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“Believe”

 

 

Source: Investors

via Zero Hedge http://ift.tt/1yFyJT3 Tyler Durden

Preface:  Sometimes breakthrough insights come from smart, accomplished people in one expertise who look at a different field with fresh eyes … unencumbered by the dogmas and politics of that field.

Peter Turchin is a professor in the Department of Ecology and Evolutionary Biology, and an adjunct professor in the departments of Anthropology and Mathematics at the University of Connecticut.

Turchin’s new research interest is inequality.  Specifically, Turchin is now applying the mathematical rigor used in population biology to inequality.

We currently have what is arguably the worst inequality in history.  (We’re not talking about the 1% … we’re talking about the real powers-that-be.)

Most Democrats and most Republicans think we have too much inequality. Even the mainstream economists who fought the concept for decades now admit that runaway inequality is destroying our economy.

But we can’t take the current situation in a vacuum …

Peter Turchin notes that inequality is cyclical:

In his book Wealth and Democracy (2002), Kevin Phillips came up with a useful way of thinking about the changing patterns of wealth inequality in the US. He looked at the net wealth of the nation’s median household and compared it with the size of the largest fortune in the US. The ratio of the two figures provided a rough measure of wealth inequality, and that’s what he tracked, touching down every decade or so from the turn of the 19th century all the way to the present. In doing so, he found a striking pattern.

From 1800 to the 1920s, inequality increased more than a hundredfold. Then came the reversal: from the 1920s to 1980, it shrank back to levels not seen since the mid-19th century. Over that time, the top fortunes hardly grew (from one to two billion dollars; a decline in real terms). Yet the wealth of a typical family increased by a multiple of 40. From 1980 to the present, the wealth gap has been on another steep, if erratic, rise. Commentators have called the period from 1920s to 1970s the ‘great compression’. The past 30 years are known as the ‘great divergence’. Bring the 19th century into the picture, however, and one sees not isolated movements so much as a rhythm. In other words, when looked at over a long period, the development of wealth inequality in the US appears to be cyclical. And if it’s cyclical, we can predict what happens next.

 

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In our book Secular Cycles (2009), Sergey Nefedov and I applied the Phillips approach to England, France and Russia throughout both the medieval and early modern periods, and also to ancient Rome. All of these societies (and others for which information was patchier) went through recurring ‘secular’ cycles, which is to say, very long ones. Over periods of two to three centuries, we found repeated back-and-forth swings in demographic, economic, social, and political structures. And the cycles of inequality were an integral part of the overall motion.

 

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Our historical research on Rome, England, France, Russia and now the US shows that these complex interactions add up to a general rhythm.

 

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It looks like the pattern that we see in the US is real. Ours is, of course, a very different society from ancient Rome or medieval England. It is cut off from them by the Industrial Revolution and by innumerable advances in technology since then. Even so, a historically based model might shed light on what has been happening in the US over the past three decades.

So what accounts for the periods of rising equality?  Turchin gives a number of factors.

One is revolution, when inequality became too extreme.  Turchin writes:

History provides another clue. Unequal societies generally turn a corner once they have passed through a long spell of political instability. Governing elites tire of incessant violence and disorder. They realise that they need to suppress their internal rivalries, and switch to a more co-operative way of governing, if they are to have any hope of preserving the social order. We see this shift in the social mood repeatedly throughout history — towards the end of the Roman civil wars (first century BC), following the English Wars of the Roses (1455-85), and after the Fronde (1648-53), the final great outbreak of violence that had been convulsing France since the Wars of Religion began in the late 16th century. Put simply, it is fear of revolution that restores equality. And my analysis of US history in a forthcoming book suggests that this is precisely what happened in the US around 1920.

Indeed, it is well-documented that runaway inequality leads to unrest and revolution.   And as Turchin notes,  – unrest and revolution in turn leads the powers-that-be to stop hogging all of the wealth.

The journal Nature writes:

Perhaps revolution is the best, if not the only, remedy for severe social stresses. [Herbert Gintis, a retired economist who is still actively researching the evolution of social complexity at the University of Massachusetts Amherst] points out that he is old enough to have taken part in the most recent period of turbulence in the United States, which helped to secure civil rights for women and black people. Elites have been known to give power back to the majority, he says, but only under duress, to help restore order after a period of turmoil. “I’m not afraid of uprisings,” he says. “That’s why we are where we are.”

We have repeatedly noted that we are opposed to violent revolution.  Activists like David DeGraw point out that things are going to dramatically change one way or the other … through a huge change for the better, or a descent into violence and chaos.

John F. Kennedy said:

Those who make peaceful revolution impossible will make violent revolution inevitable.

Sadly, the government is doing everything it can to crush peaceful change, treating peaceful protesters, whistleblowers and investigative reporters as terrorists.  And the big banks are joining in the effort to make peaceful revolution impossible.

Postscript:  Turchin notes that another factor which at times reduces inequality is a pandemic.   For example, the survivors of the Black Plague could demand higher wages, since labor was scarce.

via Zero Hedge http://ift.tt/1x27Qu3 George Washington

While we have noted previously that “a cluster of central banking investors has become major players on world equity markets,” and the BoJ has recently tripled its direct manipulative buying of stocks (after buying a record amount in August)… the conspiracy-theorist-dismissers will have to close their eyes and ears as the Swiss National Bank admits in its 2013 annual report that it greatly expanded its share of foreign stocks purchased… most notably small-cap companies.

Maybe it is time to reign in the SNB with the Gold Initiative?

h/t @Gloeschi

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So does anyone still think the Fed does not do this?

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

Authored by Stephen Roach, originally posted at Project Syndicate,

As the US Federal Reserve attempts to exit from its unconventional monetary policy, it is grappling with the disparity between the policy’s success in preventing economic disaster and its failure to foster a robust recovery. To the extent that this disconnect has led to mounting financial-market excesses, the exit will be all the more problematic for markets – and for America’s market-fixated monetary authority.

The Fed’s current quandary is rooted in a radical change in the art and practice of central banking. Conventional monetary policies, designed to fulfill the Fed’s dual mandate of price stability and full employment, are ill-equipped to cope with the systemic risks of asset and credit bubbles, to say nothing of the balance-sheet recessions that ensue after such bubbles burst. This became painfully apparent in recent years, as central banks, confronted by the global financial crisis of 2008-2009, turned to unconventional policies – in particular, massive liquidity injections through quantitative easing (QE).

The theory behind this move – as espoused by Ben Bernanke, first as an academic, then as a Fed governor, and eventually as Fed Chairman – is that operating on the quantity dimension of the credit cycle is the functional equivalent of acting on the price side of the equation. That supposition liberated the Fed from fear of the dreaded “zero bound” that it was approaching in 2003-2004, when, in response to the collapse of the equity bubble, it lowered its benchmark policy rate to 1%. If the Fed ran out of basis points, the argument went, it would still have plenty of tools at its disposal for supporting and guiding the real economy.

But this argument’s intellectual foundations – first laid out in a 2002 paper by 13 members of the Fed’s Washington, DC, research staff – are shaky, at best.

The paper’s seemingly innocuous title, “Preventing Deflation: Lessons from Japan’s Experience in the 1990s,” makes the fundamental assertion that Japan’s struggles were rooted in a serious policy blunder: the Bank of Japan’s failure to recognize soon enough and act strongly enough on the peril of incipient deflation. (Not coincidentally, this view coincided with a similar conclusion professed by Bernanke in a scathing attack on the BOJ in the late 1990s.) The implication was clear: substantial monetary and fiscal stimulus is critical for economies that risk approaching the zero bound.

Any doubt as to what form that “substantial stimulus” might take were dispelled a few months later, when then-Fed Governor Bernanke delivered a speech stressing the need for a central bank to deploy unconventional measures to mitigate deflationary risks in an economy that was approaching the zero bound. Such measures could include buying up public debt, providing subsidized credit to banks, targeting longer-term interest rates, or even intervening to reduce the dollar’s value in foreign-exchange markets.

A few years later, the global financial crisis erupted, and these statements, once idle conjecture, became the basis for an urgent action plan. But one vital caveat was lost in the commotion: What works during a crisis will not necessarily provide sufficient traction for the post-crisis recovery – especially if the crisis has left the real economy mired in a balance-sheet recession. Indeed, given that such recessions clog the monetary-policy transmission mechanism, neither conventional interest-rate adjustments nor unconventional liquidity injections have much impact in the wake of a crisis, when deleveraging and balance-sheet repair are urgent.

That is certainly the case in the US today. QE may have been a resounding success in some ways – namely, arresting the riskiest phase of the crisis. But it did little to revive household consumption, which accounts for about 70% of the US economy. In fact, since early 2008, annualized growth in real consumer expenditure has averaged a mere 1.3% – the most anemic period of consumption growth on record.

This is corroborated by a glaring shortfall in the “GDP dividend” from Fed liquidity injections. Though $3.6 trillion of incremental liquidity has been added to the Fed’s balance sheet since late 2008, nominal GDP was up by just $2.5 trillion from the third quarter of 2008 to the second quarter of this year. As John Maynard Keynes famously pointed out after the Great Depression, when an economy is locked in a “liquidity trap,” with low interest rates unable to induce investment or consumption, attempting to use monetary policy to spur demand is like pushing on a string.

This approach also has serious financial-market consequences. Having more than doubled since its crisis-induced trough, the US equity market – not to mention its amply rewarded upper-income shareholders – has been the principal beneficiary of the Fed’s unconventional policy gambit. The same is true for a variety of once-risky fixed-income instruments – from high-yield corporate “junk” bonds to sovereign debt in crisis-torn Europe.

The operative view in central-banking circles has been that the so-called “wealth effect” – when asset appreciation spurs real economic activity – would square the circle for a lagging post-crisis recovery. The persistently anemic recovery and its attendant headwinds in the US labor market belie this assumption.

Nonetheless, the Fed remains fixated on financial-market feedback – and thus ensnared in a potentially deadly trap. Fearful of market disruptions, the Fed has embraced a slow-motion exit from QE. By splitting hairs over the meaning of the words “considerable time” in describing the expected timeline for policy normalization, Fed Chair Janet Yellen is falling into the same trap. Such a fruitless debate borrows a page from the Bernanke-Greenspan incremental normalization script of 2004-2006. Sadly, we know all too well how that story ended.

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

As we explained over the weekend, should the Swiss gold referendum pass successfully, the price of gold will surge. It was none other than JPM who warned that the “markets under appreciate this event”, explaing that “If the referendum is passed, the Swiss National Bank (SNB) will be forced to increase reserves by around 1,500 tonnes over five years, i.e. 300 tonnes per year. This 300 tonnes per year accounts for 7.5% of annual gold demand of 4,000 tonnes per year.”

Well, even as the SNB has been scrambling to make the referendum seem like a non-event, with very little chance of passing, moments ago Deutsche Bank released a piece that roundly refuted everything the Swiss Central Bank has been peddling. To wit, here is a note just out from DB’s Robin Winkler:

• On 30 November, the Swiss will vote in a referendum to decide whether the SNB’s constitutional mandate should be changed to require the central bank to 1) never sell any gold reserves once acquired, 2) store all its gold on Swiss territory, 3) hold at least 20% of its official reserve assets in gold.
• The likelihood of a yes vote is considerable. The proposal requires a simple country-wide majority to pass, as well as a majority in at least 50% of Swiss cantons. Current polling shows the ‘yes’ campaign with a narrow but clear lead and there are reasons to believe that factors on the day could be favourable for the amendment. If an affirmative vote was recorded, there is little political leeway to delay or dilute implementation.
• We find that some of the concerns over the technical implementation of the 20% rule may be overblown. The SNB should be able to meet its gold demands with relative ease. Nor do we subscribe to the view that this would have a long term impact on gold price trends. In the event of further intervention, SNB rebalancing into gold could have a more marked impact on short term price trends, however. The SNB should easily be able to repatriate its gold holdings from abroad.
• The possibility that the SNB could circumvent the requirement through the creation of a sovereign wealth fund is remote. While technically attractive, this option is not politically feasible. However, the SNB could use gold swaps to mitigate some of the adverse implications of the gold vote, in particular with respect to asset return risk and market footprint.
• The amendment would carry significant balance sheet risks for the SNB. As well as concentrating market risk, the SNB would be effectively short an option on gold but without having received a premium. Balance sheet risks could be mitigated by the SNB returning to marking gold at purchase rather than market prices.

Well, after Germany’s miserable failure to reclaim its gold when the Bundesbank received a tap on its shoulder “strongly hinting” the NY Fed and BNP may have serious procurement problems of gold that is ‘already there’, it appears at least one European nation is about to have access to its gold, and judging by the increasing warnings about the global fiat bubble popping by none other than the BIS (yet again, more shortly), probably not a moment too soon.

As for the SNB being easily “able to repatriate its gold holdings from abroad” we appreciate the optimism, just don’t point out to the DB analyst that 6 Month GOFO just want negative once again even as 1M GOFO rate hit the most negative it has been since… 2001!

via Zero Hedge http://ift.tt/1zVmA0k Tyler Durden

As somewhat expected the House passed the Keystone XL Pipeline approval bill:

• *HOUSE PASSES KEYSTONE APPROVAL BILL 252-161; SENATE VOTE NOV 18

It is relatively clear that the Senate does not have the votes to be able to overturn and thus it will be forced on to President Obama’s desk – “to veto” or “not to veto.”

 

BREAKING: House approves #KeystoneXL pipeline, raises pressure on Pres Obama to act #4jobs: http://t.co/GQBCElGxli http://ift.tt/1sNm9xg

— Speaker John Boehner (@SpeakerBoehner) November 14, 2014

 

As Reuters reports,

“We are going to make it as easy as possible for the Senate to finally get a bill to the president’s desk that approves this long-overdue Keystone XL pipeline,” said Republican Representative Bill Cassidy from Louisiana, who is sponsoring the House bill.

 

Approval for the pipeline, which would help transport oil from Canada’s oil sands to refineries along the U.S. Gulf coast, has rested with the administration as it crosses an international border.

 

The decision has been pending for more than six years amid jousting between proponents of the pipeline who say it would create thousands of construction jobs and environmentalists who say it would increase carbon emissions linked to climate change.

 

Obama, speaking at a news conference in Myanmar on Friday, said his position on the 800,000 barrels per day pipeline had not changed.

 

…

 

The White House has not made clear whether Obama would use his veto to block the bill currently before Congress, but he has threatened to use that power in the past.

 

The Senate was still one vote shy of the 60 needed to overcome a filibuster, or blocking procedure, and pass a companion bill, an aide to a Keystone supporter in that chamber said on Friday. The Senate vote is expected next Tuesday.

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via Zero Hedge http://ift.tt/1EL6Blr Tyler Durden

I did a post less than a month ago called Won’t You Be My Neighbor? which vividly captured a crumbling rustbucket of a “house” that was being offered for $1.8 million. The house is located on a very busy boulevard (in spite of the “very desirable area” mentioned below), and I’ve been keeping an eye on it for a “Sold” sign ever since. The absence of such a sign made me think, well, people have finally come to their senses. No one is buying this dump.

Of course, this isn’t the case………I present to you this news from this morning’s paper:

I recognize that some of you might be disappointed to have let this one get away. Take heart; in the same paper, this beauty (whose paint color choices must surely be very forward-thinking) is being made available for $5.5 million. Go get ’em!

via Zero Hedge http://ift.tt/11oa6js Tim Knight from Slope of Hope