October 31, 2013

Don’t Worry – The Government Says That The Inflation You See Is Just Your Imagination

If you believe that there is high inflation in the United States, you are just imagining things.  That is the message that the U.S. government and the Federal Reserve would have us to believe.  You might have noticed that the government announced on Wednesday that the cost of living increase for Social Security beneficiaries will only be 1.5 percent next year.  This is one of the smallest cost of living increases that we have ever seen.  The federal government is able to get away with this because the official numbers say that there is hardly any inflation in the U.S. right now.  Of course anyone that shops for groceries or that pays bills regularly knows what a load of nonsense the official inflation rate is.  The U.S. government has changed the way that inflation is calculated numerous times since 1978, and each time it has been changed the goal has been to make inflation appear to be even lower.  According to John Williams of shadowstats.com, if the inflation rate was still calculated the same way that it was back when Jimmy Carter was president, the official rate of inflation would be somewhere between 8 and 10 percent today.  But if the mainstream news actually reported such a number, everyone would be screaming and yelling about getting inflation under control.  Instead, the super low number that gets put out to the public makes it look like the Federal Reserve has plenty of room to do even more reckless money printing.  It is a giant scam, but most Americans are falling for it.

Meanwhile, the prices of the things that most Americans buy on a regular basis just keep going up.  The following are just a few examples of price inflation that we have seen lately...

-McDonald's has killed the dollar menu because it is becoming impossible to "make any money selling burgers for $1".

But don't worry - the government says that the inflation you see is just your imagination.

-Amazon.com has raised the minimum order size required for free shipping from $25 to $35.

But don't worry - you can afford to order more stuff thanks to the great new job that you got during this "economic recovery".

-It is being projected that those using natural gas to heat their homes will see their heating costs rise by 13 percent this winter.

But don't worry - "global warming" should kick in to high gear any day now.

-The price of chocolate has gone up by 45 percent since 2007, and it is being projected that it will now be increasing at an even faster pace.

But don't worry - eating chocolate is bad for you anyway.

-Thanks to Obamacare, the health insurance premiums of many American families are absolutely skyrocketing.  As I wrote about the other day, one family down in Texas just got a letter informing them that their health insurance premiums are going up by 539 percent.

But don't worry - this is just "health care reform" in action.

Meanwhile, things just continue to get tougher for middle class American families.  Household incomes have actually been declining for five years in a row and total consumer credit has risen by a whopping 22 percent over the past three years.

The quality of our jobs continues to go down and our paychecks are not keeping up with inflation.  In fact, 40 percent of all U.S. workers are now making less than what a full-time minimum wage worker made back in 1968 after you account for inflation.

So what do the "authorities" say that the solution to our problems is?

They want even more inflation of course.  According to CNBC, many Federal Reserve officials (including Janet Yellen) believe that what the U.S. economy really needs is a lot more inflation...
Inflation is widely reviled as a kind of tax on modern life, but as Federal Reserve policy makers prepare to meet this week, there is growing concern inside and outside the Fed that inflation is not rising fast enough. 
Some economists say more inflation is just what the American economy needs to escape from a half-decade of sluggish growth and high unemployment. 
The Fed has worked for decades to suppress inflation, but economists, including Janet Yellen, President Obama's nominee to lead the Fed starting next year, have long argued that a little inflation is particularly valuable when the economy is weak. Rising prices help companies increase profits; rising wages help borrowers repay debts. Inflation also encourages people and businesses to borrow money and spend it more quickly.
The rest of that article goes on and on about how wonderful inflation is for an economy and about how the U.S. economy desperately needs some more of it.

Well, if that was actually true, then the Weimar Republic should have had one of the best economies in the history of mankind.

But this inevitably happens when a nation starts producing fiat currency that is backed by absolutely nothing.  There is always a temptation to just print a little bit more.

In the end, we are going to be destroyed by our own foolishness.  We have the de facto reserve currency of the planet, and the rest of the world has trusted it for decades.  But now we are systematically destroying our currency, and the rest of the globe is looking on in horror.

If you want to see a very good example of the impact that inflation has had on our economy in recent years, just check out this amazing chart which shows what the Federal Reserve's reckless policies have done to the prices of commodities.

Ultimately, the U.S. dollar will be destroyed, and we will have done it to ourselves.

Many people are attempting to protect themselves against this inevitability by putting a lot of their money into hard assets such as gold and silver, but before you do that you might want to make sure that you don't have a vengeful spouse that will toss it all into a dumpster someday.  The following is from a recent New York Post article...
A Colorado man was so angry at his ex-wife for divorcing him that he had the couple’s life savings of $500,000 converted to gold — then tossed it in a dumpster so she couldn’t have any of it, the Colorado Springs Gazette reports
In June, Earl Ray Jones, 52, of Divide, Colorado, was ordered by a judge to pay $3,000 a month to the woman he’d been married to for 25 years, so he pillaged the couple’s retirement account and had it converted into 22 pounds worth of gold and silver bars,  the paper reports.
Jones claims he then tossed the modern-day treasure into a dumpster behind a motel, where he had been living temporarily, later telling the judge he had no money to give his ex-wife, according to the paper.
Did that story make you smile?  It sure did the trick for me.

But that story is also a picture of what the Federal Reserve is doing with our dollar.

Our currency has been used for decades by almost everyone else around the planet.  In fact, more U.S. dollars are used outside of our country than inside of it.

But now the Federal Reserve is systematically trashing the dollar and the rest of the globe is starting to lose faith in it.

Instead of realizing their mistakes, Fed officials say that we need to create even more inflation and they just keep on wildly printing more money.

In the end, we will all pay a great price for their foolishness.


October 30, 2013

IMF Happy Talk Cannot Obscure Japan's Reality

The Bank of Japan's massive stimulus is working, the International Monetary Fund's mission chief to Japan said, and there is still room to increase purchases of government bonds and exchange-traded funds if a further boost was needed. Jerry Schiff, who is also deputy director of the IMF's Asia-Pacific Department, stressed he saw no need for the central bank to offer additional stimulus for now with the world's third-largest economy in good shape. – Reuters

Dominant Social Theme: Print, print, print. Busy, busy, busy. That's how we work and play!

Free-Market Analysis: Printing a lot of money is really helping the Japanese economy according to the International Monetary Fund, as we can see from the above article excerpt. In fact, according to the International Monetary Fund, there's plenty of room to do more if need be.

This is part of a larger trend we've been observing of late. Whether it is Janet Yellen in the US or Mark Carney in England or the ECB or the BOJ itself, aggressive money printing is becoming a signature calling card. Here's some more from the article:

"There's no need for the BOJ to change what they're doing," Schiff said. "There's a rise in actual inflation and a rise in inflation expectations. Neither are very dramatic yet, but are certainly in the right direction," he told Reuters on Tuesday. While market volatility and capital outflows have hurt emerging Asian economies, he said some signs in the region suggest Japan will get more support from exports next year.

Indeed, Anoop Singh, the IMF's top official for Asia, told a seminar in Tokyo that Prime Minister Shinzo Abe's aggressive stimulus, dubbed "Abenomics", had helped counter the outflows from the region triggered by expectations of a tapering of the U.S. Federal Reserve's asset-buying program.

The BOJ currently buys about 7 trillion yen ($72 billion) in government bonds each month, as well as riskier assets such as exchange-traded funds, under the stimulus it launched in April to try to escape deflation and drive inflation to 2 percent in roughly two years. Schiff did not see buying mortgage-backed securities (MBS), an idea floated by one of Abe's aides, as a realistic option for the BOJ given markets for the assets in Japan were quite small.

Some analysts believe the central bank may have to expand its stimulus next year if wages do not rise much or a rise in the consumption tax in April triggers a downturn in the economy. "There's a danger of appearing too reactive and changing your policy too quickly," Schiff said, adding the tax rise did not automatically serve as a reason to expand monetary stimulus. He said the BOJ may need to consider further action if the tax rise damaged economic momentum more than it expected, or if there was a lack of progress in lifting wages and inflation expectations.

"We still believe that if necessary, they can increase their purchases (of JGBs)," Schiff said, although he cautioned that buying too much could stoke fears the BOJ was directly bankrolling government debt.

Japan's economy has outpaced its G7 peers this year as Abe's stimulus policies bolstered business sentiment and consumer spending. The economy grew at an annualized pace of 3.8 percent in the second quarter. However, export volumes have sagged largely due to the slowdown in emerging Asia, casting some doubt on the sustainability of Japan's recovery.

You see, Japan is doing well according to this article right up until the necessary caveat toward the end where we learn that export volumes have "sagged." That's no little thing. Without exports Japan doesn't even HAVE much of an economy.

So what is all this money printing accomplishing?

Well ... from our point of view, it's nothing more or less than a promotional exercise. It's clear to us. We couldn't figure it out at first but now we can. They're printing because there's nothing else to do.

Yes, they're printing because if they don't print, the world will lapse back into the Great Recession once again. Not that the world has really recovered from 2008. As we've pointed out often, money printing in the modern era is funneled through commercial banks. And these banks are actually being paid not to circulate the money they're given!

What money DOES get through is ending up as always in the securities markets and high-end real estate. The financial media will explain that these sectors are the ones that inflate first but they will never explain why. The reason is because the money men that live in expensive parts of town and have large portfolios are also the people closest to the money spigot.

But the average fellow is not benefiting much from this money printing. That's one reason why unemployment stays up. Other reasons have to do with the shadow economy and people not reporting what they're really earning off the books.

A third reason the "recovery" is weak – not even real – is that all this money printing has flooded the failing financial sector with enough cash to keep it afloat. The bankrupts have not been able to wither away though there's still plenty of debt to go around. And thus no one is apt to lend to anyone else, as it is still difficult to tell who is solvent and who is not.

A recent Der Spiegel article pointed out that European banks alone were still sitting on well over US$1 trillion in debt; thus, even with the trillions printed, the West's financial system is still shaky. In fact, it doesn't really deserve to live.

It died in 2008 and it's been on life support ever since. That's not a popular statement, however. The mainstream media will claim that central bankers have done a heroic job "shoring up" the system. Not true, however. The financial system we are living with today is bust. As we pointed out yesterday, some US$50 TRILLION has been dropped into the West's gaping, ruined maw in the past five years and now it seems the bankers are getting ready to DOUBLE that amount.

When a financial system absorbs US$100 trillion inside of a decade, as this one seems ready to do, you've doubtless reached a point of no return. It doesn't matter how much money is printed. The money that does make it into the economy is already creating asset bubbles and by the time the "real" economy is affected, those asset bubbles should be big ones, indeed.

In Japan, the birth rate keeps going down. Young people, it is said, are not interested in sex anymore. In fact, the young people involved are probably too tired after working 14 hours a day, six days a week to seek out the courtships necessary to let romance bloom.

Japan was always a society with a brutal delicacy about it. But Western-style commerce and industry has rendered the social conventions of another era almost inoperative. There is no time for finesse in the modern corporate world. And yet the Japanese cling to their conventions. The result, unsurprisingly, is a sick society with a plunging birth rate. Public discourse and private reality have long diverged.

Japan is NOT doing better because it is printing more money, no matter what the IMF says. It is, in fact, a sick society, with an agrarian culture ill-adapted to the West's modern monetization. That's not to say it is working anywhere else much better than in Japan.

The money men want to create a more globalized currency and are willing to submerge the world in chaos to do just that. But in the meantime, they don't want you to know. They will continue to float their dominant social themes about money as a science and inflation as a benign influence under their control.
They will explain all this even as the evidence around them proves otherwise. And it is in large part this divergence between reality and politically correct discourse that may be storing up a good deal of difficulty. The system doesn't work and platitudes may buy some time but not forever. At some point, reality is going to set in.


October 29, 2013

As Obama Asks If He "Should Be Worried" About Bitcoin, ATMs Arrive In 5 Canadian Cities

The world's first Bitcoin ATM will be ready for use this week at a coffee shop in Vancouver, Canada. Created by Las Vegas based Robocoin, the new ATM in Vancouver will allow users to turn bitcoins directly into Canadian dollars, or turn Canadian dollars into bitcoins. As The Telegraph reports, the ATM first scans the user's palm to ensure security and transfers are limited to CAD$3,000 per day. Until now, the currency existed only on the web but the introduction of these ATMs brings bitcoin-as-cash usage closer.

Via CBC,
Bitcoiniacs says it has ordered five Bitcoin kiosks from a Las Vegas-based company called RoboCoin... and will be rolled out starting this week in Vancouver...

Four more kiosks will arrive in December and although their locations are not yet certain, Bitcoiniacs says it's eyeing major Canadian cities such as Toronto, Montreal, Calgary and Ottawa

"Basically, it just make it easier for people to buy and sell Bitcoins and hopefully will drive the adoption of Bitcoin, and make it more accessible for people," says Mitchell Demeter, the 27-year-old owner of Bitcoiniacs. 

Currently, acquiring Bitcoins is often done through an exchange, an arduous process that requires users to jump through several hoops, including linking their bank account to the exchange and sending in paperwork to verify their identity.

The RoboCoin kiosks are expected to make the process of buying and selling Bitcoins much easier says Jordan Kelley, the company's chief executive.

"Our goal is to make Bitcoin truly grandma-friendly," says Kelley. 
Using a kiosk means you don't have to wait to verify your account on an exchange or hand cash to a stranger, says Kelley. It also makes Bitcoins more accessible to people by adding an element of legitimacy and increases liquidity in the market.  
RoboCoin plans to ship out 10 to 15 kiosks to customers before the end of the year. The first one will go to Bitcoiniacs, says Kelley.

Demeter says many Bitcoin startups are gravitating to Canada because the Financial Transactions and Reports Analysis Centre of Canada — also known as FINTRAC — aren't as strict as regulators in the U.S.

"It's a lot more open up here, that's for sure," says Demeter. 
Those last two paragraphs/comments are especially notable in light of President Obama asking Eric Schmidt if "Bitcoin is anything he has to worry about?"

Via Mike Krieger of Liberty Blitzkrieg blog,
Here’s a story recently related to me by a guest at a White House dinner, which included Google’s Eric Schmidt: The president, whose most important job is surely to protect the integrity of the monetary system, smugly asked Schmidt if Bitcoin, one of many growing challenges to currency hegemony, was anything he had to worry about.

- From a USA Today article titled: How CEOs are Clueless About Technology
If the above is accurate (and I have no reason to suspect it isn’t), it is priceless information on so many levels. First of all, rather than ask about Bitcoin in an inquisitive manner free of prejudice as a enlightened leader surely would, Obama is merely primatively wondering if he needs to “worry about it.”

Actually Barry, if you had any sense and foresight whatsoever you would be looking at it as a great opportunity. An opportunity for the nation to lead the way in growing the Bitcoin economy and shed the archaic, feudalistic monetary system we are currently enslaved under. However, since you work directly for the oligarch money manipulators themselevs, you are clearly and disastrously unable to see things in a more productive and beneficial way.

Second, as I highlighted earlier this year, Eric Schmidt had no clue what Bitcoin was when Julian Assange first mentioned it to him in a lengthy interview in 2011. The initial exchange went as follows:
Assange: On the publishing end, the magnet links and so on are starting to come up. There’s also a very nice little paper that I’ve seen in relation to Bitcoin, that… you know about Bitcoin?

Schmidt: No.

Assange: Okay, Bitcoin is something that evolved out of the cypherpunks a couple of years ago, and it is an alternative… it is a stateless currency.
So Obama is asking Schmidt for his advice about Bitcoin, when Schmidt had no idea what it was two years after it had been created and released into the wild. One bureaucratic control-freak asking another for advice. What could possibly go wrong?
More from the USA Today article:
The president surely believes his important expertise is in matters of policy, law and political machinations. But he is, too, the chief executive of the U.S. government, with its increasing dependence on digital performance. And, in that area, he seems a near-illiterate, or at least a big boob.

An older establishment that still regards technology as a back-office function, or infrastructure issue, or buyable skill set, vs. an emerging native digital establishment that sees technology as an end in itself, serving a customer base with ever-higher technology expectations and standards.

It is certainly a pertinent question: If the government can’t run an e-commerce website, how in the world can it process all the data that they are supposedly sweeping up to spy on outlaws and citizens?

Non-tech people, no matter their good intentions, can’t do tech, at least never as well as tech people do it. This is something ever-more evident to people steeped in daily digital life, as most Americans are. It is less clear to CEOs, many of whom are somehow still uncertain in their digital habits and reflexes.

Let’s just hope these clowns don’t grasp Bitcoin until it’s already way too late…which fortunately it may already be.


October 28, 2013

Rediscovering The Price Of Money... When Things Can't Get Any Worse

I’ve been starting my speeches for some time now by saying: “I am the most optimistic I have been in almost thirty years in the market—if only because things can’t get any worse.”

Is that true, and more importantly, how do we get a fundamental change away from this extend-and-pretend which prevails not only in Europe but also the world?

History tells us that we only get real changes as a result of war, famine, social riots or collapsing stock markets. None of these is an issue for most of the world—at least not yet—but on the other hand we have never had less growth, worse demographics, or higher unemployment since WWII. This is a true paradox that somehow needs to be resolved, and quickly if we are to avoid wasting an entire generation of European youth.

Policymakers try to pretend we have achieved significant progress and stability as the result of their actions, but from a fundamental point of view that’s a mere illusion. Italian banks today own more government debt than before the banking crisis, leaving them systematically more exposed to their own government, not less. The spread on government bonds between Germany and Club Med is down below historic averages, but the price has been a total suspension of the “price discovery” of money.

The price discovery of money is the cruel capitalistic part of any system. An economics  textbook would call it the modus operandi by which capital is allocated where it can find the highest marginal utility. In practice, this should mean that the market dictates the price of money beyond one year—while at durations of less than one year, the central banks determine the price of money. The beauty of the system is that money is allocated in an auction where the highest bidder for “money” or “credit” gets filled on the price he or she deems to match his expected price of money.

Contrast the market-driven model with the present “success story” of relatively low sovereign spreads in Europe, which are driven by the European Central Bank president Mario Draghi’s promise to do "whatever it takes" to keep the euro out of trouble. He has threatened to activate the European Financial Stability Facility and the European Stability Mechamism plus the full arsenal of policy tools to ensure stability.

By doing so, he has effectively suspended price discovery for sovereign debt and for money, as the ECB and local central banks will provide infinite liquidity to local banks and hence indirectly to their government in any market conditions. This one-sided offer from the ECB and the market means there is no power to discipline the government with higher rates or to allocate credit more generally. We have simply disconnected the market and the price of money.

This comes after Draghi’s longer-term refinancing operation, a cheap funding for banks with little or no collateral, or the closest thing to quantitative easing you can have without calling it quantitative easing.

This is a problem because corporations that need to finance long-term projects, like building a power station over six to eight years, need a price for the credit they require throughout the building period. Right now they have an almost flat yield curve from zero to 30 years, which would be fine if it were realistic. But the problem is that one day in the “distant future” when the market normalises, interest rates should revert to their normal price, which is roughly inflation plus a risk premium.

In the case of an industrial company, an appropriate loan rate calculation could be something like: inflation plus Libor plus a risk spread, which might work out to about seven percent. Compare this with the rates available for highly creditworthy companies. Recently, Nestle  was able to issue a four-year corporate bond at 0.75 percent—the lowest ever. Yes, it’s nice for Nestle but remember the situation is created by the central banks presence in the market, not just due to the financial strength of Nestle.

A move from less than one percent to seven percent would administer an ugly shock to companies.  We have created a negative vicious circle in which not only investors, but also companies are depending on low interest rates forever. They have priced their future earnings and costs on government support prices rather than on realistic market prices.

The worst thing about the situation, however, is that the reason a blue chip company like Nestle can borrow at less than one percent in the capital market is the lack of alternatives for banks and investors. Less creditworthy small and medium enterprises (SMEs) which make up as much as 80 percent of many countries’ economies are not allowed to borrow. They are deemed too risky to lend to at the current “market rates” even though they hold the key to improving the employment and productivity picture.

They are willing to work cheaper, longer, harder and with higher risk tolerance in order to survive. So the remaining 20 percent of the economy occupied by large and publicly listed companies and banks gets 95 percent of all credit and 99 percent of all political capital. In other words, blue chips receive artificially low interest rates only because the SMEs don’t get any credit. Herein lies my continued belief in the my traditional opening statement: things must get better soon because they can hardly get any worse.

We have never been in a more dysfunctional state at the corporate, political and individual level in history. It’s time to realise that the reason capitalism won the war against communism in the 1980s was its strong market based economy—itself based on price discovery. Now the policymakers in their “wisdom” are copying everything a planned economy entails: central planning and control, no price discovery, one supplier of credit, money and the corollary effect of suppressing SMEs and even individuals.

Finally, history offers a compelling lesson: the last time the Federal Reserve engaged in a sizeable quantitative easing was in the 1940s. The low growth and falling inflation only reversed when the Federal Reserve stopped intervening due to a severe recession brought on by the policy mistakes of keeping QE in place too long.

In 2014, a bout of near or real recession in Germany and the US could kick start the price discovery mechanism again, which will help us to start healing the deep wounds left by years of policymakers compounding their errors with round after round of extend-and-pretend. Getting to the bottom is good in one sense: the only way is up.


October 25, 2013

25 Stats That Prove That The American Dream Is Being Systematically Destroyed

The 25 statistics that you are about to read are solid proof that the middle class in America is being systematically wiped out.  Once upon a time, the United States had the largest and most prosperous middle class in the history of the world.  It seemed like almost everyone owned a home, had a couple of nice vehicles and could provide a very comfortable lifestyle for their families.  Sadly, that has all changed.  In America today, prices are rising at a very brisk pace but incomes are not.  There aren’t nearly enough jobs for everyone anymore, and most of the jobs that are being “created” are jobs that pay very little.  The largest employer in America is Wal-Mart, and the second largest employer is actually a temp agency (Kelly Services).  In a desperate attempt to make ends meet, millions of American families endlessly pile up more debt, and millions of other American families find themselves forced to turn to the government for help.  At this point, more than 49 percent of all Americans receive benefits from the federal government each month.  The percentage of Americans that cannot financially take care of themselves is rising every single year, and our independence is being whittled away as we become increasingly dependent on the government.  Unfortunately, our politicians continue to stand aside and do nothing as our jobs are shipped overseas, inflation steals our purchasing power and the middle class continues to shrink.  The following are 25 stats that prove that the American Dream is being systematically destroyed…

1. According to the most recent numbers from the U.S. Census Bureau, 49.2 percent of all Americans are receiving benefits from at least one government program.

2. The U.S. government has spent an astounding 3.7 trillion dollars on welfare programs over the past five years.

3. An increasing number of employers are encouraging their low wage employees to supplement their wages by going on government welfare programs.  For example, McDonald’s workers that need help making ends meet are being instructed to go on food stamps
McDonald’s workers who are unable to pay their bills or stay above the poverty line should find help from food pantries or enlist in government benefit programs instead of seeking higher wages, according to a company resource line meant to help employees. 
Nancy Salgado has worked for the fast-food corporation for over 10 years yet still earns $8.25 an hour, barely more than the $7.25 federal minimum wage. With help from the worker’s rights group Low Pay Is Not Ok, she phoned the company’s employee hotline, known as McResource, attempting to find some answers on how to improve her situation. 
A recording of the call was made available to CNN, which reported that Salgado asked the helpline operator multiple questions regarding how McDonalds would help her pay her heating bill, buy groceries, and whether she could afford to help pay for her sister’s medical treatment.
Despite never asking how much money Salgado earned per hour or asking how many hours a week she worked, the McDonalds representative said she “definitely should be able to qualify for both food stamps and heating assistance.”
4. Total consumer credit has risen by a whopping 22 percent over the past three years.

5. Student loans are up by an astounding 61 percent over the past three years.

6. According to the U.S. Census Bureau, median household income in the United States has fallen for five years in a row.

7. Right now the middle class is taking home a smaller share of the overall income pie than has ever been recorded before.

8. Ordinary Americans are being priced out of the housing market.  Today, nearly half of all home purchases are all-cash deals.

9. The homeownership rate in the United States is now at the lowest level it has been in nearly 18 years.

10. The gap between the rich and the poor in the United States is at an all-time record high.

11. U.S. families that have a head of household that is under the age of 30 have a poverty rate of 37 percent
12. Every single day, thousands of Americans are receiving letters in the mail informing them that their old health insurance policies have been canceled.  According to a recent Kaiser Health News article, some companies have already sent out hundreds of thousands of cancellation notices…
Florida Blue, for example, is terminating about 300,000 policies, about 80 percent of its individual policies in the state. Kaiser Permanente in California has sent notices to 160,000 people – about half of its individual business in the state.  Insurer Highmark in Pittsburgh is dropping about 20 percent of its individual market customers, while Independence Blue Cross, the major insurer in Philadelphia, is dropping about 45 percent.
13. Those that are losing their current health insurance policies will have to replace them with new policies that are often much more expensive.  According to health policy expert Bob Laszewski, 16 million people could ultimately have their health insurance policies canceled because of Obamacare…
The U.S. individual health insurance market currently totals about 19 million people. Because the Obama administration’s regulations on grandfathering existing plans were so stringent about 85% of those, 16 million, are not grandfathered and must comply with Obamacare at their next renewal. The rules are very complex. For example, if you had an individual plan in March of 2010 when the law was passed and you only increased the deductible from $1,000 to $1,500 in the years since, your plan has lost its grandfather status and it will no longer be available to you when it would have renewed in 2014. 
These 16 million people are now receiving letters from their carriers saying they are losing their current coverage and must re-enroll in order to avoid a break in coverage and comply with the new health law’s benefit mandates––the vast majority by January 1. Most of these will be seeing some pretty big rate increases.
14. Back in 1999, 64.1 percent of all Americans were covered by employment-based health insurance.  Today, only 54.9 percent of all Americans are covered by employment-based health insurance.

15. More Americans than ever find themselves forced to turn to the government for help with health care.  At this point, 82.4 million Americans live in a home where at least one person is enrolled in the Medicaid program.

16. The U.S. labor force participation rate is at a 35 year low.

17. Only 47 percent of all adults in America have a full-time job at this point.

18. It is hard to believe, but in America today one out of every ten jobs is now filled by a temp agency.

19. Approximately one out of every four part-time workers in America is living below the poverty line.

20. After accounting for inflation, right now 40 percent of all U.S. workers are making less than what a full-time minimum wage worker made back in 1968.

21. Today, the United States actually has a higher percentage of workers doing low wage work than any other major industrialized nation does.

22. At this point, almost half of all public school students in America come from low income homes.

23. The number of Americans on food stamps has grown from 17 million in the year 2000 to more than 47 million today.

24. Right now, one out of every five households in the United States is on food stamps.

25. An increasing number of Americans do not even believe that they have a pleasant retirement to look forward to.  One recent survey found that the percentage of middle class Americans that “plan to work until they die” is now higher than ever.


October 24, 2013

GOLDMAN SACHS PRESIDENT: 'I Feel Bad For JPMorgan And What They're Going Through'

Gary Cohn, the President & COO of Goldman Sachs, was on Bloomberg Television this afternoon speaking with Stephanie Ruhle.

Ruhle asked Cohn what he thought about the massive multibillion settlements that banking competitor JP Morgan is currently being forced to pay.

"Look, I feel bad for JPMorgan and what they're going through," said Cohn. "We've been there. We've been there ourselves. We know what it feels like.

Indeed, Goldman has been no stranger to lawsuits and public outrage in the wake of the financial crisis.

"I know that Jamie and his team are doing everything they possibly can to put this behind them," Cohn continued. "They've got a great franchise. They've got a great business. They've got a great management team. They'll get through this and they'll be a very, very strong competitor."

Those are some kind words coming from a competitor.

Here are some more highlights from the interview, courtesy of Bloomberg Television:

Cohn on how the Fed's decision to not taper has affected Goldman Sachs:

"For Goldman it meant sort of business as usual. There's not tapering is the world that we've been in for the last year. So what it meant is people continued to migrate to riskier assets. People continued to migrate or migrated back to the equity markets. Some people that had gotten out of the fixed-income markets because they believed that the Fed was going to taper had to rethink about their fixed-income portfolio, and we have seen some more migration into the fixed-income space. So in many respects, it's similar to what we've been doing for the last year."

On Larry Fink saying that investors should be 100% in equities and who is now investing in fixed income as a part of the migration into the space:

"Well I agree with Larry. Larry and I have been saying for a couple years equities, equities, equities because we believe that the return on equities is going to outstrip the return of the fixed-income asset class. But for those investors that need a long term, long duration, diversified portfolio, they need to have a fixed-income position. Many of them migrated out or rotated out of fixed income when they thought the Fed was going to change monetary policy and go into a more tapering environment. Now that that's up in the air - and I think that's up in the air for a longer period of time…The tapering is up in the air, whether the Fed is going to taper or not or when they're going to taper."

On whether the Fed should taper:

"If you look at where we are economically versus where we were a year ago, we're virtually in the exact same place. So if quantitative easing made sense a year ago, it probably still makes sense today. The only thing that you might point to that's different is the actual headline unemployment rate has dropped down 7.2 percent, but we could get into why it's dropped. And the participation rate is at basically 35-year lows, so we really haven't created real jobs. So if you look at the economy of the United States and you look at the world economy today and you look at 1.3 percent inflation in the United States and you look at GDP, we basically have the same ingredients that we had a year ago. So if you were a proponent or advocate of quantitative easing a year ago, you probably still are today. So that's why I tend to think that the Fed is in a tough position. They're in a position where they know they can't quantitatively ease forever. They know they're building a bigger and bigger balance sheet, but their number-one objective is to try and grow the US economy. And they're stuck in a dilemma of what to do here. They know the economy's not growing."

"So look, I do believe eventually they will taper. Eventually can be a very long time. I don't believe it's soon. And I - and I do believe that when Janet Yellen gets in there she understands that the dilemma that she's in and she's faced with a very tough position."

"On your second question, you asked me a question about does it matter. And you said Wall Street's doing well. I think it's hard to differentiate between Wall Street and Main Street. Wall Street and Main Street at the same street. They are the same street…Our ultimate client, or the client of our client, is Main Street. You referred to our aims conference in here. We've got 500 CIOs. Many of them run public pensions. Many of them run private pensions. They run union pensions. They run pensions for teachers and firemen and policemen and that's their ultimate client. They're managing stock, they're managing bonds for Main Street to make sure that their pension and their retirement money is intact."

On Main Street being the largest shareholders of financial institutions and whether they realize that when banks are punished--like JPM's fine of $13 billion--it will impact them:

"I don't know. I don't know. But ultimately - and look, I'm sympathetic to Main Street. I'm very sympathetic to Main Street. One of our big initiatives, as you know, has been 10,000 small businesses. We're trying to help entrepreneurs grow their companies and hire people and grow the economy. So we're very sympathetic to what's going on on Main Street. I don't know if Main Street understands that ultimately their retirement savings and their savings that's being outsourced to be professionally managed is in the financial markets."

On whether he's concerned that interest rates are going to rise:

"We're not concerned. Our business thrives in growing economies. If interest rates are rising because we've got a growing economy and world GDP increasing, you have to get very excited about our business because the - the thing that's missing the most from our business right now is a lack of economic growth in the world."

On emerging markets:

"Again, they're called emerging markets. Why are they called emerging markets? Emerging/growing, more volatile, stops and starts. They are called emerging markets because they're more volatile than G-7 markets, than developed markets that are more predicable. We're seeing a natural cycle in the emerging markets. Overall, we still are very bullish on the emerging markets. The emerging markets overall are still outgrowing the G-7 markets. We talk about China and slowing down. A slowdown in China is 7 or 8 percent. We would thrive for that slowdown in the United States of 7 or 8 percent. So it's still an interesting place where we need to be for the long term. We are investing for a long-term cycle. Our clients need to be there for a long-term cycle, and we are excited about the opportunities in emerging markets. If the industry's made a mistake or we at Goldman have made a mistake in emerging markets, it is we've tended to contract our business at the bottom of the cycle when in essence you should be expanding your business because the bottom of the cycle only leads to the top of the cycle and you need to invest at the bottom of the cycle to be ready for the top of the cycle."

On Goldman's fixed income business and its tough last quarter:

"We're very confident in our fixed-income business. We did have a tough quarter. We acknowledged that we had a tough quarter….We don't know precisely why we had a tough

quarter, but the results are in. And I can tell you we had a tough quarter in fixed income. We're very committed. We're going to redouble or triple our efforts in fixed income. We believe ourselves to be a very powerful, a very dominant top-tier fixed-income shop. And we're doing what we need to continue to grow that business."

On what doubling or tripling efforts means:

"To the extent we can hire good people, we're always hiring people. So yes, we're hiring people…We're looking for seasoned traders. We're replenishing our trading supply. We're looked for seasoned salespeople, salespeople that have real client relationships and can come in and help us manage our client relationships. Those people are vital to our franchise and you can never have too many great people in any of our businesses."

On how much of a growth opportunity is if the back can't take real risk and what the difference is between a Goldman trading effort and a Jeffries trading effort:

"I think we can take the risk that's necessary to facilitate our clients. We haven't stopped taking risk clients. We've got balance sheet capital to commit to our business, to facilitate our client business. And we believe by having a bigger footprint, having more salespeople, more distribution and better traders, we'll be able to facilitate…It is more overhead, but it's more revenue. We believe with hiring the additional people we will increase the revenue pool and we'll increase the profitability."

On what bonuses will look like at Goldman this year:

"Well our comp ratio is not down. Our comp ratio, if you look at what we've ended up paying end of last year, we're in line to a little bit higher year-over-year. And bonuses at Wall Street are going to depend on where the fourth quarter comes out. To the extent that firms have decent fourth quarters, I think bonuses will be somewhat in line with last year. And I know at Goldman Sachs if we don't have a fourth quarter bonuses will be down. Because the one thing we have done and we've committed to our shareholders is that our bonus payments will be directly correlated to our revenue."

On what kind of fourth quarter Goldman will have:

"I'm cautiously optimistic."

On whether he likes his job and wants to stay in it:

"Of course."

On what Mike Evans' departure means for him and how long will it take for him to get the CEO job:

"Mike Evans has been a great partner of mine for 20 years. Mike and I have run businesses together. We've co-headed businesses. We've worked together. And for me personally it's a loss to see Mike Evans leave the firm. That said, we still have one of the deepest management teams around. Lloyd and I have been here, as you said, for eight years. We're one of the very few firms that's had stability at the top of a firm through the financial crisis, and we continue to have a really deep bench."

On whether someone will get promoted and take Mike's seat:

"I don't know if we'll see someone get promoted, but Mike's growth market seat, as we talked about before, is very important to us. Someone coordinating what we're doing in the various growth markets around the world is important, and we will ultimately fill that seat with somebody."

On whether he's exhausted by the regulatory environment:

"No. Look, the regulatory environment is just part of what we need to deal with and it's part of our business. In a business like ours where we're in so many countries and we've got so many moving parts, you're always dealing with the regulatory community. You're always dealing with legislative community. You're dealing with different people. But the other side of our business is we've got a huge client base and I'm able to interact with our client base on a regular fashion. I see 400 CEOs a year. It's an interesting seat to be able to see 400 CEOs a year."

On JPMorgan's $13 billion settlement:

"Look, I feel bad for JPMorgan and what they're going through. We've been there. We've been there ourselves. We know what it feels like. I know that Jamie and his team are doing everything they possibly can to put this behind them. They've got a great franchise. They've got a great business. They've got a great management team. They'll get through this and they'll be a very, very strong competitor."

On whether he's going to exit the commodities business if there's a massive capital charge:

"I'd have to see what the capital charge is. We believe that being in the commodity business is essential for our client base. Our clients hedge interest rates, they hedge currencies, they can hedge credit spreads, and they hedge commodities. If you go through the S&P 500 and see how many of those companies have direct commodity risk, it's a substantial number of companies. They need to hedge that in the same way they need to hedge the other risks in their business. And we believe we need to be here for them to allow them to hedge with a credit-worthy counterparty based in the United States."

On whether Goldman will buy JPMorgan's portfolio:

"We're not looking at their portfolio. Some of our clients are looking at their portfolio and some of our clients can potentially ask us for help on looking at some of the long-dated derivatives. We're more than happy to help facilitate our clients, but we're not going to buy the business directly from JPMorgan."


October 23, 2013

Stagflation of the 2000s

90,609,000: Americans Not in Labor Force Climbs to Another Record ... The number of Americans who are 16 years or older and who have decided not to participate in the nation's labor force has climbed to a record 90,609,000 in September, according to data released today by the Bureau of Labor Statistics. The BLS counts a person as participating in the labor force if they are 16 years or older and either have a job or have actively sought a job in the last four weeks. – CNS

Dominant Social Theme: The recession is ending and people are working.

Free-Market Analysis: There has been criticism aimed at the free-market economic paradigm over the past few years. But as far as we can see, it's been correct.

In fact, as we can see from this excerpt, the only model that makes any sense these days is the one that has predicted for decades that money printing can exist with sluggish price inflation and stubborn unemployment.
That model was first enunciated by the Misesian crowd back in the 1970s (when they really could fit into a phone booth), and proved uncannily accurate. It went by the name "stagflation."

Before the 1970s, Keynesian house economists even denied that such a thing was possible. You see, the economy was a lot like a fancy car. You simply had to know which gear to shift it into and how far down to press the accelerator. Of course, you had to fill it up with high-octane super-money, but once that had taken place, well ... no problem! Off you would go.

Only Western economies didn't go very far or very fast in the 1970s. In fact, exactly the same scenario played out then as now. The stock market crashed (several times) and the money pumped into Western central banks didn't do anything but increase price inflation while having a minimal effect on stimulating employment.

And these days, headlines pour out of Washington on a regular basis announcing yet more unemployment. Of course, we don't believe these figures but we do believe in the trend. Here's more:

A person is not participating in the labor force if they are 16 or older and have not sought a job in the last four weeks. In from July to August, according to BLS, Americans not participating in the labor force climbed from 89,957,000 to 90,473,000, pushing past 90,000,000 for the first time, with a one month increase of 516,000. In September, it climbed again to 90,609,000, an increase of 136,000 during the month.

In January 2009, when President Barack Obama took office, there were 80,507,000 Americans not in the labor force. Thus, the number of Americans not in the labor force has increased by 10,102,000 during Obama's presidency. The labor force participation rate, which is the percentage of the non-institutionalized population 16 years or older who either have a job or actively sought one in the last four weeks, was 63.2 percent in September. That was unchanged from August.

... One reason for the increasing number of people not in the labor force is the aging of the Baby Boom generation, whose members have begun retiring--and are not being replaced by an equal number of young people entering the labor force. Another reason is that female participation in the labor force has been declining. In January 2009, the female labor force participation rate was 59.4 percent. In September 2013, it was 57.1 percent.

This last graf is especially interesting because it just shows us once more how inaccurate these articles can be. We've read in other places that people are retiring later and later and continuing to work part-time after their so-called retirement. This is because they can't retire. Their savings were wiped out long ago and the interest on what's left is just a trickle.

Here's an article on this that appeared about a week ago over at the AP newswire:

Americans retiring later, poll shows ... Some 82 per cent of working people over 50 say they're likely to work in retirement ... Stung by a recession that sapped investments and home values, but expressing widespread job satisfaction, older Americans appear to have accepted the reality of a retirement that comes later in life and no longer represents a complete exit from the workforce.
Some 82 per cent of working Americans over 50 say it is at least somewhat likely they will work for pay in retirement, according to a poll released Monday by the Associated Press-NORC Center for Public Affairs Research. The survey found 47 per cent of working survey respondents now expect to retire later than they previously thought and, on average, plan to call it quits at about 66, or nearly three years later than their estimate when they were 40. Men, racial minorities, parents of minor children, those earning less than $50,000 a year and those without health insurance were more likely to put off their plans.

"Many people had experienced a big downward movement in their 401(k) plans, so they're trying to make up for that period of time when they lost money," said Olivia Mitchell, a retirement expert who teaches at the University of Pennsylvania.

So ... where did that retirement go? We're still waiting, some five years now, for the mainstream media to examine the investment "pornography" that was prevalent for the past quarter-century. So many articles, books, theses and even whole television channels dedicated to "investing." Didn't do much good.

The obviousness of what is occurring is still not being presented. The free-market analysis that proved so accurate in the 1970s is still absent from the mainstream stage.

We hear that such analysis is inaccurate because so much money printing should have produced more price inflation, but that is a matter easily dealt with. Prices rise when more money circulates. Since the economy is stagnant, since foreign central banks stash dollars and since the Fed is paying banks not to circulate aggressively, price inflation is still subdued compared to where it will be eventually.

And since much of the West's adult population is either out of work or working off-the-books (maybe via barter), the circulation of money still remains relatively slow despite the tens of trillions that have been pumped into the banking establishment around the world.

All this money has done approximately what it is supposed to do from the elite's perspective, however, which is to create yet another asset bubble. Stock markets are up, housing markets in Germany and Britain – in posh areas, anyway – are positively zooming.

Those reading The Daily Bell may have the financial and intellectual resources to take advantage of this final blow-off, but for many people it won't matter. No matter how high real estate prices go and no matter what valuations blue chip stocks achieve, they will sit out this one out in the cold.

The media will make their situation worse by explaining it is the fault of those who can't or won't take advantage. They didn't handle their money correctly, or their careers or their family life. But given the complexity of society and the intertwining dominant social themes, it is no wonder that even now people don't understand.

They know something has gone terribly wrong but they just don't know what.

It's simple enough. Free-market Misesian analysis got it right, just as it did in the 1970s. Central banks printed too much money, caused a crash and are now busily reflating again via their network of commercial firms and banks.

The process is as controlled as ever and, frankly, just as cruel. It is designed to leave people unemployed while protecting the current bankrupts that populate the "financial system." These may be made whole in a coming stock boom, but they will be as inefficient and bloated as ever. And when the bust comes their bottom lines will wither once more.


Call it the stagflation of the 2000s.


October 22, 2013

Another One Trillion Dollars ($1,000,000,000,000) In Debt

Did you know that the U.S. national debt has increased by more than a trillion dollars in just over 12 months?  On September 30th, 2012 the U.S. national debt was sitting at $16,066,241,407,385.89.  Today, it is up to $17,075,590,107,963.57.  These numbers come directly from official U.S. government websites and can easily be verified.  For a long time the national debt was stuck at just less than 16.7 trillion dollars because of the debt ceiling fight, but now that the debt ceiling crisis has been delayed for a few months the national debt is soaring once again.  In fact, just one day after the deal in Congress was reached, the U.S. national debt rose by an astounding 328 billion dollars.  In the blink of an eye we shattered the 17 trillion dollar mark with no end in sight.  We are stealing about $100,000,000 from our children and our grandchildren every single hour of every single day.  This goes on 24 hours a day, month after month, year after year without any interruption.

Over the past five years, the U.S. government has been on the greatest debt binge in history.  Unfortunately, most Americans don't realize just how bad things have gotten because the true budget deficit numbers are not reported on the news.  The following is where the U.S. national debt has been on September 30th during the five years previous to this one...

09/30/2012: $16,066,241,407,385.89

09/30/2011: $14,790,340,328,557.15

09/30/2010: $13,561,623,030,891.79

09/30/2009: $ 11,909,829,003,511.75

09/30/2008: $10,024,724,896,912.49

The U.S. national debt is now 37 times larger than it was 40 years ago, and we are on pace to accumulate more new debt under the 8 years of the Obama administration than we did under all of the other presidents in U.S. history combined.

Of course all of the blame can't be placed at the feet of Obama.  During the last two elections the American people have given the Republicans a solid majority in the U.S. House of Representatives, and the government cannot spent a single penny without their approval.

Unfortunately, House Speaker John Boehner and the Republicans that are allied with him have repeatedly turned their backs on the people that gave the Republicans the majority and they have authorized trillions of dollars of new debt which will be passed on to future generations of Americans...
Since John Boehner became speaker of the U.S. House of Representatives on Jan. 5, 2011, the debt of the federal government has increased by $3,064,063,380,067.72. That is more than the total federal debt accumulated in the first 200 years of the U.S. Congress--during the terms of the first 48 speakers of the House.
In fact, if all of that debt had been given directly to the American people, every household in America would have been able to buy a new truck...
The $26,722 in new debt per household accumulated under Speaker Boehner would have been more than enough to buy every household in the United States a minivan or pickup truck--or to pay three years of in-state tuition (not counting room and board) at the typical state college.
Sometimes we forget just how much money a trillion dollars is.  In a previous article, I included some illustrations that I believe are helpful...

-If you were alive when Jesus Christ was born and you spent one million dollars every single day since that point, you still would not have spent one trillion dollars by now.

-If right this moment you went out and started spending one dollar every single second, it would take you more than 31,000 years to spend one trillion dollars.

We are doing the exact same thing that Greece did, only on a much larger scale.  What we are doing is not even close to sustainable, and it will inevitably end very, very badly.  The following is what Michael Pento, the president of Pento Portfolio Strategies, told RT the other day...
"That $17 trillion everybody says its 107 percent of GDP, that’s true. But who really cares about the percentage of GDP? It’s the percentage of the debt as a percentage of the revenue – its 700 percent of our revenue. Deficits are growing at 30 percent of our revenue every year added to the deficits we have already. So it’s unsustainable. What is going to happen eventually – a currency and bond market collapse! And it’s not going out 20 years, as I also heard someone mention. In 2016 we’ll probably be spending 40 percent of all of our revenue just to service our debt. That is what the interest payments will equal."
The U.S. debt situation is so bad that even the Prime Minister of Cyprus is scolding us...
"The U.S. has been fortunate in the sense that it’s like a bank, it prints the money that other people accept. So you can live beyond your means over an extended period of time without being punished by the market."
Unfortunately, we will not be able to live way beyond our means forever.  Reality is going to catch up with us at some point.

Right now, the rest of the world is lending us giant mountains of money at interest rates that are far below the real rate of inflation.  This is extremely irrational behavior, and this state of affairs will probably not last too much longer.

But if interest rates go up, it will absolutely cripple the U.S. economy.  For much more on this, please see this article.

And what would make things much, much worse is if the rest of the globe starts moving away from using the U.S. dollar.  At the moment, the U.S. dollar is the de facto reserve currency of the planet and this creates a tremendous demand for U.S. dollars and U.S. debt.

If that changes, it will be absolutely catastrophic for the United States, and unfortunately there are already lots of signs that this is already starting to happen.  I wrote about this in my recent article entitled "9 Signs That China Is Making A Move Against The U.S. Dollar".

But don't just take my word for it.  Just a couple of days ago a major U.K. newspaper came to the same conclusions...
China has overtaken the US as the world’s largest oil importer and goods trading nation. Over the next five years, it will surpass the rest of the world combined in its consumption of base metals. 
Given the scale of the country’s consumption of fossil fuels and raw materials, it is only a matter of time before the renminbi replaces the dollar as the primary currency for trading commodities and resources such as crude oil and iron ore. 
The debt ceiling farce in Washington and China’s growing reluctance to continue underwriting the US economy by buying up its bonds and adding to America’s near $17 trillion (£10.5 trillion) debt mountain suggests that this tectonic shift in the global trade system could be just around the corner.
So what will happen when the rest of the world decides that they don't need to use our dollars or buy our debt any longer?

At that point the consequences of decades of incredibly foolish decisions will result in an avalanche of economic pain that the American people are not prepared for.

Earlier today, I came across a photograph that perfectly captures what America is heading for.  The following photo of Mt. Rushmore crying has not been photoshopped.  It was taken by Megan Ahrens and it was posted on the Tea Party Command Center.  If George Washington was alive today, this is probably exactly how he would feel about the nation that he helped establish...