Writers are advised to avoid descriptions that read like catalogs, and instead use a few telling details that convey to the reader the essence of what’s being described. In the same vein, a few details may be all that’s necessary to understand the global economy and where it’s headed.
Detail one: the government of Portugal recently issued 12-month debt at a negative interest rate (“The Mad Euro Project Just Got A Lot Madder,” by Don Quijones). Detail two: the Chinese producer price index (PPI) has fallen for 44 straight months (“The Great Fall Of China Started At Least 4 Years Ago,” by Raúl Ilargi Meijer). Detail three: the so-called FANG stocks—Facebook, Amazon, Netflix, and Google—have accounted for the S&P 500’s entire 1 percent gain this year (as of November 20). Their market capitalizations have gone up 60 percent versus a combined increase in earnings of 13 percent. Without those four, the S&P is down 2.5 percent (“When Wall Street Gets DeFANGed———Look Out Below!” by David Stockman).
It is a truism of human psychology that a dollar today is worth more to us than a dollar in the future. To be induced to give up a dollar today, we need to be paid more than a dollar in the future. That premium is interest, and the psychological truism implies that it will always be at a positive rate. How then is Portugal able to borrow money and repay less than the amount it’s borrowing twelve months hence? It’s like seeing water run uphill.
There is an economic cult that infests central banks and believes, against all evidence, that debt powers economies and that by manipulating interest rates, economies can be manipulated. Press interest rates low enough and the economy will flourish. Businesses will borrow and invest in new productive capacity and jobs. Consumers will head to the malls. Speculators will bid up the price of financial assets and higher balances on brokerage statements will prompt more spending and investment.
It doesn’t work. While a lower interest rate may prompt an immediate increase in business borrowing, over time markets adjust to the new rate and the prevailing rate of return equilibrates to that rate. The last six years have demonstrated that taking central bank-administered rates to zero does not promote economic expansion, especially for developed world economies already overly indebted and plagued by governments addicted to economic intervention and welfare-state spending. But central bankers are like the medieval “doctors” who bled their patients to death. Having taken rates to zero they’re prescribing more leaches: negative rates. Mario Draghi, head of the European Central Bank, pledges to buy debt at negative yields. Speculators front run his pledge, buying an idiot’s ticket to ruin knowing a bigger idiot will pay a higher price. And Portugal, whose dire financials would merit double-digit interest rates in rational credit markets, gets paid to borrow.
Detail two: China joined a global debt binge after the financial crisis of 2007-2009. Debt funded booms in domestic consumption and investment in infrastructure, factories, houses, apartments, malls, and entire cities. Debt in the US and Europe funded their consumption of Chinese exports. China recycled the proceeds from its trade surpluses back into the debt of its customers—vendor financing.
China’s PPI deflation started in March 2012: producer demand shifted downward relative to supply, taking prices with it. Debt was producing diminishing returns and debt service was exacting an increasing toll on its economy. China’s “solution” has been more leaches: more debt. Chinese government statisticians dutifully count each new factory, apartment complex, and addition to infrastructure in their GDP tally. However, new facilities operate at a loss, apartments join hundreds of thousands across the country standing vacant, few cars are seen on many of the brand new roads and bridges, and some of the new cities are virtually uninhabited. China’s string of negative PPI readings offers a preview for the global economy: deflation and debt contraction.
Speculation and the rise of financial asset prices are not indicators of economic vitality. Rather, speculation is the last economic activity in which debt has produced a positive return. Negative interest rates imply that the prevailing rate of return could go negative: borrowing money to fund investments that lose money! That prospect may seem fanciful, but speculation is close to it, bearing a hugely disproportionate probability of loss.
Corporate managers are spending more on share repurchases—speculating on their corporation’s stock price—than their corporations’ free cash flow. There is a self-serving element to this. A significant share of executive compensation is stock options, but another consideration has been overlooked. Managers face a dearth of productive investments. Years of cheap debt have already funded most plausible capital projects. Commodities, intermediate, and finished goods markets are glutted and prices are falling. Debt, welfare state spending, and regulation have slowed many economies to a crawl, and put some of them in reverse. In what are managers supposed to invest? Might as well take a flier on the stock market; the potential gain of a gamble is better than a certain loss.
Detail three: capital is being destroyed or is fleeing glutted industries with burdensome debt and negative rates of return. Those characterizations apply to an ever-expanding swath of the overall economy, and are moving up the production chain from raw materials to transportation services, intermediate and finished goods, and retail. It is only a matter of time before they spread to services. The progression has been reflected in the stock market, where gains are confined to an ever shrinking number of stocks.
Investors have crowded into Facebook, Amazon, Netflix, and Google because they are among the few companies that continue to show increased profits; exemplars in a sector—high technology—that many investors hope is immune from the forces of economics. However, on a trailing twelve months basis, their price to earnings ratio is an unweighted average of 356.88, dragged down by Google’s “meager” 31.89 (all figures from Yahoo Finance). The FANG companies are wonders to behold, but their S&P-supporting valuations say nothing about the economy. They are instead an indication that, in David Stockman’s words, “[T]he gamblers are piling on the last train out of the station.” No company, not even the FANGs, are immune from the forces of economics; they are much better shorts than longs here.
Negative interest rates, glutted product markets, falling prices, shrinking global trade, plunging shipping rates, fading retail activity, and the desperate, manic piling into the FANG stocks say volumes about the economy. Winter is coming, and like the Game of Thrones version, it will be years before spring follows.
WHAT IS GREATNESS? WHY DO SO MANY
SETTLE FOR SO MUCH LESS?
STRAIGHT LINE LOGIC 
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Then there is this Mr. Gore:
http://www.tfmetalsreport.com/blog/7287/rats-and-sinking-ship
The news of this isn’t what I’m talking about. It is a no brainer, they are strip mining everything of its intrinsic wealth. But how. They are kiting like in check kiting operations, many metric tons of precious metals from one depository to another. Parking it long enough for the illusion of physical gold existing, then moving it to another vault, creating the illusion of far more gold that is backing up paper than there is, and each time each group gets to skim some of the real solid physical gold or silver.
It is a shell game right?
How far off the truth am I?
I know that’s probably simplistic, but it is the essence of what is being done?
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Conspirators never give me the details of their conspiracies, but I’m quite sure they are out there and I’ve seen enough “smoke” about physical versus paper gold and silver to think that there is fire: a huge shortfall between available physical PMs and paper obligations. Like I said, I’m not privy to the details, but what you suggest is certainly plausible.
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Interesting point on gold. I must point out that most of the major players in the papers gold market have as part of their redemption policy that redemption shall be PAID in the coin of the realm of the depositor at the sellers option. Considering the multiples of paper to physical asset being played we know what the option is going to be — fiat currency. Essentially one is in an FX market of a basket of currencies fronted by a gold fig leaf.
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Heh! They wouldn’t be conspirator’s if they told us little people what their corruption entailed.
The timeless axiom about following the money applies, in this case, follow the gold?
Is it a wild notion to suggest when the fiat scam runs it’s course, what else is left as a device of exchange that has an intrinsic value that can be trusted, for aquiring basic commodities? Like in full faith and credit when there isn’t any any longer?
If the entire system of fiat is predicated on faith in something tangible backing it, and the faith that those who have power over that fiat are honest brokers who are trustworthy brokers, when the trust in that system dissolves, what else is left?
I would think the obvious instrument of money would have to be precious substances like metals, because no other valuable things are as transportable and as concentrated in value as gold, solver, platinum, gems, arms, and maybe things like morphine or rare earths such as lithium, thorium, rhodium etc. Maybe labor as an exchange medium fits in their to some degree also?
Isn’t where this is all inevitably heading?
Governments that are so totally bankrupt, the fiat they use is worthless and people who live under those corrupt regimes, have to resort to direct trade and barter, and of physical/labor as the medium of exchange, not to mention a craft where you produce goods others can’t and you reciprocate in like manner with other craftsman or brokers of those items?
I read your blog all the time. Don’t chicken out on me here Mr. Gore. I’m not the smart kind of fellow you are, I weld things together for a living.
Its pretty plain to me first hand my labor is all but worthless for the fiat fun bucks I receive. Been a welder straight up for 40 years, the pay rates have shrunk steadily since the 70’s, and what I can purchase with those fun bucks has reached the point where I basically work to pay to go to work.
My wife and I figured it is time I stopped doing this go to work so everyone can rob us ritual. So I did. We have been developing over many years as we could afford a life where we are as self reliant as possible. Off grid power, alternative heat and water. Home grown or locally procured foods. No debt. What we have for bills is a lot less than 500 a month and shrinking.
What became a revelation was how little fun bucks we need to be connected to the fiat system. How rich we are, as in intrinsic wealth, because everything is ours outright.
And how much that says about being a slave to the corporate slave state. And everything it says about how rigged it is to lining the pockets of the few who control the fiat. Last but not least how system D is a viable operating system.
My point here has to do with contrasts. Apparent contrast based on personal experience verses anecdotal evidence seen of what you called the conspiritors. Talk to me here Mr. Gore. Your excellent piece here, and many others you have written spurs me to consider everything in context, to consider how much of it all is possibly inextricably linked. Is going Galt, the positive results gained of going Galt, an indication of how corrupted and centrally controlled the economic system is? To what Degree? Is it truly the system of slavery it seems? Are we not being indentured as corporate slaves of different classes?
Look Mr, Gore, I’m just a regular Joe with essentially no formal education. This shit is like flying blind in a blizzard darker than the inside of a dead dogs arsehole. And I feel like a guy trying to stuff spaghetti up a wildcats ass in a phone booth.
I read your stuff and others. I get some of it. Some things just confound me. Maybe what I’m asking is, all this economic monkey tricks, the political bullshit dazzle dazzle lies and bullshit fed to us, the dictatorial nature of government, it is all of the same thing, right? Its all the same sonofabitches with their hands in the till? Just some are bankster cartels, some crapweasel lying politicians, and some corporate crony crooks, but they are all connected by common thievery, and what we get to see and suffer is the consequences of their collective criminality?
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To answer the questions in your last paragraph first: Yes, yes, and yes. As for the rest of your post, I’ve learned a thing or two in real life. When someone tells you how smart they are, run as fast you can. And when someone tells you how smart they aren’t, they’re generally a good bit smarter than they’re letting on. It sounds to me like you’ve figured out the lay of the land and have made the necessary adjustments. Going Galt, if done en masse, may be an indication of how corrupt the system is, but it is always an indication that the person going Galt wants no part of that corruption. Far better to go Galt than to sell your soul to these diabolical ASSHOLES. As for the monetary aspects you bring up, read, or reread, my post “Real Money.”
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Good piece. Why would someone buy sovereign debt at a loss? Generally because all the other market options produce a higher loss than sovereign debt does.
It would be an interesting exercise to map the IRR of companies doing deep stock buybacks and the return on holding the same stock at market. One might see the same dynamics in play there as with sovereign debt loss.
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OK, I’ll not give you praise for your work if it makes you uncomfortable. You will have to suffer though regardless, it doesn’t diminish the good stuff you write and the effort you make to share your insights and wisdoms. I can’t tell if your a cynic or a stoic.
Really appreciated you for what you wrote in ASSHOLES Mr. Gore. That was first rate.
Missed or don’t remember Real Money. Read that later today.
Figured out the lay of the land?
Are you kidding me, Dude, that is all uncharted territory that way of life in relative terms. It’s turning out pretty good though. It isn’t something you arrive at, it is a constant thing which really you never stop attaining. You got to make a lot of small sacrifices for large gains. It’s really about how you think, that is the most difficult challenge to fathom. It is evolutionary, always evolving kind of thing.
Trying to recognize your ignorance is a skill worth having! LOL’s! There is a funny kind of unintended consequences to it also, but good consequences. About those known knowns and unknown unknowns.
I keep a mantra going in the back of my mind, It begins with each of us, and, don’t waste nothin’.
Going debt free was the leap that defined everything for my wife and I. One day it smacked us upside the head. The ramifications where profound. We didn’t have much but after 3 years of working like a dog and paying off the debt. Everything belonged to us. Like Kermit the frog said, “I’m Free! I’m Free”. A revelation really. No more being a debt slave. It is next to impossible to convey this state, you have to be it to truly appreciate how important it is. I whish everyone could live debt free. It would transform this country. Friends and family look at us like we are eccentric at best. They can not reckon it. They are slaves in the mind and the purse.
Works like this. The off grid power took us 9 years to acquire piece by piece. The last year fabricating modifying and adapting components and putting it together. What we originally thought was a good idea economically is totally eclipsed by the independence and self reliance it created. A wonderful surprise indeed. It is to put it crudely but succinctly, a great fuck you to the sonofabitches. And that alone is worth what ever it took to give the ASSHOLES the finger.
The other self reliant things are the same, its a myriad of wealth. It is being truly rich. Things being ruled by king fiat can never buy you.
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I’ll stand by my earlier comment, you have figured out the lay of the land. Of course nobody can know all the details of what’s ahead, but the general outline is pretty clear and you’ve done the best things possible: eliminated dependence and provided for yourself and yours. Getting out of debt is crucial; debt can be slavery. Our family has no debt and we’ll starve before we borrow. I’m glad you like my articles; it’s good to hear from appreciative readers. Sometimes it feels like shouting into the Grand Canyon, and I wonder if I’m making any difference to anybody at all. Sometimes it’s even good to hear from unappreciative readers; at least they’ve read my stuff!
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Robert, your audience may be wider than you suspect. And the appreciative silent majority is just that…
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Thanks.
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Oh well your most welcome. Take heart, if you change one mind, you change the world. That’s what counts, because maybe that mind changes another. It is like Senneca said about ideas, how they are like seeds, and grow out of all proportion to their diminutive size.
Read your Real Money piece, that was super thoughtful how you wrote it. Has a wonderful cadence to it that draws you along.
I see what you mean by Real Money now, first hand. Your so correct in your observations regarding how people think about what money is and isn’t. It was pretty cool too, as I can relate in a fashion. I have always had these misgivings about paper money, like a splinter in my mind, and through my life have always tried to exchange my skills and abilities as a form of trade whenever possible. It just always seemed like a win win. It is difficult to achieve though, as I think a lot of times I’ve run into resistance and suspicion. But those who would seemed to have some happy grasp of the value.
It all keeps coming around to a simple singular notion. All of it, liberty freedom, real wealth, “Change Your Thinking”. And its possible. Kind of stupid easy once you figure it out.
I couldn’t help but think of something reading Real Money. The origin of federal debt creation. There is nothing there to begin with, right? It’s blue sky in no uncertain terms. They begin with no debt, and create an instrument, a device, it’s total fiction. Let me know if I have the essential gist of it. Here’ goes:
The fuckers, ( and I mean fuckers with all my heart), create out of whole cloth 10 million US dollars. They create an artificial amount of fiat, or debt with nothing, take that nothing and in a ledger note it exists, call up a central bank, transfer this nothing to that bank, that bank takes this nothing, lets call it a nonesuch, and transfers this nonesuch to a commercial bank. It is still nonesuch, because it is a figment of a lie still at this point. Then Joe, who owns Joes Greasy Spoon Diner needs to buy a walk in cooler for his diner, walks into this bank and gets a loan to buy a walk in. All of a sudden, that nonesuch is a walk in cooler. Joe has to not only pay the principle on that loan of nonesuch, he has to pay interest, on something that never existed. And Joe sweats his ass off literally and figuratively paying the nonesuch principle and interest, and those who created this nonesuch double dip on something that never existed. They not only get fiat from it, but are paid a dividend in the form of interest, on something that literally never existed.
Excuse me, but how fucked up insane crazy looney tunes mental case retarded is this?
Joe just got milked six ways to sunday.
But here’s the thing I’m thinking that is more insanity. There are third, forth, fifth, umpteen? order effects that take place. Everyone connected to Joe and his Greasy Spoon Diner, they have to pay back that double dipping the fuckers are skimming off of Joe too. It’s like you work in a gas station. There are 4 people who pump gas, and the owner. The owner makes a certain gross off what everyone does working at his gas station. He makes enough profit to make his business self supporting. But one guy decides he is going to sit on his ass his entire shift. No for the business to make a profit same as before, the other three guys have to produce more than before, or they loose their jobs because the owner will shut down because there is no profit. Or reduce the 3 guys wages to make up for the one guy who does nothing.
Am I going someplace with this?
I know its simplistic, but it is those roll on order effects with Joe’s Diner I’m thinking of and the cascade effects of something out of nothing.
Regardless, what is worse, is most people eat this shit up with a spoon and willingly, blissfully take part in this insanity.
And where does it, and more important how does it end.
Not very good for a lot of us I imagine.
Perpetual motion machines don’t work.
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Things become clearer when you read a bit of history. I won’t drag you back to 1861 but, rest assured the wrong side lost and that precipitated most of the problems we face today including Federalism. You should go back to the 1950’s and read up on Senator Joe McCarthy and the CPUSA explosion! McCarthy was right and he was destroyed for it. Khrsuchev promised Kennedy that he would destroy America without firing a shot. He was right. In fact, Khruschev had already won by infesting American media, education, Hollywood and D.C. with Marxist destroyers. These same destroyers are painted with many brushes today from “Financiers” like Sorros to the Liberals and Progressive movement to the BLM anarchists and on and on. Today, the whole mass you see on TV, MSM and Hollywood are part of the treasonous conspirators. It’s Marxism just like the Bolsheviks painted Russia with that resulted in the murder of 50 MILLION Christians during their “revolution”. Today, the likes of McCain, Pilosi, Reid, Graham and the vast majority of R’s and all D’s are Marxist shills and all guilty of Treason. The Kenyan in the WH is merely a symptom of what ails this dying Republic. It will end in Anarchy and a bloodletting not seen since Atilla the Hun rode across EuroAsia (just as our Founders foretold). Welcome to the light of truth. The more you pray, read and ponder the brighter the light becomes. Good that you have the off-grid issues resolved but now, what will you do when the hordes see the lights in your windows and decide they want/need what you built. Imagine millions of starving desperate people. Sadly, that day speeds towards us. Can you repell for 30-45 days, the time it will take for the weakest and most violent to die off?
Those that don’t study history are destined to repeat it…
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Well that was the whole point, federalism. Administrative tyranny writ large.
The wrong side lost? Your contradicting yourself or conflating the primal right of secession from tyranny with something else.
Sure your not a marxist troll?
I know about much of what your talking about. It isn’t any revelation. But you really pissed me off with your trite and sarcastic resistance is futile attitude, makes me want to gag. Your an American man? What next, you going to tell me people like me can’t fight the US Military because they have tanks and nuclear weapons? You can shove that up your smart ass. Grow a set of balls and act like a man and an American and fight for something instead of writing like a coward and associating my individualism and self determination with stupidity and ignorance.
If your such an expert of freedom and economic liberty, why don’t you choke early and surrender to the cultural marxists, they have you running scared.
Fuck the human extinction movement.
I got news for you, people like me never say die. We fight till the end. Its called indomitable spirit. You need some of it. It is what made this great republic possible, warts and all.
Remember pal, its people like me who refuse to comply, never bend a knee, who won against the greatest world empire/tyranny 234 years ago.
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Doug, I appologize for putting your panties in such a twist. That wasn’t my intention. Perhaps your anger will make way to something more profitable.
“It is a shell game right?
How far off the truth am I?
I know that’s probably simplistic, but it is the essence of what is being done?
Isn’t where this is all inevitably heading?
I’m not the smart kind of fellow you are, …
Is going Galt, … an indication … the economic system is?
To what Degree?
Is it truly the system of slavery it seems?
Are we not being indentured as corporate slaves of different classes?
… I’m just a regular Joe with essentially no formal education.
This shit is like flying blind in a blizzard…
And I feel … up a wildcats ass
Some things just confound me.
… it is all of the same thing, right?
Let me know if I have the essential gist of it.
Am I going someplace with this?”
After reading your lengthy posts, four containing around 20 question marks, I presumed you were someone searching for knowledge and might appreciate insight from someone 20 years ahead of you.
As for the rest of your assertions please allow me to use your words to respond.
“Trying to recognize your ignorance is a skill worth having! LOL’s!”
You said it, Doug…
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Your a sly one. Your not sorry, your delighted, dishonest about it too.
Your negative and insulting advice about my affairs, which I did not ask you for thank you, or whatever it was intended, is uncalled for no matter how you spin it. There is no BSing me on that. Being hateful is being hateful.
Your hatefulness sure gives you the sneaky aura of a shit stirrer. That is what you where doing from the get go when you advertised your opinions about my personal affairs, and are still doing in your repose. Pretty ugly opinions too.
But you want me to consider your advice worthy, well provide advice, I got zero use for nasty opinions as advice. Works great. People listen. It’s mutual respect.
But then again, might be that was the whole point here. To disrupt the dialog. It is pretty common knowledge there are trolls and agent provocateurs who range the blogsphere for the purpose of disrupting comment threads on the web, in particular discussions that are anathema to the cultural marxists agenda. These thought police are everywhere.
A definition you have much in common with. Wouldn’t surprise me if it where true. Your by no means the first to make disruptive and derogatory comments about something I have written on the web. I witness it regularly happening to others also. There is a pattern to it.
So who are you?
I’m really interested in what you have to tell me about the thought police.
Here is your chance to give me some good advice.
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Is “mtnforge” the same person as “Doug”?
“Your a sly one. Your not sorry, your delighted, dishonest about it too.”
Is it safe to assume you didn’t accept my sincere apology? Pity…
Doug (or whomever you are), I know two things for certain;
1) to fist fight with a man that wants to literally die in battle is unwise and,
2) arguing with a man not intelligent enough to know he lost is unfulfilling and a timesuck.
Happy Thanksgiving and May God Bless You/Your Family…
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