THEY TOLD YOU SINCE 2009 YOU ARE LIVING THROUGH A RECOVERY. HAVE YOU HEARD THE TRUTH? COMMERCIAL PAPER SAYS NO.

American businessmen haven't been offering up commercial paper for discount for years. That means there is no growth and no confidence in the future.

The discounting of commercial paper by commercial bankers and the re-discounting of that paper by Federal Reserve district bankers is a major aspect of commercial banking under the Federal Reserve system. When commercial paper discounting is on the decline, so too is the economy.

Over at the True Dollar Journal, you can see the true state of commercial paper. Checkout WEEKLY COMMERCIAL PAPER REPORT FAILS TO SHOW ANY MEANINGFUL RECOVERY.

That no one else has reported this reveals no one else understand economies and commerce. And clearly, those who have failed to report this don't understand commercial banking.

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COMMERCIAL BANK CREDIT FALLING STILL. REPORTS OF A US ECONOMY EXPANSION ARE WRONG.

Commercial banking has been the mainstay of the economy since the mid 1800s. When bankers extend enough of their bank credit, takers produce more in hopes of earning profits. Most times, under prudent credit lending, the economy expands.

In the days of money — coined metal by weight and fineness — bank credit expansion was easier to detect as ever more bank notes would circulate from banks of issue. When prices would get pushed up quite high, prudent men knew that a bank crisis would be forthcoming.

Today, it's much harder to see such things as no one has money. Today, everyone only has cash, which is evidence of deposits in circulation, as well as deposits that can get negotiated by check or so-called electronic transfer.

When commercial bank credit is falling, there is no way the economy could possibly be expanding. And yet, true credit is falling while politicians and Federal Reserve bankers tell you an expansion is underway.




The commercial picture doesn't look good.






The consumer picture looks as bleak.





Residential realty looks bad. Likely, it's a great time to buy a house, if you can as true prices likely are quite low, historically.


In fact, the whole realty part of commercial banking is quite bad.

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THE U.S. CONGRESS HAS WRECKED COMMERCIAL BANKING

For those who need a bit of intel about accounting, a balance sheet tells anyone what is owned and what is owed, that is, what are the assets and what are the liabilities. The third part of a balance sheet is the sum invested by shareholders, which all call shareholders' equity

The firm's operator pays for assets by either borrowing (liabilities) or paying for it from the shareholders' stake.

The name said of property, which can sell at street prices to pay off debt, is an asset. When this same property is put to production in pursuit of profit, the name said of property is capital.

Always, property is the right of ownership in something and not the actual thing itself. In the reality of commerce, all anyone ever does with another is buy and sell the right of ownership in something for the right of ownership in something else.

All too often, mistakenly, most believe they are buying milk when they buy milk from a supermarket. Rather they are buying property in some milk while at the same time taking possession of some milk in which they have the exclusive right  of ownership.

Every firm can have a balance sheet. If we look at all commercial banks as one entity, we can look at the balance sheet for commercial bankers. Conveniently, statisticians at the Federal Reserve do that for us.

Far too many believe that bankers are a risky lot, driven by never-a-care greed. However, because most don't know one whit about commercial banking, they don't how banking works at all.

Bankers structure their assets so they can make good on liabilities they have undertaken in doing business. Most of these liabilities are known as demand liabilities, which are payable in cash on demand. A typical demand liability is a checking account.

By keeping as low as likely the sum of cash on hand, bankers can engage in profit-seeking activities. So what bankers do is acquire assets with known maturities. Bankers stagger these maturities in such a way that liabilities can get met when such come due.

In short, rather than holding cash in vaults, investment assets of bankers become their primary reserve. Traditionally in banking, especially in the days of money — coined metal by weight and fineness, most often gold — the liquidating reserve assets were commercial paper.

In SEVEN YEARS LATER, WHO IS TO BLAME FOR THE CREDIT CRISIS CAUSED BY THE RESIDENTIAL REALTY BUBBLE? THE U.S. CONGRESS, I revealed how through the years, successive U.S. Congresses created Government Sponsored Enterprises (GSEs) — Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Agricultural Mortgage Corporation (Farmer Mac) — which bundle up mortgages into securities known as mortgage-backed securities (MBS) and hire investment bankers to broker those securities.

These Congress-authorized securities have ended up constituting an ever greater portion of bankers' primary reserve assets.

Between Q4 1972 and Q3 2014, Bankers' Full Risk grew at a yearly rate of less than one percent (0.4%). During the same period, Bankers' Reduced-Risk grew at a yearly rate of 3% and Bankers' Risk-Free grew at the yearly rate of 1.6%.





As you can see in the chart below, today, bankers' assets consist almost equally in thirds of Full Risk, Reduced Risk and Risk Free assets.




Since the 1970s, bankers have become far less risky precisely because U.S. Congresses have been subsidizing bankers' risk through a twisted process.

Bankers lend to individuals who buy houses on credit. Congress, through its agencies, buy those mortgages. These agencies create mortgage backed securities and hire investment bankers to sell those MBS.

Bankers then buy those MBS from the U.S. Congress, effectively buying back the mortgages they made. Now though, the sum of those mortgage payments become an income stream guaranteed by Congress.

In short, successive U.S. Congresses have so distorted the economy, spurring on excessive house building through buying mortgages from bankers and then backstopping bankers that two-thirds of bankers' assets more or less lack significant risk. A third of those assets have a direct U.S. Congress guarantee.

The members of successive U.S. Congresses could not get away with what they do without the current, flawed design, wrecked by the 71st Congress. For more on that, you can check out HATERS OF TEAM ELEPHANTS FOOLISHLY BLAME THE RICH FOR THE LOSS BY TEAM DONKEYS. OTHERS BLAME OBAMA. NONE HAVE IT RIGHT. HERE IS WHY.

The wrong story of what happened in the Banking Crisis of 2008 that led to the Long, Slow Collapse of 2009 to 2014 blames bankers for taking on too much risk precisely because of the. Even the members of the Financial Crisis Inquiry Commission claimed the banking crisis arose from "widespread failures in financial regulation and supervision." 

But the balance sheet of bankers tells another story, the true story. The U.S. Congress alone is to blame.

Risk-Free assets consist of fully-guaranteed U.S. Treasury and U.S. Agency securities, cash and interbank loans fully-guaranteed by the Federal Reserve.

Reduced-Risk assets consist of realty loans and other collateral of physical assets.

Risk assets consist of other securities, trading assets, commercial and industrial loans, consumer loans and all other loans and leases.

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WHY ISN'T THE ECONOMY DRIVING ANYWHERE? THE CAPITAL ENGINE LACKS FUEL!

So I've been spreading foreboding of late, first with  IT'S LOOKING LIKE MORE RECESSION IN THE U.S.A. IN 2014 and then with S&P 500 MINI-MANIA HITS. 24% CORRECTION OR 42% CRASH UPCOMING?

And now I've had a look at where producers stand with their mixed-use capital and their circulating capital. Specifically, I've looked at commercial and industrial loans gotten from commercial banks and asset-backed commercial paper.

Those who understand financing of trade, businessmen tend to use loans to acquire property in capital retained through time subject to known loss. The known loss is known as depreciation and the name given to that kind of capital is fixed capital.

Businessmen tend to seek accomodation of property in credit receivables they hold against debtors. Such property put into negotiable instrument form is known as commercial paper. Businessmen use property in deposits, otherwise known as wealth, gained from having their commercial paper discounted by a banker, to pay expenses. In so doing, they transmute wealth into capital.

Here's the fixed capital picture.



It's hard to get a good idea of what this should look like over long time as the data set goes back only to 1985. That said, it appears that businessmen go through periods where they build up fixed capital to generate sales.


Here's the circulating capital picture.




And here is what fixed capital and circulating capital look like together.



It appears that true asset-backed commercial paper gives a good indicator ahead of what producers plan to do toward fixed capital acquisition.

Yet what is most troubling is what I call the Capital Engine ratio. Let's have a look.




Think of fixed capital as a car engine and circulating capital as the gasoline. Right now, there is $6.09 of fixed capital loans to $1 circulating capital. 

Before Q3 2007 peak credit, the Capital Engine ratio averaged $1.34:$1. Since the banking credit collapse and following crisis, the Capital Engine ratio averages to $3.22:$1. The Capital Engine ratio has grown a whopping 459% since peak credit.

In short, there isn't fuel, petrol, gasoline to power the engine beyond idling. 

What has caused this stall state? Why, Ben Bernanke, the former chairman of the Federal Reserve, the supposed expert on the Great Depression, is the man who decided to have an engine with little fuel. Death by billions and billions of cuts is what Bernanke believes is the way to handle a banking crisis and deflation after a massive inflation. 

Foolishly, while chairman, Bernanke's entire plan had been interest rate suppression. His successor, Janet Yellen agrees with Bernanke's approach.

When rates are kept low, capitalists seek return outside of the U.S.A. That further puts strain on bank deposits and thus further weakening bankers already weakened from crisis after inflation. 

The worst bit of the Greatest Depression engineered foolishly by Ben Bernanke has been to hurt wage earners. Had interest rates risen, wage earners those living on fixed incomes would have gained buying power. Their living standards 

Central bankers always should do the opposite of prolonging recession. They should accelerate the collapse. Rates should get put up. Bankers should stepped up acccomodation, discounting every bit of commercial paper presented. That is how keep work flowing.

Entrepreneur-adventurers should face the music for their wrong fixed capital structures.

The sooner one gets through hard times to the bottom the sooner revival can happen. In fact, law makers should craft law to require by law accelerated recessions.

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SAVINGS EQUALS INVESTMENT? OH THAT CROCKERY FROM ACADEMIA ECONOMICS

If the savings identity were true, then there would be perfect correspondence with these curves.

As I wrote in, MIKE "MISH" SHEDLOCK vs MICHAEL PETTIS, OR THE UNREALITY OF SAVINGS, INCOME INEQUALITY AND ECONOMICS, 
savings is mere rhetoric. 

People don't put savings in a savings bank or any other kind of bank. Depositors buy bank credits and sell cash, other bank credits or debt in property trades each known as a purchase and sale. 

In a purchase and sale, a customer, known as a depositor sells property in cash or receivables to a banker and buys property in bank credits. With property in bank credits, the bank customer has a right of action to demand an amount of cash from a banker at a future date. Evidences of such right includes checking account bank statements and passbook savings books. 

A bank is a firm that seeks profit through the business of selling its own credit. A bank transmutes property into a form, which can get traded. A bank facilitates the trade of merchant credit for bank credit, the trade of cash for bank credit and the trade of property in future profit for bank credit by holding lien against extant property.  


A bank stands as the medium of exchange by making credit negotiable from one holder to another so that credit might work the same as money once did and as cash does now. Thus, a bank is a refinery for credit. As a refiner of credit, bankers transform the credit of depositors. In so doing, the guaranty of bankers upon this transmuted credit lets depositors trade upon this guaranty. 

Enjoy the latest bickering between Mish and Pettis here: Michael Pettis Responds; Fantasyland Thesis vs. Reality; Counter-Challenge!

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WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE.

FIRST, THE REAL

Trade, or Commerce, or Buying and Selling, or Real Economics, which is what I teach, is all relevant matters of mankind regarding the purchase and sale of property. Said another way, it's the theory of trading property for profit. 

The entirety of trade, or commerce, or real economics ties up with two words — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade. 

At less than break even, anyone would stop trying to produce property. No one works at a loss.

In trade, or commerce, or real economics, there is but one law and one axiom, the Law of Prices and the Axiom of Profit. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. The Axiom of Profit holds the sum of sales must at least equal the cost of production otherwise a producer goes to ruin.


Though most think of property as things possessed, property always has meant the right of ownership and never the thing owned. Only when property gets created, can trade arise between two persons. 

The name for property put to making stuff is called capital. The name for property put to purchase and sale for cash and credit is wealth. The name for property that can be sold to satisfy debts is asset. The name for property pledged against a debt is collateral.

Profit is the name of sales at prices set by winning bidders less the outlay spent to acquire property for those sales. Profit signals potential return to increasing capitalization to gain efficiency and thus higher profit, lest competitors come to the party with better capitalization.

Trade, or commerce, or real economics is about acquisition of rights to own stuff. No one can derive satisfaction until that one owns. All talk about pleasure, pain, satiation, utility and the like is irrelevant until acquisition.

A trade is a purchase and sale for cash or credit, which can be settled by cash. Today, because of the legal tender designation for cash, cash lets anyone settle contracts straightaway. 

Cash is printed, circulating bank credits. Cash consists of banknotes issued by a centralized authority. Cash represents deposits circulating in perpetuity. 

Anyone who possesses cash has bearer negotiability, also said as currency. Bearer negotiability means the right of ownership in a thing gets passed along with honest possession in every sale or every exchange. The property and the possession are inseparable.

Cash stands as a money substitute. Cash exists as a money substitute precisely because politicians have decreed legal tender status for cash. Gresham's Law reveals why cash has crowded out money.

Money is coined metal by weight and fineness. Each coin by weight gets a unique name called denomination.

Money does not exist anymore and hasn't for decades. In the days of money, money extinguished both cash and credit.

Today, Americans, Canadians, Australians, Europeans, Japanese, and all others have cash and token coins. Any token coin has denomination higher than the sum of street prices of the metals which constitute it.

In spite of shopworn fallacies, never was money "a medium of exchange" or "a store of value". Instruments of banking are the media of exchange. It is bankers who do the exchanging, today, buying cash and debt through discount and selling credit, transmuting property of lesser saleability into property with more saleability.


Without doubt, doing the work of money does not make something money. Credit does the work of money and no one would ever say credit is money.

Price is an objective ratio that expresses a rate of trade of an economic quantity for cash or credit denominated in cash. Value is an objective ratio of exchange in swap, which most know as barter. Price and value arise from the same concept, except one has cash as one economic quantity for another. Both are rates of trade, of exchange.

By objective, we mean that someone not a party to a trade can observe the swap. There isn't anything subjective about it. 

Prices get set by double auctions. In most job markets, inter-employer competition has employers engage in English auctions (highest bidder wins) for workers, while inter-worker competition has workers engage in Dutch auctions (lowest bidder wins) for jobs.

Where the winning bidders of employers and winning bidders of work seekers intersect, that is the clearing price, which, when it involves work, we call it a wage.

In credit-as-capital markets, inter-lender competition has lenders engage in Dutch auctions (lowest bidder wins) for borrowers, while inter-borrower competition has borrowers engage in English auctions (highest bidder wins) for jobs.

Where the winning bidders of lending and winning bidders of borrowing intersect, that is the clearing price, which, when it involves credit, we call it a interest.

Labor absent capital is living at bare subsistence. It is to capital that profit can arise owing to efficiency of surplus output. 

Both rent and interest to the capitalist are shares of profit paid in parts as a hedge against loss. 

Trade, or commerce, or real economics has correspondence with both practical and theoretical civil jurisprudence as well as accounting.

Occam's razor is on my side. 

AND NOW, THE FAKE

Academia economics is wrong, thoroughly wrong. Neo-classical economics is fraught with fallacy. It's a sham. It doesn't matter if it is preaching from the Austrian School or the Keynesian School. Being logically consistent against wrong premises still leads to wrong conclusions. 

Everyone who lives in the real world knows this. If academic economics were correct, the political policies based upon it wouldn't lead to banking, and credit crises and high unemployment.

Academicians preach a false dogma surrounding scarcity and utility (usefulness), often calling economics the science of scarcity. 

Academicians cite examples to justify their false beliefs. They say that though useful, air is abundant and thus can't be an economic good. They say that though useful, water is abundant and thus can't be an economic good. They say that in the desert though, where it is scarce, water becomes an economic good. 

Yet, anyone who puts air into cans turns abundant air into potential wealth and thus an economic good. Anyone who puts water into bottles, turns abundant water into potential wealth and thus an economic good, whether in a desert or in a big city surrounded by aquifers. Putting air into cans and water into bottles creates property. 

And what of monopoly patents, seemingly which are useful and scarce to have the right to be exclusive producer? Many firms buy monopoly patent not to produce, making such not useful, but to exclude competitors from doing the same. 

The firm which buys monopoly patents gains property in those patents and restricts trade by control of property. Such action reveals that property, or right of ownership, is what counts.

Thus, neither scarcity nor utility gives rise to economic goods. It's property. Until one gains property, one can't do anything, including experience satisfaction.

Since neo-classical economics is predicated on scarcity and utility rather than property, academia economics begins with false premises. Thus, all conclusions arising from the alleged faux science must be rejected as false.

Neoclassical clowns preach that value arises from utility. Value is not a quality, that is, it is not an aspect of a thing residing absolutely within it. Nor does value arise from utility, nor the cost of production, nor any other claimed intrinsic quality, nor scarcity.

It's a specious claim that utility stands as the cause of value. Holding that utility makes the cause of value forces the belief in intrinsic, absolute value owing to some quality inherent in a thing. While the qualities of a thing remain the same, such a thing can be useful during some times and yet not during others. 

Contemporary economists believe that the amount of utility derived from consumption of a good declines with each additional unit; and thus, a person maximizes his utility when he distributes his income among various goods so that he obtains the same amount of satisfaction from the last unit of each good.

The idea of marginal utility is the pseudo-scientific claim that one derives 100% satisfaction from the first unit of a thing and less than 100% satisfaction from each subsequent unit.  It is from the foregoing that economists claim what gives rise to value and hence prices.

Academia economists would have the world believe that if someone sold a house for $400,000 but only spent $300,000 from the proceeds and never touched the $100,000, then the buyer overspent by that $100,000 and the seller should have sold for only $300,000. Yet, never in the real world would find the seller years later sending back to the buyer $100,000.

Marginalism is a crock, bunk, hokum. Utility does not impute value. Marginalism is pseudo-scientific psychology. Academician economists have assumed marginal utility as true without any proof, taking it as axiom and have built sandcastles of mischievous theory upon it. 

The bogus concept of marginal utility deals with satisfaction, and specifically with satiation. Marginal utility is pseudo-science satiation psychology never proven through the scientific method in psychology much less for economics. Academicians enter the realm of conjectural, pseudo-scientific psychology when they attribute motives and cognitive processes to prices. 

Cournot was right when he said: 

"... accessory ideas of utility, scarcity, and suitability to the needs and enjoyments of mankind ... are variable and by nature indeterminate, and consequently ill suited for the foundation of a scientific theory." 

There can not be a "Law of Supply and Demand" because exceptions need elasticity to explain why such exceptions exist. A law of science governs the relation of phenomena, of all facts. If exception must be made, there can't be a law. 

Academicians preach the fallacy that producers sit on supply, offering up supply only through an imaginary supply schedule. They spin an alike bogus story about a demand schedule.

Yet, in the real world, inventory gets to the shelves once produced and gets put on offer. It's winning bidders who set the price, regardless of cost of production. If some producers sell at loss, those producers either get forced into efficiency, reducing costs or those producers must exit. Winning bidders must bid higher to gain the remaining inventory of sellers who can at least break even on costs. 

While guys like Paul Krugman might understand academic economics, be expert even, they do not get trade, or commerce, or buying and selling, or real economics, you know, the actual economics that exists from manifest phenomena of the real world.

Krugman's brand of academia economics is built on all of the fallacies of Adam Smith, David Ricardo, Thomas Malthus, J.S. Mill and Jeremy Bentham, while rejecting the few lucid thoughts those foregoing had. And then their brand doubles down with more jokers like Stanley Jevons, Leon Walras, Francis Edgeworth, Alfred Marshall, all of whom accepted pseudo-scientific psychology never proven and totally unneeded. Jevons was so crazy that he claimed that sun spot activity created the cycles from boom to bust, from depression to prosperity.

Inauthentic, false, academia economics continues the parade of errors by adding erroneous thought of Throstein Veblen, Irving Fisher, John Maynard Keynes, John Kenneth Galbraith, Paul Sameulson, Kenneth Arrow, Robert Solow and Robert Mundell.

Economic theory espoused by all of the major universities suffers from significant flaws, even though there are kernels of truth is some thought here and there. Like all academicians, academic economists join a priesthood, receiving Ph.Ds, and became anointed to sermon on academic economics. Every Ph.D conferred in economics has been given to someone who has learned a false doctrine.

Even the Nobel Prize in Economics is little more than back slapping to the guy or gal who can remain logically consistent with the illogical house of cards that is academic economics.

Academic economics exists to justify political action of one kind or another, which means action against individuals and their respective property. Scarcity and utility are chimera faux concepts to justify political action of confiscation of output and redistribution to those of favored groups. Those who parrot the false belief that economics has anything to do with scarcity and utility have accepted rhetoric and have become indoctrinated.

 Every law crafted from economic theories of academia is a bad law. Every law that interferes with profits and impairs someone's property is a bad law. 

Full Disclosure

I earned a degree in economics from what was once a highly selective university. All my profs who taught me their false doctrine earned their Ph.Ds from Harvard, Yale, UC Berkeley and the like. 

For More

For those seeking a slightly more formal treatise, enjoy The Theory Of Trading Property For Profit.

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