Abenomics Creates “Potential For Economic Collapse Triggered By Bond Market Crash”, Warns Richard Koo

While Richard Koo is an employee of Nomura, or a bank which is among those who stand to benefit the most from the BOJ’s doomed Banzainomics experiment, he has less than kind words to say about this latest and greatest demonstration of sheer desperation by Japan’s Prime Minister, whose tenure may not be all that long – something which perhaps he is not very much against, as Abe is hardly looking forward to being named in the history books as the person who dealt Japan’s economic death blow.

To wit:

When evidence meets faith, it doesn’t stand a chance


When a year and a half of aggressive quantitative easing failed to produce a recovery in private demand for funds, the government should have realized that the answer to the economy’s problems was not in monetary policy and shifted its focus to the second and third arrows of Abenomics.


But the reflationists in academia and bureaucracy who are unable to accept that monetary policy is powerless in a balance sheet recession have basically said that if one pill doesn’t cure the patient, try two, and if two don’t work try four, 16, 256….


Most patients would start to question the doctor’s diagnosis before they agreed to swallow 256 pills. But such voices have been erased from Japan’s policy debate.


ECB President Mario Draghi quipped in a press conference on 6 November that “when evidence meets faith, it doesn’t stand a chance.” For those who believe monetary policy is always effective, no amount of evidence that there are times when monetary policy does not work will convince them otherwise.

Ironically, instead of boosting the economy, Abe’s latest lunacy will merely lead to even greater Japanese economic devastation and the inevitable quadruple dip. That, or an outright economic depression, one from which the country will not emerge.

Fanning inflation expectations and devaluing the yen will depress domestic demand


Reflationists like Mr. Kuroda argue that people will start borrowing again if they anticipate higher inflation. If inflation is being driven by an excess of demand over supply, the private sector will naturally borrow money to invest in facilities aimed at rectifying the supply shortfall.


But if real demand is not growing—if real consumption is actually declining and the money circulating in the real economy is increasing at a negligible pace, as is the case today—there is no reason why Mr. Kuroda’s promises should convince anyone that inflation is on the horizon.


In fact, most of the price increases reported in Japan recently have been imported inflation fueled by the weak yen. The resulting decline in the nation’s terms of trade implies an outflow of income, which naturally depresses domestic final demand.

So if Japan’s QE12 (it may be QE13, we lost count after QE10) won’t do much for the economy, what will it do? Well, what else: blow bubbles.

Central bank-supplied liquidity has nowhere to go without real economy borrowing


As I have repeatedly pointed out, the central bank can supply as much base money (liquidity) as it wants simply by purchasing assets held by private-sector banks.


But a private-sector bank cannot give away that liquidity, it must lend it to someone in the real economy for that liquidity to leave the banking sector.


For the past 20 years, Japan’s private sector has not only stopped borrowing money but has actually been paying down existing debt and increasing its savings in spite of zero interest rates.


Traditional economics never envisioned this kind of behavior, but the collapse of debt-financed bubbles in Japan in 1990 and the West in 2008 left many businesses and households owing as much or more than they owned, prompting them to focus on repairing their damaged balance sheets.


QE without private demand for funds only generates mini-bubbles


While Japan’s private sector finally cleaned up its balance sheet around 2005–06, the debt trauma lingered on. That, together with the collapse of Lehman Brothers in 2008, led to a situation in which Japan’s private sector is still saving 5.7% of GDP in spite of zero interest rates and aggressive quantitative easing.


Unless the government borrows and spends this 5.7%, the funds supplied by the BOJ under quantitative easing would never leave the banking system and neither the money supply nor private credit would have increased—in fact, they might actually have decreased.


No matter how much the BOJ eases policy during this kind of balance sheet recession, the liquidity it supplies will not enter the real economy as long as there are no private-sector borrowers. The only result is likely to be the creation of mini-bubbles in the financial markets.


While funds supplied under quantitative easing may provide a temporary boost to the prices of stocks and other assets, at some point those prices will correct unless they are justified by corporate earnings growth and other appropriate measures, and that will be the end of the mini-bubble.

Unless, of course the QE baton has passed to the ECB by then and/or the Fed’s QE4. In which case Japan’s “mini bubble” will merely merge into the maxiest bubble ever blown by the central banks.

Finally, we are happy to see that Mr. Koo reads Zero Hedge and the Banzainomics term that was conceived on these pages.

Overseas views on QQE2 are divided


Overseas views on the BOJ’s surprise easing announcement can be broken down into two camps: the reflationists, who commend the BOJ for its bold actions, and those critical of the policy, who say it is a symptom of the final stages of Japan’s economic decline.


The critics can further be divided into two groups: those who believe that continuing the current policy of “Banzainomics” will lead to a collapse of the Japanese economy and government finance triggered by a crash in the JGB market, and those who worry that the ongoing devaluation of the yen under this policy will hurt their own countries’ industries.


Of those in the second group, I think the voices from the US and the UK can be safely ignored. After all, what Japan is doing now is exactly what those two countries did six years ago with their reckless quantitative easing and currency devaluation 


But the first group’s scenario, in which the BOJ’s reckless attempts to achieve a 2% inflation target trigger a bond market crash and an eventual collapse of the Japanese economy, is of greater concern. After all, it is the same scenario the world’s QE pioneers—the US and the UK—are desperately trying to avert at this very moment.

Collapse it is then. The only question is when.

via Zero Hedge http://ift.tt/1yvLuQ2 Tyler Durden

Hellmann’s Mayo Sues Competitor Because Free Markets Are Hard

Goliath fought with a javelin. Unilever, producer of Hellmann’s
mayonnaise, fights with a decades-old Food and Drug Administration
(FDA) definition.

The consumer goods company thinks that Hampton Creek, maker of
Just Mayo, shouldn’t be allowed to call its eggless vegan spread
“mayonnaise” because there ain’t no such thing as mayo without
eggs. According to an FDA definition for mayo made holy
back in 1957
, that is. The Washington Post

The global food giant argues that Hampton Creek’s Just
Mayo is not, as Unilever lawyers wrote, “exactly,
precisely, only and simply mayonnaise,” as defined by the
dictionary and the Food and Drug Administration, which
 mayo must include “egg yolk-containing

Just Mayo uses Canadian yellow peas in lieu of eggs.

Not one to stand idly by as a scourge of faux mayo threatens
benighted American consumers, Unilever has taken it upon itself to
sue its upstart rival for false advertising and fraud. Unilever
argues that Hampton Creek is misleading customers into thinking
they’re buying traditional mayo filled with eggy goodness because
the product’s logo resembles an egg.

But money tells a more creditable tale. Unilever is also upset
that this wanton deception is cutting into its profits:

The Just Mayo identity crisis, Unilever lawyers said, has
hurt Hellmann’s market share, “caused consumer deception and
serious, irreparable harm to Unilever” and the mayo industry as a

The multinational corporation valued at $60 billion and boasting
45 percent of a $2 billion mayo market is out for blood,
The New York Times:

Unilever wants Hampton Creek…to pay three times its profit in
damages plus the legal fees of the plaintiff…It also is asking the
court to require Hampton Creek to stop using the egg on its label;
recall all products, ads and promotional materials that might
confuse consumers; and stop claiming that Just Mayo is superior to

In other words, Unilever wants Hampton Creek to go out of
business and forget about the whole thing.

Analysts, pointing out the obvious, opine that this move
reflects entrenched industry’s fear of competition from
nontraditional startups. Particularly scary are startups with
substantial financial support making market inroads: Hampton Creek
counts Bill Gates and Hong Kong billionaire Li Ka-shing among its

This isn’t the first time the FDA’s protectionist regulations
have been wielded by food industry leaders to whack-a-mole
competitors. Earlier this year, candlemakers
Mediterranean food company Sabra
petitioned the FDA
to establish rules defining what constitutes
“real” hummus. The biggest hummus manufacturer in the United States
claimed that, in total contravention of the laws of gods
and men,
 renegade hummus producers were
beans or lentils
instead of the traditional

In its 11-page petition, Sabra
that “hummus must be comprised…predominately of
chickpeas, and must be no less than 5% tahini.” The company cited
the standing definitions for other foodstuffs—including
mayonnaise—as justification for codifying a hummus definition.

Count these as two more examples of protectionist regulations
guaranteeing that industry leaders
defend their market
within the halls of federal
—and not on the
battlefield of consumer preference.

from Hit & Run http://ift.tt/1sAlCim

Brian Doherty on Internet Drug Sales

Once upon a time, you could buy
illegal drugs anonymously online from a site called Silk Road. The
postman would show up at your door with your gas bill, maybe a
birthday card from mom, and some carefully packaged pot or heroin.
Even though you had never met the person you bought the drugs from,
the delivery came just as you ordered it. The FBI tore up the Silk
Road, writes Brian Doherty. But they could not end the practice of
selling drugs anonymously on the Dark Web.

View this article.

from Hit & Run http://ift.tt/1zKig3Z

America’s Next Economic Bonanza: Bigger Butts

The U.S. booty business is getting a big bump, as AP reports companies are cashing in on growing demand from women seeking the more curvaceous figures of their favorite stars. While Millennials may spend most of their day sitting on their Minaj-esque "big fat butts" playing Kardashian, the business of boosting butts is bursting. From padded panties and gym classes that promise plumper posteriors to the "Brazilian butt lift," in which fat is sucked from a patient's stomach, love handles or back and put into their buttocks and hips, French sociologist Jean-Claude Kaufmann says "there's a trend to show off the buttocks in place of breasts due to the rise of Beyonce," Jennifer Lopez, and more recently Meghan Trainor. The bottom line – butt lifts and implants are the fastest growing plastic surgery, helping GDP at a cost of $10-13k each.


As AP reports,

Gym classes that promise a plump posterior are in high demand. A surgery that pumps fat into the buttocks is gaining popularity. And padded panties that give the appearance of a rounder rump are selling out.


The U.S. booty business is getting a big bump. Companies are cashing in on growing demand from women seeking the more curvaceous figures of their favorite stars, who flaunt their fuller rear ends.


Nicki Minaj, for instance, raps about her "big fat" butt in "Anaconda." Reality star Kim Kardashian posts photos of hers on Instagram. And in the music video for "Booty," Jennifer Lopez and Iggy Azalea, wearing leotards, spend four minutes rubbing their curvy bottoms together. At one point, they slap each other on the booty.


As a result of the pop culture moment the butt is having, sales for Booty Pop, which hawks $22 foam padded panties on its website, are up 47 percent in the last six months from the same period a year earlier. The company, which declined to give sales figures, has sold out of certain styles and colors this year, including its Pink Cotton Candy Boy Shorts.



"The Nicki Minaj song gave women the idea to pay attention to their rear end," says Jessica Asmar, co-owner of the Houston company.



But recently, the desire for a bigger bottom became more mainstream, in large part due to pop culture influences. Mainstream celebrities like Lopez and Minaj accepting their ample assets on camera have given the butt cachet. "When people see things repeated on TV more and more, it becomes normalized," Stephens says.



A Brazilian butt lift, in which fat is sucked from a patient's stomach, love handles or back and put into their buttocks and hips, is increasingly popular in the U.S. This type of surgery, along with buttock implants, was the fastest-growing plastic surgery last year, with more than 11,000 procedures, up 58 percent from 2012, according to the American Society for Aesthetic Plastic Surgery.


Dr. Matthew Schulman, who performs the procedure in New York, says this year has been busier than last. Schulman, who charges $10,000 to $13,000 for the three-hour surgery, does six to eight Brazilian butt lifts weekly, up about 25 percent from a year ago.



At a gym in Boston, there's a waitlist for a $30 class that fits in 120 squats in 45 minutes. The class, Booty by Brabants, was started by Kelly Brabants a year ago. Brabants starts most classes, held at The Club by George Foreman III gym, with Lopez's "Booty" song. By the end of the year, she plans to expand her brand by selling $65 workout leggings that help perk up the butt.


"It's not about being stick-thin anymore," says Brabants. "Every girl now wants a booty."

*  *  *

How long before a Brazilian Butt-lift is covered by ObamaCare… because it's fair.

*  *  *

Hookers, blow, and now bigger butts benefitting the US economy… you're welcome

*  *  *

However, French sociologist Jean-Claude Kaufmann also suggests economic reasons are at play:

"In uncertain times, people look for security," he says. "Men are attracted to women's hips and the buttocks for security and reassurance. Women respond to this. It's deeply psychological."

*  *  *

via Zero Hedge http://ift.tt/10W78Su Tyler Durden

Brazil builds its own fiber optic network to avoid the NSA

Brazil cable NSA Brazil builds its own fiber optic network to avoid the NSA

November 11, 2014
Santiago, Chile

This past week Brazil announced that it will be building a 3,500-mile fiber-optic cable to Portugal in order to avoid the grip of the NSA.

What’s more, they announced that not a penny of the $185 million expected to be spent on the project will go to American firms, simply because they don’t want to take any chances that the US government will tap the system.

It’s incredible how far now individuals, corporations, and even governments are willing to go to protect themselves from the government of the Land of the Free.

The German government, especially upset by the discovery of US spying within its borders, has come up with a range of unique methods to block out prying ears.

They have even gone so far as to play classical music loudly over official meetings so as to obfuscate the conversation for any outside listeners.

They’ve also seriously contemplated the idea of returning back to typewriters to eliminate the possibilities of computer surveillance.

More practically, the government of Brazil has banned the use of Microsoft technologies in all government offices, something that was also done in China earlier this year.

The Red, White, and Blue Scare has now replaced the Red Scare of the Cold War era. And it comes at serious cost.

From Brazil’s rejection of American IT products alone, it is estimated that American firms will lose out on over $35 billion in revenue over the next two years.

Thus, as the foundation of the country’s moral high-ground begins to falter, so does its economic strength.

The irony should not be lost on anyone; on a day when Americans celebrate their veterans’ courage in fighting against the forces of tyranny in the world, we find yet another example of where the rest of the world sees the source of tyranny today.

It’s amazing how much things have changed.

In the past, the world trusted America with so much responsibility.

The US dollar was the world’s reserve currency. The US banking system formed the foundation of the global banking system. US technology became the backbone of the global Internet.

But the US government has been abusing this trust for decades.

Today the rest of the world realizes they no longer need to rely on the US as they once did.

And in light of so much abuse and mistrust, they’re eagerly creating their own solutions.

Just imagine—if Brazil is building its own fiber optic cable to avoid the NSA, it stands to reason that they would create their own alternatives in the financial system to directly compete with the IMF and the US dollar.

Oh wait, they’re already doing that too. Fool me twice, shame on me.

from SOVEREIGN MAN http://ift.tt/1tYWYuo

The Fed’s Paint-By-The-Numbers Delusions About The Labor Market

Submitted by David Stockman via Contra Corner blog,

Another “jobs Friday” brought a predictable outbreak of delighted squeals from the bubblevision commentariat. This is shaping up to be the one of the best years for jobs growth during the entire 21st century, they gushed.

Well, now. Here we are nearing the end of 2014 and the nation’s once and mighty “jobs machine” is fixing to utilize no more labor hours this year than it did way back at the end of the 20th century.

 And, no, that completely unsung fact does not reflect some anomalous quirk owing to the Great Recession. We are now 64 months from the June 2009 bottom and the index of total labor hours in the non-farm business economy stands at about 108 – the same level first recorded in Q3 1999. This means that during the 21st century to date the US economy has been bicycling up-and-down an essentially consant amount of labor during the intervals between the serial financial market booms and busts engineered by our monetary politburo.

That there has been a step-change in the true employment trend is starkly evident in the two charts below. During each of the eight business cycles between 1950 and 1999, labor hours temporarily lost during the recession phase were quickly recouped during the recovery phase, and then blew through the prior peak to a sharply higher level. And this pattern recurred cycle-after-cycle.  Altogether, labor hours employed by the US economy grew at a 1.7% annual rate over the 50 years period——business cycle downturns notwithstanding.

That was then. Below is now. The current so-called recovery cycle is already long-in-the-tooth by historic standards, yet we are still on the flat-line. That fact alone vastly overshadows any short-term lift that can be detected in the monthly “jobs” print.

Instead of celebrating what are plainly transitory and reversible short-term gains, someone ought to be asking what is wrong with the big picture? Most especially, the band of mad money printers who occupy the Eccles Building should be required to answer this question: After inflating the Fed’s balance sheet by an astonishing 9X during this period—–from $500 billion to $4.5 trillion—–why is it that your purported monetary elixir has not generated a single additional labor hour in the nonfarm business economy for 15 years running?

And that’s for starters! The real point here is that the monthly establishment survey “jobs” print is a crock in its own right, but the fact that it (and its companion household survey numbers) is used as the principal guide to monetary policy is the true embarrassment.

Don’t these academic mountebanks at least have a sense of humor about the ridiculous paint-by-the numbers ritual involved here? Unless the mix of jobs in the economy is absolutely frozen over long-stretches of time, the one-job-one-vote headline number doesn’t really tell anything about labor market “slack”——even if that were an appropriate object of central bank policy, which it manifestly is not.

Thus, the October print showed a 15k gain in manufacturing jobs and a 52k gain in leisure and hospitality (i.e. bar-tenders, waiters, bell-boys, ticket takers and hot dog vendors).The former jobs average about 41 hours per week at $25/hour, meaning that the annualized manufacturing wage equivalent is about $53,000. By contrast, the leisure and hospitality sector is about low wages and part-time work—-with 26 average weekly hours per job at $14/hour. That’s the equivalent of $19,000 at an annualized rate, or just 35% of the economic value of a manufacturing job.

Nor are these examples outliers. Another big gainer in October was 27k retail clerks—a category which posted 31 average hours per week at $17/hour or $27,000 at an annual rate.

Contrast that with the 2.7 million jobs reported for the “information technology” category in October. These “jobs” average 37 hours per week, $34 per hour and $65,000 per year. The trouble is, the payroll count for October declined by 4,000 jobs in this category; and this job loss trend has been consistent every since the Great Recession ended. In fact, there has been a 100k or 5% decline in the number of jobs in this high paying category since the recession allegedly bottomed in June 2009, and a 850k or 25% decline since 2000.

In short, the headline jobs number is not the equivalent of a reliable index which measures the rate of change in labor inputs supplied to the US economy. It is essentially a statistical anecdote. It not only counts 10 hour per week “temp” gigs and real 50 hour jobs the same, but also ignores entirely the quality of hours worked as proxied by the hourly pay rate.

Sure, there may be some public policy purpose in getting a paycheck—however small—-to as many citizens as possible. But that’s a political objective. It can’t possibly be a valid metric for measuring the economic condition of the labor market—– let alone a justification for the massive distortions of the price of money and debt that result from the Yellen’s Fed’s effort to steer the financial system based on a dashboard riddled with BLS numbers noise, not solid economic signals.

Moreover, the real story is that the quality mix of payroll jobs is deteriorating far faster than even the tepid rate of gain in the headline jobs count. Even as to the latter, there is not much beneath what bubblevision has been reporting for lo these past 15 years.

In January 2000, the BLS posted 131 million payroll jobs. That number had first climbed to 138.3 million seven years ago before falling back during the Great Recession when the phony construction, retail, bar and restaurant and service jobs created during the housing boom were liquidated; and by October 2014 the headline number had crept marginally higher to 139.7 million.

Stated another way, even the headline jobs number has grown at only 0.3% annually since the turn of the century—a rate which amounts to only 49k jobs per month or about one-third of the growth rate of the working age population.  And we are not speaking about a few months or a limited phase of the business cycle here. This 15 year period encompasses the better part of three business cycles; its the embedded trend on which the transient monthly deltas actually ride.

Indeed, since the turn of the century, the working age population has grown from 212 million to nearly 250 million, but out of that potential 38 million gain, there has been only an 8.7 million pick-up in the headline payroll count. And even that dismal 22% ratio is flattered by the fact that, as demonstrated below, a growing share of the headline print consists of low wage, part-time jobs, and many of them represent multiple paychecks to the same person.

Nevertheless, the main point is that the quality mix and value added per job has deteriorated sharply during this same period of tepid headline growth. At the heart of the economy is goods production—manufacturing, energy/mining and construction— because that’s were real productivity and wealth generation comes from, and its the source from which we pay for our massive $2.8 trillion annual import bill.

As shown below, jobs in the goods production sector have been in continuous free fall during this entire century; and even taking account of the macro-cycles there have been lower highs and lower lows for 15 years. Notwithstanding the “best year for job creation since 2005″, there were 5.4 million or 22% fewer goods producing jobs in October 2014 than there were the month Bill Clinton was packing his bags to leave the oval office.

Goods Producing Economy - Click to enlarge

Goods Producing Economy – Click to enlarge

The conceit of the Keynesian money printers is that the modest rate of recovery since the 2009 bottom shown above—about 12,000 jobs per month—–will continue indefinitely. Apparently, even to the end of time because all of the official  Keynesian macro-models, like those of the Fed and CBO, achieve “full employment” a few years down the road and remain there forever.

But Washington has not outlawed the business cycle, of course. And the world is pulsating with negative headwinds emanating from Japan, Europe and China, while the world’s central banks have now inflated the mother of all financial bubbles for the third time this century.

So given even two more years before the next recession—-which would extend this wobbly  “recovery” cycle to 90 months or a near record—-would leave the goods producing sector with about 19.5 million jobs at the current expansion rate. In other words, despite 16 years of frenetic Keynesian money printing, the goods producing sector would end up 20% smaller than it was at the turn of the century.

Nor is this point some kind of nostalgia trip about the glories of manufacturing and mining in an allegedly post-industrial society. In fact, to get to what I have termed the “breadwinner” economy it is necessary to layer on top of the 19 million goods producing jobs reported by the BLS for October another 50 million jobs encompassing the other major full-time, full-pay categories contained in the establishment survey.

These include about 8 million jobs in finance, insurance and real estate (FIRE); 17 million jobs in the white collar mainstream such as lawyers, accountants, architects, computer designers, engineers and business managers and consultants; 8 million jobs in the transport, warehousing and distribution of goods, including processing and transferring the massive throughput of nearly $5 trillion in import-export trade; and another 17 million in core government jobs outside of education, as well as utilities, the postal service and the aforementioned category called information technology.

Altogether, these 69 million breadwinner jobs account for about half of the BLS total, but a far larger proportion of value added and wage and salary income owing to much higher hours per week and hourly compensation. Indeed, from an economic perspective “breadwinner” jobs comprise upwards of two-thirds of the labor market.

Yet here is the trend since the year 2000, and its the same story. By the lights of even the BLS’ rickety “establishment survey”, and after giving effect to all of its endless revisions, re-benchmarkings, imputations and phantom “birth and death” jobs, the number of breadwinner jobs at the core of the US economy is still 3.5 million or 5% lower than its was at its high water mark in early 2001.

Breadwinner Economy- Click to enlarge

Breadwinner Economy- Click to enlarge

So now you have a real conundrum. The above chart encompasses the entirety of the productive core of the US labor market—including 11 million high paying jobs in local, state and Federal payrolls, excluding education. At the tepid rate of breadwinner job recovery since the June 2009 bottom, it would take until the year 2021 to reach the level of breadwinner jobs first obtained back in early 2001.

Needless to say, the odds that there will be smooth sailing in the world and domestic economies for the next seven years are slim to none. And, as shown in the two boom-and-bust cycles pictured above, the next recession—perhaps caused by the collapse of China’s debt-besotted house of cards or the old age bankruptcy of Japan, or the fiscal collapse of Europe or the next global financial meltdown—-will cause another sharp loss of breadwinner jobs during the correction phase. Then, under the best of conditions, there would be another long period of “recovery” in which “born again” breadwinner jobs would be brought back onto payrolls as they were between 2002-2007 and 2009-2014.

Even that optimistic scenario, however, assumes that the massive fiscal hemorrhage which will occur during the 2020s due to the full retirement of the baby boom generation will somehow be navigated successfully. In short, the odds that the American economy will ever again achieve the level of breadwinner jobs that it had at the turn of the 21st century are pretty remote—-at least as far as the eye can see today.

By contrast, it is probable that the other half of the economy will continue to generate at least some gains in the headline jobs number. But what this means is that the mix will continue to deteriorate, and that the headline number will become an increasingly misleading index with respect to the actual labor market.

Already, this distortion is quite massive. Whereas the US economy has lost about 3.5 million breadwinner jobs since the year 2000, it has gained 4 million part time jobs. On an hours and pay weighted basis, however, these latter “jobs” account for only about 40% of the income value of each breadwinner job lost.

So the jobs mix has been deteriorating steadily for a decade and one-half. Accordingly, on a mix-adjusted basis, the index value of the establishment survey jobs count is actually heading south on a long-term basis.

Part Time Economy - Click to enlarge

Part Time Economy – Click to enlarge

The balance of the payroll report consists of about 32 million jobs in the HES-Complex (health education and social service). As I have previously noted, these jobs have one-third less income value than breadwinner jobs, but suffer from the even greater disability. Namely, that they are “fiscally dependent” and the public sector in the US is essentially broke.

Already, the mild fiscal crisis to date has caused the rate of monthly expansion to drop from 51k prior to 2007, to only 28k during the period since July 2009. When the real fiscal crunch comes after 2020, it is virtually certain that whatever jerry-built cost control system is in place—whether Obamacare or any conceivable modification or replacement—-will grind the rate of health spending growth to a near halt, and with it the long interlude of job gains which have flattered the headline reports for several decades.

HES Complex- Click to enlarge

HES Complex- Click to enlarge

Stated differently, there has been no net gain in headline jobs since the turn of the century outside of the HES Complex. Yet that growth was driven by an unsustainable uptake in the share of GDP consumed by health care (and to a lesser extent education). But as the economic humorist, Herb Stein, once noted—anything which is unsustainable tends to stop.

Nonfarm Less HES Economy- Click to enlarge

Nonfarm Less HES Economy- Click to enlarge

At the end of the day, it is overwhelming clear that the headline jobs number is thoroughly and dangerously misleading because there has been a systematic and relentless deterioration in the quality and value added of the jobs mix beneath the headline. It has no value whatsoever as an index of labor market conditions, labor market slack or even implied GDP growth.

To be sure, there is an easy alternative to the establishment survey headline number. Namely, the hours index shown at the beginning of this post.

But that would never pass muster in the Eccles Building. It would show that a 9X increase in the Fed’s balance sheet during this century has not generated a single net labor hour in the nonfarm business economy.

Moreover, it might even raise another issue. Why in the world should the value of money and the price of securities in the capital markets be driven by the quantity of labor consumed by the US economy—however measured?

The truth is, in an open global economy the quantity of labor utilized by the US economy is a function of its price—not the level of interest rates or the S&P 500. Currently, wage rates on the margin are too high, but the Fed’s ZIRP and money printing campaigns only compound the problem.

They permit the government to fund with ultra low-cost bonds and notes a massive transfer payment system that keeps potential productive labor out of the economy, and thereby props up bloated wages rates; and it enables households to carry more debt than would be feasible with honest interest rates and competitively priced wage rates, thereby further inhibiting the labor market adjustments that would be required to actually achieve full employment and sustainable growth.

Furthermore, ZIRP sharply distorts the business choice between the carry cost of debt and the carry cost of labor on the margin. In today’s Fed underwritten casino, corporate managements are rewarded for using cash flow and cheap borrowings to fund stock buybacks and dividends and to finance “restructuring costs” associated with job terminations.

At the end of the day, what the American economy actually requires is a deflation of its uncompetitive cost levels and labor rates. Ironically, the sum and substance of the policies being pursued by paint-by-the-numbers money printers at the Fed and other central banks is to thwart the ability that businesses and workers operating in an honest free market would otherwise have to achieve exactly that.

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

Schools Implement Explicit Racial Bias in Suspensions

ChildThe good: Minneapolis Public Schools want
to decrease total suspensions for non-violent infractions of school

The bad: The district has pledged to do this by implementing a
special review system for cases where a black or Latino student is
disciplined. Only minority students will enjoy this special

That seems purposefully unconstitutional—and is likely illegal,
according to certain legal minds.

The new policy is the result of negotiations between MPS and the
Department of Education’s Office for Civil Rights. Minority
students are disciplined at much higher rates than white students,
and for two years the federal government has investigated whether
that statistic was the result of institutional racism.

Superintendent Bernadeia Johnson has been working to decrease
suspensions district-wide. She has encouraged other forms of
mediation to take precedence in cases where a student’s behavior is
merely inappropriate, rather than violent. That’s all well and
good; public schools have gone discipline-crazy over the years,
punishing students all-too-harshly for silly reasons every day. Any
respite from overcriminalization is welcome.

Any respite, except this one:

Moving forward, every suspension of a black or brown student
will be reviewed by the superintendent’s leadership team. The
school district aims to more deeply understand the circumstances of
suspensions with the goal of providing greater supports to the
school, student or family in need. This team could choose to bring
in additional resources for the student, family and school.

That comes directly from Johnson’s
. I suppose it’s well-intentioned—but don’t all students,
regardless of skin color, deserve to have their disciplinary issues
adjudicated under the same standards? And yet Johnson is committed
to reducing suspensions for minority students by a specific
percentage, irrespective of the facts of the individual cases:

MPS must aggressively reduce the disproportionality between
black and brown students and their white peers every year for the
next four years. This will begin with a 25 percent reduction in
disproportionality by the end of this school year; 50 percent by
2016; 75 percent by 2017; and 100 percent by 2018.

Hans Bader, a senior attorney at the Competitive Enterprise
Institute and former Office for Civil Rights lawyer, tells me that
this disciplinary quota system violates 7th Circuit Court precedent
established in a 1997 case, People Who
Care v. Rockford Board of Education
. In that decision, the
court determined that it was unconstitutional for a school to
mandate that black students be disciplined at identical rates as
white students. That policy was discriminatory on its face, since
it would result in children receiving different punishments
depending on their race.

Instead of doing to high school discipline what activists have
done to college admissions, let’s relax zero tolerance for

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ISIS in Retreat in Iraq, Maybe, May Be Moving to Unite With Al Qaeda Components in Syria

Al-Baghdadi?Last week President Obama said he wanted an
authorization for the use of military force against ISIS, the
Islamic State in Iraq and Syria,
after all
. Up to then the White House argued the U.S.-led
campaign against ISIS in Iraq and in Syria fell under the
authorization for the use of military force against Al Qaeda and
its affiliates passed in September, 2001. The president continues
to maintain he doesn’t need explicit authorization from Congress
for the war against ISIS but since the elections are over he
thought it was a good time to ask for it anyway.

While the U.S.-led coalition is seeing some successes—the Iraqi
to have critically injured Abu Bakr al-Baghdadi, the
leader of ISIS, and to have
driven ISIS out
of Beiji, a major oil refinery town—it has also
galvanized support for ISIS among the region’s population. More
fighters than ever before are
going to join ISIS since U.S. airstrikes started.
And now, The Daily Beast
, representatives from Al Nusra, the Al Qaeda affiliate
in Syria, ISIS, and the Khorasan group, another Al Qaeda offshoot
few people heard of before it was targeted during U.S. airstrikes
in Syria, are meeting to discuss re-uniting with the aim of driving
more “moderate” U.S.-backed rebels out of Syria, groups whose
members nevertheless
U.S. airstrikes in Syria, and not just because of the
claim that civilians were killed.

After the “thumping” in the 2006 elections, President George W.
Bush announced a surge in Iraq, one that ended up being used in
part to negotiate the eventual end of the Iraq war. After the 2014
elections, President Obama insisted he heard the American people,
following it up a few days later by sending
1,500 more troops
to Iraq, who he claims won’t be in combat

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Free-Market Texas Continues to Kick Economic Ass

Cowboy hatTexas is creating jobs and reducing
unemployment faster than the nation as a whole, reports the Federal
Reserve Bank of Dallas. The Lone Star State also outstrips the
country in terms of exports. Could it be that this dynamic economy
is the result of the state’s healthy business environment and
generally strong regard for economic freedom? If so, state
officials better take care, because Texas has slid a bit in the
rankings, and may risk losing its advantage.

In the
latest monthly survey
, the Dallas Fed reports that “employment
rose at a 3.2 percent annualized pace in September, faster than the
nation’s 2.2 percent increase.” Notably, the
strongest job growth sector
is private non-farm employment.
That brings the unemployment rate down to 5.2 percent, lower than
the national 5.9 percent jobless rate.

Separately, the Dallas Fed also reports that
export growth
from the state outstrips that in the United
States as a whole.

If you’re a believer that prosperity has a little something to
do with leaving people the hell alone to make (and keep) their
payday, it’s no surprise that Texas gets kudos for generally
restraining politicians’ temptation to screw things up. Chief
magazine has ranked the state as having the
strongest business environment in the country for ten
years running
. Texas rates a solid
10 out of 50 states
in the Tax Foundation’s ratings of business
tax environments. In overall taxes, WalletHub ranks Texas as the

7th least burdensome
. Canada’s Fraser Institute puts
the state in fourth place
in terms of economic freedom among
states and provinces in Canada and the United States—and second
among U.S. states.

That’s all good, and isn’t just to state residents’ credit, but
their profit, too.

But there’s a warning in there. In
the Mercatus Center’s combined rankings of social and economic
freedom, Texas has dropped six places
since 2009, to 14
. “Like many southern states, Texas performs
better on economic freedom than personal freedom,” Mercatus notes,
“Yet despite its reputation as a low-regulation state, it is only
average for regulatory policy.” The state also has a debt problem
at the local level that may make low tax rates a challenge to

If politicians are going to be meh in terms of their respect for
personal freedom, they really need to emphasize that commitment to
not getting handsy with people’s wallets.

The Fraser Institute also notes that the top-scorers in their
ratings hold their place largely due to relative advantage—not
because things are getting better. In fact, Canadian provinces, on
average, are ranked better than their American counterparts, but
only because “their economic freedom is declining more slowly than
in the US states.”

The signs aren’t all ominous. Texas implemented
strong eminent domain reform
just three years ago. That’s an
indicator that state officials retain at least some
respect for the conditions that keep the place from turning into
Bulgaria by the

If they want the prosperity to keep coming, they’ll continue to
stay out of the way of the people and businesses that create

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Rate Hike Catalyst? As QE3 Ends, Fed Reserves Have Biggest Drop Since Start Of QE

While we understand the Fed’s desire to pass the monetization baton seamlessly from the end of QE3 in the US, to the expansion of QE in Japan first, and then the launch of public QE by the ECB, things may not be quite as smooth as desired . Because a quick glance at the latest Fed H.4.1 statement reveals something unexpected: in the past 4 weeks, the level of total reserves with Fed banks (i.e., excess reserves created by QE), have seen their biggest plunge since the launch of QE in March of 2009. As of November 5, the total amount of outstanding reserves tumbled to $2.561 trillion, down a whopping $188 billion in the past 4 week, well below the $2.8 trillion recorded in August, and at a level last seen in February 2014.


Yet when looking at the corresponding cash balances of banks, something which as we have shown in the past is directly driven by the total amount of systemic reserves, there is no comparable drop in total cash, as can be seen on the chart below.


Unexpectedly, the difference between total bank cash balances as reported weekly by the Fed’s H.8 statement, and the total amount of excess reserves has blown out the most observed under the Fed’s central planning regime starting in 2009.

Digging into the components reveals what most should expect: the cash balances of foreign banks operating in the US suddenly soared to a record high $1.537 trillion even as the cash of large domestic banks operating in the US tumbled to $1.1 trillion, accounting for almost the entire drop in Fed reserves! In fact, the total cash parked at foreign banks is greater than that located at domestic (large and small) banks by $100 billion, clost to the highest ever.


So what does this mean? There are several possible explanations:

  • the drop in reserves could be simply a calendarization effect, as the Fed is unclear how to seasonally adjust total actual reserves at a time when QE3 has just ended and the Fed’s balance sheet is flat.
  • there has indeed been a drop in reserves, as domestic banks proceed to finally do what the Fed has been begging them to do for 5 years: lend the cash out. Then again, since there has been a matched collapse in total bank deposits, sliding by over $50 billion in the past week to $10.253 trillion, this is hardly the case if only for now.
  • as the reserve drop has moved through the domestic banking sector, foreign banks have seen their domestic cash replenishhed courtesy of offshore QE activity, be it by the BOJ or to a lesser extent, the ECB.

Realistically, what this means is still unclear, and ideally several more weeks have to pass to conclude if the reserve drop is merely just a one time, “calendar”, phenomenon.  However, if the reserve drop is for real, and outside money is finally being converted into “inside”, then last night’s warning from Plosser may be quite relevant here:


And since there are many trillions in reserves to go, the deflation that everyone is so concerned about may be, to use the Fed’s favorite word, “quite transitory” and could be just the catalyst that the Fed needs to proceed with rate hikes?

On the other hand, if domestic banks are forced to deplete cash at a time when they still can’t force loan creation to accelerate and offset the Fed’s money printing, then the next highly levered asset class to be liquidated in order to replenish cash reserves could very well be stocks themselves.

via Zero Hedge http://ift.tt/1tYS9l1 Tyler Durden