Participants Will Emerge... as Fed Withdraws From Mortgage Securities?

I love to read quotes by Fed Officials... Here is one I just read here on Bloomberg:

“Our capital markets are deep enough that I’m not as worried about the ability to be able to fund those mortgages,” he told an audience Tuesday at a commercial real estate conference in New York. “Price will change, and I think market participants will step up as the price changes.”

So Mr. Rosengren, why has it taken 8 years for you to think markets are deep enough to not be worried about the ability to fund mortgages?  And what rate / price change will be necessary for them to do so?  And when do you think this will be possible?

The thing is, you and your comrades over at the Fed should have allowed this adjustment to start happening 5 or 6 years ago.  Instead you have artificially propped up mortgages, holding unrealistically low rates for far to long now, so long in fact that you have allowed the creation of bubble housing prices in at least a dozen, maybe as many as 20 markets in the US.  These are not irrelevant markets, they are huge metropolitan areas where prices have already surpassed the bubble peaks of just a decade ago.  This time, YOU are the MBS market!  YOU have allowed / created the bubble and NOW you state you are confidant the "market" will pick up the slack at "adjusted prices"...

Well Mr. Rosengren, what is that price?  My guess is the highest quality mortgages in non-bubble market cities would need to yield north of 6.5% in TODAY'S interest rate environment to bring back private investors with bubble markets. Less then true AAA mortgages will need to be north of 8% for the same.

Now, lets fast forward to 2019 when YOU bubble creating Fed officials have managed to back interest rates to "normal", say long bond 6%+ and short end 2%+ where do you think mortgages need to be then to bring in participants, cause my dear Mr. Rosengren they will not be in the market before then.  How many people will have serious mortgage servicing issues then, with average auto loans at $38,000+ with 7 year terms, average college debts $100k with lifetime payoff terms, and an increasing number of mortgages going under water as the bubble you created starts to correct as interest rates jack up?  How many folks will purchase those $1 million dollar houses at 7% or 8%?

You are in a catch 22 sir.  I suggest you go very slowly and steadily now as you suggest and push congress to stop sitting on the sidelines about Fannie / Freddie and find a way to provide serious liquidity to the mortgage industry as you wonderful Fed officials start to retreat from the market.

OH, but maybe I am wrong... Maybe those "bubble" prices are actually reflecting the global loss of purchasing power of all "major currencies" as the money printing machines across the globe find the wealthiest people parking it in hard assets because bricks and mortar will not vanish like the purchasing power of soon to be highly irrelevant fiat currencies. The most reckless policies in human history, from the ponzi-scheme government debts, over extended private citizens to the reckless money printing of central banks all come crashing down...

Fed's Bull$h!t, I mean Bullard, is Thick in His Own Version of Reality

Just as I wrote after Janet Yellen's FOMC minutes from a couple weeks ago made me hysterical with their circular logic and "new normal" ideology, which is essentially impossible when every major central bank on the planet is still in "panic" mode with respect to supporting low/negative interest rates irrespective of every economic fundamental staring them in the face, Mr. Bullard come out quoted in this article as saying:

Low rates are likely over the next two or three years because the rate of return on safe assets when adjusted for inflation, has been 200 basis points lower in recent years as compared with the 2001-2007 expansion

First please help me out, now the Fed is using language like "safe assets" and comparing recent returns to the last 6 year period in history driven by market forces (albeit highly skewed, paper driven, derivative heavy, corrupted, recently deregulated debauchery of a market)... and stating that:

the U.S. is in a “high-liquidity-premium regime, in which investors are willing to pay premium prices for safe assets like government debt,”

Well duh!  The US is in a "high-liquidity-premium" game BECAUSE OF FED POLICY and the Fed's (including ECB, Japan and partly China) policies of driving and holding rates at artificially low levels, providing "ample liquidity" as they so often state, by buying all kinds of assets, hence completely distorting the "natural rate" of interest for so damn long now nobody even knows what the hell the "natural rate" is or would be if the Fed would do something as simple as start winding down their balance sheet!!!

It absolutely kills me that every few months the Fed comes up with new "buzz words" to describe what they insist are market forces at play without looking in the mirror!  Now it's the "natural rate on 'safe assets'".  WTF?  When will they get their heads out of panic mode and start to allow the market to function?

I actually thought after reading this short excerpt of Mr. Bullard's speech I should look it up in it's entirety and see if the tabloid, nearly worthless on-line rag of a "market" website actually covered what he said accurately.  Then I paused.  Do I really want to beat myself in the head with more pointless circular speak from a bunch of idiots that have completely lost track of reality?  No.  I want try and stay on this side of sanity as long as humanly possible.

FOMC Bargain With the Devil, Themselves

I just finished reading the FOMC notes released today.  I find them more humorous and frightening each time they are released.  It seems the folks who are setting monitory policy are some of the best mathematicians in the world of Economics but have the common sense of a doorknob.

This paragraph stands out:

Participants discussed reasons for the apparent fall over recent years in the neutral real rate of interest--or r*--including lower productivity growth, demographic shifts, and an excess of saving around the world. Al­though several participants indicated that there was uncertainty as to how long the low level of r* would persist, one pointed to a growing consensus that the long period of slow productivity growth and recent evidence that the neutral rate had fallen across countries suggested that r* was likely to remain low for some time. A number of participants noted that they had revised down their estimates of longer-run r* in their contributions to the Summary of Economic Projections for this meeting. Participants discussed the implications of a fall in longer-run r* for monetary policy, including the possibility that policy interest rates might be closer to the effective lower bound more frequently and for a long period, or that monetary policy was ill equipped to address structural factors such as the decline in productivity growth. A couple of participants noted that a lower estimated value for r* over the near term implied that monetary policy was providing less accommodation than previously thought. 

Followed by this:

Members continued to expect inflation to remain low in the near term, but most anticipated that, with gradual adjustments in the stance of monetary policy, it would rise gradually to the Committee's 2 percent objective over the medium term.

In fact reading this statement was like riding on a merry-go-round.  Their policies, essentially manipulating interest rates at near zero levels (along with ECB and JCB) with the thought that "cheap money" is the key to growing an economy irrespective of the multitude of other factors at play, are the most profound in the history of monitory policy.  They have held rates so low for so long they are starting to think there a new normal.  They are forcing rates down on one hand, then saying that "lower productivity growth, demographic shifts, and an excess of saving around the world" are influencing the natural rate of interest.  Help me out here.  Lets create a massive stimulative / accommodative monitory policy by doing everything possible as a Central Bank to keep interest rates low. Then after we do this for a while we will decide that the natural rate of interest has declined... And because inflation has not popped out of nowhere, we will continue doing the same thing, even though we are saying out of the other side of our mouths that there are structural, demographic and other factors affecting the natural rate of interest not recognizing those same structural, demographic and other factors are ALSO affecting the rate of inflation!!!

It's totally fricken obvious "that monetary policy was ill equipped to address structural factors such as the decline in productivity growth".  Yet they keep doing the same thing.

They say:

The Committee also decided to maintain its existing policy of reinvesting principal payments from its holdings of agency debt and agency mortgage-backed securities in agency mortgage-backed securities and of rolling over maturing Treasury securities at auction, and it anticipated doing so until normalization of the level of the federal funds rate is well under way. Members noted that this policy, by keeping the Committee's holdings of longer-term securities at sizable levels, should help maintain accommodative financial conditions. 

Do these folks even understand the dynamics of what their policies have done to distort the economy?  Do they understand that low investment accompanied by expanding debt by a corporate America that is just taking advantage of historically low interest rates to buy back stock is a function of their policies?  Do they not understand that holding interest rated near zero for so long has created an environment where firms that produce have no need to raise prices when technology has rapidly made producing everything cheaper, that production overcapacity in this world of negative or anemic population growth in the entire developed world means they simply can't sell more, yet their cost of production continues to drop as they borrow money for nothing and continue to consolidate the production of just about everything meaning they need fewer employees and that they can actually afford to keep people they don't really need cause they are making so much money selling stuff, without raising prices, productivity is being affected everywhere?  Do the central banks not see that if they would just run down their balance sheets as securities mature and allow the market to start pricing debt again that their may still be some chance of normalization of rates without them having so terribly distorted the market that any change becomes grossly destabilizing?  Do they understand there are an entire generation of people who have nearly a decade in the workforce who have only seen zero interest rates and would not know what to do if they were in a real interest rate environment?  Do they understand what happens when the expectations of mortgage rates are 3.5-4% for so long that everyone completely
re-balances their entire living budgets on this distortion?  Is it possible the average car price of some $35k with a 7 year payment cycle is only possible because of the total expectation that mortgage rates are stuck at this level for eternity?  Do they see that inflation will not return while the price of money is zero?  Do they not see their own actions are what is driving the "new normal r*"?

Lets look at an example in rough terms.  Energy producers are facing difficult times.  For decades they had one business model, growth in demand, thus growth in investment and output along with prices.  Now they are faced with a dilemma; shrinking demand.  Households are getting more energy efficient.  From appliances, to heating and cooling systems, to light bulbs and electronics are all getting more energy efficient.  Building codes demand more energy efficiency and breakthroughs in fossil fuel recovery has dropped prices in their cost of inputs.  They are seeing lower demand, lower costs of input and very low cost of borrowing, all deflationary.  Does the Fed expect that cheap money means people will consume more energy?  Does the Fed think that cheaper money will drive up fossil fuel costs?  (Almost contrary, cheap money allowed 1/2 a trillion dollars to flow into the sector to employ technology that gets even more out of the ground, creating a surplus, driving down prices, hello!) Does the Fed think cheaper money means people will consume more energy?  Does the fed think cheaper money means all the gains in energy efficiency in every category is going to make energy efficiency reverse? (Well, for autos, the answer is YES as idiots go out and buy massive energy consuming trucks that cost upwards of $50k cause money is flowing like water and gas is cheap again, but otherwise, NO.)  So do the energy producers lay off thousands of workers and shrink their energy production and distribution?  NO. They have to maintain their networks cause there is demand, it's just lower.  Does this mean lower productivity, YES unless they do lay off workers, invest in cheaper delivery technologies and figure out how to operate in a "new normal".  Is there investment in energy production?  Yes.  Renewables. Does this investment replace the loss in investment in legacy energy? At times, maybe, other times not, end result, "anemic" growth in investment in the entire sector as a whole.  Will cheap money and low rates change these fundamental realities?  No. But the Fed fails to see this example can be applied across the spectrum of industries now.  Efficiency, technology, consolidation, weak demand driven by fundamentals and demographics etc. the overcapacity is simple to see.  Getting us back to normal interest rate environment should be a priority cause they are creating other distortions that are, over time, going to be very difficult to break from.

Another example I use is Ketchup.  I make Ketchup.  I have made Ketchup for years.  I bred my own tomatoes for efficiency so they are perfect for mechanical harvesting, have less water etc. Now I make Ketchup more and more efficiently.  The packaging I use fluctuates in price based on energy prices, but the producers have also become more efficient and I can rely on steady prices.  The distribution I have over the years includes just about every outlet possible, though I still compete for restaurant chains etc., the bottom line is my product's growth rate depends on the long run on the population growth rate, unless I can get people to start using Ketchup to run their cars or something, there is no way I can sell more.  Now, I have to show my shareholders I am growing my profits and revenues so I buy my competitors, I shrink my selling sizes at the same price, I find creative ways sell my product for more money etc. But is cheap money going to make me invest more to make my Ketchup even cheaper?  No. I have plenty of capacity at a profitable level and growth is anemic so I may revamp every few years and buy out another competitor, if any are left without me becoming a monopoly, but for now, all cheap money allows is for me to borrow money to buy back my stock, boosting my per share earnings and pay dividends, hence stock incentives for executives o now take a vast amount of the earnings further creating disparities in income levels, and happy investors who see my per share profits increasing.  But are my earnings increasing cause I am selling more or growing my business? NO.  I could go on with this scenario and show how I now buy the mustard guys, then the mayo guys then the salad dressing guys etc till the entire economy for my products is one huge oligopoly... Oh, yea, cheap money allows this kind of consolidation on the cheap, but does it hire more people?  No, it results in consolidation, loss of jobs and stagnation in investment cause growth is dependent on demand and demand for my product depends on demographics, plain and simple...

Face it, the Fed is blind. They are going around circles.  They don't understand business, just numbers. They have no common sense, just charts and theories.  They would not know how to operate dress shop or manufacturer of anything, but could give you models that assume things will be just fine if you just follow the numbers... They have no inkling that the biggest companies by market capitalization in the US now make nothing at all, just buy servers and programmers and if they represent a product, it is made elsewhere, where it's cheaper and this is called "free trade" and companies seeing the globe as their production base and customer base just like the Econ 101 textbooks teach us.  So why are they following their current policies till now? Clueless for sure.
  

Will the Real Warren Buffett Stand Up?

I woke at 3:00 am and could not sleep so I skimmed over some articles, one about Wells Fargo's CEO and the circus produced by "lawmakers" to make it look like they were doing something about one of the largest frauds committed by a FDIC insured bank in US history, the largest bank in the world by market capitalization.

And I had this thought: Why was the largest shareholder, Warren Buffett, a virtual Demigod among his Rabid Republican Guard like shareholders and championed by the inbred, corrupt political establishment, not insisting the CEO, John Stumph, walk and those in charge of the divisions responsible for 5 YEARS of fraudulent activity be fired and criminally charged, and say all this publicly?  I will tell you why, because Buffett is nothing but a 21st Century Robber Barron with a very good PR team and, as I said, a rabid army of wealthy shareholders with big mouths, hence his Republican Guard, who will defend him as if he were deity.  I don't believe any Capitalist in history has ever been so revered.  This is the same guy who owns the largest legacy electric company in Nevada that managed to get the government in that state to decimate all laws that made solar power economical.  IN NEVADA!, one of the best states in the nation to use Solar Power.  Oh wait, but Buffett has a tremendous amount of his investments in industries that benefit from legacy power ruling as long as possible.  So this is natural behavior of an industrialist with deep pockets.  Be dammed those "citizens" in Nevada who remain slaves to fossil fuels and the wishes of industrialists who are determined to keep them there... But I digress.  You can look up the many other ways our Devine Buffett has acted exactly as he should being one of the largest pariahs of our extraordinarily dysfunctional, if not downright broken, "Capitalist" system.

Back to the point at hand here, Wells Fargo is a publicly traded bank that not only has a duty to make money for it's shareholders, but as a FDIC (Federally Insured) institution, responsible for maintaining the bank accounts ie; having a fiduciary duty, to protect the deposits of millions of CITIZENS of the United States and not act recklessly with their money. 

Anyone who has grown up here in the United States knows very well through direct experience or by watching the slow train wreck that has been orchestrated by the financial industry over the last 30+ years that all financial institutions in the US put the customer first for one reason, because you, the customer, is where they will steal as much money as possible, as many ways possible from you until you are down to a nickel, then they will take that to.  Financial institutions in the US are run by legal gangsters that not only get away with every kind of fraud their accountants and lawyers and bankers can dream up, but they are backstopped and insured by the American Public in so doing.  This is shown to be true over and over again, with huge losses and crashes and bailouts and fraud schemes dreamed up and orchestrated to the point of collapse about every 8 to 10 years. 

What Wells Fargo has done for a period of at least 5 years is reprehensible in any book.  Their actions from management down to the lowly sales / customer service employees on the front line who were under extreme pressure to "produce results" are criminal, no doubt.  It is criminal for an institution insured by the FDIC to commit fraud on it's customers accounts.  Period.  If you write a bad check or present a fraudulent bank statement in trying to get a loan, you can go to jail.  The flip side is no different.  If the any person, let alone the actual bank employees "creates" accounts without permission using the information of real people, this fraud is punishable by jail.  For the bank to have simply fired people over a 5 year period for actions that were criminal, and at the same time continued to act in a way that resulted in their employees, the people on the front line, and their supervisors, continuing this activity, those in charge at higher levels are just as guilty as those who committed the actual fraudulent acts.  They are more then an accessory, they are instigators of the crimes.

I don't know why lawmakers don't immediately call upon the Justice Department, the FBI and the SEC (knowing about this level of fraud, while painting a pristine image of your bank in your annual report is also fraud) and the Attorney General of the State of California, Wells Fargo's home state, to bring charges and prosecute this bank and those involved in these crimes... Immediately!

The squeamish, weak, corrupt legislators and leaders we have at nearly every level of our government are completely incapable of taking on large institutions when basically they all forget one thing:  If the services being provided by an institution are needed, then putting that institution out of business by prosecuting their leaders simply means other institutions will provide those services or new ones will rise up and assume the provision of services quite quickly in a dynamic capitalist system.  Look at what happened to Author Anderson back in 2002.  The fact that our government has become so corrupt and inbred they are incapable of doing anything to contain the abuse of the financial industry is an atrocity of magnanimous proportion in the US.  As I write this we, the United States, have lost nearly all credibility on the political front.  We have one of the most blatantly corrupt people to ever seek the highest office doing so with ease, a person who over two separate careers, a short 14 years, has managed to use her position to "raise" over $2 BILLION and fund a $250 million a year enterprise that produces nothing.  Irrespective of what her family does with this money, it is hard for a person of this level of corruption to turn around and have anything to say about the prime minister of Malaysia suddenly having $700 MILLION appear in his bank account or any other mass corruption / theft from public coffers that happens regularly around the world in nearly every deprived nation on the planet.

And so here we are.  No word from the largest shareholder, no surprise, we all know what Buffett really is.  No action by our government, no surprise, we know how corrupt and inbred they really are.  Nobody goes to jail, just some fines get paid, yea, the cost orchestrating another get rich scheme by the PIGS that run financial institutions in the US.  It's all good.

If I were you, I would write a letter to your legislator and senator and the Attorney General of California and the SEC and the FDIC and insist that action be taken now against this bank and prepare for a complete overthrow of it's leadership if not revoking it's banking charter and or breaking up the bank and offloading it to investors or just doing as was done with AT&T and making half a dozen smaller banks around the nation and an international division and letting the market work to do what it wishes with what's left.  Meanwhile the folks who oversaw the criminal activity should all be criminally charged.


Make them take a copy of "The Vision & Values of Wells Fargo" and read it daily until they are released.

If you have in excess of $250,000 in a Wells Fargo account, move the money to another bank so your money is insured.  I don't have money with Wells Fargo or I would just flat out close my accounts, I suggest you do the same.  Vote with your feet!

Are Americans Already Paying Dearly for Brexit?

I was reading an article today about "Shoe-Leather Costs", a somewhat esoteric paper related to money demand when I realized that of all of the formulas and assumptions related to interest rates, inflation, income and behavior related to how money is used, nothing addressed debt or more specifically, the cost of debt born by society at large.

This is starting to bug me as for some unknown reason, the more literature and articles I read about monetary policy and economic growth and inflation etc, not finding the cost of debt factored into the myriad of formulas out there trying to analyze economic realities leads me to believe the theories are broken.  Economists focus on interest rates that determine the "cost of money" in the financial sector and "interest" paid to savers but not to the larger and more impactful number, "debt costs", in their figures. In fact, contrary to one's intuition, economist and financial folks cheer when consumer debt is growing at a "healthy clip". 

Well excuse me, but at what point do these folks begin to understand, that nearly all wealth degradation and a huge amount of income stagnation over the last 40 years can be directly attributed to the ballooning of consumer and public sector debt. If the average American household now holds some $15k in credit card debt (not to mention Auto $28k, Student $50k, Mortgage $170k) with an average annual interest rate of $15% this means the average household is paying nearly $200 per month in interest on credit card debt alone.  Now, what is the average interest earned on savings? How about less then 1/2 of one percent, or if you are lucky and have enough money to sock away, 1%.

Just imagine if old values of saving money and buying a modest home while borrowing as little as possible at the lowest interest rate possible, still held.  What if the average household would have socked away $3000 in 1976 (the value of 15k 2016 dollars) and added the equivalent of $200 a month (about $50 in 1976) to this amount each month and continued to do so at an inflation adjust rate till today when they would be putting in $200 a month and the interest earned on their original $3000 kept up with inflation (yes interest rates on savings accounts were nearly 7% in 1976 while inflation was around 6%).  Where would this household be today?  I did some crude math, adjusting the interest and contributions every 5 years for inflation and interest rates and found they would have somewhere around $185,000 in the bank.  This compares to an average net worth (not including mortgages) of about $45k for Americans age 55-64. 

Mind you, I only did this fun little exercise on this lazy hot Saturday afternoon in Washington based on the $15k in credit card debt and the lost "savings" due to interest payments.  Why don't you have fun doing the math for auto loans and student debt, which is ballooned astronomically, and why?  Because the parents of the children reaching college age HAVE NO MONEY cause they paid it all out in interest their entire working lives!  (NOTE: Average overall household interest costs totals over $6500/year.)

I could go on, but all this discussion misses the title and point of my writing today.  For whatever reason (easy manipulation of the numbers over a 20 year or so period until 2014 when the ICE Benchmark Administration (IBA) took over the Administration of LIBOR?), many American lending institutions switched Mortgage loan interest from using US interest rates, ie One year treasury or more recently one year constant maturity rates or CMT as a base rate, to using London Inter-Bank Offer Rates or LIBOR plus their customary 2.25% or whatever. 

This little move means that millions of American mortgages are tied to in interest rate set in London, the capital of a nation that just voted to exit the European Union which could, though has not thus far, create volatility and instability in London rates.  Why is this important?  Well, the one year LIBOR rate now stands at 1.52% vs .85% one year ago.  Meanwhile the one year CMT or Constant Maturity Rate in the US is about .58%, the 11th District Cost of Funds rate is about .68% and the European Interbank Offer Rate is -.05% (yep that's negative).  So Americans unlucky enough to have the LIBOR rate are going to see base mortgage rates that nearly double last years rate at this time, and average 1% more then comparable US mortgage lending rates.

The change in LIBOR alone, given the historical average of 15% of outstanding mortgages being adjustable rate would result in Americans paying out about $600 million more per month or $7.2 billion per year in additional mortgage interest.  If they have credit cards and student loans also based on LIBOR this number will be significantly higher.  So you have a kind of global financial tax that the Fed can do nothing about.

So why is LIBOR so heavily used in the US today?  My guess is during the go-go days of using mortgages as the underlying "asset" for the myriad of financial "products" that were used to gamble with, the money borrowed to play was global in nature.  Hedge funds, Insurance companies, Private Equity, Financial institutions etc. from Europe, London, Hong Kong, the US and every "off shore" domicile imaginable all played with money borrowed and lent at international interest rates so why not base the underlying asset's interest rates on the same global lending rate paid by the gamblers... and so now you have it.

Central Banks Perpetual Crises Mindset

I ran across this article today: http://www.bloomberg.com/news/articles/2016-08-21/inside-the-global-hunt-for-a-better-way-to-measure-the-economy

It is interesting that over just the last 30 days or so there is a "buzz" around the financial community about the validity and usefulness of GDP in measuring output and of course this is another way for those who believe the Central Banks desperately need to "normalize" interest rates to get their point across.

Aside of the special interest's motivations, three of my potential thesis are being reflected in this trend, 1) I believe all measures of GDP need to be drastically revamped as traditional measures of collecting the data are vastly outdated and 2) employment numbers and productivity need drastic new looks as the dramatic declines in labor participation in the US are not consistent with consumer purchasing power / stats and 3) Economist need to broaden their measures of productivity in the new economy of Uber's and Air BnB's of the world and understand that productivity is no longer a measure of just "producers" productivity, but that now, all assets in the economy, need to be factored in.  People are renting their houses, cars, labor etc. in disruptive ways never before done and till now not accurately measured in data that are influencing the central banks policies.  These are all tied together.

This is the first article I have seen mentioning, albeit not convincingly or with any detail, some of the factors I believe need to be addressed.   So I thought I would share :-)

My latest theory is a little less tangible.  It has to do with what happens when Economist / Central Bankers themselves become victims of a kind of a perpetual lack of ability to understand they to can be influenced by "behavior patterns" and "psychological factors" so often measured by Economist on consumer behavior and their "behavior patterns" can lead to irrational decision making.  I believe they were so spooked by the global financial crises / credit freeze in 2008/9 they can no longer see clearly.  No matter what happens in the economy, they can find 2-3 "global" trends that continue to drive their thinking in a perpetual crises mindset. They simply no longer see clearly.  They have completely lost faith in the "free market" model.  They think more and more like the Chinese, where understanding of market fundamentals is translated by central planners to direct intervention in an attempt to "create" these fundamentals through "force" vs understanding that all economic theory comes from human behavior and that this behavior creates economies that in turn create observable market forces that become that theory one can study and write about.  There is no way to reverse this and force it to happen without allowing markets to determine a given outcome and or understanding markets will be severely disrupted if one attempts to do so.

To ignore economic fundamentals and market forces is leading us to the point where the destructiveness of Central Bank policies are parallel to the kind of problems that happen during traditional bubble psychology, where all "investors" act irrationally until the entire thing collapses.  In summary, the global mind think of Central Banks / Traditional Economic theorists is stuck in crises mode and their actions are leading the entire global financial system to a huge cliff.  It's time for them to look in the mirror and understand where they are headed before it's to late.

Just a small thought, and to think Market Psychology and Consumer Behavior are my two least favorite areas in Economics :-)

Portugal Taxpayers (ahem, Citizens) are Screwed Again

I just finished, well I almost finished reading, an article about another bailout of another bank in Portugal.  I got so pissed off I decided to rant for a minute here.

The article published by Zerohedge also sites articles in the Wall Street Journal, Reuters and Bloomberg about the bailout of or "rescue" of Madeira-based bank Banif. 

Why the F&%@ do these governments keep bailing out banks?  It is plain and obvious that the elites that run the financial world have the governments in their pockets.  They keep getting bailed out over and over with billions upon billions of citizens money while said citizens struggle to stay ahead of the "non-existent" inflation that consistently runs ahead of their purchasing power.  

Since when are governments bound to consistently bail out capitalist enterprises.  Capital sloshing around the world exceeds income for crying out loud!  There is plenty of it.  If a business is worth rescuing, capital will rescue it.  Otherwise, it should die.  That is the brutalism of capitalism period.  To bail out owners of capital when they have made an investment that goes sour smacks in the face of the entire capitalist logic.  To allow capital to be gambled with recklessly, when the gambling involves citizens hard earned money, is where governments are failing globally.  Then bailing out financial institutions that fail after sanctified reckless gambling with citizens money puts governments in the same soup as legalized gangsters.

When a bank "fails" there is a simple process.  Dissolve the bank, pay the depositors with the insurance in place and move on!!  What the hell is so hard about this?  If there is a desire in the economy for that bank's services to exist, another will rise, simple as that.  The capital is there and the capitalist are there to fill the void.  If the bank's services were no longer needed, then it wouldn't be missed! 
When are citizens going to say "enough" and just mow over the idiots that keep doing this and start over?  Because until that happens, they are going to get screwed again and again while capital and the capitalists keep getting richer and richer on their backs.  It's pathetic and to see how it plays out in the "emerging" economies around the world, esp. China for example, it is down right sickening.  The established "democracies" with established capitalist "economies" should be setting and example of how things work, instead they are setting examples of how things fail over and over again. 

We are told a bunch of sand monkeys with guns mowing over innocent people are evil. Well the real crime on the citizens of the planet are being played by their governments and the capitalist that keep stealing from them while giving nothing in return.  I personally am totally and utterly pissed and tired of reading how capitalist are bailed out with every tool of every government and every tool of every central bank.  It is time, high time, to stop this madness!

The President's Speach on Terror Threat... Re-Written with some Rational Socio-Economic Observations

THE PRESIDENT (And me):  Good evening. On Wednesday December 2nd, 14 Americans were killed as they came together to celebrate the holidays.  They were taken from family and friends who loved them deeply. They were white and black; Latino and Asian; immigrants and American-born; moms and dads; daughters and sons.  Each of them served their fellow citizens and all of them were part of our American family.

          Tonight, I want to talk with you about this tragedy, the broader threat of terrorism, and how we can keep our country safe.

Here is what we know.  The victims were brutally murdered and injured by one of their coworkers and his wife.   It is clear that the two of them had gone down the dark path of radicalization, embracing an Ideology that is attempting to counter the ideology perpetrated by the global super powers and corporate interests of the West.

          Our nation has been at war with these people since al Qaeda killed nearly 3,000 Americans on 9/11.  In the process, we’ve spent over a decade and nearly two trillion of your hard earned tax dollars, on two pointless wars in two nations, largely against people who live in mud huts. And it has not worked.  However, our military and counterterrorism professionals continue to relentlessly pursue all counter-ideology networks overseas.  Meanwhile, at home, we have turned our airports and financial centers into fortresses to ensure the best possible protection for the elites.  Our local law enforcement agencies have been handed exceedingly lethal surplus military hardware designed primarily to provide a show of force against any organized resistance to the corporatization of our nation and the world, admittedly while many areas of our nation remain essentially un-policable and violent.    

          For seven years, I’ve confronted this evolving threat each morning in my intelligence briefing.  And since the day I took this office I’ve authorized U.S. forces to assassinate all of these leading opposing ideologies abroad precisely because I know how real the danger is. In fact, on any given day we have a small arsenal of un-manned assassination drones used to regularly kill anyone our counter terrorism networks tell us is involved at a management level in any non-western aligned organization.  We do not grant these targets any rights to due process of the law that you are entitled to.  We just eliminate them.   

          Many of you are familiar with “scorched earth” agriculture, where we kill everything in the soil from plants to pests in order for a genetically engineered seed to grow; or you may be aware of the application of cocktails of pharmaceuticals pumped into our farm animals to make them grow faster, while supplementing their weakened immune system against deadly strains of bacteria.  Well those pesticides, herbicides and pharmaceuticals are akin to our corporate driven ideology to dominate and control everything on the planet -- while counter ideologies like the one we currently face -- are like the weeds that refuse to submit to herbicides or bacteria that refuse to be squashed by the pharmaceuticals.  And over the last few years these organizations have morphed, changed shape, reorganized and grown stronger amidst the back door we created from our pointless wars where we managed to destroy pretty much everything except the will to keep a counter ideology alive.

          Meanwhile, these organizations have conducted less complicated acts of violence against us, taking a cue from our own home grown pharma-laced mass murders that are all to common in our society.  As new counter ideology groups grow stronger in the void left by failed states, largely orchestrated by our military adventures and incompetence, we face new challenges.  As Commander-in-Chief, I have no greater responsibility then the security of the corporate elites that put food on your table, bring energy for your automobile or the infotainment that sedates you, because our global oligopoly networks rely on the downtrodden people of the planet to deliver your consumer goods as cheaply as possible. And we must protect these exploitative networks. 

          As a father of two young daughters who are the most precious part of my life, I know that we see ourselves with friends and coworkers living a very good life of consumerism and comfort on the backs of these people.   I know we see our kids in the faces of the young people killed in Paris.  And I know that after so much war, many Americans are asking whether we are confronted by a cancer that has no immediate cure and exactly which side is the cancer and which side is the cure.

          Well, here’s what I want you to know; we are the cancer and the cure. These counter-ideology people are like the weeds, the survivors of scorched earth capitalism.  Any organization that tries to counter us will be met with a newly formulated strategy to defeat them.

          Here’s how: First we know that these people are organized in a part of the world with virtually no industrial capacity. Since they have absolutely no means of production of weapons; they don’t produce guns, or tanks, or rockets, mortars, or planes or submarines etc. we know they are completely spineless without weapons supplied by nations or corporations that do. 

          Since the attacks in Paris, our closest allies – including France, Germany and the UK – have agreed to form a global network to track each and every weapon we find in the hands of our opposition, track down its maker and distributor and shut them both down immediately.  In addition, we will work together to ensure no money flows to the opposition from outside their territory – no financial transfers of any kind via sales of oil, or any other commodity, will be allowed which will help us accelerate our effort to destroy their networks.

          Second: Instead of creating walls and fences around EU nations to stop human beings fleeing the violence, we will create walls and fences around the territory controlled by our opposition, allowing citizens fleeing the death and destruction out and letting any fool crazy enough to join them in.  We will be deploying Special Operations Forces who can man these security efforts and to ensure no resources are entering their territory.

          Third: We know, based on the vast number of people fleeing their controlled territory, rational people have no interest in living under the twisted madness that now prevails within this current iteration of counter ideology.  Hence, the ultimate outcome can be achieved without any direct military intervention. By restricting weapon flow and financial means to those people governing this territory, the result would be a territory of themselves, which would likely resemble a 6^th century, impoverished and depraved wasteland; not unlike the situation many people stuck behind the Iron Curtain faced in the last century.  If that is their vision of modernity, they will be free to live that way, but it is unlikely they will have much willing company.  Besides, after a decade of wars against nations with no industrial capacity whatsoever, we pretty much look like the biggest fools that history has ever known, with nothing to show for our efforts but a huge balance sheet of debt.  So a new strategy is in order.

Fourth, with American leadership, the international community has begun to establish a process -- and timeline -- to pursue ceasefires and a political resolution to the Syrian war. Doing so will allow the Syrian people and every country, including our allies, but also countries like Russia, to focus on the common goal of eliminating opposition to our global capitalist oligarchy.  This is our strategy to destroy ideological opposition and it is designed to be supported by our military advisors and counter-ideology experts, together with 65 countries that have joined an American-led coalition.  That’s why I am here today, to ask for your support in our new strategy because as I said in my 1^st campaign for president, it is “we”, all of us, who need to engage in the challenges facing America “together”.

          Now, here at home, we have to work together to address the challenge.  I call upon you who work in the military industrial arena to pressure your bosses to refrain from selling any weapons anywhere in the world where they may find their way into the wrong hands, including at home and abroad.  I urge you to write and call your legislators and insist we take this non-military approach to win this ideological battle against those who threaten our way of life.

          If you hail from any of the surrounding nations, please contact your embassies and leaders and tell them, earning a few dollars by selling weapons or buying oil or otherwise supporting these bandits is not worth the long term effect on humanity and threatens their place in the new world order.

          What we can do – and must do – is make it harder for them to kill.  We cannot stop every motivated bacteria, every surviving weed or every resilient insect from disrupting our attempt to control every facet of existence on the planet but with your help and organized resistance to the military industrial complex’s need to find an enemy to deploy their death and destructive forces, together we can win.  I think it’s time for congress to vote to demonstrate that the American people are united, and committed, to this strategy.

          My fellow Americans, these are the steps that we can take together to defeat the ideological threat.  Let me now say a word about what we should not do.

          We should not be drawn once more into a long and costly ground war in Iraq or Syria.  The strategy that we are using now -- airstrikes, Special Forces, and working with local forces who are fighting to regain control of their own country – is dead in the water and not working. They also know that we no longer have the stomach to occupy foreign lands. Our nation’s obesity and epidemic rise in associated diseases like diabetes springing out from our industrial food supply has turned us into sick guinea pigs.  In addition, with nearly a third of our nation regularly taking various cocktails of pharmaceuticals, all of which attempt to force us into compliance with some kind of esoteric ideology of what is correct and acceptable behavior, has turned many of us into zombies glued to tiny plastic screens, unable to deal with any of the kind of reality associated with physical interaction with other human beings of a different ideology or lifestyle, let alone in a hostile war zone.

          Here’s what else we cannot do.  We cannot turn against one another by letting this fight be defined as a war between America and Islam because we know this is really an ideological backlash against the emerging global order where the corporate entities you work for and support increase their coverage of the entire earth with our products, our vision, our ideology and our sense of righteousness.

          The vast majority of ideological victims around the world may be Muslim, but that’s because these people have not entirely embraced our soulless mantra of corporatism, individualism, consumerism and mercantilism.

          That does not mean denying the fact that an extremist ideology has spread most effectively in these impoverished, corrupt, and often despot run nations.  Leaders of these nations need to get on board and decisively and unequivocally reject the ideological opposition to the new world order now or risk loosing their power and billions in their bank accounts.  To speak out against not just acts of violence, but also those interpretations of ideology that are incompatible with the values of the industrial rulers of this planet.

          But just as it is the responsibility of all people around the world to root out misguided ideas that lead to radicalization, it is the responsibility of all Americans to reject this counter ideology as well.  I have over the last 7 years employed all resources possible to ensure you do because when you travel down that road you will lose. Betrayal of our values plays into the hands of opposition ideologies and if we are to dominate the global order in the future, the last thing we need is opposition at home. Our men and women in uniform are willing to ensure this does not happen. We have to remember that.

My fellow Americans, I am confident we will succeed in this mission because we are on the right side of history.  Even though we were founded upon a belief in human dignity -- that no matter who you are, or where you come from, or what you look like, or what religion you practice, you are equal in the eyes of God and equal in the eyes of the law, the need to control every facet of human existence on the planet in the name of profit has superseded these fundamental beliefs.  

In this political season, even as we properly debate what steps I and future Presidents must take to keep our country safe, let’s make sure we never forget what makes us exceptional. Let’s not forget that freedom is more powerful than fear; and our brand of freedom is the one that must reign -- whether war or depression, natural disasters or counter-ideology -- by coming together around our common ideals as one nation, as one people, with one common ideology, I have no doubt America will prevail. 

Thank you.  God bless you, and may God bless the United States of America.

Japanese Getting Poorer Yet Again...

I wrote earlier this year about Japan: http://econ4beginners.blogspot.com/2015/02/printing-money-against-all-economic.html

I was sharing my thoughts on how destructive the monetary policies were at the time.  Now today I read how destructive the policies of Japan's Government Pension Investment Fund were when they sold all those government bonds to the Central Bank and turned them over to stocks, creating a stock run up that was quite impressive until...

According to this article in Marketwatch, Japan's Pension Fund just got $68 billion poorer in one quarter.  Yep those are the pensions of everyday citizens being recklessly squandered by government driven "policies" that keep unraveling leading nowhere fast.

Shame.

My Own Summers vs. Bernanke Rebuttal, With Some Colorful Rants

I have been holding on to this long rant deciding whether to include my substantial rants that are quite out... In the simple desire to move on I decided to just put it all out there... 

This writing is a response to the publicized back and forth between Larry Summers and Ben Bernanke through their respective blogs which I firs read about here:

Summers: The essence of secular stagnation is a chronic excess of saving over investment.  Check

Summers: In situations where target saving is important, reductions in rates may increase rather than decrease saving, exacerbating imbalances.  Check

Summers: I think that it will be hard to escape the conclusion that household debt grew at an unsustainable pace in the decade before the great financial crisis and that this was an important spur to growth.  Check

Mind you Summers, another lifelong academic with no real world experience operating in any industry outside of education (or non-profit “think tanks” that seek to directly influence legislation by hiring high profile and Ivy League academics to “vilify” their agendas), was an Integral Player and heavily influential in the deregulation game.  During his entire tenure with the Treasury, he became Wall Street’s whipping boy. Within less then a decade in the early 2000’s deregulation, which is arguably the core reason for the bubble / unsustainable credit / derivative expansion that ensued, actually picked up steam under advice from people like Larry Summers.  He was instrumental in further influencing a hands off approach towards “managing” the explosive growth in unregulated derivative products built directly on the backs of individual borrowers in the US and elsewhere (wherever “offloading risk” became the core ideology of “lenders” the world over) and not unsurprisingly, after the collapse of credit markets around the world, ended up back at government service in 2008 to make sure no branch of  the government, regulatory or otherwise engaged in ANY reigning in of the “regulated” financial industry nor sought to disband, regulate or otherwise force under regulatory framework the multi-trillion dollar “unregulated financial industry”. 

Summers argues governments can expand debt “indefinitely”:  “As long as a public investment project yields any positive return it will generate enough revenue to service the associated debt.”

Yet Summers completely ignores the exceptional debt burden currently held by nearly all the major industrial economies including China, which though not a fully “developed” industrial economy, is vastly influential in global economic reality due to its sheer population size and explosive government orchestrated “growth” over the past several years.  As Bernanke goes on to retort, this is important as the money printing and excessive spending shows declining rates of return over time.

Summers again on debt spending: The case for expansionary fiscal policy in economies with very low real interest rates is of course magnified if there are reasons to doubt that the central bank can act on its own to raise inflation expectations.  It may well be that in situations where the interest rates are trapped near zero –  such as those prevailing in Japan and Germany – expansionary fiscal policy reduces real rates by raising inflationary expectations.

So do you REALLY want this kind of inflation?  Fiscal spending increases, ie; government spending be it infrastructure or otherwise, is not sustainable long term, esp. if the government already carries very high debt burden.  So ramping up inflation via monetary and fiscal policies with NO resulting increases in private investment in the economy will create the worse kind of inflation, not unlike that currently happening in Brazil.  So Really?  Do you want the kind of inflation by printing money and government spending with no private investment and or increases in productivity?  You are in for a real mess… So someone here needs to explain the different types of inflation and what kind of inflation is or would be considered “normal” or “desirable” vs. inflation for the sake of inflation!!!!

Summers back to “secular stagnation”:

Indeed, the lower level of rates, the greater tendency towards deflation, and inferior output performance in Europe and Japan suggests that the spectre of secular stagnation is greater for them than for the United States. 

Now, any person with some understanding of the economic reality of Europe and Japan vs. the US would be able to understand right away why the “spectre of secular stagnation” is greater in the former.  Demographics, labor market flexibility, immigration dynamics, capital flows (real and financial) and competitive markets all greatly differ in the US vs. Japan/Europe.  It simply does not matter how much money they print in Japan or Europe, this money will not solve problems that are / were not based on money in the first place.  Devaluing their currencies against the Dollar has run it’s course and China is about to go through a major currency adjustment as they get killed by their indirect dollar peg which in the end, with Brazil, Russia and several other mid-tier industrial producers all trying the same game will result in nothing more then an across the board debasement of currencies everywhere in a race to the bottom NOBODY has a clue where or how it will end.

Summers pointless statement: Global mechanisms that concentrate on causing borrowing countries to adjust without seeking to shrink the surplus of surplus countries will tend to push the global economy towards contraction. 

This statement is straight from the mouth of an Academic for sure.  What on EARTH are you going to do to “shrink the surplus of surplus countries”?  Tell them to spend money?  The ONE THING that is in the process of happening, China’s lead on creating the Asian Infrastructure Investment Bank (Remember the US was a the only major nation with an undestroyed economy and a major creditor back when the IMF and World Bank were created and virtually dominated by the US from their inception, even though the US is no longer a major creditor nation), leads to headlines like this one from the Guardian:  “China's growing support to lead multilateral lending bank worries US”.  Why doesn’t Mr. Summers recognize directly how important it is for the nations around the world that have built up massive foreign reserves through “excess savings” start putting this money to use around the world instead of having Washington look like it’s being run by the complete idiots it is!!!

Summers does recognize the futile exchange rate policies: Policies that seek to stimulate demand through exchange rate changes are a zero-sum game, as demand gained in one place will be lost in another.  Secular stagnation and excess foreign saving are best seen alternative ways of describing the same phenomenon.

Yet Summers only uses the “demand” argument here, failing to estimate the various other negative repercussions of competitive exchange rate reductions.  Calling every country’s attempt to debases it’s currency so it can “export” it’s way out of economic malaise (thinking increased exports will lead to further investment) while at the same time boosting inflation with the intent of devaluing their current debt burdens, a “zero sum game” is being VERY generous to what is likely to be a global economic disaster!

Summers Final lack of solution: So, I continue to urge that it is worth taking seriously the possibility that we face a chronic problem of an excess of desired saving relative to investment.  If this is the case, monetary policy will not be able to normalize, there will be a continuing need for expanded public and private investment, and there will be a need for global coordination to assure an adequate level of demand and its appropriate distribution. 

This is Summer’s final academic statement that just blows me away!  “Chronic excess saving” is hilarious thought.  Watching corporate America take huge amounts of their “earnings and cash flows” and plow that money into buying back their stock instead of investing it is heartening.  This is a major transfer of wealth, the money spent on buying products generating ever larger profits as the oligopolization of the American economy continues to increase prices (under the radar as the official inflation numbers are massively distorted, go buy a gallon of paint and tell me why it is $30 vs. $10 fifteen years ago…) and profits are simply used to buy back stock which gets plowed back into the stock market.  Meanwhile, nearly free money exacerbates this problem as central banks mop up a huge chunk of government issued debt leaving “investors” looking anywhere for yield.  Companies not only use their current cash flows to buy back stock, but literally leverage their companies by borrowing ever increasing amounts of nearly free money to buy back their stock at elevated prices.  While great for the upper echelons of corporate management who get ever richer by cashing in on their stock options pocketing billions of dollars a year in personal “profit”, the average “saver” gets zero return on their money, resulting in the fact that they are actually saving MORE to counter the loss in earnings they would have from interest. 

In a “perfect” economy, based on pure economic theory, people would be spending all their money today as they get NOTHING from saving it.  But economic theory be-dammed, because in reality, the aging populations of the developed world have been saving MORE since they are playing a loosing game against the push by central banks to increase inflation while their cash savings yield them zero return nominal return.  Now tell me, supposedly “savers” participate in investing when the institution with which they place their “savings” lends it out and at positive rates and pays them interest earnings for using their money.  But this rationale is completely broken, it simply does not happen any longer!! The banks just keep all the profits, including the profits from their 15% credit cards, fee generating income, investment banking, mortgage lending etc.  Want a yield, you better to buy their stock and hope they don’t go belly up or another financial crisis does not wipe out your investment.  Then there are always the crowdcube.com models where you can invest directly in small businesses with your own money. 

The thinking goes, in a zero rate environment corporate entities would be happy to borrow and invest in nearly anything able to earn return higher then ZERO.  Well, the financial industry is taking the trillions of newly “created” money and buying nearly anything with positive yield with abandon, meaning lots of worthless paper can float around at exceptionally low yields right now.  Yet, the average Joe does not participate directly in this game as his “investment holdings” are more than likely tied up in some retirement account where he has no idea how much of it is chasing yields in a new debt bubble that is likely to burst taking whatever he managed not to loose or regain since the last financial collapse and wiping it out again along with whatever he contributed since then. 

Where is the investment?  Why invest?  The developed world has nearly zero population growth and a massively aging bulge in their population while the rest of the world, where populations are rising rapidly, people are still poor, their countries still lack industrial capacity, infrastructure investment, technology and or any of the other factors needed to participate in “development” while most of them are still having their natural resources stolen from them for pennies on the dollar with no secondary industry even in existence to turn these recourses into finished goods at higher value and thus raise the incomes of their populations.   Where are Summers tangible recommendations on how to remedy this situation? 

Screw trying to force feed investment in mature economies where underlying demographics and consumption trends are declining!  How does the world get growth, investment, consumption and inclusion into the global economic machine in the 3/5 of the population of the world that has been left to rot?  Where are the models that state explicitly that the global economic “norm” that we have lived under for to long is broken?  The planet is at its wits end ecologically and economically.  Growth and Consumption models are broken. Corruption rules far too great a number of the planet’s population (inclusive of many “developed” nations). The global elite are increasing their hold on resources while directing puppet governments they control to abandon their responsibilities to their citizens and spend great amounts of resources and lives on militaries to protect them and move forward their agenda, which has absolutely no productive value.  Most of the war currently happening is a direct result of policies of the developed world which supported corrupt governments for political purposes, exploited their resources, oversaw almost no productive investment purposefully so they could force feed their global brands and products down the throats of the increasingly impoverished people while exploiting their corrupted neo-colonial governments.  You want investment?  You want growth?  You want a return to a “market based” economy where supply and demand work without massive intervention by the wheels of central banks with their capacity to “print” massive amounts of money in the name of “stimulus”?  Then the developed world needs to STOP trying to instigate growth where it is not organically present!!  The developed world needs to start the process of sharing / transporting / instigating development in the underdeveloped world.  Of all nations, China is taking a lead with the new AIIB and this is a good step in that direction.  China, a nation who’s “growth” has been completely orchestrated not unlike the communist / socialist governments rapid growth after WWII; State led, state driven and state directed with spectacular results for a short period, extended of course by China also taking over near a quarter of the global dirty manufacturing with disastrous ecological and environmental results (But that is just fine for an expendable few hundred million people so the developed world elites can have their huge profit margins and their citizens cheap junk to feel rich right?).

Meanwhile, it’s time to the stagnant developed nations’ corrupt governments start recognizing that the “profits” made from corporations either are put to good use or confiscated for the public good i.e.; to pay off the massive debts the irresponsible corrupt governments have accumulated while creating policies to ensure social stability, security and equal deliverance of government services and investment.  The debts government have accumulated, especially since the global financial failure, is directly on the backs of the citizens who are on the hook for trillions after bailing out the financial elites while for the most part the “productive” corporate entities also had a free ride, many having been bailed out themselves!  It’s time this all gets restructured NOW. 

Recognize people that excessive profits, i.e.; profits that are not put to good use, invested etc, are nothing more than a “tax” on the citizens who purchase those products with which the public is NOT seeing any social benefit or “welfare” as economists like to say.  Will you hear Summers or Bernanke say out loud that the models are broken?  That we need a massive rethink of what it means to allow unfettered consolidation and profits from fewer and fewer players who are enjoying massive rewards on the backs of the vast majority of citizens who are NOT seeing the benefits spelled out by so many economists in their pretty little models of how society will benefit over time as capital increases productivity allowing workers higher wages and more leisure etc…

If we don’t do something now or very soon, trust me, there will be backlashes from society and elements of society who will propose far more drastic measures and far more destructive proposals in the future if the current “institutions” on all sides of the debate don’t start coming up with tangible solutions now!!  (I would argue this is at the core of most global conflict since at least 2001.)

I would propose a global developed world corporate tax rate that is collectively agreed upon, that no nation is able to undercut and that completely eliminates the incentive for corporate entities to skirt their responsibility to pay taxes on the profits they make.  It should be a crime for any corporate entity to use gimmicks and supply chain accounting to hide, transfer or otherwise manipulate their profits to avoid paying tax in any given jurisdiction.  Corporate entities should be made to realize they operate via corporate charters that are granted by legal entities in jurisdictions they operate and that part of their allowance to do business and answer to shareholders and the like is an understanding that they have a social obligation to operate their business ethically, pay wages directed by law, pay tax on their profits and understand that the responsibility of the governments they operate under are not free, that caring for the social welfare of the population and investing in the infrastructure that benefits both the corporate entity, their workers and the people they “serve” are all connected.  To act in any way that is contrary to the good of the citizenry where they operate is criminal activity and they risk loosing their corporate charter to operate.  This is to be a rebalancing of the responsibility of corporate entities who operate with the blessing of the state / citizens of the world they operate in with the needs of the citizens governments to finance the social welfare of those citizens.

I would criminalize extraction exploitation on a global scale.  Institute a minimum royalty for all resource extraction including agriculture that would be to the benefit citizens of the nation where the extraction is taking place.  In addition, global environmental / ecological rules would be enforced on any an all companies operating in the extraction industry.  Global resource accounting would identify in real time all resources that exist and international agencies would work proactively with local governments to manage the proper extraction of resources, helping to set up local legal structures and monitoring systems to make sure compliance is universal.

I would set up a global database of every hectare of arable land on the planet and begin working with every government on the planet to establish best use guidelines and practices for the land, encourage the application of agricultural technologies suitable for each region, outlaw the use of any genetically altered seed or product that involves the use of mass pesticides and instead focus on local varieties of  agricultural production that takes advantage of that regions soil, environment, available technology and resources. For the McDonalds or the world that rely on homogenized agricultural products on a global scale, this would be allowed no longer.  Diversity in Agricultural output would be the rule and global homogenization of global food sources no longer encouraged or allowed to be dictated by any one or group of corporate entities for the benefit of their “business model”. 

I would create a global arable land database, inclusive of potential for fisheries and livestock, for every nation / common geographic area taking in consideration of the population of every nation and use all resources available from international agencies to plan and coordinate a strategy to make sure every person on the planet has access to a minimum daily calorie / nutritional allowance of food, with all priorities directed toward efficient local production vs. cheap developed nation subsidized products undercutting the local market’s production.  In this effort, food would be sourced locally as possible, with strategies to manage the import / growth of food sources, emphasis on accomplishing the daily nutritional needs, focus on plant based nutrition vs. animal nutrition and vast application of the best known irrigation / organic fertilization / farming techniques known and applicable for the specific region.  The effort would be coordinated with local governments and composed entirely of local citizens who would be trained, financed and supplied with all the necessary inputs needed to successfully operate i.e.; technology transfer and technological expertise on the ground.  Ideas like the patenting of seed that is not recyclable through the use of seed from the crop grown would be strictly outlawed and everything possible would be done to ensure continued success of all initiatives to meet global nutritional standards.  This initiative would include developed nations where for all intensive purposes, the food abundance and massive waste of the “food industry” that takes place in the developed economies (not to mention the massive “throw away” of food by individual citizens) would be accounted for either financially or otherwise and direct fines would be imposed as a financial penalty that would be used to finance agricultural and nutritional needs in deprived parts of the world.

Every vehicle sold for “personal use” that does not meet a pre-set qualified global standard of emissions, fuel economy, recyclability etc. would be subject to a direct and immediate “tax” that would be used to dramatically expand renewable, non-fossil fuel energy the world over.  This “tax” would also apply to the construction of housing, commercial facilities and be imposed on corporate entities in the business of physical productive activities who do not meet a global environmental standard.  The era of cheap disposable products would be declared OVER.  Every durable good must be repairable, recyclable and meet minimum life cycle requirements, period. 

Every vehicle transportation system in the world would be reworked.  There would no longer be millions of miles of roads that allow any two vehicles to travel at high rates of speed towards each other in opposite directions with nothing but a painted line between them.  The idea that a supposed intelligent race of beings would allow such a thing to happen is bazaar and obscure. To continue to propagate such ignorance is beyond comprehension.  It should have been reconsidered the moment a motorized vehicle came into the hands of a citizen for common use.

There are additional global initiatives I would begin working on and will embellish on later…

Now on to Bernanke’s remarks:

Bernanke Comment on Summers Solution: Larry’s proposed solution to this dilemma is to turn to fiscal policy—specifically, to rely on public infrastructure spending to achieve full employment. I agree that increased infrastructure spending would be a good thing in today’s economy. But if we are really in a regime of persistent stagnation, more fiscal spending might not be an entirely satisfactory long-term response either, because the government’s debt is already very large by historical standards and because public investment too will eventually exhibit diminishing returns.

Well Bernanke puts this well enough.  Now where are the alternative solutions?

Bernanke Learning MIT: As Larry’s uncle Paul Samuelson taught me in graduate school at MIT, if the real interest rate were expected to be negative indefinitely, almost any investment is profitable. For example, at a negative (or even zero) interest rate, it would pay to level the Rocky Mountains to save even the small amount of fuel expended by trains and cars that currently must climb steep grades.

Of course this is true when and if it is expected the investment you make is going to have some utility!!  Hello! The word “almost” is a VERY big word here.  Just because the government could borrow at zero percent vs. say two percent does not clear return on investment make! 

So why is investment at historically low rates?  Clearly, companies operating at the duopoly or oligopoly level, the majority of sectors in the American economy, see the reality.  They are already making or importing products on such a large scale at such a low cost and selling it at increasingly profitable prices, that there is little left for them to do to sell more, thus they just buy back their stock with their earnings (there are plenty of economic models for this phenomena).  Since the collapse of the oil price, not even high energy prices are encouraging them to invest in say plant or energy efficiency right now…  Outside of the technology area, where very low levels of “physical” investment can result in very high valuations and profit margins, and large scale production industries such as Aerospace and Automobiles and for a while areas like oil drilling, shipbuilding and mining, investment is on the decline.

Not enough of the general population have come to realize how much damn money the companies are making selling nearly everything to them at increasingly high developed world prices while their cost of production lies in the underdeveloped world (one of a few emerging exceptions is beer, thank God).  Once people figure out how cheap machine tools are (thank you Alibaba), and how much money they could make producing and selling everything from underwear to peanut butter to house wears without going through the oligopoly retail industry, more people may start investing and producing.  There are already cottage industries all over the US making and selling everything from organic and gourmet foods like ice cream, chocolate and other delectabl's to soap, lotions and other consumables. These people are investing, producing and in some cases growing and building sustainable businesses.  They figured it out.  Perhaps they will make higher quality products and sell for a premium and perhaps their consumers will spend more on quality and less on quantity and this shift will create tens of thousands of cottage industry producers of high quality goods sold directly to consumers who will be happy knowing that consumption of quantity vs. quality was futile and wasteful and degrading to the environment… Who knows?  But it is worth governments putting money and resources behind this initiative.  Education, training, cooperative business starting rules and regulations, flexible labor laws and tax incentives are all worth while.  This might sound pie in the sky like but the potential is there and is happening and has happened on some levels already.  In addition, these cottage industries are “making a living” i.e.; beating the “ wage trap” created by corporate America that limits one’s earn-able income, where lacking a secondary education, being unable to pass the on-line corporate drone psychology test, or being one of the 65 million Americans with an arrest record, means attaining a decent salary is becoming a remote reality. 

Bernanke Note on equilibrium negative real interest rates: I concede that there are some counterarguments to this point; for example, because of credit risk or uncertainty, firms and households may have to pay positive interest rates to borrow even if the real return to safe assets is negative. Also, Eggertson andMehrotra (2014) offers a model for how credit constraints can lead to persistent negative returns. Whether these counterarguments are quantitatively plausible remains to be seen.

Bernanke on bubble instigated full employment: They note that the bubble in tech stocks came very late in the boom of the 1990s, and they provide estimates to show that the positive effects of the housing bubble of the 2000’s on consumer demand were largely offset by other special factors, including the negative effects of the sharp increase in world oil prices and the drain on demand created by a trade deficit equal to 6 percent of US output.

It’s a crazy idea that only at the end of a cycle do we have a “bubble” hence the cycle is not a “bubble” cycle… Let’s just say that with any idiot with no formal economic education could see the severity of cycles in the economy over the last 30 years or so were all financial in nature, driven by Wall Street gamblers and speculators, and all involved bubbles in various sectors of the economy.  The latter part of the 1980’s, 1990’s and 2000’s were all cycles that at the end of each, resulted in massive transfers of wealth to the top, exaggerated more intensely each time, with each cycle involving ever increasing amounts of debt held by both households and industry (and government with the exception of the late 1990’s balanced budget on the Federal level, a gift horse for an aging nation that was quickly squashed by the reckless and mindless policies of the Bush presidency) and ever more drastic measures taken by the central banks to “smooth” over the excess without allowing or forcing structural change.  In fact  more effective regulation, resulting in ever larger bubbles and collapses.

The time has long since come for the trillions of dollars in unregulated financial capital sloshing around the world looking for “yield” to be reined in, shut down, regulated and or completely disbanded and forced into productive use.  The money being printed by the central banks is pointless.  There is plenty of money, it is all highly levered into “financial instruments”, being recycled through the revolving buybacks and subsequent stock purchases and being used to gamble and speculate. The Trillions of “wealth” tied up in pointless paper and derivatives instead of being put to productive use is at the core of the lack of investment on a global scale.  Using money to make money without ever producing anything tangible never ends well. 

What the central banks did during and after the credit crises and continue to do today will be marked as the biggest mistake in human history.  The global credit “reset” had started back in 2007-09.  This was badly needed.  The ONLY money central banks should have printed was that which was lost through the insolvency of nearly all major banks by actual individuals and companies who had stored money in insured bank accounts.  The bailing out of money markets, which nearly all had been so mismanaged they were essentially on their way to offering an unprecedented “haircut” of several percentage points or even more to the individuals and institutions who kept trillions of dollars stored there was a huge mistake.  Recapitalizing insolvent overly levered banking conglomerates was a huge mistake.  Handing trillions of dollars to bank and non-bank institutions with explicit instructions to provide liquidity to the multi-trillion dollar unregulated hedge fund and private equity markets was a huge mistake. Allowing dozens of insolvent non-bank financial companies, from credit card issuers, to Wall Street institutions to commercial and individual credit companies to become bank holding companies to give them access to Fed funds was a huge mistake.  All the Central Banks have accomplished, is to allow trillions of dollars in levered “financial paper products” to remain in circulation, then allow the debt bubble to inflate even further along with the derivative markets.  Printing ever more money is only aiding and abetting the continued accumulation of non-productive leverage for no good reason! 

As of this writing the amount of outstanding bond debt of American Corporations has literally doubled since 2008 making total corporate debt now nearly 80% of US GDP, the value of non-revolving debt held by Americans has gone up by over 2/3rds, the approximate value of financial derivative products has grown by at least 1/3^rd bring the total global exposure to over $700 trillion! Meanwhile the debt burden assumed by the non-presumptive citizen pawns through their irresponsible governments as they protect the “wealth” of the elites has grown exponentially as well (8 trillion or up 80% from 10 to 18 trillion in the US alone). 

It is 2015 and the global financial system functions more like the 19^th century from the perspective of capitalistic games between gambling men who wield their financial power from the small financial centers of the world, where nobody is held accountable, money floats around with no national allegiances or responsibility to any citizens on the planet and where humanity is just considered fodder for making as much money as possible.  Crash a currency, sure, inflate a commodity, sure, crash a commodity, sure, flood a market with short term cash, sure, suck the cash out overnight, sure, it simply does not matter what destruction these actions wrath on humanity as long as the global elites make their desired 8-10-15-20-25-30% or whatever they can on the backs of whoever they can for whatever reason. God forbid any nationality try to tax them for what they do! Meanwhile “economists” sit around trying to recreate economic models by studying the behavior of people in villages in remote areas of Thailand.  Yea, a whole lot of good this does the global economic system! 

Bernanke Academic statement is not worth salt. He says, “The foreign exchange value of the dollar is one channel through which this could work: If US households and firms invest abroad; the resulting outflows of financial capital would be expected to weaken the dollar, which in turn would promote US exports.”  What a load of academic hogwash.  Is he aware that the entire global financial system is currently rigged?  To go back to some academic economic model that assumes a “normal” functioning economic system, where the “exchange value” or the dollar would be affected by his suggested actions is INSANE.  He is talking out of the side of his mouth! The EU and Japan are both highly manipulating their exchange rates through massive monetary policies.  Does he really think “US households” are capable of anything other then borrowing as much money as humanly possible at very low rates and consuming as much as possible now?  This is exactly what the central banks are encouraging!! They are not encouraging “saving and investing”!! Besides, for the last 30 years or so, all US firms have done is invest abroad!  They have built or shipped wholesale factories and production “abroad”.  They have expanded their operations, purchased companies, transferred their monopoly rents, outsourced massive amounts of their production (Boeing anyone?), moved wholesale their customer service operations… basically every possible way under the sun American companies have “invested abroad”, many times to the detriment of the local economy (telecom companies buying assets around the world with their monopoly rents while the biggest thing to ever hit the telecom world grew like mushrooms in their back yards in the 1990’s, hello!). And what is happening to the dollar?  Does this man even know that the dollar is a “reserve currency” where it really does not matter what the US Fed reserve thinks it can do to “manage” the economy.  The reality is there is no measurable amount of fiat currency that can be printed to bail out the global debt bomb that burst for a minute in 2008/9 and will burst again imminently.  There are almost no policies that can be “initiated” that will have predictable effects on exchange rates / investment / consumption etc. when every “developed” nation’s central bank is pursuing the same reckless debt expansionary policies.  Just forget about it!

And this is Bernanke’s hilarious example: “For intuition about the link between foreign investment and exports, think of the simple case in which the foreign investment takes the form of exporting, piece by piece, a domestically produced factory for assembly abroad. In that simple case, the foreign investment and the exports are equal and simultaneous.” 

(WTF?  If exported our factories as “investment abroad” what good would it be to have a lower exchange rate?  We would not be producing anything any more to make the lower exchange rate work for the good of the economy!!  We would be importing finished products made in foreign countries with the factory we exported to be purchased by people making a dwindling amount of money from shitty retail wages. Sound familiar?  Where do these guys get their common sense?). 

Irrespective of whether the company is a US company or not (think Apple making $600 phones overseas and importing them to the US instead of making them here, keeping both the profits and production out of the US) we have been gutting our economy for decades while at the same time exporting our technological know-how (and even our lower productive factory machinery as Bernanke suggests) and now every nation in the world is “exporting” everything back to the US, which is just churning the same money over and over, bubble to bubble, debt to debt, to buy the products with ever dwindling amounts of income allocated to the largest historically economically strong segments of the economy while each churn turns over another huge chunk of that pie to the richest 10% who are in the position to benefit from the debt/churn machine.  I truly love when academics set up “examples” that expose how clueless they are to what they are saying or how inappropriate their examples are.

Notes:

1)      How many more people would care to drive through the Rocky Mountains if they were leveled for a road through?  Would there be any increase in productivity from the mountain pass?  Would the savings on fuel actually lead to any social benefit that is measurable or would it just leave a little more money for the person driving to be able to buy a hot dog and coffee on the way?  How would the government ever see a return on such expenditure?  Would the expenditure’s short term multiplier effect have any lasting benefit?

2)      per year: 35,000 average shares exercised, 7425 exercises, $24.88 average profit/share 1996-2003

• On a Side Note:

From article:

Time preference reflects the relative valuation placed on goods at an earlier date versus a later date. While current goods (including cash) should always have a higher valuation than future goods, time preference declines as an economy becomes wealthier, i.e. the proportion of income devoted to current consumption falls versus that devoted to saving/capital accumulation.

On one hand, their policies seek to increase current consumption, at the expense of long-term saving & capital accumulation, in an over-leveraged world. This increases time preference and would normally equate with higher interest rates, shortening time horizons and diminution in wealth.

However, by forcing down interest rates, the substitution of savings (real wealth) by cheap credit and by supporting financial markets, they have created an impression that time preference is lower than it really is. This lengthens time horizons, implies that current/rising consumption levels are more easily sustainable and induces incorrect spending decisions. (Basically creating a “new normal” in expectations)