China May Actually Have Surpassed U.S. in 2010 or 2011
"The leaders of the Developed World have chipped away at the solidity that would ordinarily justify confidence in their leadership, markets and currencies, such that confidence can be lost at any moment. If confidence in a sound system is unfairly lost, then countertrend forces can act to stem the panic and restore stability. But a justified loss of confidence in an unsound system would generate much more damage and be, for a period of time and price, unstoppable. That result is what governments have risked by their poor policies, their lack of attention to the risks posed by the inventions of the modern financial system, and their neglect of the fiscal balance sheet. Since this combination is relatively new, particularly the enormity of Developed World debt and obligations, as well as the complexity and extraordinarily high leverage of the financial system (especially given the size of derivatives books), there is no way to tell exactly how it all will end. Badly, we guess." - Paul Singer
As we noted previously, for the past year Abenomics has had the "get out of a jail free" card because while the plunging yen was crushing Japanese purchasing power, and sending nominal regular wages ever lower, at least the stock market was higher - so (some of the) locals could delude themselves they are getting richer, if only on paper. However, following the most recent 15% correction in the Nikkei which may soon become an all out rout if the 102 level in the USDJPY is ever "allowed" to break, all Japan suddenly has left, is the shock of soaring food and energy prices, and the hangover of declining wages that refuse to stop dropping. Case in point, tonight the Japan labor ministry reported that monthly wages excluding overtime and bonus payments fell 0.4 percent in March from a year earlier (the biggest drop in 2014), a series of declines which has now stretched to 22 consecutive months.
There are many ways to slice and dice America's power/wealth hierarchy. The conventional class structure is divided along the lines of income, i.e. the wealthy, upper middle class, middle class, lower middle class and the poor. We suggest that a more useful scheme is to view America through the lens not just of income but of political power and state dependency. Sadly, eight of the nine classes are hidebound by conventions, neofeudal and neocolonial arrangements and a variety of false choices.
A ‘Perfect Storm’ of demography and debt will economically and financially doom almost every country on earth. It will be TEOTWAWKI – ‘The End Of The World As We Know It’. No, it’s not the end of life or even the end of civilization. However, when it’s all over, nothing will ever be the same and that includes the disappearance of much of the middle class. The good news - The storm won’t last forever. The bad news is there will be much more pain before it ends unless you make an effort to understand what’s happening and why.
Military Keynesians Are Full of Sh ... (Cough) ... Shallow Myths
Another day, another indication that 'real' inflation - the kind that reduces standards of living and leeches away purchasing power for 'real' people - is anything but under control... and anything but stable. With the Oz-ians in the Eccles Building pulling levers to run the world based on their "inflation" measures, it seems that if the price of 'things that matter' soars but the Fed doesn't see them, there is no need to tighten. Last week we discussed the surge in the price of beef, pork, eggs, and shrimp, but this week, as Bloomberg notes, the price of breakfast is soaring. Between droughts affecting coffee prices and insects spreading disease in Florida, the "breakfast beverage" index is at its highest in over 2 years.
Japan is where the Keynesian economic model rubber hit the road. And it's proven that QE is ultimately an economic dead end.
We all know the Federal Reserve is terrified of deflation, because they keep telling us that deflation is the equivalent of death and inflation is the equivalent of oxygen. What they fail to mention is that inflation is only oxygen for debtors barely able to service their debt and those who profits from debt, i.e. bankers and financiers. For everyone earning a wage or salary, inflation is the equivalent of death by a thousand cuts and deflation is the elixir of life. When prices decline, our money goes further, i.e. our purchasing power increases. Only bankers, governments and other parasites that live off the carrion of debt fear deflation and try to destroy the purchasing power of wages with everything in their power.
An explanation of how fractional reserve banking infringes on everyone’s freedom.
UPDATE: Goldman folds on "J-Curve" - the pace of that improvement will be far more modest than in past periods of yen weakness.
Another month, another colossal miss for the "waiting-for-the-j-curve" Japanese trade balance. At 1.7tn, this month's adjusted trade balance is the 2nd largest on record, and is the 36th month in a row - the worst March deficit ever. Exports missed dramatically (+1.8% vs 6.5% expected) so, so much for devaluation driving competitiveness in a globally interdependent product development cycle - nearly the lowest YoY gain in exports since Abenomics began. Imports rose more than expected (+18.1% vs 16.2%) as the devalued JPY makes living standards more difficult to maintain. The result of this dismal data - JPY weakness which can mean only one thing - a 120 point rally in the Nikkei.
Keep interest rates at zero, whilst printing trillions of dollars, pounds and yen out of thin air, and you can make investors do some pretty extraordinary things. "Central bankers control the price of money and therefore indirectly influence every market in the world. Given this immense power, the ideal central banker would be humble, cautious and deferential to market signals. Instead, modern central bankers are both bold and arrogant in their efforts to bend markets to their will. Top-down central planning, dictating resource allocation and industrial output based on supposedly superior knowledge of needs and wants, is an impulse that has infected political players throughout history." The result was always a conspicuous and dismal failure. Today’s central planners, especially the Federal Reserve, will encounter the same failure in time. The open issues are, when and at what cost to society?
Most of our readers probably know what we think of minimum wages, but let us briefly recapitulate: there is neither a sensible economic, nor a sensible ethical argument supporting the idea. So when we saw that the Swiss will vote in a national referendum May 18 on whether to create a minimum wage of 22 francs ($25) per hour, or 4,000 francs a month, we were stunned... If Swiss voters agree to introducing a new minimum wage law, they would end up doing incalculable damage to Switzerland's entrepreneurial culture. At the moment, Switzerland is still one of the freest economies in the world. It has been extremely successful so far and its achievements would clearly be put at risk. Hopefully Switzerland's voters won't be swayed by union's arguments.
That the official rate of inflation doesn't reflect reality is obvious to anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight. So why does the government maintain such a transparently inaccurate and misleading metric? For three reasons.
In all honesty, we were a little confused whether to call this Tuesday Humor or Tuesday Schizophrenia, because moments ago the biggest dove at the Fed, Minneapolis Fed's one-time converted uberhawk Kocherlakota (who recall fired his two biggest hawkish opponents at his regional Fed) just came up with the most idiotic, and hence hilarious, thing a president of the one institution whose only job is to devalue the fiat currency of the host nation can say:
- KOCHERLAKOTA SEES ‘REAL EROSION’ OF PEOPLE’S PURCHASING POWER
Yep - the biggest dove in the Fed - the only person who disagreed with the Fed's decision to continue tapering - is suddenly worried about the erosion in your purchasing power dear people. What nobility. What humanism.