Mish cites an article on the role of gold in the deflation of USA currency and credit.... for the last 40 years, USA has been exporting inflation around the world. Note the reverse (obverse?) is now happening... (below I will outline the situation on the ground in the next 25-40 years):
By lending asset-less backed credit we were able to generate massive false economy in the last 40 years. We grew war and prisons and regulations other government-related non-productive projects, we funded massive unwelcome intrusion and interference worldwide, and wrote rules that made manufacturing overseas preferable (with an explicit intent to harm foreign workers while aggrandizing a USA elite, a project that has backfired), while at the same time making producing here difficult, and lost two generations of entrepreneurs to FIRE: Finance, Investment and Real Estate.
We have a overwhelming majority of people who believe they are entitled, the poor and their EBT payments, and the rich and their pensions and investment portfolios. Both are soon to learn either are NSF.
The feds are studying what government services USA can do without, "saving" investments by seizing them is a done deal, "prison sentencing reform" will empty out prison-nation and troops are in our cities training to fill them back up with malcontents. The sturm und drang over Obama and the Iran deal, as if Obama can exhale without the permission of the powers that be, is USA disengaging in its disastrous neo-and-theocon anti-Islam oil grab.
Productivity is down not for lack of investments, but for frustration of enterprise. We micromanage to the degree that a shop-owner may be fined for not attending to a gay wedding. We are not free to contract, you must pay a minimum wage that only engorges the state. If it moves tax it, if it keeps moving regulate it, if it stops moving subsidize it. We need separation of business and state. Will with the coming cutbacks in government work, will there also be a cutback in regs?
But even with freedom, entrepreneurship is apprenticed, with among the several children and employees of a small firm, someone either inherits or leaves and forms a new company based on lessons learned. Gone outside of tech. And now we have inheritance taxes that kill off any successful business before it can pass to a second generation.
But as tech gravitates toward true economy (now that false economy credit is drying up) and the control of world finance leaves USA for China, so will importing what we need. We will see a demand for in effect import-substitution, that is for making much of what we now import.
On the other hand, we'll be able to get more for USA products overseas than in USA, cuz we will not be able to bid up prices here. Ironically, we'll finally get strong export sales, but not in the categories the powers that be had hoped (food, yes, but not food as a weapon.)
The question of finding credit for small business is deeply offensive. What they mean by credit is rent-seeking on the productive segments. The capital necessary to start up is available in the profits of the start up. People need customers, not credit, and if they have customers, they have capital in the form of retained earnings. And don't worry, commercial real estate, inputs, fuel are all going to get dirt cheap, and if wages are allowed to be freed, then labor as well. Full employment opportunity, if yu want it.
But cities such as Detroit, Chicago, etc have such unfunded liabilities they need to rent-seek upon entrepreneurs. If and when these cities bankrupt and default on their "obligations" they may have a chance of recovery if they also repeal all of the whimsical regulations the now-beneficiaries of pensions wrote while they rested on the public payroll.
Credit deflation is the wind at our back, rules and regs and taxes are the cross winds. Cities might compete for entrepreneurs, but more likely small towns without pension obligations will be taken over by free marketers and allow small business to flourish.
This could be a golden era for the USA, when we end our isolationist policies of alienating all on earth with our interventions, and become a country willing and able to freely trade world wide, get back to the roots we know works given the example of Hong Kong, birthed at the same time under the same philosophy as USA.
Our problem is only us.
Feel free to forward this by email to three of your friends.
Right now, excess returns are under pressure from four main areas; The rest of the world is exporting deflation to the US.
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The second key threat to US returns comes from low productivity & the dearth of investment, itself induced by the high level of debt and the subsequent low rate of growth (See Buttiglioni – Deleveraging, What deleveraging? 2014).
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Of course, conditions are very different today. In ‘Disinflation or deflation?’ January 2015, we argued that deteriorating government productivity, something not measured in the GDP stats, was bringing down productivity for the economy as a whole. The combination of negative net investment and weaker productivity from tech applications means that corporates will struggle to offset rising wages.
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So, in contrast to the extended 90s boom, weak productivity means that, as labour costs rise, cashflow gets squeezed, and credit fundamentals deteriorate further.
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The most important support for US liquidity is corporate debt issuance for buybacks & M&A. So corporate debt issuance is also a key driver of EPS momentum. From 2010-14, corporates were able to issue large quantities of low quality debt.
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In part, this was because there was a huge bid from mutual funds. Persistent Fed, foreign central bank and Investment bank treasury buying over the past five years induced mutual funds to reach for yield. But now that those sources of treasury buying have evaporated, mutual funds have much less incentive to reach for yield – so high yield appetite has deteriorated. Just as the fundamentals of debt, cashflows, are under pressure from the deflationary forces highlighted above.
...
By lending asset-less backed credit we were able to generate massive false economy in the last 40 years. We grew war and prisons and regulations other government-related non-productive projects, we funded massive unwelcome intrusion and interference worldwide, and wrote rules that made manufacturing overseas preferable (with an explicit intent to harm foreign workers while aggrandizing a USA elite, a project that has backfired), while at the same time making producing here difficult, and lost two generations of entrepreneurs to FIRE: Finance, Investment and Real Estate.
We have a overwhelming majority of people who believe they are entitled, the poor and their EBT payments, and the rich and their pensions and investment portfolios. Both are soon to learn either are NSF.
The feds are studying what government services USA can do without, "saving" investments by seizing them is a done deal, "prison sentencing reform" will empty out prison-nation and troops are in our cities training to fill them back up with malcontents. The sturm und drang over Obama and the Iran deal, as if Obama can exhale without the permission of the powers that be, is USA disengaging in its disastrous neo-and-theocon anti-Islam oil grab.
Productivity is down not for lack of investments, but for frustration of enterprise. We micromanage to the degree that a shop-owner may be fined for not attending to a gay wedding. We are not free to contract, you must pay a minimum wage that only engorges the state. If it moves tax it, if it keeps moving regulate it, if it stops moving subsidize it. We need separation of business and state. Will with the coming cutbacks in government work, will there also be a cutback in regs?
But even with freedom, entrepreneurship is apprenticed, with among the several children and employees of a small firm, someone either inherits or leaves and forms a new company based on lessons learned. Gone outside of tech. And now we have inheritance taxes that kill off any successful business before it can pass to a second generation.
But as tech gravitates toward true economy (now that false economy credit is drying up) and the control of world finance leaves USA for China, so will importing what we need. We will see a demand for in effect import-substitution, that is for making much of what we now import.
On the other hand, we'll be able to get more for USA products overseas than in USA, cuz we will not be able to bid up prices here. Ironically, we'll finally get strong export sales, but not in the categories the powers that be had hoped (food, yes, but not food as a weapon.)
The question of finding credit for small business is deeply offensive. What they mean by credit is rent-seeking on the productive segments. The capital necessary to start up is available in the profits of the start up. People need customers, not credit, and if they have customers, they have capital in the form of retained earnings. And don't worry, commercial real estate, inputs, fuel are all going to get dirt cheap, and if wages are allowed to be freed, then labor as well. Full employment opportunity, if yu want it.
But cities such as Detroit, Chicago, etc have such unfunded liabilities they need to rent-seek upon entrepreneurs. If and when these cities bankrupt and default on their "obligations" they may have a chance of recovery if they also repeal all of the whimsical regulations the now-beneficiaries of pensions wrote while they rested on the public payroll.
Credit deflation is the wind at our back, rules and regs and taxes are the cross winds. Cities might compete for entrepreneurs, but more likely small towns without pension obligations will be taken over by free marketers and allow small business to flourish.
This could be a golden era for the USA, when we end our isolationist policies of alienating all on earth with our interventions, and become a country willing and able to freely trade world wide, get back to the roots we know works given the example of Hong Kong, birthed at the same time under the same philosophy as USA.
Our problem is only us.
Feel free to forward this by email to three of your friends.
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