Author: admin

Submitted by Paul Rosenberg via FreemansPerspective.com,

Scores of economic figures go screaming across our screens every day, many of them contradicting yesterday’s figures, and perhaps half of them based upon lies. On top of that, we have dozens of economic theorists arguing back and forth. In the end, it’s all too muddled for most of us to make out. We each have our guesses, but none of them are terribly certain.

So, this week I’d like to point out the central economic facts of the moment, five fundamental conditions that we should all be clear on.

Obviously I’m not a fan of any of this, but it I think it’s crucial that we see what really is. Later, we can consider what we’d like to be.

Fact #1: We have debt-burdened money.

Dollars are created in tandem with T-bills, and T-bills pay interest. So, creating a dollar always creates an obligation to pay interest beyond the dollar amount.

But where do those extra dollars to pay interest come from?

Well, from more newly created dollars of course – but dollars that have interest requirements of their own.

What this means is that unless more and more dollars are made all the time, all the debts that are spun can’t be covered. Such a system cannot resolve unless there are debt-free dollars that can cover the gaps. And presently there are none.

So, the dollar system can run effectively in one direction only. It can operate smoothly while creating ever-more currency, but if the system starts to contract, there will be a currency shortage. And that leads directly to trouble.

Fact #2: We have unpayable debt.

Official US government debt is now about $20 trillion, and forward promises are probably north of $200 trillion. This will never be repaid under any typical scenario. And other countries are worse.

Right now, the central banks are buying up all sorts of bad loans to keep things going, but eventually, this problem will resolve in one of two ways:

1. Debasement, aka inflation. Print up enough currency units to drive a burger to $1,000, and all those loans can be paid back pretty easily. There would be disastrous effects, but the debts would be covered.

2. The nations could simply say, “Tough luck, we’re not gonna pay you back. Have a nice day.” That, however, would create a lot of bad feelings, so a default needs an excuse. And for a major nation, about the only excuse strong enough is war.

There are a few exotic possibilities, such as central banks printing money to buy the national debts then forgiving them, but those are problematic as well.

So, when reality can no longer be evaded, the solutions look pretty grim.

Fact #3: Stock and bond prices are maintained by the central banks.

The Federal Reserve itself has bought many trillions of dollars of stocks and bonds since 2008. This is being done to keep the (critical) upper middle class happy and paying taxes.

Without central bank buying and other tricks like stock buy-backs, the various investment markets would have crashed deeply. Trillions of dollars pumped into a fixed-size pond created a lot of liquidity.

If this wild buying stopped, the markets would lose their perennial backstop, and millions of supremely reliable subjects would be screaming in the streets.

Fact #4: Interest rates can’t be allowed to rise.

What I’m addressing here is the interest on national debts, but since they overwhelm the markets, more or less everything else would be dragged along.

Right now, government bonds pay shockingly low rates of interest, some of them actually negative. But if they rise – as they would in any “normal” or “healthy” scenario – the interest on all those national debts would be unpayable; government agents would almost have to go house to house and drag away assets.

Fact #5: Pension funds are based upon fantasies.

A large number of pension funds, believe it or not, are basing their calculations on annual returns of 8%, a figure than no one gets on a reliable basis these days. The “safe” investments pay about 2%, where they must stay because of Fact #4 above. A few weeks ago, the governor of Illinois had a fit when the state’s pension calculation was cut from 7.5% to 7%. He’d never get even that rate of return in any case, but it trimmed the state’s fantasy figures, requiring hundreds of millions in tax increases.

Illusions like this can be maintained for only so long. Right now the public is playing along, dreaming that it will all just work out somehow, but the end of their game will most certainly come.

Are They Locked into a Corner?

It would seem the financial overlords have painted themselves into a corner… and indeed they have. Unfortunately, there are still force majeure escapes available to them – extreme events, real and/or theatrical, that would justify a complete wipeout of the current financial regime and the installation of a new one.

And, it should be said, the overlords have reason to be confident about such scenarios. After all, no matter how wild their demands may be, they get 99.9% compliance. So long as they slap the masses with some high-intensity fear and then make a bunch of promises, the odds are high that they’ll get away with whatever they want.

And what would they like? Well, they’ve already told us: They want negative interest rates and a ban on cash. That gives them full manipulative powers and turns all the mundanes into serfs. To really sell this plan, however, they’ll need something appetizing to go with it, and they’ve been hinting about that too: guaranteed basic incomes.

Guaranteed basic incomes would be like welfare without the stigma, because everyone would get it, with no exceptions. (With reduced bureaucracies too.) I’ve dramatized the whole plan in The Breaking Dawn, but suffice it to say that it doesn’t end well for most people.

Is There No Answer?

Sure there is, but it requires courage, determination, and personal initiative. For those who prefer to shut up, sit still, and let the system drag them along, things look bleak.

via http://ift.tt/2cAYH5p Tyler Durden

The correlation between stocks and bonds has surged to its highest (and positive) since the peak of the stock market in 2007…

 

As The Wall Street Journal notes, bonds and stocks have both gotten clobbered in recent days, reversing the traditional relationship between the two in a way that’s only happened during shifts in Federal Reserve policy over the past decade.

Many associate a rising stock market with falling bond prices, and vice versa, since an improving economy that boosts shares can lead investors to demand fewer safe bonds like U.S. Treasurys. But that flipped very sharply during this most recent selloff, with falling stocks coinciding with falling bonds.

 

…

 

That’s showing up in the correlation between the S&P 500 index and 10-year Treasury yields. The one-month rolling correlation between the two was at minus-0.59 on Tuesday, suggesting falling equity prices coincide with higher yields and lower prices. The correlation is the most strongly negative since 2007, and a swift reversal from more than 0.80 in the wake of Britain’s vote to leave the European Union, according to data from Credit Suisse equity derivatives strategist Mandy Xu.

 

…

 

But over the past decade, the only times the correlation between stock prices and bond yields became so negative in such short order were during shifts in Fed policy. A similar spike happened in December of last year when the Fed first lift interest rates, as well as in December of 2013 when the Fed started trimming its bond-buying program, according to to Credit Suisse.

 

Other such spikes came when the Fed started buying bonds in November 2010 and in July 2007 when the central bank started easing monetary policy as the financial crisis began.

Which has sparked the biggest drop in Risk Parity funds since August 2015’s crash…

 

At the same time, breadth in the market is notably weakening… which has not ended well before…

 

Finally we leave it to David Rosenberg, chief economist and strategist at Gluskin Sheff & Associates, to sum up the market currently…

“How to describe the current market backdrop? In a word: jitters,”

Charts: Bloomberg

via http://ift.tt/2d0UxFb Tyler Durden

Submitted by Dave Cohen via Decline of the Empire

Deconstructing Median Income Bullshit

When I learned yesterday, 55 days before the 2016 election, that the Census Bureau and the White House had announced an historic leap in real (inflation-adjusted) median household income, my bullshit detector went into the red, went right off the scale and then ceased functioning. I’ll have to get a new one.

 

Look at that jump! The biggest since 1967 when record keeping began.  How fucking likely is that?

My first clue appeared in the Los Angeles Times.

 

The clue is circled. Redesigned income questions?

And while I’m quoting the Los Angeles Times, there is this—

Obama, stumping for Clinton at a campaign event Tuesday in Philadelphia, did not pass up the moment to spotlight the census report. Obama said the uninsured rate was the lowest on record as was the pay gap between men and women.

 

“So, now, let’s face it; the Republicans don’t like to hear good news right now,” Obama said. “But it’s important just to understand this is a big deal. More Americans are working, more have health insurance, incomes are rising, poverty is falling, and gas is $2 a gallon. … Thanks, Obama!”

Keep those gasoline prices in mind. OK, this time I searched for “redesigned income questions” and found exactly one article at the New York Post. That’s not the New York Times. No, that’s the New York Post. (I added the links.)

Economic data that come out of Census, including the monthly unemployment report, should be scrutinized more carefully than they are — because they are what hurt Americans the most day to day, ruin dreams of hardworking families and, when the numbers are played with to present a better picture, erode trust in government.

 

Here are some details on just two points.

 

First, the 5.2 percent increase came during 2015 compared with the previous year. The Census Bureau doesn’t have up-to-date numbers.

 

But an outfit called Sentier Research, manned by ex-Census workers, does.

 

And while Sentier’s numbers confirm the increase in 2015, household income this year has slackened off, they told me Tuesday.

We’ll look at the Sentier data below.

Gordon Green, a partner in Sentier, says median household income declined slightly in the first half of 2016. In both 2015 and the first half of 2016, incomes were boosted by a drop in gasoline prices.

 

“Oil prices play into this in a very, very big way,” Green said.

Follow the link to see the swan dive in gasoline prices which began in 2014 and continued into and throughout 2015. Use the 5-year chart. You’ll see an insignificant seasonal rise in the summer months in 2015.

The second knock is that Census moved the goal posts.

Ah, make the data look better by doing the measurement differently. The usual move.

Starting in 2013 with a partial phase-in, which was fully implemented in 2014, Census changed the questions and the methods in calculating household income.

 

For example, Census, starting in 2014, began to “collect the value of assets that generate income if the respondent is unsure of the income generated.”

 

Also, the government started to use “income ranges” as a follow-up for “don’t know” or “refused” answers on income-amount questions.

Those are the redesigned income questions.

There are plenty of other changes — but with just these two, income levels reported could be noticeably higher, say 5.2 percent higher, without the actual income being 5.2 percent higher.

 

In the fine print, Census admits the change. “The data for 2013 and beyond reflect the implementation of the redesigned income questions.”

 

Americans, in their guts, know the 5.2 percent gain in median household incomes isn’t true.

OK, now it was time to check out the Sentier data, which is updated monthly by ex-census employees. Doug Short is the go-to guy for this kind of thing, and I found this July, 2016 update.

Sentier Research, an organization that focuses on income and demographics, offers a more up-to-date glimpse of household incomes by accessing the Census Bureau data and publishing monthly updates. Sentier Research has now released its most recent update, data through November (available here). The numbers in their report differ from the Census Bureau’s in three key respects:

 

1.  It is a monthly rather than annual series, which gives a more granular view of trends.

 

2.  Their numbers are more current. The Census Bureau’s most recent is the 2014 annual data released in September 2015.

 

3.  Sentier Research uses the more familiar Consumer Price Index (CPI) for the inflation adjustment. The Census Bureau uses the little-known CPI-U-RS (RS stands for “research series”) as the deflator for their annual data. For more on that topic, see this commentary.

I highly recommend that you read the commentary that last link goes to. It’s called Median Household Income Growth: Deflating the American Dream. The choice of the inflation-adjustment deflator makes all the difference in these median household income calculations. I will comment on that at the end.

Here’s the first chart.

 

Sentier data deflated with the CPI (see above) shows a jump in real median household income in 2015 which Sentier says was due in large part to low gasoline prices. Median household income is still down from its early 2008 peak.

Here’s the second chart, with some commentary from Doug Short. Remember, this is the latest data available on real median household income (July, 2016).

The next chart is our preferred way to show the nominal and real household income — the percent change over time. Essentially we have taken the monthly series for both the nominal and real household incomes and divided them by their respective values at the beginning of 2000. The advantage to this approach is that it clearly quantifies the changes in both series and avoids a common distraction of using dollar amounts (“How does my household stack up?”).

 

The reality illustrated here is that the real median household income series spent most of the first nine years of the 21st century struggling slightly below its purchasing power at the turn of the century.

 

Real incomes (the blue line) hit an interim peak at a fractional 0.7% in early 2008, far below the nominal illusionary interim peak (as in money illusion) of 27.2% six months later and the latest at 40.3%, fractionally off the 40.4% record high in January of this year. The real median household income is now at -1.1% from its turn-of-the-century level. In essence, the real recovery from the trough has been frustratingly slow.

 

 

Summing up, real median household income (blue line just above) adjusted with the CPI is down 1.1% with respect to where it was in the year 2000. And if you follow that “Deflating The American Dream” link above, you will find out that deflating with the CPI-U-RS as the Census Bureau does puts a rosier glow on the historical data than deflating with the CPI does.

So it’s all bullshit, isn’t it?

And if you do this Google search, you will see all the usual suspects celebrating this nonsense. It’s all over NPR this morning. Those assholes can’t get enough of this happy bullshit.

I knew it was bullshit the moment I saw it, but thought it worth the time to figure out what was going on. And now we know.

via http://ift.tt/2cAPr1f Tyler Durden

Republican presidential nominee Donald Trump will deliver a speech from the Economic Club of New York providing more clarity on his economic policies. Getting America working again thanks to tax cuts (and major debt) is the key message and we note that Trump is also expected to take questions following his remarks.

• *TRUMP CAMPAIGN SAYS POLICY WOULD CREATE 25M JOBS IN DECADE
• *TRUMP CAMP SAYS ITS ECONOMISTS ESTIMATE AT LEAST 3.5% GROWTH/YR
• *TRUMP CAMP: MILLIONS OF LOW-INCOME WILL COME OFF TAX ROLLS
• *TRUMP CAMP: CHILDCARE TAX DEDUCTION APPLIES TO KIDS UNDER 14

As heavy.com reports,

Trump’s economic plan includes a variety of tax cuts, such as a reduction of the top corporate income tax from 35 percent to 15 percent. He also wants to cut the top tax rate for individuals from 39.6 percent to 33 percent. Under Trump’s plan, income tax brackets would be reduced from seven to three, according to the campaign’s website.

 

The new tax rates would be 33 percent, 25 percent and 12 percent. The top tax bracket starts at $200,000 a year for individuals and $400,000 a year for married couples.

 

Many questions have been raised about how Trump would pay for his proposed cuts. Analysts have concluded that Trump’s plan would cost the U.S. treasury about $3 trillion over the next ten years, according to Bloomberg.

 

In contrast, Democratic nominee Hillary Clinton has proposed increasing taxes on the rich, including a 4 percent surcharge on incomes higher than $4 million per year. She has also proposed raising the minimum wage from $7.25 an hour to $12 an hour.

CNN adds some more negative color…

Oxford Economics found that if fully implemented, Trump’s economic, tax and immigration policies would cost 4 million U.S. jobs, weigh down global growth and U.S. consumer spending, and could spark a trade war with other nations.

 

“Combining these policies together, the impact could be significantly negative for the U.S. economy,” says Jamie Thompson, head of macro scenarios at Oxford Economics.

When asked about Oxford’s analysis, billionaire fund manager Tom Barrack, one of Trump’s economic advisers, dismissed the report in one sentence…

“One thing we know about economists is that they never get it right,”

Live feed:

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

One month ago, when tracing the so far modest contagion from the recent surge in Libor rates, we tracked it down in an unexpected location: Japan.  As we reported at the time, “some Japanese lenders have been trying to pre-empt the Libor blow out. Sumitomo Mitsui Financial Group cut its global CP and CD funding by $7 billion in the year to June, while a $28 billion jump in deposits outpaced a $19 billion increase in lending globally, according to Deutsche Bank. As a result, its loan-to-deposit ratio shrank from 149.6 percent in March 2015 to 135.5 percent at end-June. Mitsubishi UFJ also saw its ratio fall to 115.1 percent from 117.8 percent in March 2015 on the back of a rise in deposits.”

The problem, however, is that in the short term, Japanese lenders would unlikely be able to raise enough from deposits to replace the lost access to U.S. money markets. Prime money-market funds slashed their holdings of Japanese securities to $115 billion at the end of July, down 25% from $153 billion two months ago, according to ICI. Previously second to only the U.S. by country of issuer, Japan has now fallen to third behind France.

Being increasingly locked out of money markets means that beyond paying up substantially for U.S. dollars, Japanese banks have few options. Leverage requirements mean global banks are reluctant to provide repos, while foreign-exchange swaps would be a more expensive way to access U.S. dollar funding, said Koichi Sugisaki, a rates strategist at Morgan Stanley MUFG Securities cited  by Bloomberg. Three-month CP and CDs now cost roughly 80bp-90bp on an annual basis, but three-month FX forwards have also become more expensive at around 1.5 percent per year, he said.

As we observed at the time, one option for Japanese banks is to access US dollar bond funding, by directly selling short-dated, US-denominated bonds, which could provide Japanese banks with some respite from short-term dollar funding pressure. “Japanese banks could consider issuing short-end bonds from the operating bank level in the future to meet short-term liquidity needs as an alternative to CP/CDs,” said Masanori Kato, head of debt capital markets for J.P. Morgan in Tokyo. “Short-term notes would be a possible alternative avenue, and demand would be there for it as Japanese banks are seen as a safer haven due to Brexit concerns.”

However, even that option may not be feasible. According to Chris Wood, who in his latest Greed and Fear report also observes the ongoing blow out in 3M Libor rates and Libor-OIS spreads, he notes something troubling. To wit: “the new rules require institutional prime money market funds, which are not invested primarily in government debt, to report a floating NAV based on the current value of the assets they hold.”

Then there is this: As a consequence of the pending changes, many prime money market funds have been reclassified to government funds over the past year. Consequently, US prime  money market funds’ total assets have declined by US$668bn since the end of October 2015 to US$789bn on 7 September, while government MMFs have risen by US$741bn over the same period to US$1.755tn (see Figure 3).

That, in itself, is not news to our readers. What is, however, is the following:

The above raises an issue for non-government borrowers of US dollars such as Japanese mega banks. For example GREED & fear heard this week in Tokyo that one major Japanese bank is borrowing US$60bn from money market funds.

$60 billion in Libor reliance for just one Japanese bank, whose funding costs on just one tranche increased by hundreds of millions? One wonders just how much pain this and other Japanese banks can sustain as their short-term funding costs soar, while their assets generate less and less income (thanks Kuroda), and more importantly, how long before the “counterparty stigma” trade emerges.

Ironically, and as we pointed out first a month ago, the first casualty to the US Libor blow-out is not be in the US at all, but in Japan, a country whose central bank just managed to unleash the most recent episode of global market turmoil. Something tells us that should the Libor move continue, that risks for Japanese banks will not be “contained.”

via http://ift.tt/2czBsM4 Tyler Durden

The tit-for-tat election campaign continues with Donald Trump releasing his doctor's full statement on his health. While noting Trump has a body mass index that is considered 'overweight', Dr. Harold Bornstein proclaims Trump in "excellent physical health."

As The Hill reports,

Donald Trump on Thursday released a letter from his doctor, on the same day that he appeared on "The Dr. Oz Show" to discuss the results from his recent physical.

 

The letter, shared with the Washington Post, notes that Trump takes cholesterol drug Statin and has a body mass index that is considered overweight, but declares that overall the GOP presidential nominee is in “excellent physical health.”

Full Medical Statement…

via http://ift.tt/2cLUu0V Tyler Durden