There is a standard view of energy and the economy that can briefly be summarized as follows: Economic growth can continue forever; we will learn to use less energy supplies; energy prices will rise; and the world will adapt. The following view of how energy and the economy fit together is very different - it is based on the principle of reaching limits in a finite world.
“If I scare you this morning, and as a result you take action, then I will have accomplished my goal," is how Casey Research's Jeff Clark began a recent conference speech. But the reality is that he didn’t need to try to scare anyone. Sadly, the evidence is overwhelming and has already alarmed most investors; our greatest risk is not a bad investment but our political exposure. And yet most of these same investors do not see any need to stash bullion outside their home countries. They view international diversification as an extreme move. Many don’t even care if capital controls are instituted. We're convinced that this is the most common - and important - strategic investment error made today...
Roughly a month ago, we exposed CYNK Technology Corp. The CYNK bubble was, of course, the result of carefully planned deceit and clever promotion by a handful of people who stood to make a lot of money on the trade. But when you think about it, CYNK’s stock wasn’t really any dumber than owning US Treasuries. In the case of CYNK, it only took about a month for the bubble to inflate and burst. The Treasury bubble, on the other hand, was built on credibility earned over decades; but while previous generations earned the world’s trust, modern day politicians have blown through it. Now all they have left is their snake oil sales pitch. And a mountain of obligations that closed July 2014 at a record high $17.69 trillion.
There are many ways to look at the United States government debt, obligations, and assets. But TrimTabs's Charles Biderman cuts straight to the bottom line and add it all up - $89.5 trillion in liabilities and $82 trillion in assets. There. It’s not a secret anymore, and although these are all government numbers, for some strange reason the government never adds them all together or explains them - but we will. No one can really know what will have value in this politicized crony capitalistic system as the hyper-monetization ramps up... all I can suggest is to hedge your bets with some physical precious metals and some minimal leveraged real estate. Unfortunately, the more you know, the more you know you don’t know... invest and live accordingly.
As the topic of "unpatriotic" 'tax inversions' becomes a political issue, we thought it interesting to examine how big an economic issue it really is. How much income tax do U.S. companies actually pay every year to the Federal government? As ConvergEx's Nick Colas notes, the simple answer is “Not much”, at least as compared to any other major source of revenue. In Fiscal 2013, Colas adds, the total was $274 billion, or just 9.9% of all tax and withholding receipts. Your political leanings will inform your opinion about whether that number is too high or too low, of course; but we point out that, as Reuters reports, a former international tax counsel at Treasury explains Obama could "slam dunk" dictate an end to 'tax inversions' without Congressional approval (by invoking a little known 1969 tax law)
Working for the government was always pitched as somehow being better guaranteed than risky private corporations. However, the problem with government pensions has been they promised whatever sounded nice, with zero accountability. The presumption that tax revenue was an endless pit is one of those fallacies that nobody ever investigates. The ramifications of what happens in Detroit will ripple through the entire debt structure nationally for if this will be the new game plan to follow, why should people buy any government debt whatsoever if not even bankruptcy laws apply? As we said – he who makes the laws never goes to jail for breaking them.
The more one thinks about potential solutions to the gigantic mess we have found ourselves in as a species, the more one has come to believe we need to break apart into a vast multitude of city-states. The revolutionary concept of America in the first place was this idea of “self-governance,” something we do not posses an iota of in this day and age. As was noted recently in an academic paper published by Princeton and Northwestern, these United States have mutated into nothing short of an oligarchy. In fact, the study demonstrated that the will of the people has essentially zero impact on legislation whatsoever. The current overly centralized paradigm parasitically engulfing the planet will experience a series of spectacular collapses in the years ahead that will make 2008 look like practice. As the centralized beast episodically implodes upon itself, we will have a historic chance to remake our world in a new way that will better serve humanity. That new paradigm will consist of freedom through decentralization
The story of energy and the economy seems to be an obvious common sense one: some sources of energy are becoming scarce or overly polluting, so we need to develop new ones. The new ones may be more expensive, but the world will adapt. Prices will rise and people will learn to do more with less. Everything will work out in the end. It is only a matter of time and a little faith. In fact, the Financial Times published an article recently called “Looking Past the Death of Peak Oil” that pretty much followed this line of reasoning. However, energy common sense doesn’t work because the world is finite.
Believe it or not, the main driver of risk overnight had nothing to do with Iraq, with the global economy or even with hopes for more liquidity, and everything to do with a largely meaningless component of Japan's future tax policy, namely whether or not Abe (who at this pace of soaring imported inflation and plunging wages won't have to worry much about 2015 as he won't be PM then) should cut the corporate tax rate in 2015. As Bloomberg reported, Abe, speaking to reporters in Tokyo today after a meeting with Finance Minister Taro Aso and Economy Minister Akira Amari, said the plan would bring the rate under 30 percent in a few years. He said alternative revenue will be secured for the move, which requires approval from the Diet.
We can be happy. And we can hope. But it’s dangerous to presume that all the challenges improve simply because a new group of people is installed into positions of power. This is the fallacy that persists at nearly every election cycle– people cheer that the new guy is going to fix everything. And this excitement almost always turns to disappointment. Optimism is great. But it’s dangerous to invest one’s faith in a political system. Elections merely change the players. They don’t change the game. And it is the game that is fundamentally flawed.
"... there might not be any army groups encroached on the border. But the warning signs are just as clear as they were back in Poland in 1939. This is not a consequence free environment. Unfortunately, most people are just as oblivious..."
Having suffered a dismal confidence-sapping defeat in last weekend's elections, Francois Hollande's French government is at the center of another embarrassing faux pas this morning. Somewhat famously, Hollande has raised income tax, VAT and corporation tax since he was elected two years ago... and government forecast EUR30bn of extra tax income. As The BBC reports, the actual amount gained... EUR16bn (leaving a EUR14bn black hole) and forcing The Court of Auditors to proclaim that "forecasts of tax revenue in 2013 were so wildly inaccurate that they cast doubt on its forecasts for this year." Mon Dieu... they lied?
Will Israel be the first cashless society on the entire planet? A committee chaired by Israeli Prime Minister Benjamin Netanyahu’s chief of staff has come up with a three phase plan to “all but do away with cash transactions in Israel”. Individuals and businesses would still be permitted to conduct cash transactions in small amounts (at least initially), but the eventual goal is to force Israeli citizens to conduct as much business as possible using electronic forms of payment. In fact, it has been reported that Israeli officials believe that “cash is bad” because it fuels the underground economy and allows people to avoid paying taxes. But is a cashless society actually desirable? This is a question that people all over the world will have to start asking as governments increasingly restrict the use of cash.
With the Fed tapering and both China “I don't think the markets are discounting what’s really happening in China,” and Japan’s currencies likely to weaken, the net impact on the U.S. will be deflationary, Kyle Bass warned in a recent presentation. That trend will be accelerated by the improvement in the balance of trade for the U.S., which had its current account deficit shrink due to increased hydrocarbon production. Bass warns, the crucial moment will come when the U.S. reports a sub-6% unemployment rate, meeting the target it has set for normalizing its monetary policy by ending QE and raising rates. He predicted that will come in July. That will be the Fed’s “worst nightmare,” he said. Raising rates would stifle growth and recreate unemployment problems, which would be disastrous politically, according to Bass.