The Origins of Money: Labor Extending Credit

Yesterday I left out one huge pool of usury-free credit extended: payroll.  Back in the day people were often paid monthly, because they settled up their tabs around town monthly.  But whether you are paid bi weekly, weekly or end of the day for that matter, an employee extends his employer credit (pay owed) for the length of the pay period.

So when I said

So woodsmen fell oak trees, who sell to saw mills that create staves, which are sold to coopers who make barrels, and in turn are sold to breweries who fill them with water, barley and hops, who in turn sell them to pubs.  Every step of the way each level gave the next time to pay, extended credit at no interest.  At the end of the day the woodsman, miller, cooper and brewmaster gather at the pub and have a beer.  At the end of the month they pay their tab, and the real bills are successively extinguished all the way back.  Mostly credit in this system, the free market.
Who went first?  Who extended credit?  The workers in pre-history, as agriculture spread, the workers agreed to share produce with a guitar player to play and sing as the others worked.  Artists are the only people who create something of value which does not require extinguishing something before or after. This practice of supporting artists to make life better introduced the concept of credit, and from there it advanced division of labor, innovation, specialization, and an economy. 

Add in the "float" of all those employees and contractors nationwide, adding daily the money due them for work, for however many days of the pay period, as credit extended to the employers, the businesses.

Along with the artists, those extending credit as laborers who actually produce goods and services go the whole economic system kick-started.

Prediction: pay period begin to elongate as people realize the longer they wait for their money the harder the currency in which they are paid.

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Wait... Is It Credit Hyperinflation?

Many Austrians saw the USA QE as a precursor to hyperinflation, for example, Dr. Gary North.  On the other side Mish said no way.  The two traded barbs, and Mish had the better of it with his insight as to QE is credit expansion, a monetary event, but not currency expansion, an inflationary event.

Yes, the head aches at this arcania, but it matters as you place your bets.

When we have hyperinflation, the value of the currency is destroyed as it goes down to worthless.  I was gifted some trillion dollar Zimbabwe notes a few years back.  A one hundred trillion dollar note reflects currency inflation, and monetary event.  The impressive numbers reflect the degree to which currency was printed, created, to pay bills when there was no money in the till.  One might guage the trust

Now, what if instead of printing currency like drunken sailors who found a press, we had wicked central bankers issuing credit with the reserve of drunken sailors. Would we not then have hyperinflation in credit?  That is the value of credit issued goes down to zero?  Or negative?  Like a Zimbabwe 100 Trillion dollar note?

If prices are falling, who wants to owe $500,000 on a million dollar home purchased today, that will valued at $100,000 in ten years?

Falling prices while benefits increase does not stop anyone from buying today, as we see in Apple products.  But it does dissuade people from using credit at interest to buy.

Prices fall for various reasons:

1. Wicked bankers flood the market with EZ Cheap credit and the unscrupulous use it to roll-up whole industries.  This is destructive.

2. Some temporary event, like a bumper harvest of peaches brings the price down for everyone.  This is neutral.

3. The economies of scale are applied to innovative, specialty products over time by larger commodity producers and are able to offer more, better, cheaper faster whatever to a market the innovators could not service.  This is beneficial and the process in free markets.

We are always in some mash-up, more or less, of all three.

Now, I have been pushing credit deflation as a theme.  I wonder, is what we are seeing credit hyperinflation?  Given negative interest rates, is asset-less-backed usury-based credit too plentiful to be of any value?  Is it now priced in the negative (well, yes) like the money lost bothering to print a 100 Trillion dollar note?  Has there been a crash in the wicked kind of credit?

We need more of the good kind of credit, non-usurious freely offered among traders, like the Swiss have in their WIR.

The root of the word prosperity is spes, hope.  Price reduction is fundamental in prosperity, for dreams of contributing are realizable (what?  the unseen!) ...  you can dream of providing a value and there are not predators awaiting to legally lend you air and take away your home if you fail...

Your suppliers finance you, you your cusotmers, and the customers eventually extinguish your debts...  customers is were we need to shift focus, away form bankers.

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eBay and Credit Deflation

Another one in trouble, eBay in stock buybacks and spinoff of its PayPal funny money processor...

On July 18, for example, eBay reported it had bought back $355 million of stock during the second quarter and would repurchase $2 billion additional shares. The primary objective, the company said, was to offset the additional shares being issued as compensation.

Our rules reveal our weaknesses:

"We are deeply committed to setting up eBay and PayPal to succeed and to deliver sustainable value to our shareholders," Donahoe said.
...
For the quarter ending March 31, marketplaces revenue fell 4 percent to $2.07 billion, hurt by the stronger dollar. But the company said it sees signs of stabilization in active buyers and gross merchandise volume, or the total amount of goods sold, excluding the impact of the stronger dollar.

So the question is how will they offer a value to shareholders (isn't value something you offer to customers?)  That falling dollar trope again...  the game of laundering profits overseas no longer works in credit deflation...  "signs of stabilization?"  Like McDonalds, just what is the plan?  No plan, really.  Noting can be done when the business you built is predicated on EZ cheep credit.

For the last forty years the mantra pushed by the FEDS was "get big or get out. "  Now the mantra is "If Big, Viability in Doubt."

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Austrian Economics and Deflation

Jesus Huerta de Soto is an Austrian Economist with fairly conventional views:

You already know that the state is the embodiment of evil and the source of all the ills that afflict humanity… One of these ills, as we will analyze in a moment, is deflation deliberately induced for political reasons or caused by errors of the state.

But he also holds a controversial view:

... we need a single currency which cannot be manipulated by each nation state, and which somehow simulates the functioning of the gold standard. Nowadays that currency, as you know and I have tried to articulate in various academic papers and, on a popular level, in my article and film, “In Defense of the Euro,” is the euro.

Millions have scratched their heads over that one...  the euro is a state creation.  But he has some interesting things to say about deflation:

According to Mises, deflation is a monetary change which consists of a decrease in the money supply. Or, to put it another way, an increase in the demand for money (to decrease supply is to increase demand).
Any contraction in the supply of any good or service brings about a relative rise in scarcity, and thus also a rise in the price, which is affected by the contraction in the supply. In this case, the contraction is in the money supply, and the effect, other things being equal, is an increase in the price of the monetary unit (the price of money is its purchasing power).

Yes, this is basic, if the terms hold their definitions.  He goes on and gets to this:

At that moment, a financial crisis erupts, because it becomes clear that a large number of the loans banks granted during the stage of credit expansion were granted for unviable or unsustainable investment projects. Furthermore, since the collateral for those loans from the bubble stage are deposits created from nothing (which, with all due respect to the new real-bills theorists, are money), it is revealed that banks’ assets have only a fraction of the value that was thought, while banks’ liabilities remain the same, and thus the entire banking system is in a state of failure. 

No!  His definition of money slips.  Real bills are simply receipts of some sort, I owe somebody $500 for materials in my warehouse, my customers owe me $2000, and I have the BsL and Invoice copies to prove it, a warehouse has issued a receipt for $20,000 worth of whatever I am storing.  All this is called commercial paper because it is recorded on paper.

When I give my customers 30 days to pay, I have not "created money."  I simply created credit, but even there not really, since there is an asset backing my loan, legally a call as much of the money my customer makes necessary to cover what I in effect loaned.

So real bills is actually the heart of human history, but where it goes wrong, as usual, is when bankers start creating derivatives, discounting the paper incoming and lending it at usury outgoing, then getting more and more reckless with mismatched maturities, fractional reserve, then bank runs, then... a call for a bank of last resort, the FED.

This is where a highly curious phenomenon occurs; I call it “the phenomenon of the pyromaniac firefighter.” For one of the most important conclusions to be drawn from the existence of this fractional-reserve system is that its survival depends on a lender of last resort (or central banker) who, as these errors are regularly discovered, heads off the collapse of the entire monetary system and our ultimate return to the very beginning of the process of monetary development, which would be a social tragedy, because as you know, money is the quintessential social institution, and we cannot do without it, not even in a fractional-reserve banking system like the current one.

"Like the current one" is referring to 2008.  Anyway, who is "we?"  If money is properly defined, then clearly he is wrong, for most people in most of history never handled money.  Almost all human interaction, quantitatively has been on credit.  Disaster comes and goes in direct relation to the degree the credit is asset-backed on one hand, and non-usurious on the other hand.  Let either go, disaster follows, let both go and disaster is exponential.  Both are gone wild.

Yes, sometimes debts are extinguished with money, usually by silver for the poor and gold for the rich, if all of human history is any guide.

So woodsmen fell oak trees, who sell to saw mills that create staves, which are sold to coopers who make barrels, and in turn are sold to breweries who fill them with water, barley and hops, who in turn sell them to pubs.  Every step of the way each level gave the next time to pay, extended credit at no interest.  At the end of the day the woodsman, miller, cooper and brewmaster gather at the pub and have a beer.  At the end of the month they pay their tab, and the real bills are successively extinguished all the way back.  Mostly credit in this system, the free market.

Who went first?  Who extended credit?  The workers in pre-history, as agriculture spread, the workers agreed to share produce with a guitar player to play and sing as the others worked.  Artists are the only people who create something of value which does not require extinguishing something before or after. This practice of supporting artists to make life better introduced the concept of credit, and from there it advanced division of labor, innovation, specialization, and an economy.  But back to the writing of Jesus:

Imagine what would have happened in the last cycle, which has just concluded, and from which we are beginning to emerge, if states had reacted just as Hoover and Roosevelt did. We would be in a severe depression with much more serious deflation. And it would not be owing to a lack of money injection by central banks, but to errors of specific economic policy. Or, to put it in today’s language, a failure to have implemented the necessary economic-liberalization reforms. 

Ungh!  Now he may be right, we are emerging from the recession, and the QE etc is all working well.  But my head aches to hear this from an Austrian.  But heck no, he is so far off track, and how come?  Definitions: money, credit and an acceptance of the charging of interest.

It is time for us to pause and think a moment. If, as a result of a process of productivity growth, particularly in this stage in which the economy begins to recover, the production of goods and services should grow faster than the money supply, which would mean an increase in the purchasing power of the monetary unit, economic agents, who are very nimble negotiators of their borrowing and lending operations, would take these deflation expectations into account and incorporate them when reaching an agreement on the corresponding market interest rate.

His whole article is supercilious and at times sacrilegious.  Free markets came to North and West Europe via Islam up through Spain, the Spanish scholastics who passed it on to the French, in turn to the Scottish Catholics and absorbed by Scottish Protestants who landed it in Hong Kong and USA at the same time.  Spain owns free markets, having seized the ideas from the Moslems they conquered.  It is sad to see it given up so easily.  I can only guess de Soto believes the euro is here to stay and is betting on a nice sinecure as some director.  Well, everything on red.

We could go a step further and add, as Mises does, a component for pure entrepreneurial profit. We could even make a concession to the absurd new real-bills doctrine because, sure enough, to the extent that those loans are short-term secondary media of exchange, they will have a negative premium, because they are very liquid, but we will set this topic aside now…

Absurd?  Well, if real bills includes bank brokering and the problems of discounting incoming and usury-based outgoing, then it is fraudulent, but quite rational. 

Moreover, this happens with greater intensity the closer the nominal interest rate gets to zero; but as is logical, in no case will the nominal interest rate become negative.

But there are bonds at negative rates! How can de Soto, Mish and others say this when in fact bonds are sold at a negative interest rate:

 The Swiss bonds were sold at a negative 0.055 percent rate and were comfortably gobbled up on the market. Their eventual yield, in 2025, will be a modest 1.5 percent. The amount sold was $241.3 million.

Yes, the face value is 1.5% on the bond, but people are buying that promised interest rate to be paid out in 2025, today at a negative interest rate.  People see that the interest rate is negative, and they still buy:

http://www.investing.com/rates-bonds/switzerland-10-year-bond-yield

So, yes, bonds are sold at negative interest rates.  That bridge has been crossed.  What Mish and de Soto are saying is  "it will never happen that the Swiss or anyone else will issue bonds offering negative interest rates, for why would people wittingly buy bonds at a negative interest rate?  

Again, that bridge has been crossed.  What deSoto and Mish et al have not figured out is there are plenty of people who would rather lose 2% in ten years on Swiss bonds than 50% on stocks, real estate or any of the other bubble assets on offer right now.  Plenty of people see what deflation is, and that is the longer you wait to be paid, the harder the currency with which you will be paid.  Your 2% less in ten years will buy far more in deflation than what you'll get out of liquidating stocks in a decade.  Since that bridge has been crossed, I expect be "absurd" and "impossible" to happen: the Swiss and others eventually offer bonds denominated in negative interest rates.

Back to Jesus Huerta de Soto:

Even in the academic sphere, we must admit, as Mises did, that a sound, suitable, and complete theory of deflation is sorely missing. To remedy this academic deficiency, Professor Rallo, Professor Philipp Bagus, and I have devoted our efforts in the writings I mentioned at the beginning. 

Indeed, the topic is not very well understood.  We are in new territory.

At a conference on world trade and cross-border eCommerce, I had a chat with a senior international banker regarding credit deflation and such and he said the problem from the bankers point of view got down to one word:

trust

Banks cannot trust anyone's word any more, top to bottom, left to right...  government or private.  All that paperwork is untrustworthy, performing due diligence gets you nothing, and few assets are marked to reality.

Credit is at its root trust.  The trust is gone, and so goes their system.  We once had a system in which the players all knew each other, trusted each other, behaved for each curbed the enthusiasms of others, and it all worked well.  I saw if, or the tail end of it.  I watched the change to inflation-based economy, and the destruction therefrom.

We will go back, but who knows what adventures between now and then.

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Cal Poly SLO World Trade Start Up Boot Camp

You can get going in international trade in a one day live, in-person intensive held at Cal Poly SLO, which is exactly midway between San Francisco and Los Angeles, so it serves both communities as well as the central coast.  Make a weekend of it, May 9, 2015.  Details here...



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McDonald's Turn-Around Fails, So They Repeat, P&G Losing Too

The great credit deflation wipe out continues:

While those 700 store closings this year represent a fraction of the 32,500 or so restaurants worldwide, they show how aggressive McDonald’s is getting in pruning poorly attended locations that are dragging down its results.

That is about 1 in 50 stores.  A couple months ago they said 350, now it turns out 700.  This is not the end of it, just the beginning. That is massive sales volume that will be spent elsewhere.  They claim it is an Asian food scare...  how about Asian food awareness?

Earlier on Wednesday, McDonald’s hadreported an 11% decrease in revenue and a 30% drop in profit for the first three months of year, a continuation of its troubles in the last two years as it has struggled to compete with new U.S. competitors, a tough economy in Europe and a food safety scare in Asia.

McDonalds knows what its customers want, but it cannot meet demand with the infrastructure, branding, pipelines that McD owns:

For instance, earlier in April the companyannounced it is testing out a larger, pricier, third-of-a-pound burger for $5, two years after dropping the similar Angus burger line because they were too pricey for McDonald’s diners. Despite that earlier failure, new CEO Steve Easterbrook expressed confidence his customers would go for premium burgers.

Now that is creativity, try again what you know will fail.  Into this void small business can organize to bring customers exactly what they want.  The world is cracking open.

The next dinosaur to feel the cold is Proctor and Gamble:

The maker of Tide detergent, Pampers diapers and Gillette razors reported net sales slipped 8% to $18.1 billion in the January-March quarter. Organic sales, which exclude currency swings and P&G’s recent divestitures, actually rose by 1% as sales grew or were at least even to last year’s level in four of five reporting segments. Higher prices broadly helped results. Core earnings slipped to 92 cents a share from $1 last year, though the bottom line would have increased by 10% excluding the stronger dollar.

Really, if USA is doing so well, how come they just gave the North American head the boot?  Temporizing by saying it is just the strong dollar is like Noah noticing the hatch is still open.

These huge companies depend on overseas sales to in effect launder their profits and escape USA taxation.  The larger the USA share, the more they pay in taxes, the less sales overseas, the less they escape taxes. The strong dollar is a by-product of credit-deflation.  For the dinosaurs, there is no way to respond in time.

The game the last 40 years is for Harvard MBA managers to get early inflated credit from Harvard MBA bankers and steamroll any competition, while proffering subsidized frankenfood (McD) and favorably regulated chemicals (P&G) to Harvard MBA cohort managers in government and industry overseas.  Write tax loopholes to allow the tax avoidance, and live high on the hog, ever concentrating wealth in fewer hands.

Lowes rolled up the neighborhood hardware store, Michael's rolled up the neighborhood five and dime,  Office Depot rolled up the neighborhood stationery store, Petco the neighborhood pet shop, Sears/Kmart (not long for this world) rolled up the neighborhood boutique, Blue Cross rolled up the neighborhood doctor, Union76 the corner gas station, McD the corner soda shop, CVS the neighborhood pharmacy, Safeway the corner grocer, BofA the neighborhood banker, and so on across the entire landscape.  Well, none of these dinosaurs can survive credit deflation, since credit inflation is entirely their DNA: size, systems, skillset, product assortment, logisitcs, all wrong for credit deflation.

These taxes, rules, regulations, banking, all of the judges, cops, armies, rolling stock, real estate, all of it is wrong for a natural economy, let alone an economy in credit deflation.  Too bad for Warren Buffet.  But excellent for anyone who starts up his own business.

Rules for the last forty years.

1. Get a steady paycheck with benefits.

2. Max the 401K and and other tax-avoidance programs as possible.

3. Get as prestigious a degree as you can gain with as much student loan as ppossible.

4. Get as much real estate as your credit rating will allow.

5. Keep your credit report clean.

Now -

1. Never be an employee.

2. Cash out your 401K, IRA etc, take the 30% tax and 10% hit, it will be far less a loss than what is coming.  Invest in your own business.  Compete on design not price.

3.  Skip the prestigious degree, no one is hiring anyway.  Get educated off the smorgasbord of what is available cheap and plentiful ed opportunities.

4. Own no real estate  Sell it off and rent as small as you can get by living in.  (Rural is the fasting growing section of USA in-migration.)

5. Extend credit to customers, at no interest.  Have no credit rating, let alone a good one.  In this way your assets are too hard to steal by uncle same.

Fifty years ago, when my brother in law laid out the first five, that was cutting edge thinking, and absolutely right.  It worked well for him.  Now things have changed.  If you understood the game 50 years ago, you did fine.  Understand the new game now.

Our Fortune 500 are experiencing chaos.  Like GE, they will all escape to anarchy.

That's my story and I am sticking to it, we'll see what happens the next couple of years.

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Universal Compulsory Usury in USA

Up to 100 years ago, legends of Troy, Minoan culture, Agamenon, etc was all assumed to be ancient myth.  Then discoveries of the actual places began.  One of the most amazing was the Minoan culture on Crete.  It was far more advanced than expected and far earlier than assumed.

The discoveries were rich in archeological evidence, and stunning sophistication.  If only they could break the code of the written language the found.  There would be so much more to learn.

Finally, about 50 years ago, one fellow figured it out.  It was Greek, Linear B was the series, and what did the written record tell?

Tallies.  Inventories.  Who owed what to whom.  Who extended credit to others.  Here is another example of when natural disasters wipe out a culture, the archeologists find tallies.  When war or human folly cause disaster, they find gold and silver caches.

In peace and prosperity and economic justice the economy is based on people extending credit to each other, at no interest.  Disaster follows otherwise, as we see after a short 40 years of universal compulsory usury in USA.



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The Unseen is Better than the Seen

Fifty years ago I got a 8 transistor battery operated radio.  I saved up.  It was awesome.  Something like this.

http://upload.wikimedia.org/wikipedia/commons/9/94/Zenith_8-transistor_radio.agr.jpg

I could ride my skateboard and listen to KJR 95 Seattle, how cool was that?  It was pretty expensive, but I had to have it.  The price had come down to the point I could get one with my own money.  Sure they would get cheaper, but who cares, I wanted one NOW!  On/Off, and a dial for maybe seven radio stations, two I could listen to.  And a 9 volt battery as a consumable.  Eight transistors!  Wow!

Today?

The chip on your iPhone that's the size of your thumb holds 2 billion transistors. And that isn't the most powerful chip — there are chips with 8 billion transistors....Fifty years ago this week, a chemist in what is now Silicon Valley published a paper that set the groundwork for the digital revolution.
You may never have heard of Moore's law, but it has a lot do with why you will pay about the same price for your next computer, smartphone or tablet, even though it will be faster and have better screen resolution than the last one.
..."It had kind of doubled every year — two, four, eight, 16, 32," says Moore, looking back. "So I said, 'OK it's gonna double every year for 10 years — go from 60 components to 60,000 components on a chip.' "

Moore published his prediction in Electronics Magazine. It was as much about science as it was about the economics of the growing electronics industry.

"I wanted to get across the idea that this is the way we're going to make cheap electronics. The nature of the whole industry is the more stuff you can put on a chip, the cheaper it is per unit of stuff," Moore says.
...The point is you keep getting smaller and inventors and entrepreneurs will find uses — and so it has been for the past 50 years. The question is, how much longer can this go on?

"I think we're running out of gas here with Moore's Law," Spicer says. "Because no physical process can continue doubling every year forever — it's physically impossible."

You may never have heard of Moore's law, but it has a lot do with why you will pay about the same price for your next computer, smartphone or tablet, even though it will be faster and have better screen resolution than the last one...."It had kind of doubled every year — two, four, eight, 16, 32," says Moore, looking back. "So I said, 'OK it's gonna double every year for 10 years — go from 60 components to 60,000 components on a chip.' "
Moore published his prediction in Electronics Magazine. It was as much about science as it was about the economics of the growing electronics industry.

"I wanted to get across the idea that this is the way we're going to make cheap electronics. The nature of the whole industry is the more stuff you can put on a chip, the cheaper it is per unit of stuff," Moore says.
...The point is you keep getting smaller and inventors and entrepreneurs will find uses — and so it has been for the past 50 years. The question is, how much longer can this go on?

"I think we're running out of gas here with Moore's Law," Spicer says. "Because no physical process can continue doubling every year forever — it's physically impossible."

Moore published his prediction in Electronics Magazine. It was as much about science as it was about the economics of the growing electronics industry.
"I wanted to get across the idea that this is the way we're going to make cheap electronics. The nature of the whole industry is the more stuff you can put on a chip, the cheaper it is per unit of stuff," Moore says.
...The point is you keep getting smaller and inventors and entrepreneurs will find uses — and so it has been for the past 50 years. The question is, how much longer can this go on?

"I think we're running out of gas here with Moore's Law," Spicer says. "Because no physical process can continue doubling every year forever — it's physically impossible."

"I wanted to get across the idea that this is the way we're going to make cheap electronics. The nature of the whole industry is the more stuff you can put on a chip, the cheaper it is per unit of stuff," Moore says....The point is you keep getting smaller and inventors and entrepreneurs will find uses — and so it has been for the past 50 years. The question is, how much longer can this go on?
"I think we're running out of gas here with Moore's Law," Spicer says. "Because no physical process can continue doubling every year forever — it's physically impossible."

"I think we're running out of gas here with Moore's Law," Spicer says. "Because no physical process can continue doubling every year forever — it's physically impossible."

 It's not physically impossible, because logic 101 tells you it is possible to either divide in half or multiply by two ad infinitem.  What is happening is we've applied so much time talent treasure blood sweat and tears to micro electronics we have gone beyond what we could possibly want at the consumer level.  (Industry can keep at it for a very long time). There can be improvements, but directions, entertainment, information, communication, creativity, health monitoring, time, you name it, you can have it on your smart phone.  The mass of apps available surpass what the human in time can use.    We've come a long way from the 8 Transistor Radio.  And maybe each new thing is too specialized to warrant production.  Diminishing returns?

So now they are just loading crap on, and there is a widespread suspicion Apple is building in time-bombs that crash your product about the time they introduce something new.  I doubt that, but collectively there is lots of conflict of interests between customers and promoters.  I've been wanting far less on my computers, and I still use a flip phone, for I haven't seen anything in a decade that makes me want to trade up.  I truly want less, not more (or Moore's).  My laptop is five years old, and on its last legs capability-wise.  I used to get a decade out of apple products.

One of the big beneficiaries of the credit inflation and lending credit and subsequent misallocation and malinvestment was the dot-com industry.  Thus its bust way back when, and its too-big-to-fail players now.  Recall when there were 25 search engines?

But my point is what we saw in electronics, a plethora of more, better, cheaper, faster, happened undreamt of in the field of electronics  Moore wrote his article wondering "where would it all lead?" OK, now we see, so far.  Probably too much.  But Moore nor anyone else anticipated the competition lite in telecommunications, the opening of the super-secret WWW to the public, and the connection of computers to the telecommunications system.  And then who would imagine Al Gore would invent the information superhighway?  Who saw that coming? And to this day everyone give Ronald Reagan credit when it was Jimmy Carter who got the laws changed in the face of opposition in law, commerce, and science.  Jimmy Carter introduced deregulation lite of transportation and communication (and brewering, as a matter of fact.) No one saw the internet nor craft beer coming.

With this stupendous achievement, and if there are diminishing returns, why not turn to something else in trouble, and why not expect unforeseen stupendous results?

Deregulate banks - and get unimaginable benefits?  Like what?  Well, that is just the point, who knows?  It cannot be worse than we have now, can it?  Without deregulation, we already have crowdfunding (although the rent-seeking lawyers have already planted time-bombs in the works, with early legislation and let the IRS rules precipitate a crisis).

Deregulate law.  Have separation of law and state, and adopt the Lex Mercatoria where answering a summons is voluntary.  If anyone were to study Mosaic law carefully in writing, and then again in human practice, you'd see it is far superior to the mish-mash of false prosecution we have in USA today.

Deregulate medicine.  Listening to a USA physician and thriving medical chemical business owner who just opened a cancer clinic.  In Mexico, Tecate.  You can always do chemotherapy, but how about mass doses of vitamin C first, and see if the science that shows favorable results will work for you too.  Not allowed in USA.  Actually, doctors can do anything they want.  But if it is not by the book, then the lawsuit can be devastating.  I just buried my doctor, so now the stories can be told of things he did, lives he saved, laws he broke.  "O! If he was saving lives why didn't he write it up in the medical Journals?!"  He was saving lives because he read of science from overseas medical journals.  Medicine in USA is social engineering.  Today medicine attract social engineers.  "Vaccinate!"  In spite of the settled science that says don't vaccinate.  (The problem is not lack of vaccination, the problem is war.  War lowers immune systems, and once you are there, if you have vaccine for one, then another will get you.  USA has massive participation in war.)

Deregulate transportation.  Hong Kong has cheap and world class transportation, all in private hands. Communist China has mag lev transport, and is expanding it.  Do we need to go Red to get progress?  Obviously capitalism can't do it.  But free markets will.

What would you deregulate and welcome the unseen benefits, on a stupendous scale?

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Russian Trade Woes?

This from Moscow:

Total imports plummeted $25.7 billion, a fall of 37.6 percent compared to the same period last year, while exports plunged 23.8 percent to $57.6 billion, the data showed. This left Russia with a trade surplus of $31.9 billion — roughly the same amount as in the first two months of 2014.

Wait... that means the Russians are not getting as much, buying as much, from overseas as they were.  Now some of that may mean less purchases overall, but it also necessarily means the Russians are sourcing more domestically.  And this means a price rise for local producers, and a price rise calls into creation more producers, those who compete on design, and go for division of labor.

Now of course the Russians are not selling as much overseas either, but that is mostly oil.  Sure, the sales bring in good money, but we are experiencing deflation overall, and those new domestic companies are necessarily small and favored by nature in credit deflation.

I read this article as good news for Russia, both ways.

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Another Buck Bites the Dust

The crash has already come.  The only question is when the system seizes up, and the powers-that-be say "no one saw this coming, give us more power, bail out the Systemically Important Financial Institutions."

How much more evidence do you need it is over?

Euros are so abundant thanks to Mario Draghi’s easy monetary policy that banks are starting to pay each other to get the cash off their balance sheets.
For the first time, an index of three-month interbank loans in euros fell below zero on Tuesday. Elsewhere, the Spanish government raised funding for the same period of time and got paid to take the money.

How safe are your investments now that you have to pay people to take them?  Now we need to reconstruct a financial system based on prosperity, peace and justice, say, free markets, now that the violence, theft and injustice of the last forty years comes to an end.

The theme song for capitalism:




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How To Find the Right Product For You

An associate who consults in big business exports lamented to me after stumbling across a website with some 500 comments about small business importing how he must have missed the boat, by not going after a certain group, that is the young import, small-business oriented crowd.

Here is the link to which he refers.

http://startupbros.com/step-by-step-guide-on-how-to-find-a-profitable-product-to-sell/

Which has a pre-requisite link that is the more to the point.

http://startupbros.com/how-you-can-make-big-money-importing-from-china-the-rise-and-fall-of-my-empire/

I'd judge what this fellow says as fair and balanced.  The problem is in the second link where he points out ultimately he got nowhere using the advice he is giving.  He throw out comments like "my friend got $60,000 in sales in three months.."  OK, gross or net, and "then what happened?"

But in essence, the process outlined is

1. Find something cool on Alibaba

2. Sell it on ebay and amazon

3. Use the marketing tools (google ads) to promote...

And then get rich.

Here is the reality:  The best suppliers in the world will never be on Alibaba.  They are busy with first rate customers, and will not waste time with the dilettante start-up. Only 2.96% of items sold retail in USA comes from China.  So to focus on China is to miss out on 97.4% of what the world has to offer.  Online retail sales in USA is less than 6% of retail.  So to work the web exclusively is to miss out on 94% of your customer potential.  And the killer; the cost of acquisition of customers online is almost always more than any possible profit.  Now, those with visions of get rich quick on the internet cannot comprehend any of those words.  So explaining an alternative does not good.

Now, I never tell anyone they will get rich in int'l trade, who knows, I can only show them how to save time and money getting there.  And this fellow makes clear it is easy to lose your shirt if you make mistakes, noting "there are huge risks."  And the word risk comes up 61 times in the post.

Well, entrepreneurs never take risks.

The advice is good is that is the way you want to go.  But the advice is exactly the opposite of what you need to know if you are looking to build a business that is viable and supports your desired lifestyle.

For example:

It needs to be small and light – It needs to be a simple item - Keep it in the $10-200 range - Don’t sell what you buy - Don’t go seasonal – 

Well, in the world of viable business, none of that is true.  Plus, the means of finding a "winner" under the processed advised is the same as everyone else, so your winner is quickly knocked off by anyone willing to sell for a penny less.  Plenty are willing.

Those who thrive in small business international trade never start with the product.  They start with the customer.  The most important thing in business is the customer, and the hardest thing in business is the product (or service) and getting that right.  When you get your customers first you take no risks.

Self-employment is necessarily personal transformation.  It only works in serving others, and putting yourself into it, not just trying to get crap cheap and find a buyer before anyone else does.

Part of the personal transformation for many is preliminary work of wasting time doing it the wrong way and eventually getting to the point where one is wise enough to recognize better advice.  There is nothing new with the internet, I was working trade lead catalogs in the early 70s and selling through mail order and getting nowhere, nothing new in all that.  Just not future then as now.  Working for people who did well in int'l trade taught me how it is done.

My friend in big biz export is missing nothing.  These people will labor and learn, and then be ready later to move up to a better way.  You cannot warn them off with facts, they just gotta do what they gotta do.

I teach for those who are ready.

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Japan Arms Trade Show

Comes from Bloomberg:

Japan will host its first international defense trade show next month, underscoring Prime Minister Shinzo Abe’s bid to loosen the shackles of its postwar pacifist constitution amid territorial tensions with an increasingly assertive China.

Well, now China was pretty assertive against Japan during the Mao era, what is different is USA can no longer credibly protect Japan nor supply oil.

Time to bring our troops home and let neighbors deal with neighbors, and let's look at working on war reparations, not war.

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Don't Touch Your Car!

A kid in one of my classes shared how the Toyota Corolla has 24 CPUs all set to the lowest common denominator, and how there was good money hooking up a laptop to the car and resetting those CPUs for better gas mileage, or in tandem with a better carburetor programming for 0-60 faster and so on.  Sounds to me just like the kids in the 1950s who souped up old cars.  A fine American tradition.  And these kids make good money souping up modern cars, competing on design.

But apparently not for long.  Anthony sends this in...

You can't tinker with your own car because there is a copyright on it.    You really don't own your car.

https://www.eff.org/deeplinks/2015/04/automakers-say-you-dont-really-own-your-car

Yes, I know, you can pay through the nose for your custom auto,  but I would like Open Source autos to do for the automobile industry what Uber has done for the taxi industry.   I'm hopeful open source cars will crush these old dinosaur car companies once and forall.

http://en.wikipedia.org/wiki/Open-source_car
It would be nice to return to coach design being separate from chassis and engine design.   We need new versions of coach builders like Fleetwood or Pinifarini or Duesenberg.   Yes, I want to drive my open source LaGrande Torpedo.      

Long ago the big three became the only three when they pooled their patents and made it impossible for anyone else to get into the business.  When an insider like John DeLorean designed his way around them, they simply set him up on some outrageous coke deal.

When we bailed out FORD, GM Chrysler (YES! Ford was bailed out too!) in 2008 we should have done so at the price of open sourcing all of their patents.  Now, we taxpayers are presently, every day, bailing out the auto companies again in anticipation of the next crash.  The FEDS are pushing subprime auto loans to people who can barely raise a fog on a mirror can buy a new car.  It does not take much to qualify as an UBER driver, but if you qualify, you are automatically approved for the purchase of a new car.  Kicker: weekly payments direct from Uber to the loan company, up to 30% interest.  So even the critical article misses, literally, the money shot:

In theory, this has been good for Uber (the company gets more supply of the one commodity — drivers — it needs most). And it's good for drivers (they get access to vehicles they might not be able to finance otherwise, and at lower prices).

Yes, the prices are lower than you can get yourself with shot credit, but not lower than you can get with  cash.  So here we are again, when this goes bad, we'll see credit destruction and thus credit deflation. Those people are working for the finance company, not themselves.

I think we need to go one better: mag lev transport, privately owned, in which the basic pod, like the inside of a telephone, is the same in all instances, but you can customize your "body by Fisher" to ride the mag lev rails.  Leave internal combustion for off-roading.

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Chicago Schools - Credit Deflation

When existing credit is destroyed, you get credit deflation.  Chicago alone has billions denominated in asset-less backed credit, and it is moving into a crisis phase, from Mish:

Bad news on Chicago is deep and broad:

• The Chicago Public School System has a $1.1 Billion Budget Hole in $5.9 Billion Budget

• A $228 to $263 million derivative time bomb just triggered on the Chicago Board of Education

• Chicago Public Schools may be out of cash in 30 days

• Corruption investigations plague the school board

• Chicago booted Moody's as a bond rater

• Roadblocks impair pension reforms by the Illinois legislature

• Rauner issued a statement he will not bail out Chicago on the backs of Illinois taxpayers

• Chicago teachers threaten strikes demanding more money that isn't there

So when this fails, there will be a net re-assessment of values, and the billions that cannot be paid will not be paid...  BUT since the billions are denominated in credit, when it disappears (no pension check for you!) the economic impact will be credit deflation.

Whole lotta deflation goin' on....

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1099 Economy

The 1099 is a IRS tax form where a company reports what they paid independent contractors.  When I lecture for schools, or present at industry conferences, I am usually issued a 1099 for that activity.  I know the hegemon has a problem with this, because some schools run in fear from the IRS and the 1099 rules.

Wired Magazine is one of the selected winners that get enough support form the hegemon so they crowd out other ideas.  One of their writers has something to say about 1099 economy as he puts it.

I spent a decade freelancing, a 1099 contractor, and it was fantastic. I had a freedom most people could only dream of. There was no boss to answer to other than myself. I made decent money too, not initially, but I hustled and worked hard and made it. The American way.

This sounds good, right? But wait, the 1099?  When I was a kid, all the work done which is now reported on a 1099 was done and paid and NOT reported on a 1099 and not taxed.

But getting taxes is not enough.  You must also opt-in to what the hegemon calls social services, like health care.  So the writer hits the hegemonic notes:

How are we, as a society, going to deal with that? Going to deal with them? What will it mean if we completely remake our workforce of laborers into contractors without the myriad benefits we associate with full-time employment? Who ultimately benefits when they don’t?

See, never mind the decade he was happily a independent contractor, he must also have the hegemon "benefits"!  (This thinking is called fascism.)

And the solution:

There are forces at work to put the brakes on all this. Current lawsuits in San Francisco, for example, seek to have Uber and Lyft drivers reclassified as employees. Because there are rules about who is a contractor, and who is not. We are a nation of law, and the law is not something arbitrary, given to us by God or kings, but rather it is something we have agreed upon, and that we can remake. Laws can be rewritten. And often it is the wealthy and powerful who write them. 

More rules!  Less options!  And yes, the wealthy and powerful who own Buzzfeed write the rules, and they want the Hegemon to take responsibility for their employees, no more of these pesky free-lancers.  And Buzzfeed is quick to suppress any criticism of its advertisers.

There is one crucial element in every winning dot-com start-up: it concentrates users and reports to the hegemon human activity, even when it swears it does not.  If you help the feds by self-reporting and narrowing tax avoidance opportunities, then your chances of winning increase, but if you lower taxing opportunitiex and advance freedom, you ain't got a chance.

Here are some comments:

Brad Bulger · Follow · Goin' down down down at Coal Mine

Or we could just provide for people as people, as citizens, and not make their well-being dependent on an employer. Plenty of people are in exactly the most terrible situation you envision here after having been full-on full-time employees for decades. But that would be ... SOCIALISTISM duhduhduh!

Reply · Like · 10 · Follow Post · February 4 at 1:12pm

• 

  Steve Beinart ·  Top Commenter · SUNY New Paltz

  The problem, Brad, is the question of where will the money/resources come from to pay people for just existing? Yes, we can send soldiers to confiscate the rich guy's money. And when that's gone?

  Reply · Like · February 5 at 8:33am

And further, the resources for this regime come from stealing it from around the world, places like Iraq where "they can pay for their own reconstruction."  That just isn't working out so well, perhaps because bright young Brad Bulger leaves it to the poverty draft to keep people in participation-free existence.

We can make more war, or, we can offer freedom.  I think those are the only two options.

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