Vietnam Archives - Page 2 of 2 - The Automatic Earth

Facing a divided Congress for the first time, President Donald Trump on Tuesday called on Washington to reject “the politics of revenge, resistance and retribution.” He warned emboldened Democrats that “ridiculous partisan investigations” into his administration and businesses could hamper a surging American economy. Trump’s appeals for bipartisanship in his State of the Union address clashed with the rancorous atmosphere he has helped cultivate in the nation’s capital — as well as the desire of most Democrats to block his agenda during his next two years in office. Their opposition was on vivid display as Democratic congresswomen in the audience formed a sea of white in a nod to early 20th-century suffragettes.

Trump spoke at a critical moment in his presidency, staring down a two-year stretch that will determine whether he is re-elected or leaves office in defeat. His speech sought to shore up Republican support that had eroded slightly during the recent government shutdown and previewed a fresh defense against Democrats as they ready a round of investigations into every aspect of his administration. “If there is going to be peace and legislation, there cannot be war and investigation,” he declared. Lawmakers in the cavernous House chamber sat largely silent.

[..] One bright spot for the president has been the economy, which has added jobs for 100 straight months. He said the U.S. has “the hottest economy anywhere in the world.” He said, “The only thing that can stop it are foolish wars, politics or ridiculous partisan investigations” an apparent swipe at the special counsel investigation into ties between Russia and Trump’s 2016 campaign, as well as the upcoming congressional investigations. The diverse Democratic caucus, which includes a bevy of women, sat silently for much of Trump’s speech. But they leapt to their feet when he noted there are “more women in the workforce than ever before.”

Haven’t heard Moon for a while. There’s talk of a NoKor industrial area reopening.

• Trump, Kim To Hold Second Summit In Vietnam At End Of February (AP)

President Donald Trump said Tuesday that he will hold a two-day summit with North Korea leader Kim Jong Un Feb. 27-28 in Vietnam to continue his efforts to persuade Kim to give up his nuclear weapons. Trump has said his outreach to Kim and their first meeting last June in Singapore opened a path to peace. But there is not yet a concrete plan for how denuclearization could be implemented. Denuclearizing North Korea is something that has eluded the U.S. for more than two decades, since it was first learned that North Korea was close to acquiring the means for nuclear weapons. “As part of a bold new diplomacy, we continue our historic push for peace on the Korean Peninsula,” Trump said in his State of the Union address.

Director of National Intelligence Dan Coats told Congress last week that U.S. intelligence officials do not believe Kim will eliminate his nuclear weapons or the capacity to build more because he believes they are key to the survival of the regime. [..] At the second Trump-Kim summit, some experts say North Korea is likely to seek to trade the destruction of its main Yongbyon nuclear complex for a U.S. promise to formally declare the end of the 1950-53 Korean War, open a liaison office in Pyongyang and allow the North to resume some lucrative economic projects with South Korea. “Our hostages have come home, nuclear testing has stopped, and there has not been a missile launch in 15 months,” Trump said. “If I had not been elected President of the United States, we would right now, in my opinion, be in a major war with North Korea.

Interesting, good graph. It’s just that referring to ‘markets’ means you’re guaranteed to get so many things wrong. There are no markets when the Fed decides prices insead of allowing markets to do so.

• Too Fast, Too Furious (Roberts)

As noted by Deutsche Bank’s Parag Thatte noted recently: “While the S&P 500 rallied +15% since late December, equity funds have continued to see large outflows. As Thatte elaborates, “US equity funds in particular have continued to see large outflows (-$40bn) since then, following massive outflows (-$77bn) through the sell-off from October to December.” This confirms our concern the recent rally has primarily been a function of short-covering and repositioning in the markets rather than an “all-out” buying spree based on a “conviction” the “bull market” remains intact.

David Rosenberg recently confirmed the same: “Let’s go back to December for a minute. This was the worst December since 1931, mind you, followed by the best January since 1987. This is nothing more than market that has gone completely manic. To suggest that there is anything fundamental about this dead-cat bounce in equities is laughable. This is an economy, and a market, that couldn’t even sustain a 3% yield on the 10-year T-note. It sputtered at the thought of the Fed taking the funds rate marginally above zero on a ‘real’ basis, even as it feasted on unprecedented stimulus for a such a late-cycle economy. Yes, Powell et al. helped trigger this latest up-leg, not just at last week’s meeting, but in the lead-up to the confab as well. The Fed has been crying uncle for weeks now.”

Too many attempts at covering lies with other ones. What was she thinking?

• Elizabeth Warren Apologizes For Identifying As Native American (MW)

Sen. Elizabeth Warren apologized Tuesday for previously identifying herself as a Native American. In an interview with the Washington Post, the Massachusetts Democrat expanded on an apology issued last week to the Cherokee Nation. “I can’t go back,” she told the Post. “But I am sorry for furthering confusion on tribal sovereignty and tribal citizenship and harm that resulted.” As a presidential candidate, Warren has been trying to fight accusations that she identified as Native American to advance her career as a professor at Harvard and Penn law schools. In the same report, the Post published Warren’s previously undisclosed 1986 registration card to the State Bar of Texas, in which she handwrote her ethnicity as “American Indian.”

Thought she might flee into an Article 50 extension. But it wouldn’t bring anything. She’s close to checkmate.

• May Rules Out Brexit Delay And Hard Border With Ireland (G.)

Theresa May fired a warning shot at Brexit supporters on Tuesday, insisting there was “no suggestion” Britain would leave the EU without an insurance provision to protect against a hard border in Northern Ireland. At a speech in Belfast, May would only accept that technology could “play a part” in any alternative arrangements and that she would not countenance anything that would disrupt the lives of border communities. Brexit supporters immediately expressed their alarm at some of May’s language, which they fear could be read as a step back from previous assurances. “She knows what she promised us,” one ERG source said. “Even if she didn’t mean what she said, we do.”

The comments came as May prepared to meet EU leaders in Brussels for the first time since the historic defeat of her Brexit deal, where she is expected to formally request the reopening of the withdrawal agreement in order to address concerns about the backstop. The prime minister will travel to the Belgian capital on Thursday, meeting the European commission president, Jean-Claude Juncker, the EU parliament president Antonio Tajani, and the European council president. Donald Tusk. Both Tusk and Juncker have been adamant that the withdrawal agreement will not be reopened.

Number 10 sources suggested they did not expect a warm reception, but that it would signal the start of a new diplomatic process, involving proposals on the backstop worked on by MPs and ministers. Earlier on Tuesday, May told her cabinet she would not countenance any delay to the UK’s exit on 29 March, a message to ministers such as Jeremy Hunt and Sajid Javid who have suggested at least some delay might now be inevitable. Ministers who are more pessimistic about the prospects of the UK leaving on time with a deal held their tongues in the meeting after May’s warning. “She was pretty clear she had no time for anyone calling for it to be extended,” one cabinet source said.

“He has previously said Ireland would seek “mega-money” from the EU.”

• Ireland And EU Discuss Emergency Funding For No-Deal Brexit (G.)

Ireland is in talks with the EU over a substantial Brexit emergency fund to offset the damage caused to the country’s €4.5bn (£3.96bn) food exports to Britain if the UK crashes out of the bloc with no deal next month. As Theresa May prepares for a crunch meeting in Brussels on Thursday, officials at the European commission are already looking at continuous compensatory measures for Ireland as part of an ongoing arrangement that could last years. Contingency funds to compensate farmers have already been discussed at the highest levels and are expected to arise in talks with the taoiseach, Leo Varadkar, during a round of meetings in Brussels on Wednesday.

Sources say Ireland will be looking for a “long-term fix” in EU budget talks in April rather than a lump sum Brexit bailout. Politicians have cited the ongoing assistance given to the Baltic states after Russia banned certain food exports from the EU as an example of financial solidarity it hopes to win in a no-deal Brexit. Ireland exports €4.5bn worth of food and drink a year to the UK, ranging from beef to cheddar cheese. Calculations by the Department of Agriculture put the cost of tariffs under World Trade Organization rules at €1.7bn. Michael Creed, Ireland’s minister for agriculture, food and the marine, has said this would be an “existential challenge” for the food and drink sector. He has previously said Ireland would seek “mega-money” from the EU.

“China entered 2008 with $8 billion in officially counted debt; 10 years later that debt is $40 trillion..”

• China: Expansion, Stagnation and Decline (CHSmith)

China entered 2008 with $8 billion in officially counted debt; 10 years later that debt is $40 trillion, plus unknown trillions more in the shadow banking system which expanded the options for risky speculation and massive expansions of credit. Like all the other stagnating economies, China’s “solution” to stagnation was to expand debt-funded speculation and “investments” with little to no actual return. The high water mark of China’s financialization orgy was 2018. From now on, adding debt simply adds more drag on the underlying economy, as income is diverted to service speculative debt and defaults start hollowing out both the official banking system and the shadow banking system.

All the policies that worked in the Boost Phase no longer work. the policy tool chest is empty, and so China’s leadership is doing more of what’s failed: burying bad debt off the visible balance sheets, re-issuing new loans to pay off defaulted debt, and all the usual tricks of a failed banking/credit system. Japan has papered over its systemic rot and decline for 30 years by using a financial Perpetual Motion Machine: the state borrows and spends trillions by selling bonds to the central bank, which in effect prints “free money” for the state to burn propping up a sclerotic, corrupt, failed status quo.

If that’s policy makers’ idea of success, they are delusional. Credit/asset bubbles all deflate, and central bank buying of assets only gives the lie to the illusion of stability and market liquidity. Simply put, there is no indication China’s leadership has any plan to manage the inevitable stagnation and decline of China’s economy that is now painfully obvious to anyone with the slightest willingness to look beneath the flimsy propaganda of official statistics. They are not alone, of course; every other major economy is equally bereft of policies and equally dependent on bogus statistics and debt to paper over the decline.

Macron support slips further. “50 MPs from Macron’s own party abstained from voting”.. but “The main thing is that there were no votes against..”, says the party.

• French Lawmakers Approve Controversial ‘Anti-Riot’ Bill (F24)

French MPs on Tuesday approved an anti-rioting bill giving security forces the power to ban suspected hooligans from demonstrating, in a controversial bid to crack down on violence that has marred Yellow Vest protests over the last three months. Opponents say the bill, approved by the lower house of parliament by 387 votes to 92, contravenes the constitutional right to demonstrate. Under its most contentious provision, government officials would be able to ban people suspected of being hooligans from taking part in demonstrations – without oversight from a judge. Inspired by legislation used to crack down on football hooligans, the new law calls for a six-month prison sentence and a €7,500 ($8,500) fine for violators.

The legislation, if passed by the upper house and approved by the constitutional council, would also allow fines of €15,000 ($17,000) and a one-year prison term for demonstrators covering or masking their faces to escape identification. It would also hand French police greater powers to search would-be demonstrators for weapons. [..] Unusually, some 50 MPs from Macron’s own party, the Republic on the Move (LREM), abstained from voting in favour of the legislation on Tuesday in a sign of divisions within the group. [..] “The main thing is that there were no votes against,” Gilles Le Gendre, who heads LREM’s parliamentary group, told reporters after the vote on Tuesday.

A very curious case. We’ll hear much more of it.

• Judge Pauses Lawsuits Against Cryptocurrency Company Quadriga (R.)

A cryptocurrency platform that lost access to millions of dollars when its founder died with sole knowledge of company passwords has been granted a temporary reprieve from creditor lawsuits. Halifax judge Michael Wood on Tuesday ordered a 30-day stay that precludes filing of claims against Quadriga, a Canadian cryptocurrency exchange that has left thousands of investors without their money after the death of founder Gerald Cotten. Customers have threatened lawsuits. Ernst & Young has been appointed the company’s third-party monitor, to help manage Quadriga’s finances during the process.

Cotten, who died in December of complications from Crohn’s disease while in India, was the only person who had passwords to digital wallets containing C$180 million ($137.13 million) in cryptocurrencies, according to court filings. He was 30 years old. “Despite repeated and diligent searches, I have not been able to find (the passwords) written down anywhere,” his widow Jennifer Robertson said in an affidavit. A court file indicates Quadriga owes 115,000 users the equivalent of C$250 million ($190.46 million). The document showed Quadriga has $30 million in bank drafts, many of which it has had trouble depositing. Lawyer Maurice Chiasson told the court the company wants time to find the C$250 million it owes users. According to court filings the company is considering selling its platforms to cover its debts.

The riches of smartphones.

• 5G Wireless: A “Massive Health Experiment” (SHTF)

Experts are warning that superfast broadband known as 5G could cause cancer in humans, and the usage of 5G is nothing more than a “massive health experiment.” 5G could very well be a global catastrophe that kills wildlife, gives people terminal diseases, and causes the Earth’s magnetic field to change, according to shocking claims by a technology expert. Arthur Robert Firstenberg is an American author and an activist for electromagnetic radiation and health. In his 1997 book Microwaving Our Planet: The Environmental Impact of the Wireless Revolution, he claimed: “The telecommunications industry has suppressed damaging evidence about its technology since at least 1927.”

Firstenberg has also founded the independent campaign group the Celluar Phone Task Force and since 1996 he has argued in numerous publications that wireless technology is dangerous. According to a report by the Daily Star, Firstenberg has also recently started an online petition calling on world organizations, such as the United Nations, World Health Organisation (WHO), and European Union to “urgently halt the development of 5G,” which is due to be rolled out this year. In fact, Verizon has activated the world’s first 5G networks in four cities in the United States: Houston, Indianapolis, Los Angeles, and Sacramento. According to the Firstenberg, wireless networks are “harmful for humans” and the development of the next generation is “defined as a crime” under international law, as he states it in the online petition.

When speaking to The Daily Star Online, Firstenberg said this 5G rollout is deadly. “There is about to be as many as 20,000 satellites in the atmosphere. The FCC approved Elon Musk’s project for 12,000 satellites on November 15th and he’s going to launch his in mid-2019. I’m getting reports from various parts of the world that 5G antennas are being erected all over and people are already getting sick from what’s there now and the insect population is getting affected,” Firstenberg stated.

More riches of smartphones. Someone soon will propose a better term than ‘smart’-phones.

• 18% Of Young People In UK Do Not Think Life Is Worth Living (G.)

The number of young people in the UK who say they do not believe that life is worth living has doubled in the last decade, amid a sense of overwhelming pressure from social media which is driving feelings of inadequacy, new research suggests. In 2009, only 9% of 16-25-year-olds disagreed with the statement that “life is really worth living”, but that has now risen to 18%. More than a quarter also disagree that that their life has a sense of purpose, according to a YouGov survey of 2,162 people for the Prince’s Trust, a charity that helps 11 to 30-year-olds into education, training and work. Youth happiness levels have fallen most sharply over the last decade in respect of relationships with friends and emotional health, the survey found, while satisfaction with issues like money and accommodation have remained steady.

The Prince’s Trust has been gauging youth opinion for 10 years and found that just under half of young people who use social media now feel more anxious about their future when they compare themselves to others on sites and apps such as Instagram, Twitter and Facebook. A similar amount agree that social media makes them feel “inadequate”. More than half (57%) think social media creates “overwhelming pressure” to succeed. The gloomy view on life being taken by a growing minority of young people comes amid reports of an increased rate of teenage suicide. It was reported on Sunday that official statistics due later this year will show that suicides now occur at more than five in 100,000 teenagers in England. That contrasts with a figure of just over three in 100,000 in 2010.

“Social media has become omnipresent in the lives of young people and this research suggests it is exacerbating what is already an uncertain and emotionally turbulent time,” said Nick Stace, UK chief executive of The Prince’s Trust. “Young people are critical to the future success of this country, but they’ll only realise their full potential if they believe in themselves and define success in their own terms. It is therefore a moral and economic imperative that employers, government, charities and wider communities put the needs of young people centre stage.”

Britain gets rid of its old and its young. And presumably other ‘weaker’ groups.

• 50,000 Elderly In UK -77 Per Day- Die Waiting For Social Care (G.)

More than 50,000 people have died waiting for care while ministers dither over long-awaited plans to overhaul the funding of social care, a charity has claimed. Age UK estimated that 54,000 people – or 77 a day – have died while waiting for a care package in the 700 days since the government first said in March 2017 it would publish its social care green paper, which has since been delayed several times. The claim came as a cross-party group of MPs warned that the government was “in denial” about the perilous state of English local authority finances – a crisis driven by a growing demand for the care of vulnerable adults and children.

The Commons public accounts committee (PAC) said that after eight years in which central government funding had halved, councils were under “enormous pressure” just to maintain essential services. MPs accused ministers of having no meaningful plan to ensure local authority finances were sustainable in the future. Overall spending by local authorities on services fell by 19.2% in real terms between 2010-11 and 2016-17, according to the report. Meg Hillier, the committee chair said: “Government needs to get real, listen fully to the concerns of local government and take a hard look at the real impact funding reductions have on local services.”

The chancellor, Philip Hammond, announced a funding boost for councils at last autumn’s budget, amounting to £1.4 bn in 2018-19 and 2019-20. But the PAC said such short-term fixes failed to deal with the underlying challenges facing councils. It urged the government to focus on assuring the long-term sustainability of local authority finances, and be more ambitious than simply allowing them to “cope”.

A Life Wasted

May 142018

May 14, 2018 Posted by Raúl Ilargi Meijer at 1:01 pm Finance Tagged with: America, change, hypersonic, John McCain, military, unilateralism, unwinnable, Vietnam, war, weapons 13 Responses »

Brassaï Cat 1945

What’s happening to John McCain is tragic. It’s not something one should ever wish upon another human being. Nor is it decent, let alone useful, to wish that he would die. Wishing bad things upon someone because they did bad things is too close for comfort to what he himself did. But it’s good to remember that his brain tumor is not the most tragic part of McCain’s life on earth. And no, neither is his time as prisoner of war in Vietnam.

McCain’s main tragedy is that he didn’t learn the one lesson he should have learned about his time in Vietnam, and didn’t turn his back on warfare. Instead, he turned into the biggest and loudest pro-war campaigner in Washington for decades. Talk about a missed opportunity, a life wasted. If there was one person who was presented with the first-hand experience needed to turn against bloodshed, it was John McCain.

What’s more, during his time in the House and later the Senate, McCain completely missed out on a development that might yet have changed his mind. That is, wars became unwinnable. Something even that the US losing their war in Vietnam might have taught him. It entirely passed him by. McCain still never saw an opportunity to wage battle somewhere, anywhere on the planet, that he didn’t like.

That makes him a dinosaur and a fossil who should never have been allowed to remain in the Senate for as long as he did. At the age of 81, and after ‘serving’ for 35 years in Washington, it apparently becomes too difficult to see how the world outside changes, let alone to adapt to those changes. If you limit the time a president can serve, why not do the same for senators? Is it because those same senators would have to vote on that?

Moreover, if wars are unwinnable, but you incessantly call for new wars anyway, then regardless of moral issues about going to war in the first place, you have de facto become a threat to your own people and your own country that you purport to serve. Especially, and first of all, to the American soldiers you desire to send out there to fight those wars. But also a threat to the image of America around the globe.

When wars are unwinnable, there is no reason to fight them. Again, even apart from morals and ethics. You will have to find other ways to deal with ‘elements’ that feel and act less than friendly towards you. To find out what, it helps to realize that they understand it’s just as futile for them to attack you militarily as it is for you to attack them. It also helps to figure out why they are unfriendly.

What doesn’t help is to take yet another stab at Putin and say “Vladimir Putin is an evil man, and he is intent on evil deeds”, as McCain does in a forthcoming book. If that’s the best you can do, your best-by date has long since passed. That’s language fit for a 4-year old. And George W.

McCain’s father and grandfather were both 4-star US Navy admirals. Perhaps that partly explains his blindness to the evils of war, and the role the US has played in many conflicts, including -but certainly not limited to- Vietnam. It’s hard to imagine Apocalypse Now, Platoon or Full Metal Jacket being McCain’s favorite Hollywood classics.

And that is a bigger problem than it may seem. Because America has indeed been able to paint a vivid portrait for itself of why Vietnam was such an insane venture that should never have happened, and certainly not repeated. If your culture has the ability to put that in words and images, and as a nation you still don’t learn the lesson embedded in them, you’re pretty much lost.

Oh, and besides, you lost too, remember? You lost the war and the lives and limbs of tens of thousands of young Americans and over a million Vietnamese. To have been part of that and then turn around and strive to be Washington’s premier warmonger, that’s just totally bonkers. Or worse. Has McCain been promoting war all this time because he subconsciously wanted to redo Vietnam but this time not lose?

Unwinnable wars are bad news for the weapons industry. They will deny the existence of even such a concept as long and as strongly as they can. Because if you can’t win a war, why wage them? There will continue to be technological developments, but there’s no “throughput”. You can fire some missiles into some desert somewhere from time to time, and that’s it.

The military-industrial complex is happy only -because most profitable- if and when guns and missiles and jets constantly need to be replaced because they’ve been lost in a theater of war, along with young Americans. McCain knows this better than most. And he knows the captains of this complex, both the military side and the weapons producers. Far too well.

Being as beholden as it is to the arms makers and dealers, has made America lose whatever edge it once had militarily. In the US weapons are developed and sold to generate the largest profits possible; in Russia, they are developed to protect the country. This is largely why the American defense budget is 10 times larger than its Russian counterpart. All this happened on John McCain’s watch.

The entire narrative of “protecting and sharing our values” has become hollow propaganda. Because the US has engaged its military in more theaters of war and invasion than we can even keep track of anymore. The US armed forces don’t protect democracy or human rights around the world, they protect the financial interests of America’s elites, including the military-industrial complex. Does anyone believe John McCain doesn’t know this?

Unbeknownst to John McCain, the world has entered a whole new era. And this didn’t happen yesterday. Russia and China may have only recently announced new hypersonic missile technology, but it didn’t fall out of the sky. It does profoundly change things though. It ends all notions and dreams of American exceptionalism and unilateralism.

And America needs to learn that lesson. It will have to do it without John McCain. And it might as well, because McCain was incapable of changing, and of seeing the changes around him. But the American view of the world will have to change, because the world itself has.

Still, you’re right: the real tragedy is not that John McCain wasted his own life. It’s that he helped destroy so many others.

Debt Rattle September 23 2017

Sep 232017

September 23, 2017 Posted by Raúl Ilargi Meijer at 8:29 am Finance Tagged with: affordability, Catalonia, debt, demise, downgrade, Pilger, Puerto Rico, Russia, shell game, Uber, Vietnam 8 Responses »

Salvador Dalí Mi esposa desnuda 1945

• Why the Stock Market’s Up and Why it Won’t Last (MO)

• The Great Corporate Cash Shell Game (BBG)

• Debt Has Become A Way Of Life In Canada (OweC)

• Housing Affordability NEVER Worse…By a Long-Shot (Hanson)

• The Demise of the Dollar: Don’t Hold Your Breath (CH Smith)

• China Slashes Trade Ties With North Korea (BBC)

• Russia Steps In To Prevent ‘Domino Effect’ In Its Banking Sector (CNBC)

• UK’s Credit Rating Downgraded By Moody’s (BBC)

• The Scandals That Brought Down Uber (Ind.)

• Uber Had This Coming – It Was Never Just A ‘Tech Platform’ (Ind.)

• Puerto Rico Is Back In The 18th Century (Kunstler)

• It Gets Ugly in Catalonia (DQ)

• The Killing of History (John Pilger)

“Once the Fed stops buying that paper, the dealers will have a lot less cash and that means a lot more selling.”

• Why the Stock Market’s Up and Why it Won’t Last (MO)

The U.S. Treasury has been up against its debt ceiling since March 15 when the ceiling was re-imposed. Since then, there has been no net new issuance from the Treasury. The Treasury has run down its cash balances and borrowed internally from its own resources, which are not subject to the ceiling. This period has been very helpful to the financial markets. With the federal government not selling any net new supply of securities—just rolling the maturing stuff over—the markets have been flush with cash that would otherwise have been absorbed by the government. This hit of extra liquidity is about to disappear and then some. President Trump has made a three-month debt ceiling deal with the Democrats which means that the Treasury can resume borrowing without restrictions through December.

This increase in the debt ceiling is needed to reliquify the federal government (which is down to $38 billion in cash) and repay the internal funds the Treasury raided since the debt ceiling was imposed back in March. The Treasury needs to borrow a substantial amount of money. There hasn’t been a material increase in the Treasury’s borrowing schedule yet, but it is coming. The Treasury Borrowing Advisory Committee (TBAC), a group of senior Wall Street executives, has advised the Treasury to issue $501 billion in net new supply in the fourth quarter, virtually all in November and December, and the Treasury almost always follows the TBAC script. That’s an outrageous amount of money. The cash the Treasury needs is not sitting somewhere in primary dealer bank accounts; it’s invested in the financial markets. Securities will have to be sold to accommodate this new issuance.

This is not new. A borrowing spike happens every time we have an increase in the debt ceiling as the chart demonstrates. Note that this chart reflects an estimate of net new issuance needed to return to last year’s cash on hand and was produced before TBAC had issued its recommendations. TBAC is proposing to move more slowly. Nonetheless, past funding spikes are clearly demarcated and the next one is going to be big. While Treasury supply will increase, the trend of demand for Treasuries has been going the other way. Bid coverage at auctions has been declining in recent months and the largest banks have been reducing their inventories of Treasury securities. Falling demand in the face of increasing supply is a recipe for a bear market in bonds. Bond yields will rise and that will put pressure on stocks as well.

The Federal Reserve has given the market extraordinary support over the past eight years by financing most new Treasury supply. Even after it stopped outright QE in November of 2014, the Fed continued to buy $25–$45 billion per month in maturing Mortgage Backed Securities from the primary dealers. That cashed up the dealers and helped finance their purchases of new Treasuries. But now, the Fed intends to join the Treasury as a net seller of Treasuries (and MBS) as it starts to reduce its balance sheet this fall. Once the Fed stops buying that paper, the dealers will have a lot less cash and that means a lot more selling.

“These companies have a record amount of cash and they’re more deeply indebted than ever before.”

• The Great Corporate Cash Shell Game (BBG)

There’s a mystery hidden on the balance sheets of Corporate America: These companies have a record amount of cash and they’re more deeply indebted than ever before.This seems paradoxical and kind of silly. Why raise money from bond investors when you already have the liquid assets on hand? As Bloomberg News reported Thursday, non-financial companies’ liquid assets, which include foreign deposits, currency as well as money-market and mutual fund shares, reached a record of almost $2.3 trillion in the second quarter. That’s an increase of nearly 60% since mid-2009. This cash cushion also appears sort of comforting; companies can do whatever they want. They’re rich. But in reality, it is neither silly nor overly comforting.

First of all, a disproportionate amount of the cash is held by the biggest companies, such as Apple, Microsoft, Alphabet and General Electric, and it is mostly held in overseas accounts. These corporations can’t bring that cash back without incurring steep tax bills, so they’ve been keeping it offshore. When they need money, they simply raise dollars by borrowing from the bond market at record-low rates. Indeed, the amount of bonds issued by these companies has surged, rising 66% from mid-2009 to $5.24 trillion of bonds outstanding as of the end of June, Federal Reserve data show. That isn’t necessarily a recipe for default because a large chunk of this is an exercise in financial engineering aimed at avoiding onerous taxes. But it has consequences.

First, it limits the benefit to the economy if and when those tax policies are changed because much of the money has already been released through the bond market. And second, to the extent that companies have cash, they’re not using enough of it for exciting projects. There hasn’t been a tremendous wave of innovation or salary increases. Instead, companies have repurchased billions of dollars of their own shares, which is great for the stock market but doesn’t do a whole lot to bolster economic growth.

A bit poorly written, but still: “For each $1.00 the economy grew in this 1 year period the total debt outstanding increased by $5.48.”

• Debt Has Become A Way Of Life In Canada (OweC)

The borrowing and spending binge by Canadian households, businesses and governments (all levels) continues unabated. Growing the debt in the economy significantly faster than the economy itself grows seems to have developed into a way of life in Canada. At the end of June, 2017 the total debt outstanding in Canada was $7.51 trillion. At the end of June, 2016 it was $7.13 trillion. In the 1 year period from the end of June, 2016 to the end of June, 2017 it increased by $375 billion. This is an increase of 5.2%. The approximate beginning of the global financial crisis was June, 2007. At the end of June, 2007 the total debt outstanding in Canada was $3.99 trillion. In the last 10 years it has increased by $3.52 trillion. This is an increase of 88.3%. At the end of June, 2017 the total debt outstanding of domestic non-financial sectors was $5.32 trillion.

At the end of June, 2016 the total debt outstanding of domestic non-financial sectors was $5.04 trillion. In the 1 year period from the end of June, 2016 to the end of June, 2017 it increased by $278 billion. This is an increase of 5.5%. At the end of June, 2007 the total debt outstanding of domestic non-financial sectors was $2.84 trillion. In the last 10 years it has increased by $2.47 trillion. This is an increase of 86.9%. At the end of June, 2017 the annual GDP at market prices in Canada was $2.12 trillion, and in the preceding 1 year it grew by 6.3%, – ie: the size of the economy grew by $133.9 billion. In the 1 year period from the end of June, 2016 to the end of June, 2017 the total debt outstanding in Canada increased by $375 billion. For each $1.00 the economy grew in this 1 year period (using the GDP at market prices metric) the total debt outstanding increased by $2.80.

Looking at just the total debt outstanding of domestic non-financial sectors in Canada: In the 1 year period from the end of June, 2016 to the end of June, 2017 the total debt outstanding of domestic non-financial sectors increased by $278 billion. For each $1.00 the economy grew in this 1 year period (using the gdp at market prices metric) the total debt outstanding of domestic non-financial sectors increased by $2.08. At the end of June, 2017 the total debt outstanding in Canada was 3.5 times greater than our annual gdp at market prices, and looking at just the total debt outstanding of domestic non-financial sectors, that was 2.5 times greater than our annual gdp at market prices. [..] In the 1 year period from the end of June, 2016 to the end of June, 2017 the total debt outstanding in Canada increased by $375 billion. For each $1.00 the economy grew in this 1 year period the total debt outstanding increased by $5.48.

Communities and societies don’t matter. Only money does.

• Housing Affordability NEVER Worse…By a Long-Shot (Hanson)

My chart highlights how for DECADES the income required to buy a median priced house – using popular programs & rates for each era – remained mostly flat (red line) and WELL BELOW the level of household income (black line). How could house prices rise so much for decades but income required to buy (red) them remain flattish? Because of the accompanying falling rates/easing credit guideline cycle. In fact, during Bubble 1.0 house prices soared but exotic loans legitimately made them more affordable than ever, as shown.

But in ’12, as trillions in unorthodox capital, credit & liquidity began to drive massive speculation (just like Bubble 1.0) income required to buy began to surge, with prices, shooting above median HH income (boxed in yellow). Meaningful sales growth with this affordability backdrop is impossible. …This is the point in this inflationary cycle at which affordability detached from end-user fundamentals. Now, in ’17, end-user purchase power & house prices have never been more diverged from the multi-decade trend line and a mean reversion – via surging wages, new era exotic loans, plunging rates, and/or falling house prices, as speculation ebbs – is inevitable.

Must read. Like Charles, I don’t see it either. There is nothing to replace the USD for the foreseeable future.

• The Demise of the Dollar: Don’t Hold Your Breath (CH Smith)

Every form of credit/debt is denominated in a currency. A Japanese bond is denominated in yen, for example. The bond is purchased with yen, the interest is paid in yen, and the coupon paid at maturity is in yen. What gets tricky is debt denominated in some other currency. Let’s say I take out a loan denominated in quatloos. The current exchange rates between USD and quatloos is 1 to 1: parity. So far so good. I convert 100 USD to 100 quatloos every month to make the principal and interest payment of 100 quatloos. Then some sort of kerfuffle occurs in the FX markets, and suddenly it takes 2 USD to buy 1 quatloo. Oops: my loan payments just doubled. Where it once only cost 100 USD to service my loan denominated in quatloos, now it takes $200 to make my payment in quatloos. Ouch. Notice the difference between payments, reserves and debt: payments/flows are transitory, reserves and debt are not.

What happens in flows is transitory: supply and demand for currencies in this moment fluctuate, but flows are so enormous–trillions of units of currency every day–that flows don’t affect the value or any currency much. FX markets typically move in increments of 1/100 of a percentage point. So flows don’t matter much. De-dollarization of flows is pretty much a non-issue. What matters is demand for currencies that is enduring: reserves and debt.The same 100 quatloos can be used hundreds of times daily in payment flows; buyers and sellers only need the quatloos for a few seconds to complete the conversion and payment. But those needing quatloos for reserves or to pay long-term debts need quatloos to hold. The 100 quatloos held in reserve essentially disappear from the available supply of quatloos.

Another source of confusion is trade flows. If the U.S. buys more stuff from China than China buys from the U.S., goods flow from China to the U.S. and U.S. dollars flow to China. As China’s trade surplus continues, the USD just keep piling up. What to do with all these billions of USD? One option is to buy U.S. Treasury bonds (debt denominated in dollars), as that is a vast, liquid market with plenty of demand and supply. Another is to buy some other USD-denominated assets, such as apartment buildings in Seattle. This is the source of the petro-dollar trade. All the oil/gas that’s imported into the U.S. is matched by a flow of USD to the oil-exporting nations, who then have to do something with the steadily increasing pile of USD.

The USD is still the dominant reserve currency, despite decades of diversification. Global reserves (allocated and unallocated) are over $12 trillion. Note that China’s RMB doesn’t even show up in allocated reserves–it’s a non-player because it’s pegged to the USD. Why hold RMB when the peg can be changed at will? It’s lower risk to just hold USD. While total global debt denominated in USD is about $50 trillion, the majority of this is domestic, i.e. within the U.S. economy. $11 trillion has been issued to non-banks outside the U.S., including developed and emerging market debt:

Well, not entirely.

• China Slashes Trade Ties With North Korea (BBC)

China has moved to limit North Korea’s oil supply and will stop buying textiles from the politically isolated nation, it said on Saturday. China is North Korea’s most important trading partner, and one of its only sources of hard currency. The ban on textiles trade will hurt Pyongyang’s income, while China’s oil exports are the country’s main source of petroleum products. The tougher stance follows North Korea’s latest nuclear test this month. The United Nations agreed fresh sanctions – including the textiles and petroleum restrictions – in response. A statement from China’s commerce ministry said restrictions on refined petroleum products would apply from 1 October, and on liquefied natural gas immediately.

A limited amount, allowed under the UN resolution, would still be exported to North Korea. The current volume of trade between the two countries – and how much the new limits reduce it by – is not yet clear. But the ban on textiles – Pyongyang’s second-biggest export – is expected to cost the country more than $700m a year. China and Russia had initially opposed a proposal from the United States to completely ban oil exports, but later agreed to the reduced measures. North Korea has little energy production of its own, but does refine some petroleum products from crude oil it imports – which is not included in the new ban. The AFP news agency reports that petrol prices in Pyongyang have risen by about 20% in the past two months.

Spring cleaning: “Russia’s central bank has reportedly now closed more than a third of the country’s banks – approximately 300 lenders – in the last three years..”

• Russia Steps In To Prevent ‘Domino Effect’ In Its Banking Sector (CNBC)

Russia’s central bank has been forced to rescue two major lenders in less than a month, intensifying concerns among global investors that a systemic banking crisis could be in the offing. The Russian government’s latest rescue of a major bank was confirmed on Thursday, when the Central Bank of Russia (CBR) said it had nationalized the country’s 12th largest lender in terms of assets, B&N Bank. Last month, the CBR stepped in to launch one of the largest bank rescues in Russia’s history when Otkritie Bank required a bailout to help plug a $7 billion hole in its balance sheet. Russia’s central bank moved to dismiss intensifying concerns that a brewing systemic crisis could be forthcoming on Thursday, as it said its second major bank nationalization in three weeks had prevented a “domino effect” in the country’s ailing banking sector.

“We realized that it’s better to isolate a bit more so that the domino effect does not arise, and according to the results of this work the domino effect is excluded, there is no risk of this,” Vasily Pozdyshev, deputy governor at the CBR, told a press conference as reported by state media. B&N Bank requires an estimated capitalization of around $4.3 billion to $6 billion, according to Pozdyshev, an amount approximately equivalent to 25% of the lender’s balance sheet. The failure of two major lenders in relatively quick succession has fueled anxiety over the health of Russia’s banking sector, which has been hampered by an economic slowdown and Western sanctions in recent years.

In 2014, Russian regulators were jolted into action after a dramatic slump in oil prices as well as tough international sanctions for its annexation of Crimea and Russia’s perceived role in destabilizing eastern Ukraine. The CBR has been attempting to clean up the banking sector since 2013, shutting down scores of banks that it believed represented a risk to the system. Russia’s central bank has reportedly now closed more than a third of the country’s banks – approximately 300 lenders – in the last three years as it sought to eradicate undercapitalized institutions.

Brexit becomes expensive.

• UK’s Credit Rating Downgraded By Moody’s (BBC)

The UK’s credit rating has been cut over concerns about the UK’s public finances and fears Brexit could damage the country’s economic growth. Moody’s, one of the major ratings agencies, downgraded the UK to an Aa2 rating from Aa1. It said leaving the European Union was creating economic uncertainty at a time when the UK’s debt reduction plans were already off course. Downing Street said the firm’s Brexit assessments were “outdated”. The other major agencies, Fitch and S&P, changed their ratings in 2016, with S&P cutting it two notches from AAA to AA, and Fitch lowering it from AA+ to AA.

Moody’s said the government had “yielded to pressure and raised spending in several areas” including health and social care. It says revenues were unlikely to compensate for the higher spending. The agency said because the government had not secured a majority in the snap election it “further obscures the future direction of economic policy”. It also said Brexit would dominate legislative priorities, so there could be limited capacity to address “substantial” challenges. It added “any free trade agreement will likely take years to negotiate, prolonging the current uncertainty for business”. Moody’s has also changed the UK’s long-term issuer and debt ratings to “stable” from “negative”.

Uber was allowed to grow massively, elbowing any competition out of the way. It’s just dumb.

• The Scandals That Brought Down Uber (Ind.)

Transport for London has announced it will not renew ride-sharing app Uber’s licence, because it had identified a “lack of corporate responsibility” in the company. The statement highlighted four major areas of concern: the company’s approach to reporting criminal offences, the obtaining of medical certificates, its compliance with Enhanced Disclosure and Barring Service (DBS) checks on employees, and its use of controversial Greyball software to “block regulatory… access to the app”. The company has recently been dogged by a number of corporate scandals in the UK and its international operations, which ultimately led to the resignation of CEO Travis Kalanick in June. Uber has repeatedly come under fire for its handling of allegations of sexual assault by its drivers against passengers.

Freedom of Information data obtained by The Sun last year showed that the Metropolitan Police investigated 32 drivers for rape or sexual assault of a passenger between May 2015 and May 2016. In August, Metropolitan Police Inspector Neil Billany wrote to TfL about his concern that the company was failing to properly investigate allegations against its drivers. He revealed the company had continued to employ a driver after he was accused of sexual assault. According to Inspector Billany, the same driver went on to assault another female passenger before he was removed. The letter said: “By not reporting to police promptly, Uber are allowing situations to develop that clearly affect the safety and security of the public.”

The statement by London’s transport body also expresses concern about “its approach to explaining the use of Greyball in London”. In March it emerged that Uber had been secretly using a tool called Greyball to deceive law enforcement officials in a number of US cities where the company flouted state regulations. Greyball used personal data of individuals it believed were connected to local government and ensured that its drivers would not pick them up if they requested a ride on the app. It was used in Portland, Oregon, Philadelphia, Boston, and Las Vegas, as well as France, Australia, China, South Korea and Italy. Uber denies ever using the software in the UK.

Politicians are too scared to call for regulation of things they don’t understand.

• Uber Had This Coming – It Was Never Just A ‘Tech Platform’ (Ind.)

Uber isn’t the only sharing economy app that has become part of daily life in the capital. Since 2008, over four million people have stayed in an Airbnb in London. The company, which links guests up with empty rooms or homes in the capital, recently came under fire in the US for not properly screening a host who attempted to sexually assault a woman (a spokesman for Airbnb later told The Independent that a background check had been done on the host and that there had been no prior convictions). The legal ruling over Uber could now bring the responsibilities of other companies such as Airbnb into the limelight. The rapid proliferation of these types of “gig economy” companies over the past few years has meant that many of them have forgotten their basic responsibilities toward their customers.

As The Independent’s Josie Cox has written, they forgot that the sharing economy business model was based on trust – we had to have confidence that the strangers we were sharing cars with were safe, and they couldn’t provide that. For too long, Uber tried to evade its role as anything more than a provider of tech. But we were never just sharing software; we were sharing our lives. Uber tried to get away with pretending it was a neutral software platform for far too long – all it did was link people together, and its responsibilities went as far as fixing glitches. But it was always a private taxi hire firm. It was a company with employees, who it should have been paying properly from that start, and customers, who it should have been protecting.

“We’re only two days past the Hurricane Maria’s direct hit on Puerto Rico and there is no phone communication across the island, so we barely know what has happened. We’re weeks past Hurricanes Irma and Harvey, and news of the consequences from those two events has strangely fallen out of the news media. Where have the people gone who lost everything? The news blackout is as complete and strange as the darkness that has descended on Puerto Rico.”

• Puerto Rico Is Back In The 18th Century (Kunstler)

Ricardo Ramos, the director of the beleaguered, government-owned Puerto Rico Electric Power Authority, told CNN Thursday that the island’s power infrastructure had been basically “destroyed” and will take months to come back “Basically destroyed.” That’s about as basic as it gets civilization-wise. Residents, Mr. Ramos said, would need to change the way they cook and cool off. For entertainment, old-school would be the best approach, he said. “It’s a good time for dads to buy a ball and a glove and change the way you entertain your children.” Meaning, I guess, no more playing Resident Evil 7: Biohazard on-screen because you’ll be living it — though one wonders where will the money come from to buy the ball and glove? Few Puerto Ricans will be going to work with the power off.

And the island’s public finances were in disarray sufficient to drive it into federal court last May to set in motion a legal receivership that amounted to bankruptcy in all but name. The commonwealth, a US territory, was in default for $74 billion in bonded debt, plus another $49 billion in unfunded pension obligations. So, Puerto Rico already faced a crisis pre-Hurricane Maria, with its dodgy electric grid and crumbling infrastructure: roads, bridges, water and sewage systems. Bankruptcy put it in a poor position to issue new bonds for public works which are generally paid for with public borrowing. Who, exactly, would buy the new bonds? I hear readers whispering, “the Federal Reserve.” Which is a pretty good clue to understanding the circle-jerk that American finance has become.

Some sort of bailout is unavoidable, though President Trump tweeted “No Bailout for Puerto Rico” after the May bankruptcy proceeding. Things have changed and the shelf-life of Trumpian tweets is famously brief. But the crisis may actually strain the ability of the federal government to pretend it can cover the cost of every calamity that strikes the nation — at least not without casting doubt on the soundness of the dollar. And not a few bonafide states are also whirling around the bankruptcy drain: Illinois, Connecticut, New Jersey, Kentucky. Constitutionally states are not permitted to declare bankruptcy, though counties and municipalities can. Congress would have to change the law to allow it. But states can default on their bonds and other obligations. Surely there would be some kind of fiscal and political hell to pay if they go that route.

Nobody really knows what might happen in a state as big and complex as Illinois, which has been paying its way for decades by borrowing from the future. Suddenly, the future is here and nobody has a plan for it. The case for the federal government is not so different. It, too, only manages to pay its bondholders via bookkeeping hocuspocus, and its colossal unfunded obligations for social security and Medicare make Illinois’ predicament look like a skipped car payment. In the meantime — and it looks like it’s going to be a long meantime – Puerto Rico is back in the 18th Century, minus the practical skills and simpler furnishings for living that way of life, and with a population many times beyond the carrying capacity of the island in that era.

Still 8 days to go. How can this remian peaceful? Will Rajoy try to provoke violence (if he isn’t already) and blame it on the Catalans?

• It Gets Ugly in Catalonia (DQ)

Madrid’s crackdown on Catalonia is already having one major consequence, presumably unintended: many Catalans who were until recently staunchly opposed to the idea of national independence are now reconsidering their options. A case in point: At last night’s demonstration, spread across multiple locations in Barcelona, were two friends of mine, one who is fanatically apolitical and the other who is a strong Catalan nationalist but who believes that independence would be a political and financial disaster for the region. It was their first ever political demonstration. If there is a vote on Oct-1, they will probably vote to secede. The middle ground they and hundreds of thousands of others once occupied was obliterated yesterday when a judge in Barcelona ordered Spain’s militarized police force, the Civil Guard, to round up over a dozen Catalan officials in dawn raids.

Many of them now face crushing daily fines of up to €12,000. The Civil Guard also staged raids on key administrative buildings in Barcelona. The sight of balaclava-clad officers of the Civil Guard, one of the most potent symbols of the not-yet forgotten Franco dictatorship, crossing the threshold of the seats of Catalonia’s (very limited) power and arresting local officials, was too much for the local population to bear. Within minutes almost all of the buildings were surrounded by crowds of flag-draped pro-independence protesters. The focal point of the day’s demonstrations was the Economic Council of Catalonia, whose second-in-command and technical coordinator of the referendum, Josep Maria Jové, was among those detained. He has now been charged with sedition and could face between 10-15 years in prison. Before that, he faces fines of €12,000 a day.

[..] yesterday’s police operation significantly — perhaps even irreversibly — weakens Catalonia’s plans to hold a referendum on October 1, as even the region’s vice-president Oriol Junqueras concedes. But that doesn’t mean Spain has won. As the editor of El Diario, Ignacio Escolar, presciently notes, yesterday’s raids may have been a resounding success for law enforcement, but they were an unmitigated political disaster that has merely intensified the divisions between Spain and Catalonia and between Catalans themselves. Each time Prime Minister Rajoy or one of his ministers speak of the importance of defending democracy while the Civil Guard seizes posters and banners related to the October 1 vote and judges rule public debates on the Catalan question illegal and then fine their participants, a fresh clutch of Catalan separatists is born.

In the days to come they will be swarming the streets, waving their flags, clutching their red carnations and singing their songs. For the moment, the mood is still one of hopeful, resolute indignation. But the mood of masses is prone to change quickly, and it’s not going to take much to ignite the anger.

Pilger was a Vietnam correspondent. He knows what he’s talking about.

• The Killing of History (John Pilger)

One of the most hyped “events” of American television, The Vietnam War, has started on the PBS network. The directors are Ken Burns and Lynn Novick. Acclaimed for his documentaries on the Civil War, the Great Depression and the history of jazz, Burns says of his Vietnam films, “They will inspire our country to begin to talk and think about the Vietnam war in an entirely new way”. In a society often bereft of historical memory and in thrall to the propaganda of its “exceptionalism”, Burns’ “entirely new” Vietnam war is presented as “epic, historic work”. Its lavish advertising campaign promotes its biggest backer, Bank of America, which in 1971 was burned down by students in Santa Barbara, California, as a symbol of the hated war in Vietnam. Burns says he is grateful to “the entire Bank of America family” which “has long supported our country’s veterans”.

Bank of America was a corporate prop to an invasion that killed perhaps as many as four million Vietnamese and ravaged and poisoned a once bountiful land. More than 58,000 American soldiers were killed, and around the same number are estimated to have taken their own lives. I watched the first episode in New York. It leaves you in no doubt of its intentions right from the start. The narrator says the war “was begun in good faith by decent people out of fateful misunderstandings, American overconfidence and Cold War misunderstandings”. The dishonesty of this statement is not surprising. The cynical fabrication of “false flags” that led to the invasion of Vietnam is a matter of record – the Gulf of Tonkin “incident” in 1964, which Burns promotes as true, was just one. The lies litter a multitude of official documents, notably the Pentagon Papers, which the great whistleblower Daniel Ellsberg released in 1971.

There was no good faith. The faith was rotten and cancerous. For me – as it must be for many Americans – it is difficult to watch the film’s jumble of “red peril” maps, unexplained interviewees, ineptly cut archive and maudlin American battlefield sequences. In the series’ press release in Britain – the BBC will show it – there is no mention of Vietnamese dead, only Americans. “We are all searching for some meaning in this terrible tragedy,” Novick is quoted as saying. How very post-modern. All this will be familiar to those who have observed how the American media and popular culture behemoth has revised and served up the great crime of the second half of the twentieth century: from The Green Berets and The Deer Hunter to Rambo and, in so doing, has legitimised subsequent wars of aggression. The revisionism never stops and the blood never dries. The invader is pitied and purged of guilt, while “searching for some meaning in this terrible tragedy”. Cue Bob Dylan: “Oh, where have you been, my blue-eyed son?”

I thought about the “decency” and “good faith” when recalling my own first experiences as a young reporter in Vietnam: watching hypnotically as the skin fell off Napalmed peasant children like old parchment, and the ladders of bombs that left trees petrified and festooned with human flesh. General William Westmoreland, the American commander, referred to people as “termites”. In the early 1970s, I went to Quang Ngai province, where in the village of My Lai, between 347 and 500 men, women and infants were murdered by American troops (Burns prefers “killings”). At the time, this was presented as an aberration: an “American tragedy” (Newsweek ). In this one province, it was estimated that 50,000 people had been slaughtered during the era of American “free fire zones”. Mass homicide. This was not news.

Peak American Wealth – Revisited

Feb 272017

February 27, 2017 Posted by Raúl Ilargi Meijer at 2:04 pm Finance Tagged with: Facebook, farming, Friedman, Ike, JFK, Kennedy, McCormick, Patton, peak wealth, Vietnam 20 Responses »

Bruce Davidson Iran 1964

Let’s see. On February 18, I wrote an essay called “Not Nearly Enough Growth To Keep Growing”, in which I said “..the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s”.

That provoked a wonderfully written reaction from long-time Automatic Earth reader Ken Latta, which I published on February 23 as “When Was America’s Peak Wealth?”. Ken put peak wealth sometime in the late ’50s to early 60’s. As I said then, I really liked his definition of ‘wealth’ as being “best measured by the capacity to be utterly wasteful”. The article spawned a series of nice comments, for some reason largely by people in his age bracket (Ken’s 73).

Which is nice, but it poses as many questions as it provides answers. Like: why does the Automatic Earth have so many ‘older’ readers? Should that be a reason for worry? And also: why don’t the young react in equal numbers? Don’t younger Americans have as many ideas as the generation(s) before them about when America’s peak wealth might have occurred?

Must one have been an eye-witness to the decline to know that it happened? Do only old farts ponder these things? Are there lessons to be learned, be they personal or history-wide? Interesting, all of it, if you ask me. Do younger people not acknowledge that peak wealth is behind us, and perhaps occurred before they were even born? Me, I like history lessons, and Ken’s for sure.

Tomorrow, I’ll have another take on all this written by Charles A. Hall, Emeritus Professor at State University of New York College of Environmental Science and Forestry, Syracuse. Charlie thinks neither Ken nor myself have given nearly enough attention to the role energy plays in wealth, and the peak thereof.

But first, here’s Ken Latta’s response to the comments on his article.

Ken Latta: The responses to my article on peak wealth were so thought-provoking that a follow-up article seemed appropriate. You can’t cover the history of the world in one blog post and I appreciate the additional ideas from the commentariat.

John Day: I remember 1969 as better than 1970. That first moon landing was a real high point for all of us. Everybody thought 1971 sucked. Things were different after November 1963. LBJ was a “sonofabitch”, as he put it. It’s hard to nail a year down, but after we lost our president, things were never the same.

John Day: Reminded us of a substantial breaking point the assassination of John Kennedy represented to the flow of history. But, history has its own problems. The finer details are oh so often swamped by a popular narrative. JFK was way more beloved dead than alive. Like Trump he could draw big crowds, but he very narrowly beat Nixon. Detractors favored referring to him as weak on foreign affairs.

I clearly recall were I was when the news came in about him being shot in Dallas. I was hanging out with some of my squadron mates in our team office when our Captain came by to inform us. He was African-American and clearly disturbed by it. It was much less concerning to the enlisted ranks. He had not been popular with most of us. It was a divided nation even then. I think his mourners should not forget that JFK presided over the early stages of the Viet-Nam adventure. With Green Berets and meddling in the South Viet-Nam government’s affairs, as is our custom.

It was just another case of his bad luck really. The American War on Viet-Nam could have happened to Eisenhower. My older brother was staged in a Korean Port waiting for orders to board a troop ship for transport to what was then still usually known as French Indo-China to support the French Army in their losing battle against the Viet Minh. But, Ike was a fairly sensible man and called it off.

V. Arnold: Wow, great thread. I’m 72 and was there also; I remember it pretty much as you tell it. I’d agree with your time-line also as to when peak wealth occurred. The beginning of the downturn was very late in the 50’s/early 60’s with our war in Vietnam and then; Nixon going off the gold standard. That allowed the next chapter of crony capitalism.

I attribute an accelerating deterioration to Friedman and his Chicago School of Economics and the age of the neo-liberal. Don’t forget Reagan; I felt the effects of his union busting first hand with stagnant wages until I retired over seas in 2007. I hope to read more of your writings from time to time. Cheers.

V. Arnold: Wrote very derogatory words about Uncle Miltie Friedman and the Chicago School of Terror. For that I salute him or her. Hell is too good for Milton and his apostles.

Forget Reagan? Not as long as I live. I also remember where I was when he was declared the next president. Sitting in the nicest bar in the little mountain town of Boulder Creek, Ca, nursing a drink. The bar was crowded and broke into loud celebration at the news. All I could think of was how f**king doomed we were. How I wish I had been wrong.

Hotrod: Thank you for your thought provoking article. I sometimes look at the health of the surviving car companies after WWII as a bellwether to the shape of the economy. Hudson, Nash, Studebaker, Packard all were struggling mightily by the mid 50’s. For the farming community the peak was about 1952. After the post war demand had been met, and greatly exceeded, farming declined into a real recession during the middle and late 50’s and never was quite the same.

Since then, machinery and technology, mostly purchased on credit, has kept production up and prices down for farmers, typically at or below the cost of production. Many of these labor saving and production enhancing tools stand unused, but are still being paid for. The only exception to this situation is massive drought, or massive flooding which can temporarily insert profitability to those not affected.

Hotrod: Reminisced on the tribulations of many car makers [Hudson, Nash, Studebaker, Packard], some of them long established, in the early 1950’s. I remember that too. I think a substantial part of their problems probably stemmed from not having enough dealerships. People were traveling more and wanted reassurance that a dealer with parts and experienced mechanics would be available in the next town. I think it actually surprising that those companies lasted as long as they did. Actually Nash and I think it was Packard merged to become American Motors and lasted another three decades.

He (my assumption) also mentioned farming and its trials. Farming is not the easy route to riches. The compensation has always been that if you hadn’t pledged your feal to the Lord of a Manor or signed up to be a share cropper, you were your own boss.

The late 40’s thru early 50’s were pretty good on our farm. When I was a little tike, we had an already ancient Macormick-Deering 10-20 tractor and a team of draught horses. My eldest brother having been told of his tour of northern and central Europe under the guidance of a man named Patton, wrote to dad asking him to take the money he had been sending home and buy a new tractor. All dad could find at a local dealer was a Minneapolis-Moline as they were about the only company allowed to build tractors during the war.

Many of them were shipped to England to help the British increase their food production. That was the only brand new tractor our family has ever owned right up to this day. My nephew still has it, but it’s in bits and pieces now. By around 1950 we were fully mechanised. Shortly after dad died in 1959, my brother rented out the land got himself a factory job. The prices of equipment steadily increased. The value of crops did not.

Crop prices did increase substantially about a decade ago, but not nearly enough to pay for new equipment unless you operated a very large farm. And more recently crops have declined in value again. I think a lot of farmers are in trouble.

Patricia: I am worried. Everybody who comments here is in their 70s as I am. Is that because we have more time to reflect and write down our thoughts or is it because the youth of today aren’t interested in anything except Facebook? If that is the case then I am so glad I am at the end of my life but what about my darling grandchildren.

Patricia: Expressed concern over whether the prevalence here of geezers was due to us having too much time on our hands or the youth having no time for anything except Facebook. Based on my own family, I can say that their devotion to Facebook is tempered by addiction to gaming. I mean video not casino. I think we can say that Patricia is right on both counts.

I too feel a certain gratitude for having been born during the war years with the expectation that I may be expired before the ordure collides with the air circulator. We oldies do have a psychological quandary with regard to our descendants. Knowing as we do that it’s coming. I too have grandchildren and a great grandchild. I desperately wanted to make them aware and try to offer some guidance.

What I learned was that they are at least vaguely aware of the looming threats and don’t want to hear more about it. They know there isn’t really much they can do about it. I think they believe that when it happens they will just do what they can to deal with it. All things considered (apologies to the Canadian Broadcasting Corporation, I wonder if that program is still on) that is probably about the best attitude any of us can have.

What bothers me most about our youth is what they don’t seem to know. I’m talking about the kinds of knowledge that will likely be very useful when things get stinky. Larding debt onto the kids so they could go to college and learn computer science, physics, art history and how to be a social justice warrior was probably to their detriment.

I don’t exactly know what would be absolutely best for them to know, but I’m pretty sure it isn’t those kinds of things. I tend to believe that it will be good to know, as examples, how to shoot, how to fish, how to tell the difference between weeds and food, how to loosen rusted bolts and how to turn hemp into rope in addition to dope.

When Was America’s Peak Wealth?

Feb 232017

February 23, 2017 Posted by Raúl Ilargi Meijer at 2:47 pm Finance Tagged with: Babylon, eurodollar, GI Joe, gold, hippies, Ken Latta, moon, peak wealth, Vietnam, war 16 Responses »

Times Square New York City, 1958

A few days ago, I wrote an essay entitled “Not Nearly Enough Growth To Keep Growing”, in which I posited, among many other things, that “..the Automatic Earth has said for many years that the peak of our wealth was sometime in the 1970’s or even late 1960’s” along with the question “..was America at its richest right before or right after Nixon took the country off the gold standard in 1971?”

That same day, I received an email from (very) long time Automatic Earth reader and afficionado Ken Latta, who implied he thought the peak of American wealth was even earlier. That turned into a nice conversation. I really like the way his head works to frame his words. And Ken knows what he’s talking about by grace of the fact that he was a witness to it all.

I like that he defines wealth as “best measured by the capacity to be utterly wasteful”, and the early 1960’s in America as “a golden age, overshadowed, of course, by excess hubris.”. And I wonder many of you would agree that America was at the summit of its wealth perhaps as much as 55-60 years ago?

Here’s his first mail:

Ken Latta: Ilargi, A darned good editorial, but I would like to suggest a different baseline for America’s peak wealth. As experienced by the common man, now pronounced “deplorable”.

In my humble estimation based on having been there at the time. Peak wealth occurred somewhere in the neighborhood of 1963. It was a time when the Beach Boys and their music biz competitors were making money with songs about hi-powered cars and a life of surfing waves. Working Joes bought those cars and drove them on the street. Those on the coasts spent inordinate amounts of time surfing. A lot of ordinary car buyers were committed to trading in every three years. Some of the better off even thought every two years was the way to go. We wuz feelin invincible and we enjoyed such a comfortable way of life without forcing the majority of our wimmin into wage slavery. It was a golden age, overshadowed, of course, by excess hubris.

The national perception of wealthiness was such that the Pedernales Poltroon (LBJ) felt emboldened to declare simultaneous war on Poverty and Viet-Nam. When both had finished kicking our ass, wealth was something only to be found in the future. The best and the brightest immediately set about creating ways to steal that wealth. Most of the female population faced a choice between wage slavery or more privation than they were prepared to tolerate.

So, here we are in that future with the wealth thoroughly plundered and nothing much more comforting to anticipate than a new version of iPhone. Wealth is best measured by the capacity to be utterly wasteful and today for a large segment a new phone seems to be close to the limit. As for a big segment of new car buyers, instead of trying to calculate the optimal trade-in period, many focus on hiding it from the repo man.

To which I replied:

Yeah, there’s a good argument to be made for 1963 as well. But then, the whole Woodstock thing seems similar to that, in the terms you use. The carefree and wasteful. Where did the hippies get the time to be hippies? Then again, you could argue that Woodstock was already a first protest against that very attitude. On the finance front, Nixon couldn’t pay back everyone in gold anymore, so that’s a bad sign right there. His 1971 move was born of necessity.

And Ken said:

Ken Latta: I just picked 1963 because it happened to be a significant year for me personally. I don’t think it really useful to think of peaks as being so much like a curve with zero radius. I’d really put the period of peak actual American wealth as approximately 1958 to about 1967. Being a hippy didn’t cost much and in most cases their parents could comfortably provide their essentials. Hippies weren’t opposed to working, when they needed to, and they generally existed within a sharing economy.

Yes, Nixon had no choice on closing the gold window. The rumors of Fort Knox vault being more or less empty might well be true. What we know is that in recent times we always steal the bank gold from our conquests. Somali pirates are second raters in comparison.

I suspect that an important factor behind the gold rush might have been a consequence of an MIC logistical move prior to our little Viet-Nam adventure. A huge stockpile of decommissioned WW-II bomb casings had been sold for scrap to European companies. You know since we weren’t going to fight any more non-nuke wars. The Pentagon desperately bought them back because we had very limited production capacity at the beginning of the project for rapid promotion of military officers. That must have created a pretty big pile of Eurodollars and de Gaulle seems to have preferred gold.

When Tricky closed the window we were already poor and Detroit’s new cars were almost without exception, junk. They like to credit news anchor Walter Cronkite for ending the war when he told his audience that the war couldn’t be won. I suspect we was put up to it by Washington when they could no longer ignore that it was unaffordable. It has been downhill ever since. The borgified media cooperated in obscuring that by focusing our attention on acts of petty criminals, acts of god, the Kardashian sisters and their ilk. Plus, of course, random examples of techno dazzlement.

That’s when I thought getting an article out of him would be great:

You should write an article about this. It’s the most crucial thing, and I wasn’t there. Why that period was what it was, vs not being what this one is, will be a very big story.

And he complied. So here’s Ken Latta:

Ken Latta: A recent post on The Automatic Earth contained a question regarding the point of peak wealth in The United States and whether President Nixon’s closing of the gold window initiated the decline. Being now 73 years old and still able to recall many impressions of that era, I pondered the issue to see if I might come up with a somewhat acceptable answer.

Back in the day we commonly joked that statistics lie and we have the numbers to prove it. Us having the numbers was the joke part. When it comes to concepts like wealth, I do not see numbers such as GDP as being reliable indicators. As the French and Russian revolutions revealed, a grossly unequal society is a poor society. Though it might display an image of being rich and powerful, that is only a mirage.

As was once common knowledge to most Earthlings, the 1930’s saw wealth disappear all over the world. That was the common view, but it is wrong. The social wealth was well and truly squandered during the first three decades of the twentieth century. The creeping social impoverishment just burst into public view in the 30’s. As is the custom, when poverty haunts the land barbarians will appear at the gates. And so the first half of the fifth decade was devoted to destroying as much of civilization as was deemed feasible at the time.

The USA government borrowed massive amounts of money to create the means of wreaking such havoc. There are always consequences from such actions. At the beginning of USA mobilization almost all of its industrial capacity was re-engineered and expanded to efficiently produce war materiel. The factories hummed and employed large numbers of women on the production lines. A consequence was the very limited availability of consumer goods, which were subject to rationing. With steady pay envelopes and little available to buy, lots of small denomination war bonds were sold to the populace. We might assume that some of it found its way into mattresses.

When peace broke out the populace had surplus cash and claims against the government. They were exuberant over victory and tired of not having anything new to enjoy. Millions of men were being discharged from the armed forces and those young factory girls wanted some babies. Those men would replace many of the women in the factories, but the factories needed to retool again to produce the consumer goods everybody wanted. Part of the new consumer demand was met by selling military surplus goods to the public. A lot of jeeps, trucks, industrial tools, materials such as steel panels for Quonset Huts and even light aircraft and cargo planes ended up in the hands of former GI Joe’s.

The Industrial Concerns gained another respite when President Truman signed an executive order declaring the USA would be forever more a permanent war economy. So outfits like Boeing, Douglas, Lockheed, Martin et al could keep right on producing large numbers of warplanes. Shipyards continued building aircraft carriers, submarines, etc. New versions of battle tanks rolled off the lines every few years. And of course, the nuclear devices kept getting more powerful and numerous.

Those GI Joe’s had experienced in the services a sense of brotherhood and unity in the face of us versus them. They brought those ideas into the factories and cemented the gains made by prewar union organizers. Very lucrative contracts were forced on employers and for once national wealth was being spread fairly evenly across social strata.

Ad for Ford Woodie, 1960

The working class began to feel sufficiently wealthy that they turned to indulging their fantasies and emulating as best they could the actions of the truly rich. Around the middle of the 1950’s they increasingly opted for more luxuriously appointed and/or higher performance cars and trucks than the economical versions that had been the norm for that class. Many also embraced the published suggestions that these vehicles should be traded for a new one every three years, which at that time was the standard term for auto financing.

In other words, why enjoy the net worth benefits of driving a paid for vehicle when you could enjoy the increased status of once again driving a brand new car. The propaganda was quite effective and the practice quite wasteful. They discovered the joys of power boating and over time the boats kept getting bigger and fancier. It is with much justification that this period is often described as the Golden Age. It wasn’t just that so many people were living well. It was a time when the working class seemed to have been most comfortable with their civilization. I put it down to people having full permission to be as wasteful as they wanted.

It could not last. The rulers filled with hubris arrogantly declared simultaneous war on poverty, Viet-Nam and the Moon. While also running a bodacious arms race with the USSR. At first it seemed to bode well for old GI Joe. The already very active military industries had to gear up to supply the weapons, munitions and materiel. Not to mention moon rockets. More good jobs to be had. But, as it turned out only the Moon war went mostly as planned. Though there were casualties. The flamboyant Gus Grissom and two crew mates were burned alive in a sealed Apollo capsule while waiting for launch. The Moon war ended with a unilateral cease fire when it was finally determined there was nothing there worth destroying. Aside from some junk scattered across the Lunar landscape, the Moon was left largely unmolested. Except for a few pounds of stolen rocks.

The other two wars unleashed a whole lot of grief across the land. GI Joe found himself looking out across a land he no longer understood. His kids had become hippies, freedom riders and flag burners. A good many had fled to Canada. The kids that failed to avoid the draft, after too many bad experiences in pursuit of an apparently phantom goal started behaving mutinously. A not entirely rare action was to slip an armed hand grenade into an officers tent. It happened to a young Marine officer who the author had met at my fiancée’s family home prior to his shipping out.

The Golden Age was over. Worse yet, petroleum geologist M. King Hubbert’s prediction of a peak of US oil production in the early 70’s was about to come true. Confidence began to wain and habits changed. Auto buyers increasingly focused on finding a model that might last long enough to get it paid for and be economical to operate. The door was opened for Japan and Germany to sell cars here and they soon sold a lot of them. US manufacturers fell victim to a labor force that no longer believed and management hubris.

The nation was hemorrhaging dollars to Europe, Japan and the OPEC cartel. According to the Bretton Woods agreement, those dollars were convertible to gold. Some nations, in particular France under de Gaulle, decided they wanted the gold. As the gold pile diminished, Nixon had no choice and closed the so called gold window thus breaking the Bretton Woods agreement. The subsequent creeping expansion of poverty and financial insecurity has reduced our civilization to a sullen mockery of its glory days.

The period following WW-II was anomalous for the era in that the State was encumbered with enormous debt while private debt was very modest. According to economists like Michael Hudson and Steve Keen, that is a recipe for citizen prosperity. The post war era seems to be a good example. Prior to the war state debt had been very low and private debt had swollen enormously. That ended rather badly. As Keen insists, private debt is a killer. A good reason being for example that it’s hard to repossess a government, but things like cars and houses are fairly trivial exercises.

When people see themselves as at constant risk of losing almost everything they are rarely happy campers. During the 70’s buyers and their lenders began offering ridiculous prices for houses. Car dealers often marked desirable new cars above MSRP. In the years that followed almost everything was bought on credit. To paraphrase Sen. Dirksen, a debt here a debt there after a while it turns into a real nightmare.

According to Dr. Hudson, in ancient Babylon credit was widely used. The principle creditors were the palace and the temple. It mostly consisted of running a tab for citizens using their services and buying supplies and typically paid when the crop came in. A practice of our small town grocer back in the 50’s. Though not for such extended periods. The custom of their civilization was, on ascension of a new king or crop failure or a war, to forgive all the palace and temple debts. This was deemed necessary to prevent too many of the population from falling into bondservitude, which would have brought down the kingdom.

In more recent times that was called a debt jubilee. It could work because most debt was owed to entities that had ultimate claims on all wealth in the domain. They could handle writing off debt without suffering bankruptcy. Private creditors, written as banksters, cannot do so unless the Palace (White House) and Temple (Federal Reserve) pay them full price for their worthless paper. In 2008 even the intellectually challenged GW Bush observed that ‘this sucker could go down’. I would never bet that it won’t go down next time, which could be most any time now. The barbarians are already wearing war paint (well actually pussy hats) and brandishing war clubs (signs on sticks). One can guess that unaccredited schools may already be training a cadre of mixologists in the proper preparation of Mr Molotov’s favorite cocktail.

It seems like a cosmic joke that Hammurabi and his ilk had better economic advisors than any of our modern meathead leadership. Of course, in his time civilization and turning wasteful practices into wealth was still a fairly new idea. It’s an old idea now apparently closing in on its pull date. I am drawn to wonder if civilization could ever have worked any other way. I’m calling it not very likely.

Did The Greatest American Alive Just Die?

Jun 042016

June 4, 2016 Posted by Raúl Ilargi Meijer at 8:25 am Finance Tagged with: Ali, America, boxing, Muhammad Ali, pretty, racism, segregation, Vietnam, war 3 Responses »

Ali escorted to jail April 28 1967

“Boxing legend dies”, is what most headlines say. And the news was first reported on sports pages, though it did soon move to frontpages, fast.

Muhammad Ali was so much more than a boxing legend. So much more that to mention boxing first doesn’t do him justice. Ali was first and foremost a very brave and intelligent man, who changed America for the better. Or should we say: changed Americans?

He grew up in an intensely racist, segregated and divided America, and in the arguably most divided part of that America. That shaped him. Boxing was merely his way out, his way to fight discrimination and racism.

But it didn’t come easy. His was a lonely fight, for most of it. But then, he wasn’t the greatest for nothing.

The only people who stood by him were the Nation of Islam, who made him say some crazy things and from whom he later split acrimoniously; Ali wanted peace, they, not so much. Ali found he was much closer to Martin Luther King at heart. But still.

I saw some numbers flash by earlier. America’s been at war in 223 of the 240 years of its existence since 1776.

Ali refused to go. No matter what the cost. He could easily have been killed for doing it, or locked away for the rest of his life, and he knew it. But he didn’t even flinch. He would not fight the fight of those who set their dogs on his people. He would instead fight against them.

“I am America. I am the part you won’t recognize… But get used to me. Black, confident, cocky; my name, not yours; my religion, not yours; my goals, my own; get used to me.”

“Why should they ask me to put on a uniform and go 10,000 miles from home and drop bombs and bullets on brown people in Vietnam while so-called Negro people in Louisville are treated like dogs and denied simple human rights?

No, I’m not going 10,000 miles from home to help murder and burn another poor nation simply to continue the domination of white slave masters of the darker people the world over.

This is the day when such evils must come to an end. I have been warned that to take such a stand would cost me millions of dollars. But I have said it once and I will say it again. The real enemy of my people is here.

I will not disgrace my religion, my people or myself by becoming a tool to enslave those who are fighting for their own justice, freedom and equality. If I thought the war was going to bring freedom and equality to 22 million of my people they wouldn’t have to draft me, I’d join tomorrow.

I have nothing to lose by standing up for my beliefs. So I’ll go to jail, so what? We’ve been in jail for 400 years.”

(NOTE: Whether Ali ever actually said: “No Vietcong ever called me a nigger” is not entirely clear. But he did say this:)

“My conscience won’t let me go shoot my brother, or some darker people, or some poor hungry people in the mud for big powerful America. And shoot them for what? They never called me nigger, they never lynched me, they didn’t put no dogs on me, they didn’t rob me of my nationality, rape and kill my mother and father… Shoot them for what? How can I shoot them poor people? Just take me to jail.”

Whether Ali was the greatest American alive when he died a few hours ago is of course a personal view. That he was way up there is beyond dispute. And he had been there for 50 years, while he was still alive. Oh, yeah, and he was a good boxer too. And very pretty.

Newer Entries