Tag Archives: Income inequality

This Is How It Ends: All That Is Solid Melts Into Air, by Charles Hugh Smith

A lot of things that looked sturdy and permanent crumble when things go south. From Charles Hugh Smith at oftwominds.com:

While the Federal Reserve and the Billionaire Class push the stock market to new highs to promote a false facade of prosperity, everyday life will fall apart.

How will the status quo collapse? An open conflict–a civil war, an insurrection, a coup–appeals to our affection for drama, but the more likely reality is a decidedly undramatic dissolution in which all the elements of our way of life we reckoned were solid and permanent simply melt into air, to borrow Marx’s trenchant phrase.

In other words, Rome won’t be sacked by Barbarians, or ignite in an insurrectionary conflagration–everything will simply stop working as those burdened with the impossible task of keeping a failed system glued together simply walk away.

If we examine the collapse of the Soviet Union and the Western Roman Empire, we can trace the eventual collapse to the sudden psychological shift from an assumption of permanence that found expression in denial (Rome can’t fall, it’s eternal…) or in the universal belief that life was unchanging and so everything was forever.

This psychological state was replaced by a shocked awareness that what was unimaginable, “impossible”–systemic collapse–was not only entirely possible, it was happening in real time. This change in consciousness arose in individuals in differing ways and velocities, but eventually everyone accepted that some adaptation was now necessary.

Correspondent R.J. and I have been discussing the consequences of the sharp decline in the value of labor which is painfully obvious in the chart below and the many other charts depicting the declining purchasing power of wages and the skimming of the majority of the economic gains by the top 0.1%.

In effect, it no longer pays to work beyond the bare minimum needed to survive as all the value generated by labor above this minimum is either skimmed by the Bezos, Buffetts, Gates, Zuckerbergs et al. or it’s paid in higher taxes to the government.

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Four Reasons Inequality Isn’t What You Think It Is, by Antonis Giannakopoulos

If you’re a proper American who thinks globally, just remember that for every person above you on the income ladder that you’d like to “equalize” by taking some of their money, there are at least ten people around the world looking at your income who would like to “equalize” you. From Antonis Giannakopoulos at mises.org:

One of the defining characteristics of advocates for socialism is an obsession with equality. According to this line of thinking, inequality is the central problem of the modern world, and it demands a centralized solution. Thus, socialists—and more mild social democrats—push to use the power of the state to force the transfer of wealth from the productive and successful to those who are less so. This is the way to achieve social justice, they contend.

But inequality is not the societal plague that socialists allege it to be.

The Source of Wealth: Consumer Judgment

Contrary to popular belief, the way to make money is not to exploit one’s customers. The reality is the opposite. Wealth is created by identifying the problems that people have and creating products that provide a solution and improve their lives.

In this process, the consumer leads the process by expressing his own preferences in the marketplace. If a consumer feels that a product is overpriced, he will not make an exchange. If a product seems worthwhile, he will buy it willingly. The sum of these individual choices—to purchase or not—make or break a business on the market, and this is the consumers’ prerogative. In order to meet his own needs, a person must produce something that satisfies another’s needs, whether they be labor, industrial machinery, or fine cuff links.

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A Decade Of… What Exactly? by Michael Every

Historians looking back on the decade now ending may well name it the decade of debt. From Michael Every at zerohedge.com:

Authored by Rabobank’s Michael Every

Summary

  • We are now close to the end of the year and the second decade of the 21st century
  • 2010-19 saw a marked difference between growth in developed and emerging markets – but both may be about to slow together
  • World Total Factor Productivity growth was virtually zero – and China’s performance crucial
  • 2010-19 was a decade of record high debt… following a global crisis created by too much debt
  • Absolute poverty levels continued to decline – yet there was increased in perceived insecurity and hardship in many developed markets
  • There was a major increase in global asset prices, especially of stocks and houses…
  • … and in inequality of wealth and income, even as gaps between states narrowed
  • Interest rates went up and then down again in developed markets, and bond yields fell to record lows; but emerging markets also saw rates and yields spike
  • The USD gained against most major FX crosses, and most so against struggling emerging markets
  • What do the 2020s hold for us if this was what the 2010s provided? China arguably holds the key on many fronts

A very mixed decade

We are now close to the end of the year and, given it is 2019, also of the second decade of the 21st century. That marks an opportune time to look backwards in order to then try to look forwards.

In many respects this has been a difficult decade – for example, what do we even refer to it as: “The twenty-tens” or “The twenty-teens”? Far more importantly, of course, the key developments seen over the last ten years present a very mixed picture. Some are certainly positive, and yet arguably more are deeply negative.

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2019 was a year of global unrest, spurred by anger at rising inequality – and 2020 is likely to be worse, from the Conversation

The trend to unrest, dissent, dissolution, secession, decentralization, and devolution is only picking up steam. From theconversation.com:

2019 may well go down as the most disrupted year in global politics since the fall of the Berlin wall in 1989 and the subsequent implosion of the former Soviet Union.

However, the likelihood is that 2020 will be worse, and bloodier.

Conditions that spawned global unrest on every continent in 2019 are unlikely to recede. Rather, they are likely to worsen in the face of a slowing global economy and little sign of causes of disaffection being addressed.

Washington as disruptor

In a word, the world is in a mess, made more threatening by the retreat of the Trump administration from America’s traditional role as a stabilising force.

President Donald Trump has moved the US away from its traditional role of global stabilising force. AAP/EPA/Kevin Dietsch

If anything, Washington is a disruptor in its abandonment of international agreements. These include: the Paris Agreement on climate change and the Comprehensive and Progressive Agreement for Trans Pacific Partnership, previously the Trans Pacific Partnership, aimed at liberalising Asia-Pacific trade. The US has also withdrawn from the Joint Comprehensive Plan of Action (JCPOA) that froze Iran’s nuclear ambitions.

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The Fed’s Answer to the Ghastly Monster of its Creation, by MN Gordon

In politics and central banking, nothing succeeds like failure. The Fed’s answer for the problems its creating is more of the same, only bigger and better. From MN Gordon at economicprism.com:

The launch angle of the U.S. stock market over the past decade has been steep and relentless.  The S&P 500, after bottoming out at 666 on March 6, 2009, has rocketed up over 370 percent.  New highs continue to be reached practically every day.

Over this stretch, many investors have been conditioned to believe the stock market only goes up.  That blindly pumping money into an S&P 500 ETF is the key to investment riches.  In good time, this conditioning will be recalibrated with a rude awakening.  You can count on it.

In the interim, the bull market may continue a bit longer…or it may not.  But, to be clear, after a 370 percent run-up, buying the S&P 500 represents a speculation on price.  A gamble that the launch angle furthers its steep trajectory.  Here’s why…

Over the past decade, the U.S. economy, as measured by nominal gross domestic product (GDP), has increased about 50 percent.  This plots a GDP launch angle that is underwhelming when compared to the S&P 500.  Corporate earnings have fallen far short of share prices.

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Get Ready– they’re coming for your money, by Simon Black

Whatever money you’ve got, they want. From Simon Black at sovereignman.com:

Every so often throughout history, the peasants grab their pitchforks and come for the elite. It happens when the wealth gap grows too extreme… when people feel like they are getting left behind, with no opportunity to advance.

Central banks around the world have printed trillions of dollars over last decade, and pushed interest rates to zero, and sometimes below. And all of that stimulus went directly into the pockets of the wealthy.

Since 2009, the world’s billionaires more than DOUBLED their combined wealth. All the billionaires in the world had $3.4 trillion in 2009. By 2017, they amassed $8.9 trillion.

Mark Zuckerberg multiplied his wealth almost 20 times over, from $3 billion in 2009, to over $58 billion in 2019.

$8.9 trillion is a massive, almost incomprehensible amount of wealth.

But it really shouldn’t be that surprising if you think about it… these people are wealthy for a reason. Typically, they are pretty good at making money. And with the snowball effect, if you give them more time, they will probably make even more.

For the last ten years, we’ve seen a huge asset price inflation in everything from the stock market, to bonds and real estate, and even fine art and wine.

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Sorry, Stiglitz: It’s Socialism That’s Rigged — not Capitalism, by William L. Anderson

Joseph Stiglitz is a hack economist, “a one man band for growth of the state.” That’s why he won a Nobel Prize. From William L. Anderson at mises.org:

Ever since winning the Nobel Memorial Prize in “Economic Science” in 2001, Joseph Stiglitz has been a one-man advocacy band for growth of the state. After 9/11, for example, he called for the formation of a federal agency to provide security for airline passengers, which he claimed would send a “signal” for quality. (Stiglitz won his prize for “proving” that free markets are “inefficient” and always result in less-than-optimal outcomes because of asymmetric information. Only government in the hands of Really Smart People like Stiglitz can direct production and exchange consistently to efficient and “just” results.)

More than a decade ago, Stiglitz lavished praise for the socialist government of the late Hugo Chavez in Venezuela, declaring:

Venezuelan President Hugo Chavez appears to have had success in bringing health and education to the people in the poor neighborhoods of Caracas, to those who previously saw few benefits of the country’s oil wealth.

He went on to claim that the Chavez policies of expropriating the capital structure of private oil companies in Venezuela would result in a more “equal” distribution of wealth in that country, something he believes is desirable everywhere. Interestingly, since Venezuela’s socialist “experiment” went south, complete with hyperinflation and one of the worst financial and economic crises ever seen in the Western Hemisphere, Stiglitz has been silent, at least when it comes to explaining why the so-called economic miracle in Venezuela was unsustainable.

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Mind Blowing, by the Northman Trader

There are a lot of paradoxes in financial markets and in the economy at large. From the Northman Trader at northmantrader.com:

We’re in one of the longest economic expansion cycles in history and nobody’s happy. It’s mind blowing. You’d think 2018 would have people dancing in the streets. 3.7% unemployment, record stock market prices. Well the ladder until recently that is.

So let me rephrase:

What happens if you have record buybacks, record dividends, and record earnings but 89% of assets yield a negative return in US dollar terms?

No really that’s just what happened:

The short answer is: Nobody knows because it has never happened before.

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