en Abewrongics: Nikkei/USDJPY Tankin' After Terrible Tankan <p>Bad news isn't even good news anymore in Japan. A sushi-boat-load of data this evening show once again that Abenomics is failing dismally. In no particular order... Large Manufacturing Index <strong>MISS </strong>(lowest in 9 months), Large Manufacturing Outlook <strong>BIG MISS</strong>, Large Services Outlook MISS, Small Manufacturing Index <strong>MISS</strong>, Small Manufacturing Outlook <strong>BIG MISS</strong>, and drum roll please... Tankan <strong>Large Industry Capex Outlook crashes to -1.2% (from +8.7%) - the lowest in 2 years</strong> (since Abewrongics was unleashed). The response... USDJPY and Nikkei are dumping...</p> <p>&nbsp;</p> <p>So much for unleashing animal spirits... Capex outlook plunges...</p> <p><a href=""><img src="" width="600" height="311" /></a></p> <p>&nbsp;</p> <p>And bad news is no longer good news in Japan as investors lose faith...</p> <p><a href=""><img src="" width="600" height="318" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p>Charts: Bloomberg</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="963" height="499" alt="" src="" /> </div> </div> </div> Abenomics Japan Nikkei Wed, 01 Apr 2015 00:15:03 +0000 Tyler Durden 504098 at This Is How Many Times Blogger Bernanke Use The Word "Debt" In A Post About Secular Stagnation <p>By now <strong>everyone</strong>, any by everyone we mean even that pillar of orthodox "economic wisdom" , <a href="">McKinsey</a>, has realized that the reason the world is blanketed in a period of secular stagnation and soon, contraction, is simple: an unprecedented, record amount of debt:</p> <p><a href=""><img src="" width="545" height="452" /></a></p> <p>... debt which the world should have restructured as part of the resolution of the global financial crisis, however neither was the financial crisis resolved, nor was the debt overhang fixed. In fact, in all his brilliance, then Fed Chairman Ben Bernanke decided to "fix" record debt with more debt and so did all his other central bank peers leading to this:</p> <p><a href=""><img src="" width="555" height="972" /></a></p> <p>&nbsp;</p> <p>In fact <a href="">McKinsey could not be clearer</a>, even for those central bankers who at first, or second, sight may suffer from congenital comprehension defects:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong>&nbsp;“High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.” </strong></p> </blockquote> <p>So considering that in his latest blog post "<a href="">Why are interest rates so low, part 2: Secular stagnation</a>" none other than the abovementioned Ben Bernanke decides to tackle precisely the topic of global growth, or lack thereof, and specifically "secular stagnation", one would think that debt would be the dominant word under discussion in Ben Bernanke's <a href="">latest Brookings Institute post</a>.</p> <p>One would be wrong. Here is the number of times Ben Bernanke used the word debt in an article that has 1299 words.</p> <p>&nbsp;</p> <p style="text-align: center;"><span style="font-size: 72px;"><strong>1</strong></span></p> <p>... or a "hit rate" of 0.08%. </p> <p>This is the context:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, <strong>because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns</strong>.</p> </blockquote> <p>He is, actually, correct in this sentences. It is everything else that he is incorrect about.</p> <p>For example error #1:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>The Fed cannot reduce market (nominal) interest rates below zero, and consequently—assuming it maintains its current 2 percent target for inflation—cannot reduce real interest rates (the market interest rate less inflation) below minus 2 percent. </p> </blockquote> <p>of course the Fed can reduce rates below zero: just look at all of its foundering central bank peers in Europe. NIRP is coming to the US, and Bernanke knows it. Furthermore he is being utterly disingenous:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>I’ll ignore here the possibility that monetary tools like quantitative easing or slightly negative official interest rates might allow the Fed to get the real rate a bit below minus 2 percent.</p> </blockquote> <p>Oh, ignore QE please. After all it has led only to a tiny $4.5 trillion Fed balance sheet. What's that: like 25% of US GDP? Just ignore it. Not like the Fed can't raise rates and disappear trillions in bank excess reserves in "15 minutes." Of course, the S&amp;P will be trading at 15 as well, but who cares.</p> <p>The farce continues:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>Does the U.S. economy face secular stagnation? <strong>I am skeptical</strong>, and the sources of my skepticism go beyond the fact that the U.S. economy looks to be well on the way to full employment today. </p> </blockquote> <p>It <a href="">sure does</a>:</p> <p><a href=""><img src="" width="600" height="395" /></a></p> <p>&nbsp;</p> <p>Oh, and please ignore the <a href="">following too</a>.</p> <p><a href=""><img src="" width="600" height="569" /></a></p> <p>&nbsp;</p> <p><a href="">And this</a>:</p> <p><a href=""><img src="" width="600" height="383" /></a></p> <p>Just keep repeating: on way to "full employment." Affter all Ben Bernanke said it.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>First, as I pointed out as a participant on the IMF panel at which Larry first raised the secular stagnation argument, at real interest rates persistently as low as minus 2 percent it’s hard to imagine that there would be a permanent dearth of profitable investment projects. As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable<strong>. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades</strong>. It’s therefore questionable that the economy’s equilibrium real rate can really be negative for an extended period. </p> </blockquote> <p>The days of the Rocky Mountains may well be numbered. And then the bubble master himself says something truly profound.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>I generally agree with the recent critique of secular stagnation by Jim Hamilton, Ethan Harris, Jan Hatzius, and Kenneth West. In particular, <strong>they take issue with Larry’s claim that we have never seen full employment during the past several decades without the presence of a financial bubble. </strong>They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output. They argue that recent slow growth is likely due less to secular stagnation than to temporary “headwinds” that are already in the process of dissipating. <strong>During my time as Fed chairman I frequently cited the economic headwinds arising from the aftermath of the financial crisis on credit conditions; the slow recovery of housing; and restrictive fiscal policies at both the federal and the state and local levels. </strong></p> </blockquote> <p>Ironic Bernanke should say that, because what the world will most remember him for are the sayings on the linked page: <a href="">Federal Reserve Board Chairman Ben Bernanke's Greatest Hits</a>. Everyone should read these to recall what the Fed chairman was really saying.</p> <p>But the punchline, and where Bernanke's true colors once again shine, is in his final paragraph:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>My greatest concern about Larry’s formulation, however, is the lack of attention to the international dimension. He focuses on factors affecting domestic capital investment and household spending. All else equal, however, the availability of profitable capital investments anywhere in the world should help defeat secular stagnation at home. <strong>The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad, the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports. </strong>Increased exports would raise production and employment at home, helping the economy reach full employment. In short, in an open economy, secular stagnation requires that the returns to capital investment be permanently low everywhere, not just in the home economy</p> </blockquote> <p>Clearly that theory has worked so well for all hyperinflating countries who took Bernanke's advice and crushed their currency only to not reap the numerous benefits of monetary collapse and the resultant economic devastation.</p> <p>However, where everything clicks, is Bernanke's insistence that it all goes back to crushing the dollar, i.e., printing so much of it that it is devalued. Which in turn brings us to Bernanke's far more seminal and important speech from November 2002, "<a href="">Deflation: Making Sure "It" Doesn't Happen Here</a>", in which he laid out very clearly how this entire episode of market, financial and economic idiocy will end.</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>... the effectiveness of anti-deflation policy could be significantly enhanced by cooperation between the monetary and fiscal authorities. A broad-based tax cut, for example, accommodated by a program of open-market purchases to alleviate any tendency for interest rates to increase, would almost certainly be an effective stimulant to consumption and hence to prices. Even if households decided not to increase consumption but instead re-balanced their portfolios by using their extra cash to acquire real and financial assets, the resulting increase in asset values would lower the cost of capital and improve the balance sheet positions of potential borrowers. <strong>A money-financed tax cut is essentially equivalent to Milton Friedman's famous "helicopter drop" of money</strong>.</p> </blockquote> <p>And there you have it: when all else fails, the helicopter will come out. A helicopter that will drown the world in crisp $100 (and soon <em>$100,000,000,000,000</em>) bills, which in turn will hyperinflate everything. The debt included. </p> <p><img src="" width="280" height="281" /></p> <p>Is it thus any wonder then why Bernanke used the word "debt" only once in a blog post that was all exclusively about debt?</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="280" height="281" alt="" src="" /> </div> </div> </div> Ben Bernanke Ben Bernanke Credit Conditions Ethan Harris Excess Reserves Federal Reserve fixed Housing Bubble Jan Hatzius McKinsey None Paul Samuelson Quantitative Easing Real Interest Rates recovery Trade Deficit Tue, 31 Mar 2015 23:45:19 +0000 Tyler Durden 504095 at Guest Post: Burning Down The House: Land, Water & Food <p><em>Submitted by Luke Eastwood</em></p> <p><strong>Burning Down The House: Land, Water &amp; Food</strong></p> <p>I&rsquo;m sure when Talking Heads wrote &quot;Burning Down The House&quot; that they didn&rsquo;t exactly have financial collapse and environmental degradation in mind. Although with a verse like &ldquo;Hold tight wait till the party&#39;s over. Hold tight we&#39;re in for nasty weather. There has got to be a way. Burning down the house&rdquo; it&rsquo;s hard not to see that song as strangely prophetic.</p> <p>What we are now doing to the planet and to human society is exactly that &ndash; burning down the house while we are still living in it. Everyone needs fuel, especially during a bitter winter, but only a mad man starts deconstructing the house in order to burn bits of it in the stove or fireplace.</p> <p>Almost as mad as that is stealing bits of other people&rsquo;s houses to burn, but that at least is not soiling your own doorstep &ndash; well not at first. In a world of limited resources and limited space we&rsquo;ve now reached the point where raiding our neighbours&rsquo; houses is the same thing as raiding our own house, because the net effect is the same &ndash; disaster on an unprecedented level.</p> <p>Of course it&rsquo;s easier to live in denial and keep on cannibalising the world&rsquo;s vital resources at an ever-increasing rate and pretend that it&rsquo;s business as usual, but in reality it is anything but that. The alarm bells from commentators from all sectors: science, economics, religion etc. are getting louder and more frequent, better argued and with the raw data to back it up, but we are still not listening.</p> <p>Of course, the alarm bell was being rung fifty or more years ago by people such as Admiral Hyman Rickover in 1957<sup>1</sup>, the now retiring Lester Brown<sup>2</sup> and the late Rachel Carson<sup>3</sup> (author of Silent Spring). Nobody really listened that well back then, although governments paid lip-service to these troublesome do-gooders. Now we know that what they said was entirely true, that we are headed for disaster and yet will still only get the tired old lip-service, as before or Koch Brother inspired denial.</p> <p>The evidence is clearly there that we are depleting all of our resources far too quickly, especially the land we use to produce food and draw raw materials from<sup>4</sup>. In part a consequence of this, the fresh water supplies that are even more vital are also being depleted way too fast.&nbsp; Devastation of the land, especially deforestation exacerbates water loss and soil erosion. Couple this with increased damming of rivers, pollutant run-off into rivers, fracking and mining and you&rsquo;ve a recipe for a water crisis, which will, in turn, lead to a food crisis<sup>5</sup>.</p> <p>Without fresh water we cannot participate in agriculture &ndash; this is the basic fundamental industry that keeps most people on this planet alive. Of course, a few people subsistence farm or hunt and gather still, but this is a tiny, tiny fraction of the human population. The rest of the world relies on increasingly intensive agriculture to provide vegetables, grains, fruit and also meat for the several billion people that are busy doing something else with their time.</p> <p>Although this is now a major catastrophe in the making &ndash; the current wisdom seems to be to gear up for water wars (metaphorical or actual), rather than making a cooperative effort to save or increase our existing water resources and manage the use of water to reduce ridiculous wastage levels<sup>6</sup>.</p> <p>Governments and corporations are well aware that this is the new problem around the corner, or rather already here. The typical, unfortunate response seems to be competition, not cooperation<sup>7</sup>. Competition, of course can only end badly for most countries, and may indeed be the undoing of the entire human race, plus a whole raft of other species.</p> <p>The recently banned, film &lsquo;Under The Dome&rsquo;<sup>8</sup> highlights this problem of water pollution and over-use in the unstoppable march of China towards economic supremacy. In the end it is unlikely to be the Americans or any other country that will bring China&rsquo;s economic miracle to an end &ndash; it will be the collapse of the environment that will force them to stop the machine. Bad air, bad water, bad land and total reliance on imported food will inevitably take its toll.</p> <p>Of course these problems are not restricted to China, China is simply the canary in the coalmine. Across the Middle-East, Asia, Africa, southern Europe, USA and central and southern America there are increasing difficulties relating to the basics of food, water and the condition of the land<sup>9, 10</sup>.</p> <p>While many of us are worried about &lsquo;the economy&rsquo;, whether or not we can afford that holiday or a new car; perhaps we should be more worried about what we are going to eat and drink in a few short years from now. Those of you familiar with Maslow&rsquo;s &lsquo;Hierarchy Of Needs&rsquo; will realise that iPads, holidays and fancy shirts will all go out of the window once our basic needs are in danger.</p> <p>When our basic physiological and security needs are threatened then all else seems relatively insignificant. If this happens en masse, particularly on a global scale then the consumer economy that we all accept as the norm is likely to disappear almost overnight.</p> <p>Although we all know that something must be done about the environment, but that concern has still failed to translate into concrete action. It&rsquo;s almost as if we&rsquo;ve noticed the chip-pan fire in the kitchen but continue watching the TV, hoping that it will go out by itself. Well the fire is not going to go out by itself, it has already spread to half the house<sup>11</sup> and we are still on the couch, chatting about what we should do next.</p> <p>James Carville came up with a great slogan for Bill Clinton&rsquo;s election campaign &ndash; &ldquo;It&rsquo;s the economy, stupid&rdquo;, to great effect. Well, I think a new variation on that phrase is long over due, as without the basics of life there is no economy and no house left to throw in the fireplace. I wonder if you can guess what that phrase might be? Suggestions welcome.</p> <hr /> <p><span style="font-size:10px;"><em>1 <a href="" title=""></a></em><br /><em>2 <a href="" title=""></a></em><br /><em>3 <a href="" title=""></a></em><br /><em>4 <a href="" title=""></a></em><br /><em>5 <a href="" title=""></a></em><br /><em>6 <a href="" title=""></a></em><br /><em>7 <a href="" title=""></a></em><br /><em>8 <a href="" title=""></a></em><br /><em>9 <a href="" title=""></a></em><br /><em>10 <a href="" title=""></a></em><br /><em>11 <a href="" title=""></a></em></span><br />&nbsp;</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="250" height="202" alt="" src="" /> </div> </div> </div> China ETC Guest Post Reality Tue, 31 Mar 2015 23:01:23 +0000 Tyler Durden 504084 at Spot The Odd One Out <p>How long can this last?</p> <p>&nbsp;</p> <p><a href=""><img src="" width="600" height="317" /></a></p> <p>&nbsp;</p> <p><em>Chart: Bloomberg</em></p> <p><em>h/t Brad Wishak</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="960" height="507" alt="" src="" /> </div> </div> </div> Tue, 31 Mar 2015 23:00:57 +0000 Tyler Durden 504094 at Western Democracy Or Tyrannical Dictatorship? You Decide <p>Between protracted violence in Iraq, the bloody civil war in Syria, continued instability in Libya, and most recently, the collapse of the Yemeni government and subsequent Saudi-led military <a href="">incursion</a>, one might be able to make a compelling case for the notion that the Middle East was better off when it was run by dictators. Simply put: as the death toll mounts from the various regional conflicts, one wonders if trading autocratic rule for some semblance of stability isn’t all that bad of a compromise. That said, US foreign policy seems to be everywhere and always inept especially as it relates to the Arab world and as CNN notes, propping up dictatorships at the expense of basic rights and freedoms sows the seeds for violent revolution even as it can serve to keep a fragile status quo intact for long periods of time.&nbsp;</p> <p>From <a href="">CNN</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>Before 2011, what the West most valued in the Middle East was stability rather than democracy. Arab dictatorships were tolerated for decades despite their cruelty because they served Western economic, political, and security interests.</em></strong></p> <p>&nbsp;</p> <p><em>In Egypt, Hosni Mubarak was seen as the bulwark of peace with Israel. In Libya, a reformed Moammar Gadhafi was courted for potential investment and trade agreements. In Syria, Bashar al-Assad was a predictable leader who maintained the Golan Heights as a conflict-free zone. In Yemen, Ali Abdullah Saleh was regarded as an ally against al Qaeda.</em></p> <p>&nbsp;</p> <p><strong><em>Dictatorships kept the status quo manageable. Government suppression of activism and of the alternative voices of civil society and independent media meant that top-down decisions were rarely contested. This pretty much guaranteed that Western interests would be served without too many complications.</em></strong></p> <p>&nbsp;</p> <p><em>In return, Arab dictators enjoyed Western financial and military aid and political reassurances. Yemen was the epitome of this dynamic. Saleh courted and was courted by American diplomats who turned a blind eye to his transgressions, from arms smuggling to forcing new businesses to include him as a "partner" so that he could ensure a cut in the profits, while most Yemenis lived below the bread line…</em></p> <p>&nbsp;</p> <p><strong><em>When the reality of living under dictatorships became exposed with the Arab Spring, the West could no longer ignore it and had to publicly declare support for the uprisings. But the West did not have a long-term strategy for handling the aftermath of dictatorships -- and the results have been catastrophic.</em></strong></p> <p>&nbsp;</p> <p><em>Libya saw hasty international military intervention without a vision for stabilizing the country, and today is falling apart. Syria saw diplomatic toing and froing that eventually dragged the West into a messy war.</em></p> <p>&nbsp;</p> <p><em>Yemen was for a while thought of as an acceptable compromise because of the Gulf Cooperation Council's initiative that ended the uprising through a negotiated transition from Saleh to his deputy Abd Rabbuh Mansour Hadi. But the long-term implications for this transition were ignored and Yemen today is paying the price…</em></p> <p>&nbsp;</p> <p><em>But the current misery in the Middle East still does not mean that the region was better off under dictatorships. The aftermath of dictatorships is always messy, and democratic transition is never linear.</em></p> <p>&nbsp;</p> <p><strong><em>Those with nostalgia for the days of Arab strongmen should remember that autocratic regimes plant the seed of future unrest and therefore only offer false, temporary security -- even if "temporary" takes a few decades to pass.</em></strong></p> </blockquote> <p>* &nbsp;* &nbsp;*</p> <p>It's abundantly clear at this point that whatever "temporary security" the region "enjoyed" under iron-fisted autocrats is now long gone and it now appears that the blowback from Washington's Middle East policies could result in not one, but two proxy wars: one between Saudi Arabia and Iran in Yemen and the other between the US and Russia in Syria. As one US diplomat recently put it:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>"You have civil wars, you have proxy wars. You have regional wars all in one and these things have so many logs on the fire, to use the metaphor, that they ... burn and burn and burn for a long time."</em></strong></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="225" height="130" alt="" src="" /> </div> </div> </div> Iran Iraq Israel Middle East Reality Saudi Arabia Tue, 31 Mar 2015 22:30:00 +0000 Tyler Durden 504090 at America: The "Nursing Home" Economy <p><a href=""><em>Submitted by Bill Bonner via Acting-Man blog</em></a>,</p> <h3><strong>Victims of Demography</strong></h3> <p>The key feature of age is that it happens no matter what you think. What does this mean? It means the &ldquo;old countries&rdquo; &ndash; their assets and their institutions, at least the ones that depend on population, income and credit growth &ndash; are &ldquo;fastened to a dying animal&rdquo; and are not likely to survive in their present form.</p> <p>Today, these countries, including the US, are victims of demography. Older people get more money from the government. And they pay less in taxes. Old people also slow the rate of GDP, for obvious reasons: They are not adding to output; they are living on it.</p> <p>As people age, the whole society &ndash; its institutions, its laws, its customs, its economy and its markets &ndash; ages, too. They all become as familiar, comfortable and shabby as a well-worn shoe. An economy is not independent of the people in it. The economy ages with them. And when they reach retirement age, the economy gets arthritis.</p> <p>&nbsp;</p> <p style="text-align: center;"><img alt="Alexis_de_tocqueville" class="aligncenter size-full wp-image-36674" height="512" src="" width="511" /></p> <p style="text-align: center;">Alexis de Tocqueville: not convinced of democracy&rsquo;s longevity</p> <p style="text-align: center;">Painting by <span class="mw-mmv-source-author"><span class="mw-mmv-author"><span class="fn" id="creator"><a class="extiw" href="" title="en:Théodore Chassériau">Théodore Chassériau</a></span></span></span></p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="japan_pyramid_to_kite" class="aligncenter wp-image-36670" height="282" src="" width="600" /></a></p> <p style="text-align: center;">Age distribution of Japan&rsquo;s population, past and future &ndash; click to enlarge.</p> <p>&nbsp;</p> <h3><strong>A Nursing Home Economy</strong></h3> <p>Even the Congressional Budget Office has noticed how government debt slows growth:</p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p>Increased borrowing by the federal government generally draws money away from (that is, crowds out) private investment in productive capital in the long term because the portion of people&rsquo;s savings used to buy government securities is not available to finance private investment. The result is a smaller stock of capital and lower output in the long term than would otherwise be the case all else held equal (CBO, July 2014, p. 72).</p> </blockquote> <p>Why does the federal government need to borrow so much? Before the invention of the welfare state, almost all large borrowing was done for war. Since the end of World War II, however, most developed countries &ndash; with the exception of the US &ndash; have borrowed heavily only to pay for social programs.</p> <p>But neither debt nor spending contributes to a dynamic, innovative and growth-oriented economy. Instead, they produce an economy that looks like the people in it &ndash; old, creaky and in need of around-the-clock care.</p> <p>As people age, they begin fewer new businesses. &ldquo;The Other Aging of America: The Increasing Dominance of Older Firms&rdquo; is the title of a major study from the Brookings Institution. Done by Robert Litan and Ian Hathaway, it showed that American business was becoming &ldquo;old and fat.&rdquo;</p> <p>Taken together, the data presented here clearly show a private sector where economic activity is sharply concentrating in older firms &ndash; a trend that is occurring in a nearly universal fashion across sectors, firm sizes and geographies&hellip;</p> <p>An economy that is saturated with older firms is one that is likely to be less flexible, and potentially less productive and less innovative, than an economy with a higher percentage of new and young firms. Young people try to create new wealth. Old people try to hold on to the wealth they believe they have in the bag. They are less entrepreneurial. They are also, perhaps, more eager to protect their businesses and professions from competition.</p> <p>Part of the reason for fewer business start-ups is that it has gotten a lot harder to launch a new company in America. That was the conclusion of a study by John W. Dawson and John J. Seater (&ldquo;Federal Regulation and Aggregate Economic Growth&rdquo;). What they found was that there has been a huge increase in economic regulation and restrictions in the US since World War II.</p> <p>They point out that these regulations have an economic cost. Like debt and demography, regulations reduce output. In fact, they estimate that had the level of regulation remained unchanged since the year I was born &ndash; 1948 &ndash; today&rsquo;s GDP would provide every man, woman and child in America with about $125,000 more in income per year.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="cost of regulations" class="aligncenter wp-image-36669" height="412" src="" width="600" /></a></p> <p style="text-align: center;">Annual cost of US regulations, from;s &ldquo;10,000 commandments&rdquo; report &ndash; click to enlarge.</p> <p>&nbsp;</p> <h3><strong>A Glorified Ponzi Scheme</strong></h3> <p>It was Alexis de Tocqueville who observed that democracy was doomed. He said it would soon degrade into tyranny. As soon as politicians realized that they could win elections by promising the voters more of other people&rsquo;s money, it was just a matter of time until they overdid it.</p> <p>Had he imagined how old people would get, he wouldn&rsquo;t have been so optimistic. As things developed, politicians noticed two important things: that young people (especially those who hadn&rsquo;t been born yet) didn&rsquo;t vote&hellip; and old people&rsquo;s votes could be bought fairly cheaply, at least so it appeared at first.</p> <p style="text-align: center;">&nbsp;</p> <p style="text-align: center;"><img alt="population of retirees" class="aligncenter wp-image-36672 size-full" height="345" src="" width="540" /></p> <p style="text-align: center;">When the US Social Security program was first put in place, for example, the typical American male could expect nothing from it. He was expected to live to 61. He&rsquo;d be dead before benefits kicked in. But as the 20th century led to the 21st, his life expectancy increased, and so did the burden of old people.</p> <p>&nbsp;</p> <p>Early Social Security participants paid in trivial amounts and got a very good return on their money. My mother, for example, only worked a few years at a low-paying job, from which she retired in 1986. She has been collecting Social Security ever since.</p> <p>&ldquo;Don&rsquo;t you feel guilty about getting so much more than you put in?&rdquo; I teased her.</p> <p>&ldquo;Not at all. That&rsquo;s just the way the system works.&rdquo;</p> <p>The way the system works would be illegal for a private annuity plan. It would be labeled a Ponzi scheme. Its promoters would be fined or put in prison. The money that goes into the system is not locked away in wealth-producing investments so that the cash will be available to finance the retiree&rsquo;s pension. Instead, the contributions of new participants are used to pay benefits to old ones.</p> <p><strong>This has the obvious and fatal flaw of all Ponzi schemes &ndash; eventually, there is not enough new money coming into the system to meet its obligations. This point was reached in the US system in 2010. Since then, the system has been running an annual deficit. You&rsquo;ll see why in the chart showing the retirement-age population.</strong></p> <p>Everybody knows Social Security, the Affordable Care Act, veterans&rsquo; pensions and other support programs are dangerously underfunded. What is not appreciated is the effect that this has on GDP growth and stock market prices.</p> <p>The crankshaft of age leads to the universal joint of social spending, which then goes to the axles of debt. Finally, where the rubber meets the road, the wheels turn more slowly.</p> <p>This is not just a problem for government finance. Companies make money by putting out products and selling them. But when people grow old or population growth declines, so do both supply and demand.</p> <p>Then, companies earn less money. Their shares are worth less. Personal incomes go down. Capital gains retreat. And tax revenues fall, too. When this happens in an economy that is already deeply in debt, it triggers a crisis.</p> <p>&nbsp;</p> <p style="text-align: center;"><a href="" target="_blank"><img alt="social security deficit" class="aligncenter wp-image-36673" height="420" src="" width="600" /></a></p> <p style="text-align: center;">Projected future social security deficits &ndash; if tax revenues were to remain constant, entitlement spending and interest costs would consume all revenues by 2031 &ndash; click to enlarge.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="607" height="432" alt="" src="" /> </div> </div> </div> Congressional Budget Office Japan Tue, 31 Mar 2015 22:05:46 +0000 Tyler Durden 504093 at Money Printing Deja Vu - German Inflation Is Surging (Again) <p>Weidmann had warned us about this...a new index, created by Handelsblatt, <strong>measuring the inflation of asset prices in Germany <span style="text-decoration: underline;">confirms the suspicion many have held</span></strong> - while German CPI stagnates <em>(printing modestly hotter than expected today, driven by continued rises in higher gasoline prices and food prices)</em>, asset prices are rising sharply amid an over-relaxed monetary policy.</p> <p>&nbsp;</p> <ul> <li><strong>Consumer prices briefly increased by 2.4 percent in 2011, but then declined again and even turned negative at the start of this year.</strong></li> <li><strong>Asset prices, on the other hand, increased by 4.4 percent in the first quarter of 2015 alone, according to the new index.</strong></li> <li><strong>The sharp rise in asset prices is attributed to the ECB&rsquo;s relaxed monetary policy.</strong></li> </ul> <p>&nbsp;</p> <p><img height="359" src="" width="600" /></p> <p>&nbsp;</p> <p><a href=""><em>As Handelsblatt reports,</em></a></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>It has been a perennial concern of German economists: The European Central Bank&rsquo;s loose monetary policy could be setting the stage for rampant inflation in Germany.</strong></p> <p>&nbsp;</p> <p>&ldquo;Hyper inflation&rdquo; is a term long feared by the German public ever since it experienced skyrocketing prices in the 1920s and 1930s &ndash; the kind that forces families to transport cash in wheel barrels to the local supermarket.</p> <p>&nbsp;</p> <p>It is a fear that helps explain <a href="/edition/99/ressort/finance/article/all-in-against-draghi" title="Draghi vs Germany">Germany&rsquo;s reluctance</a> to back the Frankfurt-based ECB, which sets monetary policy for the entire 19-nation euro currency zone, and which has embarked on a series of aggressive moves recently to fight the very opposite of hyper-inflation. &ldquo;Deflation,&rdquo; or falling prices, is a danger that is currently threatening much of Europe. Most economies have recovered much more slowly than Germany since the 2008 financial crisis.</p> <p>&nbsp;</p> <p><strong>So far there has been no proof that the ECB&rsquo;s policies are leading Germany into any kind of dangerous territory. </strong>Annual consumer price inflation briefly rose to 2.4 percent during the course of 2011, but then it declined again. In fact, in January 2015, German prices fell into negative territory.</p> <p>&nbsp;</p> <p><strong><u>The picture may now change. For the first time, in a project launched by Handelsblatt, an institute in Germany has sought to measure the rising value of assets in the Europe&rsquo;s largest economy.</u></strong></p> <p>&nbsp;</p> <p><strong><u>Their results tell a very different story. The new index, which will now be released quarterly, supports the notion that asset prices have increased substantially over the past few years.</u></strong></p> <p>&nbsp;</p> <p><strong>German economists believe the ECB&rsquo;s monetary policy is driving up asset prices,</strong> while consumer prices have remained relatively flat. <strong>The new index backs up their arguments.</strong></p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p><em>Source: Handelsblatt</em></p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="767" height="459" alt="" src="" /> </div> </div> </div> Consumer Prices CPI European Central Bank Germany Monetary Policy Tue, 31 Mar 2015 21:40:39 +0000 Tyler Durden 504044 at CNBC's SquawkBox Has Lowest Nielsen Rating In Its History <p>Days after <a href="">Zero Hedge broke the news that CNBC </a>had just suffered its worst ever ratings year in 2014...</p> <p><a href="" style="text-decoration: none; color: #666666; font-family: 'Lucida Grande', Verdana, sans-serif; font-size: 13.3333330154419px; font-style: normal; font-variant: normal; font-weight: normal; letter-spacing: normal; line-height: 17.3333339691162px; orphans: auto; text-align: start; text-indent: 0px; text-transform: none; white-space: normal; widows: 1; word-spacing: 0px; background-color: #ffffff;"><img src="" width="600" height="404" style="border: 0px; max-width: 100%; height: auto;" /></a></p> <p>&nbsp;</p> <p>... we weren't at all surprised to <a href="">read in the WSJ </a>that "<strong>CNBC will no longer rely on TV ratings specialist Nielsen to measure its daytime audience, beginning later this year. Instead, it has retained marketing and research firm Cogent Reports for the task.</strong>" </p> <p>WSJ further reported that "CNBC’s daytime Nielsen ratings, which always have been relatively small, have fallen sharply over the past decade. In 2014—its least-watched year since 1995—CNBC had an average audience of 177,000 people from the hours of 9:30 a.m. and 5 p.m., according to Nielsen. That is down 17% from an average of 214,000 viewers in 2004, and it is a drop of 13% from 2013."</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p>It has gotten so bad WSJ is now actively losing leverage, and money, when discussing ads: "<strong>Executives at CNBC said they were leaving money on the table with advertisers and they needed to make a change</strong>. “Nielsen has never measured us accurately,” said CNBC President Mark Hoffman. “If we can’t count the people the right way we can’t get paid the right way.”"</p> </blockquote> <p>The problem, for Mr. Hoffman and CNBC's ad revenues, is that Nielsen is <em>still counting it audience </em>in whatever way <strong>every other </strong>TV network that uses Nilsen is ok with, annd the results are, well, unfortunate. </p> <p>As the following update of CNBC's perhaps most popular (if least watched, lagging even Mad Money) day breaking segment, <a href="">SquawkBox</a>, the show that features Joe Kernen, Becky Quick&nbsp; and Andrew Ross Sorkin just suffered its worst quarterly Nielsen rating in the prime, 25-54 demo, in the show's history. </p> <p><a href=""><img src="" width="600" height="382" /></a></p> <p>&nbsp;</p> <p>Perhaps moving to NYC from Englewood Cliffs in order to procure more "valuable" guests wasn't quite the viewership panacea CNBC had hoped it would be, unless of course said move was merely predicated by budgeting considerations as a result of the above.</p> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="889" height="566" alt="" src="" /> </div> </div> </div> Andrew Ross Sorkin Becky Quick Joe Kernen Mad Money Nielsen ratings Tue, 31 Mar 2015 21:34:52 +0000 Tyler Durden 504080 at Why Weeks After The ECB QE Started Many Are Already Calling For Its Taper <p>Two days into Mario Draghi’s PSPP we noted that talk of a “<a href="">taper tantrum</a>” had already begun. Essentially, Citi looked at what it would mean for supply if the ECB lifted the issue cap to 50% on non-CAC bonds and expanded the list of eligible SSAs. Their conclusion:&nbsp;</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>Despite the agency and non-CAC bond options, <strong>some core NCBs may not be able to fulfill their QE quota.</strong> In that instance, we see the following evolution of events:</em></p> <p>&nbsp;</p> <p><em><strong>The core NCB quota is moved to the semi-core/periphery to prevent the effective tapering of QE. </strong>This is made more practical buy the localization of risks.</em></p> <p>&nbsp;</p> <p><em>If that proves too controversial, perhaps with an eye on the German constitutional Court, then the ECB could move to cutting the depo rate further to maintain loose financial conditions and especially to prevent a taper tantram forcing EURUSD higher.</em></p> </blockquote> <p>Now, not even a month into Q€, some analysts seem to believe that the ECB will begin to scale back its asset purchases as early as the end of this year. Here’s <a href="">Reuters</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><strong><em>An upturn in growth or inflation, a dramatic rise in asset prices and a scarcity of bonds have all been cited as factors that could prompt the ECB to "taper" its purchases.</em></strong></p> <p>&nbsp;</p> <p><em><strong>"We expect the ECB will decide to cut back its bond purchases as early as the second half of this year,"</strong> said DZ Bank analyst Hendrik Lodde, adding the economy could improve towards year-end.</em></p> <p>&nbsp;</p> <p><em>ECB insiders say that so far there has been no discussion among policymakers of tapering QE and Draghi told the European Parliament last week he believed a recovery in inflation depended on full implementation of the programme.</em></p> <p>&nbsp;</p> <p><em>Some analysts say evidence of the tapering debate may at some point emerge in the minutes, or accounts as the ECB calls them, of its policy meetings, the latest of which are published on Thursday.</em></p> <p>&nbsp;</p> <p><em>Unlike the QE programmes initiated by the U.S. Federal Reserve in 2008 and the Bank of Japan in 2013, the ECB's has been launched with a "tailwind" of improving economic data.</em></p> <p>&nbsp;</p> <p><em>On launch day, the ECB lifted its growth forecast to 1.5 percent for 2015, from a previous 1 percent and said inflation would rise from zero this year to 1.8 percent in 2018.</em></p> <p>&nbsp;</p> <p><em>Since then, euro zone data has generally beaten forecasts. Business activity this month was its highest since May 2011, and inflation is expected to nudge back into positive territory after months of declines.</em></p> </blockquote> <p>Of course, if we do get a “taper” in Europe it’s far more likely to come as a result of the program’s structural deficiencies (i.e. PSPPs rules may prove prohibitive when it comes to full implementation) than it is from Mario Draghi suddenly coming to the realization that breaking eurozone money markets by commandeering every piece of high quality collateral he and the various EU NCB chiefs can get their hands on is probably not the best idea when it comes to promoting stability.&nbsp;</p> <p><span style="font-size: 1em; line-height: 1.3em;">In other words, the notion of a “forced taper” seems more feasible than the central bank voluntarily winding down a program it took years to build support for. As we’ve discussed previously, one of the paradoxical aspects of PSPP is that the more successful it is in terms of driving down yields, the less assets there are to buy due to the depo rate floor (ECB won’t buy anything yielding less than -0.20%). <strong>Combine this with the fact that planned purchases already exceed net issuance in an environment where austerity pressures weigh on fiscal policy, and it’s still unclear if the ECB and NCBs will be able to hit their purchase targets especially if the program needs to be expanded because it, like Japanese QE before it, fails to have the desired effect on inflation expectations. </strong>Here’s more from Barclays:</span></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><strong>Fed asset purchases occurred in periods of fiscal stimulus and large budget deficits, the net result being that they never outpaced the net supply of USTs and MBS. Europe, in contrast continues to pursue a policy of fiscal tightening, and we estimate that PSPP will outstrip net supply by €840bn by end-September 2016.</strong> Thus, fixed income yields are likely to feel a more enduring pull from PSPP; our rates team believes that 10y Germany could briefly turn negative depending on the evolution of economic data.&nbsp;</em></p> </blockquote> <p><a href=""><img src="" width="600" height="282" /></a></p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em><span style="font-size: 1em; line-height: 1.3em;">What can go wrong? <strong>If inflation (or inflation expectations) fails to improve in Europe, the ability of the ECB to enlarge the purchase programme could be called into question. </strong>This underpins our general underweight view in peripheral corporates at current tight spreads.&nbsp;</span></em></p> </blockquote> <p>Of course the ECB may also be forced to consider a taper to head off the possibility that large scale purchases are, as we contend, breaking euro money markets. Here’s what JPM had to say on the <a href="">subject</a>:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>“The ECB has the provision that "in case the envisaged amounts to be purchased in a jurisdiction cannot be attained, national central banks will conduct substitute purchases in bonds issued by international organisations and multilateral development banks located in the euro area. These purchases will be subsumed under the 12% allocation to international organisations and multilateral development banks, which will be purchased by some national central banks". While this provision gives some flexibility to the ECB, we note it risks transmitting liquidity impairment from one jurisdiction to another. Raising the issue limit to above 25% for certain bonds or cutting the depo rate to more negative territory are possible options by the ECB as mentioned by our fixed colleagues, G. Salford section in this week’s GFIMS. But again this only shifts the market liquidity problem from one bond segment to another and risks making the ECB chasing its own tail, in our view.In all, we note the above analysis challenges the ability of the Eurosystem to meet its quantitative target without distorting market liquidity and price discovery."</em></p> </blockquote> <p><span style="font-size: 1em; line-height: 1.3em;">Besides, as the following graphic from Citi shows, lifting the non-CAC limit to 50% doesn’t necessarily buy the ECB that much room:&nbsp;</span></p> <p><a href=""><img src="" width="536" height="231" /></a></p> <p>&nbsp;</p> <p>And on the shift to SSA replacements, SocGen is out warning that the ECB may already be pushing investors out of the space:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>However, the lack of interest from EUR-denominated accounts is no doubt linked to the implementation of the PSPP. By squeezing spreads so much, the ECB is crowding investors out of the sector.</em></p> </blockquote> <p>* &nbsp;* &nbsp;*</p> <p>So while we doubt that the ECB will, of its own volition, elect to scale back PSPP out of a highly uncharacteristic respect for sanity and prudence, there are a variety of factors which could lead to a forced taper including a sudden realization that market distortions have become untenable or a lack of supply even if the non-CAC issue cap is raised and substitute SSA purchases are made. <strong>To be sure, a “forced” taper would be very bad perceptually as it would serve to validate the market’s fears that in the event inflation expectations remain muted, the central bank will quite literally be out of options.</strong></p> <p>Here’s SocGen once again, to sum it up:</p> <blockquote><div class="quote_start"> <div></div> </div> <div class="quote_end"> <div></div> </div> <p><em>The major risk to that view is that the ECB, at some point, could scale down the programme on evidence that it is causing excessive distortion in the euro bond markets. What will happen once the ECB has grabbed the low hanging fruit and it becomes more difficult to find sellers of bonds this summer? Breaking the 25% cap for non-CAC issues, expanding the universe to corporate bonds or scaling back the programme all are possible options.&nbsp;</em></p> </blockquote> <div class="field field-type-filefield field-field-image-teaser"> <div class="field-items"> <div class="field-item odd"> <img class="imagefield imagefield-field_image_teaser" width="696" height="327" alt="" src="" /> </div> </div> </div> Bank of Japan Barclays Bond Central Banks Eurozone Federal Reserve fixed Germany Japan recovery Reuters SocGen Tue, 31 Mar 2015 21:15:00 +0000 Tyler Durden 504092 at China Gloats <p>It would appear de-dollarization among America&#39;s &quot;allies&quot; is accelerating...</p> <blockquote class="twitter-tweet" lang="en"><p>As of 6 p.m. Tuesday, a total of 46 countries had applied to be founding members of <a href="">#AIIB</a>. Founding membership will be finalized on April 15</p> <p>&mdash; People&#39;s Daily,China (@PDChina) <a href="">March 31, 2015</a></p></blockquote> <script src="//"></script><p>Most of the 46 nations are here...</p> <p><a href=""><img height="609" src="" width="600" /></a></p> <p>&nbsp;</p> <p>And while Washington has proclaimed Russia as &quot;isolated&quot;, we wonder what the AIIB applications makes America?</p> <p><a href=""><img height="650" src="" width="600" /></a></p> <p>&nbsp;</p> <p>&nbsp;</p> <p><a href="">As Simon Black concluded previously,</a> <strong>this &quot;greatest of all rotations&quot; should not be a surprise...</strong></p> <blockquote><div class="quote_start"><div></div></div><div class="quote_end"><div></div></div><p><strong>Blackmail. Extortion. Intimidation. This isn&rsquo;t the behavior of a trusted friend. It&rsquo;s the behavior of an arrogant sociopath.</strong></p> <p>&nbsp;</p> <p>And the rest of the world is sick of it.</p> <p>&nbsp;</p> <p>Other countries&mdash;even allied nations&mdash;see that times are changing. There are new players on the rise, and the US isn&rsquo;t the only option anymore.</p> <p>&nbsp;</p> <p><strong>Increasingly they&rsquo;re turning to China, who, by some metrics, is already the largest economy in the world.</strong></p> <p>&nbsp;</p> <p><strong>And the US government can&rsquo;t do anything about it.</strong></p> <p>&nbsp;</p> <p>This is happening now with increasing speed. It&rsquo;s mainstream news everywhere: the US is being shunned by its allies for the new kid on the block.</p> <p>&nbsp;</p> <p>This has major implications for the United States. History shows that when reserve currencies change, the losing country almost invariably goes through significant turmoil.</p> <p>&nbsp;</p> <p><strong>But here&rsquo;s the thing&mdash;the world is changing. But it&rsquo;s not coming to an end.</strong></p> <p>&nbsp;</p> <p><strong>Yes, things will change dramatically in the West in the coming years.</strong></p> <p>&nbsp;</p> <p><strong>The standard of living that was attainable in the US because of its economic dominance will diminish.</strong></p> <p>&nbsp;</p> <p>For cues, look to Europe to see how unsustainable policies unravel when you don&rsquo;t have the backing of the world&rsquo;s reserve currency.</p> <p>&nbsp;</p> <p>But people who recognize and embrace these changes early will prosper, for there will be tremendous opportunities throughout this process.</p> </blockquote> <p>*&nbsp; *&nbsp; *</p> <p>&nbsp;</p> China Reserve Currency Tue, 31 Mar 2015 20:52:08 +0000 Tyler Durden 504089 at