Nicole Foss : Where the Rubber Meets the Road in America
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Arthur Siegel 2nd Avenue Rush Hour, Detroit 1942 There has been a lot of attention focused on shenanigans at the federal level in the USA this year, w
[See the full post at: Nicole Foss : Where the Rubber Meets the Road in America]“In a negative sum game where they will be fighting over a continually shrinking pie, this cannot help but be exceptionally divisive, and corrosive of the fabric of society.”
How long can they pretend that there is still a pie to share?
I think that I know …
use the printing press and give everyone brand new bills.Hi Stoneleigh and Ilargi…
Dan W here from Vermont!
Many years ago I commented on the temporal lag with regard to ongoing systemic and global economic collapse…I mentioned that, from what I was observing, we were talking about a 2-3 decade process of DIS-integration, social, political and financial in nature.
What fascinates me most is the manner in which the human brain selectively (and I would argue in an effort toward self-preservation and survival) forgets the facts and feelings and recent realities (read Michael Pollan’s BOTONY OF DESIRE).
Here we are in in the midst of one of the most fascinating global financial bubbles of all time – and just 5 years out from the first big leg down. BITCOIN is trading at $1100, the markets are surging….and the underlying global fundamentals are scarier than ever…
One can only imagine a neo-feudal end to this extraordinary experiment…
Wow.
Hi Dan, good to hear from you 🙂 Scary fundamentals indeed, and getting worse, not better, despite the ridiculous level of optimism.
My, my. Looks like the Fed has a lot of Muni Bonds to purchase. Certainly, if they can “disappear” $4 trillion in MBS, $4.7 trillion more in Muni’s shouldn’t be a problem. And that’s a win-win on their part, they believe.
As they buy up all this toxic paper, monetizing along the way, they will meet a point of intersection between fewer bonds outstanding, and a massive devaluation of the currency, negating a large portion of the debt’s value, as it is locked into dollar face value.
Add a dollop of Interest Rate Manipulations and Ceilings to hide the Feds tracks, re definitions of CPI and voila. The grand Reset.
And of course, Moral Hazard and such, the biggest spendthrifts will get the bail outs, at the expense of the prudent. So any municipality with a surplus might want to look into borrowing as much as possible here. Double digit raises for all? Expense accounts all ’round? Even for the Judges?
California, Illinois, NY, Michigan are all too big to fail. The wealth will be transferred to them, what’s left of it.
Remember, the losses are all to be socialized. It’s the New Normal.
“One can only imagine a neo-feudal end to this extraordinary experiment…”
Especially disconcerting is a huge Defense Contracting Industry sitting on excess capacity, large parts of which are located in financially distressed States and Cities. Detroit, Chicago and California come to mind, among others. Add masses of Military aged people who can’t find employment. The reasons war is generally the political “answer?”
Syria intervention failed, but the next attempt will be much better orchestrated.Hi Nicole & Folks,
Not actually off topic. Steve at Economic Undertow frequently posts a chart showing “The Monthly Price Of Crude” with two arbitrarily straight line constraints drawn on it, “The Cost Of Production” and “The Affordable Price”. See here: https://www.economic-undertow.com/wp-content/uploads/2013/11/Triangle-of-Doom-1103131.png
Thought it would be interesting to determine when those two constraints intersect.
Turns out to be APRIL 2015.
That’s about when creative accounting will fail completely.
That is of course if the fuel pool at Fuki 4 remains “stable”.Enjoy life one day at a time, however which way, because tomorrow never comes.
All the best.
I’m sure Yellen’s Fed will buy up Muni bonds to bail out the cities – if it can. The real questions are of legality and standing. If the Federal Reserve bought up Chicago’s bonds, does anyone have standing to sue in Federal Court to challenge the purchase?
Yellen’s Fed won’t be able to bail out the muni bonds. And in any case, bailouts are never for the little guy, or the little guy’s pension fund. Bailouts are for the top of the financial food chain.
What I can’t understand is all the deflationary talk. It seems like we have a government that is going to do all it can to stay in power and if that means giving people tons of money and jobs then they will do that ……Thus creating inflation…not deflation….I guess I can see deflation in the short run but they realize they are going to have to do something to “goose” the economy….that is why they won’t let go of QE….flood money into the masses somehow….and there are ways to do that other than QE…Ted
Ted, the government takes money away from people, that’s what it does. It doesn’t give it to them, you commie.
Hi S&I
Sorry I missed your swing thru the PNW…Working out on the road has its costs…
You evaluation of the current state of .Gov financing gives me the shivers.Mrs Snuffy is in line for a tiny pension from PERS…[And I do mean tiny]…We were hoping it would cover medical but now?…She has decided to work till 67.
My best guess is the whole gig will blow prior to that.Our whole system is walking on a razor now..they slip either way,and will lost essential “parts”.
I have a gut feeling that Obamacare might well be the trigger that has many unintended consequences,as the average family is just scraping by now…and that 3-$800 bite will seriously hurt many.
We have started to do a lot of fruit sales this year,apples,asian pears,plums.I am hoping that this low-key organic food thing will keep me home in the future,but gots to get the house paid …Bee good,or
Bee carefulsnuffy
I think the Professor may be right about the only jobs for the little guy being in the military machine. That has been the standard solution to boost the economy for decades.
Now if the military machine and budget could be at least partly be diverted to bolster our country’s infrastructure, I might grudgingly be in favor of that. And if part of the military resources were moved to provide actual universal health care, we might see
an opportunity for our country to get through this time of disintegration as we stagger down the stairway to a sustainable culture.I know this sound like pie-in-the-sky, but what else can we do but imagine ways through this messy time.
I’m hearing of localized socially responsible people going through the west Oakland neighborhood asking if the poor and homeless there have enough food or clothes. These are other residents of that area of Oakland and it is not funded by the city or county.
We’re on our own now. Or at the mercy of FEMA or other federal agencies, for better or worse.
Commie!?????? Please refrain from the name calling!!!!! It degrades you and this site, Nicole and encourages trolling! Ted
Hey Ted,
I think he was joking when he called you that. I, for one, got a bit of a laugh with that quip. I think there are many people who would seriously mean to call those of us who are interested in the public good – commies. That you care about people is the bottom line and the real name callers are fine with common folks just falling off the back of the truck. Some people would rather save their personal profits and life styles than to help those in need. This blog is where I enjoy hearing from those who care about easing the transition for as many people as possible.
Ted, I’m not Nicole, and I wasn’t name calling. Just trying to say that the government doesn’t give money away to people, and hence there’s not inflationary impulses coming from that direction.
pipefit, the spam system bounced you, not us. I cleared your IP, you should be good to go now. The system has 11,600 bad IPs cached and stopped 14.500 spammers in 10 days. Both numbers doubled over night Sunday morning. Of those 14,500, many are good for over 1000 attempts each (system stops counting at 1000), so we’re talking millions of attempts. Pretty crazy.
Thank you for this information. Grant Williams recently gave a seminar on the same, so it’s not just you and MW. Will now be watching state of IL to see how their pension reform vote goes (although I am not from there). Hoping for reforms!
Just wanted to add that perhaps HFT’s have had an impact on the poor performance of some of these pension funds? Saw a video that makes me wonder. If the HFT’s truly have been skimming off all the pension funds, plus many of the services themselves by introducing fees that eat up all the gains, that really is criminal to me. Yet these people at the top so pride themselves on their ability to make so much more money than the rest of us! What pride is there in theft? If that is what they are doing?
What I can’t understand is all the deflationary talk. It seems like we have a government that is going to do all it can to stay in power and if that means giving people tons of money and jobs then they will do that ……Thus creating inflation…not deflation….I guess I can see deflation in the short run but they realize they are going to have to do something to “goose” the economy….that is why they won’t let go of QE….flood money into the masses somehow….and there are ways to do that other than QE…Ted
No one is being given tons of money and jobs, and the odds of that every happening at nil. Bailouts are never for the little guy. The QE money is not getting into the real economy and circulating, so provides no support for a wage price spiral. It’s going to the top of the financial food chain where it’s helping the 1% to blow huge assets bubbles.
At the same time, the value of many debt instruments is falling, and that is deflation. That process is going to pick up momentum sharply once we turn the corner into the next phase of the credit crunch, which I don’t think is too far off. There’s so much outstanding debt – a huge multiple of global GDP. When the credibility of the promise it represents disappears, so will it’s value, and the whole inverted debt pyramid will pancake. In the process, the top of the financial foodchain will lay claim to all the underlying collateral. This is how all credit bubbles end – in a deflationary implosion. The size of the hangover is proportionate to the party that preceded it, and this has been the largest credit blowout in history. We can expect a deflationary depression for the record books.
Hi Snuffy – good to hear from you, and sorry I missed you on my epic US trip. I think you’re right that the healthcare insurance premiums are going to be the straw that broke the camel’s back for many households. Obamacare was scripted by the insurance companies to ensure profitability, not to give affordable healthcare to the masses. It’s going to result in taking affordable healthcare away from people who already sort of had it (albeit at an already inflated price), rather than giving it to people who didn’t. People will be forced to pay the fine for not subscribing because it’s cheaper than the healthcare they didn’t have because they couldn’t afford it. They’ll be worse off because of that tax, and they’ll still have no healthcare. It’s the worst healthcare system in the world IMO, for everyone except the very rich, and it may just be a factor in pushing the US economy over the edge. It was going there anyway of course, and for far more reasons that healthcare. I expect the opposition to claim, after the fact, that Obama is to blame for the collapse because of this issue and its impact on confidence in government. Never mind that they are actually risk factors everywhere you look. People are being willfully blind when it comes to systemic risk, as they always are at a peak.
Now that we’re in a global economy, it has become quite apparent that wages in the USA are so far out of whack with the rest of the world (ROW) that a serious adjustment is inevitable, and already underway. There are several ways this adjustment can be achieved. Call center jobs and anything whose output can be sent by phone or internet will be exported first. Next go manufacturing jobs, and finally even higher end jobs.
Also, the buying power of the trade deficit country can be devalued to help shrink the difference. This is why I don’t understand the ‘deflation’ talk. Any strengthening of the trade deficit currency (the USA dollar in this case) would just mean a further acceleration in the job exodus, which would lead to a further erosion of the tax base, which would widen the deficit, which I see as inflationary.
Since wages and benefits, such as pensions, tend to be ‘sticky’, the easiest ways to close the earning gap between the USA and the ROW is to export jobs or devalue the currency.
Since public sector wages are so out of whack, difficult to export, with powerful constituencies protecting their benefits, their numbers must be culled. But notice how a lot of these problems are sidestepped if the currency is seriously devalued. This won’t be easy, since there are so many dollars and dollar equivalents held by foreigners, but it appears to be the path of least resistance.
@ pipefit
“it has become quite apparent that wages in the USA are so far out of whack with the rest of the world (ROW) that a serious adjustment is inevitable, and already underway.”I don’t think minimum wages, or average wages, are too high relative to the cost of living in the US. The cost of labor may be unnecessarily high, but not wages themselves.
I suppose that european wages are higher still than those in the US, but those would be equally ‘out of whack’, in proportion to the higher cost of living and the higher standard of living, at least when compared to developing world exploitation wages.The cost of labor imbalance arises because of the involuntary trade bias of the globalised gulag economy. Western nations, after decades of organised labor strife against capitalistic exploitation, generally mandate a decent living wage to maintain a standard of human dignity, but are now forced to compete on unequal grounds with slave despotisms whose workers mostly cannot attain a collective bargaining position to demand a decent living wage.
Of course any group of people whose wages afford a semblance of human dignity cannot effectively compete with slave labor, and global wage arbitrage tends to move all movable production into regions with the least labor protection, those regions where labor has fewer rights and fewer organised means to bargain or negotiate with employers.
Western nations not wanting to reduce the standard of living into poverty in order to compete with exploited labor elsewhere might instead impose import tariffs on outsourced industrial produce. As western economies are burdened with higher labor costs due to the price of democracy and democratic labor influences, maybe imported slave goods from despotic countries such as china could also be burdened with a massive import tariff of 40%, perhaps increasing the price of such imports beyond the point of making domestic production cheaper.Establishing a labor union in china is a criminal offense, how can you compete with that, criminalise labor unions here too? Maybe import tariffs to negate this unfair advantage in labor standards could be maintained until the chinese choose to decriminalise labor unions or mandate a decent wage level in proportion to the cost of living there?
Otherwise, Its true that labor in industrialised nations affording a western living standard cannot compete with slave labor in a globalised ‘free’ market, not without reducing themselves to slave wages or creating massive unemployment by unlimited outsourcing.
You’re probably right that public sector labor is overprotected and overvalued.
There are undue entitlements afforded to workers in many sectors, but these should be separated from those 20th century democratic advances in negotiated labor conditions which remain essential to maintain a minimum standard of living for the working poor.@pipefit, it seems like you’re living 10-20 years ago. Call center jobs are coming BACK to the US because wages in places like India are climbing fast and the quality of the service is horrible. Many companies are opening call centers in the South and Midwest and doing very well. Also if oil continues to get more expensive it’ll soon be cheaper to actually build stuff here than in China.
As for inflation/deflation, I am reminded of a device that Charles Hugh Smith often uses when thinking about these things. “Cui Bono,” or “who benefits?”. Who are the debt-holders in America (or the world for that matter)? The rich people/elites. What would happen to these people’s assets if the government devalued the currency? They would go down. Who controls the government? The rich people/elites. So they are not going to let the government devalue their assets.
My scenario is that something will trigger a credit event. Politicians will get on the TV and wax poetically about how America “must honor its debts” and on and on. This will start a strip-mining of public assets by the rich people, also known as austerity. At some point the people will have enough and will elect a populist President who promises a chicken in every pot. That administration will crank up the printing presses and inflation will be the order of the day.
But don’t get ahead of yourself. The deflationary crash is coming first, then high inflation.
Nicole said, “The QE money is not getting into the real economy and circulating, so provides no support for a wage price spiral.” and “At the same time, the value of many debt instruments is falling, and that is deflation.”
I can’t dispute that. But the bottom line is that the adjustment that needs to be made is to the ultra high wage scale in the USA, relative to the rest of the world (ROW). Since wages (and benefits, like pensions) tend to be sticky, almost immovable, the adjustment has to come via a weaker currency.
As more and more jobs are lost overseas, due the slow pace of dollar devaluation, the federal deficit gets bigger, which tends to counterbalance the deflationary effects of bond value destruction, and other deflationary events.
Theoretically, we could erect trade barriers, but since we are a high cost producer, that would be very inflationary, at least in terms of prices. This is probably a moot point, since I think that the folks running the show are committed to globalization.
What if we get a good jolt of deflation in the near term, and the dollar increases in buying power? That has got to lead to another huge round of job out migration, and a significantly larger annual federal deficit. I just don’t see deflation getting the upper hand until wages are more in line with the ROW.
Have you ever written about govt CAFR’s (Comprehensive Annual Financial Report)? Walter Burien believes that tax relief funds (TRFs) could be established to dramatically reduce taxes. I’m sure you know that the govt budgets only account for the taxes taken in within a given year, and do NOT include the income generated from govt owned assets (including stock dividends). The fact one never hears about the assets and income generated from these govt assets, that must be reported in cafr’s, tells me this is just another, in a long list of govt frauds. Since the income reported from these asset, which don’t appear in the yearly budgets, would obviously impact the ability of municipalities to declare bankruptcy (and shaft pensioner’s), I would love to hear you address this subject.
@gravity, you said, “Of course any group of people whose wages afford a semblance of human dignity cannot effectively compete with slave labor, and global wage arbitrage tends to move all movable production into regions with the least labor protection,…”
I couldn’t agree more. You can’t compete with slave labor. Unfortunately, it is very difficult to go in reverse when exporting your production. Very hard to stomach higher prices, even for a just cause like human rights.
@chris You speak in anecdotal terms. However, the percentage of working age Americans with a full time job is at a multi-decade low, and dropping. Perhaps you are referring to no-benefit, part time jobs? I get mainly Indian sounding voices on the call center phone, except ObamaCare workers, and that is govt. work, not private.
Regarding crude oil, production is rising here and elsewhere due to sustained high prices. If Nicole and Illargi are right about deflation, the USA petroleum industry will be destroyed due to all their recent investment assuming at least $85/bbl oil. If you have a factory in the USA, the machinery costs the same to operate, regardless if the oil it burns came from North Dakota or Saudi Arabia. The deal breaker is the labor, and we can’t compete.
The key stat is USA gasoline consumption, it’s steadily dropping. This is closely tied to the lack of full time jobs. If we get a good dose of deflation, you are going to see gasoline/crude oil prices fall through the floorboards. There’s your indicator. Gasoline and and crude are drifting sideways, meaning that deflation has yet to get the upper hand.
Hi Nicole…love the new site. Cheque in the mail to-day!
Especially appreciate your defense of Merideth Whitney and the head’s up to all of us to pay attention to our local conditions, financial and otherwise.
ahem…my local council( Cdn ) is surprised to learn returns on investment are not as promised.No problemo, Up the taxes.
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