Monday, May 20, 2019

China’s Strategic Economic Planning versus America’s Failed Capitalism

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by Prof. James Petras, Global Research:

US journalists and commentators, politicians and Sinologists spend considerable time and space speculating on the personality of China’s President Xi Jinping and his appointments to the leading bodies of the Chinese government, as if these were the most important aspects of the entire 19th National Congress of the Communist Party of China (October 18-24, 2017).

Mired down in gossip, idle speculation and petty denigration of its leaders, the Western press has once again failed to take account of the world-historical changes which are currently taking place in China and throughout the world.

World historical changes, as articulated by Chinese President Xi Jinping, are present in the vision, strategy and program of the Congress.  These are based on a rigorous survey of China’s past, present and future accomplishments.

The serious purpose, projections and the presence of China’s President stand in stark contrast to the chaos, rabble-rousing demagogy and slanders characterizing the multi-billion dollar US Presidential campaign and its shameful aftermath.

The clarity and coherence of a deep strategic thinker like President Xi Jinping contrasts to the improvised, contradictory and incoherent utterances from the US President and Congress.  This is not a matter of mere style but of substantive content.

We will proceed in the essay by contrasting the context, content and direction of the two political systems.

China:  Strategic Thinking and Positive Outcomes

China, first and foremost, has established well-defined strategic guidelines that emphasize macro-socio-economic and military priorities over the next five, ten and twenty years.

China is committed to reducing pollution in all of its manifestations via the transformation of the economy from heavy industry to a high-tech service economy, moving from quantitative to qualitative indicators.

Secondly, China will increase the relative importance of the domestic market and reduce its dependence on exports.  China will increase investments in health, education, public services, pensions and family allowances.

Thirdly, China plans to invest heavily in ten economic priority sectors.  These include computerized machinery, robotics, energy saving vehicles, medical devices, aerospace technology, and maritime and rail transport.  It targets three billion (US) dollars to upgrade technology in key industries, including electrical vehicles, energy saving technology, numerical control (digitalization) and several other areas.  China plans to increase investment in research and development from .95{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} to 2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of GDP.

Moreover, China has already taken steps to launch the ‘petro-Yuan’, and end US global financial dominance.

  China has emerged as the world’s leader in advancing global infrastructure networks with its One Belt One Road (Silk Road) across Eurasia. Chinese-built ports, airports and railroads already connect twenty Chinese cities to Central Asia, West Asia, South-East Asia, Africa and Europe.  China has established a multi-lateral Asian Infrastructure Investment Bank (with over 60 member nations) contributing 100 billion dollars for initial financing.

China has combined its revolution in data collection and analysis with central planning to conquer corruption and improve the efficiency in credit allocation.  Beijing’s digital economy is now at the center of the global digital economy.  According to one expert, “China is the world leader in payments made by mobile devices”, (11 times the US). One in three of the world’s start-ups, valued at more than $1 billion, take place in China (FT 10/28/17, p. 7).  Digital technology has been harnessed to state-owned banks in order to evaluate credit risks and sharply reduce bad debt. This will ensure that financing is creating a new dynamic flexible model combining rational planning with entrepreneurial vigor (ibid).

As a result, the US/EU-controlled World Bank has lost its centrality in global financing.  China is already Germany’s largest trading partner and is on its way to becoming Russia’s leading trade partner and sanctions-busting ally.

China has widened and expanded its trade missions throughout the globe, replacing the role of the US in Iran, Venezuela and Russia and wherever Washington has imposed belligerent sanctions.

While China has modernized its military defense programs and increased military spending, almost all of the focus is on ‘home defense’ and protection of maritime trade routes.  China has not engaged in a single war in decades.

China’s system of central planning allows the government to allocate resources to the productive economy and to its high priority sectors. Under President Xi Jinping, China has created an investigation and judicial system leading to the arrest and prosecution of over a million corrupt officials in the public and private sector.  High status is no protection from the government’s anti-corruption campaign: Over 150 Central Committee members and billionaire plutocrats have fallen.  Equally important, China’s central control over capital flows (outward and inward) allows for the allocation of financial resources to high tech productive sectors while limiting the flight of capital or its diversion into the speculative economy.

As a result, China’s GNP has been growing between 6.5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} – 6.9{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} a year – four times the rate of the EU and three times the US.

As far as demand is concerned, China is the world’s biggest market and growing.  Income is growing – especially for wage and salaried workers.   President Xi Jinping has identified social inequalities as a major area to rectify over the next five years.

The US:  Chaos, Retreat and Reaction

Read More @ GlobalResearch.ca

Brick-and-Mortar Meltdown Sinks Property Prices

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by Wolf Richter, Wolf Street:

Other sectors are weak too, but one sector is hot.

Commercial real estate prices soared relentlessly for years after the Financial Crisis, to such a degree that the Fed has been publicly fretting about them. Why? Because US financial institutions hold nearly $4 trillion of commercial real estate loans. But the boom in most CRE sectors is over.

The Green Street Property Price Index – which measures values across five major property sectors – had soared 107{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from May 2009 to the plateau that began late last year, and 27{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from the peak of the totally crazy prior bubble that ended with such spectacular fireworks. But it has now turned around, dragged down by a plunge in prices for retail space.

The CPPI by Green Street Advisors dropped 1.1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in October from September. In terms of points, the 1.4-point decline was the largest monthly decline since March 2009. The index is now below where it had been in June 2016:

This phenomenal bubble, as depicted by the chart above, has even worried the Fed because US financial institutions hold nearly $4 trillion of CRE loans, according to Boston Fed governor Eric Rosengren earlier this year. Of them, $1.2 trillion are held by smaller banks (less than $50 billion in assets). These smaller banks tends to have a loan book that is heavily concentrated on CRE loans, and these banks are less able to withstand shocks to collateral values.

Rosengren found that among the root causes of the Financial Crisis “was a significant decline in collateral values of residential and commercial real estate.”

But the CRE bubble isn’t unraveling as gently as the chart suggests. Some sectors are still surging, while others are plunging. According to the report, the index, which captures the prices at which CRE transactions are currently being negotiated and contracted, “was pushed down by falling mall valuations.”

Which sector is plunging, and which is soaring?

Brick-and-mortar retail space is getting crushed. The index for strip retail fell 5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-over-year. And the index for mall prices plunged 6{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} in just the month of October from September – a huge move in one month – and are down 11{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from a year ago.

The self-storage sector, formerly the hottest sector of them all, having surged 180{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} since the trough of the Financial Crisis, has turned cold, and prices are down 3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-over year.

Lodging took a 12{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} plunge that started in 2015, and it never recovered. It has remained essentially flat since, currently with a 1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} gain over the beaten-down levels last year. Lodging has been under attack from a structural shift to home-sharing rentals, such as Airbnb, and even at its peak in 2015, the index barely hit its peak before the Financial Crisis, before dropping again. It is now down about 10{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from its 2007 peak.

The industrial sector is hot. The index jumped 10{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-over-year in October. Industrial includes warehouse space for “fulfillment centers,” as Amazon calls them. They are in hot demand, not only from Amazon, which has been leasing them around the country, but also from other logistics and retail companies involved in the online retail boom.

The apartment sector is still hanging on by its fingernails, with prices up a measly 1{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} from a year ago, but down from their peak.

The office sector index rose 3{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-over-year. While price growth has slowed, there has been no significant decline in recent months.

Healthcare is still rising, up 4{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} year-over-year, as the industry takes up an ever larger slice of the US economy.

The CPPI is based on estimates of private-market value for REIT portfolios across the five major property sectors with an aggregate asset value of $600 billion, according to Green Street Advisors. Since REITs own high-quality properties, the index measures the value of institutional-quality commercial real estate.

Read More @ WolfStreet.com

The Federal Reserve Has Just Given Financial Markets The Greatest Sell Signal In Modern American History

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by Michael Snyder, The Economic Collapse Blog:

Why have stock prices risen so dramatically since the last financial crisis?  There are certainly many factors involved, but the primary one is the fact that the Federal Reserve has been creating trillions of dollars out of thin air and has been injecting all of that hot money into the financial markets.  But now the Federal Reserve is starting to reverse course, and this has got to be the greatest sell signal for financial markets in modern American history.  Without the artificial support of the Federal Reserve and other global central banks, there is no possible way that the massively inflated asset prices that we are witnessing right now can continue.

The chart below comes from Sven Henrich, and it does a great job of demonstrating the relationship between the Fed’s quantitative easing program and the rise in stock prices.  During the last financial crisis the Fed began to dramatically increase the size of our money supply, and they kept on doing it all the way through the end of October 2017…

Unfortunately for stock traders, the Federal Reserve has now decided to change course, and that means that the process that has created these ridiculous stock prices is beginning to go in reverse.  In fact, according to Wolf Richter this reversal just started to go into motion within the past few days…

On October 31, $8.5 billion of Treasuries that the Fed had been holding matured. If the Fed stuck to its announcement, it would have reinvested $2.5 billion and let $6 billion (the cap for the month of October) “roll off.” The amount of Treasuries on the balance sheet should then have decreased by $6 billion.

And that’s what happened. This chart of the Fed’s Treasury holdings shows that the balance dropped by $5.9 billion, from an all-time record 2,465.7 billion on October 25 to $2,459.8 billion on November 1, the lowest since April 15, 2015

Does anyone out there actually believe that the immensely bloated balance sheet that the Fed has accumulated can be unwound without having an enormous negative impact on Wall Street?

And even more frightening is the fact that central banks all over the planet appear to be acting in coordinated fashion.  I really like how Brandon Smith made this point…

An observant person, however, might have noticed that central banks around the world seem to be acting in a coordinated fashion to remove stimulus support from markets and raise interest rates, cutting off supply lines of easy money that have long been a crutch for our crippled economy.  The Bank of England raised rates this past week, as the Federal Reserve indicated yet another rate hike in December.  The Europeans Central Bank continues to prep the public for coming rate hikes, while the Bank of Japan has assured the public that “inflation” expectations have been met and no new stimulus is necessary.  If all of this appears coordinated, that is because it is.

When interest rates are low and central banks are injecting money directly into the financial system, that tends to promote economic activity.

But when they raise interest rates and pull money out of the financial system, the exact opposite is true.

At this point Americans are more optimistic about the stock market than they have ever been before, and it is at this exact moment that the Fed is pulling the financial markets off of life support.

Read More @ TheEconomicCollapseBlog.com

The Plan Comes Together? – Bill Holter

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by Bill Holter, JS Mineset:

My original thought was to write further about the left turning on and eating each other. The volume of news, “who” and the timing seemed to indicate something very big coming down. However, another story broke out of the blue this morning from Saudi Arabia that supersedes (though very well may have connections to) the feeding frenzy.

Crowned Prince Mohammed bin Salman had 11 princes and 38 current and former senior officials arrested on corruption and money laundering charges. http://www.reuters.com. Prince Alwaleed bin Talal being the most notable arrested. The thought process of “why” becomes scattered after the initial and obvious thought MBS is consolidating his power after being named as next in line back in June.
Adding to the confusion is this news of an offer of arms to the Saudis from Donald Trump https://www.bloomberg.com/news/articles/2017-11-05/trump-tells-king-salman-he-supports-more-saudi-arms-purchases I would also point out I do not believe there is any coincidence at all the move was undertaken in Saudi Arabia at the same time Mr. Trump is arriving in Asia. Of additional note was a surprise tweet from Mr. Trump “lobbying” for the IPO of Aramco to be undertaken on the NYSE (by the way, the Chinese have expressed a 5{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} interest in this offering). There are other, smaller clues but I think we have enough here to see what may be taking place.

It is my opinion, the Saudis are now triggering a move to accept yuan for oil. Those arrested can be seen as players “with” the deep state and aligned with “Hillary’s crew” for a lack of better term. Alwaleed is a major shareholder of Citi and Twitter, a Trump basher and financial supporter of Hillary’s campaign. A look at the others arrested show long time support of “the U.S.” and the petrodollar. One might think Prince Salman undertook these arrests with a “lean” toward the West, based on who was arrested I highly doubt it but we will soon see. Remember, Prince Salman has recently met with both Mr. Xi and Mr. Putin. Saudi Arabia also announced the purchases of S400 weapons from Russia (I asked at the time if this was not a very bad sign for Saudi Arabia’s allegiance to the West?).

I believe Mr. Trump very well may find out a deal is already done and nothing he can do will stop it. I also believe had Hillary been elected, this move would have happened much sooner but we will never know. The next week(s) could be breathtaking. The likely scenario in my opinion will look like this; Saudi Arabia announces they will accept yuan for oil. Mr. Trump will be informed of this, not by the Saudis but likely from the Chinese/Russians. I believe he will be told this deal is already consummated and not to interfere with “trade”.

The Chinese and Russians know exactly how crooked and fraudulent the U.S. has been in business dealings these past years … they also know of the human horrors (do you remember Mr. Putin calling back ALL Russian school children a while back?) Mr. Trump also knows and can have no rebuttal. They and he also know how levered and insolvent the dollar system has become. Whether the Chinese want to move toward an SDR based as some speculate (I don’t think so), yuan based or anything else I do not know. What we do know is they have publicly since 2009 said the “dollar system is not fair” and that the reserve currency must be stable …and that the dollar is not. And remember, the New Silk Road will include and represent over 40{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} of the world’s population, it will only grow from here!

Read More @ JSMineset.com

Ron Paul: We Are Reaching A Point Of No Return

When the system will break no matter what the Fed tries

by Adam Taggert, Peak Prosperity:

Dr. Ron Paul has long been a leading voice for limited constitutional government, low taxes, free markets, sound money, civil liberty, and non-interventionist foreign policies.

Dr. Paul served as the US Representative for Texas’s 27th Congressional District from 1976 to 1985. He then represented the 14th district from 1977 to 2013. He ran for the office of US President, three times, most recently in the 2012 Republican primaries. Dr. Paul also had a long career as an OBGYN over which he delivered more than 4,000 babies.

The recent author of the book, The Revolution At Ten Years, Dr. Paul looks ahead at the future of the movement he helped launch — tackling central planning, the military empire, cultural Marxism, the surveillance state, the deep state, and the real threats from these institutions to our civil liberties.

As a multi-term member of Congress, Dr. Paul knows the players and policies responsible for the growing unfairness and inequality now rampant in society. He does not expect the offenders will reform willingly. Instead, he predicts the system will collapse under its own unsustainability — offering a rare and valuable chance then for more sound and fair solutions to prevail:

Wealth doesn’t come from the creation of money, especially a fiat system. With too much fiat money and all this credit, eventually the economy becomes exhausted and engulfed with debt and mal-investments. The treatment for this is a correction; you have to allow the debt to be liquidated. You have to get rid of the mal-investment and you have and to allow real economic growth to start all over again. But that wasn’t permitted in ’08 and ’09, which is why there’s been stagnation. It’s hard to believe that today we have negative interest rates — real rates are negative and people still aren’t grabbing them up! A shortage of money isn’t the problem here; rather, it’s a shortage of understanding market conditions.

We’re over-taxed and over-regulated. This is resulting in a destructive system that has divided the country into two groups: those who haven’t recovered from the Great Financial Crisis versus those who are getting very rich because they’re on the receiving end of the new money created by the Federal Reserve. The people who get to create the credit get to distribute the credit, which always results in a situation where money becomes unfairly distributed, as its allocation is no longer dependent on productivity.

We haven’t changed anything. We still have a system where we encourage people to borrow money, that debt doesn’t matter, and we’re not going to cut taxes, and we’re not even going to admit that we spend too much money. Nobody can cut anything — that’s why Washington is at a stalemate. A lot of people don’t like Obamacare, but there’s enough people who do like it. Once it has been implemented, it’s very hard to get rid of a program. I also don’t think that the proposed tax reforms will actually lower taxes. They never do.  Our politicians won’t admit where the real problem lies: overspending, monetizing the debt, taking over the whole world through the monetary system, financing wars, financing welfare and the military industrial complex. It’s going to continue until this whole thing comes apart.

The eventual event will be driven by the marketplace. When it comes undone, they will no longer be able to prop things up just by printing more money. If we have a sharp downturn and they decide, “Well, QE didn’t work because it wasn’t enough.” and they double QE, there’ll be a point of no return and all confidence will be lost. We’ll dump the dollar. Interest rates will go up instead of down. That will make all the difference in the world because it will be unsustainable and create real challenges for the dollar remaining the reserve currency. When the dollar no longer serves as the world’s key currency, that’s when the ballgame will be over.

 

Read More @ PeakProsperity.com

UK’s Gold market one step closer to being run on the Blockchain

by Kenneth Schortgen, The Daily Economist:

On Nov. 4 UK’s Royal Mint announced that they had finalized the mechanism for which gold would be tracked and traded on the Blockchain.

Having established 50,000 blocks so far for their new platform since August, the Royal Mint expects to be able to provide clear transparency for buyers, sellers, and depositors of gold held in nation’s primary facility.

The Royal Mint of the United Kingdom has just revealed their live gold tracking mechanism built with Blockchain technology. 

The tracking system had its first genesis block on Aug. 2 and while still not yet available to the public, has verified more than 50,000 blocks. 

The Blockchain technology based tracking system is designed to keep records of sales and ownership of the precious metal – a task that is relatively complex. The system has been built with a number of careful additions in order to reduce any risk to relatively zero. Here are some points of the report: 

  • The RMG network will require multiple, independent cryptographic signatures to enact any transaction thereby keeping RMG safe from loss of a single-key. Due to the way the Blockchain enforces the addresses, it is not possible to send RMG to an invalid destination where the RMG could not be recovered.
  • The Asset Trading Platform is secured by industry cyber-security practices and controls, which are informed by global frameworks such as NIST and ISO.
  • All parties participating on the network are identified. – Coin Telegraph

Read More @ TheDailyEconomist.com

The Single Biggest Threat To The Global Economy

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by Ian Jenkins, SHTFPlan:

Cybercrime attacks are expected to cost us $6 trillion a year by 2021. In a single year, cyber terrorism could cost us three times more than the entire U.S. housing and real estate industry is currently worth.

The Chairman of IBM calls it the “greatest threat to every profession, every industry, every company in the world”. Cisco cites a report saying it will be more profitable than the global trade of all major illegal drugs combined. ATT calls it the greatest transfer of economic wealth in history.

The response? A desperate scramble to ramp up spending to protect their businesses, and another massive opportunity for investors.

With an estimated 4,000 cyber-attacks a day —and counting—the solution has to be serious. It has to be military-grade. And one little-known company has emerged with a unique military-grade cyber defense solution that even small- and medium-sized business can afford.

Hill Top Security Inc. is one of the world’s first cyber security companies that has met the U.S. Department of Defense’s rigorous FIPS-FIAR standard for financial transactions. Hill Top is currently in the process of being acquired by Big Wind Capital Inc. (CSE: BWCOTC:BGGWF).

And if they can reach a mass market with affordable solutions, they’ll be on track to become a market leader.

Right now, this is only on the radar of elite cyberdefense circles.

Soon, it will be on everyone’s. Not least because it is soon to be acquired by Big Wind Capital and it just partnered with Guardsight, a specialist in Managed Security Services and Tactical Cyber Security Operations for Fortune 1000 companies.

Here are 5 reasons to watch Hill Top/Big Wind Capital (CSE: BWCOTC:BGGWF) closely, at the climax of a security threat that is more materially damaging than any other form of terrorism the world has ever seen:

#1 Welcome to World War III

World War III has already been declared, and it’s going down in cyber space.

Cyber criminals are now running organized cartels on the dark web to launch highly sophisticated and coordinated attacks.

The WannaCry cyber-attack is now infamous. The virus managed to take over 300,000 personal computers and demand $90 million in ransom. But that could have been just a test run, and $90 million is just a drop in the bucket.

Most recently, the U.S. was shaken by the Equifax hack. The personal data of more than 145 million Americans was stolen from Equifax credit-reporting agency. Now almost half of the country’s population is at risk of identity theft, bank account theft and credit destruction.

It is the Equifax attack more than anything that brings the cybercrime picture into full view. Anyone who thought it was a futuristic threat will now think again. It’s already hit half the country, and it’s likely not over yet.

And that was one of only three major breaches in the past two months. Hackers even breached the Securities and Exchange Commission (SEC) in late September, with stolen data likely used for illegal stock trading. Just days later, Deloitte disclosed a cyber-attack on its systems that breached its blue-chip clients’ non-public information.

  • The average cost of each breach of data was $4 million in 2016, according to a global study by the Ponemon Institute. But in the U.S., as indicated in that study, the average cost has soared beyond that to $7 million.
  • Right now, theft of trade secrets is costing nations between 1 percent and 3 percent of their entire GDP, or anywhere from $749 billion to $2.2 trillion every year, according to an IDG survey.
  • There are roughly 4,000 cyber-attacks every day—and counting.
  • In just four years, we’ll be looking at a global cost of $6 trillion every year in cybercrime damages. Just a year ago it was $3 trillion.
  • 60 percent of small businesses close down within 6 months of a cyber-attack.

The bottom line? For criminals, this blows the illegal drug trade away. For investors in the crime-fighting side of things, it’s a $200-billion-plus opportunity over the next few years and Hill Top/Big Wind Capital (CSE: BWCOTC:BGGWF) is primly positioned to be an important player in the sector.

#2 Cyber Security Spending Soaring

The problem is epic, and it calls for an epic solution—and epic spending.

Cyber security spending is set to go over $1 trillion per year by 2021. Information security is only one tiny sub-set of the cyber security beast, and spending in this microcosm is expected to reach over $86 billion this year. Next year, spending in this tiny sub-sector is expected to hit $93 billion.

Basically, our digital networks can be breached in many ways. Each new tech trend, Forbes notes, creates new weaknesses, from cloud computing and big data to the Internet of Things (IoT) and beyond. The more we spend on new technology, the more we spend on cyber security, so this is only going in one direction— and fast.

And we’re not keeping up with the criminals. It’s prohibitively expensive, but cyber-attacks are even more expensive, especially for small- and medium-sized businesses.

JP Morgan spent upward of $500 million in 2016 on cyber security, according to Forbes. Only the biggest of the big can afford this, and even they are not thwarting attacks fast enough.

The government is spending, too. Major data breaches at the Office of Personnel Management and the IRS prompted Trump in May to sign an executive order for all federal agencies to review and update their old security systems.

#3 First Affordable Military-Grade Solution

Businesses across every industry, everywhere in the world, are under assault, and smart investors are finding profits in the companies that show the toughest line of defense.

Hill Top Security/ Big Wind Capital (CSE: BWCOTC:BGGWF) offers a unique, proven platform—and it is one of the first in the world to give small and medium businesses the ability to protect themselves and their clients in the cyber space using military-grade solutions.

And this is military-grade cyber security. In fact, the same people behind Hill Top were hired by the U.S. intelligence community to build the auditing platform to keep track and detect financial anomalies.

Read More @ SHTFPlan.com

 

The Big Reversal: Inflation and Higher Interest Rates Are Coming Our Way

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by Charles Hugh Smith, Of Two Minds:

This interaction will spark a runaway feedback loop that will smack asset valuations back to pre-bubble, pre-pyramid scheme levels.

According to the conventional economic forecast, interest rates will stay near-zero essentially forever due to slow growth. And since growth is slow, inflation will also remain neutral.

This forecast is little more than an extension of the trends of the past 30+ years: a secular decline in interest rates and official inflation, which remains around 2{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} or less. (As many of us have pointed out for years, the real rate of inflation is much higher–in the neighborhood of 7{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} annually for those exposed to real-world costs.)

The Burrito Index: Consumer Prices Have Soared 160{5f621241b214ad2ec6cd4f506191303eb2f57539ef282de243c880c2b328a528} Since 2001 (August 1, 2016)

Inflation Isn’t Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs (May 25, 2017)

About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service (October 11, 2017)

Be Careful What You Wish For: Inflation Is Much Higher Than Advertised (October 5, 2017)

Apparently unbeknownst to conventional economists, trends eventually reverse or give way to new trends. As a general rule, whatever fundamentals are pushing the trend decay or slide into diminishing returns, and new dynamics arise that power a new trend.

I’ve often referred to the S-Curve as one model of how trends emerge, strengthen, top out, weaken and then fade. Trends often change suddenly, as in the phase-shift model, in which the status quo appears stable until hidden instabilities cause the entire “permanent and forever” status quo to collapse in a heap.

The Bank for International Settlements (BIS) recently issued a report claiming that Demographics will reverse three multi-decade global trends. Here’s a precis of the case for a globally aging populace and a shrinking workforce to reverse the downward trends in inflation and interest rates: New Study Says Aging Populations Will Drive Higher Interest Rates (Bloomberg)

Gordon Long and I discuss the demographic and financial forces that will reverse zero-bound interest rates and low inflation in our latest video program, The Big Reversal(The Results of Financialization Part III)

The demographic case is actually a study of labor, capital and savings. In essence, the authors of the paper are saying that the vast expansion of the global workforce (led by the emergence of China as the world’s workshop) is a one-off that is about to reverse as the global Baby Boom generation retires en masse.

They also argue that the equally vast expansion of credit/debt that’s powered the global expansion in the 21st century is also a one-off, as this monumental debt overhang has a characteristic peculiar to debt: it accrues interest, and as the debt balloons, even low rates of interest add up, weighing on weak growth and soaring entitlement spending.

Although it’s not popular in today’s debt-dependent zeitgeist to mention this, debt is not capital. Put another way: savings still matter, and as the older generation of workers retires, they will draw down their savings, a process that will make real capital (as opposed to lines of credit resting on fictitious/phantom collateral) more scarce and thus more costly for those wishing to borrow it.

Since it’s a given that human labor is being replaced by robots and automation, the authors’ call for higher wages strikes many as a false hope. If the human labor force is shrinking due to automation, why would wages for the remaining workers rise?

One little understood factor helps explain how labor can be scarce even as many jobs are automated: the easily automated work is commoditized, and low-touch, meaning that the human “touch” isn’t the value proposition in the service.

But the value of high-touch services is added by the human presence. Do you really want to go to a swank bistro and place your order/retrieve your food from an automated service kiosk serving automated-prepared meals? Isn’t the value proposition of the bistro that you will have a knowledgeable and experienced service and kitchen staff?

Granted, there may be people who will be delighted to be served in cubicles by robots, but since we’re social creatures, this will wear thin for those who can afford more than an automated fast-food meal.

Even the most modest discounting of the hype about AI provides a more granulated understanding that not all work can be commoditized and indeed, nontradable work that cannot be commoditized will increase in value precisely because its value isn’t created by the process of commoditization.

If the labor force shrinks at a rate that’s faster than the the expansion of automation, wages will rise even as automation replaces human labor.

I explain this further in my book on work in the emerging economyGet a Job, Build a Real Career and Defy a Bewildering Economy.

Gordon and I add the systemic fragility introduced by financialization to the demographic argument. The entire global asset market–stocks, bonds, real estate and commodities–is at heart a pyramid scheme in which the rapid expansion of credit drives asset prices higher, and since assets are collateral for additional debt, the higher asset valuations enable a new round of hyper-credit expansion.

This pushes asset valuations even higher, which sets the stage for an additional expansion of credit, based of course on the astounding rise in the value of the collateral supporting the new debt.

Central banks have powered this pyramid scheme by buying bonds and stocks with currency created out of thin air. This chart of the Bank of Japan’s astonishing balance sheet is a bit outdated; the BoJ has purchased so many bonds and ETFs (stock funds) that it is now a major owner of Japanese stocks and bonds.

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