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How To Create A Manufacturing Renaissance – Change The Definition | Zero Hedge

How To Create A Manufacturing Renaissance – Change The Definition | Zero Hedge.

With US manufacturing jobs down almost 40% from their 1980s peak, proclaiming the last few years marginal increase a “manufacturing renaissance” is more statistical noise, smoke, and mirrors than fact. That is a problem for an administration (and entire genre of Keynesian dreamers) that rely on this sector to prove how effective they have been with stimulus (and not just pulling demand so colossally forward that the future is bleak). How to fix this apparent dilemma between policy talking points and factual data? Easy – as WSJ reports, change the definition of “manufacturing.”

 

Behold the Renaissance…

 

So how do we fix this uncomfortable truthiness to fit with talking points that everyone can understand is unquestionably bullish…

Via Wall Street Journal,

U.S. Agencies Consider Redefining Manufacturing

Should a company be called a manufacturer if it doesn’t make what it sells? The answer isn’t as obvious as it seems.

Some refer to companies like these as “factoryless goods producers”—firms that handle every part of making their products except the actual fabrication. As industries have gone global, this model has proliferated from furniture making to electronics: Think of Apple Inc. and its iPhones. Now, there is a move afoot among U.S. government agencies to count these companies as manufacturers, which is a surprisingly fraught issue.

The upshot would be an overnight increase in the apparent size of the U.S. industrial sector without adding a single assembly line. It would also change its geography, as places like Silicon Valley would suddenly look much more like a manufacturing hot spot. Backers of the change say this would give a truer picture of the nation’s productive capability, because these firms still do most other functions of manufacturing, from designing goods to overseeing their production and distribution.

But critics like Miles Free, director of industry research and technology at the Precision Machined Products Association, a trade group for small U.S. producers, say the change in wording would gloss over the erosion of domestic manufacturing. “We think it would be bad for policy makers to say, ‘Look at these numbers, we have great manufacturing,’ ” he said, when the production in many cases is actually taking place on the other side of the world.

“I’m not sure if this is a good idea or not,” says Andrew Bernard, one of the authors, “but if we don’t understand what’s going on, we might implement bad policy.”

Bad policy indeed… but who cares about that as long as the ruling elite have a talking point to sell to the people to show that more of the same will solve the world’s problems…

Of course, this “change” already has precedent with the unbelievable addition of goodwill and R&D into the GDP figures to boost their appearance…

How To Create A Manufacturing Renaissance – Change The Definition | Zero Hedge

How To Create A Manufacturing Renaissance – Change The Definition | Zero Hedge.

With US manufacturing jobs down almost 40% from their 1980s peak, proclaiming the last few years marginal increase a “manufacturing renaissance” is more statistical noise, smoke, and mirrors than fact. That is a problem for an administration (and entire genre of Keynesian dreamers) that rely on this sector to prove how effective they have been with stimulus (and not just pulling demand so colossally forward that the future is bleak). How to fix this apparent dilemma between policy talking points and factual data? Easy – as WSJ reports, change the definition of “manufacturing.”

 

Behold the Renaissance…

 

So how do we fix this uncomfortable truthiness to fit with talking points that everyone can understand is unquestionably bullish…

Via Wall Street Journal,

U.S. Agencies Consider Redefining Manufacturing

Should a company be called a manufacturer if it doesn’t make what it sells? The answer isn’t as obvious as it seems.

Some refer to companies like these as “factoryless goods producers”—firms that handle every part of making their products except the actual fabrication. As industries have gone global, this model has proliferated from furniture making to electronics: Think of Apple Inc. and its iPhones. Now, there is a move afoot among U.S. government agencies to count these companies as manufacturers, which is a surprisingly fraught issue.

The upshot would be an overnight increase in the apparent size of the U.S. industrial sector without adding a single assembly line. It would also change its geography, as places like Silicon Valley would suddenly look much more like a manufacturing hot spot. Backers of the change say this would give a truer picture of the nation’s productive capability, because these firms still do most other functions of manufacturing, from designing goods to overseeing their production and distribution.

But critics like Miles Free, director of industry research and technology at the Precision Machined Products Association, a trade group for small U.S. producers, say the change in wording would gloss over the erosion of domestic manufacturing. “We think it would be bad for policy makers to say, ‘Look at these numbers, we have great manufacturing,’ ” he said, when the production in many cases is actually taking place on the other side of the world.

“I’m not sure if this is a good idea or not,” says Andrew Bernard, one of the authors, “but if we don’t understand what’s going on, we might implement bad policy.”

Bad policy indeed… but who cares about that as long as the ruling elite have a talking point to sell to the people to show that more of the same will solve the world’s problems…

Of course, this “change” already has precedent with the unbelievable addition of goodwill and R&D into the GDP figures to boost their appearance…

Anti-Logic and the Keynesian “Stimulus” – William L. Anderson – Mises Daily

Anti-Logic and the Keynesian “Stimulus” – William L. Anderson – Mises Daily.

American political culture always seems to be “celebrating” the anniversary of something, be it JFK’s assassination (we just passed the 50th anniversary of that sad event) or the signing of some (mostly bad) legislation. The latest political activity to be enshrined with an anniversary is the so-called stimulus, the $800 billion monstrosity passed five years ago ostensibly to “put America back to work.”

Not surprisingly, the New York Times has editorialized that any criticism of the spending bill — at least any criticism which says “too much” was spent — is a Republican “myth and falsehood.” Not only was the “Stimulus” a legitimate piece of legislation, sniffed the NYT, but it also:

prevented a second recession that could have turned into a depression. It created or saved an average of 1.6 million jobs a year for four years. (Where are the jobs, Mr. Boehner.) It raised the nation’s economic output by 2 to 3 percent from 2009 to 2011. It prevented a significant increase in poverty — without it, 5.3 million additional people would have become poor in 2010.

Like all examples of the Broken Window Fallacy, the spirited defense of this spending bill is based upon “accounting” methods that count the people hired through “stimulus” spending as “new jobs” but fail to note how others might have lost their own means of employment. Now, this was a bill that, among other things, had workers rolling sod into the grass median of I-68 (which is near my home) in an area where runoff collected from tons of salt thrown onto roads by state highway crews (our area receives a lot of snowfall). Not surprisingly, within a year, all of the new grass was dead.

I liken the “stimulus” to throwing a bit of lighter fluid onto a pile of soaking wet wood. The flames pop up for a few seconds, but then disappear as the effects from the fluid go away. (No, repeated douses of “stimulus” fluid do not ultimately gain traction and then lead to a miraculous economic recovery.)

If Beltway political culture permits any criticism of the Holy Stimulus, it is this: “the stimulus wasn’t big enough.” Intones the NYT: “The stimulus could have done more good had it been bigger and more carefully constructed.”

The rest of the editorial is a compilation of near-plagiarism from Paul Krugman’s columns and blog posts, and it reflects how Keynesian anti-wogic works. The “logical” narrative goes as follows:

  • “Enough” government spending during a recession will bring the economy to “full employment.”
  • The economy is not at full employment.
  • Therefore, there wasn’t enough government spending.

Should one question the Keynesian premises of this awful syllogism, the standard answer is: America had “full employment” during World War II. (Robert Higgs has thoroughly debunked this enduring myth.) But, then, so did Germany and the U.S.S.R., according to Keynesian standards, but no one envies what people there experienced!

The problem that occurs when one wishes to interpret the results of the Stimulus is not due to bad politics. To put it another way, Stimulus spending always will confer political benefits, given that the money is transferred from taxpayers to preferred political constituents. Those footing the bill include both present and future taxpayers, since they will have to pay later for the public debt incurred to pay for present stimulus spending.

I make this point because the stimulus always has been presented as a government action that improved general or overall economic conditions, as opposed to being a political wealth-transfer scheme. The NYT editorial drips with what only can be a religious faith in the whole system, as though politicians seeking votes are going to “carefully” construct a process that is aimed at making certain political constituencies better off — but at the expense of other constituencies.

In reality, the government-based stimulus is based upon bad economics or, to be more specific, one of bad economic logic. To a Keynesian, an economy is a homogeneous mass into which the government stirs new batches of currency. The more currency thrown into the mix, the better the economy operates. One only needs to read Krugman’s writings to see that belief in full bloom.

Austrian economists, on the other hand, recognize the relationships within the economy, including relationships of factors of production to one another, and how those factors can be directed to their highest-valued uses, according to consumer choices. The U.S. economy remains mired in the mix of low output and high unemployment not because governments are failing to spend enough money but rather because governments are blocking the free flow of both consumers’ andproducers’ goods and preventing the real economic relationships to take place and trying to force artificial relationships, instead. (Green energy and ethanol, anyone?)

Simply put, the stimulus could work only if it were directing factors of production from lower-valued uses to higher-valued uses as determined ultimately by consumer choice. If that actually were the case, then the government would not have to force consumers to use stimulus-funded ethanol and electricity created by wind power.

Austrians arrive at their position through logic, but logic that is based in what we already know about human action. Unlike Keynesian “logic,” the premises of Austrian economics are sound, so the conclusions derived from them also are sound. No wonder the Austrian position is banned from the NYT editorial page!

Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.

Comment on this article. When commenting, please post a concise, civil, and informative comment.
William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University. Send him mail. See William L. Anderson’s article archives.

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Keynesian Political Economy Is Theft – Monty Pelerin’s World : Monty Pelerin’s World

Keynesian Political Economy Is Theft – Monty Pelerin’s World : Monty Pelerin’s World.

FEBRUARY 28, 2014

keyneshayekimages (2)The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended.

Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry. In the beginning, clear-thinking, independent economists (not dependent on government largess) expressed objections to this “new economics.” There was little new in Keynes’ work and many errors that had been debunked decades before Keynes was even born. Bastiat’s parable of the “broken window” in 1850 is probably the best-known refutation, although similar arguments preceded Bastiat by a century or more.

In the 1930s leaders were desperate and willing to try anything. Keynes General Theory was published in 1936, during the middle of the greatest depression the world had ever experienced. Politicians, more so than economists, welcomed his ideas as a new approach.

The Austrian economists  represented by Mises and Hayek saw the fallacies in this new approach immediately. Some of the Chicago School (Knight, Simons, Viner) did also. Ludwig von Mises, never one to mince words, described Keynesian economics in the following manner:

What he really did was to write an apology for the prevailing policies of governments.

Mises likely was one of the few who saw the full ramifications of what Keynesian economics would provide for government. Most early criticisms were in terms of the economic unsoundness of the theory.

To contrast the blatant differences between proper economics and Keynesian prescriptions, the following two prescriptions were offered early in this century:

austriankeynesian

It was proper that one of these men should have won the Nobel Prize in economics. It just happened to be the wrong one.

buchananeconomy-1986-1

JAMES BUCHANAN, NOBEL LAUREATE

In 1977 James M. Buchanan and Richard E. Wagner wrote “Democracy In Deficit — The Political Legacy of Lord Keynes” (available online). It was the first comprehensive attempt to apply public-choice theory to macroeconomic theory and policy. According to Robert D. Tollison:

The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.

From Buchanan and Wagner came this judgment regarding Keynesian economics:

The message of Keynesianism might be summarized as: What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation. (p. 3)

This fundamental confusion was responsible for the political acceptance of Keynesian economics. Politicians saw the potential for themselves in this new doctrine which advocated central control of the economy and fiscal irresponsibility as a necessary and patriotic thing. Giving them this gift was like providing matches and gasoline to an arsonist. (“I don’t want to spend money, but I have to otherwise the economy will tank.”)

Once government took control of the economy, they needed economists to provide the analysis and justifications for their new policies. Many in the economics profession were procured in similar fashion used with prostitutes. Money and power were heady incentives for a profession that had rightly been consigned to a section in their own ivory tower.

Justifying what government wanted to do and was doing was the only requisite. But, in order to qualify, it became necessary to convert to Keynesianism. Other branches of economics condemned government policies, at least on economic grounds.

Economists more than most understand incentives. When the payoffs increase, some men in any profession find it easy to modify ethics and integrity.

Buchanan and Wagner knew the damage that Keynesian economics had already inflicted and knew its potential was much greater. Thirty-seven years ago they commented:

What happened? Why does Camelot lay in ruin? Viet Nam and Watergate cannot explain everything forever. Intellectual error of monumental proportion has been made, and not exclusively by the ordinary politicians. Error also lies squarely with the economists. (p. 4)

They answered their own question:

The academic scribbler of the past who must bear substantial responsibility is Lord Keynes himself, whose ideas were uncritically accepted by American establishment economists. The mounting historical evidence of the effects of these ideas cannot continue to be ignored. Keynesian economics has turned the politicians loose, it has destroyed the effective constraint on politicians’ ordinary appetites. Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax. “Democracy in deficit” is descriptive, both of our economic plight and of the subject matter for this book. (p.4)

Now, thirty-five plus years later, one may judge the merit in this book. Prescience, while not limited to them alone, was amazing.

One must also marvel at the continuation and acceleration of the ruinous policies. Whether Buchanan and Wagner imagined things could go on for so long and to such an extent is not known. However, to appreciate these changes, this graph from Zerohedge shows the effects of Keynesianism and what it has done to governments around the world:

keynesian legacy

The deterioration in fiscal discipline was astounding and in line what they predicted.

As this false economic theology known as Keynesianism runs its course, the following conclusions are probable:

  • Regardless of whether this generation escapes or not, we have impoverished our children and grandchildren.
  • Politicians now control most of the economy, including what passes for acceptable economics.
  • No honest economist can work for government; nor would one want to.
  • The tipping point for reversing this condition has long past.
  • Politicians have no incentive to stop the process underway.
  • Markets (and perhaps societies and governments) will eventually collapse, ending this terrible period of economic madness.

When this flawed paradigm is finally exhausted, the world may enter a better place in terms of economics and limited government. Without this shift, poverty and misery will grow along with wars used as political diversions.

One can only hope that the world avoids an Economic Dark Age when the collapse occurs.

Keynesian Political Economy Is Theft – Monty Pelerin's World : Monty Pelerin's World

Keynesian Political Economy Is Theft – Monty Pelerin’s World : Monty Pelerin’s World.

FEBRUARY 28, 2014

keyneshayekimages (2)The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended.

Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry. In the beginning, clear-thinking, independent economists (not dependent on government largess) expressed objections to this “new economics.” There was little new in Keynes’ work and many errors that had been debunked decades before Keynes was even born. Bastiat’s parable of the “broken window” in 1850 is probably the best-known refutation, although similar arguments preceded Bastiat by a century or more.

In the 1930s leaders were desperate and willing to try anything. Keynes General Theory was published in 1936, during the middle of the greatest depression the world had ever experienced. Politicians, more so than economists, welcomed his ideas as a new approach.

The Austrian economists  represented by Mises and Hayek saw the fallacies in this new approach immediately. Some of the Chicago School (Knight, Simons, Viner) did also. Ludwig von Mises, never one to mince words, described Keynesian economics in the following manner:

What he really did was to write an apology for the prevailing policies of governments.

Mises likely was one of the few who saw the full ramifications of what Keynesian economics would provide for government. Most early criticisms were in terms of the economic unsoundness of the theory.

To contrast the blatant differences between proper economics and Keynesian prescriptions, the following two prescriptions were offered early in this century:

austriankeynesian

It was proper that one of these men should have won the Nobel Prize in economics. It just happened to be the wrong one.

buchananeconomy-1986-1

JAMES BUCHANAN, NOBEL LAUREATE

In 1977 James M. Buchanan and Richard E. Wagner wrote “Democracy In Deficit — The Political Legacy of Lord Keynes” (available online). It was the first comprehensive attempt to apply public-choice theory to macroeconomic theory and policy. According to Robert D. Tollison:

The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.

From Buchanan and Wagner came this judgment regarding Keynesian economics:

The message of Keynesianism might be summarized as: What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation. (p. 3)

This fundamental confusion was responsible for the political acceptance of Keynesian economics. Politicians saw the potential for themselves in this new doctrine which advocated central control of the economy and fiscal irresponsibility as a necessary and patriotic thing. Giving them this gift was like providing matches and gasoline to an arsonist. (“I don’t want to spend money, but I have to otherwise the economy will tank.”)

Once government took control of the economy, they needed economists to provide the analysis and justifications for their new policies. Many in the economics profession were procured in similar fashion used with prostitutes. Money and power were heady incentives for a profession that had rightly been consigned to a section in their own ivory tower.

Justifying what government wanted to do and was doing was the only requisite. But, in order to qualify, it became necessary to convert to Keynesianism. Other branches of economics condemned government policies, at least on economic grounds.

Economists more than most understand incentives. When the payoffs increase, some men in any profession find it easy to modify ethics and integrity.

Buchanan and Wagner knew the damage that Keynesian economics had already inflicted and knew its potential was much greater. Thirty-seven years ago they commented:

What happened? Why does Camelot lay in ruin? Viet Nam and Watergate cannot explain everything forever. Intellectual error of monumental proportion has been made, and not exclusively by the ordinary politicians. Error also lies squarely with the economists. (p. 4)

They answered their own question:

The academic scribbler of the past who must bear substantial responsibility is Lord Keynes himself, whose ideas were uncritically accepted by American establishment economists. The mounting historical evidence of the effects of these ideas cannot continue to be ignored. Keynesian economics has turned the politicians loose, it has destroyed the effective constraint on politicians’ ordinary appetites. Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax. “Democracy in deficit” is descriptive, both of our economic plight and of the subject matter for this book. (p.4)

Now, thirty-five plus years later, one may judge the merit in this book. Prescience, while not limited to them alone, was amazing.

One must also marvel at the continuation and acceleration of the ruinous policies. Whether Buchanan and Wagner imagined things could go on for so long and to such an extent is not known. However, to appreciate these changes, this graph from Zerohedge shows the effects of Keynesianism and what it has done to governments around the world:

keynesian legacy

The deterioration in fiscal discipline was astounding and in line what they predicted.

As this false economic theology known as Keynesianism runs its course, the following conclusions are probable:

  • Regardless of whether this generation escapes or not, we have impoverished our children and grandchildren.
  • Politicians now control most of the economy, including what passes for acceptable economics.
  • No honest economist can work for government; nor would one want to.
  • The tipping point for reversing this condition has long past.
  • Politicians have no incentive to stop the process underway.
  • Markets (and perhaps societies and governments) will eventually collapse, ending this terrible period of economic madness.

When this flawed paradigm is finally exhausted, the world may enter a better place in terms of economics and limited government. Without this shift, poverty and misery will grow along with wars used as political diversions.

One can only hope that the world avoids an Economic Dark Age when the collapse occurs.

Ponzi World (Over 3 Billion NOT Served): Collapse-O-Nomics: Commonsense is Extinct

Ponzi World (Over 3 Billion NOT Served): Collapse-O-Nomics: Commonsense is Extinct.

No Reasonable Idea Will Go unClusterfucked by the Idiocracy
The Lost Boys continue to decry today’s “Keynesian” policy failures – this obviously ludicrous idea of borrowing the economy out of debt. However, when I took (Macro) Econ 101 way back in 1987, the Professor at the time – an ardent Keynesian – taught us that correct application of fiscal stimulus is to run deficits during recessions and surpluses during expansion. Therefore, in the context of a typical five year business cycle, that would lead to one year of deficit followed by four years of surplus and hence a balanced budget (if not net surplus). However, today’s Keynesian bashers don’t know any of that, because they never took Econ 101 nor even Commonsense 101. These Keynesian bashers are as deluded as the Krugmanites who think they too know anything about appropriate use of fiscal policy. No sane doctor would prescribe using antibiotics for 30 years straight and then declare like a dumbfuck at the end of it all that antibiotics don’t work. This is all just a game by and for morons of which there is no shortage on all sides of this equation.

Keynes Didn’t Envision Reagan, Bush or Faux News
Unfortunately, Keynes never envisioned the Idiocracy, nor how bastardized his policies would become over the course of time, when placed in the hands of hill billies and B Actors looking for a retirement gig. Fiscal policy was never intended to sponsor tax cuts for the ultra-wealthy, military blunders, nor military build-ups. Nor did he envision this concept endorsed by Krugmanites of bailing out a 30 year leveraged consumption binge and multi-year housing boom via the application of totally unlimited government borrowing. And needless to say, he never envisioned monetization of debt solely to prop up the stock market while the real economy was outsourced in the background. All of this chicanery is the result of what happens when Frat Boys go to college to socialize rather than to get a real education. They become very good at pretending to know things, while having absolutely zero judgement as to how these policies need to be applied in order to be effective. In other words, a little bit of knowledge is an extremely dangerous thing.
Extreme Deflation Doesn’t Mean Cheaper Computers at Best Buy
Keynes himself was an extremely intelligent man – whose ideas were far beyond the grasp of today’s policy-making game show hosts. Anyone who has ever read “The General Theory of Employment, Interest and Money” is standing on the shoulders of an intellectual giant, if they understand what he is saying, at all. Moreover, the problem he was trying to solve was how to mitigate the devastating human impacts resulting from The Great Depression. He was addressing a real depression, not a three month hiatus from shopping binges and expensive dinners, which is what the Idiocracy deems to be this recent “great recession”.
Worse yet, the Lost Boys seem to believe that deflation means lower prices at Best Buy. Unfortunately in a real depression, deflation means a total collapse in demand leading to a collapse in prices. In a fixed cost-based world wherein all corporate entities have taken full advantage of 0% interest rates to maximize financial leverage – then deflation means bankruptcy. In other words, every possible mistake that could be made leading up to this lethal juncture, has been made, specifically around subsidizing cheap debt. In a fixed cost world, deflation means mass unemployment and accompanying turmoil. Which gets us to the next point.
The Polling Booth (and/or Molotov Cocktail) is the Final Arbiter of all Economic Theories
The rule of one vote per woman or man can work eventually. In the interim, however, it may not work well, if at all. The subversion of democracy via mass brainwashing aka. Faux News in addition to the dumbing down of a population via junk food and junk culture, is a lethal combination. In the interim, democracy can lead to any ludicrous outcome including the mass accumulation of wealth in the hands of an ever-dwindling minority.
Ultimately, however, there is only so much pain the masses can take and then they revolt. At that point, political democracy becomes economic democracy. No one can predict what new bastardized economic model will result from this ensuing pandemonium, however, rest assured it will look nothing like the current one.
In other words, in the fullness of time, economics and politics are one and the same. No economic model regardless of how textbook “efficient” it is deemed to be, can indefinitely withstand the polling booth. That’s just one more lesson that today’s frat boys and billionaires are going to find out the hard way. The future will not be about what a handful of entitled people want for themselves, with zero concern for their fellow man. That childish fantasy will be flushed down the toilet of history, where it belongs.The Pendulum Swings
At this late juncture, the political pendulum is still hard to the right on economic policy, not withstanding the feel good election of Obama to Bush’s third and fourth terms. The political economy is the furthest to the right it has been since the early 1900s just prior to the Great Depression, during the heyday of the “robber barons”. Today’s power elite have pushed their luck to the absolute limit and then a lot further. What they don’t realize is that momentum has halted and the pendulum is getting set to swing back in the other direction. The Idiocracy has been conned into voting against their own economic interest for thirty fucking years straight. It’s an unprecedented run in modern history. When the political pendulum begins to swing the other way, the status quo political ideologies will be obliterated in lockstep with the status quo pseudo-economy. The recalibration will be instantaneous and the elite’s grasp on power will be challenged, violently.

Commonsense Doesn’t Sell Text Books
Lastly, this omnipresent buffoonish devotion to economic ideology – Keynesianism, Monetarism, Austrianism, Communism, Socialism, Capitalism etc. has meant that commonsense has been thrown out the window. Commonsense of course being the only moderating control rod in all of these economic “systems”. However, to be a commonsense-based centrist is to be seen as being weak and lacking confidence. Clearly, the “best ideas” deserve slavish unquestioning devotion. Unfortunately, in the real world, all of these theories – which is what they are – have massive flaws so wide you can drive a truck through them, therefore it’s only a matter of time before their brainwashed proponents take the application of theory to the ludicrous extreme, at which point these “systems” all collapse in their own uniquely spectacular fashion.Voila.

The World Complex: Setting up a people for hyperinflation–the Canadian example

The World Complex: Setting up a people for hyperinflation–the Canadian example.

The World Complex is not a fan of Stephen Harper and His Government (see here, for instance). But I am forced to conclude that he may be a cannier economist than I originally gave him credit for.

When a country destroys its debts by inflation, it ruins its creditors. The proper progressive approach is to ruin them all equally–thus it is imperative that there be no avenue by which creditors might protect themselves. At the same time, the government wishes no doubt to have its citizens continue to honour its currency, worthless though it might be.

During the Wiemar hyperinflation, despite the frenzied printing, the sum total of foreign currency that could be purchased by all the marks in circulation fell precipitously. There is a Keynesian argument to be made that the Germans didn’t print quickly enough! Of course, having Germans individually destroying the currency in great amounts by putting it to such uses as cigarette rolling papers and firewood didn’t help either.

It’s not always nice to have money to burn.

And consider this–using the currency in lieu of hard-to-locate toilet paper may clog pipes.

Canada recently unveiled polymer bills. Just the perfect cross between plastic and paper money. And the brilliant part is, they are perfect in a hyperinflationary environment.

Plastic. Not really suitable for use as cigarette wrappers or firewood. You wouldn’t want to be burning it indoors, anyway.

And as far as toilet paper–although it is a little uncomfortable, the microtexture on the bills does seem to be helpful for cleaning up the really tough spots. And although the bills have not been field-tested for flushability, the beauty of the polymer bills is that you can just wash them and reuse! Or spend, if you prefer.

The only problem the beta testers have reported is that the bills are a little small to be used comfortably.

Posted by at 12:03 AM  

Paper Gold Ain’t as Good as the Real Thing | Casey Research

Paper Gold Ain’t as Good as the Real Thing | Casey Research.

Doug French, Contributing Editor
February 12, 2014 10:37am
For the first time ever, the majority of Americans are scared of their own federal government. A Pew Research poll found that 53% of Americans think the government threatens their personal rights and freedoms.

Americans aren’t wild about the government’s currency either. Instead of holding dollars and other financial assets, investors are storing wealth in art, wine, and antique cars. The Economist reported in November, “This buying binge… is growing distrust of financial assets.”

But while the big money is setting art market records and pumping up high-end real estate prices, the distrust-in-government script has not pushed the suspicious into the barbarous relic. The lowly dollar has soared versus gold since September 2011.

Every central banker on earth has sworn an oath to Keynesian money creation, yet the yellow metal has retraced nearly $700 from its $1,895 high. The only limits to fiat money creation are the imagination of central bankers and the willingness of commercial bankers to lend. That being the case, the main culprit for gold’s lackluster performance over the past two years is something else, Tocqueville Asset Management Portfolio Manager and Senior Managing Director John Hathaway explained in his brilliant report “Let’s Get Physical.

Hathaway points out that the wind is clearly in the face of gold production. It currently costs as much or more to produce an ounce than you can sell it for. Mining gold is expensive; gone are the days of fishing large nuggets from California or Alaska streams. Millions of tonnes of ore must be moved and processed for just tiny bits of metal, and few large deposits have been found in recent years.

“Production post-2015 seems set to decline and perhaps sharply,” says Hathaway.

Satoshi Nakamoto created a kind of digital gold in 2009 that, too, is limited in supply. No more than 21 million bitcoins will be “mined,” and there are currently fewer than 12 million in existence. Satoshi made the cyber version of gold easy to mine in the early going. But like the gold mining business, mining bitcoins becomes ever more difficult. Today, you need a souped-up supercomputer to solve the equations that verify bitcoin transactions—which is the process that creates the cyber currency.

The value of this cyber-dollar alternative has exploded versus the government’s currency, rising from less than $25 per bitcoin in May 2011 to nearly $1,000 recently. One reason is surely its portability. Business is conducted globally today, in contrast to the ancient world where most everyone lived their lives inside a 25-mile radius. Thus, carrying bitcoins weightlessly in your phone is preferable to hauling around Krugerrands.

No Paper Bitcoins

But while being the portable new kid on the currency block may account for some of Bitcoin’s popularity, it doesn’t explain why Bitcoin has soared while gold has declined at the same time.

Hathaway puts his finger on the difference between the price action of the ancient versus the modern. “The Bitcoin-gold incongruity is explained by the fact that financial engineers have not yet discovered a way to collateralize bitcoins for leveraged trades,” he writes. “There is (as yet) no Bitcoin futures exchange, no Bitcoin derivatives, no Bitcoin hypothecation or rehypothecation.”

So, anyone wanting to speculate in Bitcoin has to actually buy some of the very limited supply of the cyber currency, which pushes up its price.

In contrast, the shinier but less-than-cyber currency, gold, has a mature and extensive financial infrastructure that inflates its supply—on paper—exponentially. The man from Tocqueville quotes gold expert Jeff Christian of the CPM Group who wrote in 2000 that “an ounce of gold is now involved in half a dozen transactions.” And while “the physical volume has not changed, the turnover has multiplied.”

The general process begins when a gold producer mines and processes the gold. Then the refiners sell it to bullion banks, primarily in London. Some is sold to jewelers and mints.

“The physical gold that remains in London as unallocated bars is the foundation for leveraged paper-gold trades. This chain of events is perfectly ordinary and in keeping with time-honored custom,” explains Hathaway.

He estimates the equivalent of 9,000 metric tons of gold is traded daily, while only 2,800 metric tons is mined annually.

Gold is loaned, leased, hypothecated, and rehypothecated, over and over. That’s the reason, for instance, why it will take so much time for the Germans to repatriate their 700 tonnes of gold currently stored in New York and Paris. While a couple of planes could haul the entire stash to Germany in no time, only 37 tonnes have been delivered a year after the request. The 700 tonnes are scheduled to be delivered by 2020. However, it appears there is not enough free and unencumbered physical gold to meet even that generous schedule. The Germans have been told they can come look at their gold, they just can’t have it yet.

Leveraging Up in London

The City of London provides a loose regulatory environment for the mega-banks to leverage up. Jon Corzine used London rules to rehypothecate customer deposits for MF Global to make a $6.2 billion Eurozone repo bet. MF’s customer agreements allowed for such a thing.

After MF’s collapse, Christopher Elias wrote in Thomson Reuters, “Like Wall Street cocaine, leveraging amplifies the ups and downs of an investment; increasing the returns but also amplifying the costs. With MF Global’s leverage reaching 40 to 1 by the time of its collapse, it didn’t need a Eurozone default to trigger its downfall—all it needed was for these amplified costs to outstrip its asset base.”

Hathaway’s work makes a solid case that the gold market is every bit as leveraged as MF Global, that it’s a mountain of paper transactions teetering on a comparatively tiny bit of physical gold.

“Unlike the physical gold market,” writes Hathaway, “which is not amenable to absorbing large capital flows, the paper market, through nearly infinite rehypothecation, is ideal for hyperactive trading activity, especially in conjunction with related bets on FX, equity indices, and interest rates.”

This hyper-leveraging is reminiscent of America’s housing debt boom of the last decade. Wall Street securitization cleared the way for mortgages to be bought, sold, and transferred electronically. As long as home prices were rising and homeowners were making payments, everything was copasetic. However, once buyers quit paying, the scramble to determine which lenders encumbered which homes led to market chaos. In many states, the backlog of foreclosures still has not cleared.

The failure of a handful of counterparties in the paper-gold market would be many times worse. In many cases, five to ten or more lenders claim ownership of the same physical gold. Gold markets would seize up for months, if not years, during bankruptcy proceedings, effectively removing millions of ounces from the market. It would take the mining industry decades to replace that supply.

Further, Hathaway believes that increased regulation “could lead, among other things, to tighter standards for collateral, rules on rehypothecation, etc. This could well lead to a scramble for physical.” And if regulators don’t tighten up these arrangements, the ETFs, LBMA, and Comex may do it themselves for the sake of customer trust.

What Hathaway calls the “murky pool” of unallocated London gold has supported paper-gold trading way beyond the amount of physical gold available. This pool is drying up and is setting up the mother of all short squeezes.

In that scenario, people with gold ETFs and other paper claims to gold will be devastated, warns Hathaway. They’ll receive “polite and apologetic letters from intermediaries offering to settle in cash at prices well below the physical market.”

It won’t be inflation that drives up the gold price but the unwinding of massive amounts of leverage.

Americans are right to fear their government, but they should fear their financial system as well. Governments have always rendered their paper currencies worthless. Paper entitling you to gold may give you more comfort than fiat dollars.

However, in a panic, paper gold won’t cut it. You’ll want to hold the real thing.

There’s one form of paper gold, though, you should take a closer look at right now: junior mining stocks. These are the small-cap companies exploring for new gold deposits, and the ones that make great discoveries are historically being richly rewarded… as are their shareholders.

However, even the best junior mining companies—those with top managements, proven world-class gold deposits, and cash in the bank—have been dragged down with the overall gold market and are now on sale at cheaper-than-dirt prices. Watch eight investment gurus and resource pros tell you how to become an “Upturn Millionaire” taking advantage of this anomaly in the market—click here.

The US Is Not Switzerland: Weighs Sanctions Against South Sudan | Zero Hedge

The US Is Not Switzerland: Weighs Sanctions Against South Sudan | Zero Hedge.

Despite telling us just yesterday that it would not take sides in the tensions in South Sudan…

  • *U.S. NOT TAKING SIDES IN S SUDAN: PSAKI

the US government is on the verge of deciding to… take sides. As Reuters reports, the United States is weighing targeted sanctions against South Sudan due to its leaders’ failure to take steps to end a crisis that has brought the world’s youngest nation to the brink of civil war. Africa, aswe have discussed at length, remains the only region on earth with incremental debt capacity (and therefore growth in a Keynesian world) and so it is no surprise the US wants to get involved in yet another conflict.

 

Via Reuters,

“It’s a tool that has been discussed,” a source told Reuters on condition of anonymity about the possibility of U.S. sanctions against those blocking peace efforts or fueling violence in South Sudan. Another source confirmed the remarks, though both declined to provide details on the precise measures under consideration.

 

No decisions have been made yet, the sources added. Targeted sanctions focus on specific individuals, entities or sectors of country.

 

The U.S. government was unlikely to consider steps intended to economically harm impoverished South Sudan but would likely focus on any measures on those individuals or groups it sees as blocking efforts at brokering peace or committing atrocities.

 

As we discussed previously, there is an African scramble so it is unsurprisng the US would choose to take sides and get involved:

While those in the power and money echelons of the “developed” world scramble day after day to hold the pieces of the collapsing tower of cards in place (and manipulating public perception that all is well), knowing full well what the final outcome eventually will be, those who still have the capacity to look, and invest, in the future, are looking neither toward the US, nor Asia, and certainly not Europe, for one simple reason: there is no more incremental debt capacity at any level: sovereign, household, financial or corporate. Because without the ability to create debt out of thin air, be it on a secured or unsecured basis, the ability to “create” growth, at least in the current Keynesian paradigm, goes away with it. Yet there is one place where there is untapped credit creation potential, if not on an unsecured (i.e., future cash flow discounting), then certainly on a secured (hard asset collateral) basis. The place is Africa, and according to some estimates the continent, Africa can create between $5 and $10 trillion in secured debt, using its extensive untapped resources as first-lien collateral.

Africa is precisely where the smart money (and those who quietly run the abovementioned “power echelons”), namely China and Goldman Sachs, have refocused all their attention in the past year precisely because they both realize that Africa is the last and only bastion of untapped credit growth and capacity. But you won’t read about it in the mainstream papers: the last thing those who are currently splitting up Africa into its constituent parts want is for the general public to become aware what is in play. You will, however, read about it on these pages (see here and here and here). Also, if you are a Goldman client, you will certainly know all about it, as the firm ventures out with reverse inquiry indications of interest to its wealthy clients giving them the right of first equity refusal, and slowly but surely providing “financial services” to the last great hope for the developing world, which ironically is what most still consider the poorest continent…

Africa in geographical perspective…

Is Saving Money Bad for the Economy? – Gregory Bresiger – Mises Daily

Is Saving Money Bad for the Economy? – Gregory Bresiger – Mises Daily. (FULL ARTICLE)

Our grandparents believed in the value of thrift, but many of their grandchildren don’t.

That’s because cultural and economic values have changed dramatically over the last generations as political and media elites have convinced many Americans that saving is passé. So today, under the influence of Keynesian economists who champion government spending and high levels of consumption, thrift has been devalued.

“The growth in wealth, so far from being dependent on the abstinence [savings] of the rich, as is commonly supposed, is more likely to be impeded by it,” according to John Maynard Keynes’s The General Theory of Employment, Interest and Money.

“The more virtuous we are, the more determinedly thrifty, the more obstinately orthodox in our national and personal finance, the more incomes will have to fall,” he writes. “Saving,” Keynes wrote in his Treatise on Money, “is the act of the individual consumer and consists in the negative act of refraining from spending the whole of his current income on consumption.”…

 

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