Chart of the Day #24

Update: Giving this chart "double power"
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Wish I could give this chart "double power".

Many of our nation's economic policies (both fiscal and monetary) are predicated on some assumed growth rate. The growth rate, if properly calculated, allows us to plan, to set future spending, and to prepare the right sized infrastructure for the resulting economic times.

You don't hear the number out loud very often. It does vary a little, depending on who is doing the calculating. Most politicians say they can keep us growing at 4-5%. If you set it too high, you run into gross overspending and overinvesting. If you set it too low, you get restriction of the very growth you want to achieve.  Sometimes the numbers are pure fantasy. For example, Detroit had consistent negative growth of 1.5% per year for 60  years (suggesting a planned slowing of city expenditures), but instead, the city used 8% growth in their calculations for revenue growth. I'm not holding Detroit as a microcosm of US trends except for this: You have to get the math right.

From time to time, it's necessary to get realistic about things, and Robert Gordon has done this with the analysis conducted for the National Bureau of Economic Research, titled  Is US Economic Growth Over?: Faltering Innovation confronts the 6 Headwinds

It may not be pleasant to contemplate a 0.2% growth scenario in a 2.5% Fed inflation target environment. Gordon points out that the path to higher growth will require much more than our leaders are thinking.

When Keynes will work

Jeffrey Dorfman posts an insightful piece in Forbes.com that should encourage the Keynesians out there...even though it renders their cause obsolete. Keynes was right about the stimulative effects of deficit spending...assuming we existed in an alternate universe.

It might have had a positive effect when there was a budget surplus, but the last one was squandered away quickly,  12 years ago. The next one isn't coming any time soon. Dorfman writes:

When government spends money at best they can manage to perfectly anticipate what we want, thereby matching the benefit we would have gotten from our own spending, or they can do worse. Government cannot do better unless it knows what we want better than we know ourselves.

Sadly, the government does typically pose as an entity that can anticipate our every need. This ruse gives the politicians just enough cover to plunder the system.

Economic literacy is taking a horrible beating these days. It's not something government schools will teach, either. Educate your children. I just sent mine a copy of Henry Hazlitt's Economics in One Lesson. I urge all parents to do the same.

Channeling Keynes

Practical men, who believe themselves to be quite exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, who hear voices in the air, are distilling their frenzy from some academic scribbler of a few years back. -- Paul Samuelson, economist (1915–2009), Inside the Economist’s Mind (2006)

John Maynard Keynes is my economic idol, which is why I jumped at the chance to write the intro to the new edition of The General Theory.  -- Paul Krugman

I know, it's usually broad and shallow sport to pick on Krugman. Anyone who spends that much time on one side of the teeter totter is bound to be dropped in the dirt fairly often. He's one of many voices you might be exposed to on economic matters (particularly if you follow the New York Times). He is known as the biggest voice for demand side economics. There are many who believe he is 93.6% or more wrong (your Wizer included).

Jeremy Hammond is the latest blogger to put him away

Know when to say when

Working more could ultimately mean thousands of dollars less for you under a quirk in the new health-care law going into effect this fall. This could prompt some people to cut back on their hours to avoid losing money. -- CNBC report on Value Penguin analysis

Chart of the Day #23

http://yelnick.typepad.com/yelnick/

Enough Time Has Passed

News Item:

NEW YORK—Claiming that enough time had surely passed since they last caused a global economic meltdown, top executives from the U.S. financial sector told reporters Monday that they are just about ready to completely destroy the world again.
Representatives from all major banking and investment institutions cited recent increases in consumer spending, rebounding home prices, and a stabilizing unemployment rate as confirmation that the time had once again come to inflict another round of catastrophic financial losses on individuals and businesses worldwide.
“It’s been about five or six years since we last crippled every major market on the planet, so it seems like the time is right for us to get back out there and start ruining the lives of billions of people again,” said Goldman Sachs CEO Lloyd Blankfein. “We gave it some time and let everyone get a little comfortable, and now we’re looking to get back on the old horse, shatter some consumer confidence, and flat-out kill any optimism for a stable global economy for years to come.”
“People are beginning to feel at ease spending money and investing in their futures again,” Blankfein continued. “That’s the perfect time to step in and do what we do best: rip the heart right out of the world’s economy.”
According to sources, the overwhelming majority of investment bankers are “ready to get the ball rolling” by approving a host of complex and poorly understood debt-backed securities that are doomed to quickly default, as well as issuing startlingly high-risk loans certain to drive thousands of companies into insolvency.
Top-level executives also told reporters that when it comes to depleting the life savings of millions of people and sending every major national economy into a tailspin, they feel “refreshed and raring to go.
“The other day I actually overheard someone on the sidewalk utter the words ‘I’m saving up for retirement,’ and right away I thought to myself, ‘Well, time to get down to work,’” said Morgan Stanley chairman James P. Gorman, adding that the increasing number of individuals entertaining ideas of starting their own businesses or buying houses was the financial sector’s cue to set off another devastating global recession. “We’re definitely thinking on a huge scale again, because we all really enjoy toying with the livelihoods of millions of people overseas and forcing them to wonder why reckless, split-second decisions made thousands of miles away dictate their whole country’s socioeconomic future.”
“Plus, it’ll be nice to finally wipe out the Euro once and for all this time,” Gorman added.
While most private equity firms, investment banks, and hedge funds are reportedly still undecided on the precise route to take in order to torpedo the job market and crash all international stock exchanges, sources confirmed they are nearly in position to resume gambling away trillions of dollars belonging to the American populace.
“We’ve got a lot of options on the table; it’s just a matter of picking which one we want to use to paralyze every single sector of the world economy,” said Capital One executive vice president Peter Schnall. “We already burst the dot-com and housing bubbles, so this time we can maybe mix it up by popping the education bubble and shattering the lives of everyone with outstanding student loans. Or maybe we’ll artificially inflate prices of stocks in social media companies and then pull the rug out, bankrupting every investor tied to companies like Facebook and Twitter. Or do both.”
“On second thought, maybe we’ll wipe out the housing market again too, just for the hell of it,” Schnall quickly added. “Might as well, right?”
According to a recent survey of Wall Street officials, 82 percent said they were “excited to shake off the rust” and send the Dow and NASDAQ into another freefall. Additionally, 75 percent of respondents admitted they have been “champing at the bit” for months to wholly undermine the nation’s local banks and money market accounts, leaving Americans too terrified to leave their savings anywhere.
Moreover, the chief financial officers from Bank of America, Citigroup, JPMorgan Chase, and Wells Fargo unanimously told reporters that it has been “way too long” since they last saw the utterly dejected faces of American families whose homes had just been foreclosed on due to circumstances totally beyond their control.
“Now that the public’s efforts to curtail questionable Wall Street trading practices have all but ceased, it’s time for us to bring the world to its knees again,” said AIG CEO Robert Benmosche. “There are still plenty of opaque financial derivatives, high-frequency trading operations, and off-balance sheet transactions out there, all with virtually no federal regulation. Trust me, we can definitely work with that. And if anything, we can always just lobby for further concessions and deregulation in Washington—which, by the way, is so, so easy to do—and then we can cause as much damage as we want.”
Added Benmosche, “And while we’re at it, we’ll make sure we once again come away from this whole thing scot-free and far wealthier.”

Reposted from The Onion

Chart of the Day #22

 

When one has finished building one's house, one suddenly realizes that in the process one has learned something that one really needed to know in the worst way - before one began. -- Friedrich Nietzsche

From Political Calculations

From Allvoices.com

Chart of the Day #21

I can calculate the motion of heavenly bodies, but not the madness of people. -- Sir Isaac Newton

From Streettalklive. I'm not a technical trader type, but I do understand the significance of "reversion to mean" and "99% probabilities".  What I still don't quite have a handle on is the actual money printed as a percent of what's out there. I know what we've been told; ....85 Billion, or another 3% of the Adjusted Monetary Base. ... every month. That money has to go somewhere. Right now it goes to the market.

The new normal could be a continued bull run. I think the size of the resulting bear ticks up every time, though.

What still glitters

After seeing the carnage in the gold market, I decided there is something more going on than routine private market price manipulation. Private manipulation can move the market two or three perent at a time, but this kind of massive collapse requires government cooperation. The facts that I have pieced together (some significant, others not as much):

• Central banks have been net buyers of gold, the most significant piece of the market right now. China mines more than the rest of us combined, keeps every ounce, and is still the largest buyer on the world market.
• These same central banks have a need to obfuscate the future inflation they've been producing through their unprecedented money printing.
• By owning the lion's share of gold, they will essentially control price. By manipulating the price, they can continue to sweep the early emerging inflation news under the rug.
• The best way to own all the gold is to convince the current holders of gold that there is a looming deflation coming.
• This is an easy argument to make, because the central banks have been printing money all along, and yet the velocity of money remains at historic lows. This money is created, but not yet distributed. It is sitting in reserves waiting for some trigger event.
• By nurturing the myth of deflation, the inflation brew they've concocted stays in the back room, ready to boil over, but not just yet.
• Before that happens, the more gold the governments hold, the better positioned they will be to manipulate economies when inflation does hit.

Not everything has to be a conspiracy theory, but do we have any reason to not to believe this is crony capitalism at work?  There are a lot of important people (mostly politicians) who need the price of gold to remain low, 1) so they can acquire as much of it as possible before the currencies collapse. And 2) so they can continue to monetize the debt through stealth and overt inflation. Since they are masters of disinformation, they'll be able to accomplish this largely at the expense of the individual investors. This is the modern equivalent of Executive Order 6102.

Meanwhile, they are feeding the "ministry of information" the line that:

The economy is improving, and the fear quotient in the gold market is wringing out.

India's tax on gold is going from 4% to 6%.

Cyprus is selling $400 million dollars worth to pay the bills.

These are part of the disinformation campaign, and are laughable as explanations for yesterday's market moves.

Now, it is possible, on the other hand, that we really are headed for a raging deflation. If that's the case, then everybody should want to be in cash right now. What people fail to realize is that the govenment's reaction to deflation is always going to be even more inflation. So, gold should be the last asset someone should want to turn into cash right now.

People who think that gold is a bubble will feel vindicated (they will say they were right in 2013), but they haven't seen anything yet. The real bubble is the dollar.

Chart of the Day #20