The "spring slowdown" is here again. As discussed earlier (see post), the previous three years saw a strong start in the US, followed by a slowdown in economic activity, particularly in manufacturing
What's especially troubling this year is that we are also seeing a corresponding slowdown in other major economies that were thought to be in good shape, namely Germany ...
UST - US TREASURY TREND
Treasury yields declined to the lowest level this year in response. This move reflects the bet that given the soft patch in the economy, the Fed will continue buying government paper for some time to come.
The financial crisis is over and the recession ended in 2009. But one of the federal government's biggest social welfare programs, which expanded when the economy convulsed, isn't shrinking back alongside the recovery. Enrollment in the Supplemental Nutrition Assistance Program, as the modern-day food-stamp benefit is known,
Has soared 70% since 2008 to
A record 47.8 million as of December 2012.
Congressional budget analysts think participation will rise again this year and dip only slightly in coming years.
The biggest factor behind the upward march of food stamps is
A sluggish job market
A rising poverty rate.
Many states have pushed to get more people to apply for SNAP, a program where the federal government picks up the tab.
But there is another driver, which has its origins in President Bill Clinton's 1996 welfare overhaul. In recent years, the law has enabled states to ease asset and income tests for would-be participants, with the encouragement of the Obama administration, allowing into the program people with relatively higher incomes as well as savings.
The new rules were designed to encourage people to take advantage of the program before they became destitute. By expanding the pool of potential applicants, they are redrawing the landscape of government assistance. It is one reason why SNAP appears to have evolved from a program that rose and fell with the unemployment rate to a more permanent feature of the landscape.
At 12:07 a.m. on a recent morning, Syrises Myers, 34 years old, moved $70.18 in groceries including milk and ketchup through a scanner at Dominick's grocery store near Chicago. The mother of two, the sole breadwinner for her family, knew the store closed at midnight. But she had to wait a few extra minutes for the federal government to transfer her monthly food-assistance benefits onto the purple debit-style card issued by the state of Illinois. "If I want to be sure my kids can eat, especially when food is low in the house, I have to go at midnight when the food stamps turn on," said Ms. Myers, a receptionist who earns $11 an hour.
While getting assistance from the program, Ms. Myers has been able to save $5,600 and recently put a $300 down payment on a car. Under older rules, the savings probably would have disqualified her from the program. Under the new, looser tests, that isn't the case.
The food-stamp rolls have swollen since 2008 and are projected to stay that way for years. In 2008, SNAP enrollment was 28.2 million. Unemployment peaked in October 2009 at 10% and was at 7.7% as of February, but SNAP kept growing The Congressional Budget Office predicts unemployment will drop to 5.6% by 2017 but that SNAP enrollment will drop slightly to 43.3 million people, down 4.5 million from the current level. That makes it very different from the other big federal support program, unemployment insurance, which shrinks as the economy improves. Continued jobless claims dropped to 3.1 million in February after peaking at 6.6 million in May 2009.
Kevin Concannon, undersecretary for food, nutrition and consumer services at the Department of Agriculture, said SNAP is working as designed, expanding to extend benefits to more Americans as poverty levels increase. He said USDA officials expect the program to soon begin contracting as the economy improves.
"While the perception may be different, the actual raw numbers, almost 50 million people [under the federal poverty level], is certainly one of the principal reasons why we see the enrollment increases in the SNAP program," he said. A more aggressive effort to get people on the rolls and changes in the eligibility standards were also factors, he said.
The government spent a record $74.6 billion on SNAP benefits last year, roughly equivalent to the combined budgets of the Department of Homeland Security, the Justice Department and the Department of the Interior. Roughly 45% of recipients are children. In 2007, the government spent $30.4 billion on the program.
A version of the food-stamp program was used briefly in the 1930s and 1940s. It was made permanent in the 1960s to tackle poverty, part of an expansion of state and federal social welfare programs including Medicaid.
By 1975, 8% of all Americans received government-paid food assistance. The level hovered between 8% and 11% until 2009. The financial crisis, coupled with the ensuing spike in poverty levels and a number of policy changes, pushed the program to unprecedented levels. Now, 15% of Americans are on SNAP.
The average monthly benefit per person was $133 last year, which can be used to buy household staples such as cereal, meats, fruits and milk.
For an able-bodied American without children, SNAP benefits are usually only offered for a few months. The federal government has waived these rules for most states in recent years because of high unemployment and will likely rescind the waivers when unemployment falls, program experts say.
"Food stamps have actually saved my life, really," said Diane Hendricks, 43, who worked for 12 years at a human-resources agency before losing her job in 2009. She and her husband divorced last year, and she filed for SNAP to help buy groceries for her two children, ages 10 and 5. She now lives with a friend and receives $380 a month in SNAP.
In late February, Ms. Hendricks began working 20 hours a week at a local food pantry, earning $10 an hour. She hopes to stop using SNAP in three months. "The benefits helped me get back on my feet," she said. "It was one less thing to worry about so I was able to look for work."
Food stamps have proven polarizing in Washington, with proponents saying low-income Americans need this kind of taxpayer-funded assistance, and critics warning that programs foster dependence on government support.
House Budget Committee Chairman Paul Ryan (R., Wis.), the former GOP vice-presidential candidate, has proposed turning SNAP into a block-grant program that would give states more control over the program, likely leading to cuts.
At a recent event hosted by The Wall Street Journal, Mr. Ryan said when it comes to anti-poverty programs, policy makers should be asking the questions: "Do we have an economic policy of social mobility, of upward mobility? Are we attacking poverty at the root causes, or are we simply merely treating the symptoms of poverty to make it, you know, easier to tolerate and therefore perpetuate?"
In 2011, as the U.S. unemployment rate began to recede from its 2009 peak of 10%, the number of Americans living below the poverty line remained elevated as people burned through their savings and replaced full-time jobs with part-time work. As of 2011, some 48.5 million people were living in poverty, up from 37.3 million in 2007. But that growth only accounts for roughly half the change in SNAP enrollment.
The newest factor in the program's growth, one that hasn't been tested in past boom-and-bust cycles, stems from policy changes that began almost two decades ago. The 1996 welfare overhaul, coupled with a rule change crafted four years later by the Clinton administration, allowed states to make it easier for residents to qualify for benefits.
In 2001 and 2002, six states adopted rules that eased income and asset requirements for SNAP applicants, making it easier for someone to qualify for the program if they had a low-wage job or some savings. Previously, applicants could be disqualified if they had $5,000 in the bank, or earned slightly more than the poverty threshold.
The goal was to help Americans with government aid before their savings were wiped out. Policy makers wanted to allow newly poor families, such as those where the breadwinner was temporarily unemployed, to have enough money to put gas in the cars and pay phone bills—two necessities for finding and retaining jobs. To qualify for this easier screening process, Americans had to do little more than prove their income levels were low enough to meet certain thresholds.
The change didn't attract much attention until the financial crisis hit. After that, states began aggressively implementing the laxer standards, which allowed cash-strapped states to funnel more federal aid to their residents. The 2009 stimulus law further expanded the program, allowing people to keep the benefits longer than normal and boosting the total level of benefits that a recipient can receive. The expanded benefits expire Oct. 31.
In 2009, with the encouragement of Obama administration officials, 17 states and U.S. territories eased their eligibility requirements, in some cases waiving any policy that restricted the assets a family could retain.
"We believe that increasing the number of states that implement [eased] eligibility will benefit families hurt by the economic crisis, promote savings among low income households, and simplify state policies," Jessica Shahin, a top USDA official, wrote to other federal program overseers in 2009. "Please encourage your States to adopt [the looser rules] to improve SNAP operations in your States."
Eleven more states eased rules in 2010. Today, 43 U.S. states and territories have such expanded eligibility policies. The White House estimates that reversing the eased standards would cause between two million and three million people to lose benefits.
"We decided to adopt [easier] standards in order to prevent [people] from having to spend all of their life savings," said Richard Berry, a GOP-appointed director of the agency that screens applicants in Mississippi, where one out of every three children receive benefits. "We didn't want people to have to become destitute in order to get help."
The resulting change in the program's structure has been profound. In 2006, 18.7% of SNAP households qualified through an easier screening process. In 2011, that number reached 65.8%. The change didn't mean the majority of SNAP beneficiaries had large savings accounts. Rather, it meant that states were no longer checking, according to state guidelines and program officials.
The financial crisis hit North Carolina particularly hard, wiping out thousands of manufacturing and financial-sector jobs. The state's unemployment rate spiked from 4.6% in March 2007 to 11.3% in February 2010. It remained at 9.5% in January. The number of households seeking SNAP benefits in North Carolina also soared, averaging 785,072 in the fiscal year that ended Sept. 30, up 87% from 2008.
The state broadened eligibility rules in 2010, waiving asset limits and allowing households to qualify if their gross income was as much as 200% of the federal poverty level, up from the 130% threshold that had been in place before. Under the change, a family of four with income of $3,842 a month would now qualify, compared with $2,498 previously.
With more entering the program, social service groups began recommending it as an option for struggling families that previously hadn't applied.
That is what happened to Basem Eljauni, a 55-year-old cashier at a Sam's Club in Greensboro, N.C., who lost his two businesses—a grocery store and a gas station—and his $250,000 in savings and investments. The father of six says he now makes around $1,000 a month if he is lucky and supplements his income with about $800 in government-paid food assistance and handouts from charities.
"It's hard to see yourself stuck on food stamps," said Mr. Eljauni. "Amazing—I never thought I was going to be stuck in the system."
Congress will have to revisit SNAP later this year when a bill authorizing USDA expenditures expires. Republicans have promised to push for changes, seeking new limits on who can receive benefits and ending the ability of states to ease asset and income limits.
The Congressional Budget Office said reinstating eligibility limits would save around $4.5 billion over 10 years, a fraction of the program's total cost over that time.
Budget experts believe the program will start contracting next year, but only slowly. It will depend, in part, on whether people like Ms. Myers, the Chicago receptionist, will shift off the program in the coming months, something she said hopes will happen. "I am always looking for a better job," she said. "I do not want to be on food stamps forever."
As we have discussed numerous times over the past year, there is a quiet movement among the world's central banks to diversify their reserves away from the pejorative USD.
Whether it is
Direct trade linkages,
Hording physical precious metals, orsimply
Buying foreign sovereign debt,
.. there is a trend emerging. The latest defection, as BusinessWeek reports, is Australia's plan to invest about 5% of foreign currency reserves in China. The decision
"represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan,"
the country's deputy governor noted, adding that this step was an "important milestone" to "stronger financial linkages" leaving Australia "better positioned to benefit from the shift in global economic growth towards Asia." Of course, palling up to its closest trade partner is a big driver, but in a somewhat barbed comment on the strength of the AUD, Lowe noted,
"quantitative easing that has taken place in a number of countries is having a significant effect on exchange rates of freely floating currencies... which is clearly making for difficult conditions in certain parts of the Australian economy."
Australia’s central bank plans to invest about 5 percent of its foreign currency reserves in China as it deepens ties with the world’s second-largest economy, Deputy Governor Philip Lowe said.
The decision “represents the first time that the RBA will have invested directly in a sovereign bond market of an Asian country other than Japan,” Lowe said in a speech today in Shanghai. “It reflects the broader economic relationship between China and Australia and our increasing financial ties.”
“By opening their capital markets to central banks like Australia’s, China is taking a step in liberalization for foreign investors,” said Martin Whetton, "... The bigger question will be if this is followed by investments from other central banks.”
The move is “another important milestone in deepening our financial and economic linkages with China,” Australia’s Treasurer Wayne Swan said in an emailed statement. “Strong financial linkages between our economies will ensure that Australia is even better positioned to benefit from the shift in global economic growth towards Asia.”
The move reflects “greater diversity of our investments”
The Australian dollar became the third major currency to directly trade with the yuan on April 10, after the greenback and Japan’s yen.
Chinese investment in Australia has risen more than five- fold since 2006 and reached about A$20 billion at the end of 2011
“One current example of this is related to the very high value of the Australian dollar, which is clearly making for difficult conditions in certain parts of the Australian economy,” he said. “The quantitative easing that has taken place in a number of countries is having a significant effect on exchange rates of freely floating currencies
BOSTON MARATHON - Opportunity to Exploit Potential Tools of Tyranny
I have no personal experience in the business of false flag terrorism, but I imagine that engineering a successfully staged terror attack to be blamed on innocent or semi-innocent parties with the goal of psychologically manipulating a population requires that one also be an accomplished storyteller. It demands an avid imagination and an organized sense of foresight. And, most of all, it requires a consistency of narrative. Without consistency, the audience’s ability to suspend its disbelief is damaged, and they become disconnected from the fantasy being portrayed.
If I were the “writer” behind the “story” of the Boston Marathon Bombing, I would consider my efforts an abject failure.
The narrative of the event has changed multiple times in only a few days, following a hailstorm of conflicting observations from the government and the establishment-run media. The “villain” of the original plotline was clearly meant to be “rightwing extremism” as numerous mainstream talking heads, led by federal agency inferences, began repeating the “homegrown right wing terrorist” meme everywhere. This meme was partly abandoned after the alternative media and the Liberty Movement began its own investigation, revealing a large federal presence on the scene, including military Civil Support Teams often tied to the DHS and Northcom, as well as the witnesses who observed what on-scene officials called “training exercises” during the marathon. I have no doubt that these citizen investigations forced the establishment to change the direction of their crime tale, and use Plan B patsies instead. This, however, complicated the momentum of the fiction, and created even more questions.
The Chechen brothers now implicated in the attack have been revealed as long time FBI contacts. This is a bit awkward for the FBI considering they asked the American public to help them “identify the suspects in on-scene photos” while they failed to mention that they knew EXACTLY who the two young men were already (this is what we might call a contrived story arch). Today, the older brother, Tamerlan Tsarnaev, is conveniently dead. The younger brother, Dzhokhar Tsarnaev, had his throat conveniently shot out. The feds are now supplying the media with “written confessions” from Dzhokhar to which there is no proof of legitimacy. For all we know the boy hasn’t written a word.
The new “villains” get no voice in this drama, and thus become two dimensional characters. They exist so that we can hate them. Understanding them, or hearing their side of events from their own lips, is certainly out of the question. Poorly fleshed out antagonists are a sure sign of a poorly constructed story.
Finally, we get to the “heroes”. Though the criminal elements of our federal government and adjoining alphabet agencies did not yet get the right wing patriot patsy they obviously wanted, they have still so far gleaned considerable social capital from the bombings. The point of a false flag is to frighten the population of any given nation into relinquishing freedom in the name of safety, which in the process gives the central government even more control. In the wake of the Boston attack, the establishment is having a field day…
Martial Law Conditioning
For a few days, Boston became an Orwellian nightmare. The city lockdown and subsequent militarization was swift, though any intelligent and guilty suspect could have easily left the area before hand. This kind of response to catch only two supposed perpetrators is outlandish, unless you understand that it was not about catching the bombers. Rather, it was an exercise designed to test the malleability of the American people during a crisis scenario. In Watertown, residents were not only forced into lockdown; they were also subjected to house-to-house searches without warrant, pat downs, and numerous other violations of their 4th Amendment rights. Take note that almost everything you see in the video below is an illegal and unconstitutional action on the part of Boston authorities:
As this was occurring, officials were consistently pushing media cameras away from the area in the name of “safety”, even though media cameramen are sent into domestic shootouts and foreign warzones on a regular basis. The only real purpose that I can see to removing them from the scene was to reduce the amount of video footage depicting these illegal searches and seizures:
For those who can’t grasp what has happened here, let me explain; the dynamics of liberty have just been erased. This kind of behavior on the part of government will not be limited to disasters like Boston, or New Orleans during Katrina; a precedence is being set to use martial law-style tactics anywhere for any reason at anytime. The “national security argument” is being used as a free license to institute any measure regardless of law to achieve a particular combat objective. The environment we saw in the dark days of Boston is an environment we’ll soon see all over the country, and here is why…
Boston represents a clear escalation of the use of NDAA and martial law measures in the aftermath of a security event. After the arrest of Dzhokhar Tsarnaev, who became a naturalized U.S. citizen in 2012, his Miranda Rights under the Constitution were denied due to “extraneous circumstances of national security”. Numerous lawmakers called for the suspect to be treated as an “enemy combatant” so that he could be interrogated under the laws of war without due process:
The Obama White House has cleverly called for a civilian trial of Tsarnaev in order to reduce criticisms of its support for numerous unconstitutional measures, including the NDAA and the use of assassination against American citizens. The White House has always claimed that it would not use the combatant provisions against American citizens, but has never denied that those provisions could be applied to us. The idea is that while the president does have these powers at his disposal, we’re supposed to have “faith” that he will not abuse them. During the debate over the passage of the NDAA, Obama opposed certain language within the legislation that REQUIRED him to treat accused domestic terrorists as enemy combatants, not because he thought it was wrong, or unconstitutional, but because he wanted the OPTION to decide whether he would or would not black bag a citizen and throw him into an unspecified hole. He has simply exercised his “option” for a citizen trial, at least this time around…
In the meantime, a simultaneous and so far poorly verified “train attack” has been averted in Canada, opening the door for more discussion on something the establishment has been trying to squeeze out of the populace for years: consent for the federalized lockdown of travel and public events. Whether through TSA, or the use of state authorities under the watch of the DHS, the government has been desperately clamoring to expand the control grid out of airports and federal buildings into the bus stations, subways, trains, highways and sidewalks of America:
I believe that we will soon see much greater presence of TSA VIPR teams at large public arenas and in transportation venues outside of airports, and that the Boston Bombing will be used as a primer for this expansion. Recent comments by NY Mayor Michael Bloomberg only reinforce my belief. Bloomberg, in reference to the marathon attack, stated that:
“…we live in a complex word where you’re going to have to have a level of security greater than you did back in the olden days, if you will. And our laws and our interpretation of the Constitution, I think, have to change.”
“Look, we live in a very dangerous world. We know there are people who want to take away our freedoms. New Yorkers probably know that as much if not more than anybody else after the terrible tragedy of 9/11…”
“We have to understand that in the world going forward, we’re going to have more cameras and that kind of stuff. That’s good in some sense, but it’s different from what we are used to…”
Ironically, the only enemy out there that appears ready to “take our freedoms away” are men like Bloomberg; snakes in the grass that pay lip service to the Constitution while constantly trying to undermine it.
Free Speech Is Next
The bombings in Boston took place, apparently by coincidence, just before Oath Keepers, a national organization of current serving military, police officers, and veterans promoting adherence to their constitutional oath was to hold a large rally at Lexington Green. The Lexington Green board, one member of which had been openly hostile to Oath Keepers in the past, decided to use the crisis as an excuse to deny the rally permit already attained by the liberty minded group.
The Lexington Selectmen claimed that under the suggestions of “state officials” the rally had to be cancelled due to the “lack of police” available to secure the area and ensure public safety. However, when Oath Keepers held a brief oath ceremony at the Green in protest of the decision, a police force was sent to watch them:
This means that public safety was not the issue. Rather, safety and security were being used yet again to deny a constitutional right, and this time it was the most vital and valuable right of all – free speech.
During the height of the civil rights marches of the 50’s and 60’s, the exact same tactics were used to silence dissent. Black protesters were told that they could not obtain proper permits for peaceful marches because their “own safety” and the safety of the public could not be ensured. This matter of using broad hypothetical dangers as a catalyst for censorship was finally argued before the Supreme Court in Shuttlesworth v. Birmingham. The court sided with the protestors, pointing out that the use of undefined safety concerns and “prior restraint” to silence speech was unconstitutional. Unfortunately, the decision has not prevented the U.S. government from slowly undermining public protest rights ever since.
The fascinating thing about incremental tyranny is the way in which naïve members of our society try to rationalize it. They debate using logical fallacies like:
“How have your rights been violated in particular? If your rights haven’t been violated, what right do you have to complain?”
And how about this gem…
“Yeah, there are problems in this country, but at least we have some freedom. In many countries, you wouldn’t be allowed to complain the way you are…”
This is statist psychology at work. Freedom, in their minds, is a privilege doled out by governments, rather than an inborn attribute outside of the realm of law. They do not understand that the violation of the rights of one American is a violation of the rights of ALL Americans. They do not understand that the destruction of some constitutional protections will one day lead to the destruction of ALL constitutional protections.
The establishment and the useful idiots they manipulate want to make the “threat” the center of attention, but ultimately, the threat is irrelevant. There will always be the danger of terrorism and death. Always! And, if our government is following the Operation Gladio false flag model (look it up, folks, it was openly admitted government funded terrorism), as I believe they are, then we can count on Boston-style bombings all over the U.S. very soon.
True crisis lay in what we refuse to see, and the greatest crisis today is not the bombing of a marathon, but the destruction of our freedoms in the name of “security”. The bottom line? Our civil liberties are not up for compromise. Period. Shootings, bombs, nukes, nothing! There is no rationalization that will ever make tyranny a moral enterprise. I, like many other Americans, do not care what boogeyman fantasy is paraded in front of me. We are not frightened, and we are not ignorant. No attack, no matter how heinous, will ever convince us to hand over our freedom.
MOST CRITICAL TIPPING POINT ARTICLES THIS WEEK - Apr. 21st - Apr. 27th 2013
JAPAN - DEBT DEFLATION
JAPAN - Little Physical or Mechanical reason for the BOJ’s easing program to work.
The existing (and ongoing) massive expansion of base money into the banking systems of the US, England, and Japan is without precedent. As Nomura's Richard Koo notes, at 16x statutory reserves, the liquidity 'should' have led to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan.
However, it has not, yet. In short, Koo continues, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin - because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact (so-called balance-sheet-recession).
This suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact - and Japanese media is on an 'inflation' full-court press currently. The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to 'normal'. If the policy reversal is delayed, the Japanese economy (and inflation) could spiral out of control.
Via Richard Koo, Nomura,
The Money Multiplier... and inflation...
Before Mr. Kuroda was appointed BOJ governor, base money supplied by the Fed under quantitative easing amounted to 16.0x statutory reserves. The corresponding multiples for other central banks were 9.7x for the BOE, 4.8x for the BOJ, and 3.8x for the ECB. If the money multiplier were functioning properly, the money supply would therefore be 16 times larger than it currently is in the US, 9.7 times larger in the UK, 4.8 times larger in Japan, and 3.8 times larger in the eurozone.
If such an expansion in money supply actually took place in a short time, it would normally entail a similar increase in prices, leading to unprecedented inflation rates of 1,600% in the US, 970% in the UK, and 480% in Japan. The reason why this has not happened will be discussed in detail below.
In short, however, businesses and households in these economies have stopped borrowing money even though interest rates have fallen to zero. And with no one borrowing money and many actually paying down debt, the money multiplier has turned negative at the margin.
US and UK have 'not' been a success...
Central bank officials in the US and the UK claim quantitative easing has been a success because it prevented a Japan-like deflation. But, the rate of Japanese wage growth four to five years after the bubble collapsed was roughly equal to the levels now being observed in the US.
Common to all of these countries is the fact that businesses and households are saving in spite of zero interest rates. They are doing so because of the severe damage caused to balance sheets when the bubble collapse drove asset prices lower while leaving debts intact. Private savings are running at 8.8% of GDP in Japan, while the corresponding figures are 7.0% for the US, 3.3% for the UK, 8.1% for Spain, 8.6% for Ireland, 7.0% for Portugal, and 4.4% for Italy.
The fact that businesses and households in these economies are responding to zero interest rates by saving money rather than borrowing and spending aggressively clearly suggests that lending - and hence the money supply - will not expand no matter how much base money the central bank supplies.
Growth in private credit has been severely depressed. Even in the US, where conditions are said to be relatively healthy, private credit has yet to recover to pre-Lehman levels.
Quantitative easing - whether in Japan, the US, or the UK - cannot directly stimulate the economy or raise the rate of inflation so long as businesses and households refuse to borrow money and spend it.
But still the central bankers try...
Mr. Kuroda and other reflationists would probably argue that the newly announced easing program differs fundamentally from the incremental approach taken thus far because it marks a “new dimension” in aggressiveness. This is correct in one respect and wrong in another. Although Mr. Kuroda argues that the announcement of the current program has had a much greater impact than past announcements, this hypothesis has already been tested overseas, and the medium and long-term results do not support his conclusion.
Ignoring the reality that...
Clearly, the issue is not how aggressively or quickly the central bank eases, but rather the extent of the damage to private sector balance sheets caused by the bubble collapse. These experiences also underline the fact that a great deal of time is needed for businesses and households to repair their balance sheets.
and the empirical proof that...
The limited impact of the bold monetary actions undertaken by the Fed and the BOE suggests we should not expect much from the BOJ’s plan in the medium term in spite of its aggressiveness.
Perhaps more important was why Japan’s interest rates were so low.
Essentially, the private sector had stopped borrowing money because of balance sheet problems, the subsequent debt trauma, and a shortage of domestic investment opportunities.
With no private-sector borrowers, Japanese banks selling JGBs yielding 0.6% to the BOJ may find themselves forced to reinvest the proceeds in JGBs given the lack of alternatives. If the replacement bond is likely to yield only 0.4%, the correct option is to continue holding the bond yielding 0.6%.
In that sense, quantitative easing in Japan has already reached its limits.
And QE may have run its course...
But the fact that businesses and households in both countries are now refusing to borrow in spite of zero interest rates suggests the impact of lower long-term rates may have spent itself
The underlying cause of a balance sheet recession is a decline in - and ultimate disappearance of - private demand for funds due to a critical shortage of borrowers.
Yet the quantitative easing policies adopted by central banks in the major economies are all designed to increase the number of lenders...
When the problem stems from the lack of willing borrowers, the central bank’s emergence as a new lender is hardly going to improve the situation.
If anything, new lending by the central bank will further weaken private sector financial institutions already hurt by excessive competition.
An objective analysis of the BOJ’s easing program in light of other countries’ experiences with quantitative easing suggests investors would be wise to rein in their expectations. There is no reason why the money multiplier should turn positive when private demand for funds is nonexistent despite zero interest rates.
The discussion above suggests that there is little physical or mechanical reason for the BOJ’s easing program to work. But the program could also have a psychological impact...
One notorious minister of propaganda is reported to have said that “people will believe a lie if it is repeated often enough.”
In today’s Japan the media—and especially the omnipresent variety shows on TV—cannot stop talking about inflation. These commentators are completely unaware that the money multiplier in Japan is negative at the margin even though rates have fallen to zero. They are simply repeating the simplistic view that aggressive easing by the BOJ will eventually generate inflation.
Hearing this from morning to night will cause some people to start worrying about inflation even though there is no way the BOJ’s policies can directly create inflation. If they start to anticipate higher prices and modify their behavior accordingly, inflation could become a reality.
Moreover, the Japanese media has a tendency to move all at once and in the same direction, causing the lie to be repeated even more frequently. It would therefore not come as a surprise if many people changed their behavior in expectation of future inflation.
The problem is - what if the people start to believe...
The risk here is that not only borrowers but also lenders will start to believe the lies. No financial institutions anticipating inflation could ever lend money at current interest rates. A financial institution that suddenly saw inflation on the horizon could not continue holding 10-year government bonds that yield 0.6%. The resulting rush to sell could trigger a crash in the JGB market, inflicting heavy damage on domestic financial institutions.
The question is how the Kuroda BOJ would respond to such a crash. If it began buying more JGBs, the monetary base would expand, stoking inflation concerns at a time when private demand for funds was already recovering and the money multiplier had turned positive at the margin.
But if the BOJ sold its JGB holdings in an attempt to quell inflation concerns, bonds would drop further, blowing a large hole in the balance sheets of financial institutions and the government.
By that time the monetary base could easily have grown to, say, 15 times statutory reserves. In that case the money supply would continue growing, causing inflation to spiral out of control, unless the central bank reduced the monetary base to about 1/15th of its current level.
I suspect that the BOJ would employ all the tools at its disposal to achieve this, including a sizable increase in the statutory reserve ratio, but all of those measures would serve to push rates higher, resulting in large losses for the BOJ and other JGBs investors.
Which could rapidly lead to...
If the government bond market crashed, losses on the BOJ’s JGB portfolio would be subtracted from the money it transferred to the national treasury, adding to the fiscal deficit. And if the portfolio was large enough at the time of the crash, it could even raise doubts about the viability of the Bank’s balance sheet.
The inflation fears and the talk of large losses at the central bank could then undermine confidence in the Japanese currency. Japan’s national debt now stands at 240% of GDP, domestic industry is being hollowed out, the population is aging and shrinking amid falling birthrates, and even the trade balance has fallen into deficit.
The chief reason why people continue to use the yen in spite of these bleak fundamentals is that the BOJ has earned their trust with its anti-inflationary actions.
If the BOJ recklessly stokes inflation, triggering a crash in the JGB market and heavy losses on the Bank’s bond portfolio, public confidence in both the currency and the central bank could evaporate overnight.
And don't rely on 80 year old 'proof' since it is different this time...
Mr. Kuroda’s methods have frequently been compared to those of the 1930s-era finance minister Korekiyo Takahashi, who championed a successful policy of BOJ underwriting of government debt issues. But Japanese people in those days could not move money freely overseas. The authorities today need to be especially careful inasmuch as almost anyone can move funds abroad with a telephone call or a few clicks on a computer screen.
Be careful what you wish for...
No actual damage will be done as long as the easing program remains ineffective. But once it starts to affect psychology, the BOJ needs to quickly reverse the policy and bring the monetary base back to a level more in line with the value of statutory reserves.
If the policy reversal is delayed, the Japanese economy could spiral out of control at a time when base money equal to many times statutory reserves is sloshing around in the market.
Moreover, the act of scaling back the monetary base must be carefully calibrated so as to minimize damage to the JGB market. The BOJ, Ministry of Finance, and Financial Services Agency should also have contingency plans in place in the event that easing triggers a crash in the yen or the bond market.
The prevailing optimism towards US consumers reflects the view that rising home prices will offset the impact of fiscal tightening. We have argued that whether this will turn out to be the case will depend critically on what happens to consumer confidence. Michigan consumer expectations fell in April to the lowest level since the fiscal cliff crisis. Furthermore, with the household saving rate having fallen to just 2.6% in February - the lowest level since December 2007 - household consumption could be more vulnerable than usual to any sudden confidence shock.
In our view, the market continues to underestimate the headwinds associated with the implementation of the sequester. Our US economist team estimate that this will amount to about $50bn worth of fiscal tightening over the next six months. If we were to assume that this will primarily take the form of reduced wages/salaries of government employees and contractors and that most of the hit will occur in Q2, this could result in a very dramatic shock to household income (Chart 10).
The year over year change in durable goods ex transports (aka Boeing's fully cancelable orders for flaming lithium- battery powered paperweights aircraft). All we say is we are so grateful for $160 billion in central bank QE each month (soon to rise to $200 billion once Goldman's Mark Carney spreads his tentacles in the Bank of England).
So much for the great American CapEx recovery. Moments ago the Census department released the March Durable Goods report, thanks to which one can lay to rest any hope of a recovery in the US economy, with the headline number printing an absolutely abysmal -5.7%, an epic swing from the +5.7% (revised lower of course to 4.3%) in February, and confirming the recovery is dead and buried. This was the biggest miss in headline data and the biggest drop since August, and the second worst since January 2009.
Although we are confident the propaganda spin is just waiting to be unleashed: after all it is possible that March weather was both too hot and too cold, thereby making the number completely irrelevant - after all it is always the inclement weather's fault when the economy does not act as predicted by some economist's DSGE model of reality and stuff.
This headline number was obviously a huge miss to expectations of -3%, with the misses spreading to all sub headline categories too: Durables ex-transportation was down -1.4%, on expectations of a 0.5% rise, (previous revised from -0.5% to -1.7%). And so much for CapEx with Cap Goods nondefense ex aircraft up just 0.2% (0.3% exp) with the previous revised from -2.7% to -4.8%, while the nondefense orders shipped ex air missed expectations of a 0.8% rise, printing at 0.3%, and the February data revised from 1.9% to 1.2%. In brief, horrifying economic data however one looks at it, and proof that the great CapEx recovery never existed to begin with. So much for 3% Q1 GDP, which is about to be revised by everyone lower across the board.
Finally, if this economic collapse validation doesn't send the S&P limit up, nothing will.
The only two charts needed to show what is really going on in terms of capex and generally spending on core capex:
For the last few years, the US equity market has soared through Q4 and into Q1 and macro-economic indications have trended with them in a virtuous circle 'confirming' that this time it's different and recovery is 'on'. Then just as investors get all bulled up, convinced by the market's all-knowing-efficiency that the old normal is back and growth is returning, macro-economic data starts to disappoint expectations. This is initially shrugged off - "it's a transitory dip", "the market sees through this temporary weakness", "where else are you going to put your money?" - and the stock buying continues through the Winter. But there comes a time, when the divergence from economic reality grows too wide and the 'faith' that the market knows best starts to fade; and sure enough, each time, the market drops back rapidly to reality. What is the common denominator for this winter surge?
Simple - massive global central bank bailouts/injections in the months just before winter that levitate the market (and psychologically create 'hope' that is then extrapolated into future economic expectations which then after a one- to two-quarter lag, leads to disappointment as real economic data can't match the market's implied reality).
So while heretofore taboo topics such as seasonal adjustments have been put forward to explain this mysterious cyclical deterioration between the winter and spring season for three years in a row; it seems the answer is far simpler and more practical to our new normal reality - a Central Bank induced hope that floods from market to real economic hopes, is 'priced in' by analysts, then fails to live up to the reality simply because it was never a real trend anyway - that leaves the economists all looking at their Birinyi's rulers and wondering if once again, the extrapolators-in-chief are wrong...
Print, Rinse, Repeat...
US PORT TRAFFIC - A Slowing Trend Showing in US Consumption
Container traffic gives us an idea about the volume of goods being exported and imported - and possibly some hints about the trade report for March since LA area ports handle about 40% of the nation's container port traffic.
The following graphs are for inbound and outbound traffic at the ports of Los Angeles and Long Beach in TEUs (TEUs: 20-foot equivalent units or 20-foot-long cargo container).
To remove the strong seasonal component for inbound traffic, the first graph shows the rolling 12 month average.
On a rolling 12 month basis, inbound traffic was up 2% in March, and outbound traffic down slightly, compared to the rolling 12 months ending in February.
In general, inbound traffic has been increasing slightly recently, and outbound traffic has been mostly moving sideways.
The 2nd graph is the monthly data (with a strong seasonal pattern for imports).
Usually imports peak in the July to October period as retailers import goods for the Christmas holiday, and then decline sharply and bottom in February or March.
Sometimes the sharp seasonal decline happens in February, sometimes in March depending on the timing of the Chinese New Year. This year the sharp seasonal decline happened in March.
My guess is this suggests a decrease in the trade deficit with Asia for March.
Recent rail trends have weakened substantially from very strong levels earlier this year. The latest weekly reading came in at 3.3% year over year, but continues a trend of low single digit readings. This latest data brings the 12 week average to 4.4%. That’s still a healthy level, but well off the March high of 3.6%. In this environment I guess any growth is good growth so this has to go down as a moderate positive for the economy even though the trend is negative.
The Association of American Railroads (AAR) reported mixed traffic for the week ending April 13, 2013, with total U.S. weekly carloads of 275,675 carloads, down 0.6 percent compared with the same week last year. Intermodal volume for the week totaled 241,987 units, up 3.3 percent compared with the same week last year. Total U.S. traffic for the week was 517,662 carloads and intermodal units, up 1.2 percent compared with the same week last year.
Four of the 10 carload commodity groups posted increases compared with the same week in 2012, including petroleum and petroleum products, up 51.2 percent, and motor vehicles and parts, up 10.9 percent. Commodities showing a decrease included metallic ores, down 13.8 percent, and grain, down 12.1 percent.
For the first 15 weeks of 2013, U.S. railroads reported cumulative volume of 4,127,296 carloads, down 2.4 percent from the same point last year, and 3,558,668 intermodal units, up 4.9 percent from last year. Total U.S. traffic for the first 15 weeks of 2013 was 7,685,964 carloads and intermodal units, up 0.8 percent from last year.
Obama's budget attempts to reduce the Federal Deficit by $1.7 trillion over 10 years, using a combination of spending cuts and increased taxes. So what does the budget really look like?
We compared the numbers from the White House budget with the current CBO baseline of what budgets are currently expected to look like to figure out what he actually changes For each key category, the level zero is the current projected funding level for the next ten years.
If a line goes above zero, the President's budget will spend more on it than current funding levels — or in the case of revenues, that number will be higher.
Just a primer:
Revenues are money that flows into the government through taxes.
Mandatory spending is programs like Social Security, Medicare, Medicaid, and income security programs
Defense discretionary is made up of funds given by congress to the defense department as well as several other departments with defense programs
Non-defense discretionary funds go to all other executive functions besides defense action.
The general trend? Most of the lines on the budget exceed funding for the next two to three years (stimulus basically), then drop below projected funding levels following 2016 or 2017. So in other words, this represents the kind of stimulus-now, but-later budgeting that a lot of economists in Washington favor.
BIG GOVERNMENT - A Budget That Institutionalizes Big Government
President Obama tells us in the Overview to his Fiscal Year 2014 Budget just released last week that his budget proposes,
“more than $2 in spending cuts for every $1 of new revenue from closing tax loopholes and reducing tax benefits for the wealthiest.”
SPENDING INCREASES: There are No Cuts
But President Obama’s budget does not propose any spending cuts at all on net, not even reductions from expected increases in spending.
Budget proposes to add $160 billion in increased spending just next year to the projected growth in spending, even increasing spending for the current 2013 fiscal year by another $61 billion as well.
Over the next 10 years, President Obama’s budget proposes to add nearly $1trillion to the projected growth in spending, proposing to increase annual spending by 2023 by $2.1 trillion as compared to 2012.
Budget proposes to cancel the sequester cuts, because he can’t bear to cut even 1% of federal spending from the growth in spending.
Budget proposes to spend $46.5 trillion overall over the next 10 years, even more than the Senate Democrat budget, the highest government spending in world history.
Indeed, President Obama’s talk of “spending cuts’ in his budget Overview is followed by pages of proposals for increased spending. That reflects Obama’s basic thinking that what drives economic recovery and growth is increased government spending. But Obama’s economic record is a thorough rebuttal to that thinking. Not one of those increased spending proposals in his 2014 budget would contribute to increased economic growth and prosperity on net.
TAX INCREASES: Just More Tax Increases
Besides these runaway spending increases, Obama’s budget also proposes
$1.1 trillion in additional tax increases,
on top of the $1 trillion in tax increases already going into effect this year under Obamacare, and the
$600 billion in tax increases on the nation’s job creators, investors, and successful small businesses from the expiration of the Bush tax cuts for them in January.
Those new proposed tax increases include a doubling of the federal tax on cigarettes, in direct violation of the President’s campaign pledge not to increase taxes on singles making less than $200,000, and couples making less than $250,000, “in any form.”
It includes the so-called “Buffett Rule” doubling the top capital gains tax rate from when Obama entered office. That would impose on America the fourth highest capital gains tax rate in the world, to go with effectively the world’s highest marginal corporate income tax rate.
TAX CREDITS versus TAX RATE REDUCTION
Throughout his first term, and in this budget, President Obama has repeatedly claimed his policies have involved pro-growth tax cuts as well. But all of his supposed tax cut proposals (with the exception of limited, increased, investment write-offs for small businesses) have involved tax credits rather than reductions in tax rates (which he has repeatedly increased). But it is reductions in marginal tax rates that provide incentives for increased productive activity and growth, because it is the marginal tax rate, or the rate on the last dollar earned, that determines how much of the increased income resulting from increased productive activity the taxpayer is allowed to keep.
Tax credits do nothing to improve incentives for increased production. They increase government control over the public by providing an effective government payment for some activity the government wants to direct the recipients to do. But after the credit payment, taxpayers face the same economic incentives and tax rates as before. Tax credits are consequently true tax expenditures, the equivalent of additional government spending rather than a tax cut.
BALANCED BUDGET: ADeficit DoubletalkMirage
Despite all the tax increases, President Obama’s budget proposal would never balance the budget, by Obama’s own admission. His own budget admits that
after 10 years, the deficit would still be $439 billion, still about the highest in history before President Obama.
Congressman Paul Ryan’s House Republican budget, in sharp contrast, would balance the federal budget within 10 years, with no tax increases, as scored by CBO.
President Obama’s budget claims to reduce federal deficits by $1.8 trillion over the next 10 years. But that only results from calculating the effect on deficits from an “adjusted baseline” used by the Obama budget, and not the CBO baseline. That adjusted baseline assumes that the war in Afghanistan would never end without Obama’s proposed budget, and that we would otherwise be spending as much by 2023 fighting that war as during the recent War on Terror. That adjusted baseline also does not include the sequester cuts under current law that the Obama budget would reverse, so the $1 trillion in increased spending resulting from reversing the sequester cuts as in Obama’s budget is not counted in the effect of Obama’s budget on the deficits.
If the impact on deficits under Obama’s budget is calculated from the projected deficits under current law or policies, then the net reduction in deficits proposed by President Obama’s budget is only a comparatively negligible $119 billion over 10 years. That compares to deficit reductions of $5.7 trillion under Ryan’s budget as scored by CBO, almost 50 times as much.
President Obama’s own budget confesses to $5.3 trillion in additional deficits over the next 10 years, almost 5 times the deficits in Ryan’s proposed budget, which zeroes out the deficit entirely after 10 years.
Obama’s budget proposes to increase federal debt held by the public by $8.2 trillion over the next 10 years, 6 times what would result under Ryan’s budget.
Obama’s budget proposes to increase Gross Federal Debt to $25.3 trillion after 10 years, which would require increasing the national debt limit to that amount. That Gross Debt would cross 100% of GDP, equal to our entire economy, in 2020.
Tthese results assume federal revenues more than double over the next 10 years.
That does not account for the likely result that Obama’s tax increases would not increase federal revenues as projected. For example, in the last 45 years, every time the capital gains tax rate has been increased, capital gains revenues have declined rather than increased. But Obama’s budget assumes that doubling the capital gains tax rate from when Obama entered office would nearly double capital gains revenues.
Obama’s budget assumes a suddenly booming economy to result from these policies, with real GDP growth in 2016, the end of his second term, at 3.6%, more than four times the average of his first term.
That is highly unlikely, given that all of his policies are decidedly anti-growth, such as rocketing tax rates, explosive government spending, exploding regulatory burdens, costs, and restrictions, and cheerleading political cover for the Fed’s unanchored, ultimately destabilizing monetary policies.
That is further incompatibly assumed with sustained minimal inflation (2.2% in 2016), leaving real interest rates woefully negative at -1%.
Given the Fed’s current policies, a rapidly growing economy would likely mean surging inflation and soaring interest rates. Both would raise spending, deficits and debt sharply as well, as federal interest expense is already projected in Obama’s budget, with the lowest interest rates in history, to be $763 billion (more than three quarter trillion) in 2023 alone.
ASSUMPTION: No Recession
Obama’s budget consequently assumes that there will not be another recession within the next 10 years, though some predict that Obama’s anti-growth policies will cause another recession as early as this year.
That would cause revenues to collapse, spending to soar further, and deficits and debt to further explode.
The second great vulnerability of the Obama, and Senate Democrat, budgets is the potential for soaring interest rates, as market rates spike out of the Fed’s control, after the longest period of near zero rates in U.S. history. With national debt approaching $20 trillion or more, sharply increasing interest rates would be extremely costly.
With these assumptions, the deficit and debt projections in Obama’s budget cannot be taken seriously, and most likely will turn out to be grossly underestimated.
ENTITLEMENT REFORM - A Charade
President Obama has his propagandist flacks out there touting his supposed entitlement reforms in this budget as a grand gesture of compromise with Republicans. But there is
no real entitlement reform of any significance in Obama’s budget at all.
Obama has gone back to proposing to cut promised benefits for seniors again, by arbitrarily changing the cost of living adjustment formula to reduce Social Security benefits by $130 billion over the next decade from what they would be otherwise.
The argument that the new formula more accurately measures inflation is fallacious.
The most accurate inflation formula depends on what you are trying to calculate. If you are trying to calculate how what consumers must pay for a fixed basket of goods and services changes over time, arguably even the currently used inflation index understates inflation.
Ten years ago, when President Bush was giving at least rhetorical support to the idea of personal accounts for Social Security, I argued against those who were still arguing for cuts in Social Security benefits by noting that no such cuts would ever be allowed by liberals without tax increases as well. President Obama is now proving me right about that all along.
Obama’s proposed change to the Social Security inflation index would produce tiny, negligible reductions in runaway Social Security spending increases, especially as compared to personal accounts. Over a generation, depending on how big the personal account option was and how many workers exercised it, such accounts would shift Social Security benefits entirely off of the federal budget, to private savings, investment and insurance instead, resulting in higher rather than lower benefits for those seniors who individually did choose the accounts. That would ultimately mean the biggest reduction in government spending in world history, equal to about 10 percentage points of GDP, if the option was ultimately expanded to all Social Security and Medicare payroll taxes, given ultimate projections of currently payroll tax financed benefits.
Obama’s proposal, by sharp contrast, would only reduce Social Security spending increases by one-fourth of one percent. Even with Obama’s “reform,” his own budget projects Social Security spending to soar over the next decade by 85%, from $768 billion last year to $1.427 trillion in 2023.
But Obama’s change in the Social Security inflation index would also apply to the index adjusting income tax brackets for inflation. That would mean still another tax increase of $100 billion over the next 10 years, which would also apply to the middle class and working people as well, again in direction violation of Obama’s campaign promise not to raise taxes on such taxpayers “in any form.”
The only real entitlement reform solving all the problems of Social Security is to shift to a fully funded system based on real savings and investment, with zero unfunded liabilities. That is what personal accounts do.
Obama’s other big, supposed compromise, entitlement “reform” is to again cut Medicare payments to doctors and hospitals serving seniors by another $250 billion over the next 10 years, in addition to the Obamacare cut of three quarters of a trillion in such Medicare cuts, making a nice round trillion in such Medicare cuts altogether. While Democrats talk such a good game of Republicans wanting to slash and burn Medicare, it is Obama and the Democrats who have already done it. And now they are celebrating doing it again.
Imagine what would happen to our national defense if the government refused to pay the builders of the Navy’s ships, the manufacturers of the Air Force’s planes, and the makers of the Army’s tanks. That is what is going to happen to health care for seniors under Medicare, given Obama’s so-called “reforms.”
REAL ENTITLEMENT REFORM
Real Medicare entitlement reform would involve expanding the more modern and successful Medicare Parts C and D to the old-fashioned Medicare Parts A and B, which is all that House Budget Committee Chairman Paul Ryan has proposed. Seniors would get better benefits than under Obamacare’s Medicare with those real reforms, at major savings to taxpayers due to market competition and incentives, as we have already experienced under Medicare Parts C and D. Those reforms would “end Medicare as we know it” only to the extent that C and D are not part of the alphabet. The last successful, cost-saving, entitlement reform was the bipartisan 1996 welfare reforms of the old, New Deal, AFDC program. Under the incentives of those reforms, two thirds of those dependent on the program left the rolls, with their incomes documented to increase by 25% as a result. Yet, taxpayers saved 50% of the costs of the program after 10 years, compared to where it would be otherwise under prior trends.
Real entitlement reform would involve expanding those President Clinton compromising reforms to the rest of the nearly 200, federal, means tested welfare programs, projected to cost $10 trillion over the next 10 years. CBO has scored such reform applied to just one program, Medicaid, as saving nearly $1 trillion over 10 years, while possibly vastly expanding access to health care for the poor, to their great benefit. But there is exactly zero compromising leadership from President Obama on such reform.
Real entitlement reform would involve providing health care for all unlike Obamacare (still scored by CBO as leaving 30 million uninsured after 10 years – a gross underestimate) with the reforms proposed by John Goodman and myself in , “Health Care for All Without the Affordable Care Act [Obamacare],” NCPA Issue Brief No. 116 (October 17, 2012). Those reforms would assure universal health care with no individual mandate and no employer mandate, at a savings to taxpayers of at least $2 trillion over the next 10 years alone. But there is exactly zero compromising leadership from President Obama on such reform.
POLITICAL POSTURING - This is What the Budget Is All About
Federal law requires President Obama to propose a budget for the next fiscal year by February 4 of each year, before the House and the Senate adopt their own budget resolutions. But President Obama released his budget for next year just last week, after the House and the Senate had already adopted their budget resolutions. So what is the point of the President issuing a budget proposal now?
The point is to simply posture for all those low information, Twitter voters in the 2014 elections, who will hear only from all the Democrat Party propagandists at the New York Times, the Washington Post, and MSNBC and brethren. They will hear only about President Obama’s “spending cuts,” his grand, compromising, entitlement reforms, and how he is fighting for the middle class, with declining median incomes throughout his Administration, for the poor, with record, soaring poverty, and for “equality,” even as inequality has actually risen throughout his Administration. Is this generation of Americans in the process of proving America’s more than 200 year experiment with democracy a failure
Those who have been following the US debt to GDP ratio now that the US officially does not have a debt ceiling indefinitely, may have had the occasional panic attack seeing how this country's leverage ratio is rapidly approaching that of a Troika case study of a PIIG in complete failure. And at 107% debt/GDP no explanations are necessary. Luckily, the official gatekeepers of America's economic growth (with decimal point precision), the Bureau of Economic Analysis have a plan on how to make the US economy, which is now growing at an abysmal 1.5% annualized pace, or about 5 times slower than US debt growing at 7.5% annually, catch up: magically make up a number out of thin air, and add it to the total. And it literally is out of thin air: according to the FT the addition will constitute of a one-time addition of intangibles, amounting to 3% of total US GDP, or more than the size of Belgium at $500 billion, to the US economy.
The US economy will officially become 3 per cent bigger in July as part of a shake-up that will see government statistics take into account 21st century components such as film royalties and spending on research and development.
Billions of dollars of intangible assets will enter the gross domestic product of the world’s largest economy in a revision aimed at capturing the changing nature of US output.
Brent Moulton, who manages the national accounts at the Bureau of Economic Analysis, told the Financial Times that the update was the biggest since computer software was added to the accounts in 1999.
“We are carrying these major changes all the way back in time – which for us means to 1929 – so we are essentially rewriting economic history,” said Mr Moulton.
What exactly will constitute GDP growth going forward? In a word, intangibles: films, books, magazines and iTunes songs.
“We’re capitalising research and development and also this category referred to as entertainment, literary and artistic originals, which would be things like motion picture originals, long-lasting television programmes, books and sound recordings,” said Mr Moulton.
At present, R&D counts as a cost of doing business, so the final output of Apple iPads is included in GDP but the research done to create them is not. R&D will now count as an investment, adding a bit more than 2 per cent to the measured size of the economy.
Nothing like adding intangibles in the fluid, ever-changing definition of what constitutes an economy.
Naturally, the only reason for this artificial "boost" to the US economy which apparently can be any old arbitrary number agreed upon by a few accountants, and which always goes up post revision, never down, is to make US debt/GDP under 100% once again, if only very briefly. Surely a few months later something else can be "added" to GDP making the US economy appear better than it is once more.
Finally, all of the above is a distraction for idiots.
As most people should know by know (this logically excludes economists), the only factor leading to economic "growth" is the expansion of liabilities of the financial system, whereby new credit (in a healthy environment, not one centrally-planned by several Princeton real-world rejects, where the central bank is forced to create all credit expansion with money that never leaves the banks and the capital markets closed loop) creates new money, creates demand for products and services, and circulates in the economy.
This can be seen in the chart below which shows the nearly perfect correlation between total bank liabilities in the US, as per the Fed's Flow Of Funds report, and total US GDP.
Bottom line: the BEA can capitalize air consumption if it thinks it will make US GDP soar, but unless new credit and bank liabilities are created not due to forced supply but demand, and unless the private financial sector is finally willing to start lending money (which for the entire duration of QE it has not) US growth will stall and then proceed to decline.
Case in point: total US commerical bank loans are still lower than they were the day Lehman filed.
In other words, all the GDP "growth" since the Lehman failure has come on the back of money "created" by the Fed.
And there are still those who think the Fed will ever unwind...
TOO BIG TO GOVERN (TBTG) - Bloated Government Crowds Out Private Investment
Lately economic data seems to be coming in week, and it's gotten a lot of people talking about a "spring swoon" for the economy.
Actually, there's a bigger patter people are worried about, that every year we seem to have these false dawns for the economy, only for things to get sluggish again.
The March jobs report (which came in at just 88K) was the most glaring example of the weakness, but also there's been some weak housing and retail data.
The Citi Economic Surprise Index is a measure that tries to capture how well the data is coming in relative to economic expectations. After all, this is what's key to markets. It's not so much about whether the data is good or bad, but whether it's better or worse than what people thought it would be.
Positive numbers indicate that the data is still "beating." Negative numbers show missing.
The index has just turned negative.
CONSUMER SENTIMENT - Americans Feel They Are In A Recession
It turns out, taxes are lower than through most of history, debt as a percentage of GDP has been much higher in the past, and on government spending, only if you include transfer payments (like Social Security) is spending at a new high relative to GDP. If you look at actual government spending that doesn't go straight to people, it's low.
CENTRAL BANKING MONETARY POLICIES, ACTIONS & ACTIVITIES
TECHNICALS & MARKET ANALYTICS
INFLATION - 10Y Inflation Breakeven Disconnected from Markets
This weekend we mentioned the latest Barron's cover, which is about the paper's professional investor survey, which shows record high bullishness and a widespread belief that the Dow is going to go to 16,000.
John Hussman, the famously bearish mutual fund manager, sees this as screaming sell signal, as he invokes the ol' contrarian magazine cover indicator.
The Barron’s Big Money Poll is typically bullish, on balance. This is Wall Street, after all. But variations in the tone and extent of that bullishness can be informative, especially when the consensus is extremely optimistic at new highs of mature bull markets, and defensive at new lows of mature bear markets. I can’t really throw stones about 2009, as I had my own concerns at the time (relating to the need to stress-test against Depression era outcomes, despite our favorable views of valuation). But it’s worth noting that the 2009 Big Money Poll questioned the advance from the March lows, noting “good reason not to jump in with both feet yet.” The 2003 Big Money Poll – already well into a new bull market – was bullish on balance, and up from just 43% bulls in an October 2002 poll near the market lows. Still, the 2003 poll noted “the bulls’ views have been tempered by the market’s losses in recent years. Consequently their expectations for the Dow, the Standard & Poor’s 500 stock index, and the Nasdaq Composite have been ratcheted down from past surveys.”
This certainly isn’t a criticism of Barron’s itself. I grew up on Barron’s Magazine, and will remain a devoted reader at least as long as Alan Abelson provides a worthy counterbalance to the more short-sighted views of Wall Street and the Market Lab section remains in print. Still, the Big Money Poll is most useful as a contrary indicator.
Rule o’ Thumb: When the cover of a major financial magazine features a cartoon of a bull leaping through the air on a pogo stick, it’s probably about time to cash in the chips.
A friend who teaches history in one of the area’s community colleges cynically told me a dozen years ago, shortly after the September 11 attack, that the upcoming writing of American history would be done not by historians, but by economists. He contended that American military spending had brought the Soviet empire to its knees a generation before, now (in 2001) Osama bin Laden was lighting what he called the “slow wick-fuse” that would have the US implode as the ruling empire within a couple of decades.
My young friend then proceeded to draw economic curves on the un-rationed napkins made available with our overpriced Starbucks coffee. His extrapolation of expenditures for components and subcomponents of the GDP might have appeared pessimistic then, but there was unquestionable rationality in his overall treatment. Fear-triggered added government expenditures, whether via National Defense or some new domestic super-agency, would end up impoverishing the country; and, as he put it, “if fear expenditures don’t bury us, healthcare costs will.” And all this history in front of us, we both agreed, was happening because of our blatant civic indifference to how our nation was being governed; or, rather, how the people had forfeited their duty to govern themselves.
The Boston Marathon terror incident made me revisit that extended coffee break with my friend, and what has happened in the twelve years hence. We now have Homeland Security “defending” us – from little, other than fear – at a total budget authority which approaches $60 billion annually. Two wars and more than a trillion dollars later, we have raised our chances for fear possibly ten, maybe even a hundred-fold… something which will eventually mature in terror to be perpetrated by those who’ll try to avenge the long line of victims the US has left behind in its imperial quest.
And added to the grievous vice of our indifference is our lack of indignation in watching ourselves being marched to the slaughter house and not showing an ounce of courage, a legitimate cry of indignation. It became evident, if only in the economic arena, when the Occupy Movement made an attempt to pinpoint blame for the nation’s economic ills. Indignation never materialized… indifference quickly suffocating the cries of a few. As for any questioning by Americans of the seeds which grow terror; that will never happen while the empire continues waving its flags from hundreds of enclaves all over the world. Unfortunately, most Americans find pride in that, not indignation.
Anton Chekhov in his Gooseberries could just as easily have been writing about life a century later in this America of ours:
“I look at this life and see the arrogance and the idleness of the strong, the ignorance and bestiality of the weak, the horrible poverty everywhere, overcrowding, drunkenness, hypocrisy, falsehood. . . . Meanwhile in all the houses, all the streets, there is peace; out of fifty thousand people who live in our town there is not one to kick against it all. Think of the people who go to the market for food: during the day they eat; at night they sleep, talk nonsense, marry, grow old, piously follow their dead to the cemetery; one never sees or hears those who suffer, and all the horror of life goes on somewhere behind the scenes. Everything is quiet, peaceful, and against it all there is only the silent protest of statistics…”
So much for indignation, the silent protest of statistics! Whether Chekhov’s town of 50,000 or today’s US of 315+ million people, we are all immersed in our selfish little lives proudly displaying what could be society’s worst vice: indifference… indifference to “all the horror of life [that] goes on somewhere behind the scenes.”
Indifference has historically been accepted by multiple cultures and religions as a vice. Isn’t it about time, in an era where democracy appears to be slowly gaining ground, that we successfully battle such vice with its corresponding virtue: indignation? After all, indignation is not just anger, but righteous anger at people or situations that are truly offensive or unjust to the better nature of humankind.
As we look at the arrogance of the strong, and the ignorance of the weak, we can’t help but recognize that at least for now... vice rules over virtue and our country will continue to remain long on indifference and short on indignation. And that’s not a prescription to cure us from terrorism... or, what’s even worse, the fear of terrorism.
2012 - FINANCIAL REPRESSION
2011 - BEGGAR-THY-NEIGHBOR -- CURRENCY WARS
2010 - EXTEN D & PRETEND
CORPORATOCRACY - CRONY CAPITALSIM
CRONY CAPITALISM -A destructive and distorted government protection racket
The planting season is in full swing as is the transfer of subsidies to big agriculture and social welfare food stamps. Which has more worth, paying the Monsanto and property tax bill or running a public assistance program that allows for the buying of lottery tickets? Well, if you are Congress, both have benefit, but mostly for their political value.Why are food stamps part of the Farm Bill? Nancy Marshall-Genzer makes a shrewd observation.
"There's been an explosive expansion of the food stamp program. To understand why, you have to go back to the '90s and President Clinton's welfare reform, which trimmed welfare rolls. To help those cut off, Congress and President Bush made it easier to qualify for food stamps. That was in 2002. Since then, the food stamp program has more than doubled.
That's about one in seven Americans. Many of them lost their jobs during the great recession. But why is the food stamp program in the farm bill, anyway? Like most things in Washington, it all boils down to politics.
Chad Hart is an economist at Iowa State. He says farm-state legislators needed a way to connect with more urban members of Congress, so the city slickers would support farm subsidies."
Is it necessary to expand exponentially the Supplemental Nutrition Assistance Program (SNAP), to relieve starvation when a "Happy Meal" can be purchased at every turn? Yet the socialization culture boasts of the dietary benefits of being on the government dole, as the urban society continues to consume every cuisine of fast foods.
The Washington Times notes that under the Food stamp president: Enrollment up 70 percent under Obama and that present legislation "allow for those with higher incomes to take food stamps — the logic being that helping people before they reach crisis financial level will actually stimulate the economy."
What did people do for food before the era of the "Great Society"? Farming was a way of life for rural America from the inception of the country. In spite of struggling out a livelihood from an often-harsh pastoral environment, agriculture capacity grew into the breadbasket of the world. Today, the gentleman farmer needs to master the skills of trading future contracts and applications for assistance.
A starting point for subsidies "can supplement a farmer's income and as well as provide funds for rental payments for land and assistance when the market price of a crop is low. Farm subsidies also play a role in the cost and availability of certain agricultural commodities."
1 Contact the Farm Service Agency office in your state
2 Determine which farm subsidy you will apply for
3 Find out what type of government subsidized crop and animal insurance is available in your area
4 Determine if your farm is eligible for the Direct Payment subsidy program
5 Ask about the special loan programs the federal government has available for new farmers and ranchers who have been in business for at least three years but less than ten years
Farming as a productive enterprise is rapidly becoming big business. The family farm is no longer an independent endeavor based upon market prices and ingenious management. The quasi-government debt and subsidy cycle, demands a public partnership with federal and state agencies that distort production and consumer prices at every level. Economy of scale seems to be the only path left to plow the fertile fields of government subsidies.
The corporate agriculture conglomerates have become integral constituents of the seed, fertilizer and chemical industry. Both collaborators hire their political lobbyists to expand financial supports, resistive food labeling disclosures and apply economic pressure to stamp out holistic food competition.
The taxpayer should be concerned over the institutionalization and dependency of the SNAP mentality that eats at the fabric of a viable market economy. However, even more diabolical is the destructive subsidization of farming that dramatically benefits corporatist agriculture at the expense of organic agrarian alternatives.
"Under current law, businesses that produce commodity crops-corn, soy, cotton, or wheat for example-receive a variety of federal supports. One of these, direct payments, provides a per-acreage subsidy for certain farmland owners, regardless of prices, crop yield, or profitability. As a result some farm businesses making hundreds of thousands or even millions of dollars each year also receive a generous annual check from the federal government even if they don't grow a crop.
Federal crop insurance is out of control. In fiscal year 2012, the total cost of the crop insurance program set a new record at $14 billion-$3 billion more than FY2011. And here's the kicker-2012 was a year of near record profits for agriculture, even before crop insurance payouts, despite and in part because of the drought many parts of the country experienced this past summer. In every state, participants in the crop insurance program have received more in claims payments than in premium dollars put in over the past 15 years. And remember, for every $1 in premiums, agribusinesses only chip in 38 cents to insure their own crops while taxpayers pick up the remaining 62 cents. That is not insurance or a safety-net, that's a hand out."
A comprehensive overhaul of government agriculture policy may not seem very probable from a political will perspective. Nevertheless, the gravy train of public money cannot be a substitute for tilling the soil and weeding the crops. When government legislation attempts to maintain an inexpensive retail food price with public grants, loans and subsidies, the true cost of national nourishment is unsustainable.
The urbanization of the political electorate dictates that the bottom feeders expect their groceries be delivered from a full service supermarket. As any rural resident knows, the nature of the land has its own set of rules and demands. Famine and undernourishment applies to much more than the food supply. It resides in the destructive and distorted government protection racket that leaves the public with a deep hunger in their belly.
James Hall – April, 24, 2013
GLOBAL FINANCIAL IMBALANCE
STANDARD OF LIVING
STANDARD OF LIVING - More than Americans Disposable Income Being Crushed
The United States is a deeply unhappy place. We are a nation that is absolutely consumed by fear, stress, anger and depression. It isn't just our economy that is falling apart - the very fabric of society is starting to come apart at the seams and it is because of what is happening to us on the inside. The facts and statistics that I am going to share with you in this article are quite startling. They are clear evidence that America is a nation that is an advanced state of decline.
We are overwhelmed by fear, stress and anxiety, and much of the time the ways that we choose to deal with those emotions lead to some very self-destructive behaviors. Americans have experienced a standard of living far beyond the wildest dreams of most societies throughout human history, and yet we are an absolutely miserable people. Why is this? Why is America #1 in so many negative categories? Why are we constantly looking for ways to escape the pain of our own lives? Why are our families falling apart? There is vast material wealth all around us. So why can't we be happy?
Just look around you. Are most of the people around you teeming with happiness and joy? Sadly, the truth is that most Americans are terribly stressed out. Yeah, many of them may be able to manage to come up with a smile when they greet you, but most of the time they are consumed by internal struggles that are eating away at them like cancer.
So why is this happening? Is modern life structured in a way that is fundamentally unhealthy?
Below I have posted a short excerpt from a message that one of Charles Hugh Smith's readers named Kenneth Daigle recently sent to him. I think that it does a good job of describing the incredible stress that many people contend with on a daily basis...
Think about how our culture is now structured for the average adult: STRESS, everywhere you look--commuting in horrible traffic, as you want to scream in frustration--money stress, to pay rent/house note, tuition, utilities, gas, insurances, vacations, cable bill, rising food costs, and on and on and on--stress from family problems, divorce, delinquency, drugs, crime, infidelity, keeping up with the Jones, etc.
People have too high an expectation of what they should have out of life, and get overly stressed over it all. How does all of this manifest itself? A prescription drug culture (Zoloft, Xanax, etc.) that tricks people into thinking a pill will knock back the stress, when these drugs, in my opinion, only make things worse.
I am hearing more and more that people just want to drop out from it all, as they are reaching a breaking point, and have decided less income and dependency on entitlements will reduce their stress, and is not so humiliating, so giving up working becomes more acceptable, to KEEP ONE’S SANITY.
I know I am correct, from the feedback I hear every day, and the financial media does not see this like I hear it every day. People don't want to admit that they are too weak to deal with stress, so the financial pundits are not aware of this critical factor because they don't talk to Joe Sixpack.
Most Americans live lives of "quiet desperation" that are punctuated by moments of great crisis. We spend our prime years working for others (making them rich) in order to pay off debts that we have foolishly accumulated (thus making the banks even wealthier). When most Americans reach the end of their lives, they look back and wonder what they actually accomplished.
James Altucher published an incredible article the other day entitled "Why Do People Hate Their Jobs?" It did a great job of describing what life is like for the modern worker in America. The following are a few of the reasons that he says people tend to hate their jobs...
-Jobs are modern-day slavery. We are paid just enough to live and not more. You are punished if you ask for more.
-We are often verbally abused on the job and we take it because we think it’s normal that people would yell at us.
-The government gets up to 50% of your paycheck and then 10-20% of that goes to kill people on other parts of the planet, including our own children.
-From 7am to 7pm you are either A) going to work, B) at work, or C) coming back from work. Hence, the times when you can be most creative are garbage-compacted into your cubicle.
-When you are paranoid at a job, you are probably correct. THEY are, in fact, talking about you and backstabbing you right now.
-You realize that all the dollars you spent on degrees to get you a job that will make you happy were completely wasted. You were scammed but you can’t let the next generation know how stupid you were so now you become part of perpetuating the scam.
-Your spouse is tired of hearing about your job after six months. And you couldn’t care less about hers. Ten years later you wake up next to a total stranger. 40 years later you die next to one.
-When you were a kid you liked to draw, and read, and run, and laugh, and play, and imagine a magical world. You’re never going to do any of that again.
-Over time everyone is getting fired and being replaced by younger, cheaper, more temporary, more robotic, versions of you. You see this but are afraid to do anything about it.
And of course when we get home from work there is even more stress. In America today, we are witnessing a breakdown of the family unlike anything we have ever seen before. The United States leads the world in divorce and in single person households. We are having an increasingly difficult time relating to one another, and many of us drown our sorrows in our addictions. We are addicted to pills, to alcohol, to food, to entertainment, to sex, to gambling, to shopping and to anything else that will make us feel good and forget about our problems for a while.
The following is a collection of facts and statistics that prove that America is being absolutely consumed by fear, stress, anger and depression...
-Tens of millions of Americans use alcohol and drugs to numb the pain that they are experiencing. In the United States today, there are about 28 million Americans with a drinking problem and about 22 million Americans use illegal drugs.
-More people have been diagnosed with mental disorders in America than anywhere else on earth.
-There are also tens of millions of Americans that try to deal with anxiety and stress by eating. Of all the major industrialized nations, America is the most obese. Mexico is #2.
-Many people try to escape from the pain of reality by getting lost in entertainment. Incredibly, the United States is tied with the UK for the highest average number of hours spent watching television each week.
-The United States has the highest divorce rate in the world by a good margin.
Fear is one of the primary things that motivates the American people, and that is a very powerful weapon that can be used against us.
As I wrote about yesterday, those that commit acts of terror want to get attention and they want to create fear.
And that is exactly what the Boston Marathon bombing accomplished. It captured the attention of the nation for days on end, and it absolutely paralyzed the entire Boston area with fear.
When we allow ourselves to be terrorized, we actually encourage more terror attacks. When we give terrorists what they want, it just encourages more psychos to commit acts of terror. If you don't believe me, just check out the following links that I found posted on The Drudge Report on Monday...
The appropriate response to a terror attack is to refuse to be terrorized. Yes, we should also work to expose and punish the individuals, organizations and governments that are behind terror. But we should also not let terror change how we live our lives, and we should definitely not allow terror to be used as an excuse to rip our liberties and freedoms away.
Sadly, as Ron Paul has detailed, some of our politicians are already calling for "tighter security" in the aftermath of the Boston Marathon bombing...
Sadly, I expect this week’s tragic attacks in Boston to be used to justify new restrictions on liberty. Within 48 hours of the attack in Boston, at least one Congressman was calling for increased use of surveillance cameras to expand the government’s ability to monitor our actions, while another Senator called for a federal law mandating background checks before Americans can buy “explosive powder.”
I would not be surprised if the Transportation Security Administration uses this tragedy to claim new authority to “screen” Americans before they can attend sporting or other public events. The Boston attack may also be used as another justification for creating a National ID Card tied to a federal database with “biometric” information. The only thing that will stop them is if the American people rediscover the wisdom of Benjamin Franklin that you cannot achieve security by allowing government to take their liberties.
But no matter how much liberty and freedom we give up, we will never be 100% safe. Bad people are always going to do bad things, and unfortunately we are probably going to see some pretty nightmarish things in the years ahead as the world becomes even more unstable.
If we allow the bad guys to get us so frightened that we throw out the U.S. Constitution and abandon our liberties and our freedoms, then we are the ones who lose.
Yes, the years ahead are going to be tough. The economic collapse is going to accelerate greatly, there will be tremendous natural disasters, there will be war in the Middle East and there will be other problems that we cannot even conceive of right now. At the same time, the American people will continue to become even angrier and even more frustrated. According to a recent Pew Research survey, the percentage of Americans with a favorable view of the federal government is now at an all-time low. As the economy crumbles, there will likely be great civil unrest as people demand solutions. Unfortunately, our problems took decades to develop and they will not be solved overnight even if we did have good people in office.
So why am I saying all of this? And why am I constantly warning about the coming economic collapse? Is it because I want to create fear ? No, just the opposite of that. I am a watchman on the wall. In ancient times, a watchman would warn the people when the enemy was approaching.
When you receive the warning, there are a few different ways that you can respond to it...
#1 You can become consumed with fear and run away from the enemy. Unfortunately, cowards never get the victory in the end.
#2 You can dismiss the warning and pretend that the enemy is not approaching. But then when the enemy comes you will be completely unprepared.
#3 You can do everything possible to get prepared to face the enemy that is coming with strength and courage.
And that is how I would encourage all of you to approach the coming economic collapse and the other great problems that we will soon be experiencing as a nation.
Do not be afraid. Instead, be strong and courageous and prepare well for the storms that are coming.
STANDARD OF LIVING
NATURE OF WORK
CATALYSTS - FEAR & GREED
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