Yearly Archives: 2019

The Hour Is Getting Late

So here we are in Year 11 of the longest economic expansion/ stock market bubble in recent history, and by any measure, the hour is getting late, to quote Mr. Dylan:

So let us not talk falsely now
the hour is getting late
Bob Dylan, “All Along the Watchtower”

The question is: what would happen if we stop talking falsely? What would happen if we started talking about end-of-cycle rumblings, extreme disconnects between stocks and the real economy, the fact that “the Fed is the market” for 11 years running, that diminishing returns are setting in, as the Fed had to panic-print $400 billion in a few weeks to keep this sucker from going down, and that trees don’t grow to the troposphere, no matter how much the Fed fertilizes them?

When do we stop talking falsely about expansions that never end, and stock melt-ups that never end? Just as there is a beginning, there is always an ending, and yet here we are in Year Eleven, talking as if the expansion and the stock market bubble can keep going another eleven years because “the Fed has our backs.”

Take a quick glance at the chart below of the Fed balance sheet and tell me this is just the usual plain-vanilla, ho-hum, nothing out of the ordinary Year 11 of a “recovery” that will run to 15 years and then 20 years and then 50 years–as long as the Fed panic-prints, there’s no end in sight.

So after 9 years of “recovery,” the Fed finally starts reducing its balance sheet, peeling off about $700 billion over the course of 18 months.

Nice–only $3 trillion more to dump to return to the pre-crisis asset levels of less than $800 billion. In other words, the Fed’s “normalization” was a travesty of a mockery of a sham, a pathetically modest reduction that barely made a dent in its bloated balance sheet.

Knock a couple trillion off and we’ll be impressed with your “normalization.”

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[KR1481] Keiser Report: Printing money, chopping down trees

In this episode of the Keiser Report from Rio de Janeiro, Max and Stacy note the acceleration of the rainforest being chopped down into the last months of the year. At the same time, out of control money printing from the Fed is sending stock markets to all time new highs. In the second half, Max continues his interview with private equity investor and former banker, Robert Wilson, who has lived in Brazil for over twenty years. They discuss the more sound economic arguments for maintaining the Amazon than chopping it down for timber. The nature of the rainforest makes it for more rational to keep it for the long term intellectual property prospects to be found in the unique flora and fauna of the region. They also discuss China’s important trade relationship with Brazil and about the need for greater immigration into the country.

Front Running 2020: The Billionaire Tax

The first of our 12 part series looking at the economic policies being presented by the many Democratic candidates and the party’s rising stars, like AOC, as they seek to challenge Trump in 2020.

In this episode, Front Running looks at the ‘billionaire tax’ proposed by the likes of Bernie Sanders and Elizabeth Warren. What is driving the demand for this tax? Why are billionaires suddenly so hated? Where do billionaires even come from? Is there such a thing as ‘odious wealth?’Front Running and guests, Dr Michael Hudson and Professor Steve Keen, look at the massive rise in wealth inequality and the central bank money printing that has contributed to it. They trace the rise of finance capitalism at the expense of the industrial capitalism which made America great for decades after WWII. Can taxes ever make America great again? Or is something more profound required to restore the wealth creation machine that powered the largest middle class in history?

If you can’t view it above, watch it here.

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Is Social Media the New Tobacco?

Social problems arise when initially harmless addictions explode in popularity, and economic problems arise when the long-term costs of the addictions start adding up. Political problems arise when the addictions are so immensely profitable that the companies skimming the profits can buy political influence to protect their toxic products from scrutiny and regulation.

That describes both the tobacco industry before its political protection was stripped away and social media today, as the social media giants hasten to buy political influence to protect their immensely profitable monopolies from scrutiny and regulation.

It’s difficult to measure the full costs of addictions because our system focuses on price discovery at the point of purchase, meaning that absent any regulatory measuring of long-term consequences, the cost of a pack of cigarettes is based not on the long-term costs but solely on the cost of producing and packaging the tobacco into cigarettes, and the enterprise side: marketing, overhead and profit.

(I address the consequences of what we don’t measure in my latest book, Will You Be Richer or Poorer?)

To take tobacco as an example, the full costs of smoking two packs of cigarettes a day for 20 years is not limited to the cost of the cigarettes: 365 days/year X 20 years X 2 packs (14,600) X cost per pack ($5 each) $73,000.

The full costs might total over $1 million in treatments for lung cancer and heart disease, and the reduction in life span and productivity of the smoker. (The emotional losses of those who lose a loved one to a painful early death is difficult to assign an economic value but it is very real.)

If the full costs of the nicotine addiction were included at the point of purchase, each pack of cigarettes would cost about $70 ($1,000,000 / 14,600). Very few people could afford a habit that costs $140 per day ($51,000 per year).

What are the full costs of the current addiction to social media? These costs are even more difficult to measure than the consequences of widespread addiction to nicotine, but they exist regardless of our unwillingness or inability to measure the costs.

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A “Market” Crash Is Baked In–Here’s Why

The last thing punters and pundits expect is a stock “market” crash, yet a “market” crash is already baked in and here’s why: real markets have internal resilience (they’re anti-fragile, to use Nassim Taleb’s phrase), and central-planning manipulated “markets” don’t.

Few look at markets as obeying systems-level dynamics that have little to do with “news” or conventional metrics. The media makes money by reporting every tiny change in mood, metrics, rumors, etc., as if these drive markets. But we all know that the reality is much simpler: The Federal Reserve is the “market.”

In other words, the “market” is no longer a functioning (real) market; it is a central-planning signaling utility of the Fed and other central banks. This hollowing-out of the real market in favor of a central-planning, top-down controlled “market” destroys the system-level functions of markets.

If you want a refresher on the legitimate functions of a market, please read The White Man’s Burden: Why the West’s Efforts to Aid the Rest Have Done So Much Ill and So Little Good, which explains why all the hundreds of billions of dollars of top-down, central-planning “aid” to impoverished nations has failed, enriching kleptocrats and autocratic regimes while assuaging the guilt of the poverty-pimps in the IMF, UN, and all the philanthro-capitalist foundations.

The only programs that actually improve the lives of the impoverished are those that enable small-scale markets in which participants make their own decisions rather than suffer the consequences of decisions made by central-planners who not only know nothing of local conditions, they’re uninterested in local conditions because we know best.

This is the core of central-planning: a handful of those with power make decisions that cripple markets’ ability to respond to reality by allocating goods, services, capital and credit as participants see fit.

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Our Fragmentation Accelerates

That our society and economy are fragmenting is self-evident. This fragmentation is accelerating rapidly, as middle ground vanishes and competing camps harden their positions to solidify the loyalty of the “tribe.” All or nothing, either-or binaries are the order of the day: you’re either 100% with us or 100% against us, you’re either part of the solution or part of the problem.

As fragmentation accelerates, “tribes” splinter into warring groups who compete for members of once-broad-based movements. Moderation is no longer tolerated as it smacks of mixed loyalties or (most dangerous) independent analysis and action.

What’s striking is the complete absence of economic class loyalty or identity: Few if any feel any shared identity with other workers, or feel any loyalty to a class that shares economic interests. Identities and loyalties are to ethnicity, gender, faith, political ideology or sports teams; shared economic interests simply don’t register in the U.S.

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Skyrocketing Costs Will Pop All the Bubbles

We’ve used a simple trick to keep the status quo from imploding for the past 11 years: borrow whatever it takes to keep paying the skyrocketing costs for housing, healthcare, college, childcare, government, permanent wars and so on.

The trick has worked because central banks pushed interest rates to zero, lowering the costs of borrowing more as costs continued spiraling higher.

But that trick has been used up. The next step–negative interest rates–has failed to spark the “growth” required to pay for insanely overpriced housing, healthcare, college, childcare, government, etc.

We’ve reached the end of the line on lowering interest rates as a way of borrowing more to keep our heads above water. We’ve reached the point where households and enterprises can’t even afford the principle payments, i.e. no interest at all.

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OK Boomer, OK Fed

Much of the cluelessness and economic inequality behind the OK Boomer meme is the result of Federal Reserve policies that have favored those who already own the assets (Boomers) that the Fed has relentlessly pumped higher, to the extreme disadvantage of younger generations who were not given the opportunity to buy assets cheap and ride the Fed wave higher.

OK Fed: you’ve destroyed price discovery, driven housing out of reach of all but the wealthy and hollowed out the economy, all the while patting yourselves on the back for being so smart and fabulous.

OK Fed: you’ve waged generational war without even acknowledging how disastrous your policies have been for younger generations. You’ve bloated the paper wealth of everyone old enough to have bought a home 20, 30 or 40 years ago and who’s had a Corporate America or government job who’s seen their 401K or pension soar because “the Fed has our back” and Fed policies have inflated one bubble in stocks and bonds after another for 25 years.

OK Fed: as a direct consequence of your free-money-for-financiers policies, inflation has gutted the purchasing power of younger generations. As the bogus consumer price (CPI) claims inflation is near-zero year after year, two generations of Americans have been crushed by student loan debt that tops $1.5 trillion– a debt serfdom that would have been impossible had interest rates been settled by market forces.

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A “Market” That Needs $1 Trillion in Panic-Money-Printing to Stave Off Implosion Is Not a Market

A “market” that needs $1 trillion in panic-money-printing by the Fed to stave off a karmic-overdue implosion is not a market: a legitimate market enables price discovery. What is price discovery? The decisions and actions of buyers and sellers set the price of everything: assets, goods, services, risk and the price of borrowing money, i.e. interest rates and the availability of credit.

The U.S. has not had legitimate market in 12 years. What we call “the market” is a crude simulation that obscures the Federal Reserve’s Socialism for the Super-Wealthy: the vast majority of the income-producing assets are owned by the super-wealthy, and so all the Fed money-printing that’s been needed to inflate asset bubbles to new extremes only serves to further enrich the already-super-wealthy.

The apologists claim the bubbles must be inflated to “help” the average American, but that claim is absurdly specious. The majority of Americans “own” near-zero assets that earn income; at best they own rapidly-depreciating vehicles, a home that doesn’t generate any income and a life insurance policy that pays off only when they pass away.

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Bubbles Are Brutal

Here’s the latest article from Chris Martenson exposing the broken math underlying both the just-announced China trade deal as well as the recent market melt-up.

Both are signs of the denial of reality one sees at the terminus of a late-stage asset bubble…

Click here to read the full article>>

Why “This Sucker Is Going Down”

As the nation’s political and economic leaders struggled to contain the 2008 financial meltdown, President George W. Bush famously summed the situation up: “If money doesn’t loosen up, this sucker will go down.”

Eleven years into the loose money recovery, this sucker is finally going down for reasons that have little to do with tight money and everything to do with the inconvenient fact that none of the structural problems have been addressed, much less actually fixed.

We live in a bizarre world dominated by magical-thinking, a world in which the Federal Reserve creating more dollars out of thin air is supposedly the solution to everything, while all the knotty structural problems–unsupportable pensions and entitlements, unsustainable dependence on debt to fund everything from infrastructure to a new iPhone, a sickcare system that is bankrupting the nation, a higher education system that is looting an entire generation for diplomas with marginal market value, a runaway National Security State that burns trillions on unwinnable wars and lies about it–are left untouched because they’re, well, difficult, and it’s so much easier to say that looser money will solve everything.

Alas, loose money has created a new set of metastasizing problems that will bring this sucker down: widening wealth-income inequality, the only possible result of our system of creating and distributing new money to banks, financiers and corporations; soaring systemic leverage that few see, much less understand; and perhaps most perverse, yet equally unnoticed, loose money has widened the gap between the real economy and the top layer of arcane finance to the point there is literally no connection at all.

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The Taxonomy of Collapse

How great nations and empires arise, mature, decay and collapse has long been of interest for a self-evident reason: if we can discern a template or process, we can predict when the great nations and empires of today will slide into the dustbin of history.

One of the justly famous attempts to lay out the stages of expansion, zenith, decline and collapse is Sir John Glubb’s 1978 The Fate of Empires. Succinct and deeply informed, Glubb’s essay lists these stages:

The Age of Pioneers (outburst or Boost Phase)

The Age of Conquests

The Age of Commerce

The Age of Affluence

The Age of Intellect

The Age of Decadence

The slippery slope to collapse–decadence–is characterized by greed, corruption, irreconcilable internal political rifts, moral decay, frivolity, materialism–hmm, sound familiar?

All of this fits the S-Curve model which I’ve described here many times, for example:

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