Month: December 2016

Submitted by Tho Bishop via The Mises Institute,

Donald Trump hasn’t yet made the move from Trump Tower to America’s most expensive public housing, but he was able to come through with one campaign promise this week by announcing a deal with Indiana-based Carrier Air Conditioning that will keep almost 1,000 jobs in the state. As reported, the deal seems largely focused on the State of Indiana offering millions in tax breaks and an understanding that the Trump administration will push for regulatory and corporate tax relief at the Federal level.

While the jobs Carrier will be keeping in the US only makes up about a third of the jobs the company had planned to move to Mexico, the underlying deal seems to reflect a larger commitment to addressing the corporate tax and regulatory burdens that have long held back the American economy. While some have described Trump's approach as crony capitalism, if the terms of the deal really are limited to tax relief, such claims are baseless. While it is true that tax breaks for specific companies are less ideal than across-the-board cuts (or outright abolishment) of business taxes, they should not be confused with taxpayer subsidies.

As Matthew McCaffrey wrote last year defending tax credits for video game companies:

Decades ago, economists like Mises and Rothbard were already arguing that tax breaks are not economically or ethically equivalent to receiving subsidies. Simply put, being permitted to keep your income is not the same as taking it from competitors. Exemptions and loopholes do not forcibly redistribute wealth; taxes and subsidies do, thereby benefiting some producers at the expense of others.

 

Yes, entrepreneurs who take advantage of tax breaks will incur fewer costs than entrepreneurs who don’t. But this doesn’t show that exemptions or loopholes provide unfair advantages; in fact, just the opposite — it shows that taxes penalize entrepreneurs unlucky enough to be left holding the bill.

Tax breaks are beneficial to those who claim them, but they are not subsidies. Rather, exemptions and loopholes are life jackets in a sea of wealth redistribution. Mises said it perfectly: “capitalism breathes through those loopholes.” Sadly, his simple insight continues to elude most commentators.

Yet still, unsurprisingly, the deal has been condemned by devoted Trump-critics from across the ideological spectrum.

David Boaz, vice president of the Cato Institute, found the offering of tax breaks and regulatory relief alarming, telling The Fiscal Times:

This is not a precedent we want to see — American presidents aren’t supposed to interfere on behalf of individual companies. When the president does it himself it makes clear that this is a crony economy, to benefit the president’s friends, and that individual companies can be subject to pressure and punishment directly at the hands of the president.

Of course, Trump didn’t make this deal by himself — he worked with the Vice President-elect Mike Pence, who is still the governor of Indiana. There’s also no indication that Trump’s deal with Carrier reflected any sort of personal interest in the specific company, but rather is part of a larger push to keep companies from re-locating overseas. While Trump’s rhetoric on trade, with a heavy focus on the potential use of tariffs, is itself troubling, there is nothing inherently wrong with an administration focused on keeping jobs in America — especially if this is accomplished by relieving tax and regulatory burdens.

A more compelling argument against Trump’s deal was made by AEI’s James Pethokoukis:

More broadly, this is all terrible for a nation's economic vitality if businesses make decisions to please politicians rather than customers and shareholders. Yet America's private sector has just been sent a strong signal that playing ball with Trump might be part of what it now means to run an American company. Imagine business after business, year after year, making decisions based partly on pleasing the Trump White House. … Indeed, one Indiana official, Politico reports, thinks the deal was driven by concerns United Technologies “could lose a portion of its roughly $6.7 billion in federal contracts.”

Pethokoukis is correct, if business decisions start to be made entirely to please President Trump, then the American economy would suffer. But, again, the carrots Trump used for the Carrier deal involved lower taxes and a promise of regulatory relief. Should he follow through, then Trump’s economic policy would be helping American workers while simultaneously benefiting American customers and company shareholders. While future deals may deviate from this approach, and any move to push punishing tariffs should be rightfully criticized, it isn’t applicable in this specific situation.

And while it’s fair to speculate that Carrier’s parent company, United Technologies Corp., is hoping any good will it builds with a Trump administration will either lead to future government contracts, or protect the ones it has, this is simply the unfortunate consequence of having government and business so tightly entwined to begin with. It is hardly unique to either the Carrier deal or the Trump administration.

Of course it should come as no surprise that the most absurd analysis of Trump’s deal comes from Senator Bernie Sanders, who in The Washington Post wrote:

Just a short few months ago, Trump was pledging to force United Technologies to “pay a damn tax.” He was insisting on very steep tariffs for companies like Carrier that left the United States and wanted to sell their foreign-made products back in the United States. Instead of a damn tax, the company will be rewarded with a damn tax cut. Wow! How’s that for standing up to corporate greed? How’s that for punishing corporations that shut down in the United States and move abroad?

 

In essence, United Technologies took Trump hostage and won. And that should send a shock wave of fear through all workers across the country.

Sanders main criticism is that Trump moved away from rhetoric punishing American businesses and instead tried to alleviate some of the additional costs government imposes on them. It’s not a surprise this upsets the senator from Vermont, as in his world, an opportunity to increase someone’s tax burden is a terrible thing to waste — which is why he campaigned on raising them for most of America.

Though the deal with Carrier will go a long way to make America great again for those workers who were facing losing their jobs, it is a drop in the bucket for the ills that really plague the country. There are still many warning signs about what the economic policy of a Trump administration will look like. But not every action he takes will necessarily be bad policy.

If Trump builds on this win with broader cuts on corporate taxes and regulatory relief, as he ran on during the campaign, than these policies should be praised — just as any future attacks on sound economics or individual liberty should be condemned.

via http://ift.tt/2g2A2uW Tyler Durden

Throughout history, government officials have tried to stop "fake news" through various means before it was published.

The crime of the peddlers of fake news: failing to acknowledge that those in power were perfect saints.

Socrates

For example, Socrates was killed in 399 BC for spreading "fake news".

His crime: “Failing to acknowledge the gods that the [mainstream media of the day] acknowledges”.

Tyndale

William Tyndale was killed in 1536 for spreading "fake news".

His crime:  Translating the Bible into English so that everyone could read it for themselves, and no longer had to rely on the clergy to tell them what it said.

Galileo

In 1616 and 1633, Galileo was tried for spreading "fake news".

His crime: spreading fake news that the Earth rotates around the Sun.

Heretics

Scores of people have been killed over the centuries for spreading "fake news".

Their crime: Saying anything that the church authorities of the day disliked.

Benjamin Franklin

In 1773, Ben Franklin was fired as colonial Postmaster General for spreading "fake news".

His crime: informing the American Colonists about what the British were really doing.

Strongmen

Strongmen of all stripes have cracked down on "fake news".

The fake news pushers' crime:  criticizing the dictator or his policies.

Book Burnings

In 1933, the Nazis carried out numerous book burnings of "fake news". The targeted authors included Einstein, Freud, Kafka, Hellen Keller, Jack London, Thomas Mann, Proust, Upon Sinclair and H.G. Wells.

The authors' crime:  their books “acts subversively on our future or strikes at the root of German thought, the German home and the driving forces of our people…”

There have been many other book burnings of "fake news" throughout history.

Mussolini

Mussolini had around 2,000 purveyors of "fake news" killed.

Their crime: opposing Mussolini.

Stalin and the Soviet Union

Stalin handled the peddlers of "fake news" by murdering them or throwing them into insane asylums.

Their crime:  criticizing the Soviet government or Communism.

Other Communist Regimes

China's Mao and other Communist leaders killed many "fake news" spreaders.

Their crime: failing to sing the Great Leaders' praises.

CIA

In 1972, CIA director Richard Helms put a stop to those within his agency spreading "fake news" by labeling them "terrorists".

Their crime:  criticizing domestic operations by the CIA  on U.S. soil.

Conclusion

See how easy it is?

If only U.S. Supreme Court justices stopped being such sissies.

</sarc>

via http://ift.tt/2gwzbDC George Washington

Submitted by Eric Peters via EricPetersAutos.com,

We live in a society driven by debt.

Cars, for example, have become hugely expensive (even on the low end) relative to what people can afford – because of the easy availability of credit. Which is the nice word used to speak about debt, intended to encourage us to get into it.

It takes at least $15,000 or so to drive home in a “cheap” new car, once all is said and done. And the “cheap” car will have to be registered, plated and insured.

It runs into money.

And most new cars cost a lot more money. Which most people haven’t got. So they get debt. A loan. Which, when it becomes commonly resorted to as a way to live beyond one’s means as a lifestyle, drives up the cost of life for everyone. Including those who try to live within their means – or better yet, below them.

When most people (when enough people) are willing – are eager – to go into hock for the next six years in order to have a car with an LCD touchscreen, leather (and heated) seats, six air bags, a six-speaker stereo, electronic climate control AC and power everything – which pretty much every new car now comes standard with – the car companies build cars to satisfy that artificial demand.

Artificial because based on economic unreality. That is a good way to think about debt. It is nonexistent wealth.

You are promising to pay with money you haven’t earned yet.

And maybe won’t.

The car market has become like the housing market – which has also been distorted by debt to a cartoonish degree. The typical new construction home is a mansion by 1960s standards. Not that there’s anything wrong with living in a mansion. Or driving a car with heated leather seats and climate control AC and a six-speaker surround-sound stereo and six air bags and all the rest of it. Provided you can afford it.

Most people can’t.

Normally, that fact would keep things in check. There would be mansions, of course – and high-end cars, too. But only for those with the high-end incomes necessary to afford them. Everyone else would live within their means. We wouldn’t be living in this economic Potemkin village that appears prosperous but is in fact an economic Jenga Castle that could collapse at any moment.

There would be a lot less pressure to “keep up with the Joneses”… as they head toward bankruptcy and foreclosure.

As society heads that way.

Like the housing industry, the car industry has ceased building basic and much less expensive cars because of easy and grotesque debt-financing.

Which is tragic.

There ought to be (and would be) a huge selection of brand-new cars priced under $10,000 were it not for the ready availability of nonexistent wealth (.e., debt and credit).

Cars many people could pay cash for.

Brand-new cars.

Not shitboxes – as the late great Brock Yates christened them.

They would have the build quality/body integrity and quality paint jobs that are now standard equipment with every new car, because of generally improved (and largely automated) manufacturing techniques, such as robotic welding and painting. Part of the reason yesterday’s low-cost cars felt shoddy – and rusted early – was because they were shoddily (and spottily) constructed. By often-aggrieved line workers, who maybe got a little too drunk the night before and so weren’t being very careful the next day, while fitting panels to the car.

It’s not like that today – and irrespective of price point. The humblest new car is built to a much higher standard than top-of-the-line luxury cars once were. Those costs have been amortized; build quality would not regress if debt-financed flim-flam went away. To think it would is like thinking we’d go back to corded wall phones.

They would have reliable, efficient – and not balky/hard-starting/stalling – engines, too. Because the cost of simple (throttle body) electronic fuel injection – an exotic technology back in the shitbox days – no longer is.

It’s everywhere – economies of scale have made it so.

Probably our less-than-$10k-car would have things like power windows and AC, if you wanted it. But wouldn’t it be nice if it were optional?

None of this is pie-in-the-sky.

Such cars are being sold all over the world right now, just not in the Western world – which is  in debt up to its eyeballs.

Because the debt lifestyle has been normalized. There now exists social stigma to live below one’s means. To not give the appearance of wealth one doesn’t have by purchasing – on credit – things one can’t really afford.

That – as much as the regulatory burden of government – is what’s driving up the cost of life for all of us. Including those still trying to live within our means.

via http://ift.tt/2giyR8E Tyler Durden

On November 30, one week after the Washington Post launched its witch hunt against “Russian propaganda fake news“, with 390 votes for, the House quietly passed “H.R. 6393, Intelligence Authorization Act for Fiscal Year 2017“, sponsored by California Republican Devin Nunes (whose third largest donor in 2016 is Google parent Alphabet, Inc), a bill which deals with a number of intelligence-related issues, including Russian propaganda, or what the government calls propaganda, and hints at a potential crackdown on “offenders.”

A quick skim of the bill reveals “Title V—Matters relating to foreign countries”,  whose Section 501 calls for the government to “counter active measures by Russia to exert covert influence … carried out in  coordination with, or at the behest of, political leaders or the security services of the Russian Federation and the role of the Russian Federation has been hidden or not acknowledged publicly.”

The section lists the following definitions of media manipulation:

• Establishment or funding of a front group.
• Covert broadcasting.
• Media manipulation.
• Disinformation and forgeries.
• Funding agents of influence.
• Incitement and offensive counterintelligence.
• Assassinations.
• Terrorist acts.

As ActivistPost correctly notes, it is easy to see how this law, if passed by the Senate and signed by the president, could be used to target, threaten, or eliminate so-called “fake news” websites, a list which has been used to arbitrarily define any website, or blog, that does not share the mainstream media’s proclivity to serve as the Public Relations arm of a given administration.

Curiously, the bill which was passed on November 30, was introduced on November 22, two days before the Washington Post published its Nov. 24 article citing “experts” who claim Russian propaganda helped Donald Trump get elected.

As we reported last week, in an article that has been widely blasted, the WaPo wrote that “two teams of independent researchers found that the Russians exploited American-made technology platforms to attack U.S. democracy at a particularly vulnerable moment, as an insurgent candidate harnessed a wide range of grievances to claim the White House. The sophistication of the Russian tactics may complicate efforts by Facebook and Google to crack down on “fake news,” as they have vowed to do after widespread complaints about the problem.”

The newspaper cited PropOrNot, an anonymous website that posted a hit list of alternative media websites, including Zero Hedge, Drudge Report, Activist Post, Blacklisted News, the Ron Paul Report, and many others. Glenn Greenwald penned an appropriate response two days later in “Washington Post Disgracefully Promotes a McCarthyite Blacklist From a New, Hidden, and Very Shady Group.”

PropOrNot has pushed a conspiratorial thesis, without any actual proof, that the listed websites have been either used directly or covertly by the Russians to spread propaganda.

While the bill passed the House with a sweeping majority, it is unknown if and when the bill will work its way through the Senate and be passed into law, although one would think that it has far higher chances of passing under president Obama than the President-Elect. It is also unclear if it will be used to shut down websites anonymously characterized as “useful idiots” or subversive elements used in disseminating supposed Russian propaganda.

Those interested can read the full “H.R. 6393: Intelligence Authorization Act for Fiscal Year 2017″ at the following location” bill that may soon proclaim much of the internet to be criminal “Russian propaganda” at the following link.

via http://ift.tt/2gQ1TQt Tyler Durden

Submitted by Mike Krieger via Liberty Blitzkrieg blog,

Two days after Donald Trump’s election victory, I expressed the following sentiment in a post titled, Draining the Swamp? Wall Street is Already Loving Donald Trump:

To conclude, this article is primarily written for all my readers who are either Trump supporters, or who reluctantly voted for him. My message to you is that we need to hold this man’s feet to the fire. The election is over, and you got your desired outcome. Now is not the time to be a cheerleader. Now is not the time to behave exactly like Obama zombies did after he became an obvious betrayal. What allowed Obama to do all the bad things he did, was the fact that his supporters made endless excuses for him. Don’t make excuses for Trump. If you do, your life will get a lot worse and this country will decay far more into an authoritarian oligarchy than it already has. It is up to you to make sure he doesn’t become the Wall Street puppet I always feared he would be.

This message has become increasingly important with each passing day, and with every new cabinet disappointment. Mnuchin is not the only one. Trump picked the sister of Blackwater’s Erik Prince for Education Secretary (for more on Prince, see: America’s Top Rogue Mercenary – Blackwater’s Erik Prince is Under Federal Investigation) and Mitch McConnell’s wife for Transportation Secretary (see: Trump Fills the Swamp with Elaine Chao, Mitch McConnell’s Wife, for Transportation Secretary). The swamp is being filled rapidly, and the sooner we admit it, the better.

Those who recognize Trump’s betrayal most quickly will be average Americans who have been preyed upon by some of his cabinet picks. One of these people is Teena Colebrook.

The AP reports:

WASHINGTON (AP) — When Donald Trump named his Treasury secretary, Teena Colebrook felt her heart sink.

 

She had voted for the president-elect on the belief that he would knock the moneyed elites from their perch in Washington, D.C. And she knew Trump’s pick for Treasury Steven Mnuchin all too well.

 

OneWest, a bank formerly owned by a group of investors headed by Mnuchin, had foreclosed on her Los Angeles-area home in the aftermath of the Great Recession, stripping her of the two units she rented as a primary source of income.

 

“I just wish that I had not voted,” said Colebrook, 59. “I have no faith in our government anymore at all. They all promise you the world at the end of a stick and take it away once they get in.”

 

Less than a month after his presidential win, Trump’s populist appeal has started to clash with a Cabinet of billionaires and millionaires that he believes can energize economic growth.

 

The prospect of Mnuchin leading the Treasury Department drew plaudits from many in the financial sector. A former Goldman Sachs executive who pivoted in the early 2000s to hedge fund management and movie production, he seemed an ideal emissary to Wall Street.

 

When asked on Wednesday about his credentials to be Treasury secretary, Mnuchin emphasized his time running OneWest which not only foreclosed on Colebrook but also thousands of others in the aftermath of the housing crisis caused by sub-prime mortgages.

 

For Mnuchin, the fundamental problem stems from the Great Recession. His investor group was the sole bidders to take control of the troubled bank IndyMac in 2009. The group struck a deal that left the Federal Deposit Insurance Commission responsible for taking as much as 80 percent of the losses on former IndyMac assets and rebranded the troubled bank as OneWest.

 

The combination of OneWest’s profitability, government guarantees and foreclosure activities drew the ire of activist groups like the California Reinvestment Coalition. It found the bank to be consistently one of the most difficult to work out loan modifications with even though OneWest never drew a major response from government regulators.

 

By June of 2014, five years after taking over OneWest, Mnuchin sold the bank for $3.4 billion at a tremendous profit.

For much more on this topic see: There Will Be Swamp – Steve Mnuchin Confirms Treasury Secretary Nod.

Over five years, she tried unsuccessfully to adjust her loan with OneWest through the Treasury Department’s Home Affordable Modification Program. But she said that One West Bank lost paperwork, provided conflicting statements about ownership of the loan and fees and submitted charges that were unverified and caused her loan balance to balloon. By the time she lost her home in foreclosure in April 2015, the payoff balance totaled $517,662.

 

Colebrook said she is still challenging the foreclosure in court.

Trump won’t be draining any swamp. It pains me to say this, because as I noted in my first post-election article, Americans Roll the Dice With President Donald Trump, I was hoping Trump would do the right thing and become a great President:

Donald Trump has a historic opportunity to be a great President. Barack Obama was presented with a similar opportunity eight years ago and he immediately squandered it by surrounding himself with miserable, status quo economic and foreign policy insiders. He ditched the people who believed in him and voted for him, and in doing so cemented his legacy as that of a man who coddled oligarchs, kept banking criminals out of jail and further incinerated the Middle East. He’ll also be seen as the man whose tremendous disappointments as commander-in-chief led to the emergence and elevation of Donald Trump.

It looks like Trump is immediately filling his administration with swamp creatures, just like Obama did before him. The time for cheerleading is over. The time for accountability is now.

via http://ift.tt/2fUAeZY Tyler Durden

Ever since the US adopted a “One China” policy after the 1972 Nixon-Mao meetings, followed by President Carter formally recognizing Beijing as the sole government of China in 1978 leading to the closure of the US embassy in Taipei one year later and cutting off relations with Taiwan, when it comes to US-China diplomacy Washington has maintained a steady posture when it comes to Taiwan: non-recognition.

That changed today, when as the Trump team reported, following decades of diplomatic non-contact, the president-elect held a phone conversation with the president of Taiwan, Tsai Ing-wen, who offered Trump her congratulations, and during which “they noted the close economic, political and security ties” that exist between Taiwan and the United States.

Perhaps Trump was confused, and thought he was chatting with the president of the People’s Republic of China, also known as China, instead of the Republic of China, better known as Taiwan, but whatever the reason, Trump now risks a major diplomatic scandal with China – before he has even been inaugurated – as a result of his phone call with the president of Taiwan, which China regards as a renegade province. As the FT accurately notes, “although it is not clear if the Trump transition team intended the conversation to signal a broader change in US policy towards Taiwan, the call is likely to infuriate Beijing.“

Quoted by the FT, Evan Medeiros, former Asia director at the White House national security council said that “the Chinese leadership will see this as a highly provocative action, of historic proportions.”

“Regardless if it was deliberate or accidental, this phone call will fundamentally change China’s perceptions of Trump’s strategic intentions for the negative. With this kind of move, Trump is setting a foundation of enduring mistrust and strategic competition for US-China relations.”

* * *

In a separate diplomatic snafu, Trump invited Philippines leader Rodrigo Duterte to the White House next year during a “very engaging, animated” phone conversation, an aide to president Duterte said on Friday, amid rocky relations between their two countries.

Acording to the Trump team read-out of the conversation, the two leaders “noted the long history of friendship and cooperation between the two nations, and agreed that the two governments would continue to work closely on matters of shared interest and concern.”

There was no mention that in virtually every public appearance by Duterte in recent months, he has attcked either the US, or Obama, repeatedly calling the former “son of a bitch”, occasionally calling him “son of a whore.”

Trump’s brief chat with the firebrand Philippine president comes during a period of uncertainty about one of Washington’s most important Asian alliances, stoked by Duterte’s unrelenting hostility toward the United States and his repeated threats to sever decades-old defense ties. The call lasted just over seven minutes, Duterte’s special advisor, Christopher Go, said in a short text message to media, which gave few details. Trump’s transition team had no immediate comment.

As Reuters summarizes, in his five months in office, the volatile Duterte has upended Philippine foreign policy by berating the United States, making overtures toward historic rival China and pursuing a new alliance with Russia. His diplomacy has created jitters among some Asian countries, wary about Beijing’s rising influence and Washington’s staying power as a regional counterbalance.

The maverick former mayor has praised China and told U.S. President Barack Obama to “go to hell” and called him a “son of a bitch” whom he would humiliate if he visited the Philippines.

 

The anger was unleashed after Obama expressed concern about possible human rights abuses in Duterte’s war on drugs, during which over 2,000 people have been killed.

 

Duterte had initially expressed optimism about having Trump in the Oval Office, saying he no longer wanted quarrels. But it has not tempered his rhetoric and he has continued to rail at what he calls U.S. “hypocrisy” and “bullying”.

In an interview with Reuters during the election campaign, Trump said Duterte’s comments showed “a lack of respect for our country.” However said lack of respect appears to not have been sufficient to snub the Philippino leader, sometimes referred to as the “Trump of the East” due to his “brash, mercurial ways.”

Duterte has threatened repeatedly to sever defense ties between the two allies, saying he “hates” having foreign soldiers in his country. Joint military exercises look set to be scaled back next year, as Duterte demanded, including the number of U.S. troops involved.

via http://ift.tt/2gRoABe Tyler Durden

While paper gold traders can't seem to dump the precious metal fast enough, physical gold demand is soaring around the world. India retail premiums are spiking (amid demonetization), local China premiums soar to a 3-year-high (as capital controls loom), and coin sales from the US Mint have risen for the 4th straight month, accelerating post-election to the highest since July 2015 since Trump's victory at the election.

Following the initial panic-buying across India after Modi's demonetization effort shook the nation's faith in fiat currency (sending local gold premiums soaring), news of reported gold import curbs in China (and looming capital controls) has sent gold premiums in China near three-year highs amid limited supply of the precious metal (as Reuters reports)…

The import curbs may be part of China's efforts to limit outflows of the yuan after the currency's slide to its weakest in more than eight years, traders say. China allows only 15 banks to import gold, including three foreign lenders.

 

"There is severe restriction on the banks' quota to import gold into China. Each one of them have to justify their need," a Hong Kong-based banker said.

 

Gold was sold in China at about $24 an ounce above the international spot benchmark this week. Premiums went as high as $30 last week, the most since January 2014, according to Thomson Reuters data.

 

 

"Supply has been limited and so the premiums have held firm," said Cameron Alexander, analyst with Thomson Reuters-owned metals consultancy GFMS.

And as Jesse's Cafe Americain notes, yesterday saw over 28 tonnes of physical gold taken off the Shanghai Gold Exchange (in one day), easily the biggest day this year for physical gold withdrawals in Shanghai...

 

But it't not just Asia.

In the US, physical gold demand has soared post-election in The United States as the paper prices was pummeled…

 

This is the 4th month in a row of rising physical gold demand, to the highest level since July 2015 (as China turmoil began to ripple through the world)…

 

So unlike with stocks where higher prices create higher demand, some level of economic rationality remains in precious metals as physical bullion demand reacts to take advantage of low prices to buy more.

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The Fed has a very serious problem on its hands.

That problem concerns the fact that for seven years the Fed has spread the myth of a “recovery.”

I say “myth” because the reality is that when you remove accounting gimmicks, the US has been a “hair’s breadth” away from a recession since 2010.

The most obvious gimmick being employed is the phony “deflator” used to understate inflation and overstate growth.

Everyone knows that the official CPI measure for inflation is bogus. But the Fed routinely uses a deflator that is even lower that CPI when calculating GDP.

This sounds rather technical, so let’s run through this one step at a time.

Consider this simple example. Let’s say that the US GDP grew by 10% last year. Now let’s say that inflation also grew by 10%. In this scenario, real inflation adjusted GDP growth was ZERO.

However, announcing ZERO GDP growth is a major problem politically. So what do the Feds do? They claim that inflation was just 8%, and BOOM you’ve got 2% GDP growth announced for a year in which real GDP growth was actually zero.

This is one of the biggest games being played by the Fed post-2008. By using a deflator metric that is way below even the bogus CPI measure, the Fed is dramatically understating inflation and overstating GDP growth.

By using nominal GDP measures, you remove the Feds’ phony deflator metric. With that in mind, consider the year over year change in nominal GDP that has occurred in the US since 2011.

As you can see, since 2011, the nominal GDP has at levels that have signaled RECESSIONS at any other point in the last 30 years.

Now… what happens when even this feeble recovery actually rolls into a REAL-recession? What happens when the cycle turns… as it always does… and the Fed has already spent over $3.5 TRILLION pushing the markets into believing that economically the US is sound?

The market knows… but virtually no one is listening…

Another Crisis is brewing… the time to prepare is now.

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Best Regards

Graham Summers

Chief Market Strategist

Phoenix Capital Research

 

 

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