Category Archives: Economics

German Interview, with Michael Hudson

The U.S. is turning Europe into a dependency. From Michael Hudson at unz.com:

Dear Prof Hudson,

Once again: Herzliche Grüße aus Berlin!

Last time we spoke for German print magazine “Four” in June. Right now I also work for MEGA Radio, a radio news station for Germany, Austria and Switzerland. We broadcast from Vienna and are located in Berlin, Bavaria and Austria.

Hereby I would like to invite you to another interview via ZOOM to record it for our radio program. It would be an update on our last interview. Maybe around 20-30 Minutes long.

See also our last talk:

I don’t know if that’s too short notice, but would you have time for such a conversation next week or the week after?

Otherwise, also at the beginning of January.

 

Here are my questions:

(1.) You made some predictions in our last interview for “Four” magazine which became true.

You talked about crisis for German companies in the production of fertilizer. This just hit the headlines weeks after our interview.

You also said: “What you characterize as “blocking Nord Stream 2” is really a Buy-American policy.” This now also became more than clear after the destroyed Nord Stream pipelines.

Could you comment that?

MH: U.S. foreign policy has long concentrated on control of the international oil trade. This trade is a leading contributor to the U.S. balance of payments, and its control gives U.S. diplomats the ability to impose a chokehold on other countries.

Oil is the key supplier of energy, and the rise in labor productivity and GDP for the leading economies tends to reflect the rise in energy use per worker. Oil and gas are not only for burning for energy, but are also a basic chemical input for fertilizers, and hence for agricultural productivity, as well as for much plastic and other chemical production.

So U.S. strategists recognize that cutting countries off from oil and its derivatives will stifle their industry and agriculture. The ability to impose such sanctions enables the U.S. to make countries dependent on compliance with U.S. policy so as not to be “excommunicated” from the oil trade.

U.S. diplomats have been telling Europe for many years not to rely on Russian oil and gas. The aim is twofold: to deprive Russia of its major trade surplus, and to capture the vast European market for U.S. oil producers. U.S. diplomats convinced German leaders not to approve the Nord Stream 2 pipeline, and finally used the excuse of the NATO war with Russia in Ukraine to act unilaterally to arrange the destruction of both Nord Stream 1 and 2 pipelines.

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The Petrodollar’s Long Goodbye, by Vijay Prashad

The dollar’s reserve currency status has allowed the U.S. the privilege of paying for goods and service with debt instruments it can create at will. The rest of the world is tired of this unfair arrangement. From Vijay Prashad at consortiumnews.com:

As part of their concern about “currency power,” many countries in the Global South are eager to develop non-dollar trade and investment systems, writes Vijay Prashad.

Xi Jinping and King Salman bin Abdulaziz Al Saud, Dec. 9. (CCTV/Wikimedia Commons)

On Dec. 9, China’s President Xi Jinping met with the leaders of the Gulf Cooperation Council (GCC) in Riyadh, Saudi Arabia, to discuss deepening ties between the Gulf countries and China.

At the top of the agenda was increased trade between China and the GCC, with the former pledging to “import crude oil in a consistent manner and in large quantities from the GCC” as well to increase imports of natural gas.

In 1993, China became a net importer of oil, surpassing the United States as the largest importer of crude oil by 2017. Half of that oil comes from the Arabian Peninsula, and more than a quarter of Saudi Arabia’s oil exports go to China. Despite being a major importer of oil, China has reduced its carbon emissions.

A few days before he arrived in Riyadh, Xi published an article in al-Riyadh that announced greater strategic and commercial partnerships with the region, including “cooperation in high-tech sectors including 5G communications, new energy, space, and digital economy.”

Saudi Arabia and China signed commercial deals worth $30 billion, including in areas that would strengthen the Belt and Road Initiative (BRI). Xi’s visit to Riyadh is one of his few overseas trips since the Covid-19 pandemic.

His first was to Central Asia for the summit of the Shanghai Cooperation Organisation (SCO) in September, where the nine member states (which represent 40 percent of the world’s population) agreed to increase trade with each other using their local currencies.

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California Is Impossible For The Middle Class, by John Seiler

$100,000 a year buys you a lower middle class life in Los Angeles and San Francisco. From John Seiler at The Epoch Times via zerohedge.com:

As we head toward the end of another year, I’m remembering several friends who left in 2022 for cheaper states. And I’m thinking about several other friends who are planning on leaving in 2023 or 2024.

The fact is California is difficult, often impossible, to live in if you’re in the middle class. The wealthy can afford to live here, although they often leave too, because that 13.3 percent top income tax rate really digs in, especially when they dream of moving to 0 percent Texas, Florida, or Nevada. The poor suffer, but California has a generous welfare state, so it’s easier in many ways for low-income residents than living in another state.

It’s the middle class, the rock bed of any society, that bears the brunt of California’s brutal living conditions—amidst the sublime weather. There are three areas where the middle class is hammered: taxes, high housing costs, and a broken education system. Let’s look at them as we peer toward 2023: a little winter organizing of our political mentalities.

1. Taxes.

 The middle class does not pay that 13.3 percent rate on millionaires, but it does pay what long was the “top” tax: 9.3 percent. California’s income tax rates were indexed for inflation in 1978. But that was only after a decade of inflation pushed the middle class into the then-top rate of 9.3 percent. That is, today the middle class pays at a rate originally intended only for the very rich.

The middle class in no other state pays income taxes that high. Of the states, seven have no income tax at all. And 37 have a top rate below 9.3 percent.

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Here’s Why Stagflation Will be the Dominant Theme of the Decade…by Chris MacIntosh

We now have so much debt that additonal debt burdens rather than helps the economy. It’s going to take a long time to dig out. From Chris MacIntosh at internationalman.com:

Stagflation

Why stagflation — and not inflation or deflation — will prevail as the dominant theme for the decade?

This period is analogous to the 1930-40 period with an exception. The countries going into this particular crisis are debt laden as we’re at the tail end of the long-term debt cycle. Not only that but the largest reserve currency economic blocks (US, Europe, UK, and Japan) are now moving into the contraction/restructuring stage of the cycle.

Consider where we are now. In every major economic bloc with a currency system that is used as reserves (most notably the US, UK, EU, and Japan) we have reached levels where growth has stalled. This growth stall was prior to the 2020 lockdowns, by the way. Debt had already begun to be unsustainable in so far as debt laden assets had reached insane levels with simultaneous levels of accompanying debt. The ROI provided was in many instances negative. Remember those negative yielding sovereign bonds in Europe? Remember loss making (high tech whizz bang “growth”) such as the ARK Innovation Fund.

The premise, of course, was that increasing levels of debt would continue to bring marginal real growth. We always said it was nonsense and now it’s proving to be. I guess we got lucky.

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Latin America’s Slow Descent Into Interventionism, by Daniel Lacalle

Latin America doesn’t have any economic problems that a lot less government wouldn’t fix. From Daniel Lacalle at dlacalle.com:

The latest estimates from consensus for the main Latin American economies show a continent facing a lost decade. The region GDP growth has been downgraded yet again to a modest 1.1% for 2023, with rising inflation and weakening gross fixed investment. Considering that the region was already recovering at a slower pace than other emerging markets, the outlook is exceedingly worrying.

The poor growth and high inflation expectations are even worse when we consider that consensus estimates still consider a tailwind coming from rising commodity prices and more exports due to the China re-opening.

How can a region with such high potential as Latin America be condemned to stagflation? The answer is simple. The rise of populist governments in Colombia, Chile and Brazil have increased the concerns about investor security, property rights and monetary discipline.

Argentina is expected to post a modest 0.2% GDP growth in 2023 with 95% inflation and a debt to GDP of 72%. Years of monetary and fiscal excess have destroyed the purchasing power of the local currency and dilapidated the prospect of real growth. In Argentina, poverty has escalated to 36.5% of the population and the government policies double down on interventionism, price controls and higher taxes with the expected negative result. Despite the tailwind of high demand for soja and cereals globally, Argentina dives deeper into Venezuela territory, where consensus expects another year of weak 3% bounce after destroying 80% of the output in a decade, with enormous inflation, 132%.

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Until Something Breaks, by Bill Bonner

And assuredly, something will break. From Bill Bonner at bonnerprivateresearch.com:

No magic… no genius… and no common sense

 
 

Bill Bonner, reckoning today from Baltimore, Maryland…

 

Last week came more evidence that inflation is not going away. Today, we explain why. MarketWatch:

In data released Friday, U.S. producer prices rose 0.3% in November versus the 0.2% median forecast from economists polled by The Wall Street Journal. The increase in producer prices over the past 12 months slowed to 7.4% from 8.1% in the prior month, and was down from a 11.7% peak in March.

The report, which came in above expectations, indicated that there’s less moderation in price pressures than analysts had expected for last month.

Foretelling much worse inflation sometime in the future, prices for finished consumer goods actually went up at a 16% rate – the highest in 48 years.

Three Major Busts

But that’s the trouble with a ‘sea of lies;’ it inevitably gets stormy. Ships run aground. 

The Fed gave out the lie that it could manipulate the economy and make us all richer. It claimed to be “smoothing” the economic cycle. No more bubbles. No more busts.

But thanks to the Fed, we’ve seen 3 major bubbles in the last 22 years. And three major busts. We’re still in the 3rd one. 

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5 Principles Of Stagflation, by Jeffrey Tucker

Anyone who lived the 1970s knows what stagflation is. It’s back. From Jeffrey Tucker at The Epoch Times via zerohedge.com:

Stagflation is the combination of slow or falling economic output plus high inflation. For nearly two years, we’ve been stuck in this pattern and it still feels confusing. Prices for many items such as cars and homes have whipsawed around in strange ways, up one month and down the next, only to repeat the pattern.

As inflation started, many people believed the official line that this was “transitory,” a word that people heard as “temporary.” If you think about it, the word transitory is meaningless as a predictive tool. It means moving from one thing to another thing without saying what the thing is. It turns out that transitory meant a transition to a permanently and dramatically weaker dollar from 2019 prices.

People such as Treasury Secretary Janet Yellen likely knew this. They just wanted to calm people’s fears and keep them believing false things until the midterm elections. Contrast that to how this crowd handled the virus of 2020: They promoted public panic in every possible way as a means of terrifying the population into compliance and ultimately turning against the president. Indeed, that was the goal all along.

In any case, it should be obvious by now that inflation is the new normal. We’ll never see 2019 prices across the board again, simply because for that to happen, the Federal Reserve would have to tolerate a deflation of 12 to 15 percent. If that does happen—and it’s highly unlikely—it won’t be because the Fed wants it that way. It would suggest that the Fed had lost control completely.

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EU’s Oil Price Cap Creates a Price Cap… on Stupidity, by Tom Luongo

Another in a long line of stupid ideas from the EU. The official SLL over/under on the duration of the EU from 1/1/23 is two years. From Tom Luongo at tomluongo.me:

MOSCOW, RUSSIA – DECEMBER 1, 2021: Russia’s Foreign Ministry Spokesperson Maria Zakharova gives a weekly press briefing. Russian Foreign Ministry/TASS

The EU and the US went forward with their long-debated, long-telegraphed move to put a price cap on Russian oil at $60 per barrel.

By believing they can pressure suppliers into not hauling Russian oil lest they run afoul of the sanctions that support the price cap, they believe they can take only Russian oil off the market for the long run.

Because of the way oil is actually traded in the real world, versus the way it trades in Janet Yellen’s head, this policy is actually much harder to implement than it actually looks. You don’t buy oil at the crude oil counter at Target or Wal-Mart.

There isn’t a price tag you can look at and say yes or no too. As Tsvetana Paraskova at Oilprice points out, crude contracts are written based on a discount or premium to a benchmark price at a particular moment in time.

“Physical traders rarely trade on a fixed price,” John Driscoll, chief strategist at JTD Energy Services Pte Ltd, told Bloomberg. 

“It’s a much more complex space where they trade on formulas and spot differentials to a benchmark crude for the trading of actual cargoes as well as for hedging that follows,” said Driscoll, who has more than 30 years of trading oil in Singapore.

To complicate things further, the EU wants to remain flexible to change the cap at its discretion.

“The price cap is not set in stone – it “is fixed for now but adjustable over time,” the EU said last week.  

If this sounds like a recipe for complete disaster, it is.

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Major Economic Contraction Coming In 2023 – Followed By Even More Inflation, by Brandon Smith

We are looking at a very hard landing in 2023. From Brandon Smith at alt-market.us:

 

This article was written by Brandon Smith and originally published at Birch Gold Group

The signs are already present and obvious, but the overall economic picture probably won’t be acknowledged in the mainstream until the situation becomes much worse (as if it’s not bad enough). It’s a problem that arises at the onset of every historic financial crisis – Mainstream economists and commentators lie to the public about the chances of recovery, constantly giving false reassurances and lulling people back to sleep. Even now with price inflation pummeling the average consumer they tell us that there is nothing to worry about. The Federal Reserve’s “soft landing” is on the way.

I remember in 2007 right before the epic derivatives collapse when media pundits were applauding the US housing market and predicting even greater highs in sales and in valuations. I had only been writing economic analysis for about a year, but I remember thinking that the overt display of optimism felt like compensation for something. It seemed as if they were trying to pull the wool over the eyes of the public in the hopes that if people just believed hard enough that all was well then the fantasy could be manifested into reality. Unfortunately, that’s not how economics works.

Supply and demand, debt and deficit, money velocity and inflation; these things cannot be ignored. If the system is out of balance, collapse will set its ugly foot down somewhere and there’s nothing anyone including central banks can do about it. In fact, there are times when they deliberately ENGINEER collapse.

This is the situation we are currently in today as 2022 comes to a close. The Fed is in the midst of a rather aggressive rate hike program in a “fight” against the stagflationary crisis that they created through years of fiat stimulus measures. The problem is that the higher interest rates are not bringing prices down, nor are they really slowing stock market speculation. Easy money has been too entrenched for far too long, which means a hard landing is the most likely scenario.

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Why the Left Must Destroy Free Speech – or Be Destroyed, by Thomas DiLorenzo

Totalitarians who go toe-to-toe with truth always lose, eventually. From Thomas DiLorenzo at lewrockwell.com:

In Hayek’s famous 1944 book, The Road to Serfdom, he warned that the intellectual and political classes of the democracies of that time were embracing some of the same ideas that inspired Hitler’s Germany, Mussolini’s Italy, and Stalin’s Russia:  comprehensive government planning, hyper regulation of industry,  nationalization, welfare statism, and collectivism in general.  He did not predict that these societies would end up “in serfdom,” however, as some have mistakenly claimed.  Quite the contrary.  In his first chapter he clearly stated that he hoped the ideas in the book would help these countries to avoid that disastrous fate.  He hoped the ideas of the book would be a roadblock on the road to serfdom.

The eleventh chapter of The Road to Serfdom is entitled “The End of Truth,” about the historical imperative in all totalitarian states throughout history to destroy freedom of speech so that the only true belief is “the social plan” imposed by the state, whatever that may be.  This is achieved by relentless institutionalized lying and propaganda, coupled with harsh censorship of all contrary ideas or even questions about the propriety of forcefully imposing one single “social plan.” This is American society today, in other words, in case you haven’t noticed.  (Socialism, Hayek said, has always been about substituting the plans of politicians for the plans that all of the citizens make for themselves.  It’s not a matter of planning versus no planning, but who is to do the planning).

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