Guest Post

Guest Post: Dr. Lacy Hunt On Debt Disequilibrium, Deleveraging, And Depression

If you want to know how weak the economy really is all you need to do is look at the 30-year bond. It is one of the best economic indicators available today. If economic conditions are robust then the yield will be rising and vice versa. What the current low levels of yield on 30 year bonds is telling you is that the underlying economy is weak. "The 30-year yield is not at these low levels DUE to the Federal Reserve; but in SPITE OF the Fed," Hunt said. The actions of the Federal Reserve have continued to undermine the economy which is reflected by the low yield of the 30 year bond. The "cancerous" side effects of nonproductive debt are being reflected in real disposable incomes. Just over the last two years real disposable incomes slid from 5% in 2010 and -0.5% in 2012 on a 3-month percentage change at an annual rate basis. This is critically important to understand. While the media remains focused on GDP it is the wrong measure by which to measure the economy. A truly growing economy leads to rises in prosperity. GDP does NOT measure prosperity — it measures spending. It is the measure of real personal incomes that measures prosperity. Prosperity MUST come from rising incomes.

Guest Post: Debt Serfdom In One Chart

Bottom line: financialization and substituting debt for income have run their course. They're not coming back, no matter how hard the Federal Reserve pushes on the string. Both of these interwined trends have traced S-curves and are now in terminal decline: Those hoping the economy is "recovering" on the backs of financial speculation/ legerdemain and ramped up borrowing by the lower 95% will be profoundly disappointed when reality trumps fantasy.

Guest Post: The 5 Most Influential Figures In U.S. Clean Energy

As Oilprice.com embarks on its Top 5 series, we thought it expedient to begin with our take on the key figures shaping and influencing U.S. renewable energy efforts, not least because the issue of energy security is being prioritized in campaigning ahead of U.S. presidential elections. In considering from the numerous choices for these top five slots, we take into account a number of variables, including investment in renewable energy, the ability to influence policy and shape public opinion, and advocacy efforts. This goes well beyond simply counting coin – it is about innovation, imagination, vision, risk and patience. Arguably, these people will play an important role in your life and leisure, for better or worse.

Guest Post: Gold Standard for All, From Nuts to Paul Krugman

Nut cases. That’s what they are. And if you take an interest in them, you are a nut case, too. That’s the consensus among credentialed economists who describe advocates of a return to the monetary regime known as the gold standard. In fact, the economic pack will marginalize you as a weirdo faster than you can say "Jacques Rueff," if you even raise the topic of monetary policy in relation to gold. If we are going to speak of consensus, let’s not forget one that is truly universal: Our economic system stands a good chance of breakdown in coming years. The only way to limit damage from such a breakdown is to ready ourselves to choose other models by learning about them now. Not to do so would be nuts.

Guest Post: Future Economy, Future Stability, Future Careers

"I would very much like to learn your thoughts on what careers may be viable for our children. With the future likely to change our lives so dramatically, where do you see opportunities for some form of career growth and some form of stability?"

Answer:

  1.  Let go of old models of financial security. Do not assume a government job means 30 years of security and a fat pension thereafter. That's the past, not the future.
  2. Assume monopolies and cartels imposed by the State will be disrupted and implode. The key example here is the sickcare system imposed by the State. For decades people have seen sickcare expand year after year, and so it seems sensible to assume that joining healthcare a.k.a. sickcare was a path to security.
  3. The best career strategy going forward is to assemble multiple skillsets. What we know is that current models will be disrupted, but we cannot know the future. Thus we cannot know which skillsets will be demand. That may change constantly; "security" will flow not from clinging to failing institutions for 30 years but by being flexible and adaptive.

Guest Post: Should The Rich Pay More Taxes?

Those calling for taxing the richest more are not doing the same cost-benefit analysis I am doing that suggests that raising taxes won’t raise more revenue. But they’re not unfairly looking for a scapegoat, either. While probably the greatest culprits for the problems of recent are in government (Bush, Greenspan, Obama, Bernanke) Americans are right to be mad at the rich.

Why?

This isn’t about tax. This is about jobs, and growth. The rich, above and beyond any other group have the ability to ameliorate the economic malaise by spending and creating jobs, creating new products and new wealth. The top 1% control 42% of all financial wealth. But that money isn’t moving very much at all— the velocity of money is at historic lows. It should not be surprising that growth remains depressed and unemployment remains stubbornly high.

Guest Post: SNB Buys Swiss Francs And Sells Euro: Welcome To The EUR/CHF Peg

Anybody watching the EUR/CHF exchange rate this year was wondering why the volatility the pair saw last year had completely left. The pair slowly fell from 1.2156 over 1.2040 at the end of Q1 to 1.2014 today. FX traders hoped on a hike of the floor from 1.20 to 1.25, as many Swiss politicians and companies requested. Banks sold masses of Long EUR/CHF certificates and options. The retail market measured in SSI (Speculative Sentiment Index) was 96% long EUR/CHF.  We saw the typical Forex web sites telling regularly their masses of followers that the protagonists of these web sites were going long EUR/CHF in the hope that the SNB is going to act. This happened at multiple critical levels, at 1.2070, 1.2050, at 1.2030 and finally at 1.2010. The small FX trader was begging for months that the SNB would finally intervene. When all these people were long EUR/CHF, who was actually short, when the exchange rate continued to fall ? We speculated that some big accounts wanted their clients to be knocked out with their EUR/CHF longs, we thought that Swiss pension funds and big investors continued to repatriate their foreign funds.  What did the SNB ? Did they support the hopes of the masses, of all these SNB rooters ? But on the back-door of all this rhetoric they did the complete opposite: The central bank was happy to get rid of their Euros at a higher price than the floor they had set in September 2011 !

Guest Post: 3 Likely Triggers Of The Next Recession

sta-eoci-recessionindicator-050212There is really no argument whether there will be a recession in our future — the only question is the timing and cause of it. The latter point is the most important. Recessions do not just happen — they need a push. In 2011 the economy was just a breath away from a recession due to the dual impact of the Japanese earthquake and tsunami and the European debt crisis. Had it not been for the combined efforts of the Fed through "Operation Twist" and the Long Term Refinancing Operations via the ECB, a drop in oil prices and a plunge in utility costs due to the warmest winter in 65 years, it is entirely likely that that we may have already been discussing a "recession." The ECRI launched a debate that was literally heard around the world with their recessionary call in 2011. The weight of evidence as shown by our composite economic output indicator index shows that the ECRI call was most likely correct. However, the restart of manufacturing, primarily automotive, after the crisis in Japan combined with an effective $90 billion tax credit due to lower oil and utility costs, turned the previously slowing growth rate of the economy around over the last couple of quarters. Sustainability is becoming the question now as weather patterns return to a more normal cycle and the effects of the lower energy costs began to dissipate. In a more normal post recessionary recovery the third year should be closer to a 6-8% economic growth rate versus 2%. While 2% growth is much better than zero — the current sub-par pace of growth leaves the economy standing on the edge of the pool with very little stability to offset any unexpected "push" into the cold waters of recession. The problem is identifying what that "push" could likely be.

Guest Post: The Pseudoscience Of Economics

Modern economics is obsessed with modelling. An overwhelming majority of academic papers on the subject work like so: they take data, and use data to construct formal mathematical models of economic processes. Models mostly describe a situation, and describe how that situation would be changed by a given set of events; a very simple example is that as the supply of a good diminishes, its price will increase. Another is that deficit spending increases the national income. A mathematical model is a predictive tool created to demonstrate the outcome of events in a massively simplified alternate universe. As someone who rather enjoys voyages of the imagination, the use of mathematical models in economics is intriguing. The pretension that through using formal mathematical techniques and process  we can not only accurately understand, but accurately predict the result of changes in the economy is highly seductive. After all, we can accurately predict the future, right?

Wrong.

Guest Post: The New World Order: Paranoia Or Reality?

The phrase “New World Order” is so loaded with explosive assumptions and perceptions that its very usage has become a kind of journalistic landmine.  Many analysts (some in the mainstream) have attempted to write about and discuss this very real sociopolitical ideology in a plain and exploratory manner, using a fair hand and supporting data, only to be attacked, ridiculed, or completely ignored before they get a chance to put forward their work.  The reason is quite simple; much of the general public has been mentally inoculated against the very whisper of the terminology.  That is to say, they have been conditioned to exhibit a negative reaction to such discussion instinctively without even knowing why....  The Liberty Movement has always defined the NWO as a concerted effort by elitist organizations using political manipulation, economic subversion, and even war, to centralize global power into the hands of an unelected and unaccountable governing body.  The goal; to one day completely dismantle individual, state, and national sovereignty.  However, what I and many others hold as fact on the New World Order is not enough.  We must examine the original source and how we came to our mutual conclusions.      

Guest Post: We Are Not Powerless: Resisting Financial Feudalism

The pathway of dissent is to resist financial feudalism and its enforcer, the expansive Central State. Here are twelve paths of resistance any adult can legally pursue in the course of their daily lives:

  1. Support the decentralized, non-market economy
  2. Stop participating in financialization
  3. Redefine self-interest to exclude debt-servitude and dependence on consumerism and the Central State
  4. Act on your awareness that the nature of prosperity and financial security is changing
  5. Stop supporting distant concentrations of capital that subvert democracy by using their gargantuan profits to buy the machinery of State governance and regulation
  6. Stop supporting the debt-and-leverage based financial aristocracy
  7. Transfer your assets out of Wall Street and into local enterprises or assets that do not enrich and empower Wall Street.
  8. Refuse to participate in consumerist status identifiers and the social defeat they create
  9. Vote in every election with an eye on rewarding honesty and truth and punishing empty promises
  10. Stop supporting inflationary policies such as “money creation” by the Federal Reserve and Federal deficit borrowing
  11. Become healthy, active and fit
  12. Embrace self-directed coherent plans and construct a resilient, diverse ecology of identity and meaning

Guest Post: A Different Way Of Looking At China

Hard landing, soft landing, civil unrest, dominant economic superpower – the forecasts flow freely regarding China. The fact that good data is hard to come by regarding China does not seem to inhibit many outside observers. In this piece I will look at China through the lens of economic structure, Chinese history and culture—concepts which a number of observers often overlook. My general conclusion is that Chinese GDP growth rates are about to undergo a gradual but nevertheless perceptible decline. But I now believe a hard landing crash is unlikely, assuming that Europe does not totally disintegrate and the US does not roll over into a full scale recession.

Guest Post: Two Words - Screw That

History shows that freedom is almost always the price that societies pay to maintain the status quo and keep their rulers in power. When the system finally collapses under its own weight, though, things can go from bad to worse as the people cry out for CHANGE. The French, for example, traded an absolute monarch in Louis XVI for an absolute dictator in Robespierre. Similarly, the Russians traded the empire of ‘Bloody’ Tsar Nicholas II for the Red Terror of Soviet Russia. As the Russian Marxist revolutionary Leon Trotsky said in 1937, “The old principle of ‘who does not work shall not eat’ has been replaced by a new one– who does not obey shall not eat.”

Two words: Screw that.

Guest Post: Where's The Collateral?

Collateral matters when it comes to assessing the value of the debt. If a bank lists the mortgages in its "assets" column at full value even though the underlying collateral (the houses) has lost much of their value, then the bank is grossly over-estimating the value and security of the mortgage. The bank's "assets" are based on phantom collateral. Take away $1 in collateral and you impair $4, $10, $20 or even $30 of debt. Recall that the vast majority of real estate equity and financial wealth is owned by the top 20%, with the majority of that concentrated in the top 5%. That means the bottom 80% own little collateral to leverage into debt. How about leveraging income into more debt? Since the top 10% receive almost 50% of the income, and most of the bottom 90%'s income goes to non-discretionary spending and taxes, then only the top 10% have discretionary income that can be leveraged into more debt.

Guest Post: Krugman, Diocletian & Neofeudalism

While Krugman does not by any means endorse the level of centralism that Diocletian introduced, his defence of bailouts, his insistence on the planning of interest rates and inflation, and (most frighteningly) his insistence that war can be an economic stimulus (in reality, war is a capital destroyer) all put him firmly in Diocletian’s economic planning camp. So how did Diocletian’s economic program work out? Well, I think it is fair to say even without modern data that — just as Krugman desires — Diocletian’s measures boosted aggregate demand through public works and — just as Krugman desires — it introduced inflation. And certainly Rome lived for almost 150 years after Diocletian. However the long term effects of Diocletian’s economic program were dire. Have the 2008 bailouts done the same thing, cementing a new feudal aristocracy of bankers, financiers and too-big-to-fail zombies, alongside a serf class that exists to fund the excesses of the financial and corporate elite? Only time will tell.