Category: zerohedge

Authored by Chris Hamilton via Econimica blog,

Since 1971, and the disconnection of the dollar from a finite gold backing, the value of money (the dollar) has been determined by it's purchasing power versus the inflation of the assets to be purchased.  Thus printing more money has not necessarily created "wealth" if the assets to be purchased are rising as fast or faster than the purchasing power of the "money".  The Fed touts it's dual mandate of full employment and stable prices…but the result in prices; not so stable.

The primary global asset purchasable only in US dollars, crude oil, has told a story of wildly gyrating prices.  Since the end of Bretton Woods and the subsequent Congressionally dual mandated roles bestowed on the Fed…crude oil prices have gone bezerk, twice climbing nearly 10x's within a decade.  This is the opposite of stable (particularly compared to the price stability from WWII's end until the?Fed took over).

Soooo, theoretically the growth of  "money" should be linked to the growth of the population, to ensure an adequate and stable money supply exists for the growing population.  In a moment I'll show you anything but a stable money supply.  But first, the chart below shows the total 25-54yr/old US population, those employed among them, and the value in dollars of all publicly traded US stocks (represented by the Wilshire 5000).  Something far beyond population growth or employment growth is pushing up the value of dollar based assets, gauging by US stock markets accelerating appreciation.

With that in mind, the chart below shows the growth of M3 money (the broadest measure of US "money") and the broader 15-64yr/old US population since 1971.  The money supply has grown in excess of 20x's (2,000%) vs. the working age population (15-64yr/olds) which has grown less than 1x (nearly 70% increase).

This results in a rising ratio of "money" on a per capita of the core population basis, as the chart below details.  The total amount of "money" rose from approximately $5 thousand dollars per working age adult to todays $65 thousand dollars per adult…an increase of  13x's (1.300%).

The annual growth of the 15-64yr/old core US population peaked in 2003 and annual core population growth has decelerated by 90% since…while annual M3 growth has doubled over the same time period.  The chart below shows the annual changes from 1980 into 2017.

The chart below from 2000 into 2017 shows the change in both core population and M3 money supply, showing the year over year change on a monthly basis…and the current fall in core population growth will continue downward, likely turning negative at times over the next year (yet another first for America).

The final chart is the growth in M3 money supply per the growth in the adult, working age population.  I'm not an economist or expert on much of anything…but that doesn't look particularly good to me (something to do with "hyper-monetization" or some such thing).

All I can say is the appearance of hockey sticks typically aren't a good or stable sign but their appearance, just like those of black swans, has become the "new normal".

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As reported earlier by Charles Gasparino of Fox News and subsequently confirmed by ABC, President Trump has reportedly retained a private attorney for Special Counsel Mueller’s probe of alleged collusion between the Trump campaign and Russian officials.  Not surprisingly, Trump has chosen Marc Kasowitz of Kasowitz Benson Torres LLP whose list of notable representations includes representing “President Donald J. Trump in a wide range of litigation matters for over 15 years” at the very top.

#BreakingNews – @realDonaldTrump retains atty Marc Kasowitz as private atty in independent counsel probe more coming

— Charles Gasparino (@CGasparino) May 23, 2017

NEW: Pres. Trump expected to retain Marc Kasowitz as private attorney representing him on matters related to Russia probe, @ABC confirms.

— ABC News (@ABC) May 23, 2017

 

Among the firm’s other notable attorneys is none other than former Senator, and rumored front-runner for the vacant FBI Director seat, Joe Lieberman.  That said, we would assume that the retention of Kasowitz implies that Lieberman is no longer being considered for the FBI role.

Of course, this will undoubtedly be viewed by many in the mainstream media as an admission of guilt on Trump’s part.

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Senate Democrats in Illinois, with a final vote of 32-26, have just passed a new budget proposal that includes a massive personal and corporate income tax hike and an expansion of the state’s sales tax, after saying they are no longer willing to wait for a broader deal with Republicans. 

As the Chicago Tribune noted earlier this morning, the Democrats’ budget proposal includes a ~33% hike in both the the personal and corporate income tax rates and an expansion of the state’s share of sales tax revenue.  In all, the package would cost Illinois taxpayers an incremental $5 billion.

Democrats spent the weekend tweaking the spending plan, and unveiled an updated proposal late Monday. It calls for spending $37.3 billion after raising about $5 billion through the tax hikes; a floor vote is expected Tuesday, said Sen. Heather Steans, a Chicago Democrat and key budget negotiator.

 

The blueprint relies on the passage of companion legislation that would raise the personal income tax rate from 3.75 percent to 4.95 percent, which is just below the 5 percent rate in place before Rauner took office. The corporate income tax rate would be hiked from 5.25 percent to 7 percent.

 

Meanwhile, the state’s share of the 6.25 percent sales tax would be extended to various services not currently covered, such as dry cleaning. The proposal also calls for ending three corporate tax breaks, including requiring companies that drill on the outer continental shelf and do business in Illinois to pay income taxes.

Of course, the Senate bill passed by Democrats is unlikely to become law as Illinois’ Republican Governor Bruce Rauner, presumably along with a fairly substantial percentage of Illinois residents, oppose such massive tax hikes.

Some Republicans have said they would only sign off on a plan to raise the income tax rate if it’s coupled with a property tax freeze, a key component of Rauner’s agenda. The Democratic budget plan does not contain a property tax freeze, which Democrats have argued would hurt local governments and schools that rely on the money.

 

A Rauner spokesman declined to comment Monday evening. But Brady warned that anything that passed without GOP votes was unlikely to win approval from Rauner.

 

“I can’t imagine a budget that could pass with only Democratic votes is one that the governor could support,” said Brady, the GOP senator, who added that any action could undermine ongoing talks.

Meanwhile, as we’ve noted multiple times in the recent past, with Illinois pension systems roughly $130 billion underfunded, state politicians pretty much have to raise taxes because anything less would entail finally admitting what most of us have known for some time, namely that the state of Illinois is insolvent and undoubtedly headed for bankruptcy and/or a federal taxpayer bailout.  That said, the latter solution is not very ‘politically expedient’…better to kick the can down the road for as long as possible.  Here is a brief excerpt from our previous post entitled “Illinois Pension Funding Ratio Sinks To 37.6% As Unfunded Liabilities Surge To $130 Billion“:

That said, certain states are better at the ponzi game than others and the great state of Illinois, we must say, is one of the best.  As we noted a few months ago, Illinois governor Bruce Rauner even admitted to being a willing participant in his state’s pension ponzi warning that should his largest public pension fund do what it should have done long ago, it would put a big dent in the state’s already fragile finances and lead to “crippling” pension payment hikes.  But, if you ignore the problem then surely it will just go away…good plan.

 

And, while the pension ponzi can likely outlast Rauner’s term as governor, eventually funding for current claims can only be borrowed from future generations for so long before finally running out of cash.  As the latest “Special Pension Briefing” report from Illinois’ Commission on Government Forecasting and Accountability (CGFA) points out, that time may be getting very near.

 

Per the latest actuarial valuations, the 5 largest publicly-funded Illinois pensions are now $130BN underwater and only 37.6% funded.

 

Meanwhile, the problem with hiking taxes at the state level is that people can simply choose to move to another state, something which Illinois residents are doing in record numbers already (see “People Are Ditching Chicago In Record Numbers As Windy City Leads U.S. In Population Loss“):

The metro area declines are heavily concentrated in Cook County, but show signs of spreading to outlying counties, too. For instance, the bureau estimates that DuPage County lost 3,000 people in the past two years, and that Will and Grundy counties had small population losses last year.

 

The bureau did not break down the data by municipality, so it’s impossible to tell for sure if the Cook County decline was in Chicago proper, suburban areas, or both.

 

One particularly stunning figure: net domestic migration, with an estimated 89,000 more people moving from the Chicago area to other portions of the country in the past year than those who moved in.

 

Perhaps it’s time to admit that the socialist utopia of America’s Midwest has failed?  Nah, that level of honesty wouldn’t help anyone get re-elected.

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Via The Ron Paul Liberty Report,

Presidential budgets are pure hocus-pocus.

Government has teams of "economists" who, instead of pointing out that economic laws cannot be violated, concoct formulas that seek to justify government expansion.

That's really the only thing that bureaucrats care about … expansion. The "economists" come up with the justifications, and thus get to keep their plush jobs of exonerating the state.

Because estimates don't hold the same importance that they do in the private sector, you can always count on government to underestimate expenses and overestimate tax revenues.

The politically-connected get their share of the loot, and the mainstream media gets to scream and shout about "cuts" that aren't really cuts at all.

?Pull up a chart of government spending and debt. You'll see that the direction goes in one direction only — UP!

Democrats, Republicans, people like Trump who call themselves "outsiders" — UP it continues to go!

In the Washington D.C. fantasyland, a cut in the rate of increase from the previous year is considered an actual cut. Think about that…

Whenever government spends money, it crowds out productive spending (or saving) that would have occurred if taxpayers were able to keep their earnings. If individuals spent their own money, we'd see products, services, and jobs that they actually want would be created. That would be productive.

?Government spending, on the other hand, is arbitrary, politically-motivated and non-productive.

Donald Trump, the supposed "businessman president," is proposing a budget that spends more next year than it does this year!

Trump took over a bankrupt government, and he's increasing its spending. What kind of business sense is that?

No doubt, his "economists" said that this was a good idea.

From a perspective of liberty, government should not perpetually expand, but should be cut….for real! That means someone needs to actually cut the size and scope of government.

Government doesn't even balance the budget, let alone consider cutting.

So where do you cut if you're actually interested in living in a land of the free?

As Murray Rothbard so eloquently answered such a question: "Anywhere and everywhere!"

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A very sad but awfully truthful 30-second reality check from a female BBC host speaking on MSNBC…

Source: Liveleak.com

"Europe is getting used to attacks like this…we have to because we are never going to be able to totally wipe this out… as ISIS gets squeezed in Syria and Iraq we're going to see more of these kinds of attacks taking place in Europe… and Europe is starting to get used to that…"

She is 100% correct sadly,

And as the following poll from YouGov shows ,up 14 percentage points on July 2010, an almost unanimous 90 percent said that they thought it was fairly or very likely.

You will find more statistics at Statista

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Via SovereignMan's Simon Black,

This morning I read a stinging open letter written by a small business owner in the Land of the Free named Don Chernoff.  Chernoff imports and sells luggage, and he pulled no punches in voicing his disgust for the phony support and failed policies that constantly make his life more difficult.

I’ve edited his letter for length below; the full version is available here.

You all love to talk about how much you support small business; the reality is the opposite. The economy is changing rapidly and is vastly different than just a few years ago. Many of the factory jobs in this country have gone and will not return.

 

Computer technology and automation will soon eliminate thousands more jobs (think truck drivers, taxi drivers, office workers, etc…).

 

Because there will be fewer middle-class jobs, many people who never considered working for themselves will be forced to become sole proprietors or open a small business. It is therefore critically important that you make it easier for these people to do so.

 

Right now instead of creating incentives for people to start their own small business, you create nothing but hurdles, allow me to give some examples.

Excessive health care costs

I work for myself and have to pay my own medical expenses. Before the “affordable care act” I was paying about $200 per month for a high deductible policy. It was far from perfect but it got so much worse under the “Affordable” care act.

 

I now pay over $400 a month, my deductible went from $5,000 to over $6,000 and my out of pocket costs for care have skyrocketed.

 

At this rate, I will go broke soon, and I am healthier than average. I don’t know how any normal working family or small businessman can possibly afford these rates without going bankrupt.

Income Tax Filing

I have to spend dozens of hours and thousands of dollars for a tax accountant each spring to prepare my taxes because I cannot possibly understand how to do it myself, and I have a master’s degree in engineering.

 

I also have to remember to pay quarterly estimates, even if my income in not predictable or fluctuates (which it does for most small businesses) or else I get dinged with penalties.

 

This is a time and cost burden that makes it very hard to run a small business. . . The current tax code is an abomination and should be scrapped.

Excessive import duties

There is a lot of talk lately about a “border adjustment tax” (BAT), a fancy name for an import duty on imported products. I design luggage and I need to contract out the manufacturing to companies that specialize in making luggage. All of these factories just happen to be in Asian countries.

 

Because of this I am charged almost 18% on my cost of goods for all my imported luggage. Last year these fees came to over $100,000.

 

The only reason I can see for these fees is government greed.

 

There is no luggage manufacturing industry in the USA that is being protected. This is another huge burden that makes it difficult to survive in the ultra-competitive luggage business.

 

Congress and President Obama had a chance remove this burden last summer, and they did what they do best: nothing.

 

If you do impose a border adjustment tax, will it be on top of the 18% I’m already paying? If so you will put me out of business.

Excessive customs inspection fees for imported products

My company designs luggage that is made in Asia and imported by ship to the USA. It is sold at all Men’s Wearhouse stores and Jos A Bank stores.

 

A recent shipment was delayed for almost 2 weeks at the port of Los Angeles for extra customs inspections.

 

The container was first x-rayed, and since that apparently wasn’t good enough, it was then opened and inspected by hand.

 

There was nothing in the container but the same luggage I’ve been importing for 15 years. I was then charged over $2,000 for this “privilege,” in addition to the 18% import duty I already pay.

This is not the first time I’ve had to pay for extra inspections that were unnecessary.

I understand the need for security but I’m a known importer of the same products for almost 15 years, and this is a terrible cost burden for my small company.

Excessive Social Security burden

Many years ago when I quit a perfectly good job to start my own small business, I was shocked to learn that I had to pay both my share and what had been my employer’s share of Social Security.

 

If you wanted to create the perfect disincentive to discourage people from taking the leap to start a small business or become self-employed, it would have been difficult to invent a better one.

Capital Gains taxes

So you’ve busted your butt for 20 or 30 years running a small business or sole proprietorship, now you’d like to retire and enjoy life.

 

Between state, federal and local taxes you’ve probably paid 50% or more of your income in taxes, but that’s not enough for politicians.

If you’ve been lucky enough to have created a business you can sell, now you’ll get to enjoy paying another tax on the capital gain from the sale.

It’s just another penalty imposed on hard-working folks by politicians who don’t think we are paying “our fair share.”

The word “entrepreneur” is endlessly tossed around by politicians who know nothing of how hard it is to be an entrepreneur. You all love to say you encourage entrepreneurship, but the reality is you stand in the way.

Most small businesses either fail or stay small because it is really hard to grow a business, and because of all the burdens you put on us.

Quit your job and try it yourself if you don’t believe me.

Let's hope things change. Or is Chernoff just another member of the cynics, skeptics, and fiction-peddlers…

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In an updated statement, UK PM Theresa May explains:

• *UK’S MAY: MANCHESTER TERROR ATTACKER BORN, RAISED IN UK
• *SALMAN ABEDI WAS BROUGHT UP IN U.K, POSSIBLE WIDER NETWORK: MAY
• *U.K. TERROR THREAT LEVEL TO INCREASE FROM ‘SEVERE’ TO `CRITICAL
• *U.K. PRIME MINISTER SAYS FURTHER ATTACK COULD BE IMMINENT
• *UK PM: MILITARY TO KEEP GUARD AT CONCERTS, SPORTS EVENTS

 

Live feed:

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More OPEC jawboning and continued (modest) draws in crude inventories beat production increases and SPR sales headlines heading into tonight's API data and with inventory drawdowns across the entire crude complex sending both WTI & RBOB prices jumped higher. However, prices quickly reversed lower as traders realized the Crude draw was smaller than expected…

 

API

• Crude -1.5mm (-2mm exp)
• Cushing -210k
• Gasoline -3.15mm (-1.08mm exp)
• Distillates -1.85mm

The 7th weekly draw in crude inventories in a row (but it was smaller than expected). Gasoline continued to draw…

 

WTI rallied into the API print, shrugging off SPR-sales supply concerns, and after the data hit spiked higher, then crude dropped as the draw was less than expected.

 

With OPEC close to agreement to extend oil-supply cuts for 9 months, “Everything throughout the course of the week has set up an opportunity for the market to gradually increase,” Thomas Finlon, director of Energy Analytics Group in Wellington, Fla., told Bloomberg.

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Authored by Charles Hugh-Smith via OfTwoMinds blog,

Japan has managed to offset decades of deflationary dynamics, but at a cost that is hidden beneath the surface of apparent stability.

Do we implode in a deflationary death spiral (ice) or in an inflationary death spiral (fire)? Debating the question has been a popular parlor game for years, with Eric Janszen's 1999 Ka-Poom Deflation/Inflation Theory often anchoring the discussion.

I invite everyone interested in the debate to read Janszen's reasoning and prediction of a deflationary spiral that then triggers a monstrous inflationary response from central banks/states desperate to prop up their faltering status quo.

Alternatively, economies can skip the deflationary spiral and move directly to the collapse of their currency via hyper-inflation. This chart of the Venezuelan currency (Bolivar) illustrates the "skip deflation, go straight to hyper-inflation" pathway:

If we set aside the many financial rabbit holes of the inflation/deflation discussion, we find three dominant non-financial dynamics in play: demographics, technology and energy.

As populations age and retire, the resulting decline in incomes and spending are inherently deflationary: less money is earned, and less money is spent, reducing economic activity (gross domestic product).

The elderly also sell assets such as stocks, bonds and their primary house to fund their retirement, and if the elderly populace is a major cohort (due to low birth rates and increasing life spans, etc.), then this mass dumping of assets is also deflationary, as the increasing supply of sellers and the stagnating supply of buyers pushes prices lower.

Recession and stagnation are also deflationary. Shift 10 million workers from secure fulltime employment with full benefits to low-paid, insecure part-time jobs with few benefits, and you have a self-reinforcing deflationary spiral in action: a significant percentage of the workforce is now receiving far less income, which necessarily slashes their spending and just as importantly, their ability to borrow huge sums of money to buy vehicles, homes, overseas vacations, etc.

In consumer-dependent economies that are dependent on debt for much of the consumer spending, this decline in borrowing and spending power is extremely deflationary, as there is a lot less money available to chase the existing output of goods and services.

Japan is a case in point. A friend of ours who lived and worked in Japan for a decade (the 1990s) recently visited Japan again after 15 years working in Europe and the U.S., and he was surprised to find prices were the same or lower as when he was living in Japan.

This is the result of multiple sources of deflation operating in Japan.

A recent NHK TV program reported some young people in Japan are trickling back to rural villages and renting large traditional farm houses and the adjoining land for $200/month, a fraction of what they were paying for cramped studios in big cities. This is an example of deflation in action: people abandon costly housing, transportation, etc. and adopt lifestyles that generate far less income and far lower expenses–both are deflationary.

Given the structural rise of part-time employment, an aging populace and the deflationary impacts of technology and globalization, no wonder Japan is experiencing deflationary/stable prices.

Technology is relentlessly deflationary. Where consumers once spent small fortunes buying stereo equipment and music storage (LPs, cassettes, CDs, etc.), cameras, film, photo printing, etc., game consoles and equipment, small-screen TVs, and paying for telephony, now a single device–a smart phone–combines all these functions (with some obvious limitations) in one device.

Globalization and commoditization are also deflationary. Global wage arbitrage and automation lowers production costs, and the commoditization of labor and inputs (capital and materials) push prices lower.

Declining energy costs are also deflationary, as the cost of energy affects the pricing of almost every good and service.

We now discern the outlines of why money created out of thin air needn't be as inflationary as expected. If economic activity declines by $1 trillion due to lower incomes, spending, etc., creating $1 trillion out of thin air and injecting it into the economy as monetary and fiscal stimulus is more or less simply replacing the $1 trillion of deflation.

The Bank of Japan has tripled its asset purchases (monetary stimulus and support of the stock and bond markets) with little apparent effect on conventional measures of inflation.

This print-to-offset deflationary declines may appear to be stable and sustainable, but the expansion of bonds (to fund fiscal stimulus) accrues interest, which even at low rates eventually starts burdening state spending.

All this new currency doesn't necessarily lead to productive spending or investment; rather, it may increase mal-investment and systemic asymmetries that eventually destabilize the entire financial system.

Japan has managed to offset decades of deflationary dynamics, but at a cost that is hidden beneath the surface of apparent stability. Building bridges to nowhere and creating money from thin air to buy stocks and bonds only appears sustainable because the risks and imbalances are piling up out of sight. Eventually the "perfect balance" between deflation and inflation tips one way or the other, and a systemic crisis "nobody saw coming" unfolds.

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So the most deadly terror attack in Britain in 12 years, US economic data collapses, a terrible T-Bill auction, and Trump's budget hits… sending stocks to record highs…

 

Stocks bounced back for the 4th day following the Trump Dump, reaching back near record highs…

 

On another short squeeze open…

 

And no volume…

 

As US macro data crashed to its weakest since Feb 2016 (when the world was worried about global recession)…

 

And while Hard data has been weak, it is the 'soft' data that is now collapsing (surprise!!)

 

But of course remember that The Fed is "data dependent" – oh wait!

 

VIX was smashed back to 10.5 as the S&P manage to briefly top 2400…

 

Homebuilders have been on quite a tear but new home sales may be a drag…

 

Treasury yields rose across the complex by a very consistent 5bps (while 2Y outperformed amid a solid auction)…

UST yields spiked to their highest level in a week after the weekly 4-week bill auction and the monthly 52-week bill auction both tailed by more than 1bp. This was the first 4-week auction to tail by more than 1bp since December and the first 52-week since September 2015, according to Stone & McCarthy.

 

30Y remains well below 3.00%…

 

The rise in yields prompted a USD rally, temporarily capping gains in equities as markets re-positioned before Wednesday’s FOMC meeting minutes. Crude prices held gains even as the U.S. mulled selling off portions of the Strategic Petroleum Reserve in fiscal 2018.

For just the 2nd day in the last two weeks, the dollar index rallied,

 

spiking higher as EURUSD dropped after Europe closed and the auction impact flowed through… (NOTE we saw the same price action last Wednesday and the FOMC Minutes are tromorrow)

EUR, JPY, and GBP all weakened notably as the yield spike flowed through…

 

The dollar spike sent precious metals lower – Gold testing 1250…

 

WTI held on to gains despite Trump budget talk of selling the Strategic Petroleum Reserve…

 

Bitcoin tumbled late on yesterday but, despite a stronger dollar, virtual speculators bought the dip sending the cryptocurrency to a new record high…

 

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