Guest Post

Guest Post: How Is Dr. Copper Feeling?

Copper is sometimes referred to as "Dr. Copper," because the metal is used in so many industrial applications and is essential for many different sectors of the economy, from infrastructure to housing to consumer electronics. That usually makes its price action a good indicator of the state of the global economy. Between China's stockpiles, slowing demand, and output of copper products expected to slow; and Europe's market 'expected to be dead' for the rest of the year, Casey Research's Louis James is bearish economically near-term and bearish on Dr. Copper - preferring instead to build a shopping list of good contrarian picks for when the economic situation doesn't look so dire.

Guest Post: The Real Fiscal Cliff

More and more Asian nations — led by China and Russia — have ditched the dollar for bilateral trade (out of fear of dollar instability). Tension rises between the United States and Asia over Syria and Iran. The Asian nations throw more and more abrasive rhetoric around — including war rhetoric. And on the other hand, both Obama and Romney — as well as Hillary Clinton — seem dead-set on ramping up the tense rhetoric. Romney seems extremely keen to brand China a currency manipulator. In truth, both sides have a mutual interest in sitting down and engaging in a frank discussion, and then coming out with a serious long-term plan of co-operation on trade and fiscal issues where both sides accept compromises — perhaps Asia could agree to reinvest some of its dollar hoard in the United States to create American jobs and rebuild American infrastructure in exchange for a long-term American deficit-reduction and technology-sharing agreement? So the future, I think, will more likely involve both sides jumping off the cliff into the uncertain seas of trade war, currency war, default-by-debasement, tariffs, proxy war and regional and global political and economic instability.

Guest Post: The Real Testosterone Junkies

We especially enjoy reading things that we disagree with, and that challenge my own beliefs. Strong ideas are made stronger, and weak ideas dissolve in the spotlight of scrutiny. People who are unhappy to read criticisms of their own ideas are opening the floodgates to ignorance and dogmatism. Yet sometimes our own open-minded contrarianism leads us to something unbelievably shitty.

The financial system is being regulated by clueless schmucks — many of whom would also castigate Zero Hedge as a “big fat hoax”, while ignoring grift and degeneracy within the financial establishment and the TBTF banks. In the face of such grotesque incompetence who can blame market participants for wanting a hedge against zero?

Guest Post: Why Spanish Social Tension Does Not Boil Over?

It is truly difficult to believe that social tensions may be contained indefinitely under a deteriorating economic scenario – although there is the 'frog in the pot analogy' again. There are also escape valves which surely help keep social tension from mounting such as the ongoing criminal investigation in which former Bankia chairman Rodrigo Rato and 32 members of the failed bank’s board were formally cited this week as suspects of fraud, misappropriation of funds, and the falsification of financial documents; a necessary but inconceivable turn of events compared to only two months ago. Ultimately, however, unless the long-yearned European breakthrough (which nobody has managed to properly define) occurs soon and some form of economic upturn begins to be seen as within reach, there is no reason to believe that Spain’s situation will improve over the next several months. If the summer turns out to be as “hot” as expected, Rajoy may at least have to revise his communication strategy and start facing the public. The cooling variables which currently work in favor of keeping society simmering in a state of fear rather than boiling with outrage may not hold the fire.

Guest Post: "Russia And China Will Pay A Price"

Hillary Clinton just made a very memorable statement.

I do not believe that Russia and China are paying any price at all – nothing at all – for standing up on behalf of the Assad regime.  The only way that will change is if every nation represented here directly and urgently makes it clear that Russia and China will pay a price

So — exactly what price must Russia and China pay? The real question though, is what Hillary Clinton thinks she can achieve through throwing unveiled threats around and destabilising the fragile global system?

Guest Post: Border Controls Are Back In Europe

For the last several days, I’ve been weaving between northern Italy and Switzerland checking out great places to bank, new places to store gold, and taking in these gorgeous lake views. Every single time I’ve crossed the border, I’ve been met by rather snarly police on both sides; they’re stopping cars, turning people’s trunks inside out, and causing major traffic problems. A friend of mine who came up on the train from Florence to meet me for lunch in Lugano said he was stopped at the border for nearly an hour as thuggish customs agents randomly questioned train passengers and demanded to see their IDs. So much for Europe’s 26-country ‘borderless area.’ Based on Europe’s 1985 Schengen Treaty and 1997 Amsterdam Treaty, you’re supposed to be able to drive from Tallinn, Estonia to Lisbon, Portgual without so much as slowing down at the border. This is not dissimilar from driving between states in the US or provinces in Canada. Yet as Europe descends into greater financial and social chaos, leaders are starting to ignore these agreements which guarantee freedom of movement across the continent.

Guest Post: Snapback - Stockton, Calif. And All The Cities To Follow

Every government entity that reckoned it was moated from the market economy will be snapped back to "discover" risk and consequence. Let's lay out the dynamic:

1. Every government can only spend what its economy generates in surplus.
2. Every government transfers risk and consequence from itself, its employees and its favored vested interests to the citizenry and taxpayers.
3. Every government collects and distributes the surplus of its private sector to its employees, favored constituencies and vested interests.
4. Since the government (State) promises guaranteed salaries, benefits and entitlements to its employees and favored constituencies, these individuals believe they are living in a risk-free Wonderland that is completely protected from the market economy.
5. Risk cannot be repealed or eliminated, it can only be masked or transferred to others.

... continued

Guest Post: Is Marxism Coming Back?

The system of corporatism we have today has far more akin with Marxism and “social management” than Marxists might like to admit. Both corporatism and Marxism are forms of central economic control; the only difference is that under Marxism, the allocation of capital is controlled by the state bureaucracy-technocracy, while under corporatism the allocation of capital is undertaken by the state apparatus in concert with large financial and corporate interests. The corporations accumulate power from the legal protections afforded to them by the state (limited liability, corporate subsidies, bailouts), and politicians can win re-election showered by corporate money. The fundamental choice that we face today is between economic freedom and central economic planning. The first offers individuals, nations and the world a complex, multi-dimensional allocation of resources, labour and capital undertaken as the sum of human preferences expressed voluntarily through the market mechanism. The second offers allocation of resources, labour and capital by the elite — bureaucrats, technocrats and special interests. The first is not without corruption and fallout, but its various imperfect incarnations have created boundless prosperity, productivity and growth. Incarnations of the second have led to the deaths by starvation of millions first in Soviet Russia, then in Maoist China... As the financial system and the financial oligarchy continue to blunder from crisis to crisis, more and more people will surely become entangled in the seductive narratives of Marxism. More and more people may come to blame markets and freedom for the problems of corporatism and statism. This is deeply ironic — the Marxist tendency toward central planning and control exerts a far greater influence on the policymakers of today than the Hayekian or Smithian tendency toward decentralisation and economic freedom.

Guest Post: Guess Who’s Bailing Out Bankrupt Western Governments Now...

Fourteen years ago during the Asian financial crisis, Indonesia endured a currency collapse, a severe 2-year recession, and an embarrassing IMF bailout. Western bureaucrats wagged their fingers incessantly at Indonesia, lecturing the country about the dangers of excess and fiscal irresponsibility. How sweet the irony is. In a stunning rags-to-riches story, Indonesia contributed US$1 billion to the IMF last week in order to help bail out bankrupt Western nations. Unlike Japan, the US, and Europe — which all seem to think the answer to an economic bust brought on by a debt-binge is to borrow and spend even more money– Indonesia took its medicine when its economy collapsed back in 1998. Ironically, US President Barack Obama spent some of his childhood in this same suburb of Jakarta. Unfortunately, as he pulls out all stops to cling to power for a second term, the kind of tough decisions that could help the US emerge from its economic malaise have no chance of being made. It’s the ENTIRE system that’s the problem. And that goes for nearly every Western, “free market,” democracy out there.

Guest Post: The Real-World Middle Class Tax Rate: 75%

For those Americans earning between $34,500 and $106,000, the real-world middle class tax burden in high-tax locales is 15% + 25% + 5% + 15% + 15% = 75%. Yes, 75%. Before you start listing the innumerable caveats and quibbles raised by any discussion of taxes, please hear me out first. Let's start by defining "taxes" as any fee that is mandated by law or legal necessity. In other words, taxes are what is not optional.  If we include all taxes, the real-world tax rate is much higher than the "official" income tax rate.

Guest Post: The Socialization Of America Is Economically Impossible

I understand the dream of the common socialist.  I was, after all, once a Democrat.  I understand the disparity created in our society by corporatism (not capitalism, though some foolish socialists see them as exactly the same).  I understand the drive and the desire to help other human beings, especially those in dire need, and the tendency to see government as the ultimate solution to all our problems.  That said, let’s be honest; government is in the end just a tool used by one group or another to implement a particular methodology or set of principles.  Unfortunately, what most socialists today don’t seem to understand is that no matter what strategies they devise, they will NEVER have control.  And, those they wish to help will be led to suffer, because the establishment does not care about them, or you.  The establishment does not think of what it can give, it thinks about what it can take.  Socialism, in the minds of the elites, is a con-game which allows them to quarry the favor of the serfs, and nothing more. There are other powers at work in this world; powers that have the ability to play both sides of the political spectrum.  The money elite have been wielding the false left/right paradigm for centuries, and to great effect.  Whether socialism or corporatism prevails, they are the final victors, and the game continues onward… Knowing this fact, I find that my reactions to the entire Obamacare debate rather muddled.  Really, I see the whole event as a kind of circus, a mirage, a distraction.  Perhaps it is because I am first and foremost an economic analyst, and when looking at Obamacare and socialization in general, I see no tangibility.  I see no threat beyond what we as Americans already face.  Let me explain…

Guest Post: They Don’t Call Them Real Interest Rates For Nothing

The idea that short-duration bond funds are a good bet due to “the FED’s complete control with regards to suppressing and maintaining short-term interest rates” is completely wrong on every level; they’ve been a losing investment in real terms for most of the last 5 years, and the Fed is determined to keep it that way. The Fed’s control over nominal interest rates is precisely the reason that I wouldn’t want to invest in treasuries; not only has it consistently made bonds into a real losing proposition, but it also creates a good deal of systemic currency risk. Simply, the Fed will — in the pursuit of low-rates — monetise to the point of endangering the dollar’s already-under-threat reserve currency status. The only things that would turn bonds into a winning proposition — rising interest rates, or deflation — are anathema to the Fed, and explicitly opposed by every dimension of current Fed policy. Of course, creating artificial demand for treasuries to control nominal rates has blowback; if the buyers are not there, the Fed must inflate the currency. Hiding inflation is hard, so it is preferable to a central bank that old money is used; this is why Japan has mandated that financial institutions buy treasuries, and why I fear that if we continue on this trajectory, that the United States and other Western economies may do the same thing.

Guest Post: The Death Of China Cult

The past few years have produced an impression of the Chinese government that it is invincible, and it has miraculous control over the economic machine, that the slowdown is “intentionally” engineered by the government and everything within the economy is still very much under control.  Unfortunately, most who use this argument to justify that the slowdown is not a big problem have all invariably forgotten that most economic slowdowns in recent memories started with central banks tightening monetary policy to control inflation and slow down the economy, and most, if not all, of the cases ended with recession that they did not want to get into.  Many have also not realized how difficult it would be for China to relate its way out of a debt deflationSo how different China is in this regard is totally beyond our comprehension, and we are forced to suggest that the believers of China cult have gone delusional. As the economic slowdown becomes a reality and a hard landing unavoidable, more of the problems we have identified will surface. The cult will surely die within the next few years at most. The only questions are when it will finally die, and whether it will suffer a violent death or slow death.

Guest Post: Golden Cognitive Dissonance

The gold exchange standard period, which followed WW2, was a period of unprecedented and unparalleled expansion, productivity growth, technological innovation, and financial stability. The Bank of England’s recent report on the gold standard periods concluded:

"Overall the gold standard appeared to perform reasonably well against its financial stability and allocative efficiency objectives."

The BBC concludes by quoting former Chancellor of the Exchequer Lord Lawson:

"You can’t force a government to stay on gold, so therefore gold has no credibility."

Do you see the cognitive dissonance here? If we are to believe Lord Lawson, gold has no credibility, because governments have previously proven themselves untrue to their word. Surely the thing that has no credibility is not gold, but government promises? And that is the answer to the BBC’s initial question.

Guest Post: Dear Person Seeking a Job: Why I Can't Hire You

Potential employers have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees. We know you're hard-working, motivated, tech-savvy and willing to learn. The reason we can't hire you has nothing to do with your work ethic or skills; it's the high-cost of the Status Quo, and the many perverse consequences of maintaining a failing Status Quo. The sad truth is that it's costly and risky to hire anyone to do anything, and "bankable projects" that might generate profit/require more labor are few and far between. The economy is different now, and wishing it were unchanged from 30 years ago won't reverse the clock. We have to respond to the incentives and disincentives that exist in today's world, and those do not favor conventional permanent employees except in sectors that are largely walled off from the market economy: government, healthcare, etc. But these moated sectors cannot remain isolated from the deflationary market economy forever.