Category Archives: Economics

The Middle Class Delenda Est. Part III, by Bill Bonner

Posted on November 19, 2022 | Leave a comment

The rich get richer on fake money and the middle class gets less middle-classier. From Bill Bonner at bonnerprivateresearch.substack.com:

Fed loans, printing press money, sham giveaways and other tools of the elite.

(Source: Getty Images)

Bill Bonner, reckoning today from Baltimore, Maryland…

We doubt we will win a Nobel prize for this, not even in the category of “Political Crackpottery” or “Fed Follies.” But, perhaps posthumously, it will merit a footnote in the still unwritten “Cynics’ Guide to Political Philosophy.”

For here we explain why and how corrupt elites tend to devour the middle classes who support them. Alert readers may notice some wrong turns and dead ends. Don’t worry about them; we are exploring new territory, as yet unmapped.

We’ve seen a number of things already: Government is run by a small-ish elite. They use it as a way of transferring power and wealth from the middle-class to themselves.

Why the middle class? Because that’s where the money is. The rich tend to be firmly ensconced among the elite themselves…or have ways to protect what they’ve got. And the poor have nothing to take. That leaves the great multitudes in the middle, like lambs at a wolves’ picnic.

But if the elite depend on the middle class, why would they want to sacrifice it? That is our focus for today.

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The upside-down world of currency, by Alasdair Macleod

Posted on November 19, 2022 | Leave a comment

Gold is money; everything else is credit. Get that one wrong and the next few years are going to be a whole lot of misery. From Alasdair Macleod at goldmoney.com:

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The gap between fiat currency values and that of legal money, which is gold, has widened so that dollars retain only 2% of their pre-1970s value, and for sterling it is as little as 1%. Yet it is commonly averred that currency is money, and gold is irrelevant.

As the product of statist propaganda, this is incorrect. Originally established in Roman law, legally gold is still money and the states’ debauched currencies are not — only a form of credit. As I demonstrate in this article, the major western central banks will be forced to embark on a new round of currency debasement, likely to put an end to the matter.

Central to my thesis is that commercial bank credit will contract sharply in response to rising interest rates and bond yields. This retrenchment is already ending the everything bubble in financial asset values, is beginning to undermine GDP, and given record levels of balance sheet leverage makes a major banking crisis virtually impossible to avoid. Central banks which are already in a parlous state of their own will be tasked with underwriting the entire credit system.

In discharging their responsibilities to the status quo, central banks will end up destroying their own currencies.

So, why do we persist in pricing everything in failing currencies, when that will almost certainly change? When the difference between legal money and declining currencies is finally realised, the public will discard currencies entirely reverting to legal money. That time is being brought forward rapidly by current events. 

Why do we impart value to currency and not money?

A question that is not satisfactorily answered today is why is it that an unbacked fiat currency has value as a medium of exchange. Some say that it reflects faith in and the credit standing of the issuer. Others say that by requiring a nation’s subjects to pay taxes and to account for them guarantees its demand. But these replies ignore the consequences of its massive expansion while the state pretends it to be real money. Sometimes, the consequences can seem benign and at others catastrophic. As explanations for the public’s tolerance of repeated failures of currencies, these answers are insufficient.

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The Age Of Easy Money Is Over, by Jeffrey Tucker

Posted on November 17, 2022 | Leave a comment

Nearly free money introduces myriad distortions in an economy that can take decades to work themselves out after the music stops. From Jeffrey Tucker at The Epoch Times via zerohedge.com:

What began in 2008 and continued for the better part of 14 years appears finally to be coming to an end. The era of cheap money and credit is over.

It’s hard to wrap one’s brain around the implications. It will affect all of business life and personal finances. It will dramatically change financial decisions and also affect the culture. It’s going to amount to a return to good-sense, value investing, and companies that have to actually make a profit the old-fashioned way.

I’m not just talking about layoffs in Big Tech. But those are very real. Amazon is laying off 10,000 workers in management layers—which everyone in corporate America knows are the the most useless people in any business. They got puffed up beyond reasonable size completely due to seemingly infinite resources and forever rising stock valuations based on nothing but inflated reputations.

Such cutbacks are occurring in every major company that reached gargantuan size. Twitter was just the beginning because soon after Facebook (sorry, Meta) announced the same, while many other companies that lived off ad revenue on the internet are experiencing the profitability squeeze as we headed into a solid recession (it will become obvious in months that we are already there).

It also affects real estate, the residential markets of which are already freezing up. And commercial real estate in big cities is similarly affected, particularly offices that are still only half-full. Lacking a buyers’ market, prices will have to come down relative to where they are today, though they are likely to remain inflated over valuations from 2019 due to persistent inflation that is only very gradually calming down.

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Doug Casey on How Inflation Destroys Civilization… and What You Can Do About It

Posted on November 17, 2022 | Leave a comment

Inflation is a hidden tax, and as such, it’s a lie by the currency’s issuer. Since monetary value is at the core of a productive economy, and money of no set value robs producers, inflation does indeed destroy civilization. From Doug Casey at internationalman.com:

International Man: According to a recent Newsweek poll, 63% of Americans “strongly support” new government stimulus checks to combat inflation.

In other words, let’s fight the effects of money printing by doing even more money printing.

What’s your take on this?

Doug Casey: The nature of the US has been transformed. Americans have come to see the government as a cornucopia that can kiss everything and make it better—especially since the bailouts of the Biden Administration.

That attitude has become a cultural value and very hard to change. “Panem et circenses,” as the Romans said, has become necessary for both the government and its subjects. Remember that the prime directive of any entity—whether it’s an amoeba, an individual, a corporation, or a government—is to survive. The present government can’t survive without supporting more than half the population, which has become parasites. But the government itself is the biggest parasite of all. Can parasites live on each other forever? No. To use an overly fashionable word, it’s “unsustainable.”

Where will the US government get the money it needs to survive? It can no longer even remotely survive on its tax receipts; deficits of one to two trillion per year lie ahead for the indefinite future. It can no longer borrow adequate amounts from either American citizens or foreign governments—just rolling over the $32 trillion of existing debt, forget about trillions of new debt, at anything near current interest rates is hard enough. So there’s no alternative left for them but to print more money. And print they will (electronically, of course). The thousands of “economists” at the Federal Reserve and the Treasury Department have no more of a grip on sound economics than government economists in Argentina or Zimbabwe.

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Barbarians Inside the Gates, by Bill Bonner and Joel Bowman

Posted on November 16, 2022 | 2 comments

The destruction of a great country often starts with destruction of its middle class. From Bill Bonner and Joel Bowman at bonnerprivateresearch.substack.com:

Soaring debt and massive layoffs cut deep into America’s bleeding Middle Class…

(The Temple of Saturn in the Roman Forum, Rome. Source: Getty Images)

Bill Bonner, reckoning today from Baltimore, Maryland…

The Middle Class Delenda Est (the middle class must be destroyed).

In the next couple of days, we will look at Baltimore rowhouses …the plight of small farmers during the Roman Empire…and the meaning of “common sense,” among other things.

All of these themes come together in one extraordinary and magnificent spectacle – think “Gone with the Wind” meets “Stalingrad” – that is, the destruction of the middle class and the societies that depend on them. CNBC:

Household debt soars at fastest pace in 15 years as credit card use surges, Fed report says

Total debt jumped by $351 billion for the July-to-September period, the largest nominal quarterly increase since 2007, bringing the collective household IOU in the U.S. to a fresh record $16.5 trillion, up 2.2% from the previous quarter and 8.3% from a year ago.

And while debt is increasing, job prospects are receding. Charlie Bilello updates us on the job cuts in the tech industry:

  • Twitter cutting 50% of its workforce (estimated 3,700 jobs).
  • Facebook ($META): cutting 13% of its staff (11,000 jobs), its largest round of layoffs ever.
  • Snap ($SNAP): cutting 20% of its workforce (1,200 jobs).
  • Shopify ($SHOP): cutting 10% of its workforce (1,000 jobs).
  • Netflix ($NFLX): cut 450 jobs in two rounds of layoffs.
  • Microsoft ($MSFT): cutting <1% of workforce (1,000 jobs).
  • Salesforce ($CRM): cutting 1,000 jobs.
  • Robinhood ($HOOD): cutting 31% of its workforce.
  • Tesla ($TSLA): cutting 10% of its salaried workforce.
  • Lyft ($LYFT): cutting 13% of its workforce (700 jobs).
  • Redfin ($RDFN): cutting 13% of its workforce.
  • Coinbase ($COIN): cutting 18% of its workforce (1,100 jobs).
  • Stripe cutting 14% of its workforce (1,000 jobs).

In addition to these cuts, Amazon ($AMZN) has announced a hiring freeze, Apple ($AAPL) has paused almost all hiring, and Google ($GOOGL) is reducing new hiring by 50%.

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Where Crypto Went Wrong, by Charles Hugh Smith

Posted on November 15, 2022 | Leave a comment

Cryptos have become just another way for those who have to get more. From Charles Hugh Smith at oftwominds.com:

You want to fix the world with finance? Then fix this: wages’ share of a financialized, globalized, speculative-bubble dependent economy have been falling for decades. Fix this and you really will change the world. Anything less changes nothing.

Let’s start by stipulating my perspective on cryptocurrencies is neither positive nor negative in the usual context of “to the moon” or “worthless,” nor does it track any of the conventional narratives (decentralized finance will conquer the world, etc.)

I’ve thought a lot about “money” and its role in the economic-social order, and its role in the extreme asymmetries of wealth-power-income inequalities that are dismantling the social order in broad daylight. I’ve also thought a lot about work and its role in social cohesion, individual fulfillment and a productive, level-playing-field economy.

I’ve written two books on “money” and the potential utility of cryptocurrencies in reversing the extremes of wealth-power inequality that are destabilizing the social order. I invite you to read both books if these topics interest you:

Money and Work Unchained (2017)

A Radically Beneficial World: Automation, Technology and Creating Jobs for All: The Future Belongs to Work That Is Meaningful (2016)

Once you grasp the potential of community-based labor-backed cryptos, you realize cryptos took the greed-soaked path to the Dark Side of a destructive asymmetry of wealth and power: those who issued blockchain cryptos (in all their forms) would become the new Extractive Elite, the new Power Elite, the New Parasitic Elite, buying the wealth generated by the labor of others for peanuts.

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Economic Common Sense, by Laurence M. Vance

Posted on November 15, 2022 | Leave a comment

Thomas DiLorenzo has been prolifically challenging the conventional wisdom on many totems for many years. Laurence M. Vance reviews his latest book at lewrockwell.com:

The Politically Incorrect Guide to Economics, by Thomas J. DiLorenzo, Washington, D.C.: Regnery Publishing, 2022, 242 pages, paperback.

Counting this book, there are 31 books in the Politically Incorrect Guides series published by Regnery. I have read or at least looked through most of the books in this series. Although all of the books are not equal in importance or value, I would only consider one of them to be a bad book (the volume on The Vietnam War). Some of the books are very well done, such as the two by Robert P. Murphy (Capitalism and The Great Depression and the New Deal), the two by Brian McClanahan (The Founding Fathers and Real American Heroes), the book on The Constitution by Kevin R.C. Gutzman, and the first book in the series on American History, by Thomas E. Woods.

Thomas J. DiLorenzo is a senior fellow at the Ludwig von Mises Institute in Auburn, Alabama, a prominent and frequent speaker at Mises Institute events, and former professor of economics at Loyola University Maryland, where he is now professor emeritus. To say that DiLorenzo is a prolific writer is an understatement. Not only has he written hundreds of popular articles for LewRockwell.com and many scholarly articles for academic journals, he is also widely published in national media outlets such as The Wall Street Journal, USA Today, The Washington Post, Barron’s, and many other publications. He is the author or co-author of many books, including Hamilton’s Curse, The Problem with Socialism, and How Capitalism Saved America: The Untold History of Our Country, from the Pilgrims to the Present. He is probably best known for his three critical books on Abraham Lincoln. DiLorenzo is eminently qualified to write The Politically Incorrect Guide to Economics. He holds a Ph.D. in economics from Virginia Tech, has written widely on economics, and taught university economics for 41 years.

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Socialized Medicine Is No Cure: Britain’s Broken Benefit System, by Andrew Ash

Posted on November 15, 2022 | Leave a comment

If socialism ever had to run on its record nothing in world would be socialized. From Andrew Ash at gatestoneinstitute.org:

  • Claiming that conservatives are less compassionate because many basic needs are not offered for free can miss the point. Too often what is offered are words; what is actually ends up being delivered may be sorely lacking — as disillusioned citizens in places such as Venezuela and Cuba have found out the hard way.
  • Of course, one does not become a “better person” by voting for giveaways that are all too often fraudulent or semi-fraudulent — a bait-and-switch in which what is delivered ends up being far from what has been promised, if delivered at all. For many people, however, it might satisfy a need to be perceived as being on the side of the “good” — which social promises always are; why else would a public buy into them?
  • Over time, as governments began to separate themselves from religion, many responsibilities of the church became transferred to the state. The gradual progression of socialist and Marxist thought, meanwhile, further increased the divide, while at the same time expanding the remit of governmental reach into people’s daily lives.
  • Immigration, changes in the workplace, a massive increase in disability payments (along with what constitutes “disability”), the length of time people remain unemployed and an increasingly bloated bureaucracy have all contributed to breaking the back of an outdated system.
  • If your needs are immediate, the struggle for medical care is even more uphill: the NHS is now advising patients to consider private healthcare.

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Keynesian Policies Have Left High Debt, Inflation and Weak Growth, by Daniel Lacalle

Posted on November 14, 2022 | Leave a comment

Keynesian so-called economics just offers politicians an excuse to do what they always want to do: tax, inflate, borrow, and spend. From Daniel Lacalle at dlacalle.com:

The evidence from the last thirty years is clear. Keynesian policies leave a massive trail of debt, weaker growth and falling real wages. Furthermore, once we look at each so-called stimulus plan, reality shows that the so-called multiplier effect of government spending is virtually inexistent and has long-term negative implications for the health of the economy. Stimulus plans have bloated government size, which in turn requires more dollars from the real economy to finance its activity.

As Daniel J. Mitchell points out, there is evidence of a displacement cost, as rising government spending displaces private-sector activity and means higher taxes or rising inflation in the future, or both. Higher government spending simply cannot be financed with much larger economic growth because the nature of current spending is precisely to deliver no real economic return. Government is not investing; it is financing mandatory spending with resources of the productive sector. Every dollar that the government spends means one less dollar in the productive sector of the economy and creates a negative multiplier cost.

When society decides to use a certain part of the resources generated by the productive sector for non-economic return activities, be it social spending or mitigation of threats, it can only do it by understanding how much of the productive capacity of the economy is able to sustain a larger cost. When costs are not considered as a burden, but considered as entitlements that can only grow, the productive capacity is not strengthened, but weakened.

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Death to Zombies, by MN Gordon

Posted on November 13, 2022 | Leave a comment

A lot of zombie corporations were being kept alive by extremely low borrowing costs. Now that interest rates are rising, many of those zombies will die. From MN Gordon at economicprism.com:

On Thursday, the Bureau of Labor Statistics reported that consumer prices, as measured by the consumer price index (CPI), inflated at an annual rate of 7.7 percent in October.  Investors went bananas on this apparent pullback in the headline CPI.

The stock market responded with one of its biggest single day rallies in history.  The S&P 500 jumped over 5.5 percent.  The NASDAQ jumped over 7.3 percent.  Of greater note, the yield on the 10-Year Treasury note dropped to just 3.81 percent – its lowest yield in over a month.

So, is raging consumer price inflation no longer a concern?  Has the ugly storm come and gone?  Can Powell now pivot?

Probably not.  More than likely, consumer price inflation will rage throughout the decade.  Regardless, now’s not the time to go all in on stocks.  We’ll explain why in just a moment.  But first several words on consumer price inflation.

Consumer price inflation, remember, is an effect of money supply inflation.  The Federal Reserve inflated its balance sheet with upwards of $5 trillion in digital monetary units – created out of thin air – between September 2019 and April 2022.

Since then, the Fed has contracted its balance sheet by about $300 billion – or by about 6 percent of the preceding inflation.  Clearly, there’s still plenty more inflation to be reckoned with.

And while the Fed, in concert with the Treasury and Congress, was busy spewing reams of printing press money into the economy between fall-2019 and spring-2022, other mistakes were also being made.

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