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Peso Plunges To Record Low

The Mexican Peso is plunging once again this morning – very close to all-time record lows – as fears spread that Ford’s decision yesterday may become the norm…

As Bloomberg details, the economic outlook for Mexico remains challenging after disappointing results in 2016. Tighter global financial conditions and uncertainty about the future of bilateral relations with the U.S. since the election of Donald Trump in November are a drag on investment. Potential trade and immigration-policy changes in the U.S. may prompt additional downside risks for activity and external accounts in 2017. Tight monetary and fiscal policy to contain accelerating inflation and rising public debt should also weigh on growth.

A weak and more competitive peso already support net exports, but the relief could be limited if bilateral trade with the U.S. comes under pressure from potential protectionist measures. Higher oil prices are also positive, but the upside is limited by falling output and lingering problems in Pemex.

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Dow Dumps After Running Yesterday’s High Stops

Dow futures exploded vertically at the cash open – perfectly tagging yesterday’s highs, running stops – before the algos ran out of ammo. The Dow has now erased the entire opening ramp as once again, the machines were unable to squeeze to Dow 20k at the open…

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US Ends 2016 With $19.98 Trillion In Federal Debt; Up $1,054,647,941,626.91

On the last day of calendar 2016, total US public debt jumped by $98 billion, mostly as a result of end of quarter Social Security debt allocation, which accounted for $70.4 billion of the daily increase. As a result, total US government debt on December 30, 2016 was $19,976,826,951,047.80.

This compares to $18,922,179,009,420.89 on the last day of 2015 and means that the increase in US federal debt in 2016 was just over $1 trillion, or $1,054,647,941,626.91 to be specific.

Putting this increase in context, during Barack Obama’s time in office, federal debt has increased by $9,349,949,902,134.72, or 88%, rising from $10,626,877,048,913.08 on Jan. 20, 2009, the day of Obama’s inauguration to $19,976,826,951,047.80 on the last day of 2016.

That equals $78,553.84 for each of the 119,026,000 households in the country as of September.

Our condolences to anyone who doubted that Obama would be able to hit $20 trillion in Federal debt before leaving the White House.

* * *

For a somewhat amusing take on this disturbing statistics, here is Simon Black with: "US national debt soars by $100 billion. . . in just 8 hours"

According to the latest statement issued yesterday afternoon by the Department of Treasury, the US national debt has reached $19,976,826,951,047.80.

That’s $19.976 trillion, as of the close of business on Friday December 30, 2016.

(The government is typically a day or two behind when it sends out these reports.)

balance

That number itself is obviously remarkable, just shy of $20 trillion.

But what’s even more astounding is that, according to the Treasury Department’s own figures, they STARTED the day with a debt level of ‘just’ $19.879 trillion.

So literally in the span of a single 8-hour workday, the US government amassed an astonishing $97 billion in debt.

That’s simply incredible– $97 billion is larger than the entire GDP of New Mexico or Luxembourg. In 8 hours.

I review these reports every single day. Needless to say, an increase of this magnitude occurs… almost never.

And when I saw it yesterday afternoon, the “Holy Shit!” that came out of my mouth caused a rush of staff into my office asking “What happened?!?”

As I recovered from my shock, I explained that the US federal government had increased its debt by nearly $100 billion in a single day, to which one of them asked,

“What did they buy?”

I thought it a brilliant question, almost child-like in its simplicity. Indeed. What did they buy?

How many aircraft carriers did they purchase?

How many colonies on Mars did they build?

Did President $20,000,000,000,000BAMA acquire a controlling stake in the Walt Disney corporation on behalf of the taxpayers of the United States?

Did Congress suddenly recapitalize the FDIC, or any one of the half-dozen insolvent US trust funds?

Perhaps they fixed a decent portion of the nation’s crumbling infrastructure.

Or maybe they just decided to send a check for almost $1,000 to every household in America.

Nope. None of the above.

The reality is that these people indebted every single taxpayer, including future generations of taxpayers who won’t even be born for decades, with a massive bill that has almost no mathematical probability of ever being paid down.

And despite this prodigious debt, the government has absolutely nothing to show for it.

What’s really amazing is that this isn’t even unusual anymore.

The national debt in the United States is already much larger, and is growing much more quickly, than the US economy.

Plus, interest rates are rising from their historic lows.

In fiscal year 2016 (which ran from October 1, 2015 through September 30, 2016), the government’s total interest bill was $432,649,652,901.12.

This works out to be an average interest rate of 2.204%, according to the Treasury Department’s most recent data from November 2016.

But it wasn’t that long ago that interest rates were MUCH higher.

Back in January 2008, for example, the average interest rate on US government debt was 4.785%.

And even that was considered quite low by historical standards.

Today’s rates are less than half that level. And it’s reasonable to expect rates to increase. In fact, that’s already happening.

In late December, the Treasury Department sold $28 billion worth of 7-year Treasury notes at a yield of 2.24%.

2.24% is still pretty cheap. But it’s nearly double the rate from just six months ago.

Back in July, the 3-month T-bill rate was just 0.02%. Now it’s more than 25 TIMES greater at 0.51%.

This is a significant increase in a short period of time.

If the government’s average interest rate returned to 2007 levels, they would be spending nearly $1 trillion each year just to pay interest.

That’s more than they currently spend on Medicare or the US military.

So as you can see, the US government is not only increasing the debt level at an astonishing rate (with absolutely nothing to show for it), but they’re going to have to start paying a LOT more interest.

Remember that they already borrow money just to pay interest on the money they’ve already borrowed.

So higher interest rates mean that they’ll have to borrow even more money to pay interest, which will cause the debt to go up even higher, requiring them to borrow even more money to pay interest.

It’s a never-ending cycle that only ends one way: default.

The idea of ‘growing their way out’ of debt is a total fantasy.

The debt level is growing much faster than the economy, so each year the hole becomes even deeper.

They’ll either have to default on their creditors, causing a massive catastrophe across the global financial system…

… or they’ll have to default on the promises they’ve made to taxpayers.

You might be thinking– “Can’t they just cut government spending?”

No. Again, not without defaulting on taxpayers.

The three biggest line items in the budget that mop up almost ALL government spending are:

– Debt interest
– Social Security & Medicare
– Military

Everything else COMBINED is trivial by comparison.

So cutting spending quite literally requires a default on the promises they’ve made to taxpayers.

This includes everything from Social Security to maintaining a stable financial system without resorting to major inflation or capital controls.

None of this means there’s going to be some spectacular collapse tomorrow morning.

The sky is not falling.

In fact, despite this debt madness, we’re living in a world full of incredible business, investment, technological, and lifestyle opportunities.

It’s truly an incredible time to be alive.

But the rapid rise in interest rates coupled with an astonishing increase in the debt creates an obvious long-term trend with major consequences that anyone would be foolish to ignore.

via http://ift.tt/2hQuh0Y Tyler Durden

The Neoliberal Era Is Over

Yesterday brought three bits of trade-related news from President-elect Donald Trump. The first was that he has nominated as the next United States Trade Representative Robert Lighthizer, who has long railed against what he calls “the utopian dreams of free traders.” The second was, obviously, a tweet:

General Motors is sending Mexican made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A.or pay big border tax!

— Donald J. Trump (@realDonaldTrump) January 3, 2017

And third was the announcement from Ford Motor Co. that it is cancelling a $1.6 billion plant in Mexico while launching a $700 million factory in Michigan, which Ford Chairman Bill Ford Jr. told Trump himself in a phone call.

We’ve already seen this cycle play out before—five weeks ago, over the span of a few days, the president-elect vowed to enact a 35 percent border tax, slammed an Indian ball-bearings plant for moving its factory to Mexico, then declared victory after intervening in another manufacturer’s siting decision. But coupled with recent political and societal developments in the increasingly morose continent of Europe, this latest bout of Trumpism spray-paints an exclamation point on a 2017 reality many are still slow to acknowledge: The post-Cold War age of ever-increasing trade, immigration, multilateral integration, and technocratic celebrations thereof, is in the rearview mirror. Once-dominant neoliberalism—I’m using the term here as it is deployed these days by its critics, rather than how it was used by its more domestically inclined originators—is on life support in the democratic West. And this deterioration long predates Donald Trump.

Suck. On. This. ||| CNN Start with trade. After the destruction of World War II and the post-war European incursions by the Soviet Union, tariff reductions and free-trade zones have been understood in Paris, Bonn, London, and Washington as the best available tool to cement peace and stave off authoritarianism. American presidents from both major political parties—sporadic rhetorical spasms notwithstanding—have without exception assumed their role as the world’s lead trade negotiator. Dwight Eisenhower, in the teeth of the Cold War, bucked nearly a century of Republican protectionism. Bill Clinton and Al Gore, after the collapse of communism, shouted down giant sucking sounds from all over the political spectrum. Even Barack Obama, who campaigned more vociferously against trade pacts than any postwar president, predictably reneged on his promise to renegotiate the North American Free Trade Agreement (NAFTA), and appointed as his second-term Trade Representative a guy whose resume—Council on Foreign Relations, Citigroup, chief of staff in Robert Rubin’s Treasury Department—couldn’t be more neoliberal if it was cooked up in a laboratory.

Compare that to the mercantilist economic views of Trump’s pick, as expressed in a 2008 New York Times op-ed headlined “Grand Old Protectionists“:

Modern free traders […] embrace their ideal with a passion that makes Robespierre seem prudent. They allow no room for practicality, nuance or flexibility. They embrace unbridled free trade, even as it helps China become a superpower. They see only bright lines, even when it means bowing to the whims of anti-American bureaucrats at the World Trade Organization. They oppose any trade limitations, even if we must depend on foreign countries to feed ourselves or equip our military. They see nothing but dogma—no matter how many jobs are lost, how high the trade deficit rises or how low the dollar falls.

While the Trump administration’s pivot on trade will feel abrupt, the politics behind it have been percolating for more than a decade. Free-trade Democrats, once a common sight on Capitol Hill, became all but extinct after the party re-took Congress in 2006 on a more economically populist platform. Hillary Clinton twice ran for president by campaigning against her husband’s trade deals (even while bragging on his economic successes), yet in both instances found herself yanked sharply to the left by competitors who successfully questioned her sincerity. Bernie Sanders, a democratic socialist and longtime independent, received more than 13 million votes in the Democratic presidential primary, in part by claiming—ludicrously!—that international trade is a “global race to the bottom.”

Meanwhile, Republicans haven’t been as pro-trade as you might think. Two of the GOP’s top four presidential finishers in both 2008 and 2012 campaigned against free-trade agreements—Ron Paul over issues of sovereignty and crony capitalism, Mike Huckabee and Rick Santorum for reasons that would soon be echoed by Trump. The president-elect may be jerking public opinion toward his P.O.V., but even before Inauguration Day, 70 percent of conservatives support “imposing stiff tariffs or other taxes on U.S. companies that relocate jobs.” Free trade right now just ain’t popular.

The same is true in Europe, as pro-trade Euroskeptics such as Daniel Hannan are coming to find out in a post-Brexit universe. While Brits have surely reclaimed sovereignty by swapping Eurocrats for homegrown busybodies, it may take as long as a decade to negotiate a new trade deal just with the European Union, let alone stitch together scores of other new bilateral pacts. And there’s no indication that voters who rejected Brussels will turn around and support reductions in tariffs with other foreign capitals. As Johan Norberg pointed out in these pages back in July, the pro-Brexit leadership sounded some downright Trumpian notes about state intervention into markets:

[L]eading free-market Tories Boris Johnson and Michael Gove drove around in a campaign bus emblazoned with the message that government health care will get another £350 million a week outside of the E.U. The Leave campaign also promised more tax money to universities, scientists, and distressed regions.

When a steel plant in Wales foundered, Boris Johnson abandoned all free-market pretense and explained that the problem is that the E.U. stops the British government from introducing tariffs: “When we want to change tack on tariffs, we can’t—because we have given up control.” Gove complained that the E.U. has “rules that prevent us providing that emergency support and assistance” and that after Brexit “we would be able to support industries that were going through difficult times.”

Railing against the sovereignty-busting whims of overseas elites isn’t just effective politics, it’s also often right. The E.U. project has been liberating when it comes to free trade, privatization, and the movement of humans within its borders, but planners weren’t content to stop there. They insisted on eradicating monetary sovereignty as well, implausibly lashing together the central banks of Germany and Greece, a system that leaves all participants perpetually (and rightfully) disgruntled. And the downside to pooling and outsourcing immigration policy has been all too clear these past few years, as locals have found some of their cities swollen with hard-to-assimilate migrants and refugees from war-torn Muslim regions of the Middle East and North Africa, without feeling like they had any say in the matter. Throw in what has become almost monthly acts of deadly Islamic terrorism on the continent, and the nationalist political reactions write themselves.

Buh-bye! ||| Press Association There is zero juice left in the West for Bill Clinton or Tony Blair-style Third Way politics, nor much for the managerial conservatism of Jacques Chirac and George W. Bush. And yes, the military interventionism that each in their way championed contributed to the discrediting of their ideological brands. As former New Republic owner and editor Marty Peretz reminisced in the Wall Street Journal a few years back, “We were for the Contras in Nicaragua; wary of affirmative action….For military intervention in Bosnia, Rwanda and Darfur; alarmed about the decline of the family. The New Republic was also an early proponent of gay rights. We were neoliberals.”

In the post-neoliberal era, parties of the left are going hard democrat-socialist (think Bernie Sanders and Jeremy Corbyn), while parties of the right increasingly adopt the welfare-state nationalism of Donald Trump, Viktor Orban, and France’s ever-advancing Le Pen family. The areas around the center are as dead as the political careers of, well, Hillary Clinton and Jeb Bush. Voters everywhere are drifting toward candidates and parties whose incorrectness (as perceived by elites) in manner, policy ideas, and rhetoric offer hope that they, at long last, won’t be like all the others. I was struck during a Christmas visit to France at how genuinely intrigued people I spoke to were about Donald Trump, often in a hopeful way. I almost never heard such generous assessments of the likes of George W. Bush.

The potential magnitude of this Transatlantic political realignment is one of the reasons Team Trump has such a spring in its step. For those who are more anxious about the rise in mercantilism and decline of multilateralism, it will do no real good to merely point at the highlight reel of the recent past. That place was more flawed and corrupted than its managers were willing to admit, and in any event is no longer the reality we live in.

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It’s Not Just Blue-Collar Jobs – Insurance Claim Adjusters Replaced By “IBM Watson Explorer”

Submitted by Mike Shedlock via MishTalk.com,

Manufacturing jobs have already been decimated by robots. White collar workers are next in line.

Fukoku Mutual Life Insurance in Japan is about to replace claim adjusters with a software robot from IBM.

Most of the attention around automation focuses on how factory robots and self-driving cars may fundamentally change our workforce, potentially eliminating millions of jobs. But AI that can handle knowledge-based, white-collar work are also becoming increasingly competent.

One Japanese insurance company, Fukoku Mutual Life Insurance, is reportedly replacing 34 human insurance claim workers with “IBM Watson Explorer,” starting by January 2017.

The AI will scan hospital records and other documents to determine insurance payouts, according to a company press release, factoring injuries, patient medical histories, and procedures administered. Automation of these research and data gathering tasks will help the remaining human workers process the final payout faster, the release says.

Fukoku Mutual will spend $1.7 million (200 million yen) to install the AI system, and $128,000 per year for maintenance, according to Japan’s The Mainichi. The company saves roughly $1.1 million per year on employee salaries by using the IBM software, meaning it hopes to see a return on the investment in less than two years.

Watson AI is expected to improve productivity by 30%, Fukoku Mutual says. The company was encouraged by its use of similar IBM technology to analyze customer’s voices during complaints. The software typically takes the customer’s words, converts them to text, and analyzes whether those words are positive or negative. Similar sentiment analysis software is also being used by a range of US companies for customer service; incidentally, a large benefit of the software is understanding when customers get frustrated with automated systems.

The Mainichi reports that three other Japanese insurance companies are testing or implementing AI systems to automate work such as finding ideal plans for customers. An Israeli insurance startup, Lemonade, has raised $60 million on the idea of “replacing brokers and paperwork with bots and machine learning,” says CEO Daniel Schreiber.

This trend will accelerate at a rapid pace once its proven. If it works in Japan, it will work here.

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US national debt soars by $100 billion. . . in just 8 hours