Alt-Market: The Economic Crash So Far

Brandon Smith at Alt-Market has penned this article on the current state of the US economy in November 2019.

The Economic Crash So Far: A Look At The Real Numbers

There are many problems when attempting to track a faltering economy. For one, the people in government generally do not want the public to know when the system is in decline because this looks bad for them. They prefer to rig statistical indicators as much as possible and hope that no one notices. When the crash occurs, they then claim that “no one saw it coming” and the disaster “came out of nowhere”, so how could they be to blame?

I have even heard it argued that political leaders, including the president, have a “duty” to lie about the state of the economy because once they admit to the decline they will cause a panic and perpetuate the crisis. This is stupidity. If an economic system is in disrepair and is built on a faulty foundation, then the problems should be identified and fixed immediately. The weak businesses should be culled, not bailed out. The wasteful government spending should be cut, not increased. The downturn should not be hidden and prolonged for years or decades. In most cases, this only makes the inevitable crash far worse and more damaging.

Another factor, which some people might call “conspiracy theory” – but it has been proven time and time again in history – is that the money elites have a tendency to engineer economic disasters while deliberately hiding the real statistics from the public. Why? Well, if the real data was widely disseminated, then a crash would not be much of a surprise and the populace could be prepared for it. I suspect the elites hide the data because they WANT the crash to be a surprise. The bigger the shock, the bigger the psychological effect on the masses. This fear and confusion allows them to make changes in the power structure of a nation or of the entire world that they would not be able to accomplish otherwise.

The most rigged statistics tend to be the least important overall in analysis, but this does not stop the mainstream media and investors from hyper focusing on them. How many times have you told friends and family about the collapse in manufacturing or the explosion in consumer and corporate debt, only to hear them say, “But the stock market is at all-time highs!” Yes, even though stock markets are a meaningless trailing indicator, even though GDP stats are a complete fallacy, and even though jobless numbers do not include tens of millions of people out of work, these are the stats that the average person takes mental note of when consuming their standard 15 minutes of news per day.

While the issue of rigged statistics makes analysis of a crash difficult, a willfully ignorant citizenry makes reporting on the real data almost impossible. It’s sad to say, but a large number of people do not want to hear about negative information. They want to believe that all is well, and will delude themselves with fantasies of blind optimism and endless summers. Like the tale of “The Ant And The Grasshopper”, they are grasshoppers and they see anyone who focuses on the negative as “chicken littles” and “doom mongers”. In their minds they have all the time in the world, until they freeze and starve when winter comes.

When I encounter people who actually believe the manipulated numbers or buy into the stock market farce or simply don’t want to accept that a crash could happen in their lifetime, I always ask them to consider these questions: If the global economy is not on the verge of collapse, then why did central banks keep propping it up for the past ten years? And if central banks have been propping up the system, how much longer do you think they can do this? How much longer do you think they want to do it? What if one day they decide to let the entire house of cards tumble? What if such an event actually benefits them?

We’ve seen that a broken economy can be technically held together for a decade, but under the surface, the structure continues to rot. The bottom line is that even if the elites wanted to keep the system going for another ten years, and even if politicians continued to help them by pumping out false statistics, there is no way to hide the effects of crumbling fundamentals. We saw this during the crash of 2008, and now we’re seeing it again…

All of these factors and more show an economy in recession or depression (depending on what historic standards you use). In the darker corners of the investment world, the great hope is that the central banks will return to pumping trillions into the banking sector ($16 trillion during the TARP bailout dwarfs the $250 billion the Fed has recently pumped out in their repo markets). They hope that this will free up even more credit. Meaning, they believe only more debt will save the system from suffering.

I say, time is up on the debt party. More stimulus will not stall the crash that is already happening, and the Fed does not appear poised to print anywhere near what it did during the credit crisis, at least not in time to change the trend. The can has been kicked for the last time. The grasshopper mentality will not save people from the clear reality. Only preparation and planning will.

Click here to read the entire article at Alt-Market.

AIER: Paul Krugman Is Wrong on Gov Debt

The American Institute for Economic Research has up an article on why economist Paul Krugman is wrong when he says that government “debt is money we owe to ourselves” and therefore not anything to worry about.

Krugman’s Zombie Idea: We Owe It to Ourselves

Paul Krugman coined the term “zombie ideas” to describe “policy ideas that keep getting killed by evidence, but nonetheless shamble relentless forward, essentially because they suit a political agenda.”

Krugman has revived one of his favorite zombies: the notion that high government deficits aren’t dangerous in the way that an individual incurring heavy debt is because the national debt is “money we owe to ourselves.” He doubled down on his claims in response to an article comparing the dangers the debt poses to future generations to climate change.

Krugman has repeatedly written on this topic at his blog (see here and here). It was a common refrain of his during the Eurozone crisis and in the aftermath of the Great Recession when there was a bipartisan push to cut future deficits to prevent future Greek-style debt crises.

As with most myths, there is a grain of truth to the claim. National debt does differ from the debt individuals and households incur in a few notable ways. Individuals have a finite lifetime to incur and repay their debts. Governments don’t; they can pass debt onto future generations. So long as people are willing to lend it money and the government can service debt as it comes due, government debt can persist in perpetuity. And to the extent that the debt is owned by domestic citizens, the money that is used to repay the debt needn’t leave the economy.

That said, this grain of truth doesn’t eliminate the ocean of evidence against Krugman’s claim that worrying about the burden the national debt might impose on future generations is nonsensical. Here are some reasons why this argument is fundamentally flawed.

A large share of the national debt is owed to foreigners

For starters, it’s not the case that the national debt is entirely owed to “ourselves” (i.e., that it is exclusively owned by US citizens). Nearly one-third of the US debt ($6.636 trillion of the $22 trillion in debt) is owned by foreign governments and international investors.

This isn’t necessarily a bad thing. The willingness of foreigners to lend to the U.S. government has helped keep Treasury rates at historical lows, making it cheaper for future taxpayers to repay the interest on the national debt. If the US government is running deficits to finance justifiable initiatives (say, fighting World War II) and spending programs that will boost future growth, we should welcome funds from investors regardless of their nationality.

Nevertheless, it undercuts Krugman’s case that repaying the debt won’t burden future taxpayers and the future economy on net because the money will “stay in the U.S. economy.”

The fallacy of “we” and the reality that future taxpayers really do “foot the bill”

A bigger problem is that Krugman commits what Don Boudreaux calls the “Fallacy of Us, We, and Our.” Even if the entire national debt is owned by US citizens, there is no real sense in which “we” owe the debt to “ourselves.” The individuals incurring and benefitting from the debt are entirely different from the individuals who must bear the burden of repaying that debt.

Once we move past the intellectual sleight of hand of using collective pronouns like “we” and “ourselves” to describe all Americans across time, we get a much clearer picture of who gains and loses from the national debt.

Current taxpayers and citizens clearly benefit; they receive the benefit of increased government spending without incurring the full cost of those expenditures. Future taxpayers and citizens, who will have to repay the debt as it comes due, are clearly hurt. They have to pay higher taxes to repay the debt incurred and owned by the prior generation.

This insight remains true even if the older generation sells them its bonds before they pass. As James Buchanan astutely noted decades ago, future generations first have to buy these bonds from the prior generations. And, in order to buy them, they must first reduce their consumption. It is that reduced consumption — not the higher taxes they’ll have to pay when the debt is retired (since, by assumption, that money will flow right back to them as bondholders) — that is the true cost imposed on future generations from government debt.

Government debt “crowd outs” private investment and creates deadweight loss

The “we owe it to ourselves” argument also glosses over two of the most important arguments for why deficit spending is not a free lunch for taxpayers or the future economy.

First, deficit spending crowds out private investment…

Click here to continue reading at AIER.org.

Mises: Mercantilism, Merchants, and “Class Conflict”

Conceived in Liberty is a book authored by economist Murray Rothbard, detailing the revolutionary USA’s founding struggle between liberty and power. The excerpt below is from the book, briefly discussing mercantilism and class conflict. It seems relevant in this day as Democrats and Republics alike squabble over the spoils of a strong government intervening in economic affairs. Conceived in Liberty is available as a free pdf download from Mises or as a hardback book.

Mercantilism, Merchants, and “Class Conflict”

[This article is excerpted from Conceived in Liberty (1975), volume 1, chapter 32: “Mercantilism, Merchants, and ‘Class Conflict.'”]

The economic policy dominant in the Europe of the 17th and 18th centuries, and christened “mercantilism” by later writers, at bottom assumed that detailed intervention in economic affairs was a proper function of government. Government was to control, regulate, subsidize, and penalize commerce and production. What the content of these regulations should be depended on what groups managed to control the state apparatus. Such control is particularly rewarding when much is at stake, and a great deal is at stake when government is “strong” and interventionist. In contrast, when government powers are minimal, the question of who runs the state becomes relatively trivial. But when government is strong and the power struggle keen, groups in control of the state can and do constantly shift, coalesce, or fall out over the spoils. While the ouster of one tyrannical ruling group might mean the virtual end of tyranny, it often means simply its replacement by another ruling group employing other forms of despotism.

In the 17th century the regulating groups were, broadly, feudal landlords and privileged merchants, with a royal bureaucracy pursuing as a superfeudal overlord the interest of the Crown. An established church meant royal appointment and control of the churches as well. The peasantry and the urban laborers and artisans were never able to control the state apparatus, and were therefore at the bottom of the state-organized pyramid and exploited by the ruling groups. Other religious groups were, of course, separated from or opposed to the ruling state. And religious groups in control of the state, or sharing in that control, might well pursue not only strictly economic “interest” but also ideological or spiritual ones, as in the case of the Puritans’ imposing a compulsory code of behavior on all of society.

One of the most misleading practices of historians has been to lump together “merchants” (or “capitalists”) as if they constituted a homogeneous class having a homogeneous relation to state power. The merchants either were suffered to control or did not control the government at a particular time. In fact, there is no such common interest of merchants as a class. The state is in a position to grant special privileges, monopolies, and subsidies. It can only do so to particular merchants or groups of merchants, and therefore only at the expense of other merchants who are discriminated against. If X receives a special privilege, Y suffers from being excluded. And also suffering are those who would have been merchants were it not for the state’s network of privilege.

In fact, because of (a) the harmony of interests of different groups on the free market (for example, merchants and farmers) and (b) the lack of homogeneity among the interests of members of any one social class, it is fallacious to employ such terms as “class interests” or “class conflict” in discussing the market economy. It is only in relation to state action that the interests of different men become welded into “classes,” for state action must always privilege one or more groups and discriminate against others. The homogeneity emerges from the intervention of the government in society. Thus, under feudalism or other forms of “land monopoly” and arbitrary land allocation by the government, the feudal landlords, privileged by the state, become a “class’ (or “caste” or “estate”). And the peasants, homogeneously exploited by state privilege, also become a class. For the former thus constitute a “ruling class” and the latter the “ruled.”1 Even in the case of land privilege, of course, the extent of privilege will vary from one landed group to another. But merchants were not privileged as a class and therefore it is particularly misleading to apply a class analysis to them.

A particularly misleading form of class theory has often been adopted by American historians: inherent conflicts between the interests of homogeneous classes of “merchants” as against “farmers,” and of “merchant-creditors” versus “farmer-debtors.” And yet it should be evident that these disjunctions are extremely shaky. Anyone can go into debt and there is no reason to assume that farmers will be debtors more than merchants. Indeed, merchants with a generally larger scale of operations and a more rapid turnover are often heavy debtors. Moreover, the same merchant can shift rapidly from one point of time to another, from being a heavy net debtor to net creditor, and vice versa. It is impermissible to think in terms of fixed persisting debtor classes and creditor classes tied inextricably to certain economic occupations.

The merchants, or capitalists, being the peculiarly mobile and dynamic groups in society that can either flourish on the free market or try to obtain state privileges, are, then, particularly ill-suited to a homogeneous class analysis. Furthermore, on the free market no one is fixed in his occupation, and this particularly applies to entrepreneurs or merchants whose ranks can be increased or decreased very rapidly. These men are the very opposite of the sort of fixed status imposed on land by the system of feudalism.

Forward Observer: Economic Warning – June 2019

Sam Culper at Forward Observer has a short article up discussing recent economic projections for a recession to begin in 2020 or even this year.

What follows is the Economic Warning portion of this week’s Watch Report.

In this month’s FOMC meeting, Federal Reserve chairman Jerome Powell acknowledged that there was soft economic data emerging — a potential warning sign of recession. Many investors expect a cut to interest rates next month to stave off a recession. Some economists expect two rate cuts this year, regardless of when they happen. One asset manager said he expected four rate cuts this year.

Recession and Trump’s reelection chances

This month, Jeffrey Gundlach, Morgan Stanley, and JPMorgan Chase all revised their expectations of recession forward to 2020. JPMorgan’s Bruce Kasman said it might even start this year. That’s a big shift from what these firms were saying last month, so I agree that we can expect the Fed to cut interest rates in order to stave off a recession. Gundlach, who has no faith in the Fed’s predictive capability, believes that by the time the Fed has to cut rates, it will already be too late.

This, of course, will have major implications for President Trump’s reelection chances. High profile managers like Scott Minerd and Kyle Bass both believe that the recession will be average or mild, respectively. Others, like Gundlach, have warned that this recession is going to present more difficult challenges.

If this recession poses the risks that Gundlach describes (below) then Trump’s chances of reelection will be seriously threatened. If that’s the case, then it’s time to batten down the hatches for higher taxes and wealth redistribution based on what we saw during this week’s Democratic debates and what’s been proposed in the lead up.

The problem with cutting interest rates this year to stave off a recession next year is that the Fed will have less to cut once a recession does hit, which increases the likelihood that the recession is more painful than “mild.”…

Click here to read the entire summary at Forward Observer.

Burning Platform: 2019 From a Fourth Turning Perspective

William Strauss and Neil Howe (both historians, among other things) wrote a book in 1997 called The Fourth Turning: An American Prophecy — What the Cycles of History Tell Us About America’s Next Rendezvous with Destiny — which introduced what is now called Strauss-Howe Generational Theory. According to that theory, there is a four stage cycles of eras, called turnings, which repeat in cycles of approximately 80-100 years, the fourth of which is the Crisis turning, an era of destruction and revolution. The theory has its critics as well as proponents, so, as with everything, use your think-thingy. The following is an excerpt from a lengthy article on The Burning Platform titled 2019 From a Fourth Turning Perspective, which gives some overview of the theory and applies it to world and US events.

“An impasse over the federal budget reaches a stalemate. The president and Congress both refuse to back down, triggering a near-total government shutdown. The president declares emergency powers. Congress rescinds his authority. Dollar and bond prices plummet. The president threatens to stop Social Security checks. Congress refuses to raise the debt ceiling. Default looms. Wall Street panics.” – The Fourth Turning – Strauss & Howe

Image result for budget impasse trump schumer

Strauss and Howe wrote their book in 1996. They were not trying to be prophets of doom, but observers of history able to connect events through human life cycles of 80 or so years. Using critical thinking skills and identifying the most likely triggers for crisis: debt, civic decay, and global disorder, they were able to anticipate scenarios which could drive the next crisis, which they warned would arrive in the mid-2000 decade. The scenario described above is fairly close to the current situation, driven by the showdown between Trump and the Democrats regarding the border wall.

It has not reached the stage where all hell breaks loose, but if it extends until the end of January and food stamp money is not distributed to 40 million people (mostly in urban ghettos) all bets are off. The likelihood of this scenario is small, but there are numerous potential triggers which could still make 2019 go down in history as a year to remember.

As we enter the eleventh year of this Fourth Turning, the fourth Crisis period in U.S. history, the mood of U.S. citizens and citizens around the globe continues to darken. Fourth Turnings are driven by generational configuration and the emotional reaction to events by the Prophet generation leaders, Nomad generation spearheads, and Hero generation cannon fodder.

As we close out this year, stock markets are gyrating wildly, central bankers are trying to reverse their nine years of interventionist strategies to sustain the establishment, civil chaos spreads across the European continent, saber rattling between the U.S., Russia and China increases, the animosity between political parties reaches new heights, the Deep State relentlessly pursues their Mueller led coup against Trump, mega-social media corporations tighten their grip on free speech by silencing conservatives, leftists push their socialist, open borders, normalizing degeneracy agenda, and global recession gains momentum as trade declines and global debt reaches unserviceable levels…

Click here to read the entire article at The Burning Platform.

Patriotman on American Partisan has his own take on the article, The Fourth Turning & The Future, As I See It:

…I think that the article was very closely aligned with my fears. The biggest threats we face as a country are all intertwined (thus, don’t consider this a ranked list) and are: civil unrest due to a growing divide between ideologies, economic slowdowns due to massive debt and employment trends, and outside challenge of the unipolar world by China and Russia.

I don’t think that any of these are the causation for the others, but if I was forced to choose it would be the differing of ideologies that is driving the other two. The urban and rural divide has always been present obviously, but the obvious disconnect between the coastal elites in their ivory towers and those in the hinterlands seems unsolvable at the moment. The problem mostly lies with the former as the latter would like nothing more than for everyone to be left alone by everyone else. It is the liberal elites who insist on forcing their culture, norms, and ideology on those conservatives in rural America and continually try to remake the system in their permanent favor. They attack our religion, our culture, and our lifestyle because they do not approve of it…