【家长和孩子同读《 Word Power Made Easy 》】了解词源，记单词如虎添翼 欢迎加入《彩色英语乐无边》 qq 群： 131843439 欢迎加入《英法德意西俄日韩语同步学习》社团 http://st.hujiang.com/1414422720 =================================== 在神奇的中华大地有一股神奇的力量，竭力鼓吹学外语就必须死记硬背！ 如果您学了 N 年的英语却依然读不懂英语名著，甚至读不懂国外的少儿读物，请您不要再相信这种鬼话！ 强烈建议家长朋友们买一本《 Word Power Made Easy 》并和我们一起来帮助孩子在小学阶段就大概读懂它。我坚信：在小学阶段就能大概地读懂这本书，孩子将会有一个不同寻常的精彩人生！ 小学生读懂英语著作的最大障碍在成年人对英语的错误认识。对孩子读懂英语著作的最大伤害是背单词，其次是尚未解决识字问题就匆忙学语法。 读懂英语著作的最基本要求是识字，而识字的最基本要求是： 1、 听懂。一定要听懂老外是如何读这个单词。 2、 会读。在听懂的基础上练习读且一定要大声地读。 3、 会写。英语是拼音文字，只要听懂、会读就基本上已经会写。根本用不着读字母背单词！ 4、 会用。至少应该会用已经听懂、会读、会写的单词造句。 有很多的成年人有困惑：英语著作没有一个汉字，有大量的生词，小学生怎么可能读懂呢？ 请放心，您只要跟着我们的课程，每次学习一个句子，在熟读句子的基础上记单词、学语法。当学习到 100 个句子的时候，您和您的孩子就可以在家自学了。 上一节，我们学习 xxi 上的一句话： Learn how to deal with etymology and you will feel comfortable with words . 这一节，我们接着学习后面的一句话。 You will use new words with self-assurance . self-assurance n. 自信 , 自恃 , 自足 ; 自满 self n. 自己 , 自我 , 本性 , 本质 , 本人 , 私心 建议您先掌握 sell 再记忆 self 。 s e ll v. 出售 , 卖 请复习 t e ll, c e ll, sp e ll, h e ll, h e llo 。 assurance n. 确信 , 把握 , 信心 , 自信，承诺 , 担保 , 保证，厚颜 ; 大胆傲慢， ( 人寿 ) 保险，【律】财产转让 ( 书 ) （ as+sur+ance ） -ance ， -ence 名词后缀 assure vt. 使确信 , 使放心，向 ... 保证 ; 郑重宣告，保障 对 ... 进行保险 ( 主要指人寿保险 ) （ as+sur+e ） as-=ad- ，表“朝向”，用在 s 前变化为 as- ，请复习 as sess, as sess ment 。 sure adj. 对 .... 有把握 , 确信某事 , 稳当的 , 可靠的 adv. 的确 , 当然（ sur+e ） 源自法语。 【法语】 sr sr, e a. 肯定的 , 确信无疑的 联想记忆 insure vt. 给 ... 保险（ in+sur+e ） insurance n. 保险 , 保险单 , 保险业 , 保险费 (in+sur+ance) 特别提醒：不了解词源，学英语完全是浪费时间。 作业：把这句话翻译成汉语。
On April 18, The Economist published an article named “Dynasties ： The power of families”. The enduring power of families in business and politics should trouble believers in meritocracy. But there is an old saying: Like father, like son. The author tells us, around the world, in politics and business, power is still concentrated in the family. Power families and dynasties are here to stay. In politics the phenomenon exists. The Clintons and the Bushes in USA, the Ghandis in India, the Bhuttos in Pakistan, the Kenyattas in Kenya, a Fujimori in Peru and a Trudeau in Canada. Meanwhile the children of Communist Party grandees and Xi Jinping. In Europe, the same case happens. Fifty-seven of the 650 members of the recently dissolved British Parliament are related to current or former MPs. France's president has four children with former presidential candidate. Three generations of Le Pens are squabbling over their insurgent party. Belgium's prime minister is the son of a former foreign minister and European commissioner. The names Papandreou and Karamanlis still count for something in Greece. Political dynasties have a powerful mixture of brand names and personal connections. In business, too, family companies continue to thrive. Family companies can be more flexible and far-seeing than public companies. Family owners typically want firms to last for generations, and they can make long-term investments without worrying about shareholders hunting for immediate profits. Prominence of Power families reflects the increasing prosperity of Asia, where families traditionally play a large role. It has many advantages, but it has a serious problem that people should be judged on their individual merits rather than their family connections or their brand name. Family power also has its dark side--especially where business and politics are entwined in an exclusive nexus of money and influence. Pyramid ownership structures also enable a small chunk of capital to exert a large degree of control. What is the most important: Family power, like any other sort, needs watching over, if it cannot be contested, it should not be welcome. This topic is very interesting not only the topic itself, but also it matches the previous theme about Hillary Clinton running for president. Family power exists everywhere. In old china, many people obtain the upper position through the imperial examination system. Today, this case also happens, people who are in a lower class want to improve their position by accepting higher education. But what we can see that it is more and more difficulty for them to be successful in achieving this goal. Along with maturity of the society, class solidification happens. This inequity happens in the beginning of children’s life. Power families can provide their children with more abundant resources in social capital, communication skills, connections with higher-position people, education and etc. So they have more broaden eyesight and richer life experience at an early age. According to a research, it is not important for one to go to elite or not, as long as he or she(may be not she) is clever enough, he can get high position similarly with the one who is as the same clever as him goes to elite. But if the former has a power family, he can get higher position than latter. The good news is it is not necessary for you to get higher education if you want to be successful. The bad news is that it depends mostly on your background. Heroes emerge in troubled times. Who can be sure that someone can’t be successful if he is with plenty of wisdom, a sophisticated personality, a gimlet eye and, what is the most important, sufficiently ambitious.
9 Electric Power Grid Substations Will Bring It All Down By John PND / March 17, 2014 / No Comments Share Print Email Attackers could bring down the entire power grid of the United States in just a few moves, according to a report from The Wall Street Journal. Federal analysis says sabotage of just nine key substations is sufficient for a broad power outage from New York to Los Angeles. The U.S. could suffer a coast-to-coast blackout if saboteurs launch a coordinated attack and knock out just nine of the country’s 55,000 electric-transmission substations on a hot summer day while the systems are under a strained load, according to a previously unreported federal analysis. The study’s results have been known for months to select people in federal agencies, Congress and the White House, but were reported publicly for the first time Wednesday (MAR-12). The WSJ did not publish a list of the 30 most critical substations identified by the FERC study. The study by the Federal Energy Regulatory Commission concluded that coordinated attacks in each of the nation’s three separate electric systems could cause the entire power network to collapse , people familiar with the research said. Electric substations are critical to the functionality of the electric grid. Their transformers boost the voltage to very high levels which enables efficient transmission across long distances. The levels are then brought back down to usable levels by similar transformers. On a hot summer day, with the grid operating at high capacity, FERC found that taking out the right amount of substations could lead to a national blackout lasting months. One particularly troubling memo reviewed by the Journal described a scenario in which a highly-coordinated but relatively small scale attack could send the country into a long-term literal dark age. “Destroy nine interconnection substations and a transformer manufacturer and the entire United States grid would be down for at least 18 months, probably longer,” the memo said. If we were to experience an event as described here, tens of millions would perish in today’s modern ‘dependent’ society. Breaking out of our normalcy bias and preparing ones-self for such a catastrophe would be life altering, with a tremendous dedication of time and resources to adapt a fundamental change to how and where we live our lives. - See more at: http://www.patriotnetdaily.com/9-electric-power-grid-substations-will-bring-it-all-down/#sthash.Cxs85T7o.dpuf
Frontmatter Contents List of Figures List of Tables Preface 1. Introduction Part I 2. Stock Market Prices Do Not Follow Random Walks: Evidence from a Simple Specification Test 3. The Size and Power of the Variance Ratio Test in Finite Samples: A Monte Carlo Investigation 4. An Econometric Analysis of Nonsynchronous Trading 5. When Are Contrarian Profits Due to Stock Market Overreaction? 6. Long-Term Memory in Stock Market Prices Part II 7. Multifactor Models Do Not Explain Deviations from the CAPM 8. Data-Snooping Biases in Tests of Financial Asset Pricing Models 9. Maximizing Predictability in the Stock and Bond Markets Part III 10. An Ordered Probit Analysis of Transaction Stock Prices 11. Index-Futures Arbitrage and the Behavior of Stock Index Futures Prices 12. Order Imbalances and Stock Price Movements on October 19 and 20, 1987 References Index
"The US Is Bankrupt," Blasts Biderman, "We Now Await The Cramdown" Submitted by Tyler Durden on 08/04/2014 21:32 -0400 B+ Bond Budget Deficit Charles Biderman Cramdown ETC Federal Reserve Federal Tax Gross Domestic Product Medicare Moral Hazard Precious Metals Purchasing Power Real estate Reality Tax Revenue TrimTabs White House Z.1 in Share 8 Submitted by Chris Hamilton via Charles Biderman TrimTabs' blog , US is Bankrupt: $89.5 Trillion in US Liabilities vs. $82 Trillion in Household Net Worth The Gap is Growing. We Now Await the Nature of the Cramdown. There are many ways to look at the United States government debt, obligations, and assets. Liabilities include Treasury debt held by the public or more broadly total Treasury debt outstanding. There’s unfunded liabilities like Medicare and Social Security. And then the assets of all the real estate, all the equities, all the bonds, all the deposits…all at today’s valuations. But let’s cut straight to the bottom line and add it all up… $89.5 trillion in liabilities and $82 trillion in assets . There. It’s not a secret anymore…and although these are all government numbers, for some strange reason the government never adds them all together or explains them…but we will. The $89.5 trillion in liabilities include: $20.69 trillion $12.65 trillion public Treasury debt (interest rate sensitive bonds sold to finance government spending) Fyi – $5.35 trillion of “intra-governmental” Treasury debt are not included as they are considered an asset of the particular programs (SS, etc.) and simultaneously a liability of the Treasury $6.54 trillion civilian and Military Pensions and Benefits payable $1.5 trillion in “other” liabilities http://www.fms.treas.gov/finrep13/note_finstmts/fr_notes_fin_stmts_note13.html . $69 trillion (present value terms what should be saved now to make up the present and future anticipated tax shortfalls vs. present and future payouts). $3.7 trillion SMI (Supplemental Medical Insurance) $39.5 trillion Medicare or HI (Hospital Insurance) Part B / D $25.8 trillion Social Security or OASDI (Old Age Survivors Disability Insurance) Fyi – $5+ trillion of additional unfunded state liabilities not included. Source: 2013 OASDI and Medicare Trustees’ Reports. (pg. 183), http://www.gao.gov/assets/670/661234.p These needs can be satisfied only through increased borrowing, higher taxes, reduced program spending, or some combination. But since 1969 Treasury debt has been sold with the intention of paying only the interest (but never repaying the principal) and also in ’69 LBJ instituted the “Unified Budget” putting all social spending into the general budget reaping the gains in the present year absent calculating for the future liabilities. If you don’t know the story of how unfunded liabilities came to be and want to understand how this took place, please stop and read as USA Ponzi explains nicely… http://usaponzi.com/cooking-the-books.html $81.8 trillion in US Household “net worth” According to the Federal’s Z.1 balance sheet http://www.federalreserve.gov/releases/z1/current/z1r-5.pdf , the US has a net worth of $81.8 trillion – significantly up from the ’09 low of $55.5 trillion…a $23 trillion increase in five years. Fascinatingly, “household” liabilities are still $500 billion lower now than the peak in ’08 but asset “valuations” are up $22.5 trillion. All while wages have been declining. A cursory glance at the Federal Reserve’s $4 trillion in balance sheet growth in the same time period shows how the lack of growth in “household” liabilities (currently @ $13.7 trillion) has been co-opted by the Fed. I believe it’s clear when incomes no longer supported credit and debt growth in ’08, consumers tapped out and in stepped the Federal Reserve to bridge the slowdown. But what the Fed may or may not have realized is once they stepped in, there was no stepping out. (Charles, would be great if you could export this chart from FRED to be included…or if you have a better idea to show this relationship, would be great???) http://research.stlouisfed.org/fred2/graph/?g=GVF How We Got Here – Growth of Debt vs. GDP 45 years of ever increasing debt loads, social safety net growth, corporate welfare. 45 years of Rep’s and Dem’s in the White House and Congress bought by special interests and politicians buying citizens votes with laws enacted absent the revenue to pay for them. We have a Treasury and Federal Reserve willing to “innovate” and wordsmith to avoid the national recognition of the true difficulties and implications of our present situation. 45 years of intentionally avoiding an honest accounting of our national obligations, mislabeling, and misdirecting to pretend these obligations can and will be honored. 45 years of cornice like debt and promise accumulation simply awaiting the avalanche of claimant redemptions and debt repayments. First, an historical snapshot for perspective of the last time US Treasury debt was larger than our economy (debt/GDP in excess of 100% in 1946) and subsequent progress of debt vs. GDP…and why anyone suggesting there is a parallel from post WWII to now is simply ill informed. Post-WWII: ’46-’59 (13yrs) Debt grew 1.06x’s ($269 B to $285 B) GDP grew 2.2x’s ($228 B to $525 B) ’60-’75 (15yrs) Debt grew 2x’s ($285 B to $533 B) GDP grew 3.3x’s ($525 to $1.7 T) Income grew 3.3x’s ($403 B to $1.37 T) ’65 Great Society initiated, ’69 unfunded liabilities begin under a “Unified Budget” Post-Vietnam War: ’76 -’04 (28yrs) Debt grew 15x’s ($533 B à $7.4 T) Unfunded liability 15x’s ($3 T to $45 T) GDP grew 7.3x’s ($1.7 T à $12.4 T) Income grew 7.4x’s ($1.37 T to $10.1 T) ’05 -’14 (9yrs) Debt grew 2.4x’s or 240% ($7.4 T à $17.5 T) Unfunded liability 1.5x’s ($45 T to $69 T) GDP grew 1.4x’s or 140% ($12.4 T à $17 T) Income grew 1.4x’s ($10.1 T to $14.2 T) Z1 Household net worth grew 1.25x’s from $65 T to $82 T… http://www.bea.gov/newsreleases/national/pi/2014/pdf/pi0614_hist.pdf If the trends continue as they have since ’75, Treasury debt will grow 2x’s to 3x’s faster than GDP and income to service it…and the results would look as follows in 10 years: ’15 – ‘24 Treasury debt will grow est. ($17.5 T à $34 T to $44 T) GDP* will grow est. ($17 T à $22 T to $24 T)…income growth likely similar to GDP. * = I won’t even get into the overstatement of economic activity within the GDP #’s…just noting there is an overstatement of activity. So, while the Treasury debt growth rate skyrocketed from ’05 onward and the GDP growth slumped to its lowest since WWII, the unfunded liabilities grew even faster. Drumroll Please – Total Debt/Obligation growth vs. Debt Let’s go back to our ’75-’14 numbers and recalculate based on total Federal Government debt and liabilities: ’75-’14 debt (total government obligations) grew 33x’s 168x’s ($533 B à $17.5 T $89.5 T*) GDP grew 10x’s ($1.7 T to 17 T) Household net worth grew 15x’s ($5.4 to $82 T) while median household income grew 3x’s (est. $17k to $51k) while Real median household income grew 1.13x’s ($45k to $51k) *$89.5 T is the 2012 fiscal year end budget number, the 2013 fiscal year end # is likely to be approx. $5+ T higher, or debt grew 180x’s in 40 years vs. 10x’s for GDP / income….but seriously, does it really matter if debt grew at 10x’s, 16x’s, or 18x’s the pace of the underlying economy…all are uncollectable in taxes and unpayable except for QE or like programs. Why Can’t We Pay Off the Debt or Even Pay it Down? Take 2013 Federal Government tax revenue and spending as an illustration: $16.8 Trillion US economy (gross domestic product) $2.8 Trillion Federal tax revenue (taxes in) $3.5 Trillion Federal budget (spending out) -$680 Billion budget deficit (bridged by sale of Treasury debt spent now and counted as a portion of GDP) = $550 Billion economic growth?!? PLEASE NOTE – The ’13 GDP “growth” is less than the new debt (although the new debt spent is counted as new GDP) and the interest on the debt will need be serviced indefinitely. Why Cutting Benefits or Raising Taxes Lead to the Same Outcome While many try to dismiss these liabilities assuming we will continue to only service the debt rather than repay principal and interest; assuming we turn down the SS benefits via means testing, delaying benefits, reducing benefits; assuming we will bend the curve regarding Medicaid, Medicare, and Welfare benefits; assuming we will avoid further far flung wars and military obligations and stop feeding the military industrial complex; assuming no future economic slowdowns or recessions or worse; assuming a cheap and plentiful energy source is found to transition away from oil. But all these debts and liabilities are someone else’s future income they are now reliant upon; someone’s future addition to GDP. If these debts or obligations are curtailed or cancelled to reduce the debt or future liability, the future GDP slows in kind and tax revenues lag and budget deficits grow. Of course I do advocate these debts and liabilities cannot be maintained, but austerity (real austerity) is painful and would set the stage for a likely depression where the nation (world) proceeds with a bankruptcy determining what and how much of the promises made can be honored until wants, needs, and means are all brought back in alignment. So What’s it All Mean? Let’s get real, austerity is not going to happen and we aren’t going to balance the budget. We’re never going to pay off our debt or even pay it down. We’re rapidly moving from 4 taxpayers for every social program recipient to 2 per recipient. And ultimately, now we aren’t even really paying the interest on the debt…the Federal Reserve is just printing money (QE1, 2, 3) to buy the bonds and push the interest payments ever lower masking the true cost of these programs. Of course, interest rates (Federal Funds Rates) have edged lower since 1980’s 20% to todays 0% to make the massive increases in debt serviceable. Politicians and central bankers have shown they are going to print money to fulfill the obligations despite the declining purchasing power of the money. It’s not so much science as religion. A belief that infinite growth will be reality through unknown technologies, innovations, and solutions that in four decades have gone unsolved but somehow in the next decade will not only be solved but implemented. Because it is credit that is undertaken with a belief that the obligation will ultimately allow for future repayment of principal, interest, and a profit. But without the growth, the debt cannot be repaid nor liabilities honored. Without the ability to repay the principal, the debts just grow and must have ever lower rates to avoid interest Armageddon. This knowledge creates moral hazard that ever more debt will be rewarded with ever lower rates and thus ever greater system leverage. The politicians and central bankers will continue stepping in to avoid over indebted individuals, corporations, crony capitalists, cities, states, federal government from failing. It is a fait accompli that a hyper-monetization has/is/will take place…and now it is simply a matter of time until the globe either becomes saturated with dollars and/or reject the currency (so much to discuss here on likely demotion or replacement of the Petro-dollar and more…) . Because the earthquake (unpayable debt and obligations) has already taken place, now we are simply waiting for the tsunami. Forget debt repayment or debt reduction…forget means testing or “bending cost curves”…we’re approaching the moment where even at historically low rates we will not be able to pay the interest and maintain government spending…without printing currency as this generation of American’s have never seen. Bad governance and bad policy coupled with disinterested citizens will demand it. Epilogue – So Where Do you put your Money? No one can really know what will have value in this politicized crony capitalistic system as the hyper-monetization ramps up…all I can suggest is to hedge your bets with some physical precious metals, some minimal leveraged real estate, but also stocks and bonds and even some cash…because although there are natural forces in favor of the tangible, finite goods…there are also equally determined forces bound to push bond yields down, real estate and particularly stock prices up. Unfortunately, the more you know, the more you know you don’t know…invest and live accordingly. Average: 4.73913 Your rating:None Average:4.7 (23votes)
The Fed's Broken Piping In One Chart: JPM "Purchasing Dry Powder" Rises To All Time High $550 Billlion Submitted by Tyler Durden on 10/11/2013 12:54 -0400 Central Banks Federal Reserve Jamie Dimon Lehman M2 Money Velocity None Prop Trading Purchasing Power WaMu in Share 1 One of the less followed data series in JPM's quarterly report is the amount of deposits and loans on the bank's balance sheet. The reason for this is because as those who recall the CIO fiasco, the bank's excess deposits over loans is precisely the dry powder the bank uses as collateral to fund risk trades that do not require actual capital allocation but merely an initial (and maintenance) margin. And it was precisely the nearly $423 billion in "excess deposits" as of June 30, 2012, that led the London office of the CIO to put on the massive risk bets in IG9 and various other non-hedging trades, that led to the $6+ billion loss, and to the current series of unprecedented legal claims against the bank. So what is JPM's prop trading capacity as of September 30? As of the most recent data , which saw JPM's deposit holdings surge by the most ever (except of course for the inorganic "acquisition" of WaMu in Q3 2008) or $78 billion in just one quarter, while loans continued to be flat, we now knows that JPM had marginable power to chase risk higher to the tune of $552 billion, an all time record in excess deposits over loans! What is more troubling in the chart above is that loans are virtually unchanged for five years now, with the total notional in loans outstanding (blue line) at $729 lower than it was in the quarter when Lehman filed when it hit a record $761 billion and has not been surpassed yet. This, as frequent readers know, is our definition of " all that is broken with the US banking system ", because due to QE, whose reserves end up on JPM's balance sheet as deposits, the bank is then incentivized to gamble with this prop trading dry powder instead of lending the money out as loans, whether mortgage, consumer or any other kind : this is money that never enters broad circulation and which will never boost money velocity and thus generate the Fed's much needed inflation (instead merely inflating asset prices to all time highs quarter after quarter). Never, that is, until the Fed finally steps away from QE and banks are forced to reallocate this margined cash into productive investments (when rates rise from 0%), which then and only then, will finally lead to the much delayed inflationary spike. Paradoxically, as long as QE continues, banks remain resolved to never lend out any money as can be conclusively seen on the chart above. And since there are still those who don't understand the reserve-to-deposits pathway, here - as shown yesterday - is the IMF's Manmohan Singh with the simplest explanation we have encountered to date: When central banks buy securities, one of the immediate effects is to increase bank deposits, which adds to M2 (in the U.S., practically the Fed has bought from nonbanks, not banks). Whether banks maintain those added deposits as deposits, or convert them into other liabilities (or, by calling in loans, reducing or moderating the growth of their balance sheets), is an open question . Curiously, despite possessing a record $550 billion in repoed "purchasing power", the CIO unit has been strangely mute in the past few quarters, generating -$232MM in revenue in the past quarter, and losing money for three of the last four, shown on the chart below where the Q2 London Whale loss sticks out like a sore thumb. So if not trying to corner the IG9 market this time, perhaps Jamie Dimon can elaborate just which marginable and highly leveraged securities he now has on his books courtesy of the $550 billion in freely allocatable collateral courtesy of none other than the Federal Reserve. Average: 4.88889 Your rating: None Average: 4.9 ( 9 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 7265 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: US Banks As Broken As Ever: JPM Excess Deposits Rise To New Record; Loans At Pre-Lehman Levels Peeking Behind JPM's Voodoo Numbers, As Jamie Dimon Confirms Borrowers Live Mortgage Free For 14 Months Before Foreclosure JPM Earnings Beat Courtesy Of $0.28 Benefit From Loan Loss Reserves Despite First Increase In Nonperforming Loans In Years JPM Securities Converts From Corporation To LLC, As Chris Whalen Discusses Why Prop May Contribute Far More To JPM's Top Line How The US Just Added $550 Billion In "Growth": Full GDP Chart Pre- And Post-Revision
The Definitive Rich Vs Poor Chart: "The Rich Hold Assets, The Poor Have Debt" Submitted by Tyler Durden on 10/04/2013 12:04 -0400 Monetization Purchasing Power in Share 6 This chart from Citi's Matt King pretty much sums it up (and contrary to what Magic Money Tree growers will tell you, debt is not wealth). Why is it important? Simple - contrary to the Fed's flawed DSGE models, it is the poor who are more likely to consume. And logically with their purchasing power being funneled to the rich with every $85 billion in monthly debt monetization, they purchase less and less. As the slow but steady contraction in the economy over the past five years has proven beyond a reasonable doubt. But hey: at least Hamptons' houses have never been more expensive and the Russell2000 keeps on hitting daily all time highs. Thank you "wealth effect." Average: 5 Your rating: None Average: 5 ( 24 votes) !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- - advertisements - Login or register to post comments 25925 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: Gold Manipulation, Part 3: "The Systemic Risk Of Gold Manipulation" Druckenmiller Blasts "The Biggest Redistribution Of Wealth From The Poor To The Rich Ever" Europe: The Last Great Potemkin Village Where "The Rich Get Richer, And Poor Get Poorer" The Rich Have Never Been Happier (Relative To The Poor) The Seeds For An Even Bigger Crisis Have Been Sown
The Financial System Doesn't Just Enable Theft, It Is Theft Submitted by Tyler Durden on 07/31/2013 16:49 -0400 CPI fixed Gross Domestic Product Purchasing Power Quantitative Easing Submitted by Charles Hugh-Smith of OfTwoMinds blog , It's not just inflation that is theft. It is painfully self-evident that our financial system doesn't just enable theft, it is theft by nature and design. If you doubt this, please follow along. Inflation is theft, but we accept inflation because we've been persuaded it benefits us. Here's the basic story: our financial system creates new credit money (i.e. debt) in quantities that are only limited by the appetites of borrowers and the value of assets they buy with freshly borrowed money. If this expansion of credit money exceeds the actual growth rate of the real economy, inflation results. Since our economy is ultimately based on expanding debt in every sector (government, corporations, households), inflation is a good thing because it enables borrowers to pay back old debt with cheaper money. For example, if J.Q. Citizen makes $50,000 a year and owes $50,000 on his fixed-rate mortgage, what happens if inflation jumps 100%? Assuming J.Q.'s wages rise along with prices, his earnings jump to $100,000 while mortgage remains at $50,000. Though prices of everything else have also doubled, the debt remains fixed, making it much easier for J.Q. to service the mortgage. Before inflation, it might have taken ten days of earnings to make enough money to pay the mortgage payment; after inflation, it only takes five days' wages to make the payment. This apparent benefit evaporates if wages do not rise along with the price of goods and services. If earned income stagnates during inflation, the purchasing power of wages declines. If it took two days' earning to pay for groceries and gasoline before inflation, now it takes three days' wages. The wage earner is measurably poorer thanks to inflation. How much poorer? Take a look: (chart by Doug Short ) Using the governments' flawed consumer price index (CPI), household income has declined over 7%. But this understates inflation in a number of ways; as several readers pointed out after reading What's Up with Inflation? (July 25, 2013), such calculations of inflation do not track the reduction in package contents that mask the fact that our dollars are purchasing less goods even though the package remains unchanged: the cereal box is the same size as last year but the quantity of corn flakes has declined. There are other reasons to be skeptical of official measures of inflation. As I note in the above link, how can healthcare be 18% of the GDP but only 7% in the CPI's weighting scheme? The obvious fact is that inflation is stealing purchasing power from every household with earned income, for the simple reason that wages are not rising in tandem with prices. In 19th century Britain, the price of bread remained stable for most of the century: the price of a loaf of bread in 1890 was the same as it was in 1850. Any increase in wages in a no-inflation environment means the wage earner's purchasing power has increased. In an inflationary financial system, as earned income stagnates, everyone without access to credit and leverage loses purchasing power, i.e. becomes poorer. The advent of unlimited credit and leverage enabled new and less overt forms of expropriation, otherwise known as theft. Let's say that two traders enter a great trading fair seeking to buy goods to sell elsewhere for a fat profit. That is, after all, the purpose of the capitalist fair: to enable buyers and sellers to mutually profit. One trader uses the time-honored method of letters of credit: he buys and sells during the fair by exchanging letters of credit which are settled at the end of the fair via payment of balances due with gold or silver. Ultimately, the trader's purchases are limited by the amount of silver/gold (i.e. real money) he possesses. Trader #2 has access to leveraged credit, meaning that he has borrowed 100 units of gold with a mere 10 units of gold and the promise of paying interest on the borrowed 90 units. This trader can buy 10 times more goods than Trader #1, and thus reap 10 times more profit. After paying 10% in interest, Trader #2 reaps 9 times more profit based on the credit-funded expansion of his claim on resources. The issuance of paper money is an even more astonishing shortcut claim on real-world resources. Trader #3 brings a printing press to the fair and prints off "money" which is a claim on resources. The paper is intrinsically worthless, but if sellers at the fair accept its claimed value, then they exchange real resources for this claim of value. Needless to say, those with access to leveraged credit and the issuance of fiat money have the power to make claims on resources without actually having produced anything of value or earned tangible forms of wealth. Those with political power and wealth naturally have monopolies on the issuance of credit and paper money, as these enable the acquisition of real wealth without actually having to produce or earn the wealth. This system is intrinsically unstable, as the financial claims of credit and fiat money on limited real-world resources and wealth eventually exceed real-world resources, and the system of claims collapses in a heap. Though this end-state can easily be predicted, the actual moment of collapse is not predictable, as those holding power have a vast menu of ways to mask their expropriation and keep the game going. For example, quantitative easing (QE), which is ultimately the issuance of unlimited credit and leverage to the chosen few at the top of the heap of financial thievery: Are We Investing or Are We Just Dodging Thieves? (July 29, 2013). "The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists." Ernest Hemingway, The Next War Average: 4.863635 Your rating: None Average: 4.9 ( 22 votes) !-- -- !-- - advertisements - .AR_2 .ob_empty {display: none;} .AR_2 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_2 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_2 {float: left;width:50%} .AR_2 li {list-style: none outside none !important;font-size: 10px;padding-bottom: 10px;line-height: 13px;margin:0;} .AR_2 .ob_org_header {color: #000000;text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .rec-link {color: #565656;text-decoration: none;font-size: 12px;} .AR_3 .rec-link:hover {color: #565656;text-decoration: underline;font-size: 12px;} .AR_3 .rec-src-link {font-size: 12px;} .AR_3 li {padding-bottom: 10px;list-style: none outside none !important;font-size: 10px;line-height: 13px;margin:0;} .AR_3 .ob_dual_left, .AR_3 .ob_dual_right {float: left;padding-bottom: 0;padding-left: 2%;padding-top: 0;} .AR_3 .ob_org_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} .AR_3 .ob_ads_header {color: #000000; text-decoration:bold; margin-left: 0px; font-size:14px;line-height:35px;} -- Login or register to post comments 12323 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: "Off With Our Heads!": Bil Gross On How "Future Generations Pay The Price For Their Parents’ Mindless Thrusting" Guest Post: Wealth Inequality – Spitznagel Gets It, Krugman Doesn’t Bill Gross Asks The $64,000 Question: "Who Will Buy Treasuries When The Fed Doesn’t?" 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What's Up With Inflation? Submitted by Tyler Durden on 07/25/2013 12:02 -0400 Bureau of Labor Statistics CPI ETC Gross Domestic Product Mars Medicare None Personal Consumption Purchasing Power Reality Submitted by Charles Hugh-Smith of OfTwoMinds blog , Purchasing power and exposure to real costs are more realistic measures of inflation than the consumer price index. That the official rate of inflation doesn't reflect reality is easily intuited by anyone paying college tuition and healthcare out of pocket. The debate over the accuracy of the official consumer price index (CPI) and personal consumption expenditures (PCE--the so-called core rate of inflation) has raged for years, with no resolution in sight. The CPI calculates inflation based on the prices of a basket of goods and services that are adjusted by hedonics, i.e. improvements that are not reflected in the price of the goods. Housing costs are largely calculated on equivalent rent, i.e. what homeowners reckon they would pay if they were renting their house. The CPI attempts to measure the relative weight of each component: Many argue that these weightings skew the CPI lower, as do hedonic adjustments. The motivation for this skew is transparent: since the government increases Social Security benefits and Federal employees' pay annually to keep up with inflation (the cost of living allowance or COLA), a low rate of inflation keeps these increases modest. Over time, an artificially low CPI/COLA lowers government expenditures (and deficits, provided tax revenues rise at rates above official inflation). Those claiming the weighting is accurate face a blizzard of legitimate questions. For example, if healthcare is 18% of the U.S. GDP, i.e. 18 cents of every dollar goes to healthcare, then how can a mere 7% wedge of the CPI devoted to healthcare be remotely accurate? Those claiming that the CPI is more or less accurate point to the inflation rate posted by The Billion Prices Project @MIT as real-world evidence. The Billion Prices Project collects real-world prices from online retailers for thousands of goods. The Project's rate of annual inflation closely tracks the official CPI, though recently it has diverged, climbing above 2.5% annually while the CPI is below 1.5%. The fatal flaw in The Billion Prices Project is that it does not track the real-world cost of big-ticket services such as healthcare or tuition that dominate household budgets for those who have to pay for these services. Those claiming the CPI grossly underestimates inflation often compare the current CPI with the CPI methodology of the 1980s. Using the old methodology, inflation is more like 9% rather than 1.5%. Critics of this comparison claim the old methodologies were flawed and the new method is statistically superior. Another way to track inflation is via households' actual spending as reflected in their budgets. Intuit collects anonymous spending data from 2 million users of Mint.com and posts the results: Presenting Inflation... the rise in expenses 2011 - 2013 (Zero Hedge). This data suggests the cost of daycare, healthcare insurance, kids' activities and tuition have skyrocketed in the past few years, making a mockery of the official annual inflation rate of 1.5% to 2%. Chartist Doug Short recently published this graph plotting college tuition, medical care and the cost of a new car. According to the Bureau of Labor Statistics Inflation Calculator , $1 in 1980 = $2.83 in 2013. For example, the average cost of a new car in 1980 was $7,200, so the inflation-adjusted price in 2013 would be $20,376. The actual average price today is around $31,000, so after adjusting for inflation the current average price of a new car is higher than in 1980. This chart reflects the real increases in cost: In my analysis, the debate over inflation misses two key points. What really matters is not the rate of inflation, which can be endlessly debated, but the purchasing power of earned income, i.e. wages. Instead of fruitlessly arguing over hedonic adjustments and the weighting of components, we should ask: how many hours of labor (at the average hourly rate for full-time workers) does it take to buy a loaf of bread, a new car, a gallon of gasoline, a new TV, a new house, college tuition and fees, etc., and compare that to how many hours of labor it took to buy all those goods and services in the past. This methodology eliminates hedonics (i.e. the computer you buy today is much faster than the one you bought 10 years ago), as this adjustment plays no part in the actual costs of manufacture or the consumer's decision: we don't have a choice to buy a computer with 1990-era specs, so the hedonic adjustment is merely a tool for gaming the CPI. We should also recognize that the experience of inflation differs in each economic class. Government employees who pay a small percentage of their real healthcare insurance costs (or none at all) will experience little of the actual inflation in healthcare costs; it's the government agencies that are exposed to the real costs of healthcare insurance, which is why municipalities and agencies exposed to the skyrocketing costs of healthcare insurance are under financial pressure. A retiree is naturally focused on the out-of-pocket share of medication costs; the soaring cost of college tuition is so remote it might as well be occurring on Mars. Consider this real-world example. Let's say a household earning $60,000 a year (median household income is around $50,000) is suddenly exposed to the real cost of rising healthcare insurance. Maybe the primary wage earner lost the job that provided health coverage and now has to pay the full costs out of pocket as a contract worker. In any event, their healthcare insurance now costs $500 more per month than it did last year. (By happenstance, this is how much my own healthcare insurance costs have risen since 2008.) This $500/month means the household is paying $6,000 or 10% of its gross income more for the same coverage it received last year. The household's annual rate of inflation just from healthcare costs is 12%, since net income is closer to $50,000 and the $6,000 in extra spending isn't buying any new good or service. Let's say the household is paying $500 more per month for healthcare insurance than it was five years ago. That works out to an annual rate of 2.4% just from healthcare insurance inflation alone. Any other increases in costs would push that rate higher. In other words, those households with zero exposure to college tuition and the full costs of daycare, medical care and healthcare insurance may well experience low inflation, while the household paying the full costs of daycare, college tuition and healthcare insurance will experience soaring inflation. If we analyze inflation by purchasing power (which declines as real income stagnates and prices rise) and by exposure to real costs, we find the incomes of the upper 5% have typically outpaced CPI inflation, so the purchasing power of the high-income family has not suffered (unless of course they have no healthcare insurance and they have to pay the full real costs of a medical crisis. In that case they might be bankrupt.) Households that receive multiple government subsidies and direct payments have little exposure to healthcare, since they are covered by Medicaid, and modest exposure to housing if they receive Section 8 benefits. Retirees on Medicare also have limited exposure to the real-world costs of their care paid by the government. If we analyze inflation by these two metrics, we find the middle class is increasingly exposed to skyrocketing real-world prices. Pundits in the top 5% have the luxury of pontificating on the accuracy of the CPI while those protected by government subsidies and coverage have the luxury of wondering what all the fuss is about. Only those 100% exposed to the real costs experience the full fury of actual inflation. 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Top Economic Advisers Forecast World War Submitted by George Washington on 11/18/2012 11:40 -0500 Charles Nenner China Global Economy Goldman Sachs goldman sachs Jim Rogers Kyle Bass Kyle Bass Marc Faber Purchasing Power Trade War Trade Wars Kyle Bass writes : Trillions of dollars of debts will be restructured and millions of financially prudent savers will lose large percentages of their real purchasing power at exactly the wrong time in their lives. Again, the world will not end, but the social fabric of the profligate nations will be stretched and in some cases torn. Sadly, looking back through economic history, all too often war is the manifestation of simple economic entropy played to its logical conclusion . We believe that war is an inevitable consequence of the current global economic situation. Larry Edelson wrote an email to subscribers entitled “What the “Cycles of War” are saying for 2013″, which states: Since the 1980s, I’ve been studying the so-called “cycles of war” — the natural rhythms that predispose societies to descend into chaos, into hatred, into civil and even international war. I’m certainly not the first person to examine these very distinctive patterns in history. There have been many before me, notably, Raymond Wheeler, who published the most authoritative chronicle of war ever, covering a period of 2,600 years of data. However, there are very few people who are willing to even discuss the issue right now. And based on what I’m seeing, the implications could be absolutely huge in 2013. Former Goldman Sachs technical analyst Charles Nenner – who has made some big accurate calls, and counts major hedge funds, banks, brokerage houses, and high net worth individuals as clients – says there will be “a major war starting at the end of 2012 to 2013”, which will drive the Dow to 5,000. Why are these economic gurus forecasting war? For one thing, many influential people wrongly believe that war is good for the economy. In addition, Jim Rogers says : If it turns into a trade war, it is the most momentous thing of 2011,” said Rogers. “ Trade wars always lead to wars . Nobody wins trade wars, except general who end up fighting the physical wars when they happen. This is very dangerous. Rogers also explains : A continuation of bailouts in Europe could ultimately spark another world war, says international investor Jim Rogers. *** “Add debt, the situation gets worse, and eventually it just collapses. Then everybody is looking for scapegoats. Politicians blame foreigners, and we’re in World War II or World War whatever .” And Marc Faber says that the American government will start new wars in response to the economic crisis: “The next thing the government will do to distract the attention of the people on bad economic conditions is they’ll start a war somewhere.” “If the global economy doesn’t recover, usually people go to war.” Faber also believes the U.S., China and Russia may go to war over Mideast oil . Average: 4.72222 Your rating: None Average: 4.7 ( 18 votes) Tweet George Washington's blog Login or register to post comments 19314 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Japan Machinery Orders Implode As Global Economy Grinds To A Halt Marc Faber Jim Rogers On Our "Clueless, Ignorant, Dangerous" Leaders 150 Seconds Of "You Can't Handle The European Truth" From Kyle Bass Guest Post: Cashing In On Japan's Debt Conundrum? Kyle Bass: Fallacies Such As MMT Are "Leading The Sheep To Slaughter" And "We Believe War Is Inevitable"
How to increase home prices in the face of stagnant household incomes. Submitted by drhousingbubble on 11/02/2012 13:20 -0400 Federal Reserve fixed Housing Market Las Vegas Real estate Underwater Homeowners It is easy to get swept into the momentum of the housing market. The Federal Reserve has managed to push interest rates to historically low levels creating additional buying power for US households. As we enter the slower fall and winter selling season, there is unlikely to be any major changes until 2013 as the election year concludes. We do face major challenges ahead. This current momentum in housing isn’t being caused by flush state budgets or solid wage growth. No, this is being caused by low inventory, big investors crowding out households, and a concerted effort to push mortgage rates lower. If you simply follow the herd, you would think that prices are now near peak levels again (or soon will be) and household incomes are hitting record levels. Let us examine where things stand today deep in 2012. California and nation It is clear that 2012 has pushed home prices higher overall. This has occurred both on a nationwide basis and also for California. Yet California home prices are far away from that peak reached in 2006. However, some mid-tier markets never really corrected and we are now seeing flippers selling homes for prices that are near peak levels. The argument is that overall things corrected but then this is applied to niche areas where prices are now back near peak levels (at least with the current prices being seen with some flips). The low inventory and the narrative that the bottom is here is causing a flood of people to buy especially with low interest rates. In lower priced areas, a good portion of the market is being over bought by Wall Street and big money investors . This is still anything but a normal market. US home prices It is evident that US home prices have hit a new trend in 2012. Prices are moving up. Yet the driving force behind this is low interest rates, low inventory, and the high amount of investors buying up properties. Keep in mind that low interest rates and especially investment buying is finite. This money will dry up. In housing what you want to be seeing is sustainable appreciation in combination with rising household incomes and a healthy employment market. Those should be the driving forces instead of the Fed committing to another $500 billion of MBS purchases via QE3. Median household income This is the one argument that is always missing from the home boom 2.0 narrative. Is it possible to have sustained rising home prices when household incomes are falling or stagnant? It isn’t and the Fed and banks are fully aware of this. So the Federal Reserve has decided to push affordability via low rates as far as they can. It is a win-win for the financial industry. They can unload properties at much higher prices courtesy of the low interest rate. Some people think this comes at no expense. It does. Carrying a negative interest rate is pummeling those on fixed incomes and also, with one out of seven Americans on food stamps many are seeing those monthly deposits not going so far when they go shopping for food. Ultimately the cost is being shouldered by those who can least afford it. Ironically this flood of investors has also pushed rental prices higher as well creating a double-whammy. LA Tiered home prices Probably one of the better measures of price is the Case Shiller Index. This looks at repeat home sales so we are measuring apples to apples. The median price is also important but it is prone to changes with the mix of sales. Right now, the big drop in foreclosure resales is causing prices to surge. Yet it is important for trend shifts and also because the media and the public rely on this for their purchasing behavior. As you can see from the chart above, each tier in Los Angeles County has shifted up a bit. We are far from peak prices and given the mania in certain areas , you would think this would be rising much faster. You are not missing anything. For those thinking they are missing something you might as well go to Las Vegas and try your hand at the tables. There is a mini mania in prime areas of California happening right now. As you see from the above charts, household incomes simply do not justify this movement. The momentum right now is in favor of higher prices but for fleeting reasons. Home sales and trends If things are so hot, why are home sales not running at a higher pace? The 12 month moving average is running a little bit higher than 35,000. This is the pace we’ve had since 2009 when the market was flying off a cliff. From 1998 to 2007 the moving average was above 45,000 sales per month. So what really is going on then with prices rising so fast overall? The explanation comes from a few items: -1. Inventory is low (we even hear complaints from real estate agents about this) -2. Low rates increased leverage in the face of falling incomes (refer to earlier chart) -3. From the bottom everything is higher (the increase is big from the bottom but put into context, still has us way below the 12 month moving average from over a decade ago) -4. You are competing with big money investors This is why sales are not exactly off the charts given all the favorable elements that are being perceived. For this market to continue on this path, nothing from the above can be removed. Keep in mind that with the “fiscal cliff” some items on the table include the mortgage interest deduction cap. This will hit California hard especially in these mania locations. There is no reason for the nation to allow mortgage interest deduction above a certain level (i.e., $500,000 or capped at certain income levels). “( LA Times ) But since only about one-third of taxpayers itemize on their returns — the rest opt for the standard deductions — who's really getting these tax savings? As you might guess, people who have higher incomes are more likely to itemize and claim mortgage interest and other housing deductions. Citing the latest data on the subject, published by the IRS in 2009, Kolko found that only 15% of households with incomes below $50,000 took itemized deductions, while 65% of those with incomes between $50,000 and $200,000 did. Just about everybody with incomes above $200,000 — 96% — itemized on their returns.” And guess who was number one on the list? “California ranked No. 1 in the size of home mortgage deductions, with $18,876 on average. Next came Hawaii ($16,730), the District of Columbia ($16,720), Nevada ($15,502), Washington ($14,262), Maryland ($14,162) and Virginia ($14,094).” There is little reason for the mortgage interest deduction to allow for such a large write-off especially when the typical US home price ranges from $150,000 to $170,000. We are in massive debt and for the nation to subsidize expensive California housing does not make sense. Underwater Even with home prices moving up we still have over 9,000,000 underwater homeowners. This is a sizeable number. The above chart highlights underwater mortgages at various increases or decreases in home prices. The distressed inventory is still large but is decreasing. The thing with the housing market is that it largely isn’t a market anymore. So with all of these market incentives and the fiscal situation looming next year, there has to be a catch. We have yet to see household incomes increase. The economy is still on shaky ground. Yet in many pocket markets you have people ignoring the macro economy and just running around their little enclaves with blinders on. Hot money is flowing in. There is no doubt about that. Yet it is not sustainable. Since election years usually produce very little change, we’ll have to wait until 2013 to see if this trend actually has some real teeth. Do you think household incomes are important when it comes to home price? Did You Enjoy The Post? Subscribe to Dr. Housing Bubble’s Blog to get updated housing commentary, analysis, and information. Average: 4 Your rating: None Average: 4 ( 6 votes) Tweet drhousingbubble's blog Login or register to post comments 4553 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Rising home values in the face of stagnant incomes A theory on the bounce and slog housing market. A modern day feudal system for real estate The resurgence of the low down payment market The Canadian Real Estate Bubble?
Guggenheim On Gold And The 'Unsustainable' Return To Bretton Woods Submitted by Tyler Durden on 10/10/2012 18:18 -0400 Central Banks Federal Reserve Foreign Central Banks France Great Depression Gross Domestic Product Monetary Base Monetary Policy Money Supply None OPEC Precious Metals Purchasing Power Quantitative Easing Reserve Currency Trade Deficit Via Scott Minerd of Guggenheim Partners , Bretton Woods is a resort in the mountains of New Hampshire that was made famous by a series of meetings of world leaders and economists in 1944. Nine months before the last of Hitler’s V-2 rockets struck Britain, 730 delegates from the 44 Allied Nations congregated in Bretton Woods to create a new world order, including a monetary system that could resolve the festering economic consequences of the First World War and the Great Depression. Under the Bretton Woods Agreement, the world’s currencies would be pegged to the U.S. dollar and central banks would be able to exchange dollars for gold at a set price of $35 per ounce. It was this arrangement that firmly established the U.S. dollar as the global reserve currency. The system worked relatively well for almost three decades (1944-1971). During that time, Bretton Woods’ member states achieved increasing levels of trade, economic cooperation, and initially, a period of relative price stability. The trouble with the system was that global central banks had pegged their currencies at low levels to support exports to the U.S. This led to the accumulation of massive dollar reserves in the hands of foreign central banks. These dollars were used to buy interest-bearing U.S. Treasuries. The structural imbalance, which resulted in ever growing dollars reserves, created problems that would ultimately compromise the very existence of Bretton Woods. Today, global central banks are once again managing the exchange values of their currencies relative to the dollar to ensure export competitiveness. Just as pressure mounted as a result of the accumulation of large Treasury reserves by foreign central banks under Bretton Woods, today, ever-expanding dollar-denominated reserves on central bank balance sheets around the world threaten global price stability and even dollar hegemony. Though a reversal of this unsustainable pattern is not imminent, the ultimate consequences could be even more severe than the precedent set 41 years ago. By understanding the demise of Bretton Woods, we gain a better handle on how today’s global monetary arrangement may result in a period of relative price stability in the short-run followed by a rapid depreciation in the purchasing power of currencies on a global scale . An historical perspective provides the framework to better understand the current monetary system and the impact these policies have on investment portfolios. The Golden Years of Bretton Woods At the outset of Bretton Woods, the value of the United States’ gold reserves relative to the monetary base, known as the gold coverage ratio, was approximately 75%. This helped to support the dollar as a stable global reserve currency. By 1971, the issuance of new dollars and dollar-for-gold redemptions had reduced the U.S. dollar’s gold coverage ratio to 18%. The consensus view during the early years of Bretton Woods was that the dollar was as good as gold . Gold has no yield so central banks held interest-bearing Treasuries on the assumption that they could always be converted to gold at a later time. By the early 1960s, there was widespread recognition that the U.S. could never fulfill its commitment to redeem all outstanding dollars for gold. Despite this disturbing fact, central banks did not call the Fed’s bluff by selling their dollar reserves. They had become hostage to the system. By the end of the decade, the problem had intensified to the point that if any central bank attempted to convert its dollars to gold, its domestic currency would rapidly appreciate above the levels that were pegged under Bretton Woods . This would lead to severe economic slowdowns for any country who challenged the U.S. Throughout the 1960s, foreign central banks implicitly imported inflation as a result of maintaining the exchange value of their currencies at the artificially low rates set in 1944. The overvalued dollar led to trade deficits versus a sizable trade surplus for the United States. Because of the undervaluation of non-U.S. currencies, Bretton Woods member states were forced to expand their money supplies at rates that compromised price stability. As foreign exporters converted dollars back to their local currencies, the dollar reserves on central bank balance sheets continued to grow. This surplus of dollars held by central banks, and subsequently invested in Treasury securities, reduced the United States’ cost of borrowing and allowed the country to consume beyond its means. Valéry Giscard d’Estaing, then finance minister of France referred to the situation as “America’s exorbitant privilege,” but he was only half right. As Yale economist Robert Triffin noted in 1959, by taking on the responsibility of supplying money to the rest of the world, the U.S. forfeited a significant amount of control over its domestic monetary policy. The End of the Golden Years When Triffin introduced his theory to the world, he accurately predicted the collapse of Bretton Woods and the end of an era of U.S. trade surpluses. Triffin told Congress that, at some point, foreign central banks would become saturated with Treasury securities and seek to redeem them for gold. However, because this would appreciate their currencies and slow growth, it was difficult to envision a set of circumstances that would lead foreign central banks to stop accumulating more dollars. By the middle of the 1960s, the U.S. was escalating the war in Southeast Asia while expanding social welfare programs under Lyndon Johnson’s Great Society. As the U.S. pursued a policy of both ‘guns and butter,’ its trading partners questioned the country’s willingness to restore fiscal balance. Over time, the U.S. trade surplus deteriorated as America imported more than it exported. Further, the increasing trade deficit in the U.S. accelerated the accumulation of dollar reserves around the world. As a result of the massive growth in reserves, the Bretton Woods nations saw domestic inflation rise by an average of 5.2% during the 1960s, relative to U.S. inflation, which was 2.9%. European countries began to consider that the price of dollar-denominated inputs such as oil would fall dramatically if their currencies were revalued upward. By abandoning Bretton Woods, they could reduce their domestic inflation by reasserting control over their domestic money supply. However, the possibility of an exit from Bretton Woods had not been contemplated in the original 1944 plan. How would member states leave Bretton Woods? The answer could be found in Trffin’s prediction. Forced to swap dollars for gold, the U.S. would have to admit that it could no longer keep its pledge to exchange gold for $35 per ounce. Between Bretton Woods’ establishment in 1944 and its demise in August 1971, the U.S. exported almost half of its gold reserves. In the 12 months leading up to the end of Bretton Woods, the Fed lost nearly 15% of its total gold reserves; a rate at which the U.S. would have depleted all of its reserves in a short time. This led then-President Richard Nixon to abruptly end the dollar’s gold convertibility by ‘closing the gold window.’ While the United States’ trading partners immediately reaped the benefits of reduced inflation and cheaper imports, the end of gold convertibility for the dollar would set in motion a decade of subpar growth and high inflation. In the early 1970s, members of the Organization of the Petroleum Exporting Countries (OPEC) saw the purchasing power of their dollar-denominated oil receipts rapidly erode. They seized the opportunity to raise prices. Between 1973 and 1980, oil prices would rise by more than 1,000%. As a result, during the 1970s, countries that had pursued relatively weaker currencies under Bretton Woods began to seek relatively stronger exchange values to constrain their energy costs. The resulting fall in demand for the dollar led to a drastic reduction in its purchasing power. Bretton Woods II: The Sequel The early success of Bretton Woods, which relied upon weak currencies to successfully promote exports looks surprisingly similar to the policies being practiced by central banks around the world today. Some have referred to the current policies in foreign exchange markets as Bretton Woods II. Although not officially acknowledged, central banks are once again tacitly pegging their currencies to the dollar. As the U.S. is expanding its monetary base through quantitative easing (QE), other countries have few options but to join this race to the bottom. This situation is as unsustainable today as it was in the 1960s. (For a more in-depth discussion, read one of my previous commentaries, The Return of Beggar-Thy-Neighbor .) Once global growth begins to accelerate and capacity utilization increases, economic bottlenecks will cause the price of inputs, such as energy, to rise. There will then be another inflection point when countries will realize that by allowing their currencies to appreciate, reduced import prices will spur productivity and domestic growth. This will happen when it becomes apparent that the savings resulting from lower input prices exceeds the export losses associated with a stronger currency. Though the timing of this event is difficult to forecast, its occurrence will likely cause Bretton Woods II to collapse. Investment Implications: A Green Light for Gold Gold was an important component of the Bretton Woods system. As a monetary anchor, it provided stability for the dollar as a global reserve currency. With the demise of gold convertibility under Bretton Woods, global price stability began to unravel. After being depegged from its official price of $35 per ounce in 1971, gold rose by more than 2,000% over the next 10 years. Investors migrate to gold when currencies no longer function as good stores of value. The U.S. gold coverage ratio, which measures the amount of gold on deposit at the Federal Reserve against the total money supply, is currently at an all-time low of 17%. This ratio tends to move dramatically and falls during periods of disinflation or relative price stability. The historical average for the gold coverage ratio is roughly 40%, meaning that the current price of gold would have to more than double to reach the average. The gold coverage ratio has risen above 100% twice during the twentieth century. Were this to happen today, the value of an ounce of gold would exceed $12,000. The possibility of an upward revaluation of the official price of gold should not be minimized. Although I do not anticipate or advocate a return to the gold standard, an upward revaluation of gold by one of more central banks is possible. If the Federal Reserve, for instance, announced that it stood ready to purchase gold at $10,000 per ounce, the gold-coverage ratio of the dollar would return to 75%, roughly where it stood at the beginning of Bretton Woods. This could restore confidence in the value of the dollar if its ultimate role as a reserve currency were to be challenged. Gold’s industrial use only represents .03% of global GDP. Therefore, its upward revaluation would not cause a significant economic shock associated with rising input prices. Likewise, a higher price would probably not affect the behavior of the world’s largest holders, which are central banks and sovereign wealth funds. Prescient investors should consider making allocations to gold and other precious metals as a hedge against the erosion of purchasing power of the dollar as well as for the potential upside from positive market price appreciation or a possible intervention at the policy level. Despite the sizable appreciation in gold prices in the last decade, gold is far from overvalued. This makes gold a low-risk investment and leads me to believe that gold will never again trade below $1,600 an ounce. The Precarious Balance Continues Almost 70 years later, the global monetary system is still living in the long shadow of Bretton Woods. Triffin’s views are as relevant today as they were when they were first published more than half a century ago. The current paradox in the global monetary system is as unsustainable as it was under the original Bretton Woods Agreement. The exact timing of an inflection point for Bretton Woods II remains unclear, and although it is not imminent, its eventual occurrence is virtually certain. As was the case in the 1960s, a reversal of the acquisition of Treasuries by foreign central banks will cause a major shift in global capital flows and insecurity about the value of dollar-based assets, particularly Treasuries. The most likely outcome will be renewed support for precious metal, which functions as a store of value and a hedge against currency depreciation. In contrast to the 1960s, bullion is free to float at market prices and gold markets have already begun discounting a future set of circumstances which is much different from today. The time to buy insurance on the end of Bretton Woods II is before the inevitable occurs. None of this should come as a surprise given the unorthodox growth of central bank balance sheets around the world. The collapse of Bretton Woods in 1971 caused a decade of economic malaise and negative real returns for financial assets. Can anyone afford to wait to find out whether this time will be different? Full pdf here Average: 4.578945 Your rating: None Average: 4.6 ( 19 votes) Tweet Login or register to post comments 8268 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Guest Post: The Gold Standard Debate Revisited On Gold As A Hyperinflation Put Gold Report 2012: Erste's Comprehensive Summary Of The Gold Space And Where The Yellow Metal Is Going Guest Post: Gold And Triffin's Dilemma The Seeds For An Even Bigger Crisis Have Been Sown
Guest Post: When Quantitative Easing Finally Fails Submitted by Tyler Durden on 08/01/2012 16:49 -0400 Bond Census Bureau Central Banks Double Dip European Central Bank Great Depression Gross Domestic Product Guest Post Las Vegas New York Times Purchasing Power Quantitative Easing Real estate Recession recovery Sovereign Debt State Tax Revenues Unemployment United Kingdom Submitted by Gregor MacDonald of Peak Prosperity , While markets await details on the next round of quantitative easing (QE) -- whether refreshed bond buying from the Fed or sovereign debt buying from the European Central Bank (ECB) -- it's important to ask, What can we expect from further heroic attempts to reflate the OECD economies? The 2009 and 2010 QE programs from the Fed, and the 2011 operations from the ECB, were intended as shock treatment to hopefully set economies on a more typical, post-recession, recovery pathway. Here in 2012, QE was supposed to be well behind us. Instead, parts of Southern Europe are in outright depression, the United Kingdom is in double-dip recession, and the US is sweltering through its weakest “recovery” since the Great Depression. It wasn’t supposed to be this way. Recently-released data from all these regions now confirm that previous QE, at best, merely bought time against even more grueling outcomes. Spain's unemployment, for example, has just hit a new post-Franco high of 24.6% , and the forecast for this crucially important EU economy remains negative. Recently revised US figures on GDP show that the post-2009 recovery was even weaker than previously estimated, with the first year post-crisis crisis clocking in at 2.5% vs. the expected 3.3%. Plodding, slow growth in the aftermath of a global financial crisis is a recipe for stagnation. The inability of the US economy to work off its surplus of labor appears to have finally stirred OECD policymakers into action. This is, of course, a great and humbling disappointment to the recoverists , who keep mistaking various economic oscillations around a bottom for the start of a typical post-war, V-shaped recovery. Housing, autos, jobs, Internet IPOs, state tax revenues, and train traffic have all been called upon by optimists to sound the clarion call for a broad economic recovery. Yet the US economy still is only able to produce sector-specific or selected regional strength that never adds up to quite enough to restore national growth. When we look at national GDP, at 1.5% in the most recent quarter, it is not clear the US economy has enough forward speed to statistically distinguish between slow growth and no growth. Large states like California, for example, are already seeing the return of declining state revenues. Meanwhile, national poverty -- one of the best measures of aggregate economic health -- continues to soar. There is no doubt that any new round of QE -- especially a double shot from both the Fed and the ECB -- will have psychological impact. For Europe, QE would once again allay systemic risk. And for the US, QE will surely find its way to the stock market; which is not an insignificant outcome as America increasingly relies on the stock market to produce retirement income. However, the question arises, What series of radical measures policy makers will turn to after the next round of QE wears off? Before we answer that question, let’s review the poor economic conditions leading to the next (and final) round of QE. Housing House prices in the US have done an excellent job of adjusting downward over the past 5 years to reflect the stagnation in US wages, the overhang of private debt, structural unemployment, and the rising cost of energy. But there has been a recent media celebration of sorts over this story, as it now appears that housing is bottoming. To be sure, certain housing markets like Miami and Las Vegas continue to recover from completely bombed-out levels. Additionally, construction of new homes, especially multi-family homes, is off the bottom. For now. The problem is that housing is a result, not a cause, of economic expansion. And unless housing is to work in tandem with wage and job growth, housing alone cannot power the US economy. Did the US not already learn that lesson already over the past decade? Let’s take a look at fifteen years of home prices, from the US Census Bureau : The unsustainable peak in 2006, when single-family homes reached a median sales price of $222,000, marked a near-doubling of price over the ten-year period from 1995. But as we now understand, not only were wages (in real terms) not rising during this period, but a new bull market in commodities was getting underway, robbing Americans of discretionary income. The result is that house prices were able to keep up with the loss of purchasing power until slightly past mid-decade. Then they collapsed. Worse, the phase transition in rising energy prices kept going (and continues through today), which had an outsized impact because the topography of US housing, largely dependent on roads and highways, is quite exposed to transportation costs. We can think of housing as facing several key constraints that will be sustained for at least another five years: First, there is the tremendous overhang of personal debt in the US. Much of this is still carried within the mortgage market itself. (Additionally, student loan debt has also emerged as an enormous barrier to home buying.) Second, there is the lack of wage growth and the problem of structural unemployment. The surplus of labor prevents the broad, marginal pressure needed to force national house prices upward. Third, the constraint of oil prices will not ease. This means that urban real estate may do well on a relative basis, but the majority of US homes will continue to adjust downward to reflect the permanent repricing of oil (and hence gasoline). Finally, the notion that real estate prices have bottomed with mortgage rates near all-time lows seems a very risky call. Is it more prudent to presume that a new advance in national real estate prices will be carried on the back of rates going even lower -- or higher? Which is it? The view that real estate has bottomed appears to assert that no matter where interest rates go from here, real estate is going higher. That is the mark of hope and belief; not analysis. It seems very unlikely only five years into such enormous, structural shifts in the US economy that the repricing process is over in housing. At minimum, I expect the median price of single-family existing homes to revert to the 2000 level of $147,000, with the strong possibility of an overshoot to the $125,000 level. This process will take several more years. Jobs As early as 2009, many of us understood that this was not a normal economic decline and therefore would not be followed by a normal economic recovery. Here's the lead paragraph to a New York Times piece, covering the latest GDP data: U.S. Growth Falls to 1.5%; a Recovery Seems Mired The United States economy has lost the momentum it appeared to be building earlier this year, as the latest government statistics showed that it expanded by a mere 1.5 percent annual rate in the second quarter. This is precisely the kind of news flow that the business press can expect to report for years to come. Sure, the stock market may advance from points of low valuation. Certain regions of the country, especially those tied to exports, may thrive for a while. But nationally, a long secular contraction is now in place that will combine stagnant wages, contraction in government payrolls, flat tax revenues, and the shift to a cultural preference for much lower consumption . In addition to the fact that young people will not buy cars, will not buy houses, and in general will not secure high-paying jobs (if they can secure jobs at all), the nature of work in the US has entered a degrading period. Low wages, part-time work, poor benefits, and higher health-care costs all serve to further squeeze consumption. Let’s take a look at the structural shift from full-time to part-time work in the US. At an inflection point in a normal recovery, US workers would quickly be hired back to full-time jobs. But a full-time job with benefits is a cost that US corporations no longer wish to bear. This is partly why US corporate earnings and their accumulation of cash has been so robust. Sited in the US but acquiring labor abroad, US corporations are having their finest hour as they sell products to non-OECD markets that benefit from wave after wave of stimulus from the OECD, while the economy and labor force in their home countries languish. Here in the US, we have effectively stripped out an entire tranche of the full-time US workforce, with no plausible scenario currently in place for adding it back. America used to have nearly five full-time jobs for every part-time job. Now we have four. Meanwhile, Washington, characterized by professional normalcy bias, has finally started figure this out. More importantly, this is why the economy will veer continually towards recession absent some form of stimulus in the years to come. While the jobs market is surely the primary reason why QE 3 will be attempted, it’s also the reason why more radical measures are likely thereafter, as opposed to QE 4. Many of the prognostications for QE’s impact on the labor market, especially from the Fed and Fed-connected economists, simply never came true. That will become even clearer after QE 3 fails. Poverty After leveling off in late 2011 and early 2012, the number of persons taking Food Stamps (Supplemental Nutrition Assistance Program, or SNAP) in the US is starting to push higher again . Given that food prices are set to make their next move higher as well, it’s reasonable to expect SNAP participation to reflect that pressure on household budgets. The annual cost of the program, which rose in the three years 2009-2011 from $50 billion to $64 billion and then to $71 billion, is quickly becoming a significant budget item. For comparison, should SNAP program costs reach $75 billion this current fiscal year, this amount is almost exactly equal to the most recent Department of Transportation Budget , at $74 billion. While SNAP tracks the growth of poverty well, it's not the only measure. And the breadth and scale of US poverty continues to grow. This autumn, the Census Bureau is expected to release its latest figures on the growth in US poverty: Poverty rate nears worst mark since 1965 The ranks of America's poor are on track to climb to levels unseen in nearly half a century, erasing gains from the war on poverty in the 1960s amid a weak economy and a fraying government safety net. Census figures for 2011 will be released this fall in the critical weeks ahead of the November elections. The Associated Press surveyed more than a dozen economists, think tanks and academics, both nonpartisan and those with known liberal or conservative leanings, and found a broad consensus: The official poverty rate will rise from 15.1 percent in 2010, climbing as high as 15.7 percent. Several predicted a more modest gain, but even a 0.1 percentage point increase would put poverty at the highest level since 1965. Poverty is spreading at record levels across many groups, from underemployed workers and suburban families to the poorest poor. More discouraged workers are giving up on the job market, leaving them vulnerable as unemployment aid begins to run out. The Diminishing Marginal Utility of Quantitative Easing QE is a poor transmission mechanism for creating jobs. While there has certainly been a recovery of sorts in US jobs since the deep lows of 2009, in which total employment has risen from 139 million to 142 million jobs, this has been insufficient to keep up with population growth. Accordingly, if the US job market cannot aggregate the number of new workers into its system, then it cannot work off the structural labor surplus. Indeed, the rather narrow targets that QE aims for are exactly the reason why the US and the OECD are fated to try more unconventional solutions once the next round of QE fails. In Part II: WhatRadical Measures to Expect in the Post-QE Era , we forecast that policies to revive stagnant Western economies (and the US, in particular) will swing sharply away from central banks towards elective bodies. Such programs will involve various forms of debt jubilee and massive infrastructure programs. More unconventional is that some of these programs may be initiated using new forms of government scrip, equity participation, or other methods that allow the government to “spend” without incurring new debt. Contrary to the deflationist view, which holds that governments will eventually turn to austerity, the examples of such failed efforts in the United Kingdom (which has entered a double dip recession) suggest that austerity will be nothing more than a brief, economic dalliance of Western policy makers -- recall that the Works Progress Administration (WPA) of the 1930’s was considered radical in its time. We should expect no less this time around, as governments decide to pursue WPA 2.0. Click here to access Part II of this report (free executive summary; paid enrollment required for full access) . Average: 4.411765 Your rating: None Average: 4.4 ( 17 votes) Tweet Login or register to post comments 9887 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: The Weaponization of Economic Theory No Jobs: The Result of Wizard of Oz Economics Poverty In America: A Special Report Guest Post: Middle Class? Here's What's Destroying Your Future You've Seen It Before, And Here It Is Again: "The Chart That Tears Apart The Stimulus Package"
The Asian-American Arms Race In Charts Submitted by Tyler Durden on 07/18/2012 18:43 -0400 China "Asia is a study in contrasts. It is home to economic freedom and political liberty; it is also home to political instability and tyranny. Some of Asia’s borders are unsettled and volatile. And military budgets and capabilities are expanding, sometimes faster than economic growth. The rise of China as a great power presents both sides of this equation. It is being watched carefully by all the countries of the region. It is the U.S. that is recognized as the catalyst in ensuring a prosperous peace over conflict. America is a Pacific power. That much is a matter of geography and history. But the facts – and America’s principles and interests – demand more than resignation to geography. They call for continued American leadership, commitment, and the predominant comprehensive power that has enabled Asia’s very welcomed, opportunity-laden rise." Thus prefaces the Heritage Foundation its Asian 'Book of Charts', which summarizes most of the key economic, financial, trade, geopolitical, most importantly militaristic tensions both in Asia and, by dint of being the global marginal economic force, the world itself. And while we will present the complete deck shortly, of particular interest we find the summary in 7 easy charts how Asia is slowly but surely catching up on that accepted by conventional wisdom GloboCop - the United States. We present it in its entirety below. Average: 3.7 Your rating: None Average: 3.7 ( 10 votes) Tweet Login or register to post comments 5400 reads Printer-friendly version Send to friend Similar Articles You Might Enjoy: Third US Aircraft Carrier Returning Unexpectedly To Mideast Ahead Of Schedule Introduction To The Road Through 2012: Revolution or World War III Iran Outlines Key Steps And Actors In A Potential Straits Of Hormuz Closure Guest Post: Pakistan And India To Go To War Over Water? Complete Chinese War Preparedness And Military Update
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