Category Archives: Other Views

What the heck is happening in Sweden? Negative rates, cash bans, housing bubble and enormous debt, by Andrew Moran

Sweden may be a preview of monetary coming attractions in the US. From Andrew Moran at economiccollapsenews.com:

We have a message to all of the Bernie Sanders supporters and those who are fixated on Scandinavia: give up your obsession of Sweden. It doesn’t do anything to further your case as there are a lot of downward trends transpiring in the nation of Ingmar Bergman films, Ikea products and meatballs (SEE: ‘Socialist Paradise’ Sweden suffering from swelling debt levels, employee absenteeism).

The main question that must be asked, however, is this: what the heck is happening in Sweden?

Sweden is on the cusp of being the very first nation in the world to conduct an economic experiment of this kind: negative interest rates in a cashless society. That’s right. The central planners are charging you to save your money in a bank, while eliminating the use of cash. You’re stuck if you’re living in the home of beautiful blondes and August Strindberg plays.

Last week, the Swedish central bank (Riksbank) announced that it would leave its benchmark interest rate unchanged at -0.35 percent, a rate that has been instituted since the summer. There were talks of Sweden going deep into negative rates, but it instead opted to go for another round of its own version of quantitative easing.

Financial institutions have yet to impose negative rates on Swedish consumers, but many economists do believe the central bank will keep this negative rate policy for a while. This means retail banks will have no other choice but to start implementing negative rates and passing the costs to its customers.

To continue reading: What the heck is happening in Sweden?

The Real Issues You Won’t Hear from the 2016 Presidential Candidates This Election Year, by John Whitehead

From John Whitehead, on a guest post at theburningplatform.com:

“Apparently, a democracy is a place where numerous elections are held at great cost without issues and with interchangeable candidates.”—Gore Vidal

The countdown has begun.

We now have less than one year until the 2016 presidential election, and you can expect to be treated to an earful of carefully crafted, expensive sound bites and political spin about climate change, education, immigration, taxes and war.

Despite the dire state of our nation, however, you can rest assured that none of the problems that continue to undermine our freedoms will be addressed in any credible, helpful way by any of the so-called viable presidential candidates and certainly not if doing so might jeopardize their standing with the unions, corporations or the moneyed elite bankrolling their campaigns.

The following are just a few of the issues that should be front and center in every presidential debate. That they are not is a reflection of our willingness as citizens to have our political elections reduced to little more than popularity contests that are, in the words of Shakespeare, “full of sound and fury, signifying nothing.”

The national debt. Why aren’t politicians talking about the whopping $18.1 trillion and rising that our government owes to foreign countries, private corporations and its retirement programs? Not only is the U.S. the largest debtor nation in the world, but according to Forbes, “the amount of interest on the national debt is estimated to be accumulating at a rate of over one million dollars per minute.” Shouldn’t the government being on the verge of bankruptcy be an issue worth talking about?

Black budget spending. It costs the American taxpayer $52.6 billion every year to be spied on by the sixteen or so intelligence agencies tasked with surveillance, data collection, counterintelligence and covert activities. The agencies operating with black budget (top secret) funds include the CIA, NSA and Justice Department. Clearly, our right to privacy seems to amount to nothing in the eyes of the government and those aspiring to office.
Government contractors. Despite all the talk about big and small government, what we have been saddled with is a government that is outsourcing much of its work to high-paid contractors at great expense to the taxpayer and with no competition, little transparency and dubious savings. According to the Washington Post, “By some estimates, there are twice as many people doing government work under contract than there are government workers.” These open-ended contracts, worth hundreds of millions of dollars, “now account for anywhere between one quarter and one half of all federal service contracting.” Moreover, any attempt to reform the system is “bitterly opposed by federal employee unions, who take it as their mission to prevent good employees from being rewarded and bad employees from being fired.”

Cost of war. Then there’s the detrimental impact the government’s endless wars (fueled by the profit-driven military industrial complex) is having on our communities, our budget and our police forces. In fact, the U.S. Department of Defense is the world’s largest employer, with more than 3.2 million employees. Since 9/11, we’ve spent more than $1.6 trillion to wage wars in Afghanistan and Iraq. When you add in our military efforts in Pakistan, as well as the lifetime price of health care for disabled veterans and interest on the national debt, that cost rises to $4.4 trillion.

Education. Despite the fact that the U.S. spends more on education than any other developed nation, our students continue to lag significantly behind other advanced industrial nations. Incredibly, teenagers in the U.S. ranked 36th in the world in math, reading and science.

To continue reading: The Real Issues You Won’t Hear from the 2016 Candidates

Clock Ticks on Balance Sheet Fiesta, by Lisa Abramowicz

The bell tolls, the clocks ticks, pick your cliche metaphor for US corporate debt (see “Neither a Borrower Nor a Lender Be,” SLL, 8/26/15). From Lisa Abramowicz at bloombergview.com:

Credit traders are sending an ominous message to U.S. companies: Either stop borrowing so much money or prepare to face some serious consequences.

Investors are now demanding a 61 percent bigger premium over benchmark rates to own top-rated bonds of industrial companies compared with June 2014. Such debt has lost 4.2 percent in the period when stripping out gains from benchmark government rates, with relative yields rising to 1.8 percentage points from 1.1 percent percentage points 16 months ago, Bank of America Merrill Lynch index data show.

Part of this is just saturation in the face of yet another year of record-breaking bond sales. Investment-grade companies have issued more than a trillion dollars of bonds so far in 2015 on top of the $5 trillion in the previous five years, data compiled by Bloomberg show.

But this year’s weakness in credit markets isn’t just a technical blip; it highlights a significant deterioration in corporate balance sheets. After all, what have these companies done with the money they’ve raised? They’ve bought back their own shares and paid dividends to their shareholders. What they haven’t done is use the money to improve their businesses.

It’s getting to the point where even stockholders are tiring of their companies’ repurchasing shares and borrowing money simply because it’s cheap. A Bank of America fund-manager survey last month showed that equity investors are essentially asking corporations to be more conservative with their balance sheets.

Here’s why: Top-rated non-financial companies have increased their median leverage to 2.2 times debt relative to income, compared with 1.6 times in 2011, according to data compiled by JPMorgan Chase.

To continue reading: Clock Ticks on Balance Sheet Fiesta

The Essence Of Modern Economics: Garbage In, Garbage Out, by MN Gordon

MN Gordon shares SLL’s opinion of modern economics as SLL (Herd Extinct, 9/24/15 and Profits From Stupidity, 10/30/15). From Gordon at davidstockmanscontraclub.com:

“On two occasions I have been asked, “Pray, Mr. Babbage, if you put into the machine the wrong figures, will the right answers come out? …I am not able rightly to apprehend the kind of confusion of ideas that could provoke such a question.” – Charles Babbage, Passages from the Life of a Philosopher.

Crunching Data to Fix Prices

The fundamental problem facing today’s economy is the flagrant contempt by governments the world over for the free exchange of goods and services and private stewardship of property. Perhaps it is power and control governments are after. Maybe they believe they are improving the economy and making the world a better place for all.

No one really knows for sure. But what is lucidly clear is the muddled disorder modern day economic policies have wrought upon us. You can hardly enter into a transaction without a cluster of intervention mucking with the price of payment.

Taxes, tariffs, wage laws, and subsidies. These all impact prices. But the main culprit affecting prices and trade are central bank interventions into money and credit markets. Relentless actions to control the economy by manipulating money and credit stand the price of everything else on end.

Certainly, government intervention into the U.S. economy is much looser than a Soviet style command and control system. But it does share a common refrain. Price fixing is central to its operation.

The Soviets, armed with their Five-Year Plans and the Theory of Productive Forces, deliberately directed how much wheat should be planted and how much a potato should cost. Conversely, the U.S. approach is mostly hidden from the short sighted view of the average lay person. The Federal Reserve allows the government to bypass the nuisance of tinkering with individual prices…though they still do it through subsidies and appropriations.

In short, the Federal Reserve, an unelected board of appointments, crunches economic data each month and draws a conclusion as to what price to fix the economy’s most important commodity – its money. By doing so all other prices in the economy must change – and distort – to adjust to the Fed’s market intervention.

To continue reading: Garbage In, Garbage Out

War in Syria? Where Is Speaker Ryan? by Patrick Buchanan

Patrick Buchanan is on a roll tonight, with two postings on SLL. From Buchanan at antiwar.com:

“The United States is being sucked into a new Middle East war,” says The New York Times. And the Times has it exactly right.

Despite repeated pledges not to put “boots on the ground” in Syria, President Obama is inserting 50 U.S. special ops troops into that country, with more to follow.

U.S. A-10 “warthog” attack planes have been moved into Incirlik Air Base in Turkey, close to Syria.

Hillary Clinton, who has called for arming Syrian rebels to bring down Bashar Assad, is urging Obama to establish a no-fly zone inside Syria.

Citing Clinton and Gen. David Petraeus, John McCain is calling for a no-fly zone and a safe zone in Syria, to be policed by U.S. air power.

“How many men, women and children,” McCain asks, “are we willing to watch being slaughtered by the Russians and Bashar al-Assad?”

Yet, if we put U.S. forces onto sovereign Syrian territory, against the will and resistance of that government, that is an act of war.

Would we tolerate Mexican troops in Texas to protect their citizens inside our country? Would we, in the Cold War, have tolerated Russians in Cuba telling us they were establishing a no-fly zone for all U.S. warplanes over the Florida Strait and Florida Keys?

Obama has begun an escalation into Syria’s civil war, and not only against ISIS and the al-Nusra Front, but against Syria’s armed forces.

Mission creep has begun. The tripwire is being put down. Yet, who authorized Obama to take us into this war? The Russians and Iranians are in Syria at the invitation of the government. But Obama has no authorization from Congress to put combat troops into Syria.

Neither the al-Nusra Front nor ISIS has an air force. Against whom, then, is this Clinton-McCain no fly-zone directed, if not Syrian and Russian warplanes and helicopters?

Is America really prepared to order the shooting down of Russian warplanes and the killing of Russian pilots operating inside Syria with the approval of the Syrian government?

In deepening America’s involvement and risking a clash with Syrian, Russian and Iranian forces, Obama is contemptuously ignoring a Congress that has never authorized the use of military force against the Damascus regime.

Congress’ meek acquiescence in being stripped of its war powers is astonishing. Weren’t these the Republicans who were going to Washington to “stand up to Obama”?

Coming after Congress voted for “fast track,” i.e., to surrender its constitutional right to amend trade treaties, the capitulations of 2015 rank as milestones in the long decline into irrelevance of the U.S. Congress. Yet in the Constitution, Congress is still the first branch of the U.S. government.

Has anyone thought through to where this U.S. intervention can lead?

The Coming Age of Austerity, by Patrick Buchanan

Pat Buchanan does not have a degree in accounting, but you don’t need one to know that the US is heading towards fiscal disaster. From Buchanan at buchanan.org:

“Are the good times really over for good?” asked Merle Haggard in his 1982 lament.

Then, the good times weren’t over. In fact, they were coming back, with the Reagan recovery, the renewal of the American spirit and the end of a Cold War that had consumed so much of our lives.

Yet whoever wins today, it is hard to be sanguine about the future.

The demographic and economic realities do not permit it.

Consider. Between 1946 and 1964, 79 million babies were born — the largest, best-educated and most successful generation in our history. Bill Clinton and George W. Bush, both born in 1946, were in that first class of baby boomers.

The problem.

Assume that 75 million of these 79 million boomers survive to age 66. This means that from this year through 2030, an average of nearly 4 million boomers will be retiring every year. This translates into some 11,000 boomers becoming eligible for Medicare and Social Security every single day for the next 18 years.

Add in immigrants in that same age category and the fact that baby boomers live longer than the Greatest Generation or Silent Generation seniors, and you have an immense and unavoidable increase coming in expenditures for our largest entitlement programs.

Benefits will have to be curbed or cut and payroll taxes will have to rise, especially for Medicare, to make good on our promises to seniors.

As for the rest of our federal budget of nearly $4 trillion, we have run four consecutive deficits of over $1 trillion. To bring that budget to balance, freezes would have to be imposed and cuts made in spending for defense and other social programs.

From California to Wisconsin to New York, we see the process at work at the state level. Government salaries are frozen, government payrolls are cut, government pensions and programs are scaled back.

California and Illinois are on the precipice of default. Cities like Detroit, Birmingham, Stockton and San Bernardino are already there.

As for national defense, how long can we afford to spend more than the 10 other top nations combined? How long can we continue to defend scores of nations half a world away? How many more trillion-dollar wars like Iraq and Afghanistan can we fight on borrowed money?

To continue reading: The Coming Age of Austerity

Your Health Insurance Premiums Are About To Go Through The Roof -The Stunning Reason Why, by Tyler Durden

From Tyler Durden at zerohedge.com:

After years of delays and failed launches, Obamacare has finally taken hold, and with it the economic and financial implications from this mandatory tax are finally being felt.

We have extensively covered how Obama’s Affordable Care Act will end up being a failure, observing both the economic implications in “In Latest Obamacare Fiasco, Most Low-Income Workers Can’t Afford “Affordable Care Act” as well as its operational shortcomings in “Obamacare Is A Disaster: Co-Op Insurers Across America Are Collapsing, And Now There Is Fraud”, paradoxically even as Obamacare – a tax – was according to the BEA the single biggest contributor to GDP growth in the third quarter.

Of course, the most obvious reason why Obamacare will have a dire impact the economy is also very simple: soaring healthcare premiums, also covered before…

… which incidentally also explain why all those touted “gas savings” failed to materialize in discretionary spending behavior: all of the “saved” money went to cover rising health insurance costs.

None of this should come as a surprise.

What should, however, is that according to a very unexpected twist healthcare premiums are about to soar so much in the coming months that the shocking increases of the past year will seem like a walk in the park.

The reason for this comes courtesy of a new report from the WSJ which explains something few if any had expected: corporate insurers are scrambling to profit from Obamacare!

Yes, we know: Obamacare was written by the health insurance companies, and it was supposed to benefit them first and foremost as US households struggled to catch up to what most rational observers had said would be surging premiums. And, on the top line, it did just that: “under the ACA, insurers have seen an influx of new membership in individual plans and in Medicaid plans they administer for the government, expanding the industry’s total U.S. revenue to $743 billion in 2014, the year the law’s biggest changes took effect, from $641 billion the year before, according to a new analysis by consulting firm McKinsey & Co.”

So far so good, and just as expected – incidentally, that 16% increase in industry revenue comes right out of your pocket, dear U.S. reader with the blessings of the US Supreme Court of course.

But where it gets fascinating is that while the surge in the top-line was expected, what comes as close to a black swan as possible, is what happens below the revenue line on the insurers’ income statement.

The stunning finding comes from a new analysis by McKinsey which notes that much of that revenue growth has been unprofitable! Health insurers lost a total of $2.5 billion, or on average $163 per consumer enrolled, in the individual market in 2014, McKinsey found. A number are also expecting to lose money on their marketplace business for 2015.

To continue reading: Your Health Insurance Premiums Are About To Go Through The Roof

What The Oil And Gas Industry Is Not Telling Investors, by Nick Cunningham

SLL has predicted that the price of oil will stay at current levels or lower for longer than most people think (“Blood, Oil, Debt, and Government,” 10/26/15). That prediction was based on suppy dynamics. In this article, Nick Cunningham of oilprice.com focuses on demand:

Oil prices crashed because of too much supply, but will rebound as production shrinks and demand rises. But what if long-term demand for oil ends up being sharply lower than what the oil industry believes?

That is the subject of a new report from The Carbon Tracker Initiative, which looks at a range of scenarios that could blow up oil industry projections for long-term oil demand.

Historically, Carbon Tracker says, energy demand has been driven by population, economic growth, and the efficiency (or inefficiency) of energy-using technologies. Carbon Tracker looks at a couple possible future scenarios in which those parameters are altered, resulting in dramatically lower rates of oil consumption.

Carbon Tracker has been a pioneer in the concept of “stranded assets,” the notion that fossil fuel assets will lose their value as the world moves to restrict carbon emissions. If an oil field cannot be produced profitably in a carbon-constrained world – or cannot legally be produced because of certain regulations – then it ceases to have value. That puts investors’ dollars at risk, a risk that financial markets have not fully grappled with.

However, in a new report, Carbon Tracker expands upon the possible scenarios in which oil demand may not live up to industry predictions.

For example, if the world population hits only 8.3 billion by 2050 instead of the 9.7 billion figure typically cited by the UN, fossil fuel consumption could end up being 17 percent lower in 2050 than the oil industry thinks. Coal would be affected the most, with 25 percent reduction in demand compared to the business-as-usual case.

How about GDP growth? The expansion of the global economy is pivotal to energy consumption. The industry typically bakes in a GDP growth rate of 2.8 to 3.6 percent per year into its forecasts. But these figures could be on the high end, especially since so much hinges on the ongoing blistering growth from China. But, using BP’s pessimistic GDP scenario in which China and India only grow at 4 percent per year, global energy demand could be 8.5 percent lower in 2035 than the business-as-usual case.

Perhaps more threatening to future oil demand are global policies to ratchet down greenhouse gas emissions, as previously touched upon. Although international negotiations have largely failed to halt the growth of carbon emissions, a significant effort to zero out carbon over the long-term would necessarily cut deeply into demand. Industry projections largely ignore this possibility, as industry estimates for fossil fuel demand in the future would likely lead to average global warming of 4 to 6 degrees Celsius, exceeding the stated goal of capping warming at 2 degrees. More importantly, industry projections for fossil fuel use already exceed the totals that would result if the carbon reduction goals already laid out by countries heading into Paris are implemented. Caps on emissions would upend the entire business model of the oil industry.

To continue reading: What The Oil And Gas Industry Is Not Telling Investors

China Slowdown, “Global Turbulence” Trigger Collapse of Export Orders for German Equipment Makers, by Wolf Richter

The Dow Jones Industrial Average was up 165 points today. Meanwhile in the real world of global business, thing are getting worse, as Wolf Richter documents virtually every day. Today from Richter, at wolfstreet.com:

“Ripples are now spreading to other key markets.”

It hasn’t hit overall German exports yet. Year-to-date through August, total exports are up 6.6% from last year and are expected to set another record by year-end. Exuberance in Germany’s well-oiled export machinery still reigns.

But beneath the surface, German plant and machinery makers are getting slammed by the recessions in Russia and Brazil, the slowdown in China that officially still doesn’t exist, and the “turbulence” in the global markets, according to a report today by the German Engineering Federation VDMA.

The association represents over 3,100 mostly medium-sized companies in the capital goods industry. Mechanical engineering is Germany’s forte. Many of the companies are world leaders. They cover the “entire process chain” in the mechanical engineering sector, according to the VDMA, including:

Associated tools and components, of process, production, manufacturing, drive-train and automation engineering, office and information technology, software, and product-related services, i.e. from components to plants, from system suppliers and system integrators through to service providers.

They employ over 1 million workers that develop and produce “key technologies for the global market,” with 76% of their revenues derived from exports. Alas, about 42% of these exports are headed to developing economies, including Russia, Brazil, and particularly China.

These economies are now in trouble. And for German plant and equipment makers, things have come unglued. In September, total orders plunged 13% year-over-year. While domestic business edged up 1%, export orders plummeted 18%.

The export crash wasn’t a one-month blip. For the first nine months, overall orders dropped 1%. While domestic orders rose 2%, and export orders from the Eurozone jumped 13%, orders from outside the Eurozone dropped 7%. Hidden in the numbers is the recent deterioration in export orders: Over the three-month period between July and September (as domestic orders rose 8%), total export orders fell 6%, topped off by the 18% plunge in September.

To continue reading: Collapse of Export Orders for German Equipment Makers

End The Fed’s Money Monopoly–The Only Escape From Monetary Central Planning & The Wall Street Casino, by Sean Fieler

Sean Fieler with a valuable look back on the well-founded fears of central banking that attended the launch of the Federal Reserve in 1913. See also The Golden Pinnacle, by Robert Gore. Although it is a historical novel, it makes the 1913 case against the Fed in Chapter 27, “Fools Gold.” From Fieler, at The Wall Street Journal, via davidstockmanscontracorner.com:

History suggests that the only way to rein in the sprawling Federal Reserve is to end its money monopoly and restore the American people’s ability to use gold as a competing currency.

The legislative compromise that created the Fed in 1913 recognized that the power to print money, left unchecked, could corrupt both the government and the economy. Accordingly, the Federal Reserve Act created the Federal Reserve System without a centralized balance sheet, a central monetary-policy committee or even a central office.

The Fed’s regional banks were prohibited from buying government debt and required to maintain a 40% gold reserve against dollars in circulation. Moreover, each of the reserve banks was obligated to redeem dollars for gold at a fixed price in unlimited amounts.

Over the past century, every one of these constraints has been removed. Today the Fed has a centrally managed balance sheet of $4 trillion, and is the largest participant in the market for U.S. government bonds. The dollar is no longer fixed to gold, and the IRS assesses a 28% marginal tax on realized gains when gold is used as currency.

The largest increases in the Fed’s power have occurred at moments of financial stress. Federal Reserve banks first financed the purchase of government bonds during World War I. The gold-reserve requirement was dramatically reduced and a central monetary policy-committee was created during the Great Depression. President Richard Nixon broke the last link to gold to stave off a run on the dollar in 1971.

This same combination of crisis and expediency played out in 2008 as the Fed bailed out a series of nonbank financial institutions and initiated a massive balance-sheet expansion labeled “quantitative easing.” To end this cycle, Americans need an alternative to the Fed’s money monopoly.

To continue reading: End The Fed’s Money Monopoly