This page has been archived and commenting is disabled.
Guest Post: Enjoy The Central Bank Party While It Lasts
Submitted by Peter Treadway of TheDismalOptimist
"It is patriotic to accept to pay a supplementary tax to restore the country.”
-Francois Hollande, the Socialist Challenger for the French Presidency, after proposing a 75% marginal tax rate on earnings of over one million euros per year
“Patriotism is the last refuge of a scoundrel.”
-Dr. Samuel Johnson, distinguished eighteenth century man of letters and author of the influential A Dictionary of the English Language
“If this plan saw the light of day, it would end in catastrophe for French football."
-Frederic Thiriez, head of the French Professional Football League, in response to Francois Hollande’s tax proposal
Don’t Fight the Tape – But Prepare for an Unhappy Ending
Central banks are printing money all over the world. New names have been given to what is really an age old phenomenon. Desperate governments have traditionally debased their currencies when they have no other way of financing their deficits. Quantitative easing, LTRO, Fed/ECB swaps, whatever. A new technocratic lexicon has been invented to cover what is really a time honored expedient of debasement and paper money printing.
Investors for the moment almost have no choice. Get out the surfboard, hitch a ride on the global tsunami of freshly minted central bank money and get long equities. In 2012 equity markets have rallied everywhere, particularly emerging equity markets, and will probably keep doing so. Short term interest rates are near zero and likely to stay that way for the rest of this year. Investment managers are tired of telling their clients that they earned zero and had to pay a fee anyway. The European crisis has been overcome by massive LTRO money printing and a friendly “borrow all the dollars you want” swap agreement between the Fed and the ECB. And the US is in the midst of a tepid recovery (better than nothing!) Lastly, China seems to be slowing but not crashing.
Money must head for risk assets. Tough luck for defined benefit pension funds and retirees who until recently lived off of nice, safe bond income.
Bernanke’s little head fake of last week in not mentioning a QE3 can be taken with a grain of salt. The US has another $1.3 billion projected deficit to be financed and the fragile US recovery cannot stand a rise in short rates. A war with Iran would make the US deficit so much worse. The US unemployment picture is not as pretty as the recent decline in the official U3 rate to 8.3 percent would suggest. For one thing the Labor Force Participation rate continues to move downward. The broader and less quoted U6 rate which includes people who have given up looking for work for January is 15.1 percent. Bernanke knows the numbers. And recent Treasury data show some fall off in Chinese buying of US Treasury securities. US short rates will not rise and Treasury auctions will not fail. Not if the Fed can help it. The Fed will print.
Historically, countries faced with financing wars would print paper money and eliminate convertibility into a commodity such as gold, silver or copper. This happened over and over from Sung Dynasty China facing northern invaders, to the Napoleonic Wars, to the American Civil War and of course to World War I.
But this time it’s not wars but democracies’ underlying tendency to inexorably move to bankruptcy which is the culprit. Citizens vote to obtain through the political process what they cannot obtain in the market. Modern democratic governments are expected to socialize risk and redistribute income from the smarter (you would probably say luckier if you are on the left) affluent minority. The welfare state grows and grows, its costs disguised in the complexity of the budget process and ignored by the public anyway. Public sector unions, whose existence and freedom of actions politicians elected by universal suffrage found impossible to oppose even though they knew better, have accelerated the process. We vote for you, you reward us, is the working relationship most public sector unions in most democracies have with their politicians. No greater conflict of interest hath any country. The public sector debts have built up. And nobody has to bother lifting the fetters of a commodity money conversion requirement that was so important in the age of the classical gold standard before WWI. Richard Nixon cut the last of those golden fetters in 1971 when the US ceased to honor its commitment under the Bretton Woods Agreement to sell gold for dollars at a fixed rate to other central banks. Since the demise of Bretton Woods, every central bank in the world can be its own ATM machine. And indeed they have.
So far the world’s central banks have been “lucky”. Thanks to the prior global bubble ending in 2008 and the realization that the so-called advanced countries are reaching the end of their borrowing capacity, the world is in a massive deleveraging mode which tends to be deflationary. For the moment the central banks can get away with printing all the money they want without massive increases in consumer price indexes. The public doesn’t connect increases in prices of commodities like gold or oil with the current bout of money printing. But if history is any guide, this money printing will matter and the age of deflation and deleveraging will be followed by an age of inflation. Deleveraging or no, entitlements already promised will grow inexorably larger. Inflation of course is one way governments can effect major defaults on sovereign debt and unaffordable entitlements.
Regarding the global equity markets, I am seeing various forecasts from vaunted gurus ranging from imminent collapse, to rally in the first half of 2012 then followed by collapse to rally all year. I lean towards the last view. But with a very low confidence level. And with a fear that the party won’t go on forever.
The American Problem
This week’s New York magazine carries an article by Jonathan Chait entitled “Why Republicans Fear This Year Could Be Their Last Real Shot.” The article lays out how the growing demographic ascendance of African American and Hispanic populations versus the heretofore dominant white population spells long run catastrophe for the Republicans. According to the article, each presidential election sees the non-white proportion of the vote grow by two percent.
This demographic shift along with the overall aging of the population and decline of the worker/ beneficiary ratio (not mentioned in the New York Magazine article) will intersect with the coming need to deal with America’s burgeoning sovereign debt and entitlement crisis. Republicans in theory stand for smaller government, lower taxation and faster economic growth. Practice is another matter—Republicans often do the opposite of what their supposed ideology would recommend. The underlying populist dynamic of universal suffrage forces them to join the Democrats in expanding government and socializing risk. Today’s Democrats stand for bigger government, higher taxation and don’t worry as much about economic growth.
The coming American sovereign debt crisis—whether it’s next year after the election or ten years from now—will involve some mix of higher taxes and defaulting or reneging on government debts and entitlements. Just what the solution mix will be in terms of overt default/reneg, inflation, financial repression and tax increases remains to be seen. But unlike many other more homogeneous countries which face the same problem, the American version will in a part take on a racial/ethnic hue, i.e., older and more affluent whites vs. African Americans, (non-Cuban) Hispanics.
The data show that Hispanics and African Americans on average tend to be underperformers when measured by educational achievement or family incomes. Whites and Asians are outperformers. Obviously this kind of divide is not a healthy situation. Just why these gaps persist is a matter for educators, historians and policy makers, who unfortunately thus far have yet to come up with an uniformly agreed upon explanation much less a solution. Discussions of these issues often leads to anger and recriminations. But all that matters for the purpose of forecasting government spending and the conflicts that lie ahead is that the assumption is reasonable that this underperformance will continue for the intermediate future.
Presumably underperforming groups are greater users of government services, especially those programs like food stamps and Medicaid which are pure wealth transfers not camouflaged by phony trust programs like that financing Social Security. And, as the Republicans are fond of pointing out, only fifty percent of Americans pay income taxes. I have not seen data breaking this out along racial/ethnic lines but it is likely the profile of non-income tax payers and the income tax payers is quite different.
A preview of the way the coming American budget disaster and race will intersect in America can be seen by the reaction Newt Gingrich got when he labeled President Obama a “food stamp president.” Gingrich was himself labeled a racist for this although he never explicitly mentioned race. But his accuser implicitly assumed that minorities were the major food stamp recipients and that this was obvious to Gingrich.
The coming battles over solving the problems of the bankrupt American government will not be pretty. It will be a bit more difficult for an American president to preach patriotism to the affluent in these circumstances. Although, if there is a war with Iran, he might try.
The Future – There Is a Bright Side
I have been accused of being too dismal, and not optimist enough. So allow me to make a few at least semi-optimistic points:
1. For investors globalization and the acceleration of technology offer significant rewards. I recommend to everyone a book by Ray Kurzweil called The Age of Spiritual Machines. While you might not agree with Kurzweil’s views on artificial intelligence, the central theme of this book is his law of accelerating returns. Under this law, technology is a continuation of human evolution and technology itself is speeding up at an accelerating rate. A more prosperous and healthier world lies ahead. As I see it, all those Chinese and Indian and other “third world” brains that have recently been added to the global economy will benefit everyone. And provide investment opportunities for Western investors.
2. The world is not running out of energy or food. Technology is taking care of that and again investment opportunities will abound in these areas. In the energy area fracking and horizontal drilling have opened a bonanza in terms of natural gas and oil. If only the US and China would stop wasting money on so-called green energy boondoggles like solar and wind and ethanol in the case of the US. And again in the case of the US, get rid of arbitrary environmental obstacles. And let the market made the investment decisions! In the case of food, biotechnology will feed the world. Serious studies don’t find the Franken food scares to be valid. Again. Let technology do its work and let the market decide!
3. A major fiscal crisis a la Greece and Iceland is coming to the advanced countries including Japan. Investors should be preparing now for the eventual major debasement of the dollar and the euro. Look to place funds in alternative assets like gold and in countries which won’t have a fiscal crisis like Australia, Singapore and Russia. There are alternatives.
4. The US has been the land of technological innovation and economic progress. The world has benefitted. It would be a global tragedy if this were to change. But there is a risk that the US fiscal crisis will be “solved” by more taxes, financial repression and cutbacks in services that that the government should be providing. The cutback in funding to the world renowned University of California system is an example of a bad decision. Education is cut back in order to pay outsized pensions to retired California workers. Parenthetically, this hurts members of minority groups for whom the University of California system was one avenue out of “underperforming” status. (Fortunately for-profit education may fill some of the gap.) US technological and military superiority is threatened not by China or India but by US fiscal profligacy. It is up to the US and the other advanced countries to make the right choices to deal with the fiscal crisis. It will not be easy but they can do it.
5. Capital goes where it is welcome. This is true not only of physical and financial capital but also of human capital. It is a big globalized world out there. In the past the US was the big welcoming country. It still can be. But if the US and other advanced countries “solve” their fiscal problems with taxes and other growth stunting measures, then well-trained professionals and young people from these countries will think about emigrating to countries that don’t have major fiscal problems and won’t try to squeeze them for their last penny. Singapore and Australia are two countries that come to mind. Already it appears that Greek citizens are emigrating to Australia, as they did in the past. Smart people don’t have to stay where they are exploited. Smart countries will try to attract them. The Statue of Liberty in New York Harbor has a plaque that reads “Give me your tired, your poor.” That’s not the new migrant. Maybe someone will add a new plaque, somewhere at a spanking new airport in what used to be called a third world country or an advanced country that made the right choices. “Give me your brains, your ambitious.”
»
- 13140 reads
- Printer-friendly version
- Send to friend
- advertisements -
That part made me laugh.
US citizens are so duplicitous.
Dont tax them on patriotic grounds but bring back the jobs home because those third worlders are stealing US citizen jobs...
There is no discontinuity between the US citizen elite and the US citizen base.
Probing a little US citizen base is enough to understand why US citizen is as they are.
Really.
STFU
ananonymous - ZH's very own paris hilton publicity whore with a forum to show one answer for everything!
no further thought required, come right here and realize the error of your ways, sack cloth and ashes for all you USCITIZENISMS.
ananonymous: the sole bogging keeper of the one big answer!
errrrm when is the 'correction/crash ..' coming tyler .. i have written cheques my ass cant cash on this ?
HELP ME.
rupesh p
Haha if I didnt know any better I might think someone is setting tyler up for damages having relied on his investment advice. The horror! A rogue unlicensed amonymouse investment advisor running amuck and ruining naive innocent people who trusted you tyler.
Oh the horror. We must shut down zero hedge or force them to get a license before they ruin more people.
Don't be so sure that Australia will be a haven.
Their real estate market is quite bubbleiscious and their role as supermarket to China could sour pretty damn quickly when the China bubble bursts.
If the stock market was controlled (manipulated, run ...) by people, they would have to get help for a strong case of schizophrenia.
Party like it's 2012! Where there's a will, there's a way. The CBs can still kick this can a bit further down the road. Just a bit, maybe a few more years during Obama's second term. In the meantime, keep smoking that pipe.
The Germans Are Coming, With Them Rides WAR
Humanity is no longer creating unique surfaces for the planet and its level of stupidity threatens planetary biology. That’s not helpful. Kids must have a productive outlet for their energy, or its badness for everyone. Space exploration, however you choose to define it, or war, how the Germans define it, that is your choice.
Women struggle once a month, decelerating time, which may only be re-accelerated through their children. Empire proffers to intercede on their behalf and feeds upon all the out-of-time consequences. Like it or don’t like it is an attitude. From time to time, humanity throws itself a pity party. You’ll have that.
Think about it. There is no such thing as earned income in a centrally controlled economy. The empire is a centrifuge that distributes wealth among event horizons, which must come from somewhere. Don’t give away your privacy gossiping and expect anything other than your currency to liquidate, as you trade individual liberty for tyranny of the majority.
The German men fight and kill their way to Jerusalem, in the name of God, then split. Some cross the Atlantic. Others head home. And the Jews are left in charge of the Fort. The homogeneous clan implements austerity in Europe, and the heterogeneous clan electronically prints in America, making mince meat of the global economy.
Homeland Security. Think about where that phrase comes from and where America got its productive prowess. Shock and Awe, lightning war, is no different than Blitzkrieg. The melody is the same. Turn the stack into a hash table, with 3-operand string waves, gravity, space, and fulcrum.
Hitler was a fall guy, and the old homogeneous German legacy families are at it again, because they must control; it’s in their DNA. From their perspective, other races are inferior life forms with no moral value. The majority on this planet are impulse driven by their technology, which confirms their hypothesis for them. If you request debt for leverage you are enslaving others who require debt to survive, due to the technology. Pay for participation with debt, nothing new in the ponzi, and once in control, they liquidate.
This is a family fight, and S was correct. Most are caught in the middle, BUT OF THEIR OWN FREE WILL. America has turned its back on open source, making its members non-persons with an embedded algorithm, false assumption, in German technology. Not a problem. Open Source is in no way dependent upon geography. Nuclear is 1940s technology, the legacy families started the wars to impress their mistresses, and those staking a position in the middle get slaughtered. How much time do you want to spend watching repeats?
The only people the old families hate more than themselves, which means that they will slaughter you with no compunction, are the individual traitors to the homeland, those that have married outside the family, to introduce alternative technology. Technology is in their blood. George Soros is not. Old Germany is the ultimate disciplinarian, because it has no imagination.
They don’t keep maiden name records by accident. The best application of technology is tradable surplus. Your own brain remains the best tool for self-sustainment. Precision farming is an empire oxymoron. It’s pretty simple. Don’t become dependent upon technology that limits your own mental acuity.
Absent discipline, civilization is not possible, but absent imagination it has no compass. Real time imagination is where all the action is, but it’s not for the weak of heart, produced by replication. Discipline yourself accordingly. With fusion and a gate, you can blow up anything.
When the problem is the solution to the next problem, you are in the empire’s house of mirrors. Turn it around in a unique way to disappear. Balance it. You have to walk your product up the vortex to threshold the first time, but after that you have a quantum elevator at your disposal. Depending upon perspective scale, you could define the speed of light as Quantum 1.
When you hand the elevator over to the empire at the top, it is added to the house of mirrors, through a fusion centrifuge, which employs ponzi population replication to simulate perpetual motion, monetary expansion, promising equal access as equal outcomes within each unearned income event horizon class, or floor. You are now in a position of “equal” opportunity to add your code to the root.
Who is stupid, corporation that crowds out natural seed to exponentially increase health expense, the financier, the farmer, the consumer, or the next generation taxpayer? It doesn’t matter which club you enter; they all have the same sh**-show theme recurring through their race. They expect a government grant to ride the elevator for free on the basis of generational wrongs.
The solution to prisoners dilemma has been provided. If you do not appreciate your ancestral past, change direction, or watch the empire repeat and plead for redress. If you have a thousand people vying to steal your elevator, in various event horizons, how would you secure it for the sake of future generations as an integral? DNA is a waveform.
Make your own dreams come true, through hard work and imagination. Life is extremely fair, even in real time, if you depend upon the kindness of a stranger, who happens to be an intelligent parent. Those who believe only in what they see, see only the empire, mapped in their brain and projected outward, which is why the quick turtle beats the fast hare every time.
If you want to stop time, and the legacy families do, distill out intelligent males, with peer pressure if possible, soft power if not, and hard power if necessary, at the youngest age possible, and measure profit by the participant’s ability to address the resulting evolutionary ills of replication, paying them with a debt instrument against the future of their own children, until the future becomes the present. The majority sees what it pays itself to see, fear in the mirror, camouflaged by acts of bravado.
Father Time wins every time. The more they tinker with the rule of law, the faster war approaches. Will your constitutional product withstand the test of time, which is incremental on one side and quantum on the other? PM is the anti-currency for those sitting on the sidelines, but intelligent imagination is the anti-currency for those with skin in the game.
What would you do with a technology that could blow up solar systems, and what would be the planetary response? You might want to think about that before you enter the prison. The empire is too stupid to exist longer on its current form. The warrantee is up. Go ahead, prove me wrong, and build accordingly. The empire only has non-performing assets to redistribute.
Anyone with any new technology will not sell it into this shit show. It has been made obvious that all devices that would lead to a splintering of the panopticon will not be allowed to gain traction in fiat. No new idea will enter the marketplace since all those that would reform society would enrich the same filth floating at the top of this gene pool. The current culture is one of death, death leads to death. Television was the the final coup d'etat: give people fake lives so they don't have to live. Actors have traditionally been considered amongst the lowest of society - they still are. They live the high-life, usually drugged out, by siphoning your time, your life. Look at the culture and you see the fate. If action and reaction are equal then it all ends in a reactionless point... I'll take that, thank you very much. Hasta la nunca
hence war...
Central Banker Solution:
http://images.search.yahoo.com/images/view;_ylt=A0PDoX.gDFVPnkcAW.OJzbkF...
Australia ?
"Capital goes where it is welcome. This is true not only of physical and financial capital but also of human capital. It is a big globalized world out there. In the past the US was the big welcoming country. It still can be. But if the US and other advanced countries “solve” their fiscal problems with taxes and other growth stunting measures, then well-trained professionals and young people from these countries will think about emigrating to countries that don’t have major fiscal problems and won’t try to squeeze them for their last penny. Singapore and Australia are two countries that come to mind. Already it appears that Greek citizens are emigrating to Australia, as they did in the past."
lol
Sunday, March 04, 2012 7:54 PM Australia Services Index Plunges to Significant Contraction; Bleakest of Views From Retail Shops; Retail and Housing Bloodbath Coming Uphttp://globaleconomicanalysis.blogspot.com/2012/03/australia-services-in...
"The data show that Hispanics and African Americans on average tend to be underperformers when measured by educational achievement or family incomes. Whites and Asians are outperformers. Obviously this kind of divide is not a healthy situation. Just why these gaps persist is a matter for educators, historians and policy makers, who unfortunately thus far have yet to come up with an uniformly agreed upon explanation much less a solution. Discussions of these issues often leads to anger and recriminations."
- and thus, every post by TRAV777 the redneck racist is legitimized...?
If one is to look at the statistics, then yes, it paints an ugly picture, but I for one refuse to jump the logic gap that skin color or hair texture are genetic markers to the pre-dispostion of whether we will be winners or losers in life...
It all falls to the individuals, and their personal sense of purpose.
When a collection/population of breeders have no associative sense of individual purpose, then end result is a lack of collective purpose for the group.
Seems intuitive to me. throwing skin color, demographics, etc into the mix only adds bias to the statistics, but they do NOT validate the core premise.
Losers know how to lose. They do not know how to win.
Winners know how to win, AND they know how to lose.
Losers breed losers. Winners breed some winners, and they also breed some losers.
ergo- the bias in population dynamics will always favor the majority being losers.
So, in a sense, the winners never win anything that the losers will not ultimately take away, declaring themselves as the winners in the process.
I can't wait until the loser majority decides to declare homicide a morally acceptable act... There are a lot of people I know who could use a good killing.
US citizen education is what brought the world to the current situation.
US citizens can not take blame. It has to be someone else.
The current situation is one of intelligent people who gamed themselves, living at the expense of silly people.
Silly people can no longer sustain intelligent people, led by US citizenism, in all their mistakes.
US citizen indo Europeans have pushed the world to the brink, faster than anyone else.
Blaming the lagging side is very US citizen
An overconsumption issue is always the consequence of people who do not consume. That is US citizen logical conclusion.
Actually, without the negroes, the latinos and the rest, the brink would have been reached far earlier.
STFU
Posted twice.
Imagine this.
You are populating a planet with pink people and purple people. They are generally both equally intelligent and ambitious and physically similar.
The pink people are deposited in an environment where, if they do not plan ahead every year, they will freeze to death and starve.
The purple people are placed in an environment where planning ahead is less important but physical traits are rewarded. The members of the purple people clan are killed by predators whenever they are unable to outrun a slower member of the tribe.
Now, fast forward about 10,000 years and guess which society is populated by athletes and which is populated by strategic planners?
I don't know WTF you're talking about... I've know some pretty damn smart athletes that could kick your ass in an Ironman, and then take you to the cleaners in an intellectual debate...
I'm going to guess........angry lib?
And......you're mom didn't hug you much?
"The members of the purple people clan are killed by predators whenever they are unable to outrun a slower member of the tribe."
Uh, no. That's not how human culture works. I know it seems like it sometimes but people are not water buffaloes.
central bank printing is not going to end.
http://www.jinrongbaike.com/
http://www.cnhedge.com/