Double Dipping – US Back in Recession

August 31, 2011 · Posted in General Economics · Comment

Sings, signs, everywhere a sign. The evidence is now in that even by official standards the US has slipped back into recession. NBER is usually 6 months to a year late when it comes to calling recessions, so don’t hold your breath for their announcement anytime soon.

Doug Short writes in Will the “Real” GDP Please Stand Up?

[This chart] adjusts nominal GDP with the BLS (Bureau of Labor Statistics) Consumer Price Index for Urban Consumers (CPI-U, or as I prefer, just CPI):

… two quarters in the red, that’s a recession right there!

Futhermore, Wells Fargo reports that 12 states are in contraction, one is already likely to be in recession:

A report from Wells Fargo says Alabama’s economy has likely fallen into a recession, but two economic experts in Alabama have a different outlook.

The report from the San Francisco-based bank said Alabama was one of 12 states experiencing an economic contraction in July and “likely slipped into a recession.”

The report, written by senior economist Mark Vitner and economist Michael A Brown, said more states “are likely to fall into negative territory within the next six months” because of a persistent decline in manufacturing jobs.

Consumer confidence has plummeted to the lowest level since April 2009, in its biggest drop since October 2008:

Confidence among U.S. consumers plunged to the lowest level in more than two years as Americans’ outlooks for employment and incomes soured.

The Conference Board’s index slumped to 44.5, the weakest since April 2009, from a revised 59.2 reading in July, figures from the New York-based research group showed today. It was the biggest point drop since October 2008. A separate report showed home prices declined for a ninth month.

A few more quarters and NBER will likely back-date this fresh new recession to Q2 or Q3 of 2011.

Some more I wrote about the inevitability of a double dip recession:

Money Supply – November 2009

The Great Depression 2.0

Gross Domestic Product Q4 2009 Updates; True GDP & Consumption as Percentage of GDP

Tags: double dip recession, recession, us recession

The Strategy to Defeat Ron Paul … Ignore Him

August 27, 2011 · Posted in Politics · Comment

The Daily Show
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I think from the mainstream media’s point of view, it’s their last resort to simply ignore Ron Paul. And that is actually a great sign. It shows that their ideas are morally bankrupt and the second they attempt to engage they know they will lose the argument.

Ron Paul is not going to be elected to any position of power, that is a given. His ideas on the economy, liberty, freedom, and ethics are great.

The only problem is that he chose politics as a venue for those ideas. Politics will not set us free, it will only keep us enslaved. The day we let go of it, is the day we’re free :)

Tags: ron paul

Less Than 1 in 5 Americans Believe that the Federal Government has the Consent of the Governed

August 24, 2011 · Posted in General Economics · Comment

A staggering Rassmussen poll confirms what’s been boiling under the surface – New Low: 17% Say U.S. Government Has Consent of the Governed:

Fewer voters than ever feel the federal government has the consent of the governed.

A new Rasmussen Reports national telephone survey finds that just 17% of Likely U.S. Voters think the federal government today has the consent of the governed. Sixty-nine percent (69%) believe the government does not have that consent. Fourteen percent (14%) are undecided. (To see survey question wording, click here.)

The number of voters who feel the government has the consent of the governed – a foundational principle, contained in the Declaration of Independence – is down from 23% in early May and has fallen to its lowest level measured yet.

This is excellent news. When a the supposedly moral foundation of a system erodes, and people begin to see that they’ve been lied to … that’s when true change is on the horizon.

In red see the part where Thomas Jefferson went wrong in 1776:

That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government,…

Government is aggression. Nothing good can come out of aggression. The evidence is in, once again. Let’s not make the same mistake. We do not need to “alter” this government, and we don’t need a “new”, shinier government.

We need to get this cancer of statism out of the minds of the people around us, once and for all. Then, and only then, will there be true change.

This may be a good time to recall what one of the great contemporary philosophers already said almost 3 years ago:

There are no stronger societal forces than moral attitudes in public opinion. This ball has gotten rolling and it’s not going to stop until the beast of statism has been buried once and for all.

Tags: federal government, Government, public opinion

Gold Leaving the Leveraged Financial System …

August 22, 2011 · Posted in Investing · Comment

… I love the fact that the mainstream media is beginning to make the connection between soaring gold prices, falling treasury yields, and deflation.

What comes to mind once again is the inverted pyramid of the global financial system:

… as actors in the global financial system deleverage their positions, funds tend to flow from the higher spheres (stocks, derivatives, etc.) to the lower ones (US government bonds, power money such as gold/silver).

Tags: delevaraging, gold

Tax Warren Buffet??

August 21, 2011 · Posted in Government · Comment

A lively and healthy email debate emerged among my dear friends when one of them shared a message from MoveOn.org regarding Warren Buffet’s recent article about taxing the super rich (I changed the names and locations for anonymity’s sake).

It all started when “Raven” sent this concise email to several friends, myself included:

Go Warren B: http://civ.moveon.org/standwithwarren/?id=29985-2523622-%3DrmoxOx&t=2

To which “EconomicsJunke” (that would be myself) responded:

I had a discussion about this the other day. In my opinion, if Warren is so keen on helping the Feds out then I would suggest he donate money to the Treasury at http://www.treasurydirect.gov/govt/reports/pd/gift/gift.htm … in my opinion he’d just be throwing money down a hole and supplying more collateral that they would only borrow more against, as they have been for centuries, but who am I to interfere in his financial dealings … =)

… to which “Sebastiani” from italy chimed in:

If I had even an inkling of faith that our elected officials would put that money to good use (e.g. pay down the deficit or fund education) I’d be all over this. Instead I believe that this type of measure will only enable said leaders to continue to elude the economic realities the rest of subject to on a daily basis – like not spending beyond our means and responsible accounting. It’s almost like they’re saying “let’s rob yet another piggy bank so that we don’t have to face reality”…not a fan.

… to which “Raven” responded:

I hear you brother. But the WB group are not and have never been taxed like everyone else. So I say let them contribute fairly to the piggy bank and then maybe it wouldn’t be so empty!

… to which “Sebastiani”, after stepping off his Vespa, replied:

With very few exceptions the federal government, and most states, has been spending well beyond its means for decades. Administrations, regardless of party affiliation or current GDP, are fully expected to increase the deficit. This has gotten so bad that parties take bragging rights for having incurred a smaller deficit increase than the other guy. What sort of sick, twisted standard is that?

As businessmen we are held accountable by one rule: make money or fail.

This is what keeps us competitive and creative and forces us to never loose touch with reality. This is what keeps us healthy and in business. Why shouldn’t our elected leaders be held to the same standard?

As for the richest of the rich being given tax breaks I’d say this:

Any relevant sports team has its star players. These players can make or break a team. They win titles and draw crowds into stadiums. They benefits are reaped not only by the team owners, but also by surrounding vendors, bars, restaurants, etc. In return for being massive revenue generators these stars are given certain breaks. If the incentives disappear, the stars will find other teams who give them the treatment they “deserve”.

The same rules apply in business. Especially in an ever more globalized business community. CEO’s of many of these companies have put it all on the line to get to where they are. They have hired 10’s of thousands of tax paying citizens and are paying billions in corporate taxes.

In my opinion the reason our piggy bank has a negative balance are not the star players, who are held accountable by market economics and shareholders, but the politicians, who are not.

… at which point Sebastiani’s wife joined the debate:

OMG! Are you comparing yourself (or other heads of enterprise) to the Michael Jordans of the world? I fear for the world (and especially myself) if Sebastiani Inc. sells for a ton o’ cash. With great wealth comes great responsibility…

Regardless, I’m all in favor of EVERYONE paying their fair share and by that, I mean flat tax system whereby we all pay the same percentage of our income and eliminate loop holes for the rich (or as the GOP likes to refer them: “job creators”). That’s the fairest solution in my book.

… at which point I thought I’d throw in a well deserved dose of voluntaryism, not that I expeceted it to change the debate or anyone’s beliefs in any way:

I like the flat tax concept. Really, really flat though. Like zero percent flat …

… at which the wife laughed:

Hahahahahaha!! That is SUPER flat. If that was a wave Sebastiani would give up surfing for good.

And at that point the debate’s back and forth was confined to the typical and oft repeated Clinton’s surpluses vs Bush’s deficits debate, so nothing much interesting there, until DJ Sparklebox, Raven’s girlfriend added:

its awesome businesses can do so well these days, shit i would like to be one of them, my argument though is an ethical one not a economic one, which is that their success doesn’t negate their responsibility to pay taxes to society.

in fact, if i were one of those big corporations i would be happy to pay taxes to my country because it enabled my success in the first place. also something to think about, if all those extremely wealthy corporations and people paid their fair share of taxes like we all do, i would be interested to see the long-term effect that may have on the distribution of wealth in this country, maybe we wouldn’t see such an unbalance and such a huge the gap between the rich and poor in America (a gap that is far larger than those seen in other industrialized countries around the world, surprising considering America still considers itself the world hegemonic power).

agreed Sebastiani’s wife. flat tax. whether you make $10,000 a year or 10 billion – pay your fucking share – nobody likes a freeloader.

death and taxes………. ???? YEAH RIGHT!!!!! NO WAY! GET REAL!!!! I’M RICH BITCH!!!!!!

And then finally “Roommate” summed it all up and supplied the closing arguments:

Executive Summary:

If the goal is a civil society which fosters the emergence of personal rights, property and wealth:

- Taxation under threat of violence is unethical and not a valid solution.
- Hording wealth to a degree which destabilizes civil society is unethical and not a solution.
- Acknowledgement of the individual’s social responsibility and their willful participation, via investments of both money and time, in programs and organizations which fosters civil society and creates the conditions for the accumulation and securing of property and wealth and emergence of rights is both ethical and the logical solution.
- The words and actions of People with unparalleled access to the media and means to contribute to a solution, who fail to understand the true issue or deceptively misrepresent the true issue, can be frustrating and detrimental to clarity.

I’m noting two main themes in this thread:

01) Those that think Warren is correct and would like to see the wealthy pay more taxes as a solution to a tanking economy
02) Those who want to point out Warren is free to pay more taxes if he wants but hasn’t done so which would itself seem to render his proposed solution invalid

It’s worth pointing out for the sake of clarity that Warren’s lack of apparent action isn’t an invalidation of his suggestion. Nor is the lack of ‘apparent’ action a true indication of a lack of action on his part. I doubt the people reflexively decrying him for not taking public action are aware of his private actions and anyone who has experience with human behavior probably has witnessed the phenomenon of the greedy being quick to point out the apparent lack of charity in others as a justification for their own greediness. That is a universal, childish response some humans grow out of.

Here is a more effective way to frame it for those who don’t understand what type of society awaits if those who are exceedingly prosperous place greater importance on amassing wealth and the concept of private property than on the health and security of individuals in their community.

Keep in mind, most of the people in this video probably aren’t starving and the shop owner may be a nice enough person without any real wealth. Imagine what is in store for those who are greedy within a society of recently dispossessed people who can’t even secure their basic needs for survival. Fleeing with their wealth to Europe will soon be eliminated as an option. If they learn a popular Chinese dialect they might have some luck there but that is also growing more improbable.

Returning to Buffet; I would not be surprised if his recent public words are actually the first part in a series of releases and actions designed to ‘reveal’ the pettiness of his critics and set an example for the wealthy people he and many others seem to take issue with. Considering how well orchestrated the progressive movement is, I would not be surprised to see him on Jon Stewart or Colbert in the next phase of the campaign. When it comes to politics, and considering how much money is at stake, there are few events left to chance. So many actions and statements are orchestrated for maximum populist effect. The timelines of these election propaganda campaigns have stretched to years now, instead of months.

I do not think increasing the tax burden on the American population, or any population, is the solution to a dysfunctional government and an uneducated/unsophisticated citizenry. On a personal level, if your bankers and investors are corrupt or incompetent, why give them more money? If the government is ineffectual and wasteful, why give them more money? That doesn’t make any sense. Giving them more of someone else’s money is not only unkind and unintelligent but criminal.

Warren’s suggestion of increased taxation isn’t wrong because he hasn’t turned over all his money… it is an invalid solution, considering the intended goal, for other reasons. At the best, the threat of taking money from the exceedingly wealthy will prompt them to invest in government approved job-creating enterprises to avoid heavy taxation, at worst it will trigger their greed and deceptiveness which will result in the hording and hiding of wealth. Being forced to invest in unwise ventures at the dictates of a government agency can result in waste of wealth and the creation of useless and unsustainable jobs/products. The former Soviet Union comes to mind.

I do not think we need to tax the wealthy more, I think the wealthy need to invest more of their wealth into research & development and manufacturing & production. And I think the incentive for them to do so will come not from their own insight and philanthropy or government coercion but from the increasing number of dispossessed citizens in this nation. Whenever the government continuously fails and a perverted sense of self interest impedes, the pissed off electorate will take its own action.

I suspect the coming era will remind the advocates of property rights and wealth accumulation that rights and wealth are not granted by a divine being thus inalienable, they are consensual and alienable. We, as individuals, have private property and wealth because others consent to it. (On a personal note; James was recently reminded the concept of private property is only valid if others choose to consent to it. I am disturbed by his loss as well because I remember how much enjoyment he derived from his collection. I am a fellow collector so I can empathize with him. It was an egregious but luckily non-fatal violation of trust, unless James Daniels finds the thief)

By offering the video above as an object lesson I’m not advocating the disintegration of civil society and property rights. It can and does happen without my endorsement. I’m simply pointing out the obvious for people who might prefer wealth and property rights to the welfare of people.

Here is an entirely plausible scenario described in broad terms:
01) Many people who are used to a particular level of affluence and conditioned to believe they have a right to it will want to restore it or an acceptable portion of it.
02) They are aware that neither increased taxation nor the government will be effective in achieving that goal because of impracticality and right-wing resistance.
03) They see others enjoying an exceeding degree of affluence and ask themselves; ‘why them and not me. I’m just as capable?’
04) They have witnessed revolutions and protests all over the world and realize there is strength and anonymity in numbers.
05) They will escalate their efforts to take what they want while the rich will reflexively employ violence to try and keep what they have, which enforces the perception the rich are at the least in different to the suffering of others and at the most are actively behaving in a manner to intentionally increase that suffering.
06) We will see a revolt in which the American wealthy class will play the role of the English royalty, at least in the minds of those who need to rationalize their use of violence.

The scope of civil society’s disintegration will be determined by how quickly people wake up to reality and work together instead of against each other. As an interesting example; The Tea Party will claim they tried negotiation but the government wouldn’t cooperate on significant, immediate and major spending reductions. Making those compromises is actually the first practical step towards an agreeable arrangement more conducive to a real solution. Their party may be riddled with fundamentalists, racists and uneducated, belligerent contrarians but their insistence on this point was not unreasonable or illogical. So they can now justify (amongst the believers in their cause) more aggressive, provocative and violent responses to what they perceive to be illegitimate government actions, policies and programs.

What I would like to see is the wealthy tap voluntarily into the entrepreneurs within the pool of unemployed and invest in business ventures which create long-term jobs and useful products/competitive ideas. This requires neither government interference, increased taxation nor a disintegration of civility and loss of the resulting rights which the participants in a civil society enjoy.

It is ultimately an ethical issue, as Sparklebox pointed out, but not one of taxation (which itself is unethical if enforced by violence). Since many of the exceedingly wealthy appear to be devoid of ethics, based on their very vocal public resistance to what others see as a charitable or fair action (as misguided as that perception may be), it seems inevitable that social unrest will arise. I think Warren and others are trying to use populist power, channeled through government coercion, to force the wealthy to share because they want to prevent the coming domestic turmoil which he and many others foresee. Thousands of pissed off wealthy people, many of whom will be afraid of outing themselves as the economy continues to tank, would be less of an immediate political and social threat than millions of pissed off non-wealthy people. See this article.

I think Warren and his supporters should be more frank in their dialog with the American media and public and I think the wealthy and their cheerleaders should spend less time diverting the discussion from the real issue. If they don’t want higher taxes imposed as a “solution” then they have to acknowledge the reality that personal social responsibility is required by all, commensurate to their abilities, if a civil society is the goal (an acknowledgement of this is required of the wealthy and non-wealthy alike). If anyone wants a relative guarantee of property rights and personal wealth, which civil society provides, and they are intelligent, they will seek to contribute to the extent of their abilities to the establishment and maintenance of a civil society. This includes the wealthy. They are not exempt and they even have a greater stake in the game.

Or they can pool their personal fortunes and invent a device which can either erase the individual’s instinctual sense of self-preservation and evolved sense of fairness from the minds of those whose productivity they derive their wealth from or a device which would allow them to create then escape into a virtual world where theories have no errors in application. Working as a QA Engineer I know how unlikely both are at this point in the evolution of our technological capabilities. There is often a startling discrepancy between the result of clicking on a button and our expectation of what will happen when we click on a button.

Having written all of the above, I would like to preempt one probable response, from those who don’t like the concept of social responsibility, which is simply a diversionary version of what the wealth-obsessed are now offering as a counter-argument: What have you done for the poor lately? How socially responsible are you? .as I mentioned before, this is to be expected from those who don’t like the solution because they may not have any sense of social responsibility themselves, outside the scope of trendy activities like charitable cocktail happy-hour events and donating to goodwill. All of which I’ve tried in my journey to define my purpose correctly. However, there can be validity in them if they are rephrased and asked by those honestly looking for ways to contribute.

What I have done, both good and bad, is known to friends and family. What I want to do is find a way to use the coming turmoil as an opportunity to step into or even create a role which has a broader, more positive impact on the society we live in. My will is engaged in a race against age on a course which is undergoing seismic shifts in its topography but will most certainly produce new opportunities to define purpose along its path.

I suspect we are all approaching another branch on the path which will allow us to participate as part of the solution. If we are and we don’t define that role, others will for us. I think that should be a main point in Warren Buffet’s message.

To which I respond: Amen to that. :)

Tags: taxation, taxes, taxing the rich, warren buffet

Gold Price Exceeds Platinum

August 10, 2011 · Posted in Investing · Comment

For the first time in 2 1/2 years the gold price has exceeded that of platinum.

Back then the trend was reversed immediately.

According to Reuters this time gold is set to widen premium over platinum:

Gold prices rose above those of platinum for the first time since December 2008 late on Monday. The last time this happened, the situation reversed within a few days, and traders said then that the convergence of the gold-platinum ratio gave a clear signal to sell gold and buy platinum.

Today’s backdrop is very different.

“Gold as a defensive asset is being driven higher at the moment by risk aversion, and platinum as a cyclical asset is under pressure because growth is slowing,” said Michael Widmer, an analyst at Bank of America-Merrill Lynch.

“We were there around the great recession (2008), and then you had the various stimulus packages hitting the market, and you saw the prices of the two metals starting to diverge again,” he said. “The macro picture is a bit different this time around. I don’t think that it is a compelling trade.”

In contrast to the situation in 2008, gold’s premium to platinum is a function of its own strength, rather than a falling platinum price.

… interesting times.

Gold is a money commodity, platinum is not, at least it doesn’t seem to be acting like one.

In deflation money does well, all other commodities tank. I have said it many times before and over the past 3 years we have seen this theory confirmed beautifully.

Tags: gold, platinum

What’s Behind the London Riots?

August 9, 2011 · Posted in Government · Comment

Tags: london riots, riots

Thoughts on Treasury Yields and What They Portend

August 9, 2011 · Posted in General Economics · Comment

On Friday I wrote:

It is certainly possible that global flight to safety will counterbalance an institutional selloff in Treasurys. However, it is also possible that this recent move will mark an end to the 30 year long bullish trend. Just intuitively, I see a 60/40 likelihood for both scenarios, respectively.

So far my intuition has proven correct. What does the stubborn reaction in Treasurys, coupled with soaring gold tell us? It is, in my opinion, crystal clear: That the global economy is in deep deep deep shit, that cash is king, that flight to safety is the mantra of the hour, and that the deflation trade is once again alive and well.

Tags: deflation trade, treasury yields

The (Nut-)Case for More Aggression

August 8, 2011 · Posted in Government · Comment

In The Great Depression 2.0 I wrote:

Once existing stimulus programs and credit expansion attempts subside, there won’t be much left to pick up the slack. The consumer won’t be able to go back to business as usual unless he goes through a long period of reduced consumption, deleveraging, and savings, a period during which the majority of production and spending inside the US will have to be focused on capital goods, so as to restore a balanced ratio between the production of consumer goods and the production of capital goods.

At the point when these government stimuli wind down, Keynesian clowns will be jumping out of the bushes left and right, and demand that the government take on more debt and spend more money.

I would like to submit this beautiful specimen as further evidence for my theory above:

I further said in that article:

But at some point their mindless tirades will no longer appeal to an overtaxed and overleveraged populace. Their ivory tower nonsense will be way too far detached from simple realities.

The Yahoo finance contributor commenting on the clown above writes:

And even though we have very little to show for all that spending, this PhD in economics from the University of Michigan thinks we have no choice but to spend even more.

… attitudes are changing. People are beginning recognize insane behavior for what it is: Doing the same thing over and over while expecting different outcomes.

Government is aggression. Whoever asks for more government spending in reality asks for one thing and one thing only: more aggression.

Aggression solves no problems. It only aggravates and prolongs them.

I further said in that article I wrote about 2 years ago:

Any temporary recovery we witness now, is likely to be remembered as just that, a temporary phenomenon. All actions taken so far have set the perfect stage for a double dip recession of enormous proportions, the worst possible prolongation of the necessary correction.

Be my guest to compare that prediction with the events as they unfold in the coming years.

Tags: aggression, government spending, keynesian

Rush to Gold Intensifies

August 8, 2011 · Posted in Monetary Economics · Comment

China Business News writes Central Banks Join Rush to Gold:

Central banks are ramping up their gold buying as they seek to diversify their reserves away from the dollar and other beleaguered currencies.

South Korea became the latest government to disclose a big bullion purchase, saying Tuesday that it recently bought 25 metric tons – more than doubling its holdings to 39 metric tons. Mexico, Russia and Thailand have also been major buyers in 2011.

This year, governments have almost tripled their net gold purchases, increasing their holdings by 203.5 metric tons this year, up from a 76-metric ton rise last year, according to the World Gold Council, an industry group backed by miners.

The demand marks a major shift in central banks’ thinking about gold. Increasingly, they see bullion as protection against risks posed by declining paper currencies and global economic upheaval, and their vast resources and conservative bent make them a powerful force in the gold market.

While gold is an asset that does not generate income, that shortcoming is less glaring among historically low interest rates.

Before 2010, governments had on balance been shedding their bullion for two decades, during which gold was seen by some as a relic. According to data from GFMS Ltd., a metals consultancy, 1988 was the last year that official holdings increased.

“We definitely have seen a sea change” in central bank attitudes toward gold, said David Greely, chief commodities strategist at Goldman Sachs Group. Central bank buying provides “longer-term support for gold prices,” he said.

I have said it before and I will say it again.

In a world of debt laden governments, great depressions left and right, and the monetary disfigurement called fiat currencies, gold provides a safe haven for all those who get it.

This will all the more be the case as global bond ratings are finally being cut.

As these lines are written gold has just hit $1,711.30.

Tags: central banks buying gold, gold