Authored by Mike Krieger via Liberty Blitzkrieg blog,

Some of you may be confused as to why a U.S. citizen living in Colorado has become so completely obsessed with what’s going on in Spain. Bear with me, there’s a method to my madness.

I believe what’s currently happening in Spain represents a crucial microcosm for what we’ll see sweep across the entire planet over the next ten years.

Some of you will want to have a discussion about who’s right and who’s wrong in this particular affair, but that’s besides the point. It doesn’t matter which side you favor, what matters is that Madrid/Catalonia is an example of the forces of centralization duking it out with forces of decentralization.

Madrid represents the nation-state as we know it, with its leaders claiming Spain is forever indivisible according to the constitution. Madrid has essentially proclaimed there’s no possible avenue to independence from a centralized Spain even if various regions decide in large number they wish to be independent. This sort of attitude will be seen as unacceptable and primitive by increasingly large numbers of humans in the years ahead. Catalonia should be seen as a canary in the coal mine. The forces of decentralization are rising, but entrenched centralized institutions and the bureaucrats running them will become increasingly terrified, panicked and oppressive.

As I’ve discussed, this isn’t coming out of nowhere. Humanity’s current established centralized institutions and nation-states have become clownishly corrupt, merely existing to protect and enrich the powerful/connected as opposed to benefiting the population at large. As such, legitimacy has been shattered and people have begun to demand a new way. Whether we see this with the rising popularity of Bitcoin, or the UK decision to leave the EU, evidence is everywhere and we’ve already passed the point of no return. This is precisely why EU leaders are rallying around Madrid. They’re scared to death and fear they might be next. They’re probably right.

Before we continue, I want to revisit something I pointed out in last week’s post, Surprisingly, I’m Quite Optimistic About the Future:

Unfortunately, I don’t think we’ll see sufficient change in this regard without hardship. This hardship is likely to occur as the old paradigm becomes more authoritarian and paranoid as it lashes out in an attempt to solidify and expand control. Of course, we’re already seeing this all around us, but it’s likely to get even worse in the years ahead. Don’t be afraid of it, understand that it’s coming and accept that this is all part of the change process. Did you really think control-freak authoritarians would give up without a fight?

If you want to see how a control-freak authoritarian responds to a situation, just look at how Spanish PM Mariano Rajoy has responded to Catalonia. People like him simply can’t help themselves, it’s in their nature and all they know is the fist of violence. As I noted in last week’s post on the topic, those in favor of Catalan independence have thus far played the situation flawlessly. For this to turn out positively for the forces of decentralization, the Spanish authorities must be encouraged to act increasingly thuggish, which will in turn bolster more and more popular support for independence. This has already started to happen, and will likely accelerate in the weeks ahead as Rajoy is about to make the biggest mistake of all by activating Article 155.

It’s really important to understand how irresponsibly aggressive Madrid is about to become before moving on. Here’s some background courtesy of Bloomberg:

Rajoy on Saturday shocked many observers with plans to clear out the entire separatist administration in Barcelona and take control of key institutions including public media and the regional police force, the Mossos d’Esquadra. Spain’s chief prosecutor said that if Puigdemont declares independence he would face as much as 30 years in jail and signaled that he could be arrested immediately.

 

“Catalan government officials and many within the Mossos and Catalan media are not just going to stand down without a fight,” said Caroline Gray, a lecturer in politics and Spanish at Aston University in the U.K. who specializes in nationalist movements. “The big question for me, really, is how Madrid is actually going to implement its proposed actions in Catalonia.”

 

Rajoy is wielding the untested powers of Article 155 of Spain’s 1978 Constitution to try to impose central government control on Catalonia. The aim ultimately is to trigger regional elections within six months.

Madrid is making a mistake of enormous historical significance here. First, you don’t need to be a genius to see that him forcibly taking over control over key aspects of Catalan civil society will only make the independence movement grow in strength, passion and numbers. Second, does Rajoy really think he’s going to be able to make this happen without enormous amounts of civil unrest? Not a chance.

Here’s some of what’s already being planned, according to Bloomberg:

Catalan separatists are mobilizing a human shield to block efforts by the Spanish authorities to take control of the breakaway region as both sides prepare to escalate the political conflict.

 

Groups will concentrate their activists around the regional government’s headquarters in Barcelona’s Gothic quarter and the nearby parliament building, according to two people familiar with the plans, asking not to be identified by name. They expect Spanish police to use force to try to shut down the administration and will put their bodies on the line, said one person.

 

“We are calling for a peaceful and democratic defense of the institutions,” Lluis Corominas, the leader of the main separatist group in the Catalan Parliament, said at a press conference in Barcelona. Regional President Carles Puigdemont has called for similar action.

 

The separatists have shown they can rally support. A crowd estimated by local police at around 450,000 joined him to protest in central Barcelona after Rajoy announced his plans. CUP, a pro-secessionist party, on Monday called for mass civil disobedience in Catalonia, Ara newspaper reported.

The key dates this week will be on Thursday and Friday. Thursday’s when the Catalan assembly is set to meet to prepare a response to Spain taking over the region by force. Friday is when Spain’s national Senate will vote to implement direct rule. In my opinion, it would be a big mistake for the Catalan government to declare independence at this stage. Madrid needs to continue to be seen as the unreasonable aggressor, which is what will happen if article 155 is activated Friday. For Catalonia to succeed, the public must become even more outraged than it already is. Any attempt by Madrid at taking over Catalan civil society by force will achieve this in spades.

If I’m correct in my forecast, the entire world will be looking at similar forces of decentralization battling it out with discredited, entrenched centralized power structures over the next decade or so. I think this will result in virtually all of our current institutions collapsing and being replaced by a completely different paradigm. In my view, the new paradigm will be increasingly defined by decentralized structures. Terms like “peer-to-peer,” “distributed” and “direct democracy” will become increasingly ubiquitous as we begin to lay down the foundations for a far less top-down, centralized and authoritarian approach to human affairs.

This isn’t to say the process will be easy or smooth, but that’s where I think all of this is headed. The struggle between Madrid and Catalonia represents a high-profile and early example of this struggle and those of us who wish for a more decentralized world need to pay very close attention since many lessons can be learned from this historic crisis.

*  *  *

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Over the past several weeks, the Russia-related talking points of Democrats and their mainstream media echo chambers have shifted from constantly insisting that Trump colluded with Russia during the 2016 election to focus on a seemingly irrelevant amount of advertising dollars that may have been spent on various social media platforms by people that “may have been connected” to the Kremlin…which, to our understanding, is defined as anyone with their browser language set to Russian.

Alas, as the Washington Examiner points out today, this shift in talking points could finally indicate that Democrats are admitting that there is no ‘there’ there when it comes to the ‘Trump collusion’ narrative.

Have you noticed? In recent public comments, the lawmakers investigating the Trump-Russia affair, along with some of the commentators who dissect its every development, seem to be focusing more on the facts of Russia’s attempts to interfere with the 2016 election and less on allegations that Donald Trump or his associates colluded with those efforts.

 

Why the change?

 

“Because that’s where the evidence is going,” one lawmaker who follows the matter closely told me in a text exchange. “I mean, things could always change, but that observation is just the reality of the situation right now, as I see it.”

 

“Because they’ve been spinning their wheels on something for which evidence has yet to emerge,” said another lawmaker.

 

“I think it’s 1) the Mueller probe means that stuff [allegations of collusion] is sort of in his wheelhouse now,” said yet another lawmaker, “and 2) I think there’s recognition that Trump himself is unlikely to be implicated in this.”

Meanwhile, the New York Times admitted over the weekend that the 3 separate Congressional investigations are seemingly going nowhere as the hopes of a “comprehensive, authoritative and bipartisan accounting of the extraordinary efforts of a hostile power to disrupt American democracy appears to be dwindling.”

All three committees looking into Russian interference — one in the House, two in the Senate — have run into problems, from insufficient staffing to fights over when the committees should wrap up their investigations. The Senate Judiciary Committee’s inquiry has barely started, delayed in part by negotiations over the scope of the investigation. Leaders of the Senate Intelligence Committee, while maintaining bipartisan comity, have sought to tamp down expectations about what they might find.

 

Nine months into the Trump administration, any notion that Capitol Hill would provide a comprehensive, authoritative and bipartisan accounting of the extraordinary efforts of a hostile power to disrupt American democracy appears to be dwindling.

And even CNN’s Chris Cuomo seemingly revealed some frustration and doubt in a recent interview with Adam Schiff saying “if it was so obvious, it if were so egregious, you should have known by now.”

“Well, no one’s saying this was obvious,” Schiff answered. “Obviously, there was a deep interest in the Russians in keeping their work hidden. But you can’t say there’s no evidence of collusion.”

 

“We’ve seen even in the public realm, I think, very graphic evidence that the Trump campaign was willing to collude with the Russians,” Schiff continued. That was most likely a reference to the infamous June 2016 Trump Tower meeting which Kremlin-connected Russians enticed Donald Trump, Jr. into attending by promising dirt on Hillary Clinton. In fact, the Russians wanted to push their goal of killing the Magnitsky Act, and the meeting, by all accounts, ended quickly. But Schiff argues that it suggests the willingness to collude, if not collusion itself.

 

“So you can’t say even in the public realm, let alone what we’re looking at [in secret], that there’s no evidence,” Schiff concluded. “Now, is there proof beyond a reasonable doubt? Are we ready to announce a conclusion? We’re not there yet.”

Of course, it does seem somewhat ‘convenient’ that Democrats are suddenly eager to bury the Russian collusion narratives just as pressure is building for an investigation into the Clintons’ role in a massive Russian bribery, extortion and money laundering scheme that ultimately handed the Russians 20% of America’s uranium reserves. For those who missed them, here are out recent notes on the topic:

• FBI Uncovered Russian Bribery Plot Before Obama Approved Uranium One Deal, Netting Clintons Millions
• Emails Reveal Bill Clinton Met With Vladimir Putin Just Before Uranium One Deal
• FBI Informant “Threatened” After Offering Details Linking Clinton Foundation To Russian Bribery Case

So what say you?  Is the timing pure coincidence or are the Clintons and Democrats suddenly eager for a truce now the Russia narratives have become “inconvenient.”

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Authored by Raul Ilargi Meijer via The Automatic Earth blog,

New Zealand’s new prime minister Jacinda Ardern calls capitalism a blatant failure. Former Greek finance minister Yanis Varoufakis says capitalism is ‘merely’ coming to an end because it is making itself obsolete. Mathematics professor Bruce Boghosian claims that without redistribution of wealth, our market economy would not be stable, because wealth always tends to concentrate. The people at Artemis Capital Management write that the stock market has begun self-cannibalizing like a snake eating its tail, and the only reason we’re not in a recession already is ‘financial alchemy’.

At the very least we can say that the system is under pressure. But what system is that? It would be nice to have a clearcut definition of capitalism, but alas, there are many, about as many as there are different forms of it. That doesn’t make this any easier. Americans call many European economies ‘socialist’, which seems to mean they are not capitalist. But Scandinavian countries don’t function like the Soviet Union either.

And if you see how much money is involved in transfer payments to citizens in the US, the supposed bastion of free market capitalism, it’s tempting to conclude the system has already failed. But even with transfer payments, inequality is at record levels. That would seem to confirm Boghosian’s statement that “even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result..” So what then?

Varoufakis and others want a “universal basic dividend”, or “universal basic income”. Would that be the end of capitalism as we know it? Or is it just a -perhaps more extreme- form of ‘state capitalism’? Varoufakis deems it inevitable because technology will eradicate so many jobs from societies that people won’t be able to make money from work. Personally, I’ve long thought that the pending large-scale demise of pensions systems will lead to some form of UBI.

37-year-young Jacinda Ardern is very clear in her assessment of New Zealand’s form of capitalism. If you’ve got the worst homelessness in the developed world, you have a broken system. If the system fails the people, it’s no good. Other people might argue that capitalism never promised to take care of everyone. Or rather, not through state interference. Labour’s Ardern has her view:

New Zealand’s New Prime Minister Brands Capitalism A ‘Blatant Failure’

[Jacinda] Ardern, has pledged her government will increase the minimum wage, write child poverty reduction targets into law, and build thousands of affordable homes. In her first full interview since becoming prime minister-elect, she told current affairs programme The Nation that capitalism had “failed our people”. “If you have hundreds of thousands of children living in homes without enough to survive, that’s a blatant failure,” she said. [..] “When you have a market economy, it all comes down to whether or not you acknowledge where the market has failed and where intervention is required. Has it failed our people in recent times? Yes. How can you claim you’ve been successful when you have growth roughly 3%, but you’ve got the worst homelessness in the developed world?”

So to which extent should a state interfere in markets, and in society at large? There are obviously wide ideological divides when it comes to answering that one. Does that mean there is no answer possible at all? Perhaps not. Perhaps the answer lies in the fact that the system is predestined to fail, as Boghosian’s mathematical models suggest: “Our work refutes the idea that free markets, by virtually leaving people up to their own devices, will be fair..”

That doesn’t necessarily demand a lot of interference, we could ‘simply’ write the rules of the game in such a way that the ‘natural tendency’ towards wealth concentration is blocked. An example is the history of the top US income tax rate. Arguably, the nation was doing a lot better under Eisenhower and Kennedy, with a top rate of 91%, than it is today. If you put a few rules like that in play, perhaps including Varoufakis’ idea of a ‘common welfare fund’, maybe the state doesn’t have to interfere much otherwise.

One of the main underlying claims of capitalism, and of macroeconomics in general, is that markets -and societies- will sort themselves out if left alone. Bruce Boghosian says this is not true, and that he has the math to prove it. The entire notion of markets tending towards a ‘supply-demand equilibrium’ is nonsense, he says (echoing Minsky, Steve Keen et al). Trickle-down economics is a figment of the imagination, while trickle up-economics flourishes.

This refutes much of what our economic systems are based on, which would appear to indicate that we need an urgent revision of these systems. Unless we would agree that Darwin-on-Steroids is a good idea. We don’t and won’t, because it would mean Stephen Foster’s “frail forms fainting at the door” all over the place. A market ideology that causes widespread misery has no future.

The Mathematics of Inequality

Seven years ago, the combined wealth of 388 billionaires equaled that of the poorest half of humanity , according to Oxfam International. This past January the equation was even more unbalanced: it took only eight billionaires, marking an unmistakable march toward increased concentration of wealth. Today that number has been reduced to five billionaires.

 

Trying to understand such growing inequality is usually the purview of economists, but Bruce Boghosian, a professor of mathematics, thinks he has found another explanation—and a warning. Using a mathematical model devised to mimic a simplified version of the free market, he and colleagues are finding that, without redistribution, wealth becomes increasingly more concentrated, and inequality grows until almost all assets are held by an extremely small percent of people.

 

“Our work refutes the idea that free markets, by virtually leaving people up to their own devices, will be fair,” he said. “Our model, which is able to explain the form of the actual wealth distribution with remarkable accuracy, also shows that free markets cannot be stable without redistribution mechanisms. The reality is precisely the opposite of what so-called ‘market fundamentalists’ would have us believe.”

 

While economists use math for their models, they seek to show that an economy governed by supply and demand will result in a steady state or equilibrium, while Boghosian’s efforts “don’t try to engineer a supply-demand equilibrium, and we don’t find one,” he said. [..] The model tracks the data with remarkable accuracy, he said. He and his team will soon publish a paper on how it relates to U.S. wealth data from 1989 to 2013.

 

“We have also begun to apply it to wealth data from the ECB, and so far it seems to work very well for certain European countries as well,” he said [..] It turns out that when agents do well in early transactions, the odds are so increasingly stacked in their favor that—without redistribution from taxes or other wealth-transfer mechanisms—they will get more money, and keep accruing wealth inevitably.

 

“Without redistribution of wealth, our market economy would not be stable,” said Boghosian. “One person would run away with all the wealth, and it would keep going until it came to complete oligarchy.” And even if a society does redistribute wealth, if it’s too small an amount, “a partial oligarchy will result,” Boghosian said.

If markets and societies cannot survive under current rules, theories and ideologies, what do we do? The Artemis guys strongly suggest we stop the practice of excessive stock buybacks- even if they’re the only thing propping up the whole market system. Because they’re leading us straight into a recession. Because they’re making that recession a lot worse.

Volatility and the Alchemy of Risk

The Ouroboros, a Greek word meaning ‘tail devourer’, is the ancient symbol of a snake consuming its own body in perfect symmetry. The imagery of the Ouroboros evokes the infinite nature of creation from destruction. The sign appears across cultures and is an important icon in the esoteric tradition of Alchemy. Egyptian mystics first derived the symbol from a real phenomenon in nature. In extreme heat a snake, unable to self-regulate its body temperature,will experience an out-of-control spike in its metabolism. In a state of mania, the snake is unable to differentiate its own tail from its prey,and will attack itself, self-cannibalizing until it perishes. In nature and markets, when randomness self-organizes into too perfect symmetry, order becomes the source of chaos.

 

The Ouroboros is a metaphor for the financial alchemy driving the modern Bear Market in Fear. Volatility across asset classes is at multi-generational lows. A dangerous feedback loop now exists between ultra-low interest rates, debt expansion, asset volatility, and financial engineering that allocates risk based on that volatility. In this self-reflexive loop volatility can reinforce itself both lower and higher. In a market where stocks and bonds are both overvalued, financial alchemy is the only way to feed our global hunger for yield, until it kills the very system it is nourishing.

[..] At the head of the Great Snake of Risk is unprecedented monetary policy. Since 2009 Global Central Banks have pumped in $15 trillion in stimulus creating an imbalance in the investment demand for and supply of quality assets. Long term government bond yields are now the lowest levels in the history of human civilization dating back to 1285. As of this summer there was $9.5 trillion worth of negative yielding debt globally. Last month Austria issued a 100-year bond with a coupon of only 2.1%(6) that will lose close to half its value if interest rates rise 1% or more. The global demand for yield is now unmatched in human history. None of this makes sense outside a framework of financial repression.

 

Amid this mania for investment, the stock market has begun self-cannibalizing… literally. Since 2009, US companies have spent a record $3.8 trillion on share buy-backs financed by historic levels of debt issuance. Share buybacks are a form of financial alchemy that uses balance sheet leverage to reduce liquidity generating the illusion of growth. A shocking +40% of the earning-per-share growth and +30% of the stock market gains since 2009 are from share buy-backs. Absent this financial engineering we would already be in an earnings recession.

 

Any strategy that systematically buys declines in markets is mathematically shorting volatility. To this effect, the trillions of dollars spent on share buybacks are equivalent to a giant short volatility position that enhances mean reversion. Every decline in markets is aggressively bought by the market itself, further lowing volatility. Stock price valuations are now at levels which in the past have preceded depressions including 1928, 1999, and 2007. The role of active investors is to find value, but when all asset classes are overvalued, the only way to survive is by using financial engineering to short volatility in some form.

Yanis Varoufakis doesn’t so much argue that capitalism has already failed, he says it is bound to fail in the near future. Because new technology, including artificial intelligence, will destroy too many jobs for society to continue to function intact. That is already happening, in that we both produce and consume Google’s ‘products’, but we get none of the profits. An example:

Google’s Plan To Revolutionise Cities Is A Takeover In All But Name

Alphabet’s weapons are impressive. Cheap, modular buildings to be assembled quickly; sensors monitoring air quality and building conditions; adaptive traffic lights prioritising pedestrians and cyclists; parking systems directing cars to available slots. Not to mention delivery robots, advanced energy grids, automated waste sorting, and, of course, ubiquitous self-driving cars. Alphabet essentially wants to be the default platform for other municipal services. Cities, it says, have always been platforms; now they are simply going digital.

 

“The world’s great cities are all hubs of growth and innovation because they leveraged platforms put in place by visionary leaders,” states the proposal. “Rome had aqueducts, London the Underground, Manhattan the street grid.” Toronto, led by its own visionary leaders, will have Alphabet. Amid all this platformaphoria, one could easily forget that the street grid is not typically the property of a private entity, capable of excluding some and indulging others. Would we want Trump Inc to own it? Probably not. So why hurry to give its digital equivalent to Alphabet?

Google aims at taking over our entire communities, and claims this will be to our benefit. We let the new technology companies expand far and wide, to a large extent because our ‘leaders’ don’t understand what is happening any better than we do. But that is not a good thing, for many different reasons. It’ll be very hard to whistle them back later, both because of the wealth they’re building, and because of the intensifying links they have to government, including -or especially- the intelligence community.

Capitalism Is Ending Because It Has Made Itself Obsolete

Former Greek finance minister Yanis Varoufakis has claimed capitalism is coming to an end because it is making itself obsolete. The former economics professor told an audience at University College London that the rise of giant technology corporations and artificial intelligence will cause the current economic system to undermine itself.

Mr Varoufakis [..] said companies such as Google and Facebook, for the first time ever, are having their capital bought and produced by consumers. “Firstly the technologies were funded by some government grant; secondly every time you search for something on Google, you contribute to Google’s capital,” he said. “And who gets the returns from capital? Google, not you. “So now there is no doubt capital is being socially produced, and the returns are being privatised. This with artificial intelligence is going to be the end of capitalism.”

 

Warning Karl Marx “will have his revenge ”, the 56-year-old said for the first time since capitalism started, new technology “is going to destroy a lot more jobs than it creates”. He added: “Capitalism is going to undermine capitalism , because they are producing all these technologies that will make corporations and the private means of production obsolete. “And then what happens? I have no idea.”

 

Describing the present economic situation as “unsustainable” and fearing the rise of “toxic nationalism”, Mr Varoufakis said governments needed to prepare for post-capitalism by introducing redistributive wealth policies. He suggested one effective policy would be for 10% of all future issue of shares to be put into a “common welfare fund” owned by the people. Out of this a “universal basic dividend” could be paid to every citizen.

Has capitalism failed already, as Jacinda Ardern claims, or will that happen only in the future, as Varoufakis says? It may be a moot question once the system and the markets start collapsing. That they will, and must, is not a question but a certainty, even a mathematical one. Whatever your ideology, that is not a good thing. And the current ideology has caused this, that much is clear.

If the remaining wealth is not divided better than it is today, those who have gathered most of it will also find themselves in non-functioning societies and communities. Unless perhaps you’re George W. and have property in Paraguay.

But even then. We’re eating our tails.

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Source: MichaelPRamirez.com

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This article by David Haggith was published on The Great Recession Blog:

While David Stockman stated early this year with resolute certainty that the debt ceiling debate would blow congress up and send the nation reeling over the financial precipice, I avoided jumping on the debt-ceiling bandwagon. While I was convinced major rifts in the economy would start to show up in the summer, I was not convinced they would have anything to do with the debt ceiling debate. If there is anything you can be certain of this in endless recovery-mode economy, it is that the US will just keep pushing its bags of bonds up a hill until it can finally push no more. So, I figured another punt down the road was more likely.

 

The Debt Ceiling Debate that Didn’t Happen

 

The reason I didn’t think that debate would blow apart is that Republicans have more than once experienced the political reality that comes from taking the nation to the brink of default or of shutting down government. Each time that kind of thing has happened, it has hurt Republicans far more than it has hurt Democrats. I doubted establishment Repubs (the majority) had the stomach to take us through another credit downgrade, though I’ve noted such an event was possible.

Unsurprisingly to me, then, Congress did the only thing it seems to be capable of any more and just kicked that can a little further down the road with hardly a kerfuffle about it. Hurricane Harvey made things a lot easier for congress to kick the can again by providing a good excuse to dodge that unwanted debate on the basis of massive human suffering that truly did need tending to. Much-talked-about government shutdown put off for a better time

The debate was entirely avoided even as the national debt broke over the $20 trillion mark this summer, keeping US debt at more than 100% of GDP, which is the stratosphere we’ve been in since 2011.

 

A group of progressive economists affiliated with the University of Massachusetts predicted in 2013 that a debt burden [that reaches 90% of GDP for five years] would result in an annual growth rate of just 2.2 percent, which means economic stagnation. (Reason.com)

 

We’re already well past that five-year marker. Not surprisiing, then, that the Congressional Budgeting Office expects economic growth to stay at 1.8% through 2027.

 

George Will observed that the difference between 2 percent annual growth and 3 percent annual growth is the difference between a positive, forward-looking country in which politics recede from everyday life and a Hobbesian nightmare in which interest groups slug it out over a barely growing pie. Note that he was talking about 2 percent annual growth, which seems positively aspirational in the 21st century. (Reason.com)

 

Nation caught in a debt trap

 

The biggest (or most likely threat) from the national debt is what economists refer to as a debt trap. The nation can be considered caught in a debt trap if the Federal Reserve loses the ability to raise interest because the rise in interest would immediately drown the economy or cause the nation to default on its debt. So long as interest rates are low, the US government can afford its huge debt; however, we are now at a point where, if interest rates rise to historically normal levels, we’re in big trouble. That means we are in, at least, enough of a debt trap that interest rates can never be allowed to normalize.

Several debt traps are shaping up besides the one formed from government debt. One is the corporate debt trap, where corporations have kept earnings per share high by taking out huge piles of debt year after year to buy back shares. If businesses have to refinance all this debt at a higher interest rate, they could be in big trouble. We hear over and over that today’s high stock valuations are justified by the fact that earnings keep growing; but it is not top-line revenue that is growing, it is earnings per share, and most of that “growth” is due to corporations taking out debt in order to buy back shares and thus reduce the number of shares over which those earnings are divided. If interest rises, corporations will no longer be able to afford to buy back shares on debt, and that support for the market will crash. They might not even be able to afford to pay off the debt they have already taken on. So, there is another reason the Fed can never allow interest to normalize by historic standards.

Yet another debt trap now exists in personal credit where many households have reached peak debt. Household debt maxed out this summer above the level it had hit at the peak of the 2007 credit bubble — one more of those big signs of trouble in the economy that I said we could anticipate seeing by the time summer rolled around.

Income, in the meantime, has not improved in order to support this higher level of debt, now at a level that already proved unsupportable in the past. That puts the US back in the unstable position where households that already carry all the debt they can afford can be suddenly sunk if they have any variable-interest credit cards or an adjustable-rate mortgage. That is yet another reason the Fed can never allow interest rates to normalize.

 

Harvard economist Kenneth Rogoff warns that a sudden spike in interest rates is the biggest threat to the global economy…. People have got used to ultra-low interest rates….  “If something was to happen that pushes interest rates up, we could see a lot of soft spots — places where there is high debt — start to unravel,”Rogoff said. (NewsMax)

 

It should be no surprise, then, that the number of credit-card accounts moving into delinquency swung upward for the third consecutive quarter this summer, a nine-month trend not seen since the bottom of the 2009 crisis. Yet another summertime crack in the economy — one that is not large yet but will become large quickly if the Fed allows interest to move upward any more than it already has.

In short, the national economy is riddled with high debt everywhere, which leaves every area of the economy with little wiggle room. So, the one certain thing about the huge piles of debt that have built up in the last few years is that we have reached the point where they are actually starting to box the Fed in to where raising interest to combat inflation will not be possible because it will cause damage throughout the economy. The tide has already closed in around the Fed to where it can no longer move to normalize interest in any direction without going deeper into rising waters.

S&P’s chief economist, Beth Ann Bovino, wrote recently that “failure to raise the debt limit would likely be more catastrophic to the economy than the 2008 failure of Lehman Brothers and would erase any of the gains of the subsequent recovery.”

 

The Great Recession is still with us

 

If you want to get a sense of how the debt trap affects the nation’s real net worth, consider what the total gross domestic product of the United States looks like if you subtract all that debt that we’ve added each year in order to create that product:

 

 

Note: Federal Reserve Economic Data sheets express GDP in billions while Federal Debt is expressed in millions, so in this chart they multiply their data numbers for GDP by 1,000 in order to express both in terms of the number of millions (there being a thousand millions in every billion).

 

 

That is essentially the debt trap in a snapshot. And that’s just subtracting the federal debt from GDP. What would it look like if we subtracted out all the business debt that was piled up in the creation of our total domestic product and all the personal debt? You can see the picture looked positive right up until the Great Recession hit, and it has deteriorated precipitously ever since.

Based on this picture we have remained in a huge depression since the financial crisis. I have been saying all along that we are still in the Great Recession, which is why I called my blog The Great Recession Blog. The Great Recession still defines our present economy. We never exited; we just propped the economy up (created positive GDP) with mountains of debt (federal and corporate) so that we cannot feel how deep that depression really is; but the debt trap will suck us into this abyss as soon we can no longer sustain the creation of that debt. We have not powered out, as the Fed planned. If we had, GDP would be growing faster than debt.

We are essentially at that point of stark realization now as the Federal Reserve reduces its reinvestment in government debt (bonds) this month. (A process slated to start slow but to become huge by the end of 2018.) Until now, when a government bond matured during this past decade of Fed stimulus so that the government became responsible for repaying the bond principle to the Fed, the government just issued another bond, and the Fed bought that. The new issuance gave the government the money it needed to pay off the first bond. Now that the Fed is backing away from buying new government bonds (starting to divest), the government will be forced to find other financiers.

That will most likely raise the interest the US government has to pay in order to attract new buyers of its bonds, making the national debt less and less sustainable. What happens, then, to GDP as the government finds it harder to maintain its huge deficit spending that is propping up GDP (because the things government buys with that debt have always been included in GDP calculations)?

This unwinding scenario, of course, depends on what happens in the rest of the world because the US doesnt finance all of its debt internally. If Europe, for example, starts to collapse ahead of the US (as it now contemplates its own unwind), the US could once again prove to be the best looking horse in the glue factory and, so, still find ready foreign buyers at low interest for bonds that have to be issued to someone other than the Fed now that the Fed (the buyer of last resort) is backing away from repurchasing. That could purchase the US yet, again, a little more time. (That could just as easily swing the other way, of course, with the US collapsing first, sending money fleeing to Europe.)

Another way to look at our present situation since the Great Recession began — in order to see that its new economy stays with us — can be seen in this chart:

 

 

The trend line in GDP per capita (with government deficit spending still included in the calculation of GDP) broke off at the start of the Great Reession, and it clearly never recovered. It relentlessly sputters along at a decreased rate of growth. Moreover, it has only been maintained at that much lower trend because of the massive amounts of government debt and Fed stimulus. So, what happens to the new trend line when when that money is withdrawn from the economy and interest is allowed to rise?

The bags full of bonds we are pushing up the hill will become significantly heavier if interest rises and will exhaust us, and the present change in Fed repurchasing is a big enough change to tip that balance (given that the amount on the balance sheet the Fed is planning to now unwind is equal to more than 20% of GDP). That is why Jamie Dimon of JPMorgan Chase warned that we’ve never seen anything on the scale of what is about to happen and had better be careful.

One essential truth underlying this blog has always been that you cannot dig your way out of a debt-based financial crash by digging the debt trap deeper and deeper. I called my own site The Great Recession Blog because I believe the most fundamental truth about our current economy is that we are still in the Great Recession. It broke us for good in that we have not recovered from that event even with massive amounts of stimulus (beyond anything the world has ever attempted).  GDP looks marginally acceptable but only on the surface and is clearly continuously now on a lower trend. Underneath it all is a yawning pit of debt, more than capable of swallowing our entire economy.

via http://ift.tt/2y0Uq5F Knave Dave

Authored by Carmen Elena Dorobat via The Mises Institute,

The newest cover story in The Economist deplores the situation of cities in developed countries that are left behind in terms of economic development by the digitized, globalized economy. One such is Scranton, Pennsylvania, where, since 2007, the local government has spent over $6bn on corporate subsidies in an effort to encourage redevelopment and boost local infrastructure. Such places and their disengaged, disgruntled workers are also fueling the rise in anti-globalization rhetoric which has propelled several new faces into the political arena in the US, France, and Britain, and produced unexpected election results. 

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Via The Daily Bell

When is a commune not a commune? When it only exists because of capitalism.

But that doesn’t stop it from having just enough communist ideals to make it a very restrictive place to live.

Twin Oaks is an “intentional community” in Virginia. It is one of the oldest successful communes in America because it’s not really a commune. They manufacture hammocks that sell for up to $100 each, and make tofu for Whole Foods.

They have a sales and marketing manager who oversees each business. And they provide extra incentives to do the work no one else wants to do.

One member actually expressed concern that Amazon plans to drop Whole Foods’ prices.

“Well, then we can’t sell our tofu for as much,” he said.

Maybe the Whole Foods workers should seize their means of production to stop the exploitation.

I was all set to tear apart Vice’s piece on this little commune. But I ended up just giggling. Vice correctly pointed out that it isn’t really a commune if it is funded by capitalism. The people who live there have stepped out of a typical “capitalist structure” for their lives. But they were only able to live their alternative lifestyle because they do so in a capitalist world.

And the same member admits that capitalist ideas have won. He acknowledges that capitalism is required for their commune to exist. So it seems a little funny that they know a market system is required for their livelihood, yet they employ a communist style of internal governance.

That means 100% taxation and no individual control over how the products of your labor are spent.

But as much as they don’t want to admit it, there is still a hierarchy of sorts. They give extra to those who work extra. They have managers to oversee the businesses. And they have two types of members: provisional, and full.

In the philosophy of a commune, it might make sense for the workers to take home little to no pay, and forfeit control of their property. But consider that the “commune” brings in $600,000 per year in profits.

Members don’t pay to get into the community, and they don’t get anything when they leave. This means it is hard to see a member’s time there as an investment in the future unless their future is at Twin Oaks.

Like a typical factory job of the proletariat, they are unable to amass capital and stuck in their position.

They are required to work 40 hours per week. They have quotas to hit for work, with some extra incentives thrown in for extra hard workers. Producing more than your quota means you get to keep some of the product of your labor. Not exactly to each according to his need, from each according to his ability. But that is what is required to make their for-profit “commune” work.

So doesn’t that make it a business? It seems like members are basically typical proletariat workers, except that they don’t make any money. They forfeit total control over their lives and get to be taken care of by mother corporation.

And from a capitalist perspective, it makes perfect sense. If the company profits were broken down by person, it would $60,000 each. But you know their food, housing, health insurance, and other provisions aren’t costing the business anywhere close to that.

For a member, it seems like quite the hefty price to pay for the simple luxury of not having to worry about paying the bills on your own terms. Twin Oaks gets full-time workers for a fraction of what it costs most companies.

The Twin Oaks bylaws state:

You don’t pay to join. You don’t get anything when you leave. The Community supports you while you’re here. Twin Oaks Provides for its members on the basis of need or equality. Equality is a fundamental community value which informs the property code. We try to avoid displays of wealth which may give rise to envy. With the exceptions described below, we expect members not to use outside income or pre-existing assets during their membership in Twin Oaks.

So all you can take with you when you leave are the skills you gain. They do seem to teach some–relatively menial–skills. Also, if full members decide to move on, they get $50 from the leaving fund (which actually seems more insulting than getting nothing).

They don’t expect you to give them all your property upon arrival. But they do encourage lending your cars, large equipment, and even money to the community for the time of your stay. These will be returned when you leave, without interest.

They do require all “unearned income” be donated to the community.

Unearned income includes interest on bank accounts, dividends on stocks and bonds, income on investments, social security, disability payments, pensions, and child support for a child living at Twin Oaks. Unearned income is the property of the Community.

As such, they discourage anyone with much wealth from moving into the community.

And any spending you do while you live at the commune must be approved by other members.

Oh, and they also expel any “undesirables.” Failing to give your unearned income to the community would be a reason for expulsion to be considered.

Ironically, their website states there are “classes of membership.” As much as they claim to want to avoid hierarchy, they still have provisional members and full members. Basically, the community can vote anyone out. There are a few steps and procedures, and some suggested reasons for the oustings, but the process comes down to mob action.

They also aren’t exactly accepting of “pensioners” because they can’t work as hard, and therefore might sap more from the community than they give. The community does offer health insurance, so maybe that’s why they are a tad on the discriminatory side towards old folks.

So basically, it is not a commune, and it is not a free market. It is the worst of both worlds. An extremely restrictive community that makes money off their laborers. You give your labor, and “unearned income” to the community, and you get a place to live, food, and health insurance.

The central “government”–which in this case is a corporation–owns all the means of production, controls all the wealth of the citizens, and provides for all their needs.

In that sense it is technically a success, but only because they have a source of income from a non-communist outside world.

The big takeaway: communist “utopia” exists (if your idea of utopia is surrendering your freedom in exchange for a safety net). But only inside a capitalist world.

But hey, these people are doing it all voluntarily. If that’s the life they want, so be it. I can accept their commune because it doesn’t place any obligations on me.

A free market does not rule out the possibility of little separatist communities that behave much like communes. It’s just that they can only exist because of the larger capitalist structure of society.

The opposite is not true; you can’t have little capitalist break-outs in a communist world. In fact, you can’t even have communist communities in a communist world. You can just have starvation, oppression, and the entire collapse of productive society.

via http://ift.tt/2zwJQEz TDB

The top US general said on Monday that the American people, including the families of the fallen soldiers in Niger, deserve answers about this month’s deadly ambush which claimed the lives of four US soldiers, including that of Army Sgt. La David Johnson, whose widow Myeshia Johnson has been involved in an escalating feud with President Trump over the contents of his controversial phone call meant to deliver condolences.

Speaking to reporters on Monday, Gen. Joseph Dunford, the Joint Chiefs of Staff chairman, acknowledged that there was “a perception that the Department of Defense has not been forthcoming”about the mission and said that “we owe the families as much information as we can find out about what happened. The only thing I’m asking for here today is patience so that the information we provide you is factual.”

Gen. Dunford says there are “fair questions” on Niger ambush: “We owe the American people an explanation.” https://t.co/ZwR0HuQ8DQ http://pic.twitter.com/oZ0jLAI35P

— ABC News (@ABC) October 23, 2017

The general said that the four U.S. special operations personnel died Oct. 4 amid a “complex situation” and a “difficult firefight” and explained that they were ambushed by ISIS fighters with rockets and machine guns while leaving a village on a reconnaissance mission and heading back to their post. The patrol was made up of U.S. troops and forces from Niger set out with expectations that contact with the enemy was “unlikely.” The contact with the enemy happened south of the village and outside of the village borders.

“I don’t have any indication right now to believe or to know that they did anything other than operate within the orders they were given,” Dunford told reporters.

Dunford also said that his assumption is that the troops originally thought they could handle the resistance, and didn’t call for support for an hour. An hour after that (two hours after the fighting began) French French Mirage jets arrived on the scene. As a result of the firefight, Staff Sgt. Bryan Black, Staff Sgt. Jeremiah Johnson and Staff Sgt. Dustin Wright were killed. Sgt. La David Johnson was reported missing, and troops stayed in the area until his body was recovered on Oct. 6.

Dunford acknowledges many questions remain about what happened near Niger’s Mali border, including whether the U.S. had adequate intelligence and equipment for its operation, whether there a planning failure and why it took so long to recover one the bodies.

“We owe the families as much information as we can find out about what happened, and we owe the American people an explanation of… what the mission is and what they’re trying to accomplish while they’re there.”

Dunford said US forces have been in Niger intermittently for more than two decades, and that some 800 U.S. service members are supporting a French-led mission to defeat the Islamic State, al-Qaida and Boko Haram in West Africa.

Many Americans have expressed surprise about the U.S. military operating in Niger. Congress has been repeatedly briefed about American presence on the ground, but Dunford explained why units are in country and said the U.S. can be proud of its counter-terrorism operations in the region. “The reason we’re in West Africa is because there’s a concentration of ISIS and Al Qaeda,” Dunford said, adding that the U.S. has had troops in Niger on-and-off for 20 years. “We have sent them [U.S. special forces] there to operate in areas where there are extremist elements.”

At the beginning of the attack, a drone was not overhead but was sent up immediately after it started. The intelligence on the ground earlier in the day and before the mission did not indicate an incident would occur.

Dunford concluded that once all of the information about the situation is gathered, he will sit with the families who will have him in their homes to go over the details. After that, he will relay the details to the press.

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