iftttwall

by Keith Weiner

 

The popular view today is based on the linear Quantity Theory of Money. It seems to be common sense. If more units of a currency are issued, then the value of each unit should fall. Many people may not think of it in explicit terms, but the idea is that the value of one unit of a currency is 1/N, where N is the total money supply. If you double the money supply, then you halve the value of each currency unit.

Inflation, according to this view, is either the cause—the increase in the money supply itself. Or it’s the effect—rising prices. The Keynesians hold that inflation is good, and the Monetarists basically agree, though they quibble that the rate should be limited. The Austrians universally think inflation is bad.

The Quantity Theory is not based in reality. One should think of this theory like the Lamarckian theory of evolution.[1]

Lamarck asserted that changes to an animal’s body—e.g. its tail is cut off—can be passed on to its offspring. At the time, this theory may have seemed only common sense, and it was very convenient, if not tempting. The same is true with the Quantity Theory of Money. It is convenient, seems like common sense, tempting—and wrong.

The Fed has been inflicting Quantitative Easing on us for five years. There are many negative effects, but rising prices, today, is at best debatable. Certainly, even where prices have risen, the increase is not nearly proportional to the increase in the money supply. Advocates of the theory explain this by saying that the money hasn’t entered the economy, it’s sitting on bank balance sheets. However, money is always on bank balance sheets in a debt-based system, so this answer is not satisfying.

Enter, bitcoin, a cryptography-based currency and technology developed by someone with the pseudonym Satoshi Nakamoto. It has been designed to have a limited rate of growth in the total quantity of currency, up to a predefined cap. There can never be more than 21M bitcoins. The Quantity Theory says that this will make prices of goods measured in bitcoins stable.

One problem with this theory is that the real costs in terms of land, capital, and labor to produce things is steadily falling. Every productive enterprise is constantly seeking to drive cost out of production. If a currency had a constant value, then prices in terms of this currency would be falling.

As we shall see below, the value of bitcoin will be anything but constant. Without a mechanism for responding to increased market demand by creating more currency, there is a fatal flaw.

In the real world, when prices appear to be stable it is not because anything is static or unmoving. It is because there is constant arbitrage. Arbitrage is the act of straddling a spread. If one thing becomes more valuable relative to something else, then someone will take the arbitrage. For example, if the price of eggs in a city downtown rises relative to the price of eggs in a farm town 50 miles away, then someone will buy eggs in the farm town and sell them in the city. This will lift the price in the farm town and depress the price in the city center, until there is not much of a gap any more.

To continue with the analogy on to another point, what happens if the price of eggs in the farm town is higher than the price in the city? This arbitrage is one-way. Distributors can only buy in the farm town and sell in the city; they do not distribute in the other direction.

There must be another arbitrage or arbitrages, if the farm-city egg spread is to remains stable. Indeed, there is. If the price of eggs gets cheap in the city, then consumers will prefer eggs to other foods.

In the body of a vertebrate, every joint is stabilized by a pair of muscles. Consider the upper arm. The biceps flexes it, and the triceps extends it. Muscles can only pull, but not push. There must be a second, opposing, muscle to move the joint in the opposite direction. This is analogous to arbitrage, as each arbitrage can only pull a spread tighter in one direction, but not push in the other.

No market is more important than the markets for money and credit.

So what happens when the price of money itself rises? In thinking about this question and the answer, you should not look at the dollar. The dollar is defective by design and does not work the way proper money ought to. The dollar is the product of fiat, not of a market. Everything about it is driven by forced wielded by the government.

It is more instructive to consider gold. Gold is produced by gold miners. They buy labor, oil, truck tires, machine parts, and they sell gold. As we saw above, they bid up these inputs and gold metal onto the market. The gap between the value of gold and the value of this broad swath across the major factors in the real economy is thus closed by the arbitrage of gold mining companies. This keeps the value of gold from becoming too high, or in other words allows gold to be produced in response to market demand.

What happens if market demand for gold drops? One reaction is that the jeweler and the artisan increase their activities. They tend to bid up gold metal, and sell jewelry and objets d’art onto the market. There is another kind of arbitrage, which is outside the scope of this article[2] but it’s worth mentioning. If the demand for gold metal drops, then the owners of gold, otherwise known as savers, can lend gold for interest. This tends to press down the bid on the rate of interest.

Now consider bitcoin. Bitcoin is not a fiat currency. No government forces anyone in any way to use it. However, bitcoin is irredeemable. That is, there is no agreement by anyone to redeem bitcoin in exchange for a defined quantity of gold, silver, or any real good. With its fixed quantity, there are no arbitrages regarding the value of bitcoin. So what does this mean? What will happen?

The value of bitcoin will be set entirely by speculators. In gold, there are numerous forces in reality—i.e. numerous arbitrages—that will keep the value of gold tied to the values of every other thing in the economic universe. The value of gold in a free market is the exact opposite of untethered and arbitrary. The value of gold cannot crash and it cannot shoot the moon.

Satoshi Nakamoto ignored these forces, and his design does not provide for them. The value of bitcoin is not tethered by the value of labor and capital. It was assumed to be sufficient that its quantity is fixed. It is the exact opposite of sufficient—a fatal flaw based on the Quantity Theory of Money, which is flawed to its core.

The speculators will use bitcoin as a toy to generate profits (as they already do). When the value of bitcoin is rising, it will be obvious. Everyone has a chart, and they can pile on. The value can rise much farther than anyone would expect. Eventually, the chart will show a topping pattern. Momentum will dry up. The speculators can see this too, and thus will begin a collapsing wave of bitcoin.

If a giant speculative spike occurred in food, the consequence is that poor people starve. When the price crashes, the consequence is that food producers will go bankrupt. As bad as this is, the consequences when the value of money spikes and crashes are incalculably worse. This is because every business, including food growers, depends on a stable currency.

To understand this, let’s ask the following question. If you take two bushels of corn and feed it to raise one chicken from egg to market, did you create or destroy wealth? Which has greater value, two bushels or one chicken? To answer, we use the common denominator of money. If Two bushels cost ½ ounce of silver and a chicken is 2 ounces of silver, then feeding the corn to the chick creates value.

Simple cases like this can be (and were, in the ancient world) resolved without money. Complex cases cannot be. If you borrow money to buy land, erect a building, buy machines and inventory, then hire people to manufacture computer chips, did you create or destroy wealth? This question cannot be answered without a stable unit of measure. It would not have been possible to answer it in the ancient world.

Businesses keep books to measure profit and loss. The very principle of bookkeeping depends on a constant value of the unit of account, the numeraire. When the value of the numeraire spikes and crashes, then business which produce wealth go can bankrupt. At the same time others, which destroy wealth, can grow larger, employing more people and more capital to scale up their wealth-destroying activities. This is occurring today on a massive scale.

Bitcoin may make a great speculation today, because its unique combination of technologies enables many transactions that would otherwise be impossible (due to government fiat). If you live in a country that does not recognize your right to freedom of speech, you can trade your local currency for bitcoin, pay WordPress, and have your blog hosted safely outside your regime. There are many other kinds of legitimate transactions that are made possible by bitcoin.

Bitcoin would not work as the exclusive currency. Its unstable value is not suited to being used as the numeraire. For the same reason, it is not suitable for hoarding by wage earners. As I explain in In a Gold Standard, How are Interest Rates Set? it is the arbitrage between hoarding and saving (i.e. lending) that sets the floor under the rate of interest. If bitcoin is unsuitable for hoarding, then either it will not develop a lending market, or the lending market will not have a stable interest rate. A destabilized interest rate is the root cause of the ongoing global financial crisis.[3]

Bitcoin works well as a foil to fiat currencies. It makes it possible for people to conduct business that would otherwise be impossible. If enough people participate, then it becomes more difficult and more unpopular for governments to act to squelch those activities. It’s a pointed object lesson, showing people what is possible in a less-unfree market. Hopefully it will motivate them to clamor for more freedom.

Only gold serves as the objective measure of value necessary to act as the numeraire. It is no coincidence that the quantity of monetary gold is not fixed, but has elegant mechanisms to expand and contract in response to changing market demand.

via Zero Hedge http://ift.tt/1hHyBdM Monetary Metals

Submitted by Golem XIV via Golem XIV's Thoughts blog,

The fact that the phrase sounds antique should warn us of the scale of our folly. We have lost, given away, pawned the power we once claimed. We have ceased to be who we once were. Or at least who we claimed and hoped to be – The People. Now who are we? The Consumer?  The Unemployed. The Unwanted?  ”We, the Unwanted” does not have the same ring about it does it? And yet that is what we are fast becoming. It is time to chose. Sit in front of your television or computer screen and let it sooth you, until one day you too find you have have become one of the unheard, unlamented, Unwanted. Or reach out to others and grasp hold.

It is surely time that we re-assert what the phrase “We, The People” once meant. It is suybolic I know. But symbols are powerful. And the powerful fear them.

For too long now we have been supine, docile and cowed. There have been sputterings of resolve when a million people took to the streets to oppose the War in Iraq. But the rulers of the day ignored us and ‘the people’ simply went home vaguely disquieted, perhaps a little hurt at being ignored but mainly just confused as to what to do next – if anything.

For decades now we have let others have the initiative, let others define what was acceptable and legitimate. When it was never their position to do so. This must stop.

Once, a certain people declared, “No taxation without representation.” It was and still is a simple idea. You may not tax me unless you represent my interests. Only those with my interests in mind may ask me for taxes. Today that definitiion of democracy has withered and been quietly replaced by another similar sounding but actually radically different version – I would say perversion – of democracy. Today we are taxed by people who represent every interest but ours. They are still representatives but not of our interests. Democracy has now become a kind of opera – more and more lavish in direct proportion to its separation from ordinary people and their lives.  Every four or five years we get to chose between two teams who represent some interest which is not ours. They may represent the interests of bankers, or global corporations, or militarists and the industrial complex which gets rich from their adventures, or some other grouping within the machinery of the State, or the intersts of a powerful global 1% – whatever interest they serve it is never yours and mine. For those who will clamour and say the Democrats or Labour or La Gauche represent the interests of the labour unions, WAKE UP!  It’s been decades since that was even partially true. Labour under Blair and Brown was Thatcherism by another name and ignored a million people who said very clearly and en masse, that the Bush/Blair war was unjust, illegal and unwanted. The Democrats under Obama followed the same financial and economic ideology as Bush, even chosing the same people to run things, and was as warlike and arrogant as well. Change? Tell it to a moron. He might believe you.

Democracy is broken. No one represents us. We are allowed only to chose between different teams of The Entitled who, once chosen, ignore us completely. The whole idea of a mandate has mutated. Once that idea meant that a government could do what it had said it would do when it was trying to win our votes. Beyond those things, it had to consider ‘The People’.  Today all parties consider that being elected means to be handed absolute power to do whatever they feel like doing, whatever they can ram through the tattered remains of accountability and oversight.

Elected dictatorship in installments is what we have today.  And when each installment, no matter the different names and colours of the teams, is almost indistinguishable from the last, what is representative democracy if not a street parade of oversized cartoon characters and their pantomimed arguments. Are we not amused?

If we do not speak up soon we will find when we finally do, nothing is heard but grunting and bleating. We are, to borrow a phrase from the brilliant Roberto Callaso, already walking through a vast slaughter house. And those who run it have no good intent.

It is past time when we must revivify what We the People means. We must stop reacting like frightened animals and take the initiative.We cannot allow those who presume to rule over us to continue to tell us what ‘must’ be done and to over-rule all debate by  insisting ‘there is no alternative.’ We must state what We the People will accept and what we won’t, what we regard as legitimate and what is not. It is for us to decide these things not them. It may seem like just words and on one level of course it is. But it was only words when it was said the first time. What those words did the first time and can do again, is to stop our rulers’ proclamations always being against a blank and passive background. Simply by declaring what We will and won’t tolerate or accept we force their proclamations to appear as what they are – aggressive, partisan and debateable.

You might say that it will still be just words and that blood would still have to be spilt upon the ground before their point had force. Which may be true. But still, simply by re-stating that there IS a “We the People” we take a stand, and are heard.

 

So here is my suggestion, for what it might be worth – What matters is that we state what WE will and won’t accept, what WE do and do not recognize as legitimate. What matters is how many of us sign. It does not matter that we may not all agree or that we may have differing lists. What matters is that they are not so different, that we can all stand together, and all take back what is ours – the power to DECIDE for ourselves what powers we lend and what powers we do NOT.

We the People:

 

Will not accept taxation for the purpose of paying off, even temporarily, private banking or other financial debts.

 

We will not accept the rulings of international arbitration panels on which our interests are not represented and which are convened on the basis of Bilateral Investment Treaties about which we were not consulted.

 

We will do not recognize the right of bond holders of ANY standing to be given seniority over the tax payers and people of a nation. We will NOT bail them out.

 

We reserve the sovereign right to decide in the event of another finacial crisis, who does not get paid, whose wealth is anulled. It is not for the unelected market and its experts to tell us.

 

We, the people do not accept the right or authority of private or unnaccountable State organizations to collect, hold or use private data gathered by any means that the law and courts have not specifically and publically granted.

 

We do not accept the legitimacy of any private law enforcement body.

 

We do not accept that there is any justification for secret or unaccountable bodies to hold any power over us. We simply do not recognize they have any legitimacy.

 

We will not tolerate military actions taken in secret without any parliamenary and public accountabilbity and permission.

 

We reserve the absolute right to hold to public and legal account any leader who takes actions which disregard the above. No elected official is above the law and no leader has the power to aquit those the courts have proceeded against.

 

No organization is above or outside the law.

 

We the People do not accept that any organization is too big to prosecute or too big to fail. Any organization that becomes so or remains so depsite this clear instruction, and then fails, forfeits its entire worth to the public purse at a post bankruptcy price.

I offer this as a start only. Others will no doubt be better informed and able to formulate a far clearer, better and sharper declaration.

If they do, I would like to sign it and offer it to as many others as technology will permit me to reach, for them to consider signing. The internet gives us this chance, to put up a document that any number of ordinary people can chose to sign. People might wish to have a seperate version for each Nation. Or, in a global world, perhaps we need to remain together as the global 99%. What matters is that enough of us sign so we can really say with a single voice – WE THE PEOPLE serve you notice that we are back!

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

Submitted by Golem XIV via Golem XIV's Thoughts blog,

The fact that the phrase sounds antique should warn us of the scale of our folly. We have lost, given away, pawned the power we once claimed. We have ceased to be who we once were. Or at least who we claimed and hoped to be – The People. Now who are we? The Consumer?  The Unemployed. The Unwanted?  ”We, the Unwanted” does not have the same ring about it does it? And yet that is what we are fast becoming. It is time to chose. Sit in front of your television or computer screen and let it sooth you, until one day you too find you have have become one of the unheard, unlamented, Unwanted. Or reach out to others and grasp hold.

It is surely time that we re-assert what the phrase “We, The People” once meant. It is suybolic I know. But symbols are powerful. And the powerful fear them.

For too long now we have been supine, docile and cowed. There have been sputterings of resolve when a million people took to the streets to oppose the War in Iraq. But the rulers of the day ignored us and ‘the people’ simply went home vaguely disquieted, perhaps a little hurt at being ignored but mainly just confused as to what to do next – if anything.

For decades now we have let others have the initiative, let others define what was acceptable and legitimate. When it was never their position to do so. This must stop.

Once, a certain people declared, “No taxation without representation.” It was and still is a simple idea. You may not tax me unless you represent my interests. Only those with my interests in mind may ask me for taxes. Today that definitiion of democracy has withered and been quietly replaced by another similar sounding but actually radically different version – I would say perversion – of democracy. Today we are taxed by people who represent every interest but ours. They are still representatives but not of our interests. Democracy has now become a kind of opera – more and more lavish in direct proportion to its separation from ordinary people and their lives.  Every four or five years we get to chose between two teams who represent some interest which is not ours. They may represent the interests of bankers, or global corporations, or militarists and the industrial complex which gets rich from their adventures, or some other grouping within the machinery of the State, or the intersts of a powerful global 1% – whatever interest they serve it is never yours and mine. For those who will clamour and say the Democrats or Labour or La Gauche represent the interests of the labour unions, WAKE UP!  It’s been decades since that was even partially true. Labour under Blair and Brown was Thatcherism by another name and ignored a million people who said very clearly and en masse, that the Bush/Blair war was unjust, illegal and unwanted. The Democrats under Obama followed the same financial and economic ideology as Bush, even chosing the same people to run things, and was as warlike and arrogant as well. Change? Tell it to a moron. He might believe you.

Democracy is broken. No one represents us. We are allowed only to chose between different teams of The Entitled who, once chosen, ignore us completely. The whole idea of a mandate has mutated. Once that idea meant that a government could do what it had said it would do when it was trying to win our votes. Beyond those things, it had to consider ‘The People’.  Today all parties consider that being elected means to be handed absolute power to do whatever they feel like doing, whatever they can ram through the tattered remains of accountability and oversight.

Elected dictatorship in installments is what we have today.  And when each installment, no matter the different names and colours of the teams, is almost indistinguishable from the last, what is representative democracy if not a street parade of oversized cartoon characters and their pantomimed arguments. Are we not amused?

If we do not speak up soon we will find when we finally do, nothing is heard but grunting and bleating. We are, to borrow a phrase from the brilliant Roberto Callaso, already walking through a vast slaughter house. And those who run it have no good intent.

It is past time when we must revivify what We the People means. We must stop reacting like frightened animals and take the initiative.We cannot allow those who presume to rule over us to continue to tell us what ‘must’ be done and to over-rule all debate by  insisting ‘there is no alternative.’ We must state what We the People will accept and what we won’t, what we regard as legitimate and what is not. It is for us to decide these things not them. It may seem like just words and on one level of course it is. But it was only words when it was said the first time. What those words did the first time and can do again, is to stop our rulers’ proclamations always being against a blank and passive background. Simply by declaring what We will and won’t tolerate or accept we force their proclamations to appear as what they are – aggressive, partisan and debateable.

You might say that it will still be just words and that blood would still have to be spilt upon the ground before their point had force. Which may be true. But still, simply by re-stating that there IS a “We the People” we take a stand, and are heard.

 

So here is my suggestion, for what it might be worth – What matters is that we state what WE will and won’t accept, what WE do and do not recognize as legitimate. What matters is how many of us sign. It does not matter that we may not all agree or that we may have differing lists. What matters is that they are not so different, that we can all stand together, and all take back what is ours – the power to DECIDE for ourselves what powers we lend and what powers we do NOT.

We the People:

 

Will not accept taxation for the purpose of paying off, even temporarily, private banking or other financial debts.

 

We will not accept the rulings of international arbitration panels on which our interests are not represented and which are convened on the basis of Bilateral Investment Treaties about which we were not consulted.

 

We will do not recognize the right of bond holders of ANY standing to be given seniority over the tax payers and people of a nation. We will NOT bail them out.

 

We reserve the sovereign right to decide in the event of another finacial crisis, who does not get paid, whose wealth is anulled. It is not for the unelected market and its experts to tell us.

 

We, the people do not accept the right or authority of private or unnaccountable State organizations to collect, hold or use private data gathered by any means that the law and courts have not specifically and publically granted.

 

We do not accept the legitimacy of any private law enforcement body.

 

We do not accept that there is any justification for secret or unaccountable bodies to hold any power over us. We simply do not recognize they have any legitimacy.

 

We will not tolerate military actions taken in secret without any parliamenary and public accountabilbity and permission.

 

We reserve the absolute right to hold to public and legal account any leader who takes actions which disregard the above. No elected official is above the law and no leader has the power to aquit those the courts have proceeded against.

 

No organization is above or outside the law.

 

We the People do not accept that any organization is too big to prosecute or too big to fail. Any organization that becomes so or remains so depsite this clear instruction, and then fails, forfeits its entire worth to the public purse at a post bankruptcy price.

I offer this as a start only. Others will no doubt be better informed and able to formulate a far clearer, better and sharper declaration.

If they do, I would like to sign it and offer it to as many others as technology will permit me to reach, for them to consider signing. The internet gives us this chance, to put up a document that any number of ordinary people can chose to sign. People might wish to have a seperate version for each Nation. Or, in a global world, perhaps we need to remain together as the global 99%. What matters is that enough of us sign so we can really say with a single voice – WE THE PEOPLE serve you notice that we are back!

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

With food-stamp recipients dominated by ‘working age Americans’ for the first time in history; and 1.4 million having recently dropped off the benefits rolls, we suspect, extremely sadly, that the following breakdown of homelessness in America is about to get worse. Los Angeles has by far the greatest number of unsheltered homeless in America and New York City the largest population – at around 65,000 – of homeless people in the US. One wonders at the State of the Union tomorrow…

 

 

Via Vizual-Statistix,

The PIT estimates are based on counts of all sheltered and unsheltered homeless persons on a single night

 

…

 

Those who are identified as “unsheltered” live in places not meant for human habitation, such as streets, vehicles, parks, campgrounds, abandoned buildings, etc.

In general, the number of homeless people tracks population density, so the upper map shows homeless persons per 1,000 state population.

 

The top states are HI, NY, CA, and OR, though these are all less than half the per capita tally in DC.

 

Had I used raw counts of homeless people (without normalizing by population), CA would have had the highest value at 137,000. The next highest counts are NY (77,000) and FL (48,000).

 

The balance of sheltered and unsheltered is largely influenced by climate; more extreme climates found in the northern and eastern parts of the country have lower percentages of unsheltered homeless people. ND is an exception to this trend – it has approximately 2,000 homeless people, two-thirds of whom are unsheltered.

Data source: http://ift.tt/1nayonl

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

“I don’t think we’re going to get enough young people signing up to make this bill work as it was intended to financially,” warned Democrat Virginia Representative Jim Moran. The Democrat, as The Daily Caller reports, seemingly daring to break ranks with his peers, added that he understood Millennial lack of signing up as “frankly, there’s some legitimacy to their concern because the government spends about $7 for the elderly for every $1 it spends on the young.” This stunning declaration, of course, fits with the narratives that most mathematically-capable human beings can comprehend but starkly refutes the hopes and dreams of the President’s healthcare policy… The reason that Jim Moran could be so honest… after 12 terms of toeing the lying line, he has announced his retirement.

Via The Daily Caller,

A top House Democrat slammed Obamacare’s inability “to work” — but only after he announced his impending retirement from Congress.

 

12-term Virginia Rep. Jim Moran, an Appropriations Committee member who said this month that he will not seek re-election in 2014, said that not enough young people are signing up for Obamacare coverage to make the law work.

 

“I’m afraid that the millennials, if you will, are less likely to sign up. I think they feel more independent, I think they feel a little more invulnerable than prior generations. But I don’t think we’re going to get enough young people signing up to make this bill work as it was intended to financially,” Moran said in an interview with WAMU American University Radio.

 

“And, frankly, there’s some legitimacy to their concern because the government spends about $7 for the elderly for every $1 it spends on the young,” Moran said.

 

“I just don’t know how we’re going to do it frankly. If we had a solution I’d be telling the president right now,” Moran said.

 

Moran voted for President Obama’s Affordable Care Act, which depends on young healthy “invincibles” to sign up for health insurance exchanges to offset the high number of older, sicker people that drive rates up and make Obamacare plans more expensive.

 

…

 

read more here

Perhaps there is a lesson in this for all of us – do not trust a politician until he has retired (and we suggest – not even then).

via Zero Hedge http://ift.tt/L4PKTe Tyler Durden

“I don’t think we’re going to get enough young people signing up to make this bill work as it was intended to financially,” warned Democrat Virginia Representative Jim Moran. The Democrat, as The Daily Caller reports, seemingly daring to break ranks with his peers, added that he understood Millennial lack of signing up as “frankly, there’s some legitimacy to their concern because the government spends about $7 for the elderly for every $1 it spends on the young.” This stunning declaration, of course, fits with the narratives that most mathematically-capable human beings can comprehend but starkly refutes the hopes and dreams of the President’s healthcare policy… The reason that Jim Moran could be so honest… after 12 terms of toeing the lying line, he has announced his retirement.

Via The Daily Caller,

A top House Democrat slammed Obamacare’s inability “to work” — but only after he announced his impending retirement from Congress.

 

12-term Virginia Rep. Jim Moran, an Appropriations Committee member who said this month that he will not seek re-election in 2014, said that not enough young people are signing up for Obamacare coverage to make the law work.

 

“I’m afraid that the millennials, if you will, are less likely to sign up. I think they feel more independent, I think they feel a little more invulnerable than prior generations. But I don’t think we’re going to get enough young people signing up to make this bill work as it was intended to financially,” Moran said in an interview with WAMU American University Radio.

 

“And, frankly, there’s some legitimacy to their concern because the government spends about $7 for the elderly for every $1 it spends on the young,” Moran said.

 

“I just don’t know how we’re going to do it frankly. If we had a solution I’d be telling the president right now,” Moran said.

 

Moran voted for President Obama’s Affordable Care Act, which depends on young healthy “invincibles” to sign up for health insurance exchanges to offset the high number of older, sicker people that drive rates up and make Obamacare plans more expensive.

 

…

 

read more here

Perhaps there is a lesson in this for all of us – do not trust a politician until he has retired (and we suggest – not even then).

via Zero Hedge http://ift.tt/L4PKTe Tyler Durden

Submitted by Doug Noland of The Prudent Bear blog,

Backdrops conductive to crises can drag on for so long – sometimes seemingly forever – as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.

…

Virtually the entire EM “complex” has been enveloped in protracted destabilizing financial and economic Bubbles. In particular, for five years now unprecedented “developed” world central bank-induced liquidity has spurred unsound economic and financial booms. The massive investment and “hot money” flows are illustrated by the multi-trillion growth of EM central bank international reserve holdings. There have of course been disparate resulting impacts on EM financial and economic systems. But I believe in all cases this tsunami of liquidity and speculation has had deleterious consequences, certainly including fomenting systemic dependencies to foreign-sourced flows. In seemingly all cases, protracted Bubbles have inflated societal expectations.

…

For a while, central bank willingness to use reserves to support individual currencies bolsters market confidence in a country’s currency, bonds and financial system more generally. But at some point a central bank begins losing the battle to accelerating outflows. A tough decision is made to back away from market intervention to safeguard increasingly precious reserve holdings. Immediately, the marketplace must then contend with a faltering currency, surging yields, unstable financial markets and rapidly waning liquidity generally. Things unravel quickly.

…

The issue of EM sovereign and corporate borrowings in dollar (and euro and yen) denominated debt has speedily become a critical “macro” issue. More than five years of unprecedented global dollar liquidity excess spurred a historic boom in dollar-denominated borrowings. The marketplace assumed ongoing dollar devaluation/EM currency appreciation. There became essentially insatiable market demand for higher-yielding EM debt, replete with all the distortions in risk perceptions, market mispricing and associated maladjustment one should expect from years of unlimited cheap finance. As was the case with U.S. subprime, it’s always the riskiest borrowers that most intensively feast at the trough of easy “money.”

So, too many high-risk borrowers – from vulnerable economies and Credit systems – accumulated debt denominated in U.S. and other foreign currencies – for too long. Now, currencies are faltering, “hot money” is exiting, Credit conditions are tightening and economic conditions are rapidly deteriorating. It’s a problematic confluence that will find scores of borrowers challenged to service untenable debt loads, especially for borrowings denominated in appreciating non-domestic currencies. This tightening of finance then becomes a pressing economic issue, further pressuring EM currencies and financial systems – the brutal downside of a protracted globalized Credit and speculative cycle.

In many cases, this was all part of a colossal “global reflation trade.” Today, many EM economies confront the exact opposite: mounting disinflationary forces for things sold into global markets. Falling prices, especially throughout the commodities complex, have pressured domestic currencies. This became a major systemic risk after huge speculative flows arrived in anticipation of buoyant currencies, attractive securities markets, and enticing business opportunities. The commodities boom was to fuel general and sustained economic booms. EM was to finally play catchup to “developed.”

Now, Bubbles are faltering right and left – and fearful “money” is heading for the (closing?) exits. And, as the global pool of speculative finance reverses course, the scale of economic maladjustment and financial system impairment begins to come into clearer focus. It’s time for the marketplace to remove the beer goggles.

No less important is the historic – and ongoing – boom in manufacturing capacity in China and throughout Asia. This has created excess capacity and increasing pricing pressure for too many manufactured things, a situation only worsened by Japan’s aggressive currency devaluation. This dilemma, with parallels to the commodity economies, becomes especially problematic because of the enormous debt buildup over recent years. While this is a serious issue for the entire region, it has become a major pressing problem in China.

This week the markets seemed to begin taking the unfolding Chinese Credit crisis more seriously. There was talk early in the week of concerted efforts to save the troubled $496 million (“Credit Equals Gold No. 1”) trust product from a possible end-of-month default.

…

Savers, investors and speculators will indeed learn painful lessons in China Credit – and it’s difficult for me to envisage this learning process going smoothly. “Credit Equals Gold No.1” is the proverbial tip of the Iceberg for a Credit system today suffering from a historic gulf between saver perceptions of “moneyness” and the poor and deteriorating quality of much of underlying system Credit. Incredible quantities of finance have flowed freely into risky Credit vehicles with the expectation that the banks and governments (local and central) will not allow losses nor ever tolerate a crisis. This is precisely the recipe for Credit accidents and even disaster.

…

Now officials confront a dangerous situation: Acute fragility in segments of its “shadow” financing of corporate and local government debt festers concurrently with ongoing “terminal phase” excess throughout housing finance. China’s financial and economic systems have grown dependent upon massive ongoing Credit expansion, while the quality of new Credit is suspect at best. It’s that fateful “terminal phase” exponential growth in systemic risk playing out in historic proportions. Global markets have begun to take notice.

There are critical market issues with no clear answers. For one, how much speculative “hot money” has and continues to flood into China to play their elevated yields in a currency that is (at the least) expected to remain pegged to the U.S. dollar? If there is a significant “hot money” issue, any reversal of speculative flows would surely speed up this unfolding Credit crisis. And, of course, any significant tightening of Chinese Credit would reverberate around the globe, especially for already vulnerable EM economies and financial systems.

…

I have surmised that the so-called “yen carry trade” (borrow/short in yen and use proceeds to lever in higher-yielding instruments) could be the largest speculative trade in history. Market trading dynamics this week certainly did not dissuade. When the yen rises, negative market dynamics rather quickly gather momentum. From my perspective, all the major
speculative trades come under pressure when the yen strengthens; from EM, to the European “periphery,” to U.S. equities and corporate debt.

…

U.S. speculators and investors have become accustomed to hasty comments or policy measures in response to the first sign of market weakness. Chairman Bernanke’s (past June) Comment that the Fed would “push back” against any “tightening of financial conditions” worked wonders on market sentiment and “animal spirits.” But I don’t expect the exiting Bernanke to ride to the markets’ rescue. I also don’t expect Bill Dudley and fellow FOMC doves to upstage the new chair Janet Yellen. And it would as well appear alarming to the marketplace if Yellen felt the need for public statements prior to the official start of her reign. With a Fed meeting scheduled for next week, an “emergency” meeting or other public statement over the weekend would also seem unlikely. This might actually be the beginning of a new environment where Fed officials are reluctant to jump to the markets’ defense at the first sign of nervousness.

Last year was extraordinary on so many levels. Too be sure, a “couple” Trillion of global QE made for some abnormal market dynamics. Typically, trouble at the “periphery” would lead to de-risking, de-leveraging and resulting contagion effects that begin their journey toward the “core.” But in 2013, with unprecedented global liquidity coupled with unprecedented speculation, initial cracks in “periphery” Bubbles spurred a speculative onslaught on “core” equities and corporate debt markets.

I would argue that 2013 dynamics significantly exacerbated global systemic fragilities. Over all, global financial systems and economies became only further dependent upon abundant cheap liquidity. The liquidity backdrop may have held EM crisis dynamics somewhat at bay, but it also prolonged a dangerous expansion of late-cycle debt. Meanwhile, “developed” market speculative Bubbles inflated precariously. “Money” flowed freely into all types of risky securities, instruments and products. Most importantly, inflated securities prices became only further detached from deteriorating fundamental prospects.

…

In striking contrast to “The May/June Dynamic,” Treasury yields have recently been declining as opposed to moving higher. Treasuries, bunds and other “developed” sovereign debt are enjoying a safe haven bid, likely bolstered by heightened global disinflationary forces. And while this makes life somewhat easier for those managing so-called “risk parity” strategies, this important change in market behavior surely complicates myriad other strategies. Those short Treasuries or bunds as hedges (or funding sources) for various leveraged “carry trade” strategies suddenly face an unfavorable dynamic.

It’s worth noting that most spreads reversed course and widened meaningfully this week. This comes after what appeared to be the whole world coming to realize the fun and easy profits of selling/writing CDS and other forms of Credit insurance (“writing flood insurance during a drought”). This backdrop would seem ripe for a bout of risk aversion, where abruptly shifting markets force players to pare back some exposure to “alternative” Credit strategies and myriad leveraged trades. This would provide a more traditional mechanism for transmitting market tumult at the “periphery” toward the “core.”

In a year that at this point seems poised to see a significant reduction in Federal Reserve liquidity creation, I would expect a return of a more “risk on, risk off” trading dynamic. This would seem to ensure that increasingly serious problems at the “periphery” have contagion effects that risk engulfing the “core.”

via Zero Hedge http://ift.tt/LhRvgO Tyler Durden

Submitted by Doug Noland of The Prudent Bear blog,

Backdrops conductive to crises can drag on for so long – sometimes seemingly forever – as if they’re moving in ultra-slow motion. Invariably, they lull most to sleep. Better yet, such environments even work to embolden the optimists. This is especially the case when policy measures are aggressively employed along the way, repeatedly holding the forces of crisis at bay. In the face of mounting risk, heightened risk-taking and leveraging often work only to exacerbate underlying fragilities. But eventually a critical juncture arrives where newfound momentum has things unwinding at a more frenetic pace. It is the nature of such things that most everyone gets caught totally unprepared.

…

Virtually the entire EM “complex” has been enveloped in protracted destabilizing financial and economic Bubbles. In particular, for five years now unprecedented “developed” world central bank-induced liquidity has spurred unsound economic and financial booms. The massive investment and “hot money” flows are illustrated by the multi-trillion growth of EM central bank international reserve holdings. There have of course been disparate resulting impacts on EM financial and economic systems. But I believe in all cases this tsunami of liquidity and speculation has had deleterious consequences, certainly including fomenting systemic dependencies to foreign-sourced flows. In seemingly all cases, protracted Bubbles have inflated societal expectations.

…

For a while, central bank willingness to use reserves to support individual currencies bolsters market confidence in a country’s currency, bonds and financial system more generally. But at some point a central bank begins losing the battle to accelerating outflows. A tough decision is made to back away from market intervention to safeguard increasingly precious reserve holdings. Immediately, the marketplace must then contend with a faltering currency, surging yields, unstable financial markets and rapidly waning liquidity generally. Things unravel quickly.

…

The issue of EM sovereign and corporate borrowings in dollar (and euro and yen) denominated debt has speedily become a critical “macro” issue. More than five years of unprecedented global dollar liquidity excess spurred a historic boom in dollar-denominated borrowings. The marketplace assumed ongoing dollar devaluation/EM currency appreciation. There became essentially insatiable market demand for higher-yielding EM debt, replete with all the distortions in risk perceptions, market mispricing and associated maladjustment one should expect from years of unlimited cheap finance. As was the case with U.S. subprime, it’s always the riskiest borrowers that most intensively feast at the trough of easy “money.”

So, too many high-risk borrowers – from vulnerable economies and Credit systems – accumulated debt denominated in U.S. and other foreign currencies – for too long. Now, currencies are faltering, “hot money” is exiting, Credit conditions are tightening and economic conditions are rapidly deteriorating. It’s a problematic confluence that will find scores of borrowers challenged to service untenable debt loads, especially for borrowings denominated in appreciating non-domestic currencies. This tightening of finance then becomes a pressing economic issue, further pressuring EM currencies and financial systems – the brutal downside of a protracted globalized Credit and speculative cycle.

In many cases, this was all part of a colossal “global reflation trade.” Today, many EM economies confront the exact opposite: mounting disinflationary forces for things sold into global markets. Falling prices, especially throughout the commodities complex, have pressured domestic currencies. This became a major systemic risk after huge speculative flows arrived in anticipation of buoyant currencies, attractive securities markets, and enticing business opportunities. The commodities boom was to fuel general and sustained economic booms. EM was to finally play catchup to “developed.”

Now, Bubbles are faltering right and left – and fearful “money” is heading for the (closing?) exits. And, as the global pool of speculative finance reverses course, the scale of economic maladjustment and financial system impairment begins to come into clearer focus. It’s time for the marketplace to remove the beer goggles.

No less important is the historic – and ongoing – boom in manufacturing capacity in China and throughout Asia. This has created excess capacity and increasing pricing pressure for too many manufactured things, a situation only worsened by Japan’s aggressive currency devaluation. This dilemma, with parallels to the commodity economies, becomes especially problematic because of the enormous debt buildup over recent years. While this is a serious issue for the entire region, it has become a major pressing problem in China.

This week the markets seemed to begin taking the unfolding Chinese Credit crisis more seriously. There was talk early in the week of concerted efforts to save the troubled $496 million (“Credit Equals Gold No. 1”) trust product from a possible end-of-month default.

…

Savers, investors and speculators will indeed learn painful lessons in China Credit – and it’s difficult for me to envisage this learning process going smoothly. “Credit Equals Gold No.1” is the proverbial tip of the Iceberg for a Credit system today suffering from a historic gulf between saver perceptions of “moneyness” and the poor and deteriorating quality of much of underlying system Credit. Incredible quantities of finance have flowed freely into risky Credit vehicles with the expectation that the banks and governments (local and central) will not allow losses nor ever tolerate a crisis. This is precisely the recipe for Credit accidents and even disaster.

…

Now officials confront a dangerous situation: Acute fragility in segments of its “shadow” financing of corporate and local government debt festers concurrently with ongoing “terminal phase” excess throughout housing finance. China’s financial and economic systems have grown dependent upon massive ongoing Credit expansion, while the quality of new Credit is suspect at best. It’s that fateful “terminal phase” exponential growth in systemic risk playing out in historic proportions. Global markets have begun to take notice.

There are critical market issues with no clear answers. For one, how much speculative “hot money” has and continues to flood into China to play their elevated yields in a currency that is (at the least) expected to remain pegged to the U.S. dollar? If there is a significant “hot money” issue, any reversal of speculative flows would surely speed up this unfolding Credit crisis. And, of course, any significant tightening of Chinese Credit would reverberate around the globe, especially for already vulnerable EM economies and financial systems.

…

I have surmised that the so-called “yen carry trade” (borrow/short in yen and use proceeds to lever in higher-yielding instruments) could be the largest speculative trade in history. Market trading dynamics this week certainly did not dissuade. When the yen rises, negative market dynamics rather quickly gather momentum. From my perspective, all the major speculative trades come under pressure when the yen strengthens; from EM, to the European “periphery,” to U.S. equities and corporate debt.

…

U.S. speculators and investors have become accustomed to hasty comments or policy measures in response to the first sign of market weakness. Chairman Bernanke’s (past June) Comment that the Fed would “push back” against any “tightening of financial conditions” worked wonders on market sentiment and “animal spirits.” But I don’t expect the exiting Bernanke to ride to the markets’ rescue. I also don’t expect Bill Dudley and fellow FOMC doves to upstage the new chair Janet Yellen. And it would as well appear alarming to the marketplace if Yellen felt the need for public statements prior to the official start of her reign. With a Fed meeting scheduled for next week, an “emergency” meeting or other public statement over the weekend would also seem unlikely. This might actually be the beginning of a new environment where Fed officials are reluctant to jump to the markets’ defense at the first sign of nervousness.

Last year was extraordinary on so many levels. Too be sure, a “couple” Trillion of global QE made for some abnormal market dynamics. Typically, trouble at the “periphery” would lead to de-risking, de-leveraging and resulting contagion effects that begin their journey toward the “core.” But in 2013, with unprecedented global liquidity coupled with unprecedented speculation, initial cracks in “periphery” Bubbles spurred a speculative onslaught on “core” equities and corporate debt markets.

I would argue that 2013 dynamics significantly exacerbated global systemic fragilities. Over all, global financial systems and economies became only further dependent upon abundant cheap liquidity. The liquidity backdrop may have held EM crisis dynamics somewhat at bay, but it also prolonged a dangerous expansion of late-cycle debt. Meanwhile, “developed” market speculative Bubbles inflated precariously. “Money” flowed freely into all types of risky securities, instruments and products. Most importantly, inflated securities prices became only further detached from deteriorating fundamental prospects.

…

In striking contrast to “The May/June Dynamic,” Treasury yields have recently been declining as opposed to moving higher. Treasuries, bunds and other “developed” sovereign debt are enjoying a safe haven bid, likely bolstered by heightened global disinflationary forces. And while this makes life somewhat easier for those managing so-called “risk parity” strategies, this important change in market behavior surely complicates myriad other strategies. Those short Treasuries or bunds as hedges (or funding sources) for various leveraged “carry trade” strategies suddenly face an unfavorable dynamic.

It’s worth noting that most spreads reversed course and widened meaningfully this week. This comes after what appeared to be the whole world coming to realize the fun and easy profits of selling/writing CDS and other forms of Credit insurance (“writing flood insurance during a drought”). This backdrop would seem ripe for a bout of risk aversion, where abruptly shifting markets force players to pare back some exposure to “alternative” Credit strategies and myriad leveraged trades. This would provide a more traditional mechanism for transmitting market tumult at the “periphery” toward the “core.”

In a year that at this point seems poised to see a significant reduction in Federal Reserve liquidity creation, I would expect a return of a more “risk on, risk off” trading dynamic. This would seem to ensure that increasingly serious problems at the “periphery” have contagion effects that risk engulfing the “core.”

via Zero Hedge http://ift.tt/LhRvgO Tyler Durden

Following his WSJ letter comparing the “progressive war on the 1% in America” to fascist Nazi Germany persecution of the Jews and “just as Kristallnacht was unthinkable in 1930, the descendant ‘progressive’ radicalism in American thinking is unthinkable now“, Tom Perkins appeared on Bloomberg TV to explain himself. His first step was to apologize for the analogy but not the message that “the creative 1% is being threatened.” The interview with Emily Chang is fascinating and wends it way from Rolexs, yachts, and underwater airplanes to trailer parks; and from disconnects with reality to implying Krugman’s craziness. However, Perkins sums his message up thus:”the solution is less interference, lower taxes and let the rich do what the rich do – that is get richer… and they will bring everyone else along with them when the system is working.” It appears the ‘system’ needs a different final solution.

 

Clip 1

CHANG: So more than 90 Jews were killed in Kristallnacht, 30,000 people put in concentration camps. What were you going for (inaudible) analogy?

PERKINS: The Jews were only 1 percent of the German population. Most Germans had never met a Jew, and yet Hitler was able to demonize the Jews and Kristallnacht was one of the earlier manifestations, but there had been others before it. And then of course we know about the evil of the Holocaust. I guess my point was that when you start to use hatred against a minority, it can get out of control. I think that was my thought. And now that as the messenger I’ve been thoroughly killed by everybody, at least read the message.

CHANG: You mentioned the word hatred. Do you feel threatened?

PERKINS: I don’t feel personally threatened, but I think that a very important part of American, namely the creative 1 percent, are threatened.

[Jerry Brown]tells me the number-one problem in America is inequality, and that’s probably and possibly true. And I think President Obama’s going to make that point tomorrow night. But the 1 percent are not causing the inequality. They are the job creators. Silicon Valley is – I think Kleiner Perkins itself over the years has created pretty close to a million jobs and we’re still doing it. It’s absurd to demonize the rich for being rich and for doing what the rich do, which is get richer by creating opportunity for others.

CHANG: How do you feel threatened?

PERKINS: I said I didn’t feel personally threatened. I feel however that as a class I think we are beginning to engage in class warfare. I think the rich as a class are threatened through higher taxes, higher regulation and so forth. And so that is my message.

…

I think the 99 percent is struggling and really struggling to get along in America. We have ever-increasing regulation, higher costs I think caused by more government than we need. Small businesses – it’s difficult to form and prosper in a small business these days. It’s difficult to hire. And that in my view is what is hurting and causing – hurting the 99 percent and causing the inequality.

So I think that the solution is less interference, lower taxes. Let the rich do what the rich do, which is get richer. But along the way, they bring everybody else with them when the system is working.

PERKINS: I regret the use of that word. It was a terrible misjudgment. I don’t regret the message at all. In fact —

 

CHANG: What is the message?

PERKINS: The message is any time the majority starts to demonize a minority, no matter what it is, it’s wrong and dangerous. And no good ever comes from it.

Clip 2

As far as Perkins is concerned Kleiner Perkins disavowal of his Op-Ed is them “throwing him under the bus” and missing the warning that any time a majority

Perkins goes on to note that his partner Kleiner fled Austria and Hitler and would have agreed with him…

CHANG: All right. Well let’s talk a little bit about the solution here. You mentioned your friend Eugene Kleiner, the late Eugene Kleiner, fled Austria, fled Hitler. Do you think he would have agreed with you?

PERKINS: Yes, I think he would have because I – I was not talking about the Nazis. I was talking about the persecution of a minority by the majority. And Kleiner always distrusted those sorts of trends in American politics.

CHANG: You have conservatives out there though like Marc Andreessen calling you leading A-hole in the state.

PERKINS: Yes. It wasn’t a very nice word. And considering that he doesn’t know me and I don’t know him, I don’t think he’s entitled to his opinion. If he knew me, perhaps. Paul Krugman called me crazy in today’s New York Times.

 

CHANG: Paul Krugman also pointed out that rising income inequality can have very negative economic and financial consequences in the sense that if there is – if it leaves us more economically vulnerable and the people who are rich can’t pay for stuff, then everyone suffers.

PERKINS: Well, just what you said is such a contradiction of intermixed ideas. He won the Nobel prize in economics. I can’t argue economics with him, but to demonize the job creators is crazy and to demonize the rich who spend and buy things and stimulate the economy is crazy. I heard on the news hour with – gosh, name escapes me. Anyway, New York Times, and they got into a discussion about the idiocy of Rolex watches and why does any man need a Rolex watch and it’s a symbol of – of terrible values and it’s – et cetera. Well, I think that’s a little silly. This isn’t a Rolex {it’s a Richard Mille}. I could buy a six pack of Rolexes for this, but so what?

CHANG: You were called the king of Silicon Valley I believe at one point. How would you describe yourself?

PERKINS: I certainly have enough arrogance to be royal, but I – I’m an old man. I look back upon my career with great happiness. I think I’ve accomplished a lot. If I had to do it again, I don’t know what I’d change. And I’m at peace with myself. And the fact that everybody now hates me is part of the game. And I’m sorry about that, but that isn’t what I meant to do.

via Zero Hedge http://ift.tt/LhL8de Tyler Durden