Tag: economics

You feel poorer because you are poorer

This proves that various “recovery packages” which amount to tens of trillions of issued credit and trillions in federal government spending were all predicated on a lie. Just as the money nominally spent to “save” the household sector went directly to the mortgage banks as housing prices continued to plunge, the money that was supposed to “stimulate” the economy stimulated nothing but Wall Street and the bottom lines of the financial institutions. Notice that this supports what both Karl Denninger and I have been saying for years: there has been ZERO REAL ECONOMIC GROWTH in the USA for more than 30 years.

It’s very simple to see. Just compare the increase in real GDP to the increase in credit. Is the ratio above or below 1.0? If the growth in the amount of credit is greater, then there has been no real economic growth. Since GDP is measured in monetary terms, this means the nominal growth is merely the increase in the number of promises to pay in the future chasing each other around.

That’s why the infrastructure is crumbling. That’s why fewer people are working. That’s why you feel stressed. American median wealth has substantially declined even as the amount of debt has skyrocketed. The Samuelsonians claim this doesn’t matter, because Peter still owes Paul. But both common sense as well as the wealth statistics demonstrate otherwise.

Key quote: “a full 25% of American Households have a net worth of just $3,200; and that 5% (1 out of 20) households has a negative net worth of -$27,416!”

As a youth, I never understood the Biblical concept of a 50-year debt jubilee. It sounded so ignorant and prehistoric. Now, as an adult trained in various schools of economics and having witnessed two major boom-bust peaks in Japan and the United States, I tend to regard it as one more example of the divine inspiration of Scripture.

This chart from Steve Sailer might put the matter more starkly to those who prefer numbers to pictures. Note that the 27 million additional immigrants who entered the USA from 2003 to 2013 have not, contrary to the insistence of neo-classical and Samuelsonian economists, enriched the economy or the native population.

Women and the civilizational cycle

The materially deleterious effect of women working on a society is illustrated in a paper entitled “Women Prefer Larger Governments: Growth, Structural Transformation and Government Size”

The increase in income per capita is accompanied, in virtually all
countries, by two changes in the structure of the economy, namely an
increase in the share of government spending in GDP and an increase in
female labour force participation. This paper suggests that these two
changes are causally related. We develop a growth model where the
structure of the economy is endogenous so that participation in market
activities and government size are causally related.

Economic growth and
rising incomes are accompanied by a greater incentive for women to
engage in labour market activities as the opportunity cost of staying at
home increases. We hypothesize that government spending decreases the
cost of performing household chores such as, but not limited to, child
rearing and child care so that couples decide to engage further in the
labour market and chose a higher tax rate to finance more government
spending.

Using a wide cross-section of data for developed and
developing countries, we show that higher participation by women in the
labour market are indeed positively associated with larger governments.
Furthermore, we investigate the causal link between the two variables
using as instrumental variables a unique and novel dataset on the
relative price of home appliances across OECD countries and over time.
We find strong evidence of a causal link between participation in the
labour market and government size: a 10 percent rise in participation in
the labour market leads to a 7 to 8 percent rise in government size.
This effect is robust to the country sample, time period, and a set of
controls in the spirit of Rodrik (1998).

This is also an implicit argument against female suffrage. However, the researchers’ hypothesis is incorrect, as government spending observably does not decrease the cost of child rearing and child care; one reason European families have so few children is that the cost of raising children is exorbitant despite the greater amount of spending by European governments. Free day care and year-long maternity leave doesn’t make up for the fact that food and gasoline cost considerably more than in the USA.

Voting is not freedom. The conflation of voting with freedom is one of the key deceptions upon which feminism rests. And like all ideologies based upon deception, the more powerful feminism becomes, the more likely it is that the polity in which it has become influential will collapse on the basis of the weight of its contradictions.

Great Depression 2.0

Only instead of the Smoot-Hawley tariff, we have the geniuses who permitted the NSA to spy on allied countries:

Germany Instructs Its Companies To Limit Cooperation, Procurement Orders With The US

Update: it just got worse. Moments ago Bloomberg followed up with the second, and expected, part of this story, namely that just like China cut off major US corporations from big procurement contracts leading to a collapse in CSCO and IBM Asian revenues, it is now Germany’s turn. Per Bloomberg, the German Interior Ministry reviewing rules for awarding govt contracts for computer, communications equipment and services as political rift w/ U.S. widens, people familiar with matter told Bloomberg News’ Cornelius Rahn, Amy Thomson.

  • Ministry will probably issue new purchasing guidelines in coming weeks to replace “no-spy-order” dated April 30
  • Details being worked out, may require suppliers of components of bidder’s goods or services to guarantee they don’t hand over confidential data
  • IBM, CSCO, MSFT may be affected by any tightening of procurement procedures: Forrester Research analyst Andrew Rose

It could be for show, but I tend to doubt it. German companies have to be slavering at the notion of having an excellent excuse – nay, reason – to bar their American competitors from government contracts.

The “declining” labor force

Readers here are aware that the reason the unemployment rates are relatively low is because the BLS is playing games with the size of the labor force in order to undercount the number of people who are unemployed. The four-percent decline in the Employment-Population Rate, which is less easily gamed than the Unemployment Rate, demonstrates this clearly. So, the Administration and neo-Keynesian apologists have come up with various reasons for why people are “leaving” the labor force in order to justify their statistical shenanigans.

However, this article on Zerohedge makes it clear that people are not leaving the labor force voluntarily. Quite to the contrary, they are clinging harder to their jobs than ever before; the biggest change between 2005 and 2010 was the decline from 36.5 to 25.9 percent employed among the 16-19 age group. In other words, these young adults, who are now 20-23, never found jobs and never formally entered the labor force.

The same pattern is true all the way up through the 45-54 age group, which indicates people losing their jobs due to a lack of seniority, then being unable to find work again. From age 55+, a higher percentage of people were employed than before. People aren’t “leaving the labor force”, they are merely unable to find any work for extended periods of time. They are unemployed by every definition of the term, except for the BLS’s misleading measure.

Zero native job growth since 2000

The facts are clear. The statistics are undeniable. Immigrants have taken ALL the new jobs created in America since 2000. The Center for Immigration Studies reaches three conclusions in a statistical study based on BLS data:

First, the long-term decline in the employment for natives across age and education levels is a clear in­dication that there is no general labor shortage, which is a primary justification for the large increases in immigration (skilled and unskilled) in the Schumer-Rubio bill and similar House proposals.

Second, the decline in work among the native-born over the last 14 years of high immigration is consis­tent with research showing that immigration reduces employment for natives.

Third, the trends since 2000 challenge the argument that immigration on balance increases job oppor­tunities for natives. Over 17 million immigrants arrived in the country in the last 14 years, yet native employment has deteriorated significantly.

Immigration is good for an undeveloped economy in a sparsely settled country. Immigration is BAD for a developed economy in a settled country. Attempting to justify the latter on the basis of the former is, at best, seriously misguided. The economic argument has long been used to justify all the negative societal costs of immigration, and yet, the net effect of third-wave immigration has observably been a net negative for the economy.

Apparently the “jobs Americans won’t do” is “all of the new jobs created since 2000”. There are fewer native Americans working now than were working 14 years ago, but 5.7 million more employed immigrants. If the millennials want to know why they can’t find jobs after graduation, that is the primary reason why.

Q1 GDP crash

Zerohedge pretends to take the BEA numbers seriously:

Remember when in January 2014, Q1 GDP was expected to rise 2.6%? Well, here comes the final Q1 GDP revision and it’s a doozy: at -2.9%, far below the -1.8% expected and well below the -1.0% second revision, it is an absolute disaster, and is the worst print since Q1 2009. And while a bad GDP print was largely expected, the driver wasn’t: personal consumption expenditures somehow crashed from 3.1% to just 1.0%, far below the 2.4% expected, meaning that all hope of a consumer recovery is dead. Finally, as a reminder, US GDP has never fallen more than 1.5% except during or just before an NBER-defined recession since quarterly GDP records began in 1947.

When I wrote The Return of the Great Depression in 2009, I noted that the average GDP revisions were larger than the delta that distinguished growth from recession. Now the revisions are nearly THREE TIMES larger.

This is the realm of pure fiction. One reason I don’t write as much about economics these days is that there is simply nothing of substance to write about. Taking these increasingly fictitious numbers seriously is akin to attempting to foresee future events by counting the numbers of fairies in your backyard.

All this tells us is that their attempt to maintain “the recovery narrative” is failing. But we knew that already.

It’s a mystery

What we have here is a failure of basic logic:

U.S. fertility is not recovering from the financial crisis — and demographers aren’t sure why. The fertility rate fell to a record low 62.9 births per 1,000 women aged 15-44 in 2013, according to the National Center for Health Statistics.

The total number of births, at 3.96 million, inched up by a mere 4,000 from 2012, the first increase since the financial crisis. But the total fertility rate, or TFR, the average number of children a woman would have during her child-bearing years, fell to just 1.86, the lowest rate in 27 years. TFR is considered the best metric of fertility. A TFR of 2.1 represents a stable population, with children replacing parents as they die off.

Demographers expected the fertility rate to fall during recession, as financially strapped families put off childbearing. But what has surprised some demographers is both the depth of the decline and the fact that fertility has continued to drop even over the course of the country’s five years of slow but steady recovery. The rate has fallen steadily each year since 2007, when it stood at 2.1 percent.

I’m going to go out on a limb here and point out that since it is known that the economic statistics are massaged and seasonally-corrected and smoothed and retrofitted to the point of literal fiction (try to find the 2001 recession in the GDP statistics now), the more reasonable conclusion is that rather than an inexplicable change in historically observed human behavioral patterns, the U.S. economy has simply not been in the slow, but steady recovery reported by the relevant government agencies. Occam’s Razor indicates that the economy is not in a recovery, but an ongoing six-year depression, and as it happens, this can not only be seen in the falling fertility rates, but also in statistics that are not so easily manipulated as GDP, U3, and CPI-U.

The $30 trillion demand gap

The good news: outstanding credit is still growing. L1 grew 0.69 percent in Q1-2014. This is still credit disinflation, as it is below the 60-year 2.36 percent quarterly growth rate, but it is not outright deflation.

The bad news: all of that growth comes from the federal and corporate sectors. Household was positive flat, state and local government was negative flat, and financial went negative again after five months of being positive flat. The worse news is that the credit demand gap is growing; it has now reached $30 trillion.

In other words, that’s how far off the US economy is from one that continued at its 60-year pace of growth. That’s why things look and feel so terrible despite the nominally positive economic statistics. Were it not for the $2.4 trillion in new corporate debt and the $7.1 trillion in new federal debt since 2008, the ongoing state of economic depression would be obvious. As one can see from the chart, there is absolutely no indication of any recovery for either US households or US financial institutions.

So, there are two obvious questions:

  1. How much more debt can the Fed force-feed the federal government and the corporations before they can’t service it?
  2. Will that new debt be a) defaulted or b) rolled-over when it becomes due?

The idea was that federal debt-spending would jump-start the two more important sectors. But not only has that not happened, but now the two government sectors combined are larger as a percentage of the total than either Household or Financial sectors. And at the current rate, the Federal sector alone will be bigger than the Household sector by Q2-2015 and the Financial sector by the end of next year.

And the really bad news? Of the $13.1 trillion in Household debt, 8 percent of it is student debt. Which means the credit demand has been pulled forward, as those indebted students are much less likely to be able to take on credit card, auto, and mortgage debt in the future. In fact, without the tripling of student loan debt in the last decade, the Household sector’s decline would be twice what it is now: it would be 10 percent credit deflation despite a growing population.

Data released by the Federal Reserve Bank of New York suggests that the relationship between student loan debt and the housing market has turned ugly fast. People with student debt used to buy homes at higher rates than peers who had not taken out loans, partly because going to college meant earning more money, according to the report.

But in 2012, the New York Fed reported that for the first time in at least a decade, 30-year-old student borrowers were less likely to take out home mortgages than other young people.  Among people around 30 years old, homeownership was plunging fastest for student debtors.

Having already devoured the weak, the starving debt-predators are now being forced to devour the young before they are capable of being safely milked for decades.

Negativity

The European Central Bank goes negative on interest rates:

The European Central Bank broke new ground yesterday; it became the first of the monetary superpowers to cut its deposit rate below zero. This is truly desperate stuff. That nearly six years after the collapse of Lehman Brothers, Europe is still belatedly trying to address the twin afflictions of deflation and economic depression tells you as much about the political paralysis that grips the euro area as about the severity of the crisis.

These are not uncharted waters. Denmark and Sweden have experimented with negative nominal interest rates, and in any case, the difference between minus 0.1 per cent and the pre-existing deposit rate of zero is so marginal as to be almost irrelevant. Certainly, it’s hard to see why, beyond symbolism, it would make much difference to the eurozone’s beleaguered economies, even combined with other measures announced by the ECB on Thursday to ease credit conditions.

None the less, it is quite something when bankers actually have to pay a fee for the privilege of parking their money with the central bank, which is the effect of a negative deposit rate.

It’s important to keep in mind that this is the interest rate paid to bankers by the central bank rather than the interest rate paid to depositors by the banks. Remember, the banks are just borrowing those loan-deposits from the public, so they will still compete on the interest rates they pay. There is a relationship between the two interest rates, of course, but it is not a fixed ratio. Depositors have to worry about bail-ins and manufactured fees more than they have to worry about the interest rates on their savings account going negative.

However, it is indicative of the strong grip that Keynesian economics still has on the central bankers. They are still trying to figure out the best way to fine-tune the magic financial remote for the economy, little realizing that they are the equivalent of children pressing buttons on an outdated remote for a cathode ray tube television, with no batteries in it, pointing it at a flatscreen and wondering why it doesn’t work.

Everything revolves around the concept of the demand gap, and the idea that more liquidity will cause people to spend more. But credit money requires someone, somewhere, to borrow something and while one can print money, one can’t print borrowers. As Americans learned in 2008, even if one creates a new class of borrowers by loosening the standards, they tend to fall behind on their payments and default so rapidly that it would be better to have never loaned them money in the first place.

As usual, the central bank is belatedly reacting to events; it isn’t controlling them. This is merely another indication – not proof, but an indication – that the global economy is in a deflationary scenario rather than the inflationary one most people tend to assume. The takeaway: don’t add to your debt with the assumption you’ll be able to pay it off with cheaper currency.

So education isn’t the answer?

Interesting that the economic performance of the USA appears to have slowed down dramatically in the last 40 years despite the much more educated state of the workforce:

Eight percent of the population now holds Master’s degrees, the same percentage that held bachelor’s degrees (or higher) in the 1960s, reports Vox. Master’s degrees in education were by far the most popular, holding at around a third to a quarter of all such degrees from 1971 to 2012, though MBAs had taken the top spot by 2010. In fact, the increase in the number of MBA degrees is astonishing: Only 11.2 percent of master’s degrees were in business in 1971, but in 2012, they were a whopping 25.4 percent.

The rise of the master’s degree is likely a product of credential inflation. As more and more people acquire bachelor’s degrees, those who wish to make themselves stand out go on to get the MA. And as Vox points out, while a Master’s degree does have a positive impact on earnings, the overall debt of people with undergraduate and Master’s degrees has grown markedly in the past decade. In fact, as we recently noted, graduate student debt is in large part driving the student loan crisis.

I was always dubious about the idea that formal education did most people any good. I mean, how many of your fellow students in high school and college would you say appeared to learn anything at all from the experience?