Sunday, December 29, 2019

These Five Top Trends Will Go On To Define The Decade

As we roll into a new decade it might be a good time to explore the five top trends that define and are shaping our world. Overall, I wish I could be more positive but it seems the story of mankind is rooted in our moving forward in fits and starts as we work our way through adversity. War and conflict have always caused the world great grief. Sadly, with the increase in our ability to caused mass destruction, this is even more troubling. Adding to my concerns is that we are not trending towards a more peaceful sustainable place.

We live in a world where our system of governance is geared at getting politicians re-elected and fulfilling the most pressing needs of today.  Things like profit, greed, and quenching our endless desire for growth is placed in front of longer-term issues and needs. The idea that we must increase our population to create growth is flawed. Simply adding mouths to feed and adding new workers to replace those retiring creates additional demand but is shortsighted in that it ignores the problems exploding population across the planet brings with it. 

Mapping out a logical and sustainable long-term plan requires delving into some rather hefty philosophical questions like what brings real happiness. Dictators that govern under an agenda totally of their own creation have been no more successful than elected officials in coming up with real answers to our woes. Below are what I see as the "key" and most powerful directional shifts dictating our future and shaping our culture. These are followed by a few words on each.
  • The central banks pouring money and credit into the financial system in an effort to keep the economy moving forward.
  • The growing number of social ills, sick, and dysfunctional people.
  • Political shifts and polarization are rapidly increasing. - Populism has been growing for several years when combined with surging inequality and discontent people rise-up in protest.
  • As technology and artificial intelligence advance those in power are moving forward using these tools to turn us into pawns.
  •  Concern over climate change is on the rise. Sadly, few of those talking about it see cutting waste as a priority.
Too many economic watchers, it has become obvious the greatly expanded role of central banks in the world's economy is not working. The global financial system has morphed into a giant experiment controlled by an evil alliance that could be called the "Financial-Political Complex." Interest rates have been flat or negative in real terms still many people advocate they still need or should go lower. These people forget that low-interest rates flowing from policies such as ZIRP and NIRP do not extend down to low-income individuals with poor credit. The huge number of people that fall into this category get no relief while low rates punish those that have saved. This fuels inequality. The concept that a rising tide floats all boats or trickle-down economics has proven to heavily favor the rich. 

As a result of society's growing ability to care for people and expanded medical care we have bent Charles Darwin's law concerning, "survival of the fittest." Governments have engaged in constructing a safety net under societies most vulnerable but whatever we do it seems it "ain't enough." Examples of social ills include crime, bullying, racism, delinquency, discrimination, family disintegration, drug addiction, poverty, and homelessness. While some of these problems may be less drastic than others all are costly to society and lessen the ability of our culture to function. Ironically, the often considered conservative belief in the "right to life" in some ways adds to this dilemma. simply put, children born with at least one dysfunctional parent have a greatly reduced chance of becoming a successful adult.

The world is undergoing a huge political shift that has magnified the sharp divisions of contrasting groups as to how issues should be addressed. This has resulted in an explosion of propaganda and a rapid increase in polarization as opinions and beliefs conflict. Populations frustrated by the failure of their leaders to create a more just world are taking to the streets in large protests to put their demands forth. Inequality and globalization are fueling a populist movement that will most likely grow as governments that have over-promised fail to carry out all they have pledged. Unfortunately, these movements can turn into revolutions that merely switch out one incompetent or corrupt leader for another.

We need only to look at a country like China where conformity is highly valued and the government  tries to control all facets of a person's life to see how such actions conflict with the idea of freedom of choice. A balance between conformity and "over the top" diversity is most likely a place where society finds its happy place. Conformity can crush the human soul while the lack of it is often difficult for society to address because it raises the issue of where one person's rights end and another persons begin. Today we are seeing inequality soar and it can be argued conformity greatly reduces the ability of individuals to move up the social ladder.

A growing question is just how much of this is by design due to the culturally elite putting their foot on the head of those below them. Over the years with the aid of new technologies governments across the world have greatly expanded their ability to watch our movements and everything we do. They have even incorporated and leveraged the ever-present smartphone as an ultra-powerful surveillance device. The control over the individual will become complete as they move us towards being a cashless economy. This translates into where we will be unable to buy food, may at any moment have our ability to message others cut, and will be forced to rely on autonomous vehicles to deliver us to our destinations.

A lack of control over our lives grants those in charge total control over us making us powerless pawns and slaves with little choice but to do their bidding or perish. This dovetails with the move towards artificial intelligence where there exists great potential but also the dangerous possibility and risk that technology could create an environment where mankind is rendered redundant. This would leave mankind facing robots and weapons of mass  destruction. The noose is rapidly tightening around our necks os quickly it has resulted in a reshuffling in the list of the "Worlds 10 Worst Problems."

This Is Not Rocket Science!
The last major trend to have exploded on the scene is growing concern over climate change and global warming. Sadly, few of those talking about it see cutting waste as a key part of the answer and a priority instead they tout massive change. The fact is, many of our problems flow from governments and consumers wasting so much. While this waste drives the GDP higher it does little to make our lives better.

The reality is that "waste" is proving massively destructive to life on this planet. This extends to governments misallocating funds as corruption and crony capitalism flourish. Whether we are talking about bombs built and dropped in the middle of an empty desert, brochures that are printed but never distributed, or Medicaid fraud all add to our deficit and pull resources away from more important areas.

For both political and economic reasons, poor planning, weak recycling practices, and wasteful squandering of our natural resources on things that yield little of value continue to haunt America and most of the world. The message that we should conserve our natural resources is vastly understated. Most climate change advocates seem to be nibbling around the edges of cutting waste and focused on issues few people agree about. These include over the top ideas that are predicted to cost a huge amount of money but may prove ineffective and even harm the environment over time. Often it is the same people responsible for our problems that propose these expensive cures. They also promote them as "job creators" to sweeten their allure. Sadly, most do not work but generate negative unintended consequences as they become giant costly boondoggles.

After examining the top trends defining the last decade and ushering in the new there is little question they will play a key part in determining our future. The world is changing at a more rapid pace than at any time in our history. The takeaway is we can expect things to be very interesting going forward. This doesn't necessarily mean they will be good or events will unfold as we hope but you can rest assured that boredom is not in the cards.

Tuesday, December 24, 2019

The TRACED Act Aimed At Ending Unwanted Robocalls

Recent legislation to halt unwanted robocalls may be the best thing to come out of Washington in over a decade. This is providing it proves effective in stopping or at least substantially reducing those annoying calls that cause our phones to ring several times a week. The House of Representatives approved the Telephone Robocall Abuse Criminal Enforcement and Deterrence Act, or the TRACED Act, earlier this month. Now with the Senate voting unanimously to pass it, the bill is on its way to President Donald Trump's desk for a signature.

 The TRACED Act (Telephone Robocall Abuse Criminal Enforcement and Deterrence Act)was sponsored by Senators John Thune (R-SD), Ed Markey (D-MA), and Roger Wicker (R-MS). Its purpose is to combat robocalls with stronger deterrents. As the volume of illegal calls has increased, so has the attention of regulators. They are especially concerned about calls from scammers who target vulnerable people, such as the elderly, to steal their personal information.

Nobody Wants These Call!
In a piece titled; "Nobody Wants Your Robocall, Louie! - Stop Calling Me!" published in the middle of 2017 I bashed Washington for not taking action to end the robocall assault on the American people. Like many people, after being constantly bothered by nuisance calls and machine-generated messages I was past angry. Even a lying politician would have difficulty presenting an argument giving any merit to allowing people's lives to be disrupted by such calls. Adding injury to insult is the fact is that we are paying for this intrusion into our lives every time we pay our phone bill.

This legislation placing as much $10,000 per call.fine upon those behind what are obviously unwanted robocalls will reduce the incentive for companies to widely cast upon society their self-serving agenda. Before I declare this a significant win for consumers I want to see whether the Federal Communications Commission will or can actually enforce this law and get the job done.

The TRACED Act requires phone companies to block robocalls at no charge to customers. They must also adopt call authentication technologies so carriers can verify that incoming calls are legitimate before they reach consumers’ phones. This builds on preventative measures taken by the FCC under Chairman Ajit Pai, who recently announced that the commission would move to criminalize international robocalls and spam texts.

You would think that even a few high profile convictions would reduce the number of unwanted calls generated by machines. These calls are designed not to inform but to benefit a few at the expense of the many. Like many Americans, I have found that even being registered on the "no-call list" has proven ineffective in halting this intrusion into my life. I sill continue to get annoying recordings from Heather, Sara, or Rachael claiming she represents a credit card service center or inquiring about my student loan that doesn't exist.

After spending hundreds of billions of dollar on agencies such as the NSA it is difficult to think America does not have in place the expertise and apparatus to track down and identify the perpetrators of these calls.  Considering Washington is filled with elected officials that do little but annoy, debate, pander, and suck the blood out of us, trying to stop these calls is the least they can do. We should remember that both politicians and those who support them have used robocalls as a way to get their message to a public who they see as only a phone call away. Here, I'm referring to the calls during elections that sport political campaign messages.

I find little comfort in knowing I'm not the only person suffering this barrage of unwanted calls. On average, about 167 million robocalls per day were made from January to November of this year, according to the YouMail Robocall Index. That totals more than 50 billion robocalls. Sen. John Thune (R-S.D.) said, “This bill represents a unique legislative effort that is not only bipartisan at its core, but it’s nearly unanimously supported in Congress.” Please forgive me if I remain dubious of whether anything will change. I will consider this legislation successful only after the calls have stopped. My question is why in the hell did it take so long to write such legislation and get it passed?

Sunday, December 22, 2019

This Is Not Your Father's "Stodgy Old" Stock Market!

The idea that investors will have time to exit the markets through the small exit doors it offers may be a bit optimistic during a panic. The fact so many people are willing to risk having their savings consumed if the market breaks hard and falls away shows how complacent we have become. Until now those traders bearish on the stock market and bold enough to have entered short positions have again proven to be their worst enemy. A good deal of the markets move higher has been fueled by these unfortunate souls being forced to buy back their positions in capitulation during the recent market melt-up. 

While in many ways this is eerily reminiscent of 2007, it could be argued we are in a far more precarious situation because we have moved much farther down the path of economic zombification. Too much debt turns the economy and companies into zombies unable to do anything more than pay interest upon their existing obligations. This means they are unable to purchase more goods or make new investments. This has taken us to where the efficiency of new credit is falling as a stimulus tool. This means each time funds or stimulus are added the amount must be large in order to see a result.

Above Is An "All Is Well" Chart (click to enlarge)
It has grown more difficult for many of us rooted in concerns over the economy to write predictions of doom considering just how creative central bankers have become at propelling markets higher. The idea that traders can continue seeing bad news as good news and a reason to drive markets higher defies all logic. Years ago President Eisenhower warned the American people about the Industrial Military Complex, but nobody warned us an even more evil alliance that of the "Financial-Political Complex." Historically, the "buy the dip" trading strategy has always ended in tears with investors underestimating just how rapidly liquidity and prices can decline.

Several events have come together to extend this long in the tooth economic expansion. The most recent being the Fed doing a one-eighty and reversing its policy of slowly raising and normalizing rates. This move is in many ways unprecedented and is coupled with its throwing huge amounts of liquidity back into a parched repo-market. Whether you call this QE or simply a gigantic effort to avert the market from seizing up it has had the effect of taking the market higher. It does not hurt that other central banks and governments are in lockstep and taking turns to stimulate their economies.

Chart Indicating This Is Not Normal! (click to enlarge)
For evidence, this is not your father's stodgy old stock market we only have to look at a few long-term stock charts to see price moves that are far from normal. It must be noted that many traders and investors today were too young to have experienced the financial turmoil of past economic crashes. Those of us with decades of economic watching under our belt will testify charts can be used to validate almost any position. The chart to the right screams today's market is far from normal.

This is reflected in the charts of individual stocks as well. For example, the troubled bellwether Boeing which has held up much better than expected considering the grounding of the 737 MAX. A slew of other stocks a similar resilient type pattern. In fact, just this week, Tesla stock put in an all-time record high despite strongly divided opinions over its true value. Some of this price action in stocks has been attributed to being in a "Goldilocks economy" where everything is "just right." 

For over a decade paper has been rolling off the printing presses of central banks all across the world in an attempt to mask reality. The influx of monetary stimulus from QE and massive government deficit spending has created the illusion of more pent up demand then exists or can be substantiated. With the one-off effects of lower rates behind us, it appears new more intense stimulus is needed to keep the economy and asset prices on trend. This was addressed in a recent article titled; What Happens After The Economic Momentum Ends. which focused on how we have to move forward faster each year to just keep growing.

This means the bar is constantly being lifted and we must sell even more next year to move forward. This has resulted in an elevated baseline for comparing year on year growth. In short, the whole concept of economic growth is based on an ever-growing trend of year over year increased production which is particularly difficult to achieve in an environment of waning demand. This means even trying to "invent" new demand streams such as the New Green Deal. It promises we can create a great new economy and huge numbers of Eco-friendly jobs by rushing in and replacing everything with a new more efficient model. 

It could be argued that a great deal of economic energy has been used to get us to this point. This has generated concern about what will happen when the stimulus is finally taken away or that central banks will be out of ammunition if this is indeed a bubble and it burst. As stated at the start of this article it has grown more difficult for many of us rooted in concerns over the economy to write predictions of doom. Instead, we have fallen into warning those that will listen to the dangers lurking at the end of this dramatic experiment. Hopefully, pointing out how much this market varies from the long-term historic norm will help convince those most at risk that they are on thin ice.

Wednesday, December 18, 2019

The Shocking Trillion Dollar "Budget Busting" Deficit

Government Spending Gone Wild!
Our shocking trillion-dollar deficit is a sign of "spending has gone wild." The American people have underestimated the ability of politicians to slip things through when we are not looking. While many voters had their attention focused on the impeachment circus Washington has again unleashed the purse strings. Last time the diversion was a disagreement on funding the wall that distracted us, this time it is impeachment, the trade war and the Fed dealing with a liquidity crisis. The important point is that Washington has again diverted our eyes away from the over the top spending taking place.

Sadly, this writer had a difficult time getting spending details even after an extensive search of the news and recent articles about what is planned. It appears everyone came together and simply agreed on, "I will support your spending if you support mine!" The fact remains that while both the republicans and the democrats mumble about being dissatisfied over the deficit, this pork packed bill will rapidly be signed into law. Calling this a "bipartisan agreement" helps spread the blame around and masks just how dysfunctional Washington has become. Of course, those we have sent to Washington can fall back on the stand that it was all done in order to avert another shutdown that would damage the economy. The real bonus is it will allow all the players involved to take their victory laps and claim democracy works. 

Digging around you will find the massive $738 billion defense spending bill passed with a vote of 86-8 in the Senate after clearing the House last week. This bill includes a high-profile deal that grants federal employees 12 weeks of paid parental leave in exchange for creating Trump’s "Space Force." which will be granted a measly 40 million dollars. The administration said it expects the newly established Space Force to burn through $8 billion over the next 5 years. A second package of bills which the White House indicated Trump will sign is expected to zip through Congress before the Senate leaves for the holiday.
The Ugly Reality click to enlarge

A close look at the economy reveals it is only this massive and unsustainable deficit spending that continues driving our economy forward.  The 2017 tax cuts have not panned out the way Republicans promised when they slashed corporate and income taxes. While we were told tax reform would mark a major shift in companies causing them to bring jobs back to America that may not happen. The structural issues that haunt America's competitiveness far outweigh the benefits brought forth from Trump's tax bill and lower taxes. The ugly truth is American companies have little reason to bring jobs home and the budget deficit is set to widen significantly in the next few years even with healthy economic growth. According to projections from the nonpartisan Congressional Budget Office. This means the national debt which now tops $23 trillion will soar to more than $33 trillion in 2028.

We are looking at a trillion-dollar deficit. This translates into America spending $3,333 more than it takes in for every man, woman, and child in the country. To clarify, this is each year and every year but also fails to include State and local deficits as well as a slew of "off-book" promises and spending that are also being made. This spells big problems going forward if we do not begin to face up to reality and get in front of our problems we will soon find ourselves solidly behind the eight-ball.

It would be wise not to accept America's recent GDP as verification the economy is hitting on all cylinders. In 1962 Kuznets, the father of the GDP formula emphasized that we must keep in mind the difference between quantity and the quality of growth. While economic growth appears robust and a solid GDP number can result in a feel-good moment building consumer confidence it can also mask growing weakness in various parts of the economy. Quantity simply does not make up for poor quality, we are talking about two different animals. The false narrative that simply growing the size of an economy by adding more people into the mix or using deficit spending undercuts the importance of a solid economic and the long-term stability of the financial system.

History shows government spending is a poor substitute for the free market when it comes to allocating capital to where it is most effective instead it creates a false economy by borrowing from the future. Deficit spending is not a silver bullet without consequences. The President's fixation on the stock market and not the real economy represented by Main Street does a great disservice to Americans. While Trump may have been correct in pinpointing many of America's economic ills his prescriptions for a cure leave much to be desired. How we react to money and the economy is often rooted in our past and Trump has never shown himself to be shy about taking on debt to propel himself forward. This is why when the stock market started to wobble President Trump increasingly ratcheted up his attacks on Fed Chairman Jerome Powell for"ruining the party."

Corporate investment decisions are based upon the cost of capital and the prospective equity returns that new investment can generate, not how much capital is available and in our current cheap and easy money, environment capital is basically free. The problem is not funding new investments, but finding endeavors in which to deploy this capital. The economists who largely control the major central banks in the industrialized nations may be able to manipulate markets and cancel excessive debt through open market operations, but they cannot manufacture attractive investments. This is why stock buybacks have become a corporate priority joining other investments that are not productive.

Click Here To Visit The Active Debt Clock
The deficit spending propping up our economy has gone far past anything we might have envisioned just a decade ago and the path forward appears challenging. Auto sales have fallen and companies are cutting the number of cars they will manufacture in North America. Housing also is a problem with much of the construction now flowing into high-end apartments rather than affordable units. This is the result of government policy and laws that discourage anyone from wanting to invest or deal with low income housing. These are two big sectors of our economy but even they have become tired.

Indirectly this deficit spending by our government also fuels our trade deficit; This is not only evident by our massive trade deficit with Asia but the United States huge trade deficit with Mexico which becomes even more disturbing when you begin to understand even that money quickly passes through Mexico and flows to Asia. It could be argued that when all is said and done we are still transferring our wealth to the far east only by the scenic route. The idea we will reach a quick fix to the trade problems facing America and is a myth and oversimplifies the problems before us in achieving a sustainable trade balance. Reaching a reasonable solution posses a major difficulty in that China is so entrenched in its ideology it most likely will refuse any change that will throttle back its plans of domination.

The bottom-line is that Washington has become a hostile and unfriendly environment for those interested in good governance. In June a balanced budget plan put forward by Sen. Rand Paul (R-Ky.) failed in the Senate by a vote of 69-22. This means only 22 of the 53 Republicans voted in favor of the national debt-addressing measure. For the first two months of the fiscal year, which began Oct. 1, the deficit grew to $343 billion. The national debt clock showed the U.S. owed more than $23 trillion as of Thursday. The crux of this post is to point out deficit spending is not a silver bullet, it has real consequences and with each step forward we get closer to the end of the road. While those embracing Modern Monetary Theory may argue otherwise Econ 101 teaches that such actions always lead to a very bad place.     

Sunday, December 15, 2019

Dollar Locked In Narrow Trading Range To Avoid Crisis

Currencies seem to be locked in a narrow trading range which could be another indication that Central Bank manipulation has gone nuclear. Near the end of 2015, a great deal of wealth began flowing into America seeking protection from the ravages fostered upon it. Much has happened since then. Between Trump and many others talking down the dollar, trade wars, and the introduction of several cryptocurrencies the dollar has backed off a bit. Still, the dollar remains relatively strong with any big increase in strength seen as a ticking time bomb for the global financial system.

Is The Dollar Being Held In Its Trading Range?
The dollar's strength is largely a result of  many countries having adopted even worse policies than those America's leaders have chosen to pursue. Investors across the globe are engaged in a massive game of speculation that contains a lot of risks. This is driven by the need to get reasonable yields in a challenging environment. Still, all this tends to reinforce the fact the dollar is the linchpin of global finance and has guaranteed itself a place at the head of the table until dethroned.

A strengthening dollar sends a signal that the global economy is unstable which is something central banks want to avoid at all costs. This may account for why central banks all seem to be marching in lockstep as they take turns injecting more liquidity into the system. To be perfectly blunt, none of the rapid expansion of debt and credit during the last decade could have occurred without the Fed being complicit and in agreement. It has been the Fed that decided to allow the dollar to be used as a global prop. This exploded following the 2008 financial crisis when then-Fed Chairman Ben Bernanke adopted policies of massive quantitative easing (QE) to stimulate the economy when normal monetary policy became ineffective.

Today QE has become the lifeblood of a sick financial system rather than the jolt needed to restore its health. This circles back to the little held idea the policy adjustments Fed chairman Powell has made are driven more out of fear a strengthening dollar would crash the system than the monkey hammering he received from President Trump. It also could tie into the recent "repo-liquidity" problems and questions as to where all the money has gone.

The Fed Has Allowed This To Happen
The goal of having a stable dominate currency results in other currencies being forced to toe the line or pay a stiff price. Ignoring this economic reality translates into pain for those holding the currency of any country that abuses this economic law. This plays out in the account balances of any country that watches its currency fall as it imports far more than it brings in. As a rule, wealth tends to flow towards where it will be safe and protected. This is especially true today when wealth is able to rapidly move across borders. The inflow or outflow of capital is a big deal.

Throughout history, strong currencies have attracted wealth and this means money and wealth from all over the world could be headed towards our shores. The money coming into America would flow into both bonds and stocks supporting lower interest rates and the stock market. Those of you who have read other articles I have written know I think the market is overvalued and the bond market is a "bubble ready to pop", but as long as we remain the best and safest place to hide money do not discount the dollar. If this turns into a self-feeding loop the dollar may soon get much stronger especially if I'm correct in my suspicion that the recent narrow trading range is indeed artificial.

The important part of this theory the central banks have rigged the currency markets is based on the idea several currencies have become rather fragile. With this in mind, the central banks appear to be making every effort to reinforce feelings of economic stability by keeping currencies trading in a "quiet" range. It is in their advantage that people think the global economy is on sound footing as central banks across the world continued to print and pump out money in search of the "ever-elusive growth" that never quite arrives.

Do not underestimate the power of cross-border money moving into a country as a powerful economic force. While the dollar has been described recently as the cleanest dirty shirt in the closet, or the best house in a bad neighborhood, both place it as the least worse option. The reality is other options fail to pass the smell test. This is partly because the dollar sports a huge advantage over other currencies because of its role as the world's reserve currency. This makes it the "default currency" and by the size of its market, float, and liquidity the currency by which all others are weighed, measured, and often pegged.

Very Important Chart In Understanding The Dollar
As shown in the chart to the left, four major currencies dominate the world stage, they are the pound, the euro, the yen, and of course the dollar. The remaining currencies remain small bit players in the overall scheme of things. John Maynard Keynes said, By a continuing process of inflation, government can confiscate, secretly and unobserved, an important part of the wealth of their citizens. As the central banks print like crazy to control interest rates on bonds they devalue the currency. While there are not many Bond Vigilantes there is a slew of  Currency Vigilantes always ready to make their presence known.

Low-interest rates coupled with easy money pouring into the economy through the expansion of credit tend to create an illusion of prosperity. A "Trojan horse method" by which countries steal wealth is by the monetization of debt. This is done through printing massive amounts of new currency or new taxes. If you look close you will see the currency markets are beginning to reflect diminished confidence in the system central banks have created. This can be seen by the renewed interest in Gold and a slew of new cryptocurrencies.

The false economy we have created can rapidly vanish. Proof of just how much this economy relies on the continued flow of cheap money was highlighted when the stock market started to wobble and President Trump to ratcheted up his attacks on Fed Chairman Jerome Powell for "ruining the party".  Trump has become the markets head cheerleader and constantly points to the soaring stock market as confirmation of his skill in growing the economy. In truth, his flawed tax reform package has mainly benefited the rich by fostering massive stock buybacks, it is only this coupled with massive deficit spending has allowed the false illusion of prosperity to continue.

The central banks' experiment in money creation has painted them in a corner. Their current policies should make us question the use of currencies as an economic tool going forward. It has also increased the risk that more currencies will fail as their capability to safely store wealth comes under scrutiny. Currencies are morphing into a tool of governments and have become weaponized which takes them further away from their original role as a medium of exchange in commerce.

Again it must be stated, the dollar's role as a reserve currency gives it oversized importance in world markets. It is without a question the benchmark by which other currencies and commodities are valued. When all things are considered, fiat currencies are in general a rather weak lot. This means it is best not to look too closely or the system glued together by faith and a prayer could come crashing down. Overall the dollar remains a far better currency to hold than its weak sisters, the euro and the yen. If indeed the central banks are behind currencies trading in their rather narrow range it must be noted such currency manipulation is a very dangerous path to start down. It is a slippery slope bringing into question the real value of a currency and further distorts true price discovery. 

As the currency games continue to ratchet ever higher it is becoming apparent that much of our financial structure is built on shifting sand. This means the schemes bankers have used for years to hide and transfer debt are coming under attack. If the current system crumbles it will climax in a reset of the economic system across the globe. If people all over the world try to get out of their home currencies a surge in the value of the dollar is logical. In the end, this would not be the salvation of America or its economy but it sure would create a lift that we would be wise to use to our advantage.

Thursday, December 12, 2019

Central Banks Alarming Move Towards Social Engineering

Banks Next Thing Is Social Engineering click to enlarge
Recently the central banks have found themselves grasping at straws when it comes to moving the economy forward. Signs have begun to appear on the horizon that in the future they will attempt to expand their power by increasing their role in social engineering. This is a term that refers to efforts to influence particular attitudes and social behaviors on a large scale. Its goal is to produce or change certain desired social characteristics in a population. In the past, this has been more the role of governments with the consent of the people often through laws and tax policies.

In America, the Fed was initially given the mandate to create a stable monetary environment. Since that time it has been expanded into what is now known collectively as the "dual mandate." Now its two goals also include achieving maximum sustainable employment in conjunction with price stability. The Federal Reserve's Federal Open Market Committee (FOMC), which sets U.S. monetary policy, has translated these mandates in rather broad terms.

In the last few weeks, Christine Lagarde, the new head of the ECB, said something that shocked many people. She stated, "We should be happier to have a job than to have our savings protected… I think that it is in this spirit that monetary policy has been decided by my predecessors and I think they made quite a beneficial choice."  If this is true we are in big trouble. It is a sign that something is terribly wrong, the idea that you can have a job but you can’t save anything, places workers in a position of servitude where they are dependent on, at the total mercy of the economy and the government.

Central Banks Basic Mission- click to enlarge
For many decades the entire financial system has been built on the premise that people save, either to purchase big items or for their old age. Is Lagarde suggesting that workers and those that have saved may soon be as dependent on the government as those already wrapped in the safety of government social programs that provide them with shelter and food? This comes at a time when it is predicted that more robots and automation will soon move in and strips humans of their jobs. With great sarcasm, one could opine that things would appear rather bleak without the generosity of central bankers.

The fact is, much of the money that has been saved by workers has flowed into pension systems and paper promises which the central banks feel compelled to support to keep the financial system afloat. Shortly after Lagarde's remark Fed Chairman, Jay Powell commented that. US central bankers see a “sustained expansion” ahead for the country’s economy, with the full impact of recent interest rate cuts still to be felt. This follows a massive injection of liquidity to financial markets,

On top of this, Japan has just laid out another massive stimulus package. This highlights the failure of negative interest rates to move the country forward. This should make it clear, that "extreme has become the new normal." Now with the economy and governments totally dependent on freshly released goodies flowing from the central banks it looks like they are ready to up their game and move more into social engineering. This dovetails with the efforts of those endorsing a New World Order to push forward with "the Green New Deal" as a way to take control of the future.

A hint of her desire to move in this direction, for the "greater good," came in Lagarde's much anticipated first appearance as president of the ECB before at the European Parliament. Many of the questions at the parliament hearing focused on climate change, an area where the central bank is under pressure to play a bigger role. Lagarde indicated the fight against climate change should be a central part of policy. Lagarde also said it was also worth discussing whether climate concerns should impact the ECB's QE policy.

Freaky Mural Of Thunberg In San Fransisco
This comes at a time when many media outlets are practically painting child Eco-activist Greta Thunberg as an authority on climate change. This portrayal rather than showing her as simply a passionate young person caught up in a frenzy tends to cement her claims in the minds of those concerned about the environment. TIME Magazine has even named the 16-year-old climate-alarmist Great Thunberg as "Person of the Year." Because of the momentum behind environmental concerns, we may see a rush to enact strict environmental regulations without considering how they often do more harm than good or miss the target for which they are intended.

This intersects with globalists and those endorsing a New World Order pushing the Green New Deal agenda forward as a way to take control of the future. This extends into the dangerous area of central banks taking positions that propels forward investments in what is claimed to be environmentally friendly initiatives. Lagarde is out front with this as she goes about galvanizing her new position at the ECB. Now with an alarming new United Nations report screaming that climate change is probably the biggest challenge of our time she has something she can clone onto. Consider this an effort for central banks to regain their credibility and mitigate damage to their reputations for bailing out the very people that created the last economic crises. After exacerbating inequality they are now introducing to the conversation expanding and pursue new mandates

Lagarde is politically seasoned after her time as head of the IMF an organization that few people know much about and is highly overrated in its ability to solve problems. She demonstrated this when she asked EU lawmakers on Monday to give her time to "learn the ropes" of her new job and to reshape the ECB’s monetary policy. This, of course, circles back to politics and the fact our system is geared at getting politicians re-elected and fulfilling the most pressing needs of today.  Things like profit, greed, and desire for growth is placed in front of longer-term issues and needs. Mapping out a logical and sustainable long-term plan requires delving into some rather hefty philosophical questions like what brings real happiness. This is far outside the banking sector.

Over the years we have been sold many empty promises. Much of this has been driven by mega-companies desire for larger markets and greed. Today, many large companies have more power than most nations and their power continues to grow. In the past, it was large oil conglomerates that held the power but today much of it has shifted to technology companies. Knowledge is power and this means is not just about large conglomerates that produce products or energy but extends into how internet companies, in particular, have placed themselves in the position where they control the communication networks collecting and storing data on all of us putting them in a position to manipulate us in every way.

The problem of giving these clowns that have already failed to guide us towards a sustainable economic future the power to assess whether and to what extent an asset is environmentally harmful or helpful is incredibly problematic. It is extremely difficult to think public officials and bankers that seem almost afraid to talk about conservation are in any way the answer. The dreaded "C" word, conserve, has no place in their vocabulary.  Big business and their lobbyist have made this subject taboo because cutting back on waste would massively lower the GDP.

Forever and a day, the central banks and politicians have been busy urging consumers to buy, buy, and then buy more even if it puts you in debt. They have also encouraged people to make investments no matter if they are warranted or not. The thing they have not pursued is giving people enough reason to sacrifice and save. All this has been done to drive the economy forward. The idea they are capable of reversing decades of trained behavior and successfully replacing domestic consumption with quality infrastructure spending is pure folly. In the end, it will result in a slew of bridges to nowhere and failed boondoggles that line the pockets of the same mega-companies that have profited in the past.

Footnote; The links to a couple of prior postings related to this subject can be found below. The first is about the "Financial-Political Complex" which grew in power after the 2008 financial crisis. The second explores how propaganda tends to become a self-feeding loop that plays a huge role in shaping public opinions. This ultimately results in the government being able to slowly hack away at our constitutional rights.
 https://Lessor Of Two Evils Wall Street Or Bankers?html
 https://Propaganda Convinces Us It Is All For the Greater good.html

Sunday, December 8, 2019

Affordable Retirement Is A Glaring Issue For Many People

Retiring Poor Can Be A Problem!
Retirement has a way of sneaking up on people. Finding a gentle way to retire and afford a comfortable lifestyle has become a pressing issue for the baby boomers that have postponed planning. It will also become a much bigger problem for our government down the road. Many Americans have cranked up their efforts to find answers as to how to handle the challenges they will face in retirement. This article is not a how-to piece or thrown out to state the obvious but a reminder of the stark reality we face and so many of us try to ignore. The only way to avoid growing older is to die and many people prefer when given the choice not to exercise this option.

While glaring can imply painful, or obtrusive in this case it is about how when faced with the economics of retirement many people find something is conspicuously wrong. Those retirees that have accumulated some savings need to understand the day when they could supplement their income by simply living off the interest on their savings is gone. Another problem is a great number of people have little in the way of savings. It is difficult enough to save but by the time they are hit up by life's problems such as helping out their children many people find it almost impossible. Unless they are fortunate enough to have made the decision to have some money placed in a lock-box before taking their paycheck it often simply gets spent.

We Simply Assume Our Savings Will Survive!
This leads us to another myth and that is a person can get rich or build a substantial sum of money or other assets by becoming an investor. Trying to become an investor is far easier said than done. Investing today requires caution. It usually involves a harsh learning curve and leaves those taking the journey vulnerable to losing their capital. This is especially true in the current complex economic environment where the temptation to increase profits through leverage runs rampant. Whether a person pursues a strategy of buy and hold or trades constantly even a diversified portfolio can fail to protect their nest-egg.

The rising cost of living is another issue. Even if a person is fortunate enough to own their home it is becoming more expensive to maintain. Property taxes, utilities, and replacing major components such as a roof or having a HAVC (heating, ventilating, and air conditioning) system have all surged in recent years as wages and materials push ever skyward. Those renting a place to live are witnessing the same thing. Rents are going up even in our low interest rate environment because the cost of services, fees, insurance, and things like real estate taxes continue upward almost in lockstep. This one of the main reasons some adventurous older Americans have moved to foreign counties after they retire. The global inequality gap is one of the big factors allowing Americans to live well on social security in ex-pat communities throughout the world.

Saving Are Often Sorely Lacking click to enlarge
While retirement is something more people should discuss with family and friends it is a subject we shy away from because of financial shame or privacy concerns. A couple of factors that may help a person decide whether it is time to retire and ride into the sunset are their job situation and social security. Sometimes a job simply vanishes, this can be an unwanted surprise. Another is the Social Security lottery. By this I mean, will it be enough and do they feel lucky. If a person expects to enjoy a long retirement, then waiting often makes sense because by working longer they securing a larger monthly. Today with the system working its way towards bankruptcy the government has to cringe each time a person not knowing if they will live to 65 or 105 decides to take Social Security early.

Another problem we cannot avoid is healthcare. Anyone that has had even a simple test done recently knows prices are soaring. As people grow older many see their health deteriorate. This results in more visits to doctors, dentists, and specialists of all types. Most people are under the impression that once they turn 65 and they go onto Medicare it is free. The idea that the government will pick up and pay for your healthcare and that expense will vanish from your budget turns out to be a big disappointment for most Americans. The fact is that care in a nursing home is expensive. Staying there for a long time is a situation that can drive many retirees into bankruptcy or an early grave.

Not How To Spend Time On A Cruise Ship
 Ironically, the older Americans who find it easiest to keep working tend to be the healthy, well-educated, and highly skilled people who enjoy their jobs These are the people that tend not to need the money. Other older Americans with less options and few good job choices, often just decide to retire and live frugally off Social Security and savings. Live below your means and try to stay out of debt is the path forward for these retirees. Others choose to or allow themselves to stray from this pathway and go out in an orgy of debt throwing themselves on the mercy of society and at the feet of the government.

This means the only way some retirees would be able to spend part of their golden years on a cruise ship would be if they got a job on one. Sadly, the cruise industry tends to work its employees like dogs and most older folks would never qualify. On top of no longer qualifying for many types of work comes the issues of adjusting to new social circumstances which may be out of your control. One thing is abundantly clear and that is most people would rather face these trials and tribulations while sitting on a big pile of cash.

Not everyone retires happy. Instead, the ugly reality for those finding they are financially between a rock and a hard place life can rapidly become very difficult. This is why any government policies that discourage savings have disaster written all over them. All the factors above, are and will, continue to nibble away at our ability to shape a comfortable lifestyle during what we have been told should be our "Golden Years." These years of life are supposed to be filled with love and joy, a time to relax and smell the roses. This is easier to do when you have planned and positioned yourself so money problems do not haunt your every step.

Footnote; A couple of posts relating to this subject can be found below. The first deals with the conflicts between the generations that are set to explode. The myth that funds have been set aside to provide for the social security payments and the medical needs of older Americans will soon be laid bare and the bill for such things is about to be laid at the feet of today's youth. The second explores the current sorry state of pension funds that so many people are depending upon.
https://Generational Conflict Is Posed To Dramatically Increase.html
http://Pensions Are A Financial Time Bomb.html

Saturday, December 7, 2019

Japan Is Again Forced To Stimulate Its Troubled Economy

Japan faces a wall of debt that can only be addressed by printing more money and debasing its currency. This means they will be paying off their debt with worthless yen where possible and in many cases defaulting on the promises they have made. Japan currently has a debt/GDP ratio of about  250% which is the highest in the industrialized world. With the government financing almost 40 percent of its annual budget through debt it becomes easy to draw comparisons between Greece and Japan. While adding to the markets move higher across the globe the latest move by Prime Minister Shinzo Abe should do little to boost confidence in the small island nation.

Entering the third quarter of 2019 Reuters reported their monthly Tankan survey showed that Japanese manufacturers had again turned pessimistic about business prospects. Confidence in the service sector also plunged. Amid the escalating Sino-U.S. trade war, and problems in China the prospects for a global downturn remain large. Survey results showed the weakest sentiment reading since April 2013. Concerns about weakening global demand intensified after a closely watched bond market indicator pointed to the growing risk of a U.S. recession, and data revealed Germany’s economy was in contraction.

Japan. the world's third-largest economy is highly dependent on exports. The U.S.- China trade war in conjunction with Japan’s export curbs to South Korea and the rising yen has put a lid on sales. This has stoked the fears of recession and raised questions over how much longer domestic demand can remain resilient enough to offset rising external pressures. Private consumption constitutes about 60% of the Japanese economy. Adding to the stress is the fact Japan's economy is now under pressure from a hike in the consumption tax to 10 percent from 8 percent. This increase took place on Oct 1st. The Bank of Japan has estimated this will generate a net burden of 2.2 trillion yen on households in fiscal 2020.

Japan's GDP Growth - Click To Enlarge
As a result of its economic growth slowing down and slumping to its weakest point in a year, Japan has put together a large-scale stimulus package totaling 26 trillion yen to prop up the domestic economy. Please note, this is equal to $239 billion. For a country the size of Japan, this is massive. This is the first stimulus package in three years and centers on measures to ignite consumer spending by promoting "cashless sales" and public works spending to bolster infrastructure.  "We have crafted a powerful policy package aimed at...helping overcome economic downside risks," Prime Minister Shinzo Abe said.

As part of its economic package to spur consumer spending, the government has created a program to give rebates for cashless payments at small shops from October through June next year. For this, the government will set aside about 280 billion yen. To stimulate personal spending the government is also thinking about giving 5,000 yen to consumers they can spend at stores across Japan if they load 20,000 yen in their account for purchases to be made through their smartphone. This would start in September next year say people familiar with the matter. The stimulus package also contains public sector spending of 13.2 trillion yen which would include low-interest loans to companies involved in building infrastructure projects. Nearly half of the outlay will be used for reconstruction from recent natural disasters and strengthening infrastructure to reduce future damage.

Abe's package broadly aims to improve labor conditions, support small companies and promote advanced technology development. This means the government will increase job training services to help people in their 30s and 40s as well as provide subsidies to small and medium-sized companies to spur their capital spending. It will also supply more computers to public schools and support companies in developing wireless technologies that will follow 5G networks. The package also contains steps to help expand exports of farm products to take advantage of a bilateral trade agreement between Tokyo and Washington that is set to take effect next year.

Still, the key issue here is that after decades of slow growth Japan again finds the need to stimulate its economy. This should be considered more proof that its decades long easing has miserably failed to produce the promised results. Several earlier posts focusing on how trends in Japan, such as the BOJ buying stocks, how Japan's tight ties with China, and Japan's reliance on exporting to America help explain how Japan has held its economy together. Years ago before the "Bernanke has all the answers" era, many of us criticized Japan for failing to own its problems. Rather than face up to the mess they had created and do the right thing by letting its zombie banks and industries fail so the economy could move forward.

Instead, the Government of Japan ran huge deficits and ran up massive debt. While they claim otherwise, in many ways Bernanke and the Fed have put America and the world on a path that mirrors the same unsuccessful path taken by Japan. Since 2008 central bankers have chosen to flood the world with money bailing out the very people that caused many of our problems.

The Japanification of the world's economy, however, may play out far worse for the global financial system than it did for Japan. Over the years Japan has been able to sidestep default due to the good fortune of sporting a huge trade surplus with America and forming tight economic ties with China during its years of very rapid growth. Unfortunately, for Japan, the benefit of both those forces may be waning.

Japan's GDP Is Flat Since 1990 click to enlarge
Not all economists see more deficit spending as the answer to Japan's problems and argue that more spending will only hurt efforts such as the recent consumption tax hike to improve Japan's overall fiscal health. Japan holds the title of having the industrial world’s heaviest public debt burden. Its debt is more than twice the size of its $5 trillion economy.

The world's negative-yielding debt hit a record $17 trillion at the start of September, mostly as a result of most Japanese debt trading in negative territory as the Bank Of Japan continues to monetize the country's debt. Since that time the amount of negative-yielding debt has fallen. This folds back into what might be viewed as the BOJ's stealth tapering. Kuroda is now monetizing just a tiny fraction of the bonds the BOJ was mandated with buying because it has almost run out of monetizable debt.

What we see occurring in Japan stems from a far greater problem than simply slow growth. At some point, reality will set in and the yen will suffer as a result of these policies. The collapse of the yen would debunk the myth that major currencies in our modern world are immune to failure and release a slew of new problems across the world. While this has been expected for some time it most likely will not be the catalyst for global financial collapse since the yen constitutes around only 4% of the world's reserve currency, however, it would gravely wound fiat currencies and alter how they are viewed.