Tag: economics

There Are No Bank Reserves

Just a reminder that Clown World’s economy is floating on nothing more than clown gas and demon dust:

The pattern really got going with the “bailout” in 2008. Buried in a monster bill that was waived the three day lockdown on votes was a provision that allowed Ben Bernanke to set bank reserves to zero. It was one line in a monstrosity that Hank Paulson insisted on being passed after his “one page” equivalent, which gave him sole authority on $700 billion dollars of public money, went down in defeat a day earlier. I caught it and reported on it but nobody in the Legislature said a single word about it at the time, likely because they didn’t actually read the whole thing and thus other than the snake who put it in there didn’t know it existed.

So, it’s doubtful that the USA’s ability to outspend Russia is going to work the way it did when Ronald Reagan pushed a financial arms race with the Soviet Union.

The US Congress is about to send another $44 billion to Boeing, Raytheon, and the CIA “for the war in Ukraine”. That’s a total of $100 billion sent by the US in 10 months. The entire Russian military budget for the year is $65 billion.

  • Glenn Greenwald

This is the exact opposite of what Jerry Pournelle recommended back in 1986 after contemplating the problem facing the US military.

There is just no way that we’ll respond to the Soviets by building a peacetime military establishment similar to theirs. Unfortunately, although we have rejected matching the Soviet military establishment, we have not seized upon any viable alternative. Instead, we putter about, building some of this and some of that, hoping that our technological superiority will somehow do the trick even though we have no clear cut strategy of technology.

This has not always brought about good results. As Congressman Newt Gingrich, among others, has repeatedly pointed out, simply throwing money at the Pentagon is wasteful. Given money but no marching orders, the Pentagon almost always buys more M-1 tanks for the Army, more carriers for the Navy, wings of F-16’s for the Air Force. They buy “things people can ride on,” as one analyst recently put it.

Left to its own direction, the military is very conservative. Military establishments tend to keep the old, while flirting with the new and glamorous; to buy one or two armored cars, but keep horses for the cavalry. To put catapults and seaplanes on battleships, but reject aircraft carriers as not needed.

The result is a lack of direction… We end up with weapons that no one is trained to use, aircraft with no spare parts and few trained pilots, communications systems that don’t quite work, ships without trained sailors to man them, and missiles that work splendidly in test situations, but have profound problems on the battlefield.

Jerry Pournelle, The Stars At War, 1986

Although it’s even worse now. Instead of funding wasteful and ineffective weapons programs, now the money is being directed into unspeakable trafficking operations and propping up the collapsing Clown World economy.

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Another Warning Signal

A red flag in housing echoes one in the used car market.

Following yesterday’s dismal housing starts and building permits prints (which followed an ugly homebuilder sentiment signal), analysts expected US existing home sales to tumble 5.2% MoM in November. In fact, things were worse with a 7.7% MoM plunge (the biggest drop since Feb 22 and the 10th straight monthly decline). This is the biggest YoY drop since Lehman and the longest streak of sales declines since 1999… This disappointing drop in existing home sales happened despite the fact that mortgage rates have now fallen for 5 straight weeks.

The US economy is not looking great at the moment.

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Debt Bubble Close to Popping

There are serious warning signals coming from a variety of markets, including the used-car loan market.

Every Friday I conduct a team meeting to recap our week.

This morning, one of our General Managers opened up DealerTrack — a portal that dealers use to communicate with auto lenders — and highlighted something very concerning: 9 of our lending partners have started WAIVING “open auto stipulations” for consumers.

Wait, wtf does that even mean? Let me explain using a simple, hypothetical scenario:

1) Consumer takes out an auto loan in 2020/2021 on an overvalued car
2) 2022 comes around and that overvalued car is now rapidly declining in value
3) With the car declining in value, consumer now owes more on the car than it is worth
4) Consumer no longer wants the car. Maybe they outgrew it. Or maybe it keeps breaking. So consumer wants to trade it in.
5) But dealer can’t trade the car in because the consumer owes WAY too much on it.
So dealer asks consumer for lots of money down to cover the difference.
6) But of course, the consumer doesn’t have $1,000s to cover the difference between what they owe on the car and what it’s worth. And here comes the perfect storm…
7) Dealer can’t sell consumer a car, consumer can’t buy a car, and, you guessed it, lender can’t finance a car! Everybody loses! Oh no! So what happens next?
8) Lender knows that most consumers are stuck in this situation, and does the following:

WAIVES THE OPEN AUTO STIPULATION.

Meaning, the lender lets the consumer buy the car KNOWING that they already have an open auto loan with another bank!

It’s becoming apparent that 2023 has the potential to be worse than 2008. How much worse, we will have to wait and see. In the meantime, it’s a very good idea to be prepared to lower your standard of living and focus your spending on a) things you really need, b) things that will last, and c) things that provide high value for the money.

Live well within your means and you’ll be all right. This is not the time to live a champagne lifestyle on a discount beer budget.

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The Economics of Clown World

Michael Hudson explains the basic operation of what passes for Clown World’s economic system in an interview:

MEGA Radio: In your new book The Destiny of Civilization: Finance Capitalism, Industrial Capitalism, or Socialism you state that the world economy is now fracturing between two parts, the United States and Europe is the dollarized part. And this Western neoliberal unit is driving Eurasia and most of the Global South into a separate group. You just stated this in an interview from November. Could you explain this for our outlet?

Michael Hudson: The split is not only geographic but above all reflects the conflict between Western neoliberalism and the traditional logic of industrial capitalism. The West has deindustrialized its economies by replacing industrial capitalism with finance capitalism, initially in an attempt to keep its wages down by moving abroad to employ foreign labor, and then to try and establish monopoly privileges and captive markets or arms (and now oil) and high-technology essentials, becoming rentier economies.

A century ago, industrial capitalism was expected to evolve into industrial socialism, with governments providing subsidized basic infrastructure services (such as health care, education, communication, research and development) to minimize their cost of living and doing business. That is how the United States, Germany and other countries built up their industrial power, and it also is how China and other Eurasian countries have done so more recently.

But the West’s choice to privatize and financialize its basic infrastructure, dismantling the role of government and shifting planning to Wall Street, London and other financial centers, has left it with little to offer other countries – except or the promise not to bomb them or treat them as enemies if they seek to keep their wealth in their own hands instead of transferring it to U.S. investors and corporations.

The result is that when China and other countries build up their economies in the same way that the United States did from the end of its Civil War to World War II, they are treated as enemies. It is as if U.S. diplomats see that the game is lost, and that their economy has become so debt-ridden, privatized and high-cost that it cannot compete, that it simply hopes to keep making other countries dependent tributaries for as long as it can until the game finally is over.

If the U.S. succeeds in imposing financial neoliberalism on the world, then other countries will end up with the same problems that the United States is experiencing.

Read the whole thing. It’s really good and it even references Crusader Kings. And Hudson points out that the cruelest thing Russia can do to Europe is not to invade it, but rather, to abandon it to the rapacious rule of the US financial elite.

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Drawing Lines in the Sand

Xi makes it abundantly clear that China stands with Palestine.

Chinese President Xi Jinping expressed dissatisfaction Friday with the injustices suffered by Palestinians and affirmed China’s support for an independent Palestinian state. “It is not possible to continue the historical injustice suffered by the Palestinians,” the Chinese president said at the opening of the Riyadh-Gulf-Chinese Summit for Cooperation and Development in Saudi Arabia.

Xi emphasized the necessity for granting Palestine “full membership in the United Nations” and said Beijing “supports the two-state solution and the establishment of a Palestinian state on the 1967 borders, with East Jerusalem as its capital.”

He said he considered the Chinese-Arab summit a “defining event in the history of Chinese-Arab relations.”

Relations between the two “are based on mutual interest in peace and harmony,” he said. “The Chinese and Arab sides should strengthen solidarity and cooperation and build a community for a closer future,” he said as he welcomed Arab participation in the global security initiative.

If Israel is the USA’s “greatest ally’, then it stands to reason that China, which has been engaged in unrestricted warfare against the United States for two decades, would eventually find common cause with that greatest ally’s greatest enemy.

It also explains why Soros and the other architects of Clown World fear Xi even more than they do Putin.

The intriguing question is when the Israelis will abandon the USA and the imperialist neocons in an attempt to appease the Chinese. Because that is probably the right strategic move in the long term; the Israelis are obviously aware that the Diaspora won’t hesitate to sell them out if necessary. And it’s not going to be possible to be the financial masters of both sides of The Great Bifurcation.

Beijing will work to make energy purchases in yuan instead of US dollar signalling another step towards shifting further away from the greenback, China’s President Xi Jinping told Gulf Arab leaders as cited by Reuters.

China’s leader highlighted the necessity of the move while speaking at a Chinese-Arab summit that was hosted by Saudi Arabia earlier this week. Xi had held separate talks with the heads of the Persian Gulf states at the summit that reportedly brought together 30 leaders from across the region.

The world’s biggest crude importer, China in November ramped up purchases of oil by 12% year-on-year, marking the 10-month high despite the severe pandemic-related restrictions.

As the world’s biggest buyer, China now has the ability to dictate how it pays for oil. And it has already begun paying for Arab goods in its own currency, as evidenced by this interview with a spokeswoman for the Chinese Foreign Ministry:

The Paper: We noted that the first RMB cross-border payment transaction between Saudi Arabia and China’s Yiwu city, known as “the world’s supermarket”, was completed ahead of the first China-Arab States Summit. Do you have any comment?

Mao Ning: I also noted this good news. The cross-border RMB payment has played an important role in boosting trade between China and Arab states. This is also a telling snapshot of trade and investment facilitation between both sides. Over the past decade, China-Arab states economic and trade cooperation has scaled new heights. China is Arab states’ biggest trading partner. In 2021, China’s FDI stock in Arab states hit $23 billion, a 2.6 times increase over 10 years. The trade volume topped $330.3 billion, 1.5 times more than 10 years ago. In the first three quarters of 2022, China-Arab states trade reached $319.295 billion, up 35.28 percent year on year and close to the total of the whole year of 2021.

This is precisely what the US invaded Iraq and Libya to prevent. But it’s not going to invade Saudi Arabia and it can’t invade China. It is safe to expect that other countries, particularly Russia and Venezuala, will follow suit in short order.

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Free Trade is Dead

In amidst the economic pain and disruption incumbent in the fall of Clown World, there are some significant silver linings:

The founder of the Taiwan Semiconductor Manufacturing Corporation, Morris Chang, says geopolitics is having profound effects on the semiconductor industry.

Speaking at an event in Phoenix Arizona, where his firm was debuting an ambitious $40 billion upgrade and expansion of its new manufacturing facility in the state, he explained the new constraints being placed on the sector by the changing geopolitical scene.

Speaking of the new facility, which is TSMC’s first advanced chip plant built in the United States in over two decades, Chang said there remained a lot of hard work ahead, if it was to be a success.

The upgrades for the facility will enable the phoenix plant to manufacture the chips for Apple’s iPhone, which can perform almost 17 trillion specialized calculations per second. TMSC is planning an even newer facility in the state which will house even more advanced production technology, capable of producing the microchips for future smartphones, computers, and other smart electronics.

In an interview with Nikkei Asia at the event, Chang likened the plant to the first plant TSMC ever built in the US, in 1995 in Carnas, Washington.

Chang said, “Twenty-seven years have passed and [the semiconductor industry] witnessed a big change in the world, a big geopolitical situation change in the world. Globalization is almost dead and free trade is almost dead. A lot of people still wish they would come back, but I don’t think they will be back.”

The death of globalization and free trade is not only a good thing, it is absolutely necessary if Mankind is going to survive, and eventually, thrive. We’ve seen the best that globalism has to offer, and it is nothing more than idiocracy, debt slavery, and a relentlessly ugly monoculture.

It only took 30 years for 300 years of economic theory to be conclusively disproven by reality. But it was always false and totally incompatible with the existence of nations, as my critique of free trade on mathematical grounds demonstrated.

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Excess Deaths Among the Educated

Karl Denninger reviews the unemployment statistics:

The “employment by educational attainment” figures were interesting as well — they showed that degree holders got hammered. One has to wonder if the Twitter firings were in there, but that wasn’t that large and there was a drop of 348,000 in that category and, more-ominously, 316,000 people disappeared out of that bucket entirely. Since you can’t “lose” educational status once you get into that top bucket, that of a Bachelor’s or better, the only way out of that bucket is to die.

I can confirm one of those 316,000 missing degree holders. My late brother was a duly employed individual with a bachelor’s degree when he died. He was also vaccinated and boosted.

And while we don’t know it was the vaxx… it was the vaxx.

UPDATE: The numbers add up. The percentage of the population 25 years and older with at least a bachelor’s degree is 32.1 percent.

The U.S. Centers for Disease Control and Prevention (CDC) has quietly confirmed that at least 1.1 million Americans have “died suddenly” ever since Covid-19 “vaccines” were introduced under Operation Warp Speed.

UPDATE: And this rejection of the vaxx among the most highly educated may explain the 4 percent delta.

People with a PhD are the most hesitant when it comes to getting the Covid-19 vaccine, according to a paper by researchers from Carnegie Mellon University and the University of Pittsburgh. The report showed a surprising U-shaped correlation between willingness to get a Covid vaccine and education level – with the highest hesitancy among those least and most educated. Of those surveyed, 20.8 per cent with a high school education were reluctant to get the shot, and 23.9 per cent with a PhD were against it. But the least skeptical of the shot had a Master’s degree – with only 8.3 per cent of that group being vaccine hesitant.

Translation: Midwits gonna midwit. Literally no one trusts authority more than midwits with credentials.

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EVs Are Not the Answer

Switzerland contemplates banning electric vehicles this winter.

Switzerland may become the first country to limit the use of electric vehicles (EVs) in a bid to ensure energy security this winter, German daily Der Spiegel reported on Thursday. Under the proposed action plan, which is yet to be adopted, the use of EVs in the country could be banned except in cases of “absolutely necessary journeys.” The government also plans a stricter speed limit on the highways. The harsh restrictions are being discussed as the government fears a power shortage in the coming months, due to the country’s high dependence on imports.

And for good reason. Electric vehicles already cost more to operate than internal combustion engines, even though gasoline is heavily taxed in Europe and electric vehicles are subsidized.

“Due to rising energy prices, in some cases, refueling an electric car is more expensive than a traditional one. And if you are recharging not at home but at a public rapid station, the prices would be even higher,” the report stated.

Experts have calculated that the previous cost of charging an electric car in the country was 50-70% lower than for refueling gasoline or diesel models. Now, a full battery of a ‘green car’ can cost more than a full tank of petrol.

The study highlighted that, for small B-segment cars, gasoline for a mileage of 1,000 kilometers would cost the owner €83 ($83). For a diesel car, the cost would be €71 ($71). Meanwhile, with an electric motor, it would cost €85 ($85) to drive the same distance, even though it was only €33 ($33) just a year ago.

It’s time for Europe to surrender to Russia. This is an economic war the EU cannot win.

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A War of Economic Systems

An excellent interview with Michael Hudson that explains the primary material aspect of the war between global satanry and the free nations.

The world economy is now fracturing between two parts, the United States and Europe is the dollarized part. And this Western neoliberal unit is driving Eurasia and most of the Global South into a separate group. The conflict really is between finance capitalism in the United States and Europe against other countries – China, Russia, Iran, India – that are following the more traditional ethic and strategy of industrial capitalism.

The question is: how are countries going to be economically planned? Because every economy is planned by somebody. In the United States, the central planning has been taken out of the hands of government and put in Wall Street. In the City of London. A very rightwing philosophy. In other countries, there is a mixed economy – China and the rest of Eurasia – and their objective of planning and money creation and credit is to create industrial capital to create the means of production.

Obviously, also environmental cleanup now, not merely the means of production but an overall economic system, not simply to make fictitious capital, finance capital, without any reference to the industrial capital base, the earning of labor and industry together.

So there are two economic philosophies and I began the book by contrasting the dynamics of industrial capitalism with finance capitalism. And industrial capitalism in the United States, Germany, England, and every country where it took off, was to promote a public investment in basic infrastructure monopolies in transportation, communication, education, healthcare.

The idea is that if the government would provide these basic services and basic human rights at subsidized rates – or freely, as in the case of education and healthcare – then employers would not have to pay labor a high enough basic wage to make labor pay for healthcare – as in the United States where 18% of GDP is for healthcare – or to pay for education, the 1.7 trillion that goes for student debt in the United States, not mentioning the education that is not debt-financed.

Finance capitalism basically sought to break away all of the public infrastructure. Most financial fortunes and financial fortunes in history were made just in the way that Zola had described, by prying thefts from the public domain.

But the financial capitalism doesn’t say… You don’t have to steal it; you actually make it your policy, giving away the financial domain in the way that President Yeltsin gave away all of Russia’s natural resources, public utilities, electric companies, anything that yields an economic rent that can be just easy income without any investment. And you financialize it.

You’ve had, for the last – really since the 1980s, but even since World War 1 – this movement to prevent industrial economies from being low cost. But the objective of finance capitalism, contrary to what’s taught in the textbooks, is to make economies high cost, to raise the cost every year.

That actually is the explicit policy of the Federal Reserve in the United States. Turn over the central planning to the banking system to essentially inflate the price of housing, with government guaranteed mortgages, up to the point where buying a home is federally guaranteed up to absorbing 43% of the borrower’s income.

Well, you take that 43%, you take the wage withholding for social security and healthcare, you take the taxes; the domestic market shrinks and shrinks. And the finance capital strategy is exactly what it is in the United States today, in Europe. Shift all of the money away from the profits of industrial capital that are reinvested in making new means of production. To expand capital into a shrinking economy where the financial sector intrudes more and more into the economy of production and consumption and shrinks the economy.

The rest of the book all spells out how this transformation from industrial capitalism to finance capitalism occurred and how the fight between the United States and Russia, China, Iraq, Iran, and India – it’s really a conflict of economic systems. There’s no rivalry because they’re not trying to do the same thing. The objectives of the U.S. and Europe are completely different from the economic objectives of Eurasia. It’s a war of economic systems. And that’s why the United States is trying to prevent other countries from following the same path to industrial prosperity that made the United States, Germany and other countries originally rich.

Read the whole thing. Chances are, you’ll find it highly educational and deeply informative. But the global economy is merely one front and it may not even be the most important one. And ignore the labels of “left’ and “right”. They are outdated and irrelevant.

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Germany Braces for Deflation

German leaders fear the German public running out of cash this winter:

On Tuesday, Reuters reported German authorities are moving to acquire emergency cash deliveries to keep their economy running in the event power outages take down electronics-dependent methods of payment.

People familiar with the government plans reported that the Bundesbank, Germany’s central bank, had begun hoarding extra billions in the event there is a surge in demand for cash, or limits placed on withdrawals.

Government officials and bank authorities are also looking to secure the distribution mechanisms for the cash, giving priority fuel access to cash transporters, according to the sources. The planning sessions have also reportedly included multiple financial industry associations as well as financial market regulator BaFin.

The Reuters article noted, “Although German authorities have publicly played down the likelihood of a blackout, the discussions show both how seriously they take the threat and how they struggle to prepare for potential crippling power outages caused by soaring energy costs or even sabotage.”

Another illustration of how digital currency is a complete non-starter in any scenario that involves interrupted electricity flows. Which also goes for electric cars and the digital economy in general. If the power goes out anywhere along the way, you’re not going to be watching YouTube videos or streaming Netflix.

And yes, the inability to spend credit money is extremely deflationary. As with generals, economists always prepare to fight the last banking crisis.

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