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Guest Post: Housing Subsidies - Capitalism’s Smoke And Mirrors





Many, if not most, people would agree with the general use of subsidies in a vertical equity fashion, or the efficient redistribution of wealth for a common social purpose: social justice to provide shelter for those who need it. It is subsidies in housing designed to support a political and not a socioeconomic purpose that bother me. Subsidies as they continue to exist in the US in housing follow in this category – much in exclusivity these days to the subsidies in other developed nations the world over, at least in quantifiable terms.

 
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Guest Post: How Long Before Massive Government Debt Buildup Triggers Another Financial Shock?





From 1981 to 2007, the amount of debt required to produce $1 of GDP growth crept higher, and it ranged from a low of 3 cents in 2000 to a high of $2.25 in 1991.  In only eight of those years did it take more than $1 of debt to produce $1 of GDP growth—1982, 1986, 1990 to 1993, 2002, and 2003.  On average, it took 79 cents of debt to produce $1 of GDP growth.  In other words, the increase in GDP was nearly 1.3 times the increase in debt. Along came the Great Recession.  Since 2009, the traditional relationship between debt and GDP growth has been turned upside down.  Each $1 increase in GDP has been accompanied by, on average, a $2.50 increase in debt.  Before the recession, an increase in debt generally generated a greater increase in GDP, but now it takes an enormous increase in debt to eke out a small increase in GDP.  At some point, the amount of debt required to generate even modest GDP growth will suffocate the economy and trigger another financial shock.

 
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Guest Post: And The ‘Dumbest Person Of The Week Award’ Goes To…





Former US Republican presidential candidate Michelle Bachmann receives the Sovereign Man dumbest person of the week award for obtaining… then almost immediately renouncing… Swiss citizenship. I’ll explain: Bachmann’s husband is a Swiss national; they’ve been married since 1978, and as a result, Bachmann eventually became qualified for Swiss citizenship as well. She recently received confirmation of her citizenship from the Swiss authorities, a fact that was reported in some mainstream media outlets. Bachmann was subsequently criticized by her political opponents for engaging in such ‘un-American’ activities.

 
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Guest Post: The Kobayashi Maru Test And The Job Market





The Kobayashi Maru test of Star Trek fame is a classic no-win situation. Star Fleet Academy students are given command in a no-win scenario: either ignore a distress call of a Federation ship inside the Klingon (enemy) zone or enter the zone on a doomed rescue mission and lose your own ship in a hopeless battle against vastly superior forces. Captain Kirk evaded the no-win choices by reprogramming the computers to enable him to win. I think the job market can be profitably viewed as a Kobayashi Maru test: the conventional either/or choice--do something you dislike for job security or go to grad/law school for an advanced degree--is a false choice.

 
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Guest Post: Does Jamie Dimon Even Know What Heging Risk Is?





Having listened to the conference call (I was roaring with laughter), Jamie Dimon sounded very defensive especially about one detail: that the CIO’s activities were solely in risk management, and that its bets were designed to hedge risk. Now, we all know very well that banks have been capable of turning “risk management” into a hugely risky business — that was the whole problem with the mid-00s securitisation bubble, which made a sport out of packaging up bad debt and spreading it around balance sheets via shadow banking intermediation, thus turning a small localised risk (of mortgage default) into a huge systemic risk (of a default cascade). But wait a minute? If you’re hedging risk then the bets you make will be cancelled against your existing balance sheetIn other words, if your hedges turn out to be worthless then your initial portfolio should have gained, and if your initial portfolio falls, then your hedges will activate, limiting your losses. That is how hedging risk works. If the loss on your hedges is not being cancelled-out by gains in your initial portfolio then by definition you are not hedging riskYou are speculating.

 
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Guest Post: In Case You Really Have To Flee The Authorities…





When most people think of Brazil, it’s the incredible beaches that come to mind. Or the crazy parties of Carnival. Or the spectacular vistas and great weather. Or how indescribably gorgeous (and welcoming) the locals are. But here’s a little known fact, and it’s something that sets Brazil apart from most other places: Brazil’s constitution prohibits the extradition of Brazilian citizens to other countries. This is a rare gem in the world… I’ll explain.

 
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Guest Post: America's Hidden 8% Tax: Sickcare





You may think only European countries have VAT (value-added taxes), but America has one, too--it's just hidden in the sprawling "healthcare" system, i.e. sickcare. A value-added tax (VAT) is a broad-based consumption tax designed to raise tax revenues from across the entire economy. Since it's in everything you buy, you can't escape paying it unless you go to another country without a VAT. While the U.S. doesn't have an official VAT, it has an unofficial one that we all end up paying for indirectly: the 8% difference between what we pay for our bloated, fraud-ridden healthcare system and what our global competitors pay for their universal-care healthcare systems.

 
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Guest Post: Obama Embraces Gay Marriage





I’m in favour of consenting adults being able to do whatever they like with each other, but the fact that the current push for gay marriage is supported by Lloyd Blankfein and Goldman Sachs makes me very suspicious (does he want to sell securitised gay marriage debt?). It just seems like an easy issue for Obama to posture on, while trampling the Constitution into the dirt. When it comes to civil liberties, Obama has always talked a good game, and then acted more authoritarian than Bush. He talked about an end to the abuses of the Bush years and an open and transparent government, yet extended the Fourth-Amendment-shredding Patriot Act, empowered the TSA to produce naked body scans and engage in humiliatingly sexual pat-downs, signed indefinite detention of American citizens into law, claimed and exercised the power to assassinate American citizens without trial, and aggressively prosecuted whistleblowers. Under his watch the U.S. army even produced a document planning for the reeducation of political activists in internment camps. Reeducation camps? In America? And some on the left are still crowing that talking about being in favour of gay marriage makes him “pro civil liberties”? Is this a joke?

 
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Guest Post: What Austerity?





By mainstream media accounts, the presidential election in France and parliamentary elections in Greece on May 6 were overwhelming verdicts against “austerity” measures being implemented in Europe. There is only one problem. It is a lie. First off, austerity was never really tried. Not really. In France for example, according to Eurostat, annual expenditures have actually increased from €1.095 trillion to €1.118 trillion in 2011. In fact spending has increased every single year for the past decade. The debt there increased too from €1.932 trillion €1.987 trillion last year, just as it did every year before. Real “austere”. The French spent more, and they borrowed more. The deficit in France did decrease by about €34 billion in 2011, but that was largely because of a €56.6 billion surge in tax revenues. Again, there were no spending cuts. Zero. Yet incoming socialist president François Hollande claimed after his victory over Nicolas Sarkozy that he would bring an end to this mythical austerity: “We will bring back Europe on a track for jobs, growth and the future… We’re no longer doomed to austerity.” This is just a willful, purposeful distortion. What the heck is he talking about? Certainly not France.

 
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Guest Post: Is China A Currency Manipulator?





Mitt Romney's theory goes that by buying U.S. currency (so far they have accumulated around $3 trillion) and treasuries (around $1 trillion) on the open market, China keeps demand for the US dollar high.  They can afford to buy and hold so much US currency due to their huge trade surplus with America, and they buy US currency roughly equal to this surplus.  To keep this pile of dollars from increasing the Chinese money supply, China sterilises the dollar purchases by selling a proportionate amount of bonds to Chinese investors.  Supposedly by boosting the dollar, yuan-denominated Chinese goods look cheap to the American (and global) consumer.  What Romney is forgetting is that every nation with a fiat currency is to some degree or other a currency manipulator. That’s what fiat is all about: the ability of the state to manipulate markets through monetary policy. When Ben Bernanke engages in quantitative easing, or twisting, or any kind of monetary policy or open market operation, the Federal Reserve is engaging in currency manipulation. Every new dollar that is printed devalues every dollar out in the wild, and just as importantly all dollar-denominated debt. So just as Romney can look China in the face and accuse them of being a currency manipulator for trying to peg the yuan to the dollar, China can look at past U.S. administrations and level exactly the same claim — currency manipulation in the national interest.

 
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Guest Post: The Death Spiral Of Debt, Risk And Jobs





What we have is a Central State and an economy that has borrowed and squandered trillions of dollars on consumption and malinvestment in unproductive "stranded" assets. The debt and risk pile up, while the labor that results from consumption is temporary and does not create wealth or permanent employment. Figuratively speaking, we're stranded in a McMansion in the middle of nowhere, a showy malinvestment that produces no wealth or value, and we're wondering how we're going to pay the gargantuan mortgage and student loans. Debt and the risk generated by rising debt create a death-spiral when the money is squandered on consumption, phantom assets, speculation and malinvestments. Sadly, that systemic misallocation of capital puts the job market in a death spiral, too.

 
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Guest Post: The Yemen Underwear Bomb and Other Hobgoblins





Today it was widely reported that the CIA thwarted a “plot by al Qaeda’s affiliate in Yemen to destroy a U.S.-bound airliner using a bomb.”  This bomb, which was to be concealed in a pair of underwear, was designed as an improvement over what Umar Farouk Abdulmutallab attempted to use to blow up an airliner over Detroit on Christmas Day of 2009.  This bomb was upgraded and designed to specifically avoid metal detectors. At first glance it would appear to be a job well done by the world’s leading domestic affairs meddlers. The truth was finally revealed as the would-be bomber was, in fact, a double agent of the CIA. When considering the nature of the state, this new instance of government supported terrorism is unsurprisingly comparable to previous cases. The alleged Yemen “underwear” bomber was just another fabricated spook in the long line of mounting justifications to keep the war on terror and its profiteers going; no matter the cost.  As long as the American people are still easily whipped into a frenzy over forged menaces from afar, their blood and treasure will go on to be squandered on military boondoggles and redundant intelligence agencies.  War and fear end up becoming a way of life.  And so does the state’s command over what could be a life of peace and tranquility for the nation it supposedly protects. This isn’t conspiracy theory; just a recognition of the various hobgoblins, as H.L. Mencken described them, invented to justify encroaching totalitarianism.

 
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Guest Post: The Emperor Is Naked





We are in the last innings of a very bad ball game. We are coping with the crash of a 30-year–long debt super-cycle and the aftermath of an unsustainable bubble. Quantitative easing is making it worse by facilitating more public-sector borrowing and preventing debt liquidation in the private sector—both erroneous steps in my view. The federal government is not getting its financial house in order. We are on the edge of a crisis in the bond markets. It has already happened in Europe and will be coming to our neighborhood soon. The Fed is destroying the capital market by pegging and manipulating the price of money and debt capital. Interest rates signal nothing anymore because they are zero. Capital markets are at the heart of capitalism and they are not working.

 
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Guest Post: Why the Job Market Will Continue Shrinking





The paradox of an advanced post-industrial economy is that the number of jobs needed declines even as the cost of living rises. The fundamental dynamic of America's job market is simple: we need relatively few workers to provide the absolute essentials of life even as the cost-basis of the economy inexorably rises. In other words, there are fewer jobs even as the costs of maintaining a "middle class" life rise. The solution to the post-industrial decline of labor is not unproductive "make-work" jobs and borrowing trillions of dollars until the system implodes, it's lowering the cost basis of the entire economy and culture, which means eliminating all the systemic sources of unproductive friction.

 
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Guest Post: The European Union Is Destroying European Unity





So we know that the pro-bailout parties in Greece have failed to form a coalition, and that this will either mean an anti-bailout anti-austerity government, or new elections, and that this will probably mean that the Greek default is about to become extremely messy (because let’s face it the chances of the Greek people electing a pro-austerity, pro-bailout government is about as likely as Hillary Clinton quitting her job at the State Department and seeking a job shaking her booty at Spearmint Rhino). It was said that the E.U.’s existence was justified in the name of preventing the return of nationalism and fascism to European politics. Well, as a result of the austerity terms imposed upon Greece by their European cousins in Brussels and Frankfurt, Greeks just put a fully-blown fascist party into Parliament.

 
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