Wednesday, May 27, 2015

Pray For Graccident?

Stockman is set, so he can pray for disaster.  
He sure got that right. People who believe in democracy and economic liberty anywhere in the world should pray for a Graccident. During the next several weeks, when $1.8 billion in IMF loans come due that Greece cannot possibly pay, there will occur a glorious moment of irony for Syriza.
For just about everyone else...  a long slow death of capitalism by 1000 cuts, with free markets growing in its wake is to be prayed for.  He is right about what is going on, but there is not enough skilled individuals to live in a free market yet...

Steady as she goes...

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Tuesday, May 26, 2015

Get Your Own Business Open

The warnings keep coming in from people who understand:
That is totally inappropriate. The unemployment rate is essentially at what economists call “NAIRU” [Non-Accelerating Inflation Rate of Unemployment]… When I went to school, you’d be laughed out of the classroom if you said the right interest rate when unemployment rate was five four [5.4%] was zero – it was just the most preposterous thing you could imagine. Or that the Fed should have quintupled its balance sheet in five years.
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Monday, May 25, 2015

How Credit Became "Money"

Bankers know the difference between money and credit, although they allow customers to remain in the dark between the two.  Note the turning point in this history of money and credit, when the government for the first time, got involved in banking, and how poverty and war followed.
The change in law, first introduced in England in 1704, was to make the promises of bankers enforceable. In other words: if a banker issued a note promising to pay a certain sum of money (gold or silver) to whoever presented the note, the law would support the owner of the note when they went to claim the money. At first sight, this law seems to favour the customer; after all, if a bank promises to pay, it should be held to its word. But the real significance of the law – and this was obvious to everyone concerned when the law was introduced – was that it enabled the promises of bankers to become money: to ‘pass from Man to Man in Payment, which will be an Addition to the Cash of the Nation’ (John Cary, 1695.)
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China to Back Banks with Gold?

Putin's adult supervision kept out of war in Syria and the Ukraine, Kerry is trying to negotiate our way out of the dangerous squabble with Iran.  Our allies crumble in the face of ISIS (boy, we can pick 'em!) In the meantime, China is wasting no time -
Today we got a glimpse of what could be a global game changer, China is planning to launch “a 100 billion yuan fund led by the SGE, …which will in turn facilitate gold purchase for the central banks of member states to increase their holdings of the precious metal. This was just published by news outlet Xinhua in China mainland. Xinhua also published an important article in late 2013 in which it said, “it’s perhaps a good time for the befuddled world to start considering building a de-Americanized world… a self-serving Washington has abused its superpower status and introduced even more chaos into the world by shifting financial risks overseas, instigating regional tensions amid territorial disputes, and fighting unwarranted wars under the cover of outright lies… As a result, the world is still crawling its way out of an economic disaster thanks to the voracious Wall Street elites”. It’s being thought these articles are written indirectly by the Chinese government. 
We cannot recover our hegemony after now, but we can reject isolationism of the neo-con adventurers and re-integrate on an organix level worldwide.  Although it is important for banks to have gold backing, note USA does not, it not important for individuals to hold gold or silver.  We need only freely extend credit within a asset-backed usury-free credit comity.

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Sunday, May 24, 2015

Get Big or Get Out

For the last forty years, in the "get big or get out" regime, to be the biggest, you needed to move monetary assets and their derivatives overseas to avoid taxation and regulation.  Walmart, Starbucks, Amazon, you name it, they all have plaques on walls of small office buildings as their "headquarters" overseas in such places as Ireland and Luxembourg.

You name that game is over too as "conservative governments" such as the UK begin talking taxing that money.  They would never do anything popular unless it was pointless.  GE is not a political party, so it did not bother pretending giving up their financial operations was some act of piety.  the just dumped a now losing proposition.  Now that we have bad credit hyperinflation, all those overseas offices are ineffectual as a way to play USA govt policy.

In this new reverse economy, small businesses need to manage their assets to keep them out of the hands of Uncle Sam.  In fact, this will just be a replay of 1945 - 1965, a golden era of small business in USA.

First, extend credit to your customers.  Now, in deflation, the longer they take to pay, the harder the currency in which you are paid.  Also, you can manage when you book the payment, and when it is taxable.  Next as federal taxes rise, you control how much your business spends. Instead of trying to squeeze every cent out as soon as possible, you keep the money in the business.

You can still see some of the buildings constructed for small businesses in the LA fashion district, mid-century, with very cool amenities.  People usually lived elsewhere, but the business was the lifestyle, and so the facilities were very agreeable.

When taxes get back up to 90%, rejoice.  Big biz will falter more, making for a vacuum into which small business can sell.    And instead of booking $1 million profit and give $900,000 to uncle same, you will remodel your warehouse factory for $950,000 and book $50,000 profit and give Uncle Sam $45,000, not $900,000.  We been her before.

Then as the economy bottoms out, all that land will be dirt cheap... and as we swing back into the loathesome capitalism, you'll get rich off of the real estate you bought cheap.  I've seen this all before.

Your only protection is to get your free-market business going.

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A Case For Usury

There is an incoherent but typical pro-usury article at a hip young site called liberty.me.  The one-minute explanations being for the Sesame Street generation:

There is no objective criteria for what rate of interests is “usury”

The objective fact is usury causes harm in all instances.  It is a process of concentrating economic power in eer fewer hands, to the tipping point where a tiny minority literally call the shots.  This occurs regardless of the amount, rate or duration.

Traders have the right to trade by any terms they wish

Yes, obviously... irrelevant...

Interest is essential to the investment process

Prove it.

Charging interest is essential to guiding the investment process, 

Prove it.

which cannot be sustained by charity 

No one has asked the investment process to be guided by charity.

even it were forthcoming due to the economic calculation problem. 

What does the economic calculation problem have to do with charity?

 Interest rates are required to direct investments to their most productive use.  

Not internal rate of return? Return on investment?  Not personal aspirations?  Only interest rates?  And loans at interest is the only means of investment?

Interest-driven investment is essential to economic growth, and therefore to the very existence of industrial civilization. 

Mere assertion, nothing to warrant the claim.

If charging interest were outlawed, industrial societies would quickly collapse due to the inability to efficiently allocate savings.

Who advocates outlawing interest?  The theory implicit here says if interest rates went to zero, industrial societies would collapse.  Interest rates have gone to zero, and industrial societies are collapsing, in the asset categories of false economy interest-driven investments.  By legalizing (protecting) interest rates, the predators were able to concentrate ever more power in their own hands, and malinvest and misallocate vast swathes of productive capacity.  Interest allows ever fewer people to allocate savings contrary to the savers benefit.

“Loan sharking” is caused by government failure  Loan-sharking (charging high interest rates backed up by the threat of violence) reflects the fact that the loans are being given to creditors with a high risk of default. The need for violence is due to the failure of governments to see this fact, or to adequately enforce the loan contracts (such as with overly lax bankruptcy laws), rather than any immorality inherent in moneylenders.

This from liberty.me?  All we need is good government? How about merely not enforce interest provision ins contracts, as gambling debts are not enforced in law?

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Saturday, May 23, 2015

Too Many Claims on Too Few Assets

I am no one to correct David Stockman, but there are some serious problems, I think, with this outburst:
To wit, free money does immense harm by fueling rampant carry trade speculation; there is zero evidence that 2% inflation results in any more growth than 1% or even 0% inflation; and, as an empirical matter, there is plenty of inflation in the US economy and has been during the entire past 15 years of rampant money printing designed to stimulate more growth.
First is it money that is free, or asset-backed-free credit fueling rampant carry trade? Yes, inflation results in growth of something, by definition, the question is what grows and for whom?  The answer is malinvestment and misallocation, in which the losses are socialized and the benefits privatized.  And then again, how is he defining money in this riff?

Later he makes it plain:
No, the financial economy has ballooned from 2X national income (its historic level) in 1981 to 5X today for one reason alone: Namely, owing to the massive borrowing spree and asset inflation generated by the Fed’s destruction of honest price discovery and discipline in the nation’s financial markets.
Stated differently, the $92 trillion number for equities and credit market debt shown below would be about $35 trillion under the traditional monetary regime that had supported steady growth of the US economy and household real incomes for nearly a century prior to 1971.
The US economy is thus imperiled by a $50-60 trillion financial bubble. 
Note this chart -

Total Marketable Securities and GDP - Click to enlarge

The blue line is claim on assets.  The red line is the productive economy, the asset base upon with the claims rest.   Got problems?

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Credit, Assets and Wealth

Credit is present in almost all exchanges, if all exchanges including daily work payroll and all merchant transactions are considered...  sometimes, though, we slap down a fiver when we need a cup of coffee fast, and thus extinguishing debt...

The big game the last fifty years was to move all commerce over to usury-mulcted, and then blow up the credit balloon to ever more whimsical allocations... that is over.

Now we will have the spectacle, since the game ended about three months ago, of the vast majority of impoverished Americans, who believe themselves wealthy,  as defined as accumulation of titles, and damned well entitled to it, fighting over the trace productive capacity of usa that is to fund their claims.  God willing this takes 40 years and no one decides to change the topic with a world war.  But regardless the true economy will become exponentially more valuable as prices on everything drops.

Wealth, correctly defined as access to the widest range of goods and services at affordable prices, will be the domain of the insignificant small business operator working in the true economy, being built by those practicing in the true economy.  The only credit in this will be in microscopic amounts and always asset-backed, with no-interest.  No more bad EZ credit acting like a virus sickening the body economic.

"I am entitled because I am wealthy, look at all my titles (house title, car title, education title, pension title, portfolio title, etc...) therefore I deserve a larger share of the rents from the income stream."  As all those assets steadily decline in price, as so little (bad) credit begins chasing so much misallocation, the body politic will convulse with eruptions in claims and counter claims.

Now, one need not endure that.  By shifting from false economy to true economy, and simply abandoning any false economy claims, and begin building a true economy, one can ride out the coming years and have access to the widest range of goods and services.

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Friday, May 22, 2015

Teamsters To Cut Pension Benefits

I recall as a negotiator at the 1982 Longshoreman's Master Contract negotiations the strike issue was fully funding the unfunded pension liability.  The Longshoremen won.  The air traffic controllers union had just been busted (end of pensions) and later in the 1980s with trucking deregulation countless teamsters got screwed out of their pensions.  In the 1990s it was the pilots turn to get screwed.  Not one single riot.

Here we go again.  The teamsters are getting screwed by the teamster leadership, only possible since Hoffa was murdered.
The cuts were made possible after the lame-duck Congress late last year passed the Multiemployer Pension Reform Act (MPRA), enabling any multiemployer pension fund to cut benefits to workers and current retirees if the plan is underfunded by at least 20 percent.
Expect no riots.  But do expect fewer dollars chasing the same amount of goods and services, as more and more people realize they will be getting fewer and fewer dollars.  By definition, this is deflation.
“Baby Boomers are retiring in record numbers and the union workforce has been steadily declining for years. As a result, the Fund currently has more than three times as many retirees as active members — so, fewer contributions are coming in than benefits being paid out. To put this into perspective, for every $3.46 that the Fund pays out in pension benefits, only $1 is collected from contributing employers, which results in a $2 billion annual shortfall. Clearly, that math will never work,” the letter said.
Same with your pension.  The powers that be want inflation, but will get deflation.  Deflation benefits small business.

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Credit Hyperinflation & Deflation

John, forgive the ignorance but what do you exaclty with the term "credit deflation"?
Shouldn´t be the other way around (inflation)? due to the QE of the FED?
Thanks
Please know I use the tactic of taking a definite opinion on any topic which interests, especially with a view to provoke contradiction.  My thesis invites antithesis, from which I may form syntheses, and ever go deeper into topics.

I am dead wrong about credit deflation.  I fused Mish Shedlock's victory in a debate among Austrian economics over hyperinflation, especially with Dr. Gary North, with Shedlock's other unique contribution that the role of credit in the markets (properly defined) was the reason that we had not had hyperinflation in currency, plus Dr. Frank Shostak's  (and others) delineation of "good credit" and "bad credit."

My thesis was initially we are in credit deflation.  Implicit in your question is the awareness "credit deflation" is incoherent in these circumstances.  You are right.  Now my thesis is we are experiencing credit hyperinflation.

What do we have?  In the asset category of bad credit, we have hyperinflation.  They created so much of it, it is absolutely worthless, except in wiped out categories: equities, education, health care and housing.  Look at the trillions in fake stock values, another trillion is pointless student loan (and non-bankruptable) student loan debt, billions in auto loan debt which cannot be repaid, ever more overcharging for risible health care, and of course the ridiculous price of houses, ginned up by the extension of bad credit.  This is a large part of the economy, and debt for which there are claims, but will never be paid.  Expect fights, but know all the assets listed will go for pennies on the dollar very soon.

There is good credit, asset backed, at no interest, which is in such small amounts in each instance that it is incalculable.  This will actually rise in value.  This will also grow at teh small business level.

Hyperinflation is a monetary event in which when they print too much currency, you have too many dollars chasing a static amount of goods.  Prices appear to rise, but the effect is theft from the last people to get the new currency.

Hyperinflation in credit is a monetary event in which when they extend too much credit, you have too much credit chasing a static amount of goods.  Prices appear to rise, but the effect is theft from the last people to get the new credit.

GE knows this game is over and got rid of its "bad credit" machine.  There will be a categorical crash in this part of the economy.

They did not print too much currency.  That is still good.  The proof is they are trying to call it in (when you deposit your money in the bank, your money is owned by the bank, not you... that is the law) force you to use, if not bad credit, debit cards and they have begun outlawing storing cash in safety deposit boxes.  

Before 1913, any bank would issue its own currency, and after 1913 that is still the legal fiction, but by law you must only use the Federal Reserve Notes.  Deregulating banking would cure our economic ills, but wipe out all of the bad economy.  That would take out the powers that be, and the military would have to return to a defensive force.  Ain't gonna happen.

So now that the powers that be have run out of "policy options", that is they can neither do any good nor bad, they are now just rent collectors, who can put people in jail.

Asset-less credit extension is neither necessary nor sufficient in the part of the economy that is productive, and creating economic value in the productive part of the will be a matter of discipline.  Vast swathes of America and Americans cannot be your customers because they are willfully unproductive.  Entitlement on the part of the rich and poor will cause them to fight over the rents from that very thin film of productive assets to which astronomical claims are attached.

On the other hand, it is easy to spot your customers, by their patterns and practices in economic activity, one crucial aspect is do they extend credit against assets in their business dealings?  (And by implication, check the creditworthiness of their customers, meaning the personally grant and refuse credit.)

Credit is important, what kind of credit is important, how it is employed is important, far more than money.  if there is one skill that now needs to be learned, it is this.  Although this skill was becoming useless when I first started, I am glad I learned it, because demand for this skill is roaring back.

The world changed the last three months.


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