Sunday, January 21, 2018

Central Banks: From Coordination to Competition

This is one reason why I anticipate "unexpected" disruptions in the global economy in 2018.
The mere mention of "central banks" will likely turn off many readers who understandably have little interest in convoluted policies and arcane mumbo-jumbo, but bear with me for a few paragraphs while I make the case for something to happen in 2018 that will impact us all to some degree.
That something is the decay of the synchronized central bank stimulus policies that have pumped trillions of dollars, yuan, yen and euros into the global financial markets over the past nine years. Here are two charts that depict the "tag team" coordinated approach central banks have deployed: when one CB tapers its stimulus, another ramps up its money-creation/asset-purchases stimulus:
The balance sheets of all the primary central banks added together is astronomical:
This team effort is motivated by self-interest, of course; no one central bank can reflate the entire global economy, and yet that is the only way to reflate each nation/bloc's own economy, given the global connectedness of the modern economy.
But the threads of mutual self-interest are fraying. At this late stage in the credit cycle, the central banks must begin "tapering", i.e. diminishing and then ending their stimulus policies and eventually reducing their balance sheets by selling assets they bought in the stimulus phase (or simply stop replacing bonds they own that mature).
The Federal Reserve was first out of the gate in launching quasi-unlimited bond purchases, and it was the first central bank to cease stimulus (quantitative easing) and raise interest rates. It has now signaled that it will begin selling assets (i.e. stop replacing bonds that mature).
Those currencies/bonds that pay the highest interest (accounting for inflation, of will naturally attract global capital seeking a safe return above zero.
The net effect of this differentiation is that nations/blocs with near-zero yields will experience capital flight as money will flow to higher yields elsewhere.
The coordination of the stimulus phase will give way to nationalist self-interest in the tightening phase.
Those nations/blocs that need super-easy money and near-zero interest rates to keep their "growth" afloat will be drained of capital as capital goes to wherever it can earn more yield.
There's a further complicating factor: the relative strength of each nation's currency. This matters because as a currency appreciates, the issuing nation's exports cost more to buyers using their own currencies, and the nation with the appreciating currency loses the competitive edge of a cheap currency.
Since higher interest rates attract capital, they also tend to strengthen one's currency, as the relative value of currency is set by supply and demand: the more demand there is for the currency, the higher it goes relative the field of competing currencies.
There is a third factor as well: central banks need to reduce their balance sheets and raise interest rates, so they have some "policy accomodation" available to counter the next (and inevitable) recession/financial crisis.
The US has so far managed a hat-trick: it has raised interest rates a number of times, yet its currency, the US dollar, has lost over 15% of its value in 2017 compared to the Euro, which has gained 15+%.
There is a Darwinian twist to all this: any nation/bloc which manages to raise rates and end central bank stimulus without stifling its "recovery" or strengthening its currency to the point it hurts exports, and still be a global magnet for capital due to higher yields/rates, will have a substantial competitive advantage over its peers.
In effect, the self-interest that bound the central banks together in the stimulus phase reverses in the tightening/normalizing phase. Thus I anticipate a slow decay of central bank coordination and a rise of conflict/ competition, though this will of course be kept out of the media.
This is one reason why I anticipate "unexpected" disruptions in the global economy in 2018, as the coordinated stimulus phase ends and the disruptive, messy, Darwinian phase of tightening/ normalizing rates and balance sheets gathers momentum.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Yves V. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.
Thank you, Juan D. ($5/month), for your wondrously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Thursday, January 18, 2018

It's Time to Retire "Capitalism"

Our current socio-economic system is nothing but the application of force on the many to enforce the skims, scams and privileges of the self-serving few.
I've placed the word capitalism in quotation marks to reflect the reality that this word now covers a wide spectrum of economic activities, very little of which is actually capitalism as classically defined. As I have explained here for over a decade, the U.S. economy is dominated by cartels and quasi-monopolies that are enforced by the Central State, a state-cartel system of financialized rentier skims that has no overlap with Adam Smith's free market, free enterprise concept,i.e. classical capitalism.
This is what passes for "capitalism" in modern-day America: the super-rich get super-richer, a thin slice of technocrats, speculators and entrepreneurs advance their wealth and the vast majority lose ground or stagnate:
Here's another snapshot of state-financier "capitalism" in modern-day America: the centralized organs of the state (the quasi-public Federal Reserve) creates trillions of dollars and hands the nearly free money to financiers, insiders and speculators, all of whom benefit immensely as this flood of cash pushes stocks into the stratosphere:
There are other versions of "capitalism" that are equally rapacious, all of which are iterations of crony-capitalism: gangster-capitalism, theocratic-capitalism, colonial-capitalism, and so on.
The key feature of these forms of organized pillage that mask their predatory nature by claiming to be "capitalist" is they ruthlessly suppress the three core dynamics of classical capitalism:
1. Competition
2. Open/free markets
3. Free flow of capital in all its forms (financial, social, intellectual, etc.)
The only way the few can pillage the many is if the many are denied access to competition, open markets and freely flowing capital. All the predatory, parasitic and exploitive systems that hide behind the word "capitalism" skim the wealth of the many into the hands of the few by limiting competition (cartels and monopolies such as sickcare and higher education), controlling markets (you must buy from the state-mandated cartels and monopolies) and and restricting capital to insiders, financial elites and cronies of the state--three terms that describe one elite.
Once the few eliminate competition, open markets and access to capital, the many are enslaved, regardless of how many times the magic words "democracy" and "capitalism" are invoked to cover the systemic exploitation.
I propose we start calling things by their real names: state-financier systems of rentier skims, and all the other predatory, parasitic exploitive systems operated by the few at the expense of the many will no longer get the cover of the word "capitalism." They will be called what they are: exploitive, predatory, parasitic pillaging that enriches a corrupt self-serving elite that is enforced by a corrupt, self-serving state.
I propose we call free-market, free-enterprise, voluntary systems STOC:sustainable, transparent, opt-in, competition.
These dynamics are the antithesis of the state-cartel hierarchies that dominate the global economy and that function by enriching the few at the expense of the many. If a system is a sustainable, transparent, opt-in free marketplace of open competition, no elite could wrest control of the system to benefit itself at the expense of all the other participants.
I've explained why centralized hierarchies have only one possible output: soaring inequality and injustice in my books Resistance, Revolution, LiberationWhy Things Are Falling ApartInequality and the Collapse of Privilege and Why the Status Quo Failed and is Beyond Reform
I've sketched out an alternative way of living in my books Money and Work Unchained and A Radically Beneficial World.
If an economic/financial system isn't sustainable, transparent, opt-in, and wide open to competition, it isn't capitalism--it's a self-serving rentier skim trying to mask its predatory, rapacious reality. Remember, good ideas don't require force, and our current socio-economic system is nothing but the application of force on the many to enforce the skims, scams and privileges of the self-serving few.
It's time to retire the word "capitalism" and strip the predatory, self-serving and thoroughly corrupt elite of their phony cover.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.
Thank you, Tim B. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your steadfast support and readership.
 
Thank you, Helen S. ($10/month), for your outrageously generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Sunday, January 14, 2018

The Fascinating Psychology of Blowoff Tops

Central banks have guaranteed a bubble collapse is the only possible output of the system they've created.
The psychology of blowoff tops in asset bubbles is fascinating: let's start with the first requirement of a move qualifying as a blowoff top, which is the vast majority of participants deny the move is a blowoff top.
Exhibit 1: a chart of the Dow Jones Industrial Average (DJ-30):
Is there any other description of this parabolic ascent other than "blowoff top" that isn't absurdly misleading? Can anyone claim this is just a typical Bull market? There is nothing even remotely typical about the record RSI (relative strength index), record Bull-Bear ratio, and so on, especially after a near-record run of 9 years.
The few who do grudgingly acknowledge this parabolic move might be a blowoff top are positive that it has many more months to run. This is the second requirement of qualifying as a blowoff top: the widespread confidence that the Bull advance has years more to run, and if not years, then many months.
In the 1999 dot-com blowoff top, participants believed the Internet would grow at phenomenal rates for years to come, and thus the parabolic move higher was fully rational.
In the housing bubble's 2006-07 blowoff top, a variety of justifications of soaring valuations and frantic flipping were accepted as self-evident.
In the present blowoff top, the received wisdom holds that global growth is just getting started, and corporate profits will soar in 2018. Therefore current sky-high valuations are not just rational, they clearly have plenty of room to rise much higher.
Skeptics are derided as perma-bears who've been wrong for 9 long years. This is the third requirement of qualifying as a blowoff top: Bears and other skeptics are mocked and/or dismissed as irrelevant.
Meanwhile, observers who haven't drunk the punch recognize this as the final leg of a 9-year orgy of central bank stimulus. Pump $14 trillion into global financial assets and all sorts of wonderful things happen, especially if the central banks make it clear in public statements that they will "do whatever it takes," i.e. assets will not be allowed to decline.
Consider the psychology in play: central bankers have sought to convince private-sector players that central banks will never let markets decline, and so the smart strategy was to buy the dips, and buy every new high--in essence buy, buy, buy and don't bother hedging long positions, as there was no need to squander money on hedges against declines that would never happen.
Now the central banks are facing runaway asset bubbles that are the direct consequence of their promoting the belief that "central banks will never let markets go down."
So how do central banks deflate the bubbles gently? How do they change the market psychology without triggering a crash? If central banks cut off the stimulus, and send messages that "now we will let markets decline," then what's the rational response?Sell, and sell everything now rather than ride the bubble collapse down.
As I've noted before, "We live in a system of human emotions that masquerades as a science (economics)." Central bankers are deluding themselves if they think they can calibrate and fine-tune human emotions. When the Bullish certainty that "central banks have our backs" erodes, the switch to bearish impulses to sell before everyone else sells will be sudden and irreversible.
In other words, the central banks have guaranteed a bubble collapse is the only possible output of the system they've created.


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, David H. ($50), for your marvelously generous contribution to this site -- I am greatly honored by your support and readership.
Thank you, James T. ($50), for your splendidly generous contribution to this site -- I am greatly honored by your support and readership.

Read more...

Wednesday, January 10, 2018

Social Change Will Upend the Status Quo

The nation is fragmenting because the Status Quo is failing the majority of the citizenry.
The core narrative of the Status Quo is that nothing fundamental needs to be changed: all the problems can be solved with more "free money" (borrowed from the future at low rates of interest) and a few policy tweaks such as Universal Basic Income (UBI) (the topic of my new book Money and Work Unchained).
This core narrative is false: everything needs to change, from the bottom up.And that of course terrifies those gorging at the trough of status quo wealth and power.
The power structure can manipulate financial metrics, but it can't manipulate rising wealth/power inequality or social discord. Whatever you think of President Trump, his election is a symptom of profound social discord--discord which author Peter Turchin explains is cyclical and cannot be squashed with phony reforms like UBI or police-state repression.
The nation is fragmenting because the Status Quo is failing the majority of the citizenry. The protected few are reaping all the benefits of the Status Quo, at the expense of the unprotected many.
As I have outlined many times, this unsustainable asymmetry is the only possible outcome of our socio-economic system, which is dominated by these forces:
1. Globalization--free flow of capital, labor arbitrage (workers must compete with the lowest-cost labor around the world).
2. Nearly free money from central banks for bankers, financiers and corporations.
3. Pay-to-play "democracy"-- wealth casts the only votes that count.
4. State protected cartels that privatize gains and socialize losses.
5. A political system stripped of self-correcting feedback and accountability.
Once you understand the inputs and structure, you realize there is no other possible output other than unsustainably expanding debt and wealth/income inequality. Policy tweaks cannot change the output; all they do is provide an illusion of reform that serves the need of those at the top to obscure the systemic injustices and unsustainability of the extractive, exploitive, predatory, parasitic system that's enriching them.
What do people do when centralized systems fail to deliver what was promised? They fragment into smaller "tribes" and find fewer reasons to cooperate in centralized systems. As historian-economist Turchin explained in his 2016 book Ages of Discord, human history manifests cycles of social disintegration and integration in which the impulse to cooperate in large social structures waxes and wanes.
Turchin identified 25-year cycles that combine into roughly 50-year cycles, comparable (though not identical with) Kondratieff's proposed economic cycles.
These 50-year cycles are part of longer 150 to 200-year cycles that move from cooperation through an age of discord and disintegration to a new era of cooperation.
These long cycles parallel the cyclical analysis of David Hackett Fischer, whose masterwork The Great Wave: Price Revolutions and the Rhythm of History I've referenced many times over the years, most recently in We've Entered an Era of Rising Instability and Uncertainty (July 18, 2016).
Turchin's model identifies three primary forces in these cycles:
1. An over-supply of labor that suppresses real (inflation-adjusted) wages
2. An overproduction of essentially parasitic Elites
3. A deterioration in central state finances (over-indebtedness, decline in tax revenues, increase in state dependents, fiscal burdens of war, etc.)
These combine to influence the social order, which is characterized in eras of discord by declining loyalty to self-serving special interests (disintegration) and in eras of cooperation by a willingness to compromise for the good of the entire society (integration).
Gordon Long and I discuss 2018: Year of Accelerating Social Change (Part 1)(15 minutes) in our latest program:



My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Charles L. ($5/month), for your marvelously generous pledge to this site -- I am greatly honored by your support and readership.
Thank you, Pierre D. ($5/month), for your splendidly generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Sunday, January 07, 2018

Yes, But at What Cost?

This is how our entire status quo maintains the illusion of normalcy: by avoiding a full accounting of the costs.
The economy's going great--but at what cost? "Normalcy" has been restored, but at what cost? Profits are soaring, but at what cost? Our pain is being reduced--but at what cost?
The status quo delights in celebrating gains, but the costs required to generate those gains are ignored for one simple reason: the costs exceed the gains by a wide margin. As long as the costs can be hidden, diluted, minimized and rationalized, then phantom gains can be presented as real.
Exhibit One: the US public debt. If you borrow and blow enough money, it's not too difficult to generate a bit of "growth"--but at what cost?
Exhibit Two: opioid deaths. One of the few metrics that's climbing as fast as the national debt is the death rate from prescription and synthetic opioids:
Exhibit Three: student loan debt. Here's a chart of debt that is federally originated but paid by individual students: the infamous student loan debt that has shot up over $1 trillion in a few years.
You see the point: the cost are skyrocketing but the gains are diminishing. The costs of maintaining the illusion of "normalcy"--for example, that going to college is "still affordable"-- are soaring, while the gains of a college education are declining as credentials and diplomas are is oversupply. (What's scarce are the real-world skillsets employers actually need.)
Americans are in pain, and the cartel-sickcare "solution"--"non-addictive opioids"--is reaping a horrendous toll on all who trusted the sickcare system to deliver non-addictive painkillers. Should the newly addicted sufferer no longer be able to get the synthetic opioid prescribed, the option of choice is street smack (heroin), and this is why heroin deaths are soaring along with deaths caused by synthetic opioids.
Pain has been relieved--but at what cost?
The elites within the Big Pharma and higher education cartels are reaping enormous salaries, bonuses and benefits while these cartels wreak havoc on America's vulnerable underclass (i.e. the bottom 90%). Monumental sums of cash are flowing from the many to the few while the many become addicted to opioids or enslaved to student loan debt.
The financial media is euphoric over the billions of dollars of profits reaped by smart phone manufacturers--every kid needs one, right? But at what cost, not just the financial cost, but the cost in addictive behaviors spawned by smart phones?
iPhones and Children Are a Toxic Pair, Say Two Big Apple Investors (WSJ.com) The iPhone has made Apple Inc. and Wall Street hundreds of billions of dollars. Now some big shareholders are asking at what cost.
This is how our entire status quo maintains the illusion of normalcy: by avoiding a full accounting of the costs of a system set to maximizing profits by any means available, a system of public-private pillage overseen by the protected few at the expense of the vulnerable many.
It's as if we've forgotten that debt accrues interest, i.e. claims on future income. Debt is easy to ignore in the initial euphoria of spending the "free money," but once the depreciated value of what was purchased and the interest starts weighing on the borrower, the borrowed money is revealed as anything but "free."


My new book Money and Work Unchained is $9.95 for the Kindle ebook and $20 for the print edition.
Read the first section for free in PDF format.


If you found value in this content, please join me in seeking solutions by becoming a $1/month patron of my work via patreon.com.

NOTE: Contributions/subscriptions are acknowledged in the order received. Your name and email remain confidential and will not be given to any other individual, company or agency.

Thank you, Michael R. ($30/month), for your outrageously generous pledge to this site -- I am greatly honored by your steadfast support and readership.
Thank you, Anne T. ($10/month), for your outlandishly generous pledge to this site -- I am greatly honored by your support and readership.

Read more...

Terms of Service

All content on this blog is provided by Trewe LLC for informational purposes only. The owner of this blog makes no representations as to the accuracy or completeness of any information on this site or found by following any link on this site. The owner will not be liable for any errors or omissions in this information nor for the availability of this information. The owner will not be liable for any losses, injuries, or damages from the display or use of this information. These terms and conditions of use are subject to change at anytime and without notice.

Our Privacy Policy:

Correspondents' email is strictly confidential. This site does not collect digital data from visitors or distribute cookies. Advertisements served by third-party advertising networks such as Adsense and Investing Channel may use cookies or collect information from visitors for the purpose of Interest-Based Advertising; if you wish to opt out of Interest-Based Advertising, please go to Opt out of interest-based advertising (The Network Advertising Initiative)
If you have other privacy concerns relating to advertisements, please contact advertisers directly. Websites and blog links on the site's blog roll are posted at my discretion.

Our Commission Policy:

Though I earn a small commission on Amazon.com books and gift certificates purchased via links on my site, I receive no fees or compensation for any other non-advertising links or content posted on my site.

  © Blogger templates Newspaper III by Ourblogtemplates.com 2008

Back to TOP