Month: June 2020

Authored by Frank Miele via RealClearPolitics.com,

Why can’t our leaders bring themselves to condemn anti-social violence?

The most shocking aspect of the wave of rioting and destruction that has been unleashed on many of our American cities in the wake of George Floyd’s death is not that there is an underlying discontent with the rate of progress in racial equality. That is understandable. What is not is the way that mayors, governors and members of Congress have not just tolerated, but endorsed, mob violence as an acceptable weapon of social change.

Growing up in the turbulent 1960s, I was given a very specific warning by my mother: If you ever get caught up in a mob, get out of it as soon as possible because a mob has no brain. It just has emotion — and whether that emotion is anger, hatred or even joyful exuberance, it cannot be controlled.

We saw that in Minneapolis following the death of George Floyd while in police custody. People with a brain were outraged by what they saw. They wanted to protest, to speak out, and to demand justice. But when they came together in the streets, they discovered how quickly protest can transform into riot, and how demands for justice can be used to justify injustice. The basic premise of justice, after all, is recompense, making sure that wrongdoers pay a price for their crime. Yet there was no recompense in burning the businesses of innocent bystanders. There was no justice in stealing TVs and PlayStations. This was just brainless mob violence. It was shameful and it should have been easily condemned by the politicians, news media and celebrities who were not part of the mob.

That’s what would have happened in the 1960s. When Martin Luther King Jr. was murdered, leading to riots across America in 1968, Bobby Kennedy appealed for peace amidst “this mindless menace of violence in America which again stains our land and every one of our lives.”

The parallel is exact. A black man is unjustly murdered. The nation is outraged. Riots ensue. The only part that is missing today is a respected grown-up like Kennedy who would condemn the violence and recognize that “[i]t is not the concern of any one race.”

As Kennedy said,

“The victims of the violence are black and white, rich and poor, young and old, famous and unknown. They are, most important of all, human beings whom other human beings loved and needed. No one — no matter where he lives or what he does — can be certain who will suffer from some senseless act of bloodshed. And yet it goes on and on. Why? What has violence ever accomplished? What has it ever created? … No wrongs have ever been righted by riots and civil disorders. … [A]n uncontrolled, uncontrollable mob is only the voice of madness, not the voice of the people.”

What a refreshing expression of common sense, and what a contrast it offers to the bleating appeasers from the Democratic Party today who have bent a knee in obeisance to the mob, to the rioters, to the monument defacers, to the statue topplers.

But it’s not just the Democrats who have bowed to the “voice of madness.” Most Republicans are right there with them. So too are corporate entities such as Intel and Amazon, and sporting organizations such as the NFL and NASCAR. For their part, news outlets such as CNN and MSNBC are promoting the riots and the cleansing of American history that is being pushed by Black Lives Matter.

The question is why?

It is easy to understand why someone surrounded by the mob surrenders to its power, but those corporate boardrooms are far from the fray and well-protected from the torches and Molotov cocktails. So why have they turned their backs on law and order and embraced the mob? What has changed since the 1960s that makes it so much harder for leaders in government, business and culture to condemn violence and lawlessness?

The answer will not surprise you, but it should scare you. Somewhere along the way, we digitized the mob. The few dozen people surrounding a statue are not the problem. The few hundred people confronting police are not the problem. The few thousand people looting stores and throwing rocks are not the problem. The mob on the street is not the problem. The mob on the street is the symptom.

The millions of people acting without moral restraint, without reason and without fear of consequences on the Internet are the problem. Indeed, the digital mob is the unintended consequence of the Internet itself. Connecting the world via technology was supposed to encourage communication, understanding and a breaking down of barriers. Instead it has resulted in a world divided into silos, special interests, identity groups. We tend to seek out those we have the most in common with and to block, ban or troll those who are unlike us. We feel safety in numbers, and from that safety is often bred outright contempt for those who think differently. Though we must live side by side with people in our families, our workplaces and our schools who have diverse points of view, we are under no such obligation online, where unfriending is much easier than “un-neighboring.”

That has emboldened people to be the loudest, harshest, most vulgar voice in their group. Such uncivil behavior can bring fame and money. And yes, praise. Target and shame those who violate your group’s ideological dogma, and you will be echoed, retweeted, and revered. But if you dare to defend the person or institution under attack, if you ask for forbearance or forgiveness, you will be the next target. The phenomenon was well-described by a former Internet mobster in an anonymous confession published by Quillette in 2018 titled “I Was the Mob Until the Mob Came for Me”:

“Every time I would call someone racist or sexist, I would get a rush. That rush would then be reaffirmed and sustained by the stars, hearts, and thumbs-up that constitute the nickels and dimes of social media validation. The people giving me these stars, hearts, and thumbs-up were engaging in their own cynical game: A fear of being targeted by the mob induces us to signal publicly that we are part of it.”

It is that last part that seems to be what is motivating companies to donate millions of dollars to Black Lives Matter, a movement that has more in common with the Marxist revolutionary goals of the Weather Underground than with the nonviolent calls for social justice of MLK. Rather than risk being targeted by the mob, corporations such as Home Depot, Walmart and others have opened their wallets. In essence, they are paying protection money in order to avoid having their metaphorical windows smashed by the Internet mob.

It is also why almost all of our elected leaders, many of whom took an oath to defend the Constitution against enemies foreign and domestic, are silent about the assault on our history, our economy and our future. Can you blame them? When they come for you on Twitter, there is no place to hide.

When Josh Browder, barely a high school graduate, started coding and developing an automated program to help people contest parking tickets back in 2015, he likely had no clue how big his idea was about to get. He programmed the software to help himself out with a “respectable collection of fines” he had assembled, according to Forbes. 

Some weeks later, he had a program called “DoNotPay” which he shared with friends and touted online. After it became popular on Reddit, it went from having 10 users to over 50,000 users.

Today, Browder has parlayed that early success into raising a $12 million Series A round at an $80 million valuation from Coatue, Andreessen Horowitz, Founders Fund and Felicis Ventures. He had previously raised $4.6 million in a seed round. 

 

Browder calls “DoNotPay” the “world’s first robot lawyer” and the software has moved on from just parking tickets to helping people with over 100 areas of consumer rights. The company offers legal help with customer service disputes like airline flight compensation or cancelling subscriptions (KaaS = Karen As A Service?). 

It also helps suing companies in small claims courts, jumping customer service phone queues and analyzing bank accounts for various types of fees. When 24 Hour Fitness filed for bankruptcy due to Covid-19, more than 1,000 users sent a subscription cancellation request through “DoNotPay”. 

Browder said: “In the crisis times that we live in, lots of big companies are using consumers as a lifeline. You see this with airlines as they refuse to refund people and instead they issue them a travel credit, just because they know they can get away with it.”

 

The software hit its “millionth case filed” last month and it has a “high five figure” number of subscribers in the U.S. now. The company is break even with an eye on turning a profit. It charges $3 per month for its services and has no ad selling or data selling component to its business. 

The American Bar Association even honored the software with its Brown Award for its “commitment to increasing legal services to those of modest means.”  

“What we try to do is give the ordinary people the same power in the legal system as large companies,” Browder concluded. 

Via S&P Global Platts Insight blog,

As oil markets begin to recover from the shocks of recent months, side-effects like falling VLCC rates and congestion at Chinese ports are emerging, write S&P Global Platts news editors. Plus, competition heats up among corn exporters amid low ethanol demand, and UK power prices reflect improving demand.

1. Freight rates dive as call on VLCCs for floating oil storage lessens

What’s happening? The amount of crude stored on tankers is showing signs of a descent in response to the waning economics for storage, as production cuts and a measured demand recovery aids a rebalancing of the global oil market. The slowdown in storage is already starting to have a significant impact on freight. Rates on VLCCs have plunged dramatically in the past month as a gradual fall in floating barrels prompts an influx of tonnage, which has coincided with fewer spot crude cargoes due to the OPEC+ production cuts. Freight rates for a West Africa-Far East voyage, carrying a 260,000 mt cargo, dropped to an almost year-low last week, according to S&P Global Platts data. Rates on this voyage were assessed at Worldscale 37.50 or $13.51/mt on June 26.

What’s next? “The direction of spot rates will now be dictated by how quickly vessels engaged in floating storage are returned to active trade, and the timing and magnitude of the reversal of the OPEC+ production cuts implemented in May,” S&P Global Platts Analytics said. There are currently close to 190 million barrels of crude on floating storage compared with 200 million barrels earlier in the month, according to data from Platts trade flow software cFlow.

2. China’s oil import surge clogs ports, threatens refinery operations

What’s happening? China’s crude oil imports jumped 19.2% on the year to an all-time high at 11.34 million b/d, or 47.97 million mt, in May as refiners took full advantage of ultra low crude prices and ample storage capacity. But the recent flurry of tankers arriving in Chinese waters has been hampered by limited port capacity. As of June 24, at least 41 ships carrying a combined total of around 51.07 million barrels of crude were waiting to be discharged at Shandong ports for more than a week. Making matters worse, there at least seven cargoes of crude oil have jumped the queue to deliver into storage facilities designated by the Shanghai International Energy Exchange, or INE, since late May.

What next? The port congestion and the subsequent logistical constraints could put brakes on the upward momentum in independent refiners’ run rates and crude throughput levels. Daily crude throughput at an 8 million mt/year Weifang-based refinery was briefly cut by half to around 10,000 mt for about two to three weeks earlier this month because of the congestion and subsequent delay in crude feedstock delivery. The prolonged congestion could seriously affect operations and fuel output at many more refineries as they struggle to replenish their feedstock inventory on time, industry and market sources said.

3. Race between top corn exporters to heat up amid big harvests

What’s happening? For most of 2019, US corn remained expensive for buyers due to weather-related issues, which helped shipments from South American producers Brazil and Argentina gain ground in global markets. However, unprecedented ethanol demand destruction has made corn prices in the US cheaper this year. An analysis of the corn FOB prices from the top three exporters, the US, Brazil and Argentina, shows the wide gap in prices observed last year has not developed so far this year.

What’s next? Bumper harvests in all the three top corn exporting countries, amid low demand from the energy sector, are likely to keep FOB corn prices at lower levels. Corn harvesting has begun in Brazil, and is already completed in 60% of the planted area in Argentina. This is likely to weigh on corn prices in the coming weeks and further narrow the price difference, especially in Brazil. Prospects for the US corn crop already look favorable so far, with acreage seen at an eight-year high. As a result, competition in the corn export market is likely to heat up during the current marketing season of Brazil and Argentina, with US supplies coming into the market later on.

4. UK forward power prices perk up on signs of demand recovery

What’s happening? UK forward electricity prices are now back above pre-lockdown levels for the first time, the third quarter 2020 baseload contract up 25% since the start of June. The lift reflects gains across the commodity complex – not least carbon which has surged to a 2020 high (see chart) – with UK clean spark spreads for gas plant at GBP4/MWh now more double lockdown lows seen in early March.

What’s next? The surge reflects increased optimism around the pace of lockdown easing – not just in the UK but also across Europe and beyond. While European power demand is set to remain below normal levels into Q3, French nuclear’s poor state of availability looks set to support prices for the period. “Our current base case scenario assumes that year-on-year losses in nuclear output outweigh the drop in demand, while net imports into the region are boosted by strong Nordic hydro reservoir levels,” S&P Global Platts Analytics’ head of European power analysis Glenn Rickson said.

For everyone who went to Vegas year after year and instead of going to one of the remarkable Cirque du Soleil performances would visit… less reputable “shows”, we have some bad news: you are now out of luck, because as the Las Vegas Review Journal reports, Cirque du Soleil – the Las Vegas Strip’s preeminent production company for more than two decades – has filed for bankruptcy protection, in which existing stakeholders have a “stalking horse” agreement to acquire the company, setting the minimum price for an auction.

According to the report, the company which had six productions on the Strip, announced Monday morning from its Montreal headquarters it was seeking a debt restructuring protection under its home country’s Companies’ Creditors Arrangement Act (CCAA). The company said in its filing announcement the bankruptcy filing and refinancing move was “in response to immense disruption and forced show closures as a result of the COVID-19 pandemic.”

In March, Cirque du Soleil shut down all 44 of its shows and laid off 95% of its work force, including more than 1,300 in Las Vegas in response to the covid shutdowns.

As we move forward, we know that you will have questions and we will continue to share information with you. If you already have tickets, these remain valid. For all other questions, please refer to the FAQ section of our website: https://t.co/MGJfZUk8Qr pic.twitter.com/spJ46YFs0T

— Cirque du Soleil (@Cirque) June 29, 2020

In its bankruptcy, Cirque will receive a $300 million infusion from its investors (including $200 million from its own government agency, Investissement Québec). Existing investors including TPG, Fosun, and Caisse de dépôt et placement du Québec will acquire company’s assets for a combination of cash, debt, and equity to continue operations while productions are sidelined,as well as establish two funds totaling $20 million to provide additional relief to impacted employees and independent contractors

The filing also allows the company protection from creditors to reduce its debt load, reported to be at least $900 million, which is rather shocking for what has long been considered the Strip’s most popular and lucrative show.

The filing also sets a “stalking horse” purchase agreement with current investors, led by TPG Capital. From the announcement, “The purchase agreement sets the floor, or minimum acceptable bid, for an auction of the company under the court’s supervision pursuant to the SISP (Sale and Investor Solicitation Process), which is designed to achieve the highest value available or otherwise best offer for the company and its stakeholders.”

That means Cirque is available at a reduced, undisclosed price for a half-dozen suitors, including a consortium led by company co-founder Guy Laliberte, and another from the Canadian communications conglomerate Quebecor. The other parties who have entered the bidding process have not been made public, and today all of the potential investors are under non-disclosure agreements.

As a result of the fluctuating ownership, where debt is equitized and existing stakeholders are wiped out, it will take months for the company’s ownership to be established according to the Review Journal.

Cirque CEO Daniel Lamarre said in Monday morning’s announcement that the company had enjoyed 36 years of success until the pandemic took hold, and needed to act “decisively” to bolster its future. The purchase agreement is to set a template for Cirque to return as a stronger company.

“The robust commitment from the sponsors – which includes additional funds to support our impacted employees, contractors and critical partners, all of whom are important to Cirque’s return – reflects our mutual belief in the power and long-term potential of our brand,” he said. “I look forward to rebuilding our operations and coming together to once again create the magical spectacle that is Cirque du Soleil for our millions of fans worldwide.”

Alas, so far there has been no specified strategy from the company for when, how or even if all of its shows will reopen on the Strip. Prior to its bankruptcy, Cirque’s multiple permanent Las Vegas shows alone played to more than 9,000 people a night, 5% of the city’s visitors, adding to the over 100 million people who have seen Cirque du Soleil productions worldwide.

Despite a round three of border deescalation talks between Indian and Chinese military delegations scheduled for Tuesday, there’s yet more significant fallout following the June 15 border clash which left 20 Indian troops dead, also with an unknown number of PLA casualties. 

India is moving to ban up to 59 Chinese apps in the country, including massively popular TikTok, as the military standoff gives way to a tsunami of economic consequences. 

The government of India announced the apps are being blocked “in view of information available they are engaged in activities which is prejudicial to sovereignty and integrity of India, defense of India, security of state and public order.”

It also follows international reports of significant allegations that Chinese firms are compromising user privacy, such as stealth installation of spyware or malware, and tracking users without their knowledge. 

India’s Ministry of Electronics and Information and Technology coordinated with the country’s Cyber Crime Coordination Center and the Ministry of Home Affairs in declaring that the China-made apps remain a “security of data and risk to privacy”.

This also includes other massively popular brands in the country like Weibo, WeChat, and We Meet. India’s over one billion people, most of them young, will now be cut off from these internationally popular apps (it’s commonly estimated that up to 50% of the population is under 25).

TikTok, UC Browser, Shareit, Helo, Likee among 59 Chinese apps blocked by India; here’s the full list#indiachinastandoff #chineseapps #TikTok https://t.co/vLt4IwlqLn

— Zee News English (@ZeeNewsEnglish) June 29, 2020

Media reports in India is now circulating the following expansive list of apps to be banned in the country amid rising tensions with China: 

1. TikTok
2. Shareit
3. Kwai
4. UC Browser
5. Baidu map
6. Shein
7. Clash of Kings
8. DU battery saver
9. Helo
10. Likee
11. YouCam makeup
12. Mi Community
13. CM Browers
14. Virus Cleaner
15. APUS Browser
16. ROMWE
17. Club Factory
18. Newsdog
19. Beutry Plus
20. WeChat
21. UC News
22. QQ Mail
23. Weibo
24. Xender
25. QQ Music
26. QQ Newsfeed
27. Bigo Live
28. SelfieCity
29. Mail Master
30. Parallel Space
31. Mi Video Call — Xiaomi
32. WeSync
33. ES File Explorer
34. Viva Video — QU Video Inc
35. Meitu
36. Vigo Video
37. New Video Status
38. DU Recorder
39. Vault- Hide
40. Cache Cleaner DU App studio
41. DU Cleaner
42. DU Browser
43. Hago Play With New Friends
44. Cam Scanner
45. Clean Master – Cheetah Mobile
46. Wonder Camera
47. Photo Wonder
48. QQ Player
49. We Meet
50. Sweet Selfie
51. Baidu Translate
52. Vmate
53. QQ International
54. QQ Security Center
55. QQ Launcher
56. U Video
57. V fly Status Video
58. Mobile Legends
59. DU Privacy

The official Ministry of Electronics and Information and Technology statement said the above have been “flagged” as harmful to privacy and India’s sovereignty.

“Likewise, there have been similar bipartisan concerns, flagged by various public representatives, both outside and inside the Parliament of India. There has been a strong chorus in the public space to take strict action against Apps that harm India’s sovereignty as well as the privacy of our citizens,” the statement said.

Authored by Lance Roberts via RealInvestmentAdvice.com,

If you haven’t heard of Modern Monetary Theory, or “MMT,” you will soon. If you recently lost your job due to the economic shut down, and received a stimulus check, you are already a beneficiary. As we will discuss in Part-1 of this two-part series, MMT’s theory falls flat when faced with reality.

With economic growth sluggish, unemployment high, and the wealth gap widening, politicians will be increasing pressure to delve deeper into MMT to cure our economic woes. However, to understand more about the premise of MMT, economist Stephanie Kelton, recently produced a video explaining the concept.

The Government Isn’t A Household

“MMT starts with a simple observation, and that is that the US dollar is a simple public monopoly. In other words, the United States currency comes from the United States government; it can’t come from anywhere else. So, what that means is that the federal government is nothing like a household.

For households or private businesses to be able to spend they’ve got to come up with the money, right? And the federal government can never run out of money. It cannot face a solvency problem with bills coming due that it can’t afford to pay. It never has to worry about finding the money to be able to spend.”

There is nothing untrue about that statement. While the Government can indeed “print money to meet all obligations,” it does NOT mean there are not consequences. The chart below really tells you all you need to know.

In reality, just like households, debt matters. When debt is used for “non-productive” purposes, the debt diverts dollars from productive purposes into servicing of the debt. The concept of “productive investments” is critically important to understanding why MMT fails the “litmus” test.

American Gridlock

Dr. Woody Brock, in American Gridlock, explained the importance of the productive use of debt. To wit:

“The word ‘deficit’ has no real meaning. 

‘Country A spends $4 Trillion with receipts of $3 Trillion. This leaves Country A with a $1 Trillion deficit. To make up the difference between the spending and the income, the Treasury must issue $1 Trillion in new debt. That new debt is used to cover the excess expenditures, but generates no income leaving a future hole that must be filled.

Country B spends $4 Trillion and receives $3 Trillion income. However, the $1 Trillion of excess, which was financed by debt, was invested into projects and infrastructure that produced a positive return rate. There is no deficit as the return rate on the investment funds the ‘deficit’ over time.’

There is no disagreement about the need for government spending. The argument is with the abuse and waste of it.

For government “deficit” spending to be effective, the “payback” from investments being made through debt must yield a higher return rate than the interest rate on the debt used to fund it.

MMT’s Root Problem

For MMT, the problem is government spending has shifted away from productive investments. Instead of things like the Hoover Dam, which creates jobs (infrastructure and development), spending shifted to social welfare, defense, and debt service, which have a negative rate of return.

According to the Center On Budget & Policy Priorities, nearly 75% of every tax dollar goes to non-productive spending. 

In other words, the U.S. is “Country A.” 

To clarify, in 2019, the Federal Government spent $4.8 Trillion, which was equivalent to 22% of the nation’s entire nominal GDP. Of that total spending, ONLY $3.6 Trillion came from Federal revenues, the remaining$1.1 trillion came from debt.

If 75% of all expenditures go to social welfare and interest on the debt, those payments required $3.6 Trillion, or roughly 99% of the total revenue coming in. 

Measuring With The Wrong Yardstick

“So, the deficit definitely matters; it’s just that it matters in ways that we’re not normally taught to understand. Normally I think people tend to hear deficit and think it’s something that we should strive to eliminate; that we shouldn’t be running budget deficits; that there is evidence of fiscal irresponsibility. And the truth is the deficit can be too big. Evidence of a deficit that’s too big would be inflation.” – Kelton

Yes, Ms. Kelton does acknowledge the deficit can be too big, and the consequence would be inflation.

There are two problems with her argument. The first is that if the Government was running a massive deficit funding productive investments, then “inflation” would indeed be a problem. However, increasing deficits for non-productive purposes slows economic growth and is deflationary. Even a cursory glance at GDP, the deficit, and inflation show the error in MMT’s premise.

The second, and more important problem is the measure of inflation.

How Should MMT Measure Inflation?

Prior to 1998, inflation was measured on a basket of goods. However, during the Clinton Administration, the Boskin Commission was brought in to recalculate how inflation was measured. Their objective was simple – lower the rate of inflation to reduce the amount of money being paid out in Social Security.

Since then, inflation measures have been tortured, mangled, and abused to the point where it scarcely equates to the inflation that consumers deal with. For example, home prices were substituted for “homeowners equivalent rent,” which was falling at the time, and lowered inflationary pressures, despite rising house prices.

Since 1998, homeowners equivalent rent has risen 72% while house prices, as measured by the Shiller U.S. National Home Price Index has almost doubled the rate at 136%. House prices which currently comprise almost 25% of CPI has been grossly under-accounted for. In fact, since 1998, CPI has been under-reported by .40% a year on average. Considering that official CPI has run at a 2.20% annual rate since 1998, .40% is a big misrepresentation.

Innovation, technology, and the exportation of labor has lowered stated inflation rates. The chart below compares inflation today measured with both the 1990 computations and current ones.

Whether you agree with the calculations, weightings, and hedonics, the measure of inflation MUST be defined if it is the governor of economic policy.

It currently isn’t.

Deficits Are Others Surpluses

“In other words their deficits become our surpluses and so when we talk about the government having all this red ink, we have to remind ourselves that their red ink becomes our black ink and their deficits are our surpluses and the question is then should you expand fiscal policy? Should you run bigger budget deficits in order to boost growth?” – Kelton

In theory, the concept is correct; in economic reality, it hasn’t functioned that way.

If used for productive investments, debt can be a solution to stimulating economic growth in the short-term and providing a long-term benefit. The current surge in deficit spending only succeeds in giving a temporary illusion of economic growth by “pulling forward” future consumption, leaving a void to fill continually.

Jerome Powell previously stated the economy should grow faster than the debt. Yet, each year, the debt continues to grow faster than the economy.

Economy Can’t Grow Faster Than Debt

The relevance of debt growth versus economic growth is all too evident, as shown below. Since 1980, the overall increase in debt has surged to levels that currently usurp the entirety of economic growth. With economic growth rates now at the lowest levels on record, the growth in debt must continue to maintain current economic growth.

However, merely looking at Federal debt levels is misleading.

It is the total debt that weighs on the economy.

It now requires nearly $3.00 of debt to create $1 of economic growth.

Another way to view the impact of debt on the economy is to look at what “debt-free” economic growth would be. In other words, without debt, there has actually been no organic economic growth.

The economic deficit has never been more enormous. For the 30 years from 1952 to 1982, the economic surplus fostered a rising economic growth rate, which averaged roughly 8% during that period. With the economy expected to grow below 2% over the long-term, the economic deficit has never been greater.

Such is why MMT will ultimately fails. 

Interest rates and inflation MUST remain low, and debt MUST grow faster than the economy, just to keep the economy from stalling out.

The current environment is the very essence of a “liquidity trap.”

Productivity Loss

“So, what is the objective, what is the proper policy goal, and I think the right policy goal is to maintain a balanced economy where you’re at full employment. You’re guarding against an acceleration and inflation risk. And economists tend to understand that the kinds of things that you can do to boost longer term growth are investments in things like education, infrastructure, R&D. Those are the sorts of things that tend to accelerate productivity growth so that longer term real GDP growth can be higher.

So, there are ways in which the government can make investments today that increase deficits today that produce higher growth tomorrow and build in the extra capacity to absorb those higher deficits.” Kelton

There is clear evidence that increasing debts and deficits DO NOT lead to either stronger economic growth or increasing productivity. As Michael Lebowitz recently showed:

“Since 1980, the long term average growth rate of productivity has stagnated in a range of 0 to 2% annually, a sharp decline from the 30 years following WWII when productivity growth averaged 4 to 6%. While there is no exact measure of productivity, total factor productivity (TFP) is considered one of the best measures. Data for TFP can found here.

The graph below plots a simple index we created based on total factor productivity (TFP) versus the ten-year average growth rate of TFP. The TFP index line is separated into green and red segments to highlight the change in the trend of productivity growth rate that occurred in the early 1970’s. The green dotted line extrapolates the trend of the pre-1972 era forward.”

“The graph below plots 10-year average productivity growth (black line) against the ratio of total U.S. credit outstanding to GDP (green line).”

“This reinforces the message from the other debt related graphs – over the last 30 years the economy has relied more upon debt growth and less on productivity to generate economic activity.

Ill-conceived policies, like MMT, which impose an over-reliance on debt and demographics, have mostly run their course and failed.

Let’s Be Like Japan

“So, it’s impossible really to put a number on it. Nobody can know how much debt is too much debt. If you look at Japan today you see a country where the debt to GDP ratio is something like 240%, orders of magnitude above where the US is today or even where the US is forecast to be in the future. And so the question is how is Japan able to sustain a debt of that size.

Wouldn’t it have an inflation problem? Would it lead to rising interest rates? Wouldn’t this be destructive in some way? The answer to all those questions as Japan has demonstrated now for years is simply, no. Japan’s debt is close to 240% of GDP, almost a quadrillion. That’s a very big number. Again, long term interest rates are very close to zero. There’s no inflation problem and so despite the size of the debt there are no negative consequences as a result. I think Japan teaches us a really import lesson.” – Kelton

Ms. Kelton is correct. Japan does indeed teach us that running massive debts and deficits have not fostered stronger economic growth, beneficial inflation, or prosperity.

There Is More To The Story

Japan has been running a massive “quantitative easing” program stating in 2008, which is more than 3-times the size of that in the U.S. While stock markets did rise with ongoing Central Bank interventions, long-term performance has remained muted.

More importantly, economic prosperity is only slightly higher than it was before the turn of the century.

Despite the Bank of Japan consuming 80% of the ETF market and a sizable chunk of the corporate and government debt market, Japan has been plagued by rolling recessions, low inflation, and low-interest rates. (Japan’s 10-year Treasury rate fell into negative territory for the second time in recent years.)

Clearly, Ms. Kelton has not studied the impacts of MMT on Japan. The consequences for its citizens has been less than beneficial.

Japan Is A Template

Should we worry about the debt? If Japan is indeed a template of what we will eventually face, the simple answer is “yes.”

As global growth continues to slow, the negative impact of debt expands economic instability and wealth inequality. Likewise, the hope Central Bank’s monetary ammunition can foster economic growth, or inflation has been misplaced.

“The fact is that financial engineering does not help an economy, it probably hurts it. If it helped, after mega-doses of the stuff in every imaginable form, the Japanese economy would be humming. But the Japanese economy is doing the opposite. Japan tried to substitute monetary policy for sound fiscal and economic policy. And the result is terrible.” – Doug Kass

Japan is a microcosm of what the U.S. will face in the coming years as the “3-D’s” of debt, deflation, and the inevitability of demographics continue to widen the wealth gap. What Japan has shown us is that financial engineering doesn’t create prosperity, and over the medium to longer-term, it has negative consequences.

Such is a key point.

What is missed by those promoting the use of more debt, is the underlying flawed logic of using debt to solve a debt problem.

At some point, you simply have to stop digging.