Friday, August 28, 2015

IF I COULD ASK PAUL KRUGMAN (OR JANET YELLEN, OR ...) ONE QUESTION



There is a scene in the movie True Lies where action-hero Arnie Schwarzenegger gets a shot sodium mannitol to force him to speak truth and answer questions. If I could ask Paul Krugman, Janet Yellen, Ben Bernanke and others like them one question with them being under the influence of sodium mannitol, I would ask each of them one question:

What is it like being wrong even when you sleep?


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U.S. PROPAGANDA ROLLS ONWARD. Q2 2015 DISPOSABLE PERSONAL INCOME SHRANK AT THE ANNUAL RATE OF -2%

Yesterday's, pro-government workers at the Bureau of Economic Analysis promoted their fiction that "real" GDP is now growing at the annual rate of 3.7% when in truth, the economy shrank -1.5% (see: Q2 2015 GDP FIRST REVISION. THE FICTION OF 3.7% "REAL" ANNUAL GDP GROWTH), the story for individuals gets even worse.





Personal income shrank at the annual rate of -1.9% as measured in the second quarter.






Of those who work for a living, the hardest hit have been shopkeepers, restaurateurs and other proprietors whose income ex-inventory and capital depreciation shrank at the rate of -2.3%. The next hardest hit have been wage-earning workers whose compensation shrank at the annual rate of -2.2%.



Of everything, unemployment insurance payouts have shrunk the fastest, falling at the annual rate of -8.1%.




Likely, for those who are lucky enough to stumble upon my work, there are some, maybe even many, who doubt my True Dollar™ method. Owing to cognitive dissonance, they feel the need to defend the lies they accept from politicians, agents of Congress, academics and news media talking heads.

That doesn't bother me whatsoever. My graphs do the ultimate talking. My graphs consistently line up with reality, the reality of everyone's experiences.  Reality never lines up with the claims made by agents of Congress like those of the BEA and agents of the President along with the data and charts they present.




If you look at the Personal Rental Income, and if you thought about what happened after the peak of the Greenspan-Bernanke Great Inflation, the biggest credit bubble in the history of mankind, you would expect rental income to go up as millions of Americans defaulted on their mortgages and reverted to living in rentals. My chart shows that exactly.




Sometimes, confusion hits many because they see that welfare doled by Congress has fallen. They would expect such welfare to have risen during tougher times. In current dollars, that welfare spending rose, but in True Dollars™, that spending fell. Why welfare collectees didn't notice because True Dollars™ prices for the things they buy, like food, have fallen at a faster rate.




If you look at the Unemployment Insurance Income chart, and if you thought about what happened after the peak of the Greenspan-Bernanke Great Inflation, the biggest credit bubble in the history of mankind, you would expect unemployment income to go up as millions of Americans found themselves out of work. My chart shows that exactly.  Now that claims have been exhausted, payouts for unemployment insurance have fallen precisely because there are few left who qualify to make claim for benefits. My chart shows that exactly as well.




These Medicare and Medicaid income charts match reality as well.





You should tell all your family, friends and co-workers about Bizarro Theater. You should stop listening to the silliness propagated by academicians, politicians and those who work in financial news media.

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Q2 2015 GDP FIRST REVISION. THE FICTION OF 3.7% "REAL" ANNUAL GDP GROWTH

Minions at the Bureau of Economic Analysis claim that real gross domestic product is now growing at an annual rate of 3.7% as measured in Q2 2015 after a statistical revision from a number published a month ago. Their claim is pure fiction.

These minions deflate current GDP using a past inflated GDP. Ask yourself, how could that work, logically?

True GDP expressed in True Dollars™ tells an altogether different story. As you can see in the chart, True GDP is down -1.5% for the quarter and -4.4% year over year.




The only growth to be seen is growth in inventories. No one should want a growth in their inventories in a just-in-time world.

Mark my words. Black Friday is going to expose all of the phony numbers published by agencies of Congress, like the Commerce Department's BEA. In True Dollars™, total consumer credit relative to disposable personal income is too high. I shared the chart for that with you in THERE STILL IS NOT A RECOVERY SEVEN YEARS LATER. HERE IS WHY, PARTLY.





Americans continue to live in the Greatest Depression. Likely, there is world wide depression as the Chinese have now entered recession as I have shared in Q2 2015 CHINESE GDP REVEALS THE CHINESE ECONOMY IS SHRINKING. THE CHINA MIRACLE HAS COME TO AN END.





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Sunday, August 23, 2015

Q2 2015 CHINESE GDP REVEALS THE CHINESE ECONOMY IS SHRINKING. THE CHINA MIRACLE HAS COME TO AN END.

Many claim workers for the National Bureau of Statistics of China (NBSC), the statistical agency of the National People's Congress of China fudge the GDP numbers for China. Their belief is so pervasive that articles about whether these workers fudge numbers or not has become regular journalism fodder. Chinese premier Li Keqiang fueled the fudged data beliefs of many when he said GDP data is "man-made and, therefore unreliable".



Back on July 15, 2015, the Economist.com published Whether to Believe China's GDP Figures. The writer of that work claims workers for the NBSC smooth the data rather than fabricate it. As well, the writer points readers to a work published by Quartz whose writer, Gwynn Guilford, mocks the latest NBSC GDP data, calling it a "charade."

Back on March 25, 2013, three workers of the Federal Reserve Bank — John Fernald, Israel Malkin, and Mark Spiegel — stated, "...reported Chinese output data are systematically related to alternative indicators of Chinese economic activity. These include alternative indicator indexes of Chinese activity composed of variables that are less susceptible to official manipulation, as well as externally reported trade volume measures. Importantly, these models suggest that Chinese growth has been in the ballpark of what official data have reported. We find no evidence that recently reported Chinese GDP figures are less reliable than usual." In short, Fernald and friends claim there isn't any unusual fudging of data by Chinese statisticians.

The Conversation published a work by an economics professor, Carsten Holz. In the work, Holz quoted a former NBSC official who said, “the government statistics organisation primarily serves the needs of macroeconomic decision-making of Party and government leaders at each administrative level, and is responsible to the Party and government leaders at each administrative level.” That said, Holz himself wrote, "Double-checks more often than not confirm the plausibility of the official data. In other words, if we make a reasonable comparison between the figures for real growth in GDP components against the actual volume of physical output, then those official real GDP growth rates look rather good."

In China GDP: Believe It or Not?, Leslie Shaffer of CNBC quoted a few men regarding their views on the veracity of second quarter 2015 data. Some take the data as truth, some do not. Still others say it doesn't matter because the Chinese economy is growing. A few of the guys might have it right, Adam Myers, senior market strategist at Credit Agricole; Ewen Cameron Watt, chief investment strategist at Blackrock Investment Institute; Brian Jackson, China economist at IHS Global Insight; and Patrick Chovanec, chief strategist at Silvercrest Asset Management.

Myers said, "You only have to look at commodity prices to see that there's a disconnect with what the official Chinese data is showing and what really the demand in the underlying economy is having for things like raw materials. We've been talking about that for months and still the Chinese data remains relatively solid, but all the underlying anecdotal evidence points to a much deeper slowdown in China. Put on top of that the wealth and credit effects that we've seen through the Chinese stock markets in the last couple weeks, a much larger deterioration appears to be on the cards than the official data would indicate."

Watt said, "If you really want to get the measure of what people think about China, go look at commodity prices, go look at the Aussie dollar, go look at employment in Australia. It's telling me the economy is slowing down," he said. "There's a huge oversupply because of the assumption the fixed investment boom is going to last forever."

Taking the GDP data as truth from the National Bureau of Statistics of China and expressing that data in True Dollars™, the Chinese economy shrank -1.0% from the second quarter of 2015. Already, the Chinese economy had shrunk 3.16% in the first quarter of 2015. Year-to-quarter, the Chinese economy has shrunk 4.1%.

And while the Chinese economy has grown 9.1% over the last five years, the Chinese economy has shrunk -5.4% since hitting peak GDP at the end of Q3 2013. So, it's likely a safe call to say the Chinese economy is in recession. It remains to be seen if the recession runs into a depression.



Looking at the graph above, the Q3 2008 dip into Q1 2009 should surprise no one as that came during the US and European Banking Crisis. The Chinese economy shrank -7.7% during that period.

Since Q2 2011, Chinese economy has fallen -2.79%. This should surprise no one. And if all gave earnest thought to the above, they would come to see that it makes sense.



Exports account for a bit more than one-fifth of Chinese GDP (22%). If economies of Chinese importers are slowing, how can the Chinese economy not also slow? 47.8% of Chinese exports go to these countries: USA (19%), Japan (8.3%), Germany (4.4%), UK (2.5%), Mexico (2.4%), France (2.3%), Russia (2.3%), Canada (2.3%), Australia (2.0%), Nederlands (2.0%). Poorer Americans and poorer Europeans can't buy Chinese goods even at low, Chinese prices.

Back on July 8, 2015, Michael Auslin writing for the New York Post claimed the China economic miracle is over. Auslin pointed to the 30% plunge in stock prices between May and July, 2015, after a 140% run up between July 2014 to July 2015, a plunge that wiped out $3 trillion from stocks as "more evidence that China’s high-flying days are over." In his work, Auslin mentioned Derek Scissors, a resident scholar at the American Enterprise Institute (AEI) who focuses on the Chinese and Indian economies. According to Auslin, Scissors supports the belief that economic growth in China has essentially stopped.

In a work by Scissors published by the Financial Times on August 21, 2015, Scissors stated, "China’s economy began weakening no later than 2008, and probably before. A temporary upswing starting in late 2009 and continuing into 2010 was due to an unsustainable, unwise, and unprecedented explosion in debt. From 2011 on, ups and downs in the global economy have not been due to ups and downs in China – the trend in Chinese performance has been invariably down." As you can see in my graph above, Scissors hunch is right. Scissors has another worthy read, China’s Stall, published on June 17, 2015, by the American Enterprise Institute.

On August 16, 2015, Foreign Affairs published China Hits the Wall by Salvatore Babones. Babones stated that, "[t]hree and a half decades of easy profits from one-way bets on China's reintegration with the outside world have come to an end."

Babones believes a crisis is coming to the Chinese, a crisis driven by administrators at all levels of the Chinese government failing to meet their financial obligations owing to demographic stagnation, capital flight, and the decision in 2013 to give the market a decisive role in Chinese economic development.

In the work, Babones suggested that China escaped the 2008 U.S. And European Commercial Banking Crisis even though the Chinese suffered a 16% decline in exports year-over-year 2009 to 2008. To offset that decline, Babones stated that executives for Chinese law givers spent $586 billion on airports, subways, and high-speed rail.

Way back on October 21, 2014, The New Yorker published Is the Chinese Economy About to Fall Off a Cliff, a work by John Cassidy. Cassidy cited a Conference Board work by David Hoffman and Andrew Polk in which Hoffman and Polk wrote, “Private sector debt, now at almost 200% of GDP and up from 117% at the end of 2009, is still accruing at 15 percentage points per year...[debt is]  well in excess of the thresholds that have historically triggered financial crises in other countries.”

The other day, Carlo Cottarelli, an executive director of IMF, went on record and said, "Monetary policies have been very expansive in recent years and an adjustment is necessary...It's totally premature to speak of a crisis in China." In so many words, Cottarelli has said that too much credit has been given.

Here is what I teach about any crisis and panic. A crisis arrives when too much property of futurity has been created and not enough profit arises from sales of property happening in the now. When true prices fall, margins get squeezed on extant capital. When enough dominoes of failing topple, all get pushed to panic.

A crisis begins with a sudden realization of epic loss. It's the movement of mind from uncertainty (50-50) to certainty (100%) and 100% probability of loss on a wide scale. A crisis begins when all those who have undertaken too much credit for trade find themselves lacking income from extant capital structure sufficient to service debt. All too often, they have overpaid for their capital structure.

Every crisis has the panic part. Panic is the scramble for the exits. Panic is the rush to exit credit positions. Crisis is the storm. Panic is the scuttling during the storm.

There has yet to be an economy derived from bank credit, especially one with bank credit as legal tender whose people haven't found themselves with too much credit relative to forthcoming expected profits. When the Chinese create too much property of futurity (credit) relative to property traded at profit in the now, the Chinese will experience crisis. This downturn in the Chinese economy could be the turning point when the Chinese find out they have paid too much for too many factories from which they cannot earn profits.

Clearly, the Chinese needed to embrace banking credit capitalism to lift 600 millions from bare subsistence poverty because Mao communism could not do it. Mao communism previously starved to death their ancestors.

Unfortunately, the Chinese Communist Party leaders likely won't let market forces remedy the excessive creation of property of futurity. Likely, the Chinese will pull a George Bush who said infamously (watch on YouTube), "I've abandoned free market principles to save the free market system."

The recent sodium cyanide industrial explosion accident in Tianjin that leveled blocks, blowing up thousands of new cars awaiting delivery and sadly killing over 100 might turn out to be symbolic of the blow up that could be happening in the Chinese economy.


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Friday, August 21, 2015

THERE STILL IS NOT A RECOVERY SEVEN YEARS LATER. HERE IS WHY, PARTLY

Economists seem slack-jawed to explain why there has been little in the way of a recovery after seven years of Bernanke-Yellen near zero interest rate policy (ZIRP) along with the crazed sum of cash accretion owing to Bernanke's failed academic exercise of Quantitative Easing.



As can be seen in these charts, in True Dollars™, disposable personal income is way down. Likewise, wages and salaries are way down.






And it should be no surprise that consumer credit has fallen as all credit in the has fallen substantially. That great deflation is resultant of the first cause, the Greenspan-Bernanke Great Inflation, the greatest credit bubble in the history of mankind.







Most academician eggheads in the field of economics believe that many Americans paid off their debts in what they call merely a "recession,"  as if it were an ordinary recession. So these eggheads wonder why Americans aren't now spending since also they believe a recovery has been underway since 2009.

And these two charts say thousands of words. While both incomes and credit have fallen, Americans have taken on ever more credit to maintain semblance of the lifestyle they once enjoyed during the boom phase of the Greenspan-Bernanke Great Inflation, the greatest credit bubble in the history of mankind.






Consumer indebtedness has increased during the Greatest Depression. That should surprise no one. First Bernanke and then Yellen made borrowing cheaper than acquiring income. And as massive unemployment pushed wages downward, those with income falling at a slower than credit opted for credit to make up for their buying power shortfall.

Falling true incomes and rising true indebtedness is a recipe for disaster.

Many call the day after Thanksgiving in the USA, Black Friday, because it is the day retailers are supposed move from losses to beyond breakeven and thus enter black into their accounting ledgers rather than red for losses. Don't count on it this Christmas retail shopping season.  I wonder if bears plan to short major retailers soon.

It doesn't seem likely that Americans can take on much more debt prudently.

For more of why, check out ZIRPED! BERNANKE AND NOW YELLEN HAVE FELLED CAPITALISM. VOLKER WAS RIGHT ON HOW TO DO IT.

I happen to live in a fairly well-to-do city, which happens to be home to a big biotech firm. Since the Banking Crisis of 2008 and the subsequent reckoning of the Greatest Depression, even my city has been touched. Seedy massage parlors popped up all over the main shopping boulevard like festering sores. Some have taken to living in illegal RV parks hidden behind fences on larger parcels.

The Greatest Depression keeps rolling along.

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Sunday, August 9, 2015

ZIRPED! BERNANKE AND NOW YELLEN HAVE FELLED CAPITALISM. VOLKER WAS RIGHT ON HOW TO DO IT.

Today, the Telegraph UK published a work by Liam Halligan, Raising rates is trickier now that QE is a lifestyle choice.

"Since the financial crisis, QE has morphed from a just-about-justifiable emergency medicine, into a grotesque, self-serving lifestyle choice of our financial and political classes ... for many years now, QE has been less about crisis management than about pumping up equity and government bond prices to levels that belie underlying economic and fiscal realities.
QE, and the closely related policy of keeping interest rates nailed to the floor, has sent stocks to repeated all-time highs despite the lack of truly convincing recovery either here or in the US. It has allowed busted “zombie” banks that should have been thoroughly audited, rendered insolvent, then closed down and broken up, to keep trading."

Central bankers (CBs) have backed themselves into corners. In effect, through their near-ZIRP, CBs have severely harmed capitalism, if not mortally wounding capitalism for all time.

If CBs raise rates, there can be few new entrants in markets. How can would-be enterprisers compete? At higher rates, would-be new entrants would pay more for their capital relative to enterprisers operating with capital bought on credit at lower rates. Without new entrants, what will cause job growth?

CBs aren't smart enough to know what rates should be for millions of borrowers making many times more decisions about their daily lives. If central bankers knew what rates should be, never would there be banking crises such as the 2008 Banking Crisis.

The time to have raised rates long since passed — 2008 to 2009 — when speculation ran rampant. Rates should have been pushed high, blisteringly high between 2008 and 2009 to force many into bankruptcy. Such a policy — the right policy — would have bankrupted all of the shakiest of firms, culling the herd  while at the same time, protecting extant capital bought at higher rates of credit.

Instead, CBs Ben Bernanke and Janet Yellen have kept alive a sickly herd of bad enterprisers who have built edifices of bad businesses upon low interest rates during the Greenspan-Bernanke Great Inflation (1994 to 2008), the biggest credit bubble in the history of mankind.



The results of the Bernanke-Yellen near-ZIRP should surprise no one. Near-ZIRP has led to massive job cuts as enterprisers reduced their expenses to restore ROI on extant capital structures. Near-ZIRP has led to little borrowing and few new entrants since few can foresee expected future profits forthcoming from high true unemployment (7.57% as of today).

Worst of all, Bernanke-Yellen near-ZIRP has led to a massive decline in the economy, a decline that has gone unabated more or less since peak GDP of Q4 2007.




First under Bernanke and now under Yellen, CBs have engaged in an exercise of academic stupidity. Their beliefs run counter to real-world commerce driven by actual capitalism.

Paul Volker had it right between October 1979, and October 1982. When bankers ran amuck with bank credit, rates need to be pushed to the ceiling. Volker did that exactly by targeting the quantity of bank credit rather than the price of bank credit. Targeting bank credit, the federal funds rate reached a record high of 20% in late 1980. Consumer prices growth rate (wrongly called "inflation" by many) peaked at 11.6% in March of 1980.

William Poole, the eleventh chief executive of the Federal Reserve Bank of St. Louis (March 23, 1998 to March 31, 2008) had this to say, Volker's action:

How bad was the period of the Great Inflation? The inflation rate, a mere 1 percent in 1965, hit 14 percent by 1980. Unemployment trended up from a low of 3.5 percent (annual average) in 1969 to 9.7 percent in 1982. The stock market was in the dumps. Oil prices jumped off the charts. Presidents Richard Nixon and Jimmy Carter became desperate enough to tinker with price controls, the results being disastrous.
Volcker, in office only two months, took the radical step of switching Fed policy from targeting interest rates to targeting the money supply. The days of "easy credit" turned into the days of "very expensive credit." The prime lending rate exceeded 21 percent. Unemployment reached double digits in some months. The dollar depreciated significantly in world foreign exchange markets. Volcker's tough medicine led to not one, but two, recessions before prices finally stabilized.
Before Volker, the meddlers of Congress mandated that Federal Reserve CBs set targeted growth rates for circulating bank credit (wrongly said as "the money supply") and report on their success or failure. To try to meet the foolish mandate, using an unscientific approach, Fed Res CBs kept the federal funds rate within a narrow range.

And contrary to popular belief, incoming President Reagan and his treasury secretary Donald Regan did not like Volker's policy. Regan said, “What I am suggesting is that if (bank credit growth) stays here, you’re going to have a severe recession.”

By the summer of 1982, the recession hit bottom even though the active job seekers rate as a percent of workers and job seekers, the so-called unemployment rate, hit a peak of 10.8% in late 1982.  By 1983, the CPI had fallen to 3.7%. It had taken Volker three years to fix the economy on a sustained path of growth.

Raising rates to heights rapidly kills off bad business while protecting the capital structures of enterprisers who have built firms upon firm ground. Near-ZIRP destroys returns to capital bought on credit borrowed at higher rates for existing firms.

Interest rates ought to be set in futures markets by many players. In the abstract, futures markets are risk-reducing mechanisms, which curtail glut and prevent shortages.

Interest rates set by futures markets would see rates fall when the economy can handle the creative destruction forces of new entrants with superior technology pushing out the inefficient while at the same time producing sufficient returns to capital





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Tuesday, August 4, 2015

TWITTER AND GOLD. MY 2014 FORECASTS BECOME REALITY. BECAUSE ... I AM RIGHT


Most often, I am not one to brag, but because there are too many hustlers, scam artists and shills out there distorting reality, staging their Bizarro Theater plays, cajoling the innocent with their blather about gold and Twitter, I have decided to share this with you.

Here, here is a nutshell is what I wrote about in my forecasts:

  1. There are no drivers for gold, none.
  2. Twitter has horrible business design — expenses outpace revenues by a wide margin.
In current dollars, Twitter is down -59.8% from the December 26, 2013, peak of $73.31. The annualized loss on Twitter is -43.3%.

Many might not believe so, but likely, Twitter is a fad that has passed. Those 15-24 have taken up Line, KIK, Viber, Whatsapp, Snapchat and Instagram.

Read the forecasts from 2014:

Gold



Twitter

Because I know the true price of things, that is, the price of things in True Dollars™, I can see pricing relationship among things that many others cannot. In short, they are truly clueless and if you believe them, you are letting them lead you into the deepest caves without any flashlights or torches.

Soon, you can gain access to all my real-time charts priced in True Dollars™.

So what is the bottom line? Americans are living in the Greatest Depression. Credit continues to fall. Law givers in the USA demonetized gold last century. For all practical purposes, money — coined metal by weight and fineness — has not been used for more than a century.

Unless anyone believes in worldwide collapse, gold will be what it is, a rarer metal with industrial and commercial purposes only.

Some of the most popular blogger and YouTube personalities tied to the speculating business with the word Pacific in their business names shill for gold. Their incomes are tied to brokering gold, mostly selling it. And only one of those personalities actually has a background in finance.

So once again ...


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