The market has finally stopped being moronic

1)   Greece is bankrupt. It has been for years. The market has finally stopped being moronic and figure out the obvious (so much for the “efficient” hypothesis).

2)   Greece WILL default. This WILL crush German and French banks.

3)   The EU in its current form (as well as the Euro) are DONE.

4)   The US banking system is similarly fragile and on the verge of collapse.

5)   The US economy is in a DE-pression and rolling over in a big way AGAIN. All the economic data is being massaged to look better than it is. Look around you, does the economy look OK to you?

6)   The US Government is broke. Obama’s jobs plans is absurd. Where’s the money going to come from?

7)   Bank of America (as well as the other TBTFs) is insolvent. The only reason they’re still in business is rampant fraud, lies, and theft. What’s happening in Greece is coming to them soon.

8)   The Federal Reserve has lost control of the markets. QE 3, IF it comes, will accomplish nothing. Bernanke will be stepping down within 18 months and possibly facing legal battles.

Everything above, except number 8, is likely. I take exception to the “IF” in the last item. It will accomplish nothing, but it will happen. Without QE3 (either overt or covert), the US government cannot fund its needs. Markets will not fund $1.5 Trillion deficits so the Fed will directly or indirectly purchase government securities so that Social Security and other government payments don’t stop.

Most progressive tax systems in the world

It is assumed that Socialism is at its zenith in the Scandinavian countries, yet they do not seem to have the insurmountable problems that Europe and the US face. Why is that?

Is the U.S. More Socialist than Scandinavia?

It is in that we have a more progressive overall tax system than the Scandinavian countries of Denmark, Norway, and Sweden do.In Denmark, the poorest 30% pay 14.1% of all taxes.  In the United States, the poorest 30% pay only 6.1% of taxes.  In Denmark, the richest 30% pay 48.7% of all taxes.  But in the United States, the richest 30% are soaked for 65.3% of all taxes.Our poorest 30% in the U.S. pay only 43% of the portion of all taxes paid by the poorest 30% in Denmark, which most Americans assume is much more socialist than we are.  Meanwhile, our richest 30% pay 34% more of the total tax burden than do the richest 30% in Denmark.  These are not small differences in the degree of our socialism.  They are Titanic, with Titanic consequences.  We are more into the envy of class warfare than are the Scandinavians!

The United States has one of the most progressive tax systems in the world.  None of the Scandinavian countries are as bad at soaking their richer citizens and at giving their poorer citizens a pass in taking responsibility for the costs of the very government programs on which they have an equal vote.  Americans are clearly living the socialist dream that those with the greatest income will carry those with less income.  We are living by the socialist mantra that each shall provide to the rulers according to their means.  The rulers will then use the money to subsidize those they who will support them politically with votes or money and to provide distracting circuses.

As with all countries that have tried to live by socialist principles, we are finding that many of the more able or willing to produce are having second thoughts.  We are finding that some of the more able and responsible shrug and retire early.  Or that some simply slowdown and hold their cards until such blithering fools as Obama and Harry Reid are removed from their positions in the 2012 elections.  The majority of businessmen are in such a holding phase just now.  Our economy is in the doldrums as a result and we will not see any growth either until after the November 2012 elections with an Obama loss or until it is absolutely clear that he will lose.  Atlas has Shrugged and is waiting to see if he should put the World back on his shoulder at a later time.

World economy gets better

Obviously, the twists and turns of the economy are complex and difficult to foresee. Jim Rogers, however, provides an excellent, succinct explanation for gold and other commodities, describing them as a “heads I win and tails I win” situation. Nothing is so simple and nothing is guaranteed. Yet, it does seem to be a nicely hedged bet with respect to whatever occurs ahead.

Here is Mr. Rogers rationale for commodities:

… if the world economy gets better i’m going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn’t get better, Bob, you’re not going to make any money in Toyota or IBM but you might make money in commodities because they’re going to print more money. It’s the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I’m short stocks but i don’t expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection.

The efficacy of Keynesian Economics is doubted

The debate over Keynesian economics rages on. The political class, buttressed by their “rented economists,”  argues that Keynesian intervention is necessary. When promised outcomes do not develop, it is claimed that the remedial dosages were too small. More spending will correct matters.

Increasingly, the efficacy of Keynesian Economics is doubted. Common sense, rather than sophisticated formulas and models, is all that is required to see through the false claims and reasoning. Mish provides his view of Keynesianism and “stagflation:”

Stagflation is one of those muddled terms that people debate over. The definition I prefer is inflation and recession at the same time. Using that definition, Brazil and parts of Asia are in stagflation now.

Recall that Keynesian theory stated recession and inflation at the same time were impossible. The 1970′s proved that theory to be rubbish.

Keynesianism should have died in the 70′s, totally discredited, but somehow it survived in academia where its nonsensical ideas still haunt us to this day.

Mish’s observations are correct, but the last one begs for explanation. Why would something so obviously wrong be maintained and expanded?

Quite simply, Keynesianism benefits the ruling class. It does not matter whether Keynesianism works. It is the basis for government controlling the economy and your life.  Keynesianism is the source of government growth and power. It provides the motivation and impetus to disregard the Constitution. Keynesianism has made every perceived fault or inequality in life a reason for political action. Keynesianism is an elitist’s dream.

Keynesian economics is wrong in theory and has no empirical support.  It slowly impoverishes nations by transferring wealth to the political class from the productive class. It increases the power of government at the expense of citizens. It is evil disguised as necessity and “science.”

Keynesianism, not campaign contributions, is the mother’s milk of politics. Its acceptance was “bought” via an elaborate government bribe system. Grants, the tenure system and Washington employment are all tools used to corrupt young economists. Rewards go to those economists who advocate active and interventionist government. Keynesianism is the tool of Statists.

Reduction is government’s size and power cannot be achieved without an outright rejection of Keynesian economics. That is why the political class defend it so strongly.

So much has been priced in

Most people are convinced that QE3 (or its equivalent) will soon be with us. And most of these also believe that it will be good for the stock market.

TF Market Advisors cautions that the assumption that markets will respond may be incorrect:

Maybe all the Fed members can read Winnie the Pooh and the Money Pot prior to the September meeting.  It is a simple story of how greed, and gluttony, and doing what feels

Supposedly independent of government influence

One of the reasons why the Fed fights an audit:

A Bloomberg news investigation found that while the Treasury Department was pumping $700 billion into banks under the Troubled Asset Relief Program, the Fed was covertly operating its own bailout program – the biggest in American history. The Fed’s Shadow TARP issued $1.2 trillion in loans to domestic and foreign banks from 2007 to 2010, far more than Congress authorized Treasury to spend under TARP.

That government at all levels is out of control is pretty well understood by all but the politicians and their cronies or dependents. The Federal Reserve is supposedly a private agency, supposedly independent of government influence. It is arguably the most powerful agency or department in the world. And its actions are not subject to review or elections.

How could anything go wrong with this arrangement?

Further intervention is more than harmful

Belief that government intervention, as advocated by Keynesian economists, can improve an economy should have ended in the early 1980s. Yet it has not because government power and control is dependent upon perpetuating the myth that government needs to manage the economy.

Continuing intervention eventually cripples an economy by distorting price signals and creating the  mis-allocation and waste of resources. Additionally, the general loss of flexibility to businesses reduces their willingness to respond to opportunities. Slowly, capital is destroyed via mal-investment. Entrepreneurs faced with increasing uncertainty are unable to find projects with expected returns that compensate for risk.  They refuse to deploy capital, hire workers or expand their businesses. At some point, the system shuts down.

Bernanke is already printing money again

Obviously, the twists and turns of the economy are complex and difficult to foresee. Jim Rogers, however, provides an excellent, succinct explanation for gold and other commodities, describing them as a “heads I win and tails I win” situation. Nothing is so simple and nothing is guaranteed. Yet, it does seem to be a nicely hedged bet with respect to whatever occurs ahead.

… if the world economy gets better i’m going to make money in commodities because of shortages that are developing. Especially in agriculture and precious metals. If the world economy doesn’t get better, Bob, you’re not going to make any money in Toyota or IBM but you might make money in commodities because they’re going to print more money. It’s the wrong thing to do but they will print money. Bernanke is already printing money again. You have to protect yourself. I’m short stocks but i don’t expect the world economy to get better. Not much better anyway, if it does and I am long commodities as a protection.

The US Government is broke

1)   Greece is bankrupt. It has been for years. The market has finally stopped being moronic and figure out the obvious (so much for the “efficient” hypothesis).

2)   Greece WILL default. This WILL crush German and French banks.

3)   The EU in its current form (as well as the Euro) are DONE.

4)   The US banking system is similarly fragile and on the verge of collapse.

5)   The US economy is in a DE-pression and rolling over in a big way AGAIN. All the economic data is being massaged to look better than it is. Look around you, does the economy look OK to you?

6)   The US Government is broke. Obama’s jobs plans is absurd. Where’s the money going to come from?

7)   Bank of America (as well as the other TBTFs) is insolvent. The only reason they’re still in business is rampant fraud, lies, and theft. What’s happening in Greece is coming to them soon.

8)   The Federal Reserve has lost control of the markets. QE 3, IF it comes, will accomplish nothing. Bernanke will be stepping down within 18 months and possibly facing legal battles.

Everything above, except number 8, is likely. I take exception to the “IF” in the last item. It will accomplish nothing, but it will happen. Without QE3 (either overt or covert), the US government cannot fund its needs. Markets will not fund $1.5 Trillion deficits so the Fed will directly or indirectly purchase government securities so that Social Security and other government payments don’t stop.

Most progressive tax systems in the world

It is assumed that Socialism is at its zenith in the Scandinavian countries, yet they do not seem to have the insurmountable problems that Europe and the US face. Why is that?

Is the U.S. More Socialist than Scandinavia?

It is in that we have a more progressive overall tax system than the Scandinavian countries of Denmark, Norway, and Sweden do.In Denmark, the poorest 30% pay 14.1% of all taxes.  In the United States, the poorest 30% pay only 6.1% of taxes.  In Denmark, the richest 30% pay 48.7% of all taxes.  But in the United States, the richest 30% are soaked for 65.3% of all taxes.Our poorest 30% in the U.S. pay only 43% of the portion of all taxes paid by the poorest 30% in Denmark, which most Americans assume is much more socialist than we are. 

U.S. economy that has been in a downward spiral since 2005

It would probably be a surprise to most people that U.S. oil consumption today is at the same level it was in 1997 and is 10% lower than the peak reached in 2005. This is not a reflection of increased efficiency or Americans gravitating towards smaller vehicles with better mileage. Americans are still addicted to their SUVs and gas guzzling luxury automobiles. It’s a reflection of a U.S. economy that has been in a downward spiral since 2005.

Manageable financial basis

So, I think they [government] have actually gone beyond the point of no return. There’s no way to avoid a genuine catastrophe, much worse than what happened in the 1930s. There are several ways this could end, but I suspect the government will choose the worst alternative. I suspect the destruction of the US dollar is in their minds. How are we going to get rid of all this debt? Well, destroying the US dollar is the only way. Their first priority is saving the US Government.

But they’re not considering that the people who will be hurt the worst are the prudent people, people who have saved dollars. They will destroy the prudent parts of society that actually try to produce more than they consume and save the difference. Prudent middle class workers are going to be wiped out, and the people who borrow and are deeply in debt are going to be rewarded by having their debt wiped out. That’s perverse. It is going to wipe out the middle class in the US and all over the world. Everywhere in the world, people have preferred to save in US dollars where they can, and those people are going to be wiped out. Perhaps even worse, it’s going to put the US government temporarily back on a manageable financial basis. That means they won’t have to fire all their employees or disband all these agencies and get rid of the military, which is what should be done. They’ll wind up destroying the productive parts of the economy to save the government; the parasite will kill the host. It’s a total disaster, with wide-ranging consequences, and it’s going to happen in this decade.

Their stock markets

Despite all the hoopla about recoveries and green shoots, the western welfare states are a mess and it shows in markets. Their stock markets are below where they were in January of 2000. And Japan is with them.

We have a classic “chicken-egg” problem. Which came first debt or the welfare state?

If you con’t consider Japan as a welfare state, then you might answer debt. The correct answers are neither, both or over-reaching government.

Capital without labor

Any good economist will tell you that as complementary factors of production, labor and capital are not only indispensable but hugely dependent upon each other as well.

Capital without labor means machines with no operators, or financial resources without the manpower to invest in. Labor without capital looks like Haiti or North Korea: plenty of people working but doing it with sticks instead of bulldozers, or starting a small enterprise with pocket change instead of a bank loan.

There may be no place in the world where there’s a shortage of labor but every inch of the planet is short of capital. There is no worker who couldn’t become more productive and better himself and society in the process if he had a more powerful labor-saving machine or a little more venture capital behind him. Capital can refer to either the tools of production or the funds that finance them. It ought to be abundantly clear that the vast improvement in standards of living over the past century is not explained by physical labor (we actually do less of that), but rather to the application of capital.