Category Archives: Economics

Alan Greenspan, Sellout, by David Gordon

Alan Greenspan offered his belief in and advocacy for free markets and laissez-faire in exchange for power, fame, and fortune, and the devil came through. From David Gordon at lewrockwell.com:

Sebastian Mallaby is the Paul A. Volcker Senior Fellow for International Economic Relations at the Council on Foreign Relations. One can be sure, then, that his new comprehensive book, The Man Who Knew: The Life and Times of Alan Greenspan, reflects an Establishment point of view. As if this were not enough to tell us where the book is coming from, Mallaby informs us that he had Greenspan’s full cooperation in writing it. “This book is based on almost unlimited access to Alan Greenspan, his papers, and his colleagues and friends, all of whom were generous in their collaboration.

Though the book is hardly a panegyric to Greenspan, Mallaby views his subject with considerable favor. Nevertheless, the book contains ample material for a more severe verdict: Greenspan abandoned the free market convictions he effectively defended early in his career as an economist. To uphold economic truth was not the path to the power and influence Greenspan sought; and he readily adjusted his beliefs to fit with his ambitions.

Greenspan attached himself to Ayn Rand’s inner band of disciples; but his adherence to free-market economics did not stem from his alliance with Objectivism. Greenspan learned economic theory from Arthur Burns at Columbia University. For Greenspan, like his mentor Burns, statistics had primary importance: economic theory emerged from discerning patterns in the data and was strictly subordinate to its empirical sources. “Burns was the chief heir to Wesley Mitchell’s empiricist tradition, and his influence restrained any enthusiasm that Greenspan might have felt for the new trends that had begun to stir in economics. … Even the cleverest econometric calculation was limited because yesterday’s statistical relationships might break down tomorrow; by contrast, finer measures of what the economy is doing are more than just estimates — they are facts.”

To continue reading: Alan Greenspan, Sellout

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New York’s Office Market Gets Crushed, Bubble Deflates, by Wolf Richter

The interesting thing about the New York office market is that sales have been declining for three straight quarters even as the stock market was making new highs. Generally the office market moves with the stock market. From Wolf Richter at wolfstreet.com:

Where the heck is the Foreign Money when you need it?

The market for office buildings in one of the hottest and most overheated real-estate markets in the world, New York City, just went into the deep-freeze. If you see the word “plunge” a lot below, it’s because that’s what happened in the first quarter of 2017.

It was exactly what no one in the industry needed. Sales of large office properties (those with over 50,000 square feet) that closed in Q1 2017 plunged 63% year-over-year, from $5.54 billion in Q1 2016 to $2.1 billion. It was the lowest transaction amount in any quarter since Q1 2013.

According to Commercial Café, which analyzed data from Yardi Matrix and PropertyShark, that $2.1 billion in Q1 office sales, in total 10 deals, was down an ear-ringing 80% from the $10.3 billion, and 26 deals in Q1 2015.

This chart shows the plunge in billion dollars:

In terms of square footage sold, a similarly ugly picture emerges. Sales plunged 39% year-over-year to 2.8 million square feet, the lowest in the data series going back to 2013, and down 74% from the glory days of Q1 2015:

The average price per square foot of these sales plunged 23% year-over-year, to $741 per square foot, and 36% from the peak, which occurred in Q2 2015. It was the lowest average since Q1 2014. It was an ugly quarter.

To continue reading: New York’s Office Market Gets Crushed, Bubble Deflates

Beware the Dogs of War: Is the American Empire on the Verge of Collapse? by John W. Whitehead

John W. Whitehead’s math and statistics are a little sketchy (if the debt is growing at $35 million/hour it is growing at $840 million/24 hours, not $2 billion), but the message isn’t: America’s empire has bled it dry. From Whitehead at rutherford.org:

Of all the enemies to public liberty war is, perhaps, the most to be dreaded because it comprises and develops the germ of every other. War is the parent of armies; from these proceed debts and taxes… known instruments for bringing the many under the domination of the few.… No nation could preserve its freedom in the midst of continual warfare. — James Madison

Waging endless wars abroad (in Iraq, Afghanistan, Pakistan and now Syria) isn’t making America—or the rest of the world—any safer, it’s certainly not making America great again, and it’s undeniably digging the U.S. deeper into debt.

In fact, it’s a wonder the economy hasn’t collapsed yet.

Indeed, even if we were to put an end to all of the government’s military meddling and bring all of the troops home today, it would take decades to pay down the price of these wars and get the government’s creditors off our backs. Even then, government spending would have to be slashed dramatically and taxes raised.

You do the math.

The government is $19 trillion in debt: War spending has ratcheted up the nation’s debt. The debt has now exceeded a staggering $19 trillion and is growing at an alarming rate of $35 million/hour and $2 billion every 24 hours. Yet while defense contractors are getting richer than their wildest dreams, we’re in hock to foreign nations such as Japan and China (our two largest foreign holders at $1.13 trillion and $1.12 trillion respectively).

The Pentagon’s annual budget consumes almost 100% of individual income tax revenue. If there is any absolute maxim by which the federal government seems to operate, it is that the American taxpayer always gets ripped off, especially when it comes to paying the tab for America’s attempts to police the globe. Having been co-opted by greedy defense contractors, corrupt politicians and incompetent government officials, America’s expanding military empire is bleeding the country dry at a rate of more than $57 million per hour.

To continue reading: Beware the Dogs of War: Is the American Empire on the Verge of Collapse?

 

Moscow And Beijing Join Forces To Bypass US Dollar In Global Markets, Shift To Gold Trade, by Tyler Durden

The US dollar is the world’s reserve currency because the US has the world’s dominant military. It makes sense to use the dollar if the US is providing your defense. It makes no sense if the US sees you, and you see yourself, as a US adversary. That’s the current position of Russia and China. From Tyler Durden at zerohedge.com:

The Russian central bank opened its first overseas office in Beijing on March 14, marking a step forward in forging a Beijing-Moscow alliance to bypass the US dollar in the global monetary system, and to phase-in a gold-backed standard of trade.

According to the South China Morning Post the new office was part of agreements made between the two neighbours “to seek stronger economic ties” since the West brought in sanctions against Russia over the Ukraine crisis and the oil-price slump hit the Russian economy.

According to Dmitry Skobelkin, the deputy governor of the Central Bank of Russia, the opening of a Beijing representative office by the Central Bank of Russia was a “very timely” move to aid specific cooperation, including bond issuance, anti-money laundering and anti-terrorism measures between China and Russia.

The new central bank office was opened at a time when Russia is preparing to issue its first federal loan bonds denominated in Chinese yuan. Officials from China’s central bank and financial regulatory commissions attended the ceremony at the Russian embassy in Beijing, which was set up in October 1959 in the heyday of Sino-Soviet relations. Financial regulators from the two countries agreed last May to issue home currency-denominated bonds in each other’s markets, a move that was widely viewed as intended to eventually test the global reserve status of the US dollar.

Speaking on future ties with Russia, Chinese Premier Li Keqiang said in mid-March that Sino-Russian trade ties were affected by falling oil prices, but he added that he saw great potential in cooperation. Vladimir Shapovalov, a senior official at the Russian central bank, said the two central banks were drafting a memorandum of understanding to solve technical issues around China’s gold imports from Russia, and that details would be released soon.

To continue reading: Moscow And Beijing Join Forces To Bypass US Dollar In Global Markets, Shift To Gold Trade

The Big Contraction – An Interview with James Howard Kunstler, by Erico Matias Tavares

SLL has featured numerous articles by James Howard Kunstler. Here’s the transcript of an interview between Kunstler and Erico Matias Tavares at linkedin.com:

E Tavares: Thank you for being with us today. You have been writing about worsening societal issues, what you call “entropy in action”, for many years. Broadly speaking, why do you think the US is in so much trouble?

JH Kunstler: We’ve been sowing the seeds for our predicament since the end of World War II. You might even call this process “The Victory Disease.” In practical terms it represents sets of poor decisions with accelerating bad consequences. For instance, the collective decision to suburbanize the nation. This was not a conspiracy. It was consistent with my new theory of history, which is Things happen because they seem like a good idea at the time.

In 1952 we had plenty of oil and the ability to make a lot of cars, which were fun, fun, fun! And we turned our war production expertise into the mass production of single family houses built on cheap land outside the cities. But the result now is that we’re stuck in a living arrangement with no future, the greatest misallocation of resources in the history of the world.

Another bad choice was to offshore most of our industry. Seemed like a good idea at the time; now you have a citizenry broadly impoverished, immiserated, and politically inflamed.

Of course, one must also consider the possibility that industrial society was a historic interlude with a beginning, middle, and end, and that we are closer to the end of the story than the middle. It was, after all, a pure product of the fossil fuel bonanza, which is also coming to an end (with no plausible replacement in view.) I don’t view all this as the end of the world, or of civilization, per se, but we’re certainly in for a big re-set of the terms for remaining civilized.

I’ve tried to outline where this is all going in my four-book series of the “World Made By Hand” novels, set in the near future. If we’re lucky, we can fall back to sets of less complex social and economic arrangements, but it’s unclear whether we will land back in something like the mid-nineteenth century, or go full-bore medieval, or worse. One thing we can be sure of: the situation we face is one of comprehensive discontinuity — a lot of things just stop, beginning with financial arrangements and long-distance supply lines of resources and finished goods.

Then it depends whether we can respond by reorganizing life locally in this nation at a finer scale — if it even remains a unified nation. Anyway, implicit in this kind of discontinuity is the possibility for disorder. We don’t know how that will go, and how we come through it depends on the degree of disorder.

To continue reading: The Big Contraction – An Interview with James Howard Kunstler

No Fooling, by Robert Gore

DOUBLING TIME = 72/rate of interest

Math can be a real bitch.

The numbers behind this story come from the Wall Street Journal, “National Debt Is Projected To Nearly Double in 30 Years,” (paywall) 3/30/17. For a Zero Hedge summary, see “CBO Warns Of Fiscal Catastrophe As A Result Of Exponential Debt Growth In The U.S.

The Congressional Budget Office (CBO) released figures this week on the government’s deficits and the national debt that are downright scary. Unfortunately, they’re not nearly scary enough. The assumptions the CBO incorporates are optimistic and will almost certainly be undercut by reality.

The headline projection was the national debt will almost double in 30 years. Using the rule of 72, T=72/r, where T is the time in years required for principle to double and r is the annual interest rate compounded, a 30-year doubling time implies the debt is growing at 2.4 percent annually (30=72/2.4). However, the national debt almost doubled during George W. Bush’s two terms, and almost doubled again during Barack Obama’s two terms. That implies a T of a little more than 8 years. To be conservative (because debt almost doubled but not quite), round the T up to 9 years. Plug that into the rule of 72, and you have the debt growing at 8 percent per year (9=72/8), or over 3.3 times the rate the CBO is assuming. Scary as that 30-year doubling sounds, simply extrapolating the reality of the last 16 years projects another doubling in not 30, but 9 years, or a year longer than Donald Trump’s potential two terms.

But wait, there’s more. The CBO assumes the 10-year Treasury rate will be 1.5 percent after inflation over the long term, but last year that rate was 1.9 percent and the year before, 2.2 percent. Ask yourself, with exploding debt and an increasing supply of Treasury bills, notes and bonds, are real rates (the interest rate after inflation) likely to go higher or lower? The CBO says lower; SLL says higher. The CBO also assumes that potential GDP will grow at 1.9 percent per year over the long term, although it grew an estimated 1.6 percent last year. Ask yourself, with debt service consuming an ever larger share of the GDP (see next paragraph), will that help or hamper economic growth? The CBO says it will help; SLL says it will hamper. Finally, the CBO assumes that net interest costs will average 2.1 percent of the GDP over the next decade, although last year they were 2.5 percent. Again, ask yourself, will a rising national debt lead to more or less debt service cost relative to the GDP? The CBO says less; SLL says more.

Even the too rosy CBO numbers paint a grim picture. It projects that debt service’s share of total federal spending will triple, from the present 7 percent to 21 percent, over the next 30 years. In the same time frame, the national debt as a percent of the GDP will increase from 77 to 150 percent.

President Trump wants to spend “yugely” on infrastructure, increase the military’s budget, cut taxes, and not touch entitlement spending. This is all pure fantasy; it’s simply not going to happen. Something’s got to give, and it will probably start in the bond market. Indeed, it probably already has; the 10-year Treasury rate reached generational lows last July  and interest rates have been in an irregular uptrend since. So if you read the Zero Hedge CBO post and are feeling glum, cheer down; you’re not feeling glum enough. Unfortunately, this is not an April Fools gag.

NO FOOLING, GREAT NOVELS!

AMAZON

KINDLE

AMAZON

KINDLE

You Will Never Hear These Truths Discussed In The Mainstream, by Brandon Smith

Brandon Smith believes a variety of obvious truths are being ignored. It’s hard to argue against the ones he cites. From Smith at alt-market.com:

The general public truly lives in two separate worlds. We have the world of the mainstream media, popular culture and political rhetoric; a world which constantly and desperately seeks to twist or destroy any legitimate measure of reality, leading people into a frenzied fog. Then, we have the world of concrete facts; an ugly, brutal world that upsets many people when they see it and leaves them with little more than the hope that the most innovative of us will perhaps reverse the disastrous course, or at least, survive to carry on a meaningful level of civilization.

The sad thing is, if a majority of the population studied and accepted the world of fact, then preparation and intelligent or aggressive action might negate any destructive outcome. Reality only grows more ugly because we continue to ignore it.

Have you ever come to a logical or practical conclusion in response to a national or global problem and waited in vain to hear it represented in the mainstream? Have you ever thought — if I can figure this out, why can’t they? And by “they,” I mean the people most commonly offered a mainstream platform. This includes so called “professional journalists,” political leaders, mainstream economists, highly paid “analysts,” etc. Well, I think more and more Americans in particular are finally considering the notion that these “professionals” are either not very smart, or they have an agenda that seeks to perpetuate the problem rather than fix the problem.

Yes, the intellectual class, the longtime gatekeepers of public thought and consent, are actually mostly morons and/or liars with a terrible purpose in mind. I understand that this does not come as a surprise to many of my readers, but remember, the masses are still trapped in a stupefying fog. The goal here is to bring just a few more of them out of the doldrums whenever possible.

To continue reading: You Will Never Hear These Truths Discussed In The Mainstream