Paul Brodsky: "Sorry, It Had To Be Said"

Submitted by Paul Brodsky from Macro Allocation

Being Here

     “As long as the roots are not severed, all is well. And all will be well in the garden.”

      - Chauncey Gardner (Chance, the Gardner)

This piece takes a roundhouse swing at politics, real and imagined, and discusses critical economic issues that politicians should actually apply a little intelligence to, but are not. Capitalism will ultimately set things right, but it will have to overcome the political dimension’s best efforts to ignore real issues.

The Real Deal

An important character trait for wealth creation today seems to be incuriosity – find out what’s working, hop on board, enjoy the ride and don’t ask questions. Growth and value metrics seem to matter less than they used to, and so investors have turned their gaze to macroeconomics and, gulp, politics.

We think investment-related political discussions that handicap the likelihood of new pro-growth fiscal, tax, trade and regulatory policies in the US are off-base and have taken on too much importance. They do not promise sustainable support for the US economy or markets given a few twenty-first century realities:

  • Full value: the scale of financial markets has already become quite big relative to output.
  • Financial asset price appreciation now reflects a) short-term balance sheet management and b) price deflationary innovation, rather than growth in the sustainable capital stock.
  • There is no longer such a thing as a domestic economy, even if economic initiatives help shift domestic investment and consumption. Global goods and service prices, and trade responses from well-organized foreign economies, tend to quickly offset domestic stimulus programs.

Late cycle economic initiatives, such as those discussed by Mr. Trump, are ultimately derivative of waning animal spirits. They can be distorted for a time by credit policies and legislation, but they cannot be kept permanently in disequilibrium. Human incentives, along with innovation, productivity and balance sheet digestion, tend to overwhelm the best efforts of policy makers trying to extend trends. After a generation of pulling credit and revenues forward, culminating in rock-bottom borrowing costs; lower taxes, (deficit-funded) government investment and reduced regulatory oversight would be only marginally stimulative.

The combination of ubiquitous leverage, aging Western wealth holders, and deflationary globalization and innovation (including non-sovereign distributed ledgers that allow value to be transferred directly among willing counterparties anywhere across the world), pose the biggest threats to traditional domestic output and inflation models still embraced by global economic policymakers and most investors.

This sets up an epic global economic battle if Americans choose to keep US nation-state sovereignty, which of course they will. It is serious stuff that will require serious leadership and diplomatic skills from the President of the United States, which, as the global hegemon, has the most to lose.

Fake Politics

It should not surprise anyone that Western societies are becoming restless. Trump, Brexit, Charlottesville and, arguably, even radical Islamic terrorism are bi-products of global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages. (Sorry, it had to be said.)

Donald Trump is a sideshow. His ascension, or someone like him, was inevitable. He may have official authority to behave like the leader of the free world (even if he is unable to do so), but so far he has only shown that virtually anyone can become president. Indeed, one might say Mr. Trump represents a triumph of democracy. Behold the robustness of America: the most powerful nation on Earth is unafraid to elect a cross between P.T. Barnum and Chauncey Gardner!

This is not to say a US president cannot raise and emphasize truly meaningful economic goals and mobilize countries around the world to help achieve them; but it is to say that this President seems to not know or be interested in what those goals might be.

As discussed, the biggest challenges facing the US economy and US labor stem from a distorted global price and wage scale. Mr. Trump’s domestic fiscal, regulatory, tax and immigration goals seek only to raise US output and wages. This cannot be achieved without the participation of global commerce. There is no such thing anymore as a US business that makes US products sold only in the US without being influenced by global prices, wages and exchange rates. The romantic, patriotic “made in the USA” theme does not comport with the reality that the US also seeks to keep the dollar the world’s reserve currency and that maintaining America’s power requires the US to control the world’s shipping lanes. Mr. Trump and his base cannot have one without the other. (Do we really have to articulate this?)

Mr. Trump’s “Being There” presidency is reflecting an inconvenient truth back on a society that has, until maybe now, successfully deluded itself into believing government is functionally the glue holding society together. Though he does not mean to, Mr. Trump is single-handedly demonstrating to groups ranging from idealistic Washington elites to social media zombies to southern white supremacists that Madisonian government has become a dignified cover for the financial, commercial and national security interests that control it. We suspect those interests would rather the reach of their power be less visible.

For the more pragmatic among us, Mr. Trump’s bravado and apparent emotional instability have created the need for a public work-around. He remains tentatively safe to wealth holders because he hired Goldman Sachs to manage financial affairs, and acceptable to globalists because he is deferring foreign policy to the NSC (i.e., “the generals”). Mr. Trump may continue to speak in nationalistic terms, tweet IEDs, and confound media used to personalizing policy; but it seems highly unlikely he will be able to make high yielding unilateral policy decisions. He will likely settle into a pattern of lobbing increasingly ignored tape bombs and hosting elegant state dinners, as an insane king might. Or else, he will be out.

Just as the virtuous Carter followed the vice-ridden Nixon and the strapping Clinton followed the crusty Bush 41, the vulgar Trump predictably followed the cool Obama. Donald Trump is a man-in-full (of himself), and so we would not be surprised if the next president is an empty suit. (We are unsure how literal that can be.) Given our view of the extraordinary structural changes about to impact US and global economies and societies, the most attractive feature for the next presidential could be a really intelligent person who says “I don’t know” fifty times every stump speech. We are ready to vote for a thirty five year-old woman who can code, if only because the president of the US must be at least 35.

The differences separating political platforms are beginning to matter less than they used to. The billions spent in election cycles and beyond accomplishes little except redistributing liquidity from sentimental or idealistic savers from both parties to media company executives and their shareholders. None of it reduces the leverage on the balance sheets of global governments, households and businesses, or starts a conversation about how to reconcile rising asset prices and falling wages in a digital global economy.


At the risk of oversimplifying, the tension between globalization and nationalism has the greatest influence on economic, social and political affairs today. We were reminded of this last week watching Donald Trump channel the misplaced angst and anger of hate groups, mostly displaced and disaffected white men who have been caught directly in the crossfire of efficient global resource distribution.

One need only observe life to understand the game-changing economic impact of globalization:

  • the opening of Chinese and Soviet-bloc economies in the 1990s;
  • trade treaties that created jobs and drove wages higher in developing economies and displaced jobs and drove real wages lower in developed economies;
  • innovation and technologies that reduced price inefficiencies and displaced workers;
  • ubiquitous real-time direct connectivity across the world;
  • an anachronistic, policy-driven global economic system, comprised and coordinated by sovereign politicians, trade representatives and central bankers, that talk domestic but act global.

The disconnection and underlying hypocrisy are obvious to anyone trying to understand increasing social unrest around the world. National and global economies meant to follow a mostly capitalist outline contrived and administered by policymakers, rather than one following free-market incentives, can last only until late-cycle policies become ineffectual and superfluous.

This is occurring now. Consider that wealth is no longer created from production, but rather from financial pricing models and credit creation, credit that must increase at a parabolic pace and can never be extinguished without substantial output contraction and rising unemployment. It cannot last indefinitely.

Central bank purchases and government investment have been fabricating output growth and asset gains. Central banks now hold about $19 trillion in assets on their balance sheets, up from almost zero in 2008, and are now 20 percent owners of global assets. There is also about $20 trillion in US federal debt, up from $9 trillion in 2008. (See debt growth trajectories in Graph 1, below.)

Stocks, bonds and real estate collateralize each other while output growth makes it possible to service debt. It is not a stretch to assume that output and asset prices would have fallen without government and central bank subsidies, and that they will fall in the future if/when global central banks withdraw support.

Print Money, Get Rich!

Hey passive investors, you’re not that smart…unless your calculus has been to front-run the insecurities of elected and appointed officials who would reliably be unable to sit on their hands while economies and markets correct, rather than bending economic and asset space/time continua to perpetuate positive trends (and their careers).

The reality is that real (inflation-adjusted) returns for long-term holders of financial assets cannot be calculated yet. Deflating nominal returns using coincident goods and service inflation measures (e.g. CPI, PCE) compares apples to oranges – asset price changes vs. consumer price changes. It works if you want to know if you could have cashed in your assets and bought a basket of goods and services, but not if you want to know if you will be able to cash them in and then save risk-free in the future (i.e., create wealth).

The problem is that there are too few dollars for each claim on dollars (credit). The credit that collateralizes equity cannot be repaid and, if output declines, cannot be serviced without more credit. Equity and credit prices will fall (deflate) in tandem as debt service and repayment declines, unless more dollars are created and floated to asset holders. This is the process of inflation, and the pace of this, not consumer inflation, is what should be used to deflate nominal asset returns.

The current imbalance separating credit (claims on money) from money itself suggests a doubling, tripling or even quadrupling of the money supply in float (yes, 100, 200 or 300 percent monetary inflation directed towards financial markets). This implies nominal asset prices could rise, but not nearly as much as the purchasing power value of the currency they are denominated in would fall.

We doubt all the new money could be distributed to the investor class and then reinvested back into financial markets, and so we think it is highly likely that nominal equity and debt prices will fall markedly in the future, though we cannot know from what level.

If you have suspected that it has been too easy to get rich by simply being here and investing passively in popular markets, you are right in our humble opinion. To realize gains, most investors will have to cash out their assets and then exchange that cash for money that will not be diluted. It is a mathematical impossibility because: 1) the money does not exist, and 2) by definition, most investors cannot time the market. We doubt any of this will be discussed or debated on the campaign stump…or at Jackson Hole.


MK13 pickatheweek Wed, 08/23/2017 - 21:58 Permalink

Complete and utter bullshit - you have to take serious pills to write this stuff.

Starting with praising Carter, Clinton, and 'cool Obama'. Ending with Charlottesville - without mentioning any antifa or BLM violence. And Islamic terrorism - how that's a failure of global currency/equity mispricings, that's a new one.

This is a complete and utter leftist/globalists fiscal hit piece.

But it's good that we can see enemies propaganda piece here.

In reply to by pickatheweek

Jimmy Jimmereeno MK13 Wed, 08/23/2017 - 22:25 Permalink

".....but so far he has only shown that virtually anyone can become president..."  This is a truism and has always been so in American history.Who is Paul Brodsky? Someone grinding a statist/collectivist axe.Note to new Tylers.  I repeat myself; you must provide intellectual quality essays on this site or your are going to lose your core constituency to a click-bait rabble.

In reply to by MK13

Zero_Hope Wed, 08/23/2017 - 21:23 Permalink

BS! Islam has bred terrorism long before the current economic issues. Have you forgotten 9-11? Have you forgotten the Summer Olympics of 1972? Sell your Muslim white wash elsewhere. It just won't wash here.

jeff montanye Zero_Hope Wed, 08/23/2017 - 22:08 Permalink

9-11 was the product of the mossad likud zionist movement.  muslims were used, as with the king david hotel bombing, as beards, disguises to spread blame to others innocent of the original crime.  here is a sampling but really, the internet is a treasure trove of truth.  mine it:….…

In reply to by Zero_Hope

gregga777 Zero_Hope Wed, 08/23/2017 - 23:20 Permalink

Would there even be any Islamic terrorism, in Western nations, if in 1947 the United States had NOT led the United Nations to create the Crusader state of Apartheid Israel right in the middle of the Islamic world? Would there even be any refugees from Islamic nations? Hmmm?

* Would there have been the 1948, 1956, 1967 and 1973 Arab-Israeli wars?
* Would there have been any Arab oil embargoes?
* Would there have been any wars in Lebanon?
* Would the USS Liberty have been deliberately attacked by Israel on June 8, 1967 with 34 US sailors KIA and 171 wounded;
* Would there even be such organizations as the PLO (Palestine Liberation Organization), Black September, Hamas, Hezbollah, Al Qaeda, Al Qaeda in the Arabian Peninsula, ISIS and many, many others?
* Would Iran allegedly even be motivated to develop nuclear weapons if it were not for the 100-400 nuclear weapons developed by Israel from fissile materials provided from the US Savannah River nuclear facility?
* Would the US be bogged down in unwinnable wars, for the glory of Greater Apartheid Israel, in Afghanistan, Iraq, Syria, Libya, etc., with tens of thousands of killed and wounded, millions of dead civilians, $ trillions wasted because the Israeli people don't want their own people killed?
* Would Europe be overrun with millions of Muslims seeking asylum outside their war ravaged countries?

To date, Israel has been the beneficiary of approximately $125 billion (not adjusted for inflation) in U.S. foreign aid, an unimaginable sum, more than any other country since WW II, and which is slated to further increase to some $165 billion (also unadjusted for inflation) by the end of the new ten-year aid package in 2029.

U.S. aid constitutes some 3 percent of Israel's total state budget and about 1 percent of its GDP. U.S. aid constitutes some 20 percent of the total defense budget, 40 percent of the IDF budget, and almost the entire procurement budget.

When the American People as a whole turn against Apartheid Israel it isn't going to be pretty.

In reply to by Zero_Hope

GunnerySgtHartman Wed, 08/23/2017 - 21:37 Permalink

To realize gains, most investors will have to cash out their assets and then exchange that cash for money that will not be diluted. Which means what exactly?  All global "money" is fiat unless he is talking about PMs or crypto, and he doesn't say that he is.  Talk about saying nothing ...

jeff montanye max2205 Wed, 08/23/2017 - 22:14 Permalink

obama is officially the worst president ever because he was such a good liar and bush gets some points for originality.but it is a close business, with clinton at number three brought down by the asterisk linking him to hillary.these guys, and g.h.w. bush as a possible distant fourth with w. wilson, make the poor men who turned from civil war in the 1850's look like giants.

In reply to by max2205

illuminatus (not verified) Wed, 08/23/2017 - 21:36 Permalink

"Capitalism will ultimately set things right, but it will have to overcome the political dimension’s best efforts to ignore real issues." The whole premise is wrong, so any conclusions will be faulty. Here in the Western world we have no Capitalism, and ' the political dimension' does not just ignore real issues,  our polititians actively cover over and  deny real issues and do everything in their power to enrich themselves while throwing their constituency to the wolves. What has to be overcome is fake news, false flags, fake money and finance in general and a fake belief system that pits the populations against themselves and each others while the political dimension  goes on licking the boots of their banker patrons and sticking it to the people they have sworn to serve.

Lost in translation Wed, 08/23/2017 - 21:39 Permalink

Brodsky has no integrity.

Where was his contrived outrage when Mr. Clinton set about using the US Air Force to murder Serbs?

Oh, that's right... nowhere.

Just another effeminate, two-faced One World disciple. He'll take a long fall from a high-rise, or be summarily executed by the side of the highway, one day soon...

earleflorida Wed, 08/23/2017 - 22:14 Permalink

sorry to upset the applecart?the usa was fine--- just fine financially until the Glass-Steagall act was dissolved 1993 (60 yrs. old without a flaw!)so why was it evicserated?the GDP and GND in 1993 ~ $5.0 TrillionRef: this ?Inflation ? Index? on Housings contribution to GDP as it flatlines in 2009 at $14 Trillion      seems to be???try this with link:  sorry --- paid site--- search : 'housing contribution to gdp'

WTFUD Wed, 08/23/2017 - 21:43 Permalink

The $$$$$$$$$$$ doolar hegemony is on shakier ground than the radiation frying McInsane's few remaining brain-cells. Still he's in good company with the rest of the bastards in the Senate. FREAKS!

pynky01 Wed, 08/23/2017 - 21:46 Permalink

... but so far he has only shown that virtually anyone can become president...  Picture this:  a group of jews are sitting around a says ..I bet one million sheckels I can get a nigger elected president... another says:  I bet two million I can get a homo-nigger communist elected... the third jew doubles down and says I bet 10 million I can get the nigger elected twice... everybody folds.     ....Nope ...that anyone can become president has already been well illustrated... all your fancy words against a pair of dice is taking advantage of your vocabulary .... you sound Jewish.

jeff montanye Wed, 08/23/2017 - 22:03 Permalink

well because it starts arguments.  remember when cnn was a child and the two rules were don't smoke pot with ted and don't .... jane."Just as the virtuous Carter followed the vice-ridden Nixon and the strapping Clinton followed the crusty Bush 41, the vulgar Trump predictably followed the cool Obama" is obvious hooey because carter followed ford who was recognized by a laughing g.w.h. bush at ford's funeral as the stoic trooper who fingered lee harvey as the sole gun man (chuckle).  it really is a piece of for the strapping clinton following the crusty bush 41, only ross perot knows for sure and he never told.  he is still the 129th richest person in the united states and is, wait for it, not yet dead.  

AurorusBorealus Wed, 08/23/2017 - 22:13 Permalink

"Trump, Brexit, Charlottesville and, arguably, even radical Islamic terrorism are bi-products of global economic distortions largely created by the unwillingness of the Western political dimension to let the global factors of production naturally settle global prices and wages." Why should "global factors of production" settle anything?  The whole idea that an "invisible hand" will guide the entire world to utopia is pure fantasy.  The object of a market is to produce competition.  The object of competition is to win.  With winners come losers.  Therefore, winning creates monopolies (or at leasts trusts) and these monopolies in turn dictate wages and prices.  What is needed is not "global" production determing market values.  Rather national production should determine value within a nation.  Nations are then free to trade amongst themselves in bilateral arrangements that benefit both parties.  In this arrangement, there is no need for any "world bank," world government, or world anything.  The author has transformed the naive utopian and dogmatic theories of economists into a political agenda.  He then sells this political agenda as "obvious" based on the laws of nature.  Of course, no where in nature is there any "invisible hand."  Instead, there are many visible hands, and each one is attempting to gain power and wealth for themselves and take these things from other people  Only by living in sovereign nation-states, limited in scope and power, can tyranny be held at bay.  Any "global scheme," whether that of Marxists or free-market worshippers, has only one possible outcome: the monopoly of power and complete totalitarianism.

junkyard dog Wed, 08/23/2017 - 22:11 Permalink

Brodsky, this article had nothing to do with Trump.This was a bait and switch piece. You sucked people in to read your bullshit on the future. This is the same thing Yahoo does to get people to go to specific sites. Yahoo says see tits of country music stars, then when you get on the site all that is there is your mother.

Rebelrebel7 (not verified) Wed, 08/23/2017 - 22:35 Permalink

Why bring it up in this stage of the game? The plan was to eliminate the cash, which would leave banks in existence for lending and accounting nothing... business as,usual!

adr Wed, 08/23/2017 - 22:56 Permalink

An ad just told me to buy a cryptocoin linked to the value of art. Another ad asked me to buy Monero. A different Crypto-ad told me to buy PepeCoin. I even say an ad telling me to set up a Dash IRA. Some people say that since investment banks are getting in on cryptos, that means they have value. I guess investment banks have never conned anyone with a worthless product ever, right? These guys are purely ethical and never seek to part people from their money using unlawful means. Ha. These guys saw a product that brought massive returns with very little effort and jumped in hands and feet. How much went up in smoke in 2008 from momentum chasing whales? If 1000% gains could be made selling chicken sperm, Goldman Sachs would have interns masturbating roosters all day long. 

gregga777 Wed, 08/23/2017 - 23:22 Permalink

"Donald Trump is a sideshow. His ascension, or someone like him, was inevitable. He may have official authority to behave like the leader of the free world (even if he is unable to do so), but so far he has only shown that virtually anyone can become president."

The Presidency of George W. "The MORON" Bush showed that it's possible for Bozo the Clown or even Crusty the Clown to become President. And Crusty the Clown is just a fuckin' cartoon character. Either one is smarter than that war criminal MORON puppet of Dick Cheney, by the way, another infamous Vietnam War draft dodger. Actually both were draft dodgers.

loub215 Wed, 08/23/2017 - 23:28 Permalink

Here are the facts:1) voters complain that we need a better class of politician/leader.2) Voters re-elect said politicians/leaders. Soooo... To correct 1 and 2 above, perhaps we need a better class of voter...Or maybe those without a job or on public assistance should have their votes only count as 3/5 a person...THAT would DESTROY the current power structure...But seriously, we (the voters) are the problem. We continually vote for those who give us the goodies, or those leaders that squander our funds on useless projects (See comment from CT Gov., see actions of the Illinois Congress, teh Mayor of Chicago, etc.).Let's take back control and vote for responsible, logical, and ethical beings for positions of power. 

turkey george palmer Thu, 08/24/2017 - 01:06 Permalink

Or guess what happens to tax receipts as the deflate story unfolds, ever see a local bond go to default? What happens to all the rest of the local bonds? They fall over a cliff and that's when the local pension fund dries up for real. Guess what then, they sell and sell to raise cash til the prices of bonds are near zero, and that just makes everything lock up tight. So don't hand me your investment illusion, you people think it's just a bunch of hayseed white folks but it's everyone from teachers to social workers and they aren't Republicans now are they?Who will stand up and shout the economy has been ripped off by Wall Street then? Both parties will turn on the banks and the fed, to blame rich people for the misery and then the real suffering of the elite will take place and rightfully so. It's about time the bankers and lawyers get the rope

Recriminator turkey george palmer Thu, 08/24/2017 - 04:46 Permalink

Really warped. You sound like the Bolsheviks (or any other Commie mob), who wanted to kill the Capitalists. Wake-up ! It's the Left-wing liberal POLS who have been pushing this game of "redistribution of wealth" - who are the real bullshitters. All of the haters (including you) think there is a conspiracy going on. The only real conspiracy is related to those who want to promote this macro Ponzi scheme. (Primarily Keynesian politicians - DEMS.)P.S. - I can't challenge your thoughts about lawyers. They, and their politician cousins, have caused a great deal of grief in the U.S.

In reply to by turkey george palmer

Gold N Glocks Thu, 08/24/2017 - 02:06 Permalink

"...but so far he has only shown that virtually anyone can become president." 

Uh, no Paul.  That honor was taken by the half breed monkey that preceded President Trump.   Sorry, it had to be said.