The reigning paper money system is at the center of the growing income inequality and expanding poverty rates we find in many countries today. Nevertheless, states continue to grow in power in the name of taming the market system that has supposedly caused the impoverishment actually caused by the state and its allies. If those who claim to speak for social justice do nothing to protest this, their silence can only have two possible reasons. They either don’t understand how our monetary system functions, in which case, they should do their research and learn about it; or they do understand it and are cynically ignoring a major source of poverty because they may in fact be benefiting from the paper money system themselves.
Thailand Police & Military Step Aside As Anti-Government Protesters Reach PM's Office; Declare VictorySubmitted by Tyler Durden on 12/02/2013 23:56 -0500
As the "peoples' coup" in Thailand gets the blessing of the country's Military leader (who stated he would not intervene), the police have also undertaken an unexpected reversal of strategy by removing barriers from the heavily fortified police and government buildings. The government no longer wants to confront the protesters in the 3rd of fighting with 3 dead and at least 230 injured. As AP reports, the protesters have made no attempts (yet) to enter Government House but are milling around the entrance. The government has 'asked' people to stay inside and police helicopters are reportedly dropping leaflets warning demonstrators to move out of the rally sites (on grounds of insurrection and possibel death penalty). The anti-government protesters have declared "victory" as the police state "there will be no tear gas today."
The Economist found, rather sadly, despite all the glad-handing and happy-talk, that 53% of financial services executives believed that strict adherence to ethical conduct would make career progression difficult. As this former Wall Street trader told The Guardian, "a precedent needs to be set, to slow down Wall Street's wild behavior. A reminder that rules are there to be followed, not exploited." The reason, among others, is summed up by the following, "if a customer wants a red suit, you sell them a red suit. If that customer is Japanese, you charge him twice what it costs."
Over the years, as the WSJ notes, the only way inequality has really mattered to professional investors is 'if the rich are getting richer, companies that cater to them have better prospects'. Lately, though, some big investors have worried increasing income and wealth gaps threaten the economy's ability to expand (discussed here and here most recently.) One reason U.S. corporate profit margins are at records is the share of revenue going to wages is so low. An economy where income and wealth disparities are smaller might be healthier; but it would also leave less money flowing to the bottom line, something that is increasingly grabbing fund managers' attention.
Recent activity in asset markets suggests dangerous bubbles are building everywhere. It's time to bunker down and we look at ways to best protect your capital.
The extreme experiment of current US monetary policy has evolved (as we noted yesterday), from explicit end-dates, to unlimited end-dates, to threshold-based end-dates. Of course, this 'threshold' was no problem for the liquidty whores when unemployment rates were extremely high themselves, but as the world awoke to what we have been pointing out - that it's all a mirage of collapsing participation rates - the FOMC (and sell-side strategists) realized that the endgame may be 'too close'. Cue Goldman's Jan Hatzius, who in today's note, citing two influential Fed staff economists, shifts the base case and forecasts that the Fed will lower its threshold for rate hikes to 6.0% (and perhaps as low as 5.5%) as early as December (as a dovish forward-guidance balance to an expected Taper announcement).
Over 2 years ago when we first discussed the fact that "muddle through" had failed, BCG noted that "there were only painful ways out of this mess." The most painful truth, they suggested, was that "the only way to resolve the massive debt load is through a global coordinated debt restructuring... which will have to be funded by the world's financial asset holders: the middle-and upper-class' who will have a ~30% one-time tax on all their assets to look forward to as the great mean reversion finally arrives and the world is set back on a viable path." However, given the delay (and worst progression), Ken Rogoff warns that temporary wealth taxes may well be a part of the answer for countries in fiscal trouble today, and the idea should be taken seriously; but they are no substitute for fundamental long-term reform to make tax systems simpler, fairer, and more efficient.
The philosophical roots of Janet Yellen's economics voodoo, it seems, are in many ways even more appalling than the Bernanke paradigm (which in turn is based on Bernanke's erroneous interpretation of what caused the Great Depression, which he obtained in essence from Milton Friedman). The following excerpt perfectly encapsulates her philosophy (which is thoroughly Keynesian and downright scary): Fed Vice Chairman Yellen laid out what she called the 'Yale macroeconomics paradigm' in a speech to a reunion of the economics department in April 1999. "Will capitalist economies operate at full employment in the absence of routine intervention? Certainly not," said Yellen, then chairman of President Bill Clinton's Council of Economic Advisers. "Do policy makers have the knowledge and ability to improve macroeconomic outcomes rather than make matters worse? Yes," although there is "uncertainty with which to contend." She couldn't be more wrong if she tried. We cannot even call someone like that an 'economist', because the above is in our opinion an example of utter economic illiteracy.
The debut of Healthcare.gov has been probably the worst launch of a major website in history, millions of Americans are having their current health insurance policies canceled, millions of others are seeing the size of their health insurance premiums absolutely explode, and this new law is going to result in massive numbers of jobs being lost. It is almost as if Obamacare was specifically designed to wreck the U.S. economy. Americans are going to pay far more for health care, the quality of that care is going to go down, they are going to have to deal with far more medical red tape, and thousands upon thousands of U.S. employers are considering getting rid of the health plans that they offer to employees altogether due to Obamacare. If the U.S. health care system was a separate nation, it would be the 6th largest economy on the entire planet, and now Obamacare is going to absolutely cripple it. To say that Obamacare is an "economic catastrophe" would be a massive understatement. Of course we were assured that it wouldn't turn out this way.
No wonder investors don't take economists seriously. Or if they do, they shouldn't. Since Richard Nixon interrupted Hoss and Little Joe on a Sunday night in August 1971, it's been one boom and bust after another. But don't tell that to the latest Nobel Prize co-winner, Eugene Fama, the founder of the efficient-market hypothesis. No matter the facts, Fama has his story and he's sticking to it. "I think most bubbles are 20/20 hindsight," Fama told Cassidy. The rest of us, who lived through the tech and real estate booms while Fama was locked in his ivory tower, know that in a boom people go crazy. There's a reason the other term for bubble is mania.
While Eike Batista's collapse from grace may be the poster child for the country, this deep dive into the Latin American economy concludes Brazil’s flaws are clear. Commodity prices have been volatile; global growth has been weak and inconsistent. Brazil can no longer depend on these factors for growth. A closer look reveals that internal conditions are progressively becoming Brazil’s main economic foe. Ironically this is good news as the country is increasingly in a position to take control of its destiny. What is needed is decisive leadership and effective solutions to the long-term problems plaguing the country. Short-term stimulus measures and even supply-side measures such as reduced taxes have clearly not stimulated the economy. Brazil must invest in its own future.
Mass Surveillance Destroys Innovation, Trust, the U.S. Internet Market and Other Foundations of Prosperity
Here are six things to ponder this weekend:
1. Inflation Debate Continues
2. The Obamacare Nightmare
3. The Disconnect Between "Main Street" and "Wall Street"
4. Payroll Number Become Even More Manipulated
5. Congress Living The High Life At The Taxpayers Expense
6. What If The "Fear Trade" Bubbles Up?
Democracy has regressed in 15 out of the 17 euro-area countries since 2008, according to the Economist Intelligence Unit’s democracy index, as economic policy was increasingly influenced by the ECB, the EU and the IMF, instead of elected politicians - something Nigel Farage has been vociferously concerned about.
For what it's worth, here is Goldman's Jan Hatzius with a Q&A on the Fed's announcement, which now sees the first tapering to start in December, QE to conclude (three months after their prior forecast), and expects the first rate hike to take place in 2016: 8 years after the start of the financial crisis: "We now expect the QE tapering process to start at the December 2013 FOMC meeting and to conclude in September 2014, three months later than before. Our baseline is that the first step will consist of a $10bn cut in Treasury purchases. These steps remain data dependent in all respects--timing, size, and composition. A change in the explicit forward guidance for the federal funds rate is also likely, probably at the same time as the first tapering step. Our baseline is an indication that the 6.5% unemployment threshold is conditional on a forecast of a near-term return of inflation to 2%, and that a lower threshold would apply otherwise. But there are also other options, such as an outright inflation floor or an outright reduction in the unemployment threshold. Our forecast for the first hike in the funds rate remains early 2016. The reasons are the large output gap, persistent below-target inflation, and some weight on "optimal control" considerations."