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Guest Post: Don't Bother with Comparisons to the 1970s... They're Useless
Submitted by Mark Spiegel
Don't Bother with Comparisons to the 1970s... They're Useless
Some folks believe that we're headed for a stagflationary era similar to
that of the mid-1970s to early 1980s, when inflation got out of control
and even nominal stock prices essentially went nowhere despite
significantly higher nominal earnings. The difference between then and
now, though, is that then the Fed wanted to control inflation, whereas now it's trying to create it.
That
nasy inflation of the 1970s that we've all read about (and many of us
are old enough to remember) began in 1973, when the CPI finished +8.7%
vs. +3.4% for the previous year. It continued (dipping to as "low" as
4.9% in 1976 and climbing into double-digits in 1974, 1979 and 1980)
until it was finally broken in 1982, when it declined to 3.8% from 8.9%
in 1981. The way inflation was broken, of course, was via increasingly higher interest rates; the Fed Funds rate started 1973 at 5.75% and climbed to as high as 20% (!) in 1981.
Those
high rates served (presumably, not intentionally) to compress stock PE
multiples despite corporate America's generally much higher earnings.
Specifically, the S&P 500 began 1973 (the beginning of the
high-inflation era) at 118.05 and ended 1981 (the end of the
high-inflation era) at 122.55, for a total eight year gain of just 3.8%,
despite the fact that trailing nominal S&P earnings increased over
that time from $6.17 to $15.18. Thus, 2003 opened with a trailing
12-month PE of 19.13 while 1981 ended with a trailing 12-month PE of
just 8.07. The reason stocks went nowhere, of course, was who needed
stocks when one could earn a high double-digit return simply by parking
cash in the money market?
The goal of the current Fed, though, is to inflate away enough of the national debt to make it manageable. (The Fed doesn't really
believe that at this poiint, additional QE can do much more for the
"real" economy.) Thus, this Fed won't be providing the kind of higher
interest rates that capped PE multiples in the 1970s. So, after perhaps
an initial earnings squeeze due to compressed profit margins from
higher input prices (i.e., if you want to short nominal stock prices,
right around now may be your last chance), we may start to see higher
nominal earnings as prices are increased while wages-- due to the
international fungibility of labor-- are capped, along with either
steady or expanding PE multiples.
What could cause higher
interest rates (thereby crushing PE multiples and, presumably, stock
prices)? Well, if the price of gasoline spikes north of $4, folks (and
their politicians) may scream loudly enough to force the Fed to stop
trying to "create" inflation. Or, of course, it could happen if the rest
of the world suddenly stops buying our debt unless it gets better
compensated for it (via higher rates). The fact that either of these
things could happen (and, in fact, at least one of them may even be likely to happen) means that inflation-induced higher nominal stock prices in a very slow-growth economy are not a sure thing.
Thus,
one might conclude (assuming that one believes that we're destined to
remain in a slow-growth economy) that upside vs. downside risks in the
equity market are currently somewhat equally weighted, with the
resolution dependent upon whether or not the Fed is able to cap interest
rates which, as a "by-product", would allow steady or expanding PE
multiples to combine with inflation-induced higher nominal earnings, and
thereby create higher nominal stock prices.
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<sarcasm on> but but how can they do that? it's not in their mandate <sarcasm off>
but, but, what about the all important fundies?
In my best Ron Popeil (Billy Mays RIP) voice over:
We've all heard of inflation, deflation, stagflation, hyperinflation, and thanks to the ZH community "Biflation"...
Well, now we are proud to bring to you a cutting edge, state of the art 'flation that will blow all of the others away..BUYflation.
Yes, that's right, BUYflation. Why BUYflation, you ask...
It is the culmination of an incompetent governments policy to embrace paper liabiliities to buy all of the shit no one else wants in an effort to prop up deteriorating values forever. That's right...FOREVER.
But wait, there's more, buying crap like MBS and UST was just not enough, nooooo... Now, this entity, locally known as the Treserve, is buying other crap like public stocks all in an effort to kill the dollar and inflate its way out of many decades of bad, bad monetary and fiscal decisions.
And the best part is there is no payment needed as all the costs will be passed onto the U.S. taxpayer. You heard that right...YOU.
No rush to order because the stink is being shipped to you directly and will keep coming and coming and coming...the Treserve knows where you live bitchez.
Legal disclaimer: Due to strict patent rights and some other bull, BUYflation cannot be sold outside the good ol' USA since nearly every other country has its own dungpile to pass on to its citizens as they have been working on BUYflation for quite some time already. As all of this global shit is collecting in one big dung pile, the race to the bottom will be competitive.
The mood and politics of the USA is similar to what I remember of the 1970s....
Nixon (Bush) followed by Carter (Obama).
Stock market was dead money while inflation surged along with commodities.
Don't forget foreign invasions on specious grounds and the associated national debt incurred.
Bingo!
we (and oil) are in much deeper now
The mood and the politics of the 70s was maybe similar to that of today, but I'm quite sure the decade that is ahead of us will not be similar to the one that followed the 70s:
in the 70s:
debt (public + private) was the lowest it's been
inequality was the lowest it's been
share of income going to wages and benefits vs profits and dividends was the highest it's been
The US was still the number one competitor for production and innovation, China and India were not on the economic map
today:
debt (public+ private) is the highest it's been, let's not forget this is the main cause of this crisis
inequality is back to a high level
share of income going to wages and benefits vs profits and dividends is the lowest it's been
China and India are the new growth engines of the world economy, the US lost most of its manufacturing base
so the 70s and today were radically different. I agree with the author, comparisons are useless. We're in a crisis that's caused by excessive debt, the systematic redistribution of the wealth of the middle class who work for a living towards the rentiers who live from what they have amassed during the bonanza or inherited, and the systematic outsourcing of production towards lower wage countries... quite the opposite of the 70s.
No, China and India weren't on the Map. But the USSR was. And 15 years later it was Japan that was going to surpass us. Now it is China.
I'm not saying that China won't surpass us and that we're undergoing massive experiments with unquantifiable risk - far from it. I just think our ability to forecast massively complex issues has been questionable at best.
The grass is always greener, especially when times are tough, and we are very good at ignoring the political and economic risks that other countries face. Even given all our problems, I'm not sure theres a country out there that wouldn't trade places with us in a heartbeat.
Umm, I think Ford was in there between Nixon and Carter.
I remember a 14 month order file on key units at Cat drop to zero in a few weeks.
This time is indeed different since the productive base of america has been outsourced.
Just imagine how tough it must be in China. They have jobs and inflation.
If Benny and the Inkjets succeed, we will have no jobs and hyperinflation- half the problems China has to deal with. Aren't we so lucky....
Well... hmmm... think the fed might have been in on the job also during the 70's...
Yes. Fed Chairman Arthur Burns was absolutely known anti-chairmanship, as an inflation hawk. Nixon broke him. It was pathetic. Also the early 70's had not only the oil shocks, but the enormous victory of the UAW in '71 which took time to flow through. At the same time the Federal Gov went on a wild spree of "inflation adjustments," and Civil Service Unions demanded that they be included in the party. Nixon added to the benefits growth of the Johnson years. Today it's commodity inputs and imports that will inflate, prices will rise but unit sales will stagnate, and as labor falls further behind demand will fall faster. When foreign demand also falls as an eventual result, deflation has to become a fact for a time. Printing money will cause nothing but civil unrest with no upside and trade war.
In the seventies, the US had a solid manufacturing base, medical costs were trivial, housing costs were modest, jobs were (relatively) abundant. It was possible to believe that the future would be even better.
Those are the core reasons we cannot compare the two time periods.
I would warn Benron to "be careful what you wish for" and "it's hard to put the genie back in the bottle (ask Paul Volker)".
The ~30yr. Treasury rally began when Volker killed rampant inflation and will end suddenly when Bernanke reanimates it.
5 trillion volts to the temples...It's ALIVE !!! (thunder, lightning, evil laugh).
Yea I'd take the 70s over today's crappy environment - the music was one helluvalot better too....
Including Disco?
@goldsaver
Disco sounds like Beethoven compared to the banal shit from Mylie Cyrus or Beiber.
70's:
Crooners, Sinatra, Dean Martin were still around, Elvis was still alive general optimism of WWII results still in place. Dollar still valuable abroad. Physical work was still fashonable.
Food stamps were made of paper in coupon books, and you had to stand in line every week to get unemployment (plus they made you prove that you looked for a job) and we still had government cheese.
http://www.youtube.com/watch?v=t-HiXqqUItM
Ah yes...the term "government cheese".
As a kid I remember going to one of the places where it was handed out along with other staples The people getting the "cheese", for the most part, were grateful to be getting it. But it also came with a sense of shame and embarrassment.
Flash forward thirty years.
NO - not disco!
That shit was the start of all our problems. Everything changed when Disco came along. That's when we became the "me" generation. Instead of fast cars, slicked back hair, jeans, cigarette pack in our tee-shirt, and an attitude, we went to looking like John fucking Travolta in Saturday night fever.
Wimpy fucking suits, everybody drank fancy ass drinks, disco lights, the fucking Bee Gees. Those WERE NOT the days. Fuck the suits, fuck Travolta, fuck the Bee Gees - and fuck Disco.
I don't know, these guys were pretty cool
http://www.youtube.com/watch?v=ZJj6d5QSYaE
I'd go back in a nano second, Bee Gees have sold more albumns than any group on the planet.
The Polyester suits sucked, (esp near flame), but the chicks were hot,wore a lot less than now, and we were Burn Baby Burn!.
IMHO, some of the best music ever made came from that era.
Hell even the young people still like it.
The fun part was anyone could be someone, even if it was just a for a weekend.
Automatic inflation adjustments led inevitably (and in a new way) to the devaluation of currencies, except in small countries which successfully exploited niches. In '79 the Sw Franc was 2.1 to the dollar, the Swedish Krona 4.5 to the dollar. The Swiss won, the Swedes lost ground. Medical costs are going to break the US if we don't accept any triage and keep assuming that government will provide every medical device, surgical innovation, transplant, and pharmaceutical. That's simply a fact. We either accept limits to public and employer costs, or we'll go broke. There isn't another set of facts.
The reason stocks went nowhere, of course, was who needed stocks when one could earn a high double-digit return simply by parking cash in the money market?
and TPTB learned their lesson very well. No one would ever again be provided with any incentive to save any money. Dump it in the stock market. Take out a huge loan. It's cheap.
Wall Street Fuckers
In the 70's so-called "unearned income" tax rates went absolutely through the roof, maxing at 70%, while salary income maxed at 60%. It was hideous. Only idiots and the fearful parked money in CD's. The smart money bought land and buildings held within corporate shells, and held for the long term.
Thought experiment: if inflation rises to 10% per year, and the Fed keeps interest rates near zero, how long will it take before the crack-up boom?
If I could have a conversation with Bernanke, it would be this: Mr. Bernanke, I would like to share two observations with you and then ask you a very pointed question. First, my grandparents lived through the depression and spoke of their sacrifice. It built their character. They learned to work hard and save. Second, the hyperinflation of 1923 Germany ruined their society. Lifetimes worth of savings were wiped out by a printing press. People learned the wrong lessons. History knows this led to Hitler's horror. Mr. Bernanke, here is my question: why do you think the risk of hyperinflation is preferable to a depression?"
Since he ONLY studied the first great depression and as we all have heard is a great historian of it, this academic hack may have no idea what hyperinflation means.
don't waste your breath, bernanke is a puppet.
(sarcasm definitely on) But he looks so smart with that beard and diploma hanging in his office...
The Fed actually has no power in create hyperinflation. In fact, much to mr bernankes chagrin, oil is calling the shots.
Yes any rising oil prices are in fact extremely deflationary. Any attempt to raise prices is counterproductive as it merely crashes the "real" waste based economy. Oil will be more expensive at $30 than at $50 or $60.
+1
That or it causes a lot of business operating on a small margin to close and thus reduce the supply of goods and services (inflationary), and also causes a further loss of faith in the US dollar.
Rising oil prices wouldn't be deflationary for the reason that business overhead is rather static, most business would just be shut down and never opened again, that is not deflationary. If this were a free market I would agree, but its not.
If business close down what does that do to wages which would bid up those goods? Exactly, eventually the "goods" will just quietly disappear from the shelves as demand falls to zero. Food prices don't even have to be rising in nominal terms to be going through the roof in real terms in such an environment!
As we continue to bleed more and more jobs due to the lack of oil affordability/availability (Joint Military Command says oil surpluses to be gone by 2012, 10mbpd shortfall by 2015) the velocity of money creeps ever lower as cash becomes too valuable to spend and is withdrawn from circulation.
"if inflation rises to 10% per year"
Sancho, hate to tell ya, it's already over 9%.
Dow 36,000, motherfuck*rs!
Seriously though, very little of the Dow is positioned to take advantage of higher inflation. Its not exactly full of producer stocks, nor is the USA, as a country.
Take your dollars and buy the Canadian stock index (TSE60) if you want something that's actually weighted heavily enough to benefit.
P/E's on the Dow probably will continue to fall, and keep falling along with the currency. Probably fall until there's a 1:1 ratio between gold and the Dow. TSE60 should be 2000-3000 (currently ~700) by then because of the 50% weighting in commodity producers.
NOTE the assumption: The (admittedly, nigh omnipresent) toxic belief in the Potent Director.
AUthor seems to be embracing the same mythology the Fed depends on, to wit, the notion that the Fed actually has all the influence it and its proponents claim it does.
The Federal Reserve has labored agaisnt the forces of deflation, for well over a year; labored mightily, in tandem with the Treasury, and brought forth . . . a mouse.
Housing is Not coming back. Certainly not after mortgage-gate. Delinquency rates and recovery rates are still down. So all those MBS are still garbage. And since those form a significant percentage of the balance sheets of most financial institutions, They aren't coming back. That's a vast impairment of the money supply, an impairment the Fed, in a credit saturated environment, cannot deal with.
>>AUthor seems to be embracing the same mythology the Fed depends on, to wit, the notion that the Fed actually has all the influence it and its proponents claim it does.<<
Hi Jasper,
I'm "the author". Are you saying that the Fed can't tank the dollar, if that's what it wants to do? Because once it does that, the prices of most non-labor inputs will go up, and as companies are forced to raise prices in response (even if such increases are "partial", due to a lack of "pricing power") higher nominal earnings should eventually follow.
Thanks for the article. Good read and information.
But I think the story ends if there are no buyers of these higher priced goods. I too think the Fed does not have the power it thinks it has. It has transferred some of its so called power overseas to our creditors. As evidenced by a whining Timmy G on the value of the Yuan. Keep crying Timmy, the world is laughing at you.
The Fed's desire to avoid a high savings rate in a liquidity trap will be its downfall as the perfect global economic, global financial, global credit, and local political storm is upon us. People don't care about interest rates if they worry about keeping their home, job, and food on the table. Economic theory is being rewritten as we speak.
I think what Jasper was pointing out, pretty well actually, is that a full two years of this medicine have been a complete failure. Worst job market since the depression, housing still spiralling down, net worth of many families devastated, and where is the progress? The banks are worse off than ever. Only fraudulent accounting, forced on the accountants, keeps their doors open.
Economists, in general, have no interest in or feel for small business. If you want to get to the heart of the problems in this country, that's the place to start.
That does not make sense. When prices go up, then people will be able to afford less and will spend less. Wages lag inflation.
Agree with Jasper. I've never seen the Fed more panicked. I can only suppose, hope, Bernanke has a full bottle of Ativan at the ready. Same goes for Geitner. Every word they speak is heard in a room which smells of fear.
"Housing is Not coming back"
Any IDIOT, should have seen the loss of the buying power of the Boomers,and their preperations for retirement meant LESS( a lot less) disposable income.
Boomer Revenge Bitchezz.........Bankstas, we won.
Or, of course, it could happen if the rest of the world suddenly stops buying our debt unless it gets better compensated for it (via higher rates).
The fed has that taken care of with their future centurions
The high prices in the 70's was nothing less then a run on the USD-
It started when Nixon defaulted on the US obligation to pay debt in Gold under International law known as the "World Gold agreement"
When France and Britian etc. demanded gold for debt payment-because of USD devaluing-
Nixon cut Gold loose-
Those Foreign lenders who were then forced to accept the $ started selling them and buying Commodities and Gold as fast as they could-
This is what drove prices and the only way to save the $-was to jack up rates and we know they did-
At 20% who could resist holding $--
So-money flowed back out of Commodities/Gold and back into the $ and prices declined-
Vocker is credited for taming Inflation-when in fact he caused it-
Volcker saved the USD-nothing more-
Lower prices followed-jmo-
Wasn't the way the inflation is measured changed in the 80s? Of course there is inflation now, plenty of it, just look around at food, energy, metals, non-food agriculture.
i just paid $33 for 15 razors... you could get 50 ginsu knives for $9.99 a couple decades ago..
In a debt based monetary system, increased business activity is what drives inflation.
We aren't exactly a "paper based" system, cash is what extinguishes debts (or rolling over the old debts) but cash is not necessarily a store of value. In fact, its not really intended to be, at least I wouldn't think so. Highly valued commerce causes weak currency. Weak commerce makes for valuable cash as it is withdrawn from circulation.
The helicopters never existed. The crack up boom is already here and gone. All we have left to face is collapse and liquidation. Like Mako said, you ARE the helicopter.
You're half right in this, the problem is you, like almost everyone else, looks at money supply as the sole cause of inflation (or in this case money velocity). It isn't. No one seems to grasp that price is the intersection of two supply curves, not one. I think people make the mistake because the FED creates inflation in everything. But you can not ignore government regulation, taxes, minimum wage etc as deflation hits, it will destroy businesses and instead of being deflationary, it will be inflationary.
We are the helicopter because a credit expansion precedes the actual monetary expansion and then the velocity of the money movement. The velocity is part of the real danger and can get rapidly out of control.
However, I think monetary policy is a weak force these days given the general deflation and historically bad labor and business markets. I just news of the second set of layoffs at my company this year. I got here because of layoffs. I think the story that may be bigger than the unemployment rate is the enormous drop in incomes. Even people who are working are working for less through lower comissions, fewer hours, pay freezes or cuts, etc. You can have zero percent interest rates and no one will put any cash down for a home as long as you think you won't be able to make the payments down the road.
We are the helicopters and we are all grounded right now until we see how much Obama and company will wreck the economy and Bernanke will wreck the currency.
If Fred Sheehan is to be believed, much of the credit for inflation in the 1970s belongs with Arthur Burns. He has an interesting article that tackles the topic of how today differs from, and is similar to, the 1970s. I find the similarities in the Fed's approach to the economic malaise to be eerie. I find the differences in the fiscal position of the country in each of the two eras to be very disturbing. Just as imported oil in the mid-70's accounted for approx. 30% of consumption versus today's 60%+, fiscally, the lessons of the 1970s have long been forgotten.
The following are excerpts from one of Sheehan's blog articles: http://aucontrarian.blogspot.com/2010/10/central-bankers-are-paid-to-lie-buy.html
This fits in with the banksters hidden history. All of Burns' tactics were intended, this was not a failure or error in monetary policy. Come to think of it, none of it is to some who knew the bubble machine would come to this. They (the banksters) rebelled during the sixties (probably earlier) to what John Galt called "the looters" (i believe). These are the same people that murdered MLK (proven at his wrongful death civil suit which no zip MSM coverage) and re-enslaved his people with the "war on drugs" they invented (Rockefeller drug laws, Bush's CIA drug trafficking for decades and selling it to minorities). They have been gutting the American economy since the seventies.
This is their story as told by ex-mil intel Steve Kangas:
The Origins of the Overclass
http://www.conspiracyarchive.com/NWO/Overclass.htm
+1 for JJ's accurate description of the reaction to Nixon's moves. I can't agree with "Vocker is credited for taming Inflation-when in fact he caused it-" in this sense: Volcker openly declared his policy to raise rates until he broke the binge of borrowing to buy commodities and foreign assets.
Kemmerer ( http://en.wikipedia.org/wiki/Edwin_W._Kemmerer ) published a definitive writing in 1930 on the Weimar hyperinflation (EXCHANGE, PRICES, AND PRODUCTIONIN HYPER-INFLATION: GERMANY, 1920-1923). Prices rose BEFORE the money supply!!!! It is led by external exchange trade (imports of the same products manufactured domestically rose dramatically faster). Confidence in Germany's ability to repay debts dropped precipitously when France took over chemical factories in the Ruhr Valley for late WWI reparation payments. The key is confidence which drives velocity (esp international flows).
I can't speak to PE Multiples, et al, but I can sure as heck point to the major differences between the 1970's (into the early '80's) and now.
1) We're far further down the road of deindustrialization now than we were then. Oh, sure... in the late 70's/early '80's the then Big Three made some lousy vehicles, but... they were still the Big Three! America was still making steel... making "things." We were still basically the brick and morter nation in 1979 that had sent men to the moon a decade earlier. Now...???
2) We're not the same people we were then. The Greatest Generation are mostly gone. Heck, even the "younger generation" of the '70's who emulated the work ethic, drive, and "code" of their fathers and grandfathers (and mothers and grandmothers) are now long retired if not passed on.
3) Demographics. (And I'm talking way beyond skin color or ethnic background; I'm talking values... beliefs... or rather, often lack thereof.) Political correctness and the multiculturalist's "soup" (as opposed to melting pot) hadn't taken control of societal levers of power. We didn't have a national "establishment" which looked upon the Mexicanization of entire states - including much of California - with benign tolerance - much less approval!
To sum up... sure, America was rotting from the inside by the late '60's... but now the rot is clearly visible from any angle you see.
America... it was a grand experiment while it lasted.
BILL
it can happen again.. just not this side of the earth... we'll see how the east carries the leading torch
I am an optimist by nature, but I am about to R.I.P. America, too. America will be here but it will be something radically different.
Frankly, it's the encroachment of the entitlement mentality. Along with it comes preferred victim status, collectivisation, property redistribution, centralization of power and the willingness to use it. Companies try to get preferred status from the government, a sort of fascist alliance so profits are individualized while losses are collectivised and the preferred survive or even prosper...Goldman, GM, unions, etc. Your pizza parlor or hair salon will not get a bailout as you go under, but GM and the Unions will. If you prosper on your own, the profits from your industry and skill will be redistributed to favored groups...generally speaking that is insiders and large voting blocks that require appeasement.
The one good thing is that the socialist state cannot survive economically. The bad thing is that it may die very very painfully. We've sold our soul to the Keynsian-statist devil for some short term fun but he will collect in due time.
For some reason, this seems appropriate at this time in financial cycle
http://www.youtube.com/watch?v=pLMl0CLIDLg
Fed Biz Plan
1. Convert all long term debt into short term debt - say 2 year debt instruments.
2. Inflate away, sink the dollar, and pay down debt with devalued dollars.
3. Once retired and/or reduced, raise interest rates, restore the dollar.
Why not?
Yes.
What could possibly go wrong?
For one, not sure if #2 works if the rest of the world is racing its own currency to the bottom at the same time. The Fed can't raise S/T rates due to its own balance sheet, Treasury needs, and mortgage resets. I don't think two years is nearly enough time to work through these issues.
Consider your point 2. Where do you get the cash flow to pay down debt?
If the Fed prints enough to start real inflation, the Fed will then have to choose to either let it go (hyperinflation), or raise rates and tighten supply. If they choose to raise rates in that environment, they will kill everyone with variable interest rate loans and we will have our depression.
If the Fed attempts this plan as you lay out, we will come to the moment in time, before your #3, when they must choose very quickly between hyperinflation and depression. This wil not end well.
goal: USD to remain world dom currency unless it can dominate one world currency, which is another topic.
2008: expectation that countries would inflate like they did in 1930's
therefore. US inflated our dollar and flooded markets with oversupply of dollars. other countries currency increased in value relative dollar which enabled the purchase of inputs at lower inherent cost.
2010: US starts soaking up the money supply of dollars, inflating other currencies and strengthening dollar again relative most other currs save China. this enables US consumers to buy rest of world crap with better buying power.
Objective: draft behind rest of world to help pull US out this mess.
Now:
same song, second verse, whole lot louder and a whole lot worse.
except now globe is racing to inflate, that's OK. US deflates while they inflate. maintain strong world currency at almost all cost. China wants to replace US.
countries go to wars about maintaining currency strength. my $.02
feedback appreciated.
PS. if the Euro fails...I guess US Dollars proposed to be used there
You can only inflate debt away if your income rises along with inflation. That ain't gonna happen with workers or the governments tax receipts.
So, we are screwed.
The BOJ is trying to create inflation for 20 years. Guess what, they failed and still fail.
Eustace Mullins' observation of Paul Volcker:
http://www.barefootsworld.net/fs_m_ch_14.html
OT, but too good not to share.
October 15, 2010 12:00 A.M.
The Texas Model
The Lone Star State speeds up its recovery with pro-business policies.
Texas already looms large in its own imagination. Its elevated self-image didn’t need this: More than half of the net new jobs in the U.S. during the past 12 months were created in the Lone Star State. (snip)
Suck it, blue staters!
http://www.nationalreview.com/articles/249868/texas-model-rich-lowry
+1
you are all jacked up because of this??
http://www.bnet.com/article/dallas-the-jobs-are-coming-and-not-just-in-oil/416006
granted it is boom compared to Ohio but those stats look like a lot of junk jobs orbiting around some fat cat gov bid money... and texas keeps saying how they love less government and they are sucking completely on tax funded defense contracts
Saw a post somewhere that looked at the percentage of state GDP attributable to government spending (fed/state/local). Texas came in at the lowest percent, just under 16%. Alaska came in at the highest, close to 50%. Wish I could remember the site/link, etc. Sure, there is some "sucking...on tax funded defense contracts", but imo, Texas is much better positioned to deal economically with a much needed decrease in the size and scope of gov't spending and functions than many other states.
The real question becomes, will there be a season 5 of Millionaire Matchmaker?
Since the Globalist have failed to create jobs under QE1, a new crisis will be recycled. Forget oil for the moment.
When the Internet Runs Out of IP Addresseshttp://hbswk.hbs.edu/item/5968.html
Naturally, we serfs under MSM alert will need to run to the big box store and purchase duck tape, plastic sheets, and water.
Cisco's take on the matter
Transition to IPv6http://www.cisco.com/web/strategy/government/usfed_ipv6.html?POSITION=SEM&COUNTRY_SITE=us&CAMPAIGN=Federal&CREATIVE=Public+Sector&REFERRING_SITE=Google&KEYWORD=ipv6
Never let a good crisis go to waste.
Ministry - Thieves
http://www.youtube.com/watch?v=mKweBcU2s9A
I know it was a side remark but it's surprising how many IT professionals have gotten taken in by the phony IPv4 scare.
Sad to say Bill, that you are 100% correct in your assessment: USA was a great, great nation. But over the past generation and a half, its brightest and best have directed effort not toward things tangibly productive, but toward things financially rewarding (tangible productivity pursuant to such being at best, an unintended consequence). As TD said "an endless procession of Ivy League fucktards" all Wall st bound...bloody academically switched on fucktards though.
Anyway, the horse has bolted. The grand experiment that was the USA has failed...because of indolence,apathy, and GREED...nuff said
Dear Lady,
The experiment hasn't failed. The fraud that has you believe in the failure overcomes you.
One day your head will be removed from the sand. You will thank those who helped you during trying times.
"those who helped you through trying times"
And they are?
And they have sufficient power and effectiveness to prevail without support by a substantial minority?
This is exactly what happens when the exponential nature of debt shows itself as the opposite pole of a balance that is trying to express -- yet is not being allowed to express thru what is called "artificial sustention." The basic premise of interest/debt is that at some point in the "curve" debt servicing begins to actually deplete currency in General Circulation. That is, the VIG will begin to eat away at productive elements of an economy where as previously in time those areas were not touched by this. Add to that the huge growth of the financial "industry" and there are yet more salaries and bonuses to be paid for essentially "middle manning" productive industry. This is not to degrade Originative Capital for that is perhaps the best use "of" excess capital -- to put it to work and to expand business and exchange.
Even if it were only these two things: Debt servicing rising exponentially to create a "draw" on general capital circulation AND a rapid growth of a "middle man" sector, then things would still be challenging. Now we must add the nefarious aspect -- that of classic fraud.
1. Have loans created that were knowingly beyond the capacity of the borrower to pay it back.
2. Offload these loans into portfolios with fraudulent ratings attached so as to attract the serious capital of pensions ect, to buy these knowingly tenuous loans thinking they are AAA.
3. Because you know these are going to tank, you SHORT them thru CDS' and puts on entities which you know will crack when the loans can't get paid back. Because there was no capital in existence at the time to meet these "bets against the shaky loans you created" you find a way to squeeze it out of the Public Sector -- ie, bail outs. You get the rules changed via FASB to not let the facts show up...
4. Because the "game" was all about a quick hit and run with a bail out cherry on top, you then begin to find the exposure occurring as many of the these knowingly shaky loans all foreclose at once -- leading to a hunger to "rack them up" which leads to yet more fraudulent activity...
...
So did the originators of this racketeering scam of interconnected embezzlement actually KNOW about exponential debt eventually pulling currency out of circulation? One would imagine they had excel sheets like this: http://www.perfecteconomy.com/pg-math-walking.html
By structurally putting in incentives (performance bonuses) the inducement for a party to "partake" in the scam was created.
So, no its not the 70's. Its a whole bigger animal...
This is a crisis of integrity first and foremost...
To predict the economic future, we must never forget the primary, most fundamental facts. That is, the federal reserve AND government of the USSA are in fact a single entity, and their interests are identical. And they will stay that way, because both know that either of them can utterly destroy the other at this point (the only difference being, the chance that the federal reserve vanishes into nothingness is somewhat higher).
Therefore, we know one thing. Since the government of the USSA has such overwhelming levels of debt today, they literally cannot pay high interest rates any longer. To do that, they would need to pay every penny they receive in taxation to service interest on the debt.
If you understand their nature and think about it, this explains what their plans are, because it explains what their plans must be. Soon the federal reserve will buy essentially all government debt at low [near current] interest rates. Almost nobody else will buy USSA debt, because almost nobody else can create money out of thin air at zero cost.
Thus, government interest rates will totally disconnect from corporate and individual interest rates, even as high-inflation and hyper-inflation wipe out the bulk of government debt (in real terms only, not nominal terms).
Really, what other possibility exists? This fully satisfies the wants and needs of all predators-that-be. The federal reserve predators gets to lend rapidly-increasing sums of the zero-cost fiat money they create, and thereby capture closer and closer to 100% ownership of the entire USSA. The government predators get limitless cash to bribe voters.
The predators-that-be assume this will lead to total ownership and enslavement of everyone and everything by their predators-that-be cartel. The only alternative, which they mostly discount given the passiveness of their slaves, is armed revolution against the predator cabal. Let's hope they're wrong.
Like the 1970's we do find ourselves once again with a useless president
Also, like the 1970s female hairstyles once again become fashionable with men. Disturbing.
good - too many steroid bald fucks the past decade
The Fed will blame the arabs and the chinese for the rising petrol prices. The Fed will blame anyone, the press will repeat endlessly the story, and they will try to keep inflating. Whether the USA people will believe it this time or not is a mistery.
this was a very worthy article regarding the differences in interest rate environments...of course the politburo wants a bond bubble to finance trillion dollar deficits as far as the eye can see so that it can complete its masters' wishes of impoverishing and enslaving america but it will be a pyrrhic victory...
Ah yes, the 70s and the 80s. Manufacturing employed many millions more in the US and we were just starting the electronic boom that would carry us through consumer electronics to PCs, to telecommunication that would last to the mid 90s. When, following Wall Street directives to increase profits further, all of that electronics manufacturing was shut down in the US and permanently shipped to Asia/China.
Now we no longer have the infrastructure here in the US to make the next big thing. IF we design it, it will be immediately shipped to China to be built and all of the value adding labor will be in China. That is where and how REAL wealth and value is created: wherever the labor is.
China knows this and they are never giving it up, willingly. And our CEOs and banks are so corrupted by their brilliant decisions to send away all of the value adding content of their products that they will do anything to keep sucking on the tit of unwarranted profits and compensation (strange word to describe the money they take).
Honestann correct. Like the trucker who looks to his right in an ice storm at night and sees the rear of his truck running parallel, he has simply but one damn choice: go faster. And so the bubble gets bigger - it has to.
QE2. The concept is very much the Mother of All Bluffs.
So, a handful within the Beltway pray hard each night.
Truth is, we all wish this was the 70s... but the monstrous size of the debt which precious few grasp, and stunning levels of greed, stupidity and arrogance rampant in this country right now point to the end. And like stock market crashes, the end will come in a series of ugly events.
Oh it very much is a fucking Madhouse my friends.
Oh how I do wish it was the 70's again, even with the crappiest cars ever, lol. Didn't seem like the game was fixed and we were trapped.
Tom Bosley died today. Loved that show Happy Days. Don't think we will be making a show like that again for the current or future eras.
I wrote something which I look at every time precious metals go down, just to keep my mind straight.
NOT A CHANCE IN HELL
1. Massive debt (Debt/GDP > 350%, much higher than even before the Great Depression).
2. Insolvent banking system-accounting system broken
3. $100 trillion in unfunded Medicare and Social Security liabilities
4. Trillion dollar + annual deficits for at least the next 10 years.
5. Huge unsold housing inventories will continue to depress housing prices.
6. $800 trillion in unregulated credit default swaps.
7. Chinese ponzi economy-collapse coming.
8. Trillions in unfunded pension liabilities.
9. Insolvent states and municipalities.
9. Increasing taxes coming.
10. Protectionsim
11. Japan currency collapse
Regarding the likely economic outcome for our country there are only two possibilities. There is only one factor which will determine which fork we will take. The determining factor will be the amount of debt which our country takes on in its effort to overcome the massive deleveraging forces currently at work.
If the level of economic stimulus which we undertake were to be less than that needed to arrest rising unemployment, we would have an outcome much like Japan experienced over the past two decades where an overt depression was avoided at a cost of a gradual insubstantial increase in public debt, deflation, a lethargic economy, and a 70% decrease in the value of its stock market indexes. Such stimulus levels in this country will likely result in persistent high levels of unemployment.
These high levels of unemployment may not be politically acceptable, forcing our government and the federal reserve to provide even greater levels of stimulus. However, in order for such stimulus to overwhelm the ongoing deleveraging in our economy, it will have to be at a sustained level which is much higher than the Japanese applied to their economy. Such a level of fiscal and monetary stimulus, including substantial ongoing quantitative easing(money printing) at levels much higher than currently being applied, can counteract deleveraging and provide ongoing growth. Note that should the government try to lower the amount of the stimulus, the economy will once again slow and unemployment will begin to rise, resulting in more stimulus.
There is no growth possible without the government funding it. This is because the effects of ongoing deleveraging are quickly sucked dry any endogenous economic growth before it can take hold. Thus it is clear that the government will provide sustained monetary and fiscal support to the economy. This will be costly. Where is the inflection point when perpetually increasing government debt and money printing will cause loss of confidence in our currency and rising interest rates?
So well, said. Spot on every point. The only thing I would add is that the U.S. government is an enormous and growing percentage of the GDP. As a deadweight loss it is becoming like the old movie, "The Blob". It's everywhere consuming everything through taxation and regulation.
I just try to guess at the deflationary to inflationary switch over point. Not sure how and when that plays out. I am not sure the money printing by itself can do it without the money being able to move.
External events may drive the hyperinflationary loss of confidence (or black swans).
An oil shock is sufficient to bring the very fragile world economy and certainly the U.S. to it's knees. As the economy declines the ability of the economy to service the massive debt declines rapidly. A China collapse may be sufficient to spark a panic, although there may be an initial flight to "safety" into US treasury debt. A political stalemate between Republicans and Democrats is a real possibility on unfunded liabilities and tax revenue, creating a situation where people finally wake up and realize treasury debt is unsafe, creating demand for more and more QE to cover the roll over and new debt.
Japan is a black swan waiting to happen as well, which could create a domino effect of 'too big to bail out' countries defaulting due to excessive interest expense. The BRICs would panic and start printing money to keep up with the currency devaluation in the developed nations, driving gold up to astronomical levels until the world has no choice but to use gold again for foreign trade (at the very least). In fact, we're already seeing this at a low level as a form of trade protectionism. China appears hungry for Japanese debt though, which could sustain the ponzi longer than we think, which gets us back to the risk of China collapsing and the consequences thereof. China seems critical to maintaining the world ponzi.
1970s: Demand-pull inflation.
2010s: Cost-push inflation (scarce resources + devalued dollar), combined with debt deflation (excess leverage post bubble) to produce Biflation.
Already underway:
http://online.wsj.com/article/SB10001424052702303496104575560403400464286.html?mod=WSJ_hps_LEFTWhatsNews
The 70's was also due to a devaluating dollar. Dont get fool with all the fancy names. During the 70's there was some sort of "biflation" or at least inflation affected prices differently for different goods. Commodities were affected sooner as it is happening now. Its because the newly printed money always go there. It is true that now there is more deflationary pressure from the popped bubble, but at some point it will be over.
another stupid idiot
#see higher nominal earnings as prices are increased while #wages-- due to the international fungibility of labor-- #are capped
earnings up but salaries dont up... earnings == sales - expenses.. expanes == IS SALARY... (MOSTLY + Cost of commds/factoring/etc))
HOW IS IT POSSIBLE increase sales w/out increasing salaries.. ????????/ who is going to buy ? Marsians ?
stupid #sshole
alx
My personal financial pacifier is in reading "Atlas shrugged" over and over again. Get the politicians the fuck OUT of our lives.
I think unlike the 70's the input price inflation will only cause to contract margins near and mid term as the pricing power of corporations are not there. Why? The consumer unlike the 70's is tapped out raiding there 401K or on food stamps or swatting in their foreclosed home. Higher prices CANT be passed on to make up all of the rise in input prices so unlike the 70's it will backfire on earnings. So what you will end up is slow growth, high inflation and declining stock prices. Essentially what I'm saying is the late QE saw LT rates drop 50 to 75 basis points and this cant offset and has not offset the 20% rise in commodities and corresponding margin erosion in corporate america. Nor has it put much more money in america's pockets refinance or induced them to spend more cause they are tapped out.
This, too, is a reasonable possibility. It all depends, of course, on the rate of inflation and the degree of pass-through companies can attain. To take a really simple example, let's say there's a company that buys an input for $10 and resells it for $13, thus making 30% in gross margin and $3 in gross profit. If the input price goes to $11 and the company still has to sell it for $13, its gross margin declines to 18% and its profit is now only $2. But what if the input price goes to $20, and the company's margin still shrinks from the original 30% down to 18%? In this case, despite the drastically lower margin the company is able to book a nominally higher profit of $3.60. Thus, if input inflation is high enough, even partial cost pass-along power can result in significantly higher profits.
Stocks with 2% yields are no solution to low interest rates. The cash flow is the same but one is betting terminal value in a casino while the other is at least a very high probability of getting your principal back. As for inflating debt away, this is a total misnomer....the only way total debt can be inflated away is for inflation to rise at a faster rate than debt issuance........that ain't happening and at the rate the TSY is issuing debt inflation would have to certainly rise to double digit rates........anarchy would result long before the debt was inflated away......as money leaves the US for safer ground along with retail leaving because they are getting screwed every single day.......I suspect the only and last buyer of stock will be the FED....but they will be saving or propping up a very small and growing smaller piece of the domestic economy....certainly not enough for any traction to gain hold.
THE GREAT RECESSION OF THE 1890's is the closest comparison we have today.
(excluding the agricultural sector)
Double dip decade long precipitated by a corrupt private bank and semi-private Federal Reserve system...
Don't forget also the lower P/E's reflected the lower quality of earnings.....mainly coming from inflated earnings..........needless to say I don't buy Spiegel's agrument.
Thanks for taking the time to discuss this, I feel strongly about it and love learning more on this topic.
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