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 -



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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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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I Just Know This Will Sell

On May 20, 2015, at 9:10 AM, KL wrote:

John,
     I searched for the product due to a lack of it in the USA market. It's natural health effects are well known to health conscious consumers buying the product. The harvesting location and trace minerals make it superior to most competitors on the market. Many claim to be pure and full of trace minerals, but are stripped during the refining process. There are dozens of benefits of the product which is why I searched the best source. We have tests to confirm this as well.

***So you have a hypothesis you can test...***

   As of now, they sell great in the EU and just happened to be looking to break into the US market when I contacted them. I'm passionate about health and study it as a hobby. This is where my understanding of health will assist me in marketing it to health conscious customers.

***good, passion and joy...***

   Distributors will carry the item because it is unique and again has up to 90 trace minerals which many are not found elsewhere. The process is all green and is over 250 yrs old. 

***this is a hypothesis... to be tested...***

   So again my value is in my knowledge of health and people always telling me to open a health food store. I decided to deal with import/export of health/all-natural products. 

***Non sequiter...  you are talking yourself into this product...  when you should be testing a hypothesis...***

   I asked the owners for the leads as a start to get product flowing. I'm now trying to decide on whether to approach the leads directly or get a distributor. I plan on approaching stores local to me as you mention in your book and videos. Should i use a distributor for NY are or deal with the clients myself?

*** Too early to say...***

   We have a MOQ of 1 pallet to make it cost effective as of now and I"m waiting on my customs broker for better quotes. I would have to have it shipped here first and break it up myself for smaller orders in NY which is why I was thinking of a Distributor out there. Thanks

*** Your job is to directly make offers to retailers now....  say one pallet is $2500 worth landed, and you are selling for $5000.  Say your minimum order is $125 worth.  Then you need 40 orders at $125 wholesale each to cover the suppliers minimum, in a workable amount of time.  This is how you test your hypothesis.  If you can, then you may have  business, and you can decide if you need distributors, or if you want to build your own company.  In any event, you'll be working with facts, not guesses. Right now it is all hazy guessing and running too far ahead of yourself...

Do a valid and reliable market test, at no expense and risk to you, and discover whether this is something to pursue.

Make sense?

John

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Deflation Economic Play

Frequent Flyer miles emerged in the inflation economy, a replacement for the end of "green stamps" that had lasted until the 1970s.  Comes a new offer, RocketMiles:

                               Book Hotels   Earn Miles   Vacation Faster

It is a bit unusual.  The hotel rates offered are not a deal, and look suspiciously like the IRS allowed per diem rates.  Now big biz and govt workers usually spend up to the allowable rates, because they do not care about saving money.  Ultimately the end user pays all expenses, so who cares?  But the person who is booking the room at full rate, instead of through Priceline or Expedia is going to get some serious frequent flier miles fast. And this is the pitch ...  vacation faster.

Also, these are associated with airlines, not credit cards.  I stopped using bank credit, because it is morally criminal, and now only use debit cards, even when travelling and renting cars.   So the whole thing is more miles for more money spent, and new direction in FF mile game.

This is interesting...

Can I book for other people and earn the rewards for myself?
Absolutely. Log into your account, book the room, and enter the actual guest’s name who will be checking in as “primary guest”. If you are booking for a company, contact us and ask to be put in touch with one of our Corporate Account Managers who can explain how to fully take advantage of Rocketmiles for your business.

So who is in a position to book for others?  The implications are interesting.  Secretaries going to direct the boss to the hotel where it benefits the secretary?

This is no real benefit for small biz.  We can travel cheap anytime we want and write it off.  Our work is our lifestyle, so all travel is vacation-like.  Also, when the IRS-allowed hotel perdiem in Hong Kong is $280 per night, and you spend $50, you can deduct the whole $280 and gain a $230 advantage on your taxes, legally. See you CPA for how this works, it is the rules.

So RocketMiles is an interesting initiative and biz model, but not for small business.

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China to Grow By Exporting Production Capacity

China has a problem, and it is taking a page from when USA was creative:

Earlier this month, the cabinet decided to deepen international industrial capacity cooperation, at a time when China is struggling with overcapacity. Too many similar factories are churning out fundamental products including iron and steel, cement and plate glass.

What to do with all that excess capacity?  Sell it.  The entire factory. Disassemble it, pack it, ship it to say Brazil, rebuild it there.

Chinese Premier Li Keqiang will witness the signing of several deals on industrial capacity cooperation in Brazil, the first leg of his Latin America tour, said Chen Duqing, a former ambassador to Brazil.
Industrial capacity cooperation generally means that China moves entire production lines to other countries, or sets up factories with local partners abroad.

So China will move up the food chain, and buy parts from Brazil.

On Saturday, China's cabinet laid out a list of sectors for more capacity cooperation. The expansive list includes automobiles, aviation and aerospace, chemicals, construction materials, electric power, machinery, maritime engineering, non-ferrous metals, railways, shipbuilding, steel, telecommunications and textiles.

USA once sold entire factories to emerging economies, but sadly, we have no factories to sell.  Chinese factories take Chinese technicians to run them.  And the infrastructure avoids contact with USA.

We in the USA elected to start wars against countries that were no threat to us.  We bailed out a financial system that failed for poor performance, and refused to allow a better system to emerge.  We elected to ruin health care and education.  And now we are one of the poorest countries on earth, given the debt each of us owes the extremely few people who are responsible for this mess.  We are being isolated.

The USA response to our problems is to make old people work longer, and confiscate savings, so far.  There is not a single politician on the horizon, nor academic, nor legal scholar, no one, that is even thinking about freedom as a possible path out.

No, we double down on violence as the solution.  This is democracy.  This is capitalism.  Some day we'll try free markets.

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Export Food Start-up Online Seminar

If you want a direct, hand-on program to reach customers now I have an online class starting tonight (6pm Pacific Coast Time) that runs one hour a week for four weeks.  You get the assignment, execute, and each week brings you one step closer to the customer.  By week four, if you have done the assignments, you are offer products for sale to buyers worldwide.

For some the process is so new they must try it again, therefore anyone who registers for any session is allowed to retake gratis whenever you like...  practice makes perfect!  From Jason in Canada who is retaking:

Looking forward to joining the new class. Looks like I'll still be on step one with everyone else then but I'm raring to go.

Here is where you may sign up...

http://seattleteacherscollege.net/exfoassmbu.html

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The New Silk Road Away From U S A

Russia is on solid footing and no where to go but up, and China has an outsized credit problem like the USA.  Too many claims on too few productive assets.  China is going to grow its way out of this, with its Silk Road development project. 

Russian news outlet RT has disclosed that Vladimir Putin and Xi Jinping have signed a decree on cooperation in tying the development of the EEU with the Silk Road economic project. “The integration of the Eurasian Economic Union and Silk Road projects means reaching a new level of partnership and actually implies a common economic space on the continent,” Putin said. Furthermore, columnist for Russian news outlet Sputnik, Pepe Escobar, stated, “What we have here, above all, is the China-led New Silk Road directly connecting with the Russia-led EEU. China and the EEU are bound to set up a free trade zone”. The EEU could potentially grow into a very significant power bloc.

What will USA do to grow its way out?  Develop free trade with Mexico?

The new project will have a currency based in gold, which will foster peace and prosperity.

No, USA cannot match this, but it can grow its way out.  Deregulate something. Anything.  Banking.  Medicine.  Education. National defense. Housing. Transportation.   If we can turn USA creativity loose, we can compete.

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People With Nothing Start-up Exporting Food

I hope the headlines hold long enough to see what I saw, but a interesting juxtaposition of Vietnamese initiative:  a story on Vietnamese farmers growing USA hybrid limes for export and a history lesson of Vietnamese commandos sinking a USA aircraft carrier in port back in 1964.

Asked why he chose to be a Communist commando, the native of the city's Nha Be District said that several people in his family had died during the resistance war against the French. His family's poverty was one of the reasons as well.
"Working at the port every day, I saw American vessels unloading numerous weapons, including tanks and fighter jets, to support the Sai Gon administration killing Vietnamese, so I decided to do something to stop them," Nao said.

He had tried to sink the Core, he succeeded the next year with the Card.  All sounds like the Cole. No country has ever been able to conquer Vietnam, even Genghis Khan failed.  This is what we get when we invade a country. if we did not invade, we'd trade -

The USA hybrid lime growing in Vietnam is a Bearss lime (note, not GMO, but hybrid.)

Last year, Chau Thanh District's Thanh Phuoc Agricultural Co-operative provided more than 200,000 seedless lemon seedlings to local farmers and bought 60 tonnes of fruit. The seedless breed of lime has become increasingly popular. It employed 20 local labourers, paying salaries of VND3 million ($140) a month. Thanh Phuoc buys about a tonne of fruit per day at VND30,000 per kilo to sell to supermarkets and wholesale markets in the south. It also exports to Middle Eastern and European countries through local ex-import enterprises.
Last year, That invested a large portion of his own money into the co-op to install an international-standard cold storage system and drying room.

I wonder if they are shipping LCL MOQ FOB the lines to the Middle East.  If not, it would be ideal for  growing Vietnamese agriculture as it is for small USA ag export biz.

If you like peace and prosperity, be a part of the solution by signing up for my Exporting Food course I deliver online ... it is focussed on exporting food from the United States, but can be adapted to any country in the world.  All people in the world are welcome to enroll.

The course is unique as we go straight at the customers with an offer to sell.  and if not, we adjust until we get sales.  More info and enroll here:

http://seattleteacherscollege.net/exfoassmbu.html

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Another Racially Based Assault on Americans

In 1952 Ralph Ellison wrote a book called "The Invisible Man" about being of some African ancestry in the USA.  It essence the thesis was if you were "negro" (the term in those days, as odious to me as "black") you were invisible in USA, for white society did not wish to acknowledge you or your contributions.  The book was in the liberal canon for a good thirty years, so when I heard this new term,  credit invisibles, alarms went off.

Apparently there are 20 million people, mostly "blacks" and hispanics, who have no credit scores.  Since government only addresses problems that do not exist, the paper argues that society must do something (spend money) to fix this problem.  Since no one has asked for help, this is an ideal problem to solve.  (Report opens as a .pdf.)

Now what these people do not have is a paper trail of credit that allows them to be scored. That is because they get what necessary and sufficient credit they need from organic sources, probably at no interest, from friends and relatives and merchants who extend them credit.

In essence the proposal is to extend credit to people based on whether they make regular utilities payments. Got a phone bill and a gas bill?  Good enough to get credit.

Now these people are getting along finr without credit, but since we have hyper-inflation in credit, the hegemon is looking for new users of credit.  By flooding low-income communities with cheap EZ credit, in essence $2 Trillion Zimbabwe notes, these people will contract to pay for things they cannot afford, go bust, and be on the records as bad credit.

The main thing is they will be on the record, for when it comes to some national emergency, and all hands are needed for whatever.

So there is in fact a problem, the banking system is Kaput and it is looking for fresh victims, and they have found 20 million of them.  That is more people than most countries.  The recommendation that credit be extended based on utility bills is funny, because every used car dealer and rent to own furniture house does exactly that.  This effort is merely to transfer abusive lending from Honest Dave's EZ Credit Furniture and UNeeda Car Now! to the Federal Reserve System.

Mish covered this from his view as an investor, and I am covering from the view of small business.   This proposal to frack the rest of the possible credit opportunities ought not be done, but it will.  It will make a small business renaissance harder, and destroy what is left of the inherent community building that occurs when credit at no usury is extended among merchants and consumers.

The report betrays a ignorance of economic history:

With our existing data, it is difficult to determine to
what extent this reflects an age effect (a greater tendency of credit histories to shrink or become
stale with age), a cohort effect (in which people born earlier than 1950 had thinner credit
histories over the course of their lives, possibly reflecting less credit reporting during the periods
of their lives when they were actively using credit), or some combination.

Well, older people never needed enough "reported" credit before the hegemon drove good credit out with bad credit.  I have been bad-credit free (so stale and unscorable) for having not used any in the last five years.  We simply do not need to access bad credit, there is enough good credit to thrive.

It will take self-discipline to avoid being trapped in this latest assault on minorities by the hegemon in the USA.    We've done this worldwide for decades, and what goes around comes around, and this too is coming home.  Live and work outside this system.

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Decision is In: Forfeit Your Savings, Work Longer

AS I have been saying, if you have paycheck, property and pension you are a target for those who screwed up the economy, by issuing debt until it is out of control, and they will remain in control.  Here comes central banker Steven King floating the plan, following up on the famous HSBC call:

King goes on to outline solutions to a potential forthcoming recession, which is difficult to predict in an environment where debt is literally “out of control” and economic central planners have few bullets available to them. These include 1) reducing the risk of recession; 2) reverting to quantitative easing; 3) moving away from inflation targeting; 4) using fiscal policy to replace monetary policy; (v) using fiscal and monetary policy together in a bid to introduce so-called “helicopter money”; and 5) pushing interest rates higher through structural reforms designed to lower excess savings, most obviously via increases in retirement age.“We conclude that only the final option is likely to lead to economic success,” he said. “Politically, however, it seems implausible. As a result, we are faced with a serious shortage of effective policy lifeboats.”

They issued more debt than can be serviced by he assets behind them.  Five times?  100 times?  Who knows?  First "structural reforms" (yet more changes in the patterns and practices of capitalism to suit the capitalists when they screw it all up) and then make old people work longer, maybe until death?  When I do shop in the chains which are the only option for some items, I notice ancient checkers trying to load a case of beer into a your persons cart at check out.  Also note, old folks don't tend to riot, so pick on them first.

They have announced what they will do.  They have picked what categories, the aged and savings.  If you are aged with savings, inves those in a business, one you would be happy to work until you drop dead mid-sentence, speaking to a customer, like a local bookstore, coffee shop, if you have it in you, plumber...  whatever, but they have announced, this time for the elderly, "Arbeit Macht Frei!"  You cannot escape, but you can create you own safe zone, self-employed in a small business.  Get there soon.  Don't be in the category marked for liquidation, so far only savings and retirement.

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Hindu and Buddhism Forbids Usury

Here is a nice summary of various religious all of which seem to give up the fight against usury, at some point:

Among the oldest known references to usury are to be found in ancient Indian religious manuscripts and Jain provides an excellent summary of these in his work on Indigenous Banking in India.  The earliest such record derives from the Vedic texts of Ancient India (2,000-1,400 BC) in which the “usurer” (kusidin) is mentioned several times and interpreted as any lender at interest.  More frequent and detailed references to interest payment are to be found in the later Sutra texts (700-100 BC), as well as the Buddhist Jatakas (600-400 BC).  It is during this latter period that the first sentiments of contempt for usury are exressed.  For example, Vasishtha, a well known Hindu law-maker of that time, made a special law which forbade the higher castes of Brahmanas (priests) and Kshatriyas (warriors) from being usurers or lenders at interest.  Also, in the Jatakas, usury is referred to in a demeaning manner: “hypocritical ascetics are accused of practising it”.

Then he notes...

Indeed, a school of Islamic thought which emerged in the 19th Century, led by Sir Sayyed, still argues for a interpretative differentiation between usury, which it is claimed refers to consumptional lending, and interest which they say refers to lending for commercial investment.  

Which is exactly the position of one Catholic who blogs under Zippy.  Murder is murder whether a company does it or an individual....  and so is usury.





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