With the meaningless focus on such distracting noise as daily POMOs, will/won't the Fed taper, how many shorts will the Fed's Markets desk squeeze today, and how massive will the second Fed housing bubble be, it is easy to lose sight of the big picture, namely just where is the debt juggernaut that is the US, heading? Conveniently, the US debt clock has a "time machine" function that extrapolates, at current rates of change, what the key metrics behind the US economic facade will look like.
The New Deal social insurance philosophers thus struck a Faustian bargain... To get government funded pensions and unemployment benefits for the most needy, they eschewed a means test and, instead, agreed to generous wage replacement on a universal basis. To fund the massive cost of these universal benefits they agreed to a regressive payroll tax by disguising it as an insurance premium. Yet the long run results could not have been more perverse. The payroll tax has become an anti-jobs monster, but under the banner of a universal entitlement organized labor tenaciously defends what should be its nemesis. The puzzling thing is that 75 years later - with all the terrible facts fully known - the doctrinaire conviction abides on the Left that social insurance is the New Deal’s crowning achievement. In fact, it is its costliest mistake.
In the 15th century, the highest standard of living in the world belonged to China. Places like Nanjing had reached the pinnacle of civilization with incredibly modern infrastructure, robust economies, substantial international trade, great healthcare, and a rising middle class. If you had told a Chinese merchant at the time that, over the course of the next several hundred years, global primacy would shift to Europe (and a relatively unknown American continent), you would have been laughed at. It was simply unthinkable given how advanced China was over the west. And yet, it happened. Ironically, the tables are turning yet again; in total objectivity, the patient is beyond cure at this point… and the math is quite simple. Nations typically enter this vicious cycle once they start having to borrow money just to pay interest on what they already owe. The US is already way past this point.
Anytime a free market guy rails against central planning and socialism, there is always someone who stands up and says “what about Sweden?” Ah, Sweden... a socialist’s paradise... a place where taxes are among the highest in the world, few people are wealthy, and the government is involved in people’s lives from cradle to grave. And in all of these government surveys on ‘happiness’, places like Sweden, Norway, and Denmark consistently rank among the happiest countries in the world. Well… the veneer is cracking. The riots we first noted here continue and these foru charts may offer some of in the incendiary material for why. As we noted recently, the benefits that have kept Europe relatively 'social-unrest-free' so far are starting to run dry. People in North America who are rapidly being dragged into a welfare state should pay very close attention... because this is the future that awaits.
At the height of the financial crisis (i.e. 2008) it was easy to despise just the bankers for their serial and colossal ineptitude and rank hypocrisy. Now, five years into one of history’s most alarming bubbles, it’s easy to despise just about everyone in a position of financial or political authority, and for the same reasons. The real black comedy lies in the manipulation of market prices that is now endemic throughout the global financial system. As Japan is now showing, even with the unrestrained commitment of a central bank and its magical powers to create money out of nothing, there are practical limits to market rigging activity. Last week’s price action within the Japanese government bond market and stock market suggests that both of these markets are in the early stages of shaking themselves to pieces. The fallout of unintended (counter-intended ?) consequences from massive market manipulation will be awesome.
The recent collapse of a small commuter bridge in Washington has brought back memories of Minnesota. Back in August of 2007, the I-35W Mississippi bridge connecting the Downtown East and Marcy-Holmes neighborhoods plummeted to the river below like a Chinese-made sofa. Thirteen individuals lost their lives while 145 escaped with injury. The suddenness of the debacle was met with the blunt response system of the state. That is, politicians in Minnesota and elsewhere went before the public to decry the deteriorating condition of government infrastructure across the country. A flurry of taxpayer money dedicated to overhauling the nation’s bridges followed. Five years after millions in tax dollars were fleeced, allocated, and distributed to this new urgency, less than two dozen of the state’s 172 “structurally deficient” bridges have been made whole.
Money doesn’t stop at borders or oceans; accounting does.
- PBOC Says China Shouldn’t Be ’Blindly Optimistic’ on Inflation (BBG)
- Foreigners Buying Half of London New Homes Prop Up Building (BBG) - first they come for the foreign deposits, then for the real assets...
- Investors Rediscovering Margin Debt (WSJ) - well, yes: it is at record highs
- China issues new rules targeting wealth management fund pools (RTRS)
- Navy $37 Billion Ships Seen Unsuitable Have 2-Year Window (BBG)
- New York may have to drop claims against BofA over Merrill (RTRS)
- FBI Rejects Boston Police Stance in Spat Over Terror Data (BBG)
- In eastern Syria oil smugglers benefit from chaos (RTRS)
An import report on a key element of the economy will show big problems looming for Social Security - it will be ignored.
IRS to Spy on Our Shopping Records, Travel, Social Interactions, Health Records and Files from Other Government InvestigatorsSubmitted by George Washington on 05/02/2013 13:58 -0400
More and More People Are Staring Into Our Fishbowl
After reading the Spiegel article below, which reveals so much about German thinking, it becomes very clear that not only is Cyprus the "benchmark", but that the second some other PIIG country runs into trouble again, and its soaring non-performing loans inevitably demand a liability "resolution" a la Cyprus, it will be Germany once again at the helm, demanding more of the same equity, unsecured debt and ultimately depositor impairment. As the following punchline from Spiegel summarizes, "It would be more sensible -- and fairer -- for the crisis-ridden countries to exercise their own power to reduce their debts, namely by reaching for the assets of their citizens more than they have so far. As the most recent ECB study shows, there is certainly enough money available to do this." And that is the crux of the wealth-disparity demand of the European Disunion.
We are a long way from really resolving the argument between the Keynesian and Austrian economic theories, despite some so-called experts proclaiming Krugman's victory this week. The discovery of the calculation error in the Reinhart/Rogoff study does little to change the overall premise that excessive debt levels impede economic growth and have, historically, led to the fall of economic empires. All one really has to do is pick up a history book and read of the Greeks, Romans, British, French, Russians and many others. Does fiscal responsibility lead to short term economic pain? Absolutely. Why would anyone ever imagine that cutting spending and reducing budgets would be pain free? However, what we do know is that the path of fiscal irresponsibility has long term negative consequences for the economy. In the meantime we can continue to ignore the long term conseqences in exchange for short term bliss.
That Congress has had aspirations on collecting sales tax on online purchases, which comprise an increasingly bigger portion of all retail sales in the US, in the past is nothing new. However, following last night's passage of the Marketplace Fairness Act in the Senate with a cloture busting 74 votes for (and 20 against), the US may be very close to finally adopting a uniform standard taxing all online transactions, regardless of physical jurisdiction or any other geographic boundaries. As Ars Technica reported last night, "your tax-free days of online shopping are numbered. If S743, also known as the Marketplace Fairness Act, becomes law, the millions of Americans who have been able to avoid sales tax online will have to start paying it. Given the broad support shown by today's US Senate vote, some version of it is likely to come to fruition."
One element of the President's budget is a sham.
While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years. Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high. Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other." At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now. "The insidious nature of a runaway inflation is that it bankrupts the middle class... leading to social unrest globally."