India Currency Woes: Policy Laundering

Policy laundering is running a program through another country first, and then presenting it where otherwise it would have an ice cubes chance in hell of being adopted.  "Even India has gotten rid of cash, we should too." Here is an eye-opener regarding the hell India is going through with this experiment in cashless society.  Guess who is behind it?

Austrian economists are academics, so they debate along hypothetical lines, and work within the narratives to which they all ascribe.  Problems such as this arise, as noted in the article:

 No one and no state can secede, and no one can structure business deals apart from government without their having a ready currency at hand. Barter is out of the question. If a state attempted to secede, the federal government could squeeze them monetarily through sanctions and cutting them off from the payments system. There must be alternatives in place or that can be quickly expanded for any such independence movement to succeed.

In spite of being the best, by far, school of economics, their "apodictic" assumption of interest rates on loans forbids the obvious answer: credit is the universal currency, and it may be privately issued.  It is necessary and sufficient to a free market.  Add 100% reserve gold backed actual currency, something else government cannot or will not do, and who needs the hegemon?

There is nothing to keep anyone or any polity from seceding immediately at any time.  As they say, just do it.

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Meat Trade

You probably eat a lot of meat, like I do, and I am keen on good meat.  Here is an edifying article on the int'l trade in meat: 

"This week, there will be many remembrances of what we've accomplished in this organization over the past 40 years, and everyone here should take great pride in that, but for most of you, it's not the past that drove you to attend this meeting. It's about what we're going to do today, tomorrow and into the future," Philip Seng, USMEF president and chief executive officer, told attendees.

There is that forty year perspective again, what happened after Nixon took us off the gold standard (lite).  So this article is about "It's not the hand you are dealt, it's how you play the cards."  This is how the meat industry played the ex nihilo credit card, if you'll pardon the double entendre.

According to Seng, the U.S. eclipsed $13 billion in meat exports. “That’s quite an accomplishment when you consider some of the challenges we’ve had over all these years,” he said, adding that the goal is for $20 billion in meat exports in the near future.

Here again, in an ex nihilo credit regime, he who borrows the most wins.

Some recent highlights for U.S. trade include that the U.S. beef industry just surpassed Australia as the number-one supplier in the South Korean market. The U.S. also recently passed Australia in chilled beef exports to Japan, which Seng called a milestone.If there was any doubt that trade is important, Seng pointed out that 80% of the world’s buying power lies outside of the U.S., so “the more we can have this export mentality, (and) the more we can challenge ourselves to do better, the better it is going to be for all of us.”

This is Big Meat talking, the same people who make it criminal to test USA beef for mad cow disease in order to promote exports.  (It's a criminal offense to even own a test kit without a license.) Mad Cow takes anywhere from 2.5 to 5 years to incubate, so USA got rules pushed through for countries to accept USA beef under three years old.  lemme see...  2.5 years to incubate, sell three year old beef....  hmmm... did anyone do the math?

1. They are not sure what it is.

2.  It is hard to spot, making it hard to control.

3. It is hard to kill, and the killing process relieves the meat of most nutritional value.

4. It is 100% the result of cruel and stupid animal farming.

But it makes cheap bovine meat at the cash register, but Big Meat gets so much in up-front subsidies and preferences, plus the cost of the damage done is after the fact, so here again we have the fascist Big Government and Big Industry acting as one, to privatize profits and socialize losses.

(Grass fed beef is natural and popular, and on unused "government land" it can be produced inexpensively.  This is why the FEDS kill ranchers who won't back off from grazing rights, as in Oregon.  This terrorism is employed to smash any competition for Big Meat.)

The Chinese market has provided some success stories for the U.S. Seng noted that there are now nine pork plants in the world’s fastest-growing market for pork. However, challenges remain, as it’s still not easy selling in China, he said, adding, “It’s not the most transparent place, and it’s very hard to follow product in that market.”

Unh... mendacious!  USA pork is fatted up with ractomine, an additive with criminal consequences in every country in the world except the Nafta three.  Since USA Government cannot be trusted with inspections, the Chinese have bought their own pork processing plant in the USA to serve China.  Only Big Meat Americans cannot figure out how to sell to China.  Their only tactic is get subsidies, compete on price.  Also, tracking every pound of pork exported to china is cheap and easy.  Use QR codes.  And QR codes are the small business, specialty meat secret weapon to marketing to China.

"Trade is no longer rising around the world," Seng explained. "Actually, this is the first time since World War II that trade has declined during a period of economic growth. That's why what we are doing in the meat industry — whether it's the beef complex, the pork complex, the lamb complex — the fact that we are increasing our exports (means) we're really going against the grain right now, because most industries are not enjoying robust export sales."

If trade is not rising, this is very good news.  It means that the ex nihilo credit regime is over.  Russia has surpassed USA in wheat exports, when they used to be a importer.  The abominable USA ex nihilo credit regime is dying.  All markets for meat are growing, because people spend their first experience of new disposable income on food.   USA Big Meat product is cheapest at the cash register in China as well as USA.  What with export subsidies, tax advantages and financial engineering, exports give Big Meat Industrial Complex an ability to privatize profits and socializes losses, on steroids (pardon the mixed, but apt, metaphor).

Seng referenced World Trade Organization data showing that 2,100 new trade restrictions were imposed from 2008 to 2016. Sometimes, it may seem like there are fewer trade restrictions and more free trade agreements, but he said, “frankly, we are still in a very protectionist world.”

USA has never signed a free trade agreement, because there is no such thing as a free trade agreement.  If it is an agreement, then it is managed trade, not free trade. And for Mexican Harvard MBAs to write 14,000 pages of "agreement" with Canadian and USA Harvard MBAs, that protect crybaby billionaires from free markets, then you better call it free trade agreements, in case someone notices.

Fifteen countries account for 63% of world trade. “What that means is there are certain countries that are franchised in, and there are certain countries that are franchised out,” Seng said.
"This is one of the challenges we have with the WTO," he said. “There are more losers than actual winners when it comes to trade, just given those 15 countries. Usually, it’s those 15 countries that write the rules, so it’s become quite complicated when we take a look at international trade.”

Oooooh...  I like this guy... he slipped it in.  It's a racket.  He has to be careful not to lead with that point, but he knows well what is going on.

The challenges ahead, according to Seng, include the state of the Korean economy, the impact of Britain's vote to leave the European Union and whether societal norms will begin to affect trade deals.
The paramount question on everyone’s mind, however, is how to deal with the “tsunami of meat” heading toward us, Seng said. It will be key, he said, to focus on what can be done over the next couple years to move more meat, as well as what can be done for demand enhancement in this industry.

As he must well know, it is over for Big Meat.  To have used ex nihilo credit to wipe out the markets for countries that traditional supplied the world such as Vietnam was once king in rice, Argentina in beef, and Russian in wheat (see the Hanseatic league), and so on, USA was able with ex nihilo credit and guns to knock all of those "comparative advantage" countries out of the game.  Winning a this is a Charlie Sheen kind of winning, where you wipe yourself out in the process.  In the USA the runoff from Big Meat is horrifying and invisible, plus expressly not tested for by the EPA.  Massive water is diverted to grow GMO crops such as rice and cotton, distorting the natural economy massively.  Food that is poison, small business wiped out by ex nihilo credit-based costing, malinvestment and misallocation of resources, especially land, and the pollution, have taken a horrifying toll on the USA economy.  The damage is done during the ex nihilo credit boom.  When the bust comes, the only question is "who pays."  Never the people who gained from the damage done.

The solution is simply end the subsidies to Big Meat, and deregulate Mad Cow testing. At the same time, people need to work hard developing markets for USA produced good food, so the good food producers (necessarily specialty) can grow their operations.

One reality is wherever the USA has introduced a market for Meat Industrial Complex compromised products, there is always as specialty market growing alongside.  So where USA exports the most, there is the most likely specialty market.

It cannot be foreseen, it must be searched and learned.  How to is no secret, I learned it from people in the business, and he meta studies confirm how to, it is just apparently i am the only person who teaches it.

If you have a passion for food, and want to start a business doing the urgent work of restoring balance in world trade and protecting specialty food in USA, then I have a hard core online course open to anyone in the world.  The next session is coming up in January.  If you wish to enroll, you may do so here.  If you do not see your local school, you can scroll down to the bottom of the page and enroll directly with me.  I'll bill you the course fee after the course.  Don't worry if you are overseas, the tools, tactics and attitude apply in all countries.  I am happy to have you enroll too.

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Trump Force One - Business Deduction

Donald Trump is self-employed.  Which means his lifestyle is largely a business write-off.  For example his plane, Trump Force One is a business write-off.  He just makes sure everything he does with the jet relates to business.  He's a busy man, so that is easy.  He loves his work, and his work is his life, but then that is true of anyone authentically self-employed.


Trump is not breaking any rules, nor is this extravagance some moral lapse.  Keep in mind how many high-salaried people all this extravagance keeps employed. Not just anyone can clean gold plating.  Also, with people from all over the world in his jet, the gold plating is sensible since gold is anti-bacterial (it is why we use it in teeth fillings, and as money.)

First the laws are written for a purpose:  to get people to run their own businesses.  The Hegemon knows new and small business is where the job growth comes from.  And new tax sources, since the Hegemon prefers to allow at least some innovation and competition to expand the base (in an intellectual property regime, innovation and competition is largely constrained, USA only has to be a but freer than the other places).

Of course, once you make money, they want it all, as Reagan quipped:  If it moves tax it, if it keeps moving regulate it, if it stops moving subsidize it.  Republicans do this to business, democrats do this to people.

If I was Trump, assuming he wins the electoral college vote, I sell everything off by the time I was sworn in, and donate the proceeds to charity.  Enter office with nothing.  (Tell the kids to go find work, but don't embarrass me). Serve the 4-8 years as President, and then come out and start over.  Of course he'd be a billonaire again in a month, but so what, it would not matter.  He'd pull down a million a week in speaker fees.    His lifestyle would still be fabulous and a write-off.

I expect Trump's retirement plan is the same as mine: grab my chest and drop dead mid-sentence at a trade show (in Hong Kong.)  Tag 'im and drag 'im.

But my lifestyle is not so fabulous (fabulous enough for me, sed de gustibus non disputandem est.)  No private planes for me.  Too much of the Icarus idea, cautionary tales of success and extravagance.  That the Dakin family disappeared on a test flight-Christmas vacation is still recalled in the industry.  The lawsuits cite many other crashes.

Trump will change nothing, the ex nihilo credit regime is over.  He'll just preside over the assigning of the costs of the damage done during the boom years.  Hillary would have been obliged to do the same thing.

You can wail and cry about your assets, those tallied in ex nihilo credit, disappearing, or being stolen, or whatever, but they were never there to begin with, nothing from nothing is nothing.  "But I worked for it...!"  You worked for nothing.  Literally.

Or you can be self-employed, and build a business into the vacuum being created by the destruction of the dinosaur ex nihilo credit regime.

There may be no jobs, but there sure is a lot of work to be done, money to be made.

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What Happens To Those Who Paid the Clintons?

To the powers that be, the Hegemon, or whatever you want to call them, it was clear the ex nihilo credit regime of the last forty years was over.  For the last 20 of the last 40 years the Clintons of the Clinton/Bush/Obama face of USA were active building both a private and public political machine.

The core problem is unfunded pension liability.  Since it is based on ex nihilo credit, it is not possible to grow your way out of it.  It has to crash and then an alternative regime must replace the old one.  I say go back to interest-free asset backed, private vendor financing, like Hong Kong upon which is jumping.   The majority who got burned by the ex nihilo regime were getting fidgety, and more wars were not going to mollify them, not even WWIII.  The Hegemon let them have a champion for this change, The Donald.  Now The Donald has to walk the talk.  Good luck.

Trump does not start until Jan 20, but now it starts. All those who lived off the ex nihilo credit regime, like the silicon valley sultans, are now fearing the end of the gravy train.  Think, even more dire, of all those people around the world who gave the Clintons $100,000, a $1,000,000 etc...  That tally was from people who, in their place of power, had lots of tally and lots of enemies and were buying "friendship" and protection.  Wikileaks has exposed all of that.  Now, literally overnight, the Clintons are no more.  There are a whole lotta people out there exposed with no friends.  Can't call Bill to drop in on the Att Gen to stop some investigation, or get some permit to pollute.  Those exposed people are right now moving their assets to safe places like Switzerland, and slipping out of their countries by the overland route.

I was talking about he Philippines breaking from USA two months ago,  And now...

Duterte has threatened 'to break up with America' and instead seek closer ties with China and Russia, despite the country's long standing relations with the US.He has previously described Washington as an unreliable ally, saying Filipino forces have not benefited from joint combat exercises with US troops.'Instead of helping us, the first to criticize is this State Department, so you can go to hell, Mr Obama, you can go to hell,' he said in an inflammatory speech last month.

The Bush/Clinton/Obama face was a debacle.  They were a wing of the Hegemon group that no longer exists.  Now there will be no V. Nuland to back puppets in the Ukraine, with Joe Biden's son in place to look after the Clinton lootings.  There will be fleeings, and suicidings and murders.

Politics can get nasty.

Update:

Here is a fellow making the same point, but he is a much better writer....

I submit that the large numbers of sizable “donations” to Mrs. Clinton’s “foundation” were made with the assumption that Hillary would become president.  The size and source of the donations suggests that the donations were made on the assumption that presidential favors would one day be paid.  Not secretary of state-level favors, but chief executive-type favors.  And then along comes November 8, and the unthinkable happens.  We then have the situation where money has been paid, but the favor cannot be returned.
Read more: http://www.americanthinker.com/blog/2016/11/hillarys_clientele.html#ixzz4QVUjYowb Follow us: @AmericanThinker on Twitter | AmericanThinker on Facebook

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Philippine Death Squads

I don't doubt scores are settled and pusher men get murdered, some on the pretext of extrajudical war on crime, but I doubt this team has killed 800 people.

A husband and wife death squad claim their vigilante gang have killed upwards of 800 people in the Philippines' brutal war on drugs .
Assassins Ace and Sheila, who are part of a prolific hit team, have defended their roles in the bloodbath and say they turned to a life of murder so their children wouldn't starve.
The parents say they earn $100 for every kill and are doing critical work because "many lives will be ruined" if a dealer isn't executed.

Any hit man will tell you the work is extremely difficult to get right, and odds are when it goes wrong, it involves some one else with a gun stopping the hit man.  Getaways are tricky too.  800 without a catch.

The USA policies of trespassing in others' back yards and picking fights has backfired and we are more and more isolated.  The Philippines has decided to break with us and fall in with China, the natural hegemon in the East Asia.  Horror stories about the Philippines now begin.  Unlikely to be true, but like Putin, if you do not bow down to Uncle Sam, the you must be hitler.

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New Confirmation On the Chipotle Experience

Chipotle experienced a business disaster when unproven charges of offering e coli were levelled against its stores.  With each effort at recovery, came another disaster.  There is plenty to suggest, indeed, there is more evidence Chipotle was sabotaged by Monsanto agents than any e coli emerged from Chipotle. Like Dr. Oz, if you dare condemn GMO foods, you will be lain waste.  For the hegemon, not only must you participate, why, you must praise!  Food is a weapon for USA, and Russia is going non-GMO.  We must have war!

I've never dined at a Chipotle because they never serve beer.  I eat a lot of Mexican food on the road, especially in California where every taquiera serves good food and beer.  Why just last Friday night I ate enchiladas washed down with Negra Modela (on tap, nice!) in Palo Alto.  Alcohol with meals is to be advised when in international trade.

Aside form all that, an article on the Chipotle travails has some notes I found interesting for their confirmations -

Back in Nalon’s office, where an old menu sign from a Chipotle restaurant hangs on the wall opposite a Food With Integrity poster, I ask whether Chipotle could simply move all its food preparation to central kitchens like this one. After all, if the food can taste just as good, why wouldn’t they, especially if it’s safer? "Hmmm, and still be Chipotle? Not everything, no," Nalon says. "I love the fact that they do what they do in those stores, because it is totally unique. You could do everything in central kitchens, but I don’t think that’s exactly what they want. They want to bring as much freshness and as much cooking as they can to the stores. But [some of these items] really need to be done with somebody like us."

Chipotle is small potatoes to an industrial commissary that serves the likes of McDonalds.  Note here again two points:  everyone goes to the same place for production, the only difference is the design.  Next,  these huge central producers love the challenge of the small biz who needs something accomplished.  This massive commissary built a production line to Chipotle specifications.

Chipotle sources pork from the Godfather of good meat in USA.  No Ractomine in this pork, a chemical widely used to build up muscle in USA but banned and criminal elsewhere worldwide.  (Talk about doping scandals.)  But the probable-Monsanto attack on has it sales and the pork producer has supply backlog.

Salatin tells me that Polyface still only provides pork to those two Chipotle restaurants in Virginia college towns. The company, he says, has discussed expanding his pork to 10 restaurants, but it has been "stymied" by its E. coli issues. Chipotle says that it never set a firm expansion goal and states that the issue is more complex. Before the outbreak, Chipotle purchased between 550 and 600 pounds of meat weekly from Salatin. In the immediate aftermath of the crisis, it sometimes bought as little as 100 pounds. Today, Chipotle’s weekly order hovers between 300 and 400 pounds. As a result, Salatin says that he has 9,000 pounds of pork "in the freezer that was supposed to go to [Chipotle] but that they haven’t taken since this debacle occurred. We got pigs in the pipeline, and we can’t afford to keep them on the hoof. For a small business like us, it’s actually very economically devastating."

Anyone already in excellent meat exports really ought to market that meat for Salatin.  9000 pounds is too little for a biggy, and too big for Salatin.  And then once you have helped out the Godfather, then you get the blessings from so many others.

Specialty anything, including foods, has demand that must be discovered by means well known and practiced, but as far as I know, only I teach.  The skill is urgently needed to help expand the production of good food, and to fill the void caused by the ex nihilo credit disaster that gave rise to Monsanto and Frankenfoods.  The Russians once depended on USA grain to survive, but with the embragos, they have switched to producing their own, and are forbidden GMO frankenfoods in their lands. The preference for Russian wheat is so great they have now surpassed USA AND Canada in wheat exports.

Don't tell me there is no GMO wheat, because there is, and it shows up in USA crops.  In the instance it does, Monsanto calls it sabotage.  We judge others by ourselves, and Monsanto would know from sabotage, wouldn't they.

But just as Chipotle leadership began to feel some sense of momentum, an unexpected crisis embarrassed them: Crumpacker was indicted for cocaine possession leading into Independence Day weekend. He surrendered to police and faces seven counts of drug possession; Chipotle placed him on leave, and he checked into rehab.

Of all the toot-snorting ad men in the world, only the one engineering Chipotle's return is arrested.  One scoffs!

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Where Pat Buchanan Fails

I wonder at Pat Buchanan being allowed in polite society when he has so many radical things to say.  But then he says the following, and I understand why he is allowed a seat at the table.

Earlier, writes Boyle, the WTO ruled that, “without the subsidies, Airbus would not have existed … and there would be no Airbus aircraft on the market.”
In “The Great Betrayal” in 1998, I noted that in its first 25 years the socialist cartel called Airbus Industrie “sold 770 planes to 102 airlines but did not make a penny of profit.

Boeing itself has insisted it would have no overseas customers if not for the welfare program of USA taxpayers giving Boeings overseas customers the wherewithal to buy Boeing products. 

But Boeing officials say the Ex-Im Bank is crucial in allowing the company to compete against export credit agencies in France and Germany, which are only too happy to offer guarantees for the purchase of jets from Airbus, Boeing’s sole competitor in the wide-body market.

So Buchanan is calling the kettle black, and at the same time Boeing is taking $69 million from taxpayers to pay for lobbying for boeing to take money from taxpayers for a business that would not exist without taxpayer subsidies.

Cut every dime of welfare, but cut not one dime of personal welfare until every dime of corporate welfare is cut.

Boeing would go out of business, because it is managed by welfare queens, the people you see at teh check-out counter holding things up as they set aside things they are not allowed or are over budget, and s like Boeing, sometimes shoplifting.  All Boeing executives are the basest of welfare queens.

With Boeing out of business, a few hundred ex-employees would start airline companies, and in 20 years we'd have the leading aircraft industry in the world.  But with Pat Buchanan making sure we ask the wrong questions, we'll never get the right answer.

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New York Times Does Not Know From Free Trade

Amy in Malaysia sends in article from the New York Times.  It is a whopper, an essay on "free markets" and the problems thereof.

These costs have proved overwhelming in communities that depend on industry for sustenance, vastly exceeding what economists anticipated. Policy makers under the thrall of neoliberal economic philosophy put stock in the notion that markets could be trusted to bolster social welfare.
In doing so, they failed to plan for the trauma that has accompanied the benefits of trade. When millions of workers lost paychecks to foreign competition, they lacked government supports to cushion the blow. As a result, seething anger is upending politics in Europe and North America.

Well, that is not free markets.  It is managed trade, and yes it is a mess, and yes government has not, because it cannot, even if it wanted to, ameliorate the damage done.  I am happy to call it "neoliberal" economics, and yes it is a mess.  But free markets are the only antidote to the problem.

In the United States, the Republican presidential aspirant Donald J. Trump has tapped into the rage of communities reeling from factory closings, denouncing trade with China and Mexico as a mortal threat to American prosperity.

Well, I doubt Trump denounces trade with China and Mexico. Sure he denounces the trade deals, and this is typical false-dilemma argument: trade is what the Hegemon calls it, and there is no alternative.  He and Hillary are posing as anti-TPP TTIP candidates, for the time being, but both of them will cut some deal, when the only free market deal is unilateral.  In free trade, we have no opinion on what crosses borders; the legal fiction is the importer is the manufacturer, so we hang USA importers for problems, not blame the Chinese.

“The trade policy of the European Union is paralyzed,” said the Italian minister of economic development, Carlo Calenda, during a recent interview in Rome. “This is a tragic situation.”

Tragic for whom?  For Ministers of Screw-the-Prole?  What does he mean?  Trade in Eurozone has ended?  The only thing that has ended is the game of playing with ex nihilo credit at interest, which has no rational basis, so is ending for no rational reason (meaning we'll never see it coming, nor understand why it ended).

Years of investment manias and financial machinations that powered the job market have lost potency, exposing longstanding downsides of trade that had previously been masked by illusive prosperity.

"the job market" as if the only job market is the one in place, as if it is not a false economy job market.

The worst financial crisis since the Great Depression has left banks in Europe and the United States reluctant to lend. 

This is absurd!  They lend like crazy, for credit cards, autos, student loans: fog a mirror, get a spanking new degree, car or vacation.  Bonds are debt, money lent.  We have 13 trillion in bonds at negative interest rates, which can only be viewed rationally as a mania to lend.  What is ending is people who can take on more debt, or, those who qualify don't want it, those who want it, don't qualify.

And as Pynchon notes, just get them to ask the wrong question, and the answer does not matter. (Classic example: Trump V Clinton.  The answer does not matter.)  We do not need banks lending anything in a free market.  What we need is asset based credit, at no interest, which any business is free to generate on its own.  That is necessary and sufficient for a sound prosperity.

... said Chad P. Bown, a trade expert at the Peterson Institute for International Economics in Washington. “There were people talking about these things, but they weren’t taken very seriously at the time. There’s a lot of policy regret.”
“We do need to have these trade agreements,” Mr. Bown said, “but we do need to be cognizant that there are going to be losers, and we need to have policies to address them.”

"We?"  "Policy regret?'  I shall be sick directly.  As if anyone cared in the slightest about who got hurt as wealth was concentrated, the old tried and true way, through interest.  But on steroids: interest on ex nihilo credit.  As Mr. Bown implies, all policies have winners and losers (except free trade, which is no policy at all) and he has a job talking about what to do with losers.   No, we neither need these managed trade agreements nor policies to address the losers, as no trade policy means no losers.

China targeted crucial industries for domination, lavishing favored companies with sweetheart credit terms while investing aggressively in ports, highways and electrical generation. Anyone with ideas about organizing Chinese labor risked landing behind bars.

Yes, yes, yes.  China adapted exactly the same policies USA used to get some bankers "rich."

The rugged country of western North Carolina suffered mass unemployment as Chinese-made wooden furniture put local plants out of business. So did glassmakers in Toledo, Ohio, and auto parts manufacturers across the Midwest.

No, no, no!  The unemployment started in the 70s and 80s as the roll up of the local retailers by anyone willing to borrow massive amounts of ex nihilo credit (junk bonds, anyone?) Indeed, whoever borrowed the most won. In my book I mention Levitz wiping out Kreoehler, which in the 1960s had 8,000 people making furniture in USA, but by the late 70s was foundering.   They got nailed by the folly of price cutting, "making up in volume what they lose on each sale.." Sports Authority, Petco, Lowes, Micky D, CVS, Safeway, Best Buy, these are the last dinosaurs standing of a economic scam that wiped out USA small retail and gutted USA manufacturing.  Times Kroehler by 10,000 and you see what happened in USA when banks started lending ex nihilo credit at interest.  The program began to die in the late 70's, for as with today, ex nihilo credit leaves a scorched earth.  We had that lats 70s recession.

But then, and I was there to watch it, Deng Xiaoping opened China, and offered USA big business the exact same ex nihilo credit deal Uncle Sam offered in USA.  Uncle Deng gave USA bankers a whole new lease on life, a massive ex nihilo credit pool, and USA industry was completely hollowed out, with our big #1, autos, now gone full Zombie.    Now we lack USA manufacturers, USA small retail, and our pride and joy, the big box discounter, is dying.  We have not much left.  But this does leave a huge vacuum, and opportunity for a renaissance in USA authentic economy.  We'll need to shift back to materialism from consumerism, that is buy a good coat that lasts 20 years (I have a pair of Allen Edmonds shoes I bought in 1984, paid cash, still the best looking shoes I've ever seen.  Resoled countless times and "reconditioned" once.  Consumerism is buying a new pair of shoes each year. On credit.)  All we need is the will to rebuild America in spite of the evil we invited in, accepting ex nihilo credit regime, at interest.  We just man up, and get to work.

“I had to tell my son that he can’t go back to McKendree for his junior year,” Mr. Morrison says, straining to choke back tears. “He has to go to community college.”
He swallows hard. Tears emerge from the corners of his eyes.
“It just crushes you,” he says. “I didn’t get to go to college. I wanted my kids to succeed. When you see the disappointment in your kids’ eyes. …”

Well, spare the rod, spoil the child.  You were willing to slack off during the boom contributing to the damage, and now you just break down and cry when a little adversity strikes?  Now, if a kid has the temerity to look at you with disappointment, then he needs a good slapping around.  The two of you ought to be contributing your unique gifts to building an authentic economy, not crying over disappointments.  Sheesh!

In China, farmers whose land has been turned into factories are making more steel than the world needs.
In America, idled steelworkers are contemplating how to live off the land.

Right.  What goes around comes around.  USA did this to the world, and the world is now doing it to the USA.

Stop our wars.  Deregulate something, anything.  Medicine?  Banking?  Education?  It does not matter what.  Just free a field up, any one of them, for everyone of them has so much repressed potential that the intire USA and its unemployed 94 million, would be offered prosperity and opportunity.

The way out is the way in.  Import what you want, using the excess capacity now overseas, and as you build markets in USA, transfer the manufacturing back here.  If we are still America we can do this.  If we do not wallow in self-pity because a a fantasy did not play out.

The most revolutionary act an American can perform is to start up a business.  I teach that.  You can find links on the upper right of this blog, and at http://www.johnspiers.com/Teaching.html .

Illegitimi non carborundum

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Thiel Gets Sued

I do not care for Peter Thiel, a billionaire who made his money computerizing the intel industry.  Then he has the temerity to use his money to write a book telling us since he is rich you should believe him when he says compete on huge design.  That ticks me off.

Next, he broke up Gawker funding lawsuits he had no part in.

So when this happens, well, easy come easy go:

The lawsuit, filed and announced Monday by the Department of Labor, threatens the complete cancellation of every contract Palantir has with the federal government — a penalty worth $340 million, the lawsuit claims, which would end the company.

They'll fine him, and transfer some ex nihilo credit back to Treasury.  It would be good if they cut him off, indeed, ending intel in USA.  It's a start.

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India Export Import Bank Madness

While USA is lending its buying power to India so companies such as GE can have customers they would not otherwise have, India borrows money to lend to companies overseas so they can buy from India products that would otherwise have no demand.

Export-Import Bank of India (Exim Bank) is planning to once again tap the overseas market to raise up to US $1.5 billion via bonds in this financial year in line with demand.
"On an average year, we need to raise US $2-2.5 billion. Definitely, we will be going to market once this year, but size and time have to be decided depending on market conditions," Exim Bank CMD Yaduvendra Mathur said.

Since there is no rational limit to ex nihilo credit, people do the most irrational things.  Like buy and sell things they otherwise would never consider.  The malinvestment and misallocation is incalculable.  And it gets worse.

"Our balance sheet is predominantly dollars, almost 60% is in dollar terms. This is an area which is going to see the fastest growth," he said.
"Our assets are long dated. We will always have refinancing demand because liability is shorter than assets as well as fresh disbursement."

You know what they call it when you borrow long term and lend short term?  Mismatched maturities.  It was the heart of the 1997 and 2008 busts.

You cannot have prosperity without strict separation of business and State.  ExImBank madness proves this.

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Rules Reveal Weaknesses

Prof. Joseph Salerno is an Austrian scholar who made a donation to his school's athletic program and received a brochure on what he could not longer do, according to the NCAA.  His point is o lay out how the NCAA is quite marxist in structure, which is entertaining, to see communism actually working.

But I was struck about the rules that now apply to him.  They say our rules reveal our weakness.  And what is forbidden below is precisely what happens in such fields a big Pharm when they want to influence say doctors:

To my surprise, the brochure informed me that I am a “representative of athletics interest” for the university. One comes by such a clumsy designation by making a donation to any of BC’s athletic programs, holding membership in any donor, booster, or alumni group, employing or helping to arrange employment of student-athletes, being either the parent of an enrolled student-athlete or a former varsity athlete, or helping to promote BC athletics in any way. As a “representative,” I am “prohibited” from providing “extra benefits” to any “enrolled student-athlete.” These benefits include cash, loans, and co-signing for loans in any amount. Also prohibited are gifts of any kind to student-athletes or their families including holiday gifts, clothing, and even birthday cards. I am also barred from providing special discounts for goods and services or rent-reduced or free housing to student-athletes or their relatives; nor am I permitted to pay a student-athlete an honorarium for a speaking engagement or allow him or her to use my cell phone to make a call without charging a fee.

Big Pharm does all these things with doctors.  It's how they bribe doctors without getting caught.  it's expensive, and so medicine has to carry all these costs to create a market that would otherwise not exist, that is to say, we'd have a different array of medicines if we did not have this corruption.

And that last one, i's illegal to let a kid use a cell phone without charging him...  In Islam, it is forbidden to stand in shade of a wall of someone to whom you lent money, for it might be taken as interest on a loan.

Our rules reveal our weaknesses.

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USA Policy: Food as a Weapon

This is the first I've ever heard of this fellow, but apparently he is a prolific writer.  And here again, example 729,015,991, of Marxists getting their facts straight.  

While leading US corporate executives look to China’s dynamic growth as a source of investments for US elites, Obama warns of Chinese ’security threats’. While former Treasury Secretary Paulson editorializes in favor of greater commercial linkages with Beijing as a vehicle for continued US business growth, Obama works to provoke military hostilities against China among second and third tier Asian countries.

And their analysis is excellent as well. Where Marxists fall down is their prescriptions.  Well, you can't have everything.

Capitalists ac as though Marxism is the source of all evil.  You gotta take the good with the bad, and sort the two out.  Half the world would not have adopted Marxism if it was all evil.  Marxism was so convincing because it was correct on its facts (generally).  But when it came time for a plan, the Monty Python Life of Brian scene in which the Marxists are formulating a plan is spot on.

This writer laments de-regulation.  Ungh!  Each horror he details is precisely grounded in regulations.  These malefactors put massive amounts of money into regulations, which benefit themselves.  It is called regulatory capture, a well-known phenomena (and how!)  The malefactors also pour massive amounts of money into social conditioning, in this case, a achieving a pavlovian response among Americans to wet their pants when someone mentions the word "de-regulation."  In this way, he malefactors will never have to fear for change.

Marxist prescription for change is government action.  No, really, that is what they call for.  I am not making this up.  This writer wants better regulatory oversight to control the demonic forces afoot on our planet.  This will work, they believe, because people become angelic when they ascend to the regulatory commanding heights.

Pynchon said get them to ask the wrong question and the answer will no matter.  "What is the correct regulation?"  At that point, it truly does not matter what regulation is established, the Hegemon wins with regulation.

None of the malefactors would exist in the first place with regulations.  The market will produce the necessary regulations, it always does.  International trade is grounded in Lex Mercatoria, a free market, anarchistic set of rules that work whenever allowed to blossom.  When suppressed, like today, we get chaos.

Look where there is chaos and poverty, and you'll see a regulatory rich environment.  Overcome your social conditioning, embrace free markets.  De-regulate everything.  Watch the malefactors wither on the vine.

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How Banks Break Campaign Laws, Two Ways

If we needed a reason to get rid of bank regulations in order to get rid of these odious modenr ban ks, here is two ways banks break campaign finance laws:

When old folks foolishly make small donations to the Clinton campaign, the campaign then continues to charge the account again and again, but not more than $100, for the banks are obliged to investigate false charges at $100 and over.  And fresh off the scandal of ripping off customers, Wells Fargo is deep into this racket, as well as USBank,no doubt other banks too.

1. Bank rules facilitate Clinton's fraudulent charges to small donor's accounts.  Ka-ching!

2. Surely most people do not notice, but those who do eventually can get the charges reversed.  Since it is below $100, the bank does not bother to claw back the funds, in effect the bank is making a donation to the Clinton campaign by not clawing back the funds.  The banks "loss" is in effect  a campaign donation Clinton. Ka-ching.

In 2008 banks did cause Clinton to refund $2.8 million in fake charges, and Obama $900,000.  (So far Trump has had zero complaints).  Perhaps this year no refunds because it is her last campaign.  Who cares at this point?

Even if she eventually pays it back, it is until then an interest free campaign loan from banks to Hillary. Campaign finance laws.  Ha!  What a joke.

I've pointed out here that the low hanging fruit will be ripped off.  The elderly and poor are very low hanging fruit, and on the way to the White House scorched earth seems to be rampant.

The banks like his because they earn overdraft fees on the fake charges.

At the same time the Feds are going after Deutsche Bank for $14 billion regarding sub prime loan scams.  O dear!  It was the Germans, and not the Americans?

The dinosaurs are starting to eat each other.

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The Hanjin Non-Event - A More Interesting Take

OK, the Hanjin Greece got unloaded first, not the Boston.  The Boston did get up to 10 knots for the time it takes to get to the port, and then 12 hours later do it again.  I took it to mean it was the one unloaded first. I wonder where it went on that trip?  Is the Boston unique since it has a lien on it?  is it not odd we have no press reporting details, the only solid news is speculation on blogs, which is better than the speculation in what news is presented? Anyway, point is the same, the problem is over, Hanjin ships are getting unloaded.

But this is an interesting tidbit:

Hanjin is the majority owner of Total Terminals International, which operates Long Beach’s largest shipping terminal.

That is some prime real estate.  In a bankruptcy, that goes to pay creditors...  or is it owned but carries a mortgage?  A real problem with globalism is the complexity of the titles.  This makes the Hanjin problem political as well as economic.  And far more interesting than some T shirts might be a week later than anticipated.  (And all indications are, retailers have ordered too much for the upcoming season.  We'll know in January.)

A friend with a long term relationship with Hyundai tells me Hyundai is sending in extra vessels into the demand vacuum the Hanjin demise has created.  Just as I said.  And of course, at these new higher rates, mothballed ships or ships gaining less revenue elsewhere are directed to where the revenue is best.  The solution to high prices are high prices.

Naturally, the regulators get it exactly wrong, and enforce policies that harm the industry:

The Federal Maritime Commission warned the industry not to take advantage of the situation by price gouging.

Sheesh.  that which is most needed will be sanctioned.  Nice work, fellas.  Gouging will last only for as long as it takes for those vessels in search of a better buck make it to the shipping lanes.  Then it is back to over-capacity super low rates.  Hyundai is urging customers to sign long term contracts given the Hanjin issues.  Of course.  But why lock in lower rates relative to today's rates when the rates will drop way down again.  No sale.

So to my mind the question is why are they bankrupting Hanjin over a mere $225 million loss first quarter?  A couple of years ago, big deal..  now they liquidate in a disorderly fashion?

Ocean shipping too is an example of the misallocation and malinvestment that comes with ex nihilo credit at interest.  The regime is clearly over, and as I have said, the damage was done in the boom, the bust is simply where they decide who pays.  The ships are not worth much, but marked to market they would be a huge asset competing against ships that are on the books at false economy valuations.  That is a huge opportunity, but tricky.

The more direct play is Hanjins' long beach port operation.  But wait, what about the Mexican port projects being developed to compete with LA/Long Beach?    Who knows...

Taiwan is letting the chips fall, and now Korea.  It is Econ 101, but bad politics, to be the first to let the bust clean out the malinvestment and misallocation.  China has said they will not bail out, but that is yet to be seen.  In any case, expect Taiwan and Korea to recover first economically if they let the chips fall, which they seem to be doing.  That is the news.

Zero Hedge points out that the Hanjin blip will be just another excuse by USA dinosaurs ( so Tyler, why help them by overblowing the event?)

Update:  the Hanjin Boston is on the move as of 8am Friday...   looks like unlading is LA vs LB... And now on its way up to Oakland, 4pm pacific time.

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Don't Take My Flip-phone!

Word was flip-phones were going to be banned in USA because they have sim cards, but I can only find articles on banning burner phones.  Such anonymous phones distress all hegemons apparently.  AS an aside, I was delighted to find I am in an elite group that limits my portable tech to the flip-phone.
As to a flip phone ban, no, just a ban on unregistered sim cards, but not just USA, but apparently worldwide.

USA:

The bill, if passed, would require retailers to get identification from anyone who buys a so-called “burner” phone. Spier claims unregistered burner phones represent a significant gap in law enforcement’s ability to investigate terrorism, drugs, and human trafficking.

China:

Three years ago the Ministry of Industry and Information Technology (MIIT) required identification to be provided at the sale of SIM cards and new phone numbers. SIM cards continue to be sold without identification requirements, particularly through online shopping sites and cause difficulty in tracking the perpetrators of telecom frauds.

Germany

Belgium

Burundi

Burundi?  Anyway, you get the point.  As to smart phones, I cannot see any advantage in the device.  In fact, how they are used by people strikes me as disadvantageously.

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Why Are Free Trade Agreements Controversial?

First, because none of the agreements are about free trade, they are about managed trade.  Free trade is unilaterally imposed, never by any agreement.

Second, all agreements have winners and losers.  The winners all very much love the agreement, the losers very much hate what will happen to them if the agreement goes through.

Third, they are difficult to undo.  Once the damage of implementation is done, it is hard to recover a balance.

Globalization is not what people think or say it is, it is simply the export of the ex nihilo credit damage done overseas by the USA.  After wiping out USA small industry and manufacturing, the mega-biz dinosaurs went rampaging through other countries.  China and Venezuela are examples.  China was big enough and backward to absorb the shock, Venezuela was to small and too modern to take the hit.  Everyone else is somewhere in between.

It's dangerous to have a theory of everything, but you'll note all economic commentary gets around to credit, debt and interest.  So I am not the one who relates all the economic problems to that trio.  it is the experts who do.  I just point out rarely does anyone note that the underlying ex nihilo credit is the problem, a problem made exponential by the interest charged on it.

Globalization is only the damage done by ex nihilo credit.  Some benefit, most suffer. It is facilitated by "free trade" agreements.  That is why they are so controversial

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Understanding Ex Nihilo Credit and the Coming S&P Crash

There are all these hints out there, but what to make of them?

Indeed, if one left it at that, the answer would not be exactly wrong, however there is one more factor which is rarely discussed, and which – according to Deutsche Bank – explains virtually the entire equity rally of the past four years: the collapse of the equity risk premium as a result of plunging bond yields, which as a reminder, is the direct pathway by which central banks operate, by monetizing government, and now corporate, debt.

How do you monetize debt?  I know what they say they do, but certainly it cannot actually happen.  Something else happens when they do that to which they refer.

Debt itself is already the result of a monetization event.  When I lend you $20, you have a debt of $20.  the books are balanced.  My currency is converted to debt.  If I ship you $500 in goods net 30, you owe me $500, a debt.  In both instances there is a monetization event, and the books are balanced.

Now to take that $20 you spent and you owe me, and then say the debt can be monetized, that is counted as money, well, folks, now the books don't balance.  You have an asset, a liability, and another equal liability.  One asset two liabilities.

If a loaf of bread is a dollar today, and tonight you print 100% more currency, soon enough a loaf of bread will be $2.00 to absorb the increase in currency.  This is the definition of inflation.

But things get tricky when we are talking debt, not currency.

If debt is priced at 6%, and you "print" (monetize) again as much debt, then do prices of debt drop, deflate?

Does the interest rate drop from 6% to 3%?

Do the assets which now have a double liability drop in value, or wait, the reverse?  Do they rise in value, denominated in currency?

What happens to credit, or underlying assets, when the above occur?

The article is in relation to the price of the S&P, and notes a logical drop in the market of 40%.  But none of this is rational, for ex nihilo credit has no rational basis.  And there is always regression to the mean when there is a bubble burst.  The drop would be more like 60%, and when the short sellers start unwinding their positions, in a month or so it would stabilize at a 40% drop.  Smart money is in cash waiting to pick up that 50% bounce from the crash bottom to stabilized bottom.  That for the insiders, politicians, Foundations, etc.  You just lose 40%  And anyone who does lose money in the market, when everyone is screaming crash, well, don't they deserve it?  Anyway....

As Deutsche Bank’s Dominic Konstam writes over the weekend, “various Fed officials have raised the issue of financial stability in the context of the reach for yield and riskier products to make up for low rates. This is part of financial repression. The logic might be that once the Fed has normalized, elements of that reach for yield and risk would be unwound and this could lead to disruptive financial market volatility.”

Since when does getting my $20 back create instability?  Since when does getting my invoice for $500 paid create instability?  Getting paid means the monetization event on the books is unwound.  Well, both sides desire this above all things.  Bt what is disrupted in the FED scam is when getting paid zeroes out our mutual deal, but there is still that second liability out there.  There is nothing to which to relate it.  Yes, before it was fraud, but there was some pig in a poke, the mark did not open the bag yet to find it empty, as it is with the pigeon drop scam. The point at which the mark realizes he's been scammed can be quite disruptive, for the mark.  The FED's job is to keep the scam going (at least past the election).  When the mark is hapless citizens, and they realized they have been scammed, then it is pitchfork, tar and feathers time.

Is it not amazing that every top criminal fraud scam becomes a government program?  Social Security is based on the Ponzi scheme, the Federal Reserve System counterfeits, Treasury runs the pigeon drop scam,  Romney/Obamacare is the pig-in-a-poke,  Section 8 housing is price fixing...    unh, one could go on ad nauseum.

Anyway, back to the scam at hand.  As everyone says, this is all new.  There has never been a negative interest rate phenomenon in history. So the dynamics are yet to be recognized.

I do not know if I have any of the above relating to negative interest rates and ex nihilo credit correct.  I don't think an economist can figure this out, since they do not have the forensic tools to do so.  I think an accountant could, assuming they have the ability to define terms correctly, and not just GAAP everything.

I'd be delighted to hear from an accountant who can critique my analysis.  In so doing, maybe we can figure out some of the dynamics, and then figure out the great "so what?"

If you know a working CPA who is game to critically assess all this, I'd be delighted to entertain their views on this blog.  Who knows, maybe we'll both become famous.

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The G20 Meeting and Small Business

Boy does this Italian have it right:

The role of small and medium-sized enterprises is rarely underestimated in domestic economies. They generate half of gross domestic product in the G-20, account for three-quarters of formal employment and create 80% of net job growth. But their contribution to international trade is often unappreciated. Although they are major providers of goods and services to exporters, SMEs nevertheless face obvious challenges in taking on the risks of reaching new markets, investing to expand in remote markets and adhering to all the rules governing exports and imports.

On the one hand, capitalists talk a good game about small business, but at the same time the officially stated policy, and programs, and rules and regs mentioned above, are "Get Big or Get Out!"

Hard to reconcile the two.  In fact they don't.  I worry when small business is mentioned, because the "programs" that follow are always detrimental.  Better you never notice us.

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Best Economic Essay in Ten Years

What have I been saying?  After delineating good and bad credit, finally someone in academia is saying it!

Only then can we understand how the bubble economy’s pseudo-prosperity was fueled by credit flows — debt pyramiding — to inflate asset markets in the process of transferring ownership rights to whomever was willing to take on the largest debt.

Again and again I have pointed out the winners only had to be willing to take on the most debt.  I thought I was the only person pointing this out.  Comes now a couple of professors who explains well why if you have paycheck, property or pension, for the next forty years, you're toast.

That is what makes the seemingly empirical accounting format used in most economic analysis an expression of creditor-oriented pro-rentier ideology. Households do not receive incomes from the houses they live in. The value of the “services” their homes provide does not increase simply because house prices rise, as the national accounts fiction has it. The financial sector does not produce goods or even “real” wealth. And to the extent that it produces services, much of this serves to redirect revenues to rentiers, not to generate wages and profits.

Some will argue, all those tellers and loan officers and Vice Presidents and janitors and rent-a-cops are certainly being paid wages generated and stockholders and Presidents get profits.  No.  They are just minion-rentiers who are tossed some redirected revenues for making actual the redirection in toto.

Here is an important point, upon which I will intrude...

Economic theory today is in some ways a step backward by expunging the nineteenth-century view — and indeed that of medieval economics and even of classical antiquity — with regard to how banking and high finance intrude into economic life to impose austerity and polarize the distribution of wealth and income.

How is this distribution of wealth effected?  Titles.  Ex nihilo credit is available to borrowers from hegemon-chartered entities.  People who are wholly engaged in loaning credit, something from nothing, are able to attach at least a partial lien, if not a clear title, to at least a portion if the means of production and real wealth such as homes.  A slice here, a chunk there, it can add up.  Their slice is purely inflation, but since all loan-involved investments are marginal, and the lender's title is superior, when the economic actor is overwhelmed in his measure, all spoils go to the lender.  It is a neat trick.  Wait a minute.  It is just the pigeon drop scam!

What you don't know at this point is that your new acquaintances are running a scam, and you're the target. The first stranger earned your confidence, so that when the second stranger presented a moneymaking opportunity, you had someone you trusted telling you that it was a good idea. The first tip-off to the pigeon drop, then, is when you find yourself with a new friend, followed soon after by a chance for the two of you to cash in with the help of a third person.

Your new acquaintance is a real estate broker who instills the confidence, and the second stranger is the banker, who can make a money maker happen, a home (or a job ((a degree)) or a car...  you name it.)  It's the same set up over and over, but it is legal.  There is nothing in the bag of value, except what money or title obligations you put in.  Later, you realize you got nothing, they got the titles.  Titles to your future income stream. Except no one hides this, because it is enforced by law.

For example, in one instance, as homes are sold and debt is assigned, who has the title to the goods?  Well, you, as long as you can make payments and pay taxes. But one gross distortion is since the 1980s in USA you cannot get a mortgage without very special circumstances (maybe farmland).  Now you get a deed of trust, which allows banks to fast track foreclose, so they can get the home resold faster.

Onward,

James Tobin already in 1984 worried that “we are throwing more and more of our resources, including the cream of our youth, into financial activities remote from the production of goods and services” (Tobin 1984, 14)

Yes, a specialty retailer who had a storied life was closing down and lamented we lost two, maybe three generations of entrepreneurs.  They went instead for the skim.  After noting a business loan is paid for out of the proceeds from the new means of production created, home loans must be paid out of the current income of the borrower.  The house itself provides no income.

Mortgages are also special in that real estate assets have grown into the largest asset market in all western economies, and the one with the most widespread participation. Following classical analysis, if every real estate asset bought on credit skims off the income of the owner-borrower, then the rise in home ownership since the 1970s has sharply increased rent extraction and turned it into a flow of interest to mortgage lenders. 

Everything changed in the 1970s.  When Nixon took us off the gold standard (lite).

Bank credit to the nonbank “asset” sector (mainly for real estate, but also LBOs and takeover loans to buy companies, margin loans for stock and bond arbitrage, and derivative bets) does not enter the “real sector” to finance tangible capital formation or wages. Its principal immediate effect is to inflate prices for property and other assets. Recent econometric analysis confirms that mortgage credit causes house price to increase (Favara and Imbs 2014) — and not just vice versa, as in the demand-driven textbook credit market theories.

Any real estate agent in the 1990s could have told you that if you could afford a $200,000 house at 9% interest, you can afford a $300,000 house a 6% interest.  Academics figured this out only in 2014? So, when the interest rates dropped from 9% to 6% did people trade up to more or better homes?  No way.  A $200,000 house at 9% interest becomes a $300,000 house at 6% interest.  Imagine how overpriced the homes people are getting now at 4%.  That $200,000 house is now priced at $600,000.  If and when the economy crashes, wages, income, etc goes back to at least lower, one way or another.  But the nominal debt stays at $600,000.  Because of your marginal exposure, Warren Buffett picks it up for pennies of ex nihilo credit on the dollar for Berkshire Hathaway, and you must at best bankrupt your "loss."

How does this asset-price inflation affect the economy of production and wages and profits? In due course this process involves increasing the debt-to-GDP ratio by raising household debt, mortgage debt, corporate and state, local and government debt levels. This debt requires the real sector to pay debt service — a fact that prompted Benjamin Friedman (2009, 34) to write that “an important question — which no one seems interested in addressing — is what fraction of the economy’s total returns … is absorbed up front by the financial industry.”

Yes.  Good question.  And the follow-up question would be, to whom does it go?  The answer will be, the 1%.

To ignore this rising fraction is to ignore debt and its consequence: debt deflation of the “real” economy. Of course, the reason why debt leveraging continued so long was precisely because credit to the FIRE sector inflated asset prices faster than debt service rose — as long as interest rates were falling. The tidal wave of post-1980 central bank and commercial bank liquidity drove interest rates down, increasing capitalization ratios for rental income corporate cash flow.

He is hitting on something here... credit inflation, debt deflation.  Two sides of the same coin? I'll have to turn that over in my mind.  And this is good stuff:

A debt-leveraged rise in asset prices has a liability counterpart on the balance sheet of households and firms. Homes, commercial properties, stocks, and bonds are loaded down with debt as they are traded many times by investors or speculators taking out larger and larger loans at easier and easier terms: lower down-payments, zero-amortization (interest-only) loans and outright “liars’ loans” with brokers and their bankers filing false income declarations and crooked property valuations, to be packaged and sold to pension funds, German Landesbanks, and other institutional investors. Each new debt-leveraged sale may bid up prices for these assets.
But the credit can be repaid (with interest) only by withdrawing payment from the “real” sector (out of profits and wages), or by selling financialized assets, or borrowing yet more credit (“Ponzi lending”). The rising indebtedness approaching the 2008 crest was carried not so much by diverting current income away from buying goods and services or by selling financial assets, but by loading down the economy’s balance sheet and national income with yet more debt (that is, by borrowing the interest falling due, for example, by home equity loans). What kept the “Great Moderation” income growth and inflation levels so “moderate” was an exponential flood of credit (i.e., debt) to carry the accumulation and compounding of interest. It was like having to finance a chain letter on an economy-wide scale, with banks creating the credit to keep the scheme going.

And this...  well, it also constrains the creation of means of production the would generate a surplus from what it produces.  What cannot go on will end at some point.

This is the institutional reality behind the negative correlation coefficient of credit and income growth, reported in the previous section. In fact, to assess credit for its income growth potential is to miss its true function in the rentier economic system. The FIRE sector’s real estate, financial system, monopolies, and other rent-extracting “tollbooth” privileges are not valued in terms of their contribution to production or living standards, but by how much they can extract from the economy. By classical definition, these rentier payments are not technologically necessary for production, distribution, and consumption. They are not investments in the economy’s productive capacity, but extraction from the surplus it produces.

Now this needs a bit of explication.

Financial markets can grow sustainably — that is, without rising fragility — only when loans to the real sector are self-amortizing. For instance, the thirty-year home mortgages typical after World War II were paid over the working life of homebuyers. The interest charges often added up to more than the property’s seller received, but the loans financed about two million new homes built each year in the United States in the early post-war decades, creating enough economic growth to pay down the loans.

Things were very different then. Home loans were for mortgages, not deeds of trust, financed largely by Savings and Loans and Credit Unions in which the interest rate, about the same today, 4.75%. in 1955, barely covered the costs of administration of the loan.  The loan was against money,  the cash in the pay envelope deposited on the first Friday of the month into the S&L or CU, backed by gold and silver.  And the loan terms were usually 20 years, because that is all it took to comfortably pay off a note.  There was no Freddie Mac to create inflation by vacuuming up as much paper as anyone could generate.  That would not come until... wait for it... the 1970s.  But there were assumable loans, meaning instead of flipping homes and inflating values, I might get a job offer in another town and just pass my mortgage onto someone else who continued the payments.  The S&L just wanted its money back, could care less from whom.  So yes real estate markets can grow sustainably, but nothing we have today resembles when last we had a sustainable market.

And this too:

Many U.S. students could not attain a college degree without student loans.

 Not true, false dilemma. The fact is EZCredit is merely more attractive, buy-now pay-later, than a pay-as-you-go degree, granted that ex nihilo credit woefully overpriced an ever degraded degree.

In addition to showing that the financial industry accounted for 7.9 percent of U.S. GDP in 2007 (up from 2.8 percent in 1950), they calculated that much of this took the form of fees and markups — the quintessential transfer payments. 

OK, useful figure, let's call it the 5 point growth.  That 5 point growth generated, as this essay demonstrates, a false economy, unreal GDP proportion reported as GDP. So then we must ask, what per cent of 5 point growth is of the distortion of reported GDP, generated by financial engineering?  And better yet, net of false economy FIRE financial engineering portion, to what does the "7.9% of GDP" truly amount?

This raises a vital question for today’s economies. Can debt-financed rising asset prices make economies richer on a sustainable basis? If the aim of raising asset prices is to increase the capitalization rate of rents and profits by lowering interest rates, can pension funds, insurance companies, and retirees save enough for their retirement out of current earnings, or can they live by capital gains alone?

As for today's economies, the question is moot.  Retirees are being "sicked-in" to hospices, shaken down for all of their assets, and dispatched at necessary rates to help maintain balance.  So the question is not vital for today, today's retirees are being queue'd up for extinction in this Darwinist polity.  The question is vital to whomever makes it through the progressing disintegration.

Financial and other investors focus on total returns, defined as income plus “capital” gains. But although the original U.S. income tax code treated capital gains as income, these asset-price gains do not appear in the NIPA. The logic of their exclusion seems to be that what is not seen has less of a chance of being taxed. That is why financial assets are called “invisibles,” in contrast to land as the most visible “hard” asset.

Yes, as I have been saying here, when we switched from vendor-financing for industry and commerce to bank finance starting in the 1970s, that which was near impossible to tax for the impracticality of it, such diffuse records, now became easy to tax with ex nihilo credit ascendency since the records could be found in one place: banks.

That this was a conscious agenda item is revealed in the fact when the FED was first set up back in 1913, the FED engaged in an intensive campaign for business to switch from vendor financing to Trade Acceptances ostensibly to improve commercial efficiency.  "Let the banks process your receivables for you."  It did not work, USA business did not fall for that ruse.  But with ex nihilo credit after 1971, it worked like a dream. No a ten cent retail purchase can be tracked and taxed.

Here again, as perspicacious as this essay is, it is prolegomenous.  It will be interesting to know what the prescriptions are, just how to save the Hegemon's system from its greediest outliers?  Sure, whoever borrowed the most won for a while, but not any more.  They are dropping like flies.  Now let's discover what the sustainable limits are in the pigreon drop scam.

It is an economy where resources flow to the FIRE sector rather than to moderate-return fixed capital formation. 

Yes, to what I have referred here elsewhere on the blog as "exceptional wealth."  the 1% did not earn their exceptional wealth, in a free market.  They stole it fair an square, legitimately.

Should it be redistributed?  No way!  Simply delegitimize charging interest, that is deregulate finance at least as far as making interest a non-enforceable contract item, just as gambling debts are non-enforceable in USA, and watch the "wealth" first deflate as it is marked to market, and then redistribute perfectly as the accumulators lose the wherewithal to ever corrupt more and more players: economists, politicians, professors, Wall Street actors, industry, religion, law, ad nauseum.  Delegitimize and redistribution happens automatically and fairly.  Will capital fly?  Sure, when it is that light, ligher than air, mere notional, it sure will.  But where?  "I have $10 billion tallied in ex nihilo credit obligations due me, will you give me refuge in Switzerland?"  "Convert it to gold first, then show up in our airport.  Good luck."  Good luck indeed getting away from the Hegemon with that.

Such economies polarize increasingly between property owners and industry/labor, creating financial tensions as imbalances build up. It ends in tears as debts overwhelm productive structures and household budgets. Asset prices fall, and land and houses are forfeited.

A good portion of it forfeited to the state, hence its recurrence.  The Hegemon could care less if this is unwound rationally, fairly peacefully, or if there is a world war.  Note when the Soviet empire crashed, existentially ended, all of the previous players remained at the top. The gentle unwinding process of eliminating the legitimization of interest (for without it ex nihilo credit will disappear too) would be acceptable to the hegemon, just as the surprise insurgency of a Donald Trump is acceptable (and the moment he is not acceptable, he'll get a serious headache, like a Kennedy).

The summary is excellent, I recommend highly clicking on the link up top and reading the whole thing.

Somehow, I haven't figured it out yet, and apparently no one else has either, if ex nihilo credit and negative interest rates are correlated, and the significance thereof.  There may be a clue in ex nihilo credit inflation/price deflation. I dunno. Whoever figures this out will be so far ahead of everyone else.

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