Guest Post: Five Things You Need to Know About the Economy

Tyler Durden's picture

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
automato's picture

Whatever you do, DO NOT ALLOW THE SUPER CONGRESS! This is HIGH TREASON!

BaBaBouy's picture

 

Super This ...

 

1700. Is In The Air ...

Caviar Emptor's picture

Things you need to know: Gold, bitchez!!!

BaBaBouy's picture

 

GLD Etf added about 20 Tonnes just Today ...

Caviar Emptor's picture

Central banks are accumulating even more. Eurozone individuals are scrambling for it

Pegasus Muse's picture

Funny how those guys at GLD and SLV have no problemo aquiring 20 Tonnes of the Shiney Stuff.  It's almost as if they create it out of thin air.  Maybe Eric Sprott should give 'em a call and ask them how they do it.  lol 

molecool's picture

Strawberries AND bananas??! There goes the economy - we are doomed.

SilverRhino's picture

Silver $41.44 ... goodbye trading range doldrums ....

Gold $1672 ... looks like Europe is in the process of saying Fuck You to the controlled American currency devaluation plan.

BaBaBouy's picture

 

TYLER ...

 

Do you ever sleep ?

XenoFrog's picture

Sleep is for humans. Tyler was cobbled together from the parts of a thousand daytraders, economists, and a Ti-84.

indygo55's picture

And at least one Johnny-5.

dust to dust's picture

 Argentina anyone? Nice move Mr. Galland. I might be next.

zorba THE GREEK's picture

Gold and silver are skyrocketing at this moment. The s**t is hitting the fan. It seemed to take forever to get here but it's

going down pretty fast now. 

takeaction's picture

Yep...The pre open futures just went down big.  They were positive for a little bit...then woosh.  Going to be one hell of a day tomorrow.  VXX should go up 6%...lets see.

RECISION's picture

Yes, in theory it should be going down about now - crash and burn.

an unstoppable inferno of government spending, inevitably leading to an earth-shaking crash

I thought so too. But I am coming around to the conclusion it isn't going to happen that way.

The whole point of kicking the can isn't to stop the inevitable, it is to stop in happening NOW.

The longer you kick the can (and here is the important part) the slower the devolution.

Is a crash at the speed of a glacier still a crash?  Not if no-one notices.

It will still scour the landscape clean, but so slowly that no-one really notices, or gets off their arse to change things. If it all happens slowly enough it falls below the pain threshold and the high priests keep their jobs and everyone keeps riding the slow train to nowhere.

Who cares if the whole system is bankrupt. If you manage it right, you get to stay rich for the rest of your life, and after that it is some-one else's problem...

For the PTB the object is not to redeem the system - it is to prevent revolution. 

And so we will die not with a bang but a whimper.

Withdrawn Sanction's picture

"...For the PTB the object is not to redeem the system - it is to prevent revolution.

And so we will die not with a bang but a whimper."

True, but TPTB are not as in control as your analysis would suggest. The one thing they can't control are peoples' emotions and Panic doesn't do slow. To borrow from Hobbes, Panic is nasty, brutish, and short.

What will trigger the mob to panic? Who knows. There are lots of potential candidates and it's really a mug's game anyway to choose among them. But something will; it's only a matter of time. This whole credit mess is held together w/baling wire and chewing gum.

CrimsonAvenger's picture

Gave you a green arrow. Anyone who quotes Hobbes is alright with me.

Caviar Emptor's picture


There is no place you can invest which doesn’t entail taking some risk at this point, but that fact only adds weight to the argument for spreading your assets around.

 

Hate to tell ya, that strategy pretty much ensures you'll lose big. The "throw some darts blindfolded" approach will get you poor fast. This ain't the dot.com boom. Smart money has been seeking safety. You should do the same. 

mayhem_korner's picture

Exactly right.  Markets are (or appear to be) finally running scared to safety.  For eurosheep, that seems to be a toss-up between US Ts and PMs.  So interest rates tank and the dollar remains supported relative to everything except gold.

I've been out of the broad stock market for 6 months now, with only some modest holdings in long-term-hold energy and raw materials.

Djirk's picture

Nice job of summarizing the key issues. Although I do not agree that the solution needs to be so draconian. It is possible to do a systematic and regular bleed of toxic assets and end up with cleanish balance sheets.

Bush Sr did a nice job of cleaning up the S&L mess. After all that bad debt was eliminated, there was one of the biggest booms in US history, capital was raining from the sky. (Ok got a little crazy at the end, but there was real innovation and productivty gains) Can you imagine life without email or blogs like NeroHedge.

I think the bigger issues are the upcoming entitlement liabilities. It is percieved to be politically easier to inflate away those liabilities. But you saw AARP get all worked up when they started messing with the CPI. Retiring people are going to feel the lifestlye hit from inflation and will not be happy. This is the flower power generation, they were not shy about protesting and taking action in the past. A Washington clean up may be coming soon! Then maybe the balance sheets.

 

Caviar Emptor's picture

If it were just a "balance sheet" problem, we'd be out of it already. Ben has claimed, advertised and proven himself to be completely uninhibited at using the money printing press (his words) and dropping the by-product from helicopters day and night. If the solution was just "cleaning up toxic assets" we'd be done since 09. Every major bank would have been cleaned up by now as the Swedes did back in the early 1990s, and as you stated we did with our S&L crisis. THere's been a banking crisis and real estate bust after every GOP administration since Nixon. We're very experienced at the cleanup, and it's usually over in under 2 years. Why not this time? Why is the business cycle failing only 2 years after the deepest trough we've seen in nearly a century? 

The answer (cheat sheet) is: we're not in a simple balance sheet recession. 

All the theory and tools in the Fed's repertoire are becoming impotent fast. Even after being repeated 2 1/2 times like QE. This rabbit hole runs deep. Really deep.

Djirk's picture

you are right a lot of the synthetics are off balance sheet. 

all ben has done is a balance sheet transfer, not a clean up

agreed there are fundamental economic issues that have built up over 30+ years (US exports financial services and war democracy??!?!

freeing up capital that is servicing bad debt will make room for investment in fundamental economic change

Pay Day Today's picture

There's no such thing as a 'simple' balance sheet recession (using the term as Koo from Nomura uses it). And looking at just the basic on-balance sheet debt held by consumers, regional banks, and the IBs, no one yet has had the guts to eat the trillion or two in asset writedowns which has been urgently required for years.

What they've done is simply transfer toxic assets from the private sector to the public. That doesn't solve any problems, it just relocates it.

StychoKiller's picture

Guess you haven't read:

"The Creature From Jekyll Island, a Second Look at the Federal System",
5th Ed., G. Edward Griffin, ISBN:  978-0-912986-45-6

There's a chapter devoted specifically to how much dinero was siphoned off by TPTB

to cover up the S&L fiasco!

grid-b-gone's picture

The S&L model would have been a better response, but the big difference today is that the perps do not do time. The Keating five are now the Entrenched 533 (535 minus Ron and Rand). The Goldman spawning machine has had another two decades of distributing offspring.

The individual is pretty much on their own. The message is clear, if you want to own anything, own it outright. Replace fiat money with a more stable store of value. Beware that PMs did not work all that well in 1938.

Specialized skills have always survived political and economic upheaval well. If you're short on tech saavy or nursing credentials, agricultural land could work. In any case, diversify.

Hobbleknee's picture

#5 is most important.  When will people ever realize this, and why do the sheeple insist on putting the government mafia in charge of our health care?

Hmm...'s picture

I can answer that:

because the sheeple are put in a Sophie's choice.  Put the Govt mafia in charge of their health care, or Private Corporations.  Private Health insurers and Private Health systems make Govt-managed health care look like a utopian dream.

I'm a doc (current private practice, ex-ICU doc) and I can't tell you how often people would come in with a life threatening illness and then find out that the insurance would not pay for one reason or another.  A favorite tactic was to stall and stall until the patient died.  Hilarious!  Caveat emptor and all that. 

In THEORY (not in practice) govt could/would counterbalance the power of Multinational corporations.  That is what people are hoping for.  that is why they were deluded and voted for Obama.  In practice of course, the various governments are all bought and paid for by multinat corporations. 

one of the reasons this broke down is because we have changed our campaign finance laws so that one $ = one vote.  another is because we have globalized and de-nationalized.  "free markets" and all.  HA.

I know most here are 100% govt haters, and you have this fantasy that without government we would all just be free to skip happily along freely...  but we are beyond that point.

without govt, we would not have your utopian ideals.  we would simply have the Corporations set up officially as head boss.  I've seen it in several governmentless countries that i've been to...  it's not pretty.

the "free markets" ideal is just that, an ideal. It is no more workable than "pure communism".  Free markets inevitably lead to monopolies that then trample all new innovation.  There is a reason we developed anti-monopoly and RICO laws long ago.

Hmm...'s picture

lastly:

yes I know, in the free market fantasy world a consumer could "choose" the best doctor or provider, and could "educate themselves" and "choose" the best treatment for themselves.  thus, all this "choosing" would eliminate bad insurers or bad medical practices.

I will just start by saying that the consumer cannot do these things.  I have 4 yrs university, 4 years med school, 3 yrs residency, 2 years hard research, and 2 years fellowship.  I had near perfect SAT and ACT scores, and scored in top 2% on my national medical board exams.

And yet I still have difficulty making a truly informed choice about medical options outside my specialty.

A whiz kid Apple executive or Facebook programmer doesn't have a chance.  And no, "research" on Google.com or mdconsult.com isn't going to do it.

I currently work for a well respected health organization that also has a health insurance plan.  (kind of like Kaiser).  we get top grades from customers.  I have to do all these ridiculous organizational meetings to get our customer (not patient, customer) numbers up, and our satisfaction surveys up.  Do you know what works time and time again, without fail?  I do.  Building hospitals/clinics with great architecture, Renovating our lobbies, putting in fountains, and putting Trees in the lobby.  lastly giving free coffee and snacks worked really well too.  (you know, cookies, donuts, etc). 
That did FAR more for our numbers and patient satisfaction than getting our diabetic patients under better control, or reducing post-op infections.
(we have renovated my clinic 3 times in 8 years.  complete to the studs.  we have just finished putting 2 story living trees at thousands of dollars a pop into over 20 clinics.)

do you know why?  because customers go into a business and choose based on aesthetics.  "Wow, a grand foyer with a huge fountain and a 2 story tree!  and the coffee is great!" 

so there is an arms race in medicine to build nicer and nicer buildings and single patient rooms with flat panel TVs and gourmet catered foods and all these bells and whistles.

Does that improve health care?  no way.  but it sure is expensive.  I wonder how on Earth we spend so much on medicine in this country?

not to mention this... and remember this well.  The JOB of a CEO of an insurance company is to maximize profit.  Profit happens if claims are less than receipts.  Thus, it is the JOB of a CEO of an insurance company to reduce claims.  The CEO of United Health Group gets $50-100m/year doing just that.

Therefore Govt healthcare sucks.  Private healthcare sucks worse.  of course we can go to an all cash medical system.  I'll not hold my breath on that.

Pay Day Today's picture

Obama was voted in to deliver the people a public healthcare option. Preferably one which would keep administration costs and fees to under 5% of monies paid in. He didn't, despite overwhelming public support for such an option. Totally sold out.

 

Does no one in the US understand that the business model of private health insurers is to make money by denying claims? And delaying them (as mentioned above)until patients are dead? Put another way: markets are a dumb way to deliver healthcare. And realistically, most states have no more than one or two truly major insurers anyway so there is very limited competition to start with.

StychoKiller's picture

The JOB of a CEO of an insurance company is to maximize profit.  Profit happens if claims are less than receipts.  Thus, it is the JOB of a CEO of an insurance company to reduce claims.  The CEO of United Health Group gets $50-100m/year doing just that.

 

Draconian liability exposure, enforced by the courts would soon put a stop to ignoring patient care.  Alas, the courts make it all too easy to paper over bad patient outcomes.  Of course, get-rich-off-the-system patients and their ambulance-chasing lawyers share some of the blame too.

Greenhead's picture

I don't buy the theory that governemt will fix healthcare.  A lot of the problem is that the patient doesn't pay the bill.  Go to a reimbursement program and you would see patients actually negotiating for the lowest bill.  You would have to eliminate "group" coverage and make it all individual and force employers out of the market of providing healthcare coverage.  If you had to buy your own and negotiate the coverage and be responsible for getting reimbursed you would take a lot more ownership over the costs associated with the care.  A pretty lobby wouldn't make that much difference in that case.

Second, the government via the states dictates the type of coverage you can acquire.  Mental and nervous, pregnancy, drug rehab, hair transplants and so on are mandated by the states.  Each state regulates the type and number of providers in the state.  While I like local governance, let's open the markets up to create larger pools which creates more choices for consumers.

The collusion of government with the healthcare corporations to reduce competition is as much to blame as any of the other factors the good doctor is faced with.  Think about it, if pricing is not in the equation, why shouldn't folks want the best lobby, donuts and coffee around?

Overflow-admin's picture
The corporations

The monolithic "enemies" of the Shadowrun world (borrowing heavily from cyberpunk mythos) are the corporations, dubbed "megacorporations", "megacorps", or simply "megas" or "corps" for short. Megacorporations in the twenty-first century are global, with all but the smallest corps owning multiple subsidiaries and divisions around the world. They are the superpowers of the Shadowrun universe, with the largest corporations having far more political, economic, and military power than even the most powerful nation-states.

In Shadowrun, corporations are effectively "ranked" by the amount of assets under their control, including material, personnel, and property, as well as profit. These ranks are A, AA, and AAA; AAA corporations are top tier. Most corporations in the AA and AAA level are immune to domestic law, responsible only to themselves, and regulated only by the Corporate Court, an assembly of the ten AAA-rated corporations. All AAA-rated and most AA-rated corporations exhibit a privilege known as “extraterritoriality”, meaning that any land owned by the corp is sovereign territory only to the corp and immune to any laws of the country within. Corporate territory is not foreign soil but corporate soil, just like its employees are corporate citizens, though dual citizenship in a corporation and a nation is common. The AAA corps, as well as numerous minor corporations, fight each other not only in the boardroom or during high-level business negotiations but also with physical destruction, clandestine operations, hostile extraction or elimination of vital personnel, and other means of sabotage. Because no corporation wants to be held liable for damages, it has to be done by deniable assets, or shadowrunners, invisible to the system where every citizen is tagged with a System Identification Number (SIN).

 

Shadowrun / Cyberpunk / Fantasy / Coming soon to reality bitchez!

Withdrawn Sanction's picture

Nice false dichotomy, Doc:  It's either giant corporations or giant government.

As for free markets inevitably leading to monopolies, that canard is as old as Marx, if not older.  The only way that can happen durably is for government to assist in the conferral and protection of said monopoly.

BTW, medicine in the US has not been a free market since the AMA lobbied for licensure laws, as a barrier to entry, in the 1930s and 40s.  Nice work if you can get it.

magpie's picture

QE a la Vreneli & Mrs. Watanabe up next ?

DrStrangelove's picture

http://nationaleconomist.blogspot.com/2011/08/us-sovereign-debt-downgrad...

Today Dagong Global Credit Rating Co. Ltd, an emerging Chinese credit-rating agency, downgraded US sovereign debt to A from A+.  Far from the S&P, Fitch and Mood's AAA rating, the Dagong rating won't be taken too seriously at this time.  To put the large discrepancy in perspective, the definition of AAA and AA on Fitch's International Issuer and Credit Rating Scales, the Issuer Default Ratings (IDRs) are only different in that AAA denotes the maximum level of credit.  The actual definition is mere lip service.  Dagong's definitions are very similar to those well known to us already. 

Dagong Global ratings definitions

This downgrade comes on the heels of a downgrade from AA to A+ in November 2010 after the Federal Reserve announced it would stimulate the bond market with QE2.

The report states: "By raising the debt limit the US temporarily prevents the government from debt default but it does not improve the national solvency; rather the heavier debt burden on the government will cause the US sovereign debt crisis to further deepen."

The report echos my sentiment with this next excerpt: "The pace of the US deficit cut is far lower than that of new debt growth and the fiscal policy of revenues falling short of expenditures will surely keep pushing the US government debt to a higher level. The deficit cut objective approved by the Congress matches the size of raised debt, yet there is an eight-year difference between the two objectives."

The report can be read here.

I found their four major points to be quite logical and compelling.

 

http://nationaleconomist.blogspot.com/2011/08/us-sovereign-debt-downgrad...

Outlaw Of The Wasteland's picture

http://www.youtube.com/watch?v=_vKxhqSJvPk&feature=share

 

target their familes.  First born sons and youngest daughters.  There are only 535 of them.  Wipe them out once and for all.

 

Let's actually kill congress.

dust to dust's picture

 Acting-man has alot of  up to date charts.

praps's picture

You fail to mention the only relevant thing about the economy.

The baby boomers are retiring. They are stopping spending. Nothing can be done to stop this. We face inevitable depression for the next 10 years. There will be no growth.

The debt that the baby boomers have run up during their party only makes the situation worse but it is not the primary cause of what we are experiencing now.

theMAXILOPEZpsycho's picture

Only the BBoomers with brains have been buying gold and silver up to now. Imagine when the other 99.99999% of them start! fireworks!

Version 7's picture

If an individual goes into debt and retires in the meantime, no longer producing goods and services, macro speaking it is their children and grandchildren that will have to pay it off, as the governments' practice has always been to simply spent the contributions as fast as they knew how, ie, there has never been any fund for SS. Adding up both, any debt that retirees accumulate ends up as a burden for the younger generations.

theMAXILOPEZpsycho's picture

The last line is the important one: "get on with your life"

I gureen-dam-tee WTSHTF there'll be people who are diametrically opposed the zero hedge point of view (I mean dumbass optimists) who will come out fine - through luck, through personal contacts, through opportunism, through being sheaple...

yes buy gold, yes buy silver, yes buy guns and ammo, yes buy a farm if you can, yes stock up on dried food...but live your life too, be healthy, have friends, have interests, follow the arts

its like in that film, the pianist, when the nazi guy finds him and asks him wat he used to do before the war and he says he was a pianist and the nazi gets him to play - he's then so impressed that he helps hide him and bring him food until the wars over

its that kind of thing that will save your ass too. If the Jew had answered, I was a precious metals horder", the Nazi would've shot his ass off!!!

RealFinney's picture

That breakfast sounds delicious, all I had was a couple of over ripe bananas at my desk.

Snidley Whipsnae's picture

Excellent post Mr Galland.

US debt will be defaulted upon but not until the dollar is printed into oblivion... Thus, we will experience a hyperinflation followed by a deflationary recession that will be unbeliveable to behold.

Those above that continue to point fingers at boomers or any generation of Americans that followed the boomers are wasting your time.

The Fed destroyed Capitalism in the first great bout of easy money printing during the 1920s, a credit contraction/correction followed, then a Great Depression, moderated in part by FDRs many socialist attempts to ease the pain of American families. Few realize today that communism was getting a real foot hold in America after the initial period of the Great Depression and FDR implemented social programs to prevent the out right destruction of democracy in America.

Have we yet seen enough of Fed manipulation to warrant considering replacing the Fed with real free market capitalism in America? Are we aware that the Fed in conjunction with major banks and the financial sector directed Gov fiscal policy have laid waste to our society?

Capitalism should always have booms and busts for that is the nature of the system. The real problems arise when central banks and governments use monetary and fiscal policy in an attempt to stop the small busts that occur naturally. Mr Market knows best and, in the end, the Fed/US Gov will find that their attempts to control markets have failed.

When small busts are prevented the debt build up gets larger, and larger, until a small bust is no longer an option.

We are there now.

Hmm...'s picture

Overall a good article, but a few huge gaffes

Yet, because we live in a democracy, where any politician wanting to be re-elected has to cater to their constituency

are you on drugs?  what are you talking about?  the only thing a politician need do is make sure their donors are happy.  Thus TARP passed without a pause, and our most recent legislation.  Despite "the constituency" being pretty clear that they wanted BOTH spending cuts on defense AND taxes on higher income individuals, AND they wanted to leave Social Security alone, they only got spending cuts that will be focused on SS and Medicare.

1 $ = 1 vote.

the constituency just gets the shaft at all turns.

even though the government was mostly responsible for bringing us to this place

wow... that's revisionist.  I seem to recall that a huge part of the reason why we are here is because PRIVATE parties entered into PRIVATE contracts that their ass couldn't cash.  (AIG anyone).  The mess in the governmental space is astronomical.  THe mess in the private space was even worse.  (Shadow Banking System anyone?)

but let's just give the private sector a free pass.  better yet, blame the actions of the private sector on the Government.  "waah... the private sector wouldn't have ever set up the Shadow Banking System if it weren't for Government!  waah... this would never have happened without Government!" (as you totally ignore the multiple depressions in the 1800's when we were very much SMALL government.

then the PRIVATE liabilities were FORCED upon the constituency AGAINST their wishes... causing an increase in PUBLIC debt.  (privatize gains, socialize the losses).  And this PRIVATE turned PUBLIC debt has caused a public debt crisis.  So we should cut social security.

The only thing worse than government is big business.   The only thing worse than government AND big business is a klepto-corporatocracy where big biz and govt team up against the public.  Unfortunately, that is the U S of A

Bob's picture

It was clearly a rant from a parallel universe where it is the popular democratic will that is driving us into the ditch. 

Bitch Tits's picture

I signed in just to give you this, Hmm...

+14,348,464,918,627.04

 

mahalopamala's picture

The only thing worse than government is big business.   The only thing worse than government AND big business is a klepto-corporatocracy where big biz and govt team up against the public.  Unfortunately, that is the U S of A

Succinct and excellent summation.

After reading your posts on this article this morning, I am delighted to hear your insightful point of view.  Around our house we have been talking about "consumer/customer" vs. "person" or "human being".  When you call someone a customer, then they become a unit in an ever increasing wheel of complexity.  Therefore, we are systematically being dehumanized by TPTB corp-gov cabal and many folks just don't see it. 

One thing I like to do is to remind folks of their humanity.  I love to talk with teenagers especially- they have not completed the transition to brain dead just yet, and many love to question authority.

 

Bob's picture

As popular as it is to shit on the younger generation as clueless and stupid--particularly because it serves both TPTB and the provincial "anti-public education" crowd--kids maintain that remarkable ability to think freely until they enter what is euphemistically called "the real world" of adulthood, a.k.a., debt and wage slavery. 

One of the most thought-provoking books I've ever read was Self Made Man: From Eden to Extinction

http://www.amazon.com/Self-Made-Man-Human-Evolution-Extinction/dp/047115...

Among the gold there was the hypothesis that most early technological progress was the product of children "playing." 

eddiebe's picture

I believe the author makes the wrong assuption when he states:

'By contrast, today the Fed is virtually helpless. Rates certainly can’t be pushed lower by any appreciable amount, and the Fed sure as hell doesn’t want them to go up.'

This is what I assume:
Since the bankers thrive on interest, they will drive as much money into bonds by any and all means at their disposal, and then they will drive up the rates.
Looks to me like their game is working, and very few are noticing.

If you have'nt figures it out yet: The bankers aka the fed are not here to help the government or you! When trying to make predictions the foundations need to correspond to reality or what stands on them will not be supported.

Internet Tough Guy's picture

Crap article. Inflation screws the savers, the debtors love it.