iftttwall

Authored by Paul Craig Roberts,

“Permit me to issue and control the money of a nation, and I care not who makes its laws.”

– Mayer Anselm Rothschild, 1790

Thirty-eight years ago when I was in charge of United States domestic economic policy, the US Treasury and President Reagan believed that the purpose of economic policy was to serve the country, not Wall Street and the banks or the corporations or any of the various organized interest groups. Our idea was that policy could not be for this or that part of the economy. It had to be for everyone.

This changed in the last year of the Reagan administration after I was gone. The George H.W. Bush Republicans, who by then had taken over the Reagan administration, decided that economic policy had to serve the election of Bush as Reagan’s successor. They created the “Plunge Protection Team,” consisting of the Treasury and the Federal Reserve. Its purpose was to stand ready to intervene in financial markets and to support financial prices in the event of a stock market downturn for which the Bush Republicans had set themselves up to be blamed.

Reagan was elected because the post-war Keynesian demand management policy of pumping up consumer demand with money supply growth and easy credit, while maintaining high tax rates on work and investment, had broken down. The result was the rising inflation and unemployment trade-offs known as stagflation.

The small handful of Supply-side economists that existed understood that the high tax rates were restraining labor and investment inputs into the economy, because the after-tax rewards were low. A 50% tax rate on wages and salaries meant that when a person’s income reached the threshold of the 50% rate, he was working for half pay. For the investor, the situation was worse. At the 70% bracket, he was taking investment risks for 30% of his earnings.

Consequently, when the Federal Reserve pumped up consumer demand, the response from output was weak. When real output does not respond sufficiently to absorb the new money, prices rise instead of employment. The solution was obvious, but not to the Keynesians who had been running US economic policy since the Second World War.

The solution was to cut the tax rates in order to encourage a larger response of supply to demand.

The Bush Republicans and Reagan’s Budget Director, David Stockman, were unable to understand the Supply-side policy. They could not get their minds out of demand-side economics. In demand-side or Keynesian economics, the purpose of cutting marginal tax rates is to increase consumer spending. As inflation was already a problem, the Bush Republicans and Federal Reserve Bank Chairman Paul Volcker thought that Reagan’s tax rate reductions would cause inflation to explode, driving up interest rates and collapsing the values of Wall Street’s stock and bond portfolios. To restrain the expected inflation from Reagan’s Supply-side fiscal policy, Volcker slammed on the monetary brakes and caused a recession before the tax rate reductions went into effect. The deficits from Volcker’s recession were blamed on Reagan’s Supply-side policy. The appearance of the budget deficits convinced Bush Republicans that a stock market crash was in the cards. To prevent the expected crash from keeping Bush out of the White House, they set up the Plunge Protection Team to guarantee the price of financial assets.

The Team was not needed for that purpose. The success of the Supply-side policy caused inflation to fall and real output to rise despite the budget deficits. What the creation of the Plunge Protection Team did was to give the Federal Reserve enormous new powers. The Federal Reserve can now intervene in all financial markets, not merely the bond market. This intervention is never discussed in the financial press, a collection of presstitutes like the rest of the media.

Today central banks not only support bond prices by heavy purchases, they do the same thing in the equity market. The Bank of Japan, for example, owns 77.5% of Japan’s ETF (Exchange Traded Fund) market, having bought nearly 23 trillion yen of the ETF market since 2013.

The Federal Reserve owns assets equal to 20% of US GDP. The European Central Bank owns assets equal to 40% of the euro-zone economy. The Bank of Japan’s asset hoard now exceeds the Japanese economy in size.

Source: Bloomberg

With this background, we can now get on with the story.

For a decade we have had a stock market based on:

(1) the profits from lower labor costs by producing offshore the goods and services corporations sell to Americans, thereby destroying the American middle class and the tax base of cities and states,

(2) the use of corporate profits for buying back the corporations’ stock, and by borrowing to buy back stock, thus decapitalizing the corporations in order to support stock prices, managerial bonuses and shareholder capital gains, and

(3) Quantitative Easing (QE) which pumped trillions of dollars into US financial markets, thus pushing up the prices of financial assets. If the money the Federal Reserve created in order to support the solvency of the “banks too big to fail” had gone into the economy, hyperinflation in consumer prices would have been the result. Instead the money caused inflation in the prices of financial assets, and this is the explanation of why a small percentage of people—shareholders—have accumulated most of the gains in income and wealth.

The extraordinary increase in the inequality of incomes in the United States is the consequence of using economic policy to support the New York Banks, which has meant supporting the prices of the bad assets on their balance sheets.

In America today truth gets no respect from anyone whether right, left, liberal, conservative, Democrat, Republican. The idiot Hillary has alleged that the only sane Democrat—Tulsi Gabbard— is a Russian agent! It blows the mind. And the presstitutes treat the absurd allegation as if it is a fact.

Right-wing talk radio hosts Rush Limbaugh and Sean Hannity are just as unrealistic on pro-Trump subjects. Both of them boast of the great American economy with 3.5% unemployment.

As I have explained so many times, the 3.5% unemployment rate results from not counting unemployment. If you are unemployed, but have not searched for a job in the last 4 weeks, your unemployment is not considered to be a fact. If you have looked for a job for a year without success and have become long-term discouraged, you are not even counted as being a member of the work force. So how can you be unemployed?

Job growth is largely a fiction. Increasingly jobs are not jobs. They are gigs. American companies hire through agencies and cycle people in and out as needed. The jobs at which a person worked for decades with medical coverage and a retirement pension are largely gone.

The monthly payroll jobs reports do not translate directly into employment. Many of the jobs are part-time and two or more are held by the same person who struggles to make ends meet. As I have emphasized in my reports for the past two decades, the reported new jobs are in low-pay domestic service occupations–the kind of labor force India had decades ago.

In the Western world employment for white heterosexual males is hard to come by. In the US the small hiring that takes place after jobs are offshored and filled by foreigners on work visas is geared toward women, people of color, and those claiming to be transgendered.

It seems to me that if a person, despite their obvious gender, can claim to be of the opposite gender, a person can claim to be whatever race he or she thinks, or pretends to think, that they are. It is amazing that white males, who suffer discrimination in the corporate, government, and academic job market, are not claiming to be transgendered, transrace, transsexual-preference black lesbian women.

What American transnational corporations do is to produce wage and salary income, not for Americans, but for the offshore producers of the products that the American firms send back to the US to be sold to Americans who have lost their middle class jobs. Americans are able to buy products devoid of their labor input only by the expansion of consumer debt. The limit to debt is the amount that can be serviced. And that limit has been reached.

Americans now have 7-year auto financing in which the outstanding payments exceed the value of the auto. Trade-ins can only occur because the negative value of the car in relation to the amount owed is rolled into the new loan. You can see where this leads. It is like the Americans who can only make the minimum payment on their credit card balance, thus becoming more indebted monthly by the interest charges on the outstanding balance.

An economy such as America’s has nowhere to go but down. Student debt prevents the formation of new households and marriages. This affects real estate sales and home construction, home furnishing sales and appliance sales.

Officially the US has 3.5% unemployment but no real growth in median family income or retail sales.

The US has rigged inflation measures in order to prevent them from measuring inflation. The government’s inflation measures were “reformed” by the Boskin Commission. Today if a price goes up in the control basket of goods, the item is thrown out and a lower quality item is substituted in its place, or else the price rise is said to be a “quality improvement” and not counted. This way of measuring inflation makes it possible to have high inflation that does not show up in the inflation measures.

As inflation is under-reported, American GDP can be misrepresented as expanding. This is because nominal GDP must be deflated for inflation. The lower the inflation measure, the higher the real GDP. Thus manipulated inflation measures enhance the perception that US real GDP is on the rise.

What America has is an economy stagnating in debt with a growing amount of consumer income diverted to the service of debt. This is not Trump’s fault.

• It is the fault of corporations moving middle class jobs offshore and filling many that remain in the US with lower paid foreigners on work visas.

• It is the fault of the Federal Reserve’s policy of saving the banks rather than the economy.

• It is the fault of the policy of supporting aggregate demand by substituting consumer debt for the missing growth in consumer income.

This is a huge problem, and a president alone cannot correct it.

Apparently, it’s not enough for the left to just spit on supporters of President Trump.

VIDEO: Protester spits on Trump supporter during interview at Minneapolis rally https://t.co/WIN6yJDsqf pic.twitter.com/sXIpvDZbRn

— VICE News (@vicenews) October 11, 2019

For an apparent activist group called ‘Public Service Media Group’, outing Trump donors across America is what really makes the difference as triggered leftists panic that all they have is #NotTrump as they head into the 2020 election campaign.

PJMedia’s Megan Fox was the first to expose the site “Racist.Watch” mocking the site’s designers and the activists’ slogan “reporting truth, not news”…

“Look how many are even in deep blue New York City! If anything, people with Trump Derangement Syndrome are going to flip out when they search their neighborhood and find themselves surrounded by “racists.” I think they’re going to need a bigger safe space.”

But since her first report, the site has been taken down…

Finally, as one long-time Washington-watcher noted, rather ominously, “this is how civil wars start.”

But we give PJMedia’s Megan Fox (not that one) the last word:

”  It’s my suggestion that everyone needs to look up their address on this site right now and identify people near them who are clearly decent, patriotic Americans and go bring them a basket of muffins or something. Go make a new friend today. Thanks “Racist Watch,” you demented loons. “

Tolerance…

Authored by Ron Paul via The Ron Paul Institute for Peace & Prosperity,

Schoolchildren across the country recently skipped school or walked out of class to rally for new restrictions on our economic and personal liberties in the name of fighting “climate change.” Instead of punishing students for playing hooky to promote a political cause, many teachers and administrators allowed, or even encouraged, students to skip school to attend these events. Public schools have also given students the day off to attend pro-gun control rallies.

The trend toward allowing students to miss school for political protests is an example of how indoctrination in left-wing ideology and politics has replaced actual education in many government schools. Some teachers may have seen their students’ eagerness to show support for authoritarian policies like the “Green New Deal” as confirmation of the teachers’ success in convincing students that the “science is settled” regarding climate change. The truth is that science regarding the causes, extent, and effects of climate change is far from settled. But you won’t learn that in most government schools.

Misleading students on climate change is far from the only, or even the worst, example of how student education is being shortchanged in order to promote socialism and its cousin, cultural Marxism.

Government schools in Seattle are implementing a program called “Math Ethnic Studies.”

As the title suggests, this replaces traditional mathematics with a curriculum built around the insane idea that math is not an objective truth, but a construct reflecting the interests of society’s dominant economic, social, and racial groups.

Among the questions the students are supposed to ask in this new curriculum are, “how is math manipulated to allow inequality and oppression in society?” and “who’s to say what is right?” In other words, two plus two may or may not equal four depending on one’s group identity.

Students who take this course may not be qualified to become scientists or engineers, but they will be qualified to agitate for expanded welfare and new limits on free speech in the name of “social justice.”

The politicization and dumbing down of government education does have an upside: it is leading more parents to pull their children out of government schools and homeschool instead. Homeschooling allows parents to ensure their children receive a quality education that does not undermine their political or other values.

Parents interested in providing their children with a quality education should consider my homeschooling curriculum. The Ron Paul Curriculum provides students with a well-rounded education that includes rigorous programs in history, mathematics, and the physical and natural sciences. The curriculum also provides instruction in personal finance. Students can develop superior communication skills via intensive writing and public speaking courses. Another feature of my curriculum is that it provides students the opportunity to create and run their own businesses.

The government and history sections of the curriculum emphasize Austrian economics, libertarian political theory, and the history of liberty. However, unlike government schools, my curriculum never puts ideological indoctrination ahead of education.

Interactive forums ensure students are engaged in their education and that they have the opportunity to interact with their peers outside of a formal setting.

I encourage all parents looking at alternatives to government schools – alternatives that provide children with a well-rounded education that introduces them to the history and ideas of liberty without sacrificing education for indoctrination – to go to RonPaulCurriculum.com for more information about my homeschooling program.

Earlier when we reported that Japan’s SoftBank, already the largest investor in WeWork, has offered a $5 billion debt-funded bailout package to WeWork, as well as a tender offer of up to $3 billion to buy out existing shareholders in the struggling office subletting company, we pointed out the patently absurd: instead of seeing the roughly $700 million in cash he had already siphoned out of WeWork clawed back (or, better yet, facing the authorities for his immaculate con job), the company’s former Chairman and CEO, Adam Neumann, was about to be rewarded with even more cash.

This just gets better: so Adam Neumann will cash out even more

IF WEWORK ACCEPTS SOFTBANK’S OFFER, SOFTBANK WILL LAUNCH TENDER OFFER FOR UP TO $3 BILLION TO BUY SHARES FROM WEWORK EMPLOYEES AND EXISTING INVESTORS

— zerohedge (@zerohedge) October 21, 2019

And now we know just how big the reward will be: according to Axios, Neumann will receive “around $200 million to leave the board of directors, give up his voting shares and support SoftBank’s takeover.”

Why is Neumann getting paid even more money after his disastrous attempt to take the company public and effectively blowing up the IPO market for “growth” companies? Because as part of the deal, SoftBank Corp. (not the SoftBank Vision Fund) will offer a $3 billion tender offer to employees at $20 a share, cutting the company’s valuation from $47 billion to less than $8 billion.

As part of its bailout plan to throw even more money down the drain and avoid a total wipeout on its investment, the Japanese conglomerate would also accelerate a $1.5 billion equity investment in the company – scheduled for next year – and SoftBank Chief Operating Officer Marcelo Claure will take over as chairman of the startup.

But at the end of the day, all that matters as Axios correctly puts it, is Neumann’s 10 votes per share, “which are the only ones that matter”, and which will require an additional $200 million to be purchased to make SoftBank the controlling shareholder.

SoftBank’s bailout offer comes as WeWork prepares to lay off thousands to curb cash bleeding after an aborted attempt by parent We Co. to hold an initial public offering this fall. Almost of those employees will not receive a single penny.

Ultimately, the proposal, which pumps almost $10 billion into WeWork (the $5 loan portion will come from Japan’s Mizuho bank, which means that Japanese pensioners are about to be thrown under the bus as well), would give SoftBank a chance to overhaul the struggling startup’s governance and operations, but it would also make WeWork an even larger portfolio risk to SoftBank, which is still working to launch its second Vision Fund. Ultimately, since the vast majority of SoftBank portfolio companies will never make a dime in profit, the repricing will be vicious and will likely require a bailout from the BOJ itself.

As for the Kabbalah-influenced Neumann‘s $200 million, he may have to think twice before spending it all at once. As we reported last week, Neumann may soon be fending off very angry creditors – starting with JPMorgan – who generously allowed the Israeli “entrepereneur” to siphon off hundreds of millions in cash from the company, usually with the blessing of JPMorgan.

For those who missed it, here is what we wrote last week.

WeWork founder and former CEO Adam Neumann and his wife Rebekah Paltrow-Neumann now find themselves in a difficult predicament: Using a combination of loans against Neumann’s WeWork shares, as well as sales of some of his shares on the secondary market, the couple has accumulated a portfolio of real-estate on both coasts reportedly worth over $100 million, according to WSJ.

But the Neumanns didn’t stop after buying the six properties; he and his wife also paid for extensive renovations. Recent reports claimed that the couple has been effectively barred from every respectable coop on Fifth Avenue following the collapse of the IPO and reports about Neumann’s eratic behavior and drug use.  Though that shouldn’t matter much since the two have a range of homes to choose from.

The historic home-buying spree took place over several years, as WeWork burned through massive amounts of cash thanks to Adam Neumann’s “unorthodox” management technique.

The Neumanns’ borrowings could create headaches for the bank that has bankrolled the couple at every turn: JP Morgan Chase. The bank, as WSJ reports, extended close to $100 million mortgages and other loans to Neumann. JPM is also one of the lenders behind a $500 million line of credit that allowed him to borrow heavily against his shares in WeWork parent ‘The We Company’. Of this credit line, Neumann has already tapped some $380 million, which puts his lenders in a bit of a bind. The banks probably never anticipated that the IPO would flame out in such spectacular fashion. Now, they’re stuck praying for a miracle: That WeWork’s new managers might be able to improve the company’s financial position to such a degree that the company might be able to go public at a valuation north of $20 billion.

A spokesman for the Neumanns warned that the couple isn’t under any pressure from the banks to sell their homes (most of which were purchased over the past few years).

“Adam is not under pressure from the banks or the loans to sell his homes,” said a spokeswoman for Mr. Neumann in a statement. She added that none of Mr. Neumann’s homes are being actively marketed for sale. Danny Davis of the Corcoran Group, Mr. Neumann’s longtime real estate agent in New York City, declined to comment.

Now, here’s a rundown of the homes owned by the Neumanns, starting with their first major property buy: a landmarked Greenwich Village townhouse built in 1847. It features a wood-burning fireplace and private rear garden.

The couple started renovating the property in 2014. According to court filings, in 2017, a contractor sued the couple for non-payment.

Also in lower Manhattan, the couple bought a collection of six units in this Gilded Age building near Gramercy Park. The price tag for the units? $35 million.

In 2016, as WeWork’s valuation was soaring, the Neumanns paid $15 million for Linden Farm, a 60-acre estate in Pound Ridge, NY, a wealthy enclave near Mrs. Patrol-Neumann’s childhood home. Records show the couple applied to do significant interior renovations.

Continuing with the theme of buying homes in the Greater New York area. The couple also purchased two homes in the Hamptons.

In 2014, they purchased an under-construction home in Amagansett from Hamptons builder Joe Farrell for $3 million. The house is adjacent to homes owned by actress Gwyneth Paltrow and her mother Blythe Danner. Here’s one home.

As WeWork’s valuation soared toward its peak, the Neumanns finally branched out to the West Coast. Last year, the couple purchased an 11-acre property in Corte Madera Calif., roughly 15 miles north of San Francisco. The final price? $21.4 million, one of the highest ever paid for a home in the area.

The property is known as “Guitar House”. It was once owned by Bill Graham, the rock music promoter. It has a large living room shaped like a guitar. The 13,600 square foot home and surrounding property include a pool, spa, racquetball court and an orchard.

While the mainstream liberal media remains firmly in the pocket of the Clintons’ propaganda machine, spewing their russophobic accusations at any and every one who dares question the establishment line, there are some – on the left – that are willing to step up and defend Tulsi Gabbard against the delusional suggestion from Hillary that she is a ‘Russian asset’.

President Trump was quick to blast Hillary’s accusation:

So now Crooked Hillary is at it again! She is calling Congresswoman Tulsi Gabbard “a Russian favorite,” and Jill Stein “a Russian asset.” As you may have heard, I was called a big Russia lover also (actually, I do like Russian people. I like all people!). Hillary’s gone Crazy!

But some Democrats also dared to step up against the “queen of warmongers.”

While Mayor Pete was a little evasive on actually talking down the “Russian asset” accusation, he did question it, saying that “statements like that ought to be backed by evidence.”

“I don’t know what the basis is for that,” he said.

“But I consider her to be a competitor. I respect her service. I also have very different views than she does, especially on foreign policy, and I would prefer to have that argument in terms of policy which is what we do at debates and what we’re doing as we go forward.”

Another 2020 presidential hopeful, former Texas Rep. Beto O’Rourke, also dismissed the Gabbard claim, insisting the focus of the presidential campaign should be on the economy, climate change and other issues affecting Americans.

“That’s not correct. Tulsi is not being groomed by anyone. She is her own person,” he told reporters after delivering a keynote address Saturday at the Alabama Democratic Conference Semi-Annual Convention in Birmingham.

“Obviously (she) has served this country, continues to serve this country in uniform, in Congress, as a candidate for presidency so I think those facts speak for themselves.”

But Beto could not help but jab at Trump:

“You know, I think the focus has to be on Donald Trump. If we’re talking about the country of Russia, there is a Russian asset in the White House right now.”

Andrew Yang also defended Gabbard:

” Tulsi Gabbard deserves much more respect and thanks than this. She literally just got back from serving our country abroad.”

And now, having been cheated of his chance against Hillary in 2016 – running to her side like a loyal party komrade after the DNC practically ran him out of the party – Bernie Sanders has come out swinging this time at Clinton.

The Vermont senator (and runner-up to Hillary for the 2016 Democratic nomination) called such accusations “outrageous,” pointing Gabbard’s background as a military veteran.

“Tulsi Gabbard has put her life on the line to defend this country. People can disagree on issues, but it is outrageous for anyone to suggest that Tulsi is a foreign asset.”

However, Hillary’s attack dogs will likely be quick to point out that Sanders himself is a “Russian asset.”

San Jose, California is proposing that PG&E should be bought and converted into the country’s largest customer-owned utility amid mass-blackouts and heightened tempers over their role in the state’s wildfires, according to the Wall Street Journal. 

San Jose is the third largest city in California and PG&E’s largest customer.

According to the Journal, Mayor Sam Liccardo hopes in the coming weeks to convince other cities to join the buyout proposal, which would change the utility’s investor-owned status to a nonprofit electric-and-gas cooperative. 

The buyout proposal amounts to a revolt by some of PG&E’s roughly 16 million customers as the company struggles to keep the lights on and provide basic services while preventing its aging electric equipment from sparking wildfires.

San Jose Mayor Sam Liccardo said in an interview that the time has come for the people dependent on PG&E for essential services to propose a new direction. A cooperative, he said, would create a utility better able to meet customers’ needs because it would be owned by customers—and answerable to them. –Wall Street Journal

In other words, Liccardo thinks a coalition of California officials can do it better. 

“This is a crisis begging for a better solution than what PG&E customers see being considered today,” Liccardo told the Journal, saying of the recent Venezuela-tier power shut-offs, “I’ve seen better organized riots.” 

Faced with more than $30 billion in wildfire-related liabilities, PG&E sought chapter 11 bankruptcy protection in January. The will likely oppose the proposal as they explore how to emerge from bankruptcy, compensate fire victims, and modernize their infrastructure (for which they passed along a giant $2 billion rate hike to their customers last December). 

California officials are running out of patience with PG&E after the company shut off power to roughly two million Californians in 34 counties earlier this month to ensure that its power lines, transformers and fuses didn’t ignite fires that could spread quickly amid warnings of high winds. PG&E warned Monday that winds could trigger another round of shut-offs for parts of 17 counties later this week.

PG&E may have accidentally galvanized support for the public buyout proposal last week when Chief Executive Bill Johnson told state regulators that the utility may need to rely on power shut-offs for up to 10 years. That is a horrifying prospect for public officials, who note that the blackouts affect public safety and the delivery of other basic services such as clean water. –Wall Street Journal

“We need to align the financial interest with the public interest,” said Liccardo, adding “We hope there will be recognition that this structure better addresses the public need and we’re looking to start the drumbeat to enable all of us to march together.”

Authored by Alasdair Macleod via The Mises Institute,

When an economy turns from expansion to contraction there is an order of events. The first signs are an unexpected increase in inventories of unsold goods, both accompanied with and followed by business surveys indicating a general softening in demand. For monetarists, this is often confirmed by an inverting yield curve, which tells them that at the margin the short-term rates set by the central bank are becoming too high for business conditions.

That was the position for the US 10-year bond less the 2-year bond very briefly at the end of August, since when this measure, which is often taken to predict recessions, has turned mildly positive again. A generally negative sentiment, fueled mainly by the escalating tariff war between America and China, had earlier alerted investors to an international trade slowdown, expected to undermine the American economy in due course along with all the others. It stands to reason that backward-looking statistics have yet to reflect the global slowdown on the US economy, which is still buoyed up by consumer credit. The German economy, which is driven by production rather than consumption is perhaps a better guide and is already in recession.

After an initial hit, a small recovery in investor sentiment is understandable, with the negative outlook perhaps having got ahead of itself. But we must look beyond that. History shows the combination of a peak in the credit cycle and tariffs can be economically lethal. A brief return to a positive yield curve achieves little more than a sucker rally. It may be enough to put further monetary expansion on pause. But when that is over, and jobs begin to be threatened, there can be no doubt that central banks will ramp up the printing presses.

So reliant have markets become on monetary expansion that the default assumption is that an economy will always be rescued from recession by an easing of monetary policy, and furthermore that monetary inflation will prevent it from being any more than mild and short. We see this in the performance of stock market indices, which reflect perpetual optimism.

There is a further problem. Other than a rise in bankruptcies, unemployment and negative indications from business surveys, there may be no statistical evidence of a slump. The reason this is almost certainly the case is we are dealing with a combination of funny money and statistics which are simply not fit for measuring anything. The money and credit are backed by nothing, and when expanded by the banking system simply dilutes the quantity of existing money, which if continued is bound to end up impoverishing everyone with cash balances and whose wages and profits do not increase at least as fast as the surge in the quantity of money.

Indeed, the official purpose of the expansion of money and credit is to somehow persuade economic actors that things are better than they really are, and to stimulate those animal spirits. You’d think that with this policy now being continually in operation that people would have become aware of the dilution fraud. But as Keynes, the architect of it all said, not one man in a million understands money, and in this he has been proved right.

For five years, the ECB has applied negative interest rates on commercial bank reserves, and commercial banks have paid €21.4bn to it in deposit interest. Since it introduced negative interest rates, it has injected some €2.7 trillion of base money into the Eurozone economy, increasing M1, the narrower measure of the money quantity, by 61%. Almost all of it has supported the finances of Eurozone governments.

The effect on broader money, which includes bank credit, has been to increase M3 by 30%. Far from stimulation, this is daylight robbery perpetrated on everyone’s liquidity and cash deposits. It is a tax on the purchasing power of their wages.

The ECB is not alone. Since Lehman went under, the major central banks have collectively increased their balance sheets from $7 trillion to $19.4 trillion, an increase of 177%. Most of this monetary expansion has been to buy government bonds, providing a money-fountain for profligate governments. The purpose of money-printing is always to finance government spending, not to stimulate or ease conditions for the private sector: while some trusting souls in the system believe it is for the latter, that amounts to just a myth.

Due to the flood of new money the yields on government debt have been depressed, giving holders of this debt, principally the banks, a nice fat capital profit. But that is not the purpose of all this monetary largess: it is to make it ultra-cheap for governments to borrow yet more and to encourage banks to expand credit in their governments’ favour. Just listen to the central bankers now encouraging governments to take the opportunity to ease fiscal policy, extend their debts and borrow even more.

Central banks pretend all these benefits come at no cost to anyone. Unfortunately, there is no such thing as a perpetual motion of money creation, and someone ultimately pays the price. But who pays for it all? Why, it is the wage-earner and saver and anyone else with deposits at the bank. They are also robbed of the compounding interest their pension funds would otherwise receive. These are the very people who, in a bizarre twist of macroeconomic logic, we are told benefit from having the prices of their everyday purchases continually increased.

Attempts to measure the supposed benefits of inflation on the general public are in turn dishonest, with the true rise in prices concealed in official calculations of price inflation. Suppressed evidence of rising prices is then applied to estimates of GDP to make them “real”. For the purpose of measuring the true condition of an economy these official statistics are taken as gospel by both the commentariat and investors.

We cannot know the accumulating economic cost of cycles of progressively greater monetary inflation, because all government statistics are based on the lie that money is a constant, when in fact it has become the greatest variable in everyone’s life. The transfer of wealth from all consumers through monetary debasement is an act of impoverishment, and to the extent it is not offset in other ways the economy as a whole suffers.

*  *  *

Excerpted from the article Measuring Recession.  Alasdair Macleod is the Head of Research at GoldMoney.

As wealth inequalities soar across the world and a trade war rages on between the US and China, a stunning report by Credit Suisse says the number of millionaires in China has, for the first time, surpassed the number of wealthy Americans.

Credit Suisse published the new report in its annual Global Wealth Report on Monday, which is the most “comprehensive and up-to-date source of information on global household wealth. “

The Swiss bank’s report found 100 million Chinese were members of the global top 10% club versus 99 million Americans. 

“Despite the trade tension between the US and China over the past 12 months, both countries have fared strongly in wealth creation, contributing USD 3.8tn and USD 1.9tn, respectively. 

The number of millionaires has also risen globally by 1.1million to 46.8 million in 2019, collectively owning USD 158.3 trillion or 44% of the global total.

 China and other emerging markets have contributed significantly to this growing contingent and show signs of progress and opportunity for investors,” stated Nannette Hechler-Fayd’herbe, global head of economics and research at Credit Suisse.

A seismic shift is underway, one where the number of wealthy American consumers, who powered the global economy for decades, is starting to fade. 

The report offered some insight into the slump of wealthy Americans, as we tend to believe it could be due to demographics issues. 

While US population growth hits an 80-year low, unleashing demographic stagnation, leading to a dismal economic recovery, China’s population isn’t expected to stop growing until 2030, indicating that the Asian economy will continue to be somewhat more robust for the next decade. 

It’s likely that China’s upper-middle-class and wealthy families, currently has more millionaires than the US, will be a crucial driver for global consumption in the 2020s and beyond. 

Anthony Shorrocks, a British development economist and author of the report, suggested that after the 2008 financial crisis, China replaced the US as the world’s global growth engine of wealth creation, which maybe explains why more millionaires are being produced in the country. 

Shorrocks adds that the US has endured more than a decade, since the post-financial crisis, of creating wealth for its adult population. 

However, there was little explanation behind the wealth creation in the US and why not enough millionaires were being produced. Perhaps, it could be due to some of the widest wealth inequality in history, where all the wealth gains are flowing to a very limited number of people — maybe not the case in China, where the wealth is being shared by more, hence, why more millionaires are being produced. 

China and the world are entering a new era. The real driver of global growth will likely be upper-middle-class and affluent consumers from China. This new report adds credibility to the trend at play.