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Ukraine Capital Control Crunch: Largest Bank Limits Cash Withdrawals To $100 Daily | Zero Hedge

Ukraine Capital Control Crunch: Largest Bank Limits Cash Withdrawals To $100 Daily | Zero Hedge

As we warned on Friday, the military escalation in Ukraine has had dire consequences for the financial state of the country, its banks, and ultimately its people. The central bank promised to rescue domestic banks so long as they agreed to its complete control and it appears the first consequences of that “we are here to help you” promise is coming true:

 

  • UKRAINE’S PRIVATBANK LIMITS ATM WITHDRAWALS TO UAH1,000/DAY ($103/day)

 

Privatbank is Ukraine’s largest bank and while claiming this move is temporary (just like Cyprus’ capital controls), the bank has also ceased new loans amid what it calls “geopolitical instability”. In summary, you can’t have your money back! Expect long angry lines at Ukrainian banks on Monday morning (and at the pace of collapse in the Hyrvnia, hyperinflation next).

 

 

 

Via WSJ,

 

Ukraine’s largest commercial bank, Privatbank, announced temporary limits on cash withdrawals for its account holders and suspended writing new loans, saying in a statement the measures were intended to stop those undermining the political situation in the country. “A temporary limit on withdrawals is needed to stop the forces that are working to destabilize the situation [and] are using the cash for [their] sabotage,” the bank said in a statement. The bank didn’t clarify which political forces it was referring to.

 

The bank first announced withdrawal limits of 1,000 hryvnia ($103) a day at both automated teller machines and in over-the-counter transactions.

 

 

Privatbank’s announcement was the first case in which a major Ukrainian bank has limited customers’ immediate access to cash in the local currency since the military tensions erupted. Privatbank is the largest retail bank by number of clients in Ukraine, a country of approximately 45 million people.

 

Last week, the National Bank of Ukraine introduced a $1,500 daily limit on foreign-currency withdrawal.

 

But perhaps the most notable, somewhat hidden, comment from the bank was this:

 

Privatbank said it was suspending all its credit lines issued to both private and corporate customers, including credit cards. It said it would no longer accept debit cards from other banks in the Crimea.

 

In other words, we won’t allow the people of Crimea (the region now in play with the Russians) to ‘run’ on our bank…

 

Privatbank said its measures were a “rational” response to the current situation and they were designed to help the bank serve its customers and protect the national currency.

 

We wonder what ‘loophole’ the uber-wealthy will find (as in Cyprus deposit shifts to the UK) to extract their deposits before the real capital controls collapse the currency.

 

 

 

Ukraine Imposes Capital Controls, Limits Foreign Currency Withdrawals | Zero Hedge

Ukraine Imposes Capital Controls, Limits Foreign Currency Withdrawals | Zero Hedge.

Yesterday we reported that as part of the Ukrainian central bank’s plan to bailout the nation’s largely insolvent private banks, it would provide any needed funding but only “if they will remain under open control of the National Bank of Ukraine.” And since the new CB head Stepan Kubiv’s allegiance to Europe were already well-known, this was merely a quick and efficient way of providing Europe with all the banking details including asset holdings of the local population. Today, the annexation of the country’s banking system by a “benevolent” Europe is complete.

Itar-Tass reports that Ukraine’s national bank has imposed temporary limits to withdraw money from foreign currency deposits to sums equivalent to no more than 15,000 hryvnias (about $1,500) a day, National Bank Chief Stepan Kubiv told a press conference. Or, as the citizens of Cyprus call it – capital controls.

Why is Ukraine doing this? Because when your currency is crashing at a record pace to unseen lows, what is the best way to limit FX transactions? Simple – just minimize the amount of foreign currency that can be in circulation.

Which is also why the the central bank’s capital controls do not touch local currency: there is more than enough of that in circulation since after all Ukraine has its own currency and can print it in infinite amounts: “For hryvnia deposits you may take as much as a million or two. Banks have liquidity,” Kubiv said.

Then there was the token propaganda:

The chief banker also noted that the situation on Ukraine’s currency market was under control. “The exchange rate may move in one direction and the opposite. There are just emotions and misinformation on the financial market,” he noted.

He assured the national bank would toughly stop violators of the currency law. For example, inspectors were sent to eight banks that had engaged in speculation, he said.

To summarize: first banks abdicate their control to a pro-European central bank, and now the citizens face their first (of many) capital controls which incidentally will simply aggravate the fund outflow situation even more, leading to an even faster drop in foreign reserves.

Finally comes the inflation. Wait until the people start rioting – think Egypt – when the economy collapses and a loaf of bread costs its wheelbarrow equight equivalent in Hryvnias. Just how fast will the countercoup in Ukraine take place then? Recall, in Egypt it was just over a year and a half…

Seen On An ATM In Western Australia | Zero Hedge

Seen On An ATM In Western Australia | Zero Hedge.

With iron-ore stockpiles at record highs in China amid the escalating cash-for-steel financing debacles, one can only imagine the squeeze that is about to occur on the banks of a nation that is almost entirely economically dependent on said iron-ore mining production… which made us think when we saw this sign “justifying” holding low cash amounts in an Aussie bank ATM

 

 

So no need for a withdrawal halt per se when you simply make it impossible for customers to get their money out…

2014 Worldwide Wave of Action: Activist advises what YOU should do (3 of ?) Washington’s Blog

2014 Worldwide Wave of Action: Activist advises what YOU should do (3 of ?) Washington’s Blog.

As a political activist since 1977 (details here), here’s my “Top 3 list” of advice for what YOU should do during the 2014 Worldwide Wave of Action that begins ~April 4 on the anniversary of Martin King’s assassination by the US government (civil court trial verdict), and completing ~July 4.

1. Know your purpose has 95%+ agreement when people have the facts: There’s abundant power when you recognize people want what you know, whether they recognize it or not in a current state of relative ignorance. That is, if free choice were available under full knowledge, 95%+ of humanity would choose to have the purposes of the 2014 Worldwide Wave accomplished:

I mean, the alternative is the ongoing conditions we have that even most of our oligarchs wouldn’t choose to continue, if they had full freedom of choice!

2. Do what is natural and virtuous for your self-expression: Given a position of power that you have an outcome people really want, AND given a condition that people may not recognize easily the attractiveness of what we offer, experiment with your most virtuous self-expression to play this game.Your unique, powerful, and beautiful sense of virtue is attractive when expressed, and the best you have to offer. Connected with my next point, my own sense of virtue is to be of simple service and fun with others. I only offer information when a genuine opening occurs consistent with someone’s expressed interests. My friend, Bucky Fuller, called this particular indirect outcome precession (andhere), similar to the contribution honey bees make with pollination as a side-product of their interest in honey. The outcome is ever-increasing experience and expression of virtue.

3. Relax and have fun ‘cuz we’re guests on Earth, not management: For the first part of my activist career, I operated to save human lives from poverty as quickly as possible. The hard truth is that I am insufficiently powerful to produce that outcome on my own; I am only able to offer this outcome (or any other) in networks for various groups’ consideration. Given my gradual acceptance of an apparent status as a human guest on Earth outside of direct managerial decisions, I’ve looked at different perspectives to be effective and enjoy this experience. From having “played” as hard and fast as I could for years, I’ve surrendered to Bucky’s conclusion/observation of precession.

So what does this mean for YOU and possible actions for the 2014 Worldwide Wave of Action?

If a pathway hasn’t opened to your interests so far, and you’re interested, look from the power of purpose, what’s natural to your sense of virtue, and what seems fun. Having a chat with like-minded friends should also open valuable ideas :)

Activist Post: Missing Military-Industrial-Complex Money

Activist Post: Missing Military-Industrial-Complex Money.

James Hall
Activist Post

When Major General Smedley Butler made his case, “War is a Racket” he did not pull any punches.

The normal profits of a business concern in the United States are six, eight, ten, and sometimes twelve percent. But war-time profits – ah! That is another matter – twenty, sixty, one hundred, three hundred, and even eighteen hundred per cent – the sky is the limit. All that traffic will bear. Uncle Sam has the money. Let’s get it.

The business of military procurement has multiplied since his fateful revelations.

Not satisfied with fair profits or feasible competition, the practices of the defense corporatists illustrate one aspect of waste, graft and systemic bribery. William D. Hartung describes the consolidation and expanse of a select group of companies in the paper, The Military-Industrial Complex Revisited: Shifting Patterns of Military Contracting in the Post-9/11 Period

Many of the same companies that benefited from increased Pentagon and war spending were top contractors for other security related agencies. For example, Lockheed Martin was not only the top contractor for the Pentagon, but it also ranked number one at the Department of Energy; number eight at the Department of Homeland Security (Boeing was number one); number two at the State Department; and number three at the National Aeronautics and Space Administration (NASA). Contracts let by these agencies were only a fraction of the levels awarded by the Pentagon, but they were significant nonetheless. For example, the Department of Homeland Security issued $13.4 billion in contracts in FY2008, NASA $15.9 billion, the State Department $5.5 billion, and the Department of Energy $24.6 billion.

This dramatic growth in budgets is even more significant, when viewed in the context of world expenditures of other counties. Leaving aside the relative merits of the dangers and risk of external threats, the gigantic enterprise of fostering the biggest military apparatus in history has made select factions rich at the expense of the many.

Jonathan Turley in “Pentagon Plugs: New Study Finds Pentagon Has Hidden Trillions In Missing Money And Equipment,” references an example on how the overall avoidance of financial accountability, outright fraud and intentional concealment operates.

A new report has detailed how the military has cooked the books to hide trillions, that’s right trillions, in missing money and equipment. The military calls them “plugs,” a curious term for fraud. These are knowingly fake figures used to hide the fact that there is no accurate record of the money.

The plugs are generally the work of the office of the Defense Finance and Accounting Service, the Pentagon’s main accounting agency. Required to complete an audit, the staff simply faked the numbers.

Reuter’s reports on a “Special Report: The Pentagon’s doctored ledgers conceal epic waste.”

Over the past 10 years, the Defense Department has signed contracts for the provision of more than $3 trillion in goods and services. How much of that money is wasted in overpayments to contractors, or was never spent and never remitted to the Treasury, is a mystery. That’s because of a massive backlog of “closeouts” – audits meant to ensure that a contract was fulfilled and the money ended up in the right place.

Now trillions are sums that are unimaginable The Department of the Treasury acknowledges that U.S. gold reserves (if you believe their figures) total $11,041,059,958.16 as of their Current Report: January 31, 2014.

An eleven billion dollars equivalent is a mere drop in the bucket to the monies allocated to the military and homeland security. Taxpayers are regularly deceived about the costs. Congress is kept in the dark about black programs. And the war racket keeps funneling and siphoning off unknown sums to accounts that only a super computer can track.

Corporatocracy: How the Corporate Welfare State Divides and Conquers is a video by James Corbett that provides an insightful analysis which establishes a surreal account how the oligarchy operates.  The financial shenanigans of corporatists contribute to the interlocking directorates, which run the money pit that keeps the empire operating.

A rational reform of a depraved money laundering arrangement is impossible without a fundamental repudiation of the internationalist foreign policy doctrines that permeates the State Department. Funding advanced technological warfare platforms that are unheard of to even congressional oversight is profoundly unconstitutional.

When such practices become routine, the economic incentives breed crooked abuses. The obligations for responsible public policy are methodically destroyed, when transparency is eliminated.

Washington’s Blog provides several useful sources that document the extent of the problem in “$8.5 TRILLION In Taxpayer Money Doled Out By Congress To The Pentagon Since 1996 … Has NEVER Been Accounted For” and sums up with a bleak assessment.

The Pentagon is the only federal agency that has not complied with a law that requires annual audits of all government departments. That means that the $8.5 trillion in taxpayer money doled out by Congress to the Pentagon since 1996, the first year it was supposed to be audited, has never been accounted for. That sum exceeds the value of China’s economic output last year.

Evidently, the elites that benefit from bilking appropriations and the board members that steer the defense contractors want the con to continue. For all the money directed towards maintaining the war machine, our actual security become less secure.

Banks launder ill-gotten gain, as prevailing practice, in the normal course of business because the arm merchants are protected players in the trade. The reprehensible circle that the dogs of war unleash the cash flow from their illicit drug sales, through arms sales, allows for the smooth transfer of hidden blood money into number accounts.

Such an organized system of mutual payoffs greases the ever growing industry of fear and destruction. All the missing money is buried in the unknown cashes of subterranean tyranny. Creating false flag threats allows for imaginary scourges to be new enemies. Protection from such manufactured foes is the real business of the military-industrial-complex.

So, when more details surface about the lost and unaccounted military funding money, it is just part of the price of keeping you safe.

Original article archived here

James Hall is a reformed, former political operative. This pundit’s formal instruction in History, Philosophy and Political Science served as training for activism, on the staff of several politicians and in many campaigns. A believer in authentic Public Service, independent business interests were pursued in the private sector. Speculation in markets, and international business investments, allowed for extensive travel and a world view for commerce.  Hall is the publisher of BREAKING ALL THE RULES. Contact batr@batr.org

Dan Ariely: Why Humans Are Hard-Wired To Create Asset Bubbles | Peak Prosperity

Dan Ariely: Why Humans Are Hard-Wired To Create Asset Bubbles | Peak Prosperity.

Our evolutionary programming often works against us
by Adam Taggart
Saturday, February 15, 2014, 12:25 PM

Renown behavioral economist Dan Ariely explain why humans are biologically wired to make irrational decisions when money is involved. It’s a case of our evolutionary wiring interfering with the decisions we face in a modern world very different from the one our ancestors adapted to.

For instance, he explains how one of the easiest phenomena to create in a lab are valuation “bubbles”. Our vestigial herding instinct encourages us to imitate the actions of those around us (e.g. bidding for a particular asset), which then strengthens that signal for others (leading to even higher bidding), resulting in behavior not justified by the underlying fundamentals of reality (asset prices destined to crash).

In this podcast, Chris and Dan explore the human cognitive triggers that have led us to our third major bubble in 15 years (tech stocks, housing, credit) and why our natural programming often works against our best interests. In certain cases, like the banking sector, bad decision-making has become so ingrained in our institutions that Ariely thinks the “clean slate” approach is our best option should we have the courage to deploy it:

In very general brushstrokes I think that most bankers are in fact inherently decent people. We just put them in situation in which their conflict of interest is tremendously high and their social norms are incredibly dysfunctional.

When you hear bankers talking about their customers as Muppets, for example, they are forgetting who they are serving. They are hired by the rest of us to do a particular job; and they forget this. And then they have terrible conflicts of interest.

Imagine that I give you a world in which, if you can adopt a particular perspective on life, you could get $5 Million as a bonus. Wouldn’t you start believing that world? And then everybody around you is doing the same thing, and you have some justification for it by talking about financial market theory and so on. All of a sudden you could see how you could take good people and you could put them in this distorted way — in the same way that we talked about how global warming is probably the perfect storm for inaction — I think Wall Street is the perfect storm for allowing people to rationalize their own selfish motivations as if they are serving other people.

It is really, really terrible because we have not done anything to change the way we pay bankers. And we have not changed anything in terms of the code of ethics and morality.

On the consumer side, there is a tremendous loss of faith. We have been screwed and we know that we have been screwed. And we know that we are not trusting other people. And I think loss of trust is a central issue for this financial crisis and sadly nobody is trying to do anything about that. Human beings are incredibly forgiving, but nobody has really stood up and said, “I am really sorry. I made all of these terrible mistakes. I want this particular bank to start fresh and caring about people,” right? Nobody has admitted anything. So we as consumers feel that there are these other people on the other side who have behaved terribly, which is true, and that are smug about it, and that nothing is different. And why should we trust them? And we do not.

I don’t think it is a generational thing. I think there is a tremendous feeling of lack of control, agency, and helplessness. And the sad realization — this is one of the things that came out of financial crisis — is that it is much harder to start a new bank now. So young people are actually quite idealistic and I think people would have started new banks where they behaved very, very differently. But what happened is that it is really, really tough to open a new bank now. But I am still hopeful: I think that this anger and frustration just needs to be channeled in a better way.

I am not a religious person but the story from the Bible is that God made the people of Israel walk around the desert for 40 years until the old generation that worshipped the golden calf passed away. I do think that we need a new generation of bankers. I think you cannot take the old generation of bankers and rehabilitate them.

Recent history is not showing us that this is something we should hope for. But there is a real question of, How do we create a new generation of bankers that are going to think of themselves as the caretakers of society, rather than the rapists?

Click the play button below to listen to Chris’ interview with Dan Ariely (42m:54s):

TRANSCRIPT

Chris Martenson: Welcome to this Peak Prosperity podcast. I am your host, Chris Martenson. Traditionally economics assumes much. It assumes that resources from the natural world are a function of demand and capital. Perhaps most bizarrely, considering the evidence, it assumes that people are rational and make rational decisions based on cold logic and calculated self-interest. But are they really? And if not, what does it mean that the major core assumptions of the models that drive monetary and economic policy are irretrievably flawed? And beyond economics, speaking very widely here, what motivates people and even entire cultures to accept one set of beliefs while rejecting others even when cold hard facts would strongly encourage the adoption of new beliefs and associated behaviors?

Fortunately there is an entire new branch of inquiry that has been opened up that assumes nothing about how people make choices and decisions, and uses scientific inquiry and the resulting data to develop a view on what actually drives human behavior. And today, to help us explore these ideas, we have back on the program one of the leading researchers of behavioral economics. Dan Ariely is a professor of psychology and behavioral economics at Duke University, my alma mater, and is the founder of the Center for Advanced Hindsight. Dr. Ariely’s talks on TED have been watched nearly five million times. He is the author of Predictably Irrational, which I have recommended heartily before, and The Upside of Irrationality, both best sellers.

Dan publishes widely in leading scholarly journals in economics, psychology, and business. His work has been featured pretty much everywhere: New York Times, Wall Street Journal, Washington Post, Boston Globe, Scientific American, you name it. Dan, I am really excited to have you back on the program today.

Dan Ariely: I will try to keep you excited throughout and not just in the beginning.

Chris Martenson: Excellent. Well, as a starting point for this conversation I would like to talk about bubbles, specifically the idea that once upon a time a financial bubble happened, at most, maybe once a generation because the painful memories literally had to die away before the mistakes could be repeated. But in the US we went from a stock bubble in the ’90s, a housing bubble in the 2000s, and today I think we might have something of a faith bubble, if I can call it that, in the ability of the Fed to get things right this time even though there is nothing in the historical data to support that view, quite the opposite in fact. So what is it in the human psyche that allows selective amnesia to arise?

Dan Ariely: So a couple of things are actually interesting. So first of all the creation of bubbles turns out to be one of the easiest things to do in a lab setting. So you put people in the lab and you kind of create an experiment in which they all trade some fictitious product and the most common behavior that you observe are bubbles. Because if you think about it the natural inclination is to see what other people are doing and to try and follow other people. In psychology this is what is called “social proof.” It is about our herding instinct. It is about the fact that you see lots of people waiting in the line to a restaurant and you think to yourself this must be a great restaurant; let me stand in line as well.

Chris Martenson: Yes.

Dan Ariely: So it is almost instinctual that we look at the behavior of others and infer something about the value of the different options. And then of course it keeps on and on and on until there is not enough power to sustain it and then there is drop. And then you see the opposite result, which is people get very depressed and frightened when things go down and they sell at the worst possible time. So bubbles, sadly, are just a part of human nature. And it is all about the ability to see what other people are doing, right? The moment we can see what other people are doing we succumb to bubbles. And in this world today visibility is just much better. If you think about the internet, you think about amount of information out there, if you think about the news—so the temptation for bubbles is just much, much higher. So that is on one side.

On the other side the question is: What causes this amnesia? And I don’t think—of course lack of memory is part of it, but I think the other part of it is that when we live in a particular reality, we come up with stories that explain this reality. And these stories for our own sanity are not stories about randomness and they are not stories about bubbles. They are stories about this time it is real value. When somebody comes to our face and tells us something, we have a very hard time disbelieving it. Our initial instinct is to believe in what they are saying. And we are experiencing the reality that we are experiencing. And we have a sense that this time everything is going to be different. We have a feeling that this time whatever we are experiencing is much more real.

So there is this disassociation between what we know about history and the intensity and realism of our current experience. And because of that we just do not think that those are relevant cases.

Chris Martenson: So this is a case of herding then, and this is normal human behavior. I assume the Federal Reserve must be aware of this sort of material or do you think—does traditional economics completely ignore—it just sounds like a feedback loop and one that is pretty well understood, I guess, at this point. Is that correct?

Dan Ariely: So behavior economists understand very much bubbles and we understand people’s belief about the world in all kinds of ways. By the way, one of the nicest experiments ever was about our need to find reason and logic and structure even in random things. So you show people patterns of clouds in the sky, right, and initially, immediately, somebody says “Oh this dog was chasing somebody here.” You show people shapes on computers and they immediately tell stories about it. You show people random fluctuation in the stock market and they immediately come up with a theory about what is really going on. We really have a very deep need to have a story that describes what it is that we are seeing.

And the stories that we like are stories about causal relationship. This is causing that. And like a lot of things in behavior economics, these things have good things and bad things. So think about how quickly we learn causal relationship. You turn a switch when you come to a room and you learn that it’s a causal relationship to the light coming up. So we are basically looking for those relationships everywhere around us. And the experiment I was referring to was an experiment in which they gave people a machine, a ball machine, that would basically they would press on all kinds of buttons and balls would come out at different speeds and different rates. And then they asked people to what extent have they figured out how to control the machine. What levels would get more balls out and less balls out and so on.

And people thought that they had quite good control aside from the fact that the ball machine was perfectly random. So we have a sense of that. And what kind of people do you think had the best understanding that in fact they did not have much control over the machine? These were depressed people. And the question that arised from this in psychology was whether depressed people are depressed because they understand that they do not have much control over the world, or is the lack of control causes them to be depressed? And we do not have an answer for that.

Chris Martenson: So we do not know cause or effect on that one?

Dan Ariely: No we do not. But if you go back and say, “Does the Fed understand all of these effects?” I do not think so. I do not think when they think about policy those are the things that are driving them. I think it is really very, very sad. But I think that when people think about the behavior of masses, even when people understand irrational behavior, they still go with the standard models way too frequently.

Chris Martenson: It is interesting this part about where the Fed is getting their decision from or even anybody in any policy position. I am thinking about your machine with the random balls coming out. I was really taken by a piece of work, a study in a book that came out, called The Origin of Wealth, by this guy Eric Beinhocker. And he very convincingly proved that the economy is a complex system. And because it is complex it inherently is unpredictable. And we cannot—all sorts of complex systems defy us, earthquake fault zones are complex systems. All we can do is sort of categorize what the risks are: If this fault has not given way, and it is supposed to give way, we might predict an earthquake would come sooner and it might be larger. But that is as close as we can get.

And so the critique he has of economics is that it is still based on the idea that it is a deterministic model: You pull lever A, you get result B. And so I can imagine the Fed, if they have flawed models and they are pulling on lever A and the balls come out randomly, sometimes unemployment does what it wants it to do. I can see them falling into the same trap as well, they are humans, right? So what do we do with this idea that if the world is essentially random in some important respects, what is it in your work that tells us how we might improve our ability to navigate in such a world?

Dan Ariely: Yes, so again you can think about these questions about the need for simple models, a little bit similar to the people who need to feel that they can predict the world. And I think economics in some sense, the reason that standard economics is so tempting is because it gives people the illusion that they understand the world, right? So here is a two-period, two-player model of how the world would react and you basically—it is an oversimplification, and you know it is an oversimplification, but you have a temptation to think of it as a model for the world because it gives you a sense that you understand the world.

And I think the challenge of really understanding stochastic, large scale, complex systems—it is not just about understanding them. It is also about being willing to give decision control to a model that we do not understand very well. And that is really the challenge. So imagine I gave you a big equation and I said this equation should predict how much money you should save for retirement, right? I mean, the question of how much money you should save for retirement is really, really very tough to figure out. Here is a model; we do not understand it exactly. It has been calibrated on lots of other people, and so on. Would you trust it, right? And it is very, very tough.

Again, in economic language, you see all these people on TV at the end of each day telling you what happened today in the stock market and telling you a story about why this is the rational thing to do. But of course they explain it to you backwards: What happened today. And we are just suckers for simple stories. And when the stories are not so simple it is very hard to believe them. And it is very hard to give them power over our decisions.

Chris Martenson: So let me talk about something that came up before that relates to that. You mentioned beliefs, this idea that we are all holding beliefs, and I know that I do. And when I do I have noticed something. My belief systems, they really are very good at adroitly selecting some data for inclusion, I will accept this piece of data I see but I will reject competing data that is unsupportive. This data selectivity, is this something that you see often and contest in the lab?

Dan Ariely: Yes, there is no question about it. We see it in the lab. We see it in life.

Chris Martenson: Yes.

Dan Ariely: It is really quite incredible. Now, there is a vicious cycle in which if you have a particular belief now, you can choose to listen to a news channel that would just give you the beliefs that you believe in, right? So, it would be one thing if we all listen to the same news show, all Americans with all particular opinions and then we had to rationalize our behavior and justify some decisions. But now the people who watch Fox News and the people who listen to NPR are very different people and they basically choose to get exposed only to their opinions, which actually makes the problem much, much higher.

For me this was the toughest, but more interesting case. Together with Mike Norton, we wrote a paper on trying to figure out what is the wealth inequality that Americans would like? So if you remember the philosopher John Rawls he basically had the very nice definition of a just society. And he said a just society is a society that if you knew everything about it you would be willing to enter it in a random place. And if you think about it is a very beautiful definition because it means if you are very rich you do not just think about your own state you think about all possible states. And if you are very poor you do not just think about where you are you think about all possible states.

So we asked tens of thousands of Americans to basically tell us what they think is the wealth distribution that they would be willing to join a society like this in a random place. And if you think about it the way we did it was, we asked people to imagine the top 20% of Americans, the next, the third, the fourth, the fifth bucket. And we said how much money—how much of the wealth do you want to be owned by each of these buckets? And that will create the Gini coefficient or the rate of inequality. And there were two main results that emerged. First of all, it turns out that Americans want a much more equitable society than what we have right now. But most interesting, there was no differences between Republicans and Democrats, almost no differences.

So for example, in one question we showed them a distribution of wealth that was slightly more equal than Sweden and a distribution of wealth based in the US, and 92% of Americans on average chose the Swedish distribution. But for Democrats it was 93%, for Republicans it was 91%. So, different but not that different. So we showed this result and we said basically, when you think about wealth and equality in abstract under the veil of ignorance, kind of Rawls’ definition, the reality is that all sides of politics seem to be very similar. We do not have that many differences. And we thought it is a great result basically showing that we are not as different as we think we are. And perhaps politicians are making us think we are more different than what we really are.

The amount of hate mail we got over this [laughter] piece of research was amazing. What happened was, I mean, there is lots of flavors of it. But the one that was the most interesting was a guy who told me that we have not calculated wealth correctly because the wealthy people, their wealth could be taken away by the government at any moment to pay for more social programs. So he basically said that we have not taken the liability of the wealthy people correctly into our model. And I saw lots of those things where people basically were trying very hard—rather than focusing on the result that we are actually much more similar than we think, people were just looking for all kinds of ways to discount the results. And I am perfectly happy with discounting the results. But the thing I was trying to tell these people, I said, even if we overestimated or underestimated by three times, by a factor of four, wouldn’t the results still suggest that we have a more inequitable society than what we want? And wouldn’t we still have the result that we are much more similar to each other than we think?

But I have not been able to convince them. So it was a very interesting, kind of personal case, about the power of desire to see reality in a certain way.

Chris Martenson: Well, it is fascinating because what you are describing is that there is a cultural narrative that we have, something about how we are a free and fair and just society and that when you ask people about that narrative in the abstract they come up with a set of results that are out of comportment with the actual reality of the world they live in. Is that not the definition of cognitive dissonance?

Dan Ariely: So, first of all, when we asked this question, of course the issue is—when we asked the question in the abstract, the question is: “Which answer is correct?” And I actually like the Rawls version of it because—think about tasting wine. When you taste wine you are influenced by the price, you are influenced by the label, you are influenced by your preconceived notions. But when you are doing the Rawls constraint and you say, what society would I like to join, in principle? All of a sudden you are not married to your own position. You are not thinking about your own particular issue and how much you want to pay taxes and do not want to pay taxes. So I think that the correct version is the abstract Rawls version. I think that when we vote on politics we should vote thinking about abstract, long-term ideas rather than what will happen next year.

Now in terms of cognitive dissonance, there are lots of versions of what people refer to as “cognitive dissonance.” But the general approach is a difference between a behavior and a belief. So Festinger’s original experiments—he would get people to the lab and he would get them to do something really boring for a long time. And some people he paid a lot and some people he paid very little. And then he asked them to recommend how much they enjoyed the task and would they recommend it to a friend and so on. Now the people who worked on this task and got paid a lot had no dissonance. They basically said, “This was a boring task. I got paid a lot, okay that is fine.” The people who did not get paid a lot, they got paid a dollar, they had a dissonance. They basically said, “Oh, I worked on this for a long time, I got paid very little, how does this work?”

And the way they resolved that, they could not have said to themselves, “Oh it must mean that I am stingy or something else.” They basically said, “It must been that I actually enjoyed that task more,” and then they recommended it more to others. So the idea is that when behavior is one way and our belief is another way, it is very hard to change our behavior. We remember what we did, so we change our belief to coincide with that. That is why, for example, it is really good to play hard to get in romantic adventures. Because somebody would say, “Oh I worked so hard to get this person. Why did I do that? It must mean I really love them.” Or another romantic example is why big weddings are actually useful. You could say to yourself, “Why did I spend so much money on this wedding? It must mean that I really love this person.”

So cognitive dissonance, this idea that we can get people to act and once we get them to act in a certain way we can get them to adjust their beliefs to fit with that, is a very important, powerful notion.

Chris Martenson: So I want to get back to that in just a minute because that is exactly where I wanted to go with this conversation. But right before then there is a step and it is this—and this is one of the most burning questions we have on our site, and it goes like this: Suppose that someone had some really important information. It has been vetted. It is data. It is as good as they can get. And they want to share this with friends, families, colleagues, maybe even strangers. But that information runs counter to the narrative or the belief structure that that person is holding individually or it runs counter to maybe the collective narrative. What can behavioral economics tell us about how to go about that process of sharing, knowing that the subtext of this is people find this to be an incredibly frustrating position to be in?

Dan Ariely: So this is really about my life as a teacher, right. [laughter] That is what I do all the time. And I will tell you what I do is, I start by showing people visual illusions. And visual illusions are something that people just get wrong, it is easy to show people that they are getting wrong this visual illusion. It is not threatening. It is clear that everybody is doing it and it just clear that it is something very basic about being human. So I start with that as a starting point and I basically said, “Let us agree that there are some things that we are all going to be wrong about. It is not about being smart. It is not about knowing anything. This is just how we function.” So that is kind of step one, and I try to get people prepared for that.

And then as step two, I do not talk to people about themselves because that would immediately increase their defense system, right?

Chris Martenson: Yes.

Dan Ariely: So talking about other people is always good. I have an amazing mother-in-law but if I did not I think that would be a good category to try. But you basically try to tell about other people. And another thing that I try and do is, I do not try to say that anything is definitive—which is always the case, right? We just have this big data. And I say, “Look, this is what we have right now; it is truly kind of an amazing data. And rather than trying to push it down, let us think, what if this was correct, what would it tell us?” So that is when they kind of – okay, so let us think about what does that mean, which changes people’s perspective, hopefully, from attacking to thinking about the implications. And then at the end, I tell people, “Look, if you saw a piece of data that contradicts your set of beliefs, I do not think you should abandon your set of beliefs immediately, right? No data should be used to change you completely.”

“But you should take it into account to some degree,” right? This is what we call “Bayesian Updating.” Think about it, right? So here is what you thought before, here is what you know now; what should you potentially do differently? And then finally I encourage people to do experiments. Because I think that once people understand data with their own hands, with their own clients, with their own workplace and so on, their belief changes quite dramatically. So in my case here is an effect, let us say it is the context effect where you add another very expensive item to a list and all of a sudden people buy something differently. I said, “Try it on your colleagues, try it on your customers, see what happens.” And the first time people do an experiment and see the results for themselves, it is a very different process.

Chris Martenson: So this is kind of a go-gently approach, right? So you start out with a visual thing, “Hey look, we are all subject to having—being human, which means we can interpret things in a variety of ways, some of which may be correct or not.” And then secondarily saying, “If this were the case, then what might the implication of this actually be?” Which sort of abstracts it a little bit, gets people to think about it. But fundamentally we are talking about belief structures and positions people might hold as defended fortifications that you are saying it would be better to be a sort of, come in gently, more like a spy than a battalion.

Dan Ariely: Yes and I think it is a combination of going gently and also trying to make it their own. So the moment that people kind of think about the data as their own, say, “Okay, here is a hypothesis, test it out,” those things are very hard to do about macroeconomics questions, right? Like levels of inequality and so on. But in my little world this is actually possible and relatively easy to do. So I think that it is a combination of go gently, try it for yourself, consider the possibility, and then kind of try to own that.

Chris Martenson: Yes. You really shifted my views a number of years ago when I was thinking about climate change and that climate change is a difficult motivating topic because it lacks some features. It lacks a face, or worse, the face that we might associate with it is staring at us in the mirror. It is abstract. It is distant. It is not near and immediate. That there are a variety of things around that story that would require transforming it out of just the strict statistical data into a more human accessible compelling sort of an argument. And what I am wondering then is to get back to this idea is, what are the best ways of motivating people towards taking new actions? That is the work I care about, but marketers would care about it the same or doctors. We could be talking about—we want to try and motivate somebody towards maybe weight loss or saving more money for retirement, reducing excessive consumption, whatever that new action is. What does behavioral economics tell us about the best ways of motivating people to new actions?

Dan Ariely: So a couple of things. First of all what you said about global warming is absolutely the case. In fact if you kind of search the whole globe for the one problem that would maximize human apathy you would come up with global warming, right? It is, as you said, it is long in the future, it will happen to other people first, we do not see it progressing, it does not have a face. And anything we would do is a drop in the bucket, right. And you could contrast it with, what happens when one guy gets on one plane with a small bomb in his shoe, right? It is clearly terrible, but since then we all take our shoes off every time we go on a flight, right? Clearly taking an action. Global warming, if you believe the science, is a much bigger risk than one person going on the plane with a small bomb in his shoe, but we do not react to it. It does not have the same emotional reaction.

And the issue there really is that, knowing, even the people who are environmentalists, right, so people who are environmentalists are trying to convince the non-environmentalists. But even the people who are environmentalists are not behaving that well. So the issue really is, and this is a deep problem, is that we think that we are motivated by goals and by high order aspirations, and so on. The reality is that we are not. And one of the saddest results I think ever in social science is a recent paper by John Lynch and his colleagues. And in this paper they looked at all the literature of financial education, financial literacy and tried to estimate how much can we hope that financial literacy would help people do better. So how much is knowing something about financial literacy can help people achieve better outcomes?

And the result is that the best we can hope for is an improvement of about 6%. And even that is lower for people from lower economic status, and it goes down over time. So in the history of mankind we have tried lots and lots of things. We have not yet been able to show any success on teaching about financial literacy and have that impact people. And the reason is actually quite easy to understand when you think about it. So here is a situation: You need to think about something, you need to learn about it, and then every time you walk in the street you have to think about that. Every time you buy coffee, every time you go to pay rent, every time you go to do something, you have to think about that piece of knowledge. Really, really hard to do, right? I mean, everybody knows that texting and driving is dangerous and stupid. Does it change our daily behavior? Not so much. You find lots of cases in which this general knowledge just does not penetrate your daily behavior.

So the notion from behavioral economics kind of boils down to this notion of choice architecture, which is the idea that our decisions are partly a function of what we know, they are partly a function of our preferences, but to a large degree they are a function of the environment in which we are in. If I came to your office every morning and layered your desk with donuts, fresh donuts, what are the odds that at the end of the year you would not weigh more? Right, very, very low. Now, no matter what you know about donuts and health and so on, this temptation every morning would just be too much. Now I am not saying you will eat all of them but you will eat enough to make your life worse off. So the question that we want to ask is, “What kind of world do we want to create?” Right? If you think that people are an outcome of the world that they are being given, the question is, “What world do we create?”

And the world right now is all about tempting us to do things that are in the world’s short interest and not in our long term interest. So Dunkin’ Donuts, what are they trying to optimize? They want you to buy another donut today. It is not about your health in thirty years from now. What is Facebook trying to optimize? For you to check Facebook one more time today, not your productivity thirty years from now. What are banks trying to get you to do? Use your credit card a couple of more times today. If you think about it, we are in a world where all of the other players are determining our environment, and all of the other players want us to do something now that is good for them. And, what are the forces that are focusing on long term? You would hope it would be the government, but with elections every two years that is very hard to imagine. You would hope it would be your significant other and your family members, and maybe that is the case, maybe religion to some degree, if we had preventative health that might be it as well.

But really our environment is one that just wants to take, take, take from us all the time and we have to fight with this ongoing temptation in a very, very tough way.

Chris Martenson: Well, this idea of choice architecture then, one of the more vexing aspects of our current environment for a lot of people at my site and elsewhere obviously is the choice architecture that our leaders both monetary and fiscal have set up around this whole banking disaster. So what you are talking about, if you put those donuts on my desk top, that is my personal hazard. But this idea of moral hazard that exists when bad decisions get bailed out, when individual losses at the big banks get spread across a larger society, that creates an environment that is very different for the bankers than for everybody else—I will put myself in the “everybody else” bucket. I look at that and I get demotivated by it because I say, “These are people, they behaved badly, they did not suffer any consequences for their actions. In fact I am the one who is going to shoulder this at some point either now or in the future with a dilution of money. And there seems to be no corrective behavior.”

The environment—people respond very quickly to incentives, don’t they? And if they do, how do you read everything that has transpired in, sort of, the macro lack of—in the macro environment — lack of, what shall I call it, accountability or any sort of responses?

Dan Ariely: So, in very general brushstrokes I think that most bankers are in fact inherently decent people. We just put them in situation in which their conflict of interest is tremendously high and their social norms are incredibly dysfunctional, right? When you hear bankers talking about their customers as Muppets, for example.

Chris Martenson: Right.

Dan Ariely: So, they forget who they are serving, right? That they are basically—they are hired by the rest of us to do a particular job. And so they forget this. And then they have terrible conflicts of interest. So, I wrote a lot about conflicts of interest. It is a topic that I worry a lot about. But imagine again this rationalization story that we talked about throughout this discussion. Imagine that I give you a world in which if you can adopt a particular perspective on life you could get $5 Million as a bonus. Wouldn’t you start believing that world? And then everybody around you is doing the same thing and you have some justification for it by talking about the financial market theory and so on. All of a sudden you could see how you could take good people and you could put them in this distorted way, in the same way that we talked about how global warming is probably the perfect storm for inaction, I think Wall Street is the perfect storm for allowing people to rationalize their own selfish motivations as if they are serving other people.

And so I think that is terrible on that side and it is really, really terrible because we have not done anything to change the way we pay bankers. And we have not changed anything in terms of the code of ethics and morality. On the consumer side I think the issue that you describe is absolutely correct. I think there is a tremendous loss of faith. So we have been screwed and we know that we have been screwed. And we know that we are not trusting other people. And I think loss of trust is a central issue for this financial crisis and sadly nobody is trying to do anything about that. Human beings are incredibly forgiving, but nobody has really stood up and said, “I am really sorry. I made all of these terrible mistakes. I want this particular bank to start fresh and caring about people,” right? Nobody has admitted anything. So we as consumers feel that there are these other people on the other side who have behaved terribly, which is true, and that are smug about it, and that nothing is different. And why should we trust them? And we do not.

And it has been really sad because lots of people have basically taken their money out of the market. They are putting it aside. And now they will never be able to retire. And I saw some report on this yesterday that shows that young people do not want to put money in the stock market.

Chris Martenson: Well, I talk with a lot of young people, millennials and whatnot, and the conversation for those who are really paying attention, it comes down to this idea that occupy Wall Street was sort of a signature moment for some of them. And they felt the way that the system responded to them was to take relatively peaceful, in fact entirely peaceful people in most respects, and surround them with the arms of the state. I mean, I was at Zuccotti Park and it was absolutely surrounded with the latest DHS hardware. There was obvious weird cameras going on all over the place. There were riot police literally ringing the entire place. So their sense of agency, that sense of control that you found lacking in the global warming story, I think the young people feel that loss of—they feel they do not have a voice and they do not have a way of remedying that lack of voice.

And so that sense of—that is maybe the opposite of conflict of interest or related topic is that sense of, How do we feel that we have a sense of control or a narrative that has us as part of the storyline? That is something, when I talk with young people, they are not just opting out of the stock market. Many of them are opting out of much of what they see around them. And maybe that is a typical generational thing to happen. I do not know.

Dan Ariely: I do not think it is a generational thing. I think there is a tremendous feeling of lack of control, agency, and helplessness. And the sad realization, and this is one of the things that came out of financial crisis, is that it is much harder to start a new bank now. So young people are actually quite idealistic and I think people would have started new banks where they behaved very, very differently. But what happened is that it is really, really tough to open now a new bank. So that is making it less likely. But I am still hopeful. I think that this anger and frustration just need to be channeled in a better way. And I think that eventually there will be some—I am not a religious person but the story from the Bible is that God made the people of Israel walk around the desert for 40 years until the old generation that worshipped the golden calf passed away. I do think that we need a new generation of bankers. I think you cannot take the old generation of bankers and rehabilitate them.

Recent history is not showing us that this is something we should hope for. But there is a real question of,How do we create a new generation of bankers that are going to be—think of themselves as the caretakers of society rather than the rapists.

Chris Martenson: Yes. And it is that idea of bringing that idealism and having that coalesce into a vision that people can believe in. You have seen the studies. Most—a large majority of people, I think 68% last study I saw, or poll, said that the country is on the wrong track. And so, to have a sense of what the right track is you need a leadership that is willing to articulate what is clearly a new and different vision. Not just the bankers are lacking that. It seems to be lacking at a number of levels. But I think it is out of that vacuum that, obviously, that people will step into those roles and start to articulate a vision. And so maybe that is the interregnum we are in is, we are kind of between visions. We have the ’50s and ’60s that sort of morphed into ’80s and ’90s and now we are sort of wondering what comes next, and by my judgment I do not see a good articulation of that yet.

So with that, I really want to thank you for your time and most importantly your work. I think your work is just fantastic. It has changed how I think about the world. And it is just fantastic. So Dan, how can people follow your work more closely if they are inspired?

Dan Ariely: So, I have a website. It is DanAriely.com. D-A-N-A-R-I-E-L-Y. And actually, in the middle of March, we are starting a free online course on behavioral economics.

Chris Martenson: Great!

Dan Ariely: This would be on the website called Coursera, coursera.org. And our website is called A Beginner’s Guide to Irrational Behavior. I will also post information on my website. But it is going to be a time consuming class. So, every week there will be video lectures and discussion groups and some readings. But if people want to, kind of, delve a bit more seriously about behavior economics that is, I think, one good way to do it.

Chris Martenson: Oh that will be fantastic. I am sure we will have people signing up for that. We will put links right below this podcast so people can follow all of that nice and easily. And I am looking forward to it. So again Dan, thank you so much for your time.

Dan Ariely: My pleasure, and nice talking to you again and looking forward to next time.

Chris Martenson: Fantastic.

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  

Europe Considers Wholesale Savings Confiscation, Enforced Redistribution | Zero Hedge

Europe Considers Wholesale Savings Confiscation, Enforced Redistribution | Zero Hedge.

At first we thought Reuters had been punk’d in its article titled “EU executive sees personal savings used to plug long-term financing gap” which disclosed the latest leaked proposal by the European Commission, but after several hours without a retraction, we realized that the story is sadly true. Sadly, because everything that we warned about in “There May Be Only Painful Ways Out Of The Crisis” back in September of 2011, and everything that the depositors and citizens of Cyprus had to live through, seems on the verge of going continental. In a nutshell, and in Reuters’ own words, “the savings of the European Union’s 500 million citizens could be used to fund long-term investments to boost the economy and help plug the gap left by banks since the financial crisis, an EU document says.” What is left unsaid is that the “usage” will be on a purely involuntary basis, at the discretion of the “union”, and can thus best be described as confiscation.

The source of this stunner is a document seen be Reuters, which describes how the EU is looking for ways to “wean” the 28-country bloc from its heavy reliance on bank financing and find other means of funding small companies, infrastructure projects and other investment. So as Europe finally admits that the ECB has failed to unclog its broken monetary pipelines for the past five years – something we highlight every month (most recently in No Waking From Draghi’s Monetary Nightmare: Eurozone Credit Creation Tumbles To New All Time Low), the commissions report finally admits that “the economic and financial crisis has impaired the ability of the financial sector to channel funds to the real economy, in particular long-term investment.”

The solution? “The Commission will ask the bloc’s insurance watchdog in the second half of this year for advice on a possible draft law “to mobilize more personal pension savings for long-term financing”, the document said.”

Mobilize, once again, is a more palatable word than, say, confiscate.

And yet this is precisely what Europe is contemplating:

Banks have complained they are hindered from lending to the economy by post-crisis rules forcing them to hold much larger safety cushions of capital and liquidity.

The document said the “appropriateness” of the EU capital and liquidity rules for long-term financing will be reviewed over the next two years, a process likely to be scrutinized in the United States and elsewhere to head off any risk of EU banks gaining an unfair advantage.

But wait: there’s more!

Inspired by the recently introduced “no risk, guaranteed return” collectivized savings instrument in the US better known as MyRA, Europe will also complete a study by the end of this year on thefeasibility of introducing an EU savings account, open to individuals whose funds could be pooled and invested in small companies.

Because when corporations refuse to invest money in Capex, who will invest? Why you, dear Europeans. Whether you like it or not.

But wait, there is still more!

Additionally, Europe is seeking to restore the primary reason why Europe’s banks are as insolvent as they are: securitizations, which the persuasive salesmen and sexy saleswomen of Goldman et al sold to idiot European bankers, who in turn invested the money or widows and orphans only to see all of it disappear.

It is also seeking to revive the securitization market, which pools loans like mortgages into bonds that banks can sell to raise funding for themselves or companies. The market was tarnished by the financial crisis when bonds linked to U.S. home loans began defaulting in 2007, sparking the broader global markets meltdown over the ensuing two years.

The document says the Commission will “take into account possible future increases in the liquidity of a number of securitization products” when it comes to finalizing a new rule on what assets banks can place in their new liquidity buffers. This signals a possible loosening of the definition of eligible assets from the bloc’s banking watchdog.

Because there is nothing quite like securitizing feta cheese-backed securities and selling it to a whole new batch of widows and orphans.

And topping it all off is a proposal to address a global change in accounting principles that will make sure that an accurate representation of any bank’s balance sheet becomes a distant memory:

More controversially, the Commission will consider whether the use of fair value or pricing assets at the going rate in a new globally agreed accounting rule “is appropriate, in particular regarding long-term investing business models”.

To summarize: forced savings “mobilization”, the introduction of a collective and involuntary CapEx funding “savings” account, the return and expansion of securitization, and finally, tying it all together, is a change to accounting rules that will make the entire inevitable catastrophe smells like roses until it all comes crashing down.

So, aside from all this, Europe is “fixed.”

The only remaining question is: why leak this now? Perhaps it’s simply because the reallocation of “cash on the savings account sidelines” in the aftermath of the Cyprus deposit confiscation, into risk assets was not foreceful enough? What better way to give it a much needed boost than to leak that everyone’s cash savings are suddenly fair game in Europe’s next great wealth redistribution strategy.

Great Depression Deja Vu – “A Chicken In Every Pot And A Maserati In Every Garage” | Zero Hedge

Great Depression Deja Vu – “A Chicken In Every Pot And A Maserati In Every Garage” | Zero Hedge.

In 1928, just as income inequality was surging, stocks were soaring and monetary distortions were rearing their ugly head, the now infamous words “a chicken in every pot and a car in every garage” were integral to Herbert Hoover’s 1928 presidential run and a “vote for prosperity,” all before the market’s epic collapse. Fast forward 86 years and income inequality is at those same heady levelsstocks are at recorderer highs, the President is promising to hike the minimum wage to a “living wage” capable of filling every house with McChicken sandwiches and now… to top it all off – Maserati unveils their (apparent) “everyone should own a Maserati” commercial. It would seem that chart analogs are not the only reminder of the pre-crash era exuberance and its recovery mirage and massive monetary distortions.

Income inequality – check

The last time the top 10% of the US income distribution had such a large proportion of the entire nation’s income was the 1920s – a period that culminated in the Great Depression and a collapse in that exuberance.

“Wealth effect” – check

 

Monetary distrortions – check

Today there is a tremendous amount of monetary distortion, on par with the 1929 stock market and certainly the peak of 2007, and many others,” warns Universa’s Mark Spitznagel.

and “a Maserati in every garage”

It’s a great looking car and emotionally imploring but… did they really just suggest (subliminally of course) that such luxury is to be had by all?

Perhaps a gentle reminder of the reality for 99.99% of Americans…compared to the Maserati buyer…

As Mark Spitznagel warned:

The reality is, when distortion is created, the only way out is to let the natural homeostasis take over. The purge that occurs after massive distortion is painful, but ultimately, it’s far better and healthier for the system.

While that may sound rather heartless, it’s actually the best and least destructive in the long run.

Look what happened in the 1930s, when the actions of the government prolonged what should have been a quick purge. Instead, the government prevented the natural rebuilding process from working, which made matters so much worse.

Real wages have been falling for longest period for at least 50 years, ONS says | Business | theguardian.com

Real wages have been falling for longest period for at least 50 years, ONS says | Business | theguardian.com.

Real wages have been falling by 2.2% a year in the longest sustained period of falling real wages in the UK on record
Average earnings growth
Average earnings growth, with RPI inflation stripped out. Source: ONS

Real wages have been falling consistently since 2010, the longest period for 50 years, according to the Office for National Statistics, which said that low productivity growth seems to be pushing wages down.

The ONS study followed a report by the Institute for Fiscal Studies (IFS)which said that while the fall in household incomes has now probably come to a halt, living standards are still “dramatically” down on what they were before the global financial crisis hit in 2008. The IFS analysis suggested “there is little reason to expect a strong recovery in living standards over the next few years”. According to the Office for Budget Responsibility, real earnings are not expected to return to their 2009-10 levels until 2018-19.

The government said last week that most British workers have seen their take-home pay rise in real terms in the past year.

Jobs website Adzuna showed in a report that salaries dropped to a 16-month low in December, equal to a real-term drop in wages of £2,136. In the year to December, salaries fell in every region of the UK aside from Wales, where salaries have risen 4.1% over the 12 months to December. Andrew Hunter, co-founder of Adzuna, said: “The recovery in the jobs market is far from over. The great news is unemployment has fallen at record levels, but wages are still stuck in a post-recession hangover – while the backlog of employees waiting for the right time to change jobs is clearing, salary levels are yet to catch up.”

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