Post-Obamacare, it is only a matter of time before other American industries eventually go the way of electronics retail in Venezuela. But it could work! Just think about how many plasma TVs Best Buy could sell if every American under the age of thirty was compelled to buy one on pain of a substantial fine!
Thousands of Venezuelans lined up outside the country’s equivalent of Best Buy, a chain of electronics stores known as Daka, hoping for a bargain after the socialist government forced the company to charge customers “fair” prices.
President Nicolás Maduro ordered a military “occupation” of the company’s five stores as he continues the government’s crackdown on an “economic war” it says is being waged against the country, with the help of Washington.
Members of Venezuela’s National Guard, some of whom carried assault rifles, kept order at the stores as bargain hunters rushed to get inside.
“I want a Sony plasma television for the house,” said Amanda Lisboa, 34, a business administrator, who had waited seven hours already outside one Caracas store. “It’s going to be so cheap!”
It’s a one-track road downhill once the government embarks upon the road of “fixing” the economy. Of course, the wealthier the society is when the process begins, the longer it takes to break the economy and the fewer people understand what is happening as they live through it.
Most people still don’t realize that America is considerably less wealthy than it was in 1990, because the illusion of being permitted to spend someone else’s money leads them to believe that they genuinely have more wealth. It’s like watching a child running around with Daddy’s credit card, thinking he’s rich, only on a national scale.
Richard Cantillon explains some of the effects of the college bubble in An Essay on Economic Theory… in 1730.
The Labor of the Plowman is of Less Value than that of the Artisan
A LABORER’S SON, AT SEVEN to twelve years of age, begins to help his father either in keeping the herds, digging the ground, or in other sorts of country labor that require no art or skill.
If his father has him taught a trade, he loses his assistance during the time of his apprenticeship and is obligated to clothe him and to pay the expenses of his apprenticeship for many years. The son is thus dependent on his father and his labor brings in no advantage for several years. The [working] life of man is estimated at only 10 or 12 years, and as several are lost in learning a trade, most of which in England require seven years of apprenticeship, a plowman would never be willing to have a trade taught to his son if the artisans did not earn more than the plowmen.
Therefore, those who employ artisans or professionals must pay for their labor at a higher rate than for that of a plowman or common laborer. Their labor will necessarily be expensive in proportion to the time lost in learning the trade, and the cost and risk incurred in becoming proficient.
The professionals themselves do not make all their children learn their own trade: there would be too many of them for the needs of a city or a state and many would not find enough work. However, the work is naturally better paid than that of plowmen.
The key is in the second to last sentence. The problem that the USA and many other countries are facing is that they have encouraged too many young men, and far too many young women, to pursue college degrees, so there is now a massive surplus of degree-holders for the needs of the various nations where academic credentials have been subsidized and fetishized.
In a free and sustainable economy, the number of college students would be significantly reduced due to the combination of the cost and opportunity cost of a college education. But because demand has been artificially inflated by student loans, government grants, and the willingness of parents to go into debt on behalf of their children, the level of current malinvestment in college education is extraordinarily high. The fact that student loan debt can no longer be legally discharged was the first indication that the education bubble had reached its terminal point of expansion.
Longer lifespans and longer working lives justify spending more time and money in acquiring professional skills than in Cantillon’s day, but not indefinite amounts of either. And unless the student acquires skills that increase the value of his labor during that time, the entire process is a waste of both.
The irony is that the average college student is probably less valuable than the unskilled plowman now, because while he still lacks any useful skills, he also is unwilling to work hard at anything he is actually capable of doing.
UPDATE: “In 2008 there was $730 billion of student loan debt outstanding, of which the Federal government was responsible for $120 billion. Five short years later there is $1.2 trillion of student loan debt outstanding and the Federal government (aka YOU the taxpayer) is responsible for $716 billion. Using my top notch math skills, I’ve determined that student loan debt has risen by $470 billion, while Federal government issuance of student loan debt has expanded by $600 billion.”
The Fed is testing susceptibility to counterparty credit risk in 2014. Just to, you know, be on the safe side. Nothing to worry about here. No problems are anticipated. Hey, look there, green shoots!
Lenders including JPMorgan Chase & Co. (JPM) and Citigroup Inc. (C) will have to show they can survive the demise of a trading partner or a plunge in value of high-risk business loans in the 2014 version of U.S. stress tests.
The scenarios for the annual tests, outlined by the Federal Reserve in a statement yesterday, reflect some of the most pressing threats seen by regulators as they gauge the ability of the U.S. financial system to withstand economic shocks. Bankers will have to show what would happen to the value of leveraged loans they hold, the impact of another housing bust and how they’d fare if a firm that owes them substantial sums collapses.
The test was designed in part to build resiliency against what some see as emerging asset bubbles, said a Fed official who spoke on a conference call with reporters. The counterparty failure test aims to prevent a repeat of the 2008 crisis, when distress at Lehman Brothers Holdings Inc. and American International Group Inc. threatened to destroy their biggest trading partners.
Of course, regular readers here know another way to spell “a plunge in value of high-risk business loans”. C-R-E-D-I-T-D-E-F-L-A-T-I-O-N.
Fed balance sheet may not return to normal until 2019? What does this mean to lay people? Would you enlighten The Dread Ilk, please?
The short version is that quantitative easing, which is the Federal Reserve’s euphemism for “printing money” under the current monetary regime, is not working in terms of returning the economy to full employment or stimulating economic growth. However, the Fed doesn’t dare stop QEn because doing so would almost instantly crash the stock market and hurl the global financial system into crisis, if not collapse. So, the program is going to continue indefinitely, which we already know due to the appointment of Janet Yellen, who is even more expansionary-minded than the man named Helicopter Ben.
Wikipedia has a good definition of quantitative easing: “Quantitative easing (QE) is an unconventional monetary policy used by central banks to prevent the money supply falling when standard monetary policy has become ineffective. A central bank implements quantitative easing by buying specified amounts of financial assets from commercial banks and other private institutions, thus increasing the monetary base. This is distinguished from the more usual policy of buying or selling government bonds in order to keep market interest rates at a specified target value.
“Expansionary monetary policy typically involves the central bank buying short-term government bonds in order to lower short-term market interest rates. However, when short-term interest rates are at or close to zero, normal monetary policy can no longer lower interest rates. Quantitative easing may then be used by monetary authorities to further stimulate the economy by purchasing assets of longer maturity than short-term government bonds, and thereby lowering longer-term interest rates further out on the yield curve. Quantitative easing raises the prices of the financial assets bought, which lowers their yield.”
This is why the stock market is up considerably since early 2009 and why corporate borrowing is up when the other private borrowing sectors are down. The reason that the QE program has continued for nearly five years now is that it hasn’t had the triggering effect that it was supposed to have in 2009 or any subsequent year. This is exactly what I have been talking about for years, in pointing out that the Fed cannot expand the money supply in the same way that was done in Weimar Germany and in Zimbabwe, because there are material and significant differences in the way the Fed “prints” money and the way past governments have printed money.
The Fed won’t simply print money in the traditional manner because the coterie of investment institutions they serve can’t profit that way; it is all inflationary downside without a leveraging upside. The US government could certainly do it, of course, and all it would have to do is completely shake off the chains of Wall Street first. So, needless to say, printing trillions of dollars and distributing them to the citizenry is not going to happen.
Given that they STILL haven’t taken the simple step of forgiving mortgage debt to free up disposable income, it should be obvious that they’re not going to indiscriminately hand out cash to everyone either.
My case for debt-deflation doesn’t rest on the physical impossibility of money printing, but on the improbability of Wall Street voluntarily giving up the goose that has laid so many dollar-filled eggs for 100 years. I think they will kill the economy before they give up control, especially since widespread bankruptcies and foreclosures taking place under the present regime would put huge swaths of U.S. property in their hands. It is very much a heads they win, tails you lose situation.
As for 2019, they might as reasonably have given a date of fiver. If you look at L1, it is very clear that all QE has done for the last five years is prevent the bottom from falling out completely while encouraging an astonishing amount of malinvestment via the corporate and federal sectors. So, I anticipate more of the same until the household sector defaults begin, which should set off the third, and more serious, stage of the financial crisis.
Timing? I don’t do timing. How will the crisis be resolved? I don’t know. These things cannot be known until they happen. All we can know for certain is that the present course of credit disinflation and substitution of private debt for public debt is not going to continue indefinitely, since it would result in the complete socialization of the national economy by 2030.
Moar Inflation Now (MIN) was an attempt to spur a grassroots movement to stoke inflation, by encouraging personal borrowing and unrestrained spending habits in combination with expansionary public measures, urged by Fed Chairwoman Janet Yellen and Secretary of the Treasury Paul Krugman. People who supported the mandatory and voluntary measures were encouraged to wear “MIN” buttons, perhaps in hope of evoking in peacetime the kind of solidarity and voluntarism symbolized by the V-campaign during World War II.
The campaign began in earnest with the establishment by the Federal Reserve, of the National Commission on Inflation, which Yellen closed with an address to the American people at Jackson Hole, asking them to send her a list of ten inflation-increasing ideas. Ten days later, Krugman declared deflation “public enemy number one” before Congress on October 13, 2017, in a speech entitled “Moar Inflation Now”, announcing a series of proposals for public and private steps intended to directly affect supply and demand, in order to increase inflation to the desired rate of 10 percent per annum. “MIN” buttons immediately became objects of ridicule; skeptics wore the buttons upside down, explaining that “NIW” stood for “No I Won’t,” or “Not In Weimar,” or “Need Immediate Wank.”
In his book What the Fucking Fuck Was I Thinking?, Ben Bernanke admitted that the thought “This is unbelievably stupid” crossed his mind when Moar Inflation Now was first presented to the Clinton administration by his successor at the Federal Reserve. However, according to revisionist self-historian Paul Krugman, increasing the money and credit supplies was never meant to be the centerpiece of the pro-inflation program and the mass corporate bankruptcies, collapse of the US debt markets, and subsequent catastrophic failure of the global financial system only prove how much worse the economic situation would have been without the triumphant success of the MIN campaign.
On Friday, city financial consultant Kenneth Buckfire said he did not have to recommend to Orr that pensions for the city’s retirees be cut as a way to help Detroit navigate through debts and liabilities that total $18.5 billion. Buckfire said it was clear that the city did not have the funds to pay the unsecured pension payouts without cutting them.
“It was a function of the mathematics,” said Buckfire, who said he did not think it was necessary for him or anyone else to recommend pension cuts to Orr.
Are you saying it was so self-evident that no one had to say it?” asked Claude Montgomery, attorney for a committee of retirees that was created by Rhodes.
“Yes,” Buckfire answered. Buckfire, a Detroit native and investment banker with restructuring experience, later told the court the city plans to pay unsecured creditors, including the city’s pensioners, 16 cents on the dollar. There are about 23,500 city retirees.
The secured creditors, by which is meant the banks, received 75 cents on their dollar. In light of this, you may wish to keep in mind that as a bank depositor, you are a similarly unsecured creditor who is loaning money to institutions that no longer have to mark their assets to market. I estimate that the average bank assets are 40 percent lower than recorded, so you should understand that the amount of money you have in the bank is likely 60 percent of what you see on your statement.
At best.
The Detroit pensioners are fortunate the banks were willing to take a 25 percent haircut. If not, they would have received even less, perhaps even nothing.
This is why we are seeing the likes of Paul Krugman waxing increasingly hysterical as they call for More Inflation Now! With the Federal sector finding it increasingly difficult to prop up Z1/L1, (L1-G actually fell for the first time since Q2 2008), and the three main private sectors average 1.1 percent quarterly growth between them, the economic winds are blowing rather cold again.
US intelligence has been operating a global network of 80 eavesdropping centres, including 19 European listening posts in cities such as Paris, Berlin, Rome and Madrid, the German magazine Spiegel has reported.
The new revelations, which Spiegel said were based on leaked American intelligence documents, are certain to fuel international outrage at the sweeping scale of US international surveillance operations.
Spiegel also reported that the telephone number of Angela Merkel, the German chancellor, has been a target of US surveillance since 2002, when she was leader of the opposition.
Mrs Merkel, who telephoned President Barack Obama on Wednesday to express her anger at reports that her phone had been hacked, was still under surveillance until a few weeks before the US leader Berlin in June, Spiegel said.
Even before the latest reports, Germany said that it would send a high-level delegation to the US this week to demand answer s at the White House and National Security Agency (NSA) about the reports that Mrs Merkel’s phone was tapped. The team will include spy chiefs, German media reported.
I had an interesting experience this weekend that exposed how many Europeans feel about the NSA revelations. My team was playing an away game and I got a little lost trying to find a soccer field. Most villages have signs clearly marking where their main field is, but this one didn’t, so I stopped at a small restaurant where several people were hanging out on the deck, smoking and drinking.
They were obviously locals, so I parked the car, got out, and asked them where the field was. I was wearing my team’s jacket, and as we are known to have a few Portuguese players, one of the men asked me if I was Portuguese, most likely because of my accent. The two women both laughed at that and said: “but come on, look at him, he’s clearly not Portuguese.”
When I explained I was originally from America, the man made a face, held his hand up to his ear like a telephone, and said, “USA? Why are you listening to my mobile phone? Why are you listening to my phone calls?” He was joking, of course, as he promptly laughed, slapped me on the shoulder, and provided directions to the field, but it really startled me to discover that in a tiny village in the middle of nowhere, the immediate reaction to an American would be to bring up the NSA.
And the more elite Europeans aren’t blind to the opportunities presented by the scandal either. I spoke to several high-level investment executives over the last few weeks, and to a man, they see the scandal as being a reason for Europe to make a serious effort to break away from the technology chains of Google, Microsoft, Oracle, Twitter, Facebook, and other American companies that have dominated the world. The larger the corporation, the more determined they are to keep the US out of their emails and servers.
As more and more revelations of tech-enabled spying come out, it wouldn’t surprise me to see nations deciding to subsidize national alternatives and perhaps even eventually banning the use of American software. And why shouldn’t they? How can they possibly accept the status quo? It’s not inconceivable that the long-term result of using the NSA to spy on everyone through international business and the consequential shattering of trust may be a factor in the material reduction of transnational trade.
This isn’t merely a diplomatic or political scandal, it is probably an economic one as well.
And those four horsemen you see riding this way, they’re just out for an afternoon canter. Keep in mind these soothing assurances come from the same Nobel prize winner who, contra his ex post facto self-congratulatory posturing, didn’t see the 2008 financial crisis coming:
Once upon a time, walking around shouting “The end is nigh” got you labeled a kook, someone not to be taken seriously. These days, however, all the best people go around warning of looming disaster. In fact, you more or less have to subscribe to fantasies of fiscal apocalypse to be considered respectable.
And I do mean fantasies. Washington has spent the past three-plus years in terror of a debt crisis that keeps not happening, and, in fact, can’t happen to a country like the United States, which has its own currency and borrows in that currency. Yet the scaremongers can’t bring themselves to let go….
Look at Japan, a country that, like America, has its own currency and borrows in that currency, and has much higher debt relative to G.D.P. than we do. Since taking office, Prime Minister Shinzo Abe has, in effect, engineered exactly the kind of loss of confidence the debt worriers fear — that is, he has persuaded investors that deflation is over and inflation lies ahead, which reduces the attractiveness of Japanese bonds. And the effects on the Japanese economy have been entirely positive! Interest rates are still low, because people expect the Bank of Japan (the equivalent of our Federal Reserve) to keep them low; the yen has fallen, which is a good thing, because it make Japanese exports more competitive. And Japanese economic growth has actually accelerated.
Why, then, should we fear a debt apocalypse here? Surely, you may think, someone in the debt-apocalypse community has offered a clear explanation. But nobody has.
So the next time you see some serious-looking man in a suit declaring that we’re teetering on the precipice of fiscal doom, don’t be afraid. He and his friends have been wrong about everything so far, and they literally have no idea what they’re talking about.
First, numerous clear explanations have been offered. It is well-known that Paul Krugman does literally no reading of economics outside his Neo-Keynesian paradigm, as evidenced by his disastrous attempt to criticize Austrian economic theory I addressed in RGD. His grasp on it wasn’t quite as bad as the guy who didn’t understand why such a small country’s economy was so important, but it wasn’t much better.
Second, if there isn’t a potential debt apocalypse on the horizon, then how does Mr. Krugman explain the 5-year anomaly in a 65-year period shown to the left? I’m not going to bother producing a new graph, because the picture looks exactly the same from 1948 to 2013.
Total Credit (Z1) rose at a very steady rate from 1948 to 2008. Like clockwork, the 60-year quarterly growth rate averaged around 2.3 percent per quarter. In the 22 quarters since Q1 2008, the average quarterly Z1 growth rate has been 0.6 percent, leading to a current credit demand gap of $26 trillion with Zn, which is where Z1 would be now if it had simply continued to grow at its normal 60-year rate over the last five years.
And that $26 trillion gap is despite the Federal sector increasing its outstanding debt from $5.1 trillion to $11.9 trillion during those 22 quarters. The Federal sector now accounts for 20.7 percent of all outstanding debt, more than double its percentage in 2008. Without the orgy of Federal borrowing and spending, (or in other words, if outstanding Federal debt was still only 10.24 percent of Z1) we would still be in credit deflation rather than the ongoing state of credit disinflation.
So what we are seeing is the gradual socialization of the credit markets. At this rate, if the Federal sector continues to double its share of Z1 every 16 quarters, 100 percent of the outstanding debt in the entire economy will be owed by the Federal government in the year 2023. This may not matter from the Neo-Keynesian perspective, where debt does not enter into the equations, and all spending counts the same and is equally efficient no matter the source or the recipient. But for those who understand the Austrian concept of malinvestment or are cognizant of the history of fully socialized economies, it should be troubling news indeed.
We are already in a state of debt deflation in the private economy. In Q4 2007, the private sector’s share of Z1 was $42.7 trillion. In Q2 2013, that share was $42.6 trillion. (NB: this does not count the large quantity of bad debt assets that have not yet been booked, which I estimate to be around 40 percent based on reported FDIC losses.) That is evidence that there has been no real growth in the economy despite the GDP numbers and the massive government attempts to kickstart it. One cannot push on a string, and as Ben Bernanke belatedly discovered, one cannot print private sector borrowers either.
Krugman is like a man standing in the rain on the banks of a flooding river, ignoring the frantic efforts of thousands of men piling sandbags higher and higher, calmly assuring everyone that no one has to worry about getting their feet wet. I have very little doubt that this is a column Krugman is going to regret having written in the future and very much look forward to reading his attempts to disavow it or otherwise explain it away.
If credit isn’t money and cannot affect prices, then why is managing the growth of credit a specified aspect of the Fed’s monetary policy? From the Federal Reserve charter:
The Board of Governors of the Federal Reserve System and the Federal Open Market Committee shall maintain long run growth of the monetary and credit aggregates commensurate with the economy’s long run potential to increase production, so as to promote effectively the goals of maximum employment, stable prices, and moderate long-term interest rates.
The reason the Fed tracks the various components of Z1 in the first place is that they know perfectly well that M2+credit is the effective money supply. Which means that they already know their can-kicking can’t possibly work indefinitely. Karl Denninger has more thoughts on this as well as Alan Greenspan’s Mr. Magoo Problem.
Phoenician attempts economics again, hilarity once more ensues:
Brief clue, Dipshit, if your argument is based on a discontinuity –
(” And in fact, the deleterious effects on wages of women entering the work force was largely hidden until 1973, when men finally stopped leaving the work force in numbers sufficient to conceal what was happening.”) – and the actual data shows no such discontinuity but a fairly smooth and continuing trend instead, then your argument is disproven.
You’re in the situation of someone who claims that rising icecream sales in May are caused by the Easter Bunny and, when shown the Easter Bunny doesn’t actually exists, goes out to prove that more icecream is being sold than you originally stated.
Yes, that may be true – real wages may be actually less than you stated before – but your ‘explanation” for that has been shown to be crap.
Because you’re a misogynist little dickhead who can’t let go of your bigotry, Dipshit.
Some readers don’t understand why I often respond directly to Phony and would prefer that I simply ban him from commenting. But he serves a useful purpose, which is to illustrate the way people on the Left often communicate in a dismissive, superior, and insulting tone that is meant to convince people that they know what they are talking about.
It’s related to the way that they are forever claiming that their opponents are stupid without providing any evidence for it, thereby implying that they themselves are much more intelligent. But the fact of the matter, as Phony often demonstrates, their level of knowledge doesn’t even rise to the level of Wikipedia and it is usually quite easy to show that they don’t understand what the evidence they have mustered in a brief Google search actually means.
What Phony was attempting to do here is try to salvage his incorrect position that “if women are producing more value than they get paid for, as seems reasonable in a capitalist society, then the wages paid will go up”. This is exactly backward, as it happens, because increased productivity actually reduces wages, as it reduces the amount of labor required to produce the same amount of goods, thereby reducing demand for labor as well as its price.
And in his desperate flailing about to attempt to defend himself by prove both me and the law of supply and demand wrong, he cited this graph from the Federal Reserve while claiming it showed me to be “a liar AND a fool.” Which is bizarre, since it shows exactly what I described, a continuing plunge in the male labor participation rate from 1950 to the present.
What Phony didn’t understand is that my argument isn’t based on any discontinuity and that to understand the net effect of female employment on wages, it isn’t enough to simply look at the declining male participation rate, however continuous, one has to take into account the increasing female participation rate and the population growth rate as well. Or, better yet, do what I did back in 2006 and actually do the math rather than simply looking at the pretty pictures.
It’s not enough to note that the lines appear to cross, which they actually don’t. Wages didn’t stagnate from 1950 to 1975 because the number of men leaving the labor force in excess of the growth of the population was roughly equivalent to the number of women entering it. Consider: 45.8 percent of 65+ men worked in 1950. By 1980, only 19 percent did, a number that has remained basically flat ever since. With women, the biggest change was from the 25-34 demographic, as only 34 percent worked in 1950 compared to 65.5 percent in 1980. In sum, by 1980, 27 million additional women had entered the labor force and the female percentage of the labor force rose from 29.6 percent to 42.5 percent. And don’t forget that inexperienced female workers tend to command considerably less salary than the most experienced male ones; a simple exchange of younger women for older men would tend to reduce wages in itself.
The current female share of the labor force is 46.9 percent. So, it is easy to see that the larger part of the male-to-female labor exchange took place prior to 1980. In fact, we can safely conclude that the crossover point was reached in 1973 because that’s when average wages peaked. As the first chart indicates, men were still leaving the workforce, and women were still entering it at that time, but combined with the slowdown of economic growth that began in the 70s, the point at which the net wage-depressing effect had become statistically obvious had been reached. If you look at the actual data, you can see that the crossover point was likely sometime between Q4 1972 and Q2 1973, when men temporarily stopped leaving the labor force for two years even as the pace of women entering it jumped up by two percentage points in a matter of months.
The Phonies of the world can point their finger and call names all they like. But it should be abundantly clear that what they call misogyny and bigotry is simply economic reality. The facts are what they are. The addition of 55.3 million women to the labor force since 1950 has done exactly what one would expect a 315 percent increase in the supply of female labor to do in driving down its price. Whether one thinks that is a good thing or a bad thing depends upon one’s perspective, but what one cannot reasonably do is to deny that it happened.
UPDATE: Perhaps the graph below will help those who can’t seem to understand anything but pictures. Probably not, but if you still can’t get the concept after seeing this, I have to conclude you’re simply incapable of it. Note that these are based on the actual BLS numbers, adding the male and female participation rates as a percentage of the actual civilian population that year. The magic number with regards to wage rate growth appears to be around 60, as the 59.85 percent in January 1973 marked the very last time the total labor participation rate as a percentage of the civilian non-institutional population was below 60 percent.
It should be fascinating to hear Phoney and others attempt to explain the mysterious inverse correlation between the labor force participation rate and the weekly wages while simultaneously denying the law of supply and demand.
