Category Archives: Economics

Is Netflix being run by the United States Congress? by Simon Black

Fiscally, Netflix runs a lot like a government, going deeper in debt every day. From Simon Black at sovereignman.com:

Shares of Netflix soared today on news the company lost a record $859 million in cash in the third quarter.

Why are investors applauding this egregious destruction of capital?

Well, it’s because investors only look at one number when Netflix reports earnings – subscriber growth.

And on that metric, the company outperformed, adding 6.96 million subscribers, bringing the global total to more than 137 million.

At 137 million subscribers, Netflix has about 2% of the global population as customers.

There are still around 90 million traditional TV accounts in the US (and about 36% of those also have a streaming account).

So there’s definitely room for Netflix to grow in the US and abroad (where the majority of growth is coming today).

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Deregulation, by Tom Woods

Deregulation’s many benefits are seldom noticed, and it’s often blamed for the sins of regulation. From Tom Woods at lewrockwell.com:

Ten years after the financial crisis of 2008, your friends are still saying the same thing:

“Don’t you libertarians know the financial crisis was caused by deregulation?”

It was not in any way caused by deregulation. We have to get this right, and we can’t let it pass.

F.A. Hayek once noted how important history was to current events: if we misunderstand history, we’re going to do the wrong things in the present. So if we think the late nineteenth century was characterized by “monopolies” from which wise government officials rescued us (and, unfortunately, this is indeed what most people believe), we’ll have different views on antitrust law than we otherwise would. Likewise, if we think the Great Depression was caused by “laissez faire,” that will influence the kind of economic policy we advocate today.

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Robert Gore Said That? 10/10/18

On Septemeber 30, at Murphy, North Carolina, I addressed the Appalachian Network PATCON, a gathering of very bright people on the cutting edge of preparation for the coming catastrophe. The topic was: “How to Survive an Economic Collapse.”

“Concerned” Bank of England Raises Alarm about Growth of High-Risk Loans, by Don Quijones

The market for high-risk loans that have little or no protections for creditors has ballooned. From Don Quijones at wolfstreet.com:

The power of Collateralized  Loan Obligations.

“The global leveraged loan market is larger than – and growing as quickly as – the US subprime mortgage market was in 2006,” said the Bank of England’s Financial Policy Committee in the statement from its latest meeting. And the committee is “concerned by the rapid growth of leveraged lending.”

In terms of magnitude, the US and EU “leveraged loan” market combined now exceeds $1.3 trillion, up from $50 billion at the turn of the century.

A “leveraged loan” is a loan that is extended to junk-rated (BB+ or lower), over-indebted companies. These loans are considered too risky for banks to keep on their books. Instead, banks sell them to loan funds, or they package them into highly rated Collateralized Loan Obligations (CLOs) and sell them to CLO funds and other institutional investors. In the UK, over £38 billion ($50 billion) of these loans were issued in 2017 — more double the amount in 2016 — and a further £30 billion ($39 billion) has already been issued in 2018.

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The Distortions of Doom Part 2: The Fatal Flaws of Reserve Currencies, by Charles Hugh Smith

Why reserve currencies come and go. From Charles Hugh Smith at oftwomind.com:

Part 1

The way forward is to replace the entire system of reserve currencies with a transparent free-for-all of all kinds of currencies.
Over the years, I’ve endeavored to illuminate the arcane dynamics of global currencies by discussing Triffin’s Paradox, which explains the conflicting dual roles of national currencies that also act as global reserve currencies, i.e. currencies that other nations use for global payments, loans and foreign exchange reserves.
The four currencies that are considered global are the US dollar (USD), the euro, the Japanese yen and China’s RMB (yuan). The percentage of use in each of the three categories of demand for the reserve currencies–payments, loans and foreign exchange reserves–are displayed below.
Many observers don’t seem to grasp that demand for reserve currencies extend beyond payments. Many of those heralding the demise of the USD as a reserve currency note the rise of alternative payment platforms as evidence of the USD’s impending collapse.
But it’s not so simple. Currencies are also in demand because loans were denominated in that currency, so interest and principal payments must also be paid in that currency. There is also demand for the currency to be held as foreign exchange reserves–the equivalent of cash to settle trade imbalances and back the domestic currency.
Notice the minor role played by the yen and yuan, despite the size of the economies of Japan and China. There’s a reason for this that’s at the core of Triffin’s Paradox: any nation seeking to issue a reserve currency must export its currency in size by running large, permanent trade deficits (or an equivalent mechanism for exporting currency in size).
The reason why the yen and yuan are minor players is neither nation runs much of a trade deficit, and neither exports its currency in size via loans or other currency emittance mechanisms.
Triffin’s Paradox is the tension between a currency’s domestic role and its global role. The nation’s issuing central bank prioritizes domestic concerns–bolstering employment, tamping down (or generating) inflation, supporting the private banking system, etc.–but the rate of interest, etc. set by the issuing central bank has enormous impacts on nations using the currency for payments, loans and reserves.
No currency can serve two masters at the same time. If the issuing central bank raises interest rates for domestic reasons, the increase in rates may be ruinous to offshore borrowers who must convert weakening home currencies into the strengthening reserve currency to make interest payments.
Higher yields strengthen reserve currencies and weaken emerging market currencies. This increases the costs of servicing loans denominated in reserve currencies.
The question for any wannabe reserve currency is: how do you export enough currency into the global system to support the demand for payments, loans and reserves? If the issuing nation runs a trade surplus or modest deficit, trade doesn’t export enough currency into the global financial system to meet the demands placed on a reserve currency.
The alternative mechanism is debt. If the issuing central bank issues lines of credit to banks, then institutions can make loans denominated in the reserve currency to offshore borrowers.
The EU banks have issued loans in euros, and the fatal consequence of this is now becoming clear. Emerging market borrowers will be forced to default as their currencies weaken against the euro and the USD, driving the costs of servicing their debt denominated in euros and USD higher.
Loans denominated in USD and euros will bring the periphery crisis home to the core’s banking sectors as these loans default. It was all fun and games when the USD was weakening thanks to the Fed’a ZIRP (zero interest rate policy), because it became progressively cheaper to service loans in USD as USD weakened and emerging market currencies strengthened.
Now that dynamic has reversed: every click higher in U.S. yields vis a vis other currencies will only push the USD higher.
The system of reserve currencies is dysfunctional for everyone, creating and incentivizing fatal imbalances in trade, yields and debt. Some look to a basket of currencies (SDRs) as the solution, but all this does is tighten the coherence of a system that’s already dangerously hyper-coherent, i.e. highly susceptible to contagion.
There is no perfect reserve currency. Even gold has its limitations. As a result, the best available solution is a world of multiple currencies, some of which are not borrowed into existence, i.e. gold and bitcoin. Given a transparent range of options, nations, borrowers and lenders could choose whatever mix of currencies best suited them.
Some years ago I proposed using bitcoin as a reserve currency: Could Bitcoin (or equivalent) Become a Global Reserve Currency? (November 7, 2013)
The way forward isn’t to replace the USD with another dysfunctional reserve currency– the way forward is to replace the entire system of reserve currencies with a transparent free-for-all of all kinds of currencies.

The World Is Quietly Decoupling From the U.S. – And No One Is Paying Attention, by Brandon Smith

The world is finding ways to get around the US’s currency and its payment mechanisms. From Brandon Smith at birchgold.com:

Blind faith in the U.S. dollar is perhaps one of the most crippling disabilities economists have in gauging our economic future. Historically speaking, fiat currencies are essentially animals with very short lives, and world reserve currencies are even more prone to an early death. But, for some reason, the notion that the dollar is vulnerable at all to the same fate is deemed ridiculous by the mainstream.

This delusion has also recently bled into parts of the alternative economic movement, with some analysts hoping that the Trump Administration will somehow reverse several decades of central bank sabotage in only four to eight years. However, this thinking requires a person to completely ignore the prevailing trend.

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Older NAFTA 2.0: Free Trade or Central Planning? by Ron Paul

So-called free trade agreements are almost always managed trade agreements. From Ron Paul at ronpaulinstitute.com:

Last week the United States, Mexico, and Canada agreed to replace the North American Free Trade Agreement (NAFTA) with a new United States-Mexico-Canada Agreement (USMCA). Sadly, instead of replacing NAFTA’s managed trade with true free trade, the new USMCA expands government’s control over trade.

For example, under the USMCA’s “rules of origin,” at least 75 percent of a car’s parts must be from the US, Canada, or Mexico in order to avoid tariffs. This is protectionism designed to raise prices of cars using materials from outside North America.

The USMCA also requires that 40 to 45 percent of an automobile’s content be made by workers earning at least 16 dollars per hour. Like all government-set wages, this requirement will increase prices and decrease employment.

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