained by God. It is especially good to be self chosen and have operative control methods on humanity.

Owning and holding debts on the people, to then gain usury and do Magic swaps, is the parasites control method.

falak pema

Having robbed the future we now rob the present which only leads to a tomorrow which will rob the past; the core baby boomer generation THAT OPTED OUT AND SURRENDERED TO EASY, SLEAZY REAGANOMICS...

The Bushes, the Clintons, the Blairs, the Muttis the Sarkos and the Browns...They should have fought the legacy of Dear Henry and the Cold War CiA/MIC scam that had gotten us into Nam and had shown its corruption in Watergate et al. No, they just bought into it and screwed the welfare productive state!

What a sell out of western values. Now its multiplied and this new millennium generation cannot tell an Apple from a Google big data scam.

Its all Facebook to them --

stilletto

This guy is as dumb as Krugman. He's basically saying that QE should be good but might not be because of the weather - or rather that people are a bit older. He doesnt understand economics either. QE fails because the system is debt saturated. The economy is like a sponge, when debt free it quickly absorbs the extra money but as it gets soaked it becomes less effective until the economy / sponge just oozes and fails. The problem that all these brain-dead morons don't understand is that the economy is soaked with too much debt.

Never found an economist who understood reality -- but then i trained as an Economic Historian. Economists don't read history therefore they are doomed to repeat past failures. Just like statisticians - another voodoo outfit.

[Apr 14, 2015] The Message from the 22 Year Old Suicide at the Nation's Capitol

Apr 14, 2015 | Jesse's Café Américain

Suicide is a prohibited form of violence in my own belief, as are all other forms of murder. Therefore I would not hold this type of protest up as an example to anyone.

However, an even worse offense would be to completely ignore the message which this young man delivered, as most of the mainstream media has done in the US.

I did not even know what really happened until I read this article below from Wall Street On Parade today. The police and media referred to it as a 'social protest.'

Before he killed himself, the young man held up a sign that said "Tax the One Percent."

Perhaps an even more pointed message might be 'shut down the loopholes for the Top .01%.' Those who make their money from wages and ordinary income pay fairly significant taxes.

However, the uber-rich have so many loopholes and tax avoidance schemes that they often pay much lower percentage than even those in the lowest income levels. The top .01% use the upper middle class as shields for their antics.

You may read the entire article about this here.

Rather than one young light be extinguished and quickly overlooked by the powerful, perhaps it would be better if a million people were to march on the Capitol, and effective shut it down in protest this Summer. That might get their attention. Alas, the apathy in the people is pervasive, at least for now.

Wall Street On Parade
22-Year Old Commits Suicide at Capitol to Send Congress a Message
By Pam Martens: April 14, 2015
At approximately 1:07 p.m. on Saturday afternoon, April 11, during the annual Cherry Blossom Festival celebrating springtime in the Nation's Capitol, a 22-year old man took his own life with a gun on the Capitol grounds with a protest sign taped to his hand. According to the Washington Post, the sign read: "Tax the one percent."

Yesterday, the Metropolitan Police Department released the young man's name. He was Leo P. Thornton of Lincolnwood, Illinois. Based on what is currently known, the young man had traveled to Washington, D.C. for the express purpose of making a political statement with his sign and then ending his young life.

The Chicago Tribune reported that "Thornton's parents filed a missing persons report on the morning of April 11 after he never came home from work on April 10, Lincolnwood Deputy Police Chief John Walsh said."

Those are the tragic facts of the incident itself. But there is a broader tragedy: the vacuous handling of this story by corporate media. The Washington Post headlined the story with this: "Rhythms of Washington Return after Illinois Man's Suicide Outside Capitol." The message he delivered to his Congress – tax the one percent – has yet to be explored by any major news outlet in America in connection with this tragedy.

Was the message of Leo P. Thornton of Lincolnwood, Illinois a critical piece of information for this Congress to hear at this moment in American history. You're damn right it was. Outside of Wall Street's wealth transfer system, provisions in the U.S. tax code are the second biggest wealth transfer system to the one percent. Together, these two systems have created the greatest income and wealth inequality since the economic collapse in the Great Depression. They threaten a repeat of the 2008 financial collapse because the majority of Americans do not have the wages or savings to support the broader economy...

Profiles In Hypocrisy, In the Garden of Beasts

08 April 2015 | Jesse's Café Américain

"The only vice that cannot be forgiven is hypocrisy. The repentance of a hypocrite is itself hypocrisy."

William Hazlitt

"The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

Janet Tavakoli, Decisions: Life and Death on Wall Street

Gold and silver were pushed back to their assigned round numbers, with gold barely holding above 1200 and silver pushed well below the 17 handle.

Ted Butler has a rather striking piece about the rigging in the silver market which you can read here.

Speaking of silver it appears that Turkey had record imports of silver bullion in March. You can read about that here. I am not sure how significant that is. We can certainly keep an eye on it to see if this is a one time thing or a trend.

Thoughts of silver drachmas and dirhams come to mind, but it is most likely improbably premature. Still, this is a currency war and things seem to be building to a reckoning of sorts. Who can say what desperate people might do to end repression?

Nothing really happened at the Bucket Shop on the Hudson. A few contracts of silver were claimed, and inventory was shoved around the plate in the warehouses. The real action is taking place in the Mideast and Asia.

We have become a coarse and careless people, smugly confident in our 'Exceptionalism.' We are no longer shocked about lies, but instead critique the style and performance of the liars, and try to emulate them in our own professions.

How can we not cringe at some of the more shocking abuses that pass for generally acceptable behavior in public figures these days? And we encourage it, by both our silence and our acceptance.
Oh yes, we recoil in horror at any kind of sex, at the human form, with great puritanical umbrage, but stealing and cheating, and abusing the poor and the defenseless in even the most petty and vicious ways is looked upon with admiration, because we are in love with power.
Power is our new golden calf. Even some so-called 'reformers' are falling all over themselves at a chance to move near the circles of power, to have influence, to be seen as connected. All we seem to want is to get paid, to get ahead, to 'win.'
Hypocrites!

And the example of our cultural and societal icons are certainly leading to a general corrosion of all morals and civilities. And that is a shame, which eventually will have significant repercussions and consequences for us as a people and a society.

Where will we finally draw the line and come to our senses? How far are we willing to go? How many crimes and abuses, how much theft and torture are we willing to overlook? Why do we allow our society to be defined by sociopaths?

When will we finally look about, and see that we too, despite all our smug superiority, have created our own garden of beasts?

[Apr 12, 2015] Why The Oil Price Collapse Is U.S. Shale's Fault

There is a link between overproduction of expensive oil and shale gas and access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.

April 7, 2015 | nakedcapitalism.com

Yves here. Notice how Arthur Berman links overproduction of expensive oil and shale gas to access to cheap financing. In other words, the shale gas boom and bust in in large measure a by-product of ZIRP and QE.

By Arthur Berman, a petroleum geologist with 36 years of oil and gas industry experience. He is an expert on U.S. shale plays and is currently consulting for several E&P companies and capital groups in the energy sector. Berman is an associate editor of the American Association of Petroleum Geologists Bulletin, and was a managing editor and frequent contributor to theoildrum.com. He is a Director of the Association for the Study of Peak Oil, and has served on the boards of directors of The Houston Geological Society and The Society of Independent Professional Earth Scientists. Originally published at OilPrice

The present oil price collapse is because of over-production of expensive tight oil. The collapse occurred because of the inability of the world market to support the cost of the new expensive oil supply from shale, oil sands and deep water. Demand was progressively destroyed during the longest period of sustained high oil prices in history from 2010 through 2014.

Since the early 2000s, the price of oil was largely insensitive to the fundamentals of supply and demand as long as prices were less than about $90 per barrel. The chart below shows world liquids supply minus demand (relative supply surplus or deficit), and WTI oil price.

Figure 1. World liquids relative surplus or deficit (production minus consumption) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

In mid-2004 and mid-2005, the relative supply surplus was much greater than it has been during the 2014-2015 price collapse yet prices continued to rise. When oil traders perceive supply limits and rising prices, price below some critical threshold is not an issue. They are willing to carry the cost of storage and interest to hold the commodity in the future when it will be more valuable.

In 2004, the relative supply surplus reached 1.9 million barrels per day and in 2005, it reached 4.1 million barrels per day. By contrast, the greatest supply surplus in the current oil price collapse was 1.7 million barrels per day in January 2015.

During periods of supply surplus in 2004 and 2005, prices were less than $75 per barrel. The average WTI oil price between November 2010 and October 2014 was $91 and for 18 months of that period, prices were more than $100 per barrel.

Oil prices have collapsed three times because of demand destruction: in 1979, 2008 and 2014. In all of these cases, oil prices exceeded $90 per barrel in real 2015 dollars for extended periods. The chart below shows WTI oil price* from 1970 to the present with periods when price exceeded $90 per barrel highlighted in red.

Figure 2. WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars. Areas in red represent periods when oil prices exceeded $90 per barrel. Source: U.S. Bureau of Labor Statistics, EIA and Labyrinth Consulting Services, Inc.

Oil prices were more than $90 in 1979-1981 for 26 months; in 2008-2009, for 13 months; and in 2010-2014, for 33 months. 2010-2014 was the longest period of oil prices above $90 in history. There were other factors at work in all three of these high oil-price episodes and their subsequent periods of price collapse.

In 1979, the trigger for oil-price increase was the Iranian Revolution and the Iran-Iraq war. More than 6 million barrels of oil were removed from world supply. Oil prices rose from $50 to $115 per barrel (in real 2015 dollars) between January 1979 and April 1981. Then, new production from the North Sea, Mexico, Alaska and Siberia flooded the market. By March 1986, prices had fallen to $27 per barrel. OPEC cut production by 14 million barrels per day but oil price was unaffected because of a combination of demand destruction, crippling interest rates, and new supply from non-OPEC countries. Prices did not begin to recover until 2001.

So far, the current oil-price collapse is nothing like this. Surplus production is about 1.0 to 1.5 million barrels per day, interest rates are near zero, and demand recovery appears strong from early data.

The oil-price collapse and Financial Crisis of 2008 were preceded by 11 consecutive months of relative supply deficit and price increase (Figure 1 above). This was largely because of a surge of consumption by China and low OPEC spare capacity. Oil prices approached $150 per barrel in June 2008, the highest price ever reached, and then collapsed below $40 by February 2009.

The record price of oil was an underlying cause of The Financial Crisis. It increased the cost of global trade, produced inflation and higher interest rates that contributed to real estate loan defaults, and caused demand destruction for oil and other commodities.

Weak demand for all commodities and loans remains a chronic artifact of the years since 2008 despite the best efforts of central banks to correct the problem.

Oil prices rebounded fairly quickly after 2008 because of a 4.2 million barrel per day production cut by OPEC in January 2009 (Figure 1). Another reason for increasing oil price was the devaluation of the U.S. dollar by the Federal Reserve Board by lowering interest rates and increasing the money supply. The chart below shows Federal Funds interest rates and the price of oil.

Figure 3. Federal funds interest rates and WTI oil price in 2015 dollars, January 2000 – January 2015. Source: Board of Governors of the Federal Reserve System, EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.

Oil prices rose with a weak U.S. dollar and interest rates near zero in 2009. Other factors, notably the Arab Spring uprisings in the Middle East, also contributed to the price increase.

As prices passed $80 per barrel in late 2009, tight oil production began in earnest. Low interest rates forced investors to look for yields better than they could find in U.S. Treasury bonds or conventional savings instruments. Money flowed to U.S. E&P companies through high-yield corporate ("junk") bonds, loans, joint ventures and share offerings. Although risk was a concern, these were investments in the United States that were theoretically backed by hard assets of oil and gas in the ground.

In the first half of 2012, flagging demand caused a relative supply surplus of 3.5 million barrels per day (Figure 1 above). WTI oil prices dropped below $90 but by early 2013, prices returned to the high $90-to-low-$100 per barrel range.

Tight oil boomed after late 2011 when oil prices moved higher than $90. An endless flow of easy money was available to fund spending that always exceeded cash flow. The table below shows full-year 2014 earnings data for representative tight oil E&P companies.

Table 1. Full-year 2014 earnings data for representative tight oil exploration and production companies. Dollar amounts in millions of U.S. dollars. FCF=free cash flow; CF=cash flow; CE=capital expenditures. Source: 2014 10-K filings, Google Finance and Labyrinth Consulting Services, Inc.

These companies out-spent cash flow by 25%, spending $1.25 for every $1.00 earned from operations. Only 3 companies–OXY, EOG and Marathon–had positive free cash flow. Total debt increased from $83.4 to $90.3 billion from 2013 to 2014. Debt must be continually re-financed on increasingly poorer terms because it can never be repaid from cash flow by many of these companies.

The U.S. E&P business has, in effect, become financialized: investment in this class of company has become the sub-prime derivative of the post-Financial Crisis period. There is no performance requirement by investors other than the implicit need to maintain net asset values above debt covenant trigger thresholds.

These terrible financial results reflect a year when average WTI oil prices were more than $93 per barrel. First quarter 2015 earnings will make these results look good.

The immediate cause of the present oil price collapse is found in increasing production and, to a less obvious extent, decreasing demand that began in January 2014 as shown in the chart below. Markets react slowly and it was not until June 2014 that prices began to fall.

Figure 4. World liquids supply and demand, July 2013-February 2015: Source: EIA and Labyrinth Consulting Services, Inc.

This was the manifestation of longer-term demand destruction following nearly 3 years of oil prices above $90. The chart below shows the same world liquids data as in Figure 1 but with demand (consumption) expressed as a percentage of supply (production).

Figure 5. World liquids demand (consumption) as a percent of supply (production) and WTI crude oil price adjusted using the consumer price index (CPI) to real February 2015 U.S. dollars, 2003-2015. Source: EIA, U.S. Bureau of Labor Statistics, and Labyrinth Consulting Services, Inc.

Figure 5 shows that demand as a percent of supply was generally increasing until about September 2007 and has been generally decreasing since then. Especially weak demand since early 2014 is merely the most extreme expression of a trend that has been active for more than 7 years.

The present oil-price collapse is, therefore, because of long-term high oil-price fatigue. It reached a crescendo in mid-2008 when oil prices exceeded $140 per barrel but was not specifically recognized as more than another of the factors that contributed to the Financial Collapse that followed. It is now clear that oil price was a central cause of that collapse.

The artificial low interest rates that have been imposed by central banks since the Collapse have weakened the U.S. dollar and pushed the price of oil above $90 per barrel for the longest period in history.

The quest for yields in a low interest rate world led investment banks to direct capital to U.S. E&P companies. Capital flowed in unprecedented volumes with no performance expectation other than payment of the coupon attached to that investment. Tight oil boomed despite poor financial performance.

The current oil-price collapse is because of expensive tight and other unconventional oil and the market's inability to support its cost. $90 per barrel WTI price appears to be the empirical threshold for demand destruction. Only the best parts of core areas of the Bakken and Eagle Ford shale plays make some profit at $90 per barrel and almost nothing makes money at present oil prices.

Low price will eventually cure weak demand. At the same time, the effect of reduced oil and gas spending on the U.S. economy is unclear but a weaker economy could lower demand despite low prices. Allen Brooks and Euan Mearns have explained the case for demand destruction in excellent detail.

The present oil-price collapse is severe because of the accumulated, long-term price fatigue that has existed since late 2007. Although the immediate cause of the collapse is over-production of tight oil, the key to recovery is demand.

Demand is more difficult to cure than over-supply so that is where efforts must be directed. Over-production of non-commercial tight oil must slow and eventually stop before the market can balance itself. I am more optimistic than most that this is already underway but it distresses me to see increased capital flow thus far in 2015 to what Christopher Helman aptly calls "zombie" companies.

The problem is structural and systemic and firmly rooted in the irresponsible funding of under-performing U.S. tight oil companies since at least 2010. The first step to price recovery is the severing of capital supply to companies that could not fund their operations from cash flow when oil prices were more than $90 per barrel. If this does not happen, we could be in for a long period of low oil prices.

kimyo, April 7, 2015 at 1:08 am

i hold stoneleigh in the highest regard because of analysis like this: (published in 2010, answering a reader's questions)

Q: If we have $20 oil there will be no crisis, guaranteed. $20 oil and we have lots of credit/money expansion. Multipliers working and inflation/growth. We would have commerce. We would all be buying shit from (low- wage/cheap coal) China.

Stoneleigh: I disagree. I think we will see $20 oil, but only because of a massive fall in aggregate demand due to the evaporation of purchasing power. $20 oil will not be cheap oil. On the contrary, it will seem very expensive to most people.

(continuing)
Stoneleigh: I am not convinced we will see the dollar become a proxy for oil. I think the dollar will rise substantially as dollar-denominated debt deflates (creating demand for dollars), and people make a knee-jerk move into it on a flight to safety. However, I don't think this will last more than a year or two at most.

I think we are headed into a chaotic currency regime where floating exchange rates are dropped, currency pegs instituted in an attempt to 'beggar they neighbour', and those currency pegs fail.

as late as q2/2014, people would have ridiculed her. since, we're not at $20/barrel, but it's certainly possible, given the 5/2015 land-based storage fill-up and the need for the shale operations to keep pumping. the swiss currency peg cut, the dollar's strength, she made the call and backed it up.

Luke The Debtor, April 7, 2015 at 1:48 am

The peak oilists' thesis is wearing thin: US oil and oil product production record. We're getting awfully close to seeing their covenant with Huebert expelled from energy discussions.

vegeholic, April 7, 2015 at 9:17 am

Did you actually read the article? One of the author's main points is that the dramatic increase in production is largely an artifact of cheap money. Dancing on the grave of Mr. Hubbert might be a little premature.

sd, April 7, 2015 at 3:10 am

Zombie oil for zombie banks in a zombie economy.

Ignacio, April 7, 2015 at 5:35 am

Berman's post is excellent. The comment you replied looks intended to lower the discussion to below ground level.

Your answer is brief but points to another point of discussion: how the fracking investment frenzy will unfold. This is addressed in Euan Mearns link and adds to the uncertainty in economic and energy future.

fajensen, April 7, 2015 at 7:16 am

We will need to become zombies too – because the banks will have invested our pensions in shale oil riiight about at the top, when their cronies are dumping, so we cannot afford to retire or even die of old age.

Santi, April 7, 2015 at 10:16 am

In the South of Europe around one quarter of the population are already economic zombies: unemployed with no perspectives of ever getting a job. But most of us refuse to follow the second law of neoliberal thinking, and "go die" ;)

In the positive side, Energy Intensity of Mediterranean countries like Spain and Greece, but also France or Italy is getting way better in a context of diminishing GDP (according to Eurostat). Spike in Greece was probably due to meltdown in 2012.

Jim Haygood, April 7, 2015 at 8:01 am

'Demand is more difficult to cure than over-supply so that is where efforts must be directed.'

First central planning created oversupply through 'financialization.' Now demand has to be 'cured,' which is what QE and ZIRP (whether effective or not) were intended to do.

Who is going to do this 'severing of capital supply to companies,' which metaphorically suggests corporate head chopping? Evidently, the mistakes of central planning are to be combated with yet more central planning.

I hear that a retired central planner, Alan Greenspan, is available for consulting gigs. When it comes to forecasting energy demand and prices, he's a legend in his own mind.

craazyboy, April 7, 2015 at 10:55 am

"Who is going to do this 'severing of capital supply to companies.."

I imagine it happens as their short and medium term bonds come due and they need to enter the bond market to re-fi. I would hope the investment world has not gotten so crazy in their search for a little yield that they overlook the fact that many of these companies bleed $40 of red ink for every barrel they pump. 'Course they will likely need to enter the bond market before rolling over existing debt – if they aren't even generating enough revenue to cover cash operating expense.

vidimi, April 7, 2015 at 12:03 pm

i had also picked that sentence out because it looks very counterintuitive. if something is more difficult, isn't it better to do the thing that's easier? but i take it to mean that supply will sort itself out while demand will need a hand.

Steve H., April 7, 2015 at 8:19 am

Don Lancaster is an old-school electronics buff who wrote "The Incredible Secret Money Machine." His amortization analyses debunking the financial viability of solar photovoltaics are excellent. For anyone interested, there is this pdf from 2008:
.tinaja.com/glib/pvlect2.pdf

Amend with this note from last December:

"Meanwhile, the November pv pricing figures are in and approach
45 cents per peak panel watt, If the present price drops continue,
hitting the magic 25 cents per peak panel watt required for net
energy renewability and sustainability could happen in as little
as eight months."

Coming from him, that is a very optimistic comment.

Fool, April 7, 2015 at 5:06 pm
So, from my rudimentary understanding: the financial sector is throwing lots of junk bonds around Shale markets; this hot money is causing an oversupply which is bringing down the price of oil. But if the price of oil is cheap, what's the problem?

Oil Dusk, April 7, 2015 at 5:40 pm

Interesting theory. Here's an alternate one.

(1) OPEC essentially sets the world price for oil when it meets with OPEC and agrees on quotas.

(2) Oil producers are essentially price takers. If the world price of oil exceeds the cost to produce this oil, as estimated over the life of an given oil well, then producers will make a decision to drill that well.

(3) The real world price for oil should probably have been something around $85 a barrel for the past five years. The fact that it was actually something closer to $100, suggests that oil producers with marginal costs that could make their money back, along with a reasonable return, at $100 a barrel oil, were able to find capital to drill those wells.

(4) As the US added a few million barrels a day of production through its oil shale operations (out of an estimated 90 million barrels of oil a day of crude oil liquids), OPEC once again had the option of simply cutting back on its quota and keeping prices at this level. Instead, this time, they chose to keep their level of production (to include the quotas) in place.

(5) OPEC, as a cartel and mostly led by the Saudis in this matter, are suddenly willing to allow the crude oil market to crater to hurt other producers. They are willing to accept a large loss, as compared to what they have been making in recent years, in order to eliminate competitors and make the capital providers for their competitors think twice. They are achieving this by basically not undertaking their normal price setting behavior (which would be illegal in the US, unless it was done by someone like the Texas Railroad Commission). Once these competitors are eliminated, anticipate that OPEC will re-set the world price for oil back in the $85 a barrel range for now, but don't be surprised to see world prices jump above $100 for some temporary period.

(6) Some portion of these shale plays are not economic above $85 a barrel; those companies that are overly invested in those marginal plays are in trouble. However, despite your persistent claims to the contrary, much of the US shale business is economic at $85 a barrel or less.

(7) The annual decline rate for global production is something close to 5 million barrels a year. This is the amount of new oil production that must come on line each year in order to allow the amount of oil being produced to remain constant from year to year.

(8) Given recent prices, the amount of capital being reinvested in oil drilling operations, is probably less than half of what it was last year. This means that the few million barrels of oil being produced from our oil shale operations a year has already been absorbed into the world oil system as part of that replacement oil for this year's oil production decline.

(9) These current low oil prices will not likely last for long unless OPEC really throws in the kitchen sink and increases their quotas and digs into their excess production capacity in an attempt to flood the market. The EIA country report for Iraq suggests that they could possibly come up with another 6 million a day of production. Even so, that capacity could be absorbed in a couple years of annual decline.

(10) You don't need to assume industry malfeasance to explain what has happened. The facts seem sufficiently explanatory.

[Apr 12, 2015] The American Consumer Will Never Be Back

Under neoliberalism most Americans became debt slaves ("What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. ")...

Quote: " I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step: "[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent. " "

Apr 11, 2015 | Zero Hedge

Submitted by Raul Ilargi Meijer via The Automatic Earth blog,

That title may be a bit much, granted, because never is a very long time. I might instead have said "The American Consumer Won't Be Back For A Very Long Time". Still, I simply don't see any time in the future that would see Americans start spending again at a rate anywhere near what would be required for an economic recovery. Looks pretty infinity and beyond to me.

However, that is by no means a generally accepted point of view in the financial press. There's reality, and then there's whatever it is they're smoking, and never the twain shall meet. Admittedly, my title may be a bit provocative, but in my view not nearly as provocative, if not offensive, as Peter Coy's at Bloomberg, who named his latest effort "US Consumers Will Open Their Wallets Soon Enough".

I know, sometimes they make it just too easy to whackamole 'em down and into the ground. But even then, these issues must be addressed time and again until people begin to understand, and quit making the wrong decisions for the wrong reasons. People have a right to know what's truly happening to their lives, and their societies. And they're not nearly getting enough of it through the 'official' press. So here goes nothing:

US Consumers Will Open Their Wallets Soon Enough

People are constantly exhorted to save, but as soon as they do, economists pop up to complain they aren't spending enough to keep the economy growing. A new blogger named Ben Bernanke wrote on April 1 that there's still a "global savings glut." Two days later the Bureau of Labor Statistics announced the weakest job growth since 2013, which economists quickly attributed to soft consumer spending.

The first problem with Coy's thesis is that even if people open their wallets, far too many of them will find there's nothing there. And Bernanke simply doesn't understand what savings are. His ideas through the past decade+ about a Chinese savings glut were always way off the mark, and his global – or American – savings glut theory is, if possible, even more wrong. In the minds of the world's Bernankes, there's no such thing as people opening their wallets to find them empty. If they don't spend, they must be saving. That there's a third option, that of not having any dollars to spend, is for all intents and purposes ignored.

The U.S. personal savings rate-5.8% in February-is the highest since 2012. "After years of spending as if there were no tomorrow, consumers are now saving like there is a tomorrow," Richard Moody, chief economist at Regions Financial, wrote to clients in March. Saving too much really can be a problem when spending is weak.

The little man inside, when I read things like that, tells me this is nonsense. So I decided to look up how the US personal savings rate is calculated. Turns out, it's another one of those whacky goal-seeked government numbers. At least, that's what I make of it. Mainly, though not even exclusively, because of things like this, from a site called Take A Smart Step:

[The personal savings rate in] November 2012 was 3.6%, this is not even close to where we need to be for financial health. This savings rate barely gives us enough to handle emergencies, and makes us as a nation weaker. The government calculates the personal savings rate as the difference between the after tax income and consumption of Americans. So they include not only retirement savings, but debt repayments, college savings, emergency fund savings, anything that was not spent.

Making paying off your debt (i.e. money you've already spent) count towards your savings is a practice fraught with questionable consequences. But useful for economists, and accountants alike, no doubt. The problem with it is that it hides reality behind a veil. Because debt repayments are not really savings at all; people are not free to spend what they put into paying off debt, on something else, like iPads, cars or trinkets. Not even on hookers or crack cocaine, for that matter.

For the vast majority of what is paid off in debt, there's no such thing as free choices. People pay off debt because they must. Or, to look at it from another, wide lens, angle, Americans would have to stop servicing their debt payments if they want to 'start spending' again.

Going through the numbers from various sources, I can see that the US personal savings rate is presently some 5.8% of pre-tax income, and debt repayment is close to 10% of disposable -after tax – income. I'm still trying to make those stats rhyme. But no matter how you read and interpret them, it should be clear that debt repayments are a large part of 'official' savings. Even if they really shouldn't be counted as such.

Of what remains in real savings, retirement/pension savings must necessarily be a substantial percentage, and it would be weird to call those things 'saving like there is a tomorrow', if only because they are about, well, tomorrow. But that seems to be the new normal: creating the impression that saving any money at all is somehow detrimental to the economy. A truly crazy notion, if you ask me. Let's get back to Bloomberg's Coy:

There are only two things you can do with a dollar, after all: spend it or save it. If you spend it, great-that's money in someone else's pocket.

In someone else's pocket, but no longer in yours. Why would that be so great? It's only great if that someone has added value to something by doing productive work, not if you simply swap paper assets.

If you save it, the financial system is supposed to recycle your dollar into productive investment with loans for new houses, factories, software, and research and development.

That notion of 'the financial system is supposed to' refers to theories such as those that Bernanke and his ilk 'believe' in. Theories that have no practical value. What is normal for many everyday Americans is crippling debt levels, and no such thing is recognized in these theories. After all, according to them, whatever amount of dollars you get in, you either spend or save them. And if you use them to pay off previously incurred debt, you're supposedly actually saving, even though you no longer have possession of the money in any way, shape or sense, nor a choice of what to spend it on.

But if no one's in the mood to invest more and interest rates are already as low as they can go (as they are in much of the world), the compulsion to save can sap demand and throw people out of work. For the U.S. economy, the good news is that the jump in the personal savings rate is probably no more than a blip. Three economists from Deutsche Bank Securities in New York explained why in a March 25 report called 'U.S. Consumers: Still Shopping, Not Dropping'. While noting a "deceleration" in consumer spending, they wrote, "we think that concerns about the outlook for the consumer are overstated." Their model of the U.S. economy predicts the savings rate will fall to 3% to 3.5% by 2017.

Oh sweet lord. Now a falling savings rate has become a beneficial thing, even when and where savings are very low. Not saving will allegedly save the economy. How did that happen? If we may presume that debt repayments will continue virtually unabated, and there seems to be little reason to think otherwise, this means that by 2017 there will be just about nothing saved at all anymore in America. Which means there'd be very little left of the 'If you save it, the financial system is supposed to recycle your dollar into productive investment'.

The only 'growth' perspective America has left is to grow its debt levels continually, continuously and arguably exponentially.

Other economists have also concluded that the spending dropoff is temporary, which is why the slowdown in job growth, to just 126,000 in March, didn't set off many alarm bells. "Consumer spending is starting to look more and more like a coiled spring," says Guy Berger, U.S. economist at RBS Securities. One sign that consumers aren't retrenching: On April 7 the Federal Reserve reported that consumer credit rose $15.5 billion in February, in line with the recent past.

They got deeper into debt, and this is a sign they're not 'retrenching'? A coiled spring? Really?

According to Deutsche Bank Securities, the first reason to think consumers will resume spending is that their incomes are rising. Annual growth in average hourly earnings has averaged about 2% since 2010, which isn't great but does exceed inflation. With more people working as well, aggregate payroll outlays are up 4.9% from the past year, according to Bureau of Labor Statistics data.

The rises in stock and home prices should make consumers more willing to live a little, say the Deutsche Bank authors. They calculate that households' net worth is almost 6.5 times consumers' disposable personal income. That's the highest ratio since before the housing crash.

But that last bit is arguably all due to QE induced asset bubbles. Not an argument the author would make, I know, but nevertheless. Coincidentally, another Bloomberg article published the same day as the one we're delving in here is called:Why Your Wages Could Be Depressed for a Lot Longer Than You Think. Perhaps the respective authors should have a sit down.

No question, the high savings rate depresses spending in the short run. Purchases of durable goods, from cars to couches, remain well below their 60-year average share of GDP. But all that saving helps consumers get their finances in order, which will allow them to satisfy pent-up demand for that sweet new Ford F-150.

No no no: they just paid off part of their debts. How can that possibly mean they'll go out and get a new F-150? In real life, they spent their money instead of saving it. Either way, they don't have it any longer to spend on a F-150. It would mean they need to get into new debt. On top of what they still have left over even AFTER paying down part of it.

Fed data show that financial obligations including debt service, rent, and auto leases are about their lowest in comparison to disposable income since 1981.

Hmm. According to Wikipedia, "Household debt as a % of disposable income rose from 68% in 1980 to a peak of 128% in 2007, prior to dropping to 112% by 2011." It's about 105% today. So that's just a very weird statement. Someone's wrong, very wrong, and I think I know who that would be. Maybe Peter Coy conveniently ignores mortgage payments when he talks about "financial obligations including debt service, rent, and auto leases"?!

When consumers are ready to borrow more, it won't hurt that, according to the Fed's survey of banks' senior loan officers, banks are easing lending standards.

See? That's what I said: they can only spend if they acquire new debt. They're just getting rid of the last batch, and it's going mighty slowly at that. Lest we forget, when debt as a percentage of income falls, that is due to quite an extent to people failing to make any debt payments at all, and losing their homes and cars. This is a dead economic model. This model is pining for the fjords.

These factors add up to an optimistic consumer.

Oh, c'mon. What is that statement based on? That 'sky high' savings rate that is really just poor slobs paying off what they can in debt repayments so they won't get hit with even more fees and fines?

What I think these factors add up to, is a delusional reporter. There is no excess saving. It's ludicrous. As far as people have any money at all, they're using it to pay down their previously incurred debts. And that gets tallied into their savings rate by the government's creative accounting methods. That's all there is to the whole story. But it will, regardless, induce a few more poor souls to sign up for more mortgages and car loans and feel like happy American consumers on their way down into the maelstrom.

It's sad, it really is. Maybe we should first of all stop referring to the American people as 'consumers'. That might help.

[Apr 10, 2015] Where's The Recovery™ - Shout and Feel It

Apr 7, 2015 | jessescrossroadscafe.blogspot.com

"We cannot look to the conscience of the world when our own conscience is asleep."
Carl von Ossietzky, German editor of Die Weltbühne, awarded the Nobel Peace Prize in 1935

"It would be no sin if statesmen learned enough of history to realize that no system which implies control of society by privilege seekers has ever ended in any other way than collapse."

William Dodd, historian and US Ambassador to Germany, 1933

There isn't any recovery. Or at least the false recovery that has been erected is showing great holes through its painted canvas and thin veneer of distorted statistics.

The Fed will still raise interest rates at least once or twice, for 'technical reasons' that have nothing to do with the real economy and everything to do with their own financial engineering practices and the desires of the financiers.

The credibility trap remains a powerful snare for the pampered princes and princesses. How can they admit what is wrong without endangering their own privileged positions and undermining the 'authority' that they so undeservedly enjoy?

And so by example and by continuing reinforcement, lies and deception have become the generally accepted way of doing business in the land of the exceptional. Exceptionally self-deluded that is.

The Banks must be restrained, and the financial system reformed, with balance restored to the economy, before there can be any sustainable recovery.

[Apr 10, 2015] Thursday Unemployment Claims

calculatedriskblog.com

Doc Holiday, Wed, 4/8/2015 - 6:54 pm

Mr. Butter's Warns of Stupid Shit Ahead:

'Profit recession' looms ahead of U.S. first-quarter financial reports - The Globe and Mail

According to FactSet senior earnings analyst John Butters, just 16 companies in the S&P 500 have issued positive guidance prior to releasing their first-quarter results, and 85 firms have ratcheted down their estimates.

"If 16 is the final number of companies issuing positive EPS guidance for the quarter, it will mark the lowest number since Q1 2006," Mr. Butters said.

[Apr 07, 2015] Decisions Life and Death on Wall Street

Apr 07, 2015 | Jesse's Café Américain

I have just started reading a new book by Janet Tavakoli called Decisions: Life and Death on Wall Street.

There is also a paperback version of it available in the US and Canada here.

This is a non-fiction story of her travels in the world of finance that asks the question, 'What would you be willing to do for money and power?'

As usual Janet does not pull her punches. The description on Amazon is rather intriguing.

In New York, the Federal Reserve Bank hides damaging information about too-big-too-fail banks from the public eye. A prominent bank CEO seems on the verge of a nervous breakdown.
In Washington D.C., a former Wall Street regulator checks into a hotel using the name of a hedge fund manager for an illicit meeting with a prostitute. In a D.C. suburb, the CFO of a beleaguered mortgage giant chooses a drastic personal end to "relentless pressure".

In a picturesque suburb of Zug, Switzerland, the CFO of a major insurance company decides to end his life. In London, a financier kills himself in a way he once said he never would.

In her new memoir, Janet Tavakoli shines a bright light on the money-driven culture of Wall Street and Washington, and the life and death consequences of our decisions that put profit above all.

"The U.S. went off the gold standard in August 1971. With no benchmark, central banks could print money and debase currencies. That opened the door for huge bailouts after big banks screwed up in a big way. Taxpayers-not incompetent bankers-paid the price.

By [the late 1980's], the Federal Reserve Bank and large U.S. banks had established a pattern to control the public relations damage each time banks had a major screw-up: accountants and regulators let banks lie about the size of the problem to stall for time; the Federal Reserve blew smoke at the media; finally, the Fed would bail out the banks in a way that most taxpayers would not understand.

Banks didn't have to get smarter or more competent. The Fed trained the banks that uninformed taxpayers would eat the losses, and fake accounting would let bank officers keep their positions and their money."

If 'rule under law' were more than just a slogan in the United States, men who occupied the senior-most positions in too-big-to-fail banks would have been disgraced, prosecuted, and jailed. But no bank executive was held accountable."

[Apr 07, 2015] Bernanke's True Legacy

The marginal cost of the 50 largest oil and gas producers globally increased to US $92/bbl in 2011

Apr 07, 2015 | Zero Hedge
Magooo

... ... ...

THE END OF CHEAP OIL Global production of conventional oil will begin to decline sooner than most people think, probably within 10 years

Feb 14, 1998 |By Colin J. Campbell and Jean H. Laherrre http://www.scientificamerican.com/article/the-end-of-cheap-oil/

HOW HIGH OIL PRICES WILL PERMANENTLY CAP ECONOMIC GROWTH For most of the last century, cheap oil powered global economic growth. But in the last decade, the price of oil has quadrupled, and that shift will permanently shackle the growth potential of the world's economies. http://www.bloomberg.com/news/articles/2012-09-23/how-high-oil-prices-will-permanently-cap-economic-growth

BUT WE NEED HIGH OIL PRICES: The marginal cost of the 50 largest oil and gas producers globally increased to US $92/bbl in 2011, an increase of 11% y-o-y and in-line with historical average CAGR growth. http://ftalphaville.ft.com/2012/05/02/983171/marginal-oil-production-costs-are-heading-towards-100barrel/

THE PERFECT STORM (see p. 59 onwards) The economy is a surplus energy equation, not a monetary one, and growth in output (and in the global population) since the Industrial Revolution has resulted from the harnessing of ever-greater quantities of energy. But the critical relationship between energy production and the energy cost of extraction is now deteriorating so rapidly that the economy as we have known it for more than two centuries is beginning to unravel. http://ftalphaville.ft.com/files/2013/01/Perfect-Storm-LR.pdf

[Apr 07, 2015] Baker Hughes to close Bryan office, terminate employees by Nora Olabi

Apr 06, 2015 | Houston Business Journal

Houston-based Baker Hughes Inc. (NYSE: BHI) is permanently shutting down its Bryan, Texas, office, located just outside College Station, according to KHOU Channel 11.

Fifty-four employees at the office are expected to be terminated.

In a statement to the city of Bryan, Baker Hughes said it "must reduce its cost structure companywide in order to remain competitive in this challenging business environment." Employees may be eligible for redeployment.

Terminated employees will be paid for a 60-day period, and benefits will continue for three months following the closure.

The job cuts are part of a companywide workforce reduction that will minimize cost during this downturn in oil prices. Baker Hughes said it would cut about 7,000 jobs amid slumping oil prices.

Baker Hughes has also closed other facilities to reduce expenditures. Its Mineral Wells, Texas, plant closure affected 110 employees.

During the oil downturn, companies have turned to mergers and acquisitions to shore up finances. Shareholders at Halliburton and Baker Hughes recently approved the companies' $34.6 billion megamerger.

Slumped oil prices have also hit companies such as Weatherford International PLC (NYSE: WFT). The company announced it would cut up to 8,000 jobs in the first half, mostly from the U.S. The company eliminated nearly 7,000 jobs globally just last year.

Here's an update on the Texas energy companies that have cut back amid slumping oil prices this year.

[Apr 03, 2015] West is trying to buy allies of Russia

This is extremely strong move by the US diplomacy (EU vassals were just token players, extras in the play) which considerably weakens Russia political and economic position. It also shows that drop of oil prices was a well though out strategic move with several possible surprises in the sleeves.

Apr 03, 2015 | svpressa.ru

How the lift sanctions against Iran will affect the position of Russia in the world

Lengthy negotiations the six world powers (Russia, USA, UK, France, Germany, China) in Lausanne ended with agreement on the lifting of restrictions against Iran. Foreign Minister of this country Mohammad Zarif called the historical results of the negotiations. Similar opinion is shared by U.S. President Barack Obama, who compared the agreements with agreements between the United States and the Soviet Union during the reign of Reagan and Nixon. The world market after the statements of the leaders of the six responded to a decrease in oil prices. But the question arise: will the economy of Russia suffer as a result of this shrewd move, and will Russia be able to maintain a trusting relationship with its ally in the Middle East or it will change camps.

The EU and the US sanctions against Iran seriously limited the foreign trade of Tehran. They were introduced under the pretext of preventing Iran's development of its own nuclear weapons. Iran argued that solely interested in building on their own territory of the nuclear power plants and is not intended to have weapons of mass destruction. But the official representatives of the West did not believe statements by Iran leadership, fearing that obtaining a nuclear weapon by Iran will seriously alter the geopolitical balance in the middle East.

In recent years tensions between Iran and the West only grew. This played against attempts to isolate Moscow, which, after the reunification of the Crimea with Russia was forced to start organizing the "anti-Western coalition." to counter Western sanctions. But Tehran clearly did not enjoyed its permanent status of a "rogue state" assigned by the USA, and the new President of Iran Hassan Rouhani began to hint that he might compromise and accept the demands of the West.

Concluded at Lausanne agreements, Iran accepted an obligation for 15 years not to build new facilities for uranium enrichment and not to enrich uranium to the level of over to 3.67%, while also reducing the number of centrifuges from the current 19 thousand to six thousand. In response to the Tehran gets the opportunity to export the energy to the West.

The appearance on the world market of oil and gas from a new player at the current moment of low energy prices might trigger further collapse in the price of "black gold" which will jeopardize the economy of Russia. At the same time, the removal of restrictions on the development of the Iranian nuclear program will enhance the ability of Russian companies to participate in construction of nuclear power plants. It also indirectly created a new prospects for cooperation in military-technical sphere.

It is possible that the West went to the lifting of sanctions, based on geopolitical considerations. Shiite Iran is supporting the rebels Houthis in Yemen and efforts of the coalition led by Saudi Arabia may not lead to success. This can threatens oil supplies to Europe and the USA. In addition, Iran has long expressed his desire to join the Shanghai cooperation organization, collective security Treaty organization and BRICS. Here West was forced to give Tehran a bone to block or slow down such moves.

The lifting of the sanctions on Iran may lead in the near future to the fall in oil prices. But this probably will be a short-term phenomenon caused by excessive speculation. In itself, the lifting of sanctions in the future for a few months will not affect the market, " said the Director of the Center for the study of world energy markets energy research Institute of Russian Academy of Sciences Vyacheslav Kulagin. No additional quantities of oil and gas on the market will be added to market immediately. But if the current economic situation in the world will stay then in the future the lifting of the sanctions on Iran will led to significant changes. Iran will obtain access to Western investments and technology. But again, in a short term the world energy market is not affected.
But if we talk about the future after 2020, Iran could become a leading exporter of oil and gas. Oil and gas production will increase. It is worth noting the value of the field "South Pars". Even before the sanctions, there were dozens of projects in this field, including some with the participation of Russian companies. If those projects will be revived, then they will have a serious impact. But this impact will be felt in 2020 or even 2030. In this timeframe Russia will get a serious competitor in the commodities market.

It is worth considering the geopolitical factor, in particular, the current situation in Yemen. Iran supports the Shiite population of this country, but does not yet have the financial capacity to significantly affect the situation. But in the future if the investment is going in Iran, such opportunities will appear. Accordingly, re-configuration of forces in the Middle East will be a bigger question than it is today.

[Apr 03, 2015] Sitting On Top Of the World

Apr 02, 2015 | Jesse's Café Américain

"Larry [Summers] leaned back in his chair and offered me some advice. I had a choice. I could be an insider or I could be an outsider. Outsiders can say whatever they want.

But people on the inside don't listen to them. Insiders, however, get lots of access and a chance to push their ideas. People - powerful people - listen to what they have to say. But insiders also understand one unbreakable rule: they don't criticize other insiders."

Elizabeth Warren, A Fighting Chance

A favorite trick of perception management is to put out a good number, and revise it lower, even sharply so, in the next couple of months, thereby rolling over the material obtained to the more current month, whether it be jobs, or factory orders, or whatever is on display. We saw an example of this today with the Factory Orders.

They do it so regularly that is only remarkable that the mainstream commentators seem to fall for it every time. Thereby we obtain a rolling enthusiasm of improvement, while in the midst of a secular stagnation.

Yes there are certainly more jobs. We are coming off a calamitous decline in economic activity brought on by an asset bubble founded in regulatory capture and widespread financial fraud.

Unfortunately all the abundant monetary stimulus that has flowed from the Fed's Balance Sheet into the financial economy to create these 'jobs' is finding it almost impossible to reach sustainability through a revival in aggregate demand. Instead, it is being used to prop up the balance sheets of the zombie Banks.

This is shown in the unadorned GDP numbers year over year and the flagging velocity of money. Another enormous headwind is globalization that is creating unmanageable social and financial units, and the rise of corporate monopolies that span national borders.

The US may already have slipped into recession. There will most likely be no alarm raised, because the looting of the ship into the first class lifeboats continues, and it is easier if the lower decks remain unaware of the risk.

The rigging of the gold and silver markets is founded in this desire to manage perception. Oh, it is based on a more 'noble' desire to inspire confidence and not make people panic.

But at the same time, it has become an enduring illusion, while the disparities in economic health become increasingly pronounced. And so the looting by the nationless few continues, and justice is led down a hallway and strangled, draped in the national colors, to the sound of patriotic tunes. Such are times of currency war.

The self-serving policy errors of the Federal Reserve Bank are matched only by the horrendously destructive policy errors in political judgment by a Congress and an Executive that has been captured by the moneyed interests.

Who will dare even tell the truth, much less act on it, when the surrender of the truth for 'the story' is one's passport to the more favored classes, the insiders, with all that this implies in terms of comfort and security? The only resignation is to accept a permanent exile, to be without influence, without a voice, ignored.

One must go along to get along, to pay one's dues, extend and pretend, and never, ever, speak ill of the insiders and their schemes. Freedom, who needs it, when you can have security, comfort, and prestige.

So here we are, at peak illusion, just sitting on top of the world.

Have a pleasant evening.

On Secular Stagnation: A Response to Bernanke

economistsview.typepad.com
Larry Summers responds to Ben Bernanke:
On Secular Stagnation: A Response to Bernanke, by Larry Summers: Ben Bernanke has inaugurated his blog with a set of thoughtful observations on the determinants of real interest rates (see his post here) and the secular stagnation hypothesis that I have invoked in an effort to understand recent macroeconomic developments. I agree with much of what Ben writes and would highlight in particular his recognition that the Fed is in a sense a follower rather than a leader with respect to real interest rates – since they are determined by broad factors bearing on the supply and demand for capital – and his recognition that equilibrium real rates appear to have been trending downward for quite some time. His challenges to the secular stagnation hypothesis have helped me clarify my thinking and provide an opportunity to address a number of points where I think there has been some confusion in the public debate. ...

His conclusion:

I would like nothing better than to be wrong as Alvin Hansen was with respect to secular stagnation. It may be that growth will soon take hold in the industrial world and allow interest rates and financial conditions to normalize. If so, those like Ben who judged slow recovery to be a reflection of temporary headwinds and misguided fiscal contractions will be vindicated and fears of secular stagnation will have been misplaced.
But throughout the industrial world the vast majority of the revisions in growth forecasts have been downwards for many years now. So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.
If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. Macroeconomists can contribute by moving beyond their traditional models of business cycles to contemplate the possibility of secular stagnation.

Bud Meyers:
"Saving relative to investment" -- Those at the are top hoarding cash; the money supply isn't being re-circulated to drive economic activity; instead it's perpetuating future generations of heirs.
To expand public and private investment would require changing the tax code and having better enforcement by the IRS (offshore accounts, etc.) An adequate level of demand and its appropriate distribution can be acquired by raising the federal minimum wage to $25 an hour -- all the things that the current congress is against.

Benedict@Large:

"Those at the are top hoarding cash ..."
From the opposite viewpoint, there are few suitable (risk v. reward) investment opportunities. For the same reason, stock buy-backs are popular with corporations.
The real problem is and has always been a lack of demand. Without demand, there is no reason to invest. Just surplus savings. Excess reserves. Those at the top are simply doing the best they can with them.

reed hundt

Gentle economists: a global or even national project to rebuild the energy platform on sustainable and much more affordable grounds would eliminate all vestiges of stagnation. Taxing GHG is only one part, and not an absolutely necessary part, of that project. This is the infrastructure plan par excellence. I might add that the avoided costs are, well, er, mind bogglingly large.

I predict absolutely no one will comment on what I've posted; no one paid any attention to the same prediction made in or about 1994 by the FCC chairman with respect to the rebuilding of the communications platform. Who was that guy?

RGC:

I think we have two distinguishable problems:
1. Effective demand is inadequate and the private sector is extremely unlikely to provide it any time soon. As mentioned, corporations are swimming in cash and are buying back their stock - meaning they don't see good investment opportunities in their marketplace. If the federal government doesn't spend for infrastructure and other things we are likely stuck.
2. The FIRE sector is sucking an ever-increasing amount of income out of the real economy. The average consumers' money is going to pay interest on debt rather than goods and services. The Fire sector uses their income to make more loans and thus collect even more interest or they speculate in the price of existing assets. Thus the real economy continues to shrink.
If fundamental changes re fiscal policy and the treatment of returns to finance versus returns to productive investment are not made, we are screwed.

The Rage said in reply to RGC

"Effective demand" is irrelevant with a strong "FIRE" sector. It is credit expansion and financing of that credit expansion that drive the economy.

So people say "effective demand" is not good enough, but the economy keeps on expanding and expanding as commercial paper surges despite "effective" demand not rising.

This is why I say there was no recession in the early 2000's. Businesses overreacted to the digital booms end and over cut production while commercial paper was booming. Then they had to snap back over 2003 to reflect reality of condition. It is a different economy and one not built on industrial production or consumer savings. The "real" economy is the FIRE sector.
To unbuild that, would require a medium nobody wants to go through.

djb said...

i am glad to see someone blaming hansen, not keynes for the idea that secular stagnation is best we can do
keynes is often attributed to having said this in the general theory, but NEVER said such a thing
he defined several scenarios where it could occur,
believing a true general theory should be able to explain reality
but NEVER said that the scenarios were unsolvable

"But we must not conclude that the mean position thus determined by "natural" tendencies, namely, by those tendencies which are likely to persist, failing measures expressly designed to correct them, is, therefore, established by laws of necessity.
The unimpeded rule of the above conditions is a fact of observation concerning the world as it is or has been, and not a necessary principle which cannot be changed."

thats from the end of chapter 18, the general theory

Fred C. Dobbs said...

Bottom line, the Bernankes
& Yellens can only do so much.
Monetary policy won't get it all done.
That's where Tim Cook & Elon Musk
come in, to do the rest.

Min

Long Depression 2.0?

The Rage said in reply to Min...

Been going on since the early 80's.

anne said in reply to anne...

I too come down on the side of Lawrence Summers. The problem in Europe is domestic demand and that could have and should have been handled by a Keynesian spending approach from 2008 on:

http://research.stlouisfed.org/fred2/graph/?g=VRj
August 4, 2014
Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013
(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=16ei
August 4, 2014
Real per capita Gross Domestic Product for United Kingdom, Germany, France and Netherlands, 2007-2013
(Indexed to 2007)

Reply

[Apr 01, 2015] Liquidity Traps, Local and Global (Somewhat Wonkish) By Paul Krugman

Apr 01, 2015 | krugman.blogs.nytimes.com

There's been a really interesting back and forth between Ben Bernanke * and Larry Summers ** over secular stagnation. I agree with most of what both have to say. But there's a substantive difference in views, in which Bernanke correctly, I'd argue, criticizes Summers for insufficient attention to international capital flows – but then argues that once you do allow for international capital movement it obviates many of the secular stagnation concerns, which I believe is wrong.

As it happens, the role of capital flows in the logic of liquidity traps is an issue I tackled right at the beginning, back in 1998; and I've been trying to work out how it plays into the discussion of secular stagnation, which is basically the claim that countries can face very persistent, quasi-permanent liquidity traps. So I think I may have something useful to add here.

Start with Bernanke's critique of Summers. The most persuasive evidence that the US may face secular stagnation comes from the lackluster recovery of 2001-2007. We experienced the mother of all housing bubbles, fueled by a huge, unsustainable rise in household debt – yet all we got was a fairly unimpressive expansion by historical standards, and little if any inflationary overheating. This would seem to point to fundamental weakness in private demand. But one reason for the sluggish growth in demand for U.S.-produced goods and services was a huge trade deficit, the counterpart of huge reserve accumulation in China and other emerging markets. So Bernanke argues that what Summers sees as evidence of secular stagnation actually reflects the global savings glut.

That's a good point. But Bernanke then goes on, as I understand him, to argue that international capital flows should solve the problem of secular stagnation unless if affects the world as a whole, because capital can seek higher returns abroad; he also argues that the global savings glut is mainly a thing of the past, and that in any case such problems can be addressed mainly by putting pressure on foreign governments to open their capital accounts and stop pursuing policies that promote excessive current account surpluses. And in these assertions, I'd suggest, he goes somewhat astray.

Let's first ask whether the possibility of investing abroad obviates the problem of liquidity traps in general (as opposed to secular stagnation.) To do this, consider the analysis I laid out a couple of months ago when I was trying to think about the dollar and U.S. recovery, but run it in reverse. Suppose that a country or currency area – let's call it Europe - suffers a decline in aggregate demand. And suppose that this threatens to push the Wicksellian natural rate of interest – the rate of interest at which desired savings and investment would be equal at full employment - below zero. Can this happen if there are positive-return investments outside of Europe?

You might think not: as long as there are positive-return investments abroad, capital will flow out. This will drive down the value of the euro, increasing net exports, and raising the Wicksellian natural rate. So you might think that you can't have a liquidity trap in just one country, as long as capital is mobile.

But this isn't right if the weakness in European demand is perceived as temporary (where that could mean a number of years). For in that case the weakness of the euro will also be seen as temporary: the further it falls, the faster investors will expect it to rise back to a "normal" level in the future. And this expected appreciation back toward normality will equalize expected returns after a decline in the euro that is well short of being enough to raise the natural rate of interest all the way to its level abroad. International capital mobility makes a liquidity trap in just one country less likely, but it by no means rules that possibility out.

Still, secular stagnation – as opposed to liquidity-trap analysis in general – is concerned with excess saving that lasts a very long time, that's quasi-permanent. So in that case wouldn't we expect capital mobility to be decisive? Shouldn't it be impossible to have secular stagnation in just one country?

When I first approached this issue, that's what I thought. But I immediately ran up against a big real-world counterexample: Japan. Japan has effectively been at the zero lower bound since the 1990s, and it wasn't until the end of 2008 that the rest of the advanced world joined it there. So why didn't capital flood out of Japan in search of higher returns, driving the yen down and boosting Japan out of its trap?

The answer is that real returns in Japan weren't exceptionally low – they were, in fact, more or less equal to those abroad. But this equalization of real rates didn't occur through an equalization of Wicksellian natural rates. Instead, what happened was that persistent deflation in Japan, combined with the zero lower bound, kept the actual real interest rate well above the Wicksellian rate. Here's the data from 1996 to 2008, with inflation measured by the GDP deflator and interest rates measured by 6-month Libor:

[Graph]

OK, it's not full equalization. but not too far off - despite being at the zero lower bound for many years, Japan ended up offering more or less competitive real returns.

The moral of the Japanese example is that if other countries are managing to achieve a moderately positive rate of inflation, but you have let yourself slip into deflation or even into "lowflation", you can indeed manage to find yourself in secular stagnation even if the rest of the world offers positive-return investment opportunities.

Which brings me to the future of the global savings glut.

As Bernanke notes, as far as big current account surpluses go, Germany is the new China. However, he argues that the large current account surplus of the euro area as a whole is a temporary phenomenon driven by cyclical weakness in the euro periphery, and therefore not likely to be a source of persistent trouble.

But look at what bond markets are saying! German interest rates – presumably an indicator of perceived euro safe rates – are negative out to seven years; the 10-year rate is only 16 basis points. This is telling us that markets expect the euro area economy to be depressed, and ECB rates very low, for many years to come. In effect, European bond markets are flashing a secular stagnation warning.

And this makes sense: the case for secular stagnation in Europe is considerably stronger than it is for the U.S.. Working-age population is declining, Japan-style; the euro system, with a shared currency but no fiscal integration, arguably imparts a strong contractionary bias to fiscal policy; and core inflation is already down to just 0.6 percent.

By the logic I've already laid out, this should imply a persistently very weak euro and a persistently large European current account surplus, as Europe in effect tries to export its secular stagnation – a process limited only by the way low inflation or deflation interact with the zero lower bound to keep interest rates from falling to their Wicksellian equilibrium rate.

Sure enough, if we try to figure out the market's implied prediction for the euro, it seems to imply persistent weakness. The euro/dollar rate is down around 30 percent from its level before Europe began running such large surpluses. Meanwhile, German 10-year real interest rates are around -1, while U.S. real rates are slightly positive; this implies that markets expect the euro to recover only a third or so of its recent decline over the next decade.

What this in turn implies is that even if you downplay domestic U.S. weakness and focus on the export of capital from other countries, especially Germany, there's no good reason to believe that this new version of the global savings glut will end any time soon.

Which brings me to the policy debate. Bernanke seems to be saying that if there is a problem, it can be solved by cracking down on currency manipulation:

"The US and the international community should continue to oppose national policies that promote large, persistent current account surpluses and to work toward an international system that delivers better balance in trade and capital flows."

If my analysis of the European problem is right, however, this is pretty much irrelevant: Europe's trade and capital imbalances are the result of fundamental weakness of domestic demand, which is then exported to the rest of us, who aren't that strong either. If true, this says that we have a problem that must be solved with policies that boost demand. So on the policy debate, I come down firmly on the Summers side.

* http://www.brookings.edu/blogs/ben-bernanke

** http://larrysummers.com/2015/04/01/on-secular-stagnation-a-response-to-bernanke/

[Apr 01, 2015] Links 3-30-15

Apr 01, 2015 | naked capitalism

Jim Haygood, March 30, 2015 at 8:47 am

So does our dear Uncle Ben (Bernanke):

When I was chairman, more than one legislator accused me and my colleagues on the Fed's policy-setting Federal Open Market Committee of "throwing seniors under the bus" (to use the words of one senator) by keeping interest rates low. The legislators were concerned about retirees living off their savings and able to obtain only very low rates of return on those savings.

I was concerned about those seniors as well.

http://www.brookings.edu/blogs/ben-bernanke/posts/2015/03/30-why-interest-rates-so-low

To paraphrase an old joke from engineering school, 'Four years ago, I couldn't even spell seniur. Now I are one!'

Ben's screed sounds oh-so-plausible, until one focuses on what it doesn't say. It doesn't disclose that a steeply-sloped yield curve, with its lower end anchored at zero, is a direct, unlegislated subsidy to banks who borrow short and lend long.

Of course, borrowing short and lending long is risky. But as the events of 2008 proved, banks that blow themselves up with stupid, risky behavior will get bailed out with public funds if necessary, then subsidized for years afterward with ZIRP. Hey, it's a bank cartel. When foxes guard the hen house, the dinner menu never varies: chicken!

craazyboy, March 30, 2015 at 9:58 am

More desperate Econ 101 verbiage, disconnected from any reality, attempting to validate the notion that Fed short term policy rates ( a bankers "cost" – not selling price) has any benefit to the economy*. Ok, we know Volker was able to break the economy with 15% short rates. So we are to believe that all you need to do is the opposite of Volker, and voila!, vibrant healthy economy. Yeah, binary brains rejoice!

No mention of securitization and the role it plays in modern banking. You can be interest rate insensitive when you are on the "fee model" and can sell off all your risks – after obfuscating the risks to make a prettier package for yield starved "investors". "CDS with that", they will offer for default risk. You might be able to hedge long term inflation/interest rate risk – but your total return probably goes back to zero. Anything to prop up housing prices beyond what the consumer can afford. But maybe the Fed doesn't know that is going on and Ben is still unaware. hahahahaha. I'm just kidding. Ben isn't an idiot…oh wait, we're doing it again???

He was concerned about "seniors" – THEN he threw them under the bus. 'Course no mention of that growing pre-senior bracket – when you are permanently out of the job market for whatever reason, but have many years to go prior to being eligible for SS.

Then no mention of time frame. Isn't 6 years and counting long enough to see if you are getting these so called positive effects he claims? Anything weird happening to challenge your theoretical world view? Is a stock bubble a good thing or a bad thing? Is a bubble a store of value? hahahaha Stay tuned if you're not sure yet.

* About the only "good" effect you can put your finger on is maybe some people and orgs can re-finance at lower rates. But this usually applies to someone that has good credit and not teetering on bankruptcy already. Then typically, to really get the good lower rate you need to get around going thru a bank. So the biggest beneficiaries would be large financially stable corporations with direct access to the bond market. Then this effect may warrant low rates for perhaps a year or so, at which point they all should have done it and be done. By now we have seen what they've done with the money, and it generally wasn't hiring.

JTMcPhee

March 30, 2015 at 3:57 pm

cb, maybe you've seen the conglomerate (in the geology sense) behind the "Dismal Science" (sic) link above, http://www.nybooks.com/blogs/gallery/2015/mar/29/whats-wrong-with-the-economy/ How much additional evidence of the bankruptcy of competence (measured by decency and comity and mitigation of pain and such meaningless metrics, or even by the patent failure of economics to meet any of the tests of what constitutes a "scientific discipline") amongst all the "economists" is needed to nail down an indictment?

Shoot, it is too much for me, at least, to gird myself to pick out the most horrific, all-too-human, and insufficiently humane (from my own "loser's" perspective, of course), riffs and bits from that March 14–15, 2015, conference, "What's Wrong with the Economy-and with Economics?" Which convocation seems a little like asking a bunch of bird colonels and 1-star generals and think-tankers and CEOs of post-national corporate thingies like Lockheed "We never Forget who we are Working For" Martin at a gathering at the War College to discuss "What (If Anything) Is Wrong With The Military-Industrial-Congressional-Petro-Financial Complex?"

I won't pretend to know the CVs and bona fides of the participants (though I don't see Noam Chomsky and those sorts represented at all), but it looks, reads and sounds like every one of the fat, dumb and happy folks in attendance are all feeding at the same trough. "Oh, our models just need tweaking!" and keep those political-economists at a very long distance, they might inject the notion that human pain is present and inherent, and so very distastefully so, in all their policies, but don't let that get in the way of a lot of genteel comradery among those admitted to the club… Besides, the "right people" are doing very well indeed, thank you very much. And we need a little time to wrap some bland and dense formulae and definitional constraints around potentially combustible non-scientific notions like equity and morality and honor and decency.

"Burn it all down!" is gaining some steam, folks. Economists and their leash-holders can pretend all they want that they have nomenclature and handles and plans and contingencies for all this overlay of pseudo-scientific Ruler-serving complexity they have created in service to the Elite. The Crowd can be chivvied just so far, and then there's a stampede.

I can hardly wait, out here in entertainment-space, to see how the fops and courtiers and courtesans and peacekeepers in "The Capital" fare in the last installment of "Hunger Games: Mockingjay II." The word from the Districts: "President Snow! If we burn, you burn with us!"

Of course, maybe this conference and other such gatherings are really an arch subversive plot to undermine the minions of the "science" wing of the economist brand, and blow a little lift under the pinions of the "political" wing…

Reply ↓

craazyboy

March 30, 2015 at 6:46 pm

Who knows what may happen when you get a bunch of proctologists together for a navel gazing convention.

[Apr 01, 2015] Chris Hedges America is a Tinderbox

Apr 01, 2015 | naked capitalism
Banger July 21, 2013 at 1:18 am

Well, I don't find most people vicious. But you are right if you mean by that they admire and respect strength. The Montgomery Bus Boycott was a powerful symbol of the strength of a community. Most Americans have contempt for the left because it is weak. It wilts, always, under pressure. I am old enough to remember when that wasn't the case.

I don't blame the American people because they have been subject to the most sophisticated mind-control regime ever known–people who are literally under dozens of magic spells, half-hypnotized and half-awake. Yes, they succumbed to the sly manipulations that used the unconscious as a playing field without hardly anyone knowing.

jake chase July 21, 2013 at 1:47 am

Sophisticated mind control my ass. Plutocrat right wing horseshit sells because it makes people who buy it feel somehow respectable and virtuous, without challenging in any way the mean, puerile selfishness by which they steer their own ship of life. Just about every man at least has somebody he can push around, thrash if he feels like it, all the while telling himself how manly this makes him. Want to see what the working class is like? Spend a few hours in one of their bars.

The only thing 90% of the population wants is for their own worthless lives to become marginally more luxurious. I saw this vividly during the Seventies, on the North Fork of Long Island, where every union screw turning warm mongering putz had his little plot of grass, his motorboat, his garden tools that made the neighborhood sound like Armageddon. Archie Bunker was a sanitized version of these bastards, who liked nothing better than thrashing some long haired student or idealistic protestor and waiving the flag for Richard Nixon.

Of course, none of them had served anywhere. They had fallen into the between the wars age group, and their idea of military service was a John Wayne movie.

Banger July 21, 2013 at 11:22 am

Sure, many working class assholes were and are assholes. But many are not that way and I hung out in some bars then and I must say I knew some nice guys too.

As for mind-control–I've studied it and the ruling elites certainly set out on the project willfully and left a paper trail and it worked. Stage magic works as does manipulating the unconscious of people who don't believe they can be manipulated.

jonboinAR July 21, 2013 at 1:56 pm

Response to "tongograd"'s quotation of Mark Ames

Will you listen to this from a white male point of view? As the end of the first paragraph makes clear, the people that Ames is calling not just stupid but cowardly, nearly the worst insult you can give to a human being, are not really so much Americans in general, that is Latinos, African Americans, Native Americans, Asians, or women of any ethnicity, but specifically white males. Really them alone. Then, again, as usual, following the string of insults, Ames and the Left he putatively represents have the nerve to wonder just what they have to do to attract the white male vote. "Well, we can't do anything about it. They're not just benighted and otherwise disgusting, but really they're chicken-shirt. If they ever decide to grow a pair they'll come to us." Really? You think so?

What other ethnic group on the face of the earth is it not just considered acceptable by the Left, but de rigeur, to openly despise, to compete in order to creatively criticize and put down. "Hey", says Ames, "Everyone calls them stupid. No one ever thinks to call them cowards, the whole group of white, male American Fox News watchers. I'll make my name today!" ANY other ethnic group, you'd better watch yourself when you reference. You'd better make sure that nothing you say can be taken to even imply any criticism of them as a group. Man, I don't think I'm exaggerating here. But white males, especially if they're American, whether working or managerial class, have, since the Civil Rights Era, been the scapegoats of the left, classical-like scapegoats, openly, until now it's not even questioned. The Left puzzles and puzzles about why the American white male distrusts them, but never even brings up this perfectly obvious question. I don't know. My discussion of it right now will probably be considered racist by some just for defending them. It seems as though the practical definition of racism is advocating in any way for the interests of whites or, especially, white males. Nothing they have or do is considered legitimate.

"We the spiteful." Please! That's just funny.

You, we (and man, I do it too, now I think of it), the Left, need to stop pretending to wonder why the white males in the US don't want to travel with us. If we're really interested in winning the economic war with the "oligarchs", we're going to have to drop the identity politics and return to class. But maybe it's useful, psychologically or competivitively necessary to continue scapegoating them and this economic struggle is really a smokescreen for something else. I don't know.

Lexington July 20, 2013 at 3:38 pm

The problem, Hugh, is that your 99% does not agree with your view of the world. They believe that the poor are lazy and they are more resentful of the poor than the Koch brothers. Leftists have to face this fact.

Yes, they have to face it, but they don't have to accept it. To build a mass movement these people need to be engaged in dialogue and persuaded that there is another way (I deliberately avoid the condescending term "educated"). Many people seem to think this is next to impossible and not worth trying, but from where I'm standing it's the only way. And I don't think it's that hard, because our agenda is emminently in their self interest, and at bottom people invariably have a very firm grasp of their own self interest, even if it has been clouded by "wedge issues" and "culture wars".

Bottom line is that racial resentment and nationalism are all good and fine, but when your stomach is empty they don't amount to a hill of beans. Neoliberalism is remorselessly proleteriatizing the American worker and one consequence is that peoples' priorities become a lot clearer.

I can only site the most egregious example and that is the Daily Kos blog which is an example of where faux-leftists dominate the discussion and ban real discussion when it gets beyond Party orthodoxy.

Daily Kos is the unofficial house organ of the Democratic Party, not in any way legitimately a progressive site. Markos has never been very good at concealing his ambition of becoming a player in the Democratic establishment by leveraging the site's potential to mobilize the base. Back in the day when we could pretend that progressives and Democrats were largely on the same team lots of people were willing to overlook that. Seems like a lifetime ago now.

The left is dead right now–stone cold dead. Occupy was a last stab by anarchists to wake it up–it failed utterly in doing that though I think it may have revived anarchism a bit which is always a good thing.

I honestly don't know what people expected from Occupy. Did the Montgomery bus boycott end racial segregation in the south? Did the Ludlow Massacre crystalize broad suppport for workers rights? Occupy was an opening skirmish in what will be, at best, a very long and drawn out war of attrition against very powerful and deeply entrenched interests. Perhaps our society's obsession with instant gratification has blinded people to exactly what this will entail.
Hugh July 20, 2013 at 7:16 pm

I agree with you. We need to talk to all Americans, citizen to citizen, equal to equal. We must ask not just for their ideas and support but their full participation.

A bad idea (what we have now) can be overturned by a good idea (what we can build together). But we don't have to just appeal to self interest. Ordinary people, we of the 99%, have shown for hundreds of years that we were willing to fight and even die for something bigger than ourselves. That impulse has not disappeared. We just need to give people something to believe in, and make sure that it is worthy of their belief.
jake chase July 21, 2013 at 1:51 am

Ordinary people have shown they are sheep willing to be led into slaughter, too fearful of censure by neighbors to even stand up for their own lives. There is nothing they have 'died for' in the past three hundred years that was worth a fart in a hailstorm. If you think otherwise you better spend more time reading history.

Calgacus July 21, 2013 at 6:29 pm

Really, Jake? The sides in the US Civil War & WWII were indistinguishable, and one side was not somewhat gooder guys than the other? (Need I say that that side was imho the one with the evil Northern capitalists & later the US military-industrial imperialist complex & Joe Stalin too?)

The slaves in Haiti 200 years ago were not fighting for something "worth a fart in a hailstorm"?
Really?

Banger July 21, 2013 at 1:10 am

The Montgomery Bus Boycott did much to change things at the time–it built momentum for a movement by showing the determination of citizens to see the project to the end. It was a dramatic show of strength by a community that had felt marginalized and despised by the majority of citizens.

Occupy was nothing of the kind. It was studiously not organized and it achieved little momentum because, beyond the participants and part of the intellectual class it did not win much respect from the population as a whole. Again, it aided the cause of anarchism and I think showed the left an interesting direction to follow.

jrs July 21, 2013 at 2:56 pm

I'm tired of criticisms of Occupy for not being organized, if the point of the criticism is they didn't have a leader, and proper heirarchy etc.. The fact that there was an assassination attempt on Occupies "leaders" (and the assassination attempt had unintended humor – the keystone cops want to assassinate leaders of an anarchist group!), shows just how dangerous organizing in a traditional hierarchy would have been. Leaders = Targets for Assassination. That's the murder elite we are dealing with. Perhaps the anarchist know a great deal more about fighting a guerilla war than their liberal critics.

Banger July 21, 2013 at 3:30 pm

Occupy was a sign more than a movement. By not organizing, of course, it avoided decapitation and populated the imagination more than the streets. It's taken me awhile to understand it as a harbinger of a new political age. Since it is new I do not understand it yet. But I recognize that politics cannot change without a profound change in consciousness in all of us left, right, center and outsider (my current political alignment).

But, as a political movement, it failed completely. Lack of coherence did not inspire the confidence of people sitting on the fence. That's not the fault of Occupy it's just the way we are now.

Nathanael July 21, 2013 at 10:18 pm

The Montgomery Bus Boycott came after a decade of seemingly fruitless work in the 1950s, and even earlier setbacks in the 1940s.

I have debated in these pages whether we are in the equivalent of the "1950s" phase or the "1940s" phase. We certainly aren't anywhere near the 1960s phase; some people have to age out and others have to grow up.

EricT July 21, 2013 at 1:08 am

I don't agree with the presumption that the 99% in this country can't agree on anything we actually agree on a lot when the real message is delivered. The real problem is that every movement that gains momentum is co-opted by the real power in this country. Nixon's cointel has become the policy of the elite to protect itself. Haven't you ever turned on current TV. On my cable system, the sound is awful, I have to turn the volume way up to hear it, turn on one of the MSM stations and the sound is relatively incredible. They make it hard for everyone to organize, they give you candidates that only differ on the most divisive issues( i.e. reproductive rights ) and won't address the actual causes of everyone's malaise.

They promote chaos among us all, by not actually bailing out the country, they keep everyone on edge being one paycheck away from bankruptcy or one medical condition from ruin, some of their tools are racism and classism. The game is rigged and we are the suckers.

jrs July 21, 2013 at 2:49 pm

As for "more resentful of the poor than the Koch brothers". I get into debates where a subject of never ending interst is whether or not people deserve their economic fate.

Gah, with all that is wrong with the world (so so much) why is this topic even so endlessly interesting to people? The truth seems obvious and boring to me: while there is sometimes things individuals can do to effect their economic situation one way or other we don't live in some world that magically metes out justice in monetary reward. Duh. Furthermore an economic system that doesn't allow second and third and forth etc. chances before condemning people to poverty is cruel. And I'm not even talking about second chances for murders or any type of moral offense – I mean for making dumb economic decisions! Even some platonic ideal of a Perfect economic Meritocracy – if it all depended on an economic decisions you made at 19 and could never be changed after that point is *inhuman* – it does meet a basic human requirement of human life for growth over the lifespan. Life has consequences by it's very nature, but punishment to poverty is a consequence purely of social systems.

So really why is the question of whether people deserve their economic fate even so interesting to poeple? We are the 99%.

Lambert Strether July 20, 2013 at 4:40 am

Gramsci wrote from one of Mussolini's jails. A lot of his language is neutral for that reason.
ambrit July 20, 2013 at 6:28 am

Mr Strether;
Obama as a modern American Mussolini! Now that's an image! The Tea Party stooges got it wrong in portraying 'O' as a Hitler type. He's a 'kinder gentler' Mussolini type authoritarian! (Somehow this strikes me as an insult to the memory of Mussolini. Go figure.)

from Mexico July 20, 2013 at 10:52 am

I agree that no change will take place without organizational politics.

Peter Skerry does an outstanding analysis of the three types of politics - organizational, protest and elite-network - in Mexican Americans: The Ambivialent Minority.

Organizational politics has always been the only effective way to advance the interests of the lower socio-economic orders. Elite-network has of course always been the domain of elites, folks like Obama. Protest politics can swing both ways, but as a stand-alone tactic it is inadequate. Remember that behind the Civil Rights Movment stood an elaborate organization: the Black church.

Lexington July 20, 2013 at 3:12 pm

Protest politics creates awareness of the issues and mobilizes people behind them. It is therefore complimentary to organizational politics rather than an alternative to it.

You are absolutely right to point out that the church was indespensable in organizing the civil rights movement, including providing most of the leadership. But it was the sight of thousands of blacks in the streets demanding their rights that moved public discourse on civil rights by giving urgency and momentum to their agenda.

nonclassical July 20, 2013 at 5:49 pm

Hugh,

I love your writing…but English language is "abstract", meaning specifically, (the
"act" portion) that it enables words-concepts to be presented, while lacking in
direct ACTion…English is a poor language for DIRECT ACTion, therefore direct thought consideration-in comparison, an Asian pictogram is a direct picture of an action-leads away from "abstraction"…

..what I intend, therefore, is to take specific actions into consideration, and force them upon public consideration.

If "the people's representative government" is to return to this conceptual relevance, first must be a public movement to end, once and for all, ALL campaign $$$$ influencing "the people's representative government"…otherwise, all else is in permanent fail mode…focus, people…

wes July 20, 2013 at 4:33 am

yves, I totally agree with your analysis of the shortcomings of hedges' understanding of the history of anticommunism. its been one of the few undercurrents that really annoys me about his otherwise admirable body of work and thought.

i would add that in addition to the repressive state apparatus's mastery of human movement through the urban landscape which you mention, there's at least one more important bit of geographical context to the underdevelopment of American oppositional culture: the suburb. It's a lot easier to mass on the streets when there's a mass of people living on the same street.

Banger July 20, 2013 at 1:17 pm

Yves makes good points but she's wrong that not having a street culture necessarily precludes activism. It is the propaganda regime that has silenced real dissent and it has, and this is far worse, the betrayal of truth by both Hedges' liberal class and the radical left. The left, as a whole, has accepted the mainstream narratives about the nature of power-relations in this country and the basic narrative that our leaders always mean well even though they may be misguided and that Vietnam or Iraq was a "mistake" by policy makers suffering from hubris. Bullsh!t!!!! Macbeth did not make a "mistake" he was a greedy bastard who wanted power. Well, that's the case for the vast majority of American politicians and power-brokers–not grasping this clearly has destroyed the American left–let's bury it and start again shall we?

Antifa July 20, 2013 at 2:55 pm

The biggest and most invisible elephant in the American psyche is this: our government has long since abandoned the goal of managing this nation as a nation.

Instead, America as a nation is managed as a means to global empire.

And everyone's all right with this.

While a middle class was useful to produce salable products to the rest of the world, we had a prosperous middle class. Now that industry can be relocated wherever wages and taxes are lowest, America's middle class is being stripped of its jobs, homes, pensions, social safety net, civil liberties and future.

All to feed the last sticks of furniture into the raging war for global economic and military dominance that benefits only our wealthiest one percent.

Even wingnuts respond to the idea that we need to leave off policing every square foot of the planet and return to looking after our own nation as a nation, rebuilding decent jobs, rebuilding communities, and rebuilding our sense of there being a better future for our kids than we got.

Discussing and organizing around this idea that our lust and quest for empire has gone way too far scares the powerful more than anything else. It cuts at the very root of their power when they hear demands from all political sides that we cease empire building in favor of returning our full attention to domestic progress, to managing health and success for the citizens of this country, our country, before projects to surveill, conquer, or economically dominate any other nation.

Call it the Me First project. Everybody gets to make demands for a better life for themselves and their children. That's the American Dream that everyone wants.

Call it Nation Building. We're gonna roll up our sleeves and make our country self sufficient in clean energy, first in education, first in healthcare, first in equality and liberty, and the model for nations everywhere. Cuz that's how we roll.

It is not normal for Americans to lose their futures, for Americans and their children to be starved of shelter, food, medicine and education in order to have an active military theater command for every continent on earth.

Where is that in our Constitution?

from Mexico July 20, 2013 at 3:36 pm

All through history one may observe the tendency of power to destroy its very raison d'être. It is suffered because it achieves internal unity and creates external defenses for the nation. But it grows to such proportions that it destroys the social peace of the state by the animosities which its exactions arouse, and it enervates the sentiment of patriotism by robbing the common man of the basic privileges which might bind him to his nation. The words attributed by Plutarch to Tiberius Gracchus reveal the hollowness of the pretensions by which the powerful classes enlist their slaves in the defense of their dominions:

The wild beasts in Italy had at least their lairs, dens and caves whereto they might retreat; whereas the men who fought and died for the land had nothing in it save air and light, but were forced to wander to and from with their wives and children, without resting place or house wherein they might lodge… The poor folk go to war, to fight and to die for the delights, riches and superfluities of others.

–PLUTARCH, The Parallel Lives

Banger July 21, 2013 at 3:32 pm

Echoes Jesus: "Foxes have dens and birds have nests, but the Son of Man has no place to lay his head." Luke 9:48.

nonclassical July 20, 2013 at 6:01 pm

Banger,

that "propaganda" you mention is summed up in entirety in Adam Curtis' fine BBC videos (and you are accurate):

http://www.youtube.com/watch?v=cW_rIdd69W8

http://www.youtube.com/watch?v=gZt2HhFXB3M

http://www.youtube.com/watch?v=WbRApO3k_Jo

http://www.youtube.com/watch?v=voHbU6gaPos
……………….

I would love to be able to post the entire Adam Curtis "The Power of Nightmares" video also-but due to U.S. video of neocon bushit, shown on U.S. television, and number of us who have posted it in direct contradiction to fundamentalist propaganda, it is permanently removed from youtube…entirely too controversial…(too funny-buy the video):

http://www.amazon.com/Four-Adam-Curtis-Nightmares-Century/dp/1615774408/ref=sr_1_1?s=movies-tv&ie=UTF8&qid=1374357284&sr=1-1&keywords=adam+curtis+documentaries

people might also be advised that Curtis' videos include British and Russian economic history, in parallel to historical treatise involved in these videos:

"All watched over by machines of loving Grace" is expose' on Ayn Rand…

"Mayfair Collection" is British military-economic historical treatise…

OIFVet July 20, 2013 at 6:11 pm

Try here: http://www.youtube.com/user/BBCNightmares. It works.

JCC July 21, 2013 at 3:39 pm

Not any more, it only took one day since your link to take it down.

Dan Kervick July 20, 2013 at 9:53 pm

It seems to me that if people of a leftist orientation want to achieve some sort of real, comprehensive and enduring social change, the first step is to accept and embrace the idea that what they are trying to do is achieve political power. That might appear obvious, but it sometimes seems to be a characteristic psychological trait of the contemporary left to have turned their politics into a matter of pure psychological identity, temperament and personal expression. Most self-described lefties seem to possess such a deep antipathy toward all forms of political power, such as it actually exists in actual human nature and human history, that their aspirations for change are utterly and comically doomed from the outset.

So all that is left for them is a kind of waiting around for some vaguely imagined spiritual transformations of humanity, wringing an occasional concession out of existing elites due with a noisy protest or two. Lovely. Keep praying, dreaming and "demonstrating" forever. Meanwhile, keep being dominated, because real politics is not a quest for millennial religious enlightenment, or personal liberation from all forces of external control. That's just egotistic self-indulgence. Real politics is organized, coordinated, strategically and tactically mature action in pursuit of difficult social goals.

People like Hedges, Chomsky really have little to offer, I'm sorry to say. Their style of leftism has been on proud and impotent display for about four decades now as the right has taken over the world. They are angry and alienated outsiders whose entire intellectual and emotional identity is based on remaining angry and alienated outsiders so they have a mighty wall of oppressive counter-reality against which to rail and define themselves.

People who want political power might want to start by at least imagining themselves in power. Now, I can already hear the contemporary critic, "No in my utopia, there is no power. There is no coercion. There is no institutional organization with conventional systems of governmental direction and control. There is no commerce and exchange. There are no police enforcing any rules. There is no "wielding" of anything. There is no hell below us; above us only sky, blah, blah. There are just people living in perfect magical harmony, achieving a lovely, comprehensive but utterly non-coercive egalitarian coordination."

Let's just say that there have been periods of left-wing success in the past, and this isn't how they thought. They built a middle class out of a peasantry; they created social insurance systems; they destroyed serfdom; they ended child labor; they created tax regimes that leveled inequalities and funded broad-based investment for the general good; they built powerful unions and parties that actually managed to run things, get elected and implement a difficult agenda. they wrested control of society's capital resources from powerful private owners of those resources who were in no mood to give them up. They fought and died in Spain; they fought and died in Germany and they fought in Stalingrad. And that wasn't just because they wanted to be martyrs, but because they judged these battles to be necessary steps in a long, hard strategically coherent slog.
Paul Tioxon July 20, 2013 at 10:47 pm

https://www.youtube.com/watch?v=7t537W5zoFI

Billy Joel-Prelude/Angry Young Man- WITH Lyrics
Marko July 20, 2013 at 11:14 pm

" People like Hedges, Chomsky really have little to offer, I'm sorry to say…."

Says who ?

Says Kervick. Mr. Dan Kervick.

WTF is that? Has he done anything ? Is he anybody ? Does he have any bright ideas ?

None that are readily apparent.

Well he should shut his bashing-all-leftists-that-aren't-himself pie-hole till he does , then.

Maybe when he's sued the gov't on behalf of all of us and our civil liberties , as Hedges and Chomsky did recently , he'll have some reason to puff himself up. As of today , he ain't got jack shit.
Lambert Strether July 20, 2013 at 11:22 pm

Less ad hominem, more responsiveness, please. It's going to take a little more than suing the government to get us out of this hole. It's certainly good, admirable, that Hedges ad Chomsky did this. C'est magnifique, mais pas la guerre. Kervick points this out. It's a perfectly respectable argument.
from Mexico July 21, 2013 at 12:34 am

I thought Kervick made a valid argument too.

We've dreamed of a world free of politics, hierarchy and coercion for a long time, in the Modern period since Rousseau. And this aversion to politics has had a strong influence on the left, as Hannah Arendt explains in "Karl Marx and the Tradition of Western Political Thought."

But there are plenty of people out there, like Adam Curtis, who believe this is a Utopian vision. In his latest film, All Watched Over by Machines of Loving Grace, he speaks of the latest ideology, "computer utopianism" or the "California ideology," that, as the trailer says, held out the promise of a society "without politics and the old hierarchies of power."

"But power hasn't gone away," concludes the trailer. "It never does."

http://vimeo.com/54978755
Chris Rogers July 21, 2013 at 3:07 am

@Mexico,

One of the major problems with the 'organisational meme' is that very often said organisation becomes rather staid and Conservative – much as Robert Michel's noted with his 'iron law of oligarchy', i.e., 'who says organisation, says oligarchy',. And, if I'm not mistaken, those who were at the forefront of the OWS movement wished to avoid this and remain truthful to their grassroots – the problem with OWS, who's aims were noble, was it seemed to be a 'middle class' movement', which by its own definition alienated much support from the working class.

Now, if only we had another Martin Luther King, who by any measurable standards is one of the USA's greatest political leaders and a brilliant orator in his time – regretfully, and as history suggests, he was a once in a lifetime brilliant leader – he was also able to connect to not only his core constituency, but those with a moral outlook whatever their class or colour maybe – Regretfully, I see no MKL on the horizon to inspire and coral many of the disparate forces and opinion expressed on these boards.

So there you have it, our left-of-centre leanings mean in effect we are awaiting a messiah to deliver us from this neoliberal dystopia and deliver us the 'new Jerusalem' – which seems highly religious.

One 'big plus' for all concerned, is that Hughes comments and opinions have driven an unusually large response from the commons – its very disparate, with forces from both the left-of-centre and more libertarian elements having similar aims and goals and all highly concerned.

What to do next is the obvious question, and its a must to avoid false prophets, such as one Barack Obama in the US or Tony Blair in the UK.
Joe Miller July 22, 2013 at 12:55 am

"We've dreamed of a world free of politics, hierarchy and coercion for a long time, in the Modern period since Rousseau."

It's entirely possible to be free from the latter while still engaged in the former. Here's what Morgan Finnegan has to say about egalitarianism in extant forager societies:

"Egalitarianism in BaAka contexts is a relationship rather than a static term, within which there is continual bargaining and disputation. Individual autonomy and freedom, as in all hunter-gatherer communities is prized, so that the social ethos of sharing and the perpetual motion against dominance must be continually reinvented. This tension is what gives the egalitarian relationship its fluid, dynamic quality."

RanDomino July 21, 2013 at 12:58 am

Cute. An orthodox Marxist lecturing anyone about what it takes to succeed. THIS time it'll be different, right comrade?
Dan Kervick July 21, 2013 at 12:12 pm

I'm not a Marxist. I don't believe in the labor theory of value or dialectical materialism or the withering away of the state, and I believe societies need to have vibrant private sectors as well as public sectors. I'm just a practical egalitarian who believes in old-fashioned "mixed economy" economics, and the possibility of vibrant real-world, problem-solving democracy. A society with state-supported full employment and ongoing public investment in human capital and strategic economic transformation; a broad and much more equal distribution of the national output with strong caps of private accumulation; a socialization of retirement, education and health care, with most of the remaining consumer economy handled by private enterprise; a drastically reduced and reorganized financial sector with reformed institutions of public finance; more time spent on citizen deliberation, education and practical governance chores, and less on entertaining oneself and doing one's day job – these things all seem eminently achievable to me, since in one form or another they were being achieved in the past before neoliberalism swept much of it away. So the left just has to pick of the pieces and get started again.

We don't need a revolutionary "spark" or a "charismatic leader". We're talking about a long ground game. There needs to be coordination on an ambitious agenda, and some strategic thinking about how to put it into practice. How did the radical right agenda of people like William F. Buckley and Barry Goldwater become the depressing mainstream that it is today. No revolutionary romance. They just spent decades organizing and carrying through a gradual takeover.

No dreams of tribal life in a pre-historical rain forest, where 200 people manage to live without formal rules and law enforcement; no fantasies about techno-geek, open source, government-free utopia of untrammeled anarchic liberty.

There is always a certain element of thinkers who thinks the very idea of a police department that keeps people from pissing on the sidewalk is "fascist" or "maoist", etc.
Banger July 21, 2013 at 1:27 am

I think I sympathize with you. The left's aversion for politics comes from the sense that, in the end, politics breeds the struggle for power and that, in itself, is the deep problem that we are sitting with that makes us unable to move.

For me this is because leftist have tended to accept the dominant narrative as the container of their own. I claim that the dominant narrative is a carefully constructed and engineered lie and should be totally discarded.

The essence of the left's problem is that all power that isn't a result of the usual Machiavellian game comes from community. A mobilized community can stand up to political power and has and won clear victories over and over again. By accepting the individualist philosophy that cripples any movement we accept defeat. We cannot be a collection of individuals voting for the usual clowns–that is no way towards anything but neo-feudalism which is coming about as sure as the sun will rise tomorrow.

First, form communities–you talk about change, about peace, about egalitarianism–then give up your selfish ways and join with others by pooling resources and building trust. There is no other path. The alternative to that? Mysticism and it could lead to community, who knows. The monastics seemed to have done rather well back in the day.
jake chase July 21, 2013 at 2:03 am

Yes, give up your selfish ways- now there is a message that will resonate with the working class. On the other hand, you could promise them all a new Webber grill with an electronic starter.
Banger July 21, 2013 at 6:54 pm

No I would tell them about teamwork, parties, relaxing because your friend has your back–how long before "things" become empty? Life is to be lived not endured mediated by products.
Timothy Y. Fong July 21, 2013 at 2:26 pm

The mistake is in believing that there is some end-steady-state utopia. There isn't. No matter what we do, in 100 years (or less) some angry 20-somethings are going to look back at us and say we screwed up. Nonetheless, the winning is in the struggle.
Ruben July 21, 2013 at 2:11 pm

"Most self-described lefties seem to possess such a deep antipathy toward all forms of political power, such as it actually exists in actual human nature and human history, that their aspirations for change are utterly and comically doomed from the outset."

To base your argument on such an empty abstraction as "human nature" is to fail Popper's test of falsifiability.

Look, this works too: because of human nature any successful fight for political power is doomed to turn first tragically then comically into tyranny, as it actually has happened throughout history.

At the end of your argument you make a strawman of the other view but that's OK, it's a free blog-comment section.

Anyways, the perfect example you are looking for of leftists achieving political power at the last paragraph of your argument existed for several decades, it was called the USSR. Earlier examples include the Jacobins.

Achieving political power is not the solution, political power itself is the problem. Whomever achieves political power, no matter how pious, immediately suffers moral debasement, because the well being of the abstract collective notion he/she undertakes to protect overwhelms the natural, evolved, in-built morality of the individual.
Dan Kervick July 21, 2013 at 4:00 pm

Human nature isn't just an abstraction. There is a science of it.
Ruben July 22, 2013 at 2:41 am

Insofar as there is a science of human nature, that science is genetics, and genetics is no ground at all to prove the need of political power.
Dan Kervick July 21, 2013 at 4:03 pm

What about the union movement of the 20th century? Or the successful creation of the Social Security system? Or minimum wage laws? Or the 90% marginal tax rate?, etc. These things were passed by actual legislators who achieved political power.

You know, every exertion of leftism doesn't degenerate into "Mao" or "Stalin". Can't we get
Dan Kervick July 21, 2013 at 4:04 pm

Mean to say: "Can't we get past that?"
Ruben July 22, 2013 at 3:22 am

I guess we want different different results so our views cannot be reconciled.

I lived some time in a country that has a well developed and firmly established social safety net, no poverty, very little crime, high taxes, allowances to help the less fortunate, strong unions, unarmed police, short work hours, good salaries, the whole machinery.

I observed the system attentively.

Of course I set out to find two fundamental elements, a girlfriend and a soccer league. As it happened, both provided me excellent windows into the entrails of the system.

The captain of my soccer team worked for the gov't safety net. His job was to cross-check and spy on those receiving help. The way he spoke about beneficiaries and the things he did to spy on them so they were not cheating convinced me that a strong State that takes seriously the role of protecting the working class reduces to just one major functioning principle: the State buys poverty.

Those receiving help must provide the State with poverty and the State will pay for that supply. The State spied on its clients to know whether they have any other income except the price paid by the State for their poverty because if that was the case then these client were not really providing all the poverty the State was paying for.

So in my view whenever the left gets political power and the result is not Stalin then the result is the commoditization of poverty, the commoditization of workingclassness.
Timothy Y. Fong July 21, 2013 at 2:24 pm

I agree. I hear Hedges' argument about speaking in the prophetic voice and calling out abuses of power. There's a role for that in every society, By definition, those embodying the role cannot every take power– which means they are, at best, Cassandras.

For those of us who want to implement positive programs (such as the job guarantee), then the path is the same as always; kick ass and take names.
profoundlogic July 20, 2013 at 6:04 am

Yes, Obama is the ultimate Manchurian candidate. Sadly, Hedges, while completely well-intentioned, seems to underestimate America's collective apathy and indoctrination. Most Americans are still too comfortable to care, and until enough of the population takes a hit to the wallet they will continue their journey toward the "American dream", only to find that the dream was more a mirage.
from Mexico July 20, 2013 at 12:04 pm

There was a comment that was made very late on yesterday's Hedges thread, but which I think has great merit, so would like to repost here:

tongorad says:

July 20, 2013 at 12:08 am

I think environmental gloom and doomers are a non-starter for the working class. So you want to take away my working class food, one of the few things I'm allowed to enjoy, and nibble on twigs and leaves?

The neoliberals are serving up a bogus prosperity gospel that will not be defeated by the likes of Mr Vinegar-Tits himself, Chris Hedges. In fact, I think environmentalism will only serve to quicken the pace of facism, as the psychology of it harmonizes with the idea of an Other that we need guard or protect ourselves against. And the austerity angle too (those working class have had it too good, they need to do what's good for them).
If the left can't articulate a positive vision, then it has nothing for the working class.

Read more at http://www.nakedcapitalism.com/2013/07/chris-hedges-on-whether-we-can-change-trajectory-and-avert-collapse.html#mECFYJXw5JxX8qKM.99

If we look at one of the most successful mass movements of all times, Christianity, what we see is that it ministered to both man's material needs and his spiritual needs. The PBS special on the history of early Christianity makes this clear:

http://www.pbs.org/wgbh/pages/frontline/shows/religion/

The evolutionary biologist David Sloan Wilson had this to say about it:

Christian society provided "a miniature welfare state in an empire which for the most part lacked social services" (Johnson, 1976, 75; quoted in Stark 1996, 84). Even the emperor Julian acknowledged this fact in a letter to a pagan priest: "The impious Galileans support not only their poor, but ours as well, everyone can see that our people lack aid from us" (84). Julian saw the problem and tried to institute pagan charities to rival Christian charities, but the social dilemmas implied by the word "charity" are not solved so easily.

–DAVID SLOAN WILSON, Darwin's Cathedral: Evolution, Religion, and the Nature of Society.

Here's what the Rev. Martin Luther King said on the subject:

…the gospel deals with the whole man, not only his soul but his body; not only his spiritual well-being but his material well-being. It has been my conviction ever since reading Rauschenbusch that any religion which professes to be concerned about the souls of men and is not concerned about the social and economic conditions that scar the soul, is a spiritually moribund religion only waiting for the day to be buried.

http://mlk-kpp01.stanford.edu/primarydocuments/Vol4/1-Sept-1958_MyPilgrimageToNonviolence.pdf

When Christianity became the official religion of the Roman Empire all this changed. Plato's two-world theory of body and soul was revived and interjected into Christian theology, and was revived once more by Jefferson, Madison, and Williams to become the reigning political philosophy of the new republic, a phenomenon which Thomas E. Buckley describes in great detail in "The Political Theology of Thomas Jefferson," or David Little in "Religion and Civil Virtue in America."

Carroll Quigley in The Evolution of Civilizations speaks of the potential pitfalls of the sort of Neo-Platonic dualism that, according to Reinhold Niebuhr, "corrupted" Christianity when Christianity was "philosophically elaborated in Greco-Roman thought" (Niebuhr, "Optimism, Pessimism, and Religious Faith"):

We deal with continua rationally either by dividing them into arbitrary intervals to which we give names, or by giving names to the two ends of the continuum and using these terms as if the middle ground did not exist at all. This last method is called "polarizing continuum," and is frequently done even when the greatest frequency of occurrence is in the middle range… Such polarization of continua is so common and so familiar that we come, frequently, to accept our categories as real instead of being arbitrary and imaginary, as they usually are…

This practice of slicing continua into parts or even into dual poles and giving names to these artificial categories is necessary if we are to think about the world or to talk about it. But we must always remain alert to the danger of believing that our terms are real or refer to reality except by rough approximation. Only by making such divisions can we deal in a rational way with the many nonrational aspects of the world.

Moneta July 20, 2013 at 1:00 pm

In summary, religion will take over as a pacifier, or the promise of a better life in afterlife.

As for the environmental argument… in Japan, when the Emperor noticed a little too much deforestation, he put a moratorium on tree cutting. Of course, the poor and destitute suffered the most when the twigs disappeared.

That's why think humanity will be going through a tough time before it gets better.
from Mexico July 20, 2013 at 2:57 pm

Moneta says:

In summary, religion will take over as a pacifier, or the promise of a better life in afterlife.

Well that's certainly a one-eyed view of religion, a view which the rich and powerful who corrupted Christianity with Neo-Platonic dualism hoped to instill in the Christian faithful: forego rewards in this life because your true reward is in the next life.

And, according to the liars by omission, that is also what Marx believed. He did, after all, say that religion "is the opium of the people."

However, like any literalistic or fundamentalist interpretation, that is a distortion and a half-truth achieved by selective quotation of "scripture," as Susan Neiman explains:

Metaphors have long lives, and Marx's description of religion as the opium of the people helped mislead us all. In fact, though Marx was the first thinker to show how deeply our worldviews may be shaped by material needs, his views of religion are more complex, and less condescending, than most leftist critics who followed. Far from reducing religious needs to economic ones, Marx called the criticism of religion the first premise of all other criticism because he understood its power. Here's what he actually says in the passage leading up to the one-liner about opium:

"Religion is the general theory of the world, its encyclopedia, its logic in popular form, its spiritualistic point d'honneur, its enthusiasm, its moral sanction, its solemn complement, and general ground for the consummation and justification of this world….Religious suffering is at once the expression of real suffering and the protest against real suffering. Religion is the sigh of the oppressed creature, the heart of a heartless world, just as it is the spirit of spiritless conditions. It is the opium of the people."

Sitting in the British Library, Marx may have got his drugs wrong. On his account, religion is anything but a sedative; in fact it sounds more like cocaine. In Marx's description, religion is the force that keeps the world awake. Heart of a heartless world calls up love as well as courage; hearts are also sometimes seats of purity, another quality one longs for when one longs for faith. But saccharin allegories aside: anatomically speaking, the heart is the organ that keeps us alive.

Marx's judgment of the forces arrayed against religion was just as savvy as his judgment of its power. His description of what capitalism did to the world it found might, with few changes, have been written by believers in Afghanistan-or Arkansas.

"The bourgeois…drowned the most heavenly ecstasies of religious fervor in the icy water of egotistical calculation. It has resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom-free trade…All that is solid, melts into air, all that is holy is profaned."

Of course this is irony, and verbal acrobatics, but it's also ambivalence. Marx's attitude towards the religious standpoint is hardly one of scorn. Something fateful was lost when bourgeois calculation replaced religious devotion, and we are right to feel bereaved.

http://www.einsteinforum.de/fileadmin/einsteinforum/downloads/victims_neiman.pdf

Banger July 20, 2013 at 3:33 pm

Indeed, we ought to feel bereaved. Religion is not an option but a constant whether we call it religion or atheism–we bind ourselves to some conceptual of mythological framework. Our current religion is just as real as any of the others–it is seen in the films, shows, and news stories we watch that make up our culture. Our rituals, Christmas, the Super Bowl and so on are religious and re-enforce the values of radical materialism and competition. Fortunately for all of us today's religion is so confusing and contradictory that unlike the relatively mild contradictions of other religion it cannot be maintained for long. In addition, our current secular religion does not offer satisfying rewards.
Doug Terpstra July 20, 2013 at 4:01 pm

Timeless - Marx could have written this just yesterday about the Wall Street-Washington kleptocracy.

"…drowned the most heavenly ecstasies of religious fervor in the icy water of egotistical calculation….resolved personal worth into exchange value, and in place of the numberless indefeasible chartered freedoms has set up that single, unconscionable freedom-free trade…All that is solid, melts into air, all that is holy is profaned."

It's no wonder Marx is taboo, Howard Zinn too. Thanks.
Moneta July 20, 2013 at 4:07 pm

I should have written that religion will be used and/or promoted as a pacifier but sometimes you need to try to find the right one to pacify the baby. Some babies will never take to one and others will bop other babies in the face with them.
myshkin July 20, 2013 at 4:33 pm

I don't claim to know Marx's attitude toward religion, no doubt manifold, yet did he not think it would fade away, part of that earlier phase of human history that was irrational and that would be superceded by the later industrial and scientific phase? The passage you end with, "All that is solid, melts into air, all that is holy is profaned." continues, "And man is at last compelled to face, with sober senses, his real conditions of life, and his relations with his kind." For Marx, a starting point for building a better world.

Whether we should take his idea that human history is necessarily a story of progress seriously is mooted. Civilization by its nature is a collective enterprise with interacting components of commerce, politics etc. The usual result is bureuacracy, Hannah Arendt had this to say, "Bureaucracy is the form of government in which everybody is deprived of political freedom, of the power to act." That seems to be where we are now and where human enterprise frequently dead ends.
Moneta July 20, 2013 at 4:45 pm

Well the creationist putsch and some other religions are a thorn on science's side right now.
psychohistorian July 20, 2013 at 5:24 pm

I have a problem with the general concept of religion being the general theory of the world. That theory worked until the Enlightenment where the general theory of the church was shown to be BS.

We are there again because the inherited rich made a devils pact of relevance for the should have evolved to myth religions in exchange for unquestioned inheritance and accumulating private ownership of property (i.e. the class system of the past few hundred years.

If religion is the general theory of the world, does it have a theological explanation of the hexagonal clouds on the North pole of Saturn? GRIN

Why can't we proceed with the humility of knowing how much we don't know or will never know and not try and integrate any faith based theories as other than myth.
jake chase July 21, 2013 at 2:10 am

Marx was a brilliant social critic and the only thing he ever got wrong was his dialectic, which doesn't make any more sense than other Millennial nonsense. The best thing he ever wrote may be the Eighteenth Brumaire of Louis Bonapart.

Perhaps he just spent too much time in cold rooms fueling himself on Hegel?
LAS July 20, 2013 at 4:31 pm

I don't think of the Rev. Daniel Berrigan or Rev. Martin Luther King as passive. And if you read what Christ actually said in the bible, you'll find no pushover, but someone who aroused considerable fear among Romans and other ruling authorities.
LizinOregon July 20, 2013 at 3:20 pm

Looking to religion to provide a solution is just substituting one Daddy for another.
from Mexico July 20, 2013 at 4:57 pm

True enough.

That point was certainly driven home by Jacques Barzun in From Dawn to Decadence.

At the turn of the 20th century, Shaw despaired that his hallowed Fabian socialism and other socialisms had failed to overcome man's "brutish instincts and his propensity to lie and mouth empty ideals," while another disillusioned socialist, Georges Sorel, in Reflections on Violence, urged the industrial unions towards a final combat with police that would overthrow the capitalist system.

The scientists of the day were all agog with the latest scientific fads: Social Darwinism, anthropo-sociology and Eugenics. The world of the scientific and artistic elite was all gilded wrapping paper, hermetically sealed off from the hoi polloi:

With all the preaching and practicing of bloodshed between 1890 and 1914, how can it be that in retrospect the period was seen as an ideal time deserving to be called la Belle Époque? … Here it is enough to say that the intellectual and artistic elites, and to a certain extent high society, lived in their world of creation, criticism, and delight in the new. They were aware of the crises, no doubt, but after one or two had gone by gave little thought to what they might still cause…

And when the war broke out, their reaction was equally as depraved:

This haughty ignorance of social and political facts enables us to understand why the cultivated classes reacted as they did when war came: several hundred intellectuals in Germany signed a manifesto denouncing "the other side" as if betrayed by a friend and brother. It was answered, with a like rhetoric, by several hundred of the French. The enemy's purpose must be wicked since we are innocent.

A prominent German pacifist responded to the pro-war manifesto with a 'Manifesto to Europeans', which challenged militarism and 'this barbarous war' and called for peaceful European unity against it. 'Educated people in all countries should use their influence to bring about a peace treaty that will not carry the seeds of future wars.' Only three other people were brave enough to sign this peace manifesto; one of them was Einstein. As Barzun explains:

Looking over the roster of great names in literature, painting, music, philosophy, science, and social science, one cannot think of more than half a dozen or so who did not spout all the catchphrases of abuse and vainglory.

But despite the depravity of the artistic and intellectual elite, the deportment of the clergy was even worse, as Barzun goes on to point out:

And everywhere the clergy were the most rabid glorifiers of the struggle and inciters to hatred. The Brotherhood of Man and the Thou Shalt Not Kill were no longer preachable… [B]ishops in various countries spoke out for total war. They enlisted God: "He is certainly on our side, because our goals are sinless and our hearts are pure." The most moderate said: "Kill but do not hate." One English preacher spoke of "the wrath of the Lamb" and another speculated that although Jesus would not have become a combatant, he would have enlisted in the Medical Corps.

But, as Barzun continues, even though the "20C fury recalled the wars of religion," in "1914 religion was no longer a prime aggressive impulse" and "not before 1914 was the flush of blood lust seen on the whole intellectual class."
jake chase July 21, 2013 at 2:14 am

On the other hand, you have Henry Ford, who people think of as an anti-Semite and a fascist, who did everything he could to stop the War.

Have you read his autobiography? Nobody ever had a better understanding of bankers. That is why he never went public or borrowed any money. It took less than ten years for his descendants to totally fuck up his company.
LizinOregon July 21, 2013 at 2:50 am

Unraveling the common thread of human atrocities leads inevitably to tribal identity. But without a strong attachment to some group, the individual is left with the lonely burden of always swimming against the tide. I think we can try to understand the past and pretend to predict the future, but cannot hope to make sense of the time we live in because we are the actors who are creating it.
tongorad July 20, 2013 at 3:34 pm

Thank you for mentioning my comment, from Mexico, I am truly honored as I admire your writing on this forum so very much.
nonclassical July 20, 2013 at 6:08 pm

…it's also known as "Black-White" DUALITY…which is an imperfect point of view, used primarily by reductionists and power monger-manichean-"ends justifies means" advocates…view Hitler-George W Bush propaganda, as perpetrated by "Rendon Group"=John Rendon…as shown here:

http://ics-www.leeds.ac.uk/papers/vp01.cfm?outfit=pmt&folder=2053&paper=3010

The Man Who Sold the War
Meet John Rendon, Bush's general in the propaganda war
JAMES BAMFORD
Dan Kervick July 21, 2013 at 4:09 pm

Early Christianity doesn't seem to have had much to do with ministering to humanity's material needs. It was an apocalyptic cult based on renunciation and waiting for the end of the world. Only after Constantine perverted it into a Greco-Roman style religion of praying to gods for military victories and the like did it turn into a quasi-worldly faith.
Joe Miller July 22, 2013 at 1:02 am

Have you ever read The Legitimacy Of The Modern World by Hans Blumenberg, FM? I think you would learn a great deal from it if you haven't yet. You can learn about Blumenberg's ouvre here. http://www.readysteadybook.com/Article.aspx?page=hansblumenberg
der July 20, 2013 at 6:23 am

When violence is directed toward the state and state supported corporate interests then our militarized police forces will certainly, aggressively, dial up state violence. I agree that a general strike is unlikely mostly for the reason that we're inculcated to see success as an individual effort. Violence, random or otherwise, will come as a one on one action to self-survival, the have-nots taking from the have just a little more than.

Pierce writes of it as Stand Your Ground vigilantism:

On the streets, we are being trained paradoxically to both submit to the authority of the police, and to take the law into our own hands, if necessary, because the police cannot possibly protect us from every danger. Stand Your Ground, though it played no role in the Zimmerman trial per se, is vigilantism hallowed by legislation. That's all it is. This does nothing but produce a national schizophrenia about crime and fear and weaponry that we inevitably act out.
http://www.esquire.com/blogs/politics/Vigilante_Nation
ambrit July 20, 2013 at 6:33 am

Dear der;
It looks increasingly like the organs of State violence are proactively applying 'maximum coercive force' against even peaceful and societally accepted forms of protest. See the police response to the feminist protest in Virginia recently as highlighted by skippy. A little overt psychological bullying has become the norm. When will it go over to overt physical bullying, unprovoked? That's going to be the testing point.
from Mexico July 20, 2013 at 12:42 pm

There exist two equally old and time-honored traditions concerning the basis of political power. One of these - that professed by the likes C. Wright Mills, Max Weber, Voltaire, Clausewitz, Strausz-Hupe, Marx, Bodin, John Stewart Mill, and Stalin - was most succinctly summed up by Mao Tse Tung: "Political power grows out of the barrel of a gun."

However, there exists another tradition and another vocabulary no less old and time-honored, which is that it is the people's support that lends power to the institutions of a country. This is what Madison meant when he said "all governments rest on opinion."

Hannah Arendt fell into this later grouping, which explains why in "On Violence" she wrote: "Rule by sheer violence comes into play where power is being lost."

Those, however, who embrace the first tradition - that "Political power grows out of the barrel of a gun." - probably perceive these as being pretty bleak and hopeless times.
Banger July 20, 2013 at 2:27 pm

Ultimately power does come from brute force at least as we understand it. There are other sorts of power that come from community. However the modern state has sought to destroy community so that those who come to power have more power. In the U.S. there is no need to always use force–they have used the power of science and stage-magic to rule by controlling the collective unconscious to believe that up is down and down is up. Almost all of the mainstream narrative is demonstrably false–yet people, including nearly all of the left accept it as, at least, mainly true.
Dave July 20, 2013 at 8:31 pm

"Rule by sheer violence" also comes into play when power is achieved.
Jess July 20, 2013 at 2:20 pm

There is a huge misconception among many on the left about Stand Your Ground laws. Granted, there have been times when these laws have been twisted to grant license to acts that had, or were perceived to have, a racist component. But these laws grew out of the absurdity that existed (and still exists) without them. Without a Stand Your Ground law, the rights all reside with the criminal. You, the victim, are required to retreat. The criminal has the right-of-way.

The classic example is someone being approached by a mugger. Absent SYG, the potential victim is required to retreat and can only exercise a potentially lethal (or even harmful) response AFTER he or she runs out of room to retreat.

Another classic example: You surprise a thief breaking into your car. You CANNOT attempt to stop him. You must retreat and let him finish the job. (Absent SYG you cannot use potentially harmful or lethal force to protect property, your own or others.) If threatened, it is the victim's legal obligation and responsibility to defuse the situation by retreating. (Or standing idly by at some "safe" distance.) In jurisdictions without SYG, there have been cases where thieves successfully sued the targets of their crimes for financial compensation for injuries sustained. The criminal was viewed, in the eyes of the law, as the victim. This kind of Kafkaesque, through-the-looking-glass bullshit is what prompted SYG laws in the first place.
LillithMc July 20, 2013 at 2:49 pm

In CA there is only instruction to the jury to be "reasonable" when evaluating the victim while requiring the "aggressor" to retreat or to prove his need to shoot. In contrast to Florida, Martin had the right to stand his ground. Zimmerman, the aggressor, should have stayed in his car or retreated. At trial he had the obligation to prove he was in mortal danger.
I hope the feds investigate both the obvious racial profiling of Martin using his many tapes from the police on different occasions and the problems with the GOP/ALEC/NRA stand your ground laws passed in all the red states.
Yalt July 20, 2013 at 3:30 pm

In the general case it is not clear who, if anyone, is the "criminal". Is an older man with a gun, apparently stalking a teenager, a criminal? Or is he an upstanding member of the community carrying out necessary nieghborhood policing activities? Without the telltale shading of the respective skins, who would know?

Thankfully we don't have to worry about such subtleties because these laws typically refer to the shooter's subjective perception of threat without requiring any objective basis for that perception. That allows the application of the law to be more black and white than it might otherwise be.
Lexington July 20, 2013 at 4:26 pm

Yalt's point about your use of the word "criminal" is spot on, but let's deconstruct it just a little more.

When you say "criminal" it is really code for "person of colour", or "poor person". When you imagine coming across someone breaking into your car, that's who that someone is. Strictly speaking someone isn't a criminal until they have been tried and convicted in a court of law, but to many Americans people of certain racial or ethnic backgrounds and certain socio economic classes are presumptively criminals. And stand your ground, like so many law and order initiatives in the US, is about extending the law to exert every greater social control over them -in this case by giving ordinary citizens -specifically "law abiding", middle class citizens- the power to act as judge, jury and executioner over their inferiors.
Jess July 20, 2013 at 6:02 pm

Technically, you're right about the term criminal. After all, on a hot day the guy breaking into your car could just be acting to free a child or pet trapped inside. (Provided, of course, there was a child or pet inside.) And at night, the guy could just be trying to move your car that was blocking his driveway. (If, in fact, you had parked blocking his driveway, which is not at that uncommon in certain communities which are near nightclub hot spots.)

However, when you're legally parked on a public street and come out of the restaurant or movie theater to find a guy trying to jack your car, for the purpose of everyday common language and communication, you're pretty much safe in describing him as a "criminal".
from Mexico July 20, 2013 at 6:32 pm

@ Jess

Since when is someone committing a property crime deserving of being shot?

If you surprise someone burglarizing your car, the appropriate response is to call the police and let them handle it.

You're just spouting a bunch of stupid vigilante nonsense, in which a non-violent crime stands a high likelihood of being escalated to a violent confrontation.
Jess July 20, 2013 at 8:22 pm

@ Mexico -
"Since when is someone committing a property crime deserving of being shot?

If you surprise someone burglarizing your car, the appropriate response is to call the police and let them handle it."

You're kidding, right? No, I'm afraid you're not. For you, the criminal has superior rights. I, who has worked hard (sometimes at multiple jobs) just for the ability to drive a reliable car, owe it - OWE IT - to the thief to let him make off with my car or it's contents. I've got a suggestion for the thief: Don't wanna get shot? Don't rob people and their cars and homes. But that's not good enough for you. No, you believe that the criminal has a RIGHT TO ESCAPE. Because, you see, unlike cop shows, cops usually aren't right around the corner. Even in densely populated urban areas and typical suburbs, police often take 10-20 minutes or more to respond to a call. By then the thief is long gone.

So what do the police do? Write a report, which you can get within a few days at the local police department - but often only after paying a fee! Then you can get your insurance to pay whatever the residual amount is over and above your deductible, unless your deductible is higher than the damage, in which case you pay the whole thing.

Got any idea what a replacement airbag costs? About $1,000. Not for a Benz or a Beamer, but for the average car. And that's not including the installation cost. And you know what?

a) By your reasoning, the thief has the right to come back the day after your car is fixed and rob it again! Because, again, you - the law-abiding, tax-paying good citizen - cannot or should not protect your property.

b) Your insurance deductible is usually per-incident, meaning that in this scenario, once again you must go out-of-pocket for the replacement cost.

c) Insurance claims, esp. repeat claims for the same type of damage, can get your policy canceled or the rate raised.

d) To prioritize things like food, shelter, medical care, etc., lots of people do not carry "Comprehensive" coverage on their policies, so they have NO coverage for losses due to break-ins and vandalism.

This is what I mean by the inverted logic that pervades jurisdictions without SYG laws. All the rights belong to the criminal. So how about I exercise those rights? I'm hereby giving Yves permission to give you my email addy. You give me your info - residence location, car license number, etc. Then I'll come and rob you over and over and over and over again and you promise never to try to stop me and always to settle for just calling the police. (I'm sure this won't be a problem because evidently you have all the money necessary to continually replace your valuables.)
JCC July 21, 2013 at 4:10 pm

Although this discussion is completely off-topic, you both have valid points:

1) Standing by and waiting for cops is a complete waste of time and you will rarely, if ever, get your property back or be compensated in any way other than the loss of valuable personal time dealing with police, usually on the order of hours and adding insult to injury, insult even from the police themselves. I say this from more than one incident of direct personal experience.

2) Shooting someone over a radio theft in your car is a little over the top, to put it mildly. On the other hand, in most states, the thief is protected and there is nothing you can do, including the use of pepper spray, taser, or baseball bat/baton, which in my opinion is far more reasonable and appropriate. But most states do not allow even this if you were not attacked directly.

Which goes to show how unbalanced our society truly is.

If I cautiosly "swipe" (download) a bunch of 1's and 0's intelligently encoded into 3 minutes of music I face 10's of thousands of dollars in fines and potential loss of a couple of years of feedom, but if I cautiosly jack the radio out of my neighbor's car very little, if anything, will ever happen to me.

People like Mark Ames say that the average worker is cowardly but the fact is the average citizen wants to avoid like the plage both the left and their accusations (and no real organized solutions) and the right with their accusations (and their highly organized "solutions").

They just want decent jobs, decent children, decent communities, and decent and reasonable law enforcement. Once 3 out of 4 of these things are gone, there will be a reaction good or bad.
from Mexico July 20, 2013 at 5:21 pm

@ Jess

I'm not buying it.

Here's a rebuttal to your argument:

"A Most American Way to Die"

If you're an unarmed black teen in Florida, someone can gun you down – and they might get away with it

Read more: http://www.rollingstone.com/culture/news/jordan-davis-stand-your-grounds-latest-victim-20130425#ixzz2ZcfbGZkF

Jess July 20, 2013 at 6:21 pm

Nice try at pulling out the old straw man. No attempt to rebut my arguments about why SYG laws came into being, or the factual situation where they do not exist. SYG is a lot like a person's right to protect themselves in their homes. "(Every man's home is his castle.") Prior to changes in laws, it was possible for people to be charged with, and convicted of, murder or manslaughter for using deadly force against intruders WITHIN their own homes. In times past, you couldn't shoot an intruder who was trying "just" to steal your TV or other valuables. Inside your own domicile you could not protect your own property, own the lives of you and your family or guests. Upside down, ass-backwards, through-the-looking-glass laws? Absolutely. Now, in most jurisdictions, that has changed. In many areas you can now even use deadly force to protect your valuables outside the house as long at they're on your property.

The fact that SOMETIMES, in SOME situations, SYG can either be abused or result in a verdict like the Zimmerman one. There have been many cases of family members accidentally being mistaken for intruders and shoot within the home by other family members. Should it therefore be illegal for homeowners to possess firearms? Most people would answer, "No". (There are, of course, people who believe that citizens should never, ever, EVER, under any circumstances, own firearms, even if they live in areas of Alaska so remote as be reachable only by plane. Never mind the bears feeding on your livestock and threatening your kids, firearms are always and forever intrinsically bad, bad, bad!)
Jess July 20, 2013 at 6:28 pm

"The fact that SOMETIMES, in SOME situations, SYG can either be abused or result in a verdict like the Zimmerman one." should have ended with "is being used as the logic to strike down SYG laws."

My bad. But edit function would be so nice.
from Mexico July 20, 2013 at 7:13 pm

As the article I linked explained, the Stand Your Ground law is the extension of an ancient law, one which allowed someone to shoot an intruder who had broken into their home:

It was another wild debasement of existing law, this one dating back to a distinctly American iteration of English common law called "castle doctrine," where the original duty to retreat was rejected and you had the right to use deadly force if your castle, i.e., dwelling, was invaded, though there were subtle differences state by state. But the gun lobby got cracking in the 1960s and expanded the law to include your lawn and backyard, then, a couple of decades later, your car, as well. Now, with Stand Your Ground, your castle was your person and your right to use deadly force traveled with you.

I remember many years ago, when I was living in West Texas, there was a doctor who shot and killed a teenage boy. The boy was stealing a battery from the doctor's car and the doctor shot him from the second story window of his home using a high-powered rifle.

So let me ask you, was what the doctor did morally justified? It sounds like under Stand Your Ground that what he did would have been legal. But is summary execution an appropriate punishment for someone stealing a car battery?
Jess July 20, 2013 at 8:34 pm

As I said in another reply to you (which may or may not show up at some later time) "You don't wanna get shot, don't steal."

Although in my personal situation, I would have:

First, demanded that the thief drop to the ground;

Second, if he tried to flee, wound him in the leg. (But then again, I'm a pretty damn good shot.)

Third, if he demonstrated any hostile intent toward me, such as reaching for or brandishing a weapon of his own, I'd put two in his heart and before he hit the ground another in the head. (Like I said, I'm a good shot.)
Yves Smith Post authorJuly 20, 2013 at 9:31 pm

You really think theft justifies murder? Not even the bloody Old Testament stands for that: "an eye for an eye".

So why don't you go kill Jamie Dimon or Lloyd Blankfein or Joe Cassano? You're wasting your vigilante energy on the wrong targets.

I lived in NYC in the bad old days, when pickpocketing and other types of theft were common. But no one was worried about their personal safety, even people who had break-ins. These guys just wanted your stuff, they weren't interested in killing or hurting you. People carried mugger money, $10 or $20 they'd hand to a robber in case they were accosted.

You've said you don't even believe they are threats, just robbers, but you feel justified in blowing them away. That's depraved.

Plus you are kidding yourself that your precious pop-shooter is any protection if you were to get a hardened criminal pissed off at you. Being good at a practice range or hunting has no relationship to using a weapon in a real life situation. Even cops, who generally have their weapons drawn before going into a hostile encounter, hit their targets only about 15-20% of the time (cops have a higher success rate because they travel in pairs, usually have their weapons drawn and aimed in advance, and can call in backup if they really get in trouble).

And they've studied how effective guns are. The short answer is not very. The Tueller Rule, based on numerous studies, is that within 21 feet, an assailant can get to you before you will get your weapon out and aimed. And cops have them in holsters, far more accessible than they'd be to you.

Try pulling out a weapon, and a serious bad guy will kick you in the groin or ribs (crushing your liver or spleen depending on how he decided to aim) or gouge your eyes out, and for the encore, slam your head into the pavement and crack your skull open. But be my guest. Try escalating a fight with a robber. Maybe you'll be right, but if he's a real criminal, you are the one more likely to wind up dead.

This advice, BTW, comes from folks who helped develop the hand to hand combat course for the Navy Seals and now teach cops, the FBI, and interested laypeople, and they study tapes of prison fights and police encounters. So the scenario above isn't theory, it's what often happens.
Dave July 21, 2013 at 1:25 am

Yves,

I just noticed your response to Jess after I wrote my response to you. You are seriously overestimating the competency of cops! Many are capable, but many are not. Many are a danger to themselves, their fellow cops, and the citizens they serve. They should not be allowed to carry guns. On the other hand, many of my civilian friends are far more capable to defending themselves and others than are many cops. Blanket statements and policies are for governments; they have an agenda.

"Just give them what they want." "Then they will go away!" It is not quite that simple when one is dealing with a sociopath, and there are a lot of them. Freedom of choice fits here too. If one's freedom to have the means to defend one's self is denied because of some blanket statement by some element of power in society, then we have lost

We then have returned to the law of the jungle, where the strongest and most ruthless rule by violence. The firearm is the only effective available equalizer and it makes the weakest woman equal to the strongest and most vicious man. The police do not protect people except in a matter of pure happenstance. What they do is arrive after the event and take pictures of the mess. Then they try to catch the bad guys before they do it again.
Moneta July 21, 2013 at 7:20 am

When I read comments like these, I get depressed. I am astounded at the depravity in the US.

Whys is it that in Canada and Europe, we generally don't feel the need to carry arms? We can generally walk around anywhere without being afraid of getting robbed or attacked.

Why is that? Is it because we have more equality? Gated communities are frowned upon. We believe that it takes a village to raise a child.

You know what I find really depressing? It's that I see the American way of doing things creeping up on us. Gated communities are popping here and there. Our prime minister is accelerating the process with his neoliberal or neocon policies. Inequality has ballooned… it is still being masked by a real estate bubble where equity is making the low middle class do stupid things. But it is appearing here while most do not see it and I have no clue how to stop it.
Inverness July 21, 2013 at 9:42 am

Moneta,
Right on. Creeping neo-liberalism has hit Canada. Even Quebec, which pretends to be so progressive and socialist, has been cutting their $7.00 day cares and unemployment budgets, and throwing in some nationalism to divert attention away from the reality that Pauline Marois is right-wing.
Yves Smith Post authorJuly 21, 2013 at 3:09 am

Dave,

I have more knowledge of this terrain than you might think.

1. There are pretty clear indicators of social (male posturing) and economically motivated crimes versus anti-social violence. They stop talking. If they are still talking, it's still a social interaction. Even a crime can be a social interaction. If it's social, you may be able to keep it social. Plus you may have no better options:

http://www.sfgate.com/crime/article/Marin-hostage-s-heroism-leads-to-arrest-4476655.php

2. As I indicated, guns are far better at getting your loved ones killed in your house than in any kind of self defense. Even cops have trouble using them well in the heat of battle. If someone is in close proximity to you and has bad intent, you are not going to get your weapon out in time to hold him off. Not even close.

If you are serious about self defense, take a course taught by people who teach law enforcement professionals. And not martial arts, that's a sport.
Dave July 21, 2013 at 12:16 pm

Yves,

Thanks for your advice on seeking instruction from professionals. I'm way ahead of you though. For the past 30 years I have been inventing and selling them a few of their favorite tools. Some of my closest friends are prominent weapons and tactics instructors for the FBI, Secret Service, Seal Teams and Delta Force. In some cases I am not particularly proud of this, as some organizations such as SWAT teams and other groups have totally corrupted their original ideals. Nevertheless, I have taken instruction on a regular basis and it has been one on one and free of charge in all cases.

You are right about martial arts, as they are not of that much value in reality.
These guys deal in reality though, and the reality is that they cannot protect us from violence, simply because they cannot be there at all times. There is an old saying in my social community. "I carry a gun because a cop is too heavy."

If you carry a gun, at least you have the option of using it if it comes down to a life or death situation. Freedom of choice again. Of course, one most certainly must have instruction in rules of safety and proper use. Concealed carry permits always require an extensive background check and basic instruction. Blanket statements and policies by government and well meaning individuals restrict this freedom of choice.

It is sad that we live in a society that is saturated with the mentality of violence. My visits to western Canada always give me a glimmer of hope. But the reality is that we do live in a culture of violence. Our children are almost constantly entertained by the same computer games our military uses to de-sensitize soldiers to killing. TV and action movies present lethal violence as a normal solution to many problems. Our wonderful country has been fucked up by the mass media and other factors in more ways than one!
Dave July 21, 2013 at 1:34 pm

To the moderator:

It appears that the truth is way too uncomfortable for this forum. A real discussion is not just preaching to the choir. It involves civilized disagreement and tolerance for diversity. Thanks for giving me the opportunity to present my points of view!
Jess July 21, 2013 at 2:21 pm

I agree. Thanks for letting all sides chime in.
Jess July 21, 2013 at 2:14 pm

"guns are far better at getting your loved ones killed in your house than in any kind of self defense."

The studies that presumably make up the basis for that statement have been discredited because they did not segregate out houses and homes used for or by people engaged in criminal activity, most notably drug dealing. And those studies usually linked having a gun in the home to being shot - but NOT by your own gun. (Granted, that does happen from time to time, but it is not nearly as prevalent as the gun-banishment folks would have you believe.)

What's interesting about this debate is a story that was on HuffPo earlier this week. A former husband was shot dead by his ex-wife in their former family home 15 minutes - FIFTEEN MINUTES - after they left court where a judge slapped the guy with an injunction not to come near his former wife. In this particular case, after he broke down the front door she retreated to the bedroom and only after he broke down that door did she shot and kill him. By your reasoning, she should have never had the gun in the first place, leaving her these options:

a) Wait however long it took for the cops to get there, and quite possibly being killed before then.

b) Climbing out a window and trying to outrun her obviously enraged, adrenaline-pumped up husband. Good luck with that. (Not to mention the idea that fleeing would have left any children in the house at their psycho father's not so tender mercies.)

BTW, just to clear the record of any lingering doubts:

a) I am not, and have never been, a member of the NRA and I have nothing but disgust for their stance against background checks and their shilling for the firearms industry.

b) I have been a registered Democrat all my life (although after Obama's betrayals my Dem status merely reflects my desire to vote in the state legislative primaries for my district). In fact, I'm such a racist whacko gun-nut cracker that I worked in Tom Bradley's first campaign for mayor of L.A. (For those not aware, that would be BLACK Tom Bradley). Among my other liberal bona-fides are volunteering in the campaigns of JFK, RFK, and McGovern, plus over two decades of activism with local initiative and referendum campaigns fighting over-development and bond-issue boondoggles.
Jess July 21, 2013 at 2:47 pm

"I lived in NYC in the bad old days, when pickpocketing and other types of theft were common. But no one was worried about their personal safety, even people who had break-ins. These guys just wanted your stuff, they weren't interested in killing or hurting you. People carried mugger money, $10 or $20 they'd hand to a robber in case they were accosted."

So, in effect, the robber has a right to your money or belongings without resistance? Then why do you refer to that time as "the bad old days"? Seems to me that was your perfect world: poor thieves took your money with impunity, no threat of suffering harm, and all was right with the world. $10 or $20 was just "mad money" for you Wall Street types but you made no mention of the people for whom $10 or $20 was a lot of money, enough to buy milk and groceries for the kids, enough to ride the subway to their job for an entire month, etc. And in those days, $10 or $20 bought a lot. Today the equivalent would be what, $50 and $100?

And, like the example given of the doctor who shot the kid breaking into his car, you believe that it is the sole responsibility of the crime victim to assess what is the appropriate, or potential, result of any response to the crime? The doctor has to ask, "Is it worth killing some one over a battery?" but the thief NEVER has to ask, "Is a battery worth getting killed over?" That's how it's supposed to work?

Let's examine the motivational aspects of the crime: If the thief needed the battery because he's poor and the battery to his car died, perhaps that mitigates his crime. But it also begs the question, "What does he need his own car for?" If it's to drive to work or the store/pharmacy for food and medicine for his family, then that's more mitigation. Conversely, what if he just wants to be able to cruise around, go over to his chick's crib to get laid, hang with some buds and smoke some weed? (Not that I think there is anything wrong with smoking weed, but let's face it, that reason pales against the others I've mentioned.) Or what if he needs to battery for his car so he can pull off a robbery or deliver some dope to a buyer?

Now let's turn it around and look at the doctor's perspective:

Why should he devote 12 years of studying and a grueling internship to become a doctor, incurring mountains of debt in the process, only to arrive at a position where he has to let a thief steal the battery out of the his own car in his own driveway?

What if the doctor gets an emergency call, what if he is a neurosurgeon or a key member of a heart-transplant team and suddenly his special skills are needed, but he is delayed (or even prevented) from getting to the hospital or patient in time because his car won't start and he has to get a friend, neighbor, cab, etc?

What if the patient who dies, or suffers irreversible brain damage, is a close friend or relative of yours? What if it was Lambert? Glenzilla? Naomi Klein? Edward Snowden?
Yves Smith Post authorJuly 21, 2013 at 11:39 pm

You've just proven my point to have to resort to such strained hypotheticals.

It is depraved to think that theft of property justifies killing someone. Period. Depraved. Take your sick world views and go pollute another site.
Dave July 20, 2013 at 8:46 pm

You are absolutely right that the doctor had no moral or legal right to shoot. I hope that the doctor got life without parole.

In the Florida M vs Z case though, Mr. Martin's constitutional right to attempt to bash the brains out on the pavement of someone who irritated him was violated by Mr. Zimmerman.
Yves Smith Post authorJuly 20, 2013 at 9:19 pm

The idea that Martin was a threat to Zimmerman was never established. Zimmerman had no serious injuries and the angle of the gunshot that entered Martin could be explained by theories other than that offered by the defense.

There are really obvious reasons why SYG is a bad idea: male posturing. Guys get in bar fights all the time, and one slugs the other and one guy falls and cracks his head on the floor or the bar and winds up dead.

The Zimmerman verdict has just officially opened up hunting season on minorities. Some white dude accosts black/Hispanic dude and utters a racial slur. Black/Hispanic dude gives him some lip back. White dude escalates and starts getting verbally abusive, maybe gets in black/Hispanic dude's face. Black dude backs away and reaches into pocket to pull out cell phone. White dude shoots, claims later he thought black/Hispanic dude was pulling out a gun whether or not he actually felt threatened.

Rinse and repeat.

You might as well call it "legalized ethnic cleansing"
Dave July 21, 2013 at 12:41 am

Yves,

Zimmerman had "no serious injuries" YET. As you pointed out in the next paragraph about the bar fight though, "one guy falls and cracks his head on the floor and winds up dead".

Considering "ethnic cleansing", black folks have a legal right to buy and own guns, just like white folks, and they do. (unless they are a convicted felon of course) When they use these guns on either whites or blacks, there is usually no mention of race. Quite the contrary when whites use them on blacks. Another case of the media trying to create a frenzy.

All indications are that Zimmerman is (was) a wanna be cop and a fool. He did not physically attack Martin though. Martin violently attacked Zimmerman evidently just because he felt offended. He was using a deadly weapon, the pavement, apparently to try to remove Zimmerman's brains from his skull.

I would submit that you and many others have been watching too much TV and too many action flicks. They do not begin to accurately portray the ugliness and sometimes brain damaging or even fatal results of a severe beating inflicted in an unyielding environment such as a city street or sidewalk.
LucyLulu July 21, 2013 at 2:45 am

When they use these guns on either whites or blacks, there is usually no mention of race

Perhaps not, but if they are caught, they are arrested, convicted, and sentenced to prison. They aren't acquitted, much less released the same night without an investigation or being charged.
Inverness July 21, 2013 at 9:47 am

Dave, Zimmerman did not physically attack Martin? After stalking him in a van (if you've never been stalked by somebody, it is frightening), He SHOT him. To death.

Martin was trying to stand his ground, after being psychologically terrorized by a vigilante. Had Zimmerman not done that, nor been emboldened by SYG laws, that boy would be alive today.
facethemusic July 20, 2013 at 6:32 pm

There's a logical flaw in your statement:

"Without a Stand Your Ground law, the rights all reside with the criminal. You, the victim, are required to retreat. The criminal has the right-of-way."

Both people walking down the street have the rights you speak of. It's only after one of them assaults the other that you can call them a criminal. Until something happens, both people have the right of way. SYG seems to allow a pre-emptive defensive strike, to something that may or may not be there.
Jess July 20, 2013 at 8:30 pm

"Both people walking down the street have the rights you speak of. It's only after one of them assaults the other that you can call them a criminal. Until something happens, both people have the right of way. SYG seems to allow a pre-emptive defensive strike, to something that may or may not be there."

Wrong. SYG only allows you to SYG after you have been threatened. Two folks walking opposite directions, both have equal rights. But absent SYG, once the other guy pulls a gun or a knife or a lead pipe and demands your money, he has the right-of-way. You must retreat and/or fork over to avoid confrontation. It is your responsibility to insure that the situation does not escalate. Forget the guy aspect; if you engage in hand-to-hand combat with the guy, you're liable for his injuries because you didn't comply with his demands and/or retreat or flee. This is the absurdity of jurisdictions without SYG laws.
Jess July 20, 2013 at 8:36 pm

Should be "forget the gun aspect".

Can we please have an edit function? Pretty please?
myshkin July 20, 2013 at 8:57 pm

Can we please stop paying attention to anything you have to say.
Lambert Strether July 20, 2013 at 11:38 pm

Wrong. Not "have been threatened." Feel threatened. Unfortunately, racists tend to feel threatened by black people. CNN:

A Florida man charged with murder in the fatal shooting of a [black] teenager amid an argument over loud music at a gas station pleaded not guilty Monday.

Michael Dunn, 45, entered his plea during a hearing Monday morning at the Duval County, Florida, jail.

Dunn told investigators he fired at a car in which Jordan Davis, 17, and three of his friends were sitting because he felt threatened by them. No guns were found inside the teens' car, the Jacksonville Sheriff's Office said.

So, if open season on black people sounds like a good idea to you, by all means support ~~lost cause~~ "stand your ground" laws.
Jess July 21, 2013 at 1:48 pm

And you'll notice the man has been charged with murder. That's what gets the whole SYG issue confused. As I understand it, any SYG defense predicated on the idea of "feeling threatened" rests on having some valid reason, such as the presence of a weapon, menacing behavior, etc.
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middle seaman July 20, 2013 at 6:59 am

Hedges mentions the Swedish success of eliminating poverty in the 80s. This success belongs to Social Democrats which, in this country, means the more liberal wing of the Democratic Party before Reagan. Social Democrats don't equate with socialism. Socialism which, at least most of its 20th century life, means a very limited capitalistic economy. We know that system doesn't work.

The left has weakened drastically during the late 20th century years and since then. The US is not alone in that. The Israeli left deteriorated to almost a joke. Many European countries went the same way.

The US left became increasingly frustrated with its inability to respond to popular affinity to low level affluence. It became Tea Party left. Hate became a major factor in everything. They gang raped Hillary. They abandoned labor unions, they rejected poor whites, they hated everything right wing and developed a racial rejection towards Israel that was copied from its European equivalent whose source, mainly a Millennium of European Anti-Semitism.

Uprisings don't help. Million demonstrated, with limited violence, in Madrid, Athens and Tel Aviv. The rich couldn't care less. The Arab Spring, a historical and universal achievement of the Arab youth, has been kidnapped by Fundamentalists.

In the two segments so far, Hedges provides important information, but his prescription for solutions are awfully misplaced.
Chris Rogers July 20, 2013 at 9:31 am

Hugh Sir,

Sorry to rain on your parade, but most left-of-centre parties in Western Europe were founded on Socialist, as opposed to Communist, foundations and principles – as an example, within Germany from the states founding in 1871, and until the mid 1950's the German SDP group was an avowed Socialist movement – the KDP, an off shoot of the SPD, was an avowed Communist Party.

Here in the UK, the Labour Party founded at the beginning of the 20th Century was an openly Socialist and progressive movement – even if its leaders when in power failed to honour Clause IV of the party's constitution.

The UK Labour Party under one Tony Blair ceased to be an avowed Socialist/Labour Party with the removal of Clause IV in the mid-1990's – the rest is history, for as with the US Democratic Party, the UK's Labour Party is as addicted to neoliberal economics and self serving careerist politicians as the Democrat Party.

The German SPD had its Blair moment in the 1950's, but was still a credible left-of-centre progressive movement well in to the 1990's – not so now I'm afraid.

In a nutshell, most Northern European left-of-centre political groupings favoured whats referred too as a 'mixed-economy' with state and private enterprises – Southern European nations, among them France, have a somewhat different history as far as Communism and left-of-centre political groupings are concerned, much of this religious-based, namely the Catholic Church.

Whilst its been a while since I've studied European comparative politics, you had common threads in Europe in the more Northern states.

Its all interesting stuff, but Communism, not to be conflated with Socialism or social democratic movements, was always more stronger in the Southern European nations – we should discount Weimar Germany's experience, which was an exception to the rule as politics became more polarised due to economic dislocation.

What is a fact, and one usually well hidden from the US populace, is how brutally repressed anything with a hint of left-of-centre smell to it was in the USA, this from the time of the Irish diaspora through to the treatment of OWS.

Its truly shocking now that Nixon could be accused of being a Socialist by those running both the Dems and Republican's presently – which gives an indication of how much to the right US politics has moved in less than 40 years, and this trend coincides with the ascendency of the economic philosophy now referred too as 'neoliberalism', which in reality is a backwards looking system of governance and economics born out of the Victorian era – it really should be consigned to the dustbin of history.

As for myself, born and raised in the South Wales valleys of the UK, I have no issue calling myself a Socialist, which is a philosophy again that favours a so called 'mixed-economy' wedded to a strong welfare state – I'm certainly no Communist, although have o issues with much of Marx and Engels output, as well as many other noted left-of-centre progressives and revolutionaries of the later part of the nineteenth century.
Chris Rogers July 20, 2013 at 9:45 am

That should be in reply to Seaman and not Hugh – so an apology to Hugh.
from Mexico July 20, 2013 at 1:38 pm

That's a great comment, but I think socialists have to do some really profound self-examination and soul searching.

Lawrence Goodwyn, for instance, in The Populist Moment renders a rather harsh criticism of socialism:

On the available evidence, twentieth-century people around the globe are paying a high price for their submission to the hierarchical languages of political analysis that have grown out of the visions of Adam Smith and Karl Marx. The problem that will doubtless interest future historians is not so much the presence, in the twentieth century, of mass political alienation, but the passivity with which the citizenry accepted that condition.

[….]

But while American socialists, for reasons they themselves did not cause, can be seen in retrospect as never having had a chance, they can be severely faulted for the dull dogmatism and political adolescence of their response to this circumstance… [I]ndividual righteousness and endless sectarian warfare over ideology came to characterize the politics of a creed rigidified in the prose of nineteenth-century prophets. As a body of political ideas, socialism in America - as in so many other countries - never developed a capacity for self-generating creativity. It remained in intellectual servitude to sundry "correct" interpretations by sundry theorists - mostly dead theorists - even as the unfolding history of the twentieth century raised compelling new questions about the most difficult political problem facing mankind: the centralization of power in highly technological societies. If it requires an army responsive to a central political committee to domesticate the corporate state, socialism has overwhelmingly failed to deal with the question of who, in the name of democratic values, would domesticate the part and the army. In the face of such a central impasse, it requires a rather grand failure of imagination to sustain the traditional socialist faith.

Perhaps this is what Hedges means when he speaks of the "inability to articulate a viable socialism."
Moneta July 20, 2013 at 2:35 pm

One of the issues I see hindering the liberals in North America is their focus on materialism.

What I have noticed is that those of a conservative mindset tend to see the pie as limited in size and those of a liberal mindset tend to think that the size of the pie can be unlimited. Admittedly, there are those with a conservative mindset who do think resources are unlimited but their primary goal is often to corner the markets so they can control a bigger portion of the pie and this caps the size of the pie.

I believe the pie can be unlimited but not as long as our money and economic systems are primarily based on hard goods and materialism.

I think the liberals will always lose when the resources become scarce within the scope of the economic system at the time. When the hard assets got scarce in Europe, we got the righties digging their heels and mass exodus.

Now that all land is owned in the US, we are slowly seeing a creeping rentier society. And globally, there is not much more land to go to that is free for the taking.

Materialism individualism will need to shrink for our situation to improve. I am optimistic humanity will improve and technology will help but I don't think this will happen with 7 billion people on the planet.
Dave July 20, 2013 at 8:53 pm

We need to put birth control chemicals in the water! Personally, I would tax children rather than greedy capitalists.
Moneta July 20, 2013 at 9:50 pm

That's what we're doing, except we don't explicitly call it taxes.
Yalt July 20, 2013 at 2:35 pm

I have a different impression of US labor history. "Bread and roses" in Lawrence, those iconic "I am a Man" signs in Memphis, the Wobbly soapboxes in Spokane…all pretty creative if you ask me, and hardly passive.

"Intellectual subservience to sundry correct interpretations?" Not down in the trenches, where it mattered.
Lexington July 20, 2013 at 4:35 pm

Goodwyn's point is perhaps not inaccurate when discussing the history of socialism in America, but you're point is equally well taken: history isn't destiny.
from Mexico July 20, 2013 at 6:04 pm

@ Yalt

Your take sounds closer to that of Reinhold Niebuhr:

The American labor movement was almost completely bereft of the ideological weapons, which the rebellious industrial masses of Europe carried. In its inception it disavowed not only Marxist revolutionary formulas but every kind of political program. It was a pragmatic movement, born of the necessity of setting organized power against organized power in a technical society. Gradually it became conscious of the fact that economic power does try to bend government to its own ends. It has, therefore, decided to challenge a combination of political and economic power with a like combination of its own…

More recently, housing, medicine and social security have become matters of public and political policy. All this has been accomplished on a purely pragmatic basis, without the ideological baggage which European labor carried.

–REINHOLD NIEBUHR, The Irony of American History

Niebuhr may not be an unbiased source, though, because he was a member of the Socialist Party up until 1940. Niebuhr's break with the Socialist Party, however, was related to pacifism, and not specifically due to labor or welfare society issues. Niebuhr had been a pacifist, but his position had changed so that it was no longer reconcilable with that of the anti-war Socialist Party. It was also over the issue of pacifism where the Rev. Martin Luther King parted ways with Niebuhr.
Yalt July 20, 2013 at 11:10 pm

No, that is not my take.

Niebuhr's use of the term "baggage" is telling. The Wobblies were as principled, as "ideological" in the true sense of the word, as any labor movement I can think of. "Bread and roses," the demand for the satisfaction of spiritual and not just of material needs, was anything but pragmatic. The Seattle free-speech soapbox action was a sophisticated civil demonstration and a deeply political act.

Their deeply-held principles, their ideology, gave them a moral power that organized US labor has never regained. For Niebuhr this is "baggage".

There's a reason he found it so easy to make his piece with the militarists, and there are few people I would less want to see my views conflated with.
Chris Rogers July 20, 2013 at 2:55 pm

@Down Mexico,

Can I first refer you to a post I made in yesterday's comments on Hedges first Real News interview, namely, due to the elaborate language he utilised in his opening missive, he'd already lost the argument due to the fact that if you are from a non-universiry educational background most would not have a clue what he was talking about – I do not blame a persons ignorance on them personally though, this issue has much to do with the education system and other modern distractions – this applies in equal measure in the UK and USA.

Further, and when you reference 'socialism', it seems to me you always do this from the vantage point of having read it in a academic book, rather than actually lived or experienced it.

To be perfectly honest, I do not believe you can learn about socialism from a book or academic study – socialism must be in the heart and learned from real life experiences and real life struggles and only the poor, or, as I refer to it, the working class, can have a true and meaningful understanding of what socialism is, and again this is learn't from real life experiences – for this and this alone, I'd always rather read Thomas Paine, than anything written by the supposed great minds of political philosophy, i.e., I cannot abide John Locke.

Now, you are instructing members of the working class, whom many would believe should be well versed in socialism, to re-evaluate what socialism and left-of-centre politics is about, this despite the fact that the vast majority are not versed is such matters. And this is because, on the whole, the State denies them an education whereby by they can be versed in left-of-centre political philosophies, never mind, there own history and contribution to the formation of the USA, both prior and after 1776.

Further, in the USA at least, talk of the working class is avoided, i.e., as far as I can tell, the USA has no working class, you are either middle class or blue collar – but never working class.

This I find strange, for where I grew up, we were all fully aware of what class we belonged too and the socialism and working class solidarity I often refer too originated in actual real and oppressed communities, where working class solidarity was essential if we were to better ourselves and reverse class injustice – to all extent and purposes, one is talking about 'communtarianism', which our friend Rousseau discussing in much of his own output.

Now, as highlighted, and thankfully I was lucky enough to have a good education paid for by the state, whilst I may be able to cotton on to much of the debate, dialogue and academic-based research and philosophy many here highlight continually, the fact remains, that many of those who are required to combine forces to change matters, be this by legal means, or revolutionary means, to be frank, have little idea what many are discussing on these boards – and yet, these are 'socialists', they just do not understand it because class and education are denied in the USA and many other nations.

Anyway, that's my two bobs worth, but, its no good preaching to the converted and highlighting how well read we are and expect revolutionary change, if those forces that can bring about said change cannot understand us – might as well speak in Latin.

So, I do not think left-of-centre grouping, namely the working classes need to re-evaluate themselves – progressives and academics perhaps, the working class that's denied a class consciousness certainly cannot do that – and these are your socialists and the vanguard necessary for a better tomorrow.
charles sereno July 20, 2013 at 4:38 pm

Just came late upon this discussion and was impressed (and maybe missed some of it). I see several viewpoints, not particularly contradictory, though typically ones employing the kind of arguments that lead to non-productive cat fights. One bit that I can add based on experience is this - the "masses" (or fill in the blank) are not unattracted to the intellectual elite, on one condition. That condition being that the person espousing views, (even when offensive to those they currently follow), has risen up from their own background and have experienced enough of it to understand how they think. Once that happens, they swell with pride and are eager to learn new ways. This is the makings of a true revolution. The acid test of a leader is this - Does he/she fully comprehend that one's own competence in a particular area must be accompanied by a quest for leaders in many other areas?
The problem Chris Hedges has (not his fault) is that his audience doesn't suspect how much he's shared their own experiences.
digi_owl July 20, 2013 at 11:07 am

I suspect the academic left in the Nordics and elsewhere were too effective at selling the message of education as a road to a high wage.

To take my home country of Norway, the supposed labor party has become something of a bureaucrat's party. And their "socialist" splinter party has mostly focused on students, academia and foreign issues.

In its place has risen a populist right wing party focused on entrepreneurship and the myth of the self made man. Meaning that there is no political party that think about the industrial and service worker from their own point of view.

It is either from the professional administrator/bureaucrat point of view, or the budding business man point of view (where the laborer becomes a one man business doing contract/consultant work rather than wage work).
Massinissa July 20, 2013 at 11:33 am

Parts of your post are sort of facepalm.

Firstly, what is wrong with not supporting that center right clown Hillary? Do you really still think she would have been any different than Obama? Or Bill Clinton for that matter?

And the antipathy towards part of the left of Israel, which by the way is certainly a minority (DiFi is part of the 'left' for gods sakes! Shes practically Israel's representative to the Senate!), is most certainly not based on racial grounds. To suggest as such is a thorough misdirection and strawman, and quite insulting.

Though I agree with most of the rest of the post, with the exception of your attitudes towards socialism, which Rogers debunks far more ably than I.
Banger July 20, 2013 at 1:20 pm

Most social-democrats are described as being proponents of a managed economy. You allow capitalism to thrive where it thrives best and you guarantee that citizens do not suffer from deprivation. When capitalism goes awry you stem pin. Scandinavia was never socialist–it always had capitalism at the center of the economy.
Tokai Tuna July 20, 2013 at 1:32 pm

I thought the Arab spring was promoted by NGOs and the like, but billed as an authentic youth uprising. Fundamentalists are fine as long as they still behave like Mubarak did. Behave as 'Murica prefers and we'll call it a Democratic incubator of Jeffersonian Fundamentalism, the weapons and money are on the way – it's getting harder to buy people off these days.
Part of the problem with the "American Tinderbox" is the torrent of misinformation and propaganda aimed at everyone. Right next to Hedges columns for example, you'll see Eugene Robinson, who chops out the type and posts a civil whimper of protest. Starbucks readin'.
Yalt July 20, 2013 at 2:42 pm

I suspect it was both at the same time–that was certainly the case in the Ukraine, where the great majority of the Orange demonstrators were blissfully unaware of the fact that the movement they embodied was being funded by and steered from the West.

It's not so different here–our local Tea Party crowd really believes they're a genuine grassroots movement set off by a completely unscripted and impromptu television rant. They know nothing about the Kochs, if you told them they wouldn't believe you, if they believed you they wouldn't care.
OIFVet July 20, 2013 at 2:29 pm

Respectfully, that which you describe as "left" is nothing more than a faction of the neoliberal movement. Faux "progressives" of the MSNBC variety are nothing more than useful stooges for the official narrative which seeks to convince us that the Democrat party is a leftist party, that Obama is the best thing since sliced bread, that there is an actual alternative to the neoliberal sociopathy which is leading us into the serfdom of the new Dark Age. And I refuse to recognize anyone named Clinton as a leftist, what with NAFTA, Graham-Leach-Bliley, and the unhealthy Rubinite dependency…
Massinissa July 20, 2013 at 3:28 pm

AMEN. My thoughts exactly.

I fail to see why some 'leftists' are STILL upset that Obama beat that Rubinite Hillary. For those folks, whenever Obama does something bad, they say, "Ah, Hillary would have been so much better!" with absolutely no evidence at all that she would have done anything different. Its sort of nauseating to me.
Jess July 20, 2013 at 6:37 pm

Another AMEN.

And it's not "sort of nauseating" to be, it's just nauseating.
Synopticist July 21, 2013 at 8:54 am

I don't agree with that. I think Clinton would have been a fair bit better than Obama. Obama is a centre-right corporatist, Clinton's a centrist.

But the big difference is she would have understood that there was no room for compromise with the republicans. Obama is a bit of a pussy basically, whereas Clinton isn't, and shew also understands the need to keep your base happy, which in her case included unions.
OIFVet July 21, 2013 at 11:59 am

Lesser evilism again. Really?! Let me guess, her Secretary of Energy will be Ed Rendell… No thanks. And I will never buy the "Obama is a pussy" meme, he gets precisely what he wants.
Doug Terpstra July 20, 2013 at 11:19 pm

Yup, different puppets; same string-pullers, same show. Obama is puppet V2.0, artificial sentience, apparently without conscience or soul.
Tenney Naumer July 20, 2013 at 7:12 am

It is utterly amazing how the introduction of fracking has galvanized Americans on both sides of the political divide. Anti-fracking movemnts are growing like wildfire across the country and they are also partnering with the anti-pipeline movements. People are looking at the role of city and county governments like never before. The battle between ordinary people and oil and gas companies and all the campaign money flowing in to state legislators have awoken the passive public.e
MikeNY July 20, 2013 at 7:17 am

As it's said in politics, things can move quickly from the impossible to the inevitable, without stopping at the probable.

If we keep pumping a million or more college graduates into the workforce every year without decent prospects for employment, very soon we will have a critical mass of 10+ million who may be ready simply to "withdraw from the system". Young, educated, indebted, and unemployed.

I believe, of course, that power will try to cling to power: when social unrest emerges, the federal government will find the money for a massive jobs program. It's the least risky option, the most conservative, for the plutocracy.
Skeptic July 20, 2013 at 7:34 am

I wonder what role Professional Sports (including NCAA) and the Entertainment Complex (including Iphones, Ipads, other entertainment devices) play in the Pacification of America. Seems most folks have their entertainment if nothing else.

Professional Sports all have virtual Monopolies granted by government fiat. They all get huge government tax subsidies either directly through stadia financing or other means. Every city in America has its team. Many of these teams are owned by Wall Street types or hedge fund guys (Boston Red Sox). Bernie Madoff was using NY Mets to get clients. The airwaves are full of Sportz Talk. Every newscast has its Sportz Update. The only alternative commentator I have ever heard really go after Professional Sportz is Alex Jones.

Universities too have all their Sportz, generally acting as feeders into the Big Money Sportz. Many Latin Perfessors will tell you that Sportz runs the University.

If I am not mistaken, is that not an ADIDAS shirt Tsarnaev is wearing on the cover of Rolling Stone? ADIDAS one of the biggest domestic and international Sportz suppliers and advertisers. So even Tsarnaev has been Sportz brainwashed? I have seen this many times. Michael Moore wearing Sportz hats. I have seen demonstrators at labor rallies wearing NYYankees hats. NYYankees, the team of Wall Street.

Then there are numerous Progressives and Liberals who all have their favorite teams. Really remarkable, they do not even understand the link between Sportz, the State and the Great Deterioration. No, they need their lighter moment at the ballpark where they can forget, guzzle ten dollar beers and be advertised to.

Then there's Hollywood, Disney, and all the Entertainment conglomerates who control that Industry. Not exactly Occupy material.

Lastly, all the Tech Toyz. Ipads, phones, Facebooks, etc. to divert and entertain us all on the way down. Get all the latest Sportz scores and Celeb Chatter. Cheaply too. If things get really bad, the 1% can just give free sat TV and the newest Apple trinket to the 99% and just keep on truckin'. Just like buying Manhattan for $24! Maybe throw in a ticket to the BIG GAME.(Obummah gave away free cellphones.)

Why are Sportz, Entertainment, Tech Toyz all ignored as factors in the Pacification of America? Is it because we all have our favorite teams, conglomeratized entertainments and Tech Toyz? Seems that there is one Big Elephant no one is mentioning.

So, being from Boston, go Red Sox, Patriots (there's a name a revolutionary can love), Celtics, Bruins, BC Eagles, Harvard Crimson,…. etc.

What's your favorite team or TV show or Tech Toy?

When is NC going to have a Sportz Section?
Boston Scrod July 20, 2013 at 9:15 am

Skeptic doesn't seem to appreciate the fact that our founders freed us from the yoke of colonial oppression so that we could use our hard won freedom to commit our lives to the enjoyment of spectacle and entertainment, both real and virtual. Wake up and smell the coffee, man!
mark worden July 20, 2013 at 9:21 am

Neil Postman: Amusing ourselves to Death. comes to mind.

not to mention….bread and circuses
Adam Noel July 20, 2013 at 9:34 am

Good comment and one with many here agree. This is why I am completely fatalistic about change coming as long as the entertainment-media nexus exists. No change can occur because change would entail missing Glee, The Kardashians or the Football game.

From an evolutionary perspective the current system is novel. This system, through pursuit of the profit motive, has been optimized (selection of products that produce the most profit will result in more of those products. These products, if they are to be extra-profitable, most exploit psychology in some shape or form) to override our instincts and drive consumerism.

To a certain degree even those who profess to be proponents of change (Michael Moore, etc) view such events as "just fun" while they are nothing like the sporting events, plays, etc of the century prior. These events, once you are plugged into them, are marketing machines optimized to ensure you keep coming back.

Huxley is ultimately more right then Orwell. Most people read Huxley and are terrified at the idea of soma yet fail to recognize such a system already exists. Through exploitation of evolutionary novel contexts to produce rampant consumerism we are already enslaved. Like you said, as long as the entertainment-media complex keeps on churning out content nobody will notice.

People who promote wanting a simpler life cannot compete with sky-diving out of planes recording the experience with google glass, jumping off ramps and then zip-lining (Or something) into a press release. Life is Hollywood now, baby. You either go big or go home.
F. Beard July 20, 2013 at 9:45 am

Quit blaming the victims!

Back when most of us were on the family farms the banks stole, there was plenty of wholesome entertainment and work to do.

But now most people have to make do with the mess of pottage they've been given in return – cheap entertainment and mass consumption.
Adam Noel July 20, 2013 at 9:52 am

I do agree with you that it is not anyone's fault. It is a way of life now pretty much and as I said to a friend before… when I look behind it all sometimes there is still a distinctly human character to some of it. (i.e. all is not lost)

For example, watching a television show with a sibling eventually becomes part of the bond between those two siblings. Sure, to a certain degree, it is a mass produced pile of garbage but the bond formed through the mass produced pile of garbage is still meaningful.

It is never the victim's fault and to a certain degree it isn't even the oligarch's faults. The system itself is the problem.
F. Beard July 20, 2013 at 9:58 am

I do agree with you that it is not anyone's fault. Adam Noel

I've never said that. Those who set up the money system and those who continue to support it in the face of a just alternative are certainly at fault.
Moneta July 20, 2013 at 4:42 pm

If you were them, you would do the same thing.

Empathy is what will help us get us out of this hole.
F. Beard July 20, 2013 at 6:03 pm

Speak for yourself.

I've lent people money quite a few times but never charged them interest. So it appears I can't even get to 1st bank when it comes to being a banker.

You?
Moneta July 20, 2013 at 10:01 pm

Cognitive empathy: the drive to identify another's mental states.[14][17] The term cognitive empathy and theory of mind are often used synonymously.[18
---
It's not a question of putting the person you are in someone else's shoes because the reality is that if you had the genetics, upbringing and experiences of the 1%, you would not be the person you are now.

Another reality is that you never really know how you would act in intense situations until you live it. I know, I've been there and it's an eye opener.
F. Beard July 21, 2013 at 4:46 pm

Actually dear, (now that I know you're female) I do realize that we're in a tragic situation and I don't blame very many at all. For example, I hate usury but I'm pretty sure my pension depends on it. I hate credit creation but realize pension funds are invested in banks.

I do seek a painless way out for everyone except sadists and those who seek to profit from misery.
Moneta July 21, 2013 at 7:57 pm

I do realize that it is very difficult to get our worldviews across in blurbs.

And I do also realize that each one of us has a few pieces of the puzzle. Some more than others but each piece counts.
Chris Rogers July 20, 2013 at 12:37 pm

Noel Sir,

First, I concur with your analysis that a large part of the populace, be it in North America or the more northerly parts of Western Europe do seem to be addicted to Soma – of course referencing Huxley's Brave New World, which as with Orwell's 1984 is a wonderful dystopian novel predicting a ghastly future for mankind – indeed, if we mix both Huxley's dystopia with that of Orwell's, I think we are more or less 99% there in those northern nations where unemployment is at or below 10%.

I don't think we can say this for places such as Mexico, or many of the Southern European nations – many of whom due to poverty are unable to enjoy the 'paid for' bread and circuses our masters wish us to consume.

However, and what's perhaps even more interesting, and shall I say I think Yves's misses the point a little in Hedges second RN interview – there is actually no commons so to speak, no hallowed and commonly owned ground where critics can air a grievance and communicate effectively face-to-face. Indeed, we have to all extent and purposes become digitally atomised – and as others have noted, one cannot launch a revolution via digital means blogging on sites like NC. Indeed, NC actually benefits TPTB by the very fact we are stuck in front of a monitor or with a iPad posting comments on these boards, rather than socialising and rioting – which our friends in Southern Europe seem adapt at doing, namely in Spain, Greece and Italy, and sometimes in France.

So, my analysis for what its worth, which may be a little deterministic for some, is this: At our present juncture in the profit-driven proto-fascist nations such as the USA and UK we have the drip feed of SOMA, or as I refer to it as, bubblegum entertainment of the lowest kind, much of which you have to access via paid subscriptions. Now if you have high employment levels and a decent welfare safety net, its possible to keep persons of the street and from interacting at a personal level – be this in work, taverns, sports grounds whatever – what happens though, when the majority due to lack of funds cannot actually access these dumbing down services>

And this is where our trajectory is taking us, for not only under neoliberalism does every thing have to be paid for and a profit derived thereof, but by the very act of cutting wages and increasing unemployment to unheard of levels, our masters are digging their own graves.

I will make one further addition based on observations in the UK. Its been approx. 40 years since the neoliberal inspired counter revolution was launched, in which time we have witnessed a huge increase in inequality, unemployment and real poverty, exacerbated by the GFC – unlike its bedfellow though in the USA, so demented are our neoliberal baboons in the UK, that they have adopted a policy of austerity in a period of stagflation and high unemployment, however, the cutbacks are not only on the welfare state, quite the reverse in fact has happened to that in America, namely, even the forces of law and order, and the military have had huge cutbacks – with the only increase in spending on our secret services. So, instead of militarising the state apparatus, as in the US, our masters have done the reverse, i.e., they are so greedy and tightfisted that they will not pay for their own protection.

So, don't be surprised to see further outbreaks of public rioting and disorder in the UK over the coming years as further austerity is embraced – for if you cannot even afford the Soma, like most addicts you'll turn to crime, or combine with others and riot – as for political change, I think this will only come when this inflection point is reached, which is basically what Hedges is saying, and if the UK goes, so does much of Europe – particularly given we are about the most passive of all our European neighbours I'm ashamed to say.

Funny that!!!!!!!!!
from Mexico July 20, 2013 at 10:40 am

Carlos Fuentes called it the new Baroque, a Baroque that had devolved into its Rococo extreme. There is no empty time and no empty space, as every space and every moment is filled with dazzling, lavish, elaborate, swirling splendor. Here's an illustration of the orginal Rococo:

http://www.reprodart.com/kunst/salvador_barbudo_sanchez/1014478.jpg

It was also used in religous settings. Here's an example from Mexico, where the Rococo perhaps was carried to its most elaborate extreme:

http://safe-img02.olx.com.mx/ui/11/83/25/1306095947_206347825_14-Paseo-cultural-a-Puebla-.jpg

Other terms for it are, in Mexico, pan y toros, or in Roman times bread and circus.

It didn't work out too well for Luis XVI or Marie Antoinette, nor for the Bourbons in Mexico. And some argue it wasn't a sustainable form of social control in Rome either, although I'm sure you are aware there are about a thousand different theories on why the Roman Empire declined.
Lambert Strether July 20, 2013 at 4:52 pm

Banger July 20, 2013 at 1:31 pm

Yes, the whole entertainment industry and consumerism did not arise randomly as everyone including nearly all leftists belive. It was engineered as surely as Hedges has carefully examined the origins of manufacturing consent by the power-elite. The current narrative we live under is not a random interaction of market forces–i.e., giving people what they want. I used to think that. One book that changed my mind, is Captains of Consciousness, Advertising and the Social Roots of the Consumer Culture written in the 70s that contains numerous quotes from the power-elite on how to condition the populace to create the culture you describe.

This is not the sort of natural result of freedom of expression and all that. Our fetters, our narratives have been carefully constructed using the best minds, the best materials, the best research available to enslave us not by jack-booted thugs–that clearly did not work but through what would have once been called "magic spells."

I believe that the interest in magic and fantasy has a lot to do with the fact that consciously we are not allowed to admit to ourselves that we live in a world manipulated by, frankly, evil magicians–they use our desperate need to believe we actually are "individuals" who want to be free to create our own identity. We're not, we're food for predators. Hedges, by the way does an excellent jobs in several of his books describing some of this though he and I disagree on some of his conclusions.
Lambert Strether July 20, 2013 at 4:54 pm

To them we are food. To us, we are individuals, fully human moral agents.
reslez July 20, 2013 at 9:08 pm

We are ruled by evil magicians. Objectivism falls on the same slice of the alignment pie as True (or Neutral) Evil:

A neutral evil villain does whatever she can get away with. She is out for herself, pure and simple. She sheds no tears for those she kills, whether for profit, sport, or convenience. She has no love of order and holds no illusion that following laws, traditions, or codes would make her any better or more noble. On the other hand, she doesn't have the restless nature or love of conflict that a chaotic evil villain has.

Neutral evil beings consider their alignment to be the best because they can advance themselves without regard for others.

This ethos holds that seeking to promote weal for all actually brings woe to the truly deserving. Natural forces which are meant to cull out the weak and stupid are artificially suppressed by so-called good, and the fittest are wrongfully held back, so whatever means are expedient can be used by te powerful to gain and maintain their dominance, without concern for anything.

Neutral evil characters are primarily concerned with themselves and their own advancement. They have no particular objection to working with others or, for that matter, going it on their own. Their only interest is in getting ahead. If there is a quick and easy way to gain a profit, whether it be legal, questionable, or obviously illegal, they take advantage of it. Although neutral evil characters do not have the every-man-for-himself attitude of chaotic characters, they have no qualms about betraying their friends and companions for personal gain. They typically base their allegiance on power and money, which makes them quite receptive to bribes.

The neutral evil is an unscrupulous, self-serving character who is only out for himself. Power, glory, wealth, position, and anything that will make his life more comfortable is his goal. It matters not who gets caught in the middle, as long as he comes out smelling like a rose. This person will lie, cheat, and kill anyone to attain his personal goals.

from The D&D Alignment System: Neutral Evil

Schofield July 20, 2013 at 8:43 am

The class war is ultimately based on the failure to understand how both human nature and money works. Ultimately it's a failure to understand the importance of balance. Balancing self-interest against other-interest and public creation of money against private creation.
JCC July 21, 2013 at 4:25 pm

That's for sure, ir as Henry Ford said many years ago before things got really out of hand, "It is well enough that the people of this nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning."

I'm reading Bad Money by Kevin Phillips at the moment, and although outdated by 5 years or so, the patterns he describes have gotten worse.

The first thing the Left needs to do is read this, have all their acolytes read it, and then ban all discussions on his nuanced politics (such as always describing the presidents of countries that castigate the U.S. as "strongmen" while using the polite honorific for those presidents/prime ministers that are our allies) and pay attention to the bare facts, as well as read NakedCap :)

I'm not done with Bad Money yet, maybe I'll change my mind, but until you get the average person on the streets to understand our system of money, nothing good will be accomplished.
C.Raghavan July 20, 2013 at 8:53 am

see recent column of Prof. Johan Galtung of Transcend Peace University http://www.ipsnews.net/2013/07/the-new-fascism/
raghavan
profoundlogic July 20, 2013 at 9:13 am

If you're looking for a real tinderbox, check out the Comex. JPM's eligible gold down 66% in one day. LOL! One has to wonder how long the bullion banks and Fed can keep this game up? Any coincidence that the Fed is now reconsidering banks' commodity trading actions? Things that make you go hmmmm.

Perhaps Hedges should begin a movement to expose the gold leasing actions contributing to the obfuscation of balance sheets? In an age when regulation has become a joke, this is looking more like another MF Global waiting to happen. It's pretty hard to tender delivery of what you don't have.

http://www.bloomberg.com/news/2013-07-20/fed-reviewing-2003-decision-on-banks-commodities-activities.html
Bam_Man July 20, 2013 at 10:53 am

And when they declare Force Majeure and offer settlement in cash only, the COMEX will finally be recognized as the "bucket shop" that it is.
Jennifer July 20, 2013 at 9:17 am

I agree that Obama has been terribly destructive-whether by design or by accident doesn't really matter. And I agree that there is nothing very hopeful about the political "left". But there are pockets of hope and resistance everywhere-the low-wage organizing happening all over the country, the ripple effects of Snowden, the fight in Texas over choice. More and more people are recognizing class war, even if they don't call it that. And there are mainstream allies in this, even if they don't have the same rationale. It's always a question of how this dissatisfaction will channeled, if people think they can vote for Democrats indiscriminately and get change, than no, that is not going to work. But if a few independent voices could be elected, and/or if people can organize around specific issues, and hold accountable whoever is in office for those issues, things could happen. It's true that Americans don't take to the streets the way others do, but seriously what has all that street protesting got Europeans? As far as I can tell, nothing. I don't want to say protests are useless, of course not, but it's just as silly to suggest that's the only way significant change will occur.
I will tell in Chicago there is organizing all over the place, mostly by young people who fully understand what is at stake.
Banger July 20, 2013 at 1:35 pm

Actually, street demos have gotten the Europeans almost everything. The governments feared the public and provided them with the benefits they now receive because of that fear. This began to change in Europe starting in the 70s, like here, it's a long story but, at this time, the European left has been outmaneuvered pretty easily.
OIFVet July 20, 2013 at 3:02 pm

Jennifer, as your fellow Chicagoan I have to ask: do you honestly think that the organizing by the young people will overcome King Rahm's fundraising muscle and his court of 50 merry yes-men alder-creatures? I agree that in the past year the general level of awareness has increased given the events surrounding the teachers' strike and the total war on public education, but come 2015 will that be enough to overcome Rahm's ability to raise $2 mil every quarter? I think not. As a fellow "lakefront liberal" (from Hyde Park), let me share what I see on the South Side: struggling minorities who are unhappy with the status quo, but happily accepting a few minimum wage crumbs thrown their way by the Penny Pritzker/UChicago Hyatt development, (paid for with TIF money taken from their public schools of course), and asking for more of the same. I see an ever-accelerating stripping of the public assets and an administration which makes me long for the days of Little Daley. And worst of all, I see a majority which is too damn apathetic to do anything about it, with or without organizing. I am sorry but I do not share your upbeat view of the events in Chicago.
Jennifer July 20, 2013 at 10:05 pm

You should get out more.
OIFVet July 21, 2013 at 11:39 am

Thank you for the advice, but I do get out plenty. I suspect I go to places where you do not. Hint: the North Side is not all there is to Chicago. I do have some very dear friends living in your neighborhood, good 'lakefront liberals' one and all. Their problems couldn't be further removed from the problems of the South Side populace, and I don't think one can organize people whose problems they don't understand. Regarding schools, Rahm is careful not to push north siders too far, something which he has no compunction doing to the minority south and west sides. That's because he knows only too well that north siders have the money and muscle to cause problems while on the south side power comes from churches and precinct captains, institutions which are in his pocket. Outside organizers as yet stand no chance given Chicago's racial history. Again, learn about the people you want to organize. I suspect that will require stepping outside Lakeview every so often. I am sorry if that sounds mean-spirited, I certainly do not intend it to come out like that.
Dave July 20, 2013 at 9:04 pm

Your protests will be tolerated and held to be constitutional as long as they have no real effect. If they start to have an effect, they will be ruthlessly suppressed.
Thor's Hammer July 20, 2013 at 9:22 am

"Everybody Knows" Classic description of the world by Jonette Napolitano and the band Concrete Blonde
http://www.youtube.com/watch?v=RaJAxdGeZ4E

Thor's Hammer July 20, 2013 at 9:41 am

And if apathy doesn't do it for you, there is always Jonestown. http://www.youtube.com/watch?v=yyQvxVD_wZs
Lambert Strether July 20, 2013 at 4:56 pm

The classic version…

Thor's Hammer July 20, 2013 at 6:26 pm

My instinct tells me that "Jonestown"has has more prediction probabiliity than all the dreams of tecnosalvation.
Paranormal Corpse July 20, 2013 at 7:00 pm

Paranormal Corpse July 20, 2013 at 7:04 pm

sorry, unsuccessful embedding

Corporate Elect

http://www.youtube.com/watch?v=R_sot9ZK8X8
F. Beard July 21, 2013 at 4:35 pm

Looks like Leonard Nimoy.
Shutter July 20, 2013 at 9:47 am

Don't expect anything from the 'people'. Expect the gov't to go publicly HARD right and crash the economy in the effort to wring every last penny out of it. When power distribution, communications, dollar collapse and fuel shortages isolate us, the country will fragment. We'll see what shakes out after that.
Phrase July 20, 2013 at 12:36 pm

Shutter, i tend to agree with your statement : " Expect the gov't to go publicly HARD right and crash the economy in the effort to wring every last penny out of it. When power distribution, communications, dollar collapse and fuel shortages isolate us, the country will fragment. "
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For me, i would nuance your statement so that the focus ends up clarifying the force and monied long-term strategic planning that has concentrated the neoliberal agenda's implementation into supra-national institutions, tireless working at destroying national sovereignty by for example, multi-national trade agreements with corporate controlled investor-state resolution bodies. … For me, civil soceity clearly realizes how 'illegitimate' those publically financed economic bank bailouts are. … But TBTF banks are global institutions fighting to maintain hegemony and the maintainance of the status-quo which is ever needy, and always greedy. … It is inherent to 'the system'.
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But, i really just wanted to mention Gar Alperovitz. His writings, to me, convey the role that 'pain' has in gradually becoming the catalyst for the building of the 'critical mass' needed to bring about … if not global institutional change … maybe regional pragmatic transformative change as communities take back control. … I do believe in people, the spirit of co-operation, innovation, and regional communities reclaiming sustainability. … Hedge's thoughts and writing continually throws cold water as a wake-up call.
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Yes …, and as you may agree, … the battle is one of economies of scale -- … It is also about redefining the dominant narrative so that the moral, ethical, environmental, health of the eco-system, rejection of solely the fiduciary commitment, … etc., concern for the public good, …etc., … gets inserted into the policy making agenda. … ALEC has to go!
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I don't think that a more equitable horizontal hierarchy can co-exist with the imperialist, militaristic, financialized, neoliberal global vertical hierarchy … furthered by some unrepresentative national governments. … The more regional 'pain' that we see the more daunting and yet also related we see different pluralist struggles. … I guess the question here is, how large can regional civil society friendly communities/regions become before the represent a threat to rule from the stratosphere. …
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So, to come back to your comment, I also am very concerned the disaster capitalism's monsters are getting ready for profit from the fire sale -- … phrase
Banger July 20, 2013 at 1:40 pm

Personally, I don't think so. The hard right today has a strong and growing part that is against war, for civil liberties and sees our own government as the enemy. I believe they are far in advance of what is left of the left and offer the only avenue for change at this time. The government fears an armed and motivated public. They certainly try to manipulate the right by trying to induce racial hatred and all that but I don't think it is working so well anymore. The far right in this country is not fascist but libertarian–though there is a real fascist right I believe it is more a construction created by billionaires that, without considerable funding, would collapse.
Jim July 20, 2013 at 2:19 pm

Great point…I'm seeing that too here in flyover country. There have recently been publicly displayed banners supporting the 4th amendment, which may explain why some Republican politicians have actually been skeptical of Obama's position on surveillance. I think many here are finally getting that social issues are just a way to distract people from the corporate hegemony built in Washington.

Personally, I've been monitoring what I call the "Bullet Price Index". A couple of acquaintances of mine are avid gun collectors, and when I get a chance to speak with them, I always ask what the price of ammunition is, not at Wal-Mart, but amongst themselves in underground transactions. A typical .22-caliber round is what I ask about. About a year ago, the price was around 80 cents. The last quote I received, in June, is about $1.80 to $2.

Feel free to debate the implication of this, but I think this creates an opposing argument to the "frustrated individual" theory in this post. Anger is more widespread than even NC readers might think, and creates a risk that the possible results of this may neither be social-issue friendly, nor big-corporation friendlly…just another data point to throw into the mix.
Banger July 20, 2013 at 2:33 pm

Yes, I think if you live in the South as I do you see a lot of interesting developments particularly among the young who see the influence of the government as toxic. I had an interesting talk with someone not too long ago who came from Kentucky who told of her community being destroyed by Social Security disability checks and crooked doctors writing pain-killer prescriptions. She was looking for a way of just dropping out of society she was so disgusted.
The Rage July 21, 2013 at 1:04 am

Don't agree with this at all. The "right" are just goons global capitalists want to use to abolish the bougeois states and turn all law to the capitalists.

fwiw, it ain't 'social security' checks that are doing anything, stop issuing them, the price would just go down and drugs would still be flowing.
Banger July 21, 2013 at 7:00 pm

Some, particularly the growing movement of pro-gun, anti-corporate, pro-libertarian, anti-globalist, anti-chemicals in your food are beginning to coalesce–I see it in young people in the fly-over country. That's where the action is.
Lambert Strether July 20, 2013 at 5:04 pm

I like that index.
Dave July 20, 2013 at 9:19 pm

The armed far right has a large number of religious zealots. If there ever is an armed rebellion, religion will be a major factor. The wars against the Muslims have been a significant issue. Many have been to Iraq and Afghanistan and actually consider those campaigns to be a Christian crusade. Many active duty officers certainly do. Coups have occurred in other countries when similar wars have been "lost". So if there is a revolution, it's possible that it may be a military coup.
Lambert Strether July 20, 2013 at 11:28 pm

Yes, and the Christianist loons at the Air Force Academy controlling some nukes. Happy thought!
Banger July 21, 2013 at 1:32 am

My own experience is that the people who are into guns aren't necessarily religious–they use religion as a frame of reference but aren't that dedicated to it. I think they are more suspicious of the the political order and think civil society is disintegrating.
Pogonip July 20, 2013 at 9:50 am

Americans will demand change when their vehicles are taken away, or their ability to drive those vehicles whenever and wherever they please (curfews, $15/gallon gas). Not before then.
John July 21, 2013 at 8:54 pm

No, not until the cable and the electricity are turned off.

Then fantasy world America is over and survival America will begin.
F. Beard July 20, 2013 at 10:14 am

Here, Hedges laments the lack of an effective left, and blames its death on the "inability to articulate a viable socialism". Yves Smith

The Left speaks of sharing and equity but have never, to my knowledge, been against central banking which promotes usury and debt.
Inverness July 20, 2013 at 10:56 am

His discussion of socialism was vague. He seemed to suggest social democracy as the solution? Then just say it. There is such a lack of willingness to discuss concrete plans, with the exception of people like Richard Wolff, who has shared how worker cooperatives can be quite successful.

Of course, the social democratic state was preserved as an alternative to communism in Europe. Since "there is no alternative" to crony capitalism, the social democratic state is in pretty lousy shape in Europe, especially for those in the EU, although even Sweden has been privatizing its public schools (!) How viable is that model? It's better than the virus that's spreading throughout North American and Europe now, although there will always be some inequality under social democracy, albeit significantly less.
Inverness July 20, 2013 at 10:37 am

Agreeing with Yves' misdiagnosis of Obama, oddly referred to as merely "mediocre" by Mr. Hedges. Bush is venal, and Obama is just average? No, Obama is brilliant, because who saw it coming? The same man who wrote so eloquently about black male suffering in Chicago in his memoirs, could be so indifferent to children in Pakistan and Afghanistan? Who thought such a nuanced thinker could be such a brute, and thug? There you go.

He's a new breed, one of Morris Berman's hollow men with no moral compass and reminds me of another highly accomplished "progressive" with all the right academic credentials, Ms. Samantha Powers, who also proves to have a similar shaky moral compass. Now, she's totally cool with Israeli atrocities! Who saw that coming? But if it gets you ahead, why not? She's moving in high places, with the right books behind her (she has "proven" she cares about humanity), yet the monstrous capacity to work for this administration, and everything that entails (legitimizing mass murder and torture as foreign and domestic policy).

These people are so much scarier than Bush. What's that line from the Usual Suspects? The greatest trick the devil played was convincing the world he didn't exist. Obama and his ilk are real-time, real world shape-shifters.

For Morris Berman's talk: http://www.youtube.com/watch?v=70buY9TZ7bo
Patricia July 20, 2013 at 12:30 pm

Berman analysis is precise, but I am realllyyyy tired of intellectuals soaking their analysis of the US public in a wretched judgmentalism that rivals any Calvinist. It emerges from a deep sense of superiority. And anyone who thinks US public is too stupid to get that is too stupid themselves.

Thus the first question that Berman fields (24:50) is from someone bemoaning the failure of democracy and wondering about a benevolent dictator (via Plato, of course, right?). And Berman answers, among other things: "…de Tocqueville mentioned that democracy can only work if the population is fairly intelligent and we don't have that."

The next questioner tries to address this, asking about "A General Theory of Love" (Thomas Lewis ed) from which Berman quoted: "A good deal of modern American culture is an extended experiment in the effects of depriving people of what they crave most."

Berman says, further, "In other words, what we are channeled into by this system is substitute satisfaction. Because human beings want is what they've always wanted: community, friendship, sex, interesting things to think about, safety…And what this system does is it takes those things away and says, 'here, here's a cell phone…here's television'. It gives you stuff that basically is crap and it says, "You'll be happy with it" and generally people aren't, on some level. And that's part of the crisis, really."

This isn't part of the issue, it is at center. What underlies community, friendship, sex, etc, is the need to be to be loved and to believe that one's life is meaningful. When these things are methodically stripped from humans over decades (over generations) by a culture ruled by big business' bottom line of maximum profit, they will take the allowed substitutes, and they become defeated. Of course it follows that they will also become stupider. How could they not? They suffer malnutrition.

Stupidity is not the problem but a symptom. No wonder the working class remains alienated from the remaining handful of intellectuals. No wonder the liberal educated class never cared all the much about labor unions. And, FWIW, the working classes include all groups of color, because that is where they also predominantly reside.

Failure by superiority. Talk about stupid!
Banger July 20, 2013 at 1:51 pm

Terrific comment!!!! I agree with you on Berman, someone who does have the some of the best analysis around, certainly, for me Hedges and Berman, who are friends, should be at the center of any discussion on culture and politics. But Berman's demonization of U.S. culture comes from his own sense of alienation from the rest of us not his analysis, in my view.

We need all the things you say and we are malnourished on a psychic level. I've made the argument that we live in a new age of magicians. I maintain that Americans have been victim of a carefully calculated and engineered mind-control system. How and why this happened has been well-documented but isn't generally known. Both Hedges and Berman touch on it but they miss the power of the magic. By magic I mean both traditional stage magic and careful manipulation of the subconscious. Nearly everyone I talk to that is reasonably intelligent categorically denies that they are influenced by advertising. Well consciously, most people reject advertising claims–but unconsciously, if it's done right their subconscious accepts it and waits for the opportunity to express that acceptance. Much of our problem lies in our refusal, despite over a century of theorizing and research that most of our motivations come from the unconscious and this is most true in American intellectual culture. If you don't understand the overwhelming force of unconscious desires both individual and collective you cannot possibly understand contemporary society in any way–you would just be blindly throwing darts or coming to Berman's conclusions that we are just stupid and, eventually, to the conclusion that human beings are base creatures. My experience is that human beings are splendid beautiful creatures and this gap between beauty that I see inside people and the reality of their sad state has always struck me and pained me almost beyond belief. It is like seeing people being flogged and tortured from the inside–no wonder so many people are in pain physically and emotionally!!
Inverness July 20, 2013 at 2:39 pm

Yes - those propagandists are the ultimate wizards behind the curtain, aren't they?

It's true that if we dismiss most Americans as unintelligent, we might fall victim to a kind of snobbery that alienates the very people with whom we need to build solidarity. I also agree that we shouldn't underestimate the well-oiled machine started by Bernays (Adam Curtis does a fine job of establishing this timeline).

Frankly, when I hear that Germans, Canadians, and British people aren't freaking out in massive numbers over the Snowden allegations, nor storming the American embassy, I start to realize that more and more people have been seduced and lulled by sophisticated lies, not only Americans.
Banger July 20, 2013 at 2:45 pm

Europe may have changed more than the U.S.–the dynamic there is fascinating. I see less hope there than here.
OIFVet July 20, 2013 at 4:21 pm

I disagree. It is true that Europe has changed more, but what is still true IMO is that unlike us in the US they don't have to deal with the chimera of the "American Dream" and its attendant belief in individualism over society. Class conscience there is still strong unlike here in the US where, as Chris Rogers has correctly noted, we act as though there are no class divisions. Never underestimate the capacity of the European masses to make important heads roll, figuratively and literally.
Banger July 20, 2013 at 4:34 pm

You maybe right there. But my instinct is, no offense to Europeans, that European society strikes me as being as even more confused than Americans by contemporary society. I agree that Europeans have more communitarian values one hopes that young people will find a way to move things in a more radical direction.
OIFVet July 20, 2013 at 5:19 pm

I am not sure precisely what you meant by "contemporary society" but I will admit that you may have a point, though from my experience it may only apply to some parts of Eastern Europe. I was born in one of the former "communist bloc" countries (one which is currently racked by protests), and what strikes me is the reactionary venom against anything perceived as "left", never mind that most people seem to have trouble defining "left" and "right" and never mind that it was the supposed "socialists" who imposed flat taxation. So we have the paradox of protests for social justice and complete public resistance to social spending or anything with the word "social" in it. Though it is due in part to the well earned distrust in the corrupt ruling elites, your point about the propaganda used to control, blunt, and misdirect the anger also applies. But this is Eastern Europe so I wouldn't use it to generalize about the rest of the continent. In my experiences and observations, Southern Europeans and the French are in no way confused about what is going on; the problem there as I see it is that the populace has yet to find an effective way to overcome the loss of sovereignty which has come with the rise of the EU and the financial control of international institutions like the "troika". And witness the explosive bitterness in the UK which manifested itself after Thatcher's death: the people didn't seem to have trouble identifying the source of their issues and remembered only too well how this new economic order was imposed upon them.

Perhaps I am biased by my euro origins, but I truly see Americans as far more compliant and easy to control. The myth of the "American Dream" I already mentioned. The myth of the "American Exceptionalism" is where I see the tool used to control the American people: we are exceptional so we must protect that at all costs, including sacrificing treasure to pursue our imperial interests abroad and sacrificing essential constitutionally guaranteed freedoms at home to "protect" us from "evildoers". I only wish I knew who would protect us from our "protectors"…
Moneta July 20, 2013 at 10:24 pm

One important issue with Europe is its dependency on banking and the US. They can not deforest and energy is limited. So they really have to limit their materialism, something they have not managed very well over the last couple of decades.

If they really want to keep their material way of life, they will have to be extremely productive… hard to see with their ageing population.

Once again, materialism is at the core.
Banger July 21, 2013 at 1:38 am

Sorry, by "contemporary society" I mean the modern social contract that devalues family and community and encourages atomism, i.e., people live without reference to traditional values–in all sections of Europe these ties have been more important than in the States and therefore, in my view, the trauma may be greater.

As for the American Dream and all that, I think that is changing–the youth, increasingly, don't believe in it.
Moneta July 20, 2013 at 10:16 pm

One morning, in my mid-20s, while I was pulling up my 3rd pair of stockings in 5 minutes, I had an epiphany. I realized that I was one of the brainwashed by culture… why do we women wear such wasteful an uncomfortable accessories?

Every time I think I am so "independent or special", I remember this incident and laugh at my hubris.
Dan H July 21, 2013 at 1:23 am

I was sure you were male, and would have gauged my ability to make that call as rock solid…I look out for your handle, have a well formed conception of your outlook etc…at least I thought I did. Your moment of self introspection has caused one of my own. Thank you.
Moneta July 21, 2013 at 7:49 am

LOL! I majored in math-economics and work in finance. I have spent most of my life in men centric circles… I'm here because in real life I'm surrounded by people who have no interest in the subjects I find captivating and the top 20%, most of which are deluded and drive me nuts!

I guess I have been forced to be an actress for 20 years, no awards lined up though…
F. Beard July 21, 2013 at 4:33 pm

Gee wiz, gal!

I'll not be able to get so mad at you now.

But I sure disliked you as a male!
Klassy! July 20, 2013 at 4:11 pm

Yes, excellent comment.
Lambert Strether July 20, 2013 at 5:09 pm

"The other guy is stupid" is a very well-worn trope among Obots and Democrats generally. Every so often The Daily Howler does a Maddow takedown, which should dispel any notion that either legacy party has a monopoly on stupid.
OIFVet July 20, 2013 at 3:13 pm

"who saw it coming?" Adolph Reed did, as far back as the mid-90's:

"In Chicago, for instance, we've gotten a foretaste of the new breed of foundation-hatched black communitarian voices; one of them, a smooth Harvard lawyer with impeccable do-good credentials and vacuous-to-repressive neoliberal politics, has won a state senate seat on a base mainly in the liberal foundation and development worlds. His fundamentally bootstrap line was softened by a patina of the rhetoric of
authentic community, talk about meeting in kitchens, small-scale solutions to social problems, and the predictable elevation of process over program - the point where identity politics converges with old-fashioned middle-class reform in favoring form over substance. I suspect that his ilk is the wave of the future in U.S. black politics,
as in Haiti and wherever else the International Monetary Fund has sway. So far the black activist response hasn't been up to the challenge. We have to do better."

"The Curse of Community," Village Voice, January 16, 1996
Banger July 21, 2013 at 1:40 am

Great, great find–kudos to you!
indianaboy July 20, 2013 at 11:56 am

The closer you were to the Soviet Union, the more meaningful socialism your society enjoyed. Scandinavia > UK > USA

The key to upper class concessions is a real fear on the part of the upper class that without compromise they risk revolution. Working class revolutions are usually only possible if they are supported by an external superpower: the USSR in the the 20th century played this role for the West.

Today, interestingly enough, the US is providing this same benefit to the working masses of China. As someone who frequently travels to the PRC and closely watches the party-state it is clear that they're continuing policies of raising the minimum wage and extending health insurance, and subsidized education are being motivated in part, by a real fear that without these concessions, the lower classes will revolt and demand democratic freedoms, inspired in no small part by the (actually inaccurate) perception that the US is both a democracy and a superpower (in PPP terms the PRC is a much, much larger economy; the US is being propped up only by its overvalued currency)

The lower and middle classes in the PRC will sorely miss the US when it is gone. We may be entering into a new conservative period akin to 1815-1848 Europe when a concert of authoritarian monarchies kept a firm hand over the restive European lower classes.
Chris Rogers July 20, 2013 at 1:28 pm

@indianboy,

No, no, no.

Your analysis is wrong to say the least, particularly with regards the development of more socially democratically orientated states in Western Europe.

I don't wish to belittle your analysis, but by focusing on post 1917 developments in Europe after the Communist seizure of power – Russia after all was a democracy in 1917 for a few months – is wrong.

First and foremost, you need to acquaint yourself more with German History after unification in 1871 following the Franco-Prussian War and consequent Paris uprising and the Commune – the first true elements of a modern welfare state, which is now associated with social democratic nations, were actually sown by Bismarck, and wether we like it or not, Germany under Bismarck was a functioning democracy despite its three tier voting system that favoured the ruling elite – remember in the 1912 German elections the SPD had the largest share of the vote and were a formidable presence in the Reichstag – so fear of the Soviet Union had little to do with it in Western Europe.

As an illustration, the UK suffered a pretty severe recession from the early 1870's until the 1890's, welfare provision was limited to say the least – we had the Poorhouse/Workhouse and a philosophy of its the poor's fault they are poor – not the states – a wonderful attitude if you are the sole Superpower, not so good when you had the French, Germans and USA biting at your heels – now, if you look at international relations in Europe during the timeline 1871-1914, there is an emerging trend, not only a growth in the power of the working class, but the development of an alliance system that ultimately led to WWI – further, and with regards the development of a welfare state in the UK, it was the Boar War and UK's inability to field a strong and healthy army that resulted in the post 1905 Liberal Government reforms, and, the requirement for a large standing army to deploy in France as a result of the Duel Entente – until that requirement, which needed strong healthy cannon fodder, the authorities could not give a toss – a similar effect rippled over much of Europe – not so Tsarist Russia.

So, one of the reasons for the development of a welfare state in Western Europe, was not so much the demands of the Working Class, but the huge demands of fielding massive armies when the populations were far smaller than today.

Hence, it was actually the struggle for supremacy in Europe after German reunification that resulted in what we'd term social democratic states – indeed, such was the dire poverty in the Scandinavia states prior to WWI that emigration to the New World was a major problem.

Hope this illuminates a little?
Banger July 20, 2013 at 2:03 pm

I think both of you are right so some degree but I mostly agree with you. Nation states, from their inception, let's say with 17th century France had as their goal the enrichment and prosperity of society. Yes, the royals got caught up in wasteful stupid wars but their non-war policies tended to favor having a prosperous country whether just to have revenue or not–it was generally accepted that the privileged should take care of their dominions.

This caring about their subjects was also a factor in the early history of the U.S. Lasch in his great work Revolt of the Elites points out that oligarchs in small towns and cities often competed with each other in buiding libraries, beautiful parks and fine schools for the populations under their control until the post-Civil War era gradually changed all that. The movie It's a Wonderful Life is an example of the old noblesse oblige that was present in smaller communities as late as the 1930s and 40s.

Our own system is a result of the fact that authority began to be unstable and up for grabs so that there was a competitive advantage to be immoral, selfish and ruthless. So the George Bailey's were replaced by the Mr. Potters and the those were replaced by Mr. Potters sons with MBAs.

As for the Chinese, their culture has consistently pointed themselves in structuring their society with central authorities motivated by what is best for the society as a whole not out of fear of the peasants but out of logic. That is why their society of guaranteeing that a certain class maintains power and that class be very limited so that while dynastic struggles are present there is no direct need to ruthlessly repress the people as a whole because those people are quite happy to be well-ruled. Good governance, not political freedom, is how people prefer things. Americans too would be happy if they had good governance without political freedom–sadly we have neither which is why we are probably headed for trouble.
mcgee July 20, 2013 at 12:05 pm

Change is the only constant with the shape of change being the great mystery. Society has to offer a standard course for success to keep the majority on similar paths that maintains the status quo. The financial crisis was too large a shift towards the oligarchs/plutocrats and left many without a clear path forward. The wild cards are the surveillance state, militarized police, and constatnt propaganda intermixed in the steady drip of infotainment being capable of the level of control necessary as the number of disaffected grows. I lean towards thinking that the surveillance state is a real game changer and has forever upset the familiar historical cycle of government.

The built in safety valves to bleed off societal stress have been reinforced by active social engineering and the very real threat of violence by the state. Conditions are going to need to get much worse before change happens on the ground in America. The shape of the future isn't one conducive to individual rights and an egalitarian society. Far from it in fact.

Current population growth and enrironmental degradation will eventually trump the contrivances of modern society but as is standard throughout history, it will be the 99% that will suffer the harshest consequences. Mother nature is one helluva of a clean up batter when the bases are loaded with the excesses of humanity.
sharonsj July 20, 2013 at 12:36 pm

I watched the first Obama-Obama debate and gave up after 15 minutes. I was talking to a reporter friend, who commiserated that she had to watch the entire thing. I explained that after 15 mintues neither man had said anything I didn't already know and I wasn't going to waste any more of my time. She said the same thing about the entire debate and added that in fact she had decided to become a Socialist. I started laughing because I'd come to the same conclusion after a lot less time.

This country desperately needs a real revolution…any kind will do. The level of anger in the country really is alarming and I'd hoped that we'd see more large protests. I wonder if people are just exhausted or if they've given up? Chris, I don't think you can blame a weakened left for the lack of people in the streets. But the generations that used to march are getting to old to do it again. We need the younger generations to wake up and get out there.
Jim Haywood July 20, 2013 at 1:02 pm

'I watched the first Obama-Obama debate and gave up after 15 minutes.'

Hell, I don't blame you.

What was the preening narcissist doing - talking to himself in the mirror?

Likely the backward reflection of the teleprompter confused him, never having learned Leonardo's skill of reverse writing.
Banger July 20, 2013 at 2:06 pm

Very LOL–cool comment. I agree, almost any change is good. Sadly the left is indeed dead for reasons I've given below and other Chris' reasons as well. But that change is likely to come from the right not the left. In fact, I believe the new left will come out of the right somehow by magic perhaps.
Dave July 20, 2013 at 9:24 pm

They would just sit around and play games on their smart phones!
barrisj July 20, 2013 at 12:38 pm

The late Tony Judt had gone over some of the same ground in his book, "Ill Fares The Land" – albeit from a "Western" perspective (Europe, North America) – in lamenting the fecklessness of contemporary Social democracy in the face of a radical challenge from the Right. Moreover, he asserts that the best a progressive agenda can hope for is, "…[I]ncremental improvements upon unsatisfactory circumstances…", an exceedingly modest and indeed a near-defeatist posture. For Judt as well has all but conceded Advantage Neo-liberalism, and also despairs of any sort of "bottom-up" revolt against abusive capitalism and its enablers and protectors in government.
In fact, "It is the Right that has inherited the ambitious modernist urge to destroy and innovate in the name of a universal project. From the war in Iraq through the unrequited desire to dismantle public education and health services, to the decades-long project of financial deregulation, the political Right – from Thatcher and Reagan to Bush and Blair – has abondoned the association of political conservatism with social moderation which served it so well from Disraeli to Heath, from Theodore Roosevelt to Nelson Rockefeller".
Were Judt alive today, he certainly would have included Obama – with his unprecedented expansion of state surveillance, connivance with the financial overlords, suppression of dissent and transparency in government, and continuation of a militaristic foreign policy – as an avatar of the neoliberal or neofascist project. Both political parties, the courts, corporate and financial interests, "law enforcement", all are united in preserving or extending this "project", and in fact consolidate their stranglehold on the people in the aftermath of each inevitable crisis that continues to befall late-capitalism. How, one asks, can a severe pessimistic reading of any chance of meaningful reform be anything other than a realistic assessment of where the future lies.
Banger July 20, 2013 at 1:00 pm

The left in the U.S. has, traditionally, three sources of "energy": (1)religious/spiritual/ethical people; (2) intellectuals and artists; (3) the labor movement. These forces have been divided and may never come together again in large part due to what was termed identity/ethnic politics. The sixties ended up shattering the alliances that were already fraying–we can't blame any one group of movement other than say that the left was, by the seventies pretty much shattered.

All the contradictory forces were in conflict of course but the problem, at the time, was that the central figures that offered a clear and realistic alternative vision were shot-down like mad dogs.

My critique, unlike Hedges, is that the big mistake was to accept, without criticism the official stories on the JFK, RFK and MLK assassinations despite overwhelming evidence to the contrary. There are thousands of researchers that have meticulously deconstructed the official narrative on those assassinations but almost no one on the left has the courage to even look at the evidence–usually they cite the famous Richard J. Hofstadter essay of 1964 "The Paranoid Style in American Politics." Of course Hofstadter made good points and so on but basically it was, as an essay, a typical work of sophistry–certainly conspiracy theories abound about many things most of them based on rumor and fantasy by radically misinformed people. But the 60s assassination "conspiracy theorists" had mountains of evidence and even more now that would, at the very least, be an invitation to dialogue. Instead the liberal and radical left have both categorically rejected the direct evidence in those cases in favor of the official narrative. This is why I consider the American left the "Stasi left."

To nearly all prominent leftists in this country official government narrative on the assassinations (and nothing else) was a priori as true as the fact the Moon circles the earth. Any contrary opinion cannot be discussed–if you bring the matter up you are clearly insane and belong on medication or in a mental hospital.

Worse, the left, along with the mainstream, refuse to believe political conspiracies exist in the Unites States. Other countries and other eras, of course had conspiracies as anyone who has read the classical historians can attest but when the U.S. was born conspiracy only existed in a box called "crime" and the political elite are incapable of assassinating rivals or breaking the law to fix elections, plant false stories in the press (except very rarely–in fact the left ignores much of what Frank Church managed to expose about the CIA).

In my view the intellectual left, by ignoring the assassinations of the 60s, literally has put an end to the rationality and dialectic as a legitimate mode of inquiry. Is it any surprise that so many Americans reject science and rationality? Of course when it's done on the right everyone laughs and I can only think "hypocrites." At least right-wingers usually have the excuse of lacking the tools of analysis.

The most obvious evidence I know because it is quick to describe and takes a very simple Google search is to cite the fact that Thomas Noguchi's Cornoner's Report was never entered into evidence in the Sirhan's trial. Do you get that? Why? Because it showed that RFK, who would have been the next POTUS, was killed by a gun shot at point blank range from the back and pointing upwards. That's just for starters–the official case is a lie from start to finish as are all the other cases and I won't waste my breath beyond that except to add that sound analysis clearly shows that more than nine shots were fired–you'll have to find for yourself what that means.

Once you start looking into these matters you will be stunned by how obviously wrong the narrative is. It's not a matter of careful detective work it is staring you right in the face. My own analysis is that all the major assassinations were hits by professional killers and all the assassinations were covered up by all the agencies involved. This is where, of course, the critics of conspiracies balk and say "too many people were involved", again, I have a counter argument but I shouldn't have to argue that–one starts from evidence and then works towards a theory and you cannot discount a theory before looking at the evidence and the American left along with the security services and their stooges in the press have been signing from the same song-book. My experience of being around power at various levels tells me that these people don't f!ck around–if you're in the way they don't blink to kill you or even millions to get what they want and this has been true throughout history.

So there's my rant–my guess is that none of you have the courage to address this if you accept the official narratives about the history of the past few decades–I've seldom, in any forum, been exposed to anyone willing to debate this issue other than dismiss me as conspiracy nut or kook or whatever which obviously means that I'm hallucinating Thomas Noguchi's Coroner's report because it can't possibly exist. This is the chief reason the left has failed in this country and will continue to fail until it decides to deconstruct the official narrative. Until then, I maintain that the only possibility of positive change comes from the right not the left.
Chris Rogers July 20, 2013 at 1:55 pm

I'm not one for conspiracy theories, and being British, perhaps I'm not the best person to get involved in the detail of your argument.

I can tell you this, under the UK judicial system, a mock trial was actually held with regards the person accused of slaying MLK for the UK's Channel 4, and the accused, based on all known evidence and forensics was deemed not guilty.

its also a fact the USA denies much of its own horrendous history and portrays itself purer than the white driven snow – a point Oliver Stone often makes in both his movies and documentaries.

In the UK, do not fear, conspiracies abound, its now a well known fact that elements within the UK security services in the mid 1970's wished to have an actual coup in the UK and depose a sitting Labour Prime Minister, one Harold Wilson, whom many considered was a Soviet stooge – Mr. Wilson being the British leader who told the US to stuff its Vietnam adventure up its arse – hence we were never involved in that war with you – if only that were true of one Tony Blair.

However, I do think your attacks on the left are a little unfair, in the UK at least, there has always been a lot of distrust between academics and leaders of the real working class, never mind other progressive movements that constituted the Labour Party.

to my mind, and understanding of US politics and history, there has never been a true working class party to represent the workers interests, indeed, the closest you got to this was the Wobblies, and look what Woodrow Wilson did to them.

Indeed, US history is replete in the states utter aberrance and detestation of populist working class movements, its the reason for the 1788/89 Constitutional Convention and creation of a Federal State, rather than the loose alliance or Confederate states that the anti-federalists desired – the anti-federalists being the real supporters of democracy and other rights, rather than that rag you now revere, namely the Constitution, which established a Federal Republic that favoured property and wealth over actual human and civil rights.
Banger July 20, 2013 at 2:15 pm

In the thirties and forties there was a fairly close connection between the intellectual left and the American labor movement that carried up until the McCarthy era and that is all a very interesting story too long to get into.

The UK situation is very different and always has been.

As for conspiracies–in the case of the RFK as I cited there can be no doubt–you either accept that the official story is wrong–the evidence is very obvious or you live in a fantasy world. There was a MLK trial in the U.S. The NYT reported the verdict: http://www.nytimes.com/1999/12/09/us/memphis-jury-sees-conspiracy-in-martin-luther-king-s-killing.html. Note that no mainstream media reporters sent reporters to the trial. No one commented for or against, as far as I know, on the merits of the evidence. Generally the story was ignored. That is, in my view, a conspiracy right there.

Again, no one ever answers my sort of allegation other than say that they don't believe in conspiracy theories or don't indulge in them as if it was a vice–you cannot understand history without it so then throw out Herodotus, Theucidities, Livy and all the rest of them and burn Machiavelli while we're at it.

But I enjoyed your comments and appreciated you non-insulting answer.
Chris Rogers July 20, 2013 at 3:19 pm

@banger,

Actually, the biggest conspiracy at the moment, at least here in Europe, is the lack of comprehensive media coverage concerning the anti-austerity protests in most of Southern Europe – no doubt, our masters learn from the experiences of the media and the Vietnam War, would prefer to with hold all news of protest from us.

As for differences between the UK and US, its the growing lack of difference that frightens me – our ruling elites being virtually identical, although the Uk's has always been more 'stupid' than its US counterparts.
psychohistorian July 20, 2013 at 5:38 pm

Hey Western Bloc country slaves! The ruling elites are not virtually identical, they are a global sect of plutocrats. They play nationalism off between their slave nation states as needed to divide and retain control.

Wake up and smell your enemy!
Andrew Watts July 20, 2013 at 6:37 pm

There's always been a deep relationship between the US/UK power elite. Even during the American revolution leading British opposition leaders like Charles Fox portrayed it as an English civil war. This attitude has always been offensive to the pretenses of American exceptionalism. Or to the average British subject. I believe the 4th of July is called "Go home Yankee!" day in Great Britain.

As for how stupid the American elite is, TARP was a complete rip-off of the British bailout plan. According to Hank Paulson, the US Treasury had a worst case scenario plan that was judged to be inferior within days of writing it.
Chris Rogers July 21, 2013 at 3:36 am

Andrew Sir,

I'm unsure on that one, yes in one respect the US War of Independence was an 'English Civil War' to all extents and purposes, however, many a historian is of the opinion that the last 'English Civil war' was the actual US Civil War itself, or, as it should more aptly be called, 'the War of Secession', and here the UK was highly supportive of the Southern cause, or State's Right's – its not one of my strong points as far as history or politics is concerned, and obviously, its regrettable that the debate of 'slavery' was very much tied in with the War itself – although not the main cause at its outset.

Indeed, I'd say the US Civil War was the eruption of violence between the 'anti-federalist' forces in the US and pro-Federal forces, and I for one have always sided with the Anti-Federalists, who cause was just, if regretfully tainted with the horror of slavery.

Anyway, that's my two cents worth here.
Andrew Watts July 21, 2013 at 7:00 am

That makes sense. I've always secretly harbored the opinion that the seeds of the United States' dissolution was sown by the English Civil War. The English people who came to the colonies during and after that time were just as divided by the conflict. With Roundheads settling primarily in New England, and Cavaliers immigrating to Virginia and the southern colonies. It helps explain the cultural and political differences between the Mason-Dixon line.

As for the future, America is quite advanced in undoing the Glorious Revolution. Many of the rights that were originally derived from it and enshrined into our Constitution have become a dead letter.
The Black Swan July 20, 2013 at 2:11 pm

But ignorance is such bliss. I spent a lot of time over the previous winter digging through the internet and have come to almost the same conclusion. Everything we've been taught in History class in school and everything taught by the media is purposefully designed to obfuscate the truth. Maybe it's not all outright lies, but when we get the truth, it's only the truth that TPTB wish us to know. Once you accept that everything you've ever known and believed is a lie, it becomes very easy to see the truth and understand much more of how our modern world works. But I've yet to meet (in person) anyone who was willing to challenge their false beliefs and start to look at the truth. It is a painful experience to confront reality and something most people are not prepared for and mostly uninterested in.
Banger July 20, 2013 at 2:41 pm

Exactly. It is very painful to experience this. How can you live in normal society and function and understand that most of what other people believe to be true is false. More and more people I know believe being interested in politics is a form of "escape" because it is meaningless–I think they have a point and I've tried to move away from it. But I'm haunted by it since my life has been spent in vicinity to Washington and the whole scene there until recently.

Well, for me it's not so hard because people I know don't think about public affairs other than when the media makes a big deal of something like the Zimmerman trial and that kind of thing but it's all quickly forgotten in a week and people go on to their private affairs. People are more interested in the TV shows they watch or see politics as comedy. My wife is, for example, utterly uninterested in public affairs (other than local) other than what she watches on Comedy Central–she isn't stupid she understands that the news is bullshit so she may as well laugh about it.

I think most people, deep down, really don't believe the narrative but they need some kind of intellectual framework and they look around and see nothing so they accept whatever they see. I suppose Comedy Central is better than CNN.
Yalt July 20, 2013 at 3:08 pm

One of the things I'm struggling to understand with this is what the fate of the Kennedys is supposed to have to do with the fate of American socialism. Is the idea that JFK was a leftist, knocked off by counterrevolutionaries, and the left's fatal error was to not understand this?

I supposed by contemporary American standards the Kennedys were, indeed, on the left. Of course, so was Nixon.

Workers trying to hitch a ride on the wagon of one or another faction of the ruling class seems to me to be a big part of the problem. Warping history so as to be able to do it retroactively doesn't seem likely to be part of the solution. It's not that I think you're wrong so much as I think it's completely irrelevant.
Massinissa July 20, 2013 at 3:41 pm

I agree with you in a sense.

I dont think the Kennedys would really have saved us or anything. That sort of thing is wishful thinking to me.

But how can we have faith in a political system, where those of the ruling class who buck the status quo in even the very smallest amounts, can get knocked off by even more influential sectors of the ruling class?

I think understanding that the kennedy's were assasinated in a conspiracy is more important than the influence the assasinations themselves created. The fact is not that it was the Kennedys who were assasinated, but that anyone was assassinated by the PotB at all. How can we have faith in the PotB or our 'democracy' when the elites pull this shit on eachother when they get out of line?
Banger July 20, 2013 at 3:53 pm

Whether you believe JFK was on the left or not is irrelevant. The fact he was killed in an illegal coup d'etat is a concern of everyone. He was a social democrat but a careful one. He was killed because he wanted to end the Cold War so the world could resume the movement toward egalitarian societies. The world would have been transformed.

Go back and read what RFK proposed–I was in the midst of all that at the time and followed events closely. MLK would have united all the left social movements that later dispersed because he may have been the most brilliant leader of his time.

Frankly, Americans just don't want to face what happened back then. I find this as yet another example of our collective insanity. If read the correspondence between JFK and Khrushchev you will be touched by the desire of both men to get out of the trap they found themselves in. If you just examine closely the Cuban Missile Crisis and what was said–you will realize that almost the entire U.S. military wanted a first-strike on the USSR. Their bloodthirsty evil almost got us all killed but for JFK and Khrushchev. Also in the mix were others including another great man Pope John XXIII.
Yalt July 20, 2013 at 3:55 pm

I, personally, think these conspiracy theories have been deliberately nurtured by the authorities to distract the masses from useful analysis of their own plight.

It's a conspiracy.
Banger July 21, 2013 at 1:43 am

So then you are just don't believe in evidence. You are saying that I made up the fact that the official story of the RFK assassination is correct despite the fact the coroner's reports says it's false. Stop hurling accusations around when you are not acquainted with the obvious facts.
Banger July 20, 2013 at 3:46 pm

JFK and RFK were opportunists as all politicians are but were both social democrats, clearly. MLK was a radical leftist and regarded as "the most dangerous man in America" by J. Edgar Hoover and, I believe, all the power-elite. JFK confronted the entire power-elite and lost. RFK was going to continue the job and MLK would have represented the social forces that would assure RFK would succeed.

JFK wanted to end the Cold War and that was the main reason he was killed. RFK would have ended the war and instituted social democracy beyond LBJ and in concert with MLK.

The left died in '68 not just from the assassination but continuing the denial of what happened.
Andrew Watts July 20, 2013 at 6:40 pm

Banger,

I don't buy that story. It was well-known at the time that the Kennedy family were aspiring social climbers. The Kennedy patriarch stood a good chance of being nominated as a presidential candidate for the Democratic Party. If it wasn't for his pro-Hitler views during his time as American ambassador in London he probably would've been. The fact that he was able to realize his ambitions through his progeny did not make them the natural leaders of the left-wing in American politics.

The Cold War was still in it's early formative years. Despite that one individual no matter how powerful, was not going to stand against the tide of history. This was a socio-economic and political struggle between aspiring global hegemons. That individuals like De Tocqueville foresaw well in advance. The cult of Kennedy resembles the Obamabots in too many disturbing ways. At some point you have to accept that the Democrats cannot possibly satisfy the grievances of every American radical/dissent group.
Banger July 21, 2013 at 1:48 am

Of course you don't buy the story because you are ignorant on the matter–you have not studied the issue because you are afraid to and you are in excellent company. No one wants to look at this stuff–your characterization of the Kennedy's is simple-minded and part of the propaganda of the center. Kennedy was clearly prepared to take concrete steps to end the Cold War–he wanted to blow up the CIA and he opposed all his generals who did want a nuclear war with the USSR because they felt they could destroy the USSR for good and believed that the U.S. would only lose 30 million people. That's a f!cking fact and there is much else you are afraid to look into.
Andrew Watts July 21, 2013 at 7:09 am

Banger, that hurts. It was only a week ago in the Snowden post that I mentioned how close we came to atomic warfare over the Stalin-Tito split based upon declassified documents. I am not ignorant of how crazy some of those old Cold Warriors were.

It was under the Kennedy administration that the top marginal tax rate got a tax cut. What sort of left winger would support that action? Neither Presidents Truman or Eisenhower consented to a tax cut for the very richest people in the country. As for your assertion regarding the CIA… Bay of Pigs. Eisenhower couldn't be fooled into such a moronic plan by the CIA Truman loathed the CIA so much he openly referred to it as the American Gestapo.

I can overlook the Kennedy brother's personal and political faults, but it seems extremely unlikely that they would accomplish either of the things you think they would've been or become in the future. Besides the whole not starting a nuclear war bit.
Banger July 21, 2013 at 1:08 pm

Look, Kennedy was a kind of fool–he was constantly fooled and manipulated by the powers that be and then got his head blown off–his instincts were good and his heart was, in my view, in the right place as many men of courage, however foolish, have their hearts in the right place. Compare his travails in WWII with the coward G. Bush senior or junior who was even worse.

I don't mean to insult you–I respect your thoughts expressed here always thoughtful and well written. But I get impatient with the following: that the assassination reflect a coup d'etat that makes the Civil War pale in comparison. These events are the single most important events to have happened in the history of the U.S. Maybe the Kennedies and MLK were a bunch of mad dogs who would ultimately endanger the world–I certainly can't be sure that they weren't. But it f!cking happened and these people who did these deeds, and the evidence is overwhelming that they did, stole our history from us. I can't possibly see how these events can be ignored. And I assert that no left-wing movement can even come close to having more than a slight effect on politics unless it confronts this reality. This may be one of the chief reasons I believe change can only happen from the right who tend to be more open to alternate visions.

If I'm wrong and the coroner's report on RFKs murder does not indicate that they got the wrong killer then, of course, I'm a deluded paranoiac. If what I say is true then everything in the mainstream narrative collapses like a house of cards.
Publius July 20, 2013 at 1:46 pm

I think we have to go back to Carlyle and Ruskin in England to grasp our present situation. Theory needs to be broomed into the dustbin. The question is a moral one. "Signs of the Times" and the Condition of England Question

O ye hypocrites, ye can discern the face of the sky;
But can ye not discern the signs of the times? - Matthew 16:3, King James Bible

In June 1829,the Edinburgh Review published Carlyle's "Signs of the Times," (text) in which he anticipates the Condition of England Question he raised a decade later in Chartism (1839) and Past and Present (1843). As G. B. Tennyson notes, "Carlyle more than any man before him perceived the changes being wrought by the Industrial Revolution" (XXVIII). He criticised vehemently the ethos of the Industrial Revolution, which, he believed, was destroying human individuality. He expressed his distrust of the spirit of the "mechanical age", which was manifested not only in the technical progress of English society but also in an overwhelming feeling of inanition: "The King has virtually abdicated; the Church is a widow, without jointure; public principle is gone; private honesty is going; society, in short, is in fact falling to pieces; and a time of unmixed evil is come on us" (33). The essay was aimed to draw the attention of the reading public to the spiritual price of social change, caused particularly by the frenetic industrialisation. In "Signs of the Times" Carlyle warned that the Industrial Revolution was turning people into mechanical automatons devoid of individuality and spirituality. For Carlyle, machine and mechanisation had double meaning: they meant literally new technical devices, but also metaphorically mechanistic thought that suppresses human freedom. Carlyle strongly criticised the mechanisation of the human spirit and indicated the high moral costs of industrial change.

Were we required to characterise this age of ours by any single epithet, we should be tempted to call it, not an Heroical, Devotional, Philosophical, or Moral Age, but, above all others, the Mechanical Age. It is the Age of Machinery, in every outward and inward sense of that word; the age which, with its whole undivided might, forwards, teaches and practises the great art of adapting means to ends. Nothing is now done directly, or by hand; all is by rule and calculated contrivance. [34]

In this sermon-like essay, Carlyle led a crusade against scientific materialism, Utilitarianism and the laissez-faire system. He believed that the freedom of the emerging mechanical society in England was a delusion, because it made workers into greater slaves than their ancient counterparts had been and mechanisation of society threatened the human ability to think and act creatively:

Men are grown mechanical in head and in heart, as well as in hand. They have lost faith in individual endeavour, and in natural force, of any kind. Not for internal perfection, but for external combinations and arrangements, for institutions, constitutions, for Mechanism of one sort or other, do they hope and struggle. Their whole efforts, attachments, opinions, turn on mechanism, and are of a mechanical character.
Brooklin Bridge July 20, 2013 at 1:48 pm

No matter how bleak things appear, the reality is probably much much worse.

The greed and corruption that we are discussing will play itself out, possibly with minor social upheavals and attempts to rectify things, and along with that "playing out of corruption" will be irreversible additions to C02 emissions and other climate change triggers that take us way way beyond the tipping point we have already recently crossed. Each degree of temperature rise means a new degree of unstoppable catastrophe. And while that will certainly bring governments down, and corruption along with it, it will do the same to civilizations.

The idea that if we just stop everything now, right now, we will avoid the existential threat is absurd. We are going full steam ahead with exploitation of the most lethal substances in earth by the most powerful unstoppable global force of corruption in recorded history. We are not going to stop the madness. We are the madness.

Sure we could stop it (if we were suddenly transformed, say, into angels). But short of something along those dubious lines, we won't stop it any more than we would stop the sea level rising with a tea spoon.

If we are lucky, humankind will essentially be made up of small nomadic groups of hunter gatherers within a hundred and fifty years (probably made up of the descendants of the 1% no matter how grotesquely unfair that seems). Keeping hold of technology seems iffy. I remember hearing that there is a point of critical mass, population wise, below which we probably go extinct. Either way it will be a blessing for the other species that manage to survive.
casino implosion July 20, 2013 at 1:49 pm

Does Chris Hedges deal with any actual people in the course of his activities?

We're about as close to a revolutionary uprising as we are to the orbit of Neptune.
Chris Rogers July 20, 2013 at 2:01 pm

Actually Hedges analysis is correct if we use history as a guidance, i.e,. sooner or later an inflection point will be reached and chaos will be unleashed – what will cause this is certainly unknown, but, and on the continuing trajectory the US is following, something will give – and I doubt very much, your so called 'middle class', once the funds run out, as they will given the unlimited greed of your masters, will like the concentration camps your post 9/11 governing officials have in mind for you.
Greg T July 20, 2013 at 4:54 pm

Agreed, Chris. Hedges actually knows quite a bit about the mood of the country. He is first and foremost, a reporter. His book Days of Destruction, Days of Revolt is based on his travels in some of the worst economic pockets in the country. If he says the US is a tinderbox, we should take him seriously.

I don't think he's as optimistic as Yves suggests. In Part 1, he says he's existentially optimistic but practically pessimistic. I think that means he is confident people will come to realize their condition and who is responsible for it, but changing it will be difficult. He does say in the interview that he's not naive enough to believe that 500 K people marching in Washington will immediately change anything, but it would be a necessary step.

Chris, I think you are correct. With each crisis, more and more people will become ' excess baggage '. Theres something about survival that tends to galvanize people to a purpose.
Lambert Strether July 20, 2013 at 7:47 pm

"Pessimism of the intelligence, optimism of the will." –Gramsci.
Mark Stevens July 20, 2013 at 1:49 pm

We have indeed become a culture that is a mixture of both Brave New World and 1984. One aspect of the current situation which is overlooked is the state of our physical health. I can not see a revolution led by people who are too fat to walk a few blocks. How much of the population is dependent on the government for medicaid and medicare? Many of them would be literally risking their lives if their source of medication and treatment were to be cut off. With 50 million food stamp recipients how many would starve without that assistance? I can not see those so dependent leading the charge on Capitol Hill. When the system collapses under its own weight and the population has started to decline there will be nothing to lose, so maybe then.
Massinissa July 20, 2013 at 3:44 pm

When the food stamps are cut, and medical care becomes less and less due to the effects of austerity, we may see uprising, at least of a small sort.

When people cannot survive, they get angry.

But right now they CAN survive, albeit pitifully. So there is no revolution at the moment.

People will not revolt until they are forced by their desperation to do so.
Inverness July 20, 2013 at 6:14 pm

Massinissa, so many people are absolutely not surviving right now. There are American counties that lack running water, tent cities propped up for the newly homeless, whose numbers continue to rise, not to mention suicides.

Many of Americans have already reached that breaking point. Maybe we need more of the formerly middle class to join their ranks? I don't know. But the situation has already grown so severe…

http://www.nytimes.com/2012/11/05/health/us-suicide-rate-rose-during-recession-study-finds.html?_r=0

http://www.theroot.com/views/not-all-americans-have-enough-access-water
RanDomino July 21, 2013 at 1:11 am

Anger does not lead to revolution. Organization does.
Tokai Tuna July 20, 2013 at 1:51 pm

"I suspect we'll see more and more random violence as frustrated individuals lash out." That's cynical, but it will be very much welcomed as it potentiates opportunity through crisis.
Business has long succeeded profitably by designing things to fail, or engineering failure or setting things up to fail.
Controlling information, wind shield wipers or human capital, destroying things to save them. It's worth reminding people that frustration or anger can be helpful and doesn't necessarily mean violence or lashing out.
optimader July 20, 2013 at 2:07 pm

For Cris Hedges, wherever he may be lamenting today

http://www.youtube.com/watch?v=AdYaTa_lOf4&list=TLqNmIWc-WsxE
Teddy has an Operation
allcoppedout July 20, 2013 at 2:59 pm

Socialist alternatives have been articulated for a long time and most primitive societies are more egalitarian than our clown fest. The communism of the free table was articulated in a slave economy that was sexist. The China of Mao and the USSR of Stalin were disasters. One might even put forward Thatcher as the most Gramscian of our politicians, destroying the hegemony of communities and their representation (unions).

Philosophy has long had a radical theory,which we might put as Wittgenstein noticing the long history of the subject had produced a hill of beans and language was worth looking at as the cause and re-grouping it a potential solution, complicated by the solution being expressed in language. There is a shed load of critique across the social sciences and our literature, even on how dominant ideologies arise and are maintained. Science, which is apolitical in teaching and practice, produces liberals in massive preponderance, with a tiny GOP/Tory rump – we are not, in the main, products of Critical Theory classes or the excellent line of Mexico. Of course, science as it reaches the public is not what we go through in learning it, but the dunnage on the next diet-fad as Banger tells us.

I dislike blaming the current squalor on the US – we need to identify the real shadows. We know who they are – the people with massive, hoarded wealth across the planet. Detroit is interesting here because the bankruptcy threatens another form of what we thought hoarded wealth, that expected to pay pensions. This money is probably long gone across the US cities and down a Ponzi drain. I note a judge who co-authored a book on Ponzi unwinding is in charge in Detroit. This could be the tipping point that tells us as a society that our politicians have been engaged in a vast cover-up (or so dumb the could not read the writing on the wall) – I was teaching this as far back as 1992 but may as well have been walking the streets in 'the end of the world is nigh' sandwich-boards. Cops could retire here on two-thirds pay back then.

Detroit, Gary (Indiana), Birmingham (Alabama) … might just be the touch-paper if substantial numbers of middle-class people find their income gone. We have similar situations in the UK, as does much of the EU. Not long ago we were being told pension pots were brimming full!

The key thing we don't grok is that most people don't learn very much and are very easily swayed by cultural rot – look how many cop and secret service hero shows hinge on will they won't they sex and a sub-text of personal revenge, heroes nice to children, animals (NCIS is the utter classic) and the notion we the public will do what is right when asked. Young South African boys queue up for ritual humiliation to become 'men' (whilst losing 'manhood' in botched circumcision) – I see little difference in Western cool.

Young populations are much more likely to rebel. Analysing internal conflicts in 175 nations during the second half of the 20th century, Urdal found that "with every percentage point increase in the youth population, relative to the [total] adult population, the risk of conflict increases by more than 4 per cent." When young adults exceed 35 per cent of all adults, the risk is 150 per cent higher (International Studies Quarterly, vol 50, p 607). The relationship persists, he says, even when factors such as the state of national economic development, democracy and conflict history are filtered out. In a study for the non-governmental organisation Population Action International in 2003, Richard Cincotta, a researcher who currently advises the US government's National Intelligence Council on demography, found that countries in which more than 40 per cent of the adult population is aged between 15 and 29 are more than twice as likely as older societies to experience some form of civil conflict.

We may not be on the streets because we have become pathetic/apathetic with age. Perhaps we oldies are to blame and should make the trip to 'Lemming Hill' (though lemmings don't actually commit suicide), as a gesture to the future of our species? Bees leave the hive when ill in a form of altruism.

History tells us any kind of revolution will not do. Why should we have more success if we take to the streets than the Egyptians or most of Eastern Europe? Do we feel racial superiority? The older academics when I was a student almost all supported massive change as we want now. We got human resource management instead (an evil).

The question has always been how we get things done after the revolution and hanging bankers has become a bore. Money needs to go in its current form as thirty pieces of silver, or whatever the globally arbitraged level that has sunk to. We hardly discuss the needed attitude changes and the new constitution
Chris Rogers July 20, 2013 at 3:29 pm

Hate to break the news to you, but any change at all, if its to come out of the UK will be driven by the grey haired brigade, i.e., those most likely to vote, and not the youth you allude to.

Given the ConDem government in the UK now has its mindset on another 5 years of austerity after 2015 and proposes attacking the benefits of pensioners as it decimates social welfare – somehow, i can't see pensioners buying into this crap.

Don't expect any change from Ed Miliband's NewNuLabour Party – an absolute disgrace and I certainly will not be voting for them – Green and Plaid Cymru all the way for me from now on.
Lambert Strether July 20, 2013 at 5:20 pm

FWIW, I think it has to be the diamond geezers plus the youth. This picture from Moral Mondays encourages me:

Note the younger person also being arrested in the background.

I heard a similar anecdote locally: Three geezers like me and two young women stopping an oil tank car train.

* * *

All defensive, though. Stopping stuff, not starting it. So, back to TINA. Maybe Alperowitz is pointing to the way forward to a real alternative. I'm not sure.
Banger July 21, 2013 at 12:53 pm

Really nice analysis. Hope you continue in this vein in the future. As for the youth contingent you are right of course and that may be the reason we are all standing around waiting for something to happen.

However, we can take courage on one central fact: we live in a world that is so radically different that the old criteria just no longer count–something deeper is at work here and we haven't yet been able to grasp it.
LillithMc July 20, 2013 at 3:13 pm

The tinderbox was last week with the Zimmerman trial. For the left it was a repeat of the south before the Civil Rights movement. GOP/NRA/ALEC laws passed in all the red states included the Florida version of "stand your ground". The right began an immediate portrayal of Martin as a thug who deserved what he got. Zimmerman was sent home with his gun for 40 days until civil unrest demanded a trial. The right claimed "stand your ground" was not part of the trial although the juror said instructions were from that law. It could be the tinderbox will be something like the Martin trial, the massacre in Newtown or some other event that incites crowds and brings out the armed militia of Homeland Security. Occupy was clearly under Homeland Security attention just as the Civil Rights movement was covered by the FBI with local police alerted to any protest in order to prepare a bloody response. A map of all the red states shows where the new laws are in effect. They involve voter suppression, extreme gerrymanders, restrictions of women's health care rights, corporate reduction of taxes and increased rights to pollute. When the red states show the effects of no health care for the poor (no medicaid), back-alley abortions, millions with concealed gun permits but questionable backgrounds like Zimmerman, we may see a tinderbox. That could also be part of the plan like the billionaire funding of the tea party.
Waking Up July 20, 2013 at 3:15 pm

Regardless of his past part in our current state of affairs as a nation, I have to say that I was surprised to hear a former President of the United States… Jimmy Carter… acknowledge the truth that the United States is no longer a functioning Democracy.

Bravo to Jimmy Carter for speaking the truth!
Jill July 20, 2013 at 4:07 pm

I am getting ready to approach my neighbor who belongs to the tea party and the Libertarian party to discuss opposition to the surveillance state. I would also like to talk about the economy, but one thing at a time. I believe a few liberal friends should join in and we should schedule small group talks about this. I picture doing this at our homes or the libray etc.

I think we should do this together to show that fighting a surveillance state matters to people on both the right and left. We need to come together and I believe this is one area where we share things in common.

Should anyone like to give me advice on what to say, how to say it, etc. please offer it. I want to hear it. If you have advice on speaking about the economy in plain language, that can cross ideological divides, I want to hear that also.

Thanks, Jill
Otter July 20, 2013 at 11:32 pm

Before you speak, listen.
Lambert Strether July 21, 2013 at 1:10 am

@Jill–

I thought I posted on this somewhere, but I can't find it. So I hope I tell the story the same way….

* * *

Last month I was driven home from a permaculture event in Northern Maine with a nice churchgoing couple and they asked me what I did. I explained, in fairly general terms, and the husband asked me What I thought the big stories of the day were, mentioning that he heard a lot about Benghazi. [oh-kaaay…]

I responded that I felt that most of the big stories weren't covered at all, at least in the news. For example, "Why haven't any bankers gone to jail?" Big nod from the husband, bigger nod from the wife. So commmunication is possible….
Jill July 21, 2013 at 11:16 am

Thanks Lambert and Otter!

To All: When I read these comments I was struck by the amount of love behind them. Even people who disagreed with each other, or whose ideas I personally do not hold–I could tell they were motivated by good will and the desire for things to turn better for other people and our nation.
LAS July 20, 2013 at 4:17 pm

Let's not forget to look for resistance in other ways than street protest. Immediately after the Nazi take over of France in WWII, it seemed that the French were compliant to rule by Germans and the Vichy French collaborators. Gatherings by more than 5 persons was illegal. But, in fact, hearts and minds were continuously defecting as each day continued under the occupation. People of all backgrounds joined the resistance and many of them behaved with great heroism performing relatively small acts of sabotage.

Although they may not be marching in Washington, a high proportion of Americans obviously do distrust schemes of man at a relatively high rate. Where it goes from here, I'm not sure.
barrisj July 20, 2013 at 5:04 pm

The late Tony Judt had addressed similar issues to those of Hedges in his "Ill Fares The Land", where he lamented the inability of Social democracy to either preserve the gains made earlier in the 20th Century, or indeed repel the savage attacks on them by "the neoliberal agenda". In fact, Judt concedes that ""incremental improvements upon unsatisfactory circumstances are the best that we can hope for…", a rather tepid and underwhelming outlook, I'm afraid. Judt notes that the forces of reaction have indeed stolen a march on progressivism, and writes: "It is the Right that has inherited the ambitious modernist urge to destroy and innovate in the name of a universal project. From the war in Iraq through the unrequited desire to dismantle public education and health services, to the decades-long project of financial deregulation, the political Right – from Thatcher and Reagan to Bush and Blair – has abandoned the association of political conservatism with social moderation […]."
He surely would have included Obama as an avatar of the neoliberal project, as his administration has connived with major corporate and financial interests to further protect their interests, has extended the Surveillance State into unprecedented territory, has continued a militaristic foreign policy – fine-tuned, really, with his drone-based "projection" of US power – and generally rewarded "the malefactors of great wealth" at the expense of the vast bulk of the US public. In fact, as late-capitalism careens its reckless way through Western economies, each national or international crisis fomented by the plutocracy elicits even further punishment of its victims. How can anything but an acute pessimistic expectation of any sort of meaningful reform be a valid position?
Lambert Strether July 20, 2013 at 5:51 pm

I dunno where the touch paper or the spark is, but I'd be thinking seriously about supply chain vulnerability, since AFAIK the supply chain has been highly optimized - i.e., is fragile - since "just in time" days. The supply chain is the common terrain of anti-fracking, anti-pipeline, Walmart protests, and even efforts like local food sovereignty. I'm sure there are more….

Granted, drones, surveillance, militarized police forces, besides other Leviathon-like tactics but (a) our military just lost two wars applying such tactics internationally, (b) it's a big continent, and (c) check out Lieutenant General Paul K. Van Riper and Millenium challenge.
nobody July 20, 2013 at 8:14 pm

You might enjoy a paper introduced at Zero Hedge awhile back as "Nassim Taleb meets Edward Lorenz meets Malcom Gladwell meets Arthur Tansley meets Herman Muller meets Werner Heisenberg meets Hyman Minsky meets William Butler Yeats, and the resultant group spends all night drinking absinthe and smoking opium, while engaging in illegal debauchery in the 5th sub-basement of the Moulin Rouge circa 1890."

http://www.zerohedge.com/news/trade-study-global-systemic-collapse
Lambert Strether July 20, 2013 at 11:41 pm

Well, we'll just have to see, won't we?

Meanwhile, try harder.
nobody July 21, 2013 at 12:20 pm

Try looking at things from more angles.
Otter July 20, 2013 at 11:55 pm

Somebody should translate that into English.
RanDomino July 21, 2013 at 1:19 am

If it's ZeroHedge, you can assume it means "Buy gold!".
Lambert Strether July 21, 2013 at 1:34 am

Because now is a always a good time to buy gold!

I haven't mocked that mindset nearly enough lately.
nobody July 21, 2013 at 12:18 pm

It's not from ZeroHedge, I said it was introduced there. I wanted to quote the sentence about absinthe and opium.

The paper comes from the Foundation for the Economics of Sustainability:

"Feasta was launched in Dublin in October 1998 to explore the economic, cultural and environmental characteristics of a truly sustainable society, and to disseminate the results of this exploration to the widest relevant audience.

"The position Feasta has adopted is that many of the world's problems are caused not by bad people but by dysfunctional systems and it sees its purpose as designing better systems. For example, the economic system demands continual growth if it is not to collapse into a catastrophic depression, and this leaves politicians with little alternative but to pursue short-term economic growth more-or-less regardless of the damage that that pursuit might be doing to longer-term environmental and social sustainability.

"Feasta has spent a lot of time examining the reasons for this growth compulsion to see if an economic system can be devised without it. Feasta has also looked at money systems, agricultural systems, carbon systems, energy systems, taxation systems, rationing systems, land tenure systems and democratic systems and come up with ideas for these.

"We take it as given that sustainability must benefit everyone in a society, rather than merely those who are financially or otherwise privileged. We consider a society to be sustainable if it can expect to survive for several hundreds of years without being forced to change because it is currently destroying or undermining something on which its survival crucially depends."

http://www.feasta.org/about/background-2/
RBHoughton July 20, 2013 at 7:43 pm

I agree with you that 1/ Obama has done as well as might be expected and 2/ many young people have probably been disabled from taking their usual leading role in protest.

I should like to make the case for retirees. They are usually dependent on the economic system for their pensions and that will mitigate the effectiveness of many but some will have more freedom to act and they all recall the America of 'Burns and Allen' and 'Happy Days.' They know it does not have to be like it is today.

Marching does not concern the elites any more but not voting in elections, non-payment of taxes, boycotts of particular products, barter of goods and services and many other tactics can force political attention.
ohmyheck July 20, 2013 at 10:45 pm

Anecdote- after reading this article this morning, I sold an item I had on Craigslist. The person who bought it was a man around 40. Very clean-cut, and Mormon.

He proceeded to tell me that he lost everything–home and a growing business, in 2008. He now works at the North Dakota oil rigs cuz the money is good.

He told me that in his travels he meets a whole lot of folks who understand very well what is going on in this country, and they believe that there will be a revolt, and that many of them are preparing.

MSM and others can call them nutjobs, but when the nutjobs reach a certain percentage, well, who is the nutjob? The one who knows the truth or the one in denial?

Out here in fly-over country, this is very real.
VietnamVet July 20, 2013 at 11:52 pm

This is the best commentary on current affairs I've read.

With the fall of the Soviet Union, the Western Elite ceased to fear a workers revolt and commenced to accumulate wealth any way they could.

Modern Consumerism works to calm and divert our society. Marketing satisfies our human needs; but, only if you have money to spend. When all your earnings from slinging hash are going to pay off your student loan; material consumption is impossible except to survive. Corporate propaganda continues to message that this is the best of all possible worlds. When it isn't, it's the dead beat's fault. This works i.e. the 28% increase in the middle age suicide rate. But, at some point, when the middle class realizes they about to lose everything; then the aristocrats' heads will roll, once again.
Chris Rogers July 21, 2013 at 3:58 am

@Vietnam Vet,

You are absolutely correct that since the demise of the USSR the Western Power elite have become reckless in their pursuit of more wealth and more power – combined with the establishment of both a single world currency and single world government for want of a better word – this triumphalism is epitomised in Fukuyama's "The End of History and the Last Man."

Regretfully, TBTB are better advised to read Kennedy's "The Rise and Fall of the Great Powers", rather than Fukuyama's trash.

It should be no surprise that with the fall of the USSR the Power Elite felt safe enough to begin the final part of its neoliberal economic assault on the masses – epitomised by the election of Clinton in the US and Tony Blair in the UK – the rest is history, but Reagan and Thatcher may well have begun the neoliberal counter-revolution, but it was their progeny in the Democratic Party and NuLabour Party that finished off what they begun.

Indeed, think how much different history would be if George Bush had won the 1992 Presidential election – not as if I'm a supporter of the Bush clan or the Republicans by the way.
Paul Tioxon July 21, 2013 at 12:43 am

There is ongoing work by many people all over the world and all over America to strengthen the things that remain. I just finished "THE PEOPLE'S PENSION" BY ERIK LAURSEN. Bill Black covered it in post here a month or so ago. It is much a manual to understanding the opposition and how to counter it as it is a useful history of recent American politics. Social Security First has been the driving force for a United Political Front of different groups to rally behind. I know I am even more so than before will be using it as an instrument of political organizing in everyday conversation.

As to building a better future out of the chaos and ruble that is all around us, again, many different anti-Establishment initiatives are taking place. But if you are looking for some great big blowout, it is not predictable or even recognizable at first. Sometime an event is so large as not to be measurable unless it is well past its mid point as a social process. Trayvon Martin, Occupy, The Texas Women Filibuster Movement, The Unions in Wisconsin and Ohio, Teachers in Chicago and Philadelphia and on and on, don't have to been operated out of central control from commie pinko HQ, but a lot is happening now that hasn't been in long while.

http://www.thealliancefordemocracy.org/links.html
cadams July 21, 2013 at 1:15 am

The problem with the egalitarian position, and with most of the posters on this website, is its hollow materialism. Glenn Beck and Sean Hannity will probably always kick your asses because they can speak the cultural language of the American religion: atavist and manichean, of God, religion and family, and the battle between good and evil. Orwell, often mentioned on this website, described brilliantly the problem of the soulless idealist in his essay "Can Socialists Be Happy?"
http://www.online-literature.com/orwell/895/

The first problem of the egalitarian is the problem of language and semantics (see also Orwell's "Politics and the English Language"). The language of H.G. Wells, Huxley, and other empty utopians can never compete with that of Dickens, Churchill's 1940 speeches, or of the Four Gospels in the King James Version.

You can't ever win over people to egalitarian principles if you are also joined to the hip with ideas that are perceived by them as leading to the breakdown of the family, or are perceived as morally wrong. You can't fight culture; you must learn to work within the culture of the American religion.
RanDomino July 21, 2013 at 1:21 am

Just because SOME people adhere to that world does not mean that all or even most do. There are many more people in the US who are not part of "American" society than you think.
Lambert Strether July 21, 2013 at 1:32 am

And the act of corruption starts with corrupt language.

However, being able to sense or indict corrupt language (Hedges is not only an English major but the son of a minister) is not at all the same as inventing a new language.
Emma July 21, 2013 at 2:38 am

Agreed.
Corruption on a massive scale is constantly disguised with perverted language so it looks like a Big Mac which the masses are happy to eat up.
Patricia July 21, 2013 at 9:04 am

Cadams: I've been recently reading in the online US Evangelical community because I want to see what's going on. I've been away from the church for 35 years.

I've been fascinated to find deep conflict there over the same issues as in our larger culture. Abusive opaque authoritarianism is rampant with its usual demeaning/controlling of membership (demands, tithing, but getting no voice). Leaders grab/misuse tithes as our gov't does to taxes. There is propagandistic exceptionalism (Christians are "righter and better") that rivals our nation's propaganda of US exceptionalism. Etc.

And more and more membership are rejecting it. There's been a slowly increasing exodus of members even while many of them do not reject the faith itself.

In that context, Fox and Beck are the propaganda. Of course, propaganda is not complete BS. It works best in mixture.

On various sites, I have been commenting about the similarities, here/there, and there's been receptivity, so that's good.

Thus, your accusation of hollow materialism is merely beam-off propaganda from that corner of the world.
Ep3 July 21, 2013 at 8:10 am

Yves, here's my thoughts about when this "neo-fascist" rule began; July 4, 1776. Those guys wanted to be kings too. They were mad that the only way to get there was thru birth. So they opened up the requirements. But I want to fast forward to the depression. Social stirrings were already roaring outside the US. And when they began inside the country, amists the depression, I believe the elites became worried. They felt really threatened that the depression was gonna be the end of their power run. they opened up the pocketbooks and slowly implemented marginal socialist policies. by the time the US was out of the great depression, they had effectively stopped "benefits" and resumed their campaign against "communism" (communism being this fear of an economically healthy middle class). I also think it was partly to do with the fear of the baby boomers. Their voting power had to be contained and focused. Here, by providing well paying jobs with extensive benefits, boomers could be lulled into complacency and a sense of false optimism (they did well, and the myth that the next generation always does better) so that they were no longer a political threat (ongoing). In the 1970s, the political parties and campaign strategies were given the green light. And Reagan was their man. Carter went along with their plans, but Ronny gave then free reign. The absence of active govt from Ford and carter, who appeased the pent up tension from Vietnam and watergate (apathy breed apathy), released the 'Reagan revolution'. Ppl wanted change, and a great media campaign focused that blame at govt.
So my point is that this "neo-fascism" has been going on for a long time. It's just had a different name and face. It didn't start with Obama, w, Clinton, reagan, etc. it has always existed. And blaming the latest figurehead is just parlor tricks
Jack Heape July 21, 2013 at 10:36 am

Maybe not 1776, but for sure when the Constitution replaced the Articles of Confederation. The end of the Civil War consolidated the Federal government as the supreme law of the land, and ever since then the elites have worked to centralize and monopolize. They did this by the creation of the Fed, granting corporations legal personhood and immortality, the income tax (allows the creation of favoritism toward certain classes), public schools (state run propaganda), and media centralization and ownership. Americans have been propagandized into thinking they are exceptional. I see no future for the US. The neo-facists will take over and we will follow 1930's Germany down their road into dictatorship. The game is rigged, elections are a joke, and the police state is in place.
The Rage July 21, 2013 at 6:55 pm

Uh, Public Schools were in America since the beginning. Just about all the founders were a favorite of them. If anything, it is the private schooling industrial complex that is the problem.

The Civil War frankly, "created" the United States. Without it, the country couldn't survive. Capitalism has built up enough. Now Capitalists want to destroy the Federal Government………what does that tell you?

Your whole post is pathetic and full of internationalism.
Chris Maukonen July 21, 2013 at 11:12 am

I will amke the same comment here that I made at FDL to a similar post:

I agree whole heartedly with Hedges assessment of the situation. His analogy of this being a neo-feudalistic society is spot on. And that the democratic party is an extreme right party with an extreme right agenda.

HOWEVER I disagree that any solution will be achieved in the voting booth. Any more than it would have been in Stalinist Russia.

THERE WILL NEVER BE A SOLUTION IN THE VOTING BOOTH PERIOD. The elites will NEVER ALLOW it to happen.
tongorad July 21, 2013 at 11:35 am

It is going to be nigh near impossible to get a mass movement underway in our current police/surveillance state, which is only growing stronger and more severe. The tipping point would almost have to be some mega-catastrophic event. Before that, people will be weighing the trade-offs and coming down on the side of passivity and acceptance. For example, should I risk an arrest at the protest down the street that would potentially jeopardize my current and future employment? Previous generations of activists had their own set of problems, we have the computer database.
ictus92 July 21, 2013 at 4:57 pm

To paraphrase Madeline Albright: "What's the point of creating a totalitarian police state if you're not going to use it?"

So where is the American totalitarian state going? If you look at the NDAA and the discussion around repealing the Posse Comitatus Act, the key words include quelling "domestic civil unrest"… So what are the "deep government" types anticipating so hysterically?

Well, the financial crisis keeps grinding away and is about to enter another phase of collapse as "quantitative easing" has run its course. Interest rates are rising, posing "technical insolvency" of the Federal Reserve itself. What this means is that time's up for the 46 million in the Food Stamp Supplemental Program; 56 million getting Social Security retirement or disability benefits; and at least 20 million more needing full time employment. Obviously there's some overlap, but the total number of people living on the margins of subsistence pushes 30% of the population.

For these, they face an immediate "Final Solution"… not exactly direct extermination, but death by deprivation, illness etc. Can work camps be far off for these tens of millions and the many millions more living paycheck to paycheck? This population and their sympathizers comprise the tinder for "civil unrest". Hence the corollary to the famous "Collect it all" (communications) is "control it all" (civil disorder following further economic collapse).

Furthermore, prolonged neglect of key infrastructure will lead inevitably to severe food, water and electric power access - another source of civil unrest potential.

Of course, overseas the totalitarian police state eliminates all expression of opposition that can change policies in the quest for "Permanent War" and "full spectrum" military dominance. This ends in global military confrontation… just as the financial crisis of the 30's gave rise to another World War… only this time around world war will pitch towards thermonuclear war in short order. That's how totalitarian regimes collapse into catastrophe, dragging the rest of us to an unpleasant demise.

Unfortunately, I don't think there's a damn thing any of us can do to arrest this beserk Levithan…
The Rage July 21, 2013 at 6:59 pm

The Totalitarian state is called "Capitalism"…….once you understand that as the decadent phase of the merchent class.

The lack of reasoning on this thread is amazing. People simple DO NOT GET IT!!!!
tongorad July 21, 2013 at 11:42 am

I do think that things are a lot worse than people want to recognize or realize. I'm in my late 40's and so many of my friends are out of luck and out of hope. One of my friends is currently squatting in a house and is near suicide.
The situation sure looks hopeless now.
Nathanael July 21, 2013 at 10:19 pm

Suicide is what they want. Never commit suicide (unless, y'know, your problems really are your own fault); better to murder whoever ruined your life. I realize this view is unpopular, but it is a view with a pedigree dating back to ancient Sumeria.
aljamo July 21, 2013 at 12:09 pm

Banger has it right when questioning the murders of JFK, RFK and MLK. I add JFK jr. to the list. He was a threat to the establishment in 2000. Nearing the 50 year anniversary of JFK's murder, the existing facts completely wash over the obvious blatant lies of the Warren Commission findings. This murder and subsequent murders of important American citizens are still as relevent as the day they happened. These murders have erased our civility as a justice and freedom caring nation, clearly by design of those oppressing our constitution. The truth about JFK's murder is all important.
Banger July 21, 2013 at 12:42 pm

The issue is actually greater than just political. The issue is whether we choose to abandon reason or not. The fact that one cannot have a discussion on these issues but, rather, that people who do not believe in the official narrative are simply dismissed as irrational and deluded. No discussion is necessary. We either choose to confront the truth or we don't. I believe the vast majority of the left-intelligentsia refuse to face the truth about the assassinations and, I believe, most everything else in favor of comfort. The sad part is that they criticize religious people for doing just that.
Nathanael July 21, 2013 at 10:22 pm

Derren Brown demonstrated that Sirhan Sirhan's story of being hypnotised into assassinating RFK was completely, 100%, plausible.

So he probably was hypnotized into assassinating RFK.

I don't think the people who ran the assassination of RFK actually got what they wanted though. If they wanted to stop the Civil Rights movement… fail. If they wanted to promote the Vietnam War… well, the war was lost anyway. Et cetera. Even evil conspirators can be remarkably incompetent when it comes to long-term thinking.
Nathanael July 21, 2013 at 10:23 pm

It's worth looking up the Derren Brown show. He hypnotised a random man into assassinating Stephen Fry in a theater. (With a trick rifle, so that Stephen Fry didn't die, obviously). He followed a procedure corresponding tightly to Sirhan Sirhan's memory.

[Mar 28, 2015] Non-Farm Payrolls Next Week

Mar 28, 2015 | Jesse's Café Américain

"We sometimes forget that central banking as we know it today is, in fact, largely an invention of the past hundred years or so, even though a few central banks can trace their ancestry back to the early nineteenth century or before.

It is a sobering fact that the prominence of central banks in this century has coincided with a general tendency towards more inflation, not less. If the overriding objective is price stability, we did better with the nineteenth-century gold standard and passive central banks, with currency boards, or even with `free banking.'

The truly unique power of a central bank, after all, is the power to create money, and ultimately the power to create is the power to destroy."

Paul Volcker, foreword to The Central Banks, 1995

Price stability is not, of course, the only priority of a central bank, depending on how narrowly or broadly one wishes to define it. But I think that the record of the Federal Reserve over the past twenty to thirty years is abysmal enough to cast doubt on their competency and objectivity by almost any other range of metrics, considering the prolonged stagnant real wage, growing wealth inequality, massively fraudulent banking system, and serial asset bubbles interspersed with systemic crises.

What has gone wrong with our great experiment in central banking and fiat money is a good question, but for another day. But history does suggest that no class or organization is worthy of holding such power, without even more powerful safeguards against its abuse.

Gold and silver were capped around the round numbers for the better part of the day, and took a little cheap shot in the after hours as they did in the early open in New York.

Bubbe Yellen spoke at the San Francisco Fed near the close, basically stirring the verbal pot for the Fed's intended escape from the zero interest rate bound while hedging their bets broadly. See Janet Yellen's Pat Paulsen Speech.

That the program has been a failure to stimulate the economy, instead fostering bubbles, speculation, and much greater wealth inequality while failing to encourage organic growth in wages and livable jobs is besides the point.

The wealthy and the Banks are doing great, and look forward to doing even better as they continue to consolidate production and acquiring income producing assets on the cheap and paying for them with inflated paper like stock and bonds.

I have included the economic calendar for next week below, because it is likely to be more of an influence on the metals. Especially so in light of Bubbe's remarks about data dependency and the categories of data which she is setting her eyes upon.

The problem is much more than the Fed. The trade deals being negotiated, TTIP and TTP, are designed to continue to erode the power of people to make choices for their nation in terms of standards of living, social justice, child labor, environment, and so forth.

The bigger picture, which so few really understand, is the ongoing currency war, and the changes that are taking place to progress the post-Bretton Woods status quo. They cannot understand it because they have really known nothing else in their lifetimes, and their knowledge of history is highly selective and often wanting. They grasp on to often self-serving, crackpot theories to reassure themselves that change is not coming, and their pampered places are secure.

Change is coming. It may be entering modestly seated on the colt of an ass, but depending on how it is received, it may be bringing redemption for those who receive it, and a stinging rebuke for the den of thieves that have distorted the courtyards of the markets.

The choice is of course ours, but all things considered, we seem to be a people generally inclined to making very bad choices and building desolate places, and painting the bones of our folly contained therein with a thin coating of whitewash and rationalization. Those who rule those foul places were better off if they had never been born.

"And when he drew near and saw the City, he wept over it, saying, 'Would that you, even you, had known on this day the things that make for peace and prosperity! But now they are hidden from your eyes. For the days will come when your enemies will set up barriers around you, and surround you, and hem you in on every side, and tear you down to the ground, you and your children within you. And they will not leave one stone upon another in you, because you did not know the time of your judgement and redemption.'"

Have a pleasant weekend.

[Mar 28, 2015] The Confidence Witch

Mar 28, 2015 | Economist's View
Gloomy European Economist, Francesco Saraceno:
The Confidence Witch: ...The confidence fairy seems to have turned into a confidence witch. One more victim of the crisis. But this one will not be missed.

It is not shameful to change opinion. Rather the contrary, it is a sign of intellectual courage. Two years ago, the IMF famously surprised commentators worldwide with a rather substantial U-turn on the impact of austerity. Revised calculations on the size of multipliers led them to acknowledge that they had underestimated the impact of austerity on economic activity.

Even at that time it started with a technical paper. But significantly, that paper was coauthored by Olivier Blanchard, IMF Chief Economist. It then served as the basis for a progress report on Greece, in June 2013, that de facto disavowed the first bailout program arguing that austerity had proven to be self-defeating.

Let us just hope that in the ECB new building communication between the research department and the top guys is more effective than in the old one…

pgl said...

Maybe this should be called the Confidence Bitch.

kthomas said in reply to pgl...

The Confidence the Clown.

[Mar 26, 2015] Revealed: how the FBI coordinated the crackdown on Occupy by Naomi Wolf

Quote: "The fusion of the tracking of money and the suppression of dissent means that a huge area of vulnerability in civil society – people's income streams and financial records – is now firmly in the hands of the banks, which are, in turn, now in the business of tracking your dissent."

Dec 29, 2012 | The Guardian

RideAPaleHorse -> bullwinkle 29 Dec 2012 20:13

@bullwinkle - Sorry, but to merely put this down to misleading information on the internet is garbage.

Giving us interest on money is no return at all when inflation is factored in to it. Why is so much energy put into keeping the real inflation rate from the public? Because it shows us how much the money is being destroyed - how little wages go up compared to cost of living.

I haven't the time nor energy tonight to go into this but seriously, anyone who is reading bullwinkles rebuttal and thinking, "yeah, maybe this guys got it figured out. The banks aren't out to screw us over!!" He hasn't at all. Check it out for yourself. There are stacks of viable and credible sources of information online.

The money scam is the most pertinent issues facing us today.

[Mar 22, 2015] Economist's View 'Controlling the Past'

March 22, 2015 | economistsview.typepad.com

Simon Wren-Lewis:

Controlling the past: In his novel 1984 George Orwell wrote: "Who controls the past controls the future: who controls the present controls the past." We are not quite in this Orwellian world yet, which means attempts to rewrite history can at least be contested. A few days ago the UK Prime Minister in Brussels said this:
"When I first came here as prime minister five years ago, Britain and Greece were virtually in the same boat, we had similar sized budget deficits. The reason we are in a different position is we took long-term difficult decisions and we had all of the hard work and effort of the British people. I am determined we do not go backwards."

In other words if only those lazy Greeks had taken the difficult decisions that the UK took, they too could be like the UK today.

This is such as travesty of the truth, as well as a huge insult to the Greek people, that it is difficult to know where to begin. ...

The real travesty ... is in the implication that somehow Greece failed to take the 'difficult decisions' that the UK took. 'Difficult decisions' is code for austerity. A good measure of austerity is the underlying primary balance. According to the OECD, the UK underlying primary balance was -7% in 2009, and it fell to -3.5% in 2014: a fiscal contraction worth 3.5% of GDP. In Greece it was -12.1% in 2009, and was turned into a surplus of 7.6% by 2014: a fiscal contraction worth 19.7% of GDP! So Greece had far more austerity, which is of course why Greek GDP has fallen by 25% over the same period. A far more accurate statement would be that the UK started taking the same 'difficult decisions' as Greece took, albeit in a much milder form, but realized the folly of this and stopped. Greece did not get that choice. And I have not even mentioned the small matter of being in or out of a currency union. ...

pgl:

Cameron's fiscal austerity has been awful for the UK but he refuses to admit his incompetence. So he finds an economy doing even worse than the UK - Greece. Why is it doing worse? Because it was forced to have even more fiscal austerity than Cameron choose to impose. But did I not say Cameron refuses to admit austerity was a mistake? So what does he do - accuse Greece of not doing enough austerity. Hey - incompetent political leaders lie a lot.

Op said in reply to pgl...

Incompetence

You idiot

he's a bald face liar serving the interests of "the city"
He's a demagogue and a shit faced hog in a clean suit
Tory politicians should end with a cabinet full of em hanging from a gallows in trafalgar square

Spluttering about travesty
Hardly encompasses the grotesque inhumanity of these eight legged monstrosities

That said

I blame new labor for all this

They enabled such idery ghouls to regain power

pgl said in reply to Op ...

I see that you flunked pre-K reading comprehension. I said he lied. And he is incompetent too. But do babble on.

Op said in reply to pgl...

He is profoundly not incompetent
He got the results he was after
He deflected blame wiliest cutting back on the recovery rate

You need to use words
as they are customarily used
Or explicitly define your use
To you incompetent is just a slur
Much like shit head

Peter K. said in reply to Op ...

I don't have any problem with what Wren-Lewis and pgl have written.

Cameron says austerity works. It doesn't. That's incompetence. He's also dishonest which makes it worse.

It's also possible he's lying about wanting to be competent, but why speculate? Why bother?

What does it matter?

paine said in reply to Peter K....

The tory cabinet wanted a slow recovery
they have little concern about deficits per se

They use scare tactics

paine said in reply to Peter K....

The pm does not give a wit about austerity working

He wanted a stag

Cui bono

Fred C. Dobbs said in reply to pgl...

Cameron's coalition partner, Nick Clegg of the Liberal Dems, has said Enough With The Austerity already. Not so much that the coalition is threatened,
y'know, but, please...

We can end austerity, Clegg tells activists http://www.walesonline.co.uk/news/wales-news/nick-clegg-promises-end-era-8844662

paine said in reply to Fred C. Dobbs...

Barrys twin

Fred C. Dobbs said...

I have read that in recent years, Greece has made much progress, increasing exports, etc.

Under austerity, they have also laid off a whole lot of guv'mint employees, resulting in 25% unemployed, a LOT of whom would like their jobs back. Would that also be something the Brits dealt with?

anne said...

http://research.stlouisfed.org/fred2/graph/?g=10O8

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for Greece, 2000-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=10TQ

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for Greece, 2007-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=11aE

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for United Kingdom, 2000-2012

(Percent)

http://research.stlouisfed.org/fred2/graph/?g=152R

January 15, 2015

Government debt and trade balance as shares of Gross Domestic Product for United Kingdom, 2007-2012

(Percent)

anne said in reply to anne...

Where government debt as a share of GDP for the United Kingdom was 44.8% in 2007, debt as a share of GDP in Greece in 2007 was 120.4%. The trade balance was -2.6% in the UK in 2007 and -6.5% in Greece.

Where government debt as a share of GDP for the United Kingdom was 97.2% in 2012, debt as a share of GDP in Greece in 2012 was 163.6%. The trade balance was -5.5% in the UK in 2012 and -9.4% in Greece.

anne said...

http://research.stlouisfed.org/fred2/graph/?g=152T

August 4, 2014

Real per capita Gross Domestic Product for United Kingdom and Greece, 2000-2013

(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=152W

August 4, 2014

Real per capita Gross Domestic Product for United Kingdom and Greece, 2007-2013

(Percent change)

http://research.stlouisfed.org/fred2/graph/?g=152X

November 1, 2014

Total Factor Productivity at Constant National Prices for United
Kingdom and Greece, 2000-2011

http://research.stlouisfed.org/fred2/graph/?g=1530

November 1, 2014

Total Factor Productivity at Constant National Prices for United
Kingdom and Greece, 2007-2011

mulp said...

"And I have not even mentioned the small matter of being in or out of a currency union. ..."

Yeo, if Greece were to still be on the drachma, then Greece could simply print infinite drachma to buy all the imports, especially oil, that it needs because in a free market, the buyer dictates to the seller the price and terms in all cases.

This is a core principle of free lunch economics!

If housing subsidies and food stamps were eliminated, then the working poor would be able to buy sirloin and prime rib for 10 cents per pound because that is as much as they can afford, but the buyer sets the price and terms for all sellers. If rent subsidies were eliminated, the number of 1200 sq-ft rentals at $200 per month would explode because the working poor renter can dictate the size of the apartment and rent. That's why its called the free market. Market goods are freely available and free in a free market!

The problem in Greece is that too many people believe in free lunch economics. They consider taxes theft and paying taxes to be stupidity. But worse, international bankers believe in free lunch economics where they can loan other people's money to people who can not afford to repay the loans, but the high debt creates wealth and that will create more debt funded spending which will pay for all the past debt.

I don't see any wing of economists willing to reject free lunch economics and return to the principles of capitalism that were established by FDR and then promoted by government until the 70s when conservatives sold Americans on pillage and plunder, on free lunch economics.

And those free lunch economic principles have been sold all over the world, especially to Greece when international bankers told Greece they can borrow and spend to infinite, trust them.

[Mar 22, 2015] That Was The Week That Was

March 20, 2015 | Jesse's Café Américain

"Over a protracted period of good times, capitalist economies tend to move from a financial structure dominated by hedge finance units to a structure in which there is large weight to units engaged in speculative and Ponzi finance. Furthermore, if an economy with a sizeable body of speculative financial units is in an inflationary state, and the authorities attempt to exorcise inflation by monetary constraint, then speculative units will become Ponzi units and the net worth of previously Ponzi units will quickly evaporate. Consequently, units with cash flow shortfalls will be forced to try to make position by selling out position. This is likely to lead to a collapse of asset values."

Hyman Minsky, The Financial Instability Hypothesis

Gold and silver had a very positive day today, running up to their short term overhead resistance intraday, and holding most of those gains.

There was intraday commentary on gold and silver here.

The moves next week will be much more meaningful than this short term run up off a very oversold condition.

I am ready for anything, given that the character of the bucket shop has not been improved.

I have included the economic calendar for next week. There will be the *third* revision to 4Q GDP which, unless it is markedly revised lower to give some headroom for the next 1Q estimate, will likely be a trip to the snoratorium.

The macroeconomics and global situation are much more significant, even if the domestic trade and commentary barely gives it an exceptional nod or acknowledgement.

Remember me in your prayers, as I remember you.

Have a pleasant weekend.

[Mar 21, 2015] You Think You're An Investor I Think Not by Raul Ilargi Meijer

Mar 19, 2015 | Zero Hedge
Submitted by Raul Ilargi Meijer via The Automatic Earth blog,
Let's start with defining what an 'investor' really is. A reasonable definition of an investor seems to be 'someone who puts money into risk bearing assets that promise to produce financial gains through – increased – productivity'.

If we can agree on that, then furthermore I think we can all agree that investors need markets. And not only that, but they need functioning markets. What defines 'functioning' here is that 'investors' need to be able to discern what the value is of the assets they have already purchased and/or are thinking of purchasing in the future.

But we haven't had any functioning markets since at least 2008. There is no price discovery left, nobody knows the actual value of anything anymore, and 'traders' pour money into all sorts of 'assets' without having one single clue as to what they are really worth. They don't even care about the real value of the 'assets' they purchase. They don't have to, because the game's so obviously rigged and distorted.

There is no risk left in the assets, productivity – i.e. the added value – has long since ceased to be an issue, and that leaves financial gains as the only point of our definition above. But that must of necessity also mean that whoever trades in these non-functioning markets – preferably with 'money' borrowed on the cheap -, is not an investor.

So what are the people who do trade, while still calling themselves investors? Are they then mere 'traders'? That doesn't quite seem to fit.

What are they then? It may sound a bit harsh to claim they are all just plain grifters, but maybe that's not too far off the truth after all.

One might conclude, when looking at the excessive attention 'everyone' paid yet again today to Janet Yellen and the Fed, waiting breathlessly to see if she utters the word 'patience', that those people who call themselves 'investors' are not even grifters, they're nothing but yet another group of lazy bums waiting for government – and/or central bank – hand-outs.

Just much bigger hand-outs than people receive who are on foodstamps (and now you know where that much maligned inequality comes from). But they're still hand-outs.

Nobody puts money into worthy (for lack of a better term), innovative, productive projects anymore, everyone just waits for what the Fed says and plays it safe (hand-outs). The Fed has thus eroded the investment world, and indeed the entire investment market model.

And that will come back to bite everyone. There is no more money flowing into any 'worthy' initiatives, it's all going into whatever makes most money fastest, screw – increased – productivity. And since price discovery no longer exists, worthy initiatives will receive funding only through some freak accident (like a billionaire with Alzheimer's), not by design, not through the inherent benefits of the investment model. Which is all but dead.

This cannot but have far reaching consequences, because we no longer have a model in which the best and brightest and hardest working amongst us can and will get funding to build their dreams. All money goes into either 'Tech Boom The Sequel', or is spent betting against whatever trend looks fit to fall first. Or a combination of the two.

The smarter amongst you, and I have to doubt that there are too many, will understand that the Fed 'protection racket' that has existed for years, is about to come to an end. It's you against Wall Street now, and most of you don't stand a chance in that arena.

A rate hike, any rate hike, or two, is the (re-)start of price discovery, at a time when everyone is 'invested' in 'assets' for which price discovery was never even considered at the time of purchasing. How fast can you unload? Who's going to be the buyer? Are there enough fools greater than you left?

Maybe I should feel better knowing how much y'all stand to lose soon, but I don't, because I also know how much everyone else stands to lose who already don't have anything but debt. Emerging markets are going to get obliterated, all sorts of funds and levels of government, domestic and abroad, are going to get crushed – resulting in more services getting cut for the poor -, and so, whether you like it or not, are most Americans and Europeans who fancy calling themselves 'investors'.

They're not. They're just a bunch of grifters and bums. They couldn't (have) survive(d) in a marketplace that has actual price discovery. They couldn't have borne the losses and recuperated. Not the way real investors do.

I found this a good and somewhat amusing summary of the feeling before Yellen's speech today, as expressed yesterday via MarketWatch:

'Hell Will Break Loose' If Fed Loses Patience

It could go either way, according to the Fly from the iBankCoin blog, who spoke of extremes. "If we find out this Wednesday that [Janet Yellen] is not, in fact, patient, hell will break loose and 66 seals of hell will be broken - paving way for actual centaurs to roam, wall-kicking people in the faces with their hooves," he wrote. "On the other hand, if Janet is patient and says so, we're all going to make an absurd amount of money."

Having a rigged, distorted system that fakes being a market and makes a bunch of grifters a lot of money, is not how you build a functioning society.

Oh, and you know what the worst thing of all is – if it can get any worse -? If the Fed and other central banks, post-2008, would have simply let the markets sort things out, most of the 'money' that has now been so horribly dislocated and mis-invested and debt-riddled, would never have existed in the first place.

The S&P would have been at 500 or so, bonds would have 'normal' prices and yields, actual investors would have taken their losses, and we would have had at least some sparks of brightness to look forward to. As things are, there's only the headlights of that highspeed train coming at us from the other side of the tunnel.
Average:
4.666665

Ben Bernanke Was Right No Rate Normalization During My Lifetime

Zero Hedge
With the Fed's credibility terminally smeared across the windshield of the Marriner Eccles-mobile, courtesy of the latest "dots" projection which proved yet again - and beyond any doubt - that the FOMC members are just a pack of chimps throwing darts, and perhaps feces, at a fed funds dart board, we can now honestly say that the one Fed (ex) member who was 100% accurate (if only in this case), and who saw the writing on the wall early on and got the hell out of Marriner Eccles while he could, is Ben Bernanke.
As a reminder, this is what he said (via Reuters):

"At least one guest left a New York restaurant with the impression Bernanke, 60, does not expect the federal funds rate, the Fed's main benchmark interest rate, to rise back to its long-term average of around 4 percent in Bernanke's lifetime. "Shocking when he said this," the guest scribbled in his notes. "Is that really true?" he scribbled at another point, according to the notes reviewed by Reuters."

Yes, it really is.

[Mar 20, 2015] Here Is The Reason Why Stocks Are Soaring, Or Farewell Recovery... Again

03/18/2015 | Zero Hedge

Why are stock soaring in response to the Fed statement and latest set of projections? Because, as Bloomberg promptly calculated, the FOMC revised down all forecasts for 2015 since the previous SEP was released on Dec. 17.
The median dot for year end 2015 falls to 0.625% from 1.125% in Dec: a whopping 0.50% cut.
And there goes not only the "recovery" but any imminent rate hike.
The details:

The central tendency for GDP this year is 2.3%-2.7% vs 2.6%-3%. But the real hammer was 2016 and 2017: these were just slashed from 2.5%-3.0% and 2.3%-2.5% as of December, to 2.3-2.7% and 2.0-2.4%.

Unemployment rate 5.0-5.2% vs 5.2%-5.3%

The Fed now sees PCE inflation at 0.6%-0.8%. This was supposed to be 1%-1.6% just three months ago.

Core PCE 1.3%-1.4% vs 1.5%-1.8%

And the one that matters most, the "dot plot", saw the median dot for 2016 fall to 1.875% vs 2.5%, and decline to 3.125% from 3.625% for 2017.

And here is a comparison of the dots since September 2014 courtesy of @Not_Jim_Cramer. The Fed: wrong as ever.

In other words, what the Fed just said is the following: "it wasn't the snow, it was the economy."
End Result: Goodbye recovery, hello stock surge.

[Mar 20, 2015] The Fed's Reckless Gamble by Christopher Whalen

But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth.

February 23, 2015 | The National Interest
WHEN PICMO founder William Gross coined the term the "new normal," he both stated the obvious and offered a fresh insight. Most people understand in a visceral way that things have changed dramatically when it comes to jobs and economic opportunities since the financial crisis of 2008. But more than something new, the current state of the U.S. economy represents a reversion to the old normal-the price deflation and slack job market that existed in the 1920s and 1930s-which was interrupted by World War II and the subsequent decades of the Cold War and massive government spending.
It is safe to say that everyone wishes for a return to business as usual, at least insofar as "normal" is understood by most Americans. Plentiful jobs, along with rising home and stock prices, worked for most of us. The only problem is that the old normal economy of the 2000s, for example, saw prices for homes, stocks and other asset classes growing at levels that were clearly not sustainable. When we saw annual double-digit increases in home prices in the United States during the mid-2000s, the one thing you could be sure about was that this rate of price change was unsound and probably a function of external factors such as low interest rates and easy credit.

Since the 2008 financial bust, the U.S. economy has been anything but normal. The housing market, for example, rebounded at double-digit rates in 2011–2013, but now seems to be losing momentum rapidly. Near-zero interest rates maintained by the Federal Open Market Committee (FOMC) prevented an immediate apocalypse in the form of a 1930s-style price deflation, but this is both good and bad news. The lack of a true debt deflation commensurate with the degree of excess prior to 2008 has left the U.S. economy hanging in a form of economic stasis. Without price deflation and debt restructuring, there is no economic "bounce" and thus no recovery in demand or jobs.

TODAY, THE U.S. economy is like a cardiac patient on artificial life support. Flat employment, flat credit growth (at least for productive purposes) and falling inflation-adjusted incomes are the attributes of the new normal. Nobel laureate Robert Shiller draws an explicit parallel between today's "new normal" of no or slow wage and job growth and the late 1930s, when the U.S. economy began to sink under the weight of FDR's New Deal experiment:

The depression that followed the stock-market crash of 1929 took a turn for the worse eight years later, and recovery came only with the enormous economic stimulus provided by World War II, a conflict that cost more than 60 million lives. By the time recovery finally arrived, much of Europe and Asia lay in ruins.

Shiller's point about how World War II rescued America from the deflation of the late 1930s is often missed, deliberately, by many economists. FDR's antibusiness rhetoric during the New Deal actually made the deflation of the 1930s worse by chasing private capital out of the U.S. economy. In their classic book A Monetary History of the United States, 1867–1960, Milton Friedman and Anna Jacobson Schwartz documented how private capital formation in the United States essentially went to zero by the late 1930s, leaving the public sector as the only engine of growth into the 1950s and 1960s. Large corporations and banks aligned with the federal government were the most significant source of credit and economic prosperity in that period. It took until the 1970s for private risk taking to truly reemerge in the U.S. economy, driving growth for decades thereafter. After these dramatic swings in growth and demand, however, we still have a muddled view of what constitutes long-term economic expansion.

While politicians and central banks can artificially increase the nominal growth rate for relatively short periods of time-we know this as a "bubble"-such machinations create no real wealth. We feel wealthier for a time, as in the Roaring Twenties and the 2000s. Yet when any significant proportion of the population tries to take its chips off the gaming table, the good times end. Given that an economy only truly grows wealth at the rate of real GDP growth, as Alex Pollock of the American Enterprise Institute observes, why do so many economists and the members of the FOMC call for policies to push higher and unsustainable rates of economic growth? The answer comes down to a basic difference between conservatives and liberals when it comes to inflation, a conflict of visions that has its roots in the dark days of the Great Depression.

Some on the left, like author William Greider, believe that a little inflation is good for working people and debtors, even if it erodes the purchasing power of wages. But just as a steady 2 percent increase in real wealth provides enormous benefits to a society, a steady 2 percent annual inflation rate can rob workers and families of the ability to meet basic needs in a matter of a few scant years. For example, an item that cost $20 in 1930 would cost $283 as of this writing, reflecting a cumulative rate of inflation of 1,315 percent, according to the Consumer Price Index (CPI) maintained by the Bureau of Labor Statistics (BLS).

Remember that because of various adjustments and omissions from the underlying data, the CPI greatly understates the actual rate of inflation experienced by individual consumers. Inflation, after all, is a monetary phenomenon that occurs when the value of money declines relative to the goods and services it can purchase. Small wonder that Americans have seen a steady decrease in real income over the past several decades. And yet the Federal Reserve and other central banks explicitly target inflation levels that are ultimately destroying consumer purchasing power.
WHEN POLITICIANS or members of the FOMC promise growth above that 2 percent long-term average, they are being more than a little disingenuous. Not only will using government policy to stimulate demand and keeping interest rates low create financial bubbles and other problems in the short term, but such expedients will also actually hurt all of us by eroding the purchasing power of wages and income. The housing boom of the 2000s, for example, was supported with public-policy initiatives from Washington and low interest rates from the Fed, but the result was a massive financial collapse and the destruction of trillions of dollars in notional wealth. Meanwhile, the cost of housing has continued to climb, even as real incomes have fallen.
Nobel laureate Paul Krugman is one of the leading exponents of the inflationist view. Week in and week out in his New York Times column, Krugman derides those who spend too much time worrying about inflation and advocates an increase in government spending, fueled by higher taxes or additional debt, as a means of stimulating demand for goods and services, and thus jobs. Krugman ridicules "the wealthy" for advocating low inflation and insists that the road to salvation is to continue the policies of the past half century, which includes using government spending and easy money to increase nominal private demand.

But Krugman is wrong. The problem we all face is not runaway wage and price inflation of the type seen in the 1970s, but a more pernicious and deadly form of slow erosion in purchasing power for all people, combined with slow or no real economic growth. Krugman and his fellow travelers on the left correctly point out that there is little or no wage inflation in the U.S. economy, but that does not mean that inflation, broadly defined, is not a serious problem. The combination of decades of deficit spending and more recent experiments in radical monetary policy has contributed to a slow but steady increase in the cost of living for all Americans, an increase that's caused real incomes and the value of savings to fall.

Krugman and other advocates of secular inflation point to the period after World War II as proof that deficit spending and a large national debt help economic growth. But such views are myopic. The massive government spending during and after World War II helped to pull the United States out of the debt and deflation of the 1930s, much of which was worsened by the excesses of FDR's New Deal. But you cannot treat the period immediately following the Second World War as "normal" in any dimension.

In fact, the key driver of prosperity following World War II was not government spending but demographics. Johnny came marching home, got married and had lots of babies. Between 1950 and 2000, the civilian labor force grew by an average of 1.6 percent per year, according to the BLS. This may not sound like a big number, but over fifty years that meant that the cohort of working-age Americans more than doubled in number from 62 million to 141 million by the start of the twenty-first century. The BLS estimates that, between 2000 and 2050, the working-age population will grow just 36 percent, or about 0.6 percent annually.

With a smaller demand "pull" from shrinking demographic growth, a slower economy is hardly surprising. If we recall that the real, long-term growth of wealth is a function of increases in population and production, then the fact of slower U.S. population growth in the twenty-first century suggests that we will also see more modest growth in GDP. Under such circumstances, what is normal? More important, with nominal GDP growth in the 2–3 percent range absent shocks from external factors, and the Fed targeting similar levels of price inflation, will Americans see any improvement in their real inflation-adjusted income or wealth?

Sadly, you will never hear Federal Reserve chair Janet Yellen and the members of the FOMC admit that the real, long-term growth rate for wealth or GDP is just 2 percent. Because of the dual mandate given to the U.S. central bank of encouraging employment and ensuring price stability, the FOMC has tended to focus policy on trying to encourage job growth while pretending that inflation is not a problem. Indeed, over the past two decades, as real growth prospects have waned, the FOMC has used progressively lower interest rates to both stimulate growth and rescue the economy from the aftereffects of the latest Fed-inspired boom. Whatever concerns the Fed still harbors regarding long-term price stability have been overwhelmed by the political imperative to achieve short-term job growth.

Economists in both private and public life make a living by talking about levels of potential growth that are far above the long-term average increase in real wealth. One reason for this is that suggesting that the long-term average growth rate will not exceed 2 percent implies a future of limited job opportunities, something that's hardly popular with voters or elected officials. The remarkable growth rates claimed by China's authoritarian regime illustrate the political imperative behind such efforts. As a result of the one-child policy, China's population is growing at just 0.5 percent annually, according to the World Bank. When you see official Chinese GDP growth rates of more than ten times the rate of population increase, the one thing you can be sure about is that the claimed rate of "growth" is unsustainable and driven by politically motivated government spending.

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OVER THE past several years, members of the FOMC have maintained ultralow interest rates, ostensibly to boost economic activity in such areas as housing and job growth. But despite low interest rates and massive purchases of government debt and mortgage securities by the FOMC, volumes of residential mortgage lending have plummeted down to decade-low levels, and job growth remains anemic and of poor quality. Instead of stimulating a recovery in the real economy, the policies followed by the FOMC under first Ben Bernanke and now Janet Yellen have only created new asset bubbles in sectors like real estate, public equities and the corporate bond market. With interest rates and commodity prices now falling around the world and the dollar soaring against other currencies, the FOMC seems to have created a "deflation trap" whereby investors are unwilling to put capital at risk as they await higher interest rates. Meanwhile, job creation and spending suffer due to a lack of investment.

Some Fed officials are increasingly uncomfortable with the Fed's policies. Richard Fisher, president of the Federal Reserve Bank of Dallas, dissented from his colleagues on the FOMC, saying he'd like to see rates begin to go up in 2015. Philadelphia Fed chief Charles Plosser also dissented on similar grounds. But both Fisher and Plosser no longer vote on the FOMC. A decidedly left-wing majority on the Fed's policy-making body continues to support the extraordinary low-rate policies in an effort to boost job growth. In the European Union, the European Central Bank is pursuing a similar policy.

But the sad fact remains that the use of interest rates or fiscal policy to stimulate nominal growth is of limited utility today. In the 1970s and 1980s, when the children of the post–World War II baby boom were starting families of their own, a little bit of push in the form of low interest rates or increased government spending resulted in a substantial increase in job creation and economic activity-along with higher inflation. Today, with lower population growth rates and relatively high levels of public debt in most industrial nations, the utility of fiscal or monetary policy in boosting growth rates is very limited-but inflation remains a problem that affects all consumers, rich and poor.

In the Fed's most recent report to Congress, Yellen repeated the Fed's explicit embrace of a 2 percent inflation rate, in order to help the employment picture, all the while paying lip service to the Fed's responsibility to ensure stable prices. She stated:

The inflation rate over the longer run is primarily determined by monetary policy, and hence the Committee has the ability to specify a longer-run goal for inflation. The Committee reaffirms its judgment that inflation at the rate of 2 percent, as measured by the annual change in the price index for personal consumption expenditures, is most consistent over the longer run with the Federal Reserve's statutory mandate.

What Yellen is saying explicitly is that it is not possible for the FOMC to achieve the legal mandate of "maximum employment" without tolerating a 2 percent inflation rate. But a 2 percent rate of inflation, compounded over twenty years, will rob American consumers of half of the purchasing power of their wages and savings. Not only do the Fed's publicly stated policies doom many Americans to poverty in the future, but they are also an explicit admission that the Fed's dual legal mandate set by Congress in 1978 is unworkable. The Fed cannot both pursue "maximum employment" and safeguard against inflation. Indeed, there is a growing doubt that the Fed can truly change the employment picture. But the political attraction of promising people higher wage and job growth, it seems, is so powerful that members of the FOMC and central bankers around the world cannot help themselves. Ultimately, using low interest rates in an attempt to boost demand and job creation will fail.

Christopher Whalen is senior managing director and head of research at Kroll Bond Rating Agency. He is the author of Inflated: How Money and Debt Built the American Dream (Wiley, 2010) and the coauthor, with Frederick Feldkamp, of Financial Stability: Fraud, Confidence, and the Wealth of Nations (Wiley, 2014).

[Mar 19, 2015] The Central Banks Will Not Be Able to Control This by Phoenix Capital Research

Mar 19, 2015 | Zero Hedge

The biggest issue facing the financial system today is the US Dollar rally.

The Fed and other Central Banks are trying to maintain the illusion that they have everything in control by talking about interest rates, but the reality is that the US Dollar carry trade is ABOVE $9 trillion in size. That is almost as big as ALL of the money printing that occurred between 2009 and 2013.

And it's imploding as we write this.

Globally, the world is awash in borrowed money… most of it in US Dollars. The US Dollar carry trade is north of $9 trillion… literally than the economies of Germany and Japan COMBINED.

When you BORROW in US Dollars you are effectively SHORTING the US Dollar. So when the US Dollar rallies… you have to cover your SHORT or you blow up.

And the US Dollar has been rallying… HARD. Indeed, the move that began in July 2014 is already larger par in scope with that which occurred during the 2008 meltdown.

Moreover, this move has occurred with little to no rest. The US Dollar barely corrected 2% after rallying a stunning 16+% in a matter of months before beginning its next leg up.

You only get these sorts of moves when the stuff hits the fan. CNBC and the others are babbling about the Fed's FOMC changes, but all of that is just a distraction from the fact that a $9+ trillion carry trade, arguably the largest carry trade in history, has begun to blow up.

Rate hikes, QE, all of this stuff is minor in comparison to the carnage the US Dollar is having on the financial system. Take a look at the impact it's having on emerging market currencies.

... ... ...

[Mar 19, 2015] How Many Shale Oil Plays Make Money At $37 Per Barrel by Jim Quinn

Mar 19, 2015 | Zero Hedge

Kirk2NCC1701

"How Many Shale Oil Plays Make Money At $37 Per Barrel? (Spoiler Alert: None)"

Ah, but the Big Fish still get to eat the Little Fish (via bankruptcy fire sales) -- thanks to the Fed and its QE: "Money for nothing, and checks for free!"

Sing along now... "Money for nothing... easy, easy money..."

Note that Big Fish control Big Gov. Little Fish do not. Place your bets accordingly.
.

p.s. "Ditto" for AU and AG mines: "Con-so-li-da-tion", i.e. hostile takeovers and bankruptcy sales.

You should know by now that it is in the very Fabric/DNA of the current Monetary System (fiat currency + FRB + Derivatives) to culminate in Socialism for the Western Oligarchs (asymmetric Benefits that privatizes profits, and nationalizes debts/losses).

Amschel Meyer Rothschild must be glowing in his grave, and toasting with Lucifer.

swmnguy

"Socialism for the Western Oligarchs (asymmetric Benefits that privatizes profits, and nationalizes debts/losses)" is a great description.

It's what Mussolini referred to using the word "Fascism."

Fascism isn't about marching around shouting in cool uniforms, nor about having people lecture you on behavior. Those are surface characteristics that can be found elsewhere. It's about allowing corporate power to take over and subsume state power, for the benefit of the corporate elites. That's why "Islamo-Fascism" is a nonsense term. The Islamists are religious fanatics bent on a repressive and violent theocracy, which is something I want no part of, but it's not "Fascism."

Same with American Liberals; they're not inclined toward fascism because a lesbian might lecture you on pronouns, or a vegan might lecture you on eating meat. That's annoying, but what makes American Liberals tend toward fascism is that they support measures which put more and more public and state interests into the hands of corporate interests, for the benefit of the corporate interests first and anybody else second if at all (examples being "ObamaCare" with is a bailout of corporate insurance and medical interests which have otherwise priced themselves out of business; "HAMP" which uses public/government money to bail out corporate finance housing lenders who would otherwise lose on investments they never should have made; Any student loan program, which will use public/government money to bail out corporate finance education lenders and their collaborators in the Education industry who have also priced themselves out of business; among many other available examples).

I hate to get pedantic about word choices, but words have meanings and when the subject is important, it's critical to use the right word to refer to what you're talking about. America's political vocabulary has been very intentionally drained of meaning, and words are used to refer to things other than what the words mean. That has the eventual effect of preventing us from communicating with each other on political topics, and I don't have to tell you who benefits from, and desires, that outcome.

Thanks for the good, concise description.

Buckaroo Banzai

Sorry, but you're wrong. Words do have meanings, and you are misusing the word "fascism". Fascism is defined as NATIONAL SOCIALISM. Under fascism, corporations do work closely with the State, but they maintain a separate identity, and are subsidiary to the State.

What we have today in this country is an entirely different system. Corporations have evolved into INTERNATIONAL entities, not national entities as they were in the 1930s and 1940s. Furthermore, corporations don't work closely with the State, rather, Corporate EXECUTIVES have been wholly integrated into the ruling elite, which is a class that now consists of corporate executives, national politicians, and SES-level federal bureaucrats. The modern publicly-traded International Corporation has been reduced to a privileged legal entity that is looted by the entire elite class via stock options, stock buybacks, political contributions, lobbying expenses, and the associated revolving doors between the corporate suite, K Street, and capitol hill. Corporations are still nominally owned by the "public", but the wealth and power they generate have been completely co-opted by the Elite class.

What most people miss is how dramatically corporations have evolved over the last century, and how the role of corporate executive has changed. That is where the confusion lies.

thamnosma

Nice explanation. Still, the State hands out benefits to some corporations and punishes others. In that sense, there remains a measure of the classical fascism. Obviously, the international corporations can do some level of moving around, shifting to more favorable State environments. However, that is becoming more difficult as "global governance" moves forward on various levels. I have a hard time sorting out these ruling elite relationships but lean toward the State still maintaining ultimate dominance.

Buckaroo Banzai

"Still, the State hands out benefits to some corporations and punishes others. In that sense, there remains a measure of the classical fascism."

Not really. A better way to look at it is an internal political struggle between competing factions of the elite. And don't forget, if you are a corporate executive at a corporation that is on the losing end of lobbying or politics, you will get paid regardless. Ultimately it is the shareholder that will get screwed, not the executive.

[Mar 18, 2015] Here Is Why The Fed Can't Hike Rates By Even 0.25%

Mar 18, 2015 | Zero Hedge
There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system. A quick refresh of his bio from the Institute for New Economic Thinking:

Mr. Pozsar has been deeply involved in the response to the global financial crisis and the ensuing policy debate. He joined the Federal Reserve Bank of New York in August 2008 in charge of market intelligence for securitized credit markets and served as point person on market developments for senior Federal Reserve, U.S. Treasury and White House officials throughout the crisis; played an instrumental role in building the TALF to backstop the ABS market; and pioneered the mapping of the shadow banking system which inspired the FSB's effort to monitor and regulate shadow banking globally. Prior to Credit Suisse, Mr. Pozsar was a senior adviser to the U.S. Department of the Treasury, where he advised the Office of Debt Management and the Office of Financial Research, and served as Treasury's liaison to the FSB on matters of financial innovation. He also worked with the Federal Reserve Board on improving the U.S. Flow of Funds Accounts.

While Zoltan is currently working in the private sector at Credit Suisse, he is perhaps best known for laying out, back in 2009, the full topographical map of the US shadow banking system in all its flow of assets (or is that contra-assets when it is a repo) beauty.

Which is also why we bring him up, because in a much welcome follow up to his previous work title "A Macro View of Shadow Banking" which we will discuss further in the coming days because it is not only Zoltan's shadow banking magnum opus and must read for anyone who wants to get up to speed with all the latest development in the unregulated shadow banking space, but because Poszar also provides perhaps what is the most important chart which explains why the Fed is so very terrified of even the smallest possible incremental rate hike of 0.25%.

Specifically, we look at Poszar's findings about the implied leverage within the fixed income asset space in America's just a little levered buyside community. This is what he says:

Although no precise measures are available, the presence of leverage among hedge funds with credit and fixed income strategies has been recognized since the LTCM crisis (see Figure 21), as is leverage in separate accounts in the asset management complex.

While hedge funds and separate accounts are allowed to use leverage liberally – in fact, leverage is the sine qua non of these investment vehicles – it is widely underappreciated that bond mutual funds that are typically thought of as unlevered and long-only also have considerable room to use leverage.

The extent to which this room to use leverage is utilized is up to bond portfolio managers to decide, and it is not uncommon for the largest bond funds to maximize the leverage they may bear in their portfolio within the limits allowed by the Investment Company Act of 1940, and the SEC's interpretation of the portfolio leverage and concentration incurred through the use of derivatives.

However, the creep of leverage into what are traditionally thought of as long-only bond funds was missed by the mainstream economics literature and textbooks entirely. For example, recent works that identify asset managers as the core intermediaries behind the "second phase of global liquidity" focus solely on indirect forms of leverage (FX mismatches) embedded in bond portfolios through holdings of dollar-denominated emerging market sovereign and corporate bonds (see Shin, 2013).

Other works state even more explicitly the widely-held assumption that fixed income mutual funds are unlevered, and analyze episodes of market volatility induced by redemptions without any regard to how direct forms of leverage embedded in fixed income mutual funds may amplify volatility during periods of rising redemptions (see for example Feroli, Kashyap, Schoenholtz and Shin, 2014, Chapter 1 of the International Monetary Fund's October 2014 Global Financial Stability Report, Chapter 6 of the BIS' 84th Annual Report, and Brown, Dattels and Frieda, 2014 (forthcoming)).

But all of these views sit uncomfortably with the hard evidence presented above, and recent revelations about "perceived" alphas (see Gross, 2014b) and price action in the interest rate derivative markets amidst soaring redemptions from the largest bond portfolio in the global financial ecosystem – the PIMCO Total Return Fund (see Mackenzie and Meyer, 2014). More concretely, a look at the portfolio of this specific fund provides good examples of the forms of leverage discussed above.

...

More broadly, the above example demonstrates the evolution of the traditional core product of the asset management industry – long-only, relative-return funds – as it came under pressure from two directions: from hedge funds, offering absolute return strategies, and from passive index-replication products in the form of low-cost exchange traded funds (ETFs). Core-satellite investment mandates became the trend, with hedge funds providing alpha and index-replication vehicles delivering beta at low cost. Traditional asset managers responded to this challenge a number of ways: some by launching their own, internal hedge funds, and some by incorporating into their core products many of the alternative investment techniques used by the hedge funds. These industry trends were the sources of competitive push that drove the above-mentioned creep of leverage into the industry's traditional, long-only, relative-return bond funds (and hence the rise of levered betas), all designed to stem the flow of assets to the hedge fund competition and command higher fees as the profitability of traditional core products was squeezed (see Bank of New York, 2011 as well as Haldane, 2014).

And visually:

In short, what Poszar is saying is that in a world in which the traditional broker-dealers and banks have indeed reduced leverage and instead use $2.5 trillion in Fed reserves as fungible collateral against which to buy credit derivatives (for example as in the case of JPM's CIO office and its attempt to corner the IG9 market) the buyside community, which as we have long discussed has largely avoided equities due to fears of a spectacular market implosion (and certainly minimized levered exposure in the space with the exception of several prominent HFT participants) has instead been forced to chase after fixed income products. And chase with leverage that would make one's head spin as can be seen in the outlier chart above.

And while Poszar may be quite correct in stating that most have missed the leverage creep he observes above...

Perhaps the key reasons why economists have missed the creep of leverage into the traditionally long-only world of fixed income mutual funds are the conceptual gaps in the way in which the U.S. Financial Accounts (formerly the Flow of Funds) depict the global financial ecosystem, and by extension, the limited mental map it gives to economists who use it to understand asset prices.

... one entity that does understand all this and grasps the momentuous implications of even the smallest quantum of interest rate increase, is the entity where Poszar previously worked: the US Treasury and the Federal Reserve itself.

And so, the next time someone asks "why is Yellen so terrified of even the smallest possible rate hike", show them this chart above and explain that the Fed vividly remembers what heppened when LTCM blew up. What the Fed doesn't want, is not one but one thousand LTCMs going off at exactly the same time in what is now the world's most levered trade...
strannick

So the dollar isnt going up because of America's sound fundamentals? But rather because its newly minted QE is being used to make leveraged, unhedged gambling bets in derivatives markets (ie. CDOs that cant be paid by counter parties like AIG to losers like MF Global) by primary dealers as repo collateral instead of being released into the economy and increasinging the money velocity?

So the Fed is lying when they say they will soon raise interest rates? Even though raising interest rates .25 % would add 100s of billions in interest to the over 18 trillion dollar debt?

So there is a quadrillion dollar hidden -shadow- banking system beyond the site of Congress and investors at large? That is potentially worse than a 1000 Lehmans?

So then shouldn't we be using our overvalued dollars to buy suppressed under valued gold

waterwitch

I found this helpful:

http://www.barclayhedge.com/research/educational-articles/hedge-fund-str...

ZerOhead

Crap... It's just like the movie SPEED with Sandra Bullock and Keanu Reeves back in '94 when a former banker rigs a bus loaded with muppets to explode unless he get's paid a million$$ ransom.

If Yellen let's the speed fall below 50 MPH then the bomb goes off and everyone dies.

Meanwhile she's desperately looking for an off-ramp called ECONOMIC GROWTH but it ain't there... and now she's running out of road and there's a hole in her gas tank...

SWRichmond

we look at Poszar's findings about the implied leverage within the fixed income asset space

Do you have any idea what the avg rate on the 10 year bond is?

Of course it is about leverage, it has always been about leverage. There are two ways for control freaks to fight a deleveraging: 1) print money, and 2) re-lever. And since the fixed income markets are by far the largest, guess where the leverage (mostly in the form of swaps) was placed?

And in order to keep this leverage from blowing up, interest rates have to stay zero, forever. This is not rocket science. Neither, however, is it reality, but that is what they are trying to do.

Totentänzerlied

1. Average all-time historical return is 0 or negative. Inflation beyond a few tenths of a percent only became a standard phenomenon during the industrial age. This is one of the key points of metallism and one of the reasons monetarists and chartalists (more like charlatans) hate metallism.

2. Savers should not have their money in the bank (or brokerage) if they don't want the banks to use it.

To my knowledge the long-run average coupon on government debt in all places was 3%-5% or less, it was the preferred asset class (in addition to farmland, of course) of the rentier parasites of recent centuries. This high rate is part of why we got national income taxes; careful what you wish for.

There is no point in calling fiat currency stolen, any more than there is in calling a unicorn stolen. It is all debt, not money. The theft begins as soon as it is loaned into existence. Beyond that, the interest means it by nature requires theft from the future.

aVileRat

Fun fact,

The mean 'seed' fund runs at around 120% gross and you would think one would do a 'hedged' book, you know, at best 100% leverage, maybe 120% gross in extreme periods right ?

Saw a fund yesterday, small, about XYZ MM under management, running on 197% gross and 300% net. Yes, you are reading that correct. US Institutional qualified, with more than 10 accounts.

Now either I'm getting really old, or my idea of risk management is totally shot to shit at this stage in my career, but this guy was balls deep in fixed credit and swaps. Refused to give over his VaR metrics, or altman score, but had a stupidly great sharpe ratio. Some days, when I think about how some junk companies inflate by 20% a day, I think about this guy, and his fund.

And I wonder, what if this is the new normal. If Bill, Leon, George.... old crew is working away, and there are a whole bunch of wingnuts like this ZYZ nutter who are chasing yield with every risk hedged to keep below your Prime guidebook, but in reality are running at ratios Myron Sholes would have shit himself at.

Just a food for thought.

Toten is 100% correct, risk free is a economic concept derived from post-war 1918 sov. growth rates vs. the real 400 years of economic history; While Case Shiller's often trot out CAPE model works great at predicting rate moves using smoothing, that whole thing assumes underlying growth conditions which are not normal; namely a baby boom, accretive fixed capital rates, technical revolutions every 5 to 10 years and monetary stability. Throw CAPE into some funky currency wars, like the 1750's with only 3 varables ? busted like TRIPS.

Fed policy is going to give stability, which we expected

Now the rest needs to come from the rest of the world. Arguably the US technocrats are more inclusive and forward looking than the fractionalized govts in Japan (no offense Abe!) so Fiscal policy, has a fighting chance of at least respecting the structural reforms required by US gov, lest major allies switch to RNB; creating the bi-material system Austrians badly want. Where RNB is the 'silver' and UST is the 'gold standard'.

If they fail to act, and US corps/US Trading partners will continue to plan outlays for tax management & accretive ROE's to optimize their USD purchasing power, and will invest abroad. Which is pretty much what happened when economic powers dropped gold or bi-standard switching the last time this happened; when the world had a band of iron to every corner of the globe.

In this scenario, US investors can certainly rely on price stability, but as Janet Yellen said in press scrum today: the world is responsible for their own portfolios and yield valuations. Fed does not promise a risk free rate, nor does it target a risk free rate; only inflation & job growth.

As ZH has spoke about ad nausum, job quality is shit, and projected tax planning & wage growth, when millennials hit 40 is going to be nowhere close to sustaining the AA rating of the USA, let alone its G8+7 trade allies. So until we see 57% of U-5 semi-attached workers actually get with something approaching post-war wage & family formation rates, achieving a 8% risk free world is beyond us. Which is where a Fiscal & technocratic solution comes into play; and requires a global coordinated effort which is inclusive of all the key countries. The alternative ? They'll just fuck off and hit up China, turning a blind eye to middle kingdom 2.0, which was a key behind the dead global growth post- 1 AD, and likely even pre-1AD given Chinas total inability to govern that cesspit since the Bronze Age.

In this scenario, I think back to that tool, and his reach for yield hyper-LTCM trading vehicle. When that martingale hits zilch, what happens to them? Will it matter at that point ? Will credit origination matter at all when NIRP becomes accepted as a cost of trade, and we simply trade in 1 oligarchy and swap in UST? where the UST becomes a scarce form of barter like gold was in 1500 ?

Will Primes and Institutional investors be able to tell the difference between technical and productive growth at that point ? Or will the fear of risk, or perhaps the lack of education on industry specific risk lead to a total lack of interest in exploration & moonshot capital ?

Fun fact, the cotton gin is thought to have been 'invented' in at least 5 instances in history, but it only was when some Jews with a some funny names decided to arb their trade float for a merchant capital fund. This was amid a raging stagflation enviroment, and it worked out well for us since 1680.

If we are staring down the barrel of another 40 year stagnation ecosystem (at least), and if we assume Washington/NATO gridlock extends as long as the Holy Roman Empire's decline; we could be in for a good long time of NIRP.

On an end note. ZH lobbied for 'healthy' deflation for 4 years, and now its happening. You cant have a rate hike, and price deflation at the same time. We are done with the Keynsian real time lab study, and now we're onto the Austrian study:

Austrians propose that Federal reserve money printing is the bane of all evil, and the Fed is the sole originator of all credit default which starts the busines cycle. The fed is now accomodative, and neutral, as 'the market' desired. Now its time for the Austrian system to prove money is all locked into one closed economic system; and fixed capital can thrive in a liquidity moderating system.

Our current economic model based on the 1929-1941 experiment proved flawed, so lets see what happens. Ball is in 'the market' and ZH's court to prove this works, in my view.

And for the little meth-Myrons out there, lets hope this NIRP works. If 92/95 happens (it still could with the natural move in rates down by currency flight to USD; esp if ECB is limit bound by QE assets), that is our best solution out. And Gold is at best, a marginal utility vehicle for wealth preservation; which makes Goldbugging a moot point if we're arguging (happily I might add) for creative wealth destruction to prosperity.

TLDR:

- Credit risk is a passing fad, they will flame out if growth is going to its pre-1880 level of stangation to -3% for most of Europe; without Antilla's creative destruction no less. Its about 10x worse today than when Rockstar did his very well done study on shadow risk, and how its warping leins & economic momentum.

- USA's trade partners will eventually conclude its a bad trade partner due how a strong dollar is killing both domestic wealth effects, and the USA's increasing protectionism, USA global policy becomes inert as the USA Dol & T's become a Giffen good

- Last time something barbaric happened, large debts and a useless Technocratic fiscal govt. had their way with the world, we ended up with a badly FUBAR Europe, and all 14 eras of Chinese society.

- Settle in, unless the last 2 generate something constructive; you are all fucked. But thats good for doom porn lovers.

- Yellen looks at the same shit as ZH. In fact, she straight up said she knows it just as well as TD1, and until you see the same numbers they do, which they do, and real time u-5 wages and job quality improves, forcasts changed, because Saudi Arabia had a Taper Tantrum, and while inflation is one part of the puzzle, data dependance is just as transparent as a post on ZH.

And to hike rates would bail out wall st. Pensions, at the further expense of 'the middle class', and pretty much the entire world. As predicted.

alphamentalist

wake up! look at the jefferies numbers of the other day. it is nearly impossible for banks to make money under these conditions. sure they saw some MTM on their rates books back in '10/11/12, but the rest of "earnings" for years running has been from mark-to-fantasy, headcount reductions, buybacks, offshoring, and loss avoidance (delaying foreclosures and repossessions on NPLs). this the-Fed-is-saving-the-banksters meme, while popular, doesn't fit the observable realities. fed policy is--as tiny timmah geithner confessed--the best progressive economics in action.

it is direct monetary financing of our bloated federal government. when you see a person doing something most people infer the motivation for the action is the reward for the action. in the case of the fed we need to adjust our optics to understand they are doing things not to be rewarded but to avoid consequences (like the Dutch boy with his finger in the dike, no Yellen pun intended). what would happen if they allowed a return to market economics?

the federal government would have to fund its ever growing shortfall in the rates market. that would probably be possible at first, but the higher rates would slow the remains of the "economy", which would increase demand for services AND retard tax receipts, which would increase the funding shortfall, which would push up rates, which would choke the economy, which would...well, you get the picture. without the Fed, the overlevered federal candy machine would quickly tear itself apart.

I think the Fed is going to try to raise in order to re-set the shock absorbers before the coming sell off in order to maintain at least the illusion they can stimulate the economy. but it is too little, too late. we will quickly be back to the Fed protecting the politicos by trying to slow the collapse. (to keep this simple I have avoided the obvious asset-inflation scheme as a tool to keep large donors happy, but even analyzing that will bring you back to the same place: the Fed must protect the politicians or die trying.) this is the slow motion death rattle of America's nanny state.

kaiserhoff

This is a very popular view, but it is wrong. We are talking about fractions of a percent. Declining oil prices have given them an undeserved window, in which to begin normalization.

It's true there is no exit strategy. There never was. This is their one last chance to let market rates emerge without complete chaos. They are too stupid to take it. Unfortunately, the consequences will fall on us all.

tahoebumsmith

The FED has over 4 Trillion on their balance sheets now compared to 852 billion in 11/08.. The US Government has over 17 Trillion dollars of debt compared to 9.23 Trillion in 11/08... need I say more? That is unless they don't have to pay interest> Were all Japanese now and if inflation forces the 0% interest Ponzi to raise interest rates you might just as well bring the whole herd of deer out Tyler because it will be carnage

WTFRLY

9/11 Truth: Judges shocked by first time seeing video of WTC 7 collapse in Denmark court

walküre

"Magic" number 7

US is run by gangsters. Greatest criminal enterprise ever conceived in the history of man.

KuriousKat

The hellicopters will come but they won't be dropping money.

Some folx ain't waitin till September..

coming to a theater near you.

http://news.yahoo.com/police-car-burnt-windows-smashed-start-anti-ecb-06...

Frankfurt (AFP) - Violent clashes between anti-capitalist protesters and German police left dozens injured and a trail of destruction in Germany's financial capital as the European Central Bank opened its new headquarters Wednesday.

Draghi, addressing some 100 invited guests at a low-key ceremony, rejected blame for the suffering brought by budget cuts and austerity policies amid the financial crisis in Europe.

MATA HAIRY

um...those are europeans rising up against their masters. Not americans.

Americans are cattle and will never do so. At least white americans never will.

kchrisc

"There was a time when Zoltan Poszar was the most important person at the Fed (and Treasury), because he was likely the only person in the government's employ who grasped the enormity and complexity of the then-$30 or so trillion US shadow banking system."

The FedRes is NOT a part of the governmnet, but a PRIVATE branch of the PRIVATE Zionist banking cabal that owns and controls the DC US.

The FedRes only wants to comprehend the ramifications of their actions the same as a thief does. And like a thief, they wish to keep their loot, and to remain free to thieve more in the future.

The banksters need to repay us. Guillotine the Fed. Audit the heads.

yogibear

LOL, the Federal Reserve can't raise rates.

Just BS the markets for months and later years.

The markets may have just figured it out.

[Mar 16, 2015] List of countries by oil consumption

Mar 16, 2015 | Wikipedia, the free encyclopedia

This is a list of countries by oil consumption based on the [2]

Rank Country/Region Oil consumption
(bbl/day) Year

1 United States 18,840,000 2011 est.

2 China 9,790,000 2011 est.

3 Japan 4,464,000 2011 est.

4 India 3,292,000 2011 est.

5 Russia 3,196,000 2012 est.

6 Saudi Arabia 2,817,000 2011 est.

7 Brazil 2,594,000 2011 est.

8 Germany 2,400,000 2011 est.

9 South Korea 2,301,000 2012 est.

10 Canada 2,259,000 NA

11 Mexico 2,133,000 2011 est.

12 France 1,792,000 2011 est.

13 Iran 1,709,000 2012 est.

14 Italy 1,454,000 2011 est.

15 Spain 1,384,000 2011 est.

16 Singapore 1,380,000 2012 est.

17 Indonesia 1,322,000 2011 est.

18 United Kingdom 1,217,000 2013 est.

19 Australia 1,023,000 2011 est.

20 Netherlands 1,010,000 2011 est

World Crude Oil Production by Year (Thousand Barrels per Day)

year production change

1980 59,420.56 NA

1981 55,904.87 -5.92 %

1982 53,312.60 -4.64 %

1983 53,130.85 -0.34 %

1984 54,379.94 2.35 %

1985 53,843.26 -0.99 %

1986 56,202.61 4.38 %

1987 56,536.07 0.59 %

1988 58,593.86 3.64 %

1989 59,694.83 1.88 %

1990 60,404.45 1.19 %

1991 60,112.96 -0.48 %

1992 60,093.48 -0.03 %

1993 60,157.95 0.11 %

1994 58,805.19 -2.25 %

1995 59,949.60 1.95 %

1996 61,282.65 2.22 %

1997 63,317.67 3.32 %

1998 64,468.21 1.82 %

1999 63,322.39 -1.78 %

2000 66,268.41 4.65 %

2001 65,865.38 -0.61 %

2002 64,973.32 -1.35 %

2003 67,327.29 3.62 %

2004 70,706.05 5.02 %

2005 72,176.09 2.08 %

2006 71,945.59 -0.32 %

2007 71,611.84 -0.46 %

2008 72,581.54 1.35 %

2009 71,317.64 -1.74 %

2010 73,216.29 2.66 %

2011 73,485.09 0.37 %

2012 75,063.80 2.15 %

2013 75,239.91 0.23 %

[Mar 16, 2015] File Under Improving Economy, Not

If the US is at Full Employment and the Economy is at full steam ( as Obot lackeys keep telling us), then why is the Fed Funds rate still at 0%. Isn't 0% Fed rate an indicator of an Economy On Life Support. Tell me why I'm wrong.

March 14, 2015 | naked capitalism

participant-observer-observed, March 14, 2015 at 5:19 am

This is int'l but insofar as City sleeps with Wall St, it may be relevant to see that City has a new boyfriend, getting front page coverage at the Taipei Times

Beijing yesterday hailed Britain's announcement that it would seek to join a Chinese-led development bank, after Washington voiced caution about the move.
. . . .
London's move drew a cautious response from Washington, a rare note of discord in their "special relationship," which follows criticism from the US about Britain's cuts to defense spending.
China and 20 other countries signed a memorandum of understanding to establish the Beijing-headquartered bank in October.
"We believe any new multilateral institution should incorporate the high standards of the World Bank and the regional development banks," US National Security Council spokesman Patrick Ventrell said.
"Based on many discussions, we have concerns about whether the AIIB will meet these high standards, particularly related to governance, and environmental and social safeguards."
The bank has support from countries including India, Singapore, Malaysia, Cambodia, Pakistan, the Philippines, Uzbekistan and Vietnam.
China's official Xinhua news agency rapped the US for its skepticism, writing in a commentary yesterday that Washington "exhibited nothing but a childish paranoia towards China."
"It seems that the US government needs to be reminded that bias and a deep-rooted strategic distrust towards China are by no means helpful in forging a healthy relationship with the country," Xinhua wrote.
"It's imperative for Washington to change its mindset," it said.
World Bank president Jim Yong Kim yesterday also welcomed the setting up of the China-backed bank.

Llewelyn Moss, March 14, 2015 at 8:51 am

If the US is at Full Employment and the Economy is at full steam ( as Obot lackeys keep telling us), then why is the Fed Funds rate still at 0%.
Isn't 0% Fed rate an indicator of an Economy On Life Support. Tell me why I'm wrong.

cassiodorus, March 14, 2015 at 5:02 pm

Employment-population ratio: 59.3%, where it was in July of 2009
Employment-population ratio, 25-54: 77.3%, about where it was at the beginning of 2009
There has, then, been only a limited recovery.

[Mar 15, 2015] North America Crude Oil Production Remains Strong

Mar 15, 2015 | Zero Hedge

JustObserving

North America Crude Oil Production Remains Strong
Let's give that statement some numbers and context:
Yet US continues to import at least 7.3 million barrels a day. So does China (7.3 mbd). India imports about 3.9 million barrels a day. World oil production is between 92 and 93 million barrels a day - say, 92.5 million barrels a day
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=MCRIMUS2&f=A

post turtle saver

The US and China import because they're the #1 and #2 refiners in the world, respectively. Not everything that's imported into the US and China ends up being used in the US and China... just to add some context to your context...

JustObserving

US consumes about 19.5 million barrels a day and produces about 12 million barrels a day from all sources (actual oil production about 9.5 million barrels a day). So imports have to be about 7.5 million barrels a day. It is not as if the US is exporting millions of barrels of oil per day.
China is using about 10.7 million barrels a day and producing about 4 million barrels a day. So it needs about 6.7 million barrels a day of imports for domestic consumption.
The oil price decline is mainly due to economic warfare:
The Engineered Decline in Oil Prices: Economic Warfare is the West's Main Weapon
For Russia, exports of oil and gas equate to 68 per cent of Russia's total exports, and 50 per cent of its federal revenues
http://www.globalresearch.ca/the-engineered-decline-in-oil-prices-econom...

DaveyJones

Considering the US peaked in the early 70s and the world peaked in about 2004 things are a mess. If oil was in abundance how come all the oil seems to live with bad guys wherever we aim our weapons.

How come it makes skyscrapers defy gravity.

weird that is

angel_of_joy

One year from now the current wells will start showing the rapid exhaustion typical for fracking sources, and production will decline abruptly. By then a lot of companies will be pretty fucked up, will minimal resources for new exploration.

The whole industry will become another un-holly debt mess... just in time for elections ;)

dougie

Most of the increased production is from the already drilled, but uncompleted wells that are decreasing in number as they are completed and not replaced by more drilling. The stock of uncompleted wells will be exhausted in the not too distant future, leading to radically decreased production as fracked wells enter their steep decline. Meanwhile, drilling companies are disappearing as prices are well below the break even point of fracked wells.
BTW, great irony with the pic of "bomb trains" that are exploding all over the North American continent. Funny stuff.

Thirtyseven

Makes one wonder about opportunity costs. Even if producers are producing at a loss, wouldn't their losses be greater if they were not producing at all? Thus: Oversupply.

Winston Churchill

Slow motion bankruptcy, is still bankruptcy. A lot of the long term oil hedges start dropping off in April. The counter parties have already been taking a bath, once those hedges have gone, look out below.

silverer

It's interesting to see how this is happening. Oil is a magnificent example to show how the entire economic and banking system is predicated on continuous growth only. There is an automatic system in place for growth, but not for shrinkage.

Oversupply into any market would normally result in lowering productivity of goods. If you can't sell all your widgets, you start to crank out less. It all works out OK if you are still profitable to pay your overhead and debt, or you have no debt. Here's the perfect trap going forward for most businesses: only up works. How can the oil system go backward evenly in an ordered fashion with so many suppliers to keep profits where they need to be at margins dictated by supply and demand?

With constantly dropping consumption on this scale, even if all the producers worked together, the price/margin math would eventually still not work. This is exacerbated by the fact that there is so little leeway regarding how all this is financed (big time loans to the max!). It might be easier to do if no loans existed against the rigs, but that is the stick poking the bear for sure. At some point, rigs are going to have to be shut down.

If they were owned outright with no financing, then only the rig owners are impacted. But the loans go way beyond the rigs, to the paper that everyone is holding and all the other crap the banks attach to it. We're about to get a lesson in going backwards, but it isn't going to be a fun one.

angel_of_joy

It's going to be a lesson about things to come... full speed ahead, then forced stop !

knukles

Yes. It's all about cash flow. It it were textbook theory, they'd just quit, shut down. But this is reality. Debt service and payrolls need to be met, structure run or ruin. It's about cash flow. A lot of rigs can be idled, but production form others gets ramped up. Over simplified, but gets the point across.

And probably ain't a gonna change at current prices. If we get to, just picking a number, say $20, then things get shuttered for good. Equipment old off, leases sold, etc.

Youri Carma

Can Canada's oil sands cope with $50 crude?, Mar 13, 2015 Financial Times https://www.youtube.com/watch?v=L_YFFL3o-vw

Oh regional Indian

Looking at the Crashing BDI etc., I checked and found that global shipping accounts for only 4.5% of annual oil consumption. That is way lower than I thought and thus the shipping slump clearly does not impact demand THAT drastically.
Americans are still going high on the SUV hog. So there is that. And all the ships (tankers etc.) that are not sailing are storing.

In short, this oil production constant to increasing and price plummeting looks good for a few months more. When global storage gets full, the bombs will start to fly and we'll see $150 oil in short order again. Turn the other (ass) cheek...
https://aadivaahan.wordpress.com/2015/03/14/wisdom-for-rawriors/

fremannx

Deflationary depressions present economic situations that are hard to understand out of context. Regardless of production levels (which are being financed with borrowed money), crude prices are a function of the deflationary vortex consuming every asset class today.
Falling crude prices should take a short break and correct somewhat in the near future, but the long-term picture remains down...

http://www.globaldeflationnews.com/oil-light-sweet-crudeelliott-wave-upd...

jdtexas

Low oil prices are helping auto-related sector.....temporarily

Renault's Russian Lada Division Takes Over Crimeas Auto Market

U.S. DOT Adds 4 Tire Codes For New Russian Tire Imports

Kia is Now Russia's Best-selling Car

Ford Launches EcoSport In Russia For Production In Naberezhniye Chelny

Ford To Roll Out 6 New Models in Russia

Jack Burton

The recent wave of US oil production was heavily leveraged and this oil is on the margin. Oil producers are heavily in debt for the costs of production, thus they must produce full out to try and meet payment schedules to banks and investors. If they cease producing due to low prices, they immediately face bankruptcy. The real fall out of low oil prices is not NOW, it is in the following months down the road when producing at a loss, and trying to meet interest payments catches up with high cost of production US oil producers. You gotta face the fact, Saudi oil comes out of the ground at a small fraction of the price of new US and Canadian sources. 1/10th the cost of Tar Sands mining.

Hohum

Counterpoint: https://www.dmr.nd.gov/oilgas/stats/historicalbakkenoilstats.pdf

In.Sip.ient

Of course oil production is strong. US gov't figures show demand outstrips production world wide by about 15Million bbls!

This is all about the US$

Specifically, the US$ is being re-priced relative to DC "gold" ( what you and I call "oil" ) in response to the activation of the SCO. A nice suckers rally in US$ is having all sorts of follow on effects in the US$ denominated world. Even makes oil look like a disaster.

Oh, and it makes the economies in the SCO look like they are faltering or failing. Problem is, that with a large chunk of the worlds economy running through the SCO ( and by definition entirely outside the US$ financial system ) we make a huge mistake assuming the late great US$ based financial system actually indicates anything real in the world economy...

Wonder if this is why our allies ( like the UK !!! ) are looking at entry into the SCO...???

[Mar 11, 2015] The Gathering Storm

Mar 1, 2015 | Jesse's Café Américain

"I hope I am over wary; but if I am not, there is, even now, something of ill-omen, amongst us. I mean the increasing disregard for law which pervades the country; the growing disposition to substitute the wild and furious passions, in lieu of the sober judgment of Courts; and the worse than savage mobs, for the executive ministers of justice...

At the close of that [revolutionary] struggle, nearly every adult male had been a participator in some of its scenes. The consequence was, that of those scenes, in the form of a husband, a father, a son or brother, a living history was to be found in every family-- a history bearing the indubitable testimonies of its own authenticity, in the limbs mangled, in the scars of wounds received, in the midst of the very scenes related-- a history, too, that could be read and understood alike by all, the wise and the ignorant, the learned and the unlearned.

But those histories are gone. They can be read no more forever. They were a fortress of strength; but, what invading foeman could never do, the silent artillery of time has done; the leveling of its walls. They are gone. They were a forest of giant oaks; but the all-resistless hurricane has swept over them, and left only, here and there, a lonely trunk, despoiled of its verdure, shorn of its foliage; unshading and unshaded, to murmur in a few gentle breezes, and to combat with its mutilated limbs, a few more ruder storms, then to sink, and be no more.

They were the pillars of the temple of liberty; and now, that they have crumbled away, that temple must fall, unless we, their descendants, supply their places with other pillars, hewn from the solid quarry of sober reason. Passion has helped us; but can do so no more. It will in future be our enemy. Reason, cold, calculating, unimpassioned reason, must furnish all the materials for our future support and defence.

Let those materials be moulded into general intelligence, sound morality, and in particular, a reverence for the constitution and laws: and, that we improved to the last; that we remained free to the last; that we revered his name to the last; that, during his long sleep, we permitted no hostile foot to pass over or desecrate his resting place; shall be that which to learn the last trump shall awaken our Washington.

Upon these let the proud fabric of freedom rest, as the rock of its basis; and as truly as has been said of the only greater institution, 'the gates of hell shall not prevail against it.'"

Abraham Lincoln, Lyceum Address, January 27, 1838

Gold and silver did very little today, despite the brisk sell off in equities. The denizens of the bucket shops were busy picking pockets in other markets.

The global economy is in a very difficult circumstance, and the Fed is at the heart of it. I have no sympathy for them whatsoever, because they have placed themselves there, repeatedly, by their actions and omissions as manager of the world's reserve currency and key regulator of one of the world's most influential financial markets.

Will the Fed raise rates as they have now led the world to expect, or will they do nothing, and essentially cut them by once again kicking those who believe them in the expectations?

Most Americans do not understand what is going on in the rest of the world. It is not pretty. Europe is hanging by a much thinner thread than I think the plutocrats in Frankfurt and Brussels realize.

The emerging markets are absorbing a great deal of inflation being generated and exported by the US. It would be extremely interesting to have access to a reliable estimate of Eurodollars. I think we are experiencing yet another Eurodollar short squeeze as the debts contracted for by overseas companies in dollars feel the stress of a disjointed global financial system.

It took a little over twenty years for the unease that Lincoln describes above to explode upon the landscape in a bloody civil war. It might be worth reading his entire Lyceum speech. It surely does not describe what we might think of as domestic tranquility and pastoral bliss. The republic endured, but at a terrible cost.

In our age reason and morality and honour have fallen to the despicable cheapness of 'greed is good' and the foul god of the market.
Have a pleasant evening.

[Mar 11, 2015] U.S. oil production still surging

Mar 11, 2015 | econbrowser.com | 26 Replies

The EIA is now reporting that U.S. field production of crude oil averaged almost 8.7 million barrels a day in 2014. That's up 1.2 mb/d from 2013, and is only 0.9 mb/d below the all-time U.S. peak in 1970.

Production of oil by means of fracturing shale and other tight formations is the main reason. The EIA drilling productivity report estimates that production from the Permian, Eagle Ford, Bakken, and Niobrara– the main tight oil producing areas– was 1 mb/d higher in 2014 compared to the previous year. I used that estimate to update my graph of U.S. production by source. The tight oil story is pretty dramatic.

U.S. field production of crude oil, by source, 1860-2014, in millions of barrels per day. Updated from Hamilton (2014) based on data reported in [1], [2].

And it seems to be continuing. The February drilling report estimates production from those 4 regions will be almost 0.3 mb/d higher this month than it was in December. That's leading to record levels of U.S. inventories.

Source: EIA.

How much longer will production keep going up? Much of the new production can't be profitable at current prices, and the number of drilling rigs operating in the tight oil areas has fallen 12% since September.

Combined oil rig count for Permian, Eagle Ford, Bakken, and Niobrara, January 2007 to January 2015. Data source: EIA.

That presumably means less than a 12% reduction in production from new wells, for two reasons. First, it is the least promising new prospects that will be cut first. Second, there has been a learning curve improving productivity of new wells.

Average oil production per rig (in barrels per day) across Permian, Eagle Ford, Bakken, and Niobrara, January 2007 to January 2015. Data source: EIA.

Working against these is the fact that production from existing wells continues to decline. But at the moment, it seems further adjustments on the part of drillers will be necessary in order to bring the supply of oil in balance with the demand.

This entry was posted on March 8, 2015 by James_Hamilton.

Selected Skeptical Comments
Jeffrey J. Brown March 8, 2015 at 10:25 am

Because of declining production, Mexico no longer has sufficient domestic light, sweet crude oil production to meet the domestic demand from refineries designed to process light crude, so they are going to have to start importing light crude, although they remain a net oil exporter.

In any case, the Pemex official quoted in the following article had an interesting comment about condensate (which is basically natural gasoline that is not of much use as feedstock for producing distillates like diesel fuel).

As I have previously noted, in my opinion it is very likely that actual global crude oil production (45 and lower API gravity crude oil) probably peaked in 2005, while global natural gas production and associated liquids–condensate and NGL's–have so far continued to increase.

And when the EIA refers to "Crude Oil," they define it as actual Crude Oil + Condensate (C+C). Just as we don't know for sure what the Condensate to C+C ratio is for US production, we don't know what the ratio is for US C+C inventories, but in both cases, I suspect that the Condensate to C+C Ratio has increased substantially in recent years.

In any case, US imports of crude oil remain relatively high, at about 44% of the C+C inputs into refineries. I suspect that refiners continue to import a lot of crude oil, because they have to, in order to get the product output that they need.

Mexico's Pemex aims to start importing light crude this year (2014)

http://uk.reuters.com/article/2014/08/28/mexico-pemex-idUKL1N0QX2TL20140828

Aug 28 (Reuters) – Mexican state-owned oil company Pemex wants to launch light crude oil imports later this year, potentially reaching up to 70,000 barrels per day (bpd) and aimed at boosting refinery output, the head of its commercial arm said.

The imports would mark an abrupt shift from a decades-old devotion to crude oil self-sufficiency in Mexico, long a major exporter to the United States. It also comes after a sweeping energy sector overhaul which seeks to reverse many years of declining output and export volumes.

"Our objective is that (crude imports) will begin this year," said Jose Manuel Carrera, chief executive officer of PMI Comercio Internacional, Pemex's oil trading arm. His comments are the strongest signals to date on both the timing and potential volumes of light crude imports to Mexico. . . .

While U.S. companies Pioneer Natural Resources and Enterprise Products Partners have secured permission to ship a type of ultralight oil known as condensate to foreign buyers, Carrera all but ruled out the possibility.

"Condensate is not necessarily what Mexico needs. It needs crude," he said.

Jeffrey J. Brown March 8, 2015 at 10:30 am

A product yield by gravity chart follows, which explains why Pemex, and other refiners, need crude oil, not condensate. Note the substantial decline in distillate yield, just going from 39 API gravity to 42 API gravity (labeled as "Condensate" on the chart):

http://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

And a graph showing API gravity versus sulphur content for several grades of global crude oil (note that the chart scale tops out at 40 API gravity):

http://i1095.photobucket.com/albums/i475/westexas/APGravityVsSulfurContentforCrudeOils_zpsc28e149c.gif

Jeffrey J. Brown March 8, 2015 at 1:46 pm

EIA Forecast for US Crude + Condensate Production by Type

Note the forecast for the very modest increase in 40 API gravity and lower crude oil production, versus the total increase in US C+C production:

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

2slugbaits March 8, 2015 at 11:12 am

Second, there has been a learning curve improving productivity of new wells.

The standard learning curve formulae and learning curve tables that I know and use typically show a very sharp increase initially and then the curves go very flat very quickly.

rjs March 8, 2015 at 1:29 pm

so, i've got a question…if oil inventories are at a record high 444.4 million barrels, up 22.2% from the same period a year ago, as your EIA graph shows, then why did we continue to import 7.4 million barrels a day during the last week of February, 89,000 barrels a day more than we imported during the previous week?

Jeffrey J. Brown March 8, 2015 at 1:49 pm

Perhaps because the bulk of the increase in US Crude + Condensate production and inventories consists of condensate?

SPENCER March 9, 2015 at 6:09 am

We are probably importing more oil because speculators are to bring home and selling stocks that had been held in tankers offshore as a bet on higher prices.

They have to cut their loses at some point.

rjs March 9, 2015 at 6:51 am

i answered my own question above here: http://www.dailykos.com/story/2015/03/09/1369526/-rig-counts-for-February-and-the-week-just-ended-and-what-are-we-gonna-do-with-all-this-oil
in a word, contango

Randall Parker March 8, 2015 at 10:11 pm

Jeffrey J. Brown, Peak oil has been delayed by technology for extraction of tight oil. The future is uncertain. The doomsters of 10 years ago were excessively pessimist. Care to own up to excessive pessimism? I'm guilty.

The $100 trillion dollar question: can tight gas extraction be made to work outside USA?

Jeffrey J. Brown March 9, 2015 at 6:46 am

To be clarify slightly, in my opinion tight/shale plays have delayed Peak Liquids, while the trillions of dollars spent on global upstream capex since 2005 have just kept us on an undulating plateau of actual crude oil production.

Note that when we ask for the price of oil, we get the price of actual crude oil (45 and lower API gravity crude), but when we ask for the volume of oil, we get some combination of crude + condensate + NGL + biofuels.

Following is a chart showing normalized values for global gas, global natural gas liquids (NGL) and global Crude + Condensate (with 2005 values = 100%), through the year 2012 (similar trends for 2013):

http://i1095.photobucket.com/albums/i475/westexas/Slide1_zps45f11d98.jpg

The following chart, posted up the thread, really tells the tale. It shows the EIA's own projection for the composition of US C+C. As noted up the thread, the distillate yield from 40 and higher API gravity liquids drops tremendously, and what refineries need, in order to meet refined product demand, is mostly 40 and lower API gravity crude (as expressed by the Pemex CEO), while the vast majority of the increase in US liquids production is from 40 and higher API gravity liquids.

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

Condensate & NGL are byproducts of natural gas production, and in my opinion the only reasonable interpretation of the available data is that actual global crude oil production (45 and lower API gravity crude oil) effectively peaked in 2005, while global natural gas production and associated liquids, condensate and NGL, have so far continued to increase.

The end of civilization as we know it March 9, 2015 at 7:44 am

@ Jeffrey J. Brown

Great charts!

They go a long way in explaining why, in many parts of the US, gasoline now sales for more than low-sulfur diesel. Fifteen years ago that never happened.

I'm no refinery expert, but I believe many, if not most, of the myriad petroleum byproducts we depend upon also come from the lower-gravity crude oils. See, for example, A partial list of products made from Petroleum (144 of 6000 items). "One 42-gallon barrel of oil creates 19.4 gallons of gasoline," the heading reads. "The rest (over half) is used to make things like:"

I would add a caveat to your discussion. The decision to send Mexico's low-gravity, high-sulfur Mayan crude to the Gulf Coast for refining also has to do with the high-sulfur content of the crude. It's not all about gravity. Like I said, I'm no refinery expert, but I remember reading that Mexico's current refinery infrastructure lacks the capability to refine high-sulfur crude oils. The Gulf Coast refineries, on the other hand, have a surfeit of this type of refining capability. I do not know how much of the decision to send much of Mexico's low-gravity, high-sulfur Mayan crude to the Gulf Coast has to do with gravity, how much has to do with sulfur content, and how much has to do with other factors, such as US geopolitical exigencies (as is the charge frequently leveled here in Mexico). However, these factors are worth looking into.

Jeffrey J. Brown March 9, 2015 at 10:43 am

To clarify slightly, my analysis suggests that gasoline may be in surplus*, relative to distillates like diesel, and the most recent data put the US average retail price for gasoline at $2.46 versus $2.93 for diesel. *Or to be more accurate, refiners don't need any more condensate input.

I think that the following EIA chart, which shows that US 40+ API gravity C+C liquids increased from 1.4 mbpd in 2011 to an estimated 4.2 mbpd in 2015 (an increase of 2.8 mbpd), versus a projected increase of only about 0.7 mbpd in 40 and lower API gravity crude from 2011 to 2015, really tells the tale, especially when combined with the refinery yield chart that shows that Cat Feed + Distillates drops from about 52% at 39 API gravity to about 20% at 42 API gravity:

http://i1095.photobucket.com/albums/i475/westexas/US%20Crude%20Oil%20Production%20by%20Type_zpsso7lpqgq.png

http://i1095.photobucket.com/albums/i475/westexas/Refineryyields_zps4ad928eb.png

40 API and lower crude accounted for 75% of US C+C production in 2011, but the projection was that it would only account for 54% of US C+C production in 2015.

And as noted elsewhere, it took about half the global rig fleet (targeting oil and gas reservoirs) just to show a projected increase of about 0.5 mbpd in quality crude oil production (40 API gravity and lower) from 2011 to 2014.

Jeffrey J. Brown March 9, 2015 at 8:25 am

Re: The $100 trillion dollar question: can tight gas extraction be made to work outside USA?

In areas where tight/shale plays may be commercially feasible outside the US and Canada, the key question is whether operators in a given play can drill and complete wells fast enough to offset the declines from existing wells and add new production. Early last year, US rigs accounted for about half of the total global rig count, which gives one an idea of the scale of the drilling and completion effort that it would take to replace the output from giant declining global oil and gas fields with the output from high decline rate tight/shale plays.

It's interesting to look at some regional declines in US oil and gas production, e.g., marketed Louisiana natural gas production (the EIA doesn't have dry processed data by state).
According to the EIA, the observed simple percentage decline in Louisiana's annual natural gas production from 2012 to 2013 was 20%. This would be the net change in production, after new wells were added. The gross decline rate (from existing wells in 2012) would be even higher. This puts a recent Citi Research estimate in perspective.
Citi estimates that the gross underlying decline rate for overall US natural gas production is about 24%/year. This would be the estimated year over year decline in production if no new wells were put on line.
Based on the Citi report, the US would have to replace 100% of current natural gas production in about four years, just to maintain current gas production for four years*.

*Of course existing production would not decline by about 100% in four years at a 24%/year decline rate, but I am stipulating a "What if" steady state production scenario.

The end of civilization as we know it March 9, 2015 at 7:04 am

This is an extremely bad example of reporting. Does it get any worse than this?

What it does is to take the official spin being evangelized by the EIA and other members of the "drill baby drill" crowd - folks like ExxonMobil's chief executive Rex Tillerson - and faithfully and uncritically parrots it.

It's the same old boilerplate, for example, that we got a couple of days ago from the Financial Times. In its drive to perpetuate what Michael Klare calls the "Reign of Carbon," the Times sublimely reported that:

Oil production in the Eagle Ford is not going to fall away any time soon: with the benchmark West Texas Intermediate at about $50 a barrel on Friday, it is profitable to keep pumping from most established wells. On Wednesday, Rex Tillerson, ExxonMobil's chief executive, said US shale production would be more resilient than many had expected.

If the crude price rebounded to $80 or $100, the good times could return.

Those not enamored of being part of Karl Rove's defactualized "create-your-own-reality" universe, however, might want to go over to the Texas Railroad Commission's Online Research Queries to see what is actually going on in the Eagle Ford shale play.

Those who do so will make a shocking discovery: Crude oil and condensate production from the Eagle Ford peaked in August 2014 at 356 million barrels (total production for the entire month). By December 2014 it had fallen to 319 million barrels for the month. And this was well before the precipitous decline in the number of drilling rigs operating in the Eagle Ford. In the first week of September 2014, Baker Hughes reports that 202 drilling rigs were actively drilling in the Eagle Ford. That number by the first week of March 2015 had dropped to 149.

For those skeptical of the future carbon Utopia being touted from inside the Beltway, being spun by the likes of the EIA and Rex Tillerson, IHS has done significant research, and offers a dissident point of view:

IHS study suggests U.S. oil production to halt by mid-year

The end of civilization as we know it March 10, 2015 at 9:14 am

That should read:

Crude oil and condensate production from the Eagle Ford peaked in August 2014 at ~~356~~ 35.6 million barrels (total production for the entire month). By December 2014 it had fallen to ~~319~~ 31.9 million barrels for the month.

AS March 9, 2015 at 9:12 am

The End
Could you repeat your comments is a more succinct way (bullet points?) perhaps without sarcasm. If readers are busy, it is difficult to determine your point without reading all the citations. I am interested in what you have to say, but find it difficult to follow your thread without a lot of clicking.

The end of civilization as we know it March 9, 2015 at 12:00 pm

@ AS

Well I'm not sure that the complexity of the human condition or the universe can be reduced to bullet points. However, I'll give it my best shot:

The need to slay the energy vampire (and Russia, Venezuela and Iran at the same time) for fun and profit is great.

The US right-wingers have their preferred silver bullet to slay the energy vampire: the US's fabled and highly touted shale gas and oil resource plays. (US left-wingers also have their preferred silver bullet to slay the energy vampire - the envisioned future Green energy Utopia - but that is a topic for a different discussion.)

Because the need to slay the energy vampire is so great, there's a lot of lying and wishful thinking going on when it comes to shale gas and oil.

As it turns out, the right-winger's silver bullet is a blank. It is little more than a flash in the pan.

The Barnett Shale play was the first major US shale play.

In 2013, the world was shocked when the Bureau of Economic Geology at the University of Texas concluded that the average EUR from the 16,000 wells in the Barnett Shale would be only 1.44 billion cubic feet.

This was a time when industry, and those advocating for US full-spectrum dominance, were still touting average EURs from wells in the Barnett at between 2 and 3 bcf per well.

When the University of Texas released its study in February 2013, many felt that even it was too optimistic. Jim Fuquay, for instance, asked in the Fort Worth Star-Telegram, "But what about producers' estimates of 2 or even 3 bcf?"

Fuquay pointed out that at that time, even though many of the Barnett shale wells had already been producing for years, "Only 512 wells in the Barnett Shale, or less than 3 percent, have produced 2 bcf in their lives." He added that "A mere 70 wells, less than 1 percent, have hit 3 bcf or more."

As it turns out, the University of Texas study was too optimistic. If one takes a pen and traces actual production from the Barnett Shale for the past four years over the graph of the study's production forecast, what we see is that production for a couple of years exceeded the forecast, but then production went into a steep nosedive and has declined much more rapidly than the researchers had predicted.

Average EUR from a Barnett Shale well now looks to be well below 1 bcf, or a half, a third or even less of what producers had hyped.

There is a long history of distortions and exaggerations, which find fertile ground with true believers in American exceptionalism and full-spectrum dominance, being perpetrated by shale oil and gas producers.

There exists considerable evidence which suggests that these distortions and exaggerations have not stopped, and that they continue unabated to this very day.

As I said, the need to believe in a silver bullet to slay the energy vampire, despite all factual evidence to the contrary, is great.

AS March 9, 2015 at 12:39 pm

The End

Thanks for your comments. If I understand you correctly you agree with Jeffrey Brown and I think Professor Hamilton that we are past peak oil and that world oil harvesting is in decline, since the harvesting of tight oil is not going to rescue an energy hungry world. What now then for energy sources?

Nick G March 10, 2015 at 10:52 am

Well, personal transportation accounts for the majority of oil consumption.

Personal transportation is easily done with EVs – a Chevy Volt costs less to own and operate than the average US passenger vehicle, and gets 200MPG. A Nissan Leaf is the lowest cost vehicle on the road.

EVs can be ramped up pretty quickly – They're 3-4% of sales right now (including hybrids). Production volume could be doubled essentially overnight, and doubled every two years thereafter. In 8 years you could be at 80% of new vehicles, and in another 5 years they'd account for 50% of vehicle miles driven. In another 6 years they'd account for 75% (vehicles less than 6 years old account for 50% of VMT). Ethanol accounts for about 10% of passenger transportation fuel, so a fleet of Chevy Volts could be powered with no oil at all.

There's a pretty straightforward path forward, if we needed a short term fix to get us through a period of fast depletion, or another oil shock while we were transitioning to EVs. The US could reduce passenger fuel consumption by 50% essentially overnight by raising the average passengers per vehicle from 1.2 to 2.4. Look at Uber, look at smartphones for connectin with people. There are very, very few destinations in the US that no one else is going to. On almost any road, look around: there are other people on the road, going in the same direction.

With an ad hoc smartphone based system, you could find someone going in your direction almost anywhere. And, even with old-fashioned employer-based systems, about 10% of Americans carpool to work right now.

Carpooling – the horror.

Mason Inman March 9, 2015 at 4:42 pm

Dr. Hamilton-I was curious where you got the data points for offshore oil production statistics during the early years (~1950 to 1980).

The EIA pages that are cited as the sources of the data appear to only have data separated into on-shore and off-shore going back to 1981. Elsewhere, I've seen EIA data showing this split, going back to 1970, but not any earlier than that.

James_Hamilton Post author March 9, 2015 at 7:05 pm

Mason Inman: See Annual Energy Review, Table 5.2.

Mason Inman March 10, 2015 at 1:27 pm

Thanks so much! I hadn't seen that data set before.

Steven Kopits March 10, 2015 at 3:16 pm

Are we surprised there's corruption and incompetence?

http://money.cnn.com/2015/03/10/news/economy/world-leaders-salaries/index.html?iid=HP_LN

Anonymous March 11, 2015 at 4:29 pm

I wonder if it is possible to do an econometric analysis of fuel prices and actual consumption levels.

We've seen very modest appreciation in fuel efficiency and less driving in the passenger transportation side considering the near tripling of real costs, i.e, how much households spend on gasoline as a percentage of their income.

So, at what price point does elasticity of demand really kick in, and can we do any realistic quantitative projection, controlling for such factors as employment levels and necessity costs (those households who have no alternatives but to pay more – they can't don't have any substitutes in transit or can't afford to buy more efficient vehicles) .

[Mar 10, 2015] Alan Greenspan Warns Of Explosive Inflation Tinderbox Looking For A Spark

Mar 10, 2015 |

Zero Hedge

Last month it was revealed that former federal reserve Chairman Alan Greenspan, the architect of U.S. monetary policy under four Presidents, is anticipating a significant market event as a result of the trillions of dollars that have been pumped into the system over the last several years. According to Greenspan, something big is coming.

His comments were shared by well known resource analyst Brien Lundin, who joined Greenspan for private discussions at last year's New Orleans Investment Conference. In his latest interview Lundin further clarifies Greenspan's private thoughts on current economic and monetary policy and sheds light on the former Fed Chairman's suggestion that 'something big is coming.'

Greenspan made some good points to me… He was concerned about inflation… He was specifically concerned in relation to the outstanding, or excess, reserves which are close to three trillion dollars being held on the Fed balance sheet now… That money is just hanging over the U.S. economy like a big water balloon of liquidity and it's just searching for a pin.

In fact, Greenspan referred to it as a tinderbox of explosive inflation looking for a spark.

Watch the full insider interview:

[Mar 07, 2015] How America Added 17 Million People In 7 Years... And Zero Full-Time Jobs

Mar 07, 2015 | Zero Hedge

Submitted by Chris Hamilton via Hambone's Stuff blog

Amazing Math from the Bureau of Labor Statistics

According to the most recent Bureau of Labor Statistics release, the UE (unemployment) rate fell to 5.5% as of February. The last time the UE rate was this low was May of 2008.

What I'm fascinated by is the fact that the US population grew from February 2008 to February 2015 by 16.8 million persons, or a 5.5% increase in total population, and on a net basis, not a single one of those 16.8 million persons got a FT (full time) job… while a net 2.7 million were lucky enough to get a (or multiple) PT (part time) job.

This means that 14.3 million persons, or 4.4% of the current US population, were added without a single job among them (chart below). This makes for fascinating math when a 4.4% increase of the total US population without jobs can nearly halve the UE rate down to 5.5%, equal to 2008's UE rates?!?

The recent BLS data are considered "strong employment reports" and are taken as such booming harbingers of economic accomplishment that the Federal Reserve feels rates need to begin their long awaited hikes.

Just to avoid some confusion on this 16.8 million population growth…this does not mean there was a baby boom over this period…quite the opposite as a flat birth rate has been offset by an even faster declining death rate (the baby boom and older generations are living much longer than previous generations…thus the pig through the python population growth).

And just to make sure this isn't cherry picking data…below is non-seasonally adjusted raw data from the Bureau of Labor Statistics back to '08 showing rising PT jobs and declining FT jobs.

Renfield

The point isn't so much that BLS fakes its numbers. The point is the futility of believing ANY self-reporting - by government or anyone else, but especially by government. (Because they also have power of decree enforcement, their 'statistics' should be treated as propaganda and assumed to be lies as a matter of course.)

[Mar 05, 2015] Angry Bear " Why Liberals Keep Losing by Steve Roth

The problem is that a large part of Democrats are 100% pure neoliberals who might be even worse then Republicans. At least Republicans are less hypocritical. From comments: "The Democrats couldn't round up enough solid votes to pass card check, a significant amount of the caucus is neo-liberal."

March 4, 2015 | angrybearblog.com

James Carville was certainly right: "It's the economy, stupid."

And under Democrats (compared to Republicans), the economy kicks ass:

This is GDP growth, but that kick-assness is blatant in any economic measure you look at, from job growth to stock-market returns to household income to government deficits. And it's true over any lengthy period (say, 30+ years) over the last century. I could post fifty graphics here that tell exactly the same story. (Here's a favorite: even the rich get richer under Democrats.)

But now ask yourself: how many Americans know that Democrats make them richer? (Lots richer.) One in ten? Maybe? Now ask yourself why liberals keep losing.

The Republicans have successfully branded themselves as "the party of growth," and Democrats have just let them do it, for decades - even though it's completely contrary to reality.

Democrats have the strongest possible political argument sitting in their rhetorical holsters, but for whatever reasons, they just won't draw.

There is one and only one story that Democrats need to be telling, and they need to follow the Republican political playbook: repeat it endlessly, for years on end.

We will make you richer. We've been doing it for decades, and we'll keep doing it.

"Equality" is important (especially because it does make people richer). But really: Americans just change the channel.

"Opportunity" is important. But it's just a proxy for, a chance of, getting richer.

"Getting the rich" (truly progressive taxes, a more-level playing field, reining in finance) is necessary and important. But Americans get only visceral satisfaction from that message – it doesn't speak to personal, direct, material benefit that they're going to experience.

Americans want to hear how Democrats are going to make them more prosperous. Full stop.

And Democrats have a loud-and-clear story on that subject. They just need to 1) tell that story constantly, repetitively, ad nauseum, like the Republicans do, and 2) put aside other stories (like, identity politics) that dilute, confuse, and distract from that story.

Start with that lede - "we make America prosperous" - and a whole litany of talking points emerges. And they're the very talking points that have driven Republicans' (otherwise inexplicable) political success over the last thirty years.

But there's one key advantage for Democrats: In their mouths…the story is true.

Democrats could be stealing Republicans' best Frank Luntz/Grover Norquist talking points and riding them all the way to the ballot box. Here's a sampling to start with:

Wisdom of the Crowds. Democrats' widespread government spending - education, health care, infrastructure, social support - puts money (hence power) in the hands of individuals, instead of delivering concentrated streams to big entities like defense and business. Those individuals' free choices on where to spend the money allocate resources where they're needed - to truly productive industries that deliver goods people actually want.

Preventing Government "Capture." Money that goes to millions of individuals is much less subject to "capture" by powerful players, so it is much less likely to be used to then "capture" government via political donations, sweetheart deals, and crony capitalism.

Labor Market Flexibility. When people feel confident that they and their families won't end up on the streets - they know that their children will have health care, a good education, and a decent safety net if the worst happens - they feel free to move to a different job that better fits their talents - better allocating labor resources. "Labor market flexibility" often suggests the freedom (of employers) to hire and fire, but the freedom of hundreds of millions of employees is far more profound, economically.

Freedom to Innovate. Individuals who are standing on that social springboard that Democratic policies provide - who have that platform beneath them - can do more than just shift jobs. They have the freedom to strike out on their own and develop innovative, entrepreneurial ventures that drive long-term growth and prosperity (and personal freedom and satisfaction) - without worrying that their children will suffer if the risk goes wrong.

Give ten, twenty, or thirty million more Americans a place to stand, and they'll move the world.

Profitable Investments in Long-Term Growth. From education to infrastructure to scientific research, Democratic priorities deliver money to projects that the free market doesn't support on its own, and that have been demonstrated to pay off many times over in widespread public prosperity.

Power to the Producers. The dispersal of income and wealth under Democratic policies provides the widespread demand (read: sales) that producers need to succeed, to expand, and to take risks on innovative new endeavors. Rather than assuming that government knows best and giving money directly to businesses, Democratic policies trust the markets to direct that money to the most productive producers.

Fiscal Prudence. True conservatives pay their bills. From the 35 years of declining debt after World War II (until…Reagan) to the years of budget surpluses and declining debt under Bill Clinton, Democratic policies demonstrate which party deserves the name "fiscal conservatives."

Labor and Trade Efficiencies. The social support programs that Democrats champion - if they truly provide an adequate level of support - give policy makers much more freedom to put in place what are otherwise draconian, but efficient, trade and labor policies. If everyone is guaranteed a decent wage by an excellent program like the Earned Income Tax Credit, we have less need for the admittedly mixed blessings of unions and protectionism.

Take the graph from the top of this post and put it on billboards all over America. It's time for Americans to understand who makes them richer.

Cross-posted at Asymptosis.
Denis Drew , March 4, 2015 2:52 pm

I saw an idea in the Washington Post yesterday that might be the - no candidate could invent any excuse to oppose it/no candidate should dare - perfect Democratic win issue: a law requiring a vote for or against having a union in every workplace. This vote would take place in every workplace every so many years. How can a pol tell us we cannot vote?!

Laws that decimate unions may be inevitable. Here's how labor can survive.

Mark Jamison, March 4, 2015 4:51 pm

Denis, I love your idea but it isn't going to happen and I doubt it would be as cut and dried as you suggest. The Democrats couldn't round up enough solid votes to pass card check, a significant amount of the caucus is neo-liberal.

One example, Senator Tammy Baldwin from Wisconsin. She has bent over backward to carry water for a large printer in her state and for the paper industry with respect to postal issues. She hasn't shown a bit of concern for all the jobs lost at the various processing plants in Wisconsin, real job losses not the anticipated kind Quad Graphics and the paper companies say will occur with modest increases in advertising rates (losses that aren't supported by any economic analysis).

Baldwin's one expression of concern for labor was to demand that the PMG make sure the same percentage of managers lost their jobs as craft employees.

As for the general claim of this piece, it's hard to disagree but Democratic growth hasn't led to increases in wages. It hasn't led to a system where productivity gains are shared beyond the 1%. There's no question that at this point in time any nominal Democrat is better than any nominal Republican but quite frankly that isn't saying much. Bill Clinton's economic team helped set the table for a whole lot of pain for a whole lot of folks. Was Clinton's triangulating better than what any Republican would have done? No doubt but that doesn't mean that what Clinton did was all that good.
There's a world of difference between Democrats like Warren, Brown, and Whitehouse than a good deal of the caucus. We need to return to ideas that value public goods, that create an even playing field for workers and labor while reining in the excesses of the technocratic watch state.

Thornton Hall, March 4, 2015 7:00 pm

If you want to know why something worked in the time of FDR but not in the time of Clinton, you might ask yourself: what has changed?

Have politicians changed? FDR was a rich scion of the Northeast. Congress was full of lawyers, doctors, and other wealthy people. Big banks used their cash for maximum influence. None of that is any "worse" now than it was then.

There has been a dramatic change, though. The media used to be produced by the working class, for the working class. Pulitzer and Hearst employed high school graduates who wrote things that other not-well-educated people wanted to read.

Today, our journalists have masters degrees and write breathy inside baseball stories that are all based on the (ruinous) Watergate formula of professional news: access, access, access.

The "left" bitches and moans about leadership and messaging and a long list of things that haven't changed. Just because you're educated, don't mean you're smart.

[Feb 27, 2015] The EU's plan for an energy union would call Vladimir Putin's bluff by Natalie Nougayrède

Neocon cause is lost cause. No amount of propaganda can change this fact. This pressitute sings Anglo-American official tune with a little bit too much zeal... Even for Guardian pressitute... From comments: "A military empire (US + EU + NATO) with an hegemonic agenda which conquers territories either peacefully (the 28 EU countries) or violently when there is resistance by destabilization leading to war (Yugoslavia, Libya, Syria, Mali, Central Africa, Palestine and now Ukraine) or overthrow elected governments (Ukraine, Latin America), or both in total disregard of international law. "

Feb 27, 2015 | theguardian.com

... ... ...

It's easy to understand why the proponents of an EU energy union would use slightly grandiose language to sell their ideas. They have cast this plan as the "most ambitious European energy project since the Coal and Steel Community" of the 1950s. After all, energy solidarity is what Europe was all about at the start. Having France and Germany share their coal and steel was seen, in the words of Robert Schuman, one of the founders of the European project, as the best way to "make war not only unthinkable but materially impossible". Peace and prosperity were to flow from regional integration.

Last year, war broke out in the country (Ukraine) through which most of Russia's energy exports transit on their way to many of our homes. A key feature of Putin's Ukraine strategy has been to make sure this country of transit would never quite escape Moscow's domination – and that Gazprom would never lose the possibility of directly controlling Ukraine's gas pipelines to Europe.

The Brussels commission is right to push for a new union. Energy should be, along with freedom of movement for people, goods and services, a key dimension of the EU. It would help in dealing with Russia's behaviour as well as in tackling climate change. It is of huge strategic importance. Yet it has not happened – so far – because it is so difficult to build politically, and it will be expensive.

Energy is run nationally – not at EU level – at present. Key countries, especially the UK, France and Germany, have their own views on how energy policy should be run, and they are all different. The UK has a deregulated market, many private players, and no dependency on Gazprom. France is highly centralised, with a handful of , state-controlled big players and 75% of electricity generated by nuclear power (which is anathema to the Germans). Germany dislikes nuclear energy and wants to get rid of it, preferring to burn coal if they run out of gas or renewables. And they have had historically good relations with Gazprom. Poland burns a lot of coal (it prefers that to Russian gas), but Poles also want to look for shale gas. They don't worry that much about greenhouse gases. The list goes on.

There is a disorderly patchwork of energy policies across Europe. But questions that have been important for years need to be re-addressed. It is too late to settle scores over who wrecked Europe's previous chances of setting up a common energy policy. But Germany does have a special responsibility here. Its large and powerful energy companies, E.ON and RWE, were the first in the early 2000s to carve out long-term contracts with Gazprom without much consultation with European partners. Later, Germany unilaterally signed up to Russia's North Stream pipeline which the Baltic states and Poland could only perceive as an attempt to pressure them geopolitically.

The new EU plan doesn't aim to dismantle such realities but is pragmatic enough to try to deal with some of Europe's obvious weaknesses. Because energy has been mostly a domestic issue there are very few, interconnecting pipelines and grids. The plan is to build more. This would allow compensation for energy cut offs – such as the ones that Russia created in 2006 and 2009, causing thousands of eastern European homes to be left without heating for weeks.

Another idea is to diversify energy supplies by working on a southern gas corridor linking Europe to Turkey and Central Asia, or by setting up liquified natural gas hubs in northern Europe that could act as back-up in case of another gas crisis with Russia.

The complexities are numerous. Some energy business insiders point out that negotiating with a Central Asian country such as Turkmenistan is like landing on another planet. One told me about a meeting with 30 Turkmen government officials sitting immobile behind long tables in the Hall of the Peoples of Turkmenistan's capital, who didn't say a word but just stared. Turkmenistan is a big gas producer whose operatives have been known to sell the same quantity of gas several times over to various buyers (Russians, Chinese, etc).

... ... ...
Bosula -> Fencewalker , 27 Feb 2015 21:39

How am I an obvious Putinbot because I'm critical of neo cons and journalists who trot out one article after another on the same themes? Follow what this smiley faced right winger writes and you'll see.

These journalists should be criticised and that is the purpose of free speech and posting on this site.

Just because you disagree with my posts doesn't make me a Putin bot.

My family connections are with Ukraine - not Russia.

irishmand -> JamesPl , 27 Feb 2015 21:31

"I can't blame you for demanding Putin that pays you in a hard currency! Thanks to him, a rouble isn't worth using as toilet-paper, now.
A user name 'Irishmand' who only comments on Russian issues and always with a pro-Kremlin view - you know that Astroturf always looks fake, right?"
1. I am in Canada. Hence, Canadian Dollars.
2. Read my profile. It explains a lot.
3. Yes, I love Russia and I like Putin. What is wrong with it? I see the western media lies. Your media became a shame of this "free democratic" society.

sparrow10 -> joem , 27 Feb 2015 20:36

I also think the US is desperately trying to 'take out' sources of energy not under their control: for instance Russia and Venezuela.

We don't have sanctions on Russia because of trouble with Russia, we have trouble with Russia in order to have sanctions. Who do the sanctions hurt? Russia and the EU. Who do sanctions help and not hurt? The US. Cui Bono.

I see Joem, talking to yourself, is that because no-one else will listen.

Paul Greenwood , 27 Feb 2015 20:31

Britain should pay for Ukraine's gas by imposing VAT on newspapers. It seems unfair that Naftogaz should have to pay for gas when it is a natural resource. Britain gets gas free from Qatar shipped in charity tankers so people in Britain do not have energy costs, it is only fair that the EU guarantee free gas EU-wide and that energy be a free good in Greece as well as Britain.

Bosula jezzam, 27 Feb 2015 19:00

The US has no issues talking with many right wing undemocratic regimes. I don't follow your point.

Since WW2 the US have meddled in, waged war against or directly overturned popular and democratically elected countries in 69 UN member nations.

Bosula -> omasta, 27 Feb 2015 18:49

I've attending many Holodomor commemorations, but why I stopped going was that many other Ukrainians did not like hearing that millions of other Soviet citizens from across the Union were also starved and sent to Siberia. At this time a few million Russians also starved. With a Ukrainian family I agree the Ukrainians were affected the most, but you should recognise the millions of other Soviets including Russian people who also starved. The problem is that acknowledging Stalin's plans were not just against Ukraine weakens some of the propaganda that has kept into Holodomor.

Another point - not sure how this is relevant to greed and corruption in Ukraine by the Oligarchs, stealing Russian gas and not paying bills?

irishmand -> Polvilho, 27 Feb 2015 18:37

What do YOU know about Chechnya, my little far right ultra-nationalist buddy?
Also, why do you pretend to be Irish?

I was born in Russia lived there until 2004. I lived in Moscow when Chechens were blowing up residential buildings, buses and subway stations there. I lived in Moscow when Nordost happened. My farther was a high rank police officer, I also worked in the force myself. I worked in the office in Moscow and when Chechens didn't like something in the contract two Mercedeses full of Chechens with AK's came to the office. Chechen criminal group is one of the strongest in Moscow.
I know people who went to that war. It was a war, yes. It was horrible, yes. This war was going on for 300 years, with more or less intensity.

Bosula , 27 Feb 2015 18:29

Why does this neo con reporter not raise any questions about our Saudi oil friends and their support for Islamic extremism not to mention involvement in 9/11?

It is a pity is that the US State Department will give her another briefing this week and then we will receive another of her anti Russian sermons.

Any bets on her next topic?

Perhaps a critique of the EU for its diplomatic focus on East Ukraine rather than taking a hardline arming Kiev to the hilt, even sending in NATO troops.

Maybe her briefing by the State Department is still to blacken, demonise and soften up the public about everything Russia being awful and a threat.

irishmand -> Polvilho, 27 Feb 2015 18:25

Also, classy display of chauvinistic nationalism just to prove how "not a fascist" you are.
Heads up, your lot have shot Nemtsov, in a typically cowardly dick move.

1. I don't anything chauvinistic nationalism in what I said
2. There is a principal in Russia: when you speak about a dead person you either say goods things or nothing. I don't think Putin decided to eliminate Nemtsov, he was not a threat to him. It might have been a business issue.

irishmand -> Polvilho , 27 Feb 2015 18:22

No you didn't, unless you're over 80.
Also, why are you pretending to be Irish?

1. My grandfather died in the war.
2. I am not, please see my profile. It is just a nickname. I love Cranberries.

irishmand -> LinneaBorealis, 27 Feb 2015 18:19

It is a geographic fact that Russia EU/Europe a neighbours but you are totally deluded if you believe EU wants to be partners with a Russia that throws its military power about, bullies and threatens, annexes parts of a neighbouring country. Can't you see what damage Russia has done to itself bringing war and distruction to Ukraine? EU wants to co-operate as equal partners, not being bossed about, lied and dictated to.

You put too much blame on Russia. Turn around and look at US/EU who installed a fascist regime in Kiev.

Russia also wants to deal with the partners it can trust. But after what happened in Kiev, who will trust US/EU, only a madman. US/EU clearly demonstrated that the only way they deal with anybody is everybody has to accept US/EU's point of view, otherwise he is hitler, fascist and dictator. US/EU is also ready to lie through thier teeth to get what they want. Is it a democracy?

Bosula -> Tikibarwarrior, 27 Feb 2015 18:17

And he doesn't appear to have any links with Ukraine so my guess is he is working in some paid capacity for one of the US agencies that undertake this soft propaganda role ( there are many so it is not obvious which one it might be).

irishmand -> Rudeboy1, 27 Feb 2015 18:10

Putin can't afford to cut the gas off. Russia is completely reliant on gas exports. LNG shipping cannot replace pipelines efficiently. Any Russian moves to decrease reliance on supplying Europe dovetail roughly with how long Europe would take to be weaned off Russian gas.

1. Russia can't afford not to supply gas.
2. Europe cannot afford not to buy gas.
3. US wants to sell shale gas in Europe.
4. Hence, Maidan... US problem solved

It would take Europe 3-5 years to find an alternative for Russian gas. It will allow Russia to build pipes and LNG terminals to re-direct gas flow to Asia. Everybody is happy.

irishmand -> dropthemchammer, 27 Feb 2015 18:03

For those saying Russia has not used gas as a weapon :
http://www.independent.co.uk/news/world/europe/ukraine-crisis-putin-will-cut-gas-to-europe-unless-russia-is-paid-by-the-end-of-the-week-10071475.html

Yes, the whole theory here is the western media are saying truth, when they are not. So, all you links are just reference to another lie.

Tikibarwarrior -> maureen mcmillan , 27 Feb 2015 18:03

I'm in the same boat as you Maureen. I voted for Obama twice but this past year I had my eyes opened. I never thought I would see what I have seen on video in regards to Ukraine.....and I never thought I'd see the US back murderous neo-Nazi fascists. It is has been a truly horrifying, eye opening year.

mikedow -> ID5868758, 27 Feb 2015 18:01

This operation has been underway for decades. It's probably been in the planning stage ever since Western Europe made the gas deal with Russia in the beginning. Carter and Reagan both didn't like it back then.

irishmand -> Gangoffour, 27 Feb 2015 17:59

The Indians are tiny customers in comparison to the EU. Regardless, there are closer suppliers who easily undercut Gazprom on price.

1. 1.1B people it is definitely smaller market than EU one, no doubt.
2. Who is closer and cheaper supplier for India?

Polvilho -> irishmand, 27 Feb 2015 17:58

What do YOU know about Chechnya, my little far right ultra-nationalist buddy?

Also, why do you pretend to be Irish?

irishmand -> jezzam, 27 Feb 2015 17:57

Russia has lost the West as a market at a time when there is a glut of oil. It is now set to become China's cut-price gas station. I understand the deal with China was at such a low price that Russia will actually lose money on the deal. Another triumph for Putin's foreign policy. China will be a much worse master for Russia than the West would have been.

1. Have you seen the contract between Russia and China.
2. Europe partially lost Russian market. Few people in sane mind will trade with you and trust you after what US/EU did.

irishmand -> dropthemchammer, 27 Feb 2015 17:55

My point is that number is not bigger then the 30% of europes gas meaning Russia will be out of pocket.

You should try it, so far it was only empty words.

Tikibarwarrior -> omasta, 27 Feb 2015 17:55

New Ukraine, deserves the criticism. They are a failed fascist state (that is economically imploding due to mismangement and corruption) that has spent the last year bombing it's own citizens and killing over 10,000 of those citizens. Don't embarrass yourself.

Chirographer -> ID5868758, 27 Feb 2015 17:53

It's called a business decision. Based on a net profit. Even more than common sense, it's arithmetic.

Common sense comes under attack when political calculations are put into the equation.

irishmand -> dropthemchammer, 27 Feb 2015 17:53

all the pipes have the option to flow from other directions.

1. What direction?
2. How much the gas flown from another direction costs?
3. If Russia is so bad, you should stop dealing with Russia completely. Close your borders to Russians and break all the existing ties.

ID5868758 -> mikedow, 27 Feb 2015 17:50

And the US Congress votes to give Obama another $500 million tax payer dollars to arm and train those "moderate rebels" he's been arming and raining since the beginning of the phony "civil war" in Syria.

Tikibarwarrior -> psygone, 27 Feb 2015 17:50

Psygone, why should you care if they break ties, you've campaigned against Russia at the Guardian for the entire past year?

irishmand -> jezzam , 27 Feb 2015 17:49

"You miss the point. The EU is not unwilling to buy oil from Russia because it is a fascist dictatorship, but because it is an unreliable supplier. Other suppliers do not threaten to cut off supplies to further foreign policy aims."
1. Please provide the examples of Russia being "fascist dictatorship"
2. Please provide examples of Russia being "an unreliable supplier".

irishmand -> dropthemchammer, 27 Feb 2015 17:47

None of them have invaded their neighbors.

No they didn't. They had and have corruption, civil wars and genocide, but it is irrelevant, because their governments are loyal to US/EU. So, they are goods guys.

Don Scott, 27 Feb 2015 17:45

Maybe the US should have thought about the consequences of undertaking a coup in Ukraine and installing an anti-Russian government there.

irishmand -> dropthemchammer, 27 Feb 2015 17:43

He will not be in power next year. there is a general feeling that he will not win elections. THus he is not a dictator.

You are rrght, he is not, he is a brainless puppet. The puppeteers are not visible. In one year they will install another puppet. It is what's called "illusion of democracy". You an elect a president, but he or she is of no importance and in reality don't make any decisions.

Polvilho -> irishmand, 27 Feb 2015 17:41

Also, classy display of chauvinistic nationalism just to prove how "not a fascist" you are.

Heads up, your lot have shot Nemtsov, in a typically cowardly dick move.

irishmand -> Polvilho, 27 Feb 2015 17:33

"What, you fascists? I'm not surprised."
Another snappy answer.
We Russians, who standing united with other nations of USSR stopped german fascists and their ukrainian friends Bandera and Shukhevich. The Germans have learnt their lesson, but ukranians have not. Now ukranians fascists are back for another lesson, which is being taught to them as we speak.

irishmand -> Alderbaran, 27 Feb 2015 17:26

1. Exactly, this is what I was talking about: "Kievan Rus' begins with the rule (882–912) of Prince Oleg, who extended his control from Novgorod south along the Dnieper river valley..."

2. I would be stupid to argue that there is full blown democracy in Russia. However, Inet is not filtered, there are some opposition newspapers, TV channels and radio stations. You can also install a satellite dish and watch whatever you want. The only thing they will come on you very hard and quickly for is if you start calling for the change of government by force. But nobody in Russia will support this topic seeing what happened to Ukraine after Maidan. Nobody wants Maidan in Russia.

Also the meaning of the gay regulation law was twisted in the western media. The only thing it prohibits is promotion of gay values in public, which, I am sorry, I support.

irishmand -> Polvilho, 27 Feb 2015 17:12

Wow, snappy answer. You have no idea about manners, do you? Well, it is typical. It is how I see people of your kind.

1) You first, twinkle.
If it is my choice, then I say there is no funding and arming.

2) Russian fascists. In Ukraine. Lots of them. Hard to miss. One was Prime Minsister of the DPR before Zakharchenko, who's attitude towards Jews suggests he is also a fascist, despite not being Russian.
Again, no proof, empty words. No value.

3) You're right, Russia is clearly not financing the FN and other fascist parties. They must just all support Putin because they see in him a man after their own heart.

We love Putin. He finally slapped on the face people like you. You are pissed off, of course, but if you keep messing around, he will slap you more.

Gil Matos-Sequí -> psygone 27 Feb 2015 09:21

It is too early to say what the results of the suit will be. I think the suit has as much if not more to influence the power of the EU over it's constituent members in negotiating gas prices and contracts. Russia does not stand to loose much in negotiating one price for a huge block as opposed to smaller contracts. This will affect the price of course but it will most likely mean that smaller countries end up paying significantly more than they are paying. As far as the accusations about over pricing by Gazprom, it is ridiculous. The price of Gas is tied to the price of oil and each contract devises a formula relative to the specifics of the deal. Gazprom already envisages itself selling gas to Europe from gas hub via Turkey and Turkey already envisages itself a the major gas hub and transit point for Europe, wether it be gas from Russia, or Azerbaijan, or Turkmenistan, or wherever. This lawsuit will have very limited bearing on geopolitics or real-politik over which the EU frankly has little influence.

RVictor -> caliento 27 Feb 2015 09:18

former Chancellor Schroeder

It is due to Schroeder Germany has now uninterpretable gas supply through the Nord Stream.

RVictor -> elti97 27 Feb 2015 09:16

Solar energy, for example, already accounts for 6% of German electricity

Wow! 6%! Amazing! Especially in winter time on north parts of Germany - solar energy will for sure cover heating needs!

AtMyAge 27 Feb 2015 09:11

A key feature of Putin's Ukraine strategy has been to make sure this country of transit would never quite escape Moscow's domination – and that Gazprom would never lose the possibility of directly controlling Ukraine's gas pipelines to Europe.

OH come on! This is a key feature of the EU's policy - to force Russia to transit gas across Ukraine in order to force Russia to supply Ukraine at below market rates or face losing the EU market.

Russia has been doing EVERYTHING possible to bypass Ukraine and supply Europe by other routes - but the EU keeps blocking it. Russia fires up the south stream pipeline project and Brussels bullies Bulgaria to stop work on, so Russia announces an alternative route via Turkey, but again the EU refuses to commit to making the connections.

In short, the EU is using energy policy to attempt to bully Russia - not the other way around.

Asking to be paid for supplying gas is NOT bullying nor using energy as a weapon. Its called business. When you go to work, you expect to be paid at the end of the week/month the salary that you were promised not insulted and accused of bullying when the money you are owed is not paid and you are reluctant to continue to work for nothing...

Simon311 -> psygone 27 Feb 2015 08:58

"It's strategically important to see Gazprom lose its market share in the world's richest and largest trading bloc."

Is it? Does it make strategic sense to mix economics for a recovering economy with power politics?

Does it make strategic sense to provoke a nuclear power?

Tikibarwarrior -> Jeremn 27 Feb 2015 08:55

The EU is in the process of falling apart due to the misguided policies implemented in Ukraine. This article is past tense. It may have made sense previously but the Greeks are on the edge of leaving due to the huge austerity/ECB rip offs. What people need to understand is that Russia isn't the enemy of the European people. The real problem in Europe is the increasing poverty and growth of right wing extremism/neo-nazism due to crippling austerity policies conducted by the ECB/IMF/EU vassal leaders. The goal for the 1% has been to keep the publics eye on the left hand while it moves the money into their right hands.

Like the US bailout of 2007, the take a massive chunk of change from 'we the people', they then distribute that money to the banks and the 1%ers who run those banks. They loan it out and put countries into debt slavery. I recommend watching the film "The International" (with Clive Barker) to fully understand how this is done. It is a form of money laundering. The money doesn't trickle down after they create a bailout like the recent EU 500 billion euro self award. The debt is passed on to the public who pay it back ten fold over time. The countries, like Greece, are then trapped and held in debt slavery to the banker 1%. The EU vassals continue the cycle and send in their resource/utility extractors to buy up the assets of the countries, such as what is now going on in Ukraine.

The US destabilized it, then the EU/IMF give it massive loans it can't pay back, then the big corps/hedge funds come in and buy up all the assets/utilities/farming and fracking land. After the rape is complete the people are stuck in poverty, such as Greece is.

Look at Spain. Look at the UK these days. Germany has 12% of the population in poverty, but you will never hear this from the compliant, vassal media whose job it is to keep the people in the dark and never address the real root cause of the problem, the greedy 1% who rule us all.

For the EU, Russia is the least of your worries. Energy independence isn't the problem, sovereign nations and human independence is. The EU needs to break apart so people can be free again.

Simon311 -> psygone 27 Feb 2015 08:55

What a ridiculous remark. The last thing the EU needs is a trade war and a hostile stand off with Russia,

SHappens -> Havingalavrov 27 Feb 2015 08:40

There is a quiz about Russia on this site you should take.

I suppose we could say pretty much the same about the EU:

A single party (bipartisanship hides identical policies) that monopolizes power and denies opponents access to the power.

Leadership either unelected or elected in "rigged" elections, all deeply discredited in the eyes of people who no longer have any confidence in them as they are almost all at worst crooks or puppets, and, at best, incompetent and uneducated technocrats who have lost touch with reality.

Elected leaders (parliamentarians), co-opted (EU Commission) appointed (senior) and selected (CAC 40) all from the same "aristocracy" which repeats itself and that has nothing to envy to the one that had generated the Party in the USSR.

So unpopular leaders that they can not meet the true population. All press conferences and all "errands" of the rulers out of their bunkered palaces are all staged with "extras and accessories" mounted with the complicity of subsidized state media.

Paralysis of 'governance', incapable of reforming itself as it is mired in its heaviness, its incompetence, corruption, immorality and privileges apparently attempting to binge themselves as much as possible before everything collapses.

More separation of powers, but almost complete collusion between the executive, legislative, judicial, media, financial and thus criminalization and corruption powers, all accompanied by impunity.

A military empire (US + EU + NATO) with an hegemonic agenda which conquers territories either peacefully (the 28 EU countries) or violently when there is resistance by destabilization leading to war (Yugoslavia, Libya, Syria, Mali, Central Africa, Palestine and now Ukraine) or overthrow elected governments (Ukraine, Latin America), or both in total disregard of international law.

Media propaganda lying as they breathe and producing "evidence" sometimes even gross, to deceive and manipulate the public. With less and less success, which promises the collapse of the system.

The demonization of past victims (Serbs, Libyans, Afghans, Iraqis, etc.), present (Syrians, Ukrainians Autonomist, Palestinians, etc.) and desired (Russians).

Laws that dictate the story (Law memorial) with imprisonment to those who question the "official version." Liberal laws and laws drafts to prohibit meetings or shows that displease the "device" as well as control the Internet.

The witch hunt of dissidents, even the most peaceful, who are sometimes forced to flee Russia for having told the truth; this country has in fact become a heaven for dissidents of our system as we welcome former dissidents of the USSR.

Hatred of religion: slander and defamation attacks of all kinds against two religions in particular, Catholic and Muslim, seen as hotbeds of resistance to the proposed overhaul of liberal-libertarian society pursued by the regime.

The militarization of riot police used to repress peaceful demonstrations and dissenting, discredit the protesters by provocation under false flags.

The attack by the army of its own people (Ukraine for example).

Laxity towards real criminals protected by a corrupt "elite" and towards troublemakers.

Introduction of a "police of thought" (the equivalent of Soviet political commissioners) to give the power and the means to various groups and pro-system associations to denounce, discredit, sue and even physically attack dissidents.

Mass spying (NSA-Stasi) and encouraging denunciation.

And unlike the USSR this time, many things were completely free (health, culture, education, etc.) and where there was no unemployment, destruction of social rights and workers' rights in Europe.

Back in the USSR.

[Feb 27, 2015] Over-Confidence on Steroids

"We run carelessly to the precipice, after we have put up a façade to prevent ourselves from seeing it."

Blaise Pascal

Gold and silver were hit by selling in NY this morning.

Hey, why not? Things are just what we say they are, especially when they have an increasingly tenuous connection to reality.

There was intraday commentary about 'Debt Is Just Money That We Owe Ourselves Here.'

This is beginning to feel a whole lot like 2006, where a few were just about crawling out of their skins with the nonsensicalness of what they were hearing, and the looming disaster which they saw coming.

No one really listened. I remember vividly making noise on economic chatboards, with participants saying things like 'what does he want' and 'what is he saying?' After all, Greenspan had assured us that housing was invincible and incapable of being in a bubble, and Bernanke had things well in hand, with theory triumphing over all.

And then as it is now, the herd was just blithely rolling along, following Wall Street into the next unforeseeable financial crisis.

We are there again. And like then, they know it. But they think they can manage it to their benefit, so why would they care?

And given the chance, they will do it again. It is the pleasant cycle of financialisation and accumulation. We are diverted by bread and circuses, the media's sturm und drang that anesthetizes thought.

Economists-Say-Dumb-Things Chronicles: 'Debt Is Money We Owe To Ourselves'

11 February 2015

Like so many sloppy discussions of economics to make an important policy point, but badly, this one diverges from common shared reality fairly quickly.

Let me strike the key hypothesis in this, that prompts a leap of faith, over a cliff and into the abyss of fantasy.

"Debt is money we owe to ourselves."

Something on which Mr. Krugman can agree with Dick Cheney who said, 'Reagan proved that deficits don't matter.' How is that for a twist?

From an accounting standpoint and within the realm of theoretical identities this is true. Each debt is someone else's asset.

The key of course is how we define 'ourselves.'

If 'we' are the entire planet, equally and without distinction of interests and property, then perhaps one might say, ok, although it loses all meaning and significance. I would not mind pooling my household books with one of the Banking billionaires and to be able to step up to the Fed's free cash window anytime to do my business, with the assurance that I have a government guarantee underpinning my ledger, but alas.

And this is a problem because the paramount issue we are facing today is the historically extreme concentration of capital assets in a relatively few hands, and the burden of unpayable debts being imposed upon a large segment of the people by a system that has been hijacked by the moneyed interests.

If you take this pithless observation by Mr. Krugman down one level of detail in the States for example, one finds that the debt is an asset on the books of a increasingly small number of wealthy people, with much of it controlled for them by a handful of Banks.

This system is not sustainable, and I see no sign that it will even cohere, without substantial reform.

I wonder if the average American who is losing their car and house, and who is being hounded by debt collectors for whom those debts seems to matter a great deal, can use that argument with the Banks.

Putting aside private debts, let's just stay in the realm of sovereign debt, where the economic imagination can more easily take its flights of fancy.

Debt is just money we owe to ourselves is similar to the flat pronouncement that a sovereign that issues its own currency can never default. Money is just an accounting entry so why the fuss? And from this comes a Pandora's Box of muddy thinking, a selective myopia towards history, and Trillion Dollar Platinum coins.

I wonder if Greece can use this argument, that debt is just money that we owe to 'ourselves,' when they meet with the Germans this week.

But no, the US is different. Every other country may fail, and many have including that insubstantial nation of Russia not all that long ago, but not us. We are young and immortal. Our benchmark for virtue is power, and we are virtuous enough to be able to say that when things are not working out as we planned, we are able to decree that 'money is whatever we say it is,' and God help anyone who does not agree.
And so we might presume that the mighty US is going to be able to make that case about debt forever to its creditors who are outside the direct thought control of its monetary system, a short list of which is contained below.
It is funny how the moneyed interests and their courtiers are always saying, 'debt doesn't matter,' especially when they want us to assume their gambling debts which they incurred by frauds using our own money. Until, that is, they decide to call in the loans and the debts, and impose their will upon the people with foreclosures, garnishment, austerity, and debtors' prisons.

I agree wholeheartedly that the rhetoric around the discussion of spending priorities gets silly and overheated and quite frankly disgusting. That has more to do with a society in the grip of a greedy few, corrupt public servants, sophistical theoreticians, and boisterous minions than it does with the need to expand our economic theories into existential irrelevance. Madness is certainly attractive perhaps in a land going mad, but it is unlikely to be productive.

Arguments like those from the MMT crowd, both right and left, and economists like Paul do us no favors in concocting some fantastical solution to what is primarily a problem of governance, justice, transparency, and power gone horrible wrong.

The 'debt' and the 'budget' are not an economics argument but a policy argument. What is important to us? What do we continue to hold as these truths? And how do we resolve those disagreements? Avoiding that policy and priority discussion enables those who are caught in the credibility trap to continue to beg the question entirely, and the real task at hand, which is reform.

We cannot discuss reform until we expose the corruption. And therein lies the problem, because quite a few powerful hands have been dipping into the largesse, and quite a few courtiers have a vested interest in continuing to propagate the lies and myths of a failing system.

I am not a 'hard money' guy. I am certainly not in favor of a domestic gold standard as a remedy for our current set of problems.

What I am saying, and I think it has been consistently so, is that the system that we have now is so fundamentally broken that no matter what incidental things that we do, no matter how much stimulus is provided under whatever rationales, that all good will be turned to ill, the gap of inequality will keep widening, and that the situation will continue to worsen, lurching from crisis to crisis.

Is this not what we have seen since all the programs were put in place since the crisis of 2008? That the rich are getting richer, because all we have really done is prop up an unjust, broken, and unworkable system. And I think that this is the point that is being made by Greece in Europe today.

You cannot keep a game running when the insiders that control it are making up the rules as they go along, hiding their assets, dictating the judges' decisions, dipping into the other players money at will, and generally cheating and doing whatever they wish when they wish, because they can.

The system is too flawed to be sustainable, and must change in order to cohere.

NY Times

Debt Is Money We Owe To Ourselves
By Paul Krugman
February 6, 2015

Antonio Fatas, commenting on recent work on deleveraging or the lack thereof, emphasizes one of my favorite points: no, debt does not mean that we're stealing from future generations. Globally, and for the most part even within countries, a rise in debt isn't an indication that we're living beyond our means, because as Fatas puts it, one person's debt is another person's asset; or as I equivalently put it, debt is money we owe to ourselves - an obviously true statement that, I have discovered, has the power to induce blinding rage in many people...

More than that, as Fatas points out, rising debt could be a good sign. Think of my little two-classes model of debt, where some people are less patient than others - perhaps (to step outside the model a bit) because they have better investment opportunities. Moving from a very limited financial system that doesn't allow much debt to a somewhat more open-minded system should, in that case, be good for growth and welfare...

And the problems with public debt are also mainly about possible instability rather than "borrowing from our children". The rhetoric of fiscal debates has been, for the most part, nonsense.

Read the entire piece here.

Posted by Jesse at 3:10 PM

[Feb 27, 2015] Sturm und Drang

"...it is the most alarming example of cheap demagoguery you are likely to have seen."

George Monbiot, on Rick Santelli

February 10, 2015 | jessescrossroadscafe.blogspot.com

I watched CNBC today, which is unusual.

When Adam Johnson left Bloomberg the quality declined markedly, wavering between screechy and vacuous, with lots of gossipy and giggly segways. A few notable exceptions like Julie Hyman, Tom Keene, and Eric Schatzker, but not as many since Adam Johnson left.
CNBC is not much better, again with a few notable exceptions like Bill Griffeth and Kelly Evans. It was pretty much the 'same old' as it was when I stopped watching it a few years ago.
But Rick Santelli was quite the sight.
His eyes became very open and wild as he pressed his face to the camera, his nostrils were flaring, and you could see the spit flying out of his mouth. Network for the one percent. Maybe time for a teeth cleaning.
I have seen him good naturedly gooning it up with his pit trading cronies several times before, who seem to be a dying breed by the way, and it was something you could just take in stride.

But this was something different, chewing-the-scenery-wise. Is there an inverse relationship between bombast and ratings?

It is 'financial television' after all. Infomercials interspersed with country club crudité infotainment. But today he had the persona of a park bench lunatic, and it was decidedly unattractive, if not disturbing.

And it was clearly an act.

Is he supposed to be the bad guy or the good guy? Or just the extreme guy, like George 'The Animal' Steele? Is this some new twist in broadcast journalism? Are they getting their production values from professional wrestling these days?

Who is doing their casting, Vince McMahon? And their directing, Ed Wood? Are they just following the fashions of the day? Are we all Bobby Heenan now?
Do we even know what genuine human life is all about, anymore? Do we even care? Living life in stereotypes and spin is simpler and more pliantly digestible. Is life imitating art, in caricature?
The saddest part is that this is becoming a tone for not just finance but 'the real news,' led by Fox and CNBC's sister, MSNBC. And the very serious Sunday morning shows are going off-the-hook as well, as they grapple with a credibility gap that prevents the political and media elite from acknowledging the decline in the average person's reality.
Speaking of unattractive and disturbing, the SP futures managed to rally solidly up to the top of the big resistance around 2065 for the fifth time since mid January.
The big tickle is going to be Greece this week, with maybe a nod from the Ukraine. If we get a surprise settlement on Greece by some miracle tomorrow, the markets will do a moonshot.
It is hard to tell. Most of the local (US) commentary is either hopelessly slanted or incredibly naïve. It is sad when very good financial commentators decide to be political analysts too. Or when financial commenters decide to embark on flights of fantasy. I have enough actual experience to know what I do not know, and that is quite a bit. At least I'll admit it. But speculating about what is happening or what might happen is fun when you are unconstrained by facts.
One has to tune out the sturm und drang with which the players are filling the airwaves as they prepare to get serious. This is the oh yeah, yeah! portion of the prototypical schoolyard encounter.
So let's keep an eye on the geopoliticals, because I do not think the stock markets will unleash the rally monkeys until they are more sure that something disruptive is not coming. Even if the talks completely break down and Greek says they will exit, I suspect we *might* see a relief rally after an initial plunge. Remember the mistaken optimism prior to the crushing reality of Lehman Brothers?
Have a pleasant evening.

[Feb 26, 2015] EU Warns of Debt Dangers Facing Ireland and Euro Zone – "Emperor Has No Clothes"

goldcore.com

- High "structural" unemployment, high levels of public and private debt and a still vulnerable banking sector are weighing on the Irish economy

- Report further casts doubt on the "recovery" narrative being touted by governments, banks and vested interests across the world

- Levels of spin and denial not seen since before the crash of 2008

[Feb 26, 2015] The Technical Fundamentals

Feb 26, 2015 | Jesse's Café Américain

This market feels heavier than it looks.

It is hard to judge 'sentiment' because the market is being almost totally dominated by a few institutions, a handful of very large trading desks, and a swirling crowd of HFT hit and run predators.

So given this concentration of power, the market can move in just about any direction that external events, or the lack thereof, may permit.

The 'fundamentals' are not in play, at least for now. And so the markets may continue to diverge from the real economy, until they cannot. And then the reckoning comes.

The Fed is absolutely NOT blameless in this exercise, as they were not blameless in the past. They publicly denied there was a stock bubble, while discussing it in private.

They just let it run its course without even taking the minimal actions which they possessed then as a regulator, which are much greater now.

Have a pleasant evening.

[Feb 25, 2015] Ukraine Enters The Endgame

We Weimar'd some folks via color revolution instead of WWI. Mission Accomplished... "Russia will cut off gas supplies to Ukraine if Kiev fails to pay in "three or four days," President Vladimir Putin said, adding that this "will create a problem" for gas transit to Europe."

Feb 25, 2015 | Zero Hedge

The Hryvnia weakened over the weekend to UAH 30 vs. the USD, prompting the Ukrainian authorities to tighten FX controls and to intervene by a reported US$80mn today, and causing a further weakening of the currency to UAH 40 on the black market as of this morning. While pressures have subsided somewhat (with black-market, mid-market spot now around UAH 33), in our view, the current FX controls are only likely to provide temporary relief to the currency and, thus, introduce risks that the authorities could tighten FX controls further

... ... ...

There are several causes for the weakening of the Hryvnia:

Net private capital outflows (excluding net IMF/official sector flows), which stood at an estimated US$10bn in 2014. This number excludes US$3.7bn in repayments to the IMF and about US$4.5bn in debt service on external sovereign bonds.

Current account and trade deficits, due to the collapse in exports and despite the fact that domestic demand has weakened sharply.

Monetary financing of Ukraine's fiscal deficits.

While Ukraine's current account and trade balances should close as domestic demand continues to contract and as the Hryvnia has weakened further, capital flight continues, with bank FX deposit outflows of US$600-700mn/month in November-January. Moreover, monetization of the deficit has accelerated as local banks are no longer able to absorb domestic bond issuance. The share of domestic government bonds owned by the NBU has risen to 71% in January, from 59% one year prior, with the share held by domestic banks falling by the same amount (to 20%). Meanwhile, narrow money continues to grow at around 15-20%yoy, at a time when domestic credit is now contracting by 10%yoy. While money supply growth in the mid-single digits in a context of weak credit growth may have been offset for most of 2014 by large-scale FX interventions by the NBU, withdrawing liquidity, FX interventions have slowed in H2-2014 and the NBU reportedly stopped intervening in February (although it intervened once again by US$80mn today). This has caused assets on the NBU's balance sheet to grow by about 60%yoy in recent months and by 8%mom in January (seasonally-adjusted). In our view, with the economy and cash demand weakening, domestic credit shrinking and an absence of liquidity withdrawal via interventions, money supply growth at the current pace will ultimately prove inflationary and will cause the Hryvnia to weaken further.

While monetary financing of the deficit may debase the value of the Hryvnia in the medium term, it is the shortage of FX in the system that has caused the proximate pressure on the currency, as NBU reserves declined to US$6.4bn in January (4 weeks of imports) and are likely to decline to US$5-5.5bn in February (3 weeks of import cover). These international reserves include about US$1bn in monetary gold, so the liquid amount of reserves is likely to fall to US$4-4.5bn in February (2.5 weeks of imports).

… raising short-term risks, until IMF funds arrive …

In our view, while the current FX controls may provide some temporary relief, pressure is likely to continue to build on the Hryvnia until expectations stabilize, confidence is restored, and the country's FX reserves are replenished. Given the poor liquidity and destabilization of expectations in the FX market, the ongoing conflict in Donbass that undermines confidence, and the continued need to import natural gas and other essential goods and make external debt payments, these factors are likely to continue to exert pressure on the Hryvnia, at least until the IMF Board approves the newly-agreed program and makes its first disbursement. However, this will likely take at a minimum 2-3 weeks and there are risks of delays. First, the authorities must fulfil their prior actions for the program, and notably the Rada must approve a new budget law. This is scheduled to take place in a session on March 3, although PM Yatseniuk is attempting to accelerate this process by holding an extraordinary Rada session to approve the legislation. Even if the session is moved forward, in our view, there is no guarantee that the law will be approved immediately and delays are possible. Once prior actions are fulfilled, the IMF Board can meet, approve the new program, then disburse funds shortly thereafter. Our base case is that this will take place in mid-March (the current board review date is reportedly scheduled for March 11), although it is possible that this could be delayed. With the current pace of reserve depletion and pressure build-up on the Hryvnia, it is possible that the IMF funds may not arrive quickly enough. This raises the short-term risk of a significant further increase in pressure on the Hryvnia.

… and implying potential need for emergency policy action

Given the balance of payments and monetary pressures on the currency, the authorities and international donors, in our view, have several policy options. First, the Ukrainian authorities could tighten FX controls further. In the extreme, this could potentially involve a bank deposit freeze, a ban on retail FX purchases and/or moratorium on external payments and complete closure of the capital account. Second, international donors (bilateral lenders and IFIs) could recognize the fragility of the current situation and the fact that the IMF timeframe may prove to be too slow to stabilize the currency. Thus, in our view, the international community could make available emergency funds in the coming days or weeks, effectively bridging financing for Ukraine until the IMF disbursement arrives. However, bureaucratic, legal and political hurdles may exist to any large-scale emergency disbursement to Ukraine, either bilaterally or multilaterally. Thus, there is no guarantee that such emergency funds could or would be made available. This introduces further short-term policy uncertainties.

Finally, the recent and sharp weakening of the Hryvnia, as well as significant recent shifts in money demand and supply, could necessitate an overhaul of some of the IMF's program assumptions and targets. In our view, this could require further technical work on the part of the IMF and could cause additional delays to disbursement of IMF funds. As the monetary and financial dynamics evolve rapidly, so may the IMF's working program assumptions and the parameters of the program.
actionjacksonbrownie

The truly crazy part of all this, is that the average ukrop "patriot" STILL thinks the u.s. is only there to help them, and russia is the root of all evil.
The farce is strong in this one.

Icelandicsaga.....

Mexico wont fade away .. we will harmonize . integrate . and become a bad case of Brazil disease .. top crust and the millions below.WE will blend into NORTH AMERIC the meme . .keep saying that NORTH AMERICA . . we are no longer USA . we are NORTH AMERICA .. say it over and over again .... we already got the cartels and corruption and 20 million illegals.. why not the entire enchilada. so to speak. Canada wont be too happy about it .. we already tried to scam their water resources to fix water shortages in the southeast .. they refused. but hey . there is always tomorrow... .

ThroxxOfVron

"Moreover, monetization of the deficit has accelerated as local banks are no longer able to absorb domestic bond issuance. The share of domestic government bonds owned by the NBU has risen to 71% in January, from 59% one year prior, with the share held by domestic banks falling by the same amount (to 20%). Meanwhile, narrow money continues to grow at around 15-20%yoy, at a time when domestic credit is now contracting by 10%yoy. While money supply growth in the mid-single digits in a context of weak credit growth may have been offset for most of 2014 by large-scale FX interventions by the NBU, withdrawing liquidity, FX interventions have slowed in H2-2014 and the NBU reportedly stopped intervening in February (although it intervened once again by US$80mn today). This has caused assets on the NBU's balance sheet to grow by about 60%yoy in recent months and by 8%mom in January (seasonally-adjusted). "
They are printing with complete wreckless criminal abandon: bonds and currency!
The level of monetization is way more than triple what The US Treasury and The FED have admitted to colluding together to float the system with as a gross percentage of bonds and currency en todo. ..& The FED had a huge stock of MBS to soak as well as the global payments system to disburse the emission to
This is a massive torrent of raw unsterilized counterfeiting of preposterous proportion to the existing stock.
Christine LaGarde presonally sent the Ukrainians letters telling them to flat out stop it or the IMF wouldn't give 'em any more emergency loans.
"We Weimar'd some folks."
This is gonna be one for the history books easily rivaling the German and Hungarian tsunamis of the last century.
There is no way in hell this can be reversed or mitigated at this point. Ukraine is doomed to suffer the full destructive force of a currency collapse. The damage is by no means completed...
IMHO, regretably, the Ukrainian citizenry would have been far better off being quietly wholly subsumed by Russia than face this tragedy. Everyone is trying to 'save' Ukraine ( for their own greedy purposes ) and they are burning it to the ground 'saving' it.
Disgusted and anguished do not fully convey the feelings I am experiencing...
IF you do such things as pray, you should pray for these people; -they are going to go straight through Hell.

Majestic12

"IMHO, regretably, the Ukrainian citizenry would have been far better off being quietly wholly subsumed by Russia than face this tragedy. "
Russia does not want their Nazi, lazy asses. Who would. The East is the center of industry and called "restive". Oh, and they all speak Russian?
Who knew. Hard-working, productive, hard playing people, and they're Russian?

ThroxxOfVron

Partition would have been a better answer than what is unfolding.
Who would actually want the 'Nazi, lazy'? Average Ukrainians, the EU, the British, the Israelis, the USA?
Unless I am mistaken the general consensus is that true Nazi types are not really welcome in most 'polite' company.
They would be a dangerous fringe element no matter the constitution of the nation unless they were to seize power and use it to disenfranchise the remainder, and any fringe/minority ideological element that seizes power and disemfranchises the remainder majority is unpopular no matter the ideology. See: Neocon, Neolib, Zionism, Feudalism, 1%er, Junta, Annanuki, etc...
The fact is that Ukraine only has a tiny minority that espouse such ideological concepts, and I suspect many of these only use the imagery as a front for more classic mobsterism and warlordism. Espoused Nazis may be a dominant militant organization in some parts of Ukraine; but, I am doubtful that Ukraine is generally predominantly dominated by Nazi ideology...

Motasaurus

That's what the support of the neo-Nazis is all about. They are just replaying WWII, only slight further to the West. After all the original German Nazis were funded, finances, politically supported and built by the Western powers terrified of being voraciously murdered in bolshevic revolutions.
Of course those "powers" were played for fools by those who fund them. I am fairly convinced that the entire 20th Century was simply a socio-psychological experiment to determine whether National Socialism or Communism was a better method for controlling the masses.

Jack Burton

The end game will have winners. Expect the usual suspects to walk away with some nice profits. And the Ukrainian farm lands, fracking potential and what little of industry remains, will all be sold to western baks for pennies on the dollar. Again, you can be certain the usual suspects, whose name can not be mentioned, will own Ukraine.
The people went to Maidan on the promise of a German lifestyle and EU passports which entail freedom of movement within the EU. Thus the mass exodus of youth for Paris, London, Berlin, Rome, Stockholm, Madrid. In the flush of freedom, at least 2 million youth will move within weeks. More will follow as they arrange transport. Anywhere in Germany or west of Germany will be their target sites.

czarangelus

I am incredulous watching the human citizens of this world take careful, precise aim at their own feet. After thousands of years of written history of the same things not working!

NoDebt

We're not repeating the mistakes of the past because we're unmindful of history. We're being LED through this circle of rise and fall by the elites. That have it all mapped out. Not to the day, but they know damned well the waypoints to make the turns.
Let me ask you something. When was the last time you heard a politician or banker talk about avoiding the mistakes of the past? Never. They only talk about what "needs" to be done next. And they walk the world around in a big circle like at the pony rides.

Supernova Born

"Russia will cut off gas supplies to Ukraine if Kiev fails to pay in "three or four days," President Vladimir Putin said, adding that this "will create a problem" for gas transit to Europe."
-RT

DutchBoy2015

Putin should have done that LONG ago. Fuck the NeoNazis of Kiev

Buckaroo Banzai

The "NeoNazis of Kiev" will do just fine no matter what. It's the average Ukrainian that's going to get fucked.

suteibu

Our US democratically elected government, making friends...er...slaves all over the world.
It's like the War on Poverty gone international.
At some point in near future, Americans traveling abroad will be considered suspected terrorists requiring a local to vouch for an entry visa.

Motasaurus

Every "war on" in post WW2 history seems to have only created more of the thing. War on drugs? More drugs. War on poverty? More poverty. War on terror? More terror.
What we need is a good old fashioned, openly declared war, but this time put it on something useful like, manufacturing and the middle class.
We've got to stop this bullsh*t coming out of the ministry of truth where everything that is "being supported" gets destroyed and everything that has been declared war on thrives.

krage_man

The chance of getting the money is gettin slim with each second. The parlament is refusing to vote for the strings attached to it so far. It has a reason. Like after it, payments for basic services - heat, gas, electicity will exceed average monthly salary! Another condition is restructuring of the debt ( that is where 15bn come from) , which Putin refuses.
IMF may give the money under pressure from US/EU to preserve the gas flow but this will never be paid back. I question if donors would agree to lose money this way at all... Ukraine need about 150 billions to recover..
Now, Ukraine has a couple of billions left and this is it, huge debt on salary to goverment workers, no tax collection 30% fall of industrial output, etc. .... the state is failing.. we should expect emergency UN food shipment in a few months...

markar

The US/EU/IMF will be pouring billions down this rathole they call a country to the tune of trillions to keep this turd on life support-- until the asset stripping is completed. China, Russia & the BRICs better start demanding something besides worthless $s for their goods soon.

vincenze

Every Ukrainian will tell you that it's Putin's fault.

DutchBoy2015

I am sure Yats the Rat already has a couple of billion squirreled away and a place to bail out to...

DutchBoy2015

This is a pretty good video ''Crimea for Dummies''
Of course its BANNED in the USA LOL
https://www.youtube.com/watch?v=W1zvb_ottiw

WTFUD

From my extensive travels around eastern Europe i find it incomprehensible that the false lure of western riches by association still holds any sway.
In fact i struggle to find ANY evidence that any one of these countries has developed its infrastructure or raised its standard of living in the last 20/25 years.
Mini-cab drivers, hotel work and strip clubs remain the top 3 occupations for those who happen to escape.
The grass is not always greener. . . .
Advice - Look East

Ex-Plunge Protection Team Whistleblower Governments Control Markets; There Is No Price Discovery Anymore

Feb 23, 2015 | Zero Hedge

Conspiracy 'Theory' becomes Conspiracy 'Fact.

"There's no price discovery anymore by the market... governments impose prices on the market." - Pippa Malmgren, former member of the U.S. President's Working Group on Financial Markets.

In this 38 minute interview Lars Schall, for Matterhorn Asset Management, speaks with Dr Pippa Malmgren, a US financial advisor and policy expert based in London. Dr Malmgren has been a member of the U.S. President's Working Group on Financial Markets (a.k.a. the "Plunge Protection Team"). They address, inter alia:

Malmgren's recent book "Signals: the breakdown of the social contract and the rise of geopolitics";

the "inflation vs deflation" debate

the closer ties between Russia and China

the future of the Euro

Germany's gold reserves

and the phenomenon of "financial repression"

Moreover, Dr Malmgren explains what she foresees as the endgame of the financial crisis.

Full interview:

https://www.youtube.com/watch?v=mEGzfxHcbMA

See also

KeiserReport: Guest Pippa Malmgren on rigged gov. data

Dr Philippa Malgrem. Global Capital Markets: Moving South.

[Feb 23, 2015] What's Next For Oil And Gold Thoughts From Eric Sprott, Rick Rule And Marc Faber

Feb 23, 2015 | Zero Hedge
" How can we have an economic recovery when there is barely any discretionary disposable income for 40% of the population? As we have shown above, those that have seen their incomes grow are not the ones most likely to spend, while the bottom 40% of households still rely heavily on government assistance, have had stagnant incomes and have been faced with increasing inflation for "non-discretionary" goods that constitute a very large share of their incomes. There is clearly no recovery…"
- Eric Sprott, Chairman and Founder of Sprott Inc., July 2014

" Most developed economies have consumed and borrowed at worrying levels. The US federal government has on-balance-sheet liabilities of over $16 trillion and off-balance-sheet liabilities estimated at about $70 trillion. These numbers do not include state and local government liabilities, or the likely liabilities from underfunded private pensions. Not to mention increased costs associated with more comprehensive health care and an aging population!"

- Rick Rule, Chairman of Sprott US Holdings Ltd., July 2014

"This is the second longest bull market in the last 100 years. I wouldn't buy shares here. I'm not interested. Now can the market go up another 20 percent? I wasn't interested to buy the NASDAQ in late 1999, but between January 2000 to March 2000, the NASDAQ went up another 30%. Afterwards people were crying when they realized their losses. The markets go up and down. I think that the upside potential now for the general stock market is very limited and there is considerable downside risk. Probably more downside risk than investors realize."

- Marc Faber, Board of Directors of Sprott Inc., February 2014

Below are some further perspective on what may be next for oil and gold from Eric Sprott, Rick Rule and Marc Faber.

* * *

Weakness Around the World

The oil price is driven by the same dynamic that underpins the case for most commodities, such as copper, uranium, or iron ore.

As people get richer, especially in emerging markets, they tend to consume more metals with which to build houses and cars, and more fuels to generate energy and power machines.

Yet commodities have been flat since the Great Recession ended, suggesting, once again, that economic growth is slowing down.

The price of copper is at a four-and-a-half-year low of $2.60 per pound. Uranium sells for $36 per pound today, down from around $65 in 2011. Iron ore for delivery in 2015 trades for below $60 per tonne on the futures market, down from over $180 per tonne in 2011.

The price of oil, meanwhile, had not declined substantially over the last three years. Perhaps its recent price collapse is not as sudden and inexplicable as many believe.

Indeed, a low oil price is consistent with the price action we've seen in other commodities. It also dovetails with economic data we're seeing from around the world, which suggest that global growth rates are simply decreasing.

The Eurozone is trudging along more slowly than the US, according to statistics from the European Central Bank. In the third quarter of 2014, its GDP was nearly flat at 0.3% in growth. Inventories were being dis-hoarded, falling by around 15 billion euros over the last 6 months. This suggests that fewer goods are being produced and stockpiled – a response to weak demand. Employment grew by 0.2% over the quarter, meaning that unemployment levels are still high for the developed world, and industrial production increased by only 0.1%.

The situation is similar in Japan. Despite sustained ultra-low interest rates and activist policies meant to stoke growth, the country is mired in what isn't far off from being a depression. Its GDP shrank 0.5% in the third quarter of 2014, right on the heels of a more than 1.5% contraction in the second quarter.

Developed-world economies are not the only ones that are experiencing weakness now.

China's annual growth rate has slowed from around 10% in 2011 to around 7.5% as of the third quarter of 2014. 11 Its domestic consumer market appears subdued. In the third quarter of 2014, the Consumer Price Index (CPI), which measures the average change in the prices of consumer goods and services, was its lowest since February 2010. The real estate market has been weak and domestic investments in fixed assets – which includes new building projects – grew by only 16.1%. That number was above 21% in early 2013, and has been declining steadily ever since.

Weak economies around the world offer weak demand for commodities and for capital. The effect is to keep interest rates extremely low and to push commodity prices down.

The same logic applies to oil, which has long been priced with the expectation of ever-increasing demand and ever-declining supply. We can therefore view the oil price as a symptom of poor global economic growth, which is a long-term problem – and not just as a short-lived consequence of a slight oversupply of oil.

Falling oil prices are yet another sign that the world economy may be more fragile than before the Great Recession.

Why is this important? Well, many write off the oil price drop as merely the machinations of Saudi Arabia to throw a monkey wrench in the wheels of the US shale industry – or perhaps a market that's over-reacting to a slight supply and demand imbalance. You would then naturally expect a quick recovery after the market worked through the problem of oversupply, or once OPEC and Saudi Arabia had adequately bludgeoned its rivals. On the other hand, if you attribute the oil price decline to a more significant underlying issue within the world economy, then the oil price drop starts to look like the harbinger of a more long-term trend.

[Feb 20, 2015] No Tech Bubble Here, Says CNN This Time It's Different

when Uber is given a valuation of $40 billion, can a crash be far behind?

February 20, 2015 | Slashdot

ErichTheRed writes

I saw this on the Money page of CNN today. Apparently, various stock analysts have declared that this run-up in stock prices is different than the 1999 version. OK, we don't have the pets.com sock puppet, Webvan or theglobe.com anymore, but when Uber is given a valuation of $40 billion, can a crash be far behind?

Anonymous Coward

...Fool me twice, shame on me.

This is wise advice when discussing the Wall Street crowd.

[Feb 10, 2015] This Man Will Never Be Invited Back On CNBC

Feb 10, 2015 | Zero Hedge

And now for something completely unexpected: 2 minutes of pure truth (courtesy of Mizuho's Steve Ricchiuto) on CNBC...

148 seconds of awkward uncomfortable truthiness...

While Steve had a number of hard to hear quotes for the CNBC anchors - such as:

"There is no acceleration in underlying economic activity," and

"There's this wrong concept that I keep on hearing about in the financial press about the acceleration in economic growth... It's not happening!"

A stunned Simon Hobbs rebuffs, "That's a long list of non-ideal situations we find ourselves in," to which Ricchiuto snaps back "and we can keep on going!"

"After a string of dismal data on durable goods, retail spending, and inventories, we get a good jobs number and everyone saying the economy's good - it's not good!"

It was Sara Eisen that had the quote of the brief clip... (which has unbelievably been edited out since we posted it seems at around the 1:40 mark) when faced Steve's barrage of facts about the real economy, replied:

"but the key is that's not what The Fed is telling us."

Summing up the unbelievable 'faith' (misplaced beyond all reputational loss) that so many have in the central planners of the world.

realmoney2015

Nobody 'listens' to MSM. They have either turned it off or they zonk out. If people listen to MSM they would realize that it is all propaganda!

We all know that the Fed can't raise interest rates. Look at the housing market! It's terrible. What would it look like if interest rates were to rise? The economy has not and will not improve until it crashes completely and resets (hopefully with real free markets).

Until then, stop going in debt. Only buy what you can afford. Use cash as much as possible. Better yet, use silver where its possible. Friend helps you move, give him a silver eagle. Need a lift to the airport give them a few silver dimes. If your friends won't accept these as payments maybe these candles with silver coin prizes would be better appreciated:

https://www.etsy.com/shop/ScentSavers?ref=hdr_shop_menu

http://www.zerohedge.com/news/2015-02-05/3-things-56-lie-dividend-cuts-valuation

Now, Jim Clifton is back stating that not only is BLS wrong in its assumptions about employment activity, but also that the 5.6% unemployment number is "extremely misleading."

"The official unemployment rate, as reported by the U.S. Department of Labor, is extremely misleading.

Right now, we're hearing much celebrating from the media, the White House and Wall Street about how unemployment is 'down' to 5.6%. The cheerleading for this number is deafening. The media loves a comeback story, the White House wants to score political points and Wall Street would like you to stay in the market.

None of them will tell you this: If you, a family member or anyone is unemployed and has subsequently given up on finding a job -- if you are so hopelessly out of work that you've stopped looking over the past four weeks -- the Department of Labor doesn't count you as unemployed. That's right. While you are as unemployed as one can possibly be, and tragically may never find work again, you are not counted in the figure we see relentlessly in the news -- currently 5.6%. Right now, as many as 30 million Americans are either out of work or severely underemployed. Trust me, the vast majority of them aren't throwing parties to toast 'falling' unemployment."

Of course, Jim is once again correct. Many arguments of low labor force participation rates have focused on the retirement of the baby-boomer generation. Therefore, to exclude that argument, even though those over the age of 65 that are currently employed is at the highest level on record, we can look solely at the group of individuals that should be actively employed (16-54 years of age.) The following chart, which is the labor force participation rate of solely 16-54-year-olds, shows the real problem with the BLS's employment figures.

Considering that only 46% of that age group are currently employed suggests that an unemployment rate of just 5.6% is highly misleading.

Of course, you already knew that didn't you?

Dividend Cuts To Impact Personal Incomes

Political Calculations brought out a very interesting point recently discussing the rise in dividend cuts due to the deteriorating economic backdrop. To wit:

"Going by the number of publicly-traded companies that acted to cut their dividends in January 2015, the U.S. economy didn't just experience recessionary conditions during the month. Instead, it outright contracted."

"Or perhaps a better description of what happened is that the U.S. oil industry's efforts to push its luck as far as it could has run out of good luck to push.

By that, we're referring to the consequences of falling oil prices, which are forcing an increasing number of companies tied to oil extraction activities in the United States to take the dramatic step of slashing their dividends. With 57 U.S. companies taking that action in January 2015, the number of companies taking that action in a single month is consistent only with previous months in which the U.S. economy either experienced contraction or in response to major dividend tax rate hikes.

January 2015 saw no major tax rate hikes on dividends, so contraction it is."

Importantly, another impact of the decline in dividend payout will be a reduction of the amount of dividend income that makes up part of the personal income and spending reports. The chart below shows the monthly net change of a few components of the personal income figure. Notice that in the most recent month personal interest income is negative due to the plunge in interest rates and dividend income was marginally positive.

Considering that the decline in oil prices is supposed to good for the consumer, even though personal spending declined in the most recently reported period, the decline in dividends will certainly have a negative effect on those depending on those dividends. As I showed recently, the current detachment between spending and the stock market will likely be corrected rather harshly at some point.

2nd Most Overvalued Market In History

I recently gave a presentation at the 2015 World Economic Conference (see full slide deck here) in which I discussed varying aspects of the market that should have investors fairly concerned. High yield spreads on the decline, extreme deviations from the long-term mean, and margin debt levels should all be at the top of the list.

One point I did not include, but should have, was noted recently by my dear friend Doug Short.

"The peak in 2000 marked an unprecedented 147% overshooting of the trend - nearly double the overshoot in 1929. The index had been above trend for two decades, with one exception: it dipped about 13% below trend briefly in March of 2009. But at the beginning of February 2015, it is 91% above trend, down from 95% above trend the month before. In sharp contrast, the major troughs of the past saw declines in excess of 50% below the trend. If the current S&P 500 were sitting squarely on the regression, it would be around the 1060 level. If the index should decline over the next few years to a level comparable to previous major bottoms, it would fall to the low 500 range."

"Incidentally, the standard deviation for prices above and below trend is 40.6%. Here is a close-up of the regression values with the regression itself shown as the zero line. I've highlighted the standard deviations. We can see that the early 20th century real price peaks occurred at around the second deviation. Troughs prior to 2009 have been more than a standard deviation below trend. The peak in 2000 was well north of 3 deviations, and the 2007 peak was above the two deviations -- as is our current level."

As I stated during my presentation, we can certainly "hope" that the markets will continue to march endlessly higher. However, "hope" has never been an effective portfolio management strategy.

[Feb 05, 2015] Price of oil and the disruption of flow of oil dollars to the USA coffers

Additionally, low oil prices have blocked the flow of petrodollars in the United States. Oil exporters have invested their profits in US bonds. Now OPEC need to reduce state budget and spend some of those bonds that the US is holding. Well, the USA have debts to pay and now it just can't print the money as freely as before.

On the amount of oil that costs $1 accounts there are more then $10 of all kind of securities.

It turns out that the price is determined by Wall street mafia, large funds and holders of those securities, not so much by the producers or consumers of oil.

Low oil prices have an obvious advantage: they inhibits Russia economic growth.

But low oil prices have costs. They already starting to cause bankrupcy of companies extracting shale oil. And again, no so much companies as such, but all the mess of securities (shares, derivatives, insurance, insurance of insurance, etc) connected with them. If things begin to crumble, it might be something like a mini repetition of 2008, which was triggered by the collapse of mortgage giants.

Additionally, low oil prices have blocked the flow of petrodollars in the United States. Oil exporters have invested their profits in US bonds. Now OPEC need to reduce state budget and spend some of those bonds that the US is holding. Well, the USA have debts to pay and now it just can't print the money as freely as before.

Finally, low oil prices make China extremely happy. Strong dollar undermines the US exports.

In General, the conclusion is as following. Oil is a geopolitical resource and the USA financial cartel is powerful enough to set any price for oil. $30 or, may be even $20 per barrel. But the problem is that at such a low price several problems arise.

In fact, the oil price is a compromise between the elite U.S and the elite of OPEC designed "to deal with" Russia. But somebody might not be able to endure described economic war for long and associated costs..

[Feb 02, 2015] Gold Daily and Silver Weekly Charts - Carry On

Feb 02, 2015 | Jesse's Café Américain

People who follow price alone, and believe that this is the truest indicator of future value, have a point. And it is valid, based on a very short timeframe, most likely appropriate to a day trader.
And it is no coincidence that most day traders go broke.
Most traders overall go broke. They may have great runs for a time. I have seen runs at the crap table that were amazing. I had a run at poker that was astonishing, and that lasted for a couple of years. I had one night at the tables that was almost exhilarating. I made some short term profits playing the futures that were almost jaw dropping.
But they passed. And then came the steady losses. The most enduring profits I have made were done over a long time with a steady position, being right and sitting tight. The key to that is 'being right.' It is never easy.
People have different styles as traders. Some like the thrill of the short term, and others prefer what is called 'value investing' and the longer term. You have to pick what suits you.

But at the end of the day, most everyone loses except the casino, unless you can find and exploit some kind of edge.

That is the best that I can and will say regarding a commentator about the precious metals who might say that all that matters is price, because it does not matter who is buying or selling. Or why.

You don't need to know that. You do not need to know the players or their possible motivations. It is a point of view. And a good one if you wish to be a price follower and a day trader, and not have a real clue about the opportunities one may have to make some serious money.

The market makers and professionals all too often paint 'pictures' with price action. To somehow say that price contains all useful information and the truest picture at that moment is a corollary of the efficient markets hypothesis. And I would like to think after umpteen price rigging scandals, that we would reflexively know that this is all rubbish. And enough about that nonsense.

There are great changes underway in the world of money. And you will either understand them now, or understand them later. True, all sellers become buyers and all buyers become sellers given enough time. But that is the kind of timeframe about which Keynes remarked that 'in the long run we are all dead.' Someday will come. But its an odd logical fallacy to take the extremely short and the extremely long and reason from those examples, ignoring the great bulk of experience which is in-between.

As you may have noticed, most of the antics from yesterday's markets were erased today. The sharp rally in stocks dissipated, and the big hit on gold was largely erased.

As I had said, we had a real test for the precious metals this week, most notably gold, which is the metal of controversy. We had an option expiration, a first position day on a new active contract, an FOMC meeting, and a first estimate of 4Q GDP.

So far so good. If gold wanted to find a place to bounce, today's was about as good of a bounce as any.

The bounce in stocks with the subsequent flop was not surprising. The Fed hates to leave the market feeling like it has failed, perception management-wise.

Follow through is absolutely everything for gold and silver here. We are now in an 'active month' and the first delivery reports have reflected that. Deliveries were coming out of 'customer accounts' and the house accounts were the takers. But you don't need to know that.

What you do need to know is that gold bullion is flowing steadily and heavily from West to East. And that we are nearing the natural end for a currency cycle. And that the price of gold and silver are based on leverage, and rehypothecation, and that these things have failed in the micro level, such as at MF Global, and can fail at the macro level, as in the failure of the London Gold Pool.

Please remember the poor. Their lives are very hard, and they are easy to forget. And not just the people who are poor in things, but also those who are poor in spirit, and unable to love. Don't just worry and count your money, although that is practically important.

Remember the only things that really endure, that will stay with you, as you truly are, a soul that happens to have a body, for now. And that is measured not in dollars, but in love.

Have a pleasant weekend.

[Jan 31, 2015] The Bond Market Has Reached Tulip Bubble Proportions

Looks like Fed lost credibility...

Jan 30, 2015 | zerohedge.com

Fed Officials Trying to Send Signals to the Bond Market
James Bullard on Friday noted that the Bond Market was far too dovish in relation to where the Fed is in regard to raising rates in June, and this might be the understatement of the year so far. For example the U.S. 2-Year Bond Yield is 0.45 or 45 basis points, think about this for a moment. Even if the Fed fund`s rate finishes the year at 50 basis points which is well below the Fed`s most conservative forecasts, and we use a conservative annual inflation rate of 1% (I know oil has dropped but there are more inflation categories than just the energy component). Moreover, the overall annual inflation rate is well above 1% right now, and you factor in that this bond is paying a 2-year risk premium for tying up one`s capital with all kinds of inflation risks over that 2-year time frame, this has to be the stupidest investment of all time.
2-Year U.S. Bond Yield is 45 Basis Points

To buy the 2-Year Bond when the Fed has practically stated that after two FOMC meeting`s they are liable to raise rates at least 25 basis points at the earliest (think April) and June at the latest so that is 25 basis points right there added to the Fed Fund`s rate, and needs to be added to the 2-Year Bond calculation so the current Fed target rate is 0.00 - 0.25 with the daily rate on 1/29 of 0.11 or 11 basis points, so add the June 25 basis rate hike to the current daily rate of 11 basis points and you get a 36 basis point starting point for borrowing money, add an annual inflation rate of 1%, and we are at 136 basis points for evaluating the 2-Year Bond given this rather charitable and conservative analysis.

Thinking About the New Greek Crisis

NYTimes.com
... ... ...
5. Ideals aside, the consequences of playing hardball with Greece over its banks could very easily be immense. Up until now, the euro has proved very durable, largely thanks to the point Barry Eichengreen emphasized: any country that even hinted at the possibility of leaving would face the mother of all bank runs. But as I worried some time ago, this argument becomes moot if the banking system has already collapsed. Grexit - the often speculated about, never so far materializing Greek exit from the euro - becomes a very real possibility if European creditors try to exert leverage by taking away the safety net for Greek banks.

6. And if Greece really does leave the euro - if it turns out that the single currency is not irreversible - do you really think there would be no contagion? Wanna bet on it?

7. In particular, think about what happens if Greece leaves the euro and then manages to find its footing - which it probably would after a chaotic year or two. The EU could prevent that by deliberately undermining the post-euro Greek economy. But that would be a betrayal of European principles.

8. At the moment, Germany is talking as if it intends to follow the Michael Corleone strategy. But do we really think that Syriza will or even can retreat with its tail between its legs immediately after winning a dramatic election victory? Again, wanna bet on it?

Daniel Davies tells us that "European policy makers aren't stupid." But they do say stupid things, still talking about expansionary austerity, still treating debt as a purely moral issue. Can and will they be realistic, accept that they can't extract blood from a stone - at any rate not at the rate of 4.5 percent of GDP - in time to avert a spiral into disaster?

Selected comments from Economist's View Links for 01-29-15
Darryl FKA Ron
RE: Whitewashing the Crazy, Fed Edition
[Krugman is just knocking them out of the park today.]

How does one report on politics when a significant wing of the political spectrum is, not to put too fine a point on it, stark raving mad? I appreciate that it's hard to do without attracting accusations of bias; on the other hand, there's a temptation to soft-pedal the crazy, to make it seem as if politicians were less out there than they really are...

*

[So, is it Ron's be kind of Krugman day? Well any day that Krugman addresses financialists' dogma head on and skewers idiotic Republican politicians without lapsing into Dembot apologetics is Ron's be kind to Krugman day.]

pgl said in reply to Darryl FKA Ron...
In the meantime John Taylor is defending this Rand Paul bill over at his blog. How you ask? First Taylor brags about his now (in)famous rule. And then he states this bill does not really require anything more than the FED being clear about its actions. Of course the FED has been clear. So why do we need a law if it does nothing?
Darryl FKA Ron said in reply to pgl...
Sorry, but I did not read about that. Don't feel bad though because I did not read the articles about Ted Cruz or Rick Perry either. I don't think of them as alternative viewpoints. Actually, I don't even think of them as viewpoints. So, I don't really think of the technocrats that serve them as economists either.
ilsm said in reply to Darryl FKA Ron...
Romney is Crazy; life coaches, charter schools, blame the single parent and backbone is funding the wars (more drone strikes, star wars and aircraft carriers to haul around broken F-35's with money taken from schools and kids' preschools).
You fix under funded schools, and kids who don't get remedies for lacking 3 year and up pre schooling by giving the money to charter schools run by amateurs wanting to teach how wrong the theme song to Big Bang Theory is and break up the NETU...........

Everyone is scared Nobel Prize winner Shiller

The human race has deep underlying fears about technology and the lives their children will lead and this can be seen - in all places -- in the negative yields in bond markets, Nobel Prize-winning economist Robert Shiller told CNBC.

"I think fears have been growing for years that represent the willingness of people to bid up bond prices," he told CNBC Wednesday." They are worried about their future. They are worried not just about next year, they are worried about the next twenty years, the next forty years. So they are desperately trying to provide for that, they'll even accept negative yields."

Shiller won the Nobel prize for economics in October 2013 for his research that has improved the forecasting of long-term asset prices and helped the emergence of index funds in stock markets. He was awarded the 8 million crown ($1.25 million) prize alongside fellow economists Eugene Fama and Lars Peter Hansen.

In London after a trip to the World Economic Forum, he said that the Davos event had helped him understand that there is not just pessimism about the global economy, but worry.

"There's this increasing fear of technology, information technology, artificial intelligence, robotics, 3-D printers, the internet and all these different forms," he said. Technology, he added "seems to be changing life in such a fundamental way and what it's leaving people thinking is 'where will I be in 30 years? Look how fast everything is changing now. Where will my children be? I want to leave something for them because they could be in terrible straits'."

The World Economic Forum's (WEF) Global Risk Report, released to coincide with last week's event, warned of people designing "bespoke viruses as murder weapons" and that computers could turn rogue.

In Davos, Yahoo chief executive Marissa Mayer told delegates that she expected internet privacy to swing further into the hands of governments over the coming months.

At another seminar, the Daily Mail reported, a panel of academics warned of mosquito-sized robots flying around and stealing DNA samples.

Responding to Shiller, Edmund Shing, the global equity portfolio manager at BCS Asset Management, told CNBC that he often wonders whether the world is not in the throes of a second industrial revolution but rather a technological revolution. He was concerned that a whole class of jobs could either disappear or become deflationary.

"You (might not) see any more wage increases because of the pressure from technology," he said. Shiller added that Davos had taught him that people are trying to make sure they are in the top 1 percent of global earners. "This is desperation for many people," he said. "The problem now is we are going through a technological revolution, unlike any in history because we seem to be getting right to core abilities that people have, that's the ability to think, to know."

He added that knowledge from humans was becoming even more absolute because of technology. The example he gave was that astronomy is becoming more redundant with the advent of mobile applications. "They just whip out their phone and they can beat you," he said.

DH

It is a bit ironic that technological advances have actually made people less happy. Numerous surveys have shown that people feel more detached and depressed than ever before.

We are bombarded with more information that our brains can handle. Some of the information involves the wealth and success of others (which makes us feel like failures). Other information involves crimes, death and terrorism (which make us feel scared and insecure). Furthermore, one small misstep becomes instant social media news in which you're penalized for your intolerance or insensitivity. Finally, people now socialize by playing video games and texting friends.

Jesse's Café Américain European 'QE' In a Nutshell - Propagating the Western Trickle Down Policy Errors

EU disparately trying to avoid recession caused by creaking economic ties with Russia.

This is about it in a nutshell. 'Stimulus' American style comes to Europe.
Printing money and giving it to your cronies inflates asset prices, lines the pockets of the well-heeled heels, but does little for the real economy.

But it doesn't produce broad inflation (or aggregate demand) so we can do it many times! Success!

"At last the euro's lords and masters have accepted that something must be done about their zone's lamentable growth. They will unleash a massive bond-buying programme totaling a reported €1tn. The former BBC economic pundit Stephanie Flanders told the world it was "Santa Claus time"; the European Central Bank (ECB) has ridden to the rescue.
No it has not. Europe's great and good, partying on the slopes of Davos, are like courtiers at the Congress of Vienna. They are blinded by snow and celebrities. Santa Claus gives presents to people; the ECB gives presents to its banks. It is merely tipping large sums of money into the vaults of precisely the institutions whose crazy lending caused the crash of 2008, and which have been failing Europe's economy ever since.

Quantitative easing is a gigantic confidence trick. It was promised that it would yield new investment. It has not. It was promised that it would "pump money into the economy". It has not. It was also feared that printing money would lead to hyper-inflation. It has not, for the simple reason that no one gets to spend the money. It is a bookkeeping transaction between a central bank and a commercial bank. It means nothing as long as banks are told to build up their reserves.

Money in circulation matters. The whole of Europe, including Britain, is chronically short of demand, which is why deflation is such a menace. If no one can afford to buy anything, no one will sell anything or invest money in making anything..."

Simon Jenkins, QE for the eurozone is a gigantic confidence trick. It should fool no one

[Jan 22, 2015] Greek Elections, Europe's Identity Crisis

Jan 22, 2015 | Jesse's Café Américain

"Every man has a right to his own opinion, but no man has a right to be wrong in his facts...
Gold has worked down from Alexander's time. When something holds good for two thousand years I do not believe it can be so because of prejudice or mistaken theory."
Bernard Baruch
"What is a cynic? A man who knows the price of everything and the value of nothing."
Oscar Wilde, Lady Windermere's Fan
I think you might replace the word 'cynic' in Oscar Wilde's famous quote with the word 'trader.' Especially the traders we have out and about in today's markets, who are better conmen than policy advisors. Of course one might say the same thing about our esteemed Congressmen, so perhaps it is better to say nothing, except to grasp your wallets more firmly.
President Obama will be giving his State of the Union tonight. Expect to hear some nice headline making proposals that will not have any impact on real legislation or policy. And this is by intent.
The plutocrats of Europe will be watching the Greek elections carefully on January 25. You may wish to keep an eye out for them as well. The EU is concerned that a left leaning government may be voted in that will buck the austerian trend.
American leadership has dementia, and is going to keep blundering around doing the same old, ineffective things, until something happens to change the situation.
Middle class income has been stagnant for forty years. Expect this to get a little attention, talk-wise. But little will be done.

[Jan 22, 2015] Financial TV Wasteland

The intellectual poverty of financial television is appalling:

Jan 22, 2015 | jessescrossroadscafe.blogspot.com

... ... ...
After the bell, both Netflix and IBM beat their earnings estimates, but missed on top line revenues.
Both are fine examples of low growth companies using accounting games to provide the appearance of vitality. IBM has been shrinking for quite some time, and Netflix, while it has potential, needs to change its model badly.
Or perhaps it would be more correct to say it should expand its portfolio of activities. But not being a true content provider, or a supplier of the pipe that carry its products, it is an interesting strategic position.
Let's see how the wash and rinse cycle proceeds. The Street would like to see stocks move higher now.
I turned to CNBC for relief from Trish Regan's pretty but nasal banality.
I noticed that CNBC had Rick Harrison, the purveyor of a Las Vegas pawn shop, and reality show star on as a guest commentator on macro-economics, providing policy advice. He may know the retail trade, but public economic policy, not so much.
I kept waiting for Steve Liesman to come on and provide the comic relief that Chumlee ordinarily delivers to give some entertainment value to Pawn Stars. Larry Kudlow was doing his schtick earlier on as 'Pops.'
The intellectual poverty of financial television is appalling: five miles wide, and an inch deep. No wonder the ratings were plummeting. See the quote from my friend Arby at the top of the page. Our elite ruling class is in the throes of cultural dementia.

[Jan 22, 2015] The Data Doesn't Lie - Here's What's Really Driving Interest Rates! Submitted by Thad Beversdorf via First Rebuttal blog,

Jan 22, 2015 | Zero Hedge
So Hilsenrath claims a little birdie (Fed insider) told him that rates will be raised later this year. I expect the Fed is just jerking him around. There is nothing fundamentally or otherwise to suggest rates will move up. I'm not sure if Hilsenrath is part of the game or just a gullible fool who is being used to keep the market off balance. Why would the Fed want the market off balance? The Fed does so intentionally because theory suggests such a strategy will improve the effectiveness of monetary policy (refer to rational expectation model).
Regardless of what the Fed says, the reality is that interest rates are not moving up anytime soon. It is shocking to me how arbitrarily economists make certain predictions. I mean don't get me wrong, I'm not a fan of ZIRP or NIRP. I see them as theft in the same way I see inflation as theft. Both effectively destroy the time value of money by way of politics and, these days more than ever, politics is simply another word for skullduggery.

kaiserhoff

The Fed will raise rates because they can't stop themselves.

They are arrogant, ignorant, out of touch, and out of ammunition. They see themselves as managers of the economy. No one else does, but at the moment they have no levers to pull, or buttons to push, except ONE.

Therefore, the idiots will push the button.

malek

The Fed will raise rates because [they can't stop themselves].

That statement alone has no significance to me.

The question is if they would raise in a meaningful way, so more than 0.5% overall (not necessarily in one step) and without some new rule bending such as govt bonds are exempted from the rate rise.
I'm sure the answer is NO (short of an impeding currency collapse, then they might raise rates as a last fruitless effort to save the dollar.)

falak pema

God forbid if the FED were put in the same conundrum as the SNB :

To choose between the real economy and the financial, casino "economy".

That's what the SNB retreat was about. It hurt the real economy to protect the franc against being inundated by bigger cousin Euro to which it was linked. "Can't afford an inflow of 100 B euros/month, no way! We will be drowning in devalued euros!"

If King $ is now harassed in similar fashion --as whispers and grumbles the US secretary of commerce-- : "We are being clobbered (think Boieng vs Airbus) by a STRONG $ in our export business"...

Then Potus will have to revise his book, caught between a rock and a hard place : If the $ continues to climb as FED tightens bond rates to accompany the so called virtuous spiral of US growth, -- "I am saying we are now in a growth cycle --- it will condemn the trade balance even more. And that cuts the ground under our feet!"

That is exactly where the SNB found itself last week....

Basically this means that Pax Americana is finding itself more and more stretched in this crisis to play Unilateral hegemon and ASSUME the consequences of its acts.

USA is no longer a young giant that towers like a colossus, more an old, aging baby boomer who needs to watch his gall bladder or liver.

NEOSERF

Borrowing to buy cars we shouldn't have, borrowing to get an education that is malaligned with the economy, borrowing to keep the dividends and EPS numbers where they need to be, borrowing to pretend that the Fed is propping up Main St...at some point, the numbers will be unfudgeable and the day after that David Tepper will be on CNBC telling us he is short everything and the economy is in freefall.

Wait What

banking establishments are more dangerous than standing armies... and the spending of money to be paid by posterity, under the name of funding, is but swindling futurity on a large scale... bank paper must be suppressed, and the circulating medium must be restored to the nation to whom it belongs.

Thomas Jefferson

Fuck you Central Banks!

Clesthenes,

"I'm not sure if Hilsenrath is part of the game or just a gullible fool…"

It doesn't really matter: "part of the game" or "just a gullible fool".

A very large fraction of Americans are that way; and the main thing you need to know about them is that they will die, or kill, rather than correct their self-destructive habits.

And the problem, from our perspective, is, 'How do we protect ourselves from their murderous political system?'

First, a person in this "large fraction" is doing battle with a conscience riddled with guilt (for crimes committed or a life wasted). He will seek to control/destroy any action or word that might give power to his conscience; he will even destroy his own child for such end. And, when he is given political power, he will seek to control/destroy every such action or word within his power.

You can find these people by the millions: as family members, neighbors and, of course, thru-out every level of government, not to mention non-stop indoctrination machines (education systems, churches and media).

When you have millions of such people who use this power within their families, you have the political foundation for a nation-wide tyranny.

One of the co-relatives of this condition is that they will be led only by those who feed them a steady diet of pleasing lies. Let me make this clear: they will only be led by cutthroats and thieves: people who know they can obtain what they want only by falsehoods.

We live, in other words, in a system dominated by criminal and useless classes; and they know that their safety lies in crimes ever more numerous and heinous. As far as they are concerned, if destruction of the American economy – and, thus, the world economy – is necessary, so be it.

What is the solution?

We need to give them EXACTLY what they want: rule by thieves – and make sure they pay for it.

And that will be the problem, 'How do we protect ourselves from their rule by thieves?'

Protection from their tyranny WILL NOT COME simply by wishing to be left alone. For, to win their struggle against their conscience, they, by the millions, secretly long for the day when they will have the power necessary to "permanently" rid the earth of those who ask too many questions or describe too many crimes. For those who doubt this aim, let them explain the all-too-many death squads established across the planet. Such death squads were trained at Academy of the Americas in the American state of Georgia. In America they go by several names, FBI, CIA, local police, the DHS – especially the DHS (Department of Homeland Security); for, the DHS was specifically modeled after French committees of terror (1792-4), the Judeo-Bolshevik Cheka (aka NKVD, KGB et cetera) and the Nazi Schutzstaffel.

The primary purpose of these organs of terror was to protect rule by thieves by eliminating all dissent. If the DHS is modeled after those historical instruments of terror, what possibly could be its purpose?

Isn't that a silly question?

After all, what does the DHS plan to do with 2-3 billion rounds of ammo… an amount sufficient to wage an Iraqi War, at its highest rate, for 25 years? Remember, so-called terrorists do not travel as armies; but, rather cells of 5-10… and the DHS needs 2-3 billion rounds of ammo for these tiny cells… you know, the ones established by the CIA or FBI? Try again.

The real purpose of the DHS is to secure rule by criminal and useless classes by literally exterminating large numbers of productive and thrifty classes. Those in the productive class provide market-related goods and services; those in the thrifty class include all those who have accumulated an earned savings (opposed to a plundered savings). Such savings can be in the form of physical gold, or ownership of a business, stocks or bonds, among others.

Do you think you will survive this extermination merely by sitting back and waiting for the crash? You'd better reconsider your posture.

This is the warning that comes from reading the act of Congress that established the DHS. This Act created a system by which informers could make false allegations against anyone they please with near-total impunity. Of course, such informers aren't described as informers; rather they are given the title "submitting person" and their falsehoods will never be examined by any court or legislature or law enforcement agency. The legislation even specifies how this immunity is obtained. The "submitting person" only has to give an "express statement" that his lies were "voluntarily given" and that he expected "protection from disclosure". It's all there, in the act that created the DHS.

I'm sorry guys, but silly season is over.

If you want to survive, you have to combine with others of like mind for the purpose of mutual protection, among other purposes. The big question now is, 'HOW is this to be done?' And the quick answer is, 'You must establish First-Amendment assemblies – the only historically-proven method by which men have made their lives and property secure from rule by thieves.'

The American Revolution, you see, was powered by a large network of such assemblies: from town meetings, county meetings, state conventions and, ultimately, Continental Congresses.

I'm sorry, again: but I seem to be the only source for this information – despite all my efforts to distribute such knowledge.

Real, effective, protection is only possible by knowledge of the law and procedures of redress – and actions based on that knowledge.

[Jan 20, 2015] IMF says economic growth may never return to pre-crisis levels

Oct 7, 2014 | The Guardian

World economic outlook expects global growth to be 3.3% in 2014, down from its April forecasts as countries fail to recover strongly from recession

gtggtg -> dubium 10 Oct 2014 00:40

"Growth is the need for ever perpetually bigger profit. Nobody needs that."
Well, the capitalist system needs that.

"It does not even make sense."
Agreed, the capitalist system does not even make sense.

Dave Gardner 9 Oct 2014 09:48

IMF and this story make the Wall of Shame today at Growth Bias Busted: http://www.growthbiasbusted.org/wall-of-shame/entry/imf-repealing-laws-of-physics-taking-longer-than-we-thought

ruffsoft 8 Oct 2014 21:12

In a 3d world economy, which the world is devolving towards, high profits for corporations are matched with falling wages. The rich get richer, the working class gets pooer.

In the US, for over 30 years, median wages have fallen 40%, 15% since 2000.
Meanwhile, GDP is at record highs and CEO salaries are higher than ever.

Growing profits and GDP is not a recovery if wages continue to fall; it is just the signature of a 3d world economy, with fabulous wealth at the top and rising poverty among the working class.

Only shared prosperity is recovery; growing inequality is not economic recovery but successful class warfare.

Cynndara -> Mohammed Karim 8 Oct 2014 14:43

Don't worry. America is chock-full of salesmen. It's our specialty. Anyway, when the voters are faced with a choice between Tweedle-Dum and Tweedle-Dumber, it hardly matters whether they're sold or not. There are only two candidates for any job, and they are both owned and operated by the Big Banks. Americans no longer have an effective democracy, only the illusion of one. So if Goldman-Sachs feels that your recipe will do the trick, it will be rammed down our throats regardless of votes.

Cynndara -> Beginner20 8 Oct 2014 14:27

Right. The "developed" economies are no longer even producing enough to cover their own needs, let alone enough to create a positive net balance. With the interconnection of the world through mass communications, they can no longer plunder the smaller nations of the world and claim the loot as "productivity". So of course there can't be real growth. The idea that we could produce more and more every year was always an artifact of trading "free" goods from the natural and undeveloped world for the costly products of industry. When those "free" goods come with a pricetag, capitalism collapses.

Cynndara -> ID5088152 8 Oct 2014 13:52

Unionized manufacturing workers in the 50s made EXTREMELY good pay, on par with middle-management jobs. Remember that these were one-income families, with an employed male supporting a wife and several children from one salary. Also, immigration limits, lack of robotics and the residual labor-shortages of WWII made trained heavy-industry workers scarce and valuable.

GoddessOFblah -> hermanmitt 8 Oct 2014 13:30

There is actually nothing wrong with capitalism, but we have not had it for over 60 years.

What we now have is corporatism which, in short, can be described as financial fascism.

Don't agree with capitalism but that's very well said. Like with all ideologues - starts off great until the 1% horde the power/wealth for themselves.

simplevillageexpat 8 Oct 2014 12:08

Can't understand why all these economists are surprised that the Eurozone isn't recovering. Tied in the straight-jacket of the euro means EZ countries can do nothing for themselves except impose the slow death of austerity. With Germany racking up massive payments surpluses using the euro to avoid the otherwise inevitable currency appreciation for themselves. Other EZ countries cannot export within the Euro Zone as their prices are held too high. With Germany in the Euro the Euro itself is higher than they need to export outside the EZ (although they are doing a remarkable job in the circumstances). There is nothing left to fuel a recovery. Surely we are close to the end of this crazy game of Monopoly where the well placed get stronger and the others go bankrupt. Like a game of Monopoly the eventual winner now has no one to buy their products so they too are not recovering!

Its all been very predictable and predicted since Maastrict. But then, I'm just a simple ex-pat from the village. I know nothing!

AmandaMatthews 8 Oct 2014 10:11

The IMF is half our problem. They backed the financial terrorists who brought down half the world's economies. Their policies of rewarding rich at the expense of everyone else is one of the things that guarantees 'no growth'. The Austerity programs that they cursed so many nations with have caused nothing but chaos and hardship for everyone but our Wall Street/'City of London' financial terrorists.

Contrary to what the whizbangs of finance tell you, the true financial health of a nation isn't predicated on how well the stock market is doing, but on how well the people are doing.

SirTalbotBuxomly -> Gelion ,7 Oct 2014 9:59

As does Osborne in the UK where the Right Wing media and the Tories talk about a "Recovery" but for most people there is no such thing.

The recovery isn't measured by 'what most people think or feel' or whether their wages have gone up. Growth is measured objetively not anecdotall which is why the article says...

The Fund said the outlook was brighter in the US and the UK, which were "leaving the crisis behind and achieving decent growth". Britain is forecast to see its gross domestic product increase by 3.2% in 2014 – up 0.3 points from the April WEO and the fastest of any G7 nation.

And that's why people trust the Tories much more than Labour with the economy and that's why Labour are behind int he opinion polls.

Investing Quotes

.."In a narrow market, when prices are not getting anywhere to speak of but move within a narrow range, there is no sense in trying to anticipate what the next big movement is going to be. The thing to do is to watch the market, read the tape to determine the limits of the get nowhere prices, and make up your mind that you will not take an interest until the prices break through the limit in either direction."..

Jesse Livermore

My experience has been that in successful businesses and fund management companies, which performed well over the long-term, some courageous decisions were taken. Courageous fund managers reduce their positions when markets become frothy and accumulate equities when economic and social conditions are dire.

They avoid the most popular sectors, which are therefore over-valued, and invest in neglected sectors because being neglected by investors they are by definition inexpensive.

The point is that it is very hard and that it takes a lot of courage for a fund manager to avoid the most popular sectors and stocks and to invest in unloved assets.

Finally, every investor understands the principle 'buy low and sell high', but when prices are low nobody wants to buy.

Marc Faber

Michael Roberts Blog

Indeed, that is the story for most capitalist economies in 2014 (Europe, Japan, the US and the UK): weak economic growth, poor business investment and falling real incomes for the average household.

The global economy remains in a crawl and will do so in 2015 for one good reason: the failure of business investment to leap forward. Goldman Sachs reckoned this time last year that there would be a global investment boom in 2014. That has proved to be a mirage in Europe, Japan, the UK and in the major so-called emerging economies of China, India, Brazil and Russia, where investment growth has slowed markedly or collapsed, as in the case of Russia (see my post, https://thenextrecession.wordpress.com/2014/12/08/oil-the-rouble-and-the-spectre-of-deflation/).

The emerging markets of Brazil, Russia, India and China collectively known as the BRICs - will likely grow in 2015 at their slowest pace in six years, according to Oxford Economics. Only the US has shown some pick-up in investment.

As I said last year, the reason that business investment has not boomed is that in most economies average profitability remains below levels before the Great Recession and below levels reached in the late 1990s. Most economies are still experiencing the downwave in the profitability cycle, as explained above. Coupled with the downwave in the Kondratiev cycle, that is why the global capitalist economy is in what I call a Long Depression, with some years to run.

Daniel de França, December 31, 2014 at 12:01 pm

You said one of these days that to recover profitability a world war would be necessary. Or maybe I am confused?

michael roberts, December 31, 2014 at 1:11 pm

Not every depression has been ended by war. But there have not been many depressions to judge! Perhaps the first capitalist depression of the early 1800s was ended by the Napoleonic wars. And the Great Depression of the 1930s was ended when America entered the war in 1941 and built up arms before hand. The Long Depression beginning in 1873 did not end in a world or even European war so it actually lasted longer and with varying degree of severity in different countries up to 1896. The current Long Depression is only seven years old. I think it might end around 2018 if there is a sufficient destruction of capital values by then. All this is a calculated guess – but calculated. I have said the opposite to what you think I said. I dont think this current depression will be ended by a world war, although there is permanent war – regional and local ones.

Philip Ferguson, December 31, 2014 at 2:14 am

Hi Michael,
you might be interested in this: http://rdln.wordpress.com/2014/12/31/michael-roberts-essays/

We re-blog a lot of your articles – mainly the ones on the world economy rather than individual countries – so we're happy to help out advertising your work.

This blog is a wonderful resource for anti-capitalists.

All the best for the New Year,
Phil

sartesian, January 4, 2015 at 1:06 am

Here's a prediction: growth will slow, turn negative, etc; things will get worse, the rate of profit will fall, and capitalism will not collapse; it will go on being capitalism until it is overthrown. Overproduction, financial crises, plummeting oil prices are just part of capital being capitalism; "The price of beef may be high or low, but it always involves the same sacrifice for the ox."
GrahamB, January 4, 2015 at 11:41 am
> Russia, Ukraine and Venezuela. Where else do you think growth be negative next year?

sartesian, January 4, 2015 at 1:07 pm
Italy, Cyprus, Slovenia, possibly the eurozone as a whole, Argentina, South Africa, Egypt, Nigeria, Angola, Libya, Senegal, Ecuador…..
GrahamB , January 4, 2015 at 1:46 pm
Well, the eurozone is of course the big unknown and I think the ECB will be forced to act early in the new year. If there is any improvement in the eurozone, global growth will probably be higher next year.
sartesian, January 4, 2015 at 4:38 pm
OK, that's your prediction. I have two predictions: (1) This shit–capitalism– will continue until it's overthrown. (2) Predictions will make absolutely no difference.

sartesian , January 5, 2015 at 6:25 pm

Now that's very interesting. I think maybe the problem is in viewing Capital as a "close and abstract" model– rather than as a critical analysis of the laws of capital accumulation and the immanent contradictions of that accumulation.

In a sense– right, no abstract closed theory can account for all variations, iterations of structural changes in a concrete mode of production. But historical materialism can and does.

I think that's what we're "supposed" to do with Capital– grasp its analysis as a means for apprehending what is going on here (or there) now (and then) in the mode of production.

Capital is not complete, in, of and by itself, without that historical materialism– without that recognition and apprehension of class struggle.

Henry, January 5, 2015 at 6:37 pm

Yep, I agree with that. Except closed and abstract can be at the same time a critical analysis. i think Marx was fully justified in his abstractions in Capital. I just think some Marxists can't see the world and the system beyond the abstractions.

GrahamB, January 5, 2015 at 7:01 pm

Some Marxists use a high frequency crisis predictor so it's not surprising that they sometimes get it right. Predicting capitalist non-crisis periods is less successful. And slow, stagnation, crisis and depression get used too loosely.

Edgar , January 6, 2015 at 9:16 pm

Maybe, but 2008 was a crisis! Some think it was merely a blip.

There is one thing not predicting a crisis but if you can't actually see one when it explodes in front of you then you have to ask, what use are you? I think the permanent revolution perspective, which I assume you are part of (Billj and that crowd), didn't regard 2008 as a crisis at all?

davidellis987, January 6, 2015 at 3:07 pm

How did we get here and where will we go?

Behind every crisis of capitalism is the fact that it takes more and more capital to make a decent rate of return. Capital constantly comes up against its political economic limits which prevent further growth and even throws the system into reverse. It has to burst through these arrangement once so favourable if it is to grow again. It takes great violence to overthrow the previously established political economy. It took two world wars and a Great Depression to establish American hegemony over a declining Europe and even then the assistance of world Stalinism was required.

But the post-War political economic arrangements could only deliver a boom of less than thirty years duration before profitability became an issue once again. This crisis of profitability which left the West stagnant, sclerotic and monopolised forced it into seeking an aggressive victory in the Cold War. An assault on the domestic and international working classes was launched along with an unprecedented credit-driven boom based on bank de-regulation.

Stalinism surrendered in the teeth of the West's spending and its weaponry not to mention a Western leadership seemingly mad enough to use them. Victory pushed America to seek to establish itself as the sole and only global super power. But the mighty US became militarily and morally bogged down in Iraq and Afghanistan and in 2008 the real cost of `winning' the Cold War became apparent when the Bankers' 30-year Ponzi Scheme collapsed in spectacular fashion.

The very forces whose emergence US imperialism had hoped to prevent were now evoked by its own efforts and US-sponsored globalisation began to unravel. The world economy is now stagnant, sclerotic, monopolised and irrevocably and completely bankrupt. The unravelling of globalisation will be a process ten times more violent than the process that established it and of course there is no America waiting in the wings to save America. There are no seriously conceivable new political economic arrangement into which capitalism can now move even if the old is swept away with great violence. A system that cannot change is a dead system.

Capitalism is a dead system. Our choice is to go with it to a New Dark Ages in which war is a permanent condition, a regime of global savagery a glimpse of which can be seen in Syria or Gaza or Baghdad today, or we can transcend capitalist globalisation through world proletarian revolution establishing a global commonwealth of proletarian nations taking global economic integration to the next level and putting our barbaric past behind us.

matt Says:

January 8, 2015 at 1:01 am

"So, I'd say that in terms of profit recovery, Russo-Japanese war is the start of a unique World War that lasted from 1905 until 1945."

Yep, that's a good starting point. Russia (Federation) and Japan, two sinking countries today.

Thanks for your mighty efforts generally, Michael.

Don't know about Kontratief waves myself, but I agree that the end of the long depression involved an escalating series of imperialist wars, culminating in the First World War.

That's not likely this time around, despite that destruction of the Russian Federation is virtually official U.S. policy. The Russian neo-con far right and fascist fringe cannot be mobilized for the destruction of the multinational federated state, as they presently have in Russian neo-imperialism what they would seek for if they were Ukrainian.

The Russian neo-liberals cannot overthrow the Putin regime, or any possible Russian Federation regime, without the Russian neo-fascists, as the actual outcome of the Maidan showed. And Ukraine is scheduled for reaming this year, by the EU and US oligarchs. Anyway a couple of key predictions neglected.

[Jan 19, 2015] Investment Outlook by Bill Gross

Be cautious and content with low positive returns in 2015. The time for risk taking has passed

January 2015
... I'll leave the specific forecasting for a few weeks' time and sum it up in a few quick sentences for now: Beware the Ides of March, or the Ides of any month in 2015 for that matter. When the year is done, there will be minus signs in front of returns for many asset classes. The good times are over

Timing the end of an asset bull market is nearly always an impossible task, and that is one reason why most market observers don't do it. The other reason is that most investors are optimists by historical experience or simply human nature, and it never serves their business interests to forecast a decline in the price of the product that they sell

Nevertheless, there comes a time when common sense must recognize that the king has no clothes, or at least that he is down to his Fruit of the Loom briefs, when it comes to future expectations for asset returns. Now is that time and hopefully the next 12 monthly "Ides" will provide some air cover for me in terms of an inflection point

2015

Manias can outlast any forecaster because they are driven not only by rational inputs, but by irrational human expressions of fear and greed. Knowing when the "crowd" has had enough is an often frustrating task, and it behooves an individual with a reputation at stake to stand clear. As you know, however, moving out of the way has never been my style so I will stake my claim with as much logic as possible and hope to persuade you to lower expectations for future returns over the next 12 months

My investment template shares a lot in common with, and owes credit to, the similar templates of Martin Barnes of the Bank Credit Analyst and Ray Dalio of Bridgewater Associates. All three of us share a belief in a finance-driven economic cycle which over time moves to excess both on the upside and the downside. For the past few decades, the secular excess has been on the upside with rapid credit growth, lower interest rates and tighter risk spreads dominating the long-term trend. There have been dramatic reversals as with the Lehman Brothers collapse, the Asia/dot-com crisis around the turn of the century, and of course 1987's one-day crash, but each reversal was met with a new and increasingly innovative monetary policy initiative on the part of the central banks that kept the bull market in asset prices alive

Consistently looser regulatory policies contributed immensely as well. The Bank Credit Analyst labels this history as the "debt supercycle," which is as descriptive as it gets

Each downward spike in the economy and its related financial markets was met with additional credit expansion generated by lower interest rates, financial innovation and regulatory easing, or more recently, direct central bank purchasing of assets labeled "Quantitative Easing." The power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981. Even with the recognition of the Minsky Moment in 2008 and his commonsensical reflection that "stability ultimately leads to instability," investors have continued to assume that monetary (and at times fiscal) policy could contain the long-term business cycle and produce continuing prosperity for investors in a multitude of asset classes both domestically and externally in emerging markets

There comes a time, however, when zero-based, and in some cases negative yields, fail to generate sufficient economic growth. While such yields almost automatically result in higher bond prices and escalating P/E ratios, their effect on real growth diminishes or in some cases, reverses. Corporate leaders, sensing structural changes in consumer demand, become willing borrowers, but primarily to reduce their own outstanding shares as opposed to investing in the real economy. Demographics, technology, and globalization reversals in turn have promoted a sense of "secular stagnation" as economist and former Treasury Secretary Larry Summers calls it and the "New Normal" as I labeled it as early as 2009. The Alice in Wonderland fact of the matter is that at the zero bound for interest rates, expected Returns on Investment (ROI) and Returns on Equity (ROE) are capped at increasingly low levels. The private sector becomes less willing to take a chance with their owners' money in a real economy that has a lack of aggregate demand as its dominant theme.

Making money by borrowing at no cost for investment in the real economy sounds like a no-brainer. But, it comes with increasing risk in an environment of secular stagnation, demand uncertainty, and with the ROI closer to zero itself than an entrepreneur is willing to bear.

The power of additional and cheaper credit to add to economic growth and financial asset bull markets has been underappreciated by investors since 1981

And so the miracle of the debt supercycle meets a logical end when yields, asset prices and the increasing amount of credit place an unreasonable burden on the balancing scale of risk and return. Too little return for too much risk. As the real economy of developed and developing nations sputter, so too eventually do financial markets. The timing – as mentioned previously – is never certain but the inevitable outcome is commonsensically sound. If real growth in most developed and highly levered economies cannot be normalized with monetary policy at the zero bound, then investors will ultimately seek alternative havens. Not immediately, but at the margin, credit and assets are exchanged for figurative and sometimes literal money in a mattress. As it does, the system delevers, as cash at the core or real assets at the exterior become the more desirable holding. The secular fertilization of credit creation and the wonders of the debt supercycle may cease to work as intended at the zero bound.

Comprehending (or proving) this can be as frustrating as understanding the differences between Newtonian and quantum physics and the possibility that the same object can be in two places at the same time. Central banks with their historical models do not yet comprehend the impotence of credit creation on the real economy at the zero bound. Increasingly, however, it is becoming obvious that as yields move closer and closer to zero, credit increasingly behaves like cash and loses its multiplicative power of monetary expansion for which the fractional reserve system was designed.

Finance – instead of functioning as a building block of the real economy – breaks it down. Investment is discouraged rather than encouraged due to declining ROIs and ROEs. In turn, financial economy asset class structures such as money market funds, banking, insurance, pensions, and even household balance sheets malfunction as the historical returns necessary to justify future liabilities become impossible to attain. Yields for savers become too low to meet liabilities. Both the real and the finance-based economies become threatened with the zero-based, nearly free money available for the taking. It's as if the rules of finance, like the quantum rules of particles, have reversed or at least negated what we historically believed to be true

And so that is why – at some future date – at some future Ides of March or May or November 2015, asset returns in many categories may turn negative. What to consider in such a strange new world? High-quality assets with stable cash flows

Those would include Treasury and high-quality corporate bonds, as well as equities of lightly levered corporations with attractive dividends and diversified revenues both operationally and geographically. With moments of liquidity having already been experienced in recent months, 2015 may see a continuing round of musical chairs as riskier asset categories become less and less desirable

Debt supercycles in the process of reversal are not favorable events for future investment returns. Father Time in 2015 is not the babe with a top hat in our opening cartoon. He is the grumpy old codger looking forward to his almost inevitable "Ides" sometime during the next 12 months.

Be cautious and content with low positive returns in 2015. The time for risk taking has passed

[Jan 19, 2015] The End of Our Financial Illusions - By Simon Johnson

In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.

April 17, 2014 | NYTimes.com

Simon Johnson, former chief economist of the International Monetary Fund, is the Ronald A. Kurtz professor of entrepreneurship at the M.I.T. Sloan School of Management and co-author of "White House Burning: The Founding Fathers, Our National Debt, and Why It Matters to You."

The global financial crisis that broke out following the collapse of Lehman Brothers in September 2008 was a big shock. This is literally true in terms of the impact on investors and market prices; a wide range of financial variables moved rapidly in unexpected and worrying directions. But what happened was also a shock to the realm of ideas about finance.
Before September 2008 - or at least before 2007, when some of the underlying problems first became more clearly manifest - the prevailing consensus among officials and specialists was that financial innovation was a good thing. In isolated instances, a particular new product might not work out as planned, as happens, for example, with medical innovation. But over all, the consensus went, financial innovation led by the private sector was making the system safer and more efficient.
This view was wrong.

In its day, this line of thinking justified the legal and regulatory changes that allowed some banks to become very large and to build up a much more complex range of activities in the 1990s and early 2000s, including through various kinds of opaque derivatives transactions.

In retrospect, much of the financial innovation in the previous decades built up risk for the financial system in ways that were not properly understood by regulators or, arguably, by management at some of the largest banks.

Of course, some bankers knew exactly what they were doing as their companies increased their debt relative to their equity. On average, large complex global banks had about 2 percent equity and 98 percent debt on the liability side of the balance sheet before the crisis, meaning they were leveraged 50:1 (the ratio of total assets to equity).

The good news is that the official consensus was shattered in 2008, and is not coming back. Systemic risk slapped everyone in the face with an undeniable wake-up call.

However, the process of reforming the financial system is still at an early stage. The Dodd-Frank financial reforms of 2010 represent a useful start - including the Volcker Rule's restrictions on excessive risk-taking - and the recently adopted Basel III framework for capital regulation nudges equity requirements higher.

But the world's largest banks will, by one informed estimate, end up - as things currently stand - with about 3 percent equity and 97 percent debt as the average structure of their balance sheet liabilities. In the United States, if the latest leverage rule is implemented and enforced properly, this will become 5 percent equity and 95 percent debt for the biggest eight banks by 2018. While 20:1 is better than 50:1, this is still not enough equity to assure a reasonable degree of financial stability in the foreseeable future.

The argument about finance has now shifted and is much more about whether capital requirements for the largest banks should be increased further. Those opposed to such a move offer three reasons why big banks should not be required to fund themselves with much more equity.

First, some people contend that the crisis of 2008 was a rare accident and Dodd-Frank fixed whatever problems existed. This is completely unconvincing - particularly because many of the same people have spent much of the last four years opposing and delaying financial reform.

Most importantly, it ignores the ways in which incentives and rules have changed since the 1980s. As James Kwak and I asserted in "13 Bankers," the structure of the financial system is quite different now from what it was in 1980. In particular, the largest banks have become much bigger and more able to take on (and mismanage) much more risk.

The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat. This is the view sometimes associated with former Treasury Secretary Timothy Geithner. (Mr. Geithner has a book coming out soon, and it will be interesting to see his current position on this point).

But the impact of any financial crisis is not measured primarily in terms of whether the Treasury made or lost money on specific investments. The criteria instead should be what happened to output and jobs, as well as what the impact was on the country's fiscal accounts. How much more public debt do we have now relative to what we had before - and what kind of lasting negative effects will that have?

Mr. Kwak and I took this on in "White House Burning," putting the recent surge in public debt in the longer-run context of American fiscal policy. No matter how you look at it, the financial crisis was a complete disaster for the real economy and, given the way fiscal politics work in the modern United States, for the budget and for investments in any kind of physical infrastructure and education.

The third counterargument is that large complex financial institutions are needed because they provide some sort of magic for the broader economy. This still seems to be the view of some people at the Federal Reserve Bank of New York, which recently published a set of research papers on the topic.

But the benefits they find are small relative to the potential costs. Anat Admati and Martin Hellwig's "The Bankers' New Clothes" makes the vulnerability of modern banking abundantly clear.

A recent report from the International Monetary Fund finds that the United States and other governments are providing large implicit subsidies to these big banks: The prospect of potential government support lowers their funding costs by about 100 basis points (one percentage point).

Many people are involved in the official sector's rethinking of finance. This is the lasting contribution from books such as Sheila Bair's "Bull by the Horns," Neil Barofsky's "Bailout" and Jeff Connaughton's "The Payoff." In government circles, key decision makers were swayed by officials including Thomas Hoenig and Jeremiah Norton (both of the Federal Deposit Insurance Corporation) and Sarah Bloom Raskin (then on the Board of Governors of the Federal Reserve System; now at the Treasury Department). As chairman of the Commodity Futures Trading Commission, Gary Gensler had an immensely positive impact, both directly on the regulation of derivatives and also more broadly.

The Democratic senators Sherrod Brown of Ohio, Jeff Merkley of Oregon and Carl Levin of Michigan and Ted Kaufman of Delaware (who has since left the Senate), along with David Vitter, Republican of Louisiana, played key roles in shifting opinion. Elizabeth Warren's work, both before and after her election to the Senate from Massachusetts, has also had great influence.

Of all the civil society organizations seeking to promote financial stability, Dennis Kelleher's Better Markets stands out for its major impact through a relentless surge of arguments, comment letters and research. Its report on the cost of the crisis made clear beyond any reasonable doubt that the crisis had profound negative consequences for millions of people.

Many other officials have also shifted their views in important ways. We are not going back to the old ways of thinking about finance, and allowing for changes in these theories is an essential part of any modern economy. Finance needs to be regulated effectively, and large banks should fund themselves with much more equity than is currently the case.

Selected Skeptical Comments

toom, germany 19 June 2014

The basic question is whether financial trickery and juggling can produce wealth? Certainly these tricks produce wealth for the bankers on Wall St. But how about the rest of us?

The answer is "maybe, sometimes". The pension funds profited from 1980 to 2007 and then again after 2010, with help from the Fed. However the wealth increase from 1980 to 2000 was mainly from the export of manufacturing jobs from the US to China. That will never occur again.

So we are stuck with 1% return on investment, unless trickery or some new invention (a new kind of cell phone, or more broadband or alternate energy?) occurs.

jack waymire, sacramento, ca 22 April 2014

Sure 20:1 leverage on balance sheets is better than 50:1 leverage, but the intellectuals are missing the point. Who wins when banks are excessively leveraged? Shareholders? Clients? The U.S. economy? I submit the primary beneficiaries are the executives who run the banks. They make decisions with impunity. Increased leverage increases profits which increase executive bonuses. Shareholders may benefit if company stocks rise in value. Highly leveraged balance sheets create a huge risk for all Americans - except the executives who made the decisions to leverage the balance sheets and get into businesses they barely understand.

Justin, Ohio 18 April 2014

You nail it perfectly. But we need to ask broader question: Is American Dream a myth?
It seems to me American Dream is clearly a form of both myth and illusion and propaganda used by the upper classes to keep the lower classes or the 99% in their place.

I'm shocked!, America 17 April 2014

"The second argument is that the costs of the crisis were not huge, so there is no reason to fear a repeat."

Let's find the person who said that and feed him to the tens of millions of unemployed people.

Jeff Atkinson, Gainesville, GA 17 April 2014

It's pretty simple. TBTF bank managers want to be regulated and paid like hedge fund managers but with a huge edge in the form of implied government assurances for their suppliers of capital. Such assurance can be purchased cheaply with political contributions and post government jobs for regulators.

Robert Baesemann, Los Angeles CA 17 April 2014

Bravo. I was prepared to read a rehash of the Collected Scientific Papers of Jamie Dimon," but this piece is very informative and helpful. The most critical issue on my horizon is the stability of the financial system. What I ask is whether or not the system is as stable as it was in 1998, or is it still teetering the way it was in 2007. In 2008, we observed the failure of Lehman, the rescue of several others (Merrill merged into BofA), and the failure and rescue of two money market funds that failed to make the buck. This seems to have been a global run on the banks which was cut off, but narrowly cut off. If there is a next time, the 2008 experience will only cause the fingers on the triggers to be quicker than they were in 2008. This seems to mean that we are not far removed from the lethally dangerous circumstances of 2008.

Thank you for pointing out the need for better financial regulation. As I recall, under Glass-Steagall commercial banking and investment banking were separate (no Merrill-BofA unions) and commercial bank reserve requirements were set by the FED at 20% to 25% or 4 to 1 or 5 to 1. In those days, commercial banks could not make profits like investment banks, but they could not drage the entire world into Depression. Investment banks were left to deal with people silly enough to gamble on Wall Street rather than Las Vegas. Oh for those halcyon days.

Murray Kenney, Ross, CA 17 April 2014

More equity = less lending. Less lending = less capital, particularly for small and medium sized businesses and for consumers with weak credit histories. Less capital for small and medium sized businesses and moderate income consumers = less economic growth.

That's why European Governments have resisted higher capital levels. They'd rather backstop their banks and treat bank debt as an off balance sheet liability of their governments than acknowledge the problem created by slow economic growth, excess supply, weak demand and low interest rates.

Michael F. Rhodes, Vancouver, Canada 17 April 2014

That is bunk. Financial alchemy has been tried in history (4th century Rome, post-war Germany and Basel risk weights). They don't work. Value creation, not finance creation, drives durable economics. Stop the apologetics. Tell people to work harder.

Manuel Morales, San Juan, Puerto Rico 17 April 2014

Financial illusions may be stronger than they may have ever been.

Professor Johnson writes that the financial crisis was a complete disaster to the real economy. Dennis Kelleher estimates a $12.8 trillion debacle in that same real economy with a negative impact that will be felt for years, if not decades, to come.

The doyens and shamans of 'high finance' have only received timid penalties for the global destruction they triggered while companies in the tangible economy, causing much less damage, are oftentimes chastised much more strongly and receive relatively far stricter punishments.

Regrettably the all-inclusive list of wizards of Wall Street are doing fine, are much alive and vigorously kicking while working compulsively to find 'innovative' and ingenious maneuvers to outfox regulations while moving higher on the 1% list.

The distressed state of affairs caused by the Great Recession may prove not to be the Main Event. Only time will tell.

Bob Feinberg, DC area 18 April 2014

At a recent event in Washington, Mr. Kelleher drastically raised his estimate of the embedded cost of the ongoing crisis due to overvaluation of swap positions of the TBTF banks. No one seems to know what this exposure is, and the prevailing view is that this is minimal because the positions net out.

The people who say this are the same ones who minimized the practices that gave rise to the 2008 episode of the ongoing, permanent crisis. The positions don't necessarily net out unless they are opposing sides of the same trade.

To estimate this exposure at several times the GDP of the US is probably conservative, but no one seems to know. Meanwhile the efforts of the so-called regulators are directed at preventing a so-called "default event" that would require these losses to be recognized.

BB, Orlando 17 April 2014

An excellent article. I completely agree that "Finance needs to regulated effectively and large banks should fund themselves with more equity." However, this is not going to happen until there are major political changes in the United States. The country is not a democracy, but a plutocracy. Wealthy people have benefited immensely by the status quo whereas the middle and lower classes have been devastated. This is because the government and the supreme court are controlled by big business. All elected government officials get in office with big business funding and they will act accordingly. The supreme court has exacerbated this situation by ruling that there should be no limits on campaign contributions. Campaign contributions need to be severely limited so educated, capable people from the middle and lower classes have an equal chance to play a significant role in government. How about a physicist as president(eg Ms Merkel)!.

Only a wealthy person such as Timothy Geithner would have the opinion that the costs of the financial crisis were not huge. He would feel differently if he was standing in the unemployment lines. The current plutocracy wants big profits which mean shipping jobs overseas, lower wages and more unemployment.

Dryly 41, 17 April 2014

Every thing that Professor Johnson says is spot on. Indeed, he is the only major economics professor that has identifies the source of the September 15, 2008 collapse of our financial system for the first time since October of 1929.

He is also the only one who has pointed out that Dodd-Frank didn't fix the problems created by the reversion to the Laissez Faire of Harding, Coolidge, Hoover and Mellon from the "strict supervision" of FDR.

We will once again return to "strict supervision" of finance. The only question is whether we do it before or after the next financial collapse. A wise and prudent nation would do it before but there is insufficient wisdom and prudence at this unfortunate time in American history.

Bob Feinberg, DC area 18 April 2014

Prof. Admati is another relentless leader of this debate. While the calls for stricter regulation of banks have grown louder, the opposition by the industry has hardened, and industry executives and lawyers are still running policy. This industry is, in effect, regulated by its own lawyers. To have meaningful regulation of this dangerous industry would required Transparency, Independence, and Accountability, all of which have been lacking throughout the decades of the ongoing, permanent crisis, and they still are.

Ms B, Buffalo 17 April 2014

Back in the 80's a local savings bank went "big time" around here with fancy deals in Florida and Texas. The deals were put together with the bank as lender with a piece of the ownership/equity as well. They bankers thought it was the cats meow, the cutting edge of sophisticated banking. The deals all tanked and the bank went down. Same nonsense now with different players and an even better means of obfuscation and rent seeking. Today, unfortunately the banksters are above the law and burning town the country has no consequences.

Larry L. Dallas, TX 18 April 2014

Here's a fact about the Oil Boom and the S&L Mess that happened in its midst that few people know:

EVERY SINGLE STATE BANK IN THE STATE OF TEXAS WENT UNDER IN THE AFTERMATH.

The 2008 Crisis was that smaller crisis writ large on the national and global scale. The fact that two idiots from Texas (Armey and Gramm) had a hand in the elimination of the Depression-era financial regulations that eventually led to 2008 just show that idiots are not capable of learning from prior experience.

Mark T, is a trusted commenter New York NY 17 April 2014

This sounds like a valedictory and indeed I hope it is the last post on this topic on which so much has been said (and repeated, and repeated).

One official unwisely unmentioned is Daniel Tarullo who is at the forefront of the push for greater macroprudential regulation. Among authors who should have been mentioned are Viral Acharya who has published a lot on systemic risk, Raghuram Rajan's Fault Lines is essential to understand the role of debt in the political economy of the post-gold-standard Western economies; and no analysis of the crisis is worthy of mention unless it faces up to the role that bank capital regulations played in shaping the portfolios of banks, which one can explore in Friedman's Engineering the Financial Crisis.

The post manages to discuss the financial crisis without once even alluding to the role of the GSE's and their politically driven acquisition of credit risk despite being overleveraged, through use of the implied government guarantee. Nor does it touch on the foreign role in the chase for yield, the connection between the trade deficit and the issuance of debt securities to countries with trade surpluses, or the mismatch between pension promises and pension funding that is one of the major sources of the growth of financial risk over the past two generations. Everything gets laid at the feet of 13 bankers. Unbelievable, yet so convenient, since it allows a whole sector of the elite to ignore the consequences of their policy preferences.

Larry L, Dallas, TX 17 April 2014

The problem with your argument is that same people who wanted to eliminate the Depression-era regulations were also the same people who wanted free trade which offshored a significant of the country's job base (and therefore its tax base and consumer spending capacity).

The result was higher federal deficits (which led to 5-fold increase in the national debt within a generation), higher gov't spending on transfer payments to make up for that lost personal income, a higher trade deficit from all of the imports and the reduced domestic expenditures on everything from education, R&D and infrastructure as a % of GDP.

The very same people who gave us the Financial Crisis were also responsible for the vicious cycle in the real economy.

E.T. Bass, SLC 18 April 2014

More to the point:

A bubble burst. "Bi-partisan" efforts at "home ownership" blew up, due to very highly questionable home mortgages. Which caused Lehman and Govt. Motors to blow up.

Outcome: second worst economic disaster in 100 years.

Today -- the most anti-small business president in history (per N.F.I.B.) who publicly snarls at the U.S. House and the slowest economic recovery in 100 years.

Res ipsa. Entirely predictable.

Steve, Raznick 17 April 2014

To be very clear, very precise, the banks were completely incapable of anything approaching accuracy when it came to the risks they took. Enough with this myth that these are unbelievably intelligent people who having attended a school with name people recognize inculcates them with special powers of divination.

We have 5 financial lobbyists for every congressmen. Just one illustration of how the game is tilted. Those lobbyists do not care about the financial security and welfare of the people. They care only about themselves and thwarting passage of any legislation which creates a sustainable, viable finance industry.

[Jan 16, 2015] Moody's Says Russia's GDP To Fall By 5.5% In 2015

There can not exist nether "free markets" nor independent rating agencies. Especially under neoliberalism. credibility. It's the same Moody that rate AAA mortgage CDOs before 2008. How many people dearly pay for their recklessness?

Moscow Exile, January 16, 2015 at 10:29 am

A Peter pre-empt:

Moody's Says Russia's GDP To Fall By 5.5% In 2015

Russia Says Inflation Could Hit 17% by March

For Navalny:

Get round here, Tagansky District, quick!

They're still selling milk at our local supermarket for 45 rubles a litre.

Bring some Western hacks if you can.

kirill, January 16, 2015 at 2:45 pm
The same clown outfit, Moody's, predicts a 2% drop in Ukraine's GDP in 2015:
http://www.credo-line.com/en/media/news/Moodys-predicts-Ukraines-GDP-to-fall-by-8-this-year-and-2-in-the-next-year.htm

Moody's has zero credibility.

[Jan 12, 2015] Goldman tries to make oil prices go lower

In a note to clients, Goldman Sachs slashed its forecast for oil prices. It now estimates that crude will average $50.40 a barrel this year, far below its previous forecast of $83.75. It also trimmed its forecast for Brent crude, a type used in international markets, to $70 a barrel from $90.

Jan 12, 2015 | NYTimes.com

Oil Slides Again, Taking Shares on Wall Street Down With It -
Falling oil prices dragged the stock market lower on Monday as Exxon Mobil, Chevron and other big energy companies sank along with crude.
The steep drop in oil prices over recent months has investors second-guessing expectations for the quarterly earnings season that starts this week.

Sam Stovall, the United States equity strategist at S&P Capital IQ, said that it seemed that every day brought another drop in Wall Street's earnings forecasts.

"What's happening is that we're seeing the very low bar for fourth-quarter earnings raising anxiety," Mr. Stovall said. "It's the continued decline in oil, but it's also that nearly half of the S.&P. 500's revenues come from overseas. Japan is in recession, and Europe is teetering on the edge of it."

The Standard & Poor's 500-stock index lost 16.55 points, or 0.8 percent, to close at 2,028.26. The Dow Jones industrial average slid 96.53 points, or 0.5 percent, to 17,640.84, and the Nasdaq lost 39.36 points, or 0.8 percent, closing at 4,664.71.

... ... ...

In a note to clients, Goldman Sachs slashed its forecast for oil prices. It now estimates that crude will average $50.40 a barrel this year, far below its previous forecast of $83.75. It also trimmed its forecast for Brent crude, a type used in international markets, to $70 a barrel from $90.

Oil prices extended their slide, with American crude losing $2.29 to settle at $46.07 a barrel. Brent lost $2.68 to $47.43. Both were trading at their lowest levels since March 2009.

[Jan 12, 2015] Is the US economy overstretched

RT Op-Edge

Unfortunately at the same time, economic gravity will out and that leads to some concern for 2015. The US economy has averaged 57 months of expansion before matters get a tad overheated and a recession ensues. Equally, we have many indicators of somewhat frothy stock multiples. Are they expensive? Well they certainly aren't cheap, with large US corporations making half their profits overseas. Even presuming growth elsewhere, a resurgent US dollar suggests lower profits for American corporations. Moreover, the bond bubble is on borrowed time with the shale economy likely subject to a "wildcat" cyclical downturn, given collapsing oil prices.

Admittedly, the US economy suffered a large downswing in the last recession but thanks to the flexibility of its employment and a relatively forgiving approach to redemption of entrepreneurial spirit after failure, the US has had a huge upswing which may continue awhile yet. However, January 2015 marks the 67th consecutive month of expansion (read that and weep, Europe!), already 10 more than the average upswing. Yes, the cycle may carry on for a while (we all hope so) but ultimately cyclical gravity will impact the US economy once more and it begins 2015 leveraging itself against the mean. A US recession is likely close at hand.

Ironically, while a US recession will adversely impact its citizens, the biggest losers in the process will likely be overseas markets. Even a short, relatively muted recession will likely cause a wave of dislocation, e.g. amidst the enormously over-leveraged government spendthrift continent of Europe where government continues to ignore the lessons of their own hubristic impotence to create growth.

An overstretched US cycle will likely cause America more economic pain before the lame duck Obama presidency ends. However, it will make the greatest impact on weakened states across the Atlantic

Mikhail R

Of course it is overstretched, and there are and will continue to be economic cycles. The U.S. and the world will soon be in another down cycle and whether we will have inflation or deflation remains to be seen. The U.S. and Russia need better communication. The Ukraine fiasco is a perfect example for much needed discussion. The U.S. should have kept Russia aware of its activities in Ukraine and Russia should have advised the U.S. of its intentions. Since neither party wanted to disclose their intentions, we now have sour relations between the two super powers. And, what affects Russia will eventually effect the U.S. and Europe, and vice versa. I am hoping a more conservative President will be elected in the U.S. and the White House will make it a priority to improve and re-establish better relations with Russia with an understanding that open communications is critical for a successful foreign policy and improved negotiations.

Serge Krieger

America growing rapidly ? hahaha! 5%. It is based upon purchases of health care plans. Yeah, great growing! America is one big lie.

Patrick O'Neil

How much industry does Russia have. It's GDP is about the same as Italy. LOL
Do a search of the highest revenue companies in the world. Look what country they are from. See the US multiple times? Now scroll for a Russian one. Keep scrolling. :)

[Jan 09, 2015] Larry Summers US economy not growing fast enough

Jan 09, 2015 | finance.yahoo.com

Former Clinton Treasury Secretary Larry Summers told CNBC Friday the U.S. economy is not growing fast enough.

While American economic growth is getting better and leads the rest of the world, investments need to be made to get the economy stronger, Summers said. "Confidence is the cheapest form of stimulus," he said on " Squawk Box ."

"We're not doing well enough. We haven't had a year of 3 percent [growth] in a very long time in the United States," he said.

Summers, also a former Obama administration economic advisor, said the U.S. bond market is indicating that investors are worried. "With forward interest rates coming down as much as they have, it suggests concern about underlying growth in this economy."

The government should be investing more, not less, in the economy, especially with borrowing rates at such low levels, he said. "We've got to be doing more to get the economy growing more rapidly and making sure everybody share in that prosperity."

Summers called for infrastructure investments in antiquated airports and shipping ports, and said tens of thousands schools around the nation need to be improved.

He said private-sector investments need to be made in energy, high-speech Internet and information technology. "Way over three- quarters of the investment that we're making is private-sector investment."

The government also needs to address burdensome regulations and policies, Summers said. "It's important to legislate tax reform in the corporate sector as soon as possible."

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[Apr 22, 2018] The American ruling class loves Identity Politics, because Identity Politics divides the people into hostile groups and prevents any resistance to the ruling elite

[Apr 01, 2018] Does the average user care if s/he is micro-targetted by political advertisements based on what they already believe?

[Mar 31, 2018] RFK and Nixon immediately understood the assassination was a CIA-led wet-works operation since they chaired the assassination committees themselves in the past

[Mar 30, 2018] The Death Of The Liberal World Order by Leonid Savin

[Mar 12, 2018] There is no democracy without economic democracy by Jason Hirthler

[Mar 12, 2018] Colonizing the Western Mind using think tanks

[Mar 02, 2018] The main reason much of the highest echelons of American power are united against Trump might be that they're terrified that -- unlike Obama -- he's a really bad salesman for the US led neoliberal empire. This threatens the continuance of their well oiled and exceedingly corrupt gravy train

[Feb 25, 2018] Democracies are political systems in which the real ruling elites hide behind an utterly fake appearance of people power

[Feb 20, 2018] For the life of me I cannot figure why Americans want a war/conflict with Russia

[Feb 11, 2018] How Russiagate fiasco destroys Kremlin moderates, accelerating danger for a hot war

[Feb 10, 2018] The generals are not Borgists. They are something worse ...

[Dec 31, 2017] Is [neo]Liberalism a Dying Faith by Pat Buchanan

[Jan 02, 2019] That madness of the US neocons comes from having no behavioural limits, no references outside of groupthink, and manipulating the language. Simply put, you don't know anymore what's what outside of the narrative your group pushes. The manipulators ends up caught in their lies.

Sites

Etc

Society

Groupthink : Two Party System as Polyarchy : Corruption of Regulators : Bureaucracies : Understanding Micromanagers and Control Freaks : Toxic Managers : Harvard Mafia : Diplomatic Communication : Surviving a Bad Performance Review : Insufficient Retirement Funds as Immanent Problem of Neoliberal Regime : PseudoScience : Who Rules America : Neoliberalism : The Iron Law of Oligarchy : Libertarian Philosophy

Quotes

War and Peace : Skeptical Finance : John Kenneth Galbraith :Talleyrand : Oscar Wilde : Otto Von Bismarck : Keynes : George Carlin : Skeptics : Propaganda : SE quotes : Language Design and Programming Quotes : Random IT-related quotes : Somerset Maugham : Marcus Aurelius : Kurt Vonnegut : Eric Hoffer : Winston Churchill : Napoleon Bonaparte : Ambrose Bierce : Bernard Shaw : Mark Twain Quotes

Bulletin:

Vol 25, No.12 (December, 2013) Rational Fools vs. Efficient Crooks The efficient markets hypothesis : Political Skeptic Bulletin, 2013 : Unemployment Bulletin, 2010 : Vol 23, No.10 (October, 2011) An observation about corporate security departments : Slightly Skeptical Euromaydan Chronicles, June 2014 : Greenspan legacy bulletin, 2008 : Vol 25, No.10 (October, 2013) Cryptolocker Trojan (Win32/Crilock.A) : Vol 25, No.08 (August, 2013) Cloud providers as intelligence collection hubs : Financial Humor Bulletin, 2010 : Inequality Bulletin, 2009 : Financial Humor Bulletin, 2008 : Copyleft Problems Bulletin, 2004 : Financial Humor Bulletin, 2011 : Energy Bulletin, 2010 : Malware Protection Bulletin, 2010 : Vol 26, No.1 (January, 2013) Object-Oriented Cult : Political Skeptic Bulletin, 2011 : Vol 23, No.11 (November, 2011) Softpanorama classification of sysadmin horror stories : Vol 25, No.05 (May, 2013) Corporate bullshit as a communication method : Vol 25, No.06 (June, 2013) A Note on the Relationship of Brooks Law and Conway Law

History:

Fifty glorious years (1950-2000): the triumph of the US computer engineering : Donald Knuth : TAoCP and its Influence of Computer Science : Richard Stallman : Linus Torvalds : Larry Wall : John K. Ousterhout : CTSS : Multix OS Unix History : Unix shell history : VI editor : History of pipes concept : Solaris : MS DOS : Programming Languages History : PL/1 : Simula 67 : C : History of GCC development : Scripting Languages : Perl history : OS History : Mail : DNS : SSH : CPU Instruction Sets : SPARC systems 1987-2006 : Norton Commander : Norton Utilities : Norton Ghost : Frontpage history : Malware Defense History : GNU Screen : OSS early history

Classic books:

The Peter Principle : Parkinson Law : 1984 : The Mythical Man-Month : How to Solve It by George Polya : The Art of Computer Programming : The Elements of Programming Style : The Unix Hater’s Handbook : The Jargon file : The True Believer : Programming Pearls : The Good Soldier Svejk : The Power Elite

Most popular humor pages:

Manifest of the Softpanorama IT Slacker Society : Ten Commandments of the IT Slackers Society : Computer Humor Collection : BSD Logo Story : The Cuckoo's Egg : IT Slang : C++ Humor : ARE YOU A BBS ADDICT? : The Perl Purity Test : Object oriented programmers of all nations : Financial Humor : Financial Humor Bulletin, 2008 : Financial Humor Bulletin, 2010 : The Most Comprehensive Collection of Editor-related Humor : Programming Language Humor : Goldman Sachs related humor : Greenspan humor : C Humor : Scripting Humor : Real Programmers Humor : Web Humor : GPL-related Humor : OFM Humor : Politically Incorrect Humor : IDS Humor : "Linux Sucks" Humor : Russian Musical Humor : Best Russian Programmer Humor : Microsoft plans to buy Catholic Church : Richard Stallman Related Humor : Admin Humor : Perl-related Humor : Linus Torvalds Related humor : PseudoScience Related Humor : Networking Humor : Shell Humor : Financial Humor Bulletin, 2011 : Financial Humor Bulletin, 2012 : Financial Humor Bulletin, 2013 : Java Humor : Software Engineering Humor : Sun Solaris Related Humor : Education Humor : IBM Humor : Assembler-related Humor : VIM Humor : Computer Viruses Humor : Bright tomorrow is rescheduled to a day after tomorrow : Classic Computer Humor

The Last but not Least Technology is dominated by two types of people: those who understand what they do not manage and those who manage what they do not understand ~Archibald Putt. Ph.D

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Last modified: March, 12, 2020

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1	United States	18,840,000	2011 est.
2	China	9,790,000	2011 est.
3	Japan	4,464,000	2011 est.
4	India	3,292,000	2011 est.
5	Russia	3,196,000	2012 est.
6	Saudi Arabia	2,817,000	2011 est.
7	Brazil	2,594,000	2011 est.
8	Germany	2,400,000	2011 est.
9	South Korea	2,301,000	2012 est.
10	Canada	2,259,000	NA
11	Mexico	2,133,000	2011 est.
12	France	1,792,000	2011 est.
13	Iran	1,709,000	2012 est.
14	Italy	1,454,000	2011 est.
15	Spain	1,384,000	2011 est.
16	Singapore	1,380,000	2012 est.
17	Indonesia	1,322,000	2011 est.
18	United Kingdom	1,217,000	2013 est.
19	Australia	1,023,000	2011 est.
20	Netherlands	1,010,000	2011 est

year	production	change
1980	59,420.56	NA
1981	55,904.87	-5.92 %
1982	53,312.60	-4.64 %
1983	53,130.85	-0.34 %
1984	54,379.94	2.35 %
1985	53,843.26	-0.99 %
1986	56,202.61	4.38 %
1987	56,536.07	0.59 %
1988	58,593.86	3.64 %
1989	59,694.83	1.88 %
1990	60,404.45	1.19 %
1991	60,112.96	-0.48 %
1992	60,093.48	-0.03 %
1993	60,157.95	0.11 %
1994	58,805.19	-2.25 %
1995	59,949.60	1.95 %
1996	61,282.65	2.22 %
1997	63,317.67	3.32 %
1998	64,468.21	1.82 %
1999	63,322.39	-1.78 %
2000	66,268.41	4.65 %
2001	65,865.38	-0.61 %
2002	64,973.32	-1.35 %
2003	67,327.29	3.62 %
2004	70,706.05	5.02 %
2005	72,176.09	2.08 %
2006	71,945.59	-0.32 %
2007	71,611.84	-0.46 %
2008	72,581.54	1.35 %
2009	71,317.64	-1.74 %
2010	73,216.29	2.66 %
2011	73,485.09	0.37 %
2012	75,063.80	2.15 %
2013	75,239.91	0.23 %

Financial Skeptic Bulletin, 2015

Old News ;-)

[Mar 05, 2019] Saudi Oil Strategy Brilliant Or Suicide

The article was written in 2015 but still has value. So it is interesting to read what neoliberal thought at this time is not that different from what they think now...

The idea that Saudi Arabia is an independent player is too simplistic... It never was. It just hides the key role of the USA in engineering oil prices slump and the fact that Saudi Arabia is a vassal of Washington is ignored.

"... Third, Saudi refusal to act as price guarantor undercuts the confidence foreigners need to invest in, or loan to, oil projects. ..."

"... Fourth, in terms of political risk, Saudi Arabia with its Gulf allies, Iran, and Iraq, and the Middle East in general, is at the epicenter of global tension, turmoil, and tumult. ..."

"... Fifth, its influence within OPEC, and therefore its ability to manage OPEC output and prices, is diminished ..."

"... Saudi officials apparently viewed $90 or even $80 per barrel oil for "one or two years" with equanimity. Can they maintain the composure they have displayed thus far as they incur in a single year the revenue losses they expected to take four years (at $90 oil) or two years (at $80 oil)? ..."

Aug 30, 2015 | peakoilbarrel.com

[Dec 19, 2017] Do not Underestimate the Power of Microfoundations

Highly recommended!

Notable quotes:

"... A more probable school of thought is that this game was created as a con and a cover for the status quo capitalist establishment to indulge themselves in their hard money and liquidity fetishes, consequences be damned. ..."

"... The arguments over internal and external consistency of models is just a convenient misdirection from what policy makers are willing to risk and whose interests they are willing to risk policy decisions for ..."

"... To ensure continuation of power of "nomenklatura" in the first case and banking oligarchy in the second. Connections with reality be damned. Money does not smell. ..."

"... Economic departments fifth column of neoliberal stooges is paid very good money for their service of promoting and sustaining this edifice of neoliberal propaganda. Just look at Greg Mankiw and Rubin's boys. ..."

Apr 04, 2015 | Economist's View

[Dec 03, 2017] How Complex Systems Fail

Notable quotes:

"... every major investment leads to further investments (no matter how dumb or large) to protect the value of past investments. ..."

"... Tainter argues that the energy cost (defined broadly) of maintaining the dysfunction eventually overwhelms the ability of the system to generate surpluses to meet the rising needs of maintenance. ..."

"... a combination of shrinking revenue base and the subordination of all systemic needs to the needs of individual emperors to stay in power and therefore stay alive. ..."

"... In each case, some elite individual or grouping sees throwing good money after bad as necessary to keeping their power and their positions. Our current sclerotic system seems to fit this description nicely. ..."

"... Good-For-Me-Who-Effing-Cares-If-It's-Bad-For-You-And-Everyone-Else ..."

"... In Claus Jensen's fascinating account of the Challenger disaster, NO DOWNLINK, he describes how the managers overrode the engineers' warnings not to fly under existing weather conditions. We all know the result. ..."

"... Globalization factors in maximizing the impact of Murphy's Law: ..."

"... Where one can only say: "Forgive them Father, for they know not what they do" ..."

"... Subsumption architecture ..."

"... The inverted pendulum ..."

"... Emergent behavior of swarms ..."

"... negative selection ..."

Aug 21, 2015 | naked capitalism

[Dec 03, 2017] Brood of Vipers

May 07, 2015 | jessescrossroadscafe.blogspot.com

[Nov 30, 2017] Will Robots Kill the Asian Century

This aritcle is two years old and not much happned during those two years. But still there is a chance that highly authomated factories can make manufacturing in the USA again profitable. the problme is that they will be even more profible in East Asia;-)

Notable quotes:

"... The National Interest ..."

[Nov 29, 2017] Debt: War and Empire By Other Means

This is an old article by Jesse, but today it sound even more pertinent then two years ago, before Trump ascendance to power.

Jun 19, 2015 | jessescrossroadscafe.blogspot.com

[Sep 13, 2017] The Rape of the American Mind

Notable quotes:

"... Repeat mechanically your assumptions and suggestions, diminish the opportunity for communicating dissent and opposition. This is the formula for political conditioning of the masses. ..."

"... I-dont-care reaction ..."

"... Confusing a targeted audience is one of the necessary ingredients for effective mind control." ..."

"... Ennui of the bureaucrat, entropy of an inability to change, and the credibility trap of failed ideologies in a failing empire. ..."

"... Not so for the financiers and their minions. They will not be quiet, alas. The more badly they behave, the louder they seem to become. ..."

"... Although a child is limited by lack of faculty and experience, the speculator is hampered by vanity, a self-imposed lack of human development, and an almost obsessive preoccupation with drinking, favorite objects, and teats. ..."

[Dec 04, 2016] The myth of Ronald Reagan: pragmatic moderate or radical conservative?

Notable quotes:

"... he changed American politics forever by demonstrating that style was more important than substance. In fact, he showed that style was everything and substance utterly unimportant. ..."

[Sep 10, 2016] Oil and gas crunch pushes Russia closer to fiscal crisis

It is pretty interesting and educational to read such articles one year after they are published.

Notable quotes:

"... Russia is already in dire straits. The economy has contracted by 4.9pc over the past year and the downturn is certain to drag on as oil prices crumble after a tentative rally. Half of Russia's tax income comes from oil and gas. ..."

"... Core inflation is running at 16.7pc and real incomes have fallen by 8.4pc over the past year, a far deeper cut to living standards than occurred following the Lehman crisis. ..."

"... This man "forecasted" Russia's demise last year. He has to show that that forecast is still liable to happen ..."

"... What Colby said is palpably true. That is why we don't hear real news and instead we are bombarded with news about their "celebs" ..."

"... He should know. And certainly, Western media coverage of the Ukraine crisis demonstrated to many millions of people in the West that major Western media is almost all controlled by the US neocons. Anyone with half a brain can see that - but clearly not you. ..."

"... As the merkins tell us a devalued dollar is your problem.. the devalued rouble is the EUs problem! ..."

"... So the political sanctions are bankrupting Russia because they dared to challenge EU expansion. Result millions of poor Russians will start to flow West and the UK will have another flood of Eastern Europeans. But at least we showed them our politicians are tough. ..."

"... The formation of such an alliance would trump Russia's (or Britain's) opponents ambitions and bring prosperity. ..."

"... Propaganda. Laughable coming from the UK hack when the UK has un-payable debt and Russia has little external debt plus we have no Gold and Russia has probably 20,000 tonnes. NATO surrounds Russia yet they are the aggressors. ..."

"... In the end, Ambrose is too ideological to be credible on the issue. Sure, Russia has couple lean years ahead, but it will come out of this ordeal stronger, not weaker. There are already reports of mini boomlets gathering steam under the surface. ..."

Jul 23, 2015 | Telegraph

[Dec 30, 2015] On Pareto Optimality

Notable quotes:

"... the ideal markets that would produce Pareto Optimal allocations don't actually exist ..."

"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isn't. ..."

"... In short, Pareto Optimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."

Dec 30, 2015 | Economist's View

[Dec 30, 2015] On Pareto Optimality

Notable quotes:

"... the ideal markets that would produce Pareto Optimal allocations dont actually exist ..."

"... moving from actually existing non-ideal markets to ideal markets WOULD NOT BE Pareto Optimal even if it was possible to do so, which it isnt. ..."

"... In short, Pareto Optiimality is a just so story that has absolutely no bearing on the real world other than as an ideological justification for tons of bullshit. ..."

Dec 30, 2015 | Economist's View

[Dec 30, 2015] IMF chief Lagarde warns of disappointing global growth in 2016