by Paul Craig Roberts, Paul Craig Roberts:
For a decade central banks have printed enormous quantities of new money. The excuse is to stimulate the economy by reviving inflation. However, the money has, for the most part, driven up the prices of financial assets instead of consumer and producer prices. The result has been a massive increase in the inequality of income, wealth, and opportunity.
The quantitative easing policy followed by central banks is based on belief in an economic relationship between inflation and GDP growth—the Phillips curve—that supply-side economics disproved during the Reagan administration. The belief in the Phillips curve persists, because supply-side economics was misrepresented by the financial media and neoliberal junk economics.
The fact that something as straightforward and well explained as supply-side economics can be misrepresented for 35 years should give us all pause. When successive chairmen of the Federal Reserve and other central banks have no correct idea what supply-side economics is, how can they formulate a workable monetary policy? They cannot.
Phillips Curve R.I.P.
Paul Craig Roberts
Republished with permission from The International Economy
The Phillips Curve is the modern day version of the Unicorn. People believe in it, but no one can find it. The Fed has been searching for it for a decade and the Bank of Japan for two decades. So has Wall Street.
Central banks’ excuse for their massive injections of liquidity in the 21st century is that they are striving to stimulate the 2% rate of inflation that they think is the requirement for sustained rises in wages and GDP. In a total contradiction of the Phillips Curve, in Japan massive doses of central bank liquidity have resulted in the collapse of both consumer and financial asset prices. In the US the result has been a large increase in stock averages propelled by unrealistic P/E ratios and financial speculation resulting in Tesla’s capitalization at times exceeding that of General Motors.
In effect pursuit of the Phillips Curve has become a policy of ensuring financial stability of over-sized banks by continually injecting massive amounts of liquidity. The result is greater financial instability. The Fed is now confronted with a stock market disconnected from corporate profits and consumer disposable income, and with insurance companies and pension funds that have been unable for a decade to balance equity portfolios with interest bearing debt instruments. Crisis is everywhere in the air. What to do?
The Phillips Curve has been working its mischief for a long time. During the Reagan administration the Philips Curve was responsible for an erroneous budget forecast. In the 21st century the Phillips Curve is responsible for an enormous increase in the money supply. The Reagan administration paid a political price for placing faith in the Phillips Curve. The price for the unwarranted creation of money by central banks in the 21st century is yet to be paid.
The Phillips Curve once existed as a product of Keynesian demand management and high tax rates on personal and investment income. Policymakers pumped up consumer demand with easy money, but high marginal tax rates impaired the responsiveness of supply. The consequence was that prices rose relative to real output and employment. Supply-side economists said the solution was to reverse the policy mix: a tighter monetary policy and a “looser” fiscal policy in terms of lower marginal tax rates that would increase the responsiveness of supply.
During the 1980s the economics establishment was too busy ridiculing supply-side economics as “voodoo economics,” “trickle-down economics,” “tax cuts for the rich,” and for allegedly claiming that tax cuts pay for themselves, to notice what I pointed out at the time: the dreaded Phillips Curve with its worsening trade-offs had disappeared. The high GDP growth rates of the economic expansion beginning in 1983 were accompanied by inflation that collapsed from near double-digit levels to 3.8% in 1983 and 1.1% in 1986. Of course, the economics establishment wasn’t interested in such embarrassing results, and so the story became the “Reagan deficits.” The establishment reduced supply-side economics to the claim that tax cuts paid for themselves, and the deficits proved supply-side economics to be wrong. Case closed. This remains the story today as told by Wikipedia and in economic classrooms.
The implementation of the Reagan administration’s policy was disjointed, because Fed chairman Paul Volcker saw the supply-side policy as a massive fiscal stimulation that would send already high inflation rates soaring. Concerned that monetarists would blame him for what he thought would be the inflationary consequences of irresponsible fiscal stimulus, Volcker slammed on the monetary brakes two years before the tax rate reductions were fully implemented. This was the main reason for the budget deficits, not a “Laffer Curve” forecast that was not made. The Treasury’s forecast was the traditional static revenue estimate that every dollar of tax cut would cost a dollar of revenue.
In effect, the Phillips Curve became an ideology, and economists couldn’t get free of it. Consequently, they have misunderstood “Reaganomics” and its results and subsequently policymakers have inflicted decades of erroneous policies on the world economy.
As so many have observed, if we don’t understand the past, we cannot understand the present. To understand the past, let’s begin with Reaganomics.
So what Was Reaganomics?
“Reaganomics” was the media’s name for supply-side economics, which was a correction to Keynesian demand management. Worsening “Phillips curve” tradeoffs between employment and inflation became a policy issue during the Carter administration. The Keynesians had no solution except an incomes policy that had no appeal to Congress. This opened the door to a supply-side solution.
Demand management treats the aggregate supply schedule as fixed. Fiscal and monetary policies were assumed to have no impact on aggregate supply, a function of technology and resources. Changes in marginal tax rates, for example, would, if expansionary (lower rates), move aggregate demand along the aggregate supply schedule to higher employment; if contractionary (higher rates), the policy would reduce inflation by reducing aggregate demand and employment.
Read More @ PaulCraigRoberts.org
by Wolf Richter, Wolf Street:
We keep hearing the good news, and we love it. During the four-day weekend, “Star Wars: The Last Jedi,” became the highest-grossing movie of 2017 with 58.1 million tickets sold in the US and $517 million in ticket sales so far, according to movie data provider The Numbers. “The Last Jedi” was released on December 15 and grossed $220 million that weekend, making it the movie with the biggest weekend of the year.
And it continues to sell tickets into 2018. This, as the Wall Street Journal put it, gave Walt Disney “another banner year at the box office that left rival studios fighting for leftovers.”
These are big numbers. And ticket sales for “The Last Jedi,” which continue into 2018, will likely remain behind the record $937 million in domestic box office sales raked in by “The Force Awakens” in 2015.
The number of actual tickets sold in US movie theaters in 2017 fell 3.6% year-over-year to 1.25 billion tickets, according to The Numbers. That’s down 21% from “Peak Ticket Sales” in 2002, when box offices sold 1.58 billion tickets. In fact, the number of tickets sold in 2017 was the lowest since 1995.
This chart shows what’s going on in terms of filling seats in brick-and-mortar movie theaters in the US:
Sharp price increases per ticket Band-Aided the pain of dropping ticket sales until 2012. Since then, even those price increases haven’t been enough. According to The Numbers, the average ticket price has more than doubled from $4.35 in 1995 to $8.90 in 2017.
I have to say that it has been years since I paid less than $10 a ticket for a major movie. For example, a ticket for “The Last Jedi” goes for $22.49 — not for a family of three, but for just one adult — at one of the AMCs in San Francisco. Not exactly an encouragement to go see it. But there are cheaper movies out there, and there are cheaper cities too, and national averages might not parallel personal experience.
Since Peak-Ticket-Sales in 2002, the average price has jumped 53% from $5.81 to $8.90 in 2017. At the same time, the number of tickets sold has plunged 21%. Connection? Maybe. One thing’s for sure: When ticket sales drop, the industry has to raise prices to make up for the drop; and the more the industry makes up with price increases for dropping ticket sales, the more consumers start looking for alternatives.
Thus overall ticket sales in dollars only inched down 0.8% in 2017 to $11.13 billion. Fewer and fewer people go to the movies, but they pay more and more each time, and as ticket prices have soared (right scale), overall ticket sales in dollars (left scale) are only languishing rather than plunging:
Read More @ WolfStreet.com
by Gabriela Barkho, Inverse:
Brooklyn renters looking for a picturesque brownstone in the Fort Greene neighborhood were surprised to learn they could pay for their new new digs with bitcoin. That’s right, you can use the cryptocurrency that everyone and their dog is now investing in to put down a payment on an apartment.
As bitcoin began its rapid rise in the last few months, the aforementioned listing’sreal estate broker, Ari Weber, saw an opportunity: accepting the cryptocurrency as a form of rental payment.
“We are doing something to attract young clients,” Weber tells Inverse. “I was asked recently if we accept bitcoin, and so we quickly built the backend to accept bitcoin for rental deposits.”
The decision to start accepting the crypto giant came only a few weeks ago, and was put into action swiftly.
Among a sea of real estate firms catering to renters in the city, Weber sees bitcoin as a way to stand out in a crowded market. The bitcoin integration is just one part of a system to create a seamless real estate experience in today’s on-demand economy. Weber and his team are already well-versed in tech and automation within Brookliv’s operations, which include bot-booked showings of listings.
When asked what would happen if bitcoin eventually “crashes,” Weber doesn’t seem too worried. Now that the currency has stabilized, on average, around $13,500, he doesn’t think using it for purchases is a big risk.
“We can take a little bit of a hit if it does dip, but it’s worth it,” Weber says.
So far, Brookliv has already accepted deposits via bitcoin wallets from three tenants in the past few weeks.
The company is part of a new wave of bitcoin-accepting real estate firms. Platforms like ManageGo, an online rental payments system, has began allowing property managers to accept multiple cryptocurrencies like bitcoin, litecoin and ethereum. It does this by converting the rent payments to U.S. dollars and then depositing into their bank accounts.
Read More @ Inverse.com
by Paul Goncharoff, Russia Insider:
Pragmatic energy from Russia to China isn’t just hot air.
Leading up to these 2018 New Year celebrations globally, with all the noisy colorful firework shows from world capitols, the second branch of the Russian-Chinese oil pipeline was quietly commissioned and put into operation. The CNPC announced the end of branch construction, fulfilling all agreement conditions and completing the pipeline prior to January 1, 2018.
Fifteen million tons of oil per annum is to be supplied to China through the Skovorodino pipeline (Amur Region) to the Mohe-Dacin (North-Eastern China), particularly from the large nearby Ivankovskoe deposit. It seems that payments will be Ruble-Yuan based.
The PRC has recently made serious changes to actively substitute coal with gas and other less polluting fuels. In consequence there is a natural gas shortage after the government aggressively pushed a program to replace coal-fired heating with systems powered by natural gas, electricity or other cleaner fuels in the widely air polluted northern China.
China’s top three oil and natural gas suppliers Sinopec, China National Petroleum Corp. and China National Offshore Oil Corp. were also asked to quickly develop means to use natural gas extracted from coal beds, to support an environmental friendly heating system and speed up imports of natural gas from Russia.
Read More @ Russia-Insider.com
by Kerry Lutz, Financial Survival Network:
John Rubino returns for another visit as gold has broken the $1300 resistance point. How much higher will it go? We’ve been at this point several time, however, this could be the one that propels gold much higher. The cycles guys have been saying it for a while. But it might just be a seasonal bounce. The key is if it breaks last year’s monthly high of $1350. In other news, debt continues to climb higher around the globe and military tensions are heating up. Need any more explanations?
Read More @ FinancialSurvivalNetwork.com
by Nomi Prins, Truth Dig:
We’ve made it through 2017. The first-season installment of presidential Tweetville is ending where it began, on the Palm Beach, Fla., golf course of Mar-a-Lago. Though we are no longer privy to all the footage behind the big white truck, we do know that, given the doubling of its membership fees, others on the course will have higher stakes in the 2018 influence game.
The billionaire who ran on an anti-establishment platform went on a swamp-filling, deregulatory and inequality-producing tear, in the process creating the wealthiest Cabinet in modern United States history and expanding his own empire along the way. His offspring, Russia-related investigations aside, didn’t do too shabbily either. White House policy adviser Ivanka Trump’s brand opened a splashy new store in the lobby of Trump Tower in Manhattan, just in time for Christmas.
If you look at the stock and asset markets, as Donald Trump tends to do (and as Barack Obama did, too), you’d think all is fine with the world. The Dow Jones Industrial Average rose about 24 percent this year. The Dow Jones U.S. Real Estate Index rose 6.20 percent. The price of one Bitcoin rose about 1,646 percent.
On the flip side of that euphoria however, is the fact that the median wagerose just 2.4 percent and has remained effectively stagnant relative to inflation. And although the unemployment rate fell to a 17-year low of 4.1 percent, the labor force participation rate dropped to 62.7 percent, its lowest level in nearly four decades—particularly difficult for new entrants to the workforce, such as students graduating under a $1.3 trillion pile of unrepayable or very challenging student loan debt. (Not to worry though: Goldman Sachs is on that, promoting a way to profit from this debt by stuffing it into other assets and selling those off to investors, a la shades of the subprime mortgage crisis.)
Those of us living in the actual world without billionaire family pedigrees possess a healthy dose of skepticism over the “Make America Great Again” sect that believes Trump has transformed America “hugely,” for record-setting markets don’t imply economic stability, nor do 40 percent corporate tax cuts translate into 40 percent wage growth. We can march forward into 2018 carrying that knowledge with us.
But first, a recap. For the U.S. financial system, 2017 was marked by five main themes: The GOP’s “You All Just Got a Lot Richer” Corporate Tax Reduction Plan; Big Banks Still Bad; The Fed’s Minor Policy Shift; Debt; and Deregulators Appointed to Positions of Regulatory Authority.
Banks Are Still Big and Bad
The Big Six banks have paid billions of dollars in settlements for a variety of frauds committed before and since the 2007-2008 financial crisis, but that didn’t keep them from tallying up new fines in 2017. The nation’s largest bank, JPMorgan Chase, agreed to pay $53 million in fines for scamming African-American and Latino mortgage borrowers with disproportionately higher rates than for white borrowers. The Consumer Financial Protection Bureau fined Citigroup $28.8 million for not disclosing foreclosure-avoiding actions. Bank of America got fined $45 million for its foul treatment of a California couple trying to save their home.
But the Big Six bank that received the most attention in 2017, as it did in 2016, was Wells Fargo. The number of people affected by its fake-account creation scandal grew from 2 million reported in 2016 to about 3.5 million. That increase resulted in Wells Fargo expanding its associated class-action settlement to $142 million.
Wells Fargo was mired in smaller scandals, too. For instance, it charged 800,000 customers for auto insurance they didn’t need, raised mortgage rates for certain customers without properly disclosing it was going to, and made a bunch of unauthorized adjustments to people’s mortgages.
No Glass-Steagall Reinstatement, More Deregulation
The idea of reinstating the Glass-Steagall Act of 1933 featured in both the Democratic and the Republican National Committees’ platforms during the campaign season. But Trump’s treasury secretary, Steven Mnuchin, made it clear multiple times there would be no such push from the administration, arguing against doing so before senators including Elizabeth Warren and Bernie Sanders.
To emphasize his disdain for regulation and oversight, Mnuchin also pushed the Financial Stability Oversight Council, over which he presides, to vote 6 to 3 to rescind American International Group’s designation as posing a potential threat to the U.S. financial system. Thus, AIG will no longer be paying penance for its role at the epicenter of the last financial crisis by filing regular risk reports anymore. Federal Reserve Chair Janet Yellen also supported the move.
Consumer Financial Protection Bureau Bashing
In a major blow to citizen security, Richard Cordray, the Obama-appointed regulator, resigned as director of the Consumer Financial Protection Bureau in November.
Read More @ TruthDig.com
The hyperinflation is no longer contained to mostly fringe items and non-essentials. Hyperinflation is now hitting the necessities of life. Here’s the details…
Editor’s Note: This series tries to go beyond the Venezuelan collapse to pick out signs that it’s not the Bolivar or the Zimbabwe dollar in a death spiral, but the US Dollar itself. That is to say, when it becomes obvious to everybody that the U.S. dollar has already hyper-inflated, that’s when we enter the “crack-up boom” leading to the fiat currency crisis and the death of the dollar.
Without further ado, here’s the latest installment of our Hyperinflation Watch. Check out previous articlesto learn how to spot the signs that are all around us. This is a series where, so far, we have highlighted the absurdity of mainly non-essentials in life, but now, we’re getting into the actual costs of living that are affecting Americans in their everyday lives.
Anybody who favors free markets and loathes central control and government intervention, and especially wage and price controls should despise the word “price gouging”.
And the MSM jumps all over it with cherry-picked cases.
Case in point: A recent example we gave post-hurricane was of a local Best Buy charging $42.96 per case of bottled water.
One Houston resident sent me a pic of water he saw being sold for *$42* at a nearby Best Buy. They were kind enough to offer $29 bottles too pic.twitter.com/8dKz3sJJM1
— Ken Klippenstein (@kenklippenstein) August 29, 2017
The significance of the bottled water pricing demonstrates just how broken the entire US economy has become:
A $42.96 case of water is price gouging and requires an apology, even though [a boxed and shrunk-wrapped case] is just a convenient carry-out case priced at the per-bottle price of $1.79, which is at the same time somehow not price gouging because that’s just Best Buy’s going rate for a single bottle.
Yes, that Best Buy was called out for price-gouging, even if it made for an easier way to lug around 24 bottles of water if somebody wanted to purchase that quantity.
We went on to conclude:
Even in the retail bottled water market, things are totally, completely, and utterly mis-priced…
Read More @ SilverDoctors.com