My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author
Quote of the Week: “Success does not consist in never making mistakes but in never making the same one a second time.” – George Bernard Shaw
Continuing with how macroeconomics work, we cover this week some important points about statistics yet again and how far the Fed can continue to ‘kick the can down the road’ before the next GFC2 turns up. I have no doubt that they will use everything in their arsenal and more if possible to avoid the final collapse. In this respect the concept of ‘Modern Monetary Theory’ has been promoted recently. This can only be the ‘helicopter money’ that Ben Bernanke talked about all those years ago.
Read here a short article about MMT and the Inflation scam:
https://realinvestmentadvice.com/mmt-sounds-great-in-theory-but-2/
Here is the link to last week: Issue 57
Now that Brexit will not be coming to a final conclusion after three years, I will continue to provide weekly updates as events progress:
Brexit Update – 28th June 2019
The Brexit deadline remains 31st October 2019 and stays in place unless the next PM can get Parliament to agree a new exit plan.
The progress of Brexit will be halted until a final decision is made and in the coming weeks I will report what the two candidates are saying about their ‘plans’ to execute Brexit by the end of October. Boris Johnson had something to say this week:
“Johnson first doubled down on his commitment to leaving on 31 October in an interview with Talk Radio, saying he was in no way reneging on his firm pledge. “We are getting ready to come out on 31 October. Come what may,” he said. Asked to confirm this, he added: “Do or die. Come what may.” He then said he would scrap Theresa May’s withdrawal agreement and seek a completely new deal before then, as minor changes would not satisfy him.”
“With the Conservative leadership race now down to the final two, we’re hearing a lot of claims about what both remaining candidates would do in order to secure a Brexit deal by 31 October. Jeremy Hunt, for example, has emphasised that he believes getting a new Brexit deal from the EU is “about the personality of our Prime Minister… someone that the other side will talk to who’s going to be very tough”. Read on:
https://fullfact.org/europe/five-brexit-plans-factchecked/
Details of Parliament’s deliberations can be found here:
CHAPTER 11
MACROECONOMICS 101
“I think the person who takes a job in order to live – that is to say, for the money – has turned himself into a slave”. – Joseph Campbell
“Gold and silver are not by nature money, but money is by nature gold and silver.” – Karl Marx
“When people find they can vote themselves money; that will herald the end of the republic” – Benjamin Franklin
Employment statistics also create a false picture
Consumer and Services alone have become the main sectors of employment and “production.” The service sector provides about three out of every four jobs in America, according to the Bureau of Labour Statistics (BLS). It is important to recognise that a great deal of economic policy is formulated on the basis of these statistics generated by the BLS as the level of employment is considered a key measure of the health of an economy.
In USA official unemployment statistics are arrived at through methods of calculation that were introduced in the 1990s just before the bursting of the ‘dot.com’ bubble and the introduction of artificially low interest rates. The resultant statistics have been distorted to such an extent that reliance upon them for economic forecasting is not to be recommended.
Alternative statistics are published monthly by John Williams at his website: http://www.shadowstats.com/ It is revealing to study these as you will be surprised at the extent of the differences. Employment figures for example will illustrate the argument:
Of the 102 million working-age Americans without work today, only 8.7 million are counted by the BLS as unemployed. Out of all working-age Americans, over 92 million are without jobs and are not counted by the BLS as unemployed. We might ask why?
The argument states that 92 million Americans are not counted because they “refuse to participate,” not because they can’t find adequate employment and not because the government is misrepresenting the numbers. These 92 million Americans do not count because they clearly must not want work!
This result is achieved through “household surveys” but just like public polls, these can be easily manipulated to affirm any particular bias merely by changing how questions are phrased. It would be helpful to see the raw data from such polls before the BLS adds its own ‘spin’ but of course this is never allowed.
Even if such claims were true and tens of millions of Americans do not want to work, should they still be counted as unemployed? Would 92 million Americans apparently on a long-term labour and productivity strike have a severe negative effect on real GDP? Furthermore they must be surviving somehow.
These people would eventually require government assistance through welfare or they would have other sources of unrecorded income. It is an enigma to say the least but is one example of how statistics are manipulated openly by our political masters in order to present economic results which conform to a predetermined and acceptable norm.
The BLS will say, in support of their data, that many of these Americans are teens in school (16 to 18) and possible “retirees” (55 or older). The BLS and the mainstream media simply assume these people do not want a job and should not be counted as unemployed. Of course, the BLS includes such people when they do have jobs. Thus if you are 16 or 55/65 and you have a job, then you count. If you are 16 or 55/65 and don’t have a job, then you do not count!
If you find all this as baffling as I do then digging deeper into the reported government statistics of any country will reveal a plethora of similar anomalies. It is enough to know that economics and statistics must be viewed with a high degree of scepticism and as the public become better informed about how government works the more disbelieving they will become.
If unemployment rates are counted using pre-1990s methods, through websites such as: www.shadowstats.com then the U.S. jobless rate is currently around 23%, almost depression level. Furthermore, many jobs in the service sector happen to yield low rates of pay which are compounded by zero hours contracts or fewer working hours and thus falling wages, when combined with rising prices and growing debt obligations, creates lower living standards and a great deal of personal distress.
Using debt to maintain life style
Since 2008, in an effort to maintain living standards, workers have been increasing their debt loads to make up for the shortage of net income. According to averages supplied by government statistics (the real numbers are likely to be worse), the average American household carries $10,000-$15,000 in credit card debt, $155,000 in mortgage debt and $32,000 in student loan debt.
In addition there is motor vehicle debt to be included. Americans owed nearly $12 trillion overall in 2014, an increase of 3.3 percent over 2013. Declines in some debts, including a decline in credit card debts since 2011, are attributed to numerous defaults, not repayments.
U.S. consumers are no longer able to support their historical consumption habits combined with a stagnant U.S. economy this system will become unsustainable. It is clear that the manner in which we live today is about to drastically change, and that this coming change is being hidden from us deliberately by those who wish to keep central control of economies based on their current fallacious models.
How long can the Fed keep this ‘boom’ going?
Looking at the USA bond market versus equites; note that diversion occurred when the Fed started QE following the 2008 financial crisis. The Fed has kept interest rates to artificially low levels. It has allowed cost-free funding to the mega banks and those institutions close to the centre whilst buying up bonds and probably equities too.
Interest rates have now started to rise with three lifts of 0.25% since 2016 making for a current rate of 1% (June 2017). Long-term interest rates are a function of the average of the course of short-term interest rates over the maturity period of the bond, thus the 10 year US Treasury bond remains around 2.3% which means that investors believe that the Fed will keep interest rates low for the foreseeable future in accordance with Austrian business cycle theory (ABCT – see the following description).
To keep the economy on the track of the last 10 years, the central bank must keep interest rates low otherwise higher interest rates would make the economy collapse. The credit market would collapse, stock prices and housing prices would crash and the financial system would go into crisis again.
One thing is certain for the US economy, and with it the world economy, is that they are caught in a dilemma: either the interest rate rising will continue which ends in a bust or the Fed holds rates lower for longer and economy remains in recession. Ludwig von Mises describes this situation as follows:
“The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.”
The problem is that traditional Keynesian economics has been used by all the global economic actors since the last depression in 1929 when Lord Keynes proposed that the solution to an economic depression was for the government to borrow money into existence and invest it in projects which would stimulate employment and energise the general economic landscape. After a few years this arrangement appeared to be working and Keynesian economics has become the standard for all governments across the globe.
To be continued next Saturday
Obviously the NeoCons can tell Big Lies to the American People because they control the US government and media, but can the NeoCons continue to strangle Iran, Venezuela, and choke Russia and China without serious harm coming to Americans? The NeoCons are just like the Nazis who greatly over estimated their intelligence and power, destroying Germany. US Economist need to put that into their Economic Models.
Yes Robert, America reigns supreme so far mainly because they hold the dollar and of course use it to strangle the life out of their ‘enemies’ as they see fit. This will come to an end at some point and then there will be a big wake-up call.
The Democrat’s Immigration Policy is their Plan to swamp the US election process with new illegal Democrat voters to take over the Senate and Presidency. They are manipulating elections, exactly what they are falsely accusing Trump of doing with the Russians. Since Democrats are effectively Communist, this is effectively a Communist Conspiracy to take over America; if it succeeds, it cannot be undone at the polls. Communist Pogroms and economic collapse will follow like in other Communist countries. This is Treason and they are Traitors. They must be defeated in Nov2020.
We have a similar problem with the Labour party over here in UK, Robert. It is unlikely that the voters will return to extreme left governments as we approach the next GFC2 IMHO.
The real American (and English) voters will not swing to Communism during the next Global Financial Crisis but the illegal and dead ones will, that is why we must stop this immigration invasion treason.
Good point Robert, thank you and a reminder that immigration is indeed the big issue here in Europe/UK as we inevitably move to a non-culture environment.