Category Archives: Economy

Is the U.S. Becoming a Third World Nation? by Charles Hugh Smith

You don’t have to look too hard to uncover many similarities between the US and a typical banana republic. From Charles Hugh Smith at oftwominds.com:

This is a chart of an informal kleptocracy which cloaks itself in the faux finery of democracy and a (rigged) “market” economy.

Back in the day, nations that didn’t qualify as either developed (First World) or developing (Second World) were by default Third World, impoverished, corrupt and what we now refer to as failed states–governments that were incapable of improving the lives of their people and the machinery of governance, generally as a result of corruption and self-serving elites, i.e. kleptocracies.

Is the U.S. slipping into Third World status? While many scoff at the very question, others citing the rise of homelessness, entrenched pockets of abject poverty and the decaying state of infrastructure might nod “yes.”

These are not uniquely Third World problems, they’re symptoms of a status quo that’s fast losing First World capabilities. What characterizes Third World/Failing States isn’t just poverty, crumbling infrastructure and endemic corruption; at a systems level these are the key dynamics in Third World/Failing States:

1. The status quo protects insiders at the expense of everyone else.

2. There is no real accountability; failure has no consequences, bureaucrats are never fired for incompetence, reforms are watered down or neutered by institutional sclerosis.

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Soy Soup, by Eric Peters

Remember when car companies’ main job was to make cars for people who wanted to buy them and generate profits for their shareholders? From Eric Peters at ericpetersautos.com:

They must serve soy at GM’s corporate cafeteria. It could account for the strange statement released the other day by GM’s CEO Mary Barra. It says that the main purpose of GM is to make sure that “each person . . . lead(s) a life of meaning and dignity.”

Wasn’t it to make cars?

Emphasis on was. It isn’t anymore – apparently.

“The purpose of a corporation,” the statement continues “is to serve all of its constituents, including employees, customers, investors and society at large.”

Italics added

“Society at large”? This smacks of social(ist) studies rather than STEM.

But that’s what happens when a person with a background in human resourcesbecomes the head of a car company.

And it’s not just Barra.

Ford CEO Jim Hackett affixed his John Hancock to this opus – this thesis, in the Martin Luther sense – as well. Along with Borg Warner CEO Frederic Lissalde and Tom Linebarger of Cummins and 181 titans of American business. Many of these businesses have been losing market share for years. The whole of GM today has about 8 percent less market share than Chevrolet by itself had in 1970.

Which may explain the ennui of these businessmen about business.

It’s like a chapter from Ayn Rand’s Atlas Shrugged come to life.

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The Disaster of Negative Interest Policy, by Thorsten Polleit

Negative interest rates are a creature of central banks and an indictment of their policies. From Thorsten Polleit at mises.org:

hose who had hoped that things could not get worse with the monetary policy of the European Central Bank (ECB) have been proven wrong. At its last meeting on 25 July 2019, the Governing Council of the ECB kept interest rates unchanged: the main refinancing rate was kept at 0.00% and the deposit rate at -0.40%. At the same time, however, ECB President Mario Draghi has prepared the ground to lower interest rates even further in the coming months. What is the reasoning behind that?

According to the ECB Governing Council, inflation is too low, and the euro area economy is too weak. It was precisely this assessment that signaled to the markets to expect a rate cut in the near future. It has now become very likely that the deposit rate will be lowered by 0.2 percentage points to -0.60% at the next ECB meeting in September; and the main refinancing rate could drop to -0.20%. The continued path into the negative interest world, however, has quite dramatic consequences.

The Essence of the Interest Rate

This becomes clear when considering what the interest rate stands for. In short, it represents the value discountthat a later satisfaction of a want suffers compared to an earlier satisfaction of the same want (under otherwise identical circumstances). The “pure” or “originary” interest rate is positive — always and everywhere. It cannot disappear, it cannot go to zero, let alone fall below the zero line; the logic of human action informs us that the pure interest rate cannot be thought away from human actions and values.

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American Apocalypse: The Government’s Plot to Destabilize the Nation Is Working, by John W. Whitehead

The government has been gearing up for martial law for quite some time. From John W. Whitehead at rutherford.org:

“The most dangerous man to any government is the man who is able to think things out … without regard to the prevailing superstitions and taboos. Almost inevitably he comes to the conclusion that the government he lives under is dishonest, insane, intolerable.” — H. L. Mencken

The U.S. government is working hard to destabilize the nation.

No, this is not another conspiracy theory.

Although it is certainly not far-fetched to suggest that the government might be engaged in nefarious activities that run counter to the best interests of the American people, doing so will likely brand me a domestic terrorist under the FBI’s new classification system.

Observe for yourself what is happening right before our eyes.

Domestic terrorism fueled by government entrapment schemes. Civil unrest stoked to dangerous levels by polarizing political rhetoric. A growing intolerance for dissent that challenges the government’s power grabs. Police brutality tacitly encouraged by the executive branch, conveniently overlooked by the legislatures, and granted qualified immunity by the courts. A weakening economy exacerbated by government schemes that favor none but a select few. An overt embrace of domestic surveillance tactics if Congress goes along with the Trump Administration’s request to permanently re-authorize the NSA’s de-activated call records program. Heightened foreign tensions and blowback due to the military industrial complex’s profit-driven quest to police and occupy the globe.

The seeds of chaos are being sown, and it’s the U.S. government that will reap the harvest.

Mark my words, there’s trouble brewing.

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Italy and Salvini Face Real Crisis Now, by Tom Luongo

Italian politics would be a tempest in a teapot except Italy is a significant part of the EU, it has a lot of debt, and its banking system is a mess. From Tom Luongo at tomluongo.me:

With the resignation of Prime Minister Giuseppe Conte the future of Italy is now up in the air. There are many things that come into play with Conte resigning before the No-Confidence vote tabled by Lega Leader Matteo Salvini could take place.

The euro popped 40 pips, back above support at $1.11 on the news. The forex markets realize this was a Brussels-friendly move.

Conte didn’t want to chance getting voted out of office. That makes it difficult for President Sergei Mattarella to call for a new government without snap elections. The Italian Senate would have formally rebuked Mattarella’s compromise pick for Prime Minister, Conte.

Conte was there to effectively keep the children in line – Euroskeptics Lega and Five Star Movement (M5S). So, Conte used his time to take the bully pulpit and excoriate Salvini for twenty minutes. This gives the U.S. and European media plenty of chum to make their case against Salvini.

You will hear a lot about how non-partisan Conte did this for the sake of Italy to stop the mad, selfish and unprofessional Salvini from taking power.

It’s good political theater but it’s as disingenuous as the day is long and very much the truth. No one in power in Brussels wants what Salvini is selling. Not many in Rome do either.

Because had he not resigned Mattarella could have faced impeachment for not going to elections. He only relented to let M5S and Lega take power under that threat last year.

So Conte has set the stage for Mattarella to take charge again. They will put the veneer of legitimacy on this process to protect Italy from Salvini. In reality, the only people they are protecting are in Brussels.

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The “Trade War” Is Over, Trump Just Doesn’t Realize It Yet. By Lance Roberts

It’s hard to beat an opponent who’s playing the long game when your time horizon is next year’s election. From Lance Roberts at realinvestmentadvice.com:

On Tuesday, the markets bid higher following a statement from the U.S. Trade Representative’s office that tariffs will commence on September 1st, but that some products will be delayed until December 15th. To wit:

“…some tariffs will take effect on Sept. 1 as planned, ‘certain products are being removed from the tariff list based on health, safety, national security and other factors and will not face additional tariffs of 10 percent. Further, as part of USTR’s public comment and hearing process, it was determined that the tariff should be delayed to December 15 for certain articles.”

The only part the algos heard was “tariffs delayed,” which sent them into stock panic buying mode.

However, stocks crashed again on Wednesday as the yield curve inverted, sending “recession fears”through the markets.

Of course, since President Trump has pegged the success of his Presidency on the rise and fall of the markets, on Wednesday, as “tweets” about a “trade talks continuing” failed to lift the markets, he resorted to more direct measures to manipulate the markets: Via CNBC:

“Trump held the call with J.P. Morgan Chase CEO Jamie Dimon, Bank of America’s Brian Moynihan and Citigroup’s Michael Corbat, according to people with knowledge of the situation.”

This, of course, was reminiscent of the call made by Steve Mnuchin, U.S. Treasury Secretary, during the market rout last December. But most importantly, this is about the upcoming election:

“Trump has been reaching out to corporate leaders this week amid his concerns that a slowing U.S. economy could impact his reelection chances, according to a Thursday piece from the Washington Post.”

Hopefully, he will listen to them.

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Are Recessions Inevitable? by Ron Paul

With an honest monetary system in which no government had a role, recessions either might not happen at all, or would be much less severe than recessions are now. From Ron Paul at ronpaulinstitute.org:

Stocks fell last week following news that the yield curve on Treasury notes had inverted. This means that a short-term Treasury note was paying higher interest rates than long-term Treasury note. An inverted yield curve is widely seen as a sign of an impending recession.

Some economic commentators reacted to the inverted yield curve by parroting the Keynesian propaganda that recessions are an inevitable feature of a free-market economy, whose negative effects can only be mitigated by the Federal Reserve. Like much of the conventional economic wisdom, the idea that recessions are caused by the free market and cured by the Federal Reserve is the exact opposite of the truth.

Interest rates are the price of money. Like all prices, they should be set by the market in order to accurately convey information about economic conditions. When the Federal Reserve lowers interest rates, it distorts those signals. This leads investors and businesses to misjudge the true state of the economy, resulting in misallocations of resources. These misallocations can create an economic boom. However, since the boom is rooted in misperceptions of the true state of the economy, it cannot last. Eventually the Federal Reserve-created bubble bursts, resulting in a recession.

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