Month: August 2014

Submitted by Peter St.Ongs (of Mises.org) via Contra Corner blog,

One of the great economic myths of our time is Japan’s “lost decades.” As Japan doubles-down on inflationary stimulus, it’s worth reviewing the facts.

The truth is that the Japanese and US economies have performed in lock-step since 2000, and their performances have matched each other going as far back as 1980.

Either Japan’s not in crisis, or the US has been in crisis for a good thirty-five years. You can’t have it both ways.

Here’s a chart of per capita real GDP for both Japan and the US from 2000 to 2011. Per capita real GDP is the GDP measure that best answers the question: “is the typical person getting richer?”

The two curves look like they came from the same country:

Next, we can go back to 1980, to see where the myth came from. Japan was just entering its “bubble” decade:

We can see what happened here: Japan had a boom in the 1980s, then Japan busted while the Americans had their turn at a boom. By 2000 the US caught up, and Japan and the US synched up and shadowed each other, reflecting boom followed by the inevitable bust.

The only way you can get to the “lost decades” story is if you start your chart exactly when Japan was busting and America booming. Unsurprisingly, this is standard practice of the “lost decades” storytellers.

Of course, this would be like timing two runners, and starting the clock when one of them is on break. It’s absurd, but it gives the answer they want.

Things get worse when you include the artificial effects of inflation and population. Higher inflation and population growth both make the economy appear bigger without making people richer. If America annexed Mexico tomorrow, the US economy would grow by 30 percent. But that’s not going to make the average American 30 percent richer.

Adjusting for inflation and population is Macro 101. It’s so basic, in fact, that we might wonder if the “lost decades” macroeconomists are being intentionally forgetful. Why on earth would they do that?

Who Benefits from the “Lost Decades” Myth?

Who promotes the “lost decades” myth? Are the storytellers trying to make Japan look bad, or the US look good?

I suspect it’s a little of both: politicians in Japan need the sense of crisis to push their vote-buying schemes. It’s a lot easier to sell harmful policies if you can just convince the voters that everything’s already fallen apart. They’ve got nothing to lose at that point. In a crisis we are all socialists.

This cynical PR campaign is bearing fruit already, as Japanese voters accept inflationary policies from their new prime minister. In the name of reviving an economy that’s supposedly on its death-bed. Hard-working Japanese are losing their savings through low rates and inflation, but honor demands sacrifice so long as the future of the children supposedly hangs in the balance.

In reality, the re-telling of Japan’s myth reminds one of a doctor who lies to a patient so he can sell a cure that harms the patient.

On the American side, the myth of Japan’s “lost decades” is similarly useful: it makes our economic overlords seem like they actually know what they’re doing. And it serves to warn the naysayers: the “lost decades” myth is a bogeyman waiting to pounce if we ever falter from our bail-outs and vote-buying stimulus.

The truth, hidden in plain view, is that Japan’s not bad enough to be a battering ram for Japan’s Keynesian vote-buyers, and the US economy isn’t good enough for our home-grown vote-buyers to keep their jobs.

via Zero Hedge http://ift.tt/1prSkWa Tyler Durden

Excerpted from Global Gold interview with Marc Faber,

Let’s talk about the ongoing power shift from the West to the East.

Well, basically, everything is connected and interrelated. We had a colonial system until the end of the Second World War, followed by the rise of individual countries. And over the last twenty-five to thirty years what we had was the rise of China with 1.3 billion people. Because of China’s rapid growth and resource dependence (iron ore, copper from Australia, Brazil and Africa, and oil principally from the Middle East), the Chinese have obviously become a very important economic force.

 

Take Africa twelve years ago: trade between Africa and the US was twice the size of trade between Africa and China. But today, the situation is reversed.

 

As a result, China has gained large geopolitical influence due to its growing economic relations. This helped shift alliances from the US to the East, which has led to tensions. China has many provinces that are larger than a European country and as an economic block, China is huge! It dwarfs everything else in Asia. But now China is surrounded by military bases in Asia, by American aircraft carriers and by the signed defense treaties between the US and Japan.

 

Moreover, the Chinese never forgot that Japan had attacked them numerous times over the past 200 years. Additional disputes between China and its surrounding countries, Vietnam, the Philippines, Taiwan, and especially Japan about maritime rights will cause further tension in the region.

 

Despite these tensions, the power shift is still underway. You have a superpower like the one Britain was until the First World War and you have a rising power like Germany whose economy in 1910 overtook that of the British. Here you have the superpower that believes in the old order and the new power that believes it should have more influence on global affairs. The resulting tensions create an environment that is favorable for confrontation.

 

But it doesn’t have to come to war. In my view, China’s long-term objective is to kick out the US from their military bases, particularly after Hillary Clinton and Mr. Obama announced the American Pivot to Asia two years ago; it was a kind of direct attack or confrontational behavior towards China.

Can you tell us your opinion on the recent developments and events in the world like the Middle East? Will these events in that region further escalate? Will they have a long-term impact?

Today, we find ourselves with the same anti-free market interventionists who set up the Federal Reserve, the US Treasury and the US government. These same incompetent professors and academics also run foreign policy in America and then go and intervene in the affairs of Libya, Syria, Egypt, Iraq or Afghanistan. And as can be expected, they mess up just about everything.

 

We have this Wolfowitz Doctrine that says they don’t want to tolerate any other major power such as the Soviet Union or China. So they want to contain these countries. When these countries become economically more and more important, the tensions, in my view, are only going to increase.

 

I think it’s unlikely that the West will take any action.

 

First of all, they don’t have the money.

 

Second, a survey done by the US military stated that over 71% of their youth are unqualified to join the military for a number of reasons, including educational, behavioral and health conditions. So, if 71% of American youth are not qualified, it means the US doesn’t have the labor force to actually implement its foreign policies. And so they resort to private contracting companies that create more problems than solutions.

 

I’m very negative about the Middle East. I think the whole region will blow up.

 

Eventually Iraq will be divided into three different countries: the Kurds, the Sunni in the North and the Shiites in the South. All I can say is that, in general, financial markets are not paying sufficient attention to this.

What are your thoughts on the Chinese-Russian gas deal? Is this a further step towards the decline of the Dollar or the next step towards replacing the USD as the world reserve currency?

I think it’s a symptom of the new world order I was referring to where the balance of economic power has shifted to Asia and emerging economies. This becomes very clear if you look at European companies. Where do they grow? Not in Europe.

 

Asia has become and will remain the growth market. The gas deal is a big deal in the sense that, it proves how incompetent US foreign policy is.

 

The US supported the opposition in Ukraine thinking that Russia will do nothing. But Crimea is strategically important to Russia since it gives their fleet access to the Mediterranean and the Middle East. And so, by supporting the opposition in Ukraine, the Americans essentially removed a democratically elected president. He may have been incompetent, but he was democratically elected nevertheless.

 

That’s democracy! In democracy you have incompetent people at the top.

 

The Americans also thought they can push the Russians a bit further by trying to lure Ukraine into NATO. That was a step too far and so the Russians reacted by signing a gas deal with China! The significance of this deal lies in that the payment will no longer be made in Dollars but in local currency, the Ruble or Yuan.

 

I think this is symptomatic of an empire, the US, in decline and a global currency in decline as well. Don’t forget, until WWI, the world currency was the British Pound and its importance diminished afterwards. And now we have a gradual lessening importance of the US Dollar.

*  *  *

Hold gold…

via Zero Hedge http://ift.tt/1pSg0Cg Tyler Durden

Submitted by Jim Quinn via The Burning Platform blog,

It’s that time of year again – when the little juvenile delinquents, future prison inmates, and functionally illiterate junior members of the free shit army pick up their “free” backpacks and “free" school supplies they will never use and shuffle off to the decaying prison like schools in the City of Philadelphia to eat “free” breakfasts and “free” lunches, while being taught government sanctioned pablum by overpaid mediocre union teachers.

It’s a repeat of every year for the Phila school district. As the school year approaches they are shocked to report a massive deficit and beg the State of PA for more funding. The $12,000 per child simply isn’t enough, even though Parochial schools provide ten times the education for $9,000 per child. The district has a slight $80 million deficit this year. Last year they had a $100 million deficit and the mayor proposed a soda tax to fill the gap. It was defeated, so they raised property taxes instead. Mayor Nutter’s name is fitting. He is just another in a long line of Democratic mayors who have ruled Philadelphia since the 1950′s and whose policies of welfare handouts for their voting base paid for by taxing the producers, has resulted in a population decline from 2.1 million in 1950 to 1.5 million today. Doug Casey captures the essence of Philly with this definition:

Ineptocracy (in-ep-toc’-ra-cy): a system of government where the least capable to lead are elected by the least capable of producing, and where the members of society least likely to sustain themselves or succeed are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

The liberal solution to an ever decreasing tax base and an ever growing level of benefits for the free shit army and government union drones, is to increase taxes on the few remaining producers. They then flee the city, leaving fewer producers to tax. Rinse and repeat. Your neighborhoods then look like this.

The mayor, school district superintendent, and teacher’s union use the liberal mainstream media to sound the alarm about “devastating” budget cuts that will imperil the tremendous education the cherubs will receive. They warn that the school year will have to be delayed. They peddle mistruths about the governor cutting education funding in an attempt to influence public opinion. Their “solution” to the budget deficit this year is a doozy. I’ll get to that later. First I have to provide a mural update.

I drive past the Morton McMichael grade school in Mantua every day on my way to work. It sits across the street from the $27 million low income gated townhouse community called Mantua Square, paid for with your Obama stimulus funds in 2011. (Update: The 8 storefronts built into the project two years ago and touted as a way to revitalize commerce in Mantua still sit vacant – 100% NO OCCUPANCY. This follows the old liberal economic theorem of build it and they won’t come.) This school looks like it could be in a Dickens novel from the 1800′s. That’s fitting since Morton McMichael was a prominent citizen of Philadelphia during the 1800′s as founder of the Saturday Evening Post and Mayor of Philadelphia. That was back when a white man could get elected mayor of Philadelphia.

The building is decades old. It is dilapidated, run down and crumbling. The windows have never been replaced. Of course, you would have to remove the bars and cages to get to the windows. The neighborhood has a bit of a crime problem. An 8 year old boy was raped on the way to this school last year. There are a couple ancient air conditioners poking out of some windows. The parking lot/play area is crumbling blacktop with weeds, strewn with garbage for good measure. Graterford Prison is more inviting than this institution of learning. The parking lot was empty all summer. The Phila School district had no plans for any capital renovations at this school. No new windows. No new classrooms. No new technology. No central air conditioning.

Then about a month ago I noticed scaffolding going up in front of the school. Maybe they were going to actually do some renovations to improve this blight. Then I noticed they were just painting the bricks white. A few days later it became clear. Rather than making actual improvements to the decaying structure, it was another mural. Of course another white artist, not from the neighborhood, was getting paid to beautify the school to inspire the children on to great deeds. They chose an environmental theme rather than black people doing great things. It looks like graffiti to me.

Maf Is Hard

I’m sure this paint job, paid for with tax dollars, will really turn this school around. They have had four principals in the last three years. The discipline in this school is so bad that teachers fear assaults from students and parents alike. This is another classic example of liberals wasting money with shallow displays, while ignoring the true problems. This school has 408 students and 35 full-time union teachers. That is a ratio of 11.7 students per teacher. The ratio in Parochial schools is 17 to 1. When I went to school it was over 20 to 1. With an 11.7 students per teacher ratio, they should be getting a great education from these top notch educators. Check out the results:

Dark Blue – Morton McMichael; Light Blue – Phila Schools; Grey – PA schools

By 5th grade less than 30% can do math, less than 20% can read, and less than 10% can write at a proficient level. And you can bet that proficient level is not that high. The state results are bad enough, but the Philadelphia results are atrocious. In Philadelphia, only 33 – 13% of the district’s 250 schools met state standards, down from 41% in 2011. It was uncovered that they were cheating on the test scores in 2011. Liberals lie and cheat when it comes to getting funding. The Morton McMichael school has 35 full-time union teachers earning good money, with gold plated healthcare and pension plans. And this is the results they are producing? I came across a quote from William Arthur Ward today that applies:

“The mediocre teacher tells. The good teacher explains. The superior teacher demonstrates. The great teacher inspires.”

The Philadelphia school system educates (I use the term loosely as 50% dropout) 200,000 kids per year with a tiny budget of $2.4 billion. The district has been so poorly run and corrupt that a state commission now runs the schools. They insist that $2.4 billion isn’t enough to achieve SAT scores not much higher than you get for signing your name. How is it that a school district that spends more than the national average per student can’t manage to educate children properly? One look at its personnel costs and perks, including exploding pensions and legal services for union members, gives you an idea why.

The storyline from the liberal media, greedy teacher’s union, and captured Democratic politicians is that the evil Republican governor Corbett has gutted their funding. It’s a completely false storyline. The $800 billion Obama porkulus plan doled out payoffs to teacher unions around the country. The temporary stimulus funds expired. In the mind of an idiotic liberal, this is considered a spending cut. Temporary = permanent in the demented mind of a liberal. The truth is that Philadelphia union teachers are overpaid and under-worked. The PA government pension plan is a ticking time bomb that is destroying the budgets of every locality in the State. It’s just that Philadelphia is the worst run, most corrupt, and most union controlled in the State.

Philadelphia school district pensions costs alone are going from the equivalent of 16.9% of wages to 21.4% of wages in one year. In dollar terms that’s an increase of $3,230 per average teacher in just one year. Pensions alone will cost $159 million next year. Philly schools also pay for a number of other benefits, including the equivalent of 3.26% of salary for unused sick and vacation days that workers can cash in when they leave. In all, these variable benefit items  will add the equivalent of nearly 39% of salary to the cost of employing a worker.

The school’s budget also includes a range of  per capita benefit costs, so called because they are expressed in dollars per worker, not percent of salary. Medical insurance averages $13,829 per worker, up by $1,000. Then there are health and welfare benefits, which are additional health perks, such as prescription eye benefits. H&W, as it’s known, costs an average of $4,447 more per teacher. They even offer legal services to workers at a cost of $165 per worker.

For the average teacher earning $68,700 annually, benefit costs pile on an additional $44,100, meaning the average cost of employing a teacher in the system is $112,700. Benefit costs, in other words, amount to two-thirds of salaries. By contrast, according to the Employee Benefits Research Institute, the total cost of benefits in the private sector amounts to 30% of salaries.

AVERAGE COSTS, TYPICAL PHILLY SCHOOL DISTRICT

So let me get ths straight. The average Philadelphia teacher is receiving compensation and benefits of $112,700 and 50% of the students dropout, while of the remaining students only 45% can do math, 35% can read, and 30% can write. But at least they have some nice murals dotting the decaying schools.

Every new year will bring higher pension payment requirements. PA has $55 billion of unfunded pension benefits payable to government union workers and teachers. Annual pension contributions increased by 25% or more in the majority of education systems last year and that more than three-quarters of districts are anticipating a similar increase this year. By 2020, school officials in the state estimate, pensions will amount to more than 30% of payroll, up from just 4% in 2009. This is a crisis that grows larger by the day and is willfully ignored by politicians beholden to these government unions.

Last year, on average, workers with 35-39 years of service who retired in a school system had a final annual salary of $80,285 and a pension of $60,396, or about 75% of final salary. Not bad for turning out functionally illiterate morons. Rather than accept the fact that the government pension system is a disaster and needs a massive makeover, the feckless politicians choose higher taxes and annual gimmicks.

What Are They Smoking

Guess how Mayor Nutter, the School Superintendent, and the Democratic politicians want to fund the $80 million school district budget? A $2 per pack additional cigarette tax in the City of Philadelphia. Cigarette taxes are supposed to fund the detrimental societal healthcare costs of smoking. Instead they are being used to fund bloated teacher pensions. Local governments are incapable of imposing excise taxes, so the PA legislature must pass this law. So far they have not complied, but they will come September because it is the easy solution. Why tackle pension reform when you can just increase taxes on the poor to pay for bad teachers?

The multitude of things wrong with this idea is beyond comprehension. Why foist the cost onto a minority — and given the demographics of those who smoke, a poor minority? Although local governments try to tax cigarettes and even alcohol, there’s no money in taxing vices. It’s too easy to purchase cigarettes outside the city. Why would anyone buy cigarettes in Philly when they can go into the next County and pay 50% less? There is already a $1.60 PA state tax on every pack of cigarettes. Adding another $2 would put Philly just behind NYC and Chicago on the tax scale. The imposition of this tax will increase bootlegging, smuggling and other criminal activities. Just what Philly needs – more crime. They can then use that as a reason to hire more union cops. It’s the liberal circle of life.

The people who should be most angry about this “solution” are the very people who keep voting idiotic Democrats into office for decades – poor black people. Only 23% of Philadelphians havea college degree. Those without a degree are more than twice as likely to smoke. Cigarette taxes are a tax on the stupid.

There are 580,000 households in Philadelphia. The median household income is $34,000 and 26% of the population lives below the poverty line. Approximately 300,000 of the households make less than $36,000 and 400,000 make less than $60,000. The lower the household income the higher the percentage who smoke. So the master plan of the Democrats who run Philly is to deplete what little disposable income the poor have left in order to pay the bloated salaries and pensions of terrible teachers.

The average income of a worker in Philly is $22,000. 38% of these people smoke, versus 12% of those making over $90,000. This cigarette tax is built upon the same warped logic as government run casinos and lotteries. It’s a tax on the ignorant and least able to afford the tax.

The sheer idiocy of this plan to “save” the schools this year is lost on the brainless media twits mouthing the teacher’s union talking points. The $12,000 per year per child is more than enough to pay for a decent education. The $2.4 billion budget should be geared to improving facilities, providing books, and paying excellent teachers for excellent results. Tenure should be scrapped and lousy teachers should be fired. The government pension plan needs to be obliterated and replaced with a 401k plan like the rest of the world is stuck with. It will never happen. The democrats who have controlled Philly for the last 60 years will raise property taxes, raise sales taxes, and raise cigarette taxes until they drive every producer and business out of the city, while further impoverishing the very people they pretend to care about. Detroit here we come.

Remember, smoke a cigarette for the children. And remember to buy them in Philly for 50% more than you pay in the suburbs. It’s always for the children.

via Zero Hedge http://ift.tt/1n6dcfW Tyler Durden